Guideline for Fair Valuation of shares to be issued under ESOP & Sweat Equity

Dear All,

Income Tax Department, Ministry of Finance has come out with guideline for valuation of shares to be issued under the ESOP Scheme and Sweat equity route vide Notification No. 264/2007, dated 23-10-2007.

According to this notification, the fair market value of any specified security or sweat equity share, being an equity share in a company, on the date on which the option vests with the employee, shall be determined as follows.

In the case of Listed Company:

On the date of the vesting of the option, the share in the company is listed on a recognized stock exchange, the fair market value shall be the average of the opening price and closing price of the share on that date on the said stock exchange:

Provided that where, on the date of vesting of the option, the share is listed on more than one recognized stock exchanges, the fair market value shall be the average of opening price and closing price of the share on the recognised stock exchange which records the highest volume of trading in the share:

Provided further that where, on the date of vesting of the option, there is no trading in the share on any recognized stock exchange, the fair market value shall be -

(a) the closing price of the share on any recognised stock exchange on a date closest to the date of vesting of the option and immediately preceding such date; or

(b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of vesting of the option and immediately preceding such date, is recorded on more than one recognized stock exchange.

In the case of Unlisted Company:

In a case where, on the date of vesting of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company as determined by category I merchant banker on the specified date.

Unlisted Companies ESOP Scheme is subject to compliance of ESOP IT Notification issued in the year 2001; Click here for the same - http://www.box.net/shared/p16eyrbkrl

Also you can access relevant notification on below link;

fn=/DitTaxmann/Notifications/IncomeTaxAct/2007/Notif264_2007.htm

your views are solicited on this guideline.

Thanks & Regards

Alagar

Exemption from SEBI Takeover Code

Dear All,

In the case of M/s Jain Studios Limited the SEBI vide its order dated 17th Oct 2007 has granted exemption from Open Offer under Regulation 11(2 & 2A) SEBI SAST Regulations for acquisition of shares by the promoters via preferential issue of shares to the extent of around 20% of voting capital.

Generally the SEBI will not give exemption from the open offer where a substantial shareholder (Promoters) of a target Company acquiring voting capital via preferential issue of shares for enhancing his shareholding as it may be lead to denying of opportunity to the small shareholders to exit from Company.

However, in this case the SEBI granted exemption from the Open Offer for acquisition of the shares via preferential issue based strong submission by the acquirers ( Promoters).

Please find below extract of the SEBI order in this connection and all of you requested to read the same.

SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

IN THE MATTER OF PROPOSED ACQUISITION BY PREFERENTIAL ALLOTMENT OF EQUITY SHARES OF JAIN STUDIOS LTD. BY ANKUR SERVICES AND GROWTH FUND LTD. – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.

1.0 BACKGROUND

1.1 Jain Studios Ltd. (hereinafter referred to as the target company) is a company limited by shares incorporated under the Companies Act, 1956, having its office at Scindia Villa, Ring Road, Sarojini Nagar, New Delhi – 110023. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE), National Stock Exchange of India Ltd. (NSE), The Calcutta Stock Exchange Association Ltd. (CSE), The Delhi Stock Exchange Association Ltd. (DSE), Ahmedabad Stock Exchange Ltd. (ASE), Madras Stock Exchange Ltd. (MSE) and Vadodara Stock Exchange Ltd. (VSE).

1.2 Ankur Services and Growth Fund Ltd. (hereinafter referred to as the acquirer) belonged to the promoter group of the target company and currently holds 72,857 equity shares, constituting 0.5% of the total paid up capital of the target company. The promoter group of the target company (including the acquirer and the persons acting in concert) collectively holds 78.82 Lac shares of the target company constituting 54.79% of its paid up capital.

2.0 APPLICATION FOR EXEMPTION

2.1 The acquirer, vide letter dated June 08, 2007, forwarded an application to Securities and Exchange Board of India (hereinafter referred to as SEBI) made under regulation 4(2) read with regulation 3(1) (l) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, (hereinafter referred to as the Takeover Regulations). The said application has been filed seeking exemption from making public announcements and open offer under the provisions of regulation 10 and 11 of the Takeover Regulations with respect to its proposed acquisition of 1,15,94,203 equity shares of the target company @ Rs. 10 each at a premium of Rs. 7.25 per share, by way of preferential allotment. The exemption has been sought inter alia on the following:

i) The issuance of shares is necessitated, as a part of the settlement with the Industrial Development Bank of India (IDBI) through "Stressed Assets Stabilization Fund" (SASF) and the proposed allotment would make the target company debt free.

