The Euro issue guidelines have been accordingly modified by the government to give effect to the budgetary announcement of finance minister Yashwant Sinha who promised a special stock option scheme for Indian software companies linked with ADR/GDR offerings. The stock option is expected to be used as an instrument by these companies to retain highly skilled employees.

It is hoped that the guidelines announced by the finance ministry on Tuesday would prompt the software companies to offer terms comparable to the packages offered by international companies in the field.

As per the scheme, a software company which has already floated or plans to float ADR/GDR shall be entitled to issue ADR/GDR linked stock options to its employees. The issuing company would be entitledto issue options not exceeding 10 per cent of its issued and paid up capital. These stock options, as specified in the guidelines, can be issued at a discount of not more than 10 per cent to the market price at the time of the issue of the stock option.

The company which proposes to issue ADR/GDR linked stock option to its employees will be required to include such proposals as part of its application for ADR/GDR. It was pointed out that while department of economic affairs (DEA) approval would be for the total issue size inclusive of stock option, the GDRs/ADRs earmarked for the employees upto the specified limit would be issued by the company as and when an employee exercised his stock option. Accordingly, the company shall never exceed the approved level of GDRs/ADRs to be issued.

In the case of software companies which have already issued GDRs/ADRs, they would have to seek permission for issue of stock options related to the existing GDR/ADR issue within the general parameters of the guidelines.

Thescheme will also be available to listed and unlisted software Indian companies which fulfill the performance track record eligibility and other requirements under the ADR/GDR guidelines. The stock options shall be available to non-resident and resident permanent employees (including Indian and overseas working directors) of the company. The stock options shall not be available to promoters and their relatives (as defined under the Companies Act).

Under the scheme, a software company has been defined as one which is engaged in manufacture or production of software where not less than 80 per cent of the company's turnover is from the software activities. The company applying for such stock options will be required to submit documents certified by a chartered accountant, establishing that it is a software company confirming to the stipulations. Also the relevant documents will have to be submitted to the RBI while applying for permission of foreign currency for acquisition of GDRs/ADRs in exercise of the stockoption.

The guidelines stipulate general FERA permission for resident employees of software companies under the ADR/GDR linked stock option scheme shall be granted by the RBI. Requisite notification for this purpose will be issued by the RBI. This would entail resident employees to acquire and hold ADR/GDR linked stock option, acquire ADR/GDR on exercise of the option, remit funds up to $ 50,000 in a block of five years for acquisition of ADRs/GDRs and to retain or continue holding ADRs/GDRs so acquired.