<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
PREDICTIVE SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 13-3808483
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
</TABLE>
------------------------
145 HUDSON STREET
NEW YORK, NEW YORK 10013
(212) 219-4400
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
RONALD G. PETTENGILL, JR. ROBERT L. BELAU
CHIEF EXECUTIVE OFFICER PRESIDENT
PREDICTIVE SYSTEMS, INC.
145 HUDSON STREET
NEW YORK, NEW YORK 10013
(212) 219-4400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agents for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. PETER B. TARR, ESQ.
BABAK YAGHMAIE, ESQ. JOSEPH E. MULLANEY III, ESQ.
BROBECK, PHLEGER & HARRISON LLP HALE AND DORR LLP
1633 BROADWAY, 47(TH) FLOOR 60 STATE STREET
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02109
(212) 581-1600 (617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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 Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.001 per share................................................. $52,000,000 $14,456
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 29, 1999.
PREDICTIVE SYSTEMS, INC.
SHARES
COMMON STOCK
Predictive Systems, Inc. is offering shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. We have applied to have the shares we are offering approved for
quotation on the Nasdaq National Market under the symbol "PRDS." We anticipate
that the initial public offering price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------- -------------
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discounts and Commissions......................... $ $
Proceeds to Predictive......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
FIRST UNION CAPITAL MARKETS CORP.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
[COLOR ARTWORK TO BE PROVIDED]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
THE "COMPANY," "PREDICTIVE," "WE," "US" AND "OUR" REFER TO PREDICTIVE SYSTEMS,
INC. AND ITS SUBSIDIARIES.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 8
Forward-Looking Statements................................................................................. 15
Use of Proceeds............................................................................................ 16
Dividend Policy............................................................................................ 16
Capitalization............................................................................................. 17
Dilution................................................................................................... 18
Selected Consolidated Financial Data....................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 30
Management................................................................................................. 42
Certain Transactions....................................................................................... 52
Principal Stockholders..................................................................................... 54
Description of Capital Stock............................................................................... 56
Shares Eligible for Future Sale............................................................................ 59
Underwriting............................................................................................... 61
Legal Matters.............................................................................................. 63
Experts.................................................................................................... 63
Where You Can Find More Information........................................................................ 63
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
"PREDICTIVE SYSTEMS," "BUSINESSFIRST" and the Predictive logo are trademarks
of Predictive. All other trademarks and service marks used in this prospectus
are the property of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS.
PREDICTIVE SYSTEMS, INC.
OUR BUSINESS
We are a network consulting company focused on the design, performance,
management and security of complex business-critical computing networks. We
utilize our proprietary consulting methodology, BusinessFirst, to translate our
clients' strategic business objectives into sound technology solutions. Using
our BusinessFirst methodology, we demonstrate the business value of technology
solutions in specific and measurable terms, thereby enabling our clients to
incorporate objective and quantifiable analysis into their technology investment
decisions. As a result, our clients can gain a clear understanding of the
benefits that they will derive from their network technology investments and a
measure of certainty regarding how their technology investments will be
translated into quantifiable improvements to their business processes.
OUR SERVICES
As an independent service provider, we provide our clients with unbiased and
vendor-neutral expertise that enables the design, implementation and management
of optimal technology solutions. We provide our services on either a project
outsource or collaborative consulting basis. Our project outsource services are
primarily based and measured against pre-defined deliverables and provide our
clients with certainty of costs, delivery time and project scope. Our
collaborative consulting services enable our clients to utilize our extensive
expertise in order to extend their internal capabilities and to access our
methodologies. In addition to these services, we have developed an innovative
service model through which we deliver our clients packaged service products, or
productized services. These services consist of pre-defined, fixed-price
deliverables that are replicated from our best practices. We believe that this
unique approach to network services further differentiates us from our
competitors.
Our consultants are organized into the following practice areas, which cover
the four cornerstones of network computing: network and systems management;
internetwork design and engineering; performance management; and information
security. This structure enables our consultants to gain in-depth expertise and
become intimately familiar with the best practices within each of those
disciplines.
OUR MARKET
We believe we are well-positioned to capitalize on global trends impacting
communications technology, primarily the acceptance and growth of the Internet
and private intranets. As a result of these trends, the demand for network
consulting services has grown dramatically. International Data Corporation
estimates that the worldwide market for these services will grow from $12.1
billion in 1998 to $25.5 billion by 2003. Although there are many third-party
service providers attempting to address this growing market, including network
equipment vendors, systems integrators, value-added resellers and network
consulting companies, few have the requisite focus and expertise to address the
complex, multi-faceted issues surrounding today's business-critical networks.
4
<PAGE>
OUR STRATEGY
Our goal is to become the leading provider of services for the design,
performance, management and security of complex networks. To achieve this goal,
we intend to pursue the following strategies:
- continue to evolve our BusinessFirst methodology;
- expand and enhance our productized service offerings;
- continue to attract and retain highly qualified consultants;
- further increase our industry expertise; and
- expand in existing and new geographic markets.
OUR CLIENTS
We provide our services to a broad range of clients in many industries,
including communications services, financial services, network technology and
professional services. Our client base includes leaders such as Allied Signal,
Ascend, AT&T, Bank of America, Bear, Stearns, Bloomberg, British Telecom, Cisco
Systems, Lucent Technologies, Nortel Networks, Pfizer, PricewaterhouseCoopers,
Qwest and Raytheon.
OUR HISTORY
We were organized in Delaware in February 1995. Since our inception, we have
expanded our service offerings, evolved our technology expertise and developed
the scope of our business to address the most critical network technology needs
of the broad client base we serve. We have continued to grow our client base by
expanding geographically, and we have supported this client base by attracting
and retaining talented professionals at all levels. As of June 30, 1999, our
employee base had grown to 280 full-time employees.
Our principal executive offices are located at 145 Hudson Street, New York,
New York 10013. Our telephone number is (212) 219-4400. In addition, we maintain
offices in eight other locations, including Atlanta, Georgia; Boston,
Massachusetts; Dallas, Texas; Florham Park, New Jersey; Herndon, Virginia;
Pleasanton, California; Santa Cruz, California; and London, England.
------------------------
Except as otherwise noted, all information in this prospectus:
- reflects the automatic conversion of all of our outstanding shares of
series A convertible preferred stock into an aggregate of 6,512,316 shares
of common stock upon the completion of this offering; and
- assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Predictive........... shares
Common stock to be outstanding after this shares
offering...................................
Use of proceeds.............................. For general corporate purposes, including
working capital. We may also use a portion of
the proceeds for acquisitions of
complementary businesses or technologies.
Please see "Use of Proceeds."
Proposed Nasdaq National Market symbol....... PRDS
</TABLE>
The number of shares outstanding after this offering is based on our shares
of common stock outstanding as of March 31, 1999 and gives effect to the
conversion of all outstanding shares of series A convertible preferred stock
into 6,512,316 shares of common stock automatically on the closing of this
offering. This information excludes:
- 8,586,600 shares subject to options outstanding as of March 31, 1999 at a
weighted average exercise price of $1.14 per share; and
- shares subject to warrants outstanding as of March 31, 1999 at
an exercise price per share equal to the initial public offering price of
our common stock; and
- additional shares reserved for issuance under our stock option
plan.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data for our business. You
should read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 8,106 $ 18,087 $ 25,923 $ 3,877 $ 10,365
Cost of revenues....................... 4,352 10,407 14,560 2,452 5,275
Gross profit........................... 3,754 7,680 11,363 1,425 5,090
Operating profit (loss)................ 1,543 1,887 (822) (890) (112)
Net income (loss)...................... $ 863 $ 1,011 $ (627) $ (520) $ (91)
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
NET INCOME (LOSS) PER SHARE:
Basic.................................. $ 0.20 $ 0.22 $ (0.11) $ (0.12) $ (0.01)
Diluted................................ 0.07 0.08 (0.11) (0.12) (0.01)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic.................................. 4,269 4,382 6,015 4,463 8,380
Diluted................................ 11,586 12,765 6,015 4,463 8,380
</TABLE>
The following table is a summary of our balance sheet at March 31, 1999. The
pro forma adjusted data give effect to:
- the conversion of 6,512,316 shares of our Series A convertible preferred
stock into 6,512,316 shares of common stock and the reissuance of treasury
stock in connection with this conversion; and
- the sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 2,995 $
Working capital........................................................................... 12,261
Total assets.............................................................................. 16,631
Total stockholders' equity................................................................ 12,842
</TABLE>
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION WOULD LIKELY SUFFER. IN THIS CASE, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We commenced operations in February 1995. Accordingly, you can only evaluate
our business based on our limited operating history. You should evaluate our
chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with operating a new
business, many of which are beyond our control. As a result of our limited
operating history, rapid growth and the emerging nature of the markets in which
we compete, we believe that quarter-to-quarter comparisons of our results of
operations for preceding quarters are not necessarily meaningful. You should not
rely on our historical results of operations as indications of future
performance. The uncertainty of our future performance and the uncertainties of
our operating in a new and expanding market increase the risk that the value of
your investment will decline.
BECAUSE MOST OF OUR REVENUE IS GENERATED FROM A SMALL NUMBER OF CLIENTS, OUR
REVENUES ARE DIFFICULT TO PREDICT AND THE LOSS OF ONE COULD SIGNIFICANTLY REDUCE
OUR REVENUES
Our five largest clients accounted for 62.8% of our revenues for the three
months ended March 31, 1999. For the year ended December 31, 1998, our five
largest clients accounted for 54.9% of our revenues. If one of our major clients
discontinues or significantly reduces the use of our services, our business,
results of operations and financial condition could materially suffer. In
addition, the non-payment or late payment of amounts due from a major client
could have a material adverse effect on our business, results of operations and
financial condition.
OUR CLIENTS MAY TERMINATE THEIR CONTRACTS WITH US ON SHORT NOTICE, WHICH COULD
ADVERSELY AFFECT OUR OPERATING RESULTS
Our services are often sold pursuant to short-term arrangements and most
clients can reduce or cancel their contracts for our services without penalty
and with little or short notice. If a major client or a number of small clients
terminate our contracts or significantly reduce or modify their business
relationships with us, our business, results of operations and financial
condition will be materially adversely affected. Consequently, you should not
predict or anticipate our future revenue based upon the number of clients we
have currently or the number and size of our existing projects.
OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER WHICH MAY NEGATIVELY
IMPACT OUR STOCK PRICE
Our operating results have varied from quarter to quarter. Our operating
results may continue to vary as a result of a variety of factors. These factors
include:
- the loss of key employees;
- the development and introduction of new service offerings;
- reductions in billing rates;
- the miscalculation of resources required to complete new or ongoing
projects;
8
<PAGE>
- the utilization of our workforce; and
- the timing and extent of training.
Many of these factors are beyond our control. Accordingly, you should not
rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance.
IF WE FAIL TO ACCURATELY ESTIMATE COSTS IN FIXED-PRICE PROJECTS, OUR OPERATING
RESULTS MAY SUFFER
We derive a substantial portion of our revenues from fixed-price projects.
For the year ending December 31, 1998 and the three months ended March 31, 1999,
fixed-price projects accounted for 26.0% and 37.0% of our revenue, respectively.
We assume greater financial risks on a fixed-price project than on a
time-and-expense based project. If we miscalculate the resources or time we need
for these fixed-price projects, the costs of completing these projects may
exceed the price, which could result in a loss on the project and materially
adversely affect our operating results. Further, the average size of our
contracts has increased in recent quarters, resulting in a corresponding
increase in our exposure to the financial risks of fixed-price engagements. We
recognize revenues from fixed-price projects based on our estimate of the
percentage of each project completed in a reporting period. To the extent our
estimates are inaccurate, the revenues and operating profits, if any, that we
report for periods during which we are working on a fixed-price project may not
accurately reflect the final results of the project and we would be required to
record an expense for such period equal to the amount by which our revenues were
previously overstated.
OUR OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL FACTORS
Our results of operations may experience seasonal fluctuations as businesses
typically spend less on network management services during the summer and
year-end vacation and holiday periods. Additionally, as a large number of our
employees take vacation during these periods, our utilization rates during these
periods tend to be lower, which adversely affects our margins and results of
operations. If in future quarters our results of operations fall below the
expectations of stock market analysts and investors, the market price of our
stock is likely to fall.
OUR LONG SALES CYCLE MAKES OUR REVENUE DIFFICULT TO PREDICT
The timing of our revenues is difficult to predict because of the length and
variance of the time required to complete a sale. Before hiring us for a
project, our clients often undertake an extensive review process and may require
approval at various levels within their organization. Any delay due to a long
sales cycle could have a material adverse affect on our business, results of
operations and financial condition.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO GROW OUR BUSINESS
Our future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the success of our existing
and new service offerings and competing technological and market developments.
We may need to raise additional funds in order to meet additional working
capital requirements, support additional capital expenditures or take advantage
of acquisition opportunities. Our ability to obtain additional financing will be
subject to a number of factors, including market conditions, our operating
performance and investor sentiment. These factors may make the timing, amount,
terms and conditions of additional financing unattractive for us. If we are
unable to raise additional funds when needed, our growth could be impeded.
9
<PAGE>
RISKS RELATED TO OUR STRATEGY AND MARKET
WE MAY HAVE DIFFICULTY MANAGING OUR EXPANDING OPERATIONS, WHICH MAY HARM OUR
BUSINESS
A key part of our strategy is to grow our business, however, our rapid
growth has placed a significant strain on our managerial and operational
resources. From January 1, 1997 to June 30, 1999, our staff increased from
approximately 123 to approximately 280 employees. To manage our growth, we must
continue to improve our financial and management controls, reporting systems and
procedures, and expand and train our work force. If we fail to do so, our
business, financial condition or results of operations may be materially
adversely affected.
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED NETWORK SYSTEMS CONSULTANTS
WHICH COULD AFFECT OUR ABILITY TO COMPETE EFFECTIVELY
Our continued success depends on our ability to identify, hire, train and
retain highly qualified network management consultants. These individuals are in
high demand and we may not be able to attract and retain the number of highly
qualified consultants that we need. If we cannot retain, attract and hire the
necessary consultants, our ability to grow, complete existing projects and bid
for new projects will be adversely affected and our business, results of
operations and financial condition will suffer.
COMPETITION COULD HARM OUR BUSINESS
Our market is intensely competitive, highly fragmented and subject to rapid
technological change. We expect competition to intensify and increase over time.
We may lose projects to our competitors, which could adversely affect our
business, results of operations and financial condition.
We face competition from systems integrators, value added resellers, local
and regional network services firms, telecommunications providers, and network
equipment and computer systems vendors. Many of these competitors have:
- longer operating histories;
- greater name recognition;
- larger established client relationships; and
- significantly greater financial, technical and personnel resources.
Additionally, our competitors have in the past and may in the future form
alliances with various network equipment vendors that may give them an advantage
in implementing networks using that vendor's equipment.
We also compete with internal information technology departments of current
and potential clients. To the extent that current or potential clients decide to
satisfy their needs internally, our business, results of operations and
financial condition will be materially adversely effected.
IF WE ARE UNABLE TO INTEGRATE OUR ACQUISITIONS, OUR BUSINESS MAY BE DISRUPTED
Integrating future acquisitions presents us with significant financial,
managerial and operational challenges. We may not be able to meet these
challenges effectively. To the extent our management is required to devote
significant time and attention to integrating the technology, operations and
personnel of acquired businesses, we may not be able to properly serve our
current clients or attract new clients. Any difficulties in integrating
acquisitions could disrupt our ongoing business, distract our management and
employees, increase our expenses and otherwise adversely affect our business.
10
<PAGE>
IF WE ARE UNABLE TO FIND SUITABLE ACQUISITION CANDIDATES, OUR GROWTH COULD BE
IMPEDED
A component of our growth strategy is the acquisition of, or investment in,
complementary businesses, technologies, services or products. Our ability to
identify and invest in suitable acquisition and investment candidates on
acceptable terms is crucial to this strategy. We may not be able to identify,
acquire or make investments in promising acquisition candidates on acceptable
terms. Moreover, in pursuing acquisition and investment opportunities, we may be
in competition with other companies having similar growth and investment
strategies. Competition for these acquisitions or investment targets could also
result in increased acquisition or investment prices and a diminished pool of
businesses, technologies, services or products available for acquisition or
investment.
OUR ACQUISITION STRATEGY COULD SUBJECT US TO SIGNIFICANT RISKS, ANY OF WHICH
COULD HARM OUR BUSINESS
Acquisitions involve a number of risks, including:
- adverse effects on our reported operating results due to accounting
charges associated with acquisitions;
- increased expenses, including compensation expense resulting from newly
hired employees; and
- potential disputes with the sellers of acquired businesses, technologies,
services or products.
Client dissatisfaction or performance problems with an acquired business,
technology, service or product could also have a material adverse impact on our
reputation as a whole. In addition, any acquired business, technology, service
or product could significantly underperform relative to our expectations. For
all these reasons, our pursuit of an overall acquisition and investment strategy
or any individual acquisition or investment could have a material adverse effect
on our business, results of operations and financial condition.
IF WE ARE UNABLE TO RETAIN KEY PERSONNEL, OUR BUSINESS AND GROWTH WILL SUFFER
Our future success depends, in significant part, upon the continued service
and performance of our senior management and other key personnel. Losing the
services of any of these individuals would impair our ability to effectively
deliver our services and manage our company. These problems would negatively
affect our business, results of operations and financial condition, as well as
our ability to grow.
OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL
We expect to expand our international operations and international sales and
marketing efforts. Recently, we commenced operations in England. We have had
limited experience in marketing, selling and distributing our services
internationally. We may not be able to maintain and expand our international
operations or successfully market our services internationally. Failure to do so
may negatively affect our business, results of operations and financial
condition, as well as our ability to grow.
OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES
ASSOCIATED WITH OPERATING INTERNATIONALLY
Operating internationally may require us to modify the way we conduct our
business and deliver our services in these markets. If we do not appropriately
anticipate changes and adapt our practices, our business, results of operations
and financial condition could materially suffer. We anticipate that we will face
the following challenges internationally:
- the burden and expense of complying with a wide variety of foreign laws
and regulatory requirements;
11
<PAGE>
- potentially adverse tax consequences;
- longer payment cycles and problems in collecting accounts receivable;
- technology export and import restrictions or prohibitions;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- political and economic instability;
- cultural and language differences;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity, especially during the summer
months in Europe and other parts of the world.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGES, OUR SERVICES MAY BECOME LESS
COMPETITIVE AND OUR BUSINESS WILL SUFFER
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. If we cannot
keep pace with these changes our services may become less competitive and our
business will suffer. To achieve our goals, we need to keep pace with continuing
changes in industry standards, information technology and client preferences. We
may be unable, for technological or other reasons, to develop and introduce new
services or enhancements to existing services in a timely manner or in response
to changing market conditions or client requirements. This would materially
adversely affect our business, results of operations and financial condition.
THE MARKET FOR OUR SERVICES DEPENDS ON THE CONTINUED GROWTH OF LARGE-SCALE,
COMPLEX NETWORKS
To date, a majority of our revenues have been from network management
services related to large-scale, complex networks. We believe that we will
continue to derive a majority of our revenues from providing network design,
performance, management and security services. As a result, our future success
is highly dependent on the continued growth and acceptance of large-scale,
complex computer networks and the continued trend among our clients to use
third-party service providers. If the growth of the use of enterprise networks
does not continue or declines, our business, results of operations and financial
condition could materially suffer.
WE ARE DEPENDENT ON THE INTERNET GROWING AND CONTINUING TO DEVELOP AS A VIABLE
BUSINESS TOOL
The growing demand for network management services has been driven in part
by the growth of the Internet. The Internet may not prove to be a viable
commercial marketplace because of:
- inadequate development of the necessary infrastructure;
- lack of development of complementary products (such as high speed modems
and high speed communication lines);
- implementation of competing technology;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
- governmental regulation; or
- other reasons.
12
<PAGE>
This would materially adversely affect our business, results of operations
and financial condition. Moreover, critical issues concerning the use of the
Internet remain unresolved and may affect the growth of the use of such
technologies to solve business problems. If the Internet fails to grow or grows
more slowly as a viable business tool than anticipated, our business, results of
operations and financial condition would be materially adversely affected.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS
Year 2000 problems could require us, or our clients, to experience delays
and incur unanticipated expenses. Our failure to correct a material Year 2000
problem could have a material adverse effect on our business, results of
operations and financial condition. We may experience operations difficulties
because of undetected errors or defects in the technology we use in our internal
systems. Also, failure to provide Year 2000 compliant solutions to our clients
could have a material adverse effect on our business, results of operations and
financial condition. Additionally, our clients' and future clients' purchasing
patterns, specifically in the fourth quarter of 1999, may be affected by Year
2000 issues as companies expend significant resources to correct or replace
their current systems for Year 2000 compliance.
RISKS RELATED TO LEGAL UNCERTAINTY
UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY DAMAGE OUR
BRAND
We regard our copyrights, trade secrets and other intellectual property as
critical to our success. Unauthorized use of our intellectual property by third
parties may damage our brand and our reputation. We rely on trademark and
copyright law, trade secret protection and confidentiality and/or license and
other agreements with our employees, customers, partners and others to protect
our intellectual property rights. However, we do not have any patents or patent
applications pending and existing trade secret, trademark and copyright laws
afford us only limited protection. Despite our precautions, it may be possible
for third parties to obtain and use our intellectual property without our
authorization. The laws of some foreign countries are also uncertain or do not
protect intellectual property rights to the same extent as do the laws of the
United States.
WE MAY NOT BE ABLE TO PROTECT SOME OF OUR INTELLECTUAL PROPERTY THROUGH
TRADEMARK PROTECTION, WHICH WOULD IMPAIR OUR ABILITY TO PREVENT OTHERS FROM
USING OUR INTELLECTUAL PROPERTY
The trademark offices in the United States and England have raised
objections to the registration of our "PREDICTIVE SYSTEMS," "BUSINESSFIRST" and
Predictive logo trademarks, including likelihood of confusion with pre-existing
trademarks and descriptiveness. We have responded to these objections and are
awaiting the trademark offices' decisions on our responses. We have not,
however, received any objections from third parties asserting likelihood of
confusion claims with respect to our trademarks. Nonetheless, we may not be able
to obtain trademark registrations in the United States or England, or both, for
one or more of these trademarks, in which case we would be unable to fully
enforce our statutory trademark rights against third parties for these
trademarks, and/or we must decide to replace such trademarks with new
trademarks. This could have a material adverse effect on our business, financial
condition and results of operations.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE EXPENSIVE
AND, IF WE ARE NOT SUCCESSFUL, COULD DISRUPT OUR BUSINESS
We cannot be certain that our services, the finished products that we
deliver or materials provided to us by our clients for use in our finished
products do not or will not infringe valid patents, copyrights, trademarks or
other intellectual property rights held by third parties. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. We may incur
substantial expenses in defending against these third-party
13
<PAGE>
infringement claims, regardless of their merit. Successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.
WE MAY BE SUBJECT TO CLAIMS IF OUR SERVICES HARM OUR CLIENTS' BUSINESSES
Many of our projects are critical to the operations of our clients'
businesses. If we cannot complete these projects to our clients' expectations,
we could materially harm our clients' operations. This could damage our
reputation, subject us to increased risk of litigation or result in our having
to provide additional services to a client at no charge. Although we carry
general liability insurance coverage, our insurance may not cover all potential
claims to which we are exposed or may not be adequate to indemnify us for all
liability that may be imposed. The successful assertion of one or more
significant claims against us could have a material adverse effect on our
business, results of operations and financial condition.
RISKS RELATED TO THIS OFFERING
WE WILL HAVE DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING, WHICH WE
MAY NOT USE EFFECTIVELY
Our management will have significant flexibility in applying the net
proceeds of this offering and may use the proceeds in ways with which
stockholders disagree. We may not be able to invest these funds effectively.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY
Following this offering, the market price of our common stock is likely to
be highly volatile and may fluctuate substantially. As a result, investors in
our common stock may experience a decrease in the value of their common stock
regardless of our operating performance or prospects. In addition, the stock
market has, from time to time, experienced significant price and volume
fluctuations that have affected the market prices for the securities of
technology companies. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
was often brought against that company. Many technology-related companies have
been subject to this type of litigation. We may also become involved in this
type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING STOCKHOLDERS, WHOSE INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS
Our directors, executive officers and affiliates currently beneficially own
approximately 79.1% of the outstanding shares of our common stock, and after the
offering will beneficially own approximately % of the outstanding shares of
our common stock. Accordingly, these stockholders will have significant
influence in determining the outcome of any corporate transaction or other
matter submitted to the stockholders for approval, including mergers,
acquisitions, consolidations and the sale of all or substantially all of our
assets, and also the power to prevent or cause a change in control. The
interests of these stockholders may differ from the interests of the other
stockholders.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also might
make it difficult for us to sell equity securities in the future at a time and
at a price that we deem appropriate.
14
<PAGE>
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in management
is delayed or prevented, the market price of our common stock could decline.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will significantly exceed the
net tangible book value per share of $ . Accordingly, investors purchasing
shares in this offering will suffer immediate and substantial dilution of their
investment.
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward looking-statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events.
15
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common stock
offered by us are estimated to be $ million, assuming an initial public
offering price of $ per share, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
will be $ million.
The primary purposes of this offering are to obtain additional equity
capital, create a public market for our common stock, and facilitate future
access to public markets. We expect to use the net proceeds of this offering for
general corporate purposes, including working capital. A portion of the net
proceeds may also be used for the acquisition of complementary businesses or
technologies. Pending such uses, we will invest the net proceeds of this
offering in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not intend to pay cash dividends in the
foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to the automatic conversion of
our series A convertible preferred stock into common stock and the
reissuance of treasury stock in connection with this conversion; and
- on a pro forma as adjusted basis to reflect our sale of shares of common
stock at an assumed initial public offering price of $ per share,
after deducting underwriting discounts and commissions and the estimated
offering expenses payable by us. Please see "Use of Proceeds."
You should read this information together with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
<S> <C> <C> <C>
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long term debt.............................................................. $ -- $ -- $ --
Stockholders' equity:
Convertible preferred stock, $.001 par value, 20,000,000 shares
authorized, 6,512,316 issued and outstanding, actual; 10,000,000
authorized, none issued and outstanding, pro forma and pro forma as
adjusted................................................................ 7 -- --
Common stock, $.001 par value, 50,000,000 shares authorized, 12,400,200
issued and 9,545,100 outstanding, actual; (200,000,000 authorized,
16,057,416 issued and outstanding, pro forma; issued and outstanding,
pro forma as adjusted).................................................. 12 19
Additional paid-in capital.................................................. 19,986 11,587
Treasury stock.............................................................. (8,399) -- --
Retained earnings........................................................... 1,236 1,236
--------- ----------- -------------
Total stockholders' equity................................................ 12,842 12,842
--------- ----------- -------------
Total capitalization.................................................... $ 12,842 $ 12,842 $
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999. It does not
include:
- 8,586,600 shares subject to options outstanding as of March 31, 1999 at a
weighted average exercise price of $1.14 per share;
- shares subject to warrants outstanding as of March 31, 1999 at an
exercise price per share equal to the initial public offering price of our
common stock; and
- additional shares that could be issued under our stock option
plans.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$ million, or $ per share of common stock. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the pro forma number of shares of stock
outstanding at that date, assuming conversion of all outstanding shares of our
series A convertible preferred stock into common stock. Dilution in net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of common stock in this offering and the net tangible
book value per share of common stock immediately after the completion of this
offering.
After giving effect to the issuance and sale of the shares of common stock
offered by us and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us, our pro forma net tangible book
value as of March 31, 1999 would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing shares in this offering. If the initial public
offering price is higher or lower, the dilution to the new investors will be
greater or less, respectively. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $
Pro forma net tangible book value per share at March 31, 1999.............. $
Pro forma increase attributable to new investors...........................
---------
Pro forma net tangible book value per share after this offering..............
---------
Pro forma dilution per share to new investors................................ $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the number of shares of common stock purchased from us,
the aggregate cash consideration paid to us and the average price per share paid
by existing stockholders and new investors purchasing shares of common stock in
this offering. The calculation below is based on an assumed initial public
offering price of $ per share, before deducting the estimated underwriting
discounts and commissions and offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 16,057,416 % $ 11,606,172 % $ 0.72
New investors..................
------------ ----- ------------- -----
Total...................... 100.0% $ 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
This discussion and table assume no exercise of any stock options and
warrants outstanding as of March 31, 1999. As of March 31, 1999, there were
options outstanding to purchase a total of 8,586,600 shares of common stock with
a weighted average exercise price of $1.14 per share and warrants exercisable
into shares of common stock at an exercise price per share equal to the
offering price of our common stock in this offering. To the extent that any of
these options are exercised, there will be further dilution to new investors.
Please see "Capitalization."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data as of December 31, 1997 and
1998 and the selected consolidated statement of operations data for the years
ended December 31, 1996, 1997 and 1998 have been derived from our audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated balance sheet data as of March 31, 1999 and the
consolidated statements of operations for the three months ended March 31, 1998
and 1999 have been derived from unaudited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated balance sheet
data as of December 31, 1996 has been derived from our consolidated audited
financial statements not included in this prospectus. The selected consolidated
balance sheet as of December 31, 1995 and the selected consolidated statement of
operations data for the period from February 10, 1995 (inception) to December
31, 1995 are derived from our unaudited consolidated financial statements not
included in this prospectus.
The unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, which, in the opinion of
management, are necessary for the fair presentation of our consolidated
financial position and the consolidated results of operations for those periods.
Results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the entire year
or for any future period.
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 10,
1995
(INCEPTION) THREE MONTHS ENDED
TO DECEMBER 31, YEAR ENDED DECEMBER 31, MARCH 31,
--------------- -------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1998 1999
--------------- ---------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
(UNAUDITED) DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Professional services............. $ 2,090 $ 6,819 $ 16,897 $ 23,858 $ 3,798 $ 9,887
Hardware and software sales....... 161 1,287 1,190 2,065 79 478
--------------- ---------- --------- --------- --------- ---------
2,251 8,106 18,087 25,923 3,877 10,365
Cost of Revenues:
Professional services............. 981 3,382 9,590 12,861 2,387 4,849
Hardware and software purchases... 161 970 817 1,699 65 426
--------------- ---------- --------- --------- --------- ---------
Total cost of revenues............ 1,142 4,352 10,407 14,560 2,452 5,275
Gross profit...................... 1,109 3,754 7,680 11,363 1,425 5,090
Sales and marketing................. 220 386 1,082 2,618 484 1,589
General and administrative.......... 535 1,683 4,390 8,999 1,722 3,469
Depreciation and amortization....... 63 142 321 568 109 144
--------------- ---------- --------- --------- --------- ---------
Operating profit (loss)........... 291 1,543 1,887 (822) (890) (112)
Other Income (Expense):
Interest income................... 5 31 27 58 3 46
Other income...................... -- 8 4 1 -- 12
Interest expense.................. -- -- (36) (324) (25) (86)
--------------- ---------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes...... 296 1,582 1,882 (1,087) (912) (140)
Income tax provision (benefit)...... 146 719 871 (460) (392) (49)
--------------- ---------- --------- --------- --------- ---------
Net income (loss)................. $ 150 $ 863 $ 1,011 $ (627) $ (520) $ (91)
--------------- ---------- --------- --------- --------- ---------
--------------- ---------- --------- --------- --------- ---------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 10,
1995
(INCEPTION) THREE MONTHS ENDED
TO DECEMBER 31, YEAR ENDED DECEMBER 31, MARCH 31,
--------------- -------------------------------- --------------------
1995 1996 1997 1998 1998 1999
--------------- ---------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
(UNAUDITED) DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) per share:
Basic............................. $ 0.04 $ 0.20 $ 0.22 $ (0.11) $ (0.12) $ (0.01)
--------------- ---------- --------- --------- --------- ---------
--------------- ---------- --------- --------- --------- ---------
Diluted........................... $ 0.01 $ 0.07 $ 0.08 $ (0.11) $ (0.12) $ (0.01)
--------------- ---------- --------- --------- --------- ---------
--------------- ---------- --------- --------- --------- ---------
Weighted average common shares
outstanding:
Basic............................. 4,245 4,269 4,382 6,015 4,463 8,380
--------------- ---------- --------- --------- --------- ---------
--------------- ---------- --------- --------- --------- ---------
Diluted........................... 10,396 11,586 12,765 6,015 4,463 8,380
--------------- ---------- --------- --------- --------- ---------
--------------- ---------- --------- --------- --------- ---------
</TABLE>
Please see note 3 to our consolidated financial statements for an
explanation of the number of shares used in per share computations. Upon the
closing of this offering, each share of our series A preferred stock will
convert into one share of our common stock. On a pro forma basis, basic and
diluted loss per share, had each share of our series A preferred stock been
immediately converted into common stock at the time of issuance, would have been
$(0.01) for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
------------- --------- --------- --------- -----------------
<CAPTION>
(UNAUDITED) (IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 270 $ 638 $ 420 $ -- $ 2,995
Working capital........................................ 661 1,178 1,679 2,365 12,261
Total assets........................................... 1,180 3,629 6,870 13,677 16,631
Total stockholders' equity............................. 192 1,061 2,072 2,026 12,842
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Substantially all of our revenues are derived from professional services. We
provide network consulting services to our clients on both a fixed-price,
fixed-time basis and on a time-and-expense basis. We use our BusinessFirst
methodology to estimate and propose prices for our fixed-price projects. The
estimation process accounts for standard billing rates particular to each
project, the client's technology environment, the scope of the project, and the
project's timetable and overall technical complexity. A member of our senior
management team must approve all of our fixed-price proposals. For these
contracts, we recognize revenue using a percentage-of-completion method
primarily based on costs incurred. We make provisions for estimated losses on
uncompleted contracts on a contract-by-contract basis and recognize such
provisions in the period in which the losses are determined. Professional
services revenues for time-and-expense based projects are recognized as services
are performed. Any payments received in advance of services performed are
recorded as deferred revenue. Our clients are generally able to reduce or cancel
their use of our professional services without penalty and with little or no
notice. We also derive limited revenues from the sale of hardware and software.
We sell hardware and software only when specifically requested by a client. We
expect revenues from the sale of hardware and software to continue to decline on
a percentage basis.
Since we recognize professional services revenues only when our consultants
are engaged on client projects, the utilization of our consultants is important
in determining our operating results. In addition, a substantial majority of our
operating expenses, particularly personnel and related costs, depreciation and
rent, are relatively fixed in advance of any particular quarter. As a result,
any underutilization of our consultants may cause significant variations in our
operating results in any particular quarter and could result in losses for such
quarter. Factors which could cause underutilization include:
- the reduction in size, delay in commencement, interruption or termination
of one or more significant projects;
- the completion during a quarter of one or more significant projects;
- the miscalculation of resources required to complete new or ongoing
projects; and
- the timing and extent of training, weather related shut-downs, vacations
and holidays.
In addition, we plan to continue to expand our operations by hiring
additional consultants and other employees, and adding new offices, systems and
other infrastructure. The resulting increase in operating expenses will have a
material adverse effect on our operating results if our revenues do not increase
to support such expenses. Based on all of the foregoing, we believe that our
quarterly revenue and operating results are likely to vary significantly in the
future and that period-to-period comparisons of our operating results are not
necessarily meaningful and should not be relied on as indications of future
performance.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
Revenues:
Professional services........................................... 84.1% 93.4% 92.0% 98.0% 95.4%
Hardware and software sales..................................... 15.9 6.6 8.0 2.0 4.6
--------- --------- --------- ----------- -----------
Total revenues................................................ 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Professional services........................................... 41.7 53.0 49.6 61.5 46.8
Hardware and software sales..................................... 12.0 4.5 6.6 1.7 4.1
--------- --------- --------- ----------- -----------
Total cost of revenues........................................ 53.7 57.5 56.2 63.2 50.9
Gross Profit...................................................... 46.3 42.5 43.8 36.8 49.1
Expenses:
Sales and marketing............................................. 4.8 6.0 10.1 12.5 15.3
General and administrative...................................... 20.8 24.3 34.7 44.5 33.5
Depreciation and amortization................................... 1.7 1.8 2.2 2.8 1.4
Operating income (loss)........................................... 19.0 10.4 (3.2) (23.0) (1.1)
Other income (expense)............................................ 0.5 0.0 (1.0) (0.5) (0.3)
--------- --------- --------- ----------- -----------
Net income (loss) before income tax provision (benefit)........... 19.5 10.4 (4.2) (23.5) (1.4)
Income tax provision (benefit).................................... 8.9 4.8 (1.8) (10.1) (0.5)
--------- --------- --------- ----------- -----------
Net income (loss)................................................. 10.6% 5.6% (2.4)% (13.4)% (0.9)%
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES. Substantially all of our revenues are derived from fees for
professional services. Revenues increased 167.4% from $3.9 million in the three
months ended March 31, 1998 to $10.4 million in the three months ended March 31,
1999. Revenues from professional services increased 160.3% from $3.8 million in
the three months ended March 31, 1998 to $9.9 million in the three months ended
March 31, 1999. Revenues from hardware and software sales increased 508.5% from
$79,000 in the three months ended March 31, 1998 to $478,000 in the three months
ended March 31, 1999. This increase was primarily due to an increase in the
number of professional services projects and an increase in the size of these
projects. During the three months ended March 31, 1999, each of Bear, Stearns &
Co. Inc. and Qwest Communications, Inc. accounted for 24.0% and 17.4%,
respectively, of our revenues. The number of our billable consultants increased
from approximately 104 at March 31, 1998 to approximately 160 at March 31, 1999.
GROSS PROFIT. Gross profit increased 257.3% from $1.4 million in the three
months ended March 31, 1998 to $5.1 million in the three months ended March 31,
1999. As a percentage of revenues, gross profit increased from 36.7% in the
three months ended March 31, 1998 to 49.1% in the three months ended March 31,
1999. Cost of revenues increased from $2.3 million in the three months ended
March 31, 1998 to $4.8 million in the three months ended March 31, 1999. This
increase in gross profit was due to efficiencies in completing fixed-price,
fixed-time projects, higher utilization rates and an increase in average billing
rates.
22
<PAGE>
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of compensation and benefits, travel expenses and promotional
expenses. Sales and marketing expenses increased 228.3% from $484,000 in the
three months ended March 31, 1998 to $1.6 million in the three months ended
March 31, 1999. As a percentage of revenues, sales and marketing expenses
increased from 12.5% in the three months ended March 31, 1998 to 15.3% in 1999.
This increase was due to increased sales and marketing efforts, hiring of
additional personnel and an increase in commissions paid.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 101.4% from $1.7 million in the three months ended March 31, 1998 to
$3.5 million in the three months ended March 31, 1999. As a percentage of
revenues, general and administrative expense decreased from 44.4% in the three
months ended March 31, 1998 to 33.5% in the three months ended March 31, 1999.
The increase in absolute dollars was due to an increase in our facilities and
equipment, compensation and benefits, recruiting and professional development,
and other administrative costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
32.5% from $109,000 in the three months ended March 31, 1998 to $144,000 in the
three months ended March 31, 1999. This increase was due to purchases of
additional equipment to support our growth.
OTHER INCOME (EXPENSE). Other expense increased from $22,000 in the three
months ended March 31, 1998 to $27,000 in the three months ended March 31, 1999.
This increase was primarily due to an increase in interest expense related to
short term borrowings.
INCOME TAXES. The income tax benefit was ($392,000) on pre-tax losses of
$912,000 for the three months ended March 31, 1998. For the three months ended
March 31, 1999, the income tax benefit was $(49,000) on pre-tax losses of
$140,000. The effective tax rate was 43.0% and 35.0% during the three months
ended March 31, 1998 and 1999, respectively. The difference in the effective tax
rates relates to certain non-tax deductible expenses which were greater during
the three months ended March 31, 1999.
YEARS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Revenues increased 43.3% from $18.1 million in 1997 to $25.9
million in 1998. Revenues from professional services increased 41.2% from $16.9
million in 1997 to $23.9 million in 1998. Revenues from hardware and software
sales increased 73.6% from $1.2 million in 1997 to $2.1 million in 1998. This
increase was primarily due to an increase in the number of professional services
projects and an increase in the size of these projects. During 1998, Bear,
Stearns & Co. Inc. accounted for 21.0% of revenues. The number of our billable
consultants increased from approximately 98 at December 31, 1997 to
approximately 149 at December 31, 1998.
GROSS PROFIT. Gross profit increased 48.0% from $7.7 million in 1997 to
$11.4 million in 1998. As a percentage of revenues, gross profit increased from
42.5% in 1997 to 43.8% in 1998. Cost of revenues increased from $10.4 million in
1997 to $14.6 million in 1998. This increase in gross profit was due to
efficiencies in completing fixed-price, fixed-time projects, higher utilization
rates and an increase in average billing rates.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 142.0%
from $1.1 million in 1997 to $2.6 million in 1998. As a percentage of revenues,
sales and marketing expenses increased from 6.0% in 1997 to 10.1% in 1998. This
increase was due to increased sales and marketing efforts, hiring of additional
personnel and commissions paid because of the increase in revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 105.0% from $4.4 million in 1997 to $9.0 million in 1998. As a
percentage of revenues, general and administrative expense increased from 24.3%
in 1997 to 34.7% in 1998. This increase was due to an increase in facilities and
equipment, compensation and benefits, recruiting and professional development,
and other administrative costs.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
76.9% from $321,000 in 1997 to $568,000 in 1998. This increase was due to
purchases of additional equipment to support our growth.
OTHER INCOME (EXPENSE). Other expense increased from $(5,000) in 1997 to
$(265,000) in 1998. This increase was primarily due to an increase in interest
expense related to an increase in short term borrowings.
INCOME TAXES. The income tax provision was $871,000 on pre-tax income of
$1.9 million in 1997. In 1998 the income tax benefit was ($460,000) on pre-tax
losses of $1.1 million. The effective tax rate was 46.3% and 42.3% for 1997 and
1998, respectively. The differences in the effective tax rate resulted from a
greater amount of non-tax deductible expenses during 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUES. Revenues increased 123.1% from $8.1 million in 1996 to $18.1
million in 1997. Revenues from professional services increased 147.8% from $6.8
million in 1996 to $16.9 million in 1997. Revenues from hardware and software
sales decreased 7.6% from $1.3 million in 1996 to $1.2 million in 1997. The
increase in professional services was primarily due to an increase in the number
of professional services projects and an increase in the size of these projects.
During 1997, each of Bear, Stearns & Co. Inc. and Unisys Corporation accounted
for 20.6% and 19.7% of revenues, respectively. The number of our billable
consultants increased from approximately 42 at December 31, 1996 to
approximately 98 at December 31, 1997.
GROSS PROFIT. Gross profit increased 104.6% from $3.8 million in 1996 to
$7.7 million in 1997. As a percentage of revenues, gross profit decreased from
46.3% in 1996 to 42.5% in 1997. Cost of revenues increased from $4.4 million in
1996 to $10.4 million 1997. This increase in gross profit was due to
efficiencies in completing fixed-price, fixed-time projects, higher utilization
rates and an increase in average billing rates.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 180.3%
from $386,000 in 1996 to $1.1 million in 1997. As a percentage of revenues,
sales and marketing expenses increased from 4.8% in 1996 to 6.0% in the 1997.
This increase sales and marketing efforts, hiring of additional personnel was
due to increased commissions paid because of the increase in revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 160.8% from $1.7 million in 1996 to $4.4 million in 1997. As a
percentage of revenues, general and administrative expense increased from 20.8%
1996 to 24.3% in 1997. This increase was due to an increase in facilities and
equipment, compensation and benefits, recruiting and professional development,
and other administrative costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
125.8% from $142,000 in 1996 to $321,000 in 1997. This increase was due to
purchases of additional equipment to support our growth.
OTHER INCOME (EXPENSE). Other income (expense) decreased from $39,000 in
1996 to $(5,000) in 1997, due to an increase in interest expense as a result of
short term borrowings during 1997.
INCOME TAXES. The income tax provision was $719,000 on pre-tax income of
$1.6 million in 1996. In 1997, the income tax provision was $871,000 on pre-tax
income of $1.9 million. The effective tax rate was 45.4% and 46.3% in 1997 and
1998, respectively. The increase in the effective tax rate above the federal and
state statutory rates reflects certain non-tax deductible expenses.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for each of the seven quarters in the period ended March 31, 1999 and the
percentage of our revenues represented by each item in the respective quarters.
