UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
500 Glenpointe Centre West
Teaneck, New Jersey 07666
April 22,2004
To Our Stockholders:
You are most cordially invited to attend the 2004 Annual Meeting of
Stockholders of Cognizant Technology Solutions Corporation at 10:00 a.m. local
time, on Wednesday, May 26, 2004, at our headquarters, 500 Glenpointe Centre
West, Teaneck, New Jersey 07666.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented at the meeting.
It is important that your shares be represented at this meeting to ensure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your shares represented by signing, dating and returning your
proxy in the enclosed envelope, which requires no postage if mailed in the
United States, as soon as possible. Your shares will be voted in accordance with
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
/s/ Lakshmi Narayanan
Lakshmi Narayanan
President and Chief Executive
Officer
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
500 Glenpointe Centre West
Teaneck, New Jersey 07666
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 26, 2004
The Annual Meeting of Stockholders (the "Meeting") of COGNIZANT TECHNOLOGY
SOLUTIONS CORPORATION, a Delaware corporation, will be held at our headquarters,
500 Glenpointe Centre West, Teaneck, New Jersey on Wednesday, May 26, 2004, at
10:00 a.m. local time, for the following purposes:
(1) To elect two (2) Class I Directors to serve until the 2007 Annual Meeting
of Stockholders, or until their respective successors shall have been duly
elected and qualified;
(2) To amend our Restated Certificate of Incorporation to (i) increase the
number of authorized shares of our Class A Common Stock from 100,000,000
shares to 325,000,000 shares and (ii) eliminate the authorization of our
Class B Common Stock;
(3) To amend our 1999 Incentive Compensation Plan, as amended (the "Incentive
Plan"), to (i) increase the maximum number of shares of Class A Common
Stock reserved for issuance from 18,000,000 to 19,000,000 shares and to
reserve an additional 1,000,000 shares of Class A Common Stock for
issuance upon the exercise of stock options or for the issuance of other
awards granted under the Incentive Plan, (ii) provide that repricing of
stock options may not occur without stockholder approval, (iii) provide
for minimum restriction periods for stock based awards, other than stock
options, (iv) provide that stock options may not be granted below fair
market value and (v) provide that all material amendments to the Incentive
Plan shall be subject to stockholder approval;
(4) To adopt our 2004 Employee Stock Purchase Plan;
(5) To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors for the year ending December 31, 2004; and
(6) To transact such other business as may properly come before the Meeting or
any adjournment or adjournments thereof.
Holders of record of our Class A Common Stock as of the close of business
on April 13, 2004 are entitled to notice of and to vote at the Meeting, or any
adjournment or adjournments thereof. A complete list of such stockholders will
be open to the examination of any stockholder at our principal executive offices
at 500 Glenpointe Centre West, Teaneck, New Jersey 07666 for a period of ten
days prior to the Meeting and on the day of the Meeting. The Meeting may be
adjourned from time to time without notice other than by announcement at the
Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER
OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE US THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY BE
REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS VOTED.
IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN
DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE SIGNED AND RETURNED
TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
/s/ Gordon Coburn
Teaneck, New Jersey Gordon Coburn
Secretary
April 22, 2004
Our 2003 Annual Report accompanies the Proxy Statement.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
500 Glenpointe Centre West
Teaneck, New Jersey 07666
---------------------------------------
PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Cognizant Technology Solutions Corporation of proxies
to be voted at our Annual Meeting of Stockholders to be held on Wednesday, May
26, 2004 (the "Meeting"), at our headquarters, 500 Glenpointe Centre West,
Teaneck, New Jersey at 10:00 a.m. local time, and at any adjournment or
adjournments thereof. Holders of record of shares of Class A Common Stock, $0.01
par value ("Class A Common Stock"), as of the close of business on April 13,
2004, will be entitled to notice of and to vote at the Meeting and any
adjournment or adjournments thereof. As of that date, there were 64,695,174
shares of Class A Common Stock issued and outstanding and entitled to vote. Each
share of Class A Common Stock is entitled to one vote on any matter presented to
stockholders at the Meeting. Pursuant to our Restated Certificate of
Incorporation all the outstanding shares of Class B Common Stock, $0.01 par
value ("Class B Common Stock"), automatically converted into shares of Class A
Common Stock on February 20, 2003. Accordingly, as of the close of business on
April 13, 2004, there were no holders of record of our Class B Common Stock.
In this Proxy Statement, "Cognizant", "Company," "we," "us," and "our"
refer to Cognizant Technology Solutions Corporation.
If proxies in the accompanying form are properly executed and returned,
the shares of Class A Common Stock represented thereby will be voted in the
manner specified therein. If not otherwise specified, the shares of Class A
Common Stock represented by the proxies will be voted (i) FOR the election of
the two (2) Class I Director nominees; (ii) FOR the proposal to amend our
Restated Certificate of Incorporation to (A) increase the number of authorized
shares of our Class A Common Stock from 100,000,000 shares to 325,000,000 shares
and (B) eliminate the authorization of our Class B Common Stock; (iii) FOR the
proposal to amend our 1999 Incentive Compensation Plan, as amended (the
"Incentive Plan"), to (A) increase the maximum number of shares of Class A
Common Stock reserved for issuance from 18,000,000 to 19,000,000 shares and to
reserve an additional 1,000,000 shares of Class A Common Stock for issuance upon
the exercise of stock options or for the issuance of other awards granted under
the Incentive Plan, (B) provide that repricing of stock options may not occur
without stockholder approval, (C) provide for minimum restriction periods for
stock based awards, other than stock options, (D) provide that stock options may
not be granted below fair market and (E) provide that all material amendments to
the Incentive Plan shall be subject to stockholder approval; (iv) FOR the
proposal to adopt our 2004 Employee Stock Purchase Plan; (v) FOR the
ratification of the appointment of PricewaterhouseCoopers LLP as independent
auditors for the year ending December 31, 2004; and (vi) in the discretion of
the persons named in the enclosed form of proxy, on any other proposals which
may properly come before the Meeting or any adjournment or adjournments thereof.
Any stockholder who has submitted a proxy may revoke it at any time before it is
voted, by written notice addressed to and received by our Secretary, by
submitting a duly executed proxy bearing a later date or by electing to vote in
person at the Meeting. The mere presence at the Meeting of the person appointing
a proxy does not, however, revoke the appointment.
The presence, in person or by proxy, of holders of the shares of Class A
Common Stock having, in the aggregate, a majority of the votes entitled to be
cast at the Meeting shall constitute a quorum. The affirmative vote by the
holders of a plurality of the shares of Class A Common Stock represented at the
Meeting, is required for the election of Directors, provided a quorum is present
in person or by proxy. The affirmative vote of a majority of the shares of
outstanding Class A Common Stock is required to amend our Restated Certificate
of Incorporation to increase our authorized shares and eliminate the
authorization of our Class B Common Stock. All actions proposed herein other
than the election of Directors and the amendment to our Restated Certificate of
Incorporation, may be taken upon the affirmative vote of stockholders possessing
a majority of the shares of Class A Common Stock represented at the Meeting
provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of
the number of shares represented at the Meeting for purposes of determining
whether a quorum is present but are not counted for purposes of determining
whether a proposal has been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card and our Annual
Report to Stockholders for the year ended December 31, 2003, including financial
statements (the "Annual Report"), is being mailed to all stockholders of record
as of April 13, 2004. The mailing date will be on or about April 28, 2004. In
addition, we have provided brokers, dealers, banks, voting trustees and their
nominees, at our expense, with additional copies of the Annual Report so that
such record holders could supply such materials to beneficial owners as of April
13, 2004.
ELECTION OF DIRECTORS
At this Meeting, two Class I Directors are to be elected to hold office
until the Annual Meeting of Stockholders to be held in 2007, or until their
successors shall have been elected and qualified.
We currently have six Directors. As set forth in our Restated Certificate
of Incorporation, the terms of office of the members of the Board of Directors
are divided into three classes: Class I, whose term will expire at the 2004
Annual Meeting of Stockholders; Class II, whose term will expire at the 2005
Annual Meeting of Stockholders; and Class III, whose term will expire at the
2006 Annual Meeting of Stockholders. Effective December 19, 2003, in connection
with his retirement, Wijeyaraj (Kumar) Mahadeva resigned as a Class I member of
our Board of Directors. The remaining members of the Board elected Lakshmi
Narayanan as a Class I Director, filling the vacancy on the Board. Therefore,
the current Class I Directors are Lakshmi Narayanan and John E. Klein, the
current Class II Directors are Robert W. Howe and Robert E. Weissman and the
current Class III Directors are Venetia Kontogouris and Thomas M. Wendel. At
each Annual Meeting of Stockholders, the successors to Directors whose terms
then expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. If the number of Directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of Directors in each class as nearly equal as possible,
and any additional Director of any class elected to fill a newly created
directorship resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of Directors remove or shorten the term of any
incumbent Director. This classification of our Board of Directors may have the
effect of delaying or preventing changes in control or management of Cognizant.
All Directors hold office until the expiration of their respective term
and until their successors are duly elected and qualified. There are no family
relationships among any of our executive officers, Directors and key employees.
It is the intention of the persons named in the enclosed form of proxy to
vote the shares of Class A Common Stock represented thereby, unless otherwise
specified in the proxy, for the election as Directors of the persons whose names
and biographies appear below. Except as noted below, all of the persons whose
names and biographies appear below are at present our Directors. In the event
any of the nominees should become unavailable or unable to serve as a Director,
it is intended that votes will be cast for a substitute nominee designated by
the Board of Directors. The Board of Directors has no reason to believe that the
nominees named will be unable to serve if elected. Each of the nominees has
consented to being named in this Proxy Statement and to serve if elected.
NOMINEES FOR CLASS I DIRECTORS (TERMS TO EXPIRE AT THE 2007 ANNUAL
MEETING)
The current members of the Board of Directors who are also nominees for
election to the Board as Class I Directors are as follows:
Served as a Positions with
Name Age Director Since Cognizant
---- --- -------------- --------------
Lakshmi Narayanan 51 2003 President, Chief Executive Officer
and Director
John E. Klein 62 1998 Chairman of the Board and Director
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The principal occupations and business experience, for at least the past
five years, of each nominee are as follows:
LAKSHMI NARAYANAN was elected Chief Executive Officer in December 2003.
Mr. Narayanan continues to serve as our President, a position he has held since
his election in March 1998. Mr. Narayanan joined our Indian subsidiary as Chief
Technology Officer in 1994 and was elected President of such subsidiary on
January 1, 1996. Prior to joining us, from 1975 to 1994, Mr. Narayanan was the
regional head of Tata Consultancy Services, a large consulting and software
services company located in India. Mr. Narayanan holds a Bachelor of Science
degree, a Master of Science degree and a Master of Business Administration
degree from the Indian Institute of Science.
JOHN E. KLEIN was elected to the Board of Directors in March 1998 and
elected to serve as our Chairman of the Board in December 2003. Mr. Klein
currently serves as President and Chief Executive Officer of Polarex, Inc., an
organization providing executive support to software and services companies,
where he has been employed since 1999. Prior to that, Mr. Klein held various
positions at various companies, including MDIS Group PLC a UK listed software
and services company. In addition, Mr. Klein also served as Chairman of Glovia
International and PRO IV Limited, two enterprise software and services
companies. Prior to 1995, Mr. Klein was a Vice President for both Digital
Equipment and IBM. Since June 2000, Mr. Klein has also served as a director of
privately-held Questra Corporation, an enterprise software company. Mr. Klein
holds a Bachelor of Science degree from the U.S. Merchant Marine Academy and a
Master of Business Administration degree from New York University.
OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR CLASS I DIRECTOR.
Continuing Members of the Board of Directors
--------------------------------------------
CLASS II DIRECTORS (TERMS TO EXPIRE AT THE 2005 ANNUAL MEETING)
The current members of the Board of Directors who are Class II Directors
are as follows:
Served as a Positions with
Name Age Director Since Cognizant
---- --- -------------- --------------
Robert W. Howe 57 1999 Director
Robert E. Weissman 63 2001 Director
The principal occupations and business experience, for at least the past
five years, of each Class II Director are as follows:
ROBERT W. HOWE was elected to the Board of Directors in April 1999. Mr.
Howe currently serves as Chairman of the Board of Directors of ADS Financial
Services Solutions, a position he has held since January 1994. From February
1994 to December 2003, Mr. Howe served as Chief Executive Officer of ADS
Financial Services. From March 1980 to January 1994, Mr. Howe served as
President of ADS Financial Services Solutions. Mr. Howe holds a Bachelor of Arts
degree from Boston College.
ROBERT E. WEISSMAN was elected to the Board of Directors in May 2001. Mr.
Weissman retired in January 2001 after nearly thirty years serving as Chief
Executive Officer for several public corporations. Most recently, Mr. Weissman
was Chairman of IMS Health, a provider of information to the pharmaceutical and
healthcare industries. He served as both Chairman and Chief Executive Officer of
IMS Health until March of 1999. Prior to his position with IMS Health, Mr.
Weissman was Chairman and Chief Executive Officer of Cognizant Corporation and
prior to that, was Chairman and Chief Executive Officer of The Dun & Bradstreet
Corporation. Prior to his election as Chairman and Chief Executive Officer of
Dun & Bradstreet, he held the position of President and Chief Operating Officer
of that company since 1985. Mr. Weissman joined Dun & Bradstreet in May 1979,
when D&B acquired National CSS, a computer time-sharing company, of which he was
President and Chief Executive Officer. Since his retirement, Mr. Weissman has
been active as a Principal in Shelburne Partners, a private investment company
that works with emerging companies in the United States and Europe. Mr. Weissman
is a director of State Street Corporation and Pitney Bowes, Inc. and a member of
the Advisory Board for Broadview Capital, a venture capital firm. Mr. Weissman
graduated from Babson College in 1964. He serves on Babson's Board of Trustees,
and received an honorary Doctor of Laws degree from Babson in 1995.
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CLASS III DIRECTORS (TERMS TO EXPIRE AT THE 2006 ANNUAL MEETING)
The current members of the Board of Directors who are Class III Directors
are as follows:
Served as a Positions with
Name Age Director Since Cognizant
---- --- -------------- --------------
Venetia Kontogouris 53 1997 Director
Thomas M. Wendel 67 2001 Director
The principal occupations and business experience, for at least the past
five years, of each Class III Director are as follows:
VENETIA KONTOGOURIS was elected to our Board of Directors in December 1997.
Ms. Kontogouris is currently Managing Director of Trident Capital, a venture
capital firm. Prior to joining Trident Capital in March 1999, Ms. Kontogouris
was President of Enterprise Associates, Inc., a subsidiary of IMS Health from
1989 to 1999. Prior to joining Enterprise Associates, Inc., Ms. Kontogouris was
Vice President of New Product Development for The Dun & Bradstreet Corporation
from 1985 to 1989. Before working at The Dun & Bradstreet Corporation, Ms.
Kontogouris held various sales and marketing positions at IBM and AT&T. Ms.
Kontogouris serves on the board of directors of several private companies. Ms.
Kontogouris holds a Bachelor of Arts degree from Northeastern University and a
Master of Business Administration degree and a Master in International Relations
degree from the University of Chicago.
THOMAS M. WENDEL was elected to the Board of Directors in June 2001. In
July 2000, Mr. Wendel retired as the Chairman of the Board, President and Chief
Executive Officer of Bridge Information Systems, a global financial information,
transaction services, and network services company. Prior to joining Bridge in
1995, Mr. Wendel was founding President and Chief Executive Officer of Liberty
Brokerage Inc., a major US government securities brokerage firm. Mr. Wendel
previously served in various positions at Paine Webber, Inc., including Chief
Financial Officer, Executive Vice President and Managing Director. Prior to
joining Paine Webber in 1982, Mr. Wendel was Senior Vice President and Chief
Financial Officer of Pan American World Airways. Mr. Wendel holds a Bachelor of
Science degree in Mathematics from Ursinus College, a Master of Arts in
Economics from San Jose State College, and a Master in Business Administration
from the University of Santa Clara.
CORPORATE GOVERNANCE
GENERAL
We believe that good corporate governance is important to ensure that we
are managed for the long-term benefit of our stockholders. During the past year,
we have continued to review our corporate governance policies and practices and
to compare them to those suggested by various authorities in corporate
governance and the practices of other public companies. We have also continued
to review the provisions of the Sarbanes-Oxley Act of 2002, the new and proposed
rules of the Securities and Exchange Commission and the new listing standards of
the NASDAQ National Market.
Based on this review, in March 2004, our Board of Directors adopted
Corporate Governance Guidelines, a Code of Business Conduct and Ethics and a
charter for our Nominating and Corporate Governance Committee. In March 2004, we
also amended and restated charters for our Audit Committee and Compensation
Committee. You can access our current committee charters and Code of Business
Conduct and Ethics in the "About Us" section of our Web site located at
www.cognizant.com or by writing to our Secretary at our offices at 500
Glenpointe Centre West, Teaneck, New Jersey 07666.
DETERMINATION OF INDEPENDENCE
Under NASDAQ rules that become applicable to us on the date of the annual
meeting, a Director will only qualify as an "independent director" if, in the
opinion of our Board of Directors, that person does not have a relationship
which would interfere with the exercise of independent judgment in carrying out
the responsibilities of a
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Director. Our Board of Directors has determined that none of Robert Howe, Thomas
Wendel, John Klein, Venetia Kontogouris or Robert Weissman has a relationship
which would interfere with the exercise of independent judgment in carrying out
the responsibilities of a Director and that each of these Directors is an
"independent director" as defined under Rule 4200(a)(15) of the NASDAQ Stock
Market, Inc. Marketplace Rules.
