Checklist for issue of ESOP by private company

As per 2(37) ’employees stock option’ means the option given to the directors,

officers or employees of a company or of its holding company or subsidiary company or
companies, if any, which gives such directors, officers or employees, the benefit or right
to purchase, or to subscribe for, the shares of the company at a future date at a pre-
determined price.
Process of issue:
1. Drafting of ESOP scheme.
2. Alter the Article of Association, if AOA is silent on the issue of share to employees
under the scheme of ESOP.
3. Alter the Memorandum of Association, if the MOA does not have the adequate
authorized share capital.
4. Convene the Board Meeting of the company and following action shall be taken are
as follows:
 Approve the ESOP scheme
 Approve the altered AOA and MOA subject to approval by members in the Extra-
Ordinary General Meeting (EGM).
 Approve the draft notice of the EGM.
 Authorize any person to send the notice of the Extra-Ordinary General Meeting to
all the members of the company.

5. . The company shall make the following disclosures in the explanatory
statement annexed to the notice for passing of the resolution-
  a) the total number of stock options to be granted;
  b) identification of classes of employees entitled to participate in the Employees
Stock Option Scheme;
  c) the appraisal process for determining the eligibility of employees to the
Employees Stock Option Scheme;
d) the requirements of vesting and period of vesting;
e) the maximum period within which the options shall be vested;
f) the exercise price or the formula for arriving at the same;
g) the exercise period and process of exercise;
h) the Lock-in period, if any ;
i) the maximum number of options to be granted per employee and in aggregate;
j) the method which the company shall use to value its options;
k) the conditions under which option vested in employees may lapse e.g. in case of
termination of employment for misconduct;
l) the specified time period within which the employee shall exercise the vested options
in the event of a proposed termination of employment or resignation of employee; and
m) a statement to  the  effect  that  the  company  shall  comply  with  the  applicable
accounting standar
6. Hold the Extra-Ordinary General Meeting and conduct the following business –
 for issuing of Employees Stock Option Scheme by the shareholders of the
company by passing an ordinary resolution.
 for approving the altered MOA and AOA by the shareholders of the company by
passing an special resolution.
7. The approval  of  shareholders  by way of  separate  resolution  shall  be
obtained  by  the company in case of –
i. grant of option to employees of subsidiary or holding company; or
ii. grant of option to identified employees, during any one year, equal to or
exceeding one percent of the issued capital (excluding outstanding warrants and
conversions) of the company at the time of grant of option.
8. File e–form  MGT-14  to  submit the  special  resolution  within  30  days  of
passing  the resolution.
9. Granting of options to eligible employees*.
10. Vesting of options – a. There shall be a minimum period of one year between
the grant of options and vesting of option.
11. Exercise of options by the employees – a. The company granting option to its
employees pursuant to Employees Stock Option Scheme will have the freedom to
determine the exercise price in conformity with the applicable accounting policies, if
any. b. The company shall have the freedom to specify the lock-in period for the
shares issued pursuant to exercise of option.
12. After approval of ESOP scheme by the shareholders, grant options to the eligible
employees.
13. Allotment of Shares,  as  and  when  options  are  exercised  file  form  PAS-3
(Return  of Allotment) within 30 days from the allotment of shares, with ROC.
Other terms & conditions to be complied by the company are as follows-
14. The company may by special resolution, vary the terms of Employees Stock
Option Scheme not yet exercised by the employees provided such variation is not
prejudicial to the interests of the option holders and the notice for passing special
resolution for variation of terms of Employees Stock Option Scheme shall disclose
full of the variation, the rationale therefor, and the details of the employees who are
beneficiaries of such variation.

