APPNET SYSTEMS INC, S-1/A, 1999-05-25

APPNET SYSTEMS INC
S-1/A, 1999-05-25
BUSINESS SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999

REGISTRATION NO. 333-75205
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO FORM S-1
REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933
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APPNET SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

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<S> <C> <C>
DELAWARE 7373 52-2077860
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

6707 DEMOCRACY BOULEVARD
BETHESDA, MD 20817
(301) 493-8900
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)

KEN S. BAJAJ, PRESIDENT AND CHIEF EXECUTIVE OFFICER
APPNET SYSTEMS, INC.
6707 DEMOCRACY BOULEVARD
BETHESDA, MD 20817
(301) 493-8900

(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
COPIES TO:

STEPHEN I. GLOVER, ESQ. WILLIAM J. WHELAN, III, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & CRAVATH, SWAINE & MOORE
JACOBSON 825 EIGHTH AVENUE
1001 PENNSYLVANIA AVENUE, N.W. NEW YORK, NY 10019
WASHINGTON, DC 20004 (212) 474-1000
(202) 639-7000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this 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 for the same offering. / /

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

If this 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. / /
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CALCULATION OF REGISTRATION FEE

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<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.0005 per share...... 6,900,000 $14.00 $96,600,000 $26,855
</TABLE>

(1) Includes a maximum of 900,000 shares that may be purchased by the
underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933. The proposed
maximum offering price includes amounts attributable to shares that may be
purchased by the underwriters to cover over-allotments, if any.

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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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SUBJECT TO COMPLETION, DATED MAY 25, 1999

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
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6,000,000 Shares

[LOGO]

APPNET SYSTEMS, INC.

Common Stock

-----------

The underwriters have an option to purchase a maximum of 900,000 additional
shares to cover over-allotments of shares.

Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $12.00 and
$14.00 per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "APNT".

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.

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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND APPNET
PUBLIC COMMISSIONS SYSTEMS, INC.
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about
, 1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON HAMBRECHT & QUIST

BT ALEX. BROWN

THE ROBINSON-HUMPHREY COMPANY

CHARLES SCHWAB & CO., INC.

The date of this prospectus is , 1999.
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TABLE OF CONTENTS

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PAGE
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PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 6
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS................................... 15
USE OF PROCEEDS................................ 16
DIVIDEND POLICY................................ 16
CAPITALIZATION................................. 17
DILUTION....................................... 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS....... 20
PRO FORMA CONSOLIDATED FINANCIAL DATA.......... 22
SELECTED FINANCIAL DATA........................ 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 30

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PAGE
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BUSINESS....................................... 40
MANAGEMENT..................................... 56
CERTAIN RELATIONSHIPS AND TRANSACTIONS......... 65
PRINCIPAL STOCKHOLDERS......................... 70
DESCRIPTION OF CAPITAL STOCK................... 71
SHARES ELIGIBLE FOR FUTURE SALE................ 77
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S.
HOLDERS...................................... 79
UNDERWRITING................................... 83
NOTICE TO CANADIAN RESIDENTS................... 85
LEGAL MATTERS.................................. 86
EXPERTS........................................ 86
WHERE YOU CAN FIND ADDITIONAL INFORMATION...... 86
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. YOU SHOULD ASSUME THAT THE INFORMATION IN THIS
DOCUMENT IS ACCURATE ONLY AS OF THE DATE OF THIS DOCUMENT.

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

Unless otherwise indicated, (a) all references to "AppNet," "we," "us" and
"our" refer to AppNet Systems, Inc. and, after their respective acquisitions or
formations, its subsidiaries and (b) all references to "GTCR" refer to GTCR
Golder Rauner, L.L.C. and its affiliates, including GTCR Fund VI, L.P., GTCR VI
Executive Fund, L.P. and GTCR Associates VI.

AppNet has filed for trademark registration of "AppNet". This prospectus
also includes trademarks and tradenames of other parties.

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DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE DECIDING WHETHER
TO INVEST IN OUR COMMON STOCK. THE INFORMATION IN THIS PROSPECTUS HAS BEEN
ADJUSTED TO GIVE EFFECT TO A ONE-FOR-2.85 REVERSE STOCK SPLIT OF OUR COMMON
STOCK WHICH WE WILL COMPLETE PRIOR TO THIS OFFERING. EXCEPT AS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
OVER-ALLOTMENT OPTION TO PURCHASE ADDITIONAL SHARES OF COMMON STOCK GRANTED TO
THE UNDERWRITERS.

APPNET SYSTEMS, INC.

AppNet provides Internet and electronic commerce professional services and
solutions to medium-sized and large businesses. AppNet develops electronic
commerce solutions that facilitate and promote communication and commerce
between businesses and consumers as well as among businesses and their trading
partners. We focus on maximizing the opportunities presented by the Internet and
electronic commerce to enhance all aspects of our clients' operations, from the
front end of their business, creative Website design, to the back end,
back-office integration of existing systems and electronic commerce outsourcing,
creating an end-to-end solution. We believe we are currently one of only a few
firms with the ability to design, develop, implement and manage end-to-end
Internet and electronic commerce solutions. Our professional services include:

- strategic consulting;

- interactive media services such as creative Website design and
development, branding, which is the creation of a unique corporate
identity for a client and its products, media planning and buying;

- Internet-based application development, which is the development of
software applications that are capable of running on the Internet and are
written in languages such as Java, C++ and Visual Basic;

- electronic commerce systems integration, which is the integration of
electronic commerce systems, which are systems that automate the receipt,
processing and delivery of transaction data and other information, with
other corporate software and computer-based applications; and

- electronic commerce outsourcing, which is the performance of electronic
commerce services that would otherwise be handled by the client's internal
staff using the client's resources.

The rapid growth in the use of the Internet and electronic commerce has
transformed the way businesses operate and interact with their customers and
trading partners. Technology industry research firms predict that the market for
Internet and electronic commerce services worldwide will grow significantly over
the next few years. International Data Corporation estimates that this market
will increase from $4.6 billion in 1997 to $43.7 billion by 2002, which
represents a compound annual growth rate of 57%.

Over the past several years, we have completed more than 500 projects for
over 200 clients. Our client base is highly diverse and includes corporations
such as @rts @lliance, Baxter Healthcare, Ciena, Comshare, Dial, Ford,
GeoCities, Harmony House, Hyundai, K*B Toys, NEC, Norwest and Unilever.

AppNet was founded in late 1997 and, therefore, we have a brief operating
history upon which you can evaluate our business and prospects. We have incurred
substantial losses since AppNet was founded, and we anticipate we will continue
to incur substantial losses for the forseeable future.

The markets for Internet and electronic commerce professional services are
highly competitive. Therefore, to compete more effectively, we plan to: expand
our client relationships; increase repeat and recurring revenues; build and
enhance complementary skill sets and maintain our technological

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expertise; expand and strengthen our marketing and technology relationships with
leading technology vendors; pursue client-driven geographic expansion; expand
and develop industry-specific expertise; and attract and retain a highly
specialized workforce.

We currently have offices in 14 U.S. locations, including the metropolitan
areas of Boston, Denver, Detroit, Los Angeles, New York and Washington, DC. Our
principal executive office is located at 6707 Democracy Boulevard, Suite 1000,
Bethesda, Maryland 20817, and our telephone number is (301) 493-8900. We
maintain a site on the World Wide Web at http://www.appnet.net; however, the
information found on our Website is not part of this prospectus.

THE OFFERING

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<S> <C>
Common stock offered by AppNet.... 6,000,000 shares.

Common stock to be outstanding
after this offering............. 30,290,881 shares, or 31,190,881 shares if the
underwriters exercise their over-allotment option in
full as of March 31, 1999. Excludes 4,090,377 shares of
common stock reserved for issuance upon the exercise of
reserved options, warrants and convertible notes and in
connection with contingent payments payable to former
owners of five of the companies we acquired, New Media
Publishing, Inc., Sigma6, Inc., Salzinger & Company,
Inc., Internet Outfitters, Inc. and TransForm IT,
Incorporated, assuming, where applicable, the initial
public offering price and the market price of our common
stock when the contingent payments are paid is $13.00
per share, the mid-point of the range shown on the cover
page of this prospectus.

Use of proceeds................... Repay debt under our existing credit facilities; redeem
preferred stock; repay other debt; and fund general
corporate purposes.

Proposed Nasdaq National Market
Symbol.......................... "APNT".
</TABLE>

4
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SUMMARY ACTUAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following summary actual and pro forma consolidated financial data have
been derived from:

- the audited financial statements of AppNet for the year ended December 31,
1998;

- the unaudited financial statements of AppNet for the three months ended
March 31, 1999; and

- the unaudited pro forma consolidated financial data included elsewhere in
this prospectus.

You should read the information set forth below in conjunction with our
consolidated financial statements and the related notes, "Use of Proceeds,"
"Capitalization," "Pro Forma Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.

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<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED
1998 MARCH 31, 1999
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PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 17,674 $ 69,182 $ 19,643 $ 22,271
Cost of revenues...................................... 11,699 41,941 11,457 13,132
---------- ----------- ---------- -----------
Gross profit...................................... 5,975 27,241 8,186 9,139
Total operating expenses(a)........................... 18,779 99,361 23,166 24,233
---------- ----------- ---------- -----------
Loss from operations.................................. (12,804) (72,120) (14,980) (15,094)
Interest and other expense............................ 1,775 1,801 1,262 236
Income tax provision (benefit)........................ (200) (100) 100 100
Dividends on and accretion of preferred stock......... 873 -- 1,039 --
---------- ----------- ---------- -----------
Net loss attributable to common stockholders.......... $ (15,252) $ (73,821) $(17,381) $(15,430 )
---------- ----------- ---------- -----------
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<CAPTION>
MARCH 31, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 5,655 $ 11,408
Total assets.......................................................................... 163,471 169,224
Total debt............................................................................ 75,885 16,079
Class A Preferred Stock............................................................... 45,115 --
Stockholders' equity.................................................................. 16,221 130,621
</TABLE>

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(a) Total operating expenses, on a pro forma as adjusted basis, include pro
forma stock-based and acquisition-related compensation of $16.7 million and
pro forma depreciation and amortization of $60.3 million for the year ended
December 31, 1998 and $2.6 million and $12.8 million, respectively, for the
three months ended March 31, 1999.

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RISK FACTORS

INVESTING IN OUR COMMON STOCK INVOLVES RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS,
INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES, BEFORE
YOU PURCHASE ANY OF OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES,
INCLUDING THOSE THAT WE DO NOT KNOW ABOUT NOW OR THAT WE CURRENTLY DEEM
IMMATERIAL, MAY ALSO ADVERSELY AFFECT OUR BUSINESS.

OUR BRIEF OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR SUCCESS.

AppNet was formed in late 1997. We have a brief operating history upon which
you can evaluate our business and prospects. Our historical results of
operations do not fully give effect to the operations of the companies we have
acquired and the pro forma financial information included in this prospectus is
based in part on the separate pre-acquisition financial information of the
acquired companies. As a result, our historical results of operations and pro
forma financial information may not give you an accurate indication of our
future results of operations or prospects. Companies like us in an early stage
of development frequently encounter risks, expenses and difficulties associated
with starting a new business, many of which may be beyond their control. These
risks and difficulties apply particularly to AppNet because our markets,
Internet and electronic commerce professional services, are new and rapidly
changing.

WE HAVE AN ACCUMULATED DEFICIT OF $30.7 MILLION AND ANTICIPATE FUTURE LOSSES.

We have incurred substantial losses since AppNet was founded, and we
anticipate we will continue to incur substantial losses for the foreseeable
future. We had an accumulated deficit of approximately $30.7 million as of March
31, 1999 and a net loss of $14.4 million and $16.3 million for the year ended
December 31, 1998 and the quarter ended March 31, 1999, respectively. We intend
to continue to invest in internal expansion, infrastructure, integration of our
acquired companies into our existing operations, acquisitions and our marketing
and sales efforts. We cannot predict when we will operate profitably, if at all.

We cannot assure you that we will have earnings or cash flow sufficient to
cover our fixed charges or to comply with the financial covenants in our credit
facilities. In connection with the acquisitions we have completed, we expect to
continue to incur through the end of the year 2000, acquisition-related
compensation charges which will fluctuate based on the market price of our
common stock and the level of achievement of agreed-upon operating targets. In
addition, our acquisitions significantly increased our intangible assets, such
as goodwill, and the charges we expect to incur in connection with the
amortization of these intangible assets will have a material adverse impact on
our net income for the foreseeable future. See "--Our intangible assets
represent a significant portion of our assets; amortization of our intangible
assets will adversely impact our net income and we may never realize the full
value of our intangible assets" for a discussion of accounting treatment issues
regarding intangible assets that will affect our future results of operations.

QUARTER-TO-QUARTER FLUCTUATIONS IN OUR REVENUES AND OPERATING RESULTS COULD
AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

Our revenues and operating results may vary from quarter-to-quarter as a
result of a number of factors including:

- number, size and type of client engagements commenced or completed during
a quarter;

- effectiveness of integrating acquisitions with existing operations;

- our ability to attract, train and retain skilled management, technical and
creative personnel;

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- timing of acquisitions and related costs; and

- timing and size of acquisition-related compensation charges which
fluctuate based on the market price of our common stock.

Because a high percentage of our expenses is fixed, such as compensation and
rent, any of the factors listed above could cause significant variations in our
operating results in any given quarter. Any decline in revenues or earnings or a
greater than expected loss for any quarter could materially adversely affect the
market price of our common stock, even if not reflective of any long-term
problems with our business.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO EFFECTIVELY INTEGRATE ACQUIRED
COMPANIES AND MANAGE OUR GROWTH.

Our growth has placed, and will continue to place, significant demands on
our management and operational and financial resources. We have acquired 12
companies since March 1998. Our number of employees has increased from six as of
February 1, 1998 to approximately 755 as of May 1, 1999. We are in the process
of integrating the companies we have acquired since March 1998 into our
operational, financial and managerial systems. Members of our senior management
may be required to devote considerable amounts of their time to this integration
process, which will decrease the time they will have to service current clients,
attract new clients and develop new products and services. Our business,
financial condition and results of operations could be adversely affected if any
of the companies we have acquired experienced problems in the past of which we
are not currently aware. Claims asserted against us relating to the operation of
the companies we acquired prior to acquisition could exceed the indemnification
we are entitled to or can obtain from the former owners of the acquired
companies.

As we continue to grow, we expect we will hire more employees and expand the
scope of our operating and financial systems, which will increase our operating
complexity and the level of responsibility exercised by our management
personnel. To manage our growth effectively, we must continue to develop and
improve our own operational and financial systems, including our internal
systems and controls as well as those of the companies we acquired. The failure
to manage our growth effectively could have a material adverse effect on our
business, financial condition and results of operations.

WE MUST ATTRACT AND RETAIN PROFESSIONAL STAFF IN ORDER TO COMPLETE OUR PROJECTS
AND OBTAIN NEW PROJECTS.

Our failure to attract and retain qualified employees could impair our
ability to complete existing projects and bid for or obtain new projects and, as
a result, could have a material adverse effect on our business, financial
condition and results of operations. Our ability to grow and increase our market
share largely depends on our ability to hire, train, retain and manage highly
skilled employees, including project managers and technical, creative,
consulting and marketing and sales personnel. There is a significant shortage
of, and intense competition for, personnel who are qualified to perform the
services we provide. This shortage will probably continue for the foreseeable
future. In addition, to maintain our position as a leading provider of Internet
and electronic commerce end-to-end solutions, we must make sure our employees
maintain their technical expertise and business skills. We cannot assure you
that we will be able to attract a sufficient number of qualified employees or
that we will successfully train and manage the employees we hire.

In addition, our employees, including key technical personnel, may leave us
to join our competitors or start new businesses which may compete with us. We
cannot assure you that we will be able to prevent the unauthorized disclosure or
use of our proprietary knowledge, practices and procedures if our employees
leave us.

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WE ARE DEPENDENT ON ADDITIONAL CAPITAL FOR FUTURE GROWTH.

Our ability to remain competitive and expand our operations through
acquisitions and internal growth largely depends on our access to capital.
Historically, we have financed capital expenditures and acquisitions primarily
by incurring debt and issuing equity securities. We may incur additional debt
and issue equity securities in the future to finance our growth strategy or
capital expenditures. We cannot assure you that additional financing will be
available to us on satisfactory terms, or at all. Additional indebtedness would
make us more vulnerable to economic downturns and may limit our ability to
withstand competitive pressures. The terms of any additional indebtedness may
include restrictive financial and/or operating covenants which would limit our
ability to compete and expand. Additional issuances of our common stock may
significantly dilute the equity interests of our existing stockholders. Our
failure to obtain any required additional financing, on satisfactory terms, or
at all, could have a material adverse affect on our business, financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a further discussion of our
liquidity and capital requirements over the next 18 months.

OUR REVENUES ARE DIFFICULT TO PREDICT BECAUSE THEY ARE PRIMARILY GENERATED ON A
PROJECT-BY-PROJECT BASIS AND OUR PROJECTS CAN BE TERMINATED.

If our existing agreements with clients are terminated before we complete
our engagements, or if we are unable to enter into new engagements, our
business, financial condition and results of operations could be materially
adversely affected. Our success will depend on our ability to establish
relationships with additional medium-sized and large businesses and other
corporate users of Internet and electronic commerce professional services. We
derive our revenues in large part from fees for services generated on a
project-by-project basis. These projects vary in size, scope and duration. A
client that accounts for a significant portion of our revenues in a particular
period may not account for a similar portion of our revenues in future periods.
A client may or may not engage us for further services once a project is
completed. As a result, our revenues are not recurring from period-to-period,
which makes them more difficult to predict.

OUR CONTRACTS CONTAIN PRICING RISKS.

Generally, we charge our clients for the time, materials and expenses
incurred. Although we have limited experience pricing and managing fixed-price
contracts, we intend to increase the percentage of our work that is billed at a
fixed price. However, if we underestimate the resources and time required to
complete our projects, we could be subject to cost overruns leading to losses on
our engagements.

LOSS OF THE SERVICES OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR
BUSINESS.

The loss of our senior managers' services or other key members of management
could have a material adverse effect on our business, financial condition and
results of operations. Our success depends heavily on the efforts of the members
of our senior management team. We cannot assure you that we will be able to
prevent the unauthorized disclosure or use of our proprietary knowledge,
practices and procedures if our senior managers leave us. See "Management" for
additional information about our senior managers.

WE FACE INTENSE COMPETITION.

The markets for Internet and electronic commerce professional services are
relatively new, intensely competitive, quickly evolving and subject to rapid
technological change. We expect competition to continue and intensify in the
foreseeable future. Our competitors can be divided into several groups:

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- Internet professional services providers, such as Agency.com, iXL,
Proxicom, Razorfish, Scient, Think New Ideas, US Interactive, USWeb/CKS
and Viant;

- large information technology consulting services providers, such as
Andersen Consulting, Cambridge Technology Partners, CSC, EDS, IBM and
Sapient;

- interactive advertising agencies, such as Darwin Digital, Giant Step, Grey
Interactive, Modem Media . Poppe Tyson and Thunderhouse;

- electronic commerce software and service providers, such as BroadVision,
Harbinger, Open Market and Sterling Commerce; and

- Internet access and service providers, such as Abovenet, Exodus and
Frontier/Global.

Our competitors have begun to offer multiple Internet and electronic
commerce professional services, rather than specialize in one area, or have
announced their intention to do so. These companies may continue to expand their
operations so that they offer a full range of Internet and electronic commerce
professional services and products.

Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in clients' needs. We must promote and enhance our
reputation and brand in order to attract new clients and differentiate ourselves
from our competitors. See "Business-- Competition" for a further discussion of
competition within our industry.

THE BARRIERS TO ENTER OUR BUSINESS ARE LOW.

There are relatively low barriers to entry into our business. We do not own
any technologies that preclude or inhibit competitors from entering our markets.
Our competitors may independently develop and patent or copyright technologies
that are superior or substantially similar to our technologies. The costs to
develop and provide Internet or electronic commerce professional services are
low. Therefore, we expect to continue to face additional competition from new
entrants into our markets.

WE MUST RESPOND TO RAPID TECHNOLOGICAL ADVANCES.

Our success will depend, in part, on our ability to keep pace with:

- rapidly changing technology;

- evolving industry standards and practices;

- frequent new service and product introductions and enhancements; and

- changing user and client requirements and preferences.

Any delay or failure on our part in responding quickly, cost-effectively and
sufficiently to these developments could render our existing products and
services obsolete and have a material adverse effect on our business, financial
condition and results of operations. We may have to incur substantial
expenditures to modify or adapt our services or infrastructure to respond to the
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes. We must stay abreast of
cutting-edge technological developments and evolving service offerings to remain
competitive, increase the utility of our services and attract and retain
qualified employees. We must be able to incorporate new technologies into the
Internet and electronic commerce solutions we design and develop to address the
increasingly complex and varied needs of our customer base.

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OUR BUSINESS IS DEPENDENT ON THE CONTINUED USE AND GROWTH OF THE INTERNET AND
ELECTRONIC COMMERCE.

Our business would be adversely affected if use of the Internet and
electronic commerce does not continue to develop, or develops more slowly than
expected. Our market is relatively new and rapidly evolving. Our future success
depends on the acceptance by current and future clients of Internet and
electronic commerce professional services as an integral part of their
businesses. Demand and market acceptance for these new technological services
are subject to a high level of uncertainty.

In addition, if use of the Internet grows, the Internet infrastructure may
not be able to support the demands placed on it. The performance and reliability
of the Internet may decline as the number of users and the amount of traffic
increases. Internet sites have experienced interruptions in their service as a
result of outages and other delays occurring throughout the Internet network
infrastructure. To cope with growth in the use of the Internet, the Internet
will require a reliable network backbone with the necessary speed, data capacity
and security and the timely development of complementary products, such as
high-speed modems, for providing reliable Internet access and services. If the
necessary infrastructure, products, services or facilities are not developed or
if use of the Internet as a medium for communication and commerce does not
develop, our business, financial condition and results of operations could be
materially and adversely affected.

WE HAVE POTENTIAL LIABILITY TO CLIENTS WHO ARE DISSATISFIED WITH OUR SERVICES.

We design, develop, implement and manage Internet and electronic commerce
solutions that are crucial to the operation of our clients' businesses. Defects
in the solutions we develop could result in delayed or lost revenues, adverse
customer reaction and negative publicity about us or our services or require
expensive corrections, any of which could have a material adverse effect on our
business, financial condition or results of operations. Clients who are not
satisfied with our services could bring claims against us for substantial
damages. Any claims asserted against us could exceed the level of our insurance.
We cannot assure you that the insurance we carry will continue to be available
on economically reasonable terms, or at all. The successful assertion of one or
more large claims against us that are uninsured, exceed our insurance coverage
or result in changes to our insurance policies, including premium increases,
could have a material adverse effect on our business, financial condition or
results of operations.

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR MAINTAIN OUR RIGHTS
TO USE LICENSED INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR BUSINESS.

We believe our success depends, in part, on protecting our proprietary
intellectual property. We have not received patent or copyright protection for
most of our intellectual property. We cannot assure you that we will be able to
prevent infringement or detect misappropriation of our intellectual property. A
failure to protect our intellectual property in a meaningful manner could have a
material adverse effect on our business, financial condition and results of
operations.

We rely on technologies licensed from third parties. We cannot assure you
that these licenses will continue to be available to us on commercially
reasonable terms. The loss of these technologies could require us to obtain
substitute technologies of lower quality or performance standards or at greater
cost, which could have a material adverse effect on our business, financial
condition or results of operations.

Third parties may assert or prosecute infringement claims against us in
connection with the services and products we offer, and we may or may not be
able to successfully defend any such claims. We generally indemnify our clients
against any third-party intellectual property claims. Any significant claim
against us or for which we have indemnified others could have a material adverse
effect on our business, financial condition and results of operations.

10
<PAGE>
In connection with our Internet and electronic commerce professional
services, we develop intellectual property for our clients. We frequently assign
ownership of such intellectual property to the client and retain only a license
for limited uses. Issues relating to ownership of and rights to use intellectual
property can be complicated. We may become involved in disputes that affect our
ability to resell or reuse this intellectual property. In addition, many of our
projects involve the use of material that is confidential or proprietary client
information. The successful assertion of one or more large claims against us by
our clients or other third parties could adversely affect us.

WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS.

Our customer contracts may contain restrictive provisions which are in
effect during the term of the contract and may remain in effect for a limited
period, generally one year, thereafter. The scope of the restrictive provisions
varies and can include provisions restricting our employees who are engaged on a
project for a client from performing the same or substantially similar services
for a competitor of that client and provisions prohibiting us from developing
products or performing services for our clients' competitors. These restrictive
provisions may limit our ability to enter into engagements with new clients for
specified periods of time.

OUR INTERNATIONAL OPERATIONS AND EXPANSION INVOLVE FINANCIAL AND OPERATIONAL
RISKS.

We intend to expand our business into international markets. Revenues from
our existing international operations were insignificant in 1998. We may incur
significant costs in connection with our international expansion.

There are also risks inherent in doing business in foreign countries, such
as:

- changes in legal and regulatory requirements;

- export and import restrictions, tariffs and other trade barriers;

- currency fluctuations and the on-going conversion to the euro in several
member states of the European Union;

- difficulties in staffing and managing foreign offices as a result of,
among other things, distance, language and cultural differences;

- longer payment cycles and problems in collecting accounts receivable;

- political and economic instability;

- seasonal reductions in business activity; and

- potentially adverse tax consequences.

Any of these factors could have a material adverse effect on our
international and domestic business, financial condition and results of
operations.

OUR ELECTRONIC COMMERCE OUTSOURCING CENTERS COULD BE VULNERABLE TO SECURITY AND
TECHNICAL RISKS AND MAY REQUIRE ADDITIONAL INVESTMENT.

We provide electronic commerce outsourcing services to our customers. We
perform electronic commerce functions that would otherwise be handled by the
customer's internal staff using the customer's resources.

Our electronic commerce outsourcing services rely on encryption and
authentication technology licenses from third parties to provide the security
and authentication needed to safely transmit confidential information. Although
we have designed and implemented a variety of network security measures,
unauthorized access, computer viruses, accidental or intentional acts and other
disruptions

11
<PAGE>
may occur. Our electronic commerce outsourcing centers may experience delays or
service interruptions as a result of the accidental or intentional acts of
Internet users, current and former employees or others. Such acts could
potentially jeopardize the security of confidential information, such as credit
card and bank account numbers, stored in our and our clients' computer systems.
Such a breach in security could result in liability to us and in the loss of
existing clients or the deterrence of potential clients.

Although we plan to continue using industry-standard security measures, such
measures have been circumvented in the past, and ours may be circumvented in the
future. The costs required to eliminate computer viruses and alleviate other
security problems could be prohibitively expensive, and efforts to address such
problems could result in delays or interruption of service to our clients. These
could in turn have a material adverse effect on our business, financial
condition and results of operations.

In the event our hardware malfunctions and our back-up systems fail, we may
not be able to maintain our standard of service to our customers. In addition,
each of our electronic commerce outsourcing centers has been configured to
provide services that facilitate commerce and communication either between
businesses and consumers, known as business-to-consumer services, or between
businesses and their trading partners, known as business-to-business services,
but not both. If we were unable to provide outsourcing services at one of our
outsourcing centers, it would materially adversely impact our ability to
continue to provide the type of electronic commerce outsourcing services
processed through that center. We may be required to make additional investments
in our electronic commerce outsourcing centers in order to increase capacity and
respond to technological developments.

OUR INTANGIBLE ASSETS REPRESENT A SIGNIFICANT PORTION OF OUR ASSETS;
AMORTIZATION OF OUR INTANGIBLE ASSETS WILL ADVERSELY IMPACT OUR NET INCOME AND
WE MAY NEVER REALIZE THE FULL VALUE OF OUR INTANGIBLE ASSETS.

Our acquisitions have resulted in significant goodwill and other intangible
assets, which are being amortized over various periods, primarily two to three
years. At March 31, 1999, we had goodwill and other intangible assets of
approximately $133.1 million, net of accumulated amortization. Charges we would
have incurred in connection with the amortization of intangible assets during
the year ended December 31, 1998 and the three months ended March 31, 1999,
after giving pro forma effect to the acquisitions we made in 1998 and 1999,
would have decreased our net income by $49.1 million and $0.1 million,
respectively. The amount of goodwill associated with the acquisitions we made in
1998 and 1999 may increase in the future as a result of a portion of the
contingent purchase consideration that may become payable if the agreed-upon
operating targets for four of the following acquired companies are fully met:
LOGEX International, L.L.C., New Media Publishing, Internet Outfitters and
TransForm IT. The actual amount of goodwill that will be recorded will depend in
part on the price per share of our common stock and such goodwill will be
recorded through the end of the year 2000. We will continue to incur non-cash
charges in connection with the amortization of our intangible assets over their
respective useful lives, and we expect such charges will have a significant
adverse impact on our net income for the foreseeable future.

We cannot assure you that we will ever realize the value of these intangible
assets. In the future, as events or changes in circumstances indicate that the
carrying amount of our intangible assets may not be recoverable, we will
evaluate the carrying value of our intangible assets and may take an additional
charge to our earnings. Any future determination requiring the write-off of a
significant portion of unamortized intangible assets could have a material
adverse effect on our business, financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a further discussion of our intangible assets.

12
<PAGE>
THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT OUR BUSINESS.

The risks posed by the Year 2000 problem could adversely affect our business
in a number of significant ways. Many of our clients and potential clients
maintain their operations on systems that could be impacted by Year 2000
problems. If our clients fail to ensure their systems are Year 2000 compliant
and Year 2000 problems materially adversely affect them, our business could be
materially adversely affected, particularly if demand for our services declines
while companies redirect their resources to upgrade their computer systems. We
also depend heavily on the availability of the Internet infrastructure to
conduct our business and provide services to our clients. Disruptions in the
Internet infrastructure arising from Year 2000 problems could materially affect
our business, financial condition and results of operations.

In addition, our business could be materially adversely affected if we
cannot obtain products, services or systems that are Year 2000 compliant when we
need them. We rely on our suppliers for hardware, software and services. We are
in the process of obtaining assurances from our suppliers that they are Year
2000 compliant. Our internal information systems may experience operations
difficulties because of undetected errors or defects in the technology used. The
expense to correct such defects could have a material adverse effect on our
business, results of operations and financial condition.

Because we provide computer-related services, the risk we will be involved
in a lawsuit relating to Year 2000 issues is likely to be greater than that of
companies in other industries. Because the solutions we deliver are sometimes
dependent upon third-party products and components, it may be difficult to
determine which component of our solution may cause a Year 2000 problem. As a
result, we may become involved in litigation concerning our services or products
and components of a third party. We sometimes provide an express warranty to
clients that our work is Year 2000 compliant. However, even absent an express
Year 2000 warranty, there is a risk that clients for whom we have provided
services will try to hold us liable for damages caused by the Year 2000 problem.

We cannot guarantee that we will be Year 2000 compliant in a timely manner.
Moreover, the costs related to Year 2000 compliance could be significant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a further discussion of the potential effects of the Year 2000
problem on our business.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
ADVERSELY AFFECT OUR BUSINESS.

Increased regulation of the Internet might slow the growth in use of the
Internet, which could decrease demand for our services, increase our cost of
doing business or otherwise have a material adverse effect on our business,
financial condition and results of operations. Congress has recently passed
legislation regulating certain aspects of the Internet, including on-line
content, children's protection, copyright infringement, user privacy, taxation,
access charges, liability for third-party activities, transmission of sexually
explicit material and jurisdiction. In addition, federal, state and local
governmental organizations as well as foreign governments are considering other
legislative and regulatory proposals that would regulate the Internet. Areas of
potential regulation include libel, pricing, quality of products and services
and intellectual property ownership. We do not know how courts will interpret
laws governing the Internet or the extent to which they will apply existing laws
regulating issues such as property ownership, libel and personal privacy to the
Internet. Therefore, we are not certain how new laws governing the Internet or
other existing laws will affect our business.

APPNET IS CONTROLLED BY ITS SIGNIFICANT STOCKHOLDERS.

Upon completion of this offering, Ken Bajaj, AppNet's President and Chief
Executive Officer, and GTCR will beneficially own 8.7% and 43.8%, respectively,
of our outstanding common stock. As a result, GTCR and Mr. Bajaj will be able to
exercise a controlling influence over the outcome of matters

13
<PAGE>
submitted to our stockholders for approval, including the election of directors,
appointment of new management, amendments to our certificate of incorporation
and mergers or sales of all of our assets. GTCR and Mr. Bajaj will have the
power to delay, defer or prevent a change in control of AppNet. See "Principal
Stockholders" and "Certain Relationships and Transactions" for a further
discussion of Mr. Bajaj's and GTCR's ownership of our capital stock and their
respective relationships with us.

INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result you will experience immediate and substantial dilution of approximately
$13.08, representing the difference between our net tangible book value per
share as of March 31, 1999, after giving pro forma effect to this offering, and
the acquisitions we made in 1999, and the public offering price of $13.00 per
share. In addition, you may experience further dilution to the extent that
shares of our common stock are issued upon the exercise of stock options and
warrants, the conversion of promissory notes and the achievement of targets for
contingent payment consideration paid in connection with four of the following
acquisitions: New Media Publishing, Sigma6, Salzinger & Company and Internet
Outfitters. These shares generally will be issued at a purchase price less than
the public offering price per share in this offering. See "Dilution" for a more
complete description of how the value of your investment in our common stock
will be diluted upon the completion of this offering.

EXTERNAL FACTORS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

There is currently no public market for our common stock, and we cannot
assure you that an active trading market will develop or be sustained after this
offering. The initial public offering price will be determined through
negotiation between us and representatives of the underwriters and may not be
indicative of the market price for the common stock after this offering.

The market price of our common stock could fluctuate significantly as a
result of:

- variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations;

- general economic and stock market conditions;

- changes in financial estimates by securities analysts;

- earnings and other announcements by, and changes in market evaluations of,
providers of Internet and electronic commerce professional services;

- changes in business or regulatory conditions affecting us;

- announcements by us or our competitors of technological innovations or new
products or services; and

- trading of our common stock.

The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. For example, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels, often following
these companies' initial public offerings. These levels may not be sustainable
and may not bear any relationship to these companies' operating performances. If
the market price of our common stock reaches an elevated level following this
offering, it is likely to materially decline. In the past, following periods of
volatility in the market price of a company's securities, that company's
stockholders have often instituted securities class action litigation against
the company. If we were involved in such a class action suit, it could have a
material adverse effect on our business, financial condition and results of
operations.

14
<PAGE>
THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
COULD ADVERSELY AFFECT ITS MARKET PRICE.

Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that such sales could occur,
could adversely affect the market price of our common stock and could materially
impair our future ability to raise capital through offerings of our common
stock.

In connection with this offering, we, our officers, our directors, most of
the former owners of all of the businesses we acquired, GTCR and Smart
Technology have agreed not to offer or transfer any shares of common stock for
180 days after completion of this offering without the underwriters' consent;
however, the underwriters may release these shares from these restrictions at
any time. We cannot predict what effect, if any, market sales of shares held by
GTCR or any other shareholder or the availability of these shares for future
sale will have on the market price of our common stock. See "Shares Eligible for
Future Sale" for a more detailed description of the restrictions on selling
shares of our common stock after this offering.

ANTI-TAKEOVER PROVISIONS OF DELAWARE'S GENERAL CORPORATION LAW AND OUR
CERTIFICATE OF INCORPORATION COULD DELAY OR DETER A CHANGE IN CONTROL.

Amendments we intend to make to our amended and restated certificate of
incorporation and our bylaws, as well as various provisions of the Delaware
General Corporation Law, may make it more difficult to effect a change in
control of our company. The existence of these provisions may adversely affect
the price of our common stock, discourage third parties from making a bid for
our company or reduce any premiums paid to our stockholders for their common
stock. For example, we intend to amend our certificate of incorporation to
authorize our Board of Directors to issue up to shares of "blank check"
preferred stock and to attach special rights and preferences to such preferred
stock. The issuance of this preferred stock may make it more difficult for a
third party to acquire control of us. See "Description of Capital
Stock--Preferred stock," and "Description of Capital Stock--Anti-takeover
effects of AppNet's certificate of incorporation and bylaws and provisions of
Delaware law" for a more complete description of our capital stock, our
Certificate of Incorporation and the effects of the Delaware General Corporation
Law which could hinder a third party's attempts to acquire control of us.

CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes "forward-looking statements" for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All statements
other than statements of historical fact in this prospectus, including
statements regarding our competitive strengths, business strategy, expected
benefits of any acquisition, future financial position, budgets, projected costs
and plans and objectives of management are forward-looking statements. In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "should," "intend,"
"estimate," "anticipate," "believe," "continue" or similar terminology. Although
we believe that the expectations reflected in any forward-looking statements are
reasonable, we can give no assurance that these expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from our expectations are disclosed under "Risk Factors" and
elsewhere in this prospectus and expressly qualify all written and oral
forward-looking statements attributable to us. We undertake no obligation to
update publicly or revise any forward-looking statements.

15
<PAGE>
USE OF PROCEEDS

The net proceeds to AppNet from the sale of the 6,000,000 shares of our
common stock being offered by this prospectus are estimated to be approximately
$69.5 million, or $80.4 million if the underwriters exercise their
over-allotment option in full, based upon an assumed initial public offering
price of $13.00 per share, the mid-point of the range shown on the cover page of
this prospectus, after deducting underwriting discounts and commissions and
estimated offering expenses payable by AppNet.

We expect to use the net proceeds from this offering to:

- repay approximately $61.7 million of aggregate indebtedness, including
accrued interest under our existing credit facilities, a $26 million
revolving credit facility and a $40 million revolving credit facility,
both of which are with BankBoston, N.A. and Antares Capital Corporation;

- redeem 1,641 shares of Class A Preferred Stock at an aggregate redemption
price of $1.7 million, including related accrued dividends;

- redeem 418 shares of Class B Preferred Stock at an aggregate redemption
price of $0.4 million, including related accrued dividends;

- repay $3,300 on a note to Smart Technology, L.L.C., which bears interest
at a rate of 12% per annum, is due upon consummation of this offering and
evidences indebtness incurred to fund general working capital purposes;

- repay $16,000 in interest on a note to Fairfax Management Company II,
L.L.C., which bears interest at a rate of 5% per annum, the principal
amount of which will be converted into our common stock upon consummation
of this offering and evidences indebtedness incurred to repurchase shares
of our common stock; and

- fund general corporate purposes, including working capital requirements.

To the extent we receive additional proceeds from this offering, we will use
them to fund general corporate purposes and to redeem additional shares of our
Class A and Class B Preferred Stock on a pro rata basis. As additional shares of
Class A and Class B Preferred Stock are redeemed, the number of shares of Class
A and Class B Preferred Stock that we will exchange into shares of our common
stock will be reduced accordingly.

The amounts borrowed under our existing credit facilities are due in full on
August 24, 2001. The interest rate on indebtedness under the $26 million
revolving credit facility is variable and ranges from the prime rate plus 0.25%
to the prime rate plus 1.5% or from LIBOR plus 2.25% to LIBOR plus 3.5%. The $40
million revolving credit facility carries interest at the prime rate plus 0.5%
or LIBOR plus 2.5%. We intend to terminate the $40 million revolving credit
facility following the consummation of this offering and amend the $26 million
revolving credit facility to provide for maximum aggregate revolving borrowings
of up to $20 million. We will use amounts which may be reborrowed under the $20
million revolving credit facility following the consummation of this offering
for working capital and general corporate purposes, including acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of our liquidity
over the next 18 months.

We anticipate that, in addition to the underwriting discounts and
commissions, we will pay fees and expenses of approximately $3.0 million in
connection with this offering. The principal components of that amount will be
the fees and expenses of our accountants and attorneys, the costs of printing
this prospectus and other offering materials, The Nasdaq Stock Market listing
fees and Securities and Exchange Commission and National Association of
Securities Dealers filing fees.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and do
not expect to do so in the foreseeable future. The terms of our Class A and
Class B Preferred Stock and of our credit facilities restrict our ability to pay
dividends on our common stock. We intend to retain any earnings to finance the
expansion and development of our business. Subject to the restriction on
dividends in our credit facilities, any future determination to pay dividends
will be made at the discretion of our Board of Directors and will be based upon
our earnings, financial condition and capital requirements and any other
conditions our Board of Directors deems relevant.

16
<PAGE>
CAPITALIZATION

The following table sets forth AppNet's capitalization as of March 31, 1999
on an actual basis and on a pro forma as adjusted basis to reflect:

- the sale of 6,000,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, the mid-point
of the range shown on the cover page of this prospectus, net of $8.5
million of offering expenses, and the application of the net proceeds of
this offering;

- the conversion of a promissory note for approximately $406,000 to Fairfax
Management Company II, L.L.C. into shares of common stock at 80% of the
initial public offering price in this offering;

- the exchange of 43,789 shares of Class A Preferred Stock and 11,158 shares
of Class B Preferred Stock, including related accrued dividends, for
4,334,281 shares of common stock at an exchange rate based on an assumed
initial public offering price of $13.00 per share, the mid-point of the
range shown on the cover page of this prospectus;

- a compensation charge of approximately $2.7 million that we would have
incurred at March 31, 1999 upon consummation of this offering in
connection with the termination of our right to repurchase 210,119 shares
of our common stock from Mr. Bajaj at a per share price of $0.3007; and

- an interest charge of approximately $0.9 million related to beneficial
conversion rights of convertible notes.

You should read this table in conjunction with "Use of Proceeds," "Pro Forma
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus.

The amount shown for stockholders' equity and common stock excludes, as of
March 31, 1999;

- 1,646,875 shares of common stock reserved for issuance in connection with
AppNet's stock incentive plans;

- 84,795 shares of common stock reserved for issuance at an exercise price
of $0.3007 per share in connection with outstanding warrants to purchase
common stock;

- 1,005,850 shares of common stock reserved for issuance in connection with
outstanding promissory notes convertible into shares of our common stock
at conversion prices of $8.55 and $11.40 per share;

- 461,539 shares of common stock reserved for issuance in connection with
outstanding promissory notes convertible into shares of our common stock
at a conversion price of 80% of the initial public offering price per
share in this offering, assuming an initial public offering price of
$13.00, the mid-point of the range shown on the cover page of this
prospectus; and

- 891,318 shares of common stock reserved for issuance in connection with
contingent payments payable to the former owners of four of the companies
we acquired, New Media Publishing, Sigma6, Salzinger & Company and
Internet Outfitters, assuming that the market price of our common stock at
the time the contingent payments are made is $13.00, the mid-point of the
range shown on the cover page of this prospectus.

17
<PAGE>

<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- --------------
(IN THOUSANDS)

<S> <C> <C>
Cash and cash equivalents............................................................. $ 5,655 $ 11,408
---------- --------------
---------- --------------
Credit facilities..................................................................... 59,400 --
Other long-term debt(a)............................................................... 1,479 1,479
Convertible notes..................................................................... 15,006 14,600

Class A Preferred Stock, $0.01 par value, actual, 96,621 shares authorized,
liquidation value of $1,000, 45,430 shares issued and outstanding; pro forma as
adjusted, no shares issued and outstanding(b) ...................................... 45,115 --
Common stock subject to put rights(c)................................................. 278 278

Stockholders' equity:
Class B Preferred Stock, $0.01 par value, 20,000 shares authorized, actual, 11,576
shares issued and outstanding, liquidation value of $1,000; pro forma as adjusted,
no shares issued and outstanding.................................................. 11,576 --
Common stock, $0.0005 par value, 75,000,000 shares authorized, actual, 19,917,545
shares issued and outstanding; pro forma as adjusted, 30,290,881 shares issued and
outstanding....................................................................... 10 35
Additional paid-in capital.......................................................... 36,518 166,012
Notes receivable.................................................................... (685) (685)
Accumulated deficit................................................................. (30,721) (34,264)
Deferred compensation............................................................... (477) (477)
---------- --------------
Total stockholders' equity........................................................ 16,221 130,621
---------- --------------
Total capitalization.............................................................. $ 137,499 $ 146,978
---------- --------------
---------- --------------
</TABLE>

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

(a) Other long-term debt includes current and non-current debt obligations and
capital lease obligations.

(b) Class A Preferred Stock is recorded at its liquidation value, net of
issuance costs. Excludes, as of March 31, 1999, 121 shares of Class A
Preferred Stock reserved for issuance at an exercise price equal to the
liquidation value per share in connection with an outstanding warrant to
purchase Class A Preferred Stock.

(c) The holders of these shares of common stock had the right to require AppNet
to repurchase the shares for an aggregate purchase price of approximately
$278,000. This right terminated on April 11, 1999.

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<PAGE>
DILUTION

AppNet's pro forma net tangible book value as of March 31, 1999 was a
deficit of $72.0 million or $(2.96) per share of common stock. Pro forma net
tangible book value per share of common stock represents the amount of total
tangible assets less the sum of (a) total liabilities and (b) the liquidation
preference of the Class A Preferred Stock and the Class B Preferred Stock and
the repurchase price of common stock subject to put rights and increased by the
effect of the conversion of the $406,000 promissory note into 39,055 shares of
common stock, and the exchange of 43,789 and 11,158 shares of Class A and Class
B Preferred Stock, plus related accrued dividends, respectively into 4,334,281
shares of common stock, divided by the number of shares of common stock
outstanding. After giving effect to the sale of 6,000,000 shares of our common
stock in this offering at an assumed initial public offering price of $13.00 per
share, the mid-point of the range shown on the cover page of this prospectus,
and the application of the estimated net proceeds from this offering, AppNet's
adjusted pro forma net tangible book value at March 31, 1999 would have been a
deficit of approximately $2.4 million or $(0.08) per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $2.88
per share of common stock to existing stockholders and an immediate dilution in
pro forma net tangible book value of $13.08 per share of common stock to new
investors purchasing shares in this offering. Dilution is determined by
subtracting pro forma net tangible book value per share after the offering from
the amount of cash paid by a new investor for a share of common stock. The
following table illustrates this per share dilution as of March 31, 1999:

<TABLE>
<CAPTION>
PER SHARE
------------------------
<S> <C> <C>
Assumed initial public offering price....................................................... $ 13.00
Pro forma net tangible book value as of March 31, 1999.................................... $ (2.96)
Increase in pro forma net tangible book value attributable to new investors............... 2.88
-----------
Pro forma net tangible book value per share after this offering........................... (0.08)
-----------
Dilution to new investors................................................................. $ 13.08
-----------
-----------
</TABLE>

As of March 31, 1999, there were outstanding options to purchase 1,563,891
shares of common stock at a weighted average exercise price of $10.72 per share,
outstanding warrants to purchase 84,795 shares of common stock at a weighted
average exercise price of $0.3007 per share, and convertible notes to purchase
1,005,580 shares of common stock at a weighted average exercise price of $10.74
per share. In addition, $5.2 million of notes payable are convertible at 80% of
the initial public offering price. To the extent that these options and warrants
are exercised, and the convertible notes are converted, there will be further
dilution to new investors. New investors could also experience further dilution
as a result of the issuance of shares of common stock to the former owners of
four of the businesses we have acquired in connection with contingent payments
payable to them. These acquired businesses are New Media Publishing, Sigma6,
Salzinger & Company and Internet Outfitters.

The following table sets forth, as of March 31, 1999, the number of shares
of our common stock purchased from AppNet, the total consideration paid to
AppNet and the average price paid per share by existing stockholders and by new
investors at an assumed initial public offering price of $13.00 per share, the
midpoint of the range shown on the cover page of this prospectus.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)......................... 24,290,881 80.2% $ 83,797,000 51.8% $ 3.45
New investors..................................... 6,000,000 19.8 78,000,000 48.2 13.00
------------ ----- -------------- -----
Total........................................... 30,290,881 100.0% $ 161,797,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>

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

(1) Includes 39,055 shares resulting from the conversion of a note of
approximately $406,000 at $10.40 per share and 3,444,445 and 889,836 shares
resulting from the exchange of Class A Preferred Stock and Class B Preferred
Stock, respectively, plus related accrued dividends at a price of $13.00 per
share, the mid-point of the range shown on the cover page of this
prospectus.

19
<PAGE>

After the 1999 reverse common stock split discussed in Note 18 to AppNet
Systems, Inc.'s consolidated financial statements is effected, we expect to be
in a position to render the following report.

/s/ ARTHUR ANDERSEN LLP

Washington, D.C.
May 24, 1999

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AppNet Systems, Inc.:

We have examined the pro forma and offering adjustments reflecting the
transactions described in the introduction to the pro forma consolidated
financial data contained on page 22 and in Notes (a) through (j) to this
statement and the application of those adjustments to the historical amounts in
the accompanying pro forma consolidated statement of operations of AppNet
Systems, Inc. for the year ended December 31, 1998. The historical consolidated
statement of operations is derived from the year ended December 31, 1998
historical financial statements of AppNet Systems, Inc., i33 communications
corp., Salzinger & Company, Inc. and Internet Outfitters, Inc., each of which
were audited by us, appearing elsewhere herein, the financial statements of
Arbor Intelligent Systems, Inc., Software Services Corporation, New Media
Publishing, Inc., Century Computing, Incorporated, Research & Planning, Inc. and
The Kodiak Group, Inc. acquired by AppNet Systems, Inc. during 1998 for the
period in 1998 prior to their acquisitions, each of which were also audited by
us, appearing elsewhere herein, the unaudited historical financial statements of
Logex International, L.L.C. for the period in 1998 prior to its acquisition and
the unaudited historical financial statements of Sigma6, Inc., and Transform IT,
Incorporated for the year ended December 31, 1998. Such pro forma and offering
adjustments are based upon management's assumptions described in the
introduction to the pro forma consolidated financial data contained on page 22
and in Notes (a) through (j). Our examination was made in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.

In addition, we have reviewed the related pro forma and offering adjustments
reflecting the transactions described in the introduction to the pro forma
consolidated financial data contained on page 22 and in Notes (a) through (j)
and the application of those adjustments to the historical amounts in the
accompanying pro forma consolidated statement of operations for the three months
ended March 31, 1999. The historical consolidated statement of operations is
derived from the historical unaudited statement of operations of AppNet Systems,
Inc., which was reviewed by us, appearing elsewhere herein, and the historical
unaudited statements of operations for i33 communications corp., Salzinger &
Company, Inc., Internet Outfitters, Inc., Sigma6, Inc. and Transform IT,
Incorporated for the period in 1999 prior to their acquisitions, each of which
were reviewed by us. Such pro forma and offering adjustments are based on
management's assumptions as described in the introduction to the pro forma
consolidated financial data contained on page 22 and in Notes (a) through (j).
Our review was made in accordance with standards established by the American
Institute of Certified Public Accountants.

The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transactions occurred at an earlier date. However, the pro forma
consolidated statements of operations are not necessarily indicative of the
results of operations that would have been attained had the above-mentioned
transactions actually occurred earlier.

20
<PAGE>

In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the introduction to the pro forma consolidated
financial data contained on page 22 and in Notes (a) through (j), the related
pro forma and offering adjustments give appropriate effect to those assumptions,
and the pro forma as adjusted columns reflect the proper application of those
adjustments to the historical financial amounts in the pro forma consolidated
statement of operations for the year ended December 31, 1998.

A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro
forma and offering adjustments and the application of those adjustments to
historical financial information. Accordingly, we do not express such an opinion
on the pro forma and offering adjustments or the application of such adjustments
to the pro forma consolidated statement of operations for the three months ended
March 31, 1999. Based on our review, however, nothing came to our attention that
caused us to believe that management's assumptions do not provide a reasonable
basis for presenting the significant effects directly attributable to the
above-mentioned transaction described in the introduction to the pro forma
consolidated financial data contained on page 22 and in Notes (a) through (j),
that the related pro forma and offering adjustments do not give appropriate
effect to those assumptions, or that the pro forma as adjusted column does not
reflect the proper application of those adjustments to the historical financial
statement amounts in the pro forma consolidated statement of operations for the
three months ended March 31, 1999.

Washington, D.C.
May 24, 1999

21
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA

The following tables set forth the unaudited pro forma consolidated
statements of operations of AppNet for the year ended December 31, 1998 and for
the three months ended March 31, 1999. The pro forma consolidated statements of
operations for the year ended December 31, 1998 give effect (1) on a pro forma
basis, to the acquisitions we made in 1998 and 1999 and GTCR's investment in
AppNet, as if these transactions had occurred on January 1, 1998 and (2) on a
pro forma, as adjusted, basis to reflect:

- the reduction of interest expense due to the conversion of a $406,000 note
payable which automatically converts into shares of our common stock upon
the offering;

- the reduction of the dividends on and accretion of preferred stock
resulting from the exchange of 43,789 and 11,158 shares of Class A and
Class B Preferred Stock, respectively, plus related accrued dividends, for
shares of common stock; and

- the reduction of interest expense and dividends on and accretion of
preferred stock resulting from the repayment of the credit facilities and
the redemption of shares of Class A and Class B Preferred Stock in
connection with the offering, as if such transactions had occurred on
January 1, 1998.

The pro forma consolidated statements of operations for the three months
ended March 31, 1999, give effect (1) on a pro forma basis, to the acquisitions
we made in 1998 and 1999, as if these acquisitions had occurred on January 1,
1998 and (2) on a pro forma, as adjusted, basis to reflect:

- the reduction of interest expense due to the conversion of a $406,000 note
payable which automatically converts into shares of our common stock upon
the offering;

The information in the pro forma consolidated statement of operations for
the year ended December 31, 1998 has been derived from the audited statements of
operations for the year ended December 31, 1998 of AppNet, i33 communications
corp., Salzinger & Company, Inc. and Internet Outfitters, Inc., the unaudited
statements of operations of Sigma6, Inc. and TransForm IT, Incorporated for the
year ended December 31, 1998 and the audited statements of operations of the
companies we acquired in 1998 for the periods during 1998 prior to acquisition,
all of which, except the statements of operations for Sigma6, Inc. and TransForm
IT, Incorporated, are included elsewhere in this prospectus.

The information in the pro forma consolidated statement of operations for
the three months ended March 31, 1999 has been derived from the unaudited
statement of operations of AppNet for the three months ended March 31, 1999,
included elsewhere in this prospectus, and the unaudited statements of
operations for the companies acquired in 1999 for the periods during 1999 prior
to their acquisition.

The acquisitions we made were accounted for using the purchase method of
accounting. The purchase method of accounting allocates the aggregate purchase
price to the assets acquired and liabilities assumed based upon their respective
fair values. The excess of purchase price over the fair value of tangible and
identifiable intangible assets acquired, net of liabilities assumed, has been
reflected as goodwill. AppNet believes that the preliminary allocations set
forth herein are reasonable; however, in some cases the final allocations will
be based upon valuations and other studies that are

22
<PAGE>

not yet complete. As a result, the allocations set forth herein are subject to
revision as additional information becomes available, and such revised
allocations could differ from those set forth herein.

The unaudited pro forma consolidated statements of operations are based upon
currently available information and assumptions and estimates which management
believes are reasonable. These assumptions and estimates, however, are subject
to change, including, without limitation, adjustments for potential cost savings
or other synergies arising from the acquisitions we made in 1998 and 1999. These
statements are presented for comparative purposes only and do not purport to be
indicative of the actual results of operations that might have occurred or
expected future results. You should read the unaudited consolidated pro forma
financial data in conjunction with our consolidated financial statements and the
related notes and the audited financial statements and the related notes of the
companies we acquired included elsewhere in this prospectus.

23
<PAGE>

APPNET SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
CONSOLIDATED
APPNET ARBOR(A) SSC(A) CENTURY(A) NMP(A) R&P(A) KODIAK(A)
------------- ----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 17,674 $ 688 $ 10,788 $ 10,040 $ 3,711 $ 5,303 $ 6,289
Cost of revenues................ 11,699 471 7,392 6,192 1,542 2,667 3,221
------------- ----- --------- ----------- ----------- ----------- -----------
Gross profit.................. 5,975 217 3,396 3,848 2,169 2,636 3,068

Operating expenses:
Selling and marketing......... 964 14 567 112 227 260 66
General and administrative.... 6,507 226 1,856 2,639 1,868 644 1,691
Stock-based and other
acquisition-related
compensation................ 1,157 465 2,654 953 -- -- 250
Depreciation and
amortization................ 10,151 29 230 156 123 80 136
------------- ----- --------- ----------- ----------- ----------- -----------
Total operating expenses.... 18,779 734 5,307 3,860 2,218 984 2,143
------------- ----- --------- ----------- ----------- ----------- -----------

Income (loss) from operations... (12,804) (517) (1,911) (12) (49) 1,652 925
Interest expense (income)....... 1,052 29 28 (41) -- (11) 2
Other expense, net.............. 723 211 372 423 -- 99 8
------------- ----- --------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (14,579) (757) (2,311) (394) (49) 1,564 915
Income taxes.................... (200) -- (598) (135) 13 29 5
------------- ----- --------- ----------- ----------- ----------- -----------
Net income (loss)............... $ (14,379) $ (757) $ (1,713) $ (259) $ (62) $ 1,535 $ 910
------------- ----- --------- ----------- ----------- ----------- -----------
------------- ----- --------- ----------- ----------- ----------- -----------

Dividends on and accretion of
preferred stock............... 873
-------------
Net loss attributable to common
stockholders.................. $ (15,252)
-------------
-------------

Basic and diluted net loss per
common share.................. $ (1.41)
-------------
-------------
Weighted average common shares
outstanding (h)............... 10,785,424
-------------
-------------

<CAPTION>
OTHER
INTERNET ACQUIRED PRO FORMA PRO FORMA
I33(A) SALZINGER(A) OUTFITTERS(A) COMPANIES(A) ADJUSTMENTS CONSOLIDATED
--------- ------------- ------------- --------------- ------------ ------------
<S> <C> <C>
Revenues........................ $ 4,360 $ 3,110 $ 2,343 $ 4,876 $ -- $ 69,182
Cost of revenues................ 2,251 1,738 1,287 3,481 -- 41,941
--------- ------ ------ ------ ------------ ------------
Gross profit.................. 2,109 1,372 1,056 1,395 -- 27,241
Operating expenses:
Selling and marketing......... 985 2 47 83 -- 3,327
General and administrative.... 1,343 425 859 973 -- 19,031
Stock-based and other
acquisition-related
compensation................ -- -- 57 -- 11,195(b) 16,731
Depreciation and
amortization................ 114 13 57 62 49,121(c) 60,272
--------- ------ ------ ------ ------------ ------------
Total operating expenses.... 2,442 440 1,020 1,118 60,316 99,361
--------- ------ ------ ------ ------------ ------------
Income (loss) from operations... (333) 932 36 277 (60,316) (72,120)
Interest expense (income)....... 11 (20) 47 (9) 4,774(d) 5,862
Other expense, net.............. 35 -- -- 15 (1,107) ) 779
--------- ------ ------ ------ ------------ ------------
Income (loss) before income
taxes......................... (379) 952 (11) 271 (63,983) (78,761)
Income taxes.................... (34) -- 52 (85) 853(f) (100)
--------- ------ ------ ------ ------------ ------------
Net income (loss)............... $ (345) $ 952 $ (63) $ 356 (64,836) (78,661)
--------- ------ ------ ------
--------- ------ ------ ------
Dividends on and accretion of
preferred stock............... 2,731(g) 3,604
------------ ------------
Net loss attributable to common
stockholders.................. $ (67,567) $ (82,265)
------------ ------------
------------ ------------
Basic and diluted net loss per
common share.................. $ (4.46)
------------
------------
Weighted average common shares
outstanding (h)............... 18,465,130
------------
------------

OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
------------- ------------
Revenues........................ $ -- $ 69,182
Cost of revenues................ -- 41,941
------------- ------------
Gross profit.................. -- 27,241
Operating expenses:
Selling and marketing......... -- 3,327
General and administrative.... -- 19,031
Stock-based and other
acquisition-related
compensation................ -- 16,731
Depreciation and
amortization................ -- 60,272
------------- ------------
Total operating expenses.... -- 99,361
------------- ------------
Income (loss) from operations... -- (72,120)
Interest expense (income)....... (4,840)(i) 1,022
Other expense, net.............. -- 779
------------- ------------
Income (loss) before income
taxes......................... 4,840 (73,921)
Income taxes.................... -- (100)
------------- ------------
Net income (loss)............... 4,840 (73,821)

Dividends on and accretion of
preferred stock............... (3,604)(j) --
------------- ------------
Net loss attributable to common
stockholders.................. $ 8,444 $ (73,821)
------------- ------------
------------- ------------
Basic and diluted net loss per
common share.................. $ (2.56)
------------
------------
Weighted average common shares
outstanding (h)............... 28,799,411
------------
------------
</TABLE>

24
<PAGE>

APPNET SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OTHER
CONSOLIDATED INTERNET ACQUIRED PRO FORMA
APPNET I33(A) SALZINGER(A) OUTFITTERS(A) COMPANIES(A) ADJUSTMENTS
------------ ------ ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 19,643 $103 $ 417 $ 663 $1,445 $ --
Cost of revenues................... 11,457 48 214 431 982 --
------------ ------ ------------ ------ --------- -----------
Gross profit..................... 8,186 55 203 232 463 --

Operating expenses:
Selling and marketing............ 1,190 19 48 15 81 --
General and administrative....... 6,754 70 161 232 185 --
Stock-based and other
acquisition-related
compensation................... 2,487 -- 675 21 -- (552)(b)
Depreciation and amortization.... 12,735 3 3 18 8 80(c)
------------ ------ ------------ ------ --------- -----------
Total operating expenses....... 23,166 92 887 286 274 (472)
------------ ------ ------------ ------ --------- -----------
Income (loss) from operations...... (14,980) (37) (684) (54) 189 472
Interest expense (income).......... 1,262 -- (2) 17 3 196(d)
Other expense, net................. -- -- 472 -- -- (472)(e)
------------ ------ ------------ ------ --------- -----------
Income (loss) before income
taxes............................ (16,242) (37) (1,154) (71) 186 748
Income taxes....................... 100 -- -- (27) 70 (43)(f)
------------ ------ ------------ ------ --------- -----------
Net loss........................... $ (16,342) $(37) $(1,154) $ (44) $ 116 $ 791
------------ ------ ------------ ------ --------- -----------
------------ ------ ------------ ------ --------- -----------

Dividends on and accretion of
preferred stock.................. 1,039 93(g)
------------ -----------
Net loss attributable to common
stockholders..................... $ (17,381) $ 698
------------ -----------
------------ -----------

Basic and diluted net loss per
common share..................... $ (0.88)
------------
------------
Weighted average common shares
outstanding (h).................. 19,722,559
------------
------------

PRO FORMA OFFERING PRO FORMA
CONSOLIDATED ADJUSTMENTS AS ADJUSTED
------------ ----------- -----------
<S> <C> <C> <C>
Revenues........................... $ 22,271 $ -- $ 22,271
Cost of revenues................... 13,132 -- 13,132
------------ ----------- -----------
Gross profit..................... 9,139 -- 9,139
Operating expenses:
Selling and marketing............ 1,353 -- 1,353
General and administrative....... 7,402 -- 7,402
Stock-based and other
acquisition-related
compensation................... 2,631 -- 2,631
Depreciation and amortization.... 12,847 -- 12,847
------------ ----------- -----------
Total operating expenses....... 24,233 -- 24,233
------------ ----------- -----------
Income (loss) from operations...... (15,094) -- (15,094)
Interest expense (income).......... 1,476 (1,240)(i) 236
Other expense, net................. -- -- --
------------ ----------- -----------
Income (loss) before income
taxes............................ (16,570) 1,240 (15,330)
Income taxes....................... 100 -- 100
------------ ----------- -----------
Net loss........................... $ (16,670) $ 1,240 $ (15,430)
------------ ----------- -----------
------------ ----------- -----------
Dividends on and accretion of
preferred stock.................. 1,132 (1,132)(j) --
------------ ----------- -----------
Net loss attributable to common
stockholders..................... $ (17,802) $ 2,372 $ (15,430)
------------ ----------- -----------
------------ ----------- -----------
Basic and diluted net loss per
common share..................... $ (0.88) (0.50)
------------ -----------
------------ -----------
Weighted average common shares
outstanding (h).................. 20,284,523 30,618,804
------------ -----------
------------ -----------
</TABLE>

25
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)

The following adjustments were applied to AppNet's consolidated statement of
operations and the financial data of the companies we acquired in 1998 and 1999
to arrive at the unaudited pro forma consolidated statement of operations.

(a) In the pro forma consolidated statement of operations for the year ended
December 1998, these columns reflect the actual results of operations for the
acquisitions we completed in 1998 from January 1, 1998 to the date prior to
which each respective acquisition was consummated and for the companies we
acquired in 1999 for the full year ended December 31, 1998. In the pro forma
consolidated statement of operations for the three months ended March 31, 1999,
these columns reflect the actual results of operations for the acquisitions we
completed in 1999 from January 1, 1999 to the date prior to which each
respective acquisition was consummated as if they had occurred on January 1,
1998.

(b) This adjustment was made to record a full year of the estimated
compensation charge for contingent payments in connection with our acquisitions
in 1998 and 1999 and to reduce pro forma expense for stock-based and other
acquisition-related compensation expense recorded by the acquired companies
prior to their acquisition by AppNet which arose as a direct result of their
acquisition by AppNet:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
Contingent payment compensation expense.................................................................... $ 15,574
Less: Acquisition-related compensation expense recorded by acquired companies.............................. (4,379)
------------------
$ 11,195
------------------
------------------

<CAPTION>
THREE MONTHS ENDED

MARCH 31, 1999

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

<S> <C>
Contingent payment compensation expense.................................................................... $ 144

Less: Acquisition-related compensation expense recorded by acquired companies.............................. (696)

--------

$ (552)

--------

</TABLE>

See Note 16 of AppNet's historical consolidated financial statements
included elsewhere in this prospectus which further explains the amount shown as
contingent payment compensation expense. This pro forma amount has been
calculated assuming the operating targets related to the contingent payments
payable to the former owners of five of the companies we acquired, New Media
Publishing, Sigma6, Salzinger & Company, Internet Outfitters and TransForm IT,
are fully met and a common stock price per share of $13.00, the mid-point of the
range shown on the cover page of this prospectus. Approximately 75% of the total
contingent payments which have a fair value of approximately $31.6 million based
on a per share price of common stock of $13.00, the mid-point of the range shown
on the cover page of this prospectus, will be reflected as compensation expense
over a weighted average period of 18 months. These charges will be fully
recognized by the end of the year 2000.

(c) This adjustment was made to record amortization expense related to
acquired identifiable intangible assets and goodwill. Such amounts are being
amortized over the estimated useful life of each asset, primarily two to three
years. Six of the acquisitions, LOGEX International, New Media Publishing,
Sigma6, Salzinger & Company, Internet Outfitters and TransForm IT, provide for
additional purchase consideration, primarily cash and stock, which is payable
upon the attainment of agreed-upon operating targets. A portion of this amount
will be recorded as additional goodwill. If the operating targets are fully met,
the aggregate amount of additional goodwill will be approximately $8.5 million,
assuming a per share price of common stock at the time the contingency is
resolved of $13.00, the mid-point of the range shown on the cover page of the
prospectus. See "Risk Factors--Our intangible assets represent a significant
portion of our assets; amortization of our intangible assets will adversely
impact our net income and we may never realize the full value of our intangible
assets" for additional information on these amortization expenses.

26
<PAGE>

(d) This adjustment was made to reflect a full year of interest expense on
acquisition debt financing. The increase in the interest expense is a result of
the amounts drawn under the credit facilities to the balance outstanding on
March 31, 1999 of approximately $59.4 million at a weighted average interest
rate of 8.0%. Additionally, the increase results from notes issued to selling
shareholders with a principal balance of approximately $15.6 million at March
31, 1999 which bear a weighted average interest rate of 5.7%. The adjustment is
as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
Interest on credit facility................................................................... $ 4,550,000
Interest on notes to selling shareholders..................................................... 948,000
Less: interest recorded by AppNet and acquired companies...................................... (724,000)
------------------
$ 4,774,000
------------------
------------------

<CAPTION>
THREE MONTHS ENDED

MARCH 31, 1999

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

<S> <C>
Interest on credit facility................................................................... $ 1,178,000

Interest on notes to selling shareholders..................................................... 237,000

Less: interest recorded by AppNet and acquired companies...................................... (1,219,000)

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

$ 196,000

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

</TABLE>

(e) This adjustment was made to eliminate costs of investment advisors and
other professionals incurred by the companies we acquired in 1998 and 1999 which
were directly attributable to the sale of those companies to AppNet.

(f) This adjustment was made to record the estimated tax benefit for the
full year of 1998 and the estimated tax provision for the three months ended
March 31, 1999 and to reflect the tax impact of the previous pro forma
adjustments, net of an applicable valuation allowance.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
Income taxes............................................................................................... $ (100)
Less: historical tax (benefit)/provision recorded by AppNet and the companies we acquired.................. (953)
------------------
Net adjustment............................................................................................. $ 853
------------------
------------------

<CAPTION>
THREE MONTHS ENDED

MARCH 31, 1999

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

<S> <C>
Income taxes............................................................................................... $ 100

Less: historical tax (benefit)/provision recorded by AppNet and the companies we acquired.................. 143

--------

Net adjustment............................................................................................. (43)

--------

</TABLE>

(g) This adjustment was made to reflect a full year of preferred stock
dividends on the preferred stock issued to finance our acquisitions.

(h) Pro forma weighted average common shares outstanding for the year ended
December 31, 1998 reflects the effects of shares we issued in connection with
the acquisitions we made in 1998 and 1999 and GTCR's investment in AppNet, as if
all these shares had been issued as of January 1, 1998. Pro forma weighted
average common shares outstanding for the three months ended March 31, 1999
reflects the effects of shares we issued in connection with the acquisitions we
made in 1999 as if all these shares had been issued as of January 1, 1998.

Pro forma, as adjusted, weighted average shares outstanding for the year
ended December 31, 1998, and for the three months ended March 31, 1999, reflects
the pro forma weighted average shares outstanding for the respective periods
plus (1) the 6,000,000 shares to be issued in connection with this offering, (2)
the conversion of a $406,000 note payable into 39,055 shares of common stock and
(3) the issuance of 4,334,281 shares of common stock in connection with the
exchange of Class A and Class B Preferred Stock and related dividends.

27
<PAGE>

(i) This adjustment was made to eliminate interest expense as a result of
the repayment of the credit facilities and the conversion of a $406,000 note
payable into shares of our common stock in connection with the offering:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------- --------------------
<S> <C> <C>
Repayment of credit facilities.......................................... $ (4,829) $ (1,235)
Conversion of note payable.............................................. (11) (5)
------- -------
$ (4,840) $ (1,240)
------- -------
------- -------
</TABLE>

(j) This adjustment was made to eliminate dividends on and accretion of
preferred stock as a result of the redemption and the exchange of preferred
stock in connection with this offering, as follows:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------- --------------------
<S> <C> <C>
Class A Preferred Stock................................................. (2,909) (958)
Class B Preferred Stock................................................. (695) (174)
------- -------
$ (3,604) $ (1,132)
------- -------
------- -------
</TABLE>

28
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following tables contain selected financial data of AppNet for the year
ended December 31, 1998 and for the three months ended March 31, 1999 and for
its predecessor, Software Services Corporation, for each of the four years ended
December 31, 1997 and for the period from January 1, 1998 to August 24, 1998.
The consolidated statement of operations data and balance sheet data for AppNet
for the year ended December 31, 1998 are derived from financial statements
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this prospectus. The statement of operations data and balance sheet
data for AppNet for the three months ended March 31, 1999 are derived from the
unaudited financial statements of AppNet included elsewhere in this prospectus.
The statement of operations data for Software Services Corporation for the years
ended December 31, 1996 and 1997 and for the period from January 1, 1998 to
August 24, 1998 and the balance sheet data as of December 31, 1996 and 1997 and
August 24, 1998 are derived from the financial statements of Software Services
Corporation, which have been audited by Arthur Andersen LLP and are included
elsewhere in this prospectus. The statement of operations data for the years
ended December 31, 1994 and 1995 and the balance sheet data as of December 31,
1994 and 1995 are unaudited and have been prepared on the same basis as the
audited consolidated financial statements of Software Services Corporation
included elsewhere in this prospectus. In the opinion of management, this
unaudited information includes all adjustments, consisting of only normally
recurring adjustments, necessary for a fair presentation of such information.
The historical results are not necessarily indicative of results to be expected
for any future period. You should read the data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," our consolidated financial statements and the related notes and
Software Services Corporation's financial statements and the related notes,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SOFTWARE SERVICES CORPORATION
------------------------------------------------------------- APPNET
EIGHT MONTHS ------------------------------
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED THREE MONTHS
---------------------------------------------- AUGUST 24, DECEMBER 31, ENDED
1994 1995 1996 1997 1998 1998 MARCH 31, 1998
---------- ---------- ---------- ---------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 9,563 $ 11,065 $ 11,789 $ 13,298 $ 10,788 $ 17,674 $ 197
Net income (loss)........... 282 181 (53) 431 (1,713) (14,379) (279)
Dividends on and accretion
of preferred stock........ -- -- -- -- -- 873 --
Net income (loss)
attributable to common
stockholders.............. 282 181 (53) 431 (1,713) (15,252) (279)
PER SHARE AMOUNTS:
Basic and diluted net loss
per common share.......... $ 0.05 $ 0.03 $ (0.01) $ 0.08 $ (0.30) $ (1.41) $ (0.23)
Weighted average common
shares outstanding........ 6,000,000 6,000,000 5,727,000 5,705,000 5,697,000 10,785,424 1,195,331

THREE MONTHS
ENDED
MARCH 31, 1999
---------------
<S> <C>

STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 19,643
Net income (loss)........... (16,342)
Dividends on and accretion
of preferred stock........ (1,039)
Net income (loss)
attributable to common
stockholders.............. (17,381)
PER SHARE AMOUNTS:
Basic and diluted net loss
per common share.......... $ (0.88)
Weighted average common
shares outstanding........ 19,722,559
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, THREE MONTHS
---------------------------------------------- AUGUST 24, DECEMBER 31, ENDED
1994 1995 1996 1997 1998 1998 MARCH 31, 1998
---------- ---------- ---------- ---------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Total assets.................... $ 2,239 $ 3,217 $ 3,155 $ 3,667 $ 4,973 $ 118,370 $ 3,857
Total debt(1)................... 6 575 992 666 -- 43,792 2,394
Class A Preferred Stock......... -- -- -- -- -- 37,646 --
Stockholders' equity............ 1,641 1,811 1,458 1,886 3,487 23,608 804

<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1999
---------------
<S> <C>

BALANCE SHEET DATA:
Total assets.................... $ 163,471
Total debt(1)................... 75,885
Class A Preferred Stock......... 45,115
Stockholders' equity............ 16,221
</TABLE>

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

(1) Total debt includes the current and long-term portions of notes payable and
capital lease obligations for Software Services Corporation and includes the
current and long-term portions of long-term debt, convertible notes, capital
lease obligations and credit facilities for AppNet.