DIRECTOR CANDIDATES
The process to be followed by the Nominating and Corporate Governance
Committee to identify and evaluate Director candidates shall include requests to
Board members and others for recommendations, meetings from time to time to
evaluate biographical information and background material relating to potential
candidates and interviews of selected candidates by members of the Committee and
the Board.
In considering whether to recommend any particular candidate for inclusion
in the Board's slate of recommended Director nominees, the Nominating and
Corporate Governance Committee will apply the criteria set forth in our
Corporate Governance Guidelines. These criteria include the candidate's
integrity, business acumen, knowledge of our business and industry, experience,
diligence, conflicts of interest and the ability to act in the interests of all
stockholders. The Committee does not assign specific weights to particular
criteria and no particular criterion is a prerequisite for each prospective
nominee. We believe that the backgrounds and qualifications of our Directors,
considered as a group, should provide a composite mix of experience, knowledge
and abilities that will allow the Board to fulfill its responsibilities.
Stockholders may recommend individuals to the Nominating and Corporate
Governance Committee for consideration as potential Director candidates by
submitting their names, together with appropriate biographical information and
background materials and a statement as to whether the stockholder or group of
stockholders making the recommendation has beneficially owned more than 5% of
Class A Common Stock for at least a year as of the date such recommendation is
made, to Nominating and Corporate Governance Committee, c/o Corporate Secretary,
Cognizant Technology Solutions Corporation, 500 Glenpointe Centre West, Teaneck,
New Jersey 07666. Assuming that appropriate biographical and background material
has been provided on a timely basis, the Committee will evaluate
stockholder-recommended candidates by following substantially the same process,
and applying substantially the same criteria, as it follows for candidates
submitted by others.
COMMUNICATIONS FROM STOCKHOLDERS
The Board will give appropriate attention to written communications that
are submitted by stockholders, and will respond if and as appropriate. Our
Secretary and Chairman of the Board, with the assistance of our General Counsel,
are primarily responsible for monitoring communications from stockholders and
for providing copies or summaries to the other directors as they consider
appropriate.
Under procedures approved by a majority of the independent Directors,
communications are forwarded to all Directors if they relate to important
substantive matters and include suggestions or comments that our Secretary and
Chairman of the Board consider to be important for the Directors to know. In
general, communications relating to corporate governance and long-term corporate
strategy are more likely to be forwarded than communications relating to
ordinary business affairs, personal grievances and matters as to which we tend
to receive repetitive or duplicative communications.
Stockholders who wish to send communications on any topic to the Board
should address such communications to the Board of Directors by emailing the
Board of Directors at the following email address:
corporategovernance@cognizant.com; or in writing: c/o Corporate Secretary,
Cognizant Technology Solutions Corporation, 500 Glenpointe Centre West Teaneck,
New Jersey 07666.
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a written Code of Business Conduct and Ethics that applies
to our Directors, officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. We have posted the Code of
Business Conduct and Ethics on our Web site, which is located at
www.cognizant.com. In addition, we intend to post on our Web site all
disclosures that are required by law or NASDAQ stock market listing standards
concerning any amendments to, or waivers from, any provision of our Code of
Business Conduct and Ethics.
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ATTENDANCE BY MEMBERS OF THE BOARD OF DIRECTORS AT MEETINGS
There were 11 meetings of the Board of Directors during 2003. Each
Director attended at least 75% of the aggregate of all meetings of the Board of
Directors held during the period in which he or she served as a Director and the
total number of meetings held by the committee on which he or she served during
the period, if applicable.
Our Corporate Governance Guidelines adopted in March 2004 provide that
Directors are expected to attend the annual meeting of stockholders. None of our
Directors attended the 2003 Annual Meeting of Stockholders.
COMMITTEES OF THE BOARD
The Board of Directors has established three standing committees - Audit
Committee, Compensation Committee and Nominating and Corporate Governance
Committee - each of which operates under a charter that has been approved by our
Board of Directors. Current copies of each committee's charter are posted on the
"About Us" section of our Web site www.cognizant.com. In addition, a copy of the
Audit Committee charter, as in effect on the date of this proxy statement, is
attached hereto as Appendix A.
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The Board of Directors has determined that all of the members of each of
the Board's three standing committees are independent as defined under the new
rules of the NASDAQ Stock Market that become applicable to us on the date of the
2004 Annual Meeting, including, in the case of all members of the Audit
Committee, the independence requirements contemplated by Rule 10A-3 under the
Securities Exchange Act of 1934. In addition, all of the members of the Audit
Committee are independent as defined by the rules of the NASDAQ Stock Market
that apply to us until the date of the 2004 Annual Meeting.
Audit Committee
---------------
Our Audit Committee's responsibilities include:
o appointing, approving the compensation of, and assessing the
independence of our independent auditor;
o overseeing the work of our independent auditor, including
through the receipt and consideration of certain reports from
independent auditors;
o reviewing and discussing with management and the independent
auditors our annual and quarterly financial statements and
related disclosures;
o monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business
conduct and ethics;
o discussing and assessing our risk management policies;
o establishing policies regarding hiring employees from the
independent auditor and procedures for the receipt and
retention of accounting related complaints and concerns;
o meeting independently with our independent auditors and
management; and
o preparing the audit committee report required by SEC rules
(which is included on page 10 of this proxy statement).
Pursuant to the Audit Committee Charter, the Audit Committee has reviewed
and discussed the audited financial statements for the year ended December 31,
2003 with our management and independent auditors. Additionally, the Audit
Committee has discussed with the independent auditors the matters required by
Statement of Auditing Standards ("SAS") 61, has received the written disclosures
and the letter from the independent auditors required by the Independence
Standards Board Standard No. 1 and has discussed with the independent auditors
the independent auditors' independence. Based in part on the foregoing, the
Audit Committee recommended to the Board of Directors that the financial
statements as of and for the year ended December 31, 2003 audited by
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PricewaterhouseCoopers LLP be included in our Annual Report on Securities and
Exchange Commission (the "SEC") Form 10-K.
The Board of Directors has determined that Thomas M. Wendel is an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-K.
The members of the Audit Committee are Messrs. Howe, Klein and Wendel.
During 2003, Messrs. Howe, Klein and Wendel were the only members of the Audit
Committee. The Audit Committee was established in 1998 and met seven times
during 2003. It is anticipated that Mr. Klein, if elected to the Board of
Directors by our stockholders, will continue to serve on the Audit Committee.
Compensation Committee
----------------------
Our Compensation Committee, which is comprised of Messrs. Howe, Klein and
Weissman, is responsible for the administration of all salary and incentive
compensation plans for our officers and key employees, including bonuses. In
addition, our Compensation Committee has the following principal duties:
o annually reviewing and approving corporate goals and
objectives relevant to CEO compensation;
o determining the CEO's compensation;
o reviewing and approving, or making recommendations to the
Board with respect to, the compensation of our other executive
officers;
o overseeing an evaluation of our senior executives;
o overseeing and administering our cash and equity incentive
plans; and
o reviewing and making recommendations to the Board with respect
to Director compensation.
The Compensation Committee also administers our stock option plans,
including the Incentive Plan, and establishes the terms and conditions of all
stock options granted thereunder. The Compensation Committee will also
administer our 2004 Employee Stock Purchase Plan if approved by the
stockholders. During 2003, the Compensation Committee was comprised of Messrs.
Howe and Klein. In March 2004, Mr. Weissman was appointed to serve on the
Compensation Committee. The Compensation Committee met one time during 2003.
Nominating and Corporate Governance Committee
---------------------------------------------
In March 2004, our Board of Directors established a Nominating and
Corporate Governance Committee. Its responsibilities include:
o identifying individuals qualified to become Board members;
o recommending to the Board the persons to be nominated for
election as directors and to each of the Board's committees;
o reviewing and making recommendations to the Board with respect
to management succession planning;
o developing and recommending to the Board corporate governance
principles; and
o overseeing an annual evaluation of the Board.
The members of the Nominating and Corporate Governance Committee are
Messrs. Howe, Klein, Wendel and Weissman and Ms. Kontogouris.
- 7 -
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee has furnished the following report:
To the Board of Directors of Cognizant Technology Solutions Corporation:
The Audit Committee of our Board of Directors is currently composed of
three members and acts under a written charter first adopted and approved on May
17, 2000. The members of the Audit Committee are independent directors, as
defined in its charter and the rules of the NASDAQ Stock Market. The Audit
Committee held seven meetings during 2003.
Management is responsible for the preparation of the Company's financial
statements and for maintaining an adequate system of disclosure controls and
procedures and internal control over financial reporting for that purpose. Our
independent auditors are responsible for conducting an independent audit of our
annual financial statements in accordance with generally accepted accounting
principles and issuing a report on the results of their audit. The Audit
Committee is responsible for providing independent, objective oversight of these
processes.
The Audit Committee has reviewed the Company's audited financial
statements for the fiscal year ended December 31, 2003 and has discussed these
financial statements with management and our independent auditors. The Audit
Committee has also received from, and discussed with, our independent auditors
various communications that our independent auditors are required to provide to
the Audit Committee, including the matters required to be discussed by Statement
on Auditing Standards 61 (Communication with Audit Committees). SAS 61 requires
our independent auditors to discuss with the Audit Committee, among other
things, the following:
- methods used to account for significant unusual transactions;
- the effect of significant accounting policies in controversial
or emerging areas for which there is a lack of authoritative
guidance or consensus;
- the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditors'
conclusions regarding the reasonableness of those estimates;
and
- disagreements with management over the application of
accounting principles, the basis for management's accounting
estimates and the disclosures in the financial statements.
Our independent auditors also provided the Audit Committee with the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). Independence
Standards Board Standard No. 1 requires auditors annually to disclose in writing
all relationships that, in the auditor's professional opinion, may reasonably be
thought to bear on independence, confirm their perceived independence and engage
in a discussion of independence. In addition, the Audit Committee discussed with
the independent auditors their independence from Cognizant. The Audit Committee
also considered whether the independent auditors' provision of certain other
non-audit related services to us is compatible with maintaining such auditors'
independence.
Based on its discussions with management and the independent auditors, and
its review of the representations and information provided by management and the
independent auditors, the Audit Committee recommended to our Board of Directors
that the audited financial statements be included in our Annual Report on Form
10-K for the year ended December 31, 2003.
By the Audit Committee of the Board
of Directors of
Cognizant Technology Solutions
Corporation
Robert W. Howe
John E. Klein
Thomas M. Wendel
- 8 -
INDEPENDENT AUDITORS FEES AND OTHER MATTERS
The following table summarizes the fees of PricewaterhouseCoopers LLP, our
independent auditor, billed to us for each of the last two fiscal years for
audit services and billed to us in each of the last two fiscal years for other
services:
Fee Category 2003 2002
-------------------- ---------- ---------
Audit Fees.......... $ 565,500 $720,000
Audit-Related Fees.. 312,500 68,900
Tax Fees ........... 145,500 161,100
All Other Fees...... -- 25,400
---------- --------
Total Fees.......... $1,023,500 $975,400
========== ========
For 2003, $866,600 of the total fees was billed as of December 31, 2003.
For 2002, $559,800 of the total fees billed was billed as of December 31, 2002.
Audit Fees
----------
Audit fees consist of fees for the audit of our financial statements, the
review of the interim financial statements included in our quarterly reports on
Form 10-Q, services rendered in connection with SEC registration statements and
other professional services provided in connection with statutory and regulatory
filings or engagements.
Audit-Related Fees
------------------
Audit-related fees consist of fees for assurance and related services that
are reasonably related to the performance of the audit and the review of our
financial statements and which are not reported under "Audit Fees." These
services relate to employee benefit audits, due diligence related acquisitions,
accounting consultations and audits in connection with acquisitions,
consultations related to internal control and the Sarbanes Oxley Act, attest
services that are not required by statute or regulation and consultations
concerning financial accounting and reporting standards.
Tax Fees
--------
Tax fees consist of fees for tax compliance, tax advice and tax planning
services. Tax compliance services, which relate to preparation of original tax
returns and VAT registrations, accounted for $25,700 of the total tax fees paid
for 2003 and $28,200 of the total tax fees paid for 2002. Tax advice and tax
planning services relate to preparation of transfer pricing studies and
consultations on various domestic and international tax matters.
All Other Fees
--------------
There were no fees to report in this category for 2003. In 2002, the fees
reported in this category consist of IT security reviews.
- 9 -
Audit Committee Pre-Approval Policy and Procedures
--------------------------------------------------
The Audit Committee has adopted policies and procedures relating to the
approval of all audit and non-audit services that are to be performed by our
independent auditor. This policy generally provides that we will not engage our
independent auditor to render audit or non-audit services unless the service is
specifically approved in advance by the Audit Committee or the engagement is
entered into pursuant to one of the pre-approval procedures described below.
From time to time, the Audit Committee may pre-approve specified types of
services that are expected to be provided to us by our independent auditor
during the next 12 months. Any such pre-approval is detailed as to the
particular service or type of services to be provided and is also generally
subject to a maximum dollar amount.
The Audit Committee has also delegated to Thomas M. Wendel the authority
to approve any audit or non-audit services to be provided to us by our
independent auditor. Any approval of services by a member of the Audit Committee
pursuant to this delegated authority is reported on at the next meeting of the
Audit Committee. During 2003, no services were provided to us by
PricewaterhouseCoopers LLP or any other accounting firm other than in accordance
with the pre-approval policies and procedures described above.
COMPENSATION OF DIRECTORS
Directors who are our employees or employees of our subsidiaries receive
no cash remuneration for serving as Directors. All other non-employee Directors
receive an annual retainer of $20,000 for attendance at meetings of the Board of
Directors (no additional fees are paid for attendance at non-committee meetings
of the Board of Directors) and $1,500 for attendance at each meeting of a
committee of the Board of Directors or $2,000 for attendance at each meeting of
a committee of the Board of Directors if serving as the chairperson of such
committee meeting. All Directors who are not our employees or employees of our
subsidiaries are eligible to participate in our Non-Employee Directors' Stock
Option Plan (the "Director Plan") and, effective as of May 1999, the Incentive
Plan.
The Director Plan became effective in December 1997 and was amended in
March 1998. The aggregate number of shares of Class A Common Stock reserved for
issuance under the Director Plan is 429,000 shares. The Director Plan, which is
administered by the Compensation Committee, provides for the issuance of
non-qualified stock options to purchase up to 90,000 shares of Class A Common
Stock in any year to any of our Directors who is not our employee or an employee
of one of our subsidiaries. Subject to the provisions of the Director Plan, the
Compensation Committee has the authority to interpret the provisions of the
Director Plan, and to determine the persons to whom options will be granted, the
number of shares to be covered by each option and the terms and conditions upon
which an option may be granted. The option price for options granted under the
Director Plan shall be determined by the Compensation Committee and may be
granted at an exercise price greater than, less than or equal to the fair market
value of the underlying shares on the date of grant. Options granted under the
Director Plan become exercisable as to 50% on each of the first and second
anniversaries of the date of initial grant. Options granted under the Director
Plan expire after 10 years, are nontransferable and, with certain exceptions in
the event of a death of a participant, may be exercised by the optionee only
during service. In the event of an optionee's death or disability, the
unexercised portion of an option immediately vests in full and may be exercised
until (i) the earlier of the remaining stated term of the option or five years
after the date of death with respect to a termination due to death or (ii) the
earlier of the remaining stated term of the option and the longer of five years
after the date of termination due to disability or one year after the date of
death, in the case of a termination due to disability. In the case of a
termination for any other reason, the unexercised portion of an option may be
exercised for the period ending ninety days after termination, but only to the
extent such option was exercisable at the time of termination.
The Incentive Plan became effective in May 1999. The aggregate number of
shares of Class A Common Stock currently reserved for issuance under the
Incentive Plan is 18,000,000. The purpose of the Incentive Plan is to (i) aid us
in motivating certain employees, non-employee Directors and independent
contractors to put forth maximum efforts toward the our growth, profitability
and success; and (ii) provide incentives which will attract and retain highly
qualified individuals as employees and non-employee Directors and to assist in
aligning the interests of such employees and non-employee Directors with those
of our stockholders. Pursuant to the Incentive Plan, awards may be stock-based
or payable in cash. Subject to adjustment, for among other things, a merger,
consolidation, reorganization, stock split, or other change in capital
structure, an individual is limited to a maximum of 4,500,000 shares during the
life of the Incentive Plan. Additionally, the maximum dollar amount paid in cash
to any individual during the life of the Incentive Plan is $10,000,000. The
Incentive Plan terminates on April 13, 2009, unless sooner terminated by the
Board of Directors. The Incentive Plan is administered by the Compensation
Committee. Subject
- 10 -
to the provisions of the Incentive Plan, the Compensation Committee has the
authority, among other things, to determine eligibility for participation,
determine eligibility for and the type and size of awards, issue administrative
guidelines and make rules as an aid to administer the Incentive Plan, grant
waivers of terms, conditions, restrictions and limitations and accelerate the
vesting of any award. Several types of awards are provided for by the Incentive
Plan. The awards may be measured in stock or in cash. An award may be designated
as a stock option, stock appreciation right, stock award, stock unit,
performance share, performance unit or cash. Generally, all awards under the
Incentive Plan are nontransferable except by will or in accordance with the laws
of descent and distribution. Stock options and stock appreciation rights are
exercisable only by the grantee during his or her lifetime. The Compensation
Committee, in its discretion, may permit the transferability of a stock option
(other than an incentive stock option) by a grantee to members of his or her
immediate family or trusts or other similar entities for the benefit of such
person. Upon the occurrence of a change in control of us, as defined in the
Incentive Plan, with certain exceptions, the Compensation Committee has the
discretion to, among other things, accelerate the vesting and payout of
outstanding awards or provide that an award be assumed by the entity which
acquires control of us or be substituted by a similar award under such entity's
compensation plan.
