NETWORK SOLUTIONS INC /DE/, 424B1, 1997-09-26

NETWORK SOLUTIONS INC /DE/
424B1, 1997-09-26
PREPACKAGED SOFTWARE

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<PAGE> 1

PROSPECTUS
3,300,000 SHARES

[NETWORK SOLUTIONS LOGO]
CLASS A COMMON STOCK
Of the 3,300,000 shares of Class A Common Stock offered hereby, 2,800,000
are being sold by Network Solutions, Inc. ("NSI" or the "Company") and 500,000
shares are being sold by the Company's parent, Science Applications
International Corporation, a Delaware corporation ("SAIC" or the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholder.
The Company has two classes of authorized Common Stock, Class A Common Stock and
Class B Common Stock. Holders of Class A Common Stock generally have identical
rights to holders of Class B Common Stock, except that holders of Class A Common
Stock are entitled to one vote per share while holders of Class B Common Stock
are entitled to ten votes per share on all matters submitted to a vote of
stockholders. See "Relationship with SAIC and Certain Transactions" and
"Description of Capital Stock."

The Company is a wholly-owned subsidiary of SAIC. Upon completion of this
offering, SAIC will own 100% of the Company's outstanding Class B Common Stock,
which will represent approximately 78.4% of the outstanding Common Stock of the
Company (approximately 75.9% if the Underwriters' over-allotment option is
exercised in full) and approximately 97.3% of the combined voting power of the
Company's outstanding Common Stock (approximately 96.9% if the Underwriters'
over-allotment option is exercised in full), and will continue to control the
Company. See "Relationship with SAIC and Certain Transactions"and "Principal and
Selling Stockholders." The Underwriters have reserved up to 5% of the shares of
the Class A Common Stock offered hereby for sale at the initial public offering
price to certain employees, officers and directors of SAIC and the Company and
other persons designated by the Company. See "Underwriting."

Prior to this offering, there has been no public market for the Class A
Common Stock of the Company. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Class A Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol NSOL.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $18.00 $1.26 $16.74 $16.74
- -----------------------------------------------------------------------------------------------------------
Total(3).................. $59,400,000 $4,158,000 $46,872,000 $8,370,000
===========================================================================================================
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company and the Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to 420,000 and 75,000 additional shares,
respectively, of Class A Common Stock solely to cover over-allotments, if
any. If all such shares are purchased, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to the Selling
Stockholder will be $68,310,000, $4,781,700, $53,902,800 and $9,625,500
respectively. See "Underwriting."

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

The shares of Class A Common Stock are offered by the several Underwriters
subject to prior sale, receipt and acceptance by them and subject to the right
of the Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about October 1, 1997, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.

HAMBRECHT & QUIST
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
September 26, 1997
<PAGE> 2

[INSIDE FRONT COVER OF PROSPECTUS]

Bar graph depicting domain name registration growth from September 1995 to June
1997 appears here

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

The Company's name and logo are service marks of the Company. This
Prospectus also includes trademarks of companies other than the Company.

2
<PAGE> 3

[GATE FOLD]

Depiction of Registration Process

<TABLE>
<S> <C>
THE REGISTRATION PROCESS

DEPICTION OF DOMAIN NAME REQUEST
COMPUTER SCREEN RECEIVED VIA INTERNET

NETWORK SOLUTIONS LOGO NSI ASSIGNS DOMAIN
NAME

DEPICTION OF ROOT SERVERS POPULATED
ROOT SERVERS DAILY BY NSI

.GOV .NET .COM .ORG .NET DOMAIN NAME GLOBALLY
ACCESSIBLE
</TABLE>
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Unless the context requires otherwise, all references to the
"Company," "Network Solutions" and "NSI" shall refer to Network Solutions, Inc.,
a Delaware corporation, and its predecessor, Network Solutions Incorporated, a
Washington, D.C. corporation. The Class A Common Stock offered hereby involves a
high degree of risk. See "Risk Factors." References in this Prospectus to the
"Common Stock" shall include both the Company's Class A Common Stock, par value
$0.001 per share (the "Class A Common Stock"), and the Company's Class B Common
Stock, par value $0.001 per share (the "Class B Common Stock"). As used herein,
net registrations are defined as the gross number of domain name registrations
less management's estimates of uncollectible registrations and of non-renewals.
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Description of Capital
Stock," "Underwriting" and Notes to Financial Statements.

THE COMPANY

Network Solutions is the leading Internet domain name registration service
provider worldwide. The Company currently acts as the exclusive registrar for
second level domain names within the .com, .org, .net, .edu and .gov top-level
domains ("TLDs"). By registering Internet domain names, the Company enables
businesses, other organizations and individuals to establish a unique Internet
presence from which to communicate and conduct commerce. Net registrations
within the TLDs maintained by the Company increased by 206% from approximately
340,000 domain names registered at June 30, 1996 to approximately 1,040,000
domain names registered at June 30, 1997. The Company believes that commercial
enterprises and individual Internet users worldwide are increasingly recognizing
the .com TLD as a desirable address for commercial presence on the Internet. Net
registrations in the .com TLD increased from approximately 304,000 at June 30,
1996 to approximately 908,000 at June 30, 1997, representing 87% of the
Company's total net registrations at June 30, 1997. With over 10 million
businesses and over 750,000 active trademarks and service marks in the United
States alone, the Company believes that the potential for continued growth of
domain name registrations by commercial entities and services related to those
registrations is substantial. Net revenue from Internet domain name registration
subscriptions accounted for 81.0% of the Company's net revenue for the six
months ended June 30, 1997.

The Company also provides Intranet consulting and network design and
implementation services to large companies that desire to establish or enhance
their Internet presence or "re-engineer" legacy network infrastructures to
accommodate the integration of both Internet connectivity and Intranet network
technology into their information technology base. The Company's Intranet
services presently include: (i) Intranet development and re-engineering; (ii)
network and systems security; and (iii) Intranet-enabled business solutions.
According to Zona Research, Inc., the market for Intranet services in the year
1999 will exceed $14 billion, up from $3 billion in 1996. There can be no
assurance that such market forecast will be achieved. Net revenue from Intranet
services accounted for 19.0% of the Company's net revenue for the six months
ended June 30, 1997.

The Company currently acts as the registrar for second level domain names
within the .com, .org, .net, .edu and .gov TLDs pursuant to a cooperative
agreement (the "Cooperative Agreement") with the National Science Foundation
(the "NSF"). Prior to September 14, 1995, the Cooperative Agreement was a cost
reimbursement plus fixed-fee contract and the Company was paid directly by the
NSF for providing registration services. Effective September 14, 1995, the NSF
and the Company amended the Cooperative Agreement to authorize the Company to
charge customers a subscription fee of $50 per year for each second level domain
name registered. The Company's registration services customers in the .com, .org
and .net TLDs are invoiced for a two-year subscription fee of $100 for initial
registrations and $50 per year for renewals of initial registrations. Pursuant
to the Cooperative Agreement, the Company presently is required to set aside 30%
of the subscription fees collected for the enhancement of the intellectual
infrastructure of the Internet. These funds are not recognized as revenue by the
Company and will be disbursed in a manner approved by the NSF. The Cooperative
Agreement by its terms expires in March 1998, although the NSF may, at its
option, extend the Cooperative Agreement through September 1998. The Cooperative
Agreement is subject to review by the NSF and may be terminated at any time by
the NSF at its discretion or by mutual agreement. The NSF has stated that the
Cooperative Agreement will not be re-awarded to the Company or awarded to any
other entity. See "Risk Factors -- Uncertain Status of the Cooperative
Agreement," "-- Recommendations and

3
<PAGE> 5

Proposals to Increase Competition in Registration Services" and
"Business -- Relationship with the NSF; Recent Developments in the Internet
Community."

The Company believes that it has certain competitive advantages in the
domain name registration business, including: (i) a large established customer
base; (ii) recognition of the .com TLD; (iii) strategic agreements with Internet
access providers; (iv) an established technical infrastructure; (v) experience
in the administration of a domain name dispute policy; and (vi) skilled
technical personnel who are experienced in the domain name registration
business. The Company believes that the technical and procedural requirements to
build and to operate a competitive domain name registry are significant.
Substantial portions of the Company's registration software have been custom-
developed and are proprietary. The Company's in-house registration software
includes an automated registration capability which currently processes in
excess of 90% of all new registration requests without human intervention. In
connection with the Company's domain name registration service, the Company: (i)
cooperates with government and nonprofit organizations that develop and
implement Internet standards and policies; (ii) provides customer service
support, which includes back office capability, a telephone help desk and
electronic support via e-mail and the World Wide Web; and (iii) disseminates
domain name database information to root servers throughout the world.

The Company is working to expand its domain name registration business and
to continue to improve the registration process by: (i) increasing the use of
the .com TLD worldwide; (ii) expanding its relationships with Internet access
providers by offering enhanced registration services to their customers; (iii)
stimulating demand for domain names in targeted customer segments; (iv) working
with major platform providers to embed the registration function into server
software applications; (v) facilitating ease of use of and access to
registration services; and (vi) establishing international alliances and
developing multilingual capability. In addition, the Company intends to develop
a portfolio of Internet-enabling products and services, which may include
directory and distribution services, that allows the Company to build upon its
position in the registration process and makes proper use of the customer data
that the Company collects.

The Company was incorporated in Washington, D.C. in 1979 as Network
Solutions Incorporated and was reincorporated as Network Solutions, Inc. in
Delaware in November 1996. The Company's principal executive offices are located
at 505 Huntmar Park Drive, Herndon, Virginia 20170, and its telephone number is
(703) 742-0400.

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered by the Company...... 2,800,000 shares
Class A Common Stock offered by SAIC............. 500,000 shares
Common Stock to be outstanding after the offering
Class A Common Stock........................... 3,300,000 shares(1)
Class B Common Stock........................... 12,000,000 shares(2)
Total.................................. 15,300,000 shares
Voting Rights.................................... Holders of Class A Common Stock vote
together as a class with, and generally
have identical rights, including as to
dividends, to, those of holders of Class
B Common Stock, except that holders of
Class A Common Stock are entitled to one
vote per share and holders of Class B
Common Stock are entitled to ten votes
per share. See "Description of Capital
Stock -- Common Stock -- Voting Rights."
Use of Proceeds.................................. For payment of a $10,000,000 dividend to
SAIC and for working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol........... NSOL
</TABLE>

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

(1) Excludes 2,556,250 shares of Class A Common Stock reserved for issuance
under the Company's 1996 Stock Incentive Plan, of which 1,669,225 shares
were subject to options outstanding as of September 18, 1997, with a
weighted average exercise price of $13.24 per share. See "Capitalization"
and "Management -- 1996 Stock Incentive Plan" and Notes 10 and 14 of Notes
to Financial Statements.

(2) Upon completion of the offering, SAIC will own 100% of the Class B Common
Stock.

4
<PAGE> 6

SUMMARY FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------- -----------------
1992 1993 1994 1995(1) 1996 1996 1997
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................................. $1,160 $4,369 $5,029 $ 6,486 $18,862 $ 6,829 $18,724
Income (loss) from continuing operations................ 93 (110) 189 (1,434) (1,625) (1,458) 1,256
Net income (loss)....................................... $ 681 $ (386) $ (980) $(2,837) $(1,625) $(1,458) $ 1,256
Unaudited pro forma net income (loss) per share......... $ (0.12) $ (0.11) $ 0.09
Unaudited pro forma shares used in computing net income
(loss) per share(2)................................... 13,487 13,487 13,487
OTHER OPERATING DATA(3):
Net new registrations................................... -- 13 24 141 489 180 429
Less: registrations not renewed......................... -- -- -- 1 39 17 16
Net registrations at period end......................... -- 13 37 177 627 340 1,040
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $25,967 $ 61,739
Working capital(5).................................................................... 6,280 42,052
Total assets(6)....................................................................... 92,250 128,022
Deferred revenue, net(5).............................................................. 45,628 45,628
Capital lease obligations............................................................. 2,348 2,348
Total stockholders' equity............................................................ 2,693 38,465
</TABLE>

SUMMARY QUARTERLY FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue..................................... $1,533 $ 2,333 $ 4,496 $ 5,180 $ 6,853 $ 8,655 $10,069
Income (loss) from continuing operations........ (844) (1,102) (356) (293) 126 516 740
Net income (loss)............................... $ (851) $(1,102) $ (356) $ (293) $ 126 $ 516 $ 740
Unaudited pro forma net income (loss) per
share......................................... $ (0.08) $ (0.03) $ (0.02) $ 0.01 $ 0.04 $ 0.06
Unaudited pro forma shares used in computing net
income (loss) per share(2).................... 13,487 13,487 13,487 13,487 13,487 13,487
OTHER OPERATING DATA(3):
Net new registrations........................... 43 75 105 139 170 197 232
Less: registrations not renewed................. 1 6 11 18 4 6 10
Net registrations as of period end.............. 177 246 340 461 627 818 1,040
</TABLE>

- ------------------------------
(1) The Summary Financial Data for the year ended December 31, 1995 was derived
by combining the Company's Results of Operations for the period January 1,
1995 through March 10, 1995 and the period March 11, 1995 through December
31, 1995 which, respectively, are periods before and after the date of the
SAIC acquisition discussed below. The data for these two periods were
prepared on differing bases of accounting and, accordingly, the
comparability of such data with other periods is limited, primarily as a
result of goodwill amortization, new corporate services agreements and the
repayment of outstanding debt balances. See Note 1 of Notes to Financial
Statements for a discussion of the presentation for each of these periods.
(2) See Note 2 of Notes to Financial Statements for an explanation of the
determination of shares used in computing the unaudited pro forma net income
(loss) per share.
(3) Net new registrations for each period include gross new registrations less
an estimate of registrations that are uncollectible. Net registrations
include net new registrations less management's estimate of registrations
not renewed. Prior to September 14, 1995, net registrations equaled gross
registrations because the Company was reimbursed by the NSF for all
registrations under a cost reimbursement plus fixed-fee contract.
(4) As adjusted to give effect to the $10,000 dividend to be paid to SAIC upon
completion of the offering and to reflect the sale of 2,800,000 shares of
Class A Common Stock offered by the Company hereby at the initial public
offering price of $18.00 per share and the receipt of the estimated net
proceeds therefrom. See "Use of Proceeds," "Dividend Policy" and
"Capitalization."
(5) Includes $31,990 of current deferred revenue at June 30, 1997.
(6) Total assets include $31,056 of restricted assets at June 30, 1997. See
Notes 2 and 3 of Notes to Financial Statements.

5
<PAGE> 7

RELATIONSHIP WITH SAIC AND FINANCIAL PRESENTATION

The Company was acquired by Science Applications International Corporation
("SAIC"), an employee-owned, diversified professional and technical services
company, on March 10, 1995. The financial statements of the Company presented
for periods subsequent to March 10, 1995 are presented on the new basis of
accounting arising from the SAIC acquisition. The Company is currently a wholly-
owned subsidiary of SAIC. Upon completion of the offering, SAIC will own 100% of
the Company's outstanding Class B Common Stock, which will represent
approximately 78.4% of the outstanding Common Stock of the Company
(approximately 75.9% if the Underwriters' over-allotment option is exercised in
full) and approximately 97.3% of the combined voting power of the Company's
outstanding Common Stock (approximately 96.9% if the Underwriters'
over-allotment option is exercised in full). As a result, SAIC will continue to
have the ability to elect all of the directors of the Company and otherwise
exercise control over the business and affairs of the Company. See "Risk
Factors -- Control By SAIC," "-- Potential Conflicts of Interest" and
"Relationship with SAIC and Certain Transactions" and "Principal and Selling
Stockholders."

Upon completion of the offering, SAIC will continue to provide certain
services to the Company in a manner generally consistent with past practices.
Prior to completion of the offering, the Company and SAIC will enter into a
number of intercompany agreements with respect to such services and other
matters, including a tax sharing agreement. See "Risk Factors -- Intercompany
Agreements Not Subject to Arm's Length Negotiations; Reliance on SAIC for
Certain Corporate Services," "-- Control of Tax Matters; Tax and ERISA
Liability" and "Relationship With SAIC and Certain Transactions."

6
<PAGE> 8

RISK FACTORS

An investment in the shares of Class A Common Stock offered hereby involves
a high degree of risk. Prospective investors should consider carefully the
following risk factors, in addition to the other information presented in this
Prospectus, before purchasing the shares of Class A Common Stock offered hereby.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this Prospectus.

Limited Operating History. While the Company has been in business since
1979, it has only been involved in the domain name registration business
pursuant to the Cooperative Agreement since 1993. Further, prior to September
14, 1995, the Company operated its domain name registration business under a
cost reimbursement plus fixed-fee contract with the NSF and the Company was paid
directly by the NSF for providing registration services. Accordingly, the
Company has only a limited operating history under its current
subscription-based pricing model for its domain name registration business upon
which an evaluation of the Company and its prospects can be based. In 1995 and
1996, the Company incurred net losses in part as a result of the Company's
transition to a subscription-based pricing model, where revenue is recognized on
a straight-line basis over the subscription period, combined with the increased
costs to support the increase in its subscriber base, including costs for
product and services development, increased sales and marketing operations,
upgrading systems and infrastructure, developing new distribution channels and
broadening customer support capabilities. The Company incurred a net loss of
approximately $1.6 million for the year ended December 31, 1996 and had an
accumulated deficit of approximately $1.8 million through June 30, 1997. The
Company's prospects must be considered in light of the risks frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, increase
its sales and marketing organization, continue to identify, attract, retain and
motivate qualified persons and continue to upgrade its technologies and
commercialize products and services incorporating such technologies. While the
Company has been involved in network services and consulting since its
inception, due to the rapidly evolving nature of Internet technologies, the
Company's Intranet services business faces similar risks. An Intranet is an
internal network which uses Internet technologies. There can be no assurance
that the Company will be successful in addressing such risks or that the Company
will continue to obtain new registrations at current rates or renew the
registration of a significant portion of its customers. See "-- Absence of Sales
and Marketing Experience; Evolving Distribution Channels" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

As a result of the Company's limited operating history, especially with
regard to its subscription-based registration services business, the Company
does not have significant historical financial data on which to base planned
operating expenses. Accordingly, the Company's expense levels are based in part
on its expectations as to future revenue and to a large extent are fixed. As a
result, quarterly sales and operating results generally depend on the volume of
and ability to fulfill registration requests, which are difficult to forecast.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall of
demand for the Company's services in relation to the Company's expectations
would have an immediate adverse impact on the Company's business, operating
results and financial condition. In addition, the Company expects a significant
increase in its operating expenses as it funds greater levels of product and
services development, increases its sales and marketing operations, upgrades
systems and infrastructure, opens new offices, develops new distribution
channels and broadens its customer support capabilities. To the extent that such
expenses precede or are not subsequently followed by an increase in revenue, the
Company's business, operating results and financial condition will be materially
and adversely affected.

Uncertain Status of the Cooperative Agreement. In 1993, the Company
entered into the Cooperative Agreement with the NSF to act as the registrar for
second level domain names within the .com,

7
<PAGE> 9

.org, .net, .edu and .gov TLDs. With the commercialization of the Internet, the
role, if any, that the NSF will play in the Internet and the legal authority
underlying its role are at present unclear. Withdrawal of or challenges to the
NSF's sponsorship or authorization of the Company's activities could create a
public perception or result in a finding that the Company lacks authority to
continue in its role as registrar or to charge fees for its domain name
registration services. The impact, if any, of any such public perception or
finding is unknown but could materially and adversely affect the Company's
business, financial condition and results of operations. Further, the
Cooperative Agreement by its terms expires in March 1998, although the NSF may,
at its option, extend the Cooperative Agreement through September 1998. The
terms of the Cooperative Agreement are subject to review and adjustment by the
NSF on an annual basis. In addition, the Cooperative Agreement may be terminated
by the NSF at any time at its discretion or by mutual agreement. When the
Cooperative Agreement is terminated or if there is a change in the terms of the
Cooperative Agreement or the Company's status as the exclusive registrar for
domain names in the .com TLD, the Company's business, financial condition and
results of operations could be materially and adversely affected. Although the
impact of the termination of the Cooperative Agreement is uncertain, such
termination could have a material adverse effect on the Company's revenue,
particularly as the Company's revenue growth in recent periods has been
primarily attributable to increases in registrations in the .com TLD. The NSF
has stated that the Cooperative Agreement will not be re-awarded to the Company
or awarded to any other entity. However, there can be no assurance that the NSF
will not award the Cooperative Agreement to another entity and, if the
Cooperative Agreement is awarded to another entity, the Company's business,
financial condition and results of operations would be materially and adversely
affected. See "-- Uncertainty of Internet Governance and Regulation" and
"Business -- Relationship with the NSF; Recent Developments in the Internet
Community."

Competition in Domain Name Registration Business. The Company currently is
the exclusive registrar for second level domain names in the .com, .org, .net,
.edu and .gov TLDs. Multiple registries do not currently register names in the
same TLD, but this may change in the future. The Company currently faces
competition in the domain name registration business from registries for country
codes, third level domain name providers such as Internet access providers and
registries of TLDs other than those TLDs currently being registered by the
Company. A number of entities have already begun to offer competing registration
services using other TLDs. Future competition in the Company's domain name
registration business could come from many different companies, including, but
not limited to, major telecommunications firms, cable companies and Internet
access providers. Such entities have core capabilities to deliver registration
services, such as help desks, billing services and network management, along
with strong name recognition and Internet industry experience. Other companies
with some or all of these capabilities may also enter the registration business.
Also emerging is a growing contingent of domain name resellers. The Company's
position as the leading registrar of domain names could be materially and
adversely affected by the emergence of any of the foregoing competitors and
potential competitors, many of which have longer operating histories and
significantly greater name recognition and greater financial, technical,
marketing, distribution and other resources than the Company. In addition, the
Company's revenue and subscription fees could be reduced due to increasing
competition. For example, other entities may bundle domain name registrations
with other products or services, effectively providing such registration
services for free. If operational and administrative arrangements or technology
permitting multiple competitors to register domain names in the same or other
TLDs are developed and competition occurs in the domain name registration
business, the Company's business, financial condition and results of operations
could be materially and adversely affected. See "Business -- Competition."

Recommendations and Proposals to Increase Competition in Registration
Services. The Cooperative Agreement does not prohibit the establishment of
competing registries. No single organization or entity (including the NSF)
currently has formal authority over all aspects of the Internet and the Internet
currently operates under a system of mutual cooperation. As a result, it is
unclear which organization or entity, if any, will govern the authorization for
the registration of domain names. Various governmental, technical and Internet
groups are currently discussing how the award and

8
<PAGE> 10

administration of future contracts for registration services in the .com TLD,
other existing TLDs and new TLDs may take place and are considering whether and
how to enable other parties to enter the domain name registration business. The
Company is also an active participant in this process. A consensus regarding
such issues could be reached and implemented in the near future and prior to the
expiration of the Cooperative Agreement. For example, some members of the
Internet community have discussed various concepts such as adding new TLDs,
which could result in significant competition for domain name registrations,
including competition on the price charged by the Company for domain name
registrations. In February 1997, an international ad hoc committee (the "IAHC"),
the members of which have been selected by certain entities involved in the
Internet and intellectual property fields, issued its recommendation designed to
increase competition in domain name registration in which it proposed the
creation of additional registries, additional TLDs and the possible sharing of
new and existing TLDs. In April 1997, the IAHC issued a Memorandum of
Understanding ("MOU") seeking support for its recommendations. This MOU has been
signed by a number of organizations in the Internet community. In April 1997,
the Company issued its own recommendations to increase competition in domain
name registration. The Company's recommendations focus on creating additional
TLDs as well as on the future administration and technical operation of the
Internet. Other groups or entities may also make other proposals concerning
these and other issues. Implementation of competing registries, additional TLDs,
the sharing of the Company's TLDs or other recommendations or proposals of these
groups could have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Uncertainty of Internet Governance
and Regulation" and "Business -- Relationship with the NSF; Recent Developments
in the Internet Community."

Uncertainty of Internet Governance and Regulation. The Internet
historically has been loosely administered by a number of government agencies
which were involved in the creation of its infrastructure, initially the
Department of Defense's Advanced Research Projects Agency ("ARPA") and, more
recently, the NSF. No single organization or entity (including the NSF)
currently has formal authority over all aspects of the Internet and it currently
operates under a system of mutual cooperation. Since the original role of the
Internet was to link computers at governmental and academic institutions to
facilitate communication and research, the Internet was historically
administered by entities which were involved in sponsoring research rather than
by any of the traditional federal or state regulatory agencies. With the
commercialization and internationalization of the Internet, the role of these
entities in Internet administration has become less clear and private parties
have begun to assume a larger role in the enhancement and maintenance of the
Internet's infrastructure. This lack of regulation and the legal uncertainties
arising from it poses risks to the Company and to the commercial Internet
industry in general. As described above, it is unclear which organization or
entity, if any, will govern the authorization for the registration of domain
names in the future. The lack of an appropriate organization or entity to govern
the authorization for the registration of domain names could have a material
adverse effect on the Company's business, financial condition and results of
operations.

The effective operation of the Internet is dependent on the continued
mutual cooperation and consensus among an increasing number of entities, many of
which have widely divergent interests. For example, the IP addresses allocated
by Internet service providers ("ISPs") to their customers are originally
allocated by the Internet Assigned Numbers Authority (the "IANA"). Thus, the
effective operation of the Internet is dependent on such continued allocation of
IP addresses by IANA. Continuing to achieve consensus may become difficult or
impossible and may become extremely time-consuming and costly. Achieving
consensus may be made more difficult because of the lack of leadership by any
one entity. This lack of regulation also creates great uncertainty as to the
legality of any action, making business planning and operations difficult.
Conversely, the lack of regulation could theoretically result in individuals and
entities taking harmful or disruptive actions with respect to the Internet with
impunity. There is a risk that a failure to achieve consensus among the various
groups which are now informally administering the Internet could result in the
disruption of Internet operations, the inability of any user to communicate with
another user or otherwise utilize the

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<PAGE> 11

Internet or the delay of infrastructure improvements necessary to the
maintenance and expansion of the Internet.

Any disruption to the administration, effective operation or maintenance
and expansion of the Internet, in general, or the domain name registration
system in particular, would have a material adverse effect on the Company's
business, financial condition and results of operation. See "-- Uncertain Status
of the Cooperative Agreement," "-- Recommendations and Proposals to Increase
Competition in Registration Services" and "Business -- Relationship with the
NSF; Recent Developments in the Internet Community."

The current lack of any centralized Internet management could also cause
the U.S. federal or other governments to intervene with uncertain results. The
U.S. government has formed an interagency task force ("ITF") consisting of
various federal agencies to study the issues surrounding domain name
registration and governance of the Internet. The ITF is expected to solicit
broad public input to these and other issues. This process is expected to be
completed in early 1998. On July 1, 1997, the National Telecommunications
Information Administration of the Department of Commerce ("the NTIA") published
a request for comments on the registration and administration of Internet domain
names. This request appeared in the form of a notice of inquiry (the "NOI") in
the U.S. Federal Register with August 18, 1997 as the closing date for receipt
of comments. The NOI requested specific input in five broad areas: general
principles, general/organizational framework issues, creation of new TLDs,
policy issues for new registrars and trademark dispute issues. The Company has
submitted a response to the NOI request which includes a recommendation, among
others, that an international public advisory group with U.S. government
sponsorship be established to manage the Internet, including the domain name
system, and that the U.S. government sponsorship of this international public
advisory group continue through a transition period until a suitable
international sponsor is selected. The NTIA is expected to issue a report on the
results of this NOI and to recommend a future course of action prior to June
1998 for the role of the U.S. government in Internet domain name registration.
The ITF or NTIA processes or any other government-sponsored process could result
in policies which may not be favorable to the Company or consistent with the
Company's current or future plans. The outcome of these activities, therefore,
could have a material adverse effect on the Company's business, financial
condition and results of operations.

In the United States, apart from its obligations under the Cooperative
Agreement, the Company is not currently subject to direct regulation other than
federal and state regulation applicable to businesses generally. However,
changes in the regulatory environment could result in the Company being subject
to direct regulation by the Federal Communications Commission (the "FCC") or
other U.S. regulatory agencies. For example, the Company is aware of certain
industry requests to the FCC to review the impact of Internet usage on the U.S.
telecommunications service providers, in particular, the generally lower cost
structure for data transmission versus voice. In addition, as Internet usage
becomes more widespread internationally, there is an increased likelihood of
international regulation. The Company cannot predict whether or to what extent
any such new regulation will occur; however, such regulation could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Additionally, the applicability to the Company of existing laws governing
issues such as intellectual property ownership is uncertain. Courts have
indicated that, under certain circumstances, ISPs could be held responsible for
the failure to prevent the distribution of material that infringes on others'
copyrights and other intellectual property. The future interpretation by the
courts of the obligation of domain name registration providers to prevent
trademark infringement and other legal issues is uncertain. See "-- Litigation;
Antitrust Investigation" and "Business -- Litigation; Antitrust Investigation."

Costs incurred or decisions rendered as a result of government actions,
including enactment of new laws or adoption of new regulations, investigations
or lawsuits relating to any of the foregoing, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Uncertainty of Internet Governance and Regulation."

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<PAGE> 12

Reliance on Third Parties. Reliable communications over the Internet are
dependent upon Internet root servers, which serve as the equivalent of master
"white pages" of the Internet. Currently, there are 13 root servers, ten of
which are located in the United States, two of which are located in Europe and
one of which is located in Asia. Nine of the root servers currently are
populated with the domain names registered by the Company, while these nine and
the other four also contain information with respect to other TLDs, including
country TLDs. When communication with a particular host within a domain name is
required and the IP address of that host is not known locally, the root servers
make that information available or "point" to a direct or indirect source of the
information. Multiple root servers are required for purposes of load balancing
and redundancy.

The location and control of these root servers has been determined by
consensus of various members of the Internet community. The Company controls
only one of these root servers and currently temporarily administers another
root server. The other eleven root servers are maintained and controlled by
independent operators on a volunteer basis. These volunteer operators may at any
time, for any reason, fail to properly maintain such servers or abandon such
servers. The occurrence of any such events would have a material adverse effect
on the Company's business, financial condition and results of operations.

Further, as no single organization or entity currently has formal authority
over all aspects of the Internet, no organization or entity (including the
Company) has the legal authority to direct where the root servers are to be
pointed. However, the operators of the root servers have historically taken
guidance from the IANA. It is possible that IANA could direct the root servers
not to accept information updates from the Company or that the operators of the
root servers could choose to no longer carry the Company's information. In the
event that the root servers were changed to exclude the information maintained
by the Company, all new domain names registered by the Company since the last
update of the data in the TLDs for which the Company acts as the registrar would
no longer be accessible by other users of the Internet. If some, but not all, of
the root servers were changed to exclude the Company's data, the multiple root
servers would contain inconsistent information. The failure by any or all of the
root servers to include or provide accessibility to the Company's data would
materially and adversely affect the Internet and the Company's business,
financial condition and results of operations.

The Company's success and ability to compete are also dependent upon the
relationships between the Company and ISPs worldwide. Thus, if ISPs were to
elect not to route Internet communications to or from domain names registered by
the Company or if enough ISPs were to elect to provide routing to a set of
accepted root servers which did not point to the Company's TLD servers, the
Company's business, financial condition and results of operations would be
materially and adversely affected.

Litigation; Antitrust Investigation. As of July 31, 1997, the Company had
received approximately 2,700 written objections to the registration and use of
certain domain names. Of these, approximately 1,400 were disputes in which the
Company's domain name dispute policy was involved. As of July 31, 1997, the
Company had been named as a defendant in 36 lawsuits. As of such date, the
Company had been dismissed as a party from 25 of the 36 lawsuits and no damages
have been awarded against the Company to any plaintiff. The lawsuits have
generally involved domain name disputes between trademark owners and domain name
holders. The Company's domain name dispute policy seeks to take a neutral
position regarding these competing claims and is designed to address claims that
a domain name registered by the Company infringes a third party's federal
trademark. The Company is drawn into such disputes, in part, as a result of
claims by trademark owners that the Company is legally required, upon request by
a trademark owner, to terminate the right the Company granted to an alleged
trademark infringer to register the domain name in question. Further, trademark
owners have also alleged that the Company should be required to monitor future
domain name registrations and reject registrations of domain names which are
identical or similar to their federally registered trademark. The holders of the
domain name registrations in dispute have, in turn, questioned the Company's
right, absent a court order, to take any action which suspends their
registration or use of the domain names in question. Such litigation has
resulted in, and any future litigation can be expected

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<PAGE> 13

to result in, substantial legal and other expenses to the Company and a
diversion of the efforts of the Company's personnel.

On June 27, 1997, SAIC received a Civil Investigative Demand ("CID") from
the U.S. Department of Justice ("DOJ") issued in connection with an
investigation to determine whether there is, has been, or may be a violation of
antitrust laws under the Sherman Act relating to Internet registration products
and services. The CID seeks documents and information from SAIC and the Company
relating to their Internet registration business. Neither SAIC nor the Company
is aware of the scope or nature of the investigation. The Company cannot
reasonably estimate the potential impact of the investigation nor can it predict
whether a civil action will ultimately be filed by the DOJ or by private
litigants as a result of the DOJ investigation or, if filed, what such action
would entail. The Company is unable to predict the form of relief that might be
sought in such an action or that might be awarded by a court or imposed as a
result of any settlement between the Company and the DOJ or private litigants.
Any such relief could have a material adverse effect on the Company's business,
financial condition and results of operations.

On March 20, 1997, PG Media, Inc., a New York-based corporation ("PG
Media"), filed a lawsuit against the Company in the United States District
Court, Southern District of New York alleging that the Company had restricted
access to the Internet by not adding TLDs in violation of the Sherman Act. In
its complaint, PG Media has, in addition to requesting damages, asked that the
Company be ordered to amend the root zone configuration file so that the file
includes reference to PG Media's TLDs and nameservers. The Company has answered
the complaint, but no motions are pending. In addition, the Company recently
received written direction from the NSF not to take any action to create
additional TLDs or to add any new TLDs to the Internet root servers until
further guidance is provided by the NSF. The Company believes that it has
meritorious defenses and intends to vigorously defend itself against the claims
made by PG Media. While the Company cannot reasonably estimate the potential
impact of such claims, a successful claim under the plaintiff's theory could
have a material adverse effect on the Company's business, financial condition
and results of operations.

There can be no assurance that the Company will not be involved in
additional litigation, investigations or other proceedings in the future,
including proceedings challenging the Company's authority to continue in its
role as a registrar or to charge fees for its domain name registration services.
Any such proceedings, with or without merit, could be costly and time-consuming
to defend and could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Litigation;
Antitrust Investigation."

System Interruption and Security Risks. The Company's operations are
dependent upon its ability to maintain its computer and telecommunications
equipment in effective working order and to reasonably protect its systems
against interruption from fire, natural disaster, sabotage, power loss,
telecommunication failure, human error or similar events. The vast majority of
the Company's computer and telecommunications equipment is located in a single
facility. Although the Company is in the process of establishing back-up
facilities at another site, this measure, when implemented, will not eliminate
the significant risk to the Company's operations from a natural disaster or
system failure at its principal site. Despite the implementation of security
measures and standard operating procedures, the Company's infrastructure may
also be vulnerable to computer viruses, hackers, human error or similar
disruptive problems caused by its employees, customers or other Internet users.
Computer break-ins and other disruptions may jeopardize the security of
information stored in and transmitted through the computer systems of the
Company and may deter potential customers from utilizing the Company's services.
In addition, growth of the Company's customer base may put strain on the
capacity of its computers and telecommunications systems and the Company's
inability to sufficiently maintain or upgrade its systems could lead to
degradation in performance or system failure. Any damage, failure or delay that
causes significant interruptions in the Company's systems would have a material
adverse effect on the Company's business, financial condition and results of
operations.