In the opinion of management, all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited quarterly results when read in conjunction with our
financial statements and notes. The unaudited results of operations for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional services............ $4,692 $3,918 $3,798 $5,137 $6,702 $8,221 $9,887
Hardware and software sales...... 139 406 79 452 233 1,301 478
--------- -------- --------- -------- --------- -------- ---------
Total revenues................. 4,831 4,324 3,877 5,589 6,935 9,522 10,365
Cost of Revenues:
Professional services............ 2,658 2,269 2,387 2,792 3,308 4,374 4,849
Hardware and software
purchases...................... 92 245 65 373 229 1,032 426
--------- -------- --------- -------- --------- -------- ---------
Total cost of revenues......... 2,750 2,514 2,452 3,165 3,537 5,406 5,275
--------- -------- --------- -------- --------- -------- ---------
Gross profit....................... 2,081 1,810 1,425 2,424 3,398 4,116 5,090
Expenses:
Selling and marketing............ 312 372 484 640 651 843 1,589
General and administrative....... 1,292 1,303 1,722 1,996 2,612 2,669 3,469
Depreciation and amortization.... 86 104 109 121 123 215 144
--------- -------- --------- -------- --------- -------- ---------
Operating profit (loss)............ 391 31 (890) (333) 12 389 (112)
Other income (expense)............. (7) (14) (22) (32) (85) (126) (28)
--------- -------- --------- -------- --------- -------- ---------
Net income (loss) before income
tax provision (benefit)........ 384 17 (912) (365) (73) 263 (140)
Income tax provision (benefit)... 178 8 (392) (150) 46 36 (49)
--------- -------- --------- -------- --------- -------- ---------
Net income (loss)................ $ 206 $ 9 $ (520) $ (215) $ (119) $ 227 $ (91)
--------- -------- --------- -------- --------- -------- ---------
--------- -------- --------- -------- --------- -------- ---------
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Professional services............ 97.1% 90.6% 98.0% 91.9% 96.6% 86.3% 95.4%
Hardware and software sales...... 2.9 9.4 2.0 8.1 3.4 13.7 4.6
--------- -------- --------- -------- --------- -------- ---------
Total revenues................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of Revenues:
Professional services............ 55.0 52.5 61.5 50.0 47.7 45.9 46.8
Hardware and software
purchases...................... 1.9 5.6 1.7 6.6 3.3 10.9 4.1
--------- -------- --------- -------- --------- -------- ---------
Total cost of revenues......... 56.9 58.1 63.2 56.6 51.0 56.8 50.9
--------- -------- --------- -------- --------- -------- ---------
Gross profit....................... 43.1 41.9 36.8 43.4 49.0 43.2 49.1
Expenses:
Selling and marketing............ 6.5 8.6 12.5 11.5 9.4 8.9 15.3
General and administrative....... 26.7 30.2 44.5 35.7 37.6 27.9 33.5
Depreciation and amortization.... 1.8 2.4 2.8 2.2 1.8 2.3 1.4
--------- -------- --------- -------- --------- -------- ---------
Operating profit (loss)............ 8.1 0.7 (23.0) (6.0) 0.2 4.1 (1.1)
Other income (expense)............. (0.2) (0.3) (0.5) (0.5) (1.3) (1.3) (0.3)
--------- -------- --------- -------- --------- -------- ---------
Net income (loss) before income
tax provision (benefit)........ 7.9 0.4 (23.5) (6.5) (1.1) 2.8 (1.4)
Income tax provision (benefit)... 3.7 0.2 (10.1) (2.7) 0.6 0.4 (0.5)
--------- -------- --------- -------- --------- -------- ---------
Net income (loss)................ 4.3% 0.2% (13.4)% (3.8)% (1.7)% 2.4% (0.9)%
--------- -------- --------- -------- --------- -------- ---------
--------- -------- --------- -------- --------- -------- ---------
</TABLE>
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We have historically experienced significant quarterly fluctuations in our
revenues and results of operations and expect these fluctuations to continue.
Factors causing these variations include the number, timing, scope and
contractual terms of client projects, delays incurred in the performance of such
projects, accuracy of estimates of resources and time required to complete
ongoing projects, and general economic conditions. In addition, our future
revenues and operating results may fluctuate as a result of changes in pricing
in response to customer demand and competitive pressures, the ratio of
fixed-price contracts versus time-and-expense contracts and the timing of
collection of accounts receivable. A high percentage of our operating expenses,
particularly personnel and rent, are relatively fixed in advance of any
particular quarter. As a result, unanticipated variations in the number and
timing of our projects or in employee utilization rates may cause significant
variations in operating results in any particular quarter, and could result in
losses. Any significant shortfall of revenues in relation to our expectations,
any material reduction in utilization rates for our consultants, an
unanticipated termination of a major project, a client's decision not to pursue
a new project or proceed to succeeding stages of a current project, or the
completion during a quarter of several major customer projects could require us
to pay underutilized employees and have a material adverse effect on our
business, results of operations and financial condition.
Our quarterly operating results are also subject to certain seasonal
fluctuations. We have in the past recruited new consultants in the first and
second quarters who have not conducted billable services until later in the
year. Demand for our services may be lower in the fourth quarter due to reduced
activity during the holiday season and fewer working days for those customers
that curtail operations during this period. These and other seasonal factors may
contribute to fluctuations in our operating results from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through the sale of equity
securities and cash flow from operations. As of March 31, 1999, we had
approximately $3.0 million in cash and cash equivalents.
Cash used in operating activities increased from $206,000 for the three
months ended March 31, 1998 to $2.2 million for the three months ended March 31,
1999. Significant uses of cash resulted from an increase in accounts receivable
and unbilled work in progress, a reduction in accounts payable, accrued expenses
and deferred income, partially offset by a reduction in the net loss.
Cash (used in) provided by operating activities was $(3.7) million in 1998,
$(1.2) million in 1997 and $700,000 in 1996. The increase in the use of cash
resulted from the net loss in 1998, an increase in accounts receivable and
unbilled work in progress during 1998 partially offset by an increase in
accounts payable and accrued expenses at December 31, 1998.
Cash provided by financing activities was $12.5 million for the three months
ended March 31, 1999, $5.4 million for 1998, $1.4 million for 1997 and $5,000
for 1996. Cash provided by financing activities for the three months ended March
31, 1999 resulted from the proceeds of $18.6 million related to the sale of
preferred stock offset partially by the repayment of short term borrowings. Cash
provided by financing activities for 1998 and 1997 resulted from short term
borrowings.
Our capital expenditures were $209,000 for the three months ended March 31,
1999, $687,000 for 1998, $357,000 for 1997 and $315,000 for 1996. Capital
expenditures were made to purchase computer equipment and office furniture and
for leasehold improvements.
We have a demand loan facility, secured by a lien on all of our assets,
under which we may borrow up to the lesser of $5.0 million or 80.0% of our
accounts receivable. Amounts outstanding under the facility bear interest at a
rate of 11.25% per annum. At March 31, 1999, there were no amounts outstanding
under the facility.
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<PAGE>
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our working
capital needs for at least the next 12 months.
IMPACT OF THE YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, it is necessary to update the computer systems and/or software used by
many companies and governmental agencies to comply with Year 2000 requirements
or risk system failure or miscalculations causing disruptions of normal business
activities.
We are exposed to the risk that the systems on which we depend to conduct
our operations are not Year 2000 compliant.
STATE OF READINESS. We are in the process of determining the Year 2000
readiness of our information technology systems, which include our hardware and
software, and our non-information technology systems, which include the
telephone systems and other office equipment we use internally. Our assessment
plan consists of the following steps:
- evaluating our date dependent code, software and hardware and evaluating
external dependencies;
- quality assurance testing of our internally-developed proprietary
software;
- contacting third-party vendors and licensors of material hardware,
software and services that we use;
- contacting vendors of material non-information technology systems that we
use;
- formulating repair or replacement requirements and implementing corrective
measures; and
- evaluating the need for, and preparing and implementing, if required, a
contingency plan.
To date, we have determined the following through our assessment:
- We have checked our internally developed software and systems for date
dependent code, and all material files and systems are Year 2000
compliant. We believe that the recently installed code is also Year 2000
compliant;
- We have contacted the vendors of material hardware and software components
of our information technology systems, and they have informed us that the
products we use are currently Year 2000 compliant;
- Commercial software, including financial reporting software, upon which we
depend is either Year 2000 compliant or will be upgraded to be compliant
in the normal course of business through upgrades or installation of
software patches;
- Substantially all hardware we use in our network operations and all of the
hardware we use in our office operations have been certified as Year 2000
compliant by its vendors;
- Our telephone system and mail systems are certified as Year 2000
compliant; and
- Our landlords and third-party advertising sales representative and
servicing organizations have not yet provided us with Year 2000 compliance
information.
While we have assessed the Year 2000 readiness of each of our material
internal systems, we will not conduct an end-to-end system test until August
1999. Accordingly, we cannot yet assess whether our internal system, as a whole,
is Year 2000 compliant. In addition, we will continue to attempt to obtain
verification from all remaining distributors, suppliers and vendors that their
systems are Year 2000 compliant. We intend to complete our assessment, and the
replacement or remediation of any non-Year 2000 compliant technologies, by the
end of the third quarter of 1999.
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<PAGE>
COSTS. We estimate that the total cost for our Year 2000 compliance efforts
will be approximately $250,000. Most of these expenses relate to the operating
costs associated with time spent by our employees in Year 2000 compliance
matters. If we encounter unexpected difficulties, or we are unable to obtain
compliance information from material third parties, we may need to spend
additional amounts to ensure that our systems are Year 2000 compliant.
RISKS. Although we have received compliance information from our material
third-party vendors, we have not received compliance information from all of our
third-party vendors. In addition, it is possible that our third-party vendors
were mistaken in certifying that their systems are Year 2000 compliant. In
addition, we will not conduct an end-to-end system test until August 1999. If we
fail to fix our internal systems or to fix or replace material third-party
software, hardware or services on a timely basis, we may suffer lost revenues,
increased operating costs and other business interruptions, any of which could
have a material adverse effect on our business, results of operations and
financial condition. Moreover, if we fail to adequately address Year 2000
compliance issues, we may be subject to claims of mismanagement and related
litigation, which would be costly and time-consuming to defend.
In addition, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. If those entities fail to be
Year 2000 compliant, there may be a systemic failure beyond our control, such as
a prolonged Internet, telecommunications or electrical failure, which could have
a material adverse effect on our business, results of operations and financial
condition.
CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year
2000 assessment and have developed no contingency plans to address the
worst-case scenario that might occur if technologies we depend upon actually are
not Year 2000 compliant. We will take into account our Year 2000 simulation
testing results and the responses we receive from all third-party vendors and
service providers in determining the need for and nature and extent of any
contingency plans. We intend to develop any required contingency plan by the end
of September 1999.
FORWARD-LOOKING STATEMENTS
The Year 2000 discussion above is provided as a "Year 2000 Readiness
Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act
of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998 and
contains forward-looking statements. These statements are based on management's
best current estimates, which were derived from a number of assumptions about
future events, including the continued availability of resources,
representations received form third parties and other factors. However, we
cannot assure you that these estimates will be achieved, and our actual results
could differ materially from those anticipated. Specific factors that might
cause material differences include:
- the ability to identify and remediate all relevant systems;
- results of Year 2000 testing;
- adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are our outsourcing service
providers, suppliers, and vendors;
- unanticipated system costs; and
- our ability to implement adequate contingency plans.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standard Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 131, "Disclosures
About Segments of an Enterprise and Related
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<PAGE>
Information." This statement establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement is effective for financial statements for periods beginning after
December 15, 1997 and need not be applied to interim periods in the initial year
of application. Comparative information for earlier years presented is to be
restated. We do not operate in more than one segment. Our chief operating
decision maker allocates resources and assesses the performance associated with
its business on a single-segment basis.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." This statement establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for all quarters of fiscal years beginning after June 15, 1999. We do
not expect the adoption of this standard to have a material effect on our
results of operations, financial position or cash flows.
29
<PAGE>
BUSINESS
OVERVIEW
We are a network consulting company focused on the design, performance,
management and security of complex business-critical computing networks. We
utilize our proprietary consulting methodology, BusinessFirst, to translate our
clients' strategic business objectives into sound technology solutions. Using
our BusinessFirst methodology, we demonstrate the business value of technology
solutions in specific and measurable terms, thereby enabling our clients to
incorporate objective and quantifiable analysis into their technology investment
decisions.
As an independent service provider, we provide our clients with unbiased and
vendor-neutral expertise that enable the design, implementation and management
of optimal technology solutions. We provide our services on either a project
outsource or collaborative consulting basis. Our project outsource services are
based and measured against pre-defined deliverables and provide our clients with
certainty of costs, delivery time and project scope. Our collaborative
consulting services enable our clients to utilize our extensive expertise in
order to extend their internal capabilities and to access our methodologies. In
addition to these services, we have developed an innovative service model
through which we deliver our clients packaged service products, or productized
services. These services consist of pre-defined, fixed-price deliverables that
are replicated from our best practices.
Our consultants are organized into the following practice areas, which cover
the four cornerstones of network computing: network and systems management;
internetwork design and engineering; performance management; and information
security. This structure enables our consultants to gain in-depth expertise and
become intimately familiar with the best practices within each of those
disciplines.
INDUSTRY BACKGROUND
The effective communication and management of information has become
critical to success in today's competitive and rapidly changing global business
environment. Network infrastructures that once were viewed as sources of
competitive advantage are now being recognized as competitive necessities for
businesses in a broad range of industries. This shift is driven primarily by the
following factors:
- the migration from mainframe and client/server technologies to
Internet-based computing environments among most industries;
- the demand for real-time exchange of critical, time-sensitive information
within organizations and among their external constituents; and
- the widespread adoption of the Internet among consumers.
As a result of these factors, current and emerging network hardware and
software companies are rapidly developing sophisticated technologies for
business users to accommodate mission-critical applications, such as electronic
commerce, supply chain management, web hosting, customer relationship management
and global marketing. In addition to business use of networks, consumers are
increasingly accessing networks, via the Internet, to communicate, store and
publish bandwidth-intensive information, conduct retail transactions and access
online sources of entertainment. Business and consumer trends will continue to
positively impact the number of users accessing the Internet and virtual private
networks and the data traffic carried over these networks.
The growth in network-dependent activities requires complex network
solutions that integrate legacy systems and technologies from multiple vendors.
The rapid pace of change in networking technology has further increased the
complexity of designing and implementing these network solutions. As competing
hardware and software companies develop applications to more effectively and
efficiently manage increasing volumes of information, rapid adoption of new
technologies is required for
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businesses to remain competitive. Accordingly, the demand for experienced
professionals that can assist businesses in designing, implementing, managing
and monitoring complex network solutions has increased dramatically.
As a result of demand for professionals with networking expertise, it has
become increasingly difficult for businesses to attract and retain dedicated
internal information technology resources. In response, many businesses are
focusing on their core competencies and outsourcing their network management
needs to third-party service providers. As a result, the demand for network
consulting and integration services has grown dramatically. International Data
Corporation estimates that the worldwide market will grow for these services
from $12.1 billion in 1998 to $25.5 billion by 2003. There are many third-party
service providers, including network equipment vendors, systems integrators,
value-added resellers and network consulting companies, seeking to capitalize on
this growth.
However, few have the requisite focus and expertise to address the complex,
multi-faceted issues surrounding today's business-critical networks, and many
are limited by the fact that they:
- are primarily motivated by distributing their own products and often lack
the skills to implement multi-vendor solutions;
- are focused on legacy computing environments and derive a large percentage
of their revenue from reselling hardware and software products; or
- only augment businesses' in-house capabilities with hourly rate-based
teams of technical personnel.
As a result, a significant opportunity exists for a service provider that
can offer businesses high-end, vendor neutral consulting and technical expertise
in the design, implementation, management and security of complex networks.
THE PREDICTIVE SOLUTION
We are a network consulting company focused on the design, performance,
management and security of complex, business-critical computing networks. We
utilize our proprietary consulting methodology, BusinessFirst, to translate our
clients' strategic business objectives into sound technology solutions. We
believe that our success to date has been largely attributable to the following
key characteristics of our service offering:
QUANTIFIABLE BUSINESS ANALYSIS. Using our BusinessFirst methodology, we can
demonstrate the business value of technology solutions in specific and
measurable terms, thereby enabling our clients to incorporate objective and
quantifiable analysis into their technology investment decisions. We utilize
widely accepted principles of risk analysis and mitigation used by the insurance
and financial services industries to assess our client's technology environment.
We provide our clients with a detailed analysis of the financial benefit of a
project by quantifying factors such as business risks, total cost of ownership
and operational efficiency. As a result, our clients can gain a clear
understanding of the benefits that they will derive from their network
technology investments and a measure of certainty about how their technology
investments will be translated into quantifiable improvements to their business
processes.
FLEXIBLE AND INNOVATIVE SERVICE DELIVERY METHODOLOGIES. We provide our
clients with a flexible service model that is designed to enhance their ability
to cost-effectively leverage our expertise. We are typically engaged by our
clients on either a project outsource or collaborative consulting basis. Our
project outsource services are primarily based and measured against pre-defined
deliverables and provide our clients with certainty of costs, delivery time and
project scope. Our collaborative consulting services enable our clients to
utilize our extensive expertise in order to extend their internal capabilities
and to access our methodologies. In addition to these services, we have
developed an innovative service delivery model through which we offer our
clients packaged service products, or productized services.
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These services consist of pre-defined, fixed-price deliverables that are
replicated from our best practices. We believe that this unique approach to
network services further differentiates us from our competitors.
IN-DEPTH NETWORK COMPUTING EXPERTISE. Our consultants are organized into
practice areas which cover the four cornerstones of network computing: network
and systems management; internetwork design and engineering; performance
management; and information security. This enables our consultants to gain
in-depth expertise and become intimately familiar with the best practices within
each of those disciplines. More importantly, it enables us to leverage the
knowledge base within each practice group to provide our clients with
cross-functional teams of consultants that are better equipped to address their
varying networking needs in a coordinated and efficient manner.
VENDOR-NEUTRAL APPROACH. As an independent service provider, we offer our
clients unbiased and vendor-neutral expertise that enables the design,
implementation and management of optimal technology solutions. We capitalize on
our extensive experience across complex, multi-vendor network environments to
provide our clients with end-to-end network services utilizing best-of-breed
technologies.
STRATEGY
Our goal is to become the leading provider of services for the design,
performance, management and security of complex networks. To achieve this goal,
we intend to pursue the following strategies:
CONTINUE TO EVOLVE OUR BUSINESSFIRST METHODOLOGY. The evolution and
enhancement of our BusinessFirst methodology is critical to our ability to
leverage and share knowledge across engagements and to further improve our
ability to deliver predictable, high-quality services to our clients on time and
on budget. We have a dedicated team of consultants that is focused on
continuously enhancing and refining our BusinessFirst methodology by
incorporating best practices identified over numerous engagements. We believe
that this enables us to consistently deliver high-quality network technology
solutions.
EXPAND AND ENHANCE OUR PRODUCTIZED SERVICE OFFERINGS. We intend to continue
to enhance and expand our innovative productized service offerings. These
service offerings provide our clients with a pre-defined set of deliverables
that are characterized by an objective and quantifiable value proposition and
return on investment justification. Moreover, our productized services enable us
to increase our margin opportunities by improving the efficiency of our sales
and service delivery model. These products also enable us to market and sell our
services through indirect channels. For example, we recently entered into an
agreement with Cabletron under which Cabletron has agreed to market and sell our
productized service offerings, which will initially include our Information
Security Requirements Analysis product and will expand to other productized
service offerings. We intend to enter into other strategic relationships which
will enable us to further expand our market penetration by leveraging our
strategic partners' distribution channels to market and sell these services.
CONTINUE TO ATTRACT AND RETAIN HIGHLY QUALIFIED CONSULTANTS. We intend to
continue to attract and retain highly qualified consultants by providing them
with a rich environment and culture to work in, and by offering them attractive
professional development and compensation opportunities. We generally recruit
consultants that have significant technical expertise and offer them the ability
to accelerate their career development by working with sophisticated
technologies in complex, multi-vendor environments. We have established a formal
training program, Predictive University, which is designed to improve the skills
and productivity of our consultants. We intend to continue to build our
nationwide recruiting organization, promote our corporate culture with stated
values, and to invest heavily in the training and development of our
consultants.
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FURTHER INCREASE OUR INDUSTRY EXPERTISE. We intend to continue to expand
the scope of our industry expertise in order to further penetrate our vertical
markets. We believe our expertise in specific industries considerably enhances
our ability to help companies within those industries gain competitive advantage
by improving the performance and utility of their networks. We have significant
experience within the financial services, communication services, and Internet
and e-commerce industries. In each of our vertical industry groups, we employ
industry experts, pursue targeted sales and marketing opportunities and develop
industry-specific service offerings. We intend to expand into other vertical
markets which we believe will be well suited to our services.
EXPAND IN EXISTING AND NEW GEOGRAPHIC MARKETS. We intend to expand our
presence in the geographic markets we currently serve and to enter new markets.
We believe that building a critical mass of highly-qualified consultants and
establishing a multi-national presence through both internal growth and
acquisitions will provide us with a substantial competitive advantage. We
currently offer our services through a network of nine offices located
throughout the United States and in London, England. We intend to pursue
strategic acquisitions to gain access to new geographic markets, additional
talented professionals, and network management tools and methodologies.
BUSINESSFIRST METHODOLOGY
BusinessFirst is a proprietary methodology that governs our organization and
client engagements. Our BusinessFirst methodology enables us to better
understand the business objectives that drive the need for technology solutions
and provide our clients with pre-defined deliverables on a fixed-time,
fixed-price basis. We begin each engagement by helping our clients clarify their
business requirements in specific terms. We then undertake a thorough assessment
of our client's existing business processes and technology infrastructure. Based
on this assessment, we formulate an analysis of the requirements to translate
their technology investments into measurable business objectives. Once we
formulate a requirements analysis, we draw upon our broad, vendor-neutral
expertise to design a solution that leverages our clients' existing technology
infrastructure to maximize their return on investment. We believe that our
BusinessFirst methodology bridges the gap in the marketplace between management
consulting firms and technical staff augmentation services and enables us to
translate business objectives into leading-edge technology solutions.
SERVICES
Our consultants are organized into four practice areas. Although many of our
consultants are cross-skilled in a variety of technologies and many technologies
span multiple practice areas, each practice area represents an aspect of network
technology important enough to warrant specialization.
These practice areas are:
- network and systems management;
- internetwork design and engineering;
- performance management; and
- information security.
Our consultants have extensive experience with a wide variety of
technologies and vendors. For some clients, our consultants are involved in both
technology and vendor selection. Other clients have already selected the
technology, vendor or both. Regardless, we offer our clients a completely
objective, vendor-neutral approach. Our knowledge of advanced technologies and
leading vendors is a significant part of our value proposition to our clients.
NETWORK AND SYSTEMS MANAGEMENT. Our network and systems management practice
focuses on designing and implementing reliable and continuously available
management systems for large-scale,
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highly-complex networks. The fundamental tenet of this practice area is that
proactive management is an essential element of any network design and
engineering effort. Our network management consultants develop systems and
processes that are able to identify, isolate and resolve network failures,
sometimes before they occur.
The following table lists some of the services provided by our network and
systems management practice area:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- -------------------------------------------- --------------------------------------------------------------------
<S> <C>
Service Definition and Service Level Highlights a client's service level commitments and assists in the
Agreement Workshop development of a rational, long-term plan for meeting and exceeding
those commitments.
Rapid Restart Assessment Determines the readiness of a client's network operations center and
provides short-term and long-term recommendations for addressing its
deficiencies.
Network Operation Center Architecture and Assists clients in evaluating and selecting network and systems
Implementation management technologies appropriate for their network operations
centers. Configures and implements the selected technology and
trains clients' operations staff.
Process and Procedure Development Designs, implements and documents the processes and procedures
required to operate a network operations center.
Automation, Correlation and Root Cause Automates repetitive management tasks associated with operating a
Analysis Technology Development network, including event filtering, extraneous event suppression and
automated root cause analysis.
</TABLE>
INTERNETWORK DESIGN AND ENGINEERING. Our internetwork design and
engineering practice focuses on designing and implementing network solutions in
support of our clients' strategic business initiatives. We have created a team
of seasoned professionals who use their specialized technical skills, real-world
industry experience and methodologies to solve the problems associated with
building and maintaining network foundations. With core competencies in the
areas of backbone technology, local area network switching, Internet Protocol,
or IP, management and design, asynchronous transfer mode, or ATM, and remote
access, our versatile team contributes both technical depth and breadth to
client engagements.
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<PAGE>
The following table lists some of the services provided by our internetwork
design and engineering practice area:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- -------------------------------------------- --------------------------------------------------------------------
<S> <C>
Advanced Technology Planning and Migration Assists clients in planning and integrating advanced technologies
into their business-critical networks. The services include
technology landscape briefings, vendor/ product selection, solution
design and integration planning and comprehensive testing.
Network Deployment Services Implements network technology into clients' existing networks.
Services include project management, vendor coordination, technology
installations and training.
Remote Access and Virtual Private Network Designs and deploys secure, high-performance remote access and
virtual private network solutions to allow clients, their employees,
supply-chain partners and other business partners to access
information remotely.
Network Audit Services Audits clients' network infrastructure to evaluate its design and
performance, document the configuration, analyze its compliance to
prescribed standards and develop an action plan to meet strategic
objectives.
Internet Protocol Management Solutions Designs and implements Internet Protocol address schemes required
for a client to connect to the Internet. The service also implements
management technology to administer the Internet Protocol addresses
used within an organization.
</TABLE>
PERFORMANCE MANAGEMENT. Our performance management practice leverages
proven methodologies and our extensive experience to help our clients optimize
their networks. We use sophisticated tools and techniques to gather, organize
and warehouse network performance data. This data may subsequently be used for a
number of related performance analysis applications, including capacity
planning, response time management and network simulation modeling. Consultants
in our performance management practice area are experts in applicable
technologies, including core competencies in remote monitoring, or RMON, data
warehousing and discrete event simulation modeling.
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<PAGE>
The following table lists some of the services provided by our performance
management practice area:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- -------------------------------------------- --------------------------------------------------------------------
<S> <C>
Network Baselining Collects data in order to establish a baseline of network resource
utilization. The baseline is then used as a comparison against
future trends.
Application Impact Analysis Analyzes how an application uses network resource to predict
response times that users will experience when the application is
deployed. Recommends improvements that enable the application to
maximize network resources.
Network Usage-Based Billing Services Assists clients' transition from a flat-rate billing model to a
usage-based billing model for buying network services.
Capacity Planning Assists clients in understanding the capacity and network resource
constraints that exist within their network with sufficient advance
warning to enable them to add capacity before user performance is
affected.
Response Time Management Monitors and analyzes end-user application response times to ensure
that they remain within the service level commitments.
Network Simulation Modeling Models a network environment so that new configuration and new
application deployment scenarios can be simulated before going into
production.
</TABLE>
INFORMATION SECURITY. Our information security practice is focused on
ensuring that the confidentiality, integrity and availability of our clients'
networks are protected. Our information security consultants have practical
experience with a wide array of advanced security technologies, as well as the
social and procedural aspects of security. By translating the complexities of
information security into understandable terms such as risks, costs and
benefits, we enable our clients to make clear and informed decisions about
protecting their information assets.
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<PAGE>
The following table lists some of the services provided by our information
security practice area:
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- -------------------------------------------- --------------------------------------------------------------------
<S> <C>
Information Security Requirements Analysis Assesses clients' physical security environment, the technical
controls for accessing information assets and employee security
awareness. Highlights deficiencies and makes recommendations to
migrate clients to industry-specific best practices.
Asset and Risk Analysis Identifies critical assets, determines susceptibility to risks and
quantifies the impact of such risks. Recommends a risk mitigation
plan to prioritize corrective actions.
Information Security Policy Development Assists customers to create a comprehensive information security
policy that clearly states requirements for employee behavior,
technical security systems and the physical controls needed to
protect the client's information assets.
Security System Design and Implementation Designs and implements security systems using custom configured
products to enforce the specific information security policy of each
client.
Incident Response and Digital Forensics Provides critical response team services in the event of a security
Services breach. Restores the operational integrity of the systems, maintains
evidence, provides forensic and investigative services and
facilitates changes to prevent a recurrence of the breach.
Information Security Assessments Verifies the implementation and effectiveness of clients' security
policies by reviewing and testing their policies, employee
awareness, perimeter security and response team readiness.
</TABLE>
PRODUCTIZED SERVICES
Using our BusinessFirst methodology, we have standardized our replicable
best practice offerings into productized services that have the following
attributes:
- a defined value proposition;
- a defined set of deliverables;
- a defined return on investment analysis;
- a defined delivery methodology; and
- a flexible pricing strategy.
We believe that our productized services are an innovative approach to
meeting our clients' growing need for cost certainty and guaranteed
deliverables. These productized services also enable us to leverage our best
practices into highly-replicable margin opportunities and to expand our market
penetration through third-party sales channels.
Our current productized services include:
INFORMATION SECURITY REQUIREMENTS ANALYSIS. This product is designed to
discover information security weaknesses and to provide our clients with the
ability to correct them. Our certified security
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experts assess a client's physical, administrative and technical security. They
then present a report to management explaining how the security weaknesses that
they have found could impact the client's business and proposing strategies for
addressing these weaknesses.
NETWORK ASSESSMENT. This product provides a cost-effective expert analysis
of a client's existing network environment using proven tools and methodologies.
They then provide a report that helps the client to understand its network and
provides specific recommendations for improvements to and upgrades of the
client's existing network. This analysis is designed to provide clients with the
analysis they need to assess the business benefits that can be achieved by
improving their networks.
APPLICATION IMPACT STUDY. This product provides clients with the
information they need in order to plan the deployment of applications, and for
correcting mismatched networks and applications. Our network systems engineers
use a combination of commercial, public and privately developed software tools
to perform the application impact study. They then issue a report on the
application's performance and its impact on the client's network. Clients can
then determine if they need to enhance their network in order to ensure that
their mission critical applications perform to their requirements.
NETWORK USAGE INFORMATION. This product provides clients with a system to
collect and analyze actual network usage, allowing clients to bill for network
system costs. Our network systems engineers use industry proven tools and
methodologies to assess the client's requirements, implement the systems and
customize the solution for the client's specific business goals.
ENTERPRISE MANAGEMENT ASSESSMENT. This product provides an evaluation of a
client's current enterprise network management architecture. Our network systems
engineers analyze both a client's enterprise network management architecture and
its business objectives for its technology solution. They then provide the
client with a tactical and strategic roadmap that enables the client to
implement network solutions that support the client's business objectives.
NETWORK MODELING. This product provides clients with an understanding of
the performance capabilities of their current network environment. This
tool-based analysis examines network traffic flows, utilization trends,
application response times and general performance statistics of a client's
network environment. We then present the client with a detailed analysis of
their networks performance capabilities and a "what if" analysis tool that
allows them to determine the impact of usage upon their network. Clients can
then use this analysis and tool to predict network performance and evaluate the
need to upgrade their networks.
YEAR 2000 COMPLIANCE ASSESSMENT. This product identifies network
infrastructure that is at risk because of Year 2000 problems and the impact
these risks can have on a client's business. Our network systems engineers
analyze a client's network infrastructure devices and enterprise management
applications to determine the potential risk based on vendor specifications.
They then develop a plan for remediation to minimize the Year 2000 risk to a
client's business.
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CLIENTS
We provide professional network services to a variety of clients across a
broad range of vertical industries including:
<TABLE>
<S> <C> <C> <C>
COMMUNICATIONS FINANCIAL SERVICES NETWORK TECHNOLOGY OTHER
SERVICES Bank of America Adaptec Allied Signal
AT&T Bear, Stearns Ascend Communications Houghton Mifflin
Bell Atlantic Bloomberg Analog Devices Mary Kay Cosmetics
Bell South Cigna Cabletron Merck
British Telecom Citigroup Cisco Systems Norfolk Southern
Cable & Wireless DLJdirect Data General Pepsi
Cignal Global Comm. Deutsche Bank IBM Pfizer
Cox Communications Fidelity Lucent Technologies Raytheon
Enron Communications First Union Nortel Networks Siemens Energy
iBEAM Broadcasting Fleet Bank PROFESSIONAL SERVICES Staples
ICG Netcom ING Baring Furman Selz AT&T Solutions
Intelsat J.P. Morgan CSC
MCI/Worldcom Morgan Stanley GE Capital
Navisite Pershing Law Plus
Pacific Bell State Street Bank Lockheed Martin
Primus Telecom. State Farm McKinsey & Company
PSINet SWIFT PricewaterhouseCoopers
Qwest Union Bank of Unisys
Teligent California
UUNet Wells Fargo
</TABLE>
SALES AND MARKETING
We have developed direct and indirect sales channels for the sale of our
services. To facilitate our direct sales effort we have developed the
infrastructure necessary to capture and track the major sales indicators through
the sales cycle. Additionally, a significant amount of time and effort has been
and will continue to be invested in the development of tools, training materials
and training for sales and technical personnel. Our productized services have
provided us with an opportunity to develop strategic third-party relationships
with hardware, software service and telecommunications providers in order to
expand our sales channel. As a result, we are developing an indirect sales
channel through relationships with third-party strategic partners. We have
entered into an agreement with Cabletron under which Cabletron has agreed to
market and sell our productized services. We intend to pursue similar agreements
with other strategic partners in order to broaden our indirect sales channel.
HUMAN RESOURCES
We seek to attract, train, retain and deliver the highest level of technical
talent. We believe that our proactive approach gives us a strong competitive
edge in the marketplace and a scalable, consistently high standard of service
delivery. As of June 30, 1999, we had 280 full-time employees.
RECRUITING. Our success is dependent in part on attracting and retaining
talented and motivated personnel at all levels. Accordingly, we invest
significant resources in our recruiting efforts. We have a proactive recruiting
philosophy and believe in a broad-based model for attracting candidates.
Generally, we hire technical consultants according to profiles that fit into one
of our four practice areas.
CORPORATE CULTURE. Our corporate culture is shaped by our view of employees
as investors because they choose to invest their talents, skills, time and
energy into our organization. This mindset is critical
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to our ability to attract and retain professional staff at a time when
information technology professionals are in high demand. We have instituted a
very competitive benefits package for all employees and have developed policies
that ensure that we continue to address our employees' professional development
and satisfaction. We strive to maintain our relaxed and supportive workplace
despite our rapid growth and expansion.
PROFESSIONAL DEVELOPMENT. We believe that our investment in our employees
must mirror our employees' investment in and commitment to us. Integral to this
goal is the establishment of a career development plan for each of our
employees, which is created and agreed upon by management and the employee. We
provide our consultants with the opportunity to obtain extensive subject matter
expertise in their practice area and to work in collaborative multi-discipline
projects. We have also established Predictive University, a training program
that leverages both our in-house captured knowledge programs, as well as
selected outside certification programs.
COMPENSATION. We believe that linking employee compensation to our success
through performance-based incentive programs encourages a high level of
involvement from each team member and increases our employee retention. We
provide a highly competitive compensation package that consists of a combination
of base salary, performance-based incentives and company stock options.
COMPETITION
The network management consulting industry is comprised of many
participants, is highly competitive and is subject to rapid technological
change. We face intense competition from systems integrators, value added
resellers, local and regional network services firms, telecommunications
providers, network equipment and computer systems vendors. Many of our
competitors have greater name recognition, longer operating histories, more
relationships with large and established clients and greater financial,
technical and managerial resources. Furthermore, we expect that our competitors
may in the future form alliances with other technology vendors, which may give
them an advantage in managing networks that use that vendor's equipment.
Most of our current clients and prospective clients have internal
information technology departments and could choose to satisfy their network
management needs through internal resources rather than by outsourcing them to
third-party service providers such as ourselves. The decision by clients or
prospective clients to rely on their own information technology departments
could have a material adverse affect on our business, results of operations and
financial condition. Moreover, as the domestic and global markets for
information technology services continue to grow, we expect to face stiff
competition from new entrants into the network management consulting industry.
We believe that the principal competitive factors in the network management
market are the ability to attract and retain qualified personnel, quality and
breadth of services offered, price and reliability of services provided and the
strength of client relationships. We believe we compete favorably with respect
to all of these factors. We believe we distinguish ourselves from our
competitors through our expertise in managing complex, multi-vendor networks and
our ability to provide clients with cost certainty and guaranteed deliverables.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our copyrights, trade secrets and other intellectual property as
critical to our success. Unauthorized use of our intellectual property by third
parties may damage our brand and our reputation. We rely on trademark and
copyright law, trade secret protection and confidentiality and/or license and
other agreements with our employees, customers, partners and others to protect
our intellectual property rights. Despite our precautions, it may be possible
for third parties to obtain and use our intellectual property without our
authorization. Furthermore, the validity, enforceability and scope of protection
of intellectual property in Internet-related industries is uncertain and still
evolving.
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The laws of some foreign countries do not protect intellectual property to the
same extent as do the laws of the United States.
We pursue the registration of our trademarks in the United States and
England. We may not be able to secure adequate protection of our trademarks in
the United States and other countries. We currently have applied for trademark
registrations in the United States and England for the PREDICTIVE SYSTEMS and
BUSINESSFIRST marks, and further, a trademark application in the United States
for the Predictive logo. The trademark offices in the United States and England
have raised preliminary objections to the registration of the trademarks
described above on a number of grounds, including likelihood of confusion with
pre-existing trademarks and descriptiveness. We have responded to these
objections and are awaiting the trademark offices' decisions on our responses.
We have not, however, received any objections from third parties asserting
likelihood of confusion claims with respect to our trademarks. Nonetheless, we
may not be able to obtain trademark registrations in the United States or
England, or both, for one or more of these trademarks, in which case we would be
unable to fully enforce our statutory trademark rights against third parties for
these trademarks, and/or we may decide to replace these trademarks with new
trademarks. This could have a material adverse effect on our business, financial
condition and results of operations. Effective trademark protection may not be
available in all the countries in which we conduct business. Policing
unauthorized use of our marks is also difficult and expensive. In addition, it
is possible that our competitors have adopted or will adopt product or service
names similar to ours, thereby impeding our ability to build brand identity and
possibly leading to customer confusion.
We cannot be certain that our services and the finished products that we
deliver do not or will not infringe valid patents, copyrights, trademarks or
other intellectual property rights held by third parties. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. We may incur
substantial expenses in defending against these third-party infringement claims,
regardless of their merit. Successful infringement claims against us may result
in substantial monetary liability or may materially disrupt the conduct of our
business.
FACILITIES
Our principal executive offices are currently located in approximately
15,000 square feet of office space in New York, New York. Additionally, in June
1999 we entered into an agreement to lease approximately 32,000 square feet of
office space in another facility in New York, New York, with an option for an
additional 32,000 square feet available by March 2001. We expect to move our
principal executive offices to the new facilities in December 1999. We also
lease office space in:
- Atlanta, Georgia;
- Boston, Massachusetts;
- Dallas, Texas;
- Florham Park, New Jersey;
- Herndon, Virginia;
- Pleasanton, California;
- Santa Cruz, California; and
- London, England.
We believe that our existing facilities are adequate for our current needs
and that additional space will be available as needed.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
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MANAGEMENT
The following table sets forth our executive officers, directors and key
employees, their ages and the positions they hold:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ronald G. Pettengill, Jr............................. 40 Chairman of the Board and Chief Executive Officer
Robert L. Belau...................................... 36 President and Director
Thomas R. Joseph..................................... 32 Vice President, General Manager North America
Carl D. Humes........................................ 33 Vice President, Global Operations
Gregory D. Nicastro.................................. 39 Vice President, Strategic Services
Neeraj Sethi......................................... 36 Vice President, Finance
R. Kevin Holt........................................ 45 Vice President, Human Resources
John Wright.......................................... 36 Managing Director, Europe
Peter L. Bloom (1)................................... 41 Director
Donald J. Duffy (1).................................. 32 Director
Braden R. Kelly (2).................................. 28 Director
Eric Meyer (2)....................................... 38 Director
</TABLE>
- ------------------------
(1) Member of the compensation committee
(2) Member of the audit committee
RONALD G. PETTENGILL, JR. co-founded Predictive in February 1995 and has
been Chairman of the Board and Chief Executive Officer since that time. Prior to
founding Predictive, Mr. Pettengill was Senior Vice President of Network
Operations at Allerion, Inc., a systems integration and network control center
design, operation and service delivery firm, from 1992 to 1995. From 1990 to
1992, Mr. Pettengill was the Director of Technical Services at Network
Management, Inc., which provided consulting services to assist Fortune 500
companies migrate from mainframe to network-based client/ server environments.
Prior to working at Network Management, Mr. Pettengill was the Network Manager
at Bear, Stearns & Co. Inc.
ROBERT L. BELAU co-founded Predictive in February 1995 and has been
President and a Director since that time. Prior to founding Predictive, Mr.
Belau was Director of Sales at Allerion, and also managed the definition,
productization and pricing of its network management outsourcing services, from
1993 to 1995. From 1987 to 1993, Mr. Belau was the Director of Sales at Network
Management. Mr. Belau is the step-brother of Eric Meyer, one of our directors.
THOMAS R. JOSEPH has been Vice President, General Manager North America
since April 1999. Prior to that he held various positions with us, most recently
as National Vice President of Business Development, from 1996 to 1999. From 1994
to 1996, Mr. Joseph was a Global Accounts Manager at Metropolitan Fiber Systems,
a competitive access provider.
CARL D. HUMES has been Vice President, Global Operations since April 1999.
Prior to that he served as Region Vice President of Technical Services for our
Mid-Atlantic region since 1996. From 1995 to 1996, Mr. Humes was a consultant at
Booz-Allen & Hamilton, a strategic consulting firm. Prior to that, Mr. Humes was
an officer in the United States Navy, and served on a nuclear submarine and at
the White House Office of Emergency Operations.
GREGORY D. NICASTRO has been Vice President, Strategic Services since April
1999. Prior to that, Mr. Nicastro served as Vice President of Marketing since
1997. Prior to joining us, Mr. Nicastro founded ActingExec, a marketing
consulting firm, in 1995. From July 1995 to October 1995,
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Mr. Nicastro was Director of Systems Marketing at 3Com Corporation. From 1988 to
1995, Mr. Nicastro served as National Account Sales Manager at Sun Microsystems.
NEERAJ SETHI has been Vice President of Finance since 1995. Prior to joining
us, Mr. Sethi was Assistant Vice President for Global Expense Management at
Bankers Trust from 1992 to 1995. From 1989 to 1992, Mr. Sethi was Controller and
Financial Analyst at Network Management.
R. KEVIN HOLT has been Vice President of Human Resources since March 1999.
Prior to joining us, Mr. Holt was a Managing Partner at USWeb/CKS (formerly
USWeb). Prior to the merger of USWeb/ CKS and Gray Peak Technologies, Mr. Holt
served as Vice President and Director of Recruiting at Gray Peak, a high-end
network solutions provider. From October 1995 until September 1997, Mr. Holt
served as the Eastern Division Recruiting Manager at Sprint-Paranet, a global
network solutions provider. Previously, Mr. Holt was the Founder and President
of Metropolitan Search, a contingency and retained search and consulting
company.
JOHN WRIGHT has been Managing Director, Europe since January 1999. Prior to
joining us, Mr. Wright founded Visia Management Consultants, a strategic
consulting company, in 1997. From 1996 to 1997, Mr. Wright served as Director,
Business Development at Global Village, a communications software firm. From
1987 to 1996, Mr. Wright served in various roles at Gandalf Digital
Communications, including, most recently, Director of Indirect Channels.
PETER L. BLOOM has been a director of Predictive since March 1999. Mr. Bloom
is a managing member of General Atlantic Partners, LLC, a private equity firm
that invests globally in software, services, Internet and related information
technology companies, and has been at General Atlantic since 1995. From 1982 to
1995, Mr. Bloom served in various roles at Salomon Brothers, including as
Managing Director of Salomon's U.S. Technology Division. Mr. Bloom is a Director
of Bindview Development Corporation and a Special Advisor to the Board of
Directors of E*TRADE Securities, Inc.
DONALD J. DUFFY has been a director of Predictive since its inception in
February 1995. Mr. Duffy is a co-founder of Meyer, Duffy & Associates, Inc., and
is a Managing Member of MD Ventures. Mr. Duffy is a director of Bikers Dream
Inc., a publicly traded company. Mr. Duffy has been at Meyer, Duffy & Associates
and MD Ventures since 1994. From 1992 to 1994, Mr. Duffy was a Vice President at
Oak Hall Capital Advisors, a money management firm.
BRADEN R. KELLY has been a director of Predictive since June 1999. Mr. Kelly
is an associate at General Atlantic Partners, LLC, and has been with General
Atlantic since 1995. Mr. Kelly is a director of HEALTHvision, Inc., a provider
of comprehensive Internet solutions to the healthcare industry. From 1993 to
1994, Mr. Kelly served as a Financial Analyst at Morgan Stanley & Company.
ERIC MEYER has been as a director of Predictive since its inception in
February 1995. Mr. Meyer is a co-founder of Meyer, Duffy & Associates and is a
Managing Member of MD Ventures. Mr. Meyer has been at Meyer, Duffy & Associates
and MD Ventures since 1994. From 1992 to 1994 Mr. Meyer served as a Vice
President at Oak Hall Capital Advisors. Mr. Meyer is the step-brother of Robert
L. Belau, our President and one of our directors.
CLASSIFIED BOARD OF DIRECTORS
Prior to the completion of the offering, our board of directors will be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the board of directors will be elected each
year. These provisions, when coupled with the provision of our amended and
restated certificate of incorporation authorizing the board of directors to fill
vacant directorships or increase the size of the board of directors, may delay a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies with its own nominees.
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BOARD COMMITTEES
The audit committee reports to the board of directors regarding the
appointment of our independent public accountants, the scope and results of our
annual audits, compliance with our accounting and financial policies and
management's procedures and policies relative to the adequacy of our internal
accounting controls. The audit committee currently consists of Messrs. Meyer and
Kelly.
The compensation committee reviews and makes recommendations to the board of
directors regarding our compensation policies and all forms of compensation to
be provided to our executive officers and directors. In addition, the
compensation committee reviews bonus and stock compensation arrangements for all
of our other employees. The current members of the compensation committee are
Messrs. Duffy and Bloom. No interlocking relationships exist between our board
of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed in the past with the exception of Messrs. Pettengill,
Belau, Duffy and Meyer serving on the Board of Directors of Tribeca Software,
Inc. and Messrs. Pettengill and Meyer serving on the Board of Directors of
Riversoft Ltd.
DIRECTOR COMPENSATION
We do not currently compensate our directors for attending meetings of the
board of directors or committee meetings of the board of directors, but we do
reimburse directors for their reasonable travel expenses incurred in connection
with attending these meetings.
Under the automatic option grant program of the 1999 Stock Incentive Plan,
which is described below under "--1999 Stock Incentive Plan," each individual
who first joins the board of directors after the closing of this offering as a
non-employee member of the board of directors will also receive an option grant
for 25,000 shares of our common stock at the time of his or her commence of
service on the board of directors. In addition, at each annual meeting of
stockholders, beginning with the 2001 annual meeting, each individual who is to
continue to serve as a non-employee member of the board of directors will
receive an option to purchase 2,500 shares of our common stock.
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued during
the fiscal year ended December 31, 1998 to our Chief Executive Officer and to
each of our most highly compensated executive officers, other than the Chief
Executive Officer, whose salary and bonus for such fiscal year exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------
---------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY $ BONUS $ OPTIONS COMPENSATION
- ------------------------------------------------------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Ronald G. Pettengill, Jr............................... $ 175,000 $ 50,000 60,000 $ 8,447(1)
Chief Executive Officer
Robert L. Belau........................................ 175,000 50,000 60,000 8,899(1)
President
Thomas R. Joseph....................................... 112,500 190,000 270,000 3,000(2)
Vice President of North America
Carl D. Humes.......................................... 112,500 190,000 270,000 3,000(2)
Vice President, Technical Services
Gregory D. Nicastro.................................... 140,000 14,000 -- --
Vice President, Strategic Services
Neeraj Sethi........................................... 135,167 55,000 -- --
Vice President, Finance
</TABLE>
- ------------------------
(1) We paid a monthly car allowance and automobile insurance premiums for each
of Messrs. Pettengill and Belau during the year ended December 31, 1998.
