NETWORK SOLUTIONS INC /DE/, S-1/A, 1997-09-18

NETWORK SOLUTIONS INC /DE/
S-1/A, 1997-09-18
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997

REGISTRATION NO. 333-30705
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------

Amendment No. 3

Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NETWORK SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7379 52-1146119
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
</TABLE>

505 HUNTMAR PARK DRIVE, HERNDON, VIRGINIA 20170 (703) 742-0400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
GABRIEL A. BATTISTA
Chief Executive Officer
Network Solutions, Inc.
505 Huntmar Park Drive, Herndon, Virginia 20170 (703) 742-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
------------------------
Copies to:

<TABLE>
<S> <C> <C>
JORGE DEL CALVO, ESQ. DOUGLAS E. SCOTT, ESQ. MICHAEL D. NATHAN, ESQ.
KEITH J. MENDELSON, ESQ. ALOMA H. AVERY, ESQ. SIMPSON THACHER & BARTLETT
DAVINA K. KAILE, ESQ. SCIENCE APPLICATIONS 425 Lexington Avenue
PILLSBURY MADISON & SUTRO LLP INTERNATIONAL New York, NY 10017
2700 Sand Hill Road CORPORATION (212) 455-2000
Menlo Park, CA 94025 10260 Campus Point Drive
(415) 233-4500 San Diego, CA 92121
(619) 546-6000
</TABLE>

------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

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

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1997

PROSPECTUS
2,300,000 SHARES

LOGO
CLASS A COMMON STOCK
All of the 2,300,000 shares of Class A Common Stock offered hereby are
being sold by Network Solutions, Inc. ("NSI" or the "Company"). 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 Science Applications
International Corporation, a Delaware corporation ("SAIC"). Upon completion of
this offering, SAIC will own 100% of the Company's outstanding Class B Common
Stock, which will represent approximately 84.5% of the outstanding Common Stock
of the Company (approximately 82.5% if the Underwriters' over-allotment option
is exercised in full) and approximately 98.2% of the combined voting power of
the Company's outstanding Common Stock (approximately 97.9% if the Underwriters'
over-allotment option is exercised in full), and will continue to control the
Company. See "Principal Stockholders" and "Relationship with SAIC and Certain
Transactions." 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. It is currently estimated that the initial public
offering price will be between $14.00 and $16.00 per share. See "Underwriting"
for a discussion of the factors to be 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>
===========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $
===========================================================================================================
</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 has granted to the Underwriters a 30-day option to purchase up
to 345,000 additional shares 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 and Proceeds to Company will be $ ,
$ and $ , 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 , 1997, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.

HAMBRECHT & QUIST
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
, 1997
<PAGE> 3

[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> 4

[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> 5

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> 6

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...... 2,300,000 shares
Common Stock to be outstanding after the offering
Class A Common Stock........................... 2,300,000 shares(1)
Class B Common Stock........................... 12,500,000 shares(2)
Total.................................. 14,800,000 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 1,539,725 shares
were subject to options outstanding as of July 31, 1997, with a weighted
average exercise price of $13.18 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> 7

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)................................... 13,349 13,349 13,349
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 $ 46,952
Working capital(5).................................................................... 6,280 27,265
Total assets(6)....................................................................... 92,250 113,235
Deferred revenue, net(5).............................................................. 45,628 45,628
Capital lease obligations............................................................. 2,348 2,348
Total stockholders' equity............................................................ 2,693 23,678
</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).................... 13,349 13,349 13,349 13,349 13,349 13,349
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
consummation of the offering and to reflect the sale of 2,300,000 shares of
Class A Common Stock offered by the Company hereby at an assumed initial
public offering price of $15.00 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> 8

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 84.5% of the outstanding Common Stock of the Company
(approximately 82.5% if the Underwriters' over-allotment option is exercised in
full) and approximately 98.2% of the combined voting power of the Company's
outstanding Common Stock (approximately 97.9% 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 "Principal
Stockholders," "Risk Factors -- Control By SAIC," "-- Potential Conflicts of
Interest" and "Relationship with SAIC and Certain Transactions."

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> 9

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> 10

.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

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<PAGE> 11

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> 12

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> 13

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> 14

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> 15

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> 16

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> 17

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> 18

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.

16
<PAGE> 19

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> 20

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 84.5% of the outstanding Common Stock of the Company
(approximately 82.5% if the Underwriters' over-allotment option is exercised in
full) and approximately 98.2% of the combined voting power of the Company's
outstanding Common Stock (approximately 97.9% 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, 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.

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. 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. 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, 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,

18
<PAGE> 21

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, 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, 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. 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

19
<PAGE> 22

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-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.

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<PAGE> 23

Upon completion of the offering, SAIC will own 100% of the Company's
outstanding Class B Common Stock, which will represent approximately 84.5% of
the outstanding Common Stock of the Company (approximately 82.5% 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, may 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
will be 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 technology 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

21
<PAGE> 24

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 assumed initial public offering price per share
of $15.00 (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 $1.47. This represents an immediate increase in net tangible
book value of $2.21 per share to the existing stockholder and an immediate
dilution of $13.53 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 Amended and Restated 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."

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<PAGE> 25

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,300,000 shares of
Class A Common Stock offered by the Company hereby at an assumed initial public
offering price of $15.00 per share are estimated to be $30,985,000 ($35,797,750
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.

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.

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<PAGE> 26

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 and (iii) as
adjusted to give effect to the sale by the Company of the 2,300,000 shares of
Class A Common Stock offered hereby at an assumed initial public offering price
of $15.00 per share and the application of the remainder of the estimated net
proceeds therefrom. 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; 2,300,000 issued and
outstanding, as adjusted(1)....................... -- -- 2
Class B Common Stock, $0.001 par value, 40,000,000
shares authorized; 12,500,000 issued and
outstanding, actual and pro forma; 12,500,000
issued and outstanding, as adjusted............... 12 12 12
Additional paid-in capital.......................... 4,468 4,468 35,451
Accumulated deficit................................. (1,787) (11,787) (11,787)
------ ------------ -----------
Total stockholders' equity..................... 2,693 (7,307) 23,678
------ ------------ -----------
Total capitalization...................... $2,693 $ (7,307) $ 23,678
====== =========== =========
</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 1,539,725 shares
were subject to outstanding options as of July 31, 1997 at a weighted
average exercise price of $13.18 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.

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<PAGE> 27

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 2,300,000 shares of Class A Common Stock
offered by the Company hereby at an assumed initial public offering price of
$15.00 per share 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 $21,755,000 or $1.47 per share. This
represents an immediate increase in such net tangible book value of $2.21 per
share to the existing stockholder and an immediate dilution of $13.53 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>
Assumed initial public offering price per share..................... $15.00
------
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............... 2.21
------
Pro forma net tangible book value per share after the offering...... 1.47
------
Dilution per share to new investors............................ $13.53
======
</TABLE>

The following table summarizes, on a pro forma basis, as of June 30, 1997,
the differences between the existing stockholder and purchasers of shares in
this offering with respect to the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average consideration per
share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder......... 12,500,000 84.5% $ 4,480,000 11.5% $ 0.36
New investors................ 2,300,000 15.5% 34,500,000 88.5% $ 15.00
---------- ------- ----------- -------
Total................... 14,800,000 100.0% $38,980,000 100.0%
========= ======= ========== =======
</TABLE>

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 $15.00 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 July 31, 1997, there were outstanding
options to purchase 1,539,725 shares of Class A Common Stock, with a weighted
average exercise price of $13.18 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> 28

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)............................. 13,349 13,349 13,349
======= ======= =======
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> 29

<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> 30

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> 31

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> 32

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> 33

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> 34

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> 35

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.

33
<PAGE> 36

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> 37

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> 38

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> 39

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."

37
<PAGE> 40

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> 41

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> 42

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> 43

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> 44

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

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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. 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. To date, the Company has entered into agreements with 29
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. To date, the Company has entered into agreements with
29 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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<PAGE> 53

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> 54

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-

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<PAGE> 55

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> 56

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.