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<PAGE> 14

On July 17, 1997, during a routine update of the root server domain name
files, the Company inadvertently released corrupted database files for the .com
and .net TLDs, causing disruption throughout the Internet. The original problem,
which was caused by a database error, was compounded when the normal quality
control mechanisms used to validate the .com and .net TLD files were incorrectly
overridden by Company personnel and the corrupted files were released. As a
result, certain Internet users were unable to access certain websites. The
database error was subsequently fixed and the corrected files were regenerated
and re-released by the Company within four hours, although the length of time
during which certain Internet users experienced disruption in accessing the
Internet varied.

The Company has taken several steps to avoid any future occurrences of this
or similar problems, including, but not limited to, adding software code to make
it more difficult to transmit a problematic file and additional quality checks
by a senior level person prior to each file transmission. There can be no
assurance, however, that the Company's standard operating procedure or the
additional measures recently implemented by the Company will prevent or mitigate
a similar occurrence in the future.

Separately, in July 1997, an entity which offers competing registration
services using other TLDs exploited a security vulnerability in a third-party
Internet software to temporarily redirect traffic intended for the Company's
website. The Company is working with CERT (Computer Emergency Response Team)
from Carnegie Mellon University to address this problem.

If any of these or similar problems should recur or occur in the future, it
could result in, among other things, damage to the Company's reputation and
credibility, increased intervention by government regulators or reduced customer
confidence, which could in turn materially and adversely affect the Company's
business, financial condition and results of operations.

Competition in Intranet Services and Internet-Enabling
Businesses. Companies with Internet expertise are current or potential
competitors to the Company's Intranet services business. Such companies include
systems integrators and consulting firms, such as Andersen Consulting, IBM
Global Services and International Network Services. The Company also competes
with certain companies that have developed products that automate the management
of Internet Protocol ("IP") addresses and name maps throughout enterprise-wide
Intranets and with companies with internally-developed systems integration
efforts. An IP address allows a router, a computer which connects networks
together, to determine the network to which the router should send the data it
receives. A number of these competitors and potential competitors have longer
operating histories, greater name recognition and significantly greater
financial, technical, marketing, distribution and other resources than the
Company. There can be no assurance that the Company will be able to successfully
compete in the Intranet services area. Failure by the Company to compete
successfully in the Intranet services area could have a material adverse effect
on the Company's business, financial condition and results of operations.

In developing and distributing future products and services for the
Internet-enabling services markets, the Company faces intense competition and
expects to have multiple competitors for each of the products or services, if
any, which it develops or sells. Many of the Company's potential competitors
have longer operating histories, greater name recognition and significantly
greater financial, technical, marketing, distribution and other resources than
the Company. Furthermore, the industry in which the Company intends to compete
is characterized by rapid changes and frequent product and service
introductions. To the extent a competitor introduces a competitive product or
service prior to the introduction of the same or similar product or service by
the Company, market acceptance of the competitor's product or service may
adversely affect the Company's competitive position. See
"Business -- Competition."

Uncollectible Receivables; Modifications to Billing Practices. The Company
was reimbursed by the NSF for providing domain name registration services prior
to September 14, 1995, at which time the Company began charging its customers
fees for new domain name registrations pursuant to an amendment to the
Cooperative Agreement. Currently, the Company invoices customers and permits

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<PAGE> 15

them to pay the subscription fee after the domain name is registered. The
Company believes it has experienced a high level of uncollectible receivables
due to, among other factors, the large number of individuals and corporations
that have registered multiple domain names with the apparent intention of
reselling such names at a profit. The Company's experience has been that such
resellers have a greater tendency than other customers to default on their
subscription fees. Management has established a provision for uncollectible
accounts which it believes to be adequate to cover anticipated uncollectible
receivables; however, actual results could differ from management's estimate and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 3 of Notes to
Financial Statements.

The Company continually reviews its billing practices for modification to
respond to market conditions and to implement operational improvements. Any such
modification could have unanticipated consequences which could result in a
material adverse effect on the Company's business, financial condition and
results of operations.

Limited Service Offerings to Date; Reliance on Domain Name Registration
Services and Intranet Services for Substantially All Revenue. The Company's
domain name registration services and Intranet services businesses have in the
past generated substantially all of the Company's revenue from continuing
operations and are expected to continue to account for substantially all of the
Company's revenue from continuing operations in the near term. The Company's
future success will be highly dependent upon the continued increase in domain
name registrations with the Company, renewal rates of its customers, the ability
of the Company to maintain its current position both as a registrar of domain
names and as the leading registrar of domain names within the .com TLD and the
successful development, introduction and market acceptance of new services that
address the demands of Internet users. Although the Company has experienced
revenue growth in recent periods, such growth may not be sustainable and may not
be indicative of future operating results. There can be no assurance that the
Company will be able to successfully retain its current position in providing
domain name registration services or develop or market additional services.
Failure to do so would materially and adversely affect the Company's business,
financial condition and results of operations.

The Company's future success will also be dependent on its ability to
maintain and expand its Intranet services business. NationsBanc Services, Inc.
("NationsBanc"), the Company's largest Intranet services customer, accounted for
41.3% of the Company's Intranet services net revenue and 7.8% of the Company's
total net revenue from continuing operations for the six months ended June 30,
1997. NationsBanc originally contracted with the Company in 1993 to provide
ongoing analysis, design, implementation and support engineering for its
enterprise network. The Company currently provides network design and
engineering services as well as a variety of project specific services for
NationsBanc. The Company's current contract with NationsBanc is a three-year
contract which commenced January 1, 1997 and is a requirements contract under
which the Company's services are ordered by task orders issued by NationsBanc.
The NationsBanc contract may be terminated by NationsBanc at any time upon
30-days' prior written notice to the Company. During the first quarter of 1997,
task orders for a number of services the Company had historically performed for
NationsBanc were not renewed. The Company believes that this reflects
NationsBanc's focus on increasing its internal information technology staff as
well as its continued efforts to integrate information technology staff from
recent acquisitions. The Company believes NationsBanc will continue to be a
significant customer for its Intranet services group but less so than in
previous years, both in terms of dollars and as a percentage of the Company's
total net revenue. There can be no assurance that the Company will obtain any
additional task orders under the NationsBanc contract or maintain or be able to
expand its Intranet services business. Failure to do so would materially and
adversely affect the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Technological Change and Additional Technology, Products and Services. The
development of RWhois, a Company-developed, standard open protocol, and the
associated technology, allows remote

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<PAGE> 16

registration by others. The Company's efforts to standardize and proliferate
RWhois as the registration standard may result in a material adverse effect on
the Company's future competitive position by enabling others to establish
registries more easily. RWhois is also the protocol that the Company may utilize
for any global directory services which the Company might offer. The successful
introduction of such directory services may blur the distinction between
directory services and domain name registration. Should this or another global
directory service become widely proliferated, domain name registration may be
subsumed into such a service. In that case, should the Company fail to secure a
leadership position in providing such a global directory service or establish a
system for charging for such service, the Company's business, financial
condition and results of operations would be materially and adversely affected.
See "Business -- NSI Services -- Registration Services" and "-- Other Products
and Services Development."

The Company's future financial success will be highly dependent upon its
ability to develop and commercialize in a timely manner new technology, products
and services that can be offered in conjunction with the Company's current
domain name registration and Intranet services and that can meet the changing
requirements of its current and future customers. The market for such
technology, products and services is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
Intranet and Internet-related products and services. Generally, the successful
development and commercialization of new technology, products and services
involves many risks, including the identification of new Intranet and
Internet-related product and service opportunities, the successful completion of
the development process, and the identification, retention and hiring of
appropriate research, development and technical personnel. There can be no
assurance that the Company can successfully identify new products and service
opportunities and develop and bring to market in a timely manner new
technologies, products or services, or that technologies, products or services
developed by others will not render those of the Company noncompetitive or
obsolete. Failure by the Company to develop new technologies, products or
services and bring them to market in a timely manner could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Dependence on Future Growth of the Internet and Internet
Infrastructure. The Company's future success is substantially dependent upon
continued growth in the use of the Internet. Rapid growth in the use of and
interest in the Internet is a relatively recent phenomenon and there can be no
assurance that use of the Internet will continue to grow at its current pace.
Even if the Internet continues to experience significant growth in the number of
users and level of use, there can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed upon it by
such growth. The Company's success and the viability of the Internet as an
information medium and commercial marketplace will depend in large part upon the
development of a robust infrastructure for providing Internet access and
carrying Internet traffic. Failure to develop a reliable network system, or
timely development of complementary products, such as high speed modems, could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Internet could lose its viability
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity or due to increased
government regulation. The lack of Internet governance or the future imposition
of restrictive governance or regulation could adversely affect the growth of the
use of the Internet and have a material adverse effect on the Company's
business, financial condition and results of operations. Because global commerce
and on-line exchange of information on the Internet are new and evolving, it is
difficult to predict with any assurance that the infrastructure or complementary
products will be developed, or, if developed, that the Internet will become a
viable information medium or commercial marketplace. If the use of the Internet
does not continue to grow, if the necessary infrastructure or complementary
products are not developed or do not effectively support growth that may occur,
or if the Internet does not become a viable information medium or commercial
marketplace, the Company's business, financial condition and results of
operations would be materially and adversely affected. See "-- System
Interruption and Security Risks" and "Business -- Industry Background."

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<PAGE> 17

Intellectual Property Rights. The Company's principal intellectual
property consists of, and its success is dependent upon, the Company's
proprietary software utilized in its registration services business and certain
methodologies and technical expertise it utilizes in both the design and planned
implementation of its current and future registration service and proposed
Internet-enabling services businesses. Some of the software and protocols used
by the Company in its registration service and proposed Internet-enabling
services businesses are in the public domain or are otherwise available to the
Company's competitors. In addition, in-depth technical knowledge and unique
processes are critical to the Company's Intranet services business, in which a
full range of consulting and systems integration services are offered in order
to transition organizations from private, legacy networks to more scalable and
efficient Intranets. The Company has no patents or registered copyrights but has
several trademarks and service marks, including the Company's logo.

The Company has compiled a database of information relating to customers in
its registration business. While a portion of this database is available to the
public, the Company believes that it has certain ownership rights in this
database and is seeking to protect such rights. If it were determined that the
Company does not have ownership rights in this database or if the Company is
unable to protect such rights in this database or is required to share the
database with its potential competitors, there could be a material adverse
effect on the Company's business, financial condition and results of operations.

The Company relies upon a combination of nondisclosure and other
contractual arrangements with its employees and third parties and trade secret
laws to protect its proprietary rights and limit the distribution of its
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use of its
proprietary information and take appropriate steps to enforce its intellectual
property rights. Furthermore, even if these steps are successful, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's proprietary technology. Although the Company believes
that its services do not infringe on the intellectual property rights of others
and that it has all rights necessary to utilize the intellectual property
employed in its business, the Company is subject to the risk of claims alleging
infringement of third party intellectual property rights. Any such claims could
require the Company to spend significant sums in litigation, pay damages and
develop non-infringing intellectual property or acquire licenses to the
intellectual property which is the subject of asserted infringement. Failure by
the Company to adequately protect its proprietary rights or litigation relating
to intellectual property rights could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Intellectual Property Rights."

Potential Fluctuations in Quarterly Results. The Company believes that
future operating results will be subject to quarterly fluctuations due to a
variety of factors, many of which are beyond the Company's control. Such factors
may include, but are not limited to, termination of the Cooperative Agreement or
the award of the Cooperative Agreement to another entity, the introduction of
additional competing registrars or TLDs, variations in the number of requests
for domain name registrations or demand for the Company's services, introduction
or enhancements of services by the Company or its competitors, market acceptance
of new service offerings, increased competition, costs associated with providing
domain name registration services, litigation costs, patterns of growth in the
use of and interest in the Internet and general economic conditions. The Company
is continuing to increase its operating expenses for personnel, facilities and
new services development and, if its revenues do not correspondingly increase,
the Company's business, financial condition and results of operations would be
materially and adversely affected.

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<PAGE> 18

systems engineers may cause significant variations in operating results in any
particular quarter and could result in losses for such quarter. Termination or
completion of contracts in the Company's Intranet services business or failure
to obtain additional contracts in its Intranet services business could have a
material adverse effect on the Company's business, financial condition and
results of operation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Management of Growth; Dependence on Key Personnel. The Company has
recently experienced growth in the number of its employees and in the scope of
its operating and financial systems. This growth has resulted in an increase in
responsibilities for both existing and new management personnel. In addition,
the Company is currently seeking additional key marketing and business
development personnel. The Company's ability to manage growth effectively will
require it to successfully integrate its management team, continue to implement
and improve its operational, financial and management information systems and to
train, motivate, manage and retain its employees. There can be no assurance that
the Company will be able to manage its expansion effectively and a failure to do
so could have a material adverse effect on the Company's business, financial
condition and results of operations.

The rapid growth of the Company's domain name registration business during
1995 and 1996 significantly exceeded the Company's back office capabilities and
control infrastructure. As a result, the Company was unable to keep current in
the processing, billing, collection, reconciliation and other administrative and
financial functions relating to the domain name registration business. In late
1996, the Company entered into outsourcing arrangements with third parties,
which, in conjunction with new invoicing procedures implemented in 1997, enabled
the Company to become current in these functions. There can be no assurance that
such outsourcing arrangements and procedural changes will continue to be
successful in addressing the current or future needs of the Company's domain
name registration business or that the Company will remain current on the
various administrative and financial functions relating to the domain name
registration business. In addition, growth of the Company's customer base may
strain the capacity of its computers and telecommunications systems, and the
Company's inability to sufficiently maintain or upgrade its systems could lead
to degradation in performance or system failure.

The Company's future success depends in part on the continued service of
its key engineering, sales, marketing, executive and administrative personnel,
and its ability to identify, hire and retain additional personnel. In addition,
the future success of the Company's Intranet services will depend in large part
on its ability to hire, train and retain network systems engineers who have
expertise in a wide array of network and computer systems and a broad
understanding of the industries the Company serves. An inability of the Company
to identify, hire, train and retain a sufficient number of qualified network
systems engineers could impair the Company's ability to adequately manage and
complete its existing projects or to obtain new projects, which, in turn, could
have a material adverse effect on the Company's business, financial condition
and results of operations and could impair the Company's expansion of its
business. Competition for engineering, sales, marketing and executive personnel
is intense and there can be no assurance that the Company can retain existing
personnel or identify, hire or retain additional qualified personnel. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Absence of Sales and Marketing Experience; Evolving Distribution
Channels. The Company has limited experience in marketing and selling its
services under its current subscription-based pricing model. The Company's
ability to achieve revenue growth in the future will depend in large part on its
ability to establish a sales and marketing organization. There can be no
assurance that the Company will be able to identify, attract and retain
experienced sales and marketing personnel with relevant experience, that the
cost of such personnel will not exceed the revenue generated or that the
Company's sales and marketing organization will be able to successfully compete
against the significantly more extensive and well-funded sales and marketing
operations of the Company's current or potential competitors.

17
<PAGE> 19

In addition to establishing its direct sales channels, the Company's
distribution strategy is to develop multiple distribution channels. Accordingly,
the Company's ability to achieve revenue growth in the future will also depend
in large part on establishing and maintaining relationships with Internet access
providers and other third parties and on effectively using the Internet as a
medium of distribution. There can be no assurance that the Company will be able
to successfully establish its sales and marketing organization, develop third
party distribution channels, develop its own capabilities to distribute services
using the Internet or that any such expansion will result in an increase in
revenue. Any failure by the Company to establish its sales and marketing
organization, expand its distribution channels or use the Internet as a medium
of distribution could materially and adversely affect the Company's business,
financial condition and results of operations.

Control by SAIC. Upon completion of this offering, SAIC will own 100% of
the Company's outstanding Class B Common Stock, which will represent
approximately 78.4% of the outstanding Common Stock of the Company
(approximately 75.9% if the Underwriters' over-allotment option is exercised in
full) and approximately 97.3% of the combined voting power of the Company's
outstanding Common Stock (approximately 96.9% if the Underwriters'
over-allotment option is exercised in full). As a result, SAIC will be able to
effectively control all matters requiring approval by the stockholders of the
Company, including the election of members of the Company's Board of Directors,
changing the size and composition of the Board of Directors and preventing a
change in control of the Company. The Class B Common Stock is convertible into
Class A Common Stock, subject to certain limitations set forth in the Company's
Second Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"). See "Description of Capital Stock." SAIC has no agreement with
the Company not to sell or distribute its shares of the Company's Common Stock
and, except for the restrictions in the Underwriting Agreement set forth below,
there can be no assurance that SAIC will maintain its ownership of the Company's
Class B Common Stock. Pursuant to the Underwriting Agreement, SAIC has agreed,
subject to certain exceptions and except for the shares to be offered by SAIC in
this offering, not to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock owned by it for a period of 180 days after the date of
this Prospectus without the prior written consent of Hambrecht & Quist LLC. See
"Principal and Selling Stockholders."

The Internal Revenue Code of 1986, as amended (the "Code"), requires
beneficial ownership by SAIC of at least 80% of the total voting power and value
of the outstanding Common Stock of the Company in order to include the Company
in its consolidated group for federal income tax purposes. It is anticipated
that upon completion of this offering, the Company will cease to be included in
SAIC's consolidated group for federal income tax purposes. In addition, SAIC
must beneficially own at least 80% of the total voting power and 80% of each
class of nonvoting capital stock of the Company in order to be able to effect a
tax-free spin-off of the Company under the Code. It is anticipated that upon
completion of this offering, SAIC will continue to own at least 80% of the total
voting power and 80% of each class of nonvoting capital stock of the Company.
Because SAIC may seek to maintain its beneficial ownership percentage of the
Company for tax planning purposes or otherwise and may not desire to acquire
additional shares of Common Stock in connection with a future issuance of shares
by the Company, the Company may be constrained in its ability to raise equity
capital in the future or to issue Common Stock or other equity securities in
connection with acquisitions. See "Relationship with SAIC and Certain
Transactions."

Intercompany Agreements Not Subject to Arm's-Length Negotiations; Reliance
on SAIC for Certain Corporate Services. Since its acquisition by SAIC, the
Company has not been operated independently of SAIC. Prior to the completion of
the offering, SAIC and the Company will enter into certain intercompany
agreements, including an agreement pursuant to which SAIC will provide various
corporate services to the Company that may be material to the conduct of the
Company's business (the "Corporate Services Agreement"). These services include
certain routine and ordinary corporate services, including financial, insurance,
accounting, employee benefits, payroll, tax and legal services as well as
corporate planning, government relations and corporate quality assurance
services as described in the Corporate Services Agreement. Subsequent to the
acquisition of the Company by SAIC, the Company's Statements of Operations
include revenue and costs directly attributable to the Company,

18
<PAGE> 20

as well as certain allocations from SAIC of indirect costs associated with such
services and shared systems. Such allocations include allocations of: (i) costs
for administrative functions and services performed on behalf of the Company by
centralized staff groups within SAIC; (ii) SAIC's general corporate expenses;
(iii) other benefit costs, including, but not limited to, health insurance,
disability and retirement costs; and (iv) cost of capital (through December 31,
1996). Through August 9, 1996, such allocations (excluding cost of capital) were
generally based on the proportionate labor costs of the Company to the rest of
SAIC and were included in selling, general and administrative expenses and cost
of revenue, respectively. Effective August 10, 1996, SAIC stopped allocating
costs based upon pro rata labor and began assessing the Company for corporate
services provided by SAIC at a fee equal to 2.5% of net revenue, with such
percentage to be re-evaluated by both parties on an annual basis. This fee is
included in its entirety in selling, general and administrative expenses. With
respect to matters covered by the Corporate Services Agreement, the relationship
between SAIC and the Company is intended to continue in a manner generally
consistent with past practices. Because the Company is currently a wholly-owned
subsidiary of SAIC, none of the intercompany agreements will result from
arm's-length negotiations. These agreements may include terms and conditions
that may be more or less favorable to the Company than terms contained in
similar agreements negotiated with third parties. After SAIC's ownership of the
Company's Common Stock drops below 50% of the Company's issued and outstanding
Common Stock, the Corporate Services Agreement will be terminable by either
party upon 180 days' prior written notice. Certain individual services are also
terminable by either party upon 180 days' prior written notice, regardless of
SAIC's stock holdings. In the event that SAIC elects to terminate the Corporate
Services Agreement, there can be no assurance that the Company would be able to
secure alternative sources for such services within 180 days or that such
services could be obtained for costs comparable to costs to be charged by SAIC.
See "Relationship with SAIC and Certain Transactions."

Control of Tax Matters; Tax and ERISA Liability. By virtue of its
controlling ownership and the terms of a tax sharing agreement (the "Tax Sharing
Agreement") to be entered into between the Company and SAIC, which shall apply
for taxable periods during which SAIC and the Company file, for federal
purposes, a consolidated income tax return or, for state and local purposes, a
consolidated, combined or unitary tax return. SAIC will effectively control all
of the Company's tax decisions. Under the Tax Sharing Agreement, SAIC will have
sole authority to respond to and conduct all tax proceedings (including tax
audits) relating to the Company, to file federal, state and local returns on
behalf of the Company and to calculate the amount of the Company's liability to
SAIC under the Tax Sharing Agreement. Further, pursuant to the terms of the Tax
Sharing Agreement, upon deconsolidation, which it is anticipated will occur upon
completion of this offering (the "Deconsolidation Date"), the Company's ability
to recognize a benefit for tax losses it incurs is subject to SAIC's approval.
SAIC may choose to contest, compromise or settle any adjustment or deficiency
proposed by the relevant taxing authority in a manner that may be beneficial to
SAIC and detrimental to the Company.

Each member of a consolidated group for federal income tax purposes is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. In addition, under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and federal income tax law,
each member of the controlled group is jointly and severally liable for funding
and termination liabilities of tax qualified defined benefit retirement plans as
well as certain plan taxes. Accordingly, during the period in which the Company
is included in SAIC's consolidated or controlled group, the Company could be
liable if such liability or tax is incurred, and not discharged, by any other
member of SAIC's consolidated or controlled group. See "Relationship with SAIC
and Certain Transactions -- Tax Sharing Agreement."

Potential Conflicts of Interest. Various conflicts of interest between the
Company and SAIC could arise following the completion of this offering, and
persons serving as directors, officers and employees of both the Company and
SAIC may have conflicting duties to each. Currently, Michael A. Daniels, the
Company's Chairman of the Board, also serves as a Sector Vice President and
Sector Manager of SAIC, Donald N. Telage, the Company's Senior Vice President,
Internet Relations and Special Programs and one of the Company's directors, also
serves as a Group Senior Vice President of SAIC, Robert J.

19
<PAGE> 21

Korzeniewski, the Company's Chief Financial Officer, also serves as a Corporate
Vice President for Administration of SAIC, Raymond S. Corson, the Company's
Senior Vice President, Business Development, also serves as a Vice President of
SAIC, A. Scott Williamson, the Company's Vice President, Engineering, also
serves as a Vice President of SAIC and Russell L. Helbert, the Company's
Controller, also serves as an Assistant Vice President for Administration of
SAIC. Further, J. Robert Beyster, a director of the Company, is also the Chief
Executive Officer and Chairman of the Board of SAIC, John E. Glancy, a director
of the Company, is also a Corporate Executive Vice President and a director of
SAIC and William A. Roper, Jr., a director of the Company, is also Senior Vice
President and Chief Financial Officer of SAIC. It is currently contemplated
that, upon completion of the offering, all of the Company's executive officers
who currently also hold positions with SAIC (other than Donald N. Telage) will
resign from their respective positions with SAIC. Ownership interests of
directors or officers of the Company in the common stock of SAIC could also
create or appear to create potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for the
Company and SAIC. In addition, for financial reporting purposes, the Company's
financial results will be included in SAIC's consolidated financial statements.
The members of the Board of Directors of the Company and executive officers of
the Company who are affiliated with SAIC will consider not only the short-term
and long-term impact of financial and operating decisions on the Company, but
also the impact of such decisions on SAIC's consolidated financial results. In
some instances, the impact of such decisions could be disadvantageous to the
Company while advantageous to SAIC.

Certain Charter Provisions and Limitations on Liability. The Company's
Certificate of Incorporation includes provisions relating to competition by SAIC
with the Company, allocations of corporate opportunities, transactions with
interested parties and intercompany agreements and provisions limiting the
liability of certain persons. See "Description of Capital Stock -- Certain
Certificate of Incorporation and Bylaw Provisions." The enforceability under
Delaware corporate law of such provisions which eliminate certain rights that
might have been available to stockholders under Delaware law had such provisions
not been included has not been established and thus counsel to the Company is
not able to render an opinion regarding the enforceability of such provisions.
The Company's Certificate of Incorporation provides that any person purchasing
or acquiring an interest in shares of capital stock of the Company, including
the Underwriters, shall be deemed to have consented to the provisions in the
Certificate of Incorporation relating to competition by SAIC with the Company,
conflicts of interest, corporate opportunities and intercompany agreements, and
such consent may restrict such person's ability to challenge transactions
carried out in compliance with such provisions. The Company intends to disclose
the existence of such provisions in its Annual Reports on Form 10-K as well as
in certain other filings with the Securities and Exchange Commission (the
"Commission"). The corporate charter of SAIC does not include comparable
provisions and, as a result, persons who are directors and/or officers of the
Company and who are also directors and/or officers of SAIC may choose to take
action in reliance on such provisions rather than act in a manner that might be
favorable to the Company but adverse to SAIC. See "Description of Capital
Stock -- Certain Certificate of Incorporation and Bylaw Provisions."

Under the Company's Certificate of Incorporation, the personal monetary
liability of the directors of the Company for breach of their fiduciary duty of
care, including actions involving gross negligence, is eliminated to the fullest
extent permitted under Delaware law. See "Description of Capital Stock --
Certain Certificate of Incorporation and Bylaw Provisions."

International Operations. The Company anticipates that revenue from
sources outside the U.S. may increase in the future. As a result, the Company
will increasingly be subject to the risks of conducting business
internationally, including unexpected changes in regulatory requirements,
fluctuations in the U.S. dollar, tariffs and other barriers and restrictions and
the burdens of complying with a variety of foreign laws. In addition, the
Company will increasingly be subject to general geo-political risks, such as
political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations. There can be no
assurance that such regulatory, geo-

20
<PAGE> 22

political and other factors will not adversely impact the Company's operations
in the future or require the Company to modify its business practice. In
addition, the laws of certain foreign countries may not protect the Company's
proprietary rights to the same extent as do the laws of the United States.

Shares Eligible for Future Sale. Sales of substantial amounts of Class A
Common Stock in the public market, whether by purchasers in the offering or
other stockholders of the Company, or the perception that such sales could
occur, may materially and adversely affect the market price of the Class A
Common Stock.

Upon completion of the offering, SAIC will own 100% of the Company's
outstanding Class B Common Stock, which will represent approximately 78.4% of
the outstanding Common Stock of the Company (approximately 75.9% if the
Underwriters' over-allotment option is exercised in full). A decision by SAIC to
sell such shares could materially and adversely affect the market price of the
Class A Common Stock. The Company and SAIC have entered into a registration
rights agreement (the "Registration Rights Agreement") which requires the
Company to effect a registration statement covering some or all of the shares of
Class A Common Stock to be owned by SAIC upon conversion of the Class B Common
Stock owned by SAIC and any other shares of Class A Common Stock otherwise
acquired by SAIC, subject to certain terms and conditions. The Company has
agreed to indemnify SAIC in connection with any such registration. The Company
intends to register a total of 2,556,250 shares of Class A Common Stock reserved
for issuance under its 1996 Stock Incentive Plan as soon as practicable
following the date of this Prospectus. See "Relationship with SAIC and Certain
Transactions -- Registration Rights Agreement," "Shares Eligible for Future
Sale" and "Description of Capital Stock."

In certain circumstances, including without limitation, a public offering
or distribution of Class B Common Stock by SAIC, the Class B Common Stock would
trade separately from the Class A Common Stock in the public market. Separate
trading of the Class B Common Stock in the public market, or the perception that
such trading could occur, could materially and adversely affect the market price
of the Class A Common Stock.

Upon completion of the offering, the shares of Class A Common Stock offered
hereby will be freely tradable without restriction or further registration under
the Securities Act by persons other than executive officers and directors of
SAIC or the Company (the "Restricted Persons"). The shares of Common Stock which
are held by SAIC and certain Restricted Persons are subject to a "lock-up"
agreement under which SAIC and such Restricted Persons have agreed, subject to
certain exceptions, not to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock without the prior written consent of Hambrecht &
Quist LLC, for a period of 180 days after the date of this Prospectus. Following
such period, SAIC and any such Restricted Person who is an affiliate of the
Company may sell such shares only pursuant to the requirements of Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an
effective registration statement under the Securities Act. The Securities and
Exchange Commission has recently enacted revisions to Rule 144 which shortened
the holding periods under Rule 144 from two years to one year and under Rule
144(k) from three years to two years. See "Shares Eligible for Future Sale" and
"Underwriting."

Lack of Prior Public Market and Possible Volatility of Stock Price. Prior
to this offering, there has been no public market for the Company's Class A
Common Stock and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
was determined through negotiations among the Company and the representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Class A Common Stock after this offering. See
"Underwriting." The market price of the shares of Class A Common Stock is likely
to be highly volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's results of operations,
announcements of technological innovations, changes in Internet governance,
announcement of additional competing registrars or TLDs, introduction of new
products or services by the Company or its competitors, developments with
respect to patents, copyrights or proprietary rights, conditions and trends in
the networking and other technol-

21
<PAGE> 23

ogy industries, changes in or failure by the Company to meet securities
analysts' expectations, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stocks of technology companies. These broad market fluctuations may
adversely affect the market price of the Company's Class A Common Stock. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the Company's business, financial
condition and results of operations.

Dilution. Based upon the initial public offering price per share of $18.00
(and assuming no exercise of the Underwriters' over-allotment option), the
Company's net tangible book value per share of Common Stock as of June 30, 1997,
after giving effect to the transactions set forth in "Capitalization," would
have been $2.39. This represents an immediate increase in net tangible book
value of $3.13 per share to the existing stockholder and an immediate dilution
of $15.61 per share to purchasers of the Class A Common Stock in the offering.
See "Dilution."

Effect of Certain Charter Provisions; Anti-takeover Effects of Certificate
of Incorporation and Delaware Law. The holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to ten votes per share. Holders of Class A Common Stock and Class B Common Stock
generally vote together as a single class. The Class B Common Stock held by SAIC
is convertible into Class A Common Stock under certain conditions set forth in
the Company's Certificate of Incorporation. See "Description of Capital Stock."
Upon completion of this offering, the Company's Board of Directors will have the
authority to issue up to 10,000,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights of such shares, without any further vote or action by the Company's
stockholders. Such charter provisions could have the effect of delaying or
preventing a change of control of the Company. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no current plans to
issue shares of Preferred Stock. Further, certain provisions of the Company's
Certificate of Incorporation and of Delaware law could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. See
"Description of Capital Stock -- Preferred Stock" and "-- Delaware Antitakeover
Law and Certain Charter Provisions."

Discretion as to Use of Proceeds. The Company intends to use the proceeds
of this offering for payment of a $10,000,000 dividend to SAIC and for working
capital and other general corporate purposes, including business development,
marketing and promotional activities, continued development of enhancements or
new services complementary to the Company's registration business and other uses
as deemed appropriate by the Board of Directors. The amounts and timing of these
expenditures will vary significantly depending upon a number of factors,
including the amount of cash generated by the Company's operations, the progress
of the Company's product and services development activities and the market
response to the introduction of any new products and services. In addition, the
Company may use a portion of the net proceeds of this offering to acquire or
invest in businesses, products, services or technologies complementary to the
Company's current business, through mergers, acquisitions, joint ventures or
otherwise. However, the Company has no specific agreements or commitments and is
not currently engaged in any negotiations with respect to such transactions.
Accordingly, the Company's management will retain broad discretion as to the
allocation of the net proceeds of this offering. See "Use of Proceeds."

22
<PAGE> 24

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,800,000 shares of
Class A Common Stock offered by the Company hereby at the initial public
offering price of $18.00 per share are estimated to be $45,772,000 ($52,802,800
if the Underwriters' over-allotment option is exercised in full). The Company
intends to use $10,000,000 of the proceeds of this offering to pay a dividend to
SAIC and the remainder of the proceeds of this offering for working capital and
other general corporate purposes, including business development, marketing and
promotional activities, continued development of enhancements or new services
complementary to the Company's registration business and other uses as deemed
appropriate by the Board of Directors. The amounts and timing of these
expenditures will vary significantly depending upon a number of factors,
including the amount of cash generated by the Company's operations, the progress
of the Company's product and services development activities and the market
response to the introduction of any new products and services. In addition, the
principal purposes of this offering include increasing the Company's equity
capital, creating a public market for the Company's Class A Common Stock,
providing liquidity for the Company's stockholders and facilitating future
access by the Company to public equity markets.

In addition, the Company may use a portion of the net proceeds of this
offering to acquire or invest in businesses, products, services or technologies
complementary to the Company's current business, through mergers, acquisitions,
joint ventures or otherwise. However, the Company has no specific agreements or
commitments and is not currently engaged in any negotiations with respect to
such transactions. Accordingly, the Company's management will retain broad
discretion as to the allocation of the net proceeds of this offering. Pending
the uses described above, the Company intends to invest the net proceeds of this
offering in short-term, interest-bearing investment grade securities, which the
Company currently anticipates will include government securities, as
appropriate.

The Company will not receive any of the proceeds from the sale of shares by
the Selling Stockholder.

DIVIDEND POLICY

With the exception of a $10,000,000 dividend to be paid to SAIC upon
consummation of the offering, to date, the Company has neither declared nor paid
dividends on its Common Stock. Other than the dividend to be paid to SAIC, the
Company currently intends to retain its earnings, if any, for future growth and
does not anticipate paying any dividends in the foreseeable future. The
Company's future dividend policy will be determined by its Board of Directors on
the basis of various factors, including the Company's results of operations,
financial condition, capital requirements and investment opportunities.

23
<PAGE> 25

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997: (i) on an actual basis, (ii) on a pro forma basis to give effect to
the dividend to be paid to SAIC from the proceeds of this offering, (iii) as
adjusted to give effect to the sale by the Company of the 2,800,000 shares of
Class A Common Stock offered hereby at the initial public offering price of
$18.00 per share and the application of the remainder of the estimated net
proceeds therefrom and (iv) as adjusted to give effect to the conversion by the
Selling Stockholder of 500,000 shares of Class B Common Stock into 500,000
shares of Class A Common Stock to be offered by the Selling Stockholder hereby.
This table should be read in conjunction with the Financial Statements of the
Company and the Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED
------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.001 par value, 10,000,000 shares
authorized; none issued and outstanding........... $ -- $ -- $ --
Class A Common Stock, $0.001 par value, 100,000,000
shares authorized; none issued and outstanding,
actual and pro forma; 3,300,000 issued and
outstanding, as adjusted(1)....................... -- -- 3
Class B Common Stock, $0.001 par value, 30,000,000
shares authorized; 12,500,000 issued and
outstanding, actual and pro forma; 12,000,000
issued and outstanding, as adjusted............... 12 12 12
Additional paid-in capital.......................... 4,468 4,468 50,237
Accumulated deficit................................. (1,787) (11,787) (11,787)
------ ------------ -----------
Total stockholders' equity..................... 2,693 (7,307) 38,465
------ ------------ -----------
Total capitalization...................... $2,693 $ (7,307) $ 38,465
====== =========== =========
</TABLE>

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

(1) Excludes 2,556,250 shares of Class A Common Stock reserved for issuance
under the Company's 1996 Stock Incentive Plan, of which 1,669,225 shares
were subject to outstanding options as of September 18, 1997 at a weighted
average exercise price of $13.24 per share. See "Management -- 1996 Stock
Incentive Plan" and Notes 10 and 14 of Notes to Financial Statements.

(2) Adjusted to reflect the dividend to be paid to SAIC. See policy regarding
Pro Forma Balance Sheet and Earnings per Share at Note 2 of Notes to
Financial Statements.