(2) We paid a monthly car allowance effective July 1998 for each of Messrs.
Joseph and Humes during the year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options for the year ended
December 31, 1998 to our Chief Executive Officer and to each of our most highly
compensated executive officers, other than the Chief Executive Officer, whose
salary and bonus for such fiscal year exceeded $100,000. We have never granted
any stock appreciation rights. The potential realizable value is calculated
based on the term of the option at its time of grant. It is calculated assuming
that the fair market value of common stock on the date of grant appreciates at
the indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth. The percentage of total
45
<PAGE>
options granted to employees in the last fiscal year is based on options to
purchase an aggregate of shares of common stock granted under our option
plan.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
PERCENT OF RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME GRANTED IN 1998 SHARE ($) DATE 5% 10%
- ------------------------------------------- ----------- ------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Pettengill, Jr................... 60,000 2.5% $ 1.25 1/1/08 $ 47,167 $ 119,531
Robert L. Belau............................ 60,000 2.5 1.25 1/1/08 47,167 119,531
Thomas R. Joseph........................... 150,000 6.2 1.25 1/1/08 117,918 298,827
120,000 4.9 1.50 8/1/08 113,201 286,874
Carl D. Humes.............................. 150,000 6.2 1.25 1/1/08 117,918 298,827
120,000 4.9 1.50 8/1/08 113,201 286,874
</TABLE>
- ------------------------
(1) There was no public market for this common stock on December 31, 1998. The
fair market value on December 31, 1998 was determined by the board of
directors to be $1.50 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1998 and the number and value of unexercised
options held by each of our named executive officers at December 31, 1998. There
was no public trading market for the common stock as of December 31, 1998.
Accordingly, the values set forth below have been calculated on the basis of the
fair market value on December 31, 1998 as determined by our board of directors
of $1.50 per share, less the applicable exercise price per share, multiplied by
the number of shares underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
<S> <C> <C> <C> <C> <C> <C>
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ---------- ----------- ------------- ----------- -------------
Ronald G. Pettengill, Jr................. 585,000 $ 779,805 780,000 -- $ 515,220 --
Robert L. Belau.......................... 585,000 779,805 780,000 -- 515,220 --
Thomas R. Joseph......................... -- -- 210,000 150,000 82,530 $ 15,000
Carl D. Humes............................ -- -- 210,000 150,000 82,530 15,000
Gregory D. Nicastro...................... -- -- -- 336,000 -- 84,000
Neeraj Sethi............................. 135,000 179,955 90,000 90,000 35,010 22,500
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into executive employment agreements with Ronald G.
Pettengill, Jr., our Chairman and Chief Executive Officer, and Robert L. Belau,
our President. Each employment agreement provides for an initial annual base
salary of $200,000. Each employment agreement also provides for initial
performance based bonuses of $25,000 upon the closing of this offering and up to
an additional $50,000 upon the achievement of certain gross revenue thresholds
in the 1999 fiscal year. Under the agreements, each executive also received
options to purchase 100,000 shares of our common stock at a price of $4.00 per
share, which vest over 3 years. Additionally, each executive received options to
purchase an additional 100,000 shares of our common stock at a price of $4.00
per share which vest after 4 years. These additional options will vest
immediately upon the achievement of certain gross revenues thresholds.
Each employment agreement expires on May 11, 2002, subject to earlier
termination or extension. Each employment agreement provides that if Messrs.
Pettengill and Belau are terminated by us without
46
<PAGE>
cause or if they terminate their employment agreements for good reason, they
will be entitled to their base salary and health coverage until the later of the
expiration date of their employment agreements or one year from the date of
termination. Additionally, all stock options granted to them will immediately
vest.
Under the agreements, good reason includes:
- a material breach of the agreements by us;
- a material change in the executives duties and responsibilities;
- a change in the executive's reporting relationship;
- a relocation of our executive offices further than 75 miles from its
current location; or
- a change of control.
Each employment agreement prohibits Messrs. Pettengill and Belau from
competing with us, or soliciting our customers or employees, for a period of one
year from the date of their termination of employment.
We have also entered into an employment agreement with R. Kevin Holt, our
Vice President of Human Resources. This agreement provides for an initial annual
base salary of $130,000 and for an initial performance based bonus of up to
$120,000 upon the achievement of certain hiring goals, hiring processes and
marketing goals in the fiscal year ending December 31, 1999. Under the
agreement, Mr. Holt received options to purchase 130,000 shares of our common
stock at a price of $2.50 per share, which vest over 4 years.
Our employment agreement with Mr. Holt expires on January 23, 2001, subject
to earlier termination. Mr. Holt's agreement provides that if he is terminated
by us without cause or if he terminates his employment with us for good reason,
he will be entitled to receive his base salary until the earlier of six months
after the date of his termination or the date he accepts new employment. Under
the agreement, good reason includes:
- a reduction in Mr. Holt's base salary;
- a relocation of Mr. Holt's office further than 50 miles from his current
office; or
- a material reduction in job duties.
Our agreement prohibits Mr. Holt from competing with us, soliciting our
employees or permitting his name to be used in connection with a competing
business for a period of six months from the date of the termination of his
employment.
1999 STOCK INCENTIVE PLAN
The 1999 Stock Incentive Plan is intended to serve as the successor equity
incentive program to our 1998 Stock Option/Stock Issuance Plan and our 1998
California Stock Option/Stock Issuance Plan. The 1999 Plan became effective upon
its adoption by the board of directors on , 1999. It will be
approved by the stockholders prior to the date of this offering.
shares of common stock have been authorized for issuance under
the 1999 Plan. This share reserve consists of the shares which were available
for issuance under the predecessor plans on the effective date of the 1999 Plan
plus an additional increase of shares. The share reserve will
automatically be increased on the first trading day of January each calendar
year, beginning in January 2001, by a number of shares equal to 1% of the total
number of shares of common stock outstanding on the last trading day of the
immediately preceding calendar year, but no such annual increase will exceed
shares. However, in no event may any one participant in the 1999 Plan
47
<PAGE>
receive option grants or direct stock issuances for more than shares in
the aggregate per calendar year.
Outstanding options under the predecessor plans will be incorporated into
the 1999 Plan upon the date of this offering, and no further option grants will
be made under those plans. The incorporated options will continue to be governed
by their existing terms, unless our compensation committee extends one or more
features of the 1999 Plan to those options. However, except as otherwise noted
below, the outstanding options under the predecessor plans contain substantially
the same terms and conditions summarized below for the discretionary option
grant program under the 1999 Plan.
The 1999 Plan has five separate programs:
- the discretionary option grant program under which eligible individuals in
our employ or service (including officers, non-employee board members and
consultants) may be granted options to purchase shares of our common
stock;
- the stock issuance program under which these individuals may be issued
shares of our common stock directly, with the purchase of such shares or
as a bonus tied to the performance of services;
- the salary investment option grant program under which executive officers
and other highly compensated employees may elect to apply a portion of
their base salary to the acquisition of special below-market stock option
grants;
- the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members; and
- the director fee option grant program under which non-employee board
members may elect to apply a portion of their retainer fee to the
acquisition of special below-market stock option grants.
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances, the time
or times when such option grants or stock issuances are to be made, the number
of shares subject to each such grant or issuance, the exercise or purchase price
for each such grant or issuance, the status of any granted option as either an
incentive stock option or a non-statutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding. The committee will also select the executive officers and other
highly compensated employees who may participate in the salary investment option
grant program in the event that program is activated for one or more calendar
years. Neither the compensation committee nor the board will exercise any
administrative discretion with respect to option grants made under the salary
investment option grant program or under the automatic option grant or director
fee option grant program for the non-employee board members.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the compensation committee may allow a participant to pay
the option exercise price or direct issue price (and any associated withholding
taxes incurred in connection with the acquisition of shares) with a
full-recourse, interest-bearing promissory note.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the
discretionary option grant and
48
<PAGE>
stock issuance programs will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to the
successor corporation or otherwise continued in effect. The compensation
committee may grant options under the discretionary option grant program which
will accelerate in the acquisition even if the options are assumed or which will
accelerate if the optionee's service is subsequently terminated. The
compensation committee may grant options and issue shares which accelerate in
connection with a hostile change in control effected through a successful tender
offer for more than 50% of our outstanding voting stock or by proxy contest for
the election of board members) or the options and shares may accelerate upon a
subsequent termination of the individual's service.
Options currently outstanding under the may be assumed by the
successor corporation in an acquisition; such options are not by their terms
subject to acceleration at the time of an acquisition or a change in control or
upon the termination of the optionee's service following any such transaction.
Stock appreciation rights may be issued under the discretionary option grant
program which will provide the holders with the election to surrender their
outstanding options for an appreciation distribution from us equal to the fair
market value of the vested shares subject to the surrendered option less the
aggregate exercise price payable for such shares. This appreciation distribution
may be made in cash or in shares of our common stock. There are currently no
outstanding stock appreciation rights under the predecessor plans.
The compensation committee has the authority to cancel outstanding options
under the discretionary option grant program (including options incorporated
from predecessor plans) in return for the grant of new options for the same or
different number of option shares with an exercise price per share based upon
the fair market value of the common stock on the new grant date.
In the event the compensation committee elects to activate the salary
investment option grant program for one or more calendar years, each of our
executive officers and other highly compensated employees selected for
participation may elect to reduce his or her base salary for that calendar year
by a specified dollar amount not less than $5,000 nor more than $50,000. In
return, the individual will automatically be granted, on the first trading day
in the calendar year for which the salary reduction is to be in effect, a
non-statutory option to purchase that number of shares of common stock
determined by dividing the salary reduction amount by two-thirds of the fair
market value per share of our common stock on the grant date. The option
exercise price will be equal to one-third of the fair market value of the option
shares on the grant date. As a result, the fair market value of the option
shares on the grant date less the exercise price payable for those shares will
be equal to the salary reduction amount. The option will become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
salary reduction is to be in effect and will be subject to full and immediate
vesting in the event of an acquisition or change in control.
Under the automatic option grant program, each individual who first joins
our board after the effective date of this offering as a non-employee board
member will automatically be granted an option for 25,000 shares of our common
stock at the time of his or her commencement of board service. In addition, on
the date of each annual stockholders meeting, beginning with the 2001 meeting,
each individual who has served as a non-employee board member since the last
annual stockholders meeting will receive an option grant to purchase 2,500
shares of our common stock. Each automatic grant will have an exercise price
equal to the fair market value per share of our common stock on the grant date
and will have a maximum term of 10 years, subject to earlier termination
following the optionee's cessation of board service. Each option will be
immediately exercisable, subject to our right to repurchase any unvested shares,
at the original exercise price, at the time of the board member's cessation of
service. The options will vest, and our repurchase right will lapse, with
respect to, the initial 25,000-share option grant in a series of four (4) equal
successive annual installments upon the
49
<PAGE>
optionee's completion of each year of service over the four (4)-year period
measured from the grant date. However, each such outstanding option will
immediately vest upon an acquisition or change in control or the death or
disability of the optionee while serving as a board member. Each 2,500-share
option grant will be fully vested on grant.
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the non-employee board member would otherwise be
paid the cash retainer fee in the absence of his or her election. The option
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date, and the number of shares subject
to the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of our
common stock on the grant date. As a result, the fair market value of the option
shares on the grant date less the exercise price payable for those shares will
be equal to the portion of the retainer fee applied to that option. The option
will become exercisable in a series of twelve equal monthly installments over
the calendar year for which the election is in effect. However, the option will
become immediately exercisable for all the option shares upon the death or
disability of the optionee while serving as a board member.
Limited stock appreciation rights will automatically be included as part of
each grant made under the automatic option grant, director fee option grant and
salary investment option grant programs and may be granted to one or more
officers as part of their option grants under the discretionary option grant
program. Options with this limited stock appreciation right may be surrendered
to us upon the successful completion of a hostile tender offer for more than 50%
of our outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount per
surrendered option share equal to the highest price per share of our common
stock paid in connection with the tender offer less the exercise price payable
for such share.
The board may amend of modify the 1999 Plan at any time, subject to any
required stockholder approval. The 1999 Plan will terminate no later than
, 2009.
EMPLOYEE STOCK PURCHASE PLAN
Our Employee Stock Purchase Plan was adopted by the board on ,
1999 and will be approved by the stockholders prior to the date of this
offering. The plan will become effective immediately upon the execution of the
underwriting agreement for this offering. The plan is designed to allow our
eligible employees and those of our participating subsidiaries to purchase
shares of our common stock, at semi-annual intervals, through periodic payroll
deductions. A total of shares of our common stock will be issued under the
plan.
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. The initial offering period will begin on the day
the underwriting agreement is executed in connection with this offering and will
end on the last business day in October 2001. The next offering period will
begin on the first business day in November 2001, and subsequent offering
periods will be set by our compensation committee.
Individuals who are eligible employees on the start date of any offering
period may enter the plan on that start date or on any subsequent semi-annual
entry date (generally May 1 or November 1 each year). Individuals who become
eligible employees after the start date of the offering period may join the plan
on any subsequent semi-annual entry date within that period.
A participant may contribute up to % of his or her cash earnings through
payroll deductions and the accumulated payroll deductions will be applied to the
purchase of shares on the participant's behalf on each semi-annual purchase date
(the last business day in January and July each year). The
50
<PAGE>
purchase price per share will be 85% of the lower of the fair market value of
our common stock on the participant's entry date into the offering period or the
fair market value on the semi-annual purchase date. The first purchase date will
occur on the last business day in April 2000. In no event, however, may any
participant purchase more than shares, nor may all participants in the
aggregate purchase more than shares on any one semi-annual purchase date.
Should the fair market value of our common stock on any semi-annual purchase
date be less than the fair market value on the first day of the offering period,
then the current offering period will automatically end and a new offering
period will begin, based on the lower fair market value.
The board may at any time amend or modify the plan. The plan will terminate
no later than the last business day in October 2009.
51
<PAGE>
CERTAIN TRANSACTIONS
TRIBECA SOFTWARE
In March 1998, we distributed all of the outstanding shares of our former
subsidiary, Tribeca Software, Inc., to our stockholders. As part of this
transaction, Tribeca purchased from us, and we assigned to Tribeca, network
management software and other assets. As payment for these assets, Tribeca gave
us a demand note in the amount of $130,000, which accrued interest at 8% per
annum. Additionally, we gave Tribeca a $1,000,000 line of credit at an interest
rate of 8% per annum. As of March 31, 1999, $174,276 was due from Tribeca.
Subsequent to this date, Tribeca paid us the full amounts due under the demand
note and the line of credit and the line of credit was terminated.
We have in the past performed administrative and other services for Tribeca
for which we did not receive any payment. Additionally, Tribeca leases office
space and equipment from us for approximately $12,000 per month. We also act as
a reseller for Tribeca's software. In 1998, sales of Tribeca's software
accounted for approximately $100,000 of our revenues.
Ronald G. Pettengill, Jr., our Chairman and Chief Executive Officer, Robert
L. Belau, our President, and Donald Duffy and Eric Meyer, our directors, are
directors of Tribeca and own shares of common stock of Tribeca. Additionally,
Messrs. Pettengill and Belau serve as executive officers of Tribeca.
SALE OF SERIES A PREFERRED STOCK AND WARRANTS
In March 1999, we sold 6,512,316 shares of series A convertible preferred
stock and warrants to purchase 15% of the number of shares registered in this
offering at the initial public offering price to a number of investors for an
aggregate purchase price of approximately $18.6 million. General Atlantic
Partners 54, L.P., one of our 5% stockholders, purchased 5,350,441 shares. On
the closing of this offering, the series A convertible preferred stock will
automatically convert into 6,512,316 shares of common stock.
SHARE REDEMPTION
In March 1999, we made an offer to redeem a number of shares from our
stockholders. Subsequently, we redeemed a total of 2,855,100 shares of common
stock from a number of stockholders for an aggregate purchase price of
approximately $8.4 million. Of these, we purchased the following amounts from
our officers, directors and 5% stockholders and their affiliates:
<TABLE>
<CAPTION>
NUMBER OF SHARES AGGREGATE
NAME OF STOCKHOLDER REDEEMED CONSIDERATION
- --------------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Ronald G. Pettengill, Jr......................................................... 534,000 $ 1,570,850
Robert L. Belau.................................................................. 480,000 1,412,000
Neeraj Sethi..................................................................... 48,000 141,200
Donald J. Duffy.................................................................. 210,000 617,750
Eric Meyer....................................................................... 282,000 829,550
MD Strategic, L.P................................................................ 119,040 350,176
PV4, L.P......................................................................... 300,000 882,500
PVII, L.P........................................................................ 33,060 $ 97,251
</TABLE>
Eric Meyer and Donald Duffy, each, a director of ours, are general partners
of MD Strategic, PV4 and PVII.
52
<PAGE>
MEYER, DUFFY & ASSOCIATES
We had an agreement with Meyer, Duffy & Associates, Inc. pursuant to which
Meyer Duffy & Associates provides us with consulting and advisory services. Eric
Meyer and Donald Duffy, each one of our directors, serve as co-managing
Directors of Meyer, Duffy & Associates. We paid Meyer, Duffy & Associates a
retainer fee of $5,000 per month in connection with these services through March
31, 1999. Additionally, in August 1998, we loaned Meyer, Duffy & Associates, in
connection with the exercise of options, $300,000 at an interest rate of 7% per
annum. Meyer, Duffy & Associates repaid this loan in March 1999.
LOAN TO OFFICERS
In August 1998, in connection with the exercise of options, we loaned each
of Ronald G. Pettengill, Jr., our Chairman and Chief Executive Officer and
Robert L. Belau, our President, $97,500 at an interest rate of 7% per annum.
Messrs. Pettengill and Belau repaid those loans in March 1999. In addition to
these loans, from time to time, we have advanced loans to Messrs. Pettengill and
Belau. As of December 31, 1998 the amounts outstanding under these advances for
Messrs. Pettengill and Belau was $15,000 and $13,402, respectively. There are
currently no advances outstanding.
OPTION GRANTS
We granted each of our non-employee directors options to purchase 25,000
shares of our common stock at a price of $4.00 per share. Additionally, in 1999,
we granted to Messrs. Pettengill, Belau and Holt options to purchase 200,000,
200,000 and 130,000, respectively. Please see "Management-- Employment
Agreements." For additional information regarding the grant of stock options to
executive officers and directors, please see "Management--Director
Compensation," "--Executive Compensation," "--1999 Stock Incentive Plan" and
"Principal Stockholders."
AGREEMENTS WITH UNDERWRITERS
We provide network consulting services to Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette and First Union Capital Markets Corp. pursuant to
agreements they have entered into with us. The terms of these agreements were
negotiated by parties in arms-length transactions and were entered into prior to
our selection of the underwriters of this offering. In fiscal 1998, revenues
derived from Bear, Stearns, Donaldson, Lufkin & Jenrette and its affiliates, and
First Union equalled $5.4 million, $162, 689 and $50,000, respectively. For the
three months ended March 31, 1999, revenues derived from Bear, Stearns and
Donaldson, Lufkin & Jenrette and its affiliates equalled $2.5 million and
$368,803, respectively. We may provide network consulting services to other
underwriters in this offering after the date of this prospectus.
It is our current policy that all transactions with officers, directors, 5%
stockholders and their affiliates be entered into only if they are approved by a
majority of the disinterested independent directors, are on terms no less
favorable to us than could be obtained from unaffiliated parties and are
reasonably expected to benefit us.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of June 30, 1999 and as adjusted to reflect
the sale of common stock offered by us in this offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the Summary Compensation Table;
- each of our directors; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for those
listed below is c/o Predictive Systems, Inc., 145 Hudson Street, New York, New
York 10013. Except as indicated by footnote, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. The number of shares of common stock outstanding used in calculating the
percentage for each listed person includes the shares of common stock underlying
options held by such persons that are exercisable within 60 days of June 30,
1999, but excludes shares of common stock underlying options held by any other
person. Percentage of beneficial ownership is based on 16,122,966 shares of
common stock outstanding as of June 30, 1999, and shares of common stock
outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED
----------------------------
<S> <C> <C> <C>
SHARES BENEFICIALLY PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
- ----------------------------------------------------------------- ------------------------ ----------- ---------------
Ronald G. Pettengill, Jr. (2).................................... 2,229,000 13.1% %
Robert L. Belau (3).............................................. 2,655,000 15.7
Thomas R. Joseph (4)............................................. 240,000 1.5
Carl D. Humes (4)................................................ 240,000 1.5
Gregory D. Nicastro (5).......................................... 84,000 *
Neeraj Sethi (6)................................................. 150,000 *
Peter L. Bloom (7)............................................... 6,463,206 40.1
Donald J. Duffy (8).............................................. 2,631,894 16.1
Braden R. Kelly (7).............................................. -- --
Eric Meyer (8)................................................... 3,114,894 19.1
General Atlantic Partners LLC (7)................................ 6,463,206 40.1
Meyer Duffy and Associates, L.P (9).............................. 1,800,000 11.2
All directors and executive officers as a group (12 persons)
(10)........................................................... 15,356,100 82.0
</TABLE>
- ------------------------
* Indicates less than one percent of the common stock.
(1) Assumes that the underwriters' over-allotment option to purchase up to an
additional shares from Predictive is not exercised.
(2) Includes (a) 780,000 shares issuable upon the exercise of currently
exercisable options and (b) 150,000 shares of common stock held by The Conor
G. Pettengill Trust and 150,000 shares held by The Julia G. Pettengill
Trust.
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<PAGE>
(3) Includes (a) 780,000 shares issuable upon the exercise of currently
exercisable options and (b) 126,000 shares of common stock held by The Belau
Family Trust.
(4) Includes 240,000 shares issuable upon the exercise of stock options which
are exercisable within 60 days of June 30, 1999.
(5) Includes 84,000 shares issuable upon the exercise of stock options which are
exercisable within 60 days of June 30, 1999.
(6) Includes 120,000 shares issuable upon the exercise of stock options which
are exercisable within 60 days of June 30, 1999.
(7) Includes 5,350,441 shares owned by General Atlantic Partners 54, L.P. and
1,112,765 shares owned by GAP Coinvestment Partners II, L.P. General
Atlantic Partners 54 and GAP Coinvestment Partners also hold warrants to
purchase 15% of the number of shares to be sold in this offering at the
initial public offering price. The general partner of General Atlantic
Partners 54 is General Atlantic Partners, LLC and the managing members of
General Atlantic Partners are also the general partners of GAP Coinvestment
Partners. Peter L. Bloom is a managing member of General Atlantic Partners
and Braden R. Kelly is an associate of General Atlantic Partners. Each of
Messrs. Bloom and Kelly disclaim beneficial ownership of these securities
except to the extent of his pecuniary interest. The address of Messrs.
Bloom, Kelly and General Atlantic Partners is c/o General Atlantic Partners,
3 Pickwick Plaza, Greenwich, Connecticut 06830.
(8) Includes (a) 180,000 shares issuable upon the exercise of currently
exercisable options, (b) 510,960 shares of common stock held by MD
Strategic, L.P., (c) 1,800,000 shares of common stock held by Meyer, Duffy
and Associates, L.P. and (d) 140,934 shares of common stock held by PVII,
L.P. Messrs. Duffy and Meyer are the general partners of each of MD
Strategic, L.P., Meyer, Duffy Associates, L.P. and PVII, L.P. Each of
Messrs. Duffy and Meyer disclaim beneficial ownership of these securities
except to the extent of his pecuniary interest. The address of Messrs. Duffy
and Meyer is c/o of Meyer, Duffy & Associates, Inc., 237 Park Avenue, New
York, New York 10017.
(9) The address of Meyer, Duffy and Associates, L.P. is c/o of Meyer, Duffy &
Associates, Inc., 237 Park Avenue, New York, New York 10017
(10) Includes 2,604,000 shares of common stock issuable upon the exercise of
stock options which are exercisable within 60 days of June 30, 1999
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
200,000,000 shares of common stock, par value $.001 per share, and 10,000,000
shares of preferred stock, par value $.001 per share, the rights and preferences
of which may be established from time to time by our board of directors. As of
June 30, 1999, 16,122,966 shares of common stock were outstanding. As of June
30, 1999, we had 63 stockholders.
COMMON STOCK
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, including the election of
directors. They do not have cumulative voting rights. Subject to preferences
that may be applicable to any then-outstanding preferred stock, holders of our
common stock are entitled to receive ratably dividends, if any, as may be
declared by the board of directors out of legally available funds. In case of a
liquidation, dissolution or winding up of Predictive, the holders of common
stock will be entitled to share ratably in the net assets legally available for
distribution to shareholders after payment of all of our liabilities and any
preferred stock then outstanding. Holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. The rights, preferences
and privileges of holders of common stock are subject to the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future. After the closing of this offering, there will be no shares
of preferred stock outstanding.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, our board of
directors has the authority, without further action by the stockholders, to
issue from time to time, shares of preferred stock in one or more series. The
board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock. The preferences, powers,
rights and restrictions of different series of preferred stock may differ. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock. Such
issuance may also have the effect of delaying, deferring or preventing a change
in control of Predictive. We have no current plans to issue any shares of
preferred stock.
REGISTRATION RIGHTS
In March 1999, we entered into a registration rights agreement with some of
our stockholders, including: General Atlantic Partners; Ronald G. Pettengill,
Jr., our Chief Executive Officer; Robert L. Belau, our President; Eric Meyer and
Donald Duffy, each, one of our directors; and Meyer, Duffy and Associates.
Under the terms of the agreement, at any time after the first anniversary of
the effective date of this offering, each of General Atlantic Partners and GAP
Coinvestment Partners may, on two occasions only, require us to register for
sale all or any portion of the shares of common stock issuable upon conversion
of the preferred shares held by them. We are also obligated to register some
shares of common stock held by parties to the registration rights agreement if
they request to be included in the registration. Further, if we become eligible
to file registration statements on Form S-3, some parties to the registration
rights agreement may require us to file a registration statement on Form S-3
under the Securities Act with respect to some shares of common stock held by
them. We are also obligated to
56
<PAGE>
register some shares of common stock held by parties to the registration rights
agreement if they request to be included in the registration. In addition,
holders of common stock who are parties to the registration rights agreement
will be entitled to require us to register some of their common stock when we
register stock of other stockholders. This type of registration right is known
as a "piggyback" registration right.
The foregoing registration rights are subject to certain conditions and
limitations, including:
- The right of the underwriters in any underwritten offering to limit the
number of shares of common stock held by stockholders with registration
rights to be included in any demand, S-3 or piggyback registration; and
- Our right to delay for up to 90 days the filing or effectiveness of a
registration statement pursuant to a demand for registration if the board
of directors of determines that the registration would not be in our best
interest at that time.
We are generally required to bear all of the expenses of all registrations,
except underwriting discounts and commissions. Registration of any of the shares
of common stock held by stockholders with registration rights would result in
those shares becoming freely tradable without restriction under the Securities
Act immediately after effectiveness of the registration. We have agreed to
indemnify the holders of registration rights in connection with demand, S-3 and
piggyback registration under the terms of our amended and restated registration
rights agreement.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws, which are summarized in the following paragraphs,
may have an anti-takeover effect and may delay, defer or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board of
directors will be elected each year. These provisions, when coupled with the
provision of our amended and restated certificate of incorporation authorizing
the board of directors to fill vacant directorships or increase the size of the
board of directors, may delay a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our amended and restated certificate of incorporation eliminates the ability
of stockholders to act by written consent. It further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Our amended and restated by-laws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be received
at our principal executive offices not less than 60 days nor more than 90 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders. In the event
57
<PAGE>
that the annual meeting is called for a date that is not within thirty (30) days
before or after the anniversary date, in order to be timely, notice from the
stockholder must be received no later than the tenth day following the date on
which notice of the annual meeting was mailed to stockholders or made public,
whichever occurred earlier. In the case of a special meeting of stockholders
called for the purpose of electing directors, notice by the stockholder in order
to be timely must be received not later than the close of business on the tenth
day following the day on which notice was mailed or public disclosure of the
date of the special meeting was made, whichever first occurs. Our amended and
restated by-laws also specify certain requirements as to the form and content of
a stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual or special meeting of stockholders or from making
nominations for directors at these meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with various
business combination transactions and the amendment of various provisions of our
amended and restated certificate of incorporation and amended and restated
bylaws, including those provisions relating to the classified board of
directors, action by written consent and special meetings by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock will be American Stock
Transfer & Trust Company, New York, New York.
LISTING
We intend to apply to list our common stock on the Nasdaq National Market
under the trading symbol "PRDS."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
common stock or the availability of shares of common stock for sale will have on
the market price of the common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of our common stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the common stock and could impair our future ability to raise capital through
the sale of its equity securities.
Upon completion of this offering, we will have an aggregate of shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, the shares sold in this offering will be freely
tradable, except that any shares held by our "affiliates," as defined in Rule
144 promulgated under the Securities Act of 1933, may only be sold in compliance
with the limitations described below. The remaining 16,122,966 shares of common
stock will be deemed "restricted securities" as defined under Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ----------------- ------------------------------------------------------------------------
<S> <C>
After the date of this prospectus
After 90 days from the date of this prospectus
After 180 days from the date of this prospectus (subject, in some
cases), to volume limitations
</TABLE>
In general, under Rule 144, as currently in effect, a person, including an
affiliate, who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of (1) 1% of the
then outstanding shares of common stock (approximately shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock during the four calendar weeks preceding the date on which notice of such
sale is filed, subject to certain restrictions. In addition, a person who is not
deemed to have been an affiliate of Predictive at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above. To the extent that shares
were acquired from an affiliate of ours, that person's holding period for the
purpose of selling under Rule 144 commences on the date of transfer from the
affiliate. Notwithstanding the foregoing, to the extent the shares were acquired
through the cashless exercise of a stock option or a warrant, that person's
holding period for effecting a sale under Rule 144 commences on the date of the
option or warrant grant. In general, under Rule 701 of the Securities Act as
currently in effect, any of our employees, consultants or advisors who purchased
our shares in connection with a compensatory stock or option plan or other
written agreement is eligible to resell such shares after the effective date of
this offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period in Rule 144.
As of the date of this prospectus, options to purchase a total of 9,644,650
shares of common stock are outstanding, of which 4,961,000 are currently
exercisable (without regard to the 180-day lock up period). Promptly after the
closing of this offering, we intend to file a registration statement to register
for resale all shares of common stock issued or issuable under its 1999 employee
stock purchase plan
59
<PAGE>
and not otherwise freely transferable. Accordingly, shares covered by that
registration statement will be eligible for sale in the public markets, unless
those options are subject to vesting restrictions.
Our directors and officers and certain of our stockholders who hold
shares and options in the aggregate have agreed that they will not sell,
directly or indirectly, any shares of common stock (other than shares of common
stock purchased as part of the directed share program in connection with this
offering) without the prior written consent of BancBoston Robertson Stephens
Inc. for a period of 180 days from the date of this prospectus.
We have agreed not to sell or otherwise dispose of any shares of our common
stock during the 180 day period following the date of the prospectus, except we
may issue, and grant options to purchase, shares of common stock under our stock
option plan.
Following this offering, under certain circumstances and subject to certain
conditions, holders of 6,463,206 shares of our outstanding common stock will
have certain demand registration rights with respect to their shares of common
stock (subject, in certain cases, to the 180-day lock-up arrangement described
above) to require us to register their shares of common stock under the
Securities Act, and they will have certain rights to participate in any future
registration of securities by us. Additionally, holders of 7,413,900 shares of
our outstanding common stock will have some rights to participate in any future
registrations of securities by us. See "Description of Capital
Stock-Registration Rights."
60
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin
& Jenrette Securities Corporation and First Union Capital Markets Corp., have
severally agreed with us, subject to the terms and conditions of the
underwriting agreement, to purchase from us the number of shares of common stock
set forth opposite their names below. The underwriters are committed to purchase
and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
BancBoston Robertson Stephens Inc................................................
Bear, Stearns & Co. Inc..........................................................
Donaldson, Lufkin & Jenrette Securities Corporation..............................
First Union Capital Markets Corp.................................................
----------
Total........................................................................
----------
----------
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the shares offered by this prospectus. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
shares are being sold. We will be obligated, under this option, to sell
shares to the extent the option is exercised. The underwriters may exercise the
option only to cover over-allotments made in connection with the sale of the
shares of common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
--------- ----------------- -----------------
<S> <C> <C> <C>
Assumed public offering price........................... $ $ $
Underwriting discounts and commissions..................
Proceeds, before expenses, to us........................
</TABLE>
The expenses of the offering payable by us are estimated at $ . BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
61
<PAGE>
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of representation
and warranties contained in the underwriting agreement.
FUTURE SALES. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of common stock, any options or warrants to purchase
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or acquired
directly from us by these holders or with respect to which they have or may
acquire the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. There are no agreements
between the representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the 180-day
lock-up period. In addition, we have generally agreed that, during the 180-day
lock-up period, we will not, without the prior written consent of BancBoston
Robertson Stephens Inc., (a) consent to the disposition of any shares held by
stockholders prior to the expiration of the 180-day lock-up period or (b) issue,
sell, contract to sell or otherwise dispose of, any shares of common stock, any
options or warrants to purchase any shares of common stock, or any securities
convertible into, exercisable for or exchangeable for shares of common stock,
other than our sale of shares in the offering, our issuance of common stock upon
the exercise of currently outstanding options and warrants, and our issuance of
incentive awards under our stock incentive plan. Please see "Shares Eligible for
Future Sale."
DIRECT SHARES. We have requested that the underwriters reserve up to ten
percent of the shares of common stock for sale at the initial public offering
price to directors, officers, employees and other individuals designated by us.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
STABILIZATION. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, some participants in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The representatives
have advised us that these transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
OTHER AGREEMENTS. We provide network consulting services to some of the
underwriters. Please see "Certain Transactions--Agreements with Underwriters."
62
<PAGE>
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, New York, New York. The Brobeck investment fund
and attorneys at Brobeck hold in the aggregate 49,110 shares of series A
preferred stock, which will automatically convert into 49,110 shares of common
stock upon the closing of this offering, and 1,000 shares of common stock.
Various legal matters in connection with this offering will be passed upon for
the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Predictive Systems, Inc. as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
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 thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits and schedules thereto) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration statement. For
further information with respect to Predictive and the common stock, reference
is made to the registration statement and the exhibits and schedules thereto.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in Predictive files in the
Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Predictive's
Commission filings, including the registration statement, will also be available
to you on the Commission's Internet site (http://www.sec.gov).
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
63
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (Unaudited)............................. F-3
Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended
March 31, 1998 and 1999 (Unaudited)...................................................................... F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998 and the Three
Months Ended March 31, 1999 (Unaudited).................................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended
March 31, 1998 and 1999 (Unaudited)...................................................................... F-6
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements included herein have been adjusted to give effect
to the increase in the authorized number of common shares to 200,000,000 and to
decrease the authorized number of preferred shares to 10,000,000. We expect to
be in a position to render the following report upon the effectiveness of such
events assuming that from May 12, 1999 to the effective date of such events, no
other events will have occurred that would effect the financial statements or
the notes thereto.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
New York, New York
May 12, 1999
To Predictive Systems, Inc.:
We have audited the accompanying balance sheets of Predictive Systems, Inc.
(a Delaware corporation) (the "Company") as of December 31, 1997 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Predictive Systems, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
F-2
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 420,456 $ -- $2,995,288
Accounts receivable--net of allowance for doubtful accounts of $79,613,
$141,489 and $267,993, respectively..................................... 4,197,870 8,806,184 9,380,544
Unbilled work in process.................................................. 179,404 1,062,824 1,754,939
Notes receivable--employees............................................... 53,371 55,100 20,100
Notes receivable--stockholders............................................ -- 515,000 --
Due from related party.................................................... -- 916,948 174,276
Prepaid income taxes...................................................... 344,049 342,829 293,130
Other current assets...................................................... 276,609 386,453 414,288
--------- ---------- -----------
Total current assets.................................................... 5,471,759 12,085,338 15,032,565
PROPERTY AND EQUIPMENT--net of accumulated depreciation and amortization of
$485,510, $947,735 and $1,089,007, respectively........................... 893,988 1,356,634 1,386,212
DEFERRED TAX ASSET.......................................................... 237,322 -- --
OTHER ASSETS................................................................ 267,314 235,047 211,724
--------- ---------- -----------
Total assets............................................................ $6,870,383 $13,677,019 1$6,630,501
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft............................................................ $ 545,351 $ 475,610 $ --
Short-term borrowings..................................................... 780,000 5,598,000 --
Accounts payable and accrued expenses..................................... 654,378 2,803,686 2,283,188
Deferred income tax liability............................................. 1,676,937 185,000 302,797
Deferred income........................................................... 32,955 445,414 43,594
Dividends payable......................................................... 26,250 61,250 --
Current portion of capital lease obligation............................... 76,982 151,027 142,180
--------- ---------- -----------
Total current liabilities............................................... 3,792,853 9,719,987 2,771,759
--------- ---------- -----------
NONCURRENT LIABILITIES:
Deferred rent............................................................. 23,306 70,957 49,213
Capital lease obligation.................................................. 282,013 446,018 419,726
Deferred income tax liability............................................. -- 714,146 547,499
--------- ---------- -----------
Total liabilities....................................................... 4,098,172 10,951,108 3,788,197
--------- ---------- -----------
MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK ($.001 par value, 5%
cumulative, 4,200,000, 4,200,000 and 0 shares issued and outstanding)..... 700,000 700,000 --
STOCKHOLDERS' EQUITY:
Convertible preferred stock ($.001 par value, 10,000,000 shares
authorized, 0, 0 and 6,512,316 shares issued and outstanding)........... -- -- 6,512
Common stock ($.001 par value, 200,000,000 shares authorized, 4,408,200,
7,900,200 and 12,400,200 shares issued and 4,408,200, 7,900,200 and
9,545,100 shares outstanding)........................................... 4,408 7,900 12,400
Additional paid-in capital................................................ 69,762 682,270 19,986,013
Treasury stock, 2,855,100 shares.......................................... -- -- (8,398,753)
Retained earnings......................................................... 1,998,041 1,335,741 1,236,132
--------- ---------- -----------
Total stockholders' equity.............................................. 2,072,211 2,025,911 12,842,304
--------- ---------- -----------
Total liabilities and stockholders' equity.............................. $6,870,383 $13,677,019 1$6,630,501
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-3
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------ ------------- ------------- ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Professional services.................... $ 6,818,678 $ 16,897,456 $ 23,857,780 $ 3,798,188 $ 9,887,442
Hardware and software sales.............. 1,287,649 1,189,617 2,065,348 78,471 477,467
------------ ------------- ------------- ------------ ------------
Total revenues......................... 8,106,327 18,087,073 25,923,128 3,876,659 10,364,909
COST OF REVENUES:
Professional services.................... 3,381,505 9,590,306 12,861,272 2,386,992 4,849,321
Hardware and software purchases.......... 970,479 816,935 1,698,356 65,115 425,956
------------ ------------- ------------- ------------ ------------
Total cost of revenues................. 4,351,984 10,407,241 14,559,628 2,452,107 5,275,277
------------ ------------- ------------- ------------ ------------
Gross profit........................... 3,754,343 7,679,832 11,363,500 1,424,552 5,089,632
SALES AND MARKETING........................ 386,000 1,081,889 2,618,743 484,075 1,589,171
GENERAL AND ADMINISTRATIVE................. 1,683,574 4,390,476 8,999,494 1,722,508 3,469,033
DEPRECIATION AND AMORTIZATION.............. 142,134 320,908 567,761 108,534 143,827
------------ ------------- ------------- ------------ ------------
Operating profit (loss)................ 1,542,635 1,886,559 (822,498) (890,565) (112,399)
OTHER INCOME (EXPENSE):
Interest income.......................... 31,540 26,575 57,976 3,098 46,173
Other income............................. 7,613 3,849 1,555 -- 12,750
Interest expense......................... -- (35,545) (324,591) (24,762) (86,233)
------------ ------------- ------------- ------------ ------------
Income (loss) before income tax
provision (benefit).................. 1,581,788 1,881,438 (1,087,558) (912,229) (139,709)
INCOME TAX PROVISION (BENEFIT)............. 718,678 870,504 (460,258) (391,994) (48,850)
------------ ------------- ------------- ------------ ------------
Net income (loss)...................... $ 863,110 $ 1,010,934 $ (627,300) $ (520,235) $ (90,859)
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
NET INCOME (LOSS) PER SHARE
BASIC.................................... $ 0.20 $ 0.22 $ (0.11) $ (0.12) $ (0.01)
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
DILUTED.................................. $ 0.07 $ 0.08 $ (0.11) $ (0.12) $ (0.01)
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING--
BASIC.................................... 4,269,000 4,382,417 6,015,433 4,463,133 8,379,660
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
DILUTED.................................. 11,586,130 12,764,610 6,015,433 4,463,133 8,379,660
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-4
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK ADDITIONAL TOTAL
---------------------- ---------------------- PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL STOCK EARNINGS EQUITY
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 4,269,000 $ 4,269 -- $ -- $ 37,901 $ -- $ 150,247 $ 192,417
Exercise of options......... 30,000 30 -- -- 4,970 -- -- 5,000
Net income.................. -- -- -- -- -- -- 863,110 863,110
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
Balance at December 31,
1996........................ 4,299,000 4,299 -- -- 42,871 -- 1,013,357 1,060,527
Exercise of options......... 109,200 109 -- -- 26,891 -- -- 27,000
Preferred stock dividends... -- -- -- -- -- -- (26,250) (26,250)
Net income.................. -- -- -- -- -- -- 1,010,934 1,010,934
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
Balance at December 31,
1997........................ 4,408,200 4,408 -- -- 69,762 -- 1,998,041 2,072,211
Exercise of options......... 3,492,000 3,492 -- -- 612,508 -- -- 616,000
Preferred stock dividends... -- -- -- -- -- -- (35,000) (35,000)
Net loss.................... -- -- -- -- -- -- (627,300) (627,300)
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
Balance at December 31,
1998........................ 7,900,200 7,900 -- -- 682,270 -- 1,335,741 2,025,911
Preferred stock dividends... -- -- -- -- -- -- (8,750) (8,750)
Conversion of preferred to
common stock.............. 4,200,000 4,200 -- -- 695,800 -- -- 700,000
Common stock repurchased to
treasury, 2,855,100
shares.................... -- -- -- -- -- (8,398,753) -- (8,398,753)
Issuance of stock........... -- -- 6,512,316 6,512 18,558,243 -- -- 18,564,755
Exercise of options......... 300,000 300 -- -- 49,700 -- -- 50,000
Net loss.................... -- -- -- -- -- -- (90,859) (90,859)
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
Balance at March 31, 1999
(unaudited)................. 12,400,200 $ 12,400 6,512,316 $ 6,512 $19,986,013 $(8,398,753) $1,236,132 $12,842,304
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
--------- ----------- --------- ----------- ---------- ---------- --------- ------------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-5
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 863,110 $1,010,934 $ (627,300) $ (520,235) $ (90,859)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Deferred income taxes................................ 463,229 838,572 (540,469) (391,994) (48,850)
Depreciation and amortization........................ 142,134 320,908 567,761 108,534 143,827
Provision for doubtful accounts...................... 20,840 99,308 102,196 55,110 126,504
(Increase) decrease in--
Accounts receivable................................ (1,197,039) (2,718,335) (4,710,510) 430,779 (700,864)
Unbilled work in process........................... (300,190) 204,978 (883,420) (41,317) (692,115)
Prepaid income taxes............................... (133,133) (210,916) 1,220 1,226 49,699
Other current assets............................... (190,084) (44,401) (215,378) 29,905 (27,835)
Other assets....................................... (77,851) (127,283) 32,267 (12,024) 23,323
Increase (decrease) in--
Accounts payable and accrued expenses.............. 575,628 (61,916) 2,149,308 131,532 (520,498)
Deferred income.................................... 494,948 (464,493) 412,459 4,996 (401,820)
Deferred rent...................................... 16,462 (7,269) 47,651 (2,399) (21,744)
---------- ---------- ----------- ---------- ----------
Net cash provided by (used in) operating
activities..................................... 678,054 (1,159,913) (3,664,215) (205,887) (2,161,232)
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Common shares repurchased to treasury.................. -- -- -- -- (8,398,753)
(Payments to) repayments from employees................ -- (53,371) (1,729) (13,042) 35,000
(Payments to) repayments from stockholders............. -- -- (515,000) -- 515,000
(Payments to) repayments from related party............ -- -- (916,948) (176,261) 742,672
Purchase of computer equipment, office furniture, and
leasehold improvements............................... (315,189) (356,782) (686,823) (187,139) (208,544)
---------- ---------- ----------- ---------- ----------
Net cash used in investing activities............ (315,189) (410,153) (2,120,500) (376,442) (7,314,625)
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft......................................... -- 545,351 (69,741) (184,048) (475,610)
Proceeds from short-term borrowings.................... -- 2,452,000 19,643,000 4,082,000 4,351,000
Repayments of short-term borrowings.................... -- (1,672,000) (14,825,000) (3,715,000) (9,949,000)
Payment of preferred dividends......................... -- -- -- -- (70,000)
Proceeds from sale of preferred stock.................. -- -- -- -- 18,564,755
Proceeds from exercise of stock options................ 5,000 27,000 616,000 -- 50,000
---------- ---------- ----------- ---------- ----------
Net cash provided by financing activities........ 5,000 1,352,351 5,364,259 182,952 12,471,145
---------- ---------- ----------- ---------- ----------
Net increase (decrease) in cash.................. 367,865 (217,715) (420,456) (399,377) 2,995,288
CASH AND CASH EQUIVALENTS, beginning of period........... 270,306 638,171 420,456 420,456 --
---------- ---------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period................. $ 638,171 $ 420,456 $ -- $ 21,079 $2,995,288
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest............................................. $ 366 $ 35,545 $ 262,539 $ 24,762 $ 79,990
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Taxes................................................ $ 409,683 $ 260,000 $ -- $ -- $ 27,540
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Borrowings under capital leases........................ $ 409,683 $ 335,669 $ 238,050 $ -- $ --
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Dividends declared on mandatory redeemable convertible
preferred stock...................................... $ -- $ 26,250 $ 35,000 $ -- $ --
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-6
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OWNERSHIP AND OPERATIONS:
Predictive Systems, Inc. (the "Company"), was incorporated under the laws of
the State of Delaware on February 10, 1995. The Company was formerly 100% owned
by Predictive Holdings, Inc. (the "Parent"). During the first quarter of 1999
the Parent was merged with and into the Company and the Parent was concurrently
dissolved. The financial statements and footnotes reflect the combined
operations and financial position of the Company and the Parent for all periods
presented.
