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BUYBACK OF SECURITIES

(LEGAL ASPECTS OF M & A)

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Conditions Of Buy-back AndGeneral Obligations Of The Company

a) A company can buy back its shares or other specifiedsecurities only by any of the following methods

From existing share/security holders on a proportionate

basis through tender offer

From open market through: Book building process

Stock exchange

From odd lot shares

A company cannot buy back shares or other specifiedsecurities through negotiated deals.

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Conditions Of Buy-back AndGeneral Obligations Of The Company

b) A company cannot buy back its shares or other specifiedsecurities in such a manner that it would be required to delist.

c) Consideration for buy-back has to be paid in cash only.

d) A company cannot withdraw the offer to buy back after thedraft letter has been filed with SEBI or the publicannouncement of the offer for the buy-back has been made.

e) A company cannot issue any shares or other specifiedsecurities including by way of bonus shares till the date of theclosure of the offer.

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Conditions Of Buy-back AndGeneral Obligations Of The Company

f) The promoters or their associates cannot deal in the sharesor other specified securities of the company in the stockexchange during the period when the buy-back offer isopen.

g) No public announcement of a buy-back can be made duringthe pendency of any scheme of amalgamation orarrangement or compromise.

h) A company intending to buy back its shares or otherspecified securities has to appoint a compliance officer andinvestor service centre. Normally, the company secretary isappointed as the compliance officer.

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Conditions Of Buy-back AndGeneral Obligations Of The Company

i) Details of shares bought back and extinguished anddestroyed have to be informed to the concerned stockexchange (s) within seven days of the extinguishment anddestruction.

j) A company cannot buy back locked-in securities during thelock-in period.

k) Within two days of the completion of a buy-back, acompany has to issue a public announcement giving certaindetails and in a prescribed manner.

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Requirements Of The SpecialAnd Board Resolutions

The SEBI buy-back regulations specify certain matters inrelation to passing of special and board resolutions. Theyare:

1. In case where a special resolution is passed in the generalmeeting, the explanatory statement to the notice of generalmeeting, should contain information as per schedule I of theregulations.

2. A copy of the special resolution passed should be filed withSEBI and the relevant stock exchange(s) within seven daysof the passing.

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Requirements Of The SpecialAnd Board Resolutions

3. With regard to the buy-back made under the boardresolution, apart from the company being required to file acopy of the board resolutions with SEBI and the relevantstock exchange(s) within two days. It is also required to givea public notice in at least one English national daily, oneHindi national daily and one regional daily within two days ofpassing of the resolution.

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This may be a matter of debate that what

is achieved by this extra requirement of

the public notice giving so much

information after the resolution has been

already approved by the board.

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Buy-back Through Tender Offer

Procedure

1. The starting point is the passing of the special resolutionby the general body or the board resolution as the case

may be. Thereafter, the company is required to make apublic announcement in at least one English national daily,one Hindi national daily and one regional language daily.

2. The draft letter of offer is required to be filed with SEBI.

3. In case, the number of securities offered by the securityholders is in excess of the securities to be bought back, theacceptances from all the security holders are requiredto be on a proportionate basis.

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There is a

peculiar

confusion in the

regulations, as to

who is making an

offer and who is

accepting it.

A company intending to buy back under tender

offer sends a letter of offer to the securityholders. Thus, it is the company who is making

an offer. Therefore, the security holder should

have a right to either accept the offer or reject

it.

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Escrow Account

Regulation 10 (1) requires that the company should open anescrow account and deposit in it such sum of money as isspecified in regulation 10 (2) on or before the opening of the openoffer.

Regulation 10 (2) specifies that in case, the total considerationpayable under buy-back does not exceed Rs.100 crore, theamount to be deposited in the escrow account shall be 25 percent of the consideration payable. However, if the considerationpayable is in excess of Rs.100 crore, the amount would be 25 percent of the first Rs.100 crore and 10 per cent of the excess overRs.100 crore.

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Escrow Account

Regulation 10 (3) permits that the deposit in the escrow accountcan be in the form of cash, deposited with a scheduledcommercial bank or a bank guarantee in favour of the merchantbanker or acceptable securities with appropriate margin depositedwith the merchant banker or a combination thereof. However, in

terms of regulation 10(8), minimum 1 per cent of the totalconsideration payable must be in the form of cash deposited withthe scheduled commercial bank.

So far as the cash deposited with a commercial bank isconcerned, regulation 11 (1) allows the company to utilize 90 percent, thereof, by transfer to the special account to be opened forpayment of consideration to the security holders. The regulationfurther requires the company to immediately fund the balanceamount to make up the entire amount due.

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3

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Escrow Account

Bank guarantees and securities deposited in the escrow account,however, can be returned to the company only after the payment ofconsideration has been fully made and all formalities relating to thetender offer have been fully complied.

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Odd Lot buy-back

Regulation 13 stipulates, that provisionspertaining to buy-back through tender offershall be applicable mutatis mutandis toodd lot shares or other specifiedsecurities.

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Buy-Back from the Open Market

A company can buy-back its sharesfrom the open market by

Stock Exchange

Book Building Process

1.

2.

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Buy-back Through Stock Exchange

The resolution passed by the general body or the boardhas to specify the maximum price.

The Company shall appoint a merchant banker.

Public announcement has to be made at least sevendays before commencement of purchase from the stockmarket and within two days of the announcement a copy,thereof, needs to be filed with SEBI.

Additionally, the public announcement shall disclose thenames of stock exchanges and brokers through whichbuy-back is to be affected.

Buy-back can be done only through nationwideexchanges and through the normal order matching

mechanism.

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Buy-back Through Stock Exchange

Identity of the company as a purchaser must appear on theelectronic screen when the order is placed.

The company and the merchant banker are required tosubmit to the stock exchange, information regarding

shares or other specified securities bought on a dailybasis. They are also required to publish this information ina national daily on a fortnightly basis as also every time anadditional 5 per cent purchase is made.

The company has to complete the verification of thesecurities bought within fifteen days of the pay out, andthe securities have to destroyed and extinguished in thesame manner and time frame as in the case of buy-backthrough tender offer.

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Buy-back through book building

The resolution passed by the general body or the board has tospecify the maximum price.

The company shall appoint a merchant banker.

Public announcement has to be made at least seven daysbefore commencement of buy-back and within two days of theannouncement a copy, thereof, needs to be filed with the SEBI.

The Public announcement has to contain details about thebook building process, the manner of acceptance, the format ofacceptance to be sent by the security holder and the details ofthe bidding centers.

Book building process has to be made through electronicallylinked transparent facility.

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Buy-back through book building

The number of bidding centers shall not be less than thirty.

The offer has to remain open for a minimum of fifteen days and amaximum of thirty days.

The final buy-back price, being the highest accepted price, shallbe paid to all the shareholders.

The provisions relating to the verification of securities, opening ofa special account for making payment of the consideration andextinguishment of securities shall apply as in the case of buy-backthrough tender offer.

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Obligations Of The Merchant Banker

Ensuring that the company has anability- financial or otherwise-to carry out the buy-back and firm arrangements have been madefor the payment of consideration.

Ensuring adequacy of the escrow account and releasing it onlyafter all obligations of the company under the regulation havebeen met with.

Ensuring that the contents of the public announcement and letterof offer are true, fair and adequate.

Ensuring compliance with the SEBI regulations, the CompaniesAct, 1956, and any other applicable laws, rules and regulations.