SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Cognizant Technology Solutions Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
500 Glenpointe Centre West
Teaneck, New Jersey 07666
April 26, 1999
To Our Stockholders:
You are most cordially invited to attend the 1999 Annual Meeting of
Stockholders of Cognizant Technology Solutions Corporation at 10:00 a.m. local
time, on Tuesday, May 25, 1999, at the Teaneck Marriott at Glenpointe, 100 Frank
W. Burr Boulevard, Teaneck, New Jersey.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to 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,
Wijeyaraj Mahadeva
Chairman of the Board and
Chief Executive Officer
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
500 Glenpointe Centre West
Teaneck, New Jersey 07666
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 25, 1999
The Annual Meeting of Stockholders (the "Meeting") of COGNIZANT TECHNOLOGY
SOLUTIONS CORPORATION, a Delaware corporation (the "Company"), will be held at
the Teaneck Marriott at Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, New
Jersey on Tuesday, May 25, 1999, at 10:00 a.m. local time, for the following
purposes:
(1) To elect six directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2) To approve a proposal to adopt the Company's 1999 Incentive Compensation
Plan;
(3) To approve a proposal to adopt the Company's Employee Stock Purchase Plan;
(4) To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the year ending December 31, 1999; and
(5) To transact such other business as may properly come before the Meeting or
any adjournment or adjournments thereof.
Holders of Common Stock, including holders of the Company's Class A Common
Stock and Class B Common Stock, of record at the close of business on March 31,
1999 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 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 THE COMPANY 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 OR BECAUSE YOU HOLD BOTH CLASS A
COMMON STOCK AND CLASS B COMMON STOCK, EACH SUCH PROXY CARD SHOULD BE SIGNED AND
RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
Gordon Coburn
Secretary
Teaneck, New Jersey
April 26, 1999
THE COMPANY'S 1998 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
500 GLENPOINTE CENTRE WEST
TEANECK, NEW JERSEY 07666
-------------------------------------
PROXY STATEMENT
-------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Cognizant Technology Solutions Corporation (the
"Company") of proxies to be voted at the Annual Meeting of Stockholders of the
Company to be held on Tuesday, May 25, 1999 (the "Meeting"), at the Teaneck
Marriott at Glenpointe, 100 Frank W. Burr Boulevard, 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, $.01 par value ("Class A Common
Stock"), and Class B Common Stock, $.01 par value ("Class B Common Stock"), as
of the close of business on March 31, 1999, will be entitled to notice of and to
vote at the Meeting and any adjournment or adjournments thereof. As of that
date, there were 3,506,411 shares of Class A Common Stock and 5,645,450 shares
of Class B 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. Each share of Class B Common Stock is entitled to
ten votes on any matter presented to stockholders at the Meeting. Accordingly,
there are an aggregate of 59,960,911 votes entitled to be cast at the Meeting,
56,454,500 of which are held by the Class B Common Stockholder and 3,506,411 of
which are held by the Class A Common Stockholders. IMS Health Incorporated ("IMS
Health") is the record and beneficial holder of all of the outstanding shares of
Class B Common Stock.
If proxies in the accompanying form are properly executed and returned, the
shares of Common Stock represented thereby will be voted in the manner specified
therein. If not otherwise specified, the shares of Common Stock represented by
the proxies will be voted (i) FOR the election of the six nominees named below
as Directors, (ii) FOR the approval of a proposal to adopt the Company's 1999
Incentive Compensation Plan, (iii) FOR the approval of a proposal to adopt the
Company's Employee Stock Purchase Plan, (iv) FOR the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors for the year
ending December 31, 1999, and (v) 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 the Secretary of the Company, 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 and Class B 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 and Class B Common Stock represented at the Meeting, voting together as a
single class, is required for the election of Directors, provided a quorum is
present in person or by proxy. All actions proposed herein other than the
election of Directors may be taken upon the affirmative vote of stockholders
possessing a majority of the shares of Class A Common Stock and Class B Common
Stock represented at the Meeting, voting together as a single class, 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, is being
mailed to the stockholders of the Company on or about April 26, 1999. The Annual
Report to Stockholders of the Company for the year ended December 31, 1998,
including financial statements (the "Annual Report"), is being mailed together
with this Proxy Statement to all stockholders of record as of March 31, 1999. In
addition, the Company has provided brokers, dealers, banks, voting trustees and
their nominees, at the Company's expense, with additional copies of the Annual
Report so that such record holders could supply such materials to beneficial
owners as of March 31, 1999.
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, six Directors are to be elected (which number constitutes
the entire current Board of Directors of the Company) to hold office until the
next Annual Meeting of Stockholders and until their successors shall have been
elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the shares of Class A Common Stock and Class B Common Stock represented
thereby, unless otherwise specified in the proxy, for the election as Directors
of the persons whose names and biographies appear below. All of the persons
whose names and biographies appear below are at present Directors of the
Company. 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.
The current members of the Board of Directors and nominees for election to
the Board are as follows:
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- ---- --- -------------- -----------
Wijeyaraj Mahadeva........ 47 1998 Chairman of the Board and
Chief Executive Officer
Anthony Bellomo........... 45 1998 Director
Victoria Fash............. 48 1997 Director
Robert W. Howe............ 52 1999 Director
John Klein................ 57 1998 Director
Venetia Kontogouris....... 48 1997 Director
The principal occupations and business experience, for at least the past
five years, of each nominee is as follows:
Wijeyaraj (Kumar) Mahadeva was elected Chairman and Chief Executive Officer
of the Company's Indian subsidiary in 1994, and led the team that established
the software development and maintenance business conducted by the Company. Mr.
Mahadeva was elected Vice President of the Company in 1994, and was elected
President on April 17, 1996. Effective in March 1998, Mr. Mahadeva was elected
Chairman and Chief Executive Officer of the Company. Mr. Mahadeva concurrently
served as Chairman of The Dun & Bradstreet Corporation India and China from 1993
to 1996. Mr. Mahadeva previously served as Vice President, Corporate Strategy,
at The Dun & Bradstreet Corporation from 1989 to 1993, as Director, Business
Markets Group, at AT&T from 1985 to 1989, and as a management consultant at
McKinsey & Company from 1978 to 1985. Mr. Mahadeva holds a Masters of Business
Administration degree from Harvard University and a Masters in Electrical
Engineering from Cambridge University (U.K.).
Anthony Bellomo was elected to the Board of Directors of the Company in
March 1998. He is currently the President of ERISCO Managed Care Technologies,
Inc. ("Erisco"), a subsidiary of IMS Health, a position he has held since 1994.
During his tenure with Erisco, which has spanned over twenty years, Mr. Bellomo
has held various technical and marketing positions, serving at the level of Vice
President since 1979. He has always played a key role in the development and
progression of Erisco's business. Mr. Bellomo has most recently applied his
technology expertise as the leader of IMS Health's global Y2K project. Prior to
joining Erisco, Mr. Bellomo was an information technology consultant for various
Fortune 500 Companies. He holds a Bachelor of Arts degree in Engineering from
the Polytechnic Institute of Brooklyn.
Victoria Fash was elected to the Board of Directors of the Company in
December 1997. Ms. Fash was appointed Chief Executive Officer of IMS Health in
March 1999 and currently is its President and Chief Executive Officer. From 1998
to 1999, she served concurrently as President and Chief Operating Officer of IMS
Health. From 1996 to 1998, she served concurrently as Executive Vice President
and Chief Financial Officer of Cognizant Corporation. From 1991 to 1995, she was
the Vice President, Business Operations, at The Dun & Bradstreet Corporation,
and in 1995 was promoted to Senior Vice President, Business Strategy. Ms. Fash
serves on the board of directors of IMS Health and Orion Capital Corporation.
Ms. Fash holds a Bachelor of Science degree in computer science and a Master of
Business Administration degree from the University of Illinois.
2
<PAGE>
Robert W. Howe was elected to the Board of Directors in April 1999. Mr.
Howe currently serves as Chief Executive Officer and Chairman of the Board of
Directors of Atlantic Data Services, Inc., positions he has held since January
1994 and March 1980, respectively. From March 1980 to January 1994, Mr. Howe
served as President of Atlantic Data Services, Inc. Mr. Howe holds a Bachelor of
Arts degree from Boston College.
John Klein was elected to the Board of Directors in March 1998. Mr. Klein
currently serves as Chief Executive Officer of MDIS Group PLC, a software
development and service company, where he has been employed since June 1995.
From July 1997, Mr. Klein has also served as the Chairman and Chief Executive
Officer of Glovia International, a manufacturing resource planning software and
services company. From August 1996, Mr. Klein has also served as the Chairman of
PRO IV Limited, a 4GL development tools company. From January 1993 to April
1994, Mr. Klein was the Vice President, Consumer, Process &
Transportation-Customer Business Unit, for Digital Equipment Corporation. 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.
Venetia Kontogouris was elected to the Board of Directors of the Company in
December 1997. Ms. Kontogouris is currently President of Enterprise Associates,
Inc., a subsidiary of IMS Health, where she has held various positions since
1989. Prior to joining Enterprise Associates, Inc., Ms. Kontogouris was Vice
President of New Product Development for The Dun & Bradstreet Corporation. Ms.
Kontogouris serves on the board of directors of Avesta Technologies, Inc.,
Customer Analytics, Inc., e data resources, inc., Internet Profiles Corporation,
SRR Solutions, Inc., T.R.A.D.E., Inc., Vality Technology Inc. and Viant
Corporation. 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.
All Directors hold office until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified. There are no family
relationships among any of the executive officers, Directors and key employees
of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, which is comprised of Messrs. Howe and Klein, is
responsible for reviewing with management the financial controls and accounting
and reporting activities of the Company. The Audit Committee reviews the
qualifications of the Company's independent accountants, makes recommendations
to the Board of Directors regarding the selection of independent auditors,
reviews the scope, fees and results of any audit and reviews non-audit services
and related fees. The Audit Committee held two meetings during 1998. The
Compensation Committee, which is comprised of Messrs. Bellomo, Howe and Klein,
is responsible for the administration of all salary and incentive compensation
plans for the officers and key employees of the Company, including bonuses. The
Compensation Committee also administers the Company's Employee Stock Purchase
Plan and stock option plans, including the 1999 Incentive Compensation Plan, and
establishes the terms and conditions of all stock options granted thereunder.
The Compensation Committee held three meetings during 1998. There were three
meetings of the Board of Directors during 1998. Each incumbent 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, with the exception of Ms. Fash who attended two of the three
meetings of the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company and its subsidiaries or of IMS
Health and its subsidiaries receive no cash remuneration for serving as
directors. All other non-employee directors receive $2,000 for attendance at
each meeting of the Board of Directors and $1,000 for attendance at each meeting
of a committee of the Board of Directors. All Directors who are not employees of
the Company and its subsidiaries are eligible to participate in the Company's
Non-Employee Directors' Stock Option Plan (the "Director 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 71,500 shares, of which options to acquire
49,500 shares of Class A Common Stock are outstanding at a weighted average
exercise price of $9.76 per share. No shares of Class A Common Stock have been
issued upon exercise of options granted under the Director Plan.
3
<PAGE>
The Director Plan, which is administered by the Compensation Committee,
provides for the issuance of non-qualified stock options to purchase up to
15,000 shares of Class A Common Stock in any year to any Director of the Company
who is not an employee of the Company or any subsidiary of the Company. Subject
to the provisions of the Director Plan, the Compensation Committee has the
authority to interpret the provisions of the Director Plan, 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.
During 1998, the following Directors were granted options to purchase
shares of Class A Common Stock under the Company's Director Plan.
NUMBER OF
SHARES UNDERLYING EXERCISE PRICE
DIRECTOR OPTIONS GRANTED GRANT DATE PER SHARE
-------- ----------------- ---------- --------------
Mr. Bellomo...... 6,500 3/20/98 $10.00
Mr. Klein........ 15,000 3/20/98 $10.00
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
---- --- ------------ --------------
Wijeyaraj Mahadeva......... 47 Chairman of the Board and 1998
Chief Executive Officer
Lakshmi Narayanan (1)...... 46 President and Chief 1998
Operating Officer
Gordon Coburn (2).......... 35 Chief Financial Officer, 1998
Treasurer and Secretary
Francisco D'Souza (3)...... 30 Vice President, North 1998
American Operations and
Business Development
- -----------
(1) Lakshmi Narayanan was elected President and Chief Operating Officer of the
Company in March 1998. Mr. Narayanan joined the Indian subsidiary of the
Company as Chief Technology Officer in 1994 and was elected President of
such subsidiary on January 1, 1996. Prior to joining the Company, 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) Gordon Coburn was elected Chief Financial Officer, Treasurer and Secretary
of the Company in March 1998. He previously was Vice President of the
Company from September 1996. From 1990, Mr. Coburn held key financial
positions with Cognizant Corporation and The Dun & Bradstreet Corporation,
including serving as Senior
4
<PAGE>
Director-Group Finance & Operations for Cognizant Corporation from November
1996 to December 1997. 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.
