Checklist of Employees Stock Option Schemes:

1. Employee means
(a) a permanent employee of the company working in India or out of India or
(b) a director of the company, whether WTD or not or
(c) an employee as defined in sub-clause (a) or (b) of a subsidiary, in India or out of
India or of a holding company of the company.

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 ESOS and
(b) discount at which shares are issued under an ESPS

3. Employee stock option means the option given to the whole-time Directors, Officers or
employees of a company which gives them the benefit or right to purchase or subscribe at a
future date, the securities offered by the company at a pre-determined price.

4. ESOS means a scheme under which a company grants employee stock option.

5. ESPS shares means shares arising out of grant of shares under ESPS.

6. 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.

7. Grant means issue of option to employees under ESOS.

8. 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.

9. Intrinsic value means excess of the market price of the share under ESOP over the
exercise price of the option (including up-front payment, if any).

10. Market Price means latest available closing price (at the stock exchange where there is
highest trading volume) prior to date of Board meeting in which options are granted/shares
are issued.

11. Promoter means:

(a) the person or persons who are in overall 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 person or persons named in the offer documents 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.

12. Promoter group means

(a) an immediate relative of the promoter (i.e spouse, 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”.
 13. Share means equity shares and securities convertible into equity shares and shall include
ADR, GDR or other depository receipts representing underlying equity shares or securities
convertible into equity shares.
14. 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.

15. Vesting period means the period during which the vesting of the option granted to the
employee in pursuance of ESOS takes place.

Eligibility:

1. Employee shall be eligible.

2. Promoter or promoter group not eligible.
3. Director who either himself or through relatives or any body corporate, directly or
indirectly holds more than 10% of the outstanding equity shares of the company not eligible.

Compensation Committee:

1. Compensation Committee (majority independent director) to be constituted for

administration and superintendence of the ESOS.
2. Disclosure as specified in the Schedule IV are made by the company to the prospective
option grantee.
3. 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) 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.
(f) the grant, vest and exercise of option in case of employees who are on long leave
(g) the procedure for making a fair and reasonable adjustments to the number of
options and to the exercise price in case of corporate actions such as rights/bonus
shares, merger, sale of division and others

4. The Compensation Committee shall frame suitable policies and systems to ensure that there
is no violation of:
(a) SEBI (Insider Trading) Regulations, 1992 and
(b) SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the
Securities Market) Regulations, 1995.

Shareholders approval:

1. Special Resolution of the shareholders required.

2. Explanatory Statement shall contain the following:
(a) total no. of options to be granted
(b) identification of classes of employees entitled to participate in ESOS
(c) requirement of vesting and period of vesting
 (d) maximum period within which the option 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
(j) the method which the company shall use to value its options whether fair value or
intrinsic value
(k) In case company calculates employee compensation cost using intrinsic value of the
stock options, a statement that the diff. 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 diff. on profits and on EPS shall also be disclosed in the Directors Report.

3. Approval of shareholders by way of separate resolution in case of:

(a) grant of option to employees of subsidiary or holding company
(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 ESOS

1. Company by Special Resolution in general meeting vary the terms of ESOS offered but not
yet exercised by the employees provided such variation is not prejudicial to the interests of
the option holders.
2. Company may re-price the options which are not exercised (whether vested or not), if ESOS
were rendered unattractive due to fall in the price of the shares in the market provided
approval of shareholders obtained and not detrimental to the interest of employees.

Pricing

1. Companies granting option to its employees pursuant to ESOS will have the freedom to
determine the price subject to confirming to the accounting policies specified in clause 13.1
provided that in case company calculates employee compensation cost using the intrinsic
value of the stock options, the diff. between the employee compensation 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.

Lock-in period and rights of the option-holder

1. Minimum period of one year between the grant of options and vesting of option
2. The company shall have the freedom to specify the lock-in period for the shares issued
pursuant to exercise of option.
3. No right to receive any dividend or other benefits till shares are issued on exercise of option.
Consequence of failure to exercise option

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.

Non-transferability of option

(a) No person other than 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 provisions
of the companies Act.
(c) Option granted shall not be transferable to any person.
(d) Option granted to the employee shall not be pledged, hypothecated, mortgaged or
otherwise alienated in any other manner.
(e) In the event of 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.
(f) 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.
(g) In the event of resignation or termination of the employee, all option 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.

