Exhibit (d)(3)
Predictive Systems, Inc.
1999 Stock Incentive Plan
Prospectus
The date of this prospectus is September 5, 2002
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933, as amended.
TABLE OF CONTENTS
Page
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INTRODUCTION..........................................................................................................1
1. What is the Plan?...................................................................................1
2. What is the purpose of the Plan?....................................................................1
3. How many Shares are available under the Plan?.......................................................1
4. What should I know about this prospectus?...........................................................2
ADMINISTRATION AND ELIGIBILITY........................................................................................2
5. Who administers the Plan?...........................................................................2
6. Who is eligible to participate in the Plan?.........................................................3
7. Who Selects the Employees, Directors and Consultants Who Receive Awards?............................3
8. What Types of Grants are Permitted Under the Plan?..................................................3
9. Does participation in the Plan affect my employment?................................................3
STOCK OPTIONS.........................................................................................................3
10. What is a stock option and how do I benefit from it?................................................3
11. Are there different types of options?...............................................................4
12. How will I know the terms of my option?.............................................................4
13. What is the exercise price of my option?............................................................4
14. When can I exercise my option?......................................................................4
15. How can I exercise my option?.......................................................................5
16. How do I pay the exercise price?....................................................................5
17. How do I pay tax withholding?.......................................................................5
18. When does my option expire?.........................................................................5
19. What is a stock appreciation right (SAR)?...........................................................5
DISCRETIONAY OPTION GRANT PROGRAM.....................................................................................6
20. What is the Discretionary Option Grant Program?.....................................................6
21. What are repurchase rights?.........................................................................6
22. What if I hold an option that was granted pursuant to the Discretionary Option Grant
Program and my employment terminates?...............................................................6
23. What if I hold an option that was granted pursuant to the Discretionary Option Grant
Program and my employment terminates for Misconduct or I engage in Misconduct after my
termination?........................................................................................6
24. What happens to an option granted under the Discretionary Option Grant Program in the
event of a corporate transaction?...................................................................7
SALARY INVESTMENT OPTION GRANT PROGRAM................................................................................7
25. What is the Salary Investment Option Grant Program?.................................................7
26. What if I hold an option that was granted pursuant to the Salary Investment Option
Grant Program and my employment terminates?.........................................................8
27. What happens to an option granted under the Salary Investment Option Grant Program in
the event of a corporate transaction?...............................................................8
STOCK ISSUANCE PROGRAM................................................................................................8
28. What is the Stock Issuance Program?.................................................................8
29. What if I hold an option that was granted pursuant to the Stock Issuance Program and
my employment terminates?...........................................................................9
30. What happens to an option granted under the Stock Issuance Program in the event of a
corporate transaction?..............................................................................9
AUTOMATIC OPTION GRANT PROGRAM........................................................................................9
31. What is the Automatic Option Grant Program?.........................................................9
32. How will the Options vest under the Automatic Option Grant Program?.................................9
33. What are repurchase rights?........................................................................10
34. What if I hold an option that was granted pursuant to the Automatic Option Grant
Program and my employment terminates?..............................................................10
35. What happens to an option granted under the Automatic Option Grant Program in the
event of a corporate transaction?..................................................................10
DIRECTOR FEE OPTION GRANT PRGRAM.....................................................................................11
36. What is the Director Fee Option Grant Program?.....................................................11
37. What if I hold an option that was granted pursuant to the Director Fee Option Grant
Program and my employment terminates?..............................................................11
38. What happens to an option granted under the Director Fee Option Grant Program in the
event of a corporate transaction?..................................................................11
TAX AND ERISA INFORMATION............................................................................................12
39. What are the tax effects of NQSOs?.................................................................12
40. What are the tax effects of ISOs?..................................................................13
41. What about ISOs and the alternative minimum tax?...................................................14
42. What are the tax effects of restricted stock?......................................................14
43. What are the tax effects of a stock appreciation right (SAR)?......................................14
44. What are the tax effects for us?...................................................................15
45. Is the Plan subject to ERISA?......................................................................15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................................................15
ADDITIONAL INFORMATION ABOUT THE PLAN AND PROSPECTUS.................................................................15
46. Can we change or terminate the Plan?...............................................................15
47. What is the duration of the Plan?..................................................................15
48. Does the Plan limit a participant's ability to resell Shares acquired under the Plan?..............16
49. Are awards transferable?...........................................................................16
50. What if I need more information?...................................................................16
51. What else should I know about this prospectus?.....................................................17
INTRODUCTION
The following questions and answers give a summary of the main features of the
Predictive Systems, Inc. 1999 Stock Incentive Plan (the "Plan"). Predictive
Systems, Inc. is referred to in this prospectus as "we," "us," or "our." Please
read this prospectus carefully.
1. What is the Plan?
The Plan was adopted by our board of directors and approved by our stockholders
on September 14, 1999. The Plan allows us to provide equity incentives to
employees, directors, and consultants who provide services to us, or any of our
parent or subsidiary companies, by providing such individuals with an
opportunity to acquire shares of our common stock ("Shares") under the Plan's
five separate equity programs.
