Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section
14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement |
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Definitive Proxy Statement |
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Cognizant Technology Solutions Corp.
(Name of Registrant as Specified In Its
Charter)
(Name of Person(s) Filing Proxy
Statement, if Other Than the Registrant)
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BOX): |
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Fee computed on table below per Exchange Act Rules
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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Check box if any part of the fee is
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Table of Contents
Table of Contents
Table of Contents
* |
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To be voted on at the
meeting |
The Cognizant Cultural
Values
Table of Contents
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LETTER FROM
THE CHAIRMAN AND
CEO |
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John E. Klein |
|
|
|
Francisco
DSouza |
April 20, 2017
To Our
Stockholders:
We are pleased to invite you to our 2017
Annual Meeting of Stockholders, which will be held at the Teaneck Marriott at
Glenpointe, 100 Frank W. Burr Blvd., Teaneck, New
Jersey 07666, on Tuesday, June 6, 2017, at 9:30 a.m. Eastern Time.
There have been a number of developments
with the Company since our last annual meeting that we would like to highlight
for you. In terms of financials, we completed 2016 with revenue at a record
$13.5 billion (8.6% higher than in 2015). Net income was $1.6 billion. GAAP
diluted earnings per share was $2.55 (down 3.8% from 2015), which included the
tax costs of $0.39 per share on a cash remittance of $2.8 billion by our
principal operating subsidiary in India that increased, after tax, our cash
holdings outside of India, including an additional $1.0 billion in the U.S. Our
non-GAAP diluted earnings per share increased by 10.4% to $3.39.1
As we noted last year, our customers have
been facing a dual mandate. They must run
better operating with greater efficiency,
productivity and flexibility. At the same time, they must run different embracing
innovation and reinventing their business to compete in todays dynamic digital
world. To address these seismic changes, we realigned the Companys horizontal
teams in the second half of 2016 into three digital practice areas that span the
various business segments Digital Business, Digital Operations and Digital
Systems and Technology.
Our many talented associates around the
world continue to work with clients to help them win in the digital economy by
applying technology and analytics to drive sustainable growth, deploying systems
of intelligence to automate and improve core business processes, and improving
technology systems by deploying cloud and cyber security solutions and
as-a-service models to make them simpler, more modern and secure. Digital
revenue in 2016 grew well above Company average. We fully anticipate this trend
growth weighted toward digital to accelerate in 2017 and beyond.
In the last year we have also been
actively engaged with many of our stockholders, particularly focused on driving
long-term stockholder value. Within this context, we developed and announced in
February 2017 a comprehensive plan to accelerate our shift to digital services
and solutions and further enhance stockholder value. Key elements of the plan
are:
● |
Accelerating our investments to
scale digital capabilities across geographies and industry segments
through both organic investments and acquisitions. We plan to continue to
invest extensively in training and re-skilling our team, and in
substantially expanding our local workforces in the U.S. and other local
markets where we operate. We accelerated the pace of acquisitions during
2016 and intend to continue that strategy into 2017 with a focus primarily
on tuck-in acquisitions that expand our intellectual property, industry
expertise, geographic reach and platform and technology
capabilities. |
● |
Improving the Companys non-GAAP
operating margin by accelerating the pursuit of high-value digital
transformation work, driving leverage in the cost structure, executing on
opportunities to improve operational efficiency and aggressively employing
automation to optimize traditional services. In connection with this
effort, we announced a move away from our historical 19-20% targeted
non-GAAP operating margin toward a target of 22% in
2019.1 |
● |
Returning $3.4 billion of capital to
our stockholders in 2017 and 2018 through a combination of share
repurchases and dividends. The Company commenced the first stage of this
capital return program, a $1.5 billion accelerated share repurchase
program, in March 2017, and intends to initiate a regular quarterly
dividend of $0.15 per share in the second quarter of
2017. |
Our commitment to good corporate
governance has also never been stronger. Following the addition of one new
director in each of 2015 and 2016, our ongoing Board refreshment continued with
the welcoming of two new directors, Betsy S. Atkins and John M. Dineen, in April
2017. Ms. Atkins brings extensive leadership, corporate governance and
digitization experience from her years leading several successful companies,
including Baja Corp., a venture capital investment firm she co-founded in 1994,
and serving on numerous boards across a range of global industries. Mr. Dineen
brings operating and leadership experience from his 28 years in senior and
executive roles with General Electric, most recently as CEO of GE Healthcare. We
also thank directors Lakshmi Narayanan and Thomas M. Wendel, who are not
standing for reelection this year, for their many years of service and strategic
counsel and their roles in helping make Cognizant the leader it is
today.
We hope you will take the time to read
further about the above and other matters, including those to be voted on at the
annual meeting, in the enclosed Notice of Meeting and Proxy Statement. These
materials include instructions on how to vote your shares by proxy and/or attend
the meeting and vote in person. Whether or not you plan to attend the meeting in
person, we urge you to promptly vote and submit your vote by proxy following the
instructions provided in the Notice of Meeting and Proxy Statement.
We thank you for your continued
support.
Sincerely,
|
|
John E.
Klein |
Francisco
DSouza |
Chairman of
the Board of Directors |
Chief
Executive Officer |
1 |
See Non-GAAP Financial Measures and
Forward-Looking Statements on page 57 of the Proxy
Statement. |
Table of Contents
COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION
NOTICE OF 2017 ANNUAL
MEETING |
To Our
Stockholders:
You are invited to attend the 2017 Annual
Meeting of Stockholders (the Annual Meeting) of Cognizant Technology Solutions
Corporation (Cognizant or the Company). This notice includes important
information about the meeting.
AGENDA
1. |
Elect Zein Abdalla, Betsy S. Akins,
Maureen Breakiron-Evans, Jonathan Chadwick, John M. Dineen, Francisco
DSouza, John N. Fox, Jr., John E. Klein, Leo S. Mackay, Jr., Michael
Patsalos-Fox and Robert E. Weissman as Directors to serve until the 2018
Annual Meeting of Stockholders. See page 10. |
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The Board recommends a vote FOR each
Director nominee. |
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2. |
Approve, on an advisory
(non-binding) basis, the compensation of the Companys named executive
officers. See page 22. |
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The
Board recommends a vote FOR this proposal. |
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3. |
Approve, on an advisory
(non-binding) basis, the frequency of future advisory votes on the
compensation of the Companys named executive officers. See page
22. |
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The Board recommends that you vote
1 YEAR on this proposal. |
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4. |
Approve the Cognizant Technology Solutions Corporation
2017 Incentive Award Plan. See page 40. |
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The
Board recommends a vote FOR this proposal. |
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5. |
Ratify the appointment of
PricewaterhouseCoopers LLP as the Companys independent registered public
accounting firm for the year ending December 31, 2017. See page
47. |
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The
Board recommends a vote FOR this proposal. |
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6. |
Consider a stockholder proposal
requesting that the Board of Directors take the steps necessary to
eliminate the supermajority voting provisions of the Companys Certificate
of Incorporation and By-laws, if properly presented at the Annual Meeting.
See page 50. |
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The
Board recommends a vote FOR this proposal. |
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7. |
Consider a stockholder proposal
requesting that the Board of Directors take the steps necessary to permit
stockholder action by written consent, if properly presented at the Annual
Meeting. See page 51. |
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The Board recommends a vote
AGAINST this
proposal. |
Stockholders also will transact such other
business as may properly come before the Annual Meeting.
By Order of the Board of
Directors,
Harry Demas
Assistant Corporate Secretary
Teaneck, New Jersey
April 20,
2017
LOGISTICS
Date: |
Tuesday, June 6, 2017 |
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Time: |
9:30 a.m. Eastern Time |
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Place: |
Teaneck Marriott at Glenpointe 100 Frank
W. Burr Blvd. Teaneck, NJ 07666 |
HOW TO
VOTE
Your vote is very important. You may
vote using any one of the following methods: |
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Use the
Internet Vote over the Internet at
www.proxyvote.com. |
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Call
Toll-Free Vote by telephone by
calling 800-690-6903. |
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Mail Your Proxy
Card Vote by signing, dating and
returning the proxy card. |
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In Person Follow the advance registration instructions under Who
can attend the Annual Meeting of Stockholders on page
55. |
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Q&A
Who can vote at the Annual
Meeting? Stockholders as of our record
date, April 10, 2017.
How many shares are entitled to
vote? 588,995,145 shares of common
stock.
May I change my vote? Yes, by delivering a new proxy with a later date,
revoking your proxy, or voting in person at the Annual Meeting.
How many votes do I
get? One vote on each proposal for each
share you held as of April 10, 2017.
Where can I find more
information? See Additional
Information on page 54. |
Our Proxy Statement and 2016
Annual Report are available at
www.proxyvote.com. |
Table of
Contents
This summary highlights certain
information in this proxy statement. Please read the entire proxy statement
carefully before voting. We intend to make this proxy statement available to our
stockholders on or about April 20, 2017.
VOTING
ROADMAP
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Director Since |
Independent Director |
Other Public Boards |
Committee
Membership |
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Name and Primary
Occupation |
AC |
CC |
GC |
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Zein Abdalla |
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Retired President of PepsiCo, Inc. |
2015 |
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1 |
● |
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● |
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Betsy S. Atkins |
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CEO and Founder of Baja Corp.
|
2017 NEW |
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3 |
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Maureen
Breakiron-Evans |
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Former CFO of Towers Perrin |
2009 |
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2 |
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● |
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Jonathan
Chadwick |
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Former CFO and COO of VMware, Inc. |
2016 |
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2 |
●
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John M. Dineen |
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Former President and CEO of GE Healthcare |
2017 NEW |
|
1 |
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Francisco
DSouza |
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CEO of Cognizant
|
2007 |
|
1 |
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John N. Fox,
Jr. |
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Former Vice Chairman of Deloitte
& Touche, LLP and Global Director, Strategic Clients of Deloitte
Consulting |
2007 |
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1 |
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● |
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John E. Klein |
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Chairman of Cognizant and President and CEO of Polarex,
Inc. |
1998 |
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0 |
● |
● |
● |
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Leo S. Mackay,
Jr. |
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SVP, Internal Audit, Ethics and Sustainability of Lockheed
Martin Corporation |
2012 |
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0 |
● |
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Michael
Patsalos-Fox |
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Former CEO of Stroz Friedberg and Former Chairman, the
Americas and Senior Partner of McKinsey & Company |
2012 |
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0 |
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● |
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Robert E.
Weissman |
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Chairman of Shelburne Investments and Retired Chairman and
CEO of The Dun & Bradstreet Corporation |
2001 |
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0 |
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● |
● |
AC |
|
Audit Committee |
|
|
|
Committee
Chair |
CC |
|
Compensation Committee |
|
● |
|
Committee
Member |
GC |
|
Governance Committee |
|
|
|
AC Financial
Expert |
2017 Proxy
Statement 1
Table of
Contents
Proxy Statement Summary
Board
Snapshot
Director Nominee
Experience
Cognizant
Policy: Create an experienced Board
with expertise in areas relevant to the Company.
Director Nominee Tenure
Cognizant
Policy: Have a balanced mix of both
deep Company and industry knowledge and fresh perspective.
Strong Director
Engagement
Overall attendance at 2016
meetings
Board Refreshment
Corporate Governance
Highlights
|
Board of
Directors
|
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|
● |
Majority of independent directors
(10 of 11) |
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|
● |
Separate Chairman and CEO positions
since 2003 |
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|
● |
Majority voting in director
elections |
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|
● |
Directors limited to service on 5
public company boards (3 for a public company CEO), including the
Company |
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|
● |
Annual review of skills, expertise
and characteristics of individual Board members as part of overall
analysis of Board composition |
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|
● |
A director who experiences a
material change in job responsibilities (other than retirement) is
required to offer to resign |
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|
● |
Regular executive sessions of
independent directors |
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|
● |
Annual Board and committee
self-assessments |
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|
● |
Consideration of Board diversity in
director selection |
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Stockholder Rights and
Engagement
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|
● |
Annual director
elections |
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|
● |
No classified
Board |
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|
● |
Proxy access |
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|
● |
Stockholders right to call special
meeting |
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● |
Annual vote to ratify selection of
independent registered public accounting firm |
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● |
No poison pill |
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● |
Board support for stockholder
proposal regarding elimination of supermajority voting
provisions |
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Strategy and
Risk
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● |
Board actively reviews the
development and execution of Company strategy |
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|
● |
Board oversight and responsibility
for risk management, including |
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|
● |
Enterprise risks, including cyber
security, overall risk management framework and risks related to the
financial statements overseen by the Audit
Committee |
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|
● |
Risks related to compensation
policies and practices overseen by the Compensation
Committee |
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|
● |
CEO succession planning and other
corporate governance risks overseen by the Board with the assistance of
the Governance Committee |
|
2 Cognizant
Technology Solutions Corporation
Table of
Contents
Proxy Statement Summary
|
|
Executive Compensation Program
Highlights |
Key
Program Features
|
|
What We Do |
|
See Page No. |
✓ |
|
Pay for performance |
|
25 |
✓ |
|
Use appropriate
peer groups when establishing compensation |
|
24 |
✓ |
|
Retain an independent external
compensation consultant |
|
24 |
✓ |
|
Set significant
stock ownership guidelines for executives |
|
30 |
✓ |
|
Include a clawback policy in our
incentive plans |
|
31 |
✓ |
|
Utilize double
trigger provisions for plans that contemplate a change in
control |
|
38 |
|
|
What We Dont Do |
|
See Page No. |
✕ |
|
No hedging or speculation with
respect to Cognizant securities |
|
30 |
✕ |
|
No short sales of Cognizant
securities |
|
30 |
✕ |
|
No margin accounts with Cognizant
securities |
|
30 |
✕ |
|
No tax gross ups on severance
benefits |
|
32 |
Program
Objectives
The Compensation Committee has designed
the executive compensation program for our NEOs to meet the following
objectives:
● |
Ensure executive compensation is
aligned with our corporate strategies and business objectives and that
potential realizable compensation is set relative to each executives
level of responsibility and potential impact on our
performance; |
● |
A substantial portion of an
executive officers compensation is subject to achieving both short-term
and long-term performance objectives that enhance stockholder
value; |
● |
Reinforce the importance of meeting
and exceeding identifiable and measurable goals through superior awards
for superior performance; |
● |
Provide total direct compensation
that is competitive in markets in which we compete for management talent
in order to attract, retain and motivate the best possible executive
talent; |
● |
Provide an incentive for long-term
continued employment with our Company; and |
● |
Reinforce our desired culture and
unique corporate environment by fostering a sense of ownership, urgency
and overall entrepreneurial spirit. |
Table of Contents
Proxy Statement Summary
2016
Compensation Structure
■ |
|
Base Salary |
Stable source of cash income at
competitive levels |
■ |
|
Annual Cash Incentive / Cash Bonus |
Annual cash incentive for Mr.
DSouza, Mr. Mehta and Ms. McLoughlin to motivate and reward achievement
of Company financial and operational
objectives |
Weighting |
|
Measurement
Period |
|
Target
Compensation |
|
|
Revenue |
|
1 year |
|
85% of base
salary |
|
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|
Payout Range |
|
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|
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Non-GAAP Income from
Operations |
|
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Days Sales Outstanding
(DSO) |
|
|
|
Historical Annual Cash Incentive award achievements by year |
2014 |
|
2015 |
|
2016 |
96.2% |
|
142.0% |
|
79.8% |
Cash bonus for Mr. Chintamaneni and Mr.
Sinha based on achievement of business unit and/or overall business goals and
expanded responsibilities in 2016
■ |
|
Performance Stock Units (PSUs) |
Annual grant of performance stock
units that reward achievement of Company financial objectives, continued
service and long-term performance of our common
stock |
Weighting 1 |
|
Measurement
Period |
|
Vesting |
|
|
Revenue |
|
2 years |
|
1/3rd at 30
months |
|
|
|
|
Vesting
Range |
|
2/3rds at 36
months |
|
|
Non-GAAP EPS |
|
|
|
|
Historical PSU achievements by performance measurement period |
2014 1 |
|
2015 1 |
|
2016 |
86.1% |
|
122.9% |
|
38.2% |
Weighting for 2017
awards 50% Revenue; 50% non-GAAP
EPS
■ |
|
Restricted Stock Units
(RSUs) |
Annual grants of restricted stock
units to reward continued service and long-term performance of our common
stock |
Vesting Quarterly over 3 years
Q4 2016 to Q1 2017 RSU grant timing
change The Company moved the timing of annual RSU grants for
Mr. DSouza, Mr. Mehta and Ms. McLoughlin from the fourth quarter of 2016 to the
first quarter of 2017 to align with the timing of the Companys other annual
equity grants and other annual compensation decisions by the Compensation
Committee. As such, to present the intended target total direct compensation in
a more meaningful manner, the RSU percentages shown for 2016 include the value
of the RSU grants made to such executives in the first quarter of
2017.
1 |
|
Weighting was 100% revenue for the 2014 and 2015 performance
measurement periods. |
2 |
|
Excludes Mr. Coburn, who resigned
from the Company during 2016. |
2016 Target Annual
Compensation |
|
|
|
CEO |
|
Other
NEOs 2 (on
average) |
■ |
|
Base Salary |
■ |
|
Annual Cash Incentive / Cash Bonus |
■ |
|
Performance Stock Units (PSUs) |
■ |
|
Restricted Stock Units
(RSUs) |
4 Cognizant
Technology Solutions Corporation
Table of Contents
Proxy Statement
Summary
2016
Compensation
(in
thousands)
Name and Principal Position |
|
Year |
|
Salary |
|
Cash Bonus |
|
Annual Cash Incentive |
|
PSU |
|
RSU |
|
All Other Pension and Deferred Comp. |
|
All Other Comp. |
|
SEC Total |
|
Adjusted SEC Total 1 |
Francisco DSouza |
|
2016 |
|
$664 |
|
|
|
$450 |
|
$7,019 |
|
1 |
|
|
|
$123 |
|
$8,257 |
|
$12,031 |
CEO |
|
2015 |
|
$645 |
|
|
|
$778 |
|
$6,814 |
|
$3,669 |
|
|
|
$45 |
|
$11,951 |
|
$11,951 |
Rajeev Mehta |
|
2016 |
|
$574 |
|
|
|
$389 |
|
$3,584 |
|
1 |
|
|
|
$6 |
|
$4,554 |
|
$7,099 |
President 2 |
|
2015 |
|
$539 |
|
|
|
$650 |
|
$3,480 |
|
$1,874 |
|
|
|
$2 |
|
$6,544 |
|
$6,544 |
Gordon J. Coburn |
|
2016 |
|
$467 |
|
|
|
|
|
$3,751 |
|
|
|
$184 |
|
$93 |
|
$4,495 |
|
$4,495 |
Former President
2 |
|
2015 |
|
$614 |
|
|
|
$740 |
|
$3,641 |
|
$1,961 |
|
|
|
$89 |
|
$7,045 |
|
$7,045 |
Karen
McLoughlin |
|
2016 |
|
$427 |
|
|
|
$289 |
|
$1,876 |
|
1 |
|
|
|
$8 |
|
$2,599 |
|
$3,638 |
CFO |
|
2015 |
|
$406 |
|
|
|
$490 |
|
$1,821 |
|
$981 |
|
|
|
$8 |
|
$3,706 |
|
$3,706 |
Ramakrishna Prasad Chintamaneni |
|
2016 3 |
|
$417 |
|
$566 |
|
|
|
$831 |
|
$1,615 |
|
|
|
$8 |
|
$3,437 |
|
$3,437 |
EVP and
President, Global Industries and Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dharmendra Kumar Sinha |
|
2016 3 |
|
$357 |
|
$168 |
|
|
|
$714 |
|
$1,762 |
|
|
|
$8 |
|
$3,009 |
|
$3,009 |
EVP
and President, Global Client Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
1 |
The Company moved the timing of
annual RSU grants for certain NEOs from the fourth quarter of 2016 to the
first quarter of 2017 to align with the timing of the Companys other
annual equity grants and other annual compensation decisions by the
Compensation Committee. The Adjusted SEC Total represents the SEC Total
plus, for 2016, the target value of the RSU grants made in the first
quarter of 2017 (using a March 2, 2017 grant date fair value) to Mr.
DSouza ($3,774), Mr. Mehta ($2,545) and Ms. McLoughlin ($1,038) to
provide stockholders annual compensation numbers that are more comparable
to past years and more indicative of the targeted annual compensation to
the NEOs. These amounts are not a substitute for the amounts reported
under the SEC Total. |
2 |
Mr. Mehta was appointed President
of Cognizant on September 28, 2016, following the resignation of Mr.
Coburn on September 27, 2016. |
3 |
2015 compensation not presented
for Mr. Chintamaneni and Mr. Sinha as they were not NEOs in that
year. |
|
|
Aligning Pay with
Performance |
The following graphs show Company
performance across revenue, profitability and cash flow metrics for the last
three years as compared to the performance targets for the annual cash
incentives and PSUs with performance measurement periods corresponding to such years. In addition, the Companys share price
performance, which impacts the performance of long-term equity grants to the
NEOs and holdings of our common stock, is set forth below for the last five
years.
Revenue
Revenue
(in billions)
Annual Cash
Incentive |
PSUs 1 |
|
Strong, consistent revenue
growth 8.6% Year-over-year revenue growth (2015 to
2016) |
Compensation Impacts
● |
Significant weighting in both
performance-based compensation elements |
● |
Aggressive targets have helped drive
revenue growth |
For 2017 awards: Revenue reduced to 50%
weighting for PSUs to reflect increased Company focus on non-GAAP Operating
Margin.
1 |
Applies to PSUs with a 2016
performance measurement period. PSUs with a 2014 or 2015 performance
measurement period are weighted 100% to revenue. PSUs issued in 2016 have
a 2-year performance measurement period covering 2016 and 2017 and are not
shown. |
Table of Contents
Proxy Statement
Summary
Profitability
Non-GAAP Operating Margin
1
Non-GAAP Operating Margin |
19%
20% |
Historical target consistently
maintained, with excess reinvested in the Company for future growth,
resulting in steadily increasing non-GAAP Income from Operations and
non-GAAP EPS as the Companys revenue has increased. |
2019 Goal 1,2 22% |
by accelerating the
pursuit of high-value digital transformation work, driving leverage in the
cost structure, executing on opportunities to improve operational
efficiency and aggressively employing automation to optimize
traditional services. |
Non-GAAP Income from
Operations 1
(in millions)
Annual Cash
Incentive |
|
Non-GAAP Diluted Earnings Per Share
(EPS) 1
PSUs 3 |
|
Non-GAAP Income from Operations |
Non-GAAP EPS |
7.6% |
10.4% |
(2015-2016) |
Compensation Impacts
● |
Targets have historically been
designed to achieve 19-20% non-GAAP Operating Margin, with targets
increased each year to maintain that margin as revenue growth is
encouraged |
● |
Profitability has been an
increasingly important component of the Companys performance-based
compensation with the addition of the non-GAAP EPS metric for PSUs in
2016 |
For 2017 awards:
● |
Targets designed around planned
increases in non-GAAP Operating Margin for future years (see 2019 Goal
above) |
● |
Non-GAAP EPS increased to 50%
weighting for PSUs; target accounts for $1.5 billion accelerated share
repurchase program initiated in March
2017 |
1 |
See Non-GAAP Financial Measures
and Forward-Looking Statements on page 57. |
2 |
2019 goal excludes any changes to
the regulatory environment, including with respect to immigration and
taxes. See our Annual Report for these and other risk factors that may
impact our ability to achieve this goal. |
3 |
Applies to PSUs with a 2016
performance measurement period. PSUs with a 2014 or 2015 performance
measurement period do not use non-GAAP EPS as a performance metric. PSUs
issued in 2016 have a 2-year performance measurement period covering 2016
and 2017 and are not shown. |
6 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Proxy Statement
Summary
Cash
Flow
Days Sales Outstanding
(DSO)
Annual Cash
Incentive |
|
Consistent DSO year-to-year |
|
Collection of receivables from
customers has remained steady over the past three
years. |
Compensation
Impact
● |
Target established to ensure
management is incentivized to maintain collection of receivables at a
healthy level for the business |
Stockholder
Return
5-Year Cumulative Total Stockholder
Return 1
1 |
Comparison assumes $100 was
invested, from December 31, 2011 through December 31, 2016, in Cognizant
common stock, the S&P 500 Index, the NASDAQ 100 Index and our peer
group (capitalization weighted), and that all dividends were
reinvested. |
2 |
Consists of the following
information technology consulting firms: Accenture plc, Computer Sciences
Corporation, Computer Task Group, Incorporated, ExlService Holdings Inc.,
Genpact Limited, Infosys Limited, Syntel, Inc., Wipro Limited and WNS
(Holdings) Limited. |
5-year Compound Average Growth in Share
Price |
11.7% |
(2012-2016) |
Compensation
Impact
● |
A substantial percentage of NEO
compensation is in the form of long-term equity compensation (RSUs and
PSUs), aligning management incentives with those of
stockholders |
● |
RSUs vest quarterly over three
years |
● |
PSUs issued in 2011 through 2015
vest at 18 months and 36 months and have a 1-year performance measurement
period |
● |
PSUs issued in 2016 vest at 30
months and 36 months and have a 2-year performance measurement
period |
● |
All of our NEOs hold substantial ownership interests in our
common stock, in excess of the requirements under our stock ownership
guidelines, further aligning their interests with those of
stockholders |
● |
Reduced stockholder return in the
last three years has reduced realized compensation to NEOs from their
equity grants and stockholdings |
Table of Contents
Proxy Statement
Summary
● |
Allow for the issuance of up to
46,000,000 new shares, in addition to
the approximately 7,000,000 remaining available for issuance under the
2009 Plan that will be transferred to the Plan, bringing the total number
of shares available for new grants under the Plan to approximately
53,000,000, which we expect to last us approximately six
years; |
● |
Provide for the number of shares
reserved for issuance to be reduced by two shares for each share of stock
issued pursuant to a full-value award,
including a PSU or an RSU, which would replace the 1.55 share reduction
for each share of stock issued pursuant to a full-value award under the
2009 Plan; |
● |
Provide for a term through March
27, 2027; |
● |
Clarify that all awards are
subject to the provisions of any clawback policy we
implement; |
● |
Establish an annual dollar figure
limit for director compensation
of $900,000,
which applies to both cash and equity compensation and would replace the
100,000 share limit for director equity compensation under the 2009
Plan; |
● |
Provide for an annual per-person
dollar figure limit for cash awards of $10,000,000, which represents an increase from the $5,000,000
per-person cash award limit under the 2009 Plan;
and |
● |
Establish an annual per-person
share limit of (i) 3,000,000 for stock option and stock appreciation right
awards and (ii) 2,000,000 for PSUs and RSUs, which would replace the annual per-person share limit for all
awards of 5,000,000 under the 2009
Plan. |
|
|
Key Information About Plan
Features and Our Equity Compensation Share
Usage 1 |
|
|
What this measures |
|
How we manage |
Burn Rate |
|
How
rapidly we are using an equity plans share pool |
|
Over the last three years, our burn rate, which we calculate
on a gross basis, averaged 0.78%. The burn rates for the last three years
were 1.02%, 0.46% and 0.86% for 2014, 2015 and 2016, respectively. The
Board believes that such burn rates are acceptable. |
Overhang |
|
Potential stockholder dilution from outstanding equity award
shares available for grant |
|
If this proposal is adopted, our overhang, calculated using a
simple overhang measurement, will be 10.4%. The Board believes that the
requested number of shares of common stock under the Plan represents a
reasonable amount of potential equity
dilution. |
Good Governance
Features of the Plan
What the Plan
Does |
|
Limits on authorized shares |
|
No evergreen provision |
|
All
awards subject to clawback |
|
10-year maximum stock option
term |
|
Certain shares surrendered, withheld or
repurchased may not again be made available for issuance |
|
|
What the Plan
Doesnt Do |
|
No
stock option repricing |
|
No discounted stock option
grants |
|
No automatic change in control
benefits |
Our Current Equity
Grant Practices
What We Do |
|
Mix of PSUs and RSUs with an emphasis on PSUs for
senior executives |
|
Long-term vesting such that PSUs have a 2-year
performance measurement period and, for executive officers, vest
1/3rd at 30 months and 2/3rds at 36 months and, for
other employees, fully vest at 29 months following the start of such
period; RSUs vest quarterly over three years from grant |
|
|
What We Dont Do |
|
No dividend equivalent payments on unearned PSUs or
RSUs (accumulated dividend equivalents paid only on
vesting) |
1 |
Cognizant data covers 2014-2016.
Please see Key Data About our Grant Practices on page 42 for more
information about these metrics and how we calculate
them. |
8 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Table of Contents
|
PROPOSAL 1 |
|
ELECTION OF
DIRECTORS |
|
What are you voting
on? |
At the Annual Meeting, 11 Directors are to be elected to hold
office until the 2018 Annual Meeting and until their successors have been
duly elected and qualified. All nominees are current Directors and all
except Ms. Atkins and Mr. Dineen were elected by stockholders at the 2016
Annual Meeting.
|
|
The Board unanimously recommends a vote
FOR all the Director nominees listed
below. |
Zein
Abdalla |
|
Independent
Retired President of PepsiCo,
Inc. |
|
Director Since 2015 Age
58 Birthplace Sudan |
|
Committees
●Audit
●Governance |
|
Skills and
Qualifications
|
|
Career
Highlights
●President of PepsiCo, Inc., a multinational food, snack
and beverage company (2012 2014)
●Executive positions with PepsiCo Europe
Region
●CEO (2009 2012)
●President (2006 2009)
●Various senior positions with PepsiCo (1995
2006)
|
|
Current Public
Company Boards
●The TJX Companies, Inc., a retailer of apparel and home
fashions
●Corporate Governance Committee
●Finance Committee |
|
Other Positions
●Member of the Imperial College Business School Advisory
Board
●Board Advisor, Mars, Incorporated
Education
●B.S., Imperial College, London
University |
Betsy
S. Atkins |
|
Independent
CEO and Founder of Baja
Corp. |
|
Director Since 2017 Age
63 Birthplace United
States |
|
Committees
●None
|
|
Skills and
Qualifications
|
|
Career
Highlights
●CEO and Founder of Baja Corp., a venture capital
investment firm (since 1994)
●CEO of Clear Standards, Inc., a provider of energy
management and sustainability software and solutions (2009
2010)
●Chair and CEO of NCI, Inc., a neutraceutical functional
food company (1991 1993)
●Co-Founder of Ascend Communications, Inc., a
manufacturer of communications equipment, and Director (1989
1999)
●EVP of Sales Marketing, Professional Services and
International Operations
|
|
Current Public
Company Boards
●HD Supply Holdings, Inc., a wholesaler of electrical,
plumbing and hardware products
●Lead Independent Director
●Compensation Committee
●Nominating and Corporate Governance Committee
(Chair)
●Schneider Electric SE, a manufacturer of motors and
generators
●Strategy Committee
●SL Green Realty Corporation, a fully integrated real
estate investment trust (REIT)
●Audit Committee |
|
Other Positions
●Member of advisory board of SAP SE, an enterprise
software company
●Member of board of directors of privately-held Volvo Car
AB, an automobile manufacturer
Past Director
Positions
●Ascend Communications, Inc.
●Chicos FAS, Inc.
●Vonage Holdings Corp.
●Clear Standards, Inc.
●Darden Restaurants, Inc.
●NASDAQ LLC
●Polycom, Inc.
Education
●B.A., University of Massachusetts,
Amherst |
|
10 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Maureen
Breakiron-Evans |
|
Independent
Former CFO of
Towers
Perrin |
|
Director Since 2009 Age
62 Birthplace United
States |
|
Committees
●Audit (Chair)
●Governance |
|
Skills and
Qualifications
|
|
Career
Highlights
●CFO of Towers Perrin, a global professional services
company (2007 2008)
●VP and General Auditor of CIGNA Corporation, a health
services organization (2005 2006)
●EVP and CFO of Inovant, LLC, VISAs captive technology
development and transaction processing company (2001 2004)
●16 years in public accounting, ultimately as a partner
at Arthur Andersen LLP through 1994 |
|
Current Public
Company Boards
●Ally Financial Inc., a provider of payment processing
services
●Audit Committee
●Digital Transformation Committee
●Cubic Corporation, a provider of systems and services to
transportation and defense markets worldwide
●Audit Committee
●Nominating and Corporate Governance
Committee |
|
Past Director Positions
●Federal Home Loan Bank of Pittsburgh, a private
government-sponsored enterprise
●ING Direct, an Internet bank
●Heartland Payment Systems, Inc.
Education
●B.B.A., Stetson University
●M.B.A., Harvard Business School
●M.L.A., Stanford University
Certifications
●CPA in California |
Jonathan Chadwick |
|
Independent
Former CFO and Coo of VMware,
Inc. |
|
Director Since 2016 Age
51 Birthplace United
Kingdom |
|
Committees
●Audit
|
|
Skills and
Qualifications
|
|
Career
Highlights
●Executive positions with VMware, Inc., a virtualization
and cloud infrastructure solutions company
●COO (2014 2016)
●EVP and CFO (2012 2016)
●CFO of Skype Technologies S.A., an Internet
communications company, and Corporate VP of Microsoft Corporation (2011
2012)
●EVP and CFO of McAfee, Inc., a security technology
company (2010 2011) |
|
●Various executive positions with Cisco Systems, Inc.
(1997 2010)
●Various positions with Coopers & Lybrand, an
accounting firm (1993 1997)
Current Public
Company Boards
●F5 Networks, Inc.
●Audit Committee (Chair)
●ServiceNow, Inc.
●Audit Committee
●Leadership Development and Compensation
Committee |
|
Education
●B.Sc., University of Bath, U.K.
Certifications
●Chartered Accountant in England and
Wales |
John M.
Dineen |
|
Independent
Former President and CEO of GE
Healthcare |
|
Director Since 2017 Age
54 Birthplace United
States |
|
Committees
●None
|
|
Skills and
Qualifications
|
|
Career
Highlights
●Operating Advisor of Clayton, Dubilier & Rice LLC,
an investment firm (since 2015)
●Executive positions with General Electric Company, a
global digital industrial company
●CEO, GE Healthcare (2008 2014)
●CEO, GE Infrastructure and GE Transportation (2005
2008)
●Other leadership positions (1986 2005)
|
|
Current Public
Company Boards
●Merrimack Pharmaceuticals, Inc., a pharmaceutical
company specializing in the development of drugs for the treatment of
cancer
●Organization and Compensation Committee
(Chair)
|
|
Education
●B.S., University of
Vermont |
Table of Contents
Francisco DSouza |
|
CEO of
Cognizant |
|
Director Since 2007 Age
48 Birthplace Kenya |
|
Committees
●None
|
|
Skills and
Qualifications
|
|
Career
Highlights
●Executive positions at Cognizant
●CEO (since 2007)
●President (2007 2012)
●COO (2003 2006)
●SVP, North American Operations and Business Development
(1999 2003)
●VP, North American Operations and Business Development
(1998 1999)
●Director - North American Operations and Business
Development (1997 1998) |
|
●Joined Cognizant as a co-founder in 1994, the year it
was started as a division of The Dun & Bradstreet Corporation
Current Public
Company Boards
●General Electric Company
●Technology and Industrial Risk Committee
|
|
Other Positions
●Member of the Board of Trustees of Carnegie Mellon
University
●Co-Chairman of the Board of Trustees of The New York
Hall of Science
●Member of the Board of Directors of the U.S.India
Business Council
Education
●B.B.A., University of Macau (formerly University of East
Asia)
●M.B.A., Carnegie Mellon
University |
John N.
Fox, Jr. |
|
Independent
Former Vice Chairman of
Deloitte & Touche LLP and Global Director, Strategic Clients of
Deloitte Consulting |
|
Director Since 2007 Age
74 Birthplace United
States |
|
Committees
●Compensation (Chair)
●Governance |
|
Skills and
Qualifications
|
|
Career
Highlights
●Vice Chairman of Deloitte & Touche LLP, a global
professional services firm, and Global Director, Strategic Clients for
Deloitte Consulting (1998 2003)
●Member of Deloitte Touche Tohmatsu Board of Directors
and the Boards Governance (Executive) Committee (1998
2003)
●Various senior positions with Deloitte Consulting (1968
2003)
|
|
Current Public
Company Boards
●VASCO Data Security International, Inc., an information
technology security company
●Audit Committee
●Compensation Committee (Chair)
●Nominating and Corporate Governance
Committee |
|
Other Positions
●Trustee for Wabash College
●Trustee for Steppenwolf Theatre Company
Education
●B.A., Wabash College
●M.B.A., University of Michigan
|
John E.
Klein |
|
Independent
Chairman of Cognizant and
President and CEO of Polarex, Inc. |
|
Director Since 1998 Age
75 Birthplace United
States |
|
Committees
●Audit
●Compensation
●Governance |
|
Skills and
Qualifications
|
|
Career
Highlights
●Chairman of Cognizant (since 2003)
●President and CEO of Polarex, Inc., a technology
consulting firm (employed since 1994)
●Previously President and CEO of MDIS Group, PLC, a UK
listed software and services company
|
|
●VP at International Business Machines Corporation, or
IBM
●VP at Digital Equipment Corporation |
|
Education
●B.S., U.S. Merchant Marine Academy
●M.B.A., New York University
|
12 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Leo S.
Mackay, Jr. |
|
Independent
SVP, Internal Audit, Ethics
and Sustainability of Lockheed Martin Corporation
|
|
Director Since 2012 Age
55 Birthplace United
States |
|
Committees
●Audit |
|
Skills and
Qualifications
|
|
Career
Highlights
●Executive positions at Lockheed Martin Corporation, a
global security and aerospace company
●SVP, Internal Audit, Ethics and Sustainability (since
2016)
●VP, Ethics and Sustainability (2011 2016)
●VP, Corporate Business Development and various other
positions (2007 2011) |
|
●President, Integrated Coast Guard Systems LLC and VP and
General Manager, Coast Guard Systems (2005 2007)
●Chief Operations Officer of ACS State Healthcare LLC, a
services company serving the healthcare industry (2003 2005)
●Various positions with Bell Helicopter, a helicopter and
tiltrotor craft manufacturer
|
|
Past Director
Positions
●Chair of the Board of Visitors of the Graduate School of
Public Affairs at the University of Maryland
●Center for a New American Century
Education
●B.S., United States Naval Academy
●M.P.P., Harvard University
●Ph.D., Harvard
University |
Michael
Patsalos-Fox |
|
Independent
Former CEO of Stroz
Friedberg and Former Chairman, the Americas and Senior Partner
of McKinsey & Company |
|
Director Since 2012 Age
64 Birthplace Cyprus |
|
Committees
●Compensation
●Governance (Chair) |
|
Skills and
Qualifications
|
|
Career
Highlights
●CEO of Stroz Friedberg, a global investigation and cyber
security firm (2013 2016)
●Senior Partner and various other positions with McKinsey
& Company, a global management consulting company (1981
2013)
●Board of Directors (1998 2010)
●Chairman, the Americas (2003
2009)
|
|
●Member of Operating Committee
●Managing Partner of New York and New Jersey offices,
North American Corporate Finance and Strategy practice and European
Telecoms practice
●Leader of new business growth opportunities around data,
analytics and software |
|
Education
●B.S., University of Sydney
●M.B.A., International Institute for Management
Development |
Robert
E. Weissman |
|
Independent
Chairman of
Shelburne Investments and Retired Chairman and CEO of The Dun
& Bradstreet Corporation |
|
Director Since 2001 Age
76 Birthplace United
States |
|
Committees
●Compensation
●Governance |
|
Skills and
Qualifications
|
|
Career
Highlights
●Chairman and CEO of IMS Health, a provider of
information to the pharmaceutical and healthcare industries (1998
1999)
●Chairman and CEO of Cognizant (1996 1997)
●Executive positions at The Dun & Bradstreet
Corporation, a data, analytics and insights company
●Chairman and CEO (1995 1996)
●President and COO (1985 1995)
●Other positions since 1979 |
|
●President and CEO of National CSS, a computer
time-sharing company acquired by The Dun & Bradstreet Corporation in
1979
Past Public Company
Boards
●State Street Corporation, a global financial services
company
●Pitney Bowes, Inc., a global technology company
●Information Services Group, a technology insights,
market intelligence and advisory services company |
|
Other Positions
●Chairman of Shelburne Investments, a private investment
company that works with emerging companies in the United States and Europe
●Board of Trustees of Babson College
Education
●B.S., Babson College
●Honorary Doctor of Laws, Babson College
|
|
Table of Contents
|
|
Directors Not Standing for
Reelection |
Lakshmi Narayanan and Thomas M. Wendel,
two of our current Directors, have not been nominated for re-election as
Directors at the Annual Meeting following the end of their current terms.
BOARD COMPOSITION
Board Member
Independence
Each of our Director nominees, other than
our CEO, Mr. DSouza, has been determined by the Board to be an independent
director under our Corporate Governance Guidelines and the rules of The NASDAQ
Stock Market LLC (NASDAQ), which require that, in the opinion of the Board,
such person not have a relationship that would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
Director.
Committee Member
Independence
The Board has determined that all of the
members of the Audit Committee, Compensation Committee and Governance Committee
are independent as defined under NASDAQ rules and, where applicable, also
satisfy the committee-specific requirements set forth below.