24
<PAGE> 26

DILUTION

As of June 30, 1997, the Company had a pro forma net tangible book value
before the offering of approximately $(9,230,000) or $(0.74) per share of Common
Stock. Pro forma net tangible book value per share is equal to the amount of
total tangible assets (including deferred tax assets of $17,470,000 at June 30,
1997) of the Company less total liabilities after giving effect to the dividend
to SAIC, divided by the number of shares of Common Stock outstanding. Without
taking into account any other changes in the pro forma net tangible book value
after June 30, 1997, other than to give effect to the receipt by the Company of
the net proceeds from the sale of the 2,800,000 shares of Class A Common Stock
offered by the Company hereby and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company at June 30, 1997
after the offering would have been approximately $36,542,000 or $2.39 per share.
This represents an immediate increase in such net tangible book value of $3.13
per share to the existing stockholder and an immediate dilution of $15.61 per
share to new investors purchasing shares of Class A Common Stock in this
offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $18.00
------
Net tangible book value per share before the offering.......... $ 0.06
Decrease in net tangible book value attributable to dividend... (0.80)
------
Pro forma net tangible book value per share before the
offering...................................................... (0.74)
Increase per share attributable to new investors............... 3.13
------
Pro forma net tangible book value per share after the offering...... 2.39
------
Dilution per share to new investors............................ $15.61
======
</TABLE>

The following table summarizes, on a pro forma basis, as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration per share paid by the existing
stockholder and by the new investors purchasing shares in this offering (before
deducting underwriting discounts and commissions and estimated offering
expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder(1)...... 12,500,000 81.70% $ 4,480,000 8.16% $ 0.36
New investors................ 2,800,000 18.30% 50,400,000 91.84% $ 18.00
---------- ------- ----------- -------
Total................... 15,300,000 100.0% $54,880,000 100.0%
========= ======= ========== =======
</TABLE>

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

(1) Sales by the Selling Stockholder in this offering will reduce the number of
shares of Class B Common Stock held by the existing stockholder to
12,000,000 or approximately 78.4% (11,925,000 shares, or approximately
75.9%, if the Underwriters' over-allotment option is exercised in full) and
will increase the number of shares of Class A Common Stock held by new
investors to 3,300,000 or approximately 21.6% (3,795,000 shares, or
approximately 24.1%, if the Underwriters' over-allotment option is exercised
in full) of the total number of shares of Common Stock outstanding after
this offering. See "Principal and Selling Stockholders."

The foregoing table is based on the total consideration paid by SAIC for
its shares based on the price of the shares of SAIC Class A Common Stock (as
determined by the Board of Directors of SAIC in accordance with established
procedures) used to acquire the entire Company, including the government-based
business which was later transferred to SAIC, and does not give effect to the
$10,000,000 dividend payable to SAIC. The foregoing table also assumes (i) an
initial public offering price of $18.00 per share before deduction of estimated
underwriting discounts and commissions and offering expenses payable by the
Company and (ii) no exercise of the Underwriters' over-allotment option or of
any outstanding stock options. As of September 18, 1997, there were outstanding
options to purchase 1,669,225 shares of Class A Common Stock, with a weighted
average exercise price of $13.24 per share. To the extent that options are
granted and exercised, there may be further dilution to new investors. See
"Management -- 1996 Stock Incentive Plan" and Notes 10 and 14 of the Notes to
Financial Statements.

25
<PAGE> 27

SELECTED FINANCIAL DATA

The following table sets forth selected financial and operating data of the
Company for the periods indicated and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and the Notes related thereto included
elsewhere in this Prospectus. The selected financial data for the years ended
December 31, 1996 and 1994 and for the periods January 1, 1995 to March 10, 1995
and March 11, 1995 to December 31, 1995 were derived from the Company's audited
financial statements included elsewhere in this Prospectus. The information for
fiscal years 1992 and 1993 and the six months ended June 30, 1996 and 1997 is
derived from the Company's unaudited financial statements which, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
items) necessary to present fairly the financial position and results of
operations for the periods then ended. The selected financial data for the year
ended December 31, 1995 was derived by combining the Company's Results of
Operations for the period January 1, 1995 through March 10, 1995 and the period
March 11, 1995 through December 31, 1995, both as derived from the Company's
audited financial statements included elsewhere in this Prospectus.
Comparability of pre-acquisition periods to post-acquisition periods is limited
because the financial statements have been prepared on differing bases of
accounting as a result of the acquisition by SAIC. See Note 1 of Notes to
Financial Statements. The accompanying financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
all periods presented for continuing operations reflect the results of
operations of the commercial business of the Company, which includes
registration services and Intranet services. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview -- The
SAIC Acquisition" and "-- Registration Services."

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------- -----------------
1992 1993 1994 1995(1) 1996 1996 1997
------ ------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................ $1,160 $4,369 $ 5,029 $ 6,486 $18,862 $ 6,829 $18,724
Cost of revenue........................ 695 2,924 3,073 5,704 14,666 6,521 11,435
------ ------ ------- ------- ------- ------- -------
Gross profit........................... 465 1,445 1,956 782 4,196 308 7,289
Research and development expenses...... -- -- -- -- 680 58 718
Selling, general and
administrative expenses.............. 275 1,401 1,544 2,394 6,280 2,370 4,788
Interest expense (income).............. 42 120 109 61 (496) (86) (484)
------ ------ ------- ------- ------- ------- -------
Income (loss) from continuing
operations before income taxes and
cumulative effect of a change in
accounting principle.............. 148 (76) 303 (1,673) (2,268) (2,034) 2,267
Provision (benefit) for income taxes... 55 34 114 (239) (643) (576) 1,011
------ ------ ------- ------- ------- ------- -------
Income (loss) from continuing
operations........................... 93 (110) 189 (1,434) (1,625) (1,458) 1,256
Income (loss) from discontinued
operations, net of income taxes(2)... 588 (936) (1,169) (1,403) -- -- --
Cumulative effect of change in
accounting for income taxes.......... -- 660 -- -- -- -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss)...................... $ 681 $ (386) $ (980) $(2,837) $(1,625) $(1,458) $ 1,256
====== ====== ======= ======= ======= ======= =======
Unaudited pro forma net income (loss)
per share............................ $ (0.12) $ (0.11) $ 0.09
======= ======= =======
Unaudited pro forma shares used in
computing net income (loss) per
share(3)............................. 13,487 13,487 13,487
======= ======= =======
OTHER OPERATING DATA(4):
Net new registrations.................. -- 13 24 141 489 180 429
Less: registrations not renewed........ -- -- -- 1 39 17 16
Net registrations at period end........ -- 13 37 177 627 340 1,040
</TABLE>

26
<PAGE> 28

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents......... $ -- $ -- $ 136 $ 5 $15,540 $ 27 $25,967
Working capital(5).... (307) (179) (1,340) (559) 1,362 (6,423) 6,280
Total assets(6)....... 1,272 3,124 2,448 11,748 66,118 30,220 92,250
Deferred revenue,
net................. 32 73 137 3,346 29,352 14,356 45,628
Long-term obligations,
excluding current
portion............. 479 344 81 1,353 9,440 5,183 15,193
Total stockholders'
equity.............. 56 1,221 252 3,062 1,437 1,604 2,693
</TABLE>

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

(1) The Selected Financial Data for the year ended December 31, 1995 was derived
by combining the Company's Results of Operations for the period January 1,
1995 through March 10, 1995 and the period March 11, 1995 through December
31, 1995, which, respectively, are periods before and after the date of the
SAIC acquisition. The data for these two periods were prepared on differing
bases of accounting and, accordingly, the comparability of such data with
other periods is limited, primarily as a result of goodwill amortization,
new corporate services agreements and the repayment of outstanding debt
balances. See Note 1 of Notes to Financial Statements for a discussion of
the presentation for each of these periods.

(2) See Note 11 of Notes to Financial Statements for a discussion of
discontinued operations.

(3) See Note 2 of Notes to Financial Statements for an explanation of the
determination of shares used in computing the unaudited pro forma net income
(loss) per share.

(4) Net new registrations for each period include gross new registrations less
an estimate of registrations that are uncollectible. Net registrations
includes net new registrations less an estimate of registrations not
renewed. Prior to September 14, 1995, net registrations equaled gross
registration because the Company was reimbursed by the NSF for all
registrations under a cost plus fixed-fee contract.

(5) Working capital calculation includes $32, $73, $137, $1,993, $19,912,
$9,173, and $31,990 of current deferred revenue as of December 31, 1992,
1993, 1994, 1995 and 1996 and June 30, 1996 and 1997, respectively.

(6) Total assets include $0, $0, $0, $1,408, $17,453, $7,453 and $31,056 of
restricted assets as of December 31, 1992, 1993, 1994, 1995 and 1996 and
June 30, 1996 and 1997, respectively. See Notes 2 and 3 of Notes to
Financial Statements.

27
<PAGE> 29

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

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results may differ materially from the results
discussed in the forward-looking statements as a result of certain factors,
including, but not limited to, those discussed in "Risk Factors" and elsewhere
in this Prospectus. Unless otherwise indicated, the accompanying financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for all periods presented for continuing operations
reflect the financial position and results of operations of the Company's
commercial business, which includes registration services and Intranet services.

OVERVIEW

The SAIC Acquisition. The Company was incorporated in the District of
Columbia in 1979 and was reincorporated in Delaware in 1996. The Company was
acquired by SAIC on March 10, 1995 in a stock-for-stock transaction accounted
for as a purchase and is currently a wholly-owned subsidiary of SAIC. Prior to
the acquisition of the Company by SAIC, the Company's principal lines of
business consisted of providing integration, engineering for computer and
telecommunications networks for government and commercial customers and domain
name registration services. The Company's business included commercial and
government contracts awarded to the Company on a competitive basis, including
government contracts that were awarded to the Company based partially upon the
Company's then minority-owned status. The contracts which had been awarded to
the Company based in part on the Company's then minority-owned status were
transferred into a separately-owned entity prior to the acquisition of the
Company by SAIC. In November 1995, SAIC adopted a plan to transfer the Company's
remaining government-based business to SAIC in order to enable the Company to
focus on the growth of its commercial business, which includes registration
services and Intranet services. This transfer was effective as of February 1996.
The operating results of both the minority-based government contracts business
and the remaining government-based business are reflected as discontinued
operations in the Company's financial statements for all periods presented.

The Company. The Company currently acts as the registrar for second level
domain names within the .com, .org, .net, .edu and .gov TLDs pursuant to the
Cooperative Agreement with the NSF. Net registrations (gross registrations less
management's estimates of uncollectible registrations and of non-renewals)
within the TLDs maintained by the Company increased by 206% from approximately
340,000 domain names registered at June 30, 1996 to approximately 1,040,000
domain names registered at June 30, 1997. Net registrations in the .com TLD
represented 87% of the Company's total net registrations as of June 30, 1997.
Net revenue from Internet domain name registration subscriptions accounted for
59.1% and 81.0% of the Company's net revenue for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively.

The Company also provides Intranet consulting services to large companies
that desire to establish or enhance their Internet presence or "re-engineer"
legacy network infrastructures to accommodate the integration of both Internet
connectivity and Intranet network technology into their information technology
base. The Company's Intranet services presently include: (i) Intranet
development and re-engineering; (ii) network and systems security; and (iii)
Intranet-enabled business solutions. Net revenue from Intranet services
accounted for 40.9% and 19.0% of the Company's net revenue for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively.

Registration Services. In January 1993, the Company entered into the
Cooperative Agreement with the NSF under which the Company provides Internet
registration services for five TLDs: .com, .org, .net, .edu and .gov. With the
commercialization of the Internet, the role, if any, that the NSF will

28
<PAGE> 30

play in the Internet and the legal authority underlying its role are at present
unclear. The Cooperative Agreement is subject to review by the NSF and may be
terminated by the NSF at any time at its discretion or by mutual agreement. The
Cooperative Agreement by its terms expires in March 1998, although the NSF may,
at its option, extend the Cooperative Agreement through September 1998. The NSF
has stated that the Cooperative Agreement will not be re-awarded to the Company
or awarded to any other entity. When the Cooperative Agreement is terminated or
if there is a change in the terms of the Cooperative Agreement or the Company's
status as the exclusive registrar for domain names in the .com TLD, the
Company's business, financial condition and results of operations could be
materially and adversely affected. Although the impact of the termination of the
Cooperative Agreement is uncertain, such termination could have a material
adverse effect on the Company's revenue, particularly as the Company's revenue
growth in recent periods has been primarily attributable to increases in
registrations in the .com TLD. See "Risk Factors -- Limited Operating History,"
"-- Uncertain Status of the Cooperative Agreement," and "-- Recommendations and
Proposals to Increase Competition in Registration Services."

Originally, the Cooperative Agreement was structured as a cost
reimbursement plus fixed-fee contract. Effective September 14, 1995, the NSF and
the Company amended the Cooperative Agreement to authorize the Company to begin
charging customers a subscription fee of $50 per year for each second level
domain name in the .com, .org, .net, .edu and .gov TLDs. The Company's
registration services customers in the .com, .org and .net TLDs are invoiced for
a two-year subscription fee of $100 for initial registrations and $50 per year
for renewals of initial registrations. The NSF has agreed to pay the
registration and renewal fees for registrations within the .edu and .gov TLDs
through March 31, 1997. The Company has recently agreed with the NSF to provide
registrations in the .gov and .edu TLDs free of charge from April 1, 1997
through March 31, 1998. The cost of providing these registration services is not
expected to have a material adverse effect on the Company's business, financial
condition or results of operations. At September 14, 1995, the Company had
approximately 131,000 registered domain names that were subject to annual
renewal. From September 14, 1995 through June 30, 1997, the Company had
approximately 965,000 net new registrations. At June 30, 1997, of the
approximate 1,040,000 net registrations, 75,000 were subject to annual renewal.
The remaining 965,000 represent the net new registrations since September 14,
1995 and, therefore, will begin annual renewals commencing September 1997 based
upon their respective two-year anniversaries of initial registration. There can
be no assurance that the Company will continue to obtain new registrations at
current rates or renew the registration of a significant portion of its
customers.

Under the terms of the amendment to the Cooperative Agreement, 30% of the
new registration and renewal fees collected is required to be set aside to be
reinvested for the enhancement of the intellectual infrastructure of the
Internet and, as such, is not recognized as revenue by the Company. The Company
reflects these funds along with the appropriate percentage of net accounts
receivable as restricted assets and has recorded an equivalent, related current
liability. The Company maintains the cash received relating to the set aside
funds in a separate interest bearing account. These funds, plus any interest
earned, will be disbursed in a manner approved by the NSF. At June 30, 1997, the
restricted assets totaled $31.1 million. None of the restricted set aside funds
have been disbursed. Future disbursements of these funds will not have an effect
on the Company's business, financial condition or results of operations.

The Company was reimbursed by the NSF for providing domain name
registration services prior to September 14, 1995, at which time the Company
began charging its customers fees for new domain name registrations pursuant to
the amendment to the Cooperative Agreement. The Company began charging its
customers fees for renewals of existing domain name registrations in December
1995. Currently, the Company invoices customers and permits them to pay the
subscription fee after the customer's domain name is registered. The Company's
experience has been that, for the period from September 1995 to June 1997,
approximately 30% of registrations have ultimately been deactivated for
non-payment. As a consequence, the Company has recorded a comparable provision
for uncollectible accounts in determining net registration revenue. This 30%
provision has been consistently applied for the period September 1995 to June
1997 and is considered adequate by the Company. The growth in

29
<PAGE> 31

the allowance for uncollectible accounts receivable is primarily driven by the
growth of the Company's registration services business during this period.
Write-offs of accounts receivable are charged to the allowance for uncollectible
accounts as registrations are deactivated. Due to the growth of the registration
business in 1995 and 1996, deactivations due to non-payment of fees were not
current as of December 31, 1996. The Company is now current in this function.
However, the delay in deactivation did not have an impact on the adequacy of the
allowance and the current provision rate of 30% is still considered adequate by
the Company. See Note 3 of Notes to Financial Statements.

The Company believes that it has experienced a high level of uncollectible
receivables due to, among other factors, the large number of individuals and
corporations that have registered multiple domain names with the apparent
intention of reselling such names at a profit. The Company's experience has been
that such resellers have a greater tendency than other customers to default on
their subscription fees. The Company believes that the new procedures
implemented in 1997 regarding invoicing and prompt deactivation of delinquent
customers has significantly improved timeliness of customer payments. See "Risk
Factors -- Limited Operating History," "-- Uncertain Status of the Cooperative
Agreement," "-- Uncollectible Receivables; Modifications to Billing
Practices," "-- Management of Growth; Dependence on Key Personnel" and
"Business -- Operations."

Prior to September 14, 1995, the Company recognized revenue under the
Cooperative Agreement on the basis of direct cost plus allowable indirect costs
and the earned portion of the fee. Since September 14, 1995, fees for services
provided by the Company pursuant to new registrations have been recognized as
revenue evenly over the initial 24-month subscription period. Fees from renewals
are recognized as revenue evenly over the 12-month subscription period. The
Company records revenue net of an estimated provision for uncollectible
accounts. At June 30, 1997, the Company had net deferred revenue of $45.6
million, of which $32.0 million will be recognized over the next twelve months.
See Notes 2 and 3 of Notes to Financial Statements.

Expenses for the Company increased each quarter during 1995, 1996 and the
first two quarters of 1997 as a result of increased business activities,
primarily attributable to subscriber growth for the Company's registration
services business. The Company believes continued investments in its back office
infrastructure as well as significant expansion of its sales and marketing and
product development activities are critical to the achievement of its goals and
anticipates that costs and expenses will continue to increase in each quarter
for the forseeable future.

Intranet Services. Substantially all of the Company's Intranet services
revenue is derived from professional services which are generally provided to
clients on a "time and expense" basis. Professional services revenue is
recognized as services are performed. The Company also performs a limited number
of fixed-price projects under which revenue is recognized using the
percentage-of-completion method. The Company also derives revenue from remote
monitoring and hosting services; however, such revenue has not been significant
to date. Remote monitoring and hosting revenue is recognized ratably over the
term of the contract.

Since professional services revenue for Intranet services is recognized by
the Company only when network systems engineers are engaged on client projects,
the relative utilization of network systems engineers directly affects the
Company's operating results. In addition, a majority of the Company's Intranet
services operating expenses, particularly personnel and related costs,
depreciation and rent, are substantially fixed in advance of any particular
quarter. As a result, any underutilization of network systems engineers may
cause significant variations in operating results in any particular quarter and
could result in losses for such quarter. Termination or completion of contracts
in the Company's Intranet services business or failure to obtain additional
contracts in its Intranet services business could have a material adverse effect
on the Company's business, financial condition and results of operation. See
"Risk Factors -- Potential Fluctuations in Quarterly Results."

NationsBanc is the Company's largest Intranet services customer and
accounted for 47.6% and 41.3% of the Company's Intranet services net revenue and
19.5% and 7.8% of the Company's total net revenue for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively. NationsBanc
originally contracted with the Company in 1993 to provide ongoing analysis,
design,

30
<PAGE> 32

implementation and support engineering for its enterprise network. The Company
currently provides network design and engineering services as well as a variety
of project specific services for NationsBanc. The Company's current contract
with NationsBanc is a three-year contract which commenced January 1, 1997 and is
a requirements contract under which the Company's services are ordered by task
orders issued by NationsBanc. The NationsBanc contract may be terminated by
NationsBanc at any time upon 30-days' prior written notice to the Company.
During the first quarter of 1997, task orders for a number of services the
Company had historically performed for NationsBanc were not renewed. The Company
believes this reflects NationsBanc's focus on increasing its internal
information technology staff as well as its continued efforts to integrate
information technology staff from recent acquisitions. There can be no assurance
that the Company will obtain any additional task orders under the NationsBanc
contract or maintain or be able to expand its Intranet services business.
Failure to do so would materially and adversely affect the Company's business,
financial condition and results of operations. See "Risk Factors -- Limited
Service Offerings to Date; Reliance on Domain Name Registration Services and
Intranet Services for Substantially All Revenue."

Financial Presentation. The accompanying historical financial statements
for all periods presented reflect the results of continuing operations related
to the commercial activities of the Company only. The operating results of both
the minority-based government contracts business, which was transferred into a
separate entity prior to the acquisition of the Company by SAIC, and the
remaining government-based business, which was transferred to SAIC effective
February 1996, are reflected as discontinued operations in the Company's
financial statements.

Subsequent to the acquisition of the Company by SAIC, SAIC has provided to
the Company from time to time, upon request of the Company certain routine and
ordinary corporate services, including financial, insurance, accounting,
employee benefits, payroll, tax and legal services. SAIC has also provided
corporate planning, government relations and corporate quality assurance
services. The Company has also shared certain SAIC systems, including its
management information system, accounting system and human resource system.
Therefore, the Company's Statements of Operations include revenue and costs
directly attributable to the Company, as well as certain allocations from SAIC
of indirect costs associated with such services and shared systems. Such
allocations include allocations of: (i) costs for administrative functions and
services performed on behalf of the Company by centralized staff groups within
SAIC; (ii) SAIC's general corporate expenses; (iii) other benefit costs,
including, but not limited to, health insurance, disability and retirement
costs; and (iv) cost of capital (through December 31, 1996). Through August 9,
1996, such allocations (excluding cost of capital) were generally based on the
proportionate labor costs of the Company to the rest of SAIC and were included
in selling, general and administrative expenses and cost of revenue,
respectively. Effective August 10, 1996, SAIC stopped allocating costs based
generally upon pro rata labor and began assessing the Company for corporate
services provided by SAIC at a fee equal to 2.5% of net revenue. This fee is
included in its entirety in selling, general and administrative expenses with
such percentage to be re-evaluated by both parties on an annual basis. The
arrangement will continue indefinitely until terminated by either party upon 180
days' prior written notice. Current and deferred income taxes and related tax
expense have been recorded by the Company as if it were a separate taxpayer. The
allocations and estimates in the financial statements are based on assumptions
that the Company's management believes are reasonable under the circumstances.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship to net revenue of certain items in the Company's Statement of
Operations. The percentage relationships for the year ended December 31, 1995
were derived by combining the Company's results of operations for the period
January 1, 1995 through March 10, 1995 and the period March 11, 1995 through
December 31, 1995 which, respectively, are periods before and after the date of
the SAIC acquisition. Accordingly, the data for these two periods and the
periods preceding and following the acquisition were prepared on differing bases
of accounting and, as a result, the comparability of such percentage

31
<PAGE> 33

relationships with other periods is limited, primarily as a result of the
goodwill amortization, new corporate services agreements and interest expense
related to outstanding debt balances.

<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
---------------------------------------------
SIX MONTHS
FISCAL YEAR ENDED
ENDED DECEMBER 31, JUNE 30
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................... 61.1 87.9 77.8 95.5 61.1
----- ----- ----- ----- -----
Gross profit...................................... 38.9 12.1 22.2 4.5 38.9
Research and development expenses................. -- -- 3.6 0.8 3.8
Selling, general and administrative expenses...... 30.7 36.9 33.3 34.7 25.6
Interest expense (income)......................... 2.2 0.9 (2.7) (1.2) (2.6)
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes.................................... 6.0 (25.7) (12.0) (29.8) 12.1
Provision (benefit) for income taxes.............. 2.2 (3.6) (3.4) (8.5) 5.4
----- ----- ----- ----- -----
Income (loss) from continuing operations, net of
income taxes.................................... 3.8% (22.1)% (8.6)% (21.3)% 6.7%
===== ===== ===== ===== =====
</TABLE>

In September 1995, the Cooperative Agreement between the Company and the
NSF was amended from a cost reimbursement plus fixed-fee contract to a fee-based
registration contract. The Company believes that the change to a
subscription-based pricing model, combined with the Company's recent growth,
make period to period comparisons of its operating results less meaningful and
that the results for any period should not be relied upon as an indication of
future performance. The limited operating history of the Company in its current
business model makes the prediction of future results of operations difficult
and, therefore, the recent revenue growth experienced by the Company should not
be taken as being indicative of the rate of revenue growth, if any, that can be
expected in the future. See "Risk Factors -- Limited Operating History" and
"-- Potential Fluctuations in Quarterly Results."

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1997

Net Revenue. Net revenue increased 174% from $6.8 million for the six
months ended June 30, 1996 to $18.7 million for the six months ended June 30,
1997. This increase in net revenue was primarily attributable to the increase in
the number of domain name subscriptions, principally in the .com TLD.
Subscription growth has been driven by the widespread use and adoption of the
Internet and Intranets by businesses and individuals. Net revenue from
registration services increased 424% from $2.9 million for the six months ended
June 30, 1996 to $15.2 million for the six months ended June 30, 1997. There can
be no assurance that net revenue will continue to increase at such rates, or at
all, or not decrease, when the Cooperative Agreement is terminated or if there
is a change in the Company's status as the exclusive registrar for domain names
in the .com TLD, particularly as a significant portion of the Company's net
revenue is attributable to registrations in the .com TLD. Net registrations
increased 206% from approximately 340,000 at June 30, 1996 to approximately
1,040,000 at June 30, 1997. Notwithstanding the $45.6 million of deferred
revenue at June 30, 1997, of which $32.0 million will be recognized over the
next twelve months, the Company's revenue is dependent in large part on the
continued growth of the Internet and the Company's ability to maintain its
position as the leading Internet domain name registration service provider
worldwide.

Net revenue from Intranet services decreased 10% from $4.0 million for the
six months ended June 30, 1996 to $3.6 million for the six months ended June 30,
1997. This decrease was primarily attributable to a decrease in business from
NationsBanc.

NationsBanc, the Company's largest Intranet services client, accounted for
$1.5 million or 7.8% of the Company's total net revenue for the six months ended
June 30, 1997 and $1.8 million or 26.7% of the Company's total net revenue for
the six months ended June 30, 1996. During the first quarter of

32
<PAGE> 34

1997, task orders for a number of services the Company had historically
performed for NationsBanc were not renewed. The Company believes this reflects
NationsBanc's focus on increasing its internal information technology staff as
well as its continued efforts to integrate information technology staff from
recent acquisitions. Though these actions will have a negative financial impact
on the Company's Intranet services revenue for the balance of 1997, the Company
believes NationsBanc will continue to be a significant customer of its Intranet
services business, but to a lesser extent than in previous years, both in terms
of dollars and as a percentage of the Company's total net revenue. See "Risk
Factors -- Uncertain Status of the Cooperative Agreement," "-- Competition in
Domain Name Registration Business," "-- Recommendations and Proposals to
Increase Competition in Registration Services" "-- Limited Services to Date;
Reliance on Domain Name Registration Services and Intranet Services for
Substantially All Revenue," and "-- Dependence on Future Growth of the Internet
and Internet Infrastructure."

Cost of Revenue. Cost of revenue consists primarily of salaries and
employee benefits, fees paid to subcontractors for work performed in connection
with projects, depreciation, lease costs of the operations infrastructure and
the associated operating overhead. Cost of revenue increased 75% from $6.5
million for the six months ended June 30, 1996 to $11.4 million for the six
months ended June 30, 1997. This increase was primarily associated with
additional labor costs of $3.5 million required to support the Company's
registration services business. The Company continues to invest in improvements
to the back office component of its domain name registration business and has
made investments in additional hardware, software, staffing and facilities and
currently anticipates that it will continue to make significant investments in
its back office for the foreseeable future. On June 16, 1997, the Company opened
a 31,000 square foot facility to support its Internet business operations. This
leased facility is designed to meet current registration services customer
support needs as well as to provide expansion capability for future business.
See "Business -- Operations."

As a percentage of net revenue, cost of revenue decreased from 95.5% for
the six months ended June 30, 1996 to 61.1% for the six months ended June 30,
1997. This decrease primarily reflects economies of scale that the Company has
begun to achieve due to the growth of its subscription-based domain name
registration business. In the near term, the continued need for back-office
investments is expected to significantly offset any overall margin improvements
arising from economies of scale.

Research and Development Expenses. Research and development expenses
consist primarily of compensation expenses to support the development and
enhancement of the Company's technologies. Research and development expenses for
the six months ended June 30, 1996 were $58,000 and for the six months ended
June 30, 1997 were $718,000, or 3.8% of net revenue. To date, all of the
Company's development costs have been expensed as incurred. The Company expects
that the level of research and development expenses will increase significantly
in the near future in absolute dollars and as a percentage of net revenue as the
Company invests in new product and service offerings.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries of business development,
general management, administrative and financial personnel, outside professional
fees and amortization of goodwill associated with the Company's acquisition by
SAIC. Selling, general and administrative expenses increased 102% from $2.4
million for the six months ended June 30, 1996 to $4.8 million for the six
months ended June 30, 1997. The increase was primarily attributable to increased
management and administrative labor of $1.2 million and an increase in legal
costs of $542,000 associated with the administration of the Company's domain
name dispute policy. During the first quarter of 1997, the Company was notified
that one of its Intranet services customers had filed for bankruptcy, resulting
in a $194,000 bad debt write-off. These expenses include $325,000 of expenses
allocated from SAIC during the six months ended June 30, 1996 in accordance with
the then current intercompany agreement and $468,000 of expenses which were
charged by SAIC during the six months ended June 30, 1997 based on the fee of
2.5% of net revenue. If the expenses for the six months ended June 30, 1996 were
based on the fee of 2.5% of net revenue under the current intercompany
agreement, such expenses would have been $171,000.

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<PAGE> 35

As a percentage of net revenue, selling, general and administrative
expenses decreased from 34.7% for the six months ended June 30, 1996 to 25.6%
for the six months ended June 30, 1997. The decrease in percentage of net
revenue reflects economies the Company has begun to achieve due primarily to the
growth of its domain name registration business. The Company expects that the
level of selling, general and administrative expenses will increase
significantly in the near future in absolute dollars as operations expand.

Interest Expense (Income). The Company had interest income of $86,000 for
the six months ended June 30, 1996 as compared to $484,000 for the six months
ended June 30, 1997. The change is attributable to increased cash flow
associated with the Company's registration services business.

Income Taxes (Benefit). The income tax benefit was $576,000 for the six
months ended June 30, 1996 as compared to an income tax expense of $1,011,000
for the six months ended June 30, 1997. The effective tax rate changed from
28.3% for the six months ended June 30, 1996 to 44.6% for the six months ended
June 30, 1997. The difference between the effective rates was attributed to the
relative impact that non-deductible goodwill had on pre-tax operating income or
loss for the quarter. The goodwill amount is being amortized by the Company over
five years and is associated with the acquisition of the Company by SAIC.

Although the Company has a history of net losses, it has not established a
valuation allowance for its deferred tax assets since, in the opinion of
management, it is more likely than not that all of the deferred tax assets will
be realized. The deferred tax assets relate primarily to registration fee
revenues which are taxable upon registration but are recognized in the financial
statements over the next 12 to 24 months -- the subscription period.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996

Net Revenue. Net revenue increased 191% from $6.5 million in 1995 to $18.9
million in 1996. This increase in net revenue was primarily attributable to the
increase in the number of domain name subscriptions, principally in the .com
TLD, as well as the Company's shift to a subscription-based pricing model. Net
revenue from registration services increased 594% from $1.6 million in 1995 to
$11.1 million in 1996. Net revenue in 1995 primarily reflects the cost
reimbursement plus fixed-fee contract with the NSF whereas net revenue for 1996
reflects the Company's subscription-based pricing model. Net registrations to
the Company's domain name registration service increased 254% from 177,000 at
December 31, 1995 to approximately 627,000 at December 31, 1996.

Net revenue from Intranet services increased 57% from $4.9 million in 1995
to $7.7 million in 1996, including an increase in net revenue from NationsBanc,
the Company's largest Intranet services customer, which increased 42% from $2.6
million in 1995 to $3.7 million in 1996. The growth was primarily attributable
to increased funding within NationsBanc to support internal network integration
and expansion. The Company also experienced growth from a number of new Intranet
services customers, many of which were obtained through subcontracting with and
utilizing leads from SAIC.

NationsBanc accounted for 19.5% of total net revenue in 1996. NationsBanc
accounted for 40.8% of total net revenue and the NSF (under the cost
reimbursement plus fixed-fee contract) accounted for 20.8% of total net revenue
in 1995. No other source of revenue accounted for more than 7.1% of total net
revenue in either year.

Cost of Revenue. Cost of revenue increased 157% from $5.7 million in 1995
to $14.7 million in 1996. The increase in cost was related primarily to an
increase in the cost of labor of $3.7 million as a result of the Company's rapid
growth. Effective with the September 14, 1995 amendment to the Cooperative
Agreement which implemented the subscription-based pricing model, the Company
has established and continues to develop its back office capability. This
required the Company to make significant investments in hardware and software as
well as to utilize a number of third-party vendors in support of back office
requirements. In particular, the Company began to outsource portions of its back
office operations during the fourth quarter of 1996. The principal benefit of
outsourcing was to increase the capacity and efficiency of its back office
operations; however, such action alone has not significantly impacted operating
margins.

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<PAGE> 36

As a percentage of net revenue, cost of revenue decreased from 87.9% in
1995 to 77.8% in 1996. This decrease reflects economies of scale that the
Company has begun to achieve due to the growth of its subscription-based
registration business.

Research and Development Expenses. There were no research and development
expenses in 1995, in large part because registration system enhancements were
reimbursable under the Cooperative Agreement. In 1996, research and development
expenses were $680,000 or 3.6% of net revenue. To date, all of the Company's
development costs have been expensed as incurred.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 162% from $2.4 million in 1995 to $6.3 million
in 1996. This increase was primarily attributable to increases in management,
administrative and business development staff, as well as increased legal costs
associated with the administration of the Company's domain name dispute policy.
Selling, general and administrative expenses include $237,000 in 1995 and
$822,000 in 1996 of expenses allocated from SAIC in accordance with the then
current intercompany agreement. If the expenses were based on the fee of 2.5% of
net revenue under the current intercompany agreement, such expenses would have
been $133,000 and $472,000, respectively.

As a percentage of net revenue, selling, general and administrative
expenses decreased from 36.9% in 1995 to 33.3% in 1996, reflecting the generally
fixed nature of certain general and administrative expenses as well as
management's control of such costs.

Interest Expense (Income). The Company had net interest expense of $61,000
in 1995 as compared to interest income of $496,000 in 1996. The change is
primarily attributable to positive cash flow in 1996 associated with the
Company's subscription-based registration business.

Income Taxes (Benefit). The income tax benefit was $239,000 in 1995 as
compared to $643,000 in 1996. The effective tax rate increased from 14.3% in
1995 to 28.4% in 1996. The difference between the effective tax rates was
primarily attributable to non-deductible goodwill comprising a higher percentage
of the Company's net loss in 1995.

Discontinued Operations. Immediately prior to the acquisition of the
Company by SAIC, the portion of the Company's business relating to the
minority-based government business had been transferred into a separately-owned
entity. In November 1995, SAIC adopted a plan to transfer the Company's
remaining government-based business to SAIC in order to enable the Company to
focus on the growth of its commercial business, which includes registration
services and Intranet services. This transfer was effective as of February 1996.
November 1995 was the measurement date for discontinued operations for
accounting purposes. The activities of both the minority-based government
business and the remaining government-based business are reflected as
discontinued operations. Net income (loss) from discontinued operations excludes
general corporate overhead of the Company. No gain or loss was incurred as a
consequence of the transfer of these businesses.

In 1995, discontinued operations incurred a net loss of $1.4 million. The
loss was primarily attributable to the Company's remaining government business,
which increased the Company's provision for uncollectable accounts associated
with the bankruptcy of a prime contractor, high interest costs associated with
payment issues from other prime contractors and over-runs of fixed-price and
fixed-rate contracts. As mentioned above, this business was transferred to SAIC
effective as of February 1996.

COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1995

Net Revenue. Net revenue increased 29% from $5.0 million in 1994 to $6.5
million in 1995. The increase in net revenue was primarily attributable to the
Company's Intranet services business which

35
<PAGE> 37

increased its revenue 26% from $3.9 million in 1994 to $4.9 million in 1995. The
Company developed a number of new customers mainly in the banking industry, as
well as subcontracting with and utilizing leads from SAIC. NationsBanc and the
NSF (under the cost reimbursement plus fixed-fee contract) together accounted
for 85.2% and 61.6% of net revenue in 1994 and 1995, respectively. No other
source of revenue accounted for more than 7.1% of net revenue in either year.

Cost of Revenue. Cost of revenue increased 86% from $3.1 million or 61.1%
of net revenue in 1994 to $5.7 million or 87.9% of net revenue in 1995. The 1995
increase in absolute dollars and as a percentage of net revenue was attributable
to increased costs in the Company's Intranet services business as the Company
invested in technical support and additional infrastructure in order to attract
and maintain clients in 1995. In addition, the Company began to significantly
expand its back office capability in support of the September 14, 1995 amendment
to its Cooperative Agreement with the NSF, which introduced a subscription-based
pricing model for its domain name registration services.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 55% from $1.5 million or 30.7% of net revenue
in 1994 to $2.4 million or 36.9% of net revenue in 1995. This increase was
primarily attributable to additional costs necessary to support the growth in
the Company's business and professional staff during 1995.

Interest Expense (Income). Net interest expense decreased 44% from
$109,000 or 2.2% of net revenue in 1994 to $61,000 or 0.9% of net revenue in
1995. The decrease was primarily attributable to cash flow improvements from the
Company's Intranet services business.

Income Taxes (Benefit). The income tax provision was $114,000 in 1994
compared with a $239,000 benefit for income taxes in 1995. The 1994 effective
tax rate was 37.6% as compared to the 1995 effective tax rate of 14.3%. The
difference between the effective rates was attributed to the relative impact
which non-deductible goodwill had on pre-tax operating income or loss for the
year.

Discontinued Operations. Discontinued operations incurred a net loss of
$1.2 million in 1994 as compared to a net loss of $1.4 million in 1995. The 1994
loss was primarily attributable to the minority-based government business which
experienced several large over-runs related to fixed-price and fixed-rate
contracts. This business was transferred into a separately-owned entity
immediately prior to the acquisition of the Company by SAIC on March 10, 1995.
The loss in 1995 was primarily attributable to the Company's remaining
government business, which increased the Company's provision for uncollectable
accounts associated with the bankruptcy of a prime contractor, high interest
costs associated with payment issues from other prime contractors and over-runs
of fixed-price and fixed-rate contracts. As mentioned above, this business was
transferred to SAIC effective as of February 1996.

FACTORS AFFECTING OPERATING RESULTS

As a result of the Company's limited operating history, especially with
regard to its subscription-based registration service business, the Company does
not have significant historical financial data on which to base planned
operating expenses. Accordingly, the Company's expense levels are based in part
on its expectations as to future revenue and to a large extent are fixed. As a
result, quarterly sales and operating results generally depend on the volume of
and ability to fulfill registration requests, which are difficult to forecast.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall of
demand for the Company's services in relation to the Company's expectations
would have an immediate adverse impact on the Company's business, operating
results and financial condition. In addition, the Company expects a significant
increase in its operating expenses as it funds greater levels of product and
services development, increases its sales and marketing operations, updates
systems and infrastructure, expands its facilities, develops new distribution
channels and broadens its customer support capabilities. The Company has not
finalized its plans nor its budget with respect to the foregoing anticipated
expenditures and thus cannot reasonably estimate the amount of such expenditures
at this time. While no individual expenditure is anticipated to have a material
impact on the Company's operating results, the combined effect could be
significant and cannot be reasonably estimated at this time. To the extent

36
<PAGE> 38

that such expenses precede or are not subsequently followed by an increase in
revenue, the Company's business, operating results and financial condition will
be materially and adversely affected.

The Company believes that future operating results will be subject to
quarterly fluctuations due to a variety of factors, many of which are beyond the
Company's control. Such factors may include, but are not limited to, the
introduction of competing TLDs, variations in the number of requests for domain
name registrations, demand for the Company's services, introduction or
enhancements of services by the Company or its competitors, market acceptance of
new service offerings, increased competition, costs associated with providing
domain name registration services, litigation costs, termination or completion
of contracts in the Company's Intranet service business or failure to obtain
additional contracts in its Intranet services business, patterns of growth in
the use of and interest in the Internet and general economic conditions.
Operating results would be adversely affected by a downturn, or increased
competition, in the market for domain name registrations or a failure to
maintain existing or obtain anticipated contracts in its Intranet services
business. Because the Company expects an increase in its operating expenses for
personnel and new services development, the Company would be materially and
adversely affected if its revenues did not correspondingly increase. The
Company's operations are dependent upon its ability to maintain its computer and
telecommunications equipment in effective working order and to reasonably
protect its systems against damage from fire, natural disaster, sabotage, power
loss, telecommunication failure, human error or similar events. In addition,
growth of the Company's customer base may put strain on the capacity of its
computers and telecommunications systems and the Company's inability to
sufficiently maintain or upgrade its systems could lead to degradation in
performance or system failure. Any damage, failure or delay that causes
significant interruptions in the Company's systems would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, when the Cooperative Agreement is terminated or if there is a
change in the Company's status as the exclusive registrar for domain names in
the .com TLD the Company's business, financial condition and results of
operations could be materially and adversely affected. Although the impact of
the termination of the Cooperative Agreement is uncertain, such termination
could have a material adverse effect on the Company's revenue, particularly as
the Company's revenue growth in recent periods has been primarily attributable
to increases in registrations in the .com TLD. See "Risk Factors -- Uncertain
Status of the Cooperative Agreement," "-- Competition in Domain Name
Registration Business," "-- Recommendations and Proposals to Introduce
Competition in Registration Services," "-- Competition in Intranet Services and
Internet-Enabling Businesses," "-- Uncollectible Receivables; Modifications to
Billing Practices," "-- Technological Change and Additional Technology, Products
and Services," and "-- Potential Fluctuations in Quarterly Results."

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<PAGE> 39

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited quarterly financial
information for each of the seven quarters in the period ended June 30, 1997. In
the opinion of management, this information has been presented on the same basis
as the audited financial statements appearing elsewhere in this Prospectus, and
all necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the audited financial statements
of the Company and notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................... $ 1,533 $ 2,333 $4,496 $ 5,180 $6,853 $8,655 $10,069
Cost of revenue................ 1,911 2,950 3,571 3,719 4,426 5,294 6,141
------- ------- ------ ------- ------ ------ -------
Gross profit (loss)............ (378) (617) 925 1,461 2,427 3,361 3,928
Research and development
expenses..................... -- -- 58 226 396 311 407
Selling, general and
administrative expenses...... 607 921 1,449 1,932 1,978 2,301 2,487
Interest expense (income)...... 34 -- (86) (288) (122) (149) (335)
------- ------- ------ ------- ------ ------ -------
Income (loss) from continuing
operations before income
taxes........................ (1,019) (1,538) (496) (409) 175 898 1,369
Provision (benefit) for income
taxes........................ (175) (436) (140) (116) 49 382 629
------- ------- ------ ------- ------ ------ -------
Income (loss) from continuing
operations................... $ (844) $(1,102) $ (356) $ (293) $ 126 $ 516 $ 740
======= ======= ====== ======= ====== ====== =======

PERCENTAGE OF TOTAL NET REVENUE
---------------------------------------------------------------------------------
Net revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................ 124.7 126.4 79.4 71.8 64.6 61.2 61.0
------- ------ ------ ------- ------ ------ ------
Gross profit (loss)............ (24.7) (26.4) 20.6 28.2 35.4 38.8 39.0
Research and development
expenses..................... -- -- 1.3 4.4 5.8 3.5 4.0
Selling, general and
administrative expenses...... 39.6 39.5 32.2 37.3 28.9 26.6 24.7
Interest expense (income)...... 2.2 -- (1.9) (5.6) (1.8) (1.7) (3.2)
------- ------ ------ ------- ------ ------ ------
Income (loss) from continuing
operations before income
taxes........................ (66.5) (65.9) (11.0) (7.9) 2.5 10.4 13.5
Provision (benefit) for income
taxes........................ (11.4) (18.7) (3.1) (2.2) 0.7 4.4 6.2
------- ------ ------ ------- ------ ------ ------
Income (loss) from continuing
operations................... (55.1)% (47.2)% (7.9)% (5.7)% 1.8% 6.0% 7.3%
======= ====== ====== ======= ====== ====== ======
</TABLE>

38
<PAGE> 40

LIQUIDITY AND CAPITAL RESOURCES

From its acquisition by SAIC in March 1995 until December 1996, the Company
participated in SAIC's centralized cash management system whereby cash received
from operations was transferred to SAIC's centralized cash accounts and cash
disbursements were funded from such centralized cash accounts. Accordingly, cash
requirements for operating purposes and for capital expenditures were met from
this source. Beginning in 1997, the Company implemented its own cash management
system.

At June 30, 1997, the Company's cumulative net obligations to SAIC of $6.6
million were classified under current liabilities on the balance sheet as due to
parent. The intercompany activity primarily comprises corporate tax payments
made by SAIC on behalf of the Company in accordance with the tax sharing
arrangement between the Company and SAIC and salaries and benefits paid by SAIC
on behalf of the Company. Effective in the second quarter of 1997, corporate
taxes are paid to SAIC on a quarterly basis, with all other intercompany
balances between SAIC and the Company paid on a monthly basis.

At June 30, 1997, the Company had unrestricted cash and cash equivalents
totaling $26.0 million, as well as $3.6 million of short-term investments.
Pursuant to the terms of the September 14, 1995 amendment to the Cooperative
Agreement, the Company is required to set aside 30% of collected registration
and renewal fees. The Company reflects NSF's set aside funds along with the
appropriate percentage of net accounts receivable as restricted assets and has
recorded an equivalent, related current liability. At June 30, 1997, the
restricted assets totaled $31.1 million. See Notes 2 and 3 to the Financial
Statements.

Revenue from the Company's two-year initial registration fee is effectively
taxable in full in the year of registration, while for financial reporting
purposes, the revenue is deferred and recognized ratably over the 24-month
period. Thus, the provision (benefit) for income taxes based on book income
(loss) from operations is significantly different from the required tax payments
based on taxable income. Due to this accelerated revenue recognition for tax
purposes, the Company's resultant tax liability is funded in advance of the
corresponding financial reporting revenue. At June 30, 1997, the Company had
$17.5 million of deferred tax assets primarily due to this revenue timing
difference. See "Relationship with SAIC -- Corporate Services Agreement."

The rapid growth of the Company's registration business in 1995 and 1996
significantly exceeded the Company's back office capabilities. As a result, the
Company was unable to keep current in the processing, billing, collection,
reconciliation and other administrative and financial functions related to the
registration services business. Although the delay did not have a material
impact on the Company's financial performance, it did have a significant impact
on the Company's 1996 cash flows. During 1997, the Company became current in
these functions. Accordingly, the Company's cash flows for 1997 were higher than
normal and may not be indicative of future cash flows.

In addition, the Company believes that the historical and anticipated costs
associated with its legal proceedings are part of the Company's normal operating
costs. There can be no assurance that the Company will not be involved in
additional litigation, investigations or other proceedings in the future.
Certain current and future proceedings, with or without merit, could be costly
and time-consuming to defend and could have a material adverse effect on the
Company's liquidity. See "Business -- Litigation; Antitrust Investigation."

Capital expenditures for continuing operations were $1.9 million and $2.9
million for the year ended December 31, 1996 and the six months ended June 30,
1997, respectively. These expenditures were primarily for computer equipment.
Commencing in August 1996, the Company adopted a program of leasing most of its
computer equipment under noncancellable 24- and 36-month leases to allow the
Company to maintain the latest technology within its operating infrastructure.
The Company is currently reviewing its 1997 capital expenditure plans and
anticipates expenditures of approximately $5 million to $7 million for the
balance of 1997. The Company expects that a majority of these expenditures will
be financed under lease agreements ranging from 24 to 36 months.

39
<PAGE> 41

The Company believes that the net proceeds from the sale of Class A Common
Stock offered hereby, together with its current cash balances, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next 12 months. Although operating activities may provide cash in
certain periods, to the extent that the Company experiences growth in the
future, the Company anticipates that its operating and investing activities may
use cash. Consequently, any such growth may require the Company to obtain
additional equity or debt financing. There can be no assurance that such
additional financing will be available to the Company. The sale of additional
equity or convertible debt securities will result in additional dilution to the
Company's stockholders. In addition, although there are no present
understandings, commitments or agreements with respect to any acquisitions of
other businesses, products or technologies, the Company from time to time
evaluates potential acquisitions of other businesses, products and technologies
and may in the future require additional equity or debt financings to consummate
such potential acquisitions.

40
<PAGE> 42

BUSINESS

The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements as a result of
certain factors including, but not limited to, those discussed in "Risk Factors"
and elsewhere in the Prospectus.

Network Solutions is the leading Internet domain name registration service
provider worldwide. The Company currently acts as the exclusive registrar for
second level domain names within the .com, .org, .net, .edu and .gov TLDs. By
registering Internet domain names, the Company enables businesses, other
organizations and individuals to establish a unique Internet presence from which
to communicate and conduct commerce. Net registrations within the TLDs
maintained by the Company increased by 206% from approximately 340,000 domain
names registered at June 30, 1996 to approximately 1,040,000 domain names
registered at June 30, 1997. The Company believes that commercial enterprises
and individual Internet users worldwide are increasingly recognizing the .com
TLD as a desirable address for commercial presence on the Internet. Net
registrations in the .com TLD increased from approximately 304,000 at June 30,
1996 to approximately 908,000 at June 30, 1997, representing 87% of the
Company's total net registrations at June 30, 1997. With over 10 million
businesses and over 750,000 active trademarks and service marks in the United
States alone, the Company believes that the potential for continued growth of
domain name registrations by commercial entities and services related to those
registrations is substantial. Net revenue from Internet domain name registration
subscriptions accounted for 81.0% of the Company's net revenue for the six
months ended June 30, 1997.

The Company also provides Intranet consulting services to large companies
that desire to establish or enhance their Internet presence, or "re-engineer"
legacy network infrastructures to accommodate the integration of both Internet
connectivity and Intranet network technology into their information technology
base. The Company's Intranet services include: (i) Intranet development and
re-engineering; (ii) network and systems security; and (iii) Intranet-enabled
business solutions. According to Zona Research, Inc., the market for Intranet
services in the year 1999 will exceed $14 billion, up from approximately $3
billion in 1996. There can be no assurance that such market forecast will be
achieved. Net revenue from Intranet services accounted for 19.0% of the
Company's net revenue for the six months ended June 30, 1997.

The Company also intends to develop a portfolio of Internet-enabling
products and services, which may include directory and distribution services,
that allows the Company to build upon its position in the registration process
and makes proper use of the customer data that it collects.

INDUSTRY BACKGROUND

The Internet is a global network of millions of interconnected computers
and computer networks that allow businesses, other organizations and individuals
to communicate. Historically, the Internet had been used by a limited number of
academic institutions, defense contractors and government agencies to facilitate
remote access to host computers and transmit electronic mail. Recently, however,
use of the Internet has increasingly become dominated by a broad range of
commercial organizations and individuals who utilize the Internet to communicate
electronically, to distribute and retrieve information and to conduct commerce.
Advances in technology, low-cost Internet access and an increasing corporate
reliance on distributed information environments have fueled the rapid growth of
the Internet. According to estimates published by the International Data
Corporation, the number of World Wide Web users will be approximately 163
million by the end of 2000, compared to approximately 35 million at the end of
1996.

The Internet has been and continues to be loosely administered by a number
of government agencies that were involved in the creation of its infrastructure
(initially ARPA and, more recently, the NSF) and a number of nonprofit groups
formed to address specific Internet governance issues. As no single organization
has formal authority over all aspects of the Internet, it continues to operate
under a system of mutual collaboration and cooperation. With the
commercialization of the Internet, the role of many of these entities in future
Internet administration has become less clear and private parties

41
<PAGE> 43

have begun to assume a larger role in the enhancement and maintenance of the
Internet's infrastructure. The NSF, for example, has completed a two-year phased
withdrawal of its funding for the Internet "backbone" and has transferred this
responsibility to a group of private telecommunications carriers that are
commercially funded.

The Company believes that in order to support the demands placed on this
evolving and rapidly growing medium of commerce and information exchange, a wide
range of products and services will need to be developed and enhanced,
including: (i) domain name registration services; (ii) Intranet services; and
(iii) Internet-enabling products and services.

Domain Name Registration Services. All communication on the Internet
requires an electronic address. Currently, the Internet functions through the
establishment of a unique Internet identity (a "domain name") for an electronic
address and the proliferation of such domain name in the global Internet root
servers. Currently, there are 13 root servers, ten of which are located in the
United States, two of which are located in Europe and one of which is located in
Asia. When communication with a particular host within a domain name is required
and the IP address of that host is not known locally, the root servers make that
information available or "point" to a direct or indirect source of the
information. See "Risk Factors -- Reliance on Third Parties."

An Internet domain name is made up of a top-level domain ("TLD"), such as
.com or .net, and additional domain levels consisting of at least one additional
domain level, referred to as a second level domain name. For example, in the
domain name "companyX.com," "companyX" is the second level domain name. With the
increased commercialization of the Internet, second level domain names are being
utilized not only by large corporations but also increasingly by other users,
including small businesses, organizations and individuals. Particularly within
the .com TLD, users are also registering domain names to establish Internet
identities for other purposes such as trademarks, products and events. The most
common TLDs include .com, used primarily by commercial entities, .org for
nonprofit organizations, .net for network service providers, .edu for
universities and .gov for United States governmental entities, as well as
country code TLDs represented by "." followed by two letter country codes (e.g.,
.us for the United States, .uk for the United Kingdom and .de for Germany).

Because the Internet is not bound by geography or lines of business,
coordination and administrative services are required for the registration,
allocation and use of TLDs and for the effective operation of the Internet.
Initially, in the United States, registration of domain names was primarily
performed by government or nonprofit agencies. In 1993, the NSF entered into the
Cooperative Agreement with the Company for the performance of these functions
for the .com, .org, .net, .edu and .gov TLDs. The Cooperative Agreement by its
terms expires in March 1998, although the NSF may, at its option, extend the
Cooperative Agreement to September 1998. The Cooperative Agreement is subject to
review by the NSF and may be terminated at any time by the NSF at its discretion
or by mutual agreement. See "Risk Factors -- Uncertain Status of the Cooperative
Agreement," "-- Recommendations and Proposals to Increase Competition in
Registration Services" and "-- Relationship with the NSF; Recent Developments in
the Internet Community."

Intranet Services. Many enterprises are adopting "Intranets" that employ
Internet data formats and communications protocols. Intranets enhance user
productivity and connectivity allowing users controlled access to internal
information while also accessing and exchanging information on the Internet. As
more businesses, organizations and individuals establish an Internet presence
and begin to deploy Intranets, there will be an increasing demand for Intranet
development and re-engineering services, network and systems security services
and Intranet-enabled business solutions. In addition, the Company believes that
Intranets are becoming increasingly sophisticated and are allowing users
increased capabilities and improved access to information. As a result,
corporations are increasingly seeking experienced networking firms to enable all
of these services. According to Zona Research, Inc., the market for Intranet
services in the year 1999 will exceed $14 billion, up from approximately $3
billion in 1996.

Internet-Enabling Products and Services. The proliferation of Internet
users provides businesses, other organizations and individuals with new means by
which to conduct business. To facilitate

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business-to-business and business-to-consumer transactions, Internet users are
seeking important enabling products and services, such as transaction security
services, electronic payment mechanisms and directory and information services.
The Company believes there will be opportunities for entities which can
facilitate, develop and distribute such products and services and make them more
readily accessible and easy to use.

THE NSI SOLUTION

Network Solutions is the leading Internet domain name registration service
provider worldwide. The Company currently acts as the exclusive registrar of
second level domain names within the .com, .org, .net, .edu and .gov TLDs. In
this capacity, the Company enables the efficient operation of the Internet by
supplying each of the Internet root servers located around the world with an
identical copy of the file for all second level domain names in these TLDs. By
registering Internet domain names, the Company enables businesses, other
organizations and individuals to establish a unique Internet presence from which
to communicate and conduct commerce. The Company believes that it has been at
the forefront of the development, administration and coordination of standards,
policies and functions needed to facilitate the registration process, including
dissemination of domain name database information to root servers throughout the
world and administration of a domain name dispute policy.

The Company is working to expand its domain name registration business and
to continue to improve the registration process by: (i) increasing the use of
the .com TLD worldwide; (ii) expanding its relationships with Internet access
providers by offering enhanced registration services to their customers; (iii)
stimulating demand for domain name registrations in targeted customer segments;
(iv) working with major platform providers to embed the registration function
into server software applications; (v) facilitating ease of use of and access to
its registration service; and (vi) establishing international alliances and
developing multilingual capability. The Company intends to develop a portfolio
of Internet-enabling products and services, which may include directory and
distribution services, that allows the Company to build upon its position in the
registration process and makes proper use of the customer data that it collects.

The Company also provides Intranet consulting and network design and
implementation services to large companies that desire to establish or enhance
their Internet presence or "re-engineer" legacy network infrastructures to
accommodate the integration of both Internet connectivity and Intranet network
technology into their information technology base. The Company's Intranet
services have evolved from the Company's Internet pioneering efforts that date
back to 1979 and presently include: (i) Intranet development and re-engineering;
(ii) network and systems security; and (iii) Intranet-enabled business
solutions.

THE NSI STRATEGY

The Company's goal is to maintain its position as the leader in Internet
domain name registration services and to build on this position to be a leading
provider of Intranet services and Internet enabling products and services. The
Company's strategy includes the following key elements:

Maintain Position as a Leading Provider of Registration Services. The
Company intends to maintain and enhance its position as a leader in domain name
registration by promoting the .com TLD as the accepted and preferred Internet
address for commercial presence on the Internet worldwide. The Company also
intends to develop and implement standards, policies and functions designed to
enhance the ease, speed and security of the registration process by adding new
capabilities to facilitate the registration process and providing quality
customer service and support.

Establish and Expand Marketing Relationships. The Company intends to
establish and expand relationships with companies worldwide to promote its
services, penetrate new customer bases and integrate third party products and
services. The Company has established, and is seeking to further pursue
relationships with, Internet access providers to enhance its ability to offer
second level domain names and pursue its Intranet services opportunities.

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Maintain Active Role in Establishment of Future Internet Standards and
Policies. The Internet currently operates under a system of mutual
collaboration and cooperation and has historically been administered by
governmental and nonprofit organizations. The Company intends to continue to
cooperate with these organizations and maintain an active role in the global
Internet community to ensure that the Internet continues to flourish and that
the Company remains at the forefront of continuing change in the Internet. The
Company believes that its expertise in the Internet and its participation in the
Internet community should enable it to facilitate the proliferation of Internet
usage worldwide and provide it with a competitive advantage in the development
of its service offerings.

Build and Strengthen Intranet Services Business. The Company intends to
further develop its existing in-depth knowledge of and experience in Internet
technologies to develop a leading Intranet services business. The Company
believes that delivering dependable, high-quality Intranet solutions is critical
to strengthening its relationships with existing clients, gaining repeat
business and generating new business from referrals. Further, the Company
intends to utilize its relationship with SAIC in this area by continuing to work
with SAIC on a subcontract basis and seeking referrals to SAIC's customers and
strategic partners.

Provide Complementary Enabling Products and Services. The Company intends
to develop a portfolio of Internet-enabling products and services that build on
its registration activities and the customer data that the Company collects.
These enabling products and services could include directory and other services
to be developed by the Company and distribution of third party product and
service offerings through on-line enrollment for such products and services
embedded within the Company's domain name registration home page.

Leverage Technology Leadership. The Company has assembled management and
engineering teams with extensive experience in the information technology
industry and specifically the Internet and intends to leverage this experience
in the development of enabling technologies to support the continued enhancement
of infrastructure flexibility and scalability, customer ease of use and
embeddedness in access sources. The Company is committed to integrating
state-of-the-art technology in its service offerings and believes that service
quality and reliability should be a significant differentiating factor in its
market.

Pursue Strategic Acquisitions. The Company intends to identify and, where
appropriate, pursue acquisition opportunities which would provide businesses,
products, services or technologies complementary to the Company's current
business, although it is not currently contemplating any such acquisitions.

The Company's strategy involves substantial risk. There can be no assurance
that the Company will be successful in implementing its strategy or that its
strategy, even if implemented, will lead to successful achievement of the
Company's objectives. If the Company is unable to implement its strategy
effectively, the Company's business, financial condition and results of
operations would be materially and adversely affected.

NSI SERVICES

Registration Services. Registration services is the Company's core
business. The Company registers second level domain names in the .com, .org,
.net, .edu and .gov TLDs, enabling registrants to establish a unique identity on
the Internet. The Company's largest source of customers are Internet access
providers, which request domain names on behalf of their subscribers.

Prior to September 14, 1995, the Company was reimbursed by the NSF for
providing registration services under a cost reimbursement plus fixed-fee
contract. On September 14, 1995, the NSF and the Company amended the Cooperative
Agreement to authorize the Company to begin charging customers a subscription
fee of $50 per year for each second level domain name registered. The Company's
registration services customers in the .com, .org and .net TLDs are invoiced for
a two-year subscription fee of $100 for initial registrations and $50 per year
for renewals of initial registrations. Under the terms of the amendment to the
Cooperative Agreement, 30% of the subscription fees collected are required to be
set aside to be disbursed in a manner approved by the NSF for the enhancement of
the

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intellectual infrastructure of the Internet. See "-- Relationship with the NSF;
Recent Developments in the Internet Community."

The Company believes that high quality customer support is vital to client
satisfaction. The registration subscription fee provides the customer with
access to a registry help desk and an on-line processing facility and account
information updates. The Company's help desk and on-line processing facility are
factors in the success of the Company's registration business because they are
the front line to the customer and provide initial and ongoing customer service
and support. This facility currently processes over 40,000 telephone calls and
over 300,000 electronic transactions monthly. At the end of 1996, the Company
entered into arrangements to outsource certain back office operations, which the
Company believes has improved customer service and account handling and expanded
the Company's capacity to service larger volumes of registrants. See
"-- Operations."

The Company has been registering domain names pursuant to the Cooperative
Agreement since 1993 and has made significant investments in its registration
services business. The Company believes that it currently possesses the
following competitive advantages in the domain name registration business:

- - Large, Established Customer Base. The Company currently maintains in excess
of one million unique domain name registrations. As a result, the Company
believes it has the infrastructure required to realize significant scale
efficiencies throughout the registration process and believes that it has
established credibility in the Internet community. In addition, this large
customer base allows the Company to benefit from its policy which requires
that customers prepay for two years for rights to a unique domain name
registration. As customers invest in their web sites for advertising,
branding and other business-critical activities, the Company believes they
will be increasingly inclined to renew at the end of the initial two-year
subscription period.

- - Recognition of the .com TLD. The Company believes that the .com TLD, of
which the Company is currently the exclusive registrar, has perceived value
to commercial users on the Internet. Further, the Company believes that
there is an emerging trend among commercial entities outside of the United
States to establish an Internet presence within the .com TLD, rather than
within or in addition to a country code TLD.

- - Strategic Agreements with Internet Access Providers. The Company has
entered into agreements to provide specialized services to certain Internet
access providers who register a significant number of second-level domain
names with the Company on behalf of such providers' customers. This program
provides such Internet access providers with customized registration
services and provides the Company with a multi-year registration stream from
such providers. As of September 15, 1997, the Company has entered into
agreements with 38 Internet access providers, including: MCI, Inc., America
Online, Incorporated (PrimeHost Division), TABNet and Rapidsite, Inc.

- - Established Technical Infrastructure. The Company believes that the
technical requirements to build and to operate a competitive domain name
registry are significant. Substantial portions of the Company's software is
custom-developed and proprietary. The Company's internal software includes
an automated registration capability which currently processes in excess of
90% of all new registration requests without human intervention. See
"-- Operations."

- - Experience in the Administration of Domain Name Dispute Policy. The
Company's staff is experienced in the establishment and administration of
the Company's domain name dispute policy, which is an integral part of the
maintenance and administration of the Company's domain name registration
business. As of July 31, 1997, the Company had received over 2,700 written
objections to the registration and use of certain domain names. Of these,
approximately 1,400 were disputes in which the Company's domain name dispute
policy was involved. Although 36 of these objections have resulted in
litigation involving the Company, as of July 31, 1997, no damages have been
awarded against the Company to any plaintiff. The Company expends
considerable management and legal resources in the development, refinement
and administration of its domain name dispute policy.

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- - Skilled Technical Personnel. The Company believes that significant
engineering talent is required to create a registration services capability
and that knowledge of DNS structures, Internet security, data routing and
routing protocols is critical to creating and enhancing registration service
capabilities. The Company developed RWhois, a standard open protocol, that
is used for the registration services business. The Company's engineering
staff has significant expertise in the RWhois protocol. The Company believes
that engineers skilled in protocol development are difficult to identify,
hire and retain and thus its staff of engineers represents a valuable
resource.

The Company believes that these competitive advantages are significant and that
existing and additional competing registries will need similar capabilities.

In addition, the Company is working to expand its domain name registration
business and to continue to improve the registration process by:

- - Increasing the Use of the .com TLD Worldwide. The Company believes that it
can continue to grow its Internet registration business by promoting global
recognition of the .com TLD. The Company has begun and intends to continue
to promote the use of the .com TLD and to establish .com as the most
recognized domain for individuals and organizations conducting business on
the Internet.

- - Expanding Relationships With Internet Access Providers. The Company intends
to build upon its current relationships with certain Internet access
providers that have agreed to participate in its Premier Domain Registration
Service program and intends to pursue relationships with additional Internet
access providers. Through these relationships, the Company believes it will
be able to deliver enhanced registration services and identify additional
opportunities to expand its registration services business.

- - Stimulating Demand for Domain Name Registrations in Targeted Customer
Segments. The Company is seeking to expand the number of registrations in
targeted customer segments both domestically and internationally. The
Company believes that customer segments such as small business users,
individuals, holders of trademarks, service marks and product marks and
event sponsors could offer significant potential for growth if the Company
actively markets a portfolio of registration services to these segments.

- - Working with Major Platform Providers to Embed the Registration
Function. The Company is seeking to expand its domain name registration
business through agreements with major platform providers (i.e., operating
system manufacturers or hardware vendors who provide bundled operating
system software) to embed an automated registration function through a
"point-and-click" interface directly into the installation procedures. For
example, in December 1996, the Company entered into an agreement with
Microsoft Corporation ("Microsoft") to provide a "point-and-click" interface
intended to allow users to automatically register a domain name with the
Company upon initialization of the server.

- - Facilitating Ease of Use and Access to Registration Services. The Company
has undertaken a number of initiatives that are intended to make the
registration process easier, more streamlined and more accessible. The
Company believes that ease of use is becoming increasingly important as the
Internet is being more widely adopted by users who are less technically
sophisticated. The Company is currently in the process of simplifying the
registration template accessed by customers to effect registration of a
domain name. To facilitate payment of registration renewal fees, the Company
intends to implement electronic payment mechanisms that will allow the user
to pay for the domain name directly from the user's host machine.

- - Establishing International Alliances and Developing Multilingual
Capability. The Company intends to establish strategic alliances with
international registries to build a foundation for its international
operations. As these entities add Internet service to their offerings for
their customers, the Company intends to offer "ease of use" solutions for
entities worldwide for registration in the .com, .org and .net TLDs. The
Company also intends to establish a multilingual call center capability to
further assist with international registrations.

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Intranet Services. The Company provides consulting and network systems
integration services for clients utilizing Internet technologies for internal
networks (i.e., Intranets). The Company's network systems engineers have
extensive knowledge of and experience in such areas as local area network
("LAN")/wide area network ("WAN") Internet protocols, router technology,
switching technology, remote access technology, virtual private network
technology, network security technology, network management technology, network
components, IP addressing strategy, domain name architecture, efficient IP
address space usage, Web applications development, UNIX systems (highly modular
and flexible computer systems) and network operating systems. By leveraging this
knowledge and experience, the Company is able to provide solutions to clients'
complex network needs.

As part of its Intranet services offering, the Company provides Intranet
development and re-engineering; network and systems security; and
Intranet-enabled business solutions.

- - Intranet Development and Re-engineering. The Company offers a full line of
services to help develop, optimize, and integrate Intranet solutions in a
manner tailored to individual clients. Some of the more significant services
include Intranet business workflow and service level analysis; IP address
space engineering; domain name system ("DNS") and dynamic host configuration
protocol ("DHCP") architecture engineering; routing and switching
architecture engineering; Extranet (IP networks through which companies run
Web applications for external use by their customers) architecture
engineering; virtual private network architecture engineering; electronic
messaging architecture engineering; network capacity and performance
management; and new technology integration. The Company also provides
planning and analysis to implement disaster recovery and contingencies for
network system failures.

- - Network and Systems Security. The Company provides a full range of security
consulting services, including security architecture assessment, planning
and implementation. The security architecture establishes the access and
protection controls that will permit internal and remote users to access
computer systems, databases and applications on the network, while
protecting against unauthorized or inadvertent access to information or
misuse of systems services. The Company's methods to secure the backbone,
LAN-to-WAN access, remote access and facilities can supplement or replace
existing systems security measures. The Company maintains resident expertise
in emerging network protocols, encryption and key technologies, firewalls,
packet filters, proxy services, secure remote access strategies and secure
Intranet servers.

- - Intranet-Enabled Business Solutions. The Company offers Intranet- and
Extranet-enabled solutions for client business applications and services. In
this regard, the Company leverages Internet technologies to deliver
enterprise-wide solutions and develop business automation systems that can
be accessed by any client system, are quickly adaptable, and are easily
maintained. Such solutions may include: implementation of Extranets to
support clients' electronic commerce applications; planning and
implementation of clients' Internet presence and commerce capabilities;
re-engineering of legacy applications for Intranet-based delivery; and
hosting of private and public Intranet servers.

The Company also maintains an Intranet Solutions Center which provides
outsourcing services for remote network and security systems monitoring, network
performance management and management of the development and hosting of clients'
total Web presence.

NationsBanc is currently the Company's largest Intranet services client,
accounting for 41.3% of the Company's Intranet services business net revenue and
7.8% of the Company's total net revenue in the six months ended June 30, 1997.
NationsBanc originally contracted with the Company in 1993 and the Company
currently provides network design and engineering services as well as a variety
of project specific services for NationsBanc. The Company's current contract
with NationsBanc is a three-year contract commencing January 1, 1997 and is a
requirements contract under which the Company's services are ordered by task
orders issued by NationsBanc.

The Company sells and markets its Intranet services business primarily to
large companies that desire to establish or enhance their Internet presence. The
Company's Intranet services are generally

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provided to customers on a time and expense basis. The Company also performs a
limited number of engagements on a fixed-price basis. Many of the Company's
recent Intranet services clients have been developed through direct contact or
referrals from its parent company, SAIC. The Company intends to continue to
leverage its relationship with SAIC to access SAIC's major customers and
strategic partners. The Company has recently begun to provide Intranet services
on a limited basis in the Latin American market through Informatica, Negocios y
Tecnologia S.A. ("INTESA"), SAIC's joint venture with Petroleos de Venezuela,
S.A., the Venezuela National Oil Company. As part of this joint venture, the
Company is currently subject to a noncompetition arrangement pursuant to which
the Company has agreed to provide, with certain limited exceptions, Intranet
services in the Latin American market solely through INTESA. See "Risk
Factors -- Limited Service Offerings to Date; Reliance on Domain Name
Registration Services and Intranet Services for Substantially All Revenue."

MARKETING AND DISTRIBUTION RELATIONSHIPS

The Company intends to establish and expand relationships with companies
worldwide to promote its services, penetrate new customer bases and integrate
third party products and services.

