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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[ ] Soliciting Material Pursuant to Section 240.14a-12
Syntel, Inc.
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CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
(SYNTEL LOGO)
May 8, 2006
Dear Shareholder:
It is my pleasure to invite you to attend Syntel's 2006 Annual Meeting of
Shareholders on Thursday, June 1, 2006, at 10:00 a.m. The meeting will be held
at the global headquarters of Syntel, Inc. located at 525 East Big Beaver Road,
Suite 300, Troy, Michigan. If you need directions to Syntel's global
headquarters, please contact us at (248) 619-2800.
The following pages contain the formal Notice of the Annual Meeting and the
Proxy Statement. You will want to review this material for information
concerning the business to be conducted at the meeting, which will consist of
the election of directors, voting on a proposed Amended and Restated Stock
Option and Incentive Plan, voting on a proposed Amended and Restated Employee
Stock Purchase Plan, and ratifying the appointment of Syntel's independent
registered public accounting firm.
Your vote is important. Whether or not you plan to attend the meeting, we
urge you to complete, sign, and return your proxy as soon as possible in the
envelope provided. This will ensure representation of your shares in the event
you are unable to attend. You may later revoke your proxy and vote in person at
the meeting if you wish.
Sincerely,
-s- Bharat Desai
Bharat Desai
Chairman, President, and Chief Executive
Officer
SYNTEL, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 1, 2006
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The Annual Meeting of Shareholders of Syntel, Inc., a Michigan corporation,
will be held on Thursday, June 1, 2006, at 10:00 a.m., at Syntel's global
headquarters located at 525 East Big Beaver Road, Suite 300, Troy, Michigan. The
purposes of the Annual Meeting are to:
1. elect six directors to serve on Syntel's Board of Directors;
2. vote on a proposal to adopt the Amended and Restated Stock Option and
Incentive Plan;
3. vote on a proposal to adopt the Amended and Restated Employee Stock
Purchase Plan;
4. ratify the appointment of Crowe Chizek and Company LLC as Syntel's
independent registered public accounting firm for the current fiscal
year; and
5. conduct any other business that is properly raised at the meeting or any
adjournment of the meeting.
Only shareholders of record at the close of business on April 6, 2006 may
receive notice of and vote at the meeting.
By Order of the Board of Directors
-s- Daniel M. Moore
May 8, 2006
Daniel M. Moore
Chief Administrative Officer
and Secretary
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WE WOULD LIKE SHAREHOLDERS TO COME TO THE MEETING, BUT, EVEN IF YOU PLAN TO
ATTEND, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENVELOPE PROVIDED.
SYNTEL, INC.
525 EAST BIG BEAVER ROAD, SUITE 300
TROY, MICHIGAN 48083
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, JUNE 1, 2006
SOLICITATION OF PROXIES
This proxy statement and the accompanying proxy are being distributed to
shareholders of Syntel, Inc. ("Syntel" or the "Company") in connection with the
solicitation of proxies to be used at Syntel's 2006 Annual Meeting of
Shareholders. The proxy is your vote as a shareholder of Syntel on the matters
presented at the Annual Meeting. The Annual Meeting will be held at Syntel's
global headquarters located at 525 East Big Beaver Road, Suite 300, Troy,
Michigan, on Thursday, June 1, 2006, at 10:00 a.m.
The enclosed proxy is solicited by Syntel's Board of Directors. This Proxy
Statement and the enclosed proxy were first mailed or given to shareholders
beginning on May 8, 2006. Syntel's 2005 Annual Report to Shareholders is also
enclosed with this Proxy Statement.
Syntel will pay the entire cost of soliciting proxies. Syntel will arrange
with brokerage houses, nominees, custodians, and other fiduciaries to send proxy
soliciting materials to beneficial owners of the Common Stock at Syntel's
expense.
REVOKING A PROXY
Any person giving a proxy has the power to revoke it at any time before it
is voted. There are three ways to revoke your proxy: (1) you may deliver a
written notice of revocation, dated after the date of your proxy, to the
inspectors of the election at or before the Annual Meeting; (2) you may deliver
a later-dated proxy to the inspectors of the election at or before the Annual
Meeting; or (3) you may attend the Annual Meeting in person and vote your shares
by ballot. If you decide to send your written notice of revocation or later-
dated proxy to the inspectors of election before the Annual Meeting, please send
it to the attention of the Chief Administrative Officer, Syntel, Inc., 525 East
Big Beaver Road, Suite 300, Troy, Michigan 48083 so that it will arrive before
June 1, 2006.
RECORD DATE
The record date for determining shareholders entitled to vote at the Annual
Meeting is April 6, 2006. Each of the 40,979,810 shares of Syntel's Common Stock
issued and outstanding on that date and not held in an account for Syntel's
benefit is entitled to one vote on any matter voted on at the Annual Meeting.
Abstentions and votes withheld by brokers on non-routine proposals in the
absence of instructions from beneficial owners ("broker non-votes") will be
counted as present at the Annual Meeting to determine whether a quorum exists.
MATTERS TO COME BEFORE THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
Under Syntel's Restated Articles of Incorporation, as amended, all of the
members of Syntel's Board of Directors are elected each year to hold office for
a one year term and until their successors are duly elected and qualified. There
are currently six members of the Board, including Paul Donovan, who was
appointed to the Board on March 13, 2006 to fill a vacancy on the Board created
by a former director's decision last year to not stand for reelection to the
Board. Mr. Donovan is standing for election to the Board of Directors on June 1,
2006 with the other members.
Six directors are to be elected at this year's Annual Meeting. Each
director elected will serve a one year term ending at Syntel's 2007 Annual
Meeting of Shareholders. The nominees named below were recommended for
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nomination for election at this Annual Meeting of Syntel's shareholders by
Syntel's Nominating and Corporate Governance Committee and nominated by the full
Board of Directors. Except where the authority to do so has been withheld, it is
the intention of the persons named in the proxy provided with this proxy
statement to vote to elect the nominees named below as directors.
The six nominees receiving the highest number of votes cast at the Annual
Meeting in person or by proxy will be elected as directors. Shares not voted
(whether by abstention, broker non-votes or otherwise) have no effect on the
election. In case any nominee is unable or declines to serve, proxies will be
voted for another person designated by the Board of Directors to replace the
nominee. However, the Board of Directors does not anticipate this will occur.
For the 2006 Annual Meeting of Shareholders, each proxy may be voted for no more
than six director nominees.
Information concerning the nominees for election, with respect to age and
positions with Syntel or other principal occupations for the past five years,
follows.
Paritosh K. Choksi, age 53, is Executive Vice President, Chief Operating
Officer, and Chief Financial Officer and a director of ATEL Capital Group, a
financial services management company, and has served in those capacities since
April 2001. From May 1999 to April 2001, Mr. Choksi was Chief Financial Officer,
Senior Vice President, and a director of ATEL Capital Group. Mr. Choksi has been
a director of Syntel since August 1997. Mr. Choksi has also been named the Lead
Director on the Board of Directors and in that capacity chairs the Board of
Directors in the absence of the Chairperson of the Board and also chairs the
executive sessions of the independent members of the Board of Directors.
Bharat Desai, age 53, is a co-founder of Syntel and has served as its
Chairman of the Board, President and Chief Executive Officer and as a director
since February 1999. He has served as its President and Chief Executive Officer
and as a director since its formation in 1980. Mr. Desai is the spouse of Ms.
Sethi.
Paul R. Donovan, age 59, currently retired, served from October 1999 to
September 2005 as an Executive Vice President and CIO, Information Technology
with ING Americas, a financial services company offering banking, insurance, and
asset management services. Mr. Donovan has been a director of Syntel since March
2006.
George R. Mrkonic, age 53, currently retired, served as the Vice Chairman
of Borders Group, Inc., a retailer of books, music, and educational
entertainment media products headquartered in Ann Arbor, Michigan from December
1994 until January 2002, and served as a director of Borders Group, Inc. from
August 1994 until January 2005. Mr. Mrkonic is also a director of (i) Nashua
Corporation, a manufacturer of specialty imaging products and services to
industrial and commercial customers to meet various print application needs,
(ii) Guitar Center, Inc., the nation's leading retailer of guitars, amplifiers,
percussion instruments, keyboards and pro-audio and recording equipment, and
(iii) Brinker International, Inc., the parent company of a diverse portfolio of
casual dining restaurant concepts. Mr. Mrkonic has been a director of Syntel
since August 1997.
Vasant Raval, age 66, has been a Professor and Chair of the Department of
Accounting at Creighton University since 2001. Mr. Raval joined the faculty of
Creighton University in 1981 and has served as Professor of Accounting and
Associate Dean and Director of Graduate Programs at the College of Business
Administration. Mr. Raval is also a director of InfoUSA, Inc., a provider of
business and consumer information products, database marketing services, data
processing services, and sales and marketing solutions. Mr. Raval has been a
director of Syntel since January 2004.
Neerja Sethi, age 51, is a co-founder of Syntel and has served as a Vice
President and a director since Syntel's formation in 1980. Ms. Sethi is the
spouse of Mr. Desai.
BOARD RECOMMENDATION
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES LISTED
ABOVE.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors meets regularly, at least once each quarter. During
2005, the Board of Directors held eleven meetings. The standing committees
established by the Board of Directors are described below. The Board of
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Directors has determined that each of Messrs. Choksi, Donovan, Mrkonic, and
Raval are independent under the listing standards of the National Association of
Securities Dealers ("NASD") in that such directors have no relationships which
would interfere with their exercise of independent judgment in carrying out
their responsibilities as a director.
Audit Committee. The Audit Committee is responsible for, among other
things, appointing an independent registered accounting firm to conduct the
independent audit of Syntel, periodically reviewing the qualifications of
Syntel's independent auditors, reviewing the scope and results of any audit, and
reviewing fees charged by the independent auditors for audit service, non-audit
service, and related matters. The Audit Committee met eleven times during 2005.
The members of the Audit Committee are Vasant Raval (Committee Chairperson),
Paritosh K. Choksi, Paul R. Donovan, and George R. Mrkonic, Jr. The Board has
determined that Vasant Raval is an "audit committee financial expert" and that
each member of the Audit Committee is independent and qualified to serve on the
Committee under the NASD listing standards. The Audit Committee charter is
attached to this proxy statement as Appendix A and is also available on Syntel's
website at www.syntelinc.com on the corporate governance page in the "investors"
section of the website.
Compensation Committee. The Compensation Committee develops and monitors
the executive compensation policies of Syntel. The Compensation Committee is
responsible for the administration of all salary and incentive compensation
plans, including bonuses, for the chief executive officer, other officers, and
the key employees of Syntel. The Compensation Committee also administers
Syntel's 1997 Stock Option and Incentive Plan and the 1997 Employee Stock
Purchase Plan. The Compensation Committee met eight times during 2005. The
members of the Compensation Committee are Paritosh K. Choksi (Committee
Chairperson), Paul R. Donovan, and George R. Mrkonic, Jr. The Board has
determined that each member of the Committee is independent under the NASD
listing standards. The Compensation Committee charter is available on Syntel's
website at www.syntelinc.com on the corporate governance page in the "investors"
section of the website.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee is responsible for identifying and recommending
to the Board of Directors nominees, including nominees submitted by
shareholders, who are qualified to serve on Syntel's Board of Directors, to
develop and periodically review corporate governance principles for Syntel, and
oversee the evaluation of Board members and management. The Nominating and
Corporate Governance Committee met seven times during 2005. The members of the
Nominating and Corporate Governance Committee are George R. Mrkonic, Jr.
(Committee Chairperson), Paritosh K. Choksi, and Vasant Raval. The Board of
Directors has determined that each member of the Committee is independent under
the NASD listing standards. The Nominating and Corporate Governance Committee
charter is available on Syntel's website at www.syntelinc.com on the corporate
governance page in the "investors" section of the website.
The Nominating and Corporate Governance Committee's policy with respect to
the consideration of director candidates recommended by shareholders is that it
will consider such candidates on the same basis as it considers all director
candidates. In considering director candidates, the Nominating and Corporate
Governance Committee will consider such factors as it deems appropriate to
assist in developing a Board and committees that are diverse in nature and
comprised of experienced and qualified advisors. These factors may include
judgment, skill, diversity (including factors such as race, gender or
experience), integrity, experience with businesses and other organizations of
comparable size, the interplay of the candidate's experience with the experience
of other Board members, and the extent to which the candidate would be a
desirable addition to the Board and any committees of the Board.
The Nominating and Corporate Governance Committee considers candidates for
Board membership suggested by its members and other Board members and
management, as well as shareholders. The Nominating and Corporate Governance
Committee has retained third party search firms from time to time to identify
and evaluate candidates, and the Committee is authorized to continue that
practice. The Nominating and Corporate Governance Committee is authorized to
engage or consult from time to time, as appropriate, at Syntel's expense,
consultants, independent legal counsel and other experts and advisors it
considers necessary, appropriate or advisable in the discharge of its
responsibilities. Shareholders may propose nominees for consideration by the
Nominating and Corporate Governance Committee by submitting the names and
supporting information to: Syntel, Inc., 525 East Big Beaver Road, Suite 300,
Troy, Michigan 48083, Attn: Chief Administrative Officer.
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Executive Committee. The Executive Committee assists the Board of
Directors in discharging its duties relating to Syntel's strategic vision. The
Executive Committee met four times during 2005. The members of the Executive
Committee are Paritosh K. Choksi (Committee Chairperson), Bharat Desai, and
Neerja Sethi. The Executive Committee charter is available on Syntel's website
at www.syntelinc.com on the corporate governance page in the "investors" section
of the website.
MEETING ATTENDANCE AND SHAREHOLDER COMMUNICATIONS WITH DIRECTORS
During 2005, all current directors attended at least 75% of the meetings of
the Board of Directors and the committees on which they served. In 2005, two
directors attended the Annual Meeting of Shareholders. Syntel does not have a
policy on individual director attendance at annual shareholder meetings.
Shareholders may send written communications to the Board, committees of the
Board, and individual directors by mailing those communications to our Corporate
Secretary at Syntel, Inc., 525 East Big Beaver Road, Suite 300, Troy, Michigan
48083, who will forward all such communications to the addressee(s).
Shareholders may also communicate with the Board of Directors, or only with the
independent directors, by means of the incident reporting process at
www.mysafeworkplace.com.
COMPENSATION OF DIRECTORS
Directors who are also employees of Syntel do not receive any additional
compensation for their service as a Director. Directors who are not employees of
Syntel are paid a $25,000 annual retainer as well as $2,500 for attending in
person each meeting of the Board and committees held in the United States and
$7,500 for attending in person each meeting of Syntel's directors held in India.
No fees are paid for Board or Committee meetings held by telephone conference
call. Committee chairpersons also receive annual retainers in addition to those
they receive as Board members. The Audit Committee chairperson receives an
annual retainer of $10,000 and all other committee chairpersons receive an
annual retainer of $5,000. Upon being elected at an annual shareholder meeting,
each non-employee director also receives, under Syntel's 1997 Stock Option and
Incentive Plan, a number shares of restricted stock equal to $55,000. The number
of shares is determined by dividing $55,000 by the closing price of Syntel's
stock on the day of the annual shareholder meeting. That restricted stock vests
on the one year anniversary of its grant. Beginning with the Board members
elected next year, at the 2007 Annual Meeting of Shareholders, the number shares
of restricted stock granted will be increased to equal $80,000.
PROPOSAL 2. PROPOSAL TO ADOPT THE AMENDED AND
RESTATED STOCK OPTION AND INCENTIVE PLAN
We are requesting that the shareholders vote in favor of adopting the
Amended and Restated Stock Option and Incentive Plan (the "Stock Option Plan").
The Stock Option Plan was approved by the Board on April 17, 2006, subject to
shareholder approval at the Annual Meeting of Shareholders. The 1997 Stock
Option and Incentive Plan currently provides for the grant of stock options,
stock appreciation rights, restricted stock, performance shares and annual
incentive awards. The 1997 Stock Option and Incentive Plan terminates by its
terms in April 2007. The Stock Option Plan amends and restates the 1997 Stock
Option and Incentive Plan, updates and expands its flexibility and extends its
termination date to June 1, 2016.
The Stock Option Plan is being submitted for approval by shareholders in
accordance with NASDAQ listing requirements. The Stock Option Plan is also being
submitted, among other reasons, to ensure that certain awards granted under the
Stock Option Plan may qualify as "performance-based compensation" under Section
162(m) of the Internal Revenue Code.
SUMMARY OF THE STOCK OPTION PLAN
The principal features of the Stock Option Plan are summarized below and
are substantially the same as those of the current version of the 1997 Stock
Option and Incentive Plan. Appendix B to this proxy statement contains a copy of
the Stock Option Plan as proposed to be adopted. The following summary of the
principal features of the Stock Option Plan is qualified in its entirety by
reference to Appendix B to this proxy statement.
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Purpose. The Stock Option Plan will allow the Company, under the direction
of the Compensation Committee, to offer to employees and non-employee directors
a variety of equity-based incentives, including stock options, restricted stock,
restricted stock units, performance-based stock awards, annual incentive awards,
and stock appreciation rights through June 1, 2016. These awards may or may not
require the attainment of performance objectives. The purposes of these awards
are (i) to promote the best interests of the Company and its shareholders by
encouraging employees and non-employee directors to acquire an ownership
interest in the Company through the granting of stock based awards thus aligning
their interests with those of the shareholders, and (ii) to enhance the ability
of the Company to attract, retain, motivate and reward qualified employees and
non-employee Directors. If approved, the Stock Option Plan will provide an
essential component of the total compensation package offered to employees,
reflecting the importance that the Company places on motivating and rewarding
results with long-term, performance-based incentives.
Plan Administration. The Stock Option Plan will be administered by our
Compensation Committee. The members of the Committee consist of outside
directors who qualify as (i) "independent directors" under NASDAQ listing
standards, (ii) "non-employee directors" within the meaning of Rule 16b-3 of the
Exchange Act, and (iii) "outside directors" for purposes of section 162(m) of
the Internal Revenue Code. The Compensation Committee will select the
participants who receive awards, determine the number of shares or amount of
award covered thereby, and, subject to the terms and limitations expressly set
forth in the Stock Option Plan, establish the terms, conditions and other
provisions of the grants. The Compensation Committee may interpret the Stock
Option Plan and establish, amend and rescind any rules relating to the Stock
Option Plan.
Shares Subject to the Stock Option Plan. The Stock Option Plan authorizes
the issuance of up to 8,000,000 shares of our common stock, 3,266,314 have been
previously issued or are subject to outstanding awards under the current version
of the 1997 Plan. Any shares subject to an award under the Stock Option Plan
that are forfeited, cancelled or settled for cash, or expire or otherwise are
terminated without issuance of such shares, shall be available for awards under
the Stock Option Plan. In the event that any option or other award granted under
the Stock Option Plan is exercised through the delivery of shares or in the
event that withholding tax liabilities arising from such option or other award
are satisfied by the withholding of shares by us, the number of shares available
for awards under the Stock Option Plan shall be increased by the number of
shares so surrendered or withheld. In addition, substitute awards will not
reduce the shares available for grant under the Stock Option Plan or to a
participant in any fiscal year. In the event of any merger, reorganization,
consolidation, recapitalization, dividend or distribution, stock split, reverse
stock split, spin-off or similar transaction or other change in corporate
structure affecting the shares, such adjustments and other substitutions shall
be made to the Stock Option Plan and to awards as the Committee in its sole
discretion deems equitable or appropriate.
Individual Award Limits. Under the Stock Option Plan, no participant may
be granted in any one fiscal year (i) stock options and/or stock appreciation
rights with respect to more than 100,000 shares, (ii) restricted stock or
restricted stock units denominated in shares of common stock with respect to
more than 25,000 shares; and (iii) performance awards denominated in shares of
common stock with respect to more than 25,000 shares. The maximum dollar value
payable to any participant in any one fiscal year with respect to restricted
stock units, performance awards or annual incentive awards is the lesser of
$1,000,000 or two times the participant's base salary.