HEIGHTENED COMMITTEE
STANDARDS |
|
|
|
Audit
Committee |
|
Compensation
Committee |
All members of the Audit Committee
are required to satisfy the independence requirements contemplated by Rule
10A-3 under the Securities Exchange Act of 1934, as amended (the Exchange
Act) and NASDAQ rules, specifically that Audit Committee members may not
accept any direct or indirect consulting, advisory or other compensatory
fee from the Company or any of its subsidiaries, except for their
compensation for Board service, and that Audit Committee members may not
be affiliated with the Company or any of its subsidiaries. |
|
Under NASDAQ rules, the Board must
affirmatively determine the independence of each member of the
Compensation Committee after considering all sources of compensation of
the director, including any consulting, advisory or other compensation
paid by the Company or any of its subsidiaries, and whether the
Compensation Committee member is affiliated with the Company or any of its
subsidiaries. |
Finding Directors
The Governance Committee seeks
recommendations from Board members and others, engages search firms from
time-to-time to assist in the identification and evaluation of director
candidates, meets periodically to evaluate biographical information and
background material relating to potential candidates and has selected candidates
interviewed by members of the Governance Committee and the Board.
In 2016 and 2017, the Company engaged a
third party director search firm to assist the Governance Committee in
identifying and evaluating director candidates. In February 2017, the Company
and Elliott Management agreed to each identify and propose one new independent
director for election to the Board, subject to the consent of the other, prior
to the filing of this proxy statement. Ms. Atkins and Mr. Dineen were each
identified with the assistance of a third party search firm, and Ms. Atkins was
approved by Elliott.
Director Selection
The Governance Committee strives to
maintain an engaged, independent Board with broad and diverse experience and
judgment that is committed to representing the long-term interests of our
stockholders. In considering whether to recommend any particular candidate for
inclusion in the Boards slate of recommended Director nominees, the Governance
Committee applies the criteria in our Corporate Governance Guidelines. These
criteria include the candidates integrity, business acumen, knowledge of our
business and industry, experience, diligence, absence of conflicts of interest,
capacity to serve in light of commitments to other public company boards, and
the ability to act in the interests of all stockholders, and includes
consideration of the value of Board diversity. In evaluating Director
candidates, the Governance Committee does not assign specific weights to
particular criteria and no particular criterion is a prerequisite for each
prospective nominee. We believe that the backgrounds, qualifications and
diversity of our Directors, considered as a group, should provide a composite
mix of experience, knowledge and abilities that will allow the Board to fulfill
its responsibilities.
14 |
Cognizant Technology Solutions
Corporation |
Table of Contents
The Governance Committees Director
candidate selection includes the following considerations:
● |
Ensuring an
experienced, qualified Board with expertise in areas relevant to the
Company. We seek directors who have
held significant leadership positions and have global business experience,
especially in the consulting and technology industries in which we
compete. In addition, we seek directors with the financial reporting,
operational, corporate governance and compliance experience appropriate
for a large, global, publicly traded
company. |
|
Leadership
11 (100%) |
|
We believe that directors who have
held significant leadership positions over an extended period, especially
CEO positions, possess extraordinary leadership qualities, and the ability
to identify and develop those qualities in others. They demonstrate a
practical understanding of organizations, processes, strategy and risk
management, and know how to drive change and growth. |
|
Global
Business Experience
11 (100%) |
|
With nearly 22% of our revenue
currently coming from, and our continued success dependent, in part, on
continued growth in, our business outside the United States, and with the
extensive international aspects of our business operations, we believe
that global business experience is an important quality for many of our
Directors to possess. |
|
Consulting
4 (36%) |
|
Consulting, including as to
information technology, strategy, business and operations, is one of our
key areas of business focus. It is an important component of the
continuing growth of our business and permeates other important growth
areas for us. As consulting is a critical component of our efforts to
develop ever more strategic relationships with clients, it is important to
have directors with consulting experience. |
|
Technology
10 (91%) |
|
As a leading information technology
company, developing and investing in new technologies and ideas is at the
heart of our business. Our current investments include building
capabilities to enable clients to drive digital transformation at scale
and create next generation information technology infrastructures, and
building platform-based solutions and industry utilities to enable clients
to achieve new levels of efficiency. As such, having directors with
technology experience is as important as ever. |
|
Financial
10 (91%) |
|
We use a broad set of financial
metrics to measure our operating and strategic performance and stockholder
value creation. Accurate financial reporting and strong internal controls
are also critical to our success. It is therefore important for us to have
directors with an understanding of financial statements and financial
reporting processes and a track record of stockholder value
creation. |
|
Operational
10 (91%) |
|
We consider operational experience
to be a valuable trait. Directors with this experience provide insight
into best practices for the efficient administration and operation of a
complex business to achieve growth and margin
objectives. |
● |
Enhancing the Boards
Diversity. Our Corporate Governance
Guidelines provide that the value of director diversity, including as to
race, gender, age, national origin and cultural background, should be
considered in the selection of directors. The Governance Committee seeks
out qualified women and individuals from minority groups to include in the
pool from which Board nominees are chosen. |
● |
Achieving a Balanced Mix of
Tenures. The Governance Committee
believes it is important that the Board have an appropriately balanced mix
of experienced directors with a deep understanding of the Company and its
industry and new directors who bring a fresh perspective and valuable new
experience and insights. |
● |
Maintaining Director
Engagement. The Governance Committee
considers each Directors continuation on the Board on an annual basis. As
part of the process, the Committee evaluates the Directors other
positions and obligations in order to assess the Directors ability to
continue to devote sufficient time to Company matters. Any Director who
experiences a change in employment status or job responsibilities, other
than retirement, is required to notify the Chairman and the Governance
Committee and offer to resign from the Board. |
● |
Avoiding conflicts of
interest. The Governance Committee
looks at other positions a director candidate has held or holds (including
other board memberships) and any potential conflicts of interest to ensure
the continued independence of the Board and its committees. There are no
family relationships among any of our executive officers, directors and
key employees. |
As part of the Governance Committees
annual self-assessment process, it assesses its performance as to all aspects of
the selection and nomination process for directors, including
diversity.
Based on the experience, qualifications,
attributes and skills of our Director nominees as highlighted herein, our
Governance Committee has concluded that such Director nominees should continue
to serve on the Board.
Table of Contents
Majority Voting Standard in Director
Elections
Our By-laws provide that the voting
standard for the election of directors in uncontested elections is a majority of
votes cast. Any director who does not receive a majority of the votes cast for
their election must tender an irrevocable resignation that will become effective
upon acceptance by the Board. The Governance Committee will recommend to the
Board whether to accept the Directors resignation within 90 days following the
certification of the stockholder vote. The Board will promptly disclose whether
it has accepted or rejected the Directors resignation, and the reasons for its
decision, in a Form 8-K. The Governance Committee and the Board may consider any
factors they deem relevant in deciding whether to accept a Directors
resignation. Our Corporate Governance Guidelines contain additional specifics
regarding our Director resignation policy. See Helpful Resources on page
78.
How Stockholders Can Propose Director
Candidates
Recommendations to Governance
Committee. Stockholders may recommend
individuals to the Governance Committee for consideration as potential director
candidates by submitting the names of the recommended individuals, together with
appropriate biographical information and background materials and a statement as
to whether the stockholder or group of stockholders making the recommendation
has beneficially owned more than 5% of the Companys common stock for at least a
year as of the date such recommendation is made. Such recommendations should be
sent to the Corporate Secretary. See Helpful Resources on page 78. The
Governance Committee evaluates stockholder-recommended candidates by following
substantially the same process, and applying substantially the same criteria, as
it follows for candidates submitted by others.
Nominations by Proxy
Access. Our By-laws provide that stockholders
satisfying certain ownership and holding period requirements with respect to our
common stock and other requirements may nominate directors for inclusion in our
proxy statement. See Director Nominees via Proxy Access on page 53.
THE BOARDS ROLE AND
RESPONSIBILITIES
|
|
Board Leadership
Structure |
The Companys board leadership structure
has separated the Chairman and CEO roles since December 2003. Currently, Mr.
Klein serves as Chairman and Mr. DSouza as CEO. The Board evaluates its
leadership structure on an ongoing basis based on factors such as the experience
of the applicable individuals and the current business environment of the
Company. After considering these factors, the Board determined that continuing
to separate the positions of Chairman and CEO is the appropriate board
leadership structure at this time.
|
|
Board Role in Risk
Oversight |
Our business faces various risks,
including strategic, financial, legal, regulatory, operational, accounting,
cyber security and reputational risks. While management is responsible for the
day-to-day management of the various risks facing the Company, the Board plays
an active role in the oversight of the Companys risk management practices and
business risks. We believe this division of responsibilities is the most
effective approach for addressing the risks facing the Company.
The Board exercises its oversight
responsibility for risk management both directly and through its standing
committees:
● |
The Audit
Committee reviews and discusses with
management the Companys enterprise risk and risk management framework and
the process for identifying, assessing, and monitoring key business risks.
In addition, the Audit Committee reviews with the Companys independent
auditor significant risks and uncertainties with respect to the quality,
accuracy or fairness of presentation of the Companys financial
statements; |
● |
The
Compensation Committee annually reviews and determines whether any of the
Companys compensation policies and practices for employees create risks
that are reasonably likely to have a material adverse effect on the
Company, and generally oversees risks relating to the Companys
compensation practices; and |
● |
The
Governance Committee oversees risks related to the Companys governance
structure and processes, and assists the Board in succession planning for
its CEO and other senior executives, including an emergency succession
plan for the CEO. |
In carrying out its oversight
responsibilities, the entire
Board:
● |
Receives reports from management and
the Board committees regarding the most significant risks facing the
Company and their potential impact, including strategic, financial, and
execution risks and exposures associated with our business strategy,
policy matters, significant litigation and regulatory exposures, and other
current matters that may present material risk to our financial
performance, operations, infrastructure, plans, prospects or reputation,
acquisitions or divestitures; |
● |
Evaluates any such risks and the
steps management is taking to manage those
risks; |
● |
Reviews and discusses with
management the practices the Company has
implemented to assess and mitigate risk and possible enhancement to these
practices; |
● |
Evaluates what level of risk is
appropriate for the Company; and |
● |
Encourages management to promote a
corporate culture that integrates risk management into the Companys
corporate strategy and day-to-day business operations in a way that is
consistent with the Companys targeted risk
profile. |
16 |
Cognizant Technology Solutions
Corporation |
Table of Contents
We believe that our approach to risk
oversight optimizes our ability to assess inter-relationships among the various
risks we face, make informed cost-benefit decisions and approach emerging risks
in a proactive manner. The Board believes that its role in the oversight of the
Companys risks complements our current Board structure as our structure allows our independent Directors, through our three
fully independent Board committees, to exercise effective oversight of the
actions of management in identifying risks and implementing effective risk
management policies and controls.
|
|
Corporate Governance Policies
and Practices |
Corporate Governance
Guidelines
The Board has adopted Corporate Governance
Guidelines to assist it in the exercise of its duties and responsibilities to
the Company and its stockholders. The Guidelines provide a framework for the
conduct of the Boards business and are integral to an effective corporate
governance program. See Helpful Resources on page 78.
Code of Ethics
We have a Code of Ethics that applies to
all of our Directors, officers and employees. See Helpful Resources on page
78. We will post on our website all disclosures that are required by law or
NASDAQ listing standards concerning any amendments to, or waivers from, any
provision of our Code of Ethics.
Limits on Director Service on Other
Public Company Boards
Under our Corporate Governance Guidelines,
service by Company Directors on public company boards is limited to no more than
five, including the Cognizant Board. For any Director who is also a public
company CEO, the limit is three (including the Cognizant Board). This practice
is to ensure that our Directors have sufficient time to devote to Cognizant
matters.
|
|
Certain Relationships and
Related Person Transactions |
Review of Related Person
Transactions
The Audit Committee of the Company is
responsible for reviewing and approving all transactions between us and any
related person that are required to be disclosed pursuant to Item 404 of
Regulation S-K. Related persons can include any of our Directors or executive
officers, certain of our stockholders, and any of their immediate family
members. The Audit Committee will approve a related person transaction when, in
its good faith judgment, the transaction is in the best interests of the
Company. The Companys legal staff is primarily responsible for monitoring and
obtaining information from our Directors and executive officers with respect to
potential related person transactions, and for then determining, based on the
facts and circumstances, whether the related person has a direct or indirect
material interest in any transaction with us. Each year, to help our legal staff
identify related person transactions, we require each of our Directors, Director
nominees and executive officers to complete a disclosure questionnaire
identifying any transactions with us in which the officer or Director or their
family members have an interest.
In addition, our Code of Ethics requires all
Directors, officers and employees who may have a potential or apparent conflict
of interest to, in the case of employees, notify our Chief Compliance Officer or
General Counsel, or in the case of executive officers and Directors, notify our
General Counsel or the Board. See Helpful Resources on page 78.
2016 Transactions with Related
Persons
Brackett B. Denniston III, who became our
Interim General Counsel and an executive officer of the Company on December 2,
2016, is also a Senior Counsel at the law firm of Goodwin Procter LLP
(Goodwin). During the year ended December 31, 2016, Goodwin performed legal
services for the Company for which it was paid approximately $2.0 million in the
aggregate. Goodwin has continued to perform such legal services during 2017 for
which it has been or will be paid approximately $1.4 million for legal services
through March 31, 2017. Fees for the services of Goodwin attorneys, including
Mr. Denniston, will be paid by us at rates that are generally consistent with
rates regularly charged by the firm to other clients. Mr. Denniston does not
have a direct interest in the payment of such fees, but has an indirect interest
in such fees as an employee of the law firm. Mr. Denniston does not review or
approve any invoices for payments to Goodwin. The provision of legal services by
Goodwin was reviewed and approved by our Audit Committee at the time Mr.
Denniston was appointed an executive officer of the Company.
Other than the matter described above and
such other matters disclosed herein under Compensation starting on page 22,
there have been no related person transactions since January 1, 2016.
|
|
Communications to the Board
from Stockholders |
|
|
Under procedures approved by a majority of
the independent Directors, our Chairman, Corporate Secretary and General Counsel
are primarily responsible for monitoring communications from stockholders and,
if they relate to important substantive matters and include suggestions or comments that our Chairman, Corporate Secretary and
General Counsel consider to be important for the Directors to know, providing
copies or summaries to the other Directors. In general, communications relating
to corporate governance and long-term corporate strategy are more likely to be
forwarded than communications relating to ordinary business affairs, personal
grievances and matters as to which we tend to receive repetitive or duplicative
communications. |
The Board will give appropriate attention
to written communications that are submitted by stockholders, and will respond
if and as appropriate. Stockholders who wish to send communications on any topic
to the Board should address such communications to the Board, our Corporate
Secretary or our General Counsel. See Helpful Resources on page 78.
Table of Contents
COMMITTEES OF THE BOARD
The Board has three standing
committees-the Audit Committee, Compensation Committee and Governance
Committee-each of which operates under a charter that has been approved by the
Board. See Helpful Resources on page 78.
|
Audit Committee |
|
|
|
|
|
No. of Meetings in
2016: 15 |
|
|
|
|
|
Composition
Zein Abdalla Maureen Breakiron-Evans (Chair) Jonathan Chadwick
John E. Klein Leo S. Mackay, Jr. Thomas M. Wendel |
|
Key
Responsibilities
●Directly overseeing our independent registered public
accounting firm, including appointment, termination, qualifications and
independence, and pre-approval of the scope and fees of the annual audit
and any other services, including review, attest and non-audit
services;
●Reviewing and discussing the contents of our quarterly
and annual consolidated financial statements and earnings releases with
management and the independent registered public accounting
firm;
●Recommending to the Board inclusion of our audited
financial statements in our Annual Report on Form 10-K;
●Monitoring our internal control over financial
reporting, disclosure controls and procedures, and Code of
Ethics;
●Reviewing and discussing the internal audit process,
scope of activities and audit results with our internal audit department;
and
●Reviewing and discussing with management our risk
management framework and processes. |
|
|
|
|
Audit Committee Financial
Experts
The Board has determined that each
of Ms. Breakiron-Evans and Mr. Chadwick is an audit committee financial
expert as defined in Item 407(d)(5)(ii) of Regulation S-K. |
|
|
Compensation Committee |
|
|
|
|
|
No. of Meetings in
2016: 5 |
|
|
|
|
|
Composition
John N. Fox, Jr. (Chair) John E.
Klein Michael Patsalos-Fox Robert E. Weissman |
|
Key
Responsibilities
●Making recommendations to the Board with respect to the
compensation of our CEO;
●Reviewing and approving, or making recommendations to
the Board with respect to, the compensation of our other executive
officers;
●Overseeing evaluations of our senior
executives;
●Reviewing and making recommendations to the Board with
respect to our incentive compensation arrangements, including an annual
review to ensure that such compensation arrangements do not encourage
unnecessary risk taking;
●Reviewing and making recommendations to the Board with
respect to Director compensation; and
●Assisting the Board in the discharge of any other
responsibilities relating to the compensation of our executive
officers. |
|
Governance Committee |
|
|
|
|
|
No. of Meetings in
2016: 5 |
|
|
|
|
|
Composition
Zein Abdalla Maureen
Breakiron-Evans John N. Fox, Jr. John E. Klein Michael
Patsalos-Fox (Chair) Robert E. Weissman Thomas M.
Wendel |
|
Key
Responsibilities
●Recommending to the Board the persons to be nominated
for election as Directors and to be appointed to each of the Boards
committees;
●Reviewing the Directors other positions and obligations
annually to ensure they have sufficient time to devote to Company
matters;
●Assisting the Board in succession planning for the CEO
(including emergency succession plans), other senior executives and Board
positions;
●Developing and recommending to the Board revisions to
our Corporate Governance Guidelines; and
●Overseeing an annual evaluation of the
Board.
|
18 |
Cognizant Technology Solutions
Corporation |
Table of Contents
DIRECTOR ATTENDANCE
There were 16 meetings of the Board during
2016. Each Director attended at least 80% of the aggregate of (i) all meetings
of the Board held during the period in which he or she served as a Director and
(ii) the total number of meetings held by the committees on which he or she
served during the period, if applicable.
Our Corporate Governance Guidelines
provide that Directors are expected to attend the annual meeting of
stockholders. For the 2016 Annual Meeting, Mr. DSouza acted as Chairman and all
but two of the 11 then current Directors attended (participating by
teleconference).
Strong Director Engagement
|
Overall attendance at 2016
meetings |
DIRECTOR COMPENSATION
The Company uses cash and stock-based
compensation to attract and retain qualified individuals to serve on the Board.
The Company sets compensation for directors who are not our employees or the
employees of any of our subsidiaries (non-employee Directors) in light of the
time commitment and experience level expected of its Directors. A Director who
is an employee of the Company or any of its subsidiaries receives no cash or
stock-based compensation for serving as a Director.
Engagement of Compensation
Consultant
For purposes of establishing non-employee
Director compensation, the Compensation Committee engaged Pay Governance, LLC
(Pay Governance), an independent executive compensation advisory firm, in 2015
to review all elements of non-employee Director compensation, benchmark such
compensation in relation to other comparable
companies with which we compete for Board talent and provide recommendations to
ensure that our non-employee Director compensation program remains competitive.
Pay Governance benchmarked our non-employee Director compensation against the
same group of technology-related firms used by Pay Governance in preparing its
recommendations to the Compensation Committee in determining stock-based awards
for executive officers. See Compensation Committee and Engagement of
Compensation Consultant and Peer Group on page 24. The Compensation Committee
considered the benchmarking data and recommendations of Pay Governance in
setting the 2016 cash and stock-based compensation of non-employee Directors set
forth below.
Director Compensation
Structure
Annual Retainer
/ Equity Grants to All Non-Employee Directors 1 |
Annual Cash Retainer |
|
$90,000 |
Stock Options |
|
$105,000 |
● |
Fair market value on date of
grant |
|
|
● |
50% vesting on each of 1st
and 2nd
anniversaries
of grant date |
|
|
RSUs |
|
$105,000 |
● |
Fair market value on date of
grant |
|
|
● |
1/3rd vesting on each of 1st, 2nd
and 3rd
anniversaries
of grant date |
|
|
|
|
|
$300,000 |
Additional Annual Board and Committee Chair
Retainers 1 |
Board |
|
Audit |
|
Compensation |
|
Governance |
$150,000 |
|
$25,000 |
|
$15,000 |
|
$15,000 |
|
Recognize the increased
workload and responsibilities associated with these
positions. |
|
Meeting Fees |
|
Board
Meetings |
|
Committee
Meetings |
|
No meeting fees |
|
$1,500 per meeting
(excluding telephonic meetings of 30 minutes or
less) |
1 |
Paid in advance following annual meeting of
stockholders. Directors joining mid-year receive pro-rated
amounts. |
Upon a Directors retirement while in good
standing, the Boards intent is to utilize its discretion to accelerate the
vesting of such Directors outstanding stock-based awards. The Directors will
have a limited period in which to exercise their vested options following
cessation of Board service.
Table of Contents
Director Stock Ownership
Guidelines
Directors |
|
|
|
5x annual cash retainer |
|
|
|
|
($450,000 in
shares of common stock) |
The Company adopted revised stock
ownership guidelines in March 2017 to further align Director interests with
those of stockholders. Under the revised guidelines, each non-employee Director
is required to hold a number of shares with a value, measured as of the time the
revised guidelines were put in place or, for later joining Directors, the time a
Director joins the Board, equal to five times the annual cash retainer received
by non-employee Directors (i.e., $450,000 in shares of common stock). Compliance
with the guidelines is required within five years of a Director joining the
Board.
Hedging, Short Sale, Margin Account and
Pledging Prohibitions
All Directors are subject to the same
insider trading policies of the Company that apply to employees that provide
for:
● |
No hedging or speculation with
respect to Cognizant securities; |
● |
No short sales of Cognizant
securities; |
● |
No margin accounts with Cognizant
securities; and |
● |
Limited pledging of Cognizant
securities. |
See Hedging, Short Sale, Margin Account
and Pledging Prohibitions on page 30 for additional information on these
restrictions.
Deferral of Restricted Stock
Units
Non-employee Directors may on a yearly
basis elect to defer settlement of RSUs that are granted in the subsequent year.
The following table sets forth the two deferral options available, and the
Directors that elected such deferral options, in 2016.
|
|
RSUs Deferred Until Earliest to Occur of |
|
|
|
|
Company Change in Control |
|
Directors Death or Permanent Disability |
|
Director Leaves the Board |
|
Directors Electing Option |
Option 1 |
|
|
|
|
|
100% settles on next July
1 |
|
Weissman |
Option 2 |
|
|
|
|
|
1/3rd settles on each
of next three July 1sts |
|
Breakiron-Evans, Fox, Klein,
Wendel |
|
= immediate
settlement |
The following tables set forth certain
information regarding the compensation of each of our Directors who served
during 2016 and the aggregate number of stock awards and the aggregate number of
stock options held by each of our Directors at December 31, 2016.
|
|
2016 Director Compensation |
|
Director Stock and Option Awards
Outstanding |
Name |
|
Fees Earned or Paid in Cash |
|
Stock Awards 1 |
|
Option Awards 1 |
|
All Other Compensation |
|
Total |
|
Aggregate Number of Stock Awards
3 |
|
Aggregate Number of Stock Options |
Zein Abdalla |
|
$114,000 |
|
$104,949 |
|
$104,998 |
|
|
|
$323,947 |
|
2,554 |
|
11,294 |
Maureen
Breakiron-Evans |
|
$140,500 |
|
$104,949 |
|
$104,998 |
|
|
|
$350,447 |
|
20,255 |
|
93,324 |
Jonathan Chadwick 2 |
|
$118,315 |
|
$120,470 |
|
$120,517 |
|
|
|
$359,302 |
|
2,018 |
|
7,924 |
John N. Fox,
Jr. |
|
$103,500 |
|
$104,949 |
|
$104,998 |
|
|
|
$313,447 |
|
3,514 |
|
93,324 |
John E. Klein |
|
$285,000 |
|
$104,949 |
|
$104,998 |
|
|
|
$494,947 |
|
8,505 |
|
33,324 |
Leo S. Mackay,
Jr. |
|
$106,500 |
|
$104,949 |
|
$104,998 |
|
|
|
$316,447 |
|
8,020 |
|
27,544 |
Lakshmi Narayanan |
|
$90,000 |
|
$104,949 |
|
$104,998 |
|
|
|
$299,947 |
|
3,514 |
|
43,324 |
Michael
Patsalos-Fox |
|
$103,500 |
|
$104,949 |
|
$104,998 |
|
|
|
$313,447 |
|
9,092 |
|
53,324 |
Robert E. Weissman |
|
$118,500 |
|
$104,949 |
|
$104,998 |
|
|
|
$328,447 |
|
8,505 |
|
93,324 |
Thomas M. Wendel |
|
$115,500 |
|
$104,949 |
|
$104,998 |
|
|
|
$325,447 |
|
8,505 |
|
58,324 |
1 |
Represents the aggregate grant
date fair value of RSUs and stock options granted in the 2016 fiscal year
under the 2009 Plan, determined in accordance with FASB ASC Topic 718. All
Directors listed received an award of 1,760 RSUs with a grant date fair
value of $59.63 per share and an award of 6,926 stock options with a grant
date fair value of $15.16 per share. Mr. Chadwick also received an award
of 258 RSUs with a grant date fair value of $60.16 per share and an award
of 998 stock options with a grant date fair value of $15.55 per share. See
Footnote 2 below. The reported dollar amounts do not take into account any
estimated forfeitures related to continued service vesting requirements.
For information regarding assumptions underlying the valuation of equity
awards, see Note 15 of the Consolidated Financial Statements in our Annual
Report on Form 10-K for the fiscal year ended December 31,
2016. |
2 |
Mr. Chadwick was elected to the
Board on April 9, 2016 and, as such, he received additional pro-rated fees
and equity awards for the portion of 2016 that he served prior to our 2016
Annual Meeting. |
3 |
Includes the RSUs granted in 2015
and 2016, with respect to which the settlement has been deferred for some
directors, as described above. Also includes deferred stock units held by
Ms. Breakiron-Evans (11,750), Mr. Mackay, Jr. (4,506) and Mr. Patsalos-Fox
(5,578) to be settled upon the Directors termination of service on the
Board. |
20 |
Cognizant Technology Solutions
Corporation |
Table of Contents
STOCK
OWNERSHIP INFORMATION |
COMMON
STOCK AND TOTAL STOCK-BASED HOLDINGS TABLE
The following table sets forth the
Cognizant stock-based holdings of our Directors, NEOs, and Directors and
executive officers as a group as of March 31, 2017 (September 27, 2016 for Mr.
Coburn1), as well as the stock-based holdings of beneficial owners of
more than 5% of our common stock as of December 31, 2016. Unless otherwise
indicated, the address for the individuals below is our address. Each of our
Directors and NEOs owns less than 1% of the total outstanding shares of our
common stock.
|
|
Common Stock |
|
|
Directors |
|
Stock |
|
Options |
|
Total |
Zein Abdalla |
|
277 |
|
2,184 |
|
14,125 |
Betsy S.
Atkins |
|
|
|
|
|
|
Maureen Breakiron-Evans |
|
1,075 |
|
83,212 |
|
114,654 |
Jonathan
Chadwick |
|
86 |
|
499 |
|
9,942 |
John M. Dineen |
|
|
|
|
|
|
John N. Fox,
Jr. |
|
19,721 |
|
83,212 |
|
116,559 |
John E. Klein |
|
609,192 |
|
23,212 |
|
651,021 |
Leo S. Mackay,
Jr. |
|
4,991 |
|
17,432 |
|
40,555 |
Lakshmi Narayanan |
|
87,950 |
|
33,212 |
|
134,788 |
Michael
Patsalos-Fox |
|
14,991 |
|
43,212 |
|
77,407 |
Robert E. Weissman |
|
1,026,236 |
|
11,652 |
|
1,056,505 |
Thomas M.
Wendel |
|
76,000 |
|
48,212 |
|
142,829 |
Total |
|
1,840,519 |
|
346,039 |
|
2,358,385 |
|
|
|
Common Stock |
|
|
Named Executive Officers |
|
Stock |
|
Options |
|
Total |
Francisco DSouza |
|
624,627 |
|
480,000 |
|
1,605,119 |
Rajeev
Mehta |
|
417,955 |
|
|
|
699,059 |
Gordon Coburn 1 |
|
64,572 |
|
|
|
64,572 |
Karen
McLoughlin |
|
37,883 |
|
20,000 |
|
191,313 |
Ramakrishna Prasad Chintamaneni |
|
70,231 |
|
10,000 |
|
160,517 |
Dharmendra Kumar
Sinha |
|
23,448 |
|
|
|
96,839 |
Total |
|
1,238,716 |
|
510,000 |
|
2,817,419 |
Current Directors and Executive
Officers |
|
Common Stock |
|
|
|
Stock |
|
Options |
|
Total |
As a group (30 people) |
|
3,683,694 |
|
896,039 |
|
6,368,927 |
5%
Beneficial Owners |
Common Stock |
|
%
Outstanding |
The Vanguard
Group |
39,165,838 |
|
6.5% |
BlackRock, Inc. |
37,927,303 |
|
6.3% |
1 |
Mr. Coburn resigned from the
Company on September 27, 2016. |
Common Stock. This column shows beneficial ownership of our common stock as
calculated under SEC rules. Except to the extent noted below, everyone included
in the table has sole voting and investment power over the shares reported. None
of the shares is pledged as security by the named person, although standard
brokerage accounts may include non-negotiable provisions regarding set-offs or
similar rights. The Stock subcolumn includes shares directly or indirectly held and
shares underlying RSUs that will vest within 60 days. The Options subcolumn includes
shares that may be acquired under stock options that are currently exercisable
or will become exercisable within 60 days.
Total. This column shows the individuals total Cognizant stock-based holdings,
including securities shown in the Common Stock column (as described above), plus
non-voting interests that cannot be converted into shares of Cognizant common
stock within 60 days, including, as appropriate, PSUs, RSUs and stock
options.
Common Stock and Total.
Both columns include the following shares
over which the named individual has shared voting and investment power through
family trusts or other accounts: DSouza (242,000), Klein (137,872), Mehta
(207,714) and Wendel (16,000).
Current Directors and Executives.
This row includes: (1) 2,452 RSUs that vest
within 60 days, (2) 896,039 shares that may be acquired under stock options that
are or will become exercisable within 60 days, and (3) 604,386 shares of common
stock over which there is shared voting and investment power. Current Directors
and executive officers as a group do not own more than 1% of the total
outstanding shares.
5% Beneficial Owners. This table shows shares beneficially owned by BlackRock,
Inc., 55 East 52nd Street, New York, NY 10055, and The Vanguard Group, 100
Vanguard Blvd., Malvern, PA 19355, as follows:
(# of shares) |
|
BlackRock |
|
Vanguard |
Sole voting
power |
|
32,685,036 |
|
952,461 |
Shared voting power |
|
37,916 |
|
107,233 |
Sole dispositive
power |
|
37,889,387 |
|
38,121,165 |
Shared dispositive power |
|
37,916 |
|
1,044,673 |
The foregoing information is based solely
on a Schedule 13G/A filed by BlackRock with the SEC on January 23, 2017, and a
Schedule 13G/A filed by Vanguard with the SEC on February 10, 2017, as
applicable.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires
our Directors, executive officers and stockholders who beneficially own more
than 10% of any class of our equity securities registered pursuant to Section 12
of the Exchange Act (collectively, the Reporting Persons) to file initial
statements of beneficial ownership of securities and statements of changes in
beneficial ownership of securities with respect to our equity securities with
the SEC. All Reporting Persons are required by SEC regulation to furnish us with
copies of all reports that such Reporting Persons
file with the SEC pursuant to Section 16(a). Based solely on our review of the
copies of such forms received by us and upon written representations of the
Reporting Persons received by us, we believe that there has been compliance with
all Section 16(a) filing requirements applicable to such Reporting Persons with
respect to the year ended December 31, 2016, except that one Form 4 for Mr.
Klein reporting one transaction was not timely filed.
Table of Contents
|
PROPOSALS 2 AND 3 |
|
ADVISORY VOTES
ON EXECUTIVE COMPENSATION (SAY-ON-PAY) AND FREQUENCY OF FUTURE SAY-ON-PAY
VOTES (SAY-ON-FREQUENCY) |
|
|
In
accordance with Section 14A of the Exchange Act, we are asking
stockholders to vote on an advisory basis on: |
|
What are you voting
on? |
●Say-on-Pay. Approval of the compensation paid to our
NEOs, as described in this proxy statement. (Proposal 2)
●Say-on-Frequency. Approval of the frequency of
future say-on-pay votes. (Proposal 3) |
|
The Board unanimously recommends a vote FOR the
approval, on an advisory (non-binding) basis, of our executive
compensation.
Resolution
Stockholders are being asked to
Approve |
RESOLVED, that the stockholders of Cognizant Technology
Solutions Corporation approve, on an advisory basis, the compensation of
the Companys named executive officers, disclosed pursuant to Item 402
of Regulation S-K in the Companys definitive proxy statement for the
2017 Annual Meeting of
Stockholders. |
The Board unanimously recommends that stockholders vote
1 YEAR on the frequency of future
advisory votes on our executive compensation.
Stockholders have four options for voting on Proposal
3: |
|
1 year; |
|
3 years; or |
|
|
2
years; |
|
Abstain. |
|
The Dodd-Frank Act requires that our
stockholders have the opportunity to cast an advisory vote on executive
compensation at annual meetings, commonly referred to as a Say-on-Pay vote, at
least once every three years. At the 2011 Annual Meeting, the Companys stockholders voted, on an advisory basis, commonly referred to
as a Say-on-Frequency vote, that the Say-on-Pay vote occur every year. A
Say-on-Pay vote has been held at each subsequent annual meeting.
The Say-on-Pay
vote is a non-binding vote on the compensation of our NEOs, as described in the
Compensation Discussion and Analysis section, the tabular disclosure regarding
such compensation, and the accompanying narrative disclosure, set forth in this
proxy statement. Please read the Compensation Discussion and Analysis section
starting on page 23 for a detailed discussion about our executive compensation
programs and compensation philosophy, including information about the fiscal
2016 compensation of our NEOs.
We are holding a Say-on-Frequency vote
this year as the last such vote was at the 2011 Annual Meeting and the
Dodd-Frank Act requires that stockholders have the opportunity to hold such a
vote at least once every six years. The Board
recommends continuing to hold the Say-on-Pay vote every year to give
stockholders the opportunity to provide direct and frequent feedback on our
compensation philosophy, policies and procedures.
The votes solicited by these Proposals 2
and 3 are advisory, and therefore are not binding on the Company, the Board or
the Compensation Committee. The outcomes of the votes will not require the
Company, the Board or the Compensation Committee to take any actions, and will
not be construed as overruling any decision by the Company or the Board.
Furthermore, because Proposal 2 primarily relates to the compensation of our
NEOs that has already been paid or contractually committed, there is generally
no opportunity for us to revisit these decisions. However, the Board, including
the Compensation Committee, values the opinions of our stockholders and, to the
extent there is any significant vote against the NEO compensation as disclosed
in this proxy statement, we will consider our stockholders concerns and
evaluate what actions, if any, may be appropriate to address those
concerns.
22 |
Cognizant Technology Solutions
Corporation |
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis
section describes the general objectives, principles and philosophy of the
Companys executive compensation program, focused primarily on the compensation
of our NEOs.
|
|
Overview of Executive
Compensation Program |
Compensation Committee
The Compensation Committee oversees and
administers our executive compensation program, including the evaluation and
approval of compensation plans, policies and programs offered to our NEOs. The
Compensation Committee operates under a written charter adopted by the Board and
is comprised entirely of independent, non-employee directors as determined in
accordance with various NASDAQ, SEC and IRC rules. The Compensation Committee
has the authority to engage its own independent advisor to assist in carrying
out its responsibilities under its charter.
Key
Program Features
The following tables summarize key
elements of our executive compensation program and where they are described in
the Compensation Discussion and Analysis section.
|
|
What We Do |
|
See Page
No. |
|
|
Pay for
performance |
|
25 |
|
|
Use appropriate peer groups when
establishing compensation |
|
24 |
|
|
Retain an independent
external compensation consultant |
|
24 |
|
|
Set significant stock ownership guidelines
for executives |
|
30 |
|
|
Include a clawback policy
in our incentive plans |
|
31 |
|
|
Utilize double trigger provisions for
plans that contemplate a change in control |
|
38 |
|
|
What We Dont
Do |
|
See Page
No. |
|
|
No hedging or speculation
with respect to Cognizant securities |
|
30 |
|
|
No short sales of Cognizant
securities |
|
30 |
|
|
No margin accounts with
Cognizant securities |
|
30 |
|
|
No tax gross ups on severance
benefits |
|
32 |
Program Objectives
The Compensation Committee has designed
the executive compensation program for our NEOs to meet the following
objectives:
● |
Ensure executive
compensation is aligned with our corporate strategies and business
objectives and that potential realizable compensation is set relative to
each executives level of responsibility and potential impact on our
performance; |
● |
A substantial portion
of an executive officers compensation is subject to achieving both
short-term and long-term performance objectives that enhance stockholder
value; |
● |
Reinforce the
importance of meeting and exceeding identifiable and measurable goals
through superior awards for superior performance; |
● |
Provide total direct
compensation that is competitive in markets in which we compete for
management talent in order to attract, retain and motivate the best
possible executive talent; |
● |
Provide an incentive
for long-term continued employment with our Company;
and |
● |
Reinforce our desired
culture and unique corporate environment by fostering a sense of
ownership, urgency and overall entrepreneurial
spirit. |
2016 Company Performance and Impact on
Compensation Program
The Company demonstrated continued strong
performance for 2016 with year-over-year revenue growth of 8.6%. Key drivers of
that growth were:
● |
Solid performance
across all of our business segments: |
|
Business Segment |
|
Year-over-Year Revenue
Growth |
|
% of
2016 Revenue |
|
Financial Services |
|
7.3% |
|
39.8% |
|
Healthcare |
|
5.5% |
|
28.7% |
|
Manufacturing/Retail/ |
|
|
|
|
|
Logistics |
|
13.5% |
|
19.7% |
|
Other |
|
13.5% |
|
11.8% |
|
The
performance in Financial Services was negatively impacted by macroeconomic
conditions that reduced demand from banking customers, while the
Healthcare segment was adversely impacted by reduced demand caused by
uncertainties in the regulatory environment and potential
consolidation. |
● |
Sustained strength in
the North American market with year-over-year revenue growth of
8.1%. |
● |
Continued penetration
of the European market with year-over-year revenue growth of 6.8% after a
negative currency impact of 6.5%. |
● |
Continued penetration
of the Rest of World (primarily the Asia Pacific) market with
year-over-year revenue growth of 22.7% after a negative currency impact of
2.5%. |
● |
Increased customer
spending on discretionary projects. |
● |
Expansion of our
service offerings, including consulting and in our three digital practice
areas (Digital Business, Digital Operations and Digital Systems and
Technology). |
● |
Continued expansion of
the market for global delivery of technology and business process
services. |
● |
Increased
penetration at existing customers, including strategic
clients. |
The Companys GAAP operating margin in
2016 decreased to 17.0% from 17.3% in 2015, while non-GAAP Operating Margin
decreased to 19.5% from 19.7% in 2015. 1
The Compensation Committee took into
account the above factors and the Companys performance, including relative to
the industry, during 2016 and in previous years in its compensation decisions.
See Proxy Statement Summary starting on page 1 for more information about the
performance-based compensation targets set for, and the Companys actual
performance in, previous years.
1 |
See Non-GAAP Financial Measures and
Forward-Looking Statements on page
57. |
Table of Contents
|
|
Role of Stockholder Say-on-Pay
Votes |
The Company provides its stockholders with
the opportunity to cast an annual, non-binding advisory vote on executive
compensation. At the 2016 Annual Meeting, approximately 96.0% of the votes cast
on the Say-on-Pay proposal were voted FOR the proposal. In making its
decisions regarding executive compensation for 2016, the Compensation Committee
considered the significant level of stockholder support for our compensation
program and chose to generally retain the 2015 structure of the executive
compensation program, including the ratio of performance-based compensation to
all other compensation and the ratio of performance-based equity compensation to
time-based equity compensation, while making quantitative adjustments to reflect
the performance of the Company and our NEOs in 2016. Nevertheless, there were
two notable changes to the compensation structure for NEOs made by the
Compensation Committee in 2016:
● |
Move to 2-year
PSUs. The Company granted PSUs in 2016
with a 2-year performance measurement period (versus 1-year previously),
with vesting of 1/3rd at 30 months and 2/3rds at 36
months, to provide a longer time-horizon to the substantial portion of the
performance-based compensation for the NEOs represented by the
PSUs. |
● |
RSU grant
timing change. The Company moved the
timing of annual RSU grants for certain NEOs from the fourth quarter of
2016 to the first quarter of 2017 to align with the timing of the
Companys other annual equity grants and other annual compensation
decisions by the Compensation
Committee. |
See Direct Compensation of NEOs starting
on page 25. The Compensation Committee will continue to consider the outcome of
the Companys Say-on-Pay votes when making future compensation decisions for the
NEOs.
|
|
The Compensation-Setting
Process |
Compensation Committee and Engagement
of Compensation Consultant
To achieve the objectives of our executive
compensation program, the Compensation Committee evaluates our executive
compensation program with the goal of setting compensation at levels the
Compensation Committee believes are competitive with those of other
technology-related growth companies that compete with us for executive talent.
