<PAGE>
As filed with the Securities and Exchange Commission on October 4, 1999
Registration No. 333-10852
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
Satyam Infoway Limited
(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
<TABLE>
<S> <C> <C>
Republic of India 7379 Not Applicable
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Maanasarovar Towers
271-A, Anna Salai, Teynampet, Chennai 600 015, India, (91) 44-435-3221
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
CT Corporation System
111 8th Avenue, New York, New York 10011, (212) 894-8940
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Anthony J. Richmond, Esq. Ellen B. Corenswet, Esq.
Latham & Watkins Brobeck, Phleger & Harrison LLP
135 Commonwealth Drive 1633 Broadway, 47th Floor
Menlo Park, California 94025 New York, New York 10019
(650) 328-4600 (212) 581-1600
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<CAPTION>
Proposed maximum
Title of each class of Proposed maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered registered(1) per share(2) price(2) fee(3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity shares, par value
Rs.10 per share, each
represented by one
American Depositary
Share(4).............. 4,801,250 $14.00 $67,217,500 $18,687
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
(1) Includes 626,250 equity shares represented by 626,250 American Depositary
Shares that the Underwriters have the option to purchase to cover
overallotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee, in accordance with Rule 457(a) promulgated under the
Securities Act of 1933.
(3) An amount equal to $15,985 was paid in connection with the initial filing
of this registration statement on September 21, 1999. An additional
amount equal to $2,702 is being paid herewith.
(4) American Depositary Shares evidenced by American Depositary Receipts
issuable upon deposit of the equity shares registered hereby are being
registered pursuant to a separate registration statement on Form F-6.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement includes two prospectuses, which are
identical except for the alternate cover page, table of contents, underwriting
section, and rear cover page which are provided immediately in front of Part
II.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999
PROSPECTUS
4,175,000 American Depositary Shares
[LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE]
SATYAM INFOWAY LIMITED
Representing 4,175,000 Equity Shares
-----------
Satyam Infoway Limited is offering up to 4,175,000 American Depositary
Shares, or ADSs, of Satyam Infoway outside India, including in the United
States. This prospectus relates to an offering by the U.S. underwriters of up
to 2,505,000 American Depositary Shares in the United States and Canada.
Additional underwriters are offering up to 1,670,000 American Depositary Shares
outside the United States and Canada. Each American Depositary Share represents
one equity share.
This is Satyam Infoway's initial public offering, and no public market
currently exists for Satyam Infoway's equity shares.
Satyam Infoway has applied to list its American Depositary Shares on The
Nasdaq Stock Market's National Market under the symbol "SIFY."
It is anticipated that the price to public per ADS will be between $12.00
and $14.00 per ADS.
-----------
Investing in the American Depositary Shares involves certain risks which
are described in the Risk Factors beginning on page 7.
-----------
<TABLE>
<CAPTION>
Underwriting
Price discount and Proceeds
to public commissions to us
--------- ------------ --------
<S> <C> <C> <C>
Per ADS......................................... $ $ $
Total........................................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Satyam Infoway has granted to the underwriters the right to purchase up to
an additional 626,250 American Depositary Shares at the public offering price,
less discount and commissions, within 30 days from the date of this prospectus
to cover overallotments.
-----------
Merrill Lynch & Co.
Salomon Smith Barney
, 1999
<PAGE>
Three panels of graphical information regarding Satyam Infoway Limited
consisting of:
. a graphical presentation of Satyam Infoway's network covering 25 cities
in India, with international Internet gateways in Mumbai, Bangalore,
Chennai, Hyderabad, Delhi and Calcutta;
. sample web pages from some of Satyam Infoway's content sites, including
satyamonline.com and speciality sites related to cars, movies and
shopping; and
. a list of business-to-business services provided by Satyam Infoway.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................... 1
Risk Factors............................................................ 7
Conventions Which Apply to This Prospectus.............................. 22
Currency of Presentation................................................ 22
Enforcement of Civil Liabilities........................................ 23
Reports to Our Security Holders......................................... 24
Use of Proceeds......................................................... 25
Dividend Policy......................................................... 26
Capitalization.......................................................... 27
Exchange Rates.......................................................... 28
Dilution................................................................ 29
Selected Financial Data................................................. 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 32
Business................................................................ 43
Management.............................................................. 60
Principal Shareholders.................................................. 65
Certain Transactions.................................................... 66
Description of Equity Shares............................................ 67
Description of American Depositary Shares............................... 72
Restrictions on Foreign Ownership of Indian Securities.................. 80
Government of India Approvals........................................... 84
Taxation................................................................ 86
Shares Eligible for Future Sale......................................... 91
Underwriting............................................................ 92
Legal Matters........................................................... 94
Experts................................................................. 94
Change of Accountants................................................... 94
Additional Information.................................................. 94
Index to Financial Statements........................................... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
Through and including , (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information found in greater detail elsewhere in
this prospectus. In addition to this summary, we urge you to read the entire
prospectus carefully, especially the risks of investing in our ADSs discussed
under "Risk Factors," before deciding to buy our ADSs.
Satyam Infoway Limited
Our Business
We are the second largest national provider of Internet access and
Internet services to consumers and businesses in India, based on number of
customers as of August 31, 1999. Our customers primarily use our services to
communicate, transmit and share information, access on-line content and conduct
business remotely using our private data network or the Internet. Our Internet
and network services include the following:
. Consumer Internet Access Services. We offer dial-up Internet access,
e-mail and web page hosting to consumers in India through convenient
on-line registration and user-friendly software. In November 1998
after the deregulation of the Internet service provider market in
India, we launched our Internet service provider business and became
the first private Internet service provider in India. The largest
national Internet service provider is VSNL, which is majority
controlled by the Indian government.
. Corporate Network and Technology Services. We offer dial-up and
dedicated Internet access, private network services, business-to-
business electronic commerce solutions and website development and
hosting services to businesses in India. Initiated in April 1998, our
corporate network and technology services division has formed
strategic partnerships with a number of leading technology and
electronic commerce companies, including CompuServe Network Services,
Sterling Commerce and Open Market.
. On-line Portal and Content Offerings. We operate an on-line portal,
satyamonline.com, that functions as a principal entry point and
gateway for accessing the Internet by providing useful web-related
services and links. We also offer related content sites specifically
tailored to Indian interests worldwide for news, personal finance,
movies, music and automobiles. During August 1999, our six websites
generated approximately 6.5 million page views.
As of June 30, 1999, we had an accumulated deficit of approximately
Rs.366.7 million ($8.4 million). For the fiscal year ended March 31, 1999 and
the fiscal quarter ended June 30, 1999, our net loss was approximately Rs.187.4
million ($4.3 million) and Rs.51.7 million ($1.2 million), respectively.
Our Customers
As of August 31, 1999, we had more than 77,000 consumer Internet access
subscribers and more than 300 corporate customers. Our corporate network and
technology services customers are in a variety of industries, including
financial services, publishing, retail, shipping and manufacturing. Our five
largest corporate customers based on revenue for the fiscal quarter ended June
30, 1999 were Carborandum Universal Limited, CDC Advisors Limited, ESPN
Software India Limited, GE Capital Services and Hutchinson Corporate Access.
The customers listed above accounted for approximately 35% of our corporate
network and technology services division revenues in the fiscal quarter ended
June 30, 1999.
Our Network
We currently operate India's largest national private data network
utilizing Internet protocol, which is an Internet industry standard for
tracking Internet addresses, routing outgoing messages and recognizing
1
<PAGE>
incoming messages. We own and operate points of presence in 25 of the largest
metropolitan areas in India. Points of presence are telecommunications
facilities located in a particular market which allow our customers to connect
to the Internet through a local telephone call. We plan to have points of
presence in 40 cities in India by April 2000, which we believe will allow us to
provide Internet access service via a local telephone call to approximately 85%
of the installed personal computer base in India. Our private network
infrastructure provides the platform for national delivery of Internet access
to consumers as well as the backbone for our broad range of corporate network
and technology services. For example, our network provides an alternative to
government telecom providers for corporations that wish to establish virtual
private networks, which provide secure transmission of data using Internet
protocol over our private network infrastructure, and electronic data
interchanges. Our Internet service provider license permits us to establish and
maintain our own direct international Internet connections via satellite links
or transoceanic cable systems as an alternative to government-provided Internet
gateways. We believe that as the size and capacity of our network
infrastructure grows, its large scale and national coverage will create
economies of scale for us and barriers to entry for our competitors.
Our Market Opportunity
The market for Internet access and electronic commerce, both worldwide
and in India, is expanding rapidly. For example, International Data Corporation
estimates:
. the installed personal and network computer base in India will grow at
a rate that averages 44% annually from 1.9 million in 1998 to 8.2
million in 2002;
. Internet users in India will grow at a rate that averages 76% annually
from 0.5 million in 1998 to 4.5 million in 2002; and
. Internet commerce revenues in India will grow at a rate that averages
260% annually from $3.5 million in 1998 to $593.6 million in 2002.
Internet usage is expected to grow rapidly in the Indian market as
deregulation continues, network bandwidth becomes less expensive, the installed
base of personal and network computers increases, alternative Internet-access
devices become available and Internet connectivity becomes increasingly
important for on-line news and content and electronic commerce transactions. We
believe that our company is well positioned to take advantage of this
significant market opportunity in India. The market in India is, however,
presently at a very early stage of development and involves significant
business, competitive and other risks.
The International Data Corporation market data presented above and
elsewhere in this prospectus shows International Data Corporation's estimates
derived from a combination of vendor, user and other market sources and
therefore may differ from numbers claimed by specific vendors using different
market definitions or methods. There can be no assurances that any of these
projected amounts will be achieved.
Our Growth Strategy
Our goal is to become the premier provider of Internet access, network
services and on-line content to consumers and businesses in India. Our
principal business strategies to accomplish this objective are:
. Increase penetration in our existing markets by expanding awareness of
the Satyam Online brand name to capitalize on our first mover
advantage in India;
. Expand our products and services with new technologies to enable our
customers to use the Internet more effectively;
. Strengthen our Internet portal and other Internet content websites
with more content tailored to Indian interests worldwide;
2
<PAGE>
. Expand customer distribution channels through strategic partnerships
to take advantage of the sales and marketing capabilities of our
strategic partners;
. Invest in the continued enhancement and expansion of our network
infrastructure to support customer growth, enter new markets and
accommodate increased customer usage; and
. Pursue selective strategic investments, partnerships and acquisitions
to expand our customer base, increase utilization of our network and
add new technologies to our product mix.
Our Organization
Our principal executive offices are located at Maanasarovar Towers, 271-
A, Anna Salai, Teynampet, Chennai 600 015, India, and our telephone number is
(91) 44-435-3221. Information contained in our websites, including our
principal website, satyamonline.com, is not part of this prospectus. We are,
and after the offering will continue to be, a majority-owned subsidiary of
Satyam Computer Services Limited, a leading Indian information technology
services company which is traded on the principal Indian stock exchanges.
"Satyam" is a trademark owned by Satyam Computer Services, which has licensed
the use of the "Satyam" trademark to us subject to specified conditions. For
additional information regarding this license, please see "Business--
Intellectual Property" on page 56. "Satyam Online," "Satyam:Net" and
"satyamonline.com" are trademarks used by us for which we have registration
applications pending in India. Each trademark, trade name or service mark of
any other company appearing in this prospectus belongs to its holder.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
American Depositary Shares offered:
U.S. offering............................... 2,505,000 ADSs
International offering...................... 1,670,000 ADSs
--------------
Total................................... 4,175,000 ADSs
==============
The ADSs....................................... Each American Depository Share
represents one equity share,
par value Rs.10 per share. The
ADSs will be evidenced by
American Depository Receipts.
Equity shares outstanding after this offering.. 21,156,000 equity shares
Use of proceeds................................ To fund network infrastructure
expansion and enhancements, to
develop content for our
Internet portal business, to
advertise and promote our brand
and for general corporate
purposes, including possible
strategic investments,
partnerships and acquisitions.
For additional
information regarding the use
of proceeds from this offering,
please see "Use of Proceeds" on
page 25.
Proposed Nasdaq National Market symbol......... SIFY
</TABLE>
---------------
The 21,156,000 equity shares outstanding after this offering are based on
the 15,750,000 equity shares outstanding as of June 30, 1999 and include:
. 481,000 equity shares issued to Sterling Commerce at a price of
$10.40 per share in a private- placement pursuant to an agreement
reached in July 1999 which closed in September 1999;
. 750,000 equity shares to be issued to two existing shareholders,
Satyam Computer Services Limited and South Asia Regional Fund, in
connection with the exercise of warrants held by those shareholders
at an exercise price equal to 66% of the price to public indicated
on the cover of this prospectus; and
. the 4,175,000 equity shares represented by ADSs sold by us in this
offering.
The equity shares to be outstanding after this offering exclude, as of
June 30, 1999, the following:
. any equity shares represented by the ADSs to be issued pursuant to
the underwriters' overallotment option;
. 5,000 equity shares issuable upon the exercise of options
outstanding under our stock option plan at a weighted average
exercise price of Rs.70 per share; and
. 820,000 equity shares reserved for future issuance under our stock
option plan (of which options to acquire 147,000 shares were granted
on September 28, 1999 at a weighted average exercise price equal to
Rs.335 per share).
4
<PAGE>
SUMMARY FINANCIAL DATA
You should read the following summary financial data in conjunction with
our financial statements and the related notes, "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. Our financial statements are
prepared in Indian rupees and presented in accordance with U.S. GAAP for the
fiscal years ended March 31, 1997, 1998 and 1999 and the fiscal quarter ended
June 30, 1999. Financial statements for the year ended March 31, 1999 and the
quarter ended June 30, 1999 also have been translated into U.S. dollars. The
pro forma as adjusted data set forth below are adjusted to give effect to the
following:
. the sale by our company to Sterling Commerce of 481,000 equity shares
in a private placement pursuant to an agreement reached in July 1999
which closed in September 1999 and the application of the $5.0 million
of proceeds from this sale primarily towards the repayment of debt;
. the sale by our company of 4,175,000 ADSs representing 4,175,000
equity shares offered hereby and the application of the proceeds from
the offering at an assumed initial public offering price of $13.00 per
ADS and after deducting underwriting discounts and the estimated
offering expenses payable by us; and
. the exercise of warrants to purchase an aggregate of 750,000 of our
equity shares and the application of the $6.4 million aggregate
exercise price primarily towards the repayment of debt.
For additional information regarding the pro forma as adjusted data, please see
"Capitalization" on page 27.
The summary consolidated historical financial and other data includes a
presentation of EBITDA. EBITDA represents earnings (loss) before depreciation
and amortization, interest income and expense, income tax expense (benefit) and
extraordinary items. EBITDA is presented because we believe some investors find
it to be a useful tool for measuring a company's ability to fund capital
expenditures or to service future debts. EBITDA is not determined in accordance
with generally accepted accounting principles and should not be considered in
isolation or as an alternative to net income as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
Because EBITDA excludes interest expense and capital expenditures, negative
EBITDA would limit our ability to fund capital expenditures and service future
debt obligations. Our EBITDA is not comparable to that of other companies which
may determine EBITDA differently.
5
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, Fiscal Quarter Ended June 30,
------------------------------------------------------ ------------------------------------
1997 1998 1999 1999 1998 1999 1999
Indian rupees U.S. dollars Indian rupees U.S. dollars
---------------------------------------- ------------ ---------------------- ------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues............... Rs. -- Rs. 6,805 Rs. 103,344 $ 2,378 Rs. 17,558 Rs. 80,803 $ 1,860
Cost of revenues....... -- 19,498 63,651 1,465 7,074 38,897 895
-------------- ----------- ----------- ---------- ---------- ---------- ----------
Gross profit (loss) -- (12,693) 39,693 913 10,484 41,906 965
Operating expenses..... 26,337 80,400 200,282 4,609 30,607 84,338 1,941
Operating loss......... (26,337) (93,093) (160,589) (3,696) (20,123) (42,432) (976)
Net loss............... Rs. (26,337) Rs.(100,590) Rs.(187,376) $ (4,312) Rs.(24,829) Rs.(51,749) $ (1,191)
Loss per equity share.. Rs.(114,508.27) Rs. (121.66) Rs. (17.31) $ (0.40) Rs. (3.28) Rs. (3.29) $ (0.08)
Weighted average equity
shares used in
computing loss per
equity share.......... 230 826,805 10,824,826 10,824,826 7,566,164 15,750,000 15,750,000
Other Financial Data:
EBITDA................. Rs. (25,801) Rs. (73,709) Rs.(111,496) $ (2,566) Rs.(11,337) Rs.(21,131) $ (486)
Capital expenditures... 3,230 77,070 146,135 3,363 15,057 109,578 2,522
Net cash provided by
(used in):
Operating activities.. (30,426) (73,950) (171,388) (3,944) (20,590) (37,258) (857)
Investing activities.. (3,230) (77,070) (146,000) (3,360) (15,057) (109,578) (2,522)
Financing activities.. 35,138 159,449 433,023 9,966 30,504 31,664 729
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
----------------------------------------------------
Pro Forma As
Adjusted Pro Forma
Actual Actual Indian As Adjusted
Indian rupees U.S. dollars rupees U.S. dollars
------------- ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. Rs.10,375 $ 239 Rs.2,398,447 $55,200
Working capital
(deficit)............... (198,325) (4,564) 2,189,747 50,397
Total assets............. 464,473 10,690 2,852,545 65,651
Long-term debt, including
current installments.... 259,820 5,980 1,320 30
Total stockholders'
equity (deficit)........ 16,075 370 2,662,647 61,281
</TABLE>
6
<PAGE>
RISK FACTORS
Any investment in our ADSs involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the other information contained in this prospectus, before you decide to buy
our ADSs. If any of the following risks actually occur, our business, results
of operations and financial condition would likely suffer. In any such case,
the market price of our ADSs could decline, and you may lose all or part of the
money you paid to buy our ADSs.
Risks Related to Investments in Indian Companies
We are incorporated in India, and virtually all of our assets and our
employees are located in India. Consequently, our financial performance and the
market price of our ADSs will be affected by changes in exchange rates and
controls, interest rates, government of India policies, including taxation
policies, as well as political, social and economic developments affecting
India.
Political instability related to the formation of a new government in India
could halt or delay the liberalization of the Indian economy and adversely
affect business and economic conditions in India generally and our business in
particular.
During the past decade and in particular since 1991, the government of
India has pursued policies of economic liberalization, including significantly
relaxing 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. The government of India is
in the process of changing for the fifth time since 1996. In April 1999, the
then-current government lost a vote of confidence in parliament and the prime
minister resigned. The prior government of India, formed in March 1998,
announced policies and took initiatives that supported the continued economic
liberalization policies that have been pursued by the previous governments. We
cannot assure you that these liberalization policies will continue in the
future. The rate of economic liberalization could change, and specific laws and
policies affecting technology companies, foreign investment, currency exchange
rates and other matters affecting investment in our securities could change as
well. A significant change in India's economic liberalization and deregulation
policies could adversely affect business and economic conditions in India
generally and our business in particular.
Economic sanctions imposed on India by the United States could restrict our
access to technology and limit our ability to construct our network and operate
our business.
In May 1998, the United States imposed economic sanctions against India
in response to India's testing of nuclear devices. Since then, the United
States has waived some of these sanctions subsequent to its discussions with
the government of India. The economic sanctions imposed on India to date have
not had a material impact on our company. However, these sanctions, or
additional sanctions, could restrict our access to technology that is available
only in the United States and that is required to construct our network and
operate our business. We cannot assure you that any of these sanctions will
continue to be waived, that additional economic sanctions of this nature will
not be imposed, or that these sanctions or any additional sanctions that are
imposed will not have a material adverse effect on our business or on the
market for our ADSs in the United States.
Regional conflicts in South Asia could adversely affect the Indian economy and
cause our business to suffer.
South Asia has from time to time experienced instances of civil unrest
and hostilities among neighboring countries, including between India and
Pakistan. In April 1999, India and Pakistan conducted long-range missile tests.
Since May 1999, military confrontations between India and Pakistan have
occurred in the disputed Himalayan region of Kashmir. 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, including our ADSs,
and on the market for our services.
7
<PAGE>
Indian law and the terms of our Internet service provider license contain
restrictive provisions that limit our ability to raise capital or to be
acquired which could prevent us from constructing our network and operating our
business or entering into a transaction that is in the best interests of our
shareholders.
Indian law and the terms of our Internet service provider license
constrain our ability to raise capital through the issuance of equity or
convertible debt securities. Guidelines issued by the Department of Policy and
Promotion, Ministry of Industry in January 1997 state that the maximum foreign
equity investment in an Indian company engaged in business in the
telecommunications sector is 49%. Additional guidelines issued in November 1998
provide that the maximum foreign equity investment in an Indian company acting
as an Internet service provider is also 49%. This 49% limit applies to foreign
equity investment in our company. Likewise, our Internet service provider
license provides that the total foreign equity in our company may not, at any
time, exceed 49% of our total equity.
After this offering, we expect that approximately 39%, or 41% if the
overallotment option is exercised in full, of our equity interests will be held
by foreign investors. As a result of the 49% limit on foreign equity ownership,
we will not be permitted to sell more than an additional 10%, or 8% if the
overallotment option is exercised in full, of our equity shares to foreign
investors in the future. We cannot assure you that other forms of financing
will be available on terms favorable to us, or at all. If adequate funds are
not available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our infrastructure or services, or otherwise respond to competitive pressures
would be significantly limited. Our business, results of operations and
financial condition could be materially adversely affected by any such
limitation. The 49% limit on foreign equity ownership also restricts our
ability to be acquired by a non-Indian company because a foreign company is
prohibited from acquiring a majority of our equity shares. Likewise, the terms
of our Internet service provider license prevents us from transferring the
license to a third person. This may prevent us from entering into a transaction
which would otherwise be beneficial for our company and the holders of our
equity shares.
For additional information regarding our sources of capital, please see
"Use of Proceeds" on page 25, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Expenditures" on page 38. For additional information regarding foreign
ownership restrictions, please see "Business--Government Regulation" on page 57
and "Restrictions on Foreign Ownership of Indian Securities" on page 80.
We are subject to foreign investment restrictions under Indian law that limit
our ability to attract foreign investors which, together with the lack of a
public market for our equity shares, may adversely impact the value of our
ADSs.
Currently there is no public trading market for our equity shares in
India nor can we assure you that we will take steps to develop one. After this
offering, our equity securities will not trade publicly in India, but will only
be traded on Nasdaq through the ADSs as described in this prospectus. Under
current Indian laws and regulations, our depositary cannot accept deposits of
outstanding equity shares and issue ADRs evidencing ADSs representing such
equity shares without prior approval of the government of India. If you elect
to surrender your ADSs and receive equity shares, you will not be able to trade
those equity shares on any securities market. Under current Indian laws and
regulations, you will be prohibited from re-depositing those outstanding equity
shares with our depositary without prior approval of the government of India.
If in the future a market for our equity shares is established in India or
another market outside of the United States, those shares may trade at a
discount or premium to the ADSs in part because of restrictions on foreign
ownership of the underlying shares.
Under current Indian regulations and practice, the approval of the
Reserve Bank of India 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. Since exchange controls still exist in India,
the Reserve Bank of India will approve the price at which the equity shares are
transferred based on a specified formula, and a higher price per share may not
be permitted. Holders who seek to convert the rupee proceeds from a sale of
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equity shares in India into foreign currency and repatriate that foreign
currency from India will have to obtain Reserve Bank of India approval for each
transaction. We cannot assure you that any required approval from the Reserve
Bank of India or any other government agency can be obtained.
Because we operate our business in India, exchange rate fluctuations may affect
the value of our ADSs independent of our operating results.
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 three-year period from July 1, 1996 through June 30, 1999, the value
of the rupee against the U.S. dollar declined by approximately 24%.
Devaluations of the rupee will result in higher expenses to our company for the
purchase of capital equipment, such as routers, modems and other
telecommunications and computer equipment, which is generally manufactured in
the U.S. In addition, our market valuation could be materially adversely
affected by the devaluation of the rupee if U.S. investors analyze our value
based on the U.S. dollar equivalent of our financial condition and results of
operations.
The government of India may change its regulation of our business or the terms
of our license to provide Internet access services without our consent, and any
such change could decrease our revenues and/or increase our costs which would
adversely affect our operating results.
Our business is subject to government regulation under Indian law and to
significant restrictions under our Internet service provider license issued by
the government of India. These regulations and restrictions include the
following:
. Our Internet service provider license has a term of 15 years and we
have no assurance that the license will be renewed. If we are unable
to renew our Internet service provider license in 2013 for any
reason, we will be unable to operate as an Internet service provider
in India and will lose one of our primary sources of revenue.
. The government of India maintains the right to regulate the prices we
charge our subscribers. The success of our business model depends on
our ability to price our services at levels we believe are
appropriate. If the government sets a price floor, we may not be able
to attract and retain subscribers. Likewise, if the government sets a
price ceiling, we may not be able to generate sufficient revenues to
fund our operations.
. The government of India maintains the right to take over our entire
operations or revoke, terminate or suspend our license for national
security and similar reasons without compensation to us. If the
government of India were to take any of these actions, we would be
prevented from conducting all or part of our business.
We had outstanding performance guarantees for various statutory purposes
totaling Rs. 22,144,000 ($509,643) as of June 30, 1999. These guarantees are
generally provided to government agencies, primarily the Telegraph Authority,
as security for compliance with and performance of terms and conditions
contained in an Internet service provider license and VSNL towards the supply
and installation of an electronic commerce platform. These guarantees may be
seized by the governmental agencies if they suffer any losses or damage by
reason of our failure to perform our obligations. Any failure on our part to
comply with governmental regulations and the terms of our Internet service
provider license could result in the loss of our license, which would also
prevent us from carrying on a very significant part of our business. Further,
additional laws regulating telecommunications, electronic records, the
enforceability of electronic documents and the liability of network service
providers are under consideration and if enacted could impose additional
restrictions on our business. For additional information regarding government
regulation, please see "Business--Government Regulation" on page 57.
The global financial crisis could cause our business or the price of our ADSs
to suffer.