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<PAGE> 57

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.

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<PAGE> 58

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> 59

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> 60

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

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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> 62

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> 63

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> 64

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> 65

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> 66

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 July 31, 1997, a total of 100,900 ISOs and 1,438,825 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
$13.18 and were held by 72 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> 67

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> 68

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 (12,500,000
shares), which will represent approximately 84.5% of the outstanding Common
Stock of the Company (approximately 82.5% if the Underwriters' over-allotment
option is exercised in full) and approximately 98.2% of the combined voting
power of the Company's outstanding Common Stock (approximately 97.9% 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> 69

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. 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> 70

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.

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

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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. 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 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. Upon completion of the offering, SAIC will own 100% of the Company's
outstanding Class B Common Stock (12,500,000 shares), which will represent
approximately 84.5% of the outstanding Common Stock of the Company
(approximately 82.5% 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, 40,000,000 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, 2,300,000 are being offered hereby
(2,645,000 shares if the Underwriters' over-allotment option is exercised in
full), 12,500,000 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 40,000,000 shares of Class B Common Stock
authorized, 12,500,000 shares, or 100% of the outstanding shares of Class B
Common Stock, are held 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 outstanding. 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.

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<PAGE> 74

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 holds 12,500,000 shares of Class B Common Stock, 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. The Company's Certificate of Incorporation
provides that 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. In
addition, those provisions of the Amended and Restated Certificate of
Incorporation 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.

75
<PAGE> 78

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 2,300,000 shares of
Class A Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). In addition, as of July 31, 1997, the Company had
granted stock options to certain employees and directors for the purchase of an
aggregate of 1,539,725 shares of Class A Common Stock. The 2,300,000 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 owns 12,500,000 shares of Class B Common Stock 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 12,500,000 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 125,000 shares 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
shares under

76
<PAGE> 79

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> 80

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 the following respective numbers of shares of Class
A Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
--------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC..........................................
J.P. Morgan Securities Inc. ...................................
PaineWebber Incorporated.......................................

---------
Total.......................................................... 2,300,000
=========
</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 $ per share. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ 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 has granted to the Underwriters an option, exercisable no later
than 30 calendar days after the date of this Prospectus, to purchase up to an
aggregate of 345,000 additional shares 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 will be
obligated, pursuant to the option, to sell shares to the Underwriters to the
extent the option is exercised. The Underwriters may 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.

78
<PAGE> 81

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 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
will be determined by negotiation among the Company and the Representatives.
Among the factors considered in determining the initial public offering price
are 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. The estimated initial public offering price range
set forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.

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.

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.

79
<PAGE> 82

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> 83

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> 84

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> 85

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> 86

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 40,000,000 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> 87

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
------------ ---------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)

<CAPTION>
<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.................... 13,349,000 13,349,000 13,349,000
=========== =========== ===========
</TABLE>

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

F-5
<PAGE> 88

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> 89

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> 90

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> 91

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> 92

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> 93

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.

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 sheet
is presented to reflect this dividend. Additionally, as required by SAB No. 55,
historical earnings

F-11
<PAGE> 94

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

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

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 $124,000 and $3,597,000 for
the period from March 11, 1995 to December 31, 1995 and for the year

F-12
<PAGE> 95

NETWORK SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3 -- RECEIVABLES (CONTINUED)

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> 96

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> 97

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> 98

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> 99

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> 100

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> 101

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> 102

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> 103

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 July 31, 1997, the Company granted options to purchase
340,000 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> 104

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> 105

[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> 106

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

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 Stockholders............... 70
Description of Capital Stock......... 71
Shares Eligible for Future Sale...... 76
Underwriting......................... 78
Legal Matters........................ 79
Experts.............................. 80
Additional Information............... 80
Index to Financial Statements........ F-1
</TABLE>

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

UNTIL , 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.

2,300,000 SHARES

[NETWORK SOLUTIONS LOGO]

CLASS A COMMON STOCK

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

HAMBRECHT & QUIST

J. P. MORGAN & CO.

PAINEWEBBER INCORPORATED

, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 107

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.

<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT*
-----------
<S> <C>
SEC registration fee......................................... $ 12,825
National Association of Securities Dealers, Inc. filing
fee........................................................ 4,000
Nasdaq Filing Fee............................................ 18,000
Blue Sky fees and expenses................................... 1,000
Accounting fees and expenses................................. 600,000
Legal fees and expenses...................................... 300,000
Printing and engraving expenses.............................. 100,000
Registrar and transfer agent's fees.......................... 11,000
Miscellaneous fees and expenses.............................. 53,175
-----------
Total................................................... $ 1,100,000
===========
</TABLE>

- ---------------
* All expenses listed above are estimates except for the SEC registration fee
and the NASD filing fee.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VIII of the Registrant's
Certificate of Incorporation (Exhibit 3(i) hereto) provides for indemnification
of the Registrant's directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. The Registrant has also entered into agreements with its directors and
officers that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or officers to the fullest extent not prohibited by law.

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant and SAIC of the Underwriters, for certain liabilities, including
liabilities arising under the Act, and affords certain rights of contribution
with respect thereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since January 1, 1994, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:

1. From October 14, 1996 to July 31, 1997, the Registrant granted incentive
stock options to purchase an aggregate of 100,900 shares of the Registrant's
Class A Common Stock to employees, officers and directors of the Registrant
under its 1996 Stock Incentive Plan at exercise prices ranging from $11.25 to
$14.00 per share. Certain of these options vest over a period of time following
their respective dates of grant pursuant to the Registrant's 1996 Stock
Incentive Plan.

II-1
<PAGE> 108

2. From October 14, 1996 to July 31, 1997, the Registrant granted
nonstatutory stock options to purchase an aggregate of 1,438,825 shares of the
Registrant's Class A Common Stock to employees, officers and directors of the
Company under its 1996 Stock Incentive Plan at exercise prices ranging from
$11.25 to $14.00 per share. Certain of these options vest over a period of time
following their respective dates of grant, pursuant to the Registrant's 1996
Stock Incentive Plan.

The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and instruments issued in such
transactions. All recipients had access, through their relationship with the
Company, to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3(i)** Second Amended and Restated Certificate of Incorporation.
3(ii)** Bylaws of the Registrant, as amended.
4.1** Form of Common Stock Certificate.
4.2** Reference is made to Exhibits 3(i) and 3(ii).
5.1** Opinion of Pillsbury Madison & Sutro LLP.
10.1** Cooperative Agreement between the National Science Foundation and Network
Solutions, Inc., as amended by Amendments Nos. 1, 2, 3 and 5.
10.2** Amendment No. 4 to the Cooperative Agreement dated September 13, 1995.
10.3** Master Services Agreement for System Management Services dated January 21, 1997 by
and between NationsBanc Services, Inc. and Network Solutions, Inc.
10.4** 1996 Stock Incentive Plan and forms of agreements thereunder.
10.5** Corporate Services Agreement between Network Solutions, Inc. and Science
Applications International Corporation.
10.6** Tax Sharing Agreement between Network Solutions, Inc. and Science Applications
International Corporation.
10.7** Registration Rights Agreement between Network Solutions, Inc. and Science
Applications International Corporation.
10.8** Noncompetition and Corporate Opportunities Agreement between Network Solutions,
Inc. and Science Applications International Corporation.
10.9** Letter Agreement dated September 16, 1996 between the Registrant and Gabriel A.
Battista, as amended as of September 23, 1996.
10.10** Science Applications International Corporation Employee Stock Ownership Plan and
amendments thereto.
10.11** Science Applications International Corporation 1995 Stock Option Plan.
10.12** Letter dated September 13, 1995 regarding Amendment No. 4 to the Cooperative
Agreement.
10.13 Asset Transfer Agreement between Network Solutions, Inc. and Science Applications
International Corporation.
11.1** Statement of computation of earnings per share.
23.1 Consent of Price Waterhouse LLP (see Page II-5).
23.2** Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1** Power of Attorney.
24.2** Power of Attorney of John E. Glancy.
27.1** Financial Data Schedule.
</TABLE>

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

** Previously filed.

II-2
<PAGE> 109

(b) FINANCIAL STATEMENT SCHEDULES

Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) The Registrant will provide to the underwriters at the closing(s)
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

II-3
<PAGE> 110

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Herndon, State of Virginia, on the 18th day of September, 1997.

