<PAGE>
United States
Securities and Exchange Commission
- --------------------------------------------------------------------------------
Washington, DC 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the quarter ended December 31, 1999
Commission File Number 333-72195
INFOSYS TECHNOLOGIES LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Bangalore, Karnataka, India
(Jurisdiction of incorporation or organization)
Electronics City, Hosur Road,
Bangalore, Karnataka
India 561 229
+91-80-852-0261
(Address of principal executive offices)
Indicate by check mark registrant files or will file annual reports under cover
Form 20-F or Form 40-F.
Form 20-F ...........x........... Form 40-F .......................
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of
1934.
Yes ............................. No ...........x..................
If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g 3-2(b).
Not applicable.
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<PAGE>
Currency of Presentation and Certain Defined Terms
Unless the context otherwise requires, references herein to the "company" or to
"Infosys" are to Infosys Technologies Limited, a limited liability company
organized under the laws of the Republic of India. References to "U.S." or
"United States" are to the United States of America, its territories and its
possessions. References to "India" are to the Republic of India. Yantra
Corporation, a Delaware Corporation ("Yantra"), in which the company holds a
minority interest, is considered a subsidiary of the company for purposes of
Indian GAAP. "Infosys" is a registered Indian trademark of the company. All
other trademarks or tradenames used in this Quarterly Report on Form 6-K
("Quarterly Report") are the property of their respective owners.
In this Quarterly Report, references to "$" or "Dollars" or "U.S. Dollars" are
to the legal currency of the United States and references to "Rs" or "Rupees" or
"Indian Rupees" are to the legal currency of India. The company's financial
statements are presented in Indian Rupees and translated into U.S. Dollars and
are prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). References to "Indian GAAP" are to Indian generally
accepted accounting principles. Except as otherwise specified, financial
information is presented in Dollars. References to a particular "fiscal" year
are to the company's fiscal year ended March 31 of such year.
Unless otherwise specified herein, financial information has been converted into
Dollars at the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank (the
"Noon Buying Rate") on December 31, 1999, which was Rs. 43.51 per $1.00. For
the convenience of the reader, this Quarterly Report contains translations of
certain Indian rupee amounts into U.S. Dollars which should not be construed as
a representation that such Indian Rupee or U.S. Dollar amounts referred to
herein could have been, or could be, converted to U.S. Dollars or Indian Rupees,
as the case may be, at any particular rate, the rates stated below, or at all.
Any discrepancies in any table between totals and sums of the amounts listed are
due to rounding.
Forward-Looking Statements May Prove Inaccurate
In addition to historical information, this quarterly report contains certain
forward-looking statements within the meaning of section 27a of the Securities
Act of 1933, as amended, and section 21e of the Securities Exchange Act of 1934,
as amended. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in the section entitled "management's discussion and analysis of financial
condition and results of operations" and elsewhere in this report. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. In addition, readers
should carefully review the other information in this annual report and in the
company's periodic reports and other documents filed with the Securities and
Exchange Commission ("SEC") from time to time.
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<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
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Item 1. Financial Statements
Balance Sheets as at
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
(Unaudited) (Unaudited) (Audited)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $106,789,758 $ 22,797,989 $ 98,874,963
Trade accounts receivable, net of allowances 31,814,100 21,270,407 20,056,678
Prepaid expenses and other current assets 8,661,562 5,302,824 5,735,323
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 147,265,420 49,371,220 124,666,964
Property, plant and equipment - net 39,761,952 22,795,198 23,900,313
Deferred tax assets 1,788,180 1,642,311 1,715,375
Investments 177,938 177,938 177,938
Other assets 6,191,282 2,595,128 3,197,006
- -------------------------------------------------------------------------------------------------------------------------
Total assets $195,184,772 $ 76,581,795 $153,657,596
=========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 157,661 $ 81,400 $ 75,305
Client deposits 56,323 109,809 18,520
Other accrued liabilities 9,016,543 6,186,528 8,399,800
Income taxes payable 1,423,527 1,582,516 955,797
Unearned revenue 5,314,826 5,356,200 4,598,612
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,968,880 13,316,453 14,048,034
- -------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $ 0.16 par value*;
100,000,000 shares authorized 8,592,137 4,545,811 8,592,137
Issued and outstanding Equity Shares - 66,138,800, 64,068,800
and 66,138,800 as of December 31, 1999, December 31, 1998 and
March 31, 1999
Additional paid-in-capital 121,355,706 44,802,455 120,849,511
Accumulated other comprehensive income (13,728,428) (9,384,666) (9,100,662)
Deferred compensation - Employee Stock Offer Plan (18,880,344) (25,813,924) (21,686,799)
Retained earnings 81,876,821 49,942,298 40,955,375
Loan to trust - (826,632) -
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 179,215,892 63,265,342 139,609,562
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $195,184,772 $ 76,581,795 $153,657,596
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements
* The figures reflect the 2-for-1 Stock Split approved by the Shareholders on
December 29, 1999
Assets December 31, 1999
- ------ -----------------
Property, plant and equipment 20%
Accounts Receivable 16%
Others 9%
Cash & cash equivalents 55%
Liabilities and Stockholders' Equity December 31, 1999
- ------------------------------------ -----------------
Stockholders' equity 92%
Current liabilities 8%
________________________________________________________________________________
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<PAGE>
<TABLE>
<CAPTION>
Statements of income
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Three months ended Nine months ended Year ended
December 31, December 31, March 31,
------------------------------------------------------------
1999 1998 1999 1998 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Revenues $52,158,059 $33,041,304 $139,828,639 $84,943,521 $120,955,226
Cost of revenues 28,524,750 16,416,373 75,248,686 46,023,361 65,331,006
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 23,633,309 16,624,931 64,579,953 38,920,160 55,624,220
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative expenses 6,647,497 4,333,587 18,129,548 11,474,470 16,199,055
Amortization of deferred stock compensation expense 1,293,002 1,480,903 3,836,104 2,404,057 3,645,576
Compensation arising from stock split - - - - 12,906,962
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Total operating expenses 7,940,499 5,814,490 21,965,652 13,878,527 32,751,593
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 15,692,810 10,810,441 42,614,301 25,041,633 22,872,627
Equity in loss of deconsolidated subsidiary - (419,044) - (2,085,887) (2,085,887)
Other income, net 1,636,637 792,084 7,052,919 1,113,647 1,536,998
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 17,329,447 11,183,481 49,667,220 24,069,393 22,323,738
Provisions for income taxes 1,912,519 1,601,802 6,218,902 3,552,566 4,877,650
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $15,416,928 $ 9,581,679 $ 43,448,318 $20,516,827 $ 17,446,088
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EARNINGS PER EQUITY SHARE*
Basic $0.24 $0.16 $0.66 $0.34 $0.28
Diluted $0.24 $0.16 $0.66 $0.34 $0.28
WEIGHTED EQUITY SHARES USED IN COMPUTING EARNINGS
PER EQUITY SHARE
Basic 65,643,334 61,080,000 65,667,845 61,080,000 61,378,850
Diluted 65,718,420 61,401,018 65,692,873 61,249,208 61,507,380
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</TABLE>
See accompanying notes to financial statements
*The basic and diluted earnings per Equity Share have been retroactively
restated to reflect the increased number of Equity Shares outstanding resulting
from the Stock Split of 2-for-1 approved by the shareholders on December
29,1999.
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________________________________________________________________________________
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<PAGE>
Statements of Stockholders' Equity
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<TABLE>
<CAPTION>
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Equity Shares Additional paid- Comprehensive Accumulated Deferred
Shares Par value in Capital income Other compensation -
Comprehensive Employee Stock
income Offer Plan
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of March 31, 1997 58,076,800 $2,310,270 $ 15,712,247 - $(3,531,811) $(3,507,715)
- ----------------------------------------------------------------------------------------------------------------------------------
Stock split - 2,028,521 - - - -
Cash dividends declared - - - - - -
Common stock issued upon 5,992,000 207,020 1,813,330 - - -
exercise of warrants
Compensation related to stock - - 6,890,343 - - (6,890,343)
option grants
Amortization of compensation - - - - - 2,566,613
related to stock option grants
Comprehensive income
Net income - - - $12,344,188 - -
Other comprehensive income
Translation adjustment - - - (3,510,418) (3,510,418) -
Comprehensive Income - - - $ 8,833,770 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1998 64,068,800 4,545,811 24,415,920 - (7,042,229) (7,831,445)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared - - - - - -
Compensation related to stock - - 20,386,535 - - (20,386,535)
option grants
Amortization of compensation - - - - - 2,404,056
related to stock option grants
Comprehensive income
Net income - - - 20,516,827 - -
Other comprehensive income
Translation adjustment - - - (2,342,437) (2,342,437) -
Comprehensive Income - - - $18,174,390 - -
Adjustment on deconsolidation - - - - - -
of subsidiary
Repayment of loan to trust - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 64,068,800 $4,545,811 $ 44,802,455 - $(9,384,666) $25,813,924)
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<CAPTION>
Loan to Trust Retained Total
earnings stockholders'
equity
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of March 31, 1997 $ (24,502) $19,681,740 $ 30,640,229
- --------------------------------------------------------------------------------------
Stock split - (2,028,521) -
Cash dividends declared - (2,003,139) (2,003,139)
Common stock issued upon (911,863) - 1,108,487
exercise of warrants
Compensation related to stock - - -
option grants
Amortization of compensation - - 2,566,613
related to stock option grants
Comprehensive income
Net income - 12,344,188 12,344,188
Other comprehensive income
Translation adjustment - - (3,510,418)
Comprehensive Income - - -
- --------------------------------------------------------------------------------------
Balance as of March 31, 1998 (936,365) 27,994,268 41,145,960
- --------------------------------------------------------------------------------------
Cash dividends declared - (1,037,628) (1,037,628)
Compensation related to stock - - -
option grants
Amortization of compensation - - 2,404,056
related to stock option grants
Comprehensive income
Net income - 20,516,827 20,516,827
Other comprehensive income
Translation adjustment - - (2,342,437)
Comprehensive Income - - -
Adjustment on deconsolidation - 2,468,831 2,468,831
of subsidiary
Repayment of loan to trust 109,733 - 109,733
- --------------------------------------------------------------------------------------
Balance as of December 31, 1998 $ (826,632) $ 49,942,298 $ 63,265,342
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</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Statements of Stockholders' Equity
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Equity Shares Additional paid- Comprehensive Accumulated
Shares Par value -in Capital income Other
Comprehensive
Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1998 64,068,800 $ 4,545,811 $ 44,802,455 - $ (9,384,666)
- ---------------------------------------------------------------------------------------------------------------------------
Stock split - 3,800,949 - - -
Cash dividends declared - - - - -
Common stock issued 2,070,000 245,377 66,025,699 - -
Compensation related to stock
option grants - - 10,021,357 - -
Amortization of compensation
related to stock option grants - - - - -
Comprehensive income
Net income - - - (3,070,739) -
Other comprehensive income
Translation adjustment - - - 284,004 284,004
-------------
Comprehensive Income - - - (2,786,735) -
=============
Repayment on loan to trust - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999 66,138,800 8,592,137 120,849,511 - (9,100,662)
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared - - - - -
Common stock issued - - (523,454) - -
Compensation related to stock
option grants - - 1,029,649 - -
Amortization of compensation
related to stock option grants - - - - -
Comprehensive income
Net income - - - 43,448,318 -
Other comprehensive income
Translation adjustment - - - (4,627,766) (4,627,766)
-------------
Comprehensive Income - - - $ 38,820,552 -
- ---------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 66,138,800 $ 8,592,137 $ 121,355,706 - $ (13,728,428)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Statements of Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Deferred Loan to Trust Retained Total
compensation - earnings stockholders'
Employee Stock equity
Offer Plan
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1998 $ (25,813,924) $ (826,632) $ 49,942,298 $ 63,265,342
- -------------------------------------------------------------------------------------------------------
Stock split - - (3,800,949) -
Cash dividends declared - - (2,115,235) (2,115,235)
Common stock issued - - - 66,271,076
Compensation related to stock
option grants (10,021,357) - - -
Amortization of compensation
related to stock option grants 14,148,482 - - 14,148,482
Comprehensive income
Net income - - (3,070,739) (3,070,739)
Other comprehensive income
Translation adjustment - - - 284,004
Comprehensive Income - - - -
Repayment on loan to trust - $ 826,632 - 826,632
- -------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999 (21,686,799) - 40,955,375 139,609,562
- -------------------------------------------------------------------------------------------------------
Cash dividends declared - - (2,526,872) (2,526,872)
Common stock issued - - - (523,454)
Compensation related to stock
option grants (1,029,649) - - -
Amortization of compensation
related to stock option grants 3,836,104 - - 3,836,104
Comprehensive income
Net income - - 43,448,318 43,448,318
Other comprehensive income
Translation adjustment - - - (4,627,766)
Comprehensive Income - - - -
- -------------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 $ (18,880,344) - $ 81,876,821 $ 179,215,892
- -------------------------------------------------------------------------------------------------------
</TABLE>
The figures reflect the 2-for-1 Stock Split approved by the Shareholders on
December 29, 1999
See accompanying notes to financial statements
______________________________________________________________________________
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<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine months ended December 31, Year ended
March 31,
1999 1998 1999
(Unaudited) (Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 43,448,318 $ 20,516,827 $ 17,446,088
Adjustments to reconcile net income to net cash provided by operating
activities
Gain on sale of property, plant and equipment (20,139) - -
Depreciation 7,976,831 5,101,292 8,521,009
Deferred tax benefit (72,805) (552,363) (625,427)
Gain on sale of investment in deconsolidated subsidiary - (620,958) (620,958)
Amortization of deferred stock compensation expense 3,836,104 2,404,057 16,552,538
Loss relating to deconsolidated subsidiary - 2,085,887 2,085,887
Changes in assets and liabilities
Accounts receivables (11,757,422) (11,327,154) (10,113,425)
Prepaid expenses and other current assets (2,926,239) (1,602,704) (2,035,203)
Prepaid income taxes 467,730 2,119,485 1,492,766
Accounts payable 82,356 (18,364) (24,459)
Client deposits 37,803 (80,364) (171,653)
Unearned revenue 716,214 5,356,200 4,598,612
Other accrued liabilities 616,743 1,583,022 3,015,104
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 42,405,494 24,964,863 40,120,879
======================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditure on property, plant and equipment (23,840,967) (11,598,726) (16,123,557)
Proceeds from sale of property, plant and equipment 22,636 5,704 5,704
Loans to employees (2,994,276) (1,579,837) (2,181,715)
Proceeds from sale of investment in deconsolidated subsidiary - 1,500,000 1,500,000
Purchase of investments in affiliates - (177,576) (177,576)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,812,607) (11,850,435) (16,977,144)
======================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of Equity Shares (523,454) - 66,271,076
Payment of cash dividends (2,526,872) (1,037,628) (2,371,673)
Loan to trust - 109,733 936,365
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,050,326) (927,895) 64,835,768
======================================================================================================================
Effect of exchange rate changes on cash (4,627,766) (2,342,437) (2,058,433)
Effect of deconsolidation on cash - (2,465,372) (2,465,372)
Net increase/(decrease) in cash and cash equivalents during the period 7,914,795 7,378,724 83,455,698
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the beginning of the period 98,874,963 15,419,265 15,419,265
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $106,789,758 $ 22,797,989 $ 98,874,963
======================================================================================================================
Supplementary information:
Cash paid towards interest - - -
Cash paid towards taxes $ 5,751,172 $ 1,412,515 $ 3,364,318
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to financial statements
- --------------------------------------------------------------------------------
1. Significant accounting policies
1.1 The company
Infosys Technologies Limited (the "company") is one of India's leading
information technology ("IT") services company. Infosys utilizes an
extensive offshore infrastructure to provide managed software solutions to
clients worldwide. Headquartered in Bangalore, India, the company has 12
state-of-the-art offshore software development facilities located
throughout India that enable it to provide high quality, cost-effective
services to clients in a resource-constrained environment. The company's
services, which are offered on either a fixed-price, fixed-time frame or a
time-and-materials basis, include custom software development, maintenance
(including Year 2000 conversion) and re-engineering services as well as
dedicated offshore software development centers for certain clients. In
addition, the company develops and markets certain software products.
1.2 Basis of preparation of financial statements
The accompanying financial statements have been prepared in accordance with
United States Generally Accepted Accounting Principles ("US GAAP"). All
amounts are stated in US dollars.
1.3 Principles of consolidation
The financial statements of the company were consolidated with the accounts
of its wholly owned subsidiary, Yantra Corporation ("Yantra") during fiscal
1997 and 1998. On October 20, 1998, the company's voting control of Yantra
declined to approximately 47%. Accordingly, the company has followed the
equity method of accounting for Yantra in fiscal 1999.
The company continues to own all the outstanding common shares of Yantra
but has no financial obligations or commitments to Yantra and does not
intend to provide Yantra with financial support. Accordingly, no losses
subsequent to October 20, 1998 have been recognized by the company. The
excess of the company's previously recognized losses over the basis of its
investments in Yantra as of October 20, 1998 have been credited to retained
earnings.
Yantra was incorporated in the United States in fiscal 1996 for the
development of software products in the retail and distribution areas. All
inter-company transactions between the company and Yantra have been
eliminated.
1.4 Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities on the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Examples of such estimates include estimates
of expected contract costs to be incurred to complete software development,
allowance for doubtful accounts, future obligations under employee benefit
plans and useful lives of property, plant and equipment. Actual results
could differ from those estimates.
1.5 Revenue recognition
The company derives its revenues primarily from software services and from
the licensing of software products. Revenue with respect to time-and-
material contracts is recognized as related costs are incurred. Revenue
from fixed-price, fixed-time frame contracts is recognized upon the
achievement of specified milestones identified in the related contracts, in
accordance with the percentage of completion method. Selling, general and
administrative expenses are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are recorded in the period in
which such losses become probable based on the current contract estimates.
The company provides its clients with a three-month warranty for
corrections of errors and telephone support for all its fixed-price, fixed-
time frame contracts. Costs associated with such services are accrued at
the time the related revenue is recorded.
Revenue from licensing of software products is recognized upon shipment of
products and fulfillment of acceptance terms, if any, provided that no
significant vendor obligations remain and the collection of the related
receivable is probable. When the company receives advance payments for
software products, such payments are reported as client deposits until all
conditions for revenue recognition are met. Maintenance revenue arising due
to the sale of software products is deferred and recognized ratably over
the term of the agreement, generally 12 months. Revenue from client
training, support, and other services arising due to the sale of software
products is recognized as the services are performed.
1.6 Cash and cash equivalents
The company considers all highly liquid investments with a remaining
maturity at the date of purchase/ investment of three months or less to be
cash equivalents. Cash and cash equivalents consist of cash, cash on
deposit with banks, marketable securities and deposits with corporations.
- --------------------------------------------------------------------------------
8 of 32
<PAGE>
1.7 Property, plant and equipment
Property, plant and equipment are stated at cost. The company computes
depreciation for all property, plant and equipment using the straight-line
method. The estimated useful lives of assets are as follows:
Buildings 15 years
Furniture and fixtures 5 years
Computer equipment 2-5 years
Plant and equipment 5 years
Vehicles 5 years
The cost of software purchased for use in software development and services
is charged to the cost of revenues at the time of acquisition. The third
party software expense during period ended December 31, 1999, December 31,
1998 and fiscal 1999 were $ 3,169,694, $ 2,899,070 and $ 3,538,590
respectively.
Deposits paid towards the acquisition of property, plant and equipment
outstanding at each balance sheet date and the cost of property, plant and
equipment not put to use before such date are disclosed under Capital work-
in-progress.
1.8 Impairment of long-lived assets
The company evaluates the recoverability of its long-lived assets and
certain identifiable intangibles, if any, whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceeds the fair value of the
assets. Assets to be disposed are reported at the lower of the carrying
value or the fair value less cost to sell.
1.9 Research and development
Research and development costs are expensed as incurred. Software product
development costs are expensed as incurred until technological feasibility
is achieved. Software product development costs incurred subsequent to the
achievement of technological feasibility have not been significant and have
been expensed as incurred.
1.10 Foreign currency translation
The accompanying financial statements are reported in US dollars. The
functional currency of the company is the Indian rupee. The translation of
the Indian rupee into US dollars is performed for balance sheet accounts
using the exchange rate in effect at the balance sheet date, and for
revenue and expense accounts using a monthly simple average exchange rate
for the respective periods. The gains or losses resulting from such
translation are reported as other comprehensive income, a separate
component of stockholders' equity. The method for translating expenses of
overseas operations depends upon the funds used. If the payment were made
from a rupee denominated bank account, the exchange rate prevailing on the
date of the payment would apply. If the payment is made from a foreign
currency, i.e., non-rupee denominated account, the translation into rupees
is performed at the average monthly exchange rate.
1.11 Foreign currency transactions
The company enters into foreign exchange forward contracts to limit the
effect of exchange rate changes on its foreign currency receivables. Gains
and losses on these contracts are recognized as income or expense in the
statements of income as incurred, over the life of the contract.
1.12 Earnings per share
On January 1, 1998, the company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". In accordance with SFAS
No. 128, the basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period, using
the treasury stock method for options and warrants, except where the
results would be anti-dilutive.
1.13 Income taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities, and their respective
tax bases and operating loss carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect of changes in tax rates on
deferred tax assets and liabilities is recognized as income in the period
that includes the enactment date. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits of
which future realization is uncertain.
1.14 Fair value of financial instruments
The carrying amounts reflected in the balance sheets for cash, cash
equivalents, accounts receivable and accounts payable approximate their
respective fair values due to the short maturities of these instruments.
- --------------------------------------------------------------------------------
9 of 32
<PAGE>
1.15 Concentration of risk
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of cash equivalents and
trade receivables. The company's cash resources are invested with
corporations, financial institutions and banks with high investment grade
credit ratings. Limitations have been established by the company as to the
maximum amount of cash that may be invested with any such single entity. To
reduce its credit risk, the company performs ongoing credit evaluations of
clients.
1.16 Retirement benefits to employees
1.16.1 Gratuity
In accordance with the Indian law, the company provides for gratuity, a
defined benefit retirement plan (the "Gratuity Plan") covering all
employees. The plan provides a lump sum payment to vested employees at
retirement or termination of employment of an amount based on the
respective employee's salary and the years of employment with the company.
Until March 31, 1997, the company contributed each year to a gratuity fund
maintained by the Life Insurance Corporation of India based upon actuarial
valuations. No additional contributions were required to be made by the
company in excess of the unpaid contributions to the plan.
Effective April 1, 1997, the company established the Infosys Technologies
Limited Employees' Group Gratuity Fund Trust (the "Gratuity Fund Trust").
Liabilities with regard to the Gratuity Plan are determined by actuarial
valuation, based upon which the company makes contributions to the Gratuity
Fund Trust. Trustees administer the contributions made to the Gratuity Fund
Trust. The funds contributed to the Gratuity Fund Trust are invested in
specific securities as mandated by the law and generally consist of federal
and state government bonds and the debt instruments of government-owned
corporations.
1.16.2 Superannuation
Apart from being covered under the Gratuity Plan described above, the
senior officers of the company are also participants in a defined
contribution benefit plan maintained by the company. The plan is termed the
superannuation plan to which the company makes monthly contributions based
on a specified percentage of each covered employee's salary. The company
has no further obligations under the plan beyond its monthly contributions.
1.16.3 Provident Fund
In addition to the above benefits, all employees receive benefits from a
provident fund, which is a defined contribution plan. Both the employee and
employer make monthly contributions to the plan, each equal to 12% of the
covered employee's salary. Until July 1996, the company contributed to the
employees' provident fund maintained by the Government of India. Effective
August 1996, the company established a provident fund trust to which a part
of the contributions are made each month. The remainder of the
contributions are made to the Government's provident fund. The company has
no further obligations under the plan beyond its monthly contributions.
1.17 Investments
Investments where the company controls between 20% and 50% of the voting
interest are accounted for using the equity method. Investment securities
in which the company controls less than 20% voting interest are currently
classified as "available-for-sale" securities.
Investment securities designated as "available-for-sale" is carried at fair
value based on quoted market prices, with unrealized gains and losses, net
of deferred income taxes, reported as a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be other
than temporary on available-for-sale securities are included in the
statements of income. The cost of securities sold is based on the specific
identification method. Interest and dividend on securities classified as
"available-for-sale" are included in interest income.
1.18 Stock-based compensation
The company uses the intrinsic value-based method of Accounting Principles
Board ("APB") Opinion No. 25 to account for its employee stock-based
compensation plan. The company has therefore adopted the pro forma
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation".
- --------------------------------------------------------------------------------
10 of 32
<PAGE>
2. Notes to financial statements
2.1 Cash and cash equivalents
The cost and fair values for cash and cash equivalents as of December 31,
1999, December 31, 1998 and fiscal 1999 are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Cost and fair value
------------------------------------------------------------------------------------------------------------
<S> <C>
December 31, 1999
Cash and cash equivalents
Cash and bank deposits $ 90,879,330
Deposits with corporations 15,910,428
------------------------------------------------------------------------------------------------------------
$ 106,789,758
------------------------------------------------------------------------------------------------------------
December 31, 1998
Cash and cash equivalents
Cash and bank deposits $ 22,797,989
Deposits with corporations -
------------------------------------------------------------------------------------------------------------
$ 22,797,989
------------------------------------------------------------------------------------------------------------
March 31, 1999
Cash and cash equivalents
Cash and bank deposits $ 96,119,672
Deposits with corporations 2,755,291
------------------------------------------------------------------------------------------------------------
$ 98,874,963
------------------------------------------------------------------------------------------------------------
</TABLE>
2.2 Accounts receivable
The accounts receivable, as of December 31, 1999, amounted to $ 31,814,100,
net of allowance for doubtful accounts of $ 783,495 and the accounts
receivable, as of December 31, 1998, amounted to $ 21,270,407, net of
allowance for doubtful accounts of $ 317,325. The accounts receivable, as
of March 31, 1999 amounted to 20,056,678, net of allowance for doubtful
accounts of $ 301,930. The age profile is as given below.
<TABLE>
<CAPTION>
in %
----------------------------------------------------------------------------------------------------------
Period in days December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 - 30 51.3 50.1 58.8
31 - 60 30.7 34.9 24.5
61 - 90 9.1 11.0 10.8
More than 90 8.9 4.0 5.9
----------------------------------------------------------------------------------------------------------
100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------
</TABLE>
2.3 Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent deposits $ 1,754,705 $ 1,383,499 $ 1,403,445
Deposits with government organizations 352,183 82,421 172,386
Loans to employees 3,845,537 1,603,769 1,983,319
Prepaid expenses 2,692,995 2,078,932 2,120,036
Other deposits 16,142 154,203 56,137
----------------------------------------------------------------------------------------------------------
$ 8,661,562 $ 5,302,824 $ 5,735,323
----------------------------------------------------------------------------------------------------------
</TABLE>
Other deposits represent advance payments to vendors for the supply of
goods and rendering of services. Deposits with government organizations
relate principally to leased telephone lines and electricity supplies.
- --------------------------------------------------------------------------------
11 of 32
<PAGE>
2.4 Property, plant and equipment - net
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 4,027,893 $ 2,564,102 $ 2,580,924
Buildings 9,171,521 6,075,633 6,831,097
Furniture and fixtures 6,489,863 4,287,533 4,966,929
Computer equipment 23,576,766 15,852,251 18,290,126
Plant and machinery 10,263,152 6,702,198 7,375,578
Vehicles 31,370 41,546 41,684
Capital work-in-progress 12,929,569 3,577,410 3,531,936
----------------------------------------------------------------------------------------------------------
66,490,134 39,100,673 43,618,274
Accumulated depreciation (26,728,182) (16,305,475) (19,717,961)
----------------------------------------------------------------------------------------------------------
$ 39,761,952 $ 22,795,198 $ 23,900,313
----------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense amounted to $ 7,976,831, $ 5,101,292 and $ 8,521,009
for the period ended December 31, 1999, December 31, 1998 and fiscal 1999
respectively.
2.5 Other assets
Other assets mainly represent the non-current portion of loans to
employees.
2.6 Related parties
The company grants loans to employees for acquiring assets such as property
and cars. Such loans are repayable over fixed periods ranging from 1 to 100
months. The rates at which the loans have been made to employees vary
between 0% to 4%. No loans have been made to employees in connection with
equity issues. The loans are generally secured by the assets acquired by
the employees. As of December 31, 1999, December 31, 1998 and March 31,
1999, amounts receivable from officers amounting to $ 382,632, $ 276,849
and $ 265,669, are included in prepaid expenses and other current assets
and other assets in the accompanying balance sheets.
The required repayments of loans by employees are as detailed below.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 - $ 1,603,769 -
2000 $ 3,845,537 779,478 $ 1,983,319
2001 1,703,585 628,652 953,440
2002 1,283,160 421,730 755,672
2003 799,396 310,974 528,918
2004 668,118 - 394,854
Thereafter 1,737,023 454,294 564,122
----------------------------------------------------------------------------------------------------------
Total $ 10,036,819 $ 4,198,897 $ 5,180,325
----------------------------------------------------------------------------------------------------------
</TABLE>
The estimated fair value amounts of the related party receivables at the
balance sheet date, amounts to $ 9,420,503, $ 3,940,938 and $ 4,858,797 as
of December 31, 1999, December 31, 1998 and fiscal 1999. These amounts have
been determined using available market information and appropriate
valuation methodologies. Considerable judgement is required to develop the
estimates of fair value. Thus, the estimates provided herein are not
necessarily indicative of the amounts that the company could realize in the
market.
2.7 Other accrued liabilities
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued compensation to staff $ 4,230,913 $ 2,418,987 $ 3,116,559
Accrued dividends 373,662 597,252 2,146,039
Provision for post sales client support 1,244,062 827,216 829,964
Others 3,167,906 2,343,073 2,307,238
----------------------------------------------------------------------------------------------------------
$ 9,016,543 $ 6,186,528 $ 8,399,800
----------------------------------------------------------------------------------------------------------
</TABLE>
Accrued dividends represent dividends recommended and proposed by the board
of directors, subject to the approval of the shareholders.
- --------------------------------------------------------------------------------
12 of 32
<PAGE>
2.8 Employee post-retirement benefits
2.8.1 Superannuation benefits
The company contributed $ 169,696, $ 108,784 and $ 145,051 to the
superannuation plan during the period ended December 31, 1999, December 31,
1998 and fiscal 1999, respectively.
2.8.2 Provident fund benefits
In addition, the company contributed $ 865,029, $ 585,358 and $ 812,117 to
the provident fund plan during the period ended December 31, 1999, December
31, 1998 and fiscal 1999, respectively.
2.9 Preferred stock of subsidiary
In September 1997, the company's subsidiary, Yantra, sold 5,000,000 shares
of Series A Convertible Preferred Stock, par value $ 0.01 per share
("Series A Convertible Preferred") at $ 0.75 per share for $ 3,750,000 in
cash. The related offering costs of $ 49,853 were offset against the
proceeds of the issue. Of these, 2,000,000 shares were issued to the
company and 3,000,000 shares were issued to third party investors. The
preferred stock issued to the company is eliminated upon consolidation.
Preferred stock issued to third party investors is reported in the balance
sheet as preferred stock of subsidiary.
In August 1998, Yantra sold 4,800,000 shares of Series B Convertible
Preferred Stock, par value $ 0.01 per share ("Series B Convertible
Preferred") at $ 1.25 per share for $ 6,000,000 in cash to venture
capitalists. The related offering costs of $ 44,416 were offset against the
proceeds of the issue. In connection with this sale, Yantra issued warrants
to purchase 810,811 shares of Series B-1 Convertible Preferred Stock, par
value $ 0.01 per share ("Series B-1 Convertible Preferred"), at $ 0.01 per
share for $ 8,108 in cash. Such warrants are immediately exercisable and
expire in seven years. The exercise price of the warrants is based upon the
then current market price of the Series B-1 Convertible Preferred at the
time of exercise.
The holders of Series A Convertible Preferred are entitled to the following
rights, privileges and restrictions:
Holders of Series A Convertible Preferred vote with holders of common stock
on an as-converted basis, except as otherwise required by Delaware law. The
Series A Convertible Preferred are convertible into common stock at a 1:1
ratio (subject to certain adjustments): (i) automatically in the event of
an initial public offering with gross proceeds of $ 10,000,000 or more; or
(ii) at any time at the holder's option. The holders of Series A
Convertible Preferred are entitled to a 6% cumulative dividend ($ 0.045 per
share) and to receive additional dividends at the same rate of dividends,
if any, declared and paid on the common stock, calculated on an as-
converted basis. Upon a liquidation or sale of Yantra, holders of the
Series A Convertible Preferred are entitled to a liquidation preference of
$ 0.75 per share plus accrued and unpaid dividends; and any remaining
assets will be distributed to holders of the common stock. The Series A
Convertible Preferred is redeemable at the election of holders of 75% of
the outstanding shares of Series A Convertible Preferred at any time after
September 29, 2004 at a redemption price of $ 0.75 per share plus accrued
but unpaid dividends.
The holders of Series B and B-1 Convertible Preferred are entitled to
similar rights, privileges and restrictions as that of Series A Convertible
Preferred.
In October 1998, Infosys sold 1,363,637 shares of Series A Convertible
Preferred in Yantra, having a cost basis of $ 879,042 to a third party
investor for $ 1,500,000 thereby recognizing a gain of $ 620,958 and
reducing its voting interest in Yantra to approximately 47%. The company
presently accounts for Yantra by the equity method. De-consolidation of
Yantra has resulted in a credit to the company's retained earnings of an
amount of $ 2,468,831 representing the excess of Yantra's losses previously
recognized by the company, amounting to $ 4,445,903, over the company's
residual investment basis in Yantra amounting to $ 1,977,072. The net
assets and liabilities of Yantra as of March 31, 1998 and October 20, 1998
(unaudited) respectively, are presented below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
October 20, 1998 March 31, 1998
(unaudited)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred stock (net of Infosys' holdings) $ 9,485,228 $2,317,500
Current liabilities 1,288,913 325,947
------------------------------------------------------------------------------------------------------
Total liabilities 10,774,141 2,643,447
Current assets 7,422,303 2,836,372
Property, plant and equipment 491,044 243,196
Other assets 391,963 10,314
------------------------------------------------------------------------------------------------------
Total assets $ 8,305,310 $3,089,882
------------------------------------------------------------------------------------------------------
Net (Assets)/Liabilities $ 2,468,831 $ (446,435)
------------------------------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
13 of 32
<PAGE>
2.10 Stockholders' equity
The company has only one class of capital stock referred to herein as
equity shares. In fiscal 1999, the board of directors authorized a
two-for-one stock split of the company's equity shares effected in the
form of a stock dividend. Also, during the period ending December 31,
1999, the board of directors authorized a two-for-one stock split of the
company's equity shares. All references in the financial statements to
number of shares, per share amounts and market prices of the company's
equity shares have been retroactively restated to reflect the increased
number of shares outstanding resulting from the stock splits.
2.11 Equity shares
Voting
Each holder of equity shares is entitled to one vote per share.
Dividends
Should the company declare and pay dividends, such dividends will be paid
in Indian Rupees and is paid pro rata from the date of holding such
shares.
Indian law mandates that any dividend be declared out of distributable
profits only after the transfer of up to 10% of net income computed in
accordance with current regulations to a general reserve. Also, the
remittance of dividends outside India is governed by Indian law on foreign
exchange. Such dividend payments are also subject to applicable
withholding taxes. The company declared a cash dividend of $ 2,526,872, $
1,037,628 and $ 3,152,863 during the period ended December 31, 1999,
December 31, 1998 and fiscal 1999, respectively.
Liquidation
In the event of any liquidation of the company, the holders of common
stock shall be entitled to receive all of the remaining assets of the
company, after distribution of all preferential amounts, if any. Such
amounts will be in proportion to the number of shares of equity shares
held by the shareholders.
Stock options
There are no voting, dividend or liquidation rights to the holders of
warrants issued under the company's stock option plan.
2.12 Other income, net
Other income, net, consists of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income and others $4,464,709 $ 492,689 $ 916,040
Gain on sale of investment in subsidiary - 620,958 620,958
Income from sale of special import licenses 468,098 - -
Exchange differences on translation of foreign
currency deposits 2,120,112 - -
--------------------------------------------------------------------------------------------------------
$7,052,919 $1,113,647 $1,536,998
--------------------------------------------------------------------------------------------------------
</TABLE>
2.13 Operating leases
The company has various operating leases for office buildings that are
renewable on a periodic basis at its option. Rental expense for operating
leases for the period ended December 31, 1999, December 31, 1998 and
fiscal 1999 were $ 1,704,656, $ 1,287,611 and $ 1,770,413, respectively.
The operating leases are can be cancelled at the company's option.
The company leases some of its office space under several non-cancellable
operating leases for the periods ranging from 3 to 5 years. The schedule
of minimum future rental payments is as follows :
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Period ending December 31,
--------------------------------------------------------------------
<S> <C>
2000 $ 758,271
2001 706,998
2002 733,719
2003 516,968
2004 107,976
--------------------------------------------------------------------
Total $2,823,932
--------------------------------------------------------------------
</TABLE>
2.14 Research and development
Selling, general and administrative expenses in the accompanying
statements of income include research and development expenses of
$1,337,656, $ 2,227,225 and $ 2,819,326, for the period ended December 31,
1999, December 31, 1998 and fiscal 1999, respectively.
________________________________________________________________________________
14 of 32
<PAGE>
2.15 Employees Stock Offer Plan
1994 Employees Stock Offer Plan. In September 1994, the company
established the Employees Stock Offer Plan ("ESOP") which provides for the
issuance of 6,000,000 warrants (as adjusted for the stock split effective
June 1997, December 1998 and December 1999) to eligible employees. The
warrants were issued to an employee welfare trust (the "Trust") at Re.1
each and were purchased by the Trust using the proceeds of a loan obtained
from the company. The Trust holds the warrants and transfers them to
eligible employees at Re.1 each. Each warrant entitles the holder to
purchase one of the company's equity shares at a price of Rs.100 per
share. The warrants and the equity shares received upon the exercise of
warrants are subject to a five-year aggregate vesting period from the date
of issue of warrants to employees. The warrants expire upon the earlier of
five years from the date of issue or September 1999. The fair market value
of each warrant is the market price of the underlying equity shares on the
date of the grant.
In 1997, in anticipation of a share dividend to be declared by the
company, the Trust exercised all warrants held by it and converted them
into equity shares with the proceeds of a loan obtained from the company.
In connection with the warrant exercise and the share dividend, on an
adjusted basis, 3,011,200 equity shares were issued to employees of the
company who exercised stock purchase rights and 2,988,800 equity shares
were issued to the Trust for future issuance to employees pursuant to the
ESOP. Following such exercise, there were no longer any rights to purchase
equity shares from the company in connection with the ESOP. Only equity
shares held by the Trust remained for future issues to employees, subject
to vesting provisions. The equity shares acquired upon the exercise of the
warrants vests 100% upon the completion of five years of service. The
warrant holders were entitled to exercise early, but the shares received
are subject to the five-year vesting period. As of December 31, 1999, the
company's outstanding equity shares included 506,800 shares held by the
Trust of which 345,200 were allotted to employees, subject to vesting
provisions and have been included in the calculation of diluted earnings
per share. The balance 161,600 equity shares have not been considered
outstanding in the diluted earnings per share calculations. The warrants
allotted and the underlying equity shares are not subject to any
repurchase obligations by the company.
The company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for its employee stock-based compensation plan.
During fiscal 1999, the company recorded deferred compensation of $
30,407,892, for the difference, on the grant date, between the exercise
price and the fair value as determined by quoted market prices of the
common stock underlying the warrants. The deferred compensation is
amortized on a straight-line basis over the vesting period of the
warrants/equity shares.
In fiscal 1999, the company declared a stock split of two equity shares
for each equity share outstanding to all its shareholders including
participants in the ESOP in the form of a stock dividend and consequently
recognized an accelerated compensation charge at the time of the stock
dividend amounting to $ 12,906,962.
