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SCHEDULE - IV - Disclosure Document - SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999Extract [1] [Schedule IV] Disclosure Document (Clause 5.1) Part A: Statement of Risks All investments in shares or options on shares are subject to risk as the value of shares may go down or go up. In addition, employee stock options are subject to the following additional risks: 1. Concentration: The risk arising out of any fall in value of shares is aggravated if the employee s holding is concentrated in the shares of a single company. 2. Leverage: Any change in the value of the share can lead to a significantly larger change in the value of the option as an option amounts to a levered position in the share. 3. Illiquidity: The options cannot be transferred to anybody, and therefore the employees cannot mitigate their risks by selling the whole or part of their options before they are exercised. 4. Vesting: The options will lapse if the employment is terminated prior to vesting. Even after the options are vested, the unexercised options may be forfeited if the employee is terminated for gross misconduct. Part B: Information about the company 1. Business of the company: A description of the business of the company on the lines of item V (a) of Part I of Schedule II of the Companies Act. 2. Abridged financial information: Abridged financial information for the last five years for which audited financial information is available in a format similar to that required under item B(1) of Part II of Schedule II of the Companies Act. The last audited accounts of the company should also be provided unless this has already been provided to the employee in connection with a previous option grant or otherwise. 3. Risk Factors: Management perception of the risk factors of the company in accordance with item VIII of Part I of Schedule II of the Companies Act. 4. Continuing disclosure requirement: The option grantee should receive copies of all documents that are sent to the members of the company. This shall include the annual accounts of the company as well as notices of meetings and the accompanying explanatory statements. Part C: Salient Features of the Employee Stock Option Scheme This Part shall contain the salient features of the employee stock option scheme of the company including the conditions regarding vesting, exercise, adjustment for corporate actions, and forfeiture of vested options. It shall not be necessary to include this Part if it has already been provided to the employee in connection with a previous option grant, and no changes have taken place in the scheme since then. If the option administrator (whether the company itself or an outside securities firm appointed for this purpose) provides advisory services to the option grantees in connection with the exercise of options or sale of resulting shares, such advice must be accompanied by an appropriate disclosure of concentration and other risks. The option administrator should conform to the code of conduct appropriate for such fiduciary relationships. ******** [1] Inserted vide circular no. SEBI/PMD/MBD/ESOP/2/2003/30/06 dated June 30, 2003, w. e. f. June 30, 2003.
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