Title: Buyback of employee shares by Shareholders Shareholder Buyback Plan
1Buyback of employee shares by Shareholders
(Shareholder Buyback Plan)
2Agenda ESOPs allotment and Shareholder Buyback
Plan
- Background
- Why Buy Back
- Mechanism Exercise of options and buyback
- Tax Impact of Buy-Back
3Background
- BTSL issued ESOPs to employees on April 1, 2006
at a grant price of Rs. 40. - Vesting period under the ESOP Scheme is 15 after
1 year of grant, 20 after 2 years, 30 after 3
years and 35 after 4 years - For employees who have completed 1 year from the
grant date, 15 of their shares vest and become
exercisable at their grant price. - The shareholders (Bharti Group and VCs) have now
proposed buy-back of 50 of the vested shares at
a price of Rs 175 per share (Shareholder Buyback
Plan) to provide liquidity to the employees.
4Why Shareholder Buyback Plan
- To enable the employees to encash some or all of
the vested shares prior to the IPO. - To assist employees with their cash flow
management better - To demonstrate further commitment of the
shareholders and investors in the Company - To balance the risk appetite of the shareholders
and investors with the employees own risk
appetite - To retain talent by increasing their remuneration
(TCTC) in the short term comparable to companies
that do not offer such buyback scheme
5Mechanism
- Employee exercises the right to convert the
options into shares (As per the process announced
earlier using ESOPDIRECT) - Employee pays money to the company to acquire the
shares - Employee gets the share certificates
- Employee opts for sell back of shares during the
time period provided - Payment from shareholders to Employee for the
shares - Recovery of FBT from Employee
6Shareholder Buyback Plan Overview
7Key Dates
8Process/Steps for sale of shares under Buy-back
Plan
- Employees fill up the Buy-back form and submit to
ESOP Administrator (ESOPDirect person at our
office) with relevant documents including
original share certificate - ESOPdirect checks and validates the documents
submitted - ESOPdirect intimates the employee within 7 days
of receipt for any errors etc. and amendments
required (if any) - Employees will get the payment through cheque/DD
in December. - FBT to be recovered from the employees from
November salary
9Tax Impact (upon exercise of options and on sale
of shares)
- Post Budget 2007 beneficial treatment to
employees under qualified ESOP Plans has been
withdrawn. - ESOP benefit is now liable to tax as Fringe
Benefit Tax (FBT) which will be recovered from
the employees as described below - Taxable at the rate of 33.99 on the Fair Market
Value (FMV) of ESOPs on the date of vesting less
Exercise Price i.e. 33.99 of (Rs 175 Rs 40)
per share Rs. 45.90 - Employees continue to be liable to capital gain
tax at the time of sale on (Sale Value FMV on
the date of vesting). In this case since the sale
price is equal to FMV the capital gain will be
nil.
10ESOPs FBT and Capital Gains Tax Liability
See sample computation / example in the
appendices
11ESOPs FBT and Capital Gain Tax Liability
if the period is more than 12 months then its
long term capital gain otherwise it is short term
capital gain
12Appendix
13Capital Gain Tax Liability
14Example Capital Gain Tax Liability
Options Granted 10,000 (say) Options vested 15
i.e. 1,500 No of shares sold 750 (50 of options
vested) Exercise price Rs 40 Date of Vesting Ist
April 2007 Sale Price Rs 175 Date of Exercise
Sep 2007 Date of Sale Oct 2007 FMV on
Vesting date Rs 175