Financial turmoil in several Asian countries, Russia and elsewhere in the
world in 1998 and 1999 has adversely affected market prices in the world's
securities markets, including the United States and Indian
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markets, for securities of companies which operate in those developing
economies. Continued or increased financial downturns in these countries could
cause further decreases in prices for securities of companies located in
developing economies, such as our company.
Surcharges on Indian income taxes will increase our tax liability by an
additional 10% and decrease any profits we might have in the future.
The statutory corporate income tax rate in India is currently 35.0%. This
tax rate is presently subject to a 10.0% surcharge resulting in an effective
tax rate of 38.5%. The Finance Minister of India has indicated that the 10.0%
surcharge will be effective for a period of only one year, commencing April 1,
1999. However, we cannot assure you that the 10.0% surcharge will be repealed
on April 1, 2000 or that additional surcharges will not be implemented by the
government of India. Dividends declared, distributed or paid by an Indian
corporation are subject to a tax of 11.0%, including the presently applicable
surcharge, of the total amount of the dividend declared, distributed or paid at
the corporate level. This tax is not paid by shareholders nor is it a
withholding requirement, but rather it is a direct tax payable by the
corporation.
Risks Related to the Internet Market in India
Our success will depend in large part on the increased use of the
Internet by consumers and businesses in India. However, our ability to exploit
the Internet service provider and other data service markets in India is
inhibited by a number of factors. If India's limited Internet usage does not
grow substantially, our business may not succeed.
The success of our business depends on the acceptance of the Internet in India
which may be slowed or halted by high bandwidth costs and other technical
obstacles in India.
Bandwidth, the measurement of the volume of data capable of being
transported in a communications system in a given amount of time, remains very
expensive in India, especially when compared to bandwidth costs in the United
States. Bandwidth rates are commonly expressed in terms of Kbps (kilobits per
second, or thousands of bits of data per second) or Mbps (megabits per second,
or millions of bits of data per second). Prices for bandwidth capacity are set
by the Indian government and have remained high due to, among other things,
capacity constraints. Further, limitations in network architecture in India
limit Internet connection speeds to 28 Kbps and below, less than the 33 to 56
Kbps connection speeds on conventional dial-up telephone lines, and
significantly less than the up to 1.5 Mbps connection speed on cable modems, in
the United States. These speed and cost constraints may severely limit the
quality and desirability of using the Internet in India.
The limited installed personal computer base in India limits our pool of
potential customers and restricts the amount of revenues that our consumer
Internet access services division may generate.
The market penetration rates of personal computers and on-line access in
India are far lower than such rates in the United States. For example,
according to International Data Corporation, in 1998 the Indian market
contained approximately 0.5 million Internet users compared to a total
population in India of 984.0 million, while the U.S. market contained
approximately 68.2 million Internet users compared to a total population in the
U.S. of 270.3 million. Alternate methods of obtaining access to the Internet,
such as through cable television modems or set-top boxes for televisions, are
currently unavailable in India. There can be no assurance that the number or
penetration rate of personal computers in India will increase rapidly or at all
or that alternate means of accessing the Internet will develop and become
widely available in India.
The high cost of accessing the Internet in India limits our pool of potential
customers and restricts the amount of revenues that our consumer Internet
access services division may generate.
Our growth is limited by the cost to Indian consumers of obtaining the
hardware, software and communications links necessary to connect to the
Internet in India. If the costs required to access the Internet do not
significantly decrease, most of India's population will not be able to afford
to use our services. The
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failure of a significant number of additional Indian consumers to obtain
affordable access to the Internet would make it very difficult to execute our
business plan.
The success of our business depends on the acceptance and growth of electronic
commerce in India which is uncertain and, to a large extent, beyond our
control.
Many of our existing and proposed products and services are designed to
facilitate electronic commerce in India, although there is virtually no
electronic commerce currently being conducted in India. Demand and market
acceptance for these products and services by businesses and consumers,
therefore, are highly uncertain. Critical issues concerning the commercial use
of the Internet, such as legal recognition of electronic records, validity of
contracts entered into on-line and the validity of digital signatures, remain
unresolved. In addition, many Indian businesses have deferred purchasing
Internet access and deploying electronic commerce initiatives for a number of
reasons, including the existence or perception of, among other things:
. inconsistent quality of service;
. need to deal with multiple and frequently incompatible vendors;
. lack of legal infrastructure relating to electronic commerce in
India;
. lack of security of commercial data such as credit card numbers; and
. low number of Indian companies accepting credit card numbers over the
Internet.
If usage of the Internet in India does not substantially increase and the
legal infrastructure and network infrastructure in India are not further
developed, we are not likely to realize any benefits from our investment in the
development of electronic commerce products and services.
Risks Related to Satyam Infoway
Our very limited operating history makes it difficult to evaluate our business.
We commenced operation of our private data network business in April 1998
and launched our Internet service provider operations and Internet portal
website in November 1998. Accordingly, we have a very limited operating history
to evaluate our business. You must consider the risks and difficulties
frequently encountered by companies in the early stages of development,
particularly companies in the new and rapidly evolving Internet service
markets. These risks and difficulties include our ability to:
. continue to develop and upgrade our technology, including our network
infrastructure;
. maintain and develop strategic relationships with business partners;
. offer compelling on-line services and content; and
. promptly address the challenges faced by early stage, rapidly growing
companies which do not have an experience or performance base to draw
on.
Not only is our operating history short, but we have determined to
compete in three businesses that we believe are complementary. These three
businesses are business network and connectivity services, Internet service
provider and consumer portal. Our three businesses were started at different
times and have only been functioning together since late in 1998. We do not yet
know whether these businesses will prove complementary. We cannot assure you
that we will successfully address the risks or difficulties described above.
Failure to do so could lead to an inability to attract and retain subscribers
for our Internet services and corporate customers for our network services as
well as the loss of advertising revenues. For additional information regarding
our limited operating history, please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on page 32 and our financial
statements included elsewhere in this prospectus commencing on page F-1.
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We have a history of losses and negative cash flows and anticipate this to
continue because our business plan, which is unproven, calls for additional
subscribers and other customers to attain profitability.
Since our founding, we have incurred significant losses and negative cash
flows. As of June 30, 1999, we had an accumulated deficit of approximately $8.4
million. We have not been profitable and expect to incur operating losses as we
expand our services, invest in expansion of our network infrastructure and
sales and marketing staff, and advertise and promote our brand. Our business
plan assumes that consumers in India will be attracted to and use Internet
access services and content available on the Internet in increasing numbers.
Our business plan also assumes that businesses in India will demand private
network and related electronic commerce services. This business model is not
yet proven in India, and we cannot assure you that we will ever achieve or
sustain profitability or that our operating losses will not increase in the
future. For additional information regarding our history of losses, please see
"Selected Financial Data" on page 30 and "Management's Discussion and Analysis
of Financial Condition and Results of Operation" on page 32.
Our ability to compete in the Internet service provider market is hindered by
the fact that our principal competitor is a government-controlled provider of
international telecommunications services in India which enjoys significant
competitive advantages over our company.
Videsh Sanchar Nigam Limited, or VSNL, is a government-controlled
provider of international telecommunications services in India. VSNL is also
the largest Internet service provider in India with an estimated 300,000
subscribers as of June 30, 1999. VSNL enjoys significant competitive advantages
over our company, including the following:
. Lower rates. VSNL currently offers national Internet service provider
services at rates approximately 10% less than the fees we charge our
subscribers.
. Longer service history. VSNL has offered Internet service provider
services since August 1995 whereas we have offered Internet service
provider services only since November 1998.
. Access to network infrastructure. Because VSNL is controlled by the
government of India, it has direct access to network infrastructure
which is owned by the Indian government.
. Greater financial resources. VSNL has significantly greater total
assets and annual revenues than our company.
If we are unable to distinguish our Internet service provider services
from those of VSNL, these competitive advantages may prevent us from attracting
and retaining subscribers and generating advertising revenue. This could result
in loss of market share, price reductions or reduced margins for our company's
operations.
We may be required to lower the rates we charge for our products and services
in response to new pricing models introduced by new and existing competition in
the Internet services market which would significantly decrease our revenues.
We expect a significant number of new competitors to enter India's
recently liberalized Internet service provider market in the near future. As of
June 30, 1999, 129 companies had obtained Internet service provider licenses in
India, including 22 companies which have obtained licenses to offer Internet
service provider services throughout India. Some of these companies, including
WMI, Dishnet, Shrishti and KMR Online, currently offer regional Internet
service provider services. New entrants into the national Internet service
provider market in India may enjoy significant competitive advantages over our
company, including greater financial resources, which could allow them to
charge Internet access fees that are lower than ours in order to attract
subscribers. In addition, although no Internet service provider in India
currently offers unlimited Internet access for a fixed monthly fee or free
Internet access, the unlimited access pricing and free Internet access models
have been implemented in other markets. If these new entrants offer less costly
or free Internet access, or if one or more of them introduce an unlimited
Internet access pricing model to the Indian market, we may be forced to lower
our prices in order to attract and retain subscribers.
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Our on-line portal, satyamonline.com, faces significant competition from
well-established Indian content providers, including IndiaWorld and
RediffontheNet. We also compete with foreign content providers as well as with
traditional print and television media companies.
Our corporate and technology services business faces significant
competition from well-established companies, including Global E-Commerce
Limited, Sprint-RPG Limited and WIPRO-CSD.
Increased competition may result in reduced operating margins, loss of
market share and diminished value in our services, as well as different
pricing, service or marketing decisions. We cannot assure you that we will be
able to successfully compete against current and future competitors. For
additional information regarding competition in our markets, please see
"Business--Competition" on page 55.
Our marketing campaign to establish brand recognition and loyalty for the
Satyam Online brand could be unsuccessful or, if successful, may not benefit
our company if in the future we are no longer permitted to use the "Satyam"
trademark that we license from Satyam Computer Services.
In order to expand our customer base and increase traffic on our
websites, we must establish, maintain and strengthen the Satyam Online brand.
We plan to increase substantially our marketing expenditures to establish brand
recognition and brand loyalty. If our marketing efforts do not produce a
significant increase in consumer traffic to offset our marketing expenditures,
our losses will be increased or, to the extent that we are generating profits,
our profits will be decreased. Furthermore, our Internet portal will be more
attractive to advertisers if we have a large audience of consumers with
demographic characteristics that advertisers perceive as favorable. Therefore,
we intend to introduce additional and enhanced content, interactive tools and
other services and features in the future in an effort to retain our current
subscribers and users and attract new ones. Our reputation and brand name could
be adversely affected if we are unable to do so successfully.
"Satyam" is a trademark owned by Satyam Computer Services Limited, or
Satyam Computer Services, our parent company. We have a license to use the
"Satyam" trademark for so long as Satyam Computer Services continues to own at
least 51% of our company. If there is a change of control in our company,
however, Satyam Computer Services may terminate our license to use the "Satyam"
trademark upon two years' prior written notice. Termination of our license to
use the "Satyam" trademark would require us to invest significant funds in
building a new brand name and could have a material adverse effect on our
business, results of operations and financial condition.
If our efforts to retain our subscribers through investment in network
infrastructure and customer and technical support are unsuccessful, our
revenues will decrease without a corresponding reduction in costs.
Our sales, marketing and other costs of acquiring new subscribers are
substantial relative to the fees actually derived from these subscribers.
Accordingly, our long-term success depends to a great extent on our ability to
retain our existing subscribers, while continuing to attract new subscribers.
We invest significant resources in our network infrastructure and in our
customer and technical support capabilities to provide high levels of customer
service. We cannot be certain, however, that these investments will maintain or
improve subscriber retention. We believe that intense competition from our
competitors, some of whom may offer free hours of service or other enticements
for new subscribers, has caused, and may continue to cause, some of our
subscribers to switch to our competitors' services. In addition, some new
subscribers use the Internet only as a novelty and do not become consistent
users of Internet services, and therefore are more likely to discontinue their
service. Any decline in our subscriber retention rate could decrease the
revenues generated by our consumer Internet access services division.
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Our future operating results could fluctuate in part because our expenses are
relatively fixed in the short-term while future revenues are uncertain, and any
adverse fluctuations could negatively impact the price of our ADSs.
Our revenues, expenses and operating results have varied in the past and
may fluctuate significantly in the future due to a number of factors, many of
which are outside our control. Our business involves significant capital
outlays and, thus, a significant portion of our investment and cost base is
relatively fixed in the short term. Our revenues for the foreseeable future
will depend on the following:
. the number of subscribers to our Internet service provider service
and the level of Internet and other on-line service usage by those
subscribers determines the amount of revenues generated by our
consumer Internet access services division;
. advertising and electronic commerce activity on satyamonline.com
determines the amount of revenues generated by our on-line portal and
content offerings division; and
. the products developed by our strategic partners and the usage
thereof by our customers determines the amount of revenues generated
by our corporate network and technology services division.
Our future revenues are difficult to forecast and, in addition to the
foregoing, will depend on the following:
. new Internet sites, services, products or pricing policies introduced
by our competitors may require us to introduce new offerings or
reduce the prices we charge our customers for Internet access;
. our capital expenditures and other costs relating to the expansion of
our operations could affect the completion of our network or could
require us to generate additional revenue in order to be profitable;
. the timing and nature of any agreements we enter into with strategic
partners will determine the amount of revenues generated by our
corporate network and technology services division;
. the timing and nature of our marketing efforts could affect the
number of our subscribers and the level of electronic commerce
activity on our websites;
. our ability to successfully integrate operations and technologies
from any acquisitions, joint ventures or other business combinations
or investments;
. the introduction of alternative technologies may require us to
reevaluate our business strategy and/or to adapt our products and
services to be compatible with such technologies; and
. technical difficulties or system failures affecting the
telecommunication infrastructure in India, the Internet generally or
the operation of our websites.
We plan to increase our expenditures for our sales and marketing
operations, expand and develop content and enhance our technology and
infrastructure development. Many of our expenses are relatively fixed in the
short-term. We cannot assure you that our revenues will increase in proportion
to the increase in our expenses. We may be unable to adjust spending quickly
enough to offset any unexpected revenues shortfall. This could lead to a
shortfall in revenues in relation to our expenses.
You should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance. It is possible that in some
future periods our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our ADSs may
underperform or fall.
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Because we lack full redundancy for our computer systems, a systems failure
could prevent us from operating our business.
We rely on the Internet and, accordingly, depend upon the continuous,
reliable and secure operation of Internet servers, related hardware and
software and network infrastructure such as lines leased from service providers
operated by the government of India. We have a back-up data facility but we do
not have full redundancy for all of our computer and telecommunications
facilities. As a result, failure of key primary or back-up systems to operate
properly could lead to a loss of customers, damage to our reputation and
violations of our Internet service provider license and contracts with
corporate customers. These failures could also lead to a decrease in value of
our ADSs, significant negative publicity and litigation. Recently, several
large Internet companies have suffered highly publicized system failures which
resulted in adverse reactions to their stock prices, significant negative
publicity and, in some instances, litigation.
We have suffered service outages from time to time. We guarantee to our
corporate customers that our network will be operational 99% of the time, and
our Internet service provider license requires that we provide an acceptable
level of service quality and that we remedy customer complaints within a
specified time period. Our computer and communications hardware are protected
through physical and software safeguards. However, they are still vulnerable to
fire, storm, flood, power loss, telecommunications failures, physical or
software break-ins and similar events. We do not carry business interruption
insurance to protect us in the event of a catastrophe even though such an event
could lead to a significant negative impact on our business. Any sustained
disruption in Internet access provided by third parties could also have a
material adverse effect on our business.
Security breaches could damage our reputation or result in liability to us.
Our facilities and infrastructure must remain secure and be perceived by
consumers to be secure, because we retain confidential customer information in
our database. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors or similar disruptive problems. If a person circumvents our
security measures, he or she could jeopardize the security of confidential
information stored on our systems, misappropriate proprietary information or
cause interruptions in our operations. We may be required to make significant
additional investments and efforts to protect against or remedy security
breaches. A material security breach could damage our reputation or result in
liability to us, and we do not carry insurance that protects us from this kind
of loss.
The security services that we offer in connection with our business
customers' networks cannot assure complete protection from computer viruses,
break-ins and other disruptive problems. Although we attempt to limit
contractually our liability in such instances, the occurrence of these problems
could result in claims against us or liability on our part. These claims,
regardless of their ultimate outcome, could result in costly litigation and
could damage our reputation and hinder ability to attract and retain customers
for our service offerings.
If we are unable to manage the rapid growth required by our business strategy,
our results of operations will be adversely affected.
We have experienced and are currently experiencing a period of
significant growth. As of June 30, 1999, we had 411 employees, an increase of
135% from the 175 employees we had as of June 30, 1998. We currently anticipate
hiring an additional 250 employees during the current fiscal year, most of whom
will be hired into our sales, marketing and customer support teams. This growth
has placed, and the future growth we anticipate in our operations will continue
to place, a significant strain on our managerial, operational, financial and
information systems resources. As part of this growth, we will have to
implement new operational and financial systems and procedures and controls,
expand our office facilities, train and manage our employee base, and maintain
close coordination among our technical, accounting, finance, marketing, sales
and editorial staffs. If we are unable to manage our growth effectively, we
will be unable to implement our growth strategy, upon which the success of our
business depends.
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We face a competitive labor market in India for skilled personnel and therefore
are highly dependent on our existing key personnel and on our ability to hire
additional skilled employees.
Our success depends upon the continued service of our key personnel,
particularly Mr. R. Ramaraj, our Chief Executive Officer, and each of our vice
presidents. Substantially all of our employees are located in India, and each
of them may voluntarily terminate his or her employment with us. We do not
carry key person life insurance on any of our personnel. Our success also
depends on our ability to attract and retain additional highly qualified
technical, marketing and sales personnel. The labor market for skilled
employees in India is extremely competitive, and the process of hiring
employees with the necessary skills is time-consuming and requires the
diversion of significant resources. While we have not experienced difficulty in
employee retention or integration to date, we may not be able to continue to
retain or integrate existing personnel or identify and hire additional
personnel in the future. The loss of the services of key personnel, especially
the unexpected death or disability of such personnel, or the inability to
attract additional qualified personnel, could disrupt the implementation of our
growth strategy, upon which the success of our business depends. For additional
information regarding our key personnel and other employees, please see
"Management" on page 60 and "Business--Employees" on page 59.
We are highly dependent on our relationships with strategic partners to provide
key products and services to our customers.
We rely on our arrangements with strategic partners to provide key
network and electronic commerce products and services to our business clients.
Our relationships with CompuServe Network Services, Open Market and Sterling
Commerce are exclusive to us within the Indian market with regard to specific
products, so long as we maintain stated minimum sales levels. If we were to
lose exclusivity, we would likely be subject to intense competition for these
products and services. These arrangements can be terminated by our partners in
some circumstances. We also rely on our strategic partners to provide us with
access to their customer base. If our relationships with our strategic partners
do not continue, the ability of our corporate network and technology services
division to generate revenues will be decreased significantly.
We face risks associated with potential acquisitions, investments, strategic
partnerships or other ventures, including whether any such transactions can be
located, completed and the other party integrated with our business on
favorable terms.
We may acquire or make investments in complementary businesses,
technologies, services or products, or enter into strategic partnerships with
parties who can provide access to those assets, if appropriate opportunities
arise. From time to time we have had discussions and negotiations with
companies regarding our acquiring, investing in or partnering with their
businesses, products, services or technologies, and we regularly engage in such
discussions and negotiations in the ordinary course of our business. Some of
those discussions also contemplate the other party making an investment in our
company. We may not identify suitable acquisition, investment or strategic
partnership candidates, or if we do identify suitable candidates, we may not
complete those transactions on commercially acceptable terms or at all. If we
acquire another company, we could have difficulty in assimilating that
company's personnel, operations, technology and software. In addition, the key
personnel of the acquired company may decide not to work for us. If we make
other types of acquisitions, we could have difficulty in integrating the
acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses. Furthermore, we may incur indebtedness or
issue equity securities to pay for any future acquisitions. The issuance of
equity securities would dilute the ownership interests of the holders of our
ADSs. As of the date of this prospectus, we have no agreement to enter into any
material investment or acquisition transaction. The Reserve Bank of India or
government of India must approve under the Foreign Exchange Regulation Act,
1973, any acquisition by our company of any company organized outside of India.
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Satyam Computer Services will control our company and may have interests which
conflict with those of our other shareholders or holders of our ADSs.
Satyam Computer Services will beneficially own approximately 59.2% of our
equity shares following this offering, or 57.5% if the overallotment option is
exercised in full. As a result, it will be able to exercise control over many
matters requiring approval by our shareholders, including the election of
directors and approval of significant corporate transactions. Under Indian law,
a simple majority is sufficient to control all shareholder action except for
those items which require approval by a special resolution. If a special
resolution is required, the number of votes cast in favor of the resolution
must be not less than three times the number of votes cast against it. Examples
of actions that require a special resolution include:
. altering our Articles of Association;
. issuing additional shares of capital stock, except for pro rata
issuances to existing shareholders;
. commencing any new line of business; or
. commencing a liquidation.
Circumstances may arise in which the interests of Satyam Computer
Services could conflict with the interests of our other shareholders or holder
of our ADSs. Satyam Computer Services could delay or prevent a change in
control of our company even if a transaction of that sort would be beneficial
to our other shareholders, including the holders of our ADSs. In addition, we
have an agreement with South Asia Regional Fund, an investor in our company,
which assures them a board seat and provides specified additional rights to
them. For additional information regarding our arrangements with Satyam
Computer Services and South Asia Regional Fund, please see "Management--Board
Composition" on page 62 and "Principal Shareholders" on page 65.
The Year 2000 problem may adversely affect our company. We do not anticipate
receiving Year 2000 compliance certification from the Department of
Telecommunications, on which we are dependent for leased lines and
international gateways to the Internet.
Many existing computer systems and hardware and software products use
only two digits to identify a year in the date field and, consequently, cannot
distinguish 21st century dates from 20th century dates. This defect, if
uncorrected, could result in a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions or engage in other normal business activities. We maintain various
internal computer systems and equipment and we rely directly and indirectly on
systems utilized by our suppliers for telecommunications, utilities and
electronic hardware and software applications. We are in the process of
assessing the Year 2000 readiness of our systems. Satyam Enterprises, an
affiliate of Satyam Computer Services, has completed a Year 2000 assessment of
all of our network hardware and software, including our computers, application
software, generators and uninterruptible power supply systems and relay
switches. We have performed a Year 2000 simulation on our systems to test Year
2000 system readiness which, to date, has indicated no material problems. We
are in the process of contacting selected third-party vendors, licensors and
providers of hardware, software and services, including the government telecom
providers, regarding their Year 2000 readiness. We do not anticipate receiving
Year 2000 compliance certification from the Department of Telecommunications,
on which we are dependent for leased lines and international gateways to the
Internet. Any failure of the Department of Telecommunications to be Year 2000
compliant could cause a substantial disruption to our operations. We are still
engaged in an ongoing Year 2000 assessment and have not yet developed any
contingency plan.
We must make substantial capital expenditures in new network infrastructure
which, if not offset by additional revenue, will adversely affect our operating
results.
We must continue to expand and adapt our network infrastructure as the
number of users and the amount of information they wish to transfer increases
and as the requirements of our customers change. The
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expansion of our Internet network infrastructure will require substantial
financial, operational and management resources. The development of private
Internet access and other data networks in India is a new business for private
markets entrants such as our company and we may encounter cost overruns,
technical difficulties or other project delays in connection with any or all of
the new facilities. We can give no assurance that we will be able to expand or
adapt our network infrastructure to meet the additional demand or our
customers' changing requirements on a timely basis, or at a commercially
reasonable cost, or at all. A portion of our capital expenditures for network
development are fixed, and the success of our business depends on our ability
to grow our business to utilize this capacity. In addition, if demand for usage
of our network were to increase faster than projected, our network could
experience capacity constraints, which would adversely affect the performance
of the system.
The laws of India do not protect intellectual property rights to the same
extent as those of the United States, and we may be unsuccessful in protecting
our intellectual property rights.
Our intellectual property rights are important to our business. We rely
on a combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
India do not protect proprietary rights to the same extent as laws in the
United States, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. For example,
Indian statutory law does not protect service marks. The misappropriation or
duplication of our intellectual property could disrupt our ongoing business,
distract our management and employees, reduce our revenues and increase our
expenses. In the future, litigation may be necessary to enforce our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation could be time-consuming and
costly.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our
websites or other product or service offerings overlap with competitive
offerings. Defending against these claims, even if not meritorious, could be
expensive and divert our attention from operating our company. If we become
liable to third parties for infringing their intellectual property rights, we
could be required to pay a substantial damage award and forced to develop non-
infringing technology, obtain a license or cease selling the applications that
contain the infringing technology. We may be unable to develop non-infringing
technology or obtain a license on commercially reasonable terms, or at all. For
additional information regarding our intellectual property rights, please see
"Business--Intellectual Property" on page 56.
Our platform infrastructure and its scalability are not proven, and our current
systems may not accommodate increased use while maintaining acceptable overall
performance.
Currently, only a relatively limited number of consumers use our Internet
service provider services and Internet portal. We must continue to expand and
adapt our network infrastructure to accommodate additional users, increasing
transaction volumes and changing customer requirements. We may not be able to
project accurately the rate or timing of increases, if any, in the use of our
websites or expand and upgrade our systems and infrastructure to accommodate
such increases. Our systems may not accommodate increased use while maintaining
acceptable overall performance. Service lapses could cause our users to use the
on-line services of our competitors.
We do not plan to pay dividends in the foreseeable future.
We do not anticipate paying cash dividends to the holders of our ADSs in
the foreseeable future. Accordingly, investors must rely on sales of their ADSs
after price appreciation, which may never occur, as the only way to realize on
their investment. Investors seeking cash dividends should not purchase our
ADSs.
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<PAGE>
Risks Related to the Internet
We may be liable to third parties for information retrieved from the Internet.
Because users of our Internet service provider service and visitors to
our websites may distribute our content to others, third parties may sue us for
defamation, negligence, copyright or trademark infringement, personal injury or
other matters. We could also become liable if confidential information is
disclosed inappropriately. These types of claims have been brought, sometimes
successfully, against on-line services in the United States and Europe. Others
could also sue us for the content and services that are accessible from our
websites through links to other websites or through content and materials that
may be posted by our users in chat rooms or bulletin boards. We do not carry
insurance to protect us against these types of claims, and there is no
precedent on Internet service provider liability under Indian law. Further, our
business is based on establishing the satyamonline.com network as a trustworthy
and dependable provider of information and services. Allegations of
impropriety, even if unfounded, could damage our reputation, disrupt our
ongoing business, distract our management and employees, reduce our revenues
and increase our expenses.