1998 Employees Stock Option Plan (the 1998 Plan). The company's 1998 Plan
provides for the grant of non-statutory stock options and incentive stock
options to employees of the company. The 1998 Plan was approved by the
board of directors in December 1997 and by the shareholders in January
1998. The Government of India has approved the 1998 Plan, subject to a
limit of 1,470,000 equity shares representing 2,940,000 American
Depositary Shares to be issued under the Plan. Unless terminated sooner,
the 1998 Plan will terminate automatically in January 2008. All options
under the 1998 Plan will be exercisable for equity shares represented by
American Depositary Shares (ADSs). The 1998 Plan may be administered by
the board of directors or a committee of the board.
1999 Stock Option Plan (the 1999 Plan) The 1999 Plan was approved by the
shareholders and the board of directors in June 1999. The 1999 Plan
provides for the issue of 6,600,000 equity shares to employees. The 1999
Plan is administered by a compensation committee comprising a maximum of
seven members, the majority of whom are independent directors on the board
of directors. Under the 1999 Plan, options will be issued to employees at
an exercise price not less than the Fair Market Value. Fair Market Value
means the closing price of the company's shares on the stock exchange
where there is the highest trading volume on a given date and if the
shares are not traded on that day, the closing price on the next trading
day. Under the 1999 Plan, options may also be issued to employees at
exercise prices that are less than Fair Market Value only if specifically
approved by the members of the Company in a general meeting.
Activity in the warrants/Options held by the 1994 Employee Stock Offer
Plan, the 1998 Plan and the 1999 Plan during the period adjusted to
reflect the 2-for-1 Stock Split approved by the Shareholders on December
29, 1999 is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
---------------------------------------------------------------------------------------------------------------------------
Shares arising Weighted Shares arising Weighted Shares arising Weighted
out of options average out of options average out of options average
exercise price exercise price exercise price
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 Option plan:
Outstanding at the beginning
of the year 328,000 - 1,037,200 - 1,037,200 -
Granted 30,000 $ 1.16 1,656,400 $ 1.18 1,984,400 $ 0.59
Forfeited (12,800) $ 1.16 (18,800) $ 1.18 (36,400) 0.59
Exercised - - (2,657,200)
Outstanding at the end of the
year 345,200 - 2,674,800 - 328,000 -
Exercisable at the end of the
year
Weighted-average fair value
of grants during the period
at less than market $ 35.48 $13.04 $18.43
1998 Option plan:
Outstanding at the beginning
of the year 213,000 - - - - -
</TABLE>
________________________________________________________________________________
15 of 32
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
---------------------------------------------------------------------------------------------------------------------------
Shares arising Weighted Shares arising Weight Shares arising Weighted
out of options average out of options average out of options average
exercise price exercise price exercise price
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Granted 116,000 $ 179.00 - - 213,000 $ 34.00
Forfeited (3,500) $ 34.00 - - - -
Exercised - - - - - -
Outstanding at the end of
the year 325,500 - - - 213,000 -
Exercisable at the end of
the year - - - - - -
Weighted-average fair value
of grants during the year - - - - 34.00 -
1999 Option plan:
Outstanding at the beginning - - - - - -
of the year
Granted 953,200 $ 94.03 - - - -
Forfeited - - - - - -
Exercised - - - - - -
Outstanding at the end of
the year 953,200 - - - - -
Exercisable at the end of
the year - - - - - -
Weighted-average fair value
of grants during the year - - - - - -
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Outstanding Exercisable
------------------------------------------------------------------------------------------------
Range of exercise Number of Weighted average Weighted Number of Weighted
Price shares arising remaining average shares arising average exercise
out of options contractual life exercise out of options price
price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.16-$ 179.00 1,623,900 3.07 years $72.62 1,623,900 $72.62
----------------------------------------------------------------------------------------------------------------------
</TABLE>
2.16 Income taxes
The provision for income taxes was composed of:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes
Domestic taxes $1,844,357 $1,416,049 $ 777,351
Foreign taxes 4,447,350 2,688,880 4,725,726
----------------------------------------------------------------------------------------------------------------------
6,291,707 4,104,929 5,503,077
----------------------------------------------------------------------------------------------------------------------
Deferred taxes
Domestic taxes (72,805) (552,363) (625,427)
Foreign taxes - - -
----------------------------------------------------------------------------------------------------------------------
(72,805) (552,363) (625,427)
----------------------------------------------------------------------------------------------------------------------
Aggregate taxes $6,218,902 $3,552,566 $4,877,650
======================================================================================================================
</TABLE>
The tax effects of significant temporary differences that resulted in
deferred tax assets and liabilities and a description of the financial
statement items that created these differences are:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 March 31, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Property, plant and equipment $2,238,180 $1,642,311 $2,315,375
----------------------------------------------------------------------------------------------------------------------
2,238,180 1,642,311 2,315,375
Less: Valuation allowance (450,000) - (600,000)
----------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $1,788,180 $1,642,311 $1,715,375
----------------------------------------------------------------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which the temporary differences become deductible. Management
considers the scheduled reversal of the projected future taxable income, and
tax planning strategies in making this assessment. Based on the level of
historical taxable income and projections for future taxable
________________________________________________________________________________
16 of 32
<PAGE>
taxable income over the periods in which the deferred tax assets are
deductible, management believes that it is more likely than not the company
will realize the benefits of those deductible differences, net of the
existing valuation differences at December 31, 1999. The amount of the
deferred tax assets considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carry forward
period are reduced.
The difference in net deferred tax expense (benefit) during the period
ended December 31, 1999, December 31, 1998 and fiscal 1999 has been
allocated as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
December 31, December 31, March 31,
1999 1998 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense/ (benefit) allocated to:
Continuing operations $ (72,805) $ (552,363) $ (625,427)
-----------------------------------------------------------------------------------------------------------------
$ (72,805) $ (552,363) $ (625,427)
=================================================================================================================
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, December 31, March 31,
1999 1998 1999
-----------------------------------------------------------------------------------------------------------------
Net income before taxes $ 49,667,220 $24,069,393 $22,323,738
Enacted tax rates in India 38.5% 35.0% 35.0%
-----------------------------------------------------------------------------------------------------------------
Computed expected tax expense 19,121,880 8,424,288 7,813,308
Less: Tax effect due to non-taxable export income (18,905,103) (8,359,751) (7,680,942)
Others (235,820) 819,149 19,558
Effect of tax rate change 1,738,353 - -
Effect of prior period tax adjustments 52,242 - -
-----------------------------------------------------------------------------------------------------------------
Provision for Indian income tax 1,771,552 883,686 151,924
Effect of tax on foreign income 4,447,350 2,668,880 3,701,898
Effect of prior period foreign tax adjustments - - 1,023,828
-----------------------------------------------------------------------------------------------------------------
Total current taxes $ 6,218,902 $ 3,552,566 $ 4,877,650
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The provision for foreign taxes is due to income taxes payable overseas,
principally in the United States.
At present, in India, profits from export activities are deductible from
taxable income. Further, most of the company's operations come from "100%
export oriented units", which are entitled to a tax holiday for a period of
ten years from the date of commencement of operations.
2.17 Earnings per share
The following is a reconciliation of the equity shares used in the
computation of basic and diluted earnings per equity share:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
December 31, December 31, March 31,
1999 1998 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per equity share - weighted average 65,643,334 61,080,000 61,378,850
number of common shares outstanding
Effect of dilutive common equivalent shares - stock 75,086 169,208 128,530
options outstanding
------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per equity share - weighted average 65,718,420 61,249,208 61,507,380
number of common shares and common equivalent shares
outstanding
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The figures reflect the 2-for-1 Stock Split approved by the Shareholders on
December 29, 1999
2.18 Lines of credit
The company has a line of credit from its bankers for its working capital
requirement of $ 1,150,000, bearing interest at prime lending rates as
applicable from time to time. As of December 31, 1999, the prime lending
rate for all its bankers was 13.0%. This facility is secured by inventories
and accounts receivable. The line of credit contains certain financial
covenants and restrictions on indebtedness and is renewable every 12
months. As of December 31, 1999, the company had no balance outstanding
under this facility.
2.19 Financial instruments
Foreign exchange forward contracts
The company enters into foreign exchange forward contracts to offset the
foreign currency risk arising from the accounts receivable denominated in
currencies other than the Indian rupee, primarily the US dollar.
The counterparty to the company's foreign currency forward contracts is
generally a bank. The company considers that risks or economic consequences
of non-performance by the counterparty are not material.
________________________________________________________________________________
17 of 32
<PAGE>
There were no significant foreign exchange gains and losses during the
period ended December 31, 1999, December 31, 1998 and fiscal 1999. As of
December 31, 1999 the company does not have any open foreign exchange
forward contracts.
2.20 Segment reporting
2.20.1 Revenue by geographic area
------------------------------------------------------------------------
December 31, December 31, March 31,
1999 1998 1999
------------------------------------------------------------------------
North America $109,421,935 $27,152,769 $ 99,203,989
Europe 20,077,366 2,971,757 11,302,791
India 1,576,174 385,349 2,051,492
Rest of the world 8,753,164 2,531,429 8,396,954
------------------------------------------------------------------------
$139,828,639 $33,041,304 $120,955,226
------------------------------------------------------------------------
2.20.2 Significant clients
No client accounted for more than 10% of the revenues during the period
ended December 31, 1999, December 31, 1998 and fiscal 1999.
2.21 Year 2000
Infosys had made preparations to support internal systems and customers
during the transition to the Year 2000. Teams were, and continue to be in
place at all the development centers and in U.S., Europe and Japan and
precautions were taken to assess the effect on communication
infrastructure. As of the date of this quarterly report, no material
disruption has been reported. However, the company does not expect to
arrive at a conclusive picture of the effect of the transition immediately
and continues to monitor the transition and is in touch with its customers
to assess any problems. The full cost of transition support is still being
computed, but is estimated to be insignificant.
2.22 Commitments and contingencies
The company has outstanding performance guarantees for various statutory
purposes totaling $ 365,239, $ 552,040 and $ 760,329 as of December 31,
1999, December 31, 1998 and fiscal 1999 respectively. These guarantees are
generally provided to governmental agencies.
2.23 Litigation
The company is subject to legal proceedings and claims, which have arisen,
in the ordinary course of its business. These actions, when ultimately
concluded and determined, will not, in the opinion of management, have a
material effect on the results of operations or the financial position of
the company.
2.24 Recent accounting pronouncements
The American Institute of Certified Public Accountants recently issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires that
certain costs related to the development of software for internal-use be
capitalized or amortized over the estimated useful life of the software.
SOP 98-1 is effective for financial statements issued for fiscal years
beginning after December 15, 1998. The company estimates that all software
acquired for internal use has a relatively short useful life, usually less
than a year. The company, therefore, currently charges, to income, the cost
of acquiring such software, entirely at the time of acquisition. The
company does not believe that adopting the provisions of SOP 98-1 will have
a significant impact on its financial statements.
Item 2. Management Discussion and Analysis of Financial Conditions and Results
of Operations
Investors are cautioned that this discussion contains forward-looking statements
that involve risks and uncertainties. When used in this discussion, the words
"anticipate", "believe", "estimate", "intend", "will" and "expect" and other
similar expressions as they relate to the company or its business are intended
to identify such forward-looking statements. The company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise. Actual results,
performances or achievements could differ materially from those expressed or
implied in such forward-looking statements. Factors that could cause or
contribute to such differences include those described under the heading "Risk
Factors" in the Prospectus filed with the SEC, the factors discussed in the Form
20-F and 6-K, filed with the SEC, and those factors discussed elsewhere in this
report. Readers are cautioned not to place undue reliance on these forward-
looking statements that speak only as of their dates. The following discussion
and analysis should be read in conjunction with the company's financial
statements included herein and the notes thereto.
2.1 Overview
Infosys is an India-based IT services company formed in 1981 that utilizes
an extensive offshore infrastructure to provide managed software solutions
to clients worldwide. The company's services include custom software
development, maintenance (including Year 2000 conversion) and re-
engineering services as well as dedicated Offshore Software Development
Centers (OSDC) for certain clients. From fiscal 1995 through fiscal 1999,
total revenue increased from $18.1 million to $120.96 million, the number
of the company's software professionals worldwide increased from
approximately 585 to approximately 3,160 and the number of its India-based
software development centers increased from two to eleven.
______________________________________________________________________________
18 of 32
<PAGE>
The company's revenues are generated principally from software services
provided either on a fixed-price, fixed-time frame or a time-and-materials
basis. Revenues from services provided on a time-and-materials basis are
recognized in the month that services are provided and related costs are
incurred. Revenues from services provided on a fixed-price, fixed-time
frame basis are recognized upon the achievement of specified milestones
identified in the related contracts, in accordance with the percentage of
completion method. Cost of completion estimates are subject to periodic
revisions. Although the company has revised its project completion
estimates from time to time, such revisions have not, to date, had a
material adverse effect on the company's operating results or financial
condition. Since the company bears the risk of cost overruns and inflation
with respect to its fixed-price, fixed-time frame projects, the company's
operating results could be adversely affected by inaccurate estimates of
contract completion costs and dates, including wage inflation rates and
currency exchange rates that may affect cost projections. The company also
develops and markets certain software products, including banking software
that is licensed primarily to clients in Asia and Africa. Such software
products represented 2.0% of total revenue during the quarter ended
December 31,1999. The company derived 78.9% of its total revenue from North
America, 12.4% from Europe, 0.9% from India and 7.8% from the rest of the
world during the quarter ended December 31, 1999.
In third quarter of fiscal 2000 and fiscal 1999, the company derived 5.8%
and 19.0% of its total revenue, respectively, from Year 2000 conversion
projects.. In line with its risk management policies, the company has
consistently limited its dependence on Year 2000 conversion projects, and
has only accepted such projects where there are opportunities to create
long-term relationships with its clients. The company expects that the
decline in Year 2000 conversion projects will be adequately made up by
other projects from these and other clients, and that the decline in Year
2000 conversion projects will not have a material adverse effect upon the
company's business, financial condition and results of operations. However,
there can be no assurance that: the company will be successful in
generating additional business from its Year 2000 clients for other
services, the company will be successful in replacing Year 2000 conversion
projects with other projects as the Year 2000 business declines, or the
margins from any such future projects will be comparable to those obtained
from Year 2000 conversion projects.
Cost of revenue consists, primarily, of salary and other compensation
expenses, depreciation, data communications expenses, computer maintenance,
cost of software for internal use, certain pre-opening expenses for new
software development centers, and foreign travel expenses. The company
depreciates personal computers and servers over two years and mainframe
computers over three years. Third party software is expensed in the period
in which it is acquired.
The company assumes full project management responsibility for each project
that it undertakes. Approximately 70% of the work on a project is performed
at the company's facilities in India, and the balance of the work is
performed at the client site. The proportions of work performed at company
facilities and at client sites varies from quarter to quarter. The company
charges higher rates and incurs higher compensation expenses for work
performed at the client site. Services performed at a client site typically
generate higher revenues per capita, but at a lower gross margin as a
percentage of revenue, than the same quantum of services performed at
company facilities in India. As a result, total revenue, cost of revenue
and gross profit in absolute terms, and as a percentage of revenue,
fluctuate from quarter to quarter based on the proportions of work
performed offshore at company facilities and at client sites.
Revenue and gross profit are also affected by employee utilization rates.
Utilization rates depend, among other factors, on the number of employees
enrolled for in-house training programs, particularly the 14-week training
course provided to new employees. Since a large percentage of new hires
begin their training in the second quarter, utilization rates have
historically been lower in the second and third quarters of a fiscal year.
Selling, general and administrative expenses consist primarily of expenses
relating to salary and other compensation, travel, marketing,
telecommunications, management, finance, administration and rentals.
Other income includes interest income and income from the sale of special
import licenses. Under current export-import policy, exports by Indian
companies generate credits for the exporter called "special import
licenses". These credits can be sold and also used for the import of goods
included on a "restricted list" maintained by the Government of India. The
value of these special import licenses has declined over time, as the
restricted list has been shortened. The company's general policy is to sell
such special import licenses in the period in which it receives such
credits.
2.2 Results of operations
2.2.1 Quarter ended December 31, 1999 compared to quarter ended December
31, 1998
Revenue. Total revenue was $52.2 million for the quarter ended December 31,
1999, representing an increase of 57.9% over total revenue of $33.0 million
during the same period in the prior year. Revenue continued to increase in
all segments of the company's services. Custom software development, re-
engineering, maintenance and software development through OSDCs formed a
majority of the company's revenues. The increase in revenue was
attributable, in part, to a substantial increase in business from certain
existing clients and from certain new clients, particularly in the
insurance, banking and financial services industries. Net sales of
Bancs2000 and other products represented 2.0% of total revenue for the
quarter ended December 31, 1999 as compared to 2.7% during the same period
in the prior year. Revenue from services represented 98.0% of total revenue
for the quarter ended December 31, 1999 as compared to 97.3% during the
same period in the prior year. Revenue from fixed-price, fixed-time frame
contracts and from time-and-materials contracts represented 32.3% and
67.7%, respectively, of total revenue for the quarter ended December 31,
1999 as compared to 35.8% and 64.2%, respectively, during the same period
in the prior year. Revenue from North America and Europe represented 78.9%
and 12.4%, respectively, of total revenue for the quarter ended December
31, 1999 as compared to 82.2% and 9.0%, respectively, during the same
period in the prior year.
Cost of Revenue. Cost of revenue was $28.5 million for the quarter ended
December 31, 1999, representing an increase of 73.8% over the cost of
revenue of $16.4 million for the same period in the prior year. The cost of
revenue represented 54.7% and 49.7% of total revenues for the quarter ended
December 31, 1999 and December 31, 1998, respectively. This increase in
costs as a percentage of total revenue was attributable to increase in
onsite salaries and compensation expenses. The onsite direct costs of
employees had gone up to 27.4% of revenues during the quarter ended
December 31, 1999 as compared to 22.7% of revenues during the quarter ended
December 31, 1998. The average number of
________________________________________________________________________________
19 of 32
<PAGE>
employees working onsite had gone up to 20.4% of the total manpower during
the quarter ended December 31, 1999 as compared to 16.9% during the quarter
ended December 31, 1998. The cost of revenue for services represented 54.3%
and 49.3% of revenues for services for the quarter ended December 31, 1999
and December 31, 1998, respectively. Cost of revenue for product sales
represented 73.2% and 63.1% of revenues for product sales for the quarter
ended December 31, 1999 and December 31, 1998, respectively.
Gross Profit. Gross profit was $23.7 million for the quarter ended December
31,1999 representing an increase of 42.2% over the gross profit of $16.6
million for the same period in the prior year. As a percentage of total
revenue, the gross profit decreased to 45.3% for the quarter ended December
31, 1999 from 50.3% for the same period in the prior year. This decrease
was attributable to an increase in onsite salaries and compensation
expenses. The gross profit from services was $ 23.4 million for the quarter
ended December 31, 1999, an increase of 43.3% over the gross profit of
$16.3.million for the same period in the prior year. The gross profit from
the sales of Bancs2000 and other products was $0.3 million for the quarter
ended December 31, 1999 and December 31, 1998. As a percentage of service
revenues, the gross profit from services decreased to 45.7% for the quarter
ended December 31, 1999 from 50.7% for the same period in the prior year.
As a percentage of product revenue, the gross profit from product sales
decreased to 26.8% for the quarter ended December 31,1999 from gross profit
of 36.9% for the same period in the prior year.
Selling, General and Administrative expenses. Selling, general and
administrative expenses were $6.7 million for the quarter ended December
31, 1999, an increase of 53.4% over selling, general and administrative
expenses of $4.3 million for the same period in the prior year. Selling,
general and administrative expenses were 12.7% and 13.1% of total revenue
for the quarter ended December 31, 1999 and December 31, 1998,
respectively. This decrease in expense as a percentage of revenues was a
result of the company's ability to increase revenues in the current quarter
without a proportionate increase in management, finance, administrative,
and occupancy costs. While Research Grant expenses decreased from 1.6% of
revenues during the quarter ended December 31, 1998 to 0.6 of revenues
during the quarter ended December 31, 1999, the brand building expenses had
increased to 1.1% of revenues during the quarter ended December 31, 1999.
There was no brand building expenses during the quarter ended December 31,
1998.
Amortization of Deferred Stock Compensation Expense. Amortization of
deferred stock compensation expense was $1.3 million for the quarter ended
December 31, 1999, adecrease of 12.7% over amortization of deferred stock
compensation expense of $1.5million for the same period in the prior year.
Operating Income. The operating income was $15.7 million for the quarter
ended December 31, 1999, an increase of 45.1% over the operating income of
$10.8 million for the same period in the prior year. As a percentage of
revenues, operating income decreased to to 30.1% for the quarter ended
December 31, 1999 from 32.7% for the same period in the prior year.
Other Income. Other income was $1.6 million for the quarter ended December
31, 1999 as compared to $792,000 for the same period in the prior year.
Other income during the quarter ended December 31, 1999 includes a loss of
$ 145,000 arising due to exchange differences on translation of foreign
currency deposits, a profit of $167,000 from the sale of Special Import
Licenses and interest income of $968,000 earned on deployment of funds
raised through the issue of American Depositary shares.
Provision for Income Taxes. Provision for income taxes was $1.9 million for
the quarter ended December 31, 1999 as compared to $1.6 million for the
same period in the prior year. The company's effective tax rate decreased
to 11.0% for the quarter ended December 31, 1999 as compared to 14.3% for
the same period in the prior year.
Net Income. The net income was $15.4 million for the quarter ended December
31, 1999, an increase of 60.9% over the net income of $9.6 million for the
same period in the prior year. As a percentage of total revenue, the net
income increased to 29.6% for the quarter ended December 31, 1999 from
29.0% for the same period in the prior year.
2.3 Liquidity and capital resources
The growth of the company has been financed largely from cash generated
from operations and, to a lesser extent, from the proceeds of equity issues
and borrowings. In 1993, the company raised approximately $4.4 million in
gross aggregate proceeds from its initial public offering of equity shares
on Indian stock exchanges. In 1994, the company raised an additional $7.7
million through private placement of its equity shares with foreign
institutional investors. During 1999, the company raised $66.3 million
through issue of American Depositary Receipts (ADRs) with foreign
investors. As on December 31, 1999, the company had $106.8 million in cash
and cash equivalents, $131.3 million in working capital and no outstanding
bank borrowings. As on December 31, 1999, the company also had an aggregate
facility of $1.1 million in working capital line of credit from two
commercial banks.
Net cash provided by operating activities was $42.4 million and $24.9
million for the nine months ended December 31, 1999 and the corresponding
period in the prior year, respectively. Net cash provided by operations
consisted primarily of net income offset, in part, by an increase in
accounts receivable. In recent years, accounts receivable have increased at
a rate faster than sales. Accounts receivable as a percentage of total
revenue, represented 17.1% and 18.8% for the nine months ended December 31,
1999, and the corresponding period in the prior year, respectively. The
company's policy on accounts receivable includes a periodic review of all
such outstandings. The company reviews, among other things, the age,
amount, and quality of each account receivable; the relationship with, size
of, and history of the client; and the quality of service delivered by the
company for the client to determine the classification of an account
receivable. Should the review so demand, the company will classify the
accounts into secured and unsecured (doubtful) accounts. The company makes
provisions for all accounts receivable classified as unsecured or doubtful
and for all accounts receivable that are outstanding more than 180 days.
Prepaid expenses and other current assets increased by $ 2.9 million and
$1.6 million during the nine months period ended December 31, 1999 and the
corresponding periods in the prior year respectively. The increase during
the nine months ended December 31, 1999 was primarily due to increase in
loans disbursed to employees.
Unearned revenue as on December 31, 1999 was $5.3 million and consists
primarily of advance client billings on fixed-price, fixed-time frame
contracts for which related costs were not yet incurred.
_______________________________________________________________________________
20 of 32
<PAGE>
Net cash used in investing activities was $26.8 million and $11.9 million,
during the nine months ended December 31, 1999 and December 31, 1998
respectively. Net cash used in investing activities during the nine months
ended December 31, 1999 and December 31, 1998, consisted primarily of
$23.8million and $11.6 million, respectively, towards acquisition of
property, plant and equipment.
Publicly-traded Indian companies customarily pay dividends. For fiscal 1999,
the company declared a dividend of $3.2 million, which was paid partly in
fiscal 1999. During the nine months period ended December 31, 1999 and
December 31, 1998, the company declared a dividend of $2.5 million and $1.0
million, respectively.
As on December 31, 1999, the company had contractual commitments for capital
expenditure of $16.0 million. The company has not yet made contractual
commitments for the majority of its budgeted capital expenditure.
2.4 Reconciliation between US and Indian GAAP
There are material differences between the financial statements prepared as
per Indian and US GAAP. These differences arise due to provision for
deferred taxes, accounting for stock-based compensation, valuation of short-
term investments (which are marked to market and adjusted against retained
earnings), and consolidation of accounts of subsidiaries, as required by US
GAAP. Indian GAAP does not require provision for deferred taxes,
amortization of deferred stock compensation, consolidation of accounts of
subsidiaries and only requires a provision for diminution in the value of
current investments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months period ended
------------------ ------------------------
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net profit as per Indian GAAP 16,993,187 9,504,545 46,351,903 21,949,476
Adjustments:
Provision for investments - 837,300 - 1,675,060
Deferred tax 437,330 309,912 72,805 552,363
Net loss of subsidiary included on consolidation - (376,781) - (2,043,623)
Amortization of deferred stock compensation (1,293,002) (1,480,902) (3,836,104) (2,404,056)
Provision for contingencies/ e-inventing the (720,587) 787,607 859,714 787,607
company
- --------------------------------------------------------------------------------------------------------------------------------
Net income as per US GAAP 15,416,928 9,581,681 43,448,318 20,516,827
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2.5 Investment in Yantra Corporation
Prior to October 20, 1998, the company owned a majority of the voting stock
of Yantra, which develops and markets an open system software package for
warehouse management. As a result, all of Yantra's operating losses through
October 20, 1998 were recognized in the company's consolidated financial
statements. For fiscal 1998 and fiscal 1999, Yantra losses recognized in the
company's financial statements were $1.6 million and $2.0 million,
respectively. On October 20, 1998, the company sold a portion of the Yantra
shares held by it, thereby reducing its interest to less than one-half of
the voting stock of Yantra. As a result, Yantra's results after October 20,
1998 have not been recognized in the company's financial statements under
U.S. GAAP. On June 14, 1999, Yantra issued Series C Preferred Stock
amounting to $15.0 million to various existing and new investors. Yantra's
revenues were $1.3 million and $2.0 million for fiscal 1998 and for the
period ended October 20, 1998, respectively, while gross profits were
$574,000 and $546,000, respectively, for these same periods. Yantra's
revenues were 1.9% and 2.3% of the company's revenues for fiscal 1998 and
for the period ended October 20, 1998, respectively. Yantra's gross profits
were 2.0% and 1.4% of the company's gross profits for these same periods. No
minority interest has been recorded because all of the common stock is owned
by the company.
2.6 Principles of Currency Translation
In the quarter ending December 31, 1999, over 97% of the company's revenues
were generated in U.S. dollars and European currencies. A majority of the
company's expenses were incurred in rupees, and the balance was incurred in
U.S. dollars and European currencies. The functional currency of the company
is the Indian rupee. Revenues generated in foreign currencies are translated
into Indian rupees using the exchange rate prevailing on the date the
revenue is recognized. Expenses of overseas operations incurred in foreign
currencies are translated into Indian rupees at either the monthly average
exchange rate or the exchange rate on the date the expense is incurred,
depending on the source of payment. Assets and liabilities of foreign
branches held in foreign currency are translated into Indian rupees at the
end of the applicable reporting period. For U.S. GAAP reporting, the
financial statements are translated into U.S. dollars using the average
monthly exchange rate for revenues and expenses and the period end rate for
assets and liabilities. The gains or losses from such translation are
reported as other comprehensive income, a separate component of
shareholders' equity. The company expects that a majority of its revenues
will continue to be generated in U.S. dollars for the foreseeable future and
that a significant portion of the company's expenses, including personnel
costs as well as capital and operating expenditures, will continue to be
denominated in rupees. Consequently, the company's results of operations
will be adversely affected to the extent the rupee appreciates against the
U.S. dollar.
- -------------------------------------------------------------------------------
21 of 32
<PAGE>
2.7 Income Tax Matters
The company benefits from certain significant tax incentives provided to
software firms under the Indian tax laws. These incentives presently
include: (i) an exemption from payment of Indian corporate income taxes for
a period of ten consecutive years of operation of software development
facilities designated as "Software Technology Parks" (the "STP Tax
Holiday"); and (ii) a tax deduction for profits derived from exporting
computer software (the "Export Deduction"). Under present law, the Export
Deduction remains available after expiration of the STP Tax Holiday. All but
one of the company's software development facilities are located in
designated Software Technology Parks. The benefits of these tax incentive
programs have historically resulted in an effective tax rate for the company
well below statutory rates, and the company expects this trend to continue
absent a change in policy by the Government of India. There is no assurance
that the Government of India will continue to provide these incentives. The
company pays corporate income tax in foreign countries on income derived
from operations in those countries.
2.8 Effects of Inflation
The company's most significant costs are salaries and related benefits for
its employees. Competition in India and the United States for IT
professionals with the advanced technological skills necessary to perform
the services offered by the company have caused wages to increase at a rate
greater than the general rate of inflation. As with other IT service
providers, the company must adequately anticipate wage increases and other
cost increases, particularly on its long-term contracts. Historically, the
company's wage costs in India have been significantly lower than prevailing
wage costs in the United States for comparably-skilled employees, although
wage costs in India are presently increasing at a faster rate than in the
United States. There can be no assurance that the company will be able to
recover cost increases through increases in the prices that it charges for
its services in the United States.
2.9 Year 2000 Compliance
The company has evaluated each of its IT services and software products and
believes that each is substantially Year 2000 compliant. However, there can
be no assurance that the company's IT services and products are or will
ultimately be Year 2000 compliant. The Company believes that its internal
systems are substantially Year 2000 compliant. As of the date of this
Quarterly Report, the company has not experienced any material Year 2000
related problems. However, there can be no assurance that modifications and
upgrades made to its internal systems will be able to anticipate all of the
problems resulting from the actual impact of the Year 2000 problem. The
company has been led to believe that its telecommunication service providers
are substantially Year 2000 ready and therefore does not expect significant
disruption of these facilities. As of the date of this Quarterly Report,
there has been no sustained disruption to the Company's voice and data
transmission links during the Year 2000 transition. However there can be no
assurance that the Company may not face any problems in the future. Systems
such as air conditioning and security systems at the company's These
facilities are found to be Year 2000 ready and the Company has not
experienced any problems with them during the initial transition to Year
2000. To minimize the impact of any potential disruptions, teams were, and
continue to be in place at all the development centers and in U.S., Europe
and Japan and precautions were taken to assess the effect on communication
infrastructure. As of the date of this quarterly report, no material
disruption has been reported. However, the company does not expect to arrive
at a conclusive picture of the effect of the transition immediately and
continues to monitor the transition and is in touch with its customers to
address any problems. The full cost of transition support is still being
computed, but is estimated to be insignificant.
The information above contains forward-looking statements which reflect the
current views of the company with respect to Year 2000 compliance of the
company's internal systems and third party suppliers, and the related costs
and potential impact on the company's financial performance. As indicated
above, these assessments may ultimately prove to be inaccurate.
2.10 Accounting Pronouncements
The American Institute of Certified Public Accountants recently issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
certain costs related to the development of internal-use software be
capitalized or amortized over the estimated useful life of the software.
SOP 98-1 is effective for financial statements issued for fiscal years
beginning after December 15, 1998. The company estimates that all software
acquired for internal use has a relatively short useful life, usually less
than one year. The company, therefore, currently charges to income the cost
of acquiring such software entirely at the time of acquisition. The company
does not believe that adopting the provisions of SOP 98-1 will have a
significant impact on its consolidated financial statements.
2.11 Risk factors
2.11.1 Management of growth
The company has experienced significant growth in recent periods. The
company's revenues in quarter ended December 31, 1999 grew by 57.9% over
the quarter ended December 31, 1998. As of December 31, 1999, the company
employed approximately 4,966 software professionals worldwide with 12
software development facilities in India as compared to approximately 3,501
as of December 31, 1998. The company's growth is expected to place
significant demands on its management and other resources and will require
it to continue to develop and improve its operational, financial and other
internal controls, both in India and elsewhere. In particular, continued
growth increases the challenges involved in: recruiting and retaining
sufficient skilled technical, marketing and management personnel; providing
adequate training and supervision to maintain the company's high quality
standards; and preserving the company's culture and values and its
entrepreneurial environment. The company's inability to manage its growth
effectively could have a material adverse effect on the quality of the
company's services and projects, its ability to attract clients as well as
skilled personnel, its business prospects, and its results of operations
and financial condition.
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2.11.2 Potential fluctuations in future operating results
Historically, the company's operating results have fluctuated, and may continue
to fluctuate in future, depending on a number of factors, including: the size,
timing and profitability of significant projects; the proportion of services
that are performed at client sites rather than at the company's offshore
facilities; the accuracy of estimates of resources and time required to complete
ongoing projects, particularly projects performed under fixed-price, fixed-time
frame contracts; a change in the mix of services provided to its clients or in
the relative proportion of services and product revenues; the timing of tax
holidays and other Government of India incentives; the effect of seasonal hiring
patterns and the time required to train and productively utilize new employees;
the size and timing of facilities expansion; unanticipated increases in wage
rates; the company's success in expanding its sales and marketing programs;
currency exchange rate fluctuations and other general economic factors. A high
percentage of the company's operating expenses, particularly personnel and
facilities, are fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of the company's projects or
in employee utilization rates may cause significant variations in operating
results in any particular quarter. The company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Due to all of
the foregoing factors, it is possible that in some future quarter the company's
operating results may be below the expectations of public market analysts and
investors. In such event, the market price of the equity shares and ADSs are
likely to be materially adversely affected.
2.11.3 Risks related to investments in Indian securities
The company is incorporated in India, and substantially all of its assets and a
substantial majority of its employees are located in India. Consequently, the
company's performance may be affected by changes in exchange rates and controls,
interest rates, Government of India policies, including taxation policy, as well
as political, social and economic developments affecting India.
Political and Economic Environment. During the past decade and particularly
since 1991, the Government of India has pursued policies of economic
liberalization, including significant relaxation of restrictions on the private
sector. Nevertheless, the role of the Indian central and state Governments in
the Indian economy as producers, consumers and regulators has remained
significant. Additionally, since 1996, the Government of India has changed three
times. The current interim Government of India, , has since taking office in
March 1998 announced policies and taken initiatives that support the
continuation of the economic liberalization policies pursued by previous
governments and has, in addition, set up a special IT task force to promote the
IT industry. However, the speed of economic liberalization could change, and
specific laws and policies affecting IT companies, foreign investment, currency
exchange rates and other matters affecting investment in the company's
securities could change as well. Further, there can be no assurance that the
liberalization policies will continue in the future. A significant change in the
Government of India's economic liberalization and deregulation policies could
adversely affect business and economic conditions in India generally and the
company's business in particular.
On May 13, 1998, the United States imposed economic sanctions against India in
response to India's testing of nuclear devices. While these sanctions imposed on
India have not had a material impact on the company to date, there can be no
assurance that additional economic sanctions of this nature will not be imposed,
or that such sanctions will not have a material adverse effect on the company's
business. Furthermore, financial turmoil in certain Asian countries, Russia and
elsewhere in the world has affected market prices in the world's securities
markets, including the United States and Indian markets. Continued or increased
financial downturns in these countries could cause further decreases in
securities prices on the United States and Indian exchanges, including the
market prices of the company's equity shares and ADSs. South Asia has from time
to time experienced instances of civil unrest and hostilities among neighboring
countries. Events of this nature in the future could influence the Indian
economy and could have a material adverse effect on the market for securities of
Indian companies and on the business of the company.
Government of India Incentives and Regulation. The company benefits from a
variety of incentives given to software firms in India, such as relief from
import duties on hardware, a tax exemption for income derived from software
exports, and tax holidays and infrastructure support for companies, such as
Infosys, operating in specially designated "Software Technology Parks". There
can be no assurance that these incentives will continue in future. Further,
there is a risk that changes in tax rates or laws affecting foreign investment,
currency exchange rates or other regulations will render the Government of
India's regulatory scheme less favorable to the company and could adversely
affect the market price of the company's equity shares and its ADSs. Should the
regulations and incentives promulgated by the Government of India become less
favorable to the company, the company's results of operations and financial
condition could be adversely affected.
Restrictions on Foreign Investment. Foreign investment in Indian securities is
generally regulated by the Foreign Exchange Regulation Act, 1973. In certain
emerging markets, including India, Global Depositary Shares and ADSs may trade
at a discount or premium, as the case may be, to the underlying shares, in part
because of restrictions on foreign ownership of the underlying shares. In
addition, under current Indian laws and regulations, the Depositary cannot
accept deposits of outstanding equity shares and issue ADRs evidencing ADSs
representing such equity shares. Therefore, a holder of ADSs who surrenders ADSs
and withdraws equity shares is not permitted subsequently to deposit such equity
shares and obtain ADSs nor would a holder to whom such equity shares are
transferred be permitted to deposit such equity shares. This inability to
convert equity shares into ADSs increases the probability that the price of the
ADSs will not trade on par with the price of the equity shares as quoted on the
Indian stock exchanges. Holders who seek to sell in India any equity shares
withdrawn from the depositary facility and to convert the rupee proceeds from
such sale into foreign currency and repatriate such foreign currency from India
will have to obtain RBI approval for each such transaction. Further, under
current Indian regulations and practice, the approval of the RBI is required for
the sale of equity shares underlying ADSs by a non-resident of India to a
resident of India as well as for renunciation of rights to a resident of India.
There can be no assurance that any such approval can be obtained.
Exchange Rate Fluctuations. The exchange rate between the rupee and the US
dollar has changed substantially in recent years and may fluctuate substantially
in the future. During the four-year period from March 31, 1995 through March 31,
1999, the value of the rupee against the US dollar declined by 35.2%. For
quarter ended December 31, 1999 and 1998, the company's US dollar-denominated
revenues represented 89.6% and 89.2%, respectively, of total revenue. The
company expects that a majority of its revenues will continue to be generated in
US dollars for the foreseeable future and that a significant portion of the
company's expenses, including personnel costs as well as capital and
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operating expenditures, will continue to be denominated in rupees. Consequently,
the company's results of operations will be adversely affected to the extent the
rupee appreciates against the US dollar. The company has sought to reduce the
effect of exchange rate fluctuations on operating results by periodically
purchasing foreign exchange forward contracts to cover a portion of outstanding
accounts receivable. As of December 31, 1999, the company had no outstanding
forward contracts . These contracts typically mature within three months, must
be settled on the day of maturity and may be canceled subject to the payment of
any gains or losses in the difference between the contract exchange rate and
market exchange rate on the date of cancellation. The company uses these
instruments only as a hedging mechanism and not for speculative purposes. There
can be no assurance that the company will purchase contracts adequate to
insulate itself from foreign exchange currency risks or that any such contracts
will perform adequately as a hedging mechanism. Depreciation of the rupee will
result in foreign currency translation losses. For example, for fiscal 1998,
fiscal 1999 and the nine months ended ended December 31, 1999, the company's
foreign currency translation losses were approximately $3.5 million, $2.1million
and $ 4.6million respectively. Fluctuations in the exchange rate between the
rupee and the US dollar also will affect the US dollar conversion by the
Depositary of any cash dividends paid in rupees on the equity shares represented
by the ADSs. In addition, fluctuations in the exchange rate between the Indian
rupee and the US dollar will affect the US dollar equivalent of the Indian rupee
price of equity shares on the Indian Stock Exchanges and, as a result, are
likely to affect the market prices of the ADSs in the United States, and vice
versa. Such fluctuations will also affect the dollar value of the proceeds a
holder would receive upon the sale in India of any equity shares withdrawn from
the Depositary under the Depositary Agreement. There can be no assurance that
holders will be able to convert rupee proceeds into US dollars or any other
currency or with respect to the rate at which any such conversion could occur.