Strategic Agreements with Internet Access Providers. The Company has
developed a service offering which provides specialized services to Internet
access providers who register a significant number of second-level domain names
per month on behalf of their customers. The Company's Premier Domain
Registration Service offering provides an Internet access provider with
personalized account management, customized billing and financial reports,
priority registration with 24-hour customer support, private e-mail boxes and
other customized features. As of September 15, 1997, the Company has entered
into agreements with 38 Internet access providers, including: MCI, Inc., America
Online, Incorporated (PrimeHost Division), TABNet and Rapidsite, Inc.

Server Software Applications. The Company has entered into an agreement
with Microsoft to provide a "point-and-click" interface for an automated
registration function. This interface is designed to facilitate the ease of the
registration process for users of the server software and to allow for the
Company to have a preferred provider position on the registration wizard screen
that appears during the server initialization process. The Company is currently
in discussions with certain other server platform providers pursuant to which
such a "point-and-click" interface will be embedded in their server software.

Internet-Enabling Products and Services. The Company has entered into
several agreements designed to allow the Company to build upon its strategy of
becoming an Internet-enabling business center where a business or individual can
have access to companies which provide the enabling products and services to
conduct business on the Internet.

The Company has entered into an agreement with VeriSign, Inc. ("VeriSign")
pursuant to which the Company provides its customers with direct access to
VeriSign's server security certificates through the Company's domain name
registration process. The Company will receive a portion of VeriSign's
subscription fees for providing such access to VeriSign subscribers. The Company
has also entered into an agreement with First Virtual Holdings Corporation
("First Virtual") pursuant to which the Company implemented First Virtual's
VirtualPIN as a form of payment for the Company's customers. Under the
agreement, users may register for First Virtual VirtualPINs through the
registration process for which the Company receives a portion of the fee,
assuming certain targets are met. Several other initiatives are being pursued,
all focusing on utilizing the registration process to provide access to Internet
enabling products and services.

OPERATIONS

To register a domain name within the .com, .org, .net, .edu and .gov TLDs,
the Company's customer or the customer's Internet access provider completes a
registration template which is submitted to the Company via e-mail. Once the
customer is registered, the Company loads the domain name into the root servers
located around the United States and in Europe. The Company believes that the
technical requirements to build and to operate a competitive domain name
registry are significant. Substantial

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portions of the Company's in-house registration software have been
custom-developed and are proprietary. The Company's in-house registration
software includes an automated registration capability which currently processes
in excess of 90% of all new registration requests without human intervention.
The Company maintains a help desk and on-line processing facility which provides
initial and ongoing customer service and support. This facility currently
processes over 40,000 telephone calls and over 300,000 electronic transactions
monthly.

The Company's registration services are supported by seven T1 and one T3
(high speed data communications line) links connected to five ISPs. The
aggregate capacity of the Company's T1 links is 10.5 megabits per second. In
addition, the Company recently added the T3 link with a capacity of 45 megabits
per second, thus the aggregate capacity of the T1 and T3 links is 55.5 megabits
per second. By connecting to five different providers, the Company seeks
redundancy to ensure constant access to the Internet should any given ISP or
link develop complications. The Company believes its current network is adequate
and that any additional capacity will be available in the future as needed.

The Company leases its computer equipment which allows the Company to
maintain the latest technology within its operating infrastructure. The Company
has approximately 100 UNIX workstations running a variety of applications to
evenly distribute operations. Additionally, the Company utilizes several large
network file servers to support its directory and registration services. These
servers provide a mirrored file system for enhanced reliability and back-up
coverage.

On June 16, 1997, the Company opened a 31,000 square foot facility to
support its Internet business operations. This leased facility is designed to
meet current registration services customer support needs as well as to provide
expansion capability for future business. It includes: (i) a call center; (ii) a
training center equipped for both computer and telephone training, including a
simulated operations environment; and (iii) a new computer room with expanded
systems and telecommunications services. The Company believes that this new
facility with the accompanying system enhancements should provide the
environment and tools that are essential for quality customer support.

Since November 1996, the Company has been outsourcing certain back office
functions, including invoicing, check processing and credit card payment
processing. The Company is not outsourcing its core proprietary automated
registration process and associated security system. These outsourcing efforts,
in conjunction with new invoicing procedures implemented in 1997, have improved
customer service and account handling and expanded the Company's capacity to
service larger volumes of registrants.

OTHER PRODUCTS AND SERVICES DEVELOPMENT

The Company's products and services development activities in areas other
than registration services and Intranet services are focused primarily on the
development of Internet-enabling products and services, including a possible
directory service based on the RWhois protocol (an enhanced server version of
the Whois protocol) developed by the Company. The Company's current directory
service technology, which is made available free of charge, employs a look-up
method called "Whois," a widely accepted Internet protocol and the interface to
the Company's global registry database. Whois allows a user to perform simple
queries for second level domain names and to retrieve additional information
about a customer, including the customer's name, location and points of contact.
The Company's Whois server currently receives more than 15 million queries per
month. The Company intends to develop a portfolio of Internet-enabling products
and services that allows the Company to build upon its position in the
registration process and makes proper use of the customer data that it collects.

There were no research and development expenses in 1995, in large part
because any such expenditures were generally reimbursable under the NSF
contract. In 1996, research and development expenses were $680,000 or 3.6% of
net revenue. For the six months ended June 30, 1997, research and development
expenses were $718,000 or 3.8% of net revenues. The Company believes that
significant and continuing investments in products and services development will
be required to maintain its

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position as the leader in the domain name registration business and to achieve
its strategy of leveraging its registration services business to offer and
distribute other enabling services. The Company's future financial performance
will be dependent upon its ability to develop and commercialize in a timely
manner new services that can be offered in conjunction with the Company's
current domain name registration services and that meet the changing
requirements of its customers.

The successful development and commercialization of new technology,
products and services involves many risks, including the identification of new
Intranet and Internet-related product and service opportunities, the successful
completion of the development process, and the identification, retention and
hiring of appropriate research, development and technical personnel. There can
be no assurance that the Company can successfully identify new products and
service opportunities and develop and bring to market in a timely manner new
technologies, products or services, or that technologies, products or services
developed by others will not render those of the Company noncompetitive or
obsolete. Failure by the Company to develop new technologies, products or
services and bring them to market in a timely manner could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Technological Change and Additional Technology,
Products and Services."

RELATIONSHIP WITH THE NSF; RECENT DEVELOPMENTS IN THE INTERNET COMMUNITY

In 1993, the Company entered into the Cooperative Agreement with the NSF,
which had been funding the Defense Information Systems Agency, to act as the
registrar for second level domain names within the .com, .org, .net, .edu and
.gov TLDs. Under the Cooperative Agreement, the Company was given the
responsibility for ensuring the quality, timeliness and effective management of
registration services to non-military Internet users and networks. The
registration services to be provided by the Company under the Cooperative
Agreement included domain name registration, domain name server registration,
network number assignment and autonomous system number assignment and IP address
mapping and allocation worldwide. During the term of the Cooperative Agreement,
the Company is required to file periodic reports regarding its status and
proposed budget and goals. At the conclusion of the Cooperative Agreement, the
Company will be required to submit a final report describing all work performed
and problems encountered.

Originally, the Cooperative Agreement was a cost reimbursement plus
fixed-fee contract but expressly contemplated that possible future changes under
the Cooperative Agreement could include the imposition of a user-based fee
structure. In 1995, in response to the rapidly growing volume of registrations
from commercial entities (primarily in the .com TLD), the NSF and the Company
mutually agreed to move from a cost reimbursement plus fixed-fee contract to a
subscription fee based contract. Effective September 14, 1995, the NSF and the
Company amended the Cooperative Agreement to authorize the Company to begin
charging customers a subscription fee of $50 per year for each second level
domain name registered. The Company's registration services customers in the
.com, .org and .net TLDs are invoiced for a two-year subscription fee of $100
for initial registrations and $50 per year payable for renewals of initial
registrations. Under the terms of the amendment to the Cooperative Agreement,
70% of the subscription fees collected is retained by the Company and 30% is
required to be set aside to be disbursed in a manner approved by the NSF for the
enhancement of the intellectual infrastructure of the Internet.

With the commercialization of the Internet, the role, if any, that the NSF
will play in the Internet and the legal authority underlying its role are at
present unclear. Withdrawal of or challenges to the NSF's sponsorship or
authorization of the Company's activities could create a public perception or
result in a finding that the Company lacks authority to continue in its role as
registrar or to charge fees for its domain name registration services. The
impact, if any, of any such public perception or finding is unknown but could
materially and adversely affect the Company's business, financial condition and
results of operations. Further, the Cooperative Agreement by its terms expires
in March 1998, although the NSF may, at its option, extend the Cooperative
Agreement through September 1998. The terms of the Cooperative Agreement are
subject to review and adjustment by the NSF on an annual basis. In addition, the
Cooperative Agreement may be terminated by the NSF at any time at its discretion
or by

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mutual agreement. When the Cooperative Agreement is terminated or if there is a
change in the terms of the Cooperative Agreement or the Company's status as the
exclusive registrar for domain names in the .com TLD, the Company's business,
financial condition and results of operations could be materially and adversely
affected. Although the impact of the termination of the Cooperative Agreement is
uncertain, such termination could have a material adverse effect on the
Company's revenue, particularly as the Company's revenue growth in recent
periods has been primarily attributable to increases in registrations in the
.com TLD. The NSF has stated that the Cooperative Agreement will not be
re-awarded to the Company or awarded to any other entity. However, there can be
no assurance that the NSF will not award the Cooperative Agreement to another
entity and, if the Cooperative Agreement is awarded to another entity, the
Company's business, financial condition and results of operations would be
materially and adversely affected.

The Cooperative Agreement does not prohibit the establishment of competing
registries. No single organization or entity (including the NSF) currently has
formal authority over all aspects of the Internet and the Internet currently
operates under a system of mutual cooperation. As a result, it is unclear which
organization or entity, if any, will govern the authorization for the
registration of domain names. Various governmental, technical and Internet
groups are currently discussing how the award and administration of future
contracts for registration services in the .com TLD, other existing TLDs and new
TLDs may take place, and are considering whether and how to enable other parties
to enter the domain name registration business. The Company is also an active
participant in this process. A consensus regarding such issues could be reached
and implemented in the near future and prior to the expiration of the
Cooperative Agreement. For example, some members of the Internet community have
discussed various concepts such as adding new TLDs, which could result in
significant competition for domain name registrations, including competition on
the price charged by the Company for domain name registrations. In February
1997, the IAHC issued its recommendation designed to increase competition in
domain name registrations in which it proposed the creation of additional
registries, additional TLDs and the possible sharing of new and existing TLDs.
In April 1997, the IAHC issued an MOU seeking support for its recommendations.
This MOU has been signed by a number of organizations in the Internet community.
In April 1997, the Company issued its own recommendations to increase
competition in domain name registration. The Company's recommendations focus on
creating additional TLDs as well as on the future administration and technical
operation of the Internet. Other groups or entities may also make other
proposals concerning these and other issues. Implementation of competing
registries, additional TLDs, the sharing of the Company's TLDs or other
recommendations or proposals of these groups could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Uncertainty of Internet Governance and Regulation" and "Risk
Factors -- Uncertain Status of the Cooperative Agreement" and
"-- Recommendations and Proposals to Increase Competition in Registration
Services."

The description of the Cooperative Agreement set forth above and elsewhere
herein is intended to be a summary, and, while, material terms of the
Cooperative Agreement are set forth herein, the description is qualified by
reference to the Cooperative Agreement and the amendments thereto filed as
exhibits to the Registration Statement of which this Prospectus forms a part.

The Company has recently received authorization from the NSF to shift the
allocation and administration of IP addresses to a not-for-profit organization.
In support of this initiative, the Company has incorporated a not-for-profit
organization named the American Registry for Internet Numbers (the "ARIN") to
administer IP addresses for North and South America and parts of Africa. The
Company anticipates that the responsibility for the allocation and
administration of IP addresses will be transferred to ARIN by the fourth quarter
of 1997. The Company has agreed with the NSF to provide financial support to
ARIN through the end of the first quarter of 1998. The Company believes that the
amount of such support will not differ materially from the amount which the
Company currently pays in support of such activities.

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<PAGE> 53

COMPETITION

The Company currently is the exclusive registrar for second level domain
names within the .com, .org, .net, .edu and .gov TLDs. Multiple registries do
not currently register names in the same TLD, but this may change in the future.
The Company currently faces competition in the domain name registration business
from registries for country codes, third level domain name providers such as
Internet access providers and registries of TLDs other than those TLDs currently
being registered by the Company. A number of entities have already begun to
offer competing registration services using other TLDs. Future competition in
the Company's domain name registration business could come from many different
companies, including, but not limited to, major telecommunications firms, cable
companies and Internet access providers. Such entities have core capabilities to
deliver registration services, such as help desks, billing services and network
management, along with strong name recognition and Internet industry experience.
Other companies with some or all of these capabilities may also enter the
registration business. Also emerging is a growing contingent of domain name
resellers. The Company's position as the leading registrar of domain names could
be materially and adversely affected by the emergence of any of the foregoing
competitors and potential competitors, many of which have longer operating
histories and significantly greater name recognition and greater financial,
technical, marketing, distribution and other resources than the Company. In
addition, the Company's revenue and subscription fees could be reduced due to
increasing competition. For example, other entities may bundle domain name
registrations with other products or services, effectively providing such
registration services for free. If operational and administrative arrangements
or technology permitting multiple competitors to register domain names in the
same or other TLDs are developed or if competition occurs in the domain name
registration business, the Company's business, financial condition and results
of operations could be materially and adversely affected. See "Risk
Factors -- Competition in Domain Name Registration Business."

Companies with Internet expertise are current or potential competitors to
the Company's Intranet consulting services. Such companies include systems
integrators and consulting firms, such as Andersen Consulting, IBM Global
Services and International Network Services. The Company also competes with
certain companies that have developed products that automate the management of
IP addresses and name maps throughout enterprise-wide Intranets, and with
companies with internally-developed systems integration efforts. A number of
these competitors and potential competitors have longer operating histories and
greater name recognition and significantly greater financial, technical,
marketing, distribution and other resources than the Company. There can be no
assurance that the Company will be able to successfully compete in the Intranet
services area. Failure by the Company to successfully compete in the Intranet
services area could have a material adverse effect on the Company's business,
financial condition and results of operations.

In developing and distributing future products and services for the
Internet-enabling services markets, the Company faces intense competition and
expects to have multiple competitors for each of the products or services, if
any, which it develops or sells. Many of the Company's potential competitors
have longer operating histories, greater name recognition and significantly
greater financial, technical, marketing, distribution and other resources than
the Company. Furthermore, the industry in which the Company intends to compete
is characterized by rapid changes and frequent product and service
introductions. To the extent a competitor introduces a competitive product or
service prior to introduction of the same or similar product or service by the
Company, market acceptance of the competitor's product or service may adversely
affect the Company's competitive position. See "Risk Factors -- Competition in
Intranet Services and Internet-Enabling Businesses."

UNCERTAINTY OF INTERNET GOVERNANCE AND REGULATION

The Internet historically has been loosely administered by a number of
government agencies which were involved in the creation of its infrastructure,
initially ARPA and, more recently, the NSF. No single organization or entity
(including the NSF) currently has formal authority over all aspects of the
Internet and it currently operates under a system of mutual cooperation. Since
the original role of the Internet was to link computers at governmental and
academic institutions to facilitate communica-

52
<PAGE> 54

tion and research, the Internet was historically administered by entities which
were involved in sponsoring research rather than by any of the traditional
federal or state regulatory agencies. With the commercialization and
internationalization of the Internet, the role of these entities in Internet
administration has become less clear and private parties have begun to assume a
larger role in the enhancement and maintenance of the Internet's infrastructure.
The NSF, for example, has completed a two-year phased withdrawal of its funding
for the Internet "backbone" and has transferred this responsibility to a group
of private telecommunications carriers which are commercially funded. This lack
of regulation and the legal uncertainties arising from it poses risks to the
Company and to the commercial Internet industry in general. As described above,
it is unclear which organization or entity, if any, will govern the
authorization for the registration of domain names in the future. The lack of an
appropriate organization or entity to govern the authorization for the
registration of domain names could have a material adverse effect on the
Company's business, financial condition and results of operations.

The effective operation of the Internet is dependent on the continued
mutual cooperation and consensus among an increasing number of entities, many of
which have widely divergent interests. For example, the IP addresses allocated
by ISPs to their customers are originally allocated by the IANA. Thus, the
effective operation of the Internet is dependent on such continued allocation of
IP addresses by IANA. Continuing to achieve consensus may become difficult or
impossible and may become extremely time-consuming and costly. Achieving
consensus may be made more difficult because of the lack of leadership by any
one entity. This lack of regulation also creates great uncertainty as to the
legality of any action, making business planning and operations difficult.
Conversely, the lack of regulation could theoretically result in individuals and
entities taking harmful or disruptive actions with respect to the Internet with
impunity. There is a risk that a failure to achieve consensus among the various
groups which are now informally administering the Internet could result in the
disruption of Internet operations, the inability of any user to communicate with
another user or the delay of infrastructure improvements necessary to the
maintenance and expansion of the Internet. Any disruption to the administration,
effective operation or maintenance and expansion of the Internet, in general, or
the domain name registration system in particular, would have a material adverse
effect on the Company's business, financial condition and results of operation.
See "-- Relationship with the NSF; Recent Developments in the Internet
Community" and "Risk Factors -- Uncertain Status of the Cooperative Agreement"
and "-- Recommendations and Proposals to Increase Competition in Registration
Services."

The current lack of any centralized Internet management could also cause
the U.S. federal or other governments to intervene with uncertain results. The
U.S. government formed the ITF to study the issues surrounding domain name
registration and governance of the Internet. The ITF is expected to solicit
broad public input to these and other issues. This process is expected to be
completed in early 1998. On July 1, 1997, the NTIA published a request for
comments on the registration and administration of Internet domain names. This
request appeared in the form of the NOI in the U.S. Federal Register with August
18, 1997 as the closing date for receipt of comments. The NOI requested specific
input in five broad areas: general principles, general/organizational framework
issues, creation of new TLDs, policy issues for new registrars and trademark
dispute issues. The Company has submitted a response to the NOI request which
includes a recommendation, among others, that an international public advisory
group with U.S. government sponsorship be established to manage the Internet,
including the domain name system, and that the U.S. government sponsorship of
this international public advisory group continue through a transition period
until a suitable international sponsor is selected. NTIA is expected to issue a
report on the results of this NOI and to recommend a future course of action
prior to June 1998 for the role of the U.S. government in Internet domain name
registration. The ITF or NTIA processes or any other government-sponsored
process could result in policies which may not be favorable to the Company or
consistent with the Company's current or future plans. The outcome of these
activities, therefore, could have a material adverse effect on the Company's
business, financial condition and results of operations.

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<PAGE> 55

In the United States, apart from its obligations under the Cooperative
Agreement, the Company is not currently subject to direct regulation other than
federal and state regulation applicable to businesses generally. However,
changes in the regulatory environment could result in the Company being subject
to direct regulation by the FCC or other U.S. regulatory agencies. For example,
the Company is aware of certain industry requests to the FCC to review the
impact of Internet usage on the U.S. telecommunications service providers, in
particular, the generally lower cost structure for data transmission versus
voice. In addition, as the Internet becomes more widespread internationally,
there is an increased likelihood of international regulation. The Company cannot
predict whether or to what extent any such new regulation will occur; however,
such regulation could have a material adverse effect on the Company's business,
financial condition and results of operations.

Costs incurred or decisions rendered as a result of government actions,
including enactment of new laws or adoption of new regulations, investigations
or lawsuits relating to any of the foregoing, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Uncertainty of Internet Governance and Regulation."

LITIGATION; ANTITRUST INVESTIGATION

As of July 31, 1997, the Company had received approximately 2,700 written
objections to the registration and use of certain domain names. Of these,
approximately 1,400 were disputes in which the Company's domain name dispute
policy was involved. As of July 31, 1997, the Company had been named as a
defendant in 36 lawsuits. As of such date, the Company has been dismissed as a
party from 25 of the 36 lawsuits and no damages have been awarded against the
Company to any plaintiff. The lawsuits have generally involved domain name
disputes between trademark owners and domain name holders. The Company's domain
name dispute policy seeks to take a neutral position regarding these competing
claims and is designed to address claims that a domain name registered by the
Company infringes a third party's federal trademark. The Company is drawn into
such disputes, in part, as a result of claims by trademark owners that the
Company is legally required, upon request by a trademark owner, to terminate the
right it granted to an alleged trademark infringer to register the domain name
in question. Further, trademark owners have also alleged that the Company should
be required to monitor future domain name registrations and reject registrations
of domain names which are identical or similar to their federally registered
trademark. The holders of the domain name registrations in dispute, have, in
turn, questioned the Company's right, absent a court order, to take any action
which suspends their registration or use of the domain names in question. Such
litigation has resulted in, and any future litigation can be expected to result
in, substantial legal and other expenses to the Company and a diversion of the
efforts of the Company's personnel.

Currently, domain name registration requests are allocated by the Company
on a first-come, first-serve basis. The Company's domain name dispute policy is
triggered when the Company is presented with a certified copy of a federal
trademark certificate, proof that the trademark owner gave prior notice to the
domain name registrant and an allegation of legal harm to the trademark owner.
This policy provides for a detailed set of procedures designed to facilitate the
resolution of such disputes between the parties. The policy also provides for
the Company to be indemnified for any damages arising in connection with any
litigation arising out of a dispute between claimants regarding the registration
of a domain name. The Company bears its own costs and expenses associated with
any litigation.

54
<PAGE> 56

On June 27, 1997, SAIC received a CID from the DOJ issued in connection
with an investigation to determine whether there is, has been, or may be a
violation of antitrust laws under the Sherman Act relating to Internet
registration products and services. The CID seeks documents and information from
SAIC and the Company relating to their Internet registration business. Neither
SAIC nor the Company is aware of the scope or nature of the investigation. The
Company cannot reasonably estimate the potential impact of such investigation,
nor can it predict whether a civil action will ultimately be filed by the DOJ or
by private litigants as a result of the DOJ investigation or, if filed, what
such action would entail. The Company is unable to predict the form of relief
that might be sought in such an action or that might be awarded by a court or
imposed as a result of any settlement between the Company and the DOJ or private
litigants. Any such relief could have a material adverse effect on the Company's
business, financial condition and results of operations.

On March 20, 1997, PG Media filed a lawsuit against the Company in the
United States District Court, Southern District of New York alleging that the
Company had restricted access to the Internet by not adding TLDs in violation of
the Sherman Act. In its complaint, PG Media has, in addition to requesting
damages, asked that the Company be ordered to amend the root zone configuration
file so that the file includes reference to PG Media's TLDs and nameservers. The
Company has answered the complaint, but no motions are pending. In addition, the
Company recently received written direction from the NSF not to take any action
to create additional TLDs or to add any new TLDs to the Internet root servers
until further guidance is provided by the NSF. The Company believes that it has
meritorious defenses and intends to vigorously defend itself against the claims
made by PG Media. While the Company cannot reasonably estimate the potential
impact of such claims, a successful claim under the plaintiff's theory could
have a material adverse effect on the Company's business, financial condition
and results of operations.

There can be no assurance that the Company will not be involved in
additional litigation, investigations or other proceedings in the future,
including proceedings challenging the Company's authority to continue in its
role as a registrar or to charge fees for its domain name registration services.
Any such proceedings, with or without merit, could be costly and time-consuming
to defend, could divert management's attention and resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Litigation; Antitrust
Investigation."

INTELLECTUAL PROPERTY RIGHTS

The Company's principal intellectual property consists of, and its success
is dependent upon, the Company's proprietary software utilized in its
registration services business and certain methodologies and technical expertise
it utilizes in both the design and planned implementation of its current and
future registration service and proposed Internet-enabling services businesses.
Some of the software and protocols used by the Company in its registration
service and, proposed Internet-enabling businesses are in the public domain or
are otherwise available to the Company's competitors. In addition, in-depth
technical knowledge and unique processes are critical to the Company's Intranet
services business, in which a full range of consulting and systems integration
services are offered in order to transition organizations from private, legacy
networks to more scalable and efficient Intranets. The Company has no patents or
registered copyrights but has several trademarks and service marks, including
the Company's logo.

55
<PAGE> 57

The Company relies upon a combination of nondisclosure and other
contractual arrangements with its employees and third parties and trade secret
laws to protect its proprietary rights and limit the distribution of its
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use of its
proprietary information and take appropriate steps to enforce its intellectual
property rights. Furthermore, even if these steps are successful, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's proprietary technology. Although the Company believes
that its services do not infringe on the intellectual property rights of others
and that it has all rights necessary to utilize the intellectual property
employed in its business, the Company is subject to the risk of claims alleging
infringement of third party intellectual property rights. Any such claims could
require the Company to spend significant sums in litigation, pay damages and
develop non-infringing intellectual property or acquire licenses to the
intellectual property which is the subject of asserted infringement. Failure by
the Company to adequately protect its proprietary rights, or litigation relating
to intellectual property rights, could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Intellectual Property Rights."

EMPLOYEES

As of June 30, 1997, the Company had approximately 220 full-time employees.
None of the Company's employees are covered by collective bargaining agreements.
The Company believes that its relations with its employees are good.

FACILITIES

The Company's principal executive office is located in Herndon, Virginia,
in a 45,000 square foot facility subleased from SAIC under a sublease expiring
in November 2002. The Company also leases an additional 31,000 square feet in a
facility in Herndon, Virginia under a lease expiring in July 2002 and subleases
a 10,000 square foot facility, also in Herndon, from SAIC under a sublease
expiring in October 1999. Additionally, the Company subleases approximately
10,000 square feet in a facility in Charlotte, North Carolina, with portions of
the sublease expiring in August 1998 and July 2002. The Company believes that
its current facilities will be adequate for the next 12 months and that any
additional facilities will be available in the future as needed on commercially
reasonable terms.

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<PAGE> 58

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Executive officers and directors of the Company and their ages as of July
31, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Gabriel A. Battista.................. 52 Chief Executive Officer and Director
Michael A. Daniels(1)................ 51 Chairman of the Board
Donald N. Telage..................... 52 Senior Vice President, Internet Relations and
Special Programs and Director
Robert J. Korzeniewski............... 40 Chief Financial Officer
Raymond S. Corson.................... 51 Senior Vice President, Business Development
David H. Holtzman.................... 40 Senior Vice President, Engineering
A. Scott Williamson.................. 39 Vice President, Engineering
Michael G. Voslow.................... 37 Treasurer
Russell L. Helbert................... 40 Controller
J. Robert Beyster(1)................. 72 Director
Craig I. Fields(2)................... 51 Director
John E. Glancy(2).................... 51 Director
William A. Roper, Jr.(2)............. 51 Director
Stratton D. Sclavos(1)............... 35 Director
</TABLE>

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

(1) Member of Compensation Committee.

(2) Member of Audit Committee.

Gabriel A. Battista has served as Chief Executive Officer of the Company
since October 1996 and as a director of the Company since November 1996. From
September 1995 to October 1996, Mr. Battista served as President and Chief
Executive Officer of Cable & Wireless, Inc., a telecommunications company and
U.S. subsidiary of Cable & Wireless, P.L.C. From 1991 to 1995, Mr. Battista
served as President and Chief Operating Officer of Cable & Wireless, Inc. and
from 1987 to 1991, he served as the Chief Operating Officer of National
Telephone Services, a long distance operator service company. Mr. Battista also
serves as a director of Axent Technologies, Inc. and Systems & Computer
Technology Corporation. Mr. Battista received a BSEE from Villanova University,
an MSEE from Drexel University and an MBA from Temple University.

Michael A. Daniels has served as Chairman of the Board of the Company since
May 1995. Since 1986, Mr. Daniels has served in various positions with SAIC and
has served as a Sector Vice President and Sector Manager for the Technology
Applications Sector of SAIC since 1993. Prior thereto, Mr. Daniels served as a
Group Senior Vice President of SAIC from 1991 to 1993. Mr. Daniels received a
B.S. and an M.A. from Northwestern University and received a J.D. from the
University of Missouri School of Law.

Donald N. Telage has served as Senior Vice President of Internet Relations
and Special Programs since February 1997 and as a director since May 1995. Dr.
Telage also served as President and Chief Operating Officer of the Company from
May 1995 to February 1997. Since 1986, Dr. Telage has served in various
positions with SAIC and has served as a Group Senior Vice President of SAIC
since 1993. Prior thereto, Dr. Telage served as a Corporate Vice President of
SAIC from 1992 to 1993. Based on Dr. Telage's seniority, it was deemed
appropriate for Dr. Telage to retain his titles with both SAIC and the Company.
It is currently contemplated, however, that Dr. Telage will be devoting
substantially all of his working time to the affairs of the Company. Dr. Telage
received his B.A. in Psychology from the University of Connecticut and received
an M.A. and a Ph.D. in Mathematics from Clark University.

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<PAGE> 59

Robert J. Korzeniewski has served as Chief Financial Officer of the Company
since March 1996. Since 1987, Mr. Korzeniewski has held a variety of senior
financial positions with SAIC and has served as a Corporate Vice President for
Administration of SAIC since 1989. Prior to SAIC, Mr. Korzeniewski was the
Corporate Controller of Halifax Corporation, a publicly traded technology
services company. Mr. Korzeniewski is a Certified Public Accountant and received
a B.S. in Business Administration from Salem State College.

Raymond S. Corson has served as Senior Vice President, Business
Development, of the Company since July 1996. Mr. Corson has also served as a
Vice President of SAIC since 1995. Since 1987, Mr. Corson served in various
positions with the Company, including serving as Vice President of Marketing
from March 1995 to July 1996, Vice President of Operations from January 1994 to
March 1995 and Vice President of Network Support Services from July 1989 to
January 1994. Prior to joining the Company, Mr. Corson served as Department
Manager of Command, Control, and Intelligence in Unisys' Defense Systems. Mr.
Corson attended Virginia Polytechnic Institute and State University from 1963
through 1966, majoring in Economics.

David H. Holtzman has served as Senior Vice President for Product
Development and Technology of the Company since February 1997. From September
1995 until January 1997, he served as Chief Scientist, IBM Internet Information
Technology (InfoMarket) group. Prior to this, he served as a Senior Associate at
Booz-Allen & Hamilton. Mr. Holtzman has a B.A. in Philosophy from the University
of Pittsburgh and a B.S. in Computer Science from the University of Maryland.

A. Scott Williamson rejoined the Company as Vice President, Directory
Services, in March 1996 and has served as Vice President, Engineering, of the
Company since November 1996. Mr. Williamson has also served as a Vice President
of SAIC since 1996. Prior to rejoining the Company, Mr. Williamson served as
Thomson Technology Internet Lab's Principal Researcher for the Thomson
Corporation, a publishing company, from January 1995 to March 1996. Mr.
Williamson originally joined the Company in 1985 and served in a variety of
positions, including serving as a program manager from January 1992 to December
1994. Mr. Williamson received an A.A. from Northern Virginia Community College.

Michael G. Voslow has served as Treasurer of the Company since January
1997. From January 1995 to January 1997, Mr. Voslow was Vice President and
Corporate Controller for MAXM Systems Corporation ("MAXM"), a worldwide provider
of computer software and professional services. Prior to joining MAXM, Mr.
Voslow was a Senior Manager at Price Waterhouse where he served from August 1983
to January 1995. Mr. Voslow is a Certified Public Accountant and received a B.S.
in Business Administration from Miami University (Ohio) and an M.B.A. in Finance
from Duke University.

Russell L. Helbert has served as Controller of the Company since December
1990 and as Manager of Finance for the Company since August 1985. Mr. Helbert
has also served as an Assistant Vice President for Administration of SAIC since
1995. Prior to joining the Company, Mr. Helbert was a Division Controller with
Browning-Ferris, Industries, a waste management services company. Mr. Helbert
received his B.A. in Business Administration from the University of Buffalo.

J. Robert Beyster has served as a director of the Company since November
1996. Dr. Beyster is the Chief Executive Officer and Chairman of the Board of
SAIC, a company he founded in 1969. Dr. Beyster is a Fellow of the American
Nuclear Society and a Fellow of the American Physical Society. Dr. Beyster is
also the founder, President and a member of the Board of Trustees of the
Foundation for Enterprise Development, a non-profit organization that promotes
employee ownership. Dr. Beyster received his B.S.E. in Engineering and Physics
and an M.S. and Ph.D. in Nuclear Physics from the University of Michigan.

Craig I. Fields has served as a director of the Company since January 1997.
Dr. Fields has served as a consultant to SAIC since 1994. Prior thereto, Dr.
Fields served as Vice Chairman of Alliance Gaming Corporation, a diversified
entertainment company, from 1994 to 1997. From 1990 until 1994, Dr. Fields
served as Chairman and Chief Executive Officer of the Microelectronics and
Computer Technology Corporation, a research and development consortium. In
addition, Dr. Fields serves as a director of

58
<PAGE> 60

ENSCO International Incorporated, Projectavision, Inc., Perot Systems
Corporation, Muzak Incorporated, Intertech and Firearms Training Systems, Inc.
Dr. Fields received a B.S. from the Massachusetts Institute of Technology and a
Ph.D. from the Rockefeller University.

John E. Glancy has served as a director of the Company since July 1996. Dr.
Glancy has held a number of senior positions with SAIC since February 1980. Dr.
Glancy has served as a Corporate Executive Vice President of SAIC since January
1994 and as a director of SAIC since July 1994. From April 1991 until January
1994, Dr. Glancy served as a Sector Vice President of SAIC. Dr. Glancy received
a B.S. in Physics from the University of Pittsburgh, an M.S. degree in Nuclear
Engineering from Cornell University and a Ph.D. in Applied Physics from Cornell
University.

William A. Roper, Jr. has served as a director of the Company since July
1996. Since April 1990, Mr. Roper has served as Senior Vice President and Chief
Financial Officer of SAIC. Mr. Roper received a B.A. in Mathematics from the
University of Mississippi.

Stratton D. Sclavos has served as a director of the Company since January
1997. Mr. Sclavos has served as the President and Chief Executive Officer of
VeriSign, Inc. since July 1995. From 1994 until July 1995, Mr. Sclavos served as
Vice President of Worldwide Marketing and Sales for Taligent, Inc., a joint
venture of Apple Computer, Inc., IBM Corporation and The Hewlett-Packard
Company, Inc. From 1992 until 1993, Mr. Sclavos served as Vice President of
Worldwide Sales and Business Development for GO Corporation, a mobile computing
company. From 1988 until 1993, Mr. Sclavos served in various executive positions
with MIPS Computers Systems. Mr. Sclavos received a B.S. in Electrical and
Computer Engineering from the University of California, Davis.

The Company currently has authorized eight (8) directors. All directors are
elected to hold office until the next annual meeting of stockholders of the
Company and until their successors have been elected. Officers are elected at
the first board of directors meeting following the stockholders' meeting at
which the directors are elected and serve at the discretion of the Board of
Directors. There are no family relationships among any of the directors or
executive officers of the Company.

COMPENSATION OF DIRECTORS

The Company's non-employee directors ("Outside Directors") currently
receive no cash fees or annual retainer payments as part of their compensation.
All directors are reimbursed for expenses incurred in connection with attending
Board and committee meetings. The Company's 1996 Stock Incentive Plan provides
that the Board of Directors may determine to allow an Outside Director to elect
to receive his or her annual retainer payments, if any, and meeting fees from
the Company in the form of cash, NSOs, Stock Units or a combination thereof. The
number of NSOs to be granted to Outside Directors in lieu of annual retainers
and meeting fees that would otherwise be paid in cash will be calculated in a
manner determined by the Board of Directors. The number of Stock Units to be
granted to Outside Directors will be calculated by dividing the amount of the
annual retainer or the meeting fee that would otherwise be paid in cash by the
arithmetic mean of the fair market values of one share of Common Stock on the 10
consecutive trading days ending with the date such retainer or fee is payable.
In January 1997, Craig I. Fields and Stratton D. Sclavos each received NSOs to
purchase 30,750 shares of the Company's Class A Common Stock with exercise
prices of $14.00 per share (which was equal to 100% of the fair market value as
determined in the good faith judgment of the Board of Directors on the date of
grant). All such stock options vest as to 30%, 30%, 20% and 20% on the first,
second, third and fourth year anniversaries of the date of grant, respectively.