During 2003, the following Directors were granted options to purchase
shares of Class A Common Stock under the Incentive Plan.
Number of
Shares Underlying
Options Exercise Price
Director Granted(1) Grant Date Per Share (1)
-------------------- ----------------- ---------- --------------
Lakshmi Narayanan... 255,000 2/5/2003 $20.23
Robert W. Howe...... 10,000 5/9/2003 $18.43
John E. Klein....... 10,000 5/9/2003 $18.43
Venetia Kontogouris. 10,000 5/9/2003 $18.43
Robert E. Weissman.. 10,000 5/9/2003 $18.43
Thomas M. Wendel.... 10,000 5/9/2003 $18.43
----------
(1) Such numbers have been adjusted to reflect a three-for-one stock split that
occurred on April 1, 2003.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our Directors, Executive Officers and Stockholders who
beneficially own more than 10% of any class of our equity securities registered
pursuant to Section 12 of the Exchange Act (collectively, the "Reporting
Persons") to file initial statements of beneficial ownership of securities and
statements of changes in beneficial ownership of securities with respect to our
equity securities with the SEC. All Reporting Persons are required by SEC
regulation to furnish us with copies of all reports that such Reporting Persons
file with the SEC pursuant to Section 16(a). Except as set forth below, based
solely on our review of the copies of such forms received by us and upon written
representations of the Reporting Persons received by us, we believe that there
has been compliance with all Section 16(a) filing requirements applicable to
such Reporting Persons.
Each of Robert Howe, Thomas Wendel, John Klein, Venetia Kontogouris and
Robert Weissman failed to timely file a Form 4 with respect to the grant of
stock options on May 9, 2003. These transactions were reported late on a Form 4
dated July 30, 2003 for Mr. Howe, and Forms 4 dated August 1, 2003, for Messrs.
Wendel, Klein and Weissman, and Ms. Kontogouris. In addition, Wijeyaraj (Kumar)
Mahadeva failed to timely file a Form 4 with respect to the exercise of an
employee stock option on July 7, 2003. This transaction was reported on a Form 4
on July 14, 2003.
- 11 -
EXECUTIVE OFFICERS
The following table identifies our current executive officers:
Capacities in In Current
Name Age Which Served Position Since
---- --- ------------- --------------
Lakshmi Narayanan(1).... 51 President and Chief 2003
Executive Officer
Francisco D'Souza(2).... 35 Chief Operating Officer 2003
Gordon Coburn(3)........ 40 Executive Vice President, 2003
Chief Financial Officer,
Treasurer and Secretary
Ramakrishnan
Chandrasekaran(4)....... 47 Executive Vice President & 2004
Managing Director
----------
(1) Lakshmi Narayanan was elected Chief Executive Officer in December 2003.
Mr. Narayanan continues to serve as our President, a position he has held
since his election in March 1998. Mr. Narayanan joined our Indian
subsidiary as Chief Technology Officer in 1994 and was elected President
of such subsidiary on January 1, 1996. Prior to joining us, from 1975 to
1994, Mr. Narayanan was the regional head of Tata Consultancy Services, a
large consulting and software services company located in India. Mr.
Narayanan holds a Bachelor of Science degree, a Master of Science degree
and a Master of Business Administration degree from the Indian Institute
of Science.
(2) Francisco D'Souza was elected Chief Operating Officer in December 2003.
Prior to that, from November 1999 to December 2003, he served as our
Senior Vice President, North American Operations and Business Development.
From March 1998 to November 1999, he served as our Vice President, North
American Operations and Business Development and as our Director-North
American Operations and Business Development from June 1997 to March 1998.
From January 1996 to June 1997, Mr. D'Souza was engaged as our consultant.
From February 1995 to December 1995, Mr. D'Souza was employed as Product
Manager at Pilot Software. Between 1992 and 1995, Mr. D'Souza held various
marketing, business development and technology management positions as a
Management Associate at The Dun & Bradstreet Corporation. While working at
The Dun & Bradstreet Corporation, Mr. D'Souza was part of the team that
established the software development and maintenance business conducted by
us. Mr. D'Souza holds a Bachelor of Business Administration degree from
the University of East Asia and a Master of Business Administration degree
from Carnegie-Mellon University.
(3) Gordon Coburn was elected Executive Vice President in December 2003. Mr.
Coburn continues to serve as our Chief Financial Officer, Treasurer and
Secretary, positions he has held since March 1998. From November 1999 to
December 2003, he served as our Senior Vice President. He previously was
our Vice President from 1996 to November 1999. Mr. Coburn served as Senior
Director - Group Finance & Operations for Cognizant Corporation from
November 1996 to December 1997. From 1990 to October 1996, Mr. Coburn held
key financial positions with The Dun & Bradstreet Corporation. Mr. Coburn
holds a Bachelor of Arts degree from Wesleyan University and a Master of
Business Administration degree from the Amos Tuck School at Dartmouth
College.
(4) Ramakrishnan Chandrasekaran was elected Executive Vice President and
Managing Director in January 2004. Prior to that, from November 1999 to
January 2004, he served as our Senior Vice President responsible for the
independent software vendor relationships, key alliances, capacity growth,
process initiatives, business development and offshore delivery. Mr.
Chandrasekaran joined us as Assistant Vice President in December 1994,
before getting promoted to Vice President in January 1997. Mr.
Chandrasekaran has more than 20 years of experience working in the IT
services industry. Prior to joining us, Mr. Chandrasekaran worked with
Tata Consultancy Services. Mr. Chandrasekaran holds a Mechanical
Engineering degree and Master of Business Administration degree from the
Indian Institute of Management.
- 12 -
None of our executive officers is related to any other executive officer
or to any of our Directors. Our executive officers are elected annually by the
Board of Directors and serve until their successors are duly elected and
qualified.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN 2001, 2002 AND 2003
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to
each person who served as our Chief Executive Officer at any time during 2003
and each other of our executive officers whose aggregate cash compensation
exceeded $100,000 (collectively, the "Named Executives") during the years ended
December 31, 2001, 2002 and 2003.
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
----------------------------------------
Awards
------------
Other
Annual Securities
Compen- Underlying All Other
Name and Principal Year Salary Bonus(2) sation(3) Options Compensation
Position ($) ($) ($) (#) ($)
(a) (b) (c) (d) (e) (g) (i)
----------------------------------------------------------------------------------------
Wijeyaraj (Kumar)
Mahadeva (1)(4)........ 2003 409,514 -- 1,020,000 63,918(11)
Chairman of the Board 2002 363,000 582,633 -- -- 5,500(5)
and Chief Executive 2001 363,000 241,129 -- 975,000 5,250(5)
Officer
Lakshmi
Narayanan(1)(4)(6)..... 2003 135,696 182,160 -- 255,000 3,454(7)
President and Chief 2002 115,720 155,369 -- -- 3,102(7)
Executive Officer 2001 121,000 62,672 -- 240,000 3,990(8)
Francisco D'Souza(1).... 2003 264,500 317,400 -- 240,000 6,000(5)
Chief Operating Officer 2002 230,000 220,106 -- -- 5,500(5)
2001 230,000 91,093 -- 180,000 5,250(5)
Gordon Coburn(1)......... 2003 237,507 283,866 -- 195,000 49,249(12)
Executive Vice 2002 205,700 220,106 -- -- 5,500(5)
President, Chief 2001 205,700 91,093 -- 180,000 5,250(5)
Financial Officer,
Treasurer and Secretary
Ramakrishnan
Chandrasekaran(9)...... 2003 56,422 75,000 -- -- 2,913(10)
Executive Vice 2002 50,230 47,698 -- 60,000 3,830(10)
President & Managing 2001 42,516 51,842 -- -- 3,784(10)
Director
----------
(1) Such Named Executive has entered into a Severance and Noncompetition
Agreement with us. See "Severance and Noncompetition Agreements."
(2) The bonus awards were earned in the year indicated and were paid in the
following year.
(3) The value of certain personal benefits is not included since the aggregate
amount of such compensation did not exceed the lesser of either $50,000 or
10% of the total of annual salary and bonus reported for such Named
Executive in columns (c) and (d).
(4) On December 19, 2003, our founder, Chairman and Chief Executive Officer,
Wijeyaraj (Kumar) Mahadeva, retired as a director and officer of
Cognizant, and Lakshmi Narayanan was named Chief Executive Officer.
(5) Represents a 401(k) plan matching contribution.
- 13 -
(6) We employ Mr. Narayanan in India, and as such, compensation amounts were
paid in Indian Rupees. Such amounts were converted to U.S. dollars for the
periods presented.
(7) Represents an Indian Provident Fund matching contribution.
(8) Consists of Indian Provident Fund matching contribution of $2,962 and
interest savings of $1,028 on a loan made to Mr. Narayanan by us in
October 1997 for the purchase of a residence, which bore interest at 2%
per annum. The loan was secured by the residence, and principal and
interest on such loan were payable over a ten year period. Mr. Narayanan
repaid such loan in April 2001.
(9) Ramakrishnan Chandrasekaran was elected Executive Vice President and
Managing Director in January 2004. We employ Mr. Chandrasekaran in India,
and as such, compensation amounts were paid in Indian Rupees. Such amounts
were converted to U.S. dollars for the periods presented.
(10) Consists of Indian Provident matching fund contributions of $2,253, $2,240
and $2,076 in 2003, 2002 and 2001, respectively, and interest savings of
$660, $1,590 and $1,708 in 2003, 2002 and 2001, respectively, on a loan
made to Mr. Chandrasekaran by us in August 1995, which bore interest at 2%
per annum. Mr. Chandrasekaran repaid such loan in July 2003. See
"Transactions with Other Affiliates."
(11) Includes (i) a 401(k) plan matching contribution in the amount of $6,000,
and (ii) a contribution to a non-qualified deferred compensation account
in the amount of $57,918 earned by the Named Executive during 2003 and
payable by Cognizant during 2004.
(12) Includes (i) a 401(k) plan matching contribution in the amount of $6,000,
and (ii) a contribution to a non-qualified deferred compensation account
in the amount of $43,249 earned by the Named Executive during 2003 and
payable by Cognizant during 2004.
OPTION GRANTS IN 2003
The following table sets forth information concerning individual grants of
stock options during 2003 by us to each of the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------------------------------------
Individual Grants
------------------------------------------------------------------------------------------------
Percent
of Total Potential
Options Realizable
Number of Granted to Value
Securities Employees Exercise at Assumed Annual
Underlying in or Expir- Rates of Stock
Options Fiscal Base ation Price Appreciation
Name Granted(1) Year Price Date For Option Term
(#) (%) ($/SH)(1) 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
------------------------------------------------------------------------------------------------
Wijeyaraj (Kumar)
Mahadeva......... 1,020,000 23.1% $20.23 2/5/2013 $12,976,990 $32,886,240
Lakshmi Narayanan.. 255,000 5.8% $20.23 2/5/2013 $3,244,250 $8,221,560
Francisco D'Souza.. 240,000 5.4% $20.23 2/5/2013 $3,053,410 $7,737,940
Gordon Coburn...... 195,000 4.4% $20.23 2/5/2013 $2,480,895 $6,287,075
Ramakrishnan
Chandrasekaran... -- -- -- -- -- --
----------
(1) Such numbers have been adjusted to reflect a three-for-one stock split
that occurred on April 1, 2003.
- 14 -
AGGREGATED OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 2003 by each of the Named Executives and the year-end number and
value of unexercised options held by each of the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
-----------------------------------------------------------------------------------
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at Fiscal
Shares Options at Fiscal Year-End
Acquired on Value Year-End ($)
Name Exercise Realized (#) Exercisable/
(#) ($) Exercisable/ Unexercisable
(a) (b) (c) Unexercisable (e) (2)
(d)
-----------------------------------------------------------------------------------
Wijeyaraj (Kumar)
Mahadeva........ 1,010,078 26,590,415 927,172/1,605,000 36,439,523/47,084,475
Lakshmi Narayanan. 45,000 1,370,057 499,500/399,000 20,811,914/11,689,710
Francisco D'Souza. 152,160 3,117,293 60,540/348,000 2,322,596/10,006,020
Gordon Coburn..... 136,590 2,989,798 -- /303,000 -- /8,862,570
Ramakrishnan
Chandrasekaran.. 34,250 502,047 60,250/56,250 2,571,816/1,813,069
----------
(1) All numbers on this chart have been adjusted to account for the
three-for-one stock split that occurred on April 1, 2003.
(2) Based on a year-end fair market value of the underlying securities equal
to $45.64, less the exercise price for such shares.
- 15 -
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 with
respect to the shares of our Class A Common Stock that may be issued under our
existing equity compensation plans.
--------------------------------------------------------------------------------
Number of Number of
Securities Weighted Securities
to be Issued Average Available for
Upon Exercise Future Issuance
Exercise of Price of Under Equity
Outstanding Outstanding Compensation
Plan Catetory Options(1) Options(1) Plans(1)
--------------------------------------------------------------------------------
Equity compensation 12,471,665 $14.79 3,194,017 (2)
plans that have been
approved by security
holders
Equity compensation
plans not approved by -- -- --
security holders
Total 12,471,665 $14.79 3,194,017 (2)
--------------------------------------------------------------------------------
(1) Such numbers have been adjusted to reflect a three-for-one stock split that
occurred on April 1, 2003.
(2) Includes 727,978 shares of Class A Common Stock issuable under the
Incentive Plan, however, does not include (i) the additional 1,000,000
shares that would be available if the proposal to increase the number of
shares reserved for issuance under the Incentive Plan is approved at the
Meeting, or (ii) the additional 1,500,000 shares that would be available if
the proposal to adopt our 2004 Employee Stock Purchase Plan is approved at
the Meeting. This number also includes 57,000 shares of Class A Common
Stock available for future issuances pursuant to the Director Plan, 380,790
shares of Class A Common Stock available for future issuances pursuant to
the Key Employees' Stock Option Plan and 2,028,249 shares of Class A Common
Stock issuable under the 1999 Employee Stock Purchase Plan. The 1999
Employee Stock Purchase Plan expired pursuant to its terms on December 31,
2003.
SEVERANCE AND NONCOMPETITION AGREEMENTS
We have entered into a Severance and Noncompetition Agreement
(collectively, the "Severance and Noncompetition Agreements") with each of the
Named Executives, except for Ramakrishnan Chandrasekaran. The Severance and
Noncompetition Agreements provide that each Named Executive will receive one
year's base salary and a full annual bonus upon termination of employment, other
than in the case of a termination for cause. In addition, such agreements
provide that all options held by the Named Executives will vest in full
immediately upon a change of control. Pursuant to such agreements, each Named
Executive has agreed not to engage in any competitive business in any capacity
for one year following termination of employment and not to solicit any of our
employees to leave our employ within the one-year period following termination
of employment. Finally, such agreements include customary proprietary rights
assignment and confidentiality provisions.
RETIREMENT OF CHIEF EXECUTIVE OFFICER
On December 19, 2003, our founder, Chairman and Chief Executive Officer,
Wijeyaraj (Kumar) Mahadeva, retired as a director and officer of Cognizant. In
connection with Mr. Mahadeva's retirement, on December 19, 2003, we entered into
an agreement and general release of all claims with Mr. Mahadeva.
- 16 -
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Howe, Klein and
Weissman. During 2003, the Compensation Committee was comprised of Messrs.
Howe and Klein. In March 2004, Mr. Weissman was appointed to serve on the
Compensation Committee. Messrs. Howe, Klein and Weissman have not served as
either one of our officers or employees or an officer or employee of one of
our subsidiaries at any time. There are no, and during 2003 there were no,
Compensation Committee Interlocks.
In 2003, we granted options to purchase shares of our Class A Common
Stock to each of Mr. Howe, Mr. Klein and Mr. Weissman. See "Election of
Directors - Compensation of Directors."
- 17 -
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
our Class A Common Stock with the cumulative total return on the S&P MidCap 400
Index, S&P SmallCap 600 Index, a Peer Group Index, Current (capitalization
weighted) and a Peer Group Index, Historical (capitalization weighted) for the
period beginning January 1, 1999 and ending on the last day of our last
completed fiscal year. The stock performance shown on the graph below is not
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)
Among Cognizant, the S&P MidCap 400 Index, the S&P SmallCap 600 Index
And a Current and Historical Peer Group Index(3)
(Capitalization Weighted)
[ GRAPHIC ]
1/1/99 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
------- -------- -------- -------- -------- --------
Cognizant Technology
Solutions Corporation....... $100.00 $359.88 $239.09 $269.83 $475.59 $901.53
S&P MidCap 400 Index.......... $100.00 $114.72 $134.81 $133.99 $114.54 $155.34
S&P SmallCap 600 Index........ $100.00 $112.40 $125.67 $133.88 $114.30 $158.63
Peer Group Index, Current
(Capitalization Weighted)... $100.00 $162.91 $ 68.66 $ 50.98 $ 48.91 $ 74.90
Peer Group Index, Historical
(Capitalization Weighted)... $100.00 $162.91 $ 68.66 $ 51.37 $ 50.70 $ 80.33
----------
(1) Graph assumes $100 invested on January 1, 1999 in our Class A Common
Stock, the S&P MidCap 400 Index, the S&P SmallCap 600 Index, the Peer
Group Index, Current (capitalization weighted) and the Peer Group Index,
Historical (capitalization weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) We have constructed a Peer Group Index of other information technology
consulting firms consisting of Computer Horizons Corp., Computer Task
Group, Inc., Covansys Corporation, Diamond Cluster International, Inc.,
iGate Corp., Infosys Technologies Ltd., Keane, Inc. Sapient Corp., Satyam
Computer
- 18 -
Services Ltd, Syntel, Inc. and Wipro Ltd. We believe that these companies
most closely resemble our business mix and that their performance is
representative of the industry. Our current Peer Group Index does not
consist of the same information technology consulting firms as in the prior
year. Our Peer Group from the prior year consists of Computer Horizons
Corp., Computer Task Group, Inc., Covansys Corporation, Diamond Cluster
International, Inc., iGate Corp., Infosys Technologies Ltd., Keane, Inc.