The Plan consists of the following five separate equity programs:
o A Discretionary Option Grant Program under which employees,
non-employee directors, and consultants may be granted options
to purchase Shares at the discretion of the Plan
administrator.
o A Salary Investment Option Grant Program under which officers,
directors and certain highly compensated employees may elect
to have a portion of their base salary invested each year in
special options.
o A Stock Issuance Program under which employees, non-employee
directors, and consultants may, at the discretion of the Plan
administrator, be issued Shares directly, either through the
immediate purchase of such Shares or as a bonus for services
rendered to us.
o An Automatic Option Grant Program under which non-employee
board members automatically receive options at periodic
intervals to purchase Shares.
o A Director Fee Option Grant Program under which non-employee
board members may elect to have all or any portion of their
annual retainer fee otherwise payable in cash applied to a
special grant.
2. What is the purpose of the Plan?
The purpose of the Plan is to provide eligible persons with an opportunity to
acquire a proprietary interest in us as an incentive for them to remain in our
service.
3. How many Shares are available under the Plan?
There are 1,843,624 Shares available under the Plan, plus an annual increase to
be added on the first trading day of each calendar year equal to 1% of our
outstanding Shares on the last trading day of the immediately preceding calendar
year; provided, however, that in no event will the annual increase exceed
500,000 Shares. The Shares may be authorized, but unissued, or reacquired
Shares. The number of Shares reserved for issuance under the Plan includes
Shares that remained available for issuance under our 1998 Stock Option/Stock
Issuance Plan and our 1998 California Stock Option/Stock Issuance Plan, which
are the predecessor plans to this Plan. No further awards may be made under the
predecessor plans, and awards previously granted under the predecessor plans are
now primarily governed by the terms of the Plan and the terms of the documents
evidencing the previously granted awards.
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If an option expires or is cancelled for any reason without having been fully
exercised or vested, the unvested or cancelled Shares generally again will be
available for grant under the Plan. Unvested Shares issued under the Plan that
are repurchased by us will also be added back to the Plan. We have filed a
Registration Statement covering the Shares issuable under the Plan with the
Securities and Exchange Commission.
In the event of any change, such as a stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting our outstanding common stock as a class without our receipt of
consideration, appropriate adjustments will be made to the number of Shares
issuable under the Plan, the number of Shares by which the share reserve is
increased each calendar year, the total number of Shares for which each person
may be granted awards under the Plan, the number of Shares granted under the
Automatic Option Grant Program, the number of Shares and the exercise price of
each option, and the number of Shares and the price per Share in effect under
each outstanding option incorporated under this Plan from the predecessor plans.
4. What should I know about this prospectus?
This prospectus describes the main features of the Plan. However, this
prospectus does not contain all of the terms and conditions of the official Plan
document. Accordingly, if there is any difference between the terms and
conditions of the Plan as described in this prospectus and the provisions of the
Plan document, the Plan document will govern.
ADMINISTRATION AND ELIGIBILITY
5. Who administers the Plan?
Our board of directors or a committee appointed by our board administers the
Plan. A committee appointed by our board administers the Discretionary Option
Grant and Stock Issuance Programs. All option grants under the Automatic Option
Grant Program are automatic in accordance with the provisions of the Program.
Neither the board nor any committee appointed by the board exercises any
administrative discretion with respect to grants made under the Salary
Investment Option Grant Program or the Director Fee Option Grant Program.
Currently, members of our board of directors are separated into three classes
and serve staggered three-year terms.
The administrator of the Plan has final authority to interpret any provision of
the Plan or any grant made under the Plan.
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6. Who is eligible to participate in the Plan?
Our employees, directors and consultants, or employees, directors and
consultants of any of our parent or subsidiary companies, are eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. Only
officers, directors and certain highly compensated employees are eligible to
participate in the Salary Investment Option Grant Program, and only non-employee
directors are eligible to participate in the Automatic Option Grant and Director
Fee Option Grant Programs.
No employee, director or consultant may be granted awards under the Plan to
purchase more than 500,000 Shares in the aggregate per calendar year.
7. Who Selects the Employees, Directors and Consultants Who Receive Awards?
The administrator of the Plan selects the employees, directors and consultants
who receive awards granted under the Discretionary Option Grant and Stock
Issuance Programs.
8. What Types of Grants are Permitted Under the Plan?
The Plan permits us to grant incentive options and nonstatutory options, and to
issue common stock. These awards are described below.
9. Does participation in the Plan affect my employment?
No, the grant of an award under the Plan does not affect the terms and
conditions of your employment or service. Nothing in the Plan gives you the
right to continue your employment with us or restricts our right or your right
to terminate employment with us at any time, with or without cause. The grant of
your option does not entitle you to any future award, compensation or severance
pay.
