CONTENTS

S. NO. PARTICULARS
1. What is ESOP?
2. Does ownership of Grant certificate gives you the Shareholder’s right?
3. What is Grant?
4. What is Grant Date?
5. What is Option?
6. How much shares an employee gets against one option?
7. What is Vesting Period?
8. What is the meaning of Exercise in respect of ESOP?
9. What is the exercise price?
10. What is the effective date of exercise?
11. What is the exercise period?
12. What is lapse of options?
13. Effect of ESOP in the event of termination, resignation, retirement and death of
employment.
14. Whether the option under the scheme as given in ESOP grant certificate is
transferable or not?
15. What is the procedure to exercise ESOP?
16. What is FMV for the calculation of perquisite value?
17. Whether shares under ESOP can be allotted in physical mode?
18. Calculation of TDS at the time of exercise of Option.
19. What are the laws governing the ESOP?
20. For Further query in respect of ESOP

1|Page
 FAQs ON ESOPs

1. What is ESOP?

It is one of the way by which Newgen rewards its employees by granting them an option/right
to buy equity shares of the company at a pre-determined exercise price.

ESOP Scheme in Newgen involves granting some ownership stake in the company to
employees with a view to create ownership attitudes and aligning their interests with that of
the company and its shareholders.

2. Does ownership of Grant certificate gives you the Shareholder’s right?

No, the ownership of Grant Certificate gives you only the option/right to convert your option
into shares i.e. to buy shares of the Company. ESOP Grant Certificate is valid until and
unless the option is not lapsed. What is lapsed kindly refer FAQ No.12

3. What is Grant?

Grant means issue of options to the employees under any ESOP Scheme. It is only the
delivery of the options to the employees.

4. What is Grant Date?

It means the date on which the options are granted to the employees under ESOP Scheme.

5. What is Option?

Kindly refer FAQ no. 1

6. How much shares an employee gets against one option?

One option = One share. If any employee has 1000 option, it means he/she will get 1000
shares at the time of exercising all 1000 options.

7. What is Vesting Period?

Vest, vested or vesting means the process by which the employee is given the right to
convert his option into shares i.e. to exercise the option for purchasing shares of the
Company.

Vesting Period is the period on the completion of which the option to buy the shares could be
exercised, as mentioned in the ESOP Grant Certificate.

2|Page
8. What is the meaning of Exercise in respect of ESOP?

The activity of converting the options into shares by exercising his/her options. It means to
buy the shares of the Company at exercise or pre-determined price under ESOP Scheme and
to become the shareholder of the Company.

Before an employee can exercise the option he/she is usually required to complete the vesting
period, as provided in ESOP Grant Certificate.

For example: If you are granted 1000 options on 01/01/2015 with following vesting dates:-

Vesting date % of ESOP to be Eligibility to Exercise option

exercised.
01/01/2016 10% Upto 10% option on or after 01/01/2016 i.e. 100
shares.
01/01/2017 20% Upto 20% option on or after 01/01/2017 i.e. 200
shares.
01/01/2018 30% Upto 30% option on or after 01/01/2018 i.e. 300
shares.
01/01/2019 40% Upto 10% option on or after 01/01/2019 i.e. 400
shares.

9. What is the exercise price?

Exercise price is the fixed price or a pre-determined price which the employee has to pay to
convert his option into shares of the Company.

10. What is the effective date of exercise?

The effective date of exercise is the date on which employee exercise his options subject to
receipt of payment and error free ESOP purchase form. In case of any discrepancy in the
ESOP Purchase Form, the form shall be rejected and the user have to submit the new ESOP
Purchase Form along with correct details and requisite enclosures. In this case the exercise
date associated with rejected form shall be treated as null & void and the effective date shall
be the date on which user will submit the new ESOP Purchase Form subject to receipt of
payment and error free form. This shall be considered as exercise date for all purposes
including his individual taxation.

11. What is the exercise period?

This is the period within which the option to purchase the shares can be exercised. This
period shall start from the date of vesting. The exercised period is always defined in the
ESOP Grant Certificate. After the expiry of exercise period remaining ESOP will be lapsed
and the employees shall not have any rights to exercise the option.

3|Page
12. What is lapse of options?

Option may be said to be lapsed on the expiry of the exercise period or on the happening of
the events like resignation, termination, retirement, death, etc. These options then cannot be
converted into shares and lose their value.

13. Effect of ESOP in the event of termination, resignation, retirement and death of
employment.

a) In the event of termination of employment due to resignation, he shall be entitled to

only those options as vested with him till the date of resignation and such vested options
must be exercised either on the date of resignation or on his last day in the Company. All
the options so vested with him, not exercised and all unvested options shall lapse with
immediate effect from the date of resignation.

b) In the event of termination of the employment due to total or permanent disability to

the employee, all the options granted to him as on that day shall vest with him
immediately. The employee shall be entitled to exercise such options vested with him
within a period of 6 (Six) months from the date of such total or permanent disability. All
vested options, not exercised within the specified period mentioned above will lapse.

c) In the event of death of an employee while in the employment of the Company and
who would have continued to be in the service of the Company but for his death, all
the options granted to him remaining unvested till his death, shall vest with his legal
heirs or the beneficiary immediately. The beneficiary/legal heirs of the employee under
this Scheme shall be entitled to exercise such options vested with the employee as on the
date of his death as also the options vested with him as above, within a period of 6 (Six)
months from the date of death of the employee. All vested options, not exercised within
the specified period mentioned above will lapse.

d) In the event of an employee retiring on attaining the retirement age or due to

superannuation, he shall be entitled to exercise only those options as vested with him
till that date, within a period of 6 (Six) months from the date of such retirement or
superannuation. All vested options, not exercised within the specified period mentioned
above will lapse.

e) In the event that an employee who has been granted benefits under this scheme is
transferred or deputed to an associate company prior to vesting or exercise, the
vesting and exercise as per the terms of grant shall continue in case of such transferred or
deputed employee even after such transfer or deputation.

