CRL NETWORK SERVICES INC, S-1/A, 1999-04-28

CRL NETWORK SERVICES INC
S-1/A, 1999-04-28
BUSINESS SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999.

REGISTRATION NO. 333-74793
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SECURITIES AND EXCHANGE COMMISSION
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CRL NETWORK SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE NO. 4813 68-0312353
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

ONE KEARNY STREET, SUITE 1450
SAN FRANCISCO, CALIFORNIA 94108
(415) 837-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JAMES G. COUCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE KEARNY STREET, SUITE 1450
SAN FRANCISCO, CALIFORNIA 94108
(415) 837-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
KENNETH R. LAMB, ESQ. NORA L. GIBSON, ESQ.
LISA A. FONTENOT, ESQ. PETER S. BUCKLAND, ESQ.
PATRICK L. WONG, ESQ. TAYLOR L. STEVENS, ESQ.
GIBSON, DUNN & CRUTCHER LLP PATRICK J. O'LOUGHLIN, ESQ.
ONE MONTGOMERY STREET, TELESIS TOWER BROBECK, PHLEGER & HARRISON LLP
SAN FRANCISCO, CALIFORNIA 94104 ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CALIFORNIA 94015
</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 number of the earlier
effective registration statement of the same offering. [ ]

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

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

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

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 SECTION 8(A), MAY
DETERMINE.

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<PAGE> 2

SUBJECT TO COMPLETION, DATED APRIL 28, 1999

THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE JURISDICTION WHERE THE OFFER OR SALE
IS NOT PERMITTED.

PROSPECTUS

[LOGO] CRL NETWORK SERVICES, INC.

COMMON STOCK

$ PER SHARE

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This is the initial public offering of CRL Network Services, Inc. We are
offering shares and a stockholder identified in this prospectus
is offering shares. We will not receive any of the proceeds from
the sale of shares of our common stock by the selling stockholder. This is a
firm commitment underwriting.

We expect that the price to the public in the offering will be between
$ and $ per share. The market price of the shares after the
offering may be higher or lower than the offering price.

We have applied to have the common stock approved for quotation on the Nasdaq
National Market under the symbol "CRLX."

INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.

<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Price to Public............................................. $ $
Underwriting discounts......................................
Proceeds to CRL Network Services, Inc.......................
Proceeds to the selling stockholder.........................
</TABLE>

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<S> <C>
Joint Lead Manager and Bookrunner Joint Lead Manager
CIBC WORLD MARKETS LEHMAN BROTHERS
</TABLE>

The date of this prospectus is , 1999.
<PAGE> 3

[INSIDE FRONT COVER]

[Graphic depicts a map of United States entitled "Networks Built for Business"
with the CRL logo, reflecting CRL's network connecting cities nationwide,
including symbols designating CRL's Regional Hubs, CRL Points of Presence or
Service Areas, Internet Protocol Backbone and Switched Backbone]

<PAGE> 4

TABLE OF CONTENTS

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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
How We Intend to Use the Proceeds from the Offering......... 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 26
Business.................................................... 35
Management.................................................. 55
Principal and Selling Stockholders.......................... 62
Description of Capital Stock................................ 63
Shares Eligible for Future Sale............................. 66
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 70
Index to Financial Statements............................... F-1
</TABLE>

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PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because it
is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and the financial statements and
the related notes to those statements included in this prospectus. This
prospectus assumes that the underwriters have not exercised the over-allotment
option and gives effect to our reincorporation in Delaware and the associated
exchange of one share of common stock of CRL for every three shares of common
stock of CRL's California predecessor.

CRL NETWORK SERVICES, INC.

CRL Network Services is a Tier 1 Internet service provider focused on offering
customized Internet and network management solutions to small and medium-sized
businesses. We provide an extensive array of high quality, reliable and scalable
Internet and network connectivity and value-added services designed to meet our
customers' needs. Our services include:

- connectivity to the Internet and secure private networks

- network services consisting of remote management of our customers' networks
and systems integration, which we refer to as value-added network services

- distribution of customers' Internet content from our facilities, commonly
referred to as hosting

- engineering and technical expertise arising from our direct participation in
the evolution of the commercial Internet, which has enabled us to develop
our own sophisticated network infrastructure

- high speed, private switched network, our ownership and control of which
enables us to maximize our quality of service by reducing delay and data
loss as well as increasing the level of security

- status as one of the first commercial Internet providers, which allows us to
exchange data directly to other Tier 1 providers without paying transit fees
and reduces the costs of operating our network

- our proprietary network management process, acquired through our recent
merger with Integral Networking Corporation in December 1998, which enables
us to connect directly to our customer's network and manage our customer's
network from the server to the desktop without the need to be on-site at our
customer's facilities, which we refer to as remote management

As a Tier 1 provider we can be characterized as having a high quality, national
backbone network from which data can reach every other Internet destination
through peering arrangements without paying transit fees to other network
operators.

As of April 26, 1999, we had 30 network equipment centers located in major
metropolitan areas from which we deliver our services. Our network connects to
all of the interexchange points sanctioned by the National Science Foundation
for the transfer of Internet Protocol-based traffic between Internet backbone
networks. Our network is comprised of several elements, including 23 Cascade
switches, 54 Cisco routers, facilities and clear channel fiber-optic bandwidth,
which together provide a fast, secure, high quality network capable of
minimizing outages resulting from hardware or software faults. Our customers
include Internet service and content providers like Internet America, Inc. and
Walnut Creek CDROM, Incorporated; companies engaged in electronic commerce like
Office Depot, Inc. and Joe Boxer Corporation; government agencies like the U.S.
Federal Reserve Board and the U.S. Department of

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Commerce; and educational institutions like the University of California,
Hastings College of the Law and the Woodland Hills School District.

Our objective is to become the leading nationwide provider of customized
comprehensive Internet and network services to small and medium-sized
businesses. To achieve this objective, we intend to:

- FURTHER CAPITALIZE ON OUR EXISTING NETWORK INFRASTRUCTURE. We intend to
utilize our status as a Tier 1 Internet service provider and competitive
local exchange carrier in California as well as our fast, secure, reliable
and scalable network to cost-effectively expand our customer base and
deliver additional services to our customers.

- CROSS SELL VALUE-ADDED SERVICES. We intend to capitalize on our existing
customer base and future customers by aggressively cross selling our current
and future value-added services to address their Internet and other network
management requirements.

- PROVIDE BUNDLED, COMPREHENSIVE NETWORKING SOLUTIONS. By combining our
network infrastructure with our existing and planned array of networking
services, we believe we are well positioned to become one of the premier,
comprehensive providers of bundled networking solutions.

- EXPAND CUSTOMER BASE AND SALES EFFORTS. We believe we will be able to
successfully market and sell our comprehensive networking solutions to a
large national customer base by significantly increasing our direct sales
force and expanding our relationships with potential channel partners.

- DRIVE REVENUE GROWTH BY INCREASING HOSTING SERVICES. We intend to optimize
our physical presence and facilities located at key Internet network access
points, which provide an attractive opportunity for us to market and sell
hosting services to existing and potential customers.

- ACCELERATE GROWTH THROUGH TARGETED ACQUISITIONS. We intend to seek
acquisition candidates that we believe we can integrate with our existing
network to increase our customer base or provide additional value-added
services. In this regard, we recently acquired Integral Networking
Corporation, which enables us to provide our remote management services.
------------------------

Our principal executive offices are located at One Kearny Street, Suite 1450,
San Francisco, California 94108, and our telephone number at that address is
(415) 837-5300.

This prospectus contains product names, trade names and trademarks that belong
to us or to other organizations.

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THE OFFERING

Common stock offered by us.... shares

Common stock offered by the
selling stockholder........... shares

Common stock to be outstanding
after the offering(1)......... shares

Use of proceeds by CRL Network
Services.................... We intend to use the net proceeds from the sale
of common stock offered by us to repay
indebtedness totaling $1,088,000 as of March
31, 1999, for working capital and other general
corporate purposes, including expansion of our
sales and marketing activities. We may also use
a portion of the net proceeds for acquisitions.
We will not receive any proceeds from the sale
of the common stock offered by the selling
stockholder. See "How We Intend to Use the
Proceeds from the Offering."

Proposed Nasdaq National
Market symbol................. CRLX

Risk Factors.................. See "Risk Factors" for a discussion of factors
you should carefully consider before deciding
to invest in our common stock.
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(1) Based on 19,038,833 shares outstanding on April 27, 1999, which excludes
946,320 shares issuable upon exercise of currently outstanding options with
a weighted average exercise price of $ per share and 1,000,000 shares
available for the grant of additional options under our 1999 Stock
Incentive Plan. See "Management -- Stock Options."

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SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data as of December 31, 1998 and for the
years ended December 31, 1996, 1997 and 1998 are calculated from our audited
consolidated statements included in this prospectus. The summary consolidated
financial data for the years ended December 31, 1994 and 1995 and for the three
months ended March 31, 1998 and 1999 are calculated from unaudited consolidated
financial statements not included in this prospectus. The unaudited financial
statements have been prepared by us on a basis consistent with our audited
consolidated financial statements and include, in the opinion of our management,
all adjustments consisting only of normal recurring adjustments necessary for a
fair presentation of our results of operations and financial position for those
years.

You should read the following data with the more detailed information contained
in "Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to the consolidated financial statements, each included
in this prospectus.

The following table indicates a summary of our balance sheet at March 31, 1999,
which has been adjusted to reflect the sale of shares of common stock
offered by us after deducting underwriting discounts and commissions and
estimated offering expenses at an assumed initial public offering price of
$ per share.

<TABLE>
<CAPTION>
AT MARCH 31, 1999
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ACTUAL AS ADJUSTED
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $ 354 $
Working capital........................................... 229
Total assets.............................................. 4,522
Total liabilities......................................... 2,998
Long-term obligations, excluding current portion.......... 822
Stockholders' equity...................................... 1,524
</TABLE>

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See notes 1 and 12 of the notes to the consolidated financial statements
included in this prospectus for an explanation of the determination of the
number of shares used in computing per share data.

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RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing us. These risk factors are not intended to represent a complete
list of the general or specific risk factors that may affect us as additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. If that happens, the trading price of
our common stock could decline, and you may lose all or part of your investment.

THE SUCCESS OF OUR GROWTH STRATEGY DEPENDS ON OUR ABILITY TO MARKET AND SELL OUR
EXISTING AND FUTURE SERVICES.

Historically, our business has focused on selling Internet and other network
connection services. A critical component to the successful implementation of
our growth strategy is our ability to offer and expand our value-added services
and the acceptance of those services by our existing and potential customers.
Our future growth depends, in part, on the acceptance and use of remote
management and systems integration services by small and medium-sized
businesses. Until our December 1998 merger with Integral Networking Corporation,
we had very little experience in either of these markets and to date have
derived insignificant revenues from services in these markets. In particular,
the market for remote management services is new, making it difficult to
determine the size and growth of the market and to predict how this market will
develop. Changes in technology, the availability of qualified information
technology professionals and other factors that make internal network management
more cost-effective than remote network management would negatively impact the
market for our services. Our business may be seriously damaged if this market
fails to grow, grows more slowly than we expect or develops in some way that is
different from our expectations. We are also actively seeking to develop or
acquire a variety of other services we can offer and cross sell. For many
reasons, including the reasons described in the risk factors below, we cannot
assure you that we will be successful in developing or acquiring those or any
other services or, that if we do, we will be successful in marketing and selling
those services to our existing or potential customers.

OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS.

We expect to experience significant fluctuations in our future quarterly and
annual results of operations due in part to our accelerated growth strategy and
the emerging nature of the data communications industry in our markets. A
variety of factors likely to cause fluctuations in our operating results, some
of which are outside our control, include:

- demand for and market acceptance of our services

- capacity utilization of our facilities

- fluctuations in data communications and telecommunications costs

- reliable continuity of service and network availability

- customer retention

- the timing and success of sales and marketing efforts

- the timely expansion of existing facilities and completion of new facilities

- the ability to increase bandwidth as necessary

- fluctuations in bandwidth used by customers

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- the timing and magnitude of expenditures for sales and marketing and capital
expenditures

- introductions of new services or enhancements by us and our competitors

- the timing of customer installations and related payments

- the ability to maintain or increase peering relationships

- increased competition including the introduction by third parties of new
Internet and network services

- general growth of Internet use and establishment of Internet operations by
enterprises

- changes in our pricing policies and those of our competitors

- changes in regulatory laws and policies

- the success of our acquisition strategy

- the timing and amount of charges related to acquisitions

- economic conditions specific to the Internet and networking industry

Our expenses, particularly our telecommunications costs, depreciation, real
estate expenditures and personnel costs are expected to increase significantly
as we grow. As we grow, we may also incur one-time costs associated with capital
expenditures for network and facilities growth, acquisition expenses and
development of our existing and new service offerings. In addition, we are in
the process of hiring new employees. Consequently, our future results of
operations will be particularly sensitive to fluctuations in revenues. Over the
next five years, we will record an expense of approximately $739,000 related to
some of our option grants. For more information about these charges, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."

Due to the factors listed above and the other risk factors described in this
section of the prospectus, we believe that comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. As a result, our results of operations in
future periods may fall below the expectations of securities analysts and
investors. The trading price of our common stock will likely suffer a
significant decrease if that happens.

WE MAY NOT SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY.

As part of our growth strategy, we will seek strategic acquisitions of
additional assets, technologies and businesses complementary to our operations.
We may not be able to locate suitable acquisition targets or be able to acquire
any target companies we locate on acceptable terms. Our recent merger with
Integral Networking Corporation is, and any future acquisitions would be,
accompanied by risks including, among other things:

- loss of customers and key personnel of an acquired company

- inability to achieve cost savings

- acquisition expenses and charges incurred

- difficulties integrating the operations and personnel of acquired companies

- additional financial resources that may be needed to fund the combined
company operations

- the potential disruption of our business

- our management's ability to realize financial and strategic benefits of
incorporating acquired technologies or businesses into our service offerings

- difficulty of maintaining uniform quality control and other standards,
policies and procedures in a larger organization

- impairment of employee relationships due to changes in management or
perceived conflicts
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- assumption of unexpected liabilities and incurrence of significant
unexpected expenses in completing acquisitions

Any of the above risks could prevent us from realizing significant benefits from
our acquisitions. In addition, issuing our common stock in acquisitions will
dilute our stockholders' percentage interests in our company, while using cash
will deplete our cash reserves. Finally, if we are unable to account for our
acquisitions under the "pooling of interests" method of accounting, we may incur
significant, one-time write-offs and amortization charges for acquisition or
debt-related expenses, goodwill and other intangible assets. These write-offs
and charges would decrease our future earnings or increase our future losses and
could hurt the trading price of our common stock.

THE MARKETS FOR OUR SERVICES ARE CHARACTERIZED BY MANY COMPETING TECHNOLOGIES,
AND THE TECHNOLOGIES ON WHICH OUR SERVICES ARE BASED MAY NOT COMPETE
EFFECTIVELY.

The markets for the network connectivity services we provide are extremely
competitive and fragmented. There are no substantial barriers to entry in these
markets, and we expect that competition will intensify in the future. We believe
that our ability to compete successfully depends upon a number of factors,
including:

- the capacity, reliability, low delay and security of our network
infrastructure

- our ability to maintain existing and develop future peering relationships

- our technical expertise and the functionality, performance and quality of
services

- our ability to provide custom solutions for our customers

- the experience and technical expertise of our sales force and engineers

- the ease of access to our services

- our remote management capabilities

- the pricing policies of our competitors and suppliers

- our ability to operate as a competitive local exchange carrier

- our ability to scale our services to meet growing customer demand

- the variety of services we offer

- our geographical presence

- the timing of introductions of new services by us and our competitors

- the responsiveness and quality of our customer support

- our financial resources

- our ability to support industry standards

To be competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and our competitors' innovations by
continuing to enhance our services, as well as our sales programs and channels.
Any pricing pressures, reduced margins or loss of market share resulting from
increased competition or our failure to compete effectively, could seriously
damage our business and financial results.

THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE
TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST COMPANIES WITH GREATER RESOURCES.

Many of our competitors have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than those
available to us. As a result, they may develop, deploy and expand their
communications and network infrastructures more quickly, adapt more swiftly to

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new technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily, and devote greater resources
to the marketing and sale of their services than we can. Additionally, many
organizations have entered into or are forming joint ventures or consortiums to
provide services competitive with ours.

Our competitors generally may be divided into four principal groups:

- telecommunications carriers including regional Bell operating companies,
often referred to as RBOCs

- Internet service providers

- network and system integrators

- online network service providers

We believe the market for network management services will be highly competitive
if it grows as we expect. Competition will probably increase significantly as
new companies enter the market and current competitors expand their services and
product lines. Many potential competitors are likely to enjoy substantial
competitive advantages, including those listed above. As a result, our existing
and potential customers may contract with other competitive communications
providers, decreasing demand for CRL's services. For a list of our principal
competitors, see "Business -- Competition."

OUR BUSINESS MAY BE HARMED IF NEW COMPETITORS ENTER OUR MARKETS.

We believe that new competitors will enter our markets. These new competitors
could include large computer hardware, software, media and other technology and
telecommunications companies. A large number of companies with short operating
histories have entered the markets for the services we offer as these markets,
some of which are in an emerging state, develop. In addition, telecommunications
companies and online services providers currently offer or have announced plans
to offer or expand their network services. These telecommunications companies
and online services providers are able to devote greater resources to developing
and marketing competitive products and services. In addition, they often have
the ability to bundle other services and products with their Internet services,
such as voice and video communications, placing us at a competitive disadvantage
because we do not currently offer some of these services. Other companies are
also exploring the possibility of providing or are currently providing high
speed data services using alternative delivery methods that could be faster or
less expensive, decreasing customer demand for CRL's services. As new
competitors enter our markets they sometimes offer special promotions to attract
customers, such as free Internet access or computers, which could adversely
impact our ability to attract or retain customers. Increased competition from
new competitors could negatively affect our business and financial results.

WE MAY HAVE TO REDUCE THE COST OF OUR SERVICES TO REMAIN COMPETITIVE.

Increased competition and industry consolidation has in the past and could in
the future result in significant pricing pressure. This pricing pressure could
cause large reductions in the average selling price of our services. For
example, telecommunications companies that compete with us may provide customers
with reduced communications costs for their Internet access or private network
services, reducing the overall cost of their solutions and significantly
increasing pricing pressures on us. Combined Internet services and access
companies can bundle their offerings and remain profitable at lower price levels
while realizing economies of scale. As a result, we have experienced pricing
pressures on our connectivity offerings, including our T-1 and fractional T-1
services, have lowered prices on a case-by-case basis and have introduced new
lower price products. We may not be able to offset the effects of any price
reductions by increasing the number of our customers, generating higher revenues
from enhanced services, reducing cost, or by obtaining approvals to operate as a
competitive local exchange carrier. We believe that the businesses of providing
network connectivity, value-added network services and hosting services will
likely see increased consolidation in the future. Consolidation could decrease
selling prices and increase competition in these industries which could erode
our market share and could have a material negative effect on our business and
financial results.

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WE DEPEND ON OUR NETWORK INFRASTRUCTURE AND OTHER SUPPLIERS TO PROVIDE
AFFORDABLE, RELIABLE, SCALABLE AND SECURE SERVICES.

Our success will depend upon our network infrastructure's capacity, scalability,
reliability and security, including the bandwidth capacity leased from
telecommunications network suppliers. In particular, we rely on Metropolitan
Fiber Systems, IXC Communications, Inc., Qwest Communications Corporation, Cable
& Wireless USA, Inc. and other telecommunications providers for backbone and
local loop capacity. These companies provide our dedicated clear channel
network, the backbone connecting our wide area data switches. These companies
also permit our networks to exchange Internet traffic with other Internet
service providers and distribute our services to our customers. We depend on the
ability of those companies to maintain the operational integrity of our backbone
and interconnections. If one or more of these companies is unable or unwilling
to provide or expand its current levels of service to us in the future, our
operations could be seriously and adversely affected. Most of our agreements
with these companies are for a one year term with renewal options. These
agreements do not require minimum commitments and are on an as used basis. While
these companies have additional capacity available, they are under no obligation
under these agreements to provide it to us. We estimate that three companies
provide approximately three-quarters of our bandwidth. In addition, rapid
changes within the telecommunications industry have led to the merging of many
telecommunications companies. These mergers have and in the future may further
cause the pricing we receive for the services we use and the quality of service
that we receive to vary significantly. The consolidation of companies providing
Internet services and access has and can result in preferential provision of
services to acquired companies and potential targets or business partners and
could cause the length of time it takes to deliver the telecommunications
services that we use to increase significantly.

We are currently in a dispute with Qwest Communications Corporation, one of our
three principal providers, involving fiber cable they own connecting several
cities. Qwest agreed to lease fiber to us to be installed and available to us by
specified dates. Qwest did not complete installation as agreed. Despite their
failure to install the fiber in a timely manner, Qwest alleges that we owe them
approximately $479,000 through March 31, 1999 for use of the fiber cable. We
believe Qwest is obligated to provide us with free service as a result of this
installation delay. We are currently attempting to resolve this dispute by
negotiation. We cannot assure you that the dispute will be resolved to our
satisfaction or that Qwest will not suspend service, potentially resulting in an
interruption of service.

WE DEPEND ON OUR RELATIONSHIPS WITH TELECOMMUNICATIONS CARRIERS TO PROVIDE OUR
DATA COMMUNICATIONS CAPACITY.

We rely on local telephone companies and other companies to provide data
communications capacity via local telecommunications lines and leased long
distance lines. These arrangements are generally terminable at will or are for a
short term. We are also subject to potential disruptions or capacity constraints
in these telecommunications services and may have no means of replacing these
services on a timely basis or at all if disruption or capacity constraints
occur. In addition, local phone service is sometimes available only from one
local telephone company in a particular market we serve. We compete with those
RBOCs and other network operators providing Internet services.
Telecommunications carriers may be able to provide both Internet services and
data communications capacity at a lower rate than what we can offer. We believe
that the federal Telecommunications Act of 1996 generally will lead to increased
competition in the provision of local telephone service, but we cannot predict
the timing or extent of any such developments or the effect of increased
competition on pricing or supply. Some of our suppliers, including the regional
Bell operating companies and competitive local exchange carriers, are subject to
price constraints, including tariff controls, which in the future may change.
Recent regulatory changes and industry consolidation may increase the prices
that these carriers may charge us. Those increases may have a serious and
negative effect on our business and financial results.

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WE DEPEND ON OUR PEERING RELATIONSHIPS AND TIER 1 STATUS TO DELIVER OUR SERVICES
ECONOMICALLY.

The Internet consists of many network providers operating their own networks and
interconnecting them at a number of public and private peering points, through
peering arrangements with one another. Our peering relationships, which allow us
to maintain high network performance levels without paying higher non-peered
transit costs to exchange traffic, are not regulated, are rarely subject to any
written agreement, and are subject to revision in terms, conditions or costs
over time. Network service providers may unilaterally elect at any time not to
maintain peering relationships with us which could increase requirements or
costs to maintain these peering relationships. A loss of any of these
relationships, the failure of our peering partners to increase bandwidth
commensurate to increased data traffic or increased pricing would diminish the
level of connectivity available to our customers or cause us to incur additional
operating expenses by requiring us to identify alternative methods to transmit
our customers' information and to pay for transit. No economical alternatives
may be available if that happens.

Many operators of the private peering interexchanges are also our competitors.
As a result, these competitors may cancel their peering relationships if they
find that the benefits of having a peering relationship with us are outweighed
by competitive conditions in our business.

OUR FAILURE TO PROPERLY MANAGE OUR GROWTH AND EXPANSION MAY STRAIN OR EXCEED OUR
RESOURCES OR COULD HARM OUR BUSINESS.

Our success will depend on sustaining our growth strategy. Our company has
recently experienced significant growth, as seen in the number of new hires, its
recent merger with Integral and the expansion of our service offerings and
facilities.

In particular, to successfully integrate newly acquired assets and continue to
implement a nationwide strategy and network, we must:

- closely monitor service quality

- increase our direct and indirect sales and marketing efforts

- continue to implement and improve our operational, financial and management
information systems and controls

- hire, train and retain qualified personnel

- continue to expand and upgrade our network infrastructure

We must continue to enhance and develop our network to maintain our competitive
position and continue to meet the increasing demands for service quality,
availability and competitive pricing. Despite the availability of additional
network capacity from third-party network providers, we intend to maintain the
flexibility to expand or open new points of presence or make other capital
investments as dictated by customer demand or strategic considerations. To open
new points of presence, we must spend significant amounts of money for new
equipment and leased telecommunications facilities. In addition, to expand our
customer base nationwide, we will likely have to spend significant amounts of
money on additional equipment to maintain the high speed and reliability of our
Internet and other network access services.

We intend to begin consolidation of our San Francisco administrative operations
in a new, larger facility during the second quarter of 1999 and to complete the
consolidation in the fourth quarter of 1999. We also anticipate completing the
expansion of our Sacramento operations center by the end of the fourth quarter
of 1999. We expect management of the transition of our information systems,
personnel and operational equipment to new facilities to place additional strain
on our resources. This transition may not be completed successfully or on a
timely basis and may require a significant amount of management's attention.

Our increasing customer base necessitates that our network infrastructure and
technical support resources grow accordingly. We cannot assure you that our
technical support or other resources will be sufficient to facilitate our
growth. We are striving to increase total network utilization and to optimize
this utilization

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<PAGE> 15

throughout a 24 hour period. There will be additional demands on our customer
support, sales and marketing resources as we pursue this utilization strategy.
If we fail to manage our growth effectively, our business and financial results
will be seriously adversely affected.

OUR SUCCESS WILL DEPEND ON THE INTEGRATION OF OUR NEW MANAGEMENT PERSONNEL.

We recently hired several of our executives, including our Vice President of
Business Development, our Executive Vice President/Chief Financial Officer and
Vice President of Direct Sales. As a result, our management team has worked
together for only a brief time, and may have a limited understanding of our
specific business. Our ability to effectively execute our strategies will depend
in part upon our ability to integrate these and future managers into our
operations. We also plan to hire additional executive management personnel,
including a Vice President of Marketing, Vice President of Operations and Vice
President of Engineering. If our executives do not integrate effectively, our
business could be materially negatively affected.

OUR SUCCESS WILL DEPEND ON THE CONTINUED PERFORMANCE OF OUR KEY PERSONNEL.

Our success depends in significant part upon the continued services of our
senior management and key technical and sales personnel, including our Executive
Vice President and Chief Financial Officer, our Vice President of Direct Sales,
our Vice President of Business Development, our Vice President of Finance, and
particularly our President and Chief Executive Officer, James Couch. We do not
maintain key man insurance on the life of Mr. Couch or any other executive
officers. Any of our officers or employees can terminate his or her relationship
with us at any time. Only Mr. Couch and Robert Ross, the President of our
subsidiary, Integral Networking Corporation, have employment agreements for
specified terms with us. For more information about Messrs. Ross' and Couch's
employment agreements, see "Management -- Employment Agreements." The loss of
key personnel would materially negatively impact our business and financial
results.

OUR SUCCESS WILL DEPEND ON ATTRACTING AND RETAINING ADDITIONAL PERSONNEL.

Our growth strategy necessitates that we hire a significant number of new
employees during the next twelve months. Our success depends upon our ability to
attract and retain additional highly qualified management, technical, sales and
marketing and customer support personnel. Locating personnel with the
combination of skills and attributes required to carry out our strategy is often
a lengthy process. Our future growth particularly depends upon our ability to
increase substantially the size of our sales and marketing organization. The
market for highly qualified technical and sales and marketing personnel is
intensely competitive, especially in the San Francisco Bay Area, where a
substantial portion of our operations are located. We may not be successful in
meeting our hiring goals. Our inability to attract additional, qualified
personnel, would have a material adverse effect on our business and financial
results.

OUR NETWORK SYSTEM COULD FAIL, AND WE MAY BE UNABLE TO PROVIDE OUR SERVICES.

Network expansion and growth in usage will increase stress upon our network
hardware and traffic management systems. Our network has been designed with
redundant backbone circuits which means that we connect each of our network
switches together through the use of both primary and secondary backbone
circuits. These backbone circuits are generally data circuits purchased from
long distance data carriers. The secondary backbone circuit provides an
alternate method for two switches to reroute data should the primary backbone
circuit between them fail. The secondary backbone circuit permits our network to
respond to an unexpected hardware or software failure without a complete outage.
However, we could experience failures relating to individual network points of
presence or even catastrophic failure of the entire network. Our operations
depend on our ability to protect our network infrastructure against damage from
power loss, telecommunications failures and similar events such as damage from
human error or sabotage, acts of nature, power failures and telecommunications
failures. A significant portion of our computer equipment, including critical
equipment dedicated to our Internet access services and our switches and routers
that serve large areas of the United States, are located at our facilities in
San

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Francisco, Palo Alto and Los Angeles, California, and Vienna, Virginia. Our
network operations center, which manages the entire network, is in San
Francisco, California. At each site, we maintain off-site backups for our
network configurations in case a natural disaster occurs. We do not, however,
have a comprehensive disaster recovery program in place. In the past,
unanticipated problems outside of our control have caused service interruptions.
During a major power outage in the San Francisco Bay Area on December 8, 1998
lasting over six hours, our network continued to operate but prevented some
dialup customers from logging on to our network and caused an outage in one of
our switches, resulting in a fluctuation in service for a brief period. Also, in
the fourth quarter of 1998, a portion of our network was interrupted for part of
a day as a result of substantial flooding in the state of Texas. A natural
disaster, such as an earthquake, or other unanticipated problem at the network
operations center, at one of our hubs, sites where routers, switches and other
computer equipment that make up the backbone of our network infrastructure are
located, or at a number of our points of presence in the future could cause,
interruptions in our services, including a complete loss of operations. In
addition, our services could be interrupted if our telecommunications providers
fail to provide the data communications capacity in the time frame we require as
a result of a natural disaster or for some other reason. Any damage or failure
that causes interruptions in our operations could have a material adverse effect
on our business and financial results.

IF OUR NETWORK SYSTEM FAILS, WE COULD BE LIABLE TO OUR CUSTOMERS FOR DAMAGES.

We could incur significant warranty obligations in connection with system
downtime. Our customer contracts for several of our services currently provide a
limited service warranty related to the continuous availability of service on a
24 hour-a-day, seven day-a-week basis, except for scheduled maintenance periods.
This warranty is generally limited to a credit of free service for a specified
limited period of time for disruptions in Internet transmission services. Our
customer contracts provide for our liability for personal injury or equipment
damage in only limited circumstances. Although these customer contracts
typically provide for no recovery with respect to incidental, punitive, indirect
and consequential damages resulting from damages to equipment or disruption of
service, we cannot assure you that we would not be found liable if these damages
occurred or that these damages would be covered by or would not exceed our
liability insurance.

OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET.