Disclosure in the Directors Report

1. The following details of ESOS shall be disclosed in Directors Report:

Option granted, pricing formula, option vested, option exercised, total no. of shares arising as a
result of exercise of option, options lapsed, variation of terms of options, money realized by exercise
of options, total no. of options in force, employee-wise details of options granted to- senior
managerial personnel, any other employee who receives a grant in any one year of option amounting
to 5% or more of options granted during that year, 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; diluted EPS

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 annexure thereto, also the
impact on the profits and on the EPS will be disclosed.
Accounting Policies

1. Every company which has passed resolution for an ESOS under clause 6.1 of these
guidelines shall comply with the accounting policies specified in Schedule I.
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.

Certificate from Auditors

Board shall at each AGM place before the shareholders a certificate from the Auditors of the
Company that the scheme has been implemented in accordance with these guidelines and resolution
of the company in the general meeting.

Options outstanding at Public Issue

1. The provisions of the SEBI (DIP) 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.
2. If any option is outstanding at the time of IPO, the promoters contribution shall be
calculated with reference to the enlarged capital which would arise on exercise of all vested
options.
3. If any 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 together with other information.

ESPS

1. Explanatory Statement 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
(c) total no of shares to be issued
(d) the no. of shares offered may be different for different categories of employees
(e) special resolution shall state that the company shall conform to the accounting
policies specified in Clause 19.2
(f) separate resolution in case of: allotment of shares to employees of subsidiary or
holding company and 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.

Pricing and Lock-in

1. Company shall have the freedom to determine price of shares to be issued under an ESPS,
provided they confirm to the provisions of clause 19.2
2. Shares issued under an ESPS shall be locked in for a minimum period of one year from the
date of allotment. Provided that in 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.
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.

Disclosure and accounting policies

1. The Directors report shall contain 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- senior managerial personnel, any
other employee who is issued shares in any one year amounting to 5% or more
shares issued during that year, 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 EPS
(e) consideration received against the issuance of shares

2. Every company that has passed a resolution for an EPS under clause 17.1 of these guidelines
shall comply with accounting policies specified in Schedule II.

Preferential Allotment

Nothing in these guidelines shall apply to shares issued to employees in compliance with SEBI
Guidelines on Preferential Allotment.
 Listing

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 subject to compliance with 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.

2. 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-
(a) such pre-IPO scheme is in conformity with these guidelines and
(b) such pre-IPO scheme is ratified by its shareholders in general meeting subsequent to
the IPO provided that the ratification under item (b) may be done any time prior to
grant of new options under such pre-IPO scheme.

3. No change shall be made in the terms of options issued under such pre-IPO scheme, whether
by re-pricing, 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.
4. The ESOS/ESPS shares held by the promoters prior to IPO shall be subject to lock-in as per
the SEBI (DIP) Guidelines, 2002.
5. The listed companies shall file the ESOS/ESPS Scheme through EDIFAR filing.
6. 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.
7. In case the subsidiary reimburses the cost, both the holding & subsidiary shall disclose the
payment or receipt, as the case may be, in the ‘notes to accounts’ to their financial
statements.

Appointment of registered Merchant Banker

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).

ESOS/ESPS through Trust Route

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.
Schedule III
(a) 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.

Schedule IV- Disclosure Document

Part A: Statement of risks

Additional risk: concentration, leverage, illiquidity & vesting

Part B: Information about the company: business of the company, abridged financial information for
last 5 years, risk factors, continuing disclosure requirement such as notice, annual report etc.

Part C: Salient features of the ESOS

Employee Stock Options (ESOP) offered by a company to its employees entitle them to buy shares of the company at a future
date and in a pre-determined manner. They provide an opportunity to the employees to acquire a stake in the company and
are intended to create an ownership attitude and align their interests with those of the company. ESOPs confer a right and
not an obligation on the employees to buy shares of the company at a future date at a pre determined price.

Some of the frequently asked questions about Stock Options have been answered below.

What is a stock option?

Can ESOPs be used for improving performance?

Why is an option valuable?

What is the ''OPTION'' in a stock option?

What is vesting?

What is exercise?

What is exercise price?

What is exercise period?

What is the ideal time to exercise?

What is lapse of options?

If I have stock options, does that mean I own shares?

What is a stock option ?

One of the ways a company can reward its employees is by granting them stock options. A stock option is just that - an
option, or a choice - to buy shares. Your options give you the opportunity to buy your company’s shares in the future at a
price determined at the time of grant. If the stock price goes up, your options would be valuable. If the stock price goes
down, then you simply don't use your option - there's no risk to you.