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<PAGE> 61

EXECUTIVE COMPENSATION

The following table summarizes all compensation earned by or paid to the
Company's current and former Chief Executive Officer and to each of the
Company's four most highly compensated executive officers other than the Chief
Executive Officer whose total annual salary and bonus exceeded $100,000 for
services rendered in all capacities to the Company and SAIC during the fiscal
year ended December 31, 1996 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITY
---------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) AWARDS ($)(1) OPTIONS (#)(2) COMPENSATION ($)
- ------------------------------ ---------- --------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Gabriel A. Battista(3)........ 60,577 37,500 -- 461,250 --
Chief Executive Officer
Donald N. Telage.............. 165,719 35,010(4) 29,984(5) 153,750 13,209(6)
Senior Vice President,
Internet Relations and Special
Programs
Robert J. Korzeniewski........ 120,731 20,011 19,989(7) 115,300 9,954(6)
Chief Financial Officer
Raymond S. Corson............. 118,519 7,524 7,476(8) 30,750 9,815(6)
Senior Vice President,
Business Development
Emmit J. McHenry(9)........... 17,523 -- -- -- 875,011(10)
</TABLE>

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

(1) Represents restricted shares of SAIC Class A Common Stock. The amount
reported represents the market value on the date of grant (calculated by
multiplying the Formula Price of SAIC's Class A Common Stock on the date of
grant by the number of shares awarded), without giving effect to the
diminution in value attributable to the restriction on such stock. As of
December 31, 1996, the aggregate restricted stock holding of SAIC Class A
Common Stock for the Named Executive Officers were as follows: Gabriel A.
Battista -- none; Donald N. Telage -- 1,930 shares, with a market value as
of such date of $44,062; Robert J. Korzeniewski -- 261 shares, with a
market value as of such date of $5,959; Raymond S. Corson -- 220 shares,
with a market value as of such date of $5,023; Emmit J. McHenry -- none;
and all other employees -- 571,260 shares, with a market value as of such
date of $13,041,866. Dividends are payable on such restricted stock if and
when declared. However, SAIC has never declared or paid a cash dividend on
its capital stock and no cash dividends on its capital stock are
contemplated in the foreseeable future.

(2) Represents options to acquire shares of the Company's Class A Common Stock.

(3) Gabriel A. Battista joined the Company in October 1996. Mr. Battista's
annual salary for 1996 would have been $350,000.

(4) Includes the award of 193 shares of SAIC Class A Common Stock which had a
market value on the date of grant (calculated by multiplying the Formula
Price of the SAIC Class A Common Stock on the date of grant by the number
of shares awarded) of $5,010.

(5) Represents 1,155 shares of SAIC Class A Common Stock which vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively.

(6) Represents amounts contributed by SAIC for the Named Executive Officers
under SAIC's Cash or Deferred Arrangement, SAIC's Profit Sharing Plan and
SAIC's Employee Stock Ownership Plan.

(7) Represents 770 shares of SAIC Class A Common Stock which vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively.

(8) Represents 288 shares of SAIC Class A Common Stock which vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively.

(9) Emmit J. McHenry served as Chief Executive Officer of the Company until
January 1996.

(10) Represents amounts paid to Emmit J. McHenry in connection with the
settlement of an earnout, covenant not to compete and other agreements.

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<PAGE> 62

STOCK OPTION GRANTS

The following table summarizes options to acquire shares of the Company's
Class A Common Stock granted during the Company's fiscal year ended December 31,
1996 to the Company's Named Executive Officers. The amounts shown as potential
realizable values on the options identified in the table are based on assumed
annualized rates of appreciation in the price of the Company's Class A Common
Stock of five percent and ten percent over the term of the options, as set forth
in the rules of the Securities and Exchange Commission. Actual gains, if any, on
stock option exercises are dependent upon the future performance of the
Company's Class A Common Stock. There can be no assurance that the potential
realizable values reflected in this table will be achieved. No stock
appreciation rights were granted during the Company's 1996 fiscal year.

NSI OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENTAGE OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM($)(5)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME (#)(1) 1996(2) ($/SHARE)(3) DATE(4) 5% 10%
- ------------------------- ---------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gabriel A. Battista...... 461,250 37.6 11.25 10/14/01 1,433,642 3,167,975
Chief Executive Officer
Donald N. Telage......... 153,750 12.6 14.00 11/24/01 594,696 1,314,123
Senior Vice President,
Internet Relations and
Special Programs
Robert J. Korzeniewski... 115,300 9.4 14.00 11/24/01 445,974 985,485
Chief Financial Officer
Raymond S. Corson........ 30,750 2.5 14.00 11/24/01 118,939 262,825
Senior Vice President,
Business Development
Emmit J. McHenry(6)...... -- -- -- -- -- --
</TABLE>

- ------------------------------
(1) The stock options vest as to 30%, 30%, 20% and 20% on the first, second,
third and fourth year anniversaries of the date of grant, respectively.
Under the terms of the Company's 1996 Stock Incentive Plan (the "Stock
Plan"), the committee designated by the Board of Directors to administer the
Stock Plan retains the discretion, subject to certain limitations within the
Stock Plan, to modify, extend or renew outstanding options and to reprice
outstanding options. Options may be repriced by canceling outstanding
options and reissuing new options with an exercise price equal to the fair
market value on the date of reissue, which may be lower than the original
exercise price of such canceled options.

(2) Based on options to purchase an aggregate of 1,225,725 shares of Class A
Common Stock granted to NSI employees in 1996, including the Named Executive
Officers.

(3) The exercise price on the date of grant was equal to 100% of the fair market
value on the date of grant as determined in the good faith judgment of the
Board of Directors. The exercise price may be paid in cash, check, by
delivery of already-owned shares of the Company's Class A Common Stock
subject to certain conditions, or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the aggregate exercise price plus all
applicable withholding taxes.

(4) The options have a term of 5 years, subject to earlier termination in
certain events related to termination of employment.

(5) Based on a base price per share equal to the exercise price. The exercise
price was equal to 100% of the fair market value on the date of grant as
determined in the good faith judgment of the Board of Directors. The fair
market value of Mr. Battista's options was determined by the Board of
Directors prior to the fair market valuation date of the options granted to
the other Named Executive Officers and was based on several factors,
including, but not limited to, the status of the Company's back office
operations, strategic agreements and market conditions. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of the future Class A Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.

(6) Emmit J. McHenry served as Chief Executive Officer of the Company until
January 1996.

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<PAGE> 63

The following table summarizes options to acquire shares of SAIC Class A
Common Stock granted during the Company's fiscal year ended December 31, 1996 to
the Company's Named Executive Officers. The amounts shown as potential
realizable values on the options identified in the table are based on assumed
annualized rates of appreciation in the price of SAIC Class A Common Stock of
five percent and ten percent over the term of the options, as set forth in the
rules of the Securities and Exchange Commission. Actual gains, if any, on stock
option exercises are dependent upon the future performance of SAIC Class A
Common Stock. There can be no assurance that the potential realizable values
reflected in this table will be achieved. No SAIC stock appreciation rights were
granted during the Company's 1996 fiscal year.

SAIC OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF PERCENTAGE OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM($)(5)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/SHARE)(3) DATE(4) 5% 10%
- ----------------------- -------------- -------------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gabriel A. Battista.... -- -- -- -- -- --
Chief Executive Officer
Donald N. Telage....... 7,000 * 19.33 3/28/01 37,384 82,608
Senior Vice President,
Internet Relations and
Special Programs
Robert J.
Korzeniewski........... 5,100 * 19.33 3/28/01 27,237 60,186
Chief Financial Officer
Raymond S. Corson...... 810 * 19.33 2/08/01 4,326 9,559
Senior Vice President, 1,000 * 19.33 3/28/01 5,341 11,801
Business Development
Emmit J. McHenry(6).... -- -- -- -- -- --
</TABLE>

- ------------------------------
* Less than 1% of the total options granted to employees in 1996.

(1) Although the following grants of options were made during 1996, such grants
relate to the individual's service during 1995. These non-qualified stock
options vest as to 20%, 20%, 20% and 40% on the first, second, third and
fourth year anniversaries of the date of grant, respectively. Under the
terms of SAIC's 1995 Stock Option Plan (the "Stock Plan"), the committee
designated by the Board of Directors to administer the Stock Plan retains
the discretion, subject to certain limitations within the Stock Plan, to
modify, extend or renew outstanding options and to reprice outstanding
options. Options may be repriced by canceling outstanding options and
reissuing new options with an exercise price equal to the fair market value
on the date of reissue, which may be lower than the original exercise price
of such canceled options.

(2) Based on options to purchase an aggregate of 3,581,132 shares granted to
employees, consultants and directors of SAIC and its subsidiaries in 1996,
including the Company's Named Executive Officers.

(3) The exercise price on the date of grant was equal to the Formula Price of
the SAIC Class A Common Stock on the date of grant.

(4) The options have a term of 5 years, subject to earlier termination in
certain events related to termination of employment.

(5) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of the SAIC Class A Common Stock.
There can be no assurance that any of the values reflected in the table will
be achieved.

(6) Emmit J. McHenry served as Chief Executive Officer of the Company until
January 1996.

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<PAGE> 64

The following table summarizes the value realized on the exercise of
options to acquire SAIC Class A Common Stock during the fiscal year ended
December 31, 1996. No options to acquire shares of the Company's Common Stock
were exercised during the Company's 1996 fiscal year. The following table also
presents the number and value of unexercised options to acquire SAIC Class A
Common Stock and unexercised options to acquire the Company's Common Stock as of
December 31, 1996 for the Company's Named Executive Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)
SHARES ACQUIRED VALUE --------------------------- -------------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- --------------- ------------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Gabriel A. Battista --(N) --(N) --(N) 461,250(N) --(N) 1,268,438(N)(2)
Chief Executive --(S) --(S) --(S) --(S) --(S) --(S)
Officer
Donald N. Telage --(N) --(N) --(N) 153,750(N) --(N) --(N)(2)
Senior Vice President, 6,100(S) 60,771(S)(1) 4,580(S) 14,970(S) 40,887(S)(3) 89,138(S)(3)
Internet Relations and
Special Programs
Robert J. Korzeniewski --(N) --(N) --(N) 115,300(N) --(N) --(N)(2)
Chief Financial --(S) --(S) 9,000(S) 14,100(S) 91,310(S)(3) 90,530(S)(3)
Officer
Raymond S. Corson --(N) --(N) --(N) 30,750(N) --(N) --(N)(2)
Senior Vice President, --(S) --(S) 200(S) 2,610(S) 1,284(S)(3) 11,471(S)(3)
Business Development
Emmit J. McHenry(4) --(N) --(N) --(N) --(N) --(N) --(N)(2)
--(S) (S) 2,000(S) 8,000(S) 12,840(S)(3) 51,360(S)(3)
</TABLE>

- ------------------------------
(N) Options to acquire the Company's Class A Common Stock.

(S) Options to acquire SAIC's Class A Common Stock.

(1) Calculated by multiplying the difference between the Formula Price of
SAIC's Class A Common Stock underlying the option as of the date of
exercise and the exercise price of the option by the number of shares of
SAIC's Class A Common Stock acquired on exercise of the option.

(2) Based on the fair market value of the Company's Class A Common Stock as of
such date as determined by the Board of Directors less the exercise price
of such options. The fair market value of Mr. Battista's options was
determined by the Board of Directors prior to the fair market valuation
date of the options granted to the other Named Executive Officers and was
based on several factors, including, but not limited to, the status of the
Company's back office operations, strategic agreements and market
conditions.

(3) Based on the Formula Price of SAIC's Class A Common Stock as of such date
less the exercise price of such options.

(4) Emmit J. McHenry served as Chief Executive Officer of the Company until
January 1996.

1996 STOCK INCENTIVE PLAN

The 1996 Stock Incentive Plan (the "Incentive Plan") of the Company was
adopted by the Board of Directors and approved by the Company's stockholder on
September 18, 1996. The Incentive Plan provides for awards in the form of
restricted shares, stock units, options (including incentive stock options
("ISOs") and nonstatutory stock options ("NSOs")) or stock appreciation rights
("SARs"). Employees, Outside Directors, consultants and advisors of the Company
are eligible for the grant of restricted shares, stock units, SARs and NSOs.
Only employees are eligible for the grant of ISOs. The Outside Directors may
elect to receive any director fees in NSOs, stock units or a combination
thereof. As of June 30, 1997, a total of 2,556,250 shares of Common Stock has
been reserved for issuance under the Incentive Plan. The Incentive Plan will be
amended to reflect two classes of Common Stock.

The Incentive Plan will be administered by a Compensation Committee and a
Non-Insider Option Committee. The Compensation Committee will consist of at
least two directors who are "non-employee directors," as defined in Rule 16b-3.
The Board of Directors may amend the Incentive Plan as desired without further
action by the Company's stockholders except as required by applicable law.

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<PAGE> 65

The Incentive Plan will continue in effect until terminated by the Board or,
with respect to ISOs, for a term of 10 years from its original adoption date,
whichever is earlier.

The consideration for each award under the Incentive Plan will be
established by the Compensation Committee, but in no event will the option price
for ISOs be less than 100% of the fair market value of the stock on the date of
grant. Awards will have such terms and be exercisable in such manner and at such
times as the Compensation Committee may determine. However, each ISO must expire
within a period of not more than ten (10) years from the date of grant.

The Incentive Plan provides that, in the event of a merger or
reorganization of the Company, outstanding options, SARs, restricted shares and
stock units shall be subject to the terms of the agreement of merger or
reorganization.

As of September 18, 1997, a total of 100,900 ISOs and 1,568,325 NSOs have
been granted under the Incentive Plan. Such options have exercise prices ranging
from $11.25 to $14.00 per share and a weighted average per share exercise price
of $13.24 and were held by 87 persons. None of such options has been exercised.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

The Company does not currently have any employment contracts in effect with
any of the Named Executive Officers other than Gabriel A. Battista, the
Company's Chief Executive Officer.

The Company and Mr. Battista are parties to a letter agreement dated
September 24, 1996 governing his employment with the Company. The agreement sets
forth Mr. Battista's compensation level and eligibility for bonuses, benefits
and option grants under the 1996 Stock Incentive Plan. Pursuant to the
agreement, if Mr. Battista's employment is terminated for other than cause or
non-performance, Mr. Battista will be eligible to receive, if terminated during
his first year of employment, his first year base salary and an additional
$150,000 in bonus, and, if terminated during his second year of employment, his
first year base salary and an amount equal to the bonus awarded to him for his
first year of employment. If Mr. Battista resigns during this initial two-year
period, he will not receive any separation compensation. Mr. Battista's
employment under the letter agreement is voluntary and may be terminated by the
Company or Mr. Battista at any time with or without cause or notice.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law (the "Delaware Law"). The Delaware
Law provides that directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as directors, except for
liability (i) for any breach of their duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of dividend or unlawful stock repurchase or redemption, as provided in section
174 of the Delaware Law, or (iv) for any transaction from which the director
derived an improper personal benefit. Any amendment or repeal of these
provisions requires the approval of the holders of shares representing at least
66-2/3% of the shares of the Company entitled to vote in the election of
directors, voting as one class. The effect of these provisions will be to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations described
above.

The Company's Certificate of Incorporation and Bylaws also provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Law. The Company intends to enter into separate
indemnification agreements with its directors that could require the Company,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service as directors and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. The Company believes that the limitation of

64
<PAGE> 66

liability provision in its Certificate of Incorporation and the indemnification
agreements will facilitate the Company's ability to continue to attract and
retain qualified individuals to serve as directors and officers of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER INFORMATION

Compensation information with respect to the Named Executive Officers for
1996 reflects compensation earned while the Company was a wholly-owned
subsidiary of SAIC. During 1996, the Company had no Compensation Committee.
Executive compensation levels during 1996 were established by SAIC. The Company
has established a Compensation Committee for fiscal 1997, the members of which
are Michael A. Daniels, J. Robert Beyster and Stratton D. Sclavos. Dr. Beyster
and Mr. Sclavos are independent directors of the Company. See
"Management -- Executive Officers and Directors."

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<PAGE> 67

RELATIONSHIP WITH SAIC AND CERTAIN TRANSACTIONS

The Company was acquired by SAIC, an employee-owned, diversified
professional and technical services company, on March 10, 1995. The Company is
currently a wholly-owned subsidiary of SAIC. Upon completion of the offering,
SAIC will own 100% of the Company's outstanding Class B Common Stock (12,000,000
shares), which will represent approximately 78.4% of the outstanding Common
Stock of the Company (11,925,000 shares or approximately 75.9% if the
Underwriters' over-allotment option is exercised in full) and approximately
97.3% of the combined voting power of the Company's outstanding Common Stock
(approximately 96.9% if the Underwriters' over-allotment option is exercised in
full) and thus will continue to have the ability to elect all of the directors
of the Company and otherwise exercise a controlling influence over the business
and affairs of the Company.

Prior to the acquisition of the Company by SAIC, the Company's business
included commercial and government contracts awarded to the Company on a
competitive basis, including government contracts that were awarded to the
Company based partially upon the Company's then minority-owned status. The
contracts which had been awarded to the Company based partially upon the
Company's then minority-owned status were transferred into a separately-owned
entity prior to the acquisition of the Company by SAIC. In November 1995, SAIC
adopted a plan to transfer the Company's remaining government-based business to
SAIC in order to enable the Company to focus on the growth of its commercial
business, which includes registration services and Intranet services. Such
transfer was effective as of February 1996. In connection with such transfer,
the Company assigned to SAIC all of its rights and title to certain contracts,
accounts and assets, all of which were part of the Company's remaining
government-based business. In addition, the Company assigned to SAIC certain
liabilities associated with such government-based business. No gain or loss was
incurred as a consequence of the transfer of this business. SAIC agreed to
indemnify the Company and any director, officer, employee, agent or
representative of the Company from any loss or liability associated with such
government-based business or the transferred assets. Finally, SAIC agreed to
indemnify the same entities against any loss or liability associated with
certain other government contracts whose award was based partially upon the
Company's then minority-owned status which had been transferred to a
separately-owned entity prior to the acquisition of the Company by SAIC. The
operating results of both the minority-based government contracts business, and
the remaining government-based business are reflected as discontinued operations
in the Company's financial statements for all periods presented.

For as long as SAIC continues to own shares of Common Stock representing
more than 50% of the voting power of the Common Stock of the Company, SAIC will
be able, among other things, to determine the outcome of any corporate action
requiring approval of holders of Common Stock representing a majority of the
voting power of the Common Stock, including the election of the entire Board of
Directors of the Company, without the consent of the other stockholders of the
Company. In addition, through its control of the Board of Directors and
ownership of Common Stock, SAIC will be able to control certain decisions,
including decisions with respect to the Company's dividend policy, the Company's
access to capital (including borrowing from third party lenders and the issuance
of additional equity securities), mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the Company
and any change in control of the Company.

SAIC has advised the Company that its current intent is to continue to hold
all of its outstanding shares of Class B Common Stock. Further, pursuant to the
Underwriting Agreement, SAIC has agreed, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock (or any security
convertible into or exchangeable or exercisable for Common Stock) owned by it
for a period of 180 days following the date of this Prospectus without the prior
written consent of Hambrecht & Quist LLC. However, after such 180 day period,
there can be no assurance concerning the period of time during which time SAIC
will maintain its ownership of Class B Common Stock. Beneficial ownership of at
least 80% of the total voting power and value of the outstanding Common Stock is
required in order for SAIC to continue to include the Company in its
consolidated group for federal income tax purposes, and ownership of at least
80% of the total voting power and 80% of each class of

66
<PAGE> 68

nonvoting capital stock is required in order for SAIC to be able to effect a
tax-free spin-off of the Company under the Code. It is anticipated that upon
completion of this offering, the Company will cease to be included in SAIC's
consolidated group for federal income tax purposes but that SAIC will continue
to own at least 80% of the total voting power and 80% of each class of nonvoting
capital stock of the Company. See "Description of Capital Stock -- Common
Stock -- Conversion Rights."

The Company's Certificate of Incorporation contains provisions relating to
competition by SAIC with the Company, potential conflicts of interest that may
arise between the Company and SAIC, the allocation of business opportunities
that may be suitable for either SAIC or the Company and the approval of
transactions between the Company and SAIC. The Company's Certificate of
Incorporation also limits the liability of its directors for monetary damages
arising from a breach of their fiduciary duty as directors, except to the extent
otherwise required by the Delaware General Corporations Law. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.

The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has also entered into indemnification agreements with its
officers and directors containing provisions that may require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.

The Company's relationship with SAIC will also be governed by the following
agreements to be entered into prior to completion of the offering: the Corporate
Services Agreement, a noncompetition agreement, a registration rights agreement
and the Tax Sharing Agreement, the material terms of which are summarized below.
Because the Company is a wholly-owned subsidiary of SAIC, none of these
arrangements will result from arm's length negotiations and, therefore, the
prices charged to the Company for services provided thereunder may be higher or
lower than prices that may be charged by third parties.

The descriptions of agreements set forth below are intended to be summaries
and, while material terms of the agreements are set forth herein, the
descriptions are qualified by reference to the relevant agreements filed as
exhibits to the Registration Statement of which this Prospectus forms a part.

The Company believes that the transactions contemplated by the following
agreements are in its best interests. It is the Company's current policy that
all transactions by the Company with its officers, directors, five percent
stockholders and their affiliates will be entered into (or amended) only if such
transactions are approved by a majority of the disinterested independent
directors, are on terms no less favorable to the Company than could be obtained
from unaffiliated parties and are reasonably expected to benefit the Company.

CORPORATE SERVICES AGREEMENT

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<PAGE> 69

(i) costs for administrative functions and services performed on behalf of the
Company by centralized staff groups within SAIC; (ii) SAIC's general corporate
expenses; (iii) other benefit costs, including, but not limited to, health
insurance, disability and retirement costs; and (iv) cost of capital (through
December 31, 1996). Through August 9, 1996, such allocations (excluding cost of
capital) were generally based on the proportionate labor costs of the Company to
the rest of SAIC and were included in selling, general and administrative
expenses and cost of revenue, respectively. Effective August 10, 1996, SAIC
stopped allocating costs based generally upon pro rata labor and began assessing
the Company for corporate services provided by SAIC at a fee equal to 2.5% of
net revenue with such percentage to be re-evaluated by both parties on an annual
basis. This fee is included in its entirety in selling, general and
administrative expenses. The Company believes that the charges under the
Corporate Services Agreement are reasonable. The initial term of this agreement
will be one year. Thereafter, the Corporate Services Agreement will be
automatically renewed for successive one-year terms until terminated. After
SAIC's ownership of the Company's Common Stock drops below 50% of the Company's
issued and outstanding Common Stock, the agreement may be terminated by either
party upon 180 days' prior written notice. Certain individual services are also
terminable by either party upon 180 days' prior written notice, regardless of
SAIC's stock ownership. See Note 9 of Notes to Financial Statements.

NONCOMPETITION AGREEMENT

Prior to the completion of the offering, the Company and SAIC will enter
into a noncompetition agreement (the "Noncompetition Agreement") pursuant to
which SAIC agrees that it will not compete with the Company in the domain name
registration business within the .com, .org, .net, .edu and .gov TLDs for a
period of five years. The Noncompetition Agreement does not restrict SAIC from
competing with the Company in the domain name registration business in other
TLDs or other lines of business. The initial term of this agreement will be five
years but either party will have the right to terminate the agreement if SAIC
ceases to beneficially own 20% of the Company's Common Stock.

REGISTRATION RIGHTS AGREEMENT

Prior to the completion of the offering, the Company and SAIC will execute
the Registration Rights Agreement pursuant to which SAIC may, on not more than
two occasions, demand registration under the Securities Act of some or all of
the shares of Class A Common Stock to be owned by SAIC upon conversion of the
Class B Common Stock owned by SAIC or any other shares of Class A Common Stock
acquired by SAIC, subject to its agreement not to sell any shares prior to the
expiration of 180 days from the date of this Prospectus. The first such
registration will be at the Company's expense and the second such registration
will be at SAIC's expense. The Company may postpone such a demand under certain
circumstances. In addition, SAIC may request the Company to include shares of
the Class A Common Stock held by SAIC in any registration proposed by the
Company of such Class A Common Stock under the Securities Act. See "Description
of Capital Stock -- Registration Rights."

TAX SHARING AGREEMENT

The taxable income and losses of the Company will be included in the
consolidated federal income tax returns filed by SAIC's consolidated group for
so long as SAIC maintains beneficial ownership of at least 80% of the total
voting power and value of the outstanding Common Stock of the Company. Prior to
the completion of the offering, the Company and SAIC plan to enter into the Tax
Sharing Agreement which will require the Company to pay SAIC an amount in
respect of federal income taxes generally equal to the amount of the federal
income taxes that the Company generally would be required to pay if the Company
were to file its own federal income tax return and was never part of SAIC's
consolidated group. Effectively, this will result in the Company's annual income
tax payable/receivable being computed as if the Company filed a separate tax
return.

Further, pursuant to the terms of the Tax Sharing Agreement, upon
deconsolidation, the Company's ability to recognize a benefit for tax losses it
incurs is subject to SAIC's approval. SAIC may choose to contest, compromise or
settle any adjustment or deficiency proposed by the relevant taxing authority in
a manner that may be beneficial to SAIC and detrimental to the Company.

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<PAGE> 70

In general, the Company will be included in SAIC's consolidated group for
federal income tax purposes for so long as SAIC beneficially owns at least 80%
of the total voting power and value of the outstanding Common Stock. Each member
of a consolidated group is jointly and severally liable for the federal income
tax liability of each other member of the consolidated group. Accordingly,
although the Tax Sharing Agreement allocates tax liabilities between the Company
and SAIC, during the period in which the Company is included in SAIC's
consolidated group, the Company could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of SAIC's
consolidated group. It is anticipated that upon completion of this offering, the
Company will cease to be included in SAIC's consolidated group for federal
income tax purposes since SAIC will own less than 80% of the total value of the
outstanding Common Stock. However, SAIC may continue to file a consolidated,
combined or unitary tax return with the Company for state or local tax purposes.
Accordingly, although the Tax Sharing Agreement will not apply for federal
income tax purposes to taxable years beginning after the Deconsolidation Date,
it will continue to apply, to the extent appropriate, for state or local tax
purposes. See "Risk Factors -- Control by SAIC," "-- Control of Tax Matters; Tax
and ERISA Liability" and "-- Potential Conflicts of Interest."

OTHER TRANSACTIONS WITH SAIC

In fiscal 1996, the Company provided the following services under
subcontracts to SAIC: (i) telecommunications design and support services to
Kaiser Permanente for which the Company received $155,000; (ii) engineering and
network services to Banco de Credito for which the Company received $864,000;
(iii) engineering support to KUB/Malaysia for which the Company received
$107,000; (iv) engineering services to the Center for Information Protection for
which the Company received $103,000 and (v) other subcontracts for which the
Company received $276,000.

In addition, in fiscal 1996, SAIC provided database, applications and
installation services to UUNET Technologies, Inc. under a subcontract to the
Company for which SAIC received $133,000 and on other subcontracts to the
Company for which SAIC received $95,000.

The Company currently subleases from SAIC facilities in Herndon, Virginia
and Charlotte, North Carolina. In fiscal 1996, the Company made lease payments
of $737,000 to SAIC.

For information concerning indemnification of directors and officers, see
"Management -- Limitation of Liability and Indemnification Matters."

DUE TO PARENT LIABILITY

The cumulative result of the transactions and relationship with SAIC
outlined above at December 31, 1996 was a liability due SAIC of $15,295,000. The
most significant component of this balance was the income taxes payable by the
Company that SAIC will report on its consolidated tax return. This balance has
subsequently been paid to SAIC.

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PRINCIPAL AND SELLING STOCKHOLDERS

OWNERSHIP OF THE COMPANY'S COMMON STOCK

As of the date of this Prospectus, no shares of Class A Common Stock are
outstanding. Upon completion of this offering, the only shares of Class A Common
Stock that will be outstanding are those that will be issued in the offering
(including any shares issued if the Underwriters' over-allotment option is
exercised) and those issued under the Company's stock incentive plans. See
"Management -- Executive Compensation." The only stockholder of the Company is
SAIC. The address of SAIC is 10260 Campus Point Drive, San Diego, California
92121. SAIC currently owns 12,500,000 shares or 100% of the Company's
outstanding Class B Common Stock and will convert 500,000 shares of the Class B
Common Stock (575,000 shares if the over-allotment option is exercised in full)
into an equal number of shares of Class A Common Stock to be sold in the
offering by SAIC. Upon completion of the offering, SAIC will continue to own
100% of the Company's outstanding Class B Common Stock (12,000,000 shares),
which will represent approximately 78.4% of the outstanding Common Stock of the
Company (11,925,000 shares or approximately 75.9% if the Underwriters'
over-allotment option is exercised in full). Under Delaware law, SAIC is able,
acting alone, to elect the entire Board of Directors of the Company and to
control the vote on all matters submitted to a vote of the Company's
stockholders, including extraordinary corporate transactions. Currently, five of
the Company's eight directors are also directors and/or officers of SAIC.

OWNERSHIP OF SAIC CLASS A COMMON STOCK

The following table sets forth, at July 31, 1997, the beneficial ownership
of SAIC Class A Common Stock held by the Company's directors, the Named
Executive Officers, and all directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF SAIC PERCENTAGE OF SHARES
BENEFICIAL OWNER CLASS A COMMON STOCK(1)(2) OUTSTANDING(3)
- -------------------------------------------- -------------------------- ---------------------
<S> <C> <C>
Gabriel A. Battista......................... -- --
J. Robert Beyster........................... 779,252 1.6%(4)
Raymond S. Corson........................... 6,329 *
Michael A. Daniels.......................... 52,330 *
Craig I. Fields............................. 3,000 *
John E. Glancy.............................. 137,546 *
Robert J. Korzeniewski...................... 29,820 *
Emmit J. McHenry............................ 30,428 *
William A. Roper, Jr........................ 43,610 *
Stratton D. Sclavos......................... -- --
Donald N. Telage............................ 38,237 *
State Street Bank and Trust Company......... 24,204,594(5) 48.8%(6)
One Enterprise Drive
North Quincy, MA 02171
All directors and executive officers
as a group (14 persons)................... 1,092,579 2.2%(7)
</TABLE>

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

* Less than 1% of the outstanding shares of SAIC's Class A Common Stock and
less than 1% of the voting power of SAIC's Class A Common Stock and Class B
Common Stock on a combined basis.

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, to the best of the Company's knowledge, the
persons named in the table above have sole voting and investment power with
respect to all shares of SAIC Class A Common Stock shown as
beneficially-owned by them. Options to purchase shares of SAIC Class A
Common Stock that are exercisable within 60 days of July 31, 1997 are deemed
to be beneficially-owned by the person holding such options for the purpose
of computing the percentage ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.

(2) The beneficial ownership depicted in the table includes: (i) shares held for
the account of the individual by the Trustee of SAIC's Employee Stock
Ownership Plan, Profit Sharing Plan and Cash or Deferred Arrangement, as
follows: J.R. Beyster (1,005 shares), Raymond S. Corson (2,901 shares),
Michael A. Daniels (5,124 shares), John E. Glancy (26,757 shares), Robert J.
Korzeniewski (5,675 shares), Emmit J. McHenry (97 shares), William A. Roper,
Jr. (4,145 shares), Donald N. Telage (4,461 shares), and all executive
officers and directors as a group (50,259 shares); (ii) shares subject to
options which are exercisable within 60 days of July 31, 1997, as follows:
Raymond S. Corson (762 shares), Michael A. Daniels (12,800 shares), Craig I.
Fields (3,000 shares), John E. Glancy (13,800 shares), Robert J.
Korzeniewski (12,120 shares), Emmit J. McHenry (4,000 shares), William A.
Roper, Jr. (6,200 shares), Donald N. Telage (8,850 shares), and all
executive officers and directors as a group (58,032 shares); (iii) shares
held by spouses, minor children or other relatives sharing a household with
the individuals, as follows: John E. Glancy (2,870 shares) and all executive
officers and directors as a group (2,870 shares); and (iv) shares held by
certain trusts established by the individual, as follows: J.R. Beyster
(778,247 shares) and all executive officers and directors as a group
(778,247 shares).

(3) Applicable percentage of beneficial ownership is based on 49,568,419 shares
of SAIC Class A Common Stock outstanding as of July 31, 1997.

(4) Represents 1.5% of the voting power of SAIC's Class A Common Stock and Class
B Common Stock on a combined basis.

(5) As Trustee of certain retirement and stock benefit plans of SAIC and its
subsidiaries.

(6) Represents 47.3% of the voting power of SAIC's Class A Common Stock and
Class B Common Stock on a combined basis.

(7) Represents 2.1% of the voting power of SAIC's Class A Common Stock and Class
B Common Stock on a combined basis.

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DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, par value $0.001 per share, 30,000,000 shares of Class
B Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred
Stock, par value $0.001 per share. None of the Class A Common Stock and
Preferred Stock are outstanding as of the date hereof. Of the 100,000,000 shares
of Class A Common Stock authorized, 3,300,000 are being offered hereby
(3,795,000 shares if the Underwriters' over-allotment option is exercised in
full), 12,000,000 shares will be reserved for issuance upon conversion of Class
B Common Stock into Class A Common Stock and 2,556,250 shares have been reserved
for issuance pursuant to certain employee benefits plans. See "Management --
Executive Compensation." Of the 30,000,000 shares of Class B Common Stock
authorized, 12,000,000 shares, or 100% of the outstanding shares of Class B
Common Stock, will be held by SAIC. In connection with this offering, SAIC will
convert 500,000 shares of its Class B Common Stock into 500,000 shares of Class
A Common Stock to be offered by SAIC. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
form of Certificate of Incorporation of the Company and the Bylaws of the
Company, a copy of each of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.

COMMON STOCK

Voting Rights. The holders of Class A Common Stock and Class B Common
Stock generally have identical rights except that holders of Class A Common
Stock are entitled to one vote per share while holders of Class B Common Stock
are entitled to ten votes per share on all matters to be voted on by
stockholders. The holders of Common Stock are not entitled to cumulative voting
rights. Generally, all matters to be voted on by stockholders must be approved
by a majority (or, in the case of election of directors, by a plurality) of the
votes entitled to be cast by all shares of Class A Common Stock and Class B
Common Stock present in person or represented by proxy, voting together as a
single class, subject to any voting rights granted to holders of any Preferred
Stock. In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Common Stock would be
entitled to share ratably in all assets remaining after payment of liabilities
subject to prior distribution rights and payment of any distributions owing to
holders of shares of Preferred Stock then outstanding, if any. Holders of the
shares of Common Stock have no preemptive rights, and the shares of Common Stock
are not subject to further calls or assessment by the Company. There are no
redemption or sinking fund provisions applicable to the shares of Common Stock.

Holders of Class A Common Stock and Class B Common Stock will share in an
equal amount per share in any dividend declared by the Board of Directors,
subject to any preferential rights of any outstanding Preferred Stock. Dividends
consisting of shares of Class A Common Stock and Class B Common Stock may be
paid only as follows: (i) shares of Class A Common Stock may be paid only to
holders of Class A Common Stock and shares of Class B Common Stock may be paid
only to holders of Class B Common Stock and (ii) shares shall be paid
proportionally with respect to each outstanding share of Class A Common Stock
and Class B Common Stock.