Our success will depend in large part on continued growth in Internet use, which
in turn will depend on a variety of factors including security, reliability,
cost, ease of access, quality of service and necessary increases in bandwidth
availability. Many of our existing and proposed services target Internet users.
Increased Internet use for retrieving, sharing and transferring information
among businesses, consumers, suppliers and partners only recently began to
develop. As is typical in the case of a new and rapidly evolving industry
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions, demand and market acceptance for
recently introduced products and services is highly uncertain. In addition,
critical issues concerning the commercial use of the Internet remain unresolved
and may impact the growth of Internet use, especially in the business market we
target. Despite growing interest in commercial Internet uses, many businesses
have not purchased Internet access and other related services for a number of
reasons, including:

- inconsistent quality of service

- lack of availability of cost-effective, high speed options

- a limited number of points of presence for corporate users

- inability to integrate business applications on the Internet

- the need to use multiple and frequently incompatible vendors

- inadequate protection of the confidentiality of stored data and information
moving across the Internet

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<PAGE> 17

- a lack of tools to simplify Internet access and use

- increased risk that third parties may obtain unauthorized access to
confidential information

- concerns arising from the year 2000 problem

Individuals and enterprises historically relying upon alternative means of
commerce and communication must understand and accept a new way of conducting
business and exchanging information to adopt the Internet for their means of
commerce and communication. Enterprises with substantial resources invested in
other means of commerce and exchanging information may be particularly reluctant
or slow to adopt a new strategy that may make their existing personnel and
infrastructure obsolete.

OUR SUCCESS DEPENDS ON THE CONTINUED ACCEPTANCE OF THE INTERNET AS A VIABLE
COMMERCIAL MEDIUM.

Demand for and market acceptance of the Internet are highly uncertain and depend
on a number of factors, including growth in consumer access to and acceptance of
new interactive technologies, the development of technologies facilitating
interactive communication between organizations and targeted audiences, and
increases in user bandwidth. If the Internet as a commercial or business medium
fails to develop or develops more slowly than expected, our business would be
materially adversely affected. The recent growth in Internet use has caused
frequent periods of performance degradation, requiring the upgrade of routers
and switches, telecommunications links and other components forming the
Internet's infrastructure by Internet service providers, operators of
interexchange points and other organizations with links to the Internet. Any
perceived degradation in the Internet's performance could undermine the benefits
of our services. Potentially increased performance provided by our services and
others is ultimately limited by and reliant upon the speed and reliability of
the networks operated by third parties. Consequently, the emergence and growth
of the market for our services depends on improvements being made to the entire
Internet infrastructure to alleviate overloading and congestion.

WE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
TO COMPETE EFFECTIVELY IN OUR MARKETS.

The markets for our services are characterized by rapidly changing technology,
evolving industry standards, changes in customer needs, rapidly growing
competition and frequent new product and service introductions. Our future
success will depend, in part, on our ability to:

- effectively use and offer leading technologies

- continue to develop our technical expertise

- enhance our current networking services

- develop new products and services that meet changing customer needs

- advertise and market our services

- influence and respond to emerging industry standards and other technological
changes

We must accomplish these tasks in a timely and cost-effective manner. New
technologies or industry standards may replace or provide lower cost
alternatives to our existing products and services or could render our existing
products and services obsolete and unmarketable. We also believe that our
ability to compete successfully depends on the continued compatibility and
interoperability of our services with products and architectures offered by
other vendors. Although we intend to support emerging standards in the market
for Internet and other network connectivity, new industry standards could
emerge, and we may not be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. Our pursuit of
necessary technological advances and maintenance of technological compatibility
may require substantial time and expense.

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<PAGE> 18

WE FACE THE RISK OF FUNDAMENTAL CHANGES IN THE WAY ELECTRONIC DATA, INCLUDING
INTERNET ACCESS, IS DELIVERED.

Internet services are currently accessed primarily by computers connected by
telephone lines. Several companies have announced the development and sales of
digital subscriber lines, cable television modems, wireless modems and satellite
modems to provide Internet access. Cable TV access can provide access for up to
ten megabits per second, satellite up to two megabits per second and wireless
modems up to 1.544 megabits per second. While we are capable of offering similar
speeds through the equipment we currently use, we likely will not be able to
offer such speeds as cheaply as cable or wireless modems. For example, wireless
modems may reduce the cost of network services as they are capable of delivering
data, including Internet access, without incurring local loop charges, which are
charges by the local telephone companies for use of their lines. As the Internet
becomes more accessible through these cable television, wireless and satellite
modems and by screen based telephones, televisions or other consumer electronic
devices, or customer requirements change the way Internet access is provided, we
will have to develop new technology or modify our existing technology to
accommodate these new developments. We may also have to modify how we deliver
our services. Our pursuit of these technological advances may require
substantial time and expense, and we may not succeed in adapting our Internet
access business to alternate access devices and conduits.

WE MAY HAVE PROBLEMS MAINTAINING HIGH QUALITY STANDARDS.

Market acceptance of new or enhanced services could be significantly delayed or
hindered if we introduce services with reliability or compatibility problems.
Despite testing by us or our customers, our services or enhancements may contain
undetected errors or defects when first introduced after commencement of
commercial deployment. Any problems or delays could adversely affect our ability
to attract or retain customers.

In the past we have experienced shortages in bandwidth capacity, both at the
level of particular points of presence affecting only those customers using that
particular point of presence and with system-wide services such as e-mail and
news group services. In early 1999, we neared full capacity for our connections
with MAE West. The primary carriers from whom we purchased bandwidth also filled
capacity at MAE West. As a result, we were required to wait approximately 60
days while our providers acquired additional capacity, which limited our ability
to add more customers on those connections. A similar shortage in bandwidth
occurred at MAE East in 1998 and, as a result, we lost one customer. If we do
not maintain sufficient bandwidth capacity in our network connections, or
insufficient bandwidth is maintained on the networks operated by our peering
partners, our customers will experience a general slowdown of all Internet
services. To protect our customers' service levels, we may sometimes temporarily
delay adding new customers in cities or regions experiencing significant
capacity constraints until we alleviate these constraints. While our objective
is to maintain excess capacity, our failure to expand or enhance our network
infrastructure on a timely basis or to adapt it to an expanding customer base,
changing customer requirements or evolving industry standards could seriously
adversely affect us.

If we do not achieve balanced network utilization over a 24 hour period, our
network could become overburdened at busy periods during the day, which could
diminish our quality of service by increased delay or system failure.
Conversely, due to the high fixed cost nature of our infrastructure, under-
utilization of our network during low use times could hinder our ability to
provide cost-efficient services at other times. Any failure to achieve balanced
network utilization could harm our business, financial condition and results of
operations.

WE MAY FACE POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR
NETWORK.

As the law relating to liability of Internet service providers for information
carried on or disseminated through their networks is not settled, we may be
subject to such liability. A number of lawsuits have sought to impose liability
for defamatory speech, indecent materials and infringement of copyrighted
materials. The United States Supreme Court has let stand a lower court ruling
that an Internet service

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<PAGE> 19

provider was protected from liability for material posted on its system by a
provision of the Communications Decency Act. However, the findings in that case
may not apply in other circumstances. Other courts have held that online service
providers and Internet service providers may be subject to damages for copying
or distributing copyrighted materials. Provisions of the Communications Decency
Act that imposed criminal penalties for using an interactive computer service
for transmitting obscene or indecent communications have been found
unconstitutional by the United States Supreme Court. However, on October 21,
1998, new federal legislation was enacted that requires limits on access to
pornography and other material deemed "harmful to minors." This legislation has
been challenged in court as a violation of the First Amendment of the United
States Constitution. We are unable to predict the outcome of this case.
Potential liability imposed on Internet service providers like us for material
carried on or disseminated through network systems could require us to implement
measures to reduce our exposure to that liability. These measures may require us
to spend substantial resources or discontinue certain service offerings. Our
errors and omissions insurance coverage may not be adequate or available to
compensate us for all liability that may be imposed. The imposition of liability
in excess of, or the unavailability in the future of, such coverage could have a
material adverse effect on our business or financial results.

WE MAY BECOME SUBJECT TO BURDENSOME AND EXPENSIVE GOVERNMENT REGULATION THAT MAY
HARM OUR BUSINESS.

Consistent with our growth and acquisition strategy, we are now engaged in, or
will soon be engaged in, activities that subject us to varying degrees of
federal, state and local regulation. Currently only a small body of laws and
regulations directly apply to access to or commerce on the Internet. However,
due to the Internet's increasing popularity and use, laws and regulations have
or may be proposed and may be adopted at the international, federal, state and
local levels with respect to the Internet, covering a range of issues. The
nature of any new laws and regulations and the manner in which existing and new
laws and regulations may be interpreted and enforced cannot be fully determined.
The adoption of any future laws might decrease the Internet's growth, decrease
demand for our services, impose taxes or other costly technical requirements or
otherwise increase the cost of doing business or in some other manner have a
material adverse effect on us. In addition, applicability to the Internet of
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. The application of any of these laws or regulations to our business
could increase our costs of compliance or otherwise affect our ability to
operate in those jurisdictions. In addition, as our services are available over
the Internet in multiple states, and as we facilitate sales by our customers to
end users located in such states, such jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in each such state,
which may subject us to new taxes and costs.

Both the provisioning of Internet access service and the provisioning of
underlying telecommunications services are affected by federal, state and local
regulation. In March 1998, the California Public Utilities Commission approved
our operation as a competitive local exchange carrier in that state.
Subsequently, we negotiated an Interconnection Agreement with Pacific Bell, the
incumbent local exchange carrier in California, which was approved by the
California Public Utilities Commission in December 1998. The agreement provides
for reciprocal compensation payments for the termination of local traffic by
either party onto the other's network. While we believe that Pacific Bell will
send more traffic to our network than we will send to theirs, we cannot assure
you that this will continue, or that Pacific Bell will pay the amounts we
believe are required under the agreement. In the past, Pacific Bell has taken
the position that Internet traffic is considered inherently long distance and
not subject to reciprocal compensation. We do not believe any amounts that we
might receive as reciprocal compensation are material to our business, but we do
intend to defend our position regarding our rights to receive fair compensation
under the agreement. On February 25, 1999, the Federal Communications Commission
ruled that calls to Internet service providers for Internet access were long
distance, not local, calls. However, the ruling upheld existing reciprocal
compensation agreements in some states, including California. Because of our
reciprocal compensation agreement with Pacific Bell, we do not expect this
ruling will have a material effect on our costs in the near future. If incumbent
local exchange carriers charge fees for carrying Internet traffic and

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Internet access becomes more expensive in the longer term, this ruling may have
an adverse effect on our potential future revenues as well as increase our
costs.

We intend to apply for competitive local exchange carrier status in other
states. As we become a competitive local exchange carrier in additional states,
we will become subject to state requirements applicable to such carriers.

New laws or regulations relating to Internet or network services, or existing
laws found to apply to them, could have a material adverse effect on our
business or financial results. For a detailed discussion of government
regulation impacting our business, see "Business -- Government Regulation."

WE FACE RISKS ASSOCIATED WITH BECOMING YEAR 2000 COMPLIANT.

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. In addition, the year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur. We
are currently in the process of reviewing our services, as well as our internal
management information systems, in order to identify and modify those services
and systems that are not year 2000 compliant. We do not have and are not
developing a contingency plan in the event our systems fail due to year 2000
related problems. For a detailed discussion of our year 2000 readiness review,
see "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Year 2000 Compliance Disclosure."

Based on our assessment to date, we believe that our internally developed
systems are year 2000 compliant. However, we utilize software and hardware
developed by third parties both for our network and internal information
systems. Additionally, we are continuing to assess the year 2000 compliance of
our services and systems.

Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, do not have business systems or products that comply with year 2000
requirements. We have not received significant assurances from all of our
suppliers that their networks are year 2000 compliant. If these networks fail,
our business will be significantly impacted.

We do not currently have any information regarding the year 2000 status of our
customers, many of whom are private companies. As is the case with similarly
situated companies, if our customers experience Year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.

Our expectation that we will be able to upgrade our services and systems to
address the year 2000 issue and our expectation regarding the costs associated
with these upgrades are forward-looking statements subject to a number of risks
and uncertainties. Actual results may vary materially as a result of a number of
factors. We cannot assure you that we will be able to timely and successfully
modify our services and systems to comply with year 2000 requirements. Any
failure to do so could have a material adverse effect on our business, results
of operations and financial condition. Furthermore, despite testing by us and
our vendors, our services and systems may contain undetected errors or defects
in the technology associated with year 2000 date functions. In the event any
material errors or defects are not detected and fixed or third parties cannot
timely provide us with products, services or systems that meet the year 2000
requirements, on our business, results of operations and financial condition
could be materially adversely affected. Known or unknown errors or defects that
affect the operation of our services or systems could result in delay or loss of
revenues, interruption of network services, cancellation of customer contracts,
diversion of development resources, damage to our reputation, damages paid to
customers and litigation costs.

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WE ARE SUBJECT TO THE RISKS FROM OUR LENGTHY SALES CYCLE.

Our customers and potential customers often take a long time to evaluate our
services. We spend a lot of time educating and providing information to our
prospective customers regarding the benefits of the Internet and our services.
Changes in the growth rate in our customer base, customer renewal rates and the
sales cycle for our services have caused, and are expected in the future to
cause, significant fluctuations in our results of operations from period to
period. In addition, we intend to significantly increase our sales and marketing
expenditures. Due to the lengthy sales cycle for our services, these expenses
will occur prior to customer commitments for our services. As a result, the
increase in our sales and marketing efforts may not result in increased sales of
our services.

OUR NETWORK IS SUBJECT TO SECURITY RISKS.

Our business depends upon the security of our network and, in part, on the
security of the network infrastructures of our third-party providers, which we
do not control. Despite implementing network security measures, the core of our
network infrastructure and our network providers' infrastructures are vulnerable
to denial of service attacks, computer viruses, break-ins and similar disruptive
problems such as the sending of excessive volumes of unsolicited bulk e-mail,
commonly referred to as spamming, caused by our customers or other Internet or
network users. In the past, spamming has caused our mail server to overload.
Denial of service attacks, computer viruses, break-ins or other problems caused
by third parties could lead to interruptions, delays or cessation in service to
our customers, which could cause losses to us or our customers or deter
businesses from subscribing to our services. Also, the inappropriate network
uses by third parties described above could jeopardize the security of
confidential information stored in our customers' computer systems and cause
commercial transactions to be delayed, not completed or completed with
compromised security.

We may face liability and may lose existing or potential customers as a result.
Although we intend to continue to implement industry-standard security measures,
these measures occasionally have been circumvented in the past, and others may
be able to circumvent our security measures or the security measures of our
third-party network providers in the future. Eliminating computer viruses and
alleviating other security problems may require significant expenditures,
distractions to management, and interruptions, delays or cessation of service to
our customers, all of which could harm us. Further, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit Internet service industry growth in
general and our customer base and revenues in particular.

WE MAY REQUIRE SUBSTANTIAL FUTURE CAPITAL TO IMPLEMENT OUR BUSINESS PLAN.

We anticipate that our available cash resources, combined with the net proceeds
from this offering, will be sufficient to meet our anticipated working capital
and capital expenditure requirements for the foreseeable future. However, these
resources may not be sufficient for unanticipated working capital and capital
expenditure requirements. We may need to raise additional funds through public
or private debt or equity financings to take advantage of unanticipated
opportunities, including more rapid expansion or acquisitions of complementary
businesses or technologies or to develop new products or services. Any
additional financing we may need may not be available on terms favorable to us,
or at all.

WE DEPEND ON THIRD PARTIES TO SUPPLY US WITH HARDWARE.

We depend on a number of third-party equipment suppliers. We purchase the
components we use to provide our networking services from third parties,
including wide area data switches supplied by Ascend Communications, Inc. and
high performance routers from Cisco Systems, Inc. The expansion of our network
infrastructure and network services places a significant demand on our
suppliers, some of which have limited resources and production capacity. We have
experienced delayed delivery from suppliers of new communications lines,
switches, routers, terminal servers, and other equipment. If our suppliers
cannot adjust to meet increasing demand, the higher demand levels may prevent
them from continuing to supply

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components and products in the quantities, at the quality levels and at the
times we require, or at all. If we are unable to develop alternative sources of
supply, we could experience delays and increased costs in expanding our network
infrastructure.

WE DEPEND ON OUR PROPRIETARY TECHNOLOGY AND TECHNOLOGICAL EXPERTISE.

We believe our success depends more upon our technical expertise than our
proprietary rights. We rely upon a combination of copyright, trademark and trade
secret laws and contractual restrictions to protect our proprietary technology
and rights in our services. We have no patented technology that would preclude
or inhibit competitors from entering our market. We have entered into
confidentiality and invention assignment agreements with all of our employees,
and nondisclosure agreements with some of our major suppliers, distributors and
appropriate customers to control access to and disclosure of our proprietary
information. Despite these precautions, a third party could potentially copy or
otherwise obtain and use our technology without authorization or to develop
similar technology independently. We cannot assure you that such measures have
been, or will be, adequate to protect our proprietary technology or deter third
party development of similar technologies. We also rely on technologies that we
license from third parties such as network management software. We do not
license any other technology that is not generally available. These third-party
technology licenses may not always continue to be available to us on
commercially reasonable terms. The loss of such technology could require us to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could affect us in a material adverse manner. To date, we
have not been notified that we infringe the proprietary rights of third parties,
but there can be no assurance that third parties will not claim infringement by
us. We expect that participants in our markets will be increasingly subject to
infringement claims as the number of technologies and competitors in our
industry grows. Any such claim, whether meritorious or not, could be time
consuming, result in costly litigation, cause service delays or require us to
enter into royalty or licensing agreements. Such royalty or licensing agreements
might not be available on terms acceptable to us or at all. As a result, any
such claim could have a material adverse effect upon our business, results of
operations and financial condition.

THE INTERESTS OF OUR CONTROLLING STOCKHOLDER, JAMES COUCH, MAY CONFLICT WITH OUR
AND YOUR INTERESTS.

After completion of this offering, James Couch will own approximately % of
our outstanding common stock, % if the underwriters' over-allotment option
is exercised in full, and will continue to be our President and Chief Executive
Officer and Chairman of our Board of Directors. As a result of his stock
ownership and board representation, Mr. Couch will be in a position to affect
corporate actions that could conflict with your interests and ours. Mr. Couch
will have the ability to control all matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets, and to control
our management and affairs. This ownership concentration may delay, defer or
prevent a change in corporate control, may impede a merger, consolidation,
takeover or other business combination involving us, or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
us. These circumstances could cause the price of our common stock to decline.
See "Management" and "Principal and Selling Stockholders."

WE HAVE BROAD DISCRETION IN HOW WE USE THE NET PROCEEDS FROM THIS OFFERING.

Our management can spend most of the proceeds from this offering in ways in
which the stockholders may not agree.

18
<PAGE> 23

ANTITAKEOVER PROVISIONS COULD NEGATIVELY IMPACT OUR STOCKHOLDERS.

Provisions of our certificate of incorporation, bylaws and the Delaware General
Corporation Law could make it more difficult for a third party to acquire us,
even if a change of ownership would benefit our stockholders. Specifically, our
charter documents:

- - limit the ability to call a special meeting of our stockholders to our Board
of Directors, the chairman of our Board and our president

- - prohibit any action to be taken by stockholders without a meeting

- - require advanced notice to be given for any business or director nominee
brought forward at any stockholder meeting by any of our stockholders

- - require cause and 80% stockholder approval to remove a director

- - provide that our Board of Directors will be divided into three classes of
directors, who will serve for staggered three-year terms.

In addition, Section 203 of the Delaware General Corporation Law generally
prohibits a 15% stockholder from engaging in any business combination with us,
including a merger or a sale of more than 10% of our assets, unless our Board of
Directors approves the transaction. For more information see "Description of
Capital Stock."

WE MAY EXPERIENCE SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING.

Sales of a substantial number of shares of common stock after the offering could
cause the market price of our common stock to decline and could impair our
ability to raise capital through the sale of additional equity securities. Upon
completion of this offering, we will have shares of common stock
outstanding or subject to currently exercisable options or shares if
we issue shares upon exercise of the underwriters over-allotment option. The
shares sold in the offering, or shares if the underwriters
over-allotment option is fully exercised, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining shares of common stock outstanding on
completion of the offering will be "restricted securities" as that term is
defined in Rule 144.

Our stockholders and stock option holders are generally limited by lock-up
agreements restricting their ability to sell their CRL common stock. These
securityholders cannot sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written consent of CIBC Oppenheimer. When the lock-up
agreements expire, the shares and the shares underlying the options will be
eligible for sale, in some cases only by complying with the volume, manner and
sale notice requirements of Rule 144.

WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE.

The market price of our shares of common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as, among
others:

- actual or anticipated variations in our results of operations

- announcements of technological innovations

- new services introduced by us or our competitors

- changes in financial estimates by security analysts, conditions and trends
in the Internet and computer industries

- fluctuations in the valuation of companies perceived by investors to be
comparable to us

- any shortfall in reserve or net income or any increase in losses from levels
expected by securities analysts

- general market conditions

19
<PAGE> 24

Furthermore, the stock markets, and in particular Nasdaq, have experienced
extreme price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many technology companies. These
fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. The trading prices of many technology companies'
stocks are at or near historical highs and reflect price to earnings ratios well
above historical levels. These trading prices and price to earnings ratios may
not be sustained. These broad market factors may cause the market price of our
common stock to decline. These market fluctuations, as well as general economic,
political and market conditions such as political and military conflict,
recessions, interest rate changes or international currency fluctuations, may
negatively impact the market price of our common stock. In the past, following
periods of volatility in the market price of a company's securities, class
action litigation has often been brought against such companies. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and distract management's attention and resources, which
would likely have a material adverse effect on us.

NEW INVESTORS WILL SUFFER IMMEDIATE SUBSTANTIAL DILUTION.

This offering is expected to create a public market for our common stock and
will substantially increase the market value of the initial investments of our
management and other existing stockholders, particularly James Couch, our
President and Chief Executive Officer. As of April 27, 1999, our existing
stockholders hold 19,038,833 shares of our common stock. Based on an assumed
initial public offering price of $ per share, the value of the shares held
by the existing stockholders following this offering would be approximately
$ million, representing an aggregate increase of approximately $ million
over the amount of consideration paid for those shares by the existing
stockholders. In addition, the initial public offering price is substantially
higher than the book value per share of our outstanding common stock. As a
result, investors purchasing common stock in this offering will incur immediate
and substantial dilution of $ per share in the net tangible book value of
the common stock from the initial public offering price. We also have issued
options to acquire common stock at prices significantly below the initial public
offering price. As these outstanding options are exercised, there will be
further dilution. See "Dilution."

YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS

Certain statements under the captions "Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussions and Analysis of Financial Condition and
Results of Operations" and "Business," and elsewhere in this prospectus are
forward-looking statements. When used in this prospectus, the words
"anticipate," "believe," "estimate," "will," "may," "should," "plan," "future,"
"intend," "expect" and similar expressions identify some of these
forward-looking statements. These statements may discuss future expectations or
contain projections of results of operations or financial condition or expected
benefits to us resulting from possible acquisitions, transactions or
developments. Although we believe that our plans, intentions and expectations
reflected in these forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
in this prospectus. Important factors that could cause actual results to differ
materially from our forward-looking statements are contained in this prospectus,
including under the heading "Risk Factors."

20
<PAGE> 25

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Our net proceeds from the sale of the shares of common stock
offered by us are estimated to be approximately $ , based on an assumed
initial public offering price per share of $ , and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise the over-allotment option in full, and the
over-allotment shares are sold by us instead of the selling stockholder, our net
proceeds are estimated to be $ . See "Underwriting." We will not
receive any proceeds from the sale of shares by the selling stockholder. The
principal purposes of this offering are to obtain additional capital, create a
public market for our common stock and facilitate our future access to the
public capital markets.

We intend to use a portion of the net proceeds to repay amounts then outstanding
under our loan agreements with our banks and our capital lease. As of March 31,
1999, approximately $1,088,000 was outstanding under these agreements as
follows:

<TABLE>
<CAPTION>
BALANCE AT INTEREST RATE AT MATURITY
MARCH 31, 1999 MARCH 31, 1999 DATE
-------------- ---------------- --------------
<S> <C> <C> <C>
General Line of Credit........................ $ 46,000 10.25% September 2002
Capital Lease................................. 68,000 12.55% July 2000
Equipment Line of Credit...................... 382,000 9.5% September 2002
Equipment Line of Credit...................... 592,000 9.25% March 2003
</TABLE>

Amounts borrowed under these agreements are secured by substantially all of our
assets. Various portions of these borrowed amounts must be repaid in full
between July 2000 and March 2003. We also expect to use a portion of the net
proceeds for working capital and other general corporate purposes, including
expansion of our sales and marketing activities.

As part of our growth strategy, we intend to aggressively seek suitable
acquisition candidates, such as regional Internet service providers, that have
an existing customer base that we can add to our customer base, and companies
that have products that will enable us to expand the range of our value-added
network and hosting services. We may use a portion of the net proceeds for those
acquisitions. We have no current plans, agreements or commitments with respect
to any acquisitions, and we are not currently engaged in any negotiations with
respect to any acquisitions.

Pending the uses described above, we will invest our net proceeds in high
quality, income-producing securities such as short-term investment grade or
United States Government interest-bearing securities.

DIVIDEND POLICY

We have not paid and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. We intend to retain our earnings, if any, for
use in our growth and ongoing operations.

21
<PAGE> 26

CAPITALIZATION

The table below sets forth our capitalization as of March 31, 1999, (i) on an
actual basis and (ii) on an as adjusted basis and to reflect our sale of the
shares of common stock offered by us at an assumed initial
public offering price of $ , after deducting the estimated underwriting
discounts and commissions and offering expenses, and the anticipated application
of the net proceeds. See "How We Intend to Use the Proceeds From the Offering."
The capitalization information in the table below is qualified by the more
detailed consolidated financial statements and related notes beginning on page
F-1 of this prospectus. The table should be read in conjunction with those
consolidated financial statements and related notes and the sections of this
prospectus titled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

The number of shares of common stock in the table below for the purposes of
determining stockholders' equity excludes 946,320 shares issuable upon exercise
of currently outstanding options and 1,000,000 shares available for the grant of
additional options under our 1999 Stock Incentive Plan. See "Management -- Stock
Options."

<TABLE>
<CAPTION>
MARCH 31, 1999
------------------
AS
ACTUAL ADJUSTED
------ --------
<S> <C> <C>
Current portion of long-term obligations:................... $ 280 $
====== ====
Long-term obligations, less current portion................. $ 822 $
------ ----
Stockholders' equity:
Preferred stock, $.01 par value; shares
authorized; none issued and outstanding................
Common stock, $.0001 par value; shares
authorized; 18,978,833 shares outstanding;
shares outstanding as adjusted for this offering....... 6
Common Stock options........................................ 1,046
Deferred stock compensation................................. (739)
Additional paid-in capital..................................
Retained earnings........................................... 1,211
------
Total stockholders' equity........................ 1,524
------ ----
Total capitalization.............................. $2,346 $
====== ====
</TABLE>

22
<PAGE> 27

DILUTION

At March 31, 1999, our net tangible book value was approximately $ million, or
$ per share of common stock. Net tangible book value per share represents
the amount of our total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding. Net tangible book value dilution
represents the difference between the amount per share of common stock paid by
new purchasers in this offering and the net tangible book value per share after
this offering. Without taking into account any changes in net tangible book
value after March 31, 1999, other than to give effect to the sale of the
shares of common stock offered by us, assuming an initial public
offering price of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses, our adjusted net
tangible book value at March 31, 1999 would have been approximately $ million,
or $ per share of common stock. This amount represents an immediate increase
in net tangible book value of $ per share to the existing stockholders and
an immediate net tangible book value dilution of $ per share to purchasers
of common stock in the offering. The following table illustrates this per share
dilution.

<TABLE>
<S> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at March 31, 1999....... $
Increase in net tangible book value per share attributable
to new investors.......................................
Adjusted net tangible book value per share after the
offering..................................................
------
Net tangible book value dilution per share to new
investors................................................. $
======
</TABLE>

The table below summarizes, as of March 31, 1999, the difference between the
number of shares of common stock purchased from us, the total cash consideration
paid and the average price per share paid by existing stockholders and to be
paid by new investors purchasing shares in this offering assuming the sale of
shares by us at an assumed initial public offering price of $ per
share.

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
-------------------- ---------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................. 18,978,833 % $6,000 % $0.0003
New investors(1)
---------- --- ------ ----
Total........................... 100% $ $100%
========== === ====== ====
</TABLE>

- -------------------------
(1) Sales by the selling stockholder in this offering will reduce the number of
shares held by existing stockholders to , or % of the total
number of shares of common stock outstanding after the offering and will
increase the number of shares held by new investors to or % of
the total number of shares of common stock outstanding after the offering.
If the overallotment option is exercised in full by the selling
stockholder, sales by the selling stockholder in this offering will reduce
the number of shares held by new investors to or % of the total
number of shares of common stock outstanding after the offering.

23
<PAGE> 28

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data should be read with the consolidated
financial statements and related notes beginning on page F-1 of this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 25 of this prospectus. The consolidated statement
of operations data for each of the three years ended December 31, 1998 and
consolidated balance sheet data as of December 31, 1997 and 1998 are calculated
from financial statements that have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The selected consolidated financial data for the years ended December 31, 1994
and 1995 and for the three months ended March 31, 1998 and 1999 are calculated
from unaudited consolidated financial statements not included in this
prospectus. The unaudited financial statements have been prepared by us on a
basis consistent with our audited consolidated financial statements and include,
in the opinion of our management, all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of our results of
operations and financial position for those years.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:................... $ 1,961 $ 3,831 $ 6,353 $10,375 $11,692 $ 2,981 $ 3,003
------- ------- ------- ------- ------- ------- -------
Costs and Expenses:
Cost of revenues.......... 965 2,131 3,346 4,640 6,166 1,499 1,798
Selling and marketing..... 93 380 345 522 371 158 41
General and 411
administrative......... 448 1,840 2,997 4,124 847 1,325
Depreciation expense...... 86 225 512 745 909 190 210
Stock-based compensation --
expense................ -- -- -- 156 - 151
Total costs and 1,555
expenses........ 3,184 6,043 8,904 11,726 2,694 3,525
------- ------- ------- ------- ------- ------- -------
Operating income (loss):.... 406 647 310 1,471 (34) 287 (522)
Net interest income
(expense):................ (1) 1 1 5 (30) (1) (22)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income 405
taxes..................... 648 311 1,476 (64) 286 (544)
Income tax provision........ 157 211 150 591 87 83 (157)
------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ 248 $ 437 $ 161 $ 885 $ (151) $ 203 $ (387)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common $ 0.01
share basic and diluted... $ 0.02 $ 0.01 $ 0.05 $ (0.01) $ 0.01 $ (0.02)
Weighted average common
shares outstanding:
Basic..................... 18,979 18,979 18,979 18,979 18,979 18,979 18,979
Diluted................... 18,979 18,979 18,979 19,142 18,979 19,283 18,979
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
---- ------ ------ ------ ------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents..................... $289 $ 210 $ 235 $1,115 $ 840 $ 354
Working capital.......................... (36) 95 (182) 554 430 229
Total assets............................. 777 1,377 2,339 4,455 4,855 4,522
Long-term obligations, excluding current
portion................................ 0 20 76 402 847 822
Stockholders' equity..................... 284 709 870 1,755 1,760 1,524
</TABLE>

24
<PAGE> 29

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

The following discussion should be read with the consolidated financial
statements and related notes beginning on page F-1 of this prospectus. The
results shown in this prospectus do not necessarily suggest or predict the
results to be expected in any future periods. This discussion contains
forward-looking statements based on current expectations which involve risks and
uncertainties. Actual results and the timing of events may differ significantly
from those projected in these forward-looking statements due to a number of
factors, including those contained in the section entitled "Risk Factors" and
elsewhere in this prospectus.

