SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
APPNET, INC.
-----------------------------------------------
(Name of Registrant as Specified in its Charter)
-----------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[Logo]
APPNET, INC.
6707 Democracy Boulevard, Suite 1000
Bethesda, Maryland 20817
(301) 493-8900
NOTICE OF AND PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 2000
Dear Fellow Stockholder:
We invite you to attend our 2000 annual meeting of stockholders on
Friday, May 19, 2000 at 9:00 a.m. at the Bethesda Marriott Suites Hotel, located
at 6711 Democracy Boulevard, Bethesda, Maryland. If you held shares of our
common stock on April 6, 2000, you will be entitled to vote at the annual
meeting on the following matters:
1. The election of six directors; and
2. Any other business as may properly come before the meeting.
We have enclosed a proxy card, our 1999 annual report to stockholders
and our 1999 Annual Report on Form 10-K along with this proxy statement. These
materials are first being mailed to stockholders on or about April 19, 2000.
Your vote is important, no matter how many shares you own. Even if you
plan to attend our annual meeting, please complete, date and sign the proxy card
and mail it as soon as you can in the envelope provided. If you attend the
annual meeting, you can revoke your proxy and vote your shares in person if you
like.
Thank you for your continued support. We look forward to seeing you at
our annual meeting.
By Order of the Board of Directors,
/s/ Sherry L. Rhodes
Sherry L. Rhodes
Vice President, General Counsel
and Secretary
Bethesda, Maryland
April 12, 2000
<PAGE>
FREQUENTLY ASKED QUESTIONS
Q: Why did I receive this proxy statement?
Our board of directors has sent you this proxy statement to ask for your
vote, as an AppNet stockholder, on certain matters to be voted on at our
upcoming annual stockholders' meeting.
Q: What am I voting on?
You will vote on the re-election of six directors. Our board of directors
is not aware of any other matter that will be presented for your vote at
the annual meeting.
Q: Do I need to attend the annual meeting in order to vote?
No. You can vote either in person at the annual meeting or by completing
and mailing the enclosed proxy card.
Q: Who is entitled to vote?
You are entitled to vote if you owned shares as of the close of business on
the April 6, 2000 record date. You will be entitled to one vote per share
for each share of our common stock you owned on the record date.
Q: How many shares of AppNet's stock are entitled to vote?
A total of 33,945,874 shares of common stock will be entitled to vote at
the annual meeting.
Q: What constitutes a quorum?
A "quorum" refers to the number of shares that must be in attendance at a
meeting to lawfully conduct business. A majority of the shares of our
common stock entitled to be cast will represent a quorum. As a result, at
least 16,972,937 shares must be represented at the annual meeting before we
can take the actions called for at the meeting.
Q: What happens if I sign and return my proxy card but do not mark my vote?
If you return a signed proxy card without indicating whether you wish to
vote for or against the proposals, Ken S. Bajaj and Philip A. Canfield, as
proxies, will vote your shares to elect the board's nominees for directors.
Q: What percentage of AppNet's outstanding shares do directors and officers
own?
Approximately 9.5% of our shares, as of the record date, are controlled by
our directors and officers. See page 16 for more details.
2
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors currently consists of six members, all of whom
are to be elected at the upcoming annual meeting to serve until the next annual
meeting of stockholders.
Listed below are the names of the nominees for election to the Board
of Directors at the meeting for a one year term, together with certain
additional information concerning each such nominee as of April 6, 2000. Each
nominee is currently a director. If any of the nominees should be unable or
unwilling to serve, then the proxies, pursuant to the authority granted to them
by the Board of Directors, will have discretionary authority to select and vote
for substitute nominees. The Board of Directors has no reason to believe that
any of the nominees will be unable or unwilling to serve. Information as to the
directors' ownership of shares of Common Stock is provided under the caption
"Stock Ownership of Management and Others."
Nominees for Election as Directors
Term Expiring at 2001 Annual Meeting
Ken S. Bajaj. Mr. Bajaj, age 58, 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.
John Cross. Mr. Cross, age 57, has been on our Board of Directors
since June 1998 and has been 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.