The Compensation Committee has periodically engaged an independent compensation
consultant to provide additional assurance that the Companys executive
compensation program is reasonable and consistent with its objectives. The
consultant reports directly to the Compensation Committee, periodically
participates in Committee meetings, and advises the Compensation Committee with
respect to compensation trends and best practices, plan design, and the
reasonableness of individual compensation awards. Although the Compensation
Committee reviews the compensation practices of our peer companies as described
below, the Compensation Committee does not adhere to strict formulas or survey
data to determine the mix of compensation elements. Instead, as described below,
the Compensation Committee considers various factors in exercising its
discretion to determine compensation, including the experience, responsibilities
and performance of each NEO as well as the Companys overall financial
performance. This flexibility is particularly important in designing
compensation arrangements to attract and retain executives in a
highly-competitive, rapidly changing market.
Since 2010, the Compensation Committee has
engaged Pay Governance, an independent executive compensation advisory firm, to
review all elements of executive compensation, benchmark such compensation in
relation to other comparable companies with which we compete for executive
talent, and provide recommendations to ensure that our executive compensation
program continues to enable us to attract and retain qualified executives
through competitive compensation packages which will result in the attainment of
our short-term and long-term strategic objectives. As part of the
compensation-setting processes for 2014, 2015 and 2016, the Compensation
Committee asked Pay Governance to provide benchmark compensation data and/or
review managements recommendations for year-over-year compensation adjustments,
including review for general market competitiveness and competitiveness with the
Companys peer group.
The Compensation Committee has assessed
the independence of Pay Governance and concluded that no conflict of interest
exists that would prevent Pay Governance from providing independent advice to
the Compensation Committee regarding executive and director compensation
matters.
Role of Executive Officers in
Determining Executive Compensation
Our CEO, aided by our President and our
Chief People Officer, among others, provides statistical data and makes
recommendations to the Compensation Committee to assist it in determining
compensation levels. In addition, our CEO provides the Compensation Committee
with a review of the performance of the other executive officers. While the
Compensation Committee utilizes this information and values managements
observations with regard to compensation, the ultimate decisions regarding
executive compensation are made by the Compensation Committee.
Peer Group
The Compensation Committee, with
assistance from Pay Governance, establishes the Companys peer group that is
used for market comparisons and benchmarking. The peer group is comprised of a
group of technology-related firms selected based on revenue, headcount and
market capitalization.
● |
Accenture
Plc |
● |
Automatic Data
Processing, Inc. |
● |
CA Technologies,
Inc. |
● |
Computer Sciences
Corporation |
● |
Convergys
Corporation |
● |
Fidelity National
Information Services, Inc. |
● |
Fiserv,
Inc. |
● |
Leidos
Holdings, Inc. |
● |
Mastercard Incorporated |
● |
NetApp,
Inc. |
● |
Symantec
Corporation |
● |
Visa,
Inc. |
● |
Yahoo!
Inc. |
24 |
Cognizant Technology Solutions
Corporation |
Table of Contents
|
|
Direct Compensation of
NEOs |
Primary
Compensation Elements for 2016 Overview
Our executive compensation program is
designed to motivate, retain and engage our executive leadership and
appropriately reward them for their contributions to the achievement of our
business strategies and goals. In order to achieve our compensation objectives,
the Company provides its executives with a total direct compensation package
consisting of the elements listed in the table below. The Compensation Committee
makes decisions on executive compensation from a total direct compensation perspective. Each element is considered by the
Committee to be important in meeting one or more of the compensation program
objectives. The following chart illustrates the balance of the elements of 2016
target total direct compensation (using grant date share prices for RSUs and
PSUs and target values for the annual cash incentive and PSUs) for our CEO and
other NEOs.
■ |
|
Base Salary |
Stable source of cash income at
competitive levels |
■ |
|
Annual Cash Incentive / Cash
Bonus |
Annual cash incentive for Mr.
DSouza, Mr. Mehta and Ms. McLoughlin to motivate and reward achievement
of Company financial and operational
objectives |
Weighting |
|
Measurement Period |
|
Target
Compensation |
|
|
Revenue |
|
1 year |
|
85% of base
salary |
|
|
Non-GAAP Income from
Operations |
|
Payout Range |
|
|
|
|
Days Sales Outstanding
(DSO) |
|
|
|
|
Historical Annual Cash Incentive award achievements by year |
2014 |
|
2015 |
|
2016 |
96.2% |
|
142.0% |
|
79.8% |
Cash bonus for Mr. Chintamaneni and Mr.
Sinha based on achievement of business unit and/or overall business goals and
expanded responsibilities in 2016
■ |
|
Performance Stock Units
(PSUs) |
Annual grant of performance stock
units that reward achievement of Company financial objectives, continued
service and long-term performance of our common
stock |
Weighting 1 |
|
Measurement Period |
|
Vesting |
|
|
Revenue |
|
2 years |
|
1/3rd at 30
months |
|
|
Non-GAAP EPS |
|
Vesting Range |
|
2/3rds at 36
months |
|
|
|
|
Historical PSU achievements by performance measurement period |
2014 1 |
|
2015 1 |
|
2016 |
86.1% |
|
122.9% |
|
38.2% |
Weighting for 2017
awards 50% Revenue; 50% non-GAAP
EPS
■ |
|
Restricted Stock Units
(RSUs) |
Annual grants of restricted stock
units to reward continued service and long-term performance of our common
stock |
Vesting Quarterly over 3 years
Q4 2016 to Q1 2017 RSU grant timing
change The Company moved the timing of annual RSU grants for
Mr. DSouza, Mr. Mehta and Ms. McLoughlin from the fourth quarter of 2016 to the
first quarter of 2017 to align with the timing of the Companys other annual
equity grants and other annual compensation decisions by the Compensation
Committee. As such, to present the intended target total direct compensation in
a more meaningful manner, the RSU percentages shown for 2016 include the value
of the RSU grants made to such executives in the first quarter of
2017.
1 |
|
Weighting was 100% revenue for the 2014 and 2015 performance
measurement periods. |
2 |
|
Excludes Mr. Coburn, who resigned
from the Company during 2016. |
2016 Target Annual
Compensation |
|
|
|
CEO |
|
Other NEOs 2 (on
average) |
■ |
|
Base Salary |
■ |
|
Annual Cash Incentive / Cash
Bonus |
■ |
|
Performance Stock Units
(PSUs) |
■ |
|
Restricted Stock Units
(RSUs) |
Table of Contents
Base
salary
The Compensation Committee reviews the
base salaries of our NEOs on an annual basis. The primary objective of the base
salary component of an executives total direct compensation is to provide
financial stability and certainty through market-competitive salary levels,
recognizing each NEOs experience, knowledge, skills, relative value and
sustained contribution to the Company. The Compensation Committee makes periodic
adjustments to base salary based on individual performance and contributions,
market trends, increases in the cost of living, competitive position and our
financial situation. Consideration is also given
to relative responsibility, seniority, experience and performance of each
individual NEO. No specific weight is assigned to any of the above criteria
relative to the others, but rather the Compensation Committee uses its judgment
in combination with market and other data provided by Pay Governance and the
Company. The Compensation Committee does not attempt to set compensation
components to meet specific benchmarks relative to our peers because the
Compensation Committee believes that excessive reliance on benchmarking is
detrimental to stockholder interests as it can result in compensation that is
unrelated to the value delivered by the NEOs.
Annual Cash
Incentive
2016 Annual Cash
Incentive
Component |
|
Threshold |
|
Target |
|
Maximum |
|
Weighting |
|
Increase in 2016 Targets
vs. 2015 Actuals |
|
2016
Award Achievement by Component |
Revenue (in billions) |
|
|
|
|
|
11% |
|
Overall
2016 Annual Cash Incentive Achievement 79.8% |
Non-GAAP Income from
Operations (in
millions) |
|
|
|
|
|
10% |
|
Days sales outstanding
(DSO) |
|
|
|
|
|
|
|
Payout as percentage of
target |
|
50% |
|
100% |
|
200% |
|
|
|
|
|
The Compensation Committee has designed
our annual cash incentive program to stimulate and support a high-performance
environment by tying such incentive compensation to the attainment of
organizational financial goals and by recognizing superior performance. The
annual cash incentives are intended to compensate individuals for the
achievement of these goals. The Committee determines actual cash incentives
after the end of the fiscal year based upon the Companys
performance.
For 2016, the Compensation Committee based
the annual cash incentive awards for Mr. DSouza, Mr. Mehta and Ms. McLoughlin
on the achievement of financial goals tied to metrics that it believes are
valued by our stockholders. The Compensation Committee believes that our
stockholders value and measure the performance of these executives based
principally on the growth of Company revenue, earnings and cash flow.
Consequently, as in past years the Compensation Committee believed it
appropriate to establish three components to the annual cash incentive: revenue,
non-GAAP Income from Operations (see Non-GAAP Financial Measures and
Forward-Looking Statements on page 57) and days sales outstanding (DSO). All
three components were subject to adjustment for any acquisitions over the course
of the year.
For 2016, the Compensation Committee
determined a target for each component (revenue, non-GAAP Income from Operations
and DSO) and a weighting for the various components as a percentage of the total
award such that achievement of the targeted level of performance for all three
components would result in the executives receiving their target awards. The
Committee set threshold, or minimum, levels for each of the components below
which no annual cash incentive would be paid for the particular component. The
Committee also set maximum levels for each of the components above which no
additional annual cash incentive would be paid for the particular component and
which collectively result in a maximum possible annual cash incentive equal to
200% of the target awards for the executives. Achievement for performance
between threshold and target levels or between the target and maximum levels for
any of the components was calculated using straight-line interpolation. In
addition, during 2016, the revenue and non-GAAP Income from Operations targets
were adjusted for acquisitions over the course of the year.
The Compensation Committee established
revenue and non-GAAP Income from Operations targets at levels 11% and 10% above
the Companys 2015 revenue and non-GAAP Income from Operations, respectively.
These targets were established to incentivize the
Companys management to prioritize a continued high level of growth in the
Companys revenue while maintaining a targeted level of non-GAAP Operating
Margin. Meanwhile, the DSO component remained at the same targeted levels as
prior years as the Compensation Committee viewed those targets as appropriately
incentivizing maintenance of a healthy cash flow level. As a result of these
targets, there was substantial uncertainty at the time the Compensation
Committee established the performance goals for 2016 as to the likelihood of the
Companys attainment of the targeted levels of performance.
Cash
Bonus
Neither Mr. Chintamaneni nor Mr. Sinha was
an NEO at the time the above-described annual cash incentive award program was
established by the Compensation Committee for 2016 for the then current NEOs.
Mr. Chintamaneni and Mr. Sinha received cash bonus awards for 2016 determined by
the Compensation Committee based on the following:
● |
Mr. Chintamaneni had a bonus target
for 2016 based on the performance of the Companys Banking and Financial
Services business unit, with 65% to be based on achievement of revenue and
margin targets for the business and 35% tied to various other objectives
for the business. In determining his final bonus payout to be 75% of his
target, consideration was given by the Compensation Committee to the
achievement of the business unit performance and his expanded commercial
role across all of the Companys business units following his promotion
during 2016 to EVP and President, Global Industries and
Consulting. |
● |
Mr. Sinha, as EVP and President,
Global Client Services, manages the Companys global sales and marketing
across all of its business units. In determining his final bonus payout to
be 75%, the Compensation Committee considered the performance
of |
26 |
Cognizant Technology Solutions
Corporation |
Table of Contents
the Company as a whole and his individual
performance and determined that it was appropriate to set his final bonus payout
at the Companys average bonus payout level for 2016.
Stock-Based
Awards
Overview
We provide long-term incentive compensation through stock-based awards in
the form of PSUs and RSUs. The Committee believes that PSUs and RSUs are a
valuable component of our long-term incentive program for several reasons,
including concerns over the dilutive effect option grants may have on our
outstanding shares, our desire to make a portion of our NEOs compensation less
subject to market volatility, and our desire to create a retention mechanism
which creates the incentive to maximize stockholder value.
The Compensation Committee currently plans
to use a combination of PSUs and RSUs in future years. We believe that
stock-based grants provide our executive officers with a strong incentive to
manage the Company from the perspective of an owner with an equity stake in the
long-term success of the business, create an ownership culture, and help align
the interests of our executives and our stockholders. In addition, the vesting
feature of our equity grants should further our
goal of executive retention because this feature provides an incentive to our
executive officers to remain in our employ during the vesting period.
In considering the number of long-term
incentives to grant, the Compensation Committee first establishes a target
compensation value that it wants to deliver to the NEOs through long-term equity
awards. In doing so, the Committee generally takes into account various factors,
including the value of PSUs and RSUs that each of our executive officers has
previously been awarded, the base salary of the executive officer, the heavy
weight placed on equity in the mix of total compensation, and the perceived
retention value of the total compensation package in light of the competitive
environment. The Committee also generally takes into account increases in the
cost of living, the size of comparable awards made to individuals in similar
positions within the industry, the scope, responsibility and business impact of
the officers position, the individuals potential for increased responsibility
and promotion over the award term, and the individuals personal experience and
performance in recent periods. Once the target value is established, the
Compensation Committee determines the number of PSUs and RSUs to be granted by
reference to the current value of the Companys common stock.
PSUs
PSUs granted in 2016 have a 2-year
performance measurement period (fiscal years 2016 and 2017) over which the
Companys performance across two performance metrics is measured: revenue and
non-GAAP EPS. See Non-GAAP Financial Measures and Forward-Looking Statements
on page 57. Revenue determines 75% of the award and non-GAAP EPS determines the
remaining 25% of the award. Both metrics are subject to adjustment by the
Compensation Committee for any acquisitions over the course of the performance
measurement period.
For each metric, the Compensation
Committee established at the time of the award:
● |
Threshold 50% vesting, with 0% vesting for
performance below the threshold. |
● |
Target 100% vesting. |
● |
Maximum 200% vesting, and maximum possible
number of PSUs that may vest. |
Whether and to what extent the performance
as to either metric has been achieved will be determined by the Compensation
Committee in its sole discretion based upon the audited financials for the 2016
and 2017 fiscal years. To the extent the level of achievement falls between the
threshold and target levels or between the target and maximum levels for either
metric, straight-line interpolation is utilized to calculate the payout level
for the component.
Performance across the two metrics
determines the total number of PSUs that may vest, with actual vesting of the
awards as follows and contingent upon the NEO continuing in the service of the
Company through such dates:
● |
1/3rd will vest 30 months following
the start of the performance measurement period. |
● |
2/3rds will vest 36 months following
the start of the performance measurement period. |
Table of Contents
RSUs
RSUs vest in quarterly installments over a
3-year period from the date of grant.
The Company has historically made annual
RSU grants to Mr. DSouza, Mr. Mehta and Ms. McLoughlin during the fourth
quarter of each year. During 2016, however, the Compensation Committee
determined that it was in the best interests of the Company and its stockholders
to move the timing of their annual RSU grants from the fourth quarter of 2016 to
the first quarter of 2017 to align with the timing of the Companys other annual
equity grants and other annual compensation decisions by the Compensation
Committee. Consequently, while Mr. DSouza, Mr. Mehta and Ms. McLoughlin did not
receive RSU awards in 2016, they did receive them in March 2017. The
Compensation Committee will next consider an annual RSU award for these three
officers in the first quarter of 2018.
Mr. Chintamaneni and Mr. Sinha, on the
other hand, received their annual RSU awards in February 2016. They also
received RSU awards in December 2016 in connection with their promotions to EVP
and President, Global Industries and Consulting and EVP and President, Global
Client Services, respectively.
2016 Compensation
for our named executive officers
Francisco
DSouza |
Age 48
Education BBA,
University of Macau MBA, Carnegie Mellon University
Cognizant
tenure 23 years |
|
Current
Role CEO
Committee
assessment
●3% overall compensation increase effective January 1 to
reflect cost of living increases and general market trends; same
compensation mix |
|
Compensation Decisions
for 2016
●Base salary increased 3% to $664,300, effective January 1,
2016
●Annual cash
incentive target of $564,655 (85% of
base salary); actual payout of $450,332 (79.8% of target) based on Company
performance
●Annual PSU grant
$7,018,671 fair value as of grant date (February
16, 2016)
●Annual RSU grant (moved to
early 2017) $3,774,223 fair value as
of grant date (March 2, 2017) |
Rajeev
Mehta |
Age 50
Education BS,
University of Maryland MBA, Carnegie Mellon University
Cognizant
tenure 20 years |
|
Current
Role President
Committee
assessment
●3% overall compensation increase effective January 1 to
reflect cost of living increases and general market trends; same
compensation mix
●14% increase in base salary and target annual cash
incentive upon promotion from CEO-IT Services to President to reflect
additional responsibilities |
|
Compensation Decisions
for 2016
●Base salary increased 3% to $554,700, effective January 1, 2016,
and increased 14% to $630,000, upon promotion to President on September
28, 2016
●Annual cash
incentive initial target of $471,495
(85% of base salary), increased to $488,108 upon his promotion (85% of
base salary, pro-rated); actual payout of $389,284 (79.8% of target) based
on Company performance
●Annual PSU grant
$3,584,397 fair value as of grant date (February
16, 2016)
●Annual RSU grant (moved to
early 2017) $2,545,432 fair value as
of grant date grant (March 2,
2017) |
Gordon
Coburn |
Age 53
Education BA,
Wesleyan University MBA, Dartmouth College
Cognizant
tenure 20 years |
|
Former
Role President (resigned
September 27, 2016)
Committee
assessment
●3% overall compensation increase effective January 1 to
reflect cost of living increases and general market trends; same
compensation mix |
|
Compensation Decisions
for 2016
●Base salary increased 3% to $631,900, effective January 1,
2016
●Annual cash
incentive initial target of $537,115
(85% of base salary); no payout as he resigned from the Company during
2016
●Annual PSU grant
$3,750,637 fair value as of grant date (February
16, 2016)
●Annual RSU grant
None |
28 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Karen
McLoughlin |
Age 52
Education BA,
Wellesley College MBA, Columbia University
Cognizant
tenure 13 years |
|
Current
Role CFO
Committee
assessment
●5% overall compensation increase effective January 1 to
reflect cost of living increases and general market trends, including with
respect to CFO pay; same compensation mix |
|
Compensation Decisions
for 2016
●Base salary
increased 5% to $426,500, effective January 1, 2016
●Annual cash incentive
target of $362,525 (85% of base salary); actual payout of $289,126
(79.8% of target) based on Company performance
●2016 annual PSU grant $1,875,841 fair value as of grant date (February 16, 2016)
●Annual RSU grant (moved to early 2017) $1,038,113 fair value as of grant date (March 2,
2017) |
Ramakrishna
Prasad Chintamaneni |
Age 47
Education B.
Tech, Indian Institute of Technology, Kanpur Postgraduate Diploma,
XLRI Xavier School of Management
Cognizant
tenure 17 years |
|
Current
Role EVP and President, Global
Industries and Consulting
Committee
assessment
●3% overall compensation increase effective January 1 to
reflect cost of living increases and general market trends; same
compensation mix
●Following promotion to his current role, to reflect the
additional responsibilities
●15% increase in base salary and targeted cash bonus
●One-time cash bonus of $300,000
●31% increase in annual PSU and RSU grants
●Overall target total annual compensation of approximately $3
million |
|
Compensation Decisions
for 2016
●Base salary
increased 3% to $412,000, effective January 1, 2016, and increased 15% to
$475,000, effective December 1, 2016, following promotion to his current
role
●Cash bonus initial
target of $350,200, increased to $403,750 (85% of base salary) following
promotion to his current role; actual payout of $266,052 (75% of target,
pro-rated), based on performance of the Companys Banking and Financial
Services business unit with consideration given for his expanded
commercial role across all of the Companys business units; additional
one-time cash bonus of $300,000 paid in connection with his expanded
responsibilities
●Annual PSU grant
$693,016 fair value as of grant date (February 16, 2016)
●Additional PSU grant $137,472 fair value as of grant date (December 1, 2016),
following promotion to his current role
●Annual RSU grant
$259,317 fair value as of grant date (February 16, 2016)
●Additional RSU grant
$1,355,624 fair value as of grant date (December 1, 2016), following
promotion to his current role and as a reload of RSUs issued three years
prior |
Dharmendra
Kumar Sinha |
Age 54
Education BS,
Patna Science College MBA, Birla Institute of Technology
Cognizant
tenure 19 years |
|
Current
Role EVP and President, Global
Client Services
Committee
assessment
●3% overall compensation increase effective January 1 to
reflect cost of living increases and general market trends; same
compensation mix
●Following promotion to his current role, to reflect the
additional responsibilities
●6% increase in base salary
●58% increase in targeted cash bonus (to 85% of base salary,
consistent with other executive officers)
●One-time cash bonus of $10,000
●27% increase in annual PSU and RSU grants
●Overall target total annual compensation of approximately $2.4
million |
|
Compensation Decisions
for 2016
●Base salary
increased 3% to $354,823, effective January 1, 2016, and increased 6% to
$375,000, effective December 1, 2016, following promotion to his current
role
●Cash bonus initial
target of $201,349 (57% of base salary), increased to $318,750 (85% of
base salary) following promotion to his current role; actual payout of
$158,470 (75% of target, pro-rated), based on the Company average bonus
payout based on his role in managing global sales and field marketing
across all of the Companys business units; additional one-time cash bonus
of $10,000 paid in connection with his expanded responsibilities
●Annual PSU grant
$684,269 fair value as of grant date (February 16, 2016)
●Additional PSU grant $29,474 fair value as of grant date (December 1, 2016), following
promotion to his current role
●Annual RSU grant
$259,317 fair value as of grant date (February 16, 2016)
●Additional RSU grant
$1,502,883 fair value as of grant date (December 1, 2017), following
promotion to his current role and as a reload of RSUs issued three years
prior |
Table of Contents
|
|
Other Elements of
Compensation |
Supplemental Retirement
Programs
We do not have any nonqualified deferred
compensation programs, pension plans or pre-tax supplemental executive
retirement plans for our executive officers, except for the CSRP described under
Broad-Based Programs below and a nonqualified deferred compensation program
established for Mr. Coburn. We established the program for Mr. Coburn to provide
him with the equivalent economic value of the retirement plan in which he
participated while the Company was majority-owned by IMS Health. Accordingly,
Mr. Coburn was entitled to an annual Company contribution to his nonqualified
deferred compensation account equal to 6% of his base salary and earned annual
cash incentive while he was employed by the Company.
Broad-Based Programs
Our U.S.-based executive officers are
eligible to participate in our broad-based medical, dental and vision insurance,
life and accidental death insurance, 401(k) savings plan, CSRP and 2004 Amended
and Restated Employee Stock Purchase Plan (2004 ESPP) on the same basis as all
other regular employees.
Under the 401(k) savings plan, we match
employee contributions at the rate of 50% for each dollar contributed during
each pay period, up to the first 6% of eligible compensation contributed during
each pay period, subject to applicable U.S. Internal Revenue Service (IRS)
limits. The matching contributions immediately vest.
Our U.S.-based executive officers who are
subject to contribution restrictions under our 401(k) savings plan due to
statutory limits that apply to highly-compensated employees are eligible to
participate in the Cognizant Technology Solutions Supplemental Retirement Plan
(the CSRP) on the same basis as all other regular U.S.-based employees. The
CSRP is a nonqualified savings plan in which the employees contributions are
made on a post-tax basis to an individually owned, portable and flexible
retirement plan held with a life insurance company. The CSRP works alongside
established qualified retirement plans such as our 401(k) savings plan or can be
the basis for a long-term stand-alone retirement savings plan. We provide a
fully vested incentive match following the same formula as our 401(k) savings
plan. Because the CSRP is not subject to the same IRS non-discrimination rules
as our 401(k) savings plan, employees that face limitations on their 401(k)
contributions due to these rules can avail themselves of the CSRP without
foregoing the Company match. Although there is a limit in the amount of employer
contributions, there is no limit to the amount an employee may contribute to the
CSRP and it can be used in concert with other retirement strategies that may be
available outside of the Company.
The 401(k) savings plan, CSRP and other
generally available benefit programs allow us to remain competitive for employee
talent. We believe that the availability of the aforementioned broad-based
benefit programs generally enhances employee morale and loyalty.
Perquisites
We seek to maintain an egalitarian culture
in our facilities and operations. The Companys philosophy is to provide a
minimal amount of personal benefits and perquisites to its executives and
generally only when such benefits have a strong business purpose.
We incur expenses to ensure that our
employees, including our executive officers, are accessible to us and our
customers at all times and to promote our commitment to provide our employees
and executives with the necessary resources and items of technology to allow
them to operate around the clock in a virtual office environment. However,
we do not view these expenses as executive perquisites because they are
essential to the efficient performance of their duties and are comparable to the
benefits provided to a broad-based group of our employees. We also provide
personal security services to certain of our executive officers where we believe
the provision of such services is in the interest of the Company.
In addition, the Company may reimburse
executives for approved travel expenses where an immediate family member
accompanies an executive to attend a business function at which such family
member is generally expected to attend.
In addition, the Company provides Mr.
DSouza with limited access to an administrative assistant of the Company and
vehicle rentals for his personal business purposes. Mr. DSouza does not
reimburse the Company for its cost of providing the administrative services and
vehicle rentals and the Company pays him an additional amount to help offset any
income taxes associated with the receipt of such services.
Executive Stock Ownership
Guidelines
CEO |
|
|
|
6x annual base salary |
Other NEOs |
|
|
|
4x annual base salary |
The Company adopted revised stock
ownership guidelines in March 2017 to further align the interests of our NEOs
with those of stockholders. Under the revised guidelines, each NEO is required
to hold a number of shares with a value, as of the time the revised guidelines
were put in place or, for later identified NEOs, the time an executive becomes
an NEO, equal to the applicable multiple of annual base salary. The annual base
salary utilized in the calculation is the annual base salary applicable under
the prior guidelines at the time the revised guidelines were adopted or, for
later identified NEOs, the annual base salary when an officer becomes an NEO. As
with the prior guidelines, compliance is required within five years of an
officer becoming an NEO, subject to limited exceptions for hardship or other
personal circumstances as determined by the Compensation Committee.
Hedging, Short Sale, Margin Account and
Pledging Prohibitions
The Companys insider trading policies
include the following prohibitions:
● |
No hedging or speculation with
respect to Cognizant securities. All of
the Companys directors, officers and other employees are prohibited from
purchasing or selling puts, calls and other derivative securities of the
Company or any other derivative security that provides the equivalent of
ownership of any of the Companys securities or an opportunity, direct or
indirect, to profit from the change in value of the Companys
securities. |
● |
No short sales of Cognizant
securities. All of the Companys
directors, officers and other employees are prohibited from engaging in
short sales of Cognizant securities, preventing such persons from
profiting from a decline in the trading price of the Companys common
stock. |
● |
No margin accounts with Cognizant
securities. The Companys directors and
certain of its senior officers and other specified insiders, including
the NEOs, are prohibited from using Company securities as collateral in a
margin account. |
● |
Limited pledging of Cognizant
securities. The Companys directors and
certain of its senior officers and other specified insiders, including
the NEOs, are prohibited from pledging the Companys securities as
collateral for a loan, or modifying an existing pledge, without
pre-approval from the Audit Committee. |
30 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Clawback Policy
The Company maintains a Clawback Policy
which applies to all NEOs and certain other members of management.
When Clawback Policy May
Apply |
|
Compensation Subject to Clawback |
● |
Company is required to prepare
an accounting
restatement due to material
noncompliance by the Company with any financial reporting requirement
under the securities laws that is caused directly or indirectly by any
current or former employees gross negligence, willful fraud or failure to
act that affects the performance measures or the payment, award or value
of any compensation which is based in whole or in part on the achievement
of financial results by the Company (incentive
compensation) |
|
Incentive compensation actually
received during the preceding three years less amount that would have
been received based on restated financial results |
|
● |
and
to the extent the restatement is
caused by an employees willful fraud or intentional manipulation of
performance measures that affect
incentive compensation, for such employee
|
|
Same as above, but clawback may
cover the entire period the employee was subject to the clawback
policy |
● |
Employee engages in illegal or improper
conduct that causes significant
financial or reputational harm to the Company |
|
Any portion of incentive
compensation |
● |
Employee has knowledge of and fails to report to the Board of
Directors the conduct of any other
employee or agent of the Company who engages in any of the conduct
described above |
|
Any portion of incentive
compensation |
● |
Employee is grossly negligent in fulfilling his or her supervisory
responsibilities to prevent any
employee or agent of the Company from engaging in any of the conduct
described above |
|
Any portion of incentive
compensation |
Equity Grant Practices
The Compensation Committee or the Board
approves the grant of stock-based equity awards, such as options, PSUs and RSUs,
at its regularly scheduled meetings or by written consent (to be effective on
the date of the meeting or receipt of all signed consents, or a later date
specified). In addition, the Board has authorized an executive committee
comprised of members of the executive management team to grant options to newly
hired and existing employees, other than employees subject to Section 16
reporting as defined by the SEC.
The Compensation Committee and the Board do not
engage in any market timing of the stock-based equity awards made to executive
officers or other award recipients. It is our policy that all stock option
grants, whether made by the Board, the Compensation Committee or the executive
committee, have an exercise price per share equal to the fair market value of
our common stock based on the closing market price per share on the grant
date.
Risk Assessment
We believe our approach to goal setting
and setting of targets with payouts at multiple levels of performance assists in
mitigating excessive risk-taking that could harm our value or reward poor
judgment by our executives. Several features of our programs reflect sound risk
management practices. We believe we have allocated our compensation among base
salary and short and long-term compensation target opportunities in such a way
as to not encourage excessive risk-taking, but rather to reward meeting
strategic Company goals that enhance stockholder value. In addition, we believe
that the mix of equity award instruments used under our long-term incentive
program that includes full value awards as well as the multi-year vesting of our
equity awards also mitigates risk and properly accounts for the time horizon of
risk.
We do not believe that any of our
compensation policies create risks that are reasonably likely to have a material
adverse effect on the Company.
Tax Considerations Deductibility of
Executive Compensation
IRC Section 162(m) imposes a $1 million
limit on the amount that a public company may deduct for compensation paid to
the companys CEO or any of the companys three other most highly compensated
executive officers (other than the CFO) who are employed as of the end of the
year. This limitation does not apply to compensation that meets the requirements
under IRC Section 162(m) for qualifying performance-based compensation. One of
the requirements for compensation to qualify is that the material terms of the
performance goals for such compensation be approved by stockholders every five
years.
For purposes of IRC Section 162(m), the
material terms of the performance goals include the following:
● |
which employees would be subject to
the goals; |
● |
the business measurements on which
the performance goals would be based; and |
● |
the formula that would be used to
calculate the maximum amount of compensation that can be paid to an
employee under the arrangement. |
Table of Contents
Ongoing and Post-Employment
Compensation
The Company recognizes that a change in
control can create uncertainty for its employees that may result in loss or
distraction of executives during a critical period. As a result we entered into
Amended and Restated Executive Employment and Non-Disclosure, Non-Competition
and Invention Assignment Agreements (collectively, the Employment Agreements)
with each of the NEOs under which certain payments and benefits would be
provided should the NEOs employment terminate under certain circumstances,
including in connection with a change in control.
We believe that the Employment Agreements
continue to achieve two important goals crucial to our long-term financial
success, namely, the long-term retention of the NEOs and their commitment to the
attainment of our strategic objectives. These agreements will allow our NEOs to
continue to focus their attention on our business operations and strategic plans without undue concern
over their own financial situations during periods when substantial disruptions
and distractions might otherwise prevail. We believe that these severance
packages are also fair and reasonable in light of the years of service our NEOs
have rendered us (average tenure of over 15 years), the level of dedication and
commitment they have rendered us over that period, the contribution they have
made to our growth and financial success and the value we expect to receive from
retaining their services, including during challenging transition periods
following a change in control.
None of the NEOs is entitled to any tax
gross-up payments for the tax liability they incur with respect to such
severance benefits.
The material terms of the NEOs Employment
Agreements and post-employment compensation are described in Potential Payments
upon Termination or Change in Control starting on page 38.
Compensation Committee
Report
The Compensation Committee has furnished
the report set forth below. The information contained in this report shall not
be deemed to be soliciting material or filed with the SEC or subject to the
liabilities of Section 18 of the Exchange Act, except to the extent that the
Company specifically incorporates it by reference into a document filed under
the Securities Act of 1933 or the Exchange Act.
To the Board of Directors of
Cognizant Technology Solutions Corporation:
The Compensation Committee has
reviewed and discussed with management the Compensation Discussion and
Analysis set forth in the Companys proxy statement for the 2017 Annual
Meeting of Stockholders. The Compensation Committee has recommended to the
Board of Directors that the Compensation Discussion and Analysis be
included in such proxy statement for filing with the Securities and
Exchange Commission and incorporated by reference into the Companys
Annual Report on Form 10-K for the year ended December 31,
2016.
By the Compensation Committee of the
Board of Directors of Cognizant Technology Solutions Corporation
John N. Fox, Jr. John E. Klein Michael Patsalos-Fox Robert E.
Weissman |
Compensation Committee Interlocks and
Insider Participation
During the year ended December 31, 2016,
Messrs. Fox, Klein, Patsalos-Fox and Weissman served on the Compensation
Committee. No member of the Compensation Committee was or is a current or former
officer or employee of the Company or any of its subsidiaries.
None of our executive officers serve as a
member of the board of directors or compensation committee of any entity which
has one or more of its executive officers serving as a member of the Board or
the Compensation Committee of the Company.
32 |
Cognizant Technology Solutions
Corporation |
Table of Contents
EXECUTIVE COMPENSATION
TABLES
|
|
2016 Summary Compensation
Table |
The following 2016 Summary Compensation
Table provides certain summary information concerning the compensation earned
for services rendered in all capacities to us and our subsidiaries for the years
ended December 31, 2014, 2015 and 2016 by our CEO, CFO, each of our three other
most highly compensated executive officers who were serving as executive
officers at the end of the 2016 fiscal year, and Mr. Coburn, who would have been
one of the three most highly compensated executive officers for 2016 had he not
resigned as the Companys President on September 27, 2016 (collectively, the
NEOs). No other executive officers who would have otherwise been includable in
such table on the basis of total compensation for the 2016 fiscal year have been
excluded by reason of their termination of employment or change in executive
status during that year.
Name and Principal Position |
|
Year |
|
Salary |
|
Bonus |
|
Stock Awards 1,
2 |
|
Option Awards |
|
Non-Equity Incentive Plan Comp.
3 |
|
All Other Pension
and Nonqualified Deferred Comp. |
|
All Other Comp. |
|
SEC Total 4 |
|
Adjusted SEC Total 5 |
Francisco DSouza |
|
2016 |
|
|
$664,300 |
|
|
|
$7,018,671 |
|
|
|
$450,332 |
|
|
|
|
$123,337 |
6 |
|
$8,256,640 |
|
$12,030,863 |
CEO |
|
2015 |
|
|
$645,000 |
|
|
|
$10,483,400 |
|
|
|
$778,306 |
|
|
|
|
$44,677 |
|
|
$11,951,383 |
|
$11,951,383 |
|
|
2014 |
|
|
$626,000 |
|
|
|
$10,178,101 |
|
|
|
$511,705 |
|
|
|
|
$17,257 |
|
|
$11,333,063 |
|
$11,333,063 |
Rajeev
Mehta |
|
2016 |
|
|
$574,100 |
|
|
|
$3,584,397 |
|
|
|
$389,284 |
|
|
|
|
$5,750 |
8 |
|
$4,553,531 |
|
$7,098,962 |
President
7 |
|
2015 |
|
|
$538,500 |
|
|
|
$5,353,875 |
|
|
|
$649,795 |
|
|
|
|
$1,500 |
|
|
$6,543,670 |
|
$6,543,670 |
|
|
2014 |
|
|
$508,000 |
|
|
|
$5,197,934 |
|
|
|
$415,249 |
|
|
|
|
$1,500 |
|
|
$6,122,683 |
|
$6,122,683 |
Gordon J. Coburn |
|
2016 |
|
|
$467,039 |
|
|
|
$3,750,637 |
|
|
|
|
|
$183,891 |
9 |
|
$93,416 |
10 |
|
$4,494,983 |
|
$4,494,983 |
Former President 7 |
|
2015 |
|
|
$613,500 |
|
|
|
$5,602,186 |
|
|
|
$740,296 |
|
|
9 |
|
$89,178 |
|
|
$7,045,160 |
|
$7,045,160 |
|
|
2014 |
|
|
$595,500 |
|
|
|
$5,438,997 |
|
|
|
$486,773 |
|
$129,043 |
9 |
|
$72,736 |
|
|
$6,723,049 |
|
$6,723,049 |
Karen
McLoughlin |
|
2016 |
|
|
$426,500 |
|
|
|
$1,875,841 |
|
|
|
$289,126 |
|
|
|
|
7,950 |
11 |
|
$2,599,417 |
|
$3,637,530 |
CFO |
|
2015 |
|
|
$406,000 |
|
|
|
$2,801,868 |
|
|
|
$489,910 |
|
|
|
|
7,950 |
|
|
$3,705,728 |
|
$3,705,728 |
|
|
2014 |
|
|
$372,000 |
|
|
|
$2,594,346 |
|
|
|
$304,080 |
|
|
|
|
7,800 |
|
|
$3,278,226 |
|
$3,278,226 |
Ramakrishna Prasad Chintamaneni |
|
2016 |
12 |
|
$417,250 |
|
$566,052 |
|
$2,445,428 |
|
|
|
|
|
|
|
|
7,950 |
13 |
|
$3,436,680 |
|
$3,436,680 |
EVP
and President, Global Industries and Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dharmendra
Kumar Sinha |
|
2016 |
12 |
|
$356,504 |
|
$168,470 |
|
$2,475,943 |
|
|
|
|
|
|
|
|
7,950 |
14 |
|
$3,008,867 |
|
$3,008,867 |
EVP and President, Global Client Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Represents the
aggregate grant date fair value of RSUs and PSUs determined in accordance
with FASB ASC Topic 718 granted in each respective year. The reported
dollar amounts do not take into account any estimated forfeitures related
to continued service vesting requirements. See Stock-Based Awards
starting on page 27 for a description of the terms of the RSUs and PSUs
granted during 2016. |
2 |
These amounts do not
necessarily represent the actual value that will be recognized by the NEOs
upon vesting of shares. The amounts reported in the columns assume
settlement of PSUs at target levels; however, PSUs may vest at a maximum
of 200% of target, depending on the Companys revenue and/or non-GAAP EPS.