OVERVIEW

We are a Tier 1 Internet service provider focused on offering customized
Internet and network management services to small and medium-sized businesses.
We provide an extensive array of high quality, reliable and scalable Internet
and private network connectivity, value-added network and hosting services
designed to meet our customers' needs. Our operations are based in San
Francisco, California. As a Tier 1 Internet service provider, we have peering
relationships at major domestic network access points, our network connects to
all of the interexchange points sanctioned by the National Science Foundation,
and we have private peering relationships with other major Internet service
providers. We are also a national backbone provider with our owned and
controlled private switched network with points of presence in 30 major
metropolitan areas. As a result of our Tier 1 status and network, we are able to
provide high speed and reliable access to the Internet, secure private networks
and hosting services. Our hosting services include colocation services which
allow customers to place their computer equipment inside our facilities for
direct connection to the Internet. Also, our network serves as the platform by
which we are able to deliver value-added services, such as remote management
services, systems and network integration services and network security
services, to our customer base. Historically, we have provided our services to a
variety of customers including businesses of various sizes, other Internet
service providers, government agencies, and educational institutions. We intend
to expand our direct and indirect sales force to increase our customer base. We
also intend to cross sell our value-added service offerings to both existing and
future customers in order to provide comprehensive service offerings. We view
being a comprehensive service provider as a key element to our strategy to
increase revenues and reduce customer loss.

In December 1998, we acquired Integral Networking Corporation in a merger
accounted for as a pooling of interests. Integral has a ten year operating
history in the area of systems integration. Over the past three years, Integral
has developed a proprietary process to manage customer networks from the server
to the desktop while remaining off-site. We are able to capitalize on our
existing network to provide cost-effective remote management services to our
customers from a single location operated by CRL. With our remote management
service, customers are able to outsource a portion or all of their information
technology departments as well as add functionality and applications to their
networks. We intend to offer remote management services on a nationwide basis.
Prior to the merger with Integral, we had little experience in, and derived
insignificant revenues from, remote management services and systems integration.

Revenues. We derive our revenues from four principal services:

- Internet and secure private network connectivity

- remote management

- hosting services

- systems integration and hardware sales

Revenues from Internet and private network connectivity are typically derived
from monthly fixed prices paid by customers based upon access speed. We offer
dedicated connectivity in a range of access speeds,

25
<PAGE> 30

including fractional T1 (from 64 kilobits per second up to 1.536 megabits per
second), T1 (1.536 megabits per second), T3 (45 megabits per second) and OC3
(155 megabits per second) as well as dial-up access and transit services. We
also offer our customers the ability to upgrade access speeds as their needs
increase. We currently generate Internet and private network connectivity
revenues from a wide range of customers including Internet service and content
providers, businesses, government agencies and educational institutions. We
intend to increase our sales and marketing focus, particularly on small and
medium-sized businesses.

Revenues from our remote management services are typically derived from monthly
fees for a fixed level of service. Pricing for our remote management services is
based on the number of users and a fixed maximum number of calls per month. Our
remote management services are focused on small and medium-sized businesses.
Historically, revenues from value-added services have represented an
insignificant portion of our total revenues and have not been reported
separately in our financial results. With our acquisition of Integral
Networking, we intend to increase our focus on our value-added services, as
evidenced by our recent rollout of remote management services.

Revenues from hosting services are typically derived from renting space to our
customers in which they place their file servers and equipment within our
facilities. The rental fee is based on the size of the space and access speeds.
Our customers can select from a variety of options in terms of access speeds and
space such as rack, half-rack or shelf. Access speeds include switched or
dedicated ethernet service (10 megabits per second), switched or dedicated fast
ethernet service (100 megabits per second) and gigabit fast ethernet services
(1,000 megabits per second). Our customers can purchase additional space and
increase their access speeds as needed. Our current facilities are sufficient to
permit our customers to purchase additional space. However, we will be required
to expand our facilities if future customer demand exceeds our existing
capacity.

Revenues from systems integration services are derived from hardware sales and
consulting fees. Our systems integration services including hardware sales are
currently provided primarily in California. Prior to our merger with Integral
Networking we derived insignificant revenues from hardware sales to customers,
and no revenues from systems integration services.

Cost of Revenues. Cost of revenues from Internet and private network
connectivity consists primarily of backbone costs and monthly access charges by
local exchange carriers to connect our customers to our network and colocation
costs. Backbone costs include all leased fiber-optic capacity to interconnect
our points of presence and to connect to public and private peering points. We
lease our fiber-optic capacity typically under short-term leases and are billed
monthly by our bandwidth providers. Colocation costs consist of monthly fees for
leasing space in facilities in which we colocate with other telecommunications
providers.

Cost of revenues from remote management services consists primarily of personnel
costs to provide customer support and network monitoring services. We believe
our cost of revenues from remote management services and other value-added
services as a percentage of revenues may decline as we increasingly provide
remote management services and other value-added services to existing customers
over the existing connection we provide to the customer.

Cost of revenues from hosting services consists primarily of rent expenses for
colocation space.

Cost of revenues from systems integration services consists primarily of the
cost of hardware purchased.

Selling and Marketing Expense. Selling and marketing expense consists primarily
of sales commissions, travel and entertainment and sales and marketing programs.
We intend to expand our investment in our sales and marketing personnel to
achieve and properly support the intended expansion in our customer base.

General and Administrative Expense. General and administrative expense consists
primarily of personnel expense, occupancy, general operating costs, professional
fee expenses and bad debt. We expect general

26
<PAGE> 31

and administrative expense to increase in dollar amount in the future,
reflecting anticipated growth in our operations and the costs associated with
being a publicly held company.

Stock-Based Compensation Expense. In connection with the grant of stock options
to employees in 1998, we recorded an aggregate deferred compensation expense of
approximately $948,000, representing the difference between the estimated fair
market value of the common stock and the option exercise price at the date of
grant. This amount is presented as a reduction of stockholder's equity and is
amortized over the vesting period of the applicable options. These valuations
resulted in charges to operations of $156,000 in the year ended December 31,
1998, and $151,000 for the three months ended March 31, 1999, and will result in
charges of the remaining $739,000 over the next 5 years.

Depreciation. Depreciation expense consists primarily of depreciation of
computer equipment, office furniture and leasehold improvements. On January 1,
1998, we changed the estimated useful lives for our switches and routers from
three to five year lives as a result of our determination, based on historical
experience, that the vast majority of assets in this class have service lives of
approximately five years.

RESULTS OF OPERATIONS

The following table sets forth our statement of operations data for the years
indicated as a percentage of revenues. This information should be read in
conjunction with the financial statements and notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and expenses:
Costs of revenues........................ 52.7 44.7 52.7 50.3 59.9
Selling and marketing.................... 5.4 5.0 3.2 5.3 1.4
General and administrative............... 29.0 28.9 35.3 28.4 44.1
Depreciation............................. 8.1 7.2 7.8 6.4 7.0
Stock-based compensation expense......... -- -- 1.3 -- 5.0
Total costs and expenses......... 95.1 85.8 100.3 90.4 117.4
----- ----- ----- ----- -----
Operating income (loss).................... 4.9 14.2 (0.3) 9.6 (17.4)
Net interest income (expense).............. -- -- (0.3) -- (0.7)
Income tax provision (benefit)............. 2.4 5.7 0.7 2.8 (5.2)
----- ----- ----- ----- -----
Net income (loss).......................... 2.5% 8.5% (1.3)% 6.8% (12.9)%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF QUARTERS ENDED MARCH 31, 1999 TO MARCH 31, 1998

Revenues

Our revenues increased 0.7% to $3.00 million in the quarter ended March 31,
1999, compared to $2.98 million in the quarter ended March 31, 1998. Increased
revenues resulting from two major systems integration sales were offset by a
12.6% reduction in colocation and Internet connectivity revenues.

Cost of Revenues

Our cost of revenues increased 20% to $1.8 million in the quarter ended March
31, 1999, compared with $1.5 million in the quarter ended March 31, 1998. This
increase was primarily the result of sales of computer equipment related to
systems integration sales.

27
<PAGE> 32

Selling and Marketing

Our sales and marketing expenses decreased 74.1% to $41,000 in the quarter ended
March 31, 1999, compared to $158,000 in the quarter ended March 31, 1998. This
decrease is attributable primarily to sales commissions and costs associated
with a 1998 trade show that were not incurred in the 1999 period.

General and Administrative

General and administrative expenses increased 56.4% to $1.3 million for the
quarter ended March 31, 1999, compared to $847,000 for the quarter ended March
31, 1998. The increase was primarily due to an increase in personnel expense of
$280,000, facilities cost increase of $65,000, and an increase in outside
services and professional fees of $60,000.

Depreciation

Our depreciation expense increased 10.5% to $210,000 in the quarter ended March
31, 1999, compared to $190,000 in the quarter ended March 31, 1998. The increase
is due to primarily to the buildout of our new network operations center in
1998.

Stock-Based Compensation

Stock-based compensation of $151,000 was amortized during the quarter ended
March 31, 1999.

Net Interest Income (Expense)

We incurred net interest expense of $22,000 in the quarter ended March 31, 1999,
compared to $1,000 in the quarter ended March 31, 1998. This change was a result
of increased borrowing for network equipment under our lines of credit that was
used to purchase network equipment.

COMPARISON OF YEARS ENDED 1998 TO 1997

Revenues

Our revenues increased 12.7% to $11.7 million in 1998, compared to $10.4 million
in 1997. This growth in revenues resulted from an 11% increase in sales of
dedicated Internet connectivity and hosting services, a tenfold increase in
revenues derived from private network connectivity services and a 34% increase
in sales generated by systems integration services. Dedicated Internet
connectivity service is service provided over a circuit which is available 24
hours a day, seven days per week for the sole purpose of delivering the Internet
connectivity. Approximately 74% of our 1998 revenues was generated from our
Internet and network connectivity services, approximately 15.7% from value-added
services and approximately 6.5% from hosting services. Offsetting these
increases were reductions in revenues of $545,000 realized from dial-up
customers and reduced fees for installation services. This decrease resulted
from our increased focus on providing dedicated Internet and higher value
services to business and government customers.

Cost of Revenues

Our cost of revenues increased 32.9% to $6.2 million in 1998, compared with $4.6
million in 1997. Of this increase, $1.2 million was primarily due to increased
one time connectivity charges arising from the expansion of our network and
installation charges of $139,000. The expansion resulted in incremental unused
capacity. In addition, we had increased costs of $286,000 arising from hardwares
sales with our systems integration services.

Selling and Marketing

Our selling and marketing expenses decreased 28.9% to $371,000 in 1998, compared
to $522,000 in 1997. This decrease is attributable primarily to reduced
commissions expense. Commissions in 1998 were based upon total contract value
equalling the term of the contract multiplied by monthly service fees. The

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decrease in commissions expense in 1998 results from fewer sales of longer-term
versus shorter-term contracts than in 1997 and increased purchases by our
existing customer base of increased access speeds and additional space rather
than increases in the number of new customers. The decrease in longer-term
contracts is due to a general industry decrease in the prices for the services
we provide, making customers reluctant to sign longer-term contracts. The
increase in shorter-term contracts does not materially impact the conduct of our
business. We also experienced a reduction in our sales force in 1998 due to a
number of factors including normal attrition and our being involved in
negotiations in the second and third quarters of 1998, relating to potential
business combinations with companies with existing sales forces. We believe our
involvement in these negotiations caused a higher attrition rate for our sales
staff than we have historically experienced. These negotiations also caused us
to postpone our efforts to hire additional and replace lost sales staff.

General and Administrative

General and administrative expenses increased 37.6% to $4.1 million for 1998,
compared to $3.0 million for 1997. Approximately $675,000 of this increase
relates to salaries and benefits resulting from an increase in personnel.
Facilities and related expenses increased by $424,000 primarily as a result of
the expansion of our network infrastructure.

Depreciation

Our depreciation expense increased 22.0% to $909,000 in 1998, compared to
$745,000 in 1997. The increase is due to additional capital expenditures
incurred during 1998 for telecommunications equipment and facilities
improvements. On January 1, 1998, we changed the estimated useful lives for our
switches and routers from three to five year lives. This change reduced 1998
depreciation by $237,000. We made this change to more accurately reflect our
historical experience with respect to the actual useful lives of the equipment.

Stock-Based Compensation

Stock-based compensation of $156,000 was amortized during the year ended
December 31, 1998, and stock-based compensation of $792,000 will be amortized
over the remaining vesting periods of the related options, including $394,000 in
the year ending December 31, 1999. In addition, we issued stock options to
employees during the first quarter of 1999, which will result in additional
stock-based compensation of $98,000 being recorded in 1999, $50,000 of which
will be amortized as an expense 1999. Based on these issuances of stock options
below the fair value of our stock, we will record a total stock-based
compensation charge in 1999 of approximately $444,000.

Net Interest Income (Expense)

We incurred net interest expense of $30,000 in 1998, compared to $5,000 in
income in 1997. This change was a result of increased borrowing for network
equipment under our lines of credit.

COMPARISON OF YEARS ENDED 1997 TO 1996

Revenues

Our revenues increased 63.3% to $10.4 million in 1997, compared to $6.4 million
in 1996. Approximately $4.9 million of this increase is due to growth in
revenues generated by our Internet connectivity services and installation fees.
This increase was slightly offset by a $917,000 aggregate decrease in dial-up
customer and systems integration services revenues.

Cost of Revenues

Our cost of revenues increased 38.7% to $4.6 million in 1997, compared to $3.3
million in 1996. This increase resulted from a $1.4 million increase due to
larger connectivity charges and other costs incurred

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with our network expansion. In addition, costs arising from our systems
integration services were $118,000 less than the prior year.

Selling and Marketing

Our selling and marketing expenses increased 51.3% to $522,000 in 1997, compared
to $345,000 in 1996. This increase is attributable primarily to increased
commissions and travel and entertainment expenses.

General and Administrative

General and administrative expenses increased 62.9% to $3.0 million in 1997,
compared to $1.8 million in 1996. Salaries and general office expenses increased
by $584,000 as we hired more personnel to keep pace with the growth in demand
for our services. In addition, bad debt expenses increased by $573,000.

Depreciation

Our depreciation expense increased 45.5% to $745,000 in 1997, compared to
$512,000 in 1996. The increase was primarily the result of additional capital
expenditures incurred for telecommunications equipment and facilities
improvements.

FACTORS AFFECTING OPERATING RESULTS

We expect to experience significant fluctuations in our future quarterly and
annual results of operations due to a variety of factors, most of which are
outside our control. For a list of factors affecting our operating results, see
"Risk Factors -- Our operating results in one or more future periods are likely
to fluctuate significantly and may fail to meet or exceed the expectations of
securities analysts or investors" and the other risk factors described in this
prospectus. Due to all of these factors, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.

YEAR 2000 COMPLIANCE DISCLOSURE

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. In addition, the year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with year 2000 requirements. We are currently in the
process of reviewing our network switching, routing and telephone equipment,
constituting the equipment used in providing our Internet and network connection
services, as well as our internal management information systems, in order to
identify and modify those items and systems that are not year 2000 compliant. We
do not have and are not developing a contingency plan in the event our systems
fail due to year 2000 related problems.

Our year 2000 readiness review includes assessment, implementation, testing, and
upgrading or replacing non-compliant items as appropriate. We have completed
most of our review and anticipate its completion by mid-1999. To date, we have
evaluated our internally developed systems and believe that they are year 2000
compliant. However, we utilize software and hardware developed by third parties
both for our network and internal information systems. We have reviewed the year
2000 compliance statements issued by, and have sought oral and written
assurances from approximately three-quarters of our suppliers that their
products are or will be year 2000 compliant and have received written assurances
or information regarding remediation measures for year 2000 compliance from
these suppliers. We intend to continue to seek assurances from our other
suppliers during the course of our year 2000 readiness review. To the extent
that our systems are not year 2000 compliant, we are modifying such systems to
make them compliant. Noncompliant items are replaced or otherwise remediated and
then tested during the review

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process. To date, we have identified the need to upgrade our Cascade OpenView
Layer 2 network management and switch operating system software to Ascend
Naviscare software. We anticipate completing this upgrade by mid-1999.
Assessment of our telephony systems has not yet been completed but is currently
in process. We expect these modifications will be made on a timely basis and do
not believe that the cost of the modifications will have a material effect on
our business, results of operations or financial condition. To date, we have not
incurred material costs in upgrading and replacing non-compliant items.
Additionally, we are continuing to assess the year 2000 compliance of our
services and systems. We believe our services and systems assessed to date do
not contain material year 2000 deficiencies. We estimate that the capital and
other costs associated with any upgrade and conversion of our existing services
and systems relating to the year 2000 issue will not be material.

We expect to continue assessing and testing our internal information technology,
which we refer to as IT, and non-IT systems to mid-1999 with the assessment and
remediation process described above. To ensure year 2000 compliance we will
upgrade the server on which our accounting software runs in the third quarter of
1999. We are not currently aware of any material operations issues or costs
associated with preparing our internal IT and non-IT systems for the year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology, including embedded technology,
used in our internal IT and non-IT systems.

Based upon our correspondence with and the public filings, press releases and
other publicly available information regarding our primary equipment,
telecommunications and data communications providers, we are aware that all of
these providers are in the process of reviewing and implementing their own year
2000 compliance programs. None of them has indicated that they have not
considered year 2000 compliance, and all have indicated that they are either
year 2000 compliant or will be with upgrades to their noncompliant products. At
this time, CRL is not aware of, and cannot determine, apart from the public
materials reviewed and assurances received, how many of its providers are
implementing remediation measures which affect CRL. Where there is not publicly
available information about the year 2000 compliance of our providers, we are in
the process of seeking written assurances of compliance. We do not believe that
we will be afforded the opportunity to test the systems of these providers. If
our primary providers experience business interruptions as a result of the
failure to achieve year 2000 compliance, our ability to provide Internet
connectivity could be impaired, which could have a material adverse effect on
our business, results of operations and financial condition.

Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, such as the provider of our Cascade switches, do not have business
systems or products that comply with year 2000 requirements, despite the
implementation of a year 2000 compliance program or assurances of year 2000
compliance by all of such suppliers. We have not received significant assurances
from all our suppliers that their networks are year 2000 compliant. If these
networks fail, our business will be significantly impacted.

We do not currently have any information regarding the year 2000 status of our
customers, many of whom are private companies. As is the case with similarly
situated companies, if our customers experience year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.

We have not incurred any significant expenses to date associated with our year
2000 plan and are not aware of any material costs associated with our
anticipated year 2000 efforts. Our expectation that we will be able to upgrade
our services and systems to address the year 2000 issue and our expectation
regarding the costs associated with these upgrades are forward-looking
statements subject to a number of risks and uncertainties. Actual results may
vary materially as a result of a number of factors. We cannot assure you that we
will be able to timely and successfully modify our services and systems to
comply with year 2000

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requirements. Any failure to do so could have a material adverse effect on our
business, results of operations and financial condition. Furthermore, despite
testing by us and our vendors, our services and systems may contain undetected
errors or defects associated with year 2000 date functions. In the event any
material errors or defects are not detected and fixed or third parties cannot
timely provide us with products, services or systems that meet the year 2000
requirements, our business, results of operations and financial condition could
be materially adversely affected. Known or unknown errors or defects that affect
the operation of our services or systems could result in delay or loss of
revenues, interruption of network services, cancellation of customer contracts,
diversion of development resources, damage to our reputation, damages paid to
customers and litigation costs.

LIQUIDITY AND CAPITAL RESOURCES

We have historically generated positive cash flows from operating activities and
have financed our growth, as well as necessary capital expenditures and working
capital needs, primarily through the use of internally generated funds and lines
of credit. In addition, we have made limited use of capital lease financing. We
expect to experience a substantial increase in our operating expenses as we
implement our growth strategy and incur expenses for hiring new personnel and
for additional leased network capacity. We also anticipate an increase in our
capital expenditures consistent with our anticipated need for additional network
infrastructure. We expect our operating expenses and capital expenditures will
be a significant use of our cash resources.

We currently have agreements with commercial lenders providing for equipment
financing arrangements. Integral also has a line of credit with a commercial
lender. As of March 31, 1999, approximately $1,088,000 was outstanding under
these agreements. Amounts borrowed under these agreements are secured by
substantially all of our assets and bear interest at a weighted average rate
equal to 9.6% as of April 26, 1999. Various portions of these borrowed amounts
must be repaid in full between July 2000 and March 2003. We intend to use a
portion of the proceeds from the offering to repay the amounts outstanding under
these loan agreements. In addition, we have a $200,000 working capital line of
credit. As of March 31, 1999, we had no cash borrowings with that facility. See
"How We Intend to Use the Proceeds from the Offering."

Our net cash flows from operating activities were $705,000 for 1998, $1.7
million for 1997, and $944,000 for 1996. Our borrowings were $703,000 for 1998,
$358,000 for 1997 and zero for 1996. At December 31, 1998, we had $840,000 in
cash and cash equivalents.

Net cash used in investing activities was $1,529,000 for the year ended December
31, 1998, $1,182,000 for the year ended December 31, 1997, and $905,000 for the
year ended December 31, 1996. Cash used in investing activities was primarily
used to purchase property and network equipment.

Net cash provided by (used in) financing activities was $549,000 for the year
ended December 31, 1998, $316,000 for the year ended December 31, 1997 and
$(14,000) for the year ended December 31, 1996. In the years ended December 31,
1998 and 1997, net cash provided by financing activities resulted primarily from
borrowings. Net cash used in financing activities in the year ended December 31,
1996, resulted from debt payments.

We believe that the net proceeds of this offering, together with our existing
cash, cash equivalents and short-term investments and available credit
facilities, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for at least the next 12
months. Thereafter, we may require additional funds to support our working
capital and capital expenditure requirements and may seek to raise additional
funds through public or private equity or debt financings or other sources for
such requirements and acquisitions of technologies, companies and development of
our existing and new services. Any additional financing we may need may not be
available on terms favorable to us, or at all. See "Risk Factors -- We may
require substantial future capital to implement our business plan" and "How We
Intend to Use the Proceeds from the Offering."

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RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
provides guidance for an enterprise on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for us in
fiscal 1999. We anticipate that accounting for transactions under SOP 98-1 will
not have a material impact on our financial position or results of operations.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
conditions specified in SFAS No. 133 are met. SFAS No. 133 is effective for us
in fiscal 2000. We do not believe adoption of this statement will have a
material impact on our financial position or results of operations.

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BUSINESS

GENERAL

CRL Network Services is a Tier 1 Internet service provider focused on offering
customized Internet and network management solutions to small and medium-sized
businesses. Our services include:

- connectivity to the Internet and secure private networks

- network services, consisting of remote management of our customer's networks
and systems integration, which we refer to as value-added services

- distribution of customers' Internet content from our facilities, commonly
referred to as hosting services

We believe we were among the first companies involved in the development of
connectivity solutions and services for the commercial Internet. We have
developed our own high speed network, which enables us to reliably and
cost-effectively deliver customized, comprehensive solutions. As of April 26,
1999, we had 30 points of presence in major metropolitan areas that connect to
the interexchange points sanctioned by the National Science Foundation for the
transfer of Internet Protocol-based traffic between Internet backbone networks.
Our network is comprised of several elements, including 23 Cascade switches, 54
Cisco routers, facilities and clear channel fiber-optic bandwidth, which
together provide a fast, secure, high quality network capable of minimizing
outages resulting from hardware or software faults.

INDUSTRY OVERVIEW

To remain competitive, businesses today must have the ability to reliably access
and share information both externally and internally. In response, companies are
increasingly conducting business over the public Internet and their own private
networks. As a result, businesses are expanding their connectivity to the
Internet and use of both local area networks, commonly referred to as LANs, and
wide area networks, commonly referred to as WANs. The Internet's functionality
and accessibility have created an increasingly attractive commercial medium to
quickly and efficiently provide services and distribute information that
historically has been more difficult to obtain through traditional communication
channels. At the same time, businesses are continuing to develop private
networks to distribute and share information, resulting in a dramatic increase
in private network traffic as well as heightened performance requirements for
these networks. Increased use of the Internet and public and private networks
has also driven growth in the amount of sensitive corporate information shared
over networks, causing network security to become a high priority for many
businesses. As a result of these trends, a growing number of businesses view
responsive, reliable and secure networks as integral to their operations.

The proliferation of Internet use is driven by the emergence of electronic
commerce and availability of applications such as the outsourcing of help desk
functions, Internet Protocol-based voice, fax and video conferencing, purchasing
and provisioning functions, and corporate and product marketing. Businesses are
confronted with increasing customer demand for offerings of products and
services over the Internet as a result of the immediacy and convenience it
affords. As the Internet evolves, companies are transitioning from Internet use
for business-supportive functions such as marketing and customer support, to
functions integral to business such as transaction execution, including sales
orders and customer billing. Also, many businesses have emerged that focus
solely on delivering services over the Internet through Web sites and electronic
commerce applications. Their ability to offer these kinds of products and
services requires high bandwidth Internet sites and operations. Due to advances
in on-line security and payment mechanisms, the number of businesses
establishing commerce-enabled Web sites is expected to increase dramatically.
International Data Corporation estimates that the number of consumers buying
goods and services on the Internet will grow from 18 million in 1997 to 128
million in 2002, and that the total value of goods and services purchased over
the Internet will increase from approximately $12 billion in 1997 to
approximately $425 billion by 2002. Businesses are positioning themselves to
capture this rapid growth opportunity by enhancing their Internet presence.

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The need for businesses to establish secure private wide area networks has been
driven by the growing importance of connecting the geographically dispersed
sites of their business, their customers and their suppliers. As networks become
a more integral part of day-to-day operations, many companies seek to minimize
network costs and improve operating efficiencies. Traditional wide area network
architectures consist of dedicated circuits between computing facilities
utilizing the same fixed bandwidth regardless of traffic flow. New switched data
technologies share and dynamically allocate bandwidth based on prevailing
traffic patterns. The shared bandwidth of switched data technologies typically
results in wide area networks that are more reliable and cost-efficient than
those based on traditional leased-line services.

Local area networks have emerged from businesses' need to access and share
internal electronic information. To enable effective internal communication and
distribution of company information, the local area network is used by
businesses seeking to decentralize their information databases. Local area
networks facilitate access to client/server-based technology such as Web-enabled
databases, shared file servers, e-mail, electronic commerce applications, and
other online information. Use of local area networks will continue to grow as
businesses increasingly decentralize information.

As local area networks and wide area networks become more prominent, businesses
increasingly need remote access to their network for mobile workers. Many
businesses recognize the importance of controlling the method by which
electronic automation takes place and ensuring the security of communications
between mobile workers and the proprietary networked resources they access. The
benefits of efficiently distributing proprietary information to those with a
need to know must be weighed carefully against the possibility that unauthorized
access to sensitive information can occur due to failed security mechanisms or
poor network design.

Internet access services provided by Internet service providers interconnect
businesses and individuals to the Internet, private data networks and other
interconnected networks. Access services include high speed dedicated access
used primarily by medium-sized and larger organizations and dial-up access for
individuals and small or home office businesses. In addition to Internet access
services, business-focused Internet service providers such as CRL are
increasingly providing a range of value-added communications services, including
remote management, shared and dedicated Web hosting, server colocation, network
security services, electronic commerce applications and new applications such as
Internet Protocol-based voice, fax and video conferencing.

Several different types of Internet service providers have emerged and are
generally referred to as Tier 1, Tier 2, and Tier 3 network service providers.
International Data Corporation defines a Tier 1 network service provider as an
operator of a high quality, national backbone facility, specializing in leased
line connectivity. Also according to International Data Corporation, most Tier 1
network service providers peer directly at the National Science
Foundation-approved network access points. International Data Corporation
defines Tier 2 and Tier 3 network service providers as those who do not have a
national backbone network.

Peering is critical to providing high quality, high speed Internet access. By
peering directly with other networks, Tier 1 Internet service providers such as
CRL are able to send Internet traffic via the most direct and reliable path to
its final destination (the fewest "hops"), thereby minimizing potential delay
and lost or corrupted data. Additionally, Tier 1 Internet service providers
maintain and control their own national backbones and are generally better able
to control the quality of service, level of data integrity and degree of
reliability than non-Tier 1 Internet service providers. Many Tier 1 providers
are also fully peered, which means they can route traffic to every other
Internet destination through peering arrangements without paying transit fees.
Because Tier 1 Internet service providers typically do not pay for the privilege
of interconnecting with other Tier 1 networks, they can increase their available
Internet capacity by expanding existing peering connections with their peer
networks without the high costs associated with the retail purchase of
additional Internet access. As the number of Internet service providers has
grown, Tier 1 Internet service providers have increased their requirements for
peering arrangements, which has raised the barriers to acquiring and maintaining
Tier 1 status.

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The internal network design of the Internet service provider's network is also a
significant factor in determining the speed and reliability of data delivery
from source to destination. Traditional networks constructed solely of routing
devices require that a packet of information stop at a router in every point of
presence along the traveled network path. Each of these routed hops requires the
data packet to be examined by the router and a policy-based routing decision to
be made regarding the egress of the packet back onto the network. Many routing
decisions can delay the delivery of the packet to its destination. By contrast,
switched data networks can deliver information directly between the source and
destination without the need to disassemble the data packets during transit. As
a result, switched data networks generally provide higher speeds, less data
delay and overall better quality of service than traditionally routed networks.

THE MARKET OPPORTUNITY

Overview

Internet and private network operations are increasingly becoming integral to
the commercial and communication operations of businesses. The evolution and
expansion of Internet services and the networks over which they are delivered
has led to a growing need for comprehensive, bundled Internet and network
services.

The Need for Internet Connectivity Services

The Internet continues to increase in size and importance as its role in
integral business operations expands. Businesses are looking to third party
providers for expertise in implementing their Internet strategies. According to
Forrester Research, Internet access revenues from businesses are expected to
increase from less than $1 billion in 1997 to more than $16 billion in 2002.
Internet service providers are ideally positioned to capitalize on this growing
need of businesses to access and utilize more of the Internet.

Demand for Secure Private Networks

Historically, data communications services offered over private leased lines
were expensive, not monitored or managed for quality of service nor capable of
deflecting outages from software or hardware faults. Seeking a less expensive
alternative, some businesses use the public Internet for communications but are
confronted with potential problems inherent in the Internet, such as
unauthorized access and data loss and reduced transmission speed, commonly
referred to as degradation. Virtual private networks are also used as another
less expensive alternative, but similarly include security concerns and
unreliable performance due to their reliance on the Internet for data
transmission. By contrast, Layer 2, switched private networks offer a networking
option which is more cost-effective than traditional point-to-point private
leased lines but is an owned and controlled network not depending upon the
Internet for data transfer, eliminating security concerns and permitting lower
and more stable delay levels than data communications alternatives relying upon
the Internet.

Enhanced Network Management Services

Businesses need to ensure that their networks, information systems and
applications operate continuously as their reliance on public and private
networks increases. While large businesses are able to build and maintain
information technology departments capable of servicing their networks,
information systems and applications, small and medium-sized businesses find it
difficult to cost-effectively maintain information technology departments
capable of ensuring the continuous availability of complex networks running
multiple applications. It is also difficult and expensive for small and
medium-sized businesses to continuously train their information technology
departments to support new technologies and applications. As a result, many
small and medium-sized businesses have chosen to outsource their information
technology department functions to third parties capable of offering a full
range of these services. Traditionally, outsourcing information technology
services has required site visits from the service provider

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even for routine problems often resulting in lengthy delays. As a result, small
and medium-sized businesses are seeking the ability to affordably outsource
their information technology departments to third parties capable of rapidly
responding to problems and minimizing network downtime. International Data
Corporation reports that the U.S. market for network monitoring and management
was $2.4 billion in 1998 and is projected to reach $4.7 billion in 2002,
representing an 18% annual growth rate.