2.11.4 Substantial investment in new facilities
As of December 31, 1999, the company had contractual commitments of $16.0
million for capital expenditure and has budgeted for significant expansion of
infrastructure in the near future. Since such an expansion will significantly
increase the company's fixed costs, the company's results of operations will be
materially adversely affected if the company is unable to grow its business
proportionately. Although the company has successfully developed new facilities
in the past, there can be no assurance that the company will not encounter cost
overruns or project delays in connection with any or all of the new facilities.
Furthermore, there can be no assurance that future financing for additional
facilities, whether within India or elsewhere, would be available on attractive
terms or at all.
2.11.5 Restrictions on US immigration
The company's professionals who work on-site at client facilities in the United
States on temporary and extended assignments are typically required to obtain
visas. As of December 31, 1999, substantially all of the company's personnel in
the United States were working pursuant to H-1B visas (630 persons) or L-1 visas
( 221 persons). Although there is no limit to new L-1 petitions, there is a
limit to the number of new H-1B petitions that the United States Immigration and
Naturalization Service may approve in any government fiscal year. In years in
which this limit is reached, the company may be unable to obtain the H-1B visas
necessary to bring its critical Indian IT professionals to the United States on
an extended basis. This limit was reached in June 1999 for the US government's
fiscal year ending September 30, 1999. While the company anticipated that such
limit would be reached prior to the end of the US government's fiscal year and
made efforts to plan accordingly, there can be no assurance that the company
will continue to be able to obtain a sufficient number of H-1B visas. Changes in
existing US immigration laws that make it more difficult for the company to
obtain H-1B and L-1 visas could impair the company's ability to compete for and
provide services to clients and could have a material adverse effect on the
company's results of operations and financial condition.
2.11.6 Risks related to international operations
While to date all of the company's software development facilities are located
in India, the company intends to develop new software development facilities in
other regions, including potentially Southeast Asia, Latin America and Europe.
The company has not yet made substantial contractual commitments to develop such
new software development facilities, and there can be no assurance that the
company will not significantly alter or reduce its proposed expansion plans. The
company's lack of experience with facilities outside of India subject the
company to further risk with regard to foreign regulation and overseas
facilities management. Increasing the number of software development facilities
and the scope of operations outside of India subjects the company to a number of
risks, including, among other things, difficulties relating to administering its
business globally, managing foreign operations, currency exchange rate
fluctuations, restrictions against the repatriation of earnings, export
requirements and restrictions, and multiple and possibly overlapping tax
structures. Such developments could have a material adverse effect on the
company's business, results of operations and financial condition.
2.11.7 Dependence on skilled personnel; risks of wage inflation
The company's ability to execute project engagements and to obtain new clients
depends, in large part, on its ability to attract, train, motivate and retain
highly skilled IT professionals, particularly project managers, software
engineers and other senior technical personnel. An inability to hire and retain
additional qualified personnel will impair the company's ability to bid for or
obtain new projects and to continue to expand its business. The company believes
that there is significant competition for IT professionals with the skills
necessary to perform the services offered by the company. There can be no
assurance that the company will be able to assimilate and manage new IT
professionals effectively. Any increase in the attrition rates experienced by
the company, particularly the rate of attrition of experienced software
engineers and project managers, would adversely affect the company's results of
operations and financial condition. There can be no assurance that the company
will be successful in recruiting and retaining a sufficient number of
replacement IT professionals with the requisite skills to replace those IT
professionals who leave. Further, there can be no assurance that the company
will be able to re-deploy and retrain its IT professionals to keep pace with
continuing changes in IT, evolving standards and changing client preferences.
Historically, the company's wage costs in India have been significantly lower
than wage costs in the United States for comparably skilled IT professionals.
However, wage costs in India are presently increasing at a faster rate than in
the United States. In the long-term, wage increases may have an adverse effect
on the company's profit margins unless the company is able to continue
increasing the efficiency and productivity of its professionals.
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2.11.8 Client concentration
The company has derived, and believes that it will continue to derive, a
significant portion of its revenues from a limited number of large corporate
clients. For fiscal 1998 and fiscal 1999 and the quarter ended December 31,
1999, the company's largest client accounted for 10.5%, 6.4% and 7.5%
respectively, of the company's total revenue and its five largest clients
accounted for 35.1%, 28.4% and 31.3 % respectively, of the company's total
revenue. The volume of work performed for specific clients is likely to vary
from year to year, particularly since the company is usually not the exclusive
outside service provider for its clients. Thus, a major client in one year may
not provide the same level of revenues in a subsequent year. The loss of any
large client could have a material adverse effect on the company's results of
operations and financial condition. Since many of the contracted projects are
critical to the operations of its clients' businesses, any failure to meet
client expectations could result in a cancellation or non-renewal of a contract.
However, there are a number of factors other than the company's performance that
could cause the loss of a client and that may not be predictable. For example,
in 1995, the company chose to reduce significantly the services provided to its
then-largest client rather than accept the price reductions and increased
company resources sought by the client. In other circumstances, the company
reduced significantly the services provided to its client when the client either
changed its outsourcing strategy by moving more work in-house and reducing the
number of its vendors, or replaced its existing software with packaged software
supported by the licensor. There can be no assurance that the same circumstances
may not arise in future.
2.11.9 Fixed-price, fixed-time frame contracts
As a core element of its business strategy, the company continues to offer a
significant portion of its services on a fixed-price, fixed-time frame basis,
rather than on a time-and-materials basis. Although the company uses specified
software engineering processes and its past project experience to reduce the
risks associated with estimating, planning and performing fixed-price, fixed-
time frame projects, the company bears the risk of cost overruns, completion
delays and wage inflation in connection with these projects. The company's
failure to estimate accurately the resources and time required for a project,
future rates of wage inflation and currency exchange rates or its failure to
complete its contractual obligations within the time frame committed could have
a material adverse effect on the company's results of operations and financial
condition.
2.11.10 Infrastructure and potential disruption in telecommunications
A significant element of the company's business strategy is to continue to
leverage its various software development centers in Bangalore, Bhubaneswar,
Chennai, Mangalore and Pune in India and to expand the number of such centers in
India as well as abroad. The company believes that the use of a strategically
located network of software development centers will provide the company with
cost advantages, the ability to attract highly skilled personnel in various
regions, the ability to service clients on a regional and global basis, and the
ability to provide 24-hour service to its clients. Pursuant to its service
delivery model, the company must maintain active voice and data communication
facilities between its main offices in Bangalore, the offices of its clients,
and its other software development facilities. Although the company maintains
redundant voice and data communication links, any significant loss of the
company's ability to transmit voice and/or data would have a material adverse
effect on the company's results of operations and financial condition.
2.11.11 Expected decrease in demand for Year 2000 services
Year 2000 conversion projects represented 5.8% and 19.0% of the company's total
revenue for the quarter ended December 31, 1999 and quarter ended December 31,
1998, respectively. The company expects that Year 2000 conversion projects will
continue to represent a material portion of the company's business in fiscal
2000. The high demand for these time-sensitive projects results in pricing and
margins that are favorable to the company. The company believes that demand for
Year 2000 conversion services will begin to diminish rapidly as many Year 2000
conversion solutions are implemented and tested. There can be no assurance that
the company will be successful in generating additional business from its Year
2000 clients for other services, that the company will be successful in
replacing Year 2000 conversion projects with other projects as the Year 2000
business declines or that margins from any such future projects will be
comparable to those obtained from Year 2000 conversion projects. There is an
additional risk that the company may be unable to retrain and re-deploy IT
professionals who are currently assigned to Year 2000 conversion projects
involving legacy computer systems after such projects are completed.
Furthermore, as Year 2000 conversion projects are completed, there is a
likelihood of increased competition for other types of projects from firms
formerly dependent on Year 2000 business.
2.11.12 Competition
The market for IT services is highly competitive. Competitors include IT
services companies, large international accounting firms and their consulting
affiliates, systems consulting and integration firms, temporary employment
agencies, other technology companies and clients' in-house MIS departments.
Competitors include international firms as well as national, regional and local
firms located in the United States, Europe and India. The company expects that
future competition will increasingly include firms with operations in other
countries, potentially including countries with lower personnel costs than
those prevailing in India. Historically, one of the company's key competitive
advantages has been a cost advantage relative to service providers in the
United States and Europe. Since wage costs in India are presently increasing at
a faster rate than those in the United States, the company's ability to compete
effectively will become increasingly dependent on its reputation, the quality
of its services, and its expertise in specific markets. Many of the company's
competitors have significantly greater financial, technical and marketing
resources and generate greater revenue than the company, and there can be no
assurance that the company will be able to compete successfully with such
competitors and will not lose existing clients to such competitors. The company
believes that its ability to compete also depends in part on a number of
factors outside its control, including the ability of its competitors to
attract, train, motivate and retain highly skilled IT professionals, the price
at which its competitors offer comparable services, and the extent of its
competitors' responsiveness to client needs.
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2.11.13 Dependence on key personnel
The company's success depends to a significant degree upon continued
contributions of members of the company's senior management and other key
research and development and sales and marketing personnel. The company
generally does not enter into employment agreements with its senior management
and other key personnel that provide for substantial restrictions on such
persons leaving the company. The loss of any of such persons could have a
material adverse effect on the company's business, financial condition and
results of operations.
2.11.14 Potential liability to clients; risk of exceeding insurance coverage
Many of the company's contracts involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be
difficult to quantify. Any failure in a client's system could result in a claim
for substantial damages against the company, regardless of the company's
responsibility for such failure. Although the company attempts to limit its
contractual liability for damages arising from negligent acts, errors, mistakes
or omissions in rendering its services, there can be no assurance that the
limitations of liability set forth in its service contracts will be enforceable
in all instances or will otherwise protect the company from liability for
damages. The company maintains general liability insurance coverage, including
coverage for errors or omissions; however, there can be no assurance that such
coverage will continue to be available on reasonable terms or will be available
in sufficient amounts to cover one or more large claims, or that the insurer
will not disclaim coverage as to any future claim. The successful assertion of
one or more large claims against the company that exceed available insurance
coverage or changes in the company's insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements,
could adversely affect the company's results of operations and financial
condition.
2.11.15 Risks associated with possible acquisitions
The company intends to evaluate potential acquisitions and strategic
investments on an ongoing basis. As of the date, however, the company has no
understanding, commitment or agreement with respect to any material future
acquisition or investment. Since the company has not made any acquisitions in
the past, there can be no assurance that the company will be able to identify
suitable acquisition candidates available for sale at reasonable prices,
consummate any acquisition, or successfully integrate any acquired business
into the company's operations. Further, acquisitions may involve a number of
special risks, including diversion of management's attention, failure to retain
key acquired personnel and clients, unanticipated events or circumstances,
legal liabilities and amortization of acquired intangible assets, some or all
of which could have a material adverse effect on the company's results of
operations and financial condition. Under Indian law, except in certain limited
circumstances, the company may not make any acquisition of, or investment in, a
non-Indian company without RBI and, in most cases, Government of India
approval. Even if the company does encounter an attractive acquisition
candidate, there can be no assurance that RBI and, if required, Government of
India approval can be obtained.
2.11.16 Risks related to software product sales
In the quarter ended December 31, 1999, the company derived 2.0% of its total
revenue from the sale of software products. The development of the company's
software products requires significant investments. The markets for the
company's primary software product are competitive and currently located in
developing countries, and there can be no assurance that such a product will
continue to be commercially successful. In addition, there can be no assurance
that any new products developed by the company will be commercially successful
or that the costs of developing such new products will be recouped. A decrease
in the company's product revenues or margins could adversely affect the
company's results of operations and financial condition. Additionally, software
product revenues typically occur in periods subsequent to the periods in which
the costs are incurred for development of such products. There can be no
assurance that such delayed revenues will not cause periodic fluctuations of
the company's results of operations and financial condition.
2.11.17 Restrictions on exercise of preemptive rights by ADS holders
Under the Indian Companies Act, 1956 (the "Indian Companies Act"), a company
incorporated in India must offer its holders of equity shares pre-emptive
rights to subscribe and pay for a proportionate number of shares to maintain
their existing ownership percentages prior to the issuance of any new equity
shares, unless such preemptive rights have been waived by three-fourths of the
company's shareholders. US holders of ADSs may be unable to exercise pre-
emptive rights for equity shares underlying ADSs unless a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
is effective with respect to such rights or an exemption from the registration
requirements of the Securities Act is available. The company's decision to file
a registration statement will depend on the costs and potential liabilities
associated with any such registration statement as well as the perceived
benefits of enabling the holders of ADSs to exercise their preemptive rights
and any other factors the company considers appropriate at the time. No
assurance can be given that the company would file a registration statement
under these circumstances. If the company issues any such securities in future,
such securities may be issued to the Depositary, which may sell such securities
for the benefit of the holders of the ADSs. There can be no assurance as to the
value, if any, the Depositary would receive upon the sale of such securities.
To the extent that holders of ADSs are unable to exercise preemptive rights
granted in respect of the equity shares represented by their ADSs, their
proportional interests in the company would be reduced.
2.11.18 Intellectual property rights
The company relies upon a combination of non-disclosure and other contractual
arrangements and copyright, trade secrets and trademark laws to protect its
proprietary rights in intellectual property. Ownership of software and
associated deliverables created for clients is generally retained by or
assigned to the client, and the company does not retain an interest in such
software and deliverables. The company also develops foundation and application
software products, or software "tools", which are licensed to clients and
remain the property of the company. The company has obtained registration of
INFOSYS as a trademark in India but not in the United States, and does not have
any patents or registered copyrights in the United States. The company
currently requires its IT professionals to enter into non-disclosure and
assignment of rights agreements to limit use of, access to, and distribution of
its proprietary information. There can be no assurance that the steps taken by
the
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company in this regard will be adequate to deter misappropriation of
proprietary information or that the company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights.
Although the company believes that its services and products do not infringe
upon the intellectual property rights of others, there can be no assurance that
such a claim will not be asserted against the company in future. Assertion of
such claims against the company could result in litigation, and there can be no
assurance that the company would be able to prevail in such litigation or be
able to obtain a license for the use of any infringed intellectual property
from a third party on commercially reasonable terms. There can be no assurance
that the company will be able to protect such licenses from infringement or
misuse, or prevent infringement claims against the company in connection with
its licensing efforts. The company expects that the risk of infringement claims
against the company will increase if more of the company's competitors are able
to obtain patents for software products and processes. Any such claims,
regardless of their outcome, could result in substantial cost to the company
and divert management's attention from the company's operations. Any
infringement claim or litigation against the company could, therefore, have a
material adverse effect on the company's results of operations and financial
condition.
2.11.19 Control by principal shareholders, officers and directors; anti-takeover
provisions
The company's officers and directors, together with members of their immediate
families, in the aggregate, beneficially own approximately 29.4% of the
company's issued equity shares. As a result, such persons, acting together,
will likely still have the ability to exercise significant control over most
matters requiring approval by the shareholders of the company, including the
election and removal of directors and significant corporate transactions. Such
control by the company's officers and directors could delay, defer or prevent a
change in control of the company, impede a merger, consolidation, takeover or
other business combination involving the company, or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of the company.
The Indian Companies Act and the company's Articles of Association (the
"Articles") require that: (i) at least two-thirds of the company's directors
shall serve for a specified term and shall be subject to re-election by the
company's shareholders at the expiration of such terms; and (ii) at least one-
third of the company's directors who are subject to re-election shall be up for
re-election at each annual meeting of the company's shareholders. In addition,
the company's Articles provide that Mr. N. R. Narayana Murthy, one of the
company's principal founders and its Chairman of the Board and Chief Executive
Officer, shall serve as the company's Chairman of the Board and shall not be
subject to re-election as long as he and his relatives own at least 5% of the
company's outstanding equity securities. Furthermore, any amendment to the
company's Articles would require the affirmative vote of three-fourths of the
company's shareholders. Finally, foreign investment in Indian companies is
highly regulated. These provisions could delay, defer or prevent a change in
control of the company, impede a business combination involving the company or
discourage a potential acquirer from attempting to obtain control of the
company.
2.11.20 Year 2000 compliance
While the company has evaluated each of its IT services and software products
and believes that each is substantially Year 2000 compliant, there can be no
assurance that the company's IT services and products are or will ultimately be
Year 2000 compliant. The Company believes that its internal systems are
substantially Year 2000 compliant. As of the date of this Quarterly Report, the
company has not experienced any Year 2000 related problems. The company relies
directly and indirectly on systems utilized by its suppliers for
telecommunications, utilities, electronic hardware and software applications.
However there can be no assurance that these third party suppliers and their
products are or will ultimately be Year 2000 compliant. Any failure of these
third party suppliers to resolve their Year 2000 problems could disrupt the
company's operations, which could have a material adverse effect on the
company's business, results of operations and financial condition. As of the
date of this quarterly report, no material disruption has been reported.
However, the company does not expect to arrive at a conclusive picture of the
effect of the transition immediately and continues to monitor the transition
and is in touch with its customers to address any problems. The full cost of
transition support is still being computed, but is estimated to be
insignificant.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
3.1 Foreign Currency Market Risk
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign exchange rates. The Company's
functional currency is the Indian Rupee although it transacts a major portion
of its business in foreign currencies and accordingly has foreign currency
exposure through its sales in the United States and purchases from overseas
suppliers in U.S. dollars. In its U.S. operations, the Company currently does
not actively hedge against exchange rate fluctuations, although it may elect to
do so in the future. Accordingly, changes in exchange rates may have a material
adverse effect on the Company's net sales, cost of services sold, gross margin
and net income, any of which alone or in the aggregate may in turn have a
material adverse effect on the Company's business, operating results and
financial condition. The exchange rate between the rupee and the U.S. dollar
has changed substantially in recent years and may fluctuate substantially in
the future. During the four-year period from March 31, 1995 through March 31,
1999, the value of the rupee against the U.S. dollar declined by approximately
35.2%. For the quarter ended December 31, 1999, fiscal 1999 and fiscal 1998,
the Company's U.S. dollar-denominated revenues represented 89.6%, 88.1% and
90.0%, respectively, of total revenues. The Company expects that a majority of
its revenues will continue to be generated in U.S. dollars for the foreseeable
future and that a significant portion of the Company's expenses, including
personnel costs as well as capital and operating expenditures, will continue to
be denominated in rupees. Consequently, the Company's results of operations
will be adversely affected to the extent the rupee appreciates against the U.S.
dollar. The Company has sought to reduce the effect of exchange rate
fluctuations on operating results by periodically purchasing foreign exchange
forward contracts to cover a portion of outstanding accounts receivable. As of
December 31, 1999, the Company had no outstanding forward contracts. These
contracts typically mature within three months, must be settled on the day of
maturity and may be canceled subject to the payment of any gains or losses in
the difference between the contract exchange rate and market exchange rate on
the date of cancellation. The Company uses these instruments only as a hedging
mechanism and not for speculative purposes. There can be no assurance that the
Company will purchase contracts adequate to insulate itself from foreign
exchange currency risks or that any such contracts will perform adequately as a
hedging mechanism. Devaluation of
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27 of 32
<PAGE>
the rupee will result in foreign currency translation losses. For example, for
fiscal 1998 and fiscal 1999, the Company's foreign currency translation losses
were approximately $3.5 million and $2.1 million, respectively.
- -------------------------------------------------------------------------------
28 of 32
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
On October 8, 1999, the company received a demand notice from the Indian Income
Tax Authorities (the "Income Tax Authorities") requesting payment of
approximately $14.32 million in unpaid income tax liability and $2.07 million
for accrued interest on such income tax for employee income taxes that should
have been witheld by the company on stock options issued to its employees under
the company's 1994 Employee Stock Offer Plan (the "1994 Stock Plan").
The company has requested relief and clarifications on the taxability of such
stock option issuances from the Income Tax Authorities since 1995 and has
received a legal opinion that the company would have no tax liability on its
1994 Stock Plan. Additionally, the company has entered into indemnification
agreements with each option holder which indemnify the company in the event
such tax liabilities are assessed by the Income Tax Authorities. Accordingly,
the company believes that any payment of such taxes would have no material
adverse impact on its earnings.
During December 1999, the Company paid the Income Tax demand in full, even
though it has not abandoned legal recourses against the demand. For this
purpose the equity shares of the Optionees held for indemnifying the company
against any tax liability imposed in connection with the the 1994 Stock Plan
have been pledged by the Infosys Technologies Limited Employee Welfare Trust,
(the body administering the 1994 Stock Plan) with HDFC Ltd. The loan obtained
by such pledge has been used for paying the Income Tax Demand.
Item 2. Changes in Securities and Use of Proceeds
The Board of Directors approved and recommended for approval of the members in
general meeting, a two-for-one stock split of its equity shares and ADSs.
Accordingly, the shareholders in an Extra-ordinary General Meeting, held on
December 29, 1999 have approved the sub-division of each of the existing equity
shares of par value Rs.10/- per share into two equity shares of par value Rs.5
each. Concurrently, each of the existing ADSs will be split into two ADSs.
Accordingly, the shareholders also approved as a special resolution in the
Extra-ordinary General Meeting, the amendment of the 1998 Option Plan and the
1999 Stock Option Plan authorising the company to make appropriate adjustments
for the Stock Split. The Board has fixed February 11, 2000 as the Record date
for determining the shareholders/ADSs holders entitled to the split.
As of December 31, 1999, $19.8 million of the net proceeds were used for
capital expenditure incurred on construction of the Company's software
development facilities at Pune, Mangalore, Chennai, Bhuvaneshwar and
construction of Infosys Park, Phase I & II, adjacent to the company's
headquarters in Electronics City.
Item 3. Default upon senior securities
None
Item 4. Submission of matters to a vote of security holders
During the quarterly period ending December 31, 1999 the company convened an
Extra-ordinary General Meeting of the Shareholders ("EGM") on December 29,
1999 to consider and approve the two-for-one split as recommended by the Board
The following is a brief description of the matters voted upon at the EGM of
the company held on December 29, 1999 along with votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, as to
each matter. The matters to be voted upon were notified to the shareholders on
record and all Registered Holders of the American Depositary Receipts (the
"ADRs") who were holding the ADRs as on a record date determined by the
Depositary.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Brief Description of the matter put to vote Votes for/ Votes Abstentions/
against/ Broker
Withheld Non-votes
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) (2)(3) (1) (2)(3) (1) (2) (3)
1. To consider and if thought fit, to pass with or without
modifications, as an ORDINARY RESOLUTION the following:
a) RESOLVED THAT, each of the existing fully paid up Equity Share of
par value Rs. 10 be and is hereby sub-divided into two fully paid up
Equity Shares of par value Rs. 5 per share.
b) FURTHER RESOLVED THAT, each of the existing fully paid up American
Depositary Share be and is hereby sub-divided into two fully paid up
American Depositary Shares.
203 1 -
2. To consider and if though fit, to pass with or without
modifications, as an ORDINARY RESOLUTION the following:
RESOLVED THAT the Authorized Share Capital of the Company
be and is hereby altered from the existing Rs.
50,00,00,000 -(Rupees Fifty crores only) divided
into 5,00,00,000 (Five crores only) Equity
Shares of Rs. 10 each (Rupees Ten only) to
Rs. 50,00,00,000 (Rupees Fifty crores only) divided into
10,00,00,000 (Ten crores only) Equity Shares of Rs. 5
each (Rupees Five only).
203 1 -
</TABLE>
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29 of 32
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Brief Description of the matter put to vote Vote for/ Votes Abstantions/
against/ Broker Non-
withheld votes
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) (2)(3) (1) (2)(3) (1) (2) (3)
3. To consider and if thought fit, to pass with or without
modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT
the Articles of Association of the Company be and is hereby altered by
deleting the existing Article `3' and substituting in place and stead
thereof the following new Article `3': "The Authorized Share Capital
of the Company is Rs. 50,00,00,000 (Rupees Fifty crores only) divided
into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each
(Rupees Five only) with powers to increase or reduce the same in
accordance with the provisions of the Companies Act, 1956".
203 1 -
4. To consider and if thought fit, to pass with or without
modifications, as an ORDINARY RESOLUTION the following: RESOLVED THAT
for the purpose of giving effect to the sub-division of the Equity
Shares and American Depositary Shares, the Board and other designated
officers of the Company be and are hereby authorized on behalf of the
Company to do all such acts, deeds, matters and things as it may at
its discretion deem necessary or desirable for such purpose. 203 1 -
5. To consider and if though fit, to pass with or without
modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT
for the purpose of giving effect to the sub-division of the Equity
Shares and American Depositary Shares the Board of Directors be and
are hereby authorized to appropriately adjust the 1998 Option Plan. 203 1 -
6. To consider and if though fit, to pass with or without
modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT
for the purpose of giving effect to the sub-division of the Equity
Shares and American Depositary Shares the Board of Directors be and
are hereby authorized to appropriately adjust the 1998 Option Plan. 203 1 -
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the Indian Companies Act, voting is by show of hands unless a poll
is demanded by a member or members present in person, or by proxy holding
at least one-tenth of the total shares entitled to vote on the resolution
or by those holding paid-up capital of at least Rs. 50,000. Under the
Articles of the Company a member present by proxy shall be entitled to vote
only on a poll but not on a show of hands, unless such member is a body
corporate present by a representative in which case such proxy shall have a
vote on the show of hand as if he were a member.
(2) Under the Indian Companies Act and as per the Articles of the Company, on
a show of hands every member present in person shall have one vote and
upon a poll the voting rights of every member whether present in person or
by proxy, shall be in proportion to his share of the paid-up capital of
the Company.
(3) The votes represent the number of votes in a show of hands. No poll was
demanded during the AGM.
Item 5. Other Information
The Board approved the appointment of Mr. Philip Yeo as a non-executive
director on October 29, 1999. Mr. Yeo is the Executive Chairman of the
Singapore Economic Development Board since January 1986 and is Deputy Chairman
of Singapore's National Science and Technology Board since June 1999. Mr. Yeo
was the first Chairman of Singapore's National Computer Board from 1981 to
1987.. Mr. Yeo joined the Administrative Service in 1970 and served in the
Ministry of Defence where he held several appointments including the
appointment of Permanent Secretary for logistics, technology research &
development and defence industries January 1986. He retired from the
Administrative Service on March 31, 1999. Mr. Yeo graduated in 1970 in
Applied Science (Industrial Engineering) from the University of Toronto,
Canada under a Colombo Plan Scholarship. He later obtained a Master of
Science (Systems Engineering) from the University of Singapore in 1974. In
1976, he obtained a Master in Business Administration from Harvard University,
under a Fulbright scholarship. He is the recipient of many international
awards, and was conferred an Honorary Doctorate in Engineering from the
University of Toronto.
_______________________________________________________________________________
30 of 32
<PAGE>
Item 6 Exhibits and Reports
Infosys filed no reports on Form 8-K during the quarter ended December 31,
1999.
EXHIBIT INDEX
- -------------------------------------------------------------------------------
Exhibit Number Description of Document
- -------------------------------------------------------------------------------
3.1 Articles of Association
3.2 Memorandum of Association
3.3 Certificate of Incorporation
19.1. Infosys Quarterly report to the shareholders for the
quarter ended December 31, 1999.
27.1. Financial Data Schedule.
99.1 Proxy Information Statement to holders of American
Depositary Shares.
99.2 Proxy Information Statement to holders of Equity Shares.
99.3 Proxy Form to holders of Equity Shares.
99.4 Proxy Form to holders of American Depositary Shares.
- -------------------------------------------------------------------------------
31 of 32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly organized.
Dated: January 21, 2000 INFOSYS TECHNOLOGIES LIMITED
By: /s/ Narayana N. R. Murthy
- -------------------------------------------------------------------------------
Narayana N. R. Murthy,
Chairman and Chief Executive Officer
/s/ Nandan M. Nilekani
- -------------------------------------------------------------------------------
Nandan M. Nilekani,
Managing Director, President and
Chief Operating Officer
- -------------------------------------------------------------------------------
32 of 32
<PAGE>
EXHIBIT 3.1
ARTICLES OF ASSOCIATION
THE COMPANIES ACT, 1956
COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
INFOSYS TECHNOLOGIES LIMITED
CONSTITUTION
TABLE A NOT TO APPLY BUT COMPANY TO BE GOVERNED BY THESE ARTICLES
1. No regulations contained in Table A, in the first Schedule to the Companies
Act, 1956 shall apply to this Company, but the regulations for the
management of this Company and for the observance of the members thereof
and their representatives, shall, subject to any exercise of the statutory
powers of the Company with reference to the repeal or alteration of, or
addition to, its regulations by Special Resolution, as prescribed by the
Companies Act, 1956, be such as are contained in these Articles.
INTERPRETATION
INTERPRETATION CLAUSE
2. 1) In the Interpretation of these Articles, unless repugnant to the
subject or context:-
"THE ACT" AND THE SAID ACT"
"The Act" or the said Act" and reference to any section or provision
thereof respectively means and includes the Companies Act, 1956 (1 of
1956) and any statutory modification or re-enactment thereof for the
time being in force and reference to the section or provisions of the
said Act or such statutory modification.
"AUDITORS"
"Auditors" means and includes those persons appointed as such for the
time being by the Company.
"BOARD"
"Board" or "Board of Directors means a meeting of the Directors duly
called and constituted, or as the case may be, the Directors assembled
at the Board or the Directors of the Company collectively.
"CAPITAL"
"Capital" means the share capital for the time being raised or
authorised to be raised for the purpose of the Company.
2
<PAGE>
"THE COMPANY" OR "THIS COMPANY"
"The Company" or "This Company" means INFOSYS TECHNOLOGIES LIMITED.
"DIRECTORS"
"Directors" means the Directors for the time being of the Company or
as the case may be the Directors assembled at a Board.
"DIVIDEND"
"Dividend" includes bonus.
"GENDERS"
Words importing the masculine gender also include the feminine gender.
"IN WRITING"
"In writing" and "written" include printing or lithography or any
other modes of representing or reproducing words in visible form.
"MONTH"
"Month" means calendar month.
"OFFICE"
"Office" means the Registered Office for the time being of the
Company.
"PAID UP"
"Paid up" includes credited as paid-up.
"PERSONS"
"Persons" includes corporations as well as individuals.
"THE REGISTRAR"
"The Registrar" means the Registrar of Companies of the State in which
the office of the Company if for the time being situate.
"SEAL"
"Seal" means the common seal for the time being of the Company.
"SINGULAR NUMBER"
Words importing the singular number include where the context admits
or requires, the plural number and vice versa.
"YEAR" AND "FINANCIAL YEAR"
"Year" means the calendar year and "Financial Year" shall have the
meaning assigned thereto by Section 2(17) of the Act.
"THESE PRESENTS"
"These Presents" means these articles as modified from time to time.
2) Unless the context otherwise requires words and expressions contained in
the Articles shall bear the same meaning as in the Act.
3) The marginal notes used in these Articles shall not affect the construction
hereof. Save as aforesaid, any words or expressions defined in the Act,
shall, if not inconsistent with the subject or context, bear the same
meaning in these Articles.
a) That at the end of the existing Article 2(1) the following sub-clauses
shall be inserted namely:
"Beneficial owner" shall mean beneficial owner as defined in Clause
(a) of sub-Section (1) of Section 2 of the Depositories Act, 1996.
Depositories Act, 1996 shall include any statutory modification or
reenactment thereof and Depository shall mean a Depository as defined
under Clause (e) of sub-section (1) of Section 2 of the Depositories
Act, 1996.
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON
JANUARY 6, 1998
b) That the following new definition be added at the end of Article 2(1)
"Shareholder" or "Member" means the duly registered holder of the
shares from time to time and includes the subscribers to the
Memorandum of Association of the company and the beneficial owner(s)
as defined in clause (a) of sub-section(1) of Section 2 of the
Depositories Act, 1996.
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON
JANUARY 6, 1998
3
<PAGE>
CAPITAL AND INCREASE AND REDUCTION OF CAPITAL
3). "The Authorized Share Capital of the company is Rs. 50,00,00,000 (Rupees
fifty crores only) divided into 10,00,00,000 (ten crores only) Equity
Shares of Rs. 5 each (Rupees five only) with powers to increase or reduce
the same in accordance with the provisions of the Companies Act, 1956".
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON DECEMBER 29,
1999
"The company shall be entitled to dematerialize its existing shares,
rematerialize its shares held in the Depositories and/or to offer its fresh
shares in a dematerialized form pursuant to the Depositories Act, 1996 and
the rules framed thereunder, if any".
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6,
1998
3
<PAGE>
INCREASE OF CAPITAL OF THE COMPANY AND HOW CARRIED INTO EFFECT
4. The Company in General Meeting, may from time to time, increase its capital
by the creation of new shares, such increase to be of such aggregate amount
and to be divided into shares of such amounts as the resolution shall
prescribe. Subject to the provisions of the act, any shares of the original
or increased capital shall be issued upon such terms and conditions and
with such rights and privileges annexed thereto, as the General Meeting
resolving upon the creation thereof shall prescribe and if no direction be
given, as the Directors shall determine and in particular, such shares may
be issued with a preferential or qualified right to dividends, and in the
distribution of assets of the Company and with a right of voting at General
Meetings of the Company, in conformity with Sections 87 and 88 of the Act.
Whenever the capital of the Company has been increased under the provisions
of these Articles, the Directors shall comply with the provisions of
Section 97 of the Act.
ALLOTMENT OTHERWISE THAN FOR CASH
5. Subject to the provisions of the Act and these Articles, the Directors may
allot and issue shares in the capital of the Company as payment or part-
payment for any property or assets of any kind whatsoever, sold or to be
sold or transferred or to be transferred or for goods or machinery supplied
or to be supplied or for services rendered or to be rendered or for
technical assistance or know-how made or to be made available to the
Company or the conduct of its business and shares which may be so allotted
may be issued as fully or partly paid-up otherwise than in cash and if so
issued, shall be deemed to be fully or partly paid as the case may be.
ADDITIONAL CAPITAL TO FORM PART OF EXISTING CAPITAL
6. Except so far as otherwise provided by the conditions of issue or by these
presents, any capital raised by the creation of new shares, shall be
considered as part of the existing capital, and shall be subject to the
provisions herein contained, with reference to the payment of calls and
installments, forfeiture, lien, surrender, transfer and transmission,
voting and otherwise.
REDEEMABLE PREFERENCE SHARES
7. Subject to the provisions of Section 80 of the Act, the Company shall have
the power to issue Preferential Shares which are or at the option of the
Company are to be liable to be redeemed and the resolution authorising such
issue shall prescribe the manner, terms and conditions of redemption.
REDUCTION OF CAPITAL
8. The Company may (subject to the provisions of Sections 78, 80, 100 to 105
inclusive, of the Act) from time to time by Special Resolution, reduce its
capital and any Capital Redemption Reserve Account or Share Premium Account
in any manner for the time being authorised by law, and in particular,
capital may be paid off on the footing that it may be called up again or
otherwise. This Article is not to derogate from any power the Company would
have if it were omitted.
VARIATION OF RIGHTS
9. If at any time the share capital is divided into different classes of
shares, all or any of the rights and privileges attached to the shares of
any class may subject to the provisions of Sections 106 and 107 be varied,
commuted, affected, dealt with or abrogated with the consent in writing of
the holders of not less than three-fourths of the issued shares of that
4
<PAGE>
class or with the sanction of a Special Resolution at a separate meeting of
the holders of the issued shares of that class.
ISSUE OF FURTHER PARI PASSU SHARES NOT TO AFFECT THE RIGHT OF SHARES
ALREADY ISSUED
10. The rights conferred upon the holders of the shares of any class issued
with preferred or any other rights shall not, unless, otherwise expressly
provided by the terms of issue of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
SUB-DIVISION AND CONSOLIDATION OF SHARES
11. Subject to the provisions of Section 94 of the Act, the Company in General
Meeting may from time to time, sub-divide or consolidate its shares, or any
of them, and the resolution whereby any share is sub-divided, may determine
that, as between the holders of the shares resulting from such sub-division
one or more of such shares shall have some preference or special advantage
as regards dividend, capital or otherwise over or as compared with the
other or others. Subject as aforesaid the Company in General Meeting may
also cancel shares which have not been taken or agreed to be taken by any
person and diminish the amount of its share capital by the amount of shares
so cancelled. The cancellation of shares in pursuance of this Article shall
not be deemed to be a reduction of the share capital.
11A. The Directors are hereby authorised to issue Equity Shares or Debentures
(whether or not convertible into equity shares) for offer and allotment to
such of the officers, employees and workers of the Company as the Directors
may select or the trustees of such trust as may be set up for the benefit
of the officers; employees and workers in accordance with the terms and
conditions of such scheme, plan or proposal as the Directors may formulate.
Subject to the consent of the Stock Exchanges and of the Securities
Exchange Board of India, the Directors may impose the condition that the
shares in or debentures of the Company so allotted shall not be
transferable for a specified period.
SHARES AND CERTIFICATES
SHARES TO BE NUMBERED PROGRESSIVELY AND NO SHARES TO BE SUB-DIVIDED
12. The shares in the capital shall be numbered progressively according to
their several denominations and except in the manner hereinbefore mentioned
no share shall be sub-divided. Every forfeited or surrendered share shall
continue to bear the number by which the same was originally distinguished.
SHARES AT THE DISPOSAL OF THE DIRECTORS
13. Subject to the provisions of these Articles and the Act, the shares in the
capital of the Company for the time being (including any shares forming
part of any increased capital of the Company) shall be under the control of
the Directors who may issue, allot or otherwise dispose of the same or any
one of them to such persons in such proportion and on such terms and
conditions and either at a premium or at par or (subject to compliance with
the provisions of the Act) at a discount and at such times as they may from
time to time think fit and proper and with the sanction of the Company in
General Meeting to give to any person the option to call for or allotted
shares of any class of the Company either at par or at premium or subject
as aforesaid at a discount during such time and for such consideration and
such option being exercisable at such times as the Directors think fit; and
any shares which may be so allotted may be issued as fully paid-up shares
and if so issued shall be deemed to be fully paid-up shares. The Board
shall cause to be filed the returns as to allotment provided for in Section
75 of the Act. Provided that the option or right to call of
5
<PAGE>
shares shall not be given to any person except With the sanction of the
company in the General Meeting.
ACCEPTANCE OF SHARES
14. Any application signed by, or on behalf of, an applicant for shares in the
Company followed by an allotment of any shares therein, shall be an
acceptance of shares within the meaning of these Articles; and every person
who thus or otherwise accepts any shares and whose name is entered in its
Register of Members shall, for the purpose of these Articles, be a member
of the Company.
DEPOSIT AND CALL, ETC. TO BE A DEBT PAYABLE IMMEDIATELY
15. The money (if any) which the Directors shall, on the allotment of any
shares being made by them, require or direct to be paid by way of deposits,
call or otherwise, in respect of any shares allotted by them, shall,
immediately on the inscription of the name of the allottee in the Register
of Members as the holder of such shares, become a debt due to and
recoverable by the Company from the allottee thereof and shall be paid by
him accordingly.
LIABILITY OF MEMBERS
16. Every member, or his heirs, executors, administrators or other
representatives, shall pay to the Company the portion of the capital
represented by his share or shares, which may, for the time being, remain
unpaid thereon, in such amounts, at such time or times, and in such manner
as the Directors shall, from time to time, in accordance with the Company's
Regulations require or fix for the payment thereof.
SHARE CERTIFICATE
17 a) The share certificates shall be issued in market lots and where
share certificates are issued in either more or less than market lots,
subdivision or consolidation of share certificates into market lots
shall be done free of charge.
b) Any two or more joint allottees of a share shall, for the purposes of
this Article, be treated as a single Member, and the certificate of
any share which may be the subject of joint ownership, may be
delivered to any one of such joint owners on behalf of all of them.