The success of our strategy depends on our ability to keep pace with
technological changes.
Our future success depends, in part, upon our ability to use leading
technologies effectively, to continue to develop our technical expertise, to
enhance our existing services and to develop new services that meet changing
customer requirements. The market for our service is characterized by rapidly
changing technology, evolving industry standards, emerging competition and
frequent new service introductions. We may not successfully identify new
opportunities and develop and bring new services to market in a timely manner.
Our business may not be compatible with delivery methods of Internet access
services developed in the future.
We face the risk that fundamental changes may occur in the delivery of
Internet access services. Currently Internet services are accessed primarily by
computers and are delivered by modems using telephone lines. If the Internet
becomes accessible by screen-based telephones, television or other consumer
electronic devices or becomes deliverable through other means such as coaxial
cable or wireless transmission, we will have to develop new technology or
modify our existing technology to accommodate these developments. Our pursuit
of these technological advances, whether directly through internal development
or by third party license, may require substantial time and expense. We may be
unable to adapt our Internet service business to alternate delivery means and
new technologies may not be available to us at all.
Our product and service offerings may not be compatible with industry standards
developed in the future.
Our ability to compete successfully depends upon the continued
compatibility and interoperability of our services with products and
architectures offered by various vendors. Although we intend to support
emerging standards in the market for Internet access, industry standards may
not be established and, if they become established, we may not be able to
conform to these new standards in a timely fashion or maintain a competitive
position in the market. The announcement or introduction of new products or
services by us or our competitors and any change in industry standards could
cause customers to deter or cancel purchases of existing products or services.
Risk Related to the ADSs and Our Trading Market
Our management will have broad discretion in using the proceeds from this
offering and therefore investors will be relying on the judgment of our
management to invest those funds effectively.
Our management will have broad discretion with respect to the expenditure
of the net proceeds from this offering. We intend to use the net proceeds to
fund network infrastructure expansion and enhancements, to develop content for
our Internet portal business, to advertise and promote our brand, to repay debt
and for other general corporate purposes. We may also use a portion of the
proceeds for possible strategic investments, partnerships and acquisitions. We
have not yet finalized the amount of net proceeds to be used specifically for
each of these purposes, although we are not permitted to use the proceeds to
purchase real estate or to purchase
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securities on stock exchanges as specified by the Ministry of Finance.
Investors will be relying on the judgment of our management regarding the
application of these proceeds. For additional information regarding the
expenditure of the net proceeds from this offering, please see "Use of
Proceeds" on page 25 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Expenditures" on
page 38.
Holders of ADSs may be restricted in their ability to exercise preemptive
rights under Indian law and thereby may suffer future dilution of their
ownership position.
Under the Companies Act, 1956 of India, or Companies Act, a company
incorporated in India must offer its holders of equity shares preemptive 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 the preemptive rights have been waived by adopting a special resolution
by holders of three-fourths of the company's shares which are voted on the
resolution. U.S. holders of ADSs may be unable to exercise preemptive rights
for equity shares underlying ADSs unless approval of the Ministry of Finance of
the government of India is obtained and a registration statement under the
Securities Act of 1933, as amended, is effective with respect to the rights or
an exemption from the registration requirements of the Securities Act is
available. Our decision to file a registration statement will depend on the
costs and potential liabilities associated with any given registration
statement as well as the perceived benefits of enabling the holders of our ADSs
to exercise their preemptive rights and any other factors that we deem
appropriate to consider at the time the decision must be made. We may elect not
to file a registration statement related to preemptive rights otherwise
available by law to our shareholders. In the case of future issuances, the new
securities may be issued to our depositary, which may sell the securities for
the benefit of the holders of the ADSs. The value, if any, our depositary would
receive upon the sale of such securities cannot be predicted. 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 our company would be reduced. For additional information regarding
the ability of holders of ADSs to exercise preemptive rights, please see
"Description of American Depositary Shares" on page 72.
Holders of ADSs may be restricted in their ability to exercise voting rights.
As a holder of ADSs, you generally will have the right under the deposit
agreement to instruct the depositary bank to exercise the voting rights for the
equity shares represented by your ADSs. For additional information regarding
the voting rights of holders of equity shares, please see "Description of
Equity Shares--Voting Rights" on page 69.
At our request, the depositary bank will mail to you any notice of
shareholders' meeting received from us together with information explaining how
to instruct the depositary bank to exercise the voting rights of the securities
represented by ADSs. If the depositary bank timely receives voting instructions
from a holder of ADSs, it will endeavor to vote the securities represented by
the holder's ADSs in accordance with such voting instructions. However, the
ability of the depositary bank to carry out voting instructions may be limited
by practical and legal limitations and the terms of the securities on deposit.
We cannot assure you that you will receive voting materials in time to enable
you to return voting instructions to the depositary bank in a timely manner.
Securities for which no voting instructions have been received will not be
voted.
There has been no prior public market for our ADSs or equity shares and the
initial public offering price may not be indicative of future trading prices.
Prior to this offering, there has not been a public market for our ADSs
or equity shares. The initial public offering price for the ADSs will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. Investors may not be able to resell their shares at or above
the initial public offering price.
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After the IPO, the market price of our ADSs may be highly volatile, as has been
the case recently with many other newly-public Internet companies.
The financial markets in the United States and other countries have
experienced significant price and volume fluctuations, and the market prices of
technology companies, particularly Internet-related companies, have been and
continue to be extremely volatile. Volatility in the price of our ADSs may be
caused by factors outside of our control and may be unrelated or
disproportionate to our operating results. In the past, following periods of
volatility in the market price of a public company's securities, securities
class action litigation has often been instituted against that company. Such
litigation could result in substantial costs and a diversion of our
management's attention and resources. For additional information regarding our
arrangements with the underwriters, please see "Underwriting" on page 92.
This offering may not result in an active or liquid market for the ADSs,
particularly in light of Indian legal restrictions on equity share conversion
and foreign ownership of an Internet service provider.
We cannot predict the extent to which this offering will result in the
development of an active, liquid public trading market for our ADSs offered by
this prospectus. Active, liquid trading markets generally result in lower price
volatility and more efficient execution of buy and sell orders for investors.
Liquidity of a securities market is often a function of the volume of the
underlying shares that are publicly held by unrelated parties. Although ADS
holders are entitled to withdraw the equity shares underlying the ADSs from the
depositary at any time, there is no public market for our equity shares in
India or the United States. Under current Indian law, equity shares may not be
re-deposited into our depositary without prior approval of the government of
India. Therefore, the number of outstanding ADSs will decrease to the extent
that equity shares are withdrawn from our depositary, which may adversely
affect the market price and the liquidity of the market for the ADSs.
Furthermore, foreign ownership in our company, which will include all ADSs, is
limited to 49% under present Indian law. This limitation means that, unless
Indian law changes, 51% of our equity shares will never be available to trade
in the United States market being initiated by this offering.
New investors will experience immediate and substantial dilution.
The purchase price of the ADSs offered by this prospectus will be
substantially higher than the tangible book value of our outstanding equity
shares. Any ADSs an investor purchases in this offering will have a post-
closing net tangible book value per share of $10.11 per share less than the
initial public offering price paid, assuming an initial public offering price
of $13.00 per share. Investors who purchase ADSs in this offering will
therefore experience immediate and significant dilution in the tangible net
book value of their investment. For additional information regarding dilution
to investors in our ADSs, please see "Dilution" on page 29.
The future sales of securities by our company or existing shareholders may hurt
the price of our ADSs.
The market price of our ADSs could decline as a result of sales of a
large number of equity shares or ADSs after this offering or the perception
that such sales could occur. Such sales also might make it more difficult for
us to sell equity securities in the future at a time and at a price that we
deem appropriate. After this offering, we will have an aggregate of 21,156,000
equity shares outstanding, including 750,000 equity shares to be issued to two
existing shareholders in connection with the exercise of warrants held by them.
Of the outstanding equity shares, the 4,175,000 ADSs, representing 4,175,000
equity shares, sold in this offering will be freely tradable, other than ADSs
purchased by our affiliates. The remaining equity shares may be sold in the
United States only pursuant to a registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act,
including Regulation S. Each of our directors, executive officers and current
shareholders, together with the holders of warrants to purchase 750,000 equity
shares, has agreed that he, she or it will not offer, sell or agree to sell,
directly or indirectly, or otherwise dispose of any equity shares without the
prior written consent of the representatives of the U.S. underwriters for a
period of 180 days from the date of this prospectus. For additional information
regarding possible future sales of our securities, please see "Underwriting" on
page 92 and "Shares Eligible for Future Sale" on page 91.
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<PAGE>
Forward-looking statements contained in this prospectus may not be realized.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risks faced
by us described above and elsewhere in this prospectus. We do not intend to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus reflects
the following:
. no exercise by the underwriters of their overallotment option to
purchase up to 626,250 additional ADSs representing 626,250 equity
shares; and
. no exercise of outstanding employee stock options.
CURRENCY OF PRESENTATION
In this prospectus, all references to "Indian rupees," "rupees" and "Rs."
are to the legal currency of India and all references to "U.S. dollars,"
"dollars" and "$" are to the legal currency of the United States. For the
convenience of the reader, this prospectus contains translations of some Indian
rupee amounts into U.S. dollars which should not be construed as a
representation that those Indian rupee or U.S. dollar amounts could have been,
or could be, converted into U.S. dollars or Indian rupees, as the case may be,
at any particular rate, the rate stated below, or at all. Except as otherwise
stated in this prospectus, all translations from Indian rupees to U.S. dollars
contained in this prospectus have been based on the noon buying rate in the
City of New York on June 30, 1999 for cable transfers in Indian rupees as
certified for customs purposes by the Federal Reserve Bank of New York. The
noon buying rate on June 30, 1999 was Rs.43.45 per $1.00.
Our financial statements are prepared in Indian rupees and presented in
accordance with U.S. GAAP for the fiscal years ended March 31, 1997, 1998 and
1999 and the fiscal quarter ended June 30, 1999. Solely for your convenience,
our financial statements as of and for the year ended March 31, 1999 and the
quarter ended June 30, 1999 have been translated into U.S. dollars. In this
prospectus, any discrepancies in any table between totals and the sums of the
amounts listed are due to rounding.
For historical information regarding rates of exchange between Indian
rupees and U.S. dollars, please see "Exchange Rates" on page 28.
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ENFORCEMENT OF CIVIL LIABILITIES
Our company is a limited liability company under the laws of the Republic
of India. All of our directors and executive officers, and several of the
experts named in this prospectus, reside outside the United States, and
virtually all of our assets and the assets of those persons are located outside
the United States. As a result, it may be difficult for investors to effect
service of process upon those persons within the United States or to enforce
against us or those persons in U.S. courts judgments obtained in U.S. courts,
including judgments predicated on the civil liability provisions of the federal
securities laws of the United States.
India is not a party to any international treaty relating to the
recognition or enforcement of foreign judgments. We have been advised by M.G.
Ramachandran, our Indian legal counsel, that in India the statutory basis for
recognition of foreign judgments is found in Section 13 of the Indian Code of
Civil Procedure, 1908, or Indian Civil Code, which provides that a foreign
judgment shall be conclusive as to any matter directly adjudicated upon except:
. where the judgment has not been pronounced by a court of competent
jurisdiction;
. where the judgment has not been given on the merits of the case;
. where the judgment appears on the face of the proceedings to be
founded on an incorrect view of international law or a refusal to
recognize the law of India in cases where such law is applicable;
. where the proceedings in which the judgment was obtained were opposed
to natural justice;
. where the judgment has been obtained by fraud; or
. where the judgment sustains a claim founded on a breach of any law in
force in India.
Section 44A of the Indian Civil Code provides that where a foreign
judgment has been rendered by a court in any country or territory outside India
which the government of India has by notification declared to be a
reciprocating territory, it may be enforced in India by proceedings in
execution as if the judgment had been rendered by the relevant court in India.
The United States has not been declared by the government of India to be a
reciprocating territory for purposes of Section 44A. Accordingly, a judgment of
a court in the United States may be enforced in India only by a suit upon the
judgment, not by proceedings in execution. The suit must be brought in India
within three years from the date of the judgment in the same manner as any
other suit filed to enforce a civil liability in India. It is unlikely that a
court in India would award damages on the same basis as a foreign court if an
action is brought in India. Furthermore, it is unlikely that an Indian court
would enforce foreign judgments if it viewed the amount of damages awarded as
excessive or inconsistent with Indian practice. A party seeking to enforce a
foreign judgment in India is required to obtain approval from the Reserve Bank
of India under the Foreign Exchange Regulation Act, 1973 to execute the
judgment or to repatriate any amount recovered. We have also been advised by M.
G. Ramachandran that a party may file suit in India against us, our directors
or our executive officers as an original action predicated upon the provisions
of the federal securities laws of the United States. To our knowledge, no such
suit has ever been brought in Indian courts. As a result, it may be difficult
for investors to enforce a judgment obtained in a court in the United States,
or to bring an original action in an Indian court, based on the civil liability
provisions of the federal securities laws of the United States against us or
our directors, executive officers or experts who reside outside the United
States.
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REPORTS TO OUR SECURITY HOLDERS
Upon consummation of this offering, we will be subject to the information
requirements of the Securities Exchange Act of 1934, as amended, applicable to
foreign private issuers. As a result, we will be required to file reports,
including annual reports on Form 20-F, reports on Form 6-K and other
information with the Securities and Exchange Commission. We have further agreed
in the underwriting agreement relating to this offering to submit to the SEC
quarterly reports on Form 6-K which will include unaudited quarterly financial
information, for the first three quarters of each fiscal year, in addition to
our annual report on Form 20-F which will include audited annual financial
information. We have agreed to file these reports within the same time periods
that apply to the filing by domestic issuers of quarterly reports on Form 10-Q
and annual reports on Form 10-K. The SEC's rules generally require that
domestic issuers file a quarterly report on Form 10-Q within 45 days after the
end of the first three fiscal quarters and file an annual report on Form 10-K
within 90 days after the end of each fiscal year. These reports and other
information filed or to be filed by us can be inspected and copied at the
public reference facilities maintained by the SEC at:
. Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549;
. Seven World Trade Center
13th Floor
New York, New York 10048; and
. Northwestern Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511.
Copies of these materials can also be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates.
The SEC maintains a website at www.sec.gov that contains reports, proxy
and information statements, and other information regarding registrants that
make electronic filings with the SEC using its EDGAR system. As a foreign
private issuer, we are not required to use the EDGAR system, but currently
intend to do so in order to make our reports available over the Internet.
Upon approval of the ADSs for quotation on the Nasdaq National Market,
our periodic reports and other information may also be inspected at the offices
of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
As a foreign private issuer, we will be exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements, and
our executive officers, directors and principal shareholders will be exempt
from the reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act.
We will furnish the depositary referred to under "Description of American
Depositary Shares" with annual reports, which will include annual audited
consolidated financial statements prepared in accordance with U.S. GAAP, and
quarterly reports, which will include unaudited quarterly consolidated
financial information prepared in accordance with U.S. GAAP. The depositary has
agreed with us that, at our request, it will promptly mail these reports to all
registered holders of ADSs. We will also furnish to the depositary all notices
of shareholders' meetings and other reports and communications that are made
generally available to our shareholders. The depositary will arrange for the
mailing of these documents to record holders of ADSs. For further details on
the responsibilities of the depositary and the information to be made available
to persons who purchase our ADSs in this offering, please see "Description of
American Depositary Shares" and "Additional Information."
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USE OF PROCEEDS
The net proceeds from this offering, after deducting underwriting
discounts and the estimated offering expenses payable by us, are estimated to
be approximately $49.5 million, or $57.0 million if the underwriters'
overallotment option is exercised in full, assuming an initial public offering
price of $13.00 per ADS. We currently estimate that we will use the proceeds
from this offering as follows:
. approximately $25 million to fund network infrastructure expansion
and enhancements;
. approximately $10 million to develop content for our Internet portal
business;
. approximately $5 million to advertise and promote our brand; and
. the balance of the proceeds from this offering for general corporate
purposes, including possible strategic investments, partnerships and
acquisitions.
While we have from time to time preliminarily discussed potential investments,
strategic partnerships and acquisitions in the ordinary course of our business,
we have no current agreements or understandings relating to any such
transaction.
We have not yet finalized the amount of net proceeds to be used
specifically for the purposes specified above. Accordingly, management will
have significant flexibility in applying the net proceeds of this offering.
Management will not, however, be able to use the proceeds to purchase real
estate or to purchase securities on stock exchanges as specified by the
Ministry of Finance. We will be required to submit to the Reserve Bank of India
and the Ministry of Finance quarterly statements with regard to the periodic
repatriation of the net proceeds of this offering. Pending any use, as
described above, we intend to invest the net proceeds in dollar or rupee
denominated high quality, interest-bearing instruments, provided that the
government of India may require us to repatriate the proceeds of this offering,
which means converting the proceeds into rupees and holding them in India.
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DIVIDEND POLICY
We have not declared or paid any cash dividends on our equity shares
since inception and do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business. Investors seeking cash dividends should not purchase
our ADSs.
Under Indian law, a corporation may pay dividends upon a recommendation
by its Board of Directors and approval by a majority of its shareholders. Any
future cash dividends on our equity shares represented by ADSs will be paid to
the depositary in rupees and will generally be converted into dollars by the
depositary and distributed to holders of ADSs, net of the depositary's fees and
expenses. For additional information regarding the payment of dividends, please
see "Description of American Depositary Shares--Dividends and Distributions" on
page 72.
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CAPITALIZATION
The following table sets forth, as of June 30, 1999, the capitalization
of our company on an actual, pro forma and pro forma as adjusted basis. The pro
forma data set forth below are adjusted to give effect to the following:
. the sale by our company to Sterling Commerce in September 1999 of
481,000 equity shares in a private placement and the application of
the $5.0 million of proceeds from this sale primarily towards the
repayment of debt; and
. the exercise of warrants to purchase an aggregate of 750,000 of our
equity shares and the application of the $6.4 million aggregate
exercise price primarily towards the repayment of debt.
The pro forma as adjusted data set forth below are also adjusted to give effect
to the sale by our company of the 4,175,000 ADSs, representing 4,175,000 equity
shares, offered hereby and the application of the proceeds from the offering at
an assumed initial public offering price of $13.00 per ADS and after deducting
underwriting discounts and the estimated offering expenses payable by us.
This information should be read in conjunction with our financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of June 30, 1999
-----------------------------------------------------
Pro Forma As Pro Forma
Actual Actual Pro Forma Pro Forma Adjusted As Adjusted
Indian rupees U.S. dollars Indian Rupees U.S. Dollars Indian rupees U.S. dollars
------------- ------------ ------------- ------------ ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ Rs. 10,375 $ 239 Rs.248,726 $ 5,724 Rs.2,398,447 $55,200
========== ======= ========== ======= ============ =======
Short-term debt:
Current installments
of long-term debt..... Rs.167,500 $ 3,855 -- -- -- --
Current installments
of capital lease
obligations........... 915 21 Rs. 915 $ 21 Rs. 915 $ 21
---------- ------- ---------- ------- ------------ -------
Total short-term
debt................ 168,415 3,876 915 21 915 21
Long-term debt:
Long-term debt,
excluding current
installments.......... 91,000 2,095 -- -- -- --
Capital lease
obligations,
excluding current
installments.......... 405 9 405 9 405 9
---------- ------- ---------- ------- ------------ -------
Total long-term
debt................ 91,405 2,104 405 9 405 9
Stockholders' equity:
Equity shares, Rs.10
par value; 25,000,000
shares authorized;
15,750,000 shares
issued and
outstanding actual;
16,981,000 shares
issued and
outstanding pro
forma; 21,156,000
shares issued and
outstanding pro forma
as adjusted........... 157,500 3,625 169,810 3,908 211,560 4,869
Additional paid-in
capital................ 226,636 5,216 711,177 16,368 2,819,148 64,883
Deferred Compensation--
Employee Stock Offer
Plan................... (1,375) (32) (1,375) (32) (1,375) (32)
Accumulated deficit..... (366,686) (8,439) (366,686) (8,439) (366,686) (8,439)
---------- ------- ---------- ------- ------------ -------
Total stockholders'
equity................ 16,075 370 512,926 11,805 2,662,647 61,281
---------- ------- ---------- ------- ------------ -------
Total
capitalization...... Rs.107,480 $ 2,474 Rs.513,331 $11,814 Rs.2,663,052 $61,290
========== ======= ========== ======= ============ =======
</TABLE>
27
<PAGE>
EXCHANGE RATES
The following table sets forth, for the fiscal years indicated,
information concerning the number of Indian rupees for which one U.S. dollar
could be exchanged based on the average of the noon buying rate in the City of
New York on the last day of each month during the period for cable transfers in
Indian rupees as certified for customs purposes by the Federal Reserve Bank of
New York:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, Period End Average High Low
- --------------------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C>
1996 (from December 12, 1995)............ Rs.34.35 Rs.35.21 Rs.38.05 Rs.34.10
1997..................................... 35.88 35.70 36.85 34.15
1998..................................... 39.53 37.37 40.40 35.71
1999..................................... 42.50 42.27 43.60 39.41
2000 (through September 30, 1999)........ 43.59 43.20 43.59 42.50
</TABLE>
28
<PAGE>
DILUTION
The pro forma net tangible book value of our company as of June 30, 1999
was approximately Rs.504.6 million ($11.6 million), or Rs.29.72 ($0.68) per
share. Pro forma net tangible book value per ADS is equal to the amount of our
total tangible assets (total assets less intangible assets) less total
liabilities, divided by the pro forma number of equity shares outstanding as of
June 30, 1999, after giving effect to the following:
.the sale by our company to Sterling Commerce in September 1999 of
481,000 equity shares in a private placement and the application of
the $5.0 million of proceeds from this sale primarily towards the
repayment of debt; and
.the exercise of warrants to purchase an aggregate of 750,000 of our
equity shares and the application of the $6.4 million aggregate
exercise price primarily towards the repayment of debt.
Assuming the sale by us of ADSs offered by this prospectus at an initial public
offering price of $13.00 per ADS and after deducting underwriting discounts and
the estimated offering expenses payable by us, the pro forma as adjusted net
tangible book value of our company as of June 30, 1999 would have been
Rs.2,654.3 million ($61.1 million), or Rs.125.5 ($2.89) per ADS. This
represents an immediate increase in pro forma as adjusted net tangible book
value of Rs.95.7 ($2.21) per equity share to existing shareholders and an
immediate dilution in pro forma as adjusted net tangible book value of Rs.439.4
($10.11) per ADS to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per ADS............... $13.00
------
Pro forma net tangible book value per ADS as of June 30,
1999....................................................... $0.68
Increase in net tangible book value attributable to new
investors.................................................. 2.21
-----
Pro forma as adjusted net tangible book value per ADS after
this offering.............................................. 2.89
------
Dilution per ADS to new investors........................... $10.11
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
June 30, 1999, the difference between existing shareholders and new investors
with respect to the number of equity shares or ADSs, as applicable, purchased,
the total consideration paid and the average price per equity share or ADS, as
applicable, paid. The table assumes that the initial offering price will be
$13.00 per ADS.
<TABLE>
<CAPTION>
Total
ADSs Purchased Consideration Average
-------------- --------------- Price
Number Percent Amount Percent Per ADS
------ ------- ------- ------- -------
(In thousands, except per ADS data)
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 16,981 80.3% $20,244 27.2% $ 1.19
New investors...................... 4,175 19.7 54,275 72.8 $13.00
------ ---- ------- ----
Total............................ 21,156 100% $74,519 100%
====== ==== ======= ====
</TABLE>
The foregoing tables and calculations assume no exercise by the
underwriters of their overallotment option and no exercise of outstanding
employee stock options. To the extent that the overallotment option or
outstanding options are exercised, there will be further dilution to new
investors. For additional information regarding our outstanding options and
warrants, please see "Management--Employee Benefit Plans" on page 64 and
"Description of Equity Shares" on page 67. Prior to this offering, we had
issued only equity shares that have not been represented by ADSs. Equity shares
purchased and the average price paid per equity share have been converted into
ADS equivalents for comparison purposes.
29
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the fiscal years ended
March 31, 1997, 1998 and 1999, and the balance sheet data as of March 31, 1998
and 1999, are derived from our audited financial statements included elsewhere
in this prospectus which have been audited by KPMG Peat Marwick, India,
independent accountants. The statement of operations data for the three months
ended June 30, 1999 and the balance sheet data as of June 30, 1999 are derived
from our unaudited financial statements. Our unaudited financial statements
have been prepared on substantially the same basis as our audited financial
statements and, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. Our financial
statements are prepared in Indian rupees and presented in accordance with U.S.
GAAP for the fiscal years ended March 31, 1997, 1998 and 1999 and the fiscal
quarter ended June 30, 1999. Financial statements for the year ended March 31,
1999 and the quarter ended June 30, 1999 also have been translated into U.S.
dollars. The pro forma as adjusted data set forth below are adjusted to give
effect to the following:
. the sale by our company to Sterling Commerce of 481,000 equity
shares in a private placement pursuant to an agreement reached in
July 1999 which closed in September 1999 and the application of the
$5.0 million of proceeds from this sale primarily towards the
repayment of debt;
. the sale by our company of 4,175,000 ADSs, representing 4,175,000
equity shares, offered hereby and the application of the proceeds
from the offering at an assumed initial public offering price of
$13.00 per ADS and after deducting underwriting discounts and the
estimated offering expenses payable by us; and
. the exercise of warrants to purchase an aggregate of 750,000 of our
equity shares and the application of the $6.4 million aggregate
exercise price primarily towards the repayment of debt.
For additional information regarding the pro forma as adjusted data, please see
"Capitalization" on page 27. Historical results are not indicative of the
results to be expected in the future.