Sapient Corp., Satyam Computer Services Ltd, Syntel, Inc. and Tanning
Technology Corp. (no longer publicly traded, and, accordingly, not included
in Peer Group Index, Historical reflected in chart).
- 19 -
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
Our executive compensation policy is designed to attract and retain highly
qualified individuals for our executive positions and to provide incentives for
such executives to achieve maximum Company performance by aligning the
executives' interest with that of stockholders by basing a portion of
compensation on corporate performance.
The Compensation Committee reviews and determines base salary levels for
our executive officers on an annual basis and determines actual bonuses after
the end of the fiscal year based upon Company and individual performance.
Additionally, the Compensation Committee administers all of our stock option
plans.
Our executive officer compensation program is comprised of base salary,
discretionary annual cash bonuses, stock options and various other benefits,
including health insurance and a 401(k) Plan, which are generally available to
all of our employees.
Salaries are established in accordance with industry standards through
review of publicly available information concerning the compensation of officers
of comparable companies. Consideration is also given to relative responsibility,
seniority, individual experience and performance. Salary increases are generally
made based on increases in the industry for similar companies with similar
performance profiles and/or attainment of certain division or Company goals.
Bonuses are paid on an annual basis and are discretionary. The amount of
bonus is based on criteria designed to effectively measure a particular
executive's attainment of goals which relate to his or her duties and
responsibilities as well as overall Company performance. In general, the annual
incentive bonus is based on our operational and financial results and the
executive's individual performance in achieving the results.
The stock option program is designed to relate executives' and certain
middle managers' and other key personnel's long-term interests to stockholders'
long-term interests. In general, stock option awards are granted if warranted by
our growth and profitability. Stock options are awarded on the basis of
individual performance and/or the achievement of internal strategic objectives.
The Committee established the Chief Executive Officer's total annual
compensation based on the size, complexity and historical performance of our
business, our position as compared to our peers in the industry, and the
specific challenges faced by us during the year, such as changes in the market
for information technology products and services and other industry factors. No
specific weight was assigned to any of the criteria relative to the Chief
Executive Officer's compensation.
Tax Considerations
------------------
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public companies for certain compensation in excess
of $1 million paid to our CEO and the four other most highly compensated
executive officers. Certain compensation, including qualified performance-based
compensation, will not be subject to the deduction limit if certain requirements
are met. The Compensation Committee reviews the potential effect of Section
162(m) periodically and uses its judgment to authorize compensation payments
that may be subject to the limit when the Compensation Committee believes such
payments are appropriate and in our best interests and the best interest of our
stockholders, after taking into consideration changing business conditions and
the performance of our employees.
By the Compensation Committee of
the Board of Directors of Cognizant
Technology Solutions Corporation
Robert W. Howe
John E. Klein
Robert E. Weissman
- 20 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CLASS A COMMON STOCK
There are, as of March 31, 2004, approximately 289 holders of record and
20,799 beneficial holders of our Class A Common Stock. The following table sets
forth certain information, as of March 31, 2004, with respect to holdings of
each class of our Class A Common Stock by (i) each person known by us to
beneficially own more than 5% of the total number of shares of each class of
Class A Common Stock outstanding as of such date, (ii) each of our Directors
(which includes all nominees), (iii) each of our Named Executives, and (iv) all
Directors and executive officers as a group. This information is based upon
information furnished to us by each such person and/or based upon public filings
with the Securities and Exchange Commission. Unless otherwise indicated, the
address for the individuals below is our address.
Amount and Nature of Percent
Beneficial of
Name and Address of Beneficial Owner Ownership(1) Class(2)
------------------------------------ -------------------- --------
(i) Certain Beneficial Owners:
FMR Corp.(3).......................... 9,577,076 14.8%
Maverick Capital Management Ltd.(4)... 3,418,921 5.3%
(ii) Directors (which includes all
nominees) and Named Executives:
Wijeyaraj Mahadeva(5)................. 1,572,832 2.4%
Lakshmi Narayanan(6).................. 635,250 *
Francisco D'Souza(7).................. 202,611 *
Gordon Coburn(8)...................... 105,662 *
Ramakrishnan Chandrasekaran(9)........ 86,500 *
Robert W. Howe(10).................... 19,200 *
John E. Klein(11)..................... 137,800 *
Venetia Kontogouris(12)............... 150,500 *
Robert E. Weissman(13)................ 119,222 *
Thomas M. Wendel(14).................. 5,000 *
(iii) All Directors and executive
officers as a
group (10 persons)(15)........... 3,034,577 4.5%
----------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have
sole voting and investment power with respect to all shares of Class A
Common Stock shown as beneficially owned by such stockholder. All share
numbers have been adjusted to account for a three-for-one stock split that
occurred on April 1, 2003.
(2) Applicable percentage of ownership is based on an aggregate of 64,648,961
shares of Class A Common Stock outstanding on March 31, 2004, plus any
presently exercisable stock options held by each such holder, and options
which will become exercisable within 60 days after March 31, 2004.
(3) As disclosed on a Schedule 13G filed with the Securities and Exchange
Commission on February 17, 2004, assuming no changes in beneficial
ownership since such filing. According to such Schedule 13G, FMR Corp.,
may be deemed to beneficially own 9,577,076 shares of Class A Common Stock
as a result of acting as investment advisor to various investment
companies. FMR Corp. reports that it has sole power to vote
- 21 -
or direct the vote of 232,278 shares and sole power to dispose or direct
the disposition of 9,577,076 shares. Fidelity Management & Research
Company ("Fidelity"), a wholly-owned subsidiary or FMR Corp., is the
beneficial owner of 9,344,798 shares of our Class A Common Stock as a
result of acting as investment advisor to various investment companies.
The ownership of one investment company, Fidelity Growth Company Fund,
amounts to 3,746,579 shares of our Class A Common Stock. Edward C. Johnson
3d, FMR Corp., through its control of Fidelity, and the funds each have
sole power to dispose of 9,344,798 shares owned by the funds.
(4) As disclosed on a Schedule 13G filed with the Securities and Exchange
Commission on February 17, 2004, assuming no changes in beneficial
ownership since such filing. According to such Schedule 13G, Maverick
Capital, Ltd., may be deemed to beneficially own 3,418,921 shares of Class
A Common Stock through the investment discretion it exercises over its
clients' accounts. Maverick Capital, Ltd. reports that it has sole power
to vote or direct and dispose or direct the disposition of 3,418,921
shares of Class A Common Stock. Maverick Capital Management, LLC is the
General Partner of Maverick Capital, Ltd. Mr. Lee S. Ainslie III is the
manager of Maverick Capital Management, LLC and is granted sole investment
discretion pursuant to Maverick Capital, LLC's Regulations.
(5) Includes 98,160 shares of Class A Common Stock owned of record and
1,474,672 shares of Class A Common Stock subject to options which were
exercisable as of March 31, 2004 or sixty (60) days after such date.
Excludes 1,057,500 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(6) Represents 635,250 shares of Class A Common Stock underlying options which
were exercisable as of March 31, 2004 or sixty (60) days after such date.
Excludes 263,250 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(7) Includes 28,071 shares of Class A Common Stock owned of record and 174,540
shares of Class A Common Stock subject to options which were exercisable
as of March 31, 2004 or sixty (60) days after such date. Excludes 234,000
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(8) Includes 2,912 shares of Class A Common Stock owned of record and 102,750
shares of Class A Common Stock subject to options which were exercisable
as of March 31, 2004 or sixty (60) days after such date. Excludes 200,250
shares of Class A Common Stock underlying options, which become
exercisable over time after such period.
(9) Includes 86,500 shares of Class A Common Stock subject to options which
were exercisable as of March 31, 2004 or sixty (60) days after such date.
Excludes 50,000 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(10) Includes 6,700 shares of Class A Common Stock owned of record and 12,500
shares of Class A Common Stock subject to options which were exercisable
as of March 31, 2004 or sixty (60) days after such date. Excludes 12,500
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(11) Includes 95,300 shares of Class A Common Stock owned of record and 42,500
shares of Class A Common Stock subject to options which were exercisable
as of March 31, 2004 or sixty (60) days after such date. Excludes 12,500
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(12) Includes 3,000 shares of Class A Common Stock owned of record and 147,500
shares of Class A Common Stock subject to options which were exercisable
as of March 31, 2004 or sixty (60) days after such date. Excludes 12,500
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(13) Includes 61,722 shares of Class A Common Stock owned of record and 57,500
shares of Class A Common Stock subject to options which were exercisable
as of March 31, 2004 or sixty (60) days after such date.
- 22 -
Excludes 12,500 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(14) Includes 5,000 shares of Class A Common Stock subject to options which
were exercisable as of March 31, 2004 or sixty (60) days after such date.
Excludes 12,500 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(15) Includes an aggregate of 2,738,712 shares of Class A Common Stock
underlying options granted to Directors and executive officers listed in
the table which are exercisable as of March 31, 2004 or within sixty (60)
days after such date. Excludes 1,867,500 shares of Class A Common Stock
underlying options granted to executive officers and Directors, which
become exercisable over time after such period.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONAL HISTORY WITH IMS HEALTH AND ITS AFFILIATES
From November 30, 1996 through June 30, 1998, we were a subsidiary of
Cognizant Corporation. In June 1998, Cognizant Corporation spun off (the
"Spin-Off") from IMS Health. IMS Health consisted of all of Cognizant
Corporation's businesses other than the business conducted by Nielsen Media
Research. Therefore, all of our shares held by Cognizant Corporation immediately
prior to the Spin-Off were subsequently held by IMS Health. At December 31,
2002, IMS Health owned 55.3% of our outstanding stock (representing all of our
Class B common stock) and held 92.5% of the combined voting power of our common
stock.
On January 30, 2003, we filed a tender offer in which IMS Health
stockholders could exchange IMS Health shares held by them for our Class B
common stock held by IMS Health.
On February 13, 2003 (the "Split-Off Date"), IMS Health distributed all of
our Class B Common Stock that IMS Health owned (a total of 33,872,700 shares) in
an exchange offer to its stockholders (the "Exchange Offer"). IMS Health
distributed 0.927 shares of our Class B common stock to its stockholders for
every one share of IMS Health's common stock tendered. There was no impact on
the number of our total shares outstanding upon the completion of the Exchange
Offer. Accordingly, as of February 13, 2003, IMS Health was no longer a related
party since it no longer owned any equity interest or holds any of our voting
power.
In connection with the Exchange Offer, we were obligated to pay the costs
associated with the Exchange Offer under the provisions of an Intercompany
Agreement, dated May 15, 1998. Pursuant to the terms of such agreement, we
agreed we would pay IMS Health's costs (other than underwriting discounts,
commissions and certain other specified costs) necessary to facilitate a sale or
spin-off of IMS Health's ownership interest in Cognizant. During 2003, we
incurred direct and incremental costs of approximately $2,000,000 resulting from
external costs contractually incurred related to the Exchange Offer.
TRANSACTIONS WITH IMS HEALTH
In connection with the Exchange Offer, we amended and entered into certain
agreements with IMS Health which are summarized below.
Master Services Agreement. Pursuant to an amended and restated Master
Services Agreement, we continue to provide software development and maintenance
services to IMS Health and its subsidiaries on terms that are comparable to
unrelated third parties. During the period January 1, 2003 through the Split-Off
Date, such services resulted in related-party revenue to us in the amount of
$2.6 million. The Master Services Agreement provides that any work order issued
thereunder may be terminated by IMS Health with or without cause on 30 days'
prior written notice.
Intercompany Services Agreement. Pursuant to the Intercompany Services
Agreement, IMS Health provides us with certain administrative services,
including payables processing and certain other administrative services. Total
costs in connection with such administrative services provided by IMS Health
during the period January 1, 2003 through the Split-Off Date were approximately
$28,000.
- 23 -
Distribution Agreement. We also entered into a Distribution Agreement,
dated January 7, 2003, with IMS Health (the "Distribution Agreement"), the terms
of which were approved by a special committee of our Board of Directors, which
was comprised of our independent Directors. The Distribution Agreement sets
forth certain rights and obligations of IMS Health and us in respect of the
Exchange Offer in addition to those provided in the Intercompany Services
Agreement. The material terms of the Distribution Agreement include:
o indemnification provisions in respect of the respective disclosure
in the Exchange Offer documents, the conduct of the Exchange Offer
and any failure to perform under the terms of the Distribution
Agreement;
o the agreement of us to undertake to be jointly and severally liable
to certain of IMS Health's prior affiliates for liabilities arising
out of or in connection with IMS Health's business and our
businesses and other successors to the businesses of Cognizant
Corporation in accordance with the terms of the Distribution
Agreement, dated as of October 28, 1996, among Cognizant
Corporation, which has been renamed Nielsen Media Research, Inc.,
The Dun & Bradstreet Corporation, which has been renamed the R.H.
Donnelly Corporation and ACNielsen Corporation and related
agreements. However, subject to the general allocation of
liabilities arising from the respective businesses of IMS Health
and us, IMS Health has agreed to indemnify and reimburse us for
liabilities incurred with respect to these undertakings;
o the continuation of certain commercial relationships between the
companies for a period of at least three years; and
o provisions governing the administration of certain insurance
programs and procedures for making claims.
The Distribution Agreement also provided that we and IMS Health will
comply with, and not take any action during the relevant time period that is
inconsistent with, the representations made to and relied upon by McDermott,
Will & Emery in connection with rendering its opinion regarding the U.S. federal
income tax consequences of the Exchange Offer. In addition, pursuant to the
Distribution Agreement, we must indemnify IMS Health for any tax liability to
which they may be subject as a result of the Exchange Offer but only to the
extent that such tax liability resulted solely from a breach in the
representations we made to and were relied upon by McDermott, Will & Emery in
connection with rendering its opinion regarding the U.S. federal income tax
consequences of the Exchange Offer.
During 2003, we provided services to the Trizetto Group, Inc. ("Trizetto")
pursuant to a strategic relationship that includes helping Trizetto's healthcare
customers integrate Trizetto's products with their existing information systems
and, within Trizetto, supporting further development of these software
applications. As of the Split-Off Date, IMS Health owned approximately 26.4% of
the outstanding common stock of Trizetto. From January 1, 2003 through the
Split-Off Date, we recorded revenues from Trizetto of approximately $831,000. In
addition, from January 1, 2003 through the Split-Off Date, we recorded expenses
related to Trizetto commissions of approximately $9,000. David M. Thomas, a
member of our Board of Directors through the Split-Off Date, is also a member of
the Board of Directors of Trizetto.
Certain of our employees, including Mr. Mahadeva and Mr. Coburn,
participated in IMS Health's defined benefit pension plans. The plans are cash
balance pension plans under which six percent of creditable compensation plus
interest is credited to the employee's retirement account on a monthly basis.
The cash balance earns monthly investment credits based on the 30-year Treasury
bond yield. At the time of retirement, the vested employee's account balance is
actuarially converted into an annuity. Our cost for these plans is included in
the allocation of expense from IMS Health for employee benefits plans.
TRANSACTIONS WITH OTHER AFFILIATES
In August 1995, we loaned $57,200 to Mr. Chandrasekaran for the
purchase of a residence. The loan was secured by the residence and bore
interest at the rate of two percent per annum. Principal and interest on the
loan were payable over a ten-year period. Mr. Chandrasekaran repaid the loan
in full in July 2003.
On December 19, 2003, our founder, Chairman and Chief Executive Officer,
Wijeyaraj (Kumar) Mahadeva, retired as a Director and officer of Cognizant. In
connection with Mr. Mahadeva's retirement, on December 19, 2003, we entered into
an agreement and general release of all claims with Mr. Mahadeva.
- 24 -
PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
Our Restated Certificate of Incorporation (the "Certificate") presently
provides that we are authorized to issue two classes of common stock and one
class of preferred stock consisting of 100,000,000 shares of Class A Common
Stock, $0.01 par value per share, 25,000,000 shares of Class B Common Stock,
$0.01 par value per share, and 15,000,000 shares of Preferred Stock, $0.01 par
value per share ("Preferred Stock"). In April 2004, our Board of Directors
authorized an amendment to the Certificate, subject to stockholder approval, to
(i) increase the authorized number of shares of Class A Common Stock to
325,000,000 shares, and (ii) eliminate the authorization of Class B Common Stock
and delete all references thereto. The stockholders are being asked to approve
such amendment to the Certificate. The proposed increase in the authorized
number of shares will permit a proposed two-for-one stock split of our capital
stock. In April 2004, our Board of Directors declared a two-for-one stock split
on our Class A Common Stock in the form of a stock dividend, subject to
stockholder approval of this proposal to increase the authorized shares of Class
A Common Stock. In addition, the remaining shares would give the Board the
authority to issue additional shares of Class A Common Stock without requiring
future stockholder approval of such issuances except as may be required by
applicable law. A copy of the proposed amendment to the Certificate is attached
hereto as Appendix B.