Can ESOPs be used for improving performance ?

Yes, ESOPs help in creating a vibrant ownership culture across the entire organization. Ownership culture is one in which
employees are encouraged to think and act like ‘owners’. It is expected that ESOPs will result in improvement of individual
and group performance as a result of alignment of goals of the employee and the organization.

Why is an option valuable ?

An option is valuable as it gives you a right (with no obligation) to purchase the shares at a pre-set price. As a result of which,
if the shares increase in value, you will be able to purchase the shares at the lower option price provided the options have
vested. However, if the share decreases after the option is granted and vested, you may choose not to exercise the options,
and thus you are insulated from the risk of downward movement of the company’s share price.
What is the ''option'' in a stock options ?

An option is a commitment by the company to grant options to employees on the fulfillment of all conditions mentioned in
the ESOP Plan. It is however a right given to you and not an obligation to buy shares of the company in future at pre-
determined prices. You have a choice to decide whether to buy the shares or not.

What is vesting ?

Vesting has two components – vesting percentage and vesting period. Vesting percentage refers to that portion of total
options granted, which you will be eligible to exercise. Vesting period is the period on the completion of which the said
portion can be exercised.

The following table presents an example of an employee who is granted 200 options on January 1, 2004 with a vesting
schedule of 30%, 30% and 40% at the end of one, two and three years from the date of grant respectively.

Date of grant: January 1,2004

Vesting Details
1st Vesting 2nd Vesting 3rd Vesting
Percentage 30% 30% 40%
Date January 1,2005 January 1,2006 January 1,2007
Options vested 60 60 80

What is exercise ?

The activity of converting the options granted to you into shares by paying the required exercise price is known as exercise of
options.

What is exercise price ?

Exercise price is the price that you have to pay to convert the options into shares e.g. if the options are granted at an
exercise price of Rs.30 and you want to exercise 100 options then you have to pay Rs. 3,000 (30 x 100).

What is exercise period ?

This is the period within which you can decide to exercise your options. This period starts from the date of vesting.

What is the ideal time to exercise ?

Once your options are vested, the decision to exercise stock option remains with you only. Exercising stock option is an
important personal financial decision and you should consider it carefully as any other long-term investment decision. You
should make your personal financial strategy based upon your financial goals. You may consult your personal financial adviser
and tax adviser, if required.

What is lapse of options ?

Options lose their validity in certain circumstances i.e. expiry of the exercise period, separation, abandonment etc. These
options then cannot be converted into shares and lose their value. Such options are said to be lapsed.

If I have stock options, does that mean I own shares ?

No. The Options are not actual shares, but a right to buy shares. They become shares only when you exercise that right.

Designing on ESOP Scheme goes through three stages - Conceptualization, Consummation and
Communication. Since all these three stages have an exponential impact on the workability of the ESOP
Scheme, we call it ' The C3 Model ' instead of ' The 3C Model '.
Conceptualization

In this phase, a broad framework of the ESOP Scheme is laid down. This also includes defining
the limitations within which the ESOP Scheme would work. Issues crystallised at this stage would be the
maximum number of options to be granted (dilution), the maximum vesting and exercise period, the
maximum and the minimum exercise price etc.

Consummation

In this phase, specific number of options to be granted per employee is worked out. These
numbers are decided considering the overall ceiling laid down in the Conceptualization phase. It is also
important at this stage to distribute the overall ceiling into certain number of grants based upon specific
circumstances of an organisation. If not planned well, it might lead to over-granting during the earlier
periods with little left for future employees. The legal documentation required for the Scheme
(Resolutions, Scheme, Agreement, etc.) is also drawn up at this stage.

Communication

This is an extremely important, but unfortunately often ignored, element in the success of an
ESOP Scheme. To make an employee feel like an " owner " , efforts should be made to provide him with
relevant financial information about the company, and also to ensure that such information is well
understood and appreciated. Employees should be educated to view stock options as a long term
instrument, that would provide value over a horizon of 3 - 4 years. Calculation of loss / gain on stock
options by looking up the daily stock prices should be discouraged by educating them about the future
growth prospects of the company.