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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION MAY INCLUDE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES WHICH COULD
RESULT IN OPERATING PERFORMANCE THAT IS MATERIALLY DIFFERENT FROM MANAGEMENT'S
PROJECTIONS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE
THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF APPNET AND ITS PREDECESSOR, SOFTWARE SERVICES
CORPORATION, IN CONJUNCTION WITH THEIR RESPECTIVE CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES, "PRO FORMA CONSOLIDATED FINANCIAL DATA" AND
"SELECTED FINANCIAL DATA" INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

AppNet provides Internet and electronic commerce professional services and
solutions to medium-sized and large businesses. We develop end-to-end electronic
commerce solutions that improve communication and commerce between businesses
and consumers as well as among businesses and their trading partners. Through
strategic acquisitions and internal growth, we have built a company with the
ability to design, develop, implement and manage end-to-end Internet and
electronic commerce solutions.

AppNet's financial statements for the period from inception, November 6,
1997, through December 31, 1997, reflect immaterial transactions and, therefore,
these transactions have been included in our 1998 financial statements to
facilitate presentation. From inception through March 11, 1998, our operating
activities primarily consisted of developing a preliminary business plan,
recruiting personnel, engaging in discussions with prospective lenders and
strategic investors, identifying potential acquisition targets and developing
preliminary technical and marketing materials. Our strategic plan identified the
specific professional services which are required to provide clients with
end-to-end solutions. We then identified a group of companies which focused on
providing services in one or more of these professional services areas. After
reviewing and evaluating over 100 companies, we ultimately acquired a set of
companies that we believe fit together strategically and culturally and which,
when integrated with one another, could design, develop, implement and manage
end-to-end solutions. In March 1998, we completed our first acquisition. Since
that time, AppNet has completed 11 additional acquisitions.

Typically, the consideration we paid to make our acquisitions included cash,
shares of our common stock, promissory notes, promissory notes convertible into
shares of our common stock and, in six of our acquisitions, LOGEX International,
New Media Publishing, Sigma6, Salzinger & Company, Internet Outfitters and
TransForm IT, contingent payments payable in cash and/or shares of our common
stock payable upon the attainment of agreed-upon operating targets. The cash
portion of such consideration was financed primarily by an investment in our
company by GTCR and Smart Technology and borrowings under our credit facilities.
Our acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price has been allocated, based on
preliminary estimates of fair value, to the tangible assets and liabilities
assumed, and in most cases, with the advice of independent valuation experts, to
the identifiable intangible assets, as of the acquisition dates. Final estimates
of fair value will be made upon the completion of independent valuations for our
1999 acquisitions and the final determination of preexisting contingencies.
Since the Internet and the electronic commerce industries are in an early stage
of development and continue to evolve rapidly and because competition in these
industries is expected to increase, the recorded goodwill and identified
intangibles from each of the acquisitions are being amortized on a straight-line
basis primarily over two to three years, the estimated period of benefit.

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<PAGE>

AppNet's revenues are comprised primarily of fees generated for professional
services billed. We also generate fees from outsourcing services although these
fees currently represent a small portion of our revenues. Our strategy is to
increase the percentage of our revenues generated by fees from outsourcing
services. During the development of our outsourcing business, we may incur
losses and operating margins may be reduced as we build our operations and
infrastructure to support this line of business.

In general, we bill our professional services on a time and materials basis;
however, a portion of our services is billed on a fixed-price basis. AppNet
recognizes revenue from time and materials projects based on fixed hourly rates
for direct labor hours expended and revenues from fixed-price projects based on
the percentage-of-completion method of accounting, with costs and estimated
profits recorded as work is performed. Provisions for estimated losses on
uncompleted contracts are made in the period in which the losses are determined.
Changes in contract scope and estimated profitability, including final contract
settlements, may result in adjustments to costs and revenues and are recognized
in the period in which the adjustments are determined.

AppNet's cost of revenues includes all direct labor and other direct costs
related to contract performance. Cost of revenues consists primarily of salaries
and related employee benefits of billable employees.

Selling and marketing expenses are comprised of the salaries and related
employee benefits of sales and marketing employees and the costs of sales,
marketing and advertising activities. We compensate our sales employees with a
combination of base salaries and commissions. We anticipate that selling and
marketing expenses may increase as a percentage of our revenues in future
periods as we continue to build our corporate sales team and expand our
marketing strategy.

AppNet's general and administrative costs include salaries and related
employee benefits for finance, legal, human resources and administrative
personnel. The general and administrative expenses also include facilities
costs, recruiting, training and other corporate costs. As a result of
anticipated additional hiring costs associated with the integration of the
businesses we acquired in 1998 and 1999, our general and administrative expenses
will increase, although they may decline as a percentage of our revenues.

Stock-based and other acquisition-related compensation includes expenses
related to the cash and stock-based contingent payments payable to former owners
of five businesses, New Media Publishing, Sigma6, Salzinger & Company, Internet
Outfitters and TransForm IT, we acquired if agreed-upon operating targets are
achieved and these former stockholders remain employed by AppNet. These
contingent payments are accounted for as operating expenses in accordance with
Emerging Issues Task Force 95-08, "Accounting for Contingent Consideration Paid
to the Shareholders of an Acquired Company in a Purchase Business Combination,"
instead of as additional purchase consideration at the time of the acquisition
because many of the former owners to whom payments are payable must remain
employed by AppNet in order for them to receive these payments. The amount of
this compensation expense recorded periodically will fluctuate based on the
probability of achievement of the operating targets by each of the acquired
businesses and the market price of our common stock at the end of each reporting
period. This expense is recognized over the period during which these former
stockholders must remain employed by us to be eligible to receive the contingent
payments. The remaining portion of these contingent payments that is payable to
former shareholders who are not our employees or who are not required to remain
employed by us during the contingent payment period will be recorded as
additional goodwill when such targets are met. If all of the operating targets
are fully met, the aggregate amounts of compensation expense and additional
goodwill that will be recognized will be approximately $23.1 and $8.5 million,
respectively, assuming a per share price of common stock of $13.00, the
mid-point of the range shown on the cover page of this prospectus, for all

31
<PAGE>

shares issued in connection with these contingent payments. The compensation
expense will be recognized during 1999 and 2000.

A compensation charge will be recorded within stock-based and
acquisition-related compensation upon completion of this offering in connection
with the termination of our right to repurchase shares of our common stock from
Mr. Bajaj. The amount of the compensation charge will be determined based on the
number of common shares that we could have repurchased from him and the
difference between $0.3007 and the initial public offering price of our common
stock. This compensation charge would have been approximately $2.7 million if
this offering had occurred on March 31, 1999. Also, we will incur an interest
charge of approximately $0.9 million related to the beneficial conversion of
convertible notes at the time of this offering.

Operating results may fluctuate from quarter to quarter and from year to
year based on such factors as the number, size, type and profitability of
projects in which we are engaged. Other factors that could cause our quarterly
results to fluctuate include:

- effectiveness of integrating acquisitions with existing operations;

- our ability to attract, train and retain skilled management, technical and
creative personnel;

- the entrance of new competitors; and

- timing and size of acquisition-related compensation charges which
fluctuate based on the market price of our stock and the level of
achievement of the agreed upon operating targets.

APPNET PRO FORMA RESULTS OF OPERATIONS

The pro forma statement of operations for the year ended December 31, 1998
gives effect to the 12 acquisitions we made in 1998 and 1999 and GTCR's
investment in AppNet, as if these transactions had occurred on January 1, 1998.
The pro forma statement of operations for the three months ended March 31, 1999
gives effect to the acquisitions we made in 1999 as if these transactions had
occurred on January 1, 1998. Our pro forma quarterly and annual results may not
be indicative of future operations as a result of our continued integration of
acquired companies and the development of our corporate infrastructure.

THREE MONTHS ENDED MARCH 31, 1999

REVENUES. Pro forma revenues for the three months ended March 31, 1999 were
$22.3 million.

COST OF REVENUES. For the three months ended March 31, 1999, cost of
revenues was $13.1 million, or 59% of pro forma revenues.

SELLING AND MARKETING. Pro forma selling and marketing expenses for the
three months ended March 31, 1999 were $1.4 million, or 6% of pro forma
revenues.

GENERAL AND ADMINISTRATIVE. Pro forma general and administrative expenses
were $7.4 million, or 33% of pro forma revenues. The increase in general and
administrative expenses as a percentage of revenue from pro forma 1998 fiscal
year activity is a result of the build up of corporate infrastructure through
1998 and into 1999 to assist in the integration of acquisitions.

STOCK-BASED AND OTHER ACQUISITION-RELATED COMPENSATION. For the three
months ended March 31, 1999, pro forma stock-based and other acquisition-related
compensation was $2.6 million. The amount is computed based on the assumption
that operating targets will be fully met and that the fair market value of our
common stock is $13.00 per share, the mid-point of the range shown on the cover
page of this prospectus, as if the 1999 acquisitions had occurred on January 1,
1998.

32
<PAGE>

DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization for
the three months ended March 31, 1999 was $12.8 million, of which $12.3 million
represents amortization of intangible assets.

INTEREST EXPENSE. For the three months ended March 31, 1999, pro forma
interest expense was $1.5 million, the majority of which is a result of the
financing of acquisitions. We expect to repay existing borrowings under our
credit facilities with a portion of the proceeds from this offering which, along
with the conversion of a $406,000 note payable into common stock, would have
reduced interest expense on a pro forma as adjusted basis to $0.2 million.

YEAR ENDED DECEMBER 31, 1998

REVENUES. Pro forma revenues for the year ended December 31, 1998 were
$69.2 million. This amount consists primarily of revenues from fees for
professional services. We also generated revenues from fees for outsourcing
services; the amount of these fees represented a small portion of our revenues
for this period.

COST OF REVENUES. For the year ended December 31, 1998, pro forma cost of
revenues was $41.9 million, or 61% of revenues.

SELLING AND MARKETING. Pro forma selling and marketing expenses were $3.3
million for the year ended December 31, 1998, or 5% of revenues.

GENERAL AND ADMINISTRATIVE. For the year ended December 31, 1998, pro forma
general and administrative expenses were $19.0 million, or 28% of revenues.

STOCK-BASED AND OTHER ACQUISITION-RELATED COMPENSATION. Pro forma
stock-based and other acquisition-related compensation for the year ended
December 31, 1998 was $16.8 million. This amount represents an accrual for the
estimated amount of the cash and stock-based contingent consideration to be paid
to former owners of five of our acquired businesses, New Media Publishing,
Sigma6, Salzinger & Company, Internet Outfitters and TransForm IT, during the
12-month period following acquisition. The amount is based on assumptions that
operating targets will be fully met and that the fair market value of our common
stock is $13.00 per share, the mid-point of the range shown on the cover page of
this prospectus.

DEPRECIATION AND AMORTIZATION. For the year ended December 31, 1998, pro
forma depreciation and amortization were approximately $60.3 million, the
majority of which represents amortization expense of our intangible assets.

INTEREST EXPENSE. Pro forma interest expense for the year ended December
31, 1998 was $5.9 million, or 9% of revenues. This includes interest on
indebtedness borrowed under our credit facilities in connection with our
acquisitions of approximately $4.6 million and interest on notes issued in
connection with these acquisitions of approximately $1.0 million. We expect to
repay existing borrowings under our credit facilities with a portion of the
proceeds of this offering which, along with the conversion of a $406,000 note
payable into common stock, would have reduced interest expense on a pro forma as
adjusted basis to $1.0 million.

OTHER EXPENSE, NET. For the year ended December 31, 1998, pro forma other
expense includes a charge of $0.3 million related to the refinancing of our
credit facilities during 1998 and the write-off of approximately $0.3 million
related to an investment in a joint venture that was deemed to have no value due
to the failure of the venture to generate a customer base and to generate
sufficient revenues to cover operating expenses, which resulted in the
abandonment of the operations of the venture.

33
<PAGE>
INCOME TAXES. Pro forma income tax benefit for the year ended December 31,
1998 was $0.1 million. The effective income tax rate of 0.1% was lower than the
blended federal and statutory rate primarily as a result of amortization of a
portion of our intangible assets which are not deductible for income tax
purposes and the recognition of a valuation allowance in accordance with
generally accepted accounting principles.

APPNET HISTORICAL RESULTS OF OPERATIONS

AppNet's first quarter 1999 historical results of operations may not be
indicative of results to be expected for the full year in 1999 due to the impact
of acquisitions during the first quarter of 1999 and the continued integration
of our 1998 acquisitions.

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

REVENUES. Revenues for the three months ended March 31, 1999 and 1998 were
$19.6 million and $0.2 million, respectively. The increase of $19.4 million is a
result of the acquisitions that occurred during 1998 and 1999.

COST OF REVENUES. For the three months ended March 31, 1999, cost of
revenues were $11.5 million as compared to the cost of revenues for the three
months ended March 31, 1998 of $0.1 million. The increase of $11.4 million was
primarily driven by an increase in average billable headcount resulting from the
acquisitions that occurred during 1998 and 1999.

SELLING AND MARKETING. Selling and marketing expenses for the three months
ended March 31, 1999 were $1.2 million. The increase is a result of the
acquisitions we completed and the development of our corporate sales and
marketing staff.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $6.8
million and $0.2 million for the three months ended March 31, 1999 and 1998,
respectively. The increase is primarily a result of the acquisitions that
occurred during 1998 and 1999 and the development of our corporate general and
administrative staff.

STOCK-BASED AND OTHER ACQUISITION-RELATED COMPENSATION. For the three
months ended March 31, 1999, stock-based and other acquisition-related
compensation was $2.5 million. The amount is primarily attributable to the
contingent payments due to former shareholders that must remain employed to
receive the contingent payments. The amount is computed based on the fair market
value of our common stock at the end of the reporting period and the assumptions
that operating targets will be fully met.

DEPRECIATION AND AMORTIZATION. For the three months ended March 31, 1999,
depreciation and amortization was $12.7 million as compared with $0.1 million
for the three months ended March 31, 1998. The increase is primarily due to the
amortization of intangible assets resulting from the acquisitions made during
1998 and 1999. AppNet's goodwill and related amortization may increase in future
periods if AppNet is required to pay additional consideration for its
acquisitions.

INTEREST EXPENSE. Interest expense for the three months ended March 31,
1999 was $1.3 million that primarily resulted from the interest on the
outstanding balance on the credit facility entered into in August 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO SOFTWARE SERVICES CORPORATION
(PREDECESSOR) FOR THE YEAR ENDED DECEMBER 31, 1997

REVENUES. Revenues for the year ended December 31, 1998 were $17.7 million
as compared with revenues of $13.3 million of Software Services Corporation for
the year ended December 31, 1997. The

34
<PAGE>
difference of $4.4 million is a result of the acquisitions by AppNet during
1998, as well as internal growth which increased headcount and operations.

COST OF REVENUES. For the year ended December 31, 1998, cost of revenues of
AppNet were $11.7 million as compared to the cost of revenues of Software
Services Corporation for the year ended December 31, 1997 of $8.4 million. The
change of $3.3 million was primarily driven by the increase in billable
headcount resulting from the acquisitions that occurred during 1998 and internal
growth.

SELLING AND MARKETING. Selling and marketing expenses for the year ended
December 31, 1998 were $1.0 million as compared to $1.0 million for Software
Services Corporation for the year ended December 31, 1997.

GENERAL AND ADMINISTRATIVE. General and administrative expenses of AppNet
were $6.5 million for the year ended December 31, 1998 as compared to $3.0
million of Software Services Corporation for the year ended December 31, 1997.
The difference is primarily a result of the acquisitions that occurred during
1998.

STOCK-BASED AND OTHER ACQUISITION-RELATED COMPENSATION. For the year ended
December 31, 1998, stock-based and other acquisition-related compensation of
AppNet was $1.2 million, which represents an accrual for the estimated amount of
cash and stock-based contingent consideration to be paid to former stockholders
of acquired businesses.

DEPRECIATION AND AMORTIZATION. For the year ended December 31, 1998,
depreciation and amortization of AppNet was $10.2 million as compared with $0.3
million for the year ended December 31, 1997. The change is primarily a result
of the amortization of intangible assets recorded by AppNet in connection with
the acquisitions made in 1998.

INTEREST EXPENSE. Interest expense of AppNet for the year ended December
31, 1998 was $1.1 million that primarily resulted from the interest on the
outstanding balance on the credit facility during the period.

OTHER EXPENSE, NET. Other expense of $0.7 million includes a charge of $0.3
million related to the refinancing of our credit facilities in 1998. Other
expense also includes the write-off of $0.3 million related to an investment in
a joint venture that was deemed to have no value due to the failure of the
venture to generate a customer base and to generate sufficient revenues to cover
operating expenses, which resulted in the abandonment of the operations of the
venture.

INCOME TAXES. Income tax benefit for the year ended December 31, 1998 was
$0.2 million. The effective income tax rate of 1.4% was lower than the blended
federal and state statutory rate primarily as a result of amortization of a
portion of our intangible assets which are not deductible for income tax
purposes and the recognition of a valuation allowance in accordance with
generally accepted accounting principles.

SOFTWARE SERVICES CORPORATION (PREDECESSOR COMPANY)

PERIOD ENDED AUGUST 24, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

REVENUES. Revenues for the period ended August 24, 1998 were $10.8 million,
compared to $13.3 million for the year ended December 31, 1997. The decrease is
primarily due to the fact that we are comparing a 12-month period to an
eight-month period, offset by increased activity in SSC's technical consulting
group.

COST OF REVENUES. Cost of revenues for the period ended August 24, 1998 was
$7.4 million, compared to $8.4 million for the year ended December 31, 1997. The
amount as a percentage of revenues remained relatively consistent between the
respective periods.

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<PAGE>

OPERATING EXPENSES. Total operating expenses for the period ended August
24, 1998 were $5.3 million, compared to $4.4 million for the year ended December
31, 1997, representing an increase of $0.9 million. The increase is a result of
a $2.7 million stock-based and acquisition-related compensation charge, incurred
in connection with the acquisition of SSC by AppNet. The offsetting decrease is
a result of the decrease in selling and marketing and general and administrative
expenses of $1.6 million as larger projects required less overall support.

INCOME TAXES. An income tax benefit of $0.6 million was recorded for the
period ended August 24, 1998, compared with an income tax provision of $0.4
million for the year ended December 31, 1997 based on the income(loss) before
income taxes for the respective period.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

REVENUES. Revenues for the year ended December 31, 1997 were $13.3 million,
compared to $11.8 million for the year ended December 31, 1996. The increase of
$1.5 million is a result of an increase in the number of projects completed and
amount of professional services rendered during 1997.

COST OF REVENUES. Cost of revenues for the year ended December 31, 1997 was
$8.4 million, compared to $7.7 million for the year ended December 31, 1996. The
amount as a percentage of revenues remained substantially consistent.

OPERATING EXPENSES. Total operating expenses for the year ended December
31, 1997 were $4.4 million, compared to $4.0 million for the year ended December
31, 1996, representing an increase of $0.4 million. The increase is a result of
the overall increase in general and administrative expenses for the year ended
December 31, 1997.

INCOME TAXES. An income tax provision of $0.4 million was recorded for the
year ended December 31, 1997, compared with a provision of $0.1 million for the
year ended December 31, 1996. The increase is a result of the increase in income
before income taxes for the respective period.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1999, we had approximately $5.7 million in cash and cash
equivalents. AppNet has financed its operations and acquisitions primarily
through the issuance of preferred stock, borrowings under credit facilities and
the issuance of common stock. For the year ended December 31, 1998, cash used in
operations was $2.6 million and $71.7 million was used in investing activities.
For the three months ended March 31, 1999, cash provided by operating activities
was $1.5 million and cash used in investing activities was $27.3 million. The
principal use of cash in investing activities was to finance acquisitions. As
AppNet continues to grow its business and integrate the businesses it has
acquired, AppNet expects to use cash from operations to fund these activities.

Net cash provided by financing activities was $76.7 million and $29.0
million during the year ended December 31, 1998 and the three months ended March
31, 1999, respectively. We received proceeds from net borrowings under our
credit facilities of $37.5 million and $21.9 million during the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively. In
addition, we received $36.3 million and $3.0 million as consideration for the
issuance of our preferred and common stock, respectively, during the year ended
December 31, 1998. Additionally, we received $7.0 million during the three
months ended March 31, 1999 as consideration for the issuance of preferred
stock.

In connection with five of our acquisitions, LOGEX International, Century
Computing, Incorporated, Research & Planning, Inc., The Kodiak Group and i33
communications corp., we issued notes to the selling stockholders all of which
are convertible into shares of our common stock except for the notes issued in
connection with our acquisition of Research & Planning. The balance of the

36
<PAGE>
notes at March 31, 1999 was approximately $15.6 million, $14.6 million of which
is convertible into shares of our common stock. These notes have varying
maturities, from October 1999 through April 2003, and bear interest at rates
between 4.33% and 8.0% as of March 31, 1999. In addition, in connection with the
acquisition of Software Services Corporation, we issued shares of Class B
Preferred Stock. The holders of Class B Preferred Stock are entitled to a 6%
cumulative dividend.

At December 31, 1998, our revolving credit facilities provided for
borrowings up to $40 million. In 1999, we replaced these facilities with two new
revolving credit facilities which provide for up to $66 million in borrowings,
$40 million of which has been guaranteed by an affiliate. The new revolving
credit facilities will expire on August 24, 2001. The guaranteed portion bears
interest, at our option, at LIBOR plus 2.5% or the lenders' prime rate plus
0.5%. The unguaranteed portion bears interest, at our option, at LIBOR or the
lenders' prime rate plus an applicable margin based on our operating
performance. The credit facilities are secured by all of our assets and contain
various restrictive covenants that, among other things, require us to maintain
certain financial ratios and restrict us from paying dividends to our common
stockholders. At March 31, 1999, approximately $4.1 million remained available
for borrowing under our credit facilities based on the level of financial
ratios, as set forth in the credit facility.

We plan to use the proceeds of this offering to repay all outstanding
borrowings under our credit facilities. We intend to terminate our $40 million
credit facility following the consummation of this offering and amend our $26
million credit facility to provide for maximum aggregate revolving borrowings of
up to $20 million. The termination and amendment of these credit facilities will
reduce our interest expense in future periods. In conjunction with the
modification of these facilities, we may incur a charge of up to $0.6 million
representing the write off of financing costs related to these facilities which
have been capitalized and are not fully amortized as of March 31, 1999.

AppNet's capital expenditures for 1998 were approximately $1.2 million.
Historically, capital expenditures have been used to make leasehold improvements
to AppNet's leased office space and to purchase computer hardware and software
and furniture and fixtures. AppNet does not have any material commitments for
capital expenditures for the foreseeable future. However, AppNet does plan to
make capital expenditures, which may include office space, over the next two
years to further develop our electronic commerce outsourcing services.

During the period from the consummation of this offering through November
2000, we may be required to make contingent payments to former owners of six of
the businesses we acquired, LOGEX International, New Media Publishing, Sigma6,
Salzinger & Company, Internet Outfitters and TransForm IT. These contingent
payments are payable in cash and stock, in one case at the option of the selling
stockholders. The amount of these payments will depend on the level of
achievement of the operating targets and the market price of our common stock.
The majority of the former stockholders must remain employed by us in order to
remain eligible to receive these payments. The maximum aggregate amount of the
cash portion of these payments, assuming the operating targets are fully met, is
approximately $20 million.

Based upon current expectations, we believe amounts which may be borrowed
under our credit facility and cash flow from operations will be adequate for us
to meet our capital requirements, to finance the cash portion of our contingent
payments and pursue our business strategy for the next 18 months. To the extent
AppNet is unable to fund its operations from cash flows and existing credit
facilities during or following the next 18 months, it may need to obtain
financing from external sources either by issuing additional equity or incurring
additional indebtedness.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities", which establishes
accounting and reporting standards for derivative

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instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. We have not yet determined whether
the adoption of SFAS No. 133 will have a material effect on our results of
operations, financial position or cash flows.

YEAR 2000

We have completed a preliminary assessment of our Year 2000 readiness and
are beginning to make our systems Year 2000 compliant. The risks posed by the
Year 2000 issue could adversely affect our business in a number of significant
ways. Many of our clients and potential clients maintain their operations on
systems that could be impacted by Year 2000 problems. If our clients fail to
ensure their systems are Year 2000 compliant and Year 2000 problems materially
adversely affect them, our business could be adversely affected, particularly if
demand for our services declines as companies spend their resources to upgrade
their computer systems. We rely on our suppliers for hardware, software and
services. Our business could be adversely affected if we cannot obtain products,
services or systems that are Year 2000 compliant when we need them. We also
depend on the availability of the Internet infrastructure to conduct our
business and provide services to our clients. Disruptions in the Internet
infrastructure arising from Year 2000 problems could materially adversely affect
our business, financial condition and results of operations. In addition, our
solutions are sometimes dependent upon third-party products and components.
Failure of a third party whose products or services we employ to adequately
address Year 2000 issues could result in our involvement in litigation
concerning our products and services or those of a third party. Futhermore,
because we provide computer-related services, the risk we will be involved in a
lawsuit relating to Year 2000 issues is likely to be greater than that of
companies in other industries. We sometimes provide express warranties to
clients that our work is Year 2000 compliant.

We are in the process of obtaining assurances from our suppliers that they
are Year 2000 compliant. We have established a Year 2000 Executive Steering
Committee, appointed a Year 2000 Compliance Program Manager and adopted a formal
compliance program to oversee and coordinate our Year 2000 compliance efforts
throughout our organization. This program is designed to ensure consistency and
minimize the impact of Year 2000 problems on our operations. Our Year 2000
Compliance Program consists of the following five phases: awareness, assessment,
remediation, testing and implementation. Based on the early stages of our Year
2000 compliance program, we cannot estimate the percentage of completion for
each of these phases.

In the event the Company does not complete the phases of its program, the
Company may fail to meet contractual obligations, provide adequate service or
meet customer requirements. The result of such failures could make the Company
subject to litigation for which the amount of potential liability and lost
revenue cannot be reasonably estimated at this time.

Our costs in connection with Year 2000 compliance to date are approximately
$90,000. At this time, we estimate the potential costs of becoming Year 2000
compliant to be between $0.2 million and $0.6 million, which includes the cost
to replace hardware and software, outside consulting services and some internal
labor costs. However, as we continue to implement our Year 2000 compliance
program, these cost estimates may need to be significantly revised, which could
have a material adverse effect on our business, financial condition or results
of operations.

As part of our plan to integrate the back-office functions of the businesses
we have acquired, we are implementing new, uniform internal information systems,
such as general ledger, billing, accounts payable and payroll, throughout our
organization. Although we have received assurances from our vendors that these
new systems are Year 2000 compliant, our internal systems may experience
operational difficulties because of undetected errors or defects in the
technology used.

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<PAGE>

If we fail to address a Year 2000 compliance problem in one of our systems,
the result could be a failure or interruption of normal business operations. We
believe that our Year 2000 Compliance Program, when fully implemented, should
minimize the risk of significant interruptions to our operations. Currently, we
do not have an expected completion date for our compliance program. At this
point, we believe that the most reasonably likely worst case scenario may
involve areas we do not directly control, such as:

- Our suppliers may provide inaccurate or misleading information to us with
respect to their products' and/or services' Year 2000 compliance. If we
had to replace every information technology system developed by a third
party throughout our organization, we estimate the cost to be $7.2 million
and that it would result in significant interruption of our operations.

- Our clients may fail to ensure that their systems are Year 2000 compliant,
which may cause the Year 2000 problem to materially adversely affect them.
If this did occur, demand for our services could decline as companies
spend their resources to upgrade their computer systems.

- The failure of third-party products and components upon which our
solutions are sometimes dependent could result in our involvement in
litigation concerning our solutions or the products and components of
third parties. We cannot accurately predict the outcome of any legal
claims in which we may become involved as a result of such failure.

- Critical utilities such as electrical power and telecommunications may be
interrupted for a significant and protracted period of time. We have taken
steps to mitigate these risks by installing back-up power supplies and
redundant telecommunications. However, we could still be adversely
impacted by failures at companies that provide us with Internet services.

We currently do not have contingency plans in place in the event we do not
complete all phases of our Year 2000 Compliance Program. If we do not develop
our contingency plans, our potential Year 2000 liabilities may be materially
increased.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AppNet is exposed to market risk related to changes in interest rates on its
long-term credit facilities. AppNet is able to manage its interest rate risk to
some degree through management's option to select the factor used to determine
its interest rate. AppNet's credit facilities are variable rate credit
facilities. The guaranteed portion of our credit facilities bears interest, at
our option, at LIBOR plus 2.5% or the lenders' prime rate plus 0.5%. The
unguaranteed portion bears interest, at our option, at LIBOR or the lenders'
prime rate plus an applicable margin based on our operating performance. The
balance outstanding as of December 31, 1998 was $37.5 million, of which $19.7
million bears interest at a rate of 8.25% and $17.8 million bears interest at a
rate of 7.75%. Assuming the amount outstanding at March 31, 1999, which was
$59.4 million, was outstanding for the entire year, we estimate that a one
percentage point change to the weighted average interest rate at March 31, 1999
(8.0%) would equal a $0.6 million change in interest expense. If the interest
rate increased, the net loss attributable to common stockholders for the three
months ended March 31, 1999 would have increased by $0.2 million to $17.5
million.

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<PAGE>
BUSINESS

OVERVIEW

AppNet provides Internet and electronic commerce professional services and
solutions to medium-sized and large businesses. We develop electronic commerce
solutions that improve communication and commerce between businesses and
consumers as well as among businesses and their trading partners. We focus on
maximizing the opportunities presented by the Internet and electronic commerce
to enhance all aspects of our clients' operations, from the front end of their
business, creative Website design, to the back end, back-office integration of
existing systems and electronic commerce outsourcing, creating an end-to-end
solution. We were formed in 1997 as a Delaware corporation.

Our professional services include:

- strategic consulting;

- interactive media services such as creative Website design and
development, branding, which is the creation of a unique corporate
identity for a client and its products, media planning and buying;

- electronic commerce outsourcing, which is the performance of electronic
commerce services that would otherwise be handled by the client's internal
staff using the client's resources.

INDUSTRY BACKGROUND

The rapid growth in the use of the Internet and electronic commerce has
revolutionized the way businesses operate and interact with their customers and
trading partners. The Internet and electronic commerce have created new channels
of communication and distribution which raise the level and increase the speed
of interaction between a business and its trading partners and customers. The
demand for Internet and electronic commerce services is increasing as more and
more companies develop on-line businesses and employ Internet and electronic
commerce solutions.

The Internet enables businesses to establish an on-line presence through
which they can offer new and complementary products and services to new and
existing markets. As a result, businesses have been able to create new sources
of revenue, improve customer care and retention and streamline their internal
operations by processing orders and payments on-line.

To date, businesses have primarily focused on using Internet and electronic
commerce solutions to improve business-to-consumer relationships. However,
businesses are increasingly using the Internet and electronic commerce to open
cost-effective, reliable, highly efficient channels of communication and
commerce with their suppliers and distributors. Internet and electronic commerce
solutions can improve the way businesses interact with their trading partners by
linking businesses' back-office systems through electronic data interchange, or
EDI, and the Internet to trading partners and suppliers. EDI is a process
through which data is transferred from a paper format into a standard electronic
format and electronically transmitted to trading partners over a private network
or the Internet. In July 1997, International Data Corporation reported that 80%
of Fortune 500 companies employed EDI to improve their business processes.
Businesses are increasingly finding that they can reliably and cost-effectively
manage a high volume of transactions on a real-time basis using EDI and the
Internet.

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In addition, by using EDI and the Internet for communication with both consumers
and trading partners, businesses are creating electronically integrated supply
chains that significantly improve their operating efficiency.

Businesses are increasingly discovering that implementing Internet and
electronic commerce solutions is necessary to remain competitive and are
demanding end-to-end Internet and electronic commerce solutions that can improve
every aspect of their operations. As a result, technology industry research
firms predict that the market for Internet and electronic commerce services
worldwide will grow significantly over the next few years. International Data
Corp. estimates that this market will increase from $4.6 billion in 1997 to
$43.7 billion by 2002, which represents a compound annual growth rate of 57%.
According to a 1998 Dataquest survey of selected Fortune 1000 companies, 83% of
such companies are currently investing, or plan to invest, in Internet solutions
and 48% are currently investing, or plan to invest, in electronic commerce
solutions.

Most businesses rely on outside specialists to design and develop Internet
and electronic commerce solutions for a number of compelling reasons. Because
Internet and electronic commerce technologies have developed so rapidly, few
businesses have employees with the advanced skills necessary to effectively
evaluate and implement these technologies successfully. Given the pressure to
get to market quickly, waiting for in-house employees to be trained to use these
technologies is not practicable. In addition, hiring trained professionals is
difficult because they are in great demand. At the same time, as business
challenges grow increasingly complex, so must the Internet and electronic
commerce solutions required to address them. Given the significant cost to
design, develop, implement and manage Internet and electronic commerce
solutions, businesses cannot afford to expend resources developing solutions
themselves. Hiring a firm that provides a comprehensive range of Internet and
electronic commerce professional services is often the most efficient and
cost-effective solution for many companies.

THE APPNET SOLUTION

Our goal in founding AppNet was to address the growing need for end-to-end
Internet and electronic commerce solutions. We offer a comprehensive range of
services involving the design, development, implementation and management of
Internet and electronic commerce solutions that facilitate and promote
communication and commerce between businesses and consumers as well as among
businesses and their trading partners. Key elements of the AppNet solution are:

- END-TO-END SERVICE OFFERING

We can provide clients with end-to-end Internet and electronic commerce
solutions. Our clients recognize significant cost and time savings and receive
integrated solutions because they can obtain all of the Internet and electronic
commerce professional services they need from one company.

- UNIQUE ELECTRONIC COMMERCE OUTSOURCING SERVICES

We offer our clients an extensive range of electronic commerce outsourcing
services as part of our overall service offering. We perform electronic commerce
services that would otherwise be handled by the client's internal staff using
the client's resources. Our business-to-business outsourcing services include
processing transactions for our clients using our resources and infrastructure.
We also operate electronic data interchange programs through which businesses
and their trading partners exchange information electronically. We monitor and
analyze the transactions processed through these programs. Our
business-to-consumer outsourcing services include managing on-line stores,
processing transactions, managing and hosting Websites and operating and
managing electronic commerce systems. Our Website managing and hosting services
include adding and editing material on a Website and making sure the Website is
operating according to its specifications. Our outsourcing services include
maintaining security at a Website by ensuring only authorized users have access
to the Website. We also store data that is generated by activity at the Website.
Clients who take advantage of these services get to market

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quickly; do not have to make the significant financial and technological
investments required to effectively build and manage their own infrastructures;
receive reliable and secure services; and can focus their attention and
resources on their core competencies.

- ABILITY TO SOLVE INCREASINGLY COMPLEX BUSINESS PROBLEMS

Our business-level and process-level strategic consulting services help our
clients solve their increasingly complex business problems with sophisticated,
vendor-neutral Internet and electronic commerce solutions. We employ
business-level strategic consulting services to develop and redefine clients'
business models to incorporate Internet and electronic commerce strategies. We
employ process-level strategic consulting services to improve the business
processes of clients who have already incorporated Internet and electronic
commerce strategies into their business models. These services, together with
the knowledge and experience we gain designing, developing, implementing and
managing each electronic commerce solution, enable us to develop comprehensive
strategies for growing on-line ventures, streamlining on-line marketing and
distribution strategies, improving operating efficiencies and reducing costs.

- ENHANCED SERVICES THROUGH THE USE OF ADVANCED PROPRIETARY TECHNOLOGIES

We use advanced proprietary technologies to design and develop more
effective Internet and electronic commerce solutions. ClientLink, a secure
Website we developed that is accessible only by us and our clients, also known
as an extranet, gives our clients on-line access to, and engages their active
participation in, the development of their Internet and electronic commerce
solutions. Within ClientLink, clients can, on a real-time basis, view any
changes that have been made to their solutions, communicate electronically with
project team members and check a calendar for information regarding product
reviews and launches. We use ClientLink to raise the level of interaction
between us and our clients, which, in turn, improves the quality, functionality
and adaptability of the solution we create.

AdMaximize, our proprietary interactive media service, enables us to
measure, on a real-time basis, a client's return on investment for its on-line
advertising dollars. AdMaximize tracks the performance of ads on the Internet
and collects real-time data on the number of users who click on the ad, the
number of new customers and the amount of sales generated by the ad. Based on
their analysis of this information, clients can make real-time adjustments to
their advertising campaigns to maximize the number of users who visit their
Websites and reduce the costs of acquiring new customers and generating sales.

As part of the outsourcing services we offer, we utilize proprietary
software, EDI Control/400 and STAR, in order to more effectively manage
electronic data interchange programs that process a high volume of transactions.
EDI Control/400 enables us to monitor and analyze our clients' transactions and
communications with their trading partners with fewer people and higher service
levels. Our client support services team uses STAR, or the Service Tracking and
Reporting System, to log, track and report on all aspects of a transaction.

- REUSABLE BUSINESS SOLUTIONS

We have developed reusable business solutions in the process of designing,
developing, implementing and managing end-to-end Internet and electronic
commerce solutions for clients in a number of industries. These reusable
business solutions were developed based on our industry-specific expertise and
utilize reusable software code and content objects. These solutions enable us to
give our clients the benefit of our knowledge and experience in addressing
complex business challenges, develop and implement Internet and electronic
commerce solutions more quickly and efficiently, focus our efforts on
customizing solutions to meet our clients' specific needs and deliver reliable
solutions based on components that have been tested and perfected through
repeated use in other solutions.

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OUR STRATEGY

Our goal is to become the most recognized and sought-after provider of
Internet and electronic commerce services to medium-sized and large business
clients. To achieve this goal we plan to:

- EXPAND CLIENT RELATIONSHIPS

We plan to cross-sell our comprehensive range of Internet and electronic
commerce professional services to existing clients. We believe that if we
continue to provide sophisticated solutions to our clients:

- our existing clients will increase the amount, scope and complexity of
services they obtain from us;

- we will strengthen our reputation as a creative source for Internet and
electronic commerce solutions; and

- we will attract new clients through referral-driven sales.

This strategy should increase our revenue predictability and result in
additional and more extensive engagements with our clients.

- INCREASE REPEAT AND RECURRING REVENUES

Our strategy is to increase the proportion of our revenues which represents
repeat business with the same clients as well as the proportion of our recurring
revenues from our electronic commerce outsourcing services. We intend to
generate repeat revenues by cross-selling services and entering into multiple
engagements with our existing clients. In addition, we plan to increase
recurring revenues by selling additional electronic commerce outsourcing
services to our new and existing clients. We charge clients who use our
electronic commerce outsourcing services either a fixed monthly rate or on a per
transaction basis, or both. Our target contract length for electronic commerce
services is one year. Increasing repeat and recurring revenues will enable us to
predict our revenues with greater accuracy and improve our operating margins.

- BUILD AND ENHANCE COMPLEMENTARY SKILL SETS AND MAINTAIN TECHNOLOGICAL
EXPERTISE

Each additional skill set we develop improves our ability to better serve
our existing and future clients. We believe it is imperative for us to stay
abreast of the newest technological developments and evolving service offerings
in order to maintain the high level of quality of our services, increase the
effectiveness of our solutions and attract and retain qualified employees. We
continually research, test and evaluate new Internet and electronic commerce
technologies which we can incorporate into our solutions. Each engagement we
complete broadens our expertise and increases our knowledge, thereby enhancing
our ability to provide the most effective Internet and electronic commerce
solutions.

- EXPAND AND STRENGTHEN MARKETING AND TECHNOLOGY RELATIONSHIPS WITH LEADING
TECHNOLOGY VENDORS

We intend to further expand our marketing and technology relationships with
several leading technology vendors and build other relationships that will
promote our growth and enhance our position in the marketplace. We have
relationships with vendors such as Harbinger, Microsoft, Oracle, SAP and TSI
International Software. Our marketing relationships with these technology
vendors generally contemplate that we will engage in joint marketing programs to
cross-sell our services. Our technology relationships with these technology
vendors generally contemplate that vendors will give us access to products which
are still being developed in exchange for our feedback about such products. Our
non-exclusive marketing and technology relationships with technology vendors
help us generate business by increasing our name recognition and visibility in
the marketplace, providing us with new sales opportunities and early access to
the newest technologies, enabling us to cross-sell our services

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<PAGE>

with prominent technology vendors and increasing our access to vendor technical
training and support. We do not depend, however, on any one or all of these
relationships to generate business.

- PURSUE CLIENT-DRIVEN GEOGRAPHIC EXPANSION

We intend to open additional offices both domestically and internationally
in order to better serve clients in locations where we have already attracted
business. This allows us to serve clients locally, cross-sell services to
existing local clients and win more local business. Each new office we have
opened has enhanced our ability to attract and service large clients and to hire
additional staff without relocation burdens. We currently have offices in 14
locations in the U.S., including the metropolitan areas of Boston, Denver,
Detroit, Los Angeles, New York City and Washington, DC.

- EXPAND AND DEVELOP INDUSTRY-SPECIFIC EXPERTISE

Through our experience designing, developing, implementing and managing
Internet and electronic commerce solutions for a wide variety of companies, we
have gained significant strategic knowledge and created industry-specific
reusable business solutions. This industry-specific expertise significantly
enhances our ability to help other companies in the same industries successfully
adopt Internet and electronic commerce solutions. To date, we have developed
reusable business solutions for the retail services, financial services,
healthcare, manufacturing and telecommunications industries. We intend to
broaden the range of industries in which we have specialized knowledge and
maximize the benefits to our clients of such knowledge by creating additional
industry-specific solution templates and reusable software. We employ strategic
consultants, sales, marketing and technical staff with expertise in industries
which we believe can realize significant benefits from Internet and electronic
commerce solutions. Further developing and strengthening this expertise will
increase our knowledge of industry specific business challenges and increase the
industry-targeted services we can offer, thereby improving our ability to
penetrate specific industries.

- ATTRACT AND RETAIN A HIGHLY SPECIALIZED WORKFORCE

We will continue to recruit highly skilled and experienced professionals who
have industry-specific expertise and who are proficient in a broad range of
technological and business skills. We intend to continue to ensure that our
employees have the requisite expertise to provide our clients with a
comprehensive range of Internet and electronic commerce professional services.
We have 11 full-time recruiters and often use recruitment firms as well. We also
attract employees through referral bonus programs and advertising on the
Internet. We plan to retain and motivate our employees by giving them the
opportunity to work with cutting-edge technologies, paying competitive
compensation packages, granting stock options, reimbursing tuition expenses and
encouraging a corporate culture that is results-driven and rewards creativity,
communication and cooperation.

SERVICES

We offer a comprehensive range of professional services involving the
design, development, implementation and management of end-to-end Internet and
electronic commerce solutions. Our services include strategic consulting,
interactive media services, Internet-based application development, electronic
commerce systems integration and electronic commerce outsourcing, each of which
is described below. Our engagements generally include more than one of these
services.

[Diagram to be inserted]

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- STRATEGIC CONSULTING

Our business- and process-level strategic consulting services help our
clients successfully develop on-line businesses and improve their overall
business processes. We employ business-level strategic consulting to study
and analyze our clients' market position, operating requirements, systems
and capabilities to determine how our clients should use the Internet and
electronic commerce to accomplish their objectives. We work with clients to
incorporate Internet and electronic commerce solutions into their businesses
and assist in developing on-line businesses and on-line marketing
strategies. We employ process-level strategic consulting with clients that
have already incorporated Internet and electronic commerce solutions into
their businesses to assist them in improving their overall business
processes by incorporating on-line system architecture and design with
existing Internet and electronic commerce solutions, thereby improving
operating efficiencies and reducing costs.

- INTERACTIVE MEDIA SERVICES

Our interactive media services include creative Website design and
development, branding, which is the creation of a unique corporate identity
for a client and its products and developing on-line advertising strategies.
Developing on-line advertising strategies includes media buying and
planning, on-line ad placement, management, tracking and reporting and
on-line promotion and campaign development. As part of an on-line
advertising strategy, we also develop affinity programs that link businesses
by rewarding one business' clients with products and services of another
business. These services are designed to maximize our clients' return on
their investments in on-line businesses by generating and increasing the
number of visitors to a Website, enhancing user experience and increasing
the effectiveness of our clients' marketing efforts. We integrate our
creative Website design, development, branding and on-line advertising
services into our clients' overall solutions.

- INTERNET-BASED APPLICATION DEVELOPMENT

Internet-based application development is the development of software
applications that are capable of running on the Internet and are written in
languages such as Java, C++ and Visual Basic. These services are designed to
help our clients rapidly develop highly flexible and cost-effective business
applications. We develop corporate intranets, which are secure Websites
accessible only within a particular company, and electronic commerce systems
and we Web-enable legacy systems, which are existing systems, so that they
can operate on the Internet. We design and
develop more effective Internet and electronic commerce solutions by giving
our clients on-line access to the development of their solutions. We design,
build and implement solutions that are secure, adaptable and easy to use and
manage.

- ELECTRONIC COMMERCE SYSTEMS INTEGRATION

Electronic commerce systems integration is the integration of electronic
commerce systems, which are systems that automate the receipt, processing
and delivery of transaction data and other information, with other corporate
software and computer-based applications such as Websites and accounting and
financial systems. These services are designed to rapidly install and
integrate our solutions with our clients' existing operations so our
solutions become an integral part of our clients' critical business systems.
We install our solution, convert all necessary data, perform acceptance
testing and put the system into operation. We also integrate the solution
with back-office existing legacy systems to ensure that each client's
computer-based applications operate seamlessly and with maximum security.

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- ELECTRONIC COMMERCE OUTSOURCING

We perform electronic commerce services that would otherwise be handled
by the client's internal staff using the client's internal resources. Our
electronic commerce outsourcing services help clients rapidly launch and
implement electronic commerce solutions and then cost-effectively manage,
operate, maintain and continue to develop those solutions. We provide
business-to-business outsourcing services such as operating electronic data
interchange programs and transaction processing at our outsourcing center in
Pittsfield, MA, as well as at our customer's sites. We provide
business-to-consumer outsourcing services such as managing on-line stores,
transaction processing, managing and hosting Websites and the ongoing
management, technical operation, maintenance and development of electronic
commerce solutions at our outsourcing center in Laurel, MD, as well as at
our customer's sites.

ELECTRONIC COMMERCE OUTSOURCING CENTERS

We believe our outsourcing capabilities are a key component of our full
range of Internet and electronic commerce professional service offerings and
differentiate us from our competitors. Outsourcing enables us to effectively
manage, operate and maintain the electronic commerce systems we have developed
for our clients. Fees from outsourcing services currently represent a small
portion of our revenues. However, we expect that demand for outsourcing services
will increase over time as customers recognize that outsourcing is a
cost-effective solution. For example, outsourcing is an attractive choice for
those customers who lack the internal resources required to effectively build
and manage their own infrastructure or their critical business processes and who
are under pressure to get to market quickly.

At our business-to-business electronic commerce outsourcing center, we
process and manage thousands of transactions among hundreds of trading partners
on a variety of hardware and software platforms, over private networks, and the
Internet. We use EDI Control/400, our administrative software product, to
operate, monitor and analyze electronic data interchange programs through which
businesses and their trading partners exchange information electronically. EDI
Control/400 provides our customers with detailed transaction reporting, on-line
storage of data about the transactions, and multiple levels of security ensuring
only authorized user have access to and can exchange information. At our
business-to-consumer electronic commerce outsourcing center we manage on-line
stores, process transactions and manage and host Websites. Our Website managing
and hosting services include adding and editing material on a Website and making
sure the Website is operating according to its specifications.

Our outsourcing centers operate seven days a week, 24 hours a day. Our
outsourcing center staff proactively manages and monitors the operation of each
center using network management software, including proprietary technologies we
developed. We collect, process and respond to systems-level event information
and build and maintain a central repository for inventory and asset management
information. In addition, each of our outsourcing centers features multiple
levels of security which we believe protect our clients' private information by
isolating our electronic commerce outsourcing centers from public network
infrastructures.

CLIENTS

We market our services to medium-sized and large companies from a range of
industries which we believe can benefit from Internet and electronic commerce
solutions. Our engagements vary in scope from strategic consulting assignments
to designing and implementing complex and highly functional intranets and
extranets. Because we can offer every client a complete spectrum of Internet and
electronic commerce professional services, we can customize each of our
engagements to fit a client's specific needs. Two of our clients, Ford and the
U.S. Government, accounted for 15% and 12%,

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respectively, of our total revenues for 1998. After giving pro forma effect to
the acquisitions we made in 1998 and 1999 as if they had occurred on January 1,
1998, our top ten customers would have represented approximately 35% of our 1998
pro forma revenues.

Because of the strategic and competitively sensitive nature of the services
we perform for our clients, in many cases we have agreed to keep our clients'
identities confidential. Set forth below is a partial list of the clients to
whom we provided services in 1998 that we believe is representative of our
overall client base:

<TABLE>
<S> <C>
RETAIL AND CONSUMER SERVICES TELECOMMUNICATIONS AND TECHNOLOGY
Biztravel.com Computer Sciences Corp.
Burton Snowboards Ciena
Harmony House Comshare
Hertz Lockheed Martin Integrated Business Solutions
K*B Toys FINANCIAL SERVICES
MANUFACTURING AND INDUSTRIAL @rts @lliance
Ciba Specialty Chemicals Ford Motor Credit
Dial Multex Systems
Hyundai Norwest
Johnson Controls HEALTHCARE AND PHARMACEUTICALS
NEC Acuson
Norrell Allergan Services
The Electronic Imaging Division of Toshiba Blue Cross and Blue Shield of Michigan
America Information System, Inc. Baxter Healthcare
Unilever 3M
MEDIA AND ENTERTAINMENT GOVERNMENT AND NONPROFIT
Cablevision AAA
Cisneros Group INTELSAT
GeoCities NASA
Grey Interactive National Library of Medicine
McCann-Erickson University of Michigan
Playboy Enterprises World Wildlife Fund
</TABLE>

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EXAMPLES OF OUR INTERNET AND ELECTRONIC COMMERCE SOLUTIONS

The following examples illustrate the kinds of Internet and electronic
commerce solutions we have developed for specific clients.

THE ELECTRONIC IMAGING DIVISION OF TOSHIBA AMERICA INFORMATION SYSTEMS, INC.

Challenge: Design and implement a restricted access dealer extranet system.

Solution: We developed the community, Web-interface and database elements of
Toshiba's FYI Dealer Extranet, an on-line system for dealers that provides a
common interface in addition to customized information that meets each
individual dealer's requirements. We designed security features which protect
market-sensitive information from unauthorized users. A conditional access
system, driven by a complex database user-authorization scheme, offers multiple
read-and-write user access levels.

The FYI Dealer Extranet moves an essential Toshiba business process to the
Internet, which has resulted in substantial time and cost savings. Employees,
dealers and distributors build strong relationships on this electronic commerce
and informational site. The site simplifies ordering and shipping of more than
10,000 spare-part SKUs for fax machines and copiers.

BURTON SNOWBOARDS

Challenge: Design and implement an on-line inventory and supply-chain
management system.

Solution: We designed and implemented a complex, yet easy to use on-line
inventory and supply-chain management system that Burton management uses to
quickly and efficiently control changing inventory, manage materials and track
product placement. Our solution accommodates multiple languages and currencies
and is able to generate fast, detailed reports. Using our solution, Burton has
improved its efficiency in managing its inventory and supply-chain and reduced
production overuns and overall costs.

AMERICA ONLINE, INC. OR AOL

Challenge: Develop a content investment strategy.

Solution: We helped AOL launch the AOL Greenhouse, a division of AOL
Studios. Our work included assisting the President of AOL Greenhouse to
establish a process for selecting and managing a portfolio of content
investments. We assisted with the development of the division's organizational
structure, portfolio management strategy and revenue development. Our work
resulted in successful investments in leading Internet companies, including The
Motley Fool, Inc., Hecklers On-Line and iVillage.

RETIRED PERSONS SERVICES, INC. OR RPS

Challenge: Provide technical assistance to Retired Persons Services, Inc.,
provider of the AARP Pharmacy Service, in the ongoing design, implementation and
management of its on-line pharmacy.

Solution: RPSPharmacy.com provides AARP members and others with the option
of ordering prescription refills and nonprescription pharmacy products over the
Internet. The on-line pharmacy incorporates features such as health information
to facilitate condition management and product selection, comparison of
brand-name and generic alternatives, information about related products and
special offers, patient profiling for drug utilization review and links to other
important sources of health information.

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GOVERNMENT TECHNOLOGY SERVICES, INC. OR GTSI

Challenge: Design and implement an on-line computer store.

Solution: We designed and implemented a user-friendly on-line computer store
that enables Federal customers to price and purchase approximately 150,000
computer products over the Internet. The solution we developed provides
customized shopping experiences for many customers. Using our solution, GTSI
hopes to streamline the purchasing process for its customers.

K*B TOYS

Challenge: Design, implement and operate an EDI program that would
accurately process and track orders, shipping notices, invoices and other time
sensitive data, including point-of-sale information, to support streamlined
procurement and distribution center operations.

Solution: We designed and implemented an EDI program for K*B Toys to
effectively manage inventory levels and merchandise replenishment at over 1300
mall-based stores. Our solution incorporated features such as comprehensive
mapping schemes for easy translation of data, cost-efficient network and
Internet routing schemes and scalability to accommodate increasing transaction
volume. Using our solution, K*B Toys has reduced its communications costs by
approximately 75%, improved the efficiency of its overall processes and allowed
it to focus on its core retailing business.

HARMONY HOUSE

Challenge: Design and develop an on-line music store which would complement
its 34 retail outlets.

Solution: We designed and implemented a user-friendly on-line music store
that enables customers to search for, listen to and purchase music products over
the Internet. Our solution incorporated features such as easily searchable
databases and music guides, easily selectable music samples and robust
management features for site update and promotion and order management. Using
our solution, Harmony House has built brand recognition and loyalty and
established an additional distribution channel.

MULTEX SYSTEMS

Challenge: Design and develop a Web-based ad campaign to increase site
traffic and trading volume and decrease the per customer acquisition cost.

Solution: We crafted a media plan which included the creation of multiple
banner ads. Using our proprietary service, AdMaximize, we served banner ads,
instantly tracked banner ad performance and collected real-time data on
click-through, lead generation, customer acquisition and sales. Based on
Multex's and our collective analysis of this data, we were able to make
real-time adjustments to Multex's ad campaign and optimize all Website ad
performance. Using our solution, Multex has increased its overall membership,
increased its revenues per new member and has decreased its cost to acquire new
members via the Web.

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SALES AND MARKETING

As of May 1, 1999, we employed 26 full-time sales professionals. Three
corporate sales professionals concentrate on our Internet and electronic
commerce professional services to clients in the industries in which they have
extensive expertise. The other 23 members of our sales force are service-focused
and concentrate on selling individual services as well as cross-selling all of
our service offerings. Our vice president of corporate sales coordinates the
efforts of our corporate and service-focused sales personnel.

Our marketing strategy is to demonstrate to our potential clients the
advantages of Internet and electronic commerce solutions, and our expertise and
success in designing, developing, implementing and managing end-to-end
solutions. In addition, we have retained an outside public relations and
advertising firm to assist us with our marketing efforts on a company-wide
basis. Our two full-time corporate marketing professionals concentrate on
promoting and enhancing our brand on a nationwide basis. Our five full-time
service-focused marketing professionals concentrate on marketing a set of our
services, often to a targeted audience or in their local markets.

Our sales and marketing strategy is built upon the following directives:

- ENHANCE OUR BRAND AND IMPROVE OUR MARKET POSITIONING

Our goal is to become the most recognized and sought-after provider of
Internet and electronic commerce professional services to medium-sized and
large business clients. To do so, we must continue to enhance our brand and
reputation. Our brand development programs deliver the message that we are a
national company with the experience and resources to meet all of our
clients' Internet and electronic commerce services needs. To build and
differentiate our brand, we use publicity campaigns that appear on the
Internet, in print advertising, at trade shows and in educational white
papers. We also take advantage of the opportunity to strengthen our brand by
developing relationships with strategic partners. As we enhance our
industry-specific expertise, we intend to develop sales and marketing
programs targeted to specific industries.

- MANAGE OUR CLIENTS' ACCOUNTS EFFECTIVELY

Corporate sales professionals direct client leads to the appropriate
service-focused salesperson. Our corporate sales professionals also manage
accounts for large clients with multiple locations and ensure each part of
our clients' accounts are served by the technical staff which can best meet
their needs.

- CROSS-SELL SERVICES

As we integrate the diverse client bases of the companies we acquired,
we intend to continue to take advantage of opportunities to cross-sell our
services to existing clients. We intend to train every member of our sales
force to cross-sell our entire range of services. In addition, we are
creating uniform marketing and sales materials which describe the wide range
of services we offer and position AppNet as a leading provider of end-to-end
Internet and electronic commerce solutions.

In each of our professional services engagements, a client can contract for
the specific services it requires. We bill most of our engagements on a time and
materials basis, although we have entered into several engagements on a
fixed-price basis. Clients who use our electronic commerce outsourcing services
are charged either a fixed monthly rate or on a per transaction basis, or both.

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COMPETITION

Our competitors can be divided into several groups:

- Internet professional services providers, such as Agency.com, iXL,
Proxicom, Razorfish, Scient, Think New Ideas, US Interactive, USWeb/CKS
and Viant;

- large information technology consulting services providers, such as
Andersen Consulting, Cambridge Technology Partners, CSC, EDS, IBM and
Sapient;

- interactive advertising agencies, such as Darwin Digital, Giant Step, Grey
Interactive, Modem Media . Poppe Tyson and Thunderhouse;

- electronic commerce software and service providers, such as BroadVision,
Harbinger, Open Market and Sterling Commerce; and

- Internet access and service providers, such as Abovenet, Exodus and
Frontier/Global.

We believe we can distinguish ourselves from our competitors by offering our
clients end-to-end Internet and electronic commerce solutions. We believe we can
compete effectively on the basis of our comprehensive range of services,
technical expertise, creative talent, brand or name recognition and the speed,
reliability and price of the services we provide. However, our competitors have
also begun to offer a variety of Internet and electronic commerce professional
services, rather than specialize in one area, or have announced their intention
to do so. These companies may continue to expand their operations so that they
offer a full range of business-to-business and business-to-consumer Internet and
electronic commerce professional services and products.

There are relatively low barriers to entry into our business. We do not own
any patent technology that precludes or inhibits competitors from entering our
markets. The costs to develop and provide Internet or electronic commerce
professional services are low. Therefore, we expect to continue to face
additional competition from new entrants into our markets. Many of our
competitors have greater financial, technical, marketing and public relations
resources than AppNet. A number of our outsourcing competitors have made
substantial capital investments in their infrastructure. Because many of our
competitors have longer operating histories than we do, many of them also have
greater brand or name recognition, larger client bases and longer client
relationships on which they can rely for generating business.

ACQUIRED COMPANIES

Our goal in founding AppNet was to build a company that could offer a
comprehensive range of Internet and electronic commerce professional services.
We began by developing a detailed strategic plan that identified the specific
professional services that are required to provide clients with end-to-end
solutions. These services were strategic consulting, interactive media services,
Internet-based application development, electronic commerce systems integration
and electronic commerce outsourcing. We then identified a group of companies
that excelled in providing services in one or more of these professional
services areas. After reviewing and evaluating over 100 companies, we ultimately
acquired a set of companies that we believe fit together strategically and
culturally and that, when integrated with one another, could design, develop,
implement and manage end-to-end solutions.

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[Chart to be inserted]

ARBOR INTELLIGENT SYSTEMS, INC. We acquired substantially all of the assets
of Arbor Intelligent Systems on March 12, 1998. Arbor specialized in
Internet-based applications development, providing object-oriented development
services to our customers. It had approximately 30 consulting professionals as
of the date of the acquisition. We paid approximately $3.1 million for Arbor
with a combination of cash and shares of our Series A-1 Preferred Stock that
have since been converted into our common stock. During 1997, Arbor had revenues
of approximately $3.1 million.

LOGEX INTERNATIONAL, L.L.C. We acquired substantially all of the assets of
LOGEX International on April 30, 1998. LOGEX specialized in electronic commerce
systems integration and outsourcing group, providing electronic commerce systems
integration services to our customers. It had approximately nine consulting
professionals as of the date of the acquisition. We paid approximately $600,000
for LOGEX with a combination of cash and a convertible promissory note. The
former LOGEX stockholders are also entitled to a potential contingent payment
payable in cash based on the achievement of agreed-upon performance criteria for
the one-year period ending on April 30, 1999.

SOFTWARE SERVICES CORPORATION. We acquired Software Services Corporation on
August 25, 1998. Software Services specialized in Internet-based applications
development, providing applications development, network architecture and design
services to our customers. It had approximately 190 consulting professionals as
of the date of the acquisition. We paid approximately $22.9 million for Software
Services with a combination of cash and shares of our common stock and Class B
Preferred Stock. During 1997, Software Services had revenues of approximately
$13.3 million.

NEW MEDIA PUBLISHING, INC. We acquired New Media Publishing on October 2,
1998. New Media Publishing specialized in interactive media services, providing
interactive community-building services to our customers. It had approximately
40 consulting professionals as of the date of the acquisition. We paid
approximately $19.0 million for New Media Publishing with a combination of cash,
shares of our common stock and options to purchase shares of our common stock.
The former New Media Publishing stockholders are also entitled to a potential
contingent payment payable in cash and in shares of our common stock of up to
$14.0 million based upon the achievement of agreed-upon

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performance criteria for the 12-month period ending on September 30, 1999.
During 1997, New Media Publishing had revenues of approximately $3.0 million.

CENTURY COMPUTING, INCORPORATED. We acquired Century Computing on October
12, 1998. Century specialized in electronic commerce systems integration and
outsourcing, providing systems integration and processing services to our
customers. It had approximately 81 consulting professionals as of the date of
the acquisition. We paid approximately $29.0 million for Century with a
combination of cash, a convertible promissory note and options to purchase
shares of our common stock. During 1997, Century had revenues of approximately
$10.9 million.

RESEARCH & PLANNING, INC. We acquired Research & Planning on October 20,
1998. Research & Planning specialized in electronic commerce systems integration
and outsourcing, providing enterprise resource planning and integration and data
warehousing services to our customers. It had approximately 40 consulting
professionals as of the date of the acquisition. We paid approximately $20.5
million for Research & Planning with a combination of cash, promissory notes and
shares of our common stock. During 1997, Research & Planning had revenues of
approximately $4.8 million.

THE KODIAK GROUP, INC. We acquired The Kodiak Group on December 14, 1998.
Kodiak specialized in electronic commerce systems integration and outsourcing,
providing EDI integration and processing services to our customers. It had
approximately 35 consulting professionals as of the date of the acquisition. We
paid approximately $15.6 million for Kodiak with a combination of cash,
convertible promissory notes and shares of our common stock. In addition, the
former Kodiak stockholders are entitled to a potential contingent payment
payable in cash of up to $4.0 million in the event that, during the three-year
period ending on December 14, 2001, Kodiak sells or licenses technology it
developed. During 1997, Kodiak had revenues of approximately $3.7 million.

I33 COMMUNICATIONS CORP. We acquired i33 communications corp. on January 8,
1999. i33 communications specialized in interactive media services, providing
media buying and planning services to our customers. It had approximately 40
consulting professionals as of the date of the acquisition. We paid
approximately $21.6 million for i33 communications with a combination of cash
and convertible promissory notes. During 1998, i33 communications had revenues
of approximately $4.4 million.

SIGMA6, INC. We acquired Sigma6, Inc. on March 4, 1999. Sigma6 specialized
in interactive media services, providing brand identity services to our
customers. Sigma6 had approximately 25 consulting professionals as of the date
of the acquisition. We paid approximately $2.5 million for Sigma6 with a
combination of cash and shares of our common stock. The former Sigma6
stockholders are also entitled to a potential contingent payment payable in cash
and in shares of our common stock of up to $2.8 million based on the achievement
of agreed-upon performance criteria during the 12-month period ending on
December 31, 1999. During 1998, Sigma6 had revenues of approximately $1.8
million.

SALZINGER & COMPANY, INC. We acquired substantially all of the assets of
Salzinger & Company on March 15, 1999. Salzinger & Company specialized in
strategic consulting, providing business-level strategic consulting services to
our customers. It had approximately eight consulting professionals as of the
date of the acquisition. We paid approximately $8.5 million for Salzinger &
Company with a combination of cash and shares of our common stock. Salzinger &
Company is also entitled to a potential contingent payment, payable in cash or,
at the seller's option, in cash and in shares of our common stock, of up to $5.0
million based on the achievement of agreed-upon performance criteria during the
period beginning on April 1, 1999 and ending on September 30, 2000. During 1998,
Salzinger & Company had revenues of approximately $3.1 million.

INTERNET OUTFITTERS, INC. We acquired Internet Outfitters on March 26,
1999. Internet Outfitters specialized in interactive media services, providing
localization and creative Web-development services to our customers. It had
approximately 25 consulting professionals as of the date of the acquisition. We

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paid approximately $9.5 million for Internet Outfitters with a combination of
cash, shares of our common stock and options to purchase shares of our common
stock. The former Internet Outfitters stockholders are also entitled to receive
a potential contingent payment payable in cash and in shares of our common stock
of up to $3.5 million based on the achievement of agreed-upon performance
criteria for the year ending on December 31, 1999. During 1998, Internet
Outfitters had revenues of approximately $2.3 million.

In connection with our acquisition of Internet Outfitters, approximately
$1.45 million of the purchase price, based upon the fair value of $17.10 per
share at the date of acquisition, in the form of shares of our common stock was
pledged to us and escrowed to be available to satisfy any potential liability in
connection with a license dispute. We also held back $750,000 of the cash
purchase price to be used to satisfy indemnification claims, including any
potential liability arising from such license dispute. These amounts will be
paid on the earlier of the date the dispute is resolved in a manner satisfactory
to us or June 30, 2001. A licensor of software used by a client of Internet
Outfitters has asserted that Internet Outfitters caused the client to underpay
the licensor in the amount of $2.2 million. Outfitters has denied any liability
for those additional amounts. In management's opinion, based on all known facts,
the software licensor's claim is without merit, however, if disposed of
unfavorably to Appnet, it could materially adversely affect us.

TRANSFORM IT, INCORPORATED. We acquired substantially all of the assets of
TransForm IT on March 29, 1999. TransForm IT specialized in strategic
consulting, providing process-level strategic consulting services to our
customers. It had approximately 10 consulting professionals as of the date of
the acquisition. We paid approximately $5.1 million for TransForm IT with a
combination of cash and shares of our common stock. TransForm IT is also
entitled to receive potential contingent payments payable in cash of up to $3.5
million based on the achievement of agreed-upon performance criteria during the
12-month period ending on March 31, 2000. In addition, the employees of
Transform Acquisition Corp., a subsidiary formed by AppNet to acquire TransForm
IT, are entitled to receive potential contingent payments payable in options to
purchase shares of our common stock based on the achievement of various revenue
levels during the 12-month period ending on March 31, 2000. During 1998,
TransForm IT had revenues of approximately $3.1 million.

We have developed a detailed process to fully integrate each acquisition
into our existing operations and create one seamless organization. We have begun
completing the integration tasks laid out in this detailed process. This
detailed process focuses on integrating the delivery of our professional
services, our sales and marketing functions, our knowledge management system and
our back-office functions.

By integrating the delivery of professional services, we can more
efficiently manage projects, provide better quality control, increase the
quality of our work and provide better customer service. By integrating our
sales and marketing functions, we can more efficiently generate leads and win
new business, provide superior customer service, coordinate the delivery of more
effective marketing messages and better train our sales personnel. By
integrating the way we manage our knowledge on a company-wide basis, we can more
efficiently interact and share information with our employees and customers,
reduce the time it takes to develop solutions for our clients, increase the
quality of our work and provide better customer service. By integrating our
back-office functions we can more efficiently monitor and manage our business,
recruit and retain employees, and administer corporate-wide benefit programs.

EMPLOYEES

As of May 1, 1999, we had approximately 755 employees. Our continuing
success will depend in large part on our ability to attract, motivate and retain
employees who are qualified to offer the services we provide. Competition for
qualified employees is intense. We believe we have been

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successful to date in attracting and retaining qualified employees. Our strategy
for attracting, motivating and retaining our employees is to pay competitive
salaries and cash bonuses, grant stock options, reimburse tuition expenses and
encourage a corporate culture that is results-driven and rewards creativity,
communication and cooperation.

We believe our relationship with our employees is satisfactory. None of our
employees is represented by a union. Generally, our employees are retained on an
at-will basis and many of our key employees are subject to employment
agreements. All of our senior managers, as well as most of our key employees,
are required to sign confidentiality agreements and non-competition agreements
which prohibit them from competing with us during their employment and for
various periods thereafter.

PROPERTIES

Our headquarters are located in Bethesda, MD and consist of approximately
13,400 square feet of leased space, the lease for which expires in May 2005. We
also lease office space in Santa Monica, CA, Golden, CO, Stamford, CT, Laurel,
MD, Cambridge, MA, Pittsfield, MA, Ann Arbor, MI, Detroit, MI, New York, NY,
Charlottesville, VA, Falls Church, VA, Vienna, VA and Amsterdam, The
Netherlands. We do not own any real estate. We do not consider any specific
leased location to be material to our operations and we believe that equally
suitable alternative locations are available in all areas where we currently do
business.

LEGAL PROCEEDINGS

We are not a party to any pending material legal proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Information regarding our executive officers and directors as of May 21,
1999 is set forth below. Each director's term of office will expire at our next
annual meeting of stockholders. Each officer's term of office will expire at the
first Board of Directors meeting held after our next annual meeting of
stockholders.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>

Ken S. Bajaj....................... 57 Chairman of the Board of Directors, President and Chief Executive
Officer

Jack Pearlstein.................... 35 Senior Vice President, Chief Financial Officer, Treasurer and
Secretary

Ronald B. Alexander................ 51 Senior Vice President--Finance

Toby Tobaccowala................... 60 Senior Vice President

Robert G. Harvey................... 49 Senior Vice President--Software Development Services

Robert D. McCalley................. 59 Senior Vice President--Electronic Commerce

John Cross......................... 56 Director, Executive Vice President--Strategic Consulting

William S. Dawson.................. 43 Vice President--General Counsel

Philip A. Canfield................. 31 Director

Thomas M. Davidson................. 62 Director

Bruce V. Rauner.................... 43 Director
</TABLE>

KEN S. BAJAJ. Mr. Bajaj has been Chairman of our Board of Directors,
President and Chief Executive Officer since November 1997. Mr. Bajaj was Vice
Chairman of Wang Laboratories, Inc. from March 1997 until November 1997. He
joined Wang Laboratories, Inc. when that company acquired I-NET, Inc. in 1996;
at that time he was President of I-NET, Inc., a position he held from 1988 until
1996. Before joining I-NET, Inc., Mr. Bajaj had been a Vice President at
Electronic Data Systems, Inc. since 1978. Mr. Bajaj has an M.S. in electrical
engineering from the University of Toronto and a Ph.D. in systems science from
Michigan State University.

JACK PEARLSTEIN. Mr. Pearlstein has been our Senior Vice President since
July 1998 and our Chief Financial Officer, Treasurer and Secretary since May
1999. Prior to that time, Mr. Pearlstein was a Managing Director and principal
of Foxhall Capital, LLC from November 1996 until July 1998. Prior to this time,
he was Director--Mergers and Acquisitions at Digicon Corporation from November
1995 to November 1996. From September 1994 until November 1995, he was a senior
associate at Merge Global, Inc. From June 1993 until August 1994, he was a
financial analyst at Legg Mason. Mr. Pearlstein has a B.S. in Accounting from
New York University and an M.B.A. in Finance from the George Washington
University.

RONALD B. ALEXANDER. Mr. Alexander has been our Senior Vice President since
September 1998. He was our Chief Financial Officer from September 1998 to May
1999 and our Treasurer and Secretary from January 1999 to May 1999. Mr.
Alexander was Senior Vice President and Chief Financial Officer of GRC
International from April 1996 until September 1998. From 1994 until April 1996,
Mr. Alexander was Chief Financial Officer of Network Imaging Corporation. In
prior positions, Mr. Alexander was a Managing Director of the Blackstone Group,
a New York investment banking

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firm and Chief Financial Officer of Commodore International, one of the original
developers of the personal computer. Mr. Alexander has a B.A. in physics and
math from Columbia College, a J.D. from Columbia Law School and an L.L.M. in
taxation from New York University.