----------
We currently have authorized 100,000,000 shares of Class A Common Stock. As
of April 12, 2004, 64,695,174 shares of Class A Common Stock were issued and
outstanding; 12,460,269 shares were reserved for future grant or for issuance
upon the exercise of outstanding options under the Incentive Plan; 723,558
shares were reserved for future grant or for issuance upon the exercise of
outstanding options under the Key Employees Stock Option Plan; and 96,000 shares
were reserved for future grant or for issuance upon the exercise of outstanding
options under the Non-Employee Directors' Stock Option Plan. Accordingly, as of
April 12, 2004, and without giving effect to the proposed adoption of the
amendment to the 1999 Incentive Compensation Plan and adoption of our 2004
Employee Stock Purchase Plan described in this Proxy Statement, we had only
22,024,999 shares of authorized but unreserved and unissued Class A Common
Stock.
The principal purpose of the proposed amendment to the Certificate
relating to the authorization of additional shares of Class A Common Stock is to
effect the proposed stock split and to ensure that a sufficient number of shares
of Class A Common Stock will be available in the event the Board of Directors
determines that is it necessary or appropriate to issue additional shares of
Class A Common Stock, including, for example, to raise additional capital
through the sale of securities, to grant options or other stock incentives to
our employees, to acquire another company or its business or assets, to seek to
establish a strategic relationship with a corporate partner or to permit a
future stock dividend or stock split. Except for the proposed stock split and
our commitment under our existing and proposed equity compensation plans, our
Board of Directors has no other present agreement or arrangement to issue any
additional shares. If the amendment is approved by the stockholders, our Board
of Directors does not intend to solicit further stockholder approval prior to
the issuance of any additional shares of Class A Common Stock, except as may be
required by applicable law.
The principal purpose of proposed amendment to the Certificate relating to
the elimination of the authorization of our Class B Common Stock and deletion of
all references to Class B Common Stock in the Certificate is to remove the
super-voting provisions of the Class B Common Stock. The Class B Common Stock
originally was authorized as a result of our historical relationship with IMS
Health. We do not have any intention of issuing any shares of our Class B Common
Stock.
The increase in the authorized number of shares of Class A Common Stock
and the subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of Cognizant without further action by our
stockholders. Shares of authorized and unissued Class A Common Stock could
(within the limits imposed by applicable law) be issued in one or more
transactions that would make a change in control of us more difficult, and
therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of Class A Common Stock, and such additional shares could be
used to dilute the stock ownership or voting rights of persons seeking to obtain
control of Cognizant. The holders of Class A Common Stock have no preemptive
rights.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO OUR RESTATED CERTIFICATE OF INCORPORATION.
- 25 -
PROPOSED AMENDMENT TO THE 1999 INCENTIVE COMPENSATION PLAN
The Incentive Plan was adopted by Board of Directors on April 13, 1999 and
approved by our stockholders on May 25, 1999. Currently, there are 18,000,000
shares of Class A Common Stock reserved for issuance upon the exercise of stock
options or other awards granted under the Incentive Plan. A copy of the
Incentive Plan, as amended, is attached hereto as Appendix C.
----------
GENERAL
The purpose of the Incentive Plan is to:
- aid us in motivating certain employees, non-employee Directors and
independent contractors to put forth maximum efforts toward our
growth, profitability and success; and
- provide incentives which will attract and retain highly qualified
individuals as employees and non-employee Directors and to assist in
aligning the interests of such employees and non-employee Directors
with those of our stockholders.
Pursuant to the Incentive Plan, all of our employees, all of our
non-employee Directors and all of our independent contractors are eligible to
receive awards that may be stock-based or payable in cash. Subject to
adjustment, for among other things, a merger, consolidation, reorganization,
stock split, or other change in capital structure, an individual is limited to a
maximum of 4,500,000 shares during the life of the Incentive Plan. Additionally,
the maximum dollar amount paid in cash to any individual during the life of the
Incentive Plan is $10,000,000. The Incentive Plan terminates on April 13, 2009,
unless sooner terminated by the Board of Directors. The Board may amend the
Incentive Plan, except that no such action can adversely affect awards
previously granted. Without stockholder approval, the Board may not:
- increase the total amount of the Class A Common Stock allocated to
the Incentive Plan (except for permitted capital adjustments);
- increase the maximum amount of the Class A Common Stock with respect
to all awards measured in Class A Common Stock that may be granted
to any individual under the Incentive Plan;
- increase the maximum dollar amount that may be paid with respect to
all awards measured in cash; or
- modify the requirements as to eligibility for awards.
Additionally, stockholder approval is necessary if an amendment (1) is
required by the stock exchange or national market system on which the Class A
Common Stock is listed or (2) will disqualify any incentive stock option granted
under the Incentive Plan. If stockholder approval of this proposal to amend the
Incentive Plan is obtained, further stockholder approval will be necessary if
any future amendment is considered material in the reasonable judgment of the
Compensation Committee.
The Incentive Plan is administered by the Compensation Committee. Subject
to the provisions of the Incentive Plan, the Compensation Committee has the
authority, among other things, to do the following:
- determine eligibility for participation;
- determine eligibility for and the type and size of awards;
- issue administrative guidelines and make rules as an aid to
administer the Incentive Plan;
- grant waivers of terms, conditions, restrictions and limitations;
and
- accelerate the vesting of any award.
- 26 -
TYPES OF AWARDS
Several types of awards are provided for by the Incentive Plan. The awards
may be measured in stock or in cash. An award may be designated as a stock
option, stock appreciation right, stock award, stock unit, performance share,
performance unit or cash.
Stock Options. The Incentive Plan provides for the granting of options
intended to qualify as incentive stock options, or ISOs, as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Incentive
Plan also provides for the granting of non-qualified stock options, or NQSOs.
ISOs or NQSOs may be granted to employees, while only NQSOs may be granted to
non-employee Directors and independent contractors. ISOs granted under the
Incentive Plan may not be granted at an exercise price less than fair market
value of the underlying shares on the date of grant. NQSOs granted under the
Incentive Plan may not be granted at an exercise price less than fair market
value of the underlying shares on the date of grant unless the Compensation
Committee determines otherwise on the date of grant. If stockholder approval of
this proposal to amend the Incentive Plan is obtained, NQSOs may no longer be
granted at an exercise price less than fair market of the underlying shares on
the date of grant. Unless the Compensation Committee specifies otherwise,
options granted under the Incentive Plan become exercisable to the extent of 25%
of the grant on each of the first, second, third and fourth anniversary of the
grant. Under the Incentive Plan, ISOs and NQSOs expire 10 years after the grant.
Stock Appreciation Rights. Stock appreciation rights ("SARs") entitle
their recipients to receive payments in cash, Class A Common Stock or a
combination as determined by the Compensation Committee. Any such payments will
represent the appreciation in the market value of a specified number of shares
from the date of grant until the date of exercise. Such appreciation will be
measured by the excess of the fair market value on the exercise date over the
fair market value of the Class A Common Stock, or other valuation (which shall
be no less than the fair market value of the Class A Common Stock) on the
effective date of grant of SARs or the grant of an award which the SAR replaced.
Stock Awards. A stock award consists of shares of Class A Common Stock,
subject to such terms and conditions as determined by the Compensation
Committee. A grantee of a stock award has all of the rights of a holder of
shares of Class A Common Stock unless otherwise determined by the Compensation
Committee on the date of grant.
Stock Units. A stock unit is a hypothetical share of Class A Common Stock
represented by a notional account established and maintained or caused to be
established and maintained by us for a grantee of a stock unit. Stock units are
subject to such terms and conditions as determined by the Compensation
Committee. A stock unit shall provide for payment in shares of Class A Common
Stock at such time as the award agreement shall specify. The Compensation
Committee has the sole discretion to pay the stock unit in Class A Common Stock,
cash or a combination.
Performance Shares. A performance share consists of a share or shares of
Class A Common Stock, subject to such terms and conditions as determined by the
Compensation Committee. Such terms and conditions may include, among other
things, a determination of performance goals which will determine the number
and/or value of the performance shares that will be paid out or distributed. The
Compensation Committee has the sole discretion to pay the performance share in
Class A Common Stock, cash or a combination.
Performance Unit. A performance unit is a hypothetical share or shares of
Class A Common Stock represented by a notional account established and
maintained or caused to be established and maintained by us for a grantee of a
performance unit. Performance units are subject to such terms and conditions as
determined by the Compensation Committee. Such terms and conditions may include,
among other things, a determination of performance goal or goals which will
determine the number and/or value of the performance units that will be accrued.
The Compensation Committee has the sole discretion to pay the performance share
in Class A Common Stock, cash or a combination.
Cash Awards. The Compensation Committee may grant cash awards subject to
such terms and conditions as it determines appropriate.
Subject to certain criteria, Compensation Committee has the sole
discretion to designate awards as performance-based awards if it determines that
such compensation might not be tax deductible by us under Section
- 27 -
162(m) of the Code. The Compensation Committee may use the following performance
measures (either individually or in any combination) to set performance goals
with respect to awards intended to qualify as performance-based awards: net
sales; pretax income before allocation of corporate overhead and bonus; budget;
cash flow; earnings per share; net income; division, group or corporate
financial goals; return on stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation in and/or maintenance of the
price of the Class A Common Stock or any of our other publicly-traded
securities; market share; gross profits; earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization; economic
value-added models; comparisons with various stock market indices; increase in
number of customers; and/or reductions in costs. The material terms of
performance goals must be approved by our stockholders. Additionally, the
material terms of performance goals must be disclosed and reapproved by our
stockholders no later than the first stockholder meeting that occurs in the
fifth year following the year in which our stockholders previously approved such
performance goals.
In the event a grantee's employment is terminated due to death or
disability, all non-vested portions of awards are forfeited. All vested portions
of stock options or SARs remain exercisable during the shorter of the remaining
stated term of the stock option or SAR or twelve months following the date of
death or disability. If a grantee's employment is terminated for cause, as
defined in the Incentive Plan, all awards, whether vested or non-vested, are
forfeited. If a grantee's employment is terminated any other reason other than
for cause or due to death or disability, all non-vested portions of awards are
forfeited and all vested portions of stock options or SARs remain exercisable
during the shorter of the remaining stated term of the award or 90 days
following the date of termination. Notwithstanding the above, the Compensation
Committee may, in its discretion, provide that:
- the vesting of any or all non-vested portions of stock options or
SARs held by a grantee on the date of his or her death or
termination shall be accelerated and remain exercisable for the term
of the stock option or SAR;
- any or all vested portions of non-qualified stock options or SARs
held by a grantee on the date of his or her death or termination
shall remain exercisable until a date that occurs on or prior to the
date the stock option or SAR is scheduled to expire; and/or
- any or all non-vested portions of stock awards, stock units,
performance shares, performance units and/or cash awards held by a
grantee on the date of his or her death or termination shall become
vested on a date that occurs on or prior to the date the award is
scheduled to vest.
Generally, all awards under the Incentive Plan are nontransferable except
by will or in accordance with the laws of descent and distribution. Stock
options and SARs are exercisable only by the grantee during his or her lifetime.
The Compensation Committee, in its discretion, may permit the transferability of
a stock option (other than an ISO) by a grantee to members of his or her
immediate family or trusts or other similar entities for the benefit of such
person.
CHANGE IN CONTROL
Upon the occurrence of a change in control of Cognizant, as defined in the
Incentive Plan, with certain exceptions, the Compensation Committee has the
discretion to, among other things, accelerate the vesting and payout of
outstanding awards or provide that an award be assumed by the entity which
acquires control of us or be substituted by a similar award under such entity's
compensation plan.
AMENDMENTS TO THE INCENTIVE PLAN
If stockholder approval of this proposal to amend the Incentive Plan is
obtained, (i) the maximum number of shares of Class A Common Stock of Cognizant
reserved for issuance under the Incentive Plan will increase from 18,000,000 to
19,000,000 shares and we will reserve an additional 1,000,000 shares of Class A
Common Stock for issuance upon the exercise of stock options or for the issuance
of other awards granted under the Incentive Plan, (ii) the Compensation
Committee may not, without the consent of our stockholders, reprice any
outstanding award granted under the Incentive Plan, (iii) subject to certain
exceptions, any award granted under the Incentive Plan other than a stock option
that is not subject to performance criteria, must vest over a period of at least
three years in equal installments over such three year period, (iv) subject to
certain exceptions, any award granted under the Incentive Plan, other than a
stock option that is subject to performance criteria, must vest over a period of
at least 12 months in
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equal installments, and (v) all amendments to the Incentive Plan considered
material in the reasonable judgment of the Compensation Committee shall be
subject to stockholder approval.
FEDERAL TAX ASPECTS OF THE INCENTIVE PLAN
We believe that, under the present law, the following are the federal tax
consequences generally arising with respect to awards granted under the
Incentive Plan. The grant of an option or SAR will create no tax consequences
for an optionee or us. The optionee will have no taxable income upon exercising
an ISO (except that the alternative minimum tax may apply), and we will receive
no deduction when an ISO is exercised. Upon exercising an option other than an
ISO, the optionee must recognize ordinary income equal to the difference between
the exercise price and the fair market value of the stock on the date of
exercise; we will be entitled to a deduction for the same amount. The treatment
of an optionee on a disposition of shares acquired through the exercise of an
option depends on how long the shares have been held and on whether such shares
were acquired by exercising an ISO or by exercising an option other than an ISO.
Generally, there will be no tax consequences to us in connection with a
disposition of shares acquired under an option except that we may be entitled to
a deduction in the case of a disposition of shares acquired under an ISO before
the applicable ISO holding periods have been satisfied.
With respect to other awards granted under the Incentive Plan that are
settled either in cash or in stock or other property that is either transferable
or not subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the cash or the fair market value of shares or other
property received; we will be entitled to a deduction for the same amount. With
respect to awards that are settled in stock or other property that is restricted
as to transferability and subject to substantial risk of forfeiture, the
participant must recognize ordinary income equal to the fair market value of the
shares or other property received at the time the shares or other property
become transferable or not subject to substantial risk of forfeiture, whichever
occurs earlier; we will be entitled to a deduction for the same amount.
Different tax rules may apply with respect to participants who are subject to
Section 16 of the Exchange Act.
PREVIOUSLY GRANTED OPTIONS UNDER THE INCENTIVE PLAN
As of April 12, 2004, options to purchase 16,700,497 shares of Class A
Common Stock have been granted (net of forfeitures which are added back to the
shares available for issuance under the Incentive Plan) under the Incentive
Plan. The weighted average exercise price of such options is $14.08 per share.
The following table sets forth certain information as of April 12, 2004
with respect to options granted (net of forfeitures) under the Incentive Plan
since inception to (i) the Named Executives; (ii) all current executive officers
as a group; (iii) each nominee for election as a Director; (iv) all current
Directors who are not executive officers as a group; (v) each associate of any
of such Directors, executive officers or nominees; (vi) each person who has
received or is to receive 5% of such options or rights; and (vii) all employees,
including all current officers who are not executive officers, as a group:
Options Granted
through April 12, Weighted Average
Name 2004(1) Exercise Price(1)
---- ----------------- -----------------
Wijeyaraj (Kumar) Mahadeva............... 2,348,250 $ 7.39
Lakshmi Narayanan........................ 742,500 $11.36
Francisco D'Souza........................ 638,250 $11.67
Gordon Coburn............................ 598,500 $10.96
Ramakrishnan Chandrasekaran.............. 173,000 $15.88
Robert W. Howe........................... 55,000 $14.91
John Klein............................... 55,000 $14.91
Venetia Kontogouris...................... 121,000 $19.67
Robert E. Weissman ...................... 70,000 $15.04
Thomas Wendel............................ 70,000 $15.04
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Options Granted
through April 12, Weighted Average
Name 2004(1) Exercise Price(1)
---- ----------------- -----------------
All current executive officers as a
group (4 persons)...................... 2,152,250 $11.70
All current Directors who are not
executive officers as a group (5
persons)............................... 371,000 $16.51
All employees, including all current
officers who are not executive
officers as a group (1,842 persons).... 13,946,247 $14.79
(1) Such numbers reflect the three-for-one stock split that occurred on April
1, 2003.
As of April 12, 2004, the market value of the Class A Common Stock
underlying the Incentive Plan was $46.95 per share.
PROPOSED AMENDMENT TO THE 1999 INCENTIVE COMPENSATION PLAN
Stockholders are being asked to consider and vote upon a proposed
amendment to the Incentive Plan to (i) increase the maximum number of shares of
Class A Common Stock of the Corporation reserved for issuance from 18,000,000 to
19,000,000 shares and to reserve an additional 1,000,000 shares of Class A
Common Stock for issuance upon the exercise of stock options or for the issuance
of other awards granted under the Incentive Plan, (ii) provide that repricing of
stock options may not occur without stockholder approval, (iii) provide for
minimum restriction periods for stock based awards, other than stock options,
(iv) provide that stock options may not be granted below fair market value, and
(v) provide that all material amendments to the Incentive Plan shall be subject
to stockholder approval.
The Board of Directors believes that the amendment provides an important
inducement to recruit and retain the best available personnel and will assist in
aligning the interests of such personnel with our stockholders' interests.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE FOREGOING
AMENDMENT TO THE INCENTIVE PLAN.