15. The amount, if any, payable by the employees, at the time of grant of option-
a) may be forfeited by the company if the option is not exercised by the employees
within the exercise period; or
b) the amount may be refunded to the employees if the options are not vested due to
non- fulfillment of conditions relating to vesting of option as per the Employees Stock
Option Scheme
16. The option granted to employees –
a) shall not be transferable to any other per
b) shall not be pledged, hypothecated, mortgaged or otherwise encumbered or
alienated in any other manner.
17. Subject to point (18), no person other than the employees to whom the option is
granted shall be entitled to exercise the option.
18. In the event of the death of employee while in employment, all the options granted
to him till such date shall vest in the legal heirs or nominees of the deceased employee.
19. The Board of directors, shall, inter alia, disclose in the Directors’ Report for the year,
the following details of the Employees Stock Option Scheme:
a) options granted;
b) options vested;
c) options exercised;
d) the total number of shares arising as a result of exercise of option;
e) options lapsed;
f) the exercise price;
g) variation of terms of options;
h) money realized by exercise of options;
i) total number of options in force;
j) employee wise details of options granted to;-
i) key managerial personnel;
ii) any other employee who receives a grant of options in any one year of option
amounting to five percent or more of options granted during that year.
iii) identified employees who were granted option, during any one year, equal to or
exceeding one percent  of the issued  capital  (excluding outstanding warrants  and
conversions) of the company at the time of grant;
20. The company shall maintain a Register of Employee Stock Options in Form No.
SH.6 and shall forthwith enter therein the particulars of option granted under clause (b)
of sub-section (1) of section 62.
21. The Register of Employee Stock Options shall be maintained at the registered office
of the company or such other place as the Board may decide.
22. The entries in the register shall be authenticated by the company secretary of the
company or by any other person authorized by the Board for the purpose.
NOTES -:
* ‘‘Employee’’ means-
a. a permanent employee of the company who has been working in India or outside
India;
or
a director  of  the  company,  whether  a  whole  time  director  or  not  but  excluding  an
independent director; or
c. an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India,
or of a holding company of the company.
but does not include-
1. an employee who is a promoter or a person belonging to the promoter group; or
2. a director who either himself or through his relative or through any body corporate,
directly or indirectly, holds more than ten percent of the outstanding equity shares of the
company.

Employee Stock Option Plan (ESOP) is the option provided to employees to purchase
the shares of the company at a future date at a pre-determined price. ESOPs give the
employee a right to purchase the share, but not an obligation, to buy a certain amount
of shares in the company at a predetermined price for a certain number of years.
Therefore, if the shares of the company are valued at less than the option exercise
price, then the employee need not excise the right to buy the shares of the company.
OPERATIVE ASPECTS   OF ESOP
1. ESOPs have an exercise period – the pre-determined period within which the option
must be exercised   by the employee. There must be a minimum period of one year
between the grant of option and vesting of option.
2. Option granted to employees are not transferable to any other person.
3. ESOPs have a Vesting Period and Vesting Percentage. Vesting period is the amount
of time the employee needs to work with the company to be eligible for the ESOP.
4. It can’t be offered to Promoters or Directors who directly or indirectly hold 10% shares
in the company  nor can be offered to  non-employees
5. A typical lifecycle of ESOP can be depicted as under:
6. Valuation shall be done (Fair value of shares) at the time of “grant of Option” and
“exercise of option” by registered valuer as per “Guidance note on accounting for
employee share-based payment” and pursuant to the Rule 40D of Income Tax Rules ,
1962 which provides that FMV of ESOP shall be as determined by a merchant banker
on the specified date Therefore, valuation is to be done every time when the options are
granted and /or exercised. Valuation not older than six months will be considered valid.
7. There is no ready market for shares of a Pvt Ltd Co. unlike listed companies.
Marketability of such shares are generally discussed at the time of launch of the
scheme and generally promoters come forward with assurances and commitment
through scheme document. Employees would have following Exit options for disposal of
shares:
 IPO
 To Strategic buyer / Investor, etc
 Company buyback
 Selling to an external buyer, subject to the Articles of Association
COST OF IMPLEMENTATION OF ESOP TO COMPANY:
Apart from dilution in shareholding of promoters, the company should keep the following
expenses in mind:
 Fees payable to Registered valuer and the Merchant Banker for Valuation of shares
 Fees payable to consultant for implementation  and supervision of ESOP.
 Administration cost throughout it’s tenure
REGULATORY REQUIREMENTS FOR A PVT LTD COMPANY   FOR
IMPLEMENTING ESOP
1. Maximum Number of shareholders in   Private Limited company    are allowed to be
200.  If this limit is breached by ESOP, the company has to be converted into a Public
Limited Company
2. Articles of Association i.e. Charter of  company  should   have enabling provisions or
allowing the ESOP.  If not, then amendment  would be required by convening
AGM/EGM
3. There has to be sufficient authorized capital to accommodate the ESOP  allotments.
If not, then MOA and AOA need alterations
4. EGM  has  to be conducted for ESOP Scheme approval by shareholders  by way of a
special resolution. Disclosures in the Explanatory Statement (Rule 12(2))  for passing
the special resolution should cover following aspects:
 Total number of stock options to be granted
 Identification/ Appraisal process for determining the eligibility of employees;
 Requirements of vesting and vesting period and the maximum period within which the option shall
be vested;
 Exercise Price/Pricing Formula/Exercise Period/Method of valuation;
 Lock in period, if any;
 Maximum no. of ESOPs to be granted per employee and in aggregate;
5. Each year,  the Board of Directors in the Directors Report must report the  following
details of the ESOP plan:
 Options granted/vested/exercised/lapsed.
 Total number of shares arising as a result of exercise of options;
 Exercise Price;
 Variation of terms of options;
 Money realized by exercise of options;
 Total no. of options in force
 Employee wise details of options granted to:
6. The company must maintain a ESOP Register (Form SH-6 (Rule 12(10),   giving
information about the option granted to employees.
TAXATION IN THE HANDS OF EMPLOYEE CONCERNED:
Taxation takes place at 2 stages  i.e. when the option is exercised and secondly when
the shares are disposed:
 he Mechanics of ESOP
Stock Option, as the name suggests, is an ‘option’ to buy the underlying asset, which is a