For any further certificate the Board shall be entitled but shall not
be bound, to prescribe a charge not exceeding Rupee One. The Company
shall comply with the provisions of Section 113 of the Act.
c) A Directors may sign a share certificate by affixing his signature
thereon by means of any machine, equipment or other mechanical means,
such as engraving in metal or lithography, but not by means of a
rubber stamp, provided that the Director shall be responsible for the
safe custody of such machine, equipment or other material used for the
purpose.
RENEWAL OF SHARE CERTIFICATE
18. a) No fee shall be charged for issue of new share certificates in
replacement of those which are old, decrepit, worn-out or where the
cages on the reverse of the share certificates for recording transfers
have been fully utilised.
b) When a new share certificate has been issued in pursuance of Clause
(a) of this Article, it shall state on the face of it and against the
stub or counterfoil to the effect
6
<PAGE>
that it is "Issued in lieu of Share Certificate No______
sub-divided/replaced/on consolidation of shares.
If a share certificate is lost or destroyed, a new certificate in lieu
thereof shall be issued only with the prior consent of the Board and
on payment of such fee, not exceeding Rupees two as the Board may from
time to time fix, and on such terms, if any, as to evidence and
indemnity as to payment of such out-of-pocket expenses incurred by the
Company in investigating evidence, as the Board thinks fit.
When a new share certificate has been issued in pursuance of Clause
(c) of this Article, it shall state on the face of it and against the
stub or counterfoil to the effect that it is "a duplicate issued in
lieu of share certificate No_________". The word "duplicate" shall be
stamped or punched in bold letters across the face of the share
certificate.
Where a new share certificate has been issued in pursuance of Clause
(a) or Clause (c) of this Article, particulars of every such share
certificate shall be entered in a Register of Renewed and Duplicate
Certificates indicating against the name or names of the person or
persons to whom the Certificate is issued the number and date of issue
of the share certificate in lieu of which the new certificate is
issued, and the necessary changes indicated in Register of Members by
suitable cross reference in the "Remarks" column.
All blank forms to be used for issue of share certificates shall be
printed and the printing shall be done only on the authority or a
resolution of the Board. The blank forms shall be consecutively
machine numbered and the forms and blocks, engravings, facsimiles and
hues relating to the printing of such forms shall be kept in the
custody of the Secretary or such other person as the Board may appoint
for the purposes; and the Secretary or the other person aforesaid
shall be responsible for rendering an account of these forms to the
Board.
The Managing Director of the Company for the time being or, if the
Company has no Managing Director, every Director of the Company shall
be responsible for the maintenance, preservation and safe custody of
all books an documents relating to the issue of share certificates
except the blank forms of share certificates referred to in sub-clause
(f).
h) All books referred to in sub-clause (9) shall be preserved in good
order permanently.
18(i) "The Shares in the Capital shall be numbered progressively according to
their several denominations, provided however, that the provisions
relating to progressive numbering shall not apply to the shares of the
company which are dematerialized or may be dematerialized in future or
issued in future in dematerialized form. Except in the manner hereinbefore
mentioned, no share shall be sub-divided. Every forfeited or surrendered
share held in material form shall continue to bear the number by which the
same was originally distinguished"
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6,
1998
DELIVERY OF SHARE/DEBENTURE CERTIFICATES
19. The Company shall within three months after the allotment of any of its
shares or debentures or debenture-stock and within one month after the
application for the registration of the transfer of any such shares or
debentures or debenture-stock, complete and have ready for delivery the
certificates of all shares, debentures or debenture stock allotted or
transferred unless the conditions of issue of shares or debentures or
debenture-stock otherwise provided. The expression "transfer" for the
purpose of this Article means, a transfer duly stamped and otherwise valid
and does not include any transfer which the Company is for any reason
entitled to refuse to register and does not register.
LIABILITY OF JOINT HOLDERS
20. If any share stands out in the names of two or more persons all the joint
holders of the share shall be severally as well as jointly liable for the
payment of all deposits, installments, and calls due in respect of such
shares, and for all incidents thereof according to the Company's
Regulations, but the person first named in the Register shall, as regards
receipt of dividend or bonus or service of notice, and all or any other
matters connected with the Company, except
7
<PAGE>
voting at meetings and the transfer of the shares, and any other matter by
the said Act or herein otherwise provided, be deemed the sole holder
thereof.
REGISTERED HOLDER ONLY THE OWNER OF THE SHARES
21. Except as ordered by a Court of competent jurisdiction or by law required,
the company shall be entitled to treat the person whose name appears on the
Register of Members as the holder of any share or whose name appears as the
beneficial owner of shares in the records of the Depository, as the
absolute owner thereof and accordingly shall not be bound to recognize any
benami, trust or equity or equitable, contingent or other claim to or
interest in such share on the part of any other person whether or not he
shall have express or implied notice thereof. The Board shall be entitled
at their discretion to register any shares in the joint names of any two or
more persons or the survivor or survivors of them.
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6,
1998
SHARE CERTIFICATE FOR JOINT MEMBERS
22. The Company shall not be bound to register more than three persons as the
joint holders of any share except in the case of executors or trustees of a
deceased member and in respect of a share held jointly by several persons
the Company shall not be bound to issue more than one certificate and
delivery of a certificate for a share to any one of the several joint
holders shall be sufficient delivery to all such holders.
FRACTIONAL CERTIFICATES
23. The Company may issue such fractional coupons as the Board may approve in
respect of any of the shares of the Company on such terms as the Board
thinks fit as to the period within which the fractional coupons are to be
converted into share certificates.
UNDERWRITING AND BROKERAGE - COMMISSION MAY BE PAID
24. Subject to the provisions of Section 76 of the Act, the Company may at any
time pay a commission to any person, in consideration of his subscribing or
agreeing to subscribe (whether absolutely or conditionally) for any shares
or debentures of the Company, or procuring, or agreeing to procure
subscriptions (whether absolute or conditional) for any shares or
debentures in the Company; But so that the commission shall not exceed in
case of shares five percent of the price at which the shares are issued and
in case of debentures two and a half percent of the price at which the
debentures are issued.
BROKERAGE
25. The Company may pay a reasonable sum for brokerage.
INTEREST OUT OF CAPITAL - INTEREST MAY BE PAID OUT OF CAPITAL
26. Where any shares are issued for purpose of raising money to defray the
expenses of the construction of any works or buildings or the provision of
any land, which cannot be made profitable for a lengthy period. the Company
may pay interest on so much of that share capital as is for the time being
paid up for the period, at the rate and subject to the conditions and
restrictions provided by Section 208 of the Act and may charge the same to
capital as part of the cost of construction of the works or buildings or
provision of plant.
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CALLS
DIRECTORS MAY MAKE CALLS
27. The Board may from time to time, subject to the terms on which any shares
may have been issued and subject to the conditions of allotment, by a
resolution passed at a meeting of the Board (and not by circular
resolution) make such calls as it thinks fit upon the Members in respect of
al! monies unpaid on the shares held by them respectively and each member
shall pay the amount of every call so made on him to the person or persons
and at the time and place appointed by the Board. A call may be made
payable by instalments.
NOTICE OF CALLS
28. Thirty days notice in writing of any call shall be given by the Company
specifying the time and place of payment, and the person or persons to whom
such calls shall be made.
CALLS TO DATE FROM RESOLUTION
29. A call shall be deemed to have been made at the time when the resolution
authorising such call was passed at a meeting of the Board.
CALL MAY BE REVOKED
30. A call may be revoked or postponed at the discretion of the Board.
LIABILITY OF JOINT HOLDERS
31. A joint-holder of a share shall be jointly and severally liable to pay all
calls in respect thereof.
DIRECTORS MAY EXTEND TIME
32. The Board may, from time to time at its discretion, extend the time fixed
for payment of any call, and may extend such time as to all or any of the
members who from residence at a distance or other cause, the Board may deem
fairly entitled to such extension save as a matter of grace and favour.
OVERDUE CALLS TO CARRY INTEREST
33. If any member fails to pay any call due from him on the day appointed for
payment thereof, or any such extension thereof as aforesaid, he shall be
liable to pay interest on the same from the day appointed for the payment
thereof to the time of actual payment at such rate as shall from time to
time be fixed by the Board but nothing in this Article shall render it
obligatory for the Board to demand or recover any interest from any such
member and the Board shall be at liberty to waive payment of such interest
either wholly or in part.
SUMS DEEMED TO BE CALLS
34. Any sum, which by the terms of issue of a share become payable on allotment
or at any fixed date, whether on account of the nominal value of the share
or by way of premium shall for the purposes of these Articles be deemed to
be a call duly made and payable on the date on which by the terms of issue
of the same becomes payable, and in the case of non-payment all the
relevant provisions of theses Articles as to payment of interest and
expenses, forfeiture or otherwise shall apply as if such sum had become
payable by virtue of a call duly made and notified.
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PART PAYMENT ON ACCOUNT OF CALL ETC. NOT TO PRECLUDE FORFEITURE
35. Neither a judgement nor a decree in favour of the company for calls or
other moneys due in respect of any shares nor any part payment or
satisfaction thereunder nor the receipt by the company of a portion of any
money which shall from time to time be due from any member to the company
in respect of his shares, either by way of principal or interest, nor any
indulgence granted by the Company in respect of payment of any such money,
shall preclude the company from thereafter.
PROOF ON TRIAL OR SUIT FOR MONEY ON SHARES
36. On the trial or hearing of any action or suit brought by the Company
against any member or his legal representative to recover any moneys
claimed to be due to the company for any call or other sum in respect of
his shares, it shall be sufficient to prove
a) that the name of the Member, in respect of whose shares the money is
ought to be recovered, appears entered in the Register of Members as
the holder Or one of the holders, at or subsequent to the date at
which the money sought to be recovered is alleged to have become due,
on the said shares;
b) that the resolution making the call is duly recorded in the minutes
books, and
c) that notice of such call was duly given to the Member or his legal
representatives issued in pursuance of these Articles; and that it
shall not be necessary to prove the appointment of the Directors who
made such call, nor that a quorum of Directors was present at the
Board at which such call was made, nor that the meeting at which such
call was made was duly convened or constituted nor any other matter
whatsoever, but the proof of the matters aforesaid shall be conclusive
evidence of the debt and the same shall be recovered by the company
against the Member or his representative from whom it is ought to be
recovered, unless it shall be proved, on behalf of such Member or his
representatives against the company that the name of such Member was
improperly inserted in the Register or that the money sought to be
recovered has actually been paid.
PAYMENT OF UNPAID SHARE CAPITAL IN ADVANCE
37. a) The Board may if it thinks fit, subject to the provisions of the Act,
agree to and receive from any Member willing to advance the same,
either in money or moneys worth the whole or any part of the amount
remaining unpaid on the shares held by him beyond the sum actually
called up and upon the moneys so paid or satisfied in advance, or so
much thereof, as from time to time and at any time thereafter exceeds
the amount of the calls then made upon and due in respect of the
shares on account of which such advances have been made, the Board may
pay or allow interest at such rate as the Member paying such advance
and the Board agree upon; provided always that if at any time after
the payment of any such money the rate of interest so agreed to be
paid to any such Member appears to the Board to be excessive, it shall
be lawful for the Board from time to time to repay to such Member so
much of such money as shall then exceed the amount of the calls made
upon such shares, unless there be an express agreement to the
contrary; and after such repayment such member shall be liable to pay,
and such shares shall be charged with the payment of all future calls
as if no such advance had been made; provided also that if at any time
after the payment of any money so paid in advance, the company shall
go into liquidation, either voluntary or otherwise, before the full
amount of the money so advanced shall have become due by the members
to the Company, on instalments or calls, or in any other manner, the
maker of such advance shall be entitled (as between himself and the
other Members) to receive back from the Company the full
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balance of such moneys rightly due to him by the Company in priority
to any payment to members on account of capital.
b) No Member paying any such sum in advance shall be entitled to any
voting rights, dividend or right to participate in profits in respect
of money so advanced by him until the same would but for such payment
become presently payable.
FORFEITURE AND SURRENDER OF AND LIEN ON SHARES
IF MONEY PAYABLE ON SHARE NOT PAID NOTICE TO BE GIVEN TO MEMBERS
38. If any Member fails to pay any call or instalment of call on or before the
day appointed for the payment of the same or any such extension thereof as
aforesaid, the Board may, at any time thereafter, during such time as the
call or instalment remains unpaid, give notice to him requiring him to pay
the same together with any interest that may have accrued and all expenses
that may have been incurred by the Company by reason of such non-payment.
TERMS OF NOTICE
39. The notice shall name a day (not being earlier than the expiry of fourteen
days from the date of service of notice) and a place or places on and at
which such call or instalment and such interest thereon at such rate as the
Directors shall determine from the day on which such call or instalment
ought to have been paid and expenses as aforesaid are to be paid. The
notice shall also state that, in the event of the non-payment at or before
the time and the place appointed, the share in respect of which the call
was made or instalment is payable will be liable to be forfeited:
IN DEFAULT OF PAYMENT, SHARES MAY BE FORFEITED
40. If the requirements of any such notice as aforesaid are not complied with,
every or any share in respect of which such notice has been given, may at
any time thereafter, but before payment of all calls or instalments,
interest and expenses due in respect thereof, be forfeited by a resolution
of the Board to that effect. Such forfeiture shall include all dividends
and bonuses declared in respect of the forfeited shares and not actually
paid before the forfeiture.
NOTICE OF FORFEITURE
41. When any share shall have been so forfeited, notice of the forfeiture shall
be given to the Member in whose name it stood immediately prior to the
forfeiture or to any of his legal representatives, or to any of the persons
entitled to the shares by transmission and an entry of the forfeiture, with
the date thereof, shall forthwith be made in the Register of Members but no
forfeiture, shall be in any manner invalidated by any omission or neglect
to give such notice or to make such entry as aforesaid.
FORFEITED SHARES TO BECOME PROPERTY OF THE COMPANY AND MAY BE SOLD, ETC.
42. Any share so forfeited shall be deemed to be the property of the Company
and may be sold, re-allotted or otherwise disposed of, either to the
original holder thereof or to any other person, upon such terms and in such
manner as the Board shall think fit.
MEMBERS STILL LIABLE TO PAY MONEY DUE NOTWITHSTANDING THE FORFEITURE
43. Any member whose shares have been forfeited shall, notwithstanding the
forfeiture, be liable to pay, and shall forthwith pay to the Company on
demand all calls, amounts, instalments,
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<PAGE>
interest and expenses owing upon or in respect of such shares at the time
of the forfeiture, together with interest thereon from the time of the
forfeiture until payment, at such rate as the Board may determine and the
Board may enforce the payment thereof if it thinks fit.
EFFECT OF FORFEITURE
44. The forfeiture of a share shall involve extinction, at the time of the
forfeiture, of all interest in and of all claims and demands against the
Company, in respect of the share, and all other rights incidental to the
share, except only such of those rights as by these Articles are
expressly saved.
SURRENDER OF SHARES
45. The Directors may subject to the provisions of the Act, accept a
surrender of any shares from or by any Member desirous of surrendering
them on such terms as they think fit.
EVIDENCE OF FORFEITURE
46. A declaration in writing that the declarant is a Director or Secretary of
the Company and that a share in the Company has been duly forfeited in
accordance with these Articles on the date stated in the declaration,
shall be conclusive evidence of the facts therein stated as against all
persons claiming to be entitled to the share.
COMPANY'S LIEN ON SHARES
47. The Company shall have a first and paramount lien upon all the shares,
not being fully paid-up shares, registered in the name of each Member
(whether solely or jointly with another or others), and upon the proceeds
of sale thereof, for all moneys (whether presently payable or not) called
or payable at a fixed time in respect of such shares and no equitable
interest in any share shall be created except upon the footing and
condition that Article 21 hereof is to have full effect. Any such lien
shall extend to all dividends from time to time declared in respect of
such shares. Unless otherwise agreed, the registration of a transfer of
shares shall operate as a waiver of the Company's lien if any on such
shares. The Board of Directors may at any time declare any shares to be
exempt, wholly or partially from the provisions of this Article.
LIEN ENFORCED BY SALE
48. For the purpose of enforcing such lien, the Directors may sell the shares
subject thereto in such manner as they think fit and for that purpose may
cause to be issued a duplicate certificate in respect of such shares and
may authorise one of their member or some other person to execute a
transfer thereof on behalf of and in the name of such member. No such
sale shall be made until such time as the moneys in respect of which such
lien exists or some part thereof is presently payable or the liability in
respect of which such lien exists is liable to be presently fulfilled or
discharged and until notice in writing of the intention to sell shall
have been served on such Member, or his heirs, executors, administrators,
or other representatives or upon the persons (if any) entitled by
transmission to the shares or any one or more of such heirs, executors,
administrators, representatives or persons, and default shall have been
made by him or them in payment, fulfilment or discharge of such debts,
liabilities or engagements for fourteen days after such notice.
APPLICATION OF SALE PROCEEDS
49. The net proceeds of any such sale after payment of the costs of such sale
shall be applied in or towards the satisfaction of such debts,
liabilities or engagements and the residue (if any)
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paid to such Member, or any of his heirs, executors, administrators,
representatives or assigns or any of the persons (if any) entitled by
transmission to the shares sold.
VALIDITY OF SALE UNDER ARTICLES
50. Upon any sale after forfeiture or for enforcing a lien in purported
exercise of the powers hereinbefore given, the Board may appoint some
person to execute an instrument of transfer of the shares sold and cause
the purchaser's name to be entered in the Register in respect of the
Shares sold and the purchaser shall not be bound to see to the regularity
of the proceedings, or to the application of the purchase money and after
his name has been entered in the Register in respect of such shares, the
validity of the sale shall not be impeached by any person and the remedy
of any person aggrieved by the sale shall be in damages only in and
against the Company exclusively.
CANCELLATION OF SHARE CERTIFICATE IN RESPECT OF FORFEITED SHARES
51. Upon any sale, re-allotment or other disposal under the provisions of the
preceding Articles, the certificate or certificates originally issued in
respect of the relative shares shall (unless the same shall on demand by
the Company have been previously surrendered to it by the defaulting
Member) stand cancelled and become null and void and of no effect, and
the Directors shall be entitled to issue a new certificate or
certificates in respect of the said shares to the person or persons
entitled thereto.
POWER TO ANNUL FORFEITURE
52. The Board may at any time before any share so forfeited shall have been
sold, re-allotted or otherwise disposed of, annul the forfeiture thereof
upon such conditions as it thinks fit.
TRANSFER AND TRANSMISSION OF SHARES
REGISTER OF TRANSFERS
53. "The company shall keep a Register of Transfers and shall have recorded
therein fairly and distinctly particulars of every transfer or
transmission of any share held in material form".
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6,
1998 FORM OF TRANSFER
54. Shares in the Company shall be transferred by an instrument in writing in
such form as prescribed under Section 108 of the Companies Act, 1956, or
under rules made thereunder from time to time.
TO BE EXECUTED BY TRANSFEROR AND TRANSFEREE
55. The instrument of transfer duly stamped and executed by the transferor
and the transferee shall be delivered to the Company in accordance with
the provisions of the Act. The instrument of transfer shall be
accompanied by such evidence as the Board may require to prove the title
of the transferor and his right to transfer the shares and every
registered instrument of transfer shall remain in the custody of the
Company until destroyed by an order of the Board. The transferor shall be
deemed to be the holder of such shares until the name of the transferee
shall have been entered in the Register of Members in respect thereof.
Before the registration of a transfer, the certificate or certificates of
the shares must be delivered to the Company.
55 A "In the case of transfer or transmission of shares or other marketable
Securities where the company has not issued any certificates and where
such shares or Securities are being held in any electronic and fungible
form in a Depository, the provisions of the Depositories Act 1996 shall
apply"
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6,
1998
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DIRECTORS MAY REFUSE TO REGISTER TRANSFERS
56. Subject to the provisions of Section 111 of the Act, the Board, may at
its own absolute and uncontrolled discretion, and without assigning any
reason, decline to register or acknowledge any transfer of shares whether
fully paid or not, (notwithstanding that the proposed transferee be
already a Member), but in such cases it shall, within one month from the
date on which the instrument of transfer was lodged with the Company,
send to the transferee and the transferor notice of refusal to register
such transfer. Provided that registration of a transfer shall not be
refused on the ground that the transferor being either alone or jointly
with any other person or persons indebted to the Company on any account
whatsoever except on shares.
REFUSAL TO REGISTER TRANSFER
57. In particular and without prejudice to the generality of the above
powers, the Board may subject to the provisions of Section 111 of the
Companies Act, 1956 decline to register in exceptional circumstances when
it is felt that the transferee is not a desirable person from the larger
point of view of the interest of the Company as a whole subject to the
provisions of the clause (c) of subsection (4) of Section 22A of the
Securities Contract (Regulation) Act.
SUB-DIVISION/CONSOLIDATION IN MARKETABLE LOTS ONLY
58. Transfer of shares in whatever lot should not be refused, though there
would be no objection to the company refusing to split a share
certificate into several scrips of any small denominations or to consider
a proposal for transfer of shares comprised in a share certificate to
several parties, involving such splitting, if on the face of it such
splitting/transfer appears to be unreasonable or without a genuine need.
The Company should not, therefore, refuse transfer of shares in violation
of the Stock Exchange listing requirements on the ground that the number
of shares to be transferred is less than any specified number.
DEATH OF ONE OR MORE JOINT HOLDERS OF SHARES
59. In case of the death of any one or more of the persons named in the
Register of Members as the joint holders of any share, the survivor or
survivors shall be the only persons recognised by the Company as having
any title to or interest in such share, but nothing herein contained
shall be taken to release the estate or a deceased joint-holder for any
liability on shares held by him jointly with any other person.
TITLE TO SHARES OF DECEASED MEMBER
60. The executors or administrators or holders of a Succession Certificate or
the legal representatives of a deceased Member(not being one of two or
more joint-holders) shall be the only person recognised by the Company as
having any title to the shares registered in the name of such Member, and
the Company shall not be bound to recognise such executors or
administrators or holders of a Succession Certificate or the legal
representatives unless such executors or administrators or legal
representatives shall have first obtained Probate or Letter of
Administration or Succession Certificate, as the case may be, from a duly
constituted court in the Union of India provided that in case where the
Board in its absolute discretion think fit, the Board may dispense with
production of Probate or Letters of Administration or Succession
Certificate, upon such terms as to indemnity or otherwise as the Board in
its absolute discretion may think necessary and under Article 59 register
the name of any person who claims to be absolutely entitled to shares
standing in the name of a deceased Member, as a Member.
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NO TRANSFER TO INSOLVENT, ETC.
61. No share shall in any circumstances, be transferred to any insolvent or
person of unsound mind.
REGISTRATION OF PERSON ENTITLED TO SHARES OTHERWISE THAN BY TRANSFER
62. Subject to the provisions of the Act and Articles 59 end 60 any person
becoming entitled to shares in consequences of death, lunacy, bankruptcy
or insolvency of any Member, or by any lawful means other than by a
transfer in accordance with these Articles, may with the consent of the
Board (which it shall not be under any obligation to give) upon producing
such evidence that he sustains the character in respect of which he
proposes to act under this Article, or of his title, as the Board thinks
sufficient, either be registered himself as the holder of the shares or
elect to have some persons nominated by him and approved by the Board,
registered as such holder; provided nevertheless, that if such person
shall elect to have his nominee registered, he shall testify the election
by executing in favour of his nominee an instrument of transfer in
accordance with the provisions herein contained, and until he does so he
shall not be freed from any liability in respect of the shares.
PERSONS ENTITLED MAY RECEIVE DIVIDENDS WITHOUT BEING REGISTERED AS
MEMBERS
63. A person entitled to a share by transmission shall, subject to the right
of the Directors to retain such dividends or money as hereinafter
provided be entitled to receive, and may give a discharge for any
dividends or other moneys payable in respect of the shares.
FEE ON TRANSFER OR TRANSMISSION
64. No fee shall be charged for transfer and, transmission of Shares or for
registration of any of power of attorney, probate, letter of
administration or other similar documents.
THE COMPANY NOT LIABLE FOR DISREGARD OF A NOTICE PROHIBITING REGISTRATION
OF A TRANSFER
65. The Company shall incur no liability or responsibility whatever in
consequence of its registering or giving effect to any transfer of shares
made or purporting to be made by any apparent legal owner thereof (as
shown or appearing in the Register of Members) to the prejudice of a
person or persons having or claiming any equitable right, title or
interest to or in the said shares, notwithstanding that the Company may
have any notice of such equitable right, title or interest or notice
prohibiting registration of such transfer and may have entered such
notice or referred thereto, in any book of the company, and the Company
shall not be bound or required to regard or attend or give effect to any
notice which may be given to it of any equitable right, title or
interest, or be under any liability whatsoever for refusing or neglecting
so to do, though it may have been entered or referred to in some book of
the company, but the company shall nevertheless be at liberty to regard
and attend to any such notice, and give effect thereto if the Board shall
so think fit.
BORROWING POWERS
POWER TO BORROW
66. Subject to the provisions of Sections 58A, 292 and 293 of the Act and of
these Articles, the Board may, from time to time at its discretion, by a
resolution passed at a Meeting of the Board accept deposits from
Members, either in advance of call or otherwise, and generally raise or
borrow or secure the payment of any sum or sums of money for the purposes
of the company provided however, where the moneys to be borrowed together
with the moneys already borrowed (apart from temporary loans obtained
from the Company's bankers in the
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<PAGE>
ordinary course of business) exceed the aggregate of the paid up capital
of the Company and its free reserves (that is to say, reserves not set
apart for any specific purpose) the Board shall not borrow such moneys
without the consent of the Company in General Meeting.
THE PAYMENT OR REPAYMENT OF MONIES BORROWED
67. The payment or repayment of moneys borrowed as aforesaid may be secured
in such manner and upon such terms and conditions in all respects as the
Board may think fit, and in particular by a resolution passed at a
meeting of the Board (and not by Circular Resolution) by the issue of
debentures of the Company, charged upon all or any part of the property
of the Company (both present and future) including its uncalled capital
for the time being, and debentures, and other securities may be made
assignable free from any equities between the Company and the person to
whom the same may be issued.
TERMS OF ISSUE OF DEBENTURES
68. Any debentures, debenture-stock or other securities may be issued at a
discount, premium or otherwise and maybe issued on condition that they or
any part of them shall be convertible into shares of any denomination,
and with any privileges and conditions as to redemption, surrender,
drawing, allotment of shares and attending (but not voting at) General
Meetings, appointment of Directors and otherwise. Debentures with a right
to conversion or allotment of shares shall be issued only with the
consent of the Company in General Meeting.
REGISTER OF MORTGAGES, ETC. TO BE KEPT
69. The Board shall cause a proper register to be kept in accordance with the
provisions of Section 143 of the Act of all mortgages, debentures and
charges specifically affecting the property of the Company; and shall
cause the requirements of Sections 118, 125, and 127 to 144 (both
inclusive) of the Act, in that behalf to be duly complied with (within
the time prescribed by the said sections of such extensions thereof as
may be permitted by the Company Law Board or the Court or the Registrar
as the case may be) so far as they fail to be complied with by the Board.
REGISTER AND INDEX OF DEBENTURE HOLDERS
70. The Company shall, if any time it issues debentures, keep a Register and
Index of Debenture holders in accordance with Section 152 of the Act. The
Company shall have the power to keep in any State or Country outside
India a Branch Register of Debenture-holders resident in that State or
Country.
SHARE WARRANT
POWER TO ISSUE SHARE WARRANTS
71. The Company may issue share warrants subject to, and in accordance with
the provisions of sections 114 and 115, and accordingly the Board may in
its discretion, with respect to any share which is fully paid-up on
application in writing signed by the persons registered as holder of the
share, and authenticated, by such evidence (if any) as the Board may,
from time to time, require as to the identity of the person signing the
application, and on receiving the certificate (if any) of the share, and
the amount of the stamp duty on the warrant and such fee as the Board may
from time to time require, issue a share warrant.
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DEPOSIT OF SHARE WARRANT
72. 1) The bearer of a share warrant may at any time deposit the warrant at
the office of the Company, and so long as the warrant remains so
deposited, the depositor shall have the same right of signing a
requisition for calling a meeting of the Company, and of attending,
and voting and exercising the other privileges of a Member at any
meeting held after the expiry of two clear days from the time of
deposit as if his name were inserted in the Register of Members as
the holder of the share included in the deposited warrant.
2) Not more than one person shall be recognised as depositor of the
share warrant.
3) The Company shall, on two days' written notice, return the deposited
share warrant to the depositor.
PRIVILEGES AND DISABILITIES OF THE HOLDERS OF SHARE WARRANT
73. 1) Subject as herein otherwise expressly provided, no person shall,
as bearer of a share warrant sign a requisition for calling a
meeting of the Company, or attend or vote or exercise any other
privileges of a Member at a meeting of the Company, or be entitled
to receive any notices from the Company.
2) The bearer of a share warrant shall be entitled in all other
respects to the same privileges and advantages as if he was named in
the Register of Members as the holder of the share included in the
warrant, and shall be a Member of the Company.
ISSUE OF NEW SHARE WARRANT OR COUPON
74. The Board may, from time to time, make rules as to the terms on which (if
it shall think fit) a new share warrant or coupon may be issued by way of
renewal in case of defacement, loss or destruction.
CONVERSION OF SHARE INTO STOCK AND RECONVERSION
SHARES MAY BE CONVERTED INTO STOCK
75. The Company in General Meeting may convert any paid-up shares into stock;
and when any shares have been converted into stock, the several holders
of such stock may thenceforth transfer their respective interest therein,
or any part of such interest, in the said manner and subject to the same
Regulations as, and subject to which shares from which the stock arose
might have been transferred if no such conversion had taken place, or as
near thereto as circumstance will admit. The Company may at any time
reconvert any stock into paid-up shares of any denomination.
RIGHT OF STOCKHOLDERS
76. The holders of stock shall, according to the amount of stock held by
them, have the same rights, privileges and advantages as regards
dividends, voting at meetings of the Company, and other matters, as if
they held the shares from which the stock arose, but no such privilege
advantage (except participation in the dividends and profits of the
Company and in the assets on winding-up) shall be conferred by an amount
of stock which would not, if existing in shares, have conferred that
privilege or advantage.
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MEMBERS' MEETINGS
ANNUAL GENERAL MEETING
77. Annual General Meeting of the company may be convened subject to Section
166 and Section 210 of the Act by giving not less than 21 days notice in
writing. Subject to the provisions of Section 171 (2) a meeting may be
convened after giving a shorter notice.
EXTRA ORDINARY GENERAL MEETING
78. The Board may, whenever it thinks fit, call an Extraordinary General
Meeting and it shall do so upon a requisition in writing by any Member or
Members holding in the aggregate not less than one tenth of such of the
paid-up capital; as at that date carried the right of voting in regard to
the matter in respect of which the requisition has been made.
REQUISITION OF MEMBERS TO STATE OBJECTS OF MEETING
79. Any valid requisition so made by the Members must state the object or
objects of the meeting proposed to be called, and must be signed by the
requisitionists and be deposited at the office; provided that such
requisition may consist of several documents in like form each signed by
one or more requisitionists.
ON RECEIPT OF REQUISITION, DIRECTORS TO CALL MEETING AND IN DEFAULT
REQUISITIONISTS MAY DO SO
80. Upon the receipt of any such requisition, the Board shall forthwith call
an Extraordinary General Meeting; and if it does not proceed within
twenty-one days from the date of the requisition being deposited at the
Office to cause a meeting to be called on a day not later than forty-five
days from the date of deposit of the requisition, the requisitionists, or
such of their number as represent either a majority in value of the paid-
up. share capital held by all of them or not less than one-tenth of such
of the paid-up share capital of the Company as is referred to in Section
169 (4) of the Act, whichever is less, may themselves call the meeting,
but in either case any meeting so called shall be held within three
months from the date of deposit of the requisition as aforesaid.
MEETING CALLED BY REQUISITIONISTS
81. Any meeting called under the foregoing Articles by the requisitionists
shall be called in the same manner, as nearly as possible, as that in
which meetings are to be called by the Board.
QUORUM AT GENERAL MEETING
82. Five members present in person shall be a quorum for a General Meeting.
BODY CORPORATE PERSONALLY PRESENT
83. A body corporate being a member shall be deemed to be personally present
if it is represented in accordance with Section 187 of the Act.
IF QUORUM NOT PRESENT MEETING TO BE DISSOLVED OR ADJOURNED
84. If, at the expiration of half an hour from the time appointed for holding
a meeting of the Company, a quorum shall not be present, the meeting it
convened by or upon the requisition of Members, shall stand dissolved,
but in any other case the meeting shall stand adjourned to
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the same day in the next week or if that day is a public holiday until
the next succeeding day which is not a public holiday at the same time
and place or to such other day at such other time and place within the
city or town in which the Office of the Company is situate as the Board
may determine, and if at such adjourned meeting a quorum is not present
at the expiration of half an hour from the time appointed for holding the
meeting, the Members present shall be a quorum, and may transact, the
business for which the meeting was called.
85. The Chairman (if any) of the Directors shall be entitled to take the
chair at every General Meeting, whether Annual or Extraordinary. If there
be no such Chairman of the Directors, or if at any meeting he shall not
be present within fifteen minutes of the time appointed for holding such
meeting then the members present shall elect another Director as Chairman
and if no Director be present or if all Directors present decline to take
the Chair, then the members present shall elect one of their members to
be the Chairman.
BUSINESS CONFINED TO ELECTION OF CHAIRMAN WHILST CHAIR VACANT
86. No business shall be discussed at any General Meeting except the election
of a Chairman, whilst the chair is vacant.
CHAIRMAN WITH CONSENT MAY ADJOURN MEETING
87. The Chairman with the consent of the meeting may adjourn any meeting from
time to time and from place to place within the city or town in which the
office of the Company is situated for the time being but no business
shall be transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
QUESTION AT GENERAL MEETING HOW DECIDED
88. At any General Meeting a resolution put to the vote of the meeting shall
be decided on a show of hands unless a poll is (before or on the
declaration of the result of the show of hands) demanded by a member or
members present in person or by proxy and holding shares in the Company
which confer a power to vote on the resolution not being less than 1/10th
of the total voting power in respect of the Resolution or on which an
aggregate sum of not less than Rs. 50,OOO/- has been paid up. The demand
for a poll may be withdrawn at any time by the person or persons who made
the demand.
CHAIRMAN'S CASTING VOTE
89. In the case of any equality of votes, the Chairman shall both on a show
of hands and at a poll (if any) have a casting vote in addition to the
votes to which he may be entitled as a Member.
DEMAND FOR POLL NOT TO PREVENT TRANSACTION OF OTHER BUSINESS
90. The demand for a poll except on the question of the election of the
Chairman and of an adjournment shall not prevent the continuance of a
meeting for the transaction of any business other than the question on
which the poll has been demanded.
MEMBER IN ARREARS NOT TO VOTE
91. No member shall be entitled to vote either personally or by proxy at any
General Meeting or meeting of a class of shareholders either upon a show
of hands or upon a poll in respect of any shares registered in his name
on which any calls or other sums presently payable by him have not been
paid or in regard to which the Company has, and has exercised, any right
of lien.
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NUMBER OF VOTES TO WHICH MEMBER ENTITLED
92. Subject to the provisions of these Articles and without prejudice to any
special privileges or restrictions as to voting for the time being
attached to any class of shares for the time being forming part of the
capital of the Company, every member, not disqualified by the last
preceding Article shall be entitled to be present and to speak and vote
at such meeting, and on a show of hands every member present in person
shall have one vote and upon a poll the voting rights of every member
whether present in person or by proxy, shall be in proportion to his
share of the paid-up equity capital of the Company.
CASTING OF VOTES BY A MEMBER ENTITLED TO MORE THAN ONE VOTE
93. On a poll taken at a meeting of the Company, a member entitled to more
than one vote, or his proxy, or other person entitled to vote for him as
the case may be, need not, if he votes, use all his votes or cast in the
same way all the votes he uses.
VOTES OF MEMBERS OF UNSOUND MIND AND MINORS
94. A member of unsound mind or in respect of whom an order has been made by
any court having jurisdiction in lunacy, may vote, whether on a show of
hand or on a poll, by his committee or other legal guardian, and any such
committee or guardian may, on a poll vote by proxy. If any member be a
minor, the votes in respect of his share or shares shall be by his
guardian or any of his guardians, if more than one, to be elected in case
of dispute by the Chairman of the meeting.
VOTES OF JOINT MEMBERS
95. If there be joint registered holders of any shares, any one of such
persons may vote at any meeting or may appoint another person (whether a
Member or not) as his proxy in respect of such shares as if he were
solely entitled therein but the proxy so appointed shall not have any
right to speak at the meeting and, if more than one of such joint-holders
be present at any meeting, that one of the said person so present whose
name stands higher on the Register shall alone be entitled to speak and
to vote in respect of such shares, but the other or others of the joint-
holders shall be entitled to be present at the meeting. Several executors
or administrators of a deceased member in whose names share stand shall
for the purpose of these Articles be deemed joint holders thereof.
VOTING IN PERSON OR BY PROXY
96. Subject to the provisions of these Articles votes may be given either
personally or by proxy. A body corporate being a member may vote either
by a proxy or by a representative duly authorised in accordance with
Section 187 of the Act and such representative shall be entitled to
exercise the same rights and powers (including the right to vote by
proxy) on behalf of the body corporate which he represents as the body
could exercise if it were an individual member.
VOTES IN RESPECT OF SHARES OF DECEASED OR INSOLVENT MEMBERS
97. Any person entitled under Article 62 to transfer any shares may vote at
any General Meeting in respect thereof in the same manner as if he were
the registered holder of such shares, provided that 48 hours, at least,
before the time of holding the meeting or adjourned meeting as the case
may be at which he proposed to vote he shall satisfy the Directors of his
right to transfer such shares and give such indemnity (if any) as the
Directors may require or the Directors shall have previously admitted his
right to vote at such meeting in respect thereof.
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APPOINTMENT OF PROXY
98. Every proxy (whether a member or not) shall be appointed in writing under
the hand of the appointer or his attorney, or if such appointer is a
corporation under the common seal of such corporation, or be signed by an
officer or an Attorney duly authorised by it and any committee or
guardian may appoint such proxy. The proxy so appointed shall not have
any right to speak at the meeting.
PROXY EITHER FOR A SPECIFIED MEETING OR FOR SPECIFIED PERIOD
99. An instrument of proxy may appoint a proxy either for purpose of a
particular meeting specified in the instrument and any adjournment
thereof or it may appoint for the purposes of every meeting of the
Company, or of every meeting to be held before the date specified in the
instrument and any adjournment of any such meeting.
NO PROXY EXCEPT FOR A BODY CORPORATE TO VOTE ON A SHOW OF HANDS
100. A member present by proxy shall be entitled to vote only on a poll but
not on a show of hands, unless such member is a body corporate present by
a representative in which case such proxy shall have a vote on the show
of hand as if he were a member.
DEPOSIT OF INSTRUMENT OF PROXY
101. The instrument appointing a proxy and the Power of Attorney or other
authority (if any) under which it is signed or a notarially certified
copy of that power or authority shall be deposited at the office not
later than forty eight hours before the time for holding the meeting at
which the person named in the instrument proposes to vote, and in default
the instrument of proxy shall not be treated as valid. No instrument
appointing a proxy shall be valid after the expiration of twelve months
from the date of its execution.
FORM OF PROXY
102. Every instrument of proxy whether for specified meeting or otherwise
shall, as nearly as circumstances will admit, be in any of the forms set
out in Schedule lX of the Act.
VALIDITY OF VOTES GIVEN BY PROXY NOTWITHSTANDING DEATH OF MEMBER
103. A vote given in accordance within the norms of an instrument of proxy
shall be valid notwithstanding the previous death or insanity of the
Principal, or revocation of the proxy or of any power of attorney under
which such proxy was signed, or the transfer of the share in respect of
which the vote is given, provided that no intimation in writing of the
death or insanity, revocation or transfer shall have been received at the
office before the meeting.
TIME FOR OBJECTION TO VOTE
104. No objection shall be made to the validity of any vote; except at any
meeting or poll at which such vote shall be tendered and every vote,
whether given personally or by proxy, not disallowed at such meeting or
poll shall be deemed valid for all purposes of such meeting or poll
whatsoever.