(3) Francisco D'Souza was elected Vice President, North American Operations and
Business Development of the Company in March 1998. Prior to that, from June
1, 1997, he served as the Company's Director-North American Operations and
Business Development. From January 1996 to June 1997, Mr. D'Souza was
employed as a consultant to the Company. 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 the Company. Mr. D'Souza
holds a Bachelor of Business Administration degree from the University of
East Asia and a Master of Science degree in Industrial Administration from
Carnegie-Mellon University.
None of the Company's executive officers is related to any other executive
officer or to any Director of the Company. Executive officers of the Company are
elected annually by the Board of Directors and serve until their successors are
duly elected and qualified.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN 1997 AND 1998
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 the Company's Chief Executive Officer at any time
during 1998 and each other executive officer of the Company whose aggregate cash
compensation exceeded $100,000 (collectively, the "Named Executives") during the
years ended December 31, 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------------------------------------------------------
Awards
------------------------------------------------------------------
Other Securities All Other
Annual Underlying Compen-
Name and Principal Position Year Salary Bonus Compen- Options sation
(2) sation(3)
(1) ($) ($) ($) (#) ($)
(a) (b) (c) (d) (e) (g) (i)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wijeyaraj Mahadeva.............. 1998 235,000 237,952 -- 48,750 14,396(4)
Chairman of the Board, and 1997 235,000 228,136 -- 130,000 14,717(4)
Chief Executive Officer
Lakshmi Narayanan............... 1998 54,118 96,471 -- -- 7,500(5)
President and Chief 1997 57,566 60,440 -- 58,500 1,372(5)
Operating Officer
Gordon Coburn (6)............... 1998 133,250 77,626 -- -- 5,951(4)
Chief Financial Officer, 1997 -- -- -- 26,000 --
Treasurer and Secretary
Francisco D'Souza (7)........... 1998 123,000 70,000 -- 6,500 --
Vice President, North 1997 120,000 35,000 -- 32,500 --
American Operations and
Business Development
</TABLE>
- -------------
(1) Each of the Named Executives has entered into a Severance and
Noncompetition agreement with the Company. See " - Severance and
Noncompetition Agreements."
5
<PAGE>
(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 $50,000 or
10% of the total of annual salary and bonus reported for such named
executive officer in columns (c) and (d).
(4) Represents a 401(k) plan matching contribution.
(5) Consists of interest savings on a loan made to Mr. Narayanan by the
Company in October 1997, which bears interest at 2% per annum. See
"Transactions with IMS Health and other Affiliates."
(6) Mr. Coburn was employed by Cognizant Corporation during 1997 and his
responsibilities included significant activities unrelated to the
Company's business as well as services provided to the Company on behalf
of Cognizant Corporation. Mr. Coburn's compensation expenses for 1997 were
an unallocated component of the aggregate costs allocated to the Company
by Cognizant Corporation based upon assets employed by the Company in
proportion to Cognizant Corporation's total assets.
(7) With respect to 1997, reflects compensation received in all capacities
from the Company during that year. Mr. D'Souza worked as an independent
consultant to the Company until June 1, 1997, when he became a full-time
employee of the Company.
OPTION GRANTS IN 1998
The following table sets forth information concerning individual grants of
stock options during 1998 by the Company to each of the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Individual Grants
- ---------------------------------------------------------------------------------------------------------------------------
Percent of Potential Realizable Value At
Number of Total Options Assumed Annual Rates of Stock
Securities Granted to Price Appreciation For Option
Name Underlying Employees in Exercise or Expiration Term(2)
Options Fiscal Year(1) Base Price Date
Granted
(#) ($/SH) 5%($) 10%($) 0%($)
(a) (b) (c) (d) (e) (f) (g) (i)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wijeyaraj Mahadeva (3)... 48,750 26.2 6.92 3/20/08 212,159 537,635 247,650
Lakshmi Narayanan ....... -- -- -- -- -- -- --
Gordon Coburn ........... -- -- -- -- -- -- --
Francisco D'Souza (4).... 6,500 3.5 10.00 6/19/08 40,879 103,591 --
</TABLE>
- ---------------
(1) Based on an aggregate of 185,950 options granted to employees in 1998,
including options granted to the Named Executives.
(2) Based on an exercise price of $6.92 and a fair market value of $12.00 for
the grant to Mr. Mahadeva, and a fair market value of $10.00 for the grant
to Mr. D'Souza.
(3) The options disclosed herein were granted on March 20, 1998, as
non-qualified stock options, pursuant to a certain Option Agreement
between the Company and Mr. Mahadeva. One-quarter of such options became
exercisable on July 27, 1998 and an additional one-quarter of such options
become exercisable on the first, second and third anniversary of such
date. The options terminate on the expiration date, subject to earlier
termination on the optionee's death, disability or termination of
employment with the Company. Such options are not assignable or otherwise
transferable except by will or the laws of descent and distribution.
(4) The options disclosed herein were granted on March 20, 1998, as
non-qualified stock options, pursuant to the Key Employee's Stock Option
Plan. One-quarter of such options become exercisable on each of the first,
second, third and fourth anniversaries of the Company's initial public
offering consummated in June 1998 (the "IPO"). The options terminate on
the expiration date, subject to earlier termination on the optionee's
death, disability or termination of employment with the Company. Such
options are not assignable or otherwise transferable except by will or the
laws of descent and distribution.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1998 by each of the Named Executives and the year-end number and
value of unexercised options held by each of the Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal
Shares Fiscal Year-End
Acquired on Value Year-End ($)(1)
Name Exercise Realized (#) Exercisable/
(#) ($) Exercisable/ Unexercisable
(a) (b) (c) Unexercisable (e)
(d)
- --------------------------------------------------------------------------------
Wijeyaraj Mahadeva... 30,000 217,000 14,687 / 134,063 352,159 /
3,443,773
Lakshmi Narayanan.... -- -- 14,625 / 43,875 387,928 /
1,163,784
Gordon Coburn........ -- -- 6,500 / 19,500 172,413 /
517,238
Francisco D'Souza.... -- -- 8,125 / 30,875 215,516 /
778,984
- ------------
(1) Based on a year-end fair market value of the underlying securities equal
to $30.375, less the exercise price for such shares.
SEVERANCE AND NONCOMPETITION AGREEMENTS
The Company has entered into a Severance and Noncompetition Agreement
(collectively, the "Severance and Noncompetition Agreements") with each of the
Named Executives. 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 the Company's employees to leave the Company within the
one-year period following termination of employment. Finally, such agreements
include customary proprietary rights assignment and confidentiality provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Bellomo, Howe and Klein.
There are no, and during 1998 there were no, Compensation Committee Interlocks.
In 1998, the Company granted options to purchase Class A Common Stock of
the Company to each of Mr. Bellomo and Mr. Klein. See "Election of Directors -
Compensation of Directors."
7
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Class A Common Stock with the cumulative total return on the S&P
SmallCap 600 Index and a Peer Group Index (capitalization weighted) for the
period beginning on the date on which the SEC declared effective the Company's
Form 8-A Registration Statement pursuant to Section 12 of the Exchange Act and
ending on the last day of the Company's 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 the Company, the S&P SmallCap 600 Index
and a Peer Group Index(3)
(Capitalization Weighted)
[GRAPH INSERTED HERE]
6/19/98 12/31/98
------- --------
Cognizant Technology Solutions Corporation.. $100.00 $303.75
S&P SmallCap 600 Index...................... $100.00 $97.53
Peer Group Index (Capitalization Weighted).. $100.00 $79.86
- -------------
(1) Graph assumes $100 invested on June 19, 1998 in the Company's Class A
Common Stock, the S&P SmallCap 600 Index and the Peer Group Index
(capitalization weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) The Company has constructed a Peer Group Index consisting of other
information technology consulting firms consisting of Alydaar Software
Corp., Cambridge Technology Partners, Inc., Complete Business Solutions,
Inc., Computer Horizons Corp., Computer Task Group, Inc., IMRglobal Corp.,
Keane, Inc., Mastech Corporation, Syntel, Inc., and Whitman-Hart, Inc. The
Company believes that these companies most closely resemble the Company's
business mix and that their performance is representative of the industry.
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its 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
executive officers of the Company 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 the
Company's stock option plans.
The Company's executive officer compensation program is comprised of base
salary, discretionary annual cash bonuses, stock options and various other
benefits, including medical insurance and a 401(k) Plan, which are generally
available to all employees of the Company.
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 operational and financial results of the Company 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
the Company's 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 the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as the successful completion of the Company's initial public offering, changes
in the market for computer 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.
Compensation Committee Members
(as constituted at year end)
Anthony Bellomo
Paul Cosgrave
John Klein
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK
There are, as of March 31, 1999, approximately 17 holders of record and
2,300 beneficial holders of the Company's Class A Common Stock, including one
holder of record, beneficially owning all of the shares of the Company's Class B
Common Stock. Such shares of Class B Common Stock are convertible, on a
share-for-share basis, into shares of Class A Common Stock(1). The holder of
record of all of the shares of the Company's Class B Common Stock, IMS Health,
acquired its ownership as a result of a spin-off (the "spin-off") of IMS Health
from Cognizant Corporation. Prior to the spin-off, all of the shares of the
Company's Class B Common Stock were held by Cognizant Corporation. The following
table sets forth certain information, as of March 31, 1999, with respect to
holdings of the Company's Class A Common Stock by (i) each person known by the
Company to beneficially own more than 5% of the total number of shares of Common
Stock outstanding as of such date, (ii) each of the Company's Directors (which
includes all nominees), each of the Company's Named Executives, and (iii) all
Directors and officers as a group. Unless otherwise indicated, the address for
the individuals below is that of the Company address.
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(2) OF CLASS(3)
- ------------------------------------ ----------------------- -----------
(i) Certain Beneficial Owners:
IMS Health (4)............................ 5,645,450 61.0%
(ii) Directors (which includes all
nominees) and Named Executives who
are not set forth above:
Wijeyaraj Mahadeva (5).................... 125,938 1.4%
Lakshmi Narayanan (6)..................... 14,625 *
Gordon Coburn (7)......................... 22,750 *
Francisco D'Souza (8)..................... 17,875 *
Anthony Bellomo (9)....................... 3,500 *
Victoria Fash (10)........................ 3,250 *
Robert W. Howe (11) ...................... 20,000 *
John Klein (12)........................... 15,000 *
Venetia Kontogouris (13).................. 13,250 *
(iii) All Directors and officers as a
group (9 persons) (14).............. 236,188 2.6%
- ----------------
* Less than one percent.
(1) Except as provided below, each outstanding share of Class B Common Stock
shall convert automatically to a share of Class A Common Stock upon a
transfer, other than a tax-free spin-off, to any person other than IMS
Health or any of its subsidiaries or successors. In addition, prior to a
tax-free spin-off, each outstanding share of Class B Common Stock is
convertible at the holder's option into one share of Class A Common Stock.
If a tax-free spin-off occurs, the stockholders of IMS Health will receive
Class B Common Stock, which will continue to have ten votes per share.
Thereafter, shares of Class B Common Stock shall convert to Class A Common
Stock automatically only upon a transfer of Class B Common Stock and shall
no longer be convertible into shares of Class A Common Stock at the option
of the holder thereof. Additionally, each share of Class B Common Stock
shall convert automatically into one share of Class A Common Stock if at
any time the number of outstanding shares of Class B Common Stock
represents less than 35% of the economic ownership of the Company
represented by the aggregate number of shares of Common Stock then
outstanding. In the event of a tax-free spin-off, and to the extent there
are shares of Class B Common Stock that have not been converted to Class A
Common Stock, such shares of Class B Common Stock shall automatically
convert into shares of Class
10
<PAGE>
A Common Stock on the fifth anniversary of the tax-free spin-off, unless
prior to such tax-free spin-off, IMS Health delivers to the Company written
advice of counsel reasonably satisfactory to the Company to the effect that
(i) such conversion could adversely affect the ability of IMS Health to
obtain a favorable ruling from the Internal Revenue Service that the
distribution would be a tax-free spin-off or (ii) the Internal Revenue
Service has adopted a general non-ruling policy on tax-free spin-offs and
that such conversion could adversely affect the status of the transaction
as a tax-free spin-off. If such written advice is received, approval of
such conversion shall be submitted to a vote of the holders of the Common
Stock as soon as practicable after the fifth anniversary of the tax-free
spin-off, unless IMS Health delivers to the Company written advice of
counsel reasonably satisfactory to the Company prior to such anniversary
that such vote could adversely affect the status of the distribution as a
tax-free spin-off, including the ability to obtain a favorable ruling from
the Internal Revenue Service. If such written advice is delivered, such
vote shall not be held. Approval of such conversion will require the
affirmative vote of the holders of a majority of the shares of both Class A
Common Stock and Class B Common Stock present and voting, voting together
as a single class, with each share entitled to one vote for such purpose.