share of the Startup. There is no obligation on the employee to buy the shares; it is only an

option which the employee may or may not exercise. Every ESOP will have the following

components;

Grant The date on which the option is granted by the Startup to the employee. Grant is a formal action
Date taken by the Startup and the employee is informed of the entitlement by way of a Grant Letter

The minimum period that the employee has to serve to be entitled to the stock option.
The average vesting period ranges between 3 - 5 years. Most Startups tranche out the
total entitlement.
For example, if the employee is entitled to 100 options and the vesting period is 5
years, the following two scenarios are possible:
 Equal vesting, i.e. 20 options for completing every year of service or,
Vesting  Milestone based, e.g. 12.5% at the end of 1st & 2nd year, 25% each at the end
Period  of the 3rd, 4th and 5th year

The period post vesting, during which the employee can exercise the option to buy the shares.
Exercise ESOPs can also be structured to address the eventuality of the employee leaving the company
Period during exercise period

Exercise
Date The date on which the employee exercises the option to buy the shares

Exercise
Price As seen above, the pre-determined price at which the employee will buy the shares

Every ESOP is a play of these words and thus, thorough understanding is crucial to the

Startup and the employee

 EMPLOYEE STOCK OPTION PLAN 20XX

1. Short title, extent and commencement:

1.1 This employee stock option plan may be called as the “ESOP Plan”.

1.2 The ESOP Plan applies only to the bonafide Employees (defined below) of ABC Private Limited
(the “Company”).

2. Objectives of ESOP Plan:

2.1 The purpose of this ESOP Plan is to –

2.1.1 facilitate the Employees of the Company, through stock ownership, to acquire greater
proprietary stake in success and growth of the Company;
2.1.2 encourage Employees to continue contributing to the success and growth of the
Company;
2.1.3 reward Employees for their unusual contribution to the Company;
2.1.4 provide additional deferred reward to Employees; and
2.1.5 compensate Directors for their contribution to the growth of the Company.

3. Definitions:

In this ESOP Plan, unless the context otherwise requires,

3.1 “Applicable Law” includes all statutes, enactments, acts of legislature or parliament, ordinances,
rules, bye-laws, regulations, notifications, guidelines, policies, directions, directives and orders of
any government, statutory authority, tribunal, board, court or recognized stock exchange(s) on
which the shares of the Company may be listed;

3.2 “Board” means the Board of Directors for the time being of the Company;

3.3 “Director” means a director of the Board;

3.4 “Disability” means “Permanent Total Disability” as defined in the Workmen’s Compensation Act,
1923;

3.5 “Employee” means a permanent employee {who has completed tenure of at least 3 years (at the
discretion of Board) with ABC Private Limited} of the company who has been working in India or
outside India and who may qualify for issue of Options under the ESOP Plan and fulfill the
minimum conditions of service and other conditions as decided in the evaluation process; and will
include new employees joining the Company.