Hosting Services

As Internet presence becomes increasingly critical to business operations, many
businesses are seeking to outsource hosting services, including Internet
colocation, to network service providers. By outsourcing these functions,
businesses can establish a strong Internet presence while remaining focused on
their core business operations. According to Forrester Research, revenues from
complex Web hosting will increase from approximately $200 million in 1997 to $8
billion in 2002, while intranet hosting will generate nearly $400 million in
revenues for Internet service providers by 2002. Traditional hosting companies
operate geographically dispersed networks that are subject to increased risks of
data delay and degradation or loss, as data travels across multiple network
connections, or hops. Many hosting companies also do not have the flexibility,
peering arrangements or capacity to quickly scale their services to meet the
sharp growth and high bandwidth requirements of Internet operations integral to
business. Network service providers who are able to overcome these obstacles
will be well positioned to capitalize on the growth of the Web hosting market.

OUR SOLUTION

Through our national, facilities-based fully-peered network, we offer our
customers high performance, flexible and scalable services, including:

- connectivity to the Internet and secure private networks

- value-added services consisting of remote network management of our
customers' networks and systems integration services

- hosting services

Our comprehensive suite of services enables our customers to easily and more
cost-effectively address their networking needs without having to assemble
services from different vendors including resellers, Internet service providers
and information technology service providers. Our ability to provide "one-stop,"
customized network solutions facilitates our customers' ability to exploit
opportunities created by the Internet and other network systems on a timely
basis. Key advantages of our solution are:

High-Quality Performance and Reliability. We believe our high speed, private
switched network, coupled with our status as a Tier 1 Internet service provider,
enables us to provide our customers with some of the fastest and most reliable
data transmission solutions available. Our network operations center controls
and monitors the switches, routers and fiber-optic capacity for all data
transmitted over our network 24 hours-a-day, seven days-a-week, allowing our
staff to be immediately aware and responsive to problems as they arise. This
control of our network infrastructure allows us to improve quality of service by
minimizing network down time.

Management of Businesses' Critical and Support Operations. We offer our clients
the ability to outsource their network management operations to us. The services
we offer are performed by CRL, allowing us to control the quality of these
services. Through an off-site connection and our proprietary process, we can
manage our customers' internal networks as well as solving common problems that
our customers encounter. When end-users encounter a problem, we are able to
attach in real-time to our customer's desktop computers and servers to evaluate
and solve the problem as if located on-site at the customer's premises from our
facilities. In addition, we proactively monitor our customers' networks to
predict and, in some cases, prevent outages. The ability to manage our
customers' systems remotely enables us to offer custom, cost-effective network
management solutions. Businesses able to outsource many aspects of an
information technology department, from the "help desk" to enterprise-wide
server maintenance, can

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implement more complex applications without being constrained by a lack of
in-house computer professionals. We believe that our services can enable our
customers to implement selected intranet and extranet business functions such as
electronic commerce, free of any information technology-related concerns. Our
solutions allow our customers to more rapidly grow their businesses with
relatively modest initial and recurring information technology-related
expenditures.

Scalability and Flexibility. Our services are designed to be highly scalable and
flexible in order to meet the needs of our customers as their Internet, network
operations, and bandwidth requirements expand. Our network is designed to
provide our customers with available and uncongested bandwidth during network
traffic spikes by maintaining excess capacity and additional sources of
bandwidth. We also provide flexibility for our customers by supporting most
leading Internet hardware and software systems vendor platforms.

Bundled Service Offerings. Many enterprises today, especially those in the small
and medium-sized business market, often purchase services from a number of
vendors. For example, a company may receive its Internet access, file/Web server
connection and colocation space all from different vendors. We are able to offer
these services under customized packages through a single network connection and
also offer additional customer support and management expertise. We are able to
serve our customers' Internet and network management requirements without the
need for any additional service providers or connections.

STRATEGY

Our objective is to become the leading nationwide provider of customized
comprehensive Internet and network services to small and medium-sized
businesses. To achieve this objective, we intend to:

Further Capitalize On Our Existing Network Infrastructure. Through our direct
participation in the development and evolution of the commercial Internet, we
believe we are one of a limited number of fully-peered, Tier 1 Internet service
providers, which means we have legacy peering relationships with major Internet
service providers, including MCI WorldCom, Inc., Sprint Corporation and Cable &
Wireless P.L.C. As a result, we can transfer traffic efficiently to other
networks without paying the costs typically associated with transport. During
the past year, we became a licensed competitive local exchange carrier in the
State of California and have begun the application process to become a
competitive local exchange carrier in several other states to complement our
national backbone network. As a competitive local exchange carrier in any
particular state, we are able to purchase unbundled network elements from the
applicable regional Bell operating company operating in that state rather than
purchase retail local loops, resulting in a significant cost savings to us.
Also, our 15 years of experience developing our network provides us with an
in-depth understanding of the key elements of network connectivity technology.
As a result, over the past decade we have built a national backbone network
which currently consists of clear channel fiber-optic capacity, Cascade switches
and Cisco routers, which are controlled through our network operations center.
Our network is fast, secure and reliable, as well as scalable to approximately
one hundred times the traffic our current customers generate. We intend to
aggressively further capitalize on our existing network infrastructure to
cost-effectively expand our customer base and deliver additional service to our
customers.

Cross Sell Value-Added Services. We intend to capitalize on our existing
customer base and future customers by aggressively cross selling our value-added
services. We are committed to offering our customers reliable value-added
network services necessary to address their Internet and network management
requirements. We believe we are currently one of only a few companies remotely
managing the customer's network from the Internet all the way to the desktop.
Based on our existing network infrastructure and expertise, we are able to offer
these services continuously, reliably and on a cost-effective basis. Through
acquisitions or development of relationships with providers of leading Internet
and other network technologies, we intend to enhance and increase the services
we offer to include other value-added services, such as enhanced network
security solutions, that address our customers' rapidly evolving critical
networking needs such as electronic commerce.

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Provide Bundled, Comprehensive Networking Solutions. The fragmentation among
Internet and other network service providers has resulted in users often faced
with an overwhelming array of providers and services from which to choose. For
example, it is typical for a user to purchase local loop connectivity from a
regional Bell operating company or a competitive local exchange carrier, to
purchase Internet or other wide area network connectivity from a separate
Internet or other network service provider, and to purchase network services,
like remote management, systems integration and network security, from one or
more other companies. We believe the Internet and network service provider model
is evolving towards providers who are capable of providing comprehensive
solutions by bundling several or all of these functions efficiently, reliably
and on a cost-effective basis. By combining our network infrastructure with our
existing and planned array of value-added networking services, we believe we are
well positioned to become one of the premier providers of comprehensive, bundled
networking solutions to small and medium-sized businesses. Additionally, we
believe that by offering bundled services, we can reduce customer loss, increase
network usage by existing customers, cross sell additional services to existing
customers and differentiate ourselves from our competitors.

Expand Customer Base and Sales Efforts. We intend to expand our customer base by
significantly increasing our direct and indirect sales forces as well as our
marketing efforts. Our direct sales force consisted of 18 persons in four sales
offices located in San Francisco, Sacramento, Anaheim and San Diego as of April
26, 1999. Our sales force is supported in their efforts by sales engineers and,
in many instances, our senior management. We intend to increase the number of
our sales offices and to significantly expand the size of our direct sales force
with the goal of having an effective selling presence in all major domestic
metropolitan and regional markets. In addition, we are exploring other
strategies to grow our direct sales force, including developing an inside sales
center to generate additional sales. We also intend to establish and expand
relationships with potential channel partners including hardware vendors,
value-added resellers, system integrators and Web hosting companies to leverage
their sales organizations and existing customer bases. By combining an expanding
direct sales force with the sales and marketing power of targeted channel
partners, we believe we will be able to effectively market and sell our
comprehensive networking solutions to a large potential customer base throughout
the United States.

Drive Revenue Growth by Increasing Hosting Services. Our physical presence at
key network access points provides attractive opportunities for many customers
to lease a portion of our space and purchase our colocation services. Our
hosting services permit our customers to install their equipment in close
physical proximity to major Internet access points. These connections at the
"edge" of the Internet are among the most reliable connections available. Our
presence in these locations, as well as the hardware we have installed there,
are designed to satisfy the electronic commerce and other requirements of the
most demanding Internet service providers, content providers, businesses and
government agencies. We intend to aggressively market our existing hosting
services to service these applications that are integral to business.

Accelerate Growth Through Targeted Acquisitions. The goal of our acquisition
strategy is to accelerate market penetration, build upon our core competencies
and expand our technical staff and sales force. We evaluate acquisition
candidates based on their fit with our overall business plan. When a candidate
is acquired, we will integrate our existing Internet and network connectivity
and value-added services with the service offerings of the acquired company and
use the acquired sales force and customer base to expand market opportunities.
The types of acquisitions we target include business Internet service providers
and companies with leading edge network connectivity and services technologies
that expand or enhance our existing services. Other types of targeted
acquisitions include local or regional business Internet service providers in
markets where we have established points of presence and would benefit from the
acquired company's local sales force and installed customer base through the
potential increase in our network utilization. Our recent acquisition of
Integral Networking Corporation, a systems integrator and developer of advanced
remote management services, is an example of the implementation of this
strategy.

SERVICES

We currently offer customized, comprehensive Internet and private network
solutions as well as network connectivity and value-added network services to
our customers. The diversity of services we offer permits

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each customer to purchase individual services or a bundle of services that
provide the most efficient, reliable and cost-effective solution to that
customer's particular needs.

Network Connectivity Services

We are a national provider of connectivity services, including a variety of
dedicated and dial-up access and customized wide area networking solutions in
both stand-alone and bundled packages, which provide high-speed continuous
access to the Internet and other networks for our customers. We also provide
turnkey configuration solutions encompassing such services as domain name
registration, leased-line ordering and installation assistance, Internet
Protocol address assignment, router configuration, installation and management,
and technical consultation services. All of our connectivity customers receive
24 hour-a-day, seven day-a-week technical support.

Dedicated Access. We offer a broad line of high speed dedicated connectivity
services providing business customers with direct access to a full range of
Internet applications. Our dedicated access service provides companies with
robust, full-time, dedicated Internet connectivity in a range of access speeds,
including fractional T1 (from 64 kilobits per second up to 1.536 megabits per
second), T1 (1.536 megabits per second), T3 (45 megabits per second) and OC3
(155 megabits per second). Our dedicated Internet access is designed to help
ensure bandwidth availability for priority business applications. We believe
that the traffic-management advantages of the data switching technology deployed
in our network provide our customers with fully integrated Internet access and
improved performance.

Customized Wide Area Networking Solutions. We are dedicated to providing
effective, privately managed wide area networking services. Our customized wide
area networking services combine the high performance of private lines with the
redundancy and bandwidth efficiency of a switched service. These wide area
networking services utilize the superior line management features and
cost-effectiveness of data switching technology to provide a high performance
and secure wide area network that is scalable to our customers' growing network
demands.

The versatility of data switching technology allows our customers to easily
manage connectivity to multiple sites at a wide range of connection speeds. With
our customized wide area networking services, our engineers can help a customer
design a network to match the specific needs of the customer. Locations can be
partially or fully-meshed, offering route redundancy where necessary, and
allowing the customer to provision only the bandwidth they need.

By linking a wide area network with our Internet backbone, our customers can
optimize the bandwidth of their businesses and minimize expenses. We also offer
service level guarantees and extensive 24 hour-a-day, seven day-a-week customer
support with all of our integrated solution products.

Dial-Up Access. Our dial-up services offer a cost-effective, entry-level
Internet solution that provides access to our advanced network backbone via
ordinary telephone lines at speeds of up to 56 kilobits per second using V.90
protocol.

Transit Service. Our transit service is designed for other, non-Tier 1 Internet
service providers whose networks are insufficient to transmit their customers'
data to the peering points of other networks. Our transfer service provides the
necessary link for these Internet service providers to transmit and receive data
to other networks on the Internet. This service can usually be installed in a
short time frame and gives our customers the flexibility they need to expand
their operations.

Value-Added Services

We believe that businesses will continue to increase their use of the Internet
and private networks to remain competitive and will increasingly rely upon an
expanding range of value-added services to enhance productivity, reduce costs
and improve service reliability. We offer value-added services consisting of
remote management and systems integration services. As part of our strategic
plan, we also intend to offer network security services. In addition, to
capitalize on our technologically advanced, high-capacity network
infrastructure, we intend to continue developing new value-added services that
facilitate customer use of

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the Internet and other networks, including bandwidth-intensive multimedia
services such as video conferencing.

Remote Management Services. Traditional network management solutions outsourced
by businesses to network service providers require network problems to be
diagnosed and resolved at the customer's site, which often results in a lengthy
response time. Through our alarm notification capability, our monitoring service
immediately alerts us to our customers' network problems and details the reason
for the problem. We can manage our customers' internal networks and solving
common problems encountered by our customers through an off-site connection and
proprietary process which permits us to attach in real-time to our customers'
desktop computers and servers and evaluate and solve the problem as if located
on-site at our customers' premises. For these reasons, our remote management
services help to significantly reduce the necessary time and expense to diagnose
and resolve network and application-oriented problems. We structure our remote
management solution to be scalable to our customers' growing needs.

Systems and Network Integration. We provide integration services such as local
and wide area network configurations, Web and database server integration and
application-specific software solutions. We configure equipment by loading
customer programs, connecting equipment to the network and servicing hardware
and software. Our staff of engineers works closely with our customers to design,
assemble, configure and install a network architecture meeting our customers'
requirements.

Firewall Solutions. The sensitive nature of business Internet traffic demands
protection from unauthorized access. Our firewall solutions provide users with
secure access to the Internet as well as create an electronic barrier between a
customer's internal network and the public Internet. Our firewalls can also
restrict access between departments as well as track communications to ensure
that these communications follow a customer's established security procedures.
We work with a variety of vendors to provide customized firewall solutions for
each of our customers with specialized security needs.

Hosting Services

Our existing network infrastructure, with its physical presence of network
equipment at major domestic network access points connecting all of the
interexchange points sanctioned by the National Science Foundation, provides an
easy and cost-effective solution for businesses to directly connect their
equipment through CRL to the Internet and other networks through our existing
nationwide backbone. Our colocation facilities allow our customers to install
their equipment as close to our network core as physically possible and are
configured in a manner to satisfy their networking and Internet operations that
are integral to business. Our infrastructure supports the Internet hardware and
software vendor platforms of most leading vendors, including Intel Corporation,
Microsoft Corporation and Sun Microsystems, Inc. The flexibility and scalability
of our network infrastructure permits our customers to purchase additional space
and power as needed, and to install and maintain their own hardware and
software. Our primary colocation facilities have uninterruptible AC or DC power
supply and back up equipment, fire suppression equipment, HVAC (heating,
ventilation and air conditioning), separate cooling zones, seismically-braced
racks and high levels of physical security, including card key access and video
surveillance.

Customers can select from a variety of options including shared rack facilities,
highly secure cabinets and enclosed cage facilities based upon their business
and technical requirements. Because many applications are dynamic and require
immediate hardware and software upgrades to maintain or achieve targeted service
levels, our colocation customers are offered 24 hour-a-day, seven day-a-week
physical and remote access to our facilities. We offer five options to satisfy
our customers' needs:

- Switched Ethernet Service, which is a 10 megabit per second service
connection onto our backbone router shared by other customers

- Dedicated Ethernet Service, which is a 10 megabit per second service
connection directly onto our backbone router not shared with any other
customers

- Switched Fast Ethernet Service, which is a switched ethernet service with a
100 megabit per second Internet connection
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- Dedicated Fast Ethernet Service, which is a dedicated ethernet service with
a 100 megabit per second Internet connection

- Gigabit Fast Ethernet Service, which is a switched ethernet service with a
1,000 megabit per second Internet connection

Our customers are able to choose the speed that best suits their diverse needs
which is generally based on our customers' projections of the quantity of data
to be delivered from their respective Web sites.

CUSTOMERS

We have established a diverse customer base including Internet service and
content providers, businesses, government agencies and educational institutions
to whom we offer a wide range of services including Internet and network
connectivity, value-added and hosting services. In addition, we provide dial-up
Internet access services to consumers. No customer accounted for more than 2.6%
of our revenues in either 1997 or 1998. The revenues derived from our top 10
customers accounted for 16% of our total revenues in 1998. The following is a
representative list of customers as of April 26, 1999:

<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
INTERNET SERVICE INTERNET CONTENT BUSINESSES ENGAGED GOVERNMENTAL AGENCIES
PROVIDERS PROVIDERS IN ELECTRONIC AND EDUCATIONAL
--------------------- --------------------- COMMERCE INSTITUTIONS
--------------------- ---------------------
CTSNET Gamepro, Inc. CalFarm Insurance City of Vallejo
Company Police
Internet America, Pathlink Technology Department
Inc. Corporation Joe Boxer
Corporation U.S. Federal Reserve
Interaccess Co. Walnut Creek Board
CDROM, Office Depot, Inc.
Information Access Incorporated U.S. Department of
Technologies, Inc. Southwest Airlines Commerce
AdForce, Inc.
GST Call America (Imgis.com) Toshiba America, University of
Inc. California, Hastings
Traveller Silicon Reef, Inc. College of the Law
Information
Services, Inc. Reiter Associates, Pacific Union College
Inc.
Woodland Hills School
District
------------------------------------------------------------------------------------------
</TABLE>

We aggressively pursue small and medium-sized business customers and seek to
provide them with connectivity and customized, cost-effective network management
solutions. The following are examples of solutions we currently provide to our
customers.

WALNUT CREEK CDROM, INCORPORATED: Walnut Creek CDROM, Incorporated is an
Internet-based freeware site which claims to be one of the nation's busiest
sites using file transfer protocol, a tool used to download files from the
Internet. According to Walnut Creek CDROM, more than five million visitors
download the latest computer software, ranging from games to operating systems,
from this location each month. Walnut Creek CDROM needed a reliable, Tier 1
provider to support its traffic flows, which can often reach 98 megabits per
second for a sustained period of time. Walnut Creek CDROM uses our 100 megabits
per second dedicated fast ethernet service to connect directly to our core
backbone at our San Francisco network operations center. This high speed, direct
Internet solution meets our customer's bandwidth requirements and increases
network reliability by reducing the number of router hops to the Internet. We
provide the 24 hour-a-day, seven day-a-week network management required to
deliver Walnut Creek CDROM's round-the-clock Internet applications.

J. LINNEMAN & CO.: J. Linneman & Co., a reinsurance agency associated with
Lloyd's of London, required a reliable, private data switched network to handle
sensitive and mission-critical information. Without a managed network to
facilitate internal company communication, company officials were

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concerned that underwriters could potentially over-insure national clients.
Using our wide area networking services, we developed and deployed a customized
data network between J. Linneman's headquarters in San Francisco and regional
offices in Atlanta, Chicago and Hartford. An Internet connection was also
secured for each location. In order to meet J. Linneman's demand for scalability
and cost control, we provide varying bandwidth to each city, with the option for
an increase at any time.

RIVER CITY PETROLEUM: River City Petroleum, Inc., a fleet fueling and wholesale
fuels provider that was listed by the Sacramento Business Journal as one of
Sacramento's "50 Fastest Growing Companies" and the 19th largest private company
in the Sacramento region, had built a local area network but had little
expertise to install new network elements, nor did they want to oversee the
day-to-day management and administration activities a network requires. Using
our proprietary remote management services, we developed and deployed a
customized solution for River City Petroleum that reduces costly systems
administrator fees and protects the firm's mission-critical data by handing off
the day-to-day management to us. River City Petroleum can now focus on
continuing its acquisition-oriented growth, not its local area network.

Our success substantially depends on the continued growth of our customer base
and retention of our customers. Our ability to attract new customers will depend
on a variety of factors, including the willingness of businesses to outsource
their mission-critical networking and Internet operations, the reliability and
cost-effectiveness of our services and our ability to effectively market such
services. Substantially all of our customer contracts have terms ranging from
one to three years.

A failure on our part to develop these relationships could materially and
adversely impact our ability to generate increased revenues, which would
negatively affect our financial results. We also intend to significantly
increase our sales and marketing expenditures, which may not necessarily result
in increased sales of our services. For a detailed discussion of the risks, see
"Risk Factors -- We are subject to the risks from our lengthy sales cycle."

OUR NETWORK

Our network enables us to provide our current service offerings and is the
platform from which we intend to expand our service offerings. Our network is
comprised of several elements, including routers, switches, facilities and clear
channel fiber-optic capacity, which together provide a fast, secure, high
quality network capable of reducing the risk of outages resulting from hardware
or software faults. In addition, we have both public and private peering
agreements allowing us to connect directly with all major Internet service
providers. The following map illustrates our network and peering relationships:

[Graphics depict a map of United States Entitled "Networks Built for Business"
with CRL logo, reflecting CRL's network connecting cities nationwide, including
symbols designating CRL's Regional Hubs, CRL points of presence or Service
Areas, Internet Protocol Backbone and Switched Backbone]

Network Equipment

Our network consists of 23 Cascade data switches and 54 Cisco routers located
throughout our points of presence. Routers are "Layer 3" networking devices,
which must disassemble each packet of data they receive, make a policy-based
routing destination decision according to Internet Protocol-based routing
tables, and then reassemble the packet and send it to the destination determined
by the routing protocol then in effect. These routing protocol tables must be
frequently updated by the router to reflect changes in the tables arising from
numerous events, including changes in peering relationships.

Switches are typically "Layer 2" networking devices, which means they make
connections a layer below the Internet. Switches determine routing destinations
based on the Layer 2 addresses attached to each packet without disassembling the
data packets. By operating one layer below the Internet without the need to
disassemble packets, switches can significantly reduce delay and data
degradation, as well as increase security. As a result of the complexity and
multitude of networks that transport information over the

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Internet, switches are often an essential component to deliver information in
the fastest and most reliable manner.

We have invested significant capital in switches, which are more expensive than
routers. Switches, when properly configured with routers, enhance the speed and
reliability of networks by

- minimizing the number of connections, or hops, a data packet must take,
which minimizes the time required to deliver the packet

- reducing the number of times a packet must be disassembled by routers, which
reduces the opportunities for router errors

- decreasing the instances where packets must travel over public networks,
which decreases the likelihood of delay and data degradation

Our national network of switches and routers permits us to customize our network
connectivity by creating an efficient "virtual circuit" for each customer, a
logical connection between the physical devices transmitting, directing and
receiving the data packets.

Switches have other advantages over routers as well. If a network outage occurs,
our Cascade switches can re-route data between our routers so that our network
does not experience an interruption of service during the outage. This process
allows our routers to forward more packets without making complex routing
decisions. Our Cascade switches are multi-protocol capable, allowing us to
operate Internet Protocol and other protocols as required.

Network Facilities

We have constructed a national backbone network with points of presence in 30
cities including 16 of the largest 20 cities in the United States. We control
our points of presence, including our network operations center in San
Francisco, under leases with terms ranging from month-to-month to four years,
that allow us to control the quality and security of the operations. We can
upgrade our points of presence as desired and are able to significantly reduce
the length of time of network interruptions because we control our facilities.
We have points of presence in major population centers around the United States,
including San Francisco, Los Angeles, San Diego, Phoenix, Denver, Dallas, Vienna
(Virginia), Chicago and 22 other cities.

Many of our points of presence are located in, or in close physical proximity
to, "carrier hotels." Carrier hotels are facilities where major interexchange
carriers and Internet service providers have physical points of presence. Our
actual location in, or in close proximity to, the same building in which the
switches and routers of these carriers and providers are located offers us the
ability to quickly and easily interconnect our equipment to theirs by our simply
installing a "pipe" connection between our equipment and theirs. Without this
close physical proximity, the services and expense of a third party, like an
incumbent local exchange carrier or competitive access provider, would be
necessary to connect us to the interexchange carrier or other provider. Our
leases in these carrier hotels have expiration terms ranging from December 2000
to 2003, except for one lease, which expires in June 1999, but has a 2-year
renewal option that we intend to exercise. Because we believe that these carrier
hotels have only limited amounts of space available for lease, we have an
advantage over many of our competitors who are unable to lease space in the
facility or in close enough proximity to the facility and need the services of a
third party to provide similar connectivity.

As we expand, we expect to increase our number of points of presence. Each point
of presence is monitored through our network operations center on a 24
hour-a-day, seven day-a-week basis, which allows us to rapidly identify and
resolve any service interruptions. All of our points of presence are connected
directly to local operators including regional Bell operating companies and
competitive local exchange carriers. Where practical, our local connections are
made at the DS-3 level, which allows us to install up to 28 customers at a time
on an expedited basis without the need for any wiring or physical changes within
our points of presence.

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We currently lease clear channel fiber-optic capacity on networks from companies
such as Qwest Communications Corporation and IXC Communications, Inc. We have
chosen short-term leases of fiber-optic capacity as opposed to acquiring
indefeasible rights of use for fiber-optic capacity due to rapidly declining
bandwidth costs. We believe that our choice has had a significant impact on our
ability to maintain a relatively low cost structure network. Through our leased
fiber-optic cable, we are able to easily create customized data switched
networks for ourselves or others. As we expand and seek additional leased
fiber-optic capacity, we believe that capacity will be available. Several major
fiber construction projects have commenced in the domestic United States, and
frequently the developer of a fiber route will exchange access with other fiber
carriers in a "route swap." Such "route swaps" bring a new vendor of fiber along
a particular route to the marketplace, and ultimately serve to drive the price
of fiber-optic capacity down.

Our network operations center located in San Francisco is operated on a 24
hour-a-day, seven day-a-week basis. This network operations center functions
primarily to ensure that our backbone network is operational at an optimal level
and has the ability to ingress and egress traffic. In addition, the center
monitors the connections between the backbone network and the customer. If the
customer's network fails, we notify the customer of their network failure and
begin working immediately to correct the failure.

Peering Relationships

We have both public and private peering relationships. A peering relationship
permits the direct connection of two providers to exchange data without the
necessity of paying a third party. We believe we were one of the first companies
to provide commercial Internet access to both consumers and corporations. As the
Internet and Internet interexchange points have evolved, we have been well
positioned to become and have become a significant peering partner. We currently
have public peering at the major interexchange points sanctioned by the National
Science Foundation including:

- MAE East in Vienna, Virginia,

- MAE West at Nasa Ames Research Center in Palo Alto, California,

- the Fix West Federal Interconnect Exchange at Nasa Ames Research Center in
Palo Alto, California,

- the Sprint Network Access Point in Pensauken, New Jersey,

- the AADS Network Access Point in Chicago, Illinois,

- the Pacific Bell Network Access Point in San Francisco, California,

- the Pacbell Switched Multimegabit Data Service Cloud in Northern California,
and

- the Commercial Internet Exchange router in Santa Clara, California.

As is typical industry practice, we have reciprocal peering relationships with
other Internet service providers that offer significant traffic exchange. Our
open network policy allows us to make cost-based peering decisions between
public and private peering points to route traffic efficiently.

Subject to few exceptions, our peering relationships generally are not subject
to any written agreements and could be terminated at any time. For those peering
arrangements subject to contracts, there are no minimum or fixed charges for
data exchange. Such agreements generally do impose minimum usage requirements at
levels which CRL has in the past always exceeded. However, these contracts can
be terminated by either party where the peering could have a detrimental impact
on a party's network. Any network may refuse to peer with any other network. As
the Internet has evolved, network service providers have determined whether they
will recognize a second provider as a peer based on the impact on its customers
of failing to do so. The first provider makes this determination by analyzing
how many customers of the second provider rely on it as their sole source of
connectivity to the Internet. If the second provider has customers who look to
that provider as their sole source, and the first and second providers refuse to
peer with one another, the portions of each provider's customer base that are
sole source will be unable to connect with each other over the Internet. Another
basis upon which a network may refuse to peer with another is to avoid peering
with a network run by inexperienced technicians which can result in data being
sent to the wrong location.

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As a result of our early involvement in the Internet, we are a Tier 1 Internet
service provider and have peering relationships with other Tier 1 Internet
service providers.

SALES AND MARKETING

Our sales and marketing objective is to achieve broad market penetration and
increase brand name recognition among small and medium-sized businesses,
Internet service and content providers, government agencies and educational
institutions on a national basis through the expansion of our sales organization
and extensive marketing activities. As of April 26, 1999, we employed 25 persons
in sales and marketing. We have developed a multi-tiered sales strategy to sell
and market to our target markets through direct sales, Internet alliances,
channel relationships and customer referrals.

Direct Sales. Our direct sales force currently consists of highly trained
individuals located in San Francisco, California and three other sales offices
in the United States. Approximately 99% of our sales are currently generated by
our direct sales force. Our sales force is supported in their sales efforts by a
sales engineer and, in many instances, by senior management. We believe that the
integration of our sales engineers with our sales account managers assists both
the establishment of customer relationships as well as the migration of
customers to increased use of our services through cross selling of our
value-added services. We have developed programs to attract and retain high
quality, motivated sales representatives with the necessary technical skills,
consultative sales experience and knowledge of their local markets. These
programs include technical and sales process training and instruction in
consultative selling techniques. We have also developed sales compensation plans
that provide significant incentives for exceeding performance targets. We are
actively seeking to expand our direct sales force and sales engineering staff.

Our direct sales process consists of a multifaceted approach to lead generation
and includes direct mail, advertising, Web-based marketing, networking and cold
calling. We target small and medium-sized businesses nationwide with particular
emphasis on those geographic areas where we have points of presence. Prospects
are qualified through a needs-based consultative sales process and, depending
upon the complexity of the client need, sales engineers and senior management
are called upon to develop solutions.

Develop Channel Relationships. We are in the process of developing relationships
with potential channel partners including hardware vendors, value-added
resellers, system integrators and Web hosting companies to leverage their sales
organizations. A channel partner is a CRL customer who acts as a reseller of our
services. We began our channel partnerships in the first quarter of 1999 and had
contracts with nine partners at March 31, 1999. We believe that by relying upon
the sales forces of these companies, we can attract customers in a
cost-effective manner, as well as provide co-branded Internet and network
management service offerings for our channel partners. We are actively engaged
in hiring experienced channel managers to focus exclusively on developing these
relationships.

By providing Internet and network management solutions, our partners can satisfy
the demands of their customers, as well as create opportunities for new
business. We will offer the expertise involved with a complex networking
infrastructure that will allow our partners to focus on their own areas of
expertise. This relationship will provide our partner with the tools needed to
bundle Internet access with a variety of services provided by us or our partner,
and gain the competitive edge needed to attract and maintain more customers,
increase market share and grow.

Because we realize that most companies have specific operating requirements, we
have designed a flexible program to accommodate specific needs. We will both
provide the necessary network connectivity and serve as a technical resource for
our partners. Engineers in our networking operating center monitor the network
around the clock to ensure the highest quality Internet, remote management
service, and hosting services and technical support for our partner and its
customers. Instead of spending time and money building a national network
infrastructure, partners will be able to simply add Internet, remote management
service and hosting services to their existing products by becoming part of our
network. By bundling Internet, remote management service and hosting services
with existing products, the partner will

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be able to offer a high quality network connection to the Internet with the ease
of one bill and one point-of-contact for customers.

Marketing. Our marketing program is intended to build national and local
strength and brand awareness. We use print advertising and direct mail in
targeted markets and publications to enhance awareness and acquire leads for our
direct sales force. We also use telemarketing programs, Web marketing and joint
promotional efforts.