Eligibility. Any employee or non-employee director shall be eligible to be
selected as a participant. Incentive stock options may be granted only to
employees of the Company or its subsidiaries. As of December 31, 2005, there
were approximately 6,100 employees and three non-employee directors eligible for
grants under the Stock Option Plan.
Awards. The Stock Option Plan allows the Compensation Committee to offer a
variety of equity-based incentives, including stock options, stock appreciation
rights, restricted stock or restricted stock units, performance awards, and
annual incentive awards, any or all of which may be made contingent upon the
achievement of performance criteria.
Stock Options. Stock options may be granted under the Stock Option Plan to
participants either alone or in addition to other awards granted under the Stock
Option Plan and may be an incentive stock option or a non-qualified stock option
grant. The Committee in its discretion shall determine the general terms and
conditions of option exercise, including the option exercise price, option term
and applicable vesting requirements, which will be
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evidenced by an award agreement in such form as the Committee may determine.
Stock options may not be granted with an exercise price below the fair market
value of a share of common stock on the date of the grant. No stock option shall
be exercisable after the expiration of ten years from the date the stock option
is granted.
Unless otherwise provided in a participant's agreement, payment of the
stock option exercise price may be made by delivery of cash, shares or other
consideration approved by the Committee (including, where permitted by law,
awards) having a fair market value on the exercise date equal to the total stock
option price, or by any combination of cash, shares and other consideration as
the Committee may specify in the participant's agreement.
Stock Appreciation Rights. The Committee may impose such conditions or
restrictions on the exercise of any stock appreciation right as it shall deem
appropriate, provided that no stock appreciation right shall have a term that is
longer than ten years or an exercise price below the fair market value of the
stock on the date of grant. Stock appreciation rights may not be granted to
participants in tandem with stock options granted under the Stock Option Plan. A
stock appreciation right may be exercised for cash, stock or a combination
thereof as designated by the Committee.
Restricted Stock and Units. Restricted stock or stock units shall be
subject to restrictions imposed by the Committee during a period of time
specified by the Committee (the restriction period). Restricted stock awards may
be issued under the Stock Option Plan to participants, for no cash consideration
or for such consideration as the Committee may determine, either alone or in
addition to other awards granted under the Stock Option Plan. Except as
otherwise determined by the Committee at the time of grant or thereafter, upon
termination of employment for any reason during the restriction period, all
shares or units of restricted stock still subject to forfeiture shall be
forfeited by the participant and reacquired by us.
Performance Awards. Performance awards consist of rights to receive cash,
common stock or other property if designated performance goals are achieved. At
the discretion of the Committee, performance awards may be granted as
performance shares (evidenced by the receipt of a legended certificate) or
performance units. The terms of each performance award will be set forth in a
participant's agreement, which will specify the performance goals, the
applicable participant or group of participants, the performance period, the
payment schedule if the goals are achieved, and other terms as determined by the
Committee.
Annual Incentive Awards. Annual incentive awards may be granted under the
Stock Option Plan based upon the attainment of specified levels of Company
performance as measured by performance criteria determined at the discretion of
the Committee. Annual incentive awards may be payable in cash, shares of common
stock or other property at the discretion of the Committee.
Section 162(m) Awards. Awards may be based on performance criteria that
satisfy Section 162(m) of the Internal Revenue Code. To the extent that awards
are intended to qualify as "performance-based compensation" under Section
162(m), the performance criteria will be one or more of the following objective
performance goals, either individually, alternatively or in any combination,
applied to either the company as a whole or to a business unit, division or
subsidiary, either individually, alternatively, or in any combination, and
measured over a designated performance period, in each case as specified by the
Compensation Committee in the award:
- earnings (as measured by net income, operating income, operating income
before interest, EBIT, EBITA, EBITDA, pre-tax income, or cash earnings,
or earnings as adjusted by excluding one or more components of earnings,
including each of the above on a per share and/or segment basis);
- sales/net sales;
- return on net sales (as measured by net income, operating income,
operating income before interest, EBIT, EBITA, EBITDA, pre-tax income,
operating cash flow or cash earnings as a percentage of net sales);
- sales growth;
- cash flow;
- operating cash flow;
- free cash flow;
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- discounted cash flow;
- working capital;
- market capitalization;
- cash return on investment -- CRI;
- return on capital;
- return on cost of capital;
- shareholder value;
- return on equity;
- total shareholder return;
- return on investment;
- economic value added;
- return on assets/net assets;
- stock trading multiples (as measured vs. investment, net income,
operating income, operating income before interest, EBIT, EBITA, EBITDA,
pre-tax income, cash earnings or operating cash flow);
- stock price;
- attainment of strategic or operational initiatives.
The Committee may in its discretion, reduce any award where it deems such
reduction appropriate in light of pay practices of competitors, the performance
of the Company or a participant relative to the performance of competitors, or
performance with respect to the Company's strategic business goals.
Change in Control. In a participant's award agreement or otherwise, the
Committee may, in its discretion, provide in a participant's agreement or
otherwise, in the event of a change in control (as defined in the Stock Option
Plan), for the assumption of outstanding awards, the accelerated vesting or
accelerated expiration of outstanding awards, the settlement of outstanding
awards in cash, or such other treatment as the Committee may determine.
Effective Date of the Plan. The Stock Option Plan shall be effective as of
the date the shareholders approve the Plan in 2006.
Term of the Plan. No award shall be granted pursuant to the Stock Option
Plan after June 1, 2016, but any award granted on or prior to June 1, 2016 under
the Stock Option Plan may extend beyond that date.
Plan Amendments. The Board may amend or modify the Stock Option Plan at
any time and from time to time. Generally, however, shareholder approval is
required to materially increase participant benefits, to increase the amount of
Common Stock available for awards, to change Plan eligibility or to permit
repricing of options or stock appreciation rights.
New Plan Benefits. Because benefits under the Stock Option Plan will
depend on the Committee's actions and the fair market value of common stock at
various future dates, it is not possible to quantify the benefits that will be
received by directors, executive officers and other employees if the Stock
Option Plan is approved by the shareholders. No awards will be granted under the
Stock Option Plan until after shareholder approval is obtained. If the Stock
Option Plan had been in effect during 2005, executive officers, other employees,
and non-employee directors would have received the same benefits as those
actually received during 2005 and described in this Proxy Statement.
7
U.S. TAX CONSEQUENCES
Stock Options. Stock option grants under the Stock Option Plan may either
be incentive stock options under section 422 of the IRC or non-qualified stock
options governed by section 83 of the IRC. Generally, no taxable income is
recognized by a participant upon the grant of a stock option and no deduction is
taken by the Company.
Under current tax laws, when an incentive stock option is exercised the
participant has no taxable income providing applicable holding periods have been
satisfied (except that alternative minimum tax may apply) and the Company
receives no tax deduction. When a participant exercises a non-qualified stock
option, he or she will have taxable income equal to the difference between the
fair market value of the Common Stock on the exercise date and the stock option
exercise price. The Company will be entitled to a corresponding deduction on its
federal income tax return.
The tax treatment for a participant upon a disposition of shares acquired
through the exercise of an option depends on how long the shares were held and
on whether the shares were acquired by exercising an incentive stock option or a
non-qualified stock option. The Company may be entitled to a tax deduction in
the case of a disposition of shares acquired under an incentive stock option if
such disposition occurs before the applicable holding periods have been
satisfied.
Restricted Stock. In general, a participant who receives restricted stock,
and who has not made an election under section 83(b) of the IRC to be taxed upon
receipt, will have taxable income equal to the fair market value of the
restricted stock at the earlier of the first time the rights of the participant
are transferable or the restrictions lapse. The Company is entitled to a tax
deduction when the participant recognizes income.
Stock Appreciation Rights. A participant will not be taxed at the time a
stock appreciation right is granted nor will the Company receive a tax
deduction. Upon exercise of a stock appreciation right, the participant will
recognize ordinary income equal to the cash or the fair market value of the
stock received on the exercise date. However, if restrictions apply, the
participant will have taxable income when such restrictions lapse, unless the
participant makes an election under section 83(b) of the IRC to be taxed upon
receipt. The Company generally will be entitled to a corresponding tax deduction
at the time ordinary income is recognized by the participant.
Performance Awards and Other Stock Unit Awards. A participant who is
awarded performance awards and other stock unit awards will not recognize
taxable income and the Company will not receive a tax deduction at the time the
award is made. When a participant receives payment for performance awards and
other stock unit awards in shares of Company Common Stock or cash, the fair
market value of the shares or the amount of the cash received will be ordinary
income to the participant and the Company will receive a tax deduction. However,
if any shares of Common Stock used to pay out earned performance awards and
other stock unit awards are non-transferable and there is a substantial risk
that such shares will be forfeited (for example, because the Committee
conditions those shares on the performance of future services), the taxable
event is deferred until either the risk of forfeiture or the restriction on
transferability lapses. In this case, the participant may be able to make an
election under section 83(b) of the IRC to be taxed upon receipt. The Company is
entitled to a corresponding tax deduction at the time ordinary income is
recognized by the participant.
Section 162(m) Awards. As described above, awards granted under the Stock
Option Plan may qualify as "performance-based compensation" under IRC section
162(m) to preserve the Company's federal income tax deductions for annual
compensation required to be taken into account under IRC section 162(m) that is
in excess of $1 million and paid to any of the Company's five most highly
compensated executive officers. To qualify, options and other awards must be
granted under the Stock Option Plan by a committee consisting solely of two or
more "outside directors" (as defined under section 162 regulations) and satisfy
the Stock Option Plan's limit on the total number of shares or maximum dollar
amount that may be awarded to any one participant during any calendar year. In
addition, for awards other than options to qualify, the grant, issuance, vesting
or retention of the award must be contingent upon satisfying one or more of the
performance criteria described above, as established and certified by a
committee consisting solely of two or more "outside directors."
The foregoing is only a summary of the effect of U.S. federal income
taxation upon recipients of awards and the Company with respect to the grant and
exercise of awards under the Stock Option Plan. It does not purport to be
8
complete and does not discuss the tax consequences arising in the context of the
participant's death or the income tax laws of any municipality, state or foreign
country in which the participant's income or gain may be taxable.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS.
The affirmative vote of a majority of the votes cast is required for
adoption of the Amended and Restated Stock Option and Incentive Plan. Shares not
voted, whether by marking "Abstain" on your proxy card, by broker non-votes, or
otherwise, will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED AND
RESTATED STOCK OPTION AND INCENTIVE PLAN.
PROPOSAL 3. PROPOSAL TO ADOPT THE AMENDED AND
RESTATED EMPLOYEE STOCK PURCHASE PLAN
We are requesting that the shareholders vote in favor of adopting the
Amended and Restated Employee Stock Purchase Plan (the "Stock Purchase Plan").
The Amended and Restated Employee Stock Purchase Plan was approved by the Board
on April 17, 2006, subject to shareholder approval at the Annual Meeting of
Shareholders. The current version of the Stock Purchase Plan terminates by its
terms in April 2007. The Amended and Restated Employee Stock Purchase Plan
updates the provisions of the Employee Stock Purchase Plan and extends its
termination date until May 31, 2016. We are seeking shareholder approval to
qualify the Stock Purchase Plan as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code.
SUMMARY OF THE STOCK PURCHASE PLAN
The principal features of the Stock Purchase Plan are summarized below.
Appendix C to this proxy statement contains a copy of the Stock Purchase Plan as
proposed to be adopted. The following summary of the principal features of the
Stock Purchase Plan is qualified in its entirety by reference to Appendix C to
this proxy statement.
Purpose. The Stock Purchase Plan allows the Company, under the direction
of the Compensation Committee, to provide eligible employees with an opportunity
to purchase shares of the common stock of the Company. The purposes of the Stock
Purchase Plan are (i) to promote the best interests of the Company and its
shareholders by encouraging employees to acquire an ownership interest in the
Company through the purchase of stock in the Company thus aligning their
interests with those of the shareholders, and (ii) to enhance the ability of the
Company to attract, motivate and retain qualified employees. We believe that the
Stock Purchase Plan offers a convenient means for our employees who might not
otherwise own our common shares to purchase and hold common shares. We also
believe that the ability to acquire shares at a discount to market and without
broker fees offers a meaningful incentive to participate.
Plan Administration. The Stock Purchase Plan will be administered by our
Compensation Committee which has broad power to make determinations under the
Stock Purchase Plan. The Compensation Committee may interpret the Stock Purchase
Plan and establish, amend and rescind any rules relating to the Stock Purchase
Plan.
Shares Subject to the Stock Purchase Plan. The Stock Purchase Plan
authorizes the issuance of up to 1,500,000 shares of our common stock, 738,619
of which have been previously issued under the current version of the Employee
Stock Purchase Plan. Any shares subject to any unexercised portion of any
terminated, canceled or expired option granted under the Stock Purchase Plan may
again be used for options under the Stock Purchase Plan. In the event of any
merger, reorganization, consolidation, recapitalization, dividend or
distribution, stock split, reverse stock split, spin-off or similar transaction
or other change in corporate structure affecting the shares, such adjustments
and other substitutions shall be made to the Stock Purchase Plan and to options
as the Committee in its sole discretion deems equitable or appropriate.
Plan Participants. All employees of the Company and its subsidiaries,
including officers and directors who are employees, who have (i) completed six
full months of service with the Company, and (ii) whose customary employment is
for more than 20 hours per week and five or more months per calendar year at the
time of an offer, are eligible to participate in the Stock Purchase Plan.
Participation in the Stock Purchase Plan is voluntary and is
9
dependent upon each eligible employee's election to participate and his or her
determination as to the desired level of participation, subject to the Stock
Purchase Plan's limits. As of the record date, approximately 6,000 of our
employees were eligible to participate in the Stock Purchase Plan.
No employee shall be eligible to participate in a grant of option rights if
(i) such option rights, together with option rights granted under any other
stock purchase plans of the Company and its subsidiaries, would permit the
employee to accrue option rights in excess of $25,000 of the fair market value
of such shares for any calendar year in which an option is outstanding, or (ii)
after the grant of option rights, the employee would own common stock exceeding
5% of the total combined voting power or value of all outstanding common stock
of the Company or its subsidiaries (as calculated under the attribution rules in
the Code).
Purchases Under the Stock Purchase Plan. An employee electing to
participate in the Stock Purchase Plan must authorize payroll deductions
expressed as a stated dollar amount, a percentage of the employee's regular pay
or a specified number of shares within the dollar and share limits of the plan
for the purpose of purchasing shares of Common Stock over a purchase period of 6
to 27 months, such period to be set by the Compensation Committee. The maximum
number of shares of Common Stock an employee may purchase during a purchase
period shall be determined by the Compensation Committee, but may not exceed
2,500 shares during any 6 month purchase period. The maximum payroll deduction
that may be authorized may not exceed 30% of the employee's cash compensation
during any purchase period.
The price at which employees may purchase Common Stock will be set by the
Compensation Committee at not less than the lesser of 85% of the fair market
value of the Nasdaq National Market on the first day of the purchase period or
85% of the fair market value of the Common Stock on the last day of the purchase
period. As of the record date, the closing sale price of our common stock was
$18.80 per share.
After initial enrollment in the Stock Purchase Plan, payroll deductions
will continue from purchase period to purchase period unless the participant
makes another election to terminate his or her payroll deductions, terminates
his or her employment with the Company or becomes ineligible to participate in
the Stock Purchase Plan. Employee payroll deductions may only be suspended at
the discretion of the Compensation Committee in the event of an unforeseen
hardship. The amounts deducted will be credited to the participant's account
under the Stock Purchase Plan, but we will not establish any actual separate
account to hold such amounts and we will not pay any interest on the deducted
amounts.
If insufficient shares remain available in any purchase period under the
Stock Purchase Plan, the shares available will be allocated pro rata among the
participants in that purchase period in the same proportion that their base
salary bears to the total of the base salaries of all participants for that
purchase period. Any amounts not applied to the purchase of common shares will
be refunded to the participants after the end of the purchase period without
interest.
If a participant ceases to be one of our employees for any reason, the
Company will issue a check to the former employee or his or her estate, within a
reasonable time after termination, in the amount of all payroll deductions
collected from the participant and not used to purchase shares as of the
termination date.
Amendment of the Stock Purchase Plan. The Board may terminate the Stock
Purchase Plan at any time. No purchase period may begin after June 1, 2016. The
Board may amend the Stock Purchase Plan at any time, but no amendment may
disqualify the Stock Purchase Plan under Section 423 of the Code or Rule 16b-3
under the Securities Exchange Act of 1934, as amended, without shareholder
approval. No amendment or termination will adversely affect any right to
purchase shares that has been granted under the Stock Purchase Plan without the
consent of the participant.
Change in Control of the Company. If we are acquired or are otherwise
involved in a merger transaction in which the Company is the surviving entity or
a share exchange in which the Company is a constituent corporation, each
participant will be entitled to receive, at the end of the purchase period, in
lieu of the shares which the participant is otherwise entitled to receive, the
consideration which the participant would have been entitled to receive pursuant
to the terms of the applicable agreement at the time of the merger or share
exchange transaction if the participant had been a holder of record of such
shares. If a merger or share exchange transaction occurs in which the Company is
not the surviving entity, the purchase period automatically will terminate as of
the date of the
10
merger or share exchange transaction and each participant's outstanding rights
to acquire common shares under the Stock Purchase Plan will be deemed exercised
as of the time immediately prior to the merger or share exchange transaction to
the extent payroll deductions were made prior to such time.
New Plan Benefits. Since participation is voluntary and the number of
purchase periods and the purchase prices of shares under the Stock Purchase Plan
are subject to the discretion of the Compensation Committee and prevailing
market prices of the common stock from time to time, the benefits to be received
by participants are not determinable.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States federal
income tax consequences to us and to participants in the Stock Purchase Plan
based on the Internal Revenue Code as currently in effect. This summary is
necessarily general in nature and does not purport to be complete.
The Stock Purchase Plan is intended to be an "employee stock purchase plan"
as defined in Section 423 of the Internal Revenue Code. That section provides
that a participant in the Stock Purchase Plan will generally realize no taxable
income as a result of the grant or exercise of rights to acquire common shares
under the Stock Purchase Plan. Amounts deducted from a participant's
compensation to purchase shares under the Stock Purchase Plan are taxable income
to participants in the year in which the amounts would otherwise have been
received.
If the shares acquired under the Stock Purchase Plan are sold by the
participant more than two years after the grant of the applicable right (i.e.,
the beginning of the applicable offering period) and one year from the exercise
date, the participant will recognize as ordinary income an amount equal to the
lesser of (1) the amount by which the fair market value of the shares when
purchased exceeds the purchase price (i.e., the discount below fair market
value), or (2) the amount, if any, by which the fair market value of the shares
at the time of the sale exceeds the purchase price. The participant's tax basis
in the shares purchased will increase by the amount recognized as ordinary
compensation income and any further gain recognized on the sale will be treated
as capital gain. We will not be entitled to a deduction for federal income tax
purposes with respect to such sale.
However, if the shares acquired under the Stock Purchase Plan are sold by
the participant within two years after the grant of the applicable right or
within one year of the exercise date, the participant will recognize ordinary
income in the year of such sale, the amount of which generally will be the
excess of the fair market value of the shares on the date the shares were
purchased (i.e., the end of the applicable offering period) over the purchase
price for those shares. The participant's tax basis will increase by the amount
recognized as compensation and any further gain or loss realized upon the sale
will be capital gain or loss. In general, we will be entitled to a tax deduction
for federal income tax purposes at the time of such sale in an amount equal to
the ordinary compensation income recognized by the participant. However, if the
participant is one of our five most highly compensated employees in the year of
sale, no deduction will be available to us to the extent the participant's total
ordinary compensation income during that year exceeds $1 million.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS.