TOBY TOBACCOWALA. Mr. Tobaccowala has been our Senior Vice President since
August 1998. Prior to August 1998, Mr. Tobaccowala was Chief Executive Officer
and a director of Commerce Direct International for one year. Before joining
Commerce Direct International, Mr. Tobaccowala was employed by the Media
Strategic Business Unit of Electronic Data Systems, Inc. from 1973 until 1996,
most recently as President. He has an M.B.A. from the Bajaj Institute of
Management Studies.

ROBERT G. HARVEY. Mr. Harvey has been our Senior Vice President--Software
Development Services since February 1998. Mr. Harvey was General Manager,
Midwest Operations of Wang Laboratories, Inc. from August 1996 until September
1997. He joined Wang Laboratories, Inc. when that company acquired I-NET, Inc.
in 1996; at that time he was General Manager, Midwest Operations at I-NET, Inc.,
a position he held from April 1994 until August 1996. Mr. Harvey has a B.S. in
mathematics from California State University and an M.S. in both computer
science and management from the University of California. Mr. Harvey serves in
the U.S. Army Reserve as a Colonel and in the Military Intelligence and Military
Police Corps.

ROBERT D. MCCALLEY. Mr. McCalley has been our Senior Vice
President--Electronic Commerce since February 1998. Prior to that time, Mr.
McCalley was Vice President, Wide Area Network Division of Wang Laboratories,
Inc. He joined Wang Laboratories, Inc. when that company acquired I-NET, Inc. in
1996; at that time he was Vice President, Commercial Services, at I-NET, Inc., a
company he joined in April 1991. Mr. McCalley has a B.S. in Mechanical
Engineering from George Washington University.

JOHN CROSS. Mr. Cross has been on our Board of Directors since June 1998
and our Executive Vice President--Strategic Consulting since March 1999. Mr.
Cross was the Group Vice President of Information Technology for BP Amoco
Corporation from 1998 until 1999. Mr. Cross was the Chief Information Officer
for the British Petroleum Group from 1993 until 1998. Prior to 1993, he was
General Manager for information technology in the Exploration and Production
Company of British Petroleum. Mr. Cross has a B.S. in economics and business
management from the University of Natal, South Africa.

WILLIAM S. DAWSON. Mr. Dawson has been our Vice President--General Counsel
since May 1999. Mr. Dawson was General Counsel and Secretary of SPACEHAB, Inc.
from April 1996 until May 1999. From February 1989 until April 1996, Mr. Dawson
was Senior Counsel, and subsequently Associate General Counsel, of Government
Technology Services, Inc. Prior to joining Government Technology Services, Inc.,
Mr. Dawson was an attorney with Seyforth, Shaw, Fairweather & Geraldson from
February 1986 until February 1989 and Watt, Tieder, Killian & Hoffar from May
1984 until February 1986. Mr. Dawson has a B.A. from Gordon College and a J.D.
from Catholic University Law School.

PHILIP A. CANFIELD. Mr. Canfield has been on our Board of Directors since
June 1998. He has been a principal at GTCR Golder Rauner, L.L.C. since 1997 and
an associate from 1992 until 1997. Prior to 1992, Mr. Canfield worked in the
corporate finance department of Kidder, Peabody & Co. He has a B.S. in finance
from the Honors Business Program at the University of Texas at Austin and an
M.B.A. from the University of Chicago. Mr. Canfield is also a director of AETEA
Information Technology, Inc., VISTA Information Technologies, Inc. and several
other private companies in GTCR's portfolio.

THOMAS M. DAVIDSON. Mr. Davidson has been on our Board of Directors since
June 1998. Mr. Davidson has been President and Chief Executive Officer of
Davidson Capital Group LLC since June 1998. From June 1997 until April 1998, Mr.
Davidson was a Managing Director of Washington Equity Partners. Prior to that,
he was a partner at the law firm of Reed, Smith, Shaw & McClay. From

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1995 until March 1997, Mr. Davidson was a partner at the law firm of Coffield,
Ungaretti & Harris. Mr. Davidson was a partner at the law firm of Verner,
Liipfert, Bernhard, McPherson & Hand from 1993 until 1995. He has a B.A. from
Williams College and an LL.D. from Duke University.

BRUCE V. RAUNER. Mr. Rauner has been on our Board of Directors since June
1998. Mr. Rauner is a managing principal of GTCR Golder Rauner, L.L.C. and has
been a principal of GTCR since 1981. Mr. Rauner has a B.A. from Dartmouth
College and an M.B.A. from Harvard University. Mr. Rauner is also a director of
AnswerThink Consulting Group, Inc., Lason, Inc., Coinmach Laundry Corporation,
Polymer Group, Inc., Province Healthcare, Inc., Esquire Communications Ltd. and
private companies in GTCR's portfolio.

RICHARD N. PERLE. Mr. Perle has agreed to join our Board of Directors for
an initial term of office to expire at our next annual meeting of stockholders.
Mr. Perle is currently director of the American Enterprise Institute's
Commission on Future Defenses. From 1981 until 1987, he was Assistant Secretary
of Defense for International Security Policy of the U.S. Department of Defense.
Mr. Perle is currently the Chairman of Hollinger Digital, Inc. and a director of
Hollinger International, Inc., Geobiotics, American Interactive Media, Inc. and
Morgan Crucible, PLC. Mr. Perle has a B.A. in International Relations from the
University of Southern California and an M.A. from Princeton University.

BOARD OF DIRECTORS

Our Board of Directors is currently composed of five directors. Each of the
current members of the Board of Directors has been elected in accordance with
the terms of the Stockholders' Agreement, dated as of June 29, 1998, by and
among AppNet and substantially all of our current stockholders, which will
terminate upon consummation of this offering. We intend to expand the Board to
include two outside directors after this offering.

COMMITTEES OF THE BOARD OF DIRECTORS

After completion of this offering, we intend to establish an Audit Committee
and a Compensation Committee, each composed of a majority of independent
directors. The Audit Committee will recommend the annual appointment of our
auditors with whom the Audit Committee will review the scope of audit and
non-audit assignments and related fees, accounting principles we use in
financial reporting, internal auditing procedures and the adequacy of our
internal control procedures. The Compensation Committee will make
recommendations to the Board of Directors regarding compensation for our
executive officers.

COMPENSATION OF DIRECTORS

Directors who are also employees of AppNet receive no additional
compensation for their services as directors. Directors who are not AppNet
employees will not receive a fee for attendance in person at meetings of the
Board of Directors or committees of the Board of Directors, but they will be
reimbursed for travel expenses and other out-of-pocket costs incurred in
connection with the attendance of meetings. Non-employee directors will receive
options to purchase our common stock in connection with their appointment to the
Board of Directors. Non-employee directors will also receive automatic grants of
options to purchase our common stock each year that they are re-elected to the
Board of Directors.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Delaware General Corporation Law provides that a company may indemnify
its directors and officers against liabilities they may incur as a result of
their service as a director of officer. Our certificate of incorporation and
bylaws provide for the indemnification of our directors and officers to

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the fullest extent permitted by law. The effect of such provisions is to
indemnify our directors and officers against all costs, expenses and liabilities
incurred by them in connection with actions, suits or proceedings in which they
are involved because of their affiliation with us. In addition, we intend to
obtain director and officer liability insurance to effectuate these provisions.

EXECUTIVE COMPENSATION

The following table sets forth a summary of compensation for services
rendered in all capacities to us by the Chief Executive Officer and President
and each of our four other most highly paid executive officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
OTHER
ANNUAL COMPENSATION ANNUAL
----------------------------------- COMPEN-
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS SATION
- --------------------------------------------------------- --------- ------------ ---------- ----------

<S> <C> <C> <C> <C>
Ken S. Bajaj
President and Chief Executive Officer(a)............... 1998 $ $ $

Toby Tobaccowala
Senior Vice President.................................. 1998 90,278(b) 15,000

Ronald B. Alexander
Senior Vice President--Finance......................... 1998 63,135(c) 10,000 50,000(f)

Robert G. Harvey
Senior Vice President--Software Development Services... 1998 114,250(d) 40,000(g)

Robert D. McCalley
Senior Vice President--Electronic Commerce............. 1998 114,330(d) 40,000(g)

Terrence M. McManus
Senior Vice President, Secretary & Treasurer(e)........ 1998 123,547(d) 40,000(g)
</TABLE>

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

(a) Mr. Bajaj began to receive an annual base salary of $300,000 in May 1999.
Prior to May 1999, Mr. Bajaj elected not to receive any compensation.

(b) Mr. Tobaccowala began to work for us in July 1998. The salary set forth
above for 1998 represents his salary for the six-month period from July to
December 1998.

(c) Mr. Alexander began to work for us in September 1998. The salary set forth
above for 1998 represents his salary for the four-month period from
September to December 1998.

(d) Messrs. Harvey, McCalley and McManus each began to work for us in February
1998. The salaries set forth above for 1998 represents their respective
salaries for the eleven-month period from February to December 1998.

(e) Mr. McManus resigned as of December 31, 1998.

(f) Mr. Alexander earned a $50,000 signing bonus in 1998, which will be paid
upon consummation of this offering.

(g) Messrs. Harvey, McCalley and McManus each received 56,140 shares of our
common stock as partial compensation for services rendered from February 1,
1998 to May 31, 1998.

OPTION GRANTS AND EXERCISES DURING 1998

No stock options to purchase our common stock were granted to or exercised
by the executive officers named in the table above during 1998. None of these
executive officers currently holds any options to purchase our common stock.

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EMPLOYMENT AGREEMENTS

We have entered into a senior management agreement with Mr. Bajaj, dated as
of June 29, 1998, which provides for his employment as our President and Chief
Executive Officer until he resigns, is disabled, as determined by the Board of
Directors in its good faith judgment, dies or is terminated by the Board of
Directors for any reason. Mr. Bajaj began to receive an annual base salary of
$300,000 in May 1999, subject to increases as determined by the Board of
Directors based upon AppNet's achievement of budgetary and other objectives set
by the Board of Directors. He will also be eligible to receive a bonus of up to
50% of his salary based upon AppNet's achievement of budgetary and other
objectives set by the Board of Directors.

The senior management agreement contains provisions requiring Mr. Bajaj to
protect the confidentiality of our proprietary and confidential information. In
addition, Mr. Bajaj is prohibited, during his employment at AppNet and for 18
months after such employment ends, from competing with AppNet, soliciting any of
our employees or interfering with any of our business relationships.

The senior management agreement also restricts the transfer of all shares of
AppNet common stock Mr. Bajaj owned as of the date of the agreement until June
29, 2003, subject to specific exceptions, including:

- sales in a registered public offering; and

- sales, subject to volume limitations imposed by the senior management
agreement, under Rule 144 under the Securities Act.

The registration agreement between AppNet and substantially all of its existing
stockholders dated as of June 29, 1998 states that Mr. Bajaj may request that
his shares of AppNet common stock be included on any registration statement
filed by AppNet:

- to register common stock held by GTCR and Smart Technology; or

- on its own behalf, other than in this offering.

The senior management agreement provides that if Mr. Bajaj's employment with
us terminates before June 30, 2001, AppNet may repurchase shares of its common
stock owned by Mr. Bajaj or his permitted transferees at a price of $0.0029 per
share. The number of shares which AppNet may repurchase upon these terms is
2,036,632 until June 29, 1999, 1,358,109 until June 29, 2000 and 679,004 until
June 29, 2001, after which AppNet's right to repurchase Mr. Bajaj's common stock
terminates. If AppNet does not exercise its repurchase right, GTCR and Smart
Technology may repurchase these shares at a price of $0.0029 per share and
contribute them to AppNet in exchange for a promissory note equal to the
aggregate purchase price of such shares. GTCR's and Smart Technology's
repurchase right terminates upon the earliest of:

- the sale of capital stock with the voting power to elect a majority of the
Board of Directors to persons or entities other than GTCR and Smart
Technology, other than in a public offering;

- the sale of all or substantially all of our assets;

- GTCR and its affiliates failing to own more than 50% of the common stock
GTCR purchased under the Purchase Agreement dated June 29, 1998, as
amended; and

- June 30, 2001.

AppNet also has the right, under Mr. Bajaj's senior management agreement, if
it issues or sells common stock or rights to acquire common stock to its
employees, to repurchase up to 1,251,228 shares of common stock at a price of
$0.3007 per share from Mr. Bajaj, whether held by Mr. Bajaj or his permitted
transferees, to be issued or sold to such employees. As of May 1, 1999, AppNet
had repurchased a total of 1,041,109 of such shares from Mr. Bajaj for an
aggregate purchase price of

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$313,035. Upon the termination of Mr. Bajaj's employment, AppNet has the right
to repurchase all of this common stock, whether held by Mr. Bajaj or his
permitted transferees. AppNet's rights to repurchase this common stock terminate
upon consummation of this offering.

We have entered into senior management agreements with each of Messrs.
Tobaccowala, McCalley, Alexander, McManus and Harvey. These agreements provide
for their respective employment by AppNet until resignation, disability, as
determined by the Board of Directors in its good faith judgment, death or
termination by the Board of Directors for any reason. Each senior management
agreement sets forth the annual base salary the executive is entitled to
receive, subject to increases as determined by the Board of Directors based upon
AppNet's achievement of budgetary and other objectives set by the Board of
Directors. Each executive is eligible to receive a bonus of up to 50% of his
salary based upon AppNet's achievement of budgetary and other objectives set by
the Board of Directors.

If an executive's employment is terminated without cause, he is entitled to
receive his annual salary and life, medical and disability insurance benefits
for one year. Cause is defined generally as:

- commission of a felony or crime involving moral turpitude;

- fraud, gross negligence or willful misconduct with respect to AppNet;

- substantial and repeated failure to perform duties; or

- breach of the confidentiality or noncompete provisions of the senior
management agreement.

Each senior management agreement contains provisions requiring the executive
to protect the confidentiality of our proprietary and confidential information.
In addition, each executive is prohibited, during his employment at AppNet and
for two years after such employment ends if he resigns or is terminated for
cause or for one year after such employment ends, if he is terminated without
cause, from competing with AppNet, soliciting any of our employees or
interfering with any of our business relationships.

The senior management agreements with Messrs. Tobaccowala, Harvey, McCalley,
Alexander and McManus provided for the sale of 175,439, 63,158, 110,175, 175,439
and 63,158 shares, respectively, or 587,369 shares in the aggregate, of our
common stock to these individuals at a per share price of $0.3007, for an
aggregate consideration of $176,607. In connection with these stock purchases,
each executive delivered a promissory note to AppNet for the full amount of the
purchase price, less the par value of the stock purchased. Each promissory note
is secured by a pledge of the purchased stock.

Each senior management agreement restricts the transfer of the AppNet common
stock owned by the executive as of the date of the agreement until June 29,
2003, subject to specific exceptions, including:

- sales in a registered public offering; and

- sales, subject to volume limitations imposed by the senior management
agreement, under Rule 144 under the Securities Act.

The registration agreement between AppNet and substantially all of its existing
stockholders dated June 29, 1998 states that each executive may request that his
shares of AppNet common stock be included in any registration statement filed by
AppNet:

- to register common stock held by GTCR and Smart Technology; or

- on its own behalf, other than in this offering.

Each senior management agreement also provides that upon termination of the
executive's employment, AppNet may repurchase all or any portion of its common
stock owned by such executive

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or his permitted transferees. A portion of the executive's common stock may be
repurchased at original cost, which is defined as the price originally paid by
the executive for such common stock; the remaining common stock may be
repurchased at the fair market value of such shares. If the executive's
employment is terminated for any reason before the first anniversary of his
senior management agreement, the amount of common stock which may be repurchased
at the original cost ranges from 75% to 100%, depending on the particular
executive. The portion of common stock to be repurchased at the original cost
decreases ratably each year until it reaches zero after the fourth anniversary
of the senior management agreement. If AppNet does not exercise its repurchase
right, GTCR, Smart Technology or Mr. Bajaj may repurchase the executive's AppNet
common stock upon the same terms and contribute them to AppNet in exchange for a
promissory note equal to the aggregate purchase price of such shares. This
repurchase right terminates upon:

- the sale of capital stock with the voting power to elect a majority of the
Board of Directors to persons or entities other than GTCR and Smart
Technology, other than in a public offering; or

- the sale of all or substantially all of our assets. We intend to amend the
senior management agreements to terminate the right to repurchase an
executive's shares of our common stock at their fair market value upon
completion of this offering.

Under the terms of the senior management agreement for Mr. McManus, whose
employment with us ended on December 31, 1998, we had the option to repurchase
some or all of his shares of our common stock upon the termination of his
employment. At the time of the termination of Mr. McManus' employment, we
entered into a stock purchase agreement with him which provided that we would
repurchase 89,474 shares of our common stock from him at purchase prices ranging
from $0.3007 to $0.7139 per share, and we would pay him $160,000 in severance
pay in accordance with his senior management agreement. The stock purchase
agreement with Mr. McManus gives us, GTCR, Smart Technology and Mr. Bajaj the
option to repurchase the remaining 29,825 shares of AppNet common stock owned by
Mr. McManus at fair market value until the earlier of September 30, 1999 or the
effective date of a registration statement filed by us in connection with a
public offering of our common stock. We have not determined whether we will
repurchase the remaining 29,825 shares.

STOCK INCENTIVE PLANS

1999 STOCK INCENTIVE PLAN

We intend to adopt the AppNet Systems, Inc. 1999 Stock Incentive Plan prior
to this offering. The 1999 Stock Incentive Plan will become effective upon its
adoption by the Board of Directors and ratification by our stockholders. The
purpose of the 1999 Stock Incentive Plan will be to strengthen AppNet by
providing an incentive to its employees, officers, consultants, directors and
advisors through the granting or awarding of incentive and nonqualified stock
options, stock appreciation and dividend equivalent rights, restricted stock,
performance units, performance shares, share awards and phantom stock awards,
thereby encouraging these individuals to devote their abilities and energies to
the success of AppNet.

The 1999 Stock Incentive Plan will be administered by a compensation
committee, which will consist of non-employee directors. Under the 1999 Stock
Incentive Plan, the committee will have the authority to, among other things:

- select the employees to whom stock options and other incentive awards will
be granted;

- determine the type, size and the terms and conditions of stock options and
other incentive awards; and

- establish the terms for treatment of stock options and other incentive
awards upon a termination of employment.

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We will authorize shares of common stock for issuance under the 1999
Stock Incentive Plan for the grant of stock options and other incentive awards
to eligible individuals. The 1999 Stock Incentive Plan will terminate on the day
preceding the tenth anniversary of the date of its adoption by the Board of
Directors. The Board of Directors will be able to at any time and from time to
time amend or terminate the 1999 Stock Incentive Plan; provided, however, that,
to the extent necessary under applicable law, no such change will be effective
without the requisite approval of the stockholders. In addition, no such change
will alter or adversely impair any rights or obligations under any stock options
and other incentive awards previously granted, except with the written consent
of the grantee.

1998 STOCK OPTION AND INCENTIVE PLAN

We have adopted a stock incentive plan, the 1998 Stock Option and Incentive
Plan, and reserved 1,578,947 shares of our common stock for issuance in
connection with awards granted under such plan. Stock options and other
incentive awards under the 1998 Stock Option and Incentive Plan may be made in
the form of:

- incentive stock options;

- non-qualified stock options;

- stock appreciation rights;

- restricted stock; and

- restricted stock units.

Stock options and other incentive awards may be granted to such persons,
including officers, directors and employees, that our Board of Directors or a
Board-appointed committee shall in its discretion select.

As of March 31, 1999, options to purchase a total of 1,495,963 shares of our
common stock were outstanding under the 1998 Stock Option and Incentive Plan and
remain unexercised, 4,791 shares of our common stock have been issued upon the
exercise of options granted under the 1998 Stock Option and Incentive Plan and
options to purchase 115,462 shares of our common stock granted under the 1998
Stock Option and Incentive Plan are currently exercisable.

The Board of Directors or a Board-appointed committee is authorized to
construe, interpret and implement the provisions of the 1998 Stock Option and
Incentive Plan, to select the persons to whom awards will be made, to determine
the terms and provisions of awards and, with the consent of the grantee, to
amend the terms of any outstanding award. The determinations of the Board of
Directors or a Board-appointed committee are made in its sole discretion and are
conclusive.

The 1998 Stock Option and Incentive Plan has no termination date, however,
no incentive stock options may be granted under such plan on or after August 25,
2008. The Board of Directors may at any time and from time to time amend,
suspend or terminate the 1998 Stock Option and Incentive Plan; provided,
however, that, to the extent necessary under applicable law, no such change will
be effective without the requisite approval of the stockholders. In addition, no
such change will alter or adversely impair any rights or obligations under
awards previously granted, except with the written consent of the grantee. Upon
the adoption of our 1999 Stock Incentive Plan, no further awards will be made
under the 1998 Stock Option and Incentive Plan.

CENTURY COMPUTING, INCORPORATED INCENTIVE STOCK OPTION PLAN

In connection with our acquisition of Century Computing, we assumed its
Incentive Stock Option Plan and related award agreements with each grantee. Each
outstanding option to purchase the

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common stock of Century Computing was converted into an incentive stock option
to purchase our common stock based on a conversion ratio. Originally, we
reserved a total of 704,127 shares of our common stock for issuance in
connection with options granted under the Century Incentive Stock Option Plan.

As of March 31, 1999, options to purchase a total of 45,627 shares of our
common stock were outstanding under the Century Incentive Stock Option Plan and
remain unexercised, 658,499 shares of our common stock have been issued upon the
exercise of options granted under the Century Incentive Stock Option Plan and
options to purchase 45,627 shares of our common stock granted under the Century
Incentive Stock Option Plan are currently exercisable.

The Century Incentive Stock Option Plan is administered by Century
Computing's board of directors unless the board of directors delegates the power
and authorities related to the administration of the Century Incentive Stock
Option Plan to a board-appointed committee. The board of directors or a
board-appointed committee is authorized to construe, interpret and implement the
provisions of the Century Incentive Stock Option Plan, to select the persons to
whom awards will be made, to determine the terms and provisions of awards and,
with the consent of the grantee, to amend the terms of any outstanding award.
The determinations of the board of directors or a board-appointed committee are
made in its sole discretion and are conclusive.

The Century Incentive Stock Option Plan has no termination date, however, no
incentive stock options may be granted under the Century Incentive Stock Option
Plan after the expiration of the ten-year period beginning on the date the
Century Incentive Stock Option Plan was adopted. The board of directors may at
any time and from time to time amend or terminate the Century Incentive Stock
Option Plan; provided, however, that, to the extent necessary under applicable
law, no such change will be effective without the requisite approval of the
stockholders. AppNet does not intend to make any new grants under the Century
Incentive Stock Option Plan.

INTERNET OUTFITTERS, INC. 1996 INCENTIVE STOCK OPTION PLAN

In connection with our acquisition of Internet Outfitters, Inc., we assumed
its 1996 Incentive Stock Option Plan and related award agreements with each
grantee. Each outstanding option to purchase the common stock of Internet
Outfitters was converted into an incentive stock option to purchase our common
stock based on a conversion ratio. Originally, we reserved a total of 22,300
shares of our common stock for issuance in connection with options granted under
the Internet Outfitters Incentive Stock Option Plan.

As of March 31, 1999, options to purchase a total of 22,300 shares of our
common stock were outstanding under the Internet Outfitters Incentive Stock
Option Plan and remain unexercised, no options have been exercised and options
to purchase 1,739 shares of our common stock granted under the Internet
Outfitters Incentive Stock Option Plan are currently exercisable.

The Internet Outfitters Incentive Stock Option Plan is administered by the
Internet Outfitters board of directors unless the board of directors delegates
the power and authorities related to the administration of the Internet
Outfitters Incentive Stock Option Plan to a board-appointed committee. The board
of directors or a board-appointed committee is authorized to construe, interpret
and implement the provisions of the Internet Outfitters Incentive Stock Option
Plan, to select the persons to whom awards will be made, to determine the terms
and provisions of awards and, with the consent of the grantee, to amend the
terms of any outstanding award. The determinations of the board of directors or
a board-appointed committee are made in its sole discretion and are conclusive.

The Internet Outfitters Incentive Stock Option Plan will terminate upon the
expiration of the ten-year period beginning on the date the Internet Outfitters
Incentive Stock Option Plan was adopted. The board of directors may at any time
and from time to time amend or terminate the Internet Outfitters Incentive Stock
Option Plan; provided, however, that, to the extent necessary under applicable
law, no such change will be effective without the requisite approval of the
stockholders. AppNet does not intend to make any new grants under the Internet
Outfitters Incentive Stock Option Plan.

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

GTCR AND SMART TECHNOLOGY PURCHASE AGREEMENT

GTCR, Smart Technology and AppNet are parties to a purchase agreement, dated
as of June 29, 1998, as amended and supplemented which provided for the purchase
by GTCR and Smart Technology, L.L.C., an entity controlled by Mr. Bajaj's
spouse, of 11,326,228 and 232,916 shares of our common stock, respectively, at a
price of $0.3007 per share. At that time, GTCR and Smart Technology also agreed
from time to time to purchase up to an aggregate of 96,500 shares of Class A
Preferred Stock at a price of $1,000 per share in the future on the terms
described below. GTCR is required to purchase Class A Preferred Stock at the
request of AppNet's Board of Directors and the approval of GTCR to fund AppNet's
working capital requirements and acquisitions. Upon any such purchase by GTCR of
Class A Preferred Stock, Smart Technology is required to purchase Class A
Preferred Stock in an amount equal to approximately 2% of the amount of Class A
Preferred Stock GTCR purchases. Under these provisions, GTCR and Smart
Technology have purchased aggregate amounts of approximately 44,167 and 900
shares of Class A Preferred Stock, respectively, since June 29, 1998 for
aggregate purchase prices of approximately $44,167,000 and $900,000,
respectively. The purchase agreement with GTCR and Smart Technology currently
provides that as long as GTCR owns at least 15% of the securities purchased
under the purchase agreement, AppNet must obtain GTCR's prior written consent
before taking various actions including paying any dividends, other than
dividends on the Class A Preferred Stock, issuing any equity securities or debt
securities with equity features, acquiring businesses or merging or
consolidating with another entity. The parties intend to terminate the
provisions of the purchase agreement that require GTCR and Smart to purchase
Class A Preferred Stock and that require AppNet to obtain GTCR's consent before
taking various actions upon consummation of this offering.

In connection with AppNet's acquisition of Software Services Corporation and
the issuance of 11,576 shares of Class B Preferred Stock to the former
stockholders of that company, GTCR and Smart Technology transferred an aggregate
of 1,387,097 shares of AppNet common stock to us in exchange for an aggregate of
417.066 shares of our Class A Preferred Stock. In connection with a revolving
credit agreement between AppNet and BankBoston, N.A., GTCR and Smart Technology
sold an aggregate of 123,538 shares of our common stock and an aggregate of
approximately 362 shares of our Class A Preferred Stock to FSC Corp., an
affiliate of BankBoston, for an aggregate purchase price of $375,000. In
addition, the purchase agreement with GTCR and Smart Technology was amended in
August 1998 to decrease the commitment of GTCR and Smart Technology to purchase
96,500 shares of Class A Preferred Stock to 84,920 shares of Class A Preferred
Stock.

STOCKHOLDERS' AGREEMENT, REGISTRATION AGREEMENT AND SENIOR MANAGEMENT AGREEMENTS

In connection with the purchase agreement with GTCR and Smart Technology,
AppNet, GTCR, Smart Technology and substantially all of AppNet's existing
stockholders entered into a stockholders' agreement, dated as of June 29, 1998
and a registration agreement, dated as of June 29, 1998. In addition, each
member of AppNet's senior management entered into a senior management agreement
with AppNet upon commencement of their employment with us. The stockholders'
agreement provides, among other things, that the Board of Directors will consist
of two representatives designated by GTCR, one representative designated by Mr.
Bajaj and three or more representatives chosen jointly by GTCR and Mr. Bajaj.
The stockholder's agreement also includes provisions restricting the
transferability of our common stock, giving AppNet a right of first refusal to
purchase a stockholder's common stock and giving stockholders a conditional
right to participate if GTCR and Smart Technology transfer their shares of
common stock. The stockholders' agreement will terminate upon the consummation
of this offering.

The registration agreement provides that the holders of a majority of our
common stock issued to GTCR and Smart Technology under the purchase agreement
with GTCR and Smart Technology may

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have the right to demand the filing of a registration statement with the
Securities and Exchange Commission to register all or any portion of this common
stock. Substantially all of the other current stockholders of AppNet have the
right to include all or any portion of their AppNet common stock on registration
statements filed by AppNet to register shares of the common stock issued to GTCR
and Smart Technology under the purchase agreement with GTCR and Smart
Technology; subject, however, to the ability of the underwriters of any offering
to limit the number of shares included in such registration. Holders of the
majority of our common stock issued to GTCR and Smart Technology under the
purchase agreement with GTCR and Smart Technology may require AppNet to file,
and pay the expenses in connection with, up to four registration statements on
Form S-1 and an unlimited number of registration statements on Forms S-2 and
S-3, if AppNet qualifies to use such forms. If AppNet proposes to register
securities for its own account, other than in this offering. GTCR, Smart
Technology and substantially all of AppNet's other stockholders are entitled to
notice of, and to include their shares in, such registration; subject, however,
to the ability of the underwriters of any offering to limit the number of shares
included in such registration. These registration rights cover substantially all
of the shares of our common stock and will also cover any additional shares
obtained by the parties to the registration agreement. The existence and
exercise of these registration rights may make it more difficult for AppNet to
arrange future financing and may have an adverse effect on the market price of
our common stock.

In addition, our acquisition agreement with Arbor Intelligent Systems, Inc.
grants the former Arbor stockholders rights to have their shares of our common
stock included in any registration statement we file, other than in connection
with this offering; subject, however, to the ability of the underwriters of any
offering to limit the number of shares included in such registration.

The senior management agreement with Mr. Bajaj provided for the sale of
1,251,228 shares of our common stock to Mr. Bajaj at a per share price of
$0.3007. The senior management agreement restricts the transferability of these
shares. AppNet, GTCR and Smart Technology have rights to repurchase these shares
upon the termination of Mr. Bajaj's employment.

Mr. Bajaj pledged the 1,251,228 shares of common stock which he purchased in
accordance with the terms of his senior management agreement to AppNet to secure
a promissory note in the principal amount of $374,430 which Mr. Bajaj delivered
in partial payment for these shares. The senior management agreement between Mr.
Bajaj and AppNet gives AppNet the right, if it issues or sells common stock or
rights to acquire common stock, to its employees, to repurchase these shares,
whether held by Mr. Bajaj or his permitted transferees, to be issued or sold to
such employees at a price of $0.3007 per share. Upon the termination of Mr.
Bajaj's employment, AppNet has the right to repurchase all of these shares,
whether held by Mr. Bajaj or his transferees. AppNet's rights to repurchase
these shares terminate upon consummation of this offering. As of May 1, 1999,
AppNet had repurchased a total of 1,041,109 of these shares from Mr. Bajaj for
an aggregate purchase price of $313,035 reducing the principal amount of his
promissory note to $62,878.

PROFESSIONAL SERVICES AGREEMENT WITH FAIRFAX MANAGEMENT COMPANY II, L.L.C. AND
FAIRFAX CONSULTING COMPANY, L.L.C.

Stephen W. Ritterbush, a former vice chairman of our Board of Directors and
Bruce Gouldey, our former chief financial officer, are members of Fairfax
Consulting Company, L.L.C. They resigned their positions on June 29, 1998 in
connection with the GTCR and Smart Technology purchases of stock in AppNet under
the purchase agreement. We entered into a professional services agreement, dated
as of June 29, 1998, with Fairfax Management Company II, L.L.C. and Fairfax
Consulting Company, L.L.C., in which Fairfax Consulting Company agreed to
provide to AppNet the services of a financial and management consultant. In
return for the consultant's services, AppNet agreed to pay Fairfax Consulting
Company a monthly retainer of $16,667 as well as any fees for consulting
services in excess of the monthly retainer. The agreement also provided that if
AppNet acquired a company which was

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introduced to it by Fairfax Consulting Company, AppNet shall pay a finder's fee
to Fairfax Consulting Company equal to 1% of the purchase price for the acquired
company. We did not pay any finder's fees to Fairfax Consulting Company in 1998.
In 1998, AppNet paid approximately $336,000 in consulting fees to Fairfax
Consulting Company. The professional services agreement prohibited Fairfax
Management Company from owning, controlling, rendering services to or otherwise
doing business with one of our competitors while the agreement is in effect and
for a period of 18 months after it is terminated. We terminated the professional
services agreement with Fairfax Management Company and Fairfax Consulting
Company effective as of November 20, 1998.

Fairfax Management Company purchased 2,052,632 shares of our common stock in
March 1998 for an aggregate purchase price of $5,850. AppNet repurchased
1,350,877 of these shares on June 29, 1998 in exchange for a convertible
promissory note in the principal amount of $406,175. The professional services
agreement with Fairfax Management Company and Fairfax Consulting Company
restricts the transfer of the 684,211 shares of our common stock that Fairfax
Management Company retained until June 29, 2003, except:

- in a public offering;

- under Rule 144 through a broker, dealer or market maker (other than under
Rule 144(k)), in proportion to sales by GTCR and Smart Technology under
Rule 144;

- in the event of the sale of our capital stock with the voting power to
elect a majority of the Board of Directors to persons or entities other
than GTCR or Smart Technology, other than in a public offering; or

- in the event of the sale of all or substantially all of our assets.

The principal balance of the convertible promissory note held by Fairfax
Management Company will be converted into shares of AppNet common stock upon
consummation of this offering at a conversion rate equal to 80% of the offering
price per share.

DAVIDSON AGREEMENT

Thomas M. Davidson, one of our directors, and AppNet are parties to an
agreement dated as of June 29, 1998, under which Mr. Davidson received $350,000
in cash and 52,632 shares of common stock from AppNet as a finder's fee in
connection with the GTCR and Smart Technology investments in AppNet. The
Davidson agreement states that after GTCR and Smart Technology invest a total of
$15 million in shares of our common stock and Class A Preferred Stock, Mr.
Davidson shall receive additional finder's fees equal to 1% of all additional
purchases made by GTCR and Smart Technology of Class A Preferred Stock. AppNet's
obligation to pay this 1% commission to Mr. Davidson terminates when GTCR and
Smart Technology have invested an aggregate of $100 million in shares of AppNet
common stock and Class A Preferred Stock. As of March 31, 1999, GTCR and Smart
Technology have paid a total of $48.5 million in exchange for 11,559,144 shares
of our common stock and approximately 45,067 shares of Class A Preferred Stock,
and Mr. Davidson has earned a commission of approximately $685,000.

The Davidson agreement also provided for the purchase by Mr. Davidson of
86,651 shares of our common stock at a price of $0.3007 per share. Under that
agreement, Mr. Davidson has a consulting arrangement with AppNet, which entitles
him to receive annual payments of $200,000. AppNet may terminate this consulting
arrangement upon thirty days' notice, although upon any termination prior to
June 29, 1999 for reasons other than for cause, we are required to pay to Mr.
Davidson $200,000 less the aggregate amount of all consulting payments made
prior to termination. On May 17, 1999, AppNet gave Mr. Davidson thirty days'
notice of the termination of the consulting arrangement.

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OTHER GTCR RELATIONSHIPS

GTCR and AppNet are parties to a professional services agreement, dated as
of June 29, 1998, which entitles GTCR to $200,000 per year in exchange for
financial and management consulting services. This agreement also entitles GTCR
to receive an investment fee equal to 1% of the purchase price of the common
stock and Class A Preferred Stock it purchases from AppNet under the purchase
agreement with GTCR and Smart Technology. GTCR has earned approximately $475,000
in investment fees. The GTCR professional services agreement will terminate upon
the consummation of this offering.

GTCR has guaranteed a portion of our outstanding indebtedness. We anticipate
that this guarantee will terminate upon the repayment of our credit facilities
with the proceeds of this offering and the termination of the guaranteed portion
of our credit facilities.

OTHER SMART TECHNOLOGY RELATIONSHIPS

During 1998, Smart Technology loaned approximately $1.1 million to AppNet.
On May 31, 1998, AppNet issued a warrant to purchase 35,088 shares of its common
stock for an aggregate purchase price of $50,000 to Smart Technology as
consideration, in part, for this loan. On June 29, 1998, a portion of the $1.1
million loan equal to the purchase price of the common stock Smart Technology
acquired from AppNet under the purchase agreement with GTCR and Smart Technology
was canceled, and AppNet issued a new promissory note in the principal amount of
$903,567 to Smart Technology. This note bears interest at the rate of 12% per
annum. The principal amount of this note is reduced from time to time by an
amount equal to the purchase price of any Class A Preferred Stock purchased by
Smart Technology under the purchase agreement with GTCR and Smart Technology.
The amount outstanding under this note has been reduced to $3,300 as of May 1,
1999 and will be repaid with the proceeds of this offering. Also on June 29,
1998, in accordance with the purchase agreement with GTCR and Smart Technology,
the original warrant issued to Smart Technology was canceled and AppNet issued a
new warrant to Smart Technology to purchase 70,175 shares of AppNet common stock
for an exercise price of $0.3007 per share.

In 1998, we paid Smart Technology approximately $25,000 in exchange for
consulting services.

CROSS SENIOR MANAGEMENT AGREEMENT

We entered into a senior management agreement with John Cross, one of our
directors, in March 1999, which provides for his employment as an Executive Vice
President until he resigns, is disabled, as determined by the Board of Directors
in its good faith judgment, dies or is terminated by the Board of Directors for
any reason. Mr. Cross is entitled to receive a salary of $300,000 per year,
subject to increases as determined by the Board of Directors based upon AppNet's
achievement of budgetary and other objectives set by the Board of Directors. Mr.
Cross is eligible to receive a bonus of up to 50% of his salary based upon
AppNet's achievement of budgetary and other objectives set by the Board of
Directors.

If Mr. Cross' employment is terminated without cause, he is entitled to
receive his annual salary and life, medical and disability insurance benefits
for one year. Cause is defined generally as:

- commission of a felony or crime involving moral turpitude;

- fraud, gross negligence or willful misconduct with respect to AppNet;

- substantial and repeated failure to perform duties; or

- breach of the confidentiality or noncompete provisions of the senior
management agreement.

The senior management agreement contains provisions requiring Mr. Cross to
protect the confidentiality of our proprietary and confidential information. In
addition, Mr. Cross is prohibited,

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during his employment at AppNet and for two years after his employment ends if
he resigns or is terminated for cause or for one year after his employment ends
if he is terminated without cause, from competing with AppNet, soliciting any of
our employees or interfering with any of our business relationships.

In 1999, John Cross also received options to purchase 337,776 shares of
AppNet common stock at an exercise price of $12.825 per share. The fair value of
the common stock underlying these options as of the date of grant was $14.25 per
share.

OTHER RELATIONSHIPS AND TRANSACTIONS

Foxhall Capital, LLC, an entity controlled by Jack Pearlstein, and AppNet
signed an agreement dated January 18, 1998, under which Foxhall Capital, LLC
received approximately $450,000 in cash from AppNet as a finder's fee in
connection with AppNet's acquisition of Century Computing, Incorporated in
October 1998. Mr. Pearlstein is one of our officers.

In 1998, AppNet loaned AppNet Commerce Services, Inc., in which AppNet owns
a 50% interest, an aggregate of $0.2 million to fund its operations. Three
officers of AppNet have also been officers of this subsidiary.

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 31, 1999, information with
respect to the beneficial ownership of our common stock by:

- each person known to AppNet to beneficially own more than 5% of the
outstanding shares of our common stock;

- each director of AppNet and each executive officer named in the Summary
Compensation Table; and

- all directors and executive officers as a group.

Unless otherwise indicated, each stockholder has sole voting and investment
power with respect to the shares beneficially owned by the stockholder and has
the same address as AppNet.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OWNERSHIP
COMMON STOCK --------------------------------------------
BENEFICIALLY OWNED AFTER THIS
BEFORE THIS OFFERING BEFORE THIS OFFERING OFFERING(D)
---------------------- --------------------- ---------------------
<S> <C> <C> <C>
GTCR (a)........................................ 9,924,607 49.7% 43.8%
Ken S. Bajaj (b)................................ 2,631,172 13.2 8.7
Toby Tobaccowala................................ 175,439 * *
Ronald B. Alexander............................. 175,439 * *
Robert D. McCalley.............................. 166,316 * *
Robert G. Harvey................................ 119,298 * *
Philip A. Canfield (a)(c)....................... -- * *
John Cross...................................... -- * *
Thomas M. Davidson.............................. 125,355 * *
Bruce V. Rauner (a)(c).......................... -- * *
Terrence McManus................................ 29,825 * *
All executive officers and directors as a group
(11 persons).................................. 3,503,544 17.5% 11.6%
</TABLE>

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

* Less than 1%.

(a) The address for GTCR and Messrs. Canfield and Rauner is 6100 Sears Tower,
Chicago, Illinois, 60606.

(b) Excludes 701,754 shares owned by family trusts and 274,268 shares
beneficially owned by Smart Technology over which Mr. Bajaj does not
exercise any voting or investment control.

(c) Each of Messrs. Canfield and Rauner is a principal of GTCR and therefore may
be deemed to share investment and voting control over the shares of our
common stock held, directly or indirectly, by GTCR. Each of Messrs. Canfield
and Rauner disclaims beneficial ownership of the shares of our common stock
held by GTCR.

(d) Gives effect to (i) the sale of 6,000,000 shares of common stock in this
offering, (ii) the conversion of a promissory note into 39,055 shares of
common stock and (iii) the exchange of 43,789 shares of Class A Preferred
Stock and 11,158 shares of Class B Preferred Stock for 4,334,281 shares of
common stock.

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DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock of consists of 75,000,000 shares of common
stock, par value $0.0005 per share, 96,621 shares of Class A Preferred Stock,
par value $0.01 per share, and 20,000 shares of Class B Preferred Stock, par
value $0.01 per share. Upon completion of this offering, there will be issued
and outstanding 30,290,881 shares of common stock, including 39,055 shares that
will be issued upon consummation of this offering upon conversion of a
convertible promissory note, and 4,334,281 shares that will be issued upon
consummation of this offering upon the exchange of a maximum of 43,789 shares of
Class A Preferred Stock and a maximum of 11,158 shares of Class B Preferred
Stock. As of March 31, 1999, there were 129 holders of our common stock, five
holders of our Class A Preferred Stock and 11 holders of our Class B Preferred
Stock. In addition,

- 1,646,875 shares of common stock have been reserved in connection with the
grant of options to purchase common stock;

- 84,795 shares of common stock have been reserved for issuance in
connection with warrants issued to Silicon Valley Bank and Smart
Technology, L.L.C.;

- 121 shares of Class A Preferred Stock have been reserved for issuance in
connection with a warrant issued to Silicon Valley Bank;

- 500,594 shares of common stock have been reserved for issuance in
connection with outstanding promissory notes convertible into shares of
our common stock at a conversion price of 80% of the initial public
offering price per share in this offering, assuming an initial public
offering price of $13.00, the mid-point of the range shown on the cover
page of this prospectus; and

- 891,318 shares of common stock have been reserved for issuance in
connection with contingent payments payable to the former owners of five
of the companies we acquired, New Media Publishing, Sigma6, Salzinger &
Company, Internet Outfitters and TransForm IT, assuming that the market
price of our common stock at the time the contingent payments are made is
$13.00, the mid-point of the range shown on the cover page of this
prospectus.

COMMON STOCK

Each share of our common stock is identical in all respects and entitles the
holder thereof to the same rights and privileges enjoyed by all other holders of
shares of common stock, and subjects them to the same qualifications,
limitations and restrictions to which all such other holders are subject.

VOTING RIGHTS. Holders of our common stock are entitled to one vote per
share on all matters to be voted on by AppNet's stockholders and may act by
written consent if the consent is signed by the holders of common stock having
at least the minimum votes necessary to authorize or take such action at
meetings. Holders of common stock do not have cumulative rights, so that holders
of a plurality of the shares of common stock present at a meeting at which a
quorum is present are able to elect all of AppNet's directors eligible for
election in a given year. The holders of a majority of the voting power of the
issued and outstanding common stock constitutes a quorum. We intend to amend our
certificate of incorporation to provide that a vote of two-thirds of the holders
of our issued and outstanding common stock will be required to remove a director
or amend our bylaws.

DIVIDENDS. Holders of our common stock are entitled to receive ratably such
dividends, if any, as are declared by AppNet's Board of Directors out of funds
legally available for the declaration of dividends, subject to the preferential
rights of any holder of preferred stock that may from time to time be
outstanding. The terms of our credit facilities restrict AppNet's ability to pay
dividends on the common stock.

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LIQUIDATION. Upon the liquidation, dissolution or winding up of AppNet, the
holders of our common stock are entitled to share pro rata in the distribution
of all of AppNet's assets available for distribution after satisfaction of all
of AppNet's liabilities and the payment of the liquidation preference of any
preferred stock that may be outstanding.

OTHER PROVISIONS. The holders of our common stock have no preemptive or
other subscription rights to purchase common stock, and there are no redemptive
rights or sinking fund provisions. The holders of our common stock are not
liable for any calls or assessments.

REGISTRATION RIGHTS. AppNet is a party to a registration agreement, dated
as of June 29, 1998, to which substantially all current stockholders of AppNet
are party, which gives the holders of a majority of the common stock issued to
GTCR and Smart Technology under the purchase agreement with GTCR and Smart
Technology a conditional right to demand registration of all or any portion this
common stock. Substantially all of the other current stockholders of AppNet have
the right to include all or any portion of their AppNet common stock on
registration statements filed by AppNet to register the common stock issued to
GTCR and Smart Technology under the purchase agreement with GTCR and Smart
Technology. Subject to various conditions, substantially all of the current
stockholders of AppNet have the right to include all or any portion of their
AppNet common stock on registration statements that we file on our own behalf,
other than in connection with this offering. These rights cover substantially
all of the shares of our common stock and will also cover any additional shares
obtained by the parties to the registration agreement.

In addition, our acquisition agreement with Arbor gave the former
stockholders of Arbor rights to have their shares of our common stock included
in any registration statement we file, other than in connection with this
offering.

PREFERRED STOCK

We intend to amend AppNet's certificate of incorporation, a copy of which is
filed as an exhibit to the registration statement of which this prospectus is a
part, to authorize AppNet's Board of Directors to issue preferred stock in one
or more series and to establish the number of shares to be included in each such
series and to fix the designations, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions of each
such series. Because the Board of Directors will have the power to establish the
preferences and rights of the shares of any such series of preferred stock, it
may afford the holders of any such series of preferred stock preferences, powers
and rights, including voting rights, senior to the rights of the holders of
common stock. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of AppNet.

The Board of Directors has established a class of preferred stock designated
Class A Preferred Stock consisting of 96,621 authorized shares, par value $0.01
per share, and a class of preferred stock designated Class B Preferred Stock
consisting of 20,000 authorized shares, par value $0.01 per share. The Class B
Preferred Stock ranks PARI PASSU with the Class A Preferred Stock.

We intend to use the proceeds from this offering to redeem at least 1,641
shares of Class A Preferred Stock and 418 shares of Class B Preferred Stock. All
remaining outstanding shares of Class A and Class B Preferred Stock that are not
redeemed with proceeds from this offering will be exchanged for shares of our
common stock. These shares will be canceled and will not be reissued, sold or
transferred. The preferred stock has the dividend, redemption, liquidation and
other rights described below. The exchange ratio shall be determined by dividing
the liquidation value of each share of preferred stock plus accrued and unpaid
dividends by the initial public offering price per share of common stock.

VOTING RIGHTS. Neither Class A nor Class B Preferred Stock is entitled to
any voting rights, other than those granted by the Delaware General Corporation
Law, provided that each holder of Class A

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and Class B Preferred Stock is entitled to notice of all stockholders meetings
at the same time and in the same manner to which all stockholders entitled to
vote at such meetings are entitled.

DIVIDEND RIGHTS. When and as declared by AppNet's Board of Directors and to
the extent permitted under the Delaware General Corporation Law, holders of
Class A and Class B Preferred Stock are entitled to preferential cash dividends.
Dividends on each share of Class A and Class B Preferred Stock accrue on a daily
basis at the rate of 6% per annum on the liquidation value per share of $1,000,
plus all accumulated and unpaid dividends from and including the date of
issuance of such share to and including the first to occur of:

- the date on which the liquidation value of such share, plus all accrued
and unpaid dividends, is paid to the holder in connection with the
liquidation of AppNet or the redemption of such share by AppNet; and

- the date on which such share is otherwise acquired by AppNet.

Dividends on the Class A and Class B Preferred Stock accrue whether or not
they have been declared and whether or not there are profits, surplus or other
funds legally available for the payment of dividends. To the extent dividends
are not paid on March 31, June 30, September 30, and December 31 of each year
for Class A Preferred Stock, and on September 30 of each year for Class B
Preferred Stock, the accrued dividends will accumulate on such dates. All
accrued and unpaid dividends will be fully paid or declared with funds
irrevocably set apart for payment before we are entitled to pay any dividends,
distributions, redemptions or other payments with respect to any stock of AppNet
other than Class A and Class B Preferred Stock.

DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Unless otherwise provided, if at
any time AppNet pays less than the total amount of accrued dividends with
respect to the Class A or Class B Preferred Stock, the payment will be
distributed pro rata among the holders of the class of preferred stock, based
upon the aggregate accrued but unpaid dividends on the shares held by each such
holder.

LIQUIDATION. Upon any liquidation, dissolution or winding up of AppNet,
voluntary or involuntary, each holder of Class A or Class B Preferred Stock will
be entitled to an amount in cash equal to the aggregate liquidation value of all
shares held by the holder, plus all accrued and unpaid dividends thereon, before
any distribution or payment is made upon any securities that are junior to the
Class A and Class B Preferred Stock. The holders of Class A and Class B
Preferred Stock will not be entitled to receive any further payment. Prior to
the time of any liquidation, dissolution or winding up of AppNet, to the extent
permitted by applicable law, AppNet will declare for payment all accrued and
unpaid dividends with respect to the Class A and Class B Preferred Stock.

PRIORITY OF PREFERRED STOCK. So long as any Class A or Class B Preferred
Stock remains outstanding, without the prior written consent of the holders of a
majority of the outstanding shares of such preferred stock, AppNet will not be
entitled, nor will it permit any subsidiary, to redeem, purchase or otherwise
acquire directly or indirectly any securities that are junior to the Class A and
Class B Preferred Stock, nor is AppNet entitled directly or indirectly to pay or
declare any dividend or make any distribution upon any securities that are
junior to the Class A and Class B Preferred Stock. However, even if any such
shares of Class A or Class B Preferred Stock are outstanding, AppNet is entitled
to purchase shares of its common stock under an arrangement approved by the
Board of Directors from present or former employees of AppNet or its
subsidiaries.

REDEMPTION RIGHTS APPLICABLE ONLY TO CLASS A PREFERRED STOCK

OPTIONAL REDEMPTIONS BY APPNET. At any time and from time to time,
AppNet may redeem all or any portion of any outstanding shares of Class A
Preferred Stock. Upon any such redemption, AppNet will pay a price per share
equal to the liquidation value thereof, plus all accrued and

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unpaid dividends thereon. No redemption may be made for less than 1,000
shares or such lesser number of shares then outstanding.

REDEMPTIONS AFTER PUBLIC OFFERINGS. At the written request of the
holders of a majority of the shares of Class A Preferred Stock then
outstanding, AppNet will apply the net cash proceeds from any public
offering of AppNet common stock under an effective registration statement
under the Securities Act to redeem shares of Class A Preferred Stock at the
liquidation value of $1,000 per share, plus all accrued and unpaid dividends
thereon. Such redemption must take place not more than five days after
AppNet receives such public offering proceeds.

REDEMPTION PAYMENTS. On any date on which Class A Preferred Stock is to
be redeemed, if AppNet's funds that are legally available for redemption are
insufficient to redeem the total number of shares to be redeemed, those
funds which are legally available will be used to redeem the maximum
possible number of shares pro rata among the holders of the shares to be
redeemed. At any time thereafter when additional funds are legally available
for redemption of shares by AppNet, such funds will be immediately used to
redeem the balance of the shares which AppNet is obligated to redeem.

SPECIAL REDEMPTIONS. If either (a) a change in ownership, which is
defined as the transfer of more than 50% of the outstanding common stock to
a person or group of persons other than any stockholder of AppNet as of June
29, 1998, has occurred or AppNet obtains knowledge that a change in
ownership is proposed or (b) a fundamental change, which is defined as the
transfer of more than 50% of AppNet's assets or mergers or consolidations
involving AppNet where Appnet is not the surviving party, is proposed to
occur, then the holder or holders of a majority of the shares of Class A
Preferred Stock then outstanding may require AppNet to redeem all or any
portion of the Class A Preferred Stock owned by such holders at a price per
share equal to the liquidation value thereof, plus all accrued and unpaid
dividends thereon, by giving written notice of such election. AppNet must
give all holders of Class A Preferred Stock prompt notice of any proposed
change in ownership or fundamental change and notice of any election to
redeem shares because of such changes.

REDEMPTION AND CONVERSION RIGHTS APPLICABLE ONLY TO CLASS B PREFERRED STOCK.

AppNet has the contractual ability to redeem or convert all outstanding
shares of Class B Preferred Stock upon an initial public offering.
Contractual provisions provide that, upon a sale of AppNet, all outstanding
shares of Class B Preferred Stock will be redeemable at a price per share
equal to the liquidation value or the holders will receive the same
consideration per share as the holders of the Class A Preferred Stock.

ANTI-TAKEOVER EFFECTS OF APPNET'S CERTIFICATE OF INCORPORATION AND BYLAWS AND
PROVISIONS OF DELAWARE LAW

AppNet's certificate of incorporation and bylaws and Section 203 of the
Delaware General Corporation Law contain provisions that may make the
acquisition of control of AppNet by means of a tender offer, open market
purchase, proxy fight or otherwise, more difficult.

BUSINESS COMBINATIONS. We intend to amend our certificate of incorporation
to provide that we will be subject to Section 203 of the Delaware General
Corporation Law. In general, subject to specific exceptions, Section 203 of the
Delaware General Corporation Law prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of

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three years after the date of the transaction in which the person became an
interested stockholder, unless:

- upon consummation of the transaction, the interested stockholder owned 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and
also officers and employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer;

- the business combination is, or the transaction in which such person
became an interested stockholder was, approved by the board of directors
of the corporation before the stockholder became an interested
stockholder; or

- the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of the
corporation's stockholders by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested
stockholder.

For purposes of Section 203, a "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder; an "interested stockholder" is a person who, together
with affiliates and associates, owns, or, in the case of affiliates and
associates of the issuer, did own within the last three years, 15% or more of
the corporation's voting stock. The restrictions set forth in Section 203 will
not apply to a business combination with an interested stockholder who became an
interested stockholder at a time when the restrictions of Section 203 did not
apply to AppNet.

STOCKHOLDER NOMINATIONS AND PROPOSALS. We intend to amend our bylaws to
provide that stockholders must follow an advance notification procedure for
stockholder nominations of candidates for the Board of Directors and for other
stockholder business to be conducted at an annual meeting. For business a
stockholder wishes to bring before an annual meeting of stockholders, the
stockholder must deliver notice to AppNet not less than 60 days nor more than 90
days prior to the date of the anniversary of the previous year's annual meeting.
For nominations of persons for election to our Board of Directors at an annual
meeting, a stockholder must deliver notice to AppNet not less than 90 days prior
to the date of the anniversary of the previous year's annual meeting unless the
annual meeting is delayed, in which case the stockholder must deliver the notice
not less than 90 days prior to such meeting nor more than 10 days after we
mailed notice of such meeting or public disclosure of the annual meeting was
made. These advance notification provisions in our bylaws could preclude the
conduct of business at a meeting or a nomination for the election of directors
if the proper procedures are not followed. Such provisions could operate to
delay, defer or prevent a change in control of AppNet.

AUTHORIZED AND UNISSUED PREFERRED STOCK. Upon consummation of this
offering, there will be authorized and unissued shares of preferred stock.
We intend to amend our certificate of incorporation to authorize the Board of
Directors to issue one or more series of preferred stock and to establish the
designations, powers, preferences and rights of each series of preferred stock.
The existence of authorized and unissued preferred stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of AppNet by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in AppNet's best
interests, the Board of Directors could cause shares of preferred stock to be
issued without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquiror or insurgent stockholder or stockholder group or create a substantial
voting block in

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institutional or other hands that might undertake to support the position of the
incumbent Board of Directors.

ABSENCE OF CUMULATIVE VOTING. Our certificate of incorporation does not
include a provision for cumulative voting in the election of directors. Under
cumulative voting, a minority stockholder holding a sufficient number of shares
may be able to ensure the election of one or more directors. The absence of
cumulative voting may have the effect of limiting the ability of minority
stockholders to effect changes in our Board of Directors and, as a result, may
operate to delay, defer or prevent a change in control of AppNet.

REMOVAL OF DIRECTORS; VACANCIES. We intend to amend our certificate of
incorporation to state that, subject to the rights of the holders of our
preferred stock, directors may be removed at any time by two-thirds stockholder
vote. In addition, a majority of the directors then in office will be able to
fill board vacancies and newly created directorships resulting from any increase
in the size of our Board of Directors. This is true even if those directors do
not constitute a quorum or if only one director is left in office. These
provisions could prevent stockholders, including parties who want to take over
or acquire AppNet, from removing incumbent directors and filling the resulting
vacancies with their own nominee.

SPECIAL MEETINGS OF STOCKHOLDERS. We intend to amend our bylaws to provide
that special meetings of AppNet's stockholders may be called only by the Board
of Directors of AppNet. This provision may render it more difficult for
stockholders to take action opposed by the Board of Directors.

INDEMNIFICATION AND LIMITATION OF LIABILITY

AppNet's bylaws provide that AppNet will indemnify each of its directors,
officers, employees and agents to the fullest extent permitted by law. The
certificate of incorporation limits the liability of AppNet's directors and
stockholders to AppNet for monetary damages. The certificate of incorporation
also provides that AppNet may purchase insurance on behalf of its directors,
officers, employees and agents against liabilities they may incur in such
capacity, whether or not AppNet would have the power to indemnify against such
liabilities.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is
.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of this offering, 30,290,881 shares of our common stock
will be outstanding, 31,190,881 shares if the over-allotment option is exercised
in full. Of these shares, the 6,900,000 shares of common stock sold in this
offering will be freely tradable without restriction or further registration
under the Act, unless held by an "affiliate" of AppNet. An affiliate is defined
under Rule 144 as a person that controls, is controlled by or is under common
control with AppNet. All of the shares of our common stock outstanding prior to
the offering are "restricted securities," as such term is defined under Rule
144. These shares are restricted securities because they were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rule 144 or Rule 701 promulgated
under the Securities Act or another exemption from registration. This prospectus
may not be used in connection with any resale of shares of our common stock
acquired in the offering by affiliates of AppNet.

Each of AppNet, our directors, our officers, most of the former owners of
all of the businesses we acquired, GTCR and Smart Technology have agreed not to
offer or transfer, or file with the Securities and Exchange Commission a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus. The restrictions set forth in the previous sentence do not apply to
grants of employee stock options under the terms of AppNet's stock incentive
plans in effect on the date of this prospectus, issuances of securities as a
result of the exercise of such options outstanding on the date of this
prospectus and issuances of securities as a result of the conversion of any
convertible instruments outstanding on the date of this prospectus.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person, or
persons whose shares of common stock are aggregated, including persons who may
be deemed affiliates of AppNet, would be entitled to sell within any three-month
period a number of shares of AppNet common stock that does not exceed the
greater of

(1) one percent of the then-outstanding shares of AppNet common stock, which
equals approximately 302,909 shares immediately after this offering, or

(2) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission.

Sales under Rule 144 are also subject to restrictions as to the manner of
sale, notice requirements and the availability of current public information
about AppNet. In addition, under Rule 144(k), if a period of at least two years
has elapsed since the later of the date restricted securities were acquired from
AppNet or the date they were acquired from an affiliate of AppNet, a stockholder
who is not an affiliate of AppNet at the time of sale and who has not been an
affiliate of AppNet for at least three months prior to the sale would be
entitled to sell shares of our common stock in the public market immediately
without compliance with the requirements under Rule 144 set forth above. If
shares are transferred during this period, the holding period requirement may be
satisfied by including the time period during which such shares were previously
held. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.

In addition, any of our employees, directors, officers or consultants who
acquired shares under a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701 of the Securities Act without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144, and affiliates of AppNet may be entitled to sell
their Rule 701 shares without having to comply with the holding period
restrictions of Rule 144, in each

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<PAGE>
case, commencing 90 days after the date of this prospectus, although the
contractual limitations will continue through the 180th day following the date
of this prospectus.

In addition to the restrictions on transfer described above, our executives
with whom we have entered into senior management agreements are subject to
restrictions on the transfer of shares of our common stock owned by them as of
the date they entered into the senior management agreement.

Immediately following the offering, none of the "restricted
securities" will be available for immediate sale in the public market under Rule
144. Beginning 90 days after the date of this prospectus, and without
consideration of the contractual restrictions described above,
shares either issued under our stock incentive plans or acquired
upon the exercise of options issued under our stock incentive plans will be
outstanding and eligible for sale in reliance upon Rule 701. Additional shares
may be available if options are exercised in the -day period following the
date of this prospectus. Shares of our common stock issued in reliance on Rule
701 may be resold by holders who are not affiliates of AppNet under Rule 144
without compliance with the holding period, amount and notice limitations and by
holders who are affiliates of AppNet under Rule 144 without compliance with the
holding period limitation.

Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act to register shares of our common stock
reserved for issuance or previously issued under our employee benefit plans and
compensation contracts. Shares of our common stock issued under our stock
incentive plans generally will be available for sale in the open market by
holders who are not affiliates of AppNet and, subject to the volume and other
applicable limitations of Rule 144, by holders who are affiliates of AppNet,
unless such shares are subject to vesting restrictions or the contractual
restrictions described above.

We are a party to a registration agreement, dated as of June 29, 1998, which
gives the holders of a majority of the common stock issued to GTCR and Smart
Technology under the purchase agreement with GTCR and Smart Technology a
conditional right to demand registration of all or any portion of this common
stock. Substantially all of our other current stockholders have the right to
include all or any portion of their AppNet common stock on registration
statements we file to register the common stock issued to GTCR and Smart
Technology under the purchase agreement with GTCR and Smart Technology. Subject
to specific conditions, substantially all of our current stockholders have the
right to include all or any portion of their AppNet common stock on registration
statements we file on our own behalf, other than in an initial public offering.
These rights cover substantially all of the shares of our common stock and will
also cover any shares obtained by parties to the registration agreement.
Registration of these shares of our common stock would permit the sale of these
shares without regard to the restrictions of Rule 144. In addition, our
acquisition agreement with Arbor gave the former stockholders of Arbor rights to
have their shares of our common stock included in any registration statement,
other than in connection with this offering.

Prior to this offering, there has been no public market for our common
stock. No information is currently available, and we cannot predict the timing
or amount of future sales of shares, or the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of our common stock prevailing from time to time. Sales of substantial
amounts of our common stock, including shares issuable upon the exercise of
stock options, in the public market after the lapse of the restrictions
described above, or the perception that such sales may occur, could materially
and adversely affect the prevailing market price for our common stock and our
ability to raise equity capital in the future.

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<PAGE>
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of common
stock by a non-U.S. holder. As used in this prospectus, a non-U.S. holder is
defined as a holder that for United States federal income tax purposes is an
individual or entity other than:

- a citizen or individual resident of the United States;

- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision thereof, other than a
partnership treated as foreign under U.S. Treasury regulations;

- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or

- a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.

An individual may, subject to a number of exceptions, be deemed to be a
resident alien, as opposed to a nonresident alien, by virtue of being present in
the United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year, counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth of
the days present in the second preceding year. Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens.

This discussion does not address all aspects of United States federal income
and estate taxes that may be relevant to non-U.S. holders in light of their
personal circumstances, including the fact that in the case of a non-U.S. holder
that is a partnership, the U.S. tax consequences of holding and disposing of
shares of common stock may be affected by determinations made at the partner
level, or that may be relevant to non-U.S. holders which may be subject to
special treatment under United States federal income tax laws such as insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities and holders of securities held as part of a "straddle," "hedge" or
"conversion transaction." This discussion also does not address U.S. state or
local or foreign tax consequences. Furthermore, this discussion is based on
provisions of the Internal Revenue Code of 1986, as amended, existing and
proposed regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are subject
to change, possibly with retroactive effect. The following summary is included
herein for general information. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF COMMON STOCK.

DIVIDENDS

We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In the event, however, that dividends are paid on shares of
our common stock, dividends paid to a non-U.S. holder of common stock generally
will be subject to withholding of United States federal income tax at a 30%
rate, or such lower rate as may be provided by an income tax treaty between the
United States and a foreign country if the non-U.S. holder is treated as a
resident of such foreign country within the meaning of the applicable treaty.
Non-U.S. holders should consult their tax advisors regarding their entitlement
to benefits under a relevant income tax treaty.

Dividends that are effectively connected with a non-U.S. holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, are generally
subject to U.S. federal income tax on a net income basis at regular graduated
rates, but are not generally subject to the 30% withholding tax if the non-U.S.
holder files

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the appropriate U.S. Internal Revenue Service form with the payor, which form
under U.S. Treasury regulations generally requires the non-U.S. holder to
provide a U.S. taxpayer identification number. Any such U.S. trade or business
income received by a non-U.S. holder that is a corporation may also be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under U.S. Treasury regulations generally effective for
payments made after December 31, 2000, however, a non-U.S. holder of our common
stock who wishes to claim the benefit of an applicable treaty rate generally
will be required to satisfy applicable certification and other requirements. In
addition, under these regulations, in the case of our common stock held by a
foreign partnership, the certification requirement will generally be applied to
the partners of the partnership and the partnership will be required to provide
specified information, including a United States taxpayer identification number.
The regulations generally effective for payments made after December 31, 2000,
also provide look-through rules for tiered partnerships. Further, the Internal
Revenue Service intends to issue regulations under which a foreign trustee or
foreign executor of a U.S. or foreign trust or estate, depending on the
circumstances, will be required to furnish the appropriate withholding
certificate on behalf of the beneficiaries, grantor trust or estate, as the case
may be.

A non-U.S. holder of our common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
Internal Revenue Service.

The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 also provide special rules for dividend payments made to
foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, recently enacted legislation, effective
August 5, 1997, denies income tax treaty benefits to foreigners receiving income
derived through a partnership, or otherwise fiscally transparent entity, in
certain circumstances. Prospective investors should consult with their own tax
advisers concerning the effect, if any, of these new Treasury regulations and
this recent legislation on an investment in our common stock.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of our common stock unless:

- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate non-U.S. holder;

- the non-U.S. holder is an individual who holds our common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for 183 or more days in the taxable
year of the disposition and meets other requirements;

- the non-U.S. holder is subject to tax under the provisions of the U.S. tax
law applicable to certain United States expatriates; or

- AppNet is or has been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the
five-year period preceding such disposition or the period that the
non-U.S. holder held our common stock.

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Generally, a corporation is a "U.S. real property holding corporation" if the
fair market value of its "U.S. real property interests" equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. We believe that we
have not been, are not currently, and do not anticipate becoming, a "U.S. real
property holding corporation" for U.S. federal income tax purposes. The tax with
respect to stock in a "U.S. real property holding corporation" does not apply to
a non-U.S. holder whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common stock, provided that our
common stock was regularly traded on an established securities market. If we
were, or were to become, a U.S. real property holding corporation, we believe
that our common stock would be treated as "regularly traded."

If a non-U.S. holder who is an individual is subject to tax on gain which is
U.S. trade or business income, such individual generally will be taxed on the
net gain derived from a sale of common stock under regular graduated United
States federal income tax rates. If an individual non-U.S. holder is subject to
tax because such individual holds our common stock as a capital asset, is
present in the United States for 183 or more days in the taxable year of the
disposition and meets other requirements, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by United States capital losses, notwithstanding the fact that such individual
is not considered a resident alien of the United States. Thus, individual
non-U.S. holders who have spent (or expect to spend) more than a DE MINIMIS
period of time in the United States in the taxable year in which they
contemplate a sale of common stock are urged to consult their tax advisers prior
to the sale concerning the U.S. tax consequences of such sale.

If a non-U.S. holder that is a foreign corporation is subject to tax on gain
which is U.S. trade or business income, it generally will be taxed on its net
gain under regular graduated United States federal income tax rates and, in
addition, will be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits," within the meaning of the Internal
Revenue Code for the taxable year, as adjusted for specific items, unless it
qualifies for a lower rate under an applicable tax treaty.

FEDERAL ESTATE TAX

Common stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident, as defined for United States
federal estate tax purposes, at the time of death will be included in the
individual's gross estate for United States federal estate tax purposes, unless
an applicable estate tax or other treaty provides otherwise and, therefore, may
be subject to United States federal estate tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Under U.S. Treasury regulations, we must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder is
a resident under the provisions of an applicable income tax treaty or agreement.

Currently, United States backup withholding, which generally is a
withholding tax imposed at the rate of 31% on payments to persons that fail to
furnish specified information under the United States information reporting
requirements, generally will not apply:

- to dividends paid to non-U.S. holders that are subject to the 30%
withholding discussed above, or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding; or

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<PAGE>

- before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual knowledge
that the payee is a U.S. holder.

Backup withholding and information reporting generally will apply to dividends
paid to addresses inside the United States on shares of our common stock to
beneficial owners that are not "exempt recipients" and that fail to provide
identifying information in the manner required.

The payment of the proceeds of the disposition of our common stock by a
holder to or through the U.S. office of a broker or through a non-U.S. branch of
a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a non-U.S. holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker has particular types of U.S. relationships. In the case of the payment of
proceeds from the disposition of our common stock effected by a foreign office
of a broker that is a U.S. person or a U.S. related person, existing regulations
require information reporting on the payment unless the broker receives a
statement from the owner, signed under penalty of perjury, certifying its
non-U.S. status or the broker has documentary evidence in its files as to the
non-U.S. holder's foreign status and the broker has no actual knowledge to the
contrary. For this purpose, a U.S. related person is defined as:

- a "controlled foreign corporation" for U.S. federal income tax purposes;
or

- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business.

The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 alter the foregoing rules. Among other things, such
regulations provide presumptions under which a non-U.S. holder is subject to
backup withholding at the rate of 31% and information reporting unless we
receive certification from the holder of non-U.S. status. Depending on the
circumstances, this certification will need to be provided:

- directly by the non-U.S. holder;

- in the case of a non-U.S. holder that is treated as a partnership or other
fiscally transparent entity, by the partners, stockholders or other
beneficiaries of such entity; or

- by qualified financial institutions or other qualified entities on behalf
of the non-U.S. holder.

Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.

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<PAGE>
UNDERWRITING

Under an underwriting agreement dated , 1999, we have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Hambrecht & Quist LLC, BT Alex. Brown Incorporated, The
Robinson-Humphrey Company, LLC and Charles Schwab & Co., Inc. are acting as
representatives, the following respective numbers of shares of our common stock:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------
<S> <C>
Credit Suisse First Boston Corporation.............................................
Hambrecht & Quist LLC..............................................................
BT Alex. Brown Incorporated........................................................
The Robinson-Humphrey Company, LLC.................................................
Charles Schwab & Co., Inc..........................................................
---------
Total..........................................................................
---------
---------
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of our common stock offered in this offering if any
are purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting underwriters may be
increased or this offering of our common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover over-allotments of our common stock.

The underwriters propose to offer our common stock initially at the public
offering price on the cover page of this prospectus and to the selling group
members at that price less a concession of $ per share. The underwriters and
the selling group members may allow a discount of $ per share on sales to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the representatives.

The following table summarizes the compensation and estimated expenses that
we will pay.

<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------- --------------------------
<S> <C> <C> <C> <C>
WITHOUT WITH OVER- WITHOUT WITH OVER-
OVER-ALLOTMENT ALLOTMENT OVER-ALLOTMENT ALLOTMENT
------------- ----------- ------------- -----------
Underwriting discounts and commissions paid by us.......... $ $ $ $
Expenses payable by us..................................... $ $ $ $
</TABLE>

The underwriters have informed us that they do not expect sales to accounts
over which the underwriters exercise discretionary authority to exceed 5% of the
shares of our common stock being offered.

We, our officers, our directors, most of the former owners of all of the
businesses we acquired, GTCR and Smart Technology have agreed not to offer or
transfer, or file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any additional shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except in our case for grants of employee stock options under our
stock incentive plans in effect on the date hereof and issuances of securities
as a result of the exercise of any options outstanding on the date hereof and
issuances of securities as a result of the conversion of any convertible
instruments outstanding on the date hereof.

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The underwriters have reserved for sale, at the initial public offering
price, up to shares of our common stock for employees and other persons
associated with AppNet who have expressed an interest in purchasing our common
stock in this offering. The number of shares of common stock available for sale
to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in that respect.

We have applied to list the shares of our common stock on The Nasdaq Stock
Market's National Market under the symbol "APNT".

Prior to this offering, there has been no public market for our common
stock. The initial public offering price for our common stock will be determined
by negotiation between us and the representatives and does not reflect the
market price for our common stock following this offering. Among the principal
factors considered in determining the initial public offering price will be:

- the information in this prospectus and otherwise available to the
representatives;

- market conditions for initial public offerings;

- the history of and prospects for the industry in which we compete;

- our past and present operations;

- our past and present earnings and current financial position;

- the capability of our management;

- our prospects for future earnings;

- the present state of our development and our current financial condition;

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;

- the general condition of the securities markets at the time of this
offering; and

- other relevant factors.