NETWORK SOLUTIONS, INC.

BY /s/ GABRIEL A. BATTISTA
------------------------------------
Gabriel A. Battista
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ---------------------------------------- ----------------------------------- -------------------

<C> <S> <C>
/s/ GABRIEL A. BATTISTA Chief Executive Officer and September 18, 1997
- ---------------------------------------- Director
Gabriel A. Battista

/s/ ROBERT J. KORZENIEWSKI Chief Financial Officer (Principal September 18, 1997
- ---------------------------------------- Financial Officer)
Robert J. Korzeniewski

RUSSELL L. HELBERT* Controller (Principal Accounting September 18, 1997
- ---------------------------------------- Officer)
Russell L. Helbert

MICHAEL A. DANIELS* Chairman of the Board September 18, 1997
- ----------------------------------------
Michael A. Daniels

J. ROBERT BEYSTER* Director September 18, 1997
- ----------------------------------------
J. Robert Beyster

CRAIG I. FIELDS* Director September 18, 1997
- ----------------------------------------
Craig I. Fields

JOHN E. GLANCY* Director September 18 1997
- ----------------------------------------
John E. Glancy

WILLIAM A. ROPER, JR.* Director September 18, 1997
- ----------------------------------------
William A. Roper, Jr.

STRATTON D. SCLAVOS* Director September 18, 1997
- ----------------------------------------
Stratton D. Sclavos

DONALD N. TELAGE* Director September 18, 1997
- ----------------------------------------
Donald N. Telage

*By: /s/ ROBERT J. KORZENIEWSKI
- ----------------------------------------
(Robert J. Korzeniewski,
Attorney-in-Fact)
</TABLE>

II-4
<PAGE> 111

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 17, 1997, except as
to Note 13 which is as of June 26, 1997, relating to the financial statements of
Network Solutions, Inc., for the year ended December 31, 1996 and for the period
from March 11, 1995 to December 31, 1995 and of our report dated March 17, 1997,
except as to Note 13 which is as of June 26, 1997, relating to the financial
statements of Network Solutions, Inc., for the period from January 1, 1995 to
March 10, 1995 and for the year ended December 31, 1994, which appear in such
Prospectus. We also consent to the application of such reports to the Financial
Statement Schedule for the year ended December 31, 1996, the period from March
11, 1995 to December 31, 1995, the period from January 1, 1995 to March 10, 1995
and for the year ended December 31, 1994 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our reports. The audits referred to in such
reports also included this schedule. We also consent to the reference to us
under the heading "Experts" in such Prospectus.

PRICE WATERHOUSE LLP
Falls Church, VA

September 15, 1997

II-5
<PAGE> 112

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
-------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION OF YEAR EXPENSES DESCRIBE DESCRIBE END OF YEAR
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for uncollectible
accounts, included in net assets
(liabilities) of discontinued
operations...................... $ 345,000 $ 464,000 $ -- $ -- $ 809,000
Deferred tax valuation allowance,
continuing operations........... 61,000 (5,000) -- -- 56,000
Deferred tax valuation allowance,
discontinued operations......... 377,000 135,000 -- -- 512,000
For the period from January 1, 1995 to
March 10, 1995
Allowance for uncollectible
accounts, included in net assets
(liabilities) of discontinued
operations...................... 809,000 344,000 -- -- 1,153,000
Deferred tax valuation allowance,
continuing operations........... 56,000 46,000 -- -- 102,000(1)
Deferred tax valuation allowance,
discontinued operations......... 512,000 276,000 -- -- 788,000(1)
- ----------------------------------------------------------------------------------------------------------------

For the period from March 11, 1995 to
December 31, 1995
Allowance for uncollectible
accounts, continuing
operations...................... $ -- $ 124,000 $ 1,994,000(2) $ -- $ 2,118,000
Allowance for uncollectible
accounts, included in net assets
(liabilities) of discontinued
operations...................... 1,153,000 465,000 -- -- 1,618,000
Year ended December 31, 1996
Allowance for uncollectible
accounts, continuing
operations...................... 2,118,000 3,597,000 19,270,000(2) 9,546,000 (3) 15,439,000
Allowance for uncollectible
accounts, included in net assets
(liabilities) of discontinued
operations...................... 1,618,000 -- -- 1,618,000 (4) --
</TABLE>

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

(1) In connection with the acquisition purchase accounting, a determination was
made that the tax valuation allowances were no longer required. (See Note 7
of Notes to Financial Statements.)

(2) Charged to allowance for deferred revenue (See Notes 2 and 3 of Notes to
Financial Statements).

(3) Amounts are write-offs of uncollectible accounts receivable.

(4) Disposition associated with discontinued operations (See Note 11 of Notes to
Financial Statements).
<PAGE> 113

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------ ---------------------------------------------------------------------------- ------
<S> <C> <C>
1.1 Form of Underwriting Agreement..............................................
3(i)** Second Amended and Restated Certificate of Incorporation....................
3(ii)** Bylaws of the Registrant, as amended........................................
4.1** Form of Common Stock Certificate............................................
4.2** Reference is made to Exhibits 3(i) and 3(ii)................................
5.1** Opinion of Pillsbury Madison & Sutro LLP....................................
10.1** Cooperative Agreement between the National Science Foundation and Network
Solutions, Inc., as amended by Amendments Nos. 1, 2, 3 and 5................
10.2** Amendment No. 4 to the Cooperative Agreement dated September 13, 1995.......
10.3** Master Services Agreement for System Management Services dated January 21,
1997 by and between NationsBanc Services, Inc. and Network Solutions,
Inc.........................................................................
10.4** 1996 Stock Incentive Plan and forms of agreements thereunder................
10.5** Corporate Services Agreement between Network Solutions, Inc. and Science
Applications International Corporation......................................
10.6** Tax Sharing Agreement between Network Solutions, Inc. and Science
Applications International Corporation......................................
10.7** Registration Rights Agreement between Network Solutions, Inc. and Science
Applications International Corporation......................................
10.8** Noncompetition and Corporate Opportunities Agreement between Network
Solutions, Inc. and Science Applications International Corporation..........
10.9** Letter Agreement dated September 16, 1996 between the Registrant and Gabriel
A. Battista, as amended as of September 23, 1996............................
10.10** Science Applications International Corporation Employee Stock Ownership Plan
and amendments thereto......................................................
10.11** Science Applications International Corporation 1995 Stock Option Plan.......
10.12** Letter dated September 13, 1995 regarding Amendment No. 4 to the Cooperative
Agreement...................................................................
10.13 Asset Transfer Agreement between Network Solutions, Inc. and Science
Applications International Corporation......................................
11.1** Statement of computation of earnings per share..............................
23.1 Consent of Price Waterhouse LLP (see Page II-5).............................
23.2** Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1)..........
24.1** Power of Attorney...........................................................
24.2** Power of Attorney for John E. Glancy........................................
27.1** Financial Data Schedule.
</TABLE>

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

** Previously filed.

<PAGE> 1

NETWORK SOLUTIONS, INC.

2,300,000 SHARES(1)

COMMON STOCK

UNDERWRITING AGREEMENT

_____ __, 1997

HAMBRECHT & QUIST LLC
J.P. Morgan Securities Inc.
PaineWebber Incorporated
As Representatives of the several
Underwriters named in Schedule I,
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104

Ladies and Gentlemen:

Network Solutions, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 2,300,000 shares of its authorized but
unissued Common Stock, $.001 par value (herein called the Common Stock) (said
2,300,000 shares of Common Stock being herein called the Underwritten Stock).
The Company proposes to grant to the Underwriters (as hereinafter defined) an
option to purchase up to 345,000 additional shares of Common Stock (herein
called the Option Stock and with the Underwritten Stock herein collectively
called the Stock). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.