A snapshot of the three phases is presented below :

Pricing – par, discount, premium or Fair Market

Objective
Value

Potential to create value Fresh issue or market purchase

Compensation policy – Variable pay vs ESOP Dilution acceptability

Coverage Vesting – uniform, front-ended, back-ended

Broad-based or selective

Criteria (length of service, performance, etc)

Employees of the subsidiary

Sensitivity analysis

Benefit

Dilution

Accounting

Board and Shareholder resolutions

ESOP Scheme documentation

ESOP Agreement

Secretarial Manual

Initial

On-going
Grant letters
Financial performance

Notice of Option Grant Stock performance

Future growth trajectory

ESOP Manual and FAQs
ESOP as a long-term instrument

Disclosure document as per SEBI Guidelines

Draft Resolution for appointment as Whole-time-Director:

Special Resolution:
“RESOLVED THAT pursuant to the provisions of Section 198, 269 and 309 and other applicable
provisions, if any, of the Companies Act, 1956, and subject to other approvals as may be
necessary, the members of the Company hereby accord its approval for the appointment / re-
appointment of Mr. Rajeev Gupta as Whole-time-Director for a period of five years w.e.f ---------
--------- on the terms and conditions as set out here below and with further discretion to the
Board to alter from time to time the said terms in such manner as it may deem fit in the best
interest of the Company and agreed to with Mr. Rajeev Gupta:

(a) Salary: At the rate not exceeding Rs.-----------------/- per month with annual
increments effective 1st April each year, as may be decided by the Board of Directors
of the Company subject to the ceiling on increment of 30% per annum over the
existing salary.
(b) Commission/ Performance linked incentive: On net profits of the Company
determined in accordance with the relevant provisions of the Companies Act, 1956
at a rate to be determined by the Board of Directors from time to time, but not
exceeding an amount equivalent to the basic salary for the relevant period. The
payment may be made on a pro-rata basis every month or on an annual basis or
partly monthly and partly on an annual basis at the descretion of the Board.
(c) Perquisites: In addition to the Remuneration as stated above, Mr. Rajeev Gupta
shall be entitled, as per Rules of the Company to perquisites like:
i. Rent-free furnished residential accommodation with free use of all the
facilities and amenities, such as cooking, gas, electricity, water etc. In case
no accommodation is provided by the Company, he shall be entitled to
house rent allowance limited to 80% of his salary.
ii. Reimbursement of medical expenses incurred for self and family
including hospitalization.
iii. Personal Accident Insurance Premium.
iv. Leave Travel Allowance for self and members of his family once a year.
v. Fees of clubs subject to a maximum of two clubs, which will not include
admission fees.
vi. Use of Company car with driver and telephone at the residence. Personal
long distance telephone calls shall be borne by Mr. Rajeev Gupta
vii. Encashment of privilege leave
viii. Contribution to Provident Fund

Draft Resolution u/s 81(1A)

1. To consider and, if thought fit, to pass, with or without modification (s), as a Special
Resolution the following:
“RESOLVED THAT pursuant to Section 81(1A) and other applicable provisions, if any, of the
Companies Act, 1956, (including any statutory modification or re-enactment thereof, for the time
being in force) (“the Act”), the consent of the members of the Company be and is hereby accorded to
the Board of Directors (“the Board”) of the Company to issue and allot Equity Shares of Rs.2.50
each, fully paid-up, of the aggregate value not exceeding Rs.800 lacs to the holders of the Optionally
Partially Convertible Preference Shares of Rs.100/- each, allotted pursuant to the restructuring
scheme approved by the lenders and Hon’ble High Court of Punjab at Chandigarh in the year 2001,
entitling the holders thereof for conversion during the currency of such OPCPS into equity shares of
Rs.2.50 each of the Company, on a preferential basis, at such price or prices as may be determined
by the Board in accordance with and subject to the provisions of Guidelines on Preferential Issues as
applicable under the SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by Securities
and Exchange Board of India (“the SEBI Guidelines”) and on such other terms and conditions as the
Board may in its absolute discretion deem fit.”

“RESOLVED FURTHER THAT the Board be and is hereby authorized to take all such steps and
give directions as they may deem necessary to settle any question or difficulty that may arise in
connection with the aforesaid matters.”

“RESOLVED FURTHER THAT the Board be and is hereby authorized to delegate all or any of the
powers herein conferred to any committee of Directors or Senior Executive(s) / Officer(s) of the
company to give effect to the above resolution.”