We can offer no assurances that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to this offering or that an active trading market for our
common stock will develop and continue after this offering.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the size of this offering, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the shares of our
common stock so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of our common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives to reclaim a
selling concession from a syndicate member when our common stock originally sold
by the syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

Such stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

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NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of our common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of our common stock are effected. Accordingly, any resale of our common
stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction and which may require resales
to be made in accordance with available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
our common stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of our common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that:

- such purchaser is entitled under applicable provincial securities laws to
purchase our common stock without the benefit of a prospectus qualified
under such securities laws;

- where required by law, that such purchaser is purchasing as principal and
not as agent; and

- such purchaser has reviewed the text above under "Resale restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities law.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of our common stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
common stock acquired by such purchaser through this offering. Such report must
be in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one such report must
be filed in respect of shares of our common stock acquired on the same date and
under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of our common stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in our common
stock in their circumstances and with respect to the eligibility of our common
stock for investment by the purchaser under relevant Canadian legislation.

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<PAGE>
LEGAL MATTERS

The validity of the shares of our common stock offered by this prospectus
will be passed upon for AppNet by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), Washington, DC. The
underwriters have been represented by Cravath, Swaine & Moore, New York, NY.

EXPERTS

The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

AppNet has filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act and the rules and regulations
promulgated under the Securities Act with respect to its common stock offered by
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement and its exhibits and schedules. For further information with respect
to AppNet and its common stock, we refer you to the registration statement,
including its exhibits and the schedules filed as a part of it. You may read and
copy the registration statement at the Securities and Exchange Commission's
following locations:

<TABLE>
<S> <C> <C>
Public Reference Room Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, DC 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Chicago, IL 60661-2511
</TABLE>

You may also obtain copies of the registration statement by mail from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, DC 20549 or by telephone at
1-800-SEC-0330. The registration statement is available to the public from
commercial document retrieval services and at the Securities and Exchange
Commission's World Wide Website located at http://www.sec.gov. Upon approval of
our common stock for quotation on The Nasdaq Stock Market's National Market, you
can read AppNet's filings with the Securities and Exchange Commission at the
office of Nasdaq Operations, 1734 K Street, N.W. Washington, DC 20006.
Statements in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance we refer you to the
full text of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.

We intend to furnish our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and make
available to our stockholders quarterly reports for the first three quarters of
each fiscal year containing interim unaudited financial information.

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<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
APPNET SYSTEMS, INC.

Report of independent public accountants......................................... F--4

Consolidated balance sheets as of December 31, 1998 and March 31, 1999
(unaudited).................................................................... F--5

Consolidated statements of operations for the year ended December 31, 1998 and
for the three month periods ended March 31, 1998 and March 31, 1999
(unaudited).................................................................... F--6

Consolidated statements of stockholders' equity for the year ended December 31,
1998 and for the three month period ended March 31, 1999 (unaudited)........... F--7

Consolidated statements of cash flows for the year ended December 31, 1998 and
for the three month periods ended March 31, 1998 and March 31, 1999
(unaudited).................................................................... F--8

Notes to consolidated financial statements....................................... F--9

SOFTWARE SERVICES CORPORATION

Report of independent public accountants......................................... F--28

Balance sheets as of December 31, 1996 and 1997, and August 24, 1998............. F--29

Statements of operations for the years ended December 31, 1996 and 1997, for the
three month period ended March 31, 1998 (unaudited), and for the period from
January 1, 1998 to August 24, 1998............................................. F--30

Statements of stockholders' equity for the years ended December 31, 1996 and
1997, and for the period from January 1, 1998 to August 24, 1998............... F--31

Statements of cash flows for the years ended December 31, 1996 and 1997, for the
three month period ended March 31, 1998 (unaudited), and for the period from
January 1, 1998 to August 24, 1998............................................. F--32

Notes to financial statements.................................................... F--33

ARBOR INTELLIGENT SYSTEMS, INC.

Report of independent public accountants......................................... F--44

Balance sheets as of December 31, 1997 and March 11, 1998........................ F--45

Statements of operations for the year ended December 31, 1997 and for the period
from
January 1, 1998 to March 11, 1998.............................................. F--46

Statements of stockholders' deficit for the year ended December 31, 1997 and for
the period from January 1, 1998 to March 11, 1998.............................. F--47

Statements of cash flows for the year ended December 31, 1997 and for the period
from
January 1, 1998 to March 11, 1998.............................................. F--48

Notes to financial statements.................................................... F--49
</TABLE>

F-1
<PAGE>
<TABLE>
<S> <C>
NEW MEDIA PUBLISHING, INC.

Report of independent public accountants......................................... F--55

Balance sheets as of December 31, 1996 and 1997, and October 1, 1998............. F--56

Statements of operations for the years ended December 31, 1996 and 1997, and for
the period from January 1, 1998 to October 1, 1998............................. F--57

Statements of stockholders' equity for the year ended December 31, 1996 and 1997,
and for the period from January 1, 1998 to October 1, 1998..................... F--58

Statements of cash flows for the years ended December 31, 1996 and 1997, and for
the period from January 1, 1998 to October 1, 1998............................. F--59

Notes to financial statements.................................................... F--60

CENTURY COMPUTING, INCORPORATED

Report of independent public accountants......................................... F--68

Balance sheets as of December 31, 1996 and 1997 and October 11, 1998............. F--69

Statements of operations for the years ended December 31, 1996 and 1997, and for
the period from January 1, 1998 to October 11, 1998............................ F--70

Statements of stockholders' equity for the years ended December 31, 1996 and
1997, and for the period from January 1, 1998 to October 11, 1998.............. F--71

Statements of cash flows for the years ended December 31, 1996 and 1997, and for
the period from January 1, 1998 to October 11, 1998............................ F--72

Notes to financial statements.................................................... F--73

RESEARCH & PLANNING, INC.

Report of independent public accountants......................................... F--81

Balance sheets as of December 31, 1996 and 1997, and October 19, 1998............ F--82

Statements of operations for the years ended December 31, 1996 and 1997, and for
the period from January 1, 1998 to October 19, 1998............................ F--83

Statements of stockholders' equity for the years ended December 31, 1996 and
1997, and for the period from January 1, 1998 to October 19, 1998.............. F--84

Statements of cash flows for the Years Ended December 31, 1996 and 1997, and for
the period from January 1, 1998 to October 19, 1998............................ F--85

Notes to financial statements.................................................... F--86
</TABLE>

F-2
<PAGE>
<TABLE>
<S> <C>
THE KODIAK GROUP, INC.

Report of independent public accountants......................................... F--90

Balance sheets as of December 31, 1997 and December 13, 1998..................... F--91

Statements of operations for the year ended December 31, 1997 and for the period
from
January 1, 1998 to December 13, 1998........................................... F--92

Statements of stockholders' equity for the year ended December 31, 1997 and for
the period from January 1, 1998 to December 13, 1998........................... F--93

Statements of cash flows for the year ended December 31, 1997 and for the period
from
January 1, 1998 to December 13, 1998........................................... F--94

Notes to financial statements.................................................... F--95

I33 COMMUNICATIONS CORP.

Report of independent public accountants......................................... F--100

Balance sheets as of December 31, 1996, 1997 and 1998............................ F--101

Statements of operations for the years ended December 31, 1996, 1997 and 1998.... F--102

Statements of stockholders' equity (deficit) for the years ended December 31,
1996, 1997 and 1998............................................................ F--103

Statements of cash flows for the years ended December 31, 1996, 1997 and 1998.... F--104

Notes to financial statements.................................................... F--105

SALZINGER & COMPANY, INC.

Report of independent public accountants......................................... F--111

Balance sheet as of December 31, 1998............................................ F--112

Statement of operations for the year ended December 31, 1998..................... F--113

Statement of stockholder's equity for year ended December 31, 1998............... F--114

Statement of cash flows for year ended December 31, 1998......................... F--115

Notes to financial statements.................................................... F--116

INTERNET OUTFITTERS, INC.

Report of independent public accountants......................................... F--119

Balance sheet as of December 31, 1998............................................ F--120

Statement of operations for the year ended December 31, 1998..................... F--121

Statement of stockholders' equity for the year ended December 31, 1998........... F--122

Statement of cash flows for the year ended December 31, 1998..................... F--123

Notes to financial statements.................................................... F--124
</TABLE>

F-3
<PAGE>
After the 1999 reverse common stock split discussed in Note 18 to AppNet
Systems, Inc.'s consolidated financial statements is effected, we expect to be
in a position to render the following audit report.

ARTHUR ANDERSEN LLP

Washington, D.C.
March 29, 1999

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AppNet Systems, Inc.:

We have audited the accompanying consolidated balance sheet of AppNet
Systems, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AppNet
Systems, Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.

Washington, D.C.
March 29, 1999
(except with respect to the matter discussed
in Note 18, as to which the date is
, 1999.)

F-4
<PAGE>
APPNET SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 2,447,000 $ 5,655,000
Accounts receivable, net of allowance for doubtful accounts of $1,124,000 and
$1,816,000, respectively..................................................... 11,238,000 16,997,000
Other current assets........................................................... 1,118,000 1,172,000
-------------- --------------
Total current assets......................................................... 14,803,000 23,824,000
Property and equipment, net...................................................... 3,012,000 4,596,000
Intangible assets, net........................................................... 99,380,000 133,061,000
Other assets..................................................................... 1,175,000 1,990,000
-------------- --------------
Total assets................................................................. $ 118,370,000 $ 163,471,000
-------------- --------------
-------------- --------------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 2,737,000 $ 2,978,000
Accrued liabilities............................................................ 6,911,000 20,720,000
Current portion of convertible notes and long-term debt........................ 2,426,000 3,454,000
-------------- --------------
Total current liabilities.................................................... 12,074,000 27,152,000
Credit facilities................................................................ 37,461,000 59,400,000
Convertible notes, net of current portion........................................ 2,706,000 13,006,000
Other long-term debt, net of current portion..................................... 1,199,000 25,000
Other long-term liabilities...................................................... 3,398,000 2,274,000
-------------- --------------
Total liabilities............................................................ 56,838,000 101,857,000
-------------- --------------
Commitments and contingencies (Note 16)
Class A Preferred Stock, $.01 par value, 96,621 shares authorized, 38,093 and
45,430 shares issued and outstanding as of December 31, 1998 and March 31,
1999, respectively, liquidation value $1,000................................... 37,646,000 45,115,000
Common stock subject to put rights, $.0005 par value; 48,771 shares issued and
outstanding.................................................................... 278,000 278,000
-------------- --------------
Stockholders' equity:
Class B Preferred Stock, $.01 par value, 20,000 shares authorized, 11,576
shares issued and outstanding, liquidation value $1,000...................... 11,576,000 11,576,000
Common stock, $.0005 par value; 75,000,000 shares authorized, 19,504,173 and
19,917,545 shares issued and outstanding as of December 31, 1998 and March
31, 1999, respectively....................................................... 10,000 10,000
Additional paid-in capital..................................................... 27,222,000 36,518,000
Notes receivable from management............................................... (821,000) (685,000)
Deferred compensation.......................................................... -- (477,000)
Accumulated deficit............................................................ (14,379,000) (30,721,000)
-------------- --------------
Total stockholders' equity................................................... 23,608,000 16,221,000
-------------- --------------
Total liabilities, redeemable stock and stockholders' equity................. $ 118,370,000 $ 163,471,000
-------------- --------------
-------------- --------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>
APPNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED ------------------------------
DECEMBER 31, 1998 1998 1999
----------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues...................................................... $ 17,674,000 $ 197,000 $ 19,643,000
Cost of revenues.............................................. 11,699,000 145,000 11,457,000
----------------- -------------- --------------
Gross profit.............................................. 5,975,000 52,000 8,186,000
Operating expenses:
Selling and marketing....................................... 964,000 3,000 1,190,000
General and administrative.................................. 6,507,000 246,000 6,754,000
Stock-based and other acquisition-related compensation...... 1,157,000 -- 2,487,000
Depreciation and amortization............................... 10,151,000 58,000 12,735,000
----------------- -------------- --------------
Total operating expenses.................................. 18,779,000 307,000 23,166,000
----------------- -------------- --------------
Loss from operations.......................................... (12,804,000) (255,000) (14,980,000)
Interest expense.............................................. 1,052,000 24,000 1,262,000
Other expense, net............................................ 723,000 -- --
----------------- -------------- --------------
Loss before income taxes...................................... (14,579,000) (279,000) (16,242,000)
Income tax (benefit) provision................................ (200,000) -- 100,000
----------------- -------------- --------------
Net loss...................................................... (14,379,000) (279,000) (16,342,000)
Dividends on and accretion of preferred stock................. (873,000) -- (1,039,000)
----------------- -------------- --------------
Net loss attributable to common stockholders.................. $ (15,252,000) $ (279,000) $(17,381,000)
----------------- -------------- --------------
----------------- -------------- --------------
Basic and diluted net loss per common share................... $ (1.41) $ (.23) $ (.88)
----------------- -------------- --------------
----------------- -------------- --------------
Weighted average common shares outstanding.................... 10,785,424 1,195,331 19,722,559
----------------- -------------- --------------
----------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>
APPNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS'
REDEEMABLE EQUITY SECURITIES EQUITY
-------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK CLASS B
SUBJECT TO CLASS A SERIES A-1 PREFERRED
PUT RIGHTS PREFERRED STOCK PREFERRED STOCK STOCK
-------------------- ----------------------- --------------------- -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
--------- --------- ----------- ---------- --------- ---------- -----------
Initial capitalization......................... -- $ -- -- $ -- -- $ -- --
Issuance of Series A-1 preferred stock in
connection with acquisition................ -- -- -- -- 266,796 1,067,000 --
GTCR Investment.............................. 48,771 278,000 -- -- (266,796) (1,067,000) --
Repurchase and cancellation of shares in
exchange for note payable.................. -- -- -- -- -- -- --
Repurchase and cancellation of common stock
shares..................................... -- -- -- -- -- -- --
Issuance of Class A Preferred Stock.......... -- -- 37,676 37,045,000 -- -- --
Conversion of common stock into Class A
Preferred Stock............................ -- -- 417 417,000 -- -- --
Dividends on and accretion of Class A
Preferred Stock............................ -- -- -- 184,000 -- -- --
Issuance of stock in connection with the 1998
acquired businesses........................ -- -- -- -- -- -- 11,576
Repurchase and cancellation of shares sold to
management................................. -- -- -- -- -- -- --
Purchase of shares by management............. -- -- -- -- -- -- --
Stock options exercised...................... -- -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- -- --
--------- --------- ----------- ---------- --------- ---------- -----------
Total, December 31, 1998....................... 48,771 $ 278,000 38,093 $37,646,000 -- $ -- 11,576
--------- --------- ----------- ---------- --------- ---------- -----------
Issuance of Class A Preferred Stock
(unaudited)................................ -- -- 7,337 7,191,000 -- -- --
Dividends on and accretion of Class A
Preferred Stock (unaudited)................ -- -- -- 278,000 -- -- --
Issuance of stock in connection with the 1999
acquired businesses (unaudited)............ -- -- -- -- -- -- --
Repurchase and cancellation of shares to
management (unaudited)..................... -- -- -- -- -- -- --
Common stock sold for cash (unaudited)....... -- -- -- -- -- -- --
Stock options exercised (unaudited).......... -- -- -- -- -- -- --
Deferred compensation pursuant to issuance of
stock options (unaudited).................. -- -- -- -- -- -- --
Amortization of deferred compensation
(unaudited)................................ -- -- -- -- -- -- --
Net loss (unaudited)......................... -- -- -- -- -- -- --
--------- --------- ----------- ---------- --------- ---------- -----------
Total, March 31, 1999 (unaudited)............ 48,771 $ 278,000 45,430 $45,115,000 -- $ -- 11,576
--------- --------- ----------- ---------- --------- ---------- -----------
--------- --------- ----------- ---------- --------- ---------- -----------

COMMON
STOCK ADDITIONAL NOTES
---------------------- PAID-IN RECEIVABLE FROM DEFERRED
AMOUNT SHARES AMOUNT CAPITAL MANAGEMENT COMPENSATION
---------- --------- ----------- ---------- --------------- -------------
Initial capitalization......................... $ -- 5,343,860 $ 3,000 $ 132,000 $ -- $ --
Issuance of Series A-1 preferred stock in
connection with acquisition................ -- -- -- -- -- --
GTCR Investment.............................. -- 13,342,145 7,000 4,108,000 (447,000) --
Repurchase and cancellation of shares in
exchange for note payable.................. -- (1,350,877) (1,000) (405,000) -- --
Repurchase and cancellation of common stock
shares..................................... -- (138,455) -- (789,000) -- --
Issuance of Class A Preferred Stock.......... -- -- -- -- -- --
Conversion of common stock into Class A
Preferred Stock............................ -- (1,387,097) (1,000) (416,000) -- --
Dividends on and accretion of Class A
Preferred Stock............................ -- -- -- (873,000) -- --
Issuance of stock in connection with the 1998
acquired businesses........................ 11,576,000 3,397,329 2,000 24,811,000 -- --
Repurchase and cancellation of shares sold to
management................................. -- (681,053) (228,000) 197,000 --
Purchase of shares by management............. -- 552,982 572,000 (571,000) --
Stock options exercised...................... -- 425,339 310,000 -- --
Net loss..................................... -- -- -- -- -- --
---------- --------- ----------- ---------- --------------- -------------
Total, December 31, 1998....................... $11,576,000 19,504,173 $ 10,000 $27,222,000 $(821,000) $ --
---------- --------- ----------- ---------- --------------- -------------
Issuance of Class A Preferred Stock
(unaudited)................................ -- -- -- -- -- --
Dividends on and accretion of Class A
Preferred Stock (unaudited)................ -- -- -- (1,039,000) -- --
Issuance of stock in connection with the 1999
acquired businesses (unaudited)............ -- 595,711 9,399,000 -- --
Repurchase and cancellation of shares to
management (unaudited)..................... -- (449,530) (136,000) 136,000 --
Common stock sold for cash (unaudited)....... -- 29,240 -- 375,000 -- --
Stock options exercised (unaudited).......... -- 237,951 216,000 -- --
Deferred compensation pursuant to issuance of
stock options (unaudited).................. -- -- -- 481,000 -- (481,000)
Amortization of deferred compensation
(unaudited)................................ -- -- -- -- -- 4,000
Net loss (unaudited)......................... -- -- -- -- -- --
---------- --------- ----------- ---------- --------------- -------------
Total, March 31, 1999 (unaudited)............ $11,576,000 19,917,545 $ 10,000 36,518,000 $(685,000) $(477,000)
---------- --------- ----------- ---------- --------------- -------------
---------- --------- ----------- ---------- --------------- -------------

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ ------------
Initial capitalization......................... $ -- $ 135,000
Issuance of Series A-1 preferred stock in
connection with acquisition................ -- --
GTCR Investment.............................. -- 3,668,000
Repurchase and cancellation of shares in
exchange for note payable.................. -- (406,000)
Repurchase and cancellation of common stock
shares..................................... -- (789,000)
Issuance of Class A Preferred Stock.......... -- --
Conversion of common stock into Class A
Preferred Stock............................ -- (417,000)
Dividends on and accretion of Class A
Preferred Stock............................ -- (873,000)
Issuance of stock in connection with the 1998
acquired businesses........................ -- 36,389,000
Repurchase and cancellation of shares sold to
management................................. -- (31,000)
Purchase of shares by management............. -- 1,000
Stock options exercised...................... -- 310,000
Net loss..................................... (14,379,000) (14,379,000)
------------ ------------
Total, December 31, 1998....................... ($14,379,000) $23,608,000
------------ ------------
Issuance of Class A Preferred Stock
(unaudited)................................ -- --
Dividends on and accretion of Class A
Preferred Stock (unaudited)................ -- (1,039,000)
Issuance of stock in connection with the 1999
acquired businesses (unaudited)............ -- 9,399,000
Repurchase and cancellation of shares to
management (unaudited)..................... -- --
Common stock sold for cash (unaudited)....... -- 375,000
Stock options exercised (unaudited).......... -- 216,000
Deferred compensation pursuant to issuance of
stock options (unaudited).................. -- --
Amortization of deferred compensation
(unaudited)................................ -- 4,000
Net loss (unaudited)......................... (16,342,000) (16,342,000)
------------ ------------
Total, March 31, 1999 (unaudited)............ ($30,721,000) $16,221,000
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE>
APPNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTHS ENDED
ENDED ------------------------------
DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (14,379,000) $ (279,000) $(16,342,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization.............................................. 9,867,000 56,000 12,289,000
Depreciation.............................................. 284,000 2,000 446,000
Stock-based and other acquisition-related compensation.... 1,157,000 -- 2,487,000
Write-off of deferred financing costs..................... 291,000 -- --
Deferred tax benefit...................................... (50,000) -- --
Change in assets and liabilities:
Accounts receivable, net................................ (1,762,000) 53,000 (3,131,000)
Other current assets.................................... 399,000 (39,000) 336,000
Accounts payable........................................ 1,012,000 221,000 (1,106,000)
Accrued liabilities..................................... 547,000 46,000 6,524,000
----------------- -------------- --------------
Net cash provided by (used in) operating activities... (2,634,000) 60,000 1,503,000
----------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment, net..................... (1,196,000) (10,000) (923,000)
Cash paid for acquired businesses, net of cash acquired..... (69,562,000) (1,832,000) (26,109,000)
Other assets................................................ (904,000) (150,000) (218,000)
----------------- -------------- --------------
Net cash used in investing activities................. (71,662,000) (1,992,000) (27,250,000)
----------------- -------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt................................ 1,104,000 -- --
Repayments of long-term debt................................ (268,000) -- --
Borrowings under credit facilities.......................... 47,261,000 2,065,000 59,400,000
Repayments of credit facilities............................. (9,800,000) -- (37,461,000)
Debt issue costs............................................ (351,000) -- (621,000)
Proceeds from issuance of common stock...................... 3,015,000 15,000 375,000
Repurchase of common stock.................................. (789,000) -- --
Proceeds from issuance of preferred stock................... 36,292,000 -- 7,046,000
Repurchase of shares sold to management..................... (31,000) -- --
Proceeds from exercise of stock options..................... 310,000 -- 216,000
----------------- -------------- --------------
Net cash provided by financing activities............. 76,743,000 2,080,000 28,955,000
----------------- -------------- --------------
Net increase in cash.......................................... 2,447,000 148,000 3,208,000
Cash and cash equivalents, beginning of period................ -- -- 2,447,000
----------------- -------------- --------------
Cash and cash equivalents, end of period...................... $ 2,447,000 $ 148,000 $ 5,655,000
----------------- -------------- --------------
----------------- -------------- --------------
Supplementary information:
Cash paid for income taxes.................................. $ -- $ -- $ --
----------------- -------------- --------------
----------------- -------------- --------------
Cash paid for interest...................................... $ 775,000 $ 24,000 $ 157,000
----------------- -------------- --------------
----------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-8
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND MARCH 31, 1999

1. BUSINESS DESCRIPTION:

AppNet Systems, Inc. ("AppNet" or the "Company") was incorporated under the
name Internet Applications, Inc. in November 1997 ("Inception"), under the laws
of the state of Delaware. The Company changed its name to AppNet Systems, Inc.,
in March 1998. AppNet is based in Bethesda, Maryland and is a provider of
Internet and electronic commerce professional services and solutions, including
strategic consulting, interactive media services, Internet-based application
development, electronic commerce systems integration and electronic commerce
outsourcing.

The Company's financial statements for the period from Inception through
December 31, 1997 reflect immaterial transactions and, therefore, have been
included in the 1998 financial statements to facilitate presentation. From
Inception through March 11, 1998, the Company's operating activities related
primarily to recruiting personnel, raising capital, identifying operating assets
for acquisitions and developing technical and marketing materials. In March
1998, the Company completed its first acquisition and recognized its first
revenues.

There are significant risks associated with the Company, including the
susceptibility of the Company's services to rapid technological change,
increased competition from existing service providers and new entrants, lack of
an operating history, existence of fixed price contracts, realizability of
intangible assets, government regulations, the year 2000 issue and dependence
upon key members of the management team.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
AppNet and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

F-9
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets, as
follows:

<TABLE>
<S> <C>
three to five
Computers and equipment................................. years
five to seven
Furniture and fixtures.................................. years
</TABLE>

Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the remaining lease term.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Company reviews its recorded goodwill, other intangibles
and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When
deemed necessary, goodwill and other intangibles are assessed for possible
impairment based upon a number of factors, including turnover of the acquired
workforce and the undiscounted value of expected future operating cash flows in
relation to the Company's net investment in each subsidiary. Since Inception,
the Company has not recorded a provision for possible impairment of long-lived
assets or intangible assets associated with its acquired businesses.

INTERNAL USE COMPUTER SOFTWARE

In accordance with the American Institute of Certified Public Accountants
(the "AICPA") Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," the Company capitalizes costs
related to software and implementation in connection with its internal use
software systems. Such costs are amortized principally over three years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, credit facilities, long-term
debt, convertible notes and capital lease obligations. In management's opinion,
the carrying amounts of these financial instruments approximate their fair
values at December 31, 1998. Due to the related party nature of the Company's
Class A Preferred Stock, it is impracticable to estimate its fair value at
December 31, 1998.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of the Company's stock and the amount
an employee must pay to acquire the stock.

F-10
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

REVENUE RECOGNITION

Revenues from time and materials contracts are recognized based on fixed
hourly rates for direct labor hours expended. Revenues from fixed-price
contracts are recognized on the percentage-of-completion method, with costs and
estimated profits recorded as work is performed. Revenues from
cost-plus-fixed-fee contracts are recognized on the basis of direct costs plus
indirect costs incurred plus a fixed profit percentage. Revenues exclude the
cost of media and advertising purchases reimbursed by clients.

Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in contract performance and
estimated profitability, including final contract settlements, may result in
revisions to costs and revenues and are recognized in the period in which the
revisions are determined. Unbilled receivables on contracts are comprised of
costs, plus earnings on certain contracts in excess of contractual billings on
such contracts. Cash received in excess of costs incurred is classified as
deferred revenue.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
ACCOUNTS
RECEIVABLE
REVENUES FOR AS OF
THE YEAR ENDED DECEMBER 31,
DECEMBER 31, 1998 1998
------------------- ---------------
<S> <C> <C>
Customer A.................................................. 15% 12%
Customer B.................................................. 12% 13%
</TABLE>

INCOME TAXES

Income taxes are accounted for using an asset and liability approach that
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.

EARNINGS PER SHARE

SFAS No. 128 "Earnings Per Share," requires the presentation of basic and
diluted earnings per share. Basic net income (loss) per share is computed by
dividing income (loss) attributable to common stockholders by the weighted
average number of common shares outstanding for the period. The diluted net
income (loss) per share data is computed using the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents,
unless the common stock equivalents are antidilutive.

F-11
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
for start-up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this standard
is not expected to have a significant impact on its results of operations,
financial position or cash flows.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999 and management has not yet determined its effect on the Company's
financial statements or disclosures.

RECLASSIFICATIONS

Certain amounts have been reclassified to conform with the current
presentation.

INTERIM FINANCIAL INFORMATION

The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that AppNet's management
considers necessary for a fair presentation of AppNet's operating results and
cash flows for such periods. Results for the three month period ended March 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.

3. ACQUISITIONS:

1998 ACQUISITIONS

From March 1998 through December 1998, the Company acquired businesses in
the Internet and electronic commerce professional services industry.
Collectively, these entities are referred to as the "1998 Acquired Businesses."
The accounts of the Acquired Businesses are included in the accompanying
consolidated financial statements from the date of their respective
acquisitions. These acquisitions are described as follows:

On March 12, 1998, the Company acquired the assets of Arbor Intelligent
Systems, Inc. ("Arbor"), for an aggregate purchase price of approximately
$3,100,000, including transaction costs, of which $1,100,000 was paid in the
form of the Company's Series A-1 Convertible Preferred Stock (266,796 shares
valued at $4 per share), and $2,000,000 was paid in cash. Arbor is engaged in
the business of providing object-oriented development services.

On April 30, 1998, the Company acquired the assets of LOGEX International,
L.L.C. ("LOGEX"), in exchange for approximately $300,000 in cash and a five-year
convertible note in the principal amount of $300,000 (Note 9). The former
shareholders of LOGEX are entitled to a contingent consideration payment in the
event that certain performance criteria are achieved by LOGEX during the year
ending April 30, 1999. LOGEX provides electronic commerce systems integration
services and is located in Falls Church, Virginia.

F-12
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

On August 25, 1998, the Company acquired all the outstanding stock of
Software Services Corporation, Inc. ("SSC") for an aggregate purchase price of
approximately $23,000,000, including transaction costs, of which $12,000,000 was
paid in the form of company stock, and $11,000,000 was paid in cash. In
connection with the SSC acquisition, the Company issued 11,576 shares of its
Class B Preferred Stock at a price of $1,000 per share and 1,387,095 shares of
Company Common Stock at a price of $.3007 per share to the former SSC
shareholders. Since its inception in 1980, SSC has been in the business of
providing applications development, network design services and both full time
and temporary technical personnel, primarily in Michigan.

On October 2, 1998, the Company acquired all the outstanding stock of New
Media Publishing, Inc. ("NMP") for an aggregate purchase price of approximately
$19,470,000, including transaction costs, of which $8,820,000 was paid in cash,
$9,500,000 was paid in the form of Company Common Stock (1,111,111 shares valued
at $8.55 per share) and the remainder was paid in options to purchase 145,518
shares of Company Common Stock valued using the Black-Scholes pricing model, at
$1,150,000. These options were issued in exchange for previously outstanding
options of NMP, have exercise prices ranging from $.06 to $8.69 and have vesting
schedules ranging from three months to 32 months. The value associated with
these options has been classified as additional paid-in capital on the
accompanying consolidated balance sheet. If NMP meets certain revenue and
profitability targets and certain NMP executives remain employed by the Company,
an additional $14,000,000 is potentially payable to the former owners of NMP in
cash and Company Common Stock (Note 16). NMP is based in Falls Church, Virginia
and offers interactive community-building services to business and nonprofit
organizations.

On October 12, 1998, the Company acquired all the outstanding stock of
Century Computing, Incorporated ("Century"). Century is located in Laurel,
Maryland, and is a provider of system integration and processing services in
electronic commerce to the Federal government, Federal government contractors
and commercial enterprises. The aggregate purchase price was approximately
$29,168,000, including transaction costs, of which $2,000,000 was provided in
the form of a convertible note (Note 9), $21,600,000 was paid in cash and the
remainder was paid in options to purchase 704,127 shares of Company Common Stock
valued, using the Black-Scholes pricing model, at $5,568,000. These options were
issued in exchange for previously outstanding options of Century, have exercise
prices ranging from $.71 to $1.00 and were fully vested at the time of issuance.
The value associated with these options has been classified as additional paid
in capital on the accompanying consolidated balance sheet.

On October 20, 1998, the Company acquired all the outstanding stock of
Research and Planning, Inc. ("R&P") for an aggregate purchase price of
approximately $22,100,000, including transaction costs, of which $15,100,000 was
paid in cash, $6,000,000 was paid in the form of Company Common Stock (701,754
shares valued at $8.55 per share), and $1,000,000 was provided in the form of
notes to the previous R&P shareholders (Note 9). R&P was founded in 1979 in
Cambridge, Massachusetts and provides ERP integration and data warehousing
services.

On December 14, 1998, the Company acquired all the outstanding stock of The
Kodiak Group, Inc. ("Kodiak") for an aggregate purchase price of approximately
$16,350,000, including transaction costs, of which $12,100,000 was paid in cash,
$2,250,000 was paid in the form of Company Common Stock (197,368 shares valued
at $11.40 per share) and $2,000,000 was provided in the form of notes to the
previous Kodiak shareholders. In addition, the former Kodiak shareholders are
entitled to a potential contingent payment payable in cash of up to $4.0 million
in the event that Kodiak sells or

F-13
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

licenses certain technology during the three-year period ending December 14,
2001. Kodiak has offices in Pittsfield, Massachusetts, Charlottesville, Virginia
and Denver, Colorado, and specializes in electronic data interchange integration
and processing services.

1999 ACQUISITIONS

From January 8, 1999 through March 29, 1999, the Company acquired an
additional five businesses in the Internet and electronic commerce professional
services industries. Collectively, these entities are referred to as the "1999
Acquired Businesses".

On January 8, 1999, the Company acquired all the outstanding stock of i33
communications corp. ("i33"), which is based in New York City. i33 provides
media buying and planning services, and, specializes in the design of creative
Internet solutions to its customers. The aggregate purchase price was
approximately $21,600,000, plus transaction costs, consisting of $10,300,000
paid in cash and $11,300,000 paid in the form of convertible notes to the
previous i33 shareholders.

On March 4, 1999, the Company acquired all of the issued and outstanding
stock of Sigma6, Inc. ("Sigma6") which is based in Michigan and specializes in
providing brand identity services to its customers. The aggregate purchase price
was approximately $2,500,000, plus transaction costs, consisting of $1,250,000
paid in cash and $1,250,000 paid in shares of Company Common Stock (97,465
shares valued at $12.83 per share). If certain performance criteria are met
during the 12-month period ending December 31, 1999, the former stockholders of
Sigma6 are entitled to a contingent payment of up to $2,800,000 consisting of
cash and Company Common Stock.

On March 15, 1999, the Company acquired certain assets of Salzinger &
Company, Inc. ("Salzinger"). The aggregate purchase price was approximately
$8,500,000, plus transaction costs, consisting of $5,000,000 in cash and
$3,500,000 in Company Common Stock (245,614 shares valued at $14.25 per share).
If certain performance criteria are met during the period ending September 30,
2000, Salzinger is entitled to a contingent payment of up to $5,000,000 in cash
or, at the seller's option, cash and Company Common Stock. Salzinger is based in
Vienna, Virginia and provides business-level strategic consulting services.

On March 26, 1999, the Company acquired all of the issued and outstanding
stock of Internet Outfitters, Inc. ("Internet Outfitters") which is based in
Santa Monica, California and provides localization and creative Web-development
services. The aggregate purchase price was approximately $9,500,000, plus
transaction costs, consisting of cash, $2,700,000 in Company Common Stock
(157,895 shares valued at $17.10 per share), and the issuance of 22,300 options
to purchase Company Common Stock. If certain performance criteria are met during
the year ending December 31, 1999, the former stockholders are entitled to a
contingent payment of up to $3,500,000 in cash and Company Common Stock.

On March 29, 1999, the Company acquired certain assets of Transform IT,
Incorporated ("Transform IT") which is based in Alexandria, Virginia and
provides process-level strategic consulting services. The aggregate purchase
price was approximately $5,120,000, plus transaction costs, consisting of
$3,500,000 in cash and $1,620,000 in Company Common Stock (94,737 shares valued
at $17.10 per share). If certain performance criteria are met during the
twelve-month period ending March 31, 2000, the seller is entitled to a
contingent payment of up to $3,500,000 in cash.

F-14
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

ALLOCATION OF PURCHASE CONSIDERATION

The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the recognized purchase price has been allocated,
based on preliminary estimates of fair value, to the tangible assets acquired
and liabilities assumed and, with the advice of independent valuation experts,
to the identifiable intangible assets, on the acquisition dates. The Company has
recorded identifiable intangibles on the 1998 Acquired Businesses, as follows:

<TABLE>
<CAPTION>
APPRAISED
VALUE USEFUL LIFE
------------ ---------------
<S> <C> <C>
Customer lists................................................. $ 4,160,000 7-24 months
Non-competition agreements..................................... 2,800,000 36 months
Assembled workforce............................................ 4,803,000 12-48 months
Proprietary technology......................................... 4,325,000 12-24 months
</TABLE>

As of December 31, 1998, the purchase price in excess of identified tangible
and intangible assets and liabilities assumed in the amount of $93,159,000 was
allocated to goodwill.

In the three month period ended March 31, 1999, the Company recorded
identifiable intangibles related to the 1999 Acquisitions of $2,875,000. This
preliminary purchase price allocation also resulted in the allocation of
$43,225,000 to goodwill. Final estimates of fair value will be made upon the
completion of independent valuations for certain 1999 acquisitions and the final
determination of certain preexisting contingencies. As a result of the early
stage of development of the Internet and electronic commerce, the dynamics of
this rapidly evolving industry and the expectation of increasing competition,
the recorded goodwill is being amortized on a straight-line basis over three
years, the estimated period of its benefit.

The following unaudited pro forma consolidated amounts give effect to the
1998 acquisitions as if they had occurred on January 1, 1998, by consolidating
the results of operations of the 1998 Acquired Businesses with the results of
AppNet for the year ended December 31, 1998. The pro forma amounts do not
purport to be indicative of the results of operations that would have been
achieved had the transactions been in effect as of the beginning of 1998 and
should not be construed as being representative of future results of operations.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
(UNAUDITED)
-----------------
<S> <C>
Revenues................................................................... $ 54,493,000
Net loss attributable to common stockholders............................... (50,273,000)
Basic and diluted net loss per share....................................... $ (2.81)
</TABLE>

The following unaudited pro forma consolidated amounts give effect to the
1998 and 1999 acquisitions as if they had occurred on January 1, 1998:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
(UNAUDITED)
1998 1999
----------- -----------
<S> <C> <C>
Revenues......................................... $14,203,000 $22,271,000
Net loss attributable to common stockholders..... (18,081,000) (21,783,000)
Basic and diluted net loss per share............. $ (1.15) $ (1.07)
</TABLE>

F-15
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

4. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Accounts receivable............................................ $9,571,000
Unbilled accounts receivable................................... 2,791,000
Allowance for doubtful accounts................................ (1,124,000)
----------
Accounts receivable, net................................... $11,238,000
----------
----------
</TABLE>

5. OTHER CURRENT ASSETS:

Other current assets consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Income tax receivable.......................................... $ 808,000
Other current assets........................................... 310,000
----------
Other current assets....................................... $1,118,000
----------
----------
</TABLE>

6. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Computers and equipment........................................ $2,797,000
Furniture and fixtures......................................... 288,000
Leasehold improvements......................................... 211,000
----------
3,296,000
Accumulated depreciation....................................... (284,000)
----------
Property and equipment, net................................ $3,012,000
----------
----------
</TABLE>

7. INTANGIBLE ASSETS:

Intangible assets consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Customer lists................................................ $ 4,160,000
Non-competition agreements.................................... 2,800,000
Assembled workforce........................................... 4,803,000
Proprietary technology........................................ 4,325,000
Goodwill...................................................... 93,159,000
-----------
109,247,000
Accumulated amortization...................................... (9,867,000)
-----------
Intangible assets, net.................................... $99,380,000
-----------
-----------
</TABLE>

F-16
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

8. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER MARCH 31,
31, 1999
1998 (UNAUDITED)
----------- -----------
Accrued compensation and benefits.................. $2,590,000 $4,770,000
<S> <C> <C>
Accrued dividends on Class A Preferred Stock and
Class B Preferred Stock.......................... 689,000 1,451,000
Payments due to former shareholders of Acquired
Businesses....................................... 1,500,000 3,100,000
Accrued stock-based and other acquisition-related
compensation..................................... -- 3,640,000
Other accrued liabilities.......................... 2,132,000 7,759,000
----------- -----------
Accrued liabilities............................ $6,911,000 2$0,720,000
----------- -----------
----------- -----------
</TABLE>

9. DEBT:

Debt consists of the following:

<TABLE>
<CAPTION>
MARCH 31,
1999
DECEMBER 31, --------------
1998
------------- (UNAUDITED)
<S> <C> <C>
Credit facilities:
Credit facility, bears interest at the lender's prime rate plus .5% (8.25% at
December 31, 1998), interest due monthly...................................... $ 19,730,000 $ --
Credit facility, bears interest at the lender's prime rate (7.75% at
December 31, 1998), interest due monthly...................................... 17,731,000 --
Credit facilities, bear interest at the lender's prime rate plus .25%--1.5% or
various LIBOR rates plus 2.25%--3.5%, interest due at varying monthly
intervals, interest rates ranging from 7.56% to 9.25% at March 31, 1999....... -- 59,400,000
------------- --------------
37,461,000 59,400,000
------------- --------------

Convertible notes:
Note payable, principal and interest due October 13, 1999, bears interest at 7%,
convertible at the option of the holder for common stock at $8.55 per share... 2,000,000 2,000,000
Note payable, principal and interest due June 29, 2003, bears interest at 5%,
convertible at 80% of common stock price upon a sale of Company or an initial
public offering............................................................... 406,000 406,000
Notes payable, principal and interest due December 14, 2001, bear interest at
8%, convertible at the option of the holder for common stock at $11.40 per
share......................................................................... 2,000,000 2,000,000
Note payable, principal and interest due April 30, 2003, bears interest at the
prime rate (7.75% at December 31, 1998), interest payable quarterly at July
31, October 31, January 31 and April 30, convertible at the option of the
holder at 80% of common stock price on a sale of Company or an initial public
offering...................................................................... 300,000 300,000
</TABLE>

F-17
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

<TABLE>
<CAPTION>
MARCH 31,
1999
DECEMBER 31, --------------
1998
------------- (UNAUDITED)
<S> <C> <C>
Notes payable, principal and interest due January 8, 2002, bear interest at
rates ranging from 4.3% to 6%, two notes totaling $3,500,000 convertible at
the option of the holder at 80% of the common stock price on a sale of Company
or an initial public offering, two notes totalling $6,800,000 convertible at
the option of the holder for common stock at $11.40 per share................. -- 10,300,000
------------- --------------
4,706,000 15,006,000
------------- --------------
Other long-term debt:
Notes payable, principal and interest due January 1, 2000, bear interest at
6%............................................................................ 1,000,000 1,000,000
Note payable to Smart Technology, L.L.C., due the earlier of an initial public
offering or June 29, 2000, bears interest at 12%.............................. 150,000 3,000
Other notes payable............................................................. 425,000 426,000
Note payable to a member of Company management, due at earlier of an initial
public offering or December 31, 1999.......................................... 50,000 50,000
------------- --------------
1,625,000 1,479,000
------------- --------------
Total debt.................................................................. 43,792,000 75,885,000
Less current portion............................................................ (2,426,000) (3,454,000)
------------- --------------
Long-term debt, net of current portion...................................... $ 41,366,000 $ 72,431,000
------------- --------------
------------- --------------
</TABLE>

The future minimum principal payments of debt outstanding at December 31,
1998, as refinanced by the 1999 Credit Facilities, are as follows:

<TABLE>
<S> <C>
1999........................................................... $2,426,000
2000........................................................... 1,199,000
2001........................................................... 39,461,000
2002........................................................... --
2003........................................................... 706,000
----------
Total...................................................... $43,792,000
----------
----------
</TABLE>

1999 CREDIT FACILITIES

On January 8, 1999, the Company replaced its two existing credit agreements
("the 1998 Credit Facilities") with two credit agreements (together the "1999
Credit Facilities") entered into with a syndicate of lenders providing for
$55,000,000 in borrowings. The 1999 Credit Facilities consist of $40,000,000 in
credit loans (the "Guaranteed Loans") which have been guaranteed by a
significant stockholder and $15,000,000 of additional credit loans (the
"Unguaranteed Loans"). The 1999 Credit Facilities mature on August 24, 2001. On
March 10, 1999, the Company amended the Unguaranteed Loans increasing available
borrowings from $15,000,000 to $26,000,000. Under the terms of the Unguaranteed
Loans, the amount borrowed cannot, at any time, exceed the amount borrowed under
the Guaranteed Loans.

F-18
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

The Guaranteed Loans bear interest, at the Company's option, at various
LIBOR rates plus 2.5 percent or the lenders' base rate plus .5 percent. The
Guaranteed Loans require the Company to pay a quarterly commitment fee of .5
percent on the unused amounts.

The Unguaranteed Loans bear interest, at the Company's option, at various
LIBOR rates or the lenders' base rate plus an applicable margin, as determined
by the Company's operating performance.

The 1999 Credit Facilities include certain restrictive covenants which
require the Company, among other things, to maintain minimum levels of earnings
before interest, taxes, depreciation, and amortization, ratios of cash flow to
debt service and place limits on capital expenditures.

1998 CREDIT FACILITIES

On August 25, 1998, the Company entered into a credit facility with a
commercial lender. The facility provided for borrowings of up to $15,000,000,
bore interest at the lender's base rate plus a defined percentage or at various
LIBOR rates, and was due on demand. For the period from August 25, 1998 to
October 13, 1998, the highest and weighted average balances outstanding under
the facility were $9,800,000 and $8,478,000, respectively.

On October 13, 1998, the Company modified its facility and entered into two
credit agreements (the "1998 Credit Facilities") with two commercial lenders.
Under the 1998 Credit Facilities, each lender provided a $20 million line of
credit which was payable upon demand, guaranteed by a significant stockholder
and bore interest at the option of the Company at the lenders' base rate plus a
defined percentage or at various LIBOR options plus 2.5 percent. For the period
from October 13, 1998, to December 31, 1998, the highest and weighted average
balances under the 1998 Credit Facilities were $37,461,000 and $36,040,000,
respectively. During this period, the average interest rate was 8.13 percent.
One of the facilities provided for a quarterly commitment fee equal to .05
percent. As a result of the 1999 Credit Facilities, which replaced the 1998
Credit Facilities and qualify for non-current classification, the amounts
outstanding under the 1998 Credit Facilities as of December 31, 1998 have been
classified as long-term in the accompanying balance sheet. In connection with
debt refinancings during 1998, the Company charged to other expense
approximately $291,000 of previously deferred financing fees.

CONVERTIBLE NOTES

In conjunction with certain of the Acquired Businesses, the Company issued
convertible notes, certain of which, at the option of the holders, allow the
holders to convert the notes to the Company Common Stock upon certain defined
events at either a stated price or a discount to the then current market price
for the Company Common Stock. Upon an initial public offering of the Company's
Common Stock, the Company may be required to record an interest charge of
approximately $875,000 related to certain beneficial conversion rights.

10. CAPITAL STOCK:

1998 COMMON STOCK SPLIT

In June 1998, upon adoption of the Company's Second Restated Certificate of
Incorporation, a two-for-one stock split of the Company Common Stock was
effected. All share and per-share amounts, including stock option information,
have been restated in these notes and the accompanying financial statements to
reflect this stock split and the 1999 Reverse Common Stock Split (see Note 18).

F-19
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

GTCR INVESTMENT

In June 1998, the Company completed an investment transaction with GTCR
Golder Rauner, L.L.C. and certain related investment funds ("GTCR") and Smart
Technology, L.L.C. ("Smart Technology"), a party related to the Company's
President and Chief Executive Officer (the "GTCR Investment"). Prior to the GTCR
Investment, the Company had 5,343,860 shares of issued and outstanding common
stock all of which were owned by Company's initial investors (the "Initial
Investors"). Pursuant to the GTCR Investment, the Company made a net redemption
of 1,350,887 shares of Company Common Stock from certain of the Initial
Investors for $.3007 per share or $406,000 and sold an aggregate 11,559,144
shares to GTCR and Smart Technology for $.3007 per share or $3,476,000 before
deduction for expenses and fees. The Company also sold 1,251,228 shares of
Company Common Stock to the Company's President and Chief Executive Officer (the
"Reserved Stock") and 531,773 shares to other certain parties affiliated with
the GTCR Investment. These shares were sold for $.3007 per share.

GTCR and Smart Technology committed to provide up to an additional
$96,500,000 in capital to the Company to fund acquisitions as well as other
general corporate purposes. Upon the request of the Board and the approval of
GTCR and Smart Technology, shares of Class A Preferred Stock will be issued to
GTCR and Smart Technology in the ratio of 98 percent to 2 percent, respectively,
in exchange for $1,000 per share. No shares of Class A Preferred Stock were
issued at the time of the GTCR Investment. In connection with the issuance of
Class B Preferred Stock as part of the SSC transaction, the capital commitment
from GTCR and Smart Technology was decreased to $84,900,000.

In connection with the GTCR Investment, the Company entered into a
management services agreement with GTCR for $200,000 per year.

F-20
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

COMMON STOCK SUBJECT TO PUT RIGHTS

In conjunction with its acquisition of Arbor, the Company issued 266,796
shares of Series A-1 Convertible Preferred Stock with a liquidation value of
$1,100,000. Pursuant to their terms, these shares were converted into 187,225
shares of Company Common Stock at the time of the GTCR Investment. As part of
the GTCR Investment, the Board of Directors authorized the repurchase of 138,455
shares of the common stock issued upon the conversion for $5.70 per share which
provided the holders a return equivalent to the liquidation value of the Series
A-1 Convertible Preferred Stock. In addition, the Board of Directors agreed to
grant the holders of the remaining 48,771 shares of Company Common Stock the
right to require the Company to repurchase their shares for cash at $5.70 per
share beginning on March 11, 1999, and extending for thirty days.

CLASS A PREFERRED STOCK

The holders of the Class A Preferred Stock ("Class A Preferred Stock") are
entitled to a 6 percent cumulative dividend which is paid when declared by the
Company's Board of Directors. The Company can redeem the shares at any time for
their liquidation value of $1,000 per share plus accrued but unpaid dividends.
The shares have no voting or conversion rights. Upon the earliest of the
liquidation of the Company, a change in the control of the Company, an initial
public offering ("IPO") or other fundamental change in the Company, as defined,
a majority of the holders of the Class A Preferred stock can require the Company
to redeem their shares for their liquidation value, plus accrued but unpaid
dividends. In the case of an IPO, the redemption is limited to the net funds
available from the IPO. GTCR holds approximately 97 percent of the outstanding
Class A Preferred Stock.

The Company incurred certain fees associated with the issuance of the Class
A Preferred Stock. Through December 31, 1998, the Company paid a one percent fee
of $369,000 to GTCR based on the issuance of the Company's Class A Preferred
Stock to GTCR. The Company also incurred a commission of $262,000 to one of the
Company's directors in connection with purchases of Class A Preferred Stock.
These costs were deducted from the proceeds of the Class A Preferred Stock shown
in the accompanying balance sheet. The Class A Preferred Stock is being accreted
to its liquidation value over the period to its estimated redemption date, which
is expected to occur in 1999. The accretion of the costs associated with the
Class A Preferred Stock was $184,000 for the year ended December 31, 1998 and is
classified as dividends on and accretion of preferred stock in the accompanying
statements of operations and stockholders' equity.

CLASS B PREFERRED STOCK

The holders of Class B Preferred Stock are entitled to a 6 percent
cumulative dividend which is paid when declared by the Company's Board of
Directors. The shares have no voting rights. The Company has the contractual
ability to redeem or convert all outstanding shares of Class B Preferred Stock
upon an initial public offering.

STOCK WARRANTS

The Company has issued warrants to purchase 84,795 shares of Company Common
Stock at $.3007 per share, of which 70,175 are held by Smart Technology. The
values attributable to these warrants at the time of issuance are not
significant and, therefore, have not been separately presented in the

F-21
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

consolidated financial statements. The Company has also issued warrants to
purchase 121 shares of Class A Preferred Stock at $1,000 per share.

RESERVED STOCK

The Reserved Stock is subject to a Senior Management Agreement dated June
29, 1998 (the "Agreement") with the Company's President and Chief Executive
Officer. At the time of the GTCR Investment, 1,251,228 shares of Reserved Stock
were purchased at a price of $.3007 per share in exchange for cash equal to the
par value of the stock and a promissory note equal to the remaining balance.
Pursuant to the Agreement, the Company may, at its discretion, repurchase any or
all of the Reserved Stock for the $.3007 per share paid by the executive in
order to issue a corresponding number of shares and options to purchase shares
to certain employees. The Company's right to repurchase the Reserved Stock
expires on the first to occur of (a) a sale of the Company, (b) the failure by
GTCR to own 50 percent of the original number of Company Common Shares it
purchased in conjunction with the GTCR Investment and (c) an IPO ("Qualifying
Events"). As of December 31, 1998, the Company's President and Chief Executive
Officer had 659,649 shares of Reserved Stock remaining. Additional shares were
repurchased subsequent to year end reducing the total shares outstanding to
210,119 as of March 29, 1999.

Because the number of recorded shares to be held by the executive is not
fixed, the Company will record a charge to income equal to the difference
between the fair value of the Company's stock on the date of the Qualifying
Event and $.3007, multiplied by the number of remaining Reserved Shares retained
by the executive following the occurrence of the Qualifying Event.

SALES TO MANAGEMENT

Shortly after the GTCR Investment, the Company sold 503,860 shares of
Company Common Stock to management for $.3007 per share, the fair value at that
time. In November 1998, the Company sold 49,123 shares of Common Stock to a
member of management for $8.55 per share, the fair value at that time.

11. RETIREMENT PLAN:

During 1998, the Company maintained various 401(k) plans for its employees.
These plans had been established by the 1998 Acquired Businesses prior to
acquisition. Effective February 1, 1999, the employees of the 1998 Acquired
Businesses began making contributions to the AppNet plan. During 1998, the
Company's expense under these plans totaled $281,000.

Effective February 1, 1999, the Company established a 401(k) retirement plan
for the benefit of all eligible employees. Participants may contribute up to 15
percent of their annual compensation to the plan. Employee contributions are
fully vested. The Company will match 50 percent of each employees' contributions
up to six percent of each employees' salary. The Company may also elect to make
a discretionary contribution as determined by its Board of Directors on an
annual basis. Employees will fully vest in the Company's matching and any
discretionary contributions ratably over three years.

12. EMPLOYEE STOCK OPTION PLANS:

The Company had two stock option plans as of December 31, 1998, which were
the 1998 Stock Option and Incentive Plan and an incentive stock option plan
assumed in connection with the

F-22
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

acquisition of Century (the "Century Plan"). Options under these plans expire no
later than ten years from the date of the grant or when employment ceases,
whichever comes first. The maximum number of shares of common stock which may be
issued pursuant to the stock option plans is 913,042 at December 31, 1998.

Options granted under the stock option plan are accounted for under APB
Opinion No. 25, and since options have been granted at prices equal to the fair
value of the Company's Common Stock on the date of grant, no compensation
expense has been recognized for the option grants. Certain options converted
from the 1998 Acquired Businesses have exercise prices ranging from $.06 to
$8.69. The value of these options was included in the purchase price of the 1998
Acquired Businesses. Had compensation cost for the plan been determined based on
the estimated fair value of the options at the grant dates consistent with the
method of SFAS No. 123, pro forma net loss attributable to common stockholders
would have been approximately $15,408,000 or a net loss of $1.43 per share for
1998. The weighted average fair value of the options granted by the Company
during 1998 is estimated to be $3.85 per option assuming the following: no
dividend yield, risk-free interest rate of 5 percent, an expected term of the
options of four years and an expected volatility of 45 percent.

The following summarizes option activity during 1998:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------------- ---------------
<S> <C> <C>
Granted in 1998................................................. 500,351 $ 7.67
Options converted from 1998 Acquired Businesses................. 849,641 .91
Exercised in 1998............................................... (425,339) .74
Cancelled in 1998............................................... (11,614) 1.08
------------- -----
Options outstanding, December 31, 1998, exercise prices range of
$.06 to $11.40................................................ 913,039 $ 4.67
------------- -----
------------- -----
Options exercisable, December 31, 1998.......................... 296,736 $ 1.37
------------- -----
------------- -----
</TABLE>

Subsequent to December 31, 1998, the Company issued options to purchase
882,883 shares of Company Common Stock.

In March 1999, the Company issued 337,776 stock options to a member of
management. These options have an exercise price of $12.83 and vest ratably over
4 years. As a result of this grant, the Company recorded deferred compensation
of $481,000. The amount of deferred compensation was based on the difference
between the estimated fair market value of the Company Common Stock at the date
of grant, as determined by the most recent third party stock transaction, and
the stated exercise price. The Company amortized $4,000 of the deferred
compensation for the three months ended March 31, 1999 in the unaudited
consolidated statement of operations.

13. EARNINGS PER SHARE:

Shares of common stock which are contingently payable pursuant to the
acquisition agreements (Note 16) are not included in the calculation of weighted
average shares outstanding for the period presented, as circumstances may arise
in which the shares would not be issued. In addition, the impact

F-23
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

of other potentially dilutive securities are excluded from diluted earnings per
share due to their antidilutive effect as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Stock options................................................................... 539,312
Warrants........................................................................ 84,010
Convertible notes............................................................... 413,554
</TABLE>

In addition, as of December 31, 1998, $706,000 of notes payable are
convertible, upon completion of an initial public offering of Company Common
Stock, at 80% of the IPO price.

14. INCOME TAXES:

The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," for financial reporting purposes. Deferred tax assets or liabilities at
the end of each period are determined using the currently enacted tax rates to
apply to taxable income in the period in which the deferred tax asset or
liability is expected to be settled or realized.

The sources of and differences between the financial accounting and tax
basis of AppNet's assets and liabilities which give rise to the net deferred tax
liability as of December 31, 1998, are as follows:

<TABLE>
<CAPTION>
DECEMBER
31, MARCH 31,
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
Deferred tax liabilities:
Intangible assets........................................ $2,241,000 $1,835,000
Deferred tax assets:
Allowance for doubtful accounts.......................... 434,000 438,000
Net operating loss carryforward.......................... 1,624,000 3,078,000
Cumulative amortization differences on intangibles....... 994,000 2,480,000
Other.................................................... 506,000 522,000
Valuation allowance...................................... (1,317,000) (4,683,000)
---------- ----------
Net deferred tax liability............................. $ -- $ --
---------- ----------
---------- ----------
</TABLE>

The components of the benefit from income taxes during the year ended
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Current--
Federal.............................................. $ (400,000) $ --
State................................................ 250,000 100,000
----------------- -----------------
Total.............................................. (150,000) 100,000
Deferred--
Federal.............................................. (50,000) --
State................................................ -- --
----------------- -----------------
Income tax benefit................................. $ (200,000) $ 100,000
----------------- -----------------
----------------- -----------------
</TABLE>

F-24
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

For the year ended December 31, 1998, the income tax benefit differed from
the amounts computed at the statutory rate, as follows:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -------------
<S> <C> <C>
(UNAUDITED)
Income tax benefit computed at federal statutory rates.......... $ (4,957,000) $ (5,842,000)
Nondeductible intangible amortization........................... 2,402,000 1,772,000
Nondeductible portion of stock-based and other
acquisition-related compensation, net......................... 497,000 811,000
State income taxes, net of federal income tax benefit........... 165,000 66,000
Changes in valuation allowance.................................. 1,317,000 3,671,000
Other, net...................................................... 376,000 (378,000)
------------- -------------
Total....................................................... $ (200,000) $ 100,000
------------- -------------
------------- -------------
</TABLE>

As of December 31, 1998 and March 31, 1999, the Company had approximately
$4.2 million and $7.9 million (unaudited), respectively, of net operating loss
carryforwards which begin to expire in 2018. The Company has recorded a
valuation allowance for deferred tax assets as of December 31, 1998, of
$1,317,000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.

15. RELATED PARTIES:

At December 31, 1998, the Company was owed $821,000 from members of
management. These borrowings are due at varying dates through November, 2008.

At December 31, 1998, the Company had outstanding borrowings of $150,000
from Smart Technology, $50,000 from a member of management, and $406,000 from
one of the Company's Initial Investors. Also, the convertible notes of
$4,306,000 as of December 31, 1998 and the notes payable for $1,000,000 are due
to former shareholders of the Acquired Businesses, the majority of whom are
current AppNet employees. Subsequent to December 31, 1998, the Company issued
convertible notes of $10,300,000 due to former shareholders of one of the 1999
Acquired Businesses, both of whom are current AppNet employees. The Company also
issued, subsequent to December 31, 1998, a convertible note of $1,000,000 to a
trust established for employees of one of the 1999 Acquired Businesses. Since
the trust is available to the Company's creditors, the trust's assets are
included in these financial statements. As such, the trust's note receivable and
the Company's convertible note payable held by the trust have been eliminated in
consolidation.

In December 1997, the Company entered into an agreement which was
consummated in 1998 to purchase a 50 percent ownership interest in AppNet
Commerce Services, Inc. ("ACS"). ACS was established to conduct electronic
commerce transaction processing. The remaining 50 percent interest in ACS is
owned by another company. In 1998, due to the failure of the venture to maintain
its customer base and to generate sufficient revenues to cover operating
expenses, the Company determined that its investment was impaired and recorded a
charge of approximately $300,000 which is included in the accompanying statement
of operations as a component of other expense. As of December 31, 1998, the
investment in ACS has a value of zero.

F-25
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

During 1998, the Company was party to a professional services agreement with
one of its directors. The agreement provided for the payment of $17,000 per
month. The Company incurred approximately $200,000 related to this agreement in
1998. In addition, the Director received a fee of $350,000 in association with
the GTCR Investment. The professional services agreement also provides for a one
percent commission on certain issuances Class A Preferred Stock (Note 10). The
Company also paid approximately $336,000 related to certain fees and a
professional services agreement with one of its initial investors.

16. COMMITMENTS AND CONTINGENCIES:

LEASES

As of December 31, 1998, the Company has noncancellable operating leases,
primarily for real estate, that expire over the next six years. Rental expense
during 1998 was $512,000.

Future minimum lease payments under noncancellable operating leases are as
follows as of December 31, 1998:

<TABLE>
<S> <C>
1999............................................................ $1,424,000
2000............................................................ 1,294,000
2001............................................................ 1,187,000
2002............................................................ 1,082,000
2003............................................................ 872,000
Thereafter...................................................... 792,000
---------
Total minimum lease payments................................ $6,651,000
---------
---------
</TABLE>

LITIGATION AND CLAIMS

In connection with the acquisition of Internet Outfitters, approximately
$1,450,000 of the purchase price in the form of shares of Company Common Stock,
based upon the fair value of $17.10 per share at the date of acquisition, was
pledged to the Company and escrowed to be available to satisfy any potential
liability in connection with a license dispute. The Company also held back
$750,000 of the cash purchase price to be used to satisfy this and any other
indemnification claims.

The Company is subject to lawsuits, investigations and claims arising out of
the ordinary course of business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the Company.
In the opinion of management, based on all known facts, all matters are without
merit, and except as related to the aforementioned Internet Outfitters claim,
are of such kind, or involve such amounts, as would not have a material effect
on the financial position or results of operations of the Company if disposed of
unfavorably.

CONTINGENT PAYMENTS

The Company's acquisition of NMP provided for additional contingent payments
of up to $14,000,000 as of December 31, 1998 in the form of cash and Company
Common Stock to be made to the former owners of NMP if NMP reaches certain
revenue and earnings before interest, taxes, depreciation, and amortization
targets for the period from October 1, 1998 to September 30, 1999. The amount of
this contingent payment varies based on a sliding scale of revenues and earnings
before interest, taxes, depreciation, and amortization. If these goals are
reached, approximately 42 percent of

F-26
<PAGE>
APPNET SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998 AND MARCH 31, 1999

the contingent consideration will be reflected as additional purchase
consideration if and when paid. The remaining 58 percent of the contingent
consideration will be paid only if the targets are reached and certain NMP
employees remain employed by the Company. Accordingly, pursuant to the consensus
reached in Emerging Issues Task Force Issue 95-08, "Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Company in a Purchase
Business Combination," ("EITF 95-08") an estimate of the amount expected to be
paid to these employees will be reflected as stock-based and other
acquisition-related compensation expense ratably over the period which these
employees must remain employed to receive the contingent consideration.
Revisions to this estimate will be reflected on a prospective basis each
reporting period until paid. The accompanying statement of operations reflects a
charge of $1,157,000 of stock-based and other acquisition related compensation
for this contingent payment.

The Company's acquisitions of Sigma6, Salzinger, Internet Outfitters and
Transform IT provided for contingent payments of up to $14,800,000 (unaudited)
in the form of cash and Company Common Stock to be made to the former owners of
these companies if these entities reach certain revenue and earnings targets for
periods ranging from 9 - 18 months from the date of their acquisition. The
amount of these contingent payments varies based on a sliding scale of revenues
and earnings, as defined in the acquisition agreements.

If these goals are reached for Salzinger and Sigma6, the amount will be paid
only if the targets are reached and certain Sigma6 and Salzinger employees
remain employed by the Company. Accordingly, pursuant to EITF 95-08, an estimate
of the amount to be paid to these employees will be reflected as stock-based and
other acquisition-related compensation expense ratably over the period which the
employees must remain employed to receive the contingent consideration.
Revisions to this estimate will be reflected on a prospective basis each
reporting period until paid.

If these goals are reached for Internet Outfitters and Transform IT,
approximately 23 and 33 percent, respectively, of the contingent payment will be
reflected as additional purchase price consideration if and when paid. The
remaining contingent amounts will be paid only if the targets are reached and
certain Internet Outfitters and Transform IT employees remain employed by the
Company. Accordingly, pursuant to EITF 95-08, an estimate of the amount to be
paid to these employees will be reflected as stock-based and other
acquisition-related compensation expense ratably over the period which the
employees must remain employed to receive the contingent consideration.
Revisions to this estimate will be reflected on a prospective basis each
reporting period until paid.

17. SEGMENT INFORMATION:

The Company currently operates in two operating segments: professional
services and electronic commerce processing. For the year ended December 31,
1998 and the three months ended March 31, 1999, the electronic commerce
processing segment was not significant to the overall financial statements.

18. 1999 COMMON STOCK SPLIT (UNAUDITED)

The Company is currently contemplating an initial public offering. Prior to
the effectiveness of the initial public offering, the Company intends to enter
into an agreement to exchange the Class A Preferred Stock and the Class B
Preferred Stock, not redeemed with the proceeds of the initial public offering,
into Company Common Stock based on the per share price in the initial public
offering, and declare a one for 2.85 reverse stock split. All share and
per-share amounts, including stock option information, have been restated in
these notes and the accompanying consolidated financial statements to reflect
this reverse stock split.

F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Software Services Corporation:

We have audited the accompanying balance sheets of Software Services
Corporation (a Michigan corporation) as of December 31, 1996 and 1997, and
August 24, 1998, and the related statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1996 and 1997, and for the
period from January 1, 1998 to August 24, 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 audits 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Software Services
Corporation as of December 31, 1996 and 1997, and August 24, 1998, and the
results of its operations and its cash flows for the years ended December 31,
1996 and 1997, and for the period from January 1, 1998 to August 24, 1998, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Ann Arbor, Michigan
February 5, 1999

F-28
<PAGE>
SOFTWARE SERVICES CORPORATION

BALANCE SHEETS

AS OF DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 70,000 $ 252,000 $ 44,000
Accounts receivable, net of allowance for doubtful accounts of
$29,000, $25,000 and $255,000, respectively........................ 1,597,000 2,167,000 2,935,000
Other current assets................................................. 225,000 150,000 1,020,000
------------ ------------ ------------
Total current assets............................................... 1,892,000 2,569,000 3,999,000
Property and equipment, net............................................ 617,000 541,000 475,000
Intangible assets, net................................................. 450,000 311,000 216,000
Other assets........................................................... 196,000 246,000 283,000
------------ ------------ ------------
Total assets....................................................... $3,155,000 $3,667,000 $ 4,973,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable..................................................... $ 56,000 $ 57,000 $ 725,000
Accrued liabilities.................................................. 649,000 1,058,000 761,000
Current portion of long-term debt.................................... 672,000 334,000 --
------------ ------------ ------------
Total current liabilities.......................................... 1,377,000 1,449,000 1,486,000
Long-term debt, net of current portion................................. 320,000 332,000 --
------------ ------------ ------------
Total liabilities.................................................. 1,697,000 1,781,000 1,486,000
------------ ------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized, 5,700,000,
5,697,000 and 5,667,000 shares issued and outstanding,
respectively....................................................... 1,000 61,000 31,000
Additional paid-in capital (Note 1).................................. -- -- 3,344,000
Retained earnings.................................................... 1,457,000 1,825,000 112,000
------------ ------------ ------------
Total stockholders' equity......................................... 1,458,000 1,886,000 3,487,000
------------ ------------ ------------
Total liabilities and stockholders' equity......................... $3,155,000 $3,667,000 $ 4,973,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-29
<PAGE>
SOFTWARE SERVICES CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED PERIOD FROM FOR THE
DECEMBER 31, JANUARY 1, 1998 THREE MONTHS
---------------------------- TO AUGUST 24, ENDED
1996 1997 1998 MARCH 31, 1998
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues..................................... $ 11,789,000 $ 13,298,000 $ 10,788,000 $ 3,538,000
Costs of revenues............................ 7,680,000 8,416,000 7,392,000 2,483,000
------------- ------------- ----------------- -----------------
Gross profit............................. 4,109,000 4,882,000 3,396,000 1,055,000
Operating expenses:
Selling and marketing...................... 1,082,000 997,000 567,000 155,000
General and administrative................. 2,615,000 3,050,000 1,856,000 728,000
Stock-based and acquisition-related
compensation............................. -- -- 2,654,000 --
Depreciation and amortization.............. 300,000 341,000 230,000 89,000
------------- ------------- ----------------- -----------------
Total operating expenses................. 3,997,000 4,388,000 5,307,000 972,000
------------- ------------- ----------------- -----------------
Income (loss) from operations................ 112,000 494,000 (1,911,000) 83,000
Gain on sale of investment in affiliate...... -- 358,000 -- --
Interest expense, net........................ 52,000 35,000 28,000 7,000
Other expense, net........................... -- 9,000 372,000 124,000
------------- ------------- ----------------- -----------------
Income (loss) before income taxes............ 60,000 808,000 (2,311,000) (48,000)
Provision (benefit) for income taxes......... 113,000 377,000 (598,000) (225,000)
------------- ------------- ----------------- -----------------
Net (loss) income............................ $ (53,000) $ 431,000 $ (1,713,000) $ 177,000
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
Basic and diluted net (loss) income per
share...................................... $ (.01) $ .08 $ (.30) $ .03
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
Weighted average common shares outstanding... 5,727,000 5,705,000 5,697,000 5,697,000
------------- ------------- ----------------- -----------------
------------- ------------- ----------------- -----------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-30
<PAGE>
SOFTWARE SERVICES CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO AUGUST 24, 1998

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................... 6,000,000 $ 1,000 $ -- $ 1,810,000 $1,811,000
Repurchase of common stock shares.......... (300,000) -- -- (300,000) (300,000)
Net loss................................... -- -- -- (53,000) (53,000)
---------- ---------- ------------ ------------- ------------
Balance, December 31, 1996................... 5,700,000 1,000 -- 1,457,000 1,458,000
Repurchase of common stock shares.......... (63,000) -- -- (63,000) (63,000)
Issuance of common stock as compensation... 60,000 60,000 -- -- 60,000
Net income................................. -- -- -- 431,000 431,000
---------- ---------- ------------ ------------- ------------
Balance, December 31, 1997................... 5,697,000 61,000 -- 1,825,000 1,886,000
Repurchase of common stock shares.......... (30,000) (30,000) -- -- (30,000)
Capital contribution....................... -- -- 3,344,000 -- 3,344,000
Net loss................................... -- -- -- (1,713,000) (1,713,000)
---------- ---------- ------------ ------------- ------------
Balance, August 24, 1998..................... 5,667,000 $ 31,000 $ 3,344,000 $ 112,000 $3,487,000
---------- ---------- ------------ ------------- ------------
---------- ---------- ------------ ------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-31
<PAGE>
SOFTWARE SERVICES CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEARS ENDED JANUARY 1,
DECEMBER 31, 1998 TO FOR THE
-------------------- AUGUST 24, THREE MONTHS ENDED
1996 1997 1998 MARCH 31, 1998
--------- --------- --------------- --------------------
UNAUDITED
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................. $ (53,000) $ 431,000 $ (1,713,000) $ 177,000
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization................. 300,000 341,000 230,000 89,000
Deferred compensation agreements.............. -- 616,000 -- --
Gain on sale of investment in affiliate....... -- (358,000) -- --
Deferred income taxes......................... (34,000) (216,000) (935,000) (224,000)
Change in assets and liabilities:
Accounts receivable......................... 97,000 (570,000) (768,000) (62,000)
Other current assets........................ (74,000) 89,000 31,000 25,000
Other assets................................ -- (2,000) (3,000) (3,000)
Accounts payable............................ (109,000) 1,000 668,000 91,000
Accrued liabilities......................... (11,000) 409,000 (297,000) (397,000)
--------- --------- --------------- -----------
Net cash provided by (used in) operating
activities.............................. 116,000 741,000 (2,787,000) (304,000)
--------- --------- --------------- -----------
Cash flows from investing activities:
Purchase of property and equipment, net........... (221,000) (121,000) (69,000) (39,000)
Additional investment in affiliate................ -- (75,000) -- --
Proceeds from disposal of investment in
affiliate....................................... -- 490,000 -- --
--------- --------- --------------- -----------
Net cash (used in) provided by investing
activities.............................. (221,000) 294,000 (69,000) (39,000)
--------- --------- --------------- -----------
Cash flows from financing activities:
Repayments of long-term debt...................... (235,000) (236,000) (263,000) (17,000)
Net borrowings (repayments) under notes payable... 400,000 (400,000) -- 180,000
Repurchase of common stock........................ (300,000) (63,000) (30,000) --
Capital contribution.............................. -- -- 3,344,000 --
Payments under deferred compensation agreement.... -- (154,000) (403,000) (50,000)
--------- --------- --------------- -----------
Net cash (used in) provided by financing
activities.............................. (135,000) (853,000) 2,648,000 113,000
--------- --------- --------------- -----------
Net (decrease) increase in cash and cash
equivalents....................................... (240,000) 182,000 (208,000) (230,000)
Cash and cash equivalents, beginning of period...... 310,000 70,000 252,000 252,000
--------- --------- --------------- -----------
Cash and cash equivalents, end of period............ $ 70,000 $ 252,000 $ 44,000 $ 22,000
--------- --------- --------------- -----------
--------- --------- --------------- -----------
Supplementary information:
Cash paid for interest............................ $ 59,000 $ 56,000 $ 33,000 $ 15,000
--------- --------- --------------- -----------
--------- --------- --------------- -----------
Cash paid for income taxes........................ $ 182,000 $ 135,000 $ 653,000 $ 477,000
--------- --------- --------------- -----------
--------- --------- --------------- -----------
Assets financed under capital lease obligations... $ 252,000 $ -- $ -- $ --
--------- --------- --------------- -----------
--------- --------- --------------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-32
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

1. BUSINESS DESCRIPTION:

Software Services Corporation (the Company) engages in application
development, computer software and networking projects, and provides both
full-time and temporary personnel to companies in the computer industry. The
Company is headquartered in Ann Arbor, Michigan.