No assurance can be given that such conversion would be consummated. The
foregoing requirements are intended to ensure that tax-free treatment of a
tax-free spin-off is preserved should the Internal Revenue Service
challenge such automatic conversion as violating the 80% vote requirement
currently required by the Code for a tax-free spin-off.
(2) 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 Common Stock
shown as beneficially owned by such stockholder.
(3) Applicable percentage of ownership is based on an aggregate of 9,151,861
shares of Common Stock outstanding on March 31, 1999 (consisting of
3,506,411 shares of Class A Common Stock and 5,645,450 shares of Class B
Common Stock), plus any presently exercisable stock options held by each
such holder, and options which will become exercisable within 60 days after
March 31, 1999.
(4) The address for IMS Health is 200 Nyala Farms, Westport, Connecticut 06880.
Represents 5,645,450 shares of Class B Common Stock held of record and
beneficially by IMS Health.
(5) Includes 111,250 shares of Class A Common Stock owned of record and 14,688
shares of Class A Common Stock subject to options which were exercisable as
of March 31, 1999 or sixty (60) days after such date. Excludes 134,062
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(6) Represents 14,625 shares of Class A Common Stock underlying options which
were exercisable as of March 31, 1999 or sixty (60) days after such date.
Excludes 43,875 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(7) Includes 16,250 shares of Class A Common Stock owned of record and 6,500
shares of Class A Common Stock subject to options which were exercisable as
of March 31, 1999 or sixty (60) days after such date. Excludes 19,500
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(8) Includes 9,750 shares of Class A Common Stock owned of record and 8,125
shares of Class A Common Stock subject to options which were exercisable as
of March 31, 1999 or sixty (60) days after such date. Excludes 30,875
shares of Class A Common Stock underlying options which become exercisable
over time after such period.
(9) Includes 3,500 shares of Class A Common Stock owned of record. Excludes
6,500 shares of Class A Common Stock underlying options which become
exercisable over time after March 31, 1999.
(10) Includes 3,250 shares of Class A Common Stock subject to options which were
exercisable as of March 31, 1999 or sixty (60) days after such date.
Excludes 3,250 shares of Class A Common Stock underlying options which
become exercisable over time after such period.
(11) Includes 5,000 shares of Class A Common Stock owned of record
and 15,000 shares of Class A Common Stock subject to option which were
exercisable as of March 31, 1999 or sixty (60) days after such date.
(12) Represents 15,000 shares of Class A Common Stock owned of record as of
March 31, 1999. Excludes 15,000 shares of Class A Common Stock underlying
options which become exercisable over time after March 31, 1999.
11
<PAGE>
(13) Includes 10,000 shares of Class A Common Stock owned of record and 3,250
shares of Class A Common Stock subject to options which were exercisable as
of March 31, 1999 or sixty (60) days after such date. Excludes 3,250 shares
of Class A Common Stock underlying options which become exercisable over
time after such period.
(14) Includes an aggregate of 65,438 shares of Class A Common Stock underlying
options granted to Directors and officers listed in the table which are
exercisable as of March 31, 1999 or within sixty (60) days after such date.
Excludes 256,312 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
From November 30, 1996 through June 30, 1998, the Company was a subsidiary
of Cognizant Corporation. In June 1998, Cognizant spun off (the "Spin-Off") IMS
Health and Cognizant Corporation was renamed Nielsen Media Research, Inc. IMS
Health consists of all of Cognizant Corporation's businesses other than the
business conducted by Nielsen Media Research. Therefore, all shares of the
Company held by Cognizant Corporation immediately prior to the Spin-Off are now
held by IMS Health.
AGREEMENTS WITH IMS HEALTH AND ITS PREDECESSORS
The Company and IMS America, IMS International and Nielsen Media Research,
then operating subsidiaries of Cognizant Corporation, have entered into Master
Services Agreements and the Company and IMS Health are parties to the
Intercompany Agreement and the Intercompany Services Agreement. Cognizant
Corporation and the Company entered into the License Agreement. The material
terms of these agreements are summarized below. Because the Company was
controlled by Cognizant Corporation at the time these agreements were executed,
none of these agreements resulted from arms'-length negotiations and, therefore,
the terms thereof may be more or less favorable to the Company than those
obtainable from unaffiliated third parties. Upon the consummation of the
Spin-Off of IMS Health, the Master Services Agreements remained in effect and
the Intercompany Agreement and the Intercompany Services Agreement were assigned
to IMS Health.
Master Services Agreement. Pursuant to a Master Services Agreement the
Company continues to provide software development and maintenance services to
IMS Health and its subsidiaries. During 1998, such services resulted in revenue
to the Company in the amount of $13,575,000. The Master Service Agreement
provides that it and any work order issued thereunder may be terminated by IMS
Health with or without cause on 30 days' prior written notice.
Intercompany Agreement. The Intercompany Agreement provides that until IMS
Health and its affiliates cease to control at least 50% of the combined voting
power of the outstanding voting stock of the Company, the prior written consent
of IMS Health will be required for (i) any acquisition of capital stock or
assets by the Company or any of its subsidiaries or disposition of assets of the
Company or any of its subsidiaries (other than transactions to which the Company
and its subsidiaries are the only parties), or any series of related
acquisitions or dispositions, involving gross consideration (including the
assumption of indebtedness) in excess of the greater of $10.0 million and six
percent of the Company's total equity market capitalization, (ii) any issuance
by the Company or any subsidiary of the Company of any equity securities or
rights, warrants or options to purchase such equity securities, except for
equity securities issued to directors, employees and consultants pursuant to the
Employee Plan and the Director Plan and other outstanding options and equity
securities issued in connection with acquisitions approved by IMS Health and
(iii) the creation or incurrence by the Company or any of its subsidiaries of
indebtedness for borrowed money in excess of $10.0 million, except for
indebtedness incurred to finance any acquisition approved by IMS Health.
Pursuant to the Intercompany Agreement, for a period of 18 months following the
Company's initial public offering consummated in June 1998 (the "Restricted
Period"), the approval of a majority of the members of the Board of Directors of
the Company who are not employed by or otherwise affiliated with IMS Health, the
Company (other than as directors) or any of their respective affiliates (the
"Independent Directors") will be required for a merger or consolidation
involving the Company, a sale by the Company of all or substantially all of its
assets or a liquidation, dissolution or winding up of the Company's business, in
any case, for per share consideration below the initial public offering price
per share, and a fairness opinion from a nationally recognized investment
banking firm or the approval of at least one Independent Director will be
required for any of such transactions for per share consideration at or above
the initial public offering price per share. Also pursuant to the Intercompany
Agreement, during the Restricted Period, subject to certain limited exceptions,
IMS Health will not sell any of the shares of Common Stock owned by it
12
<PAGE>
as of June 19, 1998 other than pursuant to a registered public offering,
pursuant to Rule 144 promulgated under the Securities Act, at a price per share
equal to or greater than the initial public offering price per share or, with
the approval of a majority of the Independent Directors, at a price per share
below the initial public offering price per share. In addition, during the
Restricted Period, IMS Health will not acquire additional shares of Common
Stock, other than pursuant to a transaction involving all of the Company's
outstanding Common Stock at a price per share in excess of the initial public
offering price per share with respect to which a fairness opinion from a
nationally recognized investment banking firm or the approval of at least one
Independent Director has been obtained. During the Restricted Period, IMS Health
will not vote its shares of Common Stock (or act by written consent) to reduce
the ratio of Independent Directors to be less than the ratio of two of seven
directors and will not vote its shares of Common Stock (or act by written
consent) to remove any Independent Director other than for cause or with the
approval of the holders of a majority of the outstanding Class A Common Stock
voting as a separate class.
Pursuant to the Intercompany Agreement, the Company has granted to IMS
Health certain demand and "piggyback" registration rights with respect to shares
of Common Stock owned by IMS Health. IMS Health has the right to request up to
two demand registrations in each calendar year, but not more than six in any
five-year period. The Company may postpone such a demand under certain
circumstances. IMS Health also has the right, which it may exercise at any time
and from time to time, to include the shares of Common Stock held by it in any
registration of common equity securities of the Company initiated by the Company
on its own behalf or on behalf of any other stockholders of the Company. Such
registration rights are transferable by IMS Health. The Company agrees to pay
all costs and expenses in connection with each such registration, except
underwriting discounts and commissions applicable to the shares of Common Stock
sold by IMS Health. The Intercompany Agreement contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification granted by parties thereunder in connection
with the registration of Common Stock on behalf of IMS Health.
Pursuant to the Intercompany Agreement, the Company will indemnify IMS
Health and its subsidiaries (other than the Company) and their respective
officers, directors, employees and agents against certain losses based on,
arising out of or resulting from the conduct of the Company's business and IMS
Health will similarly indemnify the Company and its subsidiaries and their
respective officers, directors, employees and agents against certain losses
based on, arising out of or resulting from IMS Health's other businesses. In
addition, Cognizant Corporation assigned to the Company certain rights to
indemnification from The Dun & Bradstreet Corporation and certain of its former
affiliates.
The Intercompany Agreement may not be amended without the approval of a
majority of the Independent Directors.
Intercompany Services Agreement. Pursuant to the Intercompany Services
Agreement, IMS Health provides certain services to the Company, including
payroll and payables processing, e-mail, tax, finance, personnel administration,
real estate and risk management services, and the Company and its employees
continue to be covered by IMS Health's insurance policies and certain IMS Health
employee benefit plans. The Intercompany Services Agreement's initial term
extended through December 31, 1998. Subsequent to December 31, 1998, the
Intercompany Services Agreement continues for successive one-year terms unless
terminated by either party on not less than 60 days' written notice prior to the
end of the initial term or any renewal term. Any change in the fees provided for
under the terms of the Intercompany Services Agreement will be subject to the
approval of a majority of the Independent Directors.
License Agreement. Pursuant to the License Agreement, Cognizant Corporation
transferred all rights to the use of the "Cognizant" trade name and certain
other trade and service marks (the "Marks") to the Company upon the consummation
in mid-1998 of the previously announced spin-off of IMS Health.
TRANSACTIONS WITH IMS HEALTH AND OTHER AFFILIATES
Prior to the consummation of the Company's initial public offering in June
1998 ("IPO"), Cognizant Corporation and The Dun & Bradstreet Corporation
provided the Company with certain administrative services, including financial
planning and administration, legal, tax planning and compliance, treasury and
communications, and permitted the Company to participate in Cognizant
Corporation's insurance and employee benefit plans. Costs for these services for
all periods prior to the IPO were allocated to the Company based on utilization
of certain specific services. All subsequent services were performed under the
Intercompany Services Agreement with Cognizant Corporation and subsequent to the
Spin-Off , IMS Health. Total costs in connection with these services were
$1,666,000 for the year ended December 31, 1998.
13
<PAGE>
From January 1, 1997 through December 31, 1998, the Company sublet office
space in New York City from a subsidiary of Cognizant Corporation and,
subsequent to the Spin-Off, a subsidiary of IMS Health. The Company made annual
lease payments to the subsidiary of $107,000 and $99,000 in 1998 and 1997,
respectively, which it believes was fair market value for the sublease.
Certain employees of the Company, including Mr. Mahadeva and Mr. Coburn,
participate 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. The Company's cost for these plans is
included in the allocation of expense from IMS Health for employee benefits
plans.
In October 1997, the Company loaned $63,300 to Mr. Narayanan for the
purchase of a residence. The loan is secured by the residence and bears interest
at the rate of two percent per annum. Principal and interest on the loan is
payable over a ten-year period. The loan matures in October 2007. In the event
of termination of employment, Mr. Narayanan must repay the outstanding balance
of the loan, plus interest at a higher rate under certain circumstances. As of
December 31, 1998, the outstanding balance of the loan, including principal and
accrued interest, was $53,000.