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PROPOSED APPROVAL OF 2004 EMPLOYEE STOCK PURCHASE PLAN
Our Board of Directors has adopted, and is submitting to stockholders for
approval, our 2004 Employee Stock Purchase Plan (the "2004 Employee Stock
Purchase Plan"). A copy of our 2004 Employee Stock Purchase Plan is attached
hereto as Appendix D.
----------
Our 1999 Employee Stock Purchase Plan (the "1999 ESPP") expired pursuant
to its terms on December 31, 2003. An aggregate of 2,400,000 shares of Class A
Common Stock were authorized under the 1999 ESPP of which 371,751 shares of
Class A Common Stock were issued and 2,028,249 shares of Class A Common Stock
remained available for issuance under the 1999 ESPP at the time of expiration.
In April 2004, our Board of Directors deemed it advisable and in our best
interests to provide our eligible employees with opportunities to purchase
shares of our Class A Common Stock pursuant to our 2004 Employee Stock Purchase
Plan, such plan to consist of 1,500,000 shares of Class A Common Stock available
for issuance.
The purpose of the 2004 Employee Stock Purchase Plan is to provide a
further incentive for employees to promote our best interests and to encourage
stock ownership by employees in order to participate in our potential economic
progress. A total of 1,500,000 shares will be made available for issuance and
purchase pursuant to the 2004 Employee Stock Purchase Plan. If our 2004 Employee
Stock Purchase Plan is approved, employees of our designated subsidiaries will
be eligible to participate in such plan effective as of April 1, 2004. If our
2004 Employee Stock Purchase Plan is not approved, no Class A Common Stock shall
be purchased under the 2004 Employee Stock Purchase Plan and the balance of each
Participant's Account (as defined below) shall be promptly returned to the
Participant.
Our 2004 Employee Stock Purchase Plan is intended to form part of our
overall compensation structure, in conjunction with our stock option plans, to
provide an additional source for our employees to share in our prospects for
equity growth. Our Board of Directors believes that a broad-based plan, such as
the 2004 Employee Stock Purchase Plan, serves as an important element in
promoting equity ownership among employees generally. At April 12, 2004, we had
approximately 10,518 full-time employees.
In general, our 2004 Employee Stock Purchase Plan provides for eligible
employees to designate in advance of specified purchase periods (which will be
quarterly, unless otherwise elected by the Board) a percentage of compensation
(up to 15%) to be withheld from their pay and applied toward the purchase of
such number of whole shares of Class A Common Stock as can be purchased at a
price of 90% of the lesser of (a) the fair market value of a share of Class A
Common Stock on the first day of the Purchase Period; or (b) the fair market
value of a share of Class A Common Stock on the Exercise Date (as hereinafter
defined) of such Purchase Period. No employee can purchase more than $25,000
worth of stock annually, and no stock can be purchased by any person which would
result in the purchaser owning five percent or more of our total combined voting
power or value of all classes of our stock.
The 2004 Employee Stock Purchase Plan is intended to satisfy the
requirements of Section 423(b) of the Code which requires that it be approved by
stockholders within one year of the earlier of its adoption by the Board of
Directors or the 2004 Employee Stock Purchase Plan's effective date. The 2004
Employee Stock Purchase Plan was adopted by the Board of Directors on April 8,
2004. In addition, the 2004 Employee Stock Purchase Plan is intended to comply
with certain requirements of Rule 16b-3 under the Exchange Act. Messrs. Howe,
Klein and Weissman serve on the committee which administers the 2004 Employee
Stock Purchase Plan.
The term of the 2004 Employee Stock Purchase Plan will continue in effect
until all shares reserved for issuance have been granted to participants, unless
terminated earlier by our Board of Directors. Our Board of Directors generally
has the right to amend or terminate the 2004 Employee Stock Purchase Plan
without the consent of participants or stockholders, subject to certain
exceptions.
Each employee (except short-term, part-time, or seasonal employees) of our
designated subsidiaries is eligible to participate in the 2004 Employee Stock
Purchase Plan (an "Eligible Employee"), provided he or she is not, as of the day
preceding the first day of the Purchase Period (as defined below), deemed, for
purposes of Section 423(b)(3) of the Code, to own stock possessing 5% or more of
our total combined voting power or value of all classes of our stock.
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The purchase price per share of the Class A Common Stock sold under the
2004 Employee Stock Purchase Plan for any Purchase Period will be equal to the
lesser of (a) 90% of the "fair market value" of a shares of Class A Common Stock
on the first day of such Purchase Period, or (b) 90% of the "fair market value"
of a share of Class A Common Stock on the last day of such Purchase Period (the
"Exercise Date"). The fair market value will be deemed to be the average of the
last bid and asked prices of the Class A Common Stock reported by NASDAQ, or as
the case may be, the last reported sales price of the Class A Common Stock on
such date as reported by the NASDAQ National Market or the principal national
securities exchange on which such stock is listed and traded, or in each such
case where there is no trading on such date, on the first previous date on which
there is such trading.
Under the 2004 Employee Stock Purchase Plan, a separate option to purchase
shares of Class A Common Stock will be granted to each Eligible Employee as of
the first day of each "Purchase Period." The option grant applies automatically
to all Eligible Employees, but to participate in the 2004 Employee Stock
Purchase Plan, further action is required as explained below. A Purchase Period
will be a period of three months or such other period elected by our Board of
Directors, during which time payroll deductions will be made to fund the
purchase of shares subject to option. If this proposal is approved by our
stockholders, for 2004, the Purchase Periods shall be quarterly commencing on
April 1, 2004 and ending on December 31, 2004. The maximum number of shares an
Eligible Employee is eligible to purchase for any Purchase Period of one
calendar year is $25,000 valued on the first day of the relevant Purchase
Periods. If, as of the first day of each such Purchase Period, an Eligible
Employee would be deemed for purposes of Section 423(b)(3) of the Code to own
our stock (including any number of shares which such person is entitled to
purchase under the 2004 Employee Stock Purchase Plan) possessing 5% or more of
our total combined voting power or value of all classes of our stock, the
maximum number of shares such person will be entitled to purchase pursuant to
the 2004 Employee Stock Purchase Plan will be reduced. Options granted to
Eligible Employees who fail to authorize payroll deductions will automatically
lapse.
In order to purchase shares pursuant to an option, an Eligible Employee
must sign a Stock Purchase Agreement and properly return it as instructed or
electronically enroll in the plan in advance of the first day of each Purchase
Period. By doing so, the employee becomes a Participant in the 2004 Employee
Stock Purchase Plan. Under the Stock Purchase Agreement, each Eligible Employee
who elects to participate in the 2004 Employee Stock Purchase Plan must
authorize contributions to the 2004 Employee Stock Purchase Plan through regular
payroll deductions, effective as of the first day of the relevant Purchase
Period. A Participant may authorize payroll deductions from his or her cash W-2
compensation, as defined in the 2004 Employee Stock Purchase Plan
("Compensation"), for each payroll period, of a specified percentage of such
compensation, not less than 1% and not more than 15%, in multiples of 1%. The
amount of payroll deduction must be established at the beginning of a Purchase
Period and may not be altered, except for complete discontinuance. The payroll
deduction authorized by a Participant will be credited to an individual account
maintained for the Participant under the 2004 Employee Stock Purchase Plan (an
"Account").
For any particular Purchase Period, the committee administering the 2004
Employee Stock Purchase Plan may elect, in advance, a "Trust Administration
Option" whereby the amounts of payroll deductions taken for Participants will be
deposited regularly in a trust established by us with an institutional trustee
for the benefit of Participants. Unless withdrawn earlier, the funds held for
the respective Participants (together with applicable earnings) will be applied
by the trustee on the Exercise Date to purchase shares of Class A Common Stock
for each such Participant in accordance with the 2004 Employee Stock Purchase
Plan. We will pay all the expenses of trust establishment and administration,
but will not have a lien over, reversionary interest in, the trust assets.
Withdrawals by Participants during a Purchase Period while the Trust
Administration Option is in effect will entitle the withdrawing Participants to
their respective shares of earnings by the trust on their accumulated payroll
deductions.
Shares of Class A Common Stock acquired pursuant to the exercise of
options under the 2004 Employee Stock Purchase Plan and funded pursuant to
payroll deductions as provided in the Stock Purchase Agreement are to be offered
and sold to Eligible Employees solely pursuant to an effective Registration
Statement filed under the Securities Act of 1933, as amended.
If there is credited to the Account of a Participant as of any Exercise
Date an amount at least equal to the purchase price determined under the 2004
Employee Stock Purchase Plan of one share of Class A Common Stock for the
current Purchase Period, the Participant will purchase, and the we will sell, at
such price the largest number of whole shares of Class A Common Stock which can
be purchased with the amount credited to his or her Account. In no event will
fractional shares be issued. Any balance remaining in a Participant's Account at
the end of a
- 32 -
Purchase Period (not in excess of the purchase price of one share of Class A
Common Stock) will be carried forward into a Participant's Account for the
following Purchase Period.
No Participant may, in any calendar year, purchase such number of shares
under the 2004 Employee Stock Purchase Plan which, when aggregated with all
other shares of our stock which he or she may be entitled to purchase under any
other of our employee stock purchase plans which meets the requirements of
Section 423(b) of the Code, exceeds $25,000 in fair market value. Since the
exclusive method for purchasing shares under the 2004 Employee Stock Purchase
Plan is through payroll deductions whose maximum limit is 15% of Compensation,
the 15% limitation will be the effective limit on purchases of stock under the
2004 Employee Stock Purchase Plan for substantially all employees.
If, as of the Exercise Date in any Purchase Period, the aggregate funds
available for the purchase of shares of Class A Common Stock would result in a
purchase of shares in excess of the maximum number of shares then available for
purchase under the 2004 Employee Stock Purchase Plan, the number of shares which
would otherwise be purchased by each Participant on the Exercise Date will be
reduced by a factor relative to the payroll deduction accumulation for each
Participant.
FEDERAL INCOME TAX CONSEQUENCES
The following generally summarizes the United States federal income tax
consequences that will arise with respect to participation in the 2004 Employee
Stock Purchase Plan and with respect to the sale of common stock acquired under
the 2004 Employee Stock Purchase Plan. This summary is based on the tax laws in
effect as of the date of this proxy statement. Changes to these laws could alter
the tax consequences described below.
TAX CONSEQUENCES TO PARTICIPANTS
A participant will not have income upon enrolling in the plan or upon
purchasing stock at the end of a Purchase Period.
A participant may have both compensation income and a capital gain or loss
upon the sale of stock that was acquired under the plan. The amount of each type
of income and loss will depend on when the participant sells the stock.
If the participant sells the stock more than two years after the
commencement of the Purchase Period during which the stock was purchased and
more than one year after the date that the participant purchased the stock, at a
profit (the sales proceeds exceed the purchase price), then the participant will
have compensation income equal to the lesser of:
o 10% of the value of the stock on the day the offering commenced; and
o the participant's profit.
Any excess profit will be long-term capital gain. If the participant sells
the stock at a loss (if sales proceeds are less than the purchase price) after
satisfying these waiting periods, then the loss will be a long-term capital
loss.
If the participant sells the stock prior to satisfying these waiting
periods, then he or she will have engaged in a disqualifying disposition. Upon a
disqualifying disposition, the participant will have compensation income equal
to the value of the stock on the day he or she purchased the stock less the
purchase price. The participant also will have a capital gain or loss equal to
the difference between the sales proceeds and the value of the stock on the day
he or she purchased the stock. This capital gain or loss will be long-term if
the participant has held the stock for more than one year and otherwise will be
short-term.
TAX CONSEQUENCES TO THE COMPANY
There will be no tax consequences to us except that we will be entitled to
a deduction when a participant has compensation income upon a disqualifying
disposition. Any such deduction will be subject to the limitations of Section
162(m) of the Code.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF OUR 2004 EMPLOYEE
STOCK PURCHASE PLAN.
- 33 -
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Our Board of Directors has, subject to stockholder approval, retained
PricewaterhouseCoopers LLP as our independent auditors of for the year ending
December 31, 2004. PricewaterhouseCoopers LLP also served as our independent
auditors for 2003. Neither the accounting firm nor any of its members has any
direct or indirect financial interest in or any connection with us in any
capacity other than as auditors.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 2004.
One or more representatives of PricewaterhouseCoopers LLP is expected to
attend the Meeting and to have an opportunity to make a statement and/or respond
to appropriate questions from stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders who intend to have a proposal considered for inclusion in our
proxy materials for presentation at our 2005 Annual Meeting of Stockholders
pursuant to Rule 14a-8 under the Exchange Act must submit the proposal to our
Secretary at our offices at 500 Glenpointe Centre West, Teaneck, New Jersey
07666, in writing not later than December 27, 2004.
Stockholders who intend to present a proposal at such meeting without
inclusion of such proposal in our proxy materials pursuant to Rule 14a-8 under
the Exchange Act are required to provide advance notice of such proposal to our
Secretary at the aforementioned address not later than March 11, 2005.
If we do not receive notice of a stockholder proposal within this
timeframe, our management will use its discretionary authority to vote the
shares that they represent as our Board may recommend.
We reserve the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with these
or other applicable requirements.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of our proxy statement or annual report may have been
sent to multiple stockholders in your household. We will promptly deliver a
separate copy of either document to you if you call or write us at the following
address or phone number: 500 Glenpointe Centre West, Teaneck, New Jersey 07666
(201) 801-0233. If you want to receive separate copies of the annual report and
proxy statement in the future or if you are receiving multiple copies and would
like to receive only one copy for your household, you should contact your bank,
broker, or other nominee record holders, or you may contact us at the above
address and phone number.
OTHER MATTERS
Our Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of our Board of
Directors, whose notice of meeting is attached to this Proxy Statement, and the
entire cost of such solicitation will be borne by us.
In addition to the use of mail, proxies may be solicited by personal
interview, telephone and telegram by our Directors, officers and other employees
who will not be specially compensated for these services. We have engaged Morrow
& Co., Inc. to assist us with the solicitation of proxies. We expect to pay
Morrow & Co., Inc. a fee of $5,000 plus reimbursement for out-of-pocket expenses
for its services. We will also request that brokers, nominees, custodians and
other fiduciaries forward soliciting materials to the beneficial owners of
shares held of
- 34 -
record by such brokers, nominees, custodians and other fiduciaries. We will
reimburse such persons for their reasonable expenses in connection therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of our Directors and officers is based upon
information received from the individual Directors and officers.
If you have any questions regarding any of the matters contained in
this proxy statement you may contact Morrow & Co., Inc., 445 Park Avenue, New
York, NY 10022. Morrow & Co., Inc. may also be reached by telephone at
1-800-607-0088.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION WILL FURNISH, WITHOUT CHARGE, A
COPY OF OUR REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH
OF OUR STOCKHOLDERS OF RECORD ON APRIL 13, 2004, AND TO EACH BENEFICIAL
STOCKHOLDER ON THAT DATE UPON WRITTEN REQUEST MADE TO OUR SECRETARY. A
REASONABLE FEE WILL BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE
IN THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
/s/ Gordon Coburn
Gordon Coburn,
Secretary
Teaneck, New Jersey
April 22, 2004
- 35 -
ANNUAL MEETING OF STOCKHOLDERS OF
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CLASS A COMMON STOCK
May 26, 2004
Please date, sign and mail your proxy card in the
envelope provided as soon as possible.
Please detach and mail in the envelope provided.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. |X|
1. ELECTION OF DIRECTORS
Nominees:
| | For All Nominees | | Lakshmi Narayanan
| | Withhold Authority for All Nominees | | John E. Klein
| | For All Except (See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s) mark "FOR ALL EXCEPT" and fill in the circle next to each
nominee you wish to withhold, as shown here: | X |
2. TO AMEND OUR RESTATED CERTIFICATE OF INCORPORATION TO (I) INCREASE FOR AGAINST ABSTAIN
THE NUMBER OF AUTHORIZED SHARES OF OUR CLASS A COMMON STOCK FROM | | | | | |
100,000,000 SHARES TO 325,000,000 SHARES AND (II) ELIMINATE THE
AUTHORIZATION OF OUR CLASS B COMMON STOCK.
3. TO AMEND OUR 1999 INCENTIVE COMPENSATION PLAN, AS AMENDED (THE FOR AGAINST ABSTAIN
"INCENTIVE PLAN"), TO (I) INCREASE THE MAXIMUM NUMBER OF SHARES OF | | | | | |
CLASS A COMMON STOCK RESERVED FOR ISSUANCE FROM 18,000,000 TO
19,000,000 SHARES AND TO RESERVE AN ADDITIONAL 1,000,000 SHARES OF
CLASS A COMMON STOCK FOR ISSUANCE UPON THE EXERCISE OF STOCK OPTIONS
OR FOR THE ISSUANCE OF OTHER AWARDS GRANTED UNDER THE INCENTIVE PLAN,
(II) PROVIDE THAT REPRICING OF STOCK OPTIONS MAY NOT OCCUR WITHOUT
STOCKHOLDER APPROVAL, (III) PROVIDE FOR MINIMUM RESTRICTION PERIODS
FOR STOCK BASED AWARDS, OTHER THAN STOCK OPTIONS, (IV) PROVIDE THAT
STOCK OPTIONS MAY NOT BE GRANTED BELOW FAIR MARKET VALUE AND
(V) PROVIDE THAT ALL MATERIAL AMENDMENTS TO THE INCENTIVE
PLAN SHALL BE SUBJECT TO STOCKHOLDER APPROVAL.
