th15 <strong>Annual</strong> <strong>Report</strong> <strong>2009</strong>-<strong>10</strong>14. Operating LeaseLease of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified asoperating leases. Lease payments under operating leases are recognized as an expense on accrual basis in accordance withthe respective lease agreements.15. Research and DevelopmentCapital expenditure on research and development is treated in the same manner as fixed assets. Revenue expenditure onresearch and development is charged to Profit and Loss Account.16. Impairment of AssetsAt each Balance Sheet date, the Company reviews the carrying amount of fixed assets to determine whether there is anyindication that those assets suffered impairment loss. If any such indication exists, the recoverable amount of the assets isestimated in order to determine the extent of impairment loss. The recoverable amount is higher of the net selling price andvalue in use, determined by discounting the estimated future cash flows expected from the continuing use of the asset totheir present value.68
C rp LtdB. Notes to Accounts1. Foreign Currency Convertible Bonds (FCCB)a) During the year, the Company has raised US$ 150 million (Equivalent INR 6,942 million) by way of issue of 1,500, 4.5%Foreign Currency Convertible Bonds (FCCB) of US$ <strong>10</strong>0,000 each. The Bondholders have an option to convert thesebonds into 24,0<strong>10</strong>,000 equity shares at an initial conversion price of Rs. 300 per share of Rs. 5 each fully paid up with afixed rate of exchange on conversion of Rs. 48.02= US$ 1 at any time on or after 26 November <strong>2009</strong> until <strong>10</strong> days prior toMaturity date (i.e 17 October 2014). Unless previously converted, redeemed or repurchased and cancelled, the Bondswill be redeemed on 17 October 2014 at <strong>10</strong>2.8028% of the principal amount so as to give a gross yield of 5% per annum(calculated on semi annual basis) to the Bond Holders.The Company has an option to redeem the Bonds at their Early Redemption Amount upon occurrence of eventsspecified in the Offering Circular issued by the Company for issue of the Bonds (“Offering Circular”). Further, theCompany has the option to mandatorily convert the Bonds after three years as specified in the Offering Circular.b) Premium payable on redemption of FCCB aggregating to Rs. 15.62 million has been adjusted against Securities PremiumAccount (SPA) as per Section 78 of the Companies Act,1956. In the event that the holders of FCCB exercise theconversion option, the amount of premium utilized from SPA will be suitably adjusted in respective years.(c)Part of the net proceeds received from the issue of FCCB has been utilized as per object of the issue viz for funding ofPlate / Coil Mill and Pipe Mill Capex Projects. Pending utilization, the issue proceeds of USD 122.35 million (EquivalentINR 5,493.66 million) have been invested in short term deposits with Banks abroad.2. Qualified Institutional Placement (QIP)a) The Company has launched a Qualified Institutional Placement (QIP) on 24 November <strong>2009</strong> and raised equity fundsaggregating to Rs. 4,662 million by issuing 16,694,718 equity shares of face value of Rs. 5 each, at a premium of Rs.274.25 per equity share to certain “Qualified Institutional Buyers” (QIBs) in accordance with the terms of chapter XIII-Aof the SEBI (DIP) Guidelines.b) Share issue expenses related to QIP aggregating to Rs. 58.28 million is adjusted against Securities Premium Account(SPA) as per Section 78 of the Companies Act, 1956.3. Employee Stock Options SchemeIn respect of options granted under the <strong>Welspun</strong> Employee Stock Options Scheme, in accordance with the guidelines issuedby Securities and Exchange Board of India, the value of options (based on intrinsic value of the share on the date of the grantof the option) is accounted as deferred employee compensation, which is amortized on a straight line basis over the vestingperiod. Salaries, wages and allowances include Rs 13.06 million (Rs. 21.85 million) deferred employee compensation underEmployee Stock Options Scheme.During the year, 1,136,500 equity shares of Rs. 5 each fully paid up were issued at a price of Rs. 80.00 each, on exercise ofoptions by employees. Discount allowed aggregating to Rs. 30.40 million (Rs. 1.65 million) in respect of shares allottedpursuant to Stock Options Scheme is credited to Securities Premium Account as per guidelines of Securities and ExchangeBoard of India.Stock options outstanding as at the year end are as follows:Particulars Granted during 2006-07 Granted during 2007-08 Granted during <strong>2009</strong>-<strong>10</strong>Exercise Price Rs. 80Rs. 94.<strong>10</strong> Rs. 66.75Date of Grant 8 January 200724 April 2007 20 April <strong>2009</strong>Vesting period commences on 8 January 200824 April 2008 20 April 20<strong>10</strong>Options outstanding at the beginning of the period 2,138,75090,000 NilOptions granted during the year ---- 47,500Options exercised during the year 1, 136,500Nil NilOptions lapsed during the year <strong>10</strong>5,25090,000 NilOutstanding as at 31 March 20<strong>10</strong>897,000 Nil 47,50069
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