Philip A. Canfield. Mr. Canfield, age 32, 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 Zefer Corp., AETEA Information Technology, Inc., VISTA Information
Technologies, Inc. and several other private companies in GTCR's portfolio.
Edward C. Meyer. General Meyer, age 71, has been on our Board of
Directors since April, 2000. General Meyer has been Chairman of Mitretek
Systems, Inc., a non-profit systems engineering company that assists in the
application of science and technology, since 1996. General Meyer is a graduate
of the United States Military Academy and received a M.S. degree from George
Washington University. His distinguished military career culminated with his
membership on the Joint Chiefs of Staff prior to his 1983 retirement from the
United States Army. General Meyer has served on the boards of the Brown Group,
FMC and AEGON USA and is currently a member of the Board of Directors of ITT
Industries, Inc. and the Smith Richardson Foundation, the Board of Overseers of
the
3
<PAGE>
Hoover Institution, the Trustees of the George Marshall Foundation and the Board
of Advisers of the Center for Strategic and International Studies.
Richard N. Perle. Mr. Perle, age 58, has been on our Board of
Directors since June 1999. Mr. Perle is also 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.
Bruce V. Rauner. Mr. Rauner, age 44, 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., Larson, Inc., Coinmach
Laundry Corporation, Polymer Group, Inc., Province Healthcare, Inc., Esquire
Communications Ltd., US Aggregates, Inc., and several private companies in
GTCR's portfolio.
Committees, Meetings and Attendance
Our Board of Directors has three standing committees: an Audit
Committee, a Compensation Committee and an Executive Committee.
The Audit Committee, which did not meet in 1999, consists of Messrs.
Canfield and Perle. The Audit Committee makes recommendations to the Board of
Directors regarding the engagement of independent auditors, reviews with our
auditors the plan and scope of their annual audit and the findings and
conclusions of the annual audit, reviews our procedures for internal auditing
and the adequacy of our systems of internal controls and accounting principals,
policies and practices, reviews and evaluates the independence of our auditors,
reviews and approves non-audit services rendered by our auditors or other
accounting or auditing firms, reviews and approves audit and non-audit fees,
reviews any accounting changes having major impact on our obligations or
financial statements and reviews filings made with the Securities and Exchange
Commission.
The Compensation Committee, which met once in 1999, consists of
Messrs. Canfield and Perle. The Compensation Committee establishes reasonable
compensation and benefits for our officers and, at the option of the Committee,
other managerial personnel including determining cash compensation,
administering compensation plans and retirement, disability or death benefit
plans for such persons and determining awards under those plans, determines
employment and compensation arrangements with officers and managers, and
develops and recommends to the Board of Directors equity-based and other
compensation and bonus plans for officers and managerial personnel.
The Executive Committee, which did not meet in 1999, consists of
Messrs. Bajaj and Canfield. The Executive Committee is vested with the power to
take all actions for and fully manage AppNet between regular meetings of our
Board of Directors and may exercise all the power and authority of our Board of
Directors in the management of our business and affairs that are permitted by
law, except that the Executive Committee may not approve or recommend any matter
required to be submitted to stockholders for approval, and also may not adopt,
amend or repeal any of our By-laws.
4
<PAGE>
Each director who was a director in 1999 attended at least 75% of the
meetings of the Board of Directors and committees on which he serves.
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 do not receive a fee for attendance in person at meetings of the Board
of Directors or committees of the Board of Directors, but they are reimbursed
for travel expenses and other out-of-pocket costs incurred in connection with
the attendance of meetings. Non-employee directors receive an option to purchase
5,000 shares of our common stock in connection with their appointment to the
Board of Directors. Non-employee directors also receive an automatic grant of an
option to purchase 5,000 shares of our common stock in January of each year that
they are members of the Board of Directors.
EXECUTIVE COMPENSATION
Report on Executive Compensation
The Compensation Committee of our Board of Directors is responsible
for approving all aspects of the compensation package we offer to executive
officers. AppNet's executive compensation package is designed to promote a
strong relationship between performance (on both a company and individual level)
and compensation and to base compensation on our quarterly, annual and long-term
performance goals by rewarding above average corporate performance and
recognizing individual initiative and achievement. Our objectives are to make
executive compensation generally competitive, with a substantial portion of
executive compensation contingent upon company and individual performance, and
to encourage equity ownership by our executive officers so that their interests
are closely aligned with the interests of our stockholders. The Compensation
Committee also reviews and refines the Company's compensation practices as
necessary to respond to changes in the business environment.