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CHAIRMAN OF ANY MEETING TO BE THE JUDGE OF VALIDITY OF VOTE
105. The Chairman of any meeting shall be the sole judge of the validity of
every vote tendered at such meeting. The Chairman present at the taking of
a poll shall be the sole judge of the validity of every vote tendered at
such poll.
DIRECTORS
NUMBER OF DIRECTORS
106. Until otherwise determined by the company in a General Meeting and subject
to the provisions of Section 252 of the Act, the number of directors
(excluding Debenture Directors and Directors appointed under Article 111
hereof and Alternate Directors) shall not be less than three nor more than
twelve.
NON-RETIRING DIRECTORS
107. If and so long as Mr. N. R. Narayana Murthy and/or his relatives shall
hold not less than 5% of the issued equity share capital of the Company,
Mr. N. R. Narayana Murthy shall be the Managing Director of the Company
and shall not be liable to retire by rotation.
108. The Board may appoint, from time to time, one or more of their members to
be the Managing Director or Joint Managing Director or Wholetime Director
or Deputy Managing Director or Manager of the Company on such terms and on
such remuneration {whether by way of salary or commission, or partly in
one and partly in another) as they may think fit and the directors so
appointed shall not while holding that office, be subject to retirement by
rotation or taken into account in determining the rotation of retirement
of directors, but their appointment shall be subject to determination ipso
facto if they cease from any cause to be a director or if the company in
General Meeting resolve that their tenure of the office of Managing
Director or Joint Managing Director or Wholetime Director or Deputy
Managing Director or Manager be determined.
109. Subject to the provisions of the Act, the Directors, may from time to time
entrust and confer upon a Managing Director for the time being such of the
powers exercisable upon such terms and conditions and with such
restrictions as they may think fit either collaterally with or to the
exclusion of and in substitution for all or any of their own powers and
from time to time revoke, withdraw, alter or vary ail or any of such
powers.
APPOINTMENT OF SPECIAL DIRECTORS
110. On behalf of the Company, whenever Directors enter into a contract with
any Government, Central, State or Local, any Bank or Financial institution
or any person or persons (hereinafter referred to as "the appointer") for
borrowing any money or for providing any guarantee or security or for
technical collaboration or assistance or for underwriting or entering into
any other arrangement whatsoever the Directors shall have, subject to the
provisions of Section 255 of the Act, the power to agree that such
appointer shall have right to appoint or nominate by notice in writing
addressed to the Company one or more Directors on the Board for such
period and upon such conditions as may be mentioned in the agreement and
that such Director or Directors may not be liable to retire by rotation
nor be required to hold any qualification shares. The Directors may also
agree that any such Director or Directors may be removed from time to time
by the appointer entitled to appoint or nominate them and the appointer
may appoint another or others in his or their place and also fill in any
vacancy which may occur as a result of any such Director or Directors
ceasing to hold that office for any reason whatsoever. The Directors
appointed or nominated under this Article shall be entitled to exercise
and enjoy all or any of the rights and privileges exercised and enjoyed by
the
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Directors of the Company including payment of remuneration and travelling
expenses to such Director or Directors as may be agreed by the Company
with the appointer.
DEBENTURE DIRECTORS
111. If it is provided by any Trust Deed, security or otherwise, in connection
with any issue of debentures of the Company that any person or persons
shall have power to nominate a Director or Directors of the Company, then
in the case of any and every such issue of debentures, the person or
persons having such power may exercise such power from time to time and
appoint a Director or Directors accordingly. Any Director so appointed is
herein referred to as "Debenture Director". A Debenture Director may be
removed from office at any time by the person or persons in whom for the
time being is vested the power under which he was appointed and another
director may be appointed in his place. A debenture director shall not be
bound to hold any qualification shares. A debenture director shall not if
so agreed by the company be liable to retire by rotation; but shall
automatically cease to hold office as a director if and when the
debentures are fully discharged.
NOMINEE DIRECTORS
112. Nominee Directors: So long as any moneys remain owing by the Company to
The Industrial Development Bank of India, Industrial Finance Corporation
of India, The Industrial Credit and Investment Corporation of India
Limited, The Industrial Reconstruction Corporation of India Limited, Life
Insurance Corporation of India, General Insurance Corporation of India,
National Insurance Company Limited, The Oriental Fire & General Insurance
Company Limited, The New India Assurance Company Limited, United India
Insurance Company Ltd., Karnataka State Industrial Investment and
Development Corporation Ltd. or any State Financial Corporation or any
Financial Institution owned or controlled by the Central Government or any
State Government or the Reserve Bank of India or by two or more of them by
Central Government themselves (each of the above and Unit Trust of India
are hereinafter referred to as the Corporation) out of any
loans/debentures, assistance granted by them to the Company or so long as
the Corporation holds or continues to hold Debentures/Shares in the
Company as a result of any guarantee furnished by the Corporation on
behalf of the Company and remaining outstanding, the Corporation shall
have a right to appoint from time to time, any person as Director,
Wholetime or non-Wholetime (which Director or Directors, is/are
hereinafter referred to as 'Nominee Director/s') on the Board of the
Company and to remove from such office any person or persons so appointed
and to appoint any person in his or their places. The Board shall have no
power to remove from the office of the Nominee Directors. At the option of
the Corporation such Nominee Director/s shall not be liable to retirement
by rotation. Subject as aforesaid, Nominee Director/s shall be entitled to
the same rights and privileges and be subject to the same obligations as
any other Directors of the Company.
PERIOD OF HOLDING OF OFFICE BY NOMINEE DIRECTORS
113. The Nominee Director/s so appointed shall hold the said office only so
long as any moneys remain owing by the Company to the Corporation or so
long as the Corporation holds or continues to hold Debentures/shares in
the Company as a result of underwriting or by direct subscription or
private placement or the liability of the Company arising out of the
guarantee is outstanding and the Nominee Director/s so appointed in
exercise of the said powers shall ipso facto vacate such office
immediately the moneys owing by the Company to the Corporation are paid
off or on the Corporation ceasing to hold Debentures/ shares in the
Company or on the satisfaction of liability of the Company arising out of
any guarantee furnished by the Corporation.
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CO-OPTION OF DIRECTORS
114. Directors shall have power at any time and from time to time to co-opt any
other person as a director either to fill a casual vacancy or as an
additional director, so that the total number of directors shall not at
any time exceed the maximum fixed. Any director appointed to fill casual
vacancy shall hold office only upto the date upto which the director in
whose place he has been placed would have held the office if it had not
been vacated. Any additional director shall hold office only upto the date
of next Annual General Meeting of the Company but shall be eligible for
re-election at such meeting.
ALTERNATE DIRECTORS
115. The Board may appoint an alternate director to act for a director
(hereinafter called "original director during his absence for a period of
not less than three months from the State in which meetings of the Board
are ordinarily held. An alternate director appointed under this Article
shall not hold office as such for a period longer than that permissible to
the original director and shall vacate office if. and when the original
director returns to the State aforesaid. If the term of office of original
director is determined before he so returns to the State aforesaid any
provision for automatic re-appointment of retiring directors in default of
another appointment shall apply to the original and not to the alternate
director.
QUALIFICATION SHARES OF DIRECTORS
116. A Director shall not be required to hold any qualification shares.
REMUNERATION OF DIRECTORS
117. The remuneration of Directors and Executives of the Company, including the
fees payable to the Directors of the Company in attending the Meeting of
the Board or the Committees of the Board, shall be determined by the Board
of Directors from time to time, provided that the sitting fees payable to
the Directors as aforesaid shall be within the maximum limits of such fees
that may be prescribed under the proviso to Section 310 of the Companies
Act, 1956.
DIRECTORS' TRAVELLING EXPENSES
118. In addition to the remuneration payable to them, the Directors shall be
entitled to be paid all travelling, hotel and other incidental expenses
properly incurred by them in attending and returning from meetings of the
Board of Directors or any Committee thereof or General Meetings or in
connection with the business of the Company. The rules in this regard may
be framed by the Board of Directors from time to time.
SPECIAL REMUNERATION FOR PERFORMING EXTRA SERVICES
119. If any Director be called upon to perform extra services or special
exertions or efforts (which expression shall include work done by a
Director as a Member of any committee formed by the Director(s) the Board
may arrange with such Directors for such special remuneration for such
extra services or special exertions or efforts either by a fixed sum or
otherwise as may be determined by the Board and such remuneration may be
either in addition to or in substitution for his remuneration, subject to
provisions of the Act and confirmation by the Company in General Meeting.
DIRECTORS MAY ACT NOTWITHSTANDING ANY VACANCY
120. The continuing Directors may act notwithstanding any vacancy in their
body, but if and so long as their number is reduced below the quorum fixed
by the Act for a meeting of the Board
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of Directors, the continuing Director or Directors may act for the purpose
of increasing the number of Directors to that fixed for a quorum or for
summoning a General Meeting but for no other purpose.
TERMS OF OFFICE OF DIRECTORS
121. Not less than two-thirds of the total number of Directors shall be persons
whose period of office is liable to determination by retirement of
Directors by rotation.
RETIREMENT OF DIRECTORS BY ROTATION
122. At every annual general meeting of the Company one-third of such of the
Directors for the time being as are liable to retire by rotation, or if
their number is not three or a multiple of three, then the number nearest
to one third, shall retire from office.
ASCERTAINMENT OF DIRECTORS TO RETIRE
123. The Directors to retire by rotation under the foregoing article shall be
those who have been longest in office since their last appointment but as
between persons who become Directors on the same day, those who are to
retire shall, in default of and subject to any agreement among themselves,
be determined by lot. A retiring Director shall be eligible for
re-election.
COMPANY TO APPOINT SUCCESSORS
124. The Company, at the annual general meeting at which a Director retires in
manner aforesaid, may, fill up the vacated office by electing the retiring
Director or some other person thereto.
PROVISIONS IN DEFAULT OF APPOINTMENT
125. a) If the place of the retiring Director is not so filled up and the
meeting has not expressly resolved not to fill the vacancy, the
meeting shall stand adjourned till the same day in the next week at
the same time and place, or if that day is a public holiday, till the
next succeeding day which is not a public holiday at the same time and
place.
b) If at the adjourned meeting also, the place of the retiring Director
is not filled up and that meeting also has not expressly resolved not
to fill the vacancy, the retiring Director shall be deemed to have
been re-appointed at the adjourned meeting, unless:
i) at the meeting or at the previous meeting a resolution for the
re-appointment of such Director has been put to the meeting and
lost;
ii) the retiring Director has, by 5 notice in writing addressed to
the Company or its Board of Directors expressed his
unwillingness to be so re-appointed;
iii) he is not qualified or is disqualified for appointment;
iv) a resolution, whether special or ordinary is required for the
appointment or reappointment by virtue of any provisions of the
Act; or
v) the provision to sub-section (2) of Section 263 is applicable to
the case.
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COMPANY MAY INCREASE OR REDUCE NUMBER OF DIRECTORS
126. Subject to Sections 252, 256 and 259 of the Act, the Company in general
meeting may from time 10 time, increase or reduce the number of Directors,
within the limits fixed in that behalf by these Articles.
REMOVAL OF DIRECTORS
127. The Company may (subject to the provisions of Section 284 of the Act)
remove any Director before the expiration of his period of office and
appoint another person in his stead.
PROCEEDINGS OF THE BOARD OF DIRECTORS
MEETING OF DIRECTORS
128. The Directors may meet together as a Board for the dispatch of business
from time to time and shall so meet at least once in every three calendar
months and at least four such meetings shall be held in every year. The
Directors may adjourn and otherwise regulate their meetings as they may
think fit.
NOTICE OF BOARD MEETINGS
129. Notice of every meeting of the Board shall be given in writing to every
Director for the time being in India and at his address in India to every
other Director.
QUORUM
130. Subject to Section 287 of the Act, the quorum for a meeting of the Board
shall be one-third of its total strength (excluding Directors, if any,
whose places may be vacant at the time. and any fraction contained in that
one-third being rounded off as one), or two Directors whichever is higher.
Provided that where at any time the number of interested Directors exceeds
or is equal to two- thirds of the total strength, the number of the
remaining Directors, that is to say, the number of the Directors who are
not interested present at the meeting being not less than two, shall be
the quorum during such meeting.
ADJOURNMENT OF MEETINGS FOR WANT OF QUORUM
131. If a meeting of the .Board could not be held for want of quorum, then the
meeting shall automatically stand adjourned to such other time as may be
fixed by the Chairman.
SECRETARY TO CALL BOARD MEETING
132. The Secretary shall, and when directed by any Director to do so, convene a
meeting of the Board by giving a notice in writing to every other
Director.
CHAIRMAN OF DIRECTORS
133. The Directors shall choose one of their number to be the Chairman of the
Directors who shall hold such office until the Directors otherwise
determine. If at any meeting the Chairman of the Directors shall not be
present at the time appointed for holding the same, the Directors present
shall choose some one of their member to be the Chairman of such meeting.
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QUESTIONS HOW DECIDED
134. Questions arising at any meeting of the Board shall be decided by a
majority of votes and in the case of an equality of votes the Chairman
shall have second or a casting vote.
POWERS OF BOARD MEETING
135. A meeting of the Board for the time being at which a quorum is present,
shall be competent to exercise all or any of the authorities, power and
discretions which by or under the Act or the Articles of the Company are
for the time being vested in or exercisable by the Board generally.
APPOINTMENT OF SUB-COMMITTEE
136. The Board may appoint from time to time a sub-committee consisting of one
or more Director(s) and or one or more senior executive(s) of the Company
to deal with matters relating to transfer / transmission of shares /
debentures and such other matters incidental thereto with such powers and
duties, as the Board deems fit.
DIRECTORS MAY APPOINT COMMITTEES
137. Subject to the restrictions contained in Section 292 of the Act, the Board
may delegate any of its powers to committees of the Board consisting of
such members of its body as it thinks fit, and it may from time to time
revoke and discharge any such committee of the Board either wholly or in
part, and either as to persons or purposes but every committee of the
Board so formed shall in the exercise of the powers so delegated, confirm
to any Regulations that may from time to time be imposed on it by the
Board. All acts done by any such committee of the Board in conformity with
such Regulations and in fulfilment of the purpose of their appointment but
not otherwise shall have the like force and effect as if done by the
Board.
MEETINGS OF COMMITTEE HOW TO BE GOVERNED
138. The meetings and proceedings of any such committee of the Board consisting
of two or more members shall be governed by the provisions herein
contained for regulating the meetings and proceedings of the Directors so
far as the same are applicable thereto and are not superseded by any
Regulations made by the Directors under the last preceding Article. The
provisions of Article 134 shall mutatis mutandis apply to the meetings of
such committee.
CIRCULAR RESOLUTION
139. No resolution shall be deemed to have been duly passed by the Board or by
a Committee thereof by circulation, unless the resolution has been
circulated in draft, together with the necessary papers, if any, to all
the Directors or to ail the members of the committee then in India (not
being less in number than the quorum fixed for a meeting of the Board or
Committee, as the case may be), and to all other Directors or members of
the Committee, at their usual address in India and has been approved by
such of the Directors or members of the Committee as are then in India, or
by majority of such of them as are entitled to vote on the resolution.
VALIDITY OF DIRECTORS ACTS
140. All acts done by any meeting of the Board or by a Committee or by a sub-
committee of the Board, or by any person acting as a Director shall
notwithstanding that it shall afterwards be discovered that there was some
defect in the appointment of such Directors, or persons acting as
aforesaid, or that they or any of them were disqualified or had vacated
office or that
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the appointment of any of them were disqualified or had vacated office or
that the appointment of any of them had been terminated by virtue of any
provisions contained in the Act or in these Articles, be as valid as if
every such person had been duly appointed and was qualified to be a
Director and had not vacated his office or his appointment had not been
terminated. Provided that nothing in this Article shall be deemed to give
validity to acts done by a Director after his appointment has been shown
to the Company to be invalid or to have terminated.
POWERS OF DIRECTORS
141. The business of the Company shall be managed by the Board of Directors,
who may exercise all such powers of the Company and do all such acts and
things as are not, by the Act, or any other Act or by the Memorandum or by
the Articles of the Company required to be exercised by the Company in
General Meeting, subject nevertheless to the Regulations of these Articles
to the provisions of the Act, or any other Act and to such Regulations
being not inconsistent with the aforesaid Regulations or provisions as may
be prescribed by the Company in General Meeting but no Regulation made by
the Company in General Meeting shall invalidate any prior act of the Board
which would have been valid if that Regulation had not been made. Provided
that the Board of Directors shall not except with the consent of the
Company in General Meeting:-
a. sell, lease or otherwise dispose of the whole or substantially the
whole of the undertaking of the Company, or where the company owns
more than one undertaking, of the whole, or substantially the whole,
of any such undertaking;
b. remit or give time for the repayment of, any debt by a Director;
c. invest, otherwise than in trust securities, the amount of compensation
received by the company in respect of the compulsory acquisition of
any such undertaking as is referred to in Clause (a) or of any
premises or properties used for any such undertaking and without which
it cannot be carried on or can be carried on only with difficulty or
only after a considerable time;
d. borrow moneys, where the moneys to be borrowed together with the
moneys already borrowed by the company (apart from temporary loans
obtained from the company's Bankers in the ordinary course of
business) will exceed the aggregate of the paid-up capital of the
company and its free reserves, that is to say, reserves not set apart
for any specific purposes. Provided further that the powers specified
in Section 292 of the Act shall be exercised only at meetings of he
Board unless the same be delegated to the extent therein stated; or
e. contribute to Charitable and other funds not directly relating to the
business of the Company or the welfare of its employees any amounts,
the aggregate of which will in any financial year exceed Rupees Fifty
Thousand only or five percent of its average net profits as determined
in accordance with the provisions of Sections 349 and 350 of the Act
during the three financial years immediately preceding, whichever is
greater.
CERTAIN POWERS TO BE EXERCISED BY THE BOARD ONLY AT MEETINGS
142. The Board of Directors of the Company shall exercise the following powers
on behalf of the Company and it shall do so only by means of resolutions
passed at meetings of the Board:-
a. The power to make calls on share holders in respect of money unpaid on
their shares;
b. The power to issue debentures;
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c. The power to borrow money otherwise than on debentures;
d. The power to invest the funds of the Company;
e. The power to make loans;
Provided that the Board may, by a resolution passed at a meeting, delegate
to any committee of Directors, the Manager or any other principal officer
of the company or in the case of a branch office of the company, a
principal officer of the branch office, the powers specified in clauses
(c), (d) and (e) of this Article to the extent specified in sub-sections
(2), (3) and (4) respectively of Section 292 of the Act, on such condition
as the Board may prescribe. in respect of dealings between the company and
its bankers. the exercise by the company of the powers specified in Clause
(c) shall mean the arrangement made by the company with its bankers for
the borrowing of money by way of overdraft or cash credit or otherwise and
not the actual day to day operation on overdraft, cash credit or other
accounts by means of which the arrangement so made is actually availed of.
CERTAIN POWERS OF THE BOARD
143. Without prejudice 10 the general powers conferred by the last preceding
Article and so as not in any way to limit or restrict these powers, and
without prejudice to the other powers conferred by these Articles, but
subject to the restrictions contained in the last preceding Article, it is
hereby declared that the Directors shall have the following powers, that
is to say, power:
1) To pay the costs, charges and expenses preliminary and incidental to
the promotion, formation, establishment and registration of the
company.
PAYMENT OUT OF CAPITAL
2) To pay and charge to the capital account of the company any commission
or interest lawfully payable thereout under the provisions of Sections
76 and 208 of the Act,
TO ACQUIRE PROPERTY
3) Subject to Sections 292 and 297 of the Act to purchase or otherwise
acquire for the Company any property, rights, privileges which the
Company is authorised to acquire, at or for such price or
consideration and generally on such terms and conditions as they think
fit, and in any such purchases or other acquisition to accept such
title as the Directors may believe or may be advised to be reasonably
satisfactory,
TO PAY FOR PROPERTY, ETC.
4) At their discretion and subject to the provisions of the Act, to pay
for any property, rights, or privileges acquired or services rendered
in the Company either wholly or partially, in cash or in shares,
bonds, debentures, mortgages, or other securities of the such amount
credited as paid up thereon as may be agreed upon and any such bonds;
debentures, mortgages or other securities may be either, specifically
charged upon all or any part of the property of the Company and its
uncalled capital or not so charged.
TO SECURE CONTRACTS
5) To secure the fulfilment of any contracts or engagements entered into
by the Company by mortgage or charge of all or any of the property of
the Company and its uncalled capital for the time being or in such
manner as they may think fit.
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TO ACCEPT SURRENDER OF SHARES
6) To accept from any member, as far as may be permissible by law, a
surrender of his shares or any part thereof, on such terms and
conditions as shall be agreed.
TO APPOINT TRUSTEES
7) To appoint any person to accept and to hold in trust for the Company
any property belonging to the Company, or in which it is interested,
or for any other purposes; and to execute and do all such deeds and
things as may be required in relation to any such trust, and to
provide for the remuneration of such trustee or trustees.
TO BRING AND DEFEND ACTIONS
8) To institute, conduct, defend, compound, or abandon any legal
proceedings by or against the Company or its officers or otherwise
payment or satisfaction of any debts due, and of any claims or
demands by or against the Company, and to refer any differences to
arbitration, and observe and perform any awards made thereon.
TO ACT IN INSOLVENCY MATTERS
9) To act on behalf of the Company in all matters relating to bankrupts
and insolvents.
TO GIVE RECEIPTS
10) To make and give receipts, releases and other discharges for moneys
payable to the Company, and for the claims and demands of the
Company.
TO INVEST MONEYS
11) Subject to the provisions of Sections 292, 293 (1) (c), 295, 370 and
372 of the Act, to invest, deposit and deal with any moneys of the
Company not immediately required for the purpose thereof, upon such
security (not being shares of this Company), or without security and
in such manner as they may think fit, and from time to time to vary
or realise such investments. Save as provided in Section 49 of the
Act, all investments shall be made and held in the Company's own
name.
TO PROVIDE FOR PERSONAL LIABILITIES
12) To execute in the name and on behalf of the Company in favour of any
Director or other person who may incur or be about to incur any
personal liability whether as principal or surety; for the benefit of
the Company such mortgages of the Company's property (present and
future) as they think fit; and any such mortgage may contain a power
of sale, and such other powers, provisions, covenants and agreements
as shall be agreed upon.
TO AUTHORISE ACCEPTANCES
13) To determine from time to time who shall be entitled to sign, on the
Company's behalf, bills, notes, receipts, acceptances, endorsements,
cheques, dividend warrants, releases, contracts and documents and to
give necessary authority for such purpose.
TO DISTRIBUTE BONUS
14) To distribute by way of bonus amongst the staff of the Company a
share in the profits of the Company, and to give to any officer or
other person employed by the Company
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a commission on the profits of any particular business or transaction
and to charge such bonus or commission as part of the working
expenses of the Company.
TO PROVIDE FOR WELFARE OF EMPLOYEES
15) To provide for the welfare of Directors or Ex-Directors or employees
or ex-employees of the Company and their wives, widows and families
or the dependants or connections of such persons by building or
contributing to the building of houses, dwellings or chawls or by
grants of moneys, pensions, gratuities, allowances, bonus or other
payments; or by creating and from time to time subscribing or
contributing to provident and other associations, institutions or
funds or trusts and by providing or subscribing or contributing
towards places of instruction and recreation, hospitals and
dispensaries, medical and other attendance and other assistance as
the Board shall think fit, and subject to the provisions of Section
293 (1) (e) of the Act. To subscribe or contribute or otherwise to
assist or to guarantee money to any charitable, benevolent,
religious, scientific, national or other institutions or objects
which shall have any moral or other claim to support or aid by the
Company either by reason of locality of operation, or of public and
general utility or otherwise.
TO CREATE RESERVE FUND
16) Before recommending any dividend to set aside, out of the profits of
the Company such sums as they may think proper for depreciation or to
a Depreciation Fund or to an Insurance Fund or as a Reserve Fund or
Sinking Fund or any special fund to meet contingencies or to repay
debentures or debenture-stock, or for special dividends or for
equalising dividends or for repairing, improving, extending and
maintaining any of the property of the Company and for such other
purposes (including the purposes referred to in the preceding
clause), as the Board may in their absolute discretion think
conducive to the interest of the Company, and subject to Section 292
of the Act, to invest the several sums so set aside or so much
thereof as required to be invested, upon such investments (other than
shares of the Company) as they think fit, and from time to time to
deal with and vary such investments and dispose of and apply and
expend all or any part thereof for the benefit of the Company, in
such manner and for such purposes as the Board in their absolute
discretion, think, conducive to the interest of the company
notwithstanding that the matters to which the Board apply or upon
which they expend the same, or any part thereof, may be matters to or
upon which the capital moneys of the company might rightly be applied
or expended, and to divide the reserve fund into such special funds
as the Board may think fit with full power to transfer the whole or
any portion of the Reserve Fund into such special funds as the Board
may think fit, with full power to transfer the whole or any portion
of a Reserve Fund or division of a Reserve Fund and with full power
to employ the assets constituting all or any of the above funds,
including the Depreciation Fund, in the business of the company or in
the purchase or repayment of debentures or debenture-stock, and
without being bound to keep the same separate from the other assets
and without being bound to pay interest on the same with power
however to the Board at their discretion to pay or allow to the
credit of such funds interest at such rate as the Board may think
proper.
TO APPOINT MANAGERS ETC.
17) To appoint, and at their discretion remove or suspend such general
managers, secretaries, assistants, supervisors, clerks, agents and
servants for permanent, temporary or special services as they may
from time to time think fit, and to determine their powers and duties
and fix their salaries, or emoluments or remuneration, and to require
security in such instances and to such amount as they may think fit.
And also from time to time to provide for the management and
transaction of the affairs of the company in any specified locality
in India or elsewhere in such manner as they think fit.
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TO COMPLY WITH LOCAL LAWS
18) To comply with requirements of any local law which in their opinion it
shall in the interest of the Company be necessary or expedient to
comply with.
TO APPOINT LOCAL BOARD
19) From time to time and at any lime to establish any Local Board for
managing any of the affairs of the Company in any specified locality
in India or elsewhere and to appoint any persons to be Members of such
Local Boards. and to fix their remuneration.
TO DELEGATE POWERS
20) Subject to Section 292 of the Act, from time to time and at any time
to delegate to any persons so appointed any of the powers, authorities
and discretions for the time being vested in the Board, other than
their power to make call or to make loans or borrow moneys and to
authorise the members for the time being of any such Local Board, or
any of them, to fill up any vacancies therein and to act
notwithstanding vacancies, and any such appointment or delegation may
be made on such terms, and subject to such conditions as the Board may
think fit, and the Board may at any time remove any persons so
appointed and may annul any such delegation.
TO AUTHORISE BY POWER OF ATTORNEY
21) At any time and from time to time by Power of Attorney under the Seal
of the Company, to appoint any person or persons to be the Attorney or
Attorneys of the Company, for such purposes and with such powers,
authorities, and discretions (not exceeding those vested in or
exercisable by the Board under these presents and excluding the power
to make calls and excluding also except in the limits authorised by
the Board, the power to make loans and borrow moneys) and for such
period and subject to such conditions as the Board may from time to
time think fit, and any such appointment may (if the Board thinks fit)
be made in favour of the members of any local board, established as
aforesaid or in favour of any company or the shareholders, directors,
nominees or managers of any company or firm or otherwise in favour of
any fluctuating body of persons whether nominated directly, or
indirectly by the Board and any such Power of Attorney may contain
such powers for the protection or convenience of persons dealing with
such Attorneys as the Board may think fit, and may contain Powers
enabling any such delegates or Attorneys as aforesaid to sub-delegate
all or any of the Powers, authorities and discretions for the time-
being vested in them.
TO NEGOTIATE.
22) Subject to Sections 294 and 297 of the Act for or in relation to any
of the matters aforesaid or otherwise for the purposes of the Company
to enter into all such negotiations and contracts and rescind and vary
all such contracts, and execute and do all such acts. deeds, and
things in the name and on behalf of the Company as they may consider
expedient.
TO MAKE AND VARY REGULATIONS
23) From time to time make, vary or repeal bye-laws for the regulation of
the business of the Company, its officers and servants.
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AMENDMENTS TO ACCOUNTS
24) The directors shall, if they consider it to be necessary and in the
interest of the company, be entitled to amend the Audited Accounts of
the company of any financial year which have been laid before the
Company in General Meeting. The amendments to the Accounts effected by
the directors in pursuance of this Article shall be placed before the
members in General Meeting for their consideration and approval.
TO FORMULATE SCHEMES, ETC.
25) The directors may formulate, create, institute or set up such schemes,
trusts, plans or proposals as they may deem fit for the purpose of
providing incentive to the officers, employees and workers of the
company, including without limiting the generality of the foregoing,
formulation of schemes for the subscription by the officers, employees
and workers to shares in, or debentures of, the company.
SIGNING OF CHEQUES
144. All cheques, promissory notes, drafts, bills of exchange, and other
negotiable instruments, and all receipts for moneys paid by the company,
shall be signed, drawn, accepted or otherwise executed as the case may be,
in such manner as the directors shall from time to time by resolution
determine.
FOREIGN REGISTER
145. The company may exercise the powers conferred upon the company by Sections
157 and 158 of the Act with regard to the keeping of branch registers of
members or debenture holders residing in any State or Country outside
India, and the directors may (subject to the provisions of those Sections)
make and vary such Regulations as they may think fit respecting the keeping
of any such register.
DECLARATION OF SECRECY
146. Every director including Managing, Wholetime, Debenture or Special
Director, Manager, Secretary, Treasurer, Trustees for the time being of the
company, member or Debenture holder, member of a committee, officer,
servant, agent, accountant or any other person employed in or about the
company business shall if so required by the Board of Directors before
entering upon his duties, sign a declaration pledging himself to observe
strict secrecy respecting all transactions of the company with its
customers and the state of accounts with individuals and all manufacturing,
technical and business information of the company, except when required so
to do by the Board or by any meeting or by a Court of law and except so far
as may be necessary in order to comply with any of the provisions in these
Articles contained.
SECRECY OF WORKS AND INFORMATION
147. No member or other person (not being a director) shall be entitled to visit
or inspect any works of the company without the permission of the directors
or to require discovery of any information concerning the business, trading
or customers of the Company, or any matter which is or may be in the nature
of a trade secret, mystery of trade, secret process, or any other matter
which may relate to the conduct of the business of the Company and which in
the opinion of the Directors, it would be inexpedient in the interest of
the Company to disclose.
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PROHIBITION OF SIMULTANEOUS APPOINTMENT OF MANAGING DIRECTOR AND MANAGER
148. The Company shall not appoint or employ at the same time more than one of
the following categories of management personnel namely:
a. Managing Director and
b. Manager
SECRETARY
149. The Directors shall from time to time appoint a Secretary and at their
discretion remove any such Secretary to perform any functions, which by
the Act are to be performed by the Secretary and to execute any other
ministerial or administrative duties, which may from time to time be
assigned to the Secretary by the Directors. The Director may also at any
time appoint any person or persons (who need not be the Secretary) to keep
the registers required to be kept by the Company.
THE SEAL, ITS CUSTODY AND USE
150. a. The Board shall provide a Common Seal for the purposes of the Company
and shall have power from time to time to destroy the same and
substitute a new seal in lieu thereof and the Board shall provide for
the safe custody of the Seal for the time being and the Seal shall
never be used except by the authority of the Board or a Committee of
the Board previously given.
b. The Company shall also be at liberty to have an official Seal in
accordance with Section 50 of the Act, for use in any territory,
district or place outside India.
DEED HOW EXECUTED
151. Every Deed Or Other instrument, to which the Seal of the Company is
required to be affixed, shall unless the same is executed by a duly
constituted attorney be signed by one Director or some other person
appointed by the Board for the purpose provided that in respect of the
Share Certificate the Seal shall be affixed in accordance with Rule 6 of
the Companies (Issue of Share Certificates) Rules, 1960.
DIVISION OF PROFITS
152. The profits of the Company, subject to any special rights relating thereto
created or authorised to be created by these Articles, shall be divisible
among the Members in proportion to the amount of capital paid-up or
credited as paid-up and to the period during the year for which the
capital is paid-up on the shares held by them respectively.
THE COMPANY IN GENERAL MEETING MAY DECLARE DIVIDENDS
153. Subject to the provisions of Section 205 of the Companies Act, 1956 the
Company in General Meeting may declare dividends, to be paid to its
Members according to their respective rights but no dividends shall exceed
the amount recommended by the Board, but the Company in General Meeting
may declare a smaller dividend.
INTERIM DIVIDEND
154. The Board may, from time to time, pay to the members such interim dividend
as in their judgement the position of the Company justifies.
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CAPITAL PAID-UP IN ADVANCE CARRYING INTEREST NOT TO EARN DIVIDEND
155. Where capital is paid in advance of calls, such capital may carry interest
but shall not be in respect thereof confer a right to dividend or
participate in profits.
DIVIDEND TO BE PAID PRO-RATA
156. a. Subject to the rights of persons, if any, entitled to shares with
special rights as to dividends, all dividends shall be declared and
paid according to the amounts paid or credited as paid on the shares
in respect whereof dividend is paid but if and so long as nothing is
paid upon any shares in the Company, dividends may be declared and
paid according to the amounts of the shares.
b. No amount paid or credited as paid on shares in advance of calls shall
be treated for the purpose of this regulation as paid on shares.
c. All dividends shall be apportioned and paid proportionately to the
amounts paid or credited as paid on the shares during any portion or
portions of the period in respect of which the dividend is paid. but
if any shares is issued on terms providing that it shall rank for
dividend as from a particular date such shares shall rank for dividend
accordingly.
RETENTION OF DIVIDENDS UNTIL COMPLETION OF TRANSFER UNDER ARTICLE 62
157. The Board may retain the dividends payable upon shares in respect of which
any person is, under Article 62 entitled to become a Member, which any
person under that Article is entitled to transfer, until such person shall
become a member in respect of such shares or shall duly transfer the same.
DIVIDEND, ETC. TO JOINT-HOLDERS
158. Any one of the several persons who are registered as the joint-holders of
any share may give effectual receipts for all dividends or bonus and
payment on account of dividends or bonus or other moneys payable in
respect of such shares.
NO MEMBER TO RECEIVE DIVIDEND WHILST INDEBTED TO THE COMPANY AND COMPANY'S
RIGHT TO REIMBURSEMENT THEREOF
159. No member shall be entitled to receive payment of any interest or dividend
in respect of his share or shares, whilst any money may be due or owing
from him to the Company in respect of such share or shares or otherwise
howsoever either alone or jointly with any other person or persons; and
the Board may deduct from the interest or dividend payable to any member
all sums of money so due from him to the Company.
TRANSFER OF SHARES TO BE REGISTERED
160. A transfer of shares shall not pass the right to any dividend declared
thereon before the registration of the transfer.
MANNER OF PAYMENT OF DIVIDEND
161. Unless otherwise directed, any dividend may be paid by cheque or warrant
or by a pay slip or receipt having the force of a cheque or warrant sent
through the post to the registered address of member or person entitled or
in case of joint holder to that one of them first named in the Register in
respect of the joint holder. Every such cheque or warrant shall be made
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payable to the order of the person to whom it is sent. The company shall
not be responsible for any cheque or warrant or pay slip or receipt lost
in transmission or for any dividend lost to the member or person entitled
thereto by the forged signature of any pay slip or receipt or the
fraudulent recovery of the dividend by any other means.
INTEREST ON DIVIDENDS
162. No unpaid dividend shall bear interest as against the Company. No
unclaimed dividend shall be forfeited by the Board unless the claim
thereto becomes barred by law and the Company shall comply with all the
provisions of Section 205A of the Act in respect of unpaid or unclaimed
dividend.
DIVIDEND AND CALL TOGETHER
163. Any General Meeting declaring a dividend may on the recommendation of the
Directors make a call on the Members of such amount as the meeting fixes,
but so that the call on each member shall not exceed the dividend payable
to him and so that the call may be made payable at the same time as the
dividend and the dividend may, if so arranged between the Company and the
Members, be set off against the call.
CAPITALISATION OF PROFITS
164. 1) The Company in General Meeting may, upon the recommendation of the
Board, resolve;-
a) that it is desirable to capitalise any part of the amount for the
time being standing to the credit of any of the company's reserve
accounts or to the credit of the profit and loss account, or
otherwise available for distribution; and
b) that such sum be accordingly set free for distribution in the
manner specified in clause (2) amongst the members who would have
been entitled thereto, if distributed by way of dividend and in
the same proportions.
2) The sum aforesaid shall not be paid in cash but shall be applied,
subject to the provisions contained in clause (3), either in or
towards:-
i) paying up any amounts for the time being unpaid on any shares
held by such member respectively;
ii) paying up in full, unissued shares of the company to be allotted
and distributed, credited as fully paid up to and amongst such
members in the proportions aforesaid; or
iii) partly in the way specified in sub-clause (i) and partly in that
specified in sub-clause (ii).
3) A share premium account and a capital redemption reserve account may,
for the purpose of this Regulation, only be applied in the paying up
of unissued shares to be issued to members of the company as fully
paid bonus shares.
4) The Board shall give effect to the resolution passed by the Company in
pursuance of this Regulation.
165. 1) Whenever such a resolution as aforesaid shall have been passed, the
Board shall:-
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a) make all appropriation and application of the undivided profits
resolved to be capitalised thereby, and all allotments and issues
of fully paid shares, if any; and
b) generally do all acts end things required to give effect thereto.
2) The Board shall have full power:-
a) to make such provision, by the issue of fractional certificates
or by payment in cash or otherwise, as it thinks fit, for the
case of shares or debentures becoming distributable in fraction;
and also
b) to authorise any person to enter, on behalf of all the members
entitled thereto, into an agreement with the Company providing
for the allotment to them respectively, credited as fully paid
up, of any further shares to which they may be entitled upon such
capitalisation or (as the case may require) for the payment of by
the company on their behalf by the application thereto of their
respective proportion of the profits resolved to be capitalised,
of the amounts or any part of the amounts remaining unpaid on
their existing shares.
3) Any agreement made under such authority shall be effective and binding
on all such members.
BOARD REPORT
166. There shall be attached to every such balance sheet a report of the Board
as to the state of the Company's affairs and as to the amounts, if any,
which it proposes to carry to any reserves in such balance sheet and the
amount, if any, which it recommends should be paid by way of dividend; and
material changes and commitments, if any, affecting the financial position
of the Company which have occurred between the end of the financial year
of the company to which the balance sheet relates and the date of the
report. The Board's report shall so far as is material for the
appreciation of the state of the Company's affairs by its members and will
not in the Board's opinion be harmful to the business of the company or
any of its subsidiaries, deal with any changes which have occurred during
the financial year in the nature of the Company's business, in the
Company's subsidiaries or in the nature of the business carried on by them
and generally in the classes of business in which the company has an
interest and any other information as may be required by Section 217 of
the .Act, The Board shall also give the fullest information and
explanations in its report aforesaid or in an addendum to that report, on
every reservation, qualification or adverse remark contained in the
auditor's report. The Board's report and any addendum thereto shall be
signed by its Chairman if he is authorised in that behalf by the Board;
and when he is not so authorised, shall be signed by not less than two
Directors.
SIGNING OF BALANCE SHEET
167. The profit and loss account and balance sheet shall be signed by the
Secretary if any, and by not less than two Directors, one of whom shall be
a Managing Director if there is one provided that if there is only one
Director present in India at the time, the profit and loss account and
balance sheet shall be signed by such Director but in such a case there
shall be attached to the profit and loss account and balance sheet a
statement signed by such Director explaining the reason for non-compliance
with the aforesaid provision requiring the signature of Directors. The
profit and loss account shall be annexed to the balance sheet and the
auditor's report (including the auditor's separate, special or
supplementary report, if any), shall be attached thereto, and such report
shall be read before the Company in general meeting and shall be open to
inspection by any member.