The affirmative vote of a majority of the votes cast is required for
adoption of the Amended and Restated Employee Stock Purchase Plan. Shares not
voted, whether by marking "Abstain" on your proxy card, by broker non-votes, or
otherwise, will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED AND
RESTATED EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL 4. RATIFYING THE APPOINTMENT OF
SYNTEL'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ratification of the appointment of Crowe Chizek and Company LLC ("Crowe
Chizek") for the current fiscal year requires the affirmative vote of a majority
of the shares present at the meeting, in person or by proxy. Syntel's 2006
fiscal year began on January 1, 2006 and will end on December 31, 2006. You may
vote "for", "against", or
11
"abstain" from the proposal to ratify the appointment of Crowe Chizek as
Syntel's independent registered public accounting firm for the current fiscal
year. In the event the shareholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will reconsider its selection. Even if the
appointment is ratified, the Audit Committee, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Audit Committee feels that such a change would be in Syntel's and
its shareholders' best interests.
Crowe Chizek has audited Syntel's financial statements since July 2004. Its
representatives are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
Ratification of the selection of Crowe Chizek to serve as Syntel's
independent registered public accountants for the 2006 fiscal year requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Annual Meeting. Shares not voted (whether
by abstention, broker non-votes or otherwise) have the effect of a vote against
the proposal. PROXIES RECEIVED BY SYNTEL WILL BE VOTED IN FAVOR OF APPROVAL OF
THE RATIFICATION UNLESS A CONTRARY CHOICE IS INDICATED.
BOARD RECOMMENDATION
THE BOARD RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE SELECTION OF
CROWE CHIZEK TO SERVE AS SYNTEL'S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR
THE 2006 FISCAL YEAR.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Crowe Chizek was selected by the Audit Committee to serve as Syntel's
independent registered public accounting firm for the fiscal year ending
December 31, 2006. Crowe Chizek also served as Syntel's independent registered
public accounting firm for Syntel's 2005 and 2004 fiscal year end financial
statements and the third quarter of 2004. Ernst & Young LLP ("E&Y") served as
independent registered public accounting firm for Syntel and reviewed its
quarterly financial statements for the first two quarters of 2004.
AUDIT FEES
The following table lists the aggregate fees for professional services
rendered by Crowe Chizek and E&Y for all "Audit Fees," "Audit-Related Fees,"
"Tax Fees," and "All Other Fees" which pertain to the last two fiscal years.
FISCAL YEAR ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
Audit Fees.......................................... $306,250 $342,100
Audit Related Fees.................................. $ 8,500 $ 7,500
Tax Fees............................................ $ 7,500 $ 64,667
All Other Fees...................................... $ 23,245 $ 14,085
Audit Fees represent fees for professional services rendered for the audit
of the consolidated financial statements of Syntel, assistance with review of
documents filed with the SEC, and the audit of management's assessment of the
effectiveness of internal control over financial reporting. Audit Related Fees
represent professional fees in connection with the statutory audit services
relative to two wholly-owned subsidiaries, Syntel Limited, an Indian company,
and Syntel Deutschland GmbH, a German company, and the 401(k) plan for Syntel,
Inc. Tax Fees represent fees for services related to tax compliance, tax advice,
and tax planning. All Other Fees represent consultation on matters related to
transfer pricing, dividends, and other advisory services.
AUDIT COMMITTEE AUTHORIZATION OF AUDIT AND NON-AUDIT SERVICES
The Audit Committee has the sole authority to authorize all audit and non-
audit services to be provided by the independent audit firm engaged to conduct
the annual statutory audit of Syntel's consolidated financial statements. In
addition, the Audit Committee has adopted pre-approval policies and procedures
that are detailed as to each particular service to be provided by the
independent auditors, and such policies and procedures do not permit the
12
Audit Committee to delegate its responsibilities under the Securities Exchange
Act of 1934, as amended, to management. The Audit Committee pre-approved fees
for all audit and non-audit services provided by the independent audit firm
during the fiscal year ended December 31, 2005.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining the independent auditor's independence,
and has determined that, in its opinion, the activities performed by Crowe
Chizek on Syntel's behalf during fiscal years 2004 and 2005 are compatible with
maintaining their independence.
CHANGE IN INDEPENDENT ACCOUNTANT
On July 21, 2004, the Syntel's Audit Committee voted to engage the
independent registered public accounting firm of Crowe Chizek as Syntel's
independent registered public accounting firm for the fiscal year ending 2004.
Crowe Chizek began providing independent accountant services to Syntel with the
third quarter of 2004. On June 17, 2004, Syntel filed a Form 8-K reporting that
its then current independent registered public accounting firm, E&Y, would not
submit a competitive proposal (decline to stand for re-election) for the 2004
and 2005 fiscal years, and that E&Y would continue as the independent registered
public accounting firm for Syntel through the filing of the Form 10-Q for the
period ending June 30, 2004. Syntel filed its Form 10-Q for the period ending
June 30, 2004 on August 9, 2004 and E&Y ceased to serve as Syntel's independent
registered public accounting firm as of the same date.
The reports of E&Y on Syntel's financial statements for the 2003 fiscal
year did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
There were no disagreements between Syntel and E&Y on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure during the 2003 fiscal year and the period through August 9, 2004,
which disagreements, if not resolved to the satisfaction of E&Y, would have
caused it to make reference to the subject matter of the disagreements in
connection with its reports on financial statements. During the 2003 fiscal year
and the period through August 9, 2004, there were no "reportable events" within
the meaning of Item 304(a)(1)(v) of the Securities and Exchange Commission's
Regulation S-K.
During the fiscal year ended December 31, 2003, and the interim period
ended July 21, 2004, Syntel did not consult Crowe Chizek regarding the
application of accounting principles to a specific completed or proposed
transaction or regarding the type of audit opinion that might be rendered on
Syntel's financial statements, and Crowe Chizek did not provide any written or
oral advice that Crowe Chizek concluded was an important factor considered by
Syntel in reaching a decision as to any such accounting, auditing or financial
reporting issue.
AUDIT COMMITTEE REPORT
The Audit Committee is responsible for, among other things, appointing an
independent registered public accounting firm to conduct the independent audit
of Syntel, periodically reviewing the qualifications of Syntel's independent
auditors, reviewing the scope and results of any audit, and reviewing fees
charged by the independent registered public accounting firm for audit services,
non-audit services, and related matters. The Board of Directors has adopted an
Audit Committee Charter, which is available on Syntel's website at
www.syntelinc.com on the corporate governance page in the "investors" section of
the website.
The Audit Committee's job is one of oversight as set forth in its Charter.
It is not the duty of the Audit Committee to prepare Syntel's financial
statements, to plan or conduct audits, or to determine that Syntel's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. Syntel's management is responsible for preparing
Syntel's financial statements and for maintaining internal control. The
independent registered public accounting firm is responsible for auditing the
financial statements and for expressing an opinion as to whether those audited
financial statements fairly present the financial position, results of
operations, and cash flows of Syntel in conformity with generally accepted
accounting principles.
The Audit Committee has reviewed and discussed Syntel's audited
consolidated financial statements with management and with Crowe Chizek,
Syntel's independent registered public accounting firm for the year ending
December 31, 2005, both with and without management present. The Audit Committee
has discussed with Crowe
13
Chizek the matters required to be discussed by Statement on Auditing Standards
No. 61. The Audit Committee has received from Crowe Chizek the written
statements and the letter required by Independence Standards Board Standard No.
1, has discussed Crowe Chizek's independence with them, and has considered the
compatibility of non-audit services with the auditor's independence. Based on
the review and discussions referred to above, the Audit Committee has
recommended to the Board of Directors, and the Board of Directors has approved,
inclusion of the audited consolidated financial statements in Syntel's Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 filed with the
Securities and Exchange Commission.
AUDIT COMMITTEE
Vasant Raval, Chairperson
Paritosh K. Choksi
George R. Mrkonic, Jr.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
Compensation policies for executive officers are developed and monitored by
the Compensation Committee of the Board of Directors. The Committee recommends
to the Board of Directors the nature and amount of compensation for all
executive officers. This Committee consists of three independent directors who
are neither officers nor employees of Syntel.
COMPENSATION POLICIES
Syntel's executive compensation policies are designed to encourage and
reward executive efforts which create shareholder value through achievement of
corporate objectives and performance goals and, as a result, to align the
interests of executives with those of shareholders. More specifically, Syntel's
compensation policies can be summarized as:
(a) annual base salaries targeted to be competitive with other leading
information technology ("IT") services companies with which Syntel
competes for talent;
(b) annual cash bonuses based on improved performance by Syntel; and
(c) long-term incentive-based compensation through Syntel's 1997 Stock
Option and Incentive Plan and Employee Stock Purchase Plan which is
used to link executive performance to shareholder interests, encourage
stock ownership in Syntel and provide an incentive to create long-term
shareholder value.
Each component of compensation (annual base salary, annual cash bonus, and
long-term performance incentives) is described more fully below.
ANNUAL BASE SALARIES
Executive salaries are intended to be competitive with other leading IT
services companies with which Syntel competes for personnel. Executive salary
levels are based on level of job responsibility, individual performance, and
published compensation data for comparable companies. These factors were used by
the Committee in determining the Executive Officers' 2006 annual base salary
compensation. One executive officer, Neerja Sethi, Vice President, Corporate
Affairs, due to her position as a founder and major shareholder of Syntel,
receives an annual salary of one dollar per year and no long-term compensation.
ANNUAL CASH BONUSES
Annual incentive-based compensation is provided primarily through cash
bonuses. Bonuses are based upon the achievement of specified individual and
corporate goals, as well as a review of personal performance, which is
determined at the discretion of the Committee. These factors were used by the
Committee in determining the Executive Officers' 2005 bonus compensation.
14
LONG-TERM PERFORMANCE INCENTIVES
The Committee has the ability to grant stock options, restricted stock, and
performance shares, all time vested. This provides an incentive for executives
to develop shareholder value and rewards them for gains received by other
shareholders. The Committee considers the level of restricted stock or stock
options granted by comparable IT services companies and the number of Company
stock options or restricted stock previously granted in reaching its decision to
make additional grants of stock options, restricted stock, or performance
shares, but does not have a specific weighting formula for each factor.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the U.S. Internal Revenue Code limits to $1 million the
corporate tax deduction for compensation paid to certain executive officers
unless the compensation is based on non-discretionary, pre-established
performance goals. The Committee believes that both annual incentive bonuses and
stock options granted as long-term performance incentives meet the requirements
for fully deductible compensation under Section 162(m).
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee uses the same procedures described above for the other
executive officers in setting the annual salary and bonus for Bharat Desai,
Syntel's Chief Executive Officer. The Committee will evaluate the performance of
Mr. Desai at least annually based upon both Syntel's financial performance and
the extent to which the strategic and business goals established for Syntel are
met. The Committee does not assign relative weights or rankings to particular
factors, but makes its determination based upon a consideration of all such
factors. Mr. Desai's annual base salary for 2006 was based upon his historical
compensation as well as the factors listed above. His 2005 annual bonus
compensation was based upon goals set with regard to Syntel's revenue and
earnings per share. Due to his position as a founder and major shareholder of
Syntel, Mr. Desai has not taken additional long-term compensation.
COMPENSATION COMMITTEE
Paritosh K. Choksi, Chairperson
George R. Mrkonic
Vasant Raval
15
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning the
compensation of Syntel's Chief Executive Officer and the other four most highly
compensated executive officers of Syntel for the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION OTHER RESTRICTED
FISCAL ------------------- ANNUAL STOCK AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) (1)($) COMPENSATION($)
--------------------------- ------ --------- -------- --------------- ------------ ---------------
Bharat Desai, .......................... 2005 $300,000 -0- -0- -0- -0-
Chairman, President, 2004 $300,000 -0- -0- -0- -0-
and Chief Executive Officer 2003 $300,000 -0- -0- -0- -0-
Vijay Mehra,............................ 2005 $121,170 $ 63,349 -0- $ 79,400 -0-
Telecom, Retail, Logistics and 2004 -- -- -- -- --
Travel Industries Business Unit 2003 -- -- -- -- --
President(2)
Daniel M. Moore,........................ 2005 $215,000 $138,750 -0- -0- $1,360(3)
Chief Administrative Officer 2004 $215,000 $ 46,875 -0- $ 20,688 $1,250(3)
and Secretary 2003 $215,000 $ 82,813 -0- -0- $1,140(3)
Keshav Murugesh,........................ 2005 $158,594 $218,588 $25,796(4) $169,800 -0-
Chief Operating Officer 2004 $109,565 $ 66,450 $21,037(4) $165,500 -0-
2003 $ 99,814 $ 26,580 $20,929(4) -0- -0-
Vinod Swami,............................ 2005 $149,500 $225,000 -0- $ 79,400 -0-
Senior Vice President 2004 $137,875 $ 41,000 -0- $ 16,550 -0-
2003 $135,000 $139,187 -0- -0- -0-
--------
(1) On May 31, 2005, the following persons were granted the following numbers
of shares of restricted Common Stock: Vijay Mehra, 5,000 shares; Keshav
Murugesh, 5,000 shares; and Vinod Swami, 5,000 shares. On August 29, 2005
Keshav Murugesh was granted an additional 5,000 shares of restricted
Common Stock. On June 30, 2004, the following persons were granted the
following number of shares of restricted Common Stock: Daniel M. Moore,
1,250 shares; Keshav Murugesh, 10,000 shares; and Vinod Swami, 1,000
shares.
The restrictions on all shares of restricted stock lapse in annual
installments of 10%, 20%, 30%, and 40% of the restricted shares on the
first, second, third, and fourth anniversaries (respectively) of the grant
date so long as the grantees remain continuously employed with Syntel
through the respective anniversary dates. The restricted Common Stock was
granted pursuant to the 1997 Stock Option and Incentive Plan. For shares
of restricted stock granted prior to May 2, 2005, dividends, if any, are
paid to holders of restricted stock at the same time they are paid to all
other shareholders. For shares of restricted stock granted after that
date, dividends, if any, are retained in escrow and paid to holders of the
restricted stock upon the lapsing of the restriction with respect to those
shares.
The value of the shares of restricted Common Stock reflected in the table
is based on the closing market price of the Common Stock on the dates of
grant. The number and value of the aggregate shares of restricted Common
Stock holdings for each person in the table, based on the closing market
price of the Common Stock of $20.83 per share at the close of Syntel's
fiscal year, December 31, 2005, is as follows: Mr. Mehra, 5,000 shares
valued at $104,150; Mr. Moore, 1,250 shares valued at $26,038; Mr.
Murugesh, 20,000 shares valued at $416,600; and Mr. Swami, 6,000 shares
valued at $124,980. At April 6, 2006 the closing market price was $18.80
per share. Mr. Mehra's restricted shares were forfeited upon the cessation
of his employment with Syntel in March 2006.
(2) Mr. Mehra joined Syntel in April 2005 and ceased employment with Syntel in
March 2006.
16
(3) These amounts reflect payments by Syntel for life insurance upon the named
executive officer.
(4) These amounts include a housing allowance and a car allowance. The amounts
for each year are: 2005, $14,444 housing allowance and $11,075 car
allowance; 2004, $9,303 housing allowance and $11,075 car allowance; and
2003, $9,303 housing allowance and $11,075 car allowance.
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
Syntel did not grant any stock options or stock appreciation rights to the
persons named in the Summary Compensation Table during the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information regarding the exercise of stock
options during the last fiscal year by the persons named in the Summary
Compensation Table and the value of each of those person's unexercised in-the-
money options held at the end of the last fiscal year.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Bharat Desai............. -0- -0- -0- -0- -0- -0-
Vijay Mehra.............. -0- -0- -0- -0- -0- -0-
Daniel M. Moore.......... 6,000 $66,300 -0- -0- -0- -0-
Keshav Murugesh.......... -0- -0- 30,000 24,000 $179,100 $143,280
Vinod Swami.............. -0- -0- 15,000 -0- $237,450 -0-
--------
(1) Assumes a market price of $20.83 per share, which was the last sale price
before the close of Syntel's fiscal year on December 31, 2005. At April 6,
2006 the last sale price was $18.80 per share.
17
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
Syntel's Common Stock to the cumulative total shareholder returns for the S&P
500 Stock Index and for an index of peer companies selected by Syntel. The
period for comparison is for five years from December 31, 2000, through December
31, 2005, the end of Syntel's last fiscal year. The peer group index is composed
of CIBER, Inc., Computer Horizons Corp., Computer Sciences Corporation,
Electronic Data Systems Corporation, Keane, Inc., and Sapient Corporation. These
companies were selected based on similarities in their service offerings and
their competitive position in the industry.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SYNTEL, INC., S&P 500 STOCK INDEX
AND AN INDEX OF PEER COMPANIES*
(PERFORMANCE GRAPH)
12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05
-------- -------- -------- -------- -------- --------
Syntel, Inc. ....... $100 $225 $365 $453 $305 $361
S&P 500 Stock
Index............. $100 $ 87 $ 67 $ 84 $ 92 $ 95
Peer Group Index.... $100 $113 $ 46 $ 62 $ 62 $ 63
--------
* Assumes that the value of an investment in Syntel's Common Stock and each
index was $100 on December 31, 2000 and that all dividends were reinvested.
18
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth, with respect to the Company's equity
compensation plans, (i) the number of shares of common stock to be issued upon
the exercise of outstanding options, (ii) the weighted average exercise price of
outstanding options, and (iii) the number of shares remaining available for
future issuance, as of December 31, 2005.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO EXERCISE PRICE OF EQUITY COMPENSATION
BE ISSUED UPON EXERCISE OUTSTANDING OPTIONS, PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, WARRANTS, AND RIGHTS SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS, AND RIGHTS ($) COLUMN (1))
------------- ----------------------- -------------------- -----------------------
Equity compensation plans
approved by shareholders... 438,251 12.28 2,347,413
Equity compensation plans not
approved by shareholders... -- -- --
------- ----- ---------
TOTAL...................... 438,251 12.28 2,347,413
======= ===== =========
ADDITIONAL INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information about the beneficial ownership of
Syntel's Common Stock by (i) any person or entity known by the management of
Syntel to have been the beneficial owner of more than five percent of Syntel's
outstanding Common Stock as of April 6, 2006, (ii) the nominees, present
directors, and named executive officers of Syntel, and (iii) by all directors
and executive officers of Syntel as a group.
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED(1) CLASS
---------------- ---------------- ----------
Bharat Desai....................................... 22,088,242(2) 53.9%
525 East Big Beaver Road, Suite 300
Troy, Michigan 48083
Neerja Sethi Irrevocable Trust FBO Saahill Desai
Dtd 2/28/97...................................... 4,659,346(3) 11.4%
525 East Big Beaver Road, Suite 300
Troy, Michigan 48083
Neerja Sethi Irrevocable Trust FBO Pia Desai Dtd
2/28/97.......................................... 4,659,346(3) 11.4%
525 East Big Beaver Road, Suite 300
Troy, Michigan 48083
Parashar Ranade.................................... 9,618,692(4) 23.5%
1500 Bay Road, Apt. 764
Miami Beach, Florida 33139
Neerja Sethi....................................... 10,459,158(5) 25.5%
525 East Big Beaver Road, Suite 300
Troy, Michigan 48083
Paritosh K. Choksi................................. 48,345(6) *
Paul R. Donovan.................................... 5,732(6) *
Vijay Mehra........................................ -0-(6) *
Daniel M. Moore.................................... 17,968(6) *
George R. Mrkonic, Jr. ............................ 38,342(6) *
Keshav Murugesh.................................... 74,000(6) *
Vasant Raval....................................... 7,102(6) *
Vinod Swami........................................ 20,262(6) *
All Directors and Executive Officers as a group (20
persons)......................................... 32,806,910(6) 79.8%
19
--------
* Less than 1%.
(1) For the purpose of this table, a person or group is deemed to have
"beneficial ownership" of any shares as of a given date which such person
has voting power, investment power, or has the right to acquire within 60
days after such date. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on
a given date, any security which such person or persons has the right to
acquire within 60 days after such date is deemed to be outstanding, but is
not deemed to be outstanding for the purpose of computing the percentage
of ownership of any other person. Except as otherwise noted, each
beneficial owner of more than five percent of Syntel's Common Stock and
each director and executive officer has sole voting and investment power
over the shares reported. With respect to the restricted Common Stock of
Syntel shown as owned by certain executive officers, the executive
officers have voting power but no investment power.