The selected financial data for the period from December 12, 1995
(Inception) through March 31, 1996 are not presented because we had just begun
operations. Our revenues and total operating expenses for the period from
December 12, 1995 (Inception) through March 31, 1996 were approximately Rs.0
and Rs.634,000, respectively. As of March 31, 1996, our total assets were
approximately Rs.98,000.
The selected consolidated historical financial and other data includes a
presentation of EBITDA. EBITDA represents earnings (loss) before depreciation
and amortization, interest income and expense, income tax expense (benefit) and
extraordinary items. EBITDA is presented because we believe some investors find
it to be a useful tool for measuring a company's ability to fund capital
expenditures or to service future debts. EBITDA is not determined in accordance
with generally accepted accounting principles and should not be considered in
isolation or as an alternative to net income as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
Because EBITDA excludes interest expense and capital expenditures, negative
EBITDA would limit our ability to fund capital expenditures and service future
debt obligations. Our EBITDA is not comparable to that of other companies which
may determine EBITDA differently.
30
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, Fiscal Quarter Ended June 30,
------------------------------------------------------ -------------------------------------
1997 1998 1999 1999 1998 1999 1999
-------------- ----------- ----------- ------------ ---------- ----------- ------------
Indian rupees U.S. dollars Indian rupees U.S. dollars
---------------------------------------- ------------ ----------------------- ------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues............... Rs. -- Rs. 6,805 Rs. 103,344 $ 2,378 Rs. 17,558 Rs. 80,803 $ 1,860
Cost of revenues....... -- 19,498 63,651 1,465 7,074 38,897 895
-------------- ----------- ----------- ---------- ---------- ----------- ----------
Gross profit (loss).... -- (12,693) 39,693 913 10,484 41,906 965
Operating expenses:
Selling, general and
administrative
expenses.............. 25,801 61,017 151,189 3,479 21,821 63,037 1,451
Depreciation and
amortization.......... 536 19,383 49,093 1,130 8,786 21,301 490
-------------- ----------- ----------- ---------- ---------- ----------- ----------
Total operating
expenses............ 26,337 80,400 200,282 4,609 30,607 84,338 1,941
-------------- ----------- ----------- ---------- ---------- ----------- ----------
Operating loss......... (26,337) (93,093) (160,589) (3,696) (20,123) (42,432) (976)
Interest expense....... -- (11,306) (27,755) (639) (4,706) (10,410) (240)
Other income........... -- 3,809 968 23 -- 1,093 25
-------------- ----------- ----------- ---------- ---------- ----------- ----------
Net loss............... Rs. (26,337) Rs.(100,590) Rs.(187,376) $ (4,312) Rs.(24,829) Rs. (51,749) $ (1,191)
============== =========== =========== ========== ========== =========== ==========
Loss per equity share.. Rs.(114,508.27) Rs. (121.66) Rs. (17.31) $ (0.40) Rs. (3.28) Rs. (3.29) $ (0.08)
Weighted equity shares
used in computing loss
per equity share...... 230 826,805 10,824,826 10,824,826 7,566,164 15,750,000 15,750,000
Other Financial Data:
EBITDA................. Rs. (25,801) Rs. (73,709) Rs.(111,496) $ (2,566) Rs.(11,337) Rs. (21,131) $ (486)
Capital expenditures... 3,230 77,070 146,135 3,363 15,057 109,578 2,522
Net cash provided by
(used in):
Operating activities... (30,426) (73,950) (171,388) (3,944) (20,590) (37,258) (857)
Investing activities... (3,230) (77,070) (146,000) (3,360) (15,057) (109,578) (2,522)
Financing activities... 35,138 159,449 433,023 9,966 30,504 31,664 (729)
</TABLE>
<TABLE>
<CAPTION>
As of March 31, As of June 30, 1999
-------------------------------------------- ---------------------------------------------------
Pro Forma
1997 1998 1999 Pro Forma As Adjusted
-------- -------- ---------- 1999 Actual Actual U.S. As Adjusted U.S.
Indian rupees U.S. dollars Indian rupees dollars Indian rupees dollars
------------------------------ ------------ ------------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... Rs.1,482 Rs.9,912 Rs.125,547 $ 2,889 Rs.10,375 $ 239 Rs.2,398,447 $55,200
Working capital
(deficit)............. (33,628) (5,355) (21,706) (500) (198,325) (4,564) 2,189,747 50,397
Total assets........... 11,970 107,632 454,888 10,469 464,473 10,690 2,852,545 65,651
Long-term debt,
including current
installments.......... -- 134,455 259,256 5,967 259,820 5,980 1,320 30
Total stockholders'
equity................ (26,969) (52,559) 67,618 1,556 16,075 370 2,662,647 61,281
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Satyam Infoway should be read in conjunction with the financial
statements and the related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. For additional information regarding these risks and
uncertainties, please see "Risk Factors" on page 7.
Overview
We were incorporated in December 1995 as an independent business unit of
Satyam Computer Services to develop and offer connectivity-based corporate
services allowing businesses in India to exchange information, communicate and
transact business electronically. Satyam Computer Services, our parent company,
is a leading Indian information technology services company traded on the
principal Indian stock exchanges.
From December 1995 through 1997, we focused on the development and
testing of our private data network. In 1997, we began forming strategic
partnerships with a number of leading technology and electronic commerce
companies, including CompuServe Network Services, Open Market and Sterling
Commerce, in order to broaden our product and service offerings to our
corporate customers. In March 1998, we obtained network certification for
conformity with Indian and international network operating standards from the
Technical Evaluation Committee of India. In April 1998, we began offering
private network services to businesses in India. Our initial products and
services included electronic data interchange, e-mail and other messaging
services, virtual private networks, and related customer support.
In October 1998, we agreed to sell 3,000,000 equity shares to South Asia
Regional Fund, an investment fund managed by Commonwealth Development
Corporation for Rs.210.0 million ($4.8 million). We used the funds from this
private financing primarily to develop our consumer Internet access business,
expand our network and develop our on-line content business.
In October 1998, we initiated our on-line content offerings with two
websites: carnaticmusic.com and indiaupdate.com. We also started development of
satyamonline.com, our on-line portal, and other related content sites for
personal finance, movies and automobiles with the goal of offering a
comprehensive suite of websites offering content specifically tailored to
Indian interests worldwide.
On November 6, 1998, the Indian government opened the Internet service
provider marketplace to private competition. Capitalizing on our existing
private data network, we launched our Internet service provider business,
Satyam Online, on November 22, 1998 and became the first private national
Internet service provider in India. We began offering Satyam Online Internet
access and related services to India's consumer market as a complement to the
network services offered to our business customers. Our Satyam Online service
was the first in India to offer ready-to-use CD-ROMs enabling on-line
registration and immediate usage.
In July 1999, we agreed to sell 481,000 equity shares to Sterling
Commerce for $5.0 million. We completed this transaction in September 1999 and
used the funds for general corporate purposes, primarily the repayment of debt.
We currently operate India's largest private data network utilizing
Internet protocol with points of presence in 25 of the largest metropolitan
areas in India. As of June 30, 1999, we had more than 300 corporate customers
for our private network services, and as of August 31, 1999, we had more than
77,000 subscribers for our Satyam Online services. During August 1999, our six
websites generated approximately 6.5 million page views.
We conduct our business in India and most of our revenues and expenses
are denominated in Indian rupees. However, our revenues generated from
CompuServe Network Services and our expenses of purchasing
32
<PAGE>
software from Sterling Commerce and Open Market are denominated in U.S.
dollars. Our foreign exchange loss was Rs.0, Rs.5,613, Rs.615,189 ($14,158) and
Rs.129,344 ($2,977) for fiscal 1997, 1998 and 1999 and the quarter ended June
30, 1999, respectively.
Revenues
For reporting purposes, we classify our revenues into three divisions:
. consumer Internet access services;
. corporate network and technology services; and
. on-line portal and content offerings.
Our consumer Internet access services division derives its revenues
primarily from prepaid dial-up subscriptions. We offer our prepaid
subscriptions in a number of time period and pricing plans through ready-to-use
CD-ROMs sold to our distribution partners. Our distribution partners resell the
CD-ROMs to consumers for on-line registration and immediate Internet access.
Revenues are recognized ratably as the prepaid subscription is used with any
unused portion recognized as revenues at the expiration date of the
subscription. We also generate revenues through international roaming and e-
mail registration fees. Our consumer Internet access services division
accounted for approximately 12.9% of our fiscal 1999 revenues.
Our corporate network and technology services division derives its
revenues from dial-up and dedicated Internet access, electronic commerce,
electronic data interchange, e-mail and other messaging services, virtual
private networks and web-based solutions. Our corporate private network
customers typically enter into one-year arrangements that provide for an
initial installation fee and recurring service fees. Web development is
generally charged on a fixed-price basis. We derive revenues from website
hosting based upon our customer's bandwidth requirements, and we charge co-
location customers for use of our physical facilities. We also generate a small
portion of our revenues through the sale of third-party hardware. Our corporate
network and technology services division accounted for approximately 87.1% of
our fiscal 1999 revenues.
Our on-line portal and content offerings division derives revenues from
third-party advertising and commissions from electronic commerce transactions
on our websites. Advertising fees are recognized over the period in which the
advertisements are hosted on our websites. This division does not currently
constitute a material portion of our total revenues.
Expenses
Cost of revenues for the consumer Internet access services division
consists primarily of recurring telecommunications costs necessary to provide
service to subscribers. Telecommunications costs include the costs of providing
local telephone lines to our points of presence, the costs of using third-party
networks pursuant to service agreements and leased line costs. We anticipate
that our telecommunications costs will increase in the near term as we expand
our network and enter new markets. As utilization of our network increases in
future years, we expect to realize a reduction in per unit data transmission
costs due to our network's scalability and fixed cost structure. Another
recurring cost is the personnel and related operating expenses associated with
customer support and network operations. We expect that customer support and
network operations expenses will decrease as a percentage of revenues as we
more efficiently utilize these capabilities across a larger customer base. Cost
of revenues for consumer Internet access services also includes startup
expenses for new subscribers consisting primarily of the cost of CD-ROMs and
other product media, manuals and associated packaging and delivery costs.
Cost of revenues for the corporate network and technology services
division is divided into three groups: corporate Internet access, corporate
network and electronic commerce products, and web development. Cost of revenues
for the corporate Internet access subdivision consists of telecommunications
costs necessary to provide service, customer support costs and the cost of
providing network operations. Cost of revenues for
33
<PAGE>
corporate network and electronic commerce consists primarily of third-party
software and hardware purchased from our strategic partners for resale, direct
labor costs for initial installation and recurring customer support and network
operation and associated telecommunications costs. Cost of revenues for web
development, website hosting and co-location includes direct labor and
associated telecommunications costs.
The cost of revenues for the on-line portal and content offerings
division includes the labor cost of developing and maintaining our websites,
the cost of third-party software and the cost of obtaining content from third-
party vendors.
Selling, general and administrative expenses consist primarily of
salaries and commissions for sales and marketing personnel; salaries and
related costs for executives, financial and administrative personnel; sales,
marketing, advertising and other brand building costs; travel costs; and
occupancy and overhead costs. As we expand the scope of our operations, we
expect selling, general and administrative expenses to continue to increase for
the foreseeable future. We intend to continue to add more points of presence to
our network and hire new sales and marketing personnel for each of our new
markets. We also have and intend to continue to increase marketing expenses to
build our brand awareness in order to increase our subscriber base. Our
business plan assumes these costs will negatively impact our financial results
in the short term but will be offset by anticipated increases in revenues from
overall subscriber growth.
We depreciate our tangible assets on a straight-line basis over the
useful life of assets, ranging from two to five years. We depreciate our
intangible assets on a straight-line basis over five years. Our planned
significant capital expenditures for the expansion and enhancement of our
network infrastructure will substantially increase our depreciation expenses in
the near future.
We may face significant competitive pricing pressure from VSNL, the
government-controlled provider of international telecommunications services in
India, and a number of new competitors that are entering India's recently
opened Internet service provider market. In the face of expected increasing
competition, we do not anticipate being able to maintain our present subscriber
retention rates as our subscriber base grows.
Since our inception, we have experienced negative cash flow from
operations and have incurred net losses. Our ability to generate positive cash
flow from operations and achieve profitability is dependent on our ability to
continue to grow our revenues base and achieve further operating efficiencies.
We presently estimate that our consumer Internet access division requires a
minimum of 100,000 subscribers in order to achieve positive EBITDA based on our
current network of 25 points of presence. As we expand our network to 40 points
of presence, we estimate that this minimum number of subscribers will increase
to 200,000. These estimates are based on the present business environment in
India, including current pricing, marketing and service cost conditions, all of
which are subject to change. For the fiscal years ended March 31, 1997, 1998
and 1999 and the quarter ended June 30, 1999, we incurred negative cash flow
from operations of approximately Rs.30.4 million, Rs.74.0 million, Rs.171.3
million ($3.9 million) and Rs.37.3 million ($0.9 million), respectively. For
the fiscal years ended March 31, 1997, 1998 and 1999 and the quarter ended June
30, 1999, we incurred net losses of approximately Rs.26.3 million, Rs.100.6
million, Rs.187.4 million ($4.3 million) and Rs.51.8 million ($1.2 million),
respectively. We intend to substantially increase our operating expenses and
capital expenditures to expand and enhance our network infrastructure and on-
line content offerings. We expect to experience significant negative cash flow
from operations and to incur net losses as a result of these investments. We
believe that the investment in our network infrastructure will enable us to
achieve further economies of scale as we expand our customer base. Although
consumer Internet access and corporate network and technology services account
for the majority of our revenues today, we expect our on-line portal and
content offerings to generate significant revenue growth through increased
third-party advertising and transaction and referral fees. However, we may not
be able to realize sufficient future revenues to offset our present investment
in network infrastructure and on-line content offerings or achieve positive
cash flow or profitability in the future. As of June 30, 1999, we had an
accumulated deficit of approximately Rs.366.7 million ($8.4 million).
34
<PAGE>
Three months ended June 30, 1999 compared to three months ended June 30, 1998
Revenues. We recognized Rs.80.8 million ($1.9 million) in revenues for
the quarter ended June 30, 1999, as compared to Rs.17.6 million for the quarter
ended June 30, 1998, representing an increase of Rs.63.2 million, or 359%. This
increase is primarily attributable to the commencement of Internet access
services in November 1998, which accounted for Rs.40.2 million of revenues for
the quarter ended June 30, 1999, a Rs.21.3 million increase in revenues from
corporate network services, resulting from an increase in number of corporate
customers contributing to revenues in the amount of Rs.15.0 million and a
Rs.5.0 million increase in revenues from new service offerings, including web-
based solutions.
Cost of Revenues. Cost of revenues were Rs.38.9 million ($0.9 million) or
48.1% of revenues for the quarter ended June 30, 1999, compared to Rs.7.1
million or 40.3% of revenues for the quarter ended June 30, 1998, representing
an increase of Rs.31.8 million, or 448%. This increase was primarily
attributable to a Rs.6.3 million increase in the cost of hardware and software
purchased for resale for our corporate network and technology services
customers that elect to source the technology through us, a Rs.15.0 million
increase in leased line costs resulting from increasing the capacity of our
network backbone from 64 Kbps to 2 Mbps and a Rs.8.0 million increase in direct
personnel costs for web development and customer technical support.
Selling, general and administrative expenses. Selling, general and
administrative expenses were Rs.63.0 million ($1.5 million) for the quarter
ended June 30, 1999 compared to Rs.21.8 million for the quarter ended June 30,
1998, representing an increase of Rs.41.2 million. This increase was primarily
attributable to a growth in staff from 340 as of March 31, 1999 to 411 as of
June 30, 1999 resulting in a Rs.10.0 million increase in indirect personnel
costs, a Rs.8.6 million increase in selling and marketing expenses resulting
from additional expenditure in connection with marketing our Satyam Online
business, a Rs.4.0 million increase in travelling expenditures and a Rs.3.0
million increase in the cost of software.
Depreciation and amortization. Depreciation and amortization was Rs.21.3
million ($0.5 million) for the quarter ended June 30, 1999, compared to Rs.8.8
million for the quarter ended June 30, 1998, representing an increase of
Rs.12.5 million, or 142%. This increase was primarily attributable to capital
expenditures associated with the installation of six ATM switches along our
network.
Interest expense. Interest expense was Rs.10.4 million ($0.2 million) for
the quarter ended June 30, 1999, compared to Rs.4.7 million for the quarter
ended June 30, 1998, representing an increase of Rs.5.7 million, or 121%. This
increase was primarily attributable to the drawdown of Rs.136.5 million of our
term loan with the Export Import Bank of India.
Other income. Other income was Rs.1.1 million (less than $0.1 million)
for the quarter ended June 30, 1999 which was primarily attributable to
interest earned on short term deposits with banks. We had no other income for
the quarter ended June 30, 1998.
Net loss. Our net loss was Rs.51.7 million ($1.2 million) for the quarter
ended June 30, 1999, compared to a net loss of Rs.24.8 million for the quarter
ended June 30, 1998.
Year ended March 31, 1999 compared to the year ended March 31, 1998
Revenues. We recognized Rs.103.3 million ($2.4 million) in revenues for
the year ended March 31, 1999, as compared to Rs.6.8 million for the year ended
March 31, 1998, representing an increase of Rs.96.5 million. Fiscal 1999
revenues exclude Rs.71.5 million ($1.7 million) of deferred income representing
consumer access subscriptions which had been purchased but not yet used by the
consumer subscribers. This increase was primarily attributable to the
introduction of our business network services in April 1998 and consumer
Internet access services in November 1998. From March 31, 1998 to March 31,
1999, our number of corporate customers grew from approximately 30 to more than
300, and our number of subscribers grew to more than 29,000.
35
<PAGE>
Cost of Revenues. Cost of revenues were Rs.63.7 million ($1.5 million) or
62% of revenues for the year ended March 31, 1999, compared to Rs.19.5 million
or 287% of revenues for the year ended March 31, 1998, representing an increase
of Rs.44.2 million, or 227%. This increase was primarily attributable to a
Rs.10.5 million increase in software and hardware purchased for resale, a
Rs.7.9 million increase in leased line charges due to the increased capacity of
our network backbone, Rs.1.8 million towards web development charges and a
Rs.23.9 million increase in direct personnel costs for web development and
customer technical support.
Selling, general and administrative expenses. Selling, general and
administrative expenses were Rs.151.2 million ($3.5 million) for the year ended
March 31, 1999, compared to Rs.61.0 million for the year ended March 31, 1998,
representing an increase of Rs.90.2 million, or 148%. This increase was
primarily attributable to a growth in staff from 140 in March 1998 to 340 in
March 1999 resulting in an increase in employee expenses of Rs.11.5 million, a
Rs.11.5 million increase in marketing expenses relating to the launch of our
consumer Internet access services division, and increases in travel expenses of
Rs.6.9 million, office rental expenses of Rs.1.3 million and professional and
consultant fees of Rs.10.4 million.
Depreciation and amortization. Depreciation and amortization was Rs.49.1
million ($1.1 million) for the year ended March 31, 1999, compared to Rs.19.4
million for the year ended March 31, 1998, an increase of Rs.29.7 million, or
153%. This increase was primarily attributable to capital expenditures of
Rs.146.1 million during the year ended March 31, 1999, including the purchase
of routers, modems, ports, servers and other capital equipment in connection
with the addition of eight points of presence to our network.
Interest expense. Interest expense was Rs.27.8 million ($0.6 million) for
the year ended March 31, 1999, compared to Rs.11.3 million for the year ended
March 31, 1998, representing an increase of Rs.16.5 million, or 146%. This
increase was attributable to increased interest payments from additional
borrowings of Rs.136.5 million during the year under a new term loan.
Other income. Other income was Rs.1.0 million (less than $0.1 million)
for the year ended March 31, 1999, compared to Rs.3.8 million for the year
ended March 31, 1998, representing a decrease of Rs.2.8 million, or 280%. This
decrease was primarily attributable to reduced interest income as excess funds
were deployed in the business.
Net loss. Our net loss was Rs.187.4 million ($4.3 million) for the year
ended March 31, 1999, compared to a net loss of Rs.100.6 million for the year
ended March 31, 1998.
Year ended March 31, 1998 compared to the year ended March 31, 1997
Revenues. We recognized Rs.6.8 million in revenues for the year ended
March 31, 1998 from network service charges related to paid customer trials for
our private network services projects and the sale of hardware and software. We
recognized no revenues for the year ended March 31, 1997.
Cost of Revenues. Cost of revenues was Rs.19.5 million for the year ended
March 31, 1998, consisting primarily of costs of hardware and software
purchased for resale of Rs.3.5 million and leased line costs of Rs.16.0
million. We had no cost of revenues for the year ended March 31, 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses were Rs.61.0 million for the year ended March 31, 1998,
compared to Rs.25.8 million for the year ended March 31, 1997, representing an
increase of Rs.35.2 million. This increase was primarily attributable to a
growth in staff from 33 in March 1997 to 140 in March 1998 resulting in an
increase in employee expenses of Rs.14.5 million and increases in travel
expenses of Rs.3.5 million, office rental expenses of Rs.2.6 million, and
general office expenses of Rs.9.1 million related to the development of our
consumer Internet access services division.
Depreciation and amortization. Depreciation and amortization was Rs.19.4
million for the year ended March 31, 1998, compared to Rs.0.5 million for the
year ended March 31, 1997, representing an increase
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<PAGE>
of Rs.18.9 million. This increase was primarily attributable to capital
expenditures of Rs.77.1 million during the year ended March 31, 1998, including
the purchase of routers, modems, ports, servers and other capital equipment in
connection with the expansion of our network.
Interest expense. Interest expense was Rs.11.3 million for the year ended
March 31, 1998, consisting of interest on privately placed debentures. We had
no interest expense for the year ended March 31, 1997.
Other income. Other income was Rs.3.8 million for the year ended March
31, 1998, consisting of interest income from short-term deposits. We had no
other income for the year ended March 31, 1997.
Net loss. Our net loss was Rs.100.6 million for the year ended March 31,
1998, compared to Rs.26.3 million for the year ended March 31, 1997.
Quarterly Results of Operations Data
The following table sets forth selected unaudited quarterly statements of
operations data for each of the four fiscal quarters ended June 30, 1999 both
in Rupees and as a percentage of revenues. Our management believes this data
has been prepared substantially on the same basis as the audited financial
statement included elsewhere in this prospectus, including all necessary
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data. You should read this quarterly data in
conjunction with our financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
September 30, 1998 December 31, 1998 March 31, 1999 June 30, 1999
----------------------------------------- ----------------- ----------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues Rs.17,801 100.0% Rs.22,014 100.0% Rs.45,971 100.0% Rs.80,803 100.0%
Cost of revenues........ 11,962 67.2 18,152 82.5 26,464 57.6 38,897 48.1
---------- ------- ---------- ------- --------- ------ --------- -----
Gross profit (loss)..... 5,839 32.8 3,862 17.5 19,507 42.4 41,906 51.9
Operating expenses:
Selling, general and
administrative
expenses............. 33,165 186.3 38,767 176.1 57,365 124.7 62,831 77.6
Depreciation and
amortization 10,942 61.5 13,707 62.3 15,728 34.2 21,507 26.6
---------- ------- ---------- ------- --------- ------ --------- -----
Total operating
expenses............ 44,107 247.8 52,474 238.4 73,093 158.9 84,338 104.2
Operating loss.......... (38,268) (215.0) (48,612) (220.9) (53,586) (116.5) (42,432) (52.3)
Interest expense........ (5,912) (33.2) (7,877) (35.8) (9,261) (20.1) (10,410) (12.9)
Other income............ -- -- 340 1.5 628 1.4 1,093 1.4
---------- ------- ---------- ------- --------- ------ --------- -----
Net loss................ Rs.44,180 248.2% Rs.56,149 255.2% Rs.62,219 135.2% 51,749 63.8%
========== ======= ========== ======= ========= ====== ========= =====
</TABLE>
A high percentage of our 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 consumer subscribers and
corporate customers, as well as the introduction of new product and service
offerings may cause significant variations in operating results in any
particular quarter. Due to the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of
revenues and operating results are not necessarily meaningful and you should
not rely upon them as indications of future performance.
As indicated in the quarterly data, revenues increased substantially
during the quarters ended March 31, 1999 and June 30, 1999, primarily as a
result of the rapid growth in the number of subscribers for our Satyam Online
Internet access service. The number of Satyam Online subscribers increased from
approximately 4,700 on December 31, 1998 to approximately 28,500 on March 31,
1999 to approximately 60,000 on June 30, 1999 to more than 77,000 on August 31,
1999. The number of corporate customers also increased from approximately 130
on December 31, 1998 to approximately 170 on March 31, 1999 to more
37
<PAGE>
than 300 on June 30, 1999. Cost of revenues as a percentage of revenues
increased from 67.2% for the quarter ended September 30, 1998 to 82.5% for the
quarter ended December 31, 1998, before decreasing to 57.6% for the quarter
ended March 31, 1999 and 48.1% for the quarter ended June 30, 1999. The
increase in cost of revenues as a percent of revenues for the quarter ended
December 31, 1998 reflects the higher operating costs associated with our
expanded network backbone. During this quarter, we increased the capacity of
our network backbone from 64Kbps to 2Mbps. The decrease in cost of revenues as
a percentage of revenues during the quarters ended March 31, 1999 and June 30,
1999 reflects operating efficiencies generated by spreading the fixed costs of
our network operations over a larger customer base. Selling, general and
administrative expenses increased over the four quarters as a result of the
aggressive marketing and promotion activities used to launch our Satyam Online
service nationally in India as well as an increase in our employee base. The
number of employees increased from 175 at June 30, 1998 to 411 employees at
June 30, 1999. Selling, general and administrative expenses as a percentage of
revenue decreased from 176.1% for the quarter ended December 31, 1998, to
125.0% for the quarter ended March 31, 1999, to 78.0% for the quarter ended
June 30, 1999, reflecting efficiencies generated from our larger revenue and
customer base. Depreciation and amortization increased over the four quarters
as a result of the purchase of additional routers, modems, ports, servers and
other capital equipment in connection with the expansion of our network.
Interest expense increased over the four quarters as a result of increased
borrowings used to fund the expansion of our operations.
Seasonality
Given the early stage of the development of the Internet in India, the
rapidly evolving nature of our business and our limited operating history, we
cannot predict to what extent, if at all, our operations will prove to be
seasonal.
