SECURITIES
AND EXCHANGE BOARD OF
(EMPLOYEE
STOCK OPTION SCHEME AND
EMPLOYEE
STOCK PURCHASE SCHEME) GUIDELINES, 1999
1.
Short title and commencement:
1.1
These Guidelines have been issued by Securities and Exchange Board of
India under Section 11 of the Securities and Exchange Board of India Act,
1992.
1.2
These Guidelines may be called the Securities and Exchange Board of India
(Employee Stock Option Scheme and Employee Stock Purchase Scheme),
Guidelines, 1999.
2.
Definitions:
2.1
In these Guidelines, unless otherwise defined;-
(1)"employee"
means
a)
a permanent employee of the company working in
b)
a director of the company, whether a whole time director or not; or
c)
an employee as defined in sub-clauses (a) or (b) of a subsidiary, in
(2)"
employee compensation" means the total cost incurred by the company
towards employee compensation including basic salary, dearness allowance,
other allowances, bonus and commissions including the value of all
perquisites provided, but does not include:
(a)
the fair value of the option granted under an Employee Stock Option
Scheme; and
(b)
the discount at which shares are issued under an Employee Stock Purchase
Scheme.
[1][(2A)
“employee stock option” means the option given to the whole-time
Directors, Officers or
employees of a company which gives such Directors, Officers or employees,
the benefit or right to purchase or subscribe at a future date, the
securities offered by the company at a predetermined
price.]
[2][(3)
“employee stock option scheme (ESOS)” means a scheme under which a company
grants employee stock option.]
(4)
"employee stock purchase scheme (ESPS)" means a scheme under which the
company offers shares to employees as part of a public issue or otherwise.
[3][(4a)
“ESOS shares” means shares arising out of exercise of options granted
under ESOS]
[4][(4b)
“ESPS shares” means shares arising out of grant of shares under
ESPS.]
(5)"exercise"
means making of an application by the employee to the company for issue of
shares against option vested in him in pursuance of the ESOS.
(6)
"exercise period" means the time period after vesting within which
the
employee should exercise his right to apply for shares against the
option vested in him in
pursuance of the ESOS.
(7)
"exercise price" means the price payable by the employee for exercising
the option granted to him in pursuance of ESOS.
[5][(7a)
“fair value” of an option means the
fair value calculated in accordance with Schedule
III.]
(8)
" grant" means issue of option to employees under ESOS.
(9)"independent
director" means a director of the company, not being a whole time director
and who is neither a promoter nor belongs to the promoter group.
[6][(9a)”intrinsic
value” means the excess of the market price of the share at
the date of grant of the option under ESOS over the exercise price of the
option (including up-front payment, if any).]
[7][(10)
“market price" of a share on a given date means the average of
the
two weeks high and low
price of the
share
preceding the date of grant of option
on the stock exchange on which the shares of the company are listed.
If the shares are listed on more than one stock exchange, then the stock
exchange where there is highest trading volume during the aforesaid period
should be considered.]
[8][(11)"option
grantee “means an employee
having a
right but not an obligation to exercise in pursuance granted
to an employee of the ESOS]
(12)"promoter"
means;
a)
the person or persons who are in over-all control of the company;
b)
the person or persons who are instrumental in the formation of the company
or programme pursuant to which the shares were
offered to the public;
c)
the persons or persons named in the offer document as promoter(s).
Provided that a director or officer of the company if they are acting as
such only in their professional capacity will not be deemed to be a
promoter.
[Explanation:
Where a promoter of a company is a body corporate, the promoters of that
body corporate shall also be deemed to be promoters of the
company.]
13)
"promoter group" means
a)
an immediate relative of the promoter (i.e. spouse of that person, or any
parent, brother, sister or child of the person or of the spouse);
b)persons
whose shareholding is aggregated for the purpose of disclosing in the
offer document "shareholding of the promoter group".
14)"share"
means equity shares and securities convertible into equity shares and
shall include American Depository Receipts (ADRs), Global Depository Receipts (GDRs) or other depository receipts representing
underlying equity shares or securities convertible into equity shares.
(15)"vesting"
means the process by which the employee is given the right to apply for
shares of the company against the option granted to him in pursuance of
ESOS.
(16)
"vesting period" means the period during which the vesting of the option
granted to the employee in pursuance of ESOS takes
place.
2.2
All other expressions unless defined herein shall have the same meaning as
have been assigned to them under the Securities and Exchange Board of
India Act, 1992 or the Securities Contracts (Regulation) Act, 1956 or the
Companies Act, 1956, SEBI (Disclosure and Investor Protection) Guidelines,
or any statutory modification or re-enactment thereof, as the case may be.
3.