On August 25, 1998, all of the outstanding Common Stock of the Company was
acquired by SSC Acquisition Sub. No. 1, Inc. (a Michigan Corporation and a
wholly owned subsidiary of AppNet Systems, Inc.; "AppNet"). In contemplation of
the acquisition, AppNet advanced the Company $3,344,000 to fund the repayment of
certain debt, the repurchase of certain shares, pay the Company's obligation
under a deferred compensation agreement and to fund certain acquisition expenses
paid by the Company. This amount has been included as paid in capital in the
accompanying financial statements.

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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.

INVESTMENT IN AFFILIATE

Investment in affiliate represented the Company's 10 percent interest in
Workwell Health & Safety Systems, Inc. ("Workwell"). In addition to the
investment in Workwell, the Company held an option to purchase an additional
2,353 to 2,667 shares of Workwell for $75,000. In January 1997, the Company
exercised this option and signed an agreement to sell its total investment in
Workwell for $490,000. In connection with the sale, certain employment
agreements and options were canceled and the owners of Workwell released the
Company from further payments owed under the non-competition agreements. Except
for the release of payments, all the terms and conditions of the non-competition
agreements remain in full force and effect. During 1997, the Company recognized
a $358,000 gain on this transaction; $93,000 of which represents the release of
payments by the Company under the non-competition agreements.

CASH AND CASH EQUIVALENTS

The Company considers all investments purchased with a maturity of three
months or less to be cash equivalents.

F-33
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
three to five
Computers and equipment................................. years
Furniture and fixtures.................................. five years
</TABLE>

Purchased software and third-party costs incurred to develop software for
internal use are capitalized and amortized principally over three years.

In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews its recorded long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.

GOODWILL

Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is amortized on a straight-line basis over 5 years.

NON-COMPETITION AGREEMENTS

Non-compete agreements were entered into with former owners of various
acquisitions of the Company and are being amortized on a straight-line basis
over the lives of the related agreements, generally four to five years.

INTELLECTUAL PROPERTY

Intellectual property represents acquired and internally developed patents.
The Company capitalizes the direct external costs of acquiring the related
patents. Intellectual property is amortized on a straight-line basis over the
lives of the related assets, generally five years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, short-term borrowings,
long-term debt and capital lease obligations. In management's opinion, the
carrying amounts of these financial instruments approximated their fair values
at December 31, 1996 and 1997, and August 24, 1998.

SELF INSURANCE

The Company partially self insures its dental, vision and short-term
disability programs. There are stop-loss provisions on each of these programs.
Paid claims were $54,000 and $64,000 in 1996 and 1997, respectively, and $47,000
for the period from January 1, 1998 through August 24, 1998.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation arrangements using the
intrinsic value method in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25,

F-34
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation cost is recognized based on the difference, if any,
on the date of grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock.

REVENUE RECOGNITION

Revenues from time and material contracts are recognized based on fixed
hourly rates for direct labor hours expended.

Costs of revenues include all direct, material and labor costs related to
contract performance and does not include any related depreciation expense.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
REVENUES ACCOUNTS RECEIVABLE
--------------------------------------------- -----------------------------------------------
FOR THE YEAR ENDED FOR THE PERIOD
ENDED AS OF AUGUST
DECEMBER 31, AUGUST 24, AS OF DECEMBER 31, 24,
------------------------ ------------------------------
1996 1997 1998 1996 1997 1998
----------- ----------- ------------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Customer A............. 62% 46% 33% 49% 37% 23%
Customer B............. * * 11% * 11% 14%
</TABLE>

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

* Represents less than 10 percent of total.

INCOME TAXES

The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under the
provisions of SFAS No. 109, deferred income taxes reflect the impact of
temporary differences between the amount of assets and liabilities recognized
for financial reporting purposes and such amounts recognized for tax reporting
purposes. Deferred tax assets may also be recognized to reflect the expected
future benefit from the utilization of net operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured by applying
current enacted tax laws.

EARNINGS PER SHARE

SFAS No. 128, "Earnings Per Share," requires the presentation of basic and
diluted earnings per share. Basic net income (loss) per share is computed by
dividing income (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. The diluted net income
(loss) per share data is computed using the weighted average number of common
shares outstanding plus the dilutive effect of common stock equivalents, unless
the equivalents are antidilutive.

F-35
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statement years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for internal
use, including the requirements to capitalize specified costs and the
amortization of such costs. The Company does not expect the adoption of this
standard to have a material effect on the Company's capitalization policy.

RECLASSIFICATIONS

Certain amounts from the prior year financial statements have been
reclassified to conform with the current presentation.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Accounts receivable................................ $1,562,000 $2,014,000 $ 2,630,000
Unbilled accounts receivables...................... 64,000 178,000 560,000
Allowance for doubtful accounts.................... (29,000) (25,000) (255,000)
------------ ------------ ------------
Accounts receivable, net....................... $1,597,000 $2,167,000 $ 2,935,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

4. OTHER CURRENT ASSETS:

Other current assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Prepaid expenses................................... $ 174,000 $ 91,000 $ 60,000
Other.............................................. 6,000 -- --
Deferred income tax asset.......................... 45,000 59,000 960,000
------------ ------------ ------------
Other current assets........................... $ 225,000 $ 150,000 $ 1,020,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-36
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

5. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Computer equipment and software.................... $ 874,000 $ 994,000 $ 1,054,000
Furniture and fixtures............................. 178,000 179,000 187,000
Leasehold improvements............................. 53,000 53,000 53,000
------------ ------------ ------------
1,105,000 1,226,000 1,294,000
Accumulated depreciation and amortization.......... (488,000) (685,000) (819,000)
------------ ------------ ------------
Net property and equipment..................... $ 617,000 $ 541,000 $ 475,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

6. INTANGIBLE ASSETS:

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Goodwill........................................... $ 120,000 $ 120,000 $ 120,000
Non-competition agreements......................... 380,000 380,000 380,000
Intellectual property, net......................... 150,000 155,000 155,000
Acquired contracts................................. 158,000 -- --
------------ ------------ ------------
808,000 655,000 655,000
Accumulated amortization........................... (358,000) (344,000) (439,000)
------------ ------------ ------------
Intangible assets, net......................... $ 450,000 $ 311,000 $ 216,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

7. OTHER NON-CURRENT ASSETS:

Other non-current assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Other.............................................. $ 12,000 $ 10,000 $ 13,000
Deferred income tax benefit........................ 34,000 236,000 270,000
Investment in affiliate............................ 150,000 -- --
------------ ------------ ------------
Other non-current assets....................... $ 196,000 $ 246,000 $ 283,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-37
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

8. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Accrued compensation and benefits.................. $ 477,000 $ 422,000 $ 440,000
Accrued commissions................................ 89,000 111,000 79,000
Income taxes payable............................... 33,000 477,000 161,000
Accrued professional fees.......................... 17,000 27,000 22,000
Other accrued liabilities.......................... 33,000 21,000 59,000
------------ ------------ ------------
Accrued liabilities............................ $ 649,000 $1,058,000 $ 761,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

9. COMMITMENTS AND CONTINGENCIES:

The Company currently leases its facility under an operating lease. Rent
expense for the years ended December 31, 1996 and 1997, and for the period from
January 1, 1998 to August 24, 1998, totaled approximately $180,000, $243,000 and
$165,000, respectively. Future minimum lease payments at August 24, 1998, under
these agreements are as follows:

<TABLE>
<S> <C>
Period ended December 31, 1998.................................. $ 86,000
1999............................................................ 275,000
2000............................................................ 293,000
2001............................................................ 301,000
2002............................................................ 309,000
2003............................................................ 155,000
---------
Total....................................................... $1,419,000
---------
---------
</TABLE>

F-38
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

10. DEBT:

Debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ----------
<S> <C> <C> <C>
Deferred compensation (see Note 17), repaid during the period ended
August 24, 1998 (see below)........................................... $ -- $ 403,000 $ --
Capital lease obligation, repaid during the period ended August 24, 1998
(see below)........................................................... 141,000 116,000 --
Promissory notes, repaid during the period ended August 24, 1998 (see
below)................................................................ 285,000 98,000 --
Capital lease obligation, repaid during the period ended August 24, 1998
(see below)........................................................... 73,000 49,000 --
Noncompete agreements, repaid during the year ended December 31, 1997... 93,000 -- --
Note payable, repaid during the year ended December 31, 1997............ 400,000 -- --
------------ ------------ ----------
992,000 666,000 --
Less--Current portion................................................... 672,000 334,000 --
------------ ------------ ----------
$ 320,000 $ 332,000 $ --
------------ ------------ ----------
------------ ------------ ----------
</TABLE>

As a condition of the sale of the Company to AppNet, all of the Company's
outstanding debt was repaid prior to August 24, 1998. In contemplation of the
repayment, AppNet advanced funds to the Company to repay the debt. The funds
received by AppNet have been included in additional paid-in capital in the
accompanying financial statements.

11. STOCKHOLDERS' EQUITY:

STOCK SPLIT

During 1997, the Company declared a stock split of six-to-one for each
holder of common stock. All share information included in the accompanying
financial statements has been restated to retroactively reflect the stock split.

STOCK OPTION PLAN

During 1995, the Company established a stock option plan (the "Plan") to
encourage ownership by selected employees of the Company and provide an
additional incentive to these employees to promote the success of the Company.
Under the Plan, options to purchase the Company's common stock may be granted at
the discretion of the Board of Directors. The maximum number of shares that may
be granted is 1,500,000. The Plan may be terminated at any time at the
discretion of the Board of Directors. According to the Plan, the options will be
granted at a price equal to 100 percent of the fair market value of the common
stock as determined by the Board of Directors. All options will expire ten years
after date of grant. During the years ended December 31, 1996 and 1997 and the
for the period from January 1, 1998 to August 24, 1998, the Company granted
108,000, 170,000 and 20,000 options, respectively, at an option price of $1.00,
all of which vest over four years. During the years ended December 31, 1996,
1997 and for the period from January 1, 1998 to August 24, 1998, 372,000, 90,000
and 54,000 options were cancelled due to termination of employment,
respectively. As of December 31,

F-39
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

1996 and 1997, and as of August 24, 1998, 180,000, 260,000 and zero options were
outstanding, respectively. In contemplation of the sale of the Company to
AppNet, certain option vesting was accelerated and all then vested options,
totaling 89,500, were redeemed and the remaining options of the Company were
converted to equivalent options of AppNet for $3.43 per share. The amount paid
to the stockholders, net of the option exercise price, has been recognized as
expense and included in stock-based and acquisition-related compensation in the
accompanying statement of operations. In contemplation of the redemption of the
shares, AppNet advanced approximately $217,000 to the Company to fund the
redemption. The funds advanced to the Company have been recorded as additional
paid in capital in the accompanying financial statements.

Utilizing the intrinsic value method of accounting for the value of stock
options issued during the years ended December 31, 1996 and 1997 and for the
period from January 1, 1998 to August 24, 1998, no compensation cost was
recorded in the accompanying statements of income. Had compensation cost been
determined based on the fair value at the date of grant for awards for the years
ended December 31, 1996 and 1997 and for the period from January 1, 1998 to
August 24, 1998, consistent with the provisions of SFAS No. 123, net income
(loss) would not have significantly differed from the reported amounts.

12. EARNINGS PER SHARE:

The impact of stock options are excluded from diluted earnings per share due
to their antidilutive effect and are 180,000, 260,000, and zero for the years
ended December 31, 1996 and 1997 and for the period from January 1, 1998 to
August 24, 1998.

13. INCOME TAXES:

The components of the provision (benefit) for income taxes as recorded under
SFAS No. 109 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AUGUST 24,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Federal income taxes:
Currently payable..................................... $ 12,000 $ 446,000 $ 213,000
Deferred income taxes................................. (34,000) (216,000) (935,000)
State taxes............................................. 135,000 147,000 124,000
---------- ---------- -----------
Provisions (benefit) for income taxes............... $ 113,000 $ 377,000 $ (598,000)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

The tax provision (benefit) differed from the amounts computed at the
statutory rate as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AUGUST 24,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Federal income taxes at the U.S. statutory rate......... $ (26,000) $ 275,000 $ (786,000)
State taxes, net of federal benefit..................... 135,000 97,000 82,000
Acquisition expenses not deductible for tax purposes.... -- -- 115,000
Other................................................... 4,000 5,000 (9,000)
---------- ---------- -----------
Total............................................... $ 113,000 $ 377,000 $ (598,000)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

F-40
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

The components of the net deferred tax asset as of December 31, 1996 and
1997, and August 24, 1998, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 24,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current deferred income tax asset:
Deferred compensation............................ $ -- $ -- $ 829,000
Accrued expenses................................. 36,000 50,000 32,000
Accounts receivable.............................. 9,000 9,000 99,000
------------ ------------ ------------
45,000 59,000 960,000
------------ ------------ ------------
Long-term deferred income tax asset:
Deferred compensation............................ -- 137,000 137,000
Property and equipment........................... (25,000) 7,000 19,000
Other assets..................................... 59,000 92,000 114,000
------------ ------------ ------------
34,000 236,000 270,000
------------ ------------ ------------
Net deferred tax asset......................... $ 79,000 $ 295,000 $ 1,230,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

14. RELATED-PARTY TRANSACTIONS:

The Company purchased consulting services from an affiliate for
approximately $90,000 in 1996 and 1997 and $58,000 in the period from January 1,
1998 through August 24, 1998.

15. RETIREMENT PLAN:

The Company maintains a profit sharing and retirement plan under the
provisions of section 401(k) of the Internal Revenue Code. The Plan provides for
contribution by employees and a discretionary contribution by the Company. The
Plan is for the benefit of all employees. Employees are eligible to participate
if they are at least 18 years of age and have met certain minimum service
requirements. Employee contributions are fully vested and subject to statutory
limits. The Company's contribution is discretionary and is determined by its
Board of Directors. Company contributions vest after three years of service.
There were no company contributions for the year ended December 31, 1996 and
1997, and for the period from January 1, 1998 to August 24, 1998.

16. TERMINATION AGREEMENT:

During 1997, the Company entered into an agreement to terminate an
employment agreement with a key employee of the Company (the "Termination
Agreement"). Under the terms of the Termination Agreement, the Company was to
pay the former employee a total of $662,000 as satisfaction of any claims the
former employee may have had under the employment agreement. The amount was
payable in the form of 10,000 shares of the Company's common stock valued at
$60,000 and $602,000 in the form of a note. The Note was payable in quarterly
installments of $50,000 through December 1999, with a final payment of $30,000
in March 2000. The Company recorded the net present value of this note,
discounted at 5.5 percent, in the accompanying financial statements as deferred
compensation, which is included in long-term debt. This note was fully repaid
during the period from January 1, 1998 through August 24, 1998.

F-41
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

17. DEFERRED COMPENSATION AGREEMENT:

The Company has entered into a deferred compensation agreement (the
"Agreement") with the president of the Company. Under the terms of the
Agreement, the president is to receive certain compensation should the Company
be sold or merged, as defined in the Agreement. As a result of the sale of the
Company to AppNet, the Company recognized $2,437,000 in compensation expense
during the period from January 1, 1998 through August 24, 1998, which has been
included in general and administrative expense in the accompanying statement of
operations. In contemplation of this compensation being paid, AppNet advanced
funds to the Company to pay its obligation under the Agreement. The funds
advanced from AppNet have been included as paid in capital in the accompanying
financial statements.

18. SEGMENT DISCLOSURE:

The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.

The Company operated in two operating segments: technical consulting and
managed services. The technical consulting group primarily provides information
technology consulting to companies on a per diem basis. The managed services
group provides information technology solutions to its customers through the
design and implementation of information systems technology on a project or
solutions basis. Substantially all of the Company's revenues are generated and
assets are located in the Midwestern United States.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (Note 2) except that certain
deferred compensation, merger related costs, interest expense and income taxes
have not been allocated to the business segments. The Company evaluates the
performance of its operating segments based primarily upon revenues and
operating income. Assets are not allocated to the operating segments.

As summary of the Company's operating segments for the years ended December
31, 1996 and 1997 for the period from January 1, 1998 to August 24, 1998, is set
forth below.

F-42
<PAGE>
SOFTWARE SERVICES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND AUGUST 24, 1998

The following table presents revenues and other financial information by
operating segment:

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED ENDED
DECEMBER 31, --------------
---------------------------- AUGUST 24,
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
Revenues to external customers:
Technical consulting........................................... $ 8,520,000 $ 10,205,000 $ 8,489,000
Managed services............................................... 3,269,000 3,093,000 2,299,000
------------- ------------- --------------
Total revenue to external customers.......................... 11,789,000 13,298,000 10,788,000
------------- ------------- --------------
Operating profit (loss):
Technical consulting........................................... 531,000 1,055,000 827,000
Managed services............................................... (395,000) 56,000 (84,000)
------------- ------------- --------------
Segment operating profit........................................... 136,000 1,111,000 743,000
Reconciliation to Company operating profit due to
costs not allocated to segments:
Deferred compensation.......................................... (24,000) (617,000) --
Costs associated with acquisition.............................. -- -- (2,654,000)
------------- ------------- --------------
Total operating profit......................................... $ 112,000 $ 494,000 $ (1,911,000)
------------- ------------- --------------
------------- ------------- --------------
</TABLE>

F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Arbor Intelligent Systems, Inc.:

We have audited the accompanying balance sheets of Arbor Intelligent
Systems, Inc. (a Michigan corporation), as of December 31, 1997, and March 11,
1998, and the related statements of operations, stockholders' deficit, and cash
flows for the year ended December 31, 1997, and for the period from January 1,
1998 to March 11, 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Arbor Intelligent Systems,
Inc. as of December 31, 1997, and March 11, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1997, and for the
period from January 1, 1998 to March 11, 1998, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 19, 1999

F-44
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

BALANCE SHEETS

AS OF DECEMBER 31, 1997 AND MARCH 11, 1998

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 12,000 $ 145,000
Accounts receivable, net of allowance for doubtful accounts of $15,000 and
$20,000, respectively........................................................... 464,000 449,000
Other current assets.............................................................. 14,000 27,000
------------ -------------
Total current assets............................................................ 490,000 621,000
Property and equipment, net......................................................... 92,000 84,000
Other assets, net................................................................... 198,000 146,000
------------ -------------
Total assets.................................................................... $ 780,000 $ 851,000
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings............................................................. $ 300,000 $ 300,000
Accounts payable.................................................................. 210,000 292,000
Accrued liabilities............................................................... 497,000 787,000
Current portion of long-term debt................................................. 685,000 678,000
Current portion of capital lease obligations...................................... 12,000 12,000
------------ -------------
Total current liabilities....................................................... 1,704,000 2,069,000
Capital lease obligations, net of current portion................................... 11,000 9,000
------------ -------------
Total liabilities............................................................... 1,715,000 2,078,000
------------ -------------
Commitments and contingencies (Note 7)
Stockholders' deficit:
Common stock, no par value; 50,000 shares authorized; 10,000 and 14,640 shares
issued and outstanding, respectively............................................ 1,000 1,000
Additional paid-in capital........................................................ 5,000 470,000
Accumulated deficit............................................................... (941,000) (1,698,000)
------------ -------------
Total stockholders' deficit..................................................... (935,000) (1,227,000)
------------ -------------
Total liabilities and stockholders' deficit..................................... $ 780,000 $ 851,000
------------ -------------
------------ -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-45
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO MARCH 11, 1998

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1998 TO
DECEMBER 31, MARCH 11,
1997 1998
------------ ---------------
<S> <C> <C>
Revenues.......................................................................... $3,106,000 $ 688,000
Cost of revenues.................................................................. 2,149,000 471,000
------------ ---------------
Gross profit.................................................................. 957,000 217,000
------------ ---------------
Operating expenses:
Selling and marketing........................................................... 105,000 14,000
General and administrative...................................................... 843,000 226,000
Stock-based compensation........................................................ -- 465,000
Depreciation and amortization................................................... 186,000 29,000
------------ ---------------
Total operating expenses...................................................... 1,134,000 734,000
------------ ---------------
Loss from operations.............................................................. (177,000) (517,000)
Interest expense, net............................................................. 187,000 29,000
Other expense, net................................................................ 41,000 211,000
------------ ---------------
Net loss.......................................................................... $ (405,000) $ (757,000)
------------ ---------------
------------ ---------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-46
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO MARCH 11, 1998

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......................... 10,000 $ 1,000 $ 5,000 $ (536,000) $ (530,000)
Net loss.......................................... -- -- -- (405,000) (405,000)
--------- --------- ---------- ------------- -------------
Balance, December 31, 1997.......................... 10,000 1,000 5,000 (941,000) (935,000)
Exercise of stock rights.......................... 4,640 -- 465,000 -- 465,000
Net loss.......................................... -- -- -- (757,000) (757,000)
--------- --------- ---------- ------------- -------------
Balance, March 11, 1998............................. 14,640 $ 1,000 $ 470,000 $ (1,698,000) $ (1,227,000)
--------- --------- ---------- ------------- -------------
--------- --------- ---------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-47
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO MARCH 11, 1998

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1998 TO
DECEMBER 31, MARCH 11,
1997 1998
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (405,000) $ (757,000)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization................................................. 186,000 29,000
Loss on fixed asset disposal.................................................. -- 3,000
Write-off of commitment fees, net............................................. -- 28,000
Stock-based compensation...................................................... -- 465,000
Change in assets and liabilities:
Accounts receivable......................................................... 92,000 15,000
Other current assets........................................................ (10,000) (13,000)
Accounts payable............................................................ 2,000 82,000
Accrued liabilities......................................................... 12,000 290,000
------------ ---------------
Net cash (used in) provided by operating activities....................... (123,000) 142,000
------------ ---------------
Cash flows from investing activities:
Purchase of property and equipment, net......................................... (86,000) --
------------ ---------------
Cash flows from financing activities:
Proceeds from long-term debt.................................................... 172,000 --
Repayments of long-term debt.................................................... (86,000) (7,000)
Short-term borrowings........................................................... 150,000 --
Repayments of capital lease obligations......................................... -- (2,000)
------------ ---------------
Net cash provided by (used in) financing activities....................... 236,000 (9,000)
------------ ---------------
Net increase in cash and cash equivalents......................................... 27,000 133,000
Cash and cash equivalents, beginning of period.................................... (15,000) 12,000
------------ ---------------
Cash and cash equivalents, end of period.......................................... $ 12,000 $ 145,000
------------ ---------------
------------ ---------------
Supplementary information:
Cash paid for interest.......................................................... $ 186,000 $ 36,000
------------ ---------------
------------ ---------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-48
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND MARCH 11, 1998

1. BUSINESS DESCRIPTION:

Arbor Intelligent Systems, Inc. ("Arbor" or the "Company") was incorporated
on August 31, 1988, under the laws of the state of Michigan. The Company is an
Internet-based applications development group providing object-oriented
development services. The Company is headquartered in Ann Arbor, Michigan, and
operates primarily in the surrounding Ann Arbor area.

On March 12, 1998, certain assets and liabilities of the Company were
acquired by AppNet Systems, Inc. ("AppNet"). The Company incurred $198,000 of
expenses in conjunction with the sale to AppNet primarily for early debt
retirement. This has been classified in other expenses in the accompanying
statements of operations.

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
three to five
Computers, equipment and software........................ years
Furniture and fixtures................................... seven years
</TABLE>

Purchased software and third-party costs incurred to develop software for
internal use are capitalized and amortized principally over three years.

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company reviews its recorded long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

F-49
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND MARCH 11, 1998

SOFTWARE DEVELOPMENT COSTS

The Company has capitalized costs related to the development of certain
software products. In accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed," capitalization of
costs begins when technological feasibility has been established and ends when
the product is available for general release to customers. Amortization has been
computed and recognized based on the products' estimated economic lives of two
years. Capitalized costs and amortization periods are management's estimates and
are subject to change due to rapid technological changes in software
development.

FAIR VALUE OF FINANCIAL INSTRUMENTS

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.

REVENUE RECOGNITION

Revenues from time and material contracts are generally recognized based on
fixed hourly rates for direct labor hours expended.

Costs of revenues include all direct material and labor costs related to
contract performance and does not include any related depreciation expense.

Revenues from software product sales are recognized when the related product
is delivered, provided no significant vendor obligations remain. Revenues from
all maintenance agreements are recognized ratably over the term of the
agreement, generally one year.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
REVENUES
------------------------------------------ ACCOUNTS RECEIVABLE
FOR THE YEAR ENDED FOR THE PERIOD ENDED ----------------------------------------
DECEMBER 31, MARCH 11, AS OF DECEMBER 31, AS OF MARCH 11,
1997 1998 1997 1998
------------------- --------------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Customer A.......................... 23% 48% 23% 19%
Customer B.......................... 18% 15% 17% 16%
</TABLE>

F-50
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND MARCH 11, 1998

INCOME TAXES

The Company, with the consent of its shareholders, has elected to be taxed
pursuant to Subchapter S of the Internal Revenue Code (an "S corporation"). In
lieu of corporation income taxes, the shareholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision for federal income taxes has been included in the accompanying
financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the AIPCA issued Statement of Position 98-4 ("SOP 98-4"),
"Deferral of the Effective Date of a Provision of SOP 97-2." SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2
("SOP 97-2"), "Software Revenue Recognition." The Company does not expect the
adoption of SOP 97-2 or 98-4 to have a material effect on the Company's results
of operations, financial position or cash flows.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ ----------
<S> <C> <C>
Commercial clients................................................. $ 479,000 $ 469,000
Allowance for doubtful accounts.................................... (15,000) (20,000)
------------ ----------
Accounts receivable, net....................................... $ 464,000 $ 449,000
------------ ----------
------------ ----------
</TABLE>

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ -----------
<S> <C> <C>
Computers, equipment and software................................. $ 207,000 $ 204,000
Furniture and fixtures............................................ 30,000 30,000
------------ -----------
237,000 234,000
Accumulated depreciation and amortization......................... (145,000) (150,000)
------------ -----------
Property and equipment, net................................... $ 92,000 $ 84,000
------------ -----------
------------ -----------
</TABLE>

F-51
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND MARCH 11, 1998

5. OTHER NON-CURRENT ASSETS:

Other non-current assets consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ -----------
<S> <C> <C>
Software development costs........................................ $ 423,000 $ 423,000
Commitment fees................................................... 43,000 --
------------ -----------
466,000 423,000
Accumulated amortization.......................................... (268,000) (277,000)
------------ -----------
Other non-current assets, net................................. $ 198,000 $ 146,000
------------ -----------
------------ -----------
</TABLE>

6. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ ----------
<S> <C> <C>
Accrued compensation and benefits.................................. $ 423,000 $ 487,000
Accrued financing fees............................................. -- 198,000
Other.............................................................. 74,000 102,000
------------ ----------
Accrued liabilities............................................ $ 497,000 $ 787,000
------------ ----------
------------ ----------
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company has noncancelable operating leases, primarily for real estate,
that expire over the next three years. Rental expense for operating leases
during the year ended December 31, 1997 and for the period from January 1, 1998
to March 11, 1998, was $14,000 and $3,000, respectively.

The Company leases certain equipment under capital leases.

F-52
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND MARCH 11, 1998

Future minimum lease payments under capital leases and noncancelable
operating leases are as follows as of March 11, 1998:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Period ended December 31, 1998.......................................... $ 12,000 $ 8,000
1999.................................................................... 12,000 6,000
2000.................................................................... -- 3,000
2001.................................................................... -- 1,000
--------- -----------
Total minimum lease payments........................................ 24,000 $ 18,000
-----------
-----------
Less: Amount representing interest...................................... (3,000)
---------
Present value of capital lease obligations.............................. 21,000
Less: Current portion of capital lease obligations...................... (12,000)
---------
Long-term portion of capital lease obligations.......................... $ 9,000
---------
---------
</TABLE>

Equipment under capital leases is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ ----------
<S> <C> <C>
Computer equipment...................................................................... $ 34,000 $ 34,000
Accumulated depreciation................................................................ (9,000) (10,000)
------------ ----------
Computer equipment, net............................................................. $ 25,000 $ 24,000
------------ ----------
------------ ----------
</TABLE>

8. DEBT:

Debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 11,
1997 1998
------------ ----------
<S> <C> <C>
Note payable, due 2001, bears interest at prime plus 4%, plus 1.5% of gross revenues,
payable in monthly installments, secured by the assets of Arbor Intelligent Systems,
Inc., guaranteed by former shareholder............................................... $ 434,000 $ 425,000
Note payable, due February 14, 1998, bears interest at 11.75%.......................... 1,000 --
Note payable, in default, due October 5, 1997, bears interest at 20%, payable in full,
guaranteed by former shareholder..................................................... 100,000 100,000
Note payable to related party, non-interest-bearing.................................... 150,000 153,000
------------ ----------
Total debt......................................................................... $ 685,000 $ 678,000
------------ ----------
------------ ----------
</TABLE>

The Company is not in compliance with debt covenants related to the note
payable, due 2001. As such, the note payable has been classified as current
since it is callable.

The Company has a line of credit which expired on December 31, 1997, and was
collateralized by substantially all of the assets of the Company and is
guaranteed by the majority shareholder. The line of credit had a maximum
borrowing of $300,000. Interest on the outstanding balance was calculated at
10.5 percent. As of December 31, 1997, and March 11, 1998, there were borrowings
under the line of credit totaling $300,000.

F-53
<PAGE>
ARBOR INTELLIGENT SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND MARCH 11, 1998

The line of credit and notes payable contain restrictions on certain debt
and stock transactions.

9. RETIREMENT PLAN:

The Company maintains a profit-sharing and retirement plan under the
provisions of section 401(k) of the Internal Revenue Code. The Plan provides for
contributions by employees and a discretionary contribution by the Company. The
Plan is for the benefit of all employees. Participants may contribute up to 18%
of their compensation, subject to statutory limits. Employee contributions are
fully vested. The Company's contribution is discretionary and is determined by
its Board of Directors. Company contributions vest after five years of service.
There were no Company contributions for the year ended December 31, 1997 and for
the period from January 1, 1998 to March 11, 1998.

Effective February 1, 1999, Arbor employees are covered by the AppNet 401(k)
Plan.

10. EMPLOYEE STOCK RIGHTS:

The Company maintained a stock rights program for key employees. Pursuant to
the program, granted rights to acquire stock expired at the earlier of ten years
from the grant date or the termination of employment. The grants had value to
the employee only upon an equity transaction such as a public sale of common
stock or acquisition. Prior to the acquisition of the Company by AppNet, no
compensation expense had been recognized for these granted rights as such an
equity event was not deemed probable. Immediately prior to the AppNet
acquisition, rights to acquire 4,640 shares of common stock were exercised. A
charge of $465,000 which reflects the fair value of the Arbor common stock
acquired through exercise of these rights (as determined by the AppNet
acquisition) has been reflected as stock-based compensation in the accompanying
statement of operations in the period from January 1, 1998 to March 11, 1998.

The following summarizes rights during 1997 and for the period from January
1, 1998 to March 11, 1998:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
-----------
<S> <C>
Stock rights outstanding December 31, 1996, exercise price of $0.................. 4,657
Granted in 1997................................................................. --
Exercised in 1997............................................................... --
Expired in 1997................................................................. (517)
-----------
Stock rights outstanding December 31, 1997, exercise price of $0.................. 4,140
Granted in 1998................................................................. 500
Exercised in 1998............................................................... (4,640)
Expired in 1998................................................................. --
-----------
Stock rights outstanding, March 11, 1998.......................................... --
-----------
-----------
Stock rights exercisable, December 31, 1997....................................... 1,673
-----------
-----------
</TABLE>

11. RELATED-PARTY TRANSACTIONS:

The Company has a non-interest bearing loan with the majority shareholder in
the amount of $150,000 and $153,000 as of December 31, 1997 and March 11, 1998,
respectively.

The Company leases its real estate from the majority shareholder for $8,250
per month, on a month-to-month basis.

F-54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To New Media Publishing, Inc.:

We have audited the accompanying balance sheets of New Media Publishing,
Inc. (a Virginia corporation), as of December 31, 1996 and 1997, and October 1,
1998, and the related statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1996 and 1997, and for the period from
January 1, 1998 to October 1, 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Media Publishing, Inc.
as of December 31, 1996 and 1997, and October 1, 1998, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1997,
and for the period from January 1, 1998 to October 1, 1998, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 9, 1999

F-55
<PAGE>
NEW MEDIA PUBLISHING, INC.

BALANCE SHEETS

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- OCTOBER 1,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 129,000 $ 317,000 $ 224,000
Accounts receivable, net of allowance for doubtful accounts of $0, $0,
and $208,000, respectively.......................................... 265,000 628,000 1,184,000
Other current assets.................................................. 2,000 19,000 69,000
------------ ------------ ------------
Total current assets................................................ 396,000 964,000 1,477,000
Property and equipment, net............................................. 102,000 275,000 403,000
Other assets............................................................ -- 10,000 10,000
------------ ------------ ------------
Total assets........................................................ $ 498,000 $ 1,249,000 $ 1,890,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 62,000 $ 163,000 $ 149,000
Accrued liabilities................................................... 50,000 552,000 321,000
Current portion of long-term debt..................................... 250,000 51,000 --
Current portion of capital lease obligations.......................... -- 32,000 --
------------ ------------ ------------
Total current liabilities........................................... 362,000 798,000 470,000
Long-term debt, net of current portion.................................. -- 50,000 --
Other long-term debt.................................................... 4,000 7,000 1,000
Capital lease obligations............................................... -- 71,000 --
------------ ------------ ------------
Total liabilities................................................... 366,000 926,000 471,000
Commitments and contingencies (Note 11)
Mandatorily redeemable preferred stock, no par value; 0, 0, and
1,450,000 shares authorized; 0, 0, and 1,428,570 shares issued and
outstanding at December 31, 1996 and 1997, and October 1, 1998,
respectively; liquidation value $.875 per share....................... -- -- 1,230,000
Stockholders' equity:
Common stock, no par value; 8,550,000 authorized; 5,937,500,
5,000,000, and 5,000,000 shares issued and outstanding,
respectively........................................................ -- -- --
Less: Treasury stock, at cost, 1,250,000 shares....................... -- (51,000) (51,000)
Additional paid-in capital............................................ -- 1,000 1,000
Retained earnings..................................................... 132,000 373,000 239,000
------------ ------------ ------------
Total stockholders' equity.......................................... 132,000 323,000 189,000
------------ ------------ ------------
Total liabilities, preferred stock and stockholders' equity......... $ 498,000 $ 1,249,000 $ 1,890,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-56
<PAGE>
NEW MEDIA PUBLISHING, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 1, 1998

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
DECEMBER 31, FROM JANUARY 1,
-------------------------- 1998 TO
1996 1997 OCTOBER 1, 1998
------------ ------------ ------------------
<S> <C> <C> <C>
Revenues......................................................... $ 1,291,000 $ 3,028,000 $ 3,711,000
Cost of revenues................................................. 385,000 1,211,000 1,542,000
------------ ------------ ------------------
Gross profit................................................. 906,000 1,817,000 2,169,000
------------ ------------ ------------------
Operating expenses:
Selling and marketing.......................................... 3,000 88,000 227,000
General and administrative..................................... 498,000 1,246,000 1,868,000
Depreciation and amortization.................................. 38,000 68,000 123,000
------------ ------------ ------------------
Total operating expenses..................................... 539,000 1,402,000 2,218,000
------------ ------------ ------------------
Income (loss) from operations.................................... 367,000 415,000 (49,000)
Interest expense, net............................................ 24,000 17,000 --
------------ ------------ ------------------
Income (loss) before income taxes................................ 343,000 398,000 (49,000)
Provision for income taxes....................................... 69,000 157,000 13,000
------------ ------------ ------------------
Net income (loss)................................................ $ 274,000 $ 241,000 $ (62,000)
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-57
<PAGE>
NEW MEDIA PUBLISHING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1997, AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 1, 1998
<TABLE>
<CAPTION>
REDEEMABLE EQUITY
SECURITIES
--------------------
STOCKHOLDERS' EQUITY
MANDATORILY -----------------------------------
REDEEMABLE
PREFERRED STOCK COMMON STOCK
-------------------- ---------------------- TREASURY
SHARES AMOUNT SHARES AMOUNT STOCK
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............................................... -- $ -- 5,937,500 $ -- $ --
Net income............................................................. -- -- -- -- --
--------- --------- --------- ----------- -----------
Balance, December 31, 1996............................................... -- -- 5,937,500 -- --
Issuance of 312,500 shares of common stock............................. -- -- 312,500 -- --
Repurchase of 1,250,000 shares of common stock......................... -- -- (1,250,000) -- (51,000)
Net income............................................................. -- -- -- -- --
--------- --------- --------- ----------- -----------
Balance, December 31, 1997............................................... -- -- 5,000,000 -- (51,000)
Issuance of 1,428,570 shares of Mandatorily Redeemable Preferred
Stock................................................................ 1,428,570 1,230,000 -- -- --
Accretion of preferred stock dividend.................................. -- -- -- -- --
Net loss............................................................... -- -- -- -- --
--------- --------- --------- ----------- -----------
Balance, October 1, 1998................................................. 1,428,570 $1,230,000 5,000,000 $ -- $ (51,000)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------

ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
CAPITAL EARNINGS EQUITY
----------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995............................................... $ -- $(142,000) $ (142,000)
Net income............................................................. -- 274,000 274,000
----------- --------- ------------
Balance, December 31, 1996............................................... -- 132,000 132,000
Issuance of 312,500 shares of common stock............................. 1,000 -- 1,000
Repurchase of 1,250,000 shares of common stock......................... -- -- (51,000)
Net income............................................................. -- 241,000 241,000
----------- --------- ------------
Balance, December 31, 1997............................................... 1,000 373,000 323,000
Issuance of 1,428,570 shares of Mandatorily Redeemable Preferred
Stock................................................................ -- -- --
Accretion of preferred stock dividend.................................. -- (72,000) (72,000)
Net loss............................................................... -- (62,000) (62,000)
----------- --------- ------------
Balance, October 1, 1998................................................. $ 1,000 $ 239,000 $ 189,000
----------- --------- ------------
----------- --------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-58
<PAGE>
NEW MEDIA PUBLISHING, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 1, 1998

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
DECEMBER 31, FROM JANUARY 1,
---------------------- 1998 TO
1996 1997 OCTOBER 1, 1998
---------- ---------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ 274,000 $ 241,000 $ (62,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 38,000 68,000 123,000
Deferred income taxes............................................. 3,000 1,000 (4,000)
Change in assets and liabilities:
Accounts receivable, net........................................ (251,000) (363,000) (556,000)
Other assets.................................................... 1,000 (25,000) (52,000)
Accounts payable................................................ (15,000) 101,000 (14,000)
Accrued liabilities............................................. 9,000 502,000 (303,000)
---------- ---------- ---------------
Net cash provided by (used in) operating activities........... 59,000 525,000 (868,000)
---------- ---------- ---------------
Cash flows from investing activities:
Purchase of property and equipment, net............................... (78,000) (138,000) (251,000)
---------- ---------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt.......................................... 125,000 250,000 --
Repayments of long-term debt.......................................... -- (449,000) (101,000)
Repayments of capital lease obligations............................... -- -- (103,000)
Proceeds from issuance of preferred stock............................. -- -- 1,230,000
Proceeds from issuance of common stock................................ -- 1,000 --
Payments to repurchase common stock................................... -- (1,000) --
---------- ---------- ---------------
Net cash provided by (used in) financing activities........... 125,000 (199,000) 1,026,000
---------- ---------- ---------------
Net increase (decrease) in cash and cash equivalents.................... 106,000 188,000 (93,000)
Cash and cash equivalents, beginning of period.......................... 23,000 129,000 317,000
---------- ---------- ---------------
Cash and cash equivalents, end of period................................ $ 129,000 $ 317,000 $ 224,000
---------- ---------- ---------------
---------- ---------- ---------------
Supplementary information:
Cash paid for income taxes............................................ $ 43,000 $ 32,000 $ 218,000
---------- ---------- ---------------
---------- ---------- ---------------
Cash paid for interest................................................ $ 24,000 $ 23,000 $ 13,000
---------- ---------- ---------------
---------- ---------- ---------------
Non-cash financing and investing activities:
Issuance of note payable for repurchase of common stock (Note 6)...... $ -- $ 50,000 $ --
---------- ---------- ---------------
---------- ---------- ---------------
Capital lease additions (Note 11)..................................... $ -- $ 103,000 $ --
---------- ---------- ---------------
---------- ---------- ---------------
Accretion of preferred stock dividend (Note 2)........................ $ -- $ -- $ 72,000
---------- ---------- ---------------
---------- ---------- ---------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-59
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

1. BUSINESS DESCRIPTION:

New Media Publishing, Inc. ("NMP" or the "Company") was incorporated in
1995, under the laws of the state of Virginia. NMP is a provider of
comprehensive interactive community-building services for commercial and
not-for-profit entities. The Company is headquartered in Falls Church, Virginia.

On October 2, 1998, all of the issued and outstanding stock of the Company
was acquired by AppNet Systems, Inc. ("AppNet").

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
three
Computer equipment............................................. years
seven
Furniture and fixtures......................................... years
</TABLE>

Purchased software is capitalized and amortized principally over three
years. Leasehold improvements are amortized over the lesser of the estimated
useful life of the asset or the remaining lease term.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, long-term debt, capital
lease obligations and Mandatorily Redeemable

F-60
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

Preferred Stock. In management's opinion, the carrying amounts of these
financial instruments approximated their fair values at December 31, 1996 and
1997, and October 1, 1998.

CAPITAL STOCK

On December 8, 1997, the Board of Directors approved a common stock split of
625-to-1. In addition, on April 23, 1998, the Board of Directors approved a
common and preferred stock split of ten-to-one. All share amounts in the
accompanying financial statements have been retroactively adjusted to reflect
these splits.

In March 1998, the Company amended and restated its Articles of
Incorporation. The amended and restated Articles of Incorporation increased the
authorized number of shares of no par common stock to 7,500,000 shares and
authorized 1,428,570 shares of a new class of $0.0875 cumulative annual
dividend, nonparticipating, convertible, redeemable, voting, no par preferred
stock called the Series A Convertible Preferred Stock (the "Mandatorily
Redeemable Preferred Stock"). The Company issued 1,428,570 shares of the
Mandatorily Redeemable Preferred Stock for net proceeds of $1,230,000. Dividends
on the Mandatorily Redeemable Preferred Stock were to cease to accrue on the
sixth anniversary of the issue date. In the event of liquidation, holders of the
Mandatorily Redeemable Preferred Stock would have first received an amount per
share equal to the original issue price of the shares plus accrued but unpaid
dividends thereon and then participate pro rata with the holders of the
Company's common stock in the distribution of any remaining funds in excess of
$5,000,000. Each share of Mandatorily Redeemable Preferred Stock was convertible
at any time at the option of the holder into one share of common stock, subject
to adjustment as a result of the occurrence of certain events. Further,
beginning on March 5, 2004, the Company would have been required, at the request
of the holders, to redeem at the original issue price plus accrued but unpaid
dividends, at least 10 percent of the outstanding Mandatorily Redeemable
Preferred Stock on each successive calendar quarter until all shares had been
redeemed. The dividend on the Mandatorily Redeemable Preferred Stock was
originally due March 1999. The holders of the Mandatorily Redeemable Preferred
Stock forgave payment of this dividend in conjunction with NMP's purchase by
AppNet.

The Company's common stock, including common stock which may be authorized
and issued in the future, is subject to a Shareholders' Agreement, which
includes certain co-sale rights, transfer restrictions, and buy back rights. On
April 23, 1998, the Board of Directors approved an increase in the authorized
number of shares of common and preferred stock to 8,550,000 and 1,450,000,
respectively.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.

REVENUE RECOGNITION

Revenues from time and materials contracts are recognized based on fixed
hourly rates for direct labor hours expended. Revenues from fixed-price
contracts are recognized on the percentage-of-

F-61
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

completion method, with costs and estimated profits recorded as work is
performed. Revenues exclude the costs of media and advertising purchases
reimbursed by clients.

Cost of revenues include all direct material and labor costs related to
contract performance, and does not include any related depreciation expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance and estimated
profitability, including final contract settlements, may result in revisions to
costs and income and are recognized in the period in which the revisions are
determined. Unbilled receivables on contracts are comprised of costs, plus
earnings on certain contracts in excess of contractual billings on such
contracts. Cash received in excess of costs incurred is classified as deferred
revenue.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
REVENUES ACCOUNTS RECEIVABLE
----------------------------------------- ---------------------------------
FOR THE YEAR ENDED FOR THE PERIOD AS OF
DECEMBER 31, ENDED DECEMBER 31, AS OF
-------------------- OCTOBER 1, -------------------- OCTOBER 1,
1996 1997 1998 1996 1997 1998
--------- --------- ------------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Customer A........................... * 16.3% * * 21.7% *
</TABLE>

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

* Represents less than 10% of total.

INCOME TAXES

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 1,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Accounts receivable.................................... $ 169,000 $ 486,000 $ 943,000
Unbilled accounts receivable........................... 96,000 142,000 449,000
Allowance for doubtful accounts........................ -- -- (208,000)
---------- ---------- ------------
Accounts receivable, net........................... $ 265,000 $ 628,000 $ 1,184,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

F-62
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- OCTOBER 1,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Computer equipment..................................... $ 145,000 $ 386,000 $ 627,000
Furniture and fixtures................................. 7,000 7,000 7,000
Leasehold improvements................................. -- -- 10,000
---------- ----------- -----------
152,000 393,000 644,000
Accumulated depreciation and amortization.............. (50,000) (118,000) (241,000)
---------- ----------- -----------
Property and equipment, net........................ $ 102,000 $ 275,000 $ 403,000
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

5. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- OCTOBER 1,
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Accrued compensation and benefits.......................... $ 29,000 $ 198,000 $ 102,000
Accrued bonuses............................................ -- 200,000 --
Accrued Mandatorily Redeemable Preferred Stock dividends... -- -- 72,000
Deferred revenues.......................................... 21,000 154,000 147,000
--------- ---------- ----------
Accrued liabilities.................................... $ 50,000 $ 552,000 $ 321,000
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

6. DEBT:

Debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- OCTOBER 1,
1996 1997 1998
---------- --------- ----------
<S> <C> <C> <C>
Note payable to former shareholder, due December 31, 1999,
bore interest at 8%, interest payable quarterly.......... $ -- $ 50,000 $ --
Bank note payable, due May 15, 2000, payable in monthly
installments of $6,944 plus interest at bank's prime rate
plus 1% secured by the Company's assets.................. -- 51,000 --
Note payable, principal due April 27, 1997, bears interest
at 10%, payable semi-annually............................ 250,000 -- --
---------- --------- ----------
Total debt............................................. 250,000 101,000 --
---------- --------- ----------
Less: Current portion...................................... 250,000 51,000 --
---------- --------- ----------
Long term-debt, net of current portion................. $ -- $ 50,000 $ --
---------- --------- ----------
---------- --------- ----------
</TABLE>

F-63
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

In 1997, the Company had a line of credit which was collateralized by
substantially all of the assets of the Company. Under the terms of the line of
credit, borrowings were limited to 80 percent of qualified accounts receivable,
up to a maximum borrowing of $250,000. Interest on the outstanding balance was
calculated as the bank's prime rate of interest plus one and one-half percent.
As of December 31, 1997, there was no amount outstanding under the line of
credit. The agreement expired in May 1998.

The note payable issued to the former shareholder related to the
reacquisition of 1,250,000 shares of common stock. The note was paid in full in
February 1998.

The bank note payable contained certain restrictions on capital
expenditures, the incurrence of additional indebtedness, payment of cash
dividends and treasury stock transactions. This bank borrowing was paid in full
during February 1998.

7. RETIREMENT PLAN:

The Company maintains a retirement plan under the provisions of section
401(k) of the Internal Revenue Code. The plan was adopted January 1, 1997. The
Plan provides for contributions by employees and by the Company. Participants
may contribute up to 15 percent of their compensation, subject to statutory
limits. The Company's contribution is discretionary and is determined by its
Board of Directors. Company contributions vest immediately. Company
contributions totaled $32,000, and $40,000 for the year ended December 31, 1997,
and for the period from January 1, 1998 to October 1, 1998, respectively.
Effective February 1,1999, NMP employees are covered by the AppNet 401(k) plan.

8. EMPLOYEE STOCK OPTION PLAN:

On December 31, 1997, the Company adopted a stock option plan for employees,
directors, and consultants of the Company. Options expire no later than ten
years from the date of the grant or when employment ceases, whichever comes
first. The maximum number of shares of common stock which may be issued pursuant
to the stock option plan was 714,290.

The stock option plan is accounted for under APB Opinion No. 25 and no
compensation has been recognized for the plan. Had compensation cost for the
plan been determined based on the estimated fair value of the options at the
grant dates consistent with the method of SFAS No. 123, the effect to pro forma
net income would have been approximately $7,000 and $91,000, for the year ended
December 31, 1997, and for the period from January 1, 1998 to October 1, 1998,
respectively. The weighted average fair value of the options granted during
1997, and during the period from January 1, 1998 to October 1, 1998, is
estimated to be $.03, and $.22, respectively, per option assuming the following:
dividend yield of 0 percent, risk-free interest rate ranging from 5.40 to 6.00
percent, volatility of 0 percent, and an expected term of the options of 5
years.

F-64
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

The following summarizes option activity during 1997 and for the period from
January 1, 1998 to October 1, 1998:

<TABLE>
<CAPTION>
STOCK OPTIONS
OUTSTANDING
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Beginning of period....................................... -- 286,000
Granted................................................. 286,000 168,000
Exercised............................................... -- --
Cancelled............................................... -- (33,000)
--------- ---------
End of period............................................. 286,000 421,000
--------- ---------
--------- ---------
Exercisable at end of period.............................. -- 14,000
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Beginning of period....................................... $ -- $ .03
Granted................................................. .03 1.16
Exercised............................................... -- --
Cancelled............................................... -- .05
End of period............................................. $ .03 $ .48
--------- ---------
--------- ---------
Exercisable at end of period.............................. $ -- $ .04
--------- ---------
--------- ---------
</TABLE>

When AppNet acquired NMP (Note 1), the options outstanding under the stock
option plan were assumed as part of the purchase combination and converted to
AppNet options.

9. INCOME TAXES:

F-65
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

The sources of and differences between the financial accounting and tax
basis of NMP's assets and liabilities that give rise to the net deferred tax
liability (asset) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- OCTOBER 1,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax liability
Depreciation................................................. $ 4,000 $ 8,000 $ 2,000
Deferred tax asset
Reserves..................................................... 1,000 4,000 71,000
--------- --------- -----------
Net deferred tax liability (asset)............................. $ 3,000 $ 4,000 (69,000)
--------- ---------
--------- ---------
Less: Valuation allowance...................................... 69,000
-----------
Net deferred tax liability (asset)............................. $ --
-----------
-----------
</TABLE>

The components of the provision for income taxes for the years ended
December 31, 1996 and 1997, and for the period from January 1, 1998 to October
1, 1998, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- OCTOBER 1,
1996 1997 1998
--------- ---------- -----------
<S> <C> <C> <C>
Federal income taxes:
Current.................................................. $ 55,000 $ 132,000 $ 13,000
Deferred provision (benefit)............................. 3,000 1,000 (4,000)
State taxes................................................ 11,000 24,000 4,000
--------- ---------- -----------
Provision for income taxes................................. $ 69,000 $ 157,000 $ 13,000
--------- ---------- -----------
--------- ---------- -----------
</TABLE>

For the years ended December 31, 1996 and 1997, and for the period from
January 1, 1998 to October 1, 1998, the provision for income taxes differed from
the amounts computed at the statutory rate, as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 1,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Income tax computed at statutory rates.................... $ 116,000 $ 135,000 $ (17,000)
State income taxes, net of federal income tax benefit..... 7,000 15,000 3,000
Change in valuation allowance............................. (53,000) -- 35,000
Other, net................................................ (1,000) 7,000 (8,000)
---------- ---------- -----------
$ 69,000 $ 157,000 $ 13,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

The valuation allowance for deferred tax assets as of January 1, 1996 was
$53,000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. For the year ended December 31,
1996, management determined that the deferred tax asset would be realized and
decreased the valuation allowance by $53,000. For the period

F-66
<PAGE>
NEW MEDIA PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 1, 1998

from January 1, 1998 to October 1, 1998, management determined that a valuation
allowance of $35,000 was required.

10. RELATED PARTIES:

Certain directors and other parties related to the Company through common
shareholder interests provided administrative and management consulting services
to the Company totaling $115,000, $191,000 and $34,000 for the years ended
December 31, 1996 and 1997, and for the period from January 1, 1998 to October
1, 1998, respectively. Rent expense to companies related through common
shareholder interest totaled $34,000, $74,000, and $74,000 for the years ended
December 31, 1996 and 1997, and for the period from January 1, 1998 to October
1, 1998, respectively. Accounts payable included $40,000, $76,000 and $0 related
to these transactions at December 31, 1996 and 1997, and October 1, 1998,
respectively.

11. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

In connection with the repurchase by the Company of 1,250,000 shares of the
Company's common stock, the Company entered into a consulting and
non-competition agreement with a former shareholder on April 1, 1997, which
provided for monthly payments by the Company totaling $57,600 for the period
from January 1, 1998 to December 31, 1999. The Company accelerated the payment
schedule and paid the remaining balance as of October 1, 1998.

LEASES

The Company has noncancelable operating leases, primarily for real estate,
that expire over the next two years. Rental expense for operating leases during
the years ended December 31, 1996 and 1997, and for the period from January 1,
1998 to October 1, 1998, was $34,000, $79,000 and $154,000, respectively.

During 1997, the Company entered into a capital lease for certain equipment.
This capital lease was paid-off on October 1, 1998.

Future minimum lease payments under the noncancelable operating leases are
as follows as of October 1, 1998:

<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
Period ended December 31, 1998.................................................... $ 30,000
1999.............................................................................. 122,000
----------
Total minimum lease payments.................................................. $ 152,000
----------
----------
</TABLE>

F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Century Computing, Inc.:

We have audited the accompanying balance sheets of Century Computing, Inc.
(a Delaware corporation), as of December 31, 1996 and 1997, and October 11,
1998, and the related statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1996 and 1997, and for the period from
January 1, 1998 to October 11, 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Century Computing, Inc. as
of December 31, 1996 and 1997, and October 11, 1998, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1997,
and for the period from January 1, 1998 to October 11, 1998, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 22, 1999

F-68
<PAGE>
CENTURY COMPUTING, INC.

BALANCE SHEETS

AS OF DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- OCTOBER 11,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 549,000 $ 1,225,000 $ 8,000
Accounts receivable, net of allowance for doubtful accounts of $0, $0
and $129,000, respectively......................................... 1,260,000 2,023,000 2,178,000
Other current assets................................................. 62,000 62,000 684,000
------------ ------------ ------------
Total current assets............................................. 1,871,000 3,310,000 2,870,000
Property and equipment, net............................................ 416,000 573,000 653,000
Deferred income taxes.................................................. 30,000 -- --
Other assets........................................................... 11,000 11,000 11,000
------------ ------------ ------------
Total assets..................................................... $2,328,000 $ 3,894,000 $ 3,534,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 255,000 $ 280,000 $ 703,000
Accrued liabilities.................................................. 338,000 1,194,000 1,294,000
------------ ------------ ------------
Total current liabilities........................................ 593,000 1,474,000 1,997,000
Deferred income taxes................................................ -- -- 67,000
------------ ------------ ------------
Total liabilities................................................ 593,000 1,474,000 2,064,000
------------ ------------ ------------

Commitments and contingencies (Note 7)
Stockholders' equity
Class A common stock, voting, $.01 par value; 2,500,000 shares
authorized; 603,055, 603,055, and 606,929 shares issued and
outstanding, respectively.......................................... 6,000 6,000 6,000
Class B common stock, nonvoting, $.01 par value; 2,500,000 shares
authorized; 11,630, 14,380, and 17,461 shares issued and
outstanding, respectively.......................................... -- -- --
Less: Treasury stock, at cost--257,987, 258,056, and 258,306,
respectively....................................................... (1,175,000) (1,176,000) (1,178,000)
Additional paid-in capital........................................... 255,000 271,000 315,000
Retained earnings.................................................... 2,649,000 3,319,000 2,327,000
------------ ------------ ------------
Total stockholders' equity....................................... 1,735,000 2,420,000 1,470,000
------------ ------------ ------------
Total liabilities and stockholders' equity....................... $2,328,000 $ 3,894,000 $ 3,534,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-69
<PAGE>
CENTURY COMPUTING, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 11, 1998

<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1998
--------------------------- TO OCTOBER 11,
1996 1997 1998
------------ ------------- --------------------
<S> <C> <C> <C>
Revenues...................................................... $ 7,198,000 $ 10,850,000 $ 10,040,000
Cost of revenues.............................................. 3,356,000 5,309,000 6,192,000
------------ ------------- --------------------
Gross profit.............................................. 3,842,000 5,541,000 3,848,000
Operating expenses:
Selling, general and administrative......................... 2,992,000 3,890,000 2,751,000
Acquisition-related compensation............................ -- -- 953,000
Depreciation and amortization............................... 153,000 179,000 156,000
------------ ------------- --------------------
Total operating expenses.................................. 3,145,000 4,069,000 3,860,000
Income (loss) from operations................................. 697,000 1,472,000 (12,000)
Interest income, net.......................................... 8,000 29,000 41,000
Other income (expense)........................................ 20,000 -- (423,000)
------------ ------------- --------------------
Income (loss) before income taxes............................. 725,000 1,501,000 (394,000)
Provision (benefit) for income taxes.......................... 279,000 580,000 (135,000)
------------ ------------- --------------------
Net income (loss)............................................. $ 446,000 $ 921,000 $ (259,000)
------------ ------------- --------------------
------------ ------------- --------------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-70
<PAGE>
CENTURY COMPUTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 11, 1998
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B ADDITIONAL
-------------------- -------------------- TREASURY PAID-IN
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
--------- --------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................................. 613,485 $ 6,000 -- $ -- $ (1,036,000) $ 258,000
Repurchase of 21,755 shares of common stock............... -- -- -- -- (139,000) --
Stock conversion.......................................... (10,430) -- 11,630 -- -- (3,000)
Dividends to stockholders................................. -- -- -- -- -- --
Net income................................................ -- -- -- -- -- --
--------- --------- --------- --------- ------------- ----------
Balance, December 31, 1996.................................. 603,055 6,000 11,630 -- (1,175,000) 255,000
Repurchase of 189 shares of common stock.................. -- -- -- -- (1,000) --
Exercise of stock options................................. -- -- 2,750 -- -- 16,000
Dividends to stockholders................................. -- -- -- -- -- --
Net income................................................ -- -- -- -- -- --
--------- --------- --------- --------- ------------- ----------
Balance, December 31, 1997.................................. 603,055 6,000 14,380 -- (1,176,000) 271,000
Repurchase of 250 shares of common stock.................. -- -- -- -- (2,000) --
Exercise of stock options................................. 3,874 -- 3,081 -- -- 44,000
Dividends to stockholders................................. -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- --
--------- --------- --------- --------- ------------- ----------
Balance, October 11, 1998................................... 606,929 $ 6,000 17,461 $ -- $ (1,178,000) $ 315,000
--------- --------- --------- --------- ------------- ----------
--------- --------- --------- --------- ------------- ----------

TOTAL
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
------------ ------------
<S> <C> <C>
Balance, December 31, 1995.................................. $ 2,374,000 $1,602,000
Repurchase of 21,755 shares of common stock............... -- (139,000)
Stock conversion.......................................... -- (3,000)
Dividends to stockholders................................. (171,000) (171,000)
Net income................................................ 446,000 446,000
------------ ------------
Balance, December 31, 1996.................................. 2,649,000 1,735,000
Repurchase of 189 shares of common stock.................. -- (1,000)
Exercise of stock options................................. -- 16,000
Dividends to stockholders................................. (251,000) (251,000)
Net income................................................ 921,000 921,000
------------ ------------
Balance, December 31, 1997.................................. 3,319,000 2,420,000
Repurchase of 250 shares of common stock.................. -- (2,000)
Exercise of stock options................................. -- 44,000
Dividends to stockholders................................. (733,000) (733,000)
Net loss.................................................. (259,000) (259,000)
------------ ------------
Balance, October 11, 1998................................... $ 2,327,000 $1,470,000
------------ ------------
------------ ------------
</TABLE>

F-71
<PAGE>
CENTURY COMPUTING, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 11, 1998

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS FROM JANUARY 1,
ENDED DECEMBER 31, 1998 TO
------------------------- OCTOBER 11,
1996 1997 1998
----------- ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 446,000 $ 921,000 $ (259,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Deferred income taxes.......................................... (25,000) 78,000 (156,000)
Depreciation and amortization.................................. 153,000 179,000 156,000
Change in assets and liabilities:
Accounts receivable.......................................... 53,000 (763,000) (155,000)
Other current assets......................................... (39,000) 28,000 (475,000)
Accounts payable............................................. 83,000 25,000 423,000
Accrued liabilities.......................................... 6,000 780,000 176,000
----------- ------------ ---------------
Net cash provided by (used in) operating activities........ 677,000 1,248,000 (290,000)
----------- ------------ ---------------
Cash flows from investing activities:
Purchase of property and equipment, net............................ (243,000) (336,000) (236,000)
----------- ------------ ---------------
Cash flows from financing activities:
Repayments of long-term debt....................................... (127,000) -- --
Payments to repurchase common stock................................ (139,000) (1,000) (2,000)
Dividends to stockholders.......................................... (171,000) (251,000) (733,000)
Proceeds from exercise of stock options............................ -- 16,000 44,000
Stock conversion................................................... (3,000) -- --
----------- ------------ ---------------
Net cash used in financing activities...................... (440,000) (236,000) (691,000)
----------- ------------ ---------------
Net (decrease) increase in cash and cash equivalents................. (6,000) 676,000 (1,217,000)
Cash and cash equivalents, beginning of period....................... 555,000 549,000 1,225,000
----------- ------------ ---------------
Cash and cash equivalents, end of period............................. $ 549,000 $ 1,225,000 $ 8,000
----------- ------------ ---------------
----------- ------------ ---------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-72
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

1. BUSINESS DESCRIPTION:

Century Computing, Inc. ("Century" or the "Company") was incorporated in
1979, under the laws of the state of Delaware. Century is a government
contractor that provides systems integration and processing services to improve
clients' business processes, including networking and data communications,
computer and Internet security, image processing, graphical user interfacing and
object-oriented design and development. Century is headquartered in Laurel,
Maryland, and operates primarily in the United States.

On October 11, 1998, all of the issued and outstanding stock of the Company
was acquired by AppNet Systems, Inc. ("AppNet").

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological changes,
government regulations and the Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed over the estimated
useful lives of the related assets, as follows:

<TABLE>
<S> <C>
Computers, equipment and software........................ three to five
years
Furniture and fixtures................................... seven years
</TABLE>

Purchased software and third-party costs incurred to develop software for
internal use are capitalized and amortized principally over five years.
Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the remaining lease term.

F-73
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

SOFTWARE DEVELOPMENT COSTS

The Company has capitalized costs related to the development of certain
software products. In accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed," capitalization of
costs begins when technological feasibility has been established and ends when
the product is available for general release to customers. Amortization has been
computed and recognized based on the products' estimated economic lives of two
years. Capitalized costs and amortization periods are management's estimates and
may have to be modified due to inherent technological changes in software
development.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash, marketable
securities, accounts receivable, short-term borrowings and accounts payable. In
management's opinion, the carrying amounts of these financial instruments
approximated their fair values at December 31, 1996 and 1997, and October 11,
1998.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.

REVENUE RECOGNITION

Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in contract performance and
estimated profitability, including final contract settlements, may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Unbilled receivables on contracts are comprised of
costs, plus earnings on certain contracts in excess of contractual billings on
such contracts.

Revenues from software sales are recognized when the related product is
sold, provided no significant vendor obligations remain.

BUSINESS CONCENTRATION AND CREDIT RISK

Revenues for the years ended December 31, 1996 and 1997 and for the period
from January 1, 1998 through October 11, 1998, were concentrated with 45, 74 and
62 percent of agencies of the United States Government, respectively.

F-74
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

Billed accounts receivable and unbilled accounts receivable as of December
31, 1996 and 1997, and October 11, 1998, were concentrated with 56, 78 and 55
percent and 51, 78 and 50 percent of agencies of the United States Government,
respectively.

INCOME TAXES

RECENT ACCOUNTING PRONOUNCEMENTS

RECLASSIFICATIONS

Certain amounts from the prior year financial statements have been
reclassified to conform with the current presentation.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- OCTOBER 11,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Commercial clients................................. $ 258,000 $ 264,000 $ 663,000
Government agencies and contractors................ 330,000 938,000 823,000
------------ ------------ ------------
588,000 1,202,000 1,486,000
Allowance for doubtful accounts.................... -- -- (129,000)
------------ ------------ ------------
Accounts receivable, net....................... $ 588,000 $ 1,202,000 $ 1,357,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Unbilled accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- OCTOBER 11,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Commercial clients................................. $ 329,000 $ 179,000 $ 409,000
Government agencies and contractors................ 343,000 642,000 412,000
------------ ------------ ------------
Unbilled accounts receivable................... $ 672,000 $ 821,000 $ 821,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-75
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

4. OTHER CURRENT ASSETS:

Other current assets consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- OCTOBER 11,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Deferred income taxes............................ $ 20,000 $ 48,000 $ 195,000
Income tax receivable............................ 26,000 -- 460,000
Other current assets............................. 16,000 14,000 29,000
------------- ------------- -------------
Total........................................ $ 62,000 $ 62,000 $ 684,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

5. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- OCTOBER 11,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Computers, equipment and software................ $ 1,709,000 $ 2,049,000 $ 2,218,000
Furniture and fixtures........................... 40,000 50,000 51,000
Leasehold improvements........................... 154,000 154,000 252,000
------------- ------------- -------------
1,903,000 2,253,000 2,521,000
Accumulated depreciation and amortization........ (1,487,000) (1,680,000) (1,868,000)
------------- ------------- -------------
Property and equipment, net.................. $ 416,000 $ 573,000 $ 653,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

6. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- OCTOBER 11,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Accrued compensation and benefits................ $ 293,000 $ 914,000 $ 1,204,000
Income tax payable............................... -- 204,000 --
Deferred income taxes............................ -- 76,000 --
Other accrued liabilities........................ 45,000 -- 90,000
------------- ------------- -------------
Total........................................ $ 338,000 $ 1,194,000 $ 1,294,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

7. LEASES:

The Company has entered into a noncancelable operating lease for real estate
that expires in 2005. Rental expense for the operating lease during the years
ended December 31, 1996 and 1997, and for the period from January 1, 1998 to
October 11, 1998, was $123,000, $127,000, and $109,000, respectively.

F-76
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

Future minimum lease payments under noncancelable operating leases are as
follows as of October 11, 1998:

<TABLE>
<S> <C>
Period ended December 31, 1998.................................. $ 40,000
1999............................................................ 195,000
2000............................................................ 195,000
2001............................................................ 195,000
2002............................................................ 195,000
2003............................................................ 195,000
Thereafter...................................................... 263,000
---------
Total minimum lease payments................................ $1,278,000
---------
---------
</TABLE>

8. SHORT-TERM BORROWING:

The Company had a revolving line of credit that expired April 30, 1998,
which was secured by the accounts receivable of the Company. Under the terms of
the line of credit, borrowings were available up to a maximum borrowing of
$1,500,000. Interest on the outstanding balance was calculated at the bank's
prime rate plus one-half of one percent per annum, payable monthly. As of
December 31, 1996 and 1997, and October 11, 1998, there were no outstanding
amounts.

9. NOTE PAYABLE:

During 1995, the Company purchased a portion of a stockholder's shares for
$379,000, payable in three annual installments in January 1996, 1997 and 1998.
The Company placed $252,000 into an interest bearing escrow account during 1995
to satisfy the first two annual payments. The remaining balance was placed into
the escrow account during 1996. As of December 31, 1996 and 1997, and for the
period ended October 11, 1998, there was no outstanding balance on the note
payable.

10. RETIREMENT PLAN:

The Company maintains a profit-sharing and retirement plan under the
provisions of section 401(k) of the Internal Revenue Code. The Plan provides for
contributions by employees and a discretionary contribution by the Company. The
plan is for the benefit of all employees who have attained the age of 21.
Participants may contribute up to 15 percent of their compensation, subject to
statutory limits. Employee contributions are fully vested. The Company's
contribution is discretionary and is determined by its Board of Directors.
Company contributions vest twenty percent per year over the five years, after
the first year. Company contributions totaled $125,000, $182,000 and $170,000
for the years ended December 31, 1996 and 1997, and for the period from January
1, 1998 to October 11, 1998, respectively.

Effective February 1, 1999, Century's employees are covered by AppNet's
401(k) plan.

11. STOCKHOLDER AGREEMENTS:

During the year ended December 31, 1996, the Company established Class B
common stock. This Class B common stock has no voting rights. The Company gave
the holders of the Class A common stock the option of retaining their Class A
voting stock, converting their Class A voting stock to

F-77
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

Class B stock or selling their Class A voting stock back to the Company. The
activity related to this program is presented in the statement of stockholders'
equity as stock conversion.

12. EMPLOYEE STOCK OPTION PLAN:

The Company maintained a stock option plan for key employees. The issued
options expire no later than ten years from the date of the grant or when
employment ceases, whichever comes first.

Options granted under the plan are accounted for pursuant to APB Opinion No.
25, "Accounting for Stock Issued to Employees," and no compensation has been
recognized for the plan. Had compensation cost for the plan been determined
based on the estimated fair value of the options at the grant dates consistent
with the method of SFAS No. 123, pro forma net income (loss) would have been
approximately $354,000, $844,000 and $380,000 for the years ended December 31,
1996 and 1997, and for the period from January 1, 1998 to October 11, 1998. The
weighted-average fair value of the options granted during 1996, 1997, and during
the period from January 1, 1998 to October 11, 1998, is estimated to be $5.58,
$5.50 and $5.84, respectively, per option. All stock options were granted at
fair market value at the date of grant.

The following summarizes option activity during 1996, 1997 and for the
period from January 1, 1998 to October 11, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------------
1996 1997 OCTOBER 11, 1998
-------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period............... -- 87,399 10,730 81,603 10,730 77,153
Granted......................... 10,730 21,604 -- 540 5,000 10,490
Exercised....................... -- -- -- (2,750) (3,874) (3,081)
Expired......................... -- (27,400) -- (2,240) -- (260)
--------- --------- --------- --------- --------- ---------
End of period..................... 10,730 81,603 10,730 77,153 11,856 84,302
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Exercisable at end of period...... -- 75,334 10,730 77,153 11,856 84,302
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISE PRICE
-----------------------------------
<S> <C> <C> <C>
OCTOBER 11,
1996 1997 1998
--------- --------- -------------
Beginning of period.......................................... $ 5.23 $ 5.52 $ 5.50
Granted.................................................... 6.03 7.41 7.97
Exercised.................................................. -- 6.03 6.26
Expired.................................................... 5.19 6.03 7.41
--------- --------- -----
End of period................................................ $ 5.52 $ 5.50 $ 5.84
--------- --------- -----
--------- --------- -----
Exercisable at end of period................................. $ 5.58 $ 5.50 $ 5.84
--------- --------- -----
--------- --------- -----
</TABLE>

13. INCOME TAXES:

The Company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," for financial reporting purposes. Deferred tax assets or liabilities at
the end of each period are determined

F-78
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

using the currently enacted tax rates to apply to taxable income in the period
in which the deferred tax asset or liability is expected to be settled or
realized.

The components of the net deferred tax asset (liability) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 11,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Total deferred tax liabilities.......................... $ -- $ (76,000) $ (67,000)
Total deferred tax assets............................... 50,000 48,000 195,000
---------- ---------- -----------
Net deferred tax asset (liability)...................... $ 50,000 $ (28,000) $ 128,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

The sources of and differences between the financial accounting and tax
basis of Century Computing, Inc.'s assets and liabilities that give rise to the
net deferred tax asset (liability) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 11,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Deferred tax liabilities
Software development costs............................ $ -- $ -- $ (21,000)
Other................................................. -- (76,000) (46,000)
---------- ---------- -----------
-- (76,000) (67,000)
---------- ---------- -----------
---------- ---------- -----------
Deferred tax assets
Depreciation and amortization......................... 30,000 21,000 12,000
Other................................................. 20,000 27,000 183,000
---------- ---------- -----------
$ 50,000 $ 48,000 $ 195,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

The components of the provision (benefit) for income taxes as of December
31, 1996 and 1997, and October 11, 1998, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 11,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Federal income taxes:
Current............................................... $ 250,000 $ 409,000 $ 7,000
Deferred.............................................. (23,000) 64,000 (119,000)
State taxes............................................. 52,000 107,000 (23,000)
---------- ---------- -----------
Provision (benefit) for income taxes.................... $ 279,000 $ 580,000 $ (135,000)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

F-79
<PAGE>
CENTURY COMPUTING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 11, 1998

The tax provision (benefit) differed from the amounts computed at the
statutory rate, as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 11,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Federal income taxes at the U.S. statutory rate......... $ 246,000 $ 510,000 $ (134,000)
State taxes, net of federal benefit..................... 34,000 70,000 (15,000)
Other................................................... (1,000) -- 14,000
---------- ---------- -----------
Total............................................... $ 279,000 $ 580,000 $ (135,000)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

14. ACQUISITION-RELATED COMPENSATION:

In conjunction with AppNet Systems, Inc.'s purchase of Century, Century paid
an unconditional cash bonus of approximately $953,000 to certain employees for
past services.