In order to evaluate and establish appropriate compensation practices,
we use data from selected companies that we view as "benchmark" companies in the
high technology and Internet industries to assess our compensation levels.
Benchmark companies are selected according to, among other factors, the
comparability of their operations, services, revenues and markets served to
ours. We seek to set our executive compensation levels competitively with the
benchmark companies, to the extent such levels are consistent with the executive
compensation objectives outlined above.
Elements of Executive Compensation
Our executive compensation program has three components: (1) annual
cash compensation in the form of base salary and incentive bonus payments, (2)
long-term incentive compensation in the form of stock options granted under our
1999 Stock Incentive Plan and (3) other compensation and employee benefits
generally available to all of our employees, such as health insurance. Annual
cash compensation is primarily designed to reward current performance. Long-term
incentives and other compensation and employee benefits are primarily designed
to create performance incentives over the long term for executive officers and
employees.
5
<PAGE>
Base Salary. Base salaries are initially determined by evaluating the
responsibilities of the position, the experience and contributions of the
individual and the salaries for comparable positions in the competitive
marketplace. The base salaries of certain executive officers are subject to
minimums set forth in individual employment agreements.
Incentive Bonuses. Our executives are eligible for cash bonus awards
under our incentive compensation program. Award of incentive bonuses is based on
achieving corporate goals and a subjective valuation of the contributions of
individual executives to the achievement of our business goals. Bonus payments
have generally been reflective of our performance in achieving revenue growth,
cash-flow and other operating and corporate objectives.
Stock Options. We grant of stock options to provide long-term
incentive compensation to our employees. Our Compensation Committee believes
that the use of stock options attracts and retains qualified personnel for
positions of substantial responsibility and also serves to motivate our
executive officers to promote the success of our business and to maximize
stockholder value.
Compensation of Chief Executive Officer
Our Compensation Committee based the fiscal year 1999 compensation of
Ken S. Bajaj, our Chief Executive Officer, on the objectives described above.
Prior to May 1999 Mr. Bajaj elected not to receive any salary as Chief Executive
Officer. Beginning in May 1999 Mr. Bajaj received a monthly base salary of
$25,000 ($300,000 on an annual basis) for a total base salary of $200,000 for
1999. Mr. Bajaj's compensation level for the year was deemed appropriate given
his qualifications and the significant contributions he made to AppNet meeting
our 1999 business objectives.
Section 162(m) Limitation
We anticipate that all 2000 compensation to executive officers will be
fully deductible under Section 162(m) of the Internal Revenue Code. Therefore,
we have determined that a policy with respect to qualifying compensation paid to
executive officers for deductibility is not necessary.
The Compensation Committee
Philip A. Canfield
Richard N. Perle
6
<PAGE>
Summary Compensation Information
The following table sets forth a summary of compensation for services
rendered in all capacities to us by our Chief Executive Officer and President
and each of our other executive officers who were paid more than $100,000 in
combined salary and bonus for 1999.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
--------------------------------- -----------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Position Year Salary Bonus Compensation Awards Options (#) Compensation(1)
- -------------------------- ---- ------ ----- ------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ken Bajaj(2) 1999 $188,303 $ - $ - $ - -- $ 2,954
Chairman of the Board, 1998 $ - - $ - $ - -- $ -
President and Chief
Executive Officer
Toby Tobaccowala (3) 1999 $209,478 $ - $ - $ - 17,544 $ 6,577
Senior Vice President 1998 $ 90,278 $15,000 $ - $ - -- $ -
John Cross (4) 1999 $205,255 $ - $100,000 $ - 337,776 $ 685
Executive Vice President 1998 $ - $ - $ - $ - -- $ -
Jack Pearlstein (5) 1999 $171,587 $ - $ - $ - 148,246 $ 261
Senior Vice President, 1998 $ 72,749 $ - $ - $ - -- $ -
Chief Financial
Officer and Treasurer
Robert D. McCalley (6) 1999 $143,463 $ - $ - $ - -- $ 6,262
Senior Vice President, 1998 $114,330 $ - $ 40,000 $ - -- $ -
Electronic Commerce
- --------------------------------
(1) Includes the dollar value of premiums paid by the Company for term life insurance for the benefit of these
employees and matching contributions made under the Company's 401(k) plan.