Draft Resolution for appointment as Whole-time-Director:

Special Resolution:
“RESOLVED THAT pursuant to the provisions of Section 198, 269 and 309 and
other applicable provisions, if any, of the Companies Act, 1956, and subject to
other approvals as may be necessary, the members of the Company hereby
accord its approval for the appointment of Mr. Rajeev Gupta as Whole-time-
Director for a period of five years w.e.f ------------------ on the terms and
conditions as set out here below and with further discretion to the Board to alter
from time to time the said terms in such manner as it may deem fit in the best
interest of the Company and agreed to with Mr. Rajeev Gupta:

(a) Salary: At the rate not exceeding Rs.-----------------/- per month with
annual increments effective 1st April each year, as may be decided by
the Board of Directors of the Company subject to the ceiling on
increment of 30% per annum over the existing salary.
(b) Commission/ Performance linked incentive: On net profits of the
Company determined in accordance with the relevant provisions of
the Companies Act, 1956 at a rate to be determined by the Board of
Directors from time to time, but not exceeding an amount equivalent
to the basic salary for the relevant period. The payment may be made
on a pro-rata basis every month or on an annual basis or partly
monthly and partly on an annual basis at the descretion of the Board.
(c) Perquisites: In addition to the Remuneration as stated above, Mr.
Rajeev Gupta shall be entitled, as per Rules of the Company to
perquisites like:
i. Reimbursement of medical expenses incurred for self and
family including hospitalization.
ii. Personal Accident Insurance Premium.
iii. Leave Travel Allowance for self and members of his family
once a year.
iv. Fees of clubs subject to a maximum of two clubs, which will
not include admission fees.
v. Use of Company car with driver and telephone at the
residence. Personal long distance telephone calls shall be borne
by Mr. Rajeev Gupta
vi. Encashment of privilege leave
vii. Contribution to Provident Fund

Special Economic Zone:

¾ SEZ deemed to be foreign territories for the purpose of trade operations,

duties & tariffs.
 ¾ Entry of goods into SEZ from DTA treated as Exports.
¾ Clearance from SEZ to DTA treated as import into India.

Export Turnover means the consideration in respect of export by the undertaking

received in, or brought into, India by the assessee but does not include freight,
telecommunication charges or insurance attributable to the delivery of the articles or
things outside India or expenses, if any incurred in foreign exchange in rendering of
services (including computer software) outside India.

Export in relation to SEZ means taking goods or providing services out of India from
a SEZ by land, sea, air, or by any other mode, whether physical or otherwise.

Tax Incentives:

Section 10A & 10AA of Income Tax Act: The following deductions would be
available to units in SEZ which start manufacturing or producing articles / things or
which start providing services on or after April1, 2005:

• First Five Years- 100% of Profits

• Next Five Years- 50% of Profits
• Next Five Years- 50% of reinvested Profits

Section 54GA of Income Tax Act: Exemption of capital gains on transfer of assets in
cases of shifting of industrial undertaking from urban area to any SEZ. The exemption is
available if within one year before or three years after such transfer:
- Machinery or plant is purchased for the purpose of business
- Land or building is acquired or constructed for the purposes of
business
- The original assets are shifted and establishment of the industrial
undertaking is transferred to SEZ.

The amount of exemption for capital gains would be restricted to the costs and expenses
incurred in relation to all or any of the purposes mentioned above.

Exemption from MAT

Exemption of Custom Duty:

On Imports
 Any goods imported into, or services provided in, a SEZ, to carry on the authorized
operations by unit are exempt from any duty of customs, under the Customs Act,
1962 or the Customs Tariff Act, 1975 or any other law for the time being in force.

On Exports

Any goods exported from or services provided, from a SEZ unit, to any place outside
India are exempt from any duty of customs under the Customs Act, 1962 or the
Customs Tariff Act, 1975 or any other law for the time being in force.

Exemption of Central Excise Duty

There will be exemption from any duty of excise, under the Central Excise Act, 1944
or the Central Excise Tariff Act, 1985 or any other law for the time being in force, on
goods brought from DTA to a SEZ Unit, to carry on the authorized operations by the
Entrepreneur.
Goods have to be cleared under invoice and a Bill of Export has to be prepared. The
ARE-1 procedure has to be followed in this respect.

Duty Drawback benefit

Duty drawback or such other benefits may be admissible from time to time on goods
brought or services provided from the DTA into a SEZ unit or services provided in
SEZ unit by service providers located outside India to carry on the authorized
operations by the Entrepreneur.

Exemption from Service Tax

There will be exemption from service tax on taxable services provided to a unit in SEZ.