ii) Incase the target company does not carryout the proposed preferential allotment, it runs many risks including:

a) Non-settlement of dues with IDBI/SASF and the possible sinking of all capital of public financial institution.

b) Loss of over Rs. 43 crore which would wipe-off the entire net-worth of the target company which stood at Rs. 27.32 crores on March 31, 2006.

c) The target company operates in an industry where technology changes very quickly and incase of non-settlement, it would not be able to recapitalize its business. It would lead to further obsolescence of its technology and folding up of its main business in the near future.

d) The shareholders (8400) of the target company might loose their entire investment in it.

iii) The target company with the help of the acquirer and SASF managed to secure a deal which would revive its business and non execution of the said deal would be fatal to the target company and its shareholders.

2.2 The shareholding pattern of the target company before and after the proposed preferential allotment, as per the aforesaid application, is given below:

Category	No. of shares/ total voting rights held		Percentage of Shareholding
	Before the proposed acquisition	After the proposed acquisition	Before the proposed acquisition	After the proposed acquisition
Promoters	2,02,959	2,02,959	1.41	0.78
Acquirer (along with the persons acting in concert)	76,79,657	1,92,73,860	53.38	74.19
Mutual Funds	1,900	1,900	0.01	0.007
Public	65,03,366	65,03,366	45.21	25.02
TOTAL	1,43,85,982	2,59,80,185	100.00	100.00

3.0 RECOMMENDATION OF THE TAKEOVER PANEL

3.1 The aforesaid application of the acquirer was forwarded to the Takeover Panel by SEBI, in terms of Regulation 4 (4) of the Takeover Regulations and the Takeover Panel vide its report dated July 09, 2007 has recommended as under:

"The Panel considered the application and the documents filed in support and the factors, which are noted above and found that it is in the interest of common shareholders to recommend exemption as sought for and hence the Panel recommends exemption."

4.0 FURTHER SUBMISSIONS

4.1 The acquirer, inter alia stated that the preferential allotment of 115.94 lac shares of the target company would be made only to the acquirer and that pursuant to the said proposed allotment, the promoters' shareholding in the target company would increase to 74.97% of the enhanced paid up capital of the target company.

4.2 The acquirer, vide its letter dated July 31, 2007 and e- mail dated August 10, 2007 has further confirmed that:

i. the target company has complied with the Guidelines for Preferential Allotment including pricing as prescribed under Chapter XIII of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.

ii. an Extra-Ordinary General Meeting ( EGM) of shareholders of the target company was convened on May 25, 2007 seeking the approval of its shareholders under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirer. The shareholders approved the special resolution under section 81 (1A) of the Companies Act, 1956 in respect of the said preferential allotment. The said resolution was approved by the shareholders of the target company other than the acquirer and that the acquirer had abstained from voting on the said resolution.

5 .0 FINDINGS:

5.1 I have carefully considered the application dated June 08, 2007 filed by the acquirer, the letter dated July 31, 2007, e-mail of the acquirer dated August 10, 2007 , the recommendations of the Takeover Panel and the relevant materials available on record.

5.2 I note, from the letter dated January 29, 2007 of SASF (filed by the acquirer along with its application) addressed inter alia to the target company/acquirer, that, the target company had taken a term loan of Rs. 24 crore from IDBI and that the acquirer along with others stood as guarantors for the said loan. SASF, in the said letter had inter alia advised the target company and the acquirer to repay the said loan together with the interest, accrued interest etc. The acquirer, vide letter dated nil (received by SEBI on June 12, 2007 ) further stated that SASF had agreed to settle the loan for an aggregate amount of Rs.21,18,00,000/-. It has been stated in the said letter that the target company had entered into an agreement dated March 30, 2007 with the acquirer and that the acquirer had agreed to step into the shoes of the target company in respect of the aforesaid loan. It was also stated that the acquirer would be totally and completely liable for all the payments towards SASF in respect of the above loan and that it would indemnify the target company from all the claims of SASF. The acquirer in the said letter had also informed that, towards the consideration for providing the money for repayment for the said loan, target company needed to issue its 1,15,94,203 equity shares to the acquirer.

5.3 I note that the acquirer belonged to the promoter group of the target company (promoter group) which holds 54.79% (together with the persons acting in concert) of the total paid up equity capital of the target company and the proposed acquisition by way of preferential allotment would increase the said shareholding of the promoter group to 74.97% of the total paid up equity capital of the target company. As the acquirer together with the other promoters is already having control over the target company, I note that there would not be any change in control pursuant to the proposed acquisition.