In March 1998, the Company granted non-qualified stock options to purchase
an aggregate of 48,750 shares of Class A Common Stock to Mr. Mahadeva for an
exercise price of $6.92 per share.
In March 1998, the Company granted non-qualified stock options under the
Employee Plan to purchase an aggregate of 47,450 shares of Class A Common Stock
to certain employees, including options to purchase 6,500 shares to Mr. D'Souza,
effective upon consummation of the Company's IPO at an exercise price equal to
the IPO price per share of $10.00. The Company also granted non-qualified stock
options under the Director Plan to purchase an aggregate of 36,500 shares of
Class A Common Stock to certain directors, including options to purchase 6,500
shares to Mr. Bellomo and options to purchase 15,000 shares each to Messrs.
Cosgrave, a former director of the Company, and Klein, effective upon
consummation of the Company's IPO at an exercise price equal to the IPO price
per share.
In May 1998, the Company granted non-qualified stock options under the
Employee Plan to purchase an aggregate of 64,750 shares of Class A Common Stock
to certain employees effective upon consummation of the Company's IPO at an
exercise price equal to the IPO price per share.
In May 1998, in connection with the resolution of certain matters between
an affiliate of Cognizant Corporation and Pilot Software, Pilot Software
remitted $500,000 to the Company. Of such amount, $315,321 was in respect of
amounts due to the Company from Pilot Software for services rendered through
April 30, 1998 and $184,679 was a prepayment for services to be provided to
Pilot Software by the Company after such date.
PROPOSAL TO APPROVE THE 1999 INCENTIVE COMPENSATION PLAN
The Board of Directors has adopted, and is submitting to stockholders for
approval, the Cognizant Technology Solutions Corporation 1999 Incentive
Compensation Plan (the "Incentive Plan"). A total of 1,000,000 shares of Class A
Common Stock of the Company ("Common Stock") will be reserved for issuance upon
the exercise of stock options or other awards granted under the Incentive Plan.
GENERAL
The purpose of the Incentive Plan is to:
o aid the Company in motivating certain employees, non-employee
directors and independent contractors to put forth maximum efforts
toward the growth, profitability and success of the Company; and
o 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 the Company's 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 750,000 shares during the life of the Incentive Plan.
Additionally, the maximum dollar
14
<PAGE>
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
o increase the total amount of the Common Stock allocated to the
Incentive Plan (except for permitted capital adjustments);
o increase the maximum amount of the Common Stock with respect to all
awards measured in common stock that may be granted to any individual
under the Incentive Plan;
o increase the maximum dollar amount that may be paid with respect to
all awards measured in cash; or
o 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 Common
Stock is listed or (2) will disqualify any incentive stock option granted under
the Incentive Plan.
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:
o determine eligibility for participation;
o determine eligibility for and the type and size of awards;
o issue administrative guidelines and make rules as an aid to administer
the Incentive Plan;
o grant waivers of terms, conditions, restrictions and limitations; and
o accelerate the vesting of any award.
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. 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, 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 Common Stock, or other valuation (which shall be no less than the fair
market value of the 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 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 Common Stock
unless otherwise determined by the Compensation Committee on the date of grant.
Stock Units. A stock unit is a hypothetical share of Common Stock
represented by a notional account established and maintained or caused to be
established and maintained by the Company 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
15
<PAGE>
shall provide for payment in shares of Common Stock at such time as the award
agreement shall specify. The Compensation Committee has the sole discretion to
pay the stock unit in Common Stock, cash or a combination.
Performance Shares. A performance share consists of a share or shares of
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
Common Stock, cash or a combination.
Performance Unit. A performance unit is a hypothetical share or shares of
Common Stock represented by a notional account established and maintained or
caused to be established and maintained by the Company 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 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 the Company under Section 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 Common Stock or any other publicly-traded securities of the Company; 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 the Company's stockholders. Additionally, the material terms of
performance goals must be disclosed and reapproved by the Company's stockholders
no later than the first stockholder meeting that occurs in the fifth year
following the year in which the Company's stockholders previously approved such
performance goals.
In the event a grantee's employment with the Company 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
o 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;
o 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
o 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.
16
<PAGE>
CHANGE IN CONTROL
Upon the occurrence of a change in control of the Company, 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 the Company or be substituted by a similar award under such
entity's compensation plan.
FEDERAL TAX ASPECTS OF THE INCENTIVE PLAN
The Company believes 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 the Company. The optionee will have no taxable
income upon exercising an ISO (except that the alternative minimum tax may
apply), and the Company 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; the Company 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 the Company in connection with a disposition of shares acquired
under an option except that the Company 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; the Company 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; the Company 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 1934 Act.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE INCENTIVE PLAN.
PROPOSAL TO APPROVE THE EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted, and is submitting to stockholders for
approval, the Cognizant Technology Solutions Corporation Employee Stock Purchase
Plan (the "Purchase Plan"). The purpose of the Purchase Plan is 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 potential economic progress. A total of 400,000 shares will be made
available for issuance and purchase pursuant to the Purchase Plan.
The Purchase Plan is intended to form part of an overall compensation
structure for the Company, in conjunction with the Company's stock option plans,
to provide an additional source for employees to share in the Company's
prospects for equity growth. The Board of Directors believes that a broad-based
plan, such as the Purchase Plan, serves as an important element in promoting
equity ownership among employees generally. At March 31, 1999, the Company had
approximately 1,740 full-time employees.
In general, the Purchase Plan provides for eligible employees to designate
in advance of specified purchase periods (which will be annual, semi-annual or
quarterly) a percentage of compensation (up to 10%) 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 85% 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 the total combined voting power or value of all classes of stock of
the Company.
17
<PAGE>
The 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 Purchase Plan's
effective date. The Purchase Plan was adopted by the Board of Directors on April
13, 1999. In addition, the Purchase Plan is intended to comply with certain
requirements of Rule 16b-3 under the Exchange Act. Messrs. Bellomo, Howe and
Klein serve on the committee which administers the Purchase Plan.
The term of the Purchase Plan will extend through December 31, 2003, unless
terminated earlier by the Board of Directors. The Board of Directors generally
has the right to amend or terminate the Purchase Plan without the consent of
participants or stockholders, subject to certain exceptions.
Each person employed by the Company (except short-term, part-time, or
seasonal employees) is eligible to participate in the 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 the total
combined voting power or value of all classes of stock of the Company.
The purchase price per share of the Class A Common Stock sold under the
Purchase Plan for any Purchase Period will be equal to the lesser of (a) 85% of
the "fair market value" of a shares of Class A Common Stock on the first day of
such Purchase Period, or (b) 85% 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 if the Class A Common
Stock is traded on the Nasdaq National Market or a national securities exchange,
the closing sale price of the Class A Common Stock thereon, in each case on the
applicable date or, if there is no such sale on that day, then on the last
preceding date on which such a sale was reported.
Under the 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 Purchase Plan, further action is required
as explained below. A Purchase Period will be a period of three, six or twelve
months (as elected in advance by the committee administering the Purchase Plan),
during which time payroll deductions will be made to fund the purchase of shares
subject to option. The first Purchase Period will commence on July 1, 1999 and
end on January 1, 2000. The maximum number of shares an Eligible Employee is
eligible to purchase for any Purchase Period of one calendar year is $25,000.
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 stock of the
Company (including any number of shares which such person is entitled to
purchase under the Purchase Plan) 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 such person will be entitled to purchase pursuant to the 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 in
advance of the first day of each Purchase Period. By doing so, the employee
becomes a Participant in the Purchase Plan. Under the Stock Purchase Agreement,
each Eligible Employee who elects to participate in the Purchase Plan must
authorize contributions to the 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 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
Purchase Plan (an "Account").
For any particular Purchase Period, the committee administering the
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 the Company 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 Purchase Plan. The Company 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.
18
<PAGE>
Shares of Class A Common Stock acquired pursuant to the exercise of options
under the 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
Purchase Plan of one share of Class A Common Stock for the current Purchase
Period, the Participant will purchase, and the Company 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 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 Purchase Plan which, when aggregated with all other shares of stock of
the Company which he or she may be entitled to purchase under any other employee
stock purchase plans of the Company 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 Purchase Plan is through payroll
deductions whose maximum limit is 10% of Compensation, the 10% limitation will
be the effective limit on purchases of stock under the 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 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.
INCOME TAX CONSEQUENCES
Options issued under the Purchase Plan are intended to be options issued
pursuant to an "Employee Stock Purchase Plan" within the meaning of Section 423
of the Code. Accordingly, if a Participant exercises an option and holds the
shares for the applicable holding period, and remains an employee at all times
during the period beginning with the date the option is granted and ending three
months before the date it is exercised, he or she will be entitled for Federal
income tax purposes to special tax treatment. Under such circumstances, any gain
realized upon disposition of the shares will be treated as ordinary income to
the extent of the lesser of (i) 15% of the fair market value of the shares on
the date the option was granted, or (ii) the amount by which the fair market
value of the shares on the date of disposition exceeded the option price. Any
further gain will be treated as long-term capital gain. The applicable holding
period is the longer of (i) two years after the date the option is granted, or
(ii) one year after the shares are issued. The Company will not be entitled to
any tax deduction for Federal income tax purposes with respect to shares so
acquired and disposed of by a Participant.
The Purchase Plan does not contain any provisions requiring a Participant
to hold the optioned stock for any period after exercise of the option, nor to
acquire such stock for investment purposes. However, unless a Participant holds
the stock for more than two years after the option is granted and one year after
the stock is issued, he or she will not be entitled to long-term capital gain
treatment for Federal income tax purposes on any increase in fair market value
of the stock between the date the option was granted and the date the option was
exercised. If the Participant disposes of the stock within such one-year period
or such two-year period, any excess of the fair market value on the date of
exercise over the option price is taxable as ordinary income to him or her and
is deductible by the Company for Federal income tax purposes.
The number of shares of Class A Common Stock which can be purchased
pursuant to options under the Purchase Plan are subject to adjustment in the
event of certain recapitalizations of the Company. Participants' rights to
purchase stock pursuant to the Purchase Plan are not transferable. Generally,
the Company's Board of Directors, without the consent of Participants, can
terminate or amend the Purchase Plan, except that no such action can adversely
affect options previously granted and, without stockholder approval, the Board
may not: (i) increase the total amount of Class A Common Stock allocated to the
Purchase Plan (except for permitted capital adjustments); (ii) change the class
of Eligible Employees; (iii) decrease the minimum purchase price; (iv) extend a
Purchase Period; or (v) extend the term of the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE EMPLOYEE STOCK
PURCHASE PLAN.
19
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has, subject to stockholder approval,
retained PricewaterhouseCoopers LLP as independent accountants of the Company
for the year ending December 31, 1999. PricewaterhouseCoopers LLP also served as
independent accountants of the Company for 1998. Neither the accounting firm nor
any of its members has any direct or indirect financial interest in or any
connection with the Company in any capacity other than as accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 1999.
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 wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 2000 Annual Meeting of
Stockholders must advise the Secretary of the Company of such proposals in
writing by December 27, 1999.
OTHER MATTERS
The 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 the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, officers and other employees of
the Company who will not be specially compensated for these services. The
Company will also request that brokers, nominees, custodians and other
fiduciaries forward soliciting materials to the beneficial owners of shares held
of record by such brokers, nominees, custodians and other fiduciaries. The
Company 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 Directors and officers of the Company is
based upon information received from the individual Directors and officers.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION WILL FURNISH, WITHOUT CHARGE, A
COPY OF ITS REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH
OF ITS STOCKHOLDERS OF RECORD ON MARCH 31, 1999, AND TO EACH BENEFICIAL
STOCKHOLDER ON THAT DATE UPON WRITTEN REQUEST MADE TO THE SECRETARY OF THE
COMPANY. 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
Gordon Coburn,
Secretary
Teaneck, New Jersey
April 26, 1999
20
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Wijeyaraj Mahadeva and
Gordon Coburn, and each of them, his or her true and lawful agent and proxy with
full power of substitution in each, to represent and to vote on behalf of the
undersigned all of the shares of Class A Common Stock of Cognizant Technology
Solutions Corporation (the "Company") which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at the Teaneck
Marriott at Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, New Jersey at
10:00 A.M., local time, on Tuesday, May 25, 1999 and at any adjournment or
adjournments thereof, upon the following proposals more fully described in the
Notice of Annual Meeting of Stockholders and Proxy Statement for the Meeting
(receipt of which is hereby acknowledged).