4|Page
14. Whether the option under the scheme as given in ESOP grant certificate is
transferable or not?

Option granted to an employee shall not be transferred to any person in any case. Options and
any other benefits granted to the employees under ESOP Scheme shall not be pledged,
hypothecated, mortgaged or otherwise alienated in any other manner.

15. What is the procedure to exercise ESOP?

For example: If in the ESOP Scheme a Company has granted ESOPs, on 01 st January, 2015,
to eligible employees at a fixed price (exercise price) of Rs. 63. They can exercise their rights
to purchase the shares according to their respective vesting period as explained under FAQ
no. Error! Reference source not found..

To Exercise the Option, kindly fill and submit the “ESOP Purchase form” on Omnidesk.

1. Fill the required details, how much shares you want to buy.
2. Submit your Demat account details in the form.
3. Attach the Demat account details/statement/client master for evidencing that the demat
account belongs to employee, which shall display or include the name, Client ID & DP
ID of the user.
4. Attach the Declaration in Form C as prescribed in the Code of practices for fair
Disclosure and Code of Conduct to regulate and monitor trading published on our
website, if the total turnover of trading in shares including buying, selling and ESOPs
exercising, in one calendar quarter is equal to or more than Rs. 10 lakh. For more
clarity on the disclosure kindly refer Code of practices as aforesaid.

For Exercising option you have to pay the amount by NEFT/RTGS in the account as
provided in ESOP Purchase form. The details of NEFT/RTGS payment shall have to be
provided in the remarks column of the Form. There is no need to attach the payment advice
or receipt with the form.

5|Page
Important Note:

 Contact your respective DP or Bank where your Demat account is maintained, for the
details pertaining to DP name, Client ID, DP ID and Depository name as mentioned
above in the ESOP Purchase Form.

 All error free ESOP Purchase Forms received till 20th day of the Month shall be
proceeds by Management before end of the month. In case of applicability of Closure
of Trading Window, the Form shall be proceeds after opening of Window Closure
Period.

 During the closure of Trading Window, the ESOP Purchase form shall be available
for exercise of options. However, the Newgen ESOP Trust shall not transfer shares to
the employees during window closure period.

16. What is the FMV for the calculation of perquisite value?

The FMV shall be the average of opening price and closing price of the share on the
recognised stock exchange (if the company is listed on both the stock exchanges) which
records the highest volume of trading in the share on effective date of exercise. For effective
date of exercise kindly refer FAQ no. 10.

17. Whether shares under ESOP can be allotted in physical mode?

No, shares can be allotted only in Demat mode.

18. Calculation of TDS at the time of exercise of Option.

The manner of computation of Tax of ESOP’s in the hands of the employee has been
explained hereunder:-

For Employees who are Resident in India and Employee of Newgen Software
Technologies Limited - India:-

The benefits arising on ESOP’s are taxed as perquisites in the hands of the employee and
form a part of the employee’s salary income. Newgen is bound to deduct TDS in respect of
such perquisite. The perquisite value is computed as the difference between the FMV of the
share and the Exercise price.

For Example:

No. of Shares to purchase under ESOP: 1000

Exercise Price: Rs. 63/-
Amount to be paid: 63,000/-
FMV is Rs. 83/-

Perquisite Value for exercising 1000 shares shall be as follows:

6|Page
Perquisite Value = 1000 (83-63) = Rs.20,000/-.

On this Perquisite Value, Tax would be deducted from your salary as per applicable Tax Slab
rate.

TDS Calculation for Employees who are Non-Resident Indian (NRI) and employee of
Foreign subsidiary of Newgen:

Any income or perquisites earned or received in India shall be taxable which are in excess of
basic exemption limit as per the prevailing tax slab rate.

For Example:

No. of Shares to purchase under ESOP: 15000

Exercise Price: Rs. 63/-
Amount to be paid: 945000/-
FMV is Rs. 83/-

Perquisite Value for exercising 15000 shares shall be as follows:

Perquisite Value = 15000* (83-63) = Rs.3, 00,000/-

The Tax on this perquisite value which is in excess of basic exemption limit (Rs. 2,50,000)*
i.e. Rs.50,000 (3,00,000-2,50,000) it shall be taxable as per the applicable Tax Slab rate and
the employee shall issue a cheque in favour of 'Newgen Software Technologies Limited' (the
"Company") for the amount of tax, after that the Company issue a Certificate stating tax
deducted in India.

It is mandated by the US tax law that a person who is a citizen or resident of the US must pay
taxes on his global income. As is the case with India, in US too, the value of the ESOPs
awarded is taxed right away when the employee exercises the option.

*This is subject to change on year to year basis as per CBDT rules prescribed by Central
Government.

19. What are the laws governing the ESOP?

I. Companies Act, 2013, read with Rules under Chapter IV of the Act.
II. SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme)
Guidelines, 1999.
III. FEMA and the Income Tax Act.
IV. Secretarial Standard issued by ICSI and Guidance note issued by the ICAI.
V. SEBI (Share Based Employee Benefits) Regulation, 2014.
VI. SEBI (Prohibition of Insider Trading) Regulations, 2015.

7|Page
20. For Further query in respect of ESOP

Write to:

Mr. Aman Mourya

Finance Dept.
aman@newgensoft.com

Contact at:
Phone: 011-46533200 /441

******

8|Page