The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each
of the other Underwriters to enter into this Agreement on its behalf and to act
for it in the manner herein provided.

1. REGISTRATION STATEMENT. The Company has filed with the
Securities and Exchange Commission (herein called the Commission) a
registration statement on Form S-1 (No. 333-30705), including the related
preliminary prospectus, for the registration under the Securities Act of 1933,
as amended (herein called the Securities Act) of the Stock. Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you.

The term Registration Statement as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule

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

(1) Plus an option to purchase from the Company up to 345,000 additional
shares to cover over-allotments.
<PAGE> 2
2

462(b) registration statement), and, in the event of any amendment thereto
after the effective date of such registration statement (herein called the
Effective Date), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any Rule 462(b)
registration statement). The term Prospectus as used in this Agreement shall
mean the prospectus relating to the Stock first filed with the Commission
pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as
included in the Registration Statement) and, in the event of any supplement or
amendment to such prospectus after the Effective Date, shall also mean (from
and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus included in such registration statement prior to the
time it becomes effective.

The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.

2. REPRESENTATIONS AND WARRANTIES.

(a) The Company hereby represents and warrants as follows:

(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and as
being conducted, and is duly qualified as a foreign corporation and in
good standing in all jurisdictions in which the character of the
property owned or leased or the nature of the business transacted by
it makes qualification necessary (except where the failure to be so
qualified would not have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of
the Company). The Company has no subsidiaries.

(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any materially adverse change in the business, properties,
financial condition, results of operations or prospects of the
Company, whether or not arising from transactions in the ordinary
course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the
ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement and
the Prospectus and since the date of the Prospectus the Company has
not declared or paid any dividend on its capital stock.

(iii) The Registration Statement and the Prospectus comply,
and on the Closing Date (as hereinafter defined) and any later date on
which Option Stock is to be purchased, the Prospectus will comply, in
all material respects, with the provisions of the Securities Act and
the rules and regulations of the Commission thereunder; on the
Effective Date, the Registration Statement did not contain any untrue
statement of a material fact and did not omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date, the
Prospectus did not and, on the Closing Date and any later date on
which Option Stock is to be purchased, will not, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from,
the Registration Statement or the Prospectus made in reliance upon and
in conformity with information herein or otherwise furnished in
writing to the Company by or on behalf of the Underwriters for use in
the Registration Statement or the Prospectus.

(iv) The Stock, when issued and sold to the Underwriters
as provided herein, will be duly and validly issued, fully paid and
nonassessable and conforms in all material respects to the description
thereof in the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required
for the issuance and sale of the Stock as contemplated herein.
<PAGE> 3
3

(v) Prior to the Closing Date the Stock to be issued and
sold by the Company will be authorized for listing by the Nasdaq
National Market Stock Exchange upon official notice of issuance.

(vi) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform in all material respects to
the description thereof contained in the Prospectus.

(vii) The execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby and the application of $10,000,000 of the proceeds
from the sale of the shares of Stock to pay the dividend to Science
Applications International Corporation (herein called the Principal
Stockholder) as contemplated by the Prospectus will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement (including, without
limitation, the Cooperative Agreement between the National Science
Foundation and the Company, dated as of ____________ 1992, as amended
to date (herein called the Cooperative Agreement)) or instrument to
which the Company is a party or by which the Company is bound or to
which any of the properties or assets of the Company is subject, nor
will such actions result in any violation of the provisions of the
charter or by-laws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or assets; and
except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Securities Exchange Act of
1934, as amended (herein called the Exchange Act), and applicable
state securities laws in connection with the purchase and distribution
of the Stock by the Underwriters, no consent, approval, authorization
or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby.

(viii) Except as described in the Registration Statement,
there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statements or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.

(ix) Except as described in the Prospectus, neither the
Company nor the Principal Stockholder has sold or issued any shares of
Common Stock during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act.

(x) The Company has not sustained, since the date of the
latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any change in the capital stock or
long-term debt of the Company or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company,
otherwise than as set forth or contemplated in the Prospectus.

(xi) The financial statements (including the related notes
and supporting schedules) filed as part of the Registration Statements
or included in the Prospectus present fairly the financial condition
and results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except
as otherwise stated herein.
<PAGE> 4
4

(xii) Price Waterhouse LLP, who have certified certain
financial statements of the Company and whose report appears in the
Prospectus are independent public accountants as required by the
Securities Act and the rules and regulations of the Commission
thereunder during the periods covered by the financial statements on
which they reported contained in the Prospectus.

(xiii) The Company carries, or is covered by, insurance in
such amounts and covering such risks as is adequate for the conduct of
its business and the value of its properties and as is customary for
companies engaged in similar businesses in similar industries.

(xiv) Except as otherwise disclosed in the Prospectus, the
Company owns, or holds valid licenses for, all trademarks, trade names
and other rights to inventions, know-how, technology, patents,
copyrights, service marks, names and logos, trade secrets,
confidential information, databases, computer applications, programs
and other software and other intellectual property (collectively,
"Intellectual Property Rights") necessary to conduct the business now
operated by it, or presently used by it, and has not received any
notice of infringement of or conflict with asserted rights of others
with respect to any Intellectual Property Rights that, if determined
adversely to the Company, would have a material adverse effect on the
business, properties, financial condition, results of operations or
prospects of the Company.

(xv) Except as described in the Prospectus, there are no
legal or governmental proceedings pending to which the Company is a
party or of which any property or asset of the Company is the subject
which, if determined adversely to the Company, might have a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the Company or
the transactions contemplated hereby; and, to the best of the
Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.

(xvi) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to
either of the Registration Statements by the Securities Act or by the
rules and regulations of the Commission thereunder which have not been
described in the Prospectus or filed as exhibits to either of the
Registration Statements.

(xvii) No relationship, direct or indirect, exists between
or among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.

(xviii) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.

(xix) The Company, or the Principal Stockholder on its
behalf, has filed all federal, state and local income and franchise
tax returns required to be filed through the date hereof and has paid
all taxes due thereon, and no tax deficiency has been determined
adversely to the Company which has had (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company, might have) a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company.

(xx) The Company is not, and the conduct of the Company's
business in the manner contemplated by the Prospectus will not cause
the Company to be, (i) in violation of its charter or by-laws
<PAGE> 5
5

or similar organizational documents, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of time
or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
agreement (including, without limitation, the Cooperative Agreement)
or instrument to which it is a party or by which it is bound or to
which any of its properties or assets is subject or (iii) in violation
in any material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its properties or assets may
be subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its properties or assets or to the
conduct of its business. To the best of the Company's knowledge,
except as described in the Prospectus, no other party to any material
contract or agreement of the Company (including, without limitation,
the Cooperative Agreement) is in default thereunder or is intending to
terminate such contract or agreement prior to its stated term.

(xxi) The Company is not, and after giving effect to the
transaction contemplated hereby, will not be, an "investment company"
within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.

(xxii) The transfers of the Company's government business
contemplated by the Prospectus have been consummated as disclosed in
the Prospectus, and the Company has no liabilities not related to its
commercial business (other than liabilities for which the Principal
Stockholder has agreed to fully indemnify the Company). Each
agreement between the Company and the Principal Stockholder referred
to in the Prospectus has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.