STOCK OPTIONS
10. What is a stock option and how do I benefit from it?
An option gives you the right to purchase a specified number of Shares for a
fixed price (the "exercise price") during a prescribed period of time. If the
value of the Shares increases above your exercise price during its term, you
will be able to buy the Shares at a "discount." If the value of the Shares does
not increase above your exercise price, you will not recognize a benefit from
your option.
The principal benefit of your option is the potential to profit from any
increase in the value of the Shares during the period in which the option is
exercisable, without risking any of your money.
Please note that the grant and exercise of your option are subject to any United
States and local laws, including, but not limited to, laws relating to
securities and foreign currency, as well as any of our policies that may apply
to you.
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11. Are there different types of options?
The Plan permits us to grant either incentive stock options (which are entitled
to favorable federal tax treatment) ("ISOs") or nonqualified stock options (that
is, options that are not ISOs) ("NQSOs"). We can grant ISOs only to persons who
are our employees or employees of one of our subsidiaries at the time of grant.
After we grant an option, the principal differences between an ISO and a NQSO
relate to federal income tax consequences (as discussed below).
12. How will I know the terms of my option?
If you receive an option under the Plan, we will send you a written agreement
(an "option agreement"). The option agreement will show the following, all of
which the Plan administrator determines in its discretion (except under the
Automatic Option Grant Program described below):
o the exercise price of the option,
o the expiration date of the option,
o the maximum number of Shares that may be purchased with the
option,
o any conditions to exercise of the option, and
o any other terms and conditions of the option.
The option agreement also will specify whether the option is intended to be an
ISO or a NQSO.
The total fair market value of the Shares (as of the time of grant) with respect
to which ISOs are exercisable for the first time by any participant during any
calendar year may not exceed $100,000.
13. What is the exercise price of my option?
The exercise price is the price at which you may purchase a Share by exercising
an option. The Administrator generally has full discretion to determine the
exercise price of any option granted under the Plan. However, the exercise price
of ISOs must be at least 100% of the fair market value of the Shares on the date
of grant. (However, in rare circumstances, the exercise price of ISOs must be at
least 110% of fair market value at the time of grant.) We cannot generally
change the exercise price of an option after grant without a participant's
consent (except to reflect stock splits and other changes in our capital
structure).
14. When can I exercise my option?
You generally cannot immediately exercise an option granted under the Plan.
Instead, an option will become exercisable (that is, it will "vest") at the time
or times shown in the option agreement, assuming that you have satisfied any
conditions to vesting (for example, continued employment with us). The Plan
administrator generally has full discretion to determine the vesting schedule
for each option.
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15. How can I exercise my option?
To exercise your option, you must complete an exercise form and deliver it to
us. With the exercise form you also must send full payment (in U.S. dollars) of
the exercise price and any applicable federal (including FICA), state and local
withholding taxes. Your ability to purchase Shares through the exercise of an
option is conditioned upon compliance with any laws and internal policies that
apply to you.
16. How do I pay the exercise price?
You must pay the exercise price of an option in cash (that is, in the form of a
check) in U.S. dollars.
The Plan administrator also has discretion to permit payment of the exercise
price by the tender of already-owned Shares or by other means approved by the
Committee, such as an immediate sale of some or all of the Shares acquired upon
exercise. An immediate sale is when you pay the exercise price (and any required
tax withholding) by requesting a stockbroker to sell all or part of the Shares
acquired upon exercise. That is, the stockbroker will forward part of the
proceeds to us as necessary to pay the exercise price and tax withholding. The
stockbroker will send the remaining cash proceeds (less any commissions and
fees) or Shares directly to you.
17. How do I pay tax withholding?
You must pay any taxes we are required to withhold upon exercise in cash (that
is, in the form of a check in U.S. dollars) or through other means as required
by the Plan administrator.
18. When does my option expire?
Generally, the Plan administrator, in its discretion, determines all expiration
provisions that apply to options. The expiration dates for any particular option
will be shown in the option agreement. The expiration date is the date on which
your option expires and after which you no longer may exercise the option.
Expiration dates may vary for different options and in different circumstances.
For example, termination of employment may cause an option to immediately
expire. Therefore, it is important for you to read and understand your
individual option agreement.
After an option is granted, the Plan administrator may extend the maximum term
of the option, subject to the terms of the Plan. For example, no option may have
a term longer than ten years from the date of grant.
19. What is a stock appreciation right (SAR)?
The Plan administrator may grant stock appreciation rights in connection with an
option which entitles the optionee to elect between the exercise of the
underlying option and the surrender of that option in exchange for a
distribution in an amount that is generally equal to the excess of the fair
market value of the Shares covered by the surrendered option on the date of the
surrender over the aggregate exercise price payable for such Shares. The
distribution will be made, in the Plan administrator's discretion, in Shares,
cash, or partly in Shares and partly in cash.