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RIGHTS OF MEMBERS TO COPIES OF BALANCE SHEET AND AUDITOR'S REPORT
168. The Company shall comply with the requirements of Section 219 of the Act.
DOCUMENTS AND NOTICES
SERVICE OF DOCUMENTS OR NOTICES ON MEMBERS BY THE COMPANY
169. A document or notice may be served or given by the Company on any member
either personally or by sending it by post to him to his registered
address, or (if he has no registered address in India) to the address
supplied by him to the Company for serving documents or notices on him.
MANNER OF SERVICE OF DOCUMENTS OR NOTICES
170. Where a document or notice is sent by post, service of the document or
notice shall be deemed to be effected by properly addressing; prepaying
and posting a letter containing the documents or notice, provided that
where a member has intimated to the Company in advance that documents or
notices should be sent to him under a certificate of posting or by
registered post with or without acknowledgement due and has deposited with
the Company a sum sufficient to defray the expenses of doing so, service
of the document or notice shall not be deemed to be effected unless it is
sent in the manner intimated by the Member and such service shall be
deemed to have been effected in the case of notice of a Meeting at the
expiration of forty-eight hours after the letter containing the document
or notice is posted and in any other case at the time of which the letter
would be delivered in the ordinary course of post.
BY ADVERTISEMENT
171. A document or notice advertised in a newspaper circulating in the city in
which the office of the Company is situated shall be deemed to be duly
served or sent on the day on which the Advertisement appears on or to
every Member who has no registered address in India and has not supplied
to the Company an address within India for the serving of documents on or
the sending of notice to him.
ON PERSONAL REPRESENTATIVES, ETC.
172. A document or notice may be served or given by the Company on or to
persons entitled to a share in consequence of the death or insolvency of a
member by sending it through the post in a prepaid letter addressed to
them by name or by the title of representative of the deceased, or
assignee of the insolvent or by any like description, at the address (if
any) in India supplied for the purpose by the persons claiming to be so
entitled or (until such an address) has been so supplied by serving the
documents or notice in any manner in which the same might have been given
if the death or insolvency had not occurred.
ON JOINT-HOLDERS
173. A document or notice may be served or given by the Company to the joint
holders of share by serving or giving the document or notice on or to the
joint holder named first in the register of members in respect of the
share.
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TO WHOM DOCUMENTS OR NOTICES MUST BE SERVED OR GIVEN
174. Documents or notices of every General Meeting shall be served or given in
some manner hereinbefore authorised on or to (a) every Member, (b) every
person entitled to a share in consequence of the death or insolvency of a
member and (c) the Auditor/s for the time being of the Company.
MEMBERS BOUND BY DOCUMENTS OR NOTICES SERVED ON OR GIVEN TO PREVIOUS
HOLDERS
175. Every person, who, by operation of law, transfer or other means
whatsoever, shall become entitled to any share shall be bound by every
document or notice in respect of such share. which prior to his name and
address being entered on the Register of Members, shall have been duly
served on or given to the person from whom he derives his title to such
share.
DOCUMENTS OR NOTICES BY COMPANY AND SIGNATURE THEREOF
176. Any document or notice to be served or given by the Company may be signed
by a Director or some person duly authorised by the Board of Directors for
such purposes and the signature thereto may be written, printed or
lithographed.
SERVICE OF DOCUMENTS OR NOTICE BY MEMBER
177. All documents or notices to be served or given by Members on or to the
Company or any officer at the office by post under a Certificate of
Posting or by Registered Post, or by leaving it at the office.
WINDING UP
DISTRIBUTION OF ASSETS
178. The Liquidator on any winding up (whether voluntary and supervision or
compulsory) may with the sanction of a Special Resolution, but subject to
the rights attached to any preference share capital, divide among the
contributories in specie any part of the assets of the Company and may,
with the like sanction, vest any part of the assets of the Company in
trustees upon such trusts for the benefit of the contributors, as the
liquidator, with the like sanction shall think fit.
INDEMNITY AND RESPONSIBILITY
OFFICER'S AND OTHERS RIGHT TO INDEMNITY
179. Every officer or agent for the time being of the Company shall be
indemnified out of the assets of the Company against all liability
incurred by him in relation to the business of the company in defending
any proceedings whether civil or criminal in which judgement is given in
his favour or in which he is acquitted or in connection with any
application under Section 633 of the Act in which relief is granted to him
by the Court.
DIRECTORS, MANAGERS ETC. NOT LIABLE FOR ACTS OF OTHERS
180. Subject to provisions of Section 201 of the Act no Director, Manager or
other Officer of the Company shall be liable for the act, receipts,
neglects of any other director or officer or for joining in any receipts
or other act for conformity or for any loss or expenses happening to the
company through the insufficiency or deficiency of title to any property
acquired by order of the directors, for and on behalf of the company or
for the insufficiency or deficiency of any
39
<PAGE>
security in or upon which any of the moneys of the company shall be
invested or for any loss or damage arising from bankruptcy, insolvency or
tortious act of any person with whom any moneys, securities, or effects
shall be deposited or for any loss occasioned by an error of judgement or
oversight on his part, or for any other loss, damages or misfortunes
whatever which shall happen in the execution of the duties of this officer
or in relation thereto unless the same happens through his own dishonesty.
We the several persons whose names and addresses are subscribed below are
desirous of being formed into a Company in pursuance of this Articles of
Association and we respectively agree to take the number of shares in the
Capital of the Company set opposite to our respective names.
- --------------------------------------------------------------------------------
Signature, Name, Address, Number of Equity
description and occupation of Shares taken by each
Subscribers Subscriber
Witness
- --------------------------------------------------------------------------------
Nagavara Ramarao Narayana Murthy 1
(Son of Nagavara Ramarao) (One equity)
Flat 6, Padmanabhan Apartment,
1126/2, Shivajinagar,
Pune - 411 016
Consultant
Nadathur Srinivasa Raghavan 1
(Son of N. Sarangapani) (One equity)
5, "Ravikripa", Station Road,
Matunga (C. R.),
Bombay- 400019.
Consultant
VIPUL DEVENDRA
Senapathy Gopalakrishnan 1
KINKHABWALA
(Son of P. G. Senapathy) (One equity)
(S/o. Devendra Vithaldas
Krishna Vihar, Kalapalayam Lane,
Kinkhabwala)
Pathenchanthai,
14, Thakurdwar Road,
Trivandrum - 695 001.
Zaveri Building, Bombay - 400 002.
Service
Consultant
Nandan Mohan Nilekani 1
(Son of M. R. Nilekani) (One equity)
37, Saraswatput,
Dharwar - 580 002.
KARNATAKA
Consultant
--------------------------
4
(Four equity)
- --------------------------------------------------------------------------------
Dated this 15th day of June 1981.
<PAGE>
EXHIBIT 3.2
THE COMPANIES ACT, 1956
COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
INFOSYS TECHNOLOGIES LIMITED
<PAGE>
I. The name of the Company is INFOSYS TECHNOLOGIES LIMITED.
II. The registered office of the Company will be situated in the State of
Karnataka.
III. The objects for which the Company is established are:
(A) MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS
INCORPORATION:-
1. To establish, maintain, conduct, provide, procure or make available
services of every kind including commercial, statistical, financial,
accountancy, medical, legal, management, educational, engineering, data
processing, communication and other technological social or other
services.
2. To carry on the business as importer, exporter, buyers, lessers, and
sellers of and dealers in all types of electronic components and equipment
necessary for attaining the above objects.
(B) OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN
OBJECTS:
3. To carry on all kinds of promotion business, and in particular to form,
constitute, float, lend money to assist, and control any companies,
associations, or undertakings whatsoever.
4. To establish, provide, maintain and conduct or otherwise subsidise
research laboratories, experimental stations, workshops and libraries for
scientific, industrial, commercial and technical research and experiments;
to undertake and carry on scientific, industrial, commercial, economic,
statistical and technical research, surveys and investigations; to promote
studies, research investigation and invention, both scientific and
technical by providing, subsiding, endowing, or assisting laboratories,
colleges, universities, workshops, libraries, lectures, meetings,
exhibitions and conferences and by providing for the remuneration to
scientists, scientific or technical professors or teachers and the award
of scholarship, grants and prizes to students, research-workers and
inventors or otherwise and generally to encourage, promote and reward
studies, research, investigations, experiments, tests and inventions of
any kind.
5. To provide for the welfare of employees or ex-employees of the Company and
the wives, widows, families or dependants of such persons by building or
contributing to the building of houses, dwellings or chawls or by grants
of money, pensions, allowances, gratuities, bonus or other payments or by
creating and from time-to-time subscribing or contributing to provident
and other funds, institutions and trusts and by providing or subscribing
or contributing towards
2
<PAGE>
places of instruction and recreation, hospitals and dispensaries, medical
and other attendance and assistance as the Company shall think fit.
6. To subscribe or contribute or otherwise to assist or to guarantee money to
charitable, benevolent, religious, scientific, national, public or any
other useful institutions, objects or purposes or for any exhibition.
7. To establish and maintain or procure the establishment and maintenance of
any contributory or non-contributory pension or superannuation funds for
the benefit of, and give or procure the giving of donations, gratuities,
pensions, allowances or employments to any person who are or were at any
time in the employment or service of the Company, or of any company which
is a subsidiary of the Company or is allied to or associated with the
Company or with any such subsidiary company, or who are or were at any time
Directors or Officers of the Company or of any such other company as
aforesaid, and wives, widows, families, and dependants of any such persons
and also establish and subsidise and subscribe to any institutions,
associations, clubs or funds calculated to be for the benefit of or to
advance the interests and well being of the Company or of any such other
company as aforesaid, and make payments to or towards the insurance of any
such person as aforesaid and to do any of the matters aforesaid, either
alone or in conjunction with any such other company as aforesaid.
8. To undertake and execute any trust the undertaking of which may seem to the
Company desirable and either gratuitously or otherwise.
9. To act as agents, registrars or brokers and as trustees for any person or
company and to undertake and perform sub-contracts.
10. To buy, sell, manufacture, repair, alter and exchange, let on hire, export,
and deal in all kinds of articles and things which may be required for the
purposes of any of the said businesses, or commonly supplied or dealt in by
persons engaged in any such businesses, or which may seem capable of being
profitably dealt with in connection with any of the said businesses.
11. To adopt such means of making known the business of the Company and/or
associate companies or others as may seem expedient and in particular by
advertising in the press, public places and theatres, by radio, by
television, by circulars, by purchase and exhibition or works of art or
interest, by publication of books, pamphlets, bulletins or periodicals, by
organising or participating in exhibitions and by granting prizes, rewards
and donations.
12. To apply for and acquire any statutory or other powers, rights or
concessions.
13. To act as Aadatias, Selling Agents, Purchasing Agents, Factors, Muccadums,
Carriers, Jatha Merchants, Landing and Forwarding Agents, Brokers,
Guaranteed Brokers, in respect of goods, materials and merchandise and
produce and articles of all kinds and descriptions.
14. To construct and develop residential or industrial colonies for the general
advancement of members, employees or others.
15. To purchase, or otherwise acquire and undertake the whole or any part of
the business, property, rights, and liabilities of any person, firm or
company carrying on any business which this company is authorised to carry
on or possessed of property or rights suitable for any of the purposes of
the Company and to purchase, acquire, sell and deal in property, shares,
stocks, debentures or debenture-stocks of any such person, firm or company
and to conduct, make or carry into effect any arrangements in regard to the
winding up of the business of any such persons, firm or company.
16. To enter into partnership or into any arrangements for sharing of profits,
union of interest, reciprocal concession or co-operation with any person,
partnership, or company and to promote, constitute, form and organise, and
aid in promoting, constituting, forming and
3
<PAGE>
organising companies, syndicates or partnerships of all kinds for all the
purposes or acquiring and undertaking any property and liabilities of the
Company or of advancing, directly or indirectly, the objects thereof or for
any other purposes which this Company may think expedient. As also to pay
for any properties, rights or privileges required by this Company either in
shares of the Company or partly in cash or otherwise and to give shares or
stock of this Company in exchange for shares or stock of any other company.
17. To apply for, purchase or otherwise acquire patents, brevet inventions,
licences, concessions and the like conferring any exclusive or
non-exclusive or limited right to use any secret or other information as to
any invention which may seem capable of being used for any of the purposes
of the Company or benefit the Company and to use, exercise, or develop or
grant licences in respect of or otherwise turn to account the property,
rights or information so acquired.
18. To receive money, valuable, and goods and materials of all kinds of
depositor for safe custody.
19. To lend money and other property, to guarantee the performance of contracts
and obligations of all kinds, to act as agents in the management, sale and
purchase of property, and generally to transact business as capitalists and
financiers.
20. To lend, invest or otherwise employ or deal with moneys belonging to or
entrusted to the Company upon making arrangements to secure repayment or
payment of principal and interest thereon.
21. To borrow or raise or secure the payment of money or to receive money on
deposit at interest for any of the purpose of the Company and at such time
and from time to time and in such manner as may be thought fit and in
particular by the issue of debentures, or debenture-stocks, perpetual or
otherwise including debentures or debenture-stock convertible into shares
of this or any other company or perpetual annuities and in security for any
such money so borrowed, raised or received or any such debentures or
debenture-stocks so issued, to mortgage, pledge or charge the whole or any
part of the property, assets or revenue and profits of the Company, present
or future, including its uncalled capital by special assignments or
otherwise or to transfer or convey the same absolutely or in trust and to
give the lenders power of sale and other powers as may seem expedient and
to purchase, redeem or pay off any such securities provided the Company
shall not carry on banking business as defined in the Banking Regulation
Act, 1949.
22. To draw, make, accept, endorse, discount, execute, issue, negotiate, assign
and otherwise deal with cheques, drafts, bills of exchange, promissory
notes, hundies, debentures, bonds, bills of lading, railway receipts,
warrants and all other negotiable or transferable instruments.
23. To amalgamate with any other company or companies.
24. To distribute any of the property of the Company amongst the members in
specie or kind subject to the provisions of the Companies Act in the event
of winding up.
25. To apply for, tender, purchase, or otherwise acquire any contracts,
subcontracts licences and concessions for or in relation to the objects or
business herein mentioned or any of them, and to undertake, execute, carry
out, dispose of or otherwise turn to account the same.
26. To do all or any of them in any part of the world either as principals,
agents, contractors, trustees or otherwise and either by or through agents,
trustees, sub-contractors or otherwise, either alone or in conjunction with
others and to allow any property to remain outstanding in such agents or
trustees.
27. To do all such other things as are incidental or conducive to the
attainment of the above objects or any of them.
4
<PAGE>
(C) OTHER OBJECTS:
28. To carry on the business of an investment company and to buy, underwrite
and to invest in the acquire and hold shares, stocks, debentures,
debenture-stocks, bonds, obligations and securities issued or guaranteed by
any company constituted or carrying on business in India or elsewhere and
debentures, debenture-stocks, bonds, obligations and securities issued or
guaranteed by any Government, State, Dominion, Sovereign, Ruler,
Commissioners, Public body or authority supreme, municipal, local or
otherwise or firm or person whether in India or elsewhere and to deal and
turn to account the same.
29. To carry on business related to the electronic industry, Textiles,
Chemicals, Hotels, Construction & Engineering items.
30. To transact and carry on all kinds of agency business and in particular to
collect rents and debts, and to negotiate loans, to find investments, and
to issue and place shares, stocks, debentures, debenture-stocks or
securities for the above business of the Company.
31. To carry on business of every kind and to act as merchants, traders,
Commission or other agents or in any other capacity whatsoever in India or
in any part of the world, to carry on the business of providing services of
every kind and to import, export, buy, sell, barter, exchange, pledge, make
advances upon or otherwise deal in goods, produce, article, merchandise,
services, conveniences and amenities of every kind which will be required
for the business of the Company.
32. To carry on business as capitalists, financiers; concession and merchants
and to undertake and carry on and execute all kinds of financial,
commercial, trading and other operations.
33. To sell or purchase or otherwise deal in any goods, products, articles or
things and to carry on business as merchants, traders, and dealers in any
goods, commodities, articles and things whatsoever in or outside India and
generally to carry on business as exporters, importers and dealers.
34. To carry on the business of advertising contractors and agents and any
other business which may be usefully carried on in connection with such
business and to acquire and undertake the whole or any part of the business
property and liabilities of any person or company carrying on business as
such contractor or agents, or any other business which may be usefully
carried on in connection therewith.
35. To manufacture, maintain, export, import, buy, sell, rent, hire or lease or
otherwise acquire, dispose of or deal in all kinds of digital systems,
numerical controller, flexible manufacturing systems, robots, communication
systems, computers, computer peripherals, computer software, computer
hardware, computer technology, machines, computer aided teaching aids,
energy saving devices, alternative sources of energy, electrical and
electronics components, devices, instruments, equipments and controls for
any engineering applications, and all other related components, parts and
products used in communication and computers.
AND IT IS HEREBY DECLARED that the word "company" in this Memorandum when
applied otherwise than to this Company shall whenever the context shall so
require or admit be deemed to include any authority, partnership or other
body of persons whether incorporated or un-incorporated and whether
domiciled in India or elsewhere and that the intention is that the objects
specified in the several paragraphs of this Memorandum shall be regarded as
independent objects and shall accordingly shall be in no wise limited or
restricted in its application (except when otherwise expressed in such
paragraphs) by reference to the objects in any other paragraph or the name
of the company, but may be carried out in as full and ample a manner and
construed and applied in as wide a sense as if each of the said paragraphs
defines the objects of a separate, distinct and independent Company.
5
<PAGE>
IV. The liability of the members is limited.
V. "The Authorized Share Capital of the company is Rs. 50,00,00,000 (Rupees
fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity
Shares of Rs. 5 each (Rupees five only) with power to increase and reduce
the capital of the company and to divide the shares in the capital for the
time being into several classes and attach thereto respectively such
preferential, deferred, qualified or special rights, privileges or
conditions as may be determined by or in accordance with the Articles of
Association of the company for the time being and to vary, modify or
abrogate any such rights, privileges or conditions in such manner as may be
permitted by the Companies Act, 1956 or by the Articles of Association of
the company for the time being".
RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON DECEMBER 29,
1999
We the several persons whose names and addresses are subscribed below are
desirous of being formed into a Company in pursuance of this Memorandum of
Association and we respectively agree to take the number of shares in the
Capital of the Company set opposite to our respective names.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Signature, Name, Address, Number of Equity Signature, Name, Address,
description and occupation of Shares taken by each description and occupation of
Subscribers Subscriber Witness
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nagavara Ramarao Narayana Murthy
(Son of Nagavara Ramarao) 1
Flat 6, Padmanabhan Apartment, (One equity)
1126/2, Shivajinagar,
Pune - 411 016
Consultant
Nadathur Srinivasa Raghavan
(Son of N. Sarangapani) 1
5, "Ravikripa", Station Road, (One equity)
Matunga (C. R.),
Bombay - 400 019. Consultant
Senapathy Gopalakrishnan VIPUL DEVENDRA
(Son of P. G. Senapathy) 1 KINKHABWALA
Krishna Vihar, Kalapalayam Lane, (One equity) (S/o. Devendra Vithaldas
Pathenchanthai, Kinkhabwala)
Trivandrum - 695 001. 14, Thakurdwar Road,
Zaveri Building, Bombay - 400 002.
Service
Consultant
Nandan Mohan Nilekani
(Son of M. R. Nilekani) 1
37, Saraswatput, (One equity)
Dharwar - 580 002.
KARNATAKA
Consultant
-------------------
4
(Four equity)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Dated this 15th day of June 1981.
<PAGE>
EXHIBIT 3.3
Company No. 13115
- ----------------- [LOGO APPEARS HERE]
FRESH CERTIFICATE OF INCORPORATION CONSEQUENT
ON CHANGE OF NAME
In the Office of the Registrar of Companies Karnataka, Bangalore.
-------------------------------------
(Under the Companies Act 1956 (1 of 1956)
IN THE MATTER OF INFOSYS TECHNOLOGIES PRIVATE LIMITED
----------------------------------------------------------------
I hereby certify that Infosys Technologies Pvt. Limited, which was
originally incorporated on Second day of July 1981 under the Companies Act, and
under the name Infosys Consultants Private Limited having duly Passed the
necessary resolution in terms of section 21/44 of Companies Act, 1956.
The name of the said company is this day changed to INFOSYS TECHNOLOGIES Limited
and this certificate is issued pursuant to section 23(1) of the said Act.
Given under my hand at Bangalore this Second day of June 1992 (One
thousand nine hundred Ninety two)
/s/ R. Mantra Murphy
(R. MANTRA MURTHY)
[STAMP APPEARS HERE]
ASSTT. Registrar of Companies
Karnataka, Bangalore
________________________________________________________________________________
Here give the name of the Company as existing prior to the change. Here give the
name of the Act (s) under which the Company was originally registered and
incorporated.
[The above language appears both in Hindi and English.]
The foregoing document contains both Hindi and English versions of the same
text. I hereby certify that the English text is a fair and accurate translation
of the accompanying Hindi text.
/s/ T.V. Mohandas Pai
---------------------------
T.V. Mohandas Pai
<PAGE>
EXHIBIT 19.1
INFOSYS TECHNOLOGIES LIMITED
Report for the third quarter ended December 31, 1999
[ITLINFOSYS LOGO]
________________________________________________________________________________
1 of 27
<PAGE>
At a glance - Indian GAAP
- --------------------------------------------------------------------------------
Rs. in crores, except per equity share data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter ended Nine months ended Year ended
December 31, December 31, March 31, 1999
----------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the period
Total revenue 233.52 140.17 635.46 359.03 512.74
Export revenue 224.41 137.83 598.10 352.31 500.25
Operating profit (PBIDT) 98.47 54.65 262.32 128.32 191.75
Profit after tax (PAT) from ordinary activities 73.79 37.74 200.10 89.81 132.92
PBIDT as a percentage of total revenue 42.32% 38.99% 40.42% 35.74% 37.40%
PAT (from ordinary activities) as a percentage of 31.78% 26.93% 30.49% 25.02% 25.92%
total revenue
Earnings per share (from ordinary activities) 22.50 12.12 57.74 27.87 40.19
Dividend per share NA NA 3.00 2.50 7.50
Dividend amount NA NA 9.92 4.00 12.11
Capital investment 46.98 19.75 106.74 52.92 71.68
At the end of the period
Total assets 761.26 260.71 574.43
Fixed assets - net 172.92 96.38 100.72
Cash and equivalents 464.43 96.39 416.66
Working capital 587.58 163.58 472.96
Total debt - - -
Net worth 761.26 260.71 574.43
Equity 33.07 16.02 33.07
Market capitalization 47,843.98 4,760.31 9,672.80
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Rs. One crore equals Rs. 10 million.
All ratios are calculated excluding income from exchange differences on
translation of foreign currency deposits kept abroad. Market capitalization is
calculated by considering the Indian market price for shares outstanding at the
period / year-end.
EPS figures have been calculated for the period and has not been annualized.
Total Revenue
Rs. in crores
Year Ended Nine months ended Nine months ended
March 31, 1999 December 31, 1998 December 31, 1999
512.7 359.0 635.5
Exports
Rs. in crores
Year Ended Nine months ended Nine months ended
March 31, 1999 December 31, 1998 December 31, 1999
500.3 352.3 598.1
Net Profit
Rs. in crores
Year Ended Nine months ended Nine months ended
March 31, 1999 December 31, 1998 December 31, 1999
132.9 89.8 200.1
- --------------------------------------------------------------------------------
2 of 27
<PAGE>
Letter to shareholders
- --------------------------------------------------------------------------------
Dear Shareholder,
It gives us pleasure to report on yet another successful quarter. Total income
(Revenues) for the quarter was Rs. 233.52 crore ($52.2 million) compared to Rs.
140.17 crore ($33.0 million) for the corresponding quarter in the previous year,
a growth of 66.6% (57.9%). Export income (Export revenues) grew to Rs. 224.41
crore ($51.7 million) from Rs. 137.83 crore ($32.7 million) for the
corresponding quarter in the previous year, a growth of 62.8% (58.1%).
Net profit from ordinary activities (Net income) for the quarter was Rs. 73.79
crore ($15.4 million) as compared to Rs. 37.74 crore ($9.6 million) for the
corresponding quarter in the previous year, an increase of 95.5% (60.9%).
Operating profit (Operating income) was Rs. 98.47 crore ($15.7 million) as
compared to Rs. 54.66 crore ($10.8 million) for the corresponding quarter in the
previous year, a growth of 80.2% (45.2%).
Other income (Other income, net) of Rs. 7.11 crore ($1.6 million) in the current
quarter includes Rs. 4.20 crore ($1.0 million) of interest on deployment of
funds raised through issue of American Depositary Shares (ADS), Rs. 0.72 crore
($0.1 million) from the sale of Special Import Licenses, and loss of Rs. 0.61
crore ($0.1 million) arising from exchange rate differences on translation of
foreign currency deposits. Excluding the above, net profit (net income) for the
current quarter was Rs. 69.48 crore ($14.4 million), an 84.1% (50.3%) increase
over the comparable net profit of Rs. 37.74 crore (net income of $9.6 million)
for the quarter ended December 31, 1998.
E-commerce initiatives have become an integral part of every business around the
world. Your company has made investments in building the skills required in this
new paradigm, and now has the experience, the people and the ability to support
its clients in their e-business endeavors. During this quarter, 15.6 % of your
company's total income was e-commerce related and we continue to focus on this
area.
Your company has successfully managed to convert the opportunity of providing
Year 2000 conversion solutions into long-term relationships with its clients.
The company had capped Year 2000 conversion business at 25% of total revenue and
gradually reduced revenue from this service as the Year 2000 approached. We are
happy to report that even with revenues from Year 2000 projects declining to
just 5.8% this quarter, we have been able to maintain a healthy top- and bottom-
line growth.
Your company had made preparations to support its internal systems and its
clients during the transition to the Year 2000. Teams were, and continue to be
in place at all development centers and in the U.S., Europe and Japan. Further,
precautions were taken to monitor the impact on communication infrastructure. As
of the date of this letter, no material disruption has been reported. However,
your company does not expect to arrive at a conclusive picture of the effect of
the transition immediately and continues to monitor its systems and is in touch
with its clients to address any problems. The full cost of transition support is
still being computed; but is expected to be insignificant. We would like to
record our appreciation of all employees who worked very hard to ensure that our
clients transition to the Year 2000 smoothly.
Your company added 23 new clients in the quarter. New clients include e-business
clients like Fitme.com, Interval Research, Medschool.com and Beyond.com. The
company continues to execute significant cutting-edge projects in voice and data
communication technologies, the basic infrastructure of the Internet.
During the quarter, your company added another 218 employees (net), increasing
the total strength to 4,996 as of the end of the quarter. The new e-commerce
paradigm requires the company to keep personnel on "bench" so that it can
quickly respond to market requirements. The company's global delivery model
enables it to maintain this reserve without significantly impacting margins.
Your company was assessed at the highest level, Level 5, of the Capability
Maturity Model, a software-specific quality standard formulated by the Software
Engineering Institute at Carnegie Mellon University. This represents another
significant milestone in the company's continuous quality journey, which began 7
years ago.
Phase I of the software development facility at Pune Infotech Park, Hinjawadi,
Pune was inaugurated in the quarter. Construction of phase II of this facility
is also progressing satisfactorily. Construction of one more block of 75,000 sq.
ft of Infosys Park, Phase I is progressing well. Construction of 2,70,000 sq.ft
at Infosys Park, Phase II, adjacent to the Company's headquarters in Electronic
City, is progressing as per schedule.
Work began on a new software development facility in Chennai, with a ground-
breaking ceremony. A new facility, with a capacity to accommodate 100 employees,
was occupied in Mangalore. This facility is part of a larger building that the
company is in the process of acquiring. The company completed the acquisition of
25 acres of land in Bhubaneswar, and will begin construction of a software
development campus in due course.
________________________________________________________________________________
3 of 27
<PAGE>
Your company was again voted as the "Best Managed Company" in India in a poll
conducted by Asiamoney among the international investment community. Your
company was voted "India's Most Admired Company" in a survey conducted by
The Economic Times. The Institute of Chartered Accountants of India has adjudged
the Annual Report and Accounts of the company for the year ended March 31, 1999
as the best amongst the entries received from Non-Financial Private Sector
Companies for the Best Presented Accounts Competition 1998-99. This is the fifth
consecutive year that Infosys is winning this prestigious award.
We thank all Infoscions, who through their unwavering commitment to the Infosys
ideals of quality, hard work and cost control, have made this yet another
successful quarter, and look forward to reporting to you the results of the
quarter and year ending March 31, 2000.
------------------------- ------------------------
/s/ Nandan M. Nilekani /s/ N. R. Narayana Murthy
------------------------- ------------------------
Bangalore, India Nandan M. Nilekani N. R. Narayana Murthy
January 11, 2000 Managing Director, President Chairman
and Chief Operating Officer and Chief Executive Officer
Note: Figures and terminology in parenthesis refer to US GAAP financial
statements, and are in US dollars.
________________________________________________________________________________
4 of 27
<PAGE>
Auditor's report to the members of Infosys Technologies Limited
- --------------------------------------------------------------------------------
We have audited the attached Balance Sheet of Infosys Technologies Limited (the
Company) as at 31, December, 1999 and the Profit and Loss Accounts of the
Company for the nine month period and quarter ended on that date, annexed
thereto, and report that:
1. As required by the Manufacturing and Other Companies (Auditor's Report)
Order, 1988, issued by the Company Law Board in terms of Section 227(4A) of
the Companies Act, 1956, we enclose in the Annexure a statement on the
matters specified in paragraphs 4 and 5 of the said Order.
2. Further to our comments in the Annexure referred to in paragraph 1 above:
a. We have obtained all the information and explanations which, to the
best of our knowledge and belief, were necessary for the purpose of
our audit.
b. In our opinion, proper books of account, as required by law, have been
kept by the Company so far as appears from our examination of these
books.
c. The Balance Sheet and Profit and Loss Accounts dealt with by this
report are in agreement with the books of account.
d. In our opinion, the Balance Sheet and Profit and Loss Account dealt
with by this report are prepared in compliance with the accounting
standards referred to in sub section(3C) of Section 211 of the
Companies Act, 1956, to the extent applicable;
e. In our opinion, and to the best of our information, and according to
the explanations given to us, the said accounts give the information
required by the Companies Act, 1956, in the manner so required, and
give a true and fair view:
i. in the case of the Balance Sheet, of the state of affairs of the
Company as at 31 December, 1999; and
ii. in the case of the Profit and Loss Accounts, of the profit for
the nine months period and quarter ended on that date.
3. We have also examined the attached Cash Flow Statements of the Company for
the nine month period and quarter ended 31 December, 1999. The Statements
have been prepared by the Company in accordance with the requirements of
Clause 32 of the listing agreements entered into with the Stock Exchanges.
for Bharat S Raut & Co.
Chartered Accountants
Bangalore Ravi Ramu
January 11, 2000 Partner
________________________________________________________________________________
5 of 27
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet as at
- -----------------------------------------------------------------------------------------------------------------
in Rs.
- -----------------------------------------------------------------------------------------------------------------
December 31 March 31
-------------------------------------
1999 1998 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOURCES OF FUNDS
SHAREHOLDERS' FUNDS
Share capital 33,06,95,500 16,01,73,500 33,06,95,500
Reserves and surplus 728,18,83,990 244,69,23,518 541,36,15,748
- -----------------------------------------------------------------------------------------------------------------
761,25,79,490 260,70,97,018 574,43,11,248
=================================================================================================================
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 232,93,48,993 150,19,23,526 168,92,38,345
Less : Depreciation 116,24,08,642 68,93,95,453 83,09,14,934
- -----------------------------------------------------------------------------------------------------------------
Net block 116,69,40,351 81,25,28,073 85,83,23,411
Add : Capital work-in-progress 56,23,06,951 15,12,52,880 14,88,35,800
- -----------------------------------------------------------------------------------------------------------------
172,92,47,302 96,37,80,953 100,71,59,211
INVESTMENTS 75,48,469 75,48,469 75,48,469
CURRENT ASSETS, LOANS AND ADVANCES
Sundry debtors 138,35,95,210 89,93,12,816 84,51,88,425
Cash and bank balances 395,23,42,087 96,38,98,984 405,04,82,999
Loans and advances 178,21,08,869 47,43,24,156 68,35,96,522
- -----------------------------------------------------------------------------------------------------------------
711,80,46,166 233,75,35,956 557,92,67,946
Less: Current liabilities 57,84,73,154 46,11,36,190 42,83,42,481
Provisions 66,37,89,293 24,06,32,170 42,13,21,897
- -----------------------------------------------------------------------------------------------------------------
NET CURRENT ASSETS 587,57,83,719 163,57,67,596 472,96,03,568
- -----------------------------------------------------------------------------------------------------------------
761,25,79,490 260,70,97,018 574,43,11,248
=================================================================================================================
</TABLE>
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS
The Schedules referred to above and the notes thereon form an integral part of
the Balance Sheet.
This is the Balance Sheet referred
to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<S> <C> <C> <C> <C>
Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta
Partner Chairman and Managing Director, President Director
Chief Executive Officer and Chief Operating Officer
Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Joint Managing Director Deputy Managing Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan
Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
</TABLE>
________________________________________________________________________________
6 of 27
<PAGE>
<TABLE>
<CAPTION>
Profit and Loss Account
- ------------------------------------------------------------------------------------------------------------------------------------
in Rs.
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended December 31 Nine months ended December 31 Year ended
March 31
-----------------------------------------------------------------------
1999 1998 1999 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
Software development services and products
- Overseas 224,40,92,531 137,82,71,833 598,10,25,956 352,30,43,148 500,25,40,418
- Domestic 2,00,37,227 1,61,76,460 6,87,97,826 4,66,23,604 8,63,71,250
Other income 7,11,00,819 72,25,046 30,48,32,499 2,06,22,369 3,84,71,833
- ------------------------------------------------------------------------------------------------------------------------------------
233,52,30,577 140,16,73,339 635,46,56,281 359,02,89,121 512,73,83,501
====================================================================================================================================
EXPENDITURE
Software development expenses 117,78,46,621 66,46,78,959 320,04,95,341 188,21,71,058 261,51,74,052
Administration and other expenses 17,27,30,083 12,18,33,522 46,26,00,508 32,10,23,822 45,75,30,137
Provision for Contingencies - 3,33,00,000 3,33,00,000 3,33,00,000 6,66,00,000
Provision towards e-inventing the Company - - 3,50,00,000 - -
Provision for investment in subsidiary - 3,52,95,674 - 7,05,95,674 7,05,95,674
- ------------------------------------------------------------------------------------------------------------------------------------
135,05,76,704 85,51,08,155 373,13,95,849 230,70,90,554 320,98,99,863
Operating profit (PBIDT) 98,46,53,873 54,65,65,184 262,32,60,432 128,31,98,567 191,74,83,638
Interest - - - - -
Depreciation 14,47,99,080 9,12,45,179 34,52,40,998 21,46,81,271 35,89,30,078
Profit before tax 83,98,54,793 45,53,20,005 227,80,19,434 106,85,17,296 155,85,53,560
Provision for tax
- earlier periods 6,00,000 2,57,00,000 23,00,000 4,32,00,000 4,32,00,000
- current period 10,14,00,000 5,22,00,000 27,47,00,000 12,72,00,000 18,62,00,000
Profit after tax from ordinary activities 73,78,54,793 37,74,20,005 200,10,19,434 89,81,17,296 132,91,53,560
Extraordinary income (net of tax) - 2,34,54,103 - 2,34,54,103 2,34,54,103
Net profit 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 135,26,07,663
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT AVAILABLE FOR APPROPRIATION 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 135,26,07,663
- ------------------------------------------------------------------------------------------------------------------------------------
Dividend
- Interim - - 9,92,08,200 4,00,43,000 4,00,43,011
- Final 8,10,32,734
- Dividend Tax - - 1,09,12,902 40,04,300 1,21,07,574
Amount transferred
- - capital reserve - - - - 2,34,54,103
- - general reserve - - - - 119,59,70,241
Balance in Profit and Loss Account 73,78,54,793 40,08,74,108 189,08,98,332 87,75,24,099 -
- ------------------------------------------------------------------------------------------------------------------------------------
73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 135,26,07,663
====================================================================================================================================
</TABLE>
SIGNIFICANT ACCOUNTING
POLICIES AND NOTES ON ACCOUNTS
The Schedules referred to above and the notes thereon form an integral part of
the Profit and Loss Account.
This is the Profit & Loss Account
referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<S> <C> <C> <C> <C>
Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta
Partner Chairman and Managing Director, President Director
Chief Executive Officer and Chief Operating Officer
Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Joint Managing Director Deputy Managing Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan
Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
</TABLE>
________________________________________________________________________________
7 of 27
<PAGE>
Schedules to the Profit and Loss Account
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
in Rs.
- -----------------------------------------------------------------------------------------------------------------------
Quarter ended December 31 Nine months ended December 31
------------------------------------------------------------------------
1999 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME
Interest received on deposits with banks and 6,87,87,893 69,09,057 18,98,10,230
others
Tax deducted at source Rs. 1,01,56,924 (Rs.
9,04,710)
Sale of special import licenses 72,35,156 - 2,02,31,549
Profit on sale of assets 4,06,879 - 8,70,656
Miscellaneous income 7,96,726 3,15,989 22,87,198
Exchange differences * (61,25,835) - 9,16,32,866
- -----------------------------------------------------------------------------------------------------------------------
7,11,00,819 72,25,046 30,48,32,499
=======================================================================================================================
*Exchange differences on translation of
foreign currency deposit maintained abroad
SOFTWARE DEVELOPMENT EXPENSES
Salaries and bonus including overseas staff 81,15,35,725 38,84,96,572 213,58,96,745
expenses
Staff welfare 1,20,75,533 75,27,821 3,17,77,904
Contribution to provident and other funds 3,83,57,945 3,29,45,875 9,93,25,259
Foreign tour and travel 20,19,68,835 17,02,42,715 57,55,38,493
Consumables 59,07,518 24,59,618 1,65,15,050
Cost of software packages
for own use 4,42,89,192 1,91,84,159 13,71,43,852
for domestic software development 15,50,489 20,09,803 56,15,548
Provision for post-sales client support 22,79,710 34,55,084 1,98,75,864
Computer maintenance 1,46,47,267 55,75,358 2,47,25,626
Communication expenses 3,94,21,621 2,16,80,859 13,41,81,710
Consultancy charges 58,12,786 1,11,01,095 1,98,99,290
- -----------------------------------------------------------------------------------------------------------------------
117,78,46,621 66,46,78,959 320,04,95,341
=======================================================================================================================
ADMINISTRATION AND OTHER EXPENSES
Rent 2,94,91,308 1,84,64,043 7,37,30,739
Legal and professional charges 2,12,23,219 1,16,19,478 5,07,17,048
Travelling and conveyance 2,12,19,985 98,22,877 4,83,98,364
Telephone charges 1,34,11,165 1,22,44,813 3,80,10,382
Power and fuel 1,24,49,207 63,42,281 3,25,57,317
Provision for bad and doubtful debts 25,07,614 (44,14,374) 2,15,50,851
Office maintenance 1,50,73,562 56,80,833 3,32,62,319
Printing and stationery 59,54,552 28,85,245 2,13,46,379
Donations 80,00,000 69,86,000 2,21,86,367
Sundry marketing expenses 99,89,474 56,59,255 2,30,42,736
Other miscellaneous expenses 26,60,338 53,16,363 1,54,47,750
Advertisements (1,69,062) 31,98,633 1,10,67,865
Brand Building 47,97,411 - 47,97,411
Insurance charges 87,73,960 33,01,187 1,78,04,591
Postage and courier 33,70,815 18,39,321 95,70,551
Rates and taxes 19,31,644 11,28,444 76,75,290
Repairs to plant and machinery 21,39,787 25,27,848 62,89,049
Repairs to building 17,62,336 36,11,585 57,67,172
Commission Charges 15,94,215 2,43,713 50,79,015
Research Grants 37,50,000 2,34,00,000 62,50,000
Books and periodicals 13,34,638 5,07,660 34,83,388
Bank charges and commission 9,67,665 10,80,817 27,30,597
Auditor's remuneration
- - audit fees 4,46,250 3,50,000 13,38,750
- - certification charges - - -
- - other services - - -
- - out-of-pocket expenses 50,000 37,500 1,50,000
Bad loans and advances written off - - 3,46,577
- -----------------------------------------------------------------------------------------------------------------------
17,27,30,083 12,18,33,522 46,26,00,508
=======================================================================================================================
<CAPTION>
Year ended March 31
-------------
1998 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER INCOME
Interest received on deposits with banks and 1,92,19,735 3,67,00,927
others
Tax deducted at source Rs. 1,01,56,924 (Rs.