Applicability
3.1
These Guidelines shall apply to any company whose shares are listed on
any
recognised
stock exchange in
PART
- A - ESOS
4.
Eligibility to participate in ESOS
4.1
An employee shall be eligible to participate in ESOS of the company.
4.2
An employee who is a promoter or belongs to the promoter group shall not
be
eligible
to participate in the ESOS.
4.3
A director who either by himself or through his relative or through any
body corporate, directly or indirectly holds more than 10% of the
outstanding equity shares of the company shall not be eligible to
participate in the ESOS.
5.
Compensation Committee
[9][5.1
No ESOS shall be offered unless the disclosures, as
specified in Schedule IV, are made by
the company
to the prospective option grantees
and the company constitutes a Compensation Committee for
administration and superintendence of the ESOS].
5.2
The Compensation Committee shall be a Committee of the Board of directors
consisting of a majority of independent directors.
5.3
The Compensation Committee shall, inter alia,
formulate the detailed terms and conditions of the ESOS including;-
(a)
the quantum of option to be granted under an ESOS per employee and in
aggregate.
(b)the
conditions under which option vested in employees may lapse in case of
termination of employment for misconduct;
(c)
the exercise period within which the employee should exercise the option
and that option would lapse on failure to exercise the option within the
exercise period;
(d)
the specified time period within which the employee shall exercise
the
vested options in the event of termination or resignation of an
employee.
(e)
the right of an employee to exercise all the options vested in him at one
time or at various points of time within the exercise period;
[10][(f)
the procedure for making a fair and reasonable adjustment to the number of
options and to the exercise price in case of corporate actions such as
rights issues, bonus issues ,merger, sale of division
and others. In this regard following shall be taken into
consideration by the compensation committee –
(i)
the
number and the price of ESOS shall be adjusted in
a manner
such that total value of the ESOS remains the same after the corporate
action
(ii)
for this
purpose global best practices in this area including the
procedures followed by the derivative markets in
(iii)
the
vesting period and the life of the options shall be left unaltered as far
as possible to
protect the rights of the option holders.
]
g)
the grant, vest and exercise of option in case of employees who are on
long leave; and
(h)the
procedure for cashless exercise of options.
5.4
The Compensation Committee shall frame suitable policies and systems to
ensure that there is no violation of ;-
a)
Securities and Exchange Board of
b)
Securities and Exchange Board of India (Prohibition of Fraudulent and
Unfair Trade Practices relating to the Securities Market) Regulations,
1995, by any employee.
6.
Shareholder approval
6.1
No ESOS can be offered to employees of a company unless the shareholders
of the company approve ESOS by passing a special resolution in the general
meeting.
6.2
The explanatory statement to the notice and the resolution proposed to be
passed in general meeting for ESOS shall, inter alia, contain the following information:
(a)
the total number of options to be granted;
(b)
identification of classes of employees entitled to participate in the
ESOS;
(c)
requirements of vesting and period of vesting;
(d)
maximum period (subject to clause 9.1) within which the options shall be
vested;
(e)
exercise price or pricing formula;
(f)
exercise period and process of exercise;
(g)
the appraisal process for determining the eligibility of employees to
the
ESOS;
(h)
maximum number of options to be issued per employee and in aggregate;
(i) a statement to the effect that the company shall
conform to the accounting policies specified in clause
13.1.
[11][(j) the method
which the company shall use to value its
options whether fair value
or intrinsic value.
(
k) the following statement:
‘In case
the company calculates the employee
compensation cost using the intrinsic value of the stock options, the
difference between the employee compensation cost so computed and the
employee compensation cost that shall have been recognized if
it had used the fair value of the options, shall
be disclosed in the Directors report and also
the impact of this difference on profits and on EPS of
the company shall also be
disclosed in the Directors’
report.]
6.3Approval
of shareholders by way of separate resolution in the general
meeting
shall
be obtained by the company in case of;
(a)
Grant of option to employees of subsidiary or holding company and,
(b)
grant of option to identified employees, during any one year, equal to or
exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the company at the time of grant of
option.
7.
Variation of terms of ESOS
7.1
The company shall not vary the terms of the ESOS in any manner, which may
be detrimental to the interests of the employees.
7.2
The company may by special resolution in a general meeting vary the terms
of ESOS offered pursuant to an earlier resolution of a general body but
not yet exercised by the employee provided such variation is not
prejudicial to the interests of the option holders.
7.3
The provisions of clause 6.3 shall apply to such variation of terms as
they do to the original grant of option.
7.4
The notice for passing special resolution for variation of terms of ESOS
shall disclose full details of the variation, the rationale therefor, and
the details of the employees who are beneficiary of such variation.
