PROCEDURAL STEPS FOR EMPLOYEES STOCK OPTION SCHEMES
• Convene the Board Meeting to constitute Compensation Committee, appoint Merchant Banker for administering Employee Stock Option and take inprincipal approval from Stock Exchanges;
• Formulate the detailed terms and conditions of Employee Stock Option through Compensation Committee;
• Do not offer Employee Stock Option unless disclosures as specified in Schedule IV of SEBI (ESOS and ESPS) Guidelines, 1999 are made by the Company to the prospective options grantees;
• Convene the Board Meeting to fix the date, time and place for General Meeting;
• Issue Notice of General Meeting with Explanatory Statement;
• Obtain Shareholders’ approval with 3/4th majority;
• File applicable ROC Forms with prescribed fees including a return of allotment.
• Send copies of notice and a copy of the proceedings of the General Meeting to the Stock Exchanges;
Part II
WHO ARE ELIGIBLE FOR EMPLOYEE STOCK OPTION?
a) Permanent Employees of the Company; or
b) Permanent Employees of its Subsidiary or Holding Company; or
c) Director of the Company or its Subsidiary or Holding Company (but it does not include
Promoter directors, Independent Directors and any person holding 10% or more of issued share either directly or indirectly through his/her relatives or bodies corporate).
COMPENSATION COMMITTEE
Through Board, a Compensation Committee should be form with Independent Directors forming majority for administration and compliance of Employee Stock Option.
SHAREHOLDERS’ APPROVAL
Employee Stock Option can be offered only after passing a Special Resolution in the General Meeting.
Following information should be mention in the Explanatory Statement:
a) the total number of options to be granted;
b) identification of classes of employees entitled to participate in the Employee Stock Option;
c) requirements of vesting and period of vesting;
d) maximum period (not less than one year) within which the options shall be vested;
e) price;
f) period;
g) process determining the eligibility of employees to the Employee Stock Option;
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;
j) method which the company has used to value its options whether fair value or intrinsic
k) value;
l) a statement 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 EPS of the company shall also be disclosed in the Directors’ Report.”
A separate resolution should also be obtain in the General Meeting for:
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.
VARIATION OF TERMS OF EMPLOYEE STOCK OPTION
In case any terms of Employee Stock Option needs to modify, it may be done only by way of Special Resolution in a General Meeting.
DISCLOSURE IN DIRECTORS’ REPORT
Following details should be incorporated in Annexure to Directors’ Report:
a) options granted;
b) 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 realized by exercise of options;
i) total number of options in force;
j) employee wise details of options granted;
k) diluted Earnings Per Share (EPS)
l) 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
m) A description of the method and significant assumptions used during the year to estimate the fair values of options.
PRICING
The Companies have the freedom to determine the exercise price subject to conforming to the accounting policies.
LOCK-IN PERIOD
There shall be a minimum period of one year between the grant of options and vesting of option.
AUDITORS CERTIFICATE
Auditors’ certificate is to be placed at every Annual General Meeting stating that the Company has implemented the scheme in accordance with SEBI guidelines and in terms of the Special resolution of the Company in the General Meeting.
LISTING
The shares arising pursuant to an Employee Stock Option 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 Employee Stock Option is in accordance with SEBI Guidelines;
b. A statement as per Schedule V of SEBI (ESOS and ESPS) Guidelines, 1999 required to be filed with the concerned Stock Exchanges, before the exercise of option and also obtain in principle approval from such Stock Exchanges; and
c. As and when Employee Stock Option are exercised the company has to notify the concerned Stock Exchanges a statement as per Schedule VI of SEBI (ESOS and ESPS) Guidelines, 1999.
The Company shall appoint a registered Merchant Banker for the implementation of Employee Stock Option and obtaining in-principal approval from the Stock Exchanges. In case, Employee Stock Option is administered through a Trust, the accounts of the company shall be prepared as if the company itself is administering the Employee Stock Option.
By: Deep Vaghela
CAclubindia