(b) The Principal Stockholder represents, warrants and agrees that
the Principal Stockholder has full right, power and authority to enter into
this Agreement; the execution, delivery and performance of this Agreement by
the Principal Stockholder and the consummation by the Principal Stockholder of
the transactions contemplated hereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Principal Stockholder is a party or by
which the Principal Stockholder is bound or to which any of the property or
assets of the Principal Stockholder is subject, nor will such actions result in
any violation of the provisions of the charter or by-laws of the Principal
Stockholder or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Principal Stockholder
or the property or assets of the Principal Stockholder; and except for the
registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state or foreign securities laws in
connection with the purchase and distribution of the Stock by the Underwriters,
no consent, approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement by the Principal
Stockholder and the consummation by the Principal Stockholder of the
transactions contemplated hereby; each agreement between the Company and the
Principal Stockholder referred to in the Prospectus has been duly executed and
delivered by the Principal Stockholder and constitutes a valid and binding
obligation of the Principal Stockholder enforceable against the Principal
Stockholder in accordance with its terms.

3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.

(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 2,300,000 shares of the Underwritten Stock to the several
Underwriters and each of the Underwriters agrees to purchase from the Company
the respective aggregate number of shares of Underwritten Stock set forth
opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and purchased by the several
Underwriters shall be $___ per share. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c)
<PAGE> 6
6 6

of this Section 3, the agreement of each Underwriter is to purchase only the
respective number of shares of the Underwritten Stock specified in Schedule I.

(b) If for any reason one or more of the Underwriters shall fail
or refuse (otherwise than for a reason sufficient to justify the termination
of this Agreement under the provisions of Section 8 or 9 hereof) to purchase
and pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company shall immediately give notice thereof
to you, and the non-defaulting Underwriters shall have the right within 24
hours after the receipt by you of such notice to purchase, or procure one or
more other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such shares and portion, the number of shares of the Stock which each
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase; provided, however, that the non-defaulting Underwriters
shall not be obligated to purchase the shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of such
shares of the Stock exceeds 10% of the total number of shares of the Stock
which all Underwriters agreed to purchase hereunder. If the total number of
shares of the Stock which the defaulting Underwriter or Underwriters agreed to
purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right, within 24 hours next
succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers satisfactory to you for purchase of such
shares and portion on the terms herein set forth. In any such case, either you
or the Company shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.

(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to 345,000 shares in the aggregate of the Option
Stock from the Company at the same price per share as the Underwriters shall
pay for the Underwritten Stock. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Stock by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made as provided in Section 5 hereof. The number of
shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.

4. OFFERING BY UNDERWRITERS.

(a) The terms of the initial public offering by the Underwriters
of the Stock to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price after
the closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.

(b) The information set forth in the last paragraph on the front
cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the

<PAGE> 7
7

Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.

5. DELIVERY OF AND PAYMENT FOR THE STOCK.

(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 3(c) hereof shall
have been exercised not later than 7:00 A.M., San Francisco time, on the date
two business days preceding the Closing Date), and payment therefor, shall be
made at the office of Simpson Thacher & Bartlett, New York, New York, at 10:00
a.m., New York time, on the [fourth](2) business day after the date of this
Agreement, or at such time on such other day, not later than seven full
business days after such [fourth] business day, as shall be agreed upon in
writing by the Company and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.

(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Simpson Thacher &
Bartlett, New York, New York, at 10:00 a.m., New York time, on the third
business day after the exercise of such option.

(c) Payment for the Stock purchased from the Company shall be
made to the Company or its order by one or more certified or official bank
check or checks or wire transfer in same day funds. Such payment shall be
made upon delivery of certificates for the Stock to you for the respective
accounts of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least
one business day before the Closing Date, in the case of Underwritten Stock,
and at least one business day prior to the purchase thereof, in the case of the
Option Stock. Such certificates will be made available to the Underwriters for
inspection, checking and packaging at the offices of Lewco Securities
Corporation, 2 Broadway, New York, New York 10004 on the business day prior to
the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New York
time, on the business day preceding the date of purchase.

It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.

6. FURTHER AGREEMENTS OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDER. The Company and the Principal Stockholder (with respect to
paragraph (k) only) covenant and agree as follows:

(a) The Company will (i) prepare and timely file
with the Commission under Rule 424(b) a Prospectus containing
information previously omitted at the time of effectiveness of
the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you
shall have reasonably objected in writing or which is not in
compliance with the Securities Act or the rules and
regulations of the Commission.

(b) The Company will promptly notify each
Underwriter in the event of (i) the request by the Commission
for amendment of the Registration Statement or for supplement
to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or
proceeding

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

(2) This assumes that the transaction will be priced after the close of
market and that T+4 will apply to the transaction. If the pricing
took place before or during market hours (which will generally not be
the case), the closing would be three business days after pricing.

<PAGE> 8
8

for that purpose, (iv) the receipt by the Company of any notification
with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it
of notice of the initiation or threatening of any proceeding
for such purpose. The Company will make every reasonable
effort to prevent the issuance of such a stop order and, if
such an order shall at any time be issued, to obtain the
withdrawal thereof at the earliest possible moment.

(c) The Company will (i) on or before the Closing
Date, deliver to you a signed copy of the Registration
Statement as originally filed and of each amendment thereto
filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy
of each post-effective amendment, if any, to the Registration
Statement (together with, in each case, all exhibits thereto
unless previously furnished to you) and will also deliver to
you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed
to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or
offices as you may designate, as many copies of the Prospectus
as you may reasonably request, and (iii) thereafter from time
to time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, likewise send
to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the
Prospectus and of any amended prospectus, filed by the Company
with the Commission, as you may reasonably request for the
purposes contemplated by the Securities Act.

(d) If at any time during the period in which a
prospectus is required by law to be delivered by an
Underwriter or dealer any event relating to or affecting the
Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the
Underwriters, to supplement or amend the Prospectus in order
to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an
amended prospectus so that the Prospectus as so supplemented
or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances
existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public
offering of the Stock by the Underwriters and during such
period, the Underwriters shall propose to vary the terms of
offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in
writing of the proposed variation, and, if in the opinion
either of counsel for the Company or of counsel for the
Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus setting forth such
variation. The Company authorizes the Underwriters and all
dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection with the sale of the
Stock in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations
thereunder for such period.

(e) Prior to the filing thereof with the
Commission, the Company will submit to you, for your
information, a copy of any post-effective amendment to the
Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.

(f) The Company will cooperate, when and as
requested by you, in the qualification of the Stock for offer
and sale under the securities or blue sky laws of such
jurisdictions as you may designate and, during the period in
which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good
standing under said securities or blue sky laws; provided,
however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a
foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and
file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for
so long a period as you may reasonably request for
distribution of the Stock.

<PAGE> 9
9

(g) During a period of five years commencing with
the date hereof, the Company will furnish to you, and to each
Underwriter who may so request in writing, copies of all
periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed
with the Commission.

(h) Not later than the 45th day following the end
of the fiscal quarter first occurring after the first
anniversary of the Effective Date, the Company will make
generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities
Act and Rule 158 thereunder.

(i) The Company agrees to pay all costs and
expenses incident to the performance of its obligations under
this Agreement, including all costs and expenses incident to
(i) the preparation, printing and filing with the Commission
and the National Association of Securities Dealers, Inc. of
the Registration Statement, any Preliminary Prospectus and the
Prospectus (but not after 9 months after the date hereof),
(ii) the furnishing to the Underwriters of copies of any
Preliminary Prospectus and of the several documents required
by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered
to the Underwriters, (iv) the preparation, printing and filing
of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 6 (but not after 9 months
after the date hereof), (v) the furnishing to you and the
Underwriters of the reports and information referred to in
paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's
fees.

(j) The Company agrees to reimburse you, for the
account of the several Underwriters, for blue sky fees and
related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters
or their counsel in qualifying the Stock under state
securities or blue sky laws and in the review of the offering
by the NASD.

