<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement.
|_| Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive proxy statement.
|_| Definitive additional materials.
|_| Soliciting material under Rule 14a-12.
Predictive Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies.
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth amount
on which filing fee is calculated and state how it is
determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
Predictive Systems, Inc.
417 Fifth Avenue, 11th Floor
New York, NY 10016
April 25, 2000
Dear Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Predictive Systems, Inc. (the "Company"), which will be held at The W Court
Hotel, 130 East 39th Street, New York, New York 10016, on Tuesday, May 16, 2000
at 10:00 a.m. (New York City time).
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the annual meeting. You will note that the Board of
Directors of the Company recommends a vote "FOR" each of the proposals listed in
the Notice and Proxy Statement. Please sign and return your proxy card in the
enclosed envelope at your earliest convenience to assure that your shares will
be represented and voted at the annual meeting even if you cannot attend.
Sincerely,
/s/ Ronald G. Pettengill, Jr.
--------------------------------
Ronald G. Pettengill, Jr.
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
Predictive Systems, Inc.
417 Fifth Avenue, 11th Floor
New York, NY 10016
Notice of Annual Meeting of Stockholders
May 16, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of Predictive
Systems, Inc., a Delaware corporation (the "Company"), will be held at The W
Court Hotel, 130 East 39th Street, New York, New York 10016, on Tuesday, May
16, 2000 at 10:00 a.m. (New York City time) for the following purposes, as more
fully described in the Proxy Statement accompanying this notice:
(1) To elect three Directors to serve until the 2003 Annual Meeting of
Stockholders or until their respective successors shall have been
duly elected and qualified;
(2) To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000;
and
(3) To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 14, 2000
will be entitled to notice of, and to vote at, the Annual Meeting. The stock
transfer books of the Company will remain open between such record date and the
date of the Annual Meeting. A list of stockholders eligible to vote at the
meeting will be available for inspection at the Annual Meeting and for a period
of ten days prior to the Annual Meeting during regular business hours at the
Company's corporate headquarters at the address above.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting, your proxy vote
is important. To assure your representation at the Annual Meeting, please sign
and date the enclosed proxy card and return it promptly in the enclosed
envelope, which requires no additional postage if mailed in the United States.
Should you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
By Order of the Board of Directors
/s/ Ronald G. Pettengill, Jr.
-----------------------------------
Ronald G. Pettengill, Jr.
Chief Executive Officer and
Chairman of the Board of
Directors
New York, New York
April 25, 2000
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
<PAGE>
Predictive Systems, Inc.
417 Fifth Avenue, 11th Floor
New York, NY 10016
------------------------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 2000
------------------------------------------
This Proxy Statement is furnished to stockholders of record of Predictive
Systems, Inc., a Delaware corporation (the "Company"), as of April 14, 2000 in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "Board of Directors" or "Board") for use at the Annual Meeting of
Stockholders to be held on Tuesday, May 16, 2000 at 10:00 a.m. (New York City
time) at The W Court Hotel, 130 East 39th Street, New York, New York 10016 (the
"Annual Meeting").
Shares cannot be voted at the Annual Meeting unless the owner is present
in person or by proxy. All properly executed and unrevoked proxies in the
accompanying form that are received in time for the Annual Meeting will be
voted at the Annual Meeting or any adjournment thereof in accordance with
instructions thereon, or if no instructions are given, will be voted, (i) FOR
the election of the named nominees as Directors of the Company and (ii) FOR the
ratification of Arthur Andersen LLP, independent public accountants, as
independent auditors of the Company for the fiscal year ending December 31,
2000. The Company does not know of any matters other than described in the
Notice of Annual Meeting that are to come before the Annual Meeting. Any person
giving a proxy may revoke it by written notice to the Company at any time prior
to exercise of the proxy. In addition, although mere attendance at the Annual
Meeting will not revoke the proxy, a stockholder who attends the meeting may
withdraw his or her proxy and vote in person. Broker "non-votes" (i.e., proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote) and shares for which duly executed proxies have
been received but with respect to which holders of shares have abstained from
voting, will be counted as present for purposes of determining the presence or
absence of a quorum for the transaction of business at the Annual Meeting.
Abstentions will be counted in tabulations of the votes cast on each of the
proposals presented at the Annual Meeting and will have the same effect as
negative votes, whereas broker "non-votes" will not be counted for purposes of
determining whether a proposal has been approved.
The Annual Report of the Company (which does not form a part of the proxy
solicitation materials), containing the consolidated financial statements of
the Company for the fiscal year ended December 31, 1999, is being distributed
concurrently herewith to stockholders.
This Proxy Statement and the accompanying proxy card are being mailed on
or about April 25, 2000 to the stockholders of the Company entitled to vote at
the Annual Meeting.
VOTING SECURITIES
The Company has one class of voting securities outstanding, its Common
Stock, $0.001 par value per share (the "Common Stock"). Each holder of Common
Stock is entitled to one vote for each share held. In addition, the Company is
authorized to issue up to an aggregate of 10,000,000 shares of preferred stock,
$0.001 par value per share (the "Preferred Stock"), with such voting rights as
may be determined by the Board of Directors providing for such series. The
Company does not have current plans to issue any shares of Preferred Stock. At
the Annual Meeting, each stockholder of record at the close of business on
April 14, 2000 will be entitled to one vote for each share of Common Stock
owned on that date as to each matter presented at the Annual Meeting. On April
14, 2000, there were 25,102,190 shares of Common Stock outstanding, held by 113
stockholders of record. A list of stockholders eligible to vote at the Annual
Meeting will be available for inspection at the Annual Meeting and for a period
of ten days prior to the Annual Meeting during regular business hours at the
principal executive offices of the Company at the address specified above.
<PAGE>
ANNUAL MEETING PROPOSALS
PROPOSAL 1
----------
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the accompanying form
of proxy intend to vote at the Annual Meeting FOR the election of the nominees
named below as Directors of the Company to serve until the 2003 Annual Meeting
of Stockholders or until their successors are duly elected and qualified. If
any nominee is unable to be a candidate when the election takes place, the
shares represented by valid proxies may be voted in favor of a substitute
designated by the Board of Directors to fill the vacancy. The Board of
Directors does not currently anticipate that any nominee will be unable to be a
candidate for election. Each nominee is currently a Director of the Company.
The affirmative vote of a plurality of the shares of Common Stock present in
person or represented by proxy and entitled to vote on the election of
directors at the Annual Meeting is required to elect the Directors.
The Board of Directors currently has nine members divided into three
classes of three directors each, serving staggered three year terms. Messrs.
Pettengill, Belau and Duffy are Class I directors whose terms expire at the
Annual Meeting, each of whom is a nominee for election (in all cases subject to
the election and qualification of their successors or to their earlier death,
resignation or removal). Messrs. Bloom, Meyer and Wyman are our Class II
directors whose terms expire at the 2001 Annual Meeting of stockholders.
Messrs. Kelly, Sidhu and Smith are our Class III directors whose terms expire
at the 2002 Annual Meeting of stockholders. 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.
Information Regarding the Nominees for Election as Directors
The following information with respect to the principal occupation or
employment, other affiliations and business experience during the last five
years of the nominees have been furnished to the Company by such nominees.
Except as indicated, the nominees have had the same principal occupation for
the last five years.
Ronald G. Pettengill, Jr., 41, co-founded the Company in February 1995 and
has been Chairman of the Board and Chief Executive Officer since that time.