4. TO ADOPT OUR 2004 EMPLOYEE STOCK PURCHASE PLAN. FOR AGAINST ABSTAIN
| | | | | |
5. TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2004. | | | | | |
6. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
Please check the box if you are planning to attend the Meeting in person. | |
TO CHANGE THE ADDRESS ON YOUR ACCOUNT, PLEASE CHECK THE BOX AT RIGHT AND INDICATE YOUR NEW ADDRESS IN THE ADDRESS SPACE ABOVE.
PLEASE NOTE THAT CHANGES TO THE REGISTERED NAME(S) ON THE ACCOUNT MAY NOT BE SUBMITTED VIA THIS METHOD. | |
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
Signature of Class A Common Stockholder Date:
-------------------- -------
Signature of Class A Common Stockholder Date:
-------------------- -------
IF HELD JOINTLY
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THIS PROXY. WHEN SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN. WHEN
SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF THE SIGNER IS A CORPORATION,
PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER, GIVING FULL TITLE AS SUCH. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
APPENDIX A
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Audit Committee Charter
A. PURPOSE
The purpose of the Audit Committee is to assist the Board of Directors'
oversight of the Company's accounting and financial reporting processes
and the audits of the Company's financial statements.
B. STRUCTURE AND MEMBERSHIP
1. Number. The Audit Committee shall consist of at least three members
of the Board of Directors.
2. Independence. Except as otherwise permitted by the applicable
NASDAQ rules, each member of the Audit Committee shall be
independent as defined by NASDAQ rules, meet the criteria for
independence set forth in Rule 10A-3(b)(1) under the Exchange Act
(subject to the exemptions provided in Rule 10A-3(c)), and not
have participated in the preparation of the financial statements
of the Company or any current subsidiary of the Company at any
time during the past three years.
3. Financial Literacy. Each member of the Audit Committee must be
able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement, and cash
flow statement, at the time of his or her appointment to the
Audit Committee. In addition, at least one member must have past
employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable
experience or background which results in the individual's
financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Unless
otherwise determined by the Board of Directors (in which case
disclosure of such determination shall be made in the Company's
annual report filed with the SEC), at least one member of the
Audit Committee shall be an "audit committee financial expert"
(as defined by applicable SEC rules).
4. Chair. Unless the Board of Directors elects a Chair of the Audit
Committee, the Audit Committee shall elect a Chair by majority vote.
5. Compensation. The compensation of Audit Committee members shall be
as determined by the Board of Directors. No member of the Audit
Committee may receive, directly or indirectly, any consulting,
advisory or other compensatory fee from the Company or any of its
subsidiaries, other than fees paid in his or her capacity as a
member of the Board of Directors or a committee of the Board.
6. Selection and Removal. Members of the Audit Committee shall be
appointed by the Board of Directors, upon the recommendation of the
Nominating and Corporate Governance Committee Charter. The Board of
Directors may remove members of the Audit Committee from such
committee, with or without cause.
C. AUTHORITY AND RESPONSIBILITIES
General
-------
The Audit Committee shall discharge its responsibilities, and shall assess
the information provided by the Company's management and the independent
auditor, in accordance with its business judgment. Management is
responsible for the preparation, presentation, and integrity of the
Company's financial
A-1
statements and for the appropriateness of the accounting principles and
reporting policies that are used by the Company. The independent auditors
are responsible for auditing the Company's financial statements and for
reviewing the Company's unaudited interim financial statements. The
authority and responsibilities set forth in this Charter do not reflect or
create any duty or obligation of the Audit Committee to plan or conduct
any audit, to determine or certify that the Company's financial statements
are complete, accurate, fairly presented, or in accordance with generally
accepted accounting principles or applicable law, or to guarantee the
independent auditor's report.
Oversight of Independent Auditors
---------------------------------
1. Selection. The Audit Committee shall be solely and directly
responsible for appointing, evaluating, retaining and, when
necessary, terminating the engagement of the independent auditor.
The Audit Committee may, in its discretion, seek stockholder
ratification of the independent auditor it appoints.
2. Independence. The Audit Committee shall take, or recommend that
the full Board of Directors take, appropriate action to oversee
the independence of the independent auditor. In connection with
this responsibility, the Audit Committee shall obtain and review
a formal written statement from the independent auditor
describing all relationships between the auditor and the Company,
including the disclosures required by Independence Standards
Board Standard No. 1. The Audit Committee shall actively engage
in dialogue with the auditor concerning any disclosed
relationships or services that might impact the objectivity and
independence of the auditor.
3. Compensation. The Audit Committee shall have sole and direct
responsibility for setting the compensation of the independent
auditor. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the compensation
of the independent auditor established by the Audit Committee.
4. Preapproval of Services. The Audit Committee shall preapprove all
audit services to be provided to the Company, whether provided by
the principal auditor or other firms, and all other services
(review, attest and non-audit) to be provided to the Company by the
independent auditor; provided, however, that de minimis non-audit
services may instead be approved in accordance with applicable SEC
rules.
5. Oversight. The independent auditor shall report directly to the
Audit Committee, and the Audit Committee shall have sole and
direct responsibility for overseeing the work of the independent
auditor, including resolution of disagreements between Company
management and the independent auditor regarding financial
reporting. In connection with its oversight role, the Audit
Committee shall, from time to time as appropriate, receive and
consider the reports required to be made by the independent
auditor regarding:
- critical accounting policies and practices;
- alternative treatments within generally accepted accounting
principles for policies and practices related to material
items that have been discussed with Company management,
including ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor; and
- other material written communications between the independent
auditor and Company management.
In connection with its oversight role, the Audit Committee should
also review with the independent auditors, from time to time as
appropriate:
A-2
(i) significant risks and uncertainties with respect to the
quality, accuracy or fairness of presentation of the Company's
financial statements;
(ii) any accounting adjustments that were noted or proposed by the
auditor but were "passed" (as immaterial or otherwise);
(iii) any "management" or "internal control" letter issued, or
proposed to be issued, by the audit firm to the Company;
(iv) accounting for unusual transactions;
(v) adjustments arising from audits that could have a significant
impact on the Company's financial reporting process; and
(vi) any recent SEC comments on the Company's SEC reports,
including in particular any unresolved or future-compliance
comments.
Audited Financial Statements
----------------------------
6. Review and Discussion. The Audit Committee shall review and discuss
with the Company's management and independent auditor the Company's
audited financial statements, including the matters about which
Statement on Auditing Standards No. 61 (Codification of Statements
on Auditing Standards, AU ss.380) requires discussion.
7. Recommendation to Board Regarding Financial Statements. The Audit
Committee shall consider whether it will recommend to the Board of
Directors that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-K.
8. Audit Committee Report. The Audit Committee shall prepare an annual
committee report for inclusion where necessary in the proxy
statement of the Company relating to its annual meeting of security
holders.
Review of Other Financial Disclosures
-------------------------------------
9. Independent Auditor Review of Interim Financial Statements. The
Audit Committee shall direct the independent auditor to use its
best efforts to perform all reviews of interim financial
information prior to disclosure by the Company of such
information and to discuss promptly with the Audit Committee and
the Chief Financial Officer any matters identified in connection
with the auditor's review of interim financial information which
are required to be discussed by applicable auditing standards.
The Audit Committee shall direct management to advise the Audit
Committee in the event that the Company proposes to disclose
interim financial information prior to completion of the
independent auditor's review of interim financial information.
Controls and Procedures
-----------------------
10. Oversight. The Audit Committee shall coordinate the Board of
Directors' oversight of the Company's internal control over
financial reporting, disclosure controls and procedures and code
of conduct. The Audit Committee shall receive and review the
reports of the CEO and CFO required by Rule 13a-14 of the
Exchange Act. The Audit Committee shall periodically review the
complaint procedures to confirm that they are effectively
operating.
11. Procedures for Complaints. The Audit Committee shall establish
procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
A-3
12. Related-Party Transactions. The Audit Committee shall review all
"related party transactions" (defined as transactions required to be
disclosed pursuant to Item 404 of Regulation S-K) on an ongoing
basis, and all such transactions must be approved by the Audit
Committee.
13. Additional Powers. The Audit Committee shall have such other duties
as may be delegated from time to time by the Board of Directors.
D. PROCEDURES AND ADMINISTRATION
1. Meetings. The Audit Committee shall meet as often as it deems
necessary in order to perform its responsibilities. The Audit
Committee may also act by unanimous written consent in lieu of a
meeting. The Audit Committee shall periodically meet separately
with: (i) the independent auditor; (ii) Company management and (iii)
the Company's internal auditors. The Audit Committee shall keep such
records of its meetings as it shall deem appropriate.
2. Subcommittees. The Audit Committee may form and delegate authority
to one or more subcommittees (including a subcommittee consisting of
a single member), as it deems appropriate from time to time under
the circumstances. Any decision of a subcommittee to preapprove
audit, review, attest or non-audit services shall be presented to
the full Audit Committee at its next scheduled meeting.
3. Reports to Board. The Audit Committee shall report regularly to the
Board of Directors.
4. Charter. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter and recommend any proposed
changes to the Board of Directors for approval.
5. Independent Advisors. The Audit Committee is authorized, without
further action by the Board of Directors, to engage such
independent legal, accounting and other advisors as it deems
necessary or appropriate to carry out its responsibilities. Such
independent advisors may be the regular advisors to the Company.
The Audit Committee is empowered, without further action by the
Board of Directors, to cause the Company to pay the compensation
of such advisors as established by the Audit Committee.
6. Investigations. The Audit Committee shall have the authority to
conduct or authorize investigations into any matters within the
scope of its responsibilities as it shall deem appropriate,
including the authority to request any officer, employee or advisor
of the Company to meet with the Audit Committee or any advisors
engaged by the Audit Committee.
7. Funding. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the ordinary
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
A-4
APPENDIX B
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
The undersigned, for purposes of amending the Restated Certificate of
Incorporation (the "Certificate") of Cognizant Technology Solutions Corporation,
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is Cognizant Technology
Solutions Corporation (the "Corporation").
SECOND: The Certificate was filed with the Office of the Secretary
of State of the State of Delaware on February 7, 2003.
THIRD: That Article IV of the Certificate is hereby amended to
read, in its entirety, as follows:
"A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 340,000,000 shares, consisting of
(i) 325,000,000 shares of Class A Common Stock, $0.01 par value per share
("Common Stock"), and (ii) 15,000,000 shares of Preferred Stock, $0.10 par value
per share ("Preferred Stock").
B. The number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of the Common Stock of the Corporation,
voting together as a single class, irrespective of the provisions of Section
242(b)(2) of the GCL or any corresponding provision hereinafter enacted.
C. The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
(1) COMMON STOCK.
(a) General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
(b) Voting. The holders of the Common Stock shall have voting rights at
all meetings of stockholders, each such holder being entitled to one vote for
each share thereof held by such holder; provided, however, that, except as
otherwise required by law, holders of Common Stock shall not be entitled to vote
on any amendment to this Certificate of Incorporation (which, as used herein,
shall mean the certificate of incorporation of the Corporation, as amended from
time to time, including the terms of any certificate of designation of any
series of Preferred Stock) that relates solely to the terms of one or more
outstanding series of Preferred Stock if the holders of such affected series are
entitled, either separately or together as a class with the holders of one or
more other such series, to vote thereon pursuant to this Certificate of
Incorporation. There shall be no cumulative voting.
(c) Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend or other rights of any then
outstanding Preferred Stock.
B-1
(d) Liquidation. Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential or other rights of any then
outstanding Preferred Stock. For the purposes of this paragraph (C)(1)(d), the
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the GCL
or any corresponding provision hereinafter enacted.
(2) PREFERRED STOCK.
Subject to the limitations and in the manner provided by law, shares of
the Preferred Stock may be issued from time to time in series, and the Board of
Directors of the Corporation or a duly-authorized committee of the Board of
Directors of the Corporation, in accordance with the laws of the State of
Delaware, is hereby authorized to determine or alter the relative rights, powers
(including voting powers), preferences, privileges and restrictions granted to
or imposed upon Preferred Stock or any wholly unissued series of shares of
Preferred Stock, and to increase or decrease (but not below the number of shares
of any series of Preferred Stock then outstanding) the number of shares of any
such series subsequent to the issue of shares of that series. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall upon the taking of any action required by applicable law resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series."
FOURTH: Except as expressly amended herein, all other provisions of the
Certificate, including, but not limited to, the Certificate of Designations of
the Series A Junior Participating Preferred Stock filed with the Office of the
Secretary of State of the State of Delaware on March 6, 2003, shall remain in
full force and effect.
FIFTH: That the foregoing amendment was duly adopted by the Board of
Directors and by the stockholders of the Corporation in accordance with the
applicable provisions of Section 228 and Section 242 of the General Corporation
Law of the State of Delaware.
* * * * * * *
B-2
IN WITNESS WHEREOF, the undersigned, being a duly authorized officer of
the Corporation, does hereby execute this Certificate of Amendment to the
Amended and Restated Certificate of Incorporation this day of May, 2004.
---
By:
-------------------------------
Lakshmi Narayanan
President and Chief Executive Officer
B-3
APPENDIX C
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
2004 Amendment to 1999 Incentive Compensation Plan, as amended
WHEREAS, in April 2004, the Board of Directors of Cognizant Technology
Solutions Corporation (the "Company") deemed it to be advisable and in the bests
of the Company to further amend the Company's 1999 Incentive Compensation Plan,
as amended (the "Incentive Plan") to (i) increase the number of shares of Class
A Common Stock of the Corporation reserved for issuance thereunder from
18,000,000 to 19,000,000 shares (subject to adjustment as provided in the
Incentive Plan), (ii) provide that repricing of stock options may not occur
without stockholder approval, (iii) provide for minimum restriction periods for
stock based awards, other than stock options, (iv) provide that stock options
may not be granted below fair market value, and (v) provide that all material
amendments to the Incentive Plan shall be subject to stockholder approval; and
WHEREAS, capitalized terms used and not defined herein have the meanings
set forth in the Incentive Plan.
NOW, THEREFORE, BE IT RESOLVED, that the Incentive Plan be amended as
follows:
SECTION 5.1
-----------
Section 5.1 of the Incentive Plan, is hereby amended and replaced in its
entirety by the following:
"5.1 Available Shares. The aggregate number of shares of Common
Stock which shall be available for grants or payments of Awards under the Plan
during its term shall be 19,000,000 shares. Such shares of Common Stock
available for issuance under the Plan may be either authorized but unissued
shares, shares of issued stock held in the Company's treasury, or both, at the
discretion of the Company, and subject to any adjustments made in accordance
with Section 5.2 below. Any shares of Common Stock underlying Awards which
terminate by expiration, forfeiture, cancellation or otherwise without the
issuance of such shares shall again be available for grants of Awards under the
Plan. Awards that are payable only in cash are not subject to this Section 5.1."
SECTION 7.2
-----------
Section 7.2 of the Incentive Plan, is hereby amended and replaced in its
entirety by the following:
"7.2 Exercise Price. The Committee shall specify the exercise price
of each Stock Option in the Award Agreement; provided, however, that the
exercise price of any ISO or Nonqualified Stock Option shall not be less than
100 percent of the Fair Market Value of the Common Stock on the date of grant."
SECTION 16.2
------------
The final paragraph of Section 16.2 of the Incentive Plan is hereby
amended and replaced in its entirety by the following:
"In addition, the Plan shall not be amended without the approval of
such amendment by the Company's stockholders if such amendment (i) is required
under the rules and regulations of the stock exchange or national market system
on which the Common Stock is listed, (ii) will disqualify any ISO granted
hereunder, or (iii) is otherwise considered material in the reasonable judgment
of the Committee."
C-1
SECTION 17
----------
The following sections shall be inserted in Section 17 of the Incentive
Plan:
"17.11 Prohibition on Repricing of Options. Notwithstanding anything
in the Plan to the contrary, the Committee may not, without the consent of the
Company's stockholders, reprice any outstanding Award; provided, however, that
stock splits, stock dividends and similar events as set forth in Section 5.2
herein shall not be deemed to be a repricing hereunder.
17.12 Minimum Restriction Periods. Except as set forth in Section 14
herein and notwithstanding any other provision set forth in the Plan to the
contrary, (a) any Award other than a Stock Option, that is not subject to
performance criteria shall Vest over a period of at least three years in equal
installments over such three year period, and (b) any Award other than a Stock
Option, that is subject to performance criteria shall Vest over a period of at
least 12 months in equal installments."
Except as expressly amended by this amendment, the provisions of the
Incentive Plan shall remain in full force and effect unamended hereby.
The foregoing amendments were adopted
by the Board of Directors on ,
2004 and approved by the stockholders
on , 2004.
I hereby certify that the foregoing is a full, true and correct copy of
the 2004 Amendment to the Incentive Plan, as in effect on the date hereof.
Dated: , 2004
------ ------------------------------
Gordon Coburn
Secretary
C-2
APPENDIX D
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
2004 EMPLOYEE STOCK PURCHASE PLAN
I. DEFINITIONS
--------------
ACCOUNT means the Employee Stock Purchase Plan Account established for a
Participant under Section IX hereunder.
BOARD OF DIRECTORS shall mean the Board of Directors of the Company.
CODE shall mean the Internal Revenue Code of 1986, as amended.
COMMITTEE shall mean the Compensation Committee appointed and acting in
accordance with the terms of the Plan.
COMMON STOCK shall mean shares of the Company's Class A Common Stock, par
value $.01 per share, and any security into which such stock shall be converted
or shall become by reason of changes in its nature such as by way of
recapitalization, reclassification, changes in par value, merger, consolidation
or similar transaction.