Conversion Rights. While SAIC does not have a current intention of
effecting a Tax-Free Spin-Off (as hereinafter defined), SAIC will continually
evaluate its ownership of the Company and there can be no assurances whether
SAIC will effect a Tax-Free Spin-Off in the future. Each outstanding share of
Class B Common Stock is convertible at the holder's option into one share of
Class A Common Stock at any time prior to a Tax-Free Spin-Off. Additionally,
each share of Class B Common Stock shall automatically convert into one share of
Class A Common Stock if at any time prior to a Tax-Free Spin-Off the number of
outstanding shares of Class B Common Stock owned by SAIC or any of its
subsidiaries (or a Class B Transferee or any of its subsidiaries) represents
less than 30% of the economic ownership represented by the aggregate number of
shares of Common Stock then outstand-

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ing. If a Tax-Free Spin-Off occurs, shares of Class B Common Stock shall not be
convertible into shares of Class A Common Stock at the option of the holder
thereof.

Except as provided below, any shares of Class B Common Stock transferred to
a person other than SAIC or any of its subsidiaries shall automatically convert
to shares of Class A Common Stock upon such disposition. Prior to a Tax-Free
Spin-Off, shares of Class B Common Stock representing more than a 50% economic
interest in the Company transferred in a single transaction to one unrelated
person (a "Class B Transferee") or among such Class B Transferee and its
subsidiaries shall not automatically convert to shares of Class A Common Stock
upon such disposition. Any shares of Class B Common Stock retained by SAIC
following any such transfer of shares of Class B Common Stock to a Class B
Transferee shall automatically convert into shares of Class A Common Stock upon
such transfer. Shares of Class B Common Stock transferred to stockholders of
SAIC or of a Class B Transferee in a transaction intended to be on a tax-free
basis (a "Tax-Free Spin-Off") under the Code shall not convert to shares of
Class A Common Stock upon the occurrence of such Tax-Free Spin-Off.

Following a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred as Class B Common Stock; provided, however, that shares of Class B
Common Stock shall automatically convert into shares of Class A Common Stock on
the fifth anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free
Spin-Off, SAIC, or the Class B Transferee, as the case may be, delivers to the
Company written advice of counsel reasonably satisfactory to the Company to the
effect that (i) such conversion could adversely affect the ability of SAIC or
the Class B Transferee, as the case may be, to obtain a favorable ruling from
the Internal Revenue Service that the distribution would be a Tax-Free Spin-Off
or (ii) the Internal Revenue Service has adopted a general non-ruling policy on
tax-free spinoffs and that such conversion could adversely affect the status of
the transaction as a Tax-Free Spin-Off. If such written advice is received,
approval of such conversion shall be submitted to a vote of the holders of the
Common Stock as soon as practicable after the fifth anniversary of the Tax-Free
Spin-Off, unless SAIC or the Class B Transferee, as the case may be, delivers to
the Company written advice of counsel reasonably satisfactory to the Company
prior to such anniversary that such vote could adversely affect the status of
the distribution as a Tax-Free Spin-Off, including the ability to obtain a
favorable ruling from the Internal Revenue Service. If such written advice is
delivered, such vote shall not be held. Approval of such conversion will require
the affirmative vote of the holders of a majority of the shares of both Class A
Common Stock and Class B Common Stock present and voting, voting together as a
single class, with each share entitled to one vote for such purpose. No
assurance can be given that such conversion would be consummated. The foregoing
requirements are intended to ensure that tax-free treatment of a Tax-Free
Spin-Off is preserved should the Internal Revenue Service challenge such
automatic conversion as violating the 80% vote requirement currently required by
the Code for a Tax-Free Spin-Off.

PREFERRED STOCK

There are currently no shares of Preferred Stock outstanding. Under the
Company's Certificate of Incorporation, the Board of Directors has the
authority, without further action by the stockholders, to issue from time to
time up to 10,000,000 shares of the Preferred Stock in one or more series and to
fix the number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could decrease the
amount of earnings and assets available for distribution to holders of Common
Stock or affect adversely the rights and powers, including voting rights, of the
holders of Common Stock, and may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.

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REGISTRATION RIGHTS

Pursuant to the Registration Rights Agreement between the Company and SAIC,
which will hold 12,000,000 shares of Class B Common Stock upon completion of
this offering, SAIC is entitled to certain rights with respect to the
registration under the Securities Act of the shares of Class A Common Stock
issuable upon conversion of the Class B Common Stock owned by SAIC. If the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other securityholders, SAIC is
entitled to notice of the registration and is entitled to include, at the
Company's expense, such shares therein, provided, among other conditions, that
the underwriters have the right to limit the number of such shares included in
the registration. In addition, SAIC may require the Company on not more than two
occasions, to file a registration statement under the Securities Act with
respect to its shares of Class A Common Stock, and the Company is required to
use its best efforts to effect the registration, subject to certain conditions
and limitations. The first such registration will be at the Company's expense
and the second such registration will be at SAIC's expense. Further, SAIC may
require the Company at its expense to register their shares of Class A Common
Stock on Form S-3 when such form becomes available to the Company, subject to
certain conditions and limitations. The Company has agreed to indemnify SAIC in
connection with any such registration. See "Relationship with SAIC and Certain
Transactions -- Registration Rights Agreement."

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

Certificate of Incorporation/Bylaws. The Company's Bylaws may be repealed
or amended only by a two-thirds vote of the Board of Directors or a two-thirds
stockholder vote. Consequently, those provisions of the Company's Bylaws may
only be amended or repealed by the holders of at least two-thirds of the voting
power of all the then-outstanding shares of stock entitled to vote generally for
the election of directors voting together as a single class. The provisions
described above, together with the ability of the Board of Directors to issue
Preferred Stock as described under "Description of Capital Stock -- Preferred
Stock," may have the effect of deterring a hostile takeover or delaying a change
in control or management of the Company. See "Risk Factors -- Effect of Certain
Charter Provisions; Anti-takeover Effects of Certificate of Incorporation and
Delaware Law."

Delaware Takeover Statute. Section 203 of the Delaware General Corporation
Law ("Section 203"), subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
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 for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by 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 (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially-owned by the interested stockholder; or (v) the receipt by the
interested stockholder of

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the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation. In general, Section 203 defines
an interested stockholder as any entity or person beneficially owning 15% or
more of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person. As
permitted by Section 203, the Company has elected not to be governed by the
provisions of Section 203.

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

The Company's Certificate of Incorporation provides that any person
purchasing or acquiring an interest in shares of capital stock of the Company is
deemed to have consented to the following provisions relating to intercompany
agreements and to transactions with interested parties and corporate
opportunities. The corporate charter of SAIC does not include comparable
provisions relating to intercompany agreements, transactions with interested
parties or corporate opportunities.

Transactions with Interested Parties. The Company's Certificate of
Incorporation provides that no contract, agreement, arrangement or transaction
(or any amendment, modification or termination thereof) between the Company and
SAIC or any Related Entity (as such terms are defined below) or between the
Company and any director or officer of the Company, SAIC or any Related Entity
shall be void or voidable solely for the reason that SAIC, a Related Entity or
any one or more of the officers or directors of the Company, SAIC or any Related
Entity are parties thereto, or solely because any such directors or officers are
present at, participate in or vote with respect to the authorization of such
contract, agreement, arrangement or transaction (or any amendment, modification
or termination thereof). Further, the Company's Certificate of Incorporation
provides that neither SAIC nor any officer or director thereof or of any Related
Entity shall be presumed liable to the Company or its stockholders for breach of
any fiduciary duty or duty of loyalty or failure to act in (or not opposed to)
the best interests of the Company or the derivation of any improper personal
benefit by reason of the fact that SAIC or an officer or director thereof or of
such Related Entity in good faith takes any action or exercises any rights or
gives or withholds any consent in connection with any agreement or contract
between SAIC or such Related Entity and the Company. No vote cast or other
action taken by any person who is an officer, director or other representative
of SAIC or such Related Entity, which vote is cast or action is taken by such
person in his capacity as a director of the Company, shall constitute an action
of or the exercise of a right by or a consent of SAIC, such subsidiary or
Related Entity for the purpose of any such agreement or contract. For purposes
of the foregoing, the "Company" and "SAIC" include all corporations and other
entities in which the Company or SAIC, as the case may be, owns fifty percent or
more of the outstanding voting stock, and "Related Entity" means one or more
corporations or other entities in which one or more of the directors of the
Company have a direct or indirect financial interest.

Competition by SAIC with the Company; Corporate Opportunities. The
Company's Certificate of Incorporation provides that except as SAIC may
otherwise agree in writing: (i) neither SAIC nor any subsidiary of SAIC (other
than the Company) shall have a duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines of business as
the Company; and (ii) neither SAIC nor any subsidiary (other than the Company),
officer or director thereof will be presumed liable to the Company or to its
stockholders for breach of any fiduciary duty by reason of any such activities
or of such person's participation therein.

The Company's Certificate of Incorporation also provides that if SAIC or
any subsidiary of SAIC (other than the Company) acquires knowledge of a
potential transaction or matter which may be a corporate opportunity both for
SAIC or such subsidiary and for the Company, SAIC shall be entitled to offer
such corporate opportunity to the Company or SAIC as SAIC deems appropriate
under the circumstances in its sole discretion and shall not be presumed liable
to the Company or its stockholders for breach of fiduciary duty as a stockholder
of the Company or controlling person of a stockholder by reason of the fact that
SAIC or such subsidiary pursues or acquires such opportunity for itself, directs
such corporate opportunity to another person, or does not communicate
information regarding such corporate opportunity to the Company.

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Further, the Company's Certificate of Incorporation provides that in the
event that a director, officer or employee of the Company who is also a
director, officer or employee of SAIC acquires knowledge of a potential
transaction or matter that may be a corporate opportunity both for the Company
and SAIC (whether such potential transaction or matter is proposed by a third
party or is conceived by such director, officer or employee of the Company),
such director, officer or employee shall be entitled to offer such corporate
opportunity to the Company or SAIC as such director, officer or employee deems
appropriate under the circumstances in his or her sole discretion, and no such
director, officer or employee shall be presumed liable to the Company or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Company or the derivation
of any improper personal benefit by reason of the fact that (i) such director,
officer or employee offered such corporate opportunity to SAIC (rather than the
Company) or did not communicate information regarding such corporate opportunity
to the Company or (ii) SAIC pursues or acquires such corporate opportunity for
itself or directs such corporate opportunity to another person or does not
communicate information regarding such corporate opportunity to the Company.

The enforceability of the provisions discussed above under Delaware
corporate law has not been established and, due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion as
to the enforceability of such provisions. These provisions of the Company's
Certificate of Incorporation eliminate certain rights that might have been
available to stockholders under Delaware law had such provisions not been
included in the Certificate of Incorporation, although the enforceability of
such provisions has not been established.

At the time of the consummation of the offering, certain of the directors
of the Company will also be directors and/or officers of SAIC.

The foregoing provisions of the Company's Certificate of Incorporation
shall expire on the date that SAIC ceases to own beneficially Common Stock
representing at least 20% of the number of outstanding shares of Common Stock
and no person who is a director or officer of the Company is also a director or
officer of SAIC or its subsidiaries.

Actions Under Intercompany Agreements. The Company's Certificate of
Incorporation will also limit the liability of SAIC and its subsidiaries for
certain breaches of their fiduciary duties in connection with action that may be
taken or not taken in good faith under the intercompany agreements. See
"Relationship with SAIC and Certain Transactions."

Advance Notice Provision. The Company's Amended and Restated Bylaws
provide for an advance notice procedure for the nomination, other than by or at
the direction of the Board of Directors, of candidates for election as directors
as well as for other stockholder proposals to be considered at annual meetings
of stockholders. In general, notice of intent to nominate a director or raise
matters at such meetings will have to be received by the Company not less than
120 days prior to any meeting of the stockholders called for the election of
directors, and must contain certain information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.

NASDAQ NATIONAL MARKET LISTING

Prior to the date of this Prospectus, there has been no established public
trading market for the Class A Common Stock. The Company has applied to have the
Class A Common Stock approved for quotation on the Nasdaq National Market under
the symbol NSOL.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is
ChaseMellon Shareholder Services, LLC.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for the Common Stock
of the Company, and no predictions can be made regarding the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. As described below, only a
limited number of shares will be available for sale shortly after this offering
due to certain contractual and legal restrictions on resale. Nevertheless, sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price.

Upon completion of this offering, the Company will have 3,300,000 shares of
Class A Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). In addition, as of September 18, 1997, the Company had
granted stock options to certain employees and directors for the purchase of an
aggregate of 1,669,225 shares of Class A Common Stock. The 3,300,000 shares of
Class A Common Stock being sold hereby will be freely tradable (other than by an
"affiliate" of the Company as such term is defined in Rule 144 of the Securities
Act) without restriction or registration under the Securities Act. All remaining
shares were issued and sold by the Company in a private transaction ("Restricted
Shares") and are eligible for public sale if registered under the Securities Act
or sold in accordance with Rule 701 thereunder.

SAIC, which will own 12,000,000 shares of Class B Common Stock upon
completion of this offering, and certain Restricted Persons have agreed they
will not sell any shares of Common Stock owned by them without the prior written
consent of the Representatives of the Underwriters for a period of 180 days from
the effective date of the Registration Statement of which this Prospectus is a
part (the "Lockup Period"). Following the expiration of the Lockup Period, SAIC
and such Restricted Persons may sell such shares only pursuant to the
requirements of Rule 144 or pursuant to an effective registration statement
under the Securities Act. Furthermore, the shares held by SAIC and such
Restricted Persons are "restricted securities" within the meaning of Rule 144.
Following the expiration of the Lockup Period, the 12,000,000 shares of Class B
Common Stock held by SAIC will be eligible for sale in the public market subject
to compliance with Rule 144. See "Underwriting."

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the previous year, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 33,000 shares of Class A Common Stock immediately after this
offering, assuming no exercise of the Underwriters' over-allotment option) or
the average weekly trading volume of Class A Common Stock during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. However, a person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of the Company at any time during the 90 days
immediately preceding the sale and who owns beneficially Restricted Shares is
entitled to sell such

76
<PAGE> 78

shares under Rule 144(k) without regard to the limitations described above,
provided that at least two years have elapsed since the later of the date the
shares were acquired from the Company or from an affiliate of the Company. The
foregoing is a summary of Rule 144 and is not intended to be a complete
description of it.

The Company intends to file a registration statement on Form S-8 under the
Securities Act covering approximately 2,556,250 shares of Class A Common Stock
reserved for issuance under the 1996 Stock Incentive Plan. Such registration
statement is expected to be filed soon after the date of this Prospectus and
will automatically become effective upon filing. Accordingly, shares registered
under such registration statements will be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the contractual restrictions described above.

In addition, after this offering and the Lockup Period, SAIC will be
entitled to certain rights to cause the Company to register the sale of its
shares of Common Stock under the Securities Act. Registration of such shares
under the Securities Act would result in such shares becoming freely tradable
without restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. See "Description of Capital Stock -- Registration Rights."

77
<PAGE> 79

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
J.P. Morgan Securities Inc. and PaineWebber Incorporated have severally agreed
to purchase from the Company and the Selling Stockholder the following
respective numbers of shares of Class A Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
--------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC.......................................... 945,000
J.P. Morgan Securities Inc. ................................... 577,500
PaineWebber Incorporated....................................... 577,500
Alex. Brown & Sons Incorporated................................ 100,000
Cowen & Company................................................ 100,000
Donaldson, Lufkin & Jenrette Securities Corporation............ 100,000
Lehman Brothers Inc. .......................................... 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............. 100,000
Montgomery Securities.......................................... 100,000
Charles Schwab & Co., Inc...................................... 100,000
UBS Securities LLC............................................. 100,000
Allen & Company Incorporated................................... 50,000
EVEREN Securities Inc. ........................................ 50,000
Ferris, Baker Watts, Incorporated.............................. 50,000
Friedman, Billings, Ramsey & Co., Inc. ........................ 50,000
Legg Mason Wood Walker Inc. ................................... 50,000
Needham & Company, Inc. ....................................... 50,000
Scott & Stringfellow, Inc. .................................... 50,000
SoundView Financial Group, Inc. ............................... 50,000
---------
Total.......................................................... 3,300,000
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Class A Common Stock offered hereby
if any of such shares are purchased.

The Underwriters propose to offer the shares of Class A Common Stock
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $0.74 per share. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $0.10 per share to
certain other dealers. After the initial public offering of the shares, the
offering price and other selling terms may by changed by the Representatives of
the Underwriters.

The Company and the Selling Stockholder have each granted to the
Underwriters an option, exercisable no later than 30 calendar days after the
date of this Prospectus, to purchase up to 420,000 and 75,000 additional shares,
respectively, of Class A Common Stock at the initial public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Class A Common Stock to be purchased by it
shown in the above table bears to the total number of shares of Class A Common
Stock offered hereby. The Company and the Selling Stockholder will be obligated,
pursuant to the option, to sell shares to the Underwriters to the extent the
option is exercised. The Underwriters may

78
<PAGE> 80

exercise such option only to cover over-allotments made in connection with the
sale of shares of Class A Common Stock offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company and SAIC have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.

The Company, SAIC and certain Restricted Persons have agreed, with certain
exceptions, that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following the
date of this Prospectus.

The Representatives have informed the Company and the Selling Stockholder
that the Underwriters do not intend to confirm sales of Class A Common Stock
offered hereby to any accounts over which they exercise discretionary authority.

Prior to the offering, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock was
determined by negotiation among the Company, the Selling Stockholder and the
Representatives. Among the factors considered in determining the initial public
offering price were prevailing market conditions, revenues and earnings of the
Company, market valuations of other companies engaged in activities similar to
those of the Company, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, the Company's
management and other factors deemed relevant.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.

The Underwriters have reserved up to 5% of the shares of Class A Common
Stock offered hereby for sale at the initial public offering price to certain
employees, officers and directors of SAIC and the Company and other persons
designated by the Company. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased on the effectiveness of the
offering will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.

In 1997, the Company and Hambrecht & Quist LLC entered into an Intranet
services agreement pursuant to which the Company performed certain Intranet
services for Hambrecht & Quist LLC. The terms of such agreement were negotiated
by the parties at arm's length after the Company's selection of Hambrecht &
Quist LLC as a Representative.

79
<PAGE> 81

LEGAL MATTERS

Certain legal matters with respect to the validity of the Class A Common
Stock offered hereby are being passed upon for the Company by Pillsbury Madison
& Sutro LLP, Menlo Park, California and Washington D.C. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), New
York, New York.

EXPERTS

The financial statements as of December 31, 1995 and 1996 and for the year
ended December 31, 1994, the periods from January 1, 1995 to March 10, 1995 and
from March 11, 1995 to December 31, 1995 and for the year ended December 31,
1996 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act and the rules
and regulations promulgated thereunder, with respect to the Common Stock offered
hereby. 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 and schedules thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to
such Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete; with respect to each such contract or
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. A
copy of the Registration Statement, including the exhibits and schedules,
thereto, may be inspected without charge at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 upon payment of 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 Commission's web site is
http://www.sec.gov.

The Company is not currently subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Company's Common Stock, the Company will become
subject to the informational requirements of the Exchange Act.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.

80
<PAGE> 82

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants................................................. F-2, F-3

Statements of Financial Position as of
December 31, 1995 and 1996 and June 30, 1997 (Unaudited)........................ F-4

Statements of Operations for the Year Ended December 31, 1994, for the Periods
from January 1, 1995 to March 10, 1995 and March 11, 1995 to December 31, 1995,
for the Year Ended December 31, 1996, and for the Six Months Ended June 30, 1996
and 1997 (Unaudited)............................................................ F-5

Statements of Changes in Stockholder's Equity for the Year Ended December 31,
1994, for the Periods from January 1, 1995 to March 10, 1995 and March 11, 1995
to December 31, 1995, for the Year Ended December 31, 1996, and for the Six
Months Ended June 30, 1997 (Unaudited).......................................... F-6
Statements of Cash Flows for the Year Ended December 31, 1994, for the Periods

from January 1, 1995 to March 10, 1995 and March 11, 1995 to December 31, 1995,
for the Year Ended December 31, 1996, and for the Six Months Ended June 30, 1996
and 1997 (Unaudited)............................................................ F-7

Notes to Financial Statements..................................................... F-8
</TABLE>

F-1
<PAGE> 83

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholder of Network Solutions, Inc.

In our opinion, the accompanying statements of financial position and the
related statements of operations, of changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of
Network Solutions, Inc. (a wholly-owned subsidiary of Science Applications
International Corporation) at December 31, 1996 and 1995, and the results of its
operations and cash flows for the year ended December 31, 1996 and for the
period from March 11, 1995 to December 31, 1995 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 1 to the financial statements, on March 10, 1995,
Science Applications International Corporation acquired the outstanding stock of
the Company. The financial statements for the periods subsequent to March 10,
1995 have been prepared on the basis of accounting arising from this
acquisition. The financial statements for the period from January 1, 1995 to
March 10, 1995 and for the year ended December 31, 1994 are presented on the
Company's previous basis of accounting.

PRICE WATERHOUSE LLP

Falls Church, VA
March 17, 1997, except as to Note 13
which is as of June 26, 1997

F-2
<PAGE> 84

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholder of Network Solutions, Inc.

In our opinion, the accompanying statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows for Network Solutions, Inc.
("Predecessor") for the period from January 1, 1995 to March 10, 1995 and for
the year ended December 31, 1994 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note 1 to the financial statements, on March 10, 1995
Science Applications International Corporation acquired the outstanding stock of
the Company. The financial statements for the periods subsequent to March 10,
1995 have been prepared on the basis of accounting arising from this
acquisition. The financial statements for the period from January 1, 1995 to
March 10, 1995 and for the year ended December 31, 1994 are presented on the
Company's previous basis of accounting.

PRICE WATERHOUSE LLP

Falls Church, VA
March 17, 1997, except as to Note 13
which is as of June 26, 1997

F-3
<PAGE> 85

NETWORK SOLUTIONS, INC.

STATEMENTS OF FINANCIAL POSITION

<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, ----------------------------
-------------------------- PRO FORMA
1995 1996 ACTUAL (NOTE 2)
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 5,000 $15,540,000 $ 25,967,000 $ 25,967,000
Short-term investments................ -- -- 3,625,000 3,625,000
Accounts receivable, net.............. 4,040,000 12,587,000 6,387,000 6,387,000
Prepaids and other assets............. 11,000 936,000 1,361,000 1,361,000
Restricted assets..................... 1,408,000 17,453,000 31,056,000 31,056,000
Deferred tax asset.................... 1,310,000 10,087,000 12,248,000 12,248,000
----------- ----------- ------------ ------------
Total current assets.................... 6,774,000 56,603,000 80,644,000 80,644,000
Furniture and equipment, net............ 1,067,000 2,266,000 4,461,000 4,461,000
Deferred tax asset...................... 911,000 4,968,000 5,222,000 5,222,000
Goodwill, net........................... 2,996,000 2,281,000 1,923,000 1,923,000
----------- ----------- ------------ ------------
Total Assets............................ $11,748,000 $66,118,000 $ 92,250,000 $ 92,250,000
=========== =========== ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 1,355,000 $ 2,581,000 $ 3,959,000 $ 3,959,000
Deferred revenue, net................. 1,993,000 19,912,000 31,990,000 31,990,000
Net liabilities of discontinued
operations......................... 208,000 -- -- --
Due to parent......................... 2,369,000 15,295,000 6,566,000 16,566,000
Internet fund liability............... 1,408,000 17,453,000 31,056,000 31,056,000
Current portion of capital lease
obligations........................ -- -- 793,000 793,000
----------- ----------- ------------ ------------
Total current liabilities............... 7,333,000 55,241,000 74,364,000 84,364,000
Long-term deferred revenue, net......... 1,353,000 9,440,000 13,638,000 13,638,000
Capital lease obligations............... -- -- 1,555,000 1,555,000
----------- ----------- ------------ ------------
Total liabilities....................... 8,686,000 64,681,000 89,557,000 99,557,000
Stockholder's equity:
Preferred stock, $.001 par value,
authorized 10,000,000 shares; none
issued and outstanding............. -- -- -- --
Class A Common stock, $.001 par value;
authorized 100,000,000 shares; none
issued and outstanding............. -- -- -- --
Class B Common stock, $.001 par value,
authorized 30,000,000 shares;
12,500,000 issued and
outstanding........................ 12,000 12,000 12,000 12,000
Additional paid-in capital............ 4,468,000 4,468,000 4,468,000 4,468,000
Accumulated deficit................... (1,418,000) (3,043,000) (1,787,000) (11,787,000)
----------- ----------- ------------ ------------
Total stockholder's equity.............. 3,062,000 1,437,000 2,693,000 (7,307,000)
Commitments and contingencies........... -- -- -- --
----------- ----------- ------------ ------------
Total Liabilities and Stockholder's
Equity................................ $11,748,000 $66,118,000 $ 92,250,000 $ 92,250,000
=========== =========== ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 86

NETWORK SOLUTIONS, INC.

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
-------------------------------- ------------------------------- --------------------------
YEAR ENDED JANUARY 1, 1995 MARCH 11, 1995 YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, TO MARCH 10, TO DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1995 1996 1996 1997
------------ ---------------- --------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenue................ $ 5,029,000 $ 1,177,000 $ 5,309,000 $18,862,000 $ 6,829,000 $18,724,000
Cost of revenue............ 3,073,000 884,000 4,820,000 14,666,000 6,521,000 11,435,000
----------- ----------- ----------- ----------- ----------- ----------
Gross profit............... 1,956,000 293,000 489,000 4,196,000 308,000 7,289,000
Research and development
expenses................. -- -- -- 680,000 58,000 718,000
Selling, general and
administrative
expenses................. 1,544,000 280,000 2,114,000 6,280,000 2,370,000 4,788,000
Interest expense (income)
(includes related party
interest expense of
$52,000 for the period
March 11, 1995 to
December 31, 1995 and
interest income of
$496,000 for 1996)....... 109,000 9,000 52,000 (496,000) (86,000) (484,000)
----------- ----------- ----------- ----------- ----------- ----------
Income (loss) from
continuing operations
before income taxes...... 303,000 4,000 (1,677,000) (2,268,000) (2,034,000) 2,267,000
Provision (benefit) for
income taxes............. 114,000 48,000 (287,000) (643,000) (576,000) 1,011,000
----------- ----------- ----------- ----------- ----------- ----------
Income (loss) from
continuing operations.... 189,000 (44,000) (1,390,000) (1,625,000) (1,458,000) 1,256,000
Loss from discontinued
operations, net of income
taxes.................... (1,169,000) (1,375,000) (28,000) -- -- --
----------- ----------- ----------- ----------- ----------- ----------
Net income (loss).......... $ (980,000) $ (1,419,000) $(1,418,000) $(1,625,000) $(1,458,000) $ 1,256,000
=========== =========== =========== =========== =========== ==========
Unaudited pro forma net
income (loss) per
share.................... $ (0.12) $ (0.11) $ 0.09
=========== =========== ==========
Unaudited pro forma shares
used in computing net
income (loss) per
share.................... 13,487,000 13,487,000 13,487,000
=========== =========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 87

NETWORK SOLUTIONS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL RETAINED TOTAL
-------------------- ------------------ PAID-IN EARNINGS STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- ------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1993................. 1,159,000 $12,000 115,000 $(673,000) $1,275,000 $ 607,000 $ 1,221,000
Purchase of treasury stock............... -- -- 7,000 (25,000) -- -- (25,000)
Issuance of treasury stock............... -- -- (12,000) 70,000 (34,000) -- 36,000
Net loss for the year ended December 31,
1994................................... -- -- -- -- -- (980,000) (980,000)
---------- ------- ------- --------- ---------- ----------- -----------
Balance, December 31, 1994................. 1,159,000 12,000 110,000 (628,000) 1,241,000 (373,000) 252,000
Purchase of treasury stock............... -- -- 7,000 (30,000) -- -- (30,000)
Net loss for the period from January 1 to
March 10, 1995......................... -- -- -- -- -- (1,419,000) (1,419,000)
---------- ------- ------- --------- ---------- ----------- -----------
Balance, March 10, 1995.................... 1,159,000 $12,000 117,000 $(658,000) $1,241,000 $(1,792,000) $(1,197,000)
========== ======= ======= ========= ========== ========== ===========
COMPANY
Purchase of outstanding common shares by
SAIC on March 10, 1995................... 12,500,000 $12,000 $4,468,000 $ -- $ 4,480,000
Net loss for the period from March 11 to
December 31, 1995........................ -- -- -- (1,418,000) (1,418,000)
---------- ------- ---------- ----------- -----------
Balance, December 31, 1995................. 12,500,000 12,000 4,468,000 (1,418,000) 3,062,000
Net loss for the year ended December 31,
1996................................... -- -- -- (1,625,000) (1,625,000)
---------- ------- ---------- ----------- -----------
Balance, December 31, 1996................. 12,500,000 12,000 4,468,000 (3,043,000) 1,437,000
Net income for the six months ended June
30, 1997................................. -- -- -- 1,256,000 1,256,000
---------- ------- ---------- ----------- -----------
Balance, June 30, 1997 (Unaudited)......... 12,500,000 $12,000 $4,468,000 $(1,787,000) $ 2,693,000
========== ======= ========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 88

NETWORK SOLUTIONS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
-------------------------------- ------------------------------- ----------------------------
YEAR ENDED JANUARY 1, 1995 MARCH 11, 1995 YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, TO MARCH 10, TO DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1995 1996 1996 1997
------------ ---------------- --------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............ $ (980,000) $ (1,419,000) $(1,418,000) $(1,625,000) $ (1,458,000) $ 1,256,000
Adjustments to reconcile net
loss to net cash provided
by (used in) operating
activities:
Net loss from discontinued
operations............... 1,169,000 1,376,000 28,000 -- -- --
Depreciation and
amortization............. 338,000 68,000 765,000 1,417,000 714,000 1,017,000
Provision for uncollectible
accounts receivable...... -- -- 124,000 3,597,000 1,223,000 3,624,000
Deferred income taxes...... -- -- (2,221,000) (12,834,000) (5,770,000) (2,415,000)
Change in operating assets
and liabilities:
Decrease (increase) in
accounts receivable.... 322,000 (161,000) (3,385,000) (12,144,000) (6,711,000) 2,576,000
Decrease (increase) in
prepaid and other
assets................. 22,000 (36,000) 45,000 (925,000) 11,000 (425,000)
(Increase) decrease in
deposits............... -- (49,000) 1,053,000 -- -- --
Increase in accounts
payable and accrued
liabilities............ 219,000 233,000 282,000 1,226,000 246,000 1,378,000
(Decrease) increase in
other liabilities...... (7,000) 8,000 (89,000) -- -- --
Increase (decrease) in
deferred revenue....... 64,000 (30,000) 3,239,000 26,006,000 11,010,000 16,276,000
----------- ------------ ----------- ----------- ------------ ------------
Net cash provided by
(used in) operating
activities........... 1,147,000 (10,000) (1,577,000) 4,718,000 (735,000) 23,287,000
----------- ------------ ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of furniture and
equipment................ (266,000) (134,000) (518,000) (1,901,000) (1,870,000) (317,000)
Purchase of short-term
investments.............. -- -- -- -- -- (3,625,000)
Net investment in net
assets of discontinued
operations............... (759,000) 331,000 563,000 (208,000) (208,000) --
----------- ------------ ----------- ----------- ------------ ------------
Net cash (used in)
provided by investing
activities........... (1,025,000) 197,000 45,000 (2,109,000) (2,078,000) (3,942,000)
----------- ------------ ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from bank
borrowings............... 173,000 -- -- -- -- --
Repayment of bank
borrowings............... (170,000) (293,000) (834,000) -- -- --
Capital lease
obligations.............. -- -- -- -- -- (189,000)
Net transactions with
SAIC..................... -- -- 2,371,000 12,926,000 2,835,000 (8,729,000)
Issuance of treasury
stock.................... 36,000 -- -- -- -- --
Purchase of treasury
stock.................... (25,000) (30,000) -- -- -- --
----------- ------------ ----------- ----------- ------------ ------------
Net cash provided by
(used in) financing
activities........... 14,000 (323,000) 1,537,000 12,926,000 2,835,000 (8,918,000)
----------- ------------ ----------- ----------- ------------ ------------
Net increase (decrease)
in cash and cash
equivalents.......... 136,000 (136,000) 5,000 15,535,000 22,000 10,427,000
Cash and cash equivalents,
beginning of period........ -- 136,000 -- 5,000 5,000 15,540,000
----------- ------------ ----------- ----------- ------------ ------------
Cash and cash equivalents,
end of period.............. $ 136,000 $ -- $ 5,000 $15,540,000 $ 27,000 $ 25,967,000
=========== ============ =========== =========== ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE> 89

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Network Solutions, Inc. (the "Company") was incorporated in the District of
Columbia in 1979 and was reincorporated in Delaware in 1996. The Company
currently acts as the exclusive registrar for second level domain names within
the .com, .org, .net, .edu and .gov top level domains ("TLDs") pursuant to a
Cooperative Agreement with the National Science Foundation ("NSF") (Note 2). The
Company also provides Intranet consulting services to large companies that
desire to establish or enhance their Internet presence or "re-engineer" legacy
network infrastructures to accommodate the integration of both Internet
connectivity and Intranet network technology into their information technology
base.

The Company was acquired by Science Applications International Corporation
("SAIC") on March 10, 1995. The Company is currently a wholly-owned subsidiary
of SAIC. Prior to the acquisition of the Company by SAIC, the Company's business
included commercial and government contracts awarded to the Company on a
competitive basis, including government contracts that were awarded to the
Company partially upon the Company's then minority-owned status. The contracts
which had been awarded to the Company based partially upon the Company's then
minority-owned status were transferred into a separately-owned entity prior to
the acquisition of the Company by SAIC.

In November 1995, SAIC adopted a plan to transfer the Company's remaining
government-based business to SAIC in order to enable the Company to focus on the
growth of its commercial business, which includes registration services and
Intranet services. This transfer was effective as of February 1996. The
operating results of both the minority-based government contracts business and
the remaining government-based business are reflected as discontinued operations
in the Company's financial statements for all periods presented (Note 11).

Under the terms of the acquisition agreement, the Company was acquired by
SAIC on March 10, 1995 in a stock-for-stock transaction accounted for as a
purchase. The fair market value of the SAIC stock exchanged for the outstanding
stock of the Company was approximately $3.9 million. The acquisition agreement
provided for certain purchase adjustments and related additional stock issuance
payments of approximately $600,000. After reflecting certain purchase accounting
adjustments, the net assets included on the opening balance sheet were as
follows:

<TABLE>
<S> <C>
Current assets.......................................................... $ 929,000
Furniture and equipment................................................. 734,000
Goodwill................................................................ 3,576,000
Other non-current assets................................................ 1,047,000
----------
6,286,000
Current liabilities..................................................... 1,625,000
Net liabilities of discontinued operations.............................. 181,000
----------
Net assets acquired at March 11, 1995.............................. $4,480,000
==========
</TABLE>

The excess of the purchase price over the estimated fair value of net
assets acquired has been reflected as goodwill and is being amortized over five
years.

The financial statements for periods subsequent to March 10, 1995 are
presented on the new basis of accounting arising from the acquisition. The
financial statements for the period from January 1, 1995 to March 10, 1995 and
for the year ended December 31, 1994 are presented on the Company's previous
basis of accounting. Subsequent to the acquisition, the results of continuing
and discontinued operations include allocations by SAIC of: (i) costs for
administrative functions and services per-

F-8
<PAGE> 90

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

formed on behalf of the continuing and discontinued operations of the Company by
centralized staff groups within SAIC, (ii) SAIC's general corporate expenses,
(iii) pension and other retirement benefit costs, and (iv) cost of capital
(Notes 5, 9 and 10). Only costs directly attributable to the Company's
government-based business that will not be incurred by the Company subsequent to
the transfer of this business to SAIC have been included in discontinued
operations.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NSF COOPERATIVE AGREEMENT

In January 1993, the Company entered into the Cooperative Agreement with
the NSF under which the Company provides Internet registration services for five
TLDs: .com, .org, .net, .edu and .gov. The Cooperative Agreement is subject to
review by the NSF and may be terminated by the NSF at any time at its discretion
or by mutual agreement. The Cooperative Agreement by its terms expires in March
1998, although the NSF may, at its option, extend the Cooperative Agreement to
September 1998. The NSF has stated that the Cooperative Agreement will not be
re-awarded to the Company or awarded to any other entity.