Prior to founding the Company, 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 in their migration 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, 36, co-founded the Company in February 1995 and has been
President and a Director since that time. Prior to founding the Company, Mr.
Belau was the 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.
Donald J. Duffy, 32, has been a director of the Company since its
inception in February 1995. Mr. Duffy is a co-founder of Meyer, Duffy &
Associates, Inc., and Meyer Duffy Ventures, firms that invest in early stage
networking and Internet technology companies. Mr. Duffy has been at Meyer,
Duffy & Associates since 1994. From 1992 to 1994, Mr. Duffy was a Vice
President at Oak Hall Capital Advisors, a money management firm.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION OF
RONALD G. PETTENGILL, JR., ROBERT L. BELAU AND DONALD J. DUFFY AS DIRECTORS
UNTIL THE 2003 ANNUAL MEETING OF STOCKHOLDERS.
2
<PAGE>
Information Regarding Continuing Directors for Term Ending Upon the 2001
Arrival Meeting of Stockholders
Peter L. Bloom, 42, has been a director of the Company since March 1999.
Mr. Bloom is a managing member of General Atlantic Partners, LLC, a private
equity investment firm that focuses exclusively on Internet and information
technology investments on a global basis, 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 Group, Inc.
Eric Meyer, 39, has been a director of the Company since its inception in
February 1995. Mr. Meyer is a co-founder of Meyer, Duffy & Associates and Meyer
Duffy Ventures, firms that invest in early stage networking and Internet
technology companies. Mr. Meyer has been at Meyer, Duffy & Associates 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, the
Company's President and one of its directors.
William M. Wyman, 62, has been a director of the Company since September
1999. Since 1995, Mr. Wyman has been a business advisor and counselor on a
broad range of issues to a number of corporate chief executives of financial
services, information services, forest products and software companies. From
1984 to 1995, Mr. Wyman was a partner at Oliver, Wyman & Company, a firm which
specializes in management consulting to large financial institutions and which
he co-founded. Mr. Wyman is a director of SS&C Technologies and U.S.
Timberlands. He also serves as a trustee of the Dartmouth Hitchcock Medical
Center and on the Boards of Advisors of The Sprout Group, a venture capital
fund associated with Donaldson, Lufkin & Jenrette, and Legend Capital, a
leveraged buyout firm associated with Castle Harlan Investments.
Information Regarding Continuing Directors for Term Ending Upon the 2002 Annual
Meeting of Stockholders
Braden R. Kelly, 29, has been director of the Company since June 1999. Mr.
Kelly is a principal 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.
Inder Sidhu, 39, has been a director of the Company since September 1999.
Mr. Sidhu has been the Vice President of Worldwide Professional Services at
Cisco Systems, Inc. since December 1998. From 1995 to 1998, Mr. Sidhu served in
various executive management positions in the Sales and Business Development
organizations at Cisco. From 1991 to 1995 Mr. Sidhu was a consultant at
McKinsey & Company. Prior to that, Mr. Sidhu led a network management group at
3Com Corporation.
William L. Smith, 42, has been a director of the Company since March 2000.
Mr. Smith has been with BellSouth Corporation since 1979, most recently serving
since January 2000 as its Executive Vice President of Network Planning and
Chief Technology Officer, where he is responsible for, among other thing,
strategic planning of BellSouth's telecommunications infrastructure, as well as
its product development, Internet, entertainment and long distance units. From
February 1998 to December 1999, he served as Vice President - Network Strategic
Planning for BellSouth Telecommunications, BellSouth's domestic telephone unit.
Prior to that he served as President of BellSouth's Internet unit from December
1997 through January 1998, and from September 1996 to November 1997 as
Executive Director - Product Commercialization Unit. From January 1995 to
August 1996, he served as Assistant Vice President - Data Services Unit for
BellSouth.
Committees of the Board
The Audit Committee reports to the Board of Directors regarding the
appointment and performance of the Company's independent public accountants,
the scope and results of our annual audits, fees to be paid to the independent
public accountants, compliance with the Company's accounting and financial
policies and management's procedures and policies relative to the adequacy of
the Company's internal accounting controls. The members of the Audit Committee
are Messrs. Meyer, Kelly and Wyman who were appointed in May 1999, June 1999
and September 1999, respectively. Prior to that time, the responsibilities of
the Audit Committee were handled by the entire Board of Directors.
3
<PAGE>
The Compensation Committee reviews and makes recommendations to the Board
of Directors regarding the Company's compensation policies and all forms of
compensation to be provided to the Company's executive officers and directors.
In addition, the Compensation Committee reviews bonus and stock compensation
arrangements for all of the Company's other employees. The members of the
Compensation Committee are Messrs. Duffy and Bloom, who were appointed in May
1999. Prior to that time, the responsibilities of the Compensation Committee
were handled by the entire Board of Directors.
Compensation Committee Interlocks and Insider Participation
No interlocking relationships exist between the Company's 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 the following:
o Messrs. Pettengill and Duffy served, through September 1999, and Messrs. Belau
and Meyer currently serve, on the Board of Directors of Tribeca Software, a
network management software company; Messrs. Pettengill and Belau served,
through September 1999, as executive officers of Tribeca, and Mr. Meyer
currently serves as an executive officer of Tribeca. Please see "Certain
Transactions-Tribeca Software" for information about the Company's
relationship with Tribeca.
o Messrs. Pettengill and Meyer serve on the Board of Directors of Riversoft
Ltd., a network management software company. The Company acts as a reseller of
Riversoft's software. To date, the Company's revenues from sales of
Riversoft's software have not been material.
Attendance at Board and Committee Meetings
During 1999, the Board of Directors held three meetings and acted ten
times by unanimous written consent. During this period, each director attended
or participated in 75% or more of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held
by all committees of the Board on which that Director served during 1999.
Director Compensation
The Company does not currently compensate its directors for attending
meetings of the Board of Directors or committee meetings of the Board of
Directors, but it does reimburse directors for their reasonable travel expenses
incurred in connection with attending these meetings. Each of Messrs. Bloom,
Duffy, Kelly and Meyer were granted options to purchase 25,000 shares of the
Company's Common Stock at a price of $4.00 per share in May 1999. Messrs. Sidhu
and Wyman were granted options to purchase 25,000 shares of the Company's
Common Stock at a price of $11.05 per share in September 1999. Mr. Smith was
granted options to purchase 25,000 shares of the Company's Common Stock at a
price of $60.50 per share in March 2000. These options vest over a period of
four years.
Under the automatic option grant program of the 1999 Stock Incentive Plan,
each individual who first joins the Board of Directors after November 1, 1999
as a non-employee member of the Board of Directors will also receive an option
grant for 25,000 shares of the Company's Common Stock at the time of his or her
commencement 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 the Company's
Common Stock.