(k) Except for the offer, sale or grant of stock
options pursuant to the equity incentive plans of the Company
described in the Prospectus (so long as such options are not
exercisable during the 180 day period referred to below) and
except for issuances of shares of Common Stock upon exercises
of stock options outstanding on the date hereof, the Company
and the Principal Stockholder hereby agree that, without the
prior written consent of Hambrecht & Quist LLC on behalf of
the Underwriters, neither the Company nor the Principal
Stockholder will, for a period of 180 days following the
commencement of the public offering of the Stock by the
Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or
any securities convertible into or exchangeable or exercisable
for or any rights to purchase or acquire Common Stock or (ii)
enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to the
Stock to be sold to the Underwriters pursuant to this
Agreement.

(l) If at any time during the 25-day period after
the Registration Statement becomes effective any rumor,
publication or event relating to or affecting the Company
shall occur as a result of which in your opinion the market
price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.

7. INDEMNIFICATION AND CONTRIBUTION.

(a) The Company and the Principal Stockholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person (including each partner or officer thereof) who controls any Underwriter
within the meaning of Section 15 of the Securities Act from and against any and
all losses, claims, damages or

<PAGE> 10
10

liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common
law or otherwise, and the Company and the Principal Stockholder, jointly and
severally, agree to reimburse each such Underwriter and controlling person for
any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that (1) the indemnity agreements of the Company and the Principal
Stockholder contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission was made
in reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto, (2) the
obligations under the indemnity agreement of the Principal Stockholder
contained in this paragraph (a) shall not exceed $10,000,000 and (3) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements
of the Company and the Principal Stockholder contained in this paragraph (a)
and the representations and warranties of the Company and the Principal
Stockholder contained in Section 2 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.

(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of its
directors, the Principal Stockholder, each other Underwriter and each person
(including each partner or officer thereof) who controls the Company or any
such other Underwriter within the meaning of Section 15 of the Securities Act,
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The indemnity
agreement of each Underwriter contained in this

<PAGE> 11
11

paragraph (b) shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Stock.

(c) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled
at its own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire defense of such action,
suit, investigation, inquiry or proceeding, in which event such defense shall
be conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of the
Notice, no Notice of Defense has been given, the indemnifying party or parties
shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.

(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Principal Stockholder on the one hand and the Underwriters on
the other hand shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Stock received by the Company and
the total underwriting discount received by the Underwriters, as set forth in
the table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Stock. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission

<PAGE> 12
12

or alleged omission to state a material fact relates to information supplied by
each indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.

The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparing to defend or defending against any
action or claim which is the subject of this paragraph (d). Notwithstanding the
provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Stock purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this paragraph
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.

Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 7).

(e) Neither the Company nor the Principal Stockholder will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not such Underwriter or any person who controls such
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act is a party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent includes an unconditional
release of such Underwriter and each such controlling person from all
liability arising out of such claim, action, suit or proceeding.

8. TERMINATION. This Agreement may be terminated by you
at any time prior to the Closing Date by giving written notice to the Company
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative
body, agency or other governmental authority, or any change or development with
respect to any existing or pending statute, regulation, rule, order, proceeding
or investigation, which in the Underwriters' reasonable opinion materially and
adversely affects or will materially or adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by either
federal or New York State authorities or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Underwriters' reasonable opinion has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of
the Company under this Agreement, including all costs and expenses referred to
in paragraphs (i) and (j) of Section 6 hereof.

<PAGE> 13
13

9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Stock shall be subject to
the performance by the Company of all its obligations to be performed
hereunder at or prior to the Closing Date or any later date on which Option
Stock is to be purchased, as the case may be, and to the following further
conditions:

(a) The Registration Statement shall have become
effective; and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings therefor
shall be pending or threatened by the Commission.

(b) The legality and sufficiency of the sale of
the Stock hereunder and the validity and form of the
certificates representing the Stock, all corporate proceedings
and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus
(except as to the financial statements contained therein),
shall have been approved at or prior to the Closing Date by
Simpson Thacher & Bartlett, counsel for the Underwriters.

(c) You shall have received from Pillsbury,
Madison & Sutro LLP, counsel for the Company, an opinion,
addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A hereto, and if
Option Stock is purchased at any date after the Closing Date,
additional opinions from such counsel, addressed to the
Underwriters and dated such later date, confirming that the
statements expressed as of the Closing Date in such opinion
remain valid as of such later date.

(d) You shall be satisfied that (i) as of the
Effective Date, the statements made in the Registration
Statement and the Prospectus were true and correct and neither
the Registration Statement nor the Prospectus omitted to state
any material fact required to be stated therein or necessary
in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has
occurred which should have been set forth in a supplement or
amendment to the Prospectus which has not been set forth in
such a supplement or amendment, (iii) since the respective
dates as of which information is given in the Registration
Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any
material adverse change or any development involving a
prospective material adverse change in or affecting the
business, properties, financial condition or results of
operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since
such dates, except in the ordinary course of business, the
Company has not entered into any material transaction not
referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained
therein, (iv) the Company has no material contingent
obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not any pending
or known threatened legal proceedings to which the Company is
a party or of which property of the Company is the subject
which are material and which are not disclosed in the
Registration Statement and the Prospectus, (vi) there are not
any franchises, contracts, leases or other documents which are
required to be filed as exhibits to the Registration Statement
which have not been filed as required, (vii) the
representations and warranties of the Company and the
Principal Stockholder herein are true and correct in all
material respects as of the Closing Date or any later date on
which Option Stock is to be purchased, as the case may be, and
(viii) there has not been any material change in the market
for securities in general or in political, financial or
economic conditions from those reasonably foreseeable as to
render it impracticable in your reasonable judgment to make a
public offering of the Stock, or a material adverse change in
market levels for securities in general (or those of companies
in particular) or financial or economic conditions which
render it inadvisable to proceed.

(e) You shall have received on the Closing Date
and on any later date on which Option Stock is purchased a
certificate, dated the Closing Date or such later date, as the
case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective
signers of said certificate have carefully examined the
Registration Statement in the form in which it originally
became effective and the Prospectus contained therein and any
supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.

<PAGE> 14
14

(f) You shall have received on the Closing Date
and on any later date on which Option Stock is purchased a
certificate, dated the Closing Date or such later date, as the
case may be, and signed by, or on behalf of, the Principal
Stockholder, stating that the representations, warranties and
agreements of the Principal Stockholder contained herein are
true and correct as of the Closing Date or such later date.

(g) You shall have received from Price Waterhouse
LLP, a letter or letters, addressed to the Underwriters and
dated the Closing Date and any later date on which Option
Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published
rules and regulations thereunder and based upon the procedures
described in their letter delivered to you concurrently with
the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three
business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such
later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter
since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or
information. The letters shall not disclose any change, or
any development involving a prospective change, in or
affecting the business or properties of the Company which, in
your sole judgment, makes it impractical or inadvisable to
proceed with the public offering of the Stock or the purchase
of the Option Stock as contemplated by the Prospectus.

(h) You shall have received from Price Waterhouse
LLP a letter stating that their review of the Company's
system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their
examination of the Company's financial statements as at
, 19 , did not disclose any weakness in internal controls
that they considered to be material weaknesses.

(i) You shall have been furnished evidence in
usual written or telegraphic form from the appropriate
authorities of the several jurisdictions, or other evidence
satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.

(j) Prior to the Closing Date, the Stock to be
issued and sold by the Company shall have been duly authorized
for listing by the Nasdaq National Market upon official notice
of issuance.

(k) On or prior to the Closing Date, you shall
have received from all directors, officers, and beneficial
holders of more than 5% of the outstanding Common Stock
agreements, in form reasonably satisfactory to Hambrecht &
Quist LLC, stating that without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, such
person or entity will not, for a period of 180 days following
the commencement of the public offering of the Stock by the
Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or
any securities convertible into or exchangeable or exercisable
for or any rights to purchase or acquire Common Stock or (ii)
enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or
otherwise.

All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance
with the provisions hereof only if Simpson Thacher & Bartlett, counsel
for the Underwriters, shall be satisfied that they comply in form and
scope.