CUSTOMER SUPPORT

We offer a high level of customer service and quality assurance by understanding
the technical requirements and business objectives of our customers and
addressing their needs proactively on an individual basis. By working closely
with our customers, we are able to enhance the performance of our customers'
Internet and network operations, avoid downtime, rapidly resolve problems and
make appropriate adjustments in services as customer needs change over time. We
work with our customers over time to ensure that we are offering the appropriate
types and quality of service. As of April 26, 1999, we had 15 employees
dedicated to customer service and quality assurance.

Upon receipt of a signed sales contract, the salesperson prepares a sales order
form and sends it to our provisioning department which, after initial review,
forwards the sales order to our finance department for approval and set up on
the billing system.

Within the provisioning department the sales order is logged into a tracking
system that is reviewed by management on a weekly basis. The provisioning
department arranges all internal and external activities to complete the
installation of the sales order. As necessary, they arrange for purchase,
delivery and setup of equipment, arrange for necessary circuits with various
telecommunications vendors, and complete necessary changes to our network
through our engineering department.

Upon completion of all necessary installations, the customer is contacted for
testing and acceptance. Customer information is entered into an operations
database and our finance department is notified to begin billing.

Ongoing customer service is provided by our technical support group. Our network
operations center operates and is available for technical support 24
hours-a-day, seven days-a-week, 365 days-a-year. They monitor customer circuits
real-time on the same basis. As problems are identified or customer calls are
received they are logged into a trouble ticket system and worked through to
resolution. Inquiries can be accepted by voice or e-mail and are typically
answered within a few minutes or hours of receipt. Resolution times vary
depending upon the problem's severity and complexity. Resolution times that
exceed a few hours are escalated to management.

Our enhanced customer support systems monitor and track support questions from
our customers. These systems were developed to help the network engineers track
problems efficiently and reliably. They provide an accurate history of each
account enabling the engineers to quickly access support inquiries and provide
us with valuable historical data about each account. Every time a support
question is called in, a historical record, commonly referred to as a
"trouble-ticket," is opened. Until the problem is resolved, the trouble-ticket
remains open. When necessary, the trouble-ticket is escalated in order to reach
the fastest possible resolution. The escalation chart is made available to our
customers.

COMPETITION

Our competitors generally may be divided into four principal groups:

- telecommunications carriers including regional Bell operating companies,
often referred to as RBOCs

- Internet service providers

- network and system integrators

- online network service providers

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Telecommunications Carriers. Many long distance companies including AT&T
Corporation, Cable & Wireless P.L.C., Sprint Corporation, MCI WorldCom, Inc.,
Qwest Communications International Inc., Level 3 Communications Inc., IXC
Communications, Inc. and Frontier Corporation offer Internet access services and
network services. Recent reforms in federal regulation of the telecommunications
industry have created greater opportunities for incumbent local exchange
carriers such as PacBell Internet, and competitive local exchange carriers such
as WinStar Communications, Inc., to enter the Internet connectivity market. We
believe that there is a move toward horizontal integration by these kinds of
carriers through acquisitions of, joint ventures with, or the wholesale purchase
of connectivity from, Internet service providers in order to meet the Internet
connectivity requirements of their business customers. Accordingly, we expect
that we will experience increased competition from the traditional
telecommunications carriers. In addition to their greater network coverage,
market presence and financial, technical and personnel resources, many of these
telecommunications carriers also have large existing commercial customer bases.

Internet Service Providers. Our competitors include Internet service providers
with a national or global presence that focus on business customers, such as
PSINet, Inc. and UUNET Technologies, Inc. We also compete with Internet service
providers that cluster in major markets and regional Internet service providers
that have facilities in key metropolitan areas, including Verio, Inc., and
specialized Internet service providers such as Concentric Network Corporation,
Exodus Communications, Inc., AboveNet Communications Inc. and AppliedTheory
Corporation, as well as emerging Internet service providers. While we believe
that our state-of-the-art network infrastructure, quality customer service and
proactive support teams distinguish us from most Internet service providers,
many of these competitors have greater financial, technical, and marketing
resources, larger customer bases, greater name recognition and more established
relationships in the industry.

Network and System Integrators. We compete with large information technology
outsourcing firms such as the Big 5 accounting firms, EDS Corp., Perot Systems
Corporation and similar firms. These firms tend to focus on large customers who
outsource entire information technology functions or re-engineer their
information technology infrastructure. We believe that we are distinguished from
these competitors because we specialize in Internet Protocol-based integration
for the businesses and government agencies focused on Internet and other network
operations. We also compete with smaller network and systems integrators.
However, we believe that our expertise with large and complex systems, our
methodology and our ability to offer one-stop solutions for integration, data
center services and network connectivity set us apart from this segment of the
competition.

Online Network Service Providers. In providing consumer Internet access, we
compete with online network service providers such as America Online,
Compuserve, MSN (The Microsoft Network) and Prodigy Communication Corporation.
The services offered by these companies often includes access to content
specific to each company. While we believe that our consumer products are
competitively priced and that our support and proactive network maintenance give
us an advantage over our competitors, many of these competitors have greater
financial, technical and marketing resources, larger customer bases, greater
name recognition, wider customer reach and more established relationships in the
industry.

We believe the primary competitive factors in our markets are:

- a reliable and powerful network infrastructure

- a broad range of services and technical expertise

- quality of customer service

- experienced and knowledgeable sales force and engineers

Many of our competitors may be able to develop and expand their communications
and network infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of acquisition
and other opportunities more readily, and devote greater resources to the
marketing and sale of their services than we can. In addition, we believe
competition in our markets will intensify as new competitors enter our markets
which have no significant barriers to entry.

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In addition, some of our competitors may bundle other services and products,
offer their services at more attractive prices, or offer other high speed data
services using alternative delivery methods.

We do not currently compete internationally. If the ability to provide Internet
access internationally becomes a competitive advantage in the Internet access
industry, we may be at a competitive disadvantage relative to our competitors.

For more information concerning the competition we face and the factors
affecting our ability to compete, see "Risk Factors -- The markets for our
services is characterized by many competing technologies, and the technologies
on which our services are based may not compete effectively," "-- The markets in
which we compete are highly competitive and we may not be able to compete
effectively especially against companies with greater resources" and "-- We may
have to reduce the cost of our services to remain competitive."

INTELLECTUAL PROPERTY RIGHTS

We believe our success depends more upon our technical expertise than our
proprietary rights. We rely upon a combination of copyright, trademark and trade
secret laws and contractual restrictions to protect our proprietary technology
and rights in our services. We have no patented technology that would preclude
or inhibit competitors from entering our market. We have entered into
confidentiality and invention assignment agreements with all of our Integral
Networking Corporation employees and our technical personnel at CRL, and
nondisclosure agreements with our suppliers, distributors and appropriate
customers to control access to and disclosure of our proprietary information.
Despite these precautions, a third party could potentially copy or otherwise
obtain and use our products or technology without authorization or to develop
similar technology independently. We cannot assure you that such measures have
been, or will be, adequate to protect our proprietary technology or deter third
party development of similar technologies. We also rely on technologies that we
license from third parties such as network management software. We do not
license any other technology that is not generally available. These third-party
technology licenses may not always continue to be available to us on
commercially reasonable terms. The loss of such technology could require us to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could affect us in a material adverse manner. To date, we
have not been notified that we infringe the proprietary rights of third parties,
but there can be no assurance that third parties will not claim infringement by
us. We expect that participants in our markets will be increasingly subject to
infringement claims as the number of technologies and competitors in our
industry grows. Any such claim, whether meritorious or not, could be time
consuming, result in costly litigation, cause service delays or require us to
enter into royalty or licensing agreements. Such royalty or licensing agreements
might not be available on terms acceptable to us or at all. As a result, any
such claim could have a material adverse effect upon our business, results of
operations and financial condition.

GOVERNMENT REGULATION

Currently only a small body of laws and regulations directly apply to access to
or commerce on the Internet. However, due to the Internet's increasing
popularity and use, laws and regulations may be adopted at the international,
federal, state and local levels with respect to the Internet, covering issues
such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services, taxation, advertising, intellectual property
rights, information security and the convergence of traditional
telecommunications services with Internet communications. Moreover, a number of
laws and regulations have been proposed and are currently being considered by
federal, state and foreign legislatures with respect to such issues. The nature
of any new laws and regulations and the manner in which existing and new laws
and regulations may be interpreted and enforced cannot be fully determined. The
adoption of any future laws or regulations might decrease the Internet's growth,
decrease demand for our services, impose taxes or other costly technical
requirements or otherwise increase the cost of doing business or in some other
manner have a material adverse effect on us. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. As our services are available over the
Internet in
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multiple states, and as we facilitate sales by our customers to end users
located in such states, such jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state. Any such new
legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws may not currently apply to our business, could have a
material adverse effect on us.

The Telecommunications Act of 1996 imposes criminal liability on persons sending
or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet and on an entity knowingly
permitting facilities under its control to be used for such activities. Sections
of the Communications Decency Act of 1996 that, among other things, proposed to
impose criminal penalties on anyone distributing "indecent" material to minors
over the Internet, were held to be unconstitutional by the United States Supreme
Court. Legislation similar to the Communications Decency Act could subject us
and/or our customers to potential liability, which in turn could have an adverse
effect on us. Additionally, the Child Online Protection Act of 1998 prohibits
and imposes criminal penalties and civil liability on anyone engaged in the
business of selling or transferring, by means of the World Wide Web, material
that is harmful to minors without restricting access to such material by persons
under seventeen years of age. Numerous states have adopted or are currently
considering similar types of legislation. The imposition upon us, our customers
or other persons of potential liability for such materials carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to such liability. Such measures may require the expenditure
of substantial resources or the discontinuation of some of our product or
service offerings. Further, the costs of defending against any such claims and
potential adverse outcomes of such claims could have a material adverse effect
on us. The Child Online Protection Act has been challenged by civil rights
organizations in part on the grounds that it violates the First Amendment. A
United States District Court has preliminary enjoined enforcement of the law
until final resolution of the case. A similar statute was held unconstitutional
by the United States Supreme Court in 1997.

The law relating to the liability of online service providers, private network
operators and Internet service providers for information carried on or
disseminated through the facilities of their networks is continuing to evolve
and remains unsettled. In the past, one federal district court in the northern
district of California, where we conduct business, has ruled that Internet
service providers could be found liable for copyright infringement as a result
of information disseminated through their networks. We cannot assure you that
similar claims will not be asserted in the future. Federal laws have been
enacted, however, which provide Internet service providers with immunity from
publisher or speaker liability for information that is disseminated through
their networks when they are acting as mere conduits of information. A Federal
Court of Appeals has recently held that the Telecommunications Act creates
immunity from liability on the part of Internet service providers for libel
claims arising out of information disseminated over their services by
third-party content providers. In addition, the Digital Millennium Copyright
Act, enacted in 1998, creates a safe-harbor from copyright infringement
liability for Internet service providers if:

- the transmission was initiated by or at the direction of a person other than
us;

- the transmission or routing is carried out through an automatic technical
process without selection of the material by us;

- we do not elect the recipients of the material except as an automatic
response to the request of another person;

- a copy of the material in the course of intermediate or transient storage is
maintained on the system in a manner accessible to no one other than the
recipients or for a period longer than is reasonably necessary for the
transmission or routing to occur; and

- no modification of the transmission's content occurs through our system.

We cannot assure you, however, that the Digital Millennium Copyright Act or any
other legislation will protect us from copyright infringement liability. We
maintain general liability insurance. However, any imposition of liability on us
for alleged negligence, intentional torts such as infringement, or other
liability could have a material adverse effect on us.
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Both the provisioning of Internet access service and the provisioning of
underlying telecommunications services are affected by federal, state and local
regulation. The Federal Communications Commission exercises jurisdiction over
all facilities of, and services offered by, telecommunications carriers to the
extent that they involve the provision, origination or termination of
jurisdictionally interstate or international communications, including by
competitive local exchange carriers. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications. In
addition, as a result of the passage of the Telecommunications Act, state and
federal regulators share responsibility for implementing and enforcing the
domestic pro-competitive policies of the Telecommunications Act. In particular,
state regulatory commissions have substantial oversight over the provision of
interconnection and non-discriminatory network access by incumbent local
exchange carriers. Municipal authorities generally have some jurisdiction over
access to rights of way, franchises, zoning and other matters of local concern.

Government agencies do not regulate Internet operations distinctly from their
regulation of businesses generally. However, the Federal Communications
Commission continues to review its regulatory position on the usage of the basic
network and communications facilities by Internet and other network service
providers. In an April 1998 report, the Federal Communications Commission
determined that Internet service providers should not be treated as
telecommunications carriers and should consequently not regulated. However, this
report stated that it expected the regulatory status of Internet service
providers in the future to continue to be uncertain. The report concluded that
some services offered over the Internet, such as phone-to-phone Internet
protocol telephony, may be functionally indistinguishable from traditional
telecommunications service offerings, and their non-regulated status may have to
be re-examined.

Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from regional
Bell operating companies or other telecommunications companies, could have an
adverse effect on our business. Although the Federal Communications Commission
has decided not to allow local telephone companies to impose per-minute access
charges on Internet service providers, and that decision has been upheld by the
reviewing court, further regulatory and legislative consideration of this issue
is likely. In addition, some telephone companies are seeking relief through
state regulatory agencies. Such rules, if adopted, are likely to have a greater
impact on consumer-oriented Internet access providers than on business-oriented
Internet service providers, such as us. Nonetheless, the imposition of access
charges would affect our costs of serving dial-up customers and could have a
material adverse effect on us.

We have recently received approval to operate as a competitive local exchange
carrier in California and intend to apply to receive similar status in other
states. Where we have competitive local exchange carriers status, regional Bell
operating companies are obligated to provide us with local connectivity loops at
prices that are substantially below the prices paid by Internet and other
network service providers that are not competitive local exchange carriers. As a
provider of domestic basic telecommunications services, particularly competitive
local exchange services, we could become subject to further regulation by the
Federal Communications Commission and/or other regulatory agencies, including
those at the state and local levels. The Telecommunications Act has caused
fundamental changes in the markets for local exchange services. In particular,
the Telecommunications Act and the Federal Communications Commission rules
issued pursuant to it mandate competition in local markets and require that
incumbent local exchange carriers interconnect with competitive local exchange
carriers. Under the provisions of the Telecommunications Act, the Federal
Communications Commission and state public utility commissions share
jurisdiction over the implementation of local competition, the Federal
Communication Commission was required to promulgate general rules and the state
commissions were required to arbitrate and approve individual agreements.
However, the Federal Communication Commission interconnection rules implementing
the Telecommunications Act were appealed and the U.S. Court of Appeals for the
Eighth Circuit issued a decision vacating the FCC's pricing rules, as well as
other portions of the FCC's interconnection rules, on the grounds that the FCC
had improperly intruded into matters reserved for state jurisdiction. On January
25, 1999, the Supreme Court largely reversed the Eighth Circuit's order, holding
that the FCC had general jurisdiction to implement local competition provisions
of the Telecommunications Act. In so doing, the Supreme Court stated that the
FCC

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has authority to set pricing guidelines for unbundled network elements, to
prevent incumbent local exchange carriers from disaggregating existing
combinations of network elements, and to establish "pick and choose" rules
regarding interconnection agreements (which would permit a carrier seeking
interconnection to "pick and choose" among the terms of service from other
interconnection agreements between the incumbent local exchange carriers and
other competitive local exchange carriers). This action reestablishes the
validity of many of the FCC rules vacated by the Eighth Circuit. Although the
Supreme Court affirmed the FCC's authority to develop pricing guidelines, the
Supreme Court did not evaluate the specific pricing methodology adopted by the
FCC and has remanded the case to the Eighth Circuit for further consideration.
In its decision, however, the Supreme Court also vacated the FCC's rule that
identifies the unbundled network elements that incumbent local exchange carriers
must provide to competitive local exchange carriers. The Supreme Court found
that the FCC had not adequately considered certain statutory criteria for
requiring incumbent local exchange carriers to make those network elements
available to competitive local exchange carriers and must reexamine the matter.
Thus, while the Supreme Court resolved many issues, including the FCC's
jurisdictional authority, other issues remain subject to further consideration
by the courts and the FCC. The Eighth Circuit has not yet reinstated the FCC's
rules that were affirmed by the Supreme Court, and several incumbent local
exchange carriers have asked the Eighth Circuit not to reinstate those rules
until further legal challenges have been resolved. We cannot predict the
ultimate disposition of those matters. The possible impact of this decision,
including the portion dealing with unbundled network elements, on existing
interconnection agreements between incumbent local exchange carriers and
competitive local exchange carriers or on agreements that may be negotiated in
the future also cannot be determined at this time. The Supreme Court has agreed
to review this lower court decision and heard oral arguments on this matter on
October 13, 1998. Pending the Supreme Court's decision, state public utility
commissions are free to develop independent pricing policies for
interconnection, unbundled access, resale, and transport and termination of
local telecommunications traffic.

A critical issue for competitive local exchange carriers is the right to receive
reciprocal compensation for the transport and termination of Internet traffic.
We believe that, under the Telecommunications Act and current Federal
Communications Commission rules, competitive local exchange carriers are
entitled to receive reciprocal compensation from incumbent local exchange
carriers. However, some incumbent local exchange carriers have disputed payment
of reciprocal compensation for Internet traffic, arguing that Internet service
provider traffic is not local traffic. Most states have required incumbent local
exchange carriers to pay Internet service providers reciprocal compensation.
However, federal regulators and some state regulators are currently considering
the proper jurisdictional classification of local calls placed to an Internet
service provider and whether Internet service provider calling triggers an
obligation to pay reciprocal compensation. On October 30, 1998, the Federal
Communications Commission determined that dedicated digital subscriber line
service is an interstate service and properly tariffed at the interstate level.
On February 25, 1999, the Federal Communications Commission ruled that calls to
Internet service providers for Internet access were long distance, not local,
calls. However, the ruling upheld existing reciprocal compensation agreements in
some states, including California. Because of our reciprocal compensation
agreement with Pacific Bell, we do not expect this ruling will have a material
effect on our operating costs in the near future. If incumbent local exchange
carriers charge fees for carrying Internet traffic and Internet access becomes
more expensive in the longer term, this ruling may have an adverse effect on our
potential future revenues as well as increase our costs.

As we become a competitor in local exchange markets, we will become subject to
state requirements regarding provision of intrastate services. These
requirements may include the filing of tariffs containing rates and conditions.
As a new entrant without market power, we expect to face a relatively flexible
regulatory environment. Nevertheless, it is possible that some states could
impose a variety of requirements on our operations, such as the approval of the
public utilities commission for the issuance of debt or equity or other
transactions that would result in a lien on our property used to provide
intrastate services.

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EMPLOYEES

As of April 26, 1999, we had 61 employees, of which 25 were employed in sales
and marketing, 8 were assigned to engineering and service development, 15 were
employed in customer service and technical support, and 13 were in finance and
administration. We believe that our future success will depend in part upon our
continued ability to attract, hire and retain qualified personnel. The
competition for such personnel is intense, and we may not be able to identify,
attract and retain such personnel in the future. None of our employees is
represented by a labor union, and management believes that our employee
relations are good.

FACILITIES

Our executive offices are located in San Francisco, California and consist of
approximately 4,650 square feet that are leased pursuant to an agreement that
expires in May 1999 with a three year renewal option. Additionally, we sublease
additional offices in San Francisco, California of approximately 3,500 square
feet pursuant to an agreement that expires in September 1999. We also have a
network operating center in San Francisco of approximately 4,000 square feet
under a lease expiring in 2005. Beginning in the second quarter 1999, we intend
to commence relocating and consolidating our San Francisco operations to a
single site. We intend to complete the relocation and consolidation in the
fourth quarter of 1999. We are also currently in negotiations with the lessor of
our San Francisco network operating center to lease additional space. We also
intend to complete the expansion of our main operational center in Sacramento,
California in the fourth quarter of 1999. This Sacramento facility consists of
4,000 square feet under a lease agreement that expires in 2001. In addition, we
lease approximately 1,100 square feet in Vienna, Virginia (a major network
access point often referred to as MAE East) under an agreement that expires in
2000 with a five year renewal option. We also lease approximately 1,400 square
feet in the One Wilshire Building in Los Angeles under an agreement that expires
in 2001. We lease facilities in 26 other cities throughout the United States for
our sales offices and regional network operating centers.

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MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Our directors, director nominees, executive officers and key employees are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
James G. Couch............. 34 President, Chief Executive Officer, Chairman of the
Board and Secretary
Robert B. Murphy, Jr....... 47 Executive Vice President and Chief Financial Officer
John A. Blair.............. 52 Vice President of Business Development and Director
Nominee
Sam Traznik................ 34 Vice President of Direct Sales
Steven T. Stenberg......... 38 Director and Member of the Audit and Compensation
Committees
Jack M. Fields, Jr......... 47 Director Nominee and Member of the Compensation
Committee
Thor Geir Ramleth.......... 40 Director Nominee and Member of the Audit Committee
KEY EMPLOYEES:
Robyn L. Raschke........... 34 Vice President of Finance
Philip A. Burkhart......... 37 Vice President of Channel Sales
Robert L. Ross............. 29 President, Integral Networking Corporation
Tracy M. Corrington........ 33 Director of Marketing
David L. Greenman.......... 31 Director of Systems Engineering
Richard J. Quosig.......... 45 National Sales Director
</TABLE>

JAMES G. COUCH founded our company in 1983 and has been President, Chief
Executive Officer and Chairman of the Board since incorporation in 1993. He
began developing applications for advanced networking systems with CRL and
worked closely with the National Science Foundation and Bellcore in the
transition of the Internet to a commercial medium.

ROBERT B. MURPHY, JR. has served as our Executive Vice President and Chief
Financial Officer since April 1999. Prior to joining us, Mr. Murphy was the
Executive Vice President/Chief Financial Officer of Savvis Communications
Corporation, a nation-wide provider of access and Internet services, from 1997
to April 1999. From 1992 to 1996, Mr. Murphy was the Senior Vice President/Chief
Financial Officer of Access America Telemanagement, a provider of
telecommunications services to small and medium-sized businesses. Mr. Murphy
also held positions as Vice President/Chief Financial Officer at United
Telemanagement, Inc. from 1989 to 1992 and at Belmac Corporation from 1988 to
1989. Prior to this, Mr. Murphy had seven years of investment banking
experience.

JOHN A. BLAIR has served as Vice President of Business Development since October
1998 and has agreed to serve as a director of our company upon completion of the
offering. Prior to joining us, Mr. Blair had been, since 1996, the President and
a director of Executive Strategies, a management consulting company that serves
the hi-tech and Internet service provider markets. From 1994 to 1996, Mr. Blair
was the Vice President of Operations with DG Systems, a Silicon Valley start-up.
Mr. Blair also has more than 15 years experience with financial institutions
including Citibank N.A., Ameritrust, and Crocker Bank.

SAM TRAZNIK has served as our Vice President of Direct Sales since April 1999.
Mr. Traznik has worked previously with GTE Internetworking as its Regional Vice
President and General Manager, Pacific Northwest from 1997 to April 1999. From
1996 to 1997, Mr. Traznik was the President and General Manager of Advanced
Technology Marketing, a provider of Internet consulting services. From 1995 to
1996, Mr. Traznik was the Director of VAR Channels and Sales, Southern
California at Exodus

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Communications, Inc. From 1989 to 1995, Mr. Traznik was the National Sales
Manager at Qualstar Corporation, a provider of data communications and data
storage products.

JACK M. FIELDS, JR. has agreed to serve as a director of our company upon
completion of the offering. Since January 1997, Mr. Fields has been the Chief
Executive Officer of Twenty-First Century Group, a government affairs company,
and the Chief Executive Officer of Texana Global, a firm dealing with
entrepreneurial projects in the telecommunications industry. From 1981 to 1996,
Mr. Fields was a member of the United States Congress. During 1995 and 1996, Mr.
Fields served as Chairman of the House Telecommunications and Finance
Subcommittee, which authored the Telecommunications Act of 1996 and has
jurisdiction and oversight over the Federal Communications Commission and the
Securities and Exchange Commission. Mr. Fields is also a director of AIM
Management, Administaff, Inc. and Telscape International, Inc.

STEVEN T. STENBERG has served as a director of our company since March 1999.
Since 1992, Mr. Stenberg has been President and Chief Executive Officer of his
own accounting firm, which currently has seven employees, and is a certified
public accountant.

THOR GEIR RAMLETH has agreed to serve as director of our company upon completion
of the offering. Mr. Ramleth was the President and Chief Executive Officer of
Genuity, Inc., an Internet service provider, from December 1995 to November
1998. Prior to that, Mr. Ramleth was the Manager of Commercial Systems at
Bechtel Group, Inc. from February 1995 to December 1995, where he was
responsible for consolidating all commercial systems activities. From February
1993 to February 1995, Mr. Ramleth was the Practice Director at Oracle
Corporation. Since January 1998, Mr. Ramleth has served as a director at
UWI.com.

ROBYN L. RASCHKE was appointed as our Vice President of Finance effective March
1, 1999. Prior to that, she served as Controller of our company since March
1997. She held the position of Assistant Controller at Greenbrier Capital
Corporation from 1992 to 1997. She has also worked at Touche Ross & Co. as a
senior auditor. Ms. Raschke has a masters degree in accounting from the
University of Georgia and is a certified public accountant.

PHILIP A. BURKHART has served as Vice President of Channel Sales since December
1998. Prior to that, he served as our Vice President of Operations since May
1995. He was instrumental in the build-out of our national backbone network and
developed the technical support/customer service and provisioning departments
within our company. Between 1991 and 1994, Mr. Burkhart worked for KBLCOM/Time
Warner where he managed its data, voice communications and video services and
Internet network throughout South Texas.

ROBERT L. ROSS founded Integral Networking Corporation in 1989 and continues to
serve as its President since our merger with Integral in December 1998. He has
prior experience as a systems engineer at Microage Corp. and is a Certified
Novell Platinum Engineer.

TRACY M. CORRINGTON has served as Director of Marketing since September 1998 and
is responsible for marketing communications, marketing product development and
media relations. Ms. Corrington worked previously with Teleport Communications
Group, Inc. between 1994 and 1998, holding management positions in marketing,
public relations and communications. Prior to that, she worked for seven years
as a print investigative reporter with several media/newspaper companies.

DAVID L. GREENMAN has served as Director of Systems Engineering since December
1998. Mr. Greenman has prior systems management and consulting experience at
Walnut Creek CDROM, Incorporated, where he has been the Systems Manager from
1995 to the present. He also was cofounder and principal architect in 1993 of
The FreeBSD Project, an operating support system that is currently used by a
variety of Fortune 500 businesses, and remains active in that project. Mr.
Greenman has also held positions with Artisans Northwest Productions, Telecom
Broadcasting, Inc., Clear View Satellite Systems and Reynolds Media Services.

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RICHARD J. QUOSIG has served as National Sales Director since September 1998 and
has 12 years of telecommunications sales experience. Prior to joining us, Mr.
Quosig worked as General Manager of the flagship Silicon Valley office of
Frontier Global Center from 1997 to September 1998. From March 1996 to February
1997, Mr. Quosig worked as a Strategic Account Manager with Teleport
Communications Group, Inc. From January 1995 to January 1996, Mr. Quosig was a
Regional Sales Manager with Winstar Wireless, where he managed the eastern
portion of the United States. Prior to that, Mr. Quosig was a sales manager with
Nynex Mobile Communications from January 1994 to January 1995. Mr. Quosig was
also the national account manager at McCaw Communications (AT&T Wireless) from
January 1992 to January 1994.

BOARD COMMITTEES

The Audit Committee has the responsibility of reviewing our audited financial
statements and accounting practices, and to consider and recommend the
employment of, and approve the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. Upon
completion of the offering, the Audit Committee will be comprised of Messrs.
Ramleth and Stenberg. The Compensation Committee reviews and approves the
compensation and benefits for our key executive officers, administers our
employee benefit plans and makes recommendations to the Board of Directors
regarding such matters. Upon completion of the offering, the Compensation
Committee will be comprised of Messrs. Fields and Stenberg.

DIRECTORS COMPENSATION

Each non-employee director receives an initial option grant for 30,000 shares
upon becoming a director of CRL and a minimum annual option grant under our 1999
Stock Incentive Plan to purchase 5,000 shares. This amount may be increased for
any particular non-employee directors or all non-employee directors at the
discretion of the Board of Directors, but the maximum number of shares
underlying any annual option granted to any non-employee director may not exceed
50,000 shares. The initial option grants and annual option grants generally vest
over a period of three years. See "Management -- Stock Options." We also pay the
expenses of our non-employee directors in attending Board meetings. No
additional compensation is paid to any of our employee directors for serving on
our Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to this offering, our Board of Directors did not have a compensation
committee and all compensation decisions were made by the full Board of
Directors. In the year ended December 31, 1998, the full Board of Directors,
which solely consisted of James G. Couch, determined the compensation of all
executive officers, including Mr. Couch in his capacity as President and Chief
Executive Officer. Upon completion of this offering, the Compensation Committee
will make all compensation decisions. No interlocking relationship exists
between the Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.

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<PAGE> 61

EXECUTIVE COMPENSATION

The table below summarizes the annual and long term compensation paid by us
during the fiscal year ended December 31, 1998 to those persons who were, as of
December 31, 1998, (i) our President and Chief Executive Officer and (ii) our
other compensated executive officer whose total annual salary and bonus exceeded
$100,000 during the year ended December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(#)
--------------------------- -------- ----- --------------- ------------
<S> <C> <C> <C> <C>
James G. Couch........................ $329,527 $ -- -- --
President, Chief
Executive Officer and Director
Philip Burkhart....................... $115,972 $ -- $8,730 --
Vice President of Channel Sales
</TABLE>

- -------------------------
(1) The figures shown in the last column designated "Other Compensation"
represent our forgiveness of a portion of a loan made by CRL to Mr.
Burkhart. Until December 1998, Mr. Burkhart served as the Vice President of
Operations and was an executive officer of CRL.

No options were granted to the named executives in the last fiscal year.

AGGREGATED OPTION EXERCISES DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The table below sets forth information regarding options exercised during the
year ended December 31, 1998 by the executive officers identified in the Summary
Compensation Table above, as well as the aggregate value of unexercised options
held by those executive officers at December 31, 1998. We have no outstanding
stock appreciation rights.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James G. Couch............ -- -- 38,421 153,685 $125,637 $502,550
Philip Burkhart........... -- -- 38,421 153,685 125,637 502,550
</TABLE>

- -------------------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of fair
market value of common stock of $5.10 per share. Therefore, the value of
options in the table is calculated based on the $5.10 per share value, less
the applicable exercise price per share, multiplied by the number of shares
underlying these options.

401(k) PLAN

We have an employee profit sharing plan that is intended to qualify as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under our 401(k) Plan, our officers and other employees may elect to defer up to
15% of their compensation, subject to limitations under the Internal Revenue
Code. We may from time to time also make contributions on behalf of each officer
or other employee, which contributions vest depending on the length of
employment of each respective officer or employee. Amounts deferred are
deposited by us in a trust account for distribution to employees upon
retirement, attaining age 65, permanent disability, death, termination of
employment or the occurrence of conditions constituting extraordinary hardship.
We have not made matching contributions on behalf of our officers and other
employees in the past.

