DEPUTY GENERAL MANAGER
CORPORATION FINANCE DEPARTMENT
DIVISION OF ISSUES AND LISTING
( (Direct) : 22842826
( (Board) : 22850451-56, 22880962-70 (Extn.: 367)
Fax : 22045633
E-mail : neelamb@sebi.gov.in
SEBI/CFD/DIL/ESOP/3/2004/22/7
July 22, 2004
To All Registered Merchant Bankers
To All Recognised Stock Exchanges
Dear Sirs,
Sub.: Amendment to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
SEBI has amended SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 vide Circular no. SEBI/PMD/MBD/ESOP/2/2003/30/6 dated 30th June 2003 to include, inter-alia, provisions of mandatory disclosures of employee compensation cost using fair value of ESOS/ ESPS calculated on the basis of option pricing model and also the impact of the same on profits and EPS of the company, mandatory appointment of merchant banker, accounting treatment for ESOS/ ESPS administered through trust route, provisions to facilitate faster listing of shares arising out of exercise of ESOP, etc.
Subsequent to these amendments, SEBI received queries seeking clarifications. Hence, proposals, addressing the queries and amending the said Guidelines, were put up on the SEBI Website for public comments. The public comments/representations received were placed before the ‘Committee on ESOP’, chaired by Prof. J. R. Varma. The recommendations of the Committee were also put up on the SEBI Website for public comments.
The Board, after considering the recommendations of the aforesaid Committee and the public comments received thereon, has approved certain modifications to be made to the said Guidelines. Accordingly, amendments to the said Guidelines have been made in exercise of the powers conferred under section 11(1) of SEBI Act, 1992. The amendments are enclosed in “Annexure A”.
The date of applicability of the amendments to the said Guidelines, issued vide Circular no. SEBI/PMD/MBD/ESOP/2/2003/30/6 dated 30th June 2003 and vide this circular, is clarified hereunder. All amendments which are not referred to in the following table shall come into effect from the date of the respective circulars. You are directed to ensure compliance with the said Guidelines, as amended.
| Clause no. of the said Guidelines, modified on 30th June 2004 and further modified vide this circular | Date of applicability of the clause |
| 5.1 | All options granted on or after 30th June, 2003. |
| 5.3 (f) | All corporate actions on or after 30th June 2003. |
| 6.2 (j) and (k) | All notices of general meetings sent on or after 30th June 2003. |
| 7.5 | a) Amendment made vide circular dated 30th June 2003: Any repricing of options done on or after 30th June 2003.
b) Amendment made vide this circular: It is clarificatory in nature. |
| Proviso to 8.1 | All options granted on or after 30th June 2003. |
| Proviso to 9.1 | All mergers or amalgamations whose effective date is on or after the date of this circular. |
| 12.1 (l) | All options granted on or after 30th June 2003. |
| 12.2 & 12.3 | All Directors’ Reports signed on or after the date of this circular. |
| 13.2 | All accounting periods commencing on or after 30th June 2003. |
| 15.3 | All initial public offer documents filed on or after the date of this circular. |
| 17.2 (c) | All notices of general meetings sent on or after 30th June 2003. |
| 17.5 | All notices of general meetings sent on or after 30th June 2003. |
| Proviso to 18.2 | All mergers or amalgamations whose effective date is on or after the date of this circular. |
| 22.1 | All options granted under ESOS/shares issued under ESPS on or after 30th June 2003. |
| 22.2 | a) Applicability of amendments made vide circular dated 30th June 2003:
i) Clause 22.2 (i): Ratification requirement would be as per amendments made by insertion of clause 22.2A vide this circular for all initial public offer documents filed on or after 30th June 2003. Earlier requirement of ratification is dispensed with. However, any ratification already made pursuant to clause 22.2 (i) shall be valid. ii) Clause 22.2 (ii): All initial public offer documents filed on or after 30th June 2003 and before the date of this circular. b) Applicability of amendments made vide this circular: All options granted on or after the date of this circular. |
| 22.2A | All options granted on or after the date of this circular. |
| 22.3 | Date to be specified by SEBI. |
| 22.4 | a) Amendment made vide circular dated 30th June 2003: All initial public offer documents filed on or after 30th June 2003.
b) Amendment made vide this circular: All initial public offer documents filed on or after the date of this circular. |
| 22.6 | Date to be specified by SEBI. |
| 22.7 | All accounting periods commencing on or after 30th June 2003. |
| 22.7A | All accounting periods commencing on or after the date of this circular. |
| 22.8 | a) Amendment made vide circular dated 30th June 2003: All ESOS/ESPS approved on or after 30th June 2003.
b) Amendment made vide this circular: It is clarificatory in nature. |
| 22A.1 | Accounting treatment would be as per amendment made vide this circular for all accounting periods commencing on or after 30th June 2003. Earlier requirement of following AS 21 is dispensed with. However, any finalisation of accounts already done as per clause 22A.1 prior to the amendment made vide this circular shall be valid. |
| Schedule V | Applicability of the amendment made vide this circular: All statements filed on or after the date of this circular. |
Clause 2.1 (10) of the said Guidelines which defines market price was amended w.e.f. 30th June 2003. It is being further amended vide this circular. It is hereby clarified that in respect of periods between 30th June 2003 and the date of this circular, companies shall be free to follow the provisions of clause 2.1 (10) either as amended vide circular dated 30th June 2003 or as it stood prior to the said amendment. With effect from today, companies shall follow clause 2.1 (10) as is being amended hereby.
The amended Guidelines are also available on the SEBI Website, viz., www.sebi.gov.in.