[12][7.5 A company may reprice the options which are not exercised if ESOSs were rendered unattractive due to fall in the
price of the shares in the market.
Provided that the company
ensures that such repricing shall not be
detrimental to the interest of employees and approval of shareholders in
General Meeting has been obtained for such repricing]
8.
Pricing
8.1
The companies granting option to its employees pursuant to ESOS will have
the freedom to determine the exercise price subject to conforming to the
accounting policies specified in clause 13.1.
[13][Provided that in case the company
calculates the employee compensation cost using the intrinsic
value of the stock options, the difference between the employee
compensation cost so computed and the employee compensation cost that
shall have been recognized if it had used the fair value
of the options, shall be disclosed in the
Directors report and also the impact of this difference on profits and on
Earning Per Share of the
company shall also be disclosed in the
Directors’ report.]
9.
Lock-in period and rights of the option-holder
9.1
There shall be a minimum period of one year between the grant of options
and vesting of option.
9.2
The company shall have the freedom to specify the lock-in period for the
shares issued pursuant to exercise of option.
9.3
The employee shall not have right to receive any dividend or to vote or in
any manner enjoy the benefits of a shareholder in respect of option
granted to him, till shares are issued on exercise of option.
10.
Consequence of failure to exercise option
10.1.
The amount payable by the employee, if any, at the time of grant of
option;-
(a)
may be forfeited by the company if the option is not exercised by the employee
within the exercise period; or
(b)
the amount may be refunded to the employee if the option are not vested
due to non-fulfillment of condition relating to vesting of option as per
the ESOS.
11.
Non transferability of option
11.1
Option granted to an employee shall not be transferable to any person.
11.2
(a) No person other than the employee to whom the option is granted shall
be entitled to exercise the option.
(b)
Under the cashless system of exercise, the company may itself fund or
permit the empanelled stock brokers to fund the payment of exercise price
which shall be adjusted against the sale proceeds of some or all the
shares, subject to the provision of the Companies
Act.
11.3
The option granted to the employee shall not be pledged, hypothecated,
mortgaged or otherwise alienated in any other manner.
11.4
In the event of the death of employee while in employment, all the option
granted to him till such date shall vest in the legal heirs or nominees of
the deceased employee.
11.5
In case the employee suffers a permanent incapacity while in employment,
all the option granted to him as on the date of permanent incapacitation,
shall vest in him on that day.
11.6
In the event of resignation or termination of the employee, all options
not vested as on that day shall expire. However, the employee shall,
subject to the provision of clause 5.3 (b) shall be entitled to retain all
the vested options.
12.
Disclosure in the Directors' Report
12.1
The Board of Directors, shall, inter alia,
disclose either in the Directors Report or in the annexure to the
Director's Report, the following details of the ESOS:
(a)options
granted;
(b)the pricing
formula;
(c)options
vested;
(d)options
exercised;
(e)the total
number of shares arising as a result of exercise of option;
(f)options
lapsed;
(g)variation of
terms of options;
(h)money realised by exercise of options;
(i)total number of options in force;
(j)employee wise
details of options granted to;-
(i)senior managerial personnel;
(ii)any
other employee who receives a grant in any one year of option amounting to
5% or more of option granted during that year.
(iii)identified
employees who were granted option, during any one year, equal to or
exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the company at the time of grant;
(k)diluted
Earnings Per Share (EPS) pursuant to issue of shares on exercise of option
calculated in accordance with International Accounting Standard (IAS)
33.
[14][(l)
Where the company
has calculated the employee compensation cost using the intrinsic value of
the stock options, the difference between the employee compensation cost
so computed and the employee compensation cost that shall have been
recognized if it had used the fair value of the options, shall be
disclosed. The impact of this difference on profits and on EPS of the
company shall also be disclosed.
(m)Weighted-average
exercise prices and weighted-average fair values of options shall be
disclosed separately for options whose exercise price either equals or
exceeds or is less than the market price of the stock on the grant
date.
(n)A description
of the method and significant assumptions used during the year to estimate
the fair values of options, including the following weighted-average
information:
(1)
risk-free interest rate,
(2)
expected life,
(3) expected
volatility,
(4) expected dividends,
and
(5) the price of the
underlying share in market at the time of option grant.]
13.
Accounting Policies
13.1
Every company that has passed a resolution for an ESOS under clause 6.1 of
these guidelines shall comply with the accounting policies specified in
Schedule I.
[15][13.2
Where a scheme provides for graded vesting, the vesting period shall be
determined separately for each portion of the option and shall be
accounted for accordingly.]
14.