The Company provides network consulting services for the design,
performance, management and securities of complex business-critical computing
network. Services are currently provided through the Company's offices located
throughout the United States and its wholly-owned subsidiary in England which
was formed in the first quarter of 1999.
The Company is proposing an initial public offering of up to
shares of common stock including overallotment. See "Risk Factors" in the
accompanying prospectus.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL STATEMENTS--
The accompanying balance sheet as of March 31, 1999 and statements of
operations, stockholders' equity and cash flows for the three months ended March
31, 1998 and 1999 included herein have been prepared by the Company and are
unaudited. The information furnished in the unaudited financial statements
referred to above includes all adjustments which are, in the opinion of
management, necessary for a fair presentation of such financial statements. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year.
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.
REVENUE AND COST RECOGNITION--
Revenue for time-and-material contracts are recognized as the services are
rendered. Revenues for fixed-price contracts are recognized as services are
rendered on the percentage-of-completion method of accounting based on the ratio
of costs incurred to total estimated costs. Unbilled work in process represent
costs incurred and estimated earnings, production, and other client-reimbursable
costs. Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. The Company acts as a reseller of
certain hardware and software and sales revenue is recognized when these
products are shipped to the customer.
Deferred income represents prepayments from customers that are recorded as
liabilities for future services to be performed. Income is recognized upon
performance of these related services.
CASH EQUIVALENTS--
The Company considers all short-term marketable equity securities with a
maturity of three months or less at the time of purchase to be cash equivalents.
F-7
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT--
Computer equipment and office furniture are carried at their cost basis and
depreciated using the straight-line method over their estimated useful lives,
ranging from three to seven years. Leasehold improvements are amortized over the
lesser of their estimated useful lives or the life of the lease. Expenditures
for maintenance and repairs are charged to operations as incurred and major
expenditures for renewals and betterments are capitalized and depreciated over
their useful lives.
BUSINESS CONCENTRATIONS AND CREDIT RISK--
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
primarily concentrated in the United States. The Company performs ongoing credit
evaluations, generally does not require collateral and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information. To date, such losses have
been within management's expectations.
For the year ended December 31, 1996, approximately 80% of sales were from
six customers. For the year ended December 31, 1997, approximately 64% of sales
were from four customers. For the year ended December 31, 1998, approximately
21% of sales were from one customer. The amounts due from these customers at
December 31, 1997 and 1998 were approximately $2,357,000 and $2,931,000,
respectively.
INCOME TAXES--
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statement and the tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
Company converted from a cash basis to an accrual basis taxpayer on January 1,
1998.
NET INCOME (LOSS) PER SHARE--
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic
net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares outstanding. Diluted net income (loss) per
common share ("Diluted EPS") is computed by dividing net income (loss) by the
weighted average number of common shares and dilutive common share equivalents
outstanding.
ACCOUNTING FOR LONG-LIVED ASSETS--
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). This statement
establishes financial accounting and reporting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 requires, among other
things, that an entity review its long-lived assets and certain related
F-8
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company does not
believe that any such changes have taken place.
STOCK-BASED COMPENSATION--
In 1996, the Company adopted the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), and elected to continue the
accounting set forth in Accounting Principles Board No. 25 "Accounting for Stock
Issued to Employees" ("APB No. 25") and to provide the necessary pro forma
disclosures as if the fair value method had been applied (Note 7).
FAIR VALUE OF FINANCIAL INSTRUMENTS--
The carrying amounts of cash and cash equivalents, accounts and other
receivables, and accounts payable approximate fair value due to the short-term
maturity of these instruments. The carrying amounts of outstanding borrowings
approximate fair value.
NEW ACCOUNTING PRONOUNCEMENTS--
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December 15, 1997
and need not be applied to interim periods in the initial year of application.
Comparative information for earlier years presented is to be restated. The
Company does not believe it operates in more than one segment. The chief
operating decision maker allocates resources and assesses the performance
associated with its business on a single-segment basis.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. The Company does not
expect the adoption of this standard to have a material effect on the Company's
results of consolidated operations, financial position or cash flows.
F-9
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) NET INCOME (LOSS) PER SHARE:
As discussed in Note 2, net income (loss) per share is calculated in
accordance with SFAS No. 128. The following table reconciles the numerator and
denominator for the calculation--
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator--
Net income (loss)...................... $ 863,110 $ 1,010,934 $ (627,300) $ (520,235) $ (90,859)
Preferred stock dividends.............. -- (26,250) (35,000) (8,750) (8,750)
------------- ------------- ------------ ------------ ------------
Numerator for basic earnings per
share--net income (loss) available
to common stockholders............. 863,110 984,684 (662,300) (528,985) (99,609)
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Effect of dilutive securities-- preferred
stock dividend......................... -- 26,250 -- -- --
------------- ------------- ------------ ------------ ------------
Numerator for diluted earnings per
share--net income (loss) available to
common stockholders after assumed
conversions............................ $ 863,110 $ 1,010,934 $ (662,300) $ (528,985) $ (99,609)
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Denominator--
Denominator for basic earnings per
share--weighted average shares....... 4,269,000 4,382,417 6,015,433 4,463,133 8,379,660
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Effect of dilutive securities--
Incremental shares for assumed
conversions of preferred stock....... 4,200,000 4,200,000 -- -- --
Incremental shares for assumed
conversions of options............... 3,117,130 4,182,193 -- -- --
------------- ------------- ------------ ------------ ------------
Dilutive potential common shares....... 7,317,130 8,382,193 -- -- --
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Denominator for diluted earnings per
share--adjusted weighted average shares
and assumed conversions................ 11,586,130 12,764,610 6,015,433 4,463,133 8,379,660
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Basic earnings per share from net income
(loss)................................. $ 0.20 $ 0.22 $ (0.11) $ (0.12) $ (0.01)
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
Diluted earnings per share from net
income (loss).......................... $ 0.07 $ 0.08 $ (0.11) $ (0.12) $ (0.01)
------------- ------------- ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------
</TABLE>
The following table summarizes the weighted average of securities
outstanding which are excluded from the loss per share calculation for the year
ended December 31, 1998 and the three months ended
F-10
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) NET INCOME (LOSS) PER SHARE: (CONTINUED)
March 31, 1998 and 1999, respectively. Preferred stock is reflected on an "if
converted" basis. See Note 7.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
DECEMBER 31, ----------------------
1998 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
Mandatory redeemable convertible preferred............ 4,200,000 4,200,000 3,126,667
Convertible preferred................................. -- -- 1,881,336
Stock options......................................... 2,396,092 4,653,263 3,570,871
------------ ---------- ----------
6,596,092 8,853,263 8,578,874
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
(4) PROPERTY AND EQUIPMENT:
The components of computer equipment, office furniture, and leasehold
improvements are as follows--
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Computer equipment.................................. $ 646,026 $ 1,243,472 $ 1,376,481
Office furniture.................................... 341,901 630,722 640,315
Leasehold improvements.............................. 391,571 430,172 458,423
------------ ------------ ------------
1,379,498 2,304,366 2,475,219
Less--Accumulated depreciation and amortization..... (485,510) (947,735) (1,089,007)
------------ ------------ ------------
$ 893,988 $ 1,356,631 $ 1,386,212
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Depreciation and amortization expense aggregated $142,134, $320,908,
$567,761, $108,534 (unaudited) and $143,827 (unaudited), respectively, for the
years ending December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1998 and 1999.
(5) DEBT:
The Company has a secured demand loan under which it may borrow up to
$5,000,000, but not more than 80% of the Company's eligible accounts receivable,
as defined. At December 31, 1998, the balance outstanding on this demand loan
was $5,598,000 as the lender has informally extended the Company's ability to
borrow under this demand loan. The interest rate on the demand loan was 11.25%
at December 31, 1998. During the first quarter of 1999, the balance outstanding
on the demand loan was paid in full.
F-11
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) CAPITAL LEASE OBLIGATIONS:
The Company has entered into various leases for computer equipment, office
furniture, and leasehold improvements. These leases have been capitalized using
interest rates ranging from 7.88% to 18.83% and expire on various dates through
2003. Depreciation on the capitalized assets has been included in depreciation
expense in the accompanying statements of operations.
The future minimum lease payments required under the above mentioned capital
leases for the twelve months ended December 31, are as follows--
<TABLE>
<CAPTION>
YEAR
- ---------------------------------------------------------------------------------
<S> <C>
1999............................................................................. $ 211,951
2000............................................................................. 209,297
2001............................................................................. 155,655
2002............................................................................. 87,812
2003............................................................................. 55,697
Less--Amount representing interest............................................... (123,367)
-----------
Present value of net minimum lease payments...................................... 597,045
Less--Current portion............................................................ (151,027)
-----------
$ 446,018
-----------
-----------
</TABLE>
(7) STOCKHOLDERS' EQUITY:
PREFERRED STOCK--
Since inception, the Company has issued two types of preferred stock. The
following is a discussion of each of these issuances--
In 1995, the Company issued 4,200,000 shares of mandatory redeemable
convertible preferred stock (the "1995 Preferred Shares") at a price of
$0.17 per share. The shares accrue dividends at 5% per year, commencing
March 1, 1997. Each share is convertible, subject to certain adjustments,
into 1 share of common stock, at the option of the holder. The shares
automatically convert upon successful completion of an initial public
offering yielding gross proceeds of at least $10.0 million and at an initial
public offering price of not less than $0.83 per share. Commencing March 1,
1998, the Company was able to redeem the 1995 Preferred Shares. Commencing
March 1, 2001, if not previously redeemed, the Company was required to
redeem the 1995 Preferred Shares in three equal annual installments.
During the quarter ended March 31, 1999, the holders of the 1995
Preferred Shares exercised their conversion rights and converted all
outstanding shares into 4,200,000 shares of common stock. In connection with
the conversion, the Company paid $70,000 of accumulated dividends on the
1995 Preferred Shares.
Subsequent to the conversion of the 1995 Preferred Shares, the Company
redeemed 2,855,100 shares of common stock at a purchase price of
approximately $2.94 per share.
On March 5, 1999, the Company sold 6,512,316 shares of convertible
preferred stock (the "1999 Preferred Shares") to General Atlantic Partners
54, L.P. (5,350,441 shares), GAP Coinvestment Partners II, LP (1,112,765
shares), and other investors (49,110 shares) resulting in net proceeds of
approximately $18,600,000. The 1999 Preferred Shares are convertible to
common shares on a 1 to 1 ratio at any time at the option of the holder,
subject to certain adjustments. The shares will automatically convert (i)
prior to the closing of the proposed initial public offering
F-12
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY: (CONTINUED)
yielding net proceeds of at least $25 million and resulting in a market
capitalization of at least $100 million or (ii) upon the conversion of at
least 67% of all 1999 Preferred Shares.
In connection with the issuance of the 1999 Preferred Shares to General
Atlantic Partners 54, L.P. and GAP Coinvestment Partners II, warrants were
issued to purchase shares of common stock equal to 15% of the number of
shares sold in the proposed initial public offering at a price equal to the
initial price to the public. In order to exercise the warrants, a notice of
exercise must be delivered within 20 business days following the first
filing of the Company's registration statement on Form S-1.
The Company will record the value of these warrants, as determined by
using the Black-Scholes model, as a dividend to these shareholders. The
dividend will decrease equity but will have no effect on reported net income
(loss). The dividend will be recorded at the time of the initial public
offering as the actual value of the warrants cannot be determined until that
date.
STOCK OPTIONS--
In 1998, the Company adopted its Stock Option/Stock Issuance Plans (the
"Option Plans"). Prior to this time, options issued were not issued in
connection with a plan. The Option Plans are each divided into two separate
equity programs, the Option Grant Program and the Stock Issuance Program. Under
the Option Grant Program, the Company may issue either incentive stock options
or nonqualified stock options. Under the Stock Issuance Program the Company may
issue shares of common stock either through the purchase of such shares or as a
bonus for services rendered. To date, no shares have been issued under the Stock
Issuance Programs. Awards under either program may be granted to such directors,
employees and consultants of the Company as the Board of Directors selects in
its discretion. A combined total of shares of common stock has been
reserved for issuance under the two Option Plans.
A summary of the activity under the Option Grant Programs is as follows--
<TABLE>
<CAPTION>
1996 1997 1998 MARCH 31, 1999
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Outstanding at beginning of
period............................ 4,386,000 $ 0.17 5,916,000 $ 0.33 9,471,600 $ 0.61 8,397,600 $ 1.02
Granted............................. 1,560,000 0.78 3,856,800 1.04 2,427,000 1.41 585,000 2.36
Exercised........................... (30,000) 0.17 (109,200) 0.25 (3,492,000) 0.18 (300,000) 0.17
Forfeited........................... -- -- (192,000) 0.83 (9,000) 0.83 (96,000) 0.86
--------- ----- --------- ----- --------- ----- --------- -----
Outstanding at end of period........ 5,916,000 $ 0.33 9,471,600 $ 0.61 8,397,600 $ 1.02 8,586,600 $ 1.14
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
Options exercisable at end of
period............................ 3,588,000 $ 0.27 5,700,300 $ 0.42 4,586,250 $ 0.80 4,580,250 $ 0.85
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
Weighted average fair value of
options granted during period..... $ 0.17 $ 0.23 $ 0.26 $ 0.47
</TABLE>
F-13
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998--
<TABLE>
<CAPTION>
WEIGHTED OPTIONS
OPTIONS AVERAGE EXERCISABLE
OUTSTANDING AT REMAINING AT
DECEMBER 31, CONTRACTUAL DECEMBER 31,
EXERCISE PRICES 1998 LIFE 1998
- ------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
$0.17............................................ 789,000 6.20 years 789,000
0.50............................................ 240,000 7.00 years 240,000
0.83............................................ 3,040,800 7.83 years 2,557,800
1.25............................................ 2,788,800 8.61 years 912,450
1.50............................................ 1,539,000 9.59 years 87,000
-------------- -------------
8,397,600 4,586,250
-------------- -------------
-------------- -------------
</TABLE>
The Company has elected to follow APB No. 25 in accounting for its employee
stock options. Accordingly, no compensation cost has been recognized for Option
Plans. Had the determination of compensation costs been based on the fair value
at the grant dates for awards under the Option Plans, consistent with the method
of SFAS No. 123, the Company's income (loss) and basic and diluted income (loss)
per share would have been reduced to the following pro forma amounts--
The fair value of all of our option grants is estimated on the date of grant
using the Black-Scholes model with the following weighted-average assumptions
used for grants in 1996, 1997, 1998 and the three months ended March 31, 1999--
- weighted-average risk free interest rates of 6.29%, 6.28%, 5.51% and
5.36%, respectively;
- expected dividend yields of 0%;
- expected lives of 4 years; and
- expected volatility of 0%.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net income (loss):
As reported.......................... $ 863,110 $ 1,010,934 $ (627,300) $ (90,959)
Pro forma............................ 830,967 774,427 (1,006,406) (259,225)
Basic net income (loss) per share:
As reported.......................... $ 0.20 $ 0.22 $ (0.11) $ (0.01)
Pro forma............................ $ 0.19 $ 0.18 $ (0.17) $ (0.03)
Diluted net income (loss) per share:
As reported.......................... $ 0.07 $ 0.08 $ (0.11) $ (0.01)
Pro forma............................ $ 0.07 $ 0.06 $ (0.17) $ (0.03)
</TABLE>
F-14
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES:
The components of the Company's provision (benefit) for income taxes for the
years ended December 31, 1996, 1997 and 1998 and the three months ended March
31, 1998 and 1999 are as follows--
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current income tax provision--
Federal.......................................... $ 185,521 $ 35,864 $ -- $ -- $ --
State............................................ 94,450 18,802 80,211 -- --
---------- ---------- ----------- ----------- ----------
279,971 54,666 80,211 -- --
---------- ---------- ----------- ----------- ----------
Deferred income tax provision (benefit)--
Federal.......................................... 331,790 578,823 (407,182) (302,937) (38,691)
State............................................ 131,439 259,749 (133,287) (89,057) (10,159)
---------- ---------- ----------- ----------- ----------
463,229 838,572 (540,469) (391,994) (48,850)
---------- ---------- ----------- ----------- ----------
$ 743,200 $ 893,238 $ (460,258) $ (391,994) $ (48,850)
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
</TABLE>
The following table indicates the significant elements contributing to the
difference between the Federal statutory rate and the Company's effective tax
rate--
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory rate................................. 34.0% 34.0% (34.0)% (34.0)% (34.0)%
State taxes net of Federal effect...................... 6.6 6.6 (6.6) (6.6) (6.6)
Other.................................................. 4.8 5.7 (1.7) (2.4) 5.6
--------- --------- --------- --------- ---------
45.4% 46.3% (42.3)% (43.0)% (35.0)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
On January 1, 1998, the Company converted from a cash basis to an accrual
basis taxpayer. The conversion from the cash basis to accrual basis required the
recognition of a deferred tax liability of
F-15
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES: (CONTINUED)
approximately $1,667,000. Other major components of the deferred tax assets and
(liabilities) as of December 31, 1997, 1998 and March 31, 1999 (unaudited) are
as follows--
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Bad debt reserve................................. $ 32,486 $ 57,529 $ 108,966
Prepaid expenses................................. (66,407) -- --
Accounts receivable.............................. (1,739,221) -- --
Unbilled receivables............................. (72,946) -- --
Accounts payable and accrued expenses............ 255,872 -- --
Depreciation..................................... 14,231 100,124 75,800
Section 481 A. adjustment........................ -- (1,249,974) (1,131,855)
Net operating loss carryforwards................. 227,732 174,474 76,602
Other, net....................................... (91,362) 18,701 20,191
------------- ------------- -------------
Total deferred taxes, net.................... $ (1,439,615) $ (899,146) $ (850,296)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
At December 31, 1998, the Company had available net operating loss
carryforwards of approximately $390,000 to reduce future period's taxable
income. These loss carryforwards begin to expire in 2012.
(9) RELATED PARTIES:
During 1998 the Company started a software development company which had
previously been consolidated with the Company. In March 1998, the software
development company was spun off through a distribution of all of its
outstanding shares to the Company's stockholders. In connection with the
spin-off the Company sold certain assets to the software development company for
approximately $130,000 and provided a $1,000,000 line of credit bearing interest
at 8%. As of December 31, 1998 and March 31, 1999, $916,948 and $174,276,
respectfully, was due from this company.
(10) NOTES RECEIVABLE--STOCKHOLDERS:
In August 1998, the Company loaned certain stockholders approximately
$515,000 in connection with the exercise of stock options. The stockholders
signed notes payable to the Company in exchange for the loans which had interest
rates of 7%. All amounts due under these notes were paid in full in March 1999.
(11) COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES--
The Company has entered into non-cancelable operating leases for office
space with terms ranging from approximately six months to five years, with an
option to renew two of these leases for an additional five years. These leases
provide for minimum annual lease payments and additional operating expense
charges, as well as rent concessions for two locations, which are being
amortized over five years, the term of the lease.
F-16
<PAGE>
PREDICTIVE SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The future minimum lease payments required under the above mentioned
operating leases for the year ended December 31, are as follows--
<TABLE>
<CAPTION>
YEAR
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 857,708
2000............................................................................ 723,319
2001............................................................................ 690,309
2002............................................................................ 437,821
2003............................................................................ 211,934
------------
Total minimum lease payments................................................ $ 2,921,091
------------
------------
</TABLE>
Rent expense was approximately $202,568, $457,825 and $736,120 for the years
ended December 31, 1996, 1997 and 1998, respectively. Rent expense totaled
approximately $144,954 (unaudited) and $241,461 (unaudited) for the three months
ended March 31, 1998 and 1999, respectively.
PENSION PLAN--
The Company has a 401(k) plan with discretionary matching contributions for
its employees. The Company did not make any contributions to the 401(k) plan
during 1996, 1997 or 1998.
LITIGATION--
The Company is involved, from time to time, in legal proceedings incurred in
the normal course of business. In the opinion of management and its counsel,
none of these proceedings would have a material effect on the financial position
or results of operations of the Company.
(12) SUBSEQUENT EVENT:
Subsequent to year-end the Company amended and restated its certificate of
incorporation to increase its authorized common stock to 200,000,000 shares and
decrease its authorized preferred stock to 10,000,000 shares.
F-17
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the issuance and distribution of the common stock being registered. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 14,456
NASD filing fee................................................................... 5,700
Nasdaq National Market listing fee................................................
Legal fees and expenses...........................................................
Accounting fees and expenses......................................................
Printing and engraving............................................................
Blue sky fees and expenses (including legal fees)................................. 12,500
Transfer Agent and Registrar fees and expenses.................................... 15,000
Miscellaneous.....................................................................
----------
Total......................................................................... $
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation in effect
as of the date hereof (the "Certificate") provides that, except to the extent
prohibited by the Delaware General Corporation Law, as amended (the "DGCL"), the
Registrant's directors shall not be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Registrant. Under the DGCL, the directors have a fiduciary duty to the
Registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
Registrant has applied for liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any 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) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding
II-1
<PAGE>
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director or officer of the Registrant, or is or was
serving at the request of the Registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since January 1,
1996:
1. On March 5, 1999, the Registrant issued 6,512,316 shares of Series A
Convertible Preferred Stock for an aggregate amount of $18,565,225.44.
2. On March 5, 1999, the Registrant issued warrants to purchase 15% of the
number of shares registered in its initial public offering at the initial
public offering price for an aggregate amount of $1,000.
3. The Registrant from time to time has granted stock options to employees,
directors and consultants in reliance upon exemption from registration
pursuant to either (i) Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) Rule 701 promulgated under the
Securities Act. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
---------- -------------
<S> <C> <C>
January 1, 1996 to December 31, 1996........................................ 1,560,000 $ 0.50-$0.83
January 1, 1997 to December 31, 1997........................................ 3,856,800 $ 0.83-$1.25
January 1, 1998 to December 31, 1998........................................ 2,427,000 $ 1.25-$1.50
January 1, 1999 to present.................................................. 2,000,835 $ 1.50-$4.00
</TABLE>
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of underwriting agreement.
3.1 Certificate of incorporation.
3.2* Form of amended and restated certificate of incorporation to be in effect upon the closing of the
offering.
3.3 By-laws.
3.4* Form of amended and restated by-laws to be in effect upon the closing of this offering.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate of Incorporation and By-laws of the
Registrant defining the rights of holders of Common Stock of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.3 Stock Purchase Warrant, dated March 5, 1999, by and between General Atlantic Partners 54, L.P. and the
Registrant.
4.4 Stock Purchase Warrant, dated March 5, 1999, by and between Gap Coinvestment Partners II, L.P. and the
Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* 1999 Stock Incentive Plan.
10.4 Employment Agreement, dated May 11, 1999, by and between Ronald Pettengill and the Registrant.
10.5 Employment Agreement, dated May 11, 1999, by and between Robert Belau and the Registrant.
10.6 Employment Agreement, dated January 22, 1999, by and between Kevin Holt and the Registrant.
10.7 Registration Rights Agreement, dated March 5, 1999.
10.8 Secured Promissory Note, dated August 31, 1998, in favor of Brown Brothers Harriman & Co.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
(b) Financial Statement Schedules.
Schedule II-Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes 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 prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or
497(h) under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, 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 this offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on this 29th day of July, 1999.
PREDICTIVE SYSTEMS, INC.
BY: /S/ RONALD G. PETTENGILL, JR.
-----------------------------------------
Name: Ronald G. Pettengill, Jr.
Title: Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Predictive Systems, Inc.
(the "Company"), hereby severally constitute and appoint Ronald Pettengill,
Chief Executive Officer, and Robert Belau, President, and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 29, 1999:
SIGNATURE TITLE(S) DATE
- ------------------------------ --------------------------- -------------------
/s/ RONALD G. PETTENGILL, Chief Executive Officer and July 29, 1999
JR. Chairman of the Board of
- ------------------------------ Directors (principal
Ronald G. Pettengill, Jr. executive officer)
/s/ ROBERT L. BELAU President and Director July 29, 1999
- ------------------------------
Robert L. Belau
/s/ NEERAJ SETHI Vice President, Finance July 29, 1999
- ------------------------------ (principal financial and
Neeraj Sethi accounting officer)
II-5
<PAGE>
SIGNATURE TITLE(S) DATE
- ------------------------------ --------------------------- -------------------
/s/ PETER L. BLOOM Director July 29, 1999
- ------------------------------
Peter L. Bloom
/s/ DONALD J. DUFFY Director July 29, 1999
- ------------------------------
Donald J. Duffy
/s/ BRADEN R. KELLY Director July 29, 1999
- ------------------------------
Braden R. Kelly
/s/ ERIC MEYER Director July 29, 1999
- ------------------------------
Eric Meyer
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Predictive Systems, Inc.
We have audited in accordance with generally accepted auditing standards,
the financial statements of Predictive Systems, Inc. included in this
registration statement and have issued our report thereon dated May 12, 1999.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of valuation and qualifying accounts
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commissions rules and is 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
/s/ Arthur Andersen LLP
New York, New York
May 12, 1999
S-1
<PAGE>
SCHEDULE II
PREDICTIVE SYSTEMS, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTIONS END OF YEAR
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended December 31, 1996
Allowance for doubtful accounts.................................. $ 9 $ 21 $ -- $ 30
----- ----- ----- -----
----- ----- ----- -----
For the fiscal year ended December 31, 1997
Allowance for doubtful accounts.................................. $ 30 $ 99 $ (49) $ 80
----- ----- ----- -----
----- ----- ----- -----
For the fiscal year ended December 31, 1998
Allowance for doubtful accounts.................................. $ 80 $ 102 $ (41) $ 141
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of underwriting agreement.
3.1 Certificate of incorporation.
3.2* Form of amended and restated certificate of incorporation to be in effect upon the closing of the
offering.
3.3 By-laws.
3.4* Form of amended and restated by-laws to be in effect upon the closing of this offering.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate of Incorporation and By-laws of the
Registrant defining the rights of holders of Common Stock of the Registrant.
4.3 Stock Purchase Warrant, dated March 5, 1999, by and between General Atlantic Partners 54, L.P. and the
Registrant.
4.4 Stock Purchase Warrant, dated March 5, 1999, by and between Gap Coinvestment Partners II, L.P. and the
Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* 1999 Stock Incentive Plan.
10.4 Employment Agreement, dated May 11, 1999, by and between Ronald Pettengill and the Registrant.
10.5 Employment Agreement, dated May 11, 1999, by and between Robert Belau and the Registrant.
10.6 Employment Agreement, dated January 22, 1999, by and between Kevin Holt and the Registrant.
10.7 Registration Rights Agreement, dated March 5, 1999.
10.8 Secured Promissory Note, dated August 31, 1998, in favor of Brown Brothers Harriman & Co.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
</TABLE>
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* To be supplied by amendment.
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Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PREDICTIVE SYSTEMS, INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
Predictive Systems, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in
Delaware under the name Predictive Systems, Inc., and the date of its filing of
its original Certificate of Incorporation with the Secretary of State of the
State of Delaware was March 4, 1999.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and in the
best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders of the issued and outstanding Common Stock, $0.001 par value in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware;
THIRD: That the resolution setting forth the proposed
amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the
Corporation be amended and restated in its entirety as
follows:
ARTICLE I
NAME
The name of this Corporation is Predictive Systems, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, State of Delaware 19801, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
<PAGE>
ARTICLE III
POWERS
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. The Corporation is to have a perpetual existence.
ARTICLE IV
CAPITAL STOCK
The Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is Seventy Million
(70,000,000) shares. Fifty Million (50,000,000) shares shall be designated as
Common Stock and Twenty Million (20,000,000) shares shall be designated as
Preferred Stock. The Common Stock and the Preferred Stock shall have the rights,
preferences and privileges set forth below. The Common Stock shall have a par
value of $0.001 and the Preferred Stock shall have a par value of $0.001.
A. SERIES A CONVERTIBLE PREFERRED STOCK.
1. DESIGNATION AND NUMBER OF SHARES. There shall be hereby
created and established a series of Preferred Stock designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"). The authorized
number of shares of Series A Preferred Stock shall be 6,512,316. Capitalized
terms used in this Section A and not otherwise defined in this Section A shall
have the meanings set forth in Section 10 below.
2. RANK.
(a) The Series A Preferred Stock shall with respect
to distributions of assets and rights upon the occurrence of a Liquidation rank
senior to (i) all classes of common stock of the Corporation (including, without
limitation, the Common Stock, par value $.001 per share, of the Corporation (the
"Common Stock")) and (ii) each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank pari passu with or
senior to the Series A Preferred Stock (collectively with the Common Stock, the
"Junior Stock").
3. DIVIDENDS. The holders of shares of Series A Preferred
Stock shall not be entitled to receive dividends except in accordance with this
Section 3. If the Corporation declares and pays dividends on the Common Stock,
then, in that event, the holders of shares of Series A Preferred Stock shall be
entitled to share in such dividends on a pro rata basis, as if their shares had
been converted into shares of Common Stock pursuant to Section 7(a) immediately
prior to the record date for determining the stockholders of the Corporation
eligible to receive such dividends.
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4. LIQUIDATION PREFERENCE.
(a) Upon the occurrence of a Liquidation, the holders
of shares of Series A Preferred Stock shall be entitled to be paid for each
share of Series A Preferred Stock held thereby, out of the assets of the
Corporation legally available for distribution to its stockholders, an amount
per share in cash equal to (i) $2.850787 (the "Liquidation Preference") plus
(ii) all declared and unpaid dividends thereon, if any, to the date fixed for
such Liquidation, before any payment or distribution is made to any Junior
Stock. If the assets of the Corporation available for distribution to the
holders of Series A Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets legally available for distribution to holders
of the Series A Preferred Stock shall be distributed among and paid to such
holders ratably in proportion to the amounts that would be payable to such
holders if such assets were sufficient to permit payment in full.
(b) After the holders of all shares of Series A
Preferred Stock shall have been paid in full the amounts to which they are
entitled under Section 4(a), the shares of Series A Preferred Stock shall not be
entitled to any further participation in any distribution of assets of the
Corporation, all the shares of Series A Preferred Stock shall become null and
void and the holders thereof shall have no rights thereunder, and the remaining
assets of the Corporation shall be distributed to the holders of Junior Stock.
(c) Written notice of a Liquidation stating a payment
or payments and the place where such payment or payments shall be payable, shall
be delivered in person, mailed by certified mail, return receipt requested,
mailed by overnight mail or sent by telecopier, not less than ten (10) days
prior to the earliest payment date stated therein, to the holders of record of
the Series A Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
5. REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemed or subject to redemption, whether at the option of the
Corporation or any holder thereof, or otherwise.
6. VOTING RIGHTS; ELECTION OF DIRECTORS.
(a) The holders of Series A Preferred Stock shall be
entitled to vote on any matter required or permitted to be voted upon by the
stockholders of the Corporation.
(b) Each outstanding share of Series A Preferred
Stock shall entitle the holder thereof to vote, in person or by proxy, at a
special or annual meeting of stockholders, on all matters entitled to be voted
on by holders of Common Stock, voting together as a single class with the Common
Stock (and all other classes and series of stock of the Corporation entitled to
vote thereon with the Common Stock, if any). With respect to any such vote, each
share of Series A Preferred Stock shall entitle the holder thereof to cast that
number of votes per share as is equal to the number of votes that such holder
would be entitled to cast had such holder converted its shares of Series A
Preferred Stock into shares of Common Stock pursuant to Section 7(a) on the
record date for determining the stockholders of the Corporation eligible to vote
on any such matters.
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(c) At any time prior to the consummation of the
Initial Public Offering, if General Atlantic Partners 54, L.P. and/or any
affiliate thereof in the aggregate own (i) both (x) at least a majority of the
outstanding shares of Series A Preferred Stock and (y) shares of Common Stock
and/or Series A Preferred Stock or other securities of the Corporation
convertible into or exchangeable for shares of Common Stock that represent
(after giving effect to any adjustments) at least 10% of the total number of
shares of Common Stock outstanding on an as converted basis, then the holders of
the Series A Preferred Stock, voting as a separate class, shall be entitled to
elect two directors of the Corporation (the "Series A Directors") or (ii) both
(x) at least a majority of the outstanding shares of Series A Preferred Stock
and (y) shares of Common Stock and/or Series A Preferred Stock or other
securities of the Corporation convertible into or exchangeable for shares of
Common Stock that represent (after giving effect to any adjustments) less than
10% but at least 3% of the total number of shares of Common Stock outstanding on
an as converted basis, then the holders of the Series A Preferred Stock, voting
as a separate class, shall be entitled to elect one director of the Corporation.
The Series A Preferred Stock shall vote together as a single class with the
Common Stock (and all other classes and series of stock of the Corporation
entitled to vote thereon with the Common Stock, if any) with respect to the
election of all of the other directors of the Corporation. If the conditions set
forth in the first sentence of this Section 6(c) necessary for the holders of
the Series A Preferred Stock to vote as a separate class for the election of
directors are not satisfied, the Series A Preferred Stock shall vote together as
a single class with the Common Stock (and all other classes and series of stock
of the Corporation entitled to vote thereon, if any) with respect to the
election of all of the directors of the Corporation elected by such holders. At
any meeting held for the purpose of electing directors at a time when the Series
A Preferred Stock is entitled to vote as a separate class for the election of
the Series A Directors, (i) the presence in person or by proxy of the holders of
a majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for the election of the
Series A Director; (ii) the holders of Series A Preferred Stock shall be
entitled to cast one vote per share of Series A Preferred Stock in any such
election; and (iii) the Series A Directors shall each be elected by the
affirmative vote of the holders of a majority of the outstanding shares of
Series A Preferred Stock. Until the consummation of the Initial Public Offering,
a vacancy in a directorship held by either of the Series A Directors pursuant to
this Section 6(c) shall be filled only by vote or written consent of the holders
of the Series A Preferred Stock.
7. CONVERSION.
(a) OPTIONAL CONVERSION. Any holder of Series A
Preferred Stock shall have the right, at its option, at any time and from time
to time, to convert, subject to the terms and provisions of this Section 7, any
or all of such holder's shares of Series A Preferred Stock into such number of
fully paid and non-assessable shares of Common Stock as is equal to the product
of the number of shares of Preferred Stock being so converted multiplied by the
quotient of (i) the Liquidation Preference divided by (ii) the conversion price
of $2.850787 per share, subject to adjustment as provided in Section 7(e) (such
price, the "Conversion Price"), then in effect. Such conversion right shall be
exercised by the surrender of certificate(s) representing the shares of Series A
Preferred Stock to be converted to the Corporation at any time during usual
business hours at its principal place of business to be maintained by it (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of Series A Preferred Stock), accompanied by
written notice that the holder elects
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<PAGE>
to convert such shares of Series A Preferred Stock and specifying the name or
names (with address) in which a certificate or certificates for shares of Common
Stock are to be issued and (if so required by the Corporation) by a written
instrument or instruments of transfer in form reasonably satisfactory to the
Corporation duly executed by the holder or its duly authorized legal
representative and transfer tax stamps or funds therefor, if required pursuant
to Section 7(k). All certificates representing shares of Series A Preferred
Stock surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it. No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon the conversion of shares of
Series A Preferred Stock. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of shares of Series A Preferred
Stock, the Corporation shall pay to the holder of the shares of Series A
Preferred Stock that were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the date of such
conversion.
(b) AUTOMATIC CONVERSION. (i) Immediately prior to
the closing of the Initial Public Offering or (ii) upon the conversion or
election to convert under Section 7(a) hereof into Common Stock of at least 67%
of all shares of Series A Preferred Stock issued hereunder, whichever is
earlier, each outstanding share of Series A Preferred Stock shall be
automatically converted, with no further action required to be taken by the
Corporation or the holder thereof, into the number of fully paid and
nonassessable shares of Common Stock equal to the product of the number of
shares of Series A Preferred Stock being converted multiplied by the quotient of
(x) the Liquidation Preference divided by (y) the Conversion Price then in
effect.
Immediately upon conversion as provided herein, each holder of
Series A Preferred Stock shall be deemed to be the holder of record of the
Common Stock issuable upon conversion of such holder's Series A Preferred Stock,
notwithstanding that the share register of the Corporation shall then be closed
or that certificates representing the Common Stock shall not then actually be
delivered to such Person. Upon notice from the Corporation, each holder of
Series A Preferred Stock so converted shall promptly surrender to the
Corporation at its principal place of business to be maintained by it (or at
such other office or agency of the Corporation as the Corporation may designate
by notice to the holders of Series A Preferred Stock) certificates representing
the shares so converted.
(c) As promptly as practicable after the surrender of
certificate(s) representing any shares of Series A Preferred Stock as to which
notice of conversion has been delivered to the Corporation, the Corporation
shall deliver to the holder of such shares so surrendered certificate(s)
representing the number of fully paid and nonassessable shares of Common Stock
into which such shares of Series A Preferred Stock have been converted in
accordance with the provisions of this Section 7. At the time of the surrender
of such certificate(s), the Person in whose name any certificate(s) for shares
of Common Stock shall be issuable upon such conversion shall be deemed to be the
holder of record of such shares of Common Stock on such date, notwithstanding
that the share register of the Corporation shall then be closed or that the
certificates representing such Common Stock shall not then be actually delivered
to such Person.
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<PAGE>
(d) To the extent permitted by law, when shares of
Series A Preferred Stock are converted, all dividends declared and unpaid, if
any, on the shares of Series A Preferred Stock so converted to the date of
conversion shall be immediately due and payable; and, to the extent the
Corporation has legally available funds therefor, payment of such declared and
unpaid dividends shall accompany the shares of Common Stock issued upon such
conversion.
(e) ANTI-DILUTION ADJUSTMENTS. The Conversion Price,
and the number and type of securities to be received upon conversion of the
Series A Preferred Stock, shall be subject to adjustment as follows:
(i) DIVIDEND, SUBDIVISION, COMBINATION OR
RECLASSIFICATION OF COMMON STOCK. In the event that the Corporation shall at any
time or from time to time, prior to conversion of the Series A Preferred Stock,
(w) pay a dividend or make a distribution (other than a dividend or distribution
paid or made to holders of shares of Series A Preferred Stock, or in which
holders of such shares participate, in the manner provided in Section 3) on the
outstanding shares of Common Stock payable in Capital Stock, (x) subdivide the
outstanding shares of Common Stock into a larger number of shares, (y) combine
the outstanding shares of Common Stock into a smaller number of shares or (z)
issue any shares of its Capital Stock in a reclassification of the Common Stock
(other than any such event for which an adjustment is made pursuant to another
clause of this Section 7(e)), then, and in each such case, the Conversion Price
in effect immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Corporation) so that the holder of any
share of Series A Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series A Preferred Stock been converted immediately prior to the record date
applicable to such event. An adjustment made pursuant to this Section 7(e)(i)
shall become effective retroactively to the close of business on the day upon
which such corporate action becomes effective.
(ii) ISSUANCE OF COMMON STOCK OR COMMON STOCK
EQUIVALENTS BELOW CONVERSION PRICE. In the event that the Corporation shall at
any time or from time to time, prior to conversion of the Series A Preferred
Stock, issue or sell any shares of Common Stock or Common Stock Equivalents at a
price per share (the "New Issue Price") that is less than the Conversion Price
then in effect as of the record date or Issue Date referred to in the following
sentence, as the case may be (the "Relevant Date") (treating the price per share
of Common Stock, in the case of the issuance of any Common Stock Equivalent, as
equal to (x) the sum of the price for such Common Stock Equivalent plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such Common Stock
Equivalent divided by (y) the number of shares of Common Stock initially
underlying such Common Stock Equivalent), other than (A) issuances or sales for
which an adjustment is made pursuant to another paragraph of this Section 7(e)
and (B) issuances of Common Stock in connection with an Excluded Transaction,
then, and in each such case, the Conversion Price then in effect shall be
adjusted by multiplying the Conversion Price in effect on the day immediately
prior to the Relevant Date by a fraction (I) the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the Relevant Date
plus the
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<PAGE>
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of such additional shares of Common Stock
so issued would purchase at the Conversion Price on the Relevant Date (or, in
the case of Common Stock Equivalents, the number of shares of Common Stock into
which such Common Stock Equivalents may convert, exchange or be exercised plus
the number of shares of Common Stock which the aggregate amount of any
additional consideration initially payable upon conversion, exchange or exercise
of such Common Stock Equivalents would purchase at the Conversion Price on the
Relevant Date) and (II) the denominator of which shall be the sum of the number
of shares of Common Stock outstanding on the Relevant Date plus the number of
additional shares of Common Stock issued or to be issued (or, in the case of
Common Stock Equivalents, the maximum number of shares of Common Stock into
which such Common Stock Equivalents initially may convert, exchange or be
exercised). Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued or sold, and shall become effective
retroactively (x) in the case of an issuance to the stockholders of the
Corporation, as such, to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
shares of Common Stock or Common Stock Equivalents and (y) in all other cases,
to the date of such issuance (the "Issue Date"); PROVIDED, HOWEVER, that the
determination as to whether an adjustment is required to be made pursuant to
this Section 7(e)(ii) shall be made only upon the issuance of such shares of
Common Stock or Common Stock Equivalents, and not upon the issuance of any
security into which the Common Stock Equivalents convert, exchange or may be
exercised; and PROVIDED FURTHER, that if any Common Stock Equivalents (or any
portions thereof) which shall have given rise to an adjustment pursuant to this
Section 7(e)(ii) shall have expired or terminated without the exercise thereof
and/or if by reason of the terms of such Common Stock Equivalents there shall
have been an increase or increases, with the passage of time or otherwise, in
the price payable upon the exercise or conversion thereof, then the Conversion
Price hereunder shall be readjusted (but to no greater extent than originally
adjusted) in order to (A) eliminate from the computation any additional shares
of Common Stock corresponding to such Common Stock Equivalents as shall have
expired or terminated, (B) treat the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such Common
Stock Equivalents as having been issued for the consideration actually received
and receivable therefor and (C) treat any of such Common Stock Equivalents which
remain outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time.
(iii) CERTAIN DISTRIBUTIONS. In case the Corporation
shall at any time or from time to time prior to conversion of the Series A
Preferred Stock, distribute to all holders of shares of the Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Corporation is the resulting or surviving Person and
the Common Stock is not changed or exchanged) cash, evidences of indebtedness of
the Corporation or another issuer, securities of the Corporation or another
issuer or other assets (excluding dividends or distributions paid or made to
holders of shares of Series A Preferred Stock, or in which holders of such
shares participate, in the manner provided in Section 3, and dividends payable
in shares of Common Stock for which adjustment is made under another paragraph
of this Section 7(e) and any distribution in connection with an Excluded
Transaction) or rights or warrants to subscribe for or purchase securities of
the Corporation (excluding those distributions in respect of which an adjustment
in the Conversion Price is made pursuant to another paragraph of this Section
7(e) and any distribution in connection with an Excluded Transaction), then, and
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in each such case, the Conversion Price then in effect shall be adjusted (and
any other appropriate actions shall be taken by the Corporation) by multiplying
the Conversion Price in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the Current
Market Price of the Common Stock immediately prior to the date of distribution
less the then fair market value (as determined by the Board of Directors in the
exercise of their fiduciary duties) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such rights or
warrants applicable to one share of Common Stock and (y) the denominator of
which shall be the Current Market Price of the Common Stock immediately prior to
the date of distribution (but such fraction shall not be greater than one);
PROVIDED, HOWEVER, that no adjustment shall be made with respect to any
distribution of rights or warrants to subscribe for or purchase securities of
the Corporation if the holder of shares of Series A Preferred Stock would
otherwise be entitled to receive such rights or warrants upon conversion at any
time of shares of Series A Preferred Stock into Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) OTHER CHANGES. In case the Corporation at any
time or from time to time, prior to the conversion of the Series A Preferred
Stock, shall take any action affecting its Common Stock similar to or having an
effect similar to any of the actions described in any of Sections 7(e)(i)
through (ii) or Section 7(h) (but not including any action described in any such
Section) and the Board of Directors in good faith determines that it would be
equitable in the circumstances to adjust the Conversion Price as a result of
such action, then, and in each such case, the Conversion Price shall be adjusted
in such manner and at such time as the Board of Directors in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
holders of the shares of Series A Preferred Stock).
(V) DE MINIMIS ADJUSTMENTS. Notwithstanding anything
herein to the contrary, no adjustment in the Conversion Price shall be required
unless such adjustment would require a change of at least 1% in the Conversion
Price; provided, however, that any adjustments which by reason of this Section
7(e)(v) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
(f) ABANDONMENT. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to pay or deliver
such dividend or distribution, then no adjustment in the Conversion Price shall
be required by reason of the taking of such record.
(g) CERTIFICATE AS TO ADJUSTMENTS. Upon any increase
or decrease in the Conversion Price, the Corporation shall within a reasonable
period (not to exceed 15 days) following the consummation of any of the
foregoing transactions deliver to each registered holder of Series A Preferred
Stock a certificate, signed by (i) the President or a Vice President of the
Corporation and (ii) the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Corporation, setting forth in reasonable detail
the event requiring the adjustment
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<PAGE>
and the method by which such adjustment was calculated and specifying the
increased or decreased Conversion Price then in effect following such
adjustment.