Liquidity and Capital Expenditures
Since inception, we have financed our operations primarily through a
combination of private equity sales and borrowings from institutions and banks.
During the fiscal years ended March 31, 1998 and 1999, we received Rs.38.5
million and Rs.307.5 million ($7.1 million), respectively, in net proceeds from
the sale of equity shares.
The following table summarizes our statements of cash flows for the
periods presented:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, Fiscal Quarter Ended June 30,
-------------------------------------------------- ------------------------------------
1997 1998 1999 1999 1998 1999 1999
Indian rupees U.S. dollars Indian rupees U.S. dollars
------------------------------------ ------------ ---------------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss................ Rs.(26,337) Rs.(100,590) Rs.(187,376) $(4,312) Rs.(24,829) Rs.(51,749) $(1,191)
Net decrease (increase)
in working capital..... (4,625) 7,257 (33,212) (764) (4,547) (7,016) (161)
Other adjustments for
non-cash items......... 536 19,383 49,200 1,132 8,786 21,507 495
Net cash provided by
(used in) operating
activities............. (30,426) (73,950) (171,388) (3,944) (20,590) (37,258) (857)
Net cash provided by
(used in) investing
activities............. (3,230) (77,070) (145,999) (3,360) (15,057) (109,578) (2,522)
Net cash provided by
(used in) financing
activities............. 35,138 159,449 433,023 9,966 30,504 31,664 729
Net increase (decrease)
in cash and cash
equivalents............ 1,482 8,429 115,636 2,661 (5,143) (115,172) (2,651)
</TABLE>
38
<PAGE>
Our principal capital and liquidity needs historically have related to
developing our network infrastructure and our corporate network and electronic
commerce products, establishing our customer service and support operations,
developing our sales and marketing activities and for general working capital
needs. Prior to 1998, our capital needs were primarily met by funding from our
parent company, Satyam Computer Services, and borrowings from institutions and
banks. As we placed greater emphasis on expanding our network infrastructure
and developing our consumer Internet access and on-line portal and content
services, we sought additional capital from other sources, including vendor
capital leases and other vendor financing arrangements and through private
placements of our securities, as detailed below.
Cash used in operating activities of Rs.171.4 million ($3.9 million)
during fiscal 1999 was primarily attributable to a net loss of Rs.187.4 million
($4.3 million), increases in accounts receivable of Rs.43.1 million ($1.0
million), other current assets of Rs.62.7 million ($1.4 million) and other
assets of Rs.21.2 million ($0.5 million), partially offset by depreciation of
plant and equipment of Rs.46.7 million ($1.1 million) and an increase in
deferred revenues of Rs.71.5 million ($1.7 million). Cash used in investment
activities during fiscal 1999 was Rs.146.0 million ($3.4 million), principally
as a result of the purchase of routers, modems, ports, servers and other
capital equipment in connection with the expansion of our network. Cash
provided from financing activities was Rs.433.0 million ($10.0 million) for
fiscal 1999, which consisted primarily of Rs.307.5 million ($7.1 million) of
net proceeds raised in a private placement of our equity shares to South Asia
Regional Fund and Satyam Computer Services, and Rs.136.5 million ($3.1 million)
of proceeds from a term loan from the Export Import Bank of India.
Our aggregate billings for fiscal 1999 were approximately Rs.174.8
million. This amount represents amounts receivable by us from our customers for
services to be provided over various periods of time. In accordance with our
revenue recognition policy, we recognized Rs. 103.3 million and deferred
Rs.71.5 million of billings in fiscal 1999. Our deferred revenues balance was
Rs.92.5 million as of June 30, 1999.
Cash used in operating activities of Rs.74.0 million during fiscal 1998
was primarily attributable to a net loss of Rs.100.6 million, partially offset
by depreciation of plant and equipment of Rs.18.8 million and an increase in
trade accounts payable of Rs.15.5 million. Cash used in investment activities
during fiscal 1998 was Rs.77.1 million, principally as a result of the purchase
of network equipment and software. Cash provided from financing activities was
Rs.159.4 million in fiscal 1998, which consisted primarily of Rs.122.0 million
of unsecured debentures issued to Citibank, N.A. and Rs.38.5 million of net
proceeds raised in a private placement of our equity shares to Satyam Computer
Services.
As part of our business strategy, we intend to invest significant amounts
of capital over the next 12 to 24 months to fund network infrastructure
expansion and enhancements, to develop content for our Internet portal
business, to advertise and promote our brand and to repay debt. As of June 30,
1999, we had spent approximately Rs.355.7 million ($8.2 million) to develop and
deploy our network infrastructure. We estimate that we will spend approximately
Rs.869 million ($20 million) to extend our network infrastructure to 40 cities
in India by April 2000. As of June 30, 1999, we had aggregate commitments for
capital expenditures in an amount equal to approximately Rs.28.2 million ($0.6
million) of which we had advanced approximately Rs.7.2 million ($0.2 million).
We expect to incur operating losses and negative cash flows from operations for
the foreseeable future. As of June 30, 1999, we had approximately Rs.10.4
million ($0.2 million) of cash and cash equivalents for our working capital
needs, as compared to Rs.4.8 million as of June 30, 1998. As of June 30, 1999,
we had Rs.78.5 million ($1.8 million) of capacity under our Rs.215.0 million
($4.9 million) term loan with the Export Import Bank of India.
We may use a portion of the proceeds from this offering for possible
strategic investments, partnerships and acquisitions. If appropriate
opportunities can be developed, we believe that our growth could be accelerated
by selective investments or acquisitions in India, particularly in Internet
service providers that have developed local or regional points of presence in
markets where we have not yet established a presence. We may also consider
opportunities to acquire sources of content for our Internet portal. We have
engaged in
39
<PAGE>
preliminary discussions involving several transactions of this sort, but have
no agreements as of the date of this prospectus. We expect that once we have
the net proceeds provided by this offering available to us, we will become more
aggressive in our efforts to identify one or more investment or acquisition
opportunities. However, we cannot assure you that we will be able to identify
or complete any such transaction on favorable terms, or at all.
We currently anticipate that our available cash resources combined with
the net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements as discussed above for at
least 12 months after the date of this prospectus. Our ability to raise funds
through the sale of equity is limited by foreign ownership restrictions imposed
on us by Indian law and the terms of our Internet service provider license.
These restrictions provide that the maximum total foreign equity investment in
our company is 49%. For additional information, please see "Restrictions on
Foreign Ownership of Indian Securities" on page 80. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of our shareholders and the holders of our ADSs will be
reduced and these securities may have rights, preferences or privileges senior
to those of our shareholders and the holders of our ADSs. We cannot assure you
that additional financing will be available on terms favorable to us, or at
all. If adequate funds are not available or are not available on acceptable
terms, our ability to fund and expand our operations, take advantage of
unanticipated opportunities, develop or enhance Internet content, features or
services, or otherwise respond to competitive pressures will be significantly
limited. Our business, results of operations and financial condition could be
materially adversely affected by any such limitation.
Income Tax Matters
As of June 30, 1999, we had a net operating loss carryforward of
approximately Rs.42.4 million ($1.0 million) for financial reporting purposes.
Under Indian law, loss carryforwards from a particular year may be used to
offset taxable income over the next eight years.
The statutory corporate income tax rate in India is currently 35.0%. This
tax rate is presently subject to a 10.0% surcharge resulting in an effective
tax rate of 38.5%. The Finance Minister of India has indicated that the 10.0%
surcharge would be effective for a period of only one year, commencing April 1,
1999. However, we cannot assure you that the 10.0% surcharge will be in effect
for only one year or that additional surcharges will not be implemented by the
government of India. Dividends declared, distributed or paid by an Indian
corporation are subject to a dividend tax of 11.0%, including the presently
applicable surcharge, of the total amount of the dividend declared, distributed
or paid. This tax is not paid by shareholders nor is it a withholding
requirement, but rather it is a direct tax payable by the corporation.
Effects of Inflation
Inflation has not had a significant effect on our results of operations
and financial condition to date. However, India has experienced relatively high
rates of inflation. According to the Economist Intelligence Unit, the rates of
inflation in India for 1996, 1997 and 1998 were 9.0%, 7.2% and 14.0%,
respectively, and the projected rate of inflation in India for 1999 is 9.3%.
Under our Internet service provider license, we are given the right to
establish the prices we charge to our subscribers, as determined by market
forces. However, under the conditions of our license, the Telecom Regulatory
Authority of India may review and fix the prices we charge our subscribers at
any time. If the Telecom Regulatory Authority were to fix prices for the
Internet service provider services we provide, we might not be able to increase
the prices we charge our subscribers to mitigate the impact of inflation, which
could have a material adverse effect on our business, results of operations and
financial condition.
40
<PAGE>
Debt Financing
In June 1998, we obtained from the Export Import Bank of India a term
loan of Rs.215.0 million. This term loan is secured by a first charge on our
fixed assets and is guaranteed by Satyam Computer Services. The loan bears
interest at a rate of 15.5% per annum and is repayable in six equal half-yearly
installments commencing on December 20, 1999. We used the proceeds from the
sale of equity shares to Sterling Commerce primarily to repay a portion of this
loan.
In June 1999, we obtained from IDBI Bank Ltd. short term loan commitments
aggregating Rs.100.0 million and a short-term credit facility of Rs.10.0
million. We used the proceeds from the short-term loans and the short-term
credit facility to purchase telecommunication equipment, including Internet
switches, for our network, and in turn repaid substantially all of this
indebtedness with the proceeds from the issuance of equity shares to Sterling
Commerce.
Impact of the Year 2000
Introduction. The term "Year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, meaning that the computer
may fail to distinguish dates in the 2000's from dates in the 1900's. If not
corrected, these miscalculations could result in a disruption of our
operations.
State of Readiness. We are currently implementing a comprehensive plan
for us to become Year 2000 ready. Our overall readiness plan consists of the
following phases:
. preparing an inventory of all software and hardware items affected by
the Year 2000 issue;
. testing our internally developed software for quality assurance;
. contacting third-party vendors, licensors and providers of hardware,
software and services regarding their Year 2000 readiness;
. repairing or replacing components that are determined not to be Year
2000 compliant; and
. creating contingency plans to address potential Year 2000 failures
that we cannot control or have not previously been able to detect or
repair.
Specific steps in our Year 2000 assessment which we have completed to
date include:
. retaining Satyam Enterprises, an affiliate of Satyam Computer
Services, to conduct a Year 2000 assessment of all of our network
hardware and software, including our computers, applications
software, power supply systems and relay switches;
. identifying critical suppliers and communicating with them about
their plans and progress in addressing any Year 2000 problems they
may face; and
. performing Year 2000 simulations to verify performance by
artificially moving the date forward from December 31, 1999 to
January 1, 2000.
The Year 2000 readiness plan described above is being carried out across
the three critical areas where we believe the Year 2000 issue might affect our
business:
. software products which are supplied by us to our subscribers and
customers;
. our information and technology systems; and
. our non-information technology systems.
41
<PAGE>
The results of the steps we have completed indicate that substantially all of
our information technology and non-information technology systems are Year 2000
compliant. As a result, we do not anticipate upgrading or modifying any major
internal computers, applications or equipment. In addition, we have contacted,
and obtained verbal or written certification of Year 2000 compliance from, more
than 25 of our third-party vendors, licensors and providers of hardware,
software and services. We expect to receive certification from all of our
private vendors, licensors and providers by September 1999. However, we do not
anticipate receiving Year 2000 compliance certification from the Department of
Telecommunications on which we are dependent for leased lines and international
gateways to the Internet. We cannot assure you that these facilities are Year
2000 compliant.
Costs. We have not incurred any material expenses to date in connection
with the implementation of our Year 2000 program, and we estimate that we will
incur a total of Rs.2.0 million in expenses. These costs will be expensed as
incurred. We currently believe these costs will not have a material effect on
our financial condition, liquidity or results of operations. To date, we have
not deferred any specific information technology projects due to our Year 2000
efforts.
Risks. We are not currently aware of any significant Year 2000 compliance
problems which would materially harm our business, results of operations or
financial condition. During our remaining assessment, we may discover Year 2000
compliance problems in our hardware, software or computer systems that may
require substantial repair or replacement. In addition, material third-party
software, hardware or services incorporated into our systems may contain Year
2000 compliance problems that require substantial repair and/or replacement.
The failure to correct any material Year 2000 problem, including a failure on
the part of the Department of Telecommunications to be Year 2000 compliant,
could materially harm our business, results of operations and financial
condition for the following reasons:
. new subscribers or customers may not be able to sign up for our
Internet services, resulting in reduced growth and lower
effectiveness of our marketing efforts;
. current subscribers or customers may have difficulty using our
services or receiving adequate customer support, which may result in
increased attrition, higher customer support costs and reduced
revenue; and
. we may be subject to claims of mismanagement, misrepresentation or
breach of contract and related litigation, which could be costly and
time-consuming to defend and, if defended unsuccessfully, could
result in the imposition of substantial fines or judgments.
We cannot assure you that governmental agencies, utility companies,
third-party service providers and others outside our control will be Year 2000
compliant. The failure by these entities to be Year 2000 compliant could result
in a systemic failure beyond our control, including, for example, a prolonged
failure of Internet, telecommunication and/or electrical systems, which could
also prevent us from providing our services, or prevent users from accessing
our services, either of which would materially harm our business, results of
operations and financial condition.
Contingency Plans. We are still engaged in an ongoing Year 2000
assessment and have not yet developed any contingency plan. Contingency
planning will be conducted as our ongoing assessment and as feedback received
from third parties necessitates. We estimate that the development of our
contingency plan will be substantially completed by November 1999.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. We currently do not engage or plan to engage in derivative instruments or
hedging activities.
42
<PAGE>
BUSINESS
Background
We are the second largest national provider of Internet access and
Internet services to consumers and businesses in India, based on number of
customers as of August 31, 1999. We offer Internet access to both consumers and
corporate customers. We provide private network services, business-to-business
electronic commerce solutions and website development and hosting services to
businesses in India. We also operate an on-line portal and other on-line
services. Our comprehensive range of products and services enables our consumer
and business customers to communicate, transmit and share information, access
on-line content and conduct business remotely using our private data network or
the Internet. We began providing corporate network and electronic commerce
services to businesses in April 1998, and we currently have more than 300
corporate customers. We launched our Internet service provider business in
November 1998, becoming the first private Internet service provider to begin
service after the Indian government, which controls the largest Internet
service provider in India, opened the market to private competition. As of
August 31, 1999, we had more than 77,000 subscribers for our consumer Internet
access service, Satyam Online. We also operate an on-line portal,
satyamonline.com, and related content sites specifically tailored for Indian
interests worldwide. During August 1999, our six websites generated
approximately 6.5 million page views. We currently operate India's largest
national private data network utilizing Internet protocol, which is an Internet
industry standard for tracking Internet addresses, routing outgoing messages
and recognizing incoming messages. We own and operate points of presence in 25
of the largest metropolitan areas in India. Points of presence are
telecommunications facilities located in a particular market which allow our
customers to connect to the Internet through a local telephone call.
We seek to become the premier provider of Internet services in the Indian
market. We believe that demand for our services is significant in India and
growing rapidly as consumers and businesses seek alternatives to the
communications services offered by India's government-controlled telecom
providers. We intend to continue to focus on providing superior network
performance and high levels of customer service and technical support to
increase our subscriber base and maximize customer satisfaction.
Industry Overview
Development of the Internet. According to International Data Corporation,
the total number of Internet users worldwide is expected to grow from
approximately 140 million in 1998 to 400 million in 2002. The International
Data Corporation market data presented above and elsewhere in this prospectus
shows International Data Corporation's estimates derived from a combination of
vendor, user and other market sources and therefore may differ from numbers
claimed by specific vendors using difference market definitions or methods.
There can be no assurances that this projected amount will be achieved. The
large and increasing number of home and office computers linked to the
Internet, advances in network design, increased availability of Internet-based
software and applications, the emergence of useful content and electronic
commerce technologies, and convenient, fast and inexpensive Internet access
will drive Internet growth and usage in the near future.
43
<PAGE>
Special Communications Needs of Businesses. As the Internet becomes more
developed and reliable, businesses are increasingly utilizing the Internet for
functions critical to their core business strategies such as sales and
marketing, customer service and project coordination. The Internet presents a
compelling profit opportunity for businesses by enabling them to reduce
operating costs, access valuable information and reach new markets. To maintain
a significant presence on the Internet, businesses typically purchase Internet
access services and establish a website. Internet access provides a company
with its basic gateway to the Internet, allowing it to transfer e-mail, access
information and connect with employees, customers and suppliers. A website
provides a company with a tangible identity and an interactive presence on the
Internet. Many corporations are also converting their information systems and
databases to web-enabled systems. International Data Corporation estimates that
revenue from Internet web hosting services worldwide will grow at a rate that
averages 96.0% annually from $0.8 billion in 1998 to $11.8 billion in 2002.
International Data Corporation also estimates that revenue from electronic
commerce spending worldwide will grow at a rate that averages 98% annually from
$50.4 million in 1998 to $733.6 million in 2002.
The Opportunity in India. As with many developing nations, the
telecommunications infrastructure in India historically has been controlled by
government-controlled telecom providers. The resulting service has been and
remains inferior to service in developed countries. Consequently, the services
available and the penetration of those services into the base of businesses and
consumers in India has, to date, been limited. At the same time, however, the
Indian economy continues to modernize and expand, particularly in sectors such
as software development that are dependent on a reliable communications
network. The growth of these industries is leading to an increasing base of
personal computers and wired homes and businesses in India with a resulting
increased demand for Internet services. We believe these trends, which mirror
trends in more mature economies, will continue to develop in India. Set forth
below is a table comparing the penetration of computers and on-line access in
India compared to the United States and the Asia-Pacific region in 1998:
<TABLE>
<CAPTION>
Asia-Pacific
India United States Region(1)
----- ------------- ------------
(in millions, except
percentages)
<S> <C> <C> <C>
Population(2).......................... 984.0 270.3 2,769.6
Internet users......................... 0.5 62.8 10.2
Internet users as a percentage of
population............................ 0.0% 23.2% 0.4%
On-line devices........................ 0.3 87.4 9.5
On-line devices as a percentage of
installed base........................ 11.0% 54.5% 24.9%
</TABLE>
--------
(1) Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Philippines, China, Singapore, Taiwan, Thailand and
Vietnam.
(2) 1998 population data from U.S. Census Bureau.
Source: International Data Corporation, 1999.
The ability to exploit the Internet service provider and other data
service markets in India is currently inhibited by bandwidth limitations
imposed by cost and technical obstacles. Bandwidth refers to the measurement of
the volume of data capable of being transported in a communications system in a
given amount of time. Bandwidth rates are commonly expressed in terms of Kpbs
(kilobits per second, or thousands of bits of data per second) or Mpbs
(megabits, or millions of bits of data per second). Generally, bandwidth
remains very expensive in India. Prices for bandwidth are set by two
governmental agencies in India, the Department of Telecommunications and the
Telecom Regulatory Authority and have remained high due to, among other things,
capacity constraints. Further, limitations in network architecture limit
consumer telephone dial-up connection speeds to 28 Kbps and below, less than
the 33 to 56 Kbps on conventional dial-up telephone lines, and significantly
less than the up to 1.5 Mbps on cable modems, in the United States.
Improvements in the public telecommunications infrastructure and private
network expansion are expected to diminish these limitations over time. As
network capacity increases worldwide and the cost to transmit data over the
Internet continues to decrease, we also expect the demand for Internet access,
on-line content and similar services to increase.
44
<PAGE>
To date, a significant amount of the usage of Indian content sites on the
World Wide Web has been driven by Internet users outside of India. We expect
this growth in personal computers and Internet users to increase the demand for
Internet content directed towards domestic Indian consumers as well as the
amount of electronic commerce in India. Set forth below is a table summarizing
International Data Corporation's projections for Internet use and electronic
commerce revenue in India:
<TABLE>
<CAPTION>
Annualized
1998 2002 growth
------------ -------------- -----------------
(in millions, except annualized growth)
<S> <C> <C> <C>
Indian Internet users........ 0.5 4.5 76%
Indian Installed personal and
network computer base....... 1.9 8.2 44%
Indian Internet commerce
revenues.................... $ 3.5 $ 593.6 260%
</TABLE>
--------
Source: International Data Corporation, 1999
Private market participants have not been able to exploit the market
opportunities in India until recently because the regulatory environment in
India largely prevented any competition with the national government-controlled
telecom providers. Until November 1998, the only Internet service provider
permitted in India was VSNL, a government sponsored and majority owned entity,
which at that time had approximately 150,000 subscribers. VSNL began providing
Internet access on August 15, 1995. We currently estimate that VSNL has
approximately 300,000 subscribers. On November 6, 1998, the government opened
the Indian Internet service provider market to private competition. As of June
30, 1999, the Indian government had granted Internet service provider licenses
to 129 companies, including 22 national licenses, 42 regional licenses and 65
local licenses. The licensees include cable television operators and joint
ventures between local companies and large international telecom providers.
Internet service provider licenses are granted for 15 years, with only nominal
license fees. Internet telephony is not permitted by the current regulations.
Currently, pricing of Internet service provider services is not regulated by
the government of India, although it has the power to elect to do so.
Satyam Solution
We believe that the growth of the Internet and other network services in
India has been inhibited by relatively high costs and poor user experiences
caused by an inadequate telecommunications infrastructure and slow network
connection speeds. We are committed to expanding and enhancing our private
network backbone and to providing high quality technical support to attract
users to our services. We believe that our products and services provide our
customers with the ability to exchange information, communicate and transact
business over the Internet with speed, efficiency, reliability and security
superior to other Internet service providers. Key advantages of the Satyam
solution include:
. National private Internet protocol network backbone. We currently
operate India's only private national Internet protocol data network.
Our network provides the platform for the national delivery of
Internet access to consumers as well as the backbone for our full
range of corporate network and technology services. Our private
network infrastructure allows corporations to establish virtual
private networks and electronic data interchanges without dealing
directly with the government telecom providers. The planned
development of our own Internet gateways will further reduce our
reliance on the government telecom providers.
. Superior end-user performance and customer support. We provide a high
level of customer service, network performance and technical support
to maximize customer satisfaction. Currently, approximately 40% of
our employees are engaged in our customer service or technical
support departments, which operate 24-hours-a-day, seven-days-a-week.
Our network engineers continually monitor network traffic and
congestion points to deliver consistent, high quality network
performance. We plan to maintain a relatively low ratio of
subscribers to modems. As of June 30, 1999, our subscriber to modem
ratio was approximately ten to one. Our strategy of providing
superior network performance and customer service is designed to
result in significant customer growth from referrals and industry
recognition.
45
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. End-to-end network solutions for business customers. We provide our
business customers with a comprehensive range of Internet,
connectivity and private network solutions complemented by a broad
base of web-based business applications. Our corporate services range
from dial-up and dedicated Internet access, international roaming to
virtual private networks, web implementation and electronic commerce
solutions. Our end-to-end solutions enable our corporate customers to
address their networking and data communication needs efficiently
without having to assemble products and services from different
value-added resellers, Internet service providers and information
technology firms.
. Internet content and electronic commerce websites customized for the
Indian market. We view the Indian market as a series of specific
market segments with unique cultural and topical interests, rather
than an extension of a homogeneous, worldwide Internet market. We
have assembled a team of India-based employees familiar with the
local culture, language and business environments in our markets to
develop Internet content and electronic commerce websites tailored
for the Indian market. We regularly incorporate new and original
third-party content suited to our local and regional audiences to
enhance our customers' on-line experience and to attract new users
both within India and abroad. As a result of our local market
knowledge, we have been able to increase traffic flow to our websites
and to create brand awareness for the Satyam Online service.
. Strategic partnerships with industry leaders. We have developed
exclusive strategic relationships with leading Internet and
telecommunications manufacturers. For example, we are the exclusive
network partner for CompuServe Network Services, providing its
customers with roaming services in India. Our exclusive arrangements
with Sterling Commerce and Open Market provide our customers access
to cutting edge business-to-business electronic data and
communication applications and Internet electronic commerce software.
Business Strategy
Our goal is to become the premier provider of Internet and network
services to consumers and businesses in India. Our principal business
strategies to accomplish this objective are:
. Increase penetration in our existing markets by expanding awareness
of the Satyam Online brand name to capitalize on our first mover
advantage in India. We intend to capitalize on our first-to-market
advantage in India to establish national service and a brand name in
advance of other private competitors. We are presently the largest
national independent Internet service provider in India, based on
number of subscribers. We currently operate in 25 cities in India and
expect to provide service in 40 cities by April 2000. We intend to
accelerate penetration within our existing markets and enter
additional targeted markets by creating awareness of the "Satyam
Online" brand name. We intend to make Satyam Online synonymous with
superior Internet connectivity and with on-line content tailored
specifically for the Indian market and Indian interests worldwide.
Our marketing strategy includes print, television and radio
advertising, direct mailing campaigns targeting personal computer
owners, co-branding with "cybercafes" and joint-marketing programs
with leading schools and universities in India.
. Expand our products and services with new technologies to enable our
customers to use the Internet more effectively. We continually seek
to expand the breadth of our product and service offerings with new
technologies. For example, we recently opened the first prototype
Satyam cybercafe to tap the large non-personal computer owner market
in India. Our cybercafes will prominently display the Satyam Online
brand and offer a full range of our Internet connectivity services.
We intend to introduce a number of other new products and services in
the near future, including e-mail designed for regional Indian
dialects, a user customized portal site, tele-voice mail, e-mail to
fax, micro-payments and a supply chain management product.
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. Strengthen our Internet portal and other Internet content websites
with more India-specific content tailored to Indian interests
worldwide. Our portal, satyamonline.com, functions as an initial
gateway to the Internet, the user's starting point for web browsing
and other Internet services, for our consumer Internet service
provider subscribers. The Satyam Online portal is a media rich, user
friendly, interactive website offering hyperlinks to a wide variety
of websites and services, including our own websites. To achieve our
goal of developing the premier Internet portal focused on the Indian
market, we intend to continue to expand and improve the quality of
satyamonline.com, and are actively developing additional proprietary
websites oriented towards topical and cultural interests of Indians
worldwide. As the availability of Internet access expands in India,
we believe that increasing numbers of Internet users will be
attracted to our high quality websites and on-line content designed
specifically for the Indian consumer. We will seek to attract
advertisers, electronic commerce merchants and third-party content
providers trying to reach our users in order to generate incremental
revenues for Satyam Online.