For PSUs granted in 2016, if the maximum level of performance is achieved,
the grant date fair value for the PSUs will be approximately $14,037,342
for Mr. DSouza, $7,168,793 for Mr. Mehta, $7,501,274 for Mr. Coburn
(award has been forfeited), $3,751,682 for Ms. McLoughlin, $1,660,975 for
Mr. Chintamaneni and $1,427,486 for Mr. Sinha. None of the NEOs forfeited
any stock awards during the 2016, 2015, or 2014 fiscal years, except for
Mr. Coburn, who forfeited 40,729 RSUs and 220,156 PSUs, including all of
the PSUs granted in 2016, upon his resignation from the Company on
September 27, 2016. For information regarding assumptions underlying the
valuation of stock-based awards, see Note 15 of the Consolidated Financial
Statements in our Annual Report on Form 10-K for the applicable fiscal
year. |
3 |
Amounts shown in this
column represent cash incentive awards earned for each respective fiscal
year and paid in the first quarter of the following year under our annual
cash incentive program. |
4 |
Total compensation, as
determined under SEC rules. |
5 |
The Company moved the
timing of annual RSU grants for certain NEOs from the fourth quarter of
2016 to the first quarter of 2017 to align with the timing of the
Companys other annual equity grants and other annual compensation
decisions by the Compensation Committee. The Adjusted SEC Total represents
the SEC Total plus, for 2016, the target value of the RSU grants made in
the first quarter of 2017 (using a March 2, 2017 grant date fair value) to
Mr. DSouza ($3,774,223), Mr. Mehta ($2,545,431) and Ms. McLoughlin
($1,038,113) to provide stockholders annual compensation numbers that are
more comparable to past years and more indicative of the targeted annual
compensation to the NEOs. These amounts are not a substitute for the
amounts reported under the SEC Total. |
6 |
Includes a 401(k)
savings plan matching contribution in the amount of $806, travel expenses
for Mr. DSouzas spouse to attend business functions that she was
generally expected to attend, home security services, provision of secure
vehicles/transport in the amount of $86,686, use of an administrative
assistant of the Company for personal matters, which is valued at $1,900,
plus a gross-up for taxes related thereto equal to $2,046, and vehicle
rentals, which is valued at $1,375, plus a gross-up for taxes related
thereto equal to $1,481. |
7 |
Mr. Mehta was
appointed President of Cognizant on September 28, 2016, following the
resignation of Mr. Coburn on September 27, 2016. |
8 |
Represents a 401(k)
savings plan matching contribution. |
Table of Contents
9 |
Amount represents
investment earnings on Mr. Coburns nonqualified deferred compensation
account. The earnings correspond to the actual market earnings on a select
group of investment funds utilized to track the notional investment return
on the account balance for the respective fiscal year. The Company has not
made any determination as to which portion of such earnings may be
considered above market and has elected to report the entire amount of
such earnings. Mr. Coburns nonqualified deferred compensation account
incurred an investment loss of $76,165 in 2015; however, $0 is shown in
the table for such year per SEC rules. |
10 |
Includes a 401(k)
savings plan matching contribution in the amount of $5,750, a CSRP
matching contribution in the amount of $2,967, a contribution in the
amount of $31,230, which the Company was required to make to a
nonqualified deferred compensation account, and $53,469 in lieu of earned
vacation. |
11 |
Represents a 401(k)
savings plan matching contribution in the amount of $2,551 and a CSRP
matching contribution in the amount of $5,399. |
12 |
2014 and 2015
compensation not presented for Mr. Chintamaneni and Mr. Sinha as they were
not NEOs in such years. |
13 |
Represents a 401(k)
savings plan matching contribution in the amount of $2,750 and a CSRP
matching contribution in the amount of $5,200. |
14 |
Represents a 401(k)
savings plan matching contribution in the amount of $5,750 and a CSRP
matching contribution in the amount of $2,200. |
|
|
2016 Grants of Plan-Based
Awards Table |
The following table provides certain
summary information concerning each grant of an award made to an NEO in the 2016
fiscal year under a compensation plan.
|
|
Grant Date |
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards
1 |
|
Estimated Future Payouts
Under Equity Incentive Plan Awards 2 |
|
All Other Stock
Awards: Number of Shares of Stock or Units 3 |
|
All
Other Option Awards: Number
of Securities Underlying Options |
|
Exercise or Base
Price of Option Awards ($/Sh) |
|
Grant Date Fair Value of
Equity Awards 4 |
Name |
|
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
Francisco
DSouza |
|
02/16/16 |
|
|
|
|
|
|
|
63,795 |
|
127,589 |
|
255,178 |
|
|
|
|
|
|
|
$7,018,671 |
|
|
02/16/16 |
|
$282,328 |
|
$564,655 |
|
$1,129,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rajeev Mehta |
|
02/16/16 |
|
|
|
|
|
|
|
32,580 |
|
65,159 |
|
130,318 |
|
|
|
|
|
|
|
$3,584,397 |
|
|
02/16/16 |
|
$244,054 |
|
$488,108 |
|
$976,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon J. Coburn
5 |
|
02/16/16 |
|
|
|
|
|
|
|
34,091 |
|
68,181 |
|
136,362 |
|
|
|
|
|
|
|
$3,750,637 |
|
|
02/16/16 |
|
$268,557 |
|
$537,115 |
|
$1,074,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen
McLoughlin |
|
02/16/16 |
|
|
|
|
|
|
|
17,050 |
|
34,100 |
|
68,200 |
|
|
|
|
|
|
|
$1,875,841 |
|
|
02/16/16 |
|
$181,262 |
|
$362,525 |
|
$725,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ramakrishna Prasad Chintamaneni |
|
02/16/16 |
|
|
|
|
|
|
|
6,299 |
|
12,598 |
|
25,196 |
|
|
|
|
|
|
|
$693,016 |
|
02/16/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,714 |
|
|
|
|
|
$259,317 |
|
12/01/16 |
|
|
|
|
|
|
|
1,271 |
|
2,542 |
|
5,084 |
|
|
|
|
|
|
|
$137,471 |
|
12/01/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
25,067 |
|
|
|
|
|
$1,355,624 |
Dharmendra Kumar Sinha |
|
02/16/16 |
|
|
|
|
|
|
|
6,220 |
|
12,439 |
|
24,878 |
|
|
|
|
|
|
|
$684,269 |
|
02/16/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,714 |
|
|
|
|
|
$259,317 |
|
12/01/16 |
|
|
|
|
|
|
|
273 |
|
545 |
|
1,090 |
|
|
|
|
|
|
|
$29,474 |
|
12/01/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
27,790 |
|
|
|
|
|
$1,502,883 |
1 |
Represents the range
of annual cash incentive that can be earned by the NEO if the minimum
threshold, target and maximum performance targets are achieved. The annual
cash incentive is prorated if performance levels are achieved between the
threshold and target levels or between the target and maximum levels.
Performance below the minimum threshold results in no annual cash
incentive payout to the NEO. See Annual Cash Incentive starting on page
26 for information regarding the methodology and performance criteria
applied in determining these potential cash incentive amounts. The actual
annual cash incentive paid to each NEO for his or her 2016 performance is
reported as Non-Equity Incentive Plan Compensation in the 2016 Summary
Compensation Table on page 33. |
2 |
Represents the range
of shares that could vest pursuant to PSUs. See Stock-Based Awards
starting on page 27 for a description of the terms of the
PSUs. |
3 |
Represents RSUs. See
Stock-Based Awards starting on page 27 for a description of the terms of
the RSUs. |
4 |
Represents the grant
date fair value of the RSUs and PSUs determined in accordance with FASB
ASC Topic 718, assuming target achievement for PSUs. For information
regarding assumptions underlying the valuation of stock-based awards, see
Note 15 of the Consolidated Financial Statements in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2016. |
5 |
Mr. Coburn resigned
from the Company during 2016 and, as a result, forfeited the annual cash
incentive and PSU awards set forth in this table that were granted to him
during 2016. |
34 |
Cognizant Technology Solutions
Corporation |
Table of Contents
|
|
Outstanding Equity Awards at
Fiscal Year-End 2016 Table |
The following table provides certain
summary information concerning outstanding equity awards held by the NEOs as of
December 31, 2016.
|
|
Option Awards1 |
|
Stock Awards |
|
|
Number of Securities
Underlying Unexercised Options |
|
Equity Incentive Plan Awards; Number
of Securities Underlying Unexercised Unearned Options |
|
Option Exercise Price |
|
Option Expiration Date |
|
Number of Shares
or Units of Stock That Have Not Vested |
|
Market Value of Shares or Units
of Stock That Have Not Vested 2 |
|
Equity Incentive Plan
Awards; Number of Unearned Shares, Units or Other Rights
That Have Not Vested |
|
Equity Incentive Plan Awards; Market
or Payout Value of Unearned Shares, Units or Other Rights
That Have Not Vested 2 |
Name |
|
Exercisable |
|
Unexercisable |
|
|
|
|
|
|
|
Francisco DSouza |
|
480,000 |
|
|
|
|
|
$9.11 |
|
12/08/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,970 |
3 |
|
$1,230,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,263 |
5 |
|
$5,617,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,878 |
3 |
|
$2,122,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,307 |
6 |
|
$2,258,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,589 |
7 |
|
$7,148,812 |
Rajeev Mehta |
|
|
|
|
|
|
|
|
|
|
|
11,220 |
3 |
|
$628,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,204 |
5 |
|
$2,868,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,344 |
3 |
|
$1,083,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,584 |
6 |
|
$1,153,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,159 |
7 |
|
$3,650,859 |
Gordon J. Coburn |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen McLoughlin |
|
20,000 |
|
|
|
|
|
$15.53 |
|
08/13/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,600 |
3 |
|
$313,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,556 |
5 |
|
$1,431,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,124 |
3 |
|
567,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,772 |
6 |
|
$603,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,100 |
7 |
|
$1,910,623 |
Ramakrishna
Prasad Chintamaneni |
|
10,000 |
|
|
|
|
|
$15.53 |
|
08/13/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,444 |
4 |
|
$585,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,900 |
5 |
|
$554,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,536 |
4 |
|
$198,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,067 |
4 |
|
$1,404,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,980 |
6 |
|
$222,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,598 |
7 |
|
$705,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,542 |
7 |
|
$142,428 |
Dharmendra Kumar Sinha |
|
|
|
|
|
|
|
|
|
|
|
7,311 |
4 |
|
$409,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,775 |
5 |
|
$547,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,536 |
4 |
|
$198,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,790 |
4 |
|
$1,557,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,929 |
6 |
|
$220,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,439 |
7 |
|
$696,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545 |
7 |
|
$30,536 |
1 |
Each stock option
grant included in this table has a term of 10 years measured from the
grant date, and all outstanding options granted to the NEOs as of December
31, 2016 have fully vested pursuant to their terms. |
2 |
Market value was
determined based on a closing price of a share of our common stock of
$56.03 as of December 30, 2016. |
3 |
Awards shown are
time-based RSUs that were granted on December 1, 2014 and November 30,
2015 and vest on specified dates if the individual is still employed by
the Company: |
● |
Mr. DSouza: Approximately 5,493
shares are scheduled to vest on March 1, June 1, September 1 and December
1 of 2017; and approximately 4,734 shares are scheduled to vest on each
March 1, June 1, September 1 and December 1 of 2017 and
2018. |
● |
Mr. Mehta: Approximately 2,805
shares are scheduled to vest on March 1, June 1, September 1 and December
1 of 2017 and approximately 2,418 shares are scheduled to vest on each
March 1, June 1, September 1 and December 1 of 2017 and
2018. |
● |
Ms. McLoughlin: Approximately 1,400
shares are scheduled to vest on each March 1, June 1, September 1 and
December 1 of 2017 and approximately 1,266 shares are scheduled to vest on
each March 1, June 1, September 1 and December 1 of 2017 and
2018. |
4 |
Awards shown are
time-based RSUs that were granted on December 1, 2014, February 16, 2016
and December 1, 2016 and vest on specified dates if the individual is
still employed by the Company: |
● |
Mr. Chintamaneni: Approximately 2,611 shares
are scheduled to vest on March 1, June 1, September 1, and December 1 of
2017; approximately 393 shares are scheduled to vest on each March 1, June
1, September 1 and December 1 of 2017 and 2018 and also on March 1, 2019;
and approximately 2,088 shares are scheduled to vest on each March 1, June
1, September 1 and December 1 of 2017, 2018 and
2019. |
Table of Contents
● |
Mr. Sinha: Approximately 1,828
shares are scheduled to vest on March 1, June 1, September 1, and December
1 of 2017; approximately 393 shares are scheduled to vest on each March 1,
June 1, September 1 and December 1 of 2017 and 2018 and also on March 1,
2019; and approximately 2,316 shares are scheduled to vest on each March
1, June 1, September 1 and December 1 of 2017, 2018 and
2019. |
5 |
2015 PERFORMANCE
MEASUREMENT PERIOD PSUs. Represents the
number of shares that are eligible to vest based on PSUs with a 2015
performance measurement period. 1/3rd vested on June 1, 2016 and the remaining 2/3rds
vest on December 1, 2017 (subject to
continued employment through such date). Performance for such awards was
calculated and achieved as set forth below. See Stock-Based Awards
starting on page 27 for additional
information. |
6 |
2016 PERFORMANCE MEASUREMENT PERIOD
PSUs. Represents the number of
shares that are eligible to vest based on PSUs with a 2016 performance
measurement period. 1/3rd vest on May 31, 2017 and the
remaining 2/3rds vest on November 30, 2018 (subject to
continued employment through
such dates). Performance for such awards was calculated and achieved as
set forth below. See Stock-Based Awards starting on page 27 for
additional
information. |
7 |
2016 2017 PERFORMANCE
MEASUREMENT PERIOD PSUs. Represents the
number of unearned shares of stock not vested equal to the target award
for PSUs with a 2016 2017 performance measurement period. The actual
number of shares of stock that may vest will be determined by the
Companys cumulative fiscal 2016 and 2017 performance versus target levels
on two metrics: revenue (75% of the award) and non-GAAP EPS (25% of the
award). For the shares subject to each of the metrics, the number that may
vest may be zero, if a threshold level of performance is not achieved as
to the metric, or between 50% and 200% of the target number of shares.
After the Compensation Committee determines, based on the cumulative
performance for the fiscal 2016 and 2017 measurement period, the number of
shares that may vest, such shares will vest as follows: 1/3rd
on July 1, 2018 and the remaining
2/3rds on January 1, 2019
(subject to continued employment through such dates). See Stock-Based
Awards starting on page 27 for additional
information. |
|
|
2016 Option Exercises and Stock
Vested Table |
The following table provides additional
information about the value realized by the NEOs on option award exercises and
stock award vestings during the year ended December 31, 2016.
|
|
Option Awards |
|
Stock Awards |
Name |
|
Number of Shares Acquired on
Exercise |
|
Value Realized on Exercise
1 |
|
Number of Shares Acquired on
Vesting Date 2 |
|
Value Realized on Vesting
3 |
Francisco DSouza |
|
|
500,000 |
|
|
|
$20,605,930 |
|
|
|
194,221 |
|
|
|
$11,088,285 |
|
Rajeev
Mehta |
|
|
|
|
|
|
|
|
|
|
97,458 |
|
|
|
$5,567,834 |
|
Gordon J. Coburn |
|
|
|
|
|
|
|
|
|
|
53,030 |
|
|
|
$3,183,085 |
|
Karen
McLoughlin |
|
|
40,000 |
|
|
|
$1,470,246 |
|
|
|
44,039 |
|
|
|
$2,527,064 |
|
Ramakrishna Prasad Chintamaneni |
|
|
|
|
|
|
|
|
|
|
27,068 |
|
|
|
$1,556,334 |
|
Dharmendra Kumar Sinha |
|
|
|
|
|
|
|
|
|
|
23,796 |
|
|
|
$1,367,439 |
|
1 |
Value realized on
exercise is calculated based upon the number of options exercised and the
fair market value or sale price of the shares on the date of exercise less
the exercise price, before any applicable tax withholding. |
2 |
The number of shares
shown in the table reflects the gross number of shares received by each
NEO upon vesting of the stock awards. The Company reduced the number of
shares issued to each NEO by automatically withholding a number of shares
with a fair market value as of the vesting date sufficient to satisfy
required tax withholdings. Each NEO actually received the following net
number of shares of Company stock following such share withholding: Mr.
DSouza, 96,064; Mr. Mehta, 57,761; Mr. Coburn, 28,714; Ms. McLoughlin,
24,103; Mr. Chintamaneni, 14,874; and Mr. Sinha, 12,992. |
3 |
Value realized on
vesting is calculated by multiplying the number of shares acquired on
vesting by the fair market value of the shares on the respective vesting
date. |
36 |
Cognizant Technology Solutions
Corporation |
Table of Contents
|
|
2016 Pension Benefits
Table |
None of the NEOs participated in any
defined benefit pension plans in 2016.
|
|
2016 Nonqualified Deferred
Compensation Table |
The following table sets forth information
with respect to the nonqualified deferred compensation arrangements in effect
during 2016 for the NEOs.
Name |
|
Executive Contributions in Last
FY |
|
Registrant Contributions in Last FY |
|
Aggregate Earnings/(Losses) in Last FY |
|
Aggregate Withdrawals/ Distributions |
|
Aggregate Balance at
Last FYE |
Francisco
DSouza |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rajeev
Mehta |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon J.
Coburn |
|
|
|
$31,230 |
1 |
|
$183,891 |
2 |
|
|
|
$1,463,026 |
3 |
Karen
McLoughlin |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ramakrishna Prasad
Chintamaneni |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dharmendra Kumar
Sinha |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
This amount is reported as
compensation and is included in the All Other Compensation column of the
2016 Summary Compensation Table on page 33. |
2 |
This amount is reported as
compensation and is included in the All Other Pension and Nonqualified
Deferred Comp. column of the 2016 Summary Compensation Table on page 33.
Earnings are broken down between funds as
follows: |
|
Investment Fund |
|
Earnings/(Losses) Attributable to such
Fund |
|
Mass Mutual Select Focused
Value |
|
|
$165,004 |
|
|
Mass Mutual Select Mid Cap Growth Equity II
A |
|
|
$18,887 |
|
|
Total |
|
|
$183,891 |
|
3 |
Includes the amounts reported in
the other columns of this table plus such amounts previously reported in
the Companys Summary Compensation Table in previous years if such
compensation was required to be disclosed. |
The Company established this nonqualified
deferred compensation arrangement for Mr. Coburn to serve as the economic
equivalent of the retirement plan in which he participated while the Company was
majority owned by IMS Health. Pursuant to such arrangement, the Company, while
Mr. Coburn was an employee, credited his deferred compensation account with an
annual contribution in a dollar amount equal to 6% of his base salary and earned
annual cash incentive for the year. Mr. Coburn could select from the 16
investment funds sponsored by Mass Mutual
available to the plan to serve as the measures of the investment return on his
account for each year. Mr. Coburn could change his investment elections up to
six times per year. Under the terms of the arrangement with Mr. Coburn, the
balance of Mr. Coburns account became due and payable in a lump sum six months
following his resignation from the Company. Accordingly, the Company made a lump
sum payment to Mr. Coburn in the amount of $1,558,679 on April 3,
2017.
Table of Contents
POTENTIAL PAYMENTS
UPON TERMINATION OR CHANGE IN CONTROL
|
|
Overview of Potential
Payments |
We have entered into Employment Agreements
with our NEOs that provide certain benefits upon such employees being terminated
without Cause or leaving for Good Reason (a Qualifying Termination). Such
benefits are adjusted in the event the Qualifying Termination occurs within the
12 months following a change in control.
|
|
|
|
|
|
|
|
Unvested PSUs / Performance-Based
Awards |
Termination Event |
|
Salary and Bonus |
|
Benefits |
|
Unvested RSUs
/ Time-Based Awards |
|
Performance Measurement Period Ended;
Performance Objectives Satisfied |
|
Performance Measurement Period Not
Ended |
Qualifying Termination no Change
in Control |
|
22 months base salary, payable in
installments |
|
12 months of reimbursement for COBRA
premiums |
|
One years acceleration of
vesting |
|
One years acceleration of
vesting |
|
Unvested portion of award
forfeited |
Qualifying Termination within 12
months of Change in Control |
|
12 months base salary, payable in
installments, and annual cash incentive payout at 100% of target, payable
in a lump sum |
|
12 months of reimbursement for COBRA
premiums |
|
Acceleration of entire
award |
|
Acceleration of entire
award |
|
Acceleration of prorated portion
based on performance as of change in control
date |
What is a Qualifying
Termination? |
Termination without Cause |
|
Leaving for Good Reason |
Cause is defined
as:
●Willful malfeasance or willful misconduct in connection
with employment;
●Continuing failure to perform duties requested by the
Board;
●Failure to observe material policies of the
Company;
●Commission of any felony or any misdemeanor involving
moral turpitude;
●Engaging in any fraudulent act or embezzlement;
or
●Any material breach of an employment
agreement. |
|
Good Reason is defined
as:
●A material diminution of authority, duties or
responsibilities;
●A material diminution in overall compensation package
that is not broadly applied to other executives;
●The Companys failure to obtain from its successor the
express assumption of an Employment Agreement; or
●The Companys change, without the NEOs consent, in the
principal place of his or her work to a location more than 50 miles from
the primary work location, but only if the change is after a change in
control.
|
The Employment Agreements also provide
that in the event any payments under the Employment Agreements would constitute
parachute payments under IRC Section 280G, then the payments under the
Employment Agreements will be reduced by the
minimum amount necessary so that no amounts paid will be non-deductible to the
Company or subject to the excise tax imposed under IRC Section
4999.
Cash severance payments are contingent on
the NEO executing a waiver and release of claims in favor of the Company and
complying with one-year post-termination non-competition and non-solicitation
covenants, a six-month post-termination intellectual property covenant and a
perpetual confidentiality covenant.
Upon any termination of employment, each
NEO will also be entitled to any amounts earned, accrued and owed but not yet
paid to such NEO as of the termination date and any benefits accrued and earned
in accordance with the terms of any benefits plans or programs, and these
amounts are not conditioned upon the release becoming effective. No additional
amounts will be paid on termination due to death or disability.
38 |
Cognizant Technology Solutions
Corporation |
Table of Contents
|
|
Calculation of Potential
Payments |
The following table shows potential
payments to our NEOs under the Employment Agreements in the event of a
Qualifying Termination prior to or within 12 months following a change in
control. After the period of 12 months following a change in control, the
potential payments upon a Qualifying Termination, absent another change
in control, revert to those prior to a change in
control as set forth below. Potential payments are calculated assuming a
December 31, 2016 Qualifying Termination date and, where applicable, using the
closing price of our common stock of $56.03 on December 30, 2016, as reported on
NASDAQ.
Name |
|
Trigger |
|
Salary and Bonus |
|
Benefits |
|
Awards Acceleration/ Extension |
|
Total |
Francisco DSouza |
|
Qualifying Termination
Prior to Change in Control |
|
$1,217,883 |
|
$11,379 |
|
|
$8,662,630 |
|
|
$9,891,893 |
|
|
Qualifying Termination
Following Change in Control |
|
$1,228,955 |
|
$11,379 |
|
|
$11,229,421 |
|
|
$12,469,755 |
|
|
Death or
Disability |
|
|
|
|
|
|
|
|
|
|
|
|
Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
Termination for Other
Reasons |
|
|
|
|
|
|
|
|
|
|
Rajeev Mehta |
|
Qualifying Termination Prior to Change in
Control |
|
$1,155,000 |
|
$15,527 |
|
|
$4,423,961 |
|
|
$5,594,488 |
|
|
Qualifying Termination Following Change in
Control |
|
$1,165,500 |
|
$15,527 |
|
|
$5,734,783 |
|
|
$6,915,809 |
|
|
Death or Disability |
|
|
|
|
|
|
|
|
|
|
|
|
Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
Termination for Other Reasons |
|
|
|
|
|
|
|
|
|
|
Karen McLoughlin |
|
Qualifying Termination
Prior to Change in Control |
|
$781,917 |
|
$11,233 |
|
|
$2,230,442 |
|
|
$3,023,592 |
|
|
Qualifying Termination
Following Change in Control |
|
$789,025 |
|
$11,233 |
|
|
$2,916,474 |
|
|
$3,716,732 |
|
|
Death or
Disability |
|
|
|
|
|
|
|
|
|
|
|
|
Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
Termination for Other
Reasons |
|
|
|
|
|
|
|
|
|
|
Ramakrishna Prasad |
|
Qualifying Termination Prior to Change in
Control |
|
$870,833 |
|
$15,527 |
|
|
$1,807,528 |
|
|
$2,693,888 |
Chintamaneni |
|
Qualifying Termination Following Change in
Control |
|
$878,750 |
|
$15,527 |
|
|
$2,965,500 |
|
|
$3,859,777 |
|
|
Death or Disability |
|
|
|
|
|
|
|
|
|
|
|
|
Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
Termination for Other Reasons |
|
|
|
|
|
|
|
|
|
|
Dharmendra Kumar |
|
Qualifying Termination
Prior to Change in Control |
|
$687,500 |
|
$11,232 |
|
|
$1,674,401 |
|
|
$2,373,133 |
Sinha |
|
Qualifying Termination
Following Change in Control |
|
$693,750 |
|
$11,232 |
|
|
$2,932,666 |
|
|
$3,637,648 |
|
|
Death or
Disability |
|
|
|
|
|
|
|
|
|
|
|
|
Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
Termination for Other Reasons |
|
|
|
|
|
|
|
|
|
|
Table of Contents
|
PROPOSAL 4 |
|
APPROVAL OF 2017
INCENTIVE AWARD PLAN |
|
What are you voting
on? |
We are asking stockholders to approve the Cognizant Technology
Solutions Corporation 2017 Incentive Award Plan (the Plan), which would
replace the Cognizant Technology Solutions Corporation Amended and
Restated 2009 Incentive Compensation Plan (the 2009 Plan). If our
stockholders approve this proposal, no new awards will be granted under
the 2009 Plan. If, however, our stockholders do not approve this proposal,
the Plan will not become effective and the 2009 Plan will remain in effect
in accordance with its current terms and conditions until the remaining
share pool is exhausted. In either case, awards outstanding under the 2009
Plan and its predecessor plans will remain subject to the terms of the
2009 Plan and such predecessor plans, as applicable. |
|
The Board unanimously recommends a vote
FOR the approval of the Cognizant Technology Solutions
Corporation 2017 Incentive Award
Plan. |
Resolution
Stockholders are being asked to Approve
RESOLVED, that the stockholders of Cognizant
Technology Solutions Corporation approve the adoption of the Cognizant
Technology Solutions Corporation 2017 Incentive Award
Plan. |
The Board recommends a vote FOR the Plan so that the
Company has enough shares of common stock available to grant to maintain
its compensation structure and achieve the purposes of the Plan, which are
to:
●Provide incentives to our employees,
consultants and non-employee directors, including the employees of our
subsidiaries, in the form of equity and other incentive awards
to
●Motivate them to perform well and generate
superior returns for our stockholders and
●Induce them to remain in our service.
In determining to approve the Plan, the Compensation
Committee and the Board reviewed the terms of the Plan and an analysis
prepared by Pay Governance, the Compensation Committees independent
compensation consultant, both of which are summarized in this
proposal. |
Our stockholders approved the 2009 Plan in
June 2009. Since that time, we have periodically granted stock options, RSUs and
PSUs under the plan. We believe that long-term compensation through stock-based
compensation in the form of stock options, RSUs and PSUs is important in
attracting and retaining executive talent and other key personnel. Such equity
awards align the interests of the individuals with those of our stockholders and
incentivize them to maximize stockholder value.
At the Annual Meeting, stockholders are
being asked to vote on a proposal to approve the adoption of the Plan. If the
Plan is approved, the maximum aggregate number of shares of our common stock
that may be issued under the Plan will be equal to the sum of (i) the
approximately 7,000,000 shares remaining available for awards under the 2009
Plan which will be transferred to the Plan, (ii) 46,000,000 new shares and (iii)
the number of shares subject to outstanding awards under the 2009 Plan that,
after the effective date of the Plan, terminate, are forfeited, are converted
into awards of another entity in connection with a spin-off or similar event, or
are settled for cash. The number of shares of common stock reserved for issuance
under the Plan will be reduced on a one-for-one basis for each share of stock
issued under the Plan pursuant to a stock option or stock appreciation right
(SAR) and will be reduced by two shares for each share of stock issued under
the Plan pursuant to an RSU or PSU (full-value awards). Therefore, the
46,000,000 new shares being requested would actually represent only 23,000,000
actual shares if only full-value awards are granted under the Plan, which is
consistent with our recent practices for employees. The Plan was adopted by our
Board on March 27, 2017, subject to stockholder
approval at the Annual Meeting. A copy of the Plan is attached hereto as
Appendix A. The Plan is intended to serve as a successor to the 2009 Plan. No
further awards will be made under the 2009 Plan following the earlier of (i) the
plan termination date or (ii) stockholder approval of the Plan. Stockholder
approval of the Plan will not affect any options or stock issuances outstanding
under 2009 Plan.
Our Current Equity
Grant Practices
What We Do |
|
|
Mix of PSUs and RSUs with an emphasis on PSUs for senior executives |
|
|
Long-term vesting
such that PSUs have a 2-year performance
measurement period and, for executive officers, vest 1/3rd at
30 months and 2/3rds at 36 months and, for other employees,
fully vest at 29 months following the start of such period; RSUs vest
quarterly over three years from grant |
What We Dont Do |
|
|
No dividend equivalent payments on unearned PSUs or RSUs (accumulated dividend equivalents paid only on
vesting) |
40 |
Cognizant Technology Solutions
Corporation |
Table of
Contents
On March 27, 2017, the Board adopted,
subject to stockholder approval, the Plan. If approved by stockholders, the Plan
would replace the 2009 Plan. The key differences between the Plan and the 2009
Plan are:
● |
As of December 31, 2016, there were
approximately 7,000,000 shares available for future awards under the 2009
Plan, which, based on our three-year average burn rate of 0.78%, would
last for only approximately one year assuming current grant practices. If
the Plan is approved, the maximum aggregate number of shares of our common
stock that may be issued under the Plan will be equal to the sum of (i)
the approximately 7,000,000 shares remaining available for awards under
the 2009 Plan that will be transferred to the Plan, (ii) 46,000,000 new
shares and (iii) the number of shares subject to outstanding awards under
the 2009 Plan that, after the effective date of the Plan, terminate, are
forfeited, are converted into awards of another entity in connection with
a spin-off or similar event, or are settled for cash. Such a share reserve
would be sufficient for approximately six years of awards, assuming
current grant practices. However, these timelines may change based on
future circumstances that require a change to expected grant practices,
such as changes in the price of the shares of our common stock, grant
amounts provided by our competitors, hiring activity and
promotions. |
● |
The number of shares of common stock
reserved for issuance under the Plan will be reduced on a one-for-one
basis for each share of stock issued under the Plan pursuant to a stock
option or SAR and will be reduced by two shares for each share of stock
issued under the Plan pursuant to a full-value award. Under the 2009 Plan,
shares subject to full-value awards count as 1.55
shares. |
● |
The 2009 Plan is currently set to
expire on April 15, 2019. The Plan would have a term of ten years from the date
of Board adoption through March 27, 2027. |
● |
The 2009 Plan provides that the
maximum annual limit on the number of shares that can be granted to any
one person is 5,000,000 and the maximum annual limit on the amount of cash
that can be granted to any one person is $4,000,000. The Plan
decreases the per-person share
limit to 3,000,000 for stock options
and SARs and 2,000,000 for RSUs and PSUs and other full-value awards, and
increases the per-person cash
limit to $10,000,000.
|
● |
While the 2009 Plan provides for a
maximum seven-year term for stock options, the Plan provides that
stock options may have a term of up to
ten years. |
● |
The 2009 Plan provides for a maximum
limit on director awards of 100,000 shares per year. The Plan
changes the per year limit on director
awards to $900,000 in the aggregate for
cash and equity awards. |
● |
The Plan clarifies that all awards
will be subject to the provisions of any clawback policy implemented by
the Company. |
How Long We Expect the Share Pool to
Last
We expect that the proposed share pool for
new grants under the Plan, if stockholders approve this proposal, will last six
years.
How the Plan is Designed to Protect
Stockholders Interests
The following features of the Plan will
protect the interests of our stockholders:
● |
Limits on authorized shares no
evergreen provision. If the Plan is
approved, the maximum aggregate number of shares of our common stock that
may be issued under the Plan will be equal to the sum of (i) the
approximately 7,000,000 shares remaining available for awards under the
2009 Plan that will be transferred to the Plan, (ii) 46,000,000 new shares
and (iii) the number of shares subject to outstanding awards under the
2009 Plan that, after the effective date of the Plan, terminate, are
forfeited, are converted into awards of another entity in connection with
a spin-off or similar event, or are settled for cash. The number of shares
of common stock reserved for issuance under the Plan will be reduced on a
one-for-one basis for each share of stock issued under the Plan pursuant
to a stock option or SAR and will be reduced by two shares for each share
of stock issued under the Plan pursuant to a full-value award. The Plan
does not have an evergreen feature. |
● |
Limits on term of stock
options. The maximum term of each stock
option and SAR that can be granted under the Plan is ten
years. |
● |
Limits on share
counting. Shares surrendered or
withheld for the payment of the exercise price or taxes under stock
options or SARs, shares surrendered or withheld for the payment of taxes
on RSUs, PSUs and other full-value awards, shares repurchased in the open
market with the proceeds of an option exercise, and shares subject to SARs
that are not issued in connection with the stock settlement of the SARs
may not again be made available for issuance under the
Plan. |
● |
No stock option
repricing. The Plan prohibits the
repricing of underwater options and SARs, whether by amending an
existing award, substituting a new award at a lower price or executing a
cash buyout. |
● |
No discounted stock option
grants. The Plan prohibits granting
stock options or SARs with an exercise price less than the fair market
value of Cognizant common stock on the date of
grant. |
● |
No automatic change in control
benefits. The Plan does not provide any
automatic benefits upon a change in control or any excise tax
gross-ups. |
● |
Clawback Policy. The Plan requires all awards to be subject to our
clawback policy. |
● |
No dividend equivalents on
unvested awards. The Plan prohibits the
payment of dividends and dividend equivalents on unvested
awards. |
Table of
Contents
|
|
Key Data About Our Grant
Practices |
Pay Governances analysis highlighted the
following key data points regarding the Plan and our grant practices.
Burn Rate
Burn rate measures how rapidly we are
using an equity plans share pool. We measure burn rate on a gross basis,
calculated as follows:
|
(total shares granted) |
|
|
(weighted average Cognizant shares outstanding
(undiluted)) |
|
Over the last three years, our burn rate
averaged 0.78%, The burn rates for the last three years were 1.02%, 0.46%, and
0.86% for 2014, 2015 and 2016, respectively. The Board believes that these are
acceptable burn rates.
Overhang
Overhang measures the potential
stockholder dilution from outstanding equity awards and shares available for
grant. We use a simple overhang measurement, calculated as follows:
|
(awards outstanding) + (shares available for
grant) |
|
|
(weighted average Cognizant shares outstanding
(undiluted)) |
|
If this proposal is adopted, our overhang
will be 10.4%.
The Board believes that the requested
number of shares of common stock under the Plan represents a reasonable amount
of potential equity dilution.
Historical Grant
Information
Grant
information |
|
2014 |
|
2015 |
|
2016 |
Options granted |
|
67,736 |
|
55,336 |
|
70,258 |
Full-value awards granted 1 |
|
6,148,143 |
|
2,731,757 |
|
5,145,594 |
Cognizant shares outstanding 2 |
|
608,125,852 |
|
609,129,517 |
|
606,828,543 |
1 |
Assumes maximum performance for
PSUs. See PSUs on page 27. |
2 |
Number outstanding at
year-end. |
Equity Compensation Plan
Information
The following table provides information
regarding the total share authorization under the Plan and the 2009 Plan if this
proposal is approved.
|
Shares |
|
Shares available for new
Plan awards under 2009 Plan as of December 31, 2016 |
7,000,000 |
1 |
Shares subject to outstanding 2009 Plan and
predecessor plan awards as of December 31, 2016 |
9,900,000 |
2 |
Total new authorized Plan
shares requested in this Proposal |
46,000,000 |
|
Total authorized Plan shares if this Proposal is
approved (including shares subject to outstanding 2009 Plan and
predecessor awards) |
62,900,000
|
|
1 |
Will be transferred to the Plan
and no longer available under the 2009 Plan. |
2 |
Includes 7,500,000 for
outstanding full-value awards (RSUs and PSUs (assuming target
performance)) and 2,400,000 for outstanding stock options, with a weighted
average exercise price of $21.08 and weighted average remaining
contractual term of 1.6 years. |
The following table provides information
as of December 31, 2016 with respect to the shares of our common stock that may
be issued under our existing equity compensation plans, which include the 2009
Plan and the 2004 ESPP, and one of our prior equity compensation plans, the
Amended and Restated 1999 Incentive Compensation Plan (the 1999 Plan). The
2009 Plan succeeded the 1999 Plan and was approved by stockholders. Awards granted under the 1999 Plan remain
valid, though no additional awards may be granted from such plan. For additional
information on our equity compensation plans, see Note 15 of the Consolidated
Financial Statements in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016.
Plan Category |
|
Number of
Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights |
|
Weighted-Average Exercise Price
of Outstanding Options, Warrants and Rights |
|
Number of
Securities Available for Future Issuance Under
Equity Compensation Plans (excludes securities Reflected in
first column) |
Equity compensation plans
approved by security holders 1 |
|
9,994,865 2 |
|
$21.08 3 |
|
12,204,665 4 |
Equity compensation plans not approved by
security holders |
|
|
|
N/A |
|
|
Total |
|
9,994,865 |
|
$21.08 3 |
|
12,204,665 |
1 |
Consists of the 1999 Plan, the
2009 Plan and the 2004 ESPP. |
2 |
Excludes purchase rights
outstanding under the 2004 ESPP. Under such plan, employees may purchase
whole shares of common stock at a price per share equal to 90% of the
lower of the fair market value per share on the first day of the purchase
period or the fair market value per share on the last day of the purchase
period. As of December 31, 2016, 2,384,043 shares of common stock may be
issued pursuant to stock options upon exercise, 4,863,988 shares of common
stock may be issued pursuant to RSUs upon vesting and 2,746,834 shares of
common stock may be issued pursuant to PSUs upon vesting. The number of
shares of common stock that may be issued under the outstanding and
unvested PSUs for which the performance measurement period has not ended
is based on vesting of the maximum number of award shares. The actual
number of shares of common stock that may vest will generally range from
0% to 200% of the target number based on the level of achievement of the
applicable performance metric(s) and the continued service vesting
requirements. |
3 |
As of December 31, 2016, the
weighted-average exercise price of outstanding options to purchase common
stock was $21.08 and no weighting was assigned to RSUs or PSUs as no
exercise price is applicable to RSUs or PSUs. |
4 |
Includes 7,016,658 shares of
common stock available for future issuance under the 2009 Plan and
5,188,007 shares of common stock available for future issuance under the
2004 ESPP. As of December 31, 2016, there were no outstanding purchase
periods under the 2004 ESPP. |
42 |
Cognizant Technology Solutions
Corporation |
Table of
Contents
|
|
Frequently Asked Questions
About the Plan |
This summary is qualified by reference to
the complete text of the Plan, which can be found in Appendix A on page
59.
Who will be eligible to participate in
the Plan?
All officers, employees, consultants and
directors of Cognizant and its subsidiaries approximately 270,000 persons
(approximately eighteen executive officers, ten non-employee Directors,
approximately 260,000 other employees and approximately 10,000 consultants or
advisors) will be eligible to participate in the Plan.
Who will administer the
Plan?
Generally. The Plan will be administered by the Compensation Committee, an independent committee of the
Board. The Compensation Committee will have the authority to make any
determination or take any action that it deems necessary or desirable to
administer the Plan, and also will have the sole discretion to interpret the
Plan and all award agreements. With limited exceptions, the Compensation
Committee will be able to delegate its authority under the Plan to a
subcommittee consisting of one or more members of the Board or one or more of
the Companys officers.
As it Relates to Director Compensation.
The Board will administer the Plan as it
relates to director compensation.
How many shares will be available for
Plan awards?
If the Plan is approved, the maximum
aggregate number of shares of our common stock that may be issued under the Plan
will be equal to the sum of (i) the approximately 7,000,000 shares remaining
available for awards under the 2009 Plan that will be transferred to the Plan,
(ii) 46,000,000 new shares and (iii) the number of shares subject to outstanding
awards under the 2009 Plan that, after the effective date of the Plan,
terminate, are forfeited, are converted into awards of another entity in
connection with a spin-off or similar event, or are settled for cash. The number
of shares of common stock reserved for issuance under the Plan will be reduced
on a one-for-one basis for each share of stock issued under the Plan pursuant to
a stock option or SAR and will be reduced by two shares for each share of stock
issued under the Plan pursuant to a full-value award. Therefore, the 46,000,000
new shares being requested would actually represent only 23,000,000 actual
shares if only full-value awards are granted under the Plan, which is consistent
with our recent practices for employees. Shares delivered pursuant to an award
may consist of authorized and unissued shares or treasury shares.
● |
What Will Reduce the Share Pool.
Awards under the Plan settled in shares
and dividend equivalents denominated in shares.
|
● |
What Will Not Reduce the Share
Pool. Awards made upon the assumption
of or in substitution for outstanding grants made by a company that we
acquire (except as may be required for purposes of incentive stock
options). |
● |
Which Shares Can Return to the
Share Pool. Shares covered by an award
under the Plan or, after the effective date of the Plan, the 2009 Plan
that is terminated or forfeited because payout conditions are not met or
that is converted into an award of another entity in connection with a
spin-off or similar event, or that is settled for
cash. |
● |
Which Shares Cannot Return to the
Share Pool. Shares surrendered to pay
the exercise price or withholding taxes for stock options or SARs, shares
repurchased in the open market with the proceeds of an option exercise,
shares that were subject to a stock-settled SAR that were not issued upon
its net settlement, and shares withheld to pay withholding taxes on RSUs,
PSUs and other full-value awards. |
The last sales price of Cognizants shares
of common stock, $0.01 par value, on April 10, 2017 was $58.97 per share, as
reported on NASDAQ.
What kind of awards will the
Compensation Committee be able to grant under the Plan?
Stock Options and SARs.
The maximum term for stock options and SARs
will be ten years. Options may be either nonqualified stock options or incentive
stock options. The exercise price per share subject to each option and SAR may
not be less than the fair market value per share on the date of grant. The
administrator will establish the vesting schedule and the method for paying the
exercise price of these awards. Unless otherwise specified by the administrator
or as otherwise directed by a participant in writing to the Company, vested
options and SARs with an exercise price per share that is less than the fair
market value of the underlying share as of the last day of their respective
terms will be automatically exercised on the last day of the term.
Restricted Stock and RSUs (including
PSUs). The administrator will establish the
applicable restrictions and vesting schedule of these awards. Recipients of
restricted stock will have voting rights and will have the right to receive
dividends, but such dividends will generally be paid out only to the extent the
restricted stock vests. Recipients of RSUs generally will have no voting or
dividend rights prior to settlement unless dividend equivalents are granted
along with the RSUs.
Other Stock or Cash-Based Awards.
The administrator may grant other stock or
cash-based awards, including awards entitling a holder to receive shares or cash
to be delivered immediately or in the future, including cash payments, cash
bonus awards, stock payments, stock bonus awards, incentive awards, deferred
stock, deferred stock units, retainers, committee fees and meeting-based fees,
under such terms as it determines.
In addition, the administrator will
determine (1) whether an award includes dividends or dividend equivalents (other
than stock options or SARs) and (2) what happens if a participant terminates
employment. Awards generally are not transferable.
Will there be minimum vesting periods
for Plan awards?
The Plan will not include minimum vesting
periods for awards. The Company currently grants PSUs that have a two-year
performance measurement period with vesting for executive officers of
1/3rd at 30 months and 2/3rds at 36 months and for other
employees 100% at 29 months. In addition, the Company currently grants RSUs that
vest quarterly over three years.
Will Plan awards be subject to a
clawback policy?
Plan awards granted to executive officers
and Directors will be subject to the Companys clawback policy. See Clawback
Policy on page 31.
What will be the material terms of the
performance goals for awards intended to qualify under Section
162(m)?