(2) 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.
(3) 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.
(4) Mr. Cross was hired in April 1999. Other Annual Compensation for Mr. Cross consists of $100,000 for
reimbursement of moving expenses.
(5) Mr. Pearlstein was promoted to Senior Vice President, Chief Financial Officer and Treasurer in May 1999. Mr.
Pearlstein began to work for us in July 1998. The salary set forth above for 1998 represents his salary for
the six-month period from July to December 1998.
(6) Mr. McCalley began to work for us in February 1998. The salaries set forth above for 1998 represents his
salary for the eleven-month period from February to December 1998. Mr. McCalley resigned as an executive
officer but continues to be an employee. Mr. McCalley received 56,140 shares of our common stock as partial
compensation for services rendered from February 1, 1998 to May 31, 1998.
</TABLE>
7
<PAGE>
Stock Options
We have four stock option plans in place: our 1998 Stock Option and
Incentive Plan, our 1999 Stock Option and Incentive Plan and two incentive stock
option plans we assumed in connection with acquisitions. Currently, we are
granting options to our employees only under the 1999 Stock Option and Incentive
Plan. The following tables lists option grants under the 1998 and 1999 plans
that we made to named executive officers during 1999, as well as additional
information relating to those grants. Mr. Bajaj was not granted any options in
1999.
<TABLE>
Option Grants in 1999
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rate of Stock
Price Appreciation
Individual Grants for Option Term(4)
-------------------------------------------------- -----------------------
Number % of Total
of Shares Options
Covered Granted for Exercise
by Option Employees Price Expiration
Name Grant(1) in Year ($/share) Date 5% 10%
- ------------ ---------- ----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Toby Tobaccowala 17,544(2) 1% $17.10 2009 $ 188,672 $ 478,114
John Cross 337,776(3) 11% $12.83 2009 $3,506,731 $8,150,611
Jack Pearlstein 17,544(2) 1% $12.83 2009 $ 141,559 $ 358,725
13,158 * $14.25 2009 $ 117,920 $ 298,821
17,544(2) 1% $17.10 2009 $ 188,672 $ 478,114
100,000 3% $15.50 2009 $ 974,795 $2,470,235
- ---------------------------
* Less than 1%.
(1) Options generally terminate 90 days following termination of the executive officer's employment with
the company or the expiration date, whichever occurs earlier. Except as noted in footnote (3), the
exercise price of each option was equal to or greater than the fair value per share of the common
stock on the date of the grant. These options become exercisable over a four-year period, 25% on
each anniversary of the grant date of the option, excepted as noted in footnote (2).
(2) These options were fully exercisable when granted.
(3) These options were granted with an exercise price less than the fair value per share of the common
stock on the date of grant.
(4) Amounts represent hypothetical gains that could be achieved for the respective options if exercised
at the end of the option term. These gains are based on assumed rates of stock price appreciation of
5% and 10% from the date of grant. The gains shown are net of the option exercise price, but there
are no deductions for taxes or other expenses associated with the exercise of the option or the sale
of the underlying security. The actual gains, if any, on the exercise of stock options will depend
on the future performance of the common stock, the option holder's continued employment throughout
the option period and the date on which the options are exercised.
</TABLE>
8
<PAGE>
Set forth below is certain information about the cash values realized
by named executive officers who exercised stock options in 1999 and the number
and value of stock options held by named executive officers at the end of 1999.
Mr. Bajaj did not exercise any stock options in 1999 and did not hold any stock
options at the end of 1999.