4
<PAGE>
PROPOSAL 2
----------
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Arthur Andersen LLP, independent public accountants, as independent
certified public accountants of the Company to report on the Company's
financial statements for the year ending December 31, 2000, and to perform such
other services as may be requested, subject to the ratification of such
appointment by the stockholders at the Annual Meeting. A majority of the votes
of the outstanding shares of Common Stock is required to ratify the appointment
of the accountants. Although stockholder ratification is not required, the
Board of Directors considers it desirable for the stockholders to pass upon the
selection of the independent accountants. If the stockholders disapprove of the
selection of Arthur Andersen LLP as independent public accountants, the Board
of Directors will consider the selection of other independent certified public
accountants. A representative of Arthur Andersen LLP will attend the Annual
Meeting with the opportunity to make a statement if he or she so desires and
will also be available to answer inquiries.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
5
<PAGE>
EXECUTIVE COMPENSATION, MANAGEMENT AND OTHER INFORMATION
Executive Officers
The following table sets forth, as of April 10, 2000, the name, age and
position of each of the Company's executive officers and other key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ronald G. Pettengill, Jr. .......... 41 Chairman of the Board and Chief Executive Officer
Robert L. Belau .................... 36 President and Director
Gerard E. Dorsey ................... 53 Chief Financial Officer
Thomas R. Joseph ................... 32 Vice President, General Manager North America
Carl D. Humes ...................... 34 Vice President, Global Operations
Gregory D. Nicastro ................ 40 Vice President, Services Strategy
Neeraj Sethi ....................... 36 Vice President, Finance
R. Kevin Holt ...................... 46 Vice President, Human Resources
John Wright ........................ 36 Managing Director, Europe
Gary N. Papilsky ................... 28 Vice President and General Counsel
</TABLE>
Information Concerning Executive Officers Who Are Not Directors
Gerard E. Dorsey has been Chief Financial Officer since September 1999.
Prior to joining the Company, Mr. Dorsey was Senior Vice President-Finance,
Chief Financial Officer and Secretary of Intelligroup, Inc., a professional
information technology consulting services company, from 1998 to 1999. From
1995 to 1998, Mr. Dorsey was Senior Vice President-Finance and Chief Financial
Officer of Ariel Corporation, a data communications company. Prior to joining
Ariel Corporation, from 1991 until 1995, Mr. Dorsey was Chief Financial Officer
of Information Management Technologies Corporation, a printing and office
services outsourcing company. From 1987 until 1990, Mr. Dorsey was Treasurer of
Loral Corporation.
Thomas R. Joseph has been Vice President, General Manager North America
since April 1999. Prior to that, Mr. Joseph held various positions with the
Company, 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, Mr. Humes served as Regional Vice President of Technical
Services for the Company's 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, Services Strategy since April
1999. Prior to that, Mr. Nicastro served as our Vice President of Marketing
from 1997. Prior to joining the Company, Mr. Nicastro founded ActingExec, a
marketing consulting firm, in 1995. From July 1995 to October 1995, 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, Finance since 1995. Prior to joining
the Company, 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, Human Resources since March 1999.
Prior to joining the Company, 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. Prior to that, Mr. Holt was the Founder and
President of Metropolitan Search, a contingency and retained search and
consulting company.
6
<PAGE>
John Wright has been Managing Director, Europe since January 1999. Prior
to joining the Company, 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.
Gary N. Papilsky has been Vice President and General Counsel since October
1999. Prior to joining the Company, Mr. Papilsky was an attorney with Brobeck,
Phleger & Harrison LLP, a law firm specializing in emerging growth technology
companies, from 1998 to 1999. From 1996 to 1998, Mr. Papilsky was an attorney
with the law firm of Sonnenschein Nath & Rosenthal.
Executive Compensation
The following table sets forth the compensation received by the Company's
Chief Executive Officer and by the other four executive officers who served as
executive officers as of December 31, 1999 and whose salary exceeded $100,000
in 1999 for services rendered in all capacities to the Company during 1999
(together, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
-------------
Shares
Annual Compensation Underlying
-------------------------- ------------- All Other
Name and Principal Position Year Salary Bonus Options Compensation
- -------------------------------------- ------ ------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Ronald G. Pettengill, Jr ............. 1999 $ 195,833 $ 75,000 200,000 $ 12,157(1)
Chief Executive Officer 1998 175,000 50,000 60,000 8,447(1)
Robert L. Belau ...................... 1999 195,833 75,000 200,000 9,839(1)
President 1998 175,000 50,000 60,000 8,899(1)
Thomas R. Joseph ..................... 1999 150,000 99,000 100,000 6,600(2)
Vice President, General Manager North
America 1998 112,500 190,000 270,000 3,000(2)
Carl D. Humes ........................ 1999 150,000 64,000 60,000 6,000(2)
Vice President, Global Operations 1998 112,500 190,000 270,000 3,000(2)
Gregory D. Nicastro .................. 1999 154,700 50,000 -- --
Vice President, Strategic Services 1998 140,000 14,000 -- --
Neeraj Sethi ......................... 1999 170,000 70,000 70,000 5,000
Vice President, Finance 1998 135,167 55,000 -- --
R. Kevin Holt ........................ 1999 110,833 100,000 130,000 --
Vice President, Human Resources 1998 -- -- -- --
</TABLE>
- ------------
(1) The Company paid a monthly car allowance and automobile insurance premiums
for each of Messrs. Pettengill and Belau during the years ended December
31, 1999 and 1998.
(2) The Company paid a monthly car allowance effective July 1998 for each of
Messrs. Joseph and Humes during the years ended December 31, 1999 and
1998.
In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits has
been omitted for each of the Named Executive Officers because the aggregate
amount of such perquisites and other personal benefits constituted less than
the lesser of $50,000 or 10% of the total of annual salary and bonuses for each
of the Named Executive Officers in 1999.
7
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1999 to the Company's Chief Executive Officer and to each of its
most highly compensated executive officers, other than the Chief Executive
Officer, whose salary and bonus for such fiscal year exceeded $100,000. Mr.
Nicastro was not granted stock options in the year ended December 31, 1999. The
Company has never granted any stock appreciation rights. The potential
realizable value is calculated based on the term of the option at its time of
grant. It is calculated assuming that the fair market value of Common Stock on
the date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. These amounts are
calculated based on the requirements of the Securities and Exchange Commission
and do not reflect the Company's estimate of future stock price growth. The
percentage of total options granted to employees in the last fiscal year is
based on options to purchase an aggregate of 3,686,990 shares of Common Stock
granted under the Company's option plans.
<TABLE>
<CAPTION> Potential Realizable Value
Percent of at Assumed Annual Rates
Number of Total of Stock Price Appreciation
Securities Options for Option Term
Underlying Granted to Exercise ------------------------------
Options Employees Price Per Expiration
Name Granted in 1999 Share ($) Date 5% 10%
- ------------------------------- ------------ ------------ ----------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Pettengill, Jr. ..... 200,000 5.4% $ 4.00 5/11/09 $19,522,400 $30,089,115
Robert L. Belau ............... 200,000 5.4 4.00 5/11/09 19,522,400 30,089,115
Thomas R. Joseph .............. 100,000 2.7 6.50 7/1/09 9,511,200 14,794,557
Carl D. Humes ................. 60,000 1.6 6.50 7/1/09 5,416,400 8,034,304
Neeraj Sethi .................. 70,000 1.9 2.50 4/1/09 6,937,840 10,636,190
R. Kevin Holt ................. 130,000 3.5 2.50 3/1/09 12,255,533 17,927,659
</TABLE>
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 1999 and the number and value of unexercised
options held by each of the Company's Named Executive Officers at December 31,
1999. The last reported sale price of the Company's Common Stock on December
31, 1999 was $65.50 per share. Accordingly, the values set forth below have
been calculated on the basis of the fair market value on December 31, 1999,
less the applicable exercise price per share, multiplied by the number of
shares underlying the options.