(h) REORGANIZATION, RECLASSIFICATION. In case of any
capital reorganization or reclassification or other change of outstanding shares
of Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value), the Corporation shall execute and
deliver to each holder of Series A Preferred Stock at least ten (10) Business
Days prior to effecting such capital reorganization or reclassification a
certificate stating that the holder of each share of Series A Preferred Stock
shall have the right thereafter to convert such share of Series A Preferred
Stock into the kind and amount of shares of stock or other securities, property
or cash receivable upon such capital reorganization or reclassification by a
holder of the number of shares of Common Stock into which such share of Series A
Preferred Stock could have been converted immediately prior to such capital
reorganization or reclassification, and provision shall be made therefor in the
agreement, if any, relating to such capital reorganization or reclassification.
Such certificate shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
7. The provisions of this Section 7(h) and any equivalent thereof in any such
certificate similarly shall apply to successive transactions.
(i) NOTICES. In case at any time or from time to
time:
(w) the Corporation shall declare a dividend
(or any other distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the
granting to the holders of its Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any other rights or
warrants; or
(y) there shall be any reorganization or
reclassification of the Common Stock;
then the Corporation shall mail to each holder of shares of Series A Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or granting of rights or warrants are to be
determined, or (B) the date on which such reorganization or reclassification is
expected to become effective and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for shares of stock or other securities or property or cash deliverable
upon such reorganization or reclassification. Notwithstanding the foregoing, in
the case of any event to which Section 7(h) is applicable, the Corporation shall
also deliver the certificate described in such Section 7(h) to each holder of
Series A Preferred Stock at least ten (10) Business Days prior to effecting such
reorganization or reclassification as aforesaid.
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(j) RESERVATION OF COMMON STOCK. The Corporation
shall at all times reserve and keep available for issuance upon the conversion
of the Series A Preferred Stock such number of its authorized but unissued
shares of Common Stock as will from time to time be sufficient to permit the
conversion of all outstanding shares of Series A Preferred Stock, and shall take
all action to increase the authorized number of shares of Common Stock if at any
time there shall be insufficient authorized but unissued shares of Common Stock
to permit such reservation or to permit the conversion of all outstanding shares
of Series A Preferred Stock.
(k) NO CONVERSION TAX OR CHARGE. The issuance or
delivery of certificates for Common Stock upon the conversion of shares of
Series A Preferred Stock shall be made without charge to the converting holder
of shares of Series A Preferred Stock for such certificates or for any
documentary stamp, or similar issue or transfer tax in respect of the issuance
or delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series A Preferred Stock converted; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Series A Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
8. CERTAIN REMEDIES. Any registered holder of Series A
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Incorporation and to enforce
specifically the terms and provisions of this Certificate of Incorporation in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity.
9. BUSINESS DAY. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
10. DEFINITIONS. As used in this Section A, the following
terms shall have the following meanings (with terms defined in the singular
having comparable meanings when used in the plural and vice versa), unless the
context otherwise requires:
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock and
any and all rights, warrants or options exchangeable
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for or convertible into such capital stock (but excluding any debt security
whether or not it is exchangeable for or convertible into such capital stock).
"Commission" means the United States Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"Common Stock" shall have the meaning ascribed to it in
Section 2(a) hereof.
"Common Stock Equivalent" shall mean any security or
obligation which is by its terms exercisable or convertible into shares of
Common Stock or another Common Stock Equivalent, including, without limitation,
any option, warrant or other subscription or purchase right with respect to
Common Stock.
"Conversion Price" shall have the meaning ascribed to it in
Section 7(a) hereof.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average of the daily Market Price under clause (a), (b)
or (c) of the definition of "Market Price" herein of the Common Stock during the
immediately preceding thirty (30) trading days ending on such date, and (b) if
the Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in an over-the-counter market, then the Market
Price under clause (d) of the definition thereof on such date.
"Excluded Transaction" means (i) any issuance by the
Corporation to employees, consultants or directors of the Corporation of options
to purchase shares of Common Stock pursuant to a stock option plan or any other
employee benefit arrangement approved by the Board of Directors, and (ii) any
issuance of Common Stock upon the conversion of shares of Series A Preferred
Stock.
"Initial Public Offering" shall mean the Corporation's first
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Securities Act (i) resulting in aggregate net
proceeds (after expenses and underwriting commissions and discounts) to the
Corporation and any selling stockholders of at least $25,000,000, and (ii) in
which the IPO Valuation is at least $100,000,000.
"IPO Valuation" shall mean the amount equal to the product of
(i) the number of issued and outstanding shares of Common Stock on a fully
diluted basis (other than Common Stock Equivalents that are not "in-the-money")
multiplied by (ii) the midpoint of the anticipated price range per share of the
Common Stock to be offered in the Initial Public Offering as set forth in the
information provided in the initial registration statement for purposes of
calculating the Commission filing fee.
"Issue Date" shall have the meaning ascribed to it in Section
7(e)(ii) hereof.
"Junior Stock" shall have the meaning ascribed to it in
Section 2(a) hereof.
"Liquidation" shall mean (a) the voluntary or involuntary
liquidation under applicable bankruptcy or reorganization legislation, or the
dissolution or winding up of the Corporation, (b) a Merger or (c) a Sale.
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"Liquidation Preference" shall have the meaning ascribed to it
in Section 4(a) hereof.
"Market Price" shall mean, as of the date of determination,
(a) the closing price per share of Common Stock on the principal national
securities exchange on which such security is listed at the time (or if there
have been no sales on such exchange on such day, the average of the highest bid
and lowest asked prices on such exchange on such day); or (b) if the Common
Stock is not listed on a national securities exchange at the time, the sales
price of the Common Stock as reported on the Nasdaq National Market as of 4:00
p.m., New York City time, on such date (or, if there is no reported sales price
of the Common Stock on the Nasdaq National Market on such date, the average of
the representative bid and asked prices quoted on the Nasdaq National Market as
of 4:00 p.m. New York City time on such day); or (c) if such Common Stock is not
reported on the Nasdaq National Market at the time, the average of the
representative bid and asked prices quoted in the Nasdaq System as of 4:00 p.m.,
New York City time, on such date; or (d) if the Common Stock is not quoted on
the Nasdaq System at the time, the average of the highest bid and lowest asked
prices on such date in the over-the-counter market as reported by the National
Quotation Bureau Incorporated or any similar successor organization; or (e) if
none of (a), (b), (c) or (d) is applicable, a market price per share determined
at the Corporation's expense by an appraiser chosen by mutual agreement of the
Corporation and the holders of a majority of the shares of Series A Preferred
Stock. Any determination of the Market Price by an appraiser shall be based on a
valuation of the Corporation as an entirety without regard to any discount for
minority interests or disparate voting rights among classes of Capital Stock.
"Merger" shall mean (x) the merger or consolidation of the
Corporation into or with one or more Persons or (y) the merger or consolidation
of one or more Persons into or with the Corporation, if, in the case of (x) or
(y), the stockholders of the Corporation prior to such merger or consolidation
do not retain at least a majority of the voting power of the surviving Person.
"New Issue Price" shall have the meaning ascribed to it in
Section 7(e)(ii) hereof.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Relevant Date" shall have the meaning ascribed to it in
Section 7(e)(ii) hereof.
"Sale" shall mean the voluntary sale, conveyance, exchange or
transfer to another Person of all or substantially all of the assets of the
Corporation.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" shall have the meaning ascribed to
it in Section 1 hereof.
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B. COMMON STOCK.
1. DESIGNATION. A total of 70,000,000 shares of the
Corporation's common stock shall be designated as Common Stock, $.001 par value
per share.
2. VOTING.
(a) ELECTION OF DIRECTORS. The holders of Common
Stock voting together with the holders of outstanding Series A Preferred Stock
as a single class shall be entitled to elect all of the Directors of the
Corporation (other than the Directors who are subject to election by the holders
of Series A Preferred Stock as a separate class) for so long as any shares of
Series A Preferred Stock remain outstanding and, thereafter, shall be entitled
to elect all of the Directors of the Corporation. Such Directors shall be the
candidates receiving the greatest number of affirmative votes entitled to be
cast (with each holder entitled to cast one vote for or against each candidate
with respect to each share held by such holder), with votes cast against such
candidates and votes withheld having no legal effect. The election of such
Directors shall occur at the annual meeting of holders of capital stock or at
any special meeting called and held in accordance with the by-laws of the
Corporation. If a person elected in accordance with the foregoing provisions
should cease to be a Director for any reason, the vacancy shall only be filled
by the vote of the outstanding shares entitled to vote for such Directors, in
the manner and on the basis specified above.
(b) OTHER VOTING. The holder of each share of Common
Stock shall be entitled to one vote for each such share as determined on the
record date for the vote or consent of stockholders and shall vote together with
the holders of the Series A Preferred Stock as a single class upon any items
submitted to a vote of stockholders, except as otherwise provided herein.
3. DIVIDENDS. The holders of Common Stock shall be entitled to
receive dividends out of funds legally available therefor at such times and in
such amounts as the Board of Directors may determine in its sole discretion with
the holders of Series A Preferred Stock and Common Stock sharing pari passu in
such dividends as contemplated by Section A.3.
4. LIQUIDATION. Upon any Liquidation Event, after the payment
or provision for payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of Series A Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the holders
of Common Stock shall be entitled to share ratably in the remaining assets of
the Corporation available for distribution.
ARTICLE V
In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware:
Elections of directors need not be written by ballot unless
the by-laws of the Corporation shall so provide.
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The books of the Corporation may be kept at such place within
or without the State of Delaware as the By-laws of the Corporation may provide
or as may be designated from time to time by the board of directors of the
Corporation.
ARTICLE VI
LIMITATION OF DIRECTOR'S LIABILITY
Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. If the General Corporation Law is amended after
approval by the stockholders of this ARTICLE VI to authorize corporate action
further eliminating or limiting 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 General Corporation Law of the State of
Delaware, as so amended. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
ARTICLE VII
AMENDMENT
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on a
stockholder herein are granted subject to this reservation.
ARTICLE VIII
The corporation hereby elects in this Amended and Restated
Certificate of Incorporation not to be governed by Section 203 of the General
Corporation Law of Delaware.
ARTICLE IX
STOCKHOLDER MEETINGS
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide.
ARTICLE X
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on
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the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE XI
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of
expenses in defending an action or proceeding in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by the
Indemnitee to repay such payment if it is ultimately determined that such person
is not entitled to indemnification under this ARTICLE XI, which undertaking may
be accepted without reference to the financial ability of such person to make
such repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this ARTICLE XI (i)
shall not be deemed exclusive of any other rights to which Indemnitees may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The Corporation may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to other
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employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this ARTICLE XI."
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chief Executive Officer and the Secretary
of the Corporation this 4th day of March, 1999.
/s/ Ronald Pettingill
------------------------------------------
Ronald Pettingill, Chief Executive Officer
/s/ Robert Belau
------------------------------------------
Robert Belau, Secretary
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- --------------------------------------------------------------------------------
Exhibit 3.3
PREDICTIVE SYSTEMS, INC.
Incorporated under the laws
of the State of Delaware
AMENDED AND RESTATED BY-LAWS
As adopted on March 4, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PREDICTIVE SYSTEMS, INC.
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Offices...........................................................................................1
SECTION 1. Registered Office......................................................................1
SECTION 2. Other Offices..........................................................................1
ARTICLE II MEETING OF STOCKHOLDERS; STOCKHOLDERS' CONSENT IN LIEU OF MEETING................................1
SECTION 1. Annual Meetings........................................................................1
SECTION 2. Special Meetings.......................................................................1
SECTION 3. Notice of Meetings.....................................................................2
SECTION 4. Quorum.................................................................................2
SECTION 5. Organization...........................................................................2
SECTION 6. Order of Business......................................................................3
SECTION 7. Voting.................................................................................3
SECTION 8. Inspection.............................................................................3
SECTION 9. List of Stockholders...................................................................3
SECTION 10. Stockholders' Consent in Lieu of Meeting...............................................4
ARTICLE III BOARD OF DIRECTORS..............................................................................4
SECTION 1. General Powers.........................................................................4
SECTION 2. Number and Term of Office..............................................................4
SECTION 3. Election of Directors..................................................................4
SECTION 4. Resignation, Removal and Vacancies.....................................................4
SECTION 5. Meetings...............................................................................5
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<S> <C>
SECTION 6. Directors' Consent in Lieu of Meeting..................................................6
SECTION 7. Action by Means of Conference Telephone or Similar Communications Equipment............6
SECTION 8. Committees.............................................................................6
ARTICLE IV OFFICERS.........................................................................................7
SECTION 1. Executive Officers.....................................................................7
SECTION 2. Authority and Duties...................................................................7
SECTION 3. Other Officers.........................................................................7
SECTION 4. Term of Office, Resignation and Removal................................................7
SECTION 5. Vacancies..............................................................................7
SECTION 6. The Chairman...........................................................................8
SECTION 7. The President..........................................................................8
SECTION 8. Vice Presidents........................................................................8
SECTION 9. Secretary and Assistant Secretaries....................................................8
SECTION 10. Treasurer and Assistant Treasurers.....................................................9
ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.....................................................9
SECTION 1. Execution of Documents.................................................................9
SECTION 2. Deposits..............................................................................10
SECTION 3. Proxies with Respect to Stock or Other Securities of Other Corporations...............10
ARTICLE VI SHARES AND THEIR TRANSFER; FIXING RECORD DATE...................................................10
SECTION 1. Certificates for Shares...............................................................10
SECTION 2. Record................................................................................10
SECTION 3. Transfer and Registration of Stock....................................................10
SECTION 4. Addresses of Stockholders.............................................................11
SECTION 5. Lost, Destroyed and Mutilated Certificates............................................11
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<S> <C>
SECTION 6. Regulations...........................................................................11
SECTION 7. Fixing Date for Determination of Stockholders of Record...............................11
ARTICLE VII SEAL...........................................................................................12
ARTICLE VIII FISCAL YEAR...................................................................................12
ARTICLE IX INDEMNIFICATION AND INSURANCE...................................................................12
SECTION 1. Indemnification........................................................................12
SECTION 2. Insurance..............................................................................14
ARTICLE X AMENDMENT........................................................................................14
</TABLE>
<PAGE>
AMENDED AND RESTATED BY-LAWS OF
PREDICTIVE SYSTEMS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.
The registered office of PREDICTIVE SYSTEMS, INC. (the "Corporation"),
in the State of Delaware shall be at 1209 Orange Street, Wilmington, DE, and the
registered agent in charge thereof shall be The Corporation Trust Company, or
such other office or agent as the Board of Directors of the Corporation (the
"Board") shall from time to time select.
SECTION 2. OTHER OFFICES.
The Corporation may also have an office or offices, and keep the books
and records of the Corporation, at any other place or places within or outside
the State of Delaware, as the Board may from time to time determine.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
SECTION 1. ANNUAL MEETINGS.
The annual meeting of the stockholders for the election of directors,
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, date and hour as shall be fixed by the
Board and designated in the notice or waiver of notice thereof, except that no
annual meeting need be held if all actions, including the election of directors,
required by the General Corporation Law of the State of Delaware (the "General
Corporation Law") to be taken at a stockholders' annual meeting are taken by
written consent in lieu of meeting pursuant to Section 10 of this Article II.
SECTION 2. SPECIAL MEETINGS.
A special meeting of the stockholders for any purpose or purposes may
be called by the Board, the Chairman, the President or the record holders of at
least a majority of the issued and outstanding shares of Common Stock of the
Corporation, to be held at such place, date and hour as shall be designated in
the notice or waiver of notice thereof.
<PAGE>
SECTION 3. NOTICE OF MEETINGS.
Except as otherwise required by statute, the Certificate of
Incorporation, as amended from time to time, of the Corporation (the
"Certificate") or these By-laws, notice of each annual or special meeting of the
stockholders shall be given to each stockholder of record entitled to vote at
such meeting not less than 10 nor more than 60 days before the day on which the
meeting is to be held, by delivering written notice thereof to him personally,
or by mailing a copy of such notice, postage prepaid, directly to him at his
address as it appears in the records of the Corporation, or by transmitting such
notice thereof to him at such address by telegraph, cable or other telephonic
transmission. Every such notice shall state the place, the date and hour of the
meeting, and, in case of a special meeting, the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in
person-or by proxy, or who shall, in person or by attorney thereunto authorized,
waive such notice in writing, either before or after such meeting. Except as
otherwise provided in these By-laws, neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders need be specified in any
such notice or waiver of notice. Notice of any adjourned meeting of stockholders
shall not be required to be given, except when expressly required by law.
SECTION 4. QUORUM.
At each meeting of the stockholders, except where otherwise provided by
the Certificate or these By-laws, the holders of a majority of the issued and
outstanding shares of Common Stock of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. In the absence of a quorum, a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote, or, in the absence of all the stockholders entitled to vote,
any officer entitled to preside at, or act as secretary of, such meeting, shall
have the power to adjourn the meeting from time to time, until stockholders
holding the requisite amount of stock to constitute a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
SECTION 5. ORGANIZATION.
(a) Unless otherwise determined by the Board, at each meeting of the
stockholders, one of the following shall act as Chairman of the meeting and
preside thereat, in the following order of precedence:
(i) the Chairman;
(ii) the President;
(iii) any director, officer or stockholder of the Corporation
designated by the Board to act as Chairman of such meeting and to preside
thereat if the Chairman or the President shall be absent from such meeting; or
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(iv) a stockholder of record who shall be chosen Chairman of
such meeting by a majority in voting interest of the stockholders present in
person or by proxy and entitled to vote thereat.
(b) The Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 5 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
SECTION 6. ORDER OF BUSINESS.
The order of business at each meeting of the stockholders shall be
determined by the Chairman of such meeting, but such order of business may be
changed by a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat.
SECTION 7. VOTING.
Each stockholder shall have one vote for each share of stock entitled
to vote held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may vote or express such consent or dissent in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
SECTION 8. INSPECTION.
The chairman of the meeting may at any time appoint one or more
inspectors to serve at any meeting of the stockholders. Any inspector may be
removed, and a new inspector or inspectors appointed, by the Board at any time.
Such inspectors shall decide upon the qualifications of voters, accept and count
votes, declare the results of such vote, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for and against the question, respectively. The inspectors need not be
stockholders of the Corporation, and any director or officer of the Corporation
may be an inspector on any question other than a vote for or against his
election to any position with the Corporation or on any other matter in which he
may be directly interested. Before acting as herein provided, each inspector
shall subscribe an oath faithfully to execute the duties of an inspector with
strict impartiality and according to the best of his ability.
SECTION 9. LIST OF STOCKHOLDERS.
It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make, at
least 10 days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical
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order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to any such meeting,
during ordinary business hours, for a period of at least 10 days prior to
such meeting, either at a place within the city where such meeting is to be
held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. Such list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 10. STOCKHOLDERS' CONSENT IN LIEU OF MEETING.
Any action required by the General Corporation Law to be taken at any
annual or special meeting of the stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, by a consent
in writing, as permitted by the General Corporation Law.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 1. GENERAL POWERS.
The business, property and affairs of the Corporation shall be managed
by or under the direction of the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law or by
the Certificate directed or required to be exercised or done by the
stockholders.
SECTION 2. NUMBER AND TERM OF OFFICE.
Except as otherwise required by the Certificate, the number of
directors shall be fixed from time to time by the Board; provided that the
number of directors shall not be less than 3 nor more than 7. Directors need not
be stockholders. Each director shall hold office until his successor is elected
and qualified, or until his earlier death or resignation or removal in the
manner hereinafter provided.
SECTION 3. ELECTION OF DIRECTORS.
Except as otherwise required by the Certificate, at each meeting of the
stockholders for the election of directors at which a quorum is present, the
persons receiving the greatest number of votes, up to the number of directors to
be elected, of the stockholders present in person or by proxy and entitled to
vote thereon shall be the directors; provided, however, that for purposes of
such vote no stockholder shall be allowed to cumulate his votes. Unless an
election by ballot shall be demanded as provided in Section 7 of Article II,
election of directors may be conducted in any manner approved at such meeting.
SECTION 4. RESIGNATION, REMOVAL AND VACANCIES.
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(a) Any director may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon receipt thereof; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
(b) Except as otherwise required by the Certificate, any
director or the entire Board may be removed, with or without cause, at any time
by vote of the holders of a majority of the shares then entitled to vote at an
election of directors or by written consent of the stockholders pursuant to
Section 10 of Article II.
(c) Except as otherwise required by the Certificate, vacancies
occurring on the Board for any reason may be filled by vote of the stockholders
or by the stockholders' written consent pursuant to Section 10 of Article II, or
by vote of the Board or by the directors' written consent pursuant to Section 6
of this Article III. If the number of directors then in office is less than a
quorum, such vacancies may be filled by a vote of a majority of the directors
then in office.
SECTION 5. MEETINGS.
(a) ANNUAL MEETINGS. As soon as practicable after each annual election
of directors, the Board shall meet for the purpose of organization and the
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 6 of this Article III.
(b) OTHER MEETINGS. Other meetings of the Board shall be held at such
times and places as the Board, the Chairman, the President or any director shall
from time to time determine.
(c) NOTICE OF MEETINGS. Notice shall be given to each director of each
meeting, including the time, place and purpose of such meeting. Notice of each
such meeting shall be mailed to each director, addressed to him at his residence
or usual place of business, at least three days before the date on which such
meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than two days before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
(d) PLACE OF MEETINGS. The Board may hold its meetings at such place or
places within or outside the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) QUORUM AND MANNER OF ACTING. Except as otherwise required by the
Certificate, a majority of the total number of directors then in office shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and the vote of a majority of
those directors present at any such meeting at which a quorum is present shall
be necessary for the passage of any resolution or act of the Board, except as
otherwise expressly required by law or these By-laws. In the absence of a quorum
for any such meeting, a
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majority of the directors present thereat may adjourn such meeting from time to
time until a quorum shall be present.
(f) ORGANIZATION. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman;
(ii) the President (if a director); or
(iii) any director designated by a majority of the directors
present.
The Secretary or, in the case of his absence, an Assistant Secretary, if an
Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
SECTION 6. DIRECTORS' CONSENT IN LIEU OF MEETING.
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, shall be signed by
all the directors then in office and such consent is filed with the minutes of
the proceedings of the Board.
SECTION 7. ACTION BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR
COMMUNICATIONS EQUIPMENT.
Any one or more members of the Board may participate in a meeting of
the Board by means of conference telephone or similar communications equipment
by which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
SECTION 8. COMMITTEES.
The Board may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each such committee to consist of
one or more directors of the Corporation, which to the extent provided in said
resolution or resolutions shall have and may exercise the powers of the Board in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it,
such committee or committees to have such name or names as may be determined
from time to time by resolution adopted by the Board. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board shall
have power to change the members of any such committee at any time, to fill
vacancies and to discharge any such committee, either with or without cause, at
any time.
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ARTICLE IV
OFFICERS
--------
SECTION 1. EXECUTIVE OFFICERS.
The principal officers of the Corporation shall be a Chairman, if one
is appointed (and any references to the Chairman shall not apply if a Chairman
has not been appointed), a President, a Secretary, and a Treasurer, and may
include such other officers as the Board may appoint pursuant to Section 3 of
this Article IV. Any two or more offices may be held by the same person.
SECTION 2. AUTHORITY AND DUTIES.
All officers, as between themselves and the Corporation, shall have
such authority and perform such duties in the management of the Corporation as
may be provided in these By-laws or, to the extent so provided, by the Board.
SECTION 3. OTHER OFFICERS.
The Corporation may have such other officers, agents and employees as
the Board may deem necessary, including one or more Assistant Secretaries, one
or more Assistant Treasurers and one or more Vice Presidents, each of whom shall
hold office for such period, have such authority, and perform such duties as the
Board, the Chairman, or the President may from time to time determine. The Board
may delegate to any principal officer the power to appoint and define the
authority and duties of, or remove, any such officers, agents, or employees.
SECTION 4. TERM OF OFFICE, RESIGNATION AND REMOVAL.
(a) All officers shall be elected or appointed by the Board
and shall hold office for such term as may be prescribed by the Board. Each
officer shall hold office until his successor has been elected or appointed and
qualified or until his earlier death or resignation or removal in the manner
hereinafter provided.
(b) Any officer may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, at the time it is accepted by action of the Board. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.
(c) Except as otherwise required by the Certificate, all
officers and agents elected or appointed by the Board shall be subject to
removal at any time by the Board with or without cause.
SECTION 5. VACANCIES.
If the office of Chairman, President, Secretary or Treasurer becomes
vacant for any reason, the Board shall fill such vacancy, and if any other
office becomes vacant, the Board may fill such vacancy. Any officer so appointed
or elected by the Board shall serve only until such
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time as the unexpired term of his predecessor shall have expired, unless
reelected or reappointed by the Board.
SECTION 6. THE CHAIRMAN.
Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
stockholders at which he is present.
SECTION 7. THE CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. The Chief Executive Officer shall perform
such other duties and shall have such other powers as the Board of Directors may
from time to time prescribe.
SECTION 8. THE PRESIDENT.
The President shall, subject to the direction of the Board of Directors
and the Chief Executive Officer, have general charge and supervision of the
business of the corporation. Unless the Board of Directors has designated a
Chief Executive Officer, the President shall be the Chief Executive Officer of
the corporation. The President shall perform such other duties and shall have
such other powers as the Board of Directors may from time to time prescribe.
SECTION 9. VICE PRESIDENTS.
Any Vice President shall perform such duties and possess such powers as
the Board of Directors or the President may from time to time prescribe. In the
event of the absence, inability or refusal to act of the President, the Vice
President (or if there shall be more than one, the Vice Presidents in the order
determined by the Board of Directors) shall perform the duties of the President
and when so performing shall have all the powers of and be subject to all the
restrictions upon the President. The Board of Directors may assign to any Vice
President the title of Executive Vice President, Senior Vice President or any
other title selected by the Board of Directors.
SECTION 10. SECRETARY AND ASSISTANT SECRETARIES.
The Secretary shall perform such duties and shall have such powers as
the Board of Directors or the President may from time to time prescribe. In
addition, the Secretary shall perform such duties and have such powers as are
incident to the office of the secretary, including without limitation the duty
and power to give notices of all meetings of stockholders and special
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meetings of the Board of Directors, to attend all meetings of stockholders and
the Board of Directors and keep a record of the proceedings, to maintain a stock
ledger and prepare lists of stockholders and their addresses as required, to be
custodian of corporate records and the corporate seal and to affix and attest to
the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
SECTION 11. TREASURER AND ASSISTANT TREASURERS.
The Treasurer shall perform such duties and shall have such powers as
may from time to time be assigned to him by the Board of Directors or the
President. In addition, the Treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such powers as
the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
SECTION 1. EXECUTION OF DOCUMENTS.
The Board shall designate, by either specific or general resolution,
the officers, employees and agents of the Corporation who shall have the power
to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; unless so
designated or expressly authorized by these By-laws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any contract
or engagement, to pledge its credit or to render it liable pecuniarily for any
purpose or amount.
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SECTION 2. DEPOSITS.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
SECTION 3. PROXIES WITH RESPECT TO STOCK OR OTHER SECURITIES OF OTHER
CORPORATIONS.
The Board shall designate the officers of the Corporation who shall
have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent with respect to such
stock or securities. Such designated officers may instruct the person or persons
so appointed as to the manner of exercising such powers and rights, and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers and
rights.
ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
---------------------------------------------
SECTION 1. CERTIFICATES FOR SHARES.
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number and class of shares owned by him in the
Corporation, which shall be in such form as shall be prescribed by the Board.
Certificates shall be numbered and issued in consecutive order and shall be
signed by, or in the name of, the Corporation by the Chairman, the President or
any Vice President, and by the Treasurer (or an Assistant Treasurer, if
appointed) or the Secretary (or an Assistant Secretary, if appointed). In case
any officer or officers who shall have signed any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate had not
ceased to be such officer or officers of the Corporation.
SECTION 2. RECORD.
A record in one or more counterparts shall be kept of the name of the
person, firm or corporation owning the shares represented by each certificate
for stock of the Corporation issued, the number of shares represented by each
such certificate, the date thereof and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in whose
name shares of stock stand on the stock record of the Corporation shall be
deemed the owner thereof for all purposes regarding the Corporation.
SECTION 3. TRANSFER AND REGISTRATION OF STOCK.
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(a) The transfer of stock and certificates which represent the stock of
the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the
Delaware Code (the Uniform Commercial Code), as amended from time to time.
(b) Registration of transfers of shares of the Corporation shall be
made only on the books of the Corporation upon request of the registered holder
thereof, or of his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and upon the surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by a stock power duly executed.
SECTION 4. ADDRESSES OF STOCKHOLDERS.
Each stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served or mailed to
him, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon him by mail directed to him at his post-office
address, if any, as the same appears on the share record books of the
Corporation or at his last known post-office address.
SECTION 5. LOST, DESTROYED AND MUTILATED CERTIFICATES.
The holder of any shares of the Corporation shall immediately notify
the Corporation of any loss, destruction or mutilation of the certificate
therefor, and the Board may, in its discretion, cause to be issued to him a new
certificate or certificates for such shares, upon the surrender of the mutilated
certificates or, in the case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the Corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
SECTION 6. REGULATIONS.
The Board may make such rules and regulations as it may deem expedient,
not inconsistent with these By-laws, concerning the issue, transfer and
registration of certificates for stock of the Corporation.
SECTION 7. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) 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, the Board 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, and which record date shall be not more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at 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;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
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(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
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, and which date
shall be not more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the General Corporation 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 by delivery to its registered office in this State,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
General Corporation Law, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board adopts the resolution taking
such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders 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 may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
ARTICLE VII
SEAL
----
The corporate seal shall be in such form as shall be approved by the
Board of Directors.
ARTICLE VIII
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be the calendar year unless
otherwise determined by the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. INDEMNIFICATION.
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(a) As provided in the Charter, to the fullest extent permitted by the
General Corporation Law as the same exists or may hereafter be amended, a
director of this Corporation shall not be liable to the Corporation or its
stockholders for breach of fiduciary duty as a director.
(b) Without limitation of any right conferred by paragraph (a) of this
Section 1, each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
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 while serving
as a director or officer or in any other capacity while serving as a director or
officer, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the General Corporation Law, 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 permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, fines, excise taxes or
amounts paid in settlement) reasonably incurred or suffered by such indemnitee
in connection therewith and such indemnification shall continue as to an
indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, testators, intestates, executors and
administrators; provided, however, that such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and with respect to a criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; provided further, however,
that no indemnification shall be made in the case of an action, suit or
proceeding by or in the right of the Corporation in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
director, officer, employee or agent is liable to the Corporation, unless a
court having jurisdiction shall determine that, despite such adjudication, such
person is fairly and reasonably entitled to indemnification; provided further,
however, that, except as provided in Section l(c) of this Article IX with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
initiated by such indemnitee was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article IX shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however, that,
if the General Corporation Law requires, an advancement of expenses incurred by
an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise.
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(c) If a claim under Section (b) of this Article IX is not paid in full
by the Corporation with 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of any undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses), and
(ii) in any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such expenses upon a final adjudication, it shall be a defense that the
indemnitee has not met the applicable standard of conduct set forth in the
General Corporation Law. Neither the failure of the Corporation (including the
Board, independent legal counsel, or the stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the General Corporation Law, nor an
actual determination by the Corporation (including the Board, independent legal
counsel, or the stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the Corporation.
(d) The rights to indemnification and to the advancement of expenses
conferred in this Article IX shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Charter, agreement,
vote of stockholders or disinterested directors or otherwise.
SECTION 2. INSURANCE.
(a) The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any person who is or was a director, officer,
employee or agent of the Corporation or any person who is or was serving at the
request of the Corporation as a director, officer, employer or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law.
ARTICLE X
AMENDMENT
---------
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Except as required by the Certificate, any by-law (including these
By-laws) may be adopted, amended or repealed by the vote of the holders of a
majority of the shares then entitled to vote or by the stockholders' written
consent pursuant to Section 10 of Article II, or by the vote of the Board or by
the directors' written consent pursuant to Section 6 of Article III.
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Exhibit 4.3
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS OR PURSUANT TO A
WRITTEN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
WARRANT AND THE SECURITIES ACQUIRED PURSUANT TO THE EXERCISE OF THIS WARRANT ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED MARCH 5, 1999,
AMONG PREDICTIVE SYSTEMS, INC., GENERAL ATLANTIC PARTNERS 54, L.P., GAP
COINVESTMENT PARTNERS II, L.P., AND THE STOCKHOLDERS NAMED THEREIN (THE
"STOCKHOLDERS AGREEMENT"), A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES
ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT.
---------------------------------------------
PREDICTIVE SYSTEMS, INC.
STOCK PURCHASE WARRANT
---------------------------------------------
This certifies that, for good and valuable consideration, Predictive
Systems, Inc., a Delaware corporation (the "Company"), grants to General
Atlantic Partners 54, L.P., a Delaware limited partnership (the
"Warrantholder"), the right to subscribe for and purchase from the Company such
number of validly issued, fully paid and nonassessable shares of Common Stock
(as defined herein) (the "Warrant Shares"), at the IPO Price (the "Exercise
Price"), as determined in accordance with Section 1 below, subject to the terms,
conditions and adjustments herein set forth.
<PAGE>
2
This Warrant was issued in connection with the Stock and Warrant
Purchase Agreement, dated March 5, 1999 (the "Stock and Warrant Purchase
Agreement"), among the Company, General Atlantic Partners 54, L.P. ("GAP LP"),
GAP Coinvestment Partners II, L.P. ("GAP Coinvestment"), and the other
purchasers named therein, and is subject to the terms thereof. The Warrantholder
is entitled to the rights and subject to the obligations contained in the Stock
and Warrant Purchase Agreement, the Stockholders Agreement and in the
Registration Rights Agreement, dated the date hereof, among the Company, GAP LP,
GAP Coinvestment and the Stockholders named therein, in each case relating to
this Warrant and the Warrant Shares.
1. WARRANT SHARES.
This Warrant shall be exercisable only during the Exercise
Period, and entitles the Warrantholder to purchase, in whole or in part, from
the Company, at the Exercise Price, up to 12.417% of the total number of shares
of Common Stock registered for sale pursuant to the final prospectus relating to
the IPO (or as otherwise permitted by law).
2. EXERCISE OF WARRANT; PAYMENT OF TAXES.
2.1 EXERCISE OF WARRANT. Subject to the terms and
conditions set forth herein, this Warrant may be exercised, in whole or in part,
by the War rantholder by:
(a) the delivery of a duly executed Exercise Form to
the Company during the Exercise Period, and
(b) the surrender of this Warrant and the delivery of
payment to the Company, for the account of the Company, by cash, wire transfer,
certified or official bank check or any other means approved by the Company, of
the Exercise Price in lawful money of the United States of America, at the
closing of the IPO.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business at the closing of the IPO. Notwithstanding anything to the contrary set
forth herein, the Warrantholder's obligation to pay the Exercise Price shall be
conditioned upon the closing of the IPO; if, for any reason, the closing of the
IPO does not occur within one hundred and twenty (120) days after the
Warrantholder has delivered a duly executed Exercise Form, then the
Warrantholder shall be entitled to withdraw its Exercise Form and deliver a new
Exercise Form, with respect to any subsequent filing of a registration
<PAGE>
3
statement by the Company in preparation for the same IPO or a new public
offering of Common Stock, without any prejudice to its rights hereunder.
2.2 WARRANT SHARES CERTIFICATE. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as soon as practicable after receipt of the
Exercise Form by the Company and payment of the Exercise Price.
2.3 PAYMENT OF TAXES. The issuance of certificates for
Warrant Shares shall be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto.
2.4 LIMITATION ON NUMBER OF SHARES TO BE PURCHASED.
Notwithstanding anything in this Warrant to the contrary, the Warrantholder
shall exercise this Warrant only for a number of shares that will not cause the
aggregate percentage equity ownership of Warrantholder and its Affiliates in the
Company after the IPO to exceed the aggregate percentage equity ownership of the
Warrantholder and its Affiliates in the Company as of the date three months
prior to the filing of a registration statement in connection with the IPO (as
required by NASD Rule 2110(h)).
3. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
3.1 This Warrant may not be offered, sold, transferred,
pledged or otherwise disposed of, in whole or in part, to any Person other than
an Affiliate of the Warrantholder without the prior written consent of the
Company, which shall not be unreasonably withheld.
3.2 Except as otherwise permitted by this Section 3, each
Warrant (and each Warrant issued in substitution for any Warrant pursuant to
Section 4) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THIS WARRANT, SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION
OF COUNSEL (WHICH COUNSEL
<PAGE>
4
AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY) THAT
SUCH REGISTRATION IS NOT REQUIRED.
Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant without a legend if either (i) such Warrant has been
registered for resale under the Securities Act, (ii) the Warrantholder has
delivered to the Company an opinion of legal counsel (from a firm reasonably
satisfactory to the Company) which opinion shall be addressed to the Company and
be reasonably satisfactory in form and substance to the Company's counsel, to
the effect that such registration is not required with respect to such Warrant,
or (iii) such Warrant may be sold pursuant to Rule 144(k) (or any successor
provision then in effect) under the Securities Act.
4. RESERVATION AND REGISTRATION OF SHARES, ETC. The Company
covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the
exercise of this Warrant shall, upon issuance and payment of the Exercise Price,
be validly issued, fully paid and nonassessable, not subject to any preemptive
rights, and free from all taxes, liens, security interests, charges, and other
encumbrances with respect to the issuance thereof, other than taxes in respect
of any transfer occurring contemporaneously with such issue.
(b) The Company shall, from the time when the number of
Warrant Shares is ascertained, have authorized and reserved, and shall keep
available free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
(c) The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and shall at all times in good faith assist in performing and
giving effect to the terms hereof and in the taking of all such actions as may
be necessary or appropriate in order to protect the rights of the Warrantholder
against dilution or other impairment.
5. LOSS OR DESTRUCTION OF WARRANT. Subject to the terms and
conditions hereof, upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, of such bond or indemnification
as the Company may reasonably require, and, in the case of such mutilation, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor.
<PAGE>
5
6. OWNERSHIP OF WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
7. AMENDMENTS. Any provision of this Warrant may be amended and
the observance thereof waived only with the written consent of the Company and
the Warrantholder.
8. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"AFFILIATE" has the meaning specified in the Stock and Warrant
Purchase Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a
day on which commercial banks in the State of New York are authorized by law to
close.
"CERTIFICATE OF INCORPORATION" means the Certificate of
Incorporation, substantially in the form attached to the Stock and Warrant
Purchase Agreement as EXHIBIT A-1.
"CLOSING DATE" means the closing date of an Initial Public
Offering.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON STOCK" means the common stock, par value $.001 per share,
of the Company.
"COMPANY" has the meaning specified on the cover of this Warrant.
"EXERCISE FORM" means an Exercise Form in the form annexed hereto
as Exhibit A.
"EXERCISE PERIOD" means the period commencing immediately upon
the first filing of the Company's registration statement on Form S-1 (or
successor form then in effect) with respect to the IPO, upon which date the
Company shall provide notice to the Warrantholder of such filing and the
commencement of the Exercise Period, and ending upon the date twenty (20)
Business Days thereafter.
<PAGE>
6
"EXERCISE PRICE" has the meaning specified on the cover of this
Warrant.
"GAP COINVESTMENT" has the meaning specified on the cover of this
Warrant.
"GAP LP" has the meaning specified on the cover of this Warrant.
"IPO" means the Company's first underwritten public offering of
Common Stock pursuant to an effective registration statement under the
Securities Act (i) resulting in aggregate net proceeds (after expenses and
underwriting commissions and discounts) to the Company and any selling
stockholders of at least $30,000,000, and (ii) with an offering price per share
of at least twice the then applicable Conversion Price (as such term is defined
in the Certificate of Incorporation).
"IPO PRICE" means the final price per share at which shares of
Common Stock are offered for sale to the public in the IPO as set forth in the
final prospectus relating to the IPO.
"NASD RULES" means the rules of the National Association of
Securities Dealers, Inc.
"PERSON" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, substantially in the form attached to the Stock and Warrant Purchase
Agreement as EXHIBIT C.
"SECURITIES ACT" has the meaning specified on the cover of this
Warrant, or any similar Federal statute, and the rules and regulations of the
United States Securities and Exchange Commission thereunder, all as the same
shall be in effect at the time. Reference to a particular section of the
Securities Act shall be deemed to include a reference to the comparable section,
if any, of any such similar Federal statute.
"STOCK AND WARRANT PURCHASE AGREEMENT" has the meaning specified
on the cover of this Warrant.
"STOCKHOLDERS AGREEMENT" has the meaning specified on the cover
of this Warrant.
<PAGE>
7
"WARRANTHOLDER" has the meaning specified on the cover of this
Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this
Warrant.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement between the Company and the Warrantholder with respect to the
Warrants.
9.2 BINDING EFFECT; BENEFITS. This Warrant shall inure to
the benefit of and shall be binding upon the Company and the Warrantholder and
their respective permitted successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person other than
the Company and the Warrantholder, or their respective permitted successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant.
9.3 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
9.4 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
(a) if to the Warrantholder:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Peter L. Bloom
Mark J. Lotke
<PAGE>
8
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
Predictive Systems, Inc.
145 Hudson Street, 6th Floor
New York, NY 10013
Telecopy: (212) 219-2499
Attention: Ronald Pettengill
Robert Belau
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, NY 10019
Telecopy: (212) 586-7878
Attention: Alexander D. Lynch, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 9.4 designate another
address or Person for receipt of notices hereunder.
9.5 SEVERABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF
<PAGE>
9
THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF.
9.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained
in this Warrant shall be determined as conferring upon the Warrantholder any
rights as a stockholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or stockholders of the Company or otherwise.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
PREDICTIVE SYSTEMS, INC.
By: /s/ Ronald Pettengill
------------------------------------
Name: Ronald Pettengill
Title: Chief Executive Officer
Dated: March 5, 1999
<PAGE>
EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase [ ]%1/ of the total number of shares of
Common Stock to be registered for sale pursuant to the final prospectus relating
to the IPO and herewith agrees to tender payment for such shares to the order of
Predictive Systems, Inc. in accordance with the terms of this Warrant. [The
undersigned requests that a certificate for such shares be registered in the
name of the undersigned and that such certificates be delivered to the
undersigned's address below.]
The undersigned represents that it is acquiring such shares for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control).
Dated:
-----------------------
Signature
-----------------------------
(Print Name)
-----------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- ---------------------------------
- -----------------
1/ [up to 12.417%.]
<PAGE>
Exhibit 4.4
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS OR PURSUANT TO A
WRITTEN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
WARRANT AND THE SECURITIES ACQUIRED PURSUANT TO THE EXERCISE OF THIS WARRANT ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED MARCH 5, 1999,
AMONG PREDICTIVE SYSTEMS, INC., GENERAL ATLANTIC PARTNERS 54, L.P., GAP
COINVESTMENT PARTNERS II, L.P., AND THE STOCKHOLDERS NAMED THEREIN (THE
"STOCKHOLDERS AGREEMENT"), A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES
ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT.
---------------------------------------------
PREDICTIVE SYSTEMS, INC.
STOCK PURCHASE WARRANT
---------------------------------------------
This certifies that, for good and valuable consideration,
Predictive Systems, Inc., a Delaware corporation (the "Company"), grants to GAP
Coinvestment Partners II, L.P., a Delaware limited partnership (the
"Warrantholder"), the right to subscribe for and purchase from the Company such
number of validly issued, fully paid and nonassessable shares of Common Stock
(as defined herein) (the "Warrant Shares"), at the IPO Price (the "Exercise
Price"), as determined in accordance with Section 1 below, subject to the terms,
conditions and adjustments herein set forth.
<PAGE>
2
This Warrant was issued in connection with the Stock and
Warrant Purchase Agreement, dated March 5, 1999 (the "Stock and Warrant Purchase
Agreement"), among the Company, General Atlantic Partners 54, L.P. ("GAP LP"),
GAP Coinvestment Partners II, L.P. ("GAP Coinvestment"), and the other
purchasers named therein, and is subject to the terms thereof. The Warrantholder
is entitled to the rights and subject to the obligations contained in the Stock
and Warrant Purchase Agreement, the Stockholders Agreement and in the
Registration Rights Agreement, dated the date hereof, among the Company, GAP LP,
GAP Coinvestment and the Stockholders named therein, in each case relating to
this Warrant and the Warrant Shares.
1. WARRANT SHARES.
This Warrant shall be exercisable only during the
Exercise Period, and entitles the Warrantholder to purchase, in whole or in
part, from the Company, at the Exercise Price, up to 2.583% of the total number
of shares of Common Stock registered for sale pursuant to the final prospectus
relating to the IPO (or as otherwise permitted by law).
2. EXERCISE OF WARRANT; PAYMENT OF TAXES.
2.1 EXERCISE OF WARRANT. Subject to the terms and
conditions set forth herein, this Warrant may be exercised, in whole or in part,
by the War rantholder by:
(a) the delivery of a duly executed Exercise
Form to the Company during the Exercise Period, and
(b) the surrender of this Warrant and the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer, certified or official bank check or any other means approved by
the Company, of the Exercise Price in lawful money of the United States of
America, at the closing of the IPO.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business at the closing of the IPO. Notwithstanding anything to the contrary set
forth herein, the Warrantholder's obligation to pay the Exercise Price shall be
conditioned upon the closing of the IPO; if, for any reason, the closing of the
IPO does not occur within one hundred and twenty (120) days after the
Warrantholder has delivered a duly executed Exercise Form, then the
Warrantholder shall be entitled to withdraw its Exercise Form and deliver a new
Exercise Form, with respect to any subsequent filing of a registration
<PAGE>
3
statement by the Company in preparation for the same IPO or a new public
offering of Common Stock, without any prejudice to its rights hereunder.
2.2 WARRANT SHARES CERTIFICATE. A stock certificate
or certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as soon as practicable after receipt of the
Exercise Form by the Company and payment of the Exercise Price.
2.3 PAYMENT OF TAXES. The issuance of certificates
for Warrant Shares shall be made without charge to the Warrantholder for any
stock transfer or other issuance tax in respect thereto.
2.4 LIMITATION ON NUMBER OF SHARES TO BE PURCHASED.
Notwithstanding anything in this Warrant to the contrary, the Warrantholder
shall exercise this Warrant only for a number of shares that will not cause the
aggregate percentage equity ownership of Warrantholder and its Affiliates in the
Company after the IPO to exceed the aggregate percentage equity ownership of the
Warrantholder and its Affiliates in the Company as of the date three months
prior to the filing of a registration statement in connection with the IPO (as
required by NASD Rule 2110(h)).
3. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
3.1 This Warrant may not be offered, sold,
transferred, pledged or otherwise disposed of, in whole or in part, to any
Person other than an Affiliate of the Warrantholder without the prior written
consent of the Company, which shall not be unreasonably withheld.
3.2 Except as otherwise permitted by this Section 3,
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 4) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER
THIS WARRANT, SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF
COUNSEL (WHICH COUNSEL
<PAGE>
4
AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY) THAT SUCH
REGISTRATION IS NOT REQUIRED.
Notwithstanding the foregoing, the Warrantholder may require
the Company to issue a Warrant without a legend if either (i) such Warrant has
been registered for resale under the Securities Act, (ii) the Warrantholder has
delivered to the Company an opinion of legal counsel (from a firm reasonably
satisfactory to the Company) which opinion shall be addressed to the Company and
be reasonably satisfactory in form and substance to the Company's counsel, to
the effect that such registration is not required with respect to such Warrant,
or (iii) such Warrant may be sold pursuant to Rule 144(k) (or any successor
provision then in effect) under the Securities Act.
4. RESERVATION AND REGISTRATION OF SHARES, ETC. The Company
covenants and agrees as follows:
(a) All Warrant Shares that are issued upon
the exercise of this Warrant shall, upon issuance and payment of the Exercise
Price, be validly issued, fully paid and nonassessable, not subject to any
preemptive rights, and free from all taxes, liens, security interests, charges,
and other encumbrances with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issue.
(b) The Company shall, from the time when
the number of Warrant Shares is ascertained, have authorized and reserved, and
shall keep available free from preemptive rights, a sufficient number of shares
of Common Stock to provide for the exercise of the rights represented by this
Warrant.
(c) The Company shall not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and shall at all times in good faith assist in performing
and giving effect to the terms hereof and in the taking of all such actions as
may be necessary or appropriate in order to protect the rights of the
Warrantholder against dilution or other impairment.
5. LOSS OR DESTRUCTION OF WARRANT. Subject to the terms and
conditions hereof, upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, of such bond or indemnification
as the Company may reasonably require, and, in the case of such mutilation, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor.
<PAGE>
5
6. OWNERSHIP OF WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
7. AMENDMENTS. Any provision of this Warrant may be amended
and the observance thereof waived only with the written consent of the Company
and the Warrantholder.
8. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"AFFILIATE" has the meaning specified in the Stock and Warrant
Purchase Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which commercial banks in the State of New York are authorized by law
to close.
"CERTIFICATE OF INCORPORATION" means the Certificate of
Incorporation, substantially in the form attached to the Stock and Warrant
Purchase Agreement as EXHIBIT A-1.
"CLOSING DATE" means the closing date of an Initial Public
Offering.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company.
"COMPANY" has the meaning specified on the cover of this
Warrant.
"EXERCISE FORM" means an Exercise Form in the form annexed
hereto as Exhibit A.
"EXERCISE PERIOD" means the period commencing immediately upon
the first filing of the Company's registration statement on Form S-1 (or
successor form then in effect) with respect to the IPO, upon which date the
Company shall provide notice to the Warrantholder of such filing and the
commencement of the Exercise Period, and ending upon the date twenty (20)
Business Days thereafter.
<PAGE>
6
"EXERCISE PRICE" has the meaning specified on the cover of
this Warrant.
"GAP COINVESTMENT" has the meaning specified on the cover of
this Warrant.
"GAP LP" has the meaning specified on the cover of this
Warrant.
"IPO" means the Company's first underwritten public offering
of Common Stock pursuant to an effective registration statement under the
Securities Act (i) resulting in aggregate net proceeds (after expenses and
underwriting commissions and discounts) to the Company and any selling
stockholders of at least $30,000,000, and (ii) with an offering price per share
of at least twice the then applicable Conversion Price (as such term is defined
in the Certificate of Incorporation).
"IPO PRICE" means the final price per share at which shares of
Common Stock are offered for sale to the public in the IPO as set forth in the
final prospectus relating to the IPO.
"NASD RULES" means the rules of the National Association of
Securities Dealers, Inc.
"PERSON" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, substantially in the form attached to the Stock and Warrant Purchase
Agreement as EXHIBIT C.
"SECURITIES ACT" has the meaning specified on the cover of
this Warrant, or any similar Federal statute, and the rules and regulations of
the United States Securities and Exchange Commission thereunder, all as the same
shall be in effect at the time. Reference to a particular section of the
Securities Act shall be deemed to include a reference to the comparable section,
if any, of any such similar Federal statute.
"STOCK AND WARRANT PURCHASE AGREEMENT" has the meaning
specified on the cover of this Warrant.
"STOCKHOLDERS AGREEMENT" has the meaning specified on the
cover of this Warrant.
<PAGE>
7
"WARRANTHOLDER" has the meaning specified on the cover of this
Warrant.
"WARRANT SHARES" has the meaning specified on the cover of
this Warrant.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Warrant constitutes the
entire agreement between the Company and the Warrantholder with respect to the
Warrants.
9.2 BINDING EFFECT; BENEFITS. This Warrant shall
inure to the benefit of and shall be binding upon the Company and the
Warrantholder and their respective permitted successors and assigns. Nothing in
this Warrant, expressed or implied, is intended to or shall confer on any person
other than the Company and the Warrantholder, or their respective permitted
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant.
9.3 SECTION AND OTHER HEADINGS. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
9.4 NOTICES. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(a) if to the Warrantholder:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Peter L. Bloom
Mark J. Lotke
<PAGE>
8
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
Predictive Systems, Inc.
145 Hudson Street, 6th Floor
New York, NY 10013
Telecopy: (212) 219-2499
Attention: Ronald Pettengill
Robert Belau
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, NY 10019
Telecopy: (212) 586-7878
Attention: Alexander D. Lynch, Esq.
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 9.4
designate another address or Person for receipt of notices hereunder.
9.5 SEVERABILITY. Any term or provision of this
Warrant which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the terms and
provisions of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
9.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
<PAGE>
9
THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF.
9.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
PREDICTIVE SYSTEMS, INC.
By: /s/ Ronald Pettengill
------------------------------------
Name: Ronald Pettengill
Title: Chief Executive Officer
Dated: March 5, 1999
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EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant, to purchase [ ]%1/ of the total number of
shares of Common Stock to be registered for sale pursuant to the final
prospectus relating to the IPO and herewith agrees to tender payment for such
shares to the order of Predictive Systems, Inc. in accordance with the terms of
this Warrant. [The undersigned requests that a certificate for such shares be
registered in the name of the undersigned and that such certificates be
delivered to the undersigned's address below.]
The undersigned represents that it is acquiring such shares
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control).
Dated:
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Signature
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---------------------------------
(Print Name)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
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- -----------------------------
1/ [up to 2.583%.]
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Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), made and entered into this
11th day of May, 1999, by and between Predictive Systems, Inc., a Delaware
corporation with principal offices located at 145 Hudson Street, New York, New
York 10013 (the "Company"), and Ronald Pettengill (the "Executive").
WITNESSETH
WHEREAS, the Company has a need for the Executive's personal services
in an executive capacity; and
WHEREAS, the Executive possesses the necessary strategic, financial,
planning, operational and managerial skills necessary to fulfill those needs;
and
WHEREAS, the Executive currently is serving in the role of Chief
Executive Officer of the Company; and
WHEREAS, the Executive and the Company desire to enter into a formal
Employment Agreement to fully recognize the contributions of Executive to the
Company and to assure continuous harmonious performance of the affairs of the
Company.
NOW, THEREFORE, in consideration of the mutual promises, terms,
provisions, and conditions contained herein, the parties agree as follows:
1. POSITION.
The Company hereby agrees to continue to employ the Executive to serve
in the role of Chief Executive Officer ("CEO") of the Company, subject to the
limitation set forth herein. As such, the Executive shall have general
responsibility for the business of the Company and authority over the employees
and consultants of the Company subject to the authority of the Board of
Directors of the Company (the "Board"). The Executive accepts such employment
upon the terms and conditions set forth herein, and further agrees to perform to
the best of his abilities the duties generally associated with his position, as
well as such other duties commensurate with his position as CEO as may be
reasonably assigned by the Board. The Executive shall, at all times during the
Term, report directly to the Board. The Executive shall perform his duties
diligently and faithfully and shall devote his full business time and attention
to such duties.
2. TERM OF EMPLOYMENT AND RENEWAL.
The term of Executive's employment under this Agreement will commence
on the date of this Agreement (the "Effective Date"). Subject to the provisions
of Section 10 of this Agreement, the term of Executive's employment hereunder
shall be for an initial term of three (3) years from the Effective Date (the
"Initial Term"). The Initial Term of this Agreement shall
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be automatically extended for successive one (1) year periods (each a "Renewal
Period") unless the Company or the Executive gives written notice to the other
at least thirty (30) days prior to the expiration of the Initial Term, or a
Renewal Period, of such party's election not to extend this Agreement.
References herein to the "Term" shall mean the Initial Term as it may be so
extended by one or more Renewal Periods. The last day of the Term is the
"Expiration Date."
3. COMPENSATION AND BENEFITS.
(a) SALARY. Commencing on the Effective Date, the Company agrees to pay
the Executive a base salary at an annual rate of Two Hundred Thousand Dollars
($200,000) for the first year of the Term, payable in such installments as is
the policy of the Company (the "Salary"), but no less frequently than monthly.
Thereafter, the Board shall determine appropriate increases to Executive's
Salary but in no event shall diminish the amount of Executive's Salary below the
initial rate, or below the increased rates.
(b) BONUS. The Executive shall be receive performance-based bonuses, as
follows: (i) Twenty-five Thousand Dollars ($25,000) upon the closing of an
initial public offering of the Company's stock; (ii) Twenty-five Thousand
Dollars ($25,000) if the Company's gross revenues are between Forty-seven
Million Dollars ($47,000,000) and Fifty-one Million Dollars ($51,000,000),
inclusive, during the Company's 1999 fiscal year; and (iii) an additional
Twenty-five Thousand Dollars ($25,000) if the Company's gross revenues are in
excess of Fifty-one Million Dollars ($51,000,000) during the Company's 1999
fiscal year. The revenue targets set forth in (ii) and (iii) above shall be
measured according to the Company's audited financial statement. The bonuses
provided for in (ii) and (iii) above shall be paid within thirty (30) days of
the issuance of the Company's 1999 audited financial statement. The Executive
shall also be eligible for further bonuses, at the discretion of the Board,
based on the Executive's achievement of reasonable performance, revenue and
expense goals to be issued by the Board to the Executive.
(c) BENEFITS. The Executive shall be entitled to participate in all
employee benefit plans which the Company provides or may establish from time to
time for the benefit of its employees, including, without limitation, group
life, medical, surgical, dental and other health insurance, short and long-term
disability, deferred compensation, profit-sharing and similar plans. The
Executive shall also be entitled to paid vacation, in accordance with the
Company's vacation policy. The Company will provide and pay the premiums for one
million five hundred thousand dollars ($1,500,000) in term life insurance for
the Executive during the Term. The Company may also purchase one or more "key
man" insurance policies on the Executive's life, each of which will be payable
to and owned by the Company. The Company, in its sole discretion, may select the
amount and type of key man life insurance purchased, and the Executive will have
no interest in any such policy. The Executive will cooperate with the Company in
securing this key man insurance, by submitting to all required medical
examinations, supplying all information and executing all documents required in
order for the Company to secure the insurance.
(d) STOCK OPTIONS. As of the Effective Date, the Company shall grant
the Executive, pursuant to the Company's 1998 Stock Option/Stock Issuance Plan,
options to purchase certain
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shares of the Company's common stock, under the terms and conditions set forth
in the Stock Option Agreement attached hereto as Exhibit A. One option, the
"Incentive Option," shall provide for an option to purchase One Hundred Thousand
(100,000) shares (the "Option Shares") of the Company's common stock at a
purchase price of four dollars ($4.00) per share. These options shall vest
annually over three (3) years, commencing on the Effective Date, at a rate of
one-third of the Options Shares per year. Another option, the "First Option,"
shall provide for an option to purchase Fifty Thousand (50,000) shares of the
Company's common stock at a purchase price of four dollars ($4.00) per share.
The First Option shall vest on either (i) May 11, 2003, or (ii) if the Company's
gross revenues for fiscal year 1999 are Forty-seven Million Dollars
($47,000,000) or more, as reflected in the Company's audited financial
statement, immediately upon the issuance of the audited financial statement. The
other option, the "Second Option," shall provide for an option to purchase Fifty
Thousand (50,000) shares of the Company's common stock at a purchase price of
four dollars ($4.00) per share. The Second Option shall vest on either (i) May
11, 2003, or (ii) if the Company's gross revenues for fiscal year 1999 are
Eighty Million Dollars ($80,000,000) or more, as reflected in the Company's
audited financial statement, immediately upon the issuance of the audited
financial statement.
(e) EXPENSES. The Company shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred by him during the Term in
performing services hereunder, provided that the Executive properly accounts for
such expenses in accordance with the Company's policies.
4. CONFIDENTIALITY, DISCLOSURE OF INFORMATION.
(a) The Executive recognizes and acknowledges that the Executive has
had and will have access to Confidential Information (as defined below) relating
to the business or interests of the Company or of persons with whom the Company
may have business relationships. Except as permitted herein, the Executive will
not during the Term, or at any time thereafter, use, disclose or permit to be
known by any other person or entity, any Confidential Information of the Company
(except as required by applicable law or in connection with the performance of
the Executive's duties and responsibilities hereunder). The term "Confidential
Information" means information relating to the Company's business affairs,
proprietary technology, trade secrets, patented processes, research and
development data, know-how, market studies and forecasts, competitive analyses,
pricing policies, employee lists, employment agreements (other than this
Agreement), personnel policies, the substance of agreements with customers,
suppliers and others, marketing arrangements, customer lists, commercial
arrangements, or any other information relating to the Company's business that
is not generally known to the public or to actual or potential competitors of
the Company (other than through a breach of this Agreement). This obligation
shall continue until such Confidential Information becomes publicly available,
other than pursuant to a breach of this Section 4 by the Executive, regardless
of whether the Executive continues to be employed by the Company.
(b) It is further agreed and understood by and between the parties to
this Agreement that all "Company Materials," which include, but are not limited
to, computers, computer software, computer disks, tapes, printouts, source, HTML
and other code, flowcharts, schematics, designs, graphics, drawings,
photographs, charts, graphs, notebooks, customer lists,
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sound recordings, other tangible or intangible manifestation of content, and all
other documents whether printed, typewritten, handwritten, electronic, or stored
on computer disks, tapes, hard drives, or any other tangible medium, as well as
samples, prototypes, models, products and the like, shall be the exclusive
property of the Company and, upon termination of Executive's employment with the
Company, and/or upon the request of the Company, all Company Materials,
including copies thereof, as well as all other Company property then in the
Executive's possession or control, shall be returned to and left with the
Company.
5. INVENTIONS DISCOVERED BY EXECUTIVE.
The Executive shall promptly disclose to the Company any invention,
improvement, discovery, process, formula, or method or other intellectual
property, whether or not patentable or copyrightable (collectively,
"Inventions"), conceived or first reduced to practice by the Executive, either
alone or jointly with others, while performing services hereunder (or, if based
on any Confidential Information, within one (1) year after the Term), (a) which
pertain to any line of business activity of the Company, whether then conducted
or then being actively planned by the Company, with which the Executive was or
is involved, (b) which is developed using time, material or facilities of the
Company, whether or not during working hours or on the Company premises, or (c)
which directly relates to any of the Executive's work during the Term, whether
or not during normal working hours. The Executive hereby assigns to the Company
all of the Executive's right, title and interest in and to any such Inventions.
During and after the Term, the Executive shall execute any documents necessary
to perfect the assignment of such Inventions to the Company and to enable the
Company to apply for, obtain and enforce patents, trademarks and copyrights in
any and all countries on such Inventions, including, without limitation, the
execution of any instruments and the giving of evidence and testimony, without
further compensation beyond the Executive's agreed compensation during the
course of the Executive's employment. Without limiting the foregoing, the
Executive further acknowledges that all original works of authorship by the
Executive, whether created alone or jointly with others, related to the
Executive's employment with the Company and which are protectable by copyright,
are "works made for hire" within the meaning of the United States Copyright Act,
17 U.S.C. ss. 101, as amended, and the copyright of which shall be owned solely,
completely and exclusively by the Company. If any Invention is considered to be
work not included in the categories of work covered by the United States
Copyright Act, 17 U.S.C. ss. 101, as amended, such work is hereby assigned or
transferred completely and exclusively to the Company. The Executive hereby
irrevocably designates counsel to the Company as the Executive's agent and
attorney-in-fact to do all lawful acts necessary to apply for and obtain patents
and copyrights and to enforce the Company's rights under this Section. This
Section 5 shall survive the termination of this Agreement. Any assignment of
copyright hereunder includes all rights of paternity, integrity, disclosure and
withdrawal and any other rights that may be known as or referred to as "moral
rights" (collectively "Moral Rights"). To the extent such Moral Rights cannot be
assigned under applicable law and to the extent the following is allowed by the
laws in the various countries where Moral Rights exist, the Executive hereby
waives such Moral Rights and consents to any action of the Company that would
violate such Moral Rights in the absence of such consent. The Executive agrees
to confirm any such waivers and consents from time to time as requested by the
Company.
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6. NON-COMPETITION AND NON-SOLICITATION.
The Executive acknowledges that the Company has invested substantial
time, money and resources in the development and retention of its Inventions,
Confidential Information (including trade secrets), customers, accounts and
business partners, and further acknowledges that during the course of the
Executive's employment with the Company the Executive has had and will have
access to the Company's Inventions and Confidential Information (including trade
secrets), and will be introduced to existing and prospective customers, accounts
and business partners of the Company. The Executive acknowledges and agrees that
any and all "goodwill" associated with any existing or prospective customer,
account or business partner belongs exclusively to the Company, including, but
not limited to, any goodwill created as a result of direct or indirect contacts
or relationships between the Executive and any existing or prospective
customers, accounts or business partners. Additionally, the parties acknowledge
and agree that Executive possesses skills that are special, unique or
extraordinary and that the value of the Company depends upon his use of such
skills on its behalf.
In recognition of this, the Executive covenants and agrees that:
(a) During the Term, and for a period of one (1) year thereafter, the
Executive may not, without the prior written consent of the Board, (whether as
an employee, agent, servant, owner, partner, consultant, independent contractor,
representative, stockholder or in any other capacity whatsoever): (i) conduct
any business with any customer of the Company on behalf of any entity or person
other than the Company (including the Executive), or (ii) perform any work
competitive in any way to the actual or planned business of the Company on
behalf of any entity or person other than the Company (including the Executive).
(b) During the Term, and for a period of one (1) year thereafter, the
Executive may not entice, solicit or encourage any Company employee to leave the
employ of the Company or any independent contractor to sever its engagement with
the Company, absent prior written consent to do so from the Board.
(c) During the Term, and for a period of one (1) year thereafter, the
Executive may not, directly or indirectly, entice, solicit or encourage any
customer or prospective customer of the Company to cease doing business with the
Company, reduce its relationship with the Company or refrain from expanding its
relationship with the Company.
7. NON-DISPARAGEMENT.
The Executive hereby agrees that during the Term, and, absent a
material breach of this Agreement by the Company, at all times thereafter, the
Executive will not make any statement that is disparaging about the Company, any
of its officers, directors, or shareholders, including, but not limited to, any
statement that disparages the products, services, finances, financial condition,
capabilities or other aspect of the business of the Company. The Executive
further agrees that during the Term the Executive will not engage in any conduct
that is intended to inflict harm upon the professional or personal reputation of
the Company or any of its officers, directors, shareholders or employees.
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8. PROVISIONS NECESSARY AND REASONABLE.
(a) The Executive agrees that (i) the provisions of Sections 4, 5, 6
and 7 of this Agreement are necessary and reasonable to protect the Company's
Confidential Information, Inventions, and goodwill; (ii) the specific temporal,
geographic and substantive provisions set forth in Section 6 of this Agreement
are reasonable and necessary to protect the Company's business interests; and
(iii) in the event of any breach of any of the covenants set forth herein, the
Company would suffer substantial irreparable harm and would not have an adequate
remedy at law for such breach. In recognition of the foregoing, the Executive
agrees that in the event of a breach or threatened breach of any of these
covenants, in addition to such other remedies as the Company may have at law,
without posting any bond or security, the Company shall be entitled to seek and
obtain equitable relief, in the form of specific performance, and/or temporary,
preliminary or permanent injunctive relief, or any other equitable remedy which
then may be available. The seeking of such injunction or order shall not affect
the Company's right to seek and obtain damages or other equitable relief on
account of any such actual or threatened breach.
(b) If any of the covenants contained in Sections 4, 5, 6 and 7 hereof,
or any part thereof, are hereafter construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect without regard to the invalid portions.
(c) If any of the covenants contained in Sections 4, 5, 6 and 7 hereof,
or any part thereof, are held to be unenforceable by a court of competent
jurisdiction because of the temporal or geographic scope of such provision or
the area covered thereby, the parties agree that the court making such
determination shall have the power to reduce the duration and/or geographic area
of such provision and, in its reduced form, such provision shall be enforceable.
9. REPRESENTATIONS REGARDING PRIOR WORK AND LEGAL OBLIGATIONS.
(a) The Executive represents that the Executive has no agreement or
other legal obligation with any prior employer, or any other person or entity,
that restricts the Executive's ability to accept employment with, or to perform
any function for, the Company.
(b) The Executive has been advised by the Company that at no time
should the Executive divulge to or use for the benefit of the Company any trade
secret or confidential or proprietary information of any previous employer. The
Executive expressly acknowledges that the Executive has not divulged or used any
such information for the benefit of the Company.
(c) The Executive acknowledges that the Executive has not and will not
misappropriate any Invention that the Executive played any part in creating
while working for any former employer.
(d) The Executive acknowledges that the Company is basing important
business decisions on these representations, and affirms that all of the
statements included herein are true.
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10. TERMINATION AND SEVERANCE.
Notwithstanding the provisions of Section 2 of this Agreement, the
Executive's employment hereunder may terminate under the following
circumstances:
(a) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement for Cause at any time, upon written notice to the Executive
setting forth in reasonable detail the nature of such Cause. For purposes of
this Agreement, Cause is defined as a willful and material breach of the terms
of this Agreement, or the Executive's commission of any felony or any crime
involving moral turpitude. In no event shall the Company have Cause to terminate
the Executive's employment hereunder for a willful and material breach of the
terms of this Agreement unless the Company provides the Executive with written
notice of the reasons for which the Company seeks to terminate the Executive's
employment, the Executive fails to cure such reasons within twenty (20) days
after receiving written notice thereof, and the Executive is given the
opportunity to appear before the Board, with counsel, to answer allegations of
conduct constituting Cause. Upon the termination for Cause of Executive's
employment, the Company shall have no further obligation or liability to the
Executive other than for salary earned under this Agreement to the date of
termination, and any accrued but unused vacation.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Executive's
employment hereunder may be terminated, without Cause by the Company upon
written notice to the Executive, provided, however, that if the Company
terminates the Executive's employment without Cause, or the Executive terminates
his employment for Good Reason, as defined below, the Company shall (i) continue
to pay the Executive the Salary and shall provide health coverage, under the
same conditions as exist at the time of termination, for a one (1) year period,
or until the Expiration Date, whichever is longer; and (ii) any unvested stock
options granted to the Executive shall accelerate and vest in full.
(c) TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment hereunder upon one (1) month's written notice to the Company. In the
event of termination by the Executive pursuant to this subsection 10(c), the
Company may elect to pay the Executive during the notice period (or for any
remaining portion of that period) the Salary and benefits at the rate of
compensation the Executive was receiving immediately before such notice of
termination was tendered in lieu of actual notice. The Executive may also
terminate his employment hereunder, upon written notice to the Company, for
"Good Reason," which shall be defined as (i) a material breach of this Agreement
by the Company; (ii) a material change in the Executive's duties or
responsibilities; (iii) a change in the Executive's reporting relationship so
that he no longer reports directly to the Board; (iv) a relocation of the
Executive's worksite to a location 75 miles or more from its current location;
or (v) a "Change or Control," as defined below. As used herein, a "Change of
Control" shall be deemed to occur if: (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which the stock of the
Company would be converted into cash, securities or other property, other than a
merger or consolidation of the Company in which the holders of the Company's
stock immediately prior to the merger or consolidation hold more than fifty
percent (50%) of the stock or other forms of equity of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
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transfer (in one transaction or a series of related transactions) of all, or
substantially all, the assets of the Company, or (ii) the Board approves any
plan or proposal for liquidation or dissolution of the Company.
(d) DEATH. In the event of the Executive's death during the Term of
this Agreement, the Executive's employment hereunder shall immediately and
automatically terminate, and the Company shall have no further obligation or
duty to the Executive or his estate or beneficiaries other than for the Salary
earned under this Agreement to the date of termination and any payments or
benefits due under Company policies or benefit plans.
(e) DISABILITY. The Company may terminate the Executive's employment
hereunder, upon written notice to the Executive, in the event that the Executive
becomes disabled during the Term through any condition of either a physical or
psychological nature and, as a result, is, with or without reasonable
accommodation, unable to perform the essential functions of the services
contemplated hereunder for (a) a period of ninety (90) consecutive days, or (b)
for shorter periods aggregating one hundred twenty (120) days during any twelve
(12) month period during the Term. Any such termination shall become effective
upon mailing or hand delivery of notice that the Company has elected its right
to terminate under this subsection 10(e), and the Company shall have no further
obligation or duty to the Executive other than for salary earned under this
Agreement to the date of termination and any payments or benefits due under
Company policies or benefit plans.
(f) EFFECT OF NON-RENEWAL. In the event that the Company gives notice
of its election not to extend the Term of the Agreement for a Renewal Period
pursuant to Section 2 above, the Company shall continue to pay the Executive
full compensation as defined in Section 3 of this Agreement from the date the
Executive receives such notice through the Expiration Date. The Executive shall
not be entitled to any additional compensation other than any payments or
benefits due under Company policies or benefit plans.
11. CHOICE OF LAW.
The Executive acknowledges that a substantial portion of the Company's
business is based out of and directed from the State of New York. The Executive
also acknowledges that during the course of the Executive's employment with the
Company the Executive will have substantial contacts with New York.
The validity, interpretation and performance of this Agreement shall be
governed by, and construed in accordance with, the internal law of New York,
without giving effect to conflict of law principles. Both parties agree that the
exclusive venue for any action, demand, claim or counterclaim relating to the
terms and provisions of Sections 4, 5, 6 and 7 of this Agreement, or to their
breach, shall be in the state or federal courts located in the State and City of
New York and that such courts shall have personal jurisdiction over the parties
to this Agreement.
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12. MISCELLANEOUS.
(a) ASSIGNMENT. The Executive acknowledges and agrees that the rights
and obligations of the Company under this Agreement may be assigned by the
Company to any successors in interest. The Executive further acknowledges and
agrees that this Agreement is personal to the Executive and that the Executive
may not assign any rights or obligations hereunder.
(b) WITHHOLDING. All salary and bonus payments required to be made by
the Company to the Executive under this Agreement shall be subject to
withholding taxes, social security and other payroll deductions in accordance
with the Company's policies applicable to employees of the Company at the
Executive's level.
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties and supersedes any prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment.
(d) AMENDMENTS. Any attempted modification of this Agreement will not
be effective unless signed by an officer of the Company and the Executive.
(e) WAIVER OF BREACH. The Executive understands that a breach of any
provision of this Agreement may only be waived by an officer of the Company. The
waiver by the Company of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
(f) SEVERABILITY. If any provision of this Agreement should, for any
reason, be held invalid or unenforceable in any respect by a court of competent
jurisdiction, then the remainder of this Agreement, and the application of such
provision in circumstances other than those as to which it is so declared
invalid or unenforceable, shall not be affected thereby, and each such provision
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
(g) NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered by private messenger, private overnight mail service, or facsimile as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
If to the Company:
345 Hudson Street
New York, New York 10013
Attn: Board of Directors
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With a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attn: Alexander D. Lynch
If to Executive:
Ronald Pettengill
155 Winding Way
Stirling, NJ 07980
(h) SURVIVAL. The Executive and the Company agree that certain
provisions of this Agreement shall survive the expiration or termination of this
Agreement and the termination of the Executive's employment with the Company.
Such provisions shall be limited to those within this Agreement which, by their
express and implied terms, obligate either party to perform beyond the
termination of the Executive's employment or termination of this Agreement.
(i) DISCLOSURE AND CONFIDENTIALITY. The Executive agrees to provide,
and agrees that the Company similarly may provide in its discretion, a copy of
the covenants contained in this Agreement to any business or enterprise which
the Company may directly or indirectly own, manage, operate, finance, join,
control or in which the Company participates in the ownership, management,
operation, financing or control, or with which the Company may be connected or
may become connected as an officer, director, executive, partner, principal,
agent, representative, consultant or otherwise. The Executive also agrees that
the Company may disclose a copy of this Agreement if legally required to do so,
and in connection with a partnering transaction or financing, assuming that an
appropriate confidentiality agreement is in place. The Executive further agrees
not to disclose the existence or terms of this Agreement to any person other
than the Executive's immediate family and legal, financial or accounting
professional.
(j) ARBITRATION OF DISPUTES. Any controversy or claim arising out of
this Agreement or any aspect of the Executive's relationship with the Company
including the cessation thereof (other than disputes with respect to alleged
violations of the covenants contained in Sections 4, 5, 6 or 7 hereof, and the
Company's pursuit of the remedies described in Section 8 hereof in connection
therewith) shall be resolved by arbitration in accordance with the then existing
Employment Dispute Resolution Rules of the American Arbitration Association, in
New York, New York, and judgment upon the award rendered may be entered in any
court having jurisdiction thereof. The parties shall split equally the costs of
arbitration, except that each party shall pay its own attorneys' fees. The
parties agree that the award of the arbitrator shall be final and binding.
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(k) RIGHTS OF OTHER INDIVIDUALS. This Agreement confers rights solely
on the Executive and the Company. This Agreement is not a benefit plan and
confers no rights on any individual or entity other than the undersigned.
(l) HEADINGS. The parties acknowledge that the headings in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of this Agreement.
(m) ADVICE OF COUNSEL. The Executive and the Company hereby acknowledge
that each party has had adequate opportunity to review this Agreement, to obtain
the advice of counsel with respect to this Agreement, and to reflect upon and
consider the terms and conditions of this Agreement. The parties further
acknowledge that each party fully understands the terms of this Agreement and
has voluntarily executed this Agreement. The Company shall pay the legal fees
and costs incurred by the Executive in connection with the negotiation and
preparation of this Agreement, upon the presentation of invoices in appropriate
form.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year set forth below.
EXECUTIVE PREDICTIVE SYSTEMS, INC.
/s/ Ronald Pettengill By: /s/ Donald Duffy
- ------------------------------ -------------------------------
Ronald Pettengill Title: DIRECTOR
-----------------------------
Dated: 5/11/99 , 1999 Dated: 7/15 , 1999
-------------------- --------------------
By:
-------------------------------
Title:
-----------------------------
Dated: , 1999
--------------------
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PREDICTIVE HOLDINGS, INC.
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Predictive Systems, Inc. (the
"Corporation"):
Optionee: Ron Pottengill
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Grant Date: May 11, 1999
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Vesting Commencement Date: May 11, 1999
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Exercise Price: $4.00 per share
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Number of Option Shares: 200,000 shares of Common Stock
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Expiration Date: May 11, 2009
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Type of Option: X Incentive Option
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Non-Statutory Stock Option
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Vesting Schedule:
-----------------
* 33,333 of the Option Shares shall vest on May 11, 2000; and
* An additional 33,333 of the Option Shares shall vest on May 11, 2001;
and
* An additional 33,334 of the Option Shares shall vest on May 11, 2002;
and
* An additional 50,000 of the Options shall vest on either (i) May 11,
2003, or (ii) if the Company's gross revenues for fiscal year 1999 are
Forty-seven Million dollars ($47,000,000) or more, as reflected
in the Company's audited financial statement, immediately upon the
issuance of the audited financial statement; and
* An additional 50,000 of the Options shall vest on either (i) May 11,
2003, or (ii) if the Company's gross revenues for fiscal year 2000 are
Eighty Million Dollars ($80,000,000) or more, as reflected in the
Company's audited financial statement, immediately upon the issuance
of the audited financial statement; and
* In the event the Optionee is terminated by the Company "Without
Cause", or if the Optionee terminates his employment "For Good
Reason", all unvested options will automatically vest. For purposes
of this agreement, termination by the Company Without Cause and
termination by the Optionee for Good
<PAGE>
Reason shall be defined as per the Optionee's Employment Agreement
dated May 11, 1999.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Predictive Systems, Inc. 1998 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound
by the terms of the Plan and the terms of the Option as set forth in the
Stock Option Agreement attached hereto as Exhibit A. Optionee understands
that any Option Shares purchased under the Option shall be subject to the
terms set forth in the Stock Purchase Agreement attached hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit C.
RIGHTS OF FIRST REFUSAL. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF
SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right
to continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Parent
or Subsidiary employing or retaining Optionee) or of Optionee, which rights
are hereby expressly reserved by each, to terminate Optionee's Service at any
time for any reason, with or without cause.
DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
<PAGE>
DATE: May 11, 1999.
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PREDICTIVE SYSTEMS, INC.
By: /s/ Donald Duffy
----------------------
Title: Director
-----------------
By:
----------------------
Title: Director
-----------------
/s/ Ronald Pettengill
-------------------------
OPTIONEE
Address: 155 Winding Way
-----------------
Stirling, NJ 07980
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-------------------------
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ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Stock Purchase Agreement
Exhibit C - 1998 Stock Option/Stock Issuance Plan
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), made and entered into this
11th day of May, 1999, by and between Predictive Systems, Inc., a Delaware
corporation with principal offices located at 145 Hudson Street, New York, New
York 10013 (the "Company"), and Robert Belau (the "Executive").
WITNESSETH
WHEREAS, the Company has a need for the Executive's personal services
in an executive capacity; and
WHEREAS, the Executive possesses the necessary strategic, financial,
planning, operational and managerial skills necessary to fulfill those needs;
and
WHEREAS, the Executive currently is serving in the role of President of
the Company; and
WHEREAS, the Executive and the Company desire to enter into a formal
Employment Agreement to fully recognize the contributions of Executive to the
Company and to assure continuous harmonious performance of the affairs of the
Company.
NOW, THEREFORE, in consideration of the mutual promises, terms,
provisions, and conditions contained herein, the parties agree as follows:
1. POSITION.
The Company hereby agrees to continue to employ the Executive to serve
in the role of President of the Company, subject to the limitations set forth
herein. As such, the Executive shall have general responsibility for the
business of the Company and authority over the employees and consultants of the
Company subject to the authority of the Board of Directors of the Company (the
"Board"). The Executive accepts such employment upon the terms and conditions
set forth herein, and further agrees to perform to the best of his abilities the
duties generally associated with his position, as well as such other duties
commensurate with his position as President as may be reasonably assigned by the
Board. The Executive shall, at all times during the Term, report directly to the
Board. The Executive shall perform his duties diligently and faithfully and
shall devote his full business time and attention to such duties.
2. TERM OF EMPLOYMENT AND RENEWAL.
The term of Executive's employment under this Agreement will commence
on the date of this Agreement (the "Effective Date"). Subject to the provisions
of Section 10 of this Agreement, the term of Executive's employment hereunder
shall be for an initial term of three (3) years from the Effective Date (the
"Initial Term"). The Initial Term of this Agreement shall be automatically
extended for successive one (1) year periods (each a "Renewal Period") unless
<PAGE>
the Company or the Executive gives written notice to the other at least thirty
(30) days prior to the expiration of the Initial Term, or a Renewal Period, of
such party's election not to extend this Agreement. References herein to the
"Term" shall mean the Initial Term as it may be so extended by one or more
Renewal Periods. The last day of the Term is the "Expiration Date."
3. COMPENSATION AND BENEFITS.
(a) SALARY. Commencing on March 1, 1999, the Company agrees to pay
the Executive a base salary at an annual rate of Two Hundred Thousand Dollars
($200,000) for the first year of the Term, payable in such installments as is
the policy of the Company (the "Salary"), but no less frequently than monthly.
Thereafter, the Board shall determine appropriate increases to Executive's
Salary but in no event shall diminish the amount of Executive's Salary below the
initial rate, or below the increased rates.
(b) BONUS. The Executive shall be receive performance-based bonuses, as
follows: (i) Twenty-five Thousand Dollars ($25,000) upon the closing of an
initial public offering of the Company's stock; (ii) Twenty-five Thousand
Dollars ($25,000) if the Company's gross revenues are between Forty-seven
Million Dollars ($47,000,000) and Fifty-one Million Dollars ($51,000,000),
inclusive, during the Company's 1999 fiscal year; and (iii) an additional
Twenty-five Thousand Dollars ($25,000) if the Company's gross revenues are in
excess of Fifty-one Million Dollars ($51,000,000) during the Company's 1999
fiscal year. The revenue targets set forth in (ii) and (iii) above shall be
measured according to the Company's audited financial statement. The bonuses
provided for in (ii) and (iii) above shall be paid within thirty (30) days of
the issuance of the Company's 1999 audited financial statement. The Executive
shall also be eligible for further bonuses, at the discretion of the Board,
based on the Executive's achievement of reasonable performance, revenue and
expense goals to be issued by the Board to the Executive.
(c) BENEFITS. The Executive shall be entitled to participate in all
employee benefit plans which the Company provides or may establish from time
to time for the benefit of its employees, including, without limitation,
group life, medical, surgical, dental and other health insurance, short and
long-term disability, deferred compensation, profit-sharing and similar
plans. The Executive shall also be entitled to paid vacation, in accordance
with the Company's vacation policy. The Company will provide and pay the
premiums for two million dollars ($2,000,000) in term life insurance for the
Executive during the Term. The Company may also purchase one or more "key
man" insurance policies on the Executive's life, each of which will be
payable to and owned by the Company. The Company, in its sole discretion, may
select the amount and type of key man life insurance purchased, and the
Executive will have no interest in any such policy. The Executive will
cooperate with the Company in securing this key man insurance, by submitting
to all required medical examinations, supplying all information and executing
all documents required in order for the Company to secure the insurance.
(d) STOCK OPTIONS. As of the Effective Date, the Company shall grant
the Executive, pursuant to the Company's 1998 Stock Option/Stock Issuance Plan,
options to purchase certain shares of the Company's common stock, under the
terms and conditions set forth in the Stock Option Agreement attached hereto as
Exhibit A. One option, the "Incentive Option," shall
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<PAGE>
provide for an option to purchase One Hundred Thousand (100,000) shares (the
"Option Shares") of the Company's common stock at a purchase price of four
dollars ($4.00) per share. These options shall vest annually over three (3)
years, commencing on the Effective Date, at a rate of one-third of the Option
Shares per year. Another option, the "First Option," shall provide for an option
to purchase Fifty Thousand (50,000) shares of the Company's common stock at a
purchase price of four dollars ($4.00) per share. The First Option shall vest on
either (i) May 11, 2003, or (ii) if the Company's gross revenues for fiscal year
1999 are Forty-seven Million Dollars ($47,000,000) or more, as reflected in the
Company's audited financial statement, immediately upon the issuance of the
audited financial statement. The other option, the "Second Option," shall
provide for an option to purchase Fifty Thousand (50,000) shares of the
Company's common stock at a purchase price of four dollars ($4.00) per share.
The Second Option shall vest on either (i) May 11, 2003, or (ii) if the
Company's gross revenues for fiscal year 1999 are Eighty Million Dollars
($80,000,000) or more, as reflected in the Company's audited financial
statement, immediately upon the issuance of the audited financial statement.
(e) EXPENSES. The Company shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred by him during the Term in
performing services hereunder, provided that the Executive properly accounts for
such expenses in accordance with the Company's policies.
4. CONFIDENTIALITY, DISCLOSURE OF INFORMATION.
(a) The Executive recognizes and acknowledges that the Executive has
had and will have access to Confidential Information (as defined below) relating
to the business or interests of the Company or of persons with whom the Company
may have business relationships. Except as permitted herein, the Executive will
not during the Term, or at any time thereafter, use, disclose or permit to be
known by any other person or entity, any Confidential Information of the Company
(except as required by applicable law or in connection with the performance of
the Executive's duties and responsibilities hereunder). The term "Confidential
Information" means information relating to the Company's business affairs,
proprietary technology, trade secrets, patented processes, research and
development data, know-how, market studies and forecasts, competitive analyses,
pricing policies, employee lists, employment agreements (other than this
Agreement), personnel policies, the substance of agreements with customers,
suppliers and others, marketing arrangements, customer lists, commercial
arrangements, or any other information relating to the Company's business that
is not generally known to the public or to actual or potential competitors of
the Company (other than through a breach of this Agreement). This obligation
shall continue until such Confidential Information becomes publicly available,
other than pursuant to a breach of this Section 4 by the Executive, regardless
of whether the Executive continues to be employed by the Company.
(b) It is further agreed and understood by and between the parties to
this Agreement that all "Company Materials," which include, but are not limited
to, computers, computer software, computer disks, tapes, printouts, source, HTML
and other code, flowcharts, schematics, designs, graphics, drawings,
photographs, charts, graphs, notebooks, customer lists, sound recordings, other
tangible or intangible manifestation of content, and all other documents whether
printed, typewritten, handwritten, electronic, or stored on computer disks,
tapes, hard
3
<PAGE>
drives, or any other tangible medium, as well as samples, prototypes, models,
products and the like, shall be the exclusive property of the Company and, upon
termination of Executive's employment with the Company, and/or upon the request
of the Company, all Company Materials, including copies thereof, as well as all
other Company property then in the Executive's possession or control, shall be
returned to and left with the Company.
5. INVENTIONS DISCOVERED BY EXECUTIVE.
The Executive shall promptly disclose to the Company any invention,
improvement, discovery, process, formula, or method or other intellectual
property, whether or not patentable or copyrightable (collectively,
"Inventions"), conceived or first reduced to practice by the Executive,
either alone or jointly with others, while performing services hereunder (or,
if based on any Confidential Information, within one (1) year after the
Term), (a) which pertains to any line of business activity of the Company,
whether then conducted or then being actively planned by the Company, with
which the Executive was or is involved, (b) which is developed using time,
material or facilities of the Company, whether or not during working hours or
on the Company premises, or (c) which directly relates to any of the
Executive's work during the Term, whether or not during normal working hours.
The Executive hereby assigns to the Company all of the Executive's right,
title and interest in and to any such Inventions. During and after the Term,
the Executive shall execute any documents necessary to perfect the assignment
of such Inventions to the Company and to enable the Company to apply for,
obtain and enforce patents, trademarks and copyrights in any and all
countries on such Inventions, including, without limitation, the execution of
any instruments and the giving of evidence and testimony, without further
compensation beyond the Executive's agreed compensation during the course of
the Executive's employment. Without limiting the foregoing, the Executive
further acknowledges that all original works of authorship by the Executive,
whether created alone or jointly with others, related to the Executive's
employment with the Company and which are protectable by copyright, are
"works made for hire" within the meaning of the United States Copyright Act,
17 U.S.C. Section 101, as amended, and the copyright of which shall be owned
solely, completely and exclusively by the Company. If any Invention is
considered to be work not included in the categories of work covered by the
United States Copyright Act, 17 U.S.C. Section 101, as amended, such work is
hereby assigned or transferred completely and exclusively to the Company. The
Executive hereby irrevocably designates counsel to the Company as the
Executive's agent and attorney-in-fact to do all lawful acts necessary to
apply for and obtain patents and copyrights and to enforce the Company's
rights under this Section. This Section 5 shall survive the termination of
this Agreement. Any assignment of copyright hereunder includes all rights of
paternity, integrity, disclosure and withdrawal and any other rights that may
be known as or referred to as "moral rights" (collectively "Moral Rights").
To the extent such Moral Rights cannot be assigned under applicable law and
to the extent the following is allowed by the laws in the various countries
where Moral Rights exist, the Executive hereby waives such Moral Rights and
consents to any action of the Company that would violate such Moral Rights in
the absence of such consent. The Executive agrees to confirm any such waivers
and consents from time to time as requested by the Company.
6. NON-COMPETITION AND NON-SOLICITATION.
4
<PAGE>
The Executive acknowledges that the Company has invested substantial
time, money and resources in the development and retention of its Inventions,
Confidential Information (including trade secrets), customers, accounts and
business partners, and further acknowledges that during the course of the
Executive's employment with the Company the Executive has had and will have
access to the Company's Inventions and Confidential Information (including trade
secrets), and will be introduced to existing and prospective customers, accounts
and business partners of the Company. The Executive acknowledges and agrees that
any and all "goodwill" associated with any existing or prospective customer,
account or business partner belongs exclusively to the Company, including, but
not limited to, any goodwill created as a result of direct or indirect contacts
or relationships between the Executive and any existing or prospective
customers, accounts or business partners. Additionally, the parties acknowledge
and agree that Executive possesses skills that are special, unique or
extraordinary and that the value of the Company depends upon his use of such
skills on its behalf.
In recognition of this, the Executive covenants and agrees that:
(a) During the Term, and for a period of one (1) year thereafter, the
Executive may not, without the prior written consent of the Board, (whether as
an employee, agent, servant, owner, partner, consultant, independent contractor,
representative, stockholder or in any other capacity whatsoever): (i) conduct
any business with any customer of the Company on behalf of any entity or person
other than the Company (including the Executive), or (ii) perform any work
competitive in any way to the actual or planned business of the Company on
behalf of any entity or person other than the Company (including the Executive).
(b) During the Term, and for a period of one (1) year thereafter, the
Executive may not entice, solicit or encourage any Company employee to leave the
employ of the Company or any independent contractor to sever its engagement with
the Company, absent prior written consent to do so from the Board.
(c) During the Term, and for a period of one (1) year thereafter, the
Executive may not, directly or indirectly, entice, solicit or encourage any
customer or prospective customer of the Company to cease doing business with the
Company, reduce its relationship with the Company or refrain from expanding its
relationship with the Company.