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<PAGE> 62

STOCK OPTIONS

1997 Equity Incentive Plan

On August 8, 1997, our Board of Directors adopted, and our stockholders
approved, the CRL Network Services, Inc. 1997 Equity Incentive Plan. The 1997
Equity Incentive Plan provides for the grant of incentive and non-statutory
options, restricted stock or stock bonuses to purchase up to an aggregate of the
number of shares of common stock equal to 10% of the total number of shares of
our authorized common stock. Incentive stock options can be granted only to our
full-time employees, including officers and directors who are also employees,
while non-statutory stock options, restricted stock and stock bonuses can be
granted to our employees, officers and directors, consultants and advisors.
Participants in the 1997 Equity Incentive Plan are selected by our Board of
Directors, or by a committee of directors selected by the Board of Directors.
The Board of Directors or the committee is empowered to determine the terms and
conditions of each award granted under the 1997 Equity Incentive Plan, subject
to limitations including that no option can have a term in excess of ten years,
or five years if granted to an employee owning more than 10% of our outstanding
common stock. In the event of:

- a merger or consolidation in which we are not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary or a
reincorporation in a different jurisdiction)

- our dissolution or liquidation

- a sale of all or substantially all of our assets

- any other transaction that qualifies as a "corporate action" under Section
424(a) of the Internal Revenue Code

the number of vested shares under all options granted pursuant to the 1997
Equity Incentive Plan will increase as if the holder had remained our employee
for an additional one year from the date of such event. The Board of Directors
may amend or modify the 1997 Equity Incentive Plan at any time subject to any
required shareholder approval. The 1997 Equity Incentive Plan will terminate on
the earliest of:

- August 7, 2007

- the date in which all shares available for issuance under the 1997 Equity
Incentive Plan have been issued as fully-vested shares

- the termination of all outstanding options in connection with a change of
control in which the successor corporation does not assume the 1997 Equity
Incentive Plan

As of March 31, 1999, options to purchase 1,006,320 shares, at a weighted
average exercise price of $2.18, were outstanding under the 1997 Equity
Incentive Plan. There have been no restricted stock awards or stock bonuses
awarded. We do not intend to make any further option grants under this plan.

1999 Stock Incentive Plan

On March 18, 1999, our Board of Directors adopted, and our stockholders
approved, the CRL Network Services, Inc. 1999 Stock Incentive Plan. The 1999
Stock Incentive Plan does not limit any award to any specified form or
structure. The types and amount of awards will be determined at the discretion
of the Board of Directors or committee of the Board of Directors empowered to
administer the 1999 Stock Incentive Plan. The maximum number of shares of common
stock that may be issued under the 1999 Stock Incentive Plan is 1,000,000
shares. If incentive stock options are issued, these options must comply with
Section 422 of the Internal Revenue Code. Participants in the 1999 Stock
Incentive Plan are selected by a committee of directors selected by the Board of
Directors as a whole, each member of which must be a "non-employee director" as
this term is defined under the Securities Exchange Act of 1934, as amended. This
committee is also empowered to determine the terms and conditions of each option
or other stock-based award granted under the 1999 Stock Incentive Plan, subject
to the limitations regarding incentive stock options imposed by the Internal
Revenue Code. The Board of Directors may amend or modify the

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<PAGE> 63

1999 Stock Incentive Plan at any time subject to any required shareholder
approval. The 1999 Stock Incentive Plan will terminate on March 17, 2009. There
are currently no options or other awards outstanding under the 1999 Stock
Incentive Plan.

EMPLOYMENT AGREEMENTS

We entered into an employment agreement with James G. Couch, our President and
Chief Executive Officer, on March 15, 1999. Under the terms of this employment
agreement, Mr. Couch will receive an annual base salary of $320,000, which may
be increased at the discretion of the Board of Directors, and at the discretion
of the Board of Directors, a bonus. The term of this employment agreement ends
on February 28, 2002, and is automatically renewable for consecutive one-year
periods unless advance notice is given by either party. We may terminate Mr.
Couch or Mr. Couch may voluntarily resign at any time. If Mr. Couch is
terminated by us without cause, he will by entitled to receive twelve months'
salary, payable in equal monthly installments over the twelve month period
following termination. We are not obligated to pay any specified amount if we
terminate Mr. Couch for cause.

In connection with our merger with Integral Networking Corporation, we entered
into an employment agreement and a non-competition agreement with Robert L.
Ross, Integral's President, to continue to serve as President of Integral
Networking Corporation, our wholly-owned subsidiary. The employment agreement's
term expires December 21, 2000. Mr. Ross receives a salary of at least $56,500
and a bonus of up to $100,000 based upon targeted personal and company
performance. We may terminate Mr. Ross at any time upon written notice. Mr. Ross
may terminate his employment with us if we fail to cure any breach within 30
days following written notice from him to us describing the breach. In the event
that we terminate Mr. Ross's employment without cause before the end of its
term, we are obligated to pay Mr. Ross his then current salary until the end of
the term or for three months, whichever is less.

For more information regarding our arrangements with our key employees, See
"Risk Factors -- Our success will depend on the performance and integration of
our key personnel."

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our Certificate of Incorporation and Bylaws require us to indemnify our
officers, directors, employees and other agents to the full extent permitted by
law, including those circumstances in which indemnification would otherwise be
discretionary. Delaware law provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director for monetary damages for breach of their fiduciary
duties as directors, except for liability for any breach of their duty of
loyalty to the corporation or its stockholders, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or any
transaction from which the director derived an improper personal benefit. Our
Bylaws also permit us to advance expenses incurred by an indemnified director or
officer in connection with the defense of any action or proceeding arising out
of such director's or officer's status or service as one of our directors or
officers upon any undertaking by such director or officer to repay such advances
if it is ultimately determined that such director or officer is not entitled to
such indemnification. In addition, our Certificate of Incorporation expressly
authorizes the use of indemnification agreements. We currently have no
indemnification agreements with our officers, directors or employees.

CERTAIN TRANSACTIONS

We are party to an airplane leasing agreement with FBN Holding Corp., the sole
stockholder of which is James G. Couch, our President and Chief Executive
Officer. Under the terms of this agreement, we can elect to lease aircraft from
FBN on an hourly basis at FBN's then prevailing rate, which includes, without
additional charge, all fuel, insurance, repairs and maintenance. Changes in the
FBN prevailing hourly rate require 30 days written prior notice to us. Either
party may terminate the lease upon 15 days prior notice. During 1998, we paid
FBN an aggregate of approximately $144,000 for our use, at various times during

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<PAGE> 64

the year, of an airplane owned by FBN. We believe the rates charged by FBN are
equivalent to the rates we could obtain from unaffiliated third parties. We have
sent written notice to FBN terminating this airplane leasing agreement effective
April 30, 1999.

In August 1995, we made a loan in the amount of $106,000 with an interest rate
of 7.5% to Mr. Couch. The promissory note delivered to us specified that the
entire principal amount plus accrued interest was to be repaid by July 10, 2000.
During 1998, the stockholder repaid the entire remaining amount outstanding
under the promissory note.

We have employment agreements with Messrs. Couch and Ross. See
"Management -- Employment Agreements."

All future transactions among us, our directors, principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested directors.

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<PAGE> 65

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 27, 1999, and as adjusted to reflect
the sale of shares by us and the sale of shares by the
selling stockholder, by (i) each of our directors and director nominees, (ii)
each person or group known to us to be the beneficial owner of more than 5% of
our outstanding common stock, (iii) our named executive officers whose total
salary and bonus exceeded $100,000 during the year ended December 31, 1998, (iv)
the selling stockholder, and (v) all of our directors and executive officers as
a group. Each of these persons has the sole voting and investment power with
respect to the shares owned. Except as otherwise indicated, the address of each
holder identified below is care of CRL Network Services, Inc., One Kearny
Street, Suite 1450, San Francisco, California 94108.

<TABLE>
<CAPTION>
SHARES NUMBER SHARES
BENEFICIALLY OWNED OF BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER THE OFFERING(1)
--------------------- BEING ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ---------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
James G. Couch........................ 16,953,757(2) 89.0% %
Philip Burkhart(3).................... 38,421(4) 0.2% -- 38,421
John A. Blair......................... -- -- -- -- --
Steven T. Stenberg.................... -- -- -- -- --
Jack M. Fields, Jr. .................. -- -- -- -- --
Thor Geir Ramleth..................... -- -- -- -- --
All directors and executive officers
as a group (5 persons).............. 16,953,757(2) 89.0% %
</TABLE>

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

(1) In calculating beneficial and percentage ownership, all shares of common
stock that a named stockholder or specified group will have the right to
acquire within 60 days of the date of this prospectus upon exercise of
stock options are deemed to be outstanding for the purpose of computing the
ownership of such stockholder, but are not deemed to be outstanding for the
purpose of computing the percentage of common stock owned by any other
stockholder. As of April 27, 1999, an aggregate of 19,038,833 shares of
common stock were outstanding.

(2) Includes 38,421 shares issuable upon exercise of stock options held by Mr.
Couch but does not include 153,685 shares issuable upon exercise of stock
options that have been granted but are not exercisable within 60 days of
the date of this prospectus.

(3) Until December 1998, Mr. Burkhart was an executive officer of CRL, serving
as Vice President of Operations.

(4) Does not include 132,106 shares issuable upon exercise of stock options
which have been granted but are not exercisable within 60 days of the date
of this prospectus.

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 70,000,000 shares of common stock,
$.0001 par value, and 5,000,000 shares of preferred stock, $.01 par value. The
description of our capital stock below and provisions of our charter documents
is not complete and is qualified by our Certificate of Incorporation and Bylaws,
which are included as exhibits to the Registration Statement that this
prospectus is a part of.

COMMON STOCK

As of April 27, 1999, there were 19,038,833 shares of common stock outstanding
that were held of record by five stockholders. Upon completion of this offering,
there will be shares of our common stock outstanding
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Holders of the common stock are entitled to one vote per
share on each matter submitted to a vote of our stockholders. Cumulative voting
for the election of directors is not authorized by our Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. Subject to
preferences that may be applicable to the holders of any outstanding series of
our preferred stock, each holder of common stock is entitled to receive
dividends, if any, as may be declared by our Board of Directors out of funds
legally available for the payment of dividends. We have not granted dividends in
the past and have no current plans to do so in the future. See "Dividend
Policy." Upon our liquidation, dissolution or winding up, our common
stockholders are entitled to share ratably in all of our assets which are
legally available for distribution, after payment of all debts and other
liabilities and the liquidation preference of any outstanding series of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are, and
the shares to be sold by us in the offering will be, when issued and delivered,
validly issued, fully-paid and non-assessable under the Delaware General
Corporation Law.

PREFERRED STOCK

As of April 27, 1999, no shares of preferred stock are outstanding. Our Board of
Directors is authorized, subject to any limitations of the Delaware General
Corporation Law, but without further vote or action by our stockholders, to
issue preferred stock in one or more series. The Board of Directors can
establish the number of shares of each series, to fix the designations, powers,
preferences and rights of the shares of each such series, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices and liquidation preferences. The Board of Directors can also
establish any qualifications, limitations or restrictions of the preferred
stock, and to increase or decrease the number of shares of any such series, but
not below the number of shares of such series then outstanding. The Board of
Directors may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. While providing flexibility in connection with
possible acquisitions and other corporate purposes, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of our company. We have no current plans to issue any shares of
preferred stock.

CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Stockholder Meetings

Our Bylaws provide that any action required to be taken or that may be taken at
any meeting of our stockholders may only be taken at a meeting of stockholders
and may not be taken by the written consent of the stockholders. Special
meetings of stockholders may only be called by the Board of Directors, the
Chairman of the Board or the President and only such business brought forth by
or at the direction of the Board of Directors or the stockholders may be
conducted. If a stockholder wishes to propose an item for consideration at any
meeting, the stockholder must give written notice to us not less than 90 days
before the meeting or, if later, the tenth day following the date of the first
public announcement of the meeting,

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<PAGE> 67

or such other date as is necessary to comply with applicable federal proxy
solicitation rules and other regulations.

Board of Directors

Our Bylaws provide that the number of directors may not be less than two nor
more than seven until changed by an amendment duly adopted by the Board of
Directors or stockholders. The Bylaws further provide that the exact number of
directors shall be fixed from time to time, within such range, by the Board of
Directors. Currently, the number of directors is fixed at two. The Bylaws
provide that the Board of Directors will be divided into three classes of
directors, who will serve for staggered three-year terms. The Bylaws do not
provide for cumulation of stockholder votes in the election of directors.
According to the Bylaws, each director may be removed only for cause and only by
the affirmative vote of at least 80% of the outstanding shares of common stock.
The Bylaws provide that nominations for election of directors may be made by the
Board of Directors or any stockholder entitled to vote in the election of
directors. If a stockholder wishes to nominate a director, the stockholder must
give written notice to us not less than 90 days before the meeting or, if later,
the tenth day following the date of the first public announcement of the
meeting.

Amendment of Our Charter Documents

Our Certificate of Incorporation may not be amended without the approval the
holders of a majority of our outstanding voting shares or the approval of at
least a majority of our directors. Our Bylaws contain provisions requiring the
affirmative vote of at least 80% of outstanding shares of common stock to amend,
alter or repeal the provisions of the Bylaws relating to the calling of special
meetings of stockholders, advance notice of stockholder business or nominees,
removal of directors or stockholder action without a meeting.

These provisions of our charter documents may delay, defer or prevent a change
in control without further action by our stockholders, may discourage bids for
the common stock at a premium over the market price of the common stock and may
adversely affect the market price of the common stock.

Effect of Delaware Anti-takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law which,
subject to exceptions, prohibits a Delaware corporation from engaging in any
"business combination" which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless:

- before such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;

- upon completion of the transaction which 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 those shares owned by persons who are
directors and also officers; or

- on or after 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 two-thirds
of the outstanding voting stock which is not owned by the interested
stockholder.

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 or any entity or person affiliated with or controlling or controlled
by such entity or person. See "Risk Factors -- Anti-takeover provisions could
negatively impact our stockholders."

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<PAGE> 68

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is ChaseMellon Shareholder
Services, L.L.C. Its address is 400 S. Hope Street, 4th Floor, Los Angeles, CA
90071 and its telephone number is (213) 553-9700.

LISTING

Application has been made to have our common stock approved for quotation on the
Nasdaq National Market under symbol "CRLX."

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<PAGE> 69

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices.

Upon completion of this offering, there will be shares of our common
stock outstanding assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except for any such shares held
by our "affiliates" (as defined below). The remaining shares held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities and any shares
purchased in the offering by one of our "affiliates" may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or 701
under the Securities Act, which rules are summarized below.

In general, under Rule 144 as currently in effect, a person or persons whose
shares are aggregated who has beneficially owned shares of our common stock for
at least one year including the holding period of any prior owner other than any
of our "affiliates," or who is one of our "affiliates," is entitled to sell
within any three-month period a number of shares or, in the case of an
"affiliate," a number of such restricted securities and shares purchased in the
public market, that does not exceed the greater of:

- 1% of the shares of our common stock then outstanding, equaling
approximately shares immediately after this offering, or

- the average weekly trading volume of our common stock in the public market
during the four calendar weeks immediately before such sale.

Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and availability of current public information about us.

Under Rule 144(k), a person who has not been one of our "affiliates" at any time
during the 90 days before a sale, and who has beneficially owned shares proposed
to be sold for at least two years, is entitled to sell such shares without
regard to the volume limitations, manner of sale provisions or notice
requirements.

Subject to a number of limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 of the Securities Act, as currently
in effect, permits the resale of securities originally purchased from us by our
employees, directors, officers, consultants or advisers prior to the closing of
this offering in connection with a compensatory stock or option plan or written
agreement, by persons who are not our "affiliates" subject only to the
manner-of-sale provisions of Rule 144 and by our affiliates under Rule 144
without compliance with its minimum holding period requirement.

All of our officers, directors and stockholders have generally agreed that they
will not, without the prior written consent of CIBC Oppenheimer Corp., which
consent may be withheld in its sole discretion, and subject to limited
exceptions, directly or indirectly, sell, offer, contract or grant any option to
sell, make any short sale, pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of any shares of common stock, options or warrants to acquire
common stock, or securities exchangeable or exercisable for or convertible into
common stock currently owned either of record or beneficially by them or
announce the intention to do any of the acts listed above, for a period
beginning on the date of this prospectus and continuing to the date which is 180
days after the date of this prospectus. CIBC Oppenheimer Corp. may, in its sole
discretion and any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, we have agreed
that, for a period of 180 days after the date of this prospectus, we will not,
without the consent of CIBC Oppenheimer Corp., issue, offer, sell or grant
options to purchase or otherwise dispose of any equity securities or securities
convertible into or exchangeable for equity securities except for (i) the
issuance of shares of common stock offered hereby and (ii) the grant of options
to

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<PAGE> 70

purchase shares of common stock under the 1999 Stock Incentive Plan and shares
of common stock issued upon the exercise of outstanding options on or after the
date of this prospectus. See "Underwriting."

There are no restrictions on resale with respect to any of our securities, other
than restrictions imposed by lock-up agreements and applicable securities laws.
As a result of the lock-up agreements described above and the provisions of Rule
144 and 701, the restricted shares will be available for sale in the public
market immediately upon expiration of the 180 day lock-up period, subject to the
volume limitations and other conditions of Rule 144. Sales of our common stock
by these stockholders could have a material adverse effect on the trading price
of our common stock.

We have granted options to purchase up to 1,006,320 shares of common stock under
the 1997 Equity Incentive Plan. Concurrently with the sale of the shares offered
hereby, we will grant options to purchase an additional shares of
common stock pursuant to the 1999 Equity Incentive Plan. An additional
shares currently are reserved for issuance under the 1999 Stock
Incentive Plan. No options are outstanding under the 1999 Stock Incentive Plan.
Immediately after this offering, we intend to register the sale of the shares of
common stock issuable under the 1997 Equity Incentive Plan and 1999 Stock
Incentive Plan under the Securities Act. See "Management -- Stock Options."
Accordingly, as awards under the stock option plans vest, shares issued upon
exercise of these stock options will be freely tradable and available for sale
in the open market, immediately after the 180-day lock-up agreements expire,
except such shares as may be acquired by one of our "affiliates."

On April 27, 1999, our principal stockholder, James Couch, sold 542,888 shares
of CRL common stock to ZeroDotNet, Inc. at a price equal to $9.21 per share in a
private transaction. In connection with this sale, CRL granted registration
rights to the buyer, including the right to demand one registration for at least
50% of the purchased shares at any time during the period beginning 120 days
after CRL's initial public offering through the second anniversary of CRL's
initial public offering. The registration rights terminate if all the purchased
shares could be sold in one transaction under Rule 144 without exceeding the
volume limitations of that rule. In addition, if we propose to register any of
our shares of common stock under the Securities Act, the buyer is entitled to
notice of and may include the purchased shares in the registration. If the
registration involves an underwriting, the underwriters may eliminate shares in
the registration and underwriting, and the shares included in the registration
must be allocated first to CRL, then to the buyer. CRL agreed to provide the
registration rights described above in exchange for the buyer agreeing to enter
into the lock-up agreement for a period of 180 days after the date of this
prospectus. The buyer must obtain a waiver of the lock-up agreement to exercise
the registration rights described above during the 180 day period of the
lock-up.

66
<PAGE> 71

UNDERWRITING

CRL Network Services, Inc. and the selling stockholder have entered into an
underwriting agreement with the underwriters named below. CIBC Oppenheimer Corp.
and Lehman Brothers Inc. are acting as representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC Oppenheimer Corp. .....................................
Lehman Brothers Inc.........................................

Total.......................................................
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased.

The representatives have advised CRL and the selling stockholder that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to selected securities dealers
at such price less a concession of $ per share. The underwriter may also
allow, and such dealers may reallow, a concession not in excess of $ per
share to other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times.

CRL and the selling stockholder have granted the underwriters an over-allotment
option. This option, which is exercisable for up to 30 days after the date of
this prospectus, permits the underwriters to purchase a maximum of
additional shares from the selling stockholder or, at the selling stockholder's
option, CRL, to cover over-allotments. If the underwriters exercise all or part
of this option, they will purchase shares covered by the option at the initial
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full from the selling
stockholder, the total price to public will be $ , the total proceeds
to CRL will be $ and the total proceeds to the selling stockholder will
be $ . If this option is exercised in full from CRL, the total proceeds to
CRL will be $ and the total proceeds to the selling stockholder will be
$ . The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriter's initial amount reflected in
the foregoing table.

The following table provides information regarding the amount of the discount to
be paid to the underwriters by CRL and the selling stockholder.

<TABLE>
<CAPTION>
TOTAL WITH FULL TOTAL WITH FULL
EXERCISE OF EXERCISE OF
TOTAL WITHOUT EXERCISE OF OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OVER-ALLOTMENT OPTION OPTION(1) OPTION(2)
--------- ------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
CRL Network Services, Inc......... $ $ $ $
Selling Stockholder............... $ $ $ $
Total.............................. $ $ $
</TABLE>

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

(1) Assumes the over-allotment shares are sold by the selling stockholder.

(2) Assumes the over-allotment shares are sold by CRL.

67
<PAGE> 72

CRL and the selling stockholder estimate that their portions of the total
expenses of the offering, excluding the underwriting discount, will be
approximately $ and $ , respectively.

CRL and the selling stockholder have agreed to indemnify the underwriters
against some specified liabilities, including liabilities under the Securities
Act of 1933.

CRL, its officers and directors and other stockholders have generally agreed to
a 180-day "lock up" with respect to shares of common stock
and other CRL securities that they beneficially own, including securities that
are convertible into shares of common stock and securities that are exchangeable
or exercisable for shares of common stock. This means that, for a period of 180
days following the date of this prospectus, CRL and such persons may not offer,
sell, pledge or otherwise dispose of these CRL securities without the prior
written consent of CIBC Oppenheimer Corp.

The representatives have informed CRL that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.

There is no established trading market for the shares. The offering price for
the shares has been determined by CRL and the representatives, based on the
following factors:

- negotiations among CRL and the representatives

- prevailing market and economic conditions

- the financial information of CRL

- the history of, and the prospects for CRL

- CRL and the industry in which it competes

- an assessment of CRL management, its past and present operations, the
prospects for, and timing of, future revenues of CRL

- the present stage of CRL's development and the above factors in relation to
market values and valuation measures of other companies engaged in
activities similar to those of CRL's

The initial public offering price set forth on the cover page of this prospectus
should not, however, be considered an indication of the actual value of the
common stock. Such price is subject to change as a result of market conditions
and other factors. There can be no assurance that an active trading market will
develop for the common stock or that the common stock will trade in the public
market subsequent to this offering at or above the initial offering price.

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules of the Securities and Exchange Commission:

- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.

- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.

68
<PAGE> 73

Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither CRL nor the underwriters makes any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.

LEGAL MATTERS

Certain legal matters with respect to the legality of the issuance of the shares
of common stock offered hereby will be passed upon for us and the selling
stockholder by Gibson, Dunn & Crutcher LLP, San Francisco, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.

EXPERTS

The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein in the registration statement, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

We filed with the Securities and Exchange Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of common stock
offered hereby. This prospectus does not contain all of the information
contained in the Registration Statement and the exhibits and schedule filed with
the Registration Statement. For further information with respect to CRL Network
Services, Inc. and the common stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's public reference facilities
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at the Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of
all or any part of the Registration Statement may be obtained from such offices
after payment of fees prescribed by the Securities and Exchange Commission. The
Securities and Exchange Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange Commission
at http://www.sec.gov.

69
<PAGE> 74

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and as of March 31, 1999 (unaudited)...................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 1996, 1997 and 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1996, 1997
and 1998 and the Three Months Ended March 31, 1999
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1997 and 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 75

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of

CRL Network Services, Inc.:

We have audited the accompanying consolidated balance sheets of CRL Network
Services, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CRL Network Services, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.

San Francisco, California

March 18, 1999 (April 28, 1999 as to the last paragraph in Note 12)

F-2
<PAGE> 76

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $1,115 $ 840 $ 354
Accounts receivable, net of allowances for doubtful
accounts of $162, $484 and $484, respectively.......... 1,229 1,309 1,008
Deferred tax assets....................................... 101 85 85
Other..................................................... 161 131 645
------ ------ ------
Total current assets................................... 2,606 2,365 2,092
Property and equipment, net................................. 1,801 2,445 2,385
Other assets................................................ 48 45 45
------ ------ ------
Total assets...................................... $4,455 $4,855 4,522
====== ====== ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 637 $ 892 $ 814
Deferred revenue.......................................... 603 594 217
Accrued liabilities....................................... 628 170 546
Current portion of long-term obligations.................. 166 270 280
Other..................................................... 18 9 6
------ ------ ------
Total current liabilities.............................. 2,052 1,935 1,863
Deferred tax liabilities.................................... 246 313 313
Long-term obligations....................................... 402 847 822
------ ------ ------
Total liabilities...................................... 2,700 3,095 2,998
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................
Common stock, $0.0001 par value, 70,000,000 shares
authorized; 18,978,833 shares issued and outstanding... 6 6 6
Common stock options...................................... 948 1,046
Deferred stock compensation............................... (792) (739)
Retained earnings......................................... 1,749 1,598 1,211
------ ------ ------
Total stockholders' equity............................. 1,755 1,760 1,524
------ ------ ------
Total liabilities and stockholders' equity........ $4,455 $4,855 4,522
====== ====== ======
</TABLE>

See notes to the consolidated financial statements.
F-3
<PAGE> 77

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

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

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C> <C>
REVENUES:
Colocation and internet connectivity........ $4,600 $8,873 $9,681 $2,452 $2,142
Systems integration and hardware sales...... 1,753 1,502 2,011 529 861
------ ------ ------ ------ ------
Total revenues...................... 6,353 10,375 11,692 2,981 3,003
------ ------ ------ ------ ------
COSTS AND EXPENSES:
Cost of colocation and internet
connectivity............................. 2,219 3,631 4,871 1,211 1,229
Cost of system integration and services..... 1,127 1,009 1,295 288 569
Selling and marketing....................... 345 522 371 158 41
General and administrative.................. 1,840 2,997 4,124 847 1,325
Depreciation................................ 512 745 909 190 210
Stock-based compensation expense............ 156 151
------ ------ ------ ------ ------
Total costs and expenses............ 6,043 8,904 11,726 2,694 3,525
------ ------ ------ ------ ------
OPERATING INCOME (LOSS)....................... 310 1,471 (34) 287 (522)
Net interest income (expense)................. 1 5 (30) (1) (22)
------ ------ ------ ------ ------
Income (loss) before income taxes............. 311 1,476 (64) 286 (544)
Income tax provision (benefit)................ 150 591 87 83 (157)
------ ------ ------ ------ ------
NET INCOME (LOSS)............................. $ 161 $ 885 $ (151) $ 203 $ (387)
====== ====== ====== ====== ======
Net income (loss) per common share --
Basic and diluted........................... $ 0.01 $ 0.05 $(0.01) $ 0.01 $(0.02)
Weighted average common shares outstanding:
Basic....................................... 18,979 18,979 18,979 18,979 18,979
Diluted..................................... 18,979 19,142 18,979 19,283 18,979
</TABLE>

See notes to the consolidated financial statements.
F-4
<PAGE> 78

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK COMMON DEFERRED TOTAL
------------------- STOCK STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT OPTIONS COMPENSATION EARNINGS EQUITY
---------- ------ ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996........... 18,978,833 $6 $ $ $ 703 $ 709
Net income......................... 161 161
---------- -- ------ ----- ------ ------
Balance, December 31, 1996......... 18,978,833 6 864 870
Net income......................... 885 885
---------- -- ------ ----- ------ ------
Balance, December 31, 1997......... 18,978,833 6 1,749 1,755
Compensatory stock arrangements.... 948 (948)
Amortization of deferred stock
compensation..................... 156 156
Net loss........................... (151) (151)
---------- -- ------ ----- ------ ------
Balance, December 31, 1998......... 18,978,833 6 948 (792) 1,598 1,760
Compensatory stock arrangements
(unaudited)...................... 98 (98)
Amortization of deferred stock
compensation (unaudited)......... 151 151
Net loss (unaudited)............... (387) (387)
---------- -- ------ ----- ------ ------
Balance, March 31, 1999
(unaudited)...................... 18,978,833 $6 $1,046 $(739) $1,211 $1,524
========== == ====== ===== ====== ======
</TABLE>

See notes to the consolidated financial statements.
F-5
<PAGE> 79

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)................................. $ 161 $ 885 $ (151) $ 203 $(387)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation................................... 512 745 909 190 210
Stock-based compensation expense............... 156 151
Loss on disposal of fixed assets............... 13 3
Deferred taxes................................. 52 50 89 (14)
Changes in assets and liabilities:
Accounts receivable, net..................... (372) (588) (80) (119) 301
Other assets................................. 4 (64) 9 39 (514)
Accounts payable and accrued expenses........ 337 535 (209) (344) 298
Other liabilities............................ 250 170 (18) 34 (380)
----- ------- ------- ------- -----
Net cash provided by (used in) operating
activities.............................. 944 1,746 705 (11) (318)
----- ------- ------- ------- -----
Cash Flows from Investing Activities:
Additions to property and equipment............... (988) (1,336) (1,553) (275) (159)
Proceeds from sale of property and equipment...... 17 143 6
Decrease in notes receivable from related parties,
net............................................ 66 11 24
----- ------- ------- ------- -----
Net cash used in investing activities..... (905) (1,182) (1,529) (275) (153)
----- ------- ------- ------- -----
Cash Flows from Financing Activities:
Credit line borrowings............................ 358 703 136 48
Principal payments on borrowings.................. (14) (42) (154) (36) (63)
----- ------- ------- ------- -----
Net cash provided by (used in) financing
activities.............................. (14) 316 549 100 (15)
----- ------- ------- ------- -----
Net Increase (Decrease) in Cash and Equivalents..... 25 880 (275) (186) (486)
Cash and Equivalents at Beginning of Period......... 210 235 1,115 1,115 840
----- ------- ------- ------- -----
Cash and Equivalents at End of Period............... $ 235 $ 1,115 $ 840 $ 929 $ 354
===== ======= ======= ======= =====
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................ $ 7 $ 23 $ 70 $ 13 $ 22
Cash paid for taxes............................... 165 166 577 351
Supplemental Disclosure of Noncash Financing
Activities:
Equipment acquired under capital lease............ $ 133 $ 133
</TABLE>

See notes to the consolidated financial statements.
F-6
<PAGE> 80

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998, AND

THE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY -- CRL Network Services, Inc. and subsidiary ("CRL" or the
"Company") was incorporated in the state of California in 1993. CRL is a Tier 1
Internet service provider focused on offering tailored Internet and network
management solutions to small and medium-sized businesses across the United
States through a national fiber-optic data network.

UNAUDITED INTERIM FINANCIAL INFORMATION -- The interim financial information as
of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim information. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of CRL and its wholly owned subsidiary. All intercompany balances and
transactions have been eliminated.

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

CASH AND EQUIVALENTS -- The Company considers all highly liquid monetary
instruments with an original maturity of three months or less from the date of
purchase to be cash equivalents.

PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their useful lives. Equipment
held under capital leases is amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the asset. Estimated
useful lives are as follows:

<TABLE>
<S> <C>
Machinery, equipment and purchased software................. 3 to 5
Furniture and fixtures...................................... 5 to 7
Airplane.................................................... 10
</TABLE>

REVENUE RECOGNITION -- Revenues from colocation and internet connectivity
include internet and secure private network connectivity, remote management
services and hosting services. Revenues from these services are generally earned
from fixed term contracts lasting from 12 to 36 months. Revenues are recognized
on a pro rata basis when the services are performed. Deferred revenue represents
amounts billed in advance of services not yet provided. Revenues from systems
integration and hardware sales result from short term contracts and revenue is
recognized when hardware is shipped and the installation and integration is
complete.