(2) Mr. Desai holds shared voting and dispositive power for the (a) 4,659,346
shares held by the Neerja Sethi Irrevocable Trust FBO Saahill Desai Dtd
2/28/97, (b) 4,659,346 shares held by the Neerja Sethi Irrevocable Trust
FBO Pia Desai Dtd 2/28/97, (c) 75,000 shares held by the Neerja Sethi
Irrevocable Trust FBO Saahill Desai Dtd 5/17/97, (d) 75,000 shares held by
the Neerja Sethi Irrevocable Trust FBO Pia Desai Dtd 5/17/97, of which
trusts Mr. Desai is a co-trustee with Mr. Ranade, and (e) 1,800 shares
held in several educational trusts for the benefit of other individuals,
of which trusts Mr. Desai is a trustee. Mr. Desai disclaims beneficial
ownership of shares held by these trusts.
(3) These shares are also included under both Messrs. Desai's and Ranade's
ownership as they are co-trustees for these trusts and share voting and
dispositive power for these shares of Common Stock.
(4) Mr. Ranade holds shared voting and dispositive power for (a) 4,659,346
shares held by the Neerja Sethi Irrevocable Trust FBO Saahill Desai Dtd
2/28/97, (b) 4,659,346 shares held by the Neerja Sethi Irrevocable Trust
FBO Pia Desai Dtd 2/28/97, (c) 75,000 shares held by the Neerja Sethi
Irrevocable Trust FBO Saahill Desai Dtd 5/17/97, (d) 75,000 shares held by
the Neerja Sethi Irrevocable Trust FBO Pia Desai Dtd 5/17/97, (e) 75,000
shares held by the Bharat Desai Irrevocable Trust FBO Saahill Desai Dtd
5/17/97, and (f) 75,000 shares held by the Bharat Desai Irrevocable Trust
FBO Pia Desai Dtd 5/17/97, of which trusts Mr. Ranade is a co-trustee. Mr.
Ranade disclaims beneficial ownership of shares held by these trusts.
(5) Ms. Sethi holds shared voting and dispositive power for the (a) 75,000
shares held by the Bharat Desai Irrevocable Trust FBO Saahill Desai Dtd
5/17/97, (b) 75,000 shares held by the Bharat Desai Irrevocable Trust FBO
Pia Desai Dtd 5/17/97, of which trust Ms. Sethi is a co-trustee with Mr.
Ranade, and (c) 7,000 shares held in several educational trusts for the
benefit of other individuals, of which Ms. Sethi is a trustee. Ms. Sethi
disclaims beneficial ownership of shares held by these trusts and of the
shares held by her spouse, Mr. Desai.
(6) The number of shares shown in the table includes the following number of
shares which the person specified may acquire within 60 days by exercising
options which were unexercised on April 6, 2006: Paritosh K. Choksi,
14,125; George R. Mrkonic, Jr., 10,000; Keshav Murugesh, 54,000; Vinod
Swami, 11,000; and all directors and executive officers as a group,
89,125. The number of shares shown in the table includes the following
number of shares which are represented by shares of restricted Common
Stock which are not vested: Paritosh K. Choksi, 3,102; Paul R. Donovan,
732; Daniel M. Moore, 1,125; George R. Mrkonic, Jr., 5,102; Keshav
Murugesh, 18,000; Vasant Raval, 5,102; Vinod Swami, 5,900; and all
directors and executive officers as a group, 61,063.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Syntel's
executive officers and directors, and persons who own more than ten percent of a
registered class of Syntel's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Officers, directors and greater than ten percent shareholders are required by
regulations of the SEC to furnish Syntel copies of all Section 16(a) forms they
file.
Based solely on Syntel's review of copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Syntel believes that, except for the following, its
officers, directors and greater than ten percent beneficial owners met all
applicable filing requirements during the last year. The following persons filed
the listed reports after their due dates: Revathy Ashok, one Form 3 Initial
Statement of Beneficial Ownership of Securities, Paritosh K. Choksi, two Form 4
Statements of Changes in
20
Beneficial Ownership each reporting one transaction, Srikanth Karra, one Form 3
Initial Statement of Beneficial Ownership of Securities, Rakesh Khanna, one Form
3 Initial Statement of Beneficial Ownership of Securities, George R. Mrkonic,
Jr., one Form 4 Statement of Changes in Beneficial Ownership reporting one
transaction, Keshav Murugesh, two Form 4 Statements of Changes in Beneficial
Ownership each reporting one transaction, Naresh Nagarajan, one Form 3 Initial
Statement of Beneficial Ownership of Securities, Vasant Raval, one Form 4
Statement of Changes in Beneficial Ownership reporting one transaction, and
Vinod Swami, one Form 4 Statement of Changes in Beneficial Ownership reporting
one transaction. The following person did not file the listed report: Vijay
Mehra, one Form 3 Initial Statement of Beneficial Ownership of Securities.
SHAREHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
Shareholder proposals to be presented at the 2007 Annual Meeting of
Shareholders must be received by Syntel not later than January 8, 2007 if they
are to be included in Syntel's Proxy Statement for the 2007 Annual Meeting of
Shareholders. Such proposals should be addressed to the Secretary at Syntel's
executive offices.
Shareholder proposals to be presented at the 2007 Annual Meeting of
Shareholders which are not to be included in Syntel's Proxy Statement for that
meeting must be received by Syntel not before March 3, 2007 and not later than
April 2, 2007; or, for any special meeting of shareholders, no later than 10
days after the day of the public announcement of the date of the special meeting
in accordance with the procedures contained in Syntel's Bylaws. Such proposals
should be addressed to the Secretary at Syntel's executive offices.
OTHER MATTERS
At the date of this Proxy Statement, management is not aware of any matters
to be presented for action at the 2006 Annual Meeting of Shareholders other than
the matters described in this Proxy Statement. However, if any other matters
should come before the meeting, the persons named in the proxy card intend to
vote the proxy in accordance with their judgment on those matters.
By Order of the Board of Directors,
-s- DANIEL M. MOORE
Daniel M. Moore
Secretary
May 8, 2006
21
APPENDIX A
AUDIT COMMITTEE CHARTER
JUNE 13, 2005
PURPOSE
Syntel, Inc. (the "Corporation") shall maintain an Audit Committee (the
"Committee") which will assist the Board of Directors (the "Board") in
fulfilling its oversight responsibilities with respect to (i) the financial
reporting process of the Corporation and the audits of the Corporation's
financial statements, (ii) the system of internal controls that management has
established; (iii) the internal and independent audit process; (iv) compliance
with legal and regulatory requirements; (v) preparation of the reports required
by the rules of the Securities and Exchange Commission (the "SEC") to be
included in the Corporation's annual proxy statement; and (vi) the independent
auditor's qualifications and independence.
While the Committee has the duties and responsibilities set forth in this
Charter, the role of the Committee is oversight. The Committee is not
responsible for planning or conducting the audit or determining whether the
Corporation's financial statements are complete and accurate and in accordance
with applicable accounting rules. Such activities are the responsibility of
management and the Corporation's independent auditors. The Committee does not
itself prepare financial statements or perform audits or auditing services, and
its members are not auditors, certifiers of the Corporation's financial
statements or guarantors of the Corporation's independent auditors' reports. It
is not the duty or responsibility of the Committee to ensure that the
Corporation complies with all laws and regulations. The Committee and each of
its members shall be entitled to rely on (a) the integrity of those persons and
organizations within and outside of the Corporation from which it receives
information, (b) the accuracy of the financial and other information provided to
the Committee by such persons or organizations absent actual knowledge to the
contrary (which shall be promptly reported to the Board), and (c)
representations made by management as to any audit and non-audit services
provided by the independent auditors to the Corporation.
MEMBERSHIP
The Committee shall consist of at least three members of the Board.
Committee members and the Chairperson of the Committee shall be recommended by
the Corporation's Nominating and Corporate Governance Committee and appointed by
the Board and may be removed by the Board, with or without cause. The members of
the Committee shall meet the independence and experience requirements of the
NASDAQ Stock Market.
Simultaneous service on the audit committees of more than three public
companies will be reviewed by the Board for a determination of whether such
service impairs the effective service of the Committee member. This
determination will be reported in the Corporation's annual proxy statement.
MEETINGS
The Committee shall hold meetings once a quarter, or more frequently as
determined by the Chairman of the Committee, and special meetings as necessary.
An agenda listing matters to be considered shall be prepared and circulated to
the Committee prior to each meeting along with any materials related to agenda
items. Minutes of each meeting shall be prepared afterwards. The Committee may
retain special independent counsel or special accounting or other expert
assistance to advise the Committee at the Committee's discretion. The Committee
may request any officer or employee of the Corporation or the Corporation's
outside counsel or independent auditor to attend a meeting of the Committee or
to meet with any members of, or consultants to, the Committee. The Chairperson
of the Committee may represent the entire Committee for required quarterly
discussions with the independent auditor.
A majority of the members of the Committee constitutes a quorum for the
transaction of business at any meeting. The vote of a majority of the members of
the Committee present at any meeting at which there is a quorum shall be
necessary to approve the acts of the Committee. A member of the Committee may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can communicate with each other. Participation in a meeting in this
manner constitutes presence in person at the meeting.
A-1
RESPONSIBILITIES
The Committee shall make regular reports to the Board concerning its
activities and findings. The Committee should have a clear understanding with
the independent auditor that they must maintain an open and transparent
relationship with the Committee, and that the ultimate accountability of the
independent auditors is to the Committee.
The Committee's responsibilities include the following:
Internal committee processes/procedures:
1. Annually review and reassess the adequacy of this charter and submit it
to the Board for approval.
2. Annually review the performance of the Committee and report to the Board
the results of such evaluation.
3. Periodically, at the discretion of the Committee, review and recommend
to the Board for approval the adequacy of insurance coverage.
4. Establish hiring policies for employees or former employees of the
independent auditors.
5. Establish procedures for the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal
accounting controls, or auditing matters and for the confidential and
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
6. The Chair of the Committee shall participate in the annual review of the
Chief Financial Officer's performance.
7. The Committee shall engage, and determine funding for independent
counsel and other advisors, such as accountants, outside advisors,
consultants or others, without Board approval, to assist in the conduct
or an investigations or as the Committee determines appropriate to
advise or assist in the performance of its duties.
Discussions with auditors:
1. Annually review with the independent auditors the scope and results of
the independent audit and the opinions and recommendations of the
independent auditors, including major issues regarding accounting and
auditing principles and practices as well as the adequacy of internal
controls that could significantly affect the Corporation's financial
statements.
2. Ensure that the independent auditors prepare and deliver annually to the
Audit Committee a formal written statement delineating all relationships
between such independent auditors and the Corporation, consistent with
Independent Standards Board Standard No. 1; actively engage in a
dialogue with the independent auditors with respect to all relationships
or services disclosed in the Statement that may impact the auditors'
objectivity and independence; and take, or recommend that the full board
take, appropriate action to satisfy itself of the independent auditors'
independence.
3. Discuss quarterly with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61 relating to the
conduct of their annual audit or quarterly reviews and any problems or
difficulties the auditor may have encountered and any management letter
provided by the auditor and the Corporation's response to the letter.
4. Review major changes to the Corporation's accounting principles and
practices as suggested by management and discuss periodically with the
independent auditor its judgments about the quality of the Corporation's
accounting principles and financial reporting practices.
5. Receive periodic reports from the independent auditor regarding the
auditors' independence, discuss such reports with the independent
auditors, review the non-audit services performed by the independent
auditors and the fees charged therefor to ensure that performance of
those services does not impair the independence of the auditors, and, if
in the Committee's opinion necessary, recommend that the Board of
Directors take appropriate action to insure the independence of the
auditor.
A-2
6. Review with independent accountants any audit problems or difficulties
with management's response.
Discussions with management:
1. Meet at least annually with the chief financial officer, the internal
auditor and the independent auditor in separate executive sessions to
discuss any matters that the Committee or these persons believe should
be discussed privately.
2. Periodically review the status of any legal matters, including inquiries
received from regulators or government agencies, which may have a
material financial impact on the Corporation or seriously affect the
reputation of the Corporation.
3. Periodically review with management the programs and procedures to
assure compliance with laws, regulations and corporate policy.
4. The Committee shall seek any information it requires from employees or
external parties.
5. Employees and external parties will be directed to cooperate and comply
with the Committee's requests.
6. Review summaries of reports to management prepared by the internal
auditors and management's responses.
7. Meet periodically with management to review the Corporation's major
financial risk exposures and the steps management has taken to monitor
and control such risks.
Internal Control:
1. Review on a continuing basis the adequacy of internal controls,
including meeting periodically with management and the independent
auditors to review the adequacy of such controls and to review before
release the disclosure regarding such system of internal controls
required under SEC rules to be contained in the Company's periodic
filings and the attestations or reports by the independent auditors
relating to such disclosure.
2. At least annually, obtain and review a report by the independent
auditors describing: the accounting firm's internal quality-control
procedures; any material issues raised by the most recent internal
quality-control review, or peer review, of the accounting firm, or by
any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken to deal
with any such issues; and all relationships between the independent
auditors and the Company in order to assess the auditors' independence.
3. Obtain reports from management, the Corporation's internal auditor, and
the independent auditor that the Corporation's subsidiaries and
affiliated entities are in conformity with applicable legal requirements
and the Corporation's code of ethical conduct.
4. At the discretion of the Committee, review executive officer travel and
entertainment expenses, including executive perquisites, to assess the
reasonableness and appropriate documentation of the expenses.
Auditor qualification and retention:
1. Annually review the qualifications and fees of candidates and then
recommend to the Board the independent accounting firm to conduct the
independent audit of the Corporation, which firm shall be ultimately
accountable to the Committee, and periodically review the performance of
the independent auditor and, if so determined by the Committee,
recommend that the Board of Directors replace the independent auditor.
2. Approve guidelines for the retention of the independent auditors for
audit and non-audit services and pre-approval of such services, as
required by applicable laws or listing standards. Pre-approval authority
may be delegated to one or more members of the Committee.
A-3
3. Approve in advance all audit and permissible non-audit services (other
than de minimus non-audit services as defined under SEC rules) to be
provided by the independent auditors.
4. Approve the appointment or dismissal of the internal auditor and
periodically review with management the role and scope of the work
performed by the internal auditor.
5. The Committee shall have the sole authority for the appointment,
compensation, retention and oversight of the Corporation's independent
auditors.
Financial reporting, SEC, media:
1. Review analyses prepared by management and the independent auditor of
significant financial reporting issues and judgments made in connection
with the preparation of the Corporation's financial statements.
2. Review with management and the independent auditor the financial
statements to be included in the Form 10-Q and Form 10-K before filing
them with the SEC.
3. Review and discuss the Corporation's earnings press releases as well as
financial information and earnings guidance provided to analysts and
rating agencies.
4. Review and approve any related-party transactions required to be
disclosed in the Company's annual proxy statement pursuant to Item 404
of Regulation S-K promulgated under the Securities Exchange Act of 1934.
5. Confirm with the independent auditor that no illegal acts have been
reported by the independent auditor as required by Section 10A of the
Securities Exchange Act of 1934.
6. After preparation by management and review by the internal auditor and
the independent auditor, approve the Committee report to be included in
the Corporation's annual proxy statement, with the Committee's charter
published as an appendix to the proxy statement at least every three
years.
A-4
APPENDIX B
SYNTEL, INC.
AMENDED AND RESTATED STOCK OPTION AND INCENTIVE PLAN
(EFFECTIVE JUNE 1, 2006)
TABLE OF CONTENTS
PAGE
----
I. GENERAL PROVISIONS...................................................... B-1
1.1 ESTABLISHMENT.................................................... B-1
1.2 PURPOSE.......................................................... B-1
1.3 PLAN DURATION.................................................... B-1
1.4 DEFINITIONS...................................................... B-1
1.5 ADMINISTRATION................................................... B-5
1.6 PARTICIPANTS..................................................... B-5
1.7 STOCK............................................................ B-5
1.8 REPRICING........................................................ B-6
II. STOCK OPTIONS.......................................................... B-6
2.1 GRANT OF OPTIONS................................................. B-6
2.2 INCENTIVE STOCK OPTIONS.......................................... B-6
2.3 OPTION PRICE..................................................... B-7
2.4 PAYMENT FOR OPTION SHARES........................................ B-7
III. STOCK APPRECIATION RIGHTS............................................. B-7
3.1 GRANT OF STOCK APPRECIATION RIGHTS............................... B-7
3.2 EXERCISE PRICE................................................... B-7
3.3 EXERCISE OF STOCK APPRECIATION RIGHTS............................ B-7
3.4 STOCK APPRECIATION RIGHT PAYMENT................................. B-7
3.5 MAXIMUM STOCK APPRECIATION RIGHT AMOUNT PER SHARE................ B-8
IV. RESTRICTED STOCK AND UNITS............................................. B-8
4.1 GRANT OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS............. B-8
4.2 RESTRICTED STOCK AGREEMENT....................................... B-8
4.3 TRANSFERABILITY.................................................. B-8
4.4 OTHER RESTRICTIONS............................................... B-8
4.5 VOTING RIGHTS.................................................... B-8
4.6 DIVIDENDS AND DIVIDEND EQUIVALENTS............................... B-8
4.7 SETTLEMENT OF RESTRICTED STOCK UNITS............................. B-9
V. PERFORMANCE AWARDS...................................................... B-9
5.1 GRANT OF PERFORMANCE AWARDS...................................... B-9
5.2 TERMS OF PERFORMANCE AWARDS...................................... B-9
VI. ANNUAL INCENTIVE AWARDS................................................ B-9
6.1 GRANT OF ANNUAL INCENTIVE AWARDS................................. B-9
6.2 PAYMENT OF ANNUAL INCENTIVE AWARDS............................... B-10
VII. CODE SECTION 162(m) PERFORMANCE MEASURE AWARDS........................ B-10
7.1 AWARDS GRANTED UNDER CODE SECTION 162(m)......................... B-10
7.2 ATTAINMENT OF CODE SECTION 162(m) GOALS.......................... B-10
7.3 INDIVIDUAL PARTICIPANT LIMITATIONS............................... B-10
B-i
PAGE
----
VIII. TERMINATION OF EMPLOYMENT OR SERVICES................................ B-11
8.1 OPTIONS AND STOCK APPRECIATION RIGHTS............................ B-11
8.2 RESTRICTED STOCK AND RESTRICTED STOCK UNITS...................... B-11
8.3 PERFORMANCE AWARDS............................................... B-12
8.4 ANNUAL INCENTIVE AWARDS.......................................... B-12
8.5 OTHER PROVISIONS................................................. B-12
IX. ADJUSTMENTS AND CHANGE IN CONTROL...................................... B-12
9.1 ADJUSTMENTS...................................................... B-12
9.2 CHANGE IN CONTROL................................................ B-13
X. MISCELLANEOUS........................................................... B-14
10.1 PARTIAL EXERCISE/FRACTIONAL SHARES............................... B-14
10.2 RIGHTS PRIOR TO ISSUANCE OF SHARES............................... B-14
10.3 NON-ASSIGNABILITY; CERTIFICATE LEGEND; REMOVAL................... B-14
10.4 SECURITIES LAWS.................................................. B-14
10.5 FOREIGN LAW RESTRICTIONS......................................... B-15
10.6 WITHHOLDING TAXES................................................ B-15
10.7 TERMINATION AND AMENDMENT........................................ B-15
10.8 CODE SECTION 409A................................................ B-16
10.9 EFFECT ON EMPLOYMENT OR SERVICES................................. B-16
10.10 USE OF PROCEEDS.................................................. B-16
10.11 SEVERABILITY..................................................... B-16
10.12 BENEFICIARY DESIGNATION.......................................... B-16
10.13 UNFUNDED OBLIGATION.............................................. B-16
10.14 APPROVAL OF PLAN................................................. B-17
10.15 GOVERNING LAW.................................................... B-17
B-ii
SYNTEL, INC.