Certificate from Auditors
14.1
In the case of every company that has passed a resolution for an ESOS
under clause 6.1 of these guidelines, the Board of Directors shall at each
annual general meeting place before the shareholders a certificate from
the auditors of the company that the scheme has been implemented in
accordance with these guidelines and in accordance with the resolution of
the company in the general meeting.
15.
Options outstanding at Public Issue
15.1
The provisions of the Securities and Exchange Board of India (Disclosure
and Investor Protection) Guidelines prohibiting initial public offering by
companies having outstanding warrants and financial instruments shall not
be applicable in case of outstanding option granted to employees in
pursuance of ESOS.
15.2
If any option is outstanding at the time of an initial public offering by
a company, the promoters' contribution shall be calculated with reference
to the enlarged capital which would arise on exercise of all vested
options.
15.3
If any options granted to employees in pursuance of ESOS are outstanding
at the time of initial public offering, the offer document of the company
shall disclose all the information specified in clause 12.1.
PART-B-
ESPS
16.
Eligibility to participate in ESPS.
16.1
An employee shall be eligible to participate in the ESPS.
16.2
An employee who is a promoter or belongs to the promoter group shall not
be eligible to participate in the ESPS.
16.3
A director who either by himself or through his relatives or through any
body corporate, directly or indirectly holds more than 10% of the
outstanding equity shares of the company shall not be eligible to
participate in the ESPS.
17.
Shareholder Approval
17.1
No ESPS shall be offered to employees of the company unless the
shareholders of the company approve ESPS by passing special resolution in
the meeting of the general body of the shareholders.
17.2
The explanatory statement to the notice shall specify:
(a)
the price of the shares and also the number of shares to be offered
to
each employee.
(b)
the appraisal process for determining the eligibility of employee for
ESPS.
[16][(c)
Total number of shares to be
granted.]
17.3
The number of shares offered may be different for different categories of
employees.
17.4
The special resolution shall state that the company shall conform to the
accounting policies specified in clause 19.2.
[17][17.5
Approval of shareholders by way of separate resolution in the general
meeting shall be obtained by the company in case of;
(a)
allotment of shares to employees of subsidiary or holding company and,
(b)
allotment of shares to
identified employees, during any one year, equal to or exceeding 1% of the
issued capital (excluding outstanding warrants and conversions) of the
company at the time of allotment of shares.]
18.
Pricing and Lock-in
18.1
The company shall have the freedom to determine price of shares to be
issued under an ESPS, provided they conform to the provisions of clause
19.2.
18.2
Shares issued under an ESPS shall be locked in for a minimum period of one
year from the date of allotment.
18.3
If the ESPS is part of a public issue and the shares are issued to
employees at the same price as in the public issue, the shares issued to
employee pursuant to ESPS shall not be subject to any lock-in.
19.
Disclosure and Accounting Policies
19.1
The Directors’ Report or Annexure thereto shall contain, inter alia, the following disclosures: -
(a)
the details of the number of shares issued in ESPS;
(b)
the price at which such shares are issued;
(c)
employee-wise details of the shares issued to;
(i) senior managerial personnel;
(ii)
any other employee who is issued shares in any one year amounting to 5% or
more shares issued during that year;
(iii)
identified employees who were issued shares during any one year equal to
or exceeding 1% of the issued capital of the company at the time of
issuance;
(d)
diluted Earning Per Share (EPS) pursuant to issuance of shares under ESPS; and
(e)
consideration received against the issuance of shares.
19.2
Every company that has passed a resolution for an ESPS under clause 17.1
of these guidelines shall comply with the accounting policies specified in
Schedule II.
20.
Preferential Allotment
20.1
Nothing in these guidelines shall apply to shares issued to employees in
compliance with the Securities and Exchange Board of India Guidelines on
preferential Allotment.
[18][21.
Part D of Clarification XIV of DIP Guidelines]
22.
Listing
[19][22.1
The shares arising pursuant to an ESOS and shares issued under an ESPS
shall be listed immediately upon exercise in any
recognized stock exchange where the securities of the company
are listed subject to compliance of the
following:
a.
The
ESOS/ESPS is in accordance with these Guidelines.
b.
In
case of an ESOS the company has also filed with the concerned stock exchanges, before the exercise of option, a
statement as per Schedule V
and has obtained in-principle approval from
such Stock
Exchanges.
c.
As
and when ESOS/ ESPS are exercised the company has notified the concerned
Stock Exchanges as per the statement as per Schedule VI.]
[20][22.2
The shares arising upon exercise of
option issued by an unlisted company which are to be vested or be
exercised after the company is listed, may be listed after the initial
public offering by such company subject to fulfillment of the following
requirements:
(i) Ratification of the resolution passed
for issuance of ESOS or
ESPS
Earlier
resolution passed for issuance of ESOS / ESPS shall be ratified by the
shareholders of listed company in the General Meeting. The notice for ratification of
earlier resolution shall include all the relevant disclosures required in
terms of these Guidelines.