3.6 “Exercise” means making of an application by the Optionee to the Company for issue of Shares
against Options vested in him in pursuance of the ESOP Plan.

3.7 “Exercise Period” means the period after vesting within which the Optionee should Exercise
his/her right to apply for the Shares against the Options vested in him/her in pursuance of the
ESOP Plan. Exercise period for this ESOP scheme is to be varied for lots of shares which at the
discretion of board may vary.
3.8 “Exercise Price” means the price payable by the Optionee for Exercising the Option granted to
him/her under the ESOP Plan as may be determined by the Board. Here recommendation is
Rs. 10 i.e the face value of the equity share of the company subject to any change that
board may deem fit.

3.9 “Fully Diluted Basis” means a calculation

assuming that all dilution instruments, including
any options issued or reserved for issuance
under the ESOP Plan of the Company, existing
at the time of determination have been
exercised or converted into equity shares of the
Company, and taking into consideration the
effect of any anti-dilution protection offered to
any shareholder or a third party.
3.10 “Grant” means issue of the Options to Employees to purchase the Shares of the Company under
the ESOP Plan. In this scheme 200 options per employee is proposed as per the discretion
of board.

3.11 “Grant Date” means the date fixed by the Company to be the date on which the Option under
the ESOP Plan is extended to any Employee. The date would be specified in the Offer Letter
issued to the Employee. This date is to be prescribed by board of director which shall not be
later than 31st March 20XX.

3.12 “Nominee” means the spouse, any child of the Employee or any other person nominated by the
Employee as provided hereinafter.

3.13 “Option” means a stock option granted pursuant to the ESOP Plan, comprising of a right but not
an obligation granted to an Employee under the ESOP Plan to apply for and be allotted Shares of
the Company at a pre-determined Exercise Price, during or within the Exercise Period subject to
the requirements of Vesting.

3.14 “Optionee” means the holder of an outstanding Option granted to the Employee pursuant to the
ESOP Plan.

3.15 “Shares” shall mean Shares in the Share Capital, whether equity or preference;

3.16 “Share Capital” means the issued, subscribed and paid-up share capital of the Company;

3.17 “Offer Letter” means a written agreement between the Company and an Optionee evidencing
the terms and conditions of an individual Option Grant. The Offer Letter will be subject to the
terms and conditions of the ESOP Plan.
3.18 “Vesting” means the process by which the Optionee is given the right to apply for Shares of the
Company against the Options granted to him in pursuance of the ESOP Plan.

3.19 “Vesting Period” means the period elapsed between the date of Grant and the date of Vesting
of the Option granted to the Employee. (For the scheme it is recommended for 1 year from
grant date i.e the minimum period required by Companies share capital and debentures
rules,2014)

Note: The words employed in the masculine gender shall include the feminine also.

4. Quantum of equity Shares subject to the ESOP Plan:

4.1 The maximum number of equity Shares which shall be subject to Options under the ESOP Plan
will be restricted to 10% (Ten percent) of the total paid up equity Share Capital of the Company
on a Fully Diluted Basis from time to time at the time of implementation of the ESOP Plan.
However, subject to the provisions of the articles of association of the Company, the maximum
number of equity Shares reserved for issuance pursuant to the ESOP Plan may be increased or
decreased with the written consent of the Board.

4.2 Each Option granted under this ESOP Plan shall entitle the holder thereof for one equity Share,
of a face value of Rs. 10/- each of the Company on such terms and conditions as the Board may
determine at the time of Grant which will be specified in the Offer Letter.

4.3 The Company during the term of this ESOP Plan, shall all times reserve and keep available such
number of equity Shares as part of its authorized Share Capital as shall be sufficient to satisfy the
requirements of the ESOP Plan.