Yours faithfully
NEELAM BHARDWAJ
Encl.: a/a
ANNEXURE A
AMENDMENTS TO SEBI (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999
1. In clause 2.1, for sub-clause (9A), the following words shall be omitted, namely, “at the date of grant of the option”.
2. In clause 2.1, for sub-clause (10), the following shall be substituted, namely:
“(10) ‘market price’ means the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are granted/ shares are issued, 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 on the said date shall be considered.”
3. In clause 7.5, for the words “the options which are not exercised” the following words shall be substituted, namely, “the options which are not exercised, whether or not they have been vested”.
4. In clause 9.1, the following proviso shall be inserted, namely:
“Provided that in a case where options are granted by a company under an ESOS in lieu of options held by the same person under an ESOS in another company which has merged or amalgamated with the first mentioned company, the period during which the options granted by the transferor company were held by him shall be adjusted against the minimum vesting period required under this clause.”
5. In clause 12.1, in sub-clause (k), for the words, brackets and figures “International Accounting Standard (IAS) 33” the following words, brackets and figures shall be substituted, namely, “Accounting Standard (AS) 20 ‘Earnings per Share’”.
6. In clause 12.1, in sub-clause (m), the following words shall be omitted, namely “on the grant date”.
7. After clause 12.1, the following clause shall be inserted, namely:
“12.2 Until all options granted in the three years prior to the IPO have been exercised or have lapsed, disclosures shall be made either in the Directors’ Report or in an Annexure thereto of the information specified in clause 12.1 in respect of such options also.”
“12.3 Until all options granted in the three years prior to the IPO have been exercised or have lapsed, disclosure shall be made either in the Directors’ Report or in an Annexure thereto of the impact on the profits and on the EPS of the company if the company had followed the accounting policies specified in clause 13 in respect of such options.”
8. For clause 15.3, the following shall be substituted, namely:
“15.3 If any options granted to employees in pursuance of pre-IPO ESOS are outstanding at the time of IPO, the IPO document of the company shall disclose all the information specified in clause 12.1 and also the following information:
a) The impact on the profits and on the EPS of the last three years if the company had followed the accounting policies specified in clause 13 in respect of options granted in the last three years.
b) 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 IPO (aggregate number of shares intended to be sold by option holders), if any, has 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 IPO.
c) Specific disclosures about the intention to sell shares arising out of ESOS or allotted under ESPS 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.
d) A disclosure in line with the clause 12 and 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.”
9. In clause 17.2 (c), for the word “granted”, the following word shall be substituted, namely, “issued”.
10. In clause 18.2, the following proviso shall be inserted, namely:
“Provided that in a case where shares are allotted by a company under a ESPS in lieu of shares acquired by the same person under an ESPS in another company which has merged or amalgamated with the first mentioned company, the lock in period already undergone in respect of shares of the transferor company shall be adjusted against the lock-in required under this clause.”
11. For clause 22.2, the following clauses shall be substituted, namely:
“22.2 The shares arising after the IPO, out of options granted under any ESOS framed prior to its IPO shall be listed immediately upon exercise in all the recognised stock exchanges where the equity shares of the company are listed subject to compliance with clause 15.3 and, where applicable, clause 22.2A.”
“22.2A (1) No listed company shall make any fresh grant of options under any ESOS framed prior to its IPO and prior to the listing of its equity shares (hereinafter in this clause referred to as ‘pre-IPO scheme’) unless –
i) such pre-IPO scheme is in conformity with these guidelines; and,
ii) such pre-IPO scheme is ratified by its shareholders in general meeting subsequent to the IPO.
Provided that the ratification under item (ii) may be done any time prior to grant of new options under such pre-IPO scheme.
(2) No change shall be made in the terms of options issued under such pre-IPO schemes, whether by repricing, change in vesting period or maturity or otherwise, unless prior approval of the shareholders is taken for such change.
Provided that nothing in this sub-clause shall apply to any adjustments for corporate actions made in accordance with these guidelines.”
12. For clause 22.4, the following shall be substituted, namely:
“22.4 The provisions relating to lock-in of pre-IPO shares specified in SEBI (Disclosure and Investor Protection) Guidelines, 2000 shall not be applicable to the shares allotted to employees other than promoters before the IPO under a pre-IPO ESOS / ESPS, subject to compliance with clauses 15.3 and 22.2.”
13. After clause 22.7, the following clause shall be inserted, namely:
“22.7A In a case falling under clause 22.7, if the subsidiary reimburses the cost incurred by the holding company in granting options to the employees of the subsidiary, both the subsidiary as well as the holding company shall disclose the payment or receipt, as the case may be, in the ‘notes to accounts’ to their financial statements.”
14. For clause 22.8, the following shall be substituted, namely:
“22.8 The Company shall appoint a registered Merchant Banker for the implementation of ESOS and ESPS as per these guidelines till the stage of framing the ESOS/ESPS and obtaining in-principal approval from the stock exchanges in accordance with clause 22.1 (b).”
15. For clause 22A.1, the following shall be substituted, namely:
“22A.1 In case of ESOS/ESPS administered through a Trust, the accounts of the company shall be prepared as if the company itself is administering the ESOS/ESPS.”
16. In Schedule II, for clause (b), the following shall be substituted, namely:
“(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;
Explanation: For the purposes of this clause, ‘price discount’ means the excess of the market price of the shares over the price at which they are issued under the ESPS”.”
17. In Schedule V, the following shall be inserted at the end, namely:
“Certified that the scheme conforms to the SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999.”
Authorised Signatory
Name of the Merchant Banker
Date :
Place :”