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DISCRETIONAY OPTION GRANT PROGRAM
20. What is the Discretionary Option Grant Program?
Under the Discretionary Option Grant Program we may grant ISOs, NQSOs and stock
appreciation rights (SARs) to employees, directors, and consultants. Subject to
the provisions of the Discretionary Option Grant Program, the Plan administrator
determines:
o the exercise price of the option, which may be less than,
equal to or greater than the fair market value per Share,
o the expiration date of the option,
o the maximum number of Shares that may be purchased with the
option,
o any conditions to exercise of the option, and
o any other terms and conditions of the option.
21. What are repurchase rights?
Under the Discretionary Option Grant Program the Plan Administrator has the
discretion to grant options that are exercisable for unvested Shares. Generally,
we will have the right to repurchase the unvested Shares at their purchase price
if your employment or service terminates for any reason.
22. What if I hold an option that was granted pursuant to the Discretionary
Option Grant Program and my employment terminates?
In the event an optionee ceases to provide services to us for any reason, he or
she may generally exercise the option to the extent it is exercisable on the
date of cessation of service within the period determined by the Plan
administrator at the time of grant. However, in no event may an option be
exercised after the expiration of its original term. If an optionee ceases
providing services to us by reason of his or her death, the optionee's
beneficiary may exercise the option to the extent the option was exercisable by
the optionee at the time of death. To the extent the option is not otherwise
exercisable at the time of termination or death, the option will terminate and
cease to be outstanding.
23. What if I hold an option that was granted pursuant to the Discretionary
Option Grant Program and my employment terminates for Misconduct or I engage in
Misconduct after my termination?
In the event your service is terminated for Misconduct (as defined in the Plan)
or, except with respect to options granted under the predecessor plans, you
engage in Misconduct while your options are outstanding, then all your options,
whether vested or unvested, will terminate immediately and cease to be
outstanding.
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24. What happens to an option granted under the Discretionary Option Grant
Program in the event of a corporate transaction?
In the event of a Change in Control (as it is defined in the Plan, but which
includes a merger or other event in which 50% or more of the voting power of our
company changes hands, or a sale of all or substantially all of our assets),
each unvested option outstanding at the time of a Change in Control will
automatically accelerate so that each such option will become fully vested and
exercisable immediately prior to the effective date of the Change in Control and
will terminate immediately following the consummation of the Change in Control,
unless (a) the option is assumed by the successor corporation, (b) the option is
replaced by the successor corporation with a cash incentive program that
preserves the spread existing at the time of the Change in Control, or (c) the
acceleration of the option is subject to other limitations imposed by the Plan
administrator at the time of the option grant. In the event of a Change in
Control, all outstanding repurchase rights also will terminate automatically,
and the Shares subject to the repurchase rights will immediately vest in full,
unless (x) the repurchase rights are assigned to the successor corporation or
otherwise continue in full force and effect, or (y) the accelerated vesting is
precluded by other limitations imposed by the Plan administrator at the time the
repurchase right is issued.
In addition, the administrator may provide for the acceleration of options and
the termination of repurchase rights in connection with a Change in Control or
Hostile Take-Over (as that term is defined in the Plan), or in connection with
an optionee's involuntary termination within a period (not to exceed 18 months)
following a Change in Control or Hostile Take-Over, regardless of whether the
successor entity assumes the options or otherwise continues them or is assigned
the repurchase rights. If an option is so accelerated in connection with a
Change in Control, it will remain exercisable until the earlier of the
expiration of the option term or one year from the date of the involuntary
termination. If an option is so accelerated in connection with a Hostile
Take-Over, it will remain exercisable until the expiration or sooner termination
of the option term.
SALARY INVESTMENT OPTION GRANT PROGRAM
25. What is the Salary Investment Option Grant Program?
Under the Salary Investment Option Grant Program officers, directors and certain
highly compensated employees may elect to reduce a portion of their base salary
and instead receive nonstatutory options with a discounted exercise price. To
participate, prior to the beginning of a calendar year, the officer, director or
highly compensated employee must provide us with an election to reduce his or
her base salary for the following calendar year by an amount not less than
$5,000 and not more than $50,000. Upon receipt and approval of such election, we
will grant the officer, director or highly compensated employee an option on the
first trading day in January in the calendar year for which the salary reduction
is in effect. Options granted under this program:
o have an exercise price of 33-1/3% of the fair market value per
Share on the date of grant,
o include the number of Shares determined according to a formula
based on the amount of the elected salary reduction and the
fair market value of our common stock on the date of grant,
and
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o become exercisable in twelve (12) equal monthly installments
upon the optionee's completion of each calendar month of
service during the calendar year in which the option is
granted.
Additional terms of each option granted under this program are generally similar
to the terms in effective for options granted under the Discretionary Option
Grant Program.
26. What if I hold an option that was granted pursuant to the Salary Investment
Option Grant Program and my employment terminates?