ADVERTISING EXPENSES -- All costs related to marketing and advertising the
Company's products are expensed in the periods incurred. Advertising expenses
were $80, $27 and $60 for 1996, 1997 and 1998, respectively.

INCOME TAXES -- The Company accounts for income taxes using the asset and
liability method in accordance with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"). Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial

F-7
<PAGE> 81
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.

STOCK-BASED COMPENSATION -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees. Accordingly, no accounting recognition
is given to stock options granted at fair market value until they are exercised.
Compensation expense related to employee stock options is recorded if, on the
date of grant, the fair value of the underlying stock exceeds the exercise
price.

CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially subject
the Company to concentration of credit risk consist of trade receivables. The
Company's receivables are subject to geographic concentrations of credit risk.
This risk is mitigated by the Company's credit evaluation process and the
reasonably short collection terms. The Company does not require collateral or
other security to support accounts receivable and maintains reserves for
potential credit losses.

FINANCIAL INSTRUMENTS -- The Company's financial instruments include cash and
equivalents, accounts receivable and debt. At December 31, 1997 and 1998, the
carrying amounts of these instruments approximates their fair values.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF -- The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

NET INCOME (LOSS) PER SHARE -- Basic income (loss) per share excludes dilution
and is computed by dividing net income (loss) by the weighted-average number of
common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution that could occur if options to issue common
stock were exercised.

STOCKHOLDERS' EQUITY -- In August 1997, the Company's Board of Directors
authorized a 2,318 for 1 stock split. The stock split was effective and
distributed to the sole stockholder of record on August 8, 1997. Additionally,
in December 1998, the Company's Board of Directors authorized a 20 for 1 stock
split. The stock split was effective and distributed to the sole stockholder of
record on December 2, 1998. All share information in the financial statements
has been restated to give retroactive recognition to the stock splits.

In December 1998, the Board also authorized an increase in the number of
authorized shares of common stock to 200,000,000 (not giving effect to the
reincorporation).

COMPREHENSIVE INCOME -- There are no differences between comprehensive income
and net income as reported in the Company's statements of operations.

RECLASSIFICATIONS -- Certain prior years amounts have been reclassified to
conform to the current year presentation. Such reclassifications had no effect
on stockholders' equity or net income (loss).

RECENTLY ISSUED ACCOUNTING STANDARDS -- In March 1998, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance for an enterprise on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is

F-8
<PAGE> 82
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective for the Company in fiscal 1999. The Company anticipates that
accounting for transactions under SOP 98-1 will not have a material impact on
the Company's financial position or results of operations.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
conditions specified in SFAS No. 133 are met. SFAS No. 133 is effective for the
Company in fiscal 2000. The Company does not believe adoption of this statement
will have a material impact on the Company's financial position or results of
operations.

NOTE 2 -- MERGER

On December 21, 1998, the merger of Integral Networking Corporation ("Integral")
was completed. Under the terms of the Integral merger, which was accounted for
as a pooling-of-interests, 434,833 shares of CRL common stock were exchanged for
all of the outstanding Integral common shares at an exchange ratio of 5.80
shares of CRL for each share of Integral.

The financial information for all prior periods presented has been restated to
present the combined financial condition and results of operations for both
companies as if the merger had been in effect for all periods presented.

The following table presents a reconciliation of net sales and net income (loss)
previously reported by the company to those presented in the accompanying
consolidated financial statements.

<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Net sales:
CRL.......................................... $5,206 $ 9,340 $ 9,929
Integral..................................... 1,147 1,035 1,763
------ ------- -------
Combined....................................... $6,353 $10,375 $11,692
------ ------- -------
Net income (loss):
CRL.......................................... $ 237 $ 891 $ (123)
Integral..................................... (76) (6) (28)
------ ------- -------
Combined....................................... $ 161 $ 885 $ (151)
====== ======= =======
</TABLE>

NOTE 3 -- ALLOWANCES FOR DOUBTFUL ACCOUNTS

Allowances for doubtful accounts are estimated and established based on
historical experience and specific circumstances of each customer. Additions to
the allowance are charged to general and administrative expenses. Accounts
receivable are written off against the allowance for doubtful accounts when an
account is deemed uncollectible. Recoveries on accounts receivable previously
charged off as uncollectible are credited to the allowance for doubtful
accounts. Changes in the allowance for doubtful accounts were as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
1996 1997 1998 MARCH 31, 1999
---- ----- ---- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance................. $ 7 $ 96 $162 $ 484
Additions......................... 112 624 508 126
Writeoffs......................... (23) (558) (186) (126)
---- ----- ---- -----
Balance, end of period............ $ 96 $ 162 $484 484
==== ===== ==== =====
</TABLE>

F-9
<PAGE> 83
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Machinery, equipment and purchased software................ $2,892 $4,208
Furniture and equipment held under capital lease........... 265 135
Furniture and fixtures..................................... 191 558
Airplane................................................... 40 40
------ ------
Total............................................ 3,388 4,941
Less accumulated depreciation.............................. (1,587) (2,496)
------ ------
Total............................................ $1,801 $2,445
====== ======
</TABLE>

On April 15, 1997, the Company sold an airplane with book value of $148 for
$143.

The accumulated depreciation associated with furniture and equipment held under
capital lease was $70 and $67 at December 31, 1997 and 1998, respectively.

Effective January 1, 1998, the Company changed the estimated service lives of
its switches and routers from three to five years. The effect of this change in
estimate increased 1998 operating income by $237, increased net income by $142
and increased diluted earnings per share by $0.01.

NOTE 5 -- LONG-TERM OBLIGATIONS

On September 2, 1997, the Company entered into a revolving line of credit
agreement for $50 with a bank. As of December 31, 1998, the line had no
available credit and a variable interest rate that is 2.5% above the prime rate
(10.25% at December 31, 1998). All borrowings are to be repaid over a period of
no more than five years.

On September 26, 1997, the Company entered into a line of credit agreement for
$500 with a bank. As of December 31, 1998 the line has no available credit and
has a variable interest rate that is 1.75% above the prime rate (9.5% at
December 31, 1998). All borrowings are personally guaranteed by the Chief
Executive Officer and are to be repaid over a period of no more than 8 years. On
March 30, 1998, the Company entered into an equipment line of credit agreement
for $692 with a bank. The equipment line is available for one year at an
interest rate of prime plus 1.5% (9.25% at December 31, 1998). As of December
31, 1998 the line had $95 of available credit. All borrowings are personally
guaranteed by the Chief Executive Officer and are to be repaid over a period of
no more than eight years. At December 31, 1998, principal repayments under these
credit agreement are required as follows:

<TABLE>
<S> <C>
1999........................................................ $ 222
2000........................................................ 223
2001........................................................ 222
2002........................................................ 257
2003........................................................ 104
------
Total............................................. $1,028
======
</TABLE>

In September 1998 the Company entered into two additional credit agreements with
a bank. The first agreement makes $200 available for one year at an interest
rate of prime plus 1.5% for general business purpose. The second agreement is an
equipment line of credit for $650. The equipment line of credit is available for
one year with a variable interest rate of prime plus 1.8%. As of December
31,1998 the Company has had no borrowings under these agreements. All future
borrowings are to be repaid over a period of no more than eight years.

F-10
<PAGE> 84
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -- LONG-TERM OBLIGATIONS (CONTINUED)
Amounts borrowed under these agreements are secured by substantially all of the
Company's assets.

NOTE 6 -- INCOME TAXES

Income taxes consist of the following at December 31:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ 72 $412 $ 21
State............................................... 26 129 (23)
---- ---- ----
Total current............................... 98 541 (2)
---- ---- ----
Deferred:
Federal............................................. 42 49 41
State............................................... 10 1 48
---- ---- ----
Total deferred.............................. 52 50 89
---- ---- ----
Total provision............................. $150 $591 $ 87
==== ==== ====
</TABLE>

The primary components of the deferred tax accounts as of December 31 are as
follows:

<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Allowance for bad debts and other................ $ 27 $ 111 $ 120
Deferred rent.................................... (48) 1
Other............................................ 46 (10) (36)
----- ----- -----
Total current deferred tax assets........ $ 25 $ 101 $ 85
===== ===== =====
Noncurrent deferred tax assets (liabilities):
Deferred rent.................................... $ 8 $ 8 $ 9
Depreciation..................................... (84) (215) (386)
Federal net operating loss....................... 89
Cash to accrual adjustment....................... (42) (33) (25)
Other............................................ (6)
----- ----- -----
Total noncurrent deferred tax
liabilities............................ $(118) $(246) $(313)
===== ===== =====
</TABLE>

F-11
<PAGE> 85
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -- INCOME TAXES (CONTINUED)
The Company's effective tax rate differs from the federal statutory tax rate as
follows:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.............................. 34% 34% (34)%
State taxes, net of federal benefit..................... 6 6 (6)
Tax effect of permanent items........................... 72
50% disallowance of state tax net operating loss........ 7
Nondeductible compensation expense...................... 97
Disallowance of net operating losses.................... 12
Other................................................... (4) (1)
-- -- ---
Effective tax rate...................................... 48% 39% 136%
== == ===
</TABLE>

No valuation allowance has been established for the deferred tax asset.
Management believes that the Company will be able to realize the tax benefit of
the deferred tax assets based on expected future taxable income and the future
reversal of taxable temporary differences.

NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS

401(K) PLAN -- In September 1997, the Company implemented a 401(k) plan covering
all employees who have met eligibility requirements specified in the 401(k)
plan. Under the 401(k) plan, employees may elect to contribute up to 15% of
their eligible compensation (to a maximum of $10) to the 401(k) plan, subject to
limitations. The Company may make matching contributions at its discretion. As
of December 31, 1997 and 1998, the Company had not made any contributions to the
401(k) plan.

STOCK BASED COMPENSATION PLAN -- In August 1997, the Board of Directors approved
and the Company adopted the 1997 Equity Incentive Plan (the "Plan"). Under the
Plan, the Company may grant options to purchase 1,812,107 shares of common stock
to officers and employees. These options generally expire 10 years from the date
of grant and vest over a period of five years.

Option activity under the plans is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance, January 1, 1997........................... -- $ --
Granted............................................ 647,547 1.83
Canceled........................................... (66,667) 1.83
--------- -----
Balance, December 31, 1997 (no shares vested)...... 580,880 1.83
Granted............................................ 468,773 2.40
Canceled........................................... (96,666) 1.83
--------- -----
Balance, December 31, 1998......................... 952,987 $2.11
Granted (unaudited)................................ 53,333 3.41
--------- -----
Balance, March 31, 1999 (unaudited)................ 1,006,320 $2.18
========= =====
</TABLE>

At December 31, 1998, 96,843 shares were exercisable and 899,120 were available
for grant under the 1997 stock option plan.

During the year ended December 31, 1998, deferred compensation of $948 was
recorded for options granted of which $156 was amortized to compensation
expense. The remaining deferred compensation will be amortized over the balance
of the five-year vesting period of the stock options.

F-12
<PAGE> 86
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)

During the first quarter, CRL granted 43,333 stock options at a weighted average
exercise price of $2.73. These grants were made under the 1997 Equity Incentive
Plan. These options were granted below the fair market value of the stock on the
grant date. These transactions resulted in total deferred compensation expense
of $98. The compensation expense will be recorded over the five-year vesting
period of the options.

The following table summarizes information about currently outstanding and
vested stock options at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE VESTED AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1998 LIFE PRICE 1998 PRICE
-------------- -------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$1.83............................ 484,213 8.69 $1.83 96,843 $1.83
2.28............................ 332,107 9.71 2.28
2.73............................ 136,667 9.98 2.73
--------- ----- ------- -----
952,987 $2.11 96,843 $1.83
========= ===== ======= =====
</TABLE>

ADDITIONAL STOCK PLAN INFORMATION -- As discussed in Note 1, the Company
accounts for its stock-based awards to employees using the intrinsic value
method in accordance with APB No. 25, Accounting for Stock Issued to Employees,
and its related interpretations.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net income (loss) and earnings (loss) per share had the Company
adopted the fair value method since the Company's inception. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.

The Company's calculations for employee grants were made using the minimum
option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Dividend yield.............................................. None None
Risk free interest rate..................................... 5.7% 4.4%
Expected term, in years..................................... 5.5 3
</TABLE>

The weighted average minimum value per option as of the date of grant for
options granted during 1997 and 1998 was $0.48 and $2.13, respectively.

If the computed minimum values of the Company's stock-based awards to employees
had been amortized to expense over the vesting period of the awards as specified
under SFAS No. 123, loss attributable to

F-13
<PAGE> 87
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
common stockholders and basic and diluted loss per share on a pro forma basis
(as compared to such items as reported) would have been:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1997 1998
----- ------
<S> <C> <C>
Net income (loss) attributable to common stockholders:
As reported............................................... $ 885 $ (151)
Pro forma................................................. 828 (192)
Diluted net income (loss) per share:
As reported............................................... $0.05 $(0.01)
Pro forma................................................. 0.04 (0.01)
</TABLE>

NOTE 8 -- NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the denominators used in computing basic
and diluted net income (loss) per share (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Shares used in the computation of Basic EPS... 18,979 18,979 18,979 18,979 18,979
Effect of dilutive stock options.............. 163 304
------ ------ ------ ------ ------
Shares used in the computation of Diluted
EPS......................................... 18,979 19,142 18,979 19,283 18,979
====== ====== ====== ====== ======
</TABLE>

The Company had options to purchase 952,987 and 1,006,320 shares of common stock
at December 31, 1998, and March 31, 1999, respectively outstanding which could
potentially dilute basic earnings per share in the future, but were excluded in
the computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive.

NOTE 9 -- RELATED PARTY TRANSACTIONS

In August 1995, the Company received a 7.5% promissory note for $106 from a
stockholder for cash. The note specified that the entire principal plus accrued
interest were to be paid by July 10, 2000. During 1998, the stockholder repaid
the remaining amount outstanding.

In April 1996, the Company received an 8% promissory note for $25 from an
employee. The note specified that payment of principal and interest is to be
paid annually in the amount of $5 plus accrued interest until fully paid. At
December 31, 1998, the remaining balance on this note was $15.

In 1997 CRL entered into an agreement with FBN Holding Co. ("FBN") to lease
aircraft time. The sole owner of FBN is also the President and Chief Executive
Officer of CRL. This agreement may be canceled at any time by either party with
30-day notice. The amount paid to FBN for travel services under the agreement
amounted to $0, $104 and $144 for the years ended December 31, 1996, 1997 and
1998, respectively.

NOTE 10 -- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

CRL operates in a single industry segment encompassing internet access and
related managed data services and equipment sales. All of CRL's revenues in each
year is received from customers based in the

F-14
<PAGE> 88
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 -- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)

United States. Approximately $5,221, $8,181 and $8,950 of CRL's revenues were
received from customers in the thirteen Western U.S. states and $5,010, $7,653
and $8,174 was received from customers in California for 1996, 1997 and 1998,
respectively.

No single customer accounted for 10% or more of CRL's net sales in any year.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

LEASES -- CRL leases office and storage space under operating leases with terms
ranging from month-to-month to four years at various times through 2001. Rent
expense under all leases was $145, $224 and $377 for 1996, 1997 and 1998,
respectively. Future minimum lease payments for capital lease obligations and
net lease payments under noncancelable operating leases with remaining terms in
excess of one year at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASES
------------- ---------
<S> <C> <C>
Year ending December 31:
1999............................................... $49 $ 453
2000............................................... 38 326
2001............................................... 253
2002............................................... 205
2003............................................... 121
Thereafter......................................... 201
--- ------
Total minimum lease payments............... 87 $1,559
======
Less amount representing interest.................... (9)
---
Capital lease obligations............................ 78
Less current portion................................. (49)
---
Long-term portion.................................... $29
===
</TABLE>

TELECOMMUNICATIONS AND PEERING ARRANGEMENTS -- CRL enters into
telecommunications agreements with telephone companies who provide local access
for dial-up customers to CRL's Internet backbone. The terms of the service
agreements vary from one to two years and provide CRL with preferred rates. If
CRL prematurely cancels one of these service contracts, the service provider, at
their discretion, can charge the difference between their regular rates and the
preferred rate over the term of the service. In the past, no service provider
has exercised this option. Management believes that potential additional
charges, if any, from early cancellation of vendor service contracts would not
have a material effect on the financial statements.

CRL is party to numerous peering arrangements with other internet providers to
allow for the exchange of internet traffic. CRL does not record any revenue or
expense associated with these non-cash transactions as such transactions do not
represent the culmination of the earnings process and the fair value of such
transactions are not reasonably determinable.

Subject to few exceptions, CRL's peering relationships are not subject to any
written agreements and could be terminated at any time. For those peering
arrangements subject to contracts, there are no minimum fixed charges for data
exchange. Such agreements generally do impose minimum usage requirements at
levels which CRL has in the past always exceeded.

F-15
<PAGE> 89
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEGAL MATTERS -- CRL is involved in a limited number of claims and legal actions
arising out of the normal course of business. Management does not expect that
the outcome of these cases will have a material effect on CRL's financial
position, results of operations or cash flow.

QWEST DISPUTE -- CRL is currently in a dispute with Qwest Communications
Corporation involving fiber cable they own connecting several cities. Qwest
agreed to lease fiber that was to be installed and available to CRL by specified
dates. Qwest did not complete installation as agreed. CRL believes that Qwest is
obligated to provide free service as a result of the installation delay. As of
December 31, 1998, Qwest has demanded payment of $136 which includes a credit of
$108 for free service. CRL disputes the installation dates and application of
service order terms and is seeking to negotiate a settlement of the dispute. As
of December 31, 1998, no accrual had been made for the Qwest dispute.

NOTE 12 -- SUBSEQUENT EVENTS

On March 11, 1999, CRL terminated its relationship with FBN effective April 30,
1999 (see Note 9).

On March 18, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Stock Incentive Plan. A total of 1,000,000 shares of common
stock have initially been reserved for issuance under the 1999 Stock Incentive
Plan.

On March 18, 1999, the Board of Directors adopted, subject to stockholder
approval, the reincorporation of CRL in the State of Delaware and the associated
exchange of one share of common stock of CRL for every three shares of common
stock of CRL's California predecessor. Such reincorporation and stock exchange
will become effective prior to the effective date of the initial public offering
contemplated by CRL. All share and per share amounts in these financial
statements have been adjusted to give effect to the reincorporation and one for
three stock exchange. In addition, upon reincorporation in the State of
Delaware, the Board of Directors is authorized to issue up to 5,000,000 shares
of preferred stock in one or more series.

On April 28, 1999 CRL completed the reincorporation of CRL in the State of
Delaware and the associated exchange of one share of common stock of CRL for
every three shares of common stock of CRL's California predecessor.

F-16
<PAGE> 90

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

[LOGO]

COMMON STOCK
--------------------

PROSPECTUS
--------------------
, 1999

CIBC WORLD MARKETS

LEHMAN BROTHERS

- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL
INFORMATION FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
CIRCUMSTANCES WHERE THE OFFER OR SALE IS UNLAWFUL. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF
THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES
OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 91

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following costs and expenses, other than underwriting discounts and
commissions, payable by the Registrant in connection with this offering. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 22,240
NASD fee.................................................... 8,500
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving costs................................ 140,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 300,000
Blue Sky fees and expenses.................................. 3,000
Transfer agent and registrar fees and expenses.............. 3,500
Miscellaneous............................................... $ 7,760*
--------
Total............................................. $930,000*
========
</TABLE>

- -------------------------
* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of the State of Delaware provides for
the indemnification of officers and directors under certain circumstances
against expenses incurred in successfully defending against a claim and
authorizes Delaware corporations to indemnify their officers and directors under
certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director. Article VIII of the Registrant's Certificate of
Incorporation and the Registrant's Bylaws provide that all persons who the
Registrant is empowered to indemnify pursuant to the provisions of Section 145
of the Delaware General Corporation Law (or any similar provision or provisions
of applicable law at the time in effect), shall be indemnified by the Registrant
to the full extent permitted thereby. The foregoing right of indemnification
shall not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.

Section 102(b) of the Delaware General Corporation Law permits a corporation, by
so providing in its certificate of incorporation, to eliminate or limit
director's liability to the corporation and its stockholders for monetary
damages arising out of certain alleged breaches of their fiduciary duty. Section
102(b)(7) provides that no such limitation of liability may affect a director's
liability with respect to any of the following: (i) breaches of the director's
duty of loyalty to the corporation or its stockholders; (ii) acts or omissions
not made in good faith or which involve intentional misconduct of knowing
violations of law; (iii) liability for dividends paid or stock repurchased or
redeemed in violation of the Delaware General Corporation law; or (iv) any
transaction from which the director derived an improper personal benefit.
Section 102(b)(7) does not authorize any limitation on the ability of the
corporation or its stockholders to obtain injunction relief, specific
performance or other equitable relief against directors.

Reference is made to the Underwriting Agreement, the proposed form of which is
filed as Exhibit 1.1, pursuant to which the underwriters agree to indemnify the
directors and certain officers of the Registrant and certain other persons in
certain circumstances.

II-1
<PAGE> 92

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since January 1, 1996, the Registrant's predecessor company has issued and sold
the following securities:

On December 21, 1998, the Registrant issued 413,091 shares of common stock to
Robert Ross and 21,741 shares of common stock to Jim and Judy Linstruth (after
giving effect to the Registrant's reincorporation in Delaware and the associated
exchange of one share of common stock of CRL for every three shares of common
stock of CRL's California predecessor), the three former shareholders of
Integral Network Corporation, as consideration for all the outstanding shares of
Integral Network Corporation.

The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
promulgated thereunder. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
now with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access to information about the
Registrant.

On April 27, 1999, Philip Burkhart exercised his option to purchase 60,000
shares of common stock for an aggregate purchase price of $109,800. The issuance
of these securities was exempt from registration under the Securities Act in
reliance on Rule 701 promulgated under the Securities Act. Such issuance was
made pursuant to the Registrant's 1997 Equity Incentive Plan.

Prior to the closing of this offering, CRL Network Services, Inc., a California
corporation ("CRL California"), will merge with and into its wholly-owned
subsidiary, CRL Network Services, Inc., a Delaware corporation ("CRL Delaware").
In connection with the merger, CRL Delaware will issue shares of common stock to
the holders of common stock of CRL California, such that the holders of common
stock of CRL California will receive a proportionate interest in CRL Delaware
common stock, without giving effect to the offering. The issuance of the
securities and such reincorporation will be exempt from the registration
requirements of the Securities Act of 1933, as amended, due to the exemptions
from registration provided by Sections 3(a)(9) and 4(2) thereof.

ITEM 16. EXHIBITS

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.(1)
2.1 Certificate of Merger between the Registrant and CRL Network
Services, Inc., a California corporation ("CRL California").
3.1 Articles of Incorporation of CRL California.(1)
3.2 Certificate of Incorporation of the Registrant.(1)
3.3 Bylaws of CRL California.(1)
3.4 Bylaws of the Registrant.
4.1+ Specimen form of Registrant's Common Stock Certificate.
5.1+ Opinion of Gibson, Dunn & Crutcher LLP.
10.1 Employment Agreement between the Registrant and James G.
Couch dated as of March 15, 1999.(1)
10.2 Employment Agreement between the Registrant and Robert A.
Ross dated December 21, 1998.(1)
10.3 1997 Equity Incentive Plan.(1)
10.4 1999 Stock Incentive Plan.
</TABLE>

II-2
<PAGE> 93

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.5 Equipment Lease between Saddleback Financial Corporation and
CRL Network Services, Inc. executed on June 12, 1997.(1)
10.6 Addendum to Lease between Saddleback Financial Corporation
and CRL Network Services, Inc. executed June 12, 1997.(1)
10.7 Mandatory Purchase Option Letter between Saddleback
Financial Corporation and CRL Network Services, Inc.
executed June 12, 1997.(1)
10.8 Wells Fargo Bank $500,000 Equipment Line of Credit made
available to CRL Network Services dated September 25,
1997.(1)
10.9 Wells Fargo Bank $692,000 Equipment Line of Credit made
available to CRL Network Services dated March 30, 1998.(1)
10.10 Wells Fargo Bank $650,000 Equipment Line of Credit made
available to CRL Network Services dated September 29,
1998.(1)
10.11 Wells Fargo Bank $200,000 PrimeLine of Credit made available
to CRL Network Services dated September 28, 1998.(1)
10.12** Agreement between Pacific Bell and CRL Network Services
dated as of September 22, 1998.(1)
10.13** Master Services Agreement between GST-Telecom California
Inc. and CRL Network Services dated August 31, 1998.(2)
10.14 Domestic (U.S.) Direct Peering Agreement between MCI
Telecommunications Corporation and CRL Network Services
dated August 1, 1998.(2)
10.15** Agreement between CRL Network Services, Inc. and the
National Aeronautics and Space Administration dated July 16,
1998.(1)
10.16** Service Agreement between IXC Carrier, Inc. and CRL Network
Services dated April 22, 1996.(2)
10.17** Amendment #1 to Service Agreement between IXC Carrier, Inc.
and CRL Network Services dated April 16, 1997.(2)
10.18** Terms and Conditions Governing the Provision of Network
Connectivity Products and Services by Sprint dated January
6, 1998.(1)
10.19** Private Line Services Agreement between Qwest Communications
Corporation and CRL Network Services dated October 10,
1997.(2)
10.20 Reimbursable Space Act Agreement between the National
Aeronautics and Space Administration Ames Research Center
and CRL Network Services, Inc. dated December 3, 1996 and
executed March 7, 1997.(1)
10.21 Office Lease Agreement between Maria Chen, as Lessor and the
Registrant dated December 5, 1995.(1)
10.22 Amendment to lease by and between Maria Chen and the
Registrant dated December 1, 1998.(1)
10.23 The 120 Montgomery Street Office Lease dated February 4,
1994 between the Equitable Montgomery Company and Orrell &
Company, Inc.(1)
10.24 Sublease between Orrell & Company, Inc., 120 Montgomery
Associates, LLC and the Registrant dated February 20,
1998.(1)
10.25 Office Lease between WHLNF Real Estate Limited Partnership
and the Registrant dated August 28, 1998.(1)
10.26 Office Lease between One Wilshire Arcade Imperial, Ltd. by
Paramount Group, Inc. and the Registrant dated March 8,
1998.(1)
</TABLE>

II-3
<PAGE> 94

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.27 Deed of Lease between Gosnell Properties, Inc. and the
Registrant dated September 20, 1996.(1)
10.28 Standard Industrial Lease -- Multi Tenant between Robert A.
Bell and Bob Ross, d/b/a/ Integral Network Corporation dated
March 30, 1998.(1)
10.29 Qualified Retirement Plan and Trust Defined Contribution
Basic Plan Document.(1)
10.30 Defined Contribution Plan and Trust Adoption Agreement.(1)
10.31 Agreement and Plan of Reorganization among the Registrant,
Integral Networking Corporation, RMS Sub Inc. and the
shareholders of Integral Networking Corporation dated
December 21, 1998.(1)
10.32 U.S. Simply Business Premium Line Agreement between Integral
Networking Corporation and U.S. Bank dated September 2,
1997.(1)
10.33 Airplane Leasing Agreement dated February 15, 1999, between
the Registrant and FBN Holding Corp.(1)
21.1+ Subsidiaries of the Registrant.(1)
23.1+ Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Jack M. Fields, Jr.(1)
23.4 Consent of Steven T. Stenberg.(1)
23.5 Consent of John A. Blair.(1)
23.6 Consent of Thor Geir Ramleth.(1)
24.1 Power of Attorney.(1)
24.2 Power of Attorney for Robert B. Murphy, Jr.
27.1 Financial Data Schedule.(1)
</TABLE>

- -------------------------
+ To be filed by amendment.

** Confidential treatment request as to certain portions of exhibit.

(1) Previously filed as an exhibit to the Registrant's Registration on Form S-1
(File No. 333-34793) filed with the Commission on March 22, 1999.

(2) Previously filed as an exhibit to Amendment No. 1 to the Registration
Statement filed with the Commission on April 2, 1999.

ITEM 17. UNDERTAKINGS

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

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

II-4
<PAGE> 95

The undersigned Registrant hereby undertakes that:

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

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

II-5
<PAGE> 96

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on the 28th day of April 1999.

CRL Network Services, Inc.

By: /s/ JAMES G. COUCH
------------------------------------
James G. Couch
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement on Form S-1 has been signed below
by the following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JAMES G. COUCH President, Chief Executive Officer, April 28, 1999
- ------------------------------------------ Chairman of the Board and Secretary
James G. Couch (Principal Executive Officer)

* Executive Vice President and Chief April 28, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Robert B. Murphy, Jr. Officer)

* Vice President of Finance (Principal April 28, 1999
- ------------------------------------------ Accounting Officer)
Robyn L. Raschke

* Director April 28, 1999
- ------------------------------------------
Steven T. Stenberg
</TABLE>

* By: /s/ JAMES G. COUCH
-------------------------
James G. Couch
Attorney-in-fact

II-6

<PAGE> 1

EXHIBIT 2.1

CERTIFICATE OF OWNERSHIP AND MERGER

MERGING

CRL NETWORK SERVICES, INC.
(A CALIFORNIA CORPORATION)

INTO

CRL NETWORK SERVICES, INC.
(A DELAWARE CORPORATION)

(PURSUANT TO SECTION 253 OF THE
DELAWARE GENERAL CORPORATION LAW)

CRL Network Services, Inc., a California corporation (this
"Corporation"), does hereby certify:

FIRST: That this Corporation is incorporated pursuant to the General
Corporation Law of the State of California.

SECOND: That this Corporation owns all of the outstanding shares of each
class of the capital stock of CRL Network Services, Inc., a Delaware corporation
("CRL Delaware").

THIRD: That this Corporation, by the following resolutions of its Board
of Directors, duly adopted on the 27th day of April 1999, determined to
merge this Corporation into CRL Delaware (the "Merger") on the conditions set
forth in such resolutions:

WHEREAS, this Corporation owns all of the outstanding shares of each
class of the capital stock of CRL Network Services, Inc., a Delaware corporation
("CRL Delaware"); and

WHEREAS, this Corporation desires to merge this Corporation into CRL
Delaware pursuant to the provisions of Section 1108 of the California
Corporations Code and Section 253 of the Delaware General Corporation Law with
CRL Delaware being the surviving corporation in the merger; and

WHEREAS, it has been proposed, and it is in the best interest of this
Corporation, that this Corporation be merged with and into CRL Delaware, with
CRL Delaware being the surviving corporation; and

WHEREAS, Section 1108 of the California Corporations Code provides that
a California corporation may merge with a foreign corporation.

NOW THEREFORE BE IT RESOLVED, that this Corporation will merge with and
into CRL Delaware, its subsidiary, with CRL Delaware as the surviving
corporation; and

<PAGE> 2

RESOLVED FURTHER, that upon the proposed merger becoming effective,
every three (3) shares of common stock of this Corporation shall be
automatically converted into one (1) share of common stock of CRL Delaware;

RESOLVED FURTHER, that CRL Delaware shall assume all of the liabilities
and obligations of this Corporation after such merger is effective; and

RESOLVED FURTHER, that any action taken prior to the date hereof by any
officer of this Corporation in connection with the subject matter of these
resolutions be, and hereby is, ratified and confirmed as the acts and deeds of
this Corporation; and

RESOLVED FURTHER, that the officers of this Corporation be, and each of
them hereby is, authorized and directed to execute, deliver and file all such
other applications, certificates, documents, instruments, notices or reports,
and to take all such other actions, as such officers shall deem necessary or
appropriate to effect the purposes of the foregoing resolutions, the execution,
delivery and filing of such other applications, certificates, documents,
instruments, notices or reports, or the taking of such other actions, to be
conclusive evidence of the necessity or appropriateness thereof.