<TABLE>
<CAPTION>
In-the-Money Options at
Options at Fiscal Year-End Fiscal Year-End
Number of Securities -----------------------------
Shares Underlying Unexercised Value of Unexercised
Acquired on Value ------------------------------ -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- ------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Pettengill, Jr. ...... -- -- 830,000 150,000 $53,510,000 $ 9,225,000
Robert L. Belau ................ -- -- 830,000 150,000 53,510,000 9,225,000
Thomas R. Joseph ............... -- -- 270,000 190,000 17,370,000 11,667,500
Carl D. Humes .................. -- -- 270,000 150,000 17,332,500 9,307,500
Gregory D. Nicastro ............ -- -- 84,000 252,000 5,397,000 16,191,000
Neeraj Sethi ................... -- -- 120,000 130,000 7,722,500 8,265,000
R. Kevin Holt .................. -- -- 32,500 97,500 2,047,500 6,142,500
</TABLE>
Employment Agreements
The Company has entered into executive employment agreements with Ronald
G. Pettengill, Jr., its Chairman and Chief Executive Officer, and Robert L.
Belau, its President. Each employment agreement provides for an initial annual
base salary of $200,000. Each employment agreement also provides for a 1999
performance-based bonus, which totaled $75,000, and bonuses in all subsequent
years at the discretion of the Company's Board of Directors. Under the
agreements, each executive also received options to purchase 100,000 shares of
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<PAGE>
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 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 extension or
earlier termination. Each employment agreement provides that if Messrs.
Pettengill and Belau are terminated by the Company without 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 and one year from the date of termination.
Additionally, all stock options granted to them will immediately vest.
Under the agreements, good reason includes:
o a material breach of the agreements by the Company;
o a material change in the executive's duties and responsibilities;
o a change in the executive's reporting relationship;
o a relocation of the Company's executive offices further than 75 miles
from its current location; or
o a change of control.
Each employment agreement prohibits Messrs. Pettengill and Belau from
competing with the Company, or soliciting the Company's customers or employees,
for a period of one year from the date of their termination of employment.
The Company has also entered into an employment agreement with R. Kevin
Holt, its Vice President of Human Resources, John Wright, Managing Director
Europe, and Gerard E. Dorsey, its Chief Financial Officer. Mr. Holt's agreement
provides for an initial annual base salary of $130,000 and for a 1999
performance-based bonus, which totaled $100,000, and bonuses in all subsequent
years based upon the achievement of certain hiring goals. Under the agreement,
Mr. Holt received options to purchase 130,000 shares of Common Stock at a price
of $2.50 per share, which vest over four years.
The Company's 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 the Company without cause or if he terminates his employment
with the Company 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:
o a reduction in Mr. Holt's base salary;
o a relocation of Mr. Holt's office further than 50 miles from his current
office; or
o a material reduction in job duties.
The Company's agreement with Mr. Holt prohibits him from competing with
the Company, soliciting its 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.
The Company's agreement with Mr. Wright provides for an initial base
salary of British Pounds71,200, approximately $114,000 at an exchange rate of
1.60, plus a bonus based on the Company's performance. Under the agreement, Mr.
Wright received options to purchase 80,000 shares of Common Stock at a price of
$2.50 per share, which vest over four years. The Company agreed to contribute
an amount equal to 5% of Mr. Wright's base salary to a pension plan. The
employment agreement prohibits Mr. Wright from competing with the Company and
soliciting the Company's employees for a period of 6 and 12 months,
respectively, from the termination of his employment. The agreement is in
effect until terminated by either party by giving at least 3 months notice to
the other party.
The Company's agreement with Mr. Dorsey provides for an initial base
salary of $210,000 and an annual bonus of up to a maximum of $75,000. Under the
agreement, Mr. Dorsey received options to purchase 175,000
9
<PAGE>
shares of Common Stock at a price of $11.05 per share, which vest over 4 years.
The agreement further provides that Mr. Dorsey will receive an automobile
allowance of $650 per month. The agreement prohibits Mr. Dorsey from competing
with the Company and soliciting its employees for a period of one year from the
termination of his employment. The agreement has an initial term of three
years, and renews automatically for successive one year periods unless written
notice is given by either party. The employment agreement with Mr. Dorsey
expires on September 24, 2002, subject to extension or earlier termination. Mr.
Dorsey's agreement provides that if he is terminated by the Company without
cause or if he terminates his employment agreement with the Company for good
reason, he will be entitled to receive his base salary until the earlier of
twelve months after the date of his termination or the date he accepts new
employment. Under terms of this agreement, good reason includes if Mr. Dorsey
terminates his employment within 30 days after a change in control of the
Company. If Mr. Dorsey is terminated by the Company without cause or if he
terminates his employment agreement with the Company for good reason, any
unvested options will vest immediately.
1999 Stock Incentive Plan
The 1999 Stock Incentive Plan is intended to serve as the successor equity
incentive program to the Company's 1998 Stock Option/Stock Issuance Plan and
the Company's 1998 California Stock Option/Stock Issuance Plan. The 1999 Plan
became effective upon its adoption by the Board of Directors on September 14,
1999 and was approved by the Company's stockholders on that date.
6,655,600 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 2,345,597 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
500,000 shares. However, in no event may any one participant in the 1999 Plan
receive option grants or direct stock issuances for more than 500,000 shares in
the aggregate per calendar year.
Outstanding options under the predecessor plans were incorporated into the
1999 Plan upon the date of the Company's initial public offering, and no
further option grants may be made under those plans. The incorporated options
will continue to be governed by their existing terms, unless the Company's
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:
o the discretionary option grant program under which eligible individuals
in the Company's employ or service (including officers, non-employee
Directors and consultants) may be granted options to purchase shares of
the Company's Common Stock;
o the stock issuance program under which these individuals may be issued
shares of the Company's Common Stock directly, with the purchase of such
shares or as a bonus tied to the performance of services;
o 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;
o the automatic option grant program under which option grants are
automatically made at periodic intervals to eligible non-employee
Directors; and
o the Director fee option grant program under which non-employee Directors
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 are
administered by the Company's Compensation Committee. This committee determines
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
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<PAGE>
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
Compensation Committee also selects 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 of Directors exercises 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 of Directors members.
The exercise price for the options may be paid in cash or in shares of the
Company's 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 the Company is acquired, whether by merger or asset sale
or Director-approved sale by the stockholders of more than 50% of the Company's
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 stock issuance programs will immediately
vest, except to the extent the Company's 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 the
Company's outstanding voting stock or by proxy contest for the election of
members of the Board of Directors or the options and shares may accelerate upon
a subsequent termination of the individual's service.
Options currently outstanding under the 1999 Plan 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 the Company
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 the Company's
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 the
Company's 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 the Company's 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.
11
<PAGE>
Under the automatic option grant program, each individual who first joins
the Company's Board of Directors as a non-employee after the Company's initial
public offering will automatically be granted an option for 25,000 shares of
the Company's Common Stock at the time of his or her commencement of service.
In addition, on the date of each annual stockholders meeting, beginning with
the 2001 Annual Meeting, each individual who has served as a non-employee
member of the Board of Directors since the last annual stockholders meeting
will receive an option grant to purchase 2,500 shares of the Company's Common
Stock. Each automatic grant will have an exercise price equal to the fair
market value per share of the Company's 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 service on the Board of Directors. Each option will be
immediately exercisable, subject to the Company's 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 the Company's
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
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 member of the Board of Directors.