7. NON-DISPARAGEMENT.
The Executive hereby agrees that during the Term, and, absent a
material breach of this Agreement by the Company, at all times thereafter, the
Executive will not make any statement that is disparaging about the Company, any
of its officers, directors, or shareholders, including, but not limited to, any
statement that disparages the products, services, finances, financial condition,
capabilities or other aspect of the business of the Company. The Executive
further agrees that during the Term the Executive will not engage in any conduct
that is intended to inflict harm upon the professional or personal reputation of
the Company or any of its officers, directors, shareholders or employees.
5
<PAGE>
8. PROVISIONS NECESSARY AND REASONABLE.
(a) The Executive agrees that (i) the provisions of Sections 4, 5, 6
and 7 of this Agreement are necessary and reasonable to protect the Company's
Confidential Information, Inventions, and goodwill; (ii) the specific temporal,
geographic and substantive provisions set forth in Section 6 of this Agreement
are reasonable and necessary to protect the Company's business interests; and
(iii) in the event of any breach of any of the covenants set forth herein, the
Company would suffer substantial irreparable harm and would not have an adequate
remedy at law for such breach. In recognition of the foregoing, the Executive
agrees that in the event of a breach or threatened breach of any of these
covenants, in addition to such other remedies as the Company may have at law,
without posting any bond or security, the Company shall be entitled to seek and
obtain equitable relief, in the form of specific performance, and/or temporary,
preliminary or permanent injunctive relief, or any other equitable remedy which
then may be available. The seeking of such injunction or order shall not affect
the Company's right to seek and obtain damages or other equitable relief on
account of any such actual or threatened breach.
(b) If any of the covenants contained in Sections 4, 5, 6 and 7 hereof,
or any part thereof, are hereafter construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect without regard to the invalid portions.
(c) If any of the covenants contained in Sections 4, 5, 6 and 7 hereof,
or any part thereof, are held to be unenforceable by a court of competent
jurisdiction because of the temporal or geographic scope of such provision or
the area covered thereby, the parties agree that the court making such
determination shall have the power to reduce the duration and/or geographic area
of such provision and, in its reduced form, such provision shall be enforceable.
9. REPRESENTATIONS REGARDING PRIOR WORK AND LEGAL OBLIGATIONS.
(a) The Executive represents that the Executive has no agreement or
other legal obligation with any prior employer, or any other person or entity,
that restricts the Executive's ability to accept employment with, or to perform
any function for, the Company.
(b) The Executive has been advised by the Company that at no time
should the Executive divulge to or use for the benefit of the Company any trade
secret or confidential or proprietary information of any previous employer. The
Executive expressly acknowledges that the Executive has not divulged or used any
such information for the benefit of the Company.
(c) The Executive acknowledges that the Executive has not and will not
misappropriate any Invention that the Executive played any part in creating
while working for any former employer.
(d) The Executive acknowledges that the Company is basing important
business decisions on these representations, and affirms that all of the
statements included herein are true.
6
<PAGE>
10. TERMINATION AND SEVERANCE.
Notwithstanding the provisions of Section 2 of this Agreement, the
Executive's employment hereunder may terminate under the following
circumstances:
(a) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement for Cause at any time, upon written notice to the Executive
setting forth in reasonable detail the nature of such Cause. For purposes of
this Agreement, Cause is defined as a willful and material breach of the terms
of this Agreement, or the Executive's commission of any felony or any crime
involving moral turpitude. In no event shall the Company have Cause to terminate
the Executive's employment hereunder for a willful and material breach of the
terms of this Agreement unless the Company provides the Executive with written
notice of the reasons for which the Company seeks to terminate the Executive's
employment, the Executive fails to cure such reasons within twenty (20) days
after receiving written notice thereof, and the Executive is given the
opportunity to appear before the Board, with counsel, to answer allegations of
conduct constituting Cause. Upon the termination for Cause of Executive's
employment, the Company shall have no further obligation or liability to the
Executive other than for Salary earned under this Agreement to the date of
termination, and any accrued but unused vacation.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Executive's
employment hereunder may be terminated, without Cause by the Company upon
written notice to the Executive, provided, however, that if the Company
terminates the Executive's employment without Cause, or the Executive terminates
his employment for Good Reason, as defined below, the Company shall (i) continue
to pay the Executive the Salary and shall provide health coverage, under the
same conditions as exist at the time of termination, for a one (1) year period,
or until the Expiration Date, whichever is longer; and (ii) any unvested stock
options granted to the Executive shall accelerate and vest in full.
(c) TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment hereunder upon one (1) month's written notice to the Company. In the
event of termination by the Executive pursuant to this subsection 10(c), the
Company may elect to pay the Executive during the notice period (or for any
remaining portion of that period) the Salary and benefits at the rate of
compensation the Executive was receiving immediately before such notice of
termination was tendered in lieu of actual notice. The Executive may also
terminate his employment hereunder, upon written notice to the Company, for
"Good Reason," which shall be defined as (i) a material breach of this Agreement
by the Company; (ii) a material change in the Executive's duties or
responsibilities; (iii) a change in the Executive's reporting relationship so
that he no longer reports directly to the Board; (iv) a relocation of the
Executive's worksite to a location 75 miles or more from its current location;
or (v) a "Change or Control," as defined below. As used herein, a "Change of
Control" shall be deemed to occur if: (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which the stock of the
Company would be converted into cash, securities or other property, other than a
merger or consolidation of the Company in which the holders of the Company's
stock immediately prior to the merger or consolidation hold more than fifty
percent (50%) of the stock or other forms of equity of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
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<PAGE>
transfer (in one transaction or a series of related transactions) of all, or
substantially all, the assets of the Company, or (ii) the Board approves any
plan or proposal for liquidation or dissolution of the Company.
(d) DEATH. In the event of the Executive's death during the Term of
this Agreement, the Executive's employment hereunder shall immediately and
automatically terminate, and the Company shall have no further obligation or
duty to the Executive or his estate or beneficiaries other than the Salary
earned under this Agreement to the date of termination and any payments or
benefits due under Company policies or benefit plans.
(e) DISABILITY. The Company may terminate the Executive's employment
hereunder, upon written notice to the Executive, in the event that the Executive
becomes disabled during the Term through any condition of either a physical or
psychological nature and, as a result, is, with or without reasonable
accommodation, unable to perform the essential functions of the services
contemplated hereunder for (a) a period of ninety (90) consecutive days, or (b)
for shorter periods aggregating one hundred twenty (120) days during any twelve
(12) month period during the Term. Any such termination shall become effective
upon mailing or hand delivery of notice that the Company has elected its right
to terminate under this subsection 10(e), and the Company shall have no further
obligation or duty to the Executive other than for Salary due for the balance of
the Term and any payments or benefits due under Company policies or benefit
plans.
(f) EFFECT OF NON-RENEWAL. In the event that the Company gives notice
of its election not to extend the Term of the Agreement for a Renewal Period
pursuant to Section 2 above, the Company shall continue to pay the Executive
full compensation as defined in Section 3 of this Agreement from the date the
Executive receives such notice through the Expiration Date. The Executive shall
not be entitled to any additional compensation other than any payments or
benefits due under Company policies or benefit plans.
11. CHOICE OF LAW.
The Executive acknowledges that a substantial portion of the Company's
business is based out of and directed from the State of New York. The Executive
also acknowledges that during the course of the Executive's employment with the
Company the Executive will have substantial contacts with New York.
The validity, interpretation and performance of this Agreement shall be
governed by, and construed in accordance with, the internal law of New York,
without giving effect to conflict of law principles. Both parties agree that the
exclusive venue for any action, demand, claim or counterclaim relating to the
terms and provisions of Sections 4, 5, 6 and 7 of this Agreement, or to their
breach, shall be in the state or federal courts located in the State and City of
New York and that such courts shall have personal jurisdiction over the parties
to this Agreement.
12. MISCELLANEOUS.
(a) ASSIGNMENT. The Executive acknowledges and agrees that the rights
and obligations of the Company under this Agreement may be assigned by the
Company to any
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<PAGE>
successors in interest. The Executive further acknowledges and agrees that this
Agreement is personal to the Executive and that the Executive may not assign any
rights or obligations hereunder.
(b) WITHHOLDING. All salary and bonus payments required to be made by
the Company to the Executive under this Agreement shall be subject to
withholding taxes, social security and other payroll deductions in accordance
with the Company's policies applicable to employees of the Company at the
Executive's level.
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties and supersedes any prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment.
(d) AMENDMENTS. Any attempted modification of this Agreement will not
be effective unless signed by an officer of the Company and the Executive.
(e) WAIVER OF BREACH. The Executive understands that a breach of any
provision of this Agreement may only be waived by an officer of the Company. The
waiver by the Company of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
(f) SEVERABILITY. If any provision of this Agreement should, for any
reason, be held invalid or unenforceable in any respect by a court of competent
jurisdiction, then the remainder of this Agreement, and the application of such
provision in circumstances other than those as to which it is so declared
invalid or unenforceable, shall not be affected thereby, and each such provision
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
(g) NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered by private messenger, private overnight mail service, or facsimile as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
If to the Company:
145 Hudson Street
New York, New York 10013
Attn: Board of Directors
With a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attn: Alexander D. Lynch
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<PAGE>
If to Executive:
Robert Belau
369 Croton Lake Road
Bedford Corners, NY 10549
(h) SURVIVAL. The Executive and the Company agree that certain
provisions of this Agreement shall survive the expiration or termination of this
Agreement and the termination of the Executive's employment with the Company.
Such provisions shall be limited to those within this Agreement which, by their
express and implied terms, obligate either party to perform beyond the
termination of the Executive's employment or termination of this Agreement.
(i) DISCLOSURE AND CONFIDENTIALITY. The Executive agrees to provide,
and agrees that the Company similarly may provide in its discretion, a copy of
the covenants contained in this Agreement to any business or enterprise which
the Company may directly or indirectly own, manage, operate, finance, join,
control or in which the Company participates in the ownership, management,
operation, financing or control, or with which the Company may be connected or
may become connected as an officer, director, executive, partner, principal,
agent, representative, consultant or otherwise. The Executive also agrees that
the Company may disclose a copy of this Agreement if legally required to do so,
and in connection with a partnering transaction or financing, assuming that an
appropriate confidentiality agreement is in place. The Executive further agrees
not to disclose the existence or terms of this Agreement to any person other
than the Executive's immediate family and legal, financial or accounting
professionals.
(j) ARBITRATION OF DISPUTES. Any controversy or claim arising out of
this Agreement or any aspect of the Executive's relationship with the Company
including the cessation thereof (other than disputes with respect to alleged
violations of the covenants contained in Sections 4, 5, 6 or 7 hereof, and the
Company's pursuit of the remedies described in Section 8 hereof in connection
therewith) shall be resolved by arbitration in accordance with the then existing
Employment Dispute Resolution Rules of the American Arbitration Association, in
New York, New York, and judgment upon the award rendered may be entered in any
court having jurisdiction thereof. The parties shall split equally the costs of
arbitration, except that each party shall pay its own attorneys' fees. The
parties agree that the award of the arbitrator shall be final and binding.
(k) RIGHTS OF OTHER INDIVIDUALS. This Agreement confers rights solely
on the Executive and the Company. This Agreement is not a benefit plan and
confers no rights on any individual or entity other than the undersigned.
(l) HEADINGS. The parties acknowledge that the headings in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of this Agreement.
10
<PAGE>
(m) ADVICE OF COUNSEL. The Executive and the Company hereby acknowledge
that each party has had adequate opportunity to review this Agreement, to obtain
the advice of counsel with respect to this Agreement, and to reflect upon and
consider the terms and conditions of this Agreement. The parties further
acknowledge that each party fully understands the terms of this Agreement and
has voluntarily executed this Agreement. The Company shall pay the legal fees
and costs incurred by the Executive in connection with the negotiation and
preparation of this Agreement, upon the presentation of invoices in appropriate
form.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year set forth below.
EXECUTIVE PREDICTIVE SYSTEMS, INC.
/s/ Robert Belau By: Donald Duffy
- ------------------------ ----------------------------
Robert Belau
Title: Director
--------------------------
Dated: 6/30 , 1999 Dated: 7/15 , 1999
------------------- -------------------
By:
----------------------------
Title:
--------------------------
Dated: , 1999
-------------------
11
<PAGE>
PREDICTIVE HOLDINGS, INC.
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Predictive Systems, Inc. (the
"Corporation"):
Optionee: Robert Belau
-------------------------------------------------------------------------
Grant Date: May 11, 1999
-------------------------------------------------------------------------
Vesting Commencement Date: May 11, 1999
-------------------------------------------------------------------------
Exercise Price: $4.00 per share
-------------------------------------------------------------------------
Number of Option Shares: 200,000 shares of Common Stock
-------------------------------------------------------------------------
Expiration Date: May 11, 2009
-------------------------------------------------------------------------
Type of Option: X Incentive Option
--------------- -----
Non-Statutory Stock Option
-----
Vesting Schedule:
-----------------
* 33,333 of the Option Shares shall vest on May 11, 2000; and
* An additional 33,333 of the Option Shares shall vest on May 11, 2001;
and
* An additional 33,334 of the Option Shares shall vest on May 11, 2002;
and
* An additional 50,000 of the Options shall vest on either (i) May 11,
2003, or (ii) if the Company's gross revenues for fiscal year 1999 are
Forty-seven Million Dollars ($47,000,000) or more, as reflected
in the Company's audited financial statement, immediately upon the
issuance of the audited financial statement; and
* An additional 50,000 of the Options shall vest on either (i) May 11,
2003, or (ii) if the Company's gross revenues for fiscal year 2000 are
Eighty Million Dollars ($80,000,000) or more, as reflected in the
Company's audited financial statement, immediately upon the issuance
of the audited financial statement; and
* In the event the Optionee is terminated by the Company "Without
Cause", or if the Optionee terminates his employment "For Good
Reason", all unvested options will automatically vest. For purposes
of this agreement, termination by the Company Without Cause and
termination by the Optionee for Good
<PAGE>
Reason shall be defined as per the Optionee's Employment Agreement
dated May 11, 1999.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Predictive Systems, Inc. 1998 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound
by the terms of the Plan and the terms of the Option as set forth in the
Stock Option Agreement attached hereto as Exhibit A. Optionee understands
that any Option Shares purchased under the Option shall be subject to the
terms set forth in the Stock Purchase Agreement attached hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit C.
RIGHTS OF FIRST REFUSAL. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF
SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right
to continue in Service for any period of specific duration or interfere with
or otherwise restrict in any way the rights of the Corporation (or any Parent
or Subsidiary employing or retaining Optionee) or of Optionee, which rights
are hereby expressly reserved by each, to terminate Optionee's Service at any
time for any reason, with or without cause.
DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
<PAGE>
DATE: May 11, 1999.
-------------
PREDICTIVE SYSTEMS, INC.
By: /s/ Donald Duffy
----------------------
Title: Director
-----------------
By:
----------------------
Title: Director
-----------------
/s/ Robert Belau
-------------------------
OPTIONEE
Address: Robert Belau
-----------------
369 Croton Lake Road
-------------------------
Bedford Hills, NY 10549
-------------------------
-------------------------
ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Stock Purchase Agreement
Exhibit C - 1998 Stock Option/Stock Issuance Plan
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
Predictive Systems, Inc.
145 Hudson Street
New York, NY 10013
January 11, 1999
Kevin Holt
119 Retford
Cranford, NJ 07016
Dear Kevin:
We are pleased to offer you the position of Vice President of
Human Resources reporting to Ron Pettengill, Chairman & CEO and Robert Belau,
President. This letter, if accepted, sets forth the terms of your employment
with Predictive Systems, Inc. (the "Company") and, if you accept this offer, it
would take effect as of your hiring date. The terms of your employment would be
as follows:
COMPENSATION AND BENEFITS
You would receive an annual base salary of $130,000 less all
applicable deductions, and would be eligible to participate in the Company's
bonus plan under the terms set forth in your Bonus memo (see attached). In
addition, you would participate in all of the Company's employee benefit
programs for which you are eligible under the terms and conditions of the
applicable plans and/or policies.
TERM OF EMPLOYMENT
You agree to remain employed for a period of two (2) years
after your date of hire. Nevertheless, the Company may terminate your employment
at any time for any reason, with or without cause, by giving you written notice
of such termination.
If the Company terminates your employment "Without Cause" or
if you resign your employment for "Good Cause" prior to two (2) years after your
date of hire, then the Company will continue your base salary as a severance
payment until the earlier of (A) six (6) months after the date of the
termination of your employment, or (B) the date you begin employment with
another employer. You will notify the Company in writing within ten days of your
acceptance of any new employment. The severance set forth herein will be in lieu
of any entitlement you may have to notice of termination, pay in lieu of notice
of termination, or any other severance payment from any other source. All
benefits and future stock and option vesting would terminate as of the date of
termination of your employment. You would, of course, be paid your salary
through your date of termination and for the value of all unused vacation earned
<PAGE>
through that date and be allowed to continue your medical coverage at your own
expense to the extent provided for by COBRA, but you would not be entitled to
any additional payments or benefits except as set forth herein. You would be
allowed to exercise your vested options during the time period set forth in and
in accordance with your option agreement and the Predictive Systems Option Plan.
If you were to resign "Without Good Cause" or your employment
were to be terminated for "Cause" within two (2) years after your date of hire,
then you would be paid all salary and benefits, as well as for the value of your
unused vacation through the date of termination of your employment, but nothing
else. A termination for "Cause" shall mean a termination for any of the
following reasons: (i) your failure to perform the duties of your position after
receipt of a written warning; (ii) engaging in misconduct; (iii) being convicted
of a crime; (iv) committing an act of fraud against, or the misappropriation of
property belonging to, the Company; or (v) material breach of this agreement or
any confidentiality or proprietary information agreement between you and the
Company. The Company will provide written notice of the reason for termination
in the case of any termination for "Cause." A termination for any other reason
shall be a termination "Without Cause." A resignation for "Good Cause" will
occur if you resign your employment within thirty (30) days after the occurrence
of any of the following events: (1) any reduction in your base salary as
specified herein, unless such reduction is pursuant to a change in the Company's
compensation policies generally; (2) a requirement by the Company that you
relocate to an office more than a fifty (50) mile radius from your current
office; or (3) a material reduction in the job duties assigned to you upon your
date of hire; provided, however, you must specify in reasonable detail the basis
for such resignation for "Good Cause" and give the Company at least twenty (20)
business days in which to correct the circumstances prompting the resignation
for "Good Cause." A resignation by you in any other circumstances will be
considered a resignation "Without Good Cause."
If your employment with the Company were to continue after two
(2) years beyond your date of hire, then your employment would continue to be on
an "at-will" basis. This means that either you or the Company could terminate
your employment at any time for any reason with or without cause and without the
obligation to pay you, or your right to, any severance payment except as may be
provided at such time under the Company's employee benefit plans for which you
are eligible.
YOUR POSITION
You will initially have the title of Vice President of Human
Resources reporting to Ron Pettengill, Chairman & CEO and Robert Belau,
President. You will have whatever reasonable duties are assigned to you
consistent with your title and position. The Company may change your title and
duties as it sees fit although such change may constitute "Good Cause" for your
resignation.
NON-COMPETITION
You understand and agree that you will be allowed access to
confidential and proprietary information of the Company in the course of your
employment. You further acknowledge that the services that you will provide to
the Company under this agreement are
2
<PAGE>
unique.
You agree that during your employment with the Company you
will not engage in any other employment, business, or business related activity
unless you receive the Company's prior written approval from the Company's CEO
or President to hold such outside employment or engage in such business or
activity. Such written approval will not be unreasonably withheld if such
outside employment, business or activity would not in any way be competitive
with the business or proposed business of the Company or otherwise conflict with
or adversely affect in any way your performance of your employment obligations
to the Company.
Commencing on the date of your hire and continuing for six (6)
months after the date of termination of your employment with the Company,
regardless of the reasons for the termination, you will not, as an employee,
agent, consultant, advisor, independent contractor, general partner, officer,
director, stockholder, investor, lender or guarantor of any corporation,
partnership or other entity, or in any other capacity directly or indirectly:
1. participate or engage in the design, development,
manufacture, production, marketing, sale or servicing of any product, or the
provision of any service, that directly relates to [INSERT DESCRIPTION OF
BUSINESS] anywhere where the Company conducts business;
2. induce or attempt to induce any person who at the time of
such inducement is an employee of the Company, or was an employee at any time in
the six (6) month period prior to the inducement, to perform work or services
for any other person or entity other than the Company; or
3. permit your name to be used in connection with a business
which is competitive or substantially similar to the business of the Company.
Notwithstanding the foregoing, you may own, directly or
indirectly, solely as an investment, up to one percent (1%) of any class of
"publicly traded securities" of any person or entity which owns a business that
is competitive or substantially similar to the business of the Company. The term
"publicly traded securities" shall mean securities that are traded on a national
securities exchange or listed on the National Association of Securities Dealers
Automated Quotation System.
If any restriction set forth in this non-competition section
is found by a court to be unreasonable, then you agree, and hereby submit, to
the reduction and limitation of such prohibition to such area or period as shall
be deemed reasonable. You acknowledge that irreparable harm will be suffered by
the Company in the event of the breach by you of any of your obligations under
this agreement, and that the Company will be entitled, in addition to its other
rights, to enforce by an injunction or decree of specific performance the
obligations set forth in this agreement. Any claims asserted by you against the
Company shall not constitute a defense in any injunction action brought by the
Company to obtain specific enforcement of said paragraphs.
ARBITRATION
3
<PAGE>
We each agree that any and all disputes between us which arise
out of your employment, the termination of your employment, or under the terms
of this agreement shall be resolved through final and binding arbitration. This
shall include, without limitation, disputes relating to this agreement, any
disputes regarding your employment by the Company or the termination thereof,
claims for breach of contract or breach of the covenant of good faith and fair
dealing, and any claims of discrimination or other claims under any federal,
state or local law or regulation now in existence or hereinafter enacted and as
amended from time to time concerning in any way the subject of your employment
with the Company or its termination, including the Family and Medical Leave Act.
The only claims not covered by this section are the following: (i) claims for
benefits under the unemployment insurance or workers' compensation laws and (ii)
claims concerning non-competition or non-solicitation obligations or the
validity, infringement or enforceability of any trade secret, patent right,
copyright, trademark or any other intellectual property held or sought by the
Company, or which the Company could otherwise seek; in each of these instances
such disputes or claims shall not be subject to arbitration, but rather, will be
resolved pursuant to applicable law. Binding arbitration will be conducted in
New York, New York in accordance with the rules and regulations of the American
Arbitration Association. If, however, you do not reside within 100 miles of New
York City at the time the dispute arose, then the arbitration may take place in
the largest metropolitan area within fifty miles of your place of residence when
the dispute arose. The parties will split the cost of the arbitration filing and
hearing fees and the cost of the arbitrator; each side will bear its own
attorneys' fees, unless otherwise decided by the arbitrator. You understand and
agree that arbitration shall be instead of any civil litigation, that each side
waives its right to a jury trial, and that the arbitrator's decision shall be
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof.
MISCELLANEOUS PROVISIONS
This agreement and the accompanying Proprietary Information
and Inventions Agreement will be the entire agreement between the Company and
you relating to your employment and the additional matters provided for herein.
You agree that there were no promises or commitments made to you regarding your
employment with the Company except as set forth in this letter. This agreement
supersedes and replaces any prior verbal or written agreements between the
parties relating to the subject matter hereof, including, but not limited to,
any and all prior employment agreements. This agreement may be amended or
altered only in a writing signed by you and the CEO or President. This agreement
shall be construed and interpreted in accordance with the laws of the State of
New York. Each provision of this agreement is severable from the others, and if
any provision hereof shall be to any extent unenforceable, it and the other
provisions shall continue to be enforceable to the full extent allowable, as if
such offending provision had not been a part of this agreement. This offer is
also contingent on you executing the Proprietary Information and Inventions
Agreement, a copy of which is attached hereto and incorporated herein.
4
<PAGE>
If you have any questions about this offer, please contact me.
If you find this offer acceptable, please sign and date this letter below and
return it to me. This offer will expire on February 15, 1999.
Sincerely,
Predictive Systems, Inc.
/s/ Ronald G. Pettengill
-----------------------------------
Ronald G. Pettengill
Chairman & CEO
I agree to the terms and conditions in this offer.
Date: 1/22/99 /s/ Kevin Holt
------------------------------ -----------------------------
Employee Signature
5
<PAGE>
BONUS MEMORANDUM
FOR
KEVIN HOLT
I. BONUS COMPENSATION
You will also receive an annual bonus based on you and the Company
attaining specific performance goals. The goals and associated bonus
amounts are as follows:
- - $100,000 if Predictive System achieves the following goals:
The successful hiring and retention for at least 6 months a minimum of
125 new revenue-producing consultants (defined as those consultants who
produce a minimum of 1660 (80% utilization of 2080 hours per annum)
billable hours during calendar year 1999) in the calendar year 1999.
Implementation of processes and practices which will reduce the cost
per hire from a current $7,000 per new employee to a minimum of $4,000
per new employee measured according to mutually agreed upon metrics
established by Niraj Sethi-VP of Finance.
- - $20,000 to be tied to other specific marketing goals to be determined
by the Company on the completion of the Human Resources Strategy and
Implementation Plan. These will include, without limitation:
Implementation of Corporate Orientation & Training Plan;
Central coordination of all recruiting activity; and
Implementation of International Human Resources activities for
Predictive subsidiaries in Europe.
Bonus Progress status meetings between you and the CEO or President will be
held quarterly in order to assess bonus progress. Predictive will provide
you with an performance assessment at the conclusion of each of these
meetings. Your 1999 bonus will be paid on or before February 15, 2000. You
must be employed by Predictive on the date of the bonus payment in order to
be eligible for the bonus.
6
<PAGE>
II. EQUITY PARTICIPATION
We believe strongly in equity participation for key members of staff.
At the same time, equity is not given lightly, and is targeted as an exceptional
reward for exceptional performance. We are confident that you will become an
integral member of the Predictive team, and as such, are eligible for the
following stock options under the terms and conditions specified in the
Predictive Systems Option Plan and your Stock Option Agreement:
- - 130,000 options to purchase common stock at $2.50/share vesting on the
following schedule:
- - 32,500 options vest on February 1, 2000.
- - 32,500 options vest on February 1, 2001.
- - 32,500 options vest on February 1, 2002.
- - 32,500 options vest on February 1, 2003.
In the event of an acquisition of the company or initial public offering,
vesting would follow the guidelines as set forth in the Predictive Systems
Option Plan.
7
<PAGE>
Exhibit 10.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
among
PREDICTIVE SYSTEMS, INC.,
GENERAL ATLANTIC PARTNERS 54, L.P.
GAP COINVESTMENT PARTNERS II, L.P.
and
THE STOCKHOLDERS NAMED HEREIN
--------------------------
Dated: March 5, 1999
--------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions.....................................................................................1
2. General; Securities Subject to this Agreement...................................................7
(a) Grant of Rights........................................................................7
(b) Registrable Securities.................................................................7
(c) Holders of Registrable Securities......................................................7
3. Demand Registration.............................................................................8
(a) Request for Demand Registration........................................................8
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration...........................................................................8
(c) Effective Demand Registration..........................................................9
(d) Expenses...............................................................................9
(e) Underwriting Procedures...............................................................10
(f) Selection of Underwriters.............................................................10
4. Incidental or "Piggy-Back" Registration........................................................10
5. Form S-3 Registration..........................................................................11
(a) Request for a Form S-3 Registration...................................................11
(b) Form S-3 Underwriting Procedures......................................................12
(c) Limitations on Form S-3 Registrations.................................................12
(d) No Demand Registration................................................................13
6. Holdback Agreements............................................................................13
(a) Restrictions on Public Sale by Designated Holders.....................................13
(b) Restrictions on Public Sale by the Company............................................13
7. Registration Procedures........................................................................14
(a) Obligations of the Company............................................................14
(b) Seller Information....................................................................17
(c) Notice to Discontinue.................................................................17
(d) Registration Expenses.................................................................17
8. Indemnification; Contribution..................................................................18
(a) Indemnification by the Company........................................................18
(b) Indemnification by Designated Holders.................................................19
(c) Conduct of Indemnification Proceedings................................................19
(d) Contribution..........................................................................20
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9. Rule 144.......................................................................................21
10. Miscellaneous..................................................................................21
(a) Recapitalizations, Exchanges, etc.....................................................21
(b) No Inconsistent Agreements............................................................21
(c) Remedies..............................................................................22
(d) Amendments and Waivers................................................................22
(e) Notices...............................................................................22
(f) Successors and Assigns; Third Party Beneficiaries.....................................23
(g) Counterparts..........................................................................24
(h) Headings..............................................................................24
(i) GOVERNING LAW.........................................................................24
(j) Severability..........................................................................24
(k) Entire Agreement......................................................................24
(l) Further Assurances....................................................................25
(m) Other Agreements......................................................................25
</TABLE>
iii
<PAGE>
Page
----
SCHEDULES
Schedule I Other Purchasers
Schedule II Group A Stockholders
iv
<PAGE>
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated March 5, 1999 (this
"Agreement"), among Predictive Systems, Inc., a Delaware corporation (the
"Company"), General Atlantic Partners 54, L.P., a Delaware limited
partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware
limited partnership ("GAP Coinvestment"), Ronald Pettengill ("Pettengill"),
Robert Belau ("Belau"), Meyer, Duffy & Associates, L.P. ("MDA") and the
Persons signatory hereto.
WHEREAS, on the date hereof, pursuant to the Stock and Warrant
Purchase Agreement, dated March 5, 1999 (the "Stock and Warrant Purchase
Agreement"), among the Company, GAP LP, GAP Coinvestment and the Persons listed
on Schedule I hereto (the "Other Purchasers"), the Company intends to issue and
sell to each of GAP LP, GAP Coinvestment and the Other Purchasers certain
shares, par value $.001 per share, of Series A Convertible Preferred Stock of
the Company (the "Preferred Stock") and to GAP LP and GAP Coinvestment the
Warrants (as hereinafter defined) to purchase, subject to the conditions
thereof, certain shares of Common Stock (as hereinafter defined) upon the
closing of the Company's Initial Public Offering (as hereinafter defined);
WHEREAS, concurrently herewith, the Company, GAP LP, GAP
Coinvestment, the Other Purchasers, the Major Stockholders (as hereinafter
defined) and certain other stockholders of the Company are entering into the
Stockholders Agreement (as hereinafter defined), pursuant to which the parties
thereto have agreed to, among other things, certain first offer and tag-along
rights, preemptive rights and certain corporate governance rights and
obligations; and
WHEREAS, in order to induce (i) each of the Major Stockholders to
enter into the Stockholders Agreement, (ii) each of GAP LP and GAP Coinvestment
to purchase its shares of Preferred Stock and its Warrant, and (iii) each of the
Other Purchasers to purchase its shares of Preferred Stock, and to enter into
the Stockholders Agreement, the Company has agreed to grant registration rights
with respect to the Registrable Securities (as hereinafter defined) as set forth
in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement the following terms
have the meanings indicated:
"AFFILIATE" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act. In addition, the following shall be deemed to be Affiliates of GAP LP: (a)
GAP LLC,
<PAGE>
2
the members of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of
GAP LLC, the members of GAP LLC and the limited partners of GAP LP; and (c) any
limited liability company or partnership a majority of whose members or
partners, as the case may be, are members of GAP LLC. In addition, GAP LP and
GAP Coinvestment shall be deemed to be Affiliates of one another. Also, the
following shall be deemed to be Affiliates of MDA: (a) MD Strategic, L.P.; (b)
any general or limited partner of MDA; (c) any Affiliate of the general or
limited partners of MDA and (d) any limited liability company or partnership a
majority of whose members or partners, as the case may be, are partners of MDA.
"APPROVED UNDERWRITER" has the meaning set forth in Section
3(f) of this Agreement.
"BELAU" has the meaning set forth in the preamble to this
Agreement.
"BELAU STOCKHOLDERS" means Belau and any Permitted Transferee
(as defined in the Stockholders Agreement) thereof to which Registrable
Securities are transferred in accordance with Section 2.2 of the Stockholders
Agreement.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"CERTIFICATE OF INCORPORATION" has the meaning set forth in
the Stock and Warrant Purchase Agreement.
"CLOSING PRICE" means, with respect to the Registrable
Securities, as of the date of determination, (a) the closing price per share of
the Registrable Security on the principal national securities exchange on which
such security is listed at the time (or if there have been no sales on such
exchange on such day, the average of the highest bid and lowest asked prices on
such exchange on such day), or (b) if the Registrable Security is not listed on
a national securities exchange at the time, the sales price of such Registrable
Security as reported on the Nasdaq National Market as of 4:00 p.m., New York
City time, on such date (or, if there is no reported sales price of such
Registrable Security on the Nasdaq National Market on such date, the average of
the representative bid and asked prices quoted on the Nasdaq National Market as
of 4:00 p.m. New York City time on such date), or (c) if such Registrable
Security is not reported on the Nasdaq National Market at the time, the average
of the representative bid and asked prices quoted in the Nasdaq System as of
4:00 p.m., New York City time, on such date, or (d) if the Registrable Security
is not quoted on the Nasdaq System at the time, the average of the highest bid
and lowest asked prices on such date in the over-the-counter market as reported
by the National Quotation Bureau Incorporated or any similar successor
organization; or (e) if none of (a), (b), (c) or (d)
<PAGE>
3
is applicable, a market price per share determined in good faith by the
Company's Board of Directors or, if such determination is not satisfactory to
the Designated Holder for whom such determination is being made, by a nationally
recognized investment banking firm selected by the Company and such Designated
Holder, the expenses for which shall be borne equally by the Company and such
Designated Holder.
"COMMON STOCK" means the Common Stock, par value $.001 per
share, of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.
"COMPANY" has the meaning set forth in the recitals to this
Agreement.
"COMPANY UNDERWRITER" has the meaning set forth in Section
4(a) of this Agreement.
"DEMAND REGISTRATION" has the meaning set forth in Section
3(a) of this Agreement.
"DESIGNATED HOLDER" means each of the Major Stockholders, the
Purchaser Stockholders and the Minor Stockholders and any transferee of any of
them to whom Registrable Securities have been transferred in accordance with the
provisions of the Stockholders Agreement and Section 10(f) of this Agreement,
other than a transferee to whom Registrable Securities have been transferred
pursuant to a Registration Statement under the Securities Act or Rule 144 or
Regulation S under the Securities Act (or any successor rule thereto).
"ELIGIBLE STOCK" means the number of shares of Common Stock
set forth opposite the name of each of the Persons listed on Schedule II hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAP COINVESTMENT" has the meaning set forth in the recitals
to this Agreement.
"GAPCO WARRANT" has the meaning set forth in the recitals to
this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP, and any successor
to such entity.
<PAGE>
4
"GAP LP" has the meaning set forth in the recitals to this
Agreement.
"GAP LP WARRANT" has the meaning set forth in the recitals to
this Agreement.
"GENERAL ATLANTIC STOCKHOLDERS" means GAP LP, GAP
Coinvestment and any Permitted Transferee (as defined in the Stockholders
Agreement) of either of them to which Registrable Securities are transferred in
accordance with Section 2.2 of the Stockholders Agreement.
"GROUP A STOCKHOLDERS" means the Persons listed on Schedule
II hereto, and the term "GROUP A STOCKHOLDER" means any such Person.
"GROUP B STOCKHOLDERS" means the Other Purchasers and any
Permitted Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2.
"HOLDERS' COUNSEL" has the meaning set forth in Section
7(a)(i) of this Agreement.
"INCIDENTAL REGISTRATION" has the meaning set forth in
Section 4(a) of this Agreement.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(c)
of this Agreement.
"INDEMNIFYING PARTY" has the meaning set forth in Section
8(c) of this Agreement.
"INITIAL PUBLIC OFFERING" means an initial public offering of
the shares of Common Stock of the Company pursuant to an effective Registration
Statement filed under the Securities Act.
"INITIATING HOLDERS" has the meaning set forth in Section
3(a) of this Agreement.
"INSPECTOR" has the meaning set forth in Section 7(a)(vii) of
this Agreement.
"IPO EFFECTIVENESS DATE" means the date upon which the
Company commences its Initial Public Offering.
"LIABILITY" has the meaning set forth in Section 8(a) of this
Agreement.
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5
"MAJOR STOCKHOLDERS" means the Pettengill Stockholders, the
Belau Stockholders and the MDA Stockholders, and the term "Major Stockholder"
shall mean any such Person.
"MARKET PRICE" means, on any date of determination, the
average of the daily Closing Price of the Registrable Securities for the
immediately preceding 30 days on which the national securities exchanges are
open for trading.
"MINOR STOCKHOLDERS" means the Group A Stockholders signatory
hereto and any Permitted Transferee (as defined in the Stockholders Agreement)
thereof to which Registrable Securities are transferred in accordance with
Section 2.2 of the Stockholders Agreement.
"MDA" has the meaning set forth in the preamble to this
Agreement.
"MDA STOCKHOLDERS" means MDA and any Permitted Transferee (as
defined in the Stockholders Agreement) thereof to which Registrable Securities
are transferred in accordance with Section 2.2 of the Stockholders Agreement.
"NASD" has the meaning set forth in Section 7(a)(xi) of this
Agreement.
"OTHER PURCHASERS" has the meaning set forth in the recitals
to this Agreement.
"PERSON" means any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, limited liability company,
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"PETTENGILL" has the meaning set forth in the preamble to
this Agreement.
"PETTENGILL STOCKHOLDERS" means Pettengill and any Permitted
Transferee (as defined in the Stockholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Stockholders Agreement.
"PREFERRED STOCK" has the meaning set forth in the recitals
to this Agreement.
<PAGE>
6
"PURCHASER STOCKHOLDERS" means the General Atlantic
Stockholders and the Group B Stockholders, and the term "PURCHASER STOCKHOLDER"
shall mean any such Person.
"RECORDS" has the meaning set forth in Section 7(a)(vii) of
this Agreement.
"REGISTRABLE SECURITIES" means each of the following: (a)
with respect to the Purchaser Stockholders and the Major Stockholders (i) any
and all shares of Common Stock owned as of the date of this Agreement by the
Purchaser Stockholders or the Major Stockholders, as the case may be, or
issuable upon conversion of shares of Preferred Stock or exercise of the
Warrants, and any shares of Common Stock issued or issuable upon conversion of
any shares of Preferred Stock or exercise of any Warrants acquired by any of the
Designated Holders after the date hereof, (ii) any other shares of Common Stock
acquired after the date of this Agreement by any of the Purchaser Stockholders
or the Major Stockholders prior to the IPO Effectiveness Date, or acquired or
owned by any of the Purchaser Stockholders or the Major Stockholders after the
IPO Effectiveness Date if such Person is an Affiliate of the Company and (iii)
any shares of Common Stock issued or issuable to any of the Purchaser
Stockholders or the Major Stockholders with respect to the Registrable
Securities by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise and any shares of Common Stock or voting common
stock issuable upon conversion, exercise or exchange thereof and (b) with
respect to the Minor Stockholders, any and all shares of Eligible Stock owned by
such Minor Stockholders.
"REGISTRATION EXPENSES" has the meaning set forth in Section
7(d) of this Agreement.
"REGISTRATION STATEMENT" means a Registration Statement filed
pursuant to the Securities Act.
"S-3 INITIATING HOLDERS" has the meaning set forth in Section
5(a) of this Agreement.
"S-3 REGISTRATION" has the meaning set forth in Section 5(a)
of this Agreement.
"SEC" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
<PAGE>
7
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement,
dated the date hereof, among the Company, GAP LP, GAP Coinvestment, the Other
Purchasers, the Major Stockholders and the other Persons signatory thereto.
"STOCK AND WARRANT PURCHASE AGREEMENT" has the meaning set
forth in the recitals to this Agreement.
"WARRANTS" has the meaning set forth in the Stock and Warrant
Purchase Agreement.
2. GENERAL; SECURITIES SUBJECT TO THIS AGREEMENT.
(a) GRANT OF RIGHTS. The Company hereby grants registration
rights to the Major Stockholders, the Minor Stockholders and the Purchaser
Stockholders upon the terms and conditions set forth in this Agreement.
(b) REGISTRABLE SECURITIES. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of by the Holder thereof pursuant to such
effective Registration Statement, (ii) the entire amount of Registrable
Securities proposed to be sold in a single sale, in the opinion of counsel
satisfactory to the Company and the Designated Holder, each in their reasonable
judgment, may be distributed to the public without any limitation as to volume
pursuant to Rule 144 (or any successor provision then in effect) under the
Securities Act or (iii) the Registrable Securities are proposed to be sold or
distributed by a Person not entitled to the registration rights granted by this
Agreement.
(c) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to
be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.
3. DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION. At any time after the
consummation of the Initial Public Offering, if the Company is not eligible to
use Form S-3 (or any successor form thereto) in connection with public offering
of its
<PAGE>
8
securities, then one or more of the General Atlantic Stockholders as a group,
acting through GAP LLC or its written designee (the "Initiating Holders"), may
make a written request to the Company to register, under the Securities Act
(other than pursuant to a Registration Statement on Form S-4 or S-8 or any
successor thereto) (a "Demand Registration"), the number of Registrable
Securities stated in such request; PROVIDED, HOWEVER, that the Company shall not
be obligated to (i) effect more than two such Demand Registrations for the
General Atlantic Stockholders, or (ii) effect a Demand Registration unless the
Registrable Securities to be included therein have an aggregate sale price
(calculated based upon the Market Price of the Registrable Securities on the
date of filing of the Registration Statement with respect to such Demand
Registration) to the public of at least $5,000,000. For purposes of the
preceding sentence, two or more Registration Statements filed in response to one
demand shall be counted as one Registration Statement. If at the time of any
request to register Registrable Securities pursuant to this Section 3(a), the
Company is engaged in, or has fixed plans to engage in, within 60 days of the
time of such request, a registered public offering or is engaged in any other
activity which, in the good faith determination of the Board of Directors of the
Company, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a reasonable period not in excess of three
months from the effective date of such offering or the date of completion of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any six month period. In
addition, the Company shall not be required to effect any registration within 90
days (or 180 days in the case of the Company's Initial Public Offering) after
the effective date of any other Registration Statement of the Company. Each
request for a Demand Registration by the Initiating Holders shall state the
amount of the Registrable Securities proposed to be sold and the intended method
of disposition thereof.
(b) INCIDENTAL OR "PIGGY-BACK" RIGHTS WITH RESPECT TO A
DEMAND REGISTRATION. Each of the Designated Holders (other than Initiating
Holders which have requested a registration under Section 3(a)) may offer its or
his Registrable Securities under any Demand Registration pursuant to this
Section 3(b). Within 10 days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of the Registrable Securities
held by such Designated Holders from whom the Company has received a written
request for inclusion therein within 10 days of the receipt by such Designated
Holders of such written notice referred to in clause (i) above. Each such
request by such Designated Holders shall specify the number of Registrable
Securities proposed to be registered and the intended method of disposition
thereof. The failure of any Designated Holder to respond within such 10-day
period referred to in clause (ii) above shall be deemed to be a waiver of such
Designated Holder's rights under this Section 3 with respect to such Demand
Registration, PROVIDED that any Designated Holder may
<PAGE>
9
waive its rights under this Section 3 prior to the expiration of such 10-day
period by giving written notice to the Company, with a copy to the Initiating
Holders. If a Designated Holder sends the Company a written request for
inclusion of part or all of such Designated Holder's Registrable Securities in a
registration, such Designated Holder shall not be entitled to withdraw or revoke
such request without the prior written consent of the Company in its sole
discretion unless, as a result of facts or circumstances arising after the date
on which such request was made relating to the Company or to market conditions,
such Designated Holder reasonably determines that participation in such
registration would have a material adverse effect on such Designated Holder.
(c) EFFECTIVE DEMAND REGISTRATION. The Company shall use its
reasonable commercial efforts to cause any such Demand Registration to become
and remain effective not later than 90 days after it receives a request under
Section 3(a) hereof. A registration shall not constitute a Demand Registration
until it has become effective and remains continuously effective for the lesser
of (i) the period during which all Registrable Securities registered in the
Demand Registration are sold and (ii) 90 days; PROVIDED, HOWEVER, that a
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the conditions
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holder.
(d) EXPENSES. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses in connection
therewith, whether or not such Demand Registration becomes effective. If such
Demand Registration does not become effective directly as a result of an action
by the Initiating Holders, other than a withdrawal or revocation of the request
for such Demand Registration by the Initiating Holders because of facts or
circumstances arising after the date of such request relating to the Company or
market conditions which the Initiating Holders and the Company reasonably agree
could have a material adverse effect on the likelihood of the success of the
offering, then the Initiating Holders shall either pay the Registration Expenses
or lose one Demand Registration under this Section 3.
(e) UNDERWRITING PROCEDURES. If the Company or the
Initiating Holders holding a majority of the Registrable Securities held by all
of the Initiating Holders to which the requested Demand Registration relates so
elect, the Company shall use its reasonable commercial efforts to cause such
Demand Registration to be in the form of a firm commitment underwritten offering
and the managing underwriter or underwriters selected for such offering shall be
the Approved
<PAGE>
10
Underwriter selected in accordance with Section 3(f). In connection with any
Demand Registration under this Section 3 involving an underwritten offering,
none of the Registrable Securities held by any Designated Holder making a
request for inclusion of such Registrable Securities pursuant to Section 3(b)
hereof shall be included in such underwritten offering unless such Designated
Holder accepts the terms of the offering as agreed upon by the Company, the
Initiating Holders and the Approved Underwriter, and then only in such quantity
as will not, in the opinion of the Approved Underwriter, jeopardize the success
of such offering by the Initiating Holders. If the Approved Underwriter advises
the Company that the aggregate amount of such Registrable Securities requested
to be included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Registrable Securities that the
Approved Underwriter believes may be sold without any such material adverse
effect and shall reduce the amount of Registrable Securities to be included in
such registration, FIRST as to the Company, SECOND as to the Designated Holders
(who are not Initiating Holders and who requested to participate in such
registration pursuant to Section 3(b) hereof) as a group, if any, and THIRD as
to the Initiating Holders as a group, pro rata within each group based on the
number of Registrable Securities owned by each such Designated Holder or
Initiating Holder, as the case may be.