COMPANY shall mean Cognizant Technology Solutions Corporation, a Delaware
corporation. When used in the Plan with reference to employment, Company shall
include Designated Subsidiaries.
COMPENSATION shall mean the total cash compensation paid to an Eligible
Employee by the Company, as reportable on IRS Form W-2. Notwithstanding the
foregoing, Compensation shall exclude severance pay, stay-on bonuses, long term
bonuses, retirement income, change-in-control payments, contingent payments,
income derived from stock options, stock appreciation rights and other
equity-based compensation and other forms of special remuneration.
EFFECTIVE DATE shall mean April 1, 2004.
ELIGIBLE EMPLOYEES shall mean only those persons who, as of the first day
of a Purchase Period, are Employees of the Company or any Subsidiary designated
by the Committee from time to time (a "Designated Subsidiary") and who are not,
as of the day preceding the first day of the Purchase Period, deemed for
purposes of Section 423(b)(3) of the Code to own stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the Company.
EMPLOYEES shall mean all persons who are employed by the Company as
common-law employees, excluding persons (i) whose customary employment is 20
hours or less per week, or (ii) whose customary employment is for not more than
five months in a calendar year.
EXCHANGE ACT shall mean the Securities Exchange Act of 1934, as amended.
EXERCISE DATE shall mean the last day of a Purchase Period.
FAIR MARKET VALUE shall mean as of any date: (i) the average of the
closing bid and asked prices on such date of the Common Stock as quoted by
Nasdaq; or (ii), as the case may be, the last reported sales price of the Common
Stock on such date as reported by the Nasdaq National Market or the principal
national securities exchange on which such stock is listed and traded, or in
each such case where there is no trading on such date, on the first previous
date on which there is such trading.
PARTICIPANT shall mean an Eligible Employee who elects to participate in
the Plan under Section VII hereunder.
D-1
PLAN shall mean the Cognizant Technology Solutions Corporation Employee
Stock Purchase Plan, as set forth herein and as amended from time to time.
PURCHASE PERIOD shall mean (a) for 2004, the purchase periods shall be
quarterly commencing on the Effective Date and ending on December 31, 2004; and
(b) thereafter, purchase periods shall remain quarterly, unless modified by the
Committee not less than 60 days in advance of the commencement of such modified
period. A Purchase Period shall begin on the first business day of, and end on
the last business day of, each such calendar period. The last Purchase Period
under the Plan shall terminate on or before the date of termination of the Plan
provided in Section XXIV.
SUBSIDIARY shall mean any corporation which is a subsidiary of the Company
within the meaning of Section 425(f) of the Code.
TERMINATION OF SERVICE shall mean the earliest of the following events
with respect to a Participant: his retirement, death, quit, discharge or
permanent separation from service with the Company.
The masculine gender includes the feminine, the singular number includes
the plural and the plural number includes the singular unless the context
otherwise requires.
II. PURPOSE
-----------
It is the purpose of this Plan to provide a means whereby Eligible
Employees may purchase Common Stock through payroll deductions. It is intended
to provide a further incentive for Employees to promote the best interests of
the Company and to encourage stock ownership by Employees in order to
participate in the Company's economic progress.
It is the intention of the Company to have the Plan qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Code and
the provisions of the Plan shall be construed in a manner consistent with the
Code.
III. ADMINISTRATION
-------------------
The Plan shall be administered by the Compensation Committee of the Board
of Directors. The Committee shall have authority to make rules and regulations
for the administration of the Plan, and its interpretations and decisions with
regard thereto shall be final and conclusive. The Committee shall have all
necessary authority to communicate, from time to time, with Eligible Employees
and Participants for purposes of administering the Plan, and shall notify
Eligible Employees promptly of its election of the term of each forthcoming
Purchase Period, if other than a quarterly, and of its election to utilize the
Trust Administration Option referred to in Section IX.
IV. SHARES
----------
There shall be 1,500,000 shares of Common Stock reserved for issuance to
and purchase by Participants under the Plan, subject to adjustment in accordance
with Section XXI hereof. The shares of Common Stock subject to the Plan shall be
either shares of authorized but unissued Common Stock or shares of Common Stock
reacquired by the Company. Shares of Common Stock involved in any unexercised
portion of any terminated option may again be subject to options to purchase
granted under the Plan.
V. PURCHASE PRICE
-----------------
The purchase price per share of the shares of Common Stock sold to
Participants under this Plan for any Purchase Period shall be the lesser of (a)
90% of the Fair Market Value of a share of Common Stock on the first day of such
Purchase Period, or (b) 90% of the Fair Market Value of a share of Common Stock
on the Exercise Date of such Purchase Period.
D-2
VI. GRANT OF OPTION TO PURCHASE SHARES
--------------------------------------
Each Eligible Employee shall be granted an option effective on the first
day of each Purchase Period to purchase a number of full shares of Common Stock
(subject to adjustment as provided in Section XXI). No Eligible Employee shall
be permitted to purchase shares under this Plan (or under any other "employee
stock purchase plan" within the meaning of Section 423(b) of the Code, of the
Company ) with an aggregate Fair Market Value (as determined as of the first day
of the Purchase Period) in excess of $25,000 for any one calendar year within
the meaning of Section 423(b)(8) of the Code. For a given Purchase Period,
payroll deductions shall commence on the first day of the Purchase Period and
shall end on the related Exercise Date, unless sooner altered or terminated as
provided in the Plan.
Anything herein to the contrary notwithstanding, if, as of the first day
of a Purchase Period, any Eligible Employee entitled to purchase shares
hereunder would be deemed for the purposes of Section 423(b)(3) of the Code to
own stock (including any number of shares which such person would be entitled to
purchase hereunder) possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company, the maximum number of shares which
such person shall be entitled to purchase pursuant to the Plan shall be reduced
to that number which when added to the number of shares of stock of the Company
which such person is so deemed to own (excluding any number of shares which such
person would be entitled to purchase hereunder), is one less than such 5%.
VII. ELECTION TO PARTICIPATE
----------------------------
An Eligible Employee may elect to become a Participant in this Plan by
completing a "Stock Purchase Agreement" form or otherwise indicating an election
via electronic enrollment prior to the first day of the Purchase Period. In the
Stock Purchase Agreement, the Eligible Employee shall authorize regular payroll
deductions from his Compensation subject to the limitations in Section VIII
below. Options granted to Eligible Employees who fail to authorize payroll
deductions will automatically lapse. If a Participant's payroll deductions allow
him to purchase fewer than the maximum number of shares of Common Stock to which
his option entitles him, the option with respect to the shares which he does not
purchase will lapse as of the last day of the Purchase Period.
The execution and delivery of the Stock Purchase Agreement as between the
Participant and the Company shall be conditioned upon the compliance by the
Company at such time with Federal (and any applicable state) securities laws.
VIII. PAYROLL DEDUCTIONS
------------------------
An Eligible Employee may authorize payroll deductions from his
Compensation for each payroll period of a specified percentage of such
Compensation, not less than 1% and not more than 15%, in multiples of 1%.
The amount of payroll deduction shall be established prior to the
beginning of a Purchase Period and may not be altered, except for complete
discontinuance under Section XI, XIII or XIV hereunder.
IX. EMPLOYEE STOCK PURCHASE ACCOUNT
AND TRUST ADMINISTRATION OPTION
-----------------------------------
An Employee Stock Purchase Account will be established for each
Participant in the Plan. Payroll deductions made under Section VIII will be
credited to the individual Accounts. In the event the Committee determines with
respect to any Purchase Period, not to utilize the "Trust Administration Option"
set forth in the next paragraph, no interest or other earnings will be credited
to a Participant's Account.
With respect to any one or more Purchase Periods, the Committee may elect
to utilize, in addition to the separate accounting for payroll deductions
provided in the Plan, the option to administer the funding of the Accounts
through a trust established pursuant to a trust agreement between the Company
and an institution exercising fiduciary powers (the "Trust Administration
Option") as hereinafter set forth in this paragraph. The Company shall provide
for the funding of each Account on a regular basis during each Purchase Period
reflecting payroll deductions
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of Participants and shall cause such sums to be deposited within 15 days
following such deductions in a trust account at such institution and upon such
terms as are established by the Committee. The trust account assets shall be
invested in shares of a tax-exempt money-market registered investment company
designated in the trust agreement, which designation shall not be changed during
the Purchase Period. Assets deposited in the aforesaid trust account shall be
commingled, but a separate accounting shall be kept for each Participant's
interest therein. Each Participant shall be credited with his allocable share of
the earnings of the trust account, which credits shall be reflected in each
Participant's Account balance hereunder. At all times, the funds in such trust
account shall be considered the property of the respective Participants, and no
part of the trust account assets may at any time revert to, or be subject to any
lien or claim of, the Company; provided, however, that such trust account assets
may be used only for the purchase of shares as provided in Section X hereof or
for withdrawal by or return to Participants (or their beneficiaries) as provided
in Sections XI, XIII or XXIV hereof.
X. PURCHASE OF SHARES
---------------------
If, as of any Exercise Date, there is credited to the Account of a
Participant an amount at least equal to the purchase price of one share of
Common Stock for the current Purchase Period, as determined in Section V, the
Participant shall buy and the Company shall sell at such price the largest
number of whole shares of Common Stock which can be purchased with the amount in
his Account.
Any balance remaining in a Participant's Account at the end of a Purchase
Period will be carried forward into the Participant's Account for the following
Purchase Period. In no event will the balance carried forward be equal to or
exceed the purchase price of one share of Common Stock as determined in Section
V above. Notwithstanding the foregoing provisions of this paragraph, if as of
any Exercise Date the provisions of Section XV are applicable to the Purchase
Period ending on such Exercise Date, and the Committee reduces the number of
shares which would otherwise be purchased by Participants on such Exercise Date,
the entire balance remaining credited to the Account of each Participant after
the purchase of the applicable number of shares of Common Stock on such Exercise
Date shall be refunded to each such Participant. Except with respect to a
Purchase Period for which the Trust Administration Option has been elected, no
refund of an Account balance made pursuant to the Plan shall include any amount
in respect of interest or other imputed earnings.
Anything herein to the contrary notwithstanding, no Participant may, in
any calendar year, purchase a number of shares of Common Stock under this Plan
which, together with all other shares of stock of the Company and its
Subsidiaries which he may be entitled to purchase in such year under all other
employee stock purchase plans of the Company and its subsidiaries which meet the
requirements of Section 423(b) of the Code, have an aggregate Fair Market Value
(measured as of the first day of each applicable Purchase Period) in excess of
$25,000. The limitation described in the preceding sentence shall be applied in
a manner consistent with Section 423(b)(8) of the Code.
XI. WITHDRAWAL
--------------
A Participant may withdraw from the Plan at any time prior to the Exercise
Date of a Purchase Period by filing a notice of withdrawal. Upon a Participant's
withdrawal, the payroll deductions shall cease for the next payroll period and
the entire amount credited to his Account shall be refunded to him. Any
Participant who withdraws from the Plan may again become a Participant hereunder
at the start of the next Purchase Period in accordance with Section VII.
XII. ISSUANCE OF STOCK CERTIFICATES
-----------------------------------
The shares of Common Stock purchased by a Participant shall, for all
purposes, be deemed to have been issued and sold at the close of business on the
Exercise Date. Prior to that date, none of the rights or privileges of a
stockholder of the Company shall exist with respect to such shares. Stock
certificates shall be registered either in the Participant's name or jointly in
the names of the Participant and his spouse, as the Participant shall designate
in his Stock Purchase Agreement. Such designation may be changed at any time by
filing notice thereof. Certificates representing shares of purchased Common
Stock shall be delivered promptly to the Participant following issuance.
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XIII. TERMINATION OF SERVICE
----------------------------
(a) Upon a Participant's Termination of Service for any reason other than
death or voluntary termination of employment on or after attaining age 55
("Retirement"), no payroll deduction may be made from any Compensation due him
as of the date of his Termination of Service and the entire balance credited to
his Account shall be automatically refunded to him.
(b) Upon a Participant's Retirement, no payroll deduction shall be made
from any Compensation due him as of the date of his retirement. Such a
Participant may, prior to Retirement, elect:
(1) to have the entire amount credited to his Account as of the date of his
Retirement refunded to him, or
(2) to have the entire amount credited to his Account held therein and utilized
to purchase shares on the Exercise Date as provided in Section X.
(c) Upon the death of a Participant, no payroll deduction shall be made
from any Compensation due him at time of death, and the entire balance in the
deceased Participant's Account shall be paid to the Participant's designated
beneficiary, or otherwise to his estate.
XIV. AUTHORIZED LEAVE OF ABSENCE, DISABILITY
--------------------------------------------
Payroll deductions shall cease during a period of absence without pay from
work due to a Participant's authorized leave of absence, disability or for any
other reason. If such Participant shall return to active service prior to the
Exercise Date for the current Purchase Period, payroll deductions shall be
resumed in accordance with his prior authorization.
If the Participant shall not return to active service prior to the
Exercise Date for the current Purchase Period, the balance of his Stock Purchase
Account will be used to purchase shares on the Exercise Date as provided in
Section X, unless the Participant elects to withdraw from the Plan in accordance
with Section XI.
XV. PROCEDURE IF INSUFFICIENT SHARES AVAILABLE
----------------------------------------------
In the event that on any Exercise Date the aggregate funds available for
the purchase of shares of Common Stock pursuant to Section X hereof would result
in purchases of shares in excess of the number of shares of Common Stock then
available for purchase under the Plan, the Committee shall proportionately
reduce the number of shares which would otherwise be purchased by each
Participant on the Exercise Date in order to eliminate such excess, and the
provisions of the second paragraph of Section X shall apply.
XVI. RIGHTS NOT TRANSFERABLE
----------------------------
The right to purchase shares of Common Stock under this Plan is
exercisable only by the Participant during his lifetime and is not transferable
by him. If a Participant attempts to transfer his right to purchase shares under
the Plan, he shall be deemed to have requested withdrawal from the Plan and the
provisions of Section XI hereof shall apply with respect to such Participant.
XVII. NO OBLIGATION TO EXERCISE OPTION
--------------------------------------
Granting of an option under this Plan shall impose no obligation on an
Eligible Employee to exercise such option.
XVIII. NO GUARANTEE OF CONTINUED EMPLOYMENT
-------------------------------------------
Granting of an option under this Plan shall imply no right of continued
employment with the Company for any Eligible Employee.
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XIX. NOTICE
-----------
Any notice which an Eligible Employee or Participant files pursuant to
this Plan shall be in writing and shall be delivered personally or by mail
addressed to the Committee, c/o Chief Executive Officer at 500 Glenpointe Center
West, Teaneck, New Jersey 07666 or such other person or location as may be
specified by the Committee.
XX. REPURCHASE OF STOCK
-----------------------
The Company shall not be required to repurchase from any Participant
shares of Common Stock acquired under this Plan.
XXI. ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
--------------------------------------------------
The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option, and the purchase price thereof for each such
option shall be appropriately adjusted for any increase or decrease in the
number of outstanding shares of Common Stock resulting from a stock split or
other subdivision or consolidation of shares of Common Stock or for other
capital adjustments or payments of stock dividends or distributions or other
increases or decreases in the outstanding shares of Common Stock affected
without receipt of consideration of the Company.
Subject to any required action by the stockholders, if the Company shall
be the surviving corporation in any merger, reorganization or other business
combination, any option granted hereunder shall cover the securities or other
property to which a holder of the number of shares of Common Stock would have
been entitled pursuant to the terms of the merger. A dissolution or liquidation
of the Company or a merger or consolidation in which the Company is not the
surviving entity shall cause every option outstanding hereunder to terminate.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any such
adjustment shall provide for the elimination of any fractional share which might
otherwise become subject to an option.
XXII. AMENDMENT OF THE PLAN
---------------------------
The Board of Directors may, without the consent of the Participants, amend
the Plan at any time, provided that no such action shall adversely affect
options theretofore granted hereunder, and provided that no such action by the
Board of Directors, without approval of the Company's stockholders, may:
(a) increase the total number of shares of Common Stock which may be
purchased by all Participants, except as contemplated in Section XXI;
(b) change the class of Employees eligible to receive options under the
Plan;
(c) decrease the minimum purchase price under Section V;
(d) extend a Purchase Period hereunder; or
(e) extend the term of the Plan.
XXIII. INTERNATIONAL PARTICIPANTS
---------------------------------
With respect to Eligible Employees who reside or work outside the United
States of America, the Committee may, in its sole discretion, amend the terms of
the Plan with respect to such Eligible Employees in order to conform such terms
with the requirements of local law.
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XXIV. TERM OF THE PLAN
----------------------
This Plan shall become effective as of the Effective Date upon its
adoption by the Board of Directors, provided that it is approved at a duly-held
meeting of stockholders of the Company, by an affirmative majority of the total
votes present and voting thereat, within 12 months after the earlier of the
Effective Date or the date of adoption by the Board of Directors. If the Plan is
not so approved, no Common Stock shall be purchased under the Plan and the
balance of each Participant's Account shall be promptly returned to the
Participant. The Plan shall continue in effect until all shares reserved for
issuance pursuant to Article IV have been granted to Participants, unless
terminated prior thereto pursuant to Section XV or XXI hereof, or pursuant to
the next succeeding sentence. The Board of Directors shall have the right to
terminate the Plan at any time, effective as of the next succeeding Exercise
Date. In the event of the termination of the Plan, outstanding options shall not
be affected, except to the extent provided in Section XV and any remaining
balance credited to the Account of each Participant as of the applicable
Exercise Date shall be refunded to each such Participant.