4.4 If an Option expires or becomes un-exercisable without having been exercised in full, the
un-purchased equity Shares, which were subject thereto, shall become available for future Grant
or sale under the ESOP Plan (unless the ESOP Plan has been terminated). However, equity
Shares that have actually been issued under the ESOP Plan upon exercise of an Option shall not
be returned to the ESOP Plan and shall not become available for future distribution under the
ESOP Plan.

4.5 Where equity Shares are issued consequent upon Exercise of an Option under the Plan, the
maximum number of equity Shares that are subject to Option referred to in Section 4.1 above
shall stand reduced to the extent of such equity Shares issued.

5. Administration of the ESOP Plan:

5.1 The Board shall administer, and supervise the implementation of the ESOP Plan.

5.2 Subject to the provisions of the ESOP Plan, and subject to the approval of the relevant
authorities, the Board shall –

5.2.1 determine the Exercise Price; (viz. is Rs. 10/-)

5.2.2 select and recommend Employees for Grant of Options; (Permanent employees with
more than 3 years of tenure)
5.2.3 determine the quantum of Options to be granted to the Employees; (viz. is 200 options
per employee subject to change as may deem fit by Board)
 5.2.4 determine the Vesting Period and the Exercise Period; (1 year i.e minimum period
required by the law enforceable)
5.2.5 prescribe, amend and rescind rules and regulations relating to the ESOP Plan;
5.2.6 construe and interpret the terms of the ESOP Plan and Options granted relating to the
ESOP Plan and such determination shall be final and binding upon all persons having an
interest in the ESOP Plan and Options;
5.2.7 determine the procedure for making a fair and reasonable adjustment to the number of
Options to the Exercise Price in case of corporate actions;
5.2.8 Grant, Vest and Exercise of Option in case of Employees who are on long leave;
5.2.9 determine the procedure for cashless Exercise of options;
5.2.10 frame any other byelaws, rules or procedures as it may deem fit for administering the
ESOP Plan;
5.2.11 approve forms, writings and / or agreements for use in pursuance of the ESOP Plan;
5.2.12 frame suitable policies and systems to ensure that there is no violation of the Applicable
Laws.

5.3 No member of the Board shall be personally liable for any decision or action taken in good faith
with respect to the ESOP Plan.

5.4 All decisions, determinations and interpretations of the Board shall be final and binding on all
concerned.

6. Eligibility Criteria

6.1 The Board reserves the right to offer Options to Employees subject to the appraisal process as
provided in Section 6.2 below.

6.2 The appraisal process for determining the Employees to whom the Option shall be
granted/offered will be specified by the Board, from time to time, and will be based on criteria
such as the seniority of the Employee, length of the service, performance record, merit of the
Employee, future potential contribution by the Employee and/or any such other criteria that may
be determined by the Board at its sole discretion.

7. Terms of ESOP Plan and Option:

7.1 The ESOP Plan shall be effective upon its adoption by the Board. It shall continue in effect for a
term of minimum 1 year unless all the Options granted under the ESOP Plan are exercised or
have been extinguished or unless the ESOP Plan is terminated under Section 16 of the ESOP
Plan.

7.2 The term of each Option shall be stated in the Offer Letter provided, however, that the term shall
be not more than 6 months to 1 year from the date of first Vesting thereof for each lot of
shares.

8. Grant of Options:

8.1 The Board may, on such date as it shall determine, grant to such Employees as it may in its
absolute discretion select Options of the Company on such terms and conditions and for the
consideration as it may decide. The details of the Options granted will be communicated through
the Offer Letter.

8.2 The Employee to whom an Option is granted shall communicate his acceptance of the Option
within 30 days from the date of the Grant or such other period as may be decided by the Board.

9. Rights of an Optionee:

9.1 Unless and until the Options have been exercised and/or equity Shares transferred/allotted to the
name of the Optionee in accordance with the Applicable Laws, the Optionee or his nominee shall
not have any rights whatsoever as a shareholder including rights for receipt of dividend and/or for
voting with respect to Options granted.

9.2 Neither the ESOP Plan, nor any Option shall confer upon any Optionee any right with respect to
continuing the Optionee’s relationship as an employee, advisor, consultant, director, officer or
promoter with the Company, nor shall it interfere in any way with his right or the Company’s right
to terminate such relationship at any time, for any reason whatsoever.