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 member of the Board of Directors 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 Director
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 the Company's 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 member of the Board of Directors.
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 the Company 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 the
Company's Common Stock paid in connection with the tender offer less the
exercise price payable for such share.
The Board of Directors may amend or modify the 1999 Plan at any time,
subject to any required stockholder approval. The 1999 Plan will terminate no
later than September 14, 2009.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan was adopted by the Board of
Directors on September 14, 1999 and approved by the stockholders on that date.
The Plan became effective on October 27, 1999. The Plan is designed to allow
eligible employees and those of participating subsidiaries to purchase shares
of the Company's Common Stock, at semi-annual intervals, through periodic
payroll deductions. A total of 750,000 shares of the Company's Common Stock may
be issued under the Plan.
The Plan has a series of successive offering periods, each with a maximum
duration of 24 months. The initial offering period began on October 27, 1999
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 the Company's Compensation Committee.
12
<PAGE>
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 10% 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 purchase price
per share will be 85% of the lower of the fair market value of the Company's
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 500 shares, nor may all participants in the
aggregate purchase more than 187,500 shares on any one semi-annual purchase
date. Should the fair market value of the Company's 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 of Directors may at any time amend or modify the Plan. The Plan
will terminate no later than the last business day in October 2009.
13
<PAGE>
CERTAIN TRANSACTIONS
Relationship with Cisco
In September 1999, the Company sold 1,242,000 shares of its Common Stock
to Cisco for $12.00 per share. In connection with the investment, the Company
has agreed to nominate a person designated by Cisco to its Board of Directors
so long as Cisco owns more than 750,000 shares of its Common Stock.
Additionally, the Company provides network consulting services to Cisco
pursuant to an existing agreement negotiated by the parties in an arm's-length
transaction. This agreement expires in May 2003 and governs the terms and
conditions that apply to all consulting services performed by the Company for
Cisco and for customers of Cisco. This agreement provides that if the Company
gives more favorable rates to another client it will inform Cisco and Cisco
will have the right to terminate this agreement. In fiscal 1998 and 1999,
revenues from Cisco were $35,190 and $2,240,229, respectively. Inder Sidhu, one
of the Company's directors, is the Vice President of Worldwide Professional
Services at Cisco.
Sale of Common Stock
In September 1999, the Company sold 94,867 and 18,133 shares of its Common
Stock to General Atlantic Partners 57 and GAP Coinvestment Partners II,
respectively, for $12.00 per share. Peter L. Bloom and Braden R. Kelly,
directors of the Company, are, respectively, a managing member and a principal
of General Atlantic Partners, LLC. General Atlantic Partners, LLC is the
general partner of General Atlantic Partners 57 and the managing members of
General Atlantic Partners, LLC are also the general partners of GAP
Coinvestment Partners II.
Tribeca Software
In March 1998, the Company made a pro rata distribution of all of the
outstanding shares of its former subsidiary, Tribeca Software, Inc., to its
stockholders. Of the 1,501,700 then outstanding shares of Tribeca, the Company
distributed the following amounts to its officers, directors and 5%
stockholders and their affiliates:
Number of Shares
Name of Stockholder of Tribeca
- ------------------- -----------------
Ronald G. Pettengill, Jr. ............................. 234,000
Robert L. Belau ....................................... 250,000
Belau Irrevocable Family Trust ........................ 10,000
Neeraj Sethi .......................................... 13,000
Donald J. Duffy ....................................... 25,000
Eric Meyer ............................................ 42,500
MD Strategic, L.P. .................................... 85,000
PVII, L.P. ............................................ 32,000
Boyce Meyer Trust (1) ................................. 200,000
- ------------
(1) Boyce Meyer was the father of Eric Meyer and the stepfather of Robert L.
Belau.
Subsequent to this transaction, Tribeca purchased from the Company, and it
assigned to Tribeca, network management software and other assets, including
computer and office equipment. As payment for these assets, Tribeca gave the
Company a demand note in the amount of $130,000, which accrued interest at 8%
per annum. Additionally, it gave Tribeca a $1,000,000 line of credit at an
interest rate of 8% per annum. In March 1999, Tribeca paid the Company the full
amounts due under the demand note and line of credit and the line of credit was
terminated. The largest amount outstanding under the line of credit was
$988,800.
From March 1998 through June 1999, the Company performed payroll,
accounting and other administrative services for Tribeca for a fee of $7,000
per month. Additionally, Tribeca leases office space and equipment
14
<PAGE>
from the Company for approximately $8,000 per month as of January 1, 2000,
which monthly payment had been approximately $12,000 through December 31, 1999.
The Company believes that these transactions were on terms that are no less
favorable than those that could be obtained from unaffiliated third parties.
Ronald G. Pettengill, Jr., the Company's Chairman and Chief Executive
Officer, and Donald J. Duffy, a director of the Company, were directors of
Tribeca until September 1999 and own shares of Tribeca's Common Stock. Robert
L. Belau, the Company's President, and Eric Meyer, director of the Company, are
directors of Tribeca and own shares of Common Stock of Tribeca. Additionally,
Messrs. Pettengill and Belau served as executive officers of Tribeca until
September 1999 and Mr. Meyer has served as Tribeca's interim Chief Executive
Officer since September 1999.
Sale of Series A Convertible Preferred Stock and Warrants
In March 1999, the Company sold 6,512,316 shares of series A convertible
preferred stock and warrants to purchase the number of shares of Common Stock
that equaled 15% of the number of shares to be registered in the Company's
initial public offering, at $18.00 per share, to six accredited investors for
an aggregate purchase price of approximately $18.6 million. General Atlantic
Partners 54, L.P. purchased 5,350,441 shares and GAP Coinvestment Partners II
purchased 1,112,765 shares. Peter L. Bloom and Braden R. Kelly, directors of
the Company, are, respectively, a managing member and a principal of General
Atlantic Partners, LLC. General Atlantic Partners, LLC is the general partner
of General Atlantic Partners 54 and the managing members of General Atlantic
Partners, LLC are also the general partners of GAP Coinvestment Partners II.
The purchase price for the series A convertible preferred stock was $2.85 per
share. On the closing of the Company's initial public offering, the series A
convertible preferred stock converted into 6,512,316 shares of the Company's
Common Stock. The warrants have terminated and are no longer exercisable.
Share Redemption
As a condition of the March 1999 sale of series A convertible preferred
stock and warrants, the Company was required to repurchase approximately $8.4
million of Common Stock. Accordingly, the Company made an offer to each of its
stockholders to repurchase their shares at a price of $2.94 per share.
Subsequently, in March 1999, the Company repurchased a total of 2,855,100
shares of Common Stock from 31 of its stockholders who elected to sell shares
for an aggregate purchase price of approximately $8.4 million. Of these, the
Company purchased the following amounts from its officers, directors and 5%
stockholders and their affiliates:
Number of Shares Aggregate
Name of Stockholder Redeemed Consideration
- ------------------- ------------------ --------------
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
Predictive Ventures, L.P. ......... 300,000 882,500
PVII, L.P. ........................ 33,060 97,251
Eric Meyer and Donald J. Duffy, directors of the Company, are general
partners of MD Strategic, Predictive Ventures and PVII.