<TABLE>
1999 Option Exercises and Year-End Option Values
<CAPTION>
Number of Securities Value of the
Underlying Unexercised Unexercised In-The-Money
Options At Year End Options at Year End (2)
---------------------------- ---------------------------
Shares Acquired Value
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------- --------------- ------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Toby Tobaccowala - $ - 17,544 - $467,550 $ -
John Cross - $ - - 337,776 $ - $10,445,716
Jack Pearlstein 17,544 $776,096 17,544 113,158 $ - $ 3,213,158
- -------------------------
(1) The value realized represents the aggregate market value of the shares covered by the option on the date of
exercise less the aggregate exercise price paid by the executive officer.
(2) The value of unexercised in-the-money option at year-end assumes a fair market value of the Company's
Common Stock of $43.75, the closing market price per share of the Company's Common Stock as reported on the
NASDAQ Stock Exchange on December 31, 1999.
</TABLE>
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 dated as of June 29, 1998 to which substantially all
of the stockholders of AppNet who acquired their shares prior to our June 1999
initial public offering are party provides that
9
<PAGE>
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.
The senior management agreements 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 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.
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 with 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.
10
<PAGE>
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, 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.
Pursuant to his management agreement, Mr. 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.
We entered into senior management agreements with Messrs. Tobaccowala
and Pearlstein in July 1998 and with Mr. McCalley in June 1998. 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. Caused 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, for competing with AppNet, soliciting any of our
employees or interfering with any of our business relationships.
The senior management agreements with Messrs. Tobaccowala, Pearlstein
and McCalley provides for the sale of 175,439, 63,157 and 110,175 shares,
respectively, or 348,771 shares in the aggregate, of our common stock to these
individuals at a per share price of $0.3007, for an aggregate consideration of
$104,874. 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.
11
<PAGE>
Each senior management agreement restricts the transfer of the AppNet
common stock owned by the executive as of the date of the agreement until the
fifth anniversary of the applicable agreement, 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 dated June 29, 1998 provides 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.
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 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. 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 entitles other
than GTCR and Smart Technology, other than in a public offering;
or
* the sale of all or substantially all of our assets.
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 in the future up to an
aggregate of 96,500 shares of our Class A Preferred Stock at a price of $1,000
per share on the terms described below. GTCR was required to purchase Class A
Preferred Stock at the request of AppNet's Board of Directors and upon the
approval of GTCR to fund AppNet's working capital requirements and acquisitions.
GTCR and Smart Technology purchased aggregate amounts of approximately 44,167
and 900 shares of Class A Preferred Stock, respectively, under the purchase
agreement for aggregate purchase prices of
12
<PAGE>
approximately $44.2 million and $900,000, respectively. In June 1999 in
connection with our initial public offering, the parties to the purchase
agreement entered into a reorganization agreement dated as of June 16, 1999,
providing for the exchange of all of the shares of Class A Preferred Stock and
accumulated and unpaid dividends on such shares purchased by GTCR and Smart
Technology for 3,813,864 and 77,834 shares of our common stock, 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 amending or
waiving any provision of the senior management agreements between AppNet and the
Fairfax entities. Additionally, as long as GTCR owns at least 15% of the shares
owned by it immediately after the consummation of our June 1999 initial public
offering, AppNet will, subject to any limitations imposed by Delaware law, use
its best efforts to nominate at least one GTCR designee to the Board.
Bajaj Senior Management Agreement
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. 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 gave AppNet the right, if it issued or
sold common stock or rights to acquire common stock, to its employees, to
repurchase these shares, whether held by Mr. Bajaj or his permitted transferees,
at a price of $0.3007 per share. Prior to our June 1999 initial public offering,
AppNet 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.
Davidson Agreement
Thomas M. Davidson, a former director, and AppNet were 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. Under this
agreement Mr. Davidson earned a total of approximately $685,000 of additional
commissions through March 31, 1999, based upon the total amount invested in
AppNet by GTCR and Smart Technology.
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 and a
consulting relationship with Mr. Davidson. Mr. Davidson received consulting fees
of $200,000 under this arrangement, which terminated in June 1999.