Originally, the Cooperative Agreement was structured as a cost
reimbursement plus fixed-fee contract (with a fee of 8%). Effective September
14, 1995, the NSF and the Company amended the Cooperative Agreement to authorize
the Company to begin charging customers a subscription fee of $50 per year for
each second level domain name in the .com, .org, .net, .edu and .gov TLDs. The
Company's registration services customers in the .com, .org and .net TLDs are
invoiced for a two-year subscription fee of $100 for initial registrations and
$50 per year for renewals of initial registrations. Under the terms of the
amendment to the Cooperative Agreement, 30% of the new registration or renewal
fees collected by the Company is required to be set aside to be reinvested for
the enhancement of the intellectual infrastructure of the Internet and, as such,
is not recognized as revenue by the Company. The Company has reflected these
funds with the appropriate percentage of net accounts receivable (Note 3) as
restricted assets and has recorded an equivalent, related current liability. The
Company maintains the cash received relating to the set aside funds in a
separate interest-bearing account. Restricted cash at December 31, 1996 and 1995
was approximately $13,049,000 and $122,000, respectively. These funds, plus any
interest earned, will be disbursed in a manner approved by the NSF. As of
December 31, 1996, none of these funds have been disbursed. Future receipts and
disbursements of these funds will not have an effect on the Company's business,
net financial position, or results of operations. For purposes of the Statement
of Cash Flows, amounts relating to Restricted Assets and the Internet Fund
Liability have been excluded in their entirety.

REVENUE RECOGNITION

Prior to September 14, 1995, net revenue was recognized under the
Cooperative Agreement on the basis of direct costs plus allowable indirect costs
and the earned portion of the fee. Since September 14, 1995, fees for Internet
registration services provided by the Company have been recognized on a
straight-line basis over the life of the registration term. The Company records
revenue net of an estimated provision for uncollectible accounts receivable
(Note 3).

Substantially all of the Company's Intranet services revenue is derived
from professional services which are generally provided to clients on a "time
and expense" basis. Professional services revenue is recognized as services are
performed. The Company performs a limited number of fixed-price projects under
which revenue is recognized using the percentage-of-completion method, based
upon costs incurred in comparison to total anticipated costs. The Company also
derives revenue from remote

F-9
<PAGE> 91

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

monitoring and hosting services; however, such revenue has not been significant
to date. Remote monitoring and hosting revenue is recognized ratably over the
term of the contract.

Certain aspects of a number of the Company's contracts are subject to
audits at the customer's discretion. Management believes that the results of any
such audits will not have a material effect on NSI's financial position or
results of operations.

DEFERRED REVENUE

Deferred revenue primarily represents the unearned portion of revenue
related to the unexpired term of Internet registration fees, net of an estimate
for uncollectible accounts receivable (Note 3).

CASH AND CASH EQUIVALENTS

The Company's policy is to include short-term investments with original
maturities of ninety days or less within cash and cash equivalents.

FINANCIAL INSTRUMENTS

The recorded value of the Company's financial instruments, which include
accounts receivable and accounts payable, approximates market value. Net revenue
from two customers approximated 63% and 22% in 1994, 45% and 21% for the period
from January 1, 1995 to March 10, 1995, 40% and 21% for the period from March
11, 1995 to December 31, 1995, and 20% and 0% for the year ended December 31,
1996. One of these customers was the NSF, whose impact on the above percentage
of revenues was reflective of activity prior to the September 14, 1995 amendment
of the Cooperative Agreement. Concentration of credit risk with respect to
registration receivables is limited due to the wide variety and number of
customers, as well as their dispersion across geographic areas. The Company has
no derivative financial instruments.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Depreciation on furniture,
office and computer equipment is calculated principally using a
declining-balance method over the useful lives of three to seven years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or the estimated lives of the assets, generally six
years. The Company periodically reviews the carrying amounts of its furniture
and equipment to assess recoverability, and impairments are recognized in the
results of operations, as appropriate. The measurement of possible impairment is
based primarily on the ability to recover the balance of the furniture and
equipment from expected future operating cash flows on an undiscounted basis. At
December 31, 1996, management believed that there were no such impairments to
the carrying value of its property and equipment.

GOODWILL

Goodwill represents the excess of the purchase cost over the fair value of
net assets acquired in the acquisition and is amortized over five years using
the straight-line method. The Company periodically reviews goodwill to assess
recoverability, and impairments are recognized in the results of operations, as
appropriate. The measurement of possible impairment is based primarily on the
ability to recover the balance of the goodwill from expected future operating
cash flows on an undiscounted basis. Amortization expense for the period from
March 11, 1995 to December 31, 1995 of $580,000 and $715,000 for the year ended
December 31, 1996 was included in general and administrative expenses.

F-10
<PAGE> 92

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS

Research and development costs are expensed as incurred. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86 "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," the
Company has not capitalized software development costs incurred as of December
31, 1996. Research and development costs incurred for all periods presented
prior to December 31, 1995 were reimbursed to the Company by direct charges to
contracts and are included in cost of revenue for those periods.

INCOME TAXES

Deferred taxes are accounted for under SFAS No. 109 "Accounting for Income
Taxes," which is an asset and liability method of accounting for income taxes.
The liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between carrying amounts and tax bases of assets and liabilities. A valuation
allowance is recorded if it is "more likely than not" that some portion of or
all of a deferred tax asset will not be realized. Additionally, under the
liability method, changes in tax rates and laws will be reflected in income in
the period such changes are enacted. For federal income tax purposes, the
Company's results will be included in SAIC's consolidated tax return as long as
SAIC retains beneficial ownership of at least 80% of the total voting power and
value of the outstanding Common Stock of the Company.

For periods subsequent to the acquisition, income taxes are determined as
if the Company was a separate taxpayer. Income taxes currently payable have been
charged by the Company to the due to parent account in the period that the
liability arose. Income taxes currently receivable have been charged to the due
to parent account in the period that a refund could have been recognized by the
Company had the Company been a separate taxpayer.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions, based upon all known facts and circumstances that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results could
differ from those estimates. Estimates requiring relatively greater levels of
judgment include the allowance for uncollectible accounts receivable, the
assessment of the need for a tax valuation allowance and the amortization period
for goodwill.

STOCK BASED COMPENSATION

The Company accounts for stock option and employee stock purchase plans in
which its employees participate in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees." No compensation cost has been recognized by the Company for such
employee stock plans. SFAS No. 123, "Accounting for Stock-Based Compensation,"
provides an alternative accounting method to APB No. 25 and requires additional
pro forma disclosures (Note 10). The Company expects to continue to account for
such employee stock plans in accordance with the provisions of APB No. 25.

PRO FORMA BALANCE SHEET AND EARNINGS PER SHARE (UNAUDITED)

On August 21, 1997, the Company's Board of Directors approved a $10,000,000
dividend payable to SAIC (Note 13). This dividend is to be paid upon
consummation of the public offering. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 55, a pro forma balance

F-11
<PAGE> 93

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sheet is presented to reflect this dividend. Additionally, as required by SAB
No. 55, historical earnings per share are not presented and pro forma per share
data is presented which gives effect to the number of shares from the public
offering necessary to fund the amount of the $10,000,000 dividend payable to
SAIC in excess of the Company's net income for the twelve months ended June 30,
1997.

Pro forma net income (loss) per share of common stock is calculated by
dividing the net income (loss) by the sum of (i) the number of shares issued to
SAIC in connection with the Company's reincorporation in Delaware, (ii) common
stock equivalent shares from common stock options granted within one year of the
initial public offering, and (iii) the number of shares whose proceeds will be
used to pay the dividend in excess of the prior twelve months' net income as
described above. Common stock equivalent shares are calculated using the
treasury stock method. Pursuant to Securities and Exchange Commission SAB No.
83, common stock and common stock equivalent shares issued by the Company at
prices below the public offering price during the twelve month period prior to
the proposed offering date have been included in the calculations as if they
were outstanding since January 1, 1996 regardless of whether they are dilutive.

INTERIM FINANCIAL INFORMATION (UNAUDITED)

Interim financial information for the six months ended June 30, 1996 and
1997 included herein is unaudited. However, in the opinion of the Company, the
interim financial information includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods. The results of operations for the six months ended June
30, 1997 are not necessarily indicative of the results to be expected for the
full year ending December 31, 1997.

NOTE 3 -- RECEIVABLES

Receivables consist of the following amounts as of December 31:

<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Billed...................................................... $6,060,000 $27,430,000
Unbilled.................................................... 1,384,000 5,000,000
---------- -----------
Total accounts receivable before allowances............ 7,444,000 32,430,000
Less -- Allowance for uncollectible accounts................ (2,118,000) (15,439,000)
-- Accounts receivable allocable to 30% NSF
set-aside........................................... (1,286,000) (4,404,000)
---------- -----------
Accounts receivable, net.................................... $4,040,000 $12,587,000
========== ===========
</TABLE>

Unbilled receivables consist of costs which have been incurred on time and
expense contracts and Internet domain name registration fees which have not yet
been billed. Under the Cooperative Agreement, thirty percent of collected
registration fees is required to be set aside for disbursement at the direction
of the NSF.

In accounting for registration subscriptions, the Company initially records
the gross amount of the registration fees to accounts receivable and deferred
revenue. The allowance for estimated uncollectible accounts is recorded against
both accounts receivable and deferred revenue balances. (See Note 2 for
treatment of the 30% NSF set aside). From the net deferred revenue balance, the
Company records revenue on a straight-line basis over the subscription period.

The provision for uncollectible accounts receivable, which is recorded on a
straight-line basis over the subscription period and deducted from gross
registration fees in determining net revenue, was

F-12
<PAGE> 94

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3 -- RECEIVABLES (CONTINUED)
$124,000 and $3,597,000 for the period from March 11, 1995 to December 31, 1995
and for the year ended December 31, 1996, respectively. There was no provision
necessary for the year ended December 31, 1994 and for the period from January
1, 1995 to March 10, 1995. The Company's allowance for uncollectible accounts
receivable is associated solely with its registration business. The Company
believes it has been necessary to establish its provision for uncollectible
accounts receivable principally due to the large number of individuals and
corporations that have registered multiple domain names with the apparent
intention of reselling such names at a profit. The Company's experience has been
that, in contrast to other subscribers, such resellers have a higher tendency of
default on their subscription fees.

NOTE 4 -- FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following amounts as of December 31:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and office equipment............................. $ 782,000 $ 879,000
Computer equipment......................................... 2,248,000 4,033,000
Leasehold improvements..................................... 214,000 234,000
----------- -----------
Furniture and equipment, at cost...................... 3,244,000 5,146,000
Less accumulated depreciation and amortization............. (2,177,000) (2,880,000)
----------- -----------
Furniture and equipment, net.......................... $ 1,067,000 $ 2,266,000
=========== ===========
</TABLE>

NOTE 5 -- DEBT

Interest expense reflected in continuing operations for the year ended
December 31, 1994 and the period January 1, 1995 to March 10, 1995 was $109,000
and $9,000, respectively. Interest expense reflected in discontinued operations
for the year ended December 31, 1994 and for the period from January 1, 1995 to
March 10, 1995 was $495,000 and $51,000, respectively. Interest charges prior to
the acquisition have been reflected in continuing and discontinued operations
based on the debt balances associated with each of the continuing and
discontinued operations for each of the periods. In addition, interest expense
of $52,000 and $164,000 for the period from March 11, 1995 to December 31, 1995
was allocated by SAIC to the Company's continuing operations and discontinued
operations, respectively, based upon SAIC's cost of capital calculation. For the
year ended December 31, 1996, interest revenue of $496,000 was allocated by SAIC
based upon the cost of capital calculation. From its acquisition by SAIC in
March 1995 until December 1996, the Company participated in SAIC's centralized
cash management system whereby cash received from operations was transferred to
SAIC's centralized cash accounts and cash disbursements were funded from such
centralized cash accounts. Accordingly, the SAIC cost of capital formula
provides for charges and credits to the Company based upon management of certain
assets, including accounts receivable and fixed assets. Such amounts are not
necessarily indicative of the cost that would have been incurred if the Company
had been operated as a separate entity.

Effective January 1, 1997, the Company will no longer be subject to SAIC's
cost of capital calculation in connection with the Company fulfilling its own
treasury function. Interest paid for the year ended December 31, 1994, for the
periods from January 1, 1995 to March 10, 1995 and March 11, 1995 to December
31, 1995 and for the year ended December 31, 1996 was $74,000, $0, $103,000 and
$0, respectively.

F-13
<PAGE> 95

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following amounts as
of December 31:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Accounts payable............................................. $ 80,000 $1,054,000
Accrued expenses............................................. 565,000 1,412,000
Accrued payroll.............................................. 710,000 115,000
---------- ----------
Total accounts payable and accrued expenses.................. $1,355,000 $2,581,000
========== ==========
</TABLE>

NOTE 7 -- PROVISION FOR INCOME TAXES

The results of the Company subsequent to its acquisition by SAIC were
included in SAIC's consolidated tax returns. The tax expense allocation
methodology is set forth in Note 2.

The provision for (benefit) from income taxes charged to continuing
operations consists of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD
1995
YEAR ENDED --------------------------- YEAR ENDED
DECEMBER 31, JANUARY 1 TO MARCH 11 TO DECEMBER 31,
1994 MARCH 10 DECEMBER 31 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current:
Federal...................... $ 95,000 $ 40,000 $ 1,521,000 $ 10,171,000
State........................ 19,000 8,000 311,000 2,020,000
-------- -------- ----------- ------------
Total current
provision............. 114,000 48,000 1,832,000 12,191,000
-------- -------- ----------- ------------
Deferred:
Federal...................... (1,759,000) (10,716,000)
State........................ (360,000) (2,118,000)
----------- ------------
Total deferred
benefit............... (2,119,000) (12,834,000)
----------- ------------
Provision for (benefit) from
income taxes.................... $114,000 $ 48,000 $ (287,000) $ (643,000)
======== ======== =========== ============
</TABLE>

Deferred tax assets are comprised of the following temporary differences as
of December 31:

<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Deferred revenue............................................ $2,082,000 $13,846,000
Accrued vacation pay........................................ 87,000 118,000
Provision for uncollectible accounts receivable............. 48,000 1,091,000
Other....................................................... 4,000 --
---------- -----------
Total deferred tax asset.................................... $2,221,000 $15,055,000
========== ===========
</TABLE>

Tax valuation allowances were provided through March 10, 1995 against the
net deferred tax assets of both continuing operations and discontinued
operations. In connection with the acquisition purchase accounting, a
determination was made that tax valuation allowances were no longer required.

F-14
<PAGE> 96

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7 -- PROVISION FOR INCOME TAXES (CONTINUED)

which are taxable upon registration but are recognized in the financial
statements over the next 12 to 24 months -- the subscription period.

A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate to income (loss) before income
taxes is provided below. The statutory federal income tax rate used was 34% for
all periods presented through December 31, 1995 and 35% for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
FOR THE PERIOD 1995 YEAR ENDED
YEAR ENDED --------------------------- DECEMBER
DECEMBER 31, JANUARY 1 TO MARCH 11 TO 31,
1994 MARCH 10 DECEMBER 31 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Federal tax at statutory rate............... $103,000 $ 1,000 $(570,000) $(794,000)
State income taxes, net of Federal tax
benefit................................... 13,000 -- (68,000) (96,000)
Nondeductible goodwill amortization......... 348,000 281,000
Other....................................... 4,000 1,000 3,000 (34,000)
Valuation allowance......................... (6,000) 46,000 -- --
-------- -------- --------- ---------
Provision for (benefit) from income taxes... $114,000 $ 48,000 $(287,000) $(643,000)
======== ======== ========= =========
</TABLE>

The Company paid taxes of $212,000 and $119,000 for the year ended December
31, 1994 and for the period from January 1, 1995 to March 10, 1995,
respectively.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Future minimum lease payments under noncancelable operating leases,
primarily for facilities, are:

<TABLE>
<CAPTION>
OPERATING
YEARS ENDING DECEMBER 31: LEASES
------------------------------------------------------------------------ ----------
<S> <C>
1997............................................................... $1,874,000
1998............................................................... 1,959,000
1999............................................................... 1,832,000
2000............................................................... 1,007,000
2001............................................................... 946,000
Thereafter......................................................... 869,000
----------
Total future minimum lease payments..................................... $8,487,000
==========
</TABLE>

In December 1992, the Company entered into a lease agreement for the
Company's headquarters in Herndon, Virginia that extended the lease term through
2002. Subsequent to the acquisition, SAIC re-negotiated the lease with the
landlord whereby SAIC has posted a $1,000,000 letter of credit. The Company
historically has not entered directly into leases; leases are generally entered
into by SAIC and then SAIC subleases the related assets to the Company under
identical terms of the head lease. Lease expense related to the continuing
operations based upon space utilized for the year ended December 31, 1994, for
the periods from January 1, 1995 to March 10, 1995 and March 11, 1995 to
December 31, 1995 and for the year ended December 31,1996 was $194,000, $36,000,
$342,000, and $924,000, respectively. Lease expense incurred by the discontinued
operations for the year ended December 31, 1994 and for the periods from January
1, 1995 to March 10, 1995 and March 11, 1995 to December 31, 1995 was
$1,079,000, $208,000 and $328,000, respectively. Subsequent to March 10, 1995,

F-15
<PAGE> 97

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

COMMITMENTS (CONTINUED)

the Company generated rental income in 1995 of $135,000 and $187,000 for the
year ended December 31, 1996, from two subleases, which was recorded on the same
basis as rent expense.

CONTINGENCIES

The Company is involved as plaintiff and defendant in litigation and
administrative proceedings primarily arising in the normal course of its
business. In the opinion of management, the Company's recovery, if any, or the
Company's liability, if any, under any pending litigation or administrative
proceeding will not materially affect its financial condition, results of
operations or cash flow.

As it relates to registration services, the applicability to the Company of
existing laws governing issues such as intellectual property ownership is
uncertain. Courts have indicated that, under certain circumstances, Internet
service providers could be held responsible for the failure to prevent the
distribution of material that infringes on others' copyrights and other
intellectual property. As further discussed below, there exists the likelihood
that the Company will become involved in future actions regarding disputes over
domain names. The future interpretation by the courts relating to the obligation
of domain name registration providers to prevent trademark infringement and
other legal issues is uncertain. Costs incurred or decisions rendered as a
result of any future government inquiry or other proceedings relating to any of
the foregoing could have a material adverse effect on the Company's business,
financial position and results of operations.

The Company has been named as a defendant in a number of lawsuits which
have generally involved domain name disputes between trademark owners and domain
name holders. Through July 31, 1997, no damages have been awarded to the
plaintiffs in any of the domain name lawsuits. The Company's domain name dispute
policy seeks to take a neutral position between these competing claims and is
designed to address claims that a domain name registered by the Company
infringes a third party's trademark. The Company is drawn into such disputes, in
part, as a result of claims by trademark owners that the Company is legally
required to, upon being requested to do so by a trademark holder, terminate the
right it granted to an alleged trademark infringer to register the domain name
in question. Further, trademark owners have also alleged that the Company should
be required to monitor future domain name registrations and reject registrations
of domain names which are identical or similar to their registered trademark.
The holders of the domain names registrations in dispute have, in turn,
questioned the Company's right to, absent a court order, take any action which
restricts or terminates their registration of the domain names in question. The
Company intends to vigorously defend itself in all such matters. In the opinion
of the management, the outcome of the existing lawsuits will not materially
affect the Company's financial condition, results of operations or cash flow.
However, such litigation has resulted in, and any future litigation can be
expected to result in, substantial legal and other expenses to the Company and a
diversion of the efforts of the Company's personnel. Such future potential
expenses cannot be reasonably estimated at this time.

See Note 14 "Subsequent Events (Unaudited)."

NOTE 9 -- TRANSACTIONS WITH SAIC

The financial statements as of and for the period from March 11, 1995 to
December 31, 1995 and for the year ended December 31, 1996 include significant
transactions with other SAIC business units involving functions and services
(such as cash management, tax administration, accounting, legal, data processing
and employee benefit plans) that were provided to the Company by centralized
SAIC

F-16
<PAGE> 98

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9 -- TRANSACTIONS WITH SAIC (CONTINUED)

organizations. The costs of these functions and services have been directly
charged and/or allocated to the Company using methods that management believes
are reasonable; primarily a percentage of budgeted administrative and overhead
costs. Such charges and allocations are not necessarily indicative of the costs
that would have been incurred if the Company had been a separate entity. Through
August 9, 1996, the amounts allocated by SAIC to the Company included both
administrative and overhead costs which are included in selling, general and
administrative expenses and cost of revenue respectively. Effective August 10,
1996, SAIC stopped allocating costs based generally upon pro rata labor and
began assessing the Company for corporate services provided by SAIC at a fee
equal to 2.5% of net revenue with such percentage to be re-evaluated by both
parties on an annual basis. This fee is included in its entirety in selling,
general and administrative expenses. The arrangement will continue indefinitely
until terminated by either party upon 180 days' prior written notice.

Amounts charged and allocated to the Company for these functions and
services for the period from March 11, 1995 to December 31, 1995 and for the
year ended December 31, 1996 were $516,000 and $1,196,000, respectively, and are
principally included in selling, general and administrative expenses.
Additionally, certain interest charges/credits are allocated by SAIC to the
Company (Note 5). Sales as a subcontractor to SAIC for the period from March 11,
1995 to December 31, 1995 and for the year ended December 31, 1996 were $509,000
and $1,505,000, respectively. In addition, because the Company is included in
SAIC's consolidated tax returns, the Company is obligated to make payment for
its current tax liability to SAIC in accordance with the tax sharing
arrangement. (See Note 7). Due to parent represents the cumulative net activity
of all transactions between the Company and SAIC.

From the time of its acquisition by SAIC in March 1995 until December 1996,
the Company participated in SAIC's centralized cash management system whereby
cash received from operations was transferred to SAIC's centralized cash
accounts and cash disbursements were funded from such SAIC centralized cash
accounts. The Company reflects this activity in the statement of cash flows on a
net basis because of the quick turnover, the large amounts and the short
maturities of these related party cash transactions. Beginning in 1997, the
Company implemented its own cash management system whereby the remaining net
intercompany transactions with SAIC are generally funded on a monthly basis.

NOTE 10 -- EMPLOYEE BENEFIT PLANS

SAIC BENEFIT PLANS

Employees of the Company participate in various SAIC benefit plans, subject
to the applicable eligibility requirements. SAIC charges the Company directly
for the costs of such employee benefit plans. Charges related to the
administration of the SAIC benefit plans in which employees of the Company
participate are included within SAIC general corporate allocations (Notes 1 and
9).

In 1995, SAIC merged two of its profit sharing retirement plans into one
principal Profit Sharing Retirement Plan in which eligible employees
participate. Participants' interests vest 25% per year in the third through
sixth year of service. Participants also become fully vested upon reaching age
59 1/2, permanent disability or death.

SAIC has an Employee Stock Ownership Plan (the "Plan") in which eligible
employees participate. Cash contributions to the Plan are based upon amounts
determined annually by the SAIC Board of Directors and are allocated to
participants' accounts based on their annual compensation. The vesting
requirements for the Plan are the same as for the Profit Sharing Retirement
Plan.

F-17
<PAGE> 99

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

SAIC BENEFIT PLANS (CONTINUED)

SAIC has one principal Cash or Deferred Arrangement ("CODA") which allows
eligible participants to defer a portion of their income through contributions.
Such deferrals are fully vested, are not taxable to the participant until
distributed from the CODA upon termination, retirement, permanent disability or
death and may be matched by SAIC.

SAIC has a Bonus Compensation Plan which provides for bonuses to reward
outstanding performance. Bonuses are paid in the form of cash, fully vested
shares of SAIC Class A common stock or vesting shares of SAIC Class A common
stock. Awards of vesting shares of SAIC Class A common stock vest at the rate of
20%, 20%, 20% and 40% after one, two, three and four years, respectively. During
the period from March 11, 1995 to December 31, 1995 and during the year ended
December 31, 1996 a total of 24,450 and 53,040 SAIC options were granted to the
Company's employees, respectively, with exercise prices ranging from $15.72 to
$17.79 and $19.33 to $22.83 per share, respectively, with a weighted average
price of $16.17 and $20.51, respectively.

In 1995, SAIC adopted the Stock Compensation Plan and the Management Stock
Compensation Plan, together referred to as the "Stock Compensation Plans." The
Stock Compensation Plans provide for awards of share units to eligible
employees, which share units generally correspond to shares of SAIC Class A
common stock which are held in trust for the benefit of participants.
Participants' interests in these share units vest on a seven year schedule at
the rate of one-third at the end of each of the fifth, sixth and seventh years
following the date of the award.

SAIC also has an Employee Stock Purchase Plan which allows eligible
employees to purchase shares of SAIC's Class A common stock, with SAIC
contributing 5% of the purchase price.

PRE-ACQUISITION BENEFIT PLANS

Prior to the acquisition, the Company had a plan (the "401(k) Plan")
covering substantially all employees which provided for employee savings under
Internal Revenue Code Section 401(k). Eligible employees under the 401(k) Plan
contributed from one percent to ten percent of gross pay to their plan savings
account. The Company matched employee contributions to the 401(k) Plan, up to
six percent of base salary. Contributions to the 401(k) Plan for the year ended
December 31, 1994 and for the period from January 1, 1995 to March 10, 1995 were
not significant. At the time of SAIC's acquisition of the Company, all
contributions to the 401(k) Plan ceased and the 401(k) Plan was subsequently
terminated.

1996 STOCK INCENTIVE PLAN

The 1996 Stock Incentive Plan (the "Incentive Plan") of the Company was
adopted by the Board of Directors on September 18, 1996. The Incentive Plan
provides for awards in the form of restricted shares, stock units, options
(including incentive stock options ("ISOs") and nonstatutory stock options
("NSOs")) or stock appreciation rights ("SARs"). Employees, outside directors,
consultants and advisors of the Company are eligible for the grant of restricted
shares, stock units, SARs and NSOs. Only employees are eligible for the grant of
ISOs. A total of 2,306,250 shares of Common Stock has been initially reserved
for issuance under the Incentive Plan. Such number of shares may be increased by
up to 2% of the total number of common shares of the Company outstanding at the
end of the most recent calendar year, subject to a cumulative increase of
1,000,000 common shares.

Consideration for each award under the Incentive Plan will be established
by the Compensation Committee of the Board of Directors, but in no event will
the option price for ISOs be less than 100%

F-18
<PAGE> 100

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

1996 STOCK INCENTIVE PLAN (CONTINUED)

of the fair market value of the stock on the date of grant. Awards will have
such terms and be exercisable in such manner and at such times as the
Compensation Committee may determine. However, each ISO must expire within a
period of not more than ten years from the date of grant.

As of December 31, 1996, a total of 100,900 ISOs and 1,124,825 NSOs have
been granted under the Incentive Plan, of which 461,250 will be exercisable at
$11.25 per share and 764,475 at $14.00 per share. The stock options become
exercisable one year after the date of the grant, vest 30%, 30%, 20% and 20% on
each anniversary date of the grant and have a term of five years. No options
have been exercised or forfeited. The weighted average contractual life of
options outstanding at December 31, 1996 was 4.9 years. No restricted shares,
stock units or SARs have been granted to date.

PRO FORMA DISCLOSURES

The weighted-average fair value of the options granted during the period
from March 11, 1995 to December 31, 1995 and during the year ended December 31,
1996 under the SAIC Bonus Compensation Plan were estimated at $3.66 and $4.30,
respectively, and $2.76 for the options granted during the year ended December
31, 1996 under the Company's Incentive Plan using the Black-Scholes model. The
following weighted average assumptions were used in calculating the option fair
values:

<TABLE>
<CAPTION>
COMPANY
STOCK
SAIC STOCK OPTIONS OPTIONS
--------------------------------- ------------
MARCH 11, 1995 YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1996
----------------- ------------ ------------
<S> <C> <C> <C>
Expected life (years).............................. 4.0 4.0 4.0
Risk-free interest rate............................ 6.45% 5.91% 5.98%
Volatility......................................... 0.00% 0.00% 0.00%
Dividend yield..................................... 0.00% 0.00% 0.00%
</TABLE>

Under the above models, the total value of SAIC stock options granted
during 1995 and 1996 was approximately $89,000 and $228,000, respectively, and
$3,379,000 for the Company stock options granted in 1996, all of which would be
amortized ratably on a pro forma basis over the four year option terms. Had the
Company recorded compensation costs for these plans in accordance with SFAS No.
123, the Company's pro forma net loss would have been $1,430,000 for the period
March 11, 1995 to December 31, 1995 and $1,763,000 for the year ended December
31, 1996. Pro forma (unaudited) net loss per share would have been $(0.13) for
the year ended December 31, 1996.

NOTE 11 -- DISCONTINUED OPERATIONS

As discussed in Note 1, in November 1995 SAIC adopted a plan to transfer
the Company's government-based business to SAIC in order for the Company to
focus on the growth of the commercial business. Such transfer was substantially
completed in February 1996. Prior to SAIC's acquisition of the Company, the
portion of the Company's business relating to the minority-based government
business had been transferred into a separately-owned entity of the then
majority shareholder. The activities of both the minority-based government
business and the remaining government-based business are reflected as
discontinued operations in the financial statements of the Company for all
periods presented. Net income (loss) from discontinued operations exclude
general

F-19
<PAGE> 101

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11 -- DISCONTINUED OPERATIONS (CONTINUED)

corporate overhead of the Company. No gain or loss was incurred as a consequence
of the transfer of these businesses.

The net liabilities for discontinued operations consisted of the following
as of December 31, 1995:

<TABLE>
<S> <C>
Assets:
Current............................................................ $5,306,000
Non-current........................................................ 249,000
----------
5,555,000
----------
Liabilities:
Current............................................................ 5,763,000
Non-current........................................................ --
----------
5,763,000
----------
Net liabilities -- discontinued operations.............................. $ (208,000)
==========
</TABLE>

Summary operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD 1995
YEAR ENDED ----------------------------
DECEMBER 31, JANUARY 1 TO MARCH 11 TO
1994 MARCH 10 DECEMBER 31
------------ ------------ -----------

<CAPTION>
<S> <C> <C> <C>
Revenue............................................. $ 25,264,000 $ 4,270,000 $ 7,882,000
Costs and expenses.................................. (26,338,000) (5,478,000) (7,773,000)
------------ ------------ -----------
Income (loss) from discontinued operations before
income taxes...................................... (1,074,000) (1,208,000) 109,000
Provision for income taxes.......................... 95,000 167,000 137,000
------------ ------------ -----------
Loss from discontinued operations, net of income
taxes............................................. $ (1,169,000) $ (1,375,000) $ (28,000)
============ ============ ===========
</TABLE>

NOTE 12 -- EFFECT OF NEW ACCOUNTING PRONOUNCEMENT

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement establishes standards for computing
and presenting earnings per share, simplifying previous standards for computing
earnings per share ("EPS") and making them comparable to international
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS, and requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures. Basic
EPS excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. SFAS No. 128 requires restatement of all prior
period earnings per share data presented, and is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Earlier application is not permitted.

The Company will adopt this statement during the fourth quarter of 1997, as
required. Accordingly, all prior period EPS data will be restated. To illustrate
the effect of adoption, the Company has elected to disclose pro forma basic and
diluted EPS amounts computed using SFAS 128, as permitted

F-20
<PAGE> 102

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12 -- EFFECT OF NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)

by the standard. The pro forma basic and diluted EPS for the year ended December
31, 1996, and for the six months ended June 30, 1996 and 1997 are set forth
below:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED ----------------------
DECEMBER 31, 1996 1996 1997
----------------- ------- ------
<S> <C> <C> <C>
Pro forma basic earnings per share................ $ (0.12) $ (0.11) $ 0.09
======= ======== ======
Pro forma diluted earnings per share.............. $ (0.12) $ (0.11) $ 0.09
======= ======== ======
</TABLE>

NOTE 13 -- RECAPITALIZATION

On June 26, 1997, the Board of Directors amended the Certificate of
Incorporation to provide for two classes of common stock, designated as Class A
and Class B. The accompanying financial statements have been adjusted to reflect
this change.

NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED)

Stock Incentive Plan

On April 18, 1997, the Board of Directors increased the number of shares
initially reserved for issuance under the Incentive Plan to 2,556,250. Between
January 1, 1997 and September 18, 1997, the Company granted options to purchase
469,500 shares of the Company's Class A common stock at $14.00 per share. In
addition, options to purchase 26,000 shares were canceled during that period.

Commitments

On May 30, 1997, the Company entered into an operating lease for additional
office facilities for the period from May 30, 1997 through July 31, 2002. During
the period from January 1, 1997 through May 31, 1997, the Company acquired
$2,537,000 of equipment under a capital lease.

Contingencies

On March 20, 1997, PG Media, Inc., a New York-based corporation ("PG
Media"), filed a lawsuit against the Company in the United States District
Court, Southern District of New York alleging that the Company had restricted
access to the Internet by not adding TLDs in violation of antitrust laws under
the Sherman Act. In its complaint, PG Media has asked, in addition to requesting
damages, that the Company be ordered to amend the root zone configuration file
so that the file includes reference to PG Media's TLDs and name servers. The
Company has answered the complaint, but no motions are pending and no schedule
has yet been set by the court for these proceedings. In addition, the Company
recently received written direction from the NSF not to take any action to
create additional TLDs or to add any new TLDs to the Internet root servers until
further guidance is provided by the NSF. The Company believes that it has
meritorious defenses and intends to vigorously defend itself against the claims
made by PG Media and cannot reasonably estimate the potential impact of such
claims.

F-21
<PAGE> 103

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

investigation. The Company cannot reasonably estimate the potential impact of
such investigation, nor can it predict whether a civil action will ultimately be
filed by the DOJ or by private litigants as a result of the DOJ investigation
or, if filed, what such action would entail. The Company is unable to predict
the form of relief that might be sought in such an action or that might be
awarded by a court or imposed as a result of any settlement between the Company
and the DOJ or private litigants. Any such relief could have a material adverse
effect on the Company's financial condition and results of operations.

Dividend

On August 21, 1997, the Board of Directors declared a $10,000,000 dividend
to be paid to SAIC upon consummation of the public offering.

F-22
<PAGE> 104

[INSIDE BACK COVER OF PROSPECTUS]

DEPICTION OF INTRANET SERVICES BUSINESS APPEARS HERE

Intranet-Enabled
Business Solutions

INTRANET
SERVICES

<TABLE>
<S> <C>
Intranet Development Network & Systems
and Re-Engineering Security
</TABLE>
<PAGE> 105

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NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Use of Proceeds...................... 23
Dividend Policy...................... 23
Capitalization....................... 24
Dilution............................. 25
Selected Financial Data.............. 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 28
Business............................. 41
Management........................... 57
Relationship with SAIC and Certain
Transactions....................... 66
Principal and Selling Stockholders... 70
Description of Capital Stock......... 71
Shares Eligible for Future Sale...... 76
Underwriting......................... 78
Legal Matters........................ 80
Experts.............................. 80
Additional Information............... 80
Index to Financial Statements........ F-1
</TABLE>

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

UNTIL OCTOBER 21 , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

3,300,000 SHARES
[NETWORK SOLUTIONS LOGO]
CLASS A COMMON STOCK

-----------------------
PROSPECTUS
-----------------------

HAMBRECHT & QUIST
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED

SEPTEMBER 26, 1997

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