The five-year-old company plans to offer up to 10 per cent of its equity to its employees through the ESOP which was launched last month, its managing director Diwakar Nigam said.

"It is very important for us to have an stock option plan because we are a product and technology-oriented company and it is imperative for us to retain people," added Nigam.

With ESOP in place, about 33 employees who have stuck to the company for four to five years of its existence have already been rewarded with about 1.5 lakh shares amounting to five to six per cent equity of the company.The plan had been in the pipeline for some time but was implemented only in January after the company formalised it, having studied several other companies' plans, including that of another Citibank venture capital company, the Citibank Information Technologies IndustriesLimited (Citil), Nigam said.

Nigam, along with his partner TS Varadrajan, owns close to 80 per cent equity in the company. The two promoters were keen on a stock option and had intimated Citibank which picked up about 20 per cent stake in Newgen last year.

The plan runs across the flat organisational structure of the company and most of its 300-plus employees, including software developers and other staff, being eligible for the same.

The company has a quarterly performance-based evaluation plan for rating the staff under categories divided into `very good', `good' and `average heads'. They collect points on a quarterly basis. If they pick up a maximum of four points in each quarter, they end up with 20 points at end of the year.Under another plan, the YCC (your contribution counts) scheme, employees can collect four additional points in a six-month period. Developers can get the stock option of 2,000 shares when they reach 25 points, while the sales staff can get it at 35 points.

A trust has beencreated to manage the ESOP and shares will be issued to it by the company from time to time. The trust will be funded by Newgen through an interest-fee loan to buy these shares.

A senior management team will form a committee to decide the eligibility and entitlement of the staff based on their performance, contribution and number of years of service. Each eligible member will receive a letter from the trust informing him the number of shares reserved for him.

The staff can become beneficiary owners of the shares. This can be converted into legal ownership in a phased manner. Employee can purchase and become legal owner of their beneficiary shares. Unless the person buys his beneficiary shares, these will be held by the trust.

Price of shares at which an individual can buy to become the legal owner will be decided at the time stock option offer letter is issued and is dependent on the price at which the trust has purchased from the company.The trust can continue to hold the shares on anyone's benefit fora period not exceeding seven years from the date of stock option offer.

After four years from the date of legal ownership, if the company does not list its equity shares on any stock exchange in India, the trust will try to provide liquidity for the shares legally held by the employees under this scheme at the buy-back price as decided by the board every year. But this will be only till such time that shares are listed, said Nigam.

If an employee leaves the company, or his service is terminated, he will lose the benefit in the trust shares in which employee could not become legal owner of the shares. However, he will continue to be the owner of the equity shares which he has acquired legal ownership prior to the separation.All such shares in which employees had only beneficial interest and could not become legal owner, will be added back to the trust shares and will be available for distribution as if they were never distributed before. Posting to subsidiary companies abroad will not be interpreted asseparation.

Any rights issue made by Newgen will be initially subscribed by the trust from the funds borrowed from the company, according to the plan. The reserved and beneficiary shares will be entitled on the payment of right issue price as and when the employees are eligible to become legal owner of the shares originally allotted to them. Bonus shares, if and when issued, will have the same treatment. In case, the employee leaves the company, the rights and bonus shares will get the same treatment as the original shares, according to Nigam.

However, any income-tax liability arising from the transactions will be the sole liability of the employee, the plan states.

Beneficial ownership in trust shares is not transferable other than in the tragic circumstances, wherein individual can nominate anyone and it has to be approved by the company and the trust.