F-80
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Research & Planning, Inc.:

We have audited the accompanying balance sheets of Research & Planning, Inc.
(a Massachusetts corporation), as of December 31, 1996 and 1997, and October 19,
1998, and the related statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1996 and 1997, and for the period from
January 1, 1998 to October 19, 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1997, and October 19, 1998, and the results of its operations and
its cash flows for the years ended December 31, 1996 and 1997, and for the
period from January 1, 1998 to October 19, 1998 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 19, 1999

F-81
<PAGE>
RESEARCH & PLANNING, INC.

BALANCE SHEETS

AS OF DECEMBER 31, 1996, AND 1997, AND OCTOBER 19, 1998

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- OCTOBER 19,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 74,000 $ 93,000 $ 310,000
Accounts receivable, net of allowance for doubtful accounts of $1,000,
$15,000 and $40,000, respectively................................... 865,000 1,374,000 1,407,000
Other current assets.................................................. 73,000 137,000 30,000
------------ ------------ ------------
Total current assets................................................ 1,012,000 1,604,000 1,747,000
Property and equipment, net............................................. 97,000 262,000 457,000
------------ ------------ ------------
Total assets........................................................ $ 1,109,000 $ 1,866,000 $ 2,204,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowing.................................................. $ -- $ 200,000 $ --
Accounts payable...................................................... 10,000 25,000 198,000
Accrued liabilities................................................... 116,000 301,000 457,000
------------ ------------ ------------
Total liabilities................................................... 126,000 526,000 655,000
------------ ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $0.10 par value; 100,000 authorized; 11,111 shares
issued; and 10,000 outstanding...................................... 1,000 1,000 1,000
Less: Treasury stock, at cost--1,111 shares........................... (11,000) (11,000) (11,000)
Additional paid-in capital............................................ 12,000 12,000 12,000
Retained earnings..................................................... 981,000 1,338,000 1,547,000
------------ ------------ ------------
Total stockholders' equity.......................................... 983,000 1,340,000 1,549,000
------------ ------------ ------------
Total liabilities and stockholders' equity.......................... $ 1,109,000 $ 1,866,000 $ 2,204,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-82
<PAGE>
RESEARCH & PLANNING, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 19, 1998

<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
DECEMBER 31, FROM JANUARY 1,
-------------------------- 1998 TO
1996 1997 OCTOBER 19, 1998
------------ ------------ ----------------
<S> <C> <C> <C>
Revenues........................................................... $ 3,329,000 $ 4,781,000 $ 5,303,000
Cost of revenues................................................... 1,753,000 2,434,000 2,667,000
------------ ------------ ----------------
Gross profit................................................... 1,576,000 2,347,000 2,636,000
------------ ------------ ----------------
Operating expenses:
Selling and marketing............................................ 93,000 86,000 260,000
General and administrative....................................... 418,000 657,000 644,000
Depreciation and amortization.................................... 30,000 53,000 80,000
------------ ------------ ----------------
Total operating expenses....................................... 541,000 796,000 984,000
------------ ------------ ----------------
Income from operations............................................. 1,035,000 1,551,000 1,652,000
Interest income, net............................................... 7,000 13,000 11,000
Other expense...................................................... -- -- 99,000
------------ ------------ ----------------
Income before income taxes......................................... 1,042,000 1,564,000 1,564,000
Provision for income taxes......................................... 3,000 23,000 29,000
------------ ------------ ----------------
Net income......................................................... $ 1,039,000 $ 1,541,000 $ 1,535,000
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-83
<PAGE>
RESEARCH & PLANNING, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996, AND, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 19, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ TREASURY PAID- IN RETAINED
SHARES AMOUNT STOCK CAPITAL EARNINGS
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............................. 10,000 $ 1,000 $ (11,000) $ 12,000 $ 604,000
Distributions to stockholders........................ -- -- -- -- (662,000)
Net income........................................... -- -- -- -- 1,039,000
----------- ----------- ----------- ----------- ----------
Balance, December 31, 1996............................. 10,000 1,000 (11,000) 12,000 981,000
Distributions to stockholders........................ -- -- -- -- (1,184,000)
Net income........................................... -- -- -- -- 1,541,000
----------- ----------- ----------- ----------- ----------
Balance, December 31, 1997............................. 10,000 1,000 (11,000) 12,000 1,338,000
Distributions to stockholders........................ -- -- -- -- (1,326,000)
Net income........................................... -- -- -- -- 1,535,000
----------- ----------- ----------- ----------- ----------
Balance, October 19, 1998.............................. 10,000 $ 1,000 $ (11,000) $ 12,000 $1,547,000
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------

<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance, December 31, 1995............................. $ 606,000
Distributions to stockholders........................ (662,000)
Net income........................................... 1,039,000
------------
Balance, December 31, 1996............................. 983,000
Distributions to stockholders........................ (1,184,000)
Net income........................................... 1,541,000
------------
Balance, December 31, 1997............................. 1,340,000
Distributions to stockholders........................ (1,326,000)
Net income........................................... 1,535,000
------------
Balance, October 19, 1998.............................. $1,549,000
------------
------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-84
<PAGE>
RESEARCH & PLANNING, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 19, 1998

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JANUARY 1,
DECEMBER 31, 1998 TO
-------------------------- OCTOBER 19,
1996 1997 1998
------------ ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 1,039,000 $ 1,541,000 $ 1,535,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 30,000 53,000 80,000
Change in assets and liabilities:
Accounts receivable, net.................................... (308,000) (509,000) (33,000)
Other current assets........................................ (45,000) (64,000) 107,000
Accounts payable............................................ (1,000) 15,000 173,000
Accrued liabilities......................................... 70,000 185,000 156,000
------------ ------------ ---------------
Net cash provided by operating activities................. 785,000 1,221,000 2,018,000
------------ ------------ ---------------
Cash flows from investing activities:
Purchase of property and equipment, net........................... (64,000) (218,000) (275,000)
------------ ------------ ---------------
Cash flows from financing activities:
Net proceeds (repayments) under short-term borrowings............. -- 200,000 (200,000)
Distributions to stockholders..................................... (662,000) (1,184,000) (1,326,000)
------------ ------------ ---------------
Net cash used in financing activities..................... (662,000) (984,000) (1,526,000)
------------ ------------ ---------------
Net increase in cash and cash equivalents........................... 59,000 19,000 217,000
Cash and cash equivalents, beginning of period...................... 15,000 74,000 93,000
------------ ------------ ---------------
Cash and cash equivalents, end of period............................ $ 74,000 $ 93,000 $ 310,000
------------ ------------ ---------------
------------ ------------ ---------------
Supplementary information:
Cash paid for interest............................................ $ -- $ -- $ 2,000
------------ ------------ ---------------
------------ ------------ ---------------
Cash paid for income taxes........................................ $ 3,000 $ 23,000 $ --
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-85
<PAGE>
RESEARCH & PLANNING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1997, AND OCTOBER 19, 1998

1. BUSINESS DESCRIPTION:

Research & Planning, Inc. ("R&P" or the "Company") was incorporated in 1968,
under the laws of the state of Massachusetts. R&P is an information technology
services company providing Enterprise Resource Planning integration and support,
data warehousing, decision support applications and business-to-business
electronic commerce solutions. R&P is headquartered in Cambridge, Massachusetts
and operates primarily in the United States.

On October 20, 1998, all of the issued and outstanding stock of the Company
was acquired by AppNet Systems, Inc. ("AppNet"). The Company incurred $99,000 of
expenses in conjunction with the sale to AppNet for accounting and consulting
fees. This has been classified in other expenses in the accompanying statements
of operations.

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
five
Computers, equipment and software................................ years
five
Furniture and fixtures........................................... years
</TABLE>

Purchased software is capitalized and amortized principally over five years.
Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the remaining lease term.

In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company reviews its recorded long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

F-86
<PAGE>
RESEARCH & PLANNING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 19, 1998

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and short-term borrowings. In
management's opinion, the carrying amounts of these financial instruments
approximated their fair values at December 31, 1996 and 1997, and October 19,
1998.

REVENUE RECOGNITION

Revenues pursuant to fixed-fee contracts are recognized on the
percentage-of-completion method with costs and estimated profits recorded as
work is performed. Revenues from time and material contracts are recognized
based on fixed hourly rates for direct labor expended.

Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.

Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such losses
are determined. Changes in contract performance and estimated profitability,
including final contract settlements, may result in revisions to costs and
income and are recognized in the period in which revisions are determined.
Unbilled receivables on contracts are comprised of costs, plus earnings on
certain contracts in excess of contractual billings on such contracts.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
REVENUES
------------------------------------- ACCOUNTS RECEIVABLE
-------------------------------------
FOR THE
YEAR ENDED FOR THE AS OF
DECEMBER 31, PERIOD ENDED DECEMBER 31, AS OF
-------------------- OCTOBER 19, -------------------- OCTOBER 19,
1996 1997 1998 1996 1997 1998
--------- --------- --------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Customer A....................... 19% 28% 41% 18% 24% 44%
Customer B....................... * 16% 10% * 17% *
Customer C....................... 15% * * 11% * *
Customer D....................... * 10% 13% * 22% *
Customer E....................... 13% * * * * *
Customer F....................... * 12% * * * *
</TABLE>

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

* Represents less than 10% of total.

INCOME TAXES

The Company, with the consent of its shareholders, has elected to be taxed
pursuant to Subchapter S of the Internal Revenue Code (an "S Corporation"). In
lieu of corporate income taxes, the shareholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision for federal income taxes has been included in the accompanying
financial statements.

F-87
<PAGE>
RESEARCH & PLANNING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 19, 1998

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use". SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance on accounting for computer software developed or
obtained for internal use, including the requirement to capitalize specified
costs and the amortization of such costs. The Company does not expect the
adoption of this standard to have a material effect on the Company's
capitalization policy.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ OCTOBER 19,
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Accounts receivable................................... $ 586,000 $ 951,000 $ 1,084,000
Unbilled accounts receivable.......................... 280,000 438,000 363,000
Allowance for doubtful accounts....................... (1,000) (15,000) (40,000)
---------- ------------ ------------
Accounts receivable, net.......................... $ 865,000 $ 1,374,000 $ 1,407,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ OCTOBER 19,
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Computers, equipment and software..................... $ 275,000 $ 385,000 $ 507,000
Furniture and fixtures................................ 114,000 222,000 375,000
---------- ------------ ------------
389,000 607,000 882,000
Accumulated depreciation and amortization............. (292,000) (345,000) (425,000)
---------- ------------ ------------
Property and equipment, net....................... $ 97,000 $ 262,000 $ 457,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

5. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- OCTOBER 19,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Accrued compensation and benefits........................ $ 54,000 $ 113,000 $ 289,000
Accrued dividends........................................ 39,000 86,000 --
Deposits................................................. -- 54,000 73,000
Other.................................................... 23,000 48,000 95,000
---------- ---------- -----------
Total................................................ $ 116,000 $ 301,000 $ 457,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

F-88
<PAGE>
RESEARCH & PLANNING, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996 AND 1997, AND OCTOBER 19, 1998

6. LEASES:

The Company has noncancelable operating leases, primarily for real estate,
that expire over the next five years. Rental expense for operating leases during
the years ended December 31, 1996 and 1997, and for the period from January 1,
1998 to October 19, 1998, was $77,000, $185,000 and $300,000, respectively.

Future minimum lease payments under noncancelable operating leases are as
follows as of October 19, 1998:

<TABLE>
<S> <C>
Period ended December 31, 1998.................................. $ 102,000
1999............................................................ 410,000
2000............................................................ 410,000
2001............................................................ 391,000
2002............................................................ 332,000
2003............................................................ 332,000
Thereafter...................................................... 332,000
---------
Total future minimum lease payments......................... $2,309,000
---------
---------
</TABLE>

7. SUBLEASE INCOME:

The Company subleases certain portions of their leased buildings. These
subleases extend over varying dates through September 2000. For the years ended
December 31, 1996 and 1997, and for the period from January 1, 1998 to October
19, 1998, the Company earned $17,000, $46,000 and $153,000, respectively, in
sublease income, which is included in general and administrative expenses as an
offset to lease expense in the accompanying statements of operations.

8. SHORT-TERM BORROWING:

The Company has a line of credit which expired on October 19, 1998, and was
collateralized by substantially all of the assets of the Company and was
guaranteed by the stockholders of the Company. Under the terms of the line of
credit, borrowings are limited to $200,000. Interest on the outstanding balance
was calculated as the Bank's prime rate plus 1.50 percent. As of December 31,
1996 and 1997, and October 19, 1998, there were borrowings under the line of
credit totaling $0, $200,000, and $0, respectively.

9. RETIREMENT PLAN:

The Company maintained a profit-sharing and retirement plan under the
provisions of section 401(k) of the Internal Revenue Code. The Plan provided for
contributions by employees and a discretionary contribution by the Company as
determined by the Board of Directors. The plan was for the benefit of all
employees who had completed one year of service or 1,000 hours and had full-time
status. Participants could contribute up to 15 percent of their compensation,
subject to statutory limits. Employee contributions fully vest immediately upon
contribution. Company contributions vested fully after five years. Company
contributions totaled $66,000, $82,000, and $85,000 for the years ended December
31, 1996 and 1997, and for the period from January 1, 1998 to October 19, 1998,
respectively. Effective February 1, 1999, Research and Planning, Inc. employees
are covered by the AppNet 401(k) plan.

F-89
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Kodiak Group, Inc.:

We have audited the accompanying balance sheets of The Kodiak Group, Inc. (a
Massachusetts corporation), as of December 31, 1997, and December 13, 1998, and
the related statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 1997, and for the period from January 1, 1998 to
December 13, 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Kodiak Group, Inc. as of
December 31, 1997, and December 13, 1998, and the results of its operations and
its cash flows for the year ended December 31, 1997, and for the period from
January 1, 1998 to December 13, 1998 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 19, 1999

F-90
<PAGE>
THE KODIAK GROUP, INC.

BALANCE SHEETS

AS OF DECEMBER 31, 1997 AND DECEMBER 13, 1998

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 300,000 $ --
Accounts receivable, net of allowance for doubtful accounts of $39,000 and $97,000,
respectively..................................................................... 768,000 1,247,000
Other current assets............................................................... 18,000 48,000
------------ ------------
Total current assets............................................................. 1,086,000 1,295,000
Property and equipment, net.......................................................... 278,000 319,000
Other assets......................................................................... 12,000 72,000
------------ ------------
Total assets..................................................................... $1,376,000 $1,686,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 50,000 $ 61,000
Accrued liabilities................................................................ 113,000 845,000
Current portion of long-term debt.................................................. 49,000 --
Current portion of capital lease obligation........................................ 18,000 23,000
------------ ------------
Total current liabilities........................................................ 230,000 929,000
Long-term debt, net of current portion............................................... 32,000 --
Capital lease obligation, net of current portion..................................... 39,000 16,000
------------ ------------
Total liabilities................................................................ 301,000 945,000
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value; 1,000 shares authorized; 400 shares issued and
outstanding...................................................................... -- --
Additional paid-in capital......................................................... 4,000 4,000
Retained earnings.................................................................. 1,071,000 737,000
------------ ------------
Total stockholders' equity....................................................... 1,075,000 741,000
------------ ------------
Total liabilities and stockholders' equity....................................... $1,376,000 $1,686,000
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-91
<PAGE>
THE KODIAK GROUP, INC.

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO DECEMBER 13, 1998

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1998 TO
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ----------------
<S> <C> <C>
Revenues.......................................................................... $3,687,000 $ 6,289,000
Cost of revenues.................................................................. 2,065,000 3,221,000
------------ ----------------
Gross profit.................................................................. 1,622,000 3,068,000
------------ ----------------
Operating expenses:
Selling and marketing........................................................... 48,000 66,000
General and administrative...................................................... 1,061,000 1,691,000
Acquisition related compensation................................................ -- 250,000
Depreciation and amortization................................................... 136,000 136,000
------------ ----------------
Total operating expenses...................................................... 1,245,000 2,143,000
------------ ----------------
Income from operations............................................................ 377,000 925,000
Interest expense, net............................................................. 5,000 2,000
Other expense, net................................................................ -- 8,000
------------ ----------------
Income before income taxes........................................................ 372,000 915,000
Provision for income taxes........................................................ 1,000 5,000
------------ ----------------
Net income........................................................................ $ 371,000 $ 910,000
------------ ----------------
------------ ----------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-92
<PAGE>
THE KODIAK GROUP, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO DECEMBER 13, 1998

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........................... 400 $ -- $ 4,000 $ 740,000 $ 744,000
Distributions to stockholders...................... -- -- -- (40,000) (40,000)
Net income......................................... -- -- -- 371,000 371,000
--- ----- ----------- ------------- -------------
Balance, December 31, 1997........................... 400 -- 4,000 1,071,000 1,075,000
Distributions to stockholders...................... -- -- -- (1,244,000) (1,244,000)
Net income......................................... -- -- -- 910,000 910,000
--- ----- ----------- ------------- -------------
Balance, December 13, 1998........................... 400 $ -- $ 4,000 $ 737,000 $ 741,000
--- ----- ----------- ------------- -------------
--- ----- ----------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-93
<PAGE>
THE KODIAK GROUP, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1997,
AND FOR THE PERIOD FROM JANUARY 1, 1998 TO DECEMBER 13, 1998

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1998 TO
DECEMBER 31, DECEMBER 13,
1997 1998
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 371,000 $ 910,000
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation and amortization.............................................. 136,000 136,000
Loss on fixed asset disposals.............................................. -- 7,000
Change in assets and liabilities:
Accounts receivable, net................................................. (50,000) (479,000)
Other assets............................................................. (4,000) (90,000)
Accounts payable......................................................... (12,000) 11,000
Accrued liabilities...................................................... 16,000 732,000
------------- ---------------
Net cash provided by operating activities.............................. 457,000 1,227,000
------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment, net........................................ (177,000) (184,000)
------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt................................................... 118,000 --
Repayments of long-term debt................................................... (96,000) (81,000)
Repayments on capital lease obligations........................................ (55,000) (18,000)
Distributions to stockholders.................................................. (40,000) (1,244,000)
------------- ---------------
Net cash used in financing activities.................................. (73,000) (1,343,000)
------------- ---------------
Net increase (decrease) in cash and cash equivalents............................. 207,000 (300,000)
Cash and cash equivalents, beginning of period................................... 93,000 300,000
------------- ---------------
Cash and cash equivalents, end of period......................................... $ 300,000 $ --
------------- ---------------
------------- ---------------
Supplementary information:
Cash paid for interest......................................................... $ 16,000 $ 11,000
------------- ---------------
------------- ---------------
Cash paid for income taxes..................................................... $ 1,000 $ --
------------- ---------------
------------- ---------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-94
<PAGE>
THE KODIAK GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND DECEMBER 13, 1998

1. BUSINESS DESCRIPTION:

The Kodiak Group, Inc. ("Kodiak" or the "Company") was incorporated in 1994,
under the laws of the state of Massachusetts. Kodiak is an electronic commerce
services company which provides electronic data interchange ("EDI") integration
and processing services to clients who are looking to create, maintain or expand
their EDI systems. Kodiak is headquartered in Pittsfield, Massachusetts and
operates primarily in the Northeast.

On December 13, 1998, all of the issued and outstanding stock of the Company
was acquired by AppNet Systems, Inc. ("AppNet").

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change, government
regulations and the Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
three to five
Computers, equipment and software........................ years
Furniture and fixtures................................... five years
</TABLE>

Purchased software and third-party costs incurred to develop software for
internal use are capitalized and amortized principally over three years.
Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the remaining lease term.

F-95
<PAGE>
THE KODIAK GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND DECEMBER 13, 1998

SOFTWARE DEVELOPMENT COSTS

The Company has capitalized costs related to the development of certain
software products. In accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed," capitalization of
costs begins when technological feasibility has been established and ends when
the product is available for general release to customers. Amortization will be
computed and recognized based on the products' estimated economic lives of three
years. Capitalized costs and amortization periods are management's estimates and
may have to be modified due to inherent technological changes in software
development.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, and capital lease
obligations. In management's opinion, the carrying amounts of these financial
instruments approximated their fair values at December 31, 1997, and December
13, 1998.

REVENUE RECOGNITION

Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in contract performance and
estimated profitability, including final contract settlements, may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Unbilled receivables on contracts are comprised of
costs, plus earnings on certain contracts in excess of contractual billings on
such contracts. Cash received in excess of costs incurred is classified as
deferred revenue.

Revenues from software sales are recognized when the related product is
sold, provided no significant vendor obligations remain.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
REVENUES ACCOUNTS RECEIVABLE
------------------------------------------ --------------------------------
FOR THE YEAR ENDED FOR THE PERIOD ENDED AS OF DECEMBER AS OF DECEMBER
DECEMBER 31, DECEMBER 13, 31, 13,
1997 1998 1997 1998
------------------- --------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Customer A.................................. 52% 32% 62% 13%
Customer B.................................. * 28% * 43%
Customer C.................................. * 14% * 23%
</TABLE>

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

* Represents less than 10% of total

F-96
<PAGE>
THE KODIAK GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND DECEMBER 13, 1998

INCOME TAXES

The Company, with the consent of its shareholders, has elected to be taxed
pursuant to subchapter S of the Internal Revenue Code (an "S corporation"). In
lieu of corporation income taxes, the shareholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision for federal income taxes has been included in the accompanying
financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, AIPCA issued Statement of Position 98-4 ("SOP 98-4"),
"Deferral of the Effective Date of a Provision of SOP 97-2." SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2
("SOP 97-2"), "Software Revenue Recognition." Different informal and
unauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA is deliberating amendments to SOP 97-2, so it can
issue interpretations regarding the applicability and the method of application
of those provisions. The Company does not expect the adoption of this standard
to have a material effect on the Company's results of operations, financial
position, or cash flows.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ------------
<S> <C> <C>
Accounts receivable.............................................. $ 613,000 $1,077,000
Unbilled accounts receivable..................................... 194,000 267,000
Allowance for doubtful accounts.................................. (39,000) (97,000)
------------ ------------
Accounts receivable, net..................................... $ 768,000 $1,247,000
------------ ------------
------------ ------------
</TABLE>

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ------------
<S> <C> <C>
Computers, equipment and software................................ $ 398,000 $ 508,000
Furniture and fixtures........................................... 138,000 199,000
Leasehold improvements........................................... 25,000 28,000
------------ ------------
561,000 735,000
Accumulated depreciation and amortization........................ (283,000) (416,000)
------------ ------------
Property and equipment, net.................................. $ 278,000 $ 319,000
------------ ------------
------------ ------------
</TABLE>

F-97
<PAGE>
THE KODIAK GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND DECEMBER 13, 1998

5. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ------------
<S> <C> <C>
Accrued compensation and benefits................................ $ 39,000 $ 406,000
Accrued professional fees........................................ 29,000 131,000
Deferred revenue................................................. 42,000 107,000
Other accrued liabilities........................................ 3,000 201,000
------------ ------------
$ 113,000 $ 845,000
------------ ------------
------------ ------------
</TABLE>

6. LEASES:

The Company has noncancelable operating leases, primarily for real estate,
that expire over the next three years. Rental expense for operating leases
during the year ended December 31, 1997, and for the period from January 1, 1998
to December 13, 1998, was $77,000, and $105,000, respectively.

The Company leases certain equipment under a capital lease.

Future minimum lease payments under the capital lease and noncancelable
operating leases are as follows as of December 13, 1998:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
Period ended December 31, 1998......................................... $ 2,000 $ 7,000
1999................................................................... 26,000 160,000
2000................................................................... 14,000 153,000
2001................................................................... -- 59,000
--------- ----------
Total future minimum lease payments................................ 42,000 $ 379,000
--------- ----------
----------
Less: Amount representing interest..................................... (3,000)
---------
Present value of capital lease obligation.............................. 39,000
Less: Current portion of capital lease obligation...................... (23,000)
---------
Long-term portion of capital lease obligation.......................... $ 16,000
---------
---------
</TABLE>

Equipment under the capital lease is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ------------
<S> <C> <C>
Computer equipment............................................... $ 84,000 $ 84,000
Less: Accumulated amortization................................... (47,000) (75,000)
------------ ------------
Total........................................................ $ 37,000 $ 9,000
------------ ------------
------------ ------------
</TABLE>

F-98
<PAGE>
THE KODIAK GROUP, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997 AND DECEMBER 13, 1998

7. SHORT-TERM BORROWINGS:

The Company had a line of credit, which expired in October 1998. The line of
credit was collateralized by substantially all of the assets of the Company.
Under the terms of the line of credit, borrowings were limited to $80,000.
Interest on the outstanding balance was calculated at the Bank's prime rate plus
1.75 percent. There were no borrowings under the line of credit during the year
ended December 31, 1997, or the period from January 1, 1998 through October
1998.

8. DEBT:

Debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1997 1998
------------ ------------
<S> <C> <C>
Note payable, due October 30, 1999 bears interest at 9.25
percent, payable in 24 installments of $4,083, secured by
capital assets................................................. $ 81,000 $ --
Less: Current maturities......................................... (49,000) --
------------ ------------
Long-term debt, net of current portion....................... $ 32,000 $ --
------------ ------------
------------ ------------
</TABLE>

This loan was paid in full in November 1998. Kodiak has not entered into any
additional loan agreements with outside parties.

9. RETIREMENT PLAN:

The Company maintains a profit-sharing and retirement plan under the
provisions of section 401(k) of the Internal Revenue Code. The Plan provides for
contributions by employees and a discretionary contribution by the Company. The
plan is for the benefit of all employees who have reached one year of service.
Participants may contribute up to 12 percent of their compensation, subject to
statutory limits. Employee contributions are fully vested. The Company's
contribution is discretionary and is determined by its Board of Directors. In
1997 and 1998, the discretionary rate was 3 percent of gross salary. Company
contributions vest at a rate of 25 percent a year, beginning in the employee's
first eligible year. Company contributions totaled $39,000, and $51,000 for the
year ended December 31, 1997, and for the period from January 1, 1998 to
December 13, 1998, respectively.

Effective February 1, 1999, Kodiak employees are covered by the AppNet
401(k) Plan.

F-99
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To i33 Communications Corporation:

We have audited the accompanying balance sheets of i33 Communications
Corporation (a Delaware corporation), as of December 31, 1996, 1997, and 1998,
and the related statements of operations, stockholders' equity (deficit), and
cash flows for the years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of i33 Communications
Corporation as of December 31, 1996, 1997, and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 23, 1999

F-100
<PAGE>
I33 COMMUNICATIONS CORPORATION

BALANCE SHEETS

AS OF DECEMBER 31, 1996, 1997, AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 1,000 $ 23,000 $ 1,000
Accounts receivable, net of allowance for doubtful accounts of $0,
$86,000 and $417,000, respectively..................................... 444,000 541,000 1,741,000
Other current assets..................................................... 1,000 1,000 12,000
---------- ---------- ------------
Total current assets................................................... 446,000 565,000 1,754,000
Property and equipment, net................................................ 124,000 262,000 568,000
Other assets............................................................... -- 7,000 12,000
---------- ---------- ------------
Total assets........................................................... $ 570,000 $ 834,000 $ 2,334,000
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings.................................................... $ -- $ -- $ 500,000
Accounts payable......................................................... 39,000 250,000 1,076,000
Accrued liabilities...................................................... 292,000 356,000 1,082,000
Current portion of long-term debt........................................ 104,000 -- --
Current portion of capital lease obligations............................. 3,000 24,000 41,000
---------- ---------- ------------
Total current liabilities.............................................. 438,000 630,000 2,699,000
Capital lease obligations, net of current portion.......................... 7,000 21,000 15,000
---------- ---------- ------------
Total liabilities...................................................... 445,000 651,000 2,714,000
---------- ---------- ------------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Common stock, no par value; 100 shares authorized; issued and
outstanding............................................................ 1,000 1,000 1,000
Retained earnings (accumulated deficit).................................. 124,000 182,000 (381,000)
---------- ---------- ------------
Total stockholders' equity (deficit)................................... 125,000 183,000 (380,000)
---------- ---------- ------------
Total liabilities and stockholders' equity (deficit)................... $ 570,000 $ 834,000 $ 2,334,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-101
<PAGE>
I33 COMMUNICATIONS CORPORATION

STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Revenues.................................................................. $ 980,000 $ 2,266,000 $ 4,360,000
Cost of revenues.......................................................... 524,000 982,000 2,251,000
---------- ------------ ------------
Gross profit.......................................................... 456,000 1,284,000 2,109,000
---------- ------------ ------------
Operating expenses:
Selling and marketing................................................... 41,000 471,000 985,000
General and administrative.............................................. 173,000 550,000 1,343,000
Depreciation............................................................ 12,000 45,000 114,000
---------- ------------ ------------
Total operating expenses.............................................. 226,000 1,066,000 2,442,000
---------- ------------ ------------
Income (loss) from operations............................................. 230,000 218,000 (333,000)
Other expense............................................................. -- -- 35,000
Interest expense, net..................................................... -- (1,000) 11,000
---------- ------------ ------------
Income (loss) before income taxes......................................... 230,000 217,000 (379,000)
Provision (benefit) for income taxes...................................... 106,000 159,000 (34,000)
---------- ------------ ------------
Net income (loss)......................................................... $ 124,000 $ 58,000 $ (345,000)
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-102
<PAGE>
I33 COMMUNICATIONS CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

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

<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS STOCKHOLDERS'
---------------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
----------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996...................................... -- $ -- $ -- $ --
Issuance of 100 shares of common stock...................... 100 1,000 -- 1,000
Net income.................................................. -- -- 124,000 124,000
--- --------- ----------------- ------------
Balance, December 31, 1996.................................... 100 1,000 124,000 125,000
Net income.................................................. -- -- 58,000 58,000
--- --------- ----------------- ------------
Balance, December 31, 1997.................................... 100 1,000 182,000 183,000
Distributions to stockholders............................... -- -- (218,000) (218,000)
Net loss.................................................... -- -- (345,000) (345,000)
--- --------- ----------------- ------------
Balance, December 31, 1998.................................... 100 $ 1,000 $ (381,000) $ (380,000)
--- --------- ----------------- ------------
--- --------- ----------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-103
<PAGE>
I33 COMMUNICATIONS CORPORATION

STATEMENTS OF CASH FLOWS

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

<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $ 124,000 $ 58,000 $ (345,000)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities--
Depreciation........................................................ 12,000 45,000 114,000
Deferred income taxes............................................... 106,000 133,000 (45,000)
Change in assets and liabilities:
Accounts receivable, net.......................................... (444,000) (97,000) (1,200,000)
Other assets...................................................... -- (7,000) (16,000)
Accounts payable.................................................. 39,000 211,000 826,000
Accrued liabilities............................................... 186,000 (69,000) 771,000
---------- ----------- -------------
Net cash provided by operating activities....................... 23,000 274,000 105,000
---------- ----------- -------------
Cash flows used in investing activities:
Purchase of property and equipment, net................................. (125,000) (140,000) (362,000)
---------- ----------- -------------
Cash flows from financing activities:
Proceeds from short-term borrowings..................................... -- -- 500,000
Proceeds from long-term debt............................................ 104,000 -- --
Payments on capital lease obligations................................... (1,000) (112,000) (47,000)
Distributions to stockholders........................................... -- -- (218,000)
---------- ----------- -------------
Net cash provided by (used in) financing activities............. 103,000 (112,000) 235,000
---------- ----------- -------------
Net increase (decrease) in cash and cash equivalents...................... 1,000 22,000 (22,000)
Cash and cash equivalents, beginning of year.............................. -- 1,000 23,000
---------- ----------- -------------
Cash and cash equivalents, end of year.................................... $ 1,000 $ 23,000 $ 1,000
---------- ----------- -------------
---------- ----------- -------------
Supplementary information:
Cash paid for interest.................................................. $ -- $ 13,000 $ 11,000
---------- ----------- -------------
---------- ----------- -------------
Cash paid for income taxes.............................................. $ -- $ 1,000 $ 5,000
---------- ----------- -------------
---------- ----------- -------------
Non-cash financing and investing activities:
Property capital lease additions........................................ $ 11,000 $ 42,000 $ 59,000
---------- ----------- -------------
---------- ----------- -------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-104
<PAGE>
I33 COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1997, AND 1998

1. BUSINESS DESCRIPTION:

i33 Communications Corporation ("i33" or the "Company") was incorporated in
January 1996, under the laws of the state of Delaware. The Company is an
interactive agency specializing in strategy, design, technology and online
advertising management for mid-sized to large companies. Revenues are generated
from web site design and development, online media buying and planning, online
advertising management, site audits, web publishing and project management
tools, custom application and database development and hosting services. i33 is
headquartered and operates primarily in New York.

On January 8, 1999, all of the issued and outstanding stock of the Company
was acquired by AppNet Systems, Inc. The Company incurred $35,000 in consulting
fees in conjunction with the sale to AppNet. This has been classified as other
expense in the accompanying statements of operations.

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
Computer equipment............................................. five years
seven
Furniture and fixtures......................................... years
</TABLE>

Purchased software for internal use is capitalized and amortized principally
over three years. Leasehold improvements are amortized over the lesser of the
estimated useful life of the asset or the remaining lease term.

In accordance with Statement of Financial Accounting Standards No. 121
("SFAS"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company reviews its recorded long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.

F-105
<PAGE>
I33 COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, short-term borrowings, and
capital lease obligations. In management's opinion, the carrying amounts of
these financial instruments approximated their fair values at December 31, 1996,
1997, and 1998.

REVENUE RECOGNITION

Revenues from time and material contracts are recognized based on fixed
hourly rates for direct labor hours expended. Revenues from fixed-price
contracts are recognized on the percentage-of-
completion method, with costs and estimated profits recorded as work is
performed. Revenues from fixed-price advertising contracts in which the Company
delivers advertising impressions for its customers on third-party websites are
recognized ratably over the period the advertising impressions are delivered. In
accordance with industry practice, the cost of third-party advertising placed by
the Company on behalf of its clients is offset against the related customer
reimbursement in the accompanying statements of operations.

Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in contract performance and
estimated profitability, including final contract settlements, may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Unbilled receivables on contracts are comprised of
costs, plus earnings on certain contracts in excess of contractual billings on
such contracts. Cash received in excess of costs incurred is classified as
deferred revenue.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and receivables from clients in
excess of 10% of total revenues and receivables:

<TABLE>
<CAPTION>
REVENUES
FOR THE ACCOUNTS
YEARS ENDED RECEIVABLE
DECEMBER 31, AS OF DECEMBER 31,
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------
Customer A..................................... * * * * * 20%
Customer B..................................... * * * * * 12%
Customer C..................................... * * 10% * * 16%
Customer D..................................... * 14% * * 16% *
Customer E..................................... * 13% * * * *
Customer F..................................... * 11% * * * *
Customer G..................................... 25% * * 50% 14% *
Customer H..................................... 11% * * 12% * *
</TABLE>

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

* Represents less than 10% of total.

F-106
<PAGE>
I33 COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

INCOME TAXES

In 1996, the Company was taxed as a C corporation. As such, income taxes are
accounted for using an asset and liability approach that requires the
recognition of taxes payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. The measurement
of current and deferred tax liabilities and assets are based on provisions of
the enacted tax law; the effects of future changes in tax laws or rates are not
anticipated. The measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence, are not
expected to be realized.

In 1997 and 1998, the Company, with the consent of its shareholders, has
elected to be taxed pursuant to subchapter S of the Internal Revenue Code ("an S
corporation"). In lieu of corporation income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision for federal income taxes has been included in
the accompanying financial statements. The Company is subject to state and city
income taxes based on the Company's taxable income and alternative minimum tax.
The recorded tax provision for 1997 and 1998 relates to these state and city
taxes. The significant components of differences between income reported for
financial statement purposes and income reported for tax purposes relates to tax
basis adjustments for accounts receivable, payroll and corporate tax
liabilities.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ------------
Accounts receivable.................................... $ 444,000 $ 599,000 $ 2,009,000
Unbilled accounts receivable........................... -- 28,000 149,000
Allowance for doubtful accounts........................ -- (86,000) (417,000)
---------- ---------- ------------
Accounts receivable, net........................... $ 444,000 $ 541,000 $ 1,741,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ------------
Computer equipment..................................... $ 79,000 $ 169,000 $ 474,000
Furniture and fixtures................................. 44,000 112,000 131,000
Leasehold improvements................................. 13,000 38,000 134,000
---------- ---------- ------------
136,000 319,000 739,000
Accumulated depreciation and amortization.............. (12,000) (57,000) (171,000)
---------- ---------- ------------
Property and equipment, net........................ $ 124,000 $ 262,000 $ 568,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

F-107
<PAGE>
I33 COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

5. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ------------
Deferred revenue....................................... $ 24,000 $ -- $ --
Deferred tax liability................................. 106,000 239,000 194,000
Accrued media expense.................................. -- -- 798,000
Accrued compensation................................... 147,000 -- --
Other accrued liabilities.............................. 15,000 117,000 90,000
---------- ---------- ------------
Total accrued liabilities.......................... $ 292,000 $ 356,000 $ 1,082,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

6. LEASES:

The Company has noncancelable operating leases, primarily for real estate,
that expire over the next 3 years. Rental expense for operating leases during
the years ended December 31, 1996, 1997, and 1998, was $21,000, $73,000 and
$102,000, respectively.

The Company leases certain equipment under capital leases.

Future minimum lease payments under capital leases and noncancelable
operating leases are as follows as of December 31, 1998:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
Year ended December 31, 1999................................................. $ 39,000 $ 93,000
2000......................................................................... 21,000 63,000
2001......................................................................... 5,000 42,000
--------- ----------
Total minimum lease payments............................................. 65,000 $ 198,000
----------
----------
Less: Amount representing interest........................................... (9,000)
---------
Present value of capital lease obligations................................... 56,000
Less: Current portion of capital lease obligations........................... 41,000
---------
Long-term portion of capital lease obligation................................ $ 15,000
---------
---------
</TABLE>

Equipment under capital leases is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Computer equipment........................................... $ 11,000 $ 54,000 $ 93,000
Accumulated depreciation..................................... (1,000) (7,000) (14,000)
--------- --------- ---------
Total.................................................... $ 10,000 $ 47,000 $ 79,000
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-108
<PAGE>
I33 COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

7. INCOME TAXES:

The components of the net deferred tax liability as of December 31, 1996,
1997, and 1998 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Total deferred tax liabilities........................... $ 106,000 $ 242,000 $ 199,000
Total deferred tax assets................................ -- (3,000) (5,000)
---------- ---------- ----------
Net deferred tax liability............................... $ 106,000 $ 239,000 $ 194,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The sources of and differences between the financial accounting and tax
basis of i33's assets and liabilities that give rise to the net deferred tax
liability are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Deferred tax liabilities:
Differences from accrual to cash basis................. $ 106,000 $ 242,000 $ 199,000
Deferred tax assets:
Other.................................................. -- (3,000) (5,000)
---------- ---------- ----------
$ 106,000 $ 239,000 $ 194,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The components of the provision (benefit) for income taxes as of December
31, 1996, 1997, and 1998, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Federal income taxes:
Current................................................. $ -- $ -- $ --
Deferred................................................ 66,000 136,000 --
State taxes:
Current................................................. -- 26,000 11,000
Deferred................................................ 40,000 (3,000) (45,000)
---------- ---------- ----------
Provisions (benefit) for income taxes..................... $ 106,000 $ 159,000 $ (34,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

F-109
<PAGE>
I33 COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997, AND 1998

For the years ended December 31, 1996, 1997, and 1998, the provision
(benefit) for income taxes differed from the amounts computed at the statutory
rate, as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1997 1998
---------- ---------- ----------
Income tax computed at statutory rate..................... $ 78,000 $ -- $ --
State income taxes, net of federal income tax benefit..... 27,000 23,000 (34,000)
C Corporation Federal tax................................. -- 136,000 --
Other, net................................................ 1,000 -- --
---------- ---------- ----------
$ 106,000 $ 159,000 $ (34,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

8. RELATED PARTIES:

The Company conducts certain transactions with a related party. These
transactions include the borrowing of funds for which the balances outstanding
at December 31, 1996, 1997, and 1998 were $104,000, $0 and $0, respectively. In
addition, the Company shares office space and has purchased equipment from a
related party during the years ended December 31, 1996, 1997, and 1998.

The Company has a note with a relative of one of the shareholders, which is
collateralized by substantially all of the assets of the Company and is
personally guaranteed by the Company's President and Chief Technical Officer.
Under the terms of the agreement, the loan was interest free and payment was due
upon the sale of the Company. As of December 31, 1998, the balance due on the
note was $500,000. The note was repaid on January 8, 1999.

During the years ended December 31, 1997 and 1998, the Company wrote off
amounts due from a related party of $5,000 and $18,000, respectively.

F-110
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Salzinger & Company:

We have audited the accompanying balance sheet of Salzinger & Company (a
Virginia corporation), as of December 31, 1998, and the related statements of
operations, stockholder's equity, and cash flows for the year then ended. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Salzinger & Company as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
March 15, 1999

F-111
<PAGE>
SALZINGER & COMPANY

BALANCE SHEET

AS OF DECEMBER 31, 1998

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 193,000
Accounts receivable........................................................... 1,707,000
---------
Total current assets........................................................ 1,900,000
Property and equipment, net..................................................... 43,000
Other assets.................................................................... 14,000
---------
Total assets................................................................ $1,957,000
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Short-term borrowing.......................................................... $ 130,000
Accounts payable.............................................................. 34,000
Accrued liabilities........................................................... 177,000
---------
Total current liabilities................................................... 341,000
---------

Commitments and contingencies (Note 6)
Stockholder's equity:
Common stock, $1.00 par value; 5,000 shares authorized; 1,000 shares issued
and outstanding............................................................. 1,000
Retained earnings............................................................. 1,615,000
---------
Total stockholder's equity.................................................. 1,616,000
---------
Total liabilities and stockholder's equity.................................. $1,957,000
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-112
<PAGE>
SALZINGER & COMPANY

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Revenues........................................................................ $3,110,000
Cost of revenues................................................................ 1,738,000
---------
Gross profit................................................................ 1,372,000
---------
Operating expenses:
Selling and marketing......................................................... 2,000
General and administrative.................................................... 425,000
Depreciation and amortization................................................. 13,000
---------
Total operating expenses.................................................... 440,000
---------
Income from operations.......................................................... 932,000
Interest income................................................................. 20,000
---------
Net income...................................................................... $ 952,000
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-113
<PAGE>
SALZINGER & COMPANY

STATEMENT OF STOCKHOLDER'S EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
----------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997........................................ 1,000 $ 1,000 $ 663,000 $ 664,000
Net income...................................................... -- -- 952,000 952,000
----- --------- ------------ -------------
Balance, December 31, 1998........................................ 1,000 $ 1,000 $ 1,615,000 $ 1,616,000
----- --------- ------------ -------------
----- --------- ------------ -------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-114
<PAGE>
SALZINGER & COMPANY

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $ 952,000
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................... 13,000
Change in assets and liabilities:
Accounts receivable....................................................... (1,152,000)
Other assets.............................................................. (5,000)
Accounts payable.......................................................... 19,000
Accrued liabilities....................................................... 11,000
----------
Net cash used in operating activities................................... (162,000)
----------
Cash flows from financing activities:
Short-term borrowing.......................................................... 130,000
----------
Net decrease in cash............................................................ (32,000)
Cash, beginning of year......................................................... 225,000
----------
Cash, end of year............................................................... $ 193,000
----------
----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-115
<PAGE>
SALZINGER & COMPANY

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

1. BUSINESS DESCRIPTION:

Salzinger & Company ("Salzinger" or the "Company") was incorporated in 1995,
under the laws of the state of Virginia. Salzinger is a consulting company
providing business-level strategic consulting in website marketing strategy
development, planning and implementation. It is headquartered in Virginia and
operates primarily in the Northeast, with some international clients.

On March 15, 1999, certain assets of the Company were acquired by AppNet
Systems, Inc.

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
three
Computer equipment and software................................. years
Furniture and fixtures.......................................... five years
Automobile...................................................... five years
</TABLE>

Purchased software is capitalized and amortized principally over three
years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and short-term borrowing. In management's opinion,
the carrying amounts of these financial instruments approximated their fair
values at December 31, 1998.

REVENUE RECOGNITION

Revenues from time and material contracts are recognized based on fixed
hourly rates for direct labor hours expended. The Company also enters into
arrangements in which a portion of its fee is based on the successful completion
of a transaction. Revenue under these contracts is recognized when

F-116
<PAGE>
SALZINGER & COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

the transaction has closed and the Company is due its success fee. Included
within revenues in the accompanying statement of operations are success fees of
approximately $730,000.

Cost of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Unbilled receivables on contracts are comprised of costs, plus earnings on
certain contracts in excess of contractual billings on such contracts. Cash
received in excess of costs incurred is classified as deferred revenue.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and accounts receivable from
clients in excess of 10% of total revenues and accounts receivable:

<TABLE>
<CAPTION>
REVENUES ACCOUNTS RECEIVABLE
FOR THE YEAR ENDED AS OF
DECEMBER 31, 1998 DECEMBER 31, 1998
------------------- ---------------------
<S> <C> <C>
Company A............................................. 31% 50%
Company B............................................. 21% 27%
Company C............................................. 15% *
Company D............................................. 15% 13%
</TABLE>

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

* Represents less than 10% of total.

INCOME TAXES

The Company, with the consent of its shareholders, has elected to be taxed
pursuant to Subchapter S of the Internal Revenue Code (an "S Corporation"). In
lieu of corporation income taxes, the shareholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision for federal or state income taxes has been included in the
accompanying financial statements.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following:

<TABLE>
<S> <C>
Accounts receivable............................................. $1,522,000
Unbilled accounts receivable.................................... 185,000
---------
Total....................................................... $1,707,000
---------
---------
</TABLE>

There was no allowance for doubtful accounts recorded as management believes
that all amounts will be collected.

F-117
<PAGE>
SALZINGER & COMPANY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<S> <C>
Computer equipment and software................................... $ 21,000
Furniture and fixtures............................................ 9,000
Automobile........................................................ 35,000
---------
65,000
Accumulated depreciation and amortization......................... (22,000)
---------
Property and equipment, net................................... $ 43,000
---------
---------
</TABLE>

5. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<S> <C>
Accrued compensation and benefits................................. $ 151,000
Deferred revenue.................................................. 25,000
Other............................................................. 1,000
---------
Accrued liabilities........................................... $ 177,000
---------
---------
</TABLE>

6. LEASES:

The Company is party to a sublease agreement under which it rents its
corporate office. The sublease is renewable on a month-to-month basis. The
Company is also party to a second lease which is renewed annually. Rental
expense for operating leases during the year ended December 31, 1998 was
$130,000.

The Company leases certain equipment under noncancelable operating leases.

Future minimum lease payments under noncancelable operating leases for
office space and equipment are as follows as of December 31, 1998:

<TABLE>
<S> <C>
1999............................................................... $ 81,000
2000............................................................... 13,000
---------
Total minimum lease payments................................... $ 94,000
---------
---------
</TABLE>

7. RELATED PARTIES:

The Company's sole stockholder loaned $130,000 to the Company in December
1998. The Company repaid the loan in January 1999.

8. RETIREMENT PLAN:

The Company maintains a profit-sharing and retirement plan under the
provisions of section 408(p) of the Internal Revenue Code. The Plan provides for
contributions by employees and a discretionary contribution by the Company. The
plan is for the benefit of all employees. Participants may contribute up to
$6,000 annually. Employee contributions are fully vested. The Company
contributes 2 percent of employees total salary. The Company's contribution
vests immediately. Company contributions totaled $23,000 for the year ended
December 31, 1998.

F-118
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Internet Outfitters, Inc.:

We have audited the accompanying balance sheet of Internet Outfitters, Inc.
(a California corporation), as of December 31, 1998, and the related statements
of operations, stockholders' equity, and cash flows for the year then ended.
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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
March 26, 1999

F-119
<PAGE>
INTERNET OUTFITTERS, INC.

BALANCE SHEET

AS OF DECEMBER 31, 1998

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................ $ 70,000
Accounts receivable, net........................................................ 555,000
Other current assets............................................................ 71,000
---------
Total current assets........................................................ 696,000
Property and equipment, net....................................................... 239,000
Other assets...................................................................... 6,000
---------
Total assets................................................................ $ 941,000
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 227,000
Accrued liabilities............................................................. 184,000
Current portion of long-term debt............................................... 316,000
Current portion of capital lease obligations.................................... 17,000
---------
Total current liabilities................................................... 744,000
Long-term debt, net of current portion............................................ 53,000
Capital lease obligations, net of current portion................................. 3,000
Deferred tax liability............................................................ 29,000
---------
Total liabilities........................................................... 829,000
---------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, no par value; 20,000,000 shares authorized; 7,695,641 shares
issued and outstanding........................................................ 8,000
Additional paid-in capital...................................................... 221,000
Deferred compensation........................................................... (164,000)
Retained earnings............................................................... 47,000
---------
Total stockholders' equity.................................................. 112,000
---------
Total liabilities and stockholders' equity.................................. $ 941,000
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-120
<PAGE>
INTERNET OUTFITTERS, INC.

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Revenues........................................................................ $2,343,000
Cost of revenues................................................................ 1,287,000
---------
Gross profit........................................................ 1,056,000
---------
Operating expenses:
Selling and marketing......................................................... 47,000
General and administrative.................................................... 859,000
Stock-based compensation...................................................... 57,000
Depreciation and amortization................................................. 57,000
---------
Total operating expenses............................................ 1,020,000
---------
Income from operations.......................................................... 36,000
Interest expense, net........................................................... 47,000
---------
Loss before income taxes........................................................ (11,000)
Provision for income taxes...................................................... 52,000
---------
Net loss........................................................................ $ (63,000)
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-121
<PAGE>
INTERNET OUTFITTERS, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN DEFERRED RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
------------ --------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........ 7,695,641 $ 8,000 $ -- $ -- $ 110,000 $ 118,000
Stock-based compensation........ -- -- 221,000 (164,000) -- 57,000
Net loss........................ -- -- -- -- (63,000) (63,000)
------------ --------- ---------- ------------- ----------- ------------
Balance, December 31, 1998........ 7,695,641 $ 8,000 $ 221,000 $ (164,000) $ 47,000 $ 112,000
------------ --------- ---------- ------------- ----------- ------------
------------ --------- ---------- ------------- ----------- ------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-122
<PAGE>
INTERNET OUTFITTERS, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (63,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes........................................................ (29,000)
Stock-based compensation..................................................... 57,000
Depreciation and amortization................................................ 57,000
Change in assets and liabilities:
Accounts receivable, net................................................... (217,000)
Other assets............................................................... (8,000)
Accounts payable........................................................... 5,000
Accrued liabilities........................................................ 138,000
---------
Net cash used in operating activities.................................... (60,000)
---------
Cash flows from investing activities:
Purchase of property and equipment, net........................................ (124,000)
---------
Cash flows from financing activities:
Proceeds from long-term debt................................................... 292,000
Repayments of long-term debt................................................... (28,000)
Repayments of capital lease obligations........................................ (13,000)
---------
Net cash provided by financing activities................................ 251,000
---------
Net increase in cash............................................................. 67,000
Cash, beginning of year.......................................................... 3,000
---------
Cash, ending of year............................................................. $ 70,000
---------
---------
Supplementary information:
Cash paid for interest......................................................... $ 45,000
---------
---------
Cash paid for income taxes..................................................... $ 63,000
---------
---------
</TABLE>

The accompanying notes are an integral part of this statement.

F-123
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

1. BUSINESS DESCRIPTION:

Internet Outfitters, Inc. ("IO" or the "Company") was incorporated in 1994
under the laws of the state of California. IO is an information technology
services company providing internet and web-based solutions designed to improve
clients' business processes, including strategy consulting, applications
development, electronic commerce, systems design, technology development,
integration, and operation. The Company is headquartered in Santa Monica,
California and operates primarily in the western region of the United States.

On March 22, 1999, the Company entered into a Stock Purchase Agreement with
AppNet Systems, Inc. ("AppNet"). The transaction was completed on March 26,
1999.

There are significant risks associated with the Company, including the
subjectivity of the Company's services to rapid technological change and the
Year 2000 issue.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
three to five
Computer equipment and software.......................... years
Furniture and fixtures................................... seven years
</TABLE>

Purchased software and third-party costs incurred to develop software for
internal use are capitalized and amortized principally over three years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, long-term debt and capital lease obligations. In
management's opinion, the carrying amounts of these financial instruments
approximated their fair values at December 31, 1998.

F-124
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.

REVENUE RECOGNITION

Revenues from time and material contracts are recognized based on fixed
hourly rates for direct labor hours expended. Revenues from fixed-price
contracts are recognized on the percentage-of-
']completion method, with costs and estimated profits recorded as work is
performed. Revenues from fixed-price advertising contracts in which the Company
delivers advertising impressions for its customers on third-party websites are
recognized ratably over the period the advertising impressions are delivered. In
accordance with industry practice, the cost of third party advertising placed by
the Company on behalf of its clients is offset against the related customer
reimbursement in the accompanying statement of operations. Revenues from
cost-plus-fixed-fee contracts are recognized on the basis of direct costs plus
indirect costs incurred plus a fixed profit percentage.

Costs of revenues includes all direct material and labor costs related to
contract performance and does not include any related depreciation expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in contract performance and
estimated profitability, including final contract settlements, may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Unbilled revenues on contracts are comprised of costs,
plus earnings on certain contracts in excess of contractual billings on such
contracts. Cash received in excess of costs incurred is classified as deferred
revenue.

BUSINESS CONCENTRATION AND CREDIT RISK

The following table summarizes the revenues and receivables from clients in
excess of 10% of total revenues and receivables:

<TABLE>
<CAPTION>
REVENUES ACCOUNTS
FOR THE YEAR RECEIVABLE
ENDED AS OF
DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Customer A............................................. 42.2% 27.0%
Customer B............................................. 18.1% 33.9%
Customer C............................................. 12.5% *
</TABLE>

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

* Represents less than 10 percent of total.

INCOME TAXES

F-125
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

the enacted tax law; the effects of future changes in tax laws or rates are not
anticipated. The measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence, are not
expected to be realized.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Commercial clients................................................ $ 560,000
Unbilled accounts receivable...................................... 41,000
Less: Allowance for doubtful accounts............................. (46,000)
---------
Accounts receivable, net...................................... $ 555,000
---------
</TABLE>

In February 1998, the Company entered into a factoring agreement to sell,
with recourse, on an ongoing basis, certain accounts receivable to a third
party. Collections received on these accounts may be replaced by new receivables
in order to maintain the aggregate outstanding balance. Proceeds from the sale
of receivables are collateralized by substantially all of the assets of the
Company. At no time may the total accounts receivable factored exceed $350,000.
Fees associated with these transactions are included in interest expense in the
accompanying statement of operations. The factoring agreement has an initial
term of one year and is renewed from year to year thereafter unless terminated
by either party.

As of December 31, 1998, accounts receivable totaling $224,000 had been
pledged as collateral against this asset-based borrowing.

In accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," the Company's accounts
receivable program will be accounted for as a secured borrowing. The receivables
and the corresponding debt are included as an asset and liability, respectively,
on the accompanying balance sheet.

4. OTHER CURRENT ASSETS:

Other current assets consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Deferred tax asset................................................ $ 58,000
Other assets...................................................... 13,000
---------
Total......................................................... $ 71,000
---------
---------
</TABLE>

F-126
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

5. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Computer equipment and software................................... $ 332,000
Furniture and fixtures............................................ 8,000
---------
340,000
Accumulated depreciation and amortization......................... 101,000
---------
Property and equipment, net................................... $ 239,000
---------
---------
</TABLE>

6. ACCRUED LIABILITIES:

Accrued liabilities consists of the following as of December 31, 1998:

<TABLE>
<S> <C>
Accrued compensation and benefits................................. $ 96,000
Taxes payable..................................................... 33,000
Deferred revenue.................................................. 30,000
Other accrued liabilities......................................... 25,000
---------
Total......................................................... $ 184,000
---------
</TABLE>

7. DEBT:

In July 1996, the Company issued a $41,000 note payable to an officer of the
Company with a maturity of December 31, 1999. Interest on this note was payable
monthly at a rate of 8 percent. In April 1998, the Company issued a second note
in the amount of $51,000 payable to this officer, which contained a maturity of
June 30, 1999. Interest on this note was payable monthly at a rate of 12
percent.

In December 1998, the Company refinanced the outstanding balances of the
above notes and issued a single $92,000 note payable to this officer. This note
bears interest monthly at a rate of 10 percent and matures on December 31, 2000.

The Company issued a $50,000 note payable to a related party in March 1996,
which bears interest monthly at a rate of 8 percent. Principal payments were due
on a quarterly basis with a scheduled maturity of March 1, 1999. In December
1998, the Company rescheduled the payments of the remaining outstanding balance
of $45,000. The amended note has a scheduled maturity of December 31, 1999. All
other terms remained unchanged from the original note.

In 1998, the Company entered into a factoring agreement, the proceeds from
which are treated as a secured borrowing (see Note 3). The outstanding balance
at December 31, 1998 will be repaid through the subsequent sale of additional
accounts receivable from the Company. Finance charges of 2.25 percent are
payable monthly on the average outstanding balance for the respective period. In
addition, the Company is required to pay a monthly administrative fee of 0.75
percent of the face amount of each purchased receivable during the respective
period. The outstanding balance is secured by substantially all of the assets of
the Company. As of December 31, 1998, $224,000 was outstanding related to this
agreement.

F-127
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

In March 1998, IO issued a note payable to an employee of the Company in the
amount of $17,000. This note bears interest annually at a rate of 12 percent. At
December 31, 1998, $8,000 was outstanding related to this note. The remaining
principal is secured by a $26,000 billed receivable of the Company and will be
repaid upon receipt of payment from those receivables.

As of December 31, 1998, the maturities of long-term debt were as follows:

<TABLE>
<S> <C>
1999.............................................................. $ 316,000
2000.............................................................. 53,000
---------
Total......................................................... $ 369,000
---------
</TABLE>

8. EMPLOYEE STOCK OPTION PLAN:

The Company has a stock option plan for key employees. Options expire no
later than ten years from the date of the grant or when employment ceases,
whichever comes first. One-third of the granted options vest on the grant date.
The remaining options vest ratably on the first and second anniversaries of the
date of grant. The maximum number of shares of common stock that may be issued
pursuant to the stock option plan is 5,000,000 shares at December 31, 1998.

The stock option plan is accounted for under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Had compensation cost for the plan been
determined based on the estimated fair value of the options at the grant dates
consistent with the method of SFAS No. 123, pro forma net loss would have been
approximately $289,000 for the year ended December 31, 1998. The weighted
average fair value of the options granted during 1998 is estimated to be $0.84
per option assuming the following: dividend yield of 0 percent, risk-free
interest rate of 5 percent and an expected term of the options of 3.4 years.

The following summarizes option activity during 1998:

<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Options outstanding December 31, 1997, exercise price range of
$0.10 to $0.16.................................................. 2,431,000 $ 0.13
Granted in 1998............................................... 345,000 0.20
----------
Options outstanding, December 31, 1998, exercise price range of
$0.10 to $0.20.................................................. 2,776,000 0.14
---------- -----
---------- -----
Options exercisable, December 31, 1998............................ 1,716,000 $ 0.13
---------- -----
---------- -----
</TABLE>

9. INCOME TAXES:

F-128
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

The components of the net deferred tax asset are as follows as of December
31, 1998:

<TABLE>
<S> <C>
Total deferred tax liabilities.................................... $ (29,000)
Total deferred tax assets......................................... 58,000
---------
Net deferred tax asset........................................ $ 29,000
---------
---------
</TABLE>

The sources of and differences between the financial accounting and tax
basis of Internet Outfitters, Inc.'s assets and liabilities that give rise to
the net deferred tax asset are as follows as of December 31, 1998:

<TABLE>
<S> <C>
Deferred tax liabilities
Depreciation.................................................... $ (29,000)
Deferred tax assets
Reserves........................................................ 35,000
Stock-based compensation........................................ 23,000
---------
Net deferred tax asset........................................ $ 29,000
---------
---------
</TABLE>

The components of the provision for income taxes as of December 31, 1998,
are as follows:

<TABLE>
<S> <C>
Federal income taxes:
Current......................................................... $ 68,000
Deferred........................................................ (29,000)
State taxes....................................................... 13,000
---------
Provision for income taxes........................................ $ 52,000
---------
---------
</TABLE>

For the year ended December 31, 1998, the provision for income taxes
differed from the amounts computed at the statutory rate, as follows:

<TABLE>
<S> <C>
Income tax computed at statutory rates............................ $ (4,000)
State income taxes, net of federal income tax benefit............. 9,000
Permanent differences............................................. 48,000
Other, net........................................................ (1,000)
---------
$ 52,000
---------
---------
</TABLE>

10. RELATED PARTIES:

See Note 7 for a description of certain long-term debt obligations with
related parties.

In 1998, IO has entered into a service agreement with a relative of an
officer of the Company. Under this agreement, this individual will act as
financial advisor for any sale, merger or financing transaction entered into by
the Company and, in exchange, will receive a fee equal to three percent of the
transaction consideration. No fees were paid in 1998 in connection with this
agreement.

F-129
<PAGE>
INTERNET OUTFITTERS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998

11. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company has noncancelable operating leases, primarily for real estate,
that expire over the next 2 years. One of the operating leases maintains an
escalation provision that requires annual incremental increases of at least 3
percent. Rental expense for operating leases during the year ended December 31,
1998 was $63,000.

The Company leases certain equipment under capital leases.

Future minimum lease payments under capital leases and noncancelable
operating leases are as follows as of December 31, 1998:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
1999................................................................... $ 17,000 $ 68,000
2000................................................................... 5,000 11,000
---------- -----------
Total minimum lease payments....................................... 22,000 $ 79,000
-----------
-----------
Less: Amount representing interest..................................... (2,000)
----------
Present value of capital lease obligations............................. 20,000
Less: Current portion of capital lease obligations..................... (17,000)
----------
Long-term portion of capital lease obligations......................... $ 3,000
----------
----------
</TABLE>

Equipment under capital leases is summarized as follows as of December 31,
1998:

<TABLE>
<S> <C>
Computer equipment................................................ $ 49,000
Accumulated depreciation.......................................... (15,000)
---------
Total......................................................... $ 34,000
---------
---------
</TABLE>

LITIGATION AND CLAIMS

In 1998, one of the Company's suppliers informed IO that it believed the
Company had caused a third-party client of the Company to enter into an
incorrect license for a supplier's software. The supplier asserted that the
correct license required additional payments of approximately $2,200,000 in
license fees and technical support fees. The Company denies any liability for
additional licensing fees. While the Company intends to vigorously contest any
claim by the supplier that additional fees are owed in connection with the third
party, the ultimate resolution of this matter cannot be determined at this time.

F-130
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth expenses and costs payable by AppNet (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this registration statement. All amounts are estimated except for the Securities
and Exchange Commission's registration fee and the National Association of
Securities Dealers' filing fee.

<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
Registration fee under Securities Act........................................... $ 47,955
NASD filing fee................................................................. 17,750
The Nasdaq National Market fees................................................. 95,000
Legal fees and expenses......................................................... 850,000
Accounting fees and expenses.................................................... 1,000,000
Printing and engraving expenses................................................. 600,000
Registrar and transfer agent fees............................................... 5,000
Miscellaneous expenses.......................................................... 100,000
------------
Total........................................................................... $ 2,715,705
------------
------------
</TABLE>

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

AppNet's bylaws provide that AppNet shall indemnify to the fullest extent
authorized by the Delaware General Corporation Law, each person who is involved
in any litigation or other proceeding because such person is or was a director
or officer of AppNet, against all expense, loss or liability reasonably incurred
or suffered in connection therewith. AppNet's bylaws provide that a director or
officer may be paid expenses incurred in defending any proceeding in advance of
its final disposition upon receipt by AppNet of an undertaking, by or on behalf
of the director or officer, to repay all amounts so advanced if it is ultimately
determined that such director or officer is not entitled to indemnification.

Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify any director or officer of the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any action, suit or proceeding brought by
reason of the fact that such person is or was a director or officer of the
corporation, if such person acted in good faith and in a manner that 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, if he had
no reason to believe his conduct was unlawful. In a derivative action, (I.E.,
one brought by or on behalf of the corporation), indemnification may be made
only for expenses, actually and reasonably incurred by any director or officer
in connection with the defense or settlement of such an action or suit, if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.

Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
AppNet's certificate of incorporation eliminates the liability of a director to
the corporation or its stockholders for monetary damages for such breach of
fiduciary duty as a director, except for liabilities arising (a) from any

II-1
<PAGE>
breach of the director's duty of loyalty to the corporation or its stockholders;
(b) from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (c) under Section 174 of the Delaware
General Corporation Law; or (d) from any transaction from which the director
derived an improper personal benefit.

AppNet intends to obtain primary and excess insurance policies insuring its
directors and officers and those of its subsidiaries against certain liabilities
they may incur in their capacity as directors and officers. Under such policies,
the insurer, on behalf of AppNet, may also pay amounts for which AppNet has
granted indemnification to the directors or officers.

Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
AppNet, its directors and officers who sign the registration statement and
persons who control AppNet, under certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

AppNet has issued securities in the following transactions, each of which,
unless otherwise indicated, was intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2).

On March 10, 1998, AppNet issued a warrant to purchase 31,250 shares of
Class B Preferred Stock for an aggregate purchase price of $125,000 to Silicon
Valley Bank as consideration, in part, for a loan from Silicon Valley Bank in
the principal amount of $2,262,500. Pursuant to the terms of an Exchange
Agreement, dated as of June 12, 1998, between AppNet and Silicon Valley Bank,
the warrant to purchase Class B Preferred Stock was exchanged for two new
warrants: (a) a warrant to purchase 14,620 shares of AppNet common stock for an
aggregate purchase price of $4,396 and (b) a warrant to purchase 121 shares of
Class A Preferred Stock for an aggregate purchase price of $121,000. This
exchange was exempt from the registration requirements of the Securities Act by
virtue of Section 3(a)(9) of the Securities Act.

On March 11, 1998, AppNet issued a total of 5,378,947 shares of its common
stock to its founders in the following amounts and for the following
consideration: (1) 3,157,895 shares to Ken Bajaj for an aggregate purchase price
of $9,000; (2) 2,052,632 shares to Fairfax Management Company for an aggregate
purchase price of $5,850; (3) 56,140 shares to Terrence McManus in exchange for
$80, as consideration for past services and in exchange for a binding obligation
to provide future services; (4) 56,140 shares to Robert Harvey in exchange for
$80, as consideration for past services and in exchange for a binding obligation
to provide future services; and (5) 56,140 shares to Robert McCalley in exchange
for $80, as consideration for past services and in exchange for a binding
obligation to provide future services. On June 29, 1998, AppNet repurchased a
portion of the shares issued to Fairfax Management Company in return for a
convertible promissory note in the principal amount of $406,175. The principal
amount of this note will automatically convert into shares of AppNet common
stock upon the consummation of this offering using a per share purchase price
equal to 80% of the offering price per common share.

On March 12, 1998, AppNet issued an aggregate of 266,796 shares of Series
A-1 Convertible Preferred Stock, par value $0.001, to Arbor and employees of
Arbor, as partial payment for the assets of Arbor. The Series A-1 Convertible
Preferred Stock issued to Arbor and the Arbor employees was valued at
approximately $1,067,184. On June 29, 1998, all of the shares of the Series A-1
Convertible Preferred Stock were converted into 187,225 shares of our common
stock. On June 29, 1998, AppNet redeemed 138,455 shares of its common stock that
were issued to Arbor for $789,192.

On April 30, 1998, as partial payment for the assets of LOGEX, AppNet issued
a convertible promissory note to LOGEX in the principal amount of $300,000. The
principal amount of this note, and, with AppNet's consent, accrued interest on
the note, is convertible into AppNet common stock at

II-2
<PAGE>
the holder's option upon (a) the consummation of this offering, using a per
share purchase price equal to 80% of the offering price per common share or (b)
a change in control of AppNet, using a per share purchase price equal to 80% of
the fair market value at the time of the change in control.

On May 31, 1998, AppNet issued a warrant to purchase 35,088 shares of its
common stock for an aggregate purchase price of $50,000 to Smart Technology as
consideration, in part, for a loan from Smart Technology in the maximum
principal amount of $1,000,000. On June 29, 1998, in accordance with the
Purchase Agreement, this warrant was canceled, and AppNet issued a new warrant
to Smart Technology to purchase 70,175 shares of AppNet common stock for an
aggregate purchase price of approximately $21,100.

On June 29, 1998, GTCR and Smart Technology purchased 11,326,228 and 232,916
shares of AppNet common stock, respectively, for aggregate purchase prices of
$3,405,514 and $70,032, respectively, from AppNet under a purchase agreement,
dated as of June 29, 1998). Under the purchase agreement, GTCR and Smart
Technology have also purchased aggregate amounts of approximately 44,113 and 900
shares of Class A Preferred Stock, respectively, since June 29, 1998, for
aggregate purchase prices of approximately $44,113,000 and $900,000,
respectively.

On June 29, 1998, AppNet issued 1,251,228, 63,158, 110,175 and 63,158 shares
of its common stock to Ken Bajaj, Robert Harvey, Robert McCalley and Terrence
McManus, respectively, for an aggregate purchase price of $447,320.

On June 29, 1998, AppNet issued an aggregate of 35,088 shares of its common
stock to Anchor Financial Group, Inc., Pascal Luck and Robert Stewart in
satisfaction in full of all obligations of AppNet for finder's fees in
connection with investments by GTCR and Smart Technology in AppNet under the
purchase agreement with GTCR and Smart Technology. These shares had an aggregate
value of $10,550.

On June 29, 1998, AppNet issued 52,632 shares of its common stock to Thomas
Davidson for payment, in part, of a finder's fee in connection with the GTCR and
Smart Technology investments in AppNet. These shares had an aggregate value of
$15,825. AppNet also issued 86,651 shares of its common stock to Mr. Davidson
for an aggregate purchase price of $26,053.

Since June 29, 1998, AppNet issued an aggregate of 552,982 shares of its
common stock to twelve of its employees for an aggregate purchase price of
$571,498.

On August 1, 1998, GTCR and Smart Technology exchanged an aggregate of
1,387,097 shares of our common stock for an aggregate of 417.066 shares of Class
A Preferred Stock. This exchange was exempt from the registration requirements
of the Securities Act by virtue of Section 3(a)(9) of the Securities Act.

On August 25, 1998, AppNet issued an aggregate of 11,576 shares of Class B
Preferred Stock and 1,387,095 shares of its common stock to the ten stockholders
of SSC in connection with the acquisition of SSC. The Class B Preferred Stock
issued to the SSC stockholders was valued at $11,576,000 and the common stock
was valued at approximately $417,066.

On October 2, 1998, AppNet issued an aggregate of 1,111,111 shares of its
common stock to the five stockholders of NMP as payment, in part, for all of the
issued and outstanding capital stock of NMP. The common stock issued to the NMP
stockholders was valued at $9,500,000. Also in connection with the acquisition
of NMP, AppNet assumed options to purchase an aggregate of 145,518 shares of its
common stock to the NMP stockholders.

On October 12, 1998, as payment, in part, for all of the issued and
outstanding capital stock of Century, AppNet issued a convertible promissory
note to Riggs & Co., as nominee on behalf of the twenty-nine stockholders of
Century, in the aggregate principal amount of $2,000,000. Each of the
twenty-nine Century stockholders obtained a percentage beneficial interest in
the note. All or any

II-3
<PAGE>
portion of the unpaid balance of the note is convertible at the holder's option,
at any time prior to payment in full, into shares of AppNet common stock, using
a per share purchase price of $8.55. Also in connection with the acquisition of
Century, AppNet assumed options to purchase an aggregate of 704,127 shares of
its common stock to the Century stockholders.

On October 20, 1998, AppNet issued an aggregate of 701,754 shares of its
common stock to the two stockholders of R&P as payment, in part, for all of the
issued and outstanding capital stock of R&P. The common stock issued to the R&P
stockholders was valued at $6,000,000.

On December 14, 1998, AppNet issued an aggregate of 197,368 shares of its
common stock and four convertible promissory notes in an aggregate principal
amount of $2,000,000 to the four stockholders of Kodiak as payment, in part, for
all of the issued and outstanding capital stock of Kodiak. The common stock
issued to the Kodiak stockholders was valued at $2,250,000. All or any portion
of the unpaid balance of each of these notes is convertible at the holder's
option, at any time prior to payment in full, into shares of AppNet common
stock, using a per share purchase price of $11.40.

On January 6, 1999, AppNet issued 29,240 shares of its common stock to
Antares Leveraged Capital Corporation for an aggregate purchase price of
$375,003.

On January 8, 1999, AppNet issued two convertible promissory notes in an
aggregate principal amount of $3,500,000 to the two former stockholders of i33
as partial payment for their shares of the capital stock of i33. The principal
amount of, and accrued interest on, these notes is convertible into AppNet
common stock at the holder's option commencing upon (a) the consummation of this
offering, using a per share purchase price equal to 80% of the offering price
per common share, or (b) a change in control of AppNet, using a per share
purchase price equal to 80% of the fair market value at the time of the change
in control. In addition, AppNet issued two convertible subordinated promissory
notes in an aggregate principal amount of $6,800,000 to the two former i33
stockholders as partial payment for their shares of the capital stock of i33.
All or any portion of the principal of, and accrued interest on, each of these
notes is convertible, at the holder's option, commencing upon the consummation
of this offering or a change in control of AppNet, into shares of common stock,
using a per share purchase price of $11.40. Also in connection with the
acquisition of i33, AppNet issued a convertible promissory note in a principal
amount of $1,000,000 to a trust for the benefit of i33 employees. The principal
amount of, and accrued interest on, this note is convertible into AppNet common
stock at the holder's option commencing upon (a) the consummation of this
offering, using a per share purchase price equal to 80% of the offering price
per common share, or (b) a change in control of AppNet, using a per share
purchase price equal to 80% of the fair market value at the time of the change
in control.