. Expand customer distribution channels through strategic partnerships
to take advantage of the sales and marketing capabilities of our
strategic partners. We intend to continue to expand our customer
acquisition channels, for both our consumer Internet access and
corporate network and technology services. We have arrangements with
two leading personal computer manufacturers, Compaq and Hewlett-
Packard, to bundle our Satyam Online Internet access service with the
sale of their personal computers in India. We are working with
Philips Electronics to deploy a television set-top box in India for
accessing the Internet using phone lines. We have also formed
strategic alliances with computer and electronics retailers. We
expect to form additional strategic alliances and referral programs
in the future with selected telecommunication service and equipment
suppliers, network service companies, systems integrators, computer
resellers and retail chains in India.
. Invest in the continued enhancement and expansion of our network
infrastructure to support customer growth, enter new markets and
accommodate increased customer usage. We intend to continue to
increase the capacity and geographic reach of our network in order to
support subscriber growth, enter new markets and accommodate
increased customer usage. We remain committed to using proven
technologies and equipment and to providing superior network
performance. We recently deployed asynchronous transfer mode, or ATM,
switches on six points of presence along our network. These ATM
switches enable us to allocate our network capacity more efficiently.
Our Internet service provider license permits us to establish and
maintain our own direct connections to the international Internet,
either by purchasing satellite earth stations or by leasing or
purchasing capacity on transoceanic fiber optic cables. We believe
that as the size and capacity of our network infrastructure grows,
its large scale and national coverage will create economies of scale
and barriers to entry for our competitors.
. Pursue selective strategic investments, partnerships and acquisitions
to expand our customer base, increase utilization of our network and
add new technologies to our product mix. We believe that our growth
can be supplemented by selective acquisitions of complementary
businesses, particularly Internet service providers that have
developed local or regional points of presence and that have a
significant or growing subscriber base in our current or targeted
markets. We believe that as the Internet service provider market in
India evolves, customers will place greater emphasis on Internet
service provider performance, network coverage, reliability, value-
added services and customer support. As a result, smaller start-up
Internet service providers may be unable to remain competitive on a
national or regional basis, unless they significantly expand the
scope of their operations. These trends could lead to a future
consolidation of Internet service providers in India. In addition, we
may seek to expand our market presence in our corporate network
business through the acquisition of web hosting, data center, web
implementation and/or systems integration companies. We may also
consider opportunities to acquire third-party websites and sources of
additional on-line content and technology for our Internet portal and
proprietary website businesses.
47
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Service Offerings
We offer a wide range of Internet and other network services to meet the
needs of consumers and corporate customers. These services can be divided into
three categories:
. consumer Internet access services;
. corporate network and technology services; and
. on-line portal and content offerings.
Consumer Internet Access Services
We launched our consumer Internet service provider business on November
22, 1998, just 15 days after the government of India opened the market to
private competition. Within 45 days, we had initiated service in 12 cities,
including Ahmedabad, Bangalore, Bombay (Mumbai), Calcutta, Cochin, Coimbatore,
Delhi, Hyderabad, Ludhiana, Madras (Chennai), Pondicherry and Pune. We
currently own and operate points of presence in 25 of the largest metropolitan
areas in India. We plan to extend service to 40 cities by April 2000 which we
believe will allow us to provide Internet access services to approximately 85%
of the installed personal computer base in India. As of August 31, 1999, we had
more than 77,000 subscribers. Our expansion plan targets major metropolitan
areas and state capitals that we believe have a sufficient number of installed
personal computers to support a point of presence.
Our strategy is to offer better and more extensive services to our
subscribers than our competitors, with an emphasis on ease of use. With VSNL
and many of the regional access providers, the user must apply for service and,
frequently, wait one or more weeks for service to begin. Our subscribers
purchase a ready-to-use CD-ROM available at bookstores, computer stores and
universities, or bundled with a personal computer, to access our service
immediately. Our on-line registration process is available to initiate service
and purchase renewals. We also support our subscribers with a 24-hour-a-day,
seven-day-a-week call center staffed with trained technicians.
Our service offerings come in a number of packages, designed to attract
beginning Internet users and service the needs of advanced users. Our Discover
25 offering is a "starter pack" designed for anyone wishing to explore the
Internet or as a second connection for subscribers who primarily use one of our
competitors' services. Each of our other Discover offerings is designed for
regular Internet users. All of our Discover Internet access offerings are
bundled with a package of value-added products, including one megabyte of
either POP3 or Imap e-mail, a one page pre-templated web page and our 24-hour-
a-day, seven-day-a-week customer service. Our Discover offerings are offered
only on a prepaid basis and can be renewed on-line. Each Discover offering is
bundled with approximately Rs.4,000 ($92) retail value of licensed software,
including Viagrafix and E-safe. Viagrafix is an interactive computer-based
tutorial designed to introduce the Internet to new users. E-safe is a virus
removal and parental control tool. We also offer e-mail capability without
Internet access. Our consumer Internet service provider offerings include:
<TABLE>
<CAPTION>
Service Summary Description Initial Price Renewal Price
------------ ---------------------------- --------------- ---------------
<C> <S> <C> <C>
Discover 25 25 hours of Internet access Rs.990 ($23) Not applicable
over a 3-month period
Discover 100 100 hours of Internet access Rs.3,300 ($76) Rs.2,600 ($60)
over a 10-month period
Discover 250 250 hours of Internet access Rs.6,000 ($138) Rs.5,600 ($129)
over a 12-month period
Discover 500 500 hours of Internet access Rs.8,900 ($205) Rs.8,400 ($193)
over a 12-month period
Venture 500 500 hours of Internet access Rs.17,000 ($391) Rs.16,000 ($368)
over a 12-month period by up
to five concurrent users
NetMail Additional e-mail capability Rs.2,000 ($46) Not applicable
without Internet access
</TABLE>
48
<PAGE>
The most common connection technique is for subscribers to dial-up to our
system using a personal computer configured with a modem. A subscriber who is
within local dialing range of one of our points of presence can access the
Internet with a local telephone call. In addition to paying for Internet
access, the customer is responsible for the cost of the call, which currently
is 1.3 rupees (3.0c) per 3 minutes. We estimate that substantially all of our
subscribers access our services with a local telephone call. Subscribers who
access our services with a long-distance telephone call are responsible for the
long-distance charges.
We recently announced a collaboration with Indira Gandhi National Open
University to make trial Internet access available to 70,000 students of the
School of Information and Computer Science. Under the program, participating
students pay approximately 40% of our normal hourly access charges for 20 hours
of Internet access between the hours of 11:00 p.m. and 7:00 a.m. These students
comprised approximately 5,000 of our 60,000 subscribers as of June 30, 1999 and
approximately 5,000 of our more than 77,000 subscribers as of August 31, 1999.
We believe that a critical element of consumer satisfaction is to have an
adequate number of access lines available to assure prompt and reliable
connection to our service. Telephone lines are in short supply in India, and
there is frequently a waiting period of one or more months to acquire
additional lines. We have ordered in advance a significant number of additional
lines to provide timely capacity additions as we grow our service. We plan to
maintain a relatively low ratio of subscribers to modems. When we commence
service in a city, we initially have approximately one modem-equipped line
available for each ten subscribers. As of June 30, 1999, our subscriber to
modem ratio was approximately ten to one.
Subscribers local to a call center can call our call center facility for
customer service and technical support through a local telephone number.
Subscribers can also e-mail their questions directly to a customer service and
technical support address at our company.
Corporate Network and Technology Services
We offer a comprehensive suite of technology products and network-based
services that provide our corporate customers with end-to-end Internet and
private network access. Our products and services enable our corporate
customers to offer a full range of business-to-business and electronic
commerce-related services.
Our business services consist of the following:
Internet Access. We offer dial-up Internet access as well as a variety of
dedicated Internet access solutions which provide high-speed continuous access
to the Internet. Our dedicated Internet access services are provided to
corporate customers at speeds ranging from 28 Kbps to 128 Kbps. Our Venture 500
Plan provides dial-up access to the Internet tailored to corporate customers
requiring multiple e-mail identifications and includes our 24-hour-a-day,
seven-day-a-week customer service. A corporate customer which is within local
dialing range of one of our points of presence can access our services with a
local telephone call. We also offer an international roaming service which
caters to business executives who travel outside of India. Our principal
Internet access options for corporate customers include:
<TABLE>
<CAPTION>
Service Summary Description Pricing
----------- ----------------------------- ----------------------------- ---
<C> <S> <C> <C>
Leased Line Dedicated high speed Internet Rs.500,000 ($11,507) annually
access at up to 64 Kbps
ISDN Dedicated high speed Internet Rs.350,000 ($8,055) annually
access at up to 128 Kbps
PSTN Dedicated Internet access at Rs.180,000 ($4,143) annually
up to 28.8 Kbps
NetName Domain name registration Rs.5,000 ($115)
NetWorld 25 hours of Internet access Rs.7,000 ($161)
over a 12-month period while
roaming outside India
NetMail Additional e-mail capability Rs.2,000 ($46)
without Internet access
</TABLE>
49
<PAGE>
Private Network Services. We offer a wide variety of private network
services for our small to large corporate customers. Many companies today in
India have established private data communication networks, which are often
referred to as wide area networks, or WANs, and built on expensive leased
lines, to transfer proprietary data between office locations. We were the first
company in India to offer a cost-effective replacement alternative to WANs
using virtual private networks which provide secure transmission of data using
Internet protocol over our private network infrastructure. Virtual private
network products, often in combination with a website, are also the basis for
offering intranet and extranet services. Intranets are corporate networks that
rely on Internet-based technologies to provide secure links between corporate
offices and secure access to company data. Extranets expand the network to
selected business partners through secure links on the Internet. We also allow
a company to outsource all of its WAN requirements to us. Our virtual private
network solutions offer internetworking without the wait periods created when
obtaining these services from the government provider. Our nationwide Lotus
Notes management system provides the software and framework for our customers
to utilize their private network systems to interlink their offices and
exchange information. We also support the Microsoft Exchange messaging system.
We are the exclusive network partner to CompuServe Network Services in
India, and provide the India portion of CompuServe's global network. Through
our partnership, we provide the ability for CompuServe customers traveling in
India to connect to their corporate network and systems resources using the
Internet. We offer Internet access through a local phone call in all locations
in India serviced by our network points of presence. Our service allows
Internet connectivity from India without incurring international telephone
charges. For providing our network services, we receive a portion of the fees
paid by CompuServe's customers to CompuServe when using its service in India.
Business-to-Business Commerce Solutions. We deliver complete electronic
data interchange, or EDI, and business-to-business electronic commerce
solutions to our corporate customers through our relationships with key vendors
of Internet-related hardware, software and services. Our EDI solutions provide
supply chain integration and help coordinate the manufacturing and distribution
process for our corporate customers. Our electronic commerce solutions enable
business-to-business electronic commerce over our network or the Internet. We
have an exclusive agreement with Sterling Commerce to provide their EDI and
electronic commerce software and systems in India. These products include:
. The CONNECT product line that provides the software infrastructure
for moving and managing information inside and outside the
enterprise;
. The COMMERCE product line that provides value-added services to help
customers build, manage, and service global commerce business
communities;
. The GENTRAN product line that provides software for the integration
of business processes and the automation of business transactions;
and
. EC Managed Services which offer businesses a full range of electronic
commerce outsourcing services and consulting solutions.
Web-based Solutions. We provide comprehensive website design,
development, implementation and hosting services. Since April 1998, we have
developed over 600 websites which we believe makes us one of the largest
website developers in India. Our customers' websites range from basic
informational sites to complex interactive sites featuring sophisticated
graphics, animation, sound and other multimedia content. Our interactive
development capabilities utilize tools such as Hypertext Markup Language, or
HTML, Virtual Reality Markup Language, or VRML, computer animation, composting
and motion capture. We have a dedicated team of design and development
personnel who are available for large-scale web development projects. We have a
long-term exclusive agreement with Open Market to provide their electronic
commerce products and services in India. These products include:
. web-based Internet catalogs with database capabilities of various
sizes;
50
<PAGE>
. Internet publishing software;
. a transaction engine that enables an organization to conduct commerce
over the Internet; and
. a payment gateway to facilitate commerce services to other service
providers or merchants.
We also offer web hosting accounts for companies and other organizations
that wish to create their own websites without maintaining their own web
servers and Internet connections. Our web hosting services feature state-of-
the-art web servers for high speed and reliability, high capacity connections
to the Internet and specialized customer support and security features. We also
offer co-location services for customers who prefer to own their servers, but
require the high performance and reliability of our Internet data center. Co-
location customers are typically larger enterprises employing more
sophisticated Internet hardware and software and having the expertise to
maintain their websites and related equipment.
On-line Portal and Content Offerings
We operate an on-line portal, satyamonline.com, and five related on-line
content sites tailored to needs of Indian interests worldwide. Our portal site
is designed to be the initial launch screen for all of our Satyam Online
customers, but can also be accessed by Internet users worldwide. We seek to
establish satyamonline.com as a leading Indian Internet portal. As a portal, we
provide a gateway to the Internet by offering information services, directory
tools, e-mail, contests, Internet chat and electronic commerce activities such
as online shopping and classified ads. We also allow the user to personalize
the satyamonline.com start page to include links to the user's most frequently
used features on the Internet, including particular search engines, free mail
providers and favorite content sites. Our customization features encourage
users to make satyamonline.com their first stop on the Internet and allow us to
provide special privileges and benefits to our Internet service provider
subscribers compared to users who access satyamonline.com through another
service provider. Our objective is to attract as many users as possible to
generate revenues from advertising, sponsorship fees and electronic commerce
transaction commissions.
In addition to satyamonline.com, our India-specific content sites
include:
<TABLE>
<CAPTION>
Feature Website Description
----------------- ----------------- ------------------------------------------
<C> <C> <S>
News and Features indiaupdate.com Real-time news site with domestic and
international news, weather and
entertainment.
Car and Auto carstreet.com Comparison shopping site for automobiles.
Indian Movies indiatalkies.com Indian movie channel featuring movie
reviews, archives, interviews, chats and
local movie listings.
Carnatic Music carnaticmusic.com Indian classical music site where users
may chat with artists, hear CD music clips
and buy concert tickets on-line. This site
also contains a link to an on-line music
store.
Personal Finance walletwatch.com Personal finance site featuring stock
quotes, portfolio manager, links to
brokerage firms and editorial content.
</TABLE>
Today, there are probably more non-resident Indians, than Indians
residing domestically, with access to the Internet. As a result, many content
sites, including satyamonline.com, have more users located outside of India
than within. However, we believe that the market for content and services
within India will develop rapidly. As a result, this market is the primary
focus of our attention, and the market of non-resident Indians is secondary.
Current Indian residents present a market that advertisers and merchants desire
to reach. To expand usage of our services domestically, we believe that we must
provide more services of daily value, such as the ability to buy groceries or
movie tickets on-line or to check an up-to-date movie review before buying a
ticket. New features that we expect to deploy in 1999 include a drugstore,
travel services featuring hotel and transportation reservation and ticketing,
and an auction service.
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<PAGE>
Strategic Partnerships
We maintain a number of strategic relationships with key vendors of
Internet-related hardware, software and services. Several of these
relationships are exclusive to us in India, subject in some cases to minimum
sales thresholds. These relationships result in two significant benefits.
First, they provide us with the ability to offer valuable products and services
exclusively to our customers in India. In addition, these relationships help us
market our services by providing us with access to our partners' customer
bases. Our network and related services are focused on meeting the needs of
corporate customers, particularly in manufacturing and service organizations,
which have a need to coordinate their activities with satellite operations such
as dealers, distributors, agents and suppliers.
Our key partners are as follows:
CompuServe Network Services. CompuServe Network Services, a unit of MCI
Worldcom, is a world-wide provider of data services. We are the exclusive
network partner to CompuServe Network Services in India, acting as the access
gateway to its global network from India. CompuServe's network business
operates, manages and maintains a global value-added enhanced data network. In
April 1997, we entered into a three-year agreement with CompuServe pursuant to
which each party provides dial-up access services that are sent to the other
party via an international network connection. Each party surcharges its
customers for traffic originated on the other party's network, bills and
collects the amount of such surcharge and remits a portion thereof to the other
party. The cost of the leased line connection between our network and
CompuServe's network is shared between the parties, and each party's
proprietary rights remain the sole and exclusive property of that party. Our
agreement with CompuServe automatically renews at the end of the initial term
and each subsequent term for a period of one year provided there is no default
and the parties have satisfied their respective monetary obligations, subject
to each party's right to elect not to renew the agreement by providing written
notice to the other party at least six months prior to the end of the initial
or any succeeding term.
Sterling Commerce. Sterling Commerce is a leader in the market for
business-to-business electronic commerce software, including communications
software, electronic data interchange, or EDI, software and banking systems
software. In February 1997, we entered into a five-year agreement with Sterling
Commerce pursuant to which Sterling Commerce granted to us the exclusive right
in India, subject to minimum sales thresholds, to market, provide, sublicense,
install, facilitate, maintain and support the electronic commerce network
services, support services and other products developed by Sterling Commerce.
We pay to Sterling Commerce an annual maintenance fee and a percentage of
invoiced charges for Sterling Commerce's products purchased by our customers.
We also paid a license fee to Sterling Commerce in 1997. The license permits us
to use specified proprietary information, as well as trademarks, service marks
and tradenames, of Sterling Commerce in connection with advertising, promoting
and marketing Sterling Commerce's products in India. Our agreement with
Sterling Commerce terminates in 2002 provided that the parties may agree to
renew the term within 30 days of the end of the term, subject to Sterling
Commerce's right to terminate the agreement if we fail to meet any annual sales
threshold. As of June 30, 1999, we had met all sales thresholds under our
agreement with Sterling Commerce.
Open Market. Open Market is a leading platform provider for Internet
commerce worldwide. In June 1997, we entered into a two-year distribution
agreement with Open Market pursuant to which Open Market made us its exclusive
distributor in India of some of its Internet commerce software products,
provided we continue to meet minimum sales thresholds. We purchase copies of
software from Open Market which we resell to our customers. Open Market pays us
a referral fee for software sold to our customers which is not covered by the
agreement. Open Market has granted us a license to use specified proprietary
information and trademarks in connection with our marketing of Open Market
software. Our agreement with Open Market automatically renewed on an exclusive
basis at the end of the initial term through September 2000 and will
automatically renew at the end of each subsequent term provided we continue to
meet minimum sales thresholds, subject to each party's right to elect not to
renew by providing written notice to the other party. Any such additional
extension may be on an exclusive or non-exclusive basis depending on whether we
continue to meet minimum sales thresholds. Open Market may terminate the
agreement if we fail to meet the minimum sales thresholds.
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<PAGE>
Customer Service and Technical Support
We believe that excellent customer support is critical to our success in
attracting and retaining subscribers. We currently provide customer service and
technical support via a local telephone call in all 25 cities in which we have
points of presence. Subscribers can also e-mail their questions directly to a
customer service and technical support address at our company.
Our customer service and technical support staff handles all questions
regarding a subscriber's account and the provision of our services and is
available 24-hours-a-day, seven-days-a-week. As of June 30, 1999, we had
approximately 174 customer service and technical support employees.
Corporate Customers
We have established a diversified base of corporate customers in a
variety of data intensive industries, including financial services, publishing,
retail, shipping and manufacturing. As of June 30, 1999, our corporate customer
base had grown to over 300 customers. Our largest corporate customers based on
revenue for the fiscal quarter ended June 30, 1999 include American Express
Bank, Carborandum Universal Limited, CDC Advisors Limited, Citibank, Compaq,
Computer Associates, Dupont, ESPN Software India Limited, GE Capital Services,
Henkel, Johnson & Johnson, Hutchison Corporate Access, Levi Strauss, Maruti
Suzuki, Philips India, Standard Chartered Bank, Tata British Petroleum, Tata
McGraw Hill, Toyota Kirloskar and Whirlpool India. The customers listed above
accounted for approximately 47% of our revenues in the fiscal quarter ended
June 30, 1999.
Sales and Marketing
Consumer Offerings. A key element of our business strategy is to increase
our brand awareness and market penetration among consumers through a number of
means including:
. an expanded advertising campaign focused primarily on print
advertising combined with a modest amount of television and radio
advertising;
. direct mail; and
. free software to consumers who become subscribers.
In addition, we intend to establish cybercafes under the Satyam Online brand
name, and to enter into relationships with independent cybercafes to co-brand
our websites with their businesses, in order to expand access to our portal and
websites by consumers who do not own a personal computer or have Internet
access at home. We are also developing programs with Indian schools and
universities to provide Internet access to Satyam Online websites. For example,
we recently announced a collaboration with Indira Gandhi National Open
University to make trial Internet access available to 70,000 students of the
School of Information and Computer Science. Under this program, participating
students pay a reduced rate for 20 hours of Internet access during off-peak
hours. As of June 30 and August 31, 1999, students under this program
constituted approximately 5,000 of our subscribers. To increase Internet access
and use of our websites by personal computer buyers, we have entered into
arrangements with personal computer manufacturers and vendors, including Compaq
and Hewlett-Packard, to have our Internet access software bundled with their
computers.
Corporate Offerings. The principal focus of our sales and marketing staff
is existing and potential corporate customers. We seek to penetrate this market
through trade publication ads, industry trade shows and seminars for the
benefit of industry associations and potential customers. As of June 30, 1999,
we had 411 employees, 178 of whom were dedicated to sales and marketing.
We intend to hire approximately 250 new employees over the next year,
most of whom will be hired into our sales, marketing and customer support
teams. Each new point of presence which becomes operational will be staffed
with between two and five sales and support personnel to call on potential
corporate customers and service our existing customers.
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Technology and Network Infrastructure
We currently operate India's largest national Internet protocol private
data network with points of presence in 25 cities. We own and operate our
network facilities and customer service operations which gives us greater
control over the utilization and quality of our network. We have designed and
built our network using advanced technologies and equipment which allows us to
continue to expand the geographic range of our network, integrate improved data
processing technologies and enhance speed and capacity with little or no
disruption to our customers.
Geographic Coverage. Through our national network of points of presence,
our consumer and business Internet access customers are able to access the
Internet in 25 of the largest markets in India via a local phone call. A point
of presence is commonly defined as the ability to access on-line services in a
market through a local telephone call or local leased lines. As of June 30,
1999, we had backbone points of presence in Ahmedabad, Bangalore, Bombay
(Mumbai), Calcutta, Cochin, Coimbatore, Delhi, Hyderbad, Ludhiana, Madras
(Chennai) and Pune. These backbone points of presence, also called primary
nodes, reside at the core of a larger Internet protocol network with a meshed
topology architecture. We also have additional points of presence, or secondary
nodes, in Baroda, Belgaum, Bhopal, Davengere, Goa, Hubli, Indore, Jaipur,
Jamshedpur, Lucknow, Mangalore, Nagpur and Pondicherry. Each point of presence
contains data communications equipment housed in a secure facility owned or
leased by our company located near a Department of Telecommunications or
Mahanagar Telephone Nigam Limited telephone switching station. Each point of
presence contains a modem bank which receives and aggregates incoming calls
from customers who access our system by modem connection through a local call
on the public telephone system. Our larger corporate customers access the point
of presence directly through leased lines. We plan to have points of presence
in 40 cities by April 2000.
Network Architecture. We ensure network reliability through several
methods and have invested in proven technologies. We use Cisco routers to route
traffic between nodes and an IGX WAN switch to terminate traffic. The routers
and WAN switches are interconnected using a high speed interface. Our
applications and network verification servers are manufactured by Hewlett-
Packard.
The primary nodes on the backbone network are connected by up to 2 Mbps
high speed fiber optic lines that we lease from the Department of
Telecommunications. The secondary nodes are connected by multiple 64 Kbps
leased fiber optic lines. Each node is accessible from at least two other
nodes, allowing us to reroute traffic. We minimize the possibility that system
failures do not interrupt service by automatically activating an ISDN dial-up
on the backbone network in the event any segment goes down. We reduce our
exposure to failures on the local loop by usually locating our points of
presence within one segment of the central telephone exchange. To further
assure our network integrity, we are installing fiber optic connections
directly from each of our primary nodes to the central exchange.
We connect to the international Internet through international gateways
in Bangalore, Calcutta, Delhi, Bombay (Mumbai), Hyderabad and Madras (Chennai).
We currently use international gateways operated by VSNL, the government-
controlled provider of international telecommunications services in India. We
intend to use a portion of the net proceeds from this offering to establish our
own international gateways to the Internet, either by purchasing or leasing
satellite earth stations or by leasing or purchasing capacity on transoceanic
fiber optic cables.
In addition to a fundamental emphasis on reliability, our network design
philosophy has focused on compatibility, interoperability and scalability. At
each level of data transmission, our network is fully compliant with ISO
standards. We use ethernet and Internet protocols to transmit data, thus
ensuring that our network is completely interoperable with other networks and
systems and that we may port any application onto our network. The modular
design of our network is fully scalable, allowing us to expand without changing
the network design or architecture, thus ensuring little or no service
disruption. Finally, we recently deployed Cisco ATM switches on six points of
presence along our network. These ATM switches allow us to allocate our
existing capacity more efficiently by offering frame relay and dedicated
bandwidth.
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Network Operations Center. We maintain a network operation center located
in Madras (Chennai) and a back-up data facility in Bombay (Mumbai). This
facility houses our central network servers as well as our network staff which
monitors network traffic, service quality and equipment at all our points of
presence to ensure a reliable Internet service. Our network operations center
is staffed 24-hours-a-day, seven-days-a-week. We have backup power generators
and software and hardware systems designed to prevent network downtime in the
event of system failures. In the future, we may add additional facilities to
supplement or add redundancy to our current network monitoring capability.
Competition
General. We face competition in each of our markets and expect that this
competition will intensify as the market in India for Internet service provider
services, on-line content and corporate network services and technology
products develops and expands. We compete primarily on the basis of service,
reliability and customer support. Price and ease of use are also competitive
factors.