5.4 I further note that the EGM for passing the special resolution under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirer was held on May 25, 2007. In the notice sent to the shareholders in terms of section 173 of the Companies Act, 1956, the target company had proposed to the shareholders that the proposed preferential allotment (exclusively to the acquirer) would be pursuant to and in accordance with the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 and subject to other approvals, permissions, etc. I note that, in the explanatory statement forming part of the notice of EGM, the target company had inter alia disclosed the identity of proposed allottee (the acquirer), the object and intention of the proposed preferential allotment, consequential changes, if any, etc. I also note from the submissions of the acquirer that it had abstained from voting on the special resolution.

5.5 I have also taken note from the submission by the acquirer that the special resolution required under section 81 (1A) of the Companies Act, 1956 has been passed by the shareholders of the target company after making all requisite disclosures to the shareholders to the notice of EGM and explanatory statement thereto. The target company, in respect of facility of voting through postal ballot for passing of the special resolution, vide e-mail dated August 10, 2007 informed SEBI that it would be difficult for it to take the approval of the shareholders again, as the cost involved in the process would very high. In the facts and circumstances of the case, especially in view of the fact that the special resolution for the preferential issue of shares was passed in the EGM held on May 25, 2007 and that the required disclosures had already been made in the explanatory statement, I am of the view that condition of passing special resolution under section 81 (1A) of the Companies Act, 1956 by providing facility of voting through postal ballot may not be insisted in this case.

5.6 In view of the above, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11 of the Takeover Regulations.

6.0 ORDER

6.1 In view of the foregoing, I , in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sub - regulation (6) of regulation 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer, namely Ankur Services and Growth Fund Ltd. from complying with the provisions of Regulation 11 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed preferential allotment of 1,15,94,203 equity shares of the target company, namely Jain Studios Ltd. ,subject to the conditions that the acquirer and the target company shall ensure –

i ) that in respect of the proposed preferential allotment, the relevant norms including the norms regarding the pricing specified in Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 are observed and complied with;

ii) that there shall be no reduction in the minimum level of public shareholding required as per the listing agreement pursuant to the proposed preferential allotment and that the target company shall maintain the minimum level of public shareholding, as required in terms of the listing agreement.

iii) the target company shall comply with the undertaking given by it vide letter dated July 31, 2007.

6.2 The acquirer shall complete the proposed transaction within 30 days from the date of the order and file a report with Securities and Exchange Board of India in the manner specified in Regulation 3(4) read with Regulation 3(5) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 confirming compliance including conditions specified in this order.

G. ANANTHARAMAN

WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

Place: Mumbai

Date: October 17, 2007

Thanks & Regards
--
Alagar
09884731993

--
Vj
Trezrrr every pulsss
http://yehseeyes.blogspot.com/

ESOP Opinion

Dear All,

I have given an opinion in connetion with ESOP, i thought of sharing the same with you people. please find below extract of the same.

ESOP – Opinion

Background of the issue:

The Company has come out with a ESOP Scheme 2006 for its employees in the year 2006. The approval of the shareholders in General Meeting has been obtained on 27 ^th March 2007 and first tranches of granting of options was done on 9^th March 2006 to the eligible employees under the ESOP Scheme 2006.

The vesting periods are as follows

1^st year 15%

2^nd year 20%

3^rd year 30%

4^th year 35%

Options granted under the ESOP Scheme 2006 will vest after minimum period of one year from the respective date of grant. Exercise price of the option will be not more than 25% of the market price on the date of grant.

Queries and our Opinion:

Before replying to your queries I would like to bring to your attention that as per SEBI (ESOP and ESPS) Guideline, 1999 Grading of options can be done only after getting approval from the shareholders in General Meeting. But, in your case I observed that you have obtained shareholders approval on 27 ^th March 2007 and Options were granted on 9^th March 2006 before the shareholders approval. It seems to be violating the SEBI (ESOP and ESPS) Guidelines, 1999. It needs to be rectified.

Query No.1

Can Compensation Committee fix up a cut off date say 1 or 2 or 3 months from the completion of the vesting period for employees to exercise their options so that Allotment of the shares can be made in one lot? The intention is facilitate the filing of Form 2 and making application to Exchanges for listing. As otherwise each employee will exercise on different dates, which will hinder the allotment process. Would this amount to restricting employees from exercising their options through out the period of 1 year.