(continued and to be signed on reverse side)
<PAGE>
(continued from reverse side)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS.
Nominees: Wijeyaraj Mahadeva
Anthony Bellomo
VOTE FOR all nominees | | Victoria Fash
Robert W. Howe
FOR, except vote withheld from the following John Klein and
nominees, (if any): Venetia Kontogouris
- ------------------------------------
VOTE WITHHELD from all nominees | |
2. APPROVAL OF PROPOSAL TO ADOPT THE COMPANY'S 1999 INCENTIVE COMPENSATION
PLAN.
FOR | | AGAINST | | ABSTAIN | |
3. APPROVAL OF PROPOSAL TO ADOPT THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
FOR | | AGAINST | | ABSTAIN | |
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF THE COMPANY FOR THE
YEAR ENDING DECEMBER 31, 1999.
FOR | | AGAINST | | ABSTAIN | |
5. In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the Meeting.
Dated: NOTE: This proxy must be signed
--------------------------- exactly as the name appears hereon.
When shares are held by joint
-------------------------------- tenants, both should sign. If the
Signature of Stockholder signer is a corporation, please sign
full corporate name by duly authorized
-------------------------------- officer, giving full title as such. If
Signature of Stockholder if held the signer is a partnership, please
jointly sign in partnership name by authorized
person.
I will | | will not | | attend the
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
<PAGE>
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Wijeyaraj Mahadeva and
Gordon Coburn, and each of them, his or her true and lawful agent and proxy with
full power of substitution in each, to represent and to vote on behalf of the
undersigned all of the shares of Class B Common Stock of Cognizant Technology
Solutions Corporation (the "Company") which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at the Teaneck
Marriott at Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, New Jersey at
10:00 A.M., local time, on Tuesday, May 25, 1999 and at any adjournment or
adjournments thereof, upon the following proposals more fully described in the
Notice of Annual Meeting of Stockholders and Proxy Statement for the Meeting
(receipt of which is hereby acknowledged).
(continued and to be signed on reverse side)
<PAGE>
(continued from reverse side)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS.
Nominees: Wijeyaraj Mahadeva
Anthony Bellomo
VOTE FOR all nominees | | Victoria Fash
Robert W. Howe
FOR, except vote withheld from the following John Klein and
nominees, (if any): Venetia Kontogouris
- ------------------------------------
VOTE WITHHELD from all nominees | |
2. APPROVAL OF PROPOSAL TO ADOPT THE COMPANY'S 1999 INCENTIVE COMPENSATION
PLAN.
FOR | | AGAINST | | ABSTAIN | |
3. APPROVAL OF PROPOSAL TO ADOPT THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
FOR | | AGAINST | | ABSTAIN | |
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF THE COMPANY FOR THE
YEAR ENDING DECEMBER 31, 1999.
FOR | | AGAINST | | ABSTAIN | |
5. In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the Meeting.
Dated: NOTE: This proxy must be signed
--------------------------- exactly as the name appears hereon.
When shares are held by joint
-------------------------------- tenants, both should sign. If the
Signature of Stockholder signer is a corporation, please sign
full corporate name by duly authorized
-------------------------------- officer, giving full title as such. If
Signature of Stockholder if held the signer is a partnership, please
jointly sign in partnership name by authorized
person.
I will | | will not | | attend the
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
Appendix A
----------
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
1999 INCENTIVE COMPENSATION PLAN
1.0 DEFINITIONS
The following terms shall have the following meanings unless the context
indicates otherwise:
1.1 "Award" shall mean either a Stock Option, an SAR, a Stock Award, a Stock
Unit, a Performance Share, a Performance Unit, or a Cash Award.
1.2 "Award Agreement" shall mean a written agreement between the Company and
the Participant that establishes the terms, conditions, restrictions and/or
limitations applicable to an Award in addition to those established by the
Plan and by the Committee's exercise of its administrative powers.
1.3 "Board" shall mean the Board of Directors of the Company.
1.4 "Cash Award" shall mean the grant by the Committee to a Participant of an
award of cash as described in Section 11 below.
1.5 "Cause" shall mean (i) willful malfeasance or willful misconduct by the
Employee in connection with his employment, (ii) continuing failure to
perform such duties as are requested by the Company and/or its
subsidiaries, (iii) failure by the Employee to observe material policies of
the Company and/or its subsidiaries applicable to the Employee or (iv) the
commission by the Employee of (x) any felony or (y) any misdemeanor
involving moral turpitude.
1.6 "Change in Control of the Company" shall mean the occurrence of any of the
following events:
(a) any Person, as such term is used for purposes of Section 13(d) or
14(d) of the Exchange Act, or any successor section thereto, (other
than (i) the Company, (ii) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (iii) any
Subsidiaries of the Company, (iv) any company owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company or (v) IMS
Health Incorporated or its Subsidiaries), becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 35% or more of the combined voting power of the Company's
then-outstanding securities; provided however, that the acquisition of
securities in a bona fide public offering or private placement of
securities by an investor who is acquiring such securities for passive
investment purposes only shall not constitute a "Change in Control".
(b) during any period of twenty-four months, individuals who at the
beginning of such period constitute the Board, and any new director
(other than (i) a director nominated by a Person who has entered into
an agreement with the Company to effect a transaction described in
Sections 1.6 (a), (c) or (d) of the Plan, (ii) a director nominated by
any Person (including the Company) who publicly announces an intention
to take or to consider taking actions (including, but not limited to,
an actual or threatened proxy contest) which if consummated would
constitute a Change in Control or (iii) a director nominated by any
Person who is the beneficial owner, directly or indirectly, of
securities of the Company
-1-
<PAGE>
representing 10% or more of the combined voting power of the Company's
securities) whose election by the Board or nomination for election by
the Company's shareholders is or was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously, so approved, cease for any
reason to constitute at least a majority thereof;
(c) the effective date or date of consummation of any transaction or
series of transactions (other than a transaction to which only the
Company and one or more of its subsidiaries are parties) under which
the Company is merged or consolidated with any other company, other
than a merger or consolidation (i) which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 66
2/3% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation and (ii) after which no Person holds 35% or
more of the combined voting power of the then-outstanding securities
of the Company or such surviving entity; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets;
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.8 "Committee" shall mean (i) the Board or (ii) a committee or subcommittee
of the Board appointed by the Board from among its members. The Committee
may be the Board's Compensation Committee. Unless the Board determines
otherwise, the Committee shall be comprised solely of not less than two
members who each shall qualify as:
(a) a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)
(or any successor rule) under the Exchange Act, and
(b) an "outside director" within the meaning of Code Section 162(m)
and the Treasury Regulations thereunder.
1.9 "Common Stock" shall mean the Class A common stock, $.01 par value per
share, of the Company.
1.10 "Company" shall mean Cognizant Technology Solutions Corporation, a
Delaware corporation.
1.11 "Disability" shall mean shall mean the inability to engage in any
substantial gainful activity by reason of a medically determinable
physical or mental impairment which constitutes a permanent and total
disability, as defined in Section 22(e) (3) of the Code (or any successor
section thereto). The determination whether a Participant has suffered a
Disability shall be made by the Committee based upon such evidence as it
deems necessary and appropriate, and shall be conclusive and binding on
the Participant. A Participant shall not be considered disabled unless he
or she
-2-
<PAGE>
furnishes such medical or other evidence of the existence of the
Disability as the Committee, in its sole discretion, may require.
1.12 "Dividend Equivalent Right" shall mean the right to receive an amount
equal to the amount of any dividend paid with respect to a share of Common
Stock multiplied by the number of shares of Common Stock underlying or
with respect to a Stock Option, a SAR, a Stock Unit or a Performance Unit,
and which shall be payable in cash, in Common Stock, in the form of Stock
Units or Performance Units, or a combination of any or all of the
foregoing.
1.13 "Effective Date" shall mean the date on which the Plan is adopted by the
Board.
1.14 "Employee" shall mean an employee of the Company or any Subsidiary as
described in Treasury Regulation Section 1.421-7(h).
1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, including applicable regulations thereunder.
1.16 "Fair Market Value of the Common Stock" shall mean:
(a) if the Common Stock is readily tradable on a national securities
exchange or other market system, the closing price of the Common Stock
on the date of calculation (or on the last preceding trading date if
Common Stock was not traded on such date), or
(b) if the Common Stock is not readily tradable on a national
securities exchange or other market system:
(i) the book value of a share of Common Stock as of the last day
of the last completed fiscal quarter preceding the date of
calculation; or
(ii) any other value as otherwise determined in good faith by the
Board.
1.17 "Independent Contractor" shall mean a person (other than a person who is
an Employee or a Nonemployee Director) or an entity that renders services
to the Company.
1.18 "ISO" shall mean an "incentive stock option" as such term is used in Code
Section 422.
1.19 "Nonemployee Director" shall mean a member of the Board who is not an
Employee.
1.20 "Nonqualified Stock Option" shall mean a Stock Option that does not
qualify as an ISO.
1.21 "Participant" shall mean any Employee, Nonemployee Director or Independent
Contractor to whom an Award has been granted by the Committee under the
Plan.
1.22 "Performance-Based Award" shall mean an Award subject to the achievement
of certain performance goal or goals as described in Section 12 below.
-3-
<PAGE>
1.23 "Performance Share" shall mean the grant by the Committee to a Participant
of an Award as described in Section 10.1 below.
1.24 "Performance Unit" shall mean the grant by the Committee to a Participant
of an Award as described in Section 10.2 below.
1.25 "Plan" shall mean the Cognizant Technology Solutions Corporation 1999
Incentive Compensation Plan.
1.26 "SAR" shall mean the grant by the Committee to a Participant of a stock
appreciation right as described in Section 8 below.
1.27 "Stock Award" shall mean the grant by the Committee to a Participant of an
Award of Common Stock as described in Section 9.1 below.
1.28 "Stock Option" shall mean the grant by the Committee to a Participant of
an option to purchase Common Stock as described in Section 7 below.
1.29 "Stock Unit" shall mean the grant by the Committee to a Participant of an
Award as described in Section 9.2 below.
1.30 "Subsidiary" shall mean a corporation of which the Company directly or
indirectly owns more than 50 percent of the Voting Stock or any other
business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent.
1.31 "Treasury Regulations" shall mean the regulations promulgated under the
Code by the United States Department of the Treasury, as amended from time
to time.
1.32 "Vest" shall mean:
(a) with respect to Stock Options and SARs, when the Stock Option or
SAR (or a portion of such Stock Option or SAR) first becomes
exercisable and remains exercisable subject to the terms and
conditions of such Stock Option or SAR; or
(b) with respect to Awards other than Stock Options and SARs, when
the Participant has:
(i) an unrestricted right, title and interest to receive the
compensation (whether payable in Common Stock, cash or a
combination of both) attributable to an Award (or a portion of
such Award) or to otherwise enjoy the benefits underlying such
Award; and
(ii) a right to transfer an Award subject to no Company-imposed
restrictions or limitations other than restrictions and/or
limitations imposed by Section 14 below.
1.33 "Vesting Date" shall mean the date or dates on which an Award Vests.
-4-
<PAGE>
1.34 "Voting Stock" shall mean the capital stock of any class or classes having
general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2.0 PURPOSE AND TERM OF PLAN
2.1 Purpose. The purpose of the Plan is to motivate certain Employees,
Nonemployee Directors and Independent Contractors to put forth maximum
efforts toward the growth, profitability, and success of the Company and
Subsidiaries by providing incentives to such Employees, Nonemployee
Directors and Independent Contractors either through cash payments and/or
through the ownership and performance of the Common Stock. In addition,
the Plan is intended to provide incentives which will attract and retain
highly qualified individuals as Employees and Nonemployee Directors and to
assist in aligning the interests of such Employees and Nonemployee
Directors with those of its stockholders.
2.2 Term. The Plan shall be effective as of the Effective Date; provided,
however, that the Plan shall be approved by the stockholders of the
Company at an annual meeting or any special meeting of stockholders of the
Company within 12 months before or after the Effective Date, and such
approval by the stockholders of the Company shall be a condition to the
right of each Participant to receive Awards hereunder. Any Award granted
under the Plan prior to the approval by the stockholders of the Company
shall be effective as of the date of grant (unless the Committee specifies
otherwise at the time of grant), but no such Award may Vest, be paid out,
or otherwise be disposed of prior to such stockholder approval. If the
stockholders of the Company fail to approve the Plan in accordance with
this Section 2.2, any Award granted under the Plan shall be cancelled. The
Plan shall terminate on the 10th anniversary of the Effective Date (unless
sooner terminated by the Board under Section 16.1 below.