(ii)Disclosures
in the offer document -Following
disclosures shall be made
in the offer document for IPO:-
a) A disclosure about the intention
of the holders of shares allotted on exercise of option granted under ESOS
or allotted under ESPS, to
sell their shares within three(3) months after the date of listing of
shares in such initial public offering (aggregate number of shares
intended to be sold by option holders) to be disclosed. In case of ESOS
the same shall be disclosed regardless of whether the shares arise out of
options exercised before or after the initial public offering.
b)
Specific disclosures about the intention of sale of ESOS or ESPS shares
within three (3) months after the date of listing, by directors, Senior
Managerial personnel and employees having ESOS or ESPS shares amounting to
more than 1 % of the issued capital (excluding outstanding warrants and
conversions), which inter-alia shall include
name, designation and quantum of ESOS or ESPS shares and quantum they
intend to sell within three (3) months.
c)
A disclosure in line with the clause 12and 19 of these guidelines,
regarding all the options/shares issued in last three ( 3) years
(separately for each year) and on a cumulative basis for all the
options/shares issued prior to date of the
prospectus.]
[21][22.3
For listing of shares issued pursuant to ESOS or ESPS the company shall
make application to the Central Listing Authority as per SEBI (Central
Listing Authority) Regulations, 2003 and obtain the in-principle approval
from Stock Exchanges where it proposes to list the said shares.]
[22][22.4
The existing provisions of lock-in specified in SEBI (Disclosure and
Investor Protection) Guidelines 2000 shall not be applicable on the pre-
initial public offering ESOS options / shares, ESPS options / shares held
by employees other than promoters provided that the earlier resolution is
ratified by the shareholders in General Meeting and disclosures in the
prospectus for IPO is made as mentioned in clause 22.2 (i) & (ii).]
[23][22.5
The ESOS / ESPS shares held by the promoters prior to Initial Public
offering shall be subject to lock-in as per the provisions of SEBI
(Disclosure and Investor Protection) Guidelines,
2000]
[24][22.6
The listed companies shall file the ESOS or ESPS Schemes through EDIFAR
filing.]
[25][22.7
When holding company issues ESOS/ESPS to the employee of its subsidiary,
the cost incurred by the holding company for issuing such options/shares
shall be disclosed in the 'notes to accounts' of the financial statements
of the subsidiary company]
[26][22.8
The Company shall appoint a registered
Merchant Banker for the
implementation of
ESOS
and
ESPS as per these
guidelines.]
[27][22A.
ESOS
/ ESPS through Trust
Route
22A.1
In case of ESOS / ESPS are administered through a Trust Route, the ESOS /
ESPS Trust shall be consolidated with the company in accordance with the
Accounting Standard (AS21) specified by the Institute of Chartered
Accountants of India and these Guidelines shall be applicable to the
consolidated entity]
23.
Commencement of the Guidelines
[28][23.1
These guidelines shall come into force with effect from
applicable to the
options/ shares
granted/allotted on or
after
SCHEDULE
I
(Clause
13.1)
Accounting
Policies for ESOS
(a)
In respect of options granted during any accounting period, the accounting
value of the options shall be treated as another form of employee
compensation in the financial statements of the company.
[29][(b)
The accounting value of options shall be equal to the aggregate, over all
employee stock options granted during the accounting period, of the
intrinsic value of the option or, if the company so chooses, the fair
value of the option.]
(c)
Where the accounting value is accounted for as employee compensation in
accordance with ‘b’, the amount shall be amortised on a straight-line basis over the vesting
period.
(d)
When an unvested option lapses by virtue of the employee not conforming to
the vesting conditions after the accounting value of the option has
already been accounted for as employee compensation, this accounting
treatment shall be reversed by a credit to employee compensation expense
equal to the amortized portion of the accounting value of the lapsed
options and a credit to deferred employee compensation expense equal to
the unamortized portion.
(e)
When a vested option lapses on expiry of the exercise period, after the
fair value of the option has already been accounted for as employee
compensation, this accounting treatment shall be reversed by a credit to
employee compensation expense.