9,04,710)
Sale of special import licenses - -
Profit on sale of assets - -
Miscellaneous income 14,02,634 17,70,906
Exchange differences * - -
- -------------------------------------------------------------------------------------------------
2,06,22,369 3,84,71,833
=================================================================================================
*Exchange differences on translation of
foreign currency deposit maintained abroad
SOFTWARE DEVELOPMENT EXPENSES
Salaries and bonus including overseas staff 108,16,78,208 151,56,56,923
expenses
Staff welfare 2,15,69,875 3,06,17,200
Contribution to provident and other funds 7,93,10,336 11,42,90,209
Foreign tour and travel 41,69,80,391 58,11,20,975
Consumables 52,23,483 1,06,44,207
Cost of software packages
for own use 12,17,18,189 14,86,91,737
for domestic software development 60,26,671 1,78,19,890
Provision for post-sales client support 2,26,64,868 2,19,18,587
Computer maintenance 2,41,96,902 3,29,08,467
Communication expenses 6,95,79,151 9,59,08,515
Consultancy charges 3,32,22,984 4,55,97,342
- -------------------------------------------------------------------------------------------------
188,21,71,058 261,51,74,052
=================================================================================================
ADMINISTRATION AND OTHER EXPENSES
Rent 5,40,88,667 7,44,54,587
Legal and professional charges 3,51,57,262 5,37,56,388
Travelling and conveyance 2,85,48,258 4,15,37,200
Telephone charges 3,89,60,752 5,15,34,846
Power and fuel 1,81,49,488 2,73,37,769
Provision for bad and doubtful debts - (13,06,919)
Office maintenance 2,02,62,136 2,95,44,190
Printing and stationery 1,11,92,404 1,76,34,923
Donations 1,10,07,335 1,49,82,357
Sundry marketing expenses 1,20,37,107 1,92,56,725
Other miscellaneous expenses 1,56,13,109 1,80,79,939
Advertisements 58,88,486 76,84,502
Brand Building -
Insurance charges 90,48,428 1,28,78,968
Postage and courier 54,37,428 79,15,959
Rates and taxes 79,13,000 1,16,79,290
Repairs to plant and machinery 67,37,563 86,47,678
Repairs to building 81,40,482 1,08,24,460
Commission Charges 7,40,413 7,40,413
Research Grants 2,34,00,000 3,09,00,000
Books and periodicals 45,79,373 76,72,725
Bank charges and commission 29,59,631 38,95,031
Auditor's remuneration
- - audit fees 10,50,000 14,35,000
- - certification charges - 2,00,000
- - other services - 8,00,000
- - out-of-pocket expenses 1,12,500 1,50,000
Bad loans and advances written off - 52,94,106
- -------------------------------------------------------------------------------------------------
32,10,23,822 45,75,30,137
=================================================================================================
</TABLE>
________________________________________________________________________________
8 of 27
<PAGE>
Statement of Cash Flows
- -------------------------------------------------------------------------------
in Rs.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter ended December 31, Nine Months ended December 31,
-------------------------------------------------------------------
1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Profit before tax 83,98,54,793 45,53,20,005 227,80,19,434
Other Income (6,30,68,937) (69,21,567) (28,23,13,752)
Increase (decrease) in provision for contingencies (1,05,17,012) - 2,27,82,988
Increase (decrease) in provision for e-inventing the (2,08,21,326) - 1,41,78,674
Company
Provision for investment in subsidiary - 3,52,95,674 -
Depreciation, depletion and amortization 14,47,99,080 9,12,45,179 34,52,40,998
Decrease (increase) in sundry debtors (4,88,85,406) (30,91,78,176) (53,84,06,785)
Decrease (increase) in loans and advances (9,21,43,936) (4,15,34,593) (26,95,41,820)
Increase (decrease) in current liabilities and (70,61,317) 29,81,47,641 17,00,06,537
provisions
Income taxes paid (11,69,30,617) (1,32,51,866) (25,53,68,098)
- --------------------------------------------------------------------------------------------------------------------------
Net cash from operations 62,52,25,322 50,91,22,297 148,45,98,176
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Proceeds from issue of American Depositary Shares - - -
Expenses relating to issue of American Depositary (21,00,000) - (2,26,30,090)
Shares
Dividends paid (including dividend tax) (11,01,21,102) (4,40,47,300) (19,92,57,109)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used for financing (11,22,21,102) (4,40,47,300) (22,18,87,199)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
Income from investments 6,87,87,893 69,21,567 18,98,10,230
Proceeds of sale of investments (net of tax) - 6,06,20,029 -
Proceeds of sale of fixed assets 4,06,879 - 9,78,588
Purchase of fixed assets (46,98,20,540) (19,75,39,275) (106,74,37,021)
Other long-term investments - (75,38,109) -
- --------------------------------------------------------------------------------------------------------------------------
Net cash used for investing (40,06,25,768) (13,75,35,788) (87,66,48,203)
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange differences on translation of (61,25,835) - 9,16,32,866
foreign currency deposit maintained abroad
Total increase (decrease) in cash and cash equivalents 11,23,78,452 32,75,39,209 38,60,62,774
during the period
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE 453,80,33,967 63,63,59,775 416,65,90,944
PERIOD
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 464,42,86,584 96,38,98,984 464,42,86,584
==========================================================================================================================
<CAPTION>
Nine Months Ended December 31, Year ended
------------------------------ March 31, 1999
1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Profit before tax 106,85,17,296 155,85,53,560
Other Income (1,92,78,534) (3,67,00,927)
Increase (decrease) in provision for contingencies - 6,66,00,000
Increase (decrease) in provision for e-inventing the - -
Company
Provision for investment in subsidiary 7,05,95,674 7,05,95,674
Depreciation, depletion and amortization 21,46,81,271 35,89,30,078
Decrease (increase) in sundry debtors (50,04,64,149) (44,63,39,758)
Decrease (increase) in loans and advances (14,57,43,306) (15,32,76,222)
Increase (decrease) in current liabilities and 40,50,64,204 33,82,24,214
provisions
Income taxes paid (8,22,91,668) (16,79,23,184)
- -----------------------------------------------------------------------------------------------------------
Net cash from operations 101,10,80,788 158,86,63,435
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Proceeds from issue of American Depositary Shares - 296,86,28,400
Expenses relating to issue of American Depositary - (17,33,14,415)
Shares
Dividends paid (including dividend tax) (10,20,36,824) (10,20,36,824)
- -----------------------------------------------------------------------------------------------------------
Net cash used for financing (10,20,36,824) 269,32,77,161
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
Income from investments 1,92,78,534 3,67,00,927
Proceeds of sale of investments (net of tax) 6,06,20,029 6,06,20,029
Proceeds of sale of fixed assets 2,39,716 2,39,716
Purchase of fixed assets (52,91,64,859) (71,67,91,924)
Other long-term investments (75,38,109) (75,38,109)
- -----------------------------------------------------------------------------------------------------------
Net cash used for investing (45,65,64,689) (62,67,69,361)
- -----------------------------------------------------------------------------------------------------------
Effect of exchange differences on translation of - -
foreign currency deposit maintained abroad
Total increase (decrease) in cash and cash equivalents 45,24,79,275 365,51,71,235
during the period
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE 51,14,19,709 51,14,19,709
PERIOD
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 96,38,98,984 416,65,90,944
===========================================================================================================
</TABLE>
These are the Cash Flow Statements
referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<S> <C> <C> <C> <C>
Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta
Partner Chairman and Managing Director President Director
Chief Executive Officer and Chief Operating Officer
Marti G. Subrabmanyam N.S. Raghavan S. Gopalakrishnan
Director Joint Managing Director Deputy Managing Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan
Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
</TABLE>
________________________________________________________________________________
9 of 27
<PAGE>
Reconciliation of Balance Sheet items with cash flow items
- --------------------------------------------------------------------------------
in Rs.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter ended December 31, Nine months ended December 31, Year ended
March 31, 1999
---------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Loans and advances
As per Balance sheet 178,21,08,869 47,43,24,156 178,21,08,869 47,43,24,156 68,35,96,522
Less: Deposits with financial (69,19,44,497) - (69,19,44,497) - (11,61,07,945)
institutions/body corporate,
included in cash equivalents
Advance income taxes considered (44,42,14,197) (10,54,48,717) (44,42,14,197) (10,54,48,717) (19,10,80,222)
separately
- ----------------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 64,59,50,175 36,88,75,439 64,59,50,175 36,88,75,439 37,64,08,355
statement
- ----------------------------------------------------------------------------------------------------------------------------------
2. Additions to fixed assets
As per Balance sheet 32,04,12,874 16,89,29,222 65,39,65,870 45,11,25,251 64,11,69,396
Add: Closing capital work-in-progress 56,23,06,951 15,12,52,880 56,23,06,951 15,12,52,880 14,88,35,800
Less: Opening capital work-in-progress (41,28,99,285) (12,26,42,827) (14,88,35,800) (7,32,13,272) (7,32,13,272)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow
statement 46,98,20,540 19,75,39,275 106,74,37,021 52,91,64,859 71,67,91,924
- ----------------------------------------------------------------------------------------------------------------------------------
3. Cash and cash equivalents
As per Balance sheet 395,23,42,087 96,38,98,984 395,23,42,087 96,38,98,984 405,04,82,999
Add: Deposits with financial 69,19,44,497 - 69,19,44,497 - 11,61,07,945
institutions/body corporate (as
per 1 above)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow
statement 464,42,86,584 96,38,98,984 464,42,86,584 96,38,98,984 416,65,90,944
- ----------------------------------------------------------------------------------------------------------------------------------
4. Income taxes paid
As per Profit and Loss account 10,20,00,000 7,79,00,000 27,70,00,000 17,04,00,000 22,94,00,000
Add: Decrease(increase) in balance in (10,14,38,084) (8,07,00,000) (27,47,65,877) (9,76,52,482) (15,66,52,471)
provision for taxes account
Increase(decrease) in balance in 11,63,68,701 1,60,51,866 25,31,33,975 95,44,150 9,51,75,655
advance income tax account
- ----------------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow
statement 11,69,30,617 1,32,51,866 25,53,68,098 8,22,91,668 16,79,23,184
- ----------------------------------------------------------------------------------------------------------------------------------
5. Other income
As per Profit and Loss account 7,11,00,819 72,25,046 30,48,32,499 2,06,22,369 3,84,71,833
Less: Income from operating activities (80,31,882) (3,03,479) (2,25,18,747) (13,43,835) (17,70,906)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow
statement 6,30,68,937 69,21,567 28,23,13,752 1,92,78,534 3,67,00,927
- ----------------------------------------------------------------------------------------------------------------------------------
6. Current liabilities and provisions
As per Balance sheet 124,22,62,447 70,17,68,360 124,22,62,447 70,17,68,360 84,96,64,378
Less: Provision for taxation considered (50,61,23,365) (17,23,57,487) (50,61,23,365) (17,23,57,487) (23,13,57,488)
separately
Provision for dividend considered - - - - (8,10,32,734)
separately
Provision for dividend tax - - - - (81,03,273)
considered separately
Provision for contingencies (8,93,82,988) - (8,93,82,988) - (6,66,00,000)
Provision for e-inventing the (1,41,78,674) - (1,41,78,674) - -
Company
---------------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow
statement 63,25,77,420 52,94,10,873 63,25,77,420 52,94,10,873 46,25,70,883
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
These are the Cash Flow Statements
referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<S> <C> <C> <C> <C>
Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta
Partner Chairman and Managing Director, President Director
Chief Executive Officer and Chief Operating Officer
Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Joint Managing Director Deputy Managing Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan
Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
Significant accounting policies
- --------------------------------------------------------------------------------
1 Basis for preparation of financial statements
The financial statements are prepared under the historical cost convention,
in accordance with Indian Generally Accepted Accounting Principles (GAAP),
the accounting standards issued by the Institute of Chartered Accountants
of India and the provisions of the Companies Act, 1956, as adopted
consistently by the Company. All income and expenditure having a material
bearing on the financial statements are recognized on accrual basis.
The preparation of the financial statements in conformity with GAAP
requires that the management makes estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Examples of such estimates include estimates of expected
contract costs to be incurred to complete software development, provision
for doubtful debts, future obligations under employee retirement benefit
plans and the useful lives of fixed assets. Actual results could differ
from those estimates.
2 Revenue recognition
Revenue from software development on a time-and-material basis is
recognized based on software developed and billed to clients as per the
terms of specific contracts. In the case of fixed-price contracts, revenue
is recognized based on the milestones achieved as specified in the
contracts, on the percentage of completion basis. Revenue from the sale of
software products is recognized when the sale has been completed with the
passing of title. Revenues from Annual Technical Services (ATS) is
recognized on a pro rata basis over the period in which such services are
rendered. Interest on deployment of surplus funds is recognized using the
time-proportion method, based on interest rates implicit in the
transaction. Dividend income is recognized when the right to receive
dividend is established. Revenue from the sale of Special Import Licences
is recognized when the licences are actually sold.
3 Expenditure
Expenses are accounted on accrual basis and provisions are made for all
known losses and liabilities. Provisions are made for future unforeseeable
factors which may affect the ultimate profit on fixed-price software
development contracts. The cost of software purchased for use in software
development and services is charged to revenue in the same year. The leave
encashment liability of the Company is provided on the basis of actuarial
valuation. Provisions are made towards likely expenses on providing post-
sales client support for fixed-price contracts.
4 Fixed assets
Fixed assets are stated at the cost of acquisition, less accumulated
depreciation. Direct costs are capitalized till the assets are ready to be
put to use. These costs include financing costs relating to specific
borrowing(s) attributable to fixed assets.
5 Capital work-in-progress
Advances paid towards the acquisition of fixed assets, and the cost of
assets not put to use before the period-end, are disclosed under capital
work-in-progress.
6 Depreciation
Depreciation on fixed assets is provided using the straight-line method,
based on useful lives as estimated by the management. Depreciation is
charged on a pro rata basis for assets purchased / sold during the period.
Individual assets costing less than Rs. 5,000 are depreciated in full in
the year of purchase. The management's estimate of useful lives for the
various fixed assets is given below.
Building 15 years
Plant and machinery 5 years
Computer equipment 2-5 years
Furniture and fixtures 5 years
Vehicles 5 years
7 Retirement benefits to employees
7.1 Gratuity
In accordance with Indian law, Company provides for gratuity, a defined
benefit retirement plan covering all employees. The plan provides a lump
sum payment to vested employees at retirement, death or termination of
employment, based on the respective employee's salary, and the years of
employment with the Company.
The Company has established the Infosys Technologies Limited Employees'
Group Gratuity Fund Trust (the Trust). Liabilities with regard to the
gratuity plan are determined by actuarial valuation, based upon which, the
Company makes contributions to the Trust. Trustees administer the
contributions made to the Trust. The funds contributed to the Trust are
invested in specific designated securities as mandated by law and generally
comprises central and state government bonds, and debt instruments of
government-owned corporations.
7.2 Superannuation
Apart from being covered under the gratuity plan described above, the
senior officers of the Company are also participants of a defined
contribution benefit plan. The plan is termed the superannuation plan to
which the Company makes monthly contributions, based on a
- --------------------------------------------------------------------------------
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<PAGE>
specified percentage of each covered employee's salary. The Company has no
further obligations under the plan beyond its monthly contributions.
7.3 Provident fund
In addition to the above benefits, all employees receive benefits from a
provident fund which is a defined contribution plan. Both the employee and
the employer make monthly contributions to the plan equal to 12% of the
covered employee's salary.
The Company has established a Provident Fund Trust to which a part of the
contributions are made each month. The remainder of the contributions are
made to the Government's provident fund. The Company has no further
obligations under the plan beyond its monthly contributions.
8 Research and development
Capital and revenue expenditure incurred on research and development is
charged off to revenue in the same year in which such expenditure is
incurred.
9 Foreign currency transactions
Sales made to clients outside India and realizations deposited into foreign
currency bank accounts are accounted for on the basis of the exchange rate
as on the date of the transaction. Adjustments are made for any variations
in the sale proceeds on conversion into Indian currency upon actual
receipt. Expenditure in foreign currency is accounted at the exchange rate
prevalent when such expenditure is incurred. Disbursements made out of
foreign currency bank accounts are reported at a rate that approximates the
actual monthly rate. Fixed assets purchased at overseas offices are
accounted for on the basis of the actual cost incurred at the exchange rate
prevalent at the time of purchase. Depreciation is charged as per Company
policy. Exchange differences arising on foreign currency transactions are
recognized as income or expense in the period in which they arise.
Current assets and current liabilities denominated in foreign currency are
translated at the exchange rate prevalent at the date of the balance sheet.
The resulting difference is accounted for in the profit and loss account.
In the case of forward contracts, the difference between the forward rate
and the exchange rate on the date of the transaction is recognized as
income or expense over the life of the contract.
10 Investments
Investments are classified into current investments and long-term
investments. Current investments are carried at the lower of the cost and
the fair value, and provision is made to recognize any decline in the
carrying value. Long-term investments are carried at cost, and provision is
made to recognize any decline, other than temporary, in the value of such
investment. Overseas investments are carried at their original rupee cost
less provision as described above.
11 Investment in subsidiary
The investment in the subsidiary is accounted on the cost method, whereby,
the Company recognizes only dividends received from the subsidiary as
income. In case of losses made by the subsidiary, other than temporary,
adequate provision is made to recognize any decline in the value of the
investment.
12 Income tax
Provision is made for income tax on an annual basis, under the tax-payable
method, based on the tax liability as computed after taking credit for
allowances and exemptions. In case of matters under appeal, due to
disallowances or otherwise, full provision is made when the said
liabilities are accepted by the Company.
- --------------------------------------------------------------------------------
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<PAGE>
Notes on accounts
- --------------------------------------------------------------------------------
The previous period's figures have been recast / restated, wherever necessary,
to conform to the current period's classification.
1. Contingent liabilities
a. The estimated amount of contracts remaining to be executed on capital
account, and not provided for (net of advance) is Rs. 69,54,19,558 as
at December 31, 1999. The amount of such contracts as at December 31,
1998 was Rs. 26,76,79,915.
b. The company has outstanding counter guarantees of Rs. 1,58,84,263 as
at December 31, 1999, to various banks, in respect of guarantees given
by the said banks in favour of various government authorities. The
counter guarantees outstanding, as atDecember 31, 1998 was Rs.
2,33,40,263.
c. Claims against the company, not acknowledged as debts, amounted to Rs.
17,91,814 as at December 31, 1999. Such claims as at December 31, 1998
was Rs. 17,91,814.
d. The Company has issued letters of credit outstanding to various
vendors amounting to Rs. Nil as at December 31, 1999. The
corresponding figure as at December 31, 1998 was Rs. 6,59,000
2. Quantitative details
The company is engaged in the development and maintenance of computer
software. The production and sale of such software cannot be expressed in
any generic unit. Hence, it is not possible to give the quantitative
details of sales and certain information as required under paragraphs 3, 4C
and 4D of part II of Schedule VI to the Companies Act, 1956.
3. Managerial remuneration paid to the chairman, managing director and whole-
time directors
<TABLE>
<CAPTION>
in Rs.
--------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
December 31, December 31,
---------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salary 9,73,800 9,73,800 29,21,400 29,21,400
Contribution to provident and other funds 3,09,780 3,09,780 9,29,340 9,29,340
Perquisites 11,19,870 8,68,811 26,98,239 26,04,316
</TABLE>
4. Managerial remuneration paid to non-whole-time directors
<TABLE>
<CAPTION>
in Rs.
--------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
December 31, December 31,
---------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sitting fees 34,000 18,000 78,000 48,000
Reimbursement of expenses 4,45,123 2,43,343 9,01,728 6,55,044
</TABLE>
5. Imports on CIF basis
<TABLE>
<CAPTION>
in Rs.
--------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
December 31, December 31,
---------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital goods 7,31,57,517 8,14,20,026 22,70,52,455 20,15,86,695
Software packages 20,60,167 - 2,28,66,965 2,62,35,025
</TABLE>
6. Expenditure in foreign currency
<TABLE>
<CAPTION>
in Rs.
--------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
December 31, December 31,
---------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Travel expenses 18,62,06,010 13,76,54,956 49,97,76,870 36,93,49,752
Professional charges 80,48,926 38,07,487 2,01,25,172 1,39,68,407
Other expenditure incurred overseas for software development 62,24,10,619 24,52,71,643 154,40,25,716 74,44,15,529
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
7. Earnings in foreign exchange
<TABLE>
<CAPTION>
in Rs.
--------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
December 31, December 31,
----------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from software development charges and products on a 216,85,95,849 107,14,80,666 565,67,38,823 302,28,56,794
receipt basis
Interest received on deposits with banks 4,63,87,145 37,32,109 13,19,57,503 1,42,90,010
</TABLE>
8. Depreciation on assets costing less than Rs. 5,000 each
The Company charged depreciation at one hundred percent in respect of
assets costing less than Rs. 5,000 each, amounting to Rs. 4,22,62,848 and
Rs. 6,49,71,753 for the three months period ended December 31, 1999 and
nine months period ended December, 1999 respectively. The corresponding
figure for the previous period amounted to Rs. 3,90,98,888 and Rs.
9,15,81,384 respectively.
9. Depreciation
With effect from October 1, 1998, the Company revised the estimates of
useful lives of buildings (software centers and others) from 28 years / 58
years to 15 years. Due to this change, depreciation for the three months
period ended December 31,1999 and nine months period ended December 31,
1999 is higher by Rs. 59,22,474 and Rs. 1,67,99,035. As a result, the
profit for the three months period ended December 31, 1999 and nine months
period ended December 31,1999 is lower by Rs. 59,22,474 and Rs. 1,67,99,035
on a comparative basis.
10. Exchange differences
The Company has earned net realized and unrealized exchange gains of Rs.
4.98 crore and Rs. 8.88 crore for the three months period ended December
31, 1999 and December 31, 1998 respectively and Rs. 23.61 crore and Rs.
22.37 crore for the nine months period ended December 31, 1999 and December
31, 1998 respectively. This includes Rs. (0.61) crore (previous period Rs.
nil) and Rs. 9.16 crore (previous period Rs. nil) for the three months and
nine months period ended December 31, 1999 respectively arising from
exchange differences on translation of foreign currency deposits maintained
abroad, disclosed separately under "Other income" in the financial
statements. The balance of Rs. 5.59 crore and Rs. 8.88 crore, for the three
months period ended December 31, 1999 and December 31, 1998 and Rs. 14.45
crore and Rs. 22.37 crore for the nine months period ended December 31,
1999 and December 31, 1998 respectively, and is included under "Income from
software development services and products-overseas".
11 Research and development expenditure
Research and development expenses charged to the Profit and Loss Account on
both capital and revenue accounts for the three month period ended December
31, 1999 and nine month period ended December 31, 1999 amounted to Rs.
2,27,65,340 and Rs. 6,16,17,330 respectively (previous period - Rs.
4,12,33,470 and Rs. 7,31,28,970 respectively). This includes Rs. nil being
the depreciation charged at 100% in respect of R & D assets acquired during
three month period ended December 31, 1999 and nine month period ended
December 31, 1999 (previous period - Rs. 30,30,000 and Rs. 32,33,250).
12 Investment in subsidiary
During the quarter ended December 31, 1998, the Company made a provision
for Rs. 3,52,95,674 on its investment in Yantra Corporation, a subsidiary
company. The corresponding figure for the current quarter is nil.
13 Provision for contingencies
The Company had instituted a contingency plan effective October 1, 1998 to
meet any possible disruption in client support due to the Year 2000 impact
on the technology and communication infrastructure provided to the Company
by its vendors. The contingency plan called for the creation of a total
provision of Rs. 20.00 crore based on an initial estimate. This provision
was required to be made over six quarters starting October 1998.
Accordingly, the Company had made a total provision of Rs. 9.99 crore upto
the quarter ended June 30, 1999 (including Rs. 3.33 crore for the quarter
ended June 30, 1999). The Company had been led to believe that all its
telecommunication service providers were Year 2000 ready and therefore did
not expect significant disruption of these facilities. During second
quarter, the Company made an appraisal and re-estimated the provision
required for meeting such contingencies over the next two quarters and was
of the opinion that the provision already made was adequate for the purpose
and hence no further provision was required.
During the quarter, Rs. 1.05 crore was spent towards support during the
Year 2000 transition and the same was set-off against the provision made
earlier. After such set-off, a balance of Rs. 8.94 crore remains as
provision for contingency as on December 31, 1999.
- --------------------------------------------------------------------------------
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<PAGE>
14. Provision for e-inventing the Company
During the quarter ended September 30, 1999, the company had announced that
it may be required to incur business restructuring costs for creating
knowledge infrastructure, acquiring people with technical skills in the e-
commerce area and for e-inventing the company. This was a result of the
rapid shift in the business towards e-commerce related work. Accordingly,
the company made a provision of Rs. 3.50 crore during the quarter ended
September 30, 1999. During this quarter, the company made an appraisal of
the restructuring and is of the opinion that the existing provision is
adequate for the purpose. Therefore, no further provision has been made.
During the quarter, an amount of Rs. 2.08 crore was incurred towards e-
inventing the company and was set-off against the provision made earlier.
After this set-off, a balance of Rs. 1.42 crore remains as provision for e-
inventing the company as on December 31, 1999.
15 Unearned revenue
Unearned revenue as of December 31, 1999 of Rs. 23,11,41,772(Previous
period Rs. 22,64,60,140) consists primarily of client billings on fixed-
price, fixed-time-frame contracts for which related costs are not yet
incurred.
16 Dues to Small-Scale Industrial undertakings
As of December 31, 1999, the Company had no outstanding dues to small-scale
industrial undertakings.
17 Balance of unutilized money raised by issue of ADSs
During the year ended March 31, 1999, the Company made an Initial Public
Offering (IPO) of American Depositary Shares (ADSs) amounting to Rs. 296.86
crore (equivalent to US$ 70,380,000). The ADSs are listed on the NASDAQ
National Market in the United States (US). The unutilized monies out of the
issue, after meeting issue expenses, and including interest earned on such
monies amounted to Rs. 238.45 crore (equivalent to US$ 54,828,514) and Rs.
65.62 crore (equivalent to US$ 15,089,828)is included under "Deposit
accounts in foreign currency with Scheduled Banks" and " Deposits accounts
in foreign currency with non-Scheduled Banks" in the financial statements
respectively.
18 ADS issue expenses
During the nine month period ended December 31, 1999, the company received
additional bills for costs incurred during the ADS issue. The details of
such expenses are given under:
in Rs.
---------------------------------------------------------------------------
Legal and accounting fees 1,49,26,437
---------------------------------------------------------------------------
Printing charges 77,03,653
---------------------------------------------------------------------------
TOTAL 2,26,30,090
---------------------------------------------------------------------------
19 Stock options
The Company currently has two stock option plans. These are summarized
below.
1998 Stock Option plan(the 1998 plan)
The Company's 1998 Plan provides for the grant of non-statutory stock
options and incentive stock options to employees of the Company. The
establishment of the 1998 Plan was approved by the Board of Directors in
December 1997 and by the shareholders in January 1998. The Government of
India approved the 1998 Plan, subject to a limit of US$ 50 million on the
aggregate value of equity shares reserved under the 1998 Plan. Accordingly,
the number of equity shares reserved under the 1998 Plan may be reduced by
the Board of Directors from time to time to comply with this limit of US$
50 million. A total of 8,00,000 equity shares corresponding to 16,00,000
ADSs (the Ministry of Finance, Government of India has allowed the Company
to issue a maximum of 1.47 million ADSs under the plan) are currently
reserved for issuance pursuant to the 1998 Plan. These options may be
issued at an exercise price that is not less than 90% of the fair market
value of the underlying equity share on the date of the grant. The 1998
Plan will terminate in January 2008, unless terminated earlier. All options
under the 1998 Plan are exercisable for ADSs representing equity shares. A
committee of the Board of Directors administers the 1998 Plan. Options to
acquire an aggregate of 2,13,000 ADSs corresponding to 1,06,500 equity
shares were granted to employees concurrent with the Company's IPO in the
US at an exercise price equal to the IPO issue price. Of these, options to
acquire 3,500 ADSs corresponding to 1,750 equity shares were forfeited and
returned to the Option pool due to the separation of the optionees from the
Company. Options to acquire 1,16,000 ADSs corresponding to 58,000 equity
shares were granted to the employees of the Company at an exercise price of
$179 on November 10, 1999.
1999 Stock Option Plan (the 1999 Plan)
In fiscal 2000, the Company instituted the 1999 Plan. The 1999 Plan was
approved by the share holders and the Board of Directors in June 1999. The
1999 Plan provides for the issue of 33,00,000 equity shares to the
employees. The 1999 Plan is administered by a Compensation Committee
comprising a maximum of seven members, the majority of whom are independent
directors on the Board of Directors. Under the 1999 Plan, options will be
issued to employees at an exercise price which shall not be less than the
Fair Market Value. Fair Market Value means the closing price of the
Company's shares in the stock exchange where there is the highest trading
- --------------------------------------------------------------------------------
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<PAGE>
volume on a given date and if the shares are not traded on that day, the
closing price on the next trading day. Under the 1999 Plan, options may
also be issued to employees at exercise prices that are less than FMV only
if specifically approved by the members of the Company in a general
meeting. As of December 31, 1999, 4,76,600 options have been issued to
employees under the 1999 Plan. As of the date of this report, options to
acquire 1,100 equity shares were forfeited and returned to the option pool
due to the separation of the optionees of the company.
20 Employee Stock Offer Plan (ESOP)
The Securities and Exchange Board of India (SEBI) recently issued the
(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 which is effective for all stock option schemes
established after June 19, 1999. In accordance with these guidelines, the
excess of the market price of the underlying equity shares as of the date
of the grant of the options over the exercise price of the options,
including up-front payments, if any is to be recognized and amortized on a
straight line basis over the vesting period.
The Companies 1994 stock offer plan was established prior to the SEBI
guidelines on stock options.
Had the stock compensation costs for this stock option plan been determined
as per the guidelines issued by SEBI, the Company's reported net profit
would have been reduced to the proforma amounts indicated below.
<TABLE>
<CAPTION>
in Rs.
--------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
December 31, December 31,
----------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net profit :
- As reported 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399
- Adjusted pro forma 68,17,38,506 33,83,65,192 183,51,84,658 82,06,25,046
</TABLE>
21 Provision for taxation
The Company's profits from export activities are deductible from taxable
income. Further, most of the Company's operations are conducted through
100% Export Oriented Units, which are entitled to a tax holiday for a
period of ten years from the date of commencement of operations. The
provision for taxation includes taxes payable in respect of domestic income
and that arising on the Company's overseas operations, primarily in the
United States, Europe, Far East and South East Asia.
22 Cash and Bank balance
The Company has a deposit of USD 1,854,225 (Rs. 8,06,41,779) in EEFC
account as at December 31, 1999. Bank balances in overseas deposit account
includes an net amount of USD 69,918,343 (Rs. 304,07,48,715) received on
ADS program and maintained abroad as deposit along with the interest
earned.
23 Loans and advances
Advances recoverable in cash or kind or for value to be received mainly
comprise of prepaid travel and per-diem expenses and advance paid to
vendors towards current assets.
Deposits with financial institutions consists of Rs. 25,50,22,081 and Rs.
18,10,98,742 deposited with Housing Development Finance Corporation
Limited, and ICICI Limited, respectively. Mr. Deepak M Satwalekar, Director
of the company, is also the Managing Director in Housing Development
Finance Corporation Limited. Mr. N R Narayana Murthy, Chairman and CEO of
the company and Prof. Marti G. Subrahmanyam, Director of the company, are
also Directors in ICICI Limited. Except as directors in these financial
institutions, they have no direct interest in these transactions. "Deposit
with a body corporate" consists of Rs. 25,58,23,674 deposited with GE
Capital Services India. All these financial institutions and a body
corporate have AAA rating from CRISIL. There is no unpaid interest as on
date.
Provision for doubtful loans and advances comprise of provisions made for
deposit kept with a Company and for loans and advances given to employees.
The Company has filed recovery suit against this company in a court of law
and the court has attached the property of this company against the claims
of unpaid deposit amount. The adjudication on this issue is pending.
However, as matter of abundant precaution, a provision has been made.
24 Current liabilities
Sundry creditors for other liabilities represent mainly the retention
amount payable to the vendors, and amounts accrued for various other
operational expenses.
25 Fixed assets
The Company has entered into lease- cum- sale agreements to acquire certain
properties. In accordance with the terms of these agreements, the Company
has the option to purchase the properties outright at the expiry of the
lease period. The Company has already paid 99% of the value of the
properties at the time of entering into the lease- cum -sale agreement.
These amounts are disclosed as "Land - leasehold" under "Fixed assets" in
the financial statements.
26 Set off of unearned revenues
The Company entered into an agreement with a customer for providing
software services in an earlier year. The Company collected a portion of
amounts receivable from this customer in respect of work performed for the
customer under this agreement. The customer subsequently went into
liquidation. In fiscal 1999, the company raised invoices in its books of
account for the remainder of the contracted value of the services to be
performed under the agreement amounting to Rs. 3,24,52,521 in order to
stake its claim in the
- --------------------------------------------------------------------------------
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<PAGE>
liquidation proceedings. The Company subsequently informed the Reserve Bank
of India about the claim raised by it on the customer. This amount was
treated as "Unearned revenues" in the financial statements for fiscal 1999.
The Company has set off the amount receivable from the customer against the
amount earlier treated as "Unearned revenue", in the previous quarter. The
Company is actively pursuing liquidation proceedings to recover this
amount.
27 Income Tax demand for stock options
The Income Tax department raised a tax demand of Rs. 73.52 crore on the
Company for payment of tax deductible at source on stock options granted to
the Company's employees during the financial years 1996-97, 1997-98 and
1998-99. The Company has contested this tax demand by filing an appeal
before the appellate authority. However, any tax liability on stock option
issued under the Employees Stock Offer Plan is adequately covered by
indemnities from employees and by the stock exercisable by them under ESOP.
Consequently, employees have paid the tax due and the entire tax demand has
been discharged in full. Thus, there is no impact on the earnings of the
Company on this account.
28 Stock split
The shareholders of Infosys approved the 2-for-1 split of its equity
shares, i.e., a sub-division of every equity share from the current par
value of Rs. 10 into 2 equity shares of par value Rs. 5 each, at the
Extraordinary General Meeting held on December 29, 1999. The Board of
Directors of the company has fixed February 11, 2000 as the Record Date for
determining the shareholders/ADSs holders entitled to the split. As the
split will be effectuated after the Record Date, the same is not reflected
in the financial statements as per Indian GAAP for the quarter and nine-
month period ended December 31, 1999.
- --------------------------------------------------------------------------------
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<PAGE>
At a glance - US GAAP
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
US$ in millions, except per equity share data
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended Year ended
-----------------------------------------------------------
December 31, December 31, December 31, December 31, March 31,1999
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the period
Total revenue 52.16 33.04 139.83 84.94 120.96
Operating income 15.69 10.81 42.61 25.04 22.87
Net income 15.42 9.58 43.45 20.52 17.45
Operating income as a percentage of total revenue 30.08% 32.72% 30.47% 29.48% 18.91%
Net income as a percentage of total revenue 29.56% 29.00% 31.07% 24.16% 14.42%
Basic earnings per share 0.24 0.16 0.66 0.34 0.28
Capital investment 10.87 4.60 23.84 11.59 16.12
At the end of the period
Total assets 195.18 76.58 153.66
Property, plant and equipment - net 39.76 22.80 23.90
Cash and equivalents 106.79 22.80 98.87
Working capital 131.30 36.05 110.62
Total debt - - -
Shareholders' equity 179.22 63.27 139.61
Common stock 8.59 4.55 8.59
Market capitalization 21,825.80 47,603.12 2,852.24
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Market capitalization is calculated by considering the NASDAQ market price
for shares outstanding at the period/year end except as of December 31,1998
where the same has been calculated by considering the Indian market price.
TOTAL REVENUE
US $ in millions
Year ended March 31, 1999 Nine months ended Nine months ended
December 31, 1998 December 31, 1999
120.96 84.94 139.83
NET INCOME
US $ in millions
Year ended March 31, 1999 Nine months ended Nine months ended
December 31, 1998 December 31, 1999
17.45 20.52 43.45
- --------------------------------------------------------------------------------
18 of 27
<PAGE>
Shareholder information
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
1. Listing on stock exchanges in India at Bangalore Stock Exchange Ltd.
Stock Exchange Towers, No. 51, 1st Cross, J.C. Road, Bangalore - 560027.
Tel.: 91-80-299 5234, Fax: 91-80-299 5242
The Stock Exchange, Mumbai
Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001.
Tel.: 91-22-265 5581, Fax: 91-22-265 8121
National Stock Exchange of India Ltd.
Trade World, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013.
Tel.: 91-22-497 2950, Fax: 91-22-491 4275/85
2. Listing fees Paid for all the above stock exchanges for 1999-2000.
3. Listing on stock exchanges NASDAQ National Market in the United States
outside India 33 Whitehall Street, New York, NY-1004-4087
Tel.: 1-212-709-2400, Fax: 1-212-709-2496
4. Registered office Electronics City, Hosur Road, Bangalore - 561 229, India.
Tel.: 91-80-852 0261, Fax: 91-80-852 0362
Homepage: www.itlinfosys.com
</TABLE>
5. Stock market data relating to shares listed in India
a. The company's market capitalization is included in the computation
of the BSE-30 Sensitive Index (Sensex), the BSE Dollex and S&P CNX
NIFTY Index.
b. Monthly high and low quotations as well as the volume of shares
traded at Mumbai, National and Bangalore Stock Exchanges during the
three-month period ended December 31, 1999 are:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
BSE NSE BgSE
--------------------------------------------------------------------------------------------
High Low Volume High Low Volume High Low Volume
Rs. Rs. Nos. Rs. Rs. Nos. Rs. Rs. Nos.
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
October, 1999 8,720 6,832 23,81,639 8,875 6,845 23,23,938 8,550 6,900 4,601
November 9,750 6,590 21,87,553 9,773 6,600 26,66,213 9,750 6,450 2,126
December 14,649 9,001 23,08,042 14,527 9,031 20,80,825 14,600 9,100 1,707
--------------------------------------------------------------------------------------------------------------------------------
Total 68,77,234 70,70,976 8,434
--------------------------------------------------------------------------------------------------------------------------------
% of volume traded to total number
of shares outstanding # 21.47% 22.07% 0.03%
</TABLE>
# The number of shares outstanding has been taken to be 3,20,34,400. The
American Depositary Shares (ADSs) have been excluded for the purpose of
this calculation.
<TABLE>
<S> <C>
6. Share transfers in physical form Karvy Consultants Limited
and other communication regarding Registrars and Share Transfer Agents
share certificates, dividends, and T.K.N. Complex, No. 51/2, Vanivilas Road,
change of address, etc., in India Opp. National College, Basavanagudi,
may be addressed to Bangalore - 560 004.
Tel.: 91-80-662 1184, Fax: 91-80-662 1169
Email: [email protected]
</TABLE>
7. Share transfer system
The Securities and Exchange Board of India (SEBI) has mandated that
investors should compulsorily trade in dematerialized form in the securities
of Infosys from January 4, 1999. Investors are required to open an account
with a Depositary Participant to trade in dematerialized form. A list of
Depositary Participants is available with the National Securities Depositary
Limited (NSDL). A booklet entitled "An Investor's Guide to Depositaries" is
available at www.itlinfosys.com.