3.0 ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. All Employees of the Company, all Nonemployee Directors and
all Independent Contractors shall be eligible to participate in the Plan
and to receive Awards.
3.2 Participation. Participants shall consist of such Employees, Nonemployee
Directors and Independent Contractors as the Committee in its sole
discretion designates to receive Awards under the Plan. Designation of a
Participant in any year shall not require the Committee to designate such
person or entity to receive an Award in any other year or, once
designated, to receive the same type or amount of Award as granted to the
Participant in any other year. The Committee shall consider such factors
as it deems pertinent in selecting Participants and in determining the
type and amount of their respective Awards.
4.0 ADMINISTRATION
4.1 Responsibility. The Committee shall have the responsibility, in its sole
discretion, to control, operate, manage and administer the Plan in
accordance with its terms.
-5-
<PAGE>
4.2 Award Agreement. Each Award granted under the Plan shall be evidenced by an
Award Agreement which shall be signed by the Committee and the Participant;
provided, however, that in the event of any conflict between a provision of
the Plan and any provision of an Award Agreement, the provision of the Plan
shall prevail.
4.3 Authority of the Committee. The Committee shall have all the discretionary
authority that may be necessary or helpful to enable it to discharge its
responsibilities with respect to the Plan, including but not limited to the
following:
(a) to determine eligibility for participation in the Plan;
(b) to determine eligibility for and the type and size of an Award
granted under the Plan;
(c) to supply any omission, correct any defect, or reconcile any
inconsistency in the Plan in such manner and to such extent as it
shall deem appropriate in its sole discretion to carry the same into
effect;
(d) to issue administrative guidelines as an aid to administer the
Plan and make changes in such guidelines as it from time to time deems
proper;
(e) to make rules for carrying out and administering the Plan and
make changes in such rules as it from time to time deems proper;
(f) to the extent permitted under the Plan, grant waivers of Plan
terms, conditions, restrictions, and limitations;
(g) to accelerate the Vesting of any Award when such action or
actions would be in the best interest of the Company;
(h) to grant Award in replacement of Awards previously granted under
this Plan or any other executive compensation plan of the Company; and
(i) to take any and all other actions it deems necessary or advisable
for the proper operation or administration of the Plan.
4.4 Action by the Committee. The Committee may act only by a majority of its
members. Any determination of the Committee may be made, without a meeting,
by a writing or writings signed by all of the members of the Committee. In
addition, the Committee may authorize any one or more of its members to
execute and deliver documents on behalf of the Committee.
4.5 Delegation of Authority. The Committee may delegate to one or more of its
members, or to one or more agents, such administrative duties as it may
deem advisable; provided, however, that any such delegation shall be in
writing. In addition, the Committee, or any person to whom it has delegated
duties under this Section 4.5, may employ one or more persons to render
advice with respect to any responsibility the Committee or such person may
have under the Plan. The Committee may employ such legal or other counsel,
consultants and agents as it may deem
-6-
<PAGE>
desirable for the administration of the Plan and may rely upon any opinion
or computation received from any such counsel, consultant or agent.
Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company, or the Subsidiary whose
employees have benefited from the Plan, as determined by the Committee.
4.6 Determinations and Interpretations by the Committee. All determinations and
interpretations made by the Committee shall be binding and conclusive on
all Participants and their heirs, successors, and legal representatives.
4.7 Liability. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act
hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any act or failure to act
hereunder by any other member or employee or by any agent to whom duties in
connection with the administration of the Plan have been delegated.
4.8 Indemnification. The Company shall indemnify members of the Committee and
any agent of the Committee who is an employee of the Company, against any
and all liabilities or expenses to which they may be subjected by reason of
any act or failure to act with respect to their duties on behalf of the
Plan, except in circumstances involving such person's bad faith, gross
negligence or willful misconduct.
5.0 SHARES SUBJECT TO PLAN
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 1,000,000 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.
5.2 Adjustment to Shares. If there is any change in the Common Stock of the
Company, through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, reverse stock split, split-up, split-off,
spin-off, combination of shares, exchange of shares, dividend in kind or
other like change in capital structure or distribution (other than normal
cash dividends) to stockholders of the Company, an adjustment shall be made
to each outstanding Award so that each such Award shall thereafter be with
respect to or exercisable for such securities, cash and/or other property
as would have been received in respect of the Common Stock subject to such
Award had such Award been paid, distributed or exercised in full
immediately prior to such change or distribution. Such adjustment shall be
made successively each time any such change shall occur. In addition, in
the event of any such change or distribution, in order to prevent dilution
or enlargement of Participants' rights under the Plan, the Committee shall
have the authority to adjust, in an equitable manner, the number and kind
of shares that may be issued under the Plan, the number and kind of shares
subject to outstanding Awards, the exercise price applicable to outstanding
Stock Options, and the Fair Market Value of the Common Stock and other
value determinations applicable to outstanding Awards. Appropriate
adjustments may also be made by
-7-
<PAGE>
the Committee in the terms of any Awards granted under the Plan to reflect
such changes or distributions and to modify any other terms of outstanding
Awards on an equitable basis, including modifications of performance goals
and changes in the length of performance periods; provided, however, that
with respect to Performance-Based Awards, such modifications and/or changes
do not disqualify compensation attributable to such Awards as
"performance-based compensation" under Code Section 162(m). In addition,
the Committee is authorized to make adjustments to the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events affecting the Company or the financial statements of
the Company, or in response to changes in applicable laws, regulations, or
accounting principles. Notwithstanding anything contained in the Plan, any
adjustment with respect to an ISO due to a change or distribution described
in this Section 5.2 shall comply with the rules of Code Section 424(a), and
in no event shall any adjustment be made which would render any ISO granted
hereunder other than an incentive stock option for purposes of Code Section
422.
6.0 MAXIMUM INDIVIDUAL AWARDS
6.1 Maximum Aggregate Number of Shares Underlying Stock-Based Awards Granted
Under the Plan to Any Single Participant. The maximum aggregate number of
shares of Common Stock underlying all Awards measured in shares of Common
Stock (whether payable in Common Stock, cash or a combination of both) that
may be granted to any single Participant during the life of the Plan shall
be 750,000 shares, subject to adjustment as provided in Section 5.2 above.
For purposes of the preceding sentence, such Awards that are cancelled or
repriced shall continue to be counted in determining such maximum aggregate
number of shares of Common Stock that may be granted to any single
Participant during the life of the Plan.
6.2 Maximum Dollar Amount Underlying Cash-Based Awards Granted Under the Plan
to Any Single Participant. The maximum dollar amount that may be paid to
any single Participant with respect to all Awards measured in cash (whether
payable in Common Stock, cash or a combination of both) during the life of
the Plan shall be $10,000,000.
7.0 STOCK OPTIONS
7.1 In General. The Committee may, in its sole discretion, grant Stock Options
to Employees, Nonemployee Directors and Independent Contractors on or after
the Effective Date. The Committee shall, in its sole discretion, determine
the Employees, the Nonemployee Directors and Independent Contractors who
will receive Stock Options and the number of shares of Common Stock
underlying each Stock Option. With respect to Employees who become
Participants, the Committee may grant such Participants ISOs or
Nonqualified Stock Options or a combination of both. With respect to
Nonemployee Directors and Independent Contractors who become Participants,
the Committee may grant such Participants only Nonqualified Stock Options.
Each Stock Option shall be subject to such terms and conditions consistent
with the Plan as the Committee may impose from time to time. In addition,
each Stock Option shall be subject to the following terms and conditions
set forth in Sections 7.2 through 7.8 below.
7.2 Exercise Price. The Committee shall specify the exercise price of each
Stock Option in the Award Agreement; provided, however, that (i) the
exercise price of any ISO shall not be less than 100 percent of the Fair
Market Value of the Common Stock on the date of grant, and (ii) the
exercise
-8-
<PAGE>
price of any Nonqualified Stock Option shall not be less than 100 percent
of the Fair Market Value of the Common Stock on the date of grant unless
the Committee in its sole discretion and due to special circumstances
determines otherwise on the date of grant.
7.3 Term of Stock Option. The Committee shall specify the term of each Stock
Option in the Award Agreement; provided, however, that (i) no ISO shall be
exercised after the 10th anniversary of the date of grant of such ISO and
(ii) no Nonqualified Stock Option shall be exercised after the 10th
anniversary of the date of grant of such Nonqualified Stock Option. Each
Stock Option shall terminate at such earlier times and upon such conditions
or circumstances as the Committee shall, in its sole discretion, set forth
in the Award Agreement on the date of grant.
7.4 Vesting Date. The Committee shall specify the Vesting Date with respect to
each Stock Option in the Award Agreement. The Committee may grant Stock
Options that are Vested, either in whole or in part, on the date of grant.
If the Committee fails to specify a Vesting Date in the Award Agreement, 25
percent of such Stock Option shall become exercisable on each of the first
4 anniversaries of the date of grant and shall remain exercisable following
such anniversary date until the Stock Option expires in accordance with its
terms under the Award Agreement or under the terms of the Plan. The Vesting
of a Stock Option may be subject to such other terms and conditions as
shall be determined by the Committee, including, without limitation,
accelerating the Vesting if certain performance goals are achieved.
7.5 Exercise of Stock Options. The Stock Option exercise price may be paid in
cash or, in the sole discretion of the Committee, by the delivery of shares
of Common Stock then owned by the Participant, by the withholding of shares
of Common Stock for which a Stock Option is exercisable, or by a
combination of these methods. In the sole discretion of the Committee,
payment may also be made by delivering a properly executed exercise notice
to the Company together with a copy of irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds to
pay the exercise price. To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage
firms. The Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the
purpose of the Plan, including, without limitation, in lieu of the exercise
of a Stock Option by delivery of shares of Common Stock then owned by a
Participant, providing the Company with a notarized statement attesting to
the number of shares owned by the Participant, where upon verification by
the Company, the Company would issue to the Participant only the number of
incremental shares to which the Participant is entitled upon exercise of
the Stock Option. In determining which methods a Participant may utilize to
pay the exercise price, the Committee may consider such factors as it
determines are appropriate; provided, however, that with respect to ISOs,
all such discretionary determinations by the Committee shall be made at the
time of grant and specified in the Award Agreement.
7.6 Restrictions Relating to ISOs. In addition to being subject to the terms
and conditions of this Section 7, ISOs shall comply with all other
requirements under Code Section 422. Accordingly, ISOs may be granted only
to Participants who are employees (as described in Treasury Regulation
Section 1.421-7(h)) of the Company or of any "Parent Corporation" (as
defined in Code Section 424(e)) or of any "Subsidiary Corporation" (as
defined in Code Section 424(f)) on the date of grant. The aggregate market
value (determined as of the time the ISO is granted) of the Common Stock
with respect to which ISOs (under all option plans of the Company and of
any Parent
-9-
<PAGE>
Corporation and of any Subsidiary Corporation) are exercisable for the
first time by a Participant during any calendar year shall not exceed
$100,000. For purposes of the preceding sentence, (i) ISOs shall be taken
into account in the order in which they are granted and (ii) ISOs granted
before 1987 shall not be taken into account. ISOs shall not be transferable
by the Participant otherwise than by will or the laws of descent and
distribution and shall be exercisable, during the Participant's lifetime,
only by such Participant. The Committee shall not grant ISOs to any
Employee who, at the time the ISO is granted, owns stock possessing (after
the application of the attribution rules of Code Section 424(d)) more than
10 percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or of any Subsidiary Corporation
unless the exercise price of the ISO is fixed at not less than 110 percent
of the Fair Market Value of the Common Stock on the date of grant and the
exercise of such ISO is prohibited by its terms after the 5th anniversary
of the ISO's date of grant. In addition, no ISO shall be issued to a
Participant in tandem with a Nonqualified Stock Option issued to such
Participant in accordance with Treasury Regulation Section 14a.422A-1,
Q/A-39.
7.7 Additional Terms and Conditions. The Committee may, by way of the Award
Agreements or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, of any Stock Option, provided they
are not inconsistent with the Plan, including, without limitation, the
requirement that the Participant not engage in competition with the
Company.