In the event an optionee ceases providing services to us, the option will remain
exercisable for all of the Shares for which the option is exercisable at the
time of such cessation of service until three year's following the optionee's
cessation of service or, if earlier, the expiration of the option term. The
optionee's beneficiary may exercise the option to the extent the option is held
by the optionee at the time of his or her death. Upon the optionee's cessation
of service, the option will terminate and cease to be outstanding to the extent
the option is not otherwise at that time exercisable.
27. What happens to an option granted under the Salary Investment Option Grant
Program in the event of a corporate transaction?
In the event of a Change in Control or a Hostile Take-Over while the optionee
remains in service, each outstanding option will automatically accelerate so
that each such option will become fully vested and exercisable immediately prior
to the effective date of the Change in Control or Hostile Take-Over. Each option
accelerated in connection with a Change in Control will terminate upon the
Change in Control, except to the extent the option is assumed by the successor
corporation or otherwise continued. Each option accelerated in connection with a
Hostile Take-Over will remain exercisable until the expiration or sooner
termination of the option term. Upon the occurrence of a Hostile Take-Over the
optionee will have a thirty (30)-day period in which to surrender each of his or
her outstanding options in exchange for a cash distribution in an amount equal
to the excess of the option surrender value (which will be the greater of the
fair market value of the common stock on the surrender date or the highest price
per Share paid by the acquiring company in a tender offer) over the aggregate
exercise price payable for such Shares. Such cash distribution will be paid
within five (5) days following the surrender of the option.
STOCK ISSUANCE PROGRAM
28. What is the Stock Issuance Program?
Under the Stock Issuance Program, Shares may be granted to employees, directors,
and consultants. Shares may also be issued pursuant to share right awards that
entitle the recipients to receive those Shares upon the attainment of designated
performance goals or service requirements. The administrator of the Plan
determines the purchase price per Share and the vesting schedule, if any.
Generally, the participant will have full stockholder rights with respect to the
issued Shares, whether or not the Shares are vested.
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29. What if I hold an option that was granted pursuant to the Stock Issuance
Program and my employment terminates?
In the event the participant ceases to provide services while holding unvested
Shares, or if the performance objective is not attained, the unvested Shares
will be immediately surrendered to us for cancellation and the participant will
have no further stockholder rights with respect to those Shares. If the
performance goals or service requirements established for a share right award
are not attained, the outstanding share right award will automatically terminate
and no Shares will be issued with respect to the award. To the extent the
surrendered Shares were previously issued for cash or cash equivalent then we
will repay the cash consideration to the participant in exchange for the
surrender of Shares. The administrator of the Plan may waive the surrender and
cancellation of unvested Shares in connection with the cessation of services or
the failure to attain the performance goals or service requirements.
30. What happens to an option granted under the Stock Issuance Program in the
event of a corporate transaction?
In the event of a Change in Control, all of our outstanding repurchase rights
will terminate automatically and the Shares subject to the repurchase right will
immediately become fully vested, unless (a) the repurchase rights are assigned
to the successor corporation or otherwise continue in full force and effect, or
(b) such accelerated vesting is precluded by other limitations imposed by the
administrator at the time the repurchase right is issued.
The administrator of the Plan may at any time provide for the automatic
termination of our repurchase rights and the immediate vesting of the Shares
upon (a) a Change in Control or Hostile Take-Over, or (b) an involuntary
termination of the participant's service within a designated period of up to 18
months following the effective date of any Change in Control or Hostile
Take-Over in which those repurchase rights are assigned to the successor
corporation or continue in full force and effect.
AUTOMATIC OPTION GRANT PROGRAM
31. What is the Automatic Option Grant Program?
This program provides for the automatic grant of nonstatutory options to
non-employee directors. Upon an individual's appointment as a non-employee
director, he or she will automatically be granted a nonstatutory option to
purchase twenty-five thousand (25,000) Shares, provided such individual has not
previously been our employee. On the date of each annual stockholders meeting,
each individual who continues to serve as a non-employee director will
automatically be granted a nonstatutory option to purchase two thousand five
hundred (2,500) Shares. Options granted under this program have an exercise
price per Share equal to 100% of the fair market value of our common stock on
the date of grant.
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32. How will the Options vest under the Automatic Option Grant Program?
Each initial grant of 25,000 Shares will vest, and our repurchase right will
lapse, in four equal annual installments, with the first installment vesting
upon the optionee's completion of one year of service measured from the date of
grant, subject to the optionee continuing to serve on the board of directors.
Each subsequent annual option grant will vest in full upon the optionee's
completion of one year of service measured from the date of grant. Each option
granted under this program is immediately exercisable for all or a portion of
the option Shares.
33. What are repurchase rights?
Under the Automatic Option Grant Program options are exercisable for unvested
Shares. However, any unvested Shares purchased under the initial 25,000-Share
option grant will be subject to our right of repurchase at their purchase price
upon the optionee's cessation of board service.
34. What if I hold an option that was granted pursuant to the Automatic Option
Grant Program and my employment terminates?