Meyer, Duffy & Associates
The Company had an agreement with Meyer, Duffy & Associates, Inc. pursuant
to which they provided it with consulting and advisory services regarding
capital raising and strategic partnerships. Eric Meyer and Donald J. Duffy,
directors of the Company, serve as co-Managing Directors of Meyer, Duffy &
Associates. The Company paid Meyer, Duffy & Associates a retainer fee of $5,000
per month in connection with these services through March 31, 1999, the date
that the agreement terminated. Additionally, in August 1998, the Company
15
<PAGE>
loaned Meyer, Duffy & Associates, L.P., in connection with the exercise of
options, $300,000 at an interest rate of 7% per annum. Meyer, Duffy &
Associates, L.P. repaid this loan in March 1999. Messrs. Meyer and Duffy are
the general partners of Meyer, Duffy & Associates, L.P.
Loans to Officers
In August 1998, in connection with the exercise of options, the Company
loaned each of Ronald G. Pettengill, Jr., its Chairman and Chief Executive
Officer, and Robert L. Belau, its 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, the Company has 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, which represents the largest amounts outstanding under these
advances during fiscal 1998. There are currently no advances outstanding. The
Company may in the future make loans to its officers.
Option Grants
The Company granted each of Messrs. Bloom, Duffy, Kelly and Meyer, its
non-employee directors, options to purchase 25,000 shares of Common Stock at a
price of $4.00 per share. The Company granted each of Messrs. Sidhu and Wyman,
its non-employee directors, options to purchase 25,000 shares of its Common
Stock at a price of $11.05 per share. Further, in 1999, the Company granted to
Messrs. Pettengill, Belau, Dorsey, Joseph, Humes, Holt, Sethi, Wright and
Papilsky options to purchase 200,000; 200,000; 175,000; 100,000; 60,000;
130,000; 70,000; 80,000 and 50,000 shares of Common Stock, respectively.
Additionally, in March 2000, the Company granted Mr. Smith, one of its
non-employee directors, options to purchase 25,000 shares of Common Stock at a
price of $60.50 per share. Please see "Executive Compensation, Management and
Other Information--Employment Agreements." For additional information regarding
the grant of stock options to executive officers and directors, please see
"Annual Meeting Proposals--Proposal 1--Election of Directors--Director
Compensation," "Executive Compensation, Management and Other
Information--Executive Compensation," "--1999 Stock Incentive Plan" and
"Security Ownership of Certain Beneficial Owners and Management."
Relationship with BellSouth
The Company provides network consulting services to BellSouth pursuant to
an existing agreement negotiated by the parties in an arm's-length transaction.
This agreement expires in May 2001 and governs the terms and conditions that
apply to all consulting services performed by it for BellSouth and for
BellSouth's customers. In fiscal 1999, revenue from BellSouth was $1,229,881.
William L. Smith, one of the Company's directors, is Executive Vice President
of Network Planning and Chief Technology Officer of BellSouth.
General
The Company has adopted a 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 the Company than could be obtained from unaffiliated
parties and are reasonably expected to benefit the Company.
16
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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on matters of the Company's
compensation philosophy and the compensation of executive officers and other
individuals compensated by the Company. The Compensation Committee is also
responsible for the administration of the Company's stock option plans under
which option grants and direct stock issuances may be made to executive
officers. The Compensation Committee has reviewed and is in accord with the
compensation paid to executive officers in 1999.
General Compensation Policy
The fundamental policy of the Compensation Committee is to provide the
Company's executive officers with competitive compensation opportunities based
upon their contribution to the Company's development and financial success and
their personal performance. It is the Compensation Committee's objective to
have a portion of each executive officer's compensation contingent upon the
Company's performance, as well as upon such executive officer's own level of
performance. Accordingly, the compensation package for each executive officer
is comprised of three elements: (i) base salary, (ii) cash bonus payment and
(iii) long-term stock-based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
Factors
The principal factors which the Compensation committee considered with
respect to each executive officer's compensation package for fiscal year 1999
are summarized below. The Compensation Committee may, however, in its
discretion apply entirely different factors in advising the Chief Executive
Officer and the Board of Directors with respect to executive compensation for
future years.
o Base Salary. The suggested base salary for each executive officer is
determined on the basis of the following factors: experience, personal
performance, the salary levels in effect for comparable positions within and
without the industry and internal base salary comparability considerations. The
weight given to each of these factors differs from individual to individual, as
the Compensation Committee deems appropriate.
o Cash Bonus Payment. Under special circumstances, the Compensation
Committee has the discretion to pay cash bonuses to executive officers based on
both individual performance as well as performance of the Company when
predetermined goals are met or exceeded. Bonuses are determined and paid
annually.
o Long-Term Incentive Compensation. Long-term incentives are generally
provided through grants of stock options. The grants are designed to align the
interests of each executive officer with those of the stockholders and provide
each individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the Company. Each option
generally becomes exercisable in installments over a four year period,
contingent upon the executive officer's continued employment with the Company.
Accordingly, the option grant will provide a return to the executive officer
only if the executive officer remains employed by the Company during the
vesting period, and then only if the market price of the underlying shares
appreciates.
The number of shares subject to each option grant is set at a level
intended to create a meaningful opportunity for stock ownership based on the
executive officer's current position with the Company, the base salary
associated with that position, the size of comparable awards made to
individuals in similar positions within the industry, the individual's
potential for increased responsibility and promotion over the option term and
the individual's personal performance in recent periods. The Compensation
Committee also considers the number of unvested options held by the executive
officer in order to maintain an appropriate level of equity incentive for that
individual. However, the Compensation Committee does not adhere to any specific
guidelines as to the relative option holdings of the Company's executive
officers. Stock options to purchase an aggregate of 1,065,000 shares of Common
Stock were granted to executive officers in 1999.
17
<PAGE>
CEO Compensation
The plans and policies discussed above were the basis for the 1999
compensation of the Company's Chief Executive Officer, Mr. Ronald G.
Pettengill, Jr. In advising the Board of Directors with respect to this
compensation, the Compensation Committee seeks to achieve two objectives: (i)
establish a level of base salary competitive with that paid by companies within
the industry that are of comparable size to the Company and by companies
outside of the industry with which the Company competes for executive talent
and (ii) make a significant percentage of the total compensation package
contingent upon the Company's performance and stock price appreciation. In
accordance with these objectives, Mr. Pettengill received a base salary of
$195,833 and a bonus of $75,000 for fiscal year 1999. In addition, options to
purchase 200,000 shares of Common Stock at an exercise price of $4.00 per share
were granted to Mr. Pettengill in 1999. He currently holds a total of 980,000
unexercised stock options.
Compliance with Internal Revenue Code Section 162(m).
As a result of Section 162(m) of the Internal Revenue Code of 1986, as
amended, which was enacted into law in 1993, the Company will not be allowed a
federal income tax deduction for compensation paid to certain executive
officers to the extent that such compensation exceeds $1 million per officer in
any one year. This limitation will apply to all compensation paid to the
covered executive officers which is not considered to be performance-based.
Compensation that does qualify as performance-based compensation will not have
to be taken into account for purposes of this limitation. The Company's stock
plans contain certain provisions that are intended to ensure that any
compensation deemed paid in connection with the exercise of stock options
granted under that plan with an exercise price equal to the market price of the
option shares on the grant date will qualify as performance-based compensation.
The Compensation Committee does not expect that the compensation to be
paid to the Company's executive officers for 2000 will exceed the $1 million
limit per officer.