AMENDED AND RESTATED STOCK OPTION AND INCENTIVE PLAN
(EFFECTIVE JUNE 1, 2006)
I. GENERAL PROVISIONS
1.1 ESTABLISHMENT. On April 17, 2006 the Board of Directors ("Board") of
Syntel, Inc. ("Corporation") adopted the Syntel, Inc. 2006 Stock Option and
Incentive Plan ("Plan"), subject to the approval of shareholders at the
Corporation's annual meeting of shareholders on June 1, 2006. The Plan amends
and restates the 1997 Stock Option and Incentive Plan that was approved by the
shareholders on April 1, 1997.
1.2 PURPOSE. The purpose of the Plan is to (a) promote the best interests
of the Corporation and its shareholders by encouraging Employees and Non-
Employee Directors of the Corporation and its Subsidiaries to acquire an
ownership interest in the Corporation by granting stock-based Awards, thus
aligning their interests with those of shareholders, and (b) enhance the ability
of the Corporation to attract, motivate and retain qualified Employees and Non-
Employee Directors. It is the further purpose of the Plan to authorize certain
Awards that will constitute performance based compensation, as described in Code
Section 162(m) and Treasury regulations promulgated thereunder.
1.3 PLAN DURATION. Subject to shareholder approval, the Plan shall become
effective on June 1, 2006 and shall continue in effect until its termination by
the Board; provided, however, that no new Awards may be granted on or after May
31, 2016.
1.4 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:
(A) "AGREEMENT" means the written document that sets forth the terms
of a Participant's Award.
(B) "ANNUAL INCENTIVE AWARD" means an Award that is granted in
accordance with Article VI.
(C) "AWARD" means any form of Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Annual
Incentive Award or other incentive award granted under the Plan.
(D) "BOARD" means the Board of Directors of the Corporation.
(E) "CHANGE IN CONTROL" for purposes other than Code Section 409A
means the occurrence of any of the following events: (i) the acquisition of
ownership by a person, firm or corporation, or a group acting in concert,
of fifty-one percent, or more, of the outstanding Common Stock of the
Corporation in a single transaction or a series of related transactions
within a one-year period; (ii) a sale of all or substantially all of the
assets of the Corporation to any person, firm or corporation; or (iii) a
merger or similar transaction between the Corporation and another entity if
shareholders of the Corporation do not won a majority of the voting stock
of the corporation surviving the transaction and a majority in value of the
total outstanding stock of such surviving corporation after the
transaction; provided however, that any such event involving any of the
current shareholders of the Corporation as of the date of adoption of this
Plan by the Board (or any entity at any time controlled by any such
shareholder or shareholders) shall not be included within the meaning of
"Change in Control."
(F) "CHANGE IN CONTROL" for Code Section 409A purposes, means the
occurrence of any of the following events:
(i) If any one person, or more than one person acting as a group
(as defined in Code Section 409A and IRS guidance issued thereunder),
acquires ownership of Common Stock of the Corporation that, together
with stock held by such person or group, constitutes more than fifty
(50) percent of the total fair market value or total voting power of
the Common Stock of the Corporation. However, if any one person or
more than one person acting as a group, is considered to own more than
fifty (50) percent of the total fair market value or total voting
power of the Common Stock of the Corporation, the acquisition of
additional stock by the same person or persons is not considered to
cause a Change in Control, or to cause a change in the effective
control of the Corporation (within the meaning of Code Section 409A
and IRS guidance issued thereunder). An increase in the percentage of
Common Stock owned by any one person, or persons acting as a group, as
a result of a transaction in which the Corporation acquires its stock
in
B-1
exchange for property shall be treated as an acquisition of stock for
purposes of this Section. This paragraph applies only when there is a
transfer of stock of the Corporation (or issuance of stock of the
Corporation) and stock in such Corporation remains outstanding after
the transaction.
(ii) If any one person, or more than one person acting as a group
(as determined in accordance with Code Section 409A and IRS guidance
thereunder), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such person or
persons) ownership of Common Stock of the Corporation possessing
thirty-five (35) percent or more of the total voting power of the
Common Stock of the Corporation; or
(iii) If a majority of members on the Corporation's Board is
replaced during any 12-month period by Directors whose appointment or
election is not endorsed by a majority of the members of the
Corporation's Board prior to the date of the appointment or election
(provided that for purposes of this paragraph, the term Corporation
refers solely to the "relevant" Corporation, as defined in Code
Section 409A and IRS guidance issued thereunder), for which no other
Corporation is a majority shareholder.
(iv) If there is a change in the ownership of a substantial
portion of the Corporation's assets, which shall occur on the date
that any one person, or more than one person acting as a group (within
the meaning of Code Section 409A and IRS guidance issued thereunder)
acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by such person or persons) assets
from the Corporation that have a total gross fair market value equal
to or more than forty (40) percent of the total gross fair market
value of all of the assets of the Corporation immediately prior to
such acquisition or acquisitions. For this purpose, gross fair market
value means the value of the assets of the Corporation, or the value
of the assets being disposed of, determined without regard to any
liabilities associated with such assets.
(G) "CHANGE IN POSITION" means, with respect to any Participant; 9i)
such Participant's involuntary termination of employment; or (ii) a
significant reduction in such Participant's duties, responsibilities,
compensation and/or fringe benefits, or the assignment to such participant
of duties inconsistent with his position (all as in effect immediately
prior to a Change in Control), whether or not such Participant voluntarily
terminates employment as a result thereof.
(H) "CODE" means the Internal Revenue Code of 1986, as amended.
(I) "COMMITTEE" means the Compensation Committee of the Board, or any
other committee or sub-committee of the Board, designated by the Board from
time to time, comprised solely of two or more Directors who are "Non-
Employee Directors," as defined in Rule 16b-3 of the Exchange Act, "Outside
Directors" as defined in Code Section 162(m) and Treasury regulations
thereunder, and "Independent Directors" for purposes of the rules and
regulations of the Stock Exchange. The failure of a Committee member to
qualify under any of these requirements shall not invalidate any Award made
by the Committee, if the Award is otherwise validly made under the Plan.
The members of the Committee shall be appointed by, and may be changed at
any time and from time to time, at the discretion of the Board.
(J) "COMMON STOCK" means shares of the Corporation's authorized common
stock.
(K) "CORPORATION" means Syntel, Inc., a Michigan corporation.
(L) "DIRECTOR" means an individual who has been elected or appointed
to serve as a Director of the Corporation.
(M) "DISABILITY" means total and permanent disability, as defined in
Code Section 22(e); provided, however, that for purposes of a Code Section
409A distribution event, "disability" shall be defined under Code Section
409A and IRS guidance issued thereunder.
(N) "DIVIDEND EQUIVALENT" means a credit, made at the discretion of
the Committee or as otherwise provided by the Plan, to the account of a
Participant in an amount equal to the cash dividend paid on one share
B-2
of Common Stock for each share of Common Stock represented by an Award held
by such Participant. Dividend Equivalents shall not be paid on Option or
Stock Appreciation Right Awards.
(O) "EMPLOYEE" means an individual who has an "employment
relationship" with the Corporation or a Subsidiary, as defined in Treasury
Regulation 1.421-7(h), and the term "employment" means employment with the
Corporation, or a Subsidiary of the Corporation.
(P) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(Q) "FAIR MARKET VALUE" means for purposes of determining the value of
Common Stock on the Grant Date, the Stock Exchange closing price of the
Corporation's Common Stock as reported in The Wall Street Journal (or as
otherwise reported by such Stock Exchange) for the Grant Date. In the event
that there are no Common Stock transactions on such date, the Fair Market
Value shall be determined as of the immediately preceding date on which
there were Common Stock transactions. Unless otherwise specified in the
Plan, "Fair Market Value" for purposes of determining the value of Common
Stock on the date of exercise means the closing price of the Common Stock
on the Stock Exchange for the last date preceding the exercise on which
there were Common Stock transactions.
(R) "GRANT DATE" means the date on which the Committee authorizes an
Award, or such later date as shall be designated by the Committee.
(S) "INCENTIVE STOCK OPTION" means an Option that is intended to meet
the requirements of Section 422 of the Code.
(T) "NONQUALIFIED STOCK OPTION" means an Option that is not an
Incentive Stock Option.
(U) "OPTION" means either an Incentive Stock Option or a Nonqualified
Stock Option.
(V) "PARTICIPANT" means an Employee (including an Employee who is a
Director) or Non-Employee Director, who is designated by the Committee to
participate in the Plan.
(W) "PERFORMANCE AWARD" means any Award of Performance Shares or
Performance Units granted pursuant to Article V.
(X) "PERFORMANCE MEASURES" means the measures of performance of the
Corporation and its Subsidiaries used to determine a Participant's
entitlement to an Award under the Plan. Such performance measures shall
have the same meanings as used in the Corporation's financial statements,
or, if such terms are not used in the Corporation's financial statements,
they shall have the meaning applied pursuant to generally accepted
accounting principles, or as used generally in the Corporation's industry.
Performance Measures shall be calculated with respect to the Corporation
and each Subsidiary consolidated therewith for financial reporting purposes
or such division or other business unit as may be selected by the
Committee. For purposes of the Plan, the Performance Measures shall be
calculated in accordance with generally accepted accounting principles,
but, unless otherwise determined by the Committee, prior to the accrual or
payment of any Award under this Plan for the same performance period and
excluding the effect (whether positive or negative) of any change in
accounting standards or any extraordinary, unusual or nonrecurring item, as
determined by the Committee, occurring after the establishment of the
performance goals. Performance Measures shall be one or more of the
following, or a combination of any of the following, on an absolute or peer
group comparison, as determined by the Committee:
- earnings (as measured by net income, operating income, operating income
before interest, EBIT, EBITA, EBITDA, pre-tax income, or cash earnings,
or earnings as adjusted by excluding one or more components of
earnings, including each of the above on a per share and/or segment
basis);
- sales/net sales;
- return on net sales (as measured by net income, operating income,
operating income before interest, EBIT, EBITA, EBITDA, pre-tax income,
operating cash flow or cash earnings as a percentage of net sales);
- sales growth;
B-3
- cash flow;
- operating cash flow;
- free cash flow;
- discounted cash flow;
- working capital;
- market capitalization;
- cash return on investment -- CRI;
- return on capital;
- return on cost of capital;
- shareholder value;
- return on equity;
- total shareholder return;
- return on investment;
- economic value added;
- return on assets/net assets;
- stock trading multiples (as measured vs. investment, net income,
operating income, operating income before interest, EBIT, EBITA,
EBITDA, pre-tax income, cash earnings or operating cash flow);
- stock price;
- attainment of strategic or operational initiatives.
(Y) "PERFORMANCE SHARE" means any grant pursuant to Article V and
Section 5.2(b)(i).
(Z) "PERFORMANCE UNIT" means any grant pursuant to Article V and
Section 5.2(b)(ii).
(AA) "PLAN" means the Amended and Restated Stock Option and Incentive
Plan, the terms of which are set forth herein, and any amendments thereto.
(BB) "RESTRICTION PERIOD" means the period of time during which a
Participant's Restricted Stock or Restricted Stock Unit is subject to
restrictions and is nontransferable.
(CC) "RESTRICTED STOCK" means Common Stock granted pursuant to Article
IV that is subject to a Restriction Period.
(DD) "RESTRICTED STOCK UNIT" means a right granted pursuant to Article
IV to receive Restricted Stock or an equivalent value in cash.
(EE) "RETIREMENT" means termination of employment on or after
attainment of age 65.
(FF) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(GG) "STOCK APPRECIATION RIGHT" means the right to receive a cash or
Common Stock payment from the Corporation, in accordance with Article III
of the Plan.
(HH) "STOCK EXCHANGE" means the principal national securities exchange
on which the Common Stock is listed for trading, or, if the Common Stock is
not listed for trading on a national securities exchange, such other
recognized trading market or quotation system upon which the largest number
of shares of Common Stock has been traded in the aggregate during the last
20 days before a Grant Date, or date on which an Option is exercised,
whichever is applicable.
(II) "SUBSIDIARY" means a corporation or other entity defined in Code
Section 424(f).
B-4
(JJ) "SUBSTITUTE AWARDS" shall mean Awards granted or shares issued by
the Corporation in assumption of, or in substitution or exchange for,
awards previously granted, or the right or obligation to make future
awards, by a company acquired by the Corporation or any Subsidiary or with
which the Corporation or any Subsidiary combines.
(KK) "VESTED" or "VESTING" means the extent to which an Award granted
or issued hereunder has become exercisable or any applicable Restriction
Period has terminated in accordance with the Plan and the terms of any
respective Agreement pursuant to which such Award was granted or issued.
1.5 ADMINISTRATION.
(A) The Plan shall be administered by the Committee. The Committee shall
interpret the Plan, prescribe, amend, and rescind rules and regulations relating
to the Plan, and make all other determinations necessary or advisable for its
administration. The decision of the Committee on any question concerning the
interpretation of the Plan or its administration with respect to any Award
granted under the Plan shall be final and binding upon all Participants. No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Award hereunder.
(B) In addition to any other powers set forth in the Plan and subject to
the provisions of the Plan, but, in the case of Awards designated as Awards
under Code Section 162(m), subject to the requirements of Code Section 162(m),
the Committee shall have the full and final power and authority, in its
discretion to:
(i) amend, modify, or cancel any Award, or to waive any restrictions
or conditions applicable to any Award or any shares acquired pursuant
thereto;
(ii) subject to Code Section 409A, accelerate, continue, or defer the
exercisability or Vesting of any Award or any shares acquired pursuant
thereto;
(iii) authorize, in conjunction with any applicable deferred
compensation plan of the Corporation, that the receipt of cash or Common
Stock subject to any Award under this Plan may be deferred under the terms
and conditions of such deferred compensation plan;
(iv) determine the terms and conditions of Awards granted to
Participants; and
(v) establish such other Awards, besides those specifically enumerated
in the Plan, which the Committee determines are consistent with the Plan's
purposes.
1.6 PARTICIPANTS. Participants in the Plan shall be such Employees
(including Employees who are Directors) and Non-Employee Directors of the
Corporation and its Subsidiaries as the Committee in its sole discretion may
select from time to time. The Committee may grant Awards to an individual upon
the condition that the individual become an Employee or Non-Employee Director of
the Corporation or of a Subsidiary, provided that the Award shall be deemed to
be granted only on the date that the individual becomes an Employee or Non-
Employee Director, as applicable.
1.7 STOCK.
(A) The Corporation has reserved eight million (8,000,000) shares of the
Corporation's Common Stock for issuance pursuant to stock-based Award (all of
which may be granted as Incentive Stock Options under the Plan). All provisions
in this Section 1.7 shall be adjusted, as applicable, in accordance with Article
IX.
(B) If any shares subject to an Award are forfeited, cancelled, expire or
otherwise terminate without issuance of such shares, or any Award is settled for
cash or otherwise does not result in the issuance of all or a portion of the
shares subject to such Award, the shares shall, to the extent of such
forfeiture, cancellation, expiration, termination, cash settlement or non-
issuance, again be available for Awards under the Plan.
(C) In the event that (i) any Option or other Award granted hereunder is
exercised through the tendering of shares or by the withholding of shares by the
Corporation, or (ii) withholding tax liabilities arising from such Option or
other Award are satisfied by the tendering of shares or by the withholding of
shares by the Corporation, then only the number of shares issued net of the
shares tendered or withheld shall be counted for purposes of determining the
maximum number of shares available for issuance under the Plan.
B-5
(D) Substitute Awards shall not reduce the shares reserved for issuance
under the Plan or authorized for grant to a Participant in any fiscal year.
Additionally, in the event that a company acquired by the Corporation or any
Subsidiary or with which the Corporation or any Subsidiary combines has shares
available under a pre-existing plan approved by shareholders 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 issuance 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 Employees or
Directors or an affiliate of the Corporation or its Subsidiaries prior to such
acquisition or combination.
1.8 REPRICING. Without the affirmative vote of holders of a majority of
the shares of Common Stock cast in person or by proxy at a meeting of the
shareholders of the Corporation at which a quorum representing a majority of all
outstanding shares is present or represented by proxy, neither the Board nor the
Committee shall approve a program providing for either (a) the cancellation of
outstanding Options and/or Stock Appreciation Rights and the grant in
substitution therefore of any new Awards under the Plan having a lower exercise
price than the Fair Market Value of the underlying Common Stock on the original
Grant Date, or (b) the amendment of outstanding Options and/or Stock
Appreciation Rights to reduce the exercise price thereof below the Fair Market
Value of the underlying Common Stock on the original Grant Date. This Section
shall not be construed to apply to "issuing or assuming a stock option in a
transaction to which section 424(a) applies," within the meaning of Section 424
of the Code.
II. STOCK OPTIONS
2.1 GRANT OF OPTIONS. The Committee, at any time and from time to time,
subject to the terms and conditions of the Plan, may grant Options to such
Participants and for such number of shares of Common Stock as it shall
designate. Any Participant may hold more than one Option under the Plan and any
other plan of the Corporation or Subsidiary. The Committee shall determine the
general terms and conditions of exercise, which shall be set forth in a
Participant's Agreement. No Option granted hereunder may be exercised after the
tenth anniversary of the Grant Date. The Committee may designate any Option
granted as either an Incentive Stock Option or a Nonqualified Stock Option, or
the Committee may designate a portion of an Option as an Incentive Stock Option
or a Nonqualified Stock Option. Unless otherwise provided in a Participant's
Agreement, Options are intended to satisfy the requirements of Code Section
162(m) and the regulations promulgated thereunder, to the extent applicable.
2.2 INCENTIVE STOCK OPTIONS. Any Option intended to constitute an
Incentive Stock Option shall comply with the requirements of this Section 2.2.
An Incentive Stock Option only may be granted to an Employee. No Incentive Stock
Option shall be granted with an exercise price below the Fair Market Value of
Common Stock on the Grant Date nor with an exercise term that extends beyond ten
(10) years from the Grant Date. An Incentive Stock Option shall not be granted
to any Participant who owns (within the meaning of Code Section 424(d)) stock of
the Corporation or any Subsidiary possessing more than 10% of the total combined
voting power of all classes of stock of the Corporation or a Subsidiary unless,
at the Grant Date, the exercise price for the Option is at least 110% of the
Fair Market Value of the shares subject to the Option and the Option, by its
terms, is not exercisable more than five (5) years after the Grant Date. The
aggregate Fair Market Value of the underlying Common Stock (determined at the
Grant Date) as to which Incentive Stock Options granted under the Plan
(including a plan of a Subsidiary) may first be exercised by a Participant in
any one calendar year shall not exceed $100,000. To the extent that an Option
intended to constitute an Incentive Stock Option shall violate the foregoing
$100,000 limitation (or any other limitation set forth in Code Section 422), the
portion of the Option that exceeds the $100,000 limitation (or violates any
other Code Section 422 limitation) shall be deemed to constitute a Nonqualified
Stock Option.
2.3 OPTION PRICE. The Committee shall determine the per share exercise
price for each Option granted under the Plan. No Option may be granted with an
exercise price below 100% of the Fair Market Value of Common Stock on the Grant
Date.
B-6
2.4 PAYMENT FOR OPTION SHARES.
(A) The purchase price for shares of Common Stock to be acquired upon
exercise of an Option granted hereunder shall be paid in full in cash or by
personal check, bank draft or money order at the time of exercise; provided,
however, that in lieu of such form of payment, and if permitted in a
Participant's Agreement, payment may be made by (i) delivery to the Corporation
of outstanding shares of Common Stock that have been held at least six (6)
months, on such terms and conditions as may be specified in the Participant's
Agreement; (ii) by delivery to the Corporation of a properly executed exercise
notice, acceptable to the Corporation, together with irrevocable instructions to
the Participant's broker to deliver to the Corporation sufficient cash to pay
the exercise price and any applicable income and employment withholding taxes,
in accordance with a written agreement between the Corporation and the brokerage
firm; (iii) delivery of other consideration approved by the Committee having a
Fair Market Value on the exercise date equal to the total purchase price; (iv)
other means determined by the Committee; or (v) any combination of the
foregoing. Shares of Common Stock surrendered upon exercise shall be valued at
the Stock Exchange closing price for the Corporation's Common Stock on the day
prior to exercise, and the shares shall be surrendered to the Corporation.