In the event a non-employee director ceases to serve on our board (except by
reason of death or permanent disability), any outstanding option at the time of
cessation of service will be exercisable for a twelve (12)-month period
following the date of such cessation; provided, however, that in no event will
an option be exercisable after the expiration of the option term. In the event
the optionee ceases serve on our board by reason of death or permanent
disability, the option will vest in full and will remain exercisable for twelve
(12) months following the date of the optionee's cessation of service. In the
event of the optionee's death, the optionee's beneficiary may exercise the
option to the extent it was exercisable by the optionee at the time of death.
Upon the earlier of the expiration of the exercise period or the option term,
the option will terminate and cease to be outstanding for any vested Shares for
which the option has not been exercised.
35. What happens to an option granted under the Automatic Option Grant Program
in the event of a corporate transaction?
In the event of a Change in Control or a Hostile Take-Over, each outstanding
option will automatically accelerate so that each such option will become fully
vested and exercisable immediately prior to the effective date of the Change in
Control or Hostile Take-Over, and each repurchase right will lapse in full. Each
option accelerated in connection with a Change in Control will terminate upon
the Change in Control, unless assumed by the successor corporation or otherwise
continued in full force and effective pursuant to the terms of the Change in
Control. Each option accelerated in connection with a Hostile Take-Over will
remain exercisable until the expiration or sooner termination of the option
term.
Upon the occurrence of a Hostile Take-Over the optionee will have a thirty (30)
day period in which to surrender each of his or her outstanding options. In
return the optionee will be entitled to receive a cash distribution in an amount
equal to the excess of (a) option surrender value (which will be the greater of
the fair market value of the common stock on the surrender date or the highest
price per Share paid by the acquiring company in a tender offer) over (b) the
aggregate exercise price payable for such Shares. Such cash distribution will be
paid within five (5) days following the surrender of the option.
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DIRECTOR FEE OPTION GRANT PRGRAM
36. What is the Director Fee Option Grant Program?
The Director Fee Option Grant Program is a program that the board of directors
may implement as of the first calendar day of any year (such a program has not
been implemented by the board). Under this program non-employee directors may
elect to reduce all or a portion of the annual retainer fee they would otherwise
receive for serving on the board and instead receive nonstatutory options with a
discounted exercise price. To participate, prior to the beginning of a calendar
year, the non-employee director must provide us with an election to reduce his
or her annual retainer fee for the following calendar year. Upon receipt of such
an election, we will grant the eligible non-employee director an option on the
first trading day in January in the calendar year for which the fee would
otherwise be payable. Options granted under this program:
o have an exercise price of 33-1/3% of the fair market value per
Share on the date of grant,
o include the number of Shares determined according to a formula
based on the amount of the elected salary reduction and the
fair market value of our common stock on the date of grant,
and
o become exercisable in twelve (12) equal monthly installments
upon the optionee's completion of each calendar month of
service as a member of the board of directors during the
calendar year in which the option is granted.
37. What if I hold an option that was granted pursuant to the Director Fee
Option Grant Program and my employment terminates?
In the event the optionee ceases to serve on our board for any reason other than
death or permanent disability, the option will remain exercisable for all of the
Shares for which the option is exercisable at the time of such cessation of
service until three year's following the optionee's cessation of service on our
board, or, if earlier, the expiration of the option term. Upon the optionee's
cessation of service on our board, to the extent the option is not otherwise at
that time exercisable the option will terminate and cease to be outstanding.
In the event the optionee ceases to serve on our board by reason of death or
permanent disability, the option will immediately vest in full and will remain
exercisable until three years following the date of the optionee's cessation of
service or, if earlier, the expiration of the option term. If the optionee dies
after cessation of board service but while holding an option, then the
optionee's beneficiary may exercise the option to the extent it was exercisable
at the time of the optionee's cessation of service until three years following
the date of the optionee's cessation of board service or, if earlier, the
expiration of the option term.
38. What happens to an option granted under the Director Fee Option Grant
Program in the event of a corporate transaction?
In the event of a Change in Control or a Hostile Take-Over, each outstanding
option will automatically accelerate so that each such option will become fully
vested and exercisable immediately prior to the effective date of the Change in
Control or Hostile Take-Over, and each repurchase right will lapse in full. Each
option accelerated in connection with a Change in Control will terminate upon
the Change in Control, unless assumed by the successor corporation or otherwise
continued in full force and effective pursuant to the terms of the Change in
Control. Each option accelerated in connection with a Hostile Take-Over will
remain exercisable until the expiration or sooner termination of the option
term.
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Upon the occurrence of a Hostile Take-Over the optionee will have a thirty
(30)-day period in which to surrender each of his or her outstanding options. In
return the optionee will be entitled to receive a cash distribution in an amount
equal to the excess of (a) option surrender value (which will be the greater of
the fair market value of the common stock on the surrender date or the highest
price per Share paid by the acquiring company in a tender offer) over (b) the
aggregate exercise price payable for such Shares. The cash distribution will be
paid within five (5) days following the surrender of the option.