10. Vesting Periods of Options:

10.1 The Board shall have the freedom to specify a lock-in period for the equity Shares issued
pursuant to the Exercise of Option. Such lock-in period, if any, may be specified in the Offer
Letter.
10.2 The maximum Vesting Period of an Option shall not be more than a period of 24 months from the
date of Grant of the Option. Subject to the maximum vesting periods of an Option referred to
above, the Board shall have the sole discretion to decide upon the vesting periods in respect of
any Optionee or any category of Optionee. The Vesting may occur in tranches, subject to the
terms and conditions of Vesting as may be stipulated by the Board in its discretion.

11. Option Exercise Price and Consideration:

11.1 The consideration payable by an Optionee for exercising an Option would be the Exercise Price.

11.2 The consideration to be paid for the equity Shares to be issued upon the exercise of an Option,
including the method of payment shall be determined by the Board at the time of Grant.

11.3 Subject to Applicable Law, the Company may make available a bridge loan to assist the
Employee to pay up and exercise the vested Options. This loan shall be subject to the terms and
conditions as the Company may stipulate at the time of grant of loan.

11.4 Under the cashless system of Exercise, the Company may itself fund the payment of Exercise
Price which shall be adjusted against the sale proceeds of some or all the equity Shares or from
the remuneration payable to employee, subject to the Applicable Laws.

12. Methodology of Exercise of Options:

12.1 Procedure for Exercise of Options:

12.1.1 An Option granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Board and set forth in the Offer
Letter sent to the Employee.

12.1.2 The Option shall be deemed to be exercised when the Company receives:

(i) Written or electronic notice of Exercise (in accordance with the Offer Letter) from the
person entitled to Exercise the Option; and
 (ii) Full payment for the equity Shares with respect to which the Option is exercised.

12.1.3 Options can be exercised in part or whole. The unexercised portion of the Option will
continue to be available to the Optionee or the nominee, for exercise, in case of specified
circumstances such as death, disability etc., upto such time as provided for in the Offer
Letter.

12.2 Exercise of Options in the case of separation of an Employee from the Company:

12.2.1 In the event of separation of an Employee from the company due to reasons of
Disability of the Optionee while in employment all the unvested Options will Vest
immediately. However, the Exercise Period will remain the same as indicated in the Offer
Letter.

12.2.2 In the event of death of an Employee while in employment with the Company, the
Options granted, both Vested and unvested may be exercised by the Optionee’s
nominee/ legal heir immediately after such death but in no event later than one (1) year
from the date of the Optionee’s death.

12.2.3 In the event of termination of employment for reasons of misconduct, all Options
including those, which are vested but unexercised at the time of termination of
employment, shall expire and stand terminated with effect from the date of such
termination.

12.2.4 In the event of separation of employment for reasons other than Death/Disability or for
misconduct, all Options, which are not vested on the date of separation, shall expire and
stand terminated with effect from the date of such separation. However, all Options
vested as on the date of separation may be exercised by the Employee immediately but
not later than 30 days from the date of separation of employment.

12.2.5 Abandonment of service without the consent shall be deemed to be termination of

employment for misconduct. The date of abandonment of an Employee shall be decided
by the Board at its sole discretion which decision shall be binding on all concerned. In the
event of abandonment of service by an Optionee without the Company’s consent, all
Options including those which are vested but were not exercised at the time of
abandonment of service shall stand cancelled with immediate effect.

13. Rights as a Shareholder:

13.1 Equity Shares issued on the Exercise of an Option shall be issued in the name of the Optionee.
13.2 The Company shall issue (or cause to be issued) such equity Shares promptly after the Option is
exercised. No adjustments will be made for dividend or any other right for which the record date is
prior to the date the equity Shares are issued.
13.3 All equity Shares allotted on Exercise of Options will rank pari passu with all other equity Shares
of the Company for the time being in issue (save as regards any right attached to such equity
Shares by reference to a record date prior to the date of allotment).

14. Non transferability of Options:

14.1 The Options granted under the ESOP Plan are not eligible to be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner without the prior written approval of the
Board.

