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SEBI turns down Natco Pharma’s request on ESOPs

This article was posted on Feb 27, 2009 and is filed under Press Releases

MUMBAI: SEBI has turned down Natco Pharma’s request to give cash to employees who are ready to forgo their entitlement of stock options. The origin of the case goes back to 2004 when Natco Pharma granted six lakh stock options to its employees at Rs 10 per share. At that time, the market price of the shares was Rs 140. Further, the options were to be vested in four equal instalments during the years 2006, 2007, 2008 and 2009.

However, due to the market downturn, the share price has fallen below Rs 50 and most of the employees of the company indicated that they would like to forgo their entitlement of options and would instead prefer equivalent cash. According to the company, it proposes paying cash at or more than the market value prevailing on the date due for exercise of the options.

Hence, in a letter dated January 6, Hyderabad-based Natco Pharma asked for a no-action letter from the Securities and Exchange Board of India. The market regulator, however, has opined that the company cannot pay cash equivalent to its employees as regulations clearly say that stock option scheme “essentially envisages allotment of shares to eligible employees by a listed company against exercise of employee stock options vested in such employees in terms of the ESOS”.

The SEBI release, however, adds that the market regulator’s stand is based on the representation made by Natco Pharma and that “different facts or conditions might require a different result”. This letter does not express a decision of the board on the questions referred, it adds.

source: Economictimes

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