Exemption from CST

There will be exemption from the levy of taxes on the sale / purchase of goods under
CST. Thus any dealer in India supplying goods to a unit in SEZ are exempt from CST.
The unit in SEZ required to furnish a declaration in the prescribed Form I prescribed
under the CST to seller.

FDI
 - ECB by units up to $ 500 Million a year allowed without any maturity
restrictions.
- Freedom to bring in export proceeds without any time limit.
- SEZ units allowed to write-off unrealized export bills
- Flexibility to keep 100% of export proceeds in EEFC account.
Freedom to make overseas investment from it.

Procedure:

- Three copies of project proposal in the format prescribed to be

submitted to Development Commissioner of the SEZ.
- All approvals to be given by the Unit Approval Committee headed by
Development Commissioner. Clearance from the Deptt. Of Policy and
Promotion / Board of Approvals, wherever required will be obtained
by the DC, before the Letter of Intent is issued.

Obligations:

SEZ units have to achieve positive net foreign exchange earning. A legal undertaking
is required to be executed by the Unit with the Development Commissioner. Also, to
execute a bond with the Zone Customs for their operation in the SEZ.
DRAFT RESOLUTION FOR ESOS:

ITEM NO.1

“RESOLVED THAT pursuant to the provisions of Section 81(1A) and other applicable provisions, if
any, of the Companies Act, 1956 (including any statutory amendment or enactment thereof) and in
accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and
Employee Stock Purchase Scheme), Guidelines, 1999, (including any statutory amendment or
enactment thereof), and the Special Resolution passed at the Annual General Meeting held on April 26,
2005 including amendments proposed thereto, the Board be and is hereby authorized on behalf of the
Bank to create, offer, issue and allot to or for the benefit of such person(s) as are recruited up to March
31, 2006 as permanent employees of the Bank, including the Independent Directors of the Bank, equity
shares of the Bank of face value of Rs. 10/- each with an option exercisable by the holder to subscribe
for equity shares at such price, in such manner, during such period, in one or more tranches and on
such terms and conditions as the Board may decide prior to the issue and offer thereof, for, or which
upon exercise or conversion could give rise to the issue of a number of equity shares not exceeding in
aggregate 5 Million, on the grant of option under the Joining Employee Stock Option Plan II (JESOP
II), as placed before the meeting.

“RESOLVED FURTHER THAT subject to the terms stated herein, the equity shares allotted pursuant
to the aforesaid resolution shall in all respect rank pari passu inter se as also with the then existing
equity shares of the Bank.

“RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, as described above,
the Board be and is hereby authorized on behalf of the Bank to do all such acts, deeds, matters and
things as it may, in its absolute discretion, deem necessary or desirable for such purpose, and with
power on behalf of the Bank to settle all questions, difficulties or doubts that may arise in regard to
such issue(s) or allotment(s) including to amend or modify any of the terms of such issue or allotment,
as it may, in its absolute discretion deem fit, without being required to seek any further consent or
approval of the Members.

“RESOLVED FURTHER THAT the Board be and is hereby authorized to delegate all or any of the
powers herein conferred to the Board Remuneration Committee or Managing Director & CEO.

ITEM NO.2

“RESOLVED THAT pursuant to the provisions of Section 81(1A) and other applicable provisions, if
any, of the Companies Act, 1956 (including any statutory amendment or enactment thereof) and in
accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and
Employee Stock Purchase Scheme), Guidelines, 1999, (including any statutory amendment or
enactment thereof), and the Special Resolution passed at the Annual General Meeting held on April 26,
2005 including amendments proposed thereto, the Board be and is hereby authorized on behalf of the
Bank to create, offer, issue and allot to or for the benefit of such person(s) as are recruited up to March
31, 2006 as permanent employees of the Bank and subsequently transferred / deputed to any subsidiary
of the Bank, equity shares of the Bank of face value of Rs. 10/- each with an option exercisable by the
holder to subscribe for equity shares at such price, in such manner, during such period, in one or more
tranches and on such terms and conditions as the Board may decide prior to the issue and offer thereof,
for, or which upon exercise or conversion could give rise to the issue of a number of equity shares not
exceeding in aggregate 5 Million (including any equity shares issued to permanent employees pursuant
to resolution proposed under ITEM NO.1 above), on the grant of option under the Joining Employee
Stock Option Plan II (JESOP II), as placed before the meeting.
“RESOLVED FURTHER THAT subject to the terms stated herein, the equity shares allotted pursuant
to the aforesaid resolution shall in all respect rank pari passu inter se as also with the then existing
equity shares of the Bank.

“RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, as described above,
the Board be and is hereby authorized on behalf of the Bank to do all such acts, deeds, matters and
things as it may, in its absolute discretion, deem necessary or desirable for such purpose, and with
power on behalf of the Bank to settle all questions, difficulties or doubts that may arise in regard to
such issue(s) or allotment(s) including to amend or modify any of the terms of such issue or allotment,
as it may, in its absolute discretion deem fit, without being required to seek any further consent or
approval of the Members.

“RESOLVED FURTHER THAT the Board be and is hereby authorized to delegate all or any of the
powers herein conferred to the Board Remuneration Committee or Managing Director & CEO.

Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956:

ITEM NO.1 &2:

The Bank had launched a Joining Employee Stock Option Plan II (JESOP II) for employees recruited
by the Bank up to March 31, 2006 in accordance with SEBI (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999 (hereinafter referred to as the SEBI Guidelines)
and issue Options to employees of the Bank so as to offer an attractive scheme to enable the Bank to
hire the best talent across all functions. The plan was framed and approved inter alia by the Members
at a time when the Bank was not listed on the stock exchanges.
As per Clause 22.2A of the SEBI Guidelines, pre-IPO Employee Stock option Plans are required to be
ratified by the shareholders in a General Meeting subsequent to the IPO.
The details of the plan are as follows:

No. Particulars JESOP II information

1 Total number of options to be granted 5 Million
2 Class of employees entitled to participate Employees recruited up to March 31, 2006
in the Plan Allocation to Independent Directors on a
discretionary basis
3 Vesting Schedule The vesting schedule for the JESOP II for the
employees and independent directors would
generally be as follows:
• 50% at the end of 3rd year from the
grant date; and
• 50% at the end of the 5th year from the
grant date.
The exercise period will be 10 years from the
date of the grant.
The stock options could be granted and vested in
tranches.
4 Maximum period within which the options 5 years
shall be vested
5 Exercise price The closing price on the stock exchange with
greater trading volumes on one day prior to the

6 Exercise period and process of exercise
7 Appraisal process for determining
eligibility of employees
8 Maximum number of options to be issued
per employee and in aggregate
9 Accounting policies for the Plan
10 Method used to value the options
date of grant. (for employees as well as
Independent Directors).
The exercise period will be 10 years from the
grant date.
The participant shall enter into an agreement
with the Bank at the time of grant of option(s).
At the time of exercise, the employee would
send a duly completed exercise form along with
a cheque for the amount of options being
exercised to the Human Resource department
against which the options would be converted
into shares. (for employees as well as
Independent Directors).
The quantum of grants shall be determined after
taking into account the following:
• Criticality of the position at which the
individual is hired into the bank;
• Gap in the compensation as per the
market, if any;
• Options held by the prospective
individual in his previous organization /
role.
Allocation to Independent Directors would be on
a discretionary basis.
Per employee- 1.5 million options
Per Independent Director – 0.05 million options
In aggregate – 5 million options
The Bank shall confirm to the accounting
policies prescribed by SEBI and as specified by
the SEBI Guidelines from time to time.
The Bank will use the Intrinsic Value Method.
In case the Bank calculates the employee
compensation cost using the intrinsic value of
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 the impact of this difference on
profits and on the EPS of the Bank shall also be
disclosed in the Directors’ Report.

Currently, the Bank does not have any subsidiaries; however, the Bank contemplates establishing
subsidiaries after regulatory approvals, in various areas. As a consequence some of the employees who
have been granted options under JESOP II may get transferred / deputed to these subsidiaries.
Accordingly, it is proposed to cover such employees during their tenure with the subsidiaries so
established. Clause 6.3(a) of the SEBI Guidelines states that approval of the Members by way of a
separate resolution shall be obtained in case of grant of options to employees of subsidiaries.
Your Directors recommend approval of the resolutions for ratification of JESOP II and extending
cover of JESOP II to employees transferred / deputed to subsidiaries of the Bank.
The Independent Directors, who would be eligible to avail of the benefit of the JESOP II, may be
deemed to be concerned or interested in the resolution in the resolution, to the extent of the options /
shares that may be granted / offered to them. The option to Independent Director would be granted
after receipt of approval from Reserve Bank of India and any other regulatory authorities as required.