Section 162(m) of the Internal Revenue
Code (Section 162(m)) imposes a $1,000,000 limit on the amount that a public
company may deduct for compensation paid to a companys CEO or any of a
companys three other most highly compensated executive officers (other than the
CFO) who are employed as of the end of the year. This limitation does not apply
to compensation that meets the requirements under Section 162(m) for qualifying
performance-based compensation. One of the requirements for compensation to
qualify is that the material terms of the performance goals for such
compensation be approved by stockholders every five years.
Table of
Contents
For purposes of Section 162(m), the
material terms of the performance goals include the following:
● |
which employees would be subject to
the goals; |
● |
the business measurements on which
the performance goals would be based; and |
● |
the formula that would be used to
calculate the maximum amount of compensation that can be paid to an
employee under the arrangement. |
Each of these aspects is discussed below,
and stockholder approval of this proposal constitutes approval of each of these
aspects for purposes of Section 162(m).
Employees Covered
The Companys NEOs would be subject to the performance goals
described in this section. We may apply the performance goals to all executive
officers in the event that any of them becomes a covered employee under Section
162(m).
Business
Measurements
The business measurements
that may be used to establish performance goals are limited to the following:
(i) revenue or revenue growth, (ii) operating or net income, (iii) operating or
net income before acquisition related charges, net non-operating foreign
currency exchange gains or losses and/or charges for stock-based compensation
and any taxes or fringe benefits incurred by the Company in settlement of
stock-based awards, (iv) operating or net income before interest, taxes,
depreciation, amortization and/or charges for stock-based compensation and any
taxes or fringe benefits incurred by the Company in settlement of stock-based
awards, (v) gross, operating or net profit margin, (vi) gross, operating or net
profit margin before acquisition related charges, net non-operating foreign
currency exchange gains or losses and/or charges for stock-based compensation
and any taxes or fringe benefits incurred by the Company in settlement of
stock-based awards, (vii) earnings per share, either before or after acquisition
related charges, net non-operating foreign currency exchange gains or losses
and/or charges for stock-based compensation and any taxes or fringe benefits
incurred by the Company in settlement of stock-based awards, (viii) return on
assets, capital or stockholder equity, (ix) total stockholder return, (x) cash
flow, (xi) measures in terms of days sales outstanding or accounts receivable
outstanding, (xii) working capital, (xiii) market share, (xiv) increases in
customer base, (xv) cost reductions or other expense control objectives, (xvi)
market price of the common stock, whether measured in absolute terms or in
relationship to earnings or operating income or in relation to various stock
market or industry indices, (xvii) budget objectives, (xviii) working capital,
(xix) mergers, acquisitions or divestitures, (xx) measures of customer
satisfaction, (xxi) productivity measures, (xxii) funds from operations, (xxiii)
operating efficiency, or (xxiv) economic value-added models.
Committee Authority to Measure
Performance Goals. The Compensation Committee
may establish performance goals that are measured either in absolute terms or as
compared to any incremental increase or decrease or as compared to results of a
peer group or to market performance indicators or indices, in each case as
specified by the Compensation Committee in the award.
Committee Authority to Adjust
Performance Goals. The Compensation Committee may adjust the performance goals to
remove the effect of (i) items related to a change in applicable accounting
standards; (ii) items relating to financing activities; (iii) expenses for
restructuring or productivity initiatives; (iv) other non-operating items; (v)
items related to acquisitions; (vi) items attributable to the business
operations of any entity acquired by the Company during the performance period;
(vii) items related to the sale or disposition of a business or segment of a
business; (viii) items related to discontinued operations that do not qualify as
a segment of a business under applicable accounting standards; (ix) items
attributable to any stock dividend, stock split,
combination or exchange of stock occurring during the performance period; (x)
any other items of significant income or expense which are determined to be
appropriate adjustments; (xi) items relating to unusual or infrequent corporate
transactions, events or developments, (xii) items related to amortization of
acquired intangible assets; (xiii) items that are outside the scope of the
Companys core, on-going business activities; (xiv) items related to acquired
in-process research and development; (xv) items relating to changes in tax laws;
(xvi) items relating to major licensing or partnership arrangements; (xvii)
items relating to asset impairment charges; (xviii) items relating to gains or
losses for litigation, arbitration and contractual settlements; (xix) items
attributable to expenses incurred in connection with a reduction in force or
early retirement initiative; (xx) items relating to foreign exchange or currency
transactions and/or fluctuations; or (xxi) items relating to any other unusual
or nonrecurring events or changes in applicable law, applicable accounting
standards or business conditions.
Per-Person Maximum
Amounts
Subject to any adjustments that
the administrator makes (as described below), the Plan limits the number of
shares and the amount of cash that can be granted to an individual in any
one-year period as follows:
|
|
1-year per-person limit |
Stock options &
SARs |
|
3 million
shares |
Other awards |
|
2 million shares |
Cash |
|
$10,000,000 |
In addition, there will be a limit of
$900,000 on the sum of the grant date fair value of equity-based awards and the
amount of any cash compensation that may be granted to a non-employee Director
during any calendar year.
If approved by stockholders, this proposal
would not limit Cognizants right to condition payment of annual bonuses or
equity awards on achievement of additional quantitative or qualitative
performance goals or to award or pay other or additional forms of compensation
(including, but not limited to, salary, other incentive-based cash compensation
or other stock-based awards under the Plan). These other forms of compensation
may be paid regardless of whether the performance goals described in this
proposal are achieved in any future year, and whether or not payment of such
other forms of compensation would be tax deductible, but will be designed so as
not to affect the deductibility of arrangements intended to qualify as
performance-based compensation under Section 162(m). However, there can be no
guarantee that amounts payable under these programs and awards will be treated
as qualified performance-based compensation under Section 162(m).
What adjustments will the administrator
be permitted to make under the Plan?
Anti-Dilution
Adjustments. In the event of certain
corporate transactions affecting Cognizants outstanding common stock such as
a stock dividend, stock split, combination or exchange of shares, merger,
consolidation or other distribution of the Companys assets to stockholders
(other than normal cash dividends) the administrator may make adjustments as
it deems appropriate to prevent dilution or enlargement of Plan benefits. This
could include changes to the number and type of shares to be issued under the
Plan and outstanding awards, the exercise price of outstanding awards, Plan and
per-person limits on the number of shares that can be granted and the manner in
which shares subject to full-value awards will be counted. If such an event
constitutes an equity restructuring for purposes of applicable accounting
guidance, certain adjustments will be mandatory.
Corporate Events and Change in Control.
In the case of any event described under
Anti-Dilution Adjustments above or any unusual or nonrecurring transactions or
events affecting the Company or any subsidiary or the financial statements of
the Company or any subsidiary, or of changes in applicable law or applicable
accounting standards, the administrator may take any of the following actions
44 |
Cognizant Technology Solutions
Corporation |
Table of
Contents
with respect to any award to prevent
dilution or enlargement of plan benefits, to facilitate such events or to give
effect to changes in law or accounting standards:
● |
Terminate the award for a cash
payment with a value equal to the
amount that would have been attained upon the exercise of the award or the
realization of the holders rights; |
● |
Provide that the award may be
assumed by the successor or survivor corporation or substituted for by
similar awards, with appropriate
adjustments; |
● |
Adjust the number and type of
shares subject to the award or the terms and conditions of the
award; |
● |
Provide that the award will be
exercisable or payable or fully vested; |
● |
Replace the award with other rights or
property; |
● |
Provide that the award cannot
vest, be exercised or become payable after the event; or |
● |
Refuse to permit the exercise of
any award during a limited period up to
30 days prior to the event. |
The Plan provides for double-trigger
vesting in that if an award continues in effect or is assumed or an equivalent
award substituted in connection with a change in control, and a holder incurs a
termination of service without cause (as defined in the sole discretion of the
administrator, or as set forth in the award
agreement) upon or within 12 months following the change in control, then the
holder will be fully vested in such award.
What will be the duration of the
Plan?
The Plan became effective on March 27,
2017, the date it was adopted by the Board, subject to the approval of
stockholders. The Plan will expire on the tenth anniversary of such date, such
that no award may be granted under the Plan after March 27, 2027.
How can the Plan or awards be
amended?
Amendments to the Plan.
The Board may amend, suspend or terminate the
Plan, but will seek stockholder approval of any amendment that would:
● |
Increase the number of authorized
shares under the Plan (except in
connection with anti-dilution adjustments as discussed above);
or |
● |
Permit underwater stock options
or SARs to be repriced, replaced or exchanged. |
Amendments to Awards. The administrator may amend, modify or terminate any
outstanding award.
No amendment, suspension or termination of
the Plan or amendment of any award may materially and adversely affect the
rights or obligations of a holder without his or her consent.
|
|
Other Information About the
Plan |
Summary of U.S. Federal Income Tax
Consequences
The following summary of tax consequences
to Cognizant and to Plan participants is intended to be used solely by
stockholders in considering how to vote on this proposal and not as tax guidance
to participants in the Plan. It relates only to federal income tax and does not
address state, local or foreign income tax rules or other U.S. tax provisions,
such as estate or gift taxes. Different tax rules may apply to specific
participants and transactions under the Plan, particularly in jurisdictions
outside the United States. In addition, this summary is as of the date of this
proxy statement; federal income tax laws and regulations are frequently revised
and may be changed again at any time. Therefore, each recipient is urged to
consult a tax advisor before exercising any award or before disposing of any
shares acquired under the Plan.
Stock Options and SARs.
The grant of an option or SAR will create no
tax consequences for the participant or the Company. A participant will have no
taxable income upon exercise of an incentive stock option, except that the
alternative minimum tax may apply. Upon exercise of an option other than an
incentive stock option, a participant generally must recognize ordinary income
equal to the fair market value of the shares acquired minus the exercise price.
When disposing of shares acquired by exercise of an incentive stock option
before the end of the applicable incentive stock option holding periods, the
participant generally must recognize ordinary income equal to the lesser of (1)
the fair market value of the shares at the date of exercise minus the exercise
price and (2) the amount realized upon the disposition of the shares minus the
exercise price. Otherwise, a participants disposition of shares acquired upon
the exercise of an option (including an incentive stock option for which the
incentive stock option holding periods are met) generally will result in only
capital gain or loss.
Other Awards.
Other awards under the Plan generally will
result in ordinary income to the participant at the later of the time of
delivery of cash, shares, or other awards, or the time that either the risk of
forfeiture or restriction on transferability lapses on previously delivered
cash, shares or other awards.
Section 409A. Certain types of awards under the Plan may constitute, or
provide for, a deferral of compensation subject to Section 409A of the Code
(Section 409A). Unless certain requirements set forth in Section 409A are
complied with, holders of such awards may be taxed earlier than would otherwise
be the case (e.g., at the time of vesting instead of the time of payment) and
may be subject to an additional 20% penalty tax (and, potentially, certain
interest penalties). To the extent applicable, the Plan and awards granted under
the Plan will be structured and interpreted in a manner that is intended to be
exempt from or comply with Section 409A and the Department of Treasury
regulations and other interpretive guidance that may be issued under Section
409A. In the event the administrator determines that any award may be subject to
Section 409A, the administrator may (but is not obligated to), without a
holders consent, adopt amendments to the Plan and applicable award agreements
or adopt policies and procedures that the administrator determines are necessary
or appropriate to exempt the applicable awards from Section 409A or to comply
with the requirements of Section 409A.
Company Deduction. Except as discussed below, the Company is generally entitled
to a tax deduction equal to the amount recognized as ordinary income by the
participant in connection with options, SARs or other awards, but not for
amounts the participant recognizes as capital gain. Thus, the Company will not
be entitled to any tax deduction with respect to an incentive stock option if
the participant holds the shares for the incentive stock option holding
periods.
Impact of Section 162(m) Deduction
Limitation. The Plan is designed to provide
for awards that are exempt from the requirements of Section 162(m), which
generally provides that income tax deductions of publicly held companies may be
limited to the extent total compensation for certain executive officers exceeds
$1,000,000 in any taxable year of the company, but provides that the deduction
limit will not apply to certain performance-based compensation that is granted
or vests based upon pre-established objective performance goals and is
established by an independent compensation committee and the material terms of
which are adequately disclosed to and approved by stockholders. Cognizant
intends that options, SARs and PSUs granted under the Plan will qualify as
performance-based compensation not subject to a deductibility cap. However, a
number of requirements must
Table of
Contents
be met in order for particular
compensation to so qualify, so there can be no assurance that these types of
compensation under the Plan will be fully deductible under all circumstances. In
addition, other types of compensation provided under the Plan may not qualify as
performance-based compensation under Section 162(m) and therefore may not be
deductible. For more information, see What will be the material terms of the
performance goals for awards intended to qualify under Section 162(m)? on page
43.
Impact of Section 280G Deduction
Limitation. Our ability to obtain a deduction
for payments under the Plan could also be limited by the golden parachute rules
of IRC Section 280G, which prevents the deductibility of certain excess
parachute payments made in connection with a change in control of a
company.
Plan Benefits
New Plan Benefits. Our Directors and executive officers may benefit from the
grant of equity-based awards under the Plan. Grants of stock options and RSUs
that will be awarded to non-employee Directors serving on the Board on the date
of the Annual Meeting are shown in the table below. The number of awards that
our NEOs, other executive officers and other employees may receive under the
Plan will be determined in the discretion of the Compensation Committee in the
future, and the Compensation Committee has not made any determination to make
future grants to any persons under the Plan as of the date of this proxy
statement. Therefore, it is not possible to determine the benefits that will be
received in the future by such participants in the Plan or the benefits that
would have been received by such participants if the Plan had been in effect in
the year ended December 31, 2016.
Name and Position |
|
Dollar Value
of Shares Underlying Options Granted |
|
Dollar Value
of Shares Subject to Stock Awards |
Francisco
DSouza Chief Executive Officer |
|
$0 |
|
$0 |
Rajeev
Mehta President |
|
$0 |
|
$0 |
Gordon J.
Coburn Former President |
|
$0 |
|
$0 |
Karen
McLoughlin Chief Financial Officer |
|
$0 |
|
$0 |
Ramakrishna Prasad
Chintamaneni EVP and President, Global Industries and
Consulting |
|
$0 |
|
$0 |
Dharmendra Kumar
Sinha EVP and President, Global Client Services |
|
$0 |
|
$0 |
All current executive
officers as a group |
|
$0 |
|
$0 |
All current non-employee Directors as
a group 1 |
|
$1,050,000 |
|
$1,050,000 |
All employees except current executive officers as a
group |
|
$0 |
|
$0 |
1 |
At the Annual Meeting, each
non-employee Director will each receive a grant of stock options with a
modified Black-Scholes value (using the assumptions utilized in preparing
the Companys most recent audited financial statements) as of the date of
grant of $105,000 and a grant of RSUs with a fair market value as of the
date of grant of $105,000, unless such member is not elected at the Annual
Meeting. The number of shares subject to such awards will be determined
based on the fair market value of our common stock on the date of grant
and, therefore, is not determinable at this time. Each such option will
have an exercise price per share equal to the fair market value per share
of our common stock on the grant date and a maximum term of seven years
measured from the grant date and will vest ratably, 50% per year on each
of the first two anniversaries of the date of grant, subject to the
Directors continued service on the Board through each applicable vesting
date. Each such RSU award will vest ratably, one-third on each of the
first three anniversaries of the date of grant, subject to the Directors
continuous service on the Board through each applicable vesting
date. |
46 |
Cognizant Technology Solutions
Corporation |
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|
PROPOSAL 5 |
|
RATIFICATION OF
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM |
|
What are you voting
on? |
Our Audit Committee has appointed PricewaterhouseCoopers LLP
(PwC) as the independent registered public accounting firm to audit our
consolidated financial statements and our internal control over financial
reporting for 2017. We are asking our stockholders to ratify this
appointment of PwC. Although ratification is not required by our By-laws
or otherwise, the Board values the opinions of our stockholders and
believes that stockholder ratification of the Audit Committees selection
is a good corporate governance practice. If the selection is not ratified,
the Audit Committee will take this fact into consideration in determining
whether it is appropriate to select another independent auditor for 2017
or future years. Even if the selection is ratified, the Audit Committee
may select a different independent auditor at any time during the year if
it determines that this would be in the best interests of the Company and
its stockholders. |
|
The Board unanimously recommends a vote
FOR the Ratification of the Appointment of
PricewaterhouseCoopers LLP as our Independent Registered Public Accounting
Firm for 2017. |
|
|
Our Auditor Review and
Engagement Process |
The Audit Committee is directly
responsible for the appointment, compensation (including negotiation and
approval of the audit fee), retention and oversight of the independent
registered public accounting firm that audits our financial statements and our
internal control over financial reporting. Our Audit Committee and its
chairperson are directly involved in the selection of the lead audit partner at
the start of each rotation.
To ensure continuing audit
independence:
● |
The Audit Committee periodically
considers whether there should be a change of the accounting firm that is
retained, and considers the advisability and potential impact of selecting
a different accounting firm; |
● |
Neither the accounting firm nor any
of its members is permitted to have any direct or indirect financial
interest in or any connection with us in any capacity other than as our
auditors, providing audit and non-audit related services;
and |
● |
In accordance with SEC rules and PwC
policies, audit partners are subject to rotation requirements to limit the
number of consecutive years an individual partner may provide services to
our Company. For lead and concurring audit partners, the maximum number of
consecutive years of service in that capacity is five
years. |
The members of the Audit Committee and the
Board believe that the continued retention of PwC to serve as the Companys
independent registered public accounting firm is in the best interests of the
Company and its stockholders.
|
|
We Expect
PricewaterhouseCoopers LLP to Attend the 2017 Annual
Meeting |
PwC representatives are expected to attend
the Annual Meeting. They will have an opportunity to make a statement if they
wish and are expected to be available to respond to appropriate questions from
stockholders.
Table of
Contents
AUDIT COMMITTEE REPORT
The Audit Committee has furnished the
following report:
To the Board of Directors of
Cognizant Technology Solutions Corporation:
The Audit Committee of the Board of
Directors acts under a written charter, which is available in the Company
Overview section of the About Cognizant page of the Companys website
located at www.cognizant.com, under the
Corporate Governance tab. The members of the Audit Committee are
independent Directors, as defined in its charter and the rules of The
NASDAQ Stock Market LLC. The Audit Committee held 15 meetings during
2016.
Management is responsible for
establishing and maintaining adequate internal control over financial
reporting. The Companys independent registered public accounting firm
(auditor) is responsible for performing an independent integrated audit
of the Companys annual financial statements and managements assessment
of the effectiveness of the Companys internal control over financial
reporting. The Audit Committee is responsible for providing independent,
objective oversight of these processes.
The Audit Committee has reviewed the
Companys audited financial statements for the fiscal year ended December
31, 2016 and has discussed these financial statements with management and
the Companys auditor. The Audit Committee has also received from, and
discussed with, the Companys auditor various communications that such
auditor is required to provide to the Audit Committee, including the
matters required to be discussed by Statement on Auditing Standards No.
1301, Communications with Audit Committees, as adopted by the Public
Company Accounting Oversight Board (PCAOB), as may be modified or
supplemented.
The Companys auditor also provided
the Audit Committee with formal written statements required by PCAOB Rule
3526 (Communications with Audit Committees Concerning Independence)
describing all relationships between the auditor and the Company,
including the disclosures required by the applicable requirements of the
PCAOB regarding the auditors communications with the Audit Committee
concerning independence. In addition, the Audit Committee discussed with
the auditor its independence from Cognizant Technology Solutions
Corporation. The Audit Committee also considered whether the auditors
provision of certain other non-audit related services to the Company is
compatible with maintaining such firms independence.
Based on its discussions with
management and the auditor, and its review of the representations and
information provided by management and the auditor, the Audit Committee
recommended to the Board of Directors that the audited financial
statements be included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2016.
By the Audit Committee of the Board
of Directors of Cognizant Technology Solutions Corporation
Zein Abdalla Maureen Breakiron-Evans Jonathan Chadwick John
E. Klein Leo S. Mackay, Jr. Thomas M.
Wendel |
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Cognizant Technology Solutions
Corporation |
Table of
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INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FEES AND OTHER MATTERS
The following table summarizes the fees of
PwC, our independent registered public accounting firm, for each of the last two
fiscal years.
Fee
Category |
|
2015 |
|
2016 |
|
Audit Fees |
|
$4,122,200 |
|
$7,681,100 |
|
Audit-Related Fees |
|
$1,575,300 |
|
$3,486,100 |
|
Tax Fees |
|
$1,080,600 |
|
$879,400 |
|
All Other Fees |
|
$335,400 |
|
$238,000 |
|
Total Fees |
|
$7,113,500 |
|
$12,284,600 |
|
Audit Fees
Audit fees consist of fees for the audit
of our consolidated financial statements (including services necessary for
rendering an opinion under Section 404 of the Sarbanes-Oxley Act), the review of
our interim quarterly financial statements and other professional services
provided in connection with statutory and regulatory filings or engagements. The
increase in audit fees from 2015 to 2016 was principally due to increased audit
work in connection with matters that are the subject of the Companys ongoing
internal investigation that is being conducted under the oversight of the Audit
Committee, with the assistance of outside counsel, focused on whether certain
payments relating to Company-owned facilities in India were made improperly and
in possible violation of the U.S. Foreign Corrupt Practices Act and other
applicable laws.
Audit-Related Fees
Audit-related fees consist of fees for
assurance and related services that are reasonably related to the performance of
the audit and the review of our financial statements and which are not reported
under Audit Fees, including financial due diligence services related to
business combinations. These services relate to attest services that
are not required by statute or regulation,
consultations concerning financial accounting and reporting matters, and
independent assessment of controls related to outsourcing services. The increase
in audit-related fees from 2015 to 2016 was principally due to an increase in
financial due diligence services related to the Companys mergers and
acquisitions activities.
Tax Fees
Tax fees comprise fees for a variety of
permissible services relating to tax compliance, tax planning and tax advice.
These services include assistance in complying with local transfer pricing
requirements, assistance with local tax audits and assessments, withholding tax
and indirect tax matters, preparation and filing of local tax returns, and
technical advice relating to local and international tax matters.
All Other Fees
For 2016, other fees primarily relate to
advisory fees for immigration services. For 2015, other fees primarily relate to
advisory fees for immigration and IT security services.
|
|
Audit Committee Pre-Approval
Policy and Procedures |
The Audit Committee has adopted policies
and procedures relating to the approval of all audit and non-audit services that
are to be performed by our independent registered public accounting firm. This
policy generally provides that we will not engage our independent registered
public accounting firm to render audit or non-audit services unless the service
is specifically approved in advance by the Audit Committee or the engagement is
entered into pursuant to one of the pre-approval procedures described
below.
From time to time, the Audit Committee may
pre-approve specified types of services that are expected to be provided to us
by our independent registered public accounting firm during the next 12 months.
Any such pre-approval is detailed as to the particular service or type of
services to be provided.
The Audit Committee has also delegated to
Maureen Breakiron-Evans, the current Audit Committee Chair, the authority to
approve any audit or non-audit services to be provided to us by our independent
registered public accounting firm. Any such approval of services pursuant to
this delegated authority is reported on at the next meeting of the Audit
Committee. During 2015 and 2016, the Audit Committee approved all services
provided to us by PwC that are subject to the pre-approval policies and
procedures described above.
Table of
Contents
|
PROPOSAL 6 |
|
STOCKHOLDER
PROPOSAL REQUESTING THAT THE BOARD TAKE THE STEPS NECESSARY TO ELIMINATE
THE SUPERMAJORITY VOTING PROVISIONS IN THE COMPANYS CERTIFICATE OF
INCORPORATION AND BY-LAWS |
|
What are you voting
on? |
The following stockholder proposal will be voted on at the 2017
Annual Meeting only if properly presented by or on behalf of the
stockholder proponent. We are asking stockholders to vote to approve the
stockholder proposal requesting that the Board take the steps necessary to
eliminate the supermajority voting provisions in the Companys Certificate
of Incorporation and By-laws. |
|
The Board unanimously recommends a vote
FOR this proposal. |
The Company has been advised that John
Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278,
beneficial owner of 100 shares of the Companys common stock, intends to submit
the proposal set forth below at the Annual Meeting.
PROPOSAL 6 SIMPLE MAJORITY
VOTE
RESOLVED, Shareholders request that
our board take each step necessary so that each voting requirement in our
charter and bylaws that calls for a greater than simple majority vote be
eliminated, and replaced by a requirement for a majority of the votes cast
for and against applicable proposals, or a simple majority in compliance
with applicable laws. If necessary this means the closest standard to a
majority of the votes cast for and against such proposals consistent with
applicable laws. It is important that our company take each step necessary
to adopt this proposal topic. It is important that our company take each
step necessary to avoid a failed vote on this proposal topic.
Shareowners are willing to pay a
premium for shares of companies that have excellent corporate governance.
Supermajority voting requirements have been found to be one of 6
entrenching mechanisms that are negatively related to company performance
according to What Matters in Corporate Governance by Lucien Bebchuk,
Alma Cohen and Allen Ferrell of the Harvard Law School. Supermajority
requirements are used to block initiatives supported by most shareowners
but opposed by a status quo management.
This proposal topic won from 74% to
88% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs,
FirstEnergy, McGraw-Hill and Macys. The proponents of these proposals
included Ray T. Chevedden and William Steiner.
Currently a 1%-minority can
frustrate the will of our 66%-shareholder majority. In other words a
1%-minority could have the power to prevent shareholders from improving
our corporate governance.
Please vote to enhance shareholder
value:
Simple Majority Vote - Proposal
6 |
50 |
Cognizant Technology Solutions
Corporation |
Table of
Contents
|
PROPOSAL 7 |
|
STOCKHOLDER
PROPOSAL REGARDING STOCKHOLDER ACTION BY WRITTEN
CONSENT |
|
What are you voting
on? |
The following stockholder proposal will be voted on at the 2017
Annual Meeting only if properly presented by or on behalf of the
stockholder proponent. The Board unanimously recommends a vote AGAINST the
proposal for the reasons set forth following the
proposal. |
|
The
Board unanimously recommends a vote AGAINST this
proposal. |
The Company has been advised that James
McRitchie and Myra K. Young, 9295 Yorkship Court, Elk Grove, California 95758,
beneficial owners of 100 shares of the Companys common stock, intend to submit
the proposal set forth below at the Annual Meeting. Mr. McRitchie and Ms. Young
have delegated John Chevedden to act on their behalf regarding the
proposal.
PROPOSAL 7 RIGHT TO
ACT BY WRITTEN CONSENT
Resolved, Shareholders request that
our board of directors undertake such steps as may be necessary to permit
written consent by shareholders entitled to cast the minimum number of
votes that would be necessary to authorize the action at a meeting at
which all shareholders entitled to vote thereon were present and voting.
This written consent is to be consistent with applicable law and
consistent with giving shareholders the fullest power to act by written
consent consistent with applicable law. This includes shareholder ability
to initiate any topic for written consent consistent with applicable
law.
A shareholder right to act by
written consent and to call a special meeting are two complimentary ways
to bring an important matter to the attention of both management and
shareholders outside the annual meeting cycle. Both are associated with
increased governance quality and shareholder value.
A shareholder right to act by
written consent is one method to equalize our limited provisions for
shareholders to call a special meeting. For instance, it takes 25% of
Cognizant Technology Solutions Corporation shares outstanding to call a
special meeting. Delaware law would allow 10% of shares outstanding to
call a special meeting.
With a requirement of 25%, a
significant percentage of Cognizant shares outstanding could be
disenfranchised from having any voice whatsoever on calling a special
meeting.
This proposal topic won 67% support
at Duke Energy Corp. and majority shareholder support at 13 major
companies in a single year. Hundreds of major companies enable
shareholders to act by written consent.
Our proposal on this topic won 49%
support at Cognizant last year; 1% more this year could put it over the
top.
Please vote FOR our Right to Act by
Written Consent to protect shareholder
value. |
|
|
The Boards Statement of
Opposition |
The Board UNANIMOUSLY recommends that
stockholders vote AGAINST this proposal for the
following reasons:
● |
Written consent can result in an
unfair, secret and unsound process and is unnecessary given the ability of
stockholders to call special meetings.
The Board believes that action by written consent, where there is no open
meeting, disclosure and debate, is an unfair, secretive and unsound
process. Further, implementation of this proposal is unnecessary given the
Companys other governance practices, including the ability of
stockholders to call special meetings. At meetings of stockholders,
stockholders have the opportunity to express views on proposed actions,
participate in deliberations and vote. Such meetings occur at a time and
date announced publicly in advance of the meeting. These and other
provisions ensure that stockholders can raise matters for consideration
and that all stockholders receive notice of, and have an opportunity to
voice concerns about, proposed actions affecting the Company. In contrast,
the proposal would allow a limited group of stockholders to act on
potentially significant matters, without a meeting, without prior notice
to all stockholders, and without an opportunity for fair and open
discussion among stockholders. |
● |
The Companys existing corporate
governance practices and policies already ensure stockholder democracy and
Board accountability. In addition to
providing for stockholders right to call special meetings, the Company
has been responsive to stockholder input and enhanced its governance
practices and policies to further the rights of stockholders and Board
accountability. The Board has shown time and again that when it believes a
particular action requested by a stockholder is in the best interests of
all stockholders, the Board will support that action. For example, the
Board is supporting the other proposal involving the proponent, Proposal
6, requesting that the Board take the steps necessary to eliminate
supermajority voting requirements in the Companys Certificate of
Incorporation and By-laws, because it agrees that this action would
benefit all stockholders. Other recent examples
include: |
|
● |
Stockholder Engagement. We
regularly solicit input from our stockholders and take appropriate actions
where the long-term interests of all our stockholders are best served. For
example, following engagement with Elliott Management and a number of
other large stockholders and in conjunction with an agreement with
Elliott, in 2017 we announced plans to return capital to stockholders and
increase our non-GAAP Operating
Margins. |
Table of
Contents
|
● |
Regular Board Refreshment.
The Board evaluates its composition on an ongoing basis to ensure that it
has the right mix of skills and perspectives. Following the addition of a
new director in each of 2015 and 2016, as part of an agreement reached
with Elliott, two new directors have been added in 2017 to replace two
retiring directors, and an additional director will be added by 2018 to
replace another retiring director. |
|
● |
Proxy Access By-law. In 2016,
the Board adopted a 3/3/25 proxy access By-law provision, with no limit on
the number of stockholders who can work together to reach the 3%
threshold. See Director Nominees via Proxy Access on page
53. |
|
● |
Majority Voting in Director
Elections. The Companys By-laws provide that, in an uncontested
election of directors, a director nominee must receive more for votes
than against votes to be elected. See Majority Voting Standard in
Director Elections on page 16. |
|
● |
Board Declassification. In 2013, the
Board recommended and the stockholders approved an amendment to the
Companys Certificate of Incorporation to declassify the Board. Each of
our directors is now subject to re-election at each annual meeting of
stockholders. |
|
We believe that these and our other
corporate governance practices and policies enable stockholders to act in
support of their interests, while avoiding the risks associated with the
proposal. |
● |
Substantially identical proposals
were rejected by the Companys stockholders in 2013, 2015 and
2016. Substantially the same proposal
has been submitted, considered by the Board and rejected by stockholders
three times, including at the last two annual meetings. The Board
continues to believe that this proposal is not in the best interests of
all stockholders, and urges our stockholders to reject this proposal for
the fourth time. |
52 |
Cognizant Technology Solutions
Corporation |
Table of Contents
STOCKHOLDER PROPOSALS AND NOMINEES FOR
THE 2018 ANNUAL MEETING
SEC rules permit stockholders to submit
proposals for inclusion in our proxy statement if the stockholder and the
proposal meet the requirements specified in Rule 14a-8 under the Exchange Act
(Rule 14a-8).
● |
When to send these
proposals. Any stockholder proposals
submitted in accordance with Rule 14a-8 must be received at our principal
executive offices no later than the close of business on December 21,
2017. |
● |
Where to send these
proposals. Proposals should be sent to
our Corporate Secretary. See Helpful Resources on page
78. |
● |
What to include. Proposals must conform to and include the information
required by Rule 14a-8. |
|
|
Director Nominees via Proxy
Access |
Our By-laws permit a group of stockholders
who have owned a significant amount of the Companys common stock (at least 3%)
for a significant amount of time (at least three years) to submit director
nominees (up to 25% of the Board and in any event not less than two directors)
for inclusion in our proxy statement if the stockholder(s) and the nominee(s)
satisfy the requirements specified in our By-laws.
● |
When to send these
proposals. Notice of director nominees
under these By-law provisions must be received no earlier than November
21, 2017 and no later than the close of business on December 21, 2017. In
the event that the date of the 2018 Annual Meeting is more than 30 days
before or more than 70 days after June 6, 2018, then our Corporate
Secretary must receive such written notice
not earlier than the close of business on the 150th
day prior to the 2018 Annual Meeting
and not later than the close of business on the later of the
120th day prior to the 2018 Annual Meeting or the
10th day following the day on which public announcement of the
date of such meeting is first made by the
Company. |
● |
Where to send these proposals.
Notice should be addressed to our Corporate Secretary. See Helpful
Resources on page 78. |
● |
What to include. Notice must
include the information required by our By-laws, a copy of which is
available upon request to our Corporate Secretary. See Helpful Resources
on page 78. |
|
|
Other Proposals or Director
Nominees |
Our By-laws require that any stockholder
proposal, including a director nomination, that is not submitted for inclusion
in next years proxy statement (either under Rule 14a-8 or our proxy access
By-laws), but is instead sought to be presented directly at such meeting, must
be received by our Corporate Secretary in writing not earlier than the close of
business on the 120th day and not later than the close of business on
the 90th day prior to the anniversary of the preceding years annual
meeting.
● |
When to send these
proposals. Stockholder proposals or
director nominations submitted under these By-law provisions must be
received no earlier than the close of business on February 6, 2018 and no
later than the close of business on March 8, 2018. In the event that the
date of the 2018 Annual Meeting is more than 30 days before or more than 70 days after June 6, 2018, then our
Corporate Secretary must receive any such proposal not earlier than the
close of business on the 120th day prior to the 2018 Annual
Meeting and not later than the close of business of the later of the
90th day prior to the 2018 Annual Meeting or the
10th day following the day on which public announcement of the
date of such meeting is first made by the
Company. |
● |
Where to send these proposals.
Proposals should be sent to our Corporate Secretary. See Helpful
Resources on page 78. |
● |
What to include. Proposals must
include the information required by our By-laws, a copy of which is
available upon request to our Corporate Secretary. See Helpful Resources
on page 78. |
|
|
Management Discretion to Vote
Proxies on These Proposals |
SEC rules permit management to vote
proxies in its discretion in certain cases if the stockholder does not comply
with the above deadlines and, in certain other cases, notwithstanding the
stockholders compliance with these deadlines.
The Company reserves the right to reject,
rule out of order, or take other appropriate action with respect to any proposal
that does not comply with the requirements set forth above or other applicable
requirements.
Table of Contents
PROXY STATEMENT AND
PROXY SOLICITATION
|
|
About this Proxy
Statement |
This proxy statement is furnished in
connection with the solicitation by the Board of proxies to be voted at our
Annual Meeting be held on Tuesday, June 6, 2017, at 9:30 a.m. Eastern Time, at
the Teaneck Marriott at Glenpointe, 100 Frank W. Burr Blvd., Teaneck, New Jersey
07666, and at any continuation, postponement or adjournment thereof. Holders of
record of shares of common stock as of the Record Date will be entitled to
notice of and to vote at the Annual Meeting and any continuation, postponement
or adjournment thereof. As of the Record Date, there were approximately 588,995,145
shares of common stock issued and outstanding and entitled to vote at the Annual
Meeting. Each share of common stock is entitled to one vote on any matter
presented to stockholders at the Annual Meeting.
This proxy statement and the Companys
2016 Annual Report will be released on or about April 20, 2017 to our
stockholders on the Record Date.
|
|
Management Discretion Proposals
and Board Recommendations |
At the Annual Meeting, our stockholders
will be asked to vote on the proposals and other stockholder actions set forth
below. The Board recommends that you vote your shares as indicated below. If you
return a properly completed proxy card, or vote your shares by telephone
or over the Internet, your shares of common
stock will be voted on your behalf as you direct. If not otherwise specified,
the shares of common stock represented by the proxies will be voted in
accordance with the Boards recommendations.
Proposals and Other Stockholder
Actions |
|
Board Recommendation |
|
See Page No. |
1. |
Elect the 11 Director nominees named
in this proxy statement to serve until the 2018 Annual Meeting of
Stockholders; |
|
FOR EACH DIRECTOR
NOMINEE |
|
10 |
2. |
Approve, on an advisory
(non-binding) basis, the Companys executive compensation; |
|
FOR |
|
22 |
3. |
Approve, on an advisory
(non-binding) basis, the frequency of future advisory votes on the
Companys executive compensation; |
|
1
YEAR |
|
22 |
4. |
Approve the 2017 Incentive Award
Plan; |
|
FOR |
|
40 |
5. |
Ratify the appointment of
PricewaterhouseCoopers LLP as the Companys independent registered public
accounting firm for the year ending December 31, 2017; |
|
FOR |
|
47 |
6. |
Consider a stockholder proposal
requesting that the Board take the steps necessary to eliminate the
supermajority voting provisions in the Companys Certificate of
Incorporation and By-laws, if properly presented at the Annual
Meeting; |
|
FOR |
|
50 |
7. |
Consider a stockholder proposal
requesting that the Board take the steps necessary to permit stockholder
action by written consent, if properly presented at the Annual Meeting;
and |
|
AGAINST |
|
51 |
We know of no other business that will be
presented at the Annual Meeting. If any other matter properly comes before the
stockholders for a vote at the Annual Meeting, however, the proxy holders named
on the Companys proxy card will vote your shares in accordance with their best
judgment.
|
|
Additional Information About
This Proxy Statement |
Why You Received
This Proxy Statement
You are viewing or have received these
proxy materials because the Board is soliciting your proxy to vote your shares
at the Annual Meeting. This proxy statement includes information that we are
required to provide to you under SEC rules and that is designed to assist you in
voting your shares.
Notice of Internet
Availability of Proxy Materials
As permitted by SEC rules, Cognizant is
making this proxy statement and its 2016 Annual Report available to certain of
its stockholders electronically via the Internet. On or about April 20, 2017, we
mailed to these stockholders a Notice of Internet Availability of Proxy
Materials (the Internet Notice) containing instructions on how to access this
proxy statement and our 2016 Annual Report and vote online. If you received an Internet Notice by mail, you will not receive a
printed copy of the proxy materials in the mail unless you specifically request
them. Instead, the Internet Notice instructs you on how to access and review all
of the important information contained in this proxy statement and 2016 Annual
Report. The Internet Notice also instructs you on how you may submit your proxy
over the Internet. If you received an Internet Notice by mail and would like to
receive a printed copy of our proxy materials, you should follow the
instructions for requesting such materials contained on the Internet
Notice.
Printed Copies of
Our Proxy Materials
Some of our stockholders received printed
copies of our proxy statement, 2016 Annual Report and proxy card. If you
received printed copies of our proxy materials, then instructions regarding how
you can vote are contained on the proxy card included in the
materials.
54 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Householding
The SECs rules permit us to deliver a
single Internet Notice or set of proxy materials to one address shared by two or
more of our stockholders. This delivery method is referred to as householding
and can result in significant cost savings. To take advantage of this
opportunity, we have delivered only one Internet Notice or one set of proxy
materials to multiple stockholders who share an address, unless we received
contrary instructions from the impacted stockholders prior to the mailing date.
We agree to deliver promptly, upon written or oral request, a separate copy of
the Internet Notice or proxy materials, as requested, to any stockholder at the
shared address to which a single copy of those documents was delivered. If you
prefer to receive separate copies of the Internet Notice or proxy materials,
contact Broadridge Financial Solutions, Inc. (Broadridge) at 800-542-1061 or
in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood,
New York 11717.
If you are currently a stockholder sharing
an address with another stockholder and wish to receive only one copy of future
Internet Notices or proxy materials for your household, please contact
Broadridge at the above phone number or address.
The accompanying proxy is solicited by and
on behalf of the Board, whose Notice of Annual Meeting is included with this
proxy statement, and the entire cost of such solicitation will be borne by us.
In addition to the use of mail, proxies may be solicited by personal interview,
telephone, e-mail and facsimile by our Directors, officers and other employees
who will not be specially compensated for these services. We have engaged
Innisfree M&A Incorporated, to assist us with the solicitation of
proxies.
We expect to pay Innisfree a fee of
$25,000 plus reimbursement for out-of-pocket expenses for its services. We will
also request that brokers, nominees, custodians and other fiduciaries forward
soliciting materials to the beneficial owners of shares held by such brokers,
nominees, custodians and other fiduciaries. We will reimburse such persons for
their reasonable expenses in connection therewith.
ANNUAL MEETING
Q&A
|
|
Questions and Answers About the
2017 Annual Meeting |
Who is entitled to
vote at the Annual Meeting?
The Record Date for the Annual Meeting is
April 10, 2017. You are entitled to vote at the Annual Meeting only if you were
a stockholder of record at the close of business on that date, or if you hold a
valid proxy for the Annual Meeting. The only class of stock entitled to be voted
at the Annual Meeting is our common stock. Each outstanding share of common
stock is entitled to one vote for all matters before the Annual Meeting. At the
close of business on the Record Date, there were 588,995,145 shares of common
stock issued and outstanding and entitled to vote at the Annual
Meeting.
What is the
difference between being a record holder and holding shares in street
name?