7.8 Conversion Stock Options. The Committee may, in its sole discretion, grant
a Stock Option to any holder of an option (hereinafter referred to as an
"Original Option") to purchase shares of the stock of any corporation:
(a) the stock or assets of which were acquired, directly or
indirectly, by the Company or any Subsidiary, or
(b) which was merged with and into the Company or a Subsidiary,
so that the Original Option is converted into a Stock Option (hereinafter
referred to as a "Conversion Stock Option"); provided, however, that such
Conversion Stock Option as of the date of its grant (the "Conversion Stock
Option Grant Date") shall have the same economic value as the Original
Option as of the Conversion Stock Option Grant Date. In addition, unless
the Committee, in its sole discretion determines otherwise, a Conversion
Stock Option which is converting an Original Option intended to qualify as
an ISO shall have the same terms and conditions as applicable to the
Original Option in accordance with Code Section 424 and the Treasury
Regulations thereunder so that the conversion (x) is treated as the
issuance or assumption of a stock option under Code Section 424(a) and (y)
is not treated as a modification, extension or renewal of a stock option
under Code Section 424(h).
8.0 SARS
8.1 In General. The Committee may, in its sole discretion, grant SARs to
Employees, Nonemployee Directors, and/or Independent Contractors. An SAR is
a right to receive a payment in cash, Common Stock or a combination of
both, in an amount equal to the excess of (x) the Fair Market Value of the
Common Stock, or other specified valuation, of a specified number of shares
of Common Stock on the date the SAR is exercised over (y) the Fair Market
Value of the Common
-10-
<PAGE>
Stock, or other specified valuation (which shall be no less than the Fair
Market Value of the Common Stock), of such shares of Common Stock on the
date the SAR is granted, all as determined by the Committee; provided,
however, that if a SAR is granted retroactively in tandem with or in
substitution for a Stock Option, the designated Fair Market Value of the
Common Stock in the Award Agreement may be the Fair Market Value of the
Common Stock on the date such Stock Option was granted. Each SAR shall be
subject to such terms and conditions, including, but not limited to, a
provision that automatically converts a SAR into a Stock Option on a
conversion date specified at the time of grant, as the Committee shall
impose from time to time in its sole discretion and subject to the terms of
the Plan.
9.0 STOCK AWARDS AND STOCK UNITS
9.1 Stock Awards. The Committee may, in its sole discretion, grant Stock Awards
to Employees, Nonemployee Directors, and/or Independent Contractors as
additional compensation or in lieu of other compensation for services to
the Company. A Stock Award shall consist of shares of Common Stock which
shall be subject to such terms and conditions as the Committee in its sole
discretion determines appropriate including, without limitation,
restrictions on the sale or other disposition of such shares, the Vesting
Date with respect to such shares, and the right of the Company to reacquire
such shares for no consideration upon termination of the Participant's
employment within specified periods. The Committee may require the
Participant to deliver a duly signed stock power, endorsed in blank,
relating to the Common Stock covered by such Stock Award and/or that the
stock certificates evidencing such shares be held in custody or bear
restrictive legends until the restrictions thereon shall have lapsed. With
respect to the shares of Common Stock subject to a Stock Award, the
Participant shall have all of the rights of a holder of shares of Common
Stock, including the right to receive dividends and to vote the shares,
unless the Committee determines otherwise on the date of grant.
9.2 Stock Units. The Committee may, in its sole discretion, grant to Employees,
Nonemployee Directors, and/or Independent Contractor Stock Units as
additional compensation or in lieu of other compensation for services to
the Company. A Stock Unit is a hypothetical share of Common Stock
represented by a notional account established and maintained (or caused to
be established or maintained) by the Company for such Participant who
receives a grant of Stock Units. Stock Units shall be subject to such terms
and conditions as the Committee, in its sole discretion, determines
appropriate including, without limitation, determinations of the Vesting
Date with respect to such Stock Units and the criteria for the Vesting of
such Stock Units. A Stock Unit granted by the Committee shall provide for
payment in shares of Common Stock at such time or times as the Award
Agreement shall specify. The Committee shall determine whether a
Participant who has been granted a Stock Unit shall also be entitled to a
Dividend Equivalent Right.
9.3 Payout of Stock Units. Subject to a Participant's election to defer in
accordance with Section 17.3 below, upon the Vesting of a Stock Unit, the
shares of Common Stock representing the Stock Unit shall be distributed to
the Participant, unless the Committee, in its sole discretion, provides for
the payment of the Stock Unit in cash (or partly in cash and partly in
shares of Common Stock) equal to the value of the shares of Common Stock
which would otherwise be distributed to the Participant.
-11-
<PAGE>
10.0 PERFORMANCE SHARES AND PERFORMANCE UNITS
10.1 Performance Shares. The Committee may, in its sole discretion, grant
Performance Shares to Employees, Nonemployee Directors, and/or Independent
Contractors as additional compensation or in lieu of other compensation
for services to the Company. A Performance Share shall consist of a share
or shares of Common Stock which shall be subject to such terms and
conditions as the Committee, in its sole discretion, determines
appropriate including, without limitation, determining the performance
goal or goals which, depending on the extent to which such goals are met,
will determine the number and/or value of the Performance Shares that will
be paid out or distributed to the Participant who has been granted
Performance Shares. Performance goals may be based on, without limitation,
Company-wide, divisional and/or individual performance, as the Committee,
in its sole discretion, may determine, and may be based on the performance
measures listed in Section 12.3 below.
10.2 Performance Units. The Committee may, in its sole discretion, grant to
Employees, Nonemployee Directors, and/or Independent Contractors
Performance Units as additional compensation or in lieu of other
compensation for services to the Company. A Performance Unit is a
hypothetical share or shares of Common Stock represented by a notional
account which shall be established and maintained (or caused to be
established or maintained) by the Company for such Participant who
receives a grant of Performance Units. Performance Units shall be subject
to such terms and conditions as the Committee, in its sole discretion,
determines appropriate including, without limitation, determining the
performance goal or goals which, depending on the extent to which such
goals are met, will determine the number and/or value of the Performance
Units that will be accrued with respect to the Participant who has been
granted Performance Units. Performance goals may be based on, without
limitation, Company-wide, divisional and/or individual performance, as the
Committee, in its sole discretion, may determine, and may be based on the
performance measures listed in Section 12.3 below.
10.3 Adjustment of Performance Goals. With respect to those Performance Shares
or Performance Units that are not intended to qualify as Performance-Based
Awards (as described in Section 12 below), the Committee shall have the
authority at any time to make adjustments to performance goals for any
outstanding Performance Shares or Performance Units which the Committee
deems necessary or desirable unless at the time of establishment of the
performance goals the Committee shall have precluded its authority to make
such adjustments.
10.4 Payout of Performance Shares or Performance Units. Subject to a
Participant's election to defer in accordance with Section 17.3 below,
upon the Vesting of a Performance Share or a Performance Unit, the shares
of Common Stock representing the Performance Share or the Performance Unit
shall be distributed to the Participant, unless the Committee, in its sole
discretion, provides for the payment of the Performance Share or a
Performance Unit in cash (or partly in cash and partly in shares of Common
Stock) equal to the value of the shares of Common Stock which would
otherwise be distributed to the Participant.
-12-
<PAGE>
11.0 CASH AWARDS
11.1 In General. The Committee may, in its sole discretion, grant Cash Awards
to Employees, Nonemployee Directors, and/or Independent Contractors as
additional compensation or in lieu of other compensation for services to
the Company. A Cash Award shall be subject to such terms and conditions as
the Committee, in its sole discretion, determines appropriate including,
without limitation, determining the Vesting Date with respect to such Cash
Award, the criteria for the Vesting of such Cash Award, and the right of
the Company to require the Participant to repay the Cash Award (with or
without interest) upon termination of the Participant's employment within
specified periods.
12.0 PERFORMANCE-BASED AWARDS
12.1 In General. The Committee, in its sole discretion, may designate Awards
granted under the Plan as Performance-Based Awards (as defined below) if
it determines that such compensation might not be tax deductible by the
Company due to the deduction limitation imposed by Code Section 162(m).
Accordingly, an Award granted under the Plan may be granted in such a
manner that the compensation attributable to such Award is intended by the
Committee to qualify as "performance-based compensation" (as such term is
used in Code Section 162(m) and the Treasury Regulations thereunder) and
thus be exempt from the deduction limitation imposed by Code Section
162(m) ("Performance-Based Awards").
12.2 Qualification of Performance-Based Awards. Awards shall only qualify as
Performance-Based Awards under the Plan if:
(a) at the time of grant the Committee is comprised solely of two or
more "outside directors" (as such term is used in Code Section 162(m)
and the Treasury Regulations thereunder);
(b) with respect to either the granting or Vesting of an Award (other
than (i) a Nonqualified Stock Option or (ii) an SAR, which are granted
with an exercise price at or above the Fair Market Value of the Common
Stock on the date of grant), such Award is subject to the achievement
of a performance goal or goals based on one or more of the performance
measures specified in Section 12.3 below;
(c) the Committee establishes in writing (i) the objective
performance-based goals applicable to a given performance period and
(ii) the individual employees or class of employees to which such
performance-based goals apply no later than 90 days after the
commencement of such performance period (but in no event after 25
percent of such performance period has elapsed);
(d) no compensation attributable to a Performance-Based Award will be
paid to or otherwise received by a Participant until the Committee
certifies in writing that the performance goal or goals (and any other
material terms) applicable to such performance period have been
satisfied; and
-13-
<PAGE>
(e) after the establishment of a performance goal, the Committee
shall not revise such performance goal (unless such revision will not
disqualify compensation attributable to the Award as
"performance-based compensation" under Code Section 162(m)) or
increase the amount of compensation payable with respect to such Award
upon the attainment of such performance goal.
12.3 Performance Measures. The 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 Common Stock or any
other publicly-traded securities of the Company; 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.
12.4 Stockholder Reapproval. As required by Treasury Regulation Section
1.162-27(e)(vi), the material terms of performance goals as described in
this Section 12 shall be disclosed to and reaaproved by the Company's
stockholders no later than the first stockholder meeting that occurs in
the 5th year following the year in which the Company's stockholders
previously approved such performance goals.
13.0 CHANGE IN CONTROL
13.1 Accelerated Vesting. Notwithstanding any other provision of this Plan to
the contrary, if there is a Change in Control of the Company, the
Committee, in its sole discretion, may take such actions as it deems
appropriate with respect to outstanding Awards, including, without
limitation, accelerating the Vesting Date and/or payout of such Awards;
provided, however, that such action shall not conflict with any provision
contained in an Award Agreement unless such provision is amended in
accordance with Section 16.3 below.
13.2 Cashout. The Committee, in its sole discretion, may determine that, upon
the occurrence of a Change in Control of the Company, all or a portion of
certain outstanding Awards shall terminate within a specified number of
days after notice to the holders, and each such holder shall receive an
amount equal to the value of such Award on the date of the change in
control, and with respect to each share of Common Stock subject to a Stock
Option or SAR, an amount equal to the excess of the Fair Market Value of
such shares of Common Stock immediately prior to the occurrence of such
change in control over the exercise price per share of such Stock Option
or SAR. Such amount shall be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or
in a combination thereof, as the Committee, in its sole discretion, shall
determine.
13.3 Assumption or Substitution of Awards. Notwithstanding anything contained
in the Plan to the contrary, the Committee may, in its sole discretion,
provide that an Award may be assumed by any entity which acquires control
of the Company or may be substituted by a similar award under such
entity's compensation plans.
-14-
<PAGE>
14.0 TERMINATION OF EMPLOYMENT IF PARTICIPANT IS AN EMPLOYEE
14.1 Termination of Employment Due to Death or Disability. Subject to any
written agreement between the Company and a Participant, if a
Participant's employment is terminated due to death or Disability:
(a) all non-Vested portions of Awards held by the Participant on the
date of the Participant's death or the date of the termination of his
or her employment, as the case may be, shall immediately be forfeited
by such Participant as of such date; and
(b) all Vested portions of Stock Options and SARs held by the
Participant on the date of the Participant's death or the date of the
termination of his or her employment, as the case may be, shall remain
exercisable until the earlier of:
(i) the end of the 12-month period following the date of the
Participant's death or the date of the termination of his or her
employment, as the case may be, or
(ii) the date the Stock Option or SAR would otherwise expire.
14.2 Termination of Employment for Cause. Subject to any written agreement
between the Company and a Participant, if a Participant's employment is
terminated by the Company for cause, all Awards held by a Participant on
the date of the termination of his or her employment for cause, whether
Vested or non-Vested, shall immediately be forfeited by such Participant
as of such date.