(f) SELECTION OF UNDERWRITERS. If any Demand Registration or
S-3 Registration, as the case may be, of Registrable Securities is in the form
of an underwritten offering, the Company shall select and obtain an investment
banking firm of national reputation to act as the managing underwriter of the
offering (the "Approved Underwriter"); PROVIDED, HOWEVER, that the Approved
Underwriter shall, in any case, also be approved by the Initiating Holders or
S-3 Initiating Holders, as the case may be, such approval not to be unreasonably
withheld.
4. INCIDENTAL OR "PIGGY-BACK" REGISTRATION. At any time after
the consummation of the Initial Public Offering, in the event of any registered
public offering of the Common Stock of the Company, if the Company proposes to
file a Registration Statement under the Securities Act with respect to an
offering by the Company for its own account (other than a Registration Statement
on Form S-4 or S-8 or any successor thereto), then the Company shall give
written notice of such proposed filing to each of the Designated Holders at
least 20 days before the anticipated filing date, and such notice shall describe
the proposed registration and distribution and offer such Designated Holders the
opportunity to register the number of Registrable Securities as each such holder
may request (an "Incidental Registration"). The Company shall use its reasonable
commercial efforts (within 10 days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters of a proposed
underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company
included therein. In
<PAGE>
11
connection with any Incidental Registration under this Section 4(a) involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the holders thereof
accept the terms of the underwritten offering as agreed upon between the Company
and the Company Underwriter, and then only in such quantity as the Company
Underwriter believes will not jeopardize the success of the offering by the
Company. If the Company Underwriter determines that the registration of all or
part of the Registrable Securities which the Designated Holders have requested
to be included would materially adversely affect the success of such offering,
then the Company shall be required to include in such Incidental Registration,
to the extent of the amount that the Company Underwriter believes may be sold
without causing such adverse effect, FIRST, all of the securities to be offered
for the account of the Company; SECOND, the Registrable Securities to be offered
for the account of the Designated Holders pursuant to this Section 4, pro rata
based on the number of Registrable Securities owned by each such Designated
Holder; and THIRD, any other securities requested to be included in such
underwritten offering.
5. FORM S-3 REGISTRATION.
(a) REQUEST FOR A FORM S-3 REGISTRATION. Upon the Company
becoming eligible for use of Form S-3 in connection with a public offering of
its securities, in the event that the Company shall receive from (i) one or more
of the General Atlantic Stockholders as a group, acting through GAP LLC or its
written designee or (ii) the Minor Stockholders holding shares of Eligible Stock
representing a majority of the outstanding shares of Eligible Stock (in either
case, the "S-3 Initiating Holders") a written request that the Company register,
under the Securities Act, on Form S-3 (or any successor form then in effect) (an
"S-3 Registration"), all or a portion of the Registrable Securities owned by
such S-3 Initiating Holders, the Company shall give written notice of such
request to all of the Designated Holders (other than S-3 Initiating Holders
which have requested an S-3 Registration under this Section 5(a)) at least 30
days before the anticipated filing date of such Form S-3), and such notice shall
describe the proposed registration and offer Designated Holders the opportunity
to register the number of Registrable Securities as each such Designated Holder
may request in writing to the Company, given within 15 days after their receipt
from the Company of the written notice of such registration, PROVIDED, that the
Company shall not be obligated to effect more than one (1) such S-3 registration
for the Minor Stockholders. With respect to each S-3 Registration, the Company
shall (i) subject to Section 5(b), include in such offering the Registrable
Securities of the S-3 Initiating Holders, and (ii) subject to Section 5(b), use
its best efforts to (x) cause such registration pursuant to this Section 5(a) to
become and remain effective as soon as practicable, but in any event not later
than ninety (90) days after it receives a request therefor and (y) include in
such offering the Registrable Securities of the Designated Holders (other than
S-3 Initiating Holders which have requested an S-3 Registration under this
Section 5(a)) who have requested in writing to participate in such registration
<PAGE>
12
on the same terms and conditions as the Registrable Securities of the S-3
Initiating Holders included therein.
(b) FORM S-3 UNDERWRITING PROCEDURES. If the Company or the
S-3 Initiating Holders holding a majority of the Registrable Securities held by
all of the S-3 Initiating Holders to which the requested S-3 Registration
relates so elect, the Company shall use its reasonable commercial efforts to
cause such S-3 Registration pursuant to this Section 5 to be in the form of a
firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter
selected in accordance with Section 3(f). In connection with any S-3
Registration under Section 5(a) involving an underwritten offering, the Company
shall not be required to include any Registrable Securities in such underwritten
offering unless the Designated Holders thereof accept the terms of the
underwritten offering as agreed upon between the Company, the Approved
Underwriter and the S-3 Initiating Holders, and then only in such quantity as
such underwriter believes will not jeopardize the success of such offering by
the S-3 Initiating Holders. If the Approved Underwriter believes that the
registration of all or part of the Registrable Securities which the S-3
Initiating Holders and the other Designated Holders have requested to be
included would materially adversely affect the success of such public offering,
then the Company shall be required to include in the underwritten offering, to
the extent of the amount that the Approved Underwriter believes may be sold
without causing such adverse effect, FIRST, all of the Registrable Securities to
be offered for the account of the S-3 Initiating Holders, pro rata based on the
number of Registrable Securities owned by such S-3 Initiating Holders; SECOND,
the Registrable Securities to be offered for the account of the other Designated
Holders who requested inclusion of their Registrable Securities pursuant to
Section 5(a), pro rata based on the number of Registrable Securities owned by
such Designated Holders; and THIRD, any other securities requested to be
included in such underwritten offering.
(c) LIMITATIONS ON FORM S-3 REGISTRATIONS. If at the time of
any request to register Registrable Securities pursuant to Section 5(a), the
Company is engaged in, or has fixed plans to engage in within 60 days of the
time of such request, a registered public offering or is engaged or has fixed
plans to engage in any other activity which, in the good faith determination of
the Board of Directors of the Company, would be adversely affected by the
requested S-3 Registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a reasonable
period not in excess of three months from the effective date of such offering or
the date of completion of such other material activity, as the case may be, such
right to delay a request to be exercised by the Company not more than once in
any six month period. In addition, the Company shall not be required to effect
any registration pursuant to Section 5(a), (i) within 90 days after the
effective date of any other Registration Statement of the Company, (ii) if
within the 12-month period preceding the date of such request, the Company has
effected two registrations on Form S-3 pursuant to Section 5(a), (iii) if Form
S-3 is not available for such offering
<PAGE>
13
by the S-3 Initiating Holders or (iv) if the S-3 Initiating Holders, together
with the Designated Holders (other than S-3 Initiating Holders which have
requested an S-3 Registration under Section 5(a)) registering Registrable
Securities in such registration, propose to sell their Registrable Securities at
an aggregate price (calculated based upon the Market Price of the Registrable
Securities on the date of filing of the Form S-3 with respect to such
Registrable Securities) to the public of less than $5,000,000.
(d) NO DEMAND REGISTRATION. No registration requested by any
Designated Holder pursuant to this Section 5 shall be deemed a Demand
Registration pursuant to Section 3.
6. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY DESIGNATED HOLDERS. If
and to the extent requested by the Company, the Initiating Holders or the S-3
Initiating Holders, as the case may be, in the case of a non-underwritten public
offering or if and to the extent requested by the Approved Underwriter or the
Company Underwriter, as the case may be, in the case of an underwritten public
offering, each Designated Holder of Registrable Securities agrees (i) not to
effect any public sale or distribution of any Registrable Securities or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities Act, and
(ii) not to make any request for a Demand Registration or S-3 Registration under
this Agreement, during the 90 day period (or 180 day period in the case of the
Company's Initial Public Offering) or such shorter period, if any, mutually
agreed upon by such Designated Holder and the requesting party beginning on the
effective date of such Registration Statement (except as part of such
registration) or the IPO Effectiveness Date.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company
agrees not to effect any public sale or distribution of any of its securities,
or any securities convertible into or exchangeable or exercisable for such
securities (except pursuant to registrations on Form S-4 or S-8 or any successor
thereto), during the period beginning on the effective date of any Registration
Statement in which the Designated Holders of Registrable Securities are
participating and ending on the earlier of (i) the date on which all Registrable
Securities registered on such Registration Statement are sold and (ii) 90 days
after the effective date of such Registration Statement (except as part of such
registration).
7. REGISTRATION PROCEDURES.
(a) OBLIGATIONS OF THE COMPANY. Whenever registration of
Registrable Securities has been requested pursuant to Section 3, Section 4 or
Section 5 of this Agreement, the Company shall use its reasonable commercial
efforts to effect the registration and sale of such Registrable Securities in
accordance with the
<PAGE>
14
intended method of distribution thereof as quickly as practicable, and in
connection with any such request, the Company shall, as expeditiously as
possible:
(i) prepare and file with the SEC a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of such Registrable Securities in accordance with the intended method of
distribution thereof, and cause such Registration Statement to become effective;
PROVIDED, HOWEVER, that (x) before filing a Registration Statement or
prospectus or any amendments or supplements thereto, the Company shall provide
counsel selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel") and any
other Inspector with an adequate and appropriate opportunity to review and
comment on such Registration Statement and each prospectus included therein (and
each amendment or supplement thereto) to be filed with the SEC, subject to such
documents being under the Company's control, and (y) the Company shall notify
the Holders' Counsel and each seller of Registrable Securities of any stop order
issued or threatened by the SEC and take all action required to prevent the
entry of such stop order or to remove it if entered;
(ii) prepare and file with the SEC such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for the lesser of (x) 90 days and (y) such shorter period which will
terminate when all Registrable Securities covered by such Registration Statement
have been sold, and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement;
(iii) furnish to each seller of Registrable
Securities, prior to filing a Registration Statement, at least one copy of such
Registration Statement as is proposed to be filed, and thereafter such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) as each such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any seller of Registrable Securities may request, and to continue such
qualification in effect in such jurisdiction for as long as permissible pursuant
to the laws of such jurisdiction, or for as long as any such seller requests or
until all of such Registrable Securities are sold, whichever is shortest, and do
any and all other acts and things which may be rea-
<PAGE>
15
sonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; PROVIDED, HOWEVER, that the Company shall not be required to (x) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 7(a)(iv), (y) subject itself to
taxation in any such jurisdiction or (z) consent to general service of process
in any such jurisdiction;
(v) notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller a reasonable number of copies of such supplement to or an
amendment of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not contain an
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, in light of
the circumstances under which they were made, not misleading;
(vi) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3,
Section 4 or Section 5, as the case may be) and take such other actions as are
prudent and reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities, including, without limitation, (x)
if such sale is pursuant to an underwritten offering, use its best efforts to
obtain a "cold comfort" letter from the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
"cold comfort" letters as the managing underwriter reasonably requests and (y)
furnish, at the request of any seller of Registrable Securities on the date such
securities are delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through underwriters, on
the date the Registration Statement with respect to such securities becomes
effective, an opinion, dated such date, of counsel representing the Company for
the purposes of such registration, addressed to the underwriters, if any, and to
the seller making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as such seller may
reasonably request and are customarily included in such opinions;
(vii) make available at reasonable times for
inspection by any seller of Registrable Securities, any managing underwriter
participating in any disposition of such Registrable Securities pursuant to a
Registration Statement, Holders' Counsel and any attorney, accountant or other
agent retained by
<PAGE>
16
any such seller or any managing underwriter (each, an "Inspector" and
collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement. Records that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors (and
the Inspectors shall confirm their agreement in writing in advance to the
Company if the Company shall so request) unless (x) the disclosure of such
Records is necessary, in the Company's judgment, to avoid or correct a
misstatement or omission in the Registration Statement, (y) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction after exhaustion of all appeals therefrom or (z) the
information in such Records was known to the Inspectors on a non-confidential
basis prior to its disclosure by the Company or has been made generally
available to the public. Each seller of Registrable Securities agrees that it
shall, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(viii) comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon as
reasonably practicable but no later than fifteen (15) months after the effective
date of the Registration Statement, an earnings statement covering a period of
twelve (12) months beginning after the effective date of the Registration
Statement, in a manner which satisfies the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(ix) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, PROVIDED that the applicable listing requirements are
satisfied;
(x) keep Holders' Counsel advised in writing as to
the initiation and progress of any registration under Section 3, Section 4 or
Section 5 hereunder;
(xi) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (the "NASD"); and
(xii) take all other steps reasonably necessary to
effect the registration of the Registrable Securities contemplated hereby.
<PAGE>
17
(b) SELLER INFORMATION. The Company may require each seller
of Registrable Securities as to which any registration is being effected to
furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.
(c) NOTICE TO DISCONTINUE. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 7(a)(v), such
Designated Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Designated Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 7(a)(v) and, if so
directed by the Company, such Designated Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Designated Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement (including, without limitation, the period referred to in Section
7(a)(ii)) by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 7(a)(v) to and including the date
when sellers of such Registrable Securities under such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 7(a)(v).
(d) REGISTRATION EXPENSES. The Company shall pay all
expenses arising from or incident to its performance of, or compliance with,
this Agreement, including, without limitation, (i) SEC, stock exchange and NASD
registration and filing fees, (ii) all fees and expenses incurred in complying
with secu rities or "blue sky" laws (including reasonable fees, charges and
disbursements of counsel to any underwriter incurred in connection with "blue
sky" qualifications of the Registrable Securities as may be set forth in any
underwriting agreement), (iii) all printing, messenger and delivery expenses,
(iv) the fees, charges and disbursements of counsel to the Company and of its
independent public accountants and any other accounting fees, charges and
expenses incurred by the Company (including, without limitation, any expenses
arising from any "cold comfort" letters or any special audits incident to or
required by any registration or qualification) and any legal fees, charges and
expenses incurred by the Company and, in the case of a Demand Registration, one
law firm representing the Initiating Holders and (v) any liability insurance or
other premiums for insurance obtained in connection with any Demand Registration
or piggy-back registration thereon, Incidental Registration or S-3 Registration
pursuant to the terms of this Agreement, regardless of whether such Registration
Statement is declared effective. All of the expenses described in the preceding
sentence of this Section 7(d) are referred to herein as "Registration Expenses."
The Designated Holders of
<PAGE>
18
Registrable Securities sold pursuant to a Registration Statement shall bear the
expense of any broker's commission or underwriter's discount or commission
relating to registration and sale of such Registrable Securities and, subject to
clause (iv) above, shall bear the fees and expenses of their counsel.
8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Designated Holder and each Person who controls
(within the meaning of Section 15 of the Securities Act) such Designated Holder
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) (collectively, "liability"),
arising out of or based upon any untrue, or allegedly untrue, statement of a
material fact contained in any Registration Statement, prospectus or preliminary
prospectus or notification or offering circular (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading under the circumstances such statements were made, except
insofar as (i) such liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission contained
in such Registration Statement, preliminary prospectus or final prospectus in
reliance upon information concerning such Designated Holder furnished in writing
to the Company by such Designated Holder expressly for use therein, including,
without limitation, the information furnished to the Company pursuant to Section
8(b) or (ii) such liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission contained in such
Registration Statement, preliminary prospectus or final prospectus if such
deficiency is corrected in a final prospectus. The Company shall also provide
customary indemnities to any underwriters of the Registrable Securities, their
officers, directors and employees and each Person who controls such underwriters
(within the meaning of Section 15 of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Designated Holders of
Registrable Securities.
(b) INDEMNIFICATION BY DESIGNATED HOLDERS. In connection
with any Registration Statement in which a Designated Holder is participating
pursuant to Section 3, Section 4 or Section 5 hereof, each such Designated
Holder shall promptly furnish to the Company in writing such information with
respect to such Designated Holder as the Company may reasonably request or as
may be required by law for use in connection with any such Registration
Statement or prospectus and all information required to be disclosed in order to
make the information previously furnished to the Company by such Designated
Holder not materially misleading or necessary to cause such Registration
Statement not to omit a material fact with respect to such Designated Holder
necessary in order to make the statements therein not misleading. Each
Designated Holder agrees to indemnify and hold harmless the
<PAGE>
19
Company, any underwriter retained by the Company and each Person who controls
the Company or such underwriter (within the meaning of Section 15 of the
Securities Act) to the same extent as the foregoing indemnity from the Company
to the Designated Holders, but only with respect to any such information with
respect to such Designated Holder furnished in writing to the Company by such
Designated Holder expressly for use therein, including, without limitation, the
information furnished to the Company pursuant to this Section 8(b); PROVIDED,
HOWEVER, that the total amount to be indemnified by such Designated Holder
pursuant to this Section 8(b) shall be limited to the net proceeds received by
such Designated Holder in the offering to which the Registration Statement or
prospectus relates.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the indemnifying party (the "Indemnifying Party") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; PROVIDED, HOWEVER, that the failure so
to notify the Indemnifying Party shall not relieve the Indemnifying Party of any
liability that it may have to the Indemnified Party hereunder; except to the
extent that the Indemnifying Party is materially prejudiced or otherwise
forfeits substantive rights or defenses by reason of such failure. If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the consent of
such Indemnified Party, effect any settlement of any pending or threatened
proceeding
<PAGE>
20
in respect of which such Indemnified Party is a party and indemnity has been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability for claims
that are the subject matter of such proceeding.
(d) CONTRIBUTION. If the indemnification provided for in
this Section 8 from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Sections 8(a), 8(b)
and 8(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; PROVIDED that the
total amount to be indemnified by such Designated Holder shall be limited to the
net proceeds received by such Designated Holder in the offering.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
9. RULE 144. The Company covenants that from and after the IPO
Effectiveness Date it shall (a) file any reports required to be filed by it
under the Exchange Act and (b) take such further action as each Designated
Holder of Registrable Securities may reasonably request (including providing any
information necessary to comply with Rule 144 under the Securities Act), all to
the extent required from time to time to enable such Designated Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time, or (ii) any similar rules or
regulations hereafter adopted by the SEC. The
<PAGE>
21
Company shall, upon the request of any Designated Holder of Registrable
Securities, deliver to such Designated Holder a written statement as to whether
it has complied with such requirements.
10. MISCELLANEOUS.
(a) RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of
this Agreement shall apply, to the full extent set forth herein with respect to
(i) the shares of Common Stock, (ii) any and all shares of voting common stock
of the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall cause any successor or assign (whether by sale, merger or otherwise) to
enter into a new registration rights agreement with the Designated Holders on
terms substantially the same as this Agreement as a condition of any such
transaction.
(b) NO INCONSISTENT AGREEMENTS. The Company represents and
warrants that it has not granted to any Person the right to request or require
the Company to register any securities issued by the Company, other than the
rights granted to the Designated Holders herein. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.
(c) REMEDIES. The Designated Holders, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive in any action for specific performance the
defense that a remedy at law would be adequate.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company, (ii) the
Major Stockholders holding Registrable Securities representing (after giving
effect to any adjustments) at least a majority of the aggregate number of
Registrable Securities owned by all of the Major Stockholders and (iii) the
General Atlantic Stockholders
<PAGE>
22
holding Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders. Any such written
consent shall be binding upon the Company and all of the Designated Holders.
(e) NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be made
by registered or certified first-class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company or any of the Major
Stockholders:
Predictive Systems, Inc.
145 Hudson Street
Sixth Floor
New York, NY 10013
Telecopy: (212) 219-4499
Attention: Robert Belau
Ronald Pettengill
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway
47th Floor
New York, NY 10019
Telecopy: (212) 586-7878
Attention: Alexander D. Lynch, Esq.
(ii) if to any of the General Atlantic Stockholders
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Peter L. Bloom
Mark J. Lotke
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
<PAGE>
23
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iii) if to any Minor Stockholder or other
Designated Holder, at its address as it
appears on the record books of the Company.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
properly telecopied.
(f) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This
Agreement shall inure to the benefit of and be binding upon the heirs, legatees,
legal representatives, successors and permitted assigns of each of the parties
hereto as hereinafter provided. The Demand Registration Rights and the S-3
Registration Rights of the General Atlantic Stockholders contained in Sections 3
and 5 hereof, respectively, and the other rights of each of the Purchaser
Stockholders and the Major Stockholders with respect thereto shall be, with
respect to any Registrable Security, (i) automatically transferred, in the case
of such rights of the General Atlantic Stockholders, among the General Atlantic
Stockholders and, in the case of such rights of the Major Stockholders, among
the Major Stockholders and (ii) in all other cases, transferred only with the
consent of the Company. The incidental or "piggy-back" registration rights of
the Designated Holders contained in Sections 3(b) and 4 hereof and the other
rights of each of the Designated Holders with respect thereto shall be, with
respect to any Registrable Security, automatically transferred by such
Designated Holder to any Person who is the transferee of such Registrable
Security. All of the obligations of the Company hereunder shall survive any such
transfer. No Person other than the parties hereto and their heirs, legatees,
legal representatives, successors and permitted assigns is intended to be a
beneficiary of any of the rights granted hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(I) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH
<PAGE>
24
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW OF ANY JURISDICTION.
(j) SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(k) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and in the Stock and Warrant Purchase Agreement and the Stockholders
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(l) FURTHER ASSURANCES. Each of the parties shall execute
such documents and perform such further acts as may be reasonably required or
necessary to carry out or to perform the provisions of this Agreement.
(m) OTHER AGREEMENTS. Nothing contained in this Agreement
shall be deemed to be a waiver of, or release from, any obligations any party
hereto may have under, or any restrictions on the transfer of Registrable
Securities or other securities of the Company imposed by, any other agreement
including, but not limited to, the Stock and Warrant Purchase Agreement, the
Stockholders Agreement or the Certificate of Incorporation.
(n) TERMINATION OF PRIOR REGISTRATION RIGHTS. The provisions
of the Registration Rights Certificate pursuant to which certain stockholders of
the Company were granted certain registration rights are hereby terminated and
shall have no further force or effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused
to be executed, this Registration Rights Agreement on the date first written
above.
PREDICTIVE SYSTEMS, INC.
By: /s/ Ronald Pettengill
-----------------------------------
Name: Ronald Pettengill
Title: Chief Executive Officer
GENERAL ATLANTIC PARTNERS 54, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ Thomas J. Murphy
-------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-fact
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ Thomas J. Murphy
-----------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-fact
/s/ Ronald Pettengill
--------------------------------------
Ronald Pettengill
/s/ Robert Belau
--------------------------------------
Robert Belau
MEYER, DUFFY & ASSOCIATES, L.P.
By:
its General Partner
By: /s/ Eric Meyer
-----------------------------------
Name: Eric Meyer
Title:
<PAGE>
BROBECK, PHLEGER & HARRISON LLP
By: /s/ Alexander D. Lynch
-----------------------------------
Name: Alexander D. Lynch
Title: Partner
/s/ Alexander D. Lynch
--------------------------------------
Alexander Lynch
/s/ Babak Yaghmaie
--------------------------------------
Babak Yaghmaie
/s/ Nigel Howard
--------------------------------------
Nigel Howard
<PAGE>
/s/ Eric Meyer
--------------------------------------
Eric Meyer
/s/ Donald Duffy
--------------------------------------
Donald Duffy
/s/ Hope Meyer
--------------------------------------
Hope Meyer
/s/ Barry Belau
--------------------------------------
Barry Belau
MD STRATEGIC, L.P.
By:
its General Partner
By: /s/ Donald Duffy
-----------------------------------
Name: Donald Duffy
Title: General Partner
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed, or has caused to
be executed, this Registration Rights Agreement on the date first written above.
------------------------------------
<PAGE>
Schedule I
Other Purchasers
Brobeck, Phleger & Harrison LLP
Alexander Lynch
Babak Yaghmaie
Nigel Howard
<PAGE>
Schedule II
Group A Stockholders
Andrew R. Cherna
Arden L. Boren
Barry Belau
Bridgewood Capital Partners, L.P.
Charles Young
Commercializardo Sagitario, S.A.
Crestwood Capital International Ltd.
Crestwood Capital Partners II, L.P.
Crestwood Capital, L.P.
Dr. James J. Coyne
Dr. Peter Kapsimalis
Dr. Peter Kapsimalis, Jr.
George J. Donohue
Hope Meyer
Humbert B. Powell
James Forsythe
Lusi T. Alesi
Michael Green
Pamela M. Kapsimalis
Paul P. Tanico
Robert L. Margolis
Stanton F. Weisenborn
Eric Meyer
MD Straegic, L.P.
PVII, L.P.
Robert Belau
Frank Rosalia
Greg Barry
Jaimin Patel
Lenny Rocci
Nelson Hung
Nelson Tai
Ray Guillermo
Harry Schultz
<PAGE>
Exhibit 10.8
BROWN BROTHERS HARRIMAN & CO. 59 WALL STREET
BUSINESS ESTABLISHED 1616 NEW YORK, N.Y. 10005
PRIVATE BANKERS (212) 483-1818
August 31, 1998
TERMS AND CONDITIONS
BORROWER: Predictive Systems, Inc. (the "Borrower")
LENDER: Brown Brothers Harriman & Co. ("BBH&Co.")
FACILITY: $5,000,000 secured demand loan
PURPOSE: Working capital financing; primarily accounts
receivable
TERM: Demand - EXCEPT that absent either: (a) a breach of
the Financial or Operating Guidelines outlined herein,
or (b) an event of default as described in the secured
promissory note, or (c) any material adverse change,
the Borrower will be given a 90 day notification
period prior to a demand by BBH&Co. for repayment.
ADVANCES: Advances to be made available against a borrowing base
comprised of 80% of eligible accounts receivable which
shall be defined to exclude: (i) accounts subject to
disputes or claims (ii) accounts with one half or more
of the total balance 90 days from the date of invoice
and (iii) the amount due from Tribeca Software that
exceeds $500,000
INTEREST RATE: Borrower may elect either one or more of the following
options:
(i) floating rate at BBH&Co. Base Rate plus
50 basis points, or
(ii) fixed rate for 30, 60, or 90 days at LIBOR
plus 325 basis points
The interest rate will be reduced by 50 basis points
beginning upon the date of receipt by BBH&Co. of
Borrower's balance sheet indicating Tangible Net Worth
(as defined below) greater than or equal to $2,500,000.
COLLATERAL: Collateral to include but not be limited to:
(i) senior perfected liens and security
interests in all of the Borrower's
present and future assets and proceeds
thereof, to be evidenced by BROWN
BROTHERS HARRIMAN CO. BBH&Co. General
Security Agreement and appropriate WCC-I
filings
(ii) Tribeca Software, Inc.'s guaranty of
Borrower's indebtedness to BBH&Co. to
be supported by BBH&Co. General Security
Agreement
<PAGE>
SET UP FEE: $15,000 due upon acceptance of this proposal.
OWNERSHIP: No change in control of the Borrower without the
prior written consent of BBH&Co.
FINANCIAL GUIDELINES: Financial guidelines to include, but not be limited to:
(i) minimum Tangible Net Worth at any time,
total equity less intangibles and less
the total amount due from Tribeca
Software, Inc. ("Tangible Net Worth") not
to fall below the sum of (a) $1,400,000
and (b) 50% of net income subsequent to
August 1, 1998
(ii) maximum leverage ratio: at any time,
total funded debt divided by Tangible Net
Worth not to exceed 2.5:1.0
OPERATING GUIDELINES: Specific details to be agreed; operating guidelines to
include but not be limited to:
(i) no additional liens for borrowed money
(ii) no material adverse change
(iii) maintenance of adequate levels of key man
life insurance for both Ron Pettengill
and Robert Belau
REPORTING REQUIREMENTS: Specific details to be agreed; reporting requirements
to include but not be limited to:
(i) annual reviewed financial statements and
monthly internal financial statements
(ii) monthly borrowing base certificate
substantially in the form of Exhibit I
(attached)
(iii) periodic review of accounts receivable
by BBH&Co.
(iv) other information relating to the
Borrower as BBH&Co. may reasonably
request
OUT OF POCKET All reasonable out of pocket expenses relating to the
EXPENSES: establishment and monitoring of the credit facility to
be for the account of the Borrower; such expenses to
include, but not be limited to, legal and accounting.
OTHER CONDITIONS: Specific details to be agreed; other conditions to
include but not be limited to:
(i) BBH&Co. to remain primary bank of account
for Borrower's cash management and
operational needs
(ii) Borrower to provide evidence that BBH&Co.
has been named loss payee on all
appropriate insurance policies
<PAGE>
BROWN BROTHERS HARRIMAN & CO.
Accepted and Agreed:
Predictive Systems, Inc.
By: /s/ Ronald Pettengill
-----------------------------------
Title: CEO
-----------------------------------
Date: 7/23/98
-----------------------------------
<PAGE>
SECURED PROMISSORY NOTE
(PLEDGE OF COLLATERAL)
$5,000,000.00 Date: August 31, 1998
- --------------------------------------------------- ---------------
Name of Maker: Predictive Systems, Inc.
----------------------------------------------------------------
Address of Maker: 145 Hudson Street
-----------------------------------------------------
New York, NY 10013
-----------------------------------------------------
State of Incorporation (if applicable):
----------------------------------------
Partnership Certificate Filed With (if applicable)
-----------------------------
Due On: Demand, subject to Payee's Line Letter and associated terms and
Conditions dtd. 8/31/98
-----------------------------------------------------------------------
Interest Payable on: Last day of each month
----------------------------------------------------------
FOR VALUE RECEIVED the Maker promises to pay on the due date set forth
above, to the order of BROWN BROTHERS HARRIMAN & CO. ("Payee") at its office at
59 Wall Street, New York, New York 10005, the face amount hereof. Interest on
the balance from time to time outstanding shall accrue at the rate of * % per
annum, and shall be payable as set forth above. *As further described in the
Terms and Conditions Letter dtd.
8/31/98.
All advances pursuant to this Note and all repayments of principal due
hereunder shall be endorsed by the Payee on the schedule on the reverse side
hereof, or any continuation of such schedule attached hereto and denominated a
part hereof. Said endorsement on such schedule by an authorized agent of the
Payee shall be conclusive evidence of the unpaid balance due on this Note.
The indebtedness evidenced hereunder, as well as all other indebtedness
now or hereafter owing by the Maker to the Payee ("Obligation(s)") is secured by
certain collateral more fully described in the annexed Schedule "A", together
with all the Maker's personal property now or hereafter existing or acquired, of
any type or description, including but not limited to inventory, documents of
title covering any inventory, equipment, accounts, contract rights, general
intangibles (including tax refunds, instruments, investment securities, chattel
paper, notes, drafts, acceptances and all bank balances of the undersigned
("Collateral") which the Maker has pledged, deposited and delivered to the Payee
and granted to the Payee a security interest in.
The rate of interest hereunder is based upon the Payee's present base
rate of _____ per annum (the "Base Rate"). In the event of an increase or
decrease in the Base Rate, then the rate of interest hereunder shall be
automatically increased or decreased to the same extent and on the same day as
any increase or decrease in the Base Rate. Post-maturity or post-demand (as the
case may be) interest shall accrue and be payable at 120% of the rate payable on
the due date or demand, compound from said date to the date of actual payment.
Maker affirms and certifies that the Obligation evidenced by this Note
was not and will not be incurred for the purposes of purchasing, carrying or
trading in securities as defined in the Federal Reserve Board's Regulation T,
except in compliance with said Regulation.
In no contingency or event whatsoever shall the interest rate charged
hereunder exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
In the event that such a court determines that the Payee has received interest
hereunder in excess of said highest permissible rate, Payee shall promptly
refund such excess interest to Maker.
So long as the Obligations are not in default, the Maker shall have the
right to vote any shares of stock included in the Collateral on all corporate
questions and the Payee shall, if required, execute due and timely proxies in
favor of the Maker to this end.
The Maker warrants and represents that there are no restrictions upon
the transfer of the Collateral, other than may appear on the face of the
certificates, and that the Maker has the right to pledge the Collateral free of
any encumbrances and without obtaining the consents of the other shareholders.
In the event that, prior to repayment of the Obligations, any stock dividend,
reclassification, readjustment or other change is declared or made in the
capital structure of any issuer of the Collateral, all new, substituted and
additional shares or other securities issued to Maker by reason of any such
change shall be delivered to Payee in kind to be held by the Payee under the
terms of this agreement in the same manner as all other Collateral. The Payee
may at any time, without notice to the Maker, transfer to and/or register in
Payee's name, or in the name of Payee's nominee, any or all of the Collateral.
In the event that it becomes necessary, in Payee's opinion, to comply
with any Federal of State law or regulation or to make or file any registration
thereunder in order for Payee to exercise any of its rights hereunder, Maker
expressly agrees to do or will cause to be done all acts and prepare and execute
all documents necessary to effect such compliance or registration, and to bear
all costs in connection therewith. Make agrees to indemnify and to hold Payee
harmless from and against any claim or liability caused by any untrue statement
of material fact, or omission to state a material fact, as may be required in
any registration statement or prospectus; or caused by a failure to register or
comply with any such law or regulation. The Maker shall pay any and all
expenses, including
<PAGE>
reasonable attorney' fees incurred by Payee in registering the Collateral, or in
securing an exemption for any such registration.
The Payee shall have no responsibility of any kind, nature or
description to arrange for the redelivery of the Collateral or any part thereof
to any issuer or transfer agent in order to preserve or maintain any conversion
or dividend rights with respect thereto; the Payee's only obligation being to
maintain physical possession or control thereof. The Payee agrees to comply with
any request received by it from Maker with respect to conversion,
reclassification, or the like of the Collateral, to the extent that such
instructions are not inconsistent with the intents and purposes hereof. Upon
payment and performance of all Obligations the Payee shall, at the request of
the Maker, redeliver to the Collateral to the Maker.
Upon the occurrence of any of the following events of default, to wit:
the non-payment when due of any Obligation; the failure of the Maker forthwith,
upon demand, or to make payments on account as may be agreed in any of the
Obligations; the death, failure in business, dissolution or termination of
existence of the Maker of any endorser, guarantor or surety of any Obligation
(hereinafter referred to as "Obligor(s)"); any petition for relief under the
Bankruptcy Code being filed by or against any Obligor or any proceedings in
bankruptcy, or under any Acts of Congress relating to the relief of debtors,
being commenced for the relief or readjustment of any indebtedness of any
Obligor either through reorganization, composition, extension or otherwise (all
of which petitions shall be without prejudice at the Payee's right to move in
the bankruptcy court for adequate protection, relief from the automatic stay,
and for any other relief relating to the preservation of the Collateral) which
is not stayed or dismissed within 30 days; the making by any Obligor of an
assignment for the benefit of creditors or for taking advantage by any of the
same of any insolvency law; any seizure, vesting or intervention by or under
authority of a government, by which the management of any Obligor is displaced
or its authority in the conduct of its business is curtailed; the appointment of
any receiver of any property of any Obligor; the attachment or distraint of any
of the Collateral or of same becoming subject at any time to any mandatory court
order or other legal process; the failure of any Obligor to perform any of its
duties as specified in any agreement(s) with respect to the Obligations; the
expulsion or suspension of any Obligor from membership in any national
securities association or any national securities exchange or other organized
exchange, or any clearing association; the admission in writing by any Obligor
of inability to pay its debts generally as they become due; the commencement of
any proceedings against any Obligor under Article 51 or 52 of the New York Civil
Practice Law and Rules (as heretofore or hereafter amended); the Pension Benefit
Guaranty Corporation shall commence proceedings (including proceedings under
ss.4042 of the Employee Retirement Income Security Act of 1974) to terminate any
employee pension benefit plan of the Maker; any misstatement or false statement
of any Obligor in connection with any agreement between any Obligor and the
Payee has been made; then in such event the Maker shall immediately be liable
without notice and shall pay on demand all Obligations (whether or not otherwise
due), together with all collection costs and expenses, including reasonable
attorneys' fees, in connection with the collection of such indebtedness.
Payee shall have the rights and remedies of a secured party under the
Uniform Commercial Code. Further, upon the occurrence of any Event of Default,
all Obligations shall automatically become due and payable without notice and
Payee's commitment to make further loans or extensions of credit or other
financial accommodations to the Maker shall thereupon automatically and without
notice be terminated. In addition thereto, the Maker further agrees that (i) in
the event notice is necessary under applicable law, written notice mailed to the
Maker at the address then reflected in Payee's records 5 business days prior to
the date of public sale of any of the Collateral or prior to the date after
which private sale or nay other disposition of the Collateral will be made shall
constitute reasonable notice, but notice given in any other reasonable manner or
at any other time shall be sufficient; (ii) in the event of the sale or other
disposition of any Collateral, Payee may apply the net proceeds thereof first to
the satisfaction of Payee's reasonable attorneys' fees, legal expenses, and
other costs and expenses incurred in connection with Payee's taking, re-taking,
holding, preparing for sale, and selling of the Collateral; then to repayment of
principal and interest on the Obligations, with the Maker remaining liable for
any deficiency; (iii) without precluding any other methods of sale, the sale of
Collateral shall have been made in a commercially reasonable manner if conducted
in conformity with reasonable commercial practices of banks disposing of similar
property, but in any event Payee may sell on such terms as Payee may choose,
without assuming any credit risk and without any obligation to advertise or give
notice of any kind; and (iv) Payee may require the Maker to assemble Collateral,
taking all necessary or appropriate action to preserve and keep in good
condition; and make such available to Payee at a place and time convenient to
both parties; all at the expense of the Maker. To the extent permitted under
applicable law, full power and authority is hereby given Payee to sell, assign,
and deliver all or any part of the Collateral, at any time at any brokerage
board, or at public or private sale, at Payee's option, and no delay on Payee's
part in exercising any power of sale or any other rights or options hereunder,
and no notice or demand, which may be given to or made upon the Maker by Payee
with respect to any power or sale or other right or option hereunder, shall
constitute a waiver thereof, or limit or impair Payee's rights to take any
action or to exercise any power of sale and any other rights hereunder, without
notice or demand, or prejudice Payee's rights as against the Maker in any
respect. Payee may be a purchaser, free from any right of redemption (which the
Maker hereby expressly waives and releases) at any public or private sale of
Collateral. Should such net proceeds be inadequate to pay all the Obligations,
the Maker agrees to pay the Payee on demand any balance that may be due to the
Payee.
The Maker recognizes that the Payee may be unable to effect a public
sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect, or applicable Blue Sky or other state securities law, as now or
hereinafter in effect, but may be compelled to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire the Collateral for their own account, for investment and not with a
view to the distribution or resale thereof. The Maker agrees that private sales
so made may be at prices and other terms less favorable to the Payee than if
such Collateral were sold at public sales, and that the Payee has no obligation
to delay sale of any such Collateral for the period of time necessary to permit
the issuer of the Collateral, even if such issuer would agree, to register the
<PAGE>
Collateral for public sale under any such applicable securities laws. The Maker
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
The Maker at the request of the Payee will sign and deliver to the
Payee a security agreement or a trust receipt or other writing, together with
financing statement(s) or a statement of trust receipt financing or other
writing, covering any Collateral in order to comply with or to enable the Payee
to obtain the benefits of the Uniform Commercial Code or any other similar
statute now or hereafter enacted, of New York or of any other jurisdiction where
the Collateral may at any agreement relating to the Maker or to any property of
the Maker, and the Maker agrees that without written consent of the Payee the
Maker will not enter into any security agreement which creates a security
interest in any category of the Maker's personal property generally (as
distinguished from any specific items thereof) in any after-acquired property
other than accessions and fixtures. The rights of the Payee specified herein
shall be in addition to those previously or otherwise created or existing. The
Maker agrees to use every effort and to take every action that may be necessary
or appropriate to enable the Payee to enforce, protect and preserve its rights
and interests hereunder, hereby granting unto the Payee, as the Maker's
attorney-in-fact, full power and authority to take any and all such action,
either in the name of the Payee or in the name of the Maker as the Payee may in
its sole discretion determine.
The Maker authorizes the Payee, with or without notice to the Maker, to
cause to be transferred or registered at the expense of the Maker any of the
Collateral into the name of the Payee or its nominee and to receive any income
derived therefrom and to hold such income as security for any of the Obligations
or apply it upon principal or interest due on any such Obligations. The Maker
will execute and deliver to the Payee such consents, endorsements, assignments
and stock powers as may appear to the Payee proper to further the negotiability
of any of the Collateral and will pay the expenses and charge of so furthering
negotiability. The Payee may at any time demand, sue for, collect or make any
compromise of settlement with reference to the Collateral as the Payee in its
sole discretion may determine. Any bonds or other obligations of or guaranteed
by the United States Government constituting part of the Collateral may be
pledged by the Payee (either alone or so mingled with other securities) to
secure deposits or other obligations of the Payee, whether or not such deposits
or other obligations be in excess of the Obligations.
The Maker agrees that the Payee assumes no responsibility for the
correctness, validity, genuineness or sufficiency of the instruments, documents
and/or chattel paper constituting the Collateral, or for the existence,
character, quantity, quality, condition, weight, packing, value or delivery of
any goods specified in any such documents. The Payee shall not be required to
take any steps necessary to preserve any rights against prior parties to any of
the Collateral. The Maker hereby waives presentment, notice of dishonor and
protest of all instruments evidencing or included in the Obligations and the
Collateral. The Maker will keep the Collateral adequately covered by insurance
satisfactory to the Payee,, and will assign the policies or certificates of
insurance to the Payee, or make the loss or adjustment payable to the Payee, at
the option of the Payee; and the Maker will furnish to the Payee evidence of
acceptance by the insurers of such assignment. Should the Maker fail to effect
and maintain such insurance, the Payee may do so for the account of the Maker.
No failure on the part of Payee to exercise, and no delay in exercising
any right, power of remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by Payee of any right, power of remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power of remedy.
If any provision hereof is held invalid or unenforceable, the remainder
and the application of such provision to other parties or circumstances will not
be affected thereby, the provisions being severable in any such instance.
In any litigation hereunder, all Obligors hereby waive trial by jury
and waive the right to interpose any defense based upon any Statute of
Limitations or any claim of laches. Each Obligor hereby consents to the in
personam jurisdiction of the Courts of New York State, and the United States
District Court, the Southern District of New York in connection with any claim
arising hereunder. In the event that any action is commenced hereunder in any
such court, service of process may be made on any Obligor by mailing a copy of
the Summons to said party at its address then reflected in Payee's records.
This Note shall be governed by the laws of the State of New York.
All Obligors hereby forever waive presentment, demand, protest, notice
of protest and notice of dishonor of this Note and consent without notice to any
and all extensions of time or terms of payment including any compromise or
settlement thereof.
Predictive Systems, Inc.
By: /s/ Ronald Pettengill
-----------------------------------
Name: Ronald Pettengill
-----------------------------------
Title: CEO
-----------------------------------
By: /s/ Robert Belau
-----------------------------------
Name: Robert Belau
-----------------------------------
Title: President
-----------------------------------
<PAGE>
ENDORSEMENT
FOR VALUE RECEIVED each of the undersigned endorsers assent to all of
the terms and conditions of the within Note and hereby forever waive
presentment, demand, protest, notice of protest, and notice of dishonor of the
within Note, and trial by jury, and the undersigned and each of them guarantees
the payment of said Note when due and consents without notice to any and all
extensions of time or terms of payment, and the release or substitution, or
failure to perfect a security interest in any collateral made, agreed to or
granted to or by the Payee.
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE>
SCHEDULE "A"
LIST OF COLLATERAL
ALL PERSONAL PROPERTY AND FIXTURES OF THE DEBTOR, WHETHER NOW EXISTING
OR HEREAFTER ARISING AND WHEREVER LOCATED, OF EVERY KIND AND DESCRIPTION,
TANGIBLE OR INTANGIBLE, INCLUDING WITHOUT LIMITATION ALL GOODS, INCLUDING
WITHOUT LIMITATION EQUIPMENT AND INVENTORY; ACCOUNTS; CONTRACT RIGHTS;
DOCUMENTS, INCLUDING WITHOUT LIMITATION BILLS OF LADING, DOCK WARRANTS, DOCK
RECEIPTS, WAREHOUSE RECEIPTS AND OTHER DOCUMENTS OF TITLE; CHATTEL PAPERS;
GENERAL INTANGIBLES, INCLUDING WITHOUT LIMITATION TAX REFUNDS, DUTY DRAWBACKS
AND PROCEEDS OF INSURANCE AS TO ANY PROPERTY OF THE DEBTOR DESCRIBED HEREIN;
INSTRUMENTS, INCLUDING WITHOUT LIMITATION LETTERS OF CREDIT NAMING DEBTOR AS
BENEFICIARY; THE BALANCE OF EVERY DEPOSIT ACCOUNT; ALL SECURITIES, OPTIONS,
FUTURES CONTRACTS AND OTHER ASSETS DUE FROM OR HELD WITH ANY BANK, BROKER OR
DEPOSITORY INSTITUTION; MONEY; COMMODITIES; CREDITS, CLAIMS, DEMANDS AND
SECURITY INTERESTS ARISING IN FAVOR OF THE DEBTOR AND ANY OTHER PROPERTY, RIGHTS
AND INTERESTS OF THE DEBTOR; AND ALL CASH AND NON-CASH PROCEEDS, PRODUCTS AND
ACCESSIONS FROM THE SALE, LIQUIDATION OR DISPOSITION OF ANY OF THE FOREGOING.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 12, 1999 for Predictive Systems, Inc. included in or made a
part of this Registration Statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
New York, New York
July 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> (475,610)
<SECURITIES> 0
<RECEIVABLES> 11,497,545
<ALLOWANCES> 141,489
<INVENTORY> 0
<CURRENT-ASSETS> 12,085,338
<PP&E> 2,304,369
<DEPRECIATION> 947,735
<TOTAL-ASSETS> 13,677,019
<CURRENT-LIABILITIES> 9,719,987
<BONDS> 5,598,000
700,000
0
<COMMON> 7,900
<OTHER-SE> 2,018,011
<TOTAL-LIABILITY-AND-EQUITY> 13,677,019
<SALES> 2,065,348
<TOTAL-REVENUES> 25,923,128
<CGS> 1,698,356
<TOTAL-COSTS> 14,559,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 102,196
<INTEREST-EXPENSE> 324,591
<INCOME-PRETAX> (1,087,558)
<INCOME-TAX> (460,258)
<INCOME-CONTINUING> (627,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (627,300)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