Internet Access Services. Our principal competitor is VSNL, the
government-controlled telecom provider. VSNL currently has significantly more
subscribers than we do because private companies, such as our company, were not
permitted to enter the Internet service provider market until November 1998. As
of June 30, 1999, 128 private parties, other than our company, have been
granted licenses to operate Internet service providers, 21 of which permit
operation on a national basis in the same manner that we are allowed under our
license. While no other parties had launched a private national Internet
service provider service as of June 30, 1999, we expect competitors to emerge.
Further, we believe that it is inevitable that the large, foreign providers of
Internet service provider services will eventually attempt to enter the Indian
market through local joint ventures or other means. Indian law currently limits
foreign ownership of an Internet service provider to 49%.
In addition, we could face competition from companies that develop new
and innovative techniques to access the Internet. Although growing rapidly,
International Data Corporation estimates that India had an installed base of
only approximately 1.9 million personal computers in 1998. Technology which
permits a connection to the Internet through alternative, less capital
intensive means is likely to be attractive to Indian consumers. A number of
companies, including several collaborating with our company, are planning
alternative Internet access devices, such as set-top boxes for televisions, to
create demand for Internet services in excess of that which could be supported
by the installed base of personal computers. The provider who develops this
technology is likely to have a significant advantage in the marketplace.
On-line Portal. There are several other companies in India that have
developed websites, including indiaworld.com, rediff.com and others, designed
to act as Internet portals. These sites currently have greater traffic than our
site and offer some features that we do not. Further, the dominant Internet
portals continue to be the on-line services and search engine companies based
in the United States, such as America Online, Microsoft Network, Yahoo!,
Excite@Home, Infoseek and Lycos. These companies have been developing specially
branded or co-branded products designed for audiences in specific markets.
Although none of these companies has developed a product designed for India
yet, we believe one or more of them is likely to do so, creating a new source
of competition.
Corporate Network and Technology Services. Our competitors for many
private network services include government services, companies that have built
and operate their own private data networks, satellite communications agencies
such as Hughes, Comsat, HCL Comnet and Bharti BT, and terrestrial network
providers such as Sprint RPG (a joint venture between Sprint and RPG Group),
Wipro Communications Services and Global Electronic Commerce Services.
Many of our existing or potential competitors enjoy substantial
competitive advantages compared to our company, including:
. the ability to offer a wider array of services;
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. larger production and technical staffs;
. greater name recognition and larger marketing budgets and resources;
. larger subscriber bases; and
. substantially greater financial, technical and other resources.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products and services, as well as our
sales and marketing channels. Increased competition could result in loss of
market share, reduced prices or reduced margins, any of which could adversely
affect our business. Competition is likely to increase significantly as new
companies enter the market and current competitors expand their services.
Intellectual Property
Our intellectual property rights are important to our business. We rely
on a combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. We
require employees, independent contractors and, when possible, suppliers to
enter into confidentiality agreements upon the commencement of their
relationships with our company. These agreements generally provide that
confidential information developed or made known during the course of a
relationship with our company be kept confidential.
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
India do not protect proprietary rights to the same extent as laws in the
United States, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. For example,
Indian statutory law does not protect service marks. In the future, litigation
may be necessary to enforce our intellectual property rights or to determine
the validity and scope of the proprietary rights of others. Any such litigation
could be time-consuming and costly.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our
website or other product or service offerings overlap with competitive
offerings. Defending against these claims, even if not meritorious, could be
expensive and divert our attention from operating our company. If we become
liable to third parties for infringing their intellectual property rights, we
could be required to pay a substantial damage award and be forced to develop
non-infringing technology, obtain a license or cease selling the applications
that contain the infringing technology. We may be unable to develop non-
infringing technology or obtain a license on commercially reasonable terms, or
at all.
We also rely on a variety of technologies that are licensed from third
parties, including CompuServe, Sterling Commerce and Open Market. The software
developed by these and other companies is used in the satyamonline.com website
to perform key functions. These third-party licenses may not be available to us
on commercially reasonable terms in the future. The loss of any of these
licenses could delay the introduction of software enhancements, interactive
tools and other features until equivalent technology could be licensed or
developed. Any such delays could materially adversely affect our business,
results of operations and financial condition.
The trademark "Satyam" is owned by Satyam Computer Services, our parent
company, and licensed to our company for so long as Satyam Computer Services
continues to own at least 51% of our company. Upon the occurrence of a change
of control in our company, however, Satyam Computer Services may terminate our
license to use the "Satyam" trademark on two years prior written notice. We
have filed trademark applications for "Satyam Online," "Satyam:Net" and
"satyamonline.com" in India. These applications are currently pending, and we
plan to file applications for these marks in the United States.
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Government Regulation
Our business is subject to comprehensive regulation by the Ministry of
Communications through the Telecom Commission and the Department of
Telecommunications pursuant to the provisions of the Indian Telegraph Act of
1885, or Telegraph Act, the India Wireless Telegraphy Act, 1933, or Wireless
Act, and the terms of the Internet service provider license agreement we
entered into with the Department of Telecommunications under which we operate.
Pursuant to the Telegraph Act, the provision of any telecommunications services
in India requires a license from the government of India, obtained through the
Department of Telecommunications. While the Telegraph Act sets the legal
framework for regulation of the telecommunications sector and the Wireless Act
regulates the possession of wireless telegraphy equipment, much of the
supervision and regulation of our company is implemented more informally
through the general administrative powers of the Department of
Telecommunications, including those reserved to the Department of
Telecommunications and other governmental agencies under our license.
In March 1997, the government of India established the Telecom Regulatory
Authority, an independent regulatory authority under the provisions of the
Telecom Regulatory Authority of India Act. The Telecom Regulatory Authority is
an autonomous body consisting of a chairperson and at least two and not more
than four members, and has primary responsibility for the following:
. facilitating competition and promoting efficiency;
. protecting the interests of consumers;
. regulating revenue sharing among service providers;
. ensuring compliance with license conditions;
. setting and ensuring compliance with the time period applicable to
service providers for providing local and long-distance
telecommunications lines;
. ensuring technical compatibility and effective interconnectivity
among different service providers;
. settling differences between service providers;
. advising the government of India on matters relating to the
development of the telecommunications industry; and
. ensuring effective compliance with universal service obligations.
The Telecom Regulatory Authority also has the authority to, from time to
time, set the rates at which domestic and international telecommunications
services are provided in India. The Telecom Regulatory Authority does not have
authority to grant licenses to service providers or renew licenses, functions
which remain with the Department of Telecommunications. The Telecom Regulatory
Authority, however, has the following powers:
. to call on service providers to furnish information relating to their
operations;
. to appoint persons to make official inquiries;
. to inspect the books of service providers; and
. to issue directives to service providers to ensure their proper
functioning.
Failure to follow Telecom Regulatory Authority directives may lead to the
imposition of fines. Decisions of the Telecom Regulatory Authority may be
appealed to High Courts in India.
The authority of the Telecom Regulatory Authority has been the subject of
recent litigation, particularly with respect to its role in introducing new
telecommunications licensees and the scope of its authority to settle disputes
regarding the grant by the Department of Telecommunications of
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telecommunications licenses. The Delhi High Court has held that the authority
of the Department of Telecommunications to issue or amend licenses is not
subject to any prior recommendations of the Telecom Regulatory Authority, and
that any such recommendations are not mandatory. In addition, the Delhi High
Court determined that the Telecom Regulatory Authority does not have
jurisdiction to decide disputes regarding the grant or amendment of a
Department of Telecommunications license. The judgment is subject to the
outcome of a pending appeal. The final outcome of this litigation will affect
the sharing of regulatory authority as between the Department of
Telecommunications and the Telecom Regulatory Authority. The government of
India has formulated the New Telecom Policy, 1999, or NTP. The NTP was cleared
by the Union Cabinet in March 1999 and contemplates a new regime for the
telecom operators, a larger role for Telecom Regulatory Authority, a
restructuring of the Department of Telecommunications and opening up of the
market for long-distance calls.
We began offering Internet access services on November 22, 1998, and we
operate 25 Internet access nodes. In November 1998, the government of India
opened the Internet service provider market to private competition, and the
Department of Telecommunications instituted a mandatory license requirement for
the provision of Internet services. We entered into a license agreement with
the Department of Telecommunications on November 12, 1998 with effect on the
same day, under which we were granted a license to provide national Internet
services on a non-exclusive basis. The terms of our license are generally
consistent with the policy for licensing Internet service providers. The term
of our license is 15 years. Our license can be revoked by the Department of
Telecommunications if we breach the terms and conditions of the license. The
Department of Telecommunications retains the right to take over our network and
to modify, revoke, terminate or suspend the terms and conditions of the license
at any time if, in its opinion, it is necessary or expedient to do so in the
interest of general public, or for the proper operation of the
telecommunications sector or for security considerations. The Department of
Telecommunications also retains the right to review the terms of our license
based on changes in national telecommunications policy. We are not allowed to
assign or transfer our rights under our license without the prior written
consent of the Department of Telecommunications. The license provides that the
total foreign equity in our company may not, at any time, exceed 49% of our
total equity. Telephony on the Internet is not permitted in India, and the
license requires us to take measures to ban carriage of telephone traffic over
the Internet. Our license also requires us to ensure that objectionable,
obscene and unauthorized content, or any other content, messages or
communications infringing copyrights, intellectual property rights and domestic
and international cyberlaws or which is inconsistent with the laws of India, is
not carried on our network. Although under the terms of our license we are free
to fix the prices we charge our subscribers, the Telecom Regulatory Authority
may set prices for the provision of Internet access services generally. We are
permitted to use encryption to safeguard information transmitted over our
network. However, if we use a higher level of encryption than that specified by
the government of India, our license requires us to deposit a set of keys with
the government of India. License fees are waived through October 31, 2003, and
a nominal license fee of Rs.1 per annum is payable from November 1, 2003. Our
obligations under the license are secured by a performance bank guarantee in
the amount of Rs.20.0 million ($0.5 million).
We may be required to import into India computer hardware and Internet
related software purchased from foreign manufacturers for business purposes.
These imports will be subject to the Export and Import Policy as declared by
the Ministry of Commerce. At the time of import, we will be required to pay a
customs duty pursuant to the Customs Tariff Act, 1975. We will also be subject
to the Foreign Exchange Regulation Act, 1973 in connection with payments in
foreign currency to the manufacturers of these products. We will require the
approval of the Reserve Bank of India prior to making these payments.
We may wish to invest in the securities of foreign companies. The Foreign
Exchange Regulation Act, 1973 requires that we obtain permission from the
Reserve Bank of India prior to making any such investment. In addition, foreign
investors may wish to invest in our securities. For information regarding
restrictions on foreign investment in our company, please see "Restrictions on
Foreign Ownership of Indian Securities" on page 80.
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Employees
As of June 30, 1999, we had 411 employees. We currently anticipate hiring
an additional 250 employees, most of whom will be hired into our sales and
marketing and technical support and customer care teams, over the next year. Of
our current employees, 59 are administrative, 178 form our sales and marketing
staffs and 174 are dedicated to technical support and customer care. None of
our employees are represented by a union. We believe that our relationship with
our employees is good.
Facilities
Our approximately 15,000 square foot corporate headquarters are located
in Madras (Chennai), India. We also have additional facilities located in
Ahmedabad, Bangalore, Baroda, Belgaum, Bhopal, Bombay (Mumbai), Calcutta,
Cochin, Coimbatore, Davengere, Goa, Hubli, Hyderabad, Indore, Jaipur,
Jamshedpur, Lucknow, Luhiana, Madras (Chennai), Mangalore, New Delhi, Nagpur,
Pondicherry and Pune aggregating approximately 42,000 square feet. As we expand
our operations, we anticipate leasing additional facilities in each city in
which we develop a point of presence. We lease all of our current facilities
under leases with terms ranging from 33 months to nine years.
Legal Proceeding
As of the date of this prospectus, we are not a party to any material
legal proceedings.
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MANAGEMENT
The following table sets forth, as of June 30, 1999, the name, age and
position of each director and executive officer of our company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
R. Ramaraj(1)(2) 49 Chief Executive Officer and Director
A. Srinivasagopalan 44 Senior Vice President
George A. Ajit 40 Vice President, Human Resources
Vice President, Electronic Commerce
Lalit Bhojwani 43 Business
Padma Chandrasekaran 38 Vice President, On-line Services
V.V. Kannan 40 Vice President, Internet Sales
Pradeep Lakshmanan 50 Vice President, Internet Sales
N. Shekhar 44 Vice President, Web Services
Rahul Swarup 40 Vice President, Technology
T.R. Santhanakrishnan 42 Chief Financial Officer
T. Suresh Kumar 45 General Manager, Network Control Group
K. Thiagarajan 33 General Manager, Finance
B. Ramalinga Raju(1)(2) 43 Chairman of the Board of Directors
Pranab Barua 46 Director
T.H. Chowdary 67 Director
Donald Peck(2) 47 Director
C. Srinivasa Raju 38 Director
S. Srinivasan(1) 65 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
R. Ramaraj has served as Chief Executive Officer of our company since
April 1998. Mr. Ramaraj has served as a Director since August 1996, prior to
which he served as an advisor to our company since June 1996. From 1992 to
1996, Mr. Ramaraj served as a Director of Sterling Cellular Limited, a mobile
telephone company based in India. Mr. Ramaraj is a Director of Universal Print
Systems Ltd., a publicly held printing company based in India. Mr. Ramaraj
received a B.Tech from Madras University and a P.G.D.M. from IIM Calcutta.
A. Srinivasagopalan has served as Senior Vice President of our company
since February 1996. From 1993 to 1995, Mr. Srinivasagopalan held various
management positions with Abu Dhabi National Oil Co., an oil company based in
the Middle East. Mr. Srinivasagopalan received a B.E. from Madras University
and a P.G.D.M. from IIM Ahmedabad.
George A. Ajit has served as Vice President, Human Resources of our
company since May 1999. From 1998 to 1999, Mr. Ajit was Vice President, Human
Resources of Mobil India, an oil company. From 1996 to 1998, Mr. Ajit was
General Manager, Human Resources, of Mahindra Holidays and Resorts. From 1994
to 1996, Mr. Ajit was Deputy General Manager, BioProducts Division of E.I.D.
Parry, a manufacturing company.
Lalit Bhojwani has served as Vice President, Electronic Commerce Business
of our company since July 1999. From 1997 to 1999, Mr. Bhojwani was Vice
President of Sales of DSS Mobile Communications Limited, a telecommunications
company. Mr. Bhojwani received a B.E. degree from Mumbai University and a
P.G.D.B.M. from IIM, Ahmedabad.
Padma Chandrasekaran has served as Vice President, On-line Services of
our company since March 1996. From 1995 to 1996, Ms. Chandrasekaran was General
Manager, Business Development of ELNET
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Technologies, a messaging company based in India. From 1993 to 1994, she was
Group Business Manager of ICIM, Mumbai, a computer hardware company based in
India. Ms. Chandrasekaran received a B.Sc. in Statistics from Calcutta
University, a P.G.D.M. from IIM Ahmedabad and an MBA in Telecommunications
Management from the University of San Francisco.
V.V. Kannan has served as Vice President, Internet Sales of our company
since July 1999. From 1996 to 1999, Mr. Kannan was Vice President, Marketing of
G.M. Pens International Limited, a manufacturing company. From 1995 to 1996, he
was Vice President, Retail Sales of Real Value Marketing Sales Limited, and
from 1992 to 1995, he was Marketing Manager of ITC Agri Business Division, a
manufacturing company. Mr. Kannan received a B.E. from Madras University and a
P.G.D.M. from IIM Calcutta.
Pradeep Lakshmanan has served as Vice President, Internet Access of our
company since September 1998. From 1997 to 1998, Mr. Lakshmanan was Associate
Vice President of Amco Batteries Ltd., a battery manufacturing company based in
India. From 1991 to 1997, Mr. Lakshmanan was General Manager of Berger Paints
Limited, an international paint manufacturing company based in India. Mr.
Lakshmanan received B.Sc. in Chemical Engineering from Trichur Engineering
College.
N. Shekhar has served as Vice President, Web Services of our company
since July 1999. From 1995 to 1999, Mr. Shekhar was Chief Executive Officer of
SSA India Private Limited, a global enterprise resource planning company. Mr.
Shekhar received a B.E. from Bangalore University, an M.S. from the University
of Texas and an M.B.A. from San Jose State University.
Rahul Swarup has served as Vice President, Technology of our company
since September 1999. From 1989 to 1999, Mr. Swarup was Vice President of
Citicorp Global Technology Infrastructure. Mr. Swarup received a B.E. in
Electrical Engineering from Indian Institute of Technology, Kanpur.
T.R. Santhanakrishnan has served as Chief Financial Officer of our
company since September 1999. From 1997 to 1999, Mr. Santhanakrishnan was
Executive Vice President, Finance of Sanmar Engineering Corporation. From 1990
to 1997, he served in a senior financial position for Royal Dutch/Shell Oil
Company. Mr. Santhankrishnan received a degree in Commerce from the University
of Madras and is a member of the Institute of Chartered Accountants of India
and the Institute of Cost and Works Accountants of India.
T. Suresh Kumar has served as General Manager, Network Control Group of
our company since March 1999. From 1996 to 1999, Mr. Kumar was Corporate
Manager, Information Services of Compaq Computer Technologies, India Ltd., a
technology company. From 1994 to 1996, he was Senior Manager of W.S.
Telesystems Ltd., a manufacturing company. Mr. Kumar received a B.E. degree
from Madras University.
K. Thiagarajan has served as General Manager, Finance of our company
since October 1997. From 1990 to 1997, Mr. Thiagarajan was Chief Financial
Officer of Coromandel Garments Limited, an export garment manufacturing company
owned by the House of Tata. Mr. Thiagarajan received a B.Com from Loyola
College of Madras and is a member of the Institute of Chartered Accountants of
India and the Institute of Cost and Works Accountants of India.
B. Ramalinga Raju is a co-founder of our company and has served as a
Director since 1995. Mr. B. Ramalinga Raju has served as the Chairman of the
Board of Directors since January 1996. Mr. B. Ramalinga Raju was the Chief
Executive Officer of Samrat Spinners Limited, a spinning mill, until 1995. Mr.
B. Ramalinga Raju is the Chief Executive Officer of Satyam Computer Services
and is a Director of Satyam Computer Services, Satyam Renaissance Consulting
Limited, Satyam Spark Solutions Limited, Gouthami Power Limited, Samrat
Spinners Limited and Maytas Infra Limited. Mr. B. Ramalinga Raju received an
M.B.A. in Business Management from Ohio State University.
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Pranab Barua has served as a Director of Satyam Infoway since April 1999.
Mr. Barua has been Chief Executive Officer of Reckitt & Coleman of India Ltd.,
a toiletries manufacturing company, and Regional Director of Reckitt & Coleman,
South Asia since July 1998. Prior to that, Mr. Barua served in various
management positions at Brooke Bond India Ltd.
T.H. Chowdary has served as a Director of our company since February
1996. Mr. Chowdary is a Director of Renaissance Technologies Limited, a
software company based in India. Mr. Chowdary retired as the Chief Executive
Officer of VSNL, the government-controlled provider of international
telecommunications services in India, in 1987.
Donald Peck has served as a Director of Satyam Infoway since March 1999.
Mr. Peck has been with Commonwealth Development Corporation, a UK-based
institution investing in developing markets, since 1991. He has been based in
India since 1995, initially as head of International Venture Capital
Management, or IVCM, and since April 1998 as Chief Executive Officer of CDC
Advisors Private Limited, a Commonwealth Development Corporation subsidiary
providing advisory services to IVCM. Mr. Peck received a PhD in Latin American
Economic History from Oxford University.
C. Srinivasa Raju has served as a Director of our company since February
1996. From 1994 to 1995, Mr. C. Srinivasa Raju was Chief Executive Officer of
Dun & Bradstreet Satyam Software Limited, a software services company based in
India. Mr. C. Srinivasa Raju is a Director of Satyam Computer Services, Satyam
Renaissance Consulting Limited and Satyam Enterprise Solutions Limited. Mr. C.
Srinivasa Raju received an M.S. from Utah State University.
S. Srinivasan has served as a Director of our company since February
1996. From 1989 to 1995, Mr. Srinivasan was Chief Executive Officer of AT&T
India Limited. Mr. Srinivasan received a BE in Engineering and a PG in
Management from Madras University.
Board Composition
Our Articles of Association set the minimum number of directors at two
and the maximum number of directors at 12. We currently have seven directors.
The Companies Act and our Articles of Association require the following:
. at least two-thirds of our directors shall be subject to re-election
by our shareholders; and
. at least one-third of our directors who are subject to re-election
shall be up for re-election at each annual meeting of our
shareholders.
Our Articles of Association provide that B. Ramalinga Raju shall be a
permanent director not subject to re-election. Our Articles of Association also
provide that South Asia Regional Fund, or SARF, is entitled to nominate one
director as long as it continues to own at least 7.5% of the issued ordinary
share capital of our company. B. Ramalinga Raju and C. Srinivasa Raju are
brothers-in-law. There are no other family relationships between any of the
directors or executive officers of our company.
On February 5, 1999, we entered into a Share Subscription and
Shareholders' Agreement, or Shareholders' Agreement, with Satyam Computer
Services, South Asia Regional Fund, or SARF, and Mr. B. Ramalinga Raju, the
Chairman of our Board of Directors, which was subsequently amended effective
September 14, 1999. The Shareholders' Agreement provides, among other things,
that:
. so long as SARF owns at least 5.0% of our issued ordinary share
capital, it is entitled to nominate one director to our Board of
Directors;
. so long as Satyam Computer Services owns at least 50.1% of our issued
ordinary share capital, it is entitled to nominate four directors to
our Board of Directors; and
. a quorum for a meeting of our Board of Directors shall be no less
than three directors.
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SARF's current nominee to our Board of Directors is Mr. Peck. Satyam Computer
Services' current nominees to our Board of Directors are Messrs. Ramaraj, B.
Ramalinga Raju, T.H. Chowdary and C. Srinivasa Raju.
Board Committees
The Audit Committee of the Board of Directors reviews, acts on and
reports to the Board of Directors with respect to various auditing and
accounting matters, including the recommendation of our independent auditors,
the scope of the annual audits, fees to be paid to the independent auditors,
the performance of our independent auditors and our accounting practices. The
members of the Audit Committee are Messrs. B. Ramalinga Raju, Ramaraj and Peck.
The Compensation Committee of the Board of Directors determines the
salaries, benefits and stock option grants for our employees, consultants,
directors and other individuals compensated by our company. The Compensation
Committee also administers our compensation plans. The members of the
Compensation Committee are Messrs. B. Ramalinga Raju, Ramaraj and Srinivasan.
Director Compensation
Our Articles of Association provide that each of our directors receives a
sitting fee not exceeding Rs.200 for every Board and Committee meeting. In
fiscal 1999, we did not pay any fees to our non-employee directors. Mr.
Ramaraj, who is employed by Satyam Infoway as our Chief Executive Officer, does
not receive any additional compensation for his service on our Board of
Directors. Directors are reimbursed for travel and out-of-pocket expenses in
connection with their attendance at Board and Committee meetings.
Employment, Severance And Other Agreements
On May 18, 1998, our Board of Directors appointed Mr. Ramaraj as Chief
Executive Officer of Satyam Infoway for a term of five years effective April 1,
1998. Mr. Ramaraj's appointment as Chief Executive Officer was approved by our
shareholders as required under the Companies Act on July 3, 1998. Pursuant to
the terms of his appointment, Mr. Ramaraj receives a monthly salary of
Rs.83,250 ($1,916). Mr. Ramaraj also receives medical, vacation and other
benefits, including membership fees for up to two clubs.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to R. Ramaraj, our Chief Executive Officer, during the fiscal year ended
March 31, 1999 for services rendered in all capacities to us during the fiscal
year ended March 31, 1999. Mr. Ramaraj was appointed Chief Executive Officer of
our company in April 1998. None of our other executive officers earned a
combined salary and bonus in excess of $100,000 during any of the last three
fiscal years. In accordance with the rules of the SEC, other compensation in
the form of perquisites and other personal benefits has been omitted because
the aggregate amount of such perquisites and personal benefits constituted less
than the lesser of $50,000 or 10% of the total of annual salary and bonuses in
fiscal 1999. The amounts in the following table are in dollars based on the
noon buying rate of Rs.43.45 per dollar on June 30, 1999. The total
remuneration received by our officers and directors for their services to us
for the fiscal year ended March 31, 1999 was approximately $105,700.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- -----------------
Shares Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- -------------------------------------
<S> <C> <C> <C>
R. Ramaraj, Chief Executive Officer $ 22,992 -- --
</TABLE>
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<PAGE>
Option Grants In Last Year
There were no option grants to our Chief Executive Officer during the
fiscal year ended March 31, 1999. Of the 147,000 options granted to employees
on September 28, 1999, 7,500 options with an exercise price of Rs.350 per
equity share were granted to Mr. Ramaraj.
Fiscal Year-End Option Values
Our Chief Executive Officer did not exercise or hold any options during
the fiscal year ended March 31, 1999.
Employee Benefit Plans
We have an Associates Stock Option Plan, or ASOP, which provides for the
grant of options to employees of our company. The ASOP was approved by our
Board of Directors and our shareholders in March 1999. A total of 825,000
equity shares were reserved for issuance under the ASOP. As of June 30, 1999,
we had granted an aggregate of 5,000 options under the ASOP at an exercise
price equal to Rs.70 per share. On September 28, 1999, we granted options to
acquire an additional 147,000 equity shares at a weighted exercise price equal
to Rs.335 per share.
The ASOP is administered by the Compensation Committee of our Board of
Directors. Pursuant to the provisions of the ASOP, the Satyam Infoway
Associates Trust, or Trust, is allotted options to purchase our equity shares
pursuant to resolutions passed at our general meetings. The Trust holds these
options for and on behalf of our employees. The Compensation Committee makes
recommendations to the Trust regarding employees who should be considered for
option grants. On the recommendation of the Compensation Committee, the Trust
will advise our company to transfer the options to identified employees, with
the right to convert the issued options into our equity shares at the rates
indicated in the options. The consideration for transfer of the options will be
Rs.1 per option to be paid by the employee before transfer of the options.