Other GTCR Relationships
Prior to our June 1999 initial public offering, GTCR and AppNet were
parties to a professional services agreement under which GTCR received $200,000
per year in exchange for financial and management consulting services. This
agreement also entitled GTCR to receive an investment fee equal to 1% of the
purchase price of the common stock and Class A Preferred Stock purchased from
AppNet by GTCR under the purchase agreement with GTCR and Smart Technology. GTCR
earned approximately $475,000 in investment fees under this agreement. The GTCR
professional services agreement terminated upon the consummation of our initial
public offering.
13
<PAGE>
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 bore interest at the
rate of 12% per annum. The principal amount of this note was reduced from time
to time by the amount of the purchase price of Class A Preferred Stock purchased
by Smart Technology under the purchase agreement with GTCR and Smart Technology.
The amount outstanding under this note was reduced to $3,300, which was repaid
with a portion of the proceeds of our June 1999 initial public 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.
14
<PAGE>
STOCK PERFORMANCE INFORMATION
The line graph appearing below compares on a monthly basis the total
return on our common stock since our June 18, 1999 initial public offering with
the total return on a monthly basis of:
* the Nasdaq Composite Index; and
* the S&P Services (Computer Systems) - Super Index.
<TABLE>
<CAPTION>
6/18/99 6/30/99 7/31/99 8/31/99 9/30/99 10/31/99 11/30/99 12/31/99
------- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company Index $100.00 $111.98 $132.29 $121.88 $228.13 $363.02 $414.58 $364.58
Nasdaq 100.00 104.62 103.10 107.18 107.01 114.78 127.03 154.43
S&P Services 100.00 100.71 100.19 94.93 92.27 94.12 103.60 120.69
</TABLE>
15
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth, as of April 6, 2000, except as
otherwise indicated, 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.
Number of shares
of common stock Percentage
beneficially owned ownership
------------------ ----------
GTCR (1) (2)................................. 8,667,795 25.5%
Ken S. Bajaj (3)............................. 2,694,444 7.9
Robert D. McCalley (4)....................... 161,815 *
Toby Tobaccowala (5)......................... 155,670 *
John Cross (6)............................... 84,444 *
Jack Pearlstein (7).......................... 68,202 *
Bruce V. Rauner (2) (8) (9).................. 55,723 *
Richard N. Perle (6)......................... 10,000 *
Philip A. Canfield (2) (8) (9) .............. 6,298 *
General E.C. Meyer........................... -- --
All executive officers and directors
as a group (9 persons)..................... 3,236,596 9.5
- ---------------------------------
* Less than 1%.
(1) Includes 8,586,795 shares owned by GTCR Fund VI, L.P., 61,559 shares owned
by GTCR VI Executive Fund, L.P. and 19,441 shares owned by GTCR Associates
VI, which may be deemed affiliates, and are collectively referred to in
this proxy statement as "GTCR." This information is derived from GTCR's
Form 4 filed with the Securities and Exchange Commission on March 9, 2000.
(2) The address for GTCR and Messrs. Canfield and Rauner is 6100 Sears Tower,
Chicago, Illinois 60606.
(3) 2,624,269 of these shares are beneficially owned by Bajaj Enterprises, LLC,
a Maryland limited liability company, over which Mr. Bajaj exercises voting
and investment control, and 70,175 of these shares are immediately issuable
upon the exercise of a warrant also owned by Bajaj Enterprises, LLC. These
shares exclude 631,580 shares owned by family trusts over which Mr. Bajaj
does not exercise any voting or investment control.
(4) Includes 3,000 shares immediately issuable upon the exercise of stock
options.
(5) Includes 17,544 shares immediately issuable upon the exercise of stock
options.
(6) All of such shares are immediately issuable upon the exercise of stock
options.
(7) Includes 20,834 shares immediately issuable upon the exercise of stock
options.
(8) Includes 5,000 shares immediately issuable upon the exercise of stock
options.
(9) 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.
16
<PAGE>
INDEPENDENT AUDITORS
Arthur Andersen LLP served as our independent auditors in 1999, and
will also serve as our independent auditors in 2000. Representatives of Arthur
Andersen LLP will be present at the Meeting to respond to appropriate questions
and to make a statement if they desire to do so.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors
to file reports concerning the ownership of our equity securities with the
Securities and Exchange Commission and us. We have assumed the responsibility of
filing required reports on behalf of its officers and directors. In November
1999, a Form 4 was filed for Ken Bajaj reflecting the late reporting of 500
shares of stock purchased in August 1999 by an entity affiliated with Mr. Bajaj.