A record holder holds shares in his or her
name. Shares held in street name means shares that are held in the name of a
bank or broker on a persons behalf.
Am I entitled to
vote if my shares are held in street name?
Yes. If your shares are held by a bank or
a brokerage firm, you are considered the beneficial owner of those shares held
in street name. If your shares are held in street name, these proxy materials
are being provided to you by your bank or brokerage firm, along with a voting
instruction card if you received printed copies of our proxy materials. As the
beneficial owner, you have the right to direct your bank or brokerage firm how
to vote your shares, and the bank or brokerage firm is required to vote your
shares in accordance with your instructions. If your shares are held in street
name, you may not vote your shares in person at the Annual Meeting unless you
obtain a legal proxy from your bank or brokerage firm.
How many shares
must be present to hold the Annual Meeting?
A quorum must be present at the Annual
Meeting for any business to be conducted. The presence at the Annual Meeting, in
person or by proxy, of the holders of a majority of the shares of common stock
outstanding on the Record Date will constitute a quorum.
Who can attend the
Annual Meeting of Stockholders?
You may attend the Annual Meeting only if
you are a Cognizant stockholder who is entitled to vote at the Annual Meeting,
or if you hold a valid proxy for the Annual Meeting. If you plan to attend the
Annual Meeting, you must call the Companys investor relations staff at
201-498-8840 or email David.Nelson@cognizant.com no later
than 5:00 p.m. Eastern Time on June 5, 2017 to have your name placed on the
attendance list. In order to be admitted into the Annual Meeting, your name must
appear on the attendance list and you must present government-issued photo
identification (such as a drivers license). If your bank or broker holds your
shares in street name, you will also be required to present proof of beneficial
ownership of our common stock on the Record Date, such as the Internet Notice
you received from your bank or broker, a bank or brokerage statement, or a
letter from your bank or broker showing that you owned shares of our common
stock at the close of business on the Record Date.
What if a quorum is
not present at the Annual Meeting?
If a quorum is not present at the
scheduled time of the Annual Meeting, a majority of the outstanding shares
represented at the Annual Meeting, by proxy or in person, and entitled to vote
may adjourn the Annual Meeting.
What does it mean
if I receive more than one Internet Notice or more than one set of proxy
materials?
It means that your shares are held in more
than one account at the transfer agent and/or with banks or brokers. Please vote
all of your shares. To ensure that all of your shares are voted, for each
Internet Notice or set of proxy materials, please submit your proxy by phone,
via the Internet, or, if you received printed copies of the proxy materials, by
signing, dating and returning the enclosed proxy card in the enclosed
envelope.
Table of Contents
How do I
vote?
We recommend that stockholders vote by
proxy even if they plan to attend the Annual Meeting and vote in person. If you
are a stockholder of record, there are three ways to vote by proxy:
● |
by telephoneYou can vote by
telephone by calling 800-690-6903 and following the instructions on the
proxy card; |
● |
by InternetYou can vote over the
Internet at www.proxyvote.com
by following the instructions on the Internet
Notice or proxy card; or |
● |
by mailYou can vote by mail by
signing, dating and mailing the proxy card, which you may have received by
mail. |
Telephone and Internet voting facilities
for stockholders of record will be available 24 hours a day and will close at
11:59 p.m. Eastern Time on June 5, 2017.
If your shares are held in street name
through a bank or broker, you will receive instructions on how to vote from the
bank or broker. You must follow their instructions in order for your shares to
be voted. Telephone and Internet voting also will be offered to stockholders
owning shares through certain banks and brokers. If your shares are not
registered in your own name and you would like to vote your shares in person at
the Annual Meeting, you should contact your bank or broker to obtain a legal
proxy and bring it to the Annual Meeting in order to vote.
Can I change my
vote after I submit my proxy?
Yes. If you are a registered stockholder,
you may revoke your proxy and change your vote:
● |
by submitting a duly executed proxy
bearing a later date; |
● |
by granting a subsequent proxy
through the Internet or telephone;
|
● |
by giving written notice of
revocation to the Corporate Secretary of Cognizant prior to or at the
Annual Meeting; or |
● |
by voting in person at the Annual
Meeting. |
Your most recent proxy card or telephone
or Internet proxy is the one that is counted. Your attendance at the Annual
Meeting itself will not revoke your proxy unless you give written notice of
revocation to the Corporate Secretary before your proxy is voted or you vote in
person at the Annual Meeting.
If your shares are held in street name,
you may change or revoke your voting instructions by following the specific
directions provided to you by your bank or broker, or you may vote in person at
the Annual Meeting by obtaining a legal proxy from your bank or broker and
submitting the legal proxy along with your ballot.
Whom should I
contact if I have questions or need assistance voting?
Please contact Innisfree M&A
Incorporated, our proxy solicitor assisting us in connection with the Annual
Meeting. Stockholders may call toll free at 888-750-5834. Banks and brokers may
call collect at 212-750-5833.
Who will count the
votes?
Representatives of Broadridge Financial
Solutions, Inc., our inspector of election, will tabulate and certify the
votes.
What if I do not
specify how my shares are to be voted?
If you submit a proxy but do not indicate
any voting instructions, the persons named as proxies will vote in accordance
with the recommendations of the Board. The Boards recommendations for each
proposal are set forth on page 54, as well as with the description of each
proposal in this proxy statement.
Will any other
business be conducted at the Annual Meeting?
We know of no other business that will be
presented at the Annual Meeting. If any other matter properly comes before the
stockholders for a vote at the Annual Meeting, however, the proxy holders named
on the Companys proxy card will vote your shares in accordance with their best
judgment.
How many votes are
required for the approval of the proposals to be voted upon and how will
abstentions and broker non-votes be treated?
Proposal |
|
Votes required |
|
Effect of Abstentions and Broker
Non-Votes |
Proposal 1: Election of
Directors 1 |
|
Votes cast for exceed votes cast
against. |
|
No effect. |
Proposal 2: Advisory
(Non-Binding) Vote on Executive Compensation (Say-on-Pay) |
|
Majority of votes
cast. |
|
No effect. |
Proposal 3: Advisory
(Non-Binding) Vote on Frequency of Advisory (Non-Binding) Vote on
Executive Compensation |
|
Majority of votes cast. If no
frequency receives the foregoing vote, then we will consider the frequency
that receives the highest number of votes cast to be the frequency
recommended by stockholders. |
|
No effect. |
Proposal 4: Approval of 2017
Incentive Award Plan |
|
Majority of votes
cast. |
|
No effect. |
Proposal 5: Ratification of
Appointment of Independent Registered Public Accounting Firm |
|
Majority of votes
cast. |
|
Abstentions will have no effect; no
broker non-votes expected. |
Proposal 6: Stockholder
Proposal Regarding Elimination of Supermajority Voting Provisions in the
Companys Certificate of Incorporation and By-laws |
|
Majority of votes
cast. |
|
No effect. |
Proposal 7: Stockholder
Proposal Regarding Stockholder Action by Written Consent |
|
Majority of votes
cast. |
|
No
effect. |
1 |
There are 11 Director nominees
named in Proposal 1. Proxies cannot be voted for a greater number of
persons than the number of nominees named in this
proposal. |
56 |
Cognizant Technology Solutions
Corporation |
Table of Contents
What is an abstention and how will
abstentions be treated?
An abstention represents a stockholders
affirmative choice to decline to vote on a proposal. Abstentions are counted as
present and entitled to vote for purposes of determining a quorum. Shares voting
abstain have no effect on any of the proposals before the Annual
Meeting.
What are broker non-votes and do they
count for determining a quorum?
Generally, broker non-votes occur when
shares held by a broker in street name for a beneficial owner are not voted
with respect to a particular proposal because the broker (1) has not received
voting instructions from the beneficial owner and (2) lacks discretionary voting
power to vote those shares. A broker is entitled to vote shares held for a
beneficial owner on routine matters, such as the ratification of the appointment
of PwC as our independent registered public accounting firm, without
instructions from the beneficial owner of those shares. On the other hand, absent
instructions from the beneficial owner of such shares, we expect that a broker
will not be entitled to vote shares held for a beneficial owner on all of the
other proposals to be voted on at the Annual Meeting. Broker non-votes count for
purposes of determining whether a quorum is present.
Where can I find the voting results of
the Annual Meeting of Stockholders?
We plan to announce preliminary voting
results at the Annual Meeting and we will report the final results in a Current
Report on Form 8-K, which we intend to file with the SEC shortly after the
Annual Meeting.
Where do I direct requests for
materials mentioned in this proxy statement and how do I contact Cognizants
Corporate secretary?
Please direct requests for materials
mentioned in this proxy statement or other inquiries to our Corporate Secretary.
See Helpful Resources on page 78 for how to contact our Corporate
Secretary.
|
|
Other Matters at the 2017 Annual
Meeting |
The Board is not aware of any matter to be
presented for action at the Annual Meeting other than the matters referred to
above and does not intend to bring any other matters before the Annual Meeting.
However, if other matters should come before the Annual Meeting, it is intended
that holders of the proxies will vote thereon in their discretion.
COGNIZANTS ANNUAL REPORT ON FORM
10-K
A copy of Cognizants Annual Report on
Form 10-K for the fiscal year ended December 31, 2016, including financial
statements and schedules thereto but not including exhibits, as filed with the
SEC, will be sent to any stockholder of record on April 10, 2017, without
charge, upon written request addressed to our Corporate Secretary. A reasonable
fee will be charged for copies of exhibits. You
also may access this proxy statement and our Annual Report on Form 10-K at
www.proxyvote.com. Our Annual Report on Form 10-K for the year ended December 31, 2016 is
also available at www.cognizant.com.
NON-GAAP FINANCIAL MEASURES AND
FORWARD-LOOKING STATEMENTS
|
|
Non-GAAP Financial
Measures |
Portions of our disclosure, including the
table under Reconciliation to GAAP Financial Measures, include non-GAAP Income
from Operations, non-GAAP Operating Margin, and non-GAAP EPS. These non-GAAP
financial measures are not based on any comprehensive set of accounting rules or
principles and should not be considered a substitute for, or superior to,
financial measures calculated in accordance with GAAP, and may be different from
non-GAAP measures used by other companies. In addition, these non-GAAP measures
should be read in conjunction with our financial statements prepared in
accordance with GAAP. The reconciliations of Cognizants non-GAAP financial
measures to the corresponding GAAP measures should be carefully evaluated.
Our
non-GAAP Income from Operations and non-GAAP Operating Margin exclude
stock-based compensation expense and acquisition-related charges. Our definition
of non-GAAP EPS excludes net non-operating foreign currency exchange gains or
losses and, for the year ended December 31, 2016, the impact of a one-time
incremental income tax expense related to our principal operating subsidiary in
India repurchasing its shares from its shareholders, which are non-Indian
Cognizant entities, valued at $2.8 billion (the India Cash Remittance), in
addition to excluding stock-based compensation expense and acquisition-related
charges. Our non-GAAP EPS is additionally adjusted for the income tax impact of
the above items, as applicable. The income tax impact of each item is calculated
by applying the statutory rate and local tax regulations in the jurisdiction in
which the item was incurred.
We believe providing investors with an
operating view consistent with how we manage the Company provides enhanced
transparency into the operating results of the Company. For our internal
management reporting and budgeting purposes, we use non-GAAP financial
information that does not include, as applicable, stock-based compensation
expense, acquisition-related charges, net non-operating foreign currency
exchange gains or losses, and the impact of a one-time incremental income tax
expense related to the India Cash Remittance for financial and operational
decision making, to evaluate period-to-period comparisons, to determine portions
of the compensation for our executive officers and for making comparisons of our
operating results to those of our competitors. Therefore, it is our belief that
the use of non-GAAP financial measures excluding these costs provides a
meaningful supplemental measure for investors to evaluate our financial
performance. Accordingly, we believe that the presentation of non-GAAP Income
from Operations, non-GAAP Operating Margin and non-GAAP EPS, when read in
conjunction with our reported GAAP results, can provide useful supplemental
information to our management and investors regarding financial and business
trends relating to our financial condition and results of operations.
Table of Contents
A limitation of using non-GAAP financial
measures versus financial measures calculated in accordance with GAAP is that
non-GAAP measures do not reflect all of the amounts associated with our
operating results as determined in accordance with GAAP and exclude costs that
are recurring, namely stock-based compensation expense, certain
acquisition-related charges, and net non-operating foreign currency exchange
gains or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby
limiting the usefulness of these non-GAAP financial measures as a comparative
tool. We compensate for these limitations by providing specific information
regarding the GAAP amounts excluded from non-GAAP Income from Operations,
non-GAAP Operating Margin and non-GAAP EPS to allow investors to evaluate such
non-GAAP financial measures.
|
|
Reconciliation to GAAP Financial
Measures |
The following table presents a
reconciliation of each non-GAAP financial measure to the most comparable GAAP
measure for the years ended December 31.
($ in millions, except per share
data) |
|
2014 |
|
% of Revenue |
|
2015 |
|
% of Revenue |
|
2016 |
|
%
of Revenue |
GAAP income from operations and operating
margin |
|
$1,885 |
|
|
18.4% |
|
|
$2,142 |
|
|
17.3% |
|
|
$2,289 |
|
|
17.0% |
|
Add:
Stock-based compensation expense |
|
$135 |
|
|
1.3% |
|
|
$192 |
|
|
1.5% |
|
|
$217 |
|
|
1.6% |
|
Add: Acquisition-related
charges 1 |
|
$48 |
|
|
0.5% |
|
|
$116 |
|
|
0.9% |
|
|
$130 |
|
|
0.9% |
|
Non-GAAP Income from Operations and non-GAAP Operating
Margin |
|
$2,068 |
|
|
20.2% |
|
|
$2,450 |
|
|
19.7% |
|
|
$2,636 |
|
|
19.5% |
|
|
GAAP diluted earnings per share |
|
$2.35 |
|
|
|
|
|
$2.65 |
|
|
|
|
|
$2.55 |
|
|
|
|
Effect of above operating
adjustments, net of tax 2 |
|
$0.23 |
|
|
|
|
|
$0.35 |
|
|
|
|
|
$0.41 |
|
|
|
|
Effect of
non-operating foreign currency exchange losses, net of tax
3 |
|
$0.02 |
|
|
|
|
|
$0.07 |
|
|
|
|
|
$0.04 |
|
|
|
|
Effect of incremental
income tax expense related to the India Cash Remittance 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.39 |
|
|
|
|
Non-GAAP diluted earnings per
share |
|
$2.60 |
|
|
|
|
|
$3.07 |
|
|
|
|
|
$3.39 |
|
|
|
|
1 |
|
Acquisition-related charges
include, when applicable: amortization of intangible assets included in
the depreciation and amortization expense line on our consolidated
statements of operations, external deal costs, acquisition-related
retention payments, integration costs, changes in the fair value of
contingent consideration liabilities, charges for impairment of acquired
intangible assets and other acquisition-related costs. |
2 |
|
The non-GAAP income tax benefits
related to stock-based compensation expense were $31 million, $46 million
and $49 million for the years ended December 31, 2014, 2015, and 2016,
respectively. The non-GAAP income tax benefits related to
acquisition-related charges were $13 million, $43 million and $46 million
for the years ended December 31, 2014, 2015 and 2016,
respectively. |
3 |
|
Non-operating foreign currency
exchange gains and losses are inclusive of gains and losses on related
foreign exchange forward contracts not designated as hedging instruments
for accounting purposes. The non-GAAP pre-tax non-operating foreign
currency exchange losses were $20 million, $43 million and $30 million for
the years ended December 31, 2014, 2015 and 2016, respectively, with
related non-GAAP tax benefits of $4 million, $2 million and $5 million,
respectively. The effective tax rate related to the reported non-operating
foreign currency exchange gains and losses varies depending on the
jurisdictions in which such gains and losses are generated and the
statutory rates applicable in those jurisdictions. |
4 |
|
In May 2016, our principal
operating subsidiary in India repurchased shares from its shareholders,
which are non-Indian Cognizant entities, valued at $2.8 billion. As a
result of this transaction, we incurred an incremental 2016 income tax
expense of $238 million. |
|
|
Forward-Looking
Statements |
This proxy statement, and the letter to
stockholders included with this proxy statement, include statements that may
constitute forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, including,
but not limited to, expectations regarding growth trends and enhancing
stockholder value, plans to accelerate our investments and improve non-GAAP
Operating Margin, and anticipated share repurchases and dividends, the accuracy
of which are necessarily subject to risks, uncertainties, and assumptions as to
future events that may not prove to be accurate. These statements are neither
promises nor guarantees, but are subject to a variety of risks and
uncertainties, many of which are beyond the Companys control, which could cause
actual results to differ materially from those contemplated in these
forward-looking statements. Existing and prospective investors are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. Factors that could cause actual results to differ materially
from those expressed or implied include general economic conditions, changes in
the regulatory environment, including with respect to immigration and taxes, and
the other factors discussed in the Companys most recent Annual Report on Form
10-K and other filings with the SEC. The Company undertakes no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise, except as may be required under
applicable securities law.
58 |
Cognizant Technology Solutions
Corporation |
Table of Contents
COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION
2017 INCENTIVE AWARD PLAN
ARTICLE 1.
PURPOSE
The purpose of the Cognizant Technology
Solutions 2017 Incentive Award Plan (as it may be amended or restated from time
to time, the Plan) is to promote the success and enhance the value of
Cognizant Technology Solutions Corporation (the Company) by linking the
individual interests of the members of the Board, Employees, and Consultants to
those of Company stockholders and by providing such individuals with an
incentive for outstanding performance to generate superior returns to Company
stockholders. The Plan is further intended to provide flexibility to the Company
in its ability to motivate, attract, and retain the services of members of the
Board, Employees, and Consultants upon whose judgment, interest, and special
effort the successful conduct of the Companys operation is largely
dependent.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in
the Plan they shall have the meanings specified below, unless the context
clearly indicates otherwise. The singular pronoun shall include the plural where
the context so indicates.
2.1 |
Administrator shall mean the entity that conducts the
general administration of the Plan as provided in Article 12. With
reference to the duties of the Committee under the Plan which have been
delegated to one or more persons pursuant to Section 12.6, or as to which
the Board has assumed, the term Administrator shall refer to such
person(s) unless the Committee or the Board has revoked such delegation or
the Board has terminated the assumption of such duties. |
|
2.2 |
Applicable Accounting Standards shall mean Generally
Accepted Accounting Principles in the United States, International
Financial Reporting Standards or such other accounting principles or
standards as may apply to the Companys financial statements under United
States federal securities laws from time to time. |
|
2.3 |
Applicable Law shall mean any applicable law,
including without limitation: (a) provisions of the Code, the Securities
Act, the Exchange Act and any rules or regulations thereunder; (b)
corporate, securities, tax or other laws, statutes, rules, requirements or
regulations, whether federal, state, local or foreign; and (c) rules of
any securities exchange or automated quotation system on which the Shares
are listed, quoted or traded. |
|
2.4 |
Automatic Exercise Date shall mean, with respect to an
Option or a Stock Appreciation Right, the last business day of the
applicable Option Term or Stock Appreciation Right Term that was initially
established by the Administrator for such Option or Stock Appreciation
Right (e.g., the last business day prior to the tenth anniversary of the date of
grant of such Option or Stock Appreciation Right if the Option or Stock
Appreciation Right initially had a ten-year Option Term or Stock
Appreciation Right Term, as applicable). |
|
2.5 |
Award shall mean an Option, a Stock Appreciation
Right, a Restricted Stock award, a Restricted Stock Unit award, an Other
Stock or Cash Based Award or a Dividend Equivalent award, which may be
awarded or granted under the Plan. |
|
2.6 |
Award Agreement shall mean any written notice,
agreement, terms and conditions, contract or other instrument or document
evidencing an Award, including through electronic medium, which shall
contain such terms and conditions with respect to an Award as the
Administrator shall determine consistent with the Plan. |
|
|
2.7 |
Award Limit shall mean with
respect to Awards that shall be payable in Shares or in cash, as the case
may be, the respective limit set forth in Section 3.2. |
|
|
2.8 |
Board shall mean the Board of
Directors of the Company. |
|
2.9 |
Change in Control shall mean and
includes each of the following: |
|
|
|
|
(a) |
A transaction or series of
transactions (other than an offering of Common Stock to the general public
through a registration statement filed with the Securities and Exchange
Commission) whereby any person or related group of persons (as such
terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act)
directly or indirectly acquires beneficial ownership (within the meaning
of Rules 13d-3 and 13d-5 under the Exchange Act) of securities of the
Company possessing more than 35% of the total combined voting power of the
Companys securities outstanding immediately after such acquisition;
provided, however, that the following acquisitions shall not constitute a
Change in Control: (i) any acquisition by the Company or any of its
Subsidiaries; (ii) any acquisition by an employee benefit plan maintained
by the Company or any of its Subsidiaries, (iii) any acquisition which
complies with Sections 2.9(c)(i), 2.9(c)(ii) and 2.9(c)(iii); or (iv) in
respect of an Award held by a particular Holder, any acquisition by the
Holder or any group of persons including the Holder (or any entity
controlled by the Holder or any group of persons including the Holder);
or |
|
|
(b) |
The Incumbent Directors cease for
any reason to constitute a majority of the Board; |
|
|
(c) |
The consummation by the Company
(whether directly involving the Company or indirectly involving the
Company through one or more intermediaries) of (x) a merger,
consolidation, reorganization, or business combination, (y) a sale or
other disposition of all or substantially all of the Companys assets in
any single transaction or series of related transactions or (z) the
acquisition of assets or stock of another entity, in each case other than
a transaction: |
|
|
|
|
|
|
(i) |
which results in the Companys voting securities
outstanding immediately before the transaction continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the Company or the person that, as a result of the
transaction, controls, directly or indirectly, the Company or owns,
directly or indirectly, all or substantially all of the Companys assets
or otherwise succeeds to the business of the Company (the Company or such
person, the Successor Entity)) directly or indirectly, at least a
majority of the combined voting power of the Successor Entitys
outstanding voting securities immediately after the transaction,
and |
Table of Contents
|
|
(ii) |
after which no person or group
beneficially owns voting securities representing 50% or more of the
combined voting power of the Successor Entity; provided, however, that no
person or group shall be treated for purposes of this Section 2.9(c)(ii)
as beneficially owning 50% or more of the combined voting power of the
Successor Entity solely as a result of the voting power held in the
Company prior to the consummation of the transaction; and |
|
|
|
|
|
|
(iii) |
after which at least a majority
of the members of the board of directors (or the analogous governing body)
of the Successor Entity were Board members at the time of the Boards
approval of the execution of the initial agreement providing for such
transaction; or |
|
|
(d) |
Consummation of a completion of a liquidation or dissolution of the
Company. |
|
|
|
|
Notwithstanding the foregoing, if a Change in Control constitutes a
payment event with respect to any Award (or any portion of an Award) that
provides for the deferral of compensation that is subject to Section 409A,
to the extent required to avoid the imposition of additional taxes under
Section 409A, the transaction or event described in subsection (a), (b),
(c) or (d) with respect to such Award (or portion thereof) shall only
constitute a Change in Control for purposes of the payment timing of such
Award if such transaction also constitutes a change in control event, as
defined in Treasury Regulation Section 1.409A-3(i)(5). |
|
|
The Board
shall have full and final authority, which shall be exercised in its sole
discretion, to determine conclusively whether a Change in Control has
occurred pursuant to the above definition, the date of the occurrence of
such Change in Control and any incidental matters relating thereto;
provided that any exercise of authority in conjunction with a
determination of whether a Change in Control is a change in control
event as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be
consistent with such regulation. |
|
2.10 |
Code
shall mean the Internal Revenue Code of 1986, as amended from time to
time, together with the regulations and official guidance promulgated
thereunder, whether issued prior or subsequent to the grant of any
Award. |
|
|
2.11 |
Committee shall mean the Compensation Committee of the Board, or
another committee or subcommittee of the Board or the Compensation
Committee of the Board described in Article 12 hereof. |
|
2.12 |
Common
Stock shall mean the Class A common stock of the Company, par value $0.01
per share. |
|
2.13 |
Company
shall have the meaning set forth in Article 1. |
|
2.14 |
Consultant shall mean any consultant or adviser engaged to
provide services to the Company or any Subsidiary who qualifies as a
consultant or advisor under the applicable rules of the Securities and
Exchange Commission for registration of shares on a Form S-8 Registration
Statement. |
|
2.15 |
Covered
Employee shall mean any Employee who is, or could become, a covered
employee within the meaning of Section 162(m) of the Code. |
|
2.16 |
Director shall mean a member of the Board, as constituted from
time to time. |
|
2.17 |
Director
Limit shall have the meaning set forth in Section 4.6. |
|
2.18 |
Dividend
Equivalent shall mean a right to receive the equivalent value (in cash or
Shares) of dividends paid on Shares, awarded under Section
10.2. |
|
2.19 |
DRO shall mean a
domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended from time to
time, or the rules thereunder. |
|
|
2.20 |
Effective Date shall
mean the date the Plan is adopted by the Board, subject to approval of the
Plan by the Companys stockholders. |
|
2.21 |
Eligible Individual
shall mean any person who is an Employee, a Consultant or a Non-Employee
Director, as determined by the Administrator. |
|
2.22 |
Employee shall mean
any officer or other employee (as determined in accordance with Section
3401(c) of the Code and the Treasury Regulations thereunder) of the
Company or of any Subsidiary. |
|
2.23 |
Equity Restructuring
shall mean a nonreciprocal transaction between the Company and its
stockholders, such as a stock dividend, stock split, spin-off, rights
offering or recapitalization through a large, nonrecurring cash dividend,
that affects the number or kind of Shares (or other securities of the
Company) or the share price of Common Stock (or other securities) and
causes a change in the per-share value of the Common Stock underlying
outstanding Awards. |
|
2.24 |
Exchange Act shall
mean the Securities Exchange Act of 1934, as amended from time to
time. |
|
2.25 |
Expiration Date shall
have the meaning given to such term in Section 13.1(c). |
|
2.26 |
Fair Market Value
shall mean, as of any given date, the value of a Share determined as
follows: |
|
|
|
|
(a) |
If the Common Stock is (i) listed
on any established securities exchange (such as the New York Stock
Exchange, the NASDAQ Capital Market, the NASDAQ Global Market and the
NASDAQ Global Select Market), (ii) listed on any national market system or
(iii) quoted or traded on any automated quotation system, its Fair Market
Value shall be the closing sales price for a Share as quoted on such
exchange or system for such date or, if there is no closing sales price
for a Share on the date in question, the closing sales price for a Share
on the last preceding date for which such quotation exists, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable; |
|
|
(b) |
If the Common Stock is not listed
on an established securities exchange, national market system or automated
quotation system, but the Common Stock is regularly quoted by a recognized
securities dealer, its Fair Market Value shall be the mean of the high bid
and low asked prices for such date or, if there are no high bid and low
asked prices for a Share on such date, the high bid and low asked prices
for a Share on the last preceding date for which such information exists,
as reported in The Wall Street Journal
or such other source as the
Administrator deems reliable; or |
|
|
(c) |
If the Common Stock is neither
listed on an established securities exchange, national market system or
automated quotation system nor regularly quoted by a recognized securities
dealer, its Fair Market Value shall be established by the Administrator in
good faith. |
|
2.27 |
Full Value Award
shall mean any Award that is settled in Shares other than: (a) an Option,
(b) a Stock Appreciation Right or (c) any other Award for which the Holder
pays the intrinsic value existing as of the date of grant (whether
directly or by forgoing a right to receive a payment from the Company or
any Subsidiary). |
60 |
Cognizant Technology Solutions
Corporation |
Table of Contents
2.28 |
Greater Than 10% Stockholder shall mean an
individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock
of the Company or any subsidiary corporation (as defined in Section 424(f)
of the Code) or parent corporation thereof (as defined in Section 424(e)
of the Code). |
|
|
2.29 |
Holder shall mean a person who has been granted
an Award. |
|
2.30 |
Incentive Stock Option shall mean an Option that is
intended to qualify as an incentive stock option and conforms to the
applicable provisions of Section 422 of the Code. |
|
2.31 |
Incumbent Directors shall mean for any period of 12
consecutive months, individuals who, at the beginning of such period,
constitute the Board together with any new Director(s) (other than a
Director designated by a person who shall have entered into an agreement
with the Company to effect a transaction described in Section 2.9(a) or
2.9(c)) whose election or nomination for election to the Board was
approved by a vote of at least a majority (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for Director without objection to such nomination) of
the Directors then still in office who either were Directors at the
beginning of the 12-month period or whose election or nomination for
election was previously so approved. No individual initially elected or
nominated as a director of the Company as a result of an actual or
threatened election contest with respect to Directors or as a result of
any other actual or threatened solicitation of proxies by or on behalf of
any person other than the Board shall be an Incumbent
Director. |
|
2.32 |
Non-Employee Director shall mean a Director of the
Company who is not an Employee. |
|
2.33 |
Non-Employee Director Equity Compensation Policy shall
have the meaning set forth in Section 4.6. |
|
2.34 |
Non-Qualified Stock Option shall mean an Option that
is not an Incentive Stock Option or which is designated as an Incentive
Stock Option but does not meet the applicable requirements of Section 422
of the Code. |
|
2.35 |
Option shall mean a right to purchase Shares at a
specified exercise price, granted under Article 6. An Option shall be
either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Non-Employee Directors and
Consultants shall only be Non-Qualified Stock Options. |
|
2.36 |
Option Term shall have the meaning set forth in
Section 6.4. |
|
2.37 |
Organizational Documents shall mean, collectively, (a)
the Companys articles of incorporation, certificate of incorporation,
bylaws or other similar organizational documents relating to the creation
and governance of the Company, and (b) the Committees charter or other
similar organizational documentation relating to the creation and
governance of the Committee. |
|
2.38 |
Other Stock or Cash Based Award shall mean a cash
payment, cash bonus award, stock payment, stock bonus award, performance
award or incentive award that is paid in cash, Shares or a combination of
both, awarded under Section 10.1, which may include, without limitation,
deferred stock, deferred stock units, retainers, committee fees, and
meeting-based fees. |
|
2.39 |
Performance-Based Compensation shall mean any
compensation that is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the
Code. |
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2.40 |
Performance Criteria shall mean the criteria (and
adjustments) that the Administrator selects for an Award for purposes of
establishing the Performance Goal or Performance Goals for a Performance
Period, determined as follows: |
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(a) |
The Performance Criteria that shall
be used to establish Performance Goals are limited to the following: (i)
revenue or revenue growth, (ii) operating or net income, (iii) operating
or net income before acquisition related charges, net non-operating
foreign currency exchange gains or losses and/or charges for stock-based
compensation and any taxes or fringe benefits incurred by the Company in
settlement of stock-based awards, (iv) operating or net income before
interest, taxes, depreciation, amortization and/or charges for stock-based
compensation and any taxes or fringe benefits incurred by the Company in
settlement of stock-based-awards, (v) gross, operating or net profit
margin, (vi) gross, operating or net profit margin before acquisition
related charges, net non-operating foreign currency exchange gains or
losses and/or charges for stock-based compensation and any taxes or fringe
benefits incurred by the Company in settlement of stock-based awards,
(vii) earnings per share, either before or after acquisition related
charges, net non-operating foreign currency exchange gains or losses
and/or charges for stock-based compensation and any taxes or fringe
benefits incurred by the Company in settlement of stock-based awards,
(viii) return on assets, capital or stockholder equity, (ix) total
stockholder return, (x) cash flow, (xi) measures in terms of days sales
outstanding or accounts receivable outstanding, (xii) working capital,
(xiii) market share, (xiv) increases in customer base, (xv) cost
reductions or other expense control objectives, (xvi) market price of the
Common Stock, whether measured in absolute terms or in relationship to
earnings or operating income or in relation to various stock market or
industry indices, (xvii) budget objectives, (xviii) working capital, (xix)
mergers, acquisitions or divestitures, (xx) measures of customer
satisfaction, (xxi) productivity measures, (xxii) funds from operations,
(xxiii) operating efficiency, or (xxiv) economic value-added models, any
of which may be measured either in absolute terms or as compared to any
incremental increase or decrease or as compared to results of a peer group
or to market performance indicators or indices. |
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(b) |
The Administrator, in its sole
discretion, may provide that one or more objectively determinable
adjustments shall be made to one or more of the Performance Goals. Such
adjustments may include, but are not limited to, one or more of the
following: (i) items related to a change in Applicable Accounting
Standards; (ii) items relating to financing activities; (iii) expenses for
restructuring or productivity initiatives; (iv) other non-operating items;
(v) items related to acquisitions; (vi) items attributable to the business
operations of any entity acquired by the Company during the Performance
Period; (vii) items related to the sale or disposition of a business or
segment of a business; (viii) items related to discontinued operations
that do not qualify as a segment of a business under Applicable Accounting
Standards; (ix) items attributable to any stock dividend, stock split,
combination or exchange of stock occurring during the Performance Period;
(x) any other items of significant income or expense which are determined
to be appropriate adjustments; (xi) items relating to unusual or
infrequent corporate transactions, events or developments, (xii) items
related to amortization of acquired intangible assets; (xiii) items that
are outside the scope of the Companys core, on-going business activities;
(xiv) items related to acquired in-process research and development; (xv)
items relating to changes in tax laws; (xvi) items relating to major
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(xvii) items relating to asset
impairment charges; (xviii) items relating to gains or losses for
litigation, arbitration and contractual settlements; (xix) items
attributable to expenses incurred in connection with a reduction in force
or early retirement initiative; (xx) items relating to foreign exchange or
currency transactions and/or fluctuations; or (xxi) items relating to any
other unusual or nonrecurring events or changes in Applicable Law,
Applicable Accounting Standards or business conditions. For all Awards
intended to qualify as Performance-Based Compensation, such determinations
shall be made within the time prescribed by, and otherwise in compliance
with, Section 162(m) of the Code. |
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2.41 |
Performance Goals
shall mean, for a Performance Period, one or more goals established in
writing by the Administrator for the Performance Period based upon one or
more Performance Criteria. Depending on the Performance Criteria used to
establish such Performance Goals, the Performance Goals may be expressed
in terms of overall Company performance or the performance of a
Subsidiary, division, business unit, or an individual. The achievement of
each Performance Goal shall be determined, to the extent applicable, with
reference to Applicable Accounting Standards. |
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2.42 |
Performance Period
shall mean one or more periods of time, which may be of varying and
overlapping durations, as the Administrator may select, over which the
attainment of one or more Performance Goals will be measured for the
purpose of determining a Holders right to, vesting of, and/or the payment
in respect of, an Award. |
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2.43 |
Permitted Transferee
shall mean, with respect to a Holder, any family member of the Holder,
as defined in the General Instructions to Form S-8 Registration Statement
under the Securities Act (or any successor form thereto), or any other
transferee specifically approved by the Administrator after taking into
account Applicable Law. |
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2.44 |
Plan shall have the
meaning set forth in Article 1. |
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2.45 |
Prior Plan shall mean
the Cognizant Technology Solutions Corporation Amended and Restated 2009
Incentive Compensation Plan, as such plan may be amended from time to
time. |
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2.46 |
Program shall mean
any program adopted by the Administrator pursuant to the Plan containing
the terms and conditions intended to govern a specified type of Award
granted under the Plan and pursuant to which such type of Award may be
granted under the Plan. |
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2.47 |
Restricted Stock
shall mean Common Stock awarded under Article 8 that is subject to certain
restrictions and may be subject to risk of forfeiture or
repurchase. |
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2.48 |
Restricted Stock
Units shall mean the right to receive Shares awarded under Article
9. |
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2.49 |
Section 409A shall
mean Section 409A of the Code and the Department of Treasury regulations
and other interpretive guidance issued thereunder, including, without
limitation, any such regulations or other guidance that may be issued
after the Effective Date. |
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2.50 |
Securities Act shall
mean the Securities Act of 1933, as amended. |
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2.51 |
Shares shall mean
shares of Common Stock. |
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2.52 |
Stock Appreciation
Right shall mean an Award entitling the Holder (or other person entitled
to exercise pursuant to the Plan) to exercise all or a specified portion
thereof (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of such
Award from the Fair Market Value on the date of exercise of such Award by
the number of Shares with respect to which such Award shall have been
exercised, subject to any limitations the Administrator may
impose. |
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2.53 |
SAR
Term shall have the meaning set forth in Section 6.4. |
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2.54 |
Subsidiary shall mean any entity (other than the Company),
whether domestic or foreign, in an unbroken chain of entities beginning
with the Company if each of the entities other than the last entity in the
unbroken chain beneficially owns, at the time of the determination,
securities or interests representing at least fifty percent (50%) of the
total combined voting power of all classes of securities or interests in
one of the other entities in such chain. |
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2.55 |
Substitute Award shall mean an Award granted under the Plan in
connection with a corporate transaction, such as a merger, combination,
consolidation or acquisition of property or stock, in any case, upon the
assumption of, or in substitution for, outstanding equity awards
previously granted by a company or other entity; provided, however, that
in no event shall the term Substitute Award be construed to refer to an
award made in connection with the cancellation and repricing of an Option
or Stock Appreciation Right. |
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2.56 |
Termination of Service shall mean: |
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(a) |
As to a Consultant, the time when
the engagement of a Holder as a Consultant to the Company or a Subsidiary
is terminated for any reason, with or without cause, including, without
limitation, by resignation, discharge, death or retirement, but excluding
terminations where the Consultant simultaneously commences or remains in
employment or service with the Company or any Subsidiary. |
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(b) |
As to a Non-Employee Director,
the time when a Holder who is a Non-Employee Director ceases to be a
Director for any reason, including, without limitation, a termination by
resignation, failure to be elected, death or retirement, but excluding
terminations where the Holder simultaneously commences or remains in
employment or service with the Company or any Subsidiary. |
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(c) |
As to an Employee, the time when
the employee-employer relationship between a Holder and the Company or
any Subsidiary is terminated for any reason, including, without
limitation, a termination by resignation, discharge, death, disability or
retirement; but excluding terminations where the Holder simultaneously
commences or remains in employment or service with the Company or any
Subsidiary. |
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The Administrator, in
its sole discretion, shall determine the effect of all matters and
questions relating to any Termination of Service, including, without
limitation, whether a Termination of Service has occurred, whether a
Termination of Service resulted from a discharge for cause and all
questions of whether particular leaves of absence constitute a Termination
of Service; provided, however, that, with respect to Incentive Stock
Options, unless the Administrator otherwise provides in the terms of any
Program, Award Agreement or otherwise, or as otherwise required by
Applicable Law, a leave of absence, change in status from an employee to
an independent contractor or other change in the employee-employer
relationship shall constitute a Termination of Service only if, and to the
extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the Code
and the then-applicable regulations and revenue rulings
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said Section. For purposes of the
Plan, a Holders employee-employer relationship or consultancy relations
shall be deemed to be terminated in the event that the Subsidiary
employing or contracting with such Holder ceases to remain a Subsidiary
following any merger, sale of stock or other corporate transaction or
event (including, without limitation, a
spin-off). |
ARTICLE 3. SHARES SUBJECT TO THE
PLAN
3.1 |
Number of Shares. |
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(a) |
Subject to adjustment as provided in Section 3.1(b) and
Section 13.2, a total of 53,000,000 Shares shall be authorized for grant
under the Plan (including, without limitation, pursuant to Incentive Stock
Options). Any Shares that are subject to Awards other than Full Value
Awards shall be counted against this limit as one (1) Share for every one
(1) Share granted. Any Shares that are subject to Full Value Awards shall
be counted against this limit as two (2) Shares for every one (1) Share
granted. After the Effective Date, no awards may be granted under the
Prior Plan, however, any awards under the Prior Plan that are outstanding
as of the Effective Date shall continue to be subject to the terms and
conditions of such Prior Plan. Any Shares distributed pursuant to an Award
may consist, in whole or in part, of authorized and unissued Common Stock,
treasury Common Stock or Common Stock purchased on the open
market. |
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(b) |
If (i) any Shares subject to an Award are forfeited or
expire or are converted to shares of another Person in connection with a
spin-off or other similar event, or an Award is settled for cash (in whole
or in part), or (ii) after the Effective Date, any Shares subject to an
award under the Prior Plan are forfeited or expire or are converted to
shares of another Person in connection with a spin-off or other similar
event, or an award under the Prior Plan is settled for cash (in whole or
in part) (including in each case Shares repurchased by the Company under
Section 8.4 at the same price paid by the Holder), the Shares subject to
such Award or award under the Prior Plan shall, to the extent of such
forfeiture, expiration, conversion or cash settlement, again be available
for future grants of Awards under the Plan, in accordance with Section
3.1(d) below. Notwithstanding anything to the contrary contained herein,
the following Shares shall not be added to the Shares authorized for grant
under Section 3.1(a) and shall not be available for future grants of
Awards: (i) Shares tendered by a Holder or withheld by the Company in
payment of the exercise price of an Option; (ii) Shares tendered by the
Holder or withheld by the Company to satisfy any tax withholding obligation
with respect to an Award; (iii) Shares subject to a Stock Appreciation
Right that are not issued in connection with the stock settlement of the
Stock Appreciation Right on exercise thereof; and (iv) Shares purchased by
the Company on the open market with the cash proceeds received from the
exercise of Options. The payment of Dividend Equivalents in cash in
conjunction with any outstanding Awards shall not be counted against the
Shares available for issuance under the Plan. Notwithstanding the
provisions of this Section 3.1(b), no Shares may again be optioned,
granted or awarded if such action would cause an Incentive Stock Option to
fail to qualify as an incentive stock option under Section 422 of the
Code. |
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(c) |
Substitute Awards shall not reduce the Shares authorized
for grant under the Plan, except as may be required by reason of Section
422 of the Code. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the
Company or any Subsidiary combines has shares available under a
pre-existing plan approved by stockholders and not adopted in
contemplation of such acquisition or combination, the shares available for
grant pursuant to the terms of such pre-existing plan (as adjusted, to the
extent appropriate, using the exchange ratio or other adjustment or
valuation ratio or formula used in such acquisition or combination to
determine the consideration payable to the holders of common stock of the
entities party to such acquisition or combination) may be used for Awards
under the Plan and shall not reduce the Shares authorized for grant under
the Plan; provided that Awards using such available Shares shall not be
made after the date awards or grants could have been made under the terms
of the pre-existing plan, absent the acquisition or combination, and shall
only be made to individuals who were not employed by or providing services
to the Company or its Subsidiaries immediately prior to such acquisition
or combination. |
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(d) |
Any Shares that again become
available for grant pursuant to this Section 3.1 shall be added back as:
(i) one (1) Share if such Shares were subject to an Award other than a
Full Value Award granted under the Plan or an option or stock appreciation
right granted under the Prior Plan, and (ii) as two (2) Shares if such
Shares were subject to Full Value Awards granted under the Plan or awards
other than options or stock appreciation rights granted under the Prior
Plan. |
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3.2 |
Limitation on Number of
Shares Subject to Awards. Notwithstanding any provision in the Plan to the
contrary, and subject to Section 13.2, the maximum aggregate number of
Shares with respect to one or more Awards other than Full Value Awards
that may be granted to any one person during any calendar year shall be
3,000,000; the maximum aggregate number of Shares with respect to one or
more Full Value Awards that may be granted to any one person during any
calendar year shall be 2,000,000; and the maximum aggregate amount of cash
that may be paid in cash to any one person during any calendar year with
respect to one or more Awards payable in cash shall be $10,000,000. To the
extent required by Section 162(m) of the Code, Shares subject to Awards
which are canceled shall continue to be counted against the Award
Limit. |
ARTICLE 4. GRANTING OF
AWARDS
4.1 |
Participation. The Administrator
may, from time to time, select from among all Eligible Individuals, those
to whom an Award shall be granted and shall determine the nature and
amount of each Award, which shall not be inconsistent with the
requirements of the Plan. Except for any Non-Employee Directors right to
Awards that may be required pursuant to the Non-Employee Director Equity
Compensation Policy as described in Section 4.6, no Eligible Individual or
other Person shall have any right to be granted an Award pursuant to the
Plan and neither the Company nor the Administrator is obligated to treat
Eligible Individuals, Holders or any other persons uniformly.