An employee holding options may apply for conversion of the options on a
date specified therein which is referred to as the conversion date. The options
are not transferable by an employee on or before the conversion date, except to
the Trust should the employee cease to be an employee by reason of resignation,
dismissal or termination of employment due to reasons of non-performance or
otherwise. On exercise of the option, the employee submits a letter of
conversion to the Trust for allotment of our equity shares in his or her name.
The Trust collects the consideration for conversion arrived at as a product of
number of options converted and the conversion price as reduced by the price of
the options paid by the employee for the number of options converted by the
employee. The equity shares transferred to the employee after conversion from
options is the absolute property of the employee and will be held by the
employee.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our equity shares as of June 30, 1999, and as adjusted to reflect
the sale of the ADSs offered hereby, by (1) each person or group of affiliated
persons who is known by us to beneficially own 5% or more of the equity shares,
(2) each director and our Chief Executive Officer and (3) all directors and
executive officers as a group. The table gives effect to equity shares issuable
within 60 days of June 30, 1999 upon the exercise of all options and other
rights beneficially owned by the indicated shareholders on that date and
thereby gives effect to the exercise by Satyam Computer Services and South Asia
Regional Fund of warrants to acquire 750,000 equity shares in the aggregate.
The table also gives effect to the purchase by Sterling Commerce in September
1999 of 481,000 equity shares in a private placement. Beneficial ownership is
determined in accordance with the rules of the SEC and includes voting and
investment power with respect to equity shares. Unless otherwise indicated, the
persons named in the table have sole voting and sole investment control with
respect to all equity shares beneficially owned. Mr. B. Ramalinga Raju is the
Chief Executive Officer, Chairman of the Board of Directors and a shareholder
of Satyam Computer Services. CDC Advisors Limited, an institutional investor
with which Mr. Donald Peck, a director of our company, is affiliated, exercises
voting control and dispositive power over the equity shares owned by South Asia
Regional Fund.
<TABLE>
<CAPTION>
Equity Shares Equity Shares
Beneficially Owned Beneficially Owned
Prior To This After This
Offering Offering
------------------ ------------------
Beneficial Owner Number Percent Number Percent
- ---------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Satyam Computer Services Limited........ 12,529,800 73.8% 12,529,800 59.2%
Mayfair Centre, S P Road
Secunderabad 500 003
India
South Asia Regional Fund................ 3,600,000 21.2 3,600,000 17.0
Les Cascades Building
Edith Cavell Street
Port Louis
Mauritius
R. Ramaraj.............................. 370,000 2.2 370,000 1.7
B. Ramalinga Raju....................... 100 * 100 *
Pranab Barua............................ -- -- -- --
T. H. Chowdary.......................... -- -- -- --
Donald Peck............................. -- -- -- --
C. Srinivasa Raju....................... -- -- -- --
S. Srinivasan........................... -- -- -- --
All directors and executive officers as
a group
(18 persons)........................... 370,100 2.2 370,100 1.7
</TABLE>
- --------
* Less than 1% of total.
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<PAGE>
CERTAIN TRANSACTIONS
Satyam Computer Services is our parent company. In fiscal 1999 and the
quarter ended June 30, 1999, we sold an aggregate of Rs.0.4 million (less than
$0.1 million) and Rs.9.1 million ($0.2 million), respectively, in services to
Satyam Computer Services and its affiliates. In fiscal 1998 and 1999 and the
quarter ended June 30, 1999, we purchased an aggregate of Rs.1.4 million,
Rs.3.0 million and Rs.1.2 million (less than $0.1 million), respectively, in
software and services from Satyam Computer Services and its affiliates. In
addition, we paid an aggregate of Rs.0.8 million in training and consulting
fees to Satyam Computer Services in fiscal 1998. We believe that the foregoing
transactions with Satyam Computer Services and its affiliates were on terms no
less favorable to our company than could have been obtained from independent
third parties.
Since fiscal 1997, Satyam Computer Services had made advances of working
capital to us. The aggregate of all advances we received from Satyam Computer
Services in fiscal 1997, 1998 and 1999 were Rs.5.3 million, Rs.5.6 million and
Rs.1.3 million (less than $0.1 million), respectively. As of the end of fiscal
1998 and 1999 and the quarter ended June 30, 1999, our balances payable to
Satyam Computer Services were Rs.1.5 million, Rs.4.0 million (less than $0.1
million) and Rs.5.5 million ($0.1 million), respectively. In fiscal 1998, we
repaid an aggregate of Rs.7.6 million through the issuance to Satyam Computer
Services of an aggregate of 756,569 equity shares. In fiscal 1999, we repaid an
aggregate of Rs.1.1 million through the issuance to Satyam Computer Services of
an aggregate of 108,390 equity shares. As of the end of fiscal 1999 and the
quarter ended June 30, 1999, we had a balance of Rs.0.2 million (less than $0.1
million) and Rs.0.2 million (less than $0.1 million), respectively, in
receivables from affiliates of Satyam Computer Services. In fiscal 1998, we
placed short-term deposits with Satyam Computer Services at a rate of 18% per
annum for periods ranging from three to six months.
On February 5, 1999, we entered into a Share Subscription and
Shareholders' Agreement, or Shareholders' Agreement, with Satyam Computer
Services, South Asia Regional Fund, or SARF, and Mr. B. Ramalinga Raju, the
Chairman of our Board of Directors, which was subsequently amended effective
September 14, 1999. Pursuant to the Shareholders' Agreement, Satyam Computer
Services and SARF purchased 750,000 and 3,000,000, respectively, of our equity
shares at a price equal to Rs.70 per equity share. Pursuant to the terms of the
Shareholders' Agreement, we are required to use the proceeds from this sale of
our equity shares to set up a value-added network servicing 25 cities in India
for the purpose of offering information technology connectivity, electronic
commerce and Internet solutions. The Shareholders' Agreement contains
provisions regarding our directors and management. For additional information
regarding how the Shareholders Agreement affects the compensation of our Board
of Directors, please see "Management--Board Composition" on page 62. The
Shareholders' Agreement grants to SARF registration rights and, in the event of
a sale of our equity shares by Satyam Computer Services, "tag-along" rights.
The Shareholders' Agreement also grants to Satyam Computer Services and SARF
warrants to purchase up to an aggregate of 750,000 of our equity shares. The
exercise price of the warrants is equal to eight times our fully diluted
earnings per equity share, as shown on our latest audited financial statements;
provided that the exercise price may not be less than 66% of the fair market
value of an equity share on the exercise date. Since we had a net loss in
fiscal 1999, if the warrants were currently exercisable the exercise price
would be 66% of the fair market value, as determined by three merchant banks,
of the underlying equity shares on the exercise date. The warrants are
exercisable for a period commencing on June 30, 2001 and terminating on June
30, 2003, provided that the warrants become immediately exercisable if Satyam
Computer Services sells any of our equity shares or if we file an application
for listing or a petition to wind up our affairs voluntarily. As a result, the
warrants will be exercisable upon completion of this offering. Both Satyam
Computer Services and SARF have notified the Company of their intent to
exercise the warrants, the exercise price for which will be equal to 66% of the
price to public indicated on the cover of this prospectus. For additional
information regarding these warrants, please see "Description of Equity Shares"
on page 67.
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<PAGE>
DESCRIPTION OF EQUITY SHARES
The following are summaries of our Articles of Association and Memorandum
of Association and the Companies Act which govern our affairs. Our Articles of
Association provides that the regulations contained in Table "A' of the
Companies Act apply to Satyam Infoway. We have filed complete copies of our
Memorandum of Association and Articles of Association as well as Table "A' of
the Companies Act as exhibits to our registration statement on Form F-1 of
which this prospectus is a part. In this prospectus, all references to our
Articles of Association include the regulations of Table "A' of the Companies
Act incorporated into our Articles of Association.
General
Our authorized share capital is 25,000,000 shares, par value Rs.10 per
share. As of June 30, 1999, 15,750,000 equity shares, options to purchase an
additional 5,000 equity shares and warrants to purchase an additional 750,000
equity shares were issued and outstanding.
The equity shares are our only class of share capital. However, our
Articles of Association and the Companies Act permit us to issue classes of
securities in addition to the equity shares. For the purposes of this
prospectus, "shareholder" means a shareholder who is registered as a member in
the register of members of our company.
A total of 825,000 equity shares are reserved for issuance under our
ASOP. As of June 30, 1999, we had granted an aggregate of 5,000 options under
our ASOP at an exercise price equal to Rs.70 per share. On September 28, 1999,
we granted options to acquire an additional 147,000 equity shares at a weighted
exercise price equal to Rs. 335 per share.
On February 5, 1999, we entered into a Share Subscription and
Shareholders' Agreement, or Shareholders' Agreement, with Satyam Computer
Services, South Asia Regional Fund, or SARF, and Mr. B. Ramalinga Raju, the
Chairman of our Board of Directors, which was subsequently amended effective
September 14, 1999. The Shareholders' Agreement grants "tag-along" rights to
SARF in the event of a sale of our equity shares by Satyam Computer Services as
well as customary information and inspection rights. Sterling Commerce has
similar rights pursuant to the stockholders agreement in connection with the
sale of our equity shares to Sterling Commerce. The Shareholders' Agreement
with SARF provides that upon the occurrence of specified events, SARF may
require Satyam Computer Services to repurchase our equity shares owned by SARF.
The Shareholders' Agreements also grants to Satyam Computer Services and SARF
warrants to purchase up to an aggregate of 750,000 of our equity shares.
Pursuant to the warrants, Satyam Computer Services and SARF may purchase
150,000 and 600,000, respectively, of our equity shares. The exercise price of
the warrants is equal to eight times our fully diluted earnings per equity
share, as shown on our latest audited financial statements; provided that the
exercise price may not be less than 66% of the fair market value of an equity
share on the exercise date. Since we had a net loss in fiscal 1999, if the
warrants were currently exercisable the exercise price would be 66% of the fair
market value, as determined by three merchant banks, of the underlying equity
shares on the exercise date. The warrants are exercisable for a period
commencing on June 30, 2001 and terminating on June 30, 2003, provided that the
warrants become immediately exercisable if Satyam Computer Services sells any
of our equity shares or if we file an application for listing or a petition to
wind up our affairs voluntarily. As a result, the warrants will be exercisable
upon completion of this offering. Both Satyam Computer Services and SARF have
notified the Company of their intent to exercise the warrants, the exercise
price for which will be equal to 66% of the price to public indicated on the
cover of this prospectus.
Dividends
Under the Companies Act, unless our Board of Directors recommends the
payment of a dividend, we may not declare a dividend. Similarly, under our
Articles, although the shareholders may, at the annual general meeting, approve
a dividend in an amount less than that recommended by the Board, they cannot
increase the amount of the dividend. In India, dividends generally are declared
as a percentage of the par value of a
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<PAGE>
company's equity shares. The dividend recommended by the Board, if any, and
subject to the limitations described above, is distributed and paid to
shareholders in proportion to the paid up value of their shares within 42 days
of the approval by the shareholders at the annual general meeting. Pursuant to
our Articles, our Board has discretion to declare and pay interim dividends
without shareholder approval. With respect to equity shares issued during a
particular fiscal year (including any equity shares underlying ADSs issued to
the depositary in connection with the offering or in the future), cash
dividends declared and paid for such fiscal year generally will be prorated
from the date of issuance to the end of such fiscal year. Under the Companies
Act, dividends can only be paid in cash to the registered shareholder at a
record date fixed on or prior to the annual general meeting or to his order or
his banker's order.
Under the Companies Act, dividends may be paid out of profits of a
company in the year in which the dividend is declared or out of the
undistributed profits of previous fiscal years. Before declaring a dividend
greater than 10% of the par value of its equity shares, a company is required
under the Companies Act to transfer to its reserves a minimum percentage of its
profits for that year, ranging from 2.5% to 10% depending upon the dividend
percentage to be declared in such year. The Companies Act further provides
that, in the event of an inadequacy or absence of profits in any year, a
dividend may be declared for such year out of the company's accumulated
profits, subject to the following conditions:
. the rate of dividend to be declared may not exceed 10% of its paid up
capital or the average of the rate at which dividends were declared
by the company in the prior five years, whichever is less;
. the total amount to be drawn from the accumulated profits earned in
the previous years and transferred to the reserves may not exceed an
amount equivalent to 10% of its paid up capital and free reserves,
and the amount so drawn is to be used first to set off the losses
incurred in the fiscal year before any dividends in respect of
preference or equity shares are declared; and
. the balance of reserves after withdrawals shall not fall below 15% of
its paid up capital.
For additional information, please see "Dividend Policy" on page 26. A
tax of 11%, including the presently applicable surcharge, of the total dividend
declared, distributed or paid for a relevant period is payable by our company.
For additional information, please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 32.
Bonus Shares
In addition to permitting dividends to be paid out of current or retained
earnings as described above, the Companies Act permits us to distribute an
amount transferred from the general reserve or surplus in our profit and loss
account to our shareholders in the form of bonus shares, which are similar to a
stock dividend. The Companies Act also permits the issuance of bonus shares
from a share premium account. Bonus shares are distributed to shareholders in
the proportion recommended by the Board. Shareholders of record on a fixed
record date are entitled to receive such bonus shares.
Preemptive Rights and Issue of Additional Shares
The Companies Act gives shareholders the right to subscribe for new
shares in proportion to their respective existing shareholdings unless
otherwise determined by a special resolution passed by a general meeting of the
shareholders. For approval, this special resolution must be approved by a
number of votes which is not less than three times the number of votes against
the special resolution. If the special resolution is not approved, the new
shares must first be offered to the existing shareholders as of a fixed record
date. The offer must include: (1) the right, exercisable by the shareholders of
record, to renounce the shares offered in favor of any other person; and (2)
the number of shares offered and the period of the offer, which may not be less
than 15 days from the date of offer. If the offer is not accepted it is deemed
to have been declined. Our Board is authorized under the Companies Act to
distribute any new shares not purchased by the preemptive rights holders in the
manner that it deems most beneficial to our company.
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Annual General Meetings of Shareholders
We must convene an annual general meeting of shareholders within six
months after the end of each fiscal year and may convene an extraordinary
general meeting of shareholders when necessary or at the request of a
shareholder or shareholders holding at least 10% of our paid up capital
carrying voting rights. The annual general meeting of the shareholders is
generally convened by our Secretary pursuant to a resolution of the Board.
Written notice setting out the agenda of the meeting must be given at least 21
days (excluding the days of mailing and receipt) prior to the date of the
general meeting to the shareholders of record. Shareholders who are registered
as shareholders on the date of the general meeting are entitled to attend or
vote at such meeting.
The annual general meeting of shareholders must be held at our registered
office or at such other place within the city in which the registered office is
located; meetings other than the annual general meeting may be held at any
other place if so determined by the Board. Our registered office is located at
Mayfair Trade Center, IInd Floor, 1-8-303/36, S.P. Road, Secunderabad 500 003,
India.
Our Articles provide that a quorum for a general meeting is the presence
of at least five shareholders in person.
Voting Rights
At any general meeting, voting is by show of hands unless a poll is
demanded by a shareholder or shareholders present in person or by proxy holding
at least 10% of the total shares entitled to vote on the resolution or by those
holding shares with an aggregate paid up capital of at least Rs.50,000. Upon a
show of hands, every shareholder entitled to vote and present in person has one
vote and, on a poll, every shareholder entitled to vote and present in person
or by proxy has voting rights in proportion to the paid up capital held by such
shareholders. Our Chairman of the Board has a deciding vote in the case of any
tie. For a description of voting of ADSs, please see "Description of American
Depositary Shares--Voting Rights" on page 76.
Any shareholder may appoint a proxy. The instrument appointing a proxy
must be delivered to us at least 48 hours prior to the meeting. A proxy may not
vote except on a poll. A corporate shareholder may appoint an authorized
representative who can vote on behalf of the shareholder, both upon a show of
hands and upon a poll.
Ordinary resolutions may be passed by simple majority of those present
and voting at any general meeting for which the required period of notice has
been given. However, specified resolutions such as amendments to our Articles
and the Memorandum of Association, commencement of a new line of business, the
waiver of preemptive rights for the issuance of any new shares and a reduction
of share capital, require that votes cast in favor of the resolution (whether
by show of hands or poll) are not less than three times the number of votes, if
any, cast against the resolution.
Register of Shareholders; Record Dates; Transfer of Shares
We maintain a register of shareholders. For the purpose of determining
the shares entitled to annual dividends, the register is closed for a specified
period prior to the annual general meeting. The date on which this period
begins is the record date.
To determine which shareholders are entitled to specified shareholder
rights, we may close the register of shareholders. The Companies Act requires
us to give at least seven days' prior notice to the public before such closure.
We may not close the register of shareholders for more than thirty consecutive
days, and in no event for more than forty-five days in a year.
Following the introduction of the Depositories Act, 1996, and the repeal
of Section 22A of the Securities Contracts (Regulation) Act, 1956, which
enabled companies to refuse to register transfers of shares in some
circumstances, the equity shares of a public company are freely transferable,
subject only to the
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provisions of Section 111A of the Companies Act. Since we are a public company,
the provisions of Section 111A will apply to us. Our Articles currently contain
provisions which give our directors discretion to refuse to register a transfer
of shares in some circumstances. According to our Articles, our directors are
required to exercise this right in the best interests of our company. While our
directors are not required to provide a reason for any such refusal in writing,
they must give notice of the refusal to the transferee within one month after
receipt of the application for registration of transfer by our company. In
accordance with the provisions of Section 111A(2) of the Companies Act, our
directors may exercise this discretion if they have sufficient cause to do so.
If our directors refuse to register a transfer of shares, the shareholder
wishing to transfer his, her or its shares may file a civil suit or an appeal
with the Company Law Board, or CLB. Pursuant to Section 111A(3), if a transfer
of shares contravenes any of the provisions of the Securities and Exchange
Board of India Act, 1992 or the regulations issued thereunder or the Sick
Industrial Companies (Special Provisions) Act, 1985 or any other Indian laws,
the CLB may, on application made by the company, a depositary incorporated in
India, an investor, the Securities and Exchange Board of India or other
parties, direct the rectification of the register of records. The CLB may, in
its discretion, issue an interim order suspending the voting rights attached to
the relevant shares before making or completing its investigation into the
alleged contravention. Notwithstanding such investigation, the rights of a
shareholder to transfer the shares will not be restricted.
Under the Companies Act, unless the shares of a company are held in a
dematerialized form, a transfer of shares is effected by an instrument of
transfer in the form prescribed by the Companies Act and the rules thereunder
together with delivery of the share certificates. Our transfer agent is .
Disclosure of Ownership Interest
Section 187C of the Companies Act requires beneficial owners of shares of
Indian companies who are not holders of record to declare to us details of the
holder of record and the holder of record to declare details of the beneficial
owner. Any person who fails to make the required declaration within 30 days may
be liable for a fine of up to Rs.1,000 for each day the declaration is not
made. Any lien, promissory note or other collateral agreement created, executed
or entered into with respect to any equity share by its registered owner, or
any hypothecation by the registered owner of any equity share, shall not be
enforceable by the beneficial owner or any person claiming through the
beneficial owner if such declaration is not made. Failure to comply with
Section 187C will not affect our obligation to register a transfer of shares or
to pay any dividends to the registered holder of any shares pursuant to which
the declaration has not been made. While it is unclear under Indian law whether
Section 187C applies to holders of ADSs, investors who exchange ADSs for the
underlying equity shares will be subject to the restrictions of Section 187C.
Additionally, holders of ADSs may be required to comply with the notification
and disclosure obligations pursuant to the provisions of the deposit agreement
to be entered into by us, such holders and a depositary. For additional
information regarding the deposit agreement, please see "Description of
American Depositary Shares" on page 72.
Audit and Annual Report
At least 21 days before the annual general meeting of shareholders
excluding the days of mailing and receipt, we must distribute to our
shareholders a detailed version of our audited balance sheet and profit and
loss account and the related reports of the Board and the auditors, together
with a notice convening the annual general meeting. Under the Companies Act, we
must file the balance sheet and annual profit and loss account presented to the
shareholders within 30 days of the conclusion of the annual general meeting
with the Registrar of Companies in Andhra Pradesh, India, which is the state in
which our registered office is located. We must also file an annual return
containing a list of our shareholders and other information, within 60 days of
the conclusion of the meeting.
Company Acquisition of Equity Shares
Under the Companies Act, approval of at least 75% of a company's
shareholders voting on the matter and approval of the High Court of the State
in which the registered office of the company is situated is required to reduce
a company's share capital. A company may, under some circumstances, acquire its
own equity shares
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without seeking the approval of the High Court. However, a company would have
to extinguish the shares it has so acquired within the prescribed time period.
A company is not permitted to acquire its own shares for treasury operations.
An acquisition by a company of its own shares (without having to obtain the
approval of the High Court) must comply with prescribed rules, regulations and
conditions as laid down in the Companies Act and the Securities and Exchange
Board of India (Buy-back of Securities) Regulations, 1998, or Buy-back
Regulations. However, the Buy-back Regulations apply only to public companies
listed on a recognized Indian stock exchange and will therefore not apply to
Satyam Infoway. The guidelines for the buy-back of securities by unlisted
companies have not yet been prescribed.
Liquidation Rights
Subject to the rights of creditors, employees and the holders of any
shares entitled by their terms to preferential repayment over the equity
shares, if any, in the event of our winding-up the holders of the equity shares
are entitled to be repaid the amounts of paid up capital or credited as paid up
on those equity shares. All surplus assets after payments due to the holders of
any preference shares at the commencement of the winding-up shall be paid to
holders of equity shares in proportion to their shareholdings.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
Citibank, N.A. will act as the depositary bank for the American
Depositary Shares. Citibank's depositary offices are located at 111 Wall
Street, New York, New York 10005. American Depositary Shares are frequently
referred to as "ADSs" and represent ownership interests in securities that are
on deposit with the depositary bank. ADSs are normally represented by
certificates that are commonly known as American Depositary Receipts or "ADRs."
The depositary bank typically appoints a custodian to safekeep the securities
on deposit. In this case, the custodian is Citibank, N.A.--Mumbai Branch,
located at 81 Dr. Annie Besant Road, Worli, Mumbai India 400 018.
We have appointed Citibank as depositary bank pursuant to a deposit
agreement. A copy of the deposit agreement is on file with the SEC under cover
of a Registration Statement on Form F-6. You may obtain a copy of the deposit
agreement from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
We are providing you with a summary description of the ADSs and your
rights as an owner of ADSs. Please remember that summaries by their nature lack
the precision of the information summarized and that a holder's rights and
obligations as an owner of ADSs will be determined by the deposit agreement and
not by this summary. We urge you to review the deposit agreement in its
entirety as well as the form of ADR attached to the deposit agreement.
Each ADS represents one equity share on deposit with the custodian bank.
An ADS will also represent any other property received by the depositary bank
or the custodian on behalf of the owner of the ADS but that has not been
distributed to the owners of ADSs because of legal restrictions or practical
considerations.
If you become an owner of ADSs, you will become a party to the deposit
agreement and therefore will be bound to its terms and to the terms of the ADR
that represents your ADSs. The deposit agreement and the ADR specify our rights
and obligations as well as your rights and obligations as owner of ADSs and
those of the depositary bank. As an ADS holder you appoint the depositary bank
to act on your behalf in certain circumstances. The deposit agreement is
governed by New York law. However, our obligations to the holders of equity
shares will continue to be governed by the laws of India, which may be
different from the laws in the United States.
As an owner of ADSs, you may hold your ADSs either by means of an ADR
registered in your name or through a brokerage or safekeeping account. If you
decide to hold your ADSs through your brokerage or safekeeping account, you
must rely on the procedures of your broker or bank to assert your rights as ADS
owner. Please consult with your broker or bank to determine what those
procedures are. This summary description assumes you have opted to own the ADSs
directly by means of an ADR registered in your name and, as such, we will refer
to you as the "holder." When we refer to "you," we assume the reader owns new
ADSs and will own ADSs at the relevant time.
Dividends and Distributions
As a holder, you generally have the right to receive the distributions we
make on the securities deposited with the custodian bank. Your receipt of these
distributions may be limited, however, by practical considerations and legal
limitations. Holders will receive such distributions under the terms of the
deposit agreement in proportion to the number of ADSs held as of a specified
record date.
Distributions of Cash
Whenever we make a cash distribution for the securities on deposit with
the custodian, we will notify the depositary bank. Upon receipt of such notice
the depositary bank will arrange for the funds to be converted into U.S.
dollars and for the distribution of the U.S. dollars to the holders.
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The conversion into U.S. dollars will take place only if practicable and
if the U.S. dollars are transferable to the United States. The amounts
distributed to holders will be net of the fees, expenses, taxes and
governmental charges payable by holders under the terms of the deposit
agreement. The depositary will apply the same method for distributing the
proceeds of the sale of any property (such as undistributed rights) held by the
custodian in respect of securities on deposit.
Distributions of Shares
Whenever we make a free distribution of equity shares for the securities
on deposit with the custodian, we will notify the depositary bank. Upon receipt
of such notice, the depositary bank will either distribute to holders new ADSs
representing the equity shares deposited or modify the ADS to equity shares
ratio, in which case each ADS you hold will represent rights and interests in
the additional equity shares so deposited. Only whole new ADSs will be
distributed. Fractional entitlements will be sold and the proceeds of such sale
will be distributed as in the case of a cash distribution.
The distribution of new ADSs or the modification of the ADS-to-Share
ratio upon a distribution of equity shares will be made net of the fees,
expenses, taxes and governmental charges payable by holders under the terms of
the deposit agreement. In order to pay such taxes or governmental charges, the
depositary bank may sell all or a portion of the new equity shares so
distributed.
No such distribution of new ADSs will be made if it would violate a law
(e.g., the U.S. securities laws) or if it is not operationally practicable. If
the depositary bank does not distribute new ADSs as described above, it will
use its best efforts to sell the equity shares received and will distribute the
proceeds of the sale as in the case of a distribution of cash.
Distributions of Rights
Whenever we intend to distribute rights to purchase additional equity
shares, we will give prior notice to the depositary bank and we will assist the
depositary bank in determining whether it is lawful and reasonably practicable
to distribute rights to purchase additional ADSs to holders.
The depositary bank will establish procedures to distribute rights to
purchase additional ADSs to holders and to