14.3 Other Terminations of Employment. Subject to any written agreement between
the Company and a Participant, if a Participant's employment is terminated
for any reason other than for cause or other than due to death or
Disability:
(a) all non-Vested portions of Awards held by the Participant on the
date of the termination of his or her employment shall immediately be
forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Options and/or SARs held by the
Participant on the date of the termination of his or her employment
shall remain exercisable until the earlier of (i) the end of the
90-day period following the date of the termination of the
Participant's employment or (ii) the date the Stock Option or SAR
would otherwise expire.
14.4 Committee Discretion. Notwithstanding anything contained in the Plan to
the contrary, the Committee may, in its sole discretion, provide that:
(a) any or all non-Vested portions of Stock Options and/or SARs held
by the Participant on the date of the Participant's death and/or the
date of the termination of his or her employment shall immediately
become exercisable as of such date and, except with respect to ISOs,
shall remain exercisable until a date that occurs on or prior to the
date the Stock Option or SAR is scheduled to expire;
-15-
<PAGE>
(b) any or all Vested portions of Nonqualified Stock Options and/or
SARs held by the Participant on the date of the Participant's death
and/or the date of the termination of his or her employment 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
(c) any or all non-Vested portions of Stock Awards, Stock Units,
Performance Shares, Performance Units, and/or Cash Awards held by the
Participant on the date of the Participant's death and/or the date of
the termination of his or her employment shall immediately Vest or
shall become Vested on a date that occurs on or prior to the date the
Award is scheduled to vest.
14.5 ISOs. Notwithstanding anything contained in the Plan to the contrary, (i)
the provisions contained in this Section 14 shall be applied to an ISO
only if the application of such provision maintains the treatment of such
ISO as an ISO and (ii) the exercise period of an ISO in the event of a
termination of the Participant's employment due to Disability provided in
Section 14.1 above shall be applied only if the Participant is
"permanently and totally disabled" (as such term is defined in Code
Section 22(e)(3)).
15.0 TAXES
15.1 Withholding Taxes. With respect to Employees, the Company, or the
applicable Subsidiary, may require a Participant who has become vested in
his or her Stock Award, Stock Unit, Performance Share or Performance Unit
granted hereunder, or who exercises a Stock Option or SAR granted
hereunder to reimburse the corporation which employs such Participant for
any taxes required by any governmental regulatory authority to be withheld
or otherwise deducted and paid by such corporation or entity in respect of
the issuance or disposition of such shares or the payment of any amounts.
In lieu thereof, the corporation or entity which employs such Participant
shall have the right to withhold the amount of such taxes from any other
sums due or to become due from such corporation or entity to the
Participant upon such terms and conditions as the Committee shall
prescribe. The corporation or entity that employs such Participant may, in
its discretion, hold the stock certificate to which such Participant is
entitled upon the vesting of a Stock Award, Stock Unit, Performance Share
or Performance Unit or the exercise of a Stock Option or SAR as security
for the payment of such withholding tax liability, until cash sufficient
to pay that liability has been accumulated.
15.2 Use of Common Stock to Satisfy Withholding Obligation. With respect to
Employees, at any time that the Company, Subsidiary or other entity that
employs such Participant becomes subject to a withholding obligation under
applicable law with respect to the vesting of a Stock Award, Stock Unit,
Performance Share or Performance Unit or the exercise of a Nonqualified
Stock Option (the "Tax Date"), except as set forth below, a holder of such
Award may elect to satisfy, in whole or in part, the holder's related
personal tax liabilities (an "Election") by (i) directing the Company,
Subsidiary or other entity that employs such Participant to withhold from
shares issuable in the related vesting or exercise either a specified
number of shares or shares of Common Stock having a specified value (in
each case equal to the related minimum statutory personal withholding tax
liabilities with respect to the applicable taxing jurisdiction in order to
comply with
-16-
<PAGE>
the requirements for a "fixed plan" under Accounting Principals Board
Opinion No. 25), (ii) tendering shares of Common Stock previously issued
pursuant to the exercise of a Stock Option or other shares of the Common
Stock owned by the holder, or (iii) combining any or all of the foregoing
Elections in any fashion. An Election shall be irrevocable. The withheld
shares and other shares of Common Stock tendered in payment shall be
valued at their Fair Market Value of the Common Stock on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right
to make Elections or provide that the right to make Elections shall not
apply to particular shares or exercises. The Committee may impose any
additional conditions or restrictions on the right to make an Election as
it shall deem appropriate, including conditions or restrictions with
respect to Section 16 of the Exchange Act.
15.3 No Guarantee of Tax Consequences. No person connected with the Plan in any
capacity, including, but not limited to, the Company and any Subsidiary
and their directors, officers, agents and employees makes any
representation, commitment, or guarantee that any tax treatment,
including, but not limited to, federal, state and local income, estate and
gift tax treatment, will be applicable with respect to amounts deferred
under the Plan, or paid to or for the benefit of a Participant under the
Plan, or that such tax treatment will apply to or be available to a
Participant on account of participation in the Plan.
16.0 AMENDMENT AND TERMINATION
16.1 Termination of Plan. The Board may suspend or terminate the Plan at any
time with or without prior notice; provided, however, that no action
authorized by this Section 16.1 shall reduce the amount of any outstanding
Award or change the terms and conditions thereof without the Participant's
consent.
16.2 Amendment of Plan. The Board may amend the Plan at any time with or
without prior notice; provided, however, that no action authorized by this
Section 16.2 shall reduce the amount of any outstanding Award or change
the terms and conditions thereof without the Participant's consent. No
amendment of the Plan shall, without the approval of the stockholders of
the Company:
(a) increase the total number of shares which may be issued under the
Plan;
(b) increase the maximum number of shares with respect to all Awards
measured in Common Stock that may be granted to any individual under
the Plan;
(c) increase the maximum dollar amount that may be paid with respect
to all Awards measured in cash; or
(d) modify the requirements as to eligibility for Awards under the
Plan.
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 or (ii) will disqualify any ISO
granted hereunder.
-17-
<PAGE>
16.3 Amendment or Cancellation of Award Agreements. The Committee may amend or
modify any Award Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an
interest therein. In addition, by mutual agreement between the Committee
and a Participant or such other persons as may then have an interest
therein, Awards may be granted to an Employee, Nonemployee Director or
Independent Contractor in substitution and exchange for, and in
cancellation of, any Awards previously granted to such Employee,
Nonemployee Director or Independent Contractor under the Plan, or any
award previously granted to such Employee, Nonemployee Director or
Independent Contractor under any other present or future plan of the
Company or any present or future plan of an entity which (i) is purchased
by the Company, (ii) purchases the Company, or (iii) merges into or with
the Company.
17.0 MISCELLANEOUS
17.1 Other Provisions. Awards granted under the Plan may also be subject to
such other provisions (whether or not applicable to the Award granted to
any other Participant) as the Committee determines on the date of grant to
be appropriate, including, without limitation, for the installment
purchase of Common Stock under Stock Options, to assist the Participant in
financing the acquisition of Common Stock, for the forfeiture of, or
restrictions on resale or other disposition of, Common Stock acquired
under any Stock Option, for the acceleration of Vesting of Awards in the
event of a change in control of the Company, for the payment of the value
of Awards to Participants in the event of a change in control of the
Company, or to comply with federal and state securities laws, or
understandings or conditions as to the Participant's employment in
addition to those specifically provided for under the Plan.
17.2 Transferability. Each Award granted under the Plan to a Participant shall
not be transferable otherwise than by will or the laws of descent and
distribution, and Stock Options and SARs shall be exercisable, during the
Participant's lifetime, only by the Participant. In the event of the death
of a Participant, each Stock Option or SAR theretofore granted to him or
her shall be exercisable during such period after his or her death as the
Committee shall, in its sole discretion, set forth in the Award Agreement
on the date of grant and then only by the executor or administrator of the
estate of the deceased Participant or the person or persons to whom the
deceased Participant's rights under the Stock Option or SAR shall pass by
will or the laws of descent and distribution. Notwithstanding the
foregoing, the Committee, in its sole discretion, may permit the
transferability of a Stock Option (other than an ISO) by a Participant
solely to members of the Participant's immediate family or trusts or
family partnerships or other similar entities for the benefit of such
persons, and subject to such terms, conditions, restrictions and/or
limitations, if any, as the Committee may establish and include in the
Award Agreement.
17.3 Election to Defer Compensation Attributable to Award. The Committee may,
in its sole discretion, allow a Participant to elect to defer the receipt
of any compensation attributable to an Award under guidelines and
procedures to be established by the Committee after taking into account
the advice of the Company's tax counsel.
17.4 Listing of Shares and Related Matters. If at any time the Committee shall
determine that the listing, registration or qualification of the shares of
Common Stock subject to any Award on any securities exchange or under any
applicable law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of, or in connection
with, the granting
-18-
<PAGE>
of an Award or the issuance of shares of Common Stock thereunder, such
Award may not be exercised, distributed or paid out, as the case may be,
in whole or in part, unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Committee.
17.5 No Right, Title, or Interest in Company Assets. Participants shall have no
right, title, or interest whatsoever in or to any investments which the
Company may make to aid it in meeting its obligations under the Plan.
Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or
a fiduciary relationship between the Company and any Participant,
beneficiary, legal representative or any other person. To the extent that
any person acquires a right to receive payments from the Company under the
Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall
be paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as expressly set forth in the Plan.
The Plan is not intended to be subject to the Employee Retirement Income
Security Act of 1974, as amended.
17.6 No Right to Continued Employment or Service or to Grants. The
Participant's rights, if any, to continue to serve the Company as a
director, officer, employee, independent contractor or otherwise, shall
not be enlarged or otherwise affected by his or her designation as a
Participant under the Plan, and the Company or the applicable Subsidiary
reserves the right to terminate the employment of any Employee or the
services of any Independent Contractor or director at any time. The
adoption of the Plan shall not be deemed to give any Employee, Nonemployee
Director, Independent Contractor or any other individual any right to be
selected as a Participant or to be granted an Award.
17.7 Awards Subject to Foreign Laws. The Committee may grant Awards to
individual Participants who are subject to the tax laws of nations other
than the United States, and such Awards may have terms and conditions as
determined by the Committee as necessary to comply with applicable foreign
laws. The Committee may take any action which it deems advisable to obtain
approval of such Awards by the appropriate foreign governmental entity;
provided, however, that no such Awards may be granted pursuant to this
Section 16.6 and no action may be taken which would result in a violation
of the Exchange Act or any other applicable law.
17.8 Governing Law. The Plan, all Awards granted hereunder, and all actions
taken in connection herewith shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflict of laws, except as superseded by applicable federal
law.
17.9 Other Benefits. No Award granted under the Plan shall be considered
compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary nor affect any benefits or compensation
under any other benefit or compensation plan of the Company or any
Subsidiary now or subsequently in effect.
17.10 No Fractional Shares. No fractional shares of Common Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, Common Stock, Stock Options, or other property
shall be issued or paid in lieu of fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
-19-
Appendix B
----------
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
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 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 July 1, 1999.
Eligible Employees shall mean only those persons who, as of the first day
of a Purchase Period, are Employees of the Company 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.
1
<PAGE>
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.
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 1999, the period commencing on the
Effective Date and ending on January 1, 2000; and (b) thereafter, purchase
periods shall be annual, semi-annual or quarterly, in each case as elected by
the Committee not less than 60 days in advance of the commencement of such
period. A Purchase Period shall begin on the first business day of, and end on
the last business day of, each such calendar period. In the absence of any such
election, Purchase Periods subsequent to the first period shall be for one
calendar year. 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.
2
<PAGE>
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 calendar year, and of its election to utilize
the Trust Administration Option referred to in Section IX.
IV. SHARES
----------
There shall be 400,000 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)
85% of the Fair Market Value of a share of Common Stock on the first day of such
Purchase Period, or (b) 85% of the Fair Market Value of a share of Common Stock
on the Exercise Date of such Purchase Period.
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.
3
<PAGE>
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 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 at 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.
4
<PAGE>
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 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
5
<PAGE>
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.
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.
6
<PAGE>
XIV. TEMPORARY LAYOFF, AUTHORIZED LEAVE
OF ABSENCE, DISABILITY
---------------------------------------
Payroll deductions shall cease during a period of absence without pay from
work due to a Participant's temporary layoff, 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.
7
<PAGE>
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;
8
<PAGE>
(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.
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 through the December 31st following the fourth
anniversary of the Effective Date, 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 expiration of the
Plan or its termination, 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.
9