(B) Notwithstanding the foregoing, an Option may not be exercised by
delivery to or withholding by the Corporation of shares of Common Stock to the
extent that such delivery or withholding (i) would constitute a violation of the
provisions of any law or regulation (including the Sarbanes-Oxley Act of 2002),
or (ii) if there is a substantial likelihood that the use of such form of
payment would result in adverse accounting treatment to the Corporation under
generally accepted accounting principles. Until a Participant has been issued a
certificate or certificates for the shares of Common Stock so purchased (or the
book entry representing such shares has been made and such shares have been
deposited with the appropriate registered book-entry custodian), he or she shall
possess no rights as a record holder with respect to any such shares.
III. STOCK APPRECIATION RIGHTS
3.1 GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted, held and exercised in such form and upon such general terms and
conditions as determined by the Committee on an individual basis. A Stock
Appreciation Right may be granted to a Participant with respect to such number
of shares of Common Stock of the Corporation as the Committee may determine.
Unless otherwise provided in a Participant's Agreement, Stock Appreciation
Rights are intended to satisfy the requirements of Code Section 162(m) and the
regulations promulgated thereunder, to the extent applicable. No Stock
Appreciation Right shall be granted with an exercise term that extends beyond
ten (10) years from the Grant Date.
3.2 EXERCISE PRICE. The Committee shall determine the per share exercise
price for each Stock Appreciation Right granted under the Plan; provided,
however, that the exercise price of a Stock Appreciation Right shall not be less
than 100% of the Fair Market Value of the shares of Common Stock covered by the
Stock Appreciation Right on the Grant Date.
3.3 EXERCISE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
shall be deemed exercised upon receipt by the Corporation of written notice of
exercise from the Participant. The Committee shall specify in a Participant's
Agreement whether payment shall be made in cash or shares of Common Stock, or
any combination thereof.
3.4 STOCK APPRECIATION RIGHT PAYMENT. Upon exercise of a Stock
Appreciation Right, a Participant shall be entitled to payment from the
Corporation, in cash, shares, or partly in each (as determined by the Committee
in accordance with any applicable terms of the Agreement), of an amount equal to
the difference between (i) the aggregate Fair Market Value on the exercise date
for the specified number of shares being exercised, and (ii) the aggregate
exercise price for the specified number of shares being exercised.
3.5 MAXIMUM STOCK APPRECIATION RIGHT AMOUNT PER SHARE. The Committee may,
at its sole discretion, establish (at the time of grant) a maximum amount per
share which shall be payable upon the exercise of a Stock Appreciation Right,
expressed as a dollar amount.
B-7
IV. RESTRICTED STOCK AND UNITS
4.1 GRANT OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Subject to the
terms and conditions of the Plan, the Committee, at any time and from time to
time, may grant shares of Restricted Stock and Restricted Stock Units under the
Plan to such Participants and in such amounts as it shall determine.
4.2 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Stock or
Restricted Stock Units shall be evidenced by an Agreement that shall specify the
terms of the restrictions, including the Restriction Period, or periods, the
number of Common Stock shares subject to the grant, or units, the purchase price
for the shares of Restricted Stock, if any, the form of consideration that may
be used to pay the purchase price of the Restricted Stock, including those
specified in Section 2.4, and such other general terms and conditions, including
performance goals, as the Committee shall determine.
4.3 TRANSFERABILITY. Except as provided in this Article IV and Section
10.3 of the Plan, the shares of Common Stock subject to an Award of Restricted
Stock or Restricted Stock Units granted hereunder may not be transferred,
pledged, assigned, or otherwise alienated or hypothecated until the termination
of the applicable Restriction Period or for such period of time as shall be
established by the Committee and specified in the applicable Agreement, or upon
the earlier satisfaction of other conditions as specified by the Committee in
its sole discretion and as set forth in the applicable Agreement.
4.4 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any shares of Common Stock subject to an Award of Restricted
Stock or Restricted Stock Units under the Plan as it may deem advisable
including, without limitation, restrictions under applicable Federal or State
securities laws, and the issuance of a legended certificate of Common Stock
representing such shares to give appropriate notice of such restrictions. The
Committee shall have the discretion to waive the applicable Restriction Period
with respect to all or any part of the Common Stock subject to an Award of
Restricted Stock or Restricted Stock Units that has not been granted under Code
Section 162(m).
4.5 VOTING RIGHTS. During the Restriction Period, Participants holding
shares of Common Stock subject to a Restricted Stock Award may exercise full
voting rights with respect to the Restricted Stock.
4.6 DIVIDENDS AND DIVIDEND EQUIVALENTS.
(A) Except as set forth below or in a Participant's Agreement, during the
Restriction Period, a Participant shall be entitled to receive all dividends and
other distributions paid with respect to shares of Common Stock subject to an
Award of Restricted Stock. If any dividends or distributions are paid in shares
of Common Stock during the Restriction Period applicable to an Award of
Restricted Stock, the dividend or other distribution shares shall be subject to
the same restrictions on transferability as the shares of Common Stock with
respect to which they were paid.
(B) The Committee, in its discretion, may provide in the Agreement
evidencing any Restricted Stock Unit that the Participant shall be entitled to
receive Dividend Equivalents with respect to the payment of cash dividends on
Common Stock having a record date prior to the date on which Restricted Stock
Units held by such Participant are settled. Such Dividend Equivalents, if any,
shall be paid by crediting the Participant with additional whole Restricted
Stock Units as of the date of payment of such cash dividends on Common Stock.
The number of additional Restricted Stock Units (rounded to the nearest whole
number) to be so credited shall be determined by dividing (i) the amount of cash
dividends paid on such date with respect to the number of shares of Common Stock
represented by the Restricted Stock Units previously credited to the
Participant, by (ii) the Fair Market Value per share of Common Stock on such
date. Such additional Restricted Stock Units shall be subject to the same terms
and conditions and shall be settled in the same manner and at the same time (or
as soon thereafter as practicable) as the Restricted Stock Units originally
subject to the Restricted Stock Unit. In the event of a dividend or distribution
paid in shares of Common Stock or any other adjustment made upon a change in the
capital structure of the Corporation as described in Article IX, appropriate
adjustments shall be made in the Participant's Restricted Stock Unit so that it
represents the right to receive upon settlement any and all new, substituted or
additional securities or other property (other than normal cash dividends) to
which the Participant would be entitled by reason of the shares of Common Stock
issuable upon settlement of the Restricted Stock Unit, and all such new,
substituted or additional securities or other property shall be immediately
subject to the same restrictions as are applicable to the Restricted Stock Unit.
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4.7 SETTLEMENT OF RESTRICTED STOCK UNITS. If a Restricted Stock Unit is
payable in Common Stock, the Corporation shall issue to a Participant on the
date on which Restricted Stock Units subject to the Participant's Restricted
Stock Unit Vest or on such other date determined by the Committee, in its
discretion, and set forth in the Agreement, one (1) share of Common Stock and/or
any other new, substituted or additional securities or other property pursuant
to an adjustment described in Section 9.1 for each Restricted Stock Unit then
becoming Vested or otherwise to be settled on such date, subject to the
withholding of applicable taxes.
V. PERFORMANCE AWARDS
5.1 GRANT OF PERFORMANCE AWARDS. The Committee, at its discretion, may
grant Performance Awards to Participants and may determine, on an individual or
group basis, the performance goals to be attained pursuant to each Performance
Award.
5.2 TERMS OF PERFORMANCE AWARDS.
(A) Performance Awards shall consist of rights to receive cash, Common
Stock, other property or a combination of each, if designated performance goals
are achieved. The terms of a Participant's Performance Award shall be set forth
in a Participant's Agreement. Each Agreement shall specify the performance
goals, which may include the Performance Measures, applicable to a particular
Participant or group of Participants, the period over which the targeted goals
are to be attained, the payment schedule if the goals are attained, and any
other general terms as the Committee shall determine and conditions applicable
to an individual Performance Award. The Committee, at its discretion, may waive
all or part of the conditions, goals and restrictions applicable to the receipt
of full or partial payment of a Performance Award that has not been granted
pursuant to Code Section 162(m).
(B) Performance Awards may be granted as Performance Shares or Performance
Units, at the discretion of the Committee.
(i) In the case of Performance Shares, the Participant shall receive a
legended certificate of Common Stock, restricted from transfer prior to the
satisfaction of the designated performance goals and restrictions, as
determined by the Committee and specified in the Participant's Agreement.
Prior to satisfaction of the performance goals and restrictions, the
Participant shall be entitled to vote the Performance Shares. Further, any
dividends paid on such shares during the performance period automatically
shall be reinvested on behalf of the Participant in additional Performance
Shares under the Plan, and such additional shares shall be subject to the
same performance goals and restrictions as the other shares under the
Performance Share Award.
(ii) In the case of Performance Units, the Participant shall receive
an Agreement from the Committee that specifies the performance goals and
restrictions that must be satisfied before the Corporation shall issue the
payment, which may be cash, a designated number of shares of Common Stock,
other property, or a combination thereof.
VI. ANNUAL INCENTIVE AWARDS
6.1 GRANT OF ANNUAL INCENTIVE AWARDS.
(A) The Committee, at its discretion, may grant Annual Incentive Awards to
such Participants as it may designate from time to time. The terms of a
Participant's Annual Incentive Award shall be set forth in the Participant's
individual Agreement. Each Agreement shall specify such general terms and
conditions as the Committee shall determine.
(B) The determination of Annual Incentive Awards for a given year may be
based upon the attainment of specified levels of Corporation or Subsidiary
performance as measured by pre-established, objective performance criteria
determined at the discretion of the Committee, including any or all of the
Performance Measures.
(C) The Committee shall (i) select those Participants who shall be eligible
to receive an Annual Incentive Award, (ii) determine the performance period,
(iii) determine target levels of performance, and (iv) determine the level of
Annual Incentive Award to be paid to each selected Participant upon the
achievement of each performance level. The Committee generally shall make the
foregoing determinations prior to the commencement of services to
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which an Annual Incentive Award relates (or within the permissible time-period
established under Code Section 162(m)), to the extent applicable, and while the
outcome of the performance goals and targets is uncertain.
6.2 PAYMENT OF ANNUAL INCENTIVE AWARDS.
(A) Annual Incentive Awards shall be paid in cash, shares of Common Stock
or other property, at the discretion of the Committee. Payments shall be made
within thirty (30) days following a determination by the Committee that the
performance targets were attained and within two and a half (2 1/2) months after
the later of the end of the fiscal or calendar year in which the Annual
Incentive Award is earned.
(B) The amount of an Annual Incentive Award to be paid upon the attainment
of each targeted level of performance shall equal a percentage of a
Participant's base salary for the fiscal year, a fixed dollar amount, or such
other formula, as determined by the Committee.
VII. CODE SECTION 162(M) PERFORMANCE MEASURE AWARDS
7.1 AWARDS GRANTED UNDER CODE SECTION 162(M). The Committee, at its
discretion, may designate that a Restricted Stock, Restricted Stock Unit,
Performance Share, Performance Unit or Annual Incentive Award shall be granted
pursuant to Code Section 162(m). Such an Award must comply with the following
additional requirements, which shall control over any other provision that
pertains to such Award under Articles IV, V and VI.
(A) Each Code Section 162(m) Award shall be based upon the attainment of
specified levels of pre-established, objective Performance Measures that are
intended to satisfy the performance based compensation requirements of Code
Section 162(m) and the regulations promulgated thereunder. Further, at the
discretion of the Committee, an Award also may be subject to goals and
restrictions in addition to the Performance Measures.
(B) For each Code Section 162(m) Award, the Committee shall (i) select the
Participant who shall be eligible to receive a Code Section 162(m) Award, (ii)
determine the applicable performance period, (iii) determine the target levels
of the Corporation or Subsidiary Performance Measures, and (iv) determine the
number of shares of Common Stock or cash or other property (or combination
thereof) subject to an Award to be paid to each selected Participant. The
Committee shall make the foregoing determinations prior to the commencement of
services to which an Award relates (or within the permissible time period
established under Code Section 162(m)) and while the outcome of the performance
goals and targets is uncertain.
7.2 ATTAINMENT OF CODE SECTION 162(M) GOALS.
(A) After each performance period, the Committee shall certify, in writing:
(i) if the Corporation has attained the performance targets, and (ii) the number
of shares pursuant to the Award that are to become freely transferable, if
applicable, or the cash or other property payable under the Award. The Committee
shall have no discretion to waive all or part of the conditions, goals and
restrictions applicable to the receipt of full or partial payment of an Award
except in the case of the death or Disability of a Participant.
(B) Notwithstanding the foregoing, the Committee may, in its discretion,
reduce any Award based on such factors as may be determined by the Committee,
including, without limitation, a determination by the Committee that such a
reduction is appropriate in light of pay practices of competitors, or the
performance of the Corporation, a Subsidiary or a Participant relative to the
performance of competitors, or performance with respect to the Corporation's
strategic business goals.
7.3 INDIVIDUAL PARTICIPANT LIMITATIONS. Subject to adjustment as provided
in Section 9.1, no Participant in any one fiscal year of the Corporation may be
granted (a) Options or Stock Appreciation Rights with respect to more than one
hundred thousand (100,000) shares of Common Stock; (b) Restricted Stock or
Restricted Stock Units that are denominated in shares of Common Stock with
respect to more than twenty-five thousand (25,000) shares; and (c) Performance
Awards that are denominated in shares of Common Stock with respect to more than
twenty-five thousand (25,000) shares. The maximum dollar value payable to any
Participant in any one fiscal year of the Corporation with respect to an Annual
Incentive Award is the lesser of two (2) times the Participant's base salary for
the year or $1,000,000. If an Award is cancelled, the cancelled Award shall
continue to be counted towards the applicable limitations.
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VIII. TERMINATION OF EMPLOYMENT OR SERVICES
8.1 OPTIONS AND STOCK APPRECIATION RIGHTS.
(A) If, prior to the date when an Option or Stock Appreciation Right first
becomes Vested, a Participant terminates employment or services for any reason
(other than is provided in Section 9.2(a) following a Change in Control), the
Participant's right to exercise the Option or Stock Appreciation Right shall
terminate and all rights thereunder shall cease, unless provided otherwise in a
Participant's Agreement.
(B) If, on or after the date when an Option or Stock Appreciation Right
first becomes Vested, a Participant terminates employment or services for any
reason other than death or Disability, the Participant shall have the right,
within the earlier of (i) the expiration of the Option or Stock Appreciation
Right, and (ii) three (3) months after termination of employment or services, as
applicable, to exercise the Option or Stock Appreciation Right to the extent
that it was exercisable and unexercised on the date of the Participant's
termination of employment or services, subject to any other limitation on the
exercise of the Option or Stock Appreciation Right in effect on the date of
exercise. The Committee may designate in a Participant's Agreement that an
Option or Stock Appreciation Right shall terminate at an earlier or later time
than set forth above.
(C) If, on or after the date when an Option or Stock Appreciation Right
first becomes Vested, a Participant terminates employment or services due to
death while an Option or Stock Appreciation Right is still exercisable, the
person or persons to whom the Option or Stock Appreciation Right shall have been
transferred by will or the laws of descent and distribution, shall have the
right within the exercise period specified in the Participant's Agreement to
exercise the Option or Stock Appreciation Right to the extent that it was
exercisable and unexercised on the Participant's date of death, subject to any
other limitation on exercise in effect on the date of exercise. Provided,
however, that the beneficial tax treatment of an Incentive Stock Option may be
forfeited if the Option is exercised more than one (1) year after a
Participant's date of death.
(D) If, on or after the date when an Option or Stock Appreciation Right
first becomes Vested, a Participant terminates employment or services due to
Disability, the Participant shall have the right, within the exercise period
specified in the Participant's Agreement, to exercise the Option or Stock
Appreciation Right to the extent that it was exercisable and unexercised on the
date of the Participant's termination of employment or services due to
Disability, subject to any other limitation on the exercise of the Option or
Stock Appreciation Right in effect on the date of exercise. If the Participant
dies after termination of employment or services, as applicable, while the
Option or Stock Appreciation Right is still exercisable, the Option or Stock
Appreciation Right shall be exercisable in accordance with the terms of
paragraph (c), above.
(E) The Committee, at the time of a Participant's termination of employment
or services, may accelerate a Participant's right to exercise an Option or,
subject to Code Section 409A, may extend an Option term.
(F) Shares subject to Options and Stock Appreciation Rights that are not
exercised in accordance with the provisions of (a) through (e) above shall
expire and be forfeited by the Participant as of their expiration date and shall
become available for new Awards under the Plan as of such date.
8.2 RESTRICTED STOCK AND RESTRICTED STOCK UNITS. If a Participant
terminates employment for any reason (other than is provided in Section 9.2(a)
following a Change in Control), the Participant's right to shares of Common
Stock subject to a Restricted Stock or Restricted Stock Unit Award that are
still subject to a Restriction Period automatically shall terminate and be
forfeited by the Participant (or, if the Participant was required to pay a
purchase price for the Restricted Stock, other than for the performance of
services, the Corporation shall have the option to repurchase any shares
acquired by the Participant which are still subject to the Restriction Period
for the purchase price paid by the Participant) and, subject to Section 1.6,
said shares shall be available for new Awards under the Plan as of such
termination date. Provided, however, that the Committee, in its sole discretion,
may provide in a Participant's Agreement for the continuation of a Restricted
Stock Award or Restricted Stock Unit after a Participant terminates employment
or services or may waive or, subject to Code Section 409A, change the remaining
restrictions or add additional restrictions, as it deems appropriate. The
Committee shall not waive any restrictions on a Code Section 162(m) Restricted
Stock or Restricted Stock Unit Award, but the Committee may provide in a
Participant's Code Section 162(m) Restricted Stock or Restricted Stock Unit
Agreement or otherwise that upon the Employee's termination of employment due to
(a) death, (b) Disability, or (c) involuntary termination
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by the Corporation without cause (as determined by the Committee) prior to the
termination of the Restriction Period, that the performance goals and
restrictions shall be deemed to have been satisfied on a pro-rata basis, so that
the number of shares that become freely transferable shall be based on the
Participant's full number of months of employment during the employment period,
and the Participant's shall forfeit the remaining shares, and the Participant's
rights to such forfeited shares shall terminate in full.
8.3 PERFORMANCE AWARDS. Performance Awards shall expire and be forfeited
by a Participant upon the Participant's termination of employment or services
for any reason (other than is provided in Section 9.2(a) following a Change in
Control), and, subject to Section 1.6, shall be available for new Awards under
the Plan as of such termination date. Provided, however, that the Committee, in
its discretion, may provide in a Participant's Agreement or, subject to Code
Section 409A, may provide otherwise for the continuation of a Performance Award
after a Participant terminates employment or services or may waive or change all
or part of the conditions, goals and restrictions applicable to such Performance
Award. Notwithstanding the foregoing, the Committee shall not waive any
restrictions on a Code Section 162(m) Performance Award, but the Committee may
provide in an Employee's Code Section 162(m) Performance Share Agreement or
otherwise that upon the Participant's termination of employment due to (a)
death; (b) Disability; or (c) involuntary termination by the Corporation without
cause (as determined by the Committee) prior to the attainment of the associated
performance goals and restrictions, that the performance goals and restrictions
shall be deemed to have been satisfied on a pro-rata basis, so that the number
of shares that become freely transferable shall be based on the Participant's
full number of months of employment during the employment period, and the
Participant's shall forfeit the remaining shares, and the Participant's rights
to such forfeited shares shall terminate in full.
8.4 ANNUAL INCENTIVE AWARDS.
(A) A Participant who has been granted an Annual Incentive Award and
terminates employment or services due to Retirement, Disability or death prior
to the end of the Corporation's fiscal year shall be entitled to a pro-rated
payment of the Annual Incentive Award, based on the number of full months of
employment or services, as applicable during the fiscal year. Any such prorated
Annual Incentive Award shall be paid at the same time as regular Annual
Incentive Awards and, in the event of the Participant's death, to the
Participant's designated beneficiary.