Participation by each Holder in the Plan shall be voluntary and nothing in
the Plan or any Program shall be construed as mandating that any Eligible
Individual or other Person shall participate in the Plan. |
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4.2 |
Award Agreement. Each Award shall
be evidenced by an Award Agreement that sets forth the terms, conditions
and limitations for such Award as determined by the Administrator in its
sole discretion (consistent with the requirements of the Plan and any
applicable Program). Award Agreements evidencing Awards intended to
qualify as Performance-Based Compensation shall contain such terms and
conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award |
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Agreements evidencing Incentive
Stock Options shall contain such terms and conditions as may be necessary
to meet the applicable provisions of Section 422 of the
Code. |
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4.3 |
Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to
any individual who is then subject to Section 16 of the Exchange Act,
shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3
of the Exchange Act and any amendments thereto) that are requirements for
the application of such exemptive rule. To the extent permitted by
Applicable Law, the Plan and Awards granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to such applicable
exemptive rule. |
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4.4 |
No Impact
on Employment Rights. Nothing in the Plan or in any Program or Award
Agreement hereunder shall confer upon any Holder any right to continue in
the employ of, or as a Director or Consultant for, the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of
the Company and any Subsidiary, which rights are hereby expressly
reserved, to discharge any Holder at any time for any reason whatsoever,
with or without cause, and with or without notice, or to terminate or
change all other terms and conditions of employment or engagement, except
to the extent expressly provided otherwise in a written agreement between
the Holder and the Company or any Subsidiary. |
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4.5 |
Foreign
Holders. Notwithstanding any provision of the Plan or applicable Program
to the contrary, in order to comply with the laws in countries other than
the United States in which the Company and its Subsidiaries operate or
have Employees, Non-Employee Directors or Consultants, or in order to
comply with the requirements of any foreign securities exchange or other
Applicable Law, the Administrator, in its sole discretion, shall have the
power and authority to: (a) determine which Subsidiaries shall be covered
by the Plan; (b) determine which Eligible Individuals outside the United
States are eligible to participate in the Plan; (c) modify the terms and
conditions of any Award granted to Eligible Individuals outside the United
States to comply with Applicable Law (including, without limitation,
applicable foreign laws or listing requirements of any foreign securities
exchange); (d) establish sub-plans and modify exercise procedures and
other terms and procedures, to the extent such actions may be necessary or
advisable; provided, however, that no such sub-plans and/or modifications
shall increase the share limitation contained in Section 3.1, the Award
Limit or the Director Limit; and (e) take any action, before or after an
Award is made, that it deems advisable to obtain approval or comply with
any necessary local governmental regulatory exemptions or approvals or
listing requirements of any foreign securities exchange. |
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4.6 |
Non-Employee Director Awards. |
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(a) |
Non-Employee Director
Equity Compensation Policy. The Administrator, in its sole discretion, may
provide that Awards granted to Non-Employee Directors shall be granted
pursuant to a written nondiscretionary formula established by the
Administrator (the Non-Employee Director Equity Compensation Policy),
subject to the limitations of the Plan. The Non-Employee Director Equity
Compensation Policy shall set forth the type of Award(s) to be granted to
Non-Employee Directors, the number of Shares to be subject to Non-Employee
Director Awards, the conditions on which such Awards shall be granted,
become exercisable and/or payable and expire, and such other terms and
conditions as the Administrator shall determine in its sole discretion.
The Non-Employee Director Equity Compensation Policy may be modified by
the Administrator from time to time in its sole discretion. |
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(b) |
Director Limit. Notwithstanding
any provision to the contrary in the Plan or in the Non-Employee Director
Equity Compensation Policy, the sum of the grant date fair value of
equity-based Awards and the amount of any cash-based Awards granted to a
Non-Employee Director during any calendar year shall not exceed $900,000
(the Director Limit). |
ARTICLE 5. PROVISIONS APPLICABLE TO
AWARDS INTENDED TO QUALIFY AS PERFORMANCE-BASED COMPENSATION
5.1 |
Purpose. The
Administrator may, in its sole discretion, (a) determine whether an Award
is intended to qualify as Performance-Based Compensation and (b) at any
time after any such determination, alter such intent for any or no reason.
If the Administrator, in its sole discretion, decides to grant an Award
that is intended to qualify as Performance-Based Compensation (other than
an Option or Stock Appreciation Right), then the provisions of this
Article 5 shall control over any contrary provision contained in the Plan
or any applicable Program; provided that, if after such decision the
Administrator alters such intention for any reason, the provisions of this
Article 5 shall no longer control over any other provision contained in
the Plan or any applicable Program. The Administrator, in its sole
discretion, may (i) grant Awards to Eligible Individuals that are based on
Performance Criteria or Performance Goals or any such other criteria and
goals as the Administrator shall establish, but that do not satisfy the
requirements of this Article 5 and that are not intended to qualify as
Performance- Based Compensation and (ii) subject any Awards intended to
qualify as Performance-Based Compensation to additional conditions and
restrictions unrelated to any Performance Criteria or Performance Goals
(including, without limitation, continued employment or service
requirements) to the extent such Awards otherwise satisfy the requirements
of this Article 5 with respect to the Performance Criteria and Performance
Goals applicable thereto. Unless otherwise specified by the Administrator
at the time of grant, the Performance Criteria with respect to an Award
intended to be Performance-Based Compensation payable to a Covered
Employee shall be determined on the basis of Applicable Accounting
Standards. |
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5.2 |
Procedures with Respect
to Performance-Based Awards. To the extent necessary to comply with the
requirements of Section 162(m)(4)(C) of the Code, with respect to any
Award which is intended to qualify as Performance-Based Compensation, no
later than 90 days following the commencement of any Performance Period or
any designated fiscal period or period of service (or such earlier time as
may be required under Section 162(m) of the Code), the Administrator
shall, in writing, (a) designate one or more Eligible Individuals, (b)
select the Performance Criteria applicable to the Performance Period, (c)
establish the Performance Goals, and amounts of such Awards, as
applicable, which may be earned for such Performance Period based on the
Performance Criteria, and (d) specify the relationship between Performance
Criteria and the Performance Goals and the amounts of such Awards, as
applicable, to be earned by each Covered Employee for such Performance
Period. Following the completion of each Performance Period, the
Administrator shall certify in writing whether and the extent to which the
applicable Performance Goals have been achieved for such Performance
Period. In determining the amount earned under such Awards, the
Administrator (i) shall, unless otherwise provided in an Award Agreement,
have the right to reduce or eliminate the amount payable at a given level
of performance to take into account additional factors that the
Administrator may deem relevant, including the assessment of individual or
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performance for the Performance
Period, but (ii) shall in no event have the right to increase the amount
payable for any reason. |
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5.3 |
Payment of Performance-Based
Awards. Unless otherwise provided in the applicable Program or Award
Agreement and only to the extent otherwise permitted by Section 162(m) of
the Code, as to an Award that is intended to qualify as Performance-Based
Compensation, the Holder must be employed by the Company or a Subsidiary
throughout the Performance Period. Unless otherwise provided in the
applicable Program or Award Agreement, a Holder shall be eligible to
receive payment pursuant to such Awards for a Performance Period only if
and to the extent the Performance Goals for such Performance Period are
achieved. |
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5.4 |
Additional Limitations.
Notwithstanding any other provision of the Plan and except as otherwise
determined by the Administrator, any Award which is granted to an Eligible
Individual and is intended to qualify as Performance-Based Compensation
shall be subject to any additional limitations set forth in Section 162(m)
of the Code or any regulations or rulings issued thereunder that are
requirements for qualification as Performance-Based Compensation, and the
Plan and the applicable Program and Award Agreement shall be deemed
amended to the extent necessary to conform to such
requirements. |
ARTICLE 6. GRANTING OF OPTIONS AND
STOCK APPRECIATION RIGHTS
6.1 |
Granting of Options and Stock
Appreciation Rights to Eligible Individuals. The Administrator is
authorized to grant Options and Stock Appreciation Rights to Eligible
Individuals from time to time, in its sole discretion, on such terms and
conditions as it may determine, which shall not be inconsistent with the
Plan. |
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6.2 |
Qualification of Incentive Stock
Options. The Administrator may grant Options intended to qualify as
Incentive Stock Options only to employees of the Company, any of the
Companys present or future parent corporations or subsidiary
corporations as defined in Sections 424(e) or (f) of the Code,
respectively, and any other entities the employees of which are eligible
to receive Incentive Stock Options under the Code. No person who qualifies
as a Greater Than 10% Stockholder may be granted an Incentive Stock Option
unless such Incentive Stock Option conforms to the applicable provisions
of Section 422 of the Code. To the extent that the aggregate fair market
value of stock with respect to which incentive stock options (within the
meaning of Section 422 of the Code, but without regard to Section 422(d)
of the Code) are exercisable for the first time by a Holder during any
calendar year under the Plan, and all other plans of the Company and any
parent corporation or subsidiary corporation thereof (as defined in
Section 424(e) and 424(f) of the Code, respectively), exceeds $100,000,
the Options shall be treated as Non-Qualified Stock Options to the extent
required by Section 422 of the Code. The rule set forth in the immediately
preceding sentence shall be applied by taking Options and other incentive
stock options into account in the order in which they were granted and
the fair market value of stock shall be determined as of the time the
respective options were granted. Any interpretations and rules under the
Plan with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. Neither the Company nor the
Administrator shall have any liability to a Holder, or any other Person,
(a) if an Option (or any part thereof) which is intended to qualify as an
Incentive Stock Option fails to qualify as an Incentive Stock Option or
(b) for any action or omission by the Company or the Administrator that
causes an Option not to qualify as an Incentive Stock Option, including
without limitation, the conversion of an Incentive Stock Option to a
Non-Qualified Stock Option or the grant of an
Option intended as an Incentive Stock Option that fails to satisfy the
requirements under the Code applicable to an Incentive Stock
Option. |
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6.3 |
Option and Stock
Appreciation Right Exercise Price. The exercise price per Share subject to
each Option and Stock Appreciation Right shall be set by the
Administrator, but shall not be less than 100% of the Fair Market Value of
a Share on the date the Option or Stock Appreciation Right, as applicable,
is granted (or, as to Incentive Stock Options, on the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code).
In addition, in the case of Incentive Stock Options granted to a Greater
Than 10% Stockholder, such price shall not be less than 110% of the Fair
Market Value of a Share on the date the Option is granted (or the date the
Option is modified, extended or renewed for purposes of Section 424(h) of
the Code). Notwithstanding the foregoing, in the case of an Option or
Stock Appreciation Right that is a Substitute Award, the exercise price
per share of the Shares subject to such Option or Stock Appreciation
Right, as applicable, may be less than the Fair Market Value per share on
the date of grant; provided that the exercise price of any Substitute
Award shall be determined in accordance with the applicable requirements
of Section 424 and 409A of the Code. |
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6.4 |
Option and SAR Term.
The term of each Option (the Option Term) and the term of each Stock
Appreciation Right (the SAR Term) shall be set by the Administrator in
its sole discretion; provided, however, that the Option Term or SAR Term,
as applicable, shall not be more than (a) ten (10) years from the date the
Option or Stock Appreciation Right, as applicable, is granted to an
Eligible Individual (other than, in the case of Incentive Stock Options, a
Greater Than 10% Stockholder), or (b) five (5) years from the date an
Incentive Stock Option is granted to a Greater Than 10% Stockholder.
Except as limited by the requirements of Section 409A or Section 422 of
the Code and regulations and rulings thereunder or the first sentence of
this Section 6.4 and without limiting the Companys rights under Section
11.7, the Administrator may extend the Option Term of any outstanding
Option or the SAR Term of any outstanding Stock Appreciation Right, and
may extend the time period during which vested Options or Stock
Appreciation Rights may be exercised, in connection with any Termination
of Service of the Holder or otherwise, and may amend, subject to Section
11.7 and 13.1, any other term or condition of such Option or Stock
Appreciation Right relating to such Termination of Service of the Holder
or otherwise. |
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6.5 |
Option and SAR Vesting.
The period during which the right to exercise, in whole or in part, an
Option or Stock Appreciation Right vests in the Holder shall be set by the
Administrator and set forth in the applicable Award Agreement. Unless
otherwise determined by the Administrator in the Award Agreement, the
applicable Program or by action of the Administrator following the grant
of the Option or Stock Appreciation Right, (a) no portion of an Option or
Stock Appreciation Right which is unexercisable at a Holders Termination
of Service shall thereafter become exercisable and (b) the portion of an
Option or Stock Appreciation Right that is unexercisable at a Holders
Termination of Service shall automatically expire thirty (30) days
following such Termination of Service. |
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6.6 |
Substitution of Stock
Appreciation Rights; Early Exercise of Options. The Administrator may
provide in the applicable Program or Award Agreement evidencing the grant
of an Option that the Administrator, in its sole discretion, shall have
the right to substitute a Stock Appreciation Right for such Option at any
time prior to or upon exercise of such Option; provided that such Stock
Appreciation Right shall be exercisable with respect to the same number of
Shares for which such substituted Option would have been exercisable, and
shall also |
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have the same exercise price,
vesting schedule and remaining term as the substituted Option. The
Administrator may provide in the terms of an Award Agreement that the
Holder may exercise an Option in whole or in part prior to the full
vesting of the Option in exchange for unvested shares of Restricted Stock
with respect to any unvested portion of the Option so exercised. Shares of
Restricted Stock acquired upon the exercise of any unvested portion of an
Option shall be subject to such terms and conditions as the Administrator
shall determine. |
ARTICLE 7. EXERCISE OF OPTIONS AND
STOCK APPRECIATION RIGHTS
7.1 |
Exercise and Payment. An
exercisable Option or Stock Appreciation Right may be exercised in whole
or in part. However, an Option or Stock Appreciation Right shall not be
exercisable with respect to fractional Shares and the Administrator may
require that, by the terms of the Option or Stock Appreciation Right, a
partial exercise must be with respect to a minimum number of Shares.
Payment of the amounts payable with respect to Stock Appreciation Rights
pursuant to this Article 7 shall be in cash, Shares (based on its Fair
Market Value as of the date the Stock Appreciation Right is exercised), or
a combination of both, as determined by the Administrator. |
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7.2 |
Manner of Exercise. Except as set
forth in Section 7.3, all or a portion of an exercisable Option or Stock
Appreciation Right shall be deemed exercised upon delivery of all of the
following to the Secretary of the Company, the stock plan administrator of
the Company or such other person or entity designated by the
Administrator, or his, her or its office, as applicable: |
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(a) |
A written or electronic notice complying with the
applicable rules established by the Administrator stating that the Option
or Stock Appreciation Right, or a portion thereof, is exercised. The
notice shall be signed or otherwise acknowledged electronically by the
Holder or other person then entitled to exercise the Option or Stock
Appreciation Right or such portion thereof; |
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(b) |
Such representations and documents as the Administrator,
in its sole discretion, deems necessary or advisable to effect compliance
with Applicable Law; |
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(c) |
In the event that the Option or Stock Appreciation Right
shall be exercised pursuant to Section 11.3 by any person or persons other
than the Holder, appropriate proof of the right of such person or persons
to exercise the Option or Stock Appreciation Right, as determined in the
sole discretion of the Administrator; and |
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(d) |
Full payment of the exercise price and applicable
withholding taxes for the Shares with respect to which the Option or Stock
Appreciation Right, or portion thereof, is exercised, in a manner
permitted by the Administrator in accordance with Sections 11.1 and
11.2. |
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7.3 |
Expiration of Option Term or SAR
Term: Automatic Exercise of In-The-Money Options and Stock Appreciation
Rights. Unless otherwise provided by the Administrator in an Award
Agreement or otherwise or as otherwise directed by an Option or Stock
Appreciation Rights Holder in writing to the Company, each vested and
exercisable Option and Stock Appreciation Right outstanding on the
Automatic Exercise Date with an exercise price per Share that is less than
the Fair Market Value per Share as of such date shall automatically and
without further action by the Option or Stock Appreciation Rights Holder
or the Company be exercised on the Automatic Exercise Date. In the sole
discretion of the Administrator, payment of the exercise price of any such
Option shall be made pursuant to Section 11.1(b) or 11.1(c) and the
Company or any Subsidiary shall be entitled to deduct or withhold an
amount sufficient to satisfy all taxes associated with such exercise in
accordance with Section 11.2. Unless otherwise determined by the
Administrator, this Section 7.3 shall not apply to an Option or Stock
Appreciation Right if the Holder of such Option or Stock Appreciation
Right incurs a Termination of Service on or before the Automatic Exercise
Date. For the avoidance of doubt, no Option or Stock Appreciation Right
with an exercise price per Share that is equal to or greater than the Fair
Market Value per Share on the Automatic Exercise Date shall be exercised
pursuant to this Section 7.3. |
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7.4 |
Notification Regarding Disposition. The Holder shall
give the Company prompt written or electronic notice of any disposition of
Shares acquired by exercise of an Incentive Stock Option which occurs
within (a) two years from the date of granting (including the date the
Option is modified, extended or renewed for purposes of Section 424(h) of
the Code) such Option to such Holder, or (b) one year after the date of
transfer of such Shares to such Holder. Such notice shall specify the date
of such disposition or other transfer and the amount realized, in cash,
other property, assumption of indebtedness or other consideration, by the
Holder in such disposition or other transfer. |
ARTICLE 8. AWARD OF RESTRICTED
STOCK
8.1 |
Award of Restricted Stock. The
Administrator is authorized to grant Restricted Stock to Eligible
Individuals, and shall determine the terms and conditions, including the
restrictions applicable to each award of Restricted Stock, which terms and
conditions shall not be inconsistent with the Plan or any applicable
Program, and may impose such conditions on the issuance of such Restricted
Stock as it deems appropriate. The Administrator shall establish the
purchase price, if any, and form of payment for Restricted Stock; provided, however, that if a purchase price is charged, such purchase price shall be no
less than the par value, if any, of the Shares to be purchased, unless
otherwise permitted by Applicable Law. In all cases, legal consideration
shall be required for each issuance of Restricted Stock to the extent
required by Applicable Law. |
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8.2 |
Rights as Stockholders. Subject
to Section 8.4, upon issuance of Restricted Stock, the Holder shall have,
unless otherwise provided by the Administrator, all the rights of a
stockholder with respect to said Shares, subject to the restrictions in
the Plan, any applicable Program and/or the applicable Award Agreement,
including the right to receive all dividends and other distributions paid
or made with respect to the Shares to the extent such dividends and other
distributions have a record date that is on or after the date on which the
Holder to whom such Shares are granted becomes the record holder of such
Restricted Stock; provided, however, that, in the sole discretion of the
Administrator, any dividends and distributions with respect to the Shares
may be subject to the restrictions set forth in Section 8.3. Without
limiting the foregoing, except in connection with a spin-off or other
similar event or as otherwise permitted in Section 13.2, dividends that
are paid prior to vesting of shares of Restricted Stock shall only be paid
to the applicable Holder to the extent that the vesting conditions are
subsequently satisfied and the shares of Restricted Stock
vest. |
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8.3 |
Restrictions. All shares of
Restricted Stock (including any shares received by Holders thereof with
respect to shares of Restricted Stock as a result of stock dividends,
stock splits or any other form of recapitalization) shall be subject to
such restrictions and vesting requirements as the Administrator shall
provide in the applicable Program or Award Agreement. By action taken
after the Restricted Stock is issued, the Administrator may, on such terms
and conditions as it may determine to be appropriate, accelerate the
vesting of such Restricted Stock by removing any or all of the
restrictions imposed by the terms of the applicable Program or Award
Agreement. |
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8.4 |
Repurchase or Forfeiture of Restricted Stock. Except as
otherwise determined by the Administrator, if no price was paid by the
Holder for the Restricted Stock, upon a Termination of Service during the
applicable restriction period, the Holders rights in unvested Restricted
Stock then subject to restrictions shall lapse, and such Restricted Stock
shall be surrendered to the Company and cancelled without consideration on
the date of such Termination of Service. If a price was paid by the Holder
for the Restricted Stock, upon a Termination of Service during the
applicable restriction period, the Company shall have the right to
repurchase from the Holder the unvested Restricted Stock then subject to
restrictions at a cash price per share equal to the price paid by the
Holder for such Restricted Stock or such other amount as may be specified
in the applicable Program or Award Agreement. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide that
upon certain events, including, without limitation, a Change in Control,
the Holders death, retirement or disability or any other specified
Termination of Service or any other event, the Holders rights in unvested
Restricted Stock then subject to restrictions shall not lapse, such
Restricted Stock shall vest and cease to be forfeitable and, if
applicable, the Company shall cease to have a right of
repurchase. |
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8.5 |
Section 83(b) Election. If a Holder makes an election
under Section 83(b) of the Code to be taxed with respect to the Restricted
Stock as of the date of transfer of the Restricted Stock rather than as of
the date or dates upon which the Holder would otherwise be taxable under
Section 83(a) of the Code, the Holder shall be required to deliver a copy
of such election to the Company promptly after filing such election with
the Internal Revenue Service along with proof of the timely filing thereof
with the Internal Revenue Service. |
ARTICLE 9. AWARD OF RESTRICTED STOCK
UNITS
9.1 |
Grant of Restricted Stock Units. The Administrator is
authorized to grant Awards of Restricted Stock Units to any Eligible
Individual selected by the Administrator in such amounts and subject to
such terms and conditions as determined by the Administrator. |
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9.2 |
Term. Except as otherwise provided herein, the term of a
Restricted Stock Unit award shall be set by the Administrator in its sole
discretion. |
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9.3 |
Purchase Price. The Administrator shall specify the
purchase price, if any, to be paid by the Holder to the Company with
respect to any Restricted Stock Unit award; provided, however, that the
value of the consideration shall not be less than the par value of a
Share, unless otherwise permitted by Applicable Law. |
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9.4 |
Vesting of Restricted Stock Units. At the time of grant,
the Administrator shall specify the date or dates on which the Restricted
Stock Units shall become fully vested and nonforfeitable, and may specify
such conditions to vesting as it deems appropriate, including, without
limitation, vesting based upon the Holders duration of service to the
Company or any Subsidiary, one or more Performance Criteria, Company
performance, individual performance or other specific criteria, in each
case on a specified date or dates or over any period or periods, as
determined by the Administrator. |
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9.5 |
Maturity and Payment. At the time of
grant, the Administrator shall specify the maturity date applicable to
each grant of Restricted Stock Units, which shall be no earlier than the
vesting date or dates of the Award and may be determined at the election
of the Holder (if permitted by the applicable Award Agreement); provided
that, except as otherwise determined by the Administrator, and subject to
compliance with Section 409A, in no event shall the maturity date relating
to each Restricted Stock Unit occur following the later of (a) the
15th day of the third month following the end of the calendar
year in which the applicable portion of the Restricted Stock Unit vests;
and (b) the 15th day of the third month following the end of
the Companys fiscal year in which the applicable portion of the
Restricted Stock Unit vests. On the maturity date, the Company shall, in
accordance with the applicable Award Agreement and subject to Section
11.4(f), transfer to the Holder one unrestricted, fully transferable Share
for each Restricted Stock Unit scheduled to be paid out on such date and
not previously forfeited, or in the sole discretion of the Administrator,
an amount in cash equal to the Fair Market Value of such Shares on the
maturity date or a combination of cash and Common Stock as determined by
the Administrator. For the avoidance of doubt, any Dividend Equivalents
granted in tandem with Restricted Stock Units subject to vesting that are
based on dividends paid prior to the vesting of such Restricted Stock
Units shall be paid out to the Holder only to the extent that the vesting
conditions are subsequently satisfied and the Restricted Stock Units
vest. |
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9.6 |
Payment upon Termination of Service. An Award of
Restricted Stock Units shall be payable only while the Holder is an
Employee, a Consultant or a member of the Board, as applicable; provided,
however, that the Administrator, in its sole discretion, may provide (in
an Award Agreement or otherwise) that a Restricted Stock Unit award may be
paid subsequent to a Termination of Service in certain events, including a
Change in Control, the Holders death, retirement or disability or any
other specified Termination of Service. |
ARTICLE 10. AWARD OF OTHER STOCK OR
CASH BASED AWARDS AND DIVIDEND EQUIVALENTS
10.1 |
Other Stock or Cash
Based Awards. The Administrator is authorized to (a) grant Other Stock or
Cash Based Awards, including awards entitling a Holder to receive Shares
or cash to be delivered immediately or in the future, to any Eligible
Individual and (b) determine whether such Other Stock or Cash Based Awards
shall be Performance-Based Compensation. Subject to the provisions of the
Plan and any applicable Program, the Administrator shall determine the
terms and conditions of each Other Stock or Cash Based Award, including
the term of the Award, any exercise or purchase price, performance goals,
including the Performance Criteria, transfer restrictions, vesting
conditions and other terms and conditions applicable thereto, which shall
be set forth in the applicable Award Agreement. Other Stock or Cash Based
Awards may be paid in cash, Shares, or a combination of cash and Shares,
as determined by the Administrator, and may be available as a form of
payment in the settlement of other Awards granted under the Plan, as
stand-alone payments, as a part of a bonus, deferred bonus, deferred
compensation or other arrangement, and/or as payment in lieu of
compensation to which an Eligible Individual is otherwise entitled. Except
in connection with a spin-off or other similar event or as otherwise
permitted under Section 13.2, dividends that are paid prior to vesting of
a Other Stock or Cash Based Award shall only be paid to the applicable
Holder to the extent that the vesting conditions are subsequently
satisfied and the Other Stock or Cash Based Award vests. |
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10.2 |
Dividend Equivalents.
Dividend Equivalents may be granted by the Administrator, either alone or
in tandem with another Award, based on dividends declared on the Common
Stock, to be credited as of dividend payment dates during the period
between the date the Dividend Equivalents are granted to a Holder and the
date such Dividend Equivalents terminate or expire, as determined by the
Administrator. Such Dividend Equivalents shall be converted to cash or
additional Shares by such formula and at such time and subject to such
restrictions and limitations as may be determined by the
Administrator. |
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Except in connection with a spin-off
or other similar event or as otherwise permitted under Section 13.2,
dividend Equivalents with respect to an Award subject to vesting that are
based on dividends paid prior to the vesting of such Award shall be paid
out to the Holder only to the extent that the vesting conditions are
subsequently satisfied and the Award vests. Notwithstanding the foregoing,
no Dividend Equivalents shall be payable with respect to Options or Stock
Appreciation Rights. |
ARTICLE 11. ADDITIONAL TERMS OF
AWARDS
11.1 |
Payment. The
Administrator shall determine the method or methods by which payments by
any Holder with respect to any Awards granted under the Plan shall be
made, including, without limitation: (a) cash or check, (b) Shares
(including, in the case of payment of the exercise price of an Award,
Shares issuable pursuant to the exercise of the Award) held for any
minimum period of time as may be established by the Administrator having a
Fair Market Value on the date of delivery equal to the aggregate payments
required, (c) delivery of a written or electronic notice that the Holder
has placed a market sell order with a broker acceptable to the Company
with respect to Shares then issuable upon exercise or vesting of an Award,
and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale to the Company in satisfaction of the aggregate
payments required; provided that payment of such proceeds is then made to
the Company upon settlement of such sale, (d) other form of legal
consideration acceptable to the Administrator in its sole discretion, or
(e) any combination of the above permitted forms of payment.
Notwithstanding any other provision of the Plan to the contrary, no Holder
who is a Director or an executive officer of the Company within the
meaning of Section 13(k) of the Exchange Act shall be permitted to make
payment with respect to any Awards granted under the Plan, or continue any
extension of credit with respect to such payment, with a loan from the
Company or a loan arranged by the Company in violation of Section 13(k) of
the Exchange Act. |
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11.2 |
Tax Withholding. The
Company or any Subsidiary shall have the authority and the right to deduct
or withhold, or require a Holder to remit to the Company, an amount
sufficient to satisfy federal, state, local and foreign taxes (including
the Holders FICA, employment tax or other social security contribution
obligation) required by law to be withheld with respect to any taxable
event concerning a Holder arising as a result of the Plan or any Award.
The Administrator may, in its sole discretion and in satisfaction of the
foregoing requirement, or in satisfaction of such additional withholding
obligations as a Holder may have elected, allow a Holder to satisfy such
obligations by any payment means described in Section 11.1 hereof,
including without limitation, by allowing such Holder to elect to have the
Company or any Subsidiary withhold Shares otherwise issuable under an
Award (or allow the surrender of Shares). The number of Shares which may
be so withheld or surrendered shall be no greater than the number of
Shares which have a fair market value on the date of withholding or
repurchase equal to the aggregate amount of such liabilities based on the
maximum statutory withholding rates in such Holders applicable
jurisdiction for federal, state, local and foreign income tax and payroll
tax purposes that are applicable to such taxable income. The Administrator
shall determine the fair market value of the Shares, consistent with
applicable provisions of the Code, for tax withholding obligations due in
connection with a broker-assisted cashless Option or Stock Appreciation
Right exercise involving the sale of Shares to pay the Option or Stock
Appreciation Right exercise price or any tax withholding
obligation. |
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11.3 |
Transferability of
Awards. |
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(a) |
Except as otherwise
provided in Sections 11.3(b) and 11.3(c): |
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(i) |
No Award under the Plan may be
sold, pledged, assigned or transferred in any manner other than (A) by
will or the laws of descent and distribution or (B) subject to the consent
of the Administrator, pursuant to a DRO, unless and until such Award has
been exercised or the Shares underlying such Award have been issued, and
all restrictions applicable to such Shares have lapsed; |
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(ii) |
No Award or interest or right
therein shall be liable for or otherwise subject to the debts, contracts
or engagements of the Holder or the Holders successors in interest or
shall be subject to disposition by transfer, alienation, anticipation,
pledge, hypothecation, encumbrance, assignment or any other means whether
such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) unless and until such Award has been
exercised, or the Shares underlying such Award have been issued, and all
restrictions applicable to such Shares have lapsed, and any attempted
disposition of an Award prior to satisfaction of these conditions shall be
null and void and of no effect, except to the extent that such disposition
is permitted by Section 11.3(a)(i); and |
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(iii) |
During the lifetime of the
Holder, only the Holder may exercise any exercisable portion of an Award
granted to such Holder under the Plan, unless it has been disposed of
pursuant to a DRO. After the death of the Holder, any exercisable portion
of an Award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Program or Award Agreement, be exercised
by the Holders personal representative or by any person empowered to do
so under the deceased Holders will or under the then-applicable laws of
descent and distribution. |
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(b) |
Notwithstanding Section
11.3(a), the Administrator, in its sole discretion, may determine to
permit a Holder or a Permitted Transferee of such Holder to transfer an
Award other than an Incentive Stock Option (unless such Incentive Stock
Option is intended to become a Nonqualified Stock Option) to any one or
more Permitted Transferees of such Holder, subject to the following terms
and conditions: (i) an Award transferred to a Permitted Transferee shall
not be assignable or transferable by the Permitted Transferee other than
(A) to another Permitted Transferee of the applicable Holder or (B) by
will or the laws of descent and distribution or, subject to the consent of
the Administrator, pursuant to a DRO; (ii) an Award transferred to a
Permitted Transferee shall continue to be subject to all the terms and
conditions of the Award as applicable to the original Holder (other than
the ability to further transfer the Award to any Person other than another
Permitted Transferee of the applicable Holder); (iii) the Holder (or
transferring |
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Permitted Transferee) and the
receiving Permitted Transferee shall execute any and all documents
requested by the Administrator, including, without limitation documents to
(A) confirm the status of the transferee as a Permitted Transferee, (B)
satisfy any requirements for an exemption for the transfer under
Applicable Law and (C) evidence the transfer; and (iv) no Award may be
transferred by a Holder or a Permitted Transferee for value or
consideration. In addition, and further notwithstanding Section 11.3(a),
hereof, the Administrator, in its sole discretion, may determine to permit
a Holder to transfer Incentive Stock Options to a trust that constitutes a
Permitted Transferee if, under Section 671 of the Code and other
Applicable Law, the Holder is considered the sole beneficial owner of the
Incentive Stock Option while it is held in the trust. |
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(c) |
Notwithstanding Section 11.3(a), a Holder may, in the
manner determined by the Administrator, designate a beneficiary to
exercise the rights of the Holder and to receive any distribution with
respect to any Award upon the Holders death. A beneficiary, legal
guardian, legal representative, or other person claiming any rights
pursuant to the Plan is subject to all terms and conditions of the Plan
and any Program or Award Agreement applicable to the Holder and any
additional restrictions deemed necessary or appropriate by the
Administrator. If the Holder is married or a domestic partner in a
domestic partnership qualified under Applicable Law and resides in a
community property state, a designation of a person other than the
Holders spouse or domestic partner, as applicable, as the Holders
beneficiary with respect to more than 50% of the Holders interest in the
Award shall not be effective without the prior written or electronic
consent of the Holders spouse or domestic partner. If no beneficiary has
been designated or survives the Holder, payment shall be made to the
person entitled thereto pursuant to the Holders will or the laws of
descent and distribution. Subject to the foregoing, a beneficiary
designation may be changed or revoked by a Holder at any time;
provided that the change or revocation is delivered in writing to
the Administrator prior to the Holders
death. |
11.4 |
Conditions to Issuance
of Shares. |
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(a) |
The Administrator shall determine
the methods by which Shares shall be delivered or deemed to be delivered
to Holders. Notwithstanding anything herein to the contrary, the Company
shall not be required to issue or deliver any certificates or make any
book entries evidencing Shares pursuant to the exercise of any Award,
unless and until the Administrator has determined, with advice of counsel,
that the issuance of such Shares is in compliance with Applicable Law and
the Shares are covered by an effective registration statement or
applicable exemption from registration. In addition to the terms and
conditions provided herein, the Administrator may require that a Holder
make such reasonable covenants, agreements and representations as the
Administrator, in its sole discretion, deems advisable in order to comply
with Applicable Law. |
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(b) |
All share certificates delivered
pursuant to the Plan and all Shares issued pursuant to book entry
procedures are subject to any stop-transfer orders and other restrictions
as the Administrator deems necessary or advisable to comply with
Applicable Law. The Administrator may place legends on any share
certificate or book entry to reference restrictions applicable to the
Shares (including, without limitation, restrictions applicable to
Restricted Stock). |
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(c) |
The Administrator shall have the
right to require any Holder to comply with any timing or other
restrictions with respect to the settlement, distribution or exercise of
any Award, including a window-period limitation, as may be imposed in the
sole discretion of the Administrator. |
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(d) |
No fractional Shares shall be
issued and the Administrator, in its sole discretion, shall determine
whether cash shall be given in lieu of fractional Shares or whether such
fractional Shares shall be eliminated by rounding down. |
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(e) |
The Company, in its sole
discretion, may (i) retain physical possession of any stock certificate
evidencing Shares until any restrictions thereon shall have lapsed and/or
(ii) require that the stock certificates evidencing such Shares be held in
custody by a designated escrow agent (which may but need not be the
Company) until the restrictions thereon shall have lapsed, and that the
Holder deliver a stock power, endorsed in blank, relating to such
Shares. |
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(f) |
Notwithstanding any other
provision of the Plan, unless otherwise determined by the Administrator or
required by Applicable Law, the Company shall not deliver to any Holder
certificates evidencing Shares issued in connection with any Award and
instead such Shares shall be recorded in the books of the Company (or, as
applicable, its transfer agent or stock plan administrator). |
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11.5 |
Forfeiture and
Claw-Back Provisions. All Awards (including any proceeds, gains or other
economic benefit actually or constructively received by a Holder upon any
receipt or exercise of any Award or upon the receipt or resale of any
Shares underlying the Award and any payments of a portion of an
incentive-based bonus pool allocated to a Holder) shall be subject to the
provisions of any claw-back policy implemented by the Company, including,
without limitation, any claw-back policy adopted to comply with the
requirements of Applicable Law, including, without limitation, the
Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or
regulations promulgated thereunder, whether or not such claw-back policy
was in place at the time of grant of an Award, to the extent set forth in
such claw-back policy and/or in the applicable Award
Agreement. |
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11.6 |
Prohibition on
Repricing. Subject to Section 13.2, the Administrator shall not, without
the approval of the stockholders of the Company, (a) authorize the
amendment of any outstanding Option or Stock Appreciation Right to reduce
its price per Share, or (b) cancel any Option or Stock Appreciation Right
in exchange for cash or another Award when the Option or Stock
Appreciation Right price per Share exceeds the Fair Market Value of the
underlying Shares. Furthermore, for purposes of this Section 11.6, except
in connection with a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
terms of outstanding Awards may not be amended to reduce the exercise
price per Share of outstanding Options or Stock Appreciation Rights or
cancel outstanding Options or Stock Appreciation Rights in exchange for
cash, other Awards or Options or Stock Appreciation Rights with an
exercise price per Share that is less than the exercise price per Share of
the original Options or Stock Appreciation Rights without the approval of
the stockholders of the Company. |
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11.7 |
Amendment of Awards.
Subject to Applicable Law, the Administrator may amend, modify or
terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different type,
changing the |
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date of exercise or settlement, and
converting an Incentive Stock Option to a Non-Qualified Stock Option. The
Holders consent to such action shall be required unless (a) the
Administrator determines that the action, taking into account any related
action, would not materially and adversely affect the Holder, or (b) the
change is otherwise permitted under the Plan (including, without
limitation, under Section 13.2 or 13.10). |
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11.8 |
Data Privacy. As a condition of receipt of any Award,
each Holder explicitly and unambiguously consents to the collection, use
and transfer, in electronic or other form, of personal data as described
in this Section 11.8 by and among, as applicable, the Company and its
Subsidiaries for the exclusive purpose of implementing, administering and
managing the Holders participation in the Plan. The Company and its
Subsidiaries may hold certain personal information about a Holder,
including but not limited to, the Holders name, home address and
telephone number, date of birth, social security or insurance number or
other identification number, salary, nationality, job title(s), any shares
of stock held in the Company or any of its Subsidiaries and details of all
Awards, in each case, for the purpose of implementing, managing and
administering the Plan and Awards (the Data). The Company and its
Subsidiaries may transfer the Data amongst themselves as necessary for the
purpose of implementation, administration and management of a Holders
participation in the Plan, and the Company and its Subsidiaries may each
further transfer the Data to any third parties assisting the Company and
its Subsidiaries in the implementation, administration and management of
the Plan. These recipients may be located in the Holders country, or
elsewhere, and the Holders country may have different data privacy laws
and protections than the recipients country. Through acceptance of an
Award, each Holder authorizes such recipients to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the
purposes of implementing, administering and managing the Holders
participation in the Plan, including any requisite transfer of such Data
as may be required to a broker or other third party with whom the Company
or any of its Subsidiaries or the Holder may elect to deposit any Shares.
The Data related to a Holder will be held only as long as is necessary to
implement, administer, and manage the Holders participation in the Plan.