(f)
The accounting treatment specified above can be illustrated by the
following numerical example: -
Suppose
a company grants 500 options on
500 x (160-40) =
500 x 120 = 60,000
The accounting
entries would be as follows:
Deferred
Employee Compensation
60000
Expense
Employee Stock Options
60000
Outstanding
(Grant
of 500 options at a discount of Rs
120 each)
Employee
Compensation Expense
24000
Deferred
Employee Compensation Expense
24000
(Amortisation of the deferred compensation over two and
a half years on straight-line basis)
Employee
Compensation Expense
24000
Deferred
Employee Compensation Expenses
24000
(Amortisation of the deferred compensation over two and
a half years on straight-line basis)
Employee
Stock Options Outstanding
18000
Employee
Compensation Expense
14000
Deferred
Employee Compensation Expense
3600
(Reversal
of compensation accounting on lapse of 150 unvested
options)
Employee
Compensation Expense
8400
Deferred
Employee Compensation Expense 8400
(Amortisation of the deferred compensation over two and
a half years on straight-line basis)
Cash
Employee
Stock Options Outstanding
12000
Paid
Up Equity Capital
36000
Share
Premium Account
3000
(Exercise
of 300 options at an exercise price of Rs 40
each and an accounting value of Rs 120
each)
Employee
Stock Options Outstanding
6000
Employee
Compensation Expense
6000
(Reversal
of compensation accounting on lapse of 50 vested options at the end of
exercise period)
The
T-Accounts for Employee Stock Options Outstanding and Deferred
Employee
Compensation
Expense would be as follows:
Employee
Stock Options Outstanding Account
Employee
Compensation/ Deferred Compensation
18,000
Deferred
Compensation
60,000
Paid
Up Capital/ Share Premium
36,000
Employee
Compensation
6,000
60,000
60,000
Deferred
Employee Compensation Expense Account
ESOS
Outstanding
60,000
Employee
Compensation
24,000
Employee
Compensation
24,000
ESOS Outstanding
3,600
Employee
Compensation
8,400
Employee
Stock Options Outstanding will appear in the Balance Sheet as part of Net
Worth or Shareholders' Equity. Deferred Employee Compensation will appear
in the Balance Sheet as a negative item as part of Net Worth or
Shareholders' Equity.
SCHEDULE
II
(
Clause 19.2 )
Accounting
Policies for ESPS
(a)
In respect of shares issued under an ESPS during any accounting period,
the accounting value of the shares so issued shall be treated as another
form of employee compensation in the financial statements of the company.
(b)
The accounting value of shares issued under ESPS shall be equal to the
aggregate of price discount over all shares issued under ESPS during any
accounting period ;
For
this purpose:
Price
discount means the excess of the market price of the shares at the date of
issue over the price at which they are issued under the ESPS.
(c)
The accounting treatment prescribed above can be illustrated by the
following
Numerical
example: -
Suppose
a company issues 500 shares on
500
x (160-40) = 500 x 120 = 60,000
The
accounting entry would be as follows :
Cash
20000
Employee Compensation Expense
60000
Paid Up Equity Capital
5000
Share Premium Account
75000
(Issue
of 500 shares under ESPS at a price of Rs 40
each when market price is Rs
160)
[30][Schedule
III]
(Clause
2.1)
(i)
The
fair value of a stock option is the price that shall be calculated for
that option in an arm’s length transaction between a willing buyer and a
willing seller.
(ii)
The
fair value shall be estimated using an option-pricing model (for example,
the Black-Scholes or a binomial model) that
takes into account as of the grant date the exercise price and expected
life of the option, the current price in the market of the underlying
stock and its expected volatility, expected dividends on the stock, and
the risk-free interest rate for the expected term of the option.
(iii)
The
fair value of an option estimated at the grant date shall not be
subsequently adjusted for changes in the price of the underlying stock or
its volatility, the life of the option, dividends on the stock, or the
risk-free interest rate.
(iv)
Where
the exercise price is fixed in Indian Rupees, the risk-free interest rate
used shall be the interest rate applicable for a maturity equal to the
expected life of the options based on the zero-coupon yield curve for
Government Securities.
(v)
The
expected life of an award of stock options shall take into account the
following factors:
(a) The
expected life must at least include the vesting period.
(b) The
average lengths of time similar grants have remained outstanding in the
past. If the company does not have a sufficiently long history of stock
option grants, the experience of an appropriately comparable peer group
may be taken into consideration.
(c) The
expected life of ESOSs should not be less than
half of the exercise period of the ESOSs issued
until and unless the same is supported by historical evidences with
respect to ESOSs issued by the company
earlier.
(vi)
If
the company does not have a sufficiently long history of traded stock
prices to estimate the expected volatility of its stock, it may use an
estimate based on the estimated volatility of stocks of an appropriately
comparable peer group.
(vii)
The
estimated dividends of the company over the estimated life of the option
may be estimated taking into account the company’s past dividend policy as
well as the mean dividend yield of an appropriately comparable peer
group.
(viii)
Justification
shall be given for significant assumptions. If at the time of further
issue of ESOS/ESPS there are any changes in the assumptions, reasons for
the same shall be given.