In case any of the conditions specified in this Section 9 shall
not be fulfilled, this Agreement may be terminated by you by giving notice
to the Company. Any such termination shall be without liability of the
Company to the Underwriters and without liability of the Underwriters to the
Company; provided, however, that (i) in the event of such termination, the
Company agrees to indemnify and hold harmless the Underwriters from all
costs or expenses

<PAGE> 15
15

incident to the performance of the obligations of the Company under this
Agreement, including all costs and expenses referred to in paragraphs (i) and
(j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein, to fulfill any of the conditions herein, or to
comply with any provision hereof other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the transactions contemplated hereby.

10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation
of the Company to deliver the Stock shall be subject to the conditions that (a)
the Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.

In case either of the conditions specified in this Section 10
shall not be fulfilled, this Agreement may be terminated by the Company by
giving notice to you. Any such termination shall be without liability of the
Company to the Underwriters and without liability of the Underwriters to the
Company; provided, however, that in the event of any such termination the
Company agrees to indemnify and hold harmless the Underwriters from all costs
or expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 6 hereof.

11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (a) of Section 7 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 11 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.

12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Principal Stockholder and the
several Underwriters and, with respect to the provisions of Section 7
hereof, the several parties (in addition to the Company, the Principal
Stockholder and the several Underwriters) indemnified under the provisions of
said Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser,
as such purchaser, of any of the Stock from any of the several Underwriters.

13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Hambrecht & Quist
LLC, One Bush Street, San Francisco, California 94104; and if to the Company or
the Principal Stockholder, shall be mailed, telegraphed or delivered to it at
its office, , Attention: .
All notices given by telegraph shall be promptly confirmed by letter.

14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (k) and (l) of Section 6 hereof shall be of
no further force or effect.

<PAGE> 16
16

This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.

Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the
Company, the Principal Stockholder and the several Underwriters in accordance
with its terms.

Very truly yours,

NETWORK SOLUTIONS, INC.

By
---------------------------
Name:
Title:

SCIENCE APPLICATIONS INTERNATIONAL
CORPORATION

By
---------------------------
Name:
Title:

The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.

HAMBRECHT & QUIST LLC
J.P. MORGAN SECURITIES INC.
PAINEWEBBER INCORPORATED

By: HAMBRECHT & QUIST LLC

By
--------------------------
Managing Director

For themselves and as Representatives of the
several Underwriters named in Schedule I hereto.

<PAGE> 17
17

SCHEDULE I

UNDERWRITERS

<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

__________
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==========
</TABLE>

<PAGE> 18

ANNEX A

MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL FOR THE COMPANY

(i) Each of the Company and the Principal Stockholder has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation. The Company
is duly qualified as a foreign corporation and in good standing in each state
of the United States of America in which its ownership or leasing of property
requires such qualification (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company) and has full corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement;

(ii) the authorized capital stock of the Company consists
of 10,000,000 shares of Preferred Stock, of which there are no outstanding
shares, 40,000,000 shares of Class B Common Stock, of which there are
outstanding 12,500,000 shares, and 100,000,000 shares of Class A Common Stock,
of which there are outstanding shares (including the Underwritten
Stock plus the number of shares of Option Stock issued on the date hereof);
proper corporate proceedings have been taken validly to authorize such
authorized capital stock; all of the outstanding shares of such capital stock
(including the Underwritten Stock and the shares of Option Stock issued, if
any) have been duly and validly issued and are fully paid and nonassessable;
any Option Stock purchased after the Closing Date, when issued and delivered to
and paid for by the Underwriters as provided in the Underwriting Agreement,
will have been duly and validly issued and be fully paid and nonassessable; and
no preemptive rights of, or rights of refusal in favor of, stockholders exist
with respect to the Stock, or the issue and sale thereof, and no restrictions
on transfer or voting exist with respect to the Stock in each case pursuant to
the Certificate of Incorporation or Bylaws of the Company or under law and, to
the knowledge of such counsel, there are no contractual preemptive rights that
have not been waived, rights of first refusal or rights of co-sale which exist
with respect to the issue and sale of the Stock and there are no contractual
restrictions on transfer or voting which exist with respect to the Stock;

(iii) the Registration Statement has become effective under
the Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;

(iv) the Registration Statement and the Prospectus (except
as to the financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act and with the
rules and regulations of the Commission thereunder;

(v) such counsel have no reason to believe that the
Registration Statement (except as to the financial statements and schedules and
other financial data contained therein, as to which such counsel need not
express any opinion or belief) at the Effective Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements and schedules and
other financial data contained therein, as to which such counsel need not
express any opinion or belief) as of its date or at the Closing Date (or any
later date on which Option Stock is purchased), contained or contains any
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(vi) the information required to be set forth in the
Registration Statement in answer to Items 9, 10 (insofar as it relates to such
counsel), 11(c), 11(m), 14 and 15 of Form S-1 is to the best of such counsel's
knowledge accurately and adequately set forth therein in all material respects
or no response is required with respect to such Items, and the description of
the stock option plan[s] and the options granted and which may be granted
thereunder [and the options granted otherwise than under such plan[s]] set
forth [add additional stock plans and agreements as necessary] in the
Prospectus accurately and fairly presents the information required to be shown
with respect to said

<PAGE> 19
2

plans and options to the extent required by the Securities Act and the rules
and regulations of the Commission thereunder;

(vii) such counsel do not know of any franchises, contracts,
leases, documents or legal or governmental proceedings, pending or threatened,
which in the opinion of such counsel are of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described and filed as
required;

(viii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company and the Principal Stockholder;

(ix) each of the intercompany agreements referred to in the
Prospectus has been duly authorized, executed and delivered by the Company and
the Principal Stockholder;

(x) the execution, delivery and performance by the Company
and the Principal Stockholder of the Underwriting Agreement and each of the
intercompany agreements referred to in the Prospectus and the issue and sale by
the Company of the shares of Stock as contemplated by the Underwriting
Agreement and the application of $10,000,000 of the proceeds from the sale of
the shares of Stock to pay the dividend to the Principal Stockholder as
contemplated by the Prospectus will not conflict with, or result in a breach
of, the Certificate of Incorporation or Bylaws of the Company or the Principal
Stockholder or any agreement (including, without limitation, the Cooperative
Agreement) or instrument known to such counsel to which the Company or the
Principal Stockholder is a party or any applicable law or regulation, or so far
as is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;

(xi) all holders of securities of the Company having rights
to the registration of shares of Common Stock, or other securities, because of
the filing of the Registration Statement by the Company have waived such rights
or such rights have expired by reason of lapse of time following notification
of the Company's intent to file the Registration Statement;

(xii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws in connection with the purchase and distribution of
the Stock by the Underwriters.

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

Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or of the State of New York,
Delaware or California, upon opinions of local counsel satisfactory in form and
scope to counsel for the Underwriters. Copies of any opinions so relied upon
shall be delivered to the Representatives and to counsel for the Underwriters
and the foregoing opinion shall also state that counsel knows of no reason the
Underwriters are not entitled to rely upon the opinions of such local counsel.

<PAGE> 1

ASSET TRANSFER AGREEMENT

This Agreement ("Agreement"), is effective as of February 1, 1996
("Effective Date") and is made by and between Science Applications
International Corporation, a Delaware corporation ("SAIC") and Network
Solutions, Inc., a Delaware corporation and a wholly-owned subsidiary of SAIC
("Subsidiary").

RECITALS
WHEREAS, the purpose of the Agreement is to memorialize the transfer of
the Government Business from Subsidiary to SAIC which was effective as of
February 1, 1997.