Or

Alternatively, should we hold meetings of the committee every month or quarter and allot shares for the exercises made during that period so that employees can exercise options any time during the year.

My Reply:

Yes we can have a cut off date and this should be mentioned in the grant letter. But this is not a normal practice followed by the Companies.

Whereas option number two is better most of the Companies following this practice. In this case we can fix the minimum number of options to be exercised at a time under the ESOP Scheme, so that the employees can exercise that minimum number of options during that period within the overall exercise period as specified in the ESOP Scheme. If, minimum number of options to be exercised is not fixed under the ESOP Scheme, the compensation committee can fix the minimum number of options to be exercised and intimated the same through the grant notice.

Query No.2

Can an employee carry over the option not exercised by him to the succeeding years and exercise them in full.

My Reply:

Yes an employee can carry over the unexercised options, but it should be exercise within the overall exercise period as specified under the ESOP Scheme, otherwise it will laps.

Query No.3

When can Further options be granted? Can it be given to new eligible employees also?

My Reply:

If further number of options to be issued is within the overall limits fixed in the ESOP Scheme 2006, then the Company can go head and issue the further options. The further options can be granted either to the existing or new eligible employees, it is discretion of the Compensation Committee.

Query No.4.

Should we once again obtain the approval of S/E now, as we had already obtained in – principle approval for the total options as approved by members in general Meeting.

Our Reply:

Again in-Principle approval is not required, if the further number of options to be issued within the limit fixed under the ESOP Scheme 2006 and for which already in principle approval has obtained.

However, where there is increase of options above the limit for which already In-Principle has been obtained and changes in the exercise price of options. In this case as per SEBI (ESOP & ESPS) Guidelines, 1999, the Company needs to obtain shareholders approval and needs to file application to SE's for In-Principle approval for that excess number of options.

Provided that re-pricing of options can be possible only in the case where options become unattractive due to fall in market price of the Company.

Query No.5

The shares allotted will be in demat mode. Hence can employees before the final listing approval trade the shares for these shares are obtained from Stock Exchanges?

My Reply:

Shares allotted under the ESOP Scheme 2006 cannot be traded until the listing of such shares in the stock exchanges where the Companies shares are listed.

Thanks & regards

--
Alagar
09884731993

PERSONAL RECORD SHEET

Download PDF from Personal official disclosure.pdf

Personal Official Disclosure of

 A.N.S. VIJAY

 

NOW,

 

• Company Secretary in Practise
• Author of Only This Much for CS Executive Programme on Company Law, Economic & Labour Laws and Securities Law & Compliances

• Author of Only This Much for CS Professional Programme on Company Secretarial Practice, Drafting, Appearances & Pleadings, Corporate Restructuring, Alliances & International Trade, Due Diligence & Corporate Compliance Management, Governance, Business Ethics & Sustainability

• Associated with Learn Labz for Company Secretary Classes

• Blogging Corporate legal updates with http://yehseeyes.blogspot.com

 

PROFESSIONAL EXPERIENCE

 

Practising Company Secretary and has handled various assignments including,

• Secretarial Compliances

• Opinions on Company law, FEMA & Securities laws

• Project Report on Incorporating company in United States & European Union

Faculty with Learn Labz from 2008 onwards and has handled,

• Various Daily & Crash Batches on Company, Economic, Labour & Securities Law

• Other CS Executive & Professional Program classes

Trained with Bombay Stock Exchange Limited & Siemens Limited and handled,

• Bonus Issue for a listed company

• Filing of Industrial Entrepreneurial Memorandum & Production Returns

• Compliance filing of a listed company

• Filing Monthly Development Report to SEBI

 

ACADEMIC BACKGROUND

 

PROFESSIONAL QUALIFICATIONS

Year	Qualifications	University/ Board
2008	Cyber Crime Investigation Course	Asian School of Cyber Laws, Pune
2007	Company Secretary	Institute of Company Secretaries of India
2007	Corporate Governance (77.5%)	Module by NCFM, National Stock Exchange.
2006	Diploma in Patent Law	NALSAR, Hyderabad
2002-2005	B.Com (78.79%)	PSG CAS, Coimbatore

 

PERSONAL DETAILS

Born: 9^th November 1985

Contacts: thisisvj@gmail.com/

Date :                                    A.N.S. Vijay

Download PDF from Personal official disclosure.pdf

--
Vj
Trezrrr every pulsss
http://yehseeyes.blogspot.com/
http://www.lawlabz.com