(B) Except as otherwise determined by the Committee in its discretion, a
Participant who has been granted an Annual Incentive Award and resigns or is
terminated for any reason (other than Retirement, Disability or death), [before
the payment date of an Annual Incentive Award], shall forfeit the right to the
Annual Incentive Award payment for that fiscal year.
8.5 OTHER PROVISIONS. The transfer of an Employee from one corporation to
another among the Corporation and any of its Subsidiaries, or a leave of absence
under the leave policy of the Corporation or any of its Subsidiaries shall not
be a termination of employment for purposes of the Plan, unless a provision to
the contrary is expressly stated by the Committee in a Participant's Agreement
issued under the Plan.
IX. ADJUSTMENTS AND CHANGE IN CONTROL
9.1 ADJUSTMENTS. In the event of a merger, reorganization, consolidation,
recapitalization, dividend or distribution (whether in cash, shares or other
property), stock split, reverse stock split, spin-off or similar transaction or
other change in corporate structure affecting the Common Stock or the value
thereof, such adjustments and other substitutions shall be made to the Plan and
Awards as the Committee, in its sole discretion, deems equitable or appropriate,
including adjustments in the aggregate number, class and kind of securities that
may be delivered under the Plan and, in the aggregate or to any one Participant,
in the number, class, kind and option or exercise price of securities subject to
outstanding Awards granted under the Plan (including, if the Committee deems
appropriate, the substitution of similar options to purchase the shares of, or
other awards denominated in the shares of, another company, as the Committee may
determine to be appropriate in its sole discretion).
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9.2 CHANGE IN CONTROL.
(A) Notwithstanding anything contained herein to the contrary, in the event
of a Participant's Change in Position subsequent to a Change in Control, all of
the following shall occur: (i) any outstanding Option or Stock Appreciation
Right granted hereunder immediately shall become fully Vested and exercisable,
regardless of any installment provision applicable to such Option or Stock
Appreciation Right; (ii) the remaining Restriction Period on any Shares of
Common Stock subject to a Restricted Stock or Restricted Stock Unit Award
granted hereunder immediately shall lapse and the shares shall become fully
transferable, subject to any applicable Federal or State securities laws; (iii)
all performance goals and conditions shall be deemed to have been satisfied and
all restrictions shall lapse on any outstanding Performance Awards, which
immediately shall become payable; and (iv) for purposes of any Annual Incentive
Awards granted hereunder, the determination of whether the performance targets
and levels have been achieved shall be made as of the Change in Control and
payments due shall be immediately payable.
(B) The Committee may, in its sole discretion and without the consent of
any Participant, determine that, upon the occurrence of a Change in Control,
each or any Option or Stock Appreciation Right outstanding immediately prior to
the Change in Control shall be cancelled in exchange for a payment with respect
to each Vested share of Common Stock subject to such cancelled Option or Stock
Appreciation Right in (i) cash, (ii) stock of the Corporation or of a
corporation or other business entity a party to the Change in Control, or (iii)
other property which, in any such case, shall be in an amount having a Fair
Market Value equal to the excess of the Fair Market Value of the consideration
to be paid per share of Common Stock in the Change in Control over the exercise
price per share under such Option or Stock Appreciation Right (the "Spread"). In
the event such determination is made by the Committee, the Spread (reduced by
applicable withholding taxes, if any) shall be paid to a Participant in respect
of the Participant's cancelled Options and Stock Appreciation Rights as soon as
practicable following the date of the Change in Control.
(C) Notwithstanding the foregoing, but subject to Section 9.2(a), the
Committee, in its discretion, may provide in the event of a Change in Control
that the successor company shall assume or substitute for an Option, Stock
Appreciation Right, Restricted Stock, or Restricted Stock Unit payable in shares
of Common Stock, Performance Award payable in shares of Common Stock or Annual
Incentive Award payable in shares of Common Stock. For the purposes of this
Section 9.2(c), such an Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Performance Award or Annual Incentive Award shall be
considered assumed or substituted for if following the Change in Control the
Award confers the right to purchase or receive, for each share of Common Stock
subject to such Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Award or Annual Incentive Award immediately prior to the
Change in Control, the consideration (whether stock, cash or other securities or
property) received in the transaction constituting a Change in Control by
holders of shares of Common Stock for each share held on the effective date of
such 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
transaction constituting a Change in Control is not solely common stock of the
successor company, the Committee may, with the consent of the successor company,
provide that the consideration to be received upon the exercise or vesting of
such Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit,
Performance Award or Annual Incentive Award, for each share of Common Stock
subject thereto, shall be solely common stock of the successor company
substantially equal in fair market value to the per share consideration received
by holders of shares of Common Stock in the transaction constituting a Change in
Control. The determination of such substantial equality of value of
consideration shall be made by the Committee in its sole discretion and its
determination shall be conclusive and binding.
X. MISCELLANEOUS
10.1 PARTIAL EXERCISE/FRACTIONAL SHARES. The Committee may permit, and
shall establish procedures for, the partial exercise of Options and Stock
Appreciation Rights granted under the Plan. No fractional shares shall be issued
in connection with the exercise of a Stock Appreciation Right or payment of a
Performance Award, Restricted Stock Award, Restricted Stock Unit, or Annual
Incentive Award, instead, the Fair Market Value of the
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fractional shares shall be paid in cash, or at the discretion of the Committee,
the number of shares shall be rounded down to the nearest whole number of shares
and any fractional shares shall be disregarded.
10.2 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to shares covered by an Award until the
issuance of a stock certificate for such shares (or book entry representing such
shares has been made and such shares have been deposited with the appropriate
registered book-entry custodian). No adjustment shall be made for dividends or
other rights with respect to such shares for which the record date is prior to
the date the certificate is issued except as otherwise provided in the Plan or a
Participant's Agreement or by the Committee.
10.3 NON-ASSIGNABILITY; CERTIFICATE LEGEND; REMOVAL.
(A) Except as described below or as otherwise determined by the Committee
in a Participant's Agreement, no Award shall be transferable by a Participant
except by will or the laws of descent and distribution, and an Option or Stock
Appreciation Right shall be exercised only by a Participant during the lifetime
of the Participant. Notwithstanding the foregoing, a Participant may assign or
transfer an Award that is not an Incentive Stock Option with the consent of the
Committee (each transferee thereof, a "Permitted Assignee"); provided that such
Permitted Assignee shall be bound by and subject to all of the terms and
conditions of the Plan and any Agreement relating to the transferred Award and
shall execute an agreement satisfactory to the Corporation evidencing such
obligations; and provided further that such Participant shall remain bound by
the terms and conditions of the Plan.
(B) Each certificate representing shares of Common Stock subject to an
Award shall bear the following legend:
The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer set forth in the Amended
and Restated Stock Option and Incentive Plan ("Plan"), rules and
administrative guidelines adopted pursuant to such Plan [and an
Agreement dated , ]. A copy of the Plan, such
rules [and such Agreement] may be obtained from the General Counsel of
Syntel, Inc.
(C) Subject to applicable Federal and State securities laws, issued shares
of Common Stock subject to an Award shall become freely transferable by the
Participant after all applicable restrictions, limitations, performance
requirements or other conditions have terminated, expired, lapsed or been
satisfied. Once such issued shares of Common Stock are released from such
restrictions, limitations, performance requirements or other conditions, the
Participant shall be entitled to have the legend required by this Section 10.3
removed from the applicable Common Stock certificate.
10.4 SECURITIES LAWS.
(A) Anything to the contrary herein notwithstanding, the Corporation's
obligation to sell and deliver Common Stock pursuant to the exercise of an
Option or Stock Appreciation Right or deliver Common Stock pursuant to a
Restricted Stock Award, Restricted Stock Unit, Performance Award or Annual
Incentive Award is subject to such compliance with Federal and State laws, rules
and regulations applying to the authorization, issuance or sale of securities as
the Corporation deems necessary or advisable. The Corporation shall not be
required to sell and deliver or issue Common Stock unless and until it receives
satisfactory assurance that the issuance or transfer of such shares shall not
violate any of the provisions of the Securities Act of 1933 or the Securities
Exchange Act of 1934, or the rules and regulations of the Securities Exchange
Commission promulgated thereunder or those of the Stock Exchange or any stock
exchange on which the Common Stock may be listed, the provisions of any State
laws governing the sale of securities, or that there has been compliance with
the provisions of such acts, rules, regulations and laws.
(B) The Committee may impose such restrictions on any shares of Common
Stock acquired pursuant to the exercise of an Option or Stock Appreciation Right
or the grant of Restricted Stock or Restricted Stock Units or the payment of a
Performance Award or Annual Incentive Award under the Plan as it may deem
advisable, including, without limitation, restrictions (i) under applicable
Federal securities laws; (ii) under the requirements of the Stock Exchange or
any other securities exchange or recognized trading market or quotation system
upon which such
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shares of Common Stock are then listed or traded; and (iii) under any blue sky
or State securities laws applicable to such shares.
10.5 FOREIGN LAW RESTRICTIONS. Anything to the contrary herein
notwithstanding, the Corporation's obligation to sell and deliver Common Stock
pursuant to the exercise of an Option or Stock Appreciation Right or deliver
Common Stock pursuant to a Restricted Stock grant, Performance Share Award or
Annual Incentive Award is subject to compliance with the laws, rules and
regulations of any foreign nation applying to the authorization, issuance or
sale of securities, providing of compensation, transfer of currencies and other
matters, as may apply to any Participant hereunder who is a resident of such
foreign nation. To the extent that it shall be impermissible under such foreign
laws for such a Participant to pay the exercise price for any Option granted
under the Plan (to the extent Vested), the Committee may treat such Participant
as being entitled instead to exercise additional Stock Appreciation Rights which
are of equivalent value to the Participant, as determined by comparing the Fair
Market Value upon exercise of the number of shares subject to the Option (to the
extent Vested), less the Option price of such shares. Further, to the extent
that it shall be impermissible under such foreign laws for the corporation to
deliver Common Stock to any such Participant pursuant to any Option, Stock
Appreciation Right, Restricted Stock Grant, Performance Award or Annual
Incentive Award granted under the Plan (to the extent Vested), the Committee may
arrange for payment to the Participant of an equivalent amount of cash in lieu
of such shares (less any amount otherwise payable by the Participant), in
accordance with all applicable Untied States and foreign currency restrictions
and regulations. To the extent that the Corporation is restricted in accordance
with such foreign laws from delivering shares of Common Stock to Participants as
would otherwise be provided for in this Plan, the Corporation shall be released
from such obligation and shall not be subject to the claims of any Participant
hereunder with respect thereto.
10.6 WITHHOLDING TAXES.
(A) The Corporation shall have the right to withhold from a Participant's
compensation or require a Participant to remit sufficient funds to satisfy
applicable withholding for income and employment taxes upon the exercise of an
Option or Stock Appreciation Right or the lapse of the Restriction Period on a
Restricted Stock Award, Restricted Stock Unit, or the payment of a Performance
Award or Annual Incentive Award. To satisfy the withholding obligation, a
Participant may tender previously-acquired shares of Common Stock that have been
held at least six (6) months or have shares of stock withheld from the exercise,
provided that the shares have an aggregate Fair Market Value sufficient to
satisfy in whole or in part the applicable withholding taxes. The broker
assisted exercise procedure of Section 2.4 may be utilized to satisfy the
withholding requirements related to the exercise of an Option. At no point shall
the Corporation withhold from the exercise of an Option more shares than are
necessary to meet the established tax withholding requirements of federal, state
and local obligations.
(B) Notwithstanding the foregoing, a Participant may not use shares of
Common Stock to satisfy the withholding requirements to the extent that (i)
there is a substantial likelihood that the use of such form of payment or the
timing of such form of payment would subject the Participant to a substantial
risk of liability under Section 16 of the Exchange Act; (ii) such withholding
would constitute a violation of the provisions of any law or regulation
(including the Sarbanes-Oxley Act of 2002); or (iii) there is a substantial
likelihood that the use of such form of payment would result in adverse
accounting treatment to the Corporation under generally accepted accounting
principles.
10.7 TERMINATION AND AMENDMENT.
(A) The Board may terminate the Plan, or the granting of Awards under the
Plan, at any time. No new Awards shall be granted under the Plan after May 31,
2016.
(B) The Board may amend or modify the Plan at any time and from time to
time, and the Committee may amend or modify the terms of an outstanding
Agreement at any time and from time to time, but no amendment or modification,
without the approval of the shareholders of the Corporation, shall (i)
materially increase the benefits accruing to Participants under the Plan; (ii)
increase the amount of Common Stock for which Awards may be made under the Plan,
except as permitted under Sections 1.6 and Article 9; or (iii) change the
provisions relating to the eligibility of individuals to whom Awards may be made
under the Plan. In addition, if the Corporation's Common Stock is listed on a
Stock Exchange, the Board may not amend the Plan in a manner requiring approval
of the
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shareholders of the Corporation under the rules of the Stock Exchange without
obtaining the approval of the shareholders.
(C) No amendment, modification, or termination of the Plan or an
outstanding Agreement shall in any manner adversely affect any then outstanding
Award under the Plan without the consent of the Participant holding such Award,
except as set forth in any Agreement relating to the Award, or to bring the Plan
and/or an Award into compliance with the requirements of Code Section 409A or to
qualify for an exemption under Code Section 409A.
10.8 CODE SECTION 409A. It is intended that Awards granted under the Plan
shall be exempt from or in compliance with Code Section 409A, and the Board
reserves the right to amend the terms of the Plan, and the Committee reserves
the right to amend any outstanding Agreement if necessary either to exempt such
Award from Code Section 409A or comply with the requirements of Code Section
409A, as applicable. Further, Plan Participants who are "Specified Employees"
(as defined under Code Section 409A and IRS guidance issued thereunder), shall
be required to delay payment of an Award for six (6) months after separation
from service to the extent such Award is governed by Code Section 409A, and the
delay is required thereunder.
10.9 EFFECT ON EMPLOYMENT OR SERVICES. Neither the adoption of the Plan
nor the granting of any Award pursuant to the Plan shall be deemed to create any
right in any individual to be retained or continued in the employment or
services of the Corporation or a Subsidiary.
10.10 USE OF PROCEEDS. The proceeds received from the sale of Common
Stock pursuant to the Plan shall be used for general corporate purposes of the
Corporation.
10.11 SEVERABILITY. If any one or more of the provisions (or any part
thereof) of this Plan or of any Agreement issued hereunder, shall be held to be
invalid, illegal or unenforceable in any respect, such provision shall be
modified so as to make it valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions (or any part thereof) of
the Plan or of any Agreement shall not in any way be affected or impaired
thereby. The Corporation may, without the consent of any Participant, and in a
manner determined necessary solely in the discretion of the Corporation, amend
the Plan and any outstanding Agreement as the Corporation deems necessary to
ensure the Plan and all Awards remain valid, legal or enforceable in all
respects.
10.12 BENEFICIARY DESIGNATION. Subject to local laws and procedures, each
Participant may file a written beneficiary designation with the Corporation
stating who is to receive any benefit under the Plan to which the Participant is
entitled in the event of such Participant's death before receipt of any or all
of a Plan benefit. Each designation shall revoke all prior designations by the
same Participant, be in a form prescribed by the Corporation, and become
effective only when filed by the Participant in writing with the Corporation
during the Participant's lifetime. If a Participant dies without an effective
beneficiary designation for a beneficiary who is living at the time of the
Participant's death, the Corporation shall pay any remaining unpaid benefits to
the Participant's legal representative.
10.13 UNFUNDED OBLIGATION. A Participant shall have the status of a
general unsecured creditor of the Corporation. Any amounts payable to a
Participant pursuant to the Plan shall be unfunded and unsecured obligations for
all purposes. The Corporation shall not be required to segregate any monies from
its general funds, or to create any trusts, or establish any special accounts
with respect to such obligations. The Corporation shall retain at all times
beneficial ownership of any investments, including trust investments, which the
Corporation may make to fulfill its payment obligations hereunder. Any
investments or the creation or maintenance of any trust or any Participant
account shall not create or constitute a trust or fiduciary relationship between
the Committee or the Corporation and a Participant, or otherwise create any
Vested or beneficial interest in any Participant or the Participant's creditors
in any assets of the Corporation. A Participant shall have no claim against the
Corporation for any changes in the value of any assets which may be invested or
reinvested by the Corporation with respect to the Plan.
10.14 APPROVAL OF PLAN. The Plan shall be subject to the approval of the
holders of at least a majority of the votes cast at a duly held meeting of
shareholders of the Corporation held within twelve (12) months after adoption of
the Plan by the Board. No Award granted under the Plan may be exercised or paid
in whole or in part unless the Plan has been approved by the shareholders as
provided herein. If not approved by shareholders within twelve
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(12) months after approval by the Board, the Plan and any Awards granted under
the Plan shall be null and void, with no further force or effect.
10.15 GOVERNING LAW. Except to the extent governed by applicable federal
law, the validity, interpretation, construction and performance of the Plan and
Agreements under the Plan, shall be governed by the laws of the State of
Michigan, without regard to its conflict of law rules.
This Syntel, Inc. 2006 Stock Option and Incentive Plan has been executed on
behalf of the Corporation on this the 1st day of June, 2006.
SYNTEL, INC.
By:
------------------------------------
Bharat Desai, President
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APPENDIX C
SYNTEL, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE JUNE 1, 2006)
TABLE OF CONTENTS
PAGE
----
I. GENERAL PROVISIONS...................................................... C-1
1.1 Establishment..................................................... C-1
1.2 Purpose........................................................... C-1
1.3 Plan Duration..................................................... C-1
1.4 Definitions....................................................... C-1
1.5 Stock............................................................. C-2
1.6 Administration.................................................... C-2
1.7 Participants...................................................... C-2
II. OFFER TERMS............................................................ C-2
2.1 Offer and Purchase Period......................................... C-2
2.2 Option Price...................................................... C-3
2.3 Participation..................................................... C-3
2.4 Participation Limitations......................................... C-4
2.5 Termination of Employment......................................... C-4
2.6 Restrictions on Transfer.......................................... C-4
III. MISCELLANEOUS......................................................... C-4
3.1 Non-Assignability................................................. C-4
3.2 Adjustments....................................................... C-4
3.3 Change in Control................................................. C-4
3.4 Termination and Amendment......................................... C-5
3.5 Rights Prior to Issuance of Shares................................ C-5
3.6 Securities Laws................................................... C-5
3.8 Delivery of Plan.................................................. C-6
3.9 Effect on Employment.............................................. C-6
3.10 Certificates...................................................... C-6
3.11 Use of Proceeds................................................... C-6
3.12 Approval of Plan.................................................. C-6
3.13 Governing Law..................................................... C-6
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SYNTEL, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
I. GENERAL PROVISIONS
1.1 ESTABLISHMENT. On April 17, 2006, the Board of Directors ("Board") of
Syntel, Inc. ("Corporation") adopted the Amended and Restated Employee Stock
Purchase Plan ("Plan"), subject to approval by the shareholders of the
Corporation on June 1, 2006. The Plan amends and restates the Employee Stock
Purchase Plan that was approved by the shareholders on April 1, 1997.
1.2 PURPOSE. The purpose of the Plan is (i) to promote the best interests
of the Corporation and its shareholders by encouraging Employees of the
Corporation and any Subsidiaries to acquire an ownership interest in the
Corporation through the purchase of stock in the Corporation, thus aligning
their interests with those of shareholders, and (ii) to enhance the ability of
the Corporation and its Subsidiaries to attract, motivate and retain qualified
Employees. The Plan is intended to constitute an "employee stock purchase plan"
under Section 423 of the Code.
1.3 PLAN DURATION. Upon receipt of shareholders approval, the Plan shall
commence on June 1, 2006 and subject to earlier termination by the Board in
accordance with Section 3.4, no new Offers may be made under the Plan after May
31, 2016.
1.4 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:
(A) "BOARD" means the Board of Directors of the Corporation.
(B) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
(D) "COMMITTEE" means the Compensation Committee of the Board.
(E) "COMMON STOCK" means shares of the Corporation's Common Stock, as
described in Section 1.4, below.
(F) "CORPORATION" means Syntel, Inc. and, for purposes of this Plan,
employment with the Corporation shall be deemed to include employment with
any Subsidiary of the Corporation.
(G) "ELECTION PERIOD" means the period of time designated by the
Committee when an eligible Employee may elect to participate in one or more
Purchase Periods.
(H) "EMPLOYEE" means an individual who has an "employment
relationship" with the Corporation or a Subsidiary, as defined in Treasury
Regulation 1.421-7(h), and the term "employment" means employment with the
Corporation or a Subsidiary, as applicable.
(I) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time and any successor rule.
(J) "FAIR MARKET VALUE" means for purposes of determining the value of
Common Stock the Stock Exchange closing price of the Corporation's Common
Stock as reported in The Wall Street Journal (or as otherwise reported by
such Stock Exchange) for the Grant Date or the date of exercise of an
option, as is applicable. In the event that there are no Common Stock
transactions on such date, the Fair Market Value shall be determined as of
the immediately preceding date on which there were Common Stock
transactions.
(K) "OFFER" means the Committee's designation of a Purchase Period
available to eligible Employees and the terms on which an option may be
exercised during the applicable Purchase Period.
(L) "OPTION PRICE" means the price, determined by the Committee, at
which Common Stock subject to an option may be purchased during a Purchase
Period.
(M) "PLAN" means the Amended and Restated Employee Stock Purchase
Plan, the terms of which are set forth herein, and any amendments thereto.
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(N) "PURCHASE PERIOD" means a period established by the Committee
during which an eligible Employee may exercise options granted hereunder.
(O) "STOCK EXCHANGE" means the principal national securities exchange
on which the Common Stock is listed for trading, or, if the Common Stock is
not listed for trading on a national securities exchange, such other
recognized trading market or quotation system upon which the largest number
of shares of Common Stock has been traded in the aggregate during the last
20 days before the first or last day of a Purchase Period, as applicable.
(P) "SUBSIDIARY" means any subsidiary of the Corporation, as defined
in Code Section 424(f).
1.5 STOCK. The stock subject to option and purchase under the Plan shall
be the Common Stock of the Corporation, and may be either authorized and
unissued shares or shares that have been reacquired by the Corporation. The
total amount of Common Stock on which options may be granted under the Plan
shall not exceed one million five hundred thousand shares (1,500,000) shares,
subject to adjustment in accordance with Section 3.2. Shares of Common Stock
subject to any unexercised portion of a terminated, canceled or expired option
granted under the Plan may again be used for options under the Plan.
1.6 ADMINISTRATION. The Plan shall be administered by the Committee. The
Committee may prescribe rules and regulations from time to time for the
administration of the Plan and may decide questions which may arise with respect
to its interpretation or application. The decisions of the Committee in
interpreting the Plan shall be final, conclusive and binding on all persons,
including the Corporation, its Subsidiaries, Employees, and optionees. The
Committee, from time to time, shall grant to eligible Employees on a uniform
basis, options to purchase Common Stock pursuant to the terms and conditions of
the Plan. In the event of insufficient shares during a Purchase Period, the
Committee shall allocate the right to purchase shares to each participant in the
same proportion that such participant's total current base salary paid by the
Corporation for the Purchase Period bears to the total of such base salaries
paid by the Corporation to all participants during the same period. All excess
funds withheld, as a result of insufficient shares, shall be returned to the
participating Employees.
1.7 PARTICIPANTS. Except as provided in Section 2.4 below, any Employee
who has (a) completed six (6) full months of service with the Corporation, and
(b) whose customary employment is more than twenty (20) hours per week and five
(5) or more months per calendar year at the time of an Offer, is eligible to
participate in such Offer under the Plan, in accordance with the terms of the
Plan. An Employee who meets the eligibility requirements in this Section 1.6
shall be entitled to participate in the first Offer commencing after the
eligibility requirements have been satisfied.
II. OFFER TERMS
2.1 OFFER AND PURCHASE PERIOD.
(A) The Committee shall determine the date or dates upon which one or more
Offers shall be made under the Plan. The Purchase Period pursuant to each Offer
shall be such term as the Committee shall determine prior to the commencement of
an Offer, but which in no event shall be fewer than six (6) nor more than
twenty-seven (27) months.
(B) To participate in an Offer, an eligible Employee must submit such
enrollment forms as shall be prescribed by the Committee (which shall include a
payroll deduction authorization form) at such time and in such manner as shall
be prescribed by the Committee. The payroll deductions authorized by a
participant on a payroll deduction authorization form shall be expressed (i) as
a whole number percentage of the participant's "base compensation" for each pay
period during the Purchase Period, (ii) as a specified dollar amount to be
withheld from a participant's base compensation or bonus on one or more
designated payroll dates, or (iii) as a specified number of shares to be
purchased within the dollar and share limits set forth in the Plan. For purposes
of the Plan, a participant's "base compensation" for a pay period shall include
the participant's base compensation but shall exclude commissions, bonuses,
overtime, sick pay, severance pay, moving expenses, expense reimbursements and
allowances and other special payments and supplemental compensation. A
participant may not purchase more than 2,500 shares of
C-2
Common Stock in any six (6) month Purchase Period (proportionately adjusted
upward for Purchase Periods of more than six (6) months).
2.2 OPTION PRICE.
(A) The Option Price at which shares of Common Stock may be purchased under
the Plan shall be determined by the Committee at the time of the Offer but in no
event shall such amount be less than the lesser of:
(i) 85% of the Fair Market Value of a share of Common Stock on the
date of grant of the option (first day of a Purchase Period), or
(ii) 85% of the Fair Market Value of a share of Common Stock on the
date the option is deemed exercised pursuant to Section 2.4(d) (last day of
a Purchase Period).
(B) For purposes of this Plan, the Fair Market Value per share shall be
deemed to be the closing price of Common Stock on the Stock Exchange for the
first and last days of the Purchase Period. In the event that there are no
Common Stock transactions on either date, the Fair Market Value shall be
determined as of the immediately preceding date on which there were Common Stock
transactions.
2.3 PARTICIPATION.
(A) An eligible Employee may elect to participate in an Offer by delivering
to the Corporation an election to participate and a payroll deduction form
within the Election Period designated by the Committee prior to the commencement
of a Purchase Period. An eligible Employee's election to participate and payroll
deduction form from the preceding Election Period automatically shall carry over
to the next Election Period unless affirmatively revoked in writing by the
Employee. An Employee who elects to participate may not authorize payroll
deductions which, in the aggregate, are more than thirty percent (30%) of the
Employee's cash compensation during the Purchase Period. For purposes of the
Plan, "cash compensation" shall mean an Employee's total cash compensation
during the Purchase Period, excluding performance, hire-on, and non-compete
bonuses and any other non-recurring special pay as determined by the Committee.
Only whole shares of Common Stock may be purchased under the Plan.
(B) All Employees granted options under the Plan shall have the same rights
and privileges under the Plan, except that the number of shares each participant
may purchase shall depend upon his or her cash compensation and the designated
payroll deduction he or she authorizes. The maximum number of shares of Common
Stock that an eligible Employee may purchase in a Particular Purchase Period
shall be determined by the Committee and shall bear a uniform relationship to
the Employee's cash compensation, subject to rounding down for fractional
shares, as determined by the Committee.
(C) Payroll deductions shall commence on the first payroll date in the
Purchase Period and shall continue until the last payroll date in the Purchase
Period. An Employee may suspend payroll deductions during a Purchase Period only
at the discretion of the Committee in the event of an unforeseen hardship;
provided, however, that payroll deductions made prior to approval of the
suspension by the Committee shall still be used to purchase Common Stock for the
Employee at the end of the Purchase Period.
(D) A participating Employee's option shall be deemed to have been
exercised on the last business day of the Purchase Period.
(E) As soon as practicable after the end of the Purchase Period, the
Corporation shall deliver to each Employee, certificates evidencing the shares
of Common Stock that an Employee has purchased (or a book entry representing
such shares shall be made and the shares deposited with the appropriate
registered book-entry custodian). Any amount that has been deducted representing
a fractional share shall be applied toward the purchase of option shares in the
next Purchase Period. An Employee who does not elect to participate in the
following Purchase Period shall receive a check from the Corporation for any
amount that has been deducted and represents a fractional share. Any payroll
deductions that exceed the limits set forth in Sections 2.1(b) and 2.4 shall be
returned to the participant in the amount of the excess.
(F) The Corporation retains the right to designate an exclusive broker to
handle the Common Stock transactions under the Plan. As soon as practicable
after the end of the Purchase Period, the Corporation shall
C-3
deliver to each Employee or a designated brokerage account, through a
certificate or electronic transfer, the shares of Common Stock that such
Employee has purchased. Unless otherwise determined by the Committee, any amount
that has been deducted and withheld in excess of the option price automatically
shall be paid by check to the participating Employee promptly following the end
of the Purchase Period in which withheld.
(G) Unless otherwise determined by the Committee, no interest shall accrue
or be paid on any amounts paid by payroll deduction by any participating
Employee.
2.4 PARTICIPATION LIMITATIONS. Notwithstanding any other provision of the
Plan, no Employee shall be eligible to participate in an Offer under the Plan
if:
(A) the Employee, immediately after such grant, would, in the
aggregate, own and/or hold shares of Common Stock (including all shares
which may be purchased under outstanding options, whether or not such
options qualify for the special tax treatment afforded by Section 421(a) of
the Code) equal to or exceeding five percent (5%) or more of the total
combined voting power or value of all classes of capital stock of the
Corporation or of its Subsidiaries; for purposes of this limitation, the
rules of section 424(d) of the Code and the regulations promulgated
thereunder (relating to attribution of stock ownership) shall apply; or
(B) such grant would permit, under the rules set forth in Section 423
of the Code and the regulations promulgated thereunder, the Employee's
right to purchase stock under this Plan and all other Code Section 423
employee stock purchase plans maintained by the Corporation and its
Subsidiaries to accrue at a rate in excess of $25,000 in Fair Market Value
of such stock (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
2.5 TERMINATION OF EMPLOYMENT. If a participating Employee ceases to be
employed by the Corporation or a Subsidiary for any reason, including but not
limited to, voluntary or forced resignation, retirement, death, disability or
lay-off, the Corporation, within a reasonable time after notice of the
termination, shall issue a check to the former Employee (or executor,
administrator or legal representative, if applicable) in the aggregate amount of
the Employee's payroll deductions that had not been applied towards the purchase
of option shares as of the date of termination.
III. MISCELLANEOUS
3.1 NON-ASSIGNABILITY. No option shall be transferable by a participating
Employee, and an option may be exercised during a participating Employee's
lifetime only by the Employee. Upon the death of a participating Employee, his
or her executor, administrator or other legal representative shall receive a
check from the Corporation representing the aggregate amount of the deceased
Employee's payroll deductions that had not been applied towards the purchase of
option shares as of the date of death.
3.2 ADJUSTMENTS. In the event of a merger, reorganization, consolidation,
recapitalization, dividend or distribution (whether in cash, shares or other
property), stock split, reverse stock split, spin-off or similar transaction or
other change in corporate structure affecting the Common Stock or the value
thereof, such adjustments and other substitutions shall be made to the Plan and
Options as the Committee, in its sole discretion, deems equitable or
appropriate, including adjustments in the aggregate number, class and kind of
securities that may be delivered under the Plan and; in the aggregate or to any
one Participant, in the number, class, kind and option price of securities
subject to outstanding options under the Plan (including, if the Committee deems
appropriate, the substitution of similar options to purchase the shares of
another company, as the Committee may determine to be appropriate in its sole
discretion). Any of the foregoing adjustments may provide for the elimination of
any fractional share which might otherwise become subject to any option.
3.3 CHANGE IN CONTROL.
(A) After any merger of one or more corporations into the Corporation in
which the Corporation shall be the surviving corporation or any share exchange
in which the Corporation is a constituent corporation, each participant shall,
at no additional cost, be entitled upon the exercise of an option, to receive
(subject to any required action by shareholders), in lieu of the number of
shares of Common Stock for which such option shall then be exercisable, the
consideration which such participant would have been entitled to receive
pursuant to the terms of the agreement of
C-4
merger or share exchange if at the time of such merger or share exchange such
participant had been a holder of record of a number of shares of Common Stock
equal to the number of shares then underlying the option. Comparable rights
shall accrue to each participating Employee in the event of successive mergers
or consolidations of the character described above.
(B) Notwithstanding anything contained herein to the contrary, upon the
dissolution or liquidation of the Corporation or upon any merger or share
exchange in which the Corporation is not the surviving corporation (other than a
merger with a wholly-owned subsidiary of the Corporation formed for the purpose
of changing the Corporation's corporate domicile where the Plan is assumed by
the survivor), the Purchase Period for any option granted under this Plan shall
terminate as of the date of the aforementioned event, and each participant shall
be deemed to have exercised, immediately prior to such dissolution, liquidation,
merger or share exchange, his or her option to the extent payroll deductions
were made prior thereto.
(C) The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
3.4 TERMINATION AND AMENDMENT.
(A) The Board may terminate the Plan, or the granting of options under the
Plan, at any time. No option shall be granted under the Plan after May 31, 2016.
(B) The Board may amend or modify the Plan at any time and from time to
time, but no amendment or modification shall disqualify the Plan under Section
423 of the Code or Rule 16b-3 under the Exchange Act without the approval of the
shareholders of the Corporation.
(C) No amendment, modification, or termination of the Plan shall adversely
affect any option granted under the Plan without the consent of the Employee
holding the option.
3.5 RIGHTS PRIOR TO ISSUANCE OF SHARES. No participating Employee shall
have any rights as a shareholder with respect to shares covered by an option
until the issuance of a stock certificate or electronic transfer to the Employee
(or book entry representing such shares has been made and such shares have been
deposited with the appropriate registered book-entry custodian). No adjustment
shall be made for dividends or other rights with respect to such shares for
which the record date is prior to the date when the certificate is issued or the
shares electronically delivered to the Employee's brokerage account.
3.6 SECURITIES LAWS.
(A) Anything to the contrary herein notwithstanding, the Corporation's
obligation to sell and deliver Common Stock pursuant to the exercise of an
option is subject to such compliance with federal and state laws, rules and
regulations applying to the authorization, issuance or sale of securities as the
Corporation deems necessary or advisable. The Corporation shall not be required
to sell and deliver or issue Common Stock unless and until it receives
satisfactory assurance that the issuance or transfer of such shares shall not
violate any of the provisions of the Securities Act of 1933 or the Exchange Act,
or the rules and regulations of the Securities Exchange Commission promulgated
thereunder or those of any stock exchange on which the stock may be listed and
the provisions of any state laws governing the sale of securities, or that there
has been compliance with the provisions of such acts, rules, regulations and
laws.
(B) The Board may impose such restrictions on any shares of Common Stock
acquired pursuant to the exercise of an option under the Plan as it may deem
advisable, including, without limitation, restrictions (i) under applicable
federal securities laws, (ii) under the requirements of a Stock Exchange or
other recognized trading market upon which such shares of Common Stock are then
listed or traded, and (iii) under any blue sky or state securities laws
applicable to such shares. No shares shall be issued until counsel for the
Corporation has determined that the Corporation has complied with all
requirements under appropriate securities laws.
3.7 FOREIGN LAW RESTRICTIONS. Anything to the contrary herein
notwithstanding, the Corporation's obligation to sell and deliver Common Stock
pursuant to the exercise of an option is subject to compliance with the laws,
rules and regulations of any foreign nation applying to the authorization,
issuance or sale of securities,
C-5
providing of compensation, transfer of currencies and other matters, as may
apply to any participating Employee hereunder who is a resident of such foreign
nation. To the extent that it shall be impermissible under such foreign laws for
such a Participant to pay the exercise price for any option granted under the
Plan or for the Corporation to deliver Common Stock to any such Participant
pursuant to any option granted under the Plan, the Committee shall refund to
such Employee the aggregate amount of the payroll deductions made pursuant to
this Plan (to the extent such amounts have not previously been applied towards
the purchase of option shares, in accordance with all applicable United States
and foreign currency restrictions and regulations). To the extent that the
Corporation is restricted in accordance with such foreign laws from delivering
shares of Common Stock to participating Employees as would otherwise be provided
for in this Plan, the Corporation shall be released from such obligation and
shall not be subject to the claims of any Employee hereunder with respect
thereto.
3.8 DELIVERY OF PLAN. Each Employee who is a participant in the Plan
shall have delivered to him or her a copy of the Plan.
3.9 EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor the
granting of an option pursuant to it shall be deemed to create any right in any
individual to be retained or continued in the employment of the Corporation.
3.10 CERTIFICATES. If certificates are issued, the Corporation shall have
the right to retain such certificates representing shares of Common Stock issued
pursuant to the Plan until such time as all conditions and/or restrictions
applicable to such shares of Common Stock have been satisfied.
3.11 USE OF PROCEEDS. The proceeds received from the sale of Common Stock
pursuant to the Plan shall be used for general corporate purposes of the
Corporation.
3.12 APPROVAL OF PLAN. The Plan shall be subject to the approval of the
holders of at least a majority of the Common Stock of the Company present and
entitled to vote at a meeting of shareholders of the Company held within twelve
(12) months after adoption of the Plan by the Board. If not approved by
shareholders within such 12-month period, the Plan and any options granted
hereunder shall become void and of no effect.
3.13 GOVERNING LAW. This Plan shall be governed by and construed under
the laws of the State of Michigan without regard to its conflict of law
provisions.
This Syntel, Inc. 2006 Employee Stock Purchase Plan has been executed on
behalf of the Corporation on this the 1st day of June, 2006.
SYNTEL, INC.
By:
------------------------------------
Bharat Desai, President
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C 1234567890 J N T
[SCALE] [BAR CODE]
[ ] Mark this box with an X
if you have made
changes to your name
or address details
above.
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ANNUAL MEETING PROXY CARD
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A ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD FOR WITHHOLD
01 - Paritosh K. Choksi [ ] [ ] 04 - George R. Mrkonic, Jr. [ ] [ ]
02 - Bharat Desai [ ] [ ] 05 - Vasant Raval [ ] [ ]
03 - Paul R. Donovan [ ] [ ] 06 - Neerja Sethi [ ] [ ]
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
FOR AGAINST ABSTAIN
2. To adopt the Amended and Restated Stock [ ] [ ] [ ]
Option and Incentive Plan.
3. To adopt the Amended and Restated Employee [ ] [ ] [ ]
Stock Purchase Plan.
4. To ratify the appointment of Crowe Chizek and [ ] [ ] [ ]
Company LLC as the independent and registered
public accounting firm for the current fiscal
year.
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
NOTE: Please sign exactly as your name(s) appears on this Proxy. If your
shares are held in joint tenancy, all persons should sign. Trustees,
administrators, etc., should include their title and authority. Corporations
should provide the full name of the corporation and the title of the
authorized officer signing the proxy.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
[BOX] [BOX] [BOX]
[BLACK BOX] 0 0 8 5 0 1 1 U P X C O Y [LOGO]
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PROXY - SYNTEL, INC.
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PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS - JUNE 1, 2006
The undersigned appoints Bharat Desai and Daniel M. Moore, and each of them
individually, as proxies with full power of substitution and revocation to
vote, as designated on the reverse side of this proxy, all the shares of
common stock of Syntel, Inc. held of record by the undersigned on April 6,
2006, with all powers that the undersigned would possess if personally
present, at Syntel, Inc.'s annual meeting of shareholders to be held on June
1, 2006, or at any adjournment thereof.
IN THEIR DISCRETION, PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER SPECIFIED BY
THE UNDERSIGNED SHAREHOLDER. IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL
BE VOTED FOR EACH OF THE NOMINEES AND PROPOSALS LISTED ON THE REVERSE SIDE.