Shares sent for physical transfer are generally registered and returned
within a period of 15 days from the date of receipt, if the documents are
clear in all respects. The Share Transfer Committee of the company meets as
often as required.
The total number of shares transferred in physical form during the quarter
ended December 31, 1999 were 18,110 (previous year - 1,98,997). 96.69% of
transfers (previous year - 75.49%) were completed within 15 days. Shares in
dematerialized form were transferred within 10 days, on the average.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------
Transfer period No. of No. of No. of No. of
in days transferees (folios) shares % transferees (folios) shares %
New Existing New Existing
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-10 29 12 17,400 96.08 48 18 95,400 47.94
11-15 1 1 110 0.61 41 29 54,815 27.55
16 - 20 0 0 0 0.00 34 17 38,320 19.26
*21 and above 1 1 600 3.31 29 24 10,462 5.25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
20 of 27
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------
No. of No. of
transferees (folios) transferees (folios)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31 14 18,110 100.00 152 88 1,98,997 100.00
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Delays beyond 21 days were due to compliance of legal requirements.
8. Investors' services - Complaints received during the three-month period
ended December 31
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------
Nature of complaints Received Cleared Received Cleared
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Non-receipt of share certificates 0 0 15 15
2. Non-receipt of bonus shares 3 3 0 0
3. Letters from Stock Exchanges, SEBI, etc. 0 0 0 0
4. Non-receipt of dividend warrants 19 19 10 10
-----------------------------------------------------------------------------------------------------------------------------
22 22 25 25
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has attended to most of the investors' grievances /
correspondence within a period of 10 days from the date of receipt of the
same, during the quarter ended December 31, 1999.
9. Legal proceedings
There are some pending cases relating to disputes over title to shares, in
which the company is made a party. These cases are however not material in
nature.
10. Distribution of shareholding as on December 31
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------
No. of equity No. of % of No. of % of No. of % of No. of % of
shares held share- share- shares share- share- share- shares share-
holders holders holding holders holders holding
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1- 100 12,098 57.17 2,91,072 0.91 1,375 20.92 1,16,092 0.72
101- 200 2,294 10.84 4,31,774 1.35 1,737 26.43 3,16,448 1.98
201- 500 2,800 13.23 10,42,071 3.25 1,935 29.44 7,61,164 4.76
501- 1000 2,071 9.79 15,58,575 4.87 722 10.99 5,05,028 3.15
1001- 5000 1,395 6.59 28,91,911 9.03 511 7.78 6,89,192 4.30
5001- 10000 208 0.98 14,96,681 4.67 94 1.43 3,21,500 2.01
10001 and above 297 1.40 2,40,07,171 74.94 198 3.01 1,33,07,776 83.08
Shares in transit in NSDL - - 3,15,145 0.98 - - - -
------------------------------------------------------------------------------------------------------------------------------
21,163 100.00 3,20,34,400 100.00 6,572 100.00 1,60,17,200 100.00
American Depositary Shares 1* 10,35,000 - -
------------------------------------------------------------------------------------------------------------------------------
Total 21,164 3,30,69,400 6,572 1,60,17,200
------------------------------------------------------------------------------------------------------------------------------
* Held by beneficial owners outside India.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21 of 27
<PAGE>
11. Categories of shareholders as on December 31
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------
Category No. of Voting No. of No. of Voting No. of
shareholders strength (%) shares held shareholders strength (%) shares held
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individuals 19,698 25.84 85,46,128 6,141 21.97 35,18,042
Companies 988 1.52 5,01,804 185 7.25 11,61,658
FIIs 209 24.88 82,27,179 130 25.88 41,44,550
OCBs and NRIs 143 0.72 2,37,832 27 0.25 40,100
Founders and their families 18 29.44 97,35,130 18 30.74 49,23,300
Mutual Funds, Banks, FIs 107 13.52 44,71,182 71 13.91 22,29,550
Shares in transit in NSDL - 0.95 3,15,145 - - -
American Depositary Shares 1* 3.13 10,35,000 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total 21,164 100.00 3,30,69,400 6,572 100.00 1,60,17,200
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Held by beneficial owners outside India.
12. Shares under lock-in
Details of shares held by employees under the Employee Stock Offer Plan
(ESOP) subject to lock-in are given below. These shares are also included
in the categories of shareholders given in (11) above.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Number of shares subject to lock-in as on December 31
-----------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------
Period of lock-in No. of shares No. of employees No. of shares No. of employees
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4-5 years 3,92,300 1,042 - -
3-4 years 2,50,400 341 1,06,200 156
2-3 years 1,02,000 151 1,32,600 110
1-2 years 1,28,600 105 1,11,100 76
0-1 years 1,06,300 74 - -
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
As on December 31, 1999, 581 employees hold rights to 1,72,600 shares which
are subject to a lock-in of 4-5 years under the 1994 Stock Offer Plan.
Currently, 1,667 employees hold shares under the 1994 Stock Offer Plan.
Shares subject to lock-in held by the employees will be transferred back to
the ITL Employees Welfare Trust when such employees leave the services of
the company. The ITL Employees Welfare Trust holds, as on December 31,
1999, 80,800 shares. The 1994 Stock Offer Plan has since been terminated.
The Company established the 1998 Stock Option Plan which provides for the
grant of non-statutory stock options and incentive stock options to the
employees of the Company. This Plan was approved by the Board of Directors
in December 1997 and by the share holders in January 1998. A total of
8,00,000 equity shares corresponding to 16,00,000 ADSs are currently
reserved for issuance pursuant to the 1998 Plan. During the quarter ended
December 31, 1999, options to acquire 1,16,000 ADSs corresponding to 58,000
equity shares were granted under the 1998 Stock Option Plan to 53
employees. As on December 31, 1999, 87 employees hold options to acquire
3,25,500 ADSs corresponding to 1,62,750 equity shares under the 1998 Stock
Option Plan.
In fiscal 2000, the Company instituted the 1999 Stock Option Plan. The 1999
Plan was approved by the Board of Directors and the share holders in June
1999. The Plan provides for the issue of 33,00,000 equity shares to the
employees. During the quarter ended December 31, 1999, options to acquire
4,65,300 equity shares were granted to 1,148 employees under the 1999 Stock
Option Plan.
13. Dematerialization of shares and liquidity
Your company was the first in India to pay a one-time custodial fee of Rs.
44.43 lakh to National Securities Depositary Limited (NSDL). Consequently,
the company's shareholders do not have to pay depositary participants the
custodial fee charged by the NSDL, on their holding. This payment of a one-
time custodial fee extends to the issue of bonus shares too. The company
hopes that this initiative will enthuse shareholders to dematerialize their
holding in the company. Over 88.50% of the company's shares are now held in
electronic form.
A detailed letter explaining the methodology of using a Depositary as well
as a booklet entitled "An Investor's Guide to Depositaries" was sent to all
shareholders in November 1998. Copies of this booklet are available to
shareholders on request.
The Stock Exchange, Mumbai has permitted trading of your company's share in
the `A' group. This move is expected to increase the liquidity of your
company's shares.
14. Financial calendar (tentative and subject to change)
Financial results for the year ending March 31, 2000 April 11, 2000
Annual General Meeting for the year ending March 31, 2000 May 2000
<TABLE>
<S> <C> <C>
15. Investors' correspondence in India Any queries relating to the financial statements of the
may be addressed to: company may be addressed to:
Mr. V. Viswanathan, Mr. T. V. Mohandas Pai,
Company Secretary, Investors' Service Cell, Senior Vice President (F&A),
Infosys Technologies Ltd., Electronics City, Infosys Technologies Ltd., Electronics City, Hosur Road,
Hosur Road, Bangalore - 561 229, India. Bangalore - 561 229, India.
Tel.: 91-80-852 1518, Fax: 91-80-852 0362 Tel.: 91-80-852 0396, Fax: 91-80-852 0362
(e-mail address: [email protected]) (e-mail address: [email protected])
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
16. Reuters code - INFY.BO (BSE) Bloomberg code - INFO IN (BSE) Bridge code - IN;INF (BSE)
INFY.NS (NSE) NINFO IN (NSE) IN;INFN (NSE)
INFY.O (NASDAQ) US;INFY (NASDAQ)
</TABLE>
- --------------------------------------------------------------------------------
22 of 27
<PAGE>
17. Stock market data relating to American Depositary Shares (ADSs)
<TABLE>
<S> <C>
a. ADS listed at NASDAQ National Market in the United States
b. Ratio of ADS to equity shares 2 ADS for one equity share
c. ADS symbol INFY
</TABLE>
d. The American Depositary Shares issued under the ADS program of the
company were listed on the NASDAQ National Market in the United States
on March 11, 1999. The monthly high and low quotations as well as the
volume of ADSs traded at NASDAQ National Market for the quarter ended
December 31, 1999 are:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
High Low Volume
$ Rs.# $ Rs.# Nos.
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
October, 1999 179.50 15,552 131.00 11,350 17,12,400
November 235.00 20,398 143.00 12,412 13,14,600
December 360.00 31,313 204.13 17,755 14,79,100
----------------------------------------------------------------------------------
</TABLE>
Percentage of volume traded to total float 217.69%
US$ have been converted into Rupees at the monthly closing rates.
# 2 ADS = 1 equity share
e. American Depositary Shares premium to the shares traded in the Indian
Stock Exhanges
[CHART APPEARS HERE]
* 2 ADSs = 1 equity share (Source: Bloomberg)
- --------------------------------------------------------------------------------
23 of 27
<PAGE>
<TABLE>
<S> <C>
f. Investor correspondence in P. R. Ganapathy
the US may be addressed to Investor Relations Officer
Infosys Technologies Limited
34760, Campus Drive,
Fremont CA 94555, USA.
Tel.: 1-510-742-3030, Mobile: 1-510-872-4412,
Fax: 1-510-742-2930, E-mail: [email protected]
-------------------
g. Name and address of the Bankers Trust Company
Depositary bank (Part of the Deutsche Bank Group),
Four, Albany Street
New York, NY 10006, USA.
Tel.: 1-212-250-8500, Fax: 1-212-250-5644.
Corporate Trust and Agency Services
Deutsche Bank A.G.
1st Floor, Kodak House
222, Dr. D. N. Road.
Fort, Mumbai - 400 001
Tel.: 91-22-207 9566,Fax: 91-22-207 9614
h. Name and address of the ICICI Limited
Custodian in India ICICI Towers,
Bandra-Kurla Complex,
Mumbai - 400 051, India.
Tel.: 91-22-653 1414, Fax: 91-22-653 1165.
</TABLE>
________________________________________________________________________________
24 of 27
<PAGE>
Segment information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rs. in lakhs
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
December 31, December 31, December 31, 1999 December 31, 1998 Year ended
1999 1998 March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Geographical segment
North America 18,273.82 11,460.80 49,356.35 29,348.71 41,739.11
Europe 2,680.14 1,252.83 8,556.73 3,478.55 4,753.03
Rest of the World 1,925.10 1,069.08 3,923.29 2,403.17 3,533.26
India 473.25 234.02 1,710.20 672.46 1,248.43
- ------------------------------------------------------------------------------------------------------------------------------------
23,352.31 14,016.73 63,546.57 35,902.89 51,273.83
====================================================================================================================================
Business segment
Branded services 1,395.24 2,774.60 5,638.42 8,948.57 11,321.57
Products 444.48 210.92 1,576.81 718.86 1,444.89
Software development and maintenance 20,801.59 10,958.96 53,283.03 26,029.24 38,122.66
Treasury 711.00 72.25 3,048.31 206.22 384.71
- ------------------------------------------------------------------------------------------------------------------------------------
23,352.31 14,016.73 63,546.57 35,902.89 51,273.83
====================================================================================================================================
</TABLE>
* Exchange differences arising on translation of foreign currency deposits
kept abroad have been included under Treasury.
By geographical area - quarter ended December 31, 1999. By business
segment - quarter ended December 31, 1999
By Geographical Area - By Business Segment -
quarter ended December 31, 1999 quarter ended December 31, 1999
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
<S> <C> <S> <C>
Europe 12% Treasury 3%
Rest of the World 8% Brand services 6%
India 2% Products 2%
North America 78% Software development
and maintenance 89%
</TABLE>
- --------------------------------------------------------------------------------
25 of 27
<PAGE>
Ratio analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
----------------------------------------------------------
December 31, December 31, December 31, December 31, Year ended
1999 1998 1999 1998 March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios - Financial performance
Export revenue/Total revenue (%) 95.85 98.33 95.50 98.13 97.50
Domestic revenue/Total revenue (%) 0.86 1.15 1.10 1.30 1.68
Other income/Total revenue (%) 3.30 0.52 3.40 0.57 0.75
Employee costs/Total revenue (%) 36.81 30.60 36.20 32.94 32.39
Administration expenses/Total revenue (%) 7.38 8.69 7.39 8.94 8.92
Operating expenses/Total revenue (%) 57.68 61.01 59.58 64.26 62.60
Depreciation/Total revenue (%) 6.18 6.51 5.51 5.98 7.00
Tax/Total revenue (%) 4.36 5.56 4.42 4.75 4.47
Effective tax rate (Tax/PBT) (%) 12.06 17.11 12.67 15.95 14.72
EBIDTA/Total revenue (%) 42.32 38.99 40.42 35.74 37.40
PAT from ordinary activities/Total revenue (%) 31.78 26.93 30.49 25.02 25.92
PAT from ordinary activities/Average net worth (%)* 39.35 58.17 36.35 50.80 54.16
ROCE (PBIT/Average capital employed) (%)* 44.75 70.17 41.62 60.44 63.51
Return on invested capital (%)* 94.13 83.09 91.62 72.92 86.30
Invested capital output ratio* 3.15 3.12 3.21 2.96 3.39
Ratios - Balance Sheet
Debt-Equity ratio - - -
Debtors turnover (Days) 63 69 61
Current ratio 5.73 3.33 6.57
Cash and equivalents/Total assets (%) 61.01 36.97 72.51
Cash and equivalents/Total assets (%) (excluding ADR 38.67 36.97 46.50
issue proceeds)
Depreciation for the period/Average gross block (%) 22.91 22.42 26.19
Technology investment/Total revenue (%) 6.42 8.58 8.55
Ratios - Growth**
Export revenue (%) 63 94 70 102 99
Total revenue (%) 67 91 74 98 97
Operating expenses (%) 58 79 62 92 87
Operating profit (%) 81 114 97 112 116
Net profit (from ordinary activities) (%) 97 107 113 118 120
Per share data
Earnings per share from ordinary activities (Rs.) 22.50 12.12 57.74 27.87 40.19
Cash earnings per share from ordinary activities (Rs.) 26.88 14.88 68.18 34.36 51.05
Book value (Rs.), period end 227.43 78.84 227.43 78.84 174.00
Price/Earning, end of the period 160.75 61.29 187.93 79.98 72.77
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Denotes growth compared with figures of the corresponding period in the
previous year.
Note: The ratio calculations are based on Indian GAAP.
All ratios are calculated excluding income from exchange differences on
translation of foreign currency deposit kept abroad. EPS figures have
been calculated for the period and has not been annualized.
Invested capital ratios has been calculated by adjusting the average
liquid assets against the average net worth and adjusting the revenue
earned from liquid assets after taxes against net profits.
- --------------------------------------------------------------------------------
26 of 27
<PAGE>
<TABLE>
<S> <C>
US
Infosys Technologies Limited
34760, Campus Drive
Fremont CA 94555.
Tel: (510) 742-3000
Fax: (510) 742-3090
Infosys Technologies Limited
20 Commerce Drive
Cranford NJ 07016.
Tel: (908) 497-1710
Fax: (908) 497-1770
Canada
Infosys Technologies Limited
208 Evans Avenue #207
Toronto ON M8Z 1J7, Canada.
Tel: 416-259-9578
Fax: 416-259-1046
UK
Infosys Technologies Limited
Suite 412, Premier Suites
Exchange House
494 Midsummer Boulevard
Milton Keynes MK9 2EA, UK.
Tel: 44-1-908-608-272
Fax: 44-1-908-608-279
Germany
Infosys Technologies Limited
T.O.P.A.S 2 Mergenthalerallee 79-81 Bankers
65760 Eschborn, Frankfurt State Bank of Mysore
Germany. Hongkong and Shanghai Banking Corporation Ltd.
Tel: 49-6196-9202115 State Bank of India
Fax: 49-6196-9202200 ICICI Banking Corporation Limited
Bank of America
Japan
Infosys Technologies Limited Company Secretary
4F, Madre Matsuda Building V. Viswanathan
4-13 Kioi-cho, Chiyoda-ku
Tokyo 102-0094, Japan. Auditors
Tel: 81-3-3234-3597 Bharat S Raut and Company
Fax: 81-2-3239-3300 Chartered Accountants
India Independent auditors - US GAAP
Infosys Technologies Limited KPMG Peat Marwick
Electronics City, Hosur Road
Bangalore 561 229, India.
Tel: 91-80-8520261
Fax: 91-80-8520362
Visit Infosys on the Worldwide Web at www.itlinfosys.com
Send your e-mail to [email protected]
Call us at 1-800-ITL INFO
(C) 2000 Infosys Technologies Limited, Bangalore, India.
Infosys acknowledges the proprietary rights in the trademarks
and product names of other companies mentioned in this document.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999 MAR-31-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998 APR-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998 MAR-31-1999
<CASH> 106,789,758 22,797,989 98,874,963
<SECURITIES> 177,938 177,938 177,938
<RECEIVABLES> 31,814,100 21,270,407 20,056,678
<ALLOWANCES> 783,495 317,325 301,930
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 147,265,420 49,371,220 124,666,964
<PP&E> 39,761,952 22,795,198 23,900,313
<DEPRECIATION> 7,976,831 5,101,292 8,521,009
<TOTAL-ASSETS> 195,184,772 76,581,795 153,657,596
<CURRENT-LIABILITIES> 15,968,880 13,316,453 14,048,034
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 8,592,137 4,545,811 8,592,137
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 195,184,772 76,581,795 153,657,596
<SALES> 52,158,059 33,041,304 120,995,226
<TOTAL-REVENUES> 52,158,059 33,041,304 120,995,226
<CGS> 28,524,750 16,416,373 65,331,006
<TOTAL-COSTS> 28,524,750 16,416,373 65,331,006
<OTHER-EXPENSES> 7,940,499 5,814,490 32,751,593
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 17,329,447 11,183,481 22,323,738
<INCOME-TAX> 1,912,519 1,601,802 4,877,650
<INCOME-CONTINUING> 15,416,928 9,581,679 17,446,088
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 15,416,928 9,581,679 17,446,088
<EPS-BASIC> 0.24 0.16 0.28
<EPS-DILUTED> 0.24 0.16 0.28
</TABLE>
<PAGE>
EXHIBIT 99.1
Bankers Trust Company
(Part of the Deutsche Bank Group)
November 29, 1999
DEPOSITARY RECEIPTS
Depositary's Notice of Extra-ordinary General Meeting of Shareholders of Infosys
Technologies Ltd.
Issue: Infosys Technologies Ltd./Cusip 456786108
Country: India
Meeting Details: Extra-ordinary General Meeting of Shareholders -
Wednesday, December 29/th/ at 2.30 P.M. at Hotel Taj
Residency, No. 41/3, M.G. Road, Bangalore 560 001
Meeting Agenda: The Company's Notice of Meeting including the
Agenda is attached
Voting Deadline: On or before Dec. 24 1999 at 5:00 PM (New York City
time)
ADR Record Date: Nov 30, 1999
Ordinary: ADR ratio: 1 Ordinary Share: 2 ADR
In accordance with Section 4.07 of the Deposit Agreement between Infosys
Technologies Ltd ("the Company") and Bankers Trust as Depositary ("the
Depositary"), Holders of Infosys Technologies Ltd. American Depositary Shares
(ADSs) are hereby notified of the Company's Extra-ordinary General Meeting. A
copy of the Notice of Meeting from the Company, which includes the agenda for
such Meeting, is enclosed.
Holders of Infosys ADSs at the close of business of the above-specified record
will be entitled, subject to any applicable provision of Indian law, of the
Deposited Securities or of the Memorandum and Articles of Association of the
Company, to instruct the Depositary as to the exercise of the voting rights, if
any, pertaining to the amount of Shares or other Deposited Securities
represented by their respective American Depositary Shares. Upon receipt of
the enclosed Voting Instruction Form, duly signed, by the above-stated deadline,
the Depositary shall notify such voting instruction to the Chairman of the
Company, or such other director that the Chairman may designate, and appoint the
Chairman or that other person designated by the Chairman as representative of
the Depositary and the Registered Holders to attend such meeting and vote the
Deposited Securities in the direction so instructed by such Registered Holder.
If the Depositary does not receive instructions from a Registered Holder, such
Registered Holder may under certain circumstances be deemed to have instructed
the Depositary to give a discretionary proxy to a person designated by the
Company to vote such Deposited Securities.
Upon the written request of a Registered Holder on such record date, received on
or before the date established by the Depositary for such purpose, the
Depositary shall endeavor insofar as is practicable and permitted under the
applicable provisions of law and of the Memorandum and Articles of Association
governing Deposited Securities of the Company to vote or cause to be voted the
amount of Deposited Securities represented by such American Depositary Shares
evidenced by such Receipt in accordance with the instructions set forth in such
request.
For the purposes of this Section 4.07, in the event that the Depositary receives
express instructions from Registered Holders to demand a poll with respect to
any matter to be voted on by Holders, the Depositary may notify the Chairman or
a person designated by the Chairman of such instructions and request the
Chairman or such designee to demand a poll with respect to such matters and the
Company agrees that the Chairman or such designee will make their reasonable
best efforts to demand a poll at the meeting at which such matters are to be
voted on and to vote such Shares in accordance with such Registered Holder's
instructions; provided, however, that prior to any demand of a poll or request
to demand poll by
1
<PAGE>
the Depositary upon the terms set forth herein, the Company shall, at its
expense, deliver to the Depositary an opinion of Indian counsel, reasonably
satisfactory to the Depositary, stating that such action is in conformity with
all applicable laws and regulations and that the demand for a poll by the
Depositary or a person designated by the Depositary will not expose the
Depositary to any liability to any person. The Depositary shall not have any
obligation to demand a poll or request the demand of a poll if the Company shall
not have delivered to the Depositary the local counsel Opinion set forth in this
paragraph.
Under Indian law voting of Shares is by show of hands unless a poll is demanded
by a member or members present in person or by proxy holding at least one-tenth
of the total Shares entitled to vote on the resolution or by those holding paid
up capital of at least Rs. 50,000. A proxy may not vote except in a poll.
The Depositary agrees not to, and shall ensure that the Custodian and each of
their nominees does not, vote, attempt to exercise the right to vote, or in any
way make use of, for purposes of establishing a quorum or otherwise, the Shares
or other Deposited Securities represented by the American Depositary Shares
evidenced by a Receipt other than in accordance with such instructions from the
Registered Holder, or as provided below. The Depositary may not itself exercise
any voting discretion over any Shares. If the Depositary does not receive
instructions from any Registered Holder with respect to any of the Deposited
Securities represented by the American Depositary Shares evidenced by such
Registered Holder's Receipts on or before the date established by the Depositary
for such purpose, such Registered Holder shall be deemed, and the Depositary
shall deem such Registered Holder, to have instructed the Depositary to give
discretionary proxy to a person designated by the Company to vote such Deposited
Securities; provided that (x) no such discretionary proxy shall be given with
respect to any matter as to which the Company informs the Depositary (and the
Company agrees to provide such information as promptly as practicable in
writing) that (i) the Company does not wish such proxy given, (ii) substantial
opposition exists or (iii) the rights of the holders of Shares will be adversely
affected and (y) the Depositary shall not have any obligation to give such
discretionary proxy to a person designated by the Company if the Company shall
not have delivered to the Depositary the local counsel opinion and
representation letter set forth in the next paragraph.
Prior to each request for a discretionary proxy upon the terms set forth herein,
the Company shall, at its own expense, deliver to the Depositary (aa) an opinion
of Indian counsel, reasonably satisfactory to the Depositary, stating that such
action is in conformity with all applicable laws and regulations (bb) a
representation and indemnity letter from the Company (executed by a senior
officer of the Company) which (i) designates the person to whom any
discretionary proxy should be given, (ii) confirms that the Company wishes such
discretionary proxy to be given and (iii) certifies that the Company has not and
shall not request the discretionary proxy to be given as to any matter as to
which substantial opposition exists or which may adversely affect the rights of
holders of Shares.
Shares which have been withdrawn from the despositary facility and transferred
on the Company's Register of Members to a person other than the Depositary or
its nominee may be voted by such persons. However, Registered Holders who wish
to withdraw Shares to vote at a shareholders meeting may not receive sufficient
advance notice of shareholders meetings to enable them to make such withdrawal
of the Shares in time to vote at the meeting. In addition once withdrawn from
the depositary facility, Shares may not be redeposited.
For more Information, contact:
Paul Martin
Bankers Trust Company
212 250 5065
212 250 5644(fax)
2
<PAGE>
EXHIBIT 99.2
Infosys Technologies Limited
Extra-ordinary General Meeting of Shareholders
________________________________________________________________________________
___________________________________
(Name of ADR holder)
___________________________________
(Number of ADRs held)
Issues presented for consideration at the Extra-ordinary
General Meeting of Shareholders on 29 December 1999
Resolution # Affirmative Negative Abstained
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1.
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2.
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3.
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4.
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5.
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6.
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________________________________
(Signature)
________________________________________________________________________________
<PAGE>
EXHIBIT 99.3
[Infosys LOGO]
NOTICE
Notice is hereby given that an Extraordinary General Meeting of the members of
Infosys Technologies Limited will be held on Wednesday, December 29, 1999 at
2.30 p.m., at Hotel Taj Residency, No. 41/3, M.G. Road, Bangalore - 560 001, to
transact the following business:
SPECIAL BUSINESS
1. To consider and if thought fit, to pass with or without modifications, as
an ORDINARY RESOLUTION the following:
a) RESOLVED THAT pursuant to the provisions of Section 94 of the
Companies Act, 1956 and all other applicable provisions of the
Companies Act, 1956 and relevant provisions of the Memorandum and
Articles of Association of the Company, each of the existing fully
paid up Equity Share of par value Rs. 10 be and is hereby sub-divided
into two fully paid up Equity Shares of par value Rs. 5 per share.
b) FURTHER RESOLVED THAT pursuant to the relevant provisions of the
Memorandum and Articles of Association of the Company and subject to
any registration statement to be filed with the Securities and
Exchange Commission, U.S.A., and any other requirement under any law,
each of the existing fully paid up American Depositary Share be and is
hereby sub-divided into two fully paid up American Depositary Shares.
2. To consider and if thought fit, to pass with or without, modifications, as
an ORDINARY RESOLUTION the following:
RESOLVED THAT the Authorized Share Capital of the Company be and is hereby
altered from the existing Rs. 50,00,00,000 - (Rupees Fifty crores only)
divided into 5,00,00,000 (Five crores only) Equity Shares of Rs. 10 each
(Rupees Ten only) to Rs. 50,00,00,000 (Rupees Fifty crores only) divided
into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees
Five only), and consequently the existing clause V of the Memorandum of
Association of the Company be and is hereby altered by deleting the same
and substituting in place and stead thereof, the following as the new
clause V:
"The Authorized Share Capital of the Company is Rs. 50,00,00,000 (Rupees
Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity
Shares of Rs. 5 each (Rupees Five only) with power to increase and reduce
the capital of the Company and to divide the shares in the capital for the
time being into several classes and attach thereto respectively such
preferential, deferred, qualified or special rights, privileges or
conditions as may be determined by or in accordance with the Articles of
Association of the Company for the time being and to vary, modify or
abrogate any such rights, privileges or conditions in such manner as may be
permitted by the Companies Act, 1956 or by the Articles of Association of
the Company for the time being".
3. To consider and if thought fit, to pass with or without modifications, as a
SPECIAL RESOLUTION the following:
RESOLVED THAT the Articles of Association of the Company be and is hereby
altered by deleting the existing Article '3' and substituting in place and
stead thereof the following new Article '3':
"The Authorized Share Capital of the Company is Rs. 50,00,00,000 (Rupees
Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity
Shares of Rs. 5 each (Rupees Five only) with powers to increase or reduce
the same in accordance with the provisions of the Companies Act, 1956".
4. To consider and if thought fit, to pass with or without modifications, as
an ORDINARY RESOLUTION the following:
RESOLVED THAT for the purpose of giving effect to the sub-division of the
Equity Shares and American Depositary Shares resolved hereinbefore, the
issuance of Equity Shares and/or American Depositary Shares or Instruments
or Securities representing the same, the Board and other designated
officers of the Company be and are hereby authorized on behalf of the
Company to do all such acts, deeds, matters and things as it may at its
discretion deem necessary or desirable for such purpose, including without
limitation, filing a registration statement, if any, and other documents
with the Securities and Exchange Commission, U.S.A., and/or the Securities
and Exchange Board of India, listing the additional Equity Shares/American
Depositary Shares on the Bangalore Stock Exchange. The Stock Exchange,
Mumbai, The National Stock Exchange of India and the NASDAQ National
Market, as the case may be, amending, if necessary, the relevant sections
of the Agreement entered into between the Company, Bankers Trust Company,
New York (the Depositary to the Company's ADSs) and the American Depositary
Receipt Holders (the "Depositary Agreement") in connection with the
Company's ADS offering and listing on the NASDAQ and the entering into of
any depositary arrangements in regard to any such sub-division as it may in
its absolute discretion deem fit.
5. To consider and if thought fit, to pass with or without modifications, as a
SPECIAL RESOLUTION the following:
a) RESOLVED THAT for the purpose of giving effect to the sub-division of
the Equity Shares and American Depositary Shares resolved
hereinbefore, Clause '3' of the 1998 Stock Opinion Plan of the Company
be and is hereby altered by deleting the words "8,00,000 shares"
appearing in the existing Clause '3' and substituting in place and
stead thereof the words "16,00,000 shares".
b) FURTHER RESOLVED THAT for the purpose of giving effect to the sub-
division of the Equity Shares and American Depositary Shares resolved
hereinbefore, and pursuant to Clause 11 of the 1998 Stock Option Plan
the Board of Directors be and are hereby authorized to proportionately
adjust the number of ADSs covered by each outstanding Option, and the
number of Shares (in the form of ADSs) which have been authorized for
issuance under the Plan but as to which no
1
<PAGE>
[INFOSYS LOGO]
Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, and also the price per
ADS covered by each such outstanding Option, shall be proportionately
adjusted for any increase in the number of issued Shares resulting
from the sub-division.
c) FURTHER RESOLVED THAT the Board be and is hereby authorized to settle
all questions, difficulties or doubts that may arise in regard to
giving effect to the sub-division of the Equity Shares and American
Depositary Shares resolved herein before, as it may in its absolute
discretion deem fit without being required to seek any further consent
or approval of the members or otherwise to the end and intent that the
members shall be deemed to have given their approval thereto,
expressly by the authority of this resolution.
6. To consider and if though fit, to pass with or without modifications, as a
SPECIAL RESOLUTION the following:
a) RESOLVED THAT for the purpose of giving effect to the sub-division of
the Equity Shares and American Depositary Shares resolved
hereinbefore, Clause `3 (t)' of the 1999 Stock Option Plan of the
Company be and is hereby altered by deleting the figures and words
"Rs. 10 (Rupees Ten only)" appearing in the existing Clause `3 (t)'
and substituting in place and stead thereof the figures and words
"Rs.5 (Rupees Five only).
b) FURTHER RESOLVED THAT for the purpose of giving effect to the sub-
division of the Equity Shares and American Depositary Shares resolved
hereinbefore, Clause `4' of the 1999 Stock Option Plan of the Company
be and is hereby altered by deleting the words "33,00,000 shares"
appearing in the existing Clause `4' and substituting in place and
stead thereof the words "66,00,000 shares".
c) FURTHER RESOLVED THAT for the purpose of giving effect to the sub-
division of the Equity Shares and American Depositary Shares resolved
hereinbefore, and pursuant to Clause 15 of the 1999 Stock Option Plan
the Board of Directors be and are hereby authorized to proportionately
adjust the number of Equity Shares covered by each outstanding Option,
and the number of Equity Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or
expiration of an Option, and also the price per Equity Share covered
by each such outstanding Option, shall be proportionately adjusted for
any increase in the number of issued Shares resulting from the sub-
division.
d) FURTHER RESOLVED THAT the Board be and is hereby authorized to settle
all questions, difficulties or doubts that may arise in regard to
giving effect to the sub-division of the Equity Shares and American
Depositary Shares resolved herein before, as it may in its absolute
discretion deem fit without being required to seek any further consent
or approval of the members or otherwise to the end and intent that the
members shall be deemed to have given their approval thereto,
expressly by the authority of this resolution.
Registered Office: By Order of the Board
Electronics City,
Hosur Road, V. Viswanathan
Bangalore - 561 229. Company Secretary
Date: November 29, 1999
2
<PAGE>
Infosys
NOTES
1. A member entitled to attend and vote at the meeting is entitled to appoint
a proxy to attend the meeting and the proxy need not be a member of the
Company. Under the Companies Act, voting is by show of hands unless a poll
is demanded by a member or members present in person, or by proxy holding
at least one-tenth of the total shares entitled to vote on the resolution
or by those holding paid-up capital of at least Rs. 50,000. A proxy may not
vote except in a poll.
2. An Explanatory Statement pursuant to Section 173(2) of the Companies Act,
1956 is annexed hereto.
3. The instrument appointing the proxy should be deposited at the Registered
Office of the Company not less than 48 hours before the commencement of the
meeting.
4. Members/Proxies should bring duly filled Attendance Slips sent herewith for
attending the meeting.
5. Subject to the approval of the sub-division by the members, the Board has
fixed February 11, 2000 as the Record Date for ascertaining the
Shareholders/ADS holders entitled for the sub-division.
EXPLANATORY STATEMENT UNDER SECTION 173(2) OF THE COMPANIES ACT, 1956
ITEM 1
The par value of the Company's existing Equity Shares is Rs. 10. The Board of
Directors of the Company has recommended a Stock Split, i.e., a sub-division of
each equity share of par value Rs. 10 into two Equity Shares of par value Rs. 5
each. As a resultant development, the Board has also recommended a 2-for-1 split
of the Company's American Depositary Shares (ADSs). The Board has recommended
the Stock Split to improve the liquidity of the Company's stock.
In order to make such s sub-division of the existing Equity Shares and ADSs, the
Board requires approval of the members by way of ORDINARY RESOLUTION pursuant to
Section 94 of the Companies Act, 1956 and Article 11 of the Articles of the
Company.
The ORDINARY RESOLUTION, if passed will have the effect of entitling the holders
of the Equity Shares to receive, two Equity Shares of par value Rs. 5 each for
every Equity Share and the holder of the ADSs to receive, two ADSs for every ADS
held as on the Record Date of February 11, 2000 or such other date as the Board
may determine.
The Board recommends the resolution for the approval of members.
ITEM 2 & 3
On account of the proposal to sub-divide the existing Equity Shares of par value
Rs. 10 per share into two Equity Shares of par value Rs. 5 each and the proposal
to sub-divide each existing ADS into two ADSs as contained in Item 1 of this
Notice, it is necessary to amend the Capital Clause contained in the Company's
Memorandum of Association. Likewise, the resolution at Item 3 seeks to amend
Article 3 pertaining to the Authorized Capital in the Company's Articles of
Association.
A copy of the Company's Memorandum and Articles of Association is open for
inspection during business hours on any working day.
The Board recommends the said resolutions for the approval of members.
ITEM 4
In view of the proposal contained in Item 1 of this Notice, it is necessary to
authorize the Board of Directors of the Company to complete all the regulatory
formalities that may be prescribed by the Securities and Exchange Board of
India, the Securities and Exchange Commission, U.S.A., the Stock Exchanges on
which the Company's securities are listed and any other regulatory authority,
including without limitation the filing of any registration statement and/or
other filings, with the Securities Exchange Commission, U.S.A. in connection
with the sub-division of the par value of the Equity Shares/American Depositary
Shares and if necessary, the amending of the Depositary Agreement and/or
entering into any new depositary arrangement in connection with such sub-
division. The Board recommends the resolution for the approval of members.
ITEM 5
In view of the proposal contained in Item 1 of this Notice, it is necessary to
increase the total number of ADSs and underlying Equity Shares reserved under
the 1998 Stock Option Plan, from 8,00,000 Equity Shares of par value Rs. 10
each, initially reserved, to 16,00,000 Equity Shares of par value Rs. 5 each and
proportionately adjust the number of ADSs covered by each outstanding Option,
the total number of ADSs and underlying Equity Shares which have been authorized
and reserved for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per ADS covered by each such
outstanding Option, so as to reflect the increase in the number of ADSs/Equity
Shares, the consequent change in the price of each ADS and the decrease in the
par value of each Equity Share resulting from the sub-division.
The Board recommends the resolution for the approval of members, pursuant to
Clause 11 of the 1988 Stock Option Plan.
<PAGE>
[INFOSYS LOGO]
ITEM 6
In view of the proposal contained in Item 1 of this Notice, it is necessary to
increase the total number of Equity Shares reserved under the 1999 Stock Option
Plan, from 33,000,000 Equity Shares of par value Rs. 10 each, initially
reserved, to 66,000,000 Equity Shares of par value Rs. 5 each and
proportionately adjust the number of Equity Shares covered by each outstanding
Option, the total number of Equity Shares which have been authorized and
reserved for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Equity Share covered by each such
outstanding Option, so as to reflect the increase in the number of Equity
Shares, the consequent change in the price of each Equity Share and the decrease
in the par value of each Equity Share resulting from the sub-division.
The Board recommends the resolution for the approval of members, pursuant to
Clause 15 of the 1999 Stock Option Plan.
None of the Directors of the Company are interested in any of the Items of
Business contained in this Notice.
Registered Office: By Order of the Board
Electronics City,
Hosur Road, V. Viswanathan
Bangalore - 561 229. Company Secretary
Date: November 29, 1999
<PAGE>
EXHIBIT 99.4
[INFOSYS LOGO]
INFOSYS TECHNOLOGIES LIMITED
Registered Office
ELECTRONICS CITY, HOSUR ROAD, BANGALORE - 561 229
PROXY FORM
Regd. Folio No.____________________
Client ID No. ____________________
I/We .................................................. of .....................
in the district of .................................. being a member/members of
Infosys Technologies Limited hereby appoint ...................................
of ........................................................ in the district of
............................................................. or failing him/her
..................................... of .......................................
in the district of .......................................... as my/our proxy to
vote for me/us on my/our behalf at the EXTRAORDINARY GENERAL MEETING of the
company to be held at 2.30 p.m. on Wednesday, December 29, 1999 and at any
adjournment(s) thereof.
Signed this ........................ day of ........................... 199.....
-----------
Rupee one
Signature Revenue
Stamp
-----------
Notes: This form, in order to be effective, should be completed, duly signed and
stamped and must be deposited at the Registered Office of the company,
not less than 48 hours before the meeting.
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Please tear here
[INFOSYS LOGO]
INFOSYS TECHNOLOGIES LIMITED
Registered Office
ELECTRONICS CITY, HOSUR ROAD, BANGALORE - 561 229
ATTENDANCE SLIP
Extraordinary General Meeting - December 29, 1999
Regd. Folio No. _______________________ No. of shares held __________
Client ID No. _______________________
I certify that I am a registered shareholder/proxy for the registered
shareholder of the company.
I hereby record my presence at the EXTRAORDINARY GENERAL MEETING of the company
at Hotel Taj Residency, No. 41/3, M.G. Road, Bangalore - 560 001 at 2.30 p.m. on
Wednesday, December 29, 1999.
................................ .........................
Member's/Proxy's name in Signature of Member/Proxy
BLOCK Letters
Note: Please fill up this attendance slip and hand it over at the entrance of
the meeting hall.
5