THE COMPENSATION COMMITTEE
Peter L. Bloom
Donald J. Duffy
18
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of April 14, 2000, by:
o each Director and nominee for Director,
o each of the Named Executive Officers,
o each person (or group of affiliated persons) who is known by the Company
to be a beneficial owner of 5% or more of the outstanding shares of
Common stock, and
o all of the Company's Directors and Executive Officers 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., 417 Fifth Avenue, 11th Floor, New
York, NY 10016. 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 April 14, 2000, but excludes shares of Common Stock
underlying options held by any other person. Percentage of beneficial ownership
is based on 25,102,190 shares of Common Stock outstanding as of April 14, 2000.
<TABLE>
<CAPTION>
Beneficial Ownership
-----------------------
Name and Address of Beneficial Owner Shares Percent
- ------------------------------------ ------------ --------
<S> <C> <C>
Ronald G. Pettengill, Jr. (1) ............................................ 2,106,372 8.4%
Robert L. Belau (2) ...................................................... 2,494,427 9.9
Gerard E. Dorsey ......................................................... - -
R. Kevin Holt (3) ........................................................ 32,500 *
Carl D. Humes (4) ........................................................ 216,000 *
Thomas R. Joseph (5) ..................................................... 216,000 *
Gregory D. Nicastro (6) .................................................. 134,400 *
Gary N. Papilsky ......................................................... 1,000 *
Neeraj Sethi (7) ......................................................... 168,000 *
John Wright (8) .......................................................... 16,000 *
Peter L. Bloom (9) ....................................................... 5,930,767 23.6
Donald J. Duffy (10) ..................................................... 2,253,297 9.0
Braden R. Kelly (11) ..................................................... - -
Eric Meyer (12) .......................................................... 2,670,193 10.6
Inder Sidhu (13) ......................................................... 1,242,000 5.0
William L. Smith (14) .................................................... 150,000 *
William W. Wyman (15) .................................................... - -
Cisco Systems, Inc. (16) ................................................. 1,242,000 5.0
General Atlantic Partners, LLC (17) ...................................... 5,924,517 23.6
Meyer, Duffy & Associates, L.P. (18) ..................................... 1,465,484 5.8
Putnam Investments, Inc. (19) ............................................ 2,304,587 9.2
All directors and executive officers as a group (17 persons) (20) ........ 15,377,659 61.3
</TABLE>
- ------------
* Indicates less than one percent of the Common Stock.
(1) Includes (a) 863,333 shares issuable upon the exercise of currently
exercisable options (b) 1,224,330 shares held by Tao Partners, L.P., (c)
5,000 shares held by The Pettengill Family Foundation and (d) 13,709
shares held by Ballantine Associates Limited Partnership. The general
partner of Ballantine Associates
19
<PAGE>
Limited Partnership is Ballantine Associates, Inc. Mr. Pettengill and his
wife are the sole stockholders of Julcon, Inc., the general partner of Tao
Partners L.P. and the sole stockholder of Ballantine Associates, Inc. Mr.
Pettengill disclaims beneficial ownership of the shares held by The
Pettengill Family Foundation.
(2) Includes (a) 863,333 shares issuable upon the exercise of currently
exercisable options (b) 126,000 shares held by The Belau Family Trust, (c)
10,000 shares held by The Belau Family Foundation, (d) 1,478,859 shares
held by the Belau First Tier Limited Partnership and (e) 16,235 shares
held by the Belau Second Tier Limited Partnership. The general partner of
the Belau First Tier Limited Partnership is Belau First Tier, Inc., of
which Mr. Belau is the sole stockholder. The general partner of the Belau
Second Tier Limited Partnership is Belau Second Tier, Inc., of which Belau
First Tier, Inc. is the sole stockholder. Mr. Belau disclaims beneficial
ownership of the shares held by The Belau Family Foundation.
(3) Includes 32,500 shares issuable upon the exercise of currently exercisable
options.
(4) Includes 216,000 shares issuable upon the exercise of currently
exercisable options.
(5) Includes (a) 196,000 shares issuable upon the exercise of currently
exercisable options and (b) 20,000 shares issuable upon the exercise of
currently exerciseable stock options held by The Joseph Family Trust. Mr.
Joseph disclaims beneficial ownership of the securities held by The Joseph
Family Trust.
(6) Includes 134,400 shares issuable upon the exercise of currently
exercisable options.
(7) Includes 138,000 shares issuable upon the exercise of currently
exercisable options.
(8) Includes 16,000 shares issuable upon the exercise of currently exercisable
options.
(9) Includes (a) 6,250 shares issuable upon the exercise of currently
exercisable options, (b) 4,559,458 shares owned by General Atlantic
Partners 54, (c) 349,918 shares owned by General Atlantic Partners 57, and
(d) 1,015,141 shares owned by GAP Coinvestment Partners II. The general
partner of General Atlantic Partners 54 and General Atlantic Partners 57
is General Atlantic Partners, LLC and the managing members of General
Atlantic Partners, LLC are also the general partners of GAP Coinvestment
Partners II. Peter L. Bloom is a managing member of General Atlantic
Partners, LLC. Mr. Bloom disclaims beneficial ownership of these
securities except to the extent of his economic interest in General
Atlantic Partners, LLC, and GAP Coinvestment Partners II. The address of
Mr. Bloom is c/o General Atlantic Partners, LLC, 3 Pickwick Plaza,
Greenwich, Connecticut 06830.
(10) Includes (a) 186,250 shares issuable upon the exercise of currently
exercisable options, (b) 441,019 shares of Common Stock held by MD
Strategic, L.P., (c) 1,465,484 shares held by Meyer, Duffy & Associates,
L.P., (d) 121,651 shares held by PVII, L.P. and (e) 38,893 shares held by
Five D's Associates Limited Partnership. Mr. Duffy is a general partner of
each of MD Strategic, L.P., Meyer, Duffy & Associates, L.P. and PVII, L.P.
Messrs. Duffy and Meyer are the stockholders of Five D's Associates, Inc.,
which is the general partner of Five D's Associates Limited Partnership.
Mr. Duffy disclaims beneficial ownership of these securities except to the
extent of his economic interest in MD Strategic L.P., Meyer, Duffy &
Associates, L.P., PVII, L.P. and Five D's Associates Limited Partnership.
The address of Mr. Duffy is c/o of Meyer, Duffy & Associates, Inc., 237
Park Avenue, New York, New York 10017.
(11) Mr. Kelly is a limited partner of GAP Coinvestment Partners II. Mr. Kelly
disclaims beneficial ownership of the securities held by GAP Coinvestment
Partners II except to the extent of his economic interest in those
securities. The address of Mr. Kelly is c/o General Atlantic Partners,
LLC, 3 Pickwick Plaza, Greenwich, Connecticut 06830.
(12) Includes (a) 186,250 shares issuable upon the exercise of currently
exercisable options, (b) 441,019 shares held by MD Strategic, L.P., (c)
1,465,484 shares held by Meyer, Duffy & Associates, L.P., (d) 121,651
shares held by PVII, L.P. and (e) 38,893 shares held by Five D's
Associates Limited Partnership. Mr. Meyer is a general partner of each of
MD Strategic L.P., Meyer, Duffy & Associates, L.P. and PVII, L.P. Messrs.
Meyer and Duffy are the sole stockholders of Five D's Associates, Inc.,
which is the general partner of Five D's Associates Limited Partnership.