15. Adjustments of number and Exercise Price of Option in certain cases:

15.1 Capitalisation by way of issue of bonus Shares: Subject to any required action by way of
shareholders of the Company, all the Options including those which are vested but were not
exercised and/or, as well as the price per equity Share covered by each such outstanding Option,
shall be proportionately adjusted for any increase in the number of issued equity Shares resulting
from issue of bonus Shares without the receipt of consideration by the Company.

15.2 Issue of rights Shares: Subject to any required action by the shareholders of the Company, all the
Options including those which are vested but were not exercised and/or the price per equity
Share covered by each such outstanding Option, shall be proportionately adjusted for any
increase in the number of issued equity Shares resulting from the issue of rights Shares.

15.3 Merger / Demerger: In the event of a merger of the Company with or into another company, or a
Demerger, all the Options including those which are vested but were not exercised, and/or the
price per equity Share covered by each such outstanding Option shall be proportionately adjusted
to give effect to the merger or asset sale.

16. Amendment and Termination of the ESOP Plan:

16.1 Subject to such approvals as may be required, the Board may at any time amend, alter, suspend
or terminate the ESOP Plan.

16.2 No amendments, alterations, suspension or termination of the ESOP Plan shall impair the
existing rights of any Optionee, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the Company.
Termination of the ESOP Plan shall not affect the Board’s ability to exercise the powers granted
to it hereunder with respect to Options granted under the ESOP Plan prior to the date of such
termination.
17. Conditions upon issuance of equity Shares:

17.1 Equity Shares shall not be issued pursuant to the Exercise of an Option unless the Exercise of
such Option and the issuance and delivery of such equity Shares shall comply with Applicable
Laws and shall be further subject to the approval of counsel for the Company with respect to such
compliance.

18. Inability to obtain authority:

18.1 The inability of the Company to obtain from any regulatory body having jurisdiction, which
authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of
any equity Shares hereunder, shall relive the Company of any liability in respect of the failure to
issue or sell such equity Shares as to which requisite authority shall not have been obtained.

19. Unjust enrichment

19.1 In the event of any Optionee has paid any money to the Company under the ESOP Plan, and the
Company is unable to allot equity Shares to such Employee due to inability to obtain authority or
due to changes in any regulations or relevant guidelines, the Company shall promptly refund the
money subject to such terms and conditions as the Board shall impose. However, the Company
shall not be liable to pay any premium or loss of profits to any such Optionee.

20. General:

20.1 The ESOP Plan shall not form part of any contract of employment / service between the
Company and the Employee. The rights and obligations of any individual under the terms of his
office or employment with the Company shall not be affected by his participation in this ESOP
Plan or any right which he may have to participate in it and nothing in this ESOP Plan shall be
construed as affording such an individual any additional rights as to compensation or damages in
consequence of the termination of such office or employment for any reason.

20.2 The ESOP Plan shall not confirm on any person any legal or equitable rights (other than that to
which he would be entitled as an ordinary member of the Company) against the Company either
directly or indirectly or give rise to any cause of action in law or in equity against the Company.

20.3 Participation in the ESOP Plan shall not be construed as any guarantee of return on equity
investment. Any loss due to fluctuations in the market price or fair value of the equity and the
risks associated with the investments are that of the Optionee alone.
20.4 This ESOP Plan is entirely at the discretion of the Board of the Company.

21. Tax Liability:

21.1 The tax treatment on the equity Shares allotted under the ESOP Plan shall be as per the Income
Tax Act, 1961 as amended from time to time.

21.2 In the event of any tax liability arising out on account of the issue of Options and/or allotment of
the equity Shares to the Optionee, the liability shall be that of the Optionee alone. The Employee
shall not indemnify the Company against any tax or other liabilities.

21.3 All tax liabilities arising on disposal of the equity Shares after Exercise would require to be
handled by the Optionee.

21.4 In the event of any tax liability arising out on account of the ESOP Plan, the Company shall have
the right to cause the equity Shares held by the Optionee under the ESOP Plan to be sold or
otherwise alienated to meet the liability, on behalf of the Optionee.