FOURTH: that the Merger has been adopted and approved by the
shareholders of this Corporation in accordance with the laws of its state of
incorporation

FIFTH: The Merger shall become effective upon the filing of this
Certificate of Ownership and Merger in the Office of the Secretary of State of
the State of Delaware.

2
<PAGE> 3

IN WITNESS WHEREOF, this Corporation has caused this Certificate to be
signed by James G. Couch, its President, Chief Executive Officer and Secretary,
as of this 28th day of April 1999.

CRL NETWORK SERVICES, INC.,
a California corporation

By: /s/ James G. Couch
--------------------------------------
James G. Couch
President, Chief Executive Officer
and Secretary

<PAGE> 1
EXHIBIT 3.4

CRL NETWORK SERVICES, INC.
(a Delaware corporation)

BYLAWS

ARTICLE I

OFFICES

SECTION 1.01 Registered Office. The registered office of CRL
Network Services, Inc. (hereinafter called the Corporation) in the State of
Delaware shall be at 9 East Loockerman Street, City of Dover, County of Kent,
and the name of the registered agent in charge thereof shall be National
Registered Agents, Inc.

SECTION 1.02 Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors (hereinafter called the Board) may
from time to time determine or as the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 2.01 Annual Meetings. Annual meetings of the stockholders
of the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.

SECTION 2.02 Special Meetings. A special meeting of the
stockholders for the transaction of any proper business may be called at any
time by the Board, or by the chairman of the Board, or by the President. No
other person or persons are permitted to call a special meeting.

SECTION 2.03 Place of Meetings. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.

SECTION 2.04 Notice of Meetings. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address furnished by him to the
Secretary of the Corporation for such purpose or, if he shall not have furnished
to the Secretary his address for

1
<PAGE> 2

such purpose, then at his post office address last known to the Secretary.
Except as otherwise expressly required by law, no publication of any notice of a
meeting of the stockholders shall be required. Every notice of a meeting of the
stockholders shall state the place, date and hour of the meeting, and, in the
case of a special meeting, shall also state the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any adjourned
meeting of the stockholders need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken.

SECTION 2.05 Quorum. Except in the case of any meeting for the
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.

SECTION 2.06 Voting.

(a) Each stockholder shall, at each meeting of the stockholders,
be entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:

(i) on the date fixed pursuant to Section 6.05 of these
Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting, or

(ii) if no such record date shall have been so fixed, then
(a) at the close of business on the day next preceding the day on
which notice of the meeting shall be given or (b) if notice of
the meeting shall be waived, at the close of business on the day
next preceding the day on which the meeting shall be held.

(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary

<PAGE> 3

capacity shall be entitled to vote such stock. Persons whose stock is pledged
shall be entitled to vote, unless in the transfer by the pledgor on the books of
the Corporation he shall have expressly empowered the pledgee to vote thereon,
in which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.

(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.

SECTION 2.07 List of Stockholders. The Secretary of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.

SECTION 2.08 Judges. If at any meeting of the stockholders a vote
by written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and shall
report the number of shares represented at the meeting and entitled to vote on
such question, shall conduct and accept the votes, and, when the voting is
completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The judges
need not be stockholders of the Corporation, and any officer of the Corporation
may be a judge

3
<PAGE> 4

on any question other than a vote for or against a proposal in which he shall
have a material interest.

SECTION 2.09 Action Without Meeting. Any action required to be
taken at any annual or special meeting of stockholders of the Corporation, or
any action that may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Notwithstanding the foregoing, if at any time the
Corporation shall have a class of stock registered pursuant to the provisions of
the Securities Exchange Act of 1934, as amended, for so long as such class is so
registered, any action by the stockholders of such class must be taken at an
annual or special meeting of stockholders and may not be taken by written
consent.

SECTION 2.10 Advance Notice of Stockholder Business. At any
meeting of the stockholders, only such business shall be conducted as shall have
been brought before the meeting (i) by or at the direction of the Board or (ii)
by any stockholder of the Corporation who complies with the notice procedures
set forth in this Section 2.10 and Section 2.11 of Article II. For business to
be properly brought before any meeting of the stockholders by a stockholder, the
stockholder must have given notice thereof in writing to the Secretary of the
Corporation not less than 90 days in advance of such meeting or, if later, the
tenth day following the first public announcement of the date of such meeting,
and such business must be a proper matter for stockholder action under the
General Corporation Law of the State of Delaware. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (1) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(2) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (3) the class and number of shares of the
Corporation that are beneficially owned by the stockholder, and (4) any material
interest of the stockholder in such business. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the Corporation. The chairman of any such meeting shall have the
power and the duty to determine whether any business proposed to be brought
before the meeting has been made in accordance with the procedure set forth in
these Bylaws and shall direct that any business not properly brought before the
meeting shall not be considered. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting of the stockholders
except in accordance with the procedures set forth in this Section 2.10 and
Section 2.11 of Article II. For purposes of this Section 2.10 and Section 2.11
of Article II, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, or any successor provision.

4
<PAGE> 5

SECTION 2.11 Advance Notice of Stockholder Nominees. Nominations
for the election of directors may be made by the Board or by any stockholder
entitled to vote in the election of directors; provided, however, that a
stockholder may nominate a person for election as a director at a meeting only
if written notice of such stockholder's intent to make such nomination has been
given to the Secretary of the Corporation not later than 90 days in advance of
such meeting or, if later, the tenth day following the first public announcement
of the date of such meeting. Each such notice shall set forth: (i) the name and
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (ii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting and nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, by the Board; and (v) the consent of each nominee to
serve as a director of the Corporation if so elected. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation. Notwithstanding the foregoing
provisions of this Section 2.11 of Article II, in the event that the number of
directors to be elected to the Board is increased and there is no public
announcement naming either all of the nominees for director or specifying the
size of the increased Board made by the Corporation at least 100 days in advance
of such meeting, a stockholder's notice required by this Section 2.11 of Article
II shall be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary of
the Corporation not later than the tenth day following the day on which such
public announcement is first made by the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 2.11 of Article II. The
chairman of any meeting of stockholders shall have the power and the duty to
determine whether a nomination has been made in accordance with the procedure
set forth in this Section 2.11 of Article II and shall direct that any
nomination not made in accordance with these procedures be disregarded.

ARTICLE III

BOARD OF DIRECTORS

SECTION 3.01 General Powers. The property, business and affairs
of the Corporation shall be managed by the Board.

SECTION 3.02 Number and Term of Office. The number of directors
which shall constitute the whole board shall not be less than two (2) nor more
than seven (7). The first board shall consist of two (2) directors. Thereafter,
within the limits specified, the number of directors shall be determined by
resolution of the board of directors. Directors need not be stockholders. Each
of the directors of the Corporation shall hold office until his successor shall
have been duly elected and shall qualify or until he shall resign or shall have
been removed in the manner hereinafter provided.

5
<PAGE> 6

SECTION 3.03 Election of Directors. Subject to the provisions of
the Certificate of Incorporation, the Board of Directors shall be classified
into three classes and the members of each class shall serve for a term of three
years. At the first annual meeting of stockholders, one-third of the directors
shall be elected for a term of three years, one-third of the directors shall be
elected for a term of two years and one-third of the directors shall be elected
for a term of one year. If the number of directors is not divisible by three,
the first extra director shall be elected for a term of three years and the
second extra director, if any, shall be elected for a term of two years. At any
subsequent annual meeting of stockholders, a number of directors shall be
elected equal to the number of directors with terms expiring at that annual
meeting. Directors elected at each such annual meeting shall be elected for a
term expiring with the annual meeting of stockholders three years thereafter.
There shall be no right with respect to the shares of stock of the Corporation
to cumulate votes in the election of directors.

SECTION 3.04 Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

SECTION 3.05 Vacancies. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed in the manner
hereinafter provided. If at any time the corporation should have no directors in
office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation and these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of Delaware.

SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.

SECTION 3.07 First Meeting. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.

SECTION 3.08 Regular Meetings. Regular meetings of the Board may
be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then

6
<PAGE> 7

the meeting shall be held at the same hour and place on the next succeeding
business day not a legal holiday. Except as provided by law, notice of regular
meetings need not be given.

SECTION 3.09 Special Meetings. Special meetings of the Board
shall be held whenever called by the President, the Chairman of the Board or a
majority of the authorized number of directors. Except as otherwise provided by
law or by these Bylaws, notice of the time and place of each such special
meeting shall be mailed to each director, addressed to him at his residence or
usual place of business, at least five (5) days before the day on which the
meeting is to be held, or shall be sent to him or her at such place via
facsimile or be delivered personally or by telephone not less than forty-eight
(48) hours before the time at which the meeting is to be held. Except where
otherwise required by law or by these Bylaws, notice of the purpose of a special
meeting need not be given. Notice of any meeting of the Board shall not be
required to be given to any director who shall have waived such notice and such
notice shall be deemed waived by any director who shall attend such meeting,
except a director who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.

SECTION 3.10 Quorum and Manner of Acting. Except as otherwise
provided in these Bylaws, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.

SECTION 3.11 Action by Consent. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.

SECTION 3.12 Removal of Directors. Subject to the provisions of
the Certificate of Incorporation, any director may be removed at any time, but
only for cause and only by the affirmative vote of the stockholders having 80%
of the total number of shares of the Corporation entitled to vote thereon, but
only if notice of such proposal was contained in the notice of the stockholders'
meeting.

SECTION 3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him because of his attendance at any
meetings of the Board or Committees of the Board. Neither the payment of such
compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.

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SECTION 3.14 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers that may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member.

ARTICLE IV

OFFICERS

SECTION 4.01 Number. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof and their respective
titles to be determined by the Board), a Secretary and a Chief Financial
Officer. A president may be elected by the Board and the Board may elect such
other officers as the Board deems necessary to the Corporation.

SECTION 4.02 Election, Term of Office and Qualifications. The
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected by the Board. Each officer shall
hold office until his successor shall have been duly chosen and shall qualify or
until his resignation or removal in the manner hereinafter provided.

SECTION 4.03 Assistants, Agents and Employees, Etc. In addition
to the officers specified in Section 4.01, the Board may appoint other
assistants, agents and employees as it may deem necessary or advisable,
including one or more Assistant Secretaries, and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as the Board may from time to time determine. The Board
may delegate to any officer of the Corporation or any committee of the Board the
power to appoint, remove and prescribe the duties of any such assistants, agents
or employees.

SECTION 4.04 Removal. Any officer, assistant, agent or employee
of the Corporation may be removed, with or without cause, at any time: (i) in
the case of an officer, assistant, agent or employee appointed by the Board,
only by resolution of the Board; and (ii) in the case of an officer, assistant,
agent or employee, by any officer of the Corporation or committee of the Board
upon whom or which such power of removal may be conferred by the Board.

SECTION 4.05 Resignations. Any officer or assistant may resign at
any time by giving written notice of his resignation to the Board or the
Secretary of the Corporation.

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Any such resignation shall take effect at the time specified therein, or, if the
time be not specified, upon receipt thereof by the Board or the Secretary, as
the case may be; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.

SECTION 4.07 The President. The President of the Corporation
shall have, subject to the control of the Board, general and active supervision
and management over the business of the Corporation and over its several
officers, assistants, agents and employees. The President shall have the general
powers and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board or these bylaws.

SECTION 4.08 The Vice Presidents. Each Vice President shall have
such powers and perform such duties as the Board may from time to time
prescribe. At the request of the President, or in case of the President's
absence or inability to act upon the request of the Board, a Vice President
shall perform the duties of the President and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President.

SECTION 4.09 The Secretary. The Secretary shall, if present,
record the proceedings of all meetings of the Board, of the stockholders, and of
all committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.

SECTION 4.10 The Chief Financial Officer. The Chief Financial
Officer shall have the general care and custody of the funds and securities of
the Corporation, and shall deposit all such funds in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected by the
Board. He shall receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever. He shall exercise general supervision
over expenditures and disbursements made by officers, agents and employees of
the Corporation and the preparation of such records and reports in connection
therewith as may be necessary or desirable. He shall, in general, perform all
other duties incident to the office of Chief Financial Officer and such other
duties as from time to time may be assigned to him by the Board.

SECTION 4.11 Representation of Shares of Other Corporations. The
chairman of the Board, the President, any Vice President, the Chief Financial
Officer or any other person authorized by the Board or the President or Vice
President, is authorized to vote,

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represent and exercise on behalf of this Corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.

SECTION 4.12 Compensation. The compensation of the officers of
the Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving proper compensation therefor.

ARTICLE V

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 5.01 Execution of Contracts. The Board, except as in
these Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.

SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.

SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the President, any Vice
President or the Chief Financial Officer (or any other officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of the
Corporation who shall from time to time be determined by the Board) may endorse,
assign and deliver checks, drafts and other orders for the payment of money
which are payable to the order of the Corporation.

SECTION 5.04 General and Special Bank Accounts. The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by

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any officer or officers, assistant or assistants, agent or agents, or attorney
or attorneys of the Corporation to whom such power shall have been delegated by
the Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these Bylaws, as it
may deem expedient.

ARTICLE VI

SHARES AND THEIR TRANSFER

SECTION 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Chief Financial Officer or the Treasurer or an Assistant Treasurer. Any
of or all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate, shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent or
registrar at the date of issue. A record shall be kept of the respective names
of the persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.04.

SECTION 6.02 Transfers of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.

SECTION 6.03 Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer

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agents and one or more registrars, and may require all certificates for stock to
bear the signature or signatures of any of them.

SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates.
In any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.

SECTION 6.05 Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders or expressing consent to corporate action without a meeting the
Board shall not fix such a record date, the record date for determining
stockholders for such purpose shall be the close of business on the day on which
the Board shall adopt the resolution relating thereto. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.

ARTICLE VII

INDEMNIFICATION

SECTION 7.01 Action, Etc. Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with

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respect to any criminal action or proceeding, that he had reasonable cause to
believe that his conduct was unlawful.

SECTION 7.02 Actions, Etc., by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

SECTION 7.03 Determination of Right of Indemnification. Unless
otherwise ordered by a court of competent jurisdiction, any indemnification
under Sections 7.01 or 7.02 of this Article VII shall be made by the Corporation
to any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, unless a determination is reasonably and
promptly made, either (i) by the Board of Directors acting by a majority vote of
a quorum consisting of directors who were not a party to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, if obtainable, such
quorum so directs, by independent legal counsel in a written opinion, or (iii)
by the stockholders, that such person acted in bad faith and in a manner that
such person did not believe to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe, that his or her conduct was
unlawful.

SECTION 7.04 Indemnification Against Expenses of Successful
Party. Notwithstanding the other provisions of this Article, to the extent that
a director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be

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indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.

SECTION 7.06 Other Rights and Remedies. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

SECTION 7.07 Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.

SECTION 7.08 Constituent Corporations. For the purposes of this
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.

SECTION 7.09 Other Enterprises, Fines, and Serving at
Corporation's Request. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01 Seal. The Board may provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures

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showing that the Corporation was incorporated in the State of Delaware and the
year of incorporation.

SECTION 8.02 Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.

SECTION 8.03 Amendments. These Bylaws, or any of them, may be
altered, amended or repealed, and new Bylaws may be made, (i) by the Board, by
vote of a majority of the number of directors then in office as directors,
acting at any meeting of the Board, or (ii) by the stockholders, by a vote of a
majority of the shares entitled to vote thereon, provided that notice of such
proposed amendment, modification, repeal or adoption is given in the notice of
the stockholders' meeting. Any Bylaws made or altered by the stockholders may be
altered or repealed by either the Board or the stockholders. Notwithstanding the
foregoing, the affirmative vote of 80% of the total number of the then
outstanding shares of capital stock of this Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provision inconsistent with the
purpose or intent of, the following sections of these Bylaws: Sections 2.02
(Special Meeting), 2.09 (Action without Meeting), 2.10 (Advance Notice of
Stockholder Business), 2.11 (Advance Notice of Stockholder Nominees), 3.12
(Removal of Directors) and 8.03 (Amendments).

<PAGE> 1

EXHIBIT 10.4

1999 STOCK INCENTIVE PLAN

CRL NETWORK SERVICES, INC.

March 18, 1999

SECTION 1. PURPOSE OF PLAN

The purpose of this 1999 Stock Incentive Plan (this "Plan") of CRL
Network Services, Inc. (the "Company"), is to enable the Company to attract,
retain and motivate its employees and consultants by providing for or increasing
the proprietary interests of such employees and consultants in the Company, and
to enable the Company to attract, retain and motivate its non-employee directors
and further align their interest with those of the stockholders of the Company
by providing for or increasing the proprietary interest of such directors in the
Company.

SECTION 2. PERSONS ELIGIBLE UNDER PLAN

Any person, including any director of the Company, who is an
officer or employee of or consultant to the Company or any of its subsidiaries
(an "Employee") and any director of the Company who is not an Employee (a
"Nonemployee Director") shall be eligible to be considered for the grant of
Awards (as defined herein); provided that only persons who are employees of the
Company shall be eligible to be considered for the grant of "Incentive Stock
Options" (as defined herein).

SECTION 3. AWARDS

(a) The Board of Directors or the Committee (as hereinafter
defined), on behalf of the Company, is authorized under this Plan to enter into
any type of arrangement with an Employee or a Nonemployee Director that is not
inconsistent with the provisions of this Plan and that, by its terms, involves
or might involve the issuance of (i) shares of Common Stock, par value $.01 per
share, of the Company (collectively "Common Shares"), or (ii) a right or
interest with an exercise or conversion privilege at a price related to the
Common Shares or with a value derived from the value of the Common Shares, which
right or interest may, but need not, constitute a Derivative Security (as such
term is defined in Rule 16a-1 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as such rule may be amended from time to
time). The entering into of any such arrangement is referred to herein as the
"grant" of an "Award."

(b) Common Shares may be issued pursuant to an Award for any
lawful consideration as determined by the Committee, including, without
limitation, services rendered by the recipient of such Award.

<PAGE> 2

(c) Awards are not restricted to any specified form or structure
and may include, without limitation, sales or bonuses of stock, restricted
stock, stock options, reload stock options, stock purchase warrants, other
rights to acquire stock, securities convertible into or redeemable for stock,
stock appreciation rights, limited stock appreciation rights, phantom stock,
dividend equivalents, performance units or performance shares, and an Award may
consist of one such security or benefit or two or more of them in tandem or in
the alternative.

(d) Subject to the provisions of this Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:

(i) a provision permitting the recipient of such Award,
including any recipient who is a director or officer of the Company, to
pay the purchase price of the Common Shares or other property issuable
pursuant to such Award, and/or such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by any
one or more of the following:

(A) the delivery of cash or a promissory note, the
terms and conditions of which shall be determined by the
Committee,

(B) the delivery of previously owned shares of
capital stock of the Company (including "pyramiding") or other
property deemed acceptable by the Committee, provided that the
Company is not then prohibited from purchasing or acquiring
shares of its capital stock or such other property,

(D) any other lawful consideration deemed
acceptable by the Committee.

(ii) a provision specifying the exercise or settlement
price for any option, stock appreciation right or similar Award, or
specifying the method by which such price is determined; provided, that,
if the Company is subject to the reporting requirements of the Exchange
Act, the exercise or settlement price of any option, stock appreciation
right or similar Award that is intended to qualify as performance based
compensation ("Performance Based Compensation") for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
shall be not less than the fair market value of a Common Share on the
date such Award is granted;

(iii) a provision relating to the exercisability and/or
vesting of Awards, lapse and non-lapse restrictions upon the Common
Shares obtained or obtainable under Awards or under the Plan and the
termination, expiration and/or forfeiture of Awards;

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(iv) a provision conditioning or accelerating the receipt
of benefits pursuant to such Award, either automatically or in the
discretion of the Committee, upon the occurrence of specified events,
including, without limitation, a change of control of the Company (as
defined by the Committee), an acquisition of a specified percentage of
the voting power of the Company, the dissolution or liquidation of the
Company, a sale of substantially all of the property and assets of the
Company or an event of the type described in Section 8 hereof; and/or

(v) any provisions required in order for such Award to
qualify as an incentive stock option (an "Incentive Stock Option") under
Section 422 of the Code, provided that the recipient of such Award is
eligible under the Code to receive an Incentive Stock Option, and, if
the Company is subject to the reporting requirements of the Exchange
Act, any provisions required in order for such Award to qualify (A) as
Performance Based Compensation and/or (B) for an exemption from Section
16 of the Exchange Act.

(e) Notwithstanding any other provision of this Plan, no
Nonemployee Director shall be granted Awards in excess of 150,000 shares of
Common Stock during any one calendar year. The limitation set forth in this
Section 3(e) shall be subject to adjustment as provided in Section 8 hereof, but
only to the extent such adjustment would not affect the status of compensation
attributable to Awards hereunder as Performance-Based Compensation.

SECTION 4. GRANTS TO NON-EMPLOYEE DIRECTORS

(a) Each non-employee director of the Company shall receive an
option to purchase a minimum of a number of shares of Common Stock upon such
director's appointment to the Board of Directors as is determined by resolution
of the Board of Directors. The terms and conditions of such award shall be
determined by the Committee.

(b) On the date of the Company's next annual meeting of
stockholders, and each subsequent year thereafter, each non-employee director
who has been re-elected as director shall receive an option to purchase
15,000 shares of Common Stock. The terms and conditions of such award shall
be determined by the Committee.

(c) In its discretion, the Committee may increase the number of
shares purchasable upon exercise of such option for any director individually,
provided that the total number of shares purchasable upon exercise of all
options granted to any non-employee director in any year shall not be greater
than 150,000 shares.

SECTION 5. STOCK SUBJECT TO PLAN

(a) The aggregate number of Common Shares that may be issued
pursuant to all Incentive Stock Options granted under this Plan shall not exceed
3,000,000, subject to adjustment as provided in Section 8 hereof.

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(b) The aggregate number of Common Shares issued and issuable
pursuant to all Awards (including Incentive Stock Options) granted under this
Plan shall not exceed 3,000,000, subject to adjustment as provided in Section
8 hereof.

(c) For purposes of Section 5(b) hereof, the aggregate number of
Common Shares issued and issuable pursuant to all Awards granted under this Plan
shall at any time be deemed to be equal to the sum of the following:

(i) the number of Common Shares that were issued prior to
such time pursuant to Awards granted under this Plan, other than Common
Shares that were subsequently reacquired by the Company pursuant to the
terms and conditions of such Awards and with respect to which the holder
thereof received no benefits of ownership such as dividends; plus

(ii) the number of Common Shares that were otherwise
issuable prior to such time pursuant to Awards granted under this Plan,
but that were withheld by the Company as payment of the purchase price
of the Common Shares issued pursuant to such Awards or as payment of the
recipient's tax withholding obligation with respect to such issuance;
plus

(iii) the maximum number of Common Shares issuable at or
after such time pursuant to Awards granted under this Plan prior to such
time.

(d) The "Fair Market Value" of a Common Share or other security
on any date (the "Determination Date") shall be determined as follows:

(i) If the Common Shares are not publicly traded on the
business day immediately preceding the Determination Date, then Fair
Market Value shall equal the price at which one could reasonably expect
such Common Shares to be sold in an arm's length transaction, for cash,
other than on an installment basis, to a person not employed by,
controlled by, in control of or under common control with the issuer of
such Common Shares. Such Fair Market Value shall be that which has
currently or most recently been determined for this purpose by the Board
or at the discretion of the Board, by an independent appraiser or
appraisers selected by the Board, in either case giving due
consideration to recent transactions involving shares of such Common
Shares, if any, the Company's net worth, prospective earning power and
dividend-paying capacity, the goodwill of the Company's business, the
issuer's industry position and its management, that Company's economic
outlook, the values of securities of issuers whose stock is publicly
traded and which are engaged in similar businesses, the effect of
transfer restrictions to which such Common Shares may be subject under
law and under the applicable terms of any contract governing such stock,
the absence of a public market for such Common Shares and such other
matters as the Board or its appraiser or appraisers deem pertinent. The
determination by the Board or its appraiser or appraisers of the Fair
Market Value shall, if not unreasonable, be conclusive and binding
notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value
to be used was thus fixed

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<PAGE> 5

more than sixteen months prior to the day as of which Fair Market Value
is being determined, it shall in any event be no less than the book
value of the Common Shares being valued at the end of the most recent
period for which financial statements of the issuer are available; or

(ii) If the Common Shares are publicly traded on the
business day immediately preceding the Determination Date, then Fair
Market Value shall equal the closing price per Common Share or unit of
such other security on the business day immediately preceding the
Determination Date, as reported in The Wall Street Journal, Western
Edition (or, if such day is not a trading day in the principal
securities market or markets for such Common Shares, on the nearest
preceding trading day), as reported with respect to the market (or the
composite of markets, if more than one) in which shares of such Common
Shares are then traded, or, if no such closing prices are reported, on
the basis of the mean between the high bid and low asked prices that day
on the principal market or quotation system on which Common Shares are
then quoted, or, if not so quoted, as furnished by a professional
securities dealer making a market in the Common Shares selected by the
Board or the Committee.

SECTION 6. DURATION OF PLAN

Options shall not be granted under this Plan after March 17,
2009. Although Common Shares may be issued on or after March 17, 2009 pursuant
to Options granted prior to such date, no Common Shares shall be issued under
this Plan after March 16, 2019.

SECTION 7. ADMINISTRATION OF PLAN

(a) This Plan shall be administered by a committee (the
"Committee") of the Board of Directors of the Company (the "Board") consisting
of two or more directors, each of whom is a "non-employee director" (as such
term is defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule
may be amended from time to time); provided, however, that in the event the
Committee is not comprised of two or more "non-employee directors," then (i) the
Committee shall only be authorized and empowered to recommend to the Board all
things necessary or desirable in connection with the administration of this
Plan, including, without limitation, the things listed in Section 7, (ii) all
recommendations of the Committee relating to this Plan shall be subject to final
approval by the Board and (iii) all references herein to the Committee shall be
deemed to refer to the Board; provided further, that unless otherwise determined
by the Board, with respect to any Award that is intended to qualify as
Performance-Based Compensation, the Plan shall be administered by a committee
consisting of two or more directors, each of whom is an "outside director" (as
such term is defined under Section 162(m) of the Code).

(b) Subject to the provisions of this Plan, the Committee shall
be authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan, including, without limitation,
the following:

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<PAGE> 6

(i) adopt, amend and rescind rules and regulations
relating to this Plan;

(ii) determine which persons are Employees and to which of
such Employees, if any, Awards shall be granted hereunder;

(iii) grant Awards to Employees and Nonemployee Directors
(provided that Nonemployee Directors shall not be eligible to be
considered for the grant of Incentive Stock Options) and determine the
terms and conditions thereof, including (A) the number of Common Shares
issuable pursuant thereto and (B) the exercise price for any Awards;

(iv) determine whether, and the extent to which,
adjustments are required pursuant to Section 8 hereof; and

(v) interpret and construe this Plan and the terms and
conditions of all Awards granted hereunder.

SECTION 8. ADJUSTMENTS

If the outstanding securities of the class then subject to this
Plan are increased, decreased or exchanged for or converted into cash, property
or a different number or kind of securities, or if cash, property or securities
are distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee may make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Incentive Stock Options and other Awards theretofore
granted under this Plan, (b) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Awards thereafter granted under this Plan, and (c) the maximum number of Common
Shares for which options may be granted during any one calendar year; provided,
however, that no adjustment shall be made under this Section 8 to the number of
Common Shares that may be acquired pursuant to outstanding Incentive Stock
Options or the maximum number of Common Shares with respect to which Incentive
Stock Options may be granted under this Plan to the extent such adjustment would
result in such options being treated as other than Incentive Stock Options;
provided further that no such adjustment shall be made to the extent the
Committee determines that such adjustment would result in the disallowance of a
federal income tax deduction for compensation attributable to Options hereunder
by causing such compensation to be other than Performance-Based Compensation.

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<PAGE> 7

SECTION 9. AMENDMENT AND TERMINATION OF PLAN

The Board may amend or terminate this Plan at any time and in any
manner; provided, however, that no such amendment or termination shall deprive
the recipient of any Award theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto; provided, further, that the Board shall not, without the
approval of the shareholders of the Company, amend the Plan in any manner that
requires such shareholder approval pursuant to the Code or any applicable
securities laws.

SECTION 10. EFFECTIVE DATE OF PLAN

The Stock Incentive Plan shall be effective as of March 18,
1999, the date upon which it was approved by the Board; provided, however, that
no Awards may be granted nor may Common Shares be issued under this Stock
Incentive Plan until it has been approved, directly or indirectly, by the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.

SECTION 11. COMPLIANCE WITH OTHER LAWS AND REGULATIONS

This Plan, the grant and exercise of Awards thereunder, and the
obligation of the Company to sell and deliver Common Shares under such Awards,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any governmental or regulatory agency as may be
required. The Company shall not be required to issue or deliver any certificates
for shares of Common Stock prior to the completion of any registration or
qualification of such shares under any federal or state law or issuance of any
ruling or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.

SECTION 12. NO RIGHT TO COMPANY EMPLOYMENT

Nothing in this Plan or as a result of any Award granted pursuant to
this Plan shall confer on any individual any right to continue in the employ of
the Company or any of its subsidiaries or affiliates or interfere in any way
with the right of the Company (or its subsidiaries or affiliates, as applicable)
to terminate an individual's employment at any time, with or without cause. The
agreement evidencing an Award may contain such provisions as the Committee may
approve with respect to the effect of approved leaves of absence.

SECTION 13. LIABILITY OF COMPANY

The Company and any affiliate which is in existence or hereafter comes
into existence shall not be liable to an Employee, Nonemployee Director or other
persons as to:

(a) The Non-Issuance of Common Shares. The non-issuance or sale
of Common Shares as to which the Company has been unable to obtain from any
regulatory body having jurisdiction the authority deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder;
and

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<PAGE> 8

(b) Tax Consequences. Any tax consequence expected, but not
realized, by any Employee or Nonemployee Director or other person due to the
issuance, exercise, settlement, cancellation or other transaction involving any
Award granted hereunder.

SECTION 14. GOVERNING LAW

This Plan and any Awards and agreements hereunder shall be interpreted
and construed in accordance with the laws of the State of Delaware and
applicable federal law.

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-74793 of CRL Network Services, Inc. of our report dated March 18, 1999
(April 28, 1999 as to the last paragraph in Note 12), appearing in the
Prospectus, which is part of such Registration Statement, and to the reference
to us under the headings "Selected Consolidated Financial Data" and "Experts"
in such Prospectus.

/s/ Deloitte & Touche LLP
San Francisco, California
April 28, 1999

<PAGE> 1
EXHIBIT 24.2

POWER OF ATTORNEY

KNOWN ALL PERSON BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints James G. Couch, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to the Registration
Statement on Form S-1 (File Number 333-74793), and any and all Registration
Statements filed pursuant to Section 462 of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or agent or substitute
lawfully does or causes to be done by virtue hereof.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert B. Murphy, Jr. Executive Vice President April 28, 1999
- ------------------------------------ and Chief Financial Officer
Robert B. Murphy, Jr. (Principal Financial Officer)
</TABLE>