SECURITIES AND EXCHANGE BOARD OF INDIA (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999

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 · 1 In these Guidelines, unless otherwise defined;-

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 · 1 These Guidelines shall apply to any company whose shares are listed on any recognised stock exchange in India.

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 · 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;

5 · 4 The Compensation Committee shall frame suitable policies and systems to ensure that there is no violation of;

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:

6 · 3 Approval of shareholders by way of separate resolution in the general meeting shall be obtained by the company in case of;

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

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.

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.

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 · 1 The amount payable by the employee, if any, at the time of grant 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.

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 Directors' Report, the following details of the ESOS:

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.]

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.

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.

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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 · 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:

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.

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 · 1 The Directors' Report or Annexure thereto shall contain, inter alia, the following disclosures:

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 · 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.

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21 · 1 Part D of the Clarification XIV dated March 1, 1996, of the SEBI (Disclosure and Investor Protection) Guidelines shall not be applicable in case of ESOS and ESPS."

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1 · Fair value means the option discount or, if the company so chooses, the value of the option using the Black Scholes formula or other similar valuation method.

2 · Option discount 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)."

500 · x (160-40) = 500 x 120 = 60,000