WHEREAS, Subsidiary and its predecessor corporation, Network Solutions
Incorporated, a District of Columbia corporation ("NSI-D.C"), has been and is
currently engaged in certain business for the U.S. Government, other than the
NSF (the "Government Business");

WHEREAS, Subsidiary desires to assign and transfer the Government Business
to SAIC and SAIC desires to accept such assignment and transfer effective as of
the Effective Date;

WHEREAS, Subsidiary and NSI-D.C were previously engaged in business
conducted in Oklahoma City, Oklahoma and certain other business obtained as a
result of NSI-D.C.'s status as a minority-owned corporation (the "Minority
Business")

WHEREAS, the Minority Business was transferred to Netcom Solutions
International, Inc., a Virginia corporation ("Netcom") pursuant to a Corporate
Separation and Reorganization Agreement dated as of March 10, 1995 by and
between Subsidiary and Netcom (the "Separation Agreement"), and pursuant to
such Separation Agreement, Netcom agreed to assume all liabilities and
commitments in connection with or related to the Minority Business;

WHEREAS, in consideration of Subsidiary transferring the Government
Business to SAIC, SAIC is willing to indemnify Subsidiary for any liability or
damages related to the Minority Business;

WHEREAS, since the Effective Date, SAIC has actually borne all of the
losses and profits of the Government Business and the Minority Business.

NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

1. Transfer of Assets. Subject to Section 4, Subsidiary hereby assigns
and transfers to SAIC all of its right, title and interest under, in and to
the contracts, accounts receivables and assets of Assignor set forth on
Exhibit A hereto (the "Transferred Assets"). Subject to Section 4, SAIC hereby
accepts such assignment and transfer, assumes all of the Transferred Assets
with respect to and agrees to be bound by all of the terms and conditions of
Subsidiary under the Transferred Assets in each case arising from and after
the Effective Date and relating to the period from and after the Effective Date.

2. Assumed Liabilities and Obligations. Subsidiary assigns to SAIC and
SAIC hereby assumes and agrees to pay, satisfy, perform and discharge, as if
the Government Business had been operated by SAIC from the commencement of the
Government Business and had never been owned by Subsidiary, all of the
obligations and liabilities arising out

1
<PAGE> 2

of or relating to the Government Business or the Transferred Assets, known or
unknown, accrued, absolute, contingent or otherwise, whether arising from
pending or threatened claims against Subsidiary related to the Government
Business or the Transferred Assets, whether arising as a result of the
transactions contemplated hereby, whether existing at the Effective Date or
arising at any time or from time to time after the Effective Date, and
whether based on circumstances, events or actions arising theretofore or
thereafter, and whether or not such obligations and liabilities shall have been
disclosed herein or reflected on the books and records of the Government
Business, including, but not limited to, the liabilities set forth on Exhibit B
hereto (together, the "Assumed Liabilities").

3. Cooperation in Contract Administration. Subsidiary agrees to
cooperate with SAIC and do all things reasonably necessary to novate and
assign all contracts, commitments and agreements contained in the Transferred
Assets, including but not limited to, executing novation agreements, if
necessary. In the event Subsidiary receives payment from any customer for any
costs, fees and expenses incurred by SAIC subsequent to the Effective Date
under contracts which are novated or assigned to SAIC hereunder, Subsidiary
shall promptly pay such amounts to SAIC.

4. Nonassignable Contracts. Nothing in this Assignment shall be construed
as an attempt to novate or assign to SAIC any contract, commitment, or other
agreement which is by law or its terms nonassignable or the novation or
assignment of which would constitute a violation of statute, rule, regulation,
contract, commitment or other agreement. If an attempted novation or
assignment of any contract, commitment or other agreement would be ineffective
or would affect Subsidiary's rights thereunder so that SAIC would not in fact
receive all such rights, Subsidiary shall cooperate with SAIC in a mutually
acceptable arrangement (which, without limitation, may include entering into
subcontracting arrangements with SAIC), to provide to SAIC the benefit
(including the full economic benefit) of such contract, commitment, or other
agreement (other than legal title), provided Subsidiary shall have no liability
for failure to provide SAIC such benefit. SAIC and subsidiary agree to use
their best efforts to legally effect the novation or assignment of any such
contract commitment or agreement to SAIC. SAIC agrees to properly reimburse
Subsidiary in connection with any action taken by the Subsidiary under Section
3 and this Section 4.

5. Books and Records. Subsidiary agrees to transfer and deliver to SAIC
all original contracts, books and records which relate to the Government
Business or the Transferred Assets.

6. Indemnification - Government Business. SAIC hereby agrees to
indemnify, defend and hold harmless Subsidiary and any director, officer,
employee, agent or representative of Subsidiary (the "Indemnitees") from and
against all loss, liability, claim, damage, cost or expense asserted against,
imposed upon or incurred by the Indemnitees or any Indemnitee, resulting from,
relating to or arising out of the Government Business or any Transferred
Assets, whether arising prior to or after the Effective Date.

7. Indemnification - Minority Business. SAIC hereby agrees to indemnify,
defend and hold harmless Subsidiary and any director, officer, employee, agent
or representative of Subsidiary (the "Indemnitees") from and against all loss,
liability, claim, damage, cost or expense asserted against, imposed upon or
incurred by the Indemnitees or any Indemnitee, resulting from, relating to or
arising out of the Minority Business, whether arising prior to or after the
Effective

2
<PAGE> 3
Date (the "Minority Claims"). Subsidiary shall not be obligated to make demand
or seek indemnification from Netcom for any Minority Claim prior to making
demand or seeking indemnification from SAIC for such Minority Claims. In the
event that SAIC is obligated to make any payment under this Section 7, SAIC
will be subrogated to any and all rights that Subsidiary has or will have
against Netcom or any other third party with respect to the claim or event
giving right to such payment. Such rights of subrogation shall include, but
are not limited to, the right to enforce or use any right or remedy which
Subsidiary now has or may hereafter have against Netcom in connection with the
claim or event giving rise to such payment, whether pursuant to the Separation
Agreement or otherwise.

8. Miscellaneous.

8.1 Notices. All notices, billings, requests, demands, approvals,
consents, and other communications which are required or may be given under
this Agreement shall be in writing and will be deemed to have been duly given
if delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth below:

If to Subsidiary: If to SAIC:

Network Solutions, Inc. Science Applications
505 Huntmar Park Drive International Corporation
Herndon, VA 20170 10260 Camput Point Drive
Attention: Chief Financial Officer San Diego, CA 92121
Attention: Legal Department

8.2 No Assignment. This Agreement shall not be assignable except with
the prior written consent of the other party to this Agreement.

8.3 Applicable Law. This Agreement shall be governed by and construed
under the laws of the State of California applicable to contracts made and to
be performed therein.

8.4 Headings. The section headings used in this Agreement are for
convenience of reference only and will not be considered in the interpretation
or construction of any of the provisions thereof.

8.5 Amendments; Waivers. No amendment, waiver of compliance with any
provision or condition hereof, or consent pursuant to this Agreement, will be
effective unless evidenced by an instrument in writing signed by the parties.

8.6 Severability. If any terms or provisions hereof or the application
thereof to any circumstances shall be found by any court having jurisdiction to
be invalid or unenforceable to any extent, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.

3
<PAGE> 4
8.7 Further Assurances. Subject to the provisions hereof, the parties
hereto shall make, execute, acknowledge and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required in
order to effectuate the purposes of this Agreement and to consummate the
transactions contemplated hereby.

8.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.

8.9 No Third Party Beneficiaries. The provisions of this Agreement are
for the sole benefit of SAIC and Subsidiary and will not, except to the extent
otherwise expressly stated herein, inure to the benefit of any third party.

IN WITNESS WHEREOF, the parties have executed Agreement on the date shown
below and effective as of the Effective Date as written above.

SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION

By: /s/ DENNIS HEIPT
----------------------------------
Name: Dennis Heipt
--------------------------------
Title: Senior Vice President
-------------------------------
Date: 9/17/97
--------------------------------

NETWORK SOLUTIONS, INC.

By: /s/ ROBERT J. KORZENIEWSKI
----------------------------------
Name: Robert J. Korzeniewski
--------------------------------
Title: Chief Financial Officer
-------------------------------
Date: 9/16/97
--------------------------------