A Holder may, at any time, view the Data held by the Company with respect
to such Holder, request additional information about the storage and
processing of the Data with respect to such Holder, recommend any
necessary corrections to the Data with respect to the Holder or refuse or
withdraw the consents herein in writing, in any case without cost, by
contacting his or her local human resources representative. The Company
may cancel the Holders ability to participate in the Plan and, in the
Administrators discretion, the Holder may forfeit any outstanding Awards
if the Holder refuses or withdraws his or her consents as described
herein. For more information on the consequences of refusal to consent or
withdrawal of consent, Holders may contact their local human resources
representative. |
ARTICLE 12.
ADMINISTRATION
12.1 |
Administrator. The
Committee shall administer the Plan (except as otherwise permitted
herein). To the extent necessary to comply with Rule 16b-3 of the Exchange
Act, and with respect to Awards that are intended to be Performance-Based
Compensation, including Options and Stock Appreciation Rights, then the
Committee shall take all action with respect to such Awards, and the
individuals taking such action shall consist solely of two or more
Non-Employee Directors, each of whom is intended to qualify as both a
non-employee director as defined by Rule 16b-3 of the Exchange Act or
any successor rule and an outside director for purposes of Section
162(m) of the Code. Additionally, to the extent required by Applicable
Law, each of the individuals constituting the Committee shall be an
independent director under the rules of any securities exchange or
automated quotation system on which the Shares are listed, quoted or
traded. Notwithstanding the foregoing, any action taken by the Committee
shall be valid and effective, whether or not members of the Committee at
the time of such action are later determined not to have satisfied the
requirements for membership set forth in this Section 12.1 or the
Organizational Documents. Except as may otherwise be provided in the
Organizational Documents or as otherwise required by Applicable Law, (a)
appointment of Committee members shall be effective upon acceptance of
appointment, (b) Committee members may resign at any time by delivering
written or electronic notice to the Board and (c) vacancies in the
Committee may only be filled by the Board. Notwithstanding the foregoing,
(i) the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Awards
granted to Non-Employee Directors and, with respect to such Awards, the
term Administrator as used in the Plan shall be deemed to refer to the
Board and (ii) the Board or Committee may delegate its authority hereunder
to the extent permitted by Section 12.6. |
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12.2 |
Duties and Powers of
Administrator. It shall be the duty of the Administrator to conduct the
general administration of the Plan in accordance with its provisions. The
Administrator shall have the power to interpret the Plan, all Programs and
Award Agreements, and to adopt such rules for the administration,
interpretation and application of the Plan and any Program as are not
inconsistent with the Plan, to interpret, amend or revoke any such rules
and to amend the Plan or any Program or Award Agreement; provided that the
rights or obligations of the Holder of the Award that is the subject of
any such Program or Award Agreement are not materially and adversely
affected by such amendment, unless the consent of the Holder is obtained
or such amendment is otherwise permitted under Section 11.5 or Section
13.10. In its sole discretion, the Board may at any time and from time to
time exercise any and all rights and duties of the Committee in its
capacity as the Administrator under the Plan except with respect to
matters which under Rule 16b-3 under the Exchange Act or any successor
rule, or Section 162(m) of the Code, or any regulations or rules issued
thereunder, or the rules of any securities exchange or automated quotation
system on which the Shares are listed, quoted or traded are required to be
determined in the sole discretion of the Committee. |
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12.3 |
Action by the
Administrator. Unless otherwise established by the Board, set forth in any
Organizational Documents or as required by Applicable Law, a majority of
the Administrator shall constitute a quorum and the acts of a majority of
the members present at any meeting at which a quorum is present, and acts
approved in writing by all members of the Administrator in lieu of a
meeting, shall be deemed the acts of the Administrator. Each member of the
Administrator is entitled to, in good faith, rely or act upon any report
or other information furnished to that member by any officer or other
employee of the Company or any Subsidiary, the Companys independent
certified public accountants, or any executive compensation consultant or
other professional retained by the Company to assist in the administration
of the Plan. |
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12.4 |
Authority of
Administrator. Subject to the Organizational Documents, any specific
designation in the Plan and Applicable Law, the Administrator has the
exclusive power, authority and sole discretion to: |
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(a) |
Designate Eligible Individuals to
receive Awards; |
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(b) |
Determine the type or types of
Awards to be granted to each Eligible Individual (including, without
limitation, any Awards granted in tandem with another Award granted
pursuant to the Plan); |
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(c) |
Determine the number of Awards to
be granted and the number of Shares to which an Award will
relate; |
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(d) |
Determine the terms and
conditions of any Award granted pursuant to the Plan, including, but not
limited to, the exercise price, grant price, purchase price, any
Performance Criteria or performance criteria, any restrictions or
limitations on the Award, any schedule for vesting, lapse of forfeiture
restrictions or restrictions on the exercisability of an Award, and
accelerations or waivers thereof, and any provisions related to
non-competition and claw-back and recapture of gain on an Award, based in
each case on such considerations as the Administrator in its sole
discretion determines; |
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(e) |
Determine whether, to what
extent, and under what circumstances an Award may be settled in, or the
exercise price of an Award may be paid, in cash, Shares, other Awards, or
other property, or an Award may be canceled, forfeited, or
surrendered; |
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(f) |
Prescribe the form of each Award
Agreement, which need not be identical for each Holder; |
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(g) |
Decide all other matters that
must be determined in connection with an Award; |
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(h) |
Establish, adopt, or revise any
Programs, rules and regulations as it may deem necessary or advisable to
administer the Plan; |
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(i) |
Interpret the terms of, and any
matter arising pursuant to, the Plan, any Program or any Award
Agreement; |
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(j) |
Make all other decisions and
determinations that may be required pursuant to the Plan or as the
Administrator deems necessary or advisable to administer the Plan;
and |
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(k) |
Accelerate wholly or partially
the vesting or lapse of restrictions of any Award or portion thereof at
any time after the grant of an Award, subject to whatever terms and
conditions it selects and Section 13.2. |
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12.5 |
Decisions
Binding. The Administrators interpretation of the Plan, any Awards
granted pursuant to the Plan, any Program or any Award Agreement and all
decisions and determinations by the Administrator with respect to the Plan
are final, binding and conclusive on all Persons. |
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12.6 |
Delegation of
Authority. The Board or Committee may from time to time delegate to a
committee of one or more members of the Board or one or more officers of
the Company the authority to grant or amend Awards or to take other
administrative actions pursuant to this Article 12; provided, however,
that in no event shall an officer of the Company be delegated the
authority to grant Awards to, or amend Awards held by, the following
individuals: (a) individuals who are subject to Section 16 of the Exchange
Act, (b) Covered Employees with respect to Awards intended to constitute
Performance Based Compensation, or (c) officers of the Company (or
Directors) to whom authority to grant or amend Awards has been delegated
hereunder; provided, further, that any delegation of administrative
authority shall only be permitted to the extent it is permissible under
any Organizational Documents and Applicable Law (including, without
limitation, Section 162(m) of the Code). Any delegation hereunder shall be
subject to the restrictions and limits that the Board or Committee
specifies at the time of such delegation or that are otherwise included in
the applicable Organizational Documents, and the Board or Committee, as
applicable, may at any time rescind the authority so delegated or appoint
a new delegatee. At all times, the delegatee appointed under this Section
12.6 shall serve in such capacity at the pleasure of the Board or the
Committee, as applicable, and the Board or the Committee may abolish any
committee at any time and re-vest in itself any previously delegated
authority. |
ARTICLE 13. MISCELLANEOUS
PROVISIONS
13.1 |
Amendment,
Suspension or Termination of the Plan. |
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(a) |
Except as otherwise provided in
Section 13.1(b), the Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the
Board; provided that, except as provided in Section 11.5 and
Section 13.10, no amendment, suspension or termination of the Plan shall,
without the consent of the Holder, materially and adversely affect any
rights or obligations under any Award theretofore granted or awarded,
unless the Award itself otherwise expressly so provides. |
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(b) |
Notwithstanding Section 13.1(a),
the Board may not, except as provided in Section 13.2, take any of the
following actions without approval of the Companys stockholders given
within twelve (12) months before or after such action: (i) increase the
limit imposed in Section 3.1 on the maximum number of Shares which may be
issued under the Plan, the Award Limit or the Director Limit, (ii) reduce
the price per share of any outstanding Option or Stock Appreciation Right
granted under the Plan or take any action prohibited under Section 11.6,
or (iii) cancel any Option or Stock Appreciation Right in exchange for
cash or another Award in violation of Section 11.6. |
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(c) |
No Awards may be granted or
awarded during any period of suspension or after termination of the Plan,
and notwithstanding anything herein to the contrary, in no event may any
Award be granted under the Plan after the tenth (10th)
anniversary of the earlier of (i) the date on which the Plan was adopted
by the Board or (ii) the date the Plan was approved by the Companys
stockholders (such anniversary, the Expiration
Date). Any Awards that are outstanding
on the Expiration Date shall remain in force according to the terms of the
Plan, the applicable Program and the applicable Award
Agreement. |
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13.2 |
Changes in Common
Stock or Assets of the Company, Acquisition or Liquidation of the Company
and Other Corporate Events. |
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(a) |
In the event of any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation or other distribution (other than normal cash dividends) of
Company assets to stockholders, or any other change affecting the shares
of the Companys stock or the share price of the Companys stock other
than an Equity Restructuring, the Administrator may make equitable
adjustments, if any, to reflect such change with respect to: (i) the
aggregate number and kind of Shares that may be issued under the Plan
(including, but not limited to, adjustments of the limitations in Section
3.1 on the maximum number and kind of Shares which may be issued under the
Plan, adjustments of the Award Limit and the Director Limit and
adjustments of the manner in which Shares subject to Full Value Awards
will be counted); (ii) the number and kind of Shares (or other securities
or property) subject to outstanding Awards; (iii) the
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and conditions of any
outstanding Awards (including, without limitation, any applicable
performance targets or criteria with respect thereto); and (iv) the grant
or exercise price per share for any outstanding Awards under the Plan. Any
adjustment affecting an Award intended as Performance-Based Compensation
shall be made consistent with the requirements of Section 162(m) of the
Code unless otherwise determined by the Administrator. |
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(b) |
In the event of any
transaction or event described in Section 13.2(a) or any unusual or
nonrecurring transactions or events affecting the Company, any Subsidiary
of the Company, or the financial statements of the Company or any
Subsidiary, or of changes in Applicable Law or Applicable Accounting
Standards, the Administrator, in its sole discretion, and on such terms
and conditions as it deems appropriate, either by the terms of the Award
or by action taken prior to the occurrence of such transaction or event,
is hereby authorized to take any one or more of the following actions
whenever the Administrator determines that such action is appropriate in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to
any Award under the Plan, to facilitate such transactions or events or to
give effect to such changes in Applicable Law or Applicable Accounting
Standards: |
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(i) |
To provide for the termination of
any such Award in exchange for an amount of cash and/or other property
with a value equal to the amount that would have been attained upon the
exercise of such Award or realization of the Holders rights (and, for the
avoidance of doubt, if as of the date of the occurrence of the transaction
or event described in this Section 13.2 the Administrator determines in
good faith that no amount would have been attained upon the exercise of
such Award or realization of the Holders rights, then such Award may be
terminated by the Company without payment); |
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(ii) |
To provide that such Award be
assumed by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar options, rights
or awards covering the stock of the successor or survivor corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and applicable exercise or purchase price, in
all cases, as determined by the Administrator; |
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(iii) |
To make adjustments in the number
and type of Shares of the Companys stock (or other securities or
property) subject to such Award, and/or in the terms and conditions of
(including the grant or exercise price), and the criteria included in,
outstanding Awards and Awards which may be granted in the
future; |
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(iv) |
To provide that such Award shall
be exercisable or payable or fully vested with respect to all Shares
covered thereby, notwithstanding anything to the contrary in the Plan or
the applicable Program or Award Agreement; |
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(v) |
To replace such Award with other
rights or property selected by the Administrator; and/or |
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(vi) |
To provide that the Award cannot
vest, be exercised or become payable after such event. |
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(c) |
In connection with the
occurrence of any Equity Restructuring, and notwithstanding anything to
the contrary in Sections 13.2(a) and 13.2(b): |
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(i) |
The number and type of securities
subject to each outstanding Award and the exercise price or grant price
thereof, if applicable, shall be equitably adjusted (and the adjustments
provided under this Section 13.2(c)(i) shall be nondiscretionary and shall
be final and binding on the affected Holder and the Company);
and/or |
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(ii) |
The Administrator shall make such
equitable adjustments, if any, as the Administrator, in its sole
discretion, may deem appropriate to reflect such Equity Restructuring with
respect to the aggregate number and kind of Shares that may be issued
under the Plan (including, but not limited to, adjustments of the
limitation in Section 3.1 on the maximum number and kind of Shares which
may be issued under the Plan, adjustments of the Award Limit and the
Director Limit, and adjustments of the manner in which Shares subject to
Full Value Awards will be counted). |
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(d) |
In the event an Award
continues in effect or is assumed or an equivalent Award substituted in
connection with a Change in Control, and a Holder incurs a Termination of
Service without cause (as such term is defined in the sole discretion of
the Administrator, or as set forth in the Award Agreement relating to such
Award) upon or within twelve (12) months following the Change in Control,
then such Holder shall be fully vested in such continued, assumed or
substituted Award. |
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(e) |
In the event that the
successor corporation in a Change in Control refuses to assume or
substitute for an Award (or any portion thereof), the Administrator may
cause (i) any or all of such Award (or portion thereof) to terminate in
exchange for cash, rights or other property pursuant to Section 13.2(b)(i)
or (ii) any or all of such Award (or portion thereof) to become fully
exercisable immediately prior to the consummation of such transaction and
all forfeiture restrictions on any or all of such Award to lapse. If any
such Award is exercisable in lieu of assumption or substitution in the
event of a Change in Control, the Administrator shall notify the Holder
that such Award shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, contingent upon the occurrence of the
Change in Control, and such Award shall terminate upon the expiration of
such period. |
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(f) |
For the purposes of
this Section 13.2, an Award shall be considered assumed if, following the
Change in Control, the Award confers the right to purchase or receive, for
each Share subject to the Award immediately prior to the Change in
Control, the consideration (whether stock, cash, or other securities or
property) received in the Change in Control by holders of Common Stock for
each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the Change in
Control was not solely common stock of the successor corporation or its
parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the
exercise of the Award, for each Share subject to an Award, to be solely
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its parent equal in fair market value to the per-share
consideration received by holders of Common Stock in the Change in
Control. |
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(g) |
The Administrator, in its sole discretion, may include
such further provisions and limitations in any Award, agreement or
certificate, as it may deem equitable and in the best interests of the
Company that are not inconsistent with the provisions of the
Plan. |
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(h) |
Unless otherwise determined by the Administrator, no
adjustment or action described in this Section 13.2 or in any other
provision of the Plan shall be authorized to the extent it would (i) with
respect to Awards which are granted to Covered Employees and are intended
to qualify as Performance-Based Compensation, cause such Awards to fail to
so qualify as Performance- Based Compensation, (ii) cause the Plan to
violate Section 422(b)(1) of the Code, (iii) result in short-swing profits
liability under Section 16 of the Exchange Act or violate the exemptive
conditions of Rule 16b-3 of the Exchange Act, or (iv) cause an Award to
fail to be exempt from or comply with Section 409A. |
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(i) |
The existence of the Plan, any Program, any Award
Agreement and/or the Awards granted hereunder shall not affect or restrict
in any way the right or power of the Company or the stockholders of the
Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Companys capital structure or its
business, any merger or consolidation of the Company, any issue of stock
or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks the rights of which are
superior to or affect the Common Stock or the rights thereof or that are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise. |
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(j) |
In the event of any pending stock dividend, stock split,
combination or exchange of shares, merger, consolidation or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting the Shares or the share price
of the Common Stock including any Equity Restructuring, for reasons of
administrative convenience, the Administrator, in its sole discretion, may
refuse to permit the exercise of any Award during a period of up to thirty
(30) days prior to the consummation of any such transaction. |
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13.3 |
Approval of Plan by
Stockholders. The Plan shall be submitted for the approval of the
Companys stockholders within twelve (12) months after the date of the
Boards initial adoption of the Plan. Awards may be granted or awarded
prior to such stockholder approval; provided that such Awards shall
not be exercisable, shall not vest and the restrictions thereon shall not
lapse and no Shares shall be issued pursuant thereto prior to the time
when the Plan is approved by the Companys stockholders; and
provided, further, that if such approval has not been
obtained at the end of said twelve (12) month period, all Awards
previously granted or awarded under the Plan shall thereupon be canceled
and become null and void. |
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13.4 |
No Stockholders Rights.
Except as otherwise provided herein or in an applicable Program or Award
Agreement, a Holder shall have none of the rights of a stockholder with
respect to Shares covered by any Award until the Holder becomes the record
owner of such Shares. |
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13.5 |
Paperless Administration.
In the event that the Company establishes, for itself or using the
services of a third party, an automated system for the documentation,
granting or exercise of Awards, such as a system using an internet website
or interactive voice response, then the paperless documentation, granting
or exercise of Awards by a Holder may be permitted through the use of such
an automated system. |
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13.6 |
Effect of Plan upon Other
Compensation Plans. The adoption of the Plan shall not affect any
other compensation or incentive plans in effect for the Company or any
Subsidiary. Nothing in the Plan shall be construed to limit the right of
the Company or any Subsidiary: (a) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary, or (b) to grant or assume options or other
rights or awards otherwise than under the Plan in connection with any
proper corporate purpose including without limitation, the grant or
assumption of options in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of the business, stock or
assets of any corporation, partnership, limited liability company, firm or
association. |
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13.7 |
Compliance with Laws. The
Plan, the granting and vesting of Awards under the Plan and the issuance
and delivery of Shares and the payment of money under the Plan or under
Awards granted or awarded hereunder are subject to compliance with all
Applicable Law (including but not limited to state, federal and foreign
securities law and margin requirements), and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under the Plan shall be subject to
such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to
the Company as the Company may deem necessary or desirable to assure
compliance with all Applicable Law. The Administrator, in its sole
discretion, may take whatever actions it deems necessary or appropriate to
effect compliance with Applicable Law, including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars. Notwithstanding anything to the contrary herein,
the Administrator may not take any actions hereunder, and no Awards shall
be granted, that would violate Applicable Law. To the extent permitted by
Applicable Law, the Plan and Awards granted or awarded hereunder shall be
deemed amended to the extent necessary to conform to Applicable
Law. |
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13.8 |
Titles and Headings,
References to Sections of the Code or Exchange Act. The titles and
headings of the Sections in the Plan are for convenience of reference only
and, in the event of any conflict, the text of the Plan, rather than such
titles or headings, shall control. References to sections of the Code or
the Exchange Act shall include any amendment or successor
thereto. |
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13.9 |
Governing Law. The Plan
and any Programs and Award Agreements hereunder shall be administered,
interpreted and enforced under the internal laws of the State of Delaware
without regard to conflicts of laws thereof or of any other
jurisdiction. |
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13.10 |
Section 409A. To the
extent that the Administrator determines that any Award granted under the
Plan is subject to Section 409A, the Plan, the Program pursuant to which
such Award is granted and the Award Agreement evidencing such Award shall
incorporate the terms and conditions required by Section 409A. In that
regard, to the extent any Award under the Plan or any other compensatory
plan or arrangement of the Company or any of its Subsidiaries is subject
to Section 409A, and such Award or other amount is payable on account of
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Holders Termination of Service (or
any similarly defined term), then (a) such Award or amount shall only be
paid to the extent such Termination of Service qualifies as a separation
from service as defined in Section 409A, and (b) if such Award or amount
is payable to a specified employee as defined in Section 409A then to
the extent required in order to avoid a prohibited distribution under
Section 409A, such Award or other compensatory payment shall not be
payable prior to the earlier of (i) the expiration of the six-month period
measured from the date of the Holders Termination of Service, and (ii)
the date of the Holders death. To the extent applicable, the Plan, any
Program and any Award Agreements shall be interpreted in accordance with
Section 409A. Notwithstanding any provision of the Plan to the contrary,
in the event that following the Effective Date the Administrator
determines that any Award may be subject to Section 409A, the
Administrator may (but is not obligated to), without a Holders consent,
adopt such amendments to the Plan and the applicable Program and Award
Agreement or adopt other policies and procedures (including amendments,
policies and procedures with retroactive effect), or take any other
actions, that the Administrator determines are necessary or appropriate to
(A) exempt the Award from Section 409A and/or preserve the intended tax
treatment of the benefits provided with respect to the Award, or (B)
comply with the requirements of Section 409A and thereby avoid the
application of any penalty taxes under Section 409A. The Company makes no
representations or warranties as to the tax treatment of any Award under
Section 409A or otherwise. The Company shall have no obligation under this
Section 13.10 or otherwise to take any action (whether or not described
herein) to avoid the imposition of taxes, penalties or interest under
Section 409A with respect to any Award and shall have no liability to any
Holder or any other person if any Award, compensation or other benefits
under the Plan are determined to constitute non-compliant nonqualified
deferred compensation subject to the imposition of taxes, penalties
and/or interest under Section 409A. |
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13.11 |
Unfunded Status of Awards.
The Plan is intended to be an unfunded plan for incentive compensation.
With respect to any payments not yet made to a Holder pursuant to an
Award, nothing contained in the Plan or any Program or Award Agreement
shall give the Holder any rights that are greater than those of a general
creditor of the Company or any Subsidiary. |
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13.12 |
Indemnification. To the
extent permitted under Applicable Law and the Organizational Documents,
each member of the Administrator shall be indemnified and held harmless by
the Company from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such member in connection with or resulting
from any claim, action, suit, or proceeding to which he or she may be a
party or in which he or she may be involved by reason of any action or
failure to act pursuant to the Plan and against and from any and all
amounts paid by him or her in satisfaction of judgment in such action,
suit, or proceeding against him or her; provided he or she gives the
Company an opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her own
behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled
pursuant to the Organizational Documents, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or
hold them harmless. |
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13.13 |
Relationship to other
Benefits. No payment pursuant to the Plan shall be taken into account
in determining any benefits under any pension, retirement, savings, profit
sharing, group insurance, welfare or other benefit plan of the Company or
any Subsidiary except to the extent otherwise expressly provided in
writing in such other plan or an agreement thereunder. |
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13.14 |
Expenses. The expenses of
administering the Plan shall be borne by the Company and its
Subsidiaries. |
74 |
Cognizant Technology Solutions
Corporation |
Table of Contents
COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION
2017 INCENTIVE AWARD PLAN
SUB-PLAN FOR UK PARTICIPANTS
1. PURPOSE
Pursuant to the powers granted by the
Administrator in Section 4.5(d) of the Cognizant Technology Solutions 2017
Incentive Award Plan (as it may be amended or restated from time to time, the
Plan), the Administrator has adopted this UK Sub-Plan (the Sub-Plan). The
purpose of the Sub-Plan is to promote the success and enhance the value of
Cognizant Technology Solutions Corporation (the Company) by linking the
individual interests of the Employees to those of Company stockholders and by
providing the Employees with an incentive for outstanding performance to
generate superior returns to Company stockholders. The Plan is further intended
to provide flexibility to the Company in its ability to motivate, attract, and
retain the services of Employees upon whose judgment, interest, and special
effort the successful conduct of the Companys operation is largely
dependent.
The Sub-Plan forms the rules of the
employee share scheme applicable to the United Kingdom based Employees of the
Company and any Subsidiaries. All Awards granted to Employees of the Company or
any Subsidiaries who are based in the United Kingdom will be granted on similar
terms. Other service providers who are not Employees (such as Consultants or
Non-Employee Directors) are not eligible to receive Awards and become
participants pursuant to this Sub-Plan.
2. DEFINITIONS AND
CONSTRUCTION
Capitalized terms used in the Sub-Plan
which are not defined herein shall have the meaning given in the Plan, and where
the context requires any references to the Plan in those definitions shall be
a reference to the Sub-Plan. The singular pronoun shall include the plural where
the context so indicates.
The defined terms set out in Article 2 of
the Plan shall apply to this Sub-Plan as if references to the Plan are
references to the Sub-Plan save that wherever the following terms are: (i) used
in the Sub-Plan or (ii) used in the Plan but apply to Awards made under the
Sub-Plan, they shall have the meanings specified below, unless the context
clearly indicates otherwise.
a) |
Eligible Individual shall be
interpreted as referring only to Employees; |
|
|
b) |
Option shall mean a right to
purchase Shares at a specified exercise price, granted under Article 6 and
all Options granted to Employees based in the United Kingdom will be
Non-Qualified Stock Options; and |
|
c) |
Termination of Service shall be
interpreted as referring only to the date the participant ceases to be an
Employee in accordance with 2.56 (c) of the Plan when that phrase in the
Plan is used in the context of the Sub-Plan and Awards granted to
Employees based in the United Kingdom. |
3. SHARES SUBJECT TO THE
PLAN
The aggregate number of Shares which may
be issued or transferred pursuant to Awards under the Sub-Plan, when taken
together with the number of which may be issued or transferred pursuant to
Awards under the Plan or any other sub-plan shall not exceed the limit specified
by Section 3 of the Plan, as amended from time to time.
The provisions of Article 3 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that the following words in Section 3.1(b) shall be
omitted:
Notwithstanding the provisions of this
Section 3.1(b), no Shares may again be optioned, granted or awarded if such
action would cause an Incentive Stock Option to fail to qualify as an incentive
stock option under Section 422 of the Code.
4. GRANTING OF AWARDS
The provisions of Article 4 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that:
a) |
In Section 4.1, the following words shall be
omitted: |
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|
|
Except for any Non-Employee Directors right to Awards
that may be required pursuant to the Non-Employee Director Equity
Compensation Policy as described in Section 4.6 |
|
|
b) |
In Section 4.2, the following words shall be
omitted: |
|
|
Award Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 422 of the
Code. |
|
c) |
Section 4.4 shall be replaced with the
following: |
|
|
Terms of Employment Nothing
in the Sub-Plan or any Program or Award Agreement hereunder shall confer
upon any Holder any right to continue in the employment of the Company or
any Subsidiary, or shall interfere with or restrict in any way the rights
of the Company and any Subsidiary, which rights are expressly reserved, to
discharge any Holder at any time for any reason whatsoever, with or
without cause, and with or without notice, or to terminate or change all
other terms and conditions of employment or engagement, except to the
extent expressly provided otherwise in a written agreement between the
Holder and the Company or any Subsidiary. |
|
d) |
Section 4.6 Non-Employee Director Awards
shall be omitted from the Sub-Plan. |
5. PROVISIONS APPLICABLE TO AWARDS
INTENDED TO QUALIFY AS PERFORMANCE-BASED COMPENSATION
The provisions of Article 5 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan.
6. GRANTING OF OPTIONS AND STOCK
APPRECIATION RIGHTS
The provisions of Article 6 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that Article 6.2 Qualification of Incentive Stock Options and
the provisions in Article 6.3 and 6.4 detailing specific requirements for
Incentive Stock Options shall be omitted.
7. EXERCISE OF OPTIONS AND STOCK
APPRECIATION RIGHTS
The provisions of Article 7 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that Article 7.4 shall be omitted.
8. AWARD OF RESTRICTED
STOCK
The provisions of Article 8 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that Article 8.5 shall be replaced with the following:
If requested by the Company the Holder
will (on or within 14 days of) acquiring the Restricted Stock, join with his or
her employer in electing, pursuant to Section 431(1) of the Income Tax (Earnings
and Pensions) Act 2003 (ITEPA) that, for the relevant tax purposes, the market
value of the Restricted Stock acquired will be calculated as if the Shares were
not restricted and Sections 425 to 430 (inclusive) of ITEPA are not to apply to
such Shares.
Table of Contents
9. |
AWARD OF RESTRICTED STOCK
UNITS |
The provisions of Article 9 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that Section 9.6 shall be replaced with the following:
Payment upon Termination of
Service. An Award of Restricted Stock Units shall only be payable while the
Holder is an Employee; provided, however, that the Administrator, in its
sole discretion, may provide (in an Award Agreement or otherwise) that a
Restricted Stock Unit award may be paid subsequent to a Termination of Service
in certain events, including a Change in Control, the Holders death, retirement
or disability or any other specified Termination of Service.
10. |
AWARD OF
OTHER STOCK OR CASH BASED AWARDS AND DIVIDEND
EQUIVALENTS |
The provisions of Article 10 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan.
11. |
ADDITIONAL
TERMS OF AWARDS |
The provisions of Article 11 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that:
a) |
Article 11.2 shall be amended so that the word taxes when used in
Article 11.2 shall include income tax, employees National Insurance
contributions and (at the discretion of the Company) employers National
Insurance contributions (any a Tax Liability) |
|
|
b) |
The following
words shall be added at the end of Article 11.2: |
|
|
The Holder will
indemnify and keep indemnified the Company and his/her employing company,
if different, from and against any liability for or obligation to pay any
Tax Liability. |
|
c) |
The provisions in
Articles 11.3(b) and 11.7 relating specifically to Incentive Stock Options
shall be omitted from the
Sub-Plan. |
The provisions of Article 12 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan;
13. |
MISCELLANEOUS PROVISIONS |
The provisions of Article 13 of the Plan
shall apply to this Sub-Plan as if references to the Plan are references to the
Sub-Plan save that Article 13.10 shall only apply to Awards under the Sub-Plan
to the extent subject to Section 409A.
In the event of a conflict between the
terms of the Sub-Plan and the Plan with respect to Awards granted to Employees
based in the United Kingdom under the Sub-Plan, the terms of the Sub-Plan will
control.
76 |
Cognizant Technology Solutions
Corporation |
Table of Contents
[This page intentionally left
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Table of Contents
INDEX OF
TERMS
Term |
|
Meaning |
1999 Plan |
|
Amended and Restated 1999 Incentive Compensation
Plan |
2004 ESPP |
|
Amended and Restated 2004
Employee Stock Purchase Plan |
2009 Plan |
|
2009 Incentive Compensation Plan |
2011 Annual
Meeting |
|
2011 Annual Meeting of
Stockholders of the Company |
2016 Annual Report |
|
Companys Annual Report to Stockholders for Year Ended
December 31, 2016 |
2017 Annual
Meeting |
|
2017 Annual Meeting of
Stockholders of the Company |
2017 Plan |
|
2017 Incentive Award Plan |
2018 Annual
Meeting |
|
2018 Annual Meeting of
Stockholders of the Company |
Annual Meeting |
|
Annual Meeting of Stockholders of the Company to be held
on June 6, 2017 |
Board |
|
Board of Directors of the
Company |
CEO |
|
Chief Executive Officer |
CFO |
|
Chief Financial
Officer |
COO |
|
Chief Operating Officer |
Chairman |
|
Chairman of the
Board |
Cognizant |
|
Cognizant Technology Solutions Corporation |
Company |
|
Cognizant Technology
Solutions Corporation |
CSRP |
|
Cognizant Technology Solutions Supplemental Retirement
Plan |
Directors |
|
Directors of the
Company |
Dodd-Frank Act |
|
Dodd-Frank Wall Street Reform and Consumer Protection
Act |
DSO |
|
Days Sales
Outstanding |
Employment Agreements |
|
Amended and Restated Executive Employment and
Non-Disclosure, Non-Competition and Invention Assignment
Agreements |
Exchange Act |
|
Securities Exchange Act of
1934 |
FASB ASC |
|
Financial Accounting Standards Board Accounting Standards
Codification |
GAAP |
|
U.S. Generally Accepted
Accounting Principles |
Governance Committee |
|
Nominating and Corporate Governance
Committee |
Internet Notice |
|
Notice of Internet
Availability of Proxy Materials |
IRC |
|
U.S. Internal Revenue Code |
IRS |
|
U.S. Internal Revenue
Service |
NEOs |
|
The
Companys CEO (Mr. DSouza) and CFO (Ms. McLoughlin), each of the
Companys three other most highly compensated executive officers (Mr.
Mehta, Mr. Chintamaneni and Mr. Sinha), and Mr. Coburn, who would have
been one of the Companys three most highly compensated executive officers
for 2016 had he not resigned as the Companys President on September 27,
2016 |
NASDAQ |
|
The NASDAQ Stock Market
LLC |
non-GAAP EPS |
|
Non-GAAP diluted earnings per share (see Non-GAAP
Financial Measures and Forward-Looking Statements) |
non-GAAP Income from
Operations |
|
Non-GAAP income from
operations (see Non-GAAP Financial Measures and Forward-Looking
Statements) |
non-GAAP Operating Margin |
|
Non-GAAP operating margin (see Non-GAAP Financial
Measures and Forward-Looking Statements) |
non-employee
Directors |
|
Directors who are not
employees of the Company or any of its subsidiaries |
Pay
Governance |
|
Pay
Governance, LLC, independent compensation consultant to the Compensation
Committee |
PSUs |
|
Restricted stock units
with performance- and time-based vesting requirements |
PwC |
|
PricewaterhouseCoopers LLP, the Companys independent
registered public accounting firm |
Record Date |
|
April 10, 2017, the record
date for the Annual Meeting |
Reporting Persons |
|
Directors, executive officers and stockholders who
beneficially own more than 10% of any class of the Companys equity
securities registered pursuant to Section 12 of the Exchange
Act |
RSUs |
|
Restricted stock units
with time-based vesting requirements |
Rule 14a-8 |
|
Rule 14a-8 under the Exchange Act |
SEC |
|
U.S. Securities and Exchange
Commission |
78 |
Cognizant Technology Solutions
Corporation |
Table of Contents
Weblinks
Board of Directors |
|
|
Cognizant Board |
|
https://www.cognizant.com/company-overview/board-of-directors |
Board
Committee Charters |
|
|
Audit
Committee |
|
https://www.cognizant.com/about-cognizant-resources/AuditCommitteeCharter.pdf |
Compensation Committee |
|
https://www.cognizant.com/about-cognizant-resources/CompensationCommitteeCharter.pdf |
Governance Committee |
|
https://www.cognizant.com/about-cognizant-resources/CorporateGovernanceCommitteeCharter.pdf |
|
|
|
Financial Reporting |
|
|
Annual
Report |
|
http://investors.cognizant.com/#annual-report |
|
|
|
Cognizant |
|
|
Corporate website |
|
https://www.cognizant.com/ |
Leaders |
|
https://www.cognizant.com/company-overview/executive-leadership |
Investor Relations |
|
http://investors.cognizant.com/ |
|
|
|
Governance Documents |
|
|
By-laws |
|
https://www.cognizant.com/about-cognizant-resources/by-laws.pdf |
Certificate of Incorporation |
|
https://www.cognizant.com/about-cognizant-resources/certificate-of-incorporation.pdf |
Code
of Ethics |
|
https://www.cognizant.com/codeofethics.pdf |
Corporate Governance Guidelines |
|
https://www.cognizant.com/about-cognizant-resources/CorporateGovernanceGuidelines.pdf |
Weblinks are provided for convenience only and the content on the referenced
websites does not constitute a part of this proxy statement.
Contacts
Company
Contacts Board Fax:
201-801-0243 corporategovernance@cognizant.com
Corporate
Secretary Fax:
201-801-0243 corporategovernance@cognizant.com
General
Counsel Fax:
201-801-0243 generalcounsel@cognizant.com Chief Compliance Officer Fax:
201-801-0243 chiefcomplianceofficer@cognizant.com
or mail to our principal executive
offices, attention to the applicable contact |
Our Principal
Executive Offices Cognizant Technology Solutions Glenpoint Centre West 500 Frank W. Burr
Blvd. Teaneck, New Jersey
07666
To Request
Copies of the Internet Notice or Proxy
Materials Broadridge Financial Solutions, Inc. (Tabulator/Inspector of
Election) Broadridge Householding Department 51 Mercedes
Way Edgewood, New York 11717 Phone: 800-542-1061
For Questions
or Assistance Voting Innisfree M&A Incorporated (Proxy Solicitor for the Company) Stockholders call toll-free: 888-750-5834 Banks and
brokers call collect: 212-750-5833 |
Table of Contents
Table of Contents
COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION
GLENPOINTE CENTRE WEST
500 FRANK W. BURR BLVD.
TEANECK, NJ 07666
VOTE BY INTERNET -
www.proxyvote.com or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for
electronic delivery of information up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Follow the instructions to obtain your
records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY
MATERIALS
If you would like to reduce the
costs incurred by our company in mailing proxy materials, you can consent to
receiving all future proxy statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign up for electronic delivery,
please follow the instructions above to vote using the Internet and, when
prompted, indicate that you agree to receive or access proxy materials
electronically in future years.
VOTE BY PHONE -
1-800-690-6903
Use any touch-tone
telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting date. Have your proxy card in hand
when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided or return it to Vote Processing, c/o
Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
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|
E27397-P90194 |
|
KEEP THIS PORTION FOR YOUR
RECORDS |
|
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DETACH AND
RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND
DATED. |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION |
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|
The Board of Directors recommends you vote FOR each of the
nominees: |
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1. |
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Election of Directors |
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Nominees |
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For |
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Against |
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Abstain |
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1a. |
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Zein
Abdalla |
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☐ |
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☐ |
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☐ |
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1b. |
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Betsy S. Atkins |
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☐ |
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☐ |
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☐ |
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1c. |
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Maureen
Breakiron-Evans |
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☐ |
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☐ |
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☐ |
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1d. |
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Jonathan Chadwick |
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☐ |
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☐ |
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☐ |
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1e. |
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John M. Dineen |
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☐ |
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☐ |
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☐ |
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1f. |
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Francisco D'Souza |
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☐ |
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☐ |
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☐ |
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1g. |
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John N. Fox, Jr. |
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☐ |
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☐ |
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☐ |
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1h. |
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John E. Klein |
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☐ |
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☐ |
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☐ |
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1i. |
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Leo S. Mackay, Jr. |
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☐ |
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☐ |
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☐ |
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1j. |
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Michael
Patsalos-Fox |
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☐ |
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☐ |
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☐ |
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1k. |
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Robert E. Weissman |
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☐ |
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☐ |
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☐ |
The Board of
Directors recommends you vote FOR proposal 2. |
|
For |
|
Against |
|
Abstain |
|
2. |
|
Approval, on an advisory
(non-binding) basis, of the compensation of the Company's named executive
officers. |
|
☐ |
|
☐ |
|
☐ |
|
The Board of
Directors recommends you vote 1 YEAR on proposal 3. |
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1
Year |
|
2
Years |
|
3
Years |
|
Abstain |
|
3. |
|
Approval, on an advisory
(non-binding) basis, of the frequency of future advisory votes on the
compensation of the Company's named executive officers. |
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☐ |
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☐ |
|
☐ |
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☐ |
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The Board of
Directors recommends you vote FOR proposals 4, 5 and 6. |
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For |
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Against |
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Abstain |
|
4. |
|
Approval of the Company's 2017
Incentive Award Plan. |
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☐ |
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☐ |
|
☐ |
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5. |
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Ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
registered public accounting firm for the year ending December 31,
2017. |
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☐ |
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☐ |
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☐ |
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6. |
|
Stockholder proposal
requesting that the Board of Directors take the steps necessary to
eliminate the supermajority voting provisions of the Company's Certificate
of Incorporation and By-laws. |
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☐ |
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☐ |
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☐ |
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The Board of
Directors recommends you vote AGAINST proposal 7. |
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For |
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Against |
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Abstain |
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7. |
|
Stockholder proposal
requesting that the Board of Directors take the steps necessary to permit
stockholder action by written consent. |
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☐ |
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☐ |
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☐ |
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Note:
To
transact such other business as may properly come before the meeting or
any continuation, postponement or adjournment thereof. |
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Please sign exactly as your
name(s) appear(s) hereon. When signing as attorney, executor,
administrator, or other fiduciary, please give full title as such. Joint
owners should each sign personally. All holders must sign. If a
corporation or partnership, please sign in full corporate or partnership
name by authorized officer. |
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Signature
[PLEASE SIGN WITHIN BOX] |
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Date |
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Signature (Joint
Owners) |
|
Date |
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Table of Contents
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available
at www.proxyvote.com.
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
OF
COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION CLASS A COMMON STOCK
JUNE
6, 2017
Please date, sign and mail your proxy
card in the envelope provided as soon as possible.
The undersigned stockholder(s) of
Cognizant Technology Solutions Corporation hereby appoint(s) Karen McLoughlin,
Chief Financial Officer of the Company, Robert Telesmanic, Senior Vice
President, Controller and Chief Accounting Officer of the Company, and Harry
Demas, Vice President, Assistant General Counsel and Assistant Secretary of the
Company, as proxies, with full power of substitution, to vote all shares of the
Company's Class A Common Stock which the undersigned stockholder(s) is/are
entitled to vote at the Company's 2017 Annual Meeting of Stockholders or any
postponement, continuation or adjournment thereof.
This proxy will be voted in the
manner directed herein by the undersigned stockholder. If no direction is made,
this proxy will be voted in accordance with the Board of Directors'
recommendations. The proxies are further authorized to vote in their discretion
(1) for the election of any person to the Board of Directors if any nominee
named herein becomes unable to serve or for good cause will not serve, (2) on
any matter that the Board of Directors did not know would be presented at the
Annual Meeting by a reasonable time before the proxy solicitation was made, and
(3) on such other business as may properly come before the meeting or any
continuation, postponement or adjournment thereof.
Continued and to be signed on reverse
side
This regulatory filing also includes additional resources:
ctsh_courtesy-pdf.pdf
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