[31][Schedule
IV]
Disclosure Document
(Clause
5.1)
Part A:
Statement of Risks
All investments in shares
or options on shares are subject to risk as the value of shares may go
down or go up. In addition, employee stock options are subject to the
following additional
risks:
1.
Concentration: The risk arising out of
any fall in value of shares is aggravated if the employee’s holding is
concentrated in the shares of a single
company.
2.
Leverage: Any change in the value of
the share can lead to a significantly larger change in the value of the
option as an option amounts to a levered position in the
share.
3.
Illiquidity: The options cannot be
transferred to anybody, and therefore the employees cannot mitigate their
risks by selling the whole or part of their options before they are
exercised.
4.
Vesting:
The options will lapse if
the employment is terminated prior to vesting. Even after the options are
vested, the unexercised options may be forfeited if the employee is
terminated for gross
misconduct.
Part B:
Information about the company
1.
Business
of the company: A description of the
business of the company on the lines of item
V
(a) of
Part I of Schedule II of the Companies
Act.
2.
Abridged
financial information: Abridged financial
information for the last five years for which audited financial
information is available in a format similar to that required under item
B(1) of Part II of Schedule II of the Companies Act. The last audited
accounts of the company should also be provided unless this has already
been provided to the employee in connection with a previous option grant
or otherwise.
3.
Risk
Factors: Management perception of
the risk factors of the company in accordance with item VIII of Part I of
Schedule II of the Companies
Act.
4.
Continuing disclosure
requirement: The option grantee should receive copies of all documents
that are sent to the members of the company. This
shall include the annual
accounts of the company as well as notices of meetings and the
accompanying explanatory
statements.
Part C:
Salient Features of the Employee Stock Option
Scheme
This Part
shall contain the salient
features of the employee stock option scheme of the company including the
conditions regarding vesting, exercise, adjustment for corporate actions,
and forfeiture of vested options. It shall not be necessary to include
this Part if it has already been provided to the employee in connection
with a previous option grant, and no changes have taken place in the
scheme since then. If the option administrator (whether the company itself
or an outside securities firm appointed for this purpose) provides
advisory services to the option grantees in connection with the exercise
of options or sale of resulting shares, such advice must be accompanied by
an appropriate disclosure of concentration and other risks. The option
administrator should conform to the code of conduct appropriate for such
fiduciary
relationships.
[32]
[SCHEDULE V]
(Clause 22.1)
INFORMATION
REQUIRED IN THE STATEMENT TO BE FILED WITH STOCK
EXCHANGE.
Description
of Stock Option Scheme
1.
Authorized
Share Capital of the Company:
2.
Issued
Share Capital of the Company as on date of Institutional of the Scheme/
amending of the Scheme.
3.
Date
of Institution of the Scheme/ amending of the
Scheme
4.
Validity
period of the Scheme
5.
Date
of notice of AGM/EGM for approving the Scheme/for amending the Scheme/for
approving grants under Clause 6.3 (a) or (b) of the SEBI (ESOS & ESPS)
Guidelines.
6.
Date
of AGM/EGM approving the Scheme/amending the Scheme/approving grants under
Clause 6.3 (a) or (b) of the SEBI (ESOS & ESPS)
Guidelines.
7.
Kind
of security granted as Options under the Scheme
8.
Identity
of classes of persons eligible
under the
scheme
□
Permanent employees
□ Permanent employees outside
□ Permanent employees
of subsidiary
□
Permanent employees of holding company
□ Whole –time directors
□ Independent directors
9.
Total number of securities reserved under the
scheme:
10.
Number of securities entitled under each option
:
11.
Total number of options to be granted:
12.
Maximum number of Options to be granted per
employee
in each
grant and in aggregate :
13.
Exercise price or pricing formula:
14.
Whether any amount payable at the time of grant of
the
Options?
If so, quantum of such amount.
15.
Lock-in period under the Scheme
·
Lock-in
period between grant and vesting
·
Lock-in
period after exercise
16.
Vesting Period under the Scheme
17.
Maximum period within which the options shall be
vested.
18.
Exercise Period under the plan:
19.
Whether employee can exercise all the
Options
Vested at one time?
Yes/No
20.
Whether employee can exercise vested
Options at
various points of time within
Yes/No
the
exercise period?
21.
Whether scheme provides for the procedure for making a
fair
and
reasonable adjustment to the number of options and to
the
exercise price in case of rights issues, bonus issues and
other
corporate actions? Clause in Scheme describing such
adjustment:
22.
Description of the appraisal process for determining the eligibility of
employees under the scheme.
23.
The specified time period within which vested options are to be
exercised
in the event of termination or resignation of an employee
:
24.