On March 4, 1999, AppNet issued an aggregate of 97,465 shares of its common
stock to the four stockholders of Sigma6 as payment, in part, for all of the
issued and outstanding capital stock of Sigma6. The common stock issued to the
Sigma6 stockholders was valued at $1,250,000.

On March 15, 1999, AppNet issued an aggregate of 245,614 shares of its
common stock to Salzinger as payment, in part, for substantially all of the
assets of Salzinger. The common stock issued to Salzinger was valued at
$3,500,000.

On March 25, 1999, AppNet issued an aggregate of 157,895 shares of its
common stock to the 19 stockholders of Internet Outfitters as payment, in part,
for all of the issued and outstanding capital stock of Internet Outfitters. The
common stock issued to the Internet Outfitters stockholders was valued at
$2,700,000. Also in connection with the acquisition of Internet Outfitters,
AppNet assumed options to purchase an aggregate of 22,300 shares of its common
stock to the Internet Outfitters' stockholders.

II-4
<PAGE>
On March 29, 1999, AppNet issued an aggregate of 94,737 shares of its common
stock to TransForm IT as payment, in part, for substantially all of the assets
of TransForm IT. The common stock issued to TransForm IT was valued at
$1,620,000.

From August 1998 through March 31, 1999, AppNet granted options under the
1998 Plan to purchase an aggregate of 1,495,963 shares of its common stock at
exercise prices ranging from $0.04341 to $17.10 to employees and officers and
directors. AppNet issued an aggregate of 4,791 shares of its common stock
pursuant to option exercises under the 1998 Plan at exercise prices ranging from
$0.04341 to $0.14464.

From August 1998 through March 31, 1999, AppNet assumed options under the
Century Plan to purchase an aggregate of 704,127 shares of its common stock at
exercise prices ranging from $0.7159 to $1.4099. AppNet issued an aggregate of
658,499 of its common stock pursuant to option exercises under the Century Plan
at exercise prices ranging from $0.7159 to $1.4099.

From August 1998 through March 31, 1999, AppNet assumed options under the
Internet Outfitters' Plan to purchase an aggregate of 22,300 shares of its
common stock at exercise prices ranging from $2.25 to $3.76, none of which has
been exercised.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as exhibits to this registration
statement:

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>

1.1 Form of Underwriting Agreement

3.1 Form of Restated Certificate of Incorporation of AppNet Systems, Inc. to be effective upon closing of
the offering

3.2 Form of Amended and Restated Bylaws of AppNet Systems, Inc. to be effective upon closing of the offering

4.1 Form of certificate of common stock of AppNet Systems, Inc.

4.2 Registration Agreement, dated as of June 29, 1998, by and among AppNet Systems, Inc., GTCR Golder
Rauner, L.L.C., Fairfax Management Company II, L.L.C., Smart Technology, L.L.C. and certain stockholders
of AppNet Systems, Inc.**

5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson*

10.1 Intentionally Omitted

10.2 Agreement of Purchase and Sale of Assets, dated March 12, 1998, by and between AppNet Systems, Inc.,
Arbor Intelligent Systems, Inc., AppNet of Michigan, Inc. and Ronald Suarez, Robert Simms and Robert
Royce for purchase and sale of substantially all of the assets of Arbor Intelligent Systems, Inc.**

10.3 Merger Agreement, dated June 31, 1998, by and among AppNet Systems, Inc., SSC Acquisition Sub #1, Inc.,
Software Services Corporation and its stockholders for the purchase of all of the issued and outstanding
capital stock of Software Services Corporation**

10.4 Merger Agreement, dated October 2, 1998, by and among AppNet Systems, Inc., NMP Acquisition Sub #1,
Inc., New Media Publishing, Inc. and its stockholders for the purchase of all of the issued and
outstanding capital stock of New Media Publishing, Inc.**
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.5 Agreement and Plan of Merger, dated September 17, 1998, by and among AppNet Systems, Inc.,
AppNet/Century, Inc., Century Computing, Incorporated and its stockholders for the purchase of all of
the issued and outstanding capital stock of Century Computing, Incorporated**

10.6 Stock Purchase Agreement, dated October 20, 1998, by and among AppNet Systems, Inc., Research &
Planning, Inc., Thomas H. Rauh and William Rosenfeld for the purchase of all of the issued and
outstanding capital stock of Research & Planning, Inc.**

10.7 Stock Purchase Agreement, dated as of November 25, 1998, by and among AppNet Systems, Inc., The Kodiak
Group, Inc. and its stockholders for the purchase of all of the issued and outstanding capital stock of
The Kodiak Group, Inc.**

10.8 Stock Purchase Agreement, dated December 23, 1998, by and among AppNet Systems, Inc., i33 communications
corp., Drew Rayman and Enno Vandermeer for the purchase of all of the issued and outstanding capital
stock of i33 communications corp.**

10.9 Merger Agreement, dated as of February 25, 1999, by and among AppNet Systems, Inc., AppNet Sigma6, Inc.,
Sigma6, Inc. and the stockholders of Sigma6, Inc., as amended, for the purchase of all of the issued and
outstanding capital stock of Sigma6, Inc.**

10.10 Asset Purchase Agreement, dated as of March 1, 1999, by and among AppNet Systems, Inc., Salzinger
Acquisition Corp., Salzinger & Company, Inc. and Steven Salzinger for the purchase of substantially all
of the assets of Salzinger & Company, Inc.**

10.11 Stock Purchase Agreement, dated as of March 22, 1999, by and among AppNet Systems, Inc., Internet
Outfitters, Inc. and its stockholders for the purchase of all of the issued and outstanding capital
stock of Internet Outfitters, Inc.**

10.12 Asset Purchase Agreement, dated as of March 29, 1999, by and among AppNet Systems, Inc., Transform
Acquisition Corp., TransForm IT, Incorporated and John C. King, Thomas E. Hunt and Roy A. Chandler for
the purchase of substantially all of the assets of TransForm IT, Incorporated**

10.13 Recapitalization Agreement, dated as of May , 1999, by and among AppNet Systems, Inc., the Class A
Preferred Stockholders and the Class B Preferred Stockholders*

10.14 Revolving Credit Agreement, dated as of January 8, 1999, by and among AppNet Systems, Inc., BankBoston,
N.A. and Antares Capital Corporation**

10.15 Intentionally Omitted

10.16 First Amendment to Revolving Credit Agreement, dated as of March 10, 1999, by and among AppNet Systems,
Inc., BankBoston, N.A. and Antares Capital Corporation**

10.17 Form of Lock-Up Agreement

10.18 Century Computing, Incorporated Incentive Stock Plan, as amended**

10.19 AppNet Systems, Inc. 1998 Stock Option and Incentive Plan (as amended and restated)

10.20 AppNet Systems, Inc. 1999 Incentive Stock Plan*

10.21 Internet Outfitters, Inc. 1996 Incentive Stock Option Plan, as amended**

10.22 Form of Senior Management Agreement, as amended*

10.23 Senior Management Agreement, dated as of June 29, 1998, by and between AppNet Systems, Inc. and Ken S.
Bajaj, as amended
</TABLE>

II-6

<PAGE>

23.1 Consent of Arthur Andersen LLP

23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1 above)*

23.3 Consent of Gartner Group/Dataquest**

23.4 Consent of International Data Corporation

24.1 Power of Attorney**

27.1 Financial data schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

II-7
<PAGE>
ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

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

The undersigned registrant hereby undertakes that:

(1) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit proper delivery to each
purchaser.

(2) 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 424b(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, 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
Bethesda, State of Maryland, on May 25, 1999.

APPNET SYSTEMS, INC.

By: /s/ KEN S. BAJAJ
-----------------------------------------
Ken S. Bajaj
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)

II-8
<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.

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

President, Chief Executive
/s/ KEN S. BAJAJ Officer and Director
- ------------------------------ (Principal Executive May 25, 1999
Ken S. Bajaj Officer)

/s/ JOHN CROSS*
- ------------------------------ Executive Vice President May 25, 1999
John Cross and Director

/s/ THOMAS M. DAVIDSON*
- ------------------------------ Director May 25, 1999
Thomas M. Davidson

/s/ BRUCE RAUNER*
- ------------------------------ Director May 25, 1999
Bruce Rauner

/s/ PHILIP A. CANFIELD*
- ------------------------------ Director May 25, 1999
Philip A. Canfield

/s/ JACK PEARLSTEIN Chief Financial Officer
- ------------------------------ (Principal Financial and May 25, 1999
Jack Pearlstein Accounting Officer)
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ KEN S. BAJAJ
-------------------------
Ken S. Bajaj
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE
OFFICER)
Attorney in fact
</TABLE>

II-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AppNet Systems, Inc.:

We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of AppNet Systems, Inc. and the financial
statements of Software Services Corporation included in this registration
statement and have issued our reports thereon dated March 29, 1999 (except with
respect to the matter discussed in Note 18, as to which the date is May ,
1999) and February 5, 1999, respectively. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
accompanying Schedule II -- Valuation and Qualifying Accounts for AppNet
Systems, Inc. and Software Services Corporation are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Washington, D.C.
March 29, 1999

S-1
<PAGE>
SCHEDULE II

APPNET SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS

SOFTWARE SERVICES CORPORATION (PREDECESSOR)
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
----------------------
CHARGED
BEGINNING TO ENDING
BALANCE DEDUCTIONS EXPENSE OTHER(1) BALANCE
---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDING DECEMBER 31, 1996
Allowance for Doubtful Accounts................. $ 49,000 $ 37,000 $ 17,000 -- $ 29,000
PERIOD ENDING DECEMBER 31, 1997
Allowance for Doubtful Accounts................. $ 29,000 $ 10,000 $ 6,000 -- $ 25,000
PERIOD FROM JANUARY 1 TO AUGUST 24, 1998
Allowance for Doubtful Accounts................. $ 25,000 $ (1,000) $ 229,000 -- $ 255,000
</TABLE>

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

(1) Amounts reflected in opening balance sheets of acquired companies in
accordance with the purchase method of accounting.

S-2
<PAGE>

INDEX TO EXHIBITS

The following documents are filed as exhibits to this registration
statement:

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>

1.1 Form of Underwriting Agreement

3.1 Form of Restated Certificate of Incorporation of AppNet Systems, Inc. to be effective upon closing of
the offering

3.2 Form of Amended and Restated Bylaws of AppNet Systems, Inc. to be effective upon closing of the offering

4.1 Form of certificate of common stock of AppNet Systems, Inc.

5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson*

10.1 Intentionally Omitted

10.5 Agreement and Plan of Merger, dated September 17, 1998, by and among AppNet Systems, Inc.,
AppNet/Century, Inc., Century Computing, Incorporated and its stockholders for the purchase of all of
the issued and outstanding capital stock of Century Computing, Incorporated**

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Stock Purchase Agreement, dated as of March 22, 1999, by and among AppNet Systems, Inc., Internet
Outfitters, Inc. and its stockholders for the purchase of all of the issued and outstanding capital
stock of Internet Outfitters, Inc.**

10.13 Recapitalization Agreement, dated as of May , 1999, by and among AppNet Systems, Inc., the Class A
Preferred Stockholders and the Class B Preferred Stockholders*

10.14 Revolving Credit Agreement, dated as of January 8, 1999, by and among AppNet Systems, Inc., BankBoston,
N.A. and Antares Capital Corporation**

10.15 Intentionally Omitted

10.16 First Amendment to Revolving Credit Agreement, dated as of March 10, 1999, by and among AppNet Systems,
Inc., BankBoston, N.A. and Antares Capital Corporation**

10.17 Form of Lock-Up Agreement

10.18 Century Computing, Incorporated Incentive Stock Plan, as amended**

10.19 AppNet Systems, Inc. 1998 Stock Option and Incentive Plan (as amended and restated)

10.20 AppNet Systems, Inc. 1999 Incentive Stock Plan*

10.21 Internet Outfitters, Inc. 1996 Incentive Stock Option Plan, as amended**

10.22 Form of Senior Management Agreement, as amended*

10.23 Senior Management Agreement, dated as of June 29, 1998, by and between AppNet Systems, Inc. and Ken S.
Bajaj, as amended

21.1 Subsidiaries of AppNet Systems, Inc.**

23.1 Consent of Arthur Andersen LLP

23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1 above)*

23.3 Consent of Gartner Group/Dataquest**

23.4 Consent of International Data Corporation**

24.1 Power of Attorney**

27.1 Financial data schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

<PAGE>

Exhibit 1.1

[-] SHARES

APPNET SYSTEMS, INC.

COMMON STOCK

FORM OF UNDERWRITING AGREEMENT

[ - ] , 1999

CREDIT SUISSE FIRST BOSTON CORPORATION
HAMBRECHT & QUIST LLC
BT ALEX. BROWN INCORPORATED
The Robinson-Humphrey Company, LLC
Charles Schwab & Co., Inc.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629

Dear Sirs:

1. INTRODUCTORY. AppNet Systems, Inc., a Delaware corporation
("Company"), proposes to issue and sell [-] shares ("Firm Securities") of its
common stock ("Securities") and also proposes to issue and sell to the
Underwriters, at the option of the Underwriters, an aggregate of not more than
[-] additional shares ("Optional Securities") of its Securities as set forth
below. The Firm Securities and the Optional Securities are herein collectively
called the "Offered Securities". The Company hereby agrees with the several
Underwriters named in Schedule A hereto ("Underwriters") as follows:

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:

(a) A registration statement (No. 333-75205) relating to the
Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (i)
has been declared effective under the Securities Act of 1933 ("Act")
and is not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If

<PAGE>

such registration statement ("initial registration statement") has been
declared effective, either (i) an additional registration statement
("additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration
statement has been filed and the Company does not propose to amend it,
and if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any) to each
such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c)
("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised
the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by
the Commission. If an additional registration statement has not been
filed prior to the execution and delivery of this Agreement but the
Company has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is
filed and becomes effective pursuant to Rule 462(b). "Effective Date"
with respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its
Effective Time,

<PAGE>

including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration
statement pursuant to the General Instructions of the Form on which it
is filed and including all information (if any) deemed to be a part of
the initial registration statement as of its Effective Time pursuant to
Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to
as the "Initial Registration Statement". The additional registration
statement, as amended at its Effective Time, including the contents of
the initial registration statement incorporated by reference therein
and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to
Rule 430A(b), is hereinafter referred to as the "Additional
Registration Statement". The Initial Registration Statement and the
Additional Registration Statement are herein referred to collectively
as the "Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.

(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all material respects to
the requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all material respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (iii) on
the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to
the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required)
at the Effective Date of

<PAGE>

the Additional Registration Statement in which the Prospectus is
included, each Registration Statement and the Prospectus will conform,
in all material respects to the requirements of the Act and the Rules
and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
and the Prospectus will conform in all material respects to the
requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b) hereof.

(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the Company and its subsidiaries
taken as a whole.

(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the Company and its subsidiaries taken as a whole; all of the issued
and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued and is fully paid and
nonassessable; and, except as

<PAGE>

described in the Prospectus or as set forth in Schedule B hereto, the
capital stock of each subsidiary owned by the Company, directly or
through subsidiaries, is owned free from liens, encumbrances and
defects.

(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities.

(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finder's fee or other like
payment in connection with this offering.

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

(h) The Offered Securities have been approved for listing on
The Nasdaq Stock Market's National Market.

(i) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
<PAGE>

(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or by-laws of
the Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.

(k) This Agreement has been duly authorized, executed and
delivered by the Company.

(l) Except as disclosed in the Prospectus or as set forth in
Schedule C hereto, the Company and its subsidiaries have good and
marketable title to all real properties and all other properties and
assets owned by them, in each case free from liens, encumbrances and
defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and except
as disclosed in the Prospectus, the Company and its subsidiaries hold
any leased real or personal property under valid and enforceable leases
with no exceptions that would materially interfere with the use made or
to be made thereof by them.

(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them, except for such certificates, authorities or permits the failure
of which to obtain would not have a material adverse effect on the
Company and its subsidiaries taken as a whole, and have not received
any notice of proceedings relating to the revocation or modification of
any such certificate, authority or permit that, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.

(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its
subsidiaries taken as a

<PAGE>

whole.

(o) The Company and its subsidiaries own or possess adequate
trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, "intellectual property rights") necessary to
conduct the business now operated by them, or presently employed by
them, and have not received any notice of infringement of or conflict
with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of
its subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole.

(p) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.

(q) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the Company,
any of its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are, to the Company's knowledge,
threatened or contemplated.

(r) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company and its

<PAGE>

consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent
basis and the schedules included in each Registration Statement present
fairly the information required to be stated therein; and the
assumptions used in preparing the pro forma financial statements
included in each Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the
related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.

(s) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

(t) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the Investment Company Act of 1940.

3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $[-] per share, the respective numbers
of shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.

The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the office of Cravath, Swaine & Moore,
against payment of the purchase price in Federal (same day) funds by official
bank check or checks or wire

<PAGE>

transfer to an account at a bank acceptable to Credit Suisse First Boston
Corporation ("CSFBC") drawn to the order of [AppNet Systems, Inc.] at the office
of Cravath, Swaine & Moore, at 10:00 a.m., New York time, on [-], 1999, or at
such other time not later than seven full business days thereafter as CSFBC and
the Company determine, such time being herein referred to as the "First Closing
Date". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934,
the First Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities for
all the Offered Securities sold pursuant to the offering. The certificates for
the Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at the above office of Cravath, Swaine &
Moore at least 24 hours prior to the First Closing Date.

In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price to be paid for the Firm Securities. The Company agrees to sell to
the Underwriters the number of shares of Optional Securities specified in such
notice and the Underwriters agree, severally and not jointly, to purchase such
Optional Securities. Such Optional Securities shall be purchased for the account
of each Underwriter in the same proportion as the number of shares of Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.

Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the office of
Cravath, Swaine & Moore, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to an
account

<PAGE>

at a bank acceptable to CSFBC drawn to the order of AppNet Systems, Inc., at the
above office of Cravath, Swaine & Moore. The certificates for the Optional
Securities being purchased on each Optional Closing Date will be in definitive
form, in such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of Cravath, Swaine & Moore, at a
reasonable time in advance of such Optional Closing Date.

4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.

5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:

(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to
by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier
of (A) the second business day following the execution and delivery of
this Agreement or (B) the fifteenth business day after the Effective
Date of the Initial Registration Statement.

The Company will advise CSFBC promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement and an additional registration statement is necessary to
register a portion of the Offered Securities under the Act but the
Effective Time thereof has not occurred as of such execution and
delivery, the Company will file the additional registration statement
or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior
to 10:00 p.m., New York time, on the date of this Agreement or, if
earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.

(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the

<PAGE>

related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will
not effect such amendment or supplementation without CSFBC's consent,
which consent shall not be unreasonably withheld; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or the Prospectus and of the institution by
the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.

(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6.

(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.

(e) The Company will furnish to the Representatives copies of
each Registration Statement (five of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so
long as a prospectus relating to the

<PAGE>

Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and
all amendments and supplements to such documents, in each case in such
quantities as CSFBC requests. The Prospectus shall be so furnished on
or prior to 3:00 p.m., New York time, on the business day following the
later of the execution and delivery of this Agreement or the Effective
Time of the Initial Registration Statement. All other documents shall
be so furnished as soon as available. The Company will pay the expenses
of printing and distributing to the Underwriters all such documents.

(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as
CSFBC designates and will continue such qualifications in effect so
long as required for the distribution; provided, however, that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction.

(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each fiscal
year, a copy of its annual report to stockholders for such year; and
the Company will furnish to the Representatives (i) as soon as
available, a copy of each report and any definitive proxy statement of
the Company filed with the Commission under the Securities Exchange Act
of 1934 or mailed to stockholders, and (ii) from time to time, such
other information concerning the Company as CSFBC may reasonably
request.

(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing
fees and other expenses (including reasonable fees and disbursements of
counsel) incurred in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto for the
filing fee incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the
National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the
Offered Securities (provided that the Company may request, and, if
requested, CSFBC will provide, a detailed estimate of the anticipated
costs of travel and attending and hosting such meetings) and for
expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and

<PAGE>

supplements thereto) to the Underwriters.

(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except for (i) issuances of securities
pursuant to conversion of convertible instruments and the exercise of
warrants and stock options, in each case outstanding on the date
hereof, (ii) grants of stock options pursuant to stock incentive plans
in effect on the date hereof and issuances of securities pursuant to
the exercise of such stock options, (iii) issuances of securities in
connection with contingent payments payable to the former stockholders
of certain businesses the Company acquired, (iv) issuances of
securities in connection with strategic acquisitions or alliances so
long as the recipients of such securities enter into the restrictions
on the disposition of such securities set forth in this Section 5(i)
for the remainder of the 180-day period set forth in this Section 5(i)
and (v) issuances of securities pursuant to registration on Form S-8.

6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:

(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective
Time), of Arthur Andersen LLP confirming that they are independent
public accountants within the

<PAGE>

meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:

(i) they have (A) audited the consolidated balance
sheet of the Company and its subsidiaries as of December 31,
1998, and the consolidated statements of operations,
stockholders' equity and cash flows for the year ended
December 31, 1998, all included in the Prospectus (including
their audit report thereon), (B) audited, for each of the nine
acquired companies for which financial statements are included
in the Prospectus, each of the balance sheets and statements
of operations, stockholders' equity (or deficit, as
applicable) and cash flows as of the dates and for the periods
indicated in their audit reports thereon, all included in the
Prospectus, (C) examined, in accordance with Codification of
Statements on Standards for Attestation Engagements Section
300, [the unaudited pro forma consolidated balance sheet as of
December 31, 1998, and] the unaudited pro forma consolidated
statement of operations for the year ended December 31, 1998
(the "1998 Pro Forma Statement of Operations"), as included in
the Prospectus (including their examination report thereon)
and (D) reviewed, in accordance with Codification of
Statements on Standards for Attestation Engagements Section
300, the unaudited pro forma consolidated balance sheet of the
Company and its subsidiaries as of March 31, 1999, and the
unaudited pro forma consolidated statement of operations for
the Company and its subsidiaries for the three months ended
March 31, 1999 (together, the "Interim Pro Forma Statements"),
all as included in the Prospectus (including their review
report (the "Pro Forma Review Report")) thereon;

(ii) in their opinion the financial statements and
schedules, examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;

(iii) the 1998 Pro Forma Statement of Operations
complies as to form in all material respects with the
accounting requirements of Rule 11-02 of Regulation S-X under
the Exchange Act;

(iv) nothing came to their attention as a result of
the procedures undertaken in connection with the preparation
of the Pro Forma Review Report or specified above that caused
them to believe that the Interim Pro

<PAGE>

Forma Statements do not comply as to form in all material
respects with the accounting requirements of Rule 11-02 of
Regulation S-X under the Exchange Act;

(v) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;

(vi) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim
financial statements of the Company, inquiries of officials of
the Company who have responsibility for financial and
accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:

(A) the unaudited financial statements
included in the Registration Statements do not comply
as to form in all material respects with the
applicable accounting requirements of the Act and the
related published Rules and Regulations or any
material modifications should be made to such
unaudited financial statements for them to be in
conformity with generally accepted accounting
principles;

(B) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock (except
pursuant to option exercises or other issuances
described in the Prospectus) or any increase in
short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the
date of the latest available balance sheet read by
such accountants, there was any decrease in
consolidated net assets, as compared with amounts
shown on the latest balance sheet included in the
Prospectus; or

(C) for the period from the closing date of
the latest income statement included in the
Prospectus to the closing date of the latest
available income statement read by such accountants
there

<PAGE>

were any decreases, as compared with the
corresponding period of the previous year and with
the period of corresponding length ended the date of
the latest income statement included in the
Prospectus, in consolidated net sales , or net
operating income, or in the total or per share
amounts of consolidated net income,

except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which are described in such
letter;

(vii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter; and

(viii) they have (A) examined, in accordance with
Statements on Standards for Attestation Engagements Section 8,
the Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company and its
subsidiaries taken as a whole for the year ended December 31,
1998, as included in the Prospectus (and their restricted
examination report thereon is attached as an appendix to such
letter) and (B) reviewed, in accordance with Statements on
Standards for Attestation Engagements Section 8, the
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company and its subsidiaries
taken as a whole for the three month period ended March 31,
1999, as included in the Offering Memorandum (and their
restricted review report thereon is attached as an exhibit to
such letter).

For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
<PAGE>

Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to such
execution and delivery, "Registration Statements" shall mean the
Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective
Time, and (iii) "Prospectus" shall mean the prospectus included in the
Registration Statements.

(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 p.m., New
York time, on the date of this Agreement or such later date as shall
have been consented to by CSFBC. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 p.m., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and Section
5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission.

(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as one enterprise which, in the
judgment of a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the
sale of and payment for the Offered Securities; (ii) any downgrading in
the rating of any debt securities of the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
<PAGE>

securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any material suspension or material
limitation of trading in securities generally on the New York Stock
Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of the Company
on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and
payment for the Offered Securities.

(d) The Representatives shall have received an opinion, dated
such Closing Date, of Fried, Frank, Harris, Shriver & Jacobson, counsel
for the Company, to the effect that:

(i) the Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in Maryland,
Michigan and Virginia[, those being the only states in which
the ownership or lease of property or the conduct of its
business requires such qualification];

(ii) the Offered Securities delivered on such Closing
Date and, to such counsel's knowledge, all other outstanding
shares of the Common Stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained
in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities;

(iii) except as disclosed in the Registration
Statement, there are no contracts, agreements or
understandings known to such counsel between the Company and
any person granting such person the right to require the
Company to file a registration statement under the Act with
respect to any
<PAGE>

securities of the Company owned or to be owned by such person
[or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement]
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act;

(iv) no consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court
is required for the consummation of the transactions
contemplated by this Agreement in connection with the issuance
or sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may
be required under state securities laws;

(v) the execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, (A) any
statute, any rule, regulation or order of any governmental
agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their
properties, (B) any agreement or instrument to which the
Company or any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject as
listed in Schedule D hereto, or (C) the charter or by-laws of
the Company or any such subsidiary, and the Company has full
power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement;

(vi) the Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the Initial
Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the
knowledge of such counsel, no stop order suspending the
effectiveness of a Registration Statement or any part thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and
each Registration Statement

<PAGE>

and the Prospectus, and each amendment or supplement thereto,
as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of the
Act and the Rules and Regulations; such counsel have no reason
to believe that any part of a Registration Statement or any
amendment thereto, as of its effective date or as of such
Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or
supplement thereto, as of its issue date or as of such Closing
Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading; the descriptions
in the Registration Statements and Prospectus of statutes,
legal and governmental proceedings and contracts and other
documents are accurate in all material respects and fairly
present the information required to be shown in all material
respects; and such counsel do not know of any legal or
governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not
described as required or of any contracts or documents of a
character required to be described in a Registration Statement
or the Prospectus or to be filed as exhibits to a Registration
Statement which are not described and filed as required; it
being understood that such counsel need express no opinion as
to the financial statements and the notes thereto, financial
schedules or other financial data contained in the
Registration Statements or the Prospectus; and

(vii) this Agreement has been duly authorized,
executed and delivered by the Company.

(e) The Representatives shall have received from Cravath,
Swaine & Moore, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the
Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectus and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
<PAGE>

(f) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) under the Act, prior to the time the Prospectus
was printed and distributed to any Underwriter; and, subsequent to the
dates of the most recent financial statements in the Prospectus, there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole except as set forth
in or contemplated by the Prospectus or as described in such
certificate.

(g) The Representatives shall have received a letter, dated
such Closing Date, of Arthur Andersen LLP which meets the requirements
of subsection (a) of this Section, except that the specified date
referred to in such subsection will be a date not more than three days
prior to such Closing Date for the purposes of this subsection.

The Company will furnish the Representatives with such conformed copies
of such opinions, certificates, letters and documents as the
Representatives reasonably request. CSFBC may in its sole discretion
waive on behalf of the Underwriters compliance with any conditions to
the obligations of the Underwriters hereunder, whether in respect of an
Optional Closing Date or otherwise.

7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or

<PAGE>

supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (b) below; and provided,
further, that with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from any preliminary prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter that sold Offered Securities to the person asserting
any such losses, claims, damages or liabilities, to the extent that such sale
was an initial resale by such Underwriter and any such loss, claim, damage or
liability of such Underwriter results from the fact that there was not sent or
given to such person, at or prior to the written confirmation of the sale of
such Offered Securities to such person, a copy of the prospectus correcting such
untrue statement or alleged untrue statement in or omission or alleged omission
from such preliminary prospectus if the Company had previously furnished copies
of such correcting prospectus to such Underwriter.

(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to which
the Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company in

<PAGE>

connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Underwriter consists of
the following information in the Prospectus furnished on behalf of each
Underwriter: under the caption "Underwriting", the over-allotment and
stabilization information contained in the last paragraph and the concession and
reallowance figures appearing in the [fourth] paragraph.

(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement (i) includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of an
indemnified party.

(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only

<PAGE>

the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.

(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.

8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default
in their

<PAGE>

obligations to purchase Offered Securities hereunder on either the First or any
Optional Closing Date and the aggregate number of shares of Offered Securities
that such defaulting Underwriter or Underwriters agreed but failed to purchase
does not exceed 10% of the total number of shares of Offered Securities that the
Underwriters are obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.

9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii),

<PAGE>

(iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.

10. NOTICES. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed by overnight mail, delivered by hand or
sent by facsimile transmission and confirmed to the Representatives, c/o Credit
Suisse First Boston Corporation, Eleven Madison Avenue, New York, NY 10010-3629,
Attention: Investment Banking Department-Transactions Advisory Group, or, if
sent to the Company, will be mailed by overnight mail, delivered by hand or sent
by facsimile transmission and confirmed to it at 6707 Democracy Boulevard,
Bethesda, MD 20817, Attention: [Jack Pearlstein]; provided, however, that any
notice to an Underwriter pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.

11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.

12. REPRESENTATION OF UNDERWRITERS. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.

13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.

The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
<PAGE>

If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.

Very truly yours,

APPNET SYSTEMS, INC.

Name:
Title:

Acting on behalf of themselves and as
the
Representatives of the several
Underwriters

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

CREDIT SUISSE FIRST BOSTON
CORPORATION
BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
THE ROBINSON-HUMPHREY
COMPANY, LLC
CHARLES SCHWAB & CO., INC.

by CREDIT SUISSE FIRST BOSTON
CORPORATION

<PAGE>

SCHEDULE A

NUMBER OF
UNDERWRITER FIRM SECURITIES
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation................
Hambrecht & Quist LLC.................................
BT Alex. Brown Incorporated
The Robinson-Humphrey Company, LLC....................
Charles Schwab & Co., Inc.............................
---------------
Total...............................
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---------------
</TABLE>

<PAGE>

Exhibit 3.1

FORM OF RESTATED CERTIFICATE OF INCORPORATION
OF
APPNET SYSTEMS, INC.

AppNet Systems, Inc., a corporation existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:

1. The name of the corporation is AppNet Systems, Inc. AppNet Systems,
Inc. was originally incorporated under the name Internet Applications, Inc., and
the original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on November 6, 1997.

2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of this corporation.

3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:

FIRST: The name of the Corporation is AppNet Systems, Inc.

SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle, Delaware 19805. The name of its registered
agent at such address is Corporation Service Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "DGCL").

FOURTH: The aggregate number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is [80,000,000] of which
(i) 75,000,000 shall be designated common stock, par value $.0005 per share
("Common Stock"), and (ii) [5,000,000] shall be designated preferred stock, par
value $.01 per share ("Preferred Stock").

A. Common Stock

Except as otherwise provided in this Part A or as otherwise
required by applicable law, all shares of Common Stock shall be identical in all
respects and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.

<PAGE>

1. DIVIDENDS. Subject to the preferential rights, if any,
of the Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive, when and if declared by the Board of Directors, out of
the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in property, or in shares of capital stock.

2. VOTING RIGHTS. At every annual or special meeting of the
stockholders of the Corporation, every holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock standing in
his name on the books of the Corporation.

3. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the event of
any voluntary or involuntary liquidation, dissolution, or winding up of the
affairs of the Corporation after payment or provision for payment of the debts
and other liabilities of the Corporation and of the preferential amounts, if
any, to which holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably in the
remaining net assets of the Corporation.

B. Preferred Stock

Shares of the Preferred Stock of the Corporation may be issued
from time to time in one or more classes or series, each of which class or
series shall have such distinctive designation or title as shall be fixed by the
Board of Directors of the Corporation prior to the issuance of any shares
thereof. Each such class or series of Preferred Stock shall have such voting
powers, full or limited or no voting powers and such preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such resolution or
resolutions providing for the issue of such class or series of Preferred Stock
as may be adopted from time to time by the Board of Directors prior to the
issuance of any shares thereof pursuant to the authority hereby expressly vested
in it, all in accordance with the laws of the State of Delaware.

C. Class A and Class B Preferred Stock

1. DESIGNATION, PAR VALUE AND AMOUNT.

a. CLASS A PREFERRED STOCK. The shares of such class
shall be designated as "Class A Preferred," the shares of such class shall be
with par value of $.01 per share, and the number of shares constituting such
class shall be 96,621.

b. CLASS B PREFERRED STOCK. The shares of such class
shall be designated as "Class B Preferred," the shares of such class shall be
with par value of $.01 per share, and the number of shares constituting such
class shall be 20,000.

2. DIVIDENDS.

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<PAGE>

a. GENERAL OBLIGATION. When and as declared by the
Corporation's Board of Directors and to the extent permitted under the DGCL,
the Corporation shall pay preferential dividends in cash to the holders of
the Class A and Class B Preferred as provided in this Section 2. Dividends on
each share of the Class A and Class B Preferred (a "SHARE") shall accrue on a
daily basis at the rate of 6% per annum of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon from and including
the date of issuance of such Share to and including the first to occur of (i)
the date on which the Liquidation Value of such Share (plus all accrued and
unpaid dividends thereon) is paid to the holder thereof in connection with
the liquidation of the Corporation or the redemption of such Share by the
Corporation or (ii) the date on which such Share is otherwise acquired by the
Corporation. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends, and such
dividends shall be cumulative such that all accrued and unpaid dividends
shall be fully paid or declared with funds irrevocably set apart for payment
before any dividends, distributions, redemptions or other payments may be
made with respect to any Junior Securities. The date on which the Corporation
initially issues any Share shall be deemed to be its "date of issuance"
regardless of the number of times transfer of such Share is made on the stock
records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Share.

b. DIVIDEND REFERENCE DATES. To the extent not paid
on March 31, June 30, September 30 and December 31 of each year, beginning June
30, 1998 for the Class A Preferred and September 30, 1998 for the Class B
Preferred (the "DIVIDEND REFERENCE DATES"), all dividends which have accrued on
each Share outstanding during the three-month period (or other period in the
case of the initial Dividend Reference Date) ending upon each such Dividend
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Share until paid to the holder thereof.

c. DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except
as otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Class A or Class B
Preferred such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Shares held by each
such holder.

3. LIQUIDATION. Upon any liquidation, dissolution or winding
up of the Corporation (whether voluntary or involuntary), each holder of Class A
or Class B Preferred shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Shares held by such holder (plus all accrued
and unpaid dividends thereon), and the holders of Class A or Class B Preferred
shall not be entitled to any further payment. If upon any such liquidation,
dissolution or winding up of the Corporation the Corporation's assets to be
distributed among the holders of the Class A and Class B Preferred are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 3, then the entire assets
available to be distributed to the Corporation's stockholders shall be
distributed pro rata among such holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends)

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<PAGE>

of the Class A and Class B Preferred held by each such holder. Not less than
60 days prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each
record holder of Class A or Class B Preferred, setting forth in reasonable
detail the amount of proceeds to be paid with respect to each Share and each
share of Common Stock in connection with such liquidation, dissolution or
winding up.

4. PRIORITY OF PREFERRED STOCK. So long as any Class A or
Class B Preferred remains outstanding, without the prior written consent of the
holders of a majority of the outstanding Shares of Class A or Class B Preferred,
the Corporation shall not, nor shall it permit any Subsidiary to, redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities, nor
shall the Corporation directly or indirectly pay or declare any dividend or make
any distribution upon any Junior Securities; provided that the Corporation may
purchase shares of Common Stock pursuant to arrangements approved by the Board
from present or former employees of the Corporation or its Subsidiaries.

5. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by applicable law, the Class A and Class B Preferred shall
have no voting rights, provided that each holder of Class A or Class B Preferred
shall be entitled to notice of all stockholders meetings at the same time and in
the same manner as notice is given to all stockholders entitled to vote at such
meetings.

D. Class A Preferred Stock

1. REDEMPTIONS.

a. OPTIONAL REDEMPTIONS. The Corporation may at any
time and from time to time redeem all or any portion of the Shares of Class A
Preferred then outstanding. Upon any such redemption, the Corporation shall pay
a price per Share equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). No redemption pursuant to this Section may be made
for less than 1,000 Shares (or such lesser number of Shares then outstanding).

b. REDEMPTION AFTER PUBLIC OFFERING. The Corporation
shall, at the request (by written notice given to the Corporation) of the
holders of a majority of the Class A Preferred, apply the net cash proceeds from
any Public Offering remaining after deduction of all discounts, underwriters'
commissions and other reasonable expenses to redeem Shares of Class A Preferred
at a price per Share equal to the Liquidation Value thereof (plus all accrued
and unpaid dividends thereon). Such redemption shall take place on a date fixed
by the Corporation, which date shall be not more than five days after the
Corporation's receipt of such proceeds.

c. REDEMPTION PAYMENTS. For each Share which is to be
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Share) an amount in
immediately available funds equal to the Liquidation Value of such Share (plus
all accrued and unpaid dividends thereon). If the funds of the Corporation
legally available for redemption of Shares on any Redemption Date are
insufficient

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<PAGE>

to redeem the total number of Shares to be redeemed on such date, those funds
which are legally available shall be used to redeem the maximum possible
number of Shares pro rata among the holders of the Shares to be redeemed
based upon the aggregate Liquidation Value of such Shares held by each such
holder (plus all accrued and unpaid dividends thereon). At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Shares, such funds shall immediately be used to redeem the
balance of the Shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed.

d. NOTICE OF REDEMPTION. Except as otherwise provided
herein, the Corporation shall mail written notice of each redemption of any
Class A Preferred to each record holder thereof not more than 60 nor less than
30 days prior to the date on which such redemption is to be made. In case fewer
than the total number of Shares represented by any certificate are redeemed, a
new certificate representing the number of unredeemed Shares shall be issued to
the holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed Shares.

e. DETERMINATION OF THE NUMBER OF EACH HOLDER'S
SHARES TO BE REDEEMED. The number of Shares of Class A Preferred to be redeemed
from each holder thereof in redemptions hereunder shall be the number of Shares
of Class A Preferred determined by multiplying the total number of Shares of
Class A Preferred to be redeemed times a fraction, the numerator of which shall
be the total number of Shares of Class A Preferred then held by such holder and
the denominator of which shall be the total number of Shares of Class A
Preferred then outstanding.

f. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be
entitled to any dividends accruing after the date on which the Liquidation Value
of such Share (plus all accrued and unpaid dividends thereon) is paid to the
holder of such Share. On such date, all rights of the holder of such Share shall
cease, and such Share shall no longer be deemed to be issued and outstanding.

g. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares
which are redeemed or otherwise acquired by the Corporation shall be canceled
and retired to authorized but unissued shares and shall not be reissued, sold or
transferred.

h. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation
shall not, nor shall it permit any Subsidiary to, redeem or otherwise acquire
any Shares of Class A Preferred, except as expressly authorized herein.

i. SPECIAL REDEMPTIONS.

(i) If a Change in Ownership has occurred or
the Corporation obtains knowledge that a Change in Ownership is proposed to
occur, the Corporation shall give prompt written notice of such Change in
Ownership describing in reasonable detail the material terms and date of
consummation thereof to each holder of Class A Preferred, but in any event such
notice shall not be given later than five days after the occurrence of such
Change in

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<PAGE>

Ownership, and the Corporation shall give each holder of Class A Preferred
prompt written notice of any material change in the terms or timing of such
transaction. The holder or holders of a majority of the Class A Preferred
then outstanding may require the Corporation to redeem all or any portion of
the Class A Preferred owned by such holders at a price per Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by
giving written notice to the Corporation of such election prior to the later
of (a) twenty-one days after receipt of the Corporation's notice and (b) five
days prior to the consummation of the Change in Ownership (the "EXPIRATION
DATE"). The Corporation shall give prompt written notice of any such election
to all other holders of Class A Preferred within five days after the receipt
thereof, and each such holder shall have until the later of (a) the
Expiration Date or (b) ten days after receipt of such second notice to
request redemption hereunder (by giving written notice to the Corporation) of
all or any portion of the Class A Preferred owned by such holder.

Upon receipt of such election(s), the Corporation shall be obligated to
redeem the aggregate number of Shares specified therein on the later of (a) the
occurrence of the Change in Ownership or (b) five days after the Corporation's
receipt of such election(s). If any proposed Change in Ownership does not occur,
all requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the timing of
the transaction, any holder of Class A Preferred may rescind such holder's
request for redemption by delivering written notice thereof to the Corporation
prior to the consummation of the transaction.

The term "CHANGE IN OWNERSHIP" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of Common Stock by the Corporation
or any holders thereof which results in any Person or group of Persons (as the
term "GROUP" is used under the Securities Exchange Act of 1934), other than the
holders of Common Stock or Class A Preferred as of the date of the Purchase
Agreement, owning more than 50% of the Common Stock outstanding at the time of
such sale, transfer or issuance or series of sales, transfers and/or issuances;
provided, however, that a Change in Ownership shall not occur as a result of a
Public Offering of Common Stock.

(ii) If a Fundamental Change is proposed to
occur, the Corporation shall give written notice of such Fundamental Change
describing in reasonable detail the material terms and date of consummation
thereof to each holder of Class A Preferred not more than forty-five days nor
less than twenty days prior to the consummation of such Fundamental Change, and
the Corporation shall give each holder of Class A Preferred prompt written
notice of any material change in the terms or timing of such transaction. The
holder or holders of a majority of the Shares then outstanding may require the
Corporation to redeem all or any portion of the Class A Preferred owned by such
holders at a price per Share equal to the Liquidation Value thereof (plus all
accrued and unpaid dividends thereon) by giving written notice to the
Corporation of such election prior to the later of (a) ten days prior to the
consummation of the Fundamental Change or (b) ten days after receipt of notice
from the Corporation. The Corporation shall give prompt written notice of such
election to all other holders of Class A Preferred (but in any event within five
days prior to the consummation of the Fundamental Change), and each such holder
shall have until two days after the receipt of such

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<PAGE>

notice to request redemption (by written notice given to the Corporation) of
all or any portion of the Class A Preferred owned by such holder.

Upon receipt of such election(s), the Corporation shall be obligated to
redeem the aggregate number of Shares specified therein upon the consummation of
such Fundamental Change. If any proposed Fundamental Change does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the timing of
the transaction, any holder of Class A Preferred may rescind such holder's
request for redemption by delivering written notice thereof to the Corporation
prior to the consummation of the transaction.

The term "FUNDAMENTAL CHANGE" means (a) any sale or transfer of more
than 50% of the assets of the Corporation and its Subsidiaries on a consolidated
basis (measured either by book value in accordance with generally accepted
accounting principles consistently applied or by fair market value determined in
the reasonable good faith judgment of the Corporation's Board of Directors) in
any transaction or series of transactions (other than sales in the ordinary
course of business) and (b) any merger or consolidation to which the Corporation
is a party, except for a merger in which the Corporation is the surviving
corporation, the terms of the Class A Preferred are not changed and the Class A
Preferred is not exchanged for cash, securities or other property, and after
giving effect to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of Directors
immediately prior to the merger shall continue to own the Corporation's
outstanding capital stock possessing the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of Directors.

E. MISCELLANEOUS PROVISIONS APPLICABLE TO CLASS A AND CLASS B PREFERRED
STOCK.

1. DEFINITIONS FOR PURPOSES OF CLASS A AND CLASS B PREFERRED.

"CHANGE IN OWNERSHIP" has the meaning set forth in
Section 1.i(i) of Part D of this Article Fourth.

"FUNDAMENTAL CHANGE" has the meaning set forth in
Section 1.i(ii) of Part D of this Article Fourth.

"JUNIOR SECURITIES" means any capital stock or other
equity securities of the Corporation, except for the Class A and Class B
Preferred.

"LIQUIDATION VALUE" of any Share as of any particular
date shall be equal to $1,000.00.

"PERSON" means an individual, a partnership, a
corporation, a limited liability company, a limited liability, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.

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<PAGE>

"PUBLIC OFFERING" means any offering by the
Corporation of its capital stock, or equity securities to the public pursuant
to an effective registration statement under the Securities Act of 1933, as
then in effect, or any comparable statement under any similar federal statute
then in force.

"PURCHASE AGREEMENT" means the Purchase Agreement,
dated as of June 29, 1998, by and among the Corporation and certain investors,
as such agreement may from time to time be amended in accordance with its terms.

"REDEMPTION DATE" as to any Share means the date
specified in the notice of any redemption at the Corporation's option or at the
holder's option or the applicable date specified herein in the case of any other
redemption; provided that no such date shall be a Redemption Date unless the
Liquidation Value of such Share (plus all accrued and unpaid dividends thereon
and any required premium with respect thereto) is actually paid in full on such
date, and if not so paid in full, the Redemption Date shall be the date on which
such amount is fully paid.

"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association, joint venture
or other business entity of which (i) if a corporation, fifty percent (50%) or
more of the total voting power of shares of stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, fifty percent (50%) or more
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a fifty percent (50%) or greater
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated fifty percent
(50%) or more of limited liability company, partnership, association or other
business entity gains or losses or shall be or control the managing general
partner of such limited liability company, partnership, association or other
business entity.

2. AMENDMENT AND WAIVER. No amendment, modification or waiver
shall be binding or effective with respect to any provision of (i) Part C or E
without the prior written consent of the holders of a majority of the Class A
and Class B Preferred Stock outstanding at the time such action is taken or (ii)
Part D without the prior written consent of the holders of a majority of the
Class A Preferred outstanding at the time such action is taken; provided that no
change in the terms hereof may be accomplished by merger or consolidation of the
Corporation with another corporation or entity unless the Corporation has
obtained the prior written consent of the holders of the applicable percentage
of the class or classes of the Preferred Stock then outstanding.

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<PAGE>

3. NOTICES. Except as otherwise expressly provided
hereunder, all notices referred to herein to holders of Class A and Class B
Preferred shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any Class A or Class B stockholder, at such
holders address as it appears in the stock records of the Corporation (unless
otherwise indicated by any such holder).

F. Reverse Stock Split

1. MECHANICS. Effective upon the filing of this Restated
Certificate of Incorporation, each issued and outstanding share of Common Stock
shall be converted, pursuant to a reverse stock split, into __________ (___)
shares of Common Stock, par value [$.0005] per share, subject to the treatment
of fractional share interests as described below (the "Conversion"). Each holder
of one (1) share of Common Stock at such time will, without further action on
the part of any person, immediately thereafter hold _______________ (____)
shares of Common Stock of the Corporation.

2. CERTIFICATES. Promptly after the filing of this Restated
Certificate of Incorporation, the Corporation shall deliver to each holder of
issued and outstanding shares of Common Stock which surrender for cancellation a
certificate or certificates representing outstanding shares of Common Stock
prior to the Conversion, a certificate or certificates representing the number
of shares of Common Stock issuable by reason of the Conversion in the name of
such holder. This issuance of certificates for shares of Common Stock upon the
Conversion shall be made without charge for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Common Stock. From and after the filing of
this Restated Certificate of Incorporation, certificates representing
outstanding shares of Common Stock prior to the Conversion shall thereupon be
deemed for all corporate purposes to evidence ownership of the number of shares
of Common Stock issuable by reason of the Conversion.

3. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be created or outstanding upon the Conversion. Any holder of Common Stock who by
reason of the Conversion would have been entitled to receive a fraction of a
share of Common Stock by reason of the Conversion, shall receive only the
nearest whole share, with .5 share or more fractional shares being rounded up to
the next whole share.

FIFTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such lawful
acts and things as are not by statute or this Restated Certificate of
Incorporation directed or required to be exercised or done by the stockholders.

A. DIRECTORS. The number of directors of the Corporation shall
be established as set forth in the Amended and Restated Bylaws of the
Corporation, but in no event shall the

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<PAGE>

number of directors be fewer than three (3) nor more than eleven (11). Any
change to the number of directors set forth herein may only be made by
amendment to this Article FIFTH. No such change shall affect the term of any
director then in office. No director need be a stockholder. Each director
elected shall hold office until a successor is duly elected and qualified or
until his or her earlier death, resignation or removal as hereinafter
provided.

B. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights of the holders of any class or series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or any
other cause may be filled by the Board of Directors, provided that a quorum is
then in office and present, or by a majority of the directors then in office, if
less than a quorum is then in office, or by the sole remaining director.
Directors elected to fill a newly created directorship or other vacancies shall
hold office until such director's successor has been duly elected and qualified
or until his or her earlier death, resignation or removal as hereinafter
provided.

C. REMOVAL OF DIRECTORS. Subject to the rights of the holders
of any class or series of Preferred Stock then outstanding, the directors or any
director may be removed from office at any time, at a meeting called for that
purpose, and only by the affirmative vote of the holders of at least 66-2/3% of
the voting power of all shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.

D. RIGHTS OF HOLDERS OF PREFERRED STOCK. Notwithstanding the
foregoing provisions of this Article FIFTH, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
rights and preferences of such Preferred Stock as set forth in this Restated
Certificate of Incorporation or in the resolution or resolutions of the Board of
Directors relating to the issuance of such Preferred Stock.

SIXTH: The Corporation is to have perpetual existence.

SEVENTH: The Board of Directors is expressly authorized to adopt, amend
or repeal the by-laws of the Corporation. Any by-laws made by the directors
under the powers conferred hereby may be amended or repealed by the directors or
by the stockholders. Notwithstanding the foregoing and anything contained in
this Restated Certificate of Incorporation to the contrary, the Amended and
Restated By-laws of the Company shall not be amended or repealed by the
stockholders, and no provision inconsistent therewith shall be adopted by the
stockholders, without the affirmative vote of the holders of 66-2/3% of the
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.

EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; PROVIDED, HOWEVER, that the foregoing shall not eliminate or
limit the liability of a director (i) for any

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<PAGE>

breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is hereafter amended to permit further
elimination or limitation of the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL as so amended. Any repeal or
modification of this Article EIGHTH by the stockholders of the Corporation or
otherwise shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or modification.

NINTH: Each person who was or is made a party or is threatened to be
made a party to or is involved (including, without limitation, as a witness) in
any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"Indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while so
serving, shall be indemnified and held harmless by the Corporation to the full
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), or by other
applicable law as then in effect, against all expense, liability and loss
(including attorneys' fees and related disbursements, judgments, fines, excise
taxes or penalties under the Employee Retirement Income Security Act of 1974, as
amended from time to time ("ERISA"), penalties and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by such Indemnitee in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be a director, officer, partner, member or trustee and shall inure
to the benefit of his or her heirs, executors and administrators. Each person
who is or was serving as a director or officer of a subsidiary of the
Corporation shall be deemed to be serving, or have served, at the request of the
Corporation.

A. PROCEDURE. Any indemnification under this Article NINTH
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he/she has met the applicable
standard of conduct set forth in the DGCL, as the same exists or hereafter may
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment). Such
determination shall be made (a) by the Board of Directors by a majority vote of
the directors who were not parties to such action, suit or proceeding (the
"Disinterested Directors"), even though less than a quorum, (b) if there are no
such directors, or if such directors so direct, by independent legal counsel in
a written opinion, or (c) by the stockholders.

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<PAGE>

B. ADVANCES FOR EXPENSES. Costs, charges and expenses
(including attorneys' fees) incurred by a director or officer of the
Corporation in defending a civil or criminal action, suit or proceeding shall
be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay all amounts so advanced in the event that it
shall ultimately be determined that such director or officer is not entitled
to be indemnified by the Corporation as authorized in this Article NINTH. The
majority of the Disinterested Directors may, in the manner set forth above,
and upon approval of such director or officer of the Corporation, authorize
the Corporation's counsel to represent such person, in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.

C. PROCEDURE FOR INDEMNIFICATION. Any indemnification or
advance of costs, charges and expenses under this Article NINTH shall be made
promptly, and in any event within 60 days upon the written request of the
director or officer, and shall be accompanied by a written undertaking by or on
behalf of Indemnitee to repay such amount if it shall ultimately be determined
that Indemnitee is not entitled to be indemnified therefor pursuant to the terms
of this Article NINTH. The right to indemnification of advances as granted by
this Article NINTH shall be enforceable by the director or officer in any court
of competent jurisdiction, if the Corporation denies such request, in whole or
in part, or if no disposition thereof is made within 60 days. Such person's
costs and expenses incurred in connection with successfully establishing his/her
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under this Article NINTH where the required undertaking, if any, has
been received by the Corporation) that the claimant has not met the standard of
conduct set forth in the DGCL, as the same exists or hereafter may be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel and
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he/she has met the applicable standard of conduct set forth in the DGCL,
as the same exists or hereafter may be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights that said law permitted the Corporation
to provide prior to such amendment), nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.

D. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification and advancement of expenses provided by this Article NINTH shall
not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any law (common
or statutory), by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his/her official capacity

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<PAGE>

and as to action in another capacity while holding office or while employed
by or acting as agent for the Corporation, and shall continue as to a person
who has ceased to be a director or officer, and shall inure to the benefit of
the estate, heirs, executors and administers of such person. All rights to
indemnification under this Article NINTH shall be deemed to be a contract
between the Corporation and each director or officer of the Corporation who
serves or served in such capacity at any time while this Article NINTH is in
effect. Any repeal or modification of this Article NINTH or any repeal or
modification of relevant provisions of the DGCL or any other applicable laws
shall not in any way diminish any rights to indemnification of such director
or officer or the obligations of the Corporation arising hereunder with
respect to any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption of such
modification or repeal. For the purposes of this Article NINTH, 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 or officer of such a constituent
corporation or is or was serving at the request of such constituent
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise shall stand in the same position
under the provisions of this Article NINTH, with respect to the resulting or
surviving corporation, as he would if he/she had served the resulting or
surviving corporation in the same capacity.

E. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was or has agreed to become
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him/her and incurred by him/her or on his/her behalf in any such capacity, or
arising out of his/her status as such, whether or not the Corporation would have
the power to indemnify him/her against such liability under the provisions of
this Article NINTH, PROVIDED, HOWEVER, that such insurance is available on
acceptable terms, which determination shall be made by a vote of a majority of
the Board of Directors.

F. SAVINGS CLAUSE. If this Article NINTH or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each person entitled to
indemnification under the first paragraph of this Article NINTH as to all
expense, liability and loss (including attorneys' fees and related
disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person and for which indemnification is available to such
person pursuant to this Article NINTH to the full extent permitted by any
applicable portion of this Article NINTH that shall not have been invalidated
and to the full extent permitted by applicable law.

TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed herein and by the laws of the State of
Delaware, and all rights conferred upon stockholders herein are granted subject
to this reservation.

* * * * *

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<PAGE>

This Restated Certificate of Incorporation has been duly adopted by the
written consent of the stockholders of the Corporation in accordance with the
provisions of Sections 228, 242 and 245 of the DGCL, as amended.

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<PAGE>

IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by ______________________, its authorized officer, this _____ day of
_______, 1999.

APPNET SYSTEMS, INC.

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

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<PAGE>

Exhibit 3.2

FORM OF AMENDED AND RESTATED BY-LAWS
OF
APPNET SYSTEMS, INC.

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be located at 1013 Centre Road, Wilmington,
Delaware, County of New Castle, 19805. The name of the Corporation's registered
agent at such address shall be the Corporation Service Company. The registered
office and/or registered agent of the Corporation may be changed from time to
time by action of the Board of Directors.

SECTION 2. OTHER OFFICES. The Corporation may have an office or offices
other than said registered office at such place or places, either within or
without the State of Delaware, as the Board of Directors shall from time to time
determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of meeting or in a
duly executed waiver thereof.

SECTION 2. ANNUAL MEETING. An annual meeting of stockholders shall be
held each year and stated in a notice of meeting or in a duly executed waiver
thereof. The date, time and place of such meeting shall be determined by the
President of the Corporation; PROVIDED THAT if the President does not act, the
Board of Directors shall determine the date, time, and place of such meeting. At
such annual meeting, the stockholders shall elect, by a plurality vote, a Board
of Directors and transact such other business as may properly be brought before
the meeting.

SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may be
called for any purpose by the Board of Directors and may be held at such time
and place, within or without the State of Delaware, as shall be stated in a
notice of meeting or in a duly executed waiver of notice thereof.

SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required
by statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less

<PAGE>

than ten (10) nor more than sixty (60) days before the date of the meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice. Notice shall be given personally or by mail
and, if by mail, shall be sent in a postage prepaid envelope, addressed to the
stockholder at his address as it appears on the records of the Corporation.
Notice by mail shall be deemed given at the time when the same shall be
deposited in the United States mail, postage prepaid. Notice of any meeting
shall not be required to be given to any person who attends such meeting, except
when such person attends the meeting in person or by proxy 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, or who, either
before or after the meeting, shall submit a signed written waiver of notice, in
person or by proxy. Neither the business to be transacted at, nor the purpose
of, an annual or special meeting of stockholders need be specified in any
written waiver of notice.

SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of 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, town or
village where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not specified, at the place where the meeting is to be
held. The list shall 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 6. QUORUM; ADJOURNMENTS. The holders of a majority of the
voting power of the issued and outstanding stock of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty (30) days, or, if after adjournment a new
record date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

SECTION 7. ORGANIZATION. At each meeting of stockholders, the Chairman
of the Board, if one shall have been elected, or, in his absence or if one shall
not have been elected, the President shall act as chairman of the meeting. The
Secretary or, in his absence or inability to act, the person whom the chairman
of the meeting shall appoint secretary of the meeting shall act as secretary of
the meeting and keep the minutes thereof.

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<PAGE>

SECTION 8. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.

SECTION 9. VOTING. Except as otherwise provided by the Certificate of
Incorporation or the General Corporation Law of the State of Delaware, each
stockholder of the Corporation shall be entitled at each meeting of stockholders
to one (1) vote for each share of capital stock of the Corporation standing in
his name on the record of stockholders of the Corporation:

(a) on the date fixed pursuant to the provisions of Section 9
of Article V of these By-laws as the record date for the
determination of the stockholders who shall be entitled to
notice of and to vote at such meeting; or

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

Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after (3) three years from
its date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present and voting, in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of statute or of the Certificate of Incorporation or of these By-laws,
a different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such proxy, and shall
state the number of shares voted and the number of votes to which each share is
entitled.

SECTION 10. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the

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<PAGE>

results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.

SECTION 11. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors as provided under Section 3 of this Article II, (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this Section
11 and on the record date for the determination of stockholders entitled to vote
at such meeting and (ii) who complies with the notice procedures set forth in
this Section 11.

In addition to any other applicable requirements, for a
nomination to be made by a stockholder such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than ninety (90) days
prior to the date of the anniversary of the previous year's annual meeting;
PROVIDED, HOWEVER, that in the event the annual meeting is scheduled to be held
on a date more than thirty (30) days prior to or delayed by more than sixty (60)
days after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the later of the close of business
ninety (90) days prior to such annual meeting or the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made and (b) in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was mailed
or public disclosure of the date of the special meeting was made, whichever
first occurs.

To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or

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<PAGE>

series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by the person and (iv) any other information relating
to the person that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice (i) the
name and record address of such stockholder, (ii) the class or series and number
of shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to serve as a
director if elected.

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 11. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.

SECTION 12. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT
ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 12 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 12.

In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.

To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the anniversary
of the previous year's annual meeting; PROVIDED, HOWEVER, that in the event the
annual meeting is scheduled to be held on a date more than thirty (30) days
prior to or delayed by more than sixty (60) days after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the later of the close of business ninety (90) days prior to such annual
meeting or the tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made.

To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief

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<PAGE>

description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of such stockholder, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iv) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meting to bring such business before the meeting.

No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 12; PROVIDED, HOWEVER, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 12 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.

SECTION 13. ACTION BY WRITTEN CONSENT. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, by any provision of statute or of the
Certificate of Incorporation or of these By-laws, the meeting and vote of
stockholders may be dispensed with, and the action taken without such meeting
and vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of the 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 of stock of the Corporation entitled to vote thereon
were present and voted. The consent shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, or the Corporation's
principal place of business, or an officer or agent of the Corporation having
custody of the book or books in which the proceedings of meetings of the
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested;
PROVIDED, HOWEVER, that no consent delivered by certified or registered mail
shall be deemed delivered until such consent is actually received at the
Corporation's registered office. All consents properly delivered in accordance
with this Section 13 shall be deemed to be recorded when so delivered. No
written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated consent delivered
to the Corporation as required by this Section 13, written consents signed by
the holders of a sufficient number of shares to take such corporate action are
so recorded. 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. Any action taken pursuant to
such written consent of the stockholders shall have the same force and effect as
if taken by the stockholders at a meeting thereof.

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<PAGE>

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.

SECTION 2. NUMBER AND ELECTION. The number of directors which shall
constitute the Board of Directors shall be six (6). Except as otherwise provided
by the By-laws, the directors shall be elected at the annual meeting of
stockholders.

SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors shall
be held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.

SECTION 4. ANNUAL MEETINGS. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held. In
the event such annual meeting is not so held, the annual meeting of the Board of
Directors may be held at such other time or place (within or without the State
of Delaware) as shall be specified in a notice thereof given as hereinafter
provided in Section 7 of this Article III.

SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall he held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day.

SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, or
by two or more directors of the Corporation or by the President.

SECTION 7. NOTICE OF MEETINGS. Notice of regular meetings of the Board
of Directors need not be given except as otherwise required by law or these
By-laws. Notice of each special meeting of the Board of Directors, and of each
regular and annual meeting of the Board of Directors for which notice shall be
required, shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-laws, such notice need not state the
purposes of such meeting. Notice of any special meeting, and of any regular or
annual meeting for which notice is required, shall be given to each director at
least (a) twenty-four (24) hours before the meeting if by telephone or by being
personally delivered or sent by telex, telecopy, or similar means or (b) five
(5) days before the meeting if delivered by mail to the director's residence or
usual place of

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<PAGE>

business. Such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage prepaid, or when transmitted if
sent by telex, telecopy, or similar means. Neither the business to be transacted
at, nor the purpose of, any special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Any director may
waive notice of any meeting by a writing signed by the director entitled to the
notice and filed with the minutes or corporate records.

SECTION 8. WAIVER OF NOTICE AND PRESUMPTION OF ASSENT. Any member of
the Board of Directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends 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. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.

SECTION 9. QUORUM AND MANNER OF ACTING. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By-laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to all of the directors unless such
time and place were announced at the meeting at which the adjournment was taken,
in which case such notice shall only be given to the directors who were not
present thereat. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called. The directors shall act only as a Board and the individual
directors shall have no power as such.

SECTION 10. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board, if one shall have been elected, or, in the absence of
the Chairman of the Board or if one shall not have been elected, the President
(or, in his absence, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The Secretary
or, in his absence, any person appointed by the chairman, shall act as secretary
of the meeting and keep the minutes thereof.

SECTION 11. RESIGNATIONS; NEWLY CREATED DIRECTORSHIPS; VACANCIES; AND
REMOVALS. Any director of the Corporation may resign at any time by giving
written notice of his resignation to the Corporation. Any such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Newly created directorships resulting from any
increase in the

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<PAGE>

number of directors or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal or any other cause
shall be filled as provided in the Certificate of Incorporation. Any director
may be removed as provided in the Certificate of Incorporation.

SECTION 12. COMPENSATION. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity.

SECTION 13. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Except to the extent restricted by statute or the Certificate of Incorporation,
each such committee, to the extent provided in the resolution creating it, shall
have and may exercise all the powers and authority of the Board of Directors and
may authorize the seal of the Corporation to be affixed to all papers which
require it. Each such committee shall serve at the pleasure of the Board of
Directors and have such name as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors.

SECTION 14. COMMITTEE RULES. Each committee of the Board of Directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the Board of Directors as
provided in Section 13 of this Article III, of such committee is or are absent
or disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.

SECTION 15. ACTION BY WRITTEN CONSENT. Unless restricted by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.

SECTION 16. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting

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<PAGE>

can hear each other. Participation by such means shall constitute presence in
person at a meeting.

ARTICLE IV

OFFICERS

SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors and shall include the Chairman of the
Board, the President, one or more Vice-Presidents (including Senior, Executive
or other classifications of Vice-Presidents), the Secretary and the Treasurer.
If the Board of Directors wishes, it may also elect other officers (including
one or more Assistant Treasurers and one or more Assistant Secretaries) as may
be necessary or desirable for the business of the Corporation. Any two or more
offices may be held by the same person, and no officer except the Chairman of
the Board need be a director. In its discretion, the Board of Directors may
choose not to fill any office for any period as it may deem advisable, except
that the offices of President and Secretary shall be filled as expeditiously as
possible.

SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The Chairman of the Board and President shall be elected annually by the
Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of stockholders or as soon thereafter as conveniently may
be. Vacancies may be filled or new offices created and filled at any meeting of
the Board of Directors. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified, or until his death, or until he
shall have resigned or have been removed, as hereinafter provided in these
By-laws.

SECTION 3. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.

SECTION 4. REMOVAL. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.

SECTION 5. VACANCIES. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term by the Board of
Directors then in office.

SECTION 6. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation.

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<PAGE>

SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall have
the powers and perform the duties incident to that position. Subject to the
powers of the Board of Directors, he shall be in the general and active charge
of the entire business and affairs of the Corporation. He shall be a member of
the Board and an officer of the Corporation and, if present, shall preside at
each meeting of the Board of Directors or the stockholders. He shall advise and
counsel with the President, and in his absence with other executives of the
Corporation, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors. Whenever the President is unable to
serve, by reason of sickness, absence or otherwise, the Chairman of the Board
shall perform all the duties and responsibilities and exercise all the powers of
the President.

SECTION 8. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board, preside at each meeting of the Board of Directors or the stockholders. He
shall perform all duties incident to the office of President and such other
duties as may from time to time be assigned to him by the Board of Directors,
Chairman, or as may be provided in these by-laws. Subject to the powers of the
Board of Directors, he shall have general charge of the business, affairs and
property of the Corporation, and control over its officers, agents and
employees. The President shall see that all orders and resolutions of the Board
of Directors are carried into effect, and execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the Corporation.

SECTION 9. VICE-PRESIDENT. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the written request of the President, a Vice-President shall
perform the duties of the President, and, when so acting, shall have the powers
of and be subject to the restrictions placed upon the President in respect of
the performance of such duties.

SECTION 10. TREASURER. The Treasurer shall

(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation;

(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;

(c) deposit all moneys and other valuables to the credit of
the Corporation in such depositories as may be designated by
the Board of Directors or pursuant to its direction;

(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;

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<PAGE>

(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;

(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition
of the Corporation; and

(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be
assigned to him by the Board of Directors.

SECTION 11. SECRETARY. The Secretary shall

(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of
Directors, the committees of the Board of Directors and the
stockholders;

(b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law;

(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates
for shares of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;

(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and
filed are properly kept and filed; and

(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be
assigned to him by the Board of Directors.

SECTION 12. THE ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or, if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his inability to act or his failure to act (in violation of a duty to act or
in contravention of direction to act by the Board of Directors), perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties as from time to time may be assigned by the Board of Directors.

SECTION 13. THE ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of his
inability to act or his failure to act (in violation of a duty to act or in
contravention of direction to act by the Board of Directors), perform the duties
and exercise the

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<PAGE>

powers of the Secretary and shall perform such other duties as from time to time
may be assigned by the Board of Directors.

SECTION 14. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.

SECTION 15. OFFICERS' BONDS OR OTHER SECURITY. If required by the Board
of Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
as the Board of Directors may require.

SECTION 16. ABSENCE OR DISABILITY OF OFFICERS. In the case of the
absence or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.

ARTICLE V

STOCK CERTIFICATES AND THEIR TRANSFER

SECTION 1. STOCK CERTIFICATES. The Board of Directors may issue stock
certificates, or may provide by resolution or resolutions that some or all of
any or all classes or series of stock of the Corporation shall be uncertificated
shares of stock. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by a certificate and, upon
request, every holder of uncertificated shares shall be entitled to have a
certificate, signed by, or in the name of the Corporation by, the Chairman of
the Board or, the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him or her in the
Corporation. A certificate representing shares issued by the Corporation shall,
if the Corporation is authorized to issue more than one class or series of
stock, set forth upon the face or back of the certificate, or shall state that
the Corporation will furnish to any stockholder upon request and without charge,
a full statement of the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. The Corporation shall furnish to any holder of uncertificated shares,
upon request and without charge, a full statement of the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Any request by a holder for a
certificate shall be in writing and directed to the Secretary of the
Corporation.

SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer,

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<PAGE>

transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.

SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct sufficient to indemnify it
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.

SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; PROVIDED, HOWEVER, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.

SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.

SECTION 6. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.

SECTION 7. FIXING THE RECORD DATE. 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 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 change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;

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<PAGE>

PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.

SECTION 8. FIXING A RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. Such notice shall specify
the action proposed to be consented to by stockholders. The Board of Directors
shall promptly, but in all events within ten (10) days after the date on which
such a request is received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board of Directors within ten (10) days after
the date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation. Such delivery to the Corporation shall be made to its registered
office in the State of Delaware, its principal place of business, or any officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded, to the attention of the Secretary of the
Corporation. Such delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be the close of business on
the date on which the Board of Directors adopts the resolution taking such prior
action.

In the event of delivery to the Corporation of a written consent or
written consents purporting to authorize or take corporate action, and/or
related revocation or revocations, (each such written consent and related
revocation, individually and collectively, a "Consent"), the Secretary of the
Corporation shall provide for the safekeeping of such Consent and shall as soon
as practicable thereafter conduct such reasonable investigation as the Secretary
deems necessary or appropriate for the purpose of ascertaining the validity of
such Consent and all matters incident thereto, including, without limitation,
whether holders of shares having the requisite voting power to authorize or take
the action specified in the Consent have given consent. If after such
investigation the Secretary shall determine that the Consent is sufficient and
valid, that fact shall be certified on the records of the Corporation kept for
the purpose of recording the proceedings of meetings of the stockholders, and
the Consent shall be filed in such records, at which time the Consent shall
become effective as stockholder action.

SECTION 9. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, shall
be entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to

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<PAGE>

recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VI

GENERAL PROVISIONS

SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.

SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.

SECTION 3. SEAL. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors, which form may be changed by
resolution of the Board of Directors.

SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each fiscal year and may thereafter be changed by resolution of
the Board of Directors.

SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.

SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.

SECTION 7. LOANS. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiary, including any officer or employee who is a
director of the Corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of Directors shall

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<PAGE>

approve, including, without limitation, a pledge of shares of stock of the
Corporation. Nothing in this section contained shall be deemed to deny, limit or
restrict the powers of guaranty or warranty of the Corporation at common law or
under any statute.

SECTION 8. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board, or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board, or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board, or the President may,
or may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.

SECTION 9. INSPECTION OF BOOKS AND RECORDS. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right of inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in the State of Delaware or at its principal place of business.

SECTION 10. INCONSISTENCY PROVISIONS. In the event that any provision
of these By-laws is or becomes inconsistent with any provision of the
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.

ARTICLE VII

AMENDMENTS

These By-laws may be amended or repealed or new By-laws adopted only in
accordance with Article SEVENTH of the Certificate of Incorporation.

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<PAGE>

Exhibit 4.1

APPNET

APPNET SYSTEMS, INC.

COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 03831Q 10 1
PAR VALUE $.0005 See Reverse for Certain Definitions

This Certifies That

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

Appnet Systems, Inc., transferable on the books of the Corporation by the owner in person, or by duly
authorized attorney, upon surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are subject to all the terms, conditions and limitations of the Certificate of Incorporation
and all amendments thereto and supplements thereof.
This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
WITNESS facsimile seal of the Corporation and the facsimile signatures of the duly authorized officers.

Dated:

/s/ William S. Dawson [SEAL] /s/ Ken S. Bajaj

Secretary President and Chairman of the Board

</TABLE>
<PAGE>

APPNET SYSTEMS, INC.
<TABLE>
<S> <C>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES
AND LIMITATIONS OF EACH CLASS OF STOCK OR SERIES THEREOF AUTORIZED TO BE
ISSUED AND THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE CORPORATION TO
DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF CLASSES
OF PREFERRED STOCK IN SERIES.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be confirmed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT-.......Custodian.......
(Cust) (Minor)

TEN ENT - as tenants by the entireties under Uniform Gifts to Minors

JTWROS - as joint tenants with right
of survivorship and not as Act......................
tenants in common (State)

Additional abbreviations may also be used though not in the above list.

For value received, ........................hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

.................................................................................
(Please print or typewrite name and address including postal zip code of assignee)

.................................................................................

...........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint...............................................

.........................................................................Attorney
to transfer the said Shares on the books of the within-named corporation with
full power of substitution on the premises.

Dated......................................