TAX AND ERISA INFORMATION
The following discussion is intended only as a summary of the general U.S.
income tax laws that apply to awards granted under the Plan and the sale of any
Shares acquired through the awards. However, the federal, state and local tax
consequences to any particular taxpayer will depend upon his or her individual
circumstances. Also, if you are not a U.S. taxpayer, the taxing jurisdiction or
jurisdictions which apply to you will determine the tax effect of your
participation in the Plan. Accordingly, we strongly advise you to seek the
advice of a qualified tax adviser regarding your participation in the Plan.
The following discussion assumes that the per Share exercise price of an option
is less than the fair market value of a Share on the date of exercise.
39. What are the tax effects of NQSOs?
If you are granted a NQSO, you will not be required to include an amount in
income at the time of grant. However, when you exercise the NQSO, you will have
ordinary income to the extent the value of the Shares on the date of exercise
(and any cash) you receive is greater than the exercise price you pay. If you
exercise a NQSO through payment of the exercise price in Shares, or in a
combination of Shares and cash, you will have ordinary income upon exercise to
the extent that the value (on the date of exercise) of the Shares you purchase
is greater than the value of the Shares you surrender, less the amount of any
cash paid upon exercise.
Any gain or loss you recognize upon the sale or exchange of Shares that you
acquire generally will be treated as capital gain or loss and will be long-term
or short-term depending on whether you held the Shares for more than one year.
The holding period for the Shares will begin just after the time you recognize
income. The amount of such gain or loss will be the difference between:
o the amount you realize upon the sale or exchange of the
Shares, and
o the value of the Shares at the time you recognize income.
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40. What are the tax effects of ISOs?
ISOs are intended to qualify for the special treatment available under Section
422 of the Internal Revenue Code (the "Code"). You generally are not required to
include any amount in income as a result of the grant or exercise of ISOs.
Any gain generally will be taxed at long-term capital gain rates if you sell
Shares that you purchased through the exercise of an ISO:
o more than two years after the date of grant, and
o more than one year after the date of exercise.
However, if you sell Shares purchased through the exercise of an ISO within the
two-year or one-year holding periods described above, generally any gain up to
the difference between the value of the Shares on the date of exercise and the
exercise price will be treated as ordinary income. Any additional gain generally
will be taxable at long-term or short-term capital gain rates, depending on
whether the holding period for the Shares is more than one year.
If you sell Shares that you purchased through the exercise of an ISO within
either of the above holding periods in a transaction in which you would not
recognize a loss (if sustained) (for example, a gift), the excess of the value
of the Shares on the exercise date over the exercise price will be treated as
ordinary income.
Any loss that you recognize upon disposition of Shares purchased through the
exercise of an ISO, whether before or after expiration of the two-year and
one-year holding periods, will be treated as a capital loss. Such loss will be
long-term or short-term depending on whether the holding period for the Shares
is more than one year.
If you pay the exercise price of an ISO wholly or partly in Shares purchased
through the exercise of an ISO, the payment will be treated as a disposition of
the Shares if the payment is made within the two-year or one-year holding
periods described above. This type of a disposition generally means that you
will have ordinary income with respect to the Shares disposed of, but you
generally will not have additional capital gain or loss. To the extent that you
pay the exercise price of an ISO with Shares other than those you purchased
through an ISO, or with Shares you purchased through an ISO that have met the
holding periods described above, such payment should not be treated as a taxable
disposition of the Shares used as payment. If you use Shares in full payment of
the exercise price of an ISO, in general that number of Shares you receive which
equals the number of Shares you use as payment will have the same basis and
holding period as the payment Shares, increased by any amounts treated as income
on the exchange. Additional Shares that you receive will have a zero basis and a
holding period that begins on the date of exercise.
You should be aware that the Internal Revenue Service has issued proposed
regulations that would require Social Security (FICA) taxes to be withheld on
the spread of incentive stock option Shares on the date of exercise. Currently,
these proposed regulations are slated to commence with exercises occurring on or
after January 1, 2003.
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41. What about ISOs and the alternative minimum tax?
If you are subject to the alternative minimum tax, the rules that apply to ISOs
described above do not apply. Instead, alternative minimum taxable income
generally is computed under the rules that apply to NQSOs. If you hold ISOs and
are subject to the alternative minimum tax, you should be sure to consult your
tax adviser before exercising any ISOs.
42. What are the tax effects of restricted stock?
Generally, you will not recognize income in connection with the grant of
restricted stock, unless you file an election under Section 83(b) of the Code
within thirty (30) days of the date of exercise of the restricted stock.
Otherwise, as our repurchase right lapses, you will recognize ordinary income
when (and if) the Shares vest and no longer can be forfeited. If you make a
Section 83(b) election, you will recognize ordinary income at the time you
exercise a stock purchase right. However, if you later forfeit the Shares, no
tax deduction is allowed with respect to the forfeiture. In all cases, the
amount of ordinary income that you recognize will equal:
o the fair market value of the Shares at the time you recognize
income, less
o the amount (if any) you pay for the Shares.