Mr. Meyer disclaims beneficial ownership of these securities except to the
extent of his economic interest in MD Strategic L.P., Meyer, Duffy &
Associates, L.P., PVII, L.P. and Five D's Associates Limited Partnership.
The address of Mr. Meyer is c/o Meyer, Duffy & Associates, Inc., 237 Park
Avenue, New York, New York 10017.
20
<PAGE>
(13) Includes 1,242,000 shares of Common Stock owned by Cisco Systems. Mr.
Sidhu is the Vice President of Worldwide Professional Services at Cisco.
The address of Mr. Sidhu is c/o Cisco Systems, Inc., 170 West Tasman
Drive, San Jose, California 95134-1706.
(14) Includes 150,000 shares of Common Stock owned by BellSouth Corporation.
Mr. Smith is Executive Vice President of Network Planning and Chief
Technology Officer of BellSouth. The address of Mr. Smith is c/o BellSouth
Corporation, 1155 Peachtree Street, N.W., Atlanta, Georgia 30309.
(15) The address of Mr. Wyman is 4 North Balch Street, Hanover, New Hampshire
03755.
(16) The address of Cisco is 170 West Tasman Drive, San Jose, California
95134-1706.
(17) Includes (a) 4,559,458 shares owned by General Atlantic Partners 54, (b)
349,918 shares owned by General Atlantic Partners 57, and (c) 1,015,141
shares owned by GAP Coinvestment Partners II. General Atlantic Partners,
LLC is the general partner of General Atlantic Partners 54 and General
Atlantic Partners 57 and the managing members of General Atlantic
Partners, LLC are also the general partners of GAP Coinvestment Partners
II. Therefore, General Atlantic Partners, LLC may vote and dispose of the
shares owned by these entities. The address of General Atlantic Partners,
LLC is 3 Pickwick Plaza, Greenwich, Connecticut 06830.
(18) The address of Meyer, Duffy & Associates, L.P. is c/o Meyer, Duffy &
Associates, Inc., 237 Park Avenue, New York, New York 10017.
(19) Includes (a) 2,123,487 shares held by Putnam Investment Management, Inc.
("PIM") and (b) 181,100 shares held by The Putnam Advisory Company, Inc.
("PAC"). PIM and PAC are wholly-owned subsidiaries of Putnam Investments,
Inc., a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. Of the
2,123,487 shares held by PIM, 1,760,087 shares are held by Putnam OTC &
Emerging Growth Fund. The address of Putnam Investments, Inc. is One Post
Office Square, Boston, Massachusetts 02109.
(20) Includes 2,592,900 shares issuable upon the exercise of currently
exercisable options.
21
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return on its Common Stock during a period commencing on October 27, 1999 (the
initial public offering of the Company's Common Stock) and ending on December
31, 1999 (as measured by dividing (i) the sum of (A) the cumulative amount of
dividends (if any) for the measurement period, assuming dividend reinvestment,
and (B) the excess of the Company's share price at the end of the measurement
period over the price at the beginning of the measurement period, by (ii) the
share price at the beginning of the measurement period) with the cumulative
return so calculated on the Nasdaq Stock Market--U.S. Index and a
self-constructed peer group index.
Comparison of Cumulative Return* Among
Predictive Systems, Inc., the Nasdaq Stock Market -- U.S. Index and a Peer
Group (1)
[Performance Graph Appears Here]
PRDS NASDAQ PEER GROUP
27-October-1999 100.00 100.00 100.00
31-December-1999 363.89 144.32 187.59
* Assumes $100 invested on October 27, 1999 in stock or index, including
reinvestment of dividends.
(1) The Peer Group consists of the following companies: CIBER, Inc.; marchFIRST
Inc. (formerly Whittman-Hart, Inc.); Proxicom Inc.; Razorfish, Inc.;
Sapient Corporation and Scient Corporation.
22
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Such filing persons are required by SEC regulations
to furnish the Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on review of the copies of the
above-mentioned reports furnished to the Company and written representations
regarding all reportable transactions, during the fiscal year ended December
31, 1999, all Section 16(a) filing requirements were complied with on time
except for one late filing by each of Messrs. Pettengill and Belau.
STOCKHOLDER PROPOSALS-2001 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2001 Annual Meeting must be received no
later than January 18, 2001, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. In addition, the proxy
solicited by the Board of Directors for the 2001 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
April 1, 2001.
FORM 10-K
The Company filed an Annual Report on Form 10-K for fiscal year ended
December 31, 1999 with the Securities and Exchange Commission on March 30,
2000. Stockholders may obtain a copy of this report without charge, by writing
to Investor Relations, at the Company's principal offices, located at 417 Fifth
Avenue, 11th Floor, New York, New York 10016.
OTHER MATTERS
Management knows of no matters that are to be presented for action at the
Annual Meeting other than those set forth above. If any other matters properly
come before the Annual Meeting, the persons named in the enclosed proxy card
will vote the shares represented by proxies in accordance with their judgment
of what is in the best interest of the stockholders on such matters.
Proxies will be solicited by mail and may also be solicited in person or
by telephone by certain regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
By Order of the Board of Directors
/s/ Ronald G. Pettengill
-----------------------------------
Ronald G. Pettengill
Chief Executive Officer and
Chairman of the Board
New York, New York
April 25, 2000
23
<PAGE>
(Form of Proxy)
PREDICTIVE SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - May 16, 2000
(This proxy is solicited on behalf of the Board of Directors of the Company)
The undersigned stockholder of Predictive Systems, Inc. hereby appoints Ronald
G. Pettengill, Jr. and Robert L. Belau, and each of them, with full power of
substitution, proxies to vote the shares of stock which the undersigned could
vote if personally present at the Annual Meeting of Stockholders of Predictive
Systems, Inc. to be held at The W Court Hotel, 130 East 39th Street, New York,
New York, 10016 on Tuesday, May 16, 2000 at 10:00 a.m. (New York City time).
1. ELECTION OF DIRECTORS (for terms as described in the Proxy Statement)
----- -----
| | FOR all nominees below | | WITHHOLD AUTHORITY
| | (except as marked to the | | to vote for nominees below
----- contrary) -----
NOMINEES: Ronald G. Pettengill, Jr., Robert L. Belau, Donald J. Duffy
INSTRUCTION: To withhold authority to vote for an individual nominee,
write the nominee's name on the space provided below.
-----------------------------------------------------------------------
-----------------------------------------------------------------------
2. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
----- ----- -----
| | FOR | | AGAINST | | ABSTAIN
| | | | | |
----- ----- -----
with respect to the proposal to ratify the selection of Arthur Andersen
LLP, independent public accountants, as the Company's independent
public accountants for the year ending December 31, 2000, as described
in the Proxy Statement.
3. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING
----- ----- -----
| | FOR | | AGAINST | | ABSTAIN
| | | | | |
----- ----- -----
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2
AND 3 AS SET FORTH IN THE PROXY STATEMENT.
Please date and sign exactly as your name appears on the envelope in
which this material was mailed. If shares are held jointly, each
stockholder should sign. Executors, administrators, trustees, etc.
should use full title and, if more than one, all should sign. If the
stockholder is a corporation, please sign full corporate name by an
authorized officer. If the stockholder is a partnership, please sign
full partnership name by an authorized person.
----------------------------------
Name(s) of Stockholder
----------------------------------
Signature(s) of Stockholder
Dated: _______, 2000