We believe that, with the exception of matter noted above, during the year ended
December 31, 1999, all of our officers and directors complied with Section 16(a)
filing requirements. In making the above statements, we have relied on the
representations of the person involved and on copies of his or her reports filed
with the Securities and Exchange Commission.
OTHER MATTERS
We will bear the cost of solicitation of proxies and expect to solicit
proxies primarily by mail. Some of our officers and employees may also solicit
proxies personally and by telephone. We will reimburse brokers, nominees and
custodians who hold stock in their names and who solicit proxies from the
beneficial owners for out-of-pocket and reasonable clerical expenses.
Our Board of Directors does not intend to present any matters at the
meeting other than those set forth in this proxy statement and does not
presently know of any other matters that may be presented at the meeting by
others. However, if any other matters should properly come before the meeting,
it is the intention of the persons named in the enclosed proxy to vote said
proxy on any such matters in accordance with their best judgment.
A stockholder wishing to include a proposal pursuant to Rule 14a-8
under the Exchange Act of 1934, in our proxy statement for the 2001 annual
meeting of stockholders must forward the proposal to AppNet by December 13,
2000. Our By-laws establish procedures for stockholder nominations for elections
of directors and for bringing business before any annual meeting of our
stockholders. To nominate a candidate for director or to bring business before
an annual meeting, a stockholder must give written notice to our Secretary not
less than 90 days prior to the date of the anniversary of the prior year's
annual meeting of stockholders (subject to certain exceptions if the annual
meeting is advanced or delayed a certain number of days). The notice must
contain certain information about the proposed business or the nominee, and the
stockholder making the proposal. Under the By-laws as currently in effect, if
the we do not receive a stockholder proposal intended to be presented at the
2001 Annual Meeting but not intended to be included in our proxy statement for
our meeting prior to February 19, 2001, then the notice will be considered
untimely and the we are not required to present such proposal at the 2001 annual
meeting of stockholders. If our Board of Directors chooses to present such
proposal at the 2001 annual meeting of stockholders, then the persons named in
proxies solicited by the Board of Directors for the 2000 annual meeting of
stockholders may exercise discretionary voting power with respect to such
proposal.
Bethesda, Maryland
April 13, 2000
17
<PAGE>
PROXY
APPNET, INC.
6707 Democracy Boulevard
Suite 1000
Bethesda, Maryland 20817
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Ken S. Bajaj and Philip A. Canfield, jointly and
severally, with full power of substitution, and hereby authorizes them to
represent and to vote, as designated on the reverse side, all shares of Common
Stock of AppNet, Inc. (the "Company") held of record by the undersigned on April
6, 2000 at the Annual Meeting of Stockholders to be held on May 19, 2000 and any
adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO SUCH
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- ---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------
<PAGE>
APPNET, INC.
c/o EquiServ
P.O. Box 9398
Boston, MA 02205-9398
Dear Stockholder:
Please take note of the important information enclosed with this Proxy.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
AppNet, Inc.
- --------------------------------------------------------------------------------
DETACH HERE
Please mark
[X] votes as in
this example
1. Election of Directors
Nominees: (01) Ken S. Bajaj, (02) John Cross,
(03) Philip A. Canfield, (04) Edward C. Meyer,
(05) Richard N. Perle, (06) Bruce V. Rauner
FOR WITHHELD
[ ] [ ]
2. In their discretion, the proxies are authorized to
vote upon such other business that may properly come
before the meeting.
[ ]
----------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT [ ]
PLEASE VOTE, SIGN, DATE, DETACH AND
RETURN THE ABOVE PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears
hereon. Joint owners should each sign.
Executors, administrators, trustees,
guardians or other fiduciaries should
give full title as such. If signing for
a corporation, please sign in full
corporate name by a duly authorized
officer.
Signature:_______________ Date:_______ Signature:_______________ Date:_______
