Buyback of employee shares by Shareholders Shareholder Buyback Plan

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Buyback of employee shares by Shareholders
(Shareholder Buyback Plan)
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Agenda ESOPs allotment and Shareholder Buyback
Plan

• Background
• Why Buy Back
• Mechanism Exercise of options and buyback
• Tax Impact of Buy-Back

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Background

• 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.

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Why 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

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Mechanism

• 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

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Shareholder Buyback Plan Overview
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Key Dates
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Process/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

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Tax 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.

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ESOPs FBT and Capital Gains Tax Liability
See sample computation / example in the
appendices
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ESOPs 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
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Appendix
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Capital Gain Tax Liability
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Example 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