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

<PAGE>
Exhibit 10.17

FORM OF LOCKUP AGREEMENT

May __, 1999

AppNet Systems, Inc.
6707 Democracy Boulevard
Bethesda, MD 20817

Credit Suisse First Boston Corporation
Hambrecht & Quist LLC
BT Alex. Brown Incorporated
The Robinson-Humphrey Company, LLC
Charles Schwab & Co., Inc.
As Representatives of the Several Underwriters
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629

Dear Ladies and Gentlemen:

As an inducement to the Underwriters to execute the
Underwriting Agreement, pursuant to which an offering (the "Public Offering")
will be made that is intended to result in the establishment of a public market
for the Common Stock, $0.0005 par value per share (the "Securities"), of AppNet
Systems, Inc. (the "Company"), the undersigned hereby agrees that, for a period
of 180 days after the initial public offering (the "Commencement Date") of the
Securities pursuant to the Underwriting Agreement to which you are or expect to
become parties, the undersigned will not offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, any shares of Securities or
securities convertible into or exchangeable or exercisable for any shares of
Securities, or publicly disclose the intention to make any such offer, sale,
pledge or disposition without the prior written consent of Credit Suisse First
Boston Corporation. The foregoing sentence shall not apply to (i) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering or acquired through the
Company's direct share program, (ii) the exercise of stock options acquired
under the Company's stock incentive plans (but not the offer, sale, contract to
sell, pledge or other disposition of shares of Common Stock or other securities
obtained on exercise of such options) or (iii) the exercise of any warrants or
conversion of any convertible instruments outstanding on the date hereof (but
not the offer, sale, contract to sell, pledge or other disposition of shares of
Common Stock or other securities obtained on exercise of such warrants or
conversion of such convertible instruments).

In furtherance of the foregoing, the Company and its transfer
agent and registrar are hereby authorized to decline to make any transfer of
shares of Securities if such transfer would constitute a violation or breach of
this Agreement.

This Agreement shall be binding on the undersigned and the
respective successors, heirs,

<PAGE>

personal representatives and assigns of the undersigned. This agreement shall
lapse and become null and void if the Commencement Date shall not have occurred
on or before the date that is 180 days after the date of this Agreement.

Very truly yours

Name:

<PAGE>

Exhibit 10.19

APPNET SYSTEMS, INC.
1998 STOCK OPTION AND INCENTIVE PLAN

(AS ADOPTED AUGUST 25, 1998 AND
AMENDED AND RESTATED AS OF MARCH 26, 1999)

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE
<S> <C>
1. PURPOSE........................................................................................................1
2. DEFINITIONS....................................................................................................1
3. ADMINISTRATION OF THE PLAN.....................................................................................5
3.1 BOARD......................................................................................................5
3.2. COMMITTEE.................................................................................................5
3.3. GRANTS....................................................................................................6
3.4. NO LIABILITY..............................................................................................7
4. SHARES SUBJECT TO THE PLAN.....................................................................................7
4.1. AGGREGATE LIMITATION......................................................................................7
4.2. APPLICATION OF AGGREGATE LIMITATION.......................................................................7
4.3. PER-GRANTEE LIMITATION....................................................................................7
5. EFFECTIVE DATE AND TERM OF THE PLAN............................................................................8
5.1. EFFECTIVE DATE............................................................................................8
5.2. TERM......................................................................................................8
6. PERMISSIBLE GRANTEES...........................................................................................8
6.1. EMPLOYEES AND SERVICE PROVIDERS...........................................................................8
6.2. SUCCESSIVE GRANTS.........................................................................................9
7. LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS...............................................................9
8. AWARD AGREEMENT................................................................................................9
9. OPTION PRICE...................................................................................................9
10. VESTING, TERM AND EXERCISE OF OPTIONS........................................................................10
10.1. VESTING AND OPTION PERIOD...............................................................................10
10.2. TERM....................................................................................................10
10.3. ACCELERATION............................................................................................10
10.4. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP FOR A REASON OTHER THAN DEATH OR DISABILITY.............10
10.5. RIGHTS IN THE EVENT OF DEATH............................................................................11
10.6. RIGHTS IN THE EVENT OF DISABILITY.......................................................................11
10.7. LIMITATIONS ON EXERCISE OF OPTION.......................................................................12
10.8. METHOD OF EXERCISE......................................................................................12
10.9. RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS...........................................................13
10.10. DELIVERY OF STOCK CERTIFICATES.........................................................................13
11. TRANSFERABILITY OF OPTIONS...................................................................................13
11.1. GENERAL RULE............................................................................................13
11.2. FAMILY TRANSFERS........................................................................................14
12. RESTRICTED STOCK.............................................................................................14
12.1. GRANT OF RESTRICTED STOCK OR RESTRICTED STOCK UNITS.....................................................14
12.2. RESTRICTIONS............................................................................................14
12.3. RESTRICTED STOCK CERTIFICATES...........................................................................15
12.4. RIGHTS OF HOLDERS OF RESTRICTED STOCK...................................................................15
12.5. RIGHTS OF HOLDERS OF RESTRICTED STOCK UNITS.............................................................15
</TABLE>

<PAGE>

<TABLE>
<S> <C>
12.6. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP FOR A REASON OTHER THAN DEATH OR DISABILITY.............16
12.7. RIGHTS IN THE EVENT OF DEATH............................................................................16
12.8. RIGHTS IN THE EVENT OF DISABILITY.......................................................................16
12.9. DELIVERY OF SHARES AND PAYMENT THEREFOR.................................................................17
13. STOCK APPRECIATION RIGHTS....................................................................................17
13.1. GRANT OF STOCK APPRECIATION RIGHTS......................................................................17
13.2. NATURE OF STOCK APPRECIATION RIGHTS.....................................................................17
13.3. TERMS AND CONDITIONS GOVERNING SARS.....................................................................17
14. PARACHUTE LIMITATIONS........................................................................................18
15. REQUIREMENTS OF LAW..........................................................................................18
15.1. GENERAL.................................................................................................18
16. AMENDMENT AND TERMINATION OF THE PLAN........................................................................19
17. EFFECT OF CHANGES IN CAPITALIZATION..........................................................................20
17.1. CHANGES IN STOCK........................................................................................20
17.2. REORGANIZATION, SALE OF ASSETS OR SALE OF STOCK.........................................................20
17.3. CHANGE OF CONTROL.......................................................................................21
17.4. ADJUSTMENTS.............................................................................................21
17.5. NO LIMITATIONS ON COMPANY...............................................................................22
18. DISCLAIMER OF RIGHTS.........................................................................................22
19. NONEXCLUSIVITY OF THE PLAN...................................................................................22
20. WITHHOLDING TAXES............................................................................................23
21. CAPTIONS.....................................................................................................23
22. OTHER PROVISIONS.............................................................................................23
23. NUMBER AND GENDER............................................................................................23
24. SEVERABILITY.................................................................................................24
25. POOLING......................................................................................................24
26. GOVERNING LAW................................................................................................24
</TABLE>

<PAGE>

APPNET SYSTEMS, INC.

1998 STOCK OPTION AND INCENTIVE PLAN

AppNet Systems, Inc., a Delaware corporation (the "Company"), sets
forth herein the terms of its 1998 Stock Option and Incentive Plan (the "Plan")
as follows:

1. PURPOSE

The Plan is intended to enhance the Company's ability to attract and
retain highly qualified officers, key employees, outside directors and other
persons, and to motivate such officers, key employees, outside directors and
other persons to serve the Company and its affiliates (as defined herein) and to
expend maximum effort to improve the business results and earnings of the
Company, by providing to such officers, key employees, outside directors and
other persons an opportunity to acquire or increase a direct proprietary
interest in the operations and future success of the Company. To this end, the
Plan provides for the grant of stock options, restricted stocks, restricted
stock units and stock appreciation rights in accordance with the terms hereof.
Stock options granted under the Plan may be non-qualified stock options or
incentive stock options, as provided herein, except that stock options granted
to outside directors shall in all cases be non-qualified stock options.

2. DEFINITIONS

For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:

2.1. "affiliate" of, or person "affiliated" with, a person means any
company or other trade or business that controls, is controlled by or is under
common control with such person within the meaning of Rule 405 of Regulation C
under the Securities Act.

2.2. "Award Agreement" means the stock option agreement, restricted
stock agreement, restricted stock unit agreement, stock appreciation right
agreement of other written agreement between the Company and a Grantee that
evidences and sets out the terms and conditions of a Grant.

2.3. "Benefit Arrangement" shall have the meaning set forth in SECTION
14 hereof.

2.4. "Board" means the Board of Directors of the Company.

<PAGE>

2.5. "Change of Control" shall mean any of the following:

(a) any "person" or "group" (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (other than the Company, its affiliates, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any entity, owned, directly or indirectly, by the shareholders
of the Company in substantially the same proportions as their ownership of
shares of Stock by the Company) becomes (other than solely by reason of a
repurchase of shares of Stock of the Company), the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing fifty percent (50%) or more of the total number of votes
that may be cast for the election of directors of the Company;

(b) there occurs any sale of all or substantially all of the assets of
the Company;

(c) within eighteen months after a tender offer or exchange offer for
voting securities of the Company (other than by the Company) individuals who
were directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board;

(d) proxies are solicited for voting securities of the Company by
persons other than the Company or its Board and, within eighteen months
thereafter, individuals who were directors of the Company immediately prior
thereto shall cease to constitute a majority of the Board;

(e) "Change in Control" shall not include a change in legal domicile or
any sale, reorganization, compromise or arrangement or other transaction which
the Board determines, in its discretion acting in good faith, to be effected in
order to change the legal domicile of the Company or the holding company of the
Company's group of companies and which leaves control of the Company
substantially unaffected or control of the holding company in the same
shareholders as control of the Company prior to such transaction.

2.6. "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended.

2.7. "Committee" means a committee of, and designated from time to time
by resolution of, the Board.

2.8. "Company" means AppNet Systems, Inc.

2.9. "Effective Date" means the date designated by the Board in its
resolution adopting the Plan.

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<PAGE>

2.10. "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.

2.11. "Fair Market Value" means the value of a share of Stock,
determined as follows: if on the Grant Date or other determination date of the
shares of Stock are listed on an established national or regional stock
exchange, are admitted to quotation on the Nasdaq National Market, or are
publicly traded on an established securities market, the Fair Market Value of a
share of Stock shall be the opening price of the shares of Stock on such
exchange or in such market (the highest such opening price if there is more than
one such exchange or market) on the Grant Date or such other determination date
(or if there is no such reported opening price, the Fair Market Value shall be
the mean between the highest bid and lowest asked prices or between the high and
low sale prices on such trading day) or, if no sale of shares of Stock are
reported for such trading day, on the next preceding day on which any sale shall
have been reported. If the shares of Stock are not listed on such an exchange,
quoted on such system or traded on such a market, Fair Market Value shall be the
value of the shares of Stock as determined by the Board in good faith.

2.12. "Good Reason" means (i) any proposed reduction in a Grantee's
base salary (provided that the base salary may be reduced by up to 10% due to a
reduction in compensation generally applicable to executive officers of the
Company); (ii) a substantial reduction of a Grantee's responsibilities or areas
of supervision within the Company, or (iii) relocation of a Grantee's office
outside the metropolitan area in which the office of the Grantee was located
immediately prior to the Change in Control (provided that temporary assignments
made for the good of the business of the Company do not constitute such a move
of office location).

2.13. "Grant" means an award of an Option, Restricted Stock, Restricted
Stock Unit or Stock Appreciation Right under the Plan.

2.14. "Grant Date" means, as determined by the Board or authorized
Committee, (i) the date as of which the Board or such Committee approves a
Grant, (ii) the date on which the recipient of a Grant first becomes eligible to
receive a Grant under SECTION 6 hereof, or (iii) such other date as may be
specified by the Board or such Committee.

2.15. "Grantee" means a person who receives or holds an Option,
Restricted Stock, Restricted Stock Unit or Stock Appreciation Right under the
Plan.

3
<PAGE>

2.16. "Immediate Family Members" means the spouse, children and
grandchildren of the Grantee.

2.17. "Incentive Stock Option" means an "incentive stock option" within
the meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.

2.18. "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.

2.19. "Option Period" means the period during which Options may be
exercised as set forth in SECTION 10 hereof.

2.20. "Option Price" means the purchase price for each share of Stock
subject to an Option.

2.21. "Other Agreement" shall have the meaning set forth in SECTION 14
hereof.

2.22. "Outside Director" means a member who is not an officer or
employee of the Company.

2.23. "Plan" means this AppNet Systems, Inc. 1998 Stock Option and
Incentive Plan, as amended and restated from time to time.

2.24. "Restricted Period" means the period during which Restricted
Stock or Restricted Stock Units are subject to restrictions or conditions
pursuant to SECTION 12.2 hereof.

2.25. "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to SECTION 12 hereof, that are subject to restrictions and to a risk of
forfeiture.

2.26. "Restricted Stock Unit" means a unit awarded to a Grantee
pursuant to SECTION 12 hereof, which represents a conditional right to receive a
share of Stock in the future, and which is subject to restrictions and to a risk
of forfeiture.

2.27. "Securities Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.

4
<PAGE>

2.28. "Service Provider" means a consultant or adviser to the Company,
a manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
SECTION 6 hereof.

2.29. "Stock" means common stock, par value $0.0005 per share, of the
Company.

2.30. "Stock Appreciation Right" or "SAR" means a right granted to a
Grantee pursuant to the provisions of SECTION 13 hereof.

2.31. "Subsidiary" means any "subsidiary corporation" of the Company
within the meaning of Section 424(f) of the Code.

2.32. "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in SECTION 10.2 hereof.

3. ADMINISTRATION OF THE PLAN

3.1 BOARD.

The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's Certificate of
Incorporation and bylaws and applicable law. The Board shall have full power and
authority to take all actions and to make all determinations required or
provided for under the Plan, any Grant or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Grant or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's Certificate of Incorporation and bylaws
and applicable law. The interpretation and construction by the Board of any
provision of the Plan, any Grant or any Award Agreement shall be final and
conclusive. As permitted by law, the Board may delegate its authority under the
Plan to a member of the Board of Directors or an executive officer of the
Company.

3.2. COMMITTEE.

The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in

5
<PAGE>

SECTION 3.1 hereof and in other applicable provisions, as the Board shall
determine, consistent with the Certificate of Incorporation and bylaws of the
Company and applicable law. In the event that the Plan, any Grant or any Award
Agreement entered into hereunder provides for any action to be taken by or
determination to be made by the Board, such action may be taken by or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate the authority delegated to it under
the Plan to a member of the Board of Directors or an executive officer of the
Company.

3.3. GRANTS.

Subject to the other terms and conditions of the Plan, the Board shall
have full and final authority (i) to designate Grantees, (ii) to determine the
type or types of Grant to be made to a Grantee, (iii) to determine the number of
shares of Stock to be subject to a Grant, (iv) to establish the terms and
conditions of each Grant (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of a Grant or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock Options),
(v) to prescribe the form of each Award Agreement evidencing a Grant, (vi) to
make Grants alone, in addition to, in tandem with, or in substitution or
exchange for any other Grant or any other award granted under another plan of
the Company or a Subsidiary, and (vii) to amend, modify, or supplement the terms
of any outstanding Grant. Such authority specifically includes the authority, in
order to effectuate the purposes of the Plan but without amending the Plan, to
modify Grants to eligible individuals who are foreign nationals or are
individuals who are employed outside the United States to recognize differences
in local law, tax policy, or custom. The terms and conditions imposed by the
Board with respect to the vesting, exercise or forfeiture of a Grant may,
without limitation, include performance-based conditions relating to the trading
price of shares of Stock, market share, sales, revenue growth, cost reduction,
earnings per share and return on equity. As a condition to any subsequent Grant,
the Board shall have the right, at its discretion, to require Grantees to return
to the Company Grants previously awarded under the Plan. Subject to the terms
and conditions of the Plan, any such new Grant shall be upon such terms and
conditions as are specified by the Board at the time the new Grant is made.

6
<PAGE>

3.4. NO LIABILITY.

No member of the Board or of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any Grant
or Award Agreement.

4. SHARES SUBJECT TO THE PLAN

4.1. AGGREGATE LIMITATION.

Subject to adjustment as provided in SECTION 17 hereof, the aggregate
number of shares of Stock available for issuance under the Plan pursuant to
Incentive Stock Options or other Grants shall be four million five hundred
thousand (4,500,000). Shares of Stock issued or to be issued under the Plan
shall be authorized but unissued shares. If any shares covered by a Grant are
not purchased or are forfeited, or if a Grant otherwise terminates without
delivery of any shares of Stock subject thereto, then the number of shares of
Stock counted against the aggregate number of shares available under the Plan
with respect to such Grant shall, to the extent of any such forfeiture or
termination, again be available for making Grants under the Plan.

4.2. APPLICATION OF AGGREGATE LIMITATION.

The limitation contained in SECTION 4.1 shall apply not only to Grants
that are settleable by the delivery of shares of Stock but also to Grants
relating to shares of Stock but settleable only in cash (such as cash-only
SARs). The Board may adopt reasonable counting procedures to ensure appropriate
counting, avoid double counting (as, for example, in the case of tandem or
substitute awards) and make adjustments if the number of shares of Stock
actually delivered differs from the number of shares previously counted in
connection with a Grant.

4.3. PER-GRANTEE LIMITATION.

During any time when the Company has a class of equity security
registered under Section 12 of the Exchange Act:

(i) no person eligible for a Grant under SECTION 6 hereof may be
awarded Options in any calendar year exercisable for greater
than one hundred thousand (100,000) shares of Stock (subject
to adjustment as provided in SECTION 17 hereof);

7
<PAGE>

(ii) the maximum number of shares of Restricted Stock that can be
awarded under the Plan (including for this purpose any shares
of Stock represented by Restricted Stock Units) to any person
eligible for a Grant under SECTION 12 hereof is one hundred
thousand (100,000) per calendar year (subject to adjustment as
provided in SECTION 17 hereof); and

(iii) the maximum number of shares of Stock that can be the subject
of SARs awarded to any Grantee under SECTION 13 hereof is one
hundred thousand (100,000) per calendar year (subject to
adjustment as provided in SECTION 17 hereof).

5. EFFECTIVE DATE AND TERM OF THE PLAN

5.1. EFFECTIVE DATE.

The Plan shall be effective as of the Effective Date, subject to
approval of the Plan, within one year before or after the date upon which the
Plan was adopted by the Board, by a majority of the votes cast on the proposal
at a meeting of shareholders, provided that the total votes cast represent a
majority of all shares entitled to vote or by the written consent of the holders
of a majority of the Company's shares entitled to vote. Upon approval of the
Plan by the shareholders of the Company as set forth above, all Grants made
under the Plan on or after the Effective Date shall be fully effective as if the
shareholders of the Company had approved the Plan on the Effective Date. If the
shareholders fail to approve the Plan within the time period set forth above,
any Grants made hereunder shall be null and void and of no effect.

5.2. TERM.

The Plan has no termination date; however, no Incentive Stock Option
may be granted under the Plan on or after August 25, 2008.

6. PERMISSIBLE GRANTEES

6.1. EMPLOYEES AND SERVICE PROVIDERS.

Subject to the provisions of SECTION 7, Grants may be made under the
Plan to any employee of, or Service Provider or employee of a Service Provider
providing, or who has provided, services to, the Company or any Subsidiary,
including any such employee who is an officer or director of the Company,
including an Outside Director, or of any Subsidiary, and any other individual
whose participation in the Plan is determined by the

8
<PAGE>

Board to be in the best interests of the Company, as the Board shall determine
and designate from time to time.

6.2. SUCCESSIVE GRANTS.

An eligible person may receive more than one Grant, subject to such
restrictions as are provided herein.

7. LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS

An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee's employer and its affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.

8. AWARD AGREEMENT

Each Grant pursuant to the Plan shall be evidenced by an Award
Agreement, in such form or forms as the Board shall from time to time determine.
Award Agreements granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan. Each
Award Agreement evidencing a Grant of Options shall specify whether such Options
are intended to be non-qualified Stock options or Incentive Stock Options, and
in the absence of such specification such options shall be deemed non-qualified
Stock options.

9. OPTION PRICE

The Option Price of each Option shall be fixed by the Board and stated
in the Award Agreement evidencing such Option. The Option Price of an Incentive
Stock Option shall be the Fair Market Value on the date of grant of a share of
Stock; PROVIDED, HOWEVER, that in the event that a Grantee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to ownership of more than
ten percent of the Company's outstanding shares of Stock), the Option Price of
an Option granted to such Grantee that is intended to be an Incentive Stock
Option shall be not less than 110 percent of the Fair Market Value

9
<PAGE>

of a share of Stock on the date of grant. In no case shall the Option Price of
any Option be less than the par value of a share.

10. VESTING, TERM AND EXERCISE OF OPTIONS

10.1. VESTING AND OPTION PERIOD.

Subject to SECTIONS 10.2 and 17 hereof, each Option granted under the
Plan shall become exercisable at such times and under such conditions as shall
be determined by the Board and stated in the Award Agreement. For purposes of
this SECTION 10.1, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. The period during which
any Option shall be exercisable shall constitute the "Option Period" with
respect to such Option.

10.2. TERM.

Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date"); PROVIDED, HOWEVER, that in the event that the Grantee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the outstanding shares of Stock), an Option granted
to such Grantee that is intended to be an Incentive Stock Option shall not be
exercisable after the expiration of five years from its date of grant.

10.3. ACCELERATION.

Any limitation on the exercise of an Option contained in any Award
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the Grant Date of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date of the Plan is approved by the
shareholders of the Company as provided in SECTION 5.1 hereof.

10.4. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP FOR A REASON
OTHER THAN DEATH OR DISABILITY.

Subject to SECTION 16, upon the termination of a Grantee's employment
or other relationship with the Company and its Subsidiaries other than by reason
of death, or

10
<PAGE>

"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code), any Option or portion thereof held by such Grantee that has not vested in
accordance with the provisions of SECTION 10.1 hereof shall terminate
immediately, and any Option or portion thereof that has vested in accordance
with the provisions of SECTION 10.1 hereof but has not been exercised shall
terminate at the close of business on the 90th day following the Grantee's
termination of employment or other relationship (or, if such 90th day is a
Saturday, Sunday or holiday, at the close of business on the next preceding day
that is not a Saturday, Sunday or holiday), subject to earlier termination of
the Option as provided in SECTION 10.2 above, unless the Board, in its
discretion, extends the period during which the Option may be exercised (which
period may not be extended beyond the original term of the Option). Upon
termination of an Option or portion thereof, the Grantee shall have no further
right to purchase shares of Stock pursuant to such Option or portion thereof.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment, service or
other relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company, a Subsidiary or a Service Provider, or is
engaged as a Service Provider or an Outside Director of the Company or a
Subsidiary. Whether a termination of a Grantee's employment or other
relationship with the Company and its Subsidiaries shall have occurred shall be
determined by the Board, which determination shall be final and conclusive.

10.5. RIGHTS IN THE EVENT OF DEATH.

If a Grantee dies while employed by or providing services to the
Company, all Options granted to such Grantee that have not previously terminated
shall fully vest on the date of death, and the executors or administrators or
legatees or distributees of such Grantee's estate shall have the right, at any
time within one year after the date of such Grantee's death (or such longer
period as the Board, in its discretion, may determine prior to the expiration of
such one-year period) and prior to termination of the Option pursuant to SECTION
10.2 above, to exercise any Option held by such Grantee at the date of such
Grantee's death.

10.6. RIGHTS IN THE EVENT OF DISABILITY.

Subject to SECTION 16, if a Grantee's employment or other relationship
with the Company is terminated by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Grantee, such
Grantee's Options shall continue to vest, and shall be exercisable to the extent
that they are vested, for a period of one year after such termination of
employment or service (or, in the case of an Option

11
<PAGE>

that is not an Incentive Stock Option, such longer period as the Board, in its
discretion, may determine prior to the expiration of such one-year period),
subject to earlier termination of the Option as provided in SECTION 10.2 above.
Whether a termination of employment or service is to be considered by reason of
"permanent and total disability" for purposes of the Plan shall be determined by
the Board which determination shall be final and conclusive.

10.7. LIMITATIONS ON EXERCISE OF OPTION.

Notwithstanding any other provision of the Plan, in no event may any
Option be exercised, in whole or in part, prior to the date the Plan is approved
by the shareholders of the Company as provided herein, or after ten years
following the date upon which the Option is granted, or after the occurrence of
an event referred to in SECTION 17 hereof which results in termination of the
Option.

10.8. METHOD OF EXERCISE.

An Option that is exercisable may be exercised by the Grantee's
delivery to the Company of written notice of exercise on any business day, at
the Company's principal office, addressed to the attention of the Board. Such
notice shall specify the number of shares of Stock with respect to which the
Option is being exercised and shall be accompanied by payment in full of the
Option Price of the shares of Stock for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares of Stock or such lesser number set forth in the applicable Award
Agreement and (ii) the maximum number of shares of Stock available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares purchased pursuant to the exercise of an Option shall be made (i) in cash
or in cash equivalents; (ii) to the extent permitted by law, through the tender
to the Company of shares of Stock, which shares, if acquired from the Company,
shall have been held for at least six months and which shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their Fair Market Value on the date of exercise; or (iii) by a
combination of the methods described in (i) and (ii). The Board may provide, by
inclusion of appropriate language in an Award Agreement, that payment in full of
the Option Price need not accompany the written notice of exercise provided that
the notice is accompanied by delivery of an unconditional and irrevocable
undertaking by a licensed broker acceptable to the Corporation as the agent for
the individual exercising the Option to deliver promptly to the Corporation
sufficient funds to pay the Option Price and directs that the certificate or
certificates for the shares of Stock for which the Option is exercised be
delivered to a licensed broker acceptable to the Company as the agent for the
individual exercising the Option and, at the time such certificate or
certificates are

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<PAGE>

delivered, the broker tenders to the Company cash (or cash equivalents
acceptable to the Company) equal to the Option Price for the shares of Stock
purchased pursuant to the exercise of the Option plus the amount (if any) of
federal and/or other taxes which the Company may in its judgment, be required to
withhold with respect to the exercise of the Option. An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no force and effect.

10.9. RIGHTS AS A STOCKHOLDER; DIVIDEND EQUIVALENTS.

Unless otherwise stated in the applicable Stock Option Agreement, an
individual holding or exercising an Option shall have none of the rights of a
shareholder (for example, the right to receive cash or dividend payments or
distributions attributable to the subject shares of Stock or to direct the
voting of the subject shares of Stock) until the shares of Stock covered thereby
are fully paid and issued to such individual. Except as provided in SECTION 17
hereof, no adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such issuance. However, the
Board may, on such conditions as it deems appropriate, provide that a Grantee
will receive a benefit in lieu of cash dividends that would have been payable on
any or all shares of Stock subject to the Grant had such shares of Stock been
outstanding. Without limitation, the Board may provide for payment to the
Grantee of amounts representing such dividends, either currently or in the
future, or for the investment of such amounts on behalf of the Grantee.

10.10. DELIVERY OF STOCK CERTIFICATES.

Promptly after the exercise of an Option by a Grantee and the payment
in full of the Option Price, such Grantee shall be entitled to the issuance of a
certificate or certificates evidencing his or her ownership of the shares of
Stock subject to the Option.

11. TRANSFERABILITY OF OPTIONS.

11.1. GENERAL RULE.

Except as provided in SECTION 11.2, during the lifetime of a Grantee,
only the Grantee (or, in the event of legal incapacity or incompetency, the
Grantee's guardian or legal representative) may exercise an Option. Except as
provided in SECTION 11.2, no Option shall be assignable or transferable by the
Grantee to whom it is granted, other than by will or the laws of descent and
distribution.

13
<PAGE>

11.2. FAMILY TRANSFERS.

If authorized in the applicable Award Agreement, a Grantee may transfer
all or part of an Option that is not an Incentive Stock Option to (i) any
Immediate Family Member, (ii) a trust or trusts for the exclusive benefit of any
Immediate Family Member, or (iii) a partnership or limited liability company in
which Immediate Family Members are the only partners or members, provided that
(x) there may be no consideration for any such transfer, and (y) subsequent
transfers of transferred Options are prohibited except those in accordance with
this SECTION 11.2 or by will or the laws of descent and distribution. Following
transfer, any such Option shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of SECTION 11.2 hereof the term "Grantee" shall be deemed to refer to
the transferee. The events of termination of the employment or other
relationship of SECTION 10.4 hereof shall continue to be applied with respect to
the original Grantee, following which the Option shall be exercisable by the
transferee only to the extent and for the periods specified in SECTIONS 10.4,
10.5 or 10.6.

12. RESTRICTED STOCK

12.1. GRANT OF RESTRICTED STOCK OR RESTRICTED STOCK UNITS.

The Board may from time to time grant Restricted Stock or Restricted
Stock Units to persons eligible to receive Grants under SECTION 6 hereof,
subject to such restrictions, conditions and other terms as the Board may
determine.

12.2. RESTRICTIONS.

At the time a Grant of Restricted Stock or Restricted Stock Units is
made, the Board shall establish a period of time (the "Restricted Period")
applicable to such Restricted Stock or Restricted Stock Units. Each Grant of
Restricted Stock or Restricted Stock Units may be subject to a different
Restricted Period. The Board may, in its sole discretion, at the time a Grant of
Restricted Stock or Restricted Stock Units is made, prescribe restrictions in
addition to or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives, which may be
applicable to all or any portion of the Restricted Stock or Restricted Stock
Units. Such performance objectives shall be established in writing by the Board
by not later than the ninetieth day of the period of service to which such
performance objectives relate and while the outcome is substantially uncertain.
Performance objectives may be based on share price, market share, sales,
earnings per share, return on equity or costs. Performance objectives may
include positive results, maintaining the status quo or

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<PAGE>

limiting economic losses. Subject to the fourth sentence of this SECTION 12.2,
the Board also may, in its sole discretion, shorten or terminate the Restricted
Period or waive any other restrictions applicable to all or a portion of the
Restricted Stock or Restricted Stock Units. Neither Restricted Stock nor
Restricted Stock Units may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect to
such Restricted Stock or Restricted Stock Units.

12.3. RESTRICTED STOCK CERTIFICATES.

The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, certificates representing the total number of Restricted
Stock granted to the Grantee, as soon as reasonably practicable after the Grant
Date. The Secretary of the Company shall hold such certificates for the
Grantee's benefit until such time as the Restricted Stock is forfeited to the
Company, or the restrictions lapse.

12.4. RIGHTS OF HOLDERS OF RESTRICTED STOCK.

Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such shares of Stock and the right
to receive any dividends declared or paid with respect to such shares of Stock.
The Board may provide that any dividends paid on Restricted Stock must be
reinvested in shares of Stock, which may or may not be subject to the same
vesting conditions and restrictions applicable to such Restricted Stock. All
distributions, if any, received by a Grantee with respect to Restricted Stock as
a result of any stock split, stock dividend, combination of shares, or other
similar transaction shall be subject to the restrictions applicable to the
original Grant.

12.5. RIGHTS OF HOLDERS OF RESTRICTED STOCK UNITS.

Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as shareholders of the Company. The
Board may provide in an Award Agreement evidencing a Grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding shares
of Stock, a cash payment for each Restricted Stock Unit held equal to the
per-share dividend paid on the shares of Stock. Such Award Agreement may also
provide that such cash payment will be deemed reinvested in additional
Restricted Stock Units at a price per unit equal to the Fair Market Value of a
share of Stock on the date that such dividend is paid.

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<PAGE>

12.6. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP FOR A REASON
OTHER THAN DEATH OR DISABILITY.

Upon the termination of a Grantee's employment or other relationship
with the Company and its Subsidiaries, in either case other than, in the case of
individuals, by reason of death or "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code), any Restricted Stock or Restricted
Stock Units held by such Grantee that have not vested, or with respect to which
all applicable restrictions and conditions have not lapsed, shall immediately be
deemed forfeited, unless the Board, in its discretion, determines otherwise.
Upon forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall
have no further rights with respect to such Grant, including but not limited to
any right to vote Restricted Stock or any right to receive dividends with
respect to Restricted Stock or Restricted Stock Units. Whether a leave of
absence or leave on military or government service shall constitute a
termination of employment or other relationship for purposes of the Plan shall
be determined by the Board, which determination shall be final and conclusive.
For purposes of the Plan, a termination of employment, service or other
relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company or any other Service Provider, or is
engaged as a Service Provider or an Outside Director of the Company. Whether a
termination of a Grantee's employment or other relationship with the Company and
its Subsidiaries shall have occurred shall be determined by the Board, which
determination shall be final and conclusive.

12.7. RIGHTS IN THE EVENT OF DEATH.

If a Grantee dies while employed by the Company or a Service Provider,
or while serving as a Service Provider, all Restricted Stock or Restricted Stock
Units granted to such Grantee shall fully vest on the date of death unless the
Board provided otherwise in the Award Agreement relating to such Restricted
Stock or Restricted Stock Units. Upon such vesting, the shares of Stock
represented thereby shall be deliverable in accordance with the terms of the
Plan to the executors, administrators, legatees or distributees of the Grantee's
estates.

12.8. RIGHTS IN THE EVENT OF DISABILITY.

If a Grantee's employment or other relationship with the Company or a
Service Provider, or while serving as a Service Provider, is terminated by
reason of the "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of such Grantee, such Grantee's then unvested Restricted
Stock or Restricted Stock Units shall be fully vested. Whether a termination of
employment or service is to be considered

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<PAGE>

by reason of "permanent and total disability" for purposes of the Plan shall be
determined by the Board, which determination shall be final and conclusive.

12.9. DELIVERY OF SHARES AND PAYMENT THEREFOR.

Upon the expiration of termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to Restricted Stock or Restricted Stock Units shall lapse, and upon
payment by the Grantee to the Company, in cash or by check, of the greater of
(i) the aggregate par value of the shares of Stock represented by such
Restricted Stock or Restricted Stock Units or (ii) the purchase price, if any,
specified in the Award Agreement relating to such Restricted Stock or Restricted
Stock Units, a certificate for such shares shall be delivered, free of all such
restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case
may be.

13. STOCK APPRECIATION RIGHTS

13.1. GRANT OF STOCK APPRECIATION RIGHTS.

The Board may from time to time grant SARs to persons eligible to
receive grants under SECTION 6 hereof, subject to the provisions of this Section
and to such restrictions, conditions and other terms as the Board may determine.

13.2. NATURE OF STOCK APPRECIATION RIGHTS.

An SAR shall confer on the Grantee a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share of Stock on the
date of exercise over (B) the grant price of the SAR as determined by the Board.
Unless the Board provides otherwise in the Award Agreement, the grant price of
an SAR shall not be less than the Fair Market Value of a share of Stock on the
date of grant.

13.3. TERMS AND CONDITIONS GOVERNING SARS.

The Board shall determine at the date of grant or thereafter, the time
or times at which and the circumstances under which an SAR may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which and the circumstances
under which an SAR shall cease to be exercisable, the method of exercise, method
of settlement, form of consideration payable in settlement, whether or not an
SAR shall be in tandem or in combination with any other Grant, and any other
terms and conditions of any SAR.

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<PAGE>

14. PARACHUTE LIMITATIONS

Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by a
Grantee with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
participants or beneficiaries of which the Grantee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock, Restricted Stock Unit or SARs held by that Grantee and any right to
receive any payment or other benefit under this Plan shall not become
exercisable or vested (i) to the extent that such right to exercise, vesting,
payment, or benefit, taking into account all other rights, payments, or benefits
to or for the Grantee under this Plan, all Other Agreements, and all Benefit
Arrangements, would cause any payment or benefit to the Grantee under this Plan
to be considered a "parachute payment" within the meaning of Section 280G(b)(2)
of the Code as then in effect (a "Parachute Payment") AND (ii) if, as a result
of receiving a Parachute Payment, the aggregate after-tax amounts received by
the Grantee from the Company under this Plan, all Other Agreements, and all
Benefit Arrangements would be less than the maximum after-tax amount that could
be received by the Grantee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to exercise, vesting, payment, or benefit under this Plan, in conjunction with
all other rights, payments, or benefits to or for the Grantee under any Other
Agreement or any Benefit Arrangement would cause the Grantee to be considered to
have received a Parachute Payment under this Plan that would have the effect of
decreasing the after-tax amount received by the Grantee as described in clause
(ii) of the preceding sentence, then the Grantee shall have the right, in the
Grantee's sole discretion, to designate those rights, payments, or benefits
under this Plan, any Other Agreements, and any Benefit Arrangements that should
be reduced or eliminated so as to avoid having the payment or benefit to the
Grantee under this Plan be deemed to be a Parachute Payment.

15. REQUIREMENTS OF LAW

15.1. GENERAL.

The Company shall not be required to sell or issue any shares of Stock
under any Grant if the sale or issuance of such shares of Stock would constitute
a violation by the Grantee, any other person exercising a right emanating from
such Grant, or the Company

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<PAGE>

of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that
the listing, registration or qualification of any shares of Stock subject to a
Grant upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares of Stock hereunder, no shares of Stock may be issued or sold
to the Grantee or any other person exercising a right emanating from such Grant
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company,
and any delay caused thereby shall in no way affect the date of termination of
the Grant. Specifically, in connection with the Securities Act, upon the
exercise of any Option or any SAR that may be settled in shares of Stock or the
delivery of any Restricted Stock or shares of Stock underlying Restricted Stock
Units, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Grant, the Company shall not be required
to sell or issue such shares of Stock unless the Board has received evidence
satisfactory to it that the Grantee may acquire such shares of Stock pursuant to
an exemption from registration under the Securities Act. Any determination in
this connection by the Board shall be final, binding, and conclusive. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act. The Company shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option or an SAR or the issuance of shares of Stock pursuant to the Plan to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option (or SAR that
may be settled in shares of Stock) shall not be exercisable until the shares of
Stock covered by such Option (or SAR) are registered or are exempt from
registration, the exercise of such Option (or SAR) under circumstances in which
the laws of such jurisdiction apply shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.

16. AMENDMENT AND TERMINATION OF THE PLAN

The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Grants have not been
made; PROVIDED, HOWEVER, that the Board shall not, without approval of the
Company's shareholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul a Grant if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this SECTION 16 or
SECTION 17 hereof, no amendment, suspension, or termination of the Plan shall,
without

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<PAGE>

the consent of the Grantee, alter or impair rights or obligations under any
Grant theretofore awarded under the Plan.

17. EFFECT OF CHANGES IN CAPITALIZATION

17.1. CHANGES IN STOCK.

Subject to SECTION 17.2, in the event of any merger, reorganization,
consolidation, recapitalization, separation, liquidation, stock dividend,
spin-off, split-up, share combination or other change in the corporate structure
of the Company affecting the shares of Stock, (a) such adjustment may be made in
the number and class of shares of Stock which may be delivered under SECTION 4
hereof and the Grant limits under SECTION 4 hereof, and in the number and class
of and/or price of shares of Stock subject to outstanding Grants as may be
determined to be appropriate and equitable by the Board, in its sole discretion,
to prevent dilution or enlargement of existing rights; and (b) the Board, or, if
another legal entity assumes the obligations of the Company hereunder, the board
of directors, compensation committee or similar body of such other legal entity,
shall either (i) make appropriate provision for the protection of outstanding
Grants by the substitution on an equitable basis of appropriate equity interests
or awards similar to the Grants, provided that the substitution neither enlarges
nor diminishes the value and rights under the Grants or (ii) upon written notice
to the Grantees, provide that Grants will be exercised, distributed, canceled or
exchanged for value pursuant to such terms and conditions (including the waiver
of any existing terms or conditions) as shall be specified in the notice. Any
adjustment or an Incentive Stock Option under this paragraph shall be made in
such a manner so as not to constitute a "modification" within the meaning of
Section 424(h)(3) of the Code. The conversion of any convertible securities of
the Company shall not be treated as change in the corporate structure of the
company affecting the shares of Stock. Subject to any contrary language in an
Award Agreement evidencing a Grant of Restricted stock, any restrictions
applicable to such Restricted Stock shall apply as well to any replacement
shares received by the Grantee as a result of the reorganization, merger or
consolidation.

17.2. REORGANIZATION, SALE OF ASSETS OR SALE OF STOCK.

Upon the dissolution of liquidation of the Company or upon a merger,
consolidation, or reorganization of the Company with one or more other entities
in which the Company is not the surviving entity, or upon a sale of
substantially all of the assets of the Company to another entity, or upon any
transaction (including, without limitation, a merger or reorganization in which
the Company is the surviving entity) approved by the Board that results in any
person or entity (or person or entities acting as a group or otherwise in
concert), owning fifty percent (50%) or more of the combined voting power

20
<PAGE>

of all classes of securities of the Company, (i) all outstanding shares of
Restricted Stock and Restricted Stock Units shall be deemed to have vested, and
all restrictions and conditions applicable to such shares of Restricted Stock
and Restricted Stock Units shall be deemed to have lapsed, immediately prior to
the occurrence of such event, and (ii) all Options outstanding hereunder shall
become immediately exercisable for a period of fifteen days immediately prior to
the scheduled consummation of the event, except to the extent provision is made
in writing in connection with such transaction for the continuation of the Plan
or the assumption of such Options, Restricted Stock and Restricted Stock Units
theretofore granted, or for the substitution for such Options, Restricted Stock
and Restricted Stock Units of new options, restricted stock and restricted stock
units covering the stock of a successor entity, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares or
units and exercise prices, in which event the Plan and Options, Restricted Stock
and Restricted Stock Units theretofore granted shall continue in the manner and
under the terms so provided. Any exercise of an Option during such fifteen-day
period shall be conditioned upon the consummation of the event and shall be
effective only immediately before the consummation of the event. Upon
consummation of any such event, the Plan and all outstanding but unexercised
Options shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan or the
assumption of such Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares or units and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. The Board shall send written notice of an event that will result in
such a termination to all individuals who hold Options not later than the time
at which the Company gives notice thereof to its shareholders.

17.3. CHANGE OF CONTROL.

Upon the termination of a Grantee's employment or other relationship
with the Company and its Subsidiaries by the Company or by the Grantee for Good
Reason, at any time on, or within two years after, the occurrence of a Change of
Control, all Options held by such Grantee that have not previously terminated
shall become immediately exercisable and shall remain exercisable for a period
of 90 days.

17.4. ADJUSTMENTS.

Adjustments under this SECTION 17 related to shares of Stock or
securities of the Company shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive. No fractional shares of
Stock or other securities shall be issued

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<PAGE>

pursuant to any such adjustment, and any fractions resulting from any such
adjustment shall be eliminated in each case by rounding downward to the nearest
whole share.

17.5. NO LIMITATIONS ON COMPANY.

The making of Grants pursuant to the Plan shall not affect or limit in
any way the right or power of the Company to make adjustments,
reclassifications, reorganization, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.

18. DISCLAIMER OF RIGHTS

No provision in the Plan or in any Grant or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company or Service Provider
either to increase or decrease the compensation or other payments to any
individual at any time, or to terminate any employment or other relationship
between any individual and the Company. In addition, notwithstanding anything
contained in the Plan to the contrary, unless otherwise stated in the applicable
Award Agreement, no Grant awarded under the Plan shall be affected by any change
of duties or position of the Grantee, so long as such Grantee continues to be a
director, officer, consultant or employee of the Company. The obligation of the
Company to pay any benefits pursuant to this Plan shall be interpreted to
require the Company to transfer any amounts to a third party trustee or
otherwise hold any amounts in trust or escrow for payment to any participant or
beneficiary under the terms of the Plan. No Grantee shall have any of the rights
of a shareholder with respect to the shares of Stock subject to an Option or SAR
except to the extent the certificates for such shares of Stock shall have been
issued upon the exercise of the Option or SAR.

19. NONEXCLUSIVITY OF THE PLAN

Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.

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<PAGE>

20. WITHHOLDING TAXES

The Company or a Subsidiary, as the case may be, shall have the right
to deduct from payments of any kind otherwise due to a Grantee any Federal,
state, or local taxes of any kind required by law to be withheld with respect to
the vesting of or other lapse restrictions applicable to Restricted Stock or
Restricted Stock Units or upon the exercise of an Option or SAR. At the time of
such vesting, lapse, or exercise, the Grantee shall pay to the Company or the
Subsidiary, as the case may be, any amount that the Company or the Subsidiary
may reasonably determine to be necessary to satisfy such withholding obligation.
Subject to the prior approval of the Company or the Subsidiary, which may be
withheld by the Company or the Subsidiary, as the case may be, in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company or the Subsidiary to withhold shares of Stock
otherwise issuable to the Grantee or (ii) by delivering to the Company or the
Subsidiary shares of Stock already owned by the Grantee. The shares of Stock so
delivered or withheld shall have an aggregate fair market value equal to such
withholding obligations. The fair market value of the shares of Stock used to
satisfy such withholding obligation shall be determined by the Company or the
Subsidiary as of the date that the amount of tax to be withheld is to be
determined. A Grantee who has made an election pursuant to this SECTION 20 may
satisfy his or her withholding obligation only with shares of Stock that are not
subject to any repurchase, forfeiture, unfulfilled vesting, or other similar
requirements.

21. CAPTIONS

The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.

22. OTHER PROVISIONS

Each Grant awarded under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.

23. NUMBER AND GENDER

With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine gender,
etc., as the context requires.

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<PAGE>

24. SEVERABILITY

If any provision of the Plan or any Award Agreement shall be determined
to be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.

25. POOLING

Notwithstanding anything in the Plan to the contrary, if any right
under or feature of the Plan would cause to be ineligible for pooling of
interest accounting a transaction that would, but for the right or feature
hereunder, be eligible for such accounting treatment, the Board may modify or
adjust the right or feature so that the transaction will be eligible for pooling
of interest accounting. Such modification or adjustment may include payment of
cash or issuance to a Grantee of shares of Stock having a Fair Market Value
equal to the cash value of such right or feature.

26. GOVERNING LAW

The validity and construction of this Plan and the instruments
evidencing the Grants awarded hereunder shall be governed by the laws of the
State of Delaware (without giving effect to the choice of law provisions
thereof).

* * *

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<PAGE>

This Plan was duly adopted and approved by the Board of Directors of
the Company as of the 26th day of March, 1999.

/S/
-------------------------------

The Plan was duly approved by the shareholders of the Company on the
26th day of March, 1999.

/S/
-------------------------------

<PAGE>

Exhibit 10.23

SENIOR MANAGEMENT AGREEMENT

THIS SENIOR MANAGEMENT AGREEMENT (this "AGREEMENT") is made as
of June 29, 1998 between AppNet Systems, Inc., a Delaware corporation (the
"COMPANY"), and Ken S. Bajaj ("EXECUTIVE").

As of the date of this Agreement, after giving effect to a
capital contribution to the Company of 100,000 shares of Common Stock
contemporaneously herewith, Executive owns 6,900,000 shares of the Company's
Common Stock, par value $.0005 per share (the "CARRIED STOCK").

The Company and Executive desire to enter into an agreement
pursuant to which Executive will purchase, and the Company will sell, 3,566,000
shares of the Company's Common Stock, par value $.0005 per share, (the "RESERVED
STOCK"). The Carried Stock and the Reserved Stock are collectively referred to
as "EXECUTIVE STOCK." Certain definitions are set forth in Section 10 of this
Agreement.

The execution and delivery of this Agreement by the Company and
Executive is a condition to the purchase of shares of Common Stock and shares of
the Company's Class A Preferred Stock, par value $.01 per share (the "CLASS A
PREFERRED") by GTCR Golder Rauner, L.L.C., a Delaware limited liability company
("GTCR"), and Smart Technology, L.L.C. ("SMART TECHNOLOGY" and together with
GTCR, the "INVESTORS" and each an "INVESTOR") pursuant to a purchase agreement
between the Company and the Investors dated as of the date hereof (the "PURCHASE
AGREEMENT"). Certain provisions of this Agreement are intended for the benefit
of, and will be enforceable by, the Investors.

The parties hereto agree as follows:

PROVISIONS RELATING TO EXECUTIVE STOCK

1. OWNERSHIP. Executive acknowledges that as of the date of this
Agreement he owns beneficially and of record the Carried Stock free and clear of
all liens and encumbrances, except as set forth in the Subscription Agreement
between the Company and the Executive dated February 10, 1998.

2. PURCHASE AND SALE OF RESERVED STOCK.

(a) Upon execution of this Agreement, Executive will purchase,
and the Company will sell, 3,566,000 shares of the Reserved Stock at a price of
$0.1055 per share. The Company will deliver to Executive the certificates
representing such shares, and Executive will deliver to the Company a cashier's
or certified check or wire transfer of funds in the aggregate amount of
$1,783.00 and a promissory note in the form of ANNEX A attached hereto in an
aggregate principal amount of $374,430.00 (the "EXECUTIVE NOTE"). Executive's
obligations under the Executive Note shall be secured by a pledge of all of the
shares of Reserved Stock

<PAGE>

purchased hereunder to the Company and in connection therewith, Executive shall
enter into a pledge agreement in the form of ANNEX B attached hereto.

(b) Within 30 days after the date hereof, Executive will make
an effective election with the Internal Revenue Service under Section 83(b) of
the Internal Revenue Code and the regulations promulgated thereunder in the form
of ANNEX C attached hereto.

(i) The Reserved Stock to be acquired by Executive
pursuant to this Agreement will be acquired for Executive's own account
and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities
laws, and the Reserved Stock will not be disposed of in contravention
of the Securities Act or any applicable state securities laws.

(ii) Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate
the risks and benefits of the investment in the Reserved Stock.

(iii) Executive is able to bear the economic risk of
his investment in the Reserved Stock for an indefinite period of time
because the Reserved Stock has not been registered under the Securities
Act and, therefore, cannot be sold unless subsequently registered under
the Securities Act or an exemption from such registration is available.

(iv) Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering of Reserved Stock and has had full access to such other
information concerning the Company as he has requested.

(v) This Agreement constitutes the legal, valid and
binding obligation of Executive, enforceable in accordance with its
terms, and the execution, delivery and performance of this Agreement by
Executive does not and will not conflict with, violate or cause a
breach of any agreement, contract or instrument to which Executive is a
party or any judgment, order or decree to which Executive is subject.

(vi) Executive is a resident of the State of
Maryland.

(d) As an inducement to the Company to issue the Reserved
Stock to Executive, as a condition thereto, Executive acknowledges and agrees
that neither the issuance of the Reserved Stock to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company and its Subsidiaries or affect the right of the Company to terminate
Executive's employment at any time for any reason.

3. REPURCHASE OF RESERVED STOCK

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<PAGE>

(a) From time to time, the Company may issue or sell Common
Stock (or rights to acquire Common Stock) to its employees ( an "EMPLOYEE
ISSUANCE"). If the Company elects to make an Employee Issuance, the Company
shall have the right to purchase from Executive, and Executive shall sell to the
Company, the number of shares of Reserved Stock (whether held by Executive or
one or more of Executive's transferees, other than the Company) to be issued in
connection with such Employee Issuance pursuant to this Section 3. In addition,
in the event Executive ceases to be employed by the Company or its Subsidiaries
for any reason (the "SEPARATION"), the Company shall have the right to purchase
from Executive, and Executive shall sell to the Company, all of the Executive's
shares of Reserved Stock (whether held by Executive or one or more of
Executive's transferees, other than the Company) pursuant to this Section 3.

(b) In order to purchase Reserved Stock, the Company shall
provide written notice to Executive (the "Reserved Stock Notice") either (i)
providing notice of the Employee Issuance and the number of shares of Reserved
Stock to be repurchased in connection therewith or (ii) providing notice that
all of the shares of Reserved Stock held by the Executive will be repurchased
due to a Separation. The number of shares to be repurchased by the Company shall
first be satisfied to the extent possible from the shares of Reserved Stock held
by Executive at the time of delivery of the Reserved Stock Notice. If the number
of shares of Reserved Stock then held by Executive is less than the total number
of shares of Reserved Stock which the Company has elected to purchase, the
Company shall purchase the remaining shares elected to be purchased from the
other holder(s) of Reserved Stock under this Agreement, pro rata according to
the number of shares of Reserved Stock held by such other holder(s) at the time
of delivery of such Reserved Stock Notice (determined as nearly as practicable
to the nearest share). The sale of the Reserved Stock shall occur five days
after the Company sends the Reserved Stock Notice or, if later, immediately
prior to the consummation of the Employee Issuance. At the closing of the sale
and purchase of the Reserved Stock, the Company shall, first, pay by check or
wire transfer the par value of such shares and, second, offset the aggregate
repurchase price for the Reserved Stock being repurchased against amounts due
under the Executive Note, and Executive shall deliver to the Company
certificates evidencing the Reserved Stock to be sold to the Company. In
connection with any repurchase hereunder, the Company will be entitled to
receive customary representations and warranties regarding such repurchase and
to require that all sellers' signatures be guaranteed.

(c) The repurchase price for all shares of Reserved Stock
shall be the Original Cost thereof plus any interest, fees and expenses paid or
payable pursuant to the Executive Note, pro rata to the percentage of the
Reserved Shares, which are held at such time by the Executive and the Executive
transferees, repurchased by the Company at any time and from time to time
pursuant to this Section 3. The Company's right to repurchase Reserved Stock
shall expire upon the first to occur of (i) a Liquidity Event and (ii) a Public
Offering.

4. REPURCHASE OPTION.

(a) In the event of a Separation, a percentage of the Carried
Stock (whether held by Executive or one or more of Executive's transferees,
other than the Company) will be

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<PAGE>

subject to repurchase, in each case at the option of the Company and the
Investors pursuant to the terms and conditions set forth in this Section 4(a)
(the "REPURCHASE OPTION"). The percentage of the Carried Stock that will be
subject to repurchase at the Executive's Original Cost for such shares shall be
calculated in accordance with the following schedule (the "SUBJECT SHARES"):

Percentage of Carried Stock
Date to be Repurchased At Original Cost
---- ----------------------------------
<S> <C>
Date of this Agreement until 1st 65.2174%
Anniversary of this Agreement

Date immediately following 1st 43.4740%
Anniversary of this Agreement until
2nd Anniversary of this Agreement

Date immediately following 2nd 21.7434%
Anniversary of this Agreement until
3rd Anniversary of this Agreement

Date immediately following 3rd 0%
Anniversary of this Agreement and
thereafter
</TABLE>

(b) The Company may elect to purchase all or any portion of
the Subject Shares by delivering written notice (the "REPURCHASE NOTICE") to the
holder or holders of the Subject Shares within 90 days after the Separation. The
Repurchase Notice will set forth the number of Subject Shares to be acquired
from each holder, the aggregate consideration to be paid for such shares and the
time and place for the closing of the transaction. The number of shares to be
repurchased by the Company shall first be satisfied to the extent possible from
the Subject Shares held by Executive at the time of delivery of the Repurchase
Notice. If the number of Subject Shares then held by Executive is less than the
total number of Subject Shares which the Company has elected to purchase, the
Company shall purchase the remaining shares elected to be purchased from the
other holder(s) of Subject Shares under this Agreement, pro rata according to
the number of Subject Shares held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share).

(c) If for any reason the Company does not elect to purchase
all of the Subject Shares pursuant to the Repurchase Option, the Investors shall
be entitled to exercise the Repurchase Option for the Subject Shares the Company
has not elected to purchase (the "AVAILABLE SHARES"). As soon as practicable
after the Company has determined that there will be Available Shares, but in any
event within 60 days after the Separation, the Company shall give written notice
(the "OPTION NOTICE") to the Investors setting forth the number of Available
Shares and the purchase price for the Available Shares. The Investors may elect
to purchase any or all of the Available Shares by giving written notice to the
Company within one month after the Option Notice has been given by the Company.
If the Investors elect to purchase an aggregate number of shares greater than
the number of Available Shares, the Available Shares shall be

-4-
<PAGE>

allocated among the Investors based upon the number of shares of Common Stock
owned by each Investor on a fully diluted basis. As soon as practicable, and in
any event within ten days, after the expiration of the one-month period set
forth above, the Company shall notify each holder of Subject Shares as to the
number of shares being purchased from such holder by the Investors (the
"SUPPLEMENTAL REPURCHASE NOTICE"). At the time the Company delivers the
Supplemental Repurchase Notice to the holder(s) of Subject Shares, the Company
shall also deliver written notice to the Investors setting forth the number of
shares the Investors are entitled to purchase, the aggregate purchase price and
the time and place of the closing of the transaction. Notwithstanding the
foregoing, the Investors shall not exercise their Repurchase Option pursuant to
this Section 4(c) if the Company has sufficient assets to fully exercise its
Repurchase Option but has not exercised such right. Furthermore, if the
Investors repurchase any Subject Shares, they shall contribute such Subject
Shares to the Company in exchange for a promissory note from the Company with an
aggregate principal amount equal to the purchase price paid for such shares,
bearing interest (payable quarterly) at a rate per annum equal to the prime
rate as published in the WALL STREET JOURNAL from time to time, and having a
term of no longer than five years.

(d) The closing of the purchase of the Subject Shares pursuant
to a Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than one month nor less than five days after the delivery of the later of
either such notice to be delivered. The Company will pay for the Subject Shares
to be purchased by it pursuant to the Repurchase Option by first offsetting
amounts outstanding under any bona fide debts owed by Executive to the Company
and will pay the remainder of the purchase price by a check or wire transfer of
funds in the aggregate amount of the purchase price for such shares. The
Investors will pay for the Subject Shares to be purchased by them by a check or
wire transfer of funds. The Company and the Investors will be entitled to
receive customary representations and warranties from the sellers regarding such
sale and to require all sellers' signatures be guaranteed.

(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Subject Shares by the Company shall be subject to
applicable restrictions contained in the Delaware General Corporation Law and in
the Company's and its Subsidiaries' debt and equity financing agreements. If any
such restrictions prohibit the repurchase of Subject Shares hereunder which the
Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.

(f) The provisions of this Section 4 shall terminate upon a
Liquidity Event.

5. RESTRICTIONS ON TRANSFER OF EXECUTIVE STOCK

(a) RETENTION OF EXECUTIVE STOCK. Until the fifth anniversary
of the date of this Agreement, Executive shall not sell, transfer, assign,
pledge or otherwise dispose of any interest in any shares of Executive Stock,
except pursuant to: (i) a Sale of the Company, (ii) Sections 3 and 4 of this
Agreement (iii) Section 4 of the Stockholders Agreement, (iv) a sale described
in clause (i) of the definition of "PUBLIC SALE" or (v) after a Public Offering,
upon any sale by the

-5-
<PAGE>

Investors or an Affiliate of the type described in clause (ii) of the definition
of "PUBLIC SALE" (a "RULE 144 SALE"), to the extent of the lesser of (a) the
number of shares of Carried Stock held by Executive that are not subject to
repurchase and (b) the number of shares of Carried Stock held by Executive
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock sold by the Investors and their Affiliates in the Rule 144 Sale and
the denominator of which is the total number of shares of Common Stock held by
the Investors and their Affiliates immediately prior to such sale.

(b) CERTAIN PERMITTED TRANSFERS. The restrictions in this
Section 5 will not apply with respect to (i) transfers of shares of Executive
Stock pursuant to applicable laws of descent and distribution or (ii) transfer
of shares of Executive Stock among Executive's Family Group; provided that such
restrictions will continue to be applicable to the Executive Stock after any
such transfer and the transferees of such Executive Stock have agreed in writing
to be bound by the provisions of this Agreement.

(c) TERMINATION OF RESTRICTIONS. The restrictions on the
Transfer of shares of Executive Stock set forth in this Section 5 will continue
with respect to each share of Executive Stock until the date on which such
Executive Stock has been transferred in a transaction permitted by this Section
5 (except in a transaction contemplated by Section 5(b)); provided that in any
event such restrictions will terminate upon a Liquidity Event.

6. ADDITIONAL RESTRICTIONS ON TRANSFER OF EXECUTIVE STOCK.

(a) LEGEND. The certificates representing the Executive Stock
will bear a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT
AGREEMENT BETWEEN THE COMPANY AND AN EXECUTIVE OF THE COMPANY DATED AS
OF JUNE 29, 1998. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."

(b) OPINION OF COUNSEL. No holder of Executive Stock may sell,
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act or pursuant to Section 5(b)
hereof) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither

-6-
<PAGE>

registration nor qualification under the Securities Act and applicable state
securities laws is required in connection with such transfer.

PROVISIONS RELATING TO EMPLOYMENT

7. EMPLOYMENT. The Company agrees to employ Executive and Executive
accepts such employment for the period beginning as of the date hereof and
ending upon his separation pursuant to Section 7(c) hereof (the "EMPLOYMENT
PERIOD").

(a) POSITION AND DUTIES. During the Employment Period,
Executive shall serve as the President and Chief Executive Officer of the
Company and shall have the normal duties, responsibilities and authority of the
President and Chief Executive Officer, including, without limitation, the
responsibilities associated with all aspects of the daily operations of the
Company and the completion and integration of any acquisitions made by the
Company, subject to the power of the Board to expand or limit such duties,
responsibilities and authority and to override actions of the President and
Chief Executive Officer. Executive shall report to the Board and Executive shall
devote his best efforts and of his full business time and attention to the
business and affairs of the Company and its subsidiaries.

(b) SALARY, BONUS AND BENEFITS. Commencing on October 1, 1998,
the Company will pay Executive a salary (the "ANNUAL SALARY") of $300,000 per
annum, subject to any increase as determined by the Board based upon the
Company's achievements of budgetary and other objectives set by the Board.
Executive shall be eligible to receive a bonus of up to fifty (50%) of the
Annual Salary based upon the Company's achievement of budgetary and other
objectives set forth by the Board. Executive's Annual Salary for any partial
year will be prorated based upon the number of days elapsed in such year. In
addition, during the Employment Period, Executive will be entitled to such other
benefits approved by the Board and made available to the Company's senior
management.

(c) SEPARATION. Executive's employment by the Company will
continue until Executive's resignation, disability (as determined by the Board
in its good faith judgment) or death or until the Board terminates Executive's
employment for any reason or without any reason.

8. CONFIDENTIAL INFORMATION.

(a) Executive acknowledges that the Company and its
Subsidiaries are engaged in the business of acquiring businesses that provide
electronic commerce services and operating those businesses after their
acquisition (the "BUSINESS"). Executive further acknowledges that the Business
and its continued success depend upon the use and protection of a large body of
confidential and proprietary information, and that he holds a position of trust
and confidence by virtue of which he necessarily possesses, has access to and,
as a consequence of his signing this Agreement, will continue to possess and
have access to, highly valuable, confidential and proprietary information of the
Company and its Subsidiaries not known to the public in general, and that it
would be improper for him to make use of this information for the

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<PAGE>

benefit of himself and others. All of such confidential and proprietary
information now existing or to be developed in the future will be referred to in
this Agreement as "CONFIDENTIAL INFORMATION." This includes, without specific
limitation, information relating to the nature and operation of the Business,
the persons, firms and corporations which are customers or active prospects of
the Company during Executive's employment by the Company, the Company's
development transition and transformation plans, methodology and methods of
doing business, strategic, acquisition, marketing and expansion plans, including
plans regarding planned and potential acquisitions and sales, financial and
business plans, employee lists, numbers and location of sales representatives,
new and existing programs and services (and those under development), prices and
terms, customer service, integration processes requirements, costs of providing
service, support and equipment and equipment maintenance costs. Confidential
Information shall not include any information that has become generally known to
and available for use by the public other than as a result of Executive's acts
or omissions.

(b) Disclosure of any Confidential Information of the Company
shall not be prohibited if such disclosure is directly pursuant to a valid and
existing order of a court or other governmental body or agency within the United
States; provided, however, that (i) Executive shall first have given prompt
notice to the Company of any such possible or prospective order (or proceeding
pursuant to which any such order may result) and (ii) Executive shall afford the
Company a reasonable opportunity to prevent or limit any such disclosure.

(c) During the Employment Period and at all times thereafter,
Executive will preserve and protect as confidential all of the Confidential
Information known to Executive or at any time in Executive's possession or
control. In addition during the Employment Period and at all times thereafter,
Executive will not disclose to any unauthorized person or use for his own
account any of such Confidential Information without the Board's consent.
Executive agrees to deliver to the Company at a Separation, or at any other time
the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) containing or otherwise
relating to any of the Confidential Information (including, without limitation,
all acquisition prospects, lists and contact information) which he may then
possess or have under his control. Executive acknowledges that all such
memoranda, notes, plans, records, reports and other documents are and at all
times will be and remain the property of the Company.

(d) Executive will fully comply with any agreement reasonably
required by any of the Company's affiliates, business partners, suppliers or
contractors with respect to the protection of the confidential and proprietary
information of such entities.

9. NONCOMPETITION AND NONSOLICITATION. Executive acknowledges that in
the course of his employment with the Company he will become familiar with
Confidential Information and that his services will be of special, unique and
extraordinary value to the Company. Executive agrees that the Company has a
protectable interest in the Confidential Information, goodwill and specialized
knowledge acquired by Executive during the course of his employment with the
Company. Therefore, Executive agrees that:

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<PAGE>

(a) NONCOMPETITION. During the Employment Period and for a
period of eighteen months thereafter (the "NONCOMPETE PERIOD"), he shall not,
anywhere in the United States, directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
the Business or any other business engaged in by the Company at the time of
Separation.

(b) NONSOLICITATION. During the Noncompete Period, Executive
shall not directly or indirectly through another entity (i) induce or attempt to
induce any employee of the Company or any of its Subsidiaries to leave the
employ of the Company or such Subsidiary, or in any way interfere with the
relationship between the Company or any of its Subsidiaries and any employee
thereof, (ii) hire any person who was an employee of the Company or any of its
Subsidiaries within 180 days prior to the time such employee was hired by the
Executive, (iii) induce or attempt to induce any owner of a site location,
customer, supplier, licensee or other business relation of the Company or any of
its Subsidiaries to cease doing business with the Company or such Subsidiary or
in any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any of its Subsidiaries or (iv)
directly or indirectly acquire or attempt to acquire an interest in any business
relating to the business of the Company or any of its Subsidiaries and with
which the Company or any of its Subsidiaries has entertained discussions or has
requested and received information relating to the acquisition of such business
by the Company or any of its Subsidiaries in the two-year period immediately
preceding a Separation.

(c) ENFORCEMENT. If, at the time of enforcement of Section 8
or 9 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum duration, scope and area permitted by law. Because Executive's
services are unique and because Executive has access to Confidential
Information, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of Section 8 or Section 9 of this Agreement, the Company or
any of its successors or assigns shall, in addition to other rights and remedies
existing in its favor, be entitled to specific performance and/or injunctive or
other relief in order to enforce, or prevent any violations of, the provisions
of Section 8 or Section 9 from any court of competent jurisdiction.

(d) ADDITIONAL ACKNOWLEDGMENTS. Executive acknowledges that
the provisions of this Section are in consideration of: (i) employment with the
Company and (ii) additional good and valuable consideration as set forth in this
Agreement. Executive expressly agrees and acknowledges that the restrictions
contained in Sections 8 and 9 do not preclude Executive from earning a
livelihood, nor do they unreasonably impose limitations on Executive's ability
to earn a living. In addition, Executive agrees and acknowledges that the
potential harm to the Company of the non-enforcement of Sections 8 or 9
outweighs any harm to the Executive of their enforcement by injunction or
otherwise. Executive acknowledges that he has carefully read this Agreement and
has given careful consideration to the restraints imposed upon the Executive

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<PAGE>

by this Agreement, and is in full accord as to their necessity for the
reasonable and proper protection of Confidential Information. Executive
expressly acknowledges and agrees that each and every restraint imposed by this
Agreement is reasonable with respect to subject matter, time period and
geographical area.

GENERAL PROVISIONS

10. DEFINITIONS

"AFFILIATE" or "AFFILIATES" of an Investor means any direct or indirect
general or limited partner of such Investor, or any employee or owner thereof,
or any other person, entity or investment fund controlling, controlled by or
under common control with such Investor.

"COMMON STOCK" means the Company's Common Stock, value $.0005 per
share.

"EXECUTIVE'S FAMILY GROUP" means Executive's spouse and descendants
(whether natural or adopted), any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants and any retirement plan for the
Executive.

"EXECUTIVE STOCK" will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company and the Investors and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock will succeed to all rights and
obligations attributable to Executive as a holder of Executive Stock hereunder.
Executive Stock will also include shares of the Company's capital stock issued
with respect to Executive Stock by way of a stock split, stock dividend or other
recapitalization.

"LIQUIDITY EVENT" means (i) a Sale of the Company or (ii) the failure
of GTCR and its Affiliates to collectively own more than 50% of the original
number of shares of Common Stock purchased by GTCR pursuant to the Purchase
Agreement (as adjusted for any Common Stock issued with respect to such stock by
way of a stock split, stock dividend or other recapitalization).

"ORIGINAL COST" means, with respect to each share of Reserved Stock
purchased hereunder, $0.1055, and, with respect to each share of Carried Stock,
$0.001, (both as proportionately adjusted for all subsequent stock splits, stock
dividends and other recapitalizations).

"PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.

"PUBLIC OFFERING" means the sale in an underwritten public offering
registered under the Securities Act of shares of the Company's Common Stock
approved by the Board.

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<PAGE>

"PUBLIC SALE" means (i) any sale pursuant to a registered public
offering under the Securities Act or (ii) any sale to the public pursuant to
Rule 144 promulgated under the Securities Act effected through a broker, dealer
or market maker (other than pursuant to Rule 144(k)).

"SALE OF THE COMPANY" means any transaction or series of transactions
pursuant to which any person(s) or entity(ies) other than the Investors and its
Affiliates in the aggregate acquire(s) (i) capital stock of the Company
possessing the voting power (other than voting rights accruing only in the event
of a default, breach or event of noncompliance) to elect a majority of the
Company's board of directors (whether by merger, consolidation, reorganization,
combination, sale or transfer of the Company's capital stock, shareholder or
voting agreement, proxy, power of attorney or otherwise) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis;
provided that the term "Sale of the Company" shall not include a Public
Offering.

"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.

"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement of even date
herewith among the Company and certain of its stockholders.

"SUBSIDIARY" means any corporation of which fifty percent (50%) or more
of the securities having ordinary voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries. The term
Subsidiary shall also include any joint venture arrangement between the Company
and any other entity, including, without limitation, the Company's joint venture
arrangement with Commerce Direct International, Inc., a Delaware corporation.

"TRANSFER" means to sell, transfer, assign, pledge or otherwise dispose
of (whether with or without consideration and whether voluntarily or
involuntarily or by operation of law).

11. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:

IF TO THE COMPANY:

AppNet Systems, Inc.
6700A Rockledge Drive
Suite 525
Bethesda, MD 20817
Attention: President

With a Copy To:

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<PAGE>

GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bruce V. Rauner
Philip A. Canfield

AND

Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie

AND

Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036-5612
Attention: Arthur E. Cirulnick

IF TO THE EXECUTIVE:

Ken S. Bajaj
10201 Norton Road
Potomac, MD 20854

WITH A COPY TO:

Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036-5612
Attention: Arthur E. Cirulnick

IF TO THE INVESTORS:

GTCR Golder Rauner, L.L.C.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bruce V. Rauner
Philip A. Canfield

AND

Smart Technology, L.L.C.
10201 Norton Road

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<PAGE>

Potomac, MD 20854

WITH A COPY TO:

Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Stephen L. Ritchie

Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036-5612
Attention: Arthur E. Cirulnick.

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.

12. GENERAL PROVISIONS

(a) EXPENSES. The Company shall pay all legal, accounting and
other expenses incurred in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement.

(b) TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such stock for any purpose.

(c) AMENDMENT OF SUBSCRIPTION AGREEMENT. The Subscription
Agreement between the Executive and the company dated as of February 10, 1998
(the "SUBSCRIPTION AGREEMENT") is hereby amended by deleting the provisions of
each of Section 1(c), 2(d), 3(m), 3(n), 4, 6, 7(b), 7(c) in their entirety
and replacing such provisions with "Intentionally Omitted."

(d) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.

(e) INTENDED THIRD-PARTY BENEFICIARIES. The Investors are
intended to be third-party beneficiaries to this entire Agreement and the rights
and obligations of the parties

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hereto. It is understood and agreed by the parties hereto that this Agreement
shall be enforceable by GTCR and, provided GTCR is seeking to enforce
substantially the same rights, the other Investor(s) in accordance with its
terms as though each of the Investors were a party to every provision hereof.
Except as expressly provided herein, no other third parties are intended by the
parties hereto to be beneficiaries hereof.

(f) COMPLETE AGREEMENT. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.

(g) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.

(h) SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder. The
rights and obligations of GTCR under this Agreement may be assigned at any time,
in whole or in part, to any investment fund managed by GTCR, or any successor
thereto; provided that such assignment occurs in the manner provided in the
Purchase Agreement.

(i) CHOICE OF LAW. The corporate law of the State of Delaware
will govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by and
construed in accordance with the internal laws of the State of Maryland, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Maryland or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Maryland.

(j) REMEDIES. Each of the parties to this Agreement (including
the Investors) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including attorney's fees) caused by
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.

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(k) AMENDMENT AND WAIVER. The provisions of this Agreement may
be amended and waived only with the prior written consent of the Company,
Executive and the holders of a majority of the Common Stock held by the
Investors.

(l) BUSINESS DAYS. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or holiday
in the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.

(m) TERMINATION. This Agreement (except for the provisions of
Section 7) shall survive a Separation and shall remain in full force and effect
after such Separation.

(n) ADJUSTMENTS OF NUMBERS. All numbers set forth herein which
refer to share prices or amounts will be appropriately adjusted to reflect stock
splits, stock dividends, combinations of shares and other recapitalizations
affecting the subject class of stock.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have executed this
Senior Management Agreement on the date first written above.

APPNET SYSTEMS, INC.

By: /s/ Ken S. Bajaj
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Name: Ken S. Bajaj
--------------------------------
Its: President
---------------------------------

/s/ Ken S. Bajaj
----------------------------------
Ken S. Bajaj

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EXHIBIT 23.1

Consent of Arthur Andersen LLP

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this prospectus.

/s/ ARTHUR ANDERSEN LLP
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May 24, 1999 ARTHUR ANDERSEN LLP