43. What are the tax effects of a stock appreciation right (SAR)?
You will not recognize any income in connection with the grant of a stock
appreciation right. When the stock appreciation right is exercised, you
generally will be required to include as taxable ordinary income in the year of
exercise an amount equal to the sum of the amount of cash received and the fair
market value of any Shares received on the exercise. If you also are an
employee, any income recognized on exercise of a stock appreciation right will
constitute wages for which withholding will be required. The Company will be
entitled to a tax deduction in the same amount. If you receive Shares upon the
exercise of a stock appreciation right, any gain or loss on the subsequent sale
of such Shares will be treated in the same manner as discussed above under
"Nonstatutory Options."
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44. What are the tax effects for us?
We generally will receive a deduction for federal income tax purposes in
connection with an award equal to the ordinary income the participant realizes.
We will be entitled to such deduction at the time that the participant
recognizes the ordinary income.
45. Is the Plan subject to ERISA?
The Plan is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information it files with
the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 (the
"1934 Act").
1. Our latest annual report filed pursuant to Section 13(a) or 15(d) of
the 1934 Act or the latest prospectus filed pursuant to Rule 424(b)
under the Securities Act of 1933 (the "1933 Act") which contains,
either directly or by incorporation by reference, audited financial
statements for our latest fiscal year for which such statements have
been filed.
2. All other reports filed pursuant to Section 13(a) or 15(d) of the 1934
Act since the end of the fiscal year covered by the annual report or
prospectus referred to in paragraph (1) above.
3. The description of our common stock contained in our Registration
Statement on Form 8-A, as it may have been amended from time to time.
ADDITIONAL INFORMATION ABOUT THE PLAN AND PROSPECTUS
46. Can we change or terminate the Plan?
Our board of directors generally may amend or terminate the Plan at any time and
for any reason. However, certain material amendments must be approved by our
stockholders. Also, certain amendments may require your consent.
47. What is the duration of the Plan?
Unless terminated earlier by our board of directors, the Plan will expire by its
own terms upon the earliest of (a) September 13, 2009, (b) the date on which all
Shares available for issuance under the Plan have been issued as fully vested
Shares, or (c) the termination of all outstanding options in connection with a
change in control.
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48. Does the Plan limit a participant's ability to resell Shares acquired under
the Plan?
Except as described below, the Plan generally places no limitations upon a
participant's ability to sell Shares acquired under the Plan. We will not
receive any part of the proceeds of any such sales.
Our insider trading policy applies to all of our employees, directors, and
consultants and employees, directors and consultants of our affiliates. The
insider trading policy prohibits a participant from buying or selling Shares
when he or she has "inside information." Inside information is material
information about Predictive Systems, Inc. that is not yet public but that a
reasonable investor would consider important in deciding whether to buy or sell
Shares.
A participant who is an "affiliate" of ours (within the meaning of Rule 405
under the 1933 Act), may not resell under this prospectus any Shares he or she
purchases or receives under the Plan. (Our executive officers and members of our
board of directors are considered to be "affiliates" for this purpose.) Any such
resales must be either described in a separate prospectus, or, in certain
instances, registered in a separate registration statement, or sold in
accordance with the requirements of Rule 144 under the 1933 Act or another
exemption available under the 1933 Act.
Also, Section 16(b) of the 1934 Act permits us to recover any profit realized by
certain officers, directors, and principal stockholders of ours through the sale
and purchase, or purchase and sale (as defined), of Shares within any period of
less than six months.
49. Are awards transferable?
In general, participants cannot sell, transfer, pledge, assign or otherwise
alienate or hypothecate Awards granted under the Plan, other than by will or the
applicable laws of descent and distribution. All rights with respect to an award
granted to you will be available during your lifetime only to you.
50. What if I need more information?
We will provide you free of charge with a copy of any or all of the documents
incorporated by reference in this prospectus and in the Registration Statement
on Form S-8 filed with the SEC relating to the Plan (except for any exhibits to
these documents), including our annual report, and copies of other reports,
proxy statements and communications distributed to our stockholders. You should
direct your requests to:
Gary Papilsky
General Counsel
Predictive Systems, Inc.
19 West 44th Street, 9th Floor
New York, NY 10036
(212) 659-3400
gary.papilsky@predictive.com
Copies of this prospectus, any supplements to the prospectus, and further
information concerning the Plan and its administration also are available free
of charge by calling or writing Gary Papilsky (gary.papilsky@predictive.com).
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51. What else should I know about this prospectus?
We may update this prospectus in the future by furnishing to participants an
appendix, memorandum, notice or replacement page containing updated information.
We generally will not send you a new prospectus, except upon request.
Accordingly, you should keep this prospectus for future reference.
You should rely only on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have not authorized anyone to
provide you with different or additional information. We are not making an offer
to sell any stock in any state or country where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of this
document.