The specified time period within which options are to be exercised in the
event of death of the employee:
25.
Whether Plan provides for conditions under which option vested in
employees may lapse in case of termination of employment for misconduct?
Clause in Scheme describing such adjustment :
26.
Whether Plan provides for conditions for the grant, vesting and exercise
of option in case of employees who are on long
leave?
Clause in Scheme
describing such adjustment:
27.
Whether amount paid/payable by the employee at the time of the grant of
the Option will be forfeited if the employee does not exercise the option
within the exercise period? Clause in Scheme describing such adjustment
:
28.
Details of approval of shareholders pursuant to Clause 6.3 of the SEBI
(ESOS & ESPS) Guidelines with respect to:
·
Grant
of options to employees of subsidiary or holding
company.
·
Grant
of options to identified employees, during any one year, equal to or
exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the company at the time of grant of the option
:
29.
Details of the variation made to the scheme along with the rationale
therefore and the details of the employees who are beneficiary of such
variation:
Company Secretary
Place:-
Date:-
Documents
to be filed with registration statement
- Copy
of Stock Option Scheme/Amended Stock Option Scheme, certified by company
secretary.
- Copy
of Notice of AGM/EGM for approving the Scheme/for amending the
Scheme/for approving grants under Clause 6.3(a) or (b) of the SEBI (ESOS
& ESPS) Guidelines, certified by the company
secretary.
- Copy
of resolution of shareholders for approving the Scheme/ for amending the
Scheme/for approving grants under Clause 6.3(a) or (b) of the SEBI (ESOS
& ESPS) Guidelines, certified by the company
secretary.
- List
of Promoters as defined under the SEBI (ESOS & ESPS)
Guidelines.
- Copy
of latest Annual Report.
- Certificate
of Auditor on compliance with SEBI (ESOS and ESPS)
Guidelines.
- Specimen
copy of Share certificate
- Any
other relevant documents
Undertakings
A.
The undersigned company hereby undertakes:
1)
To
file, a post-effective amendment to this statement to include any material
information with respect to the scheme of distribution not previously
disclosed in the statement or any material change to such information in
the statement.
2)
To
notify, the concerned stock exchanges on which the securities of the
company are listed, of each issue of securities pursuant to the exercise
of options under the scheme mentioned in this Statement, in the prescribed form,
as amended from time to time.
3)
That
the company shall conform to the accounting policies specified in clause
13.1 of the SEBI (ESOS & ESPS) Guidelines.
4)
That
the Scheme confirms to the SEBI (ESOS & ESPS)
Guidelines
5)
That
the company has in place systems/ codes/ procedures to comply with the
SEBI (Insider Trading) Regulations.
Signatures
Pursuant
to the requirements of the SEBI Act/ guidelines, the company certifies
that it has reasonable grounds to believe that it meets all the
requirements for the filing of this form and has duly caused this
statement to be signed on its behalf by the undersigned, thereunto, duly
authorized
Name of the company
Sd/-
Name of the Compliance Officer
Designation
Date
Place:-
[33][SCHEDULE VI]
(Clause 22.1)
Format
Of Notification For Issue Of Shares Under The Stock Option
Plans
1.
Company Name and Address of Registered Office
:
2.
Name of the Exchanges on which the
company’s
shares are listed
:
3.
Filing date of the Statement referred in clause 22.1.b of
guidelines with stock
Exchange
:
4.
Filing Number, if any
:
5.
Title of the Stock Option Scheme pursuant to
which
shares are issued, if any
:
6.
Kind of Security to be listed
:
7.
Par value of the shares
:
8.
Date of issue of shares
:
9.
Number of shares issued
:
10.
Share Certificate no, if applicable
:
11.
Distinctive number of the share, if applicable
:
12.
ISIN Number of the shares if issued in Demat
:
13.
Exercise Price per share
:
14.
Premium per share
:
15.
Total Issued Shares after this issue
:
16.
Total Issued Share capital after this issue
:
17.
Details of any lock-in on the shares
:
18.
Date of expiry of lock-in
:
19.
Whether shares identical in all respects to
existing
shares If not, when will they become identical?
:
20.
Details of Listing fees, if payable
:
Signature
of Company Secretary/Compliance Officer
Date
Place:-
[1]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[2]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[3]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[4]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[5]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[6]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[7]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[8]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[9]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[10]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[11]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[12]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[13]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[14]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[15]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[16]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[17]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[18]
Omitted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[19]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[20]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[21]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[22]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[23]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[24]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[25]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[26]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[27]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[28]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[29]
Substituted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[30]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[31]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[32]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
[33]
Inserted vide circular No. SEBI/PMD/MBD/ESOP/2/2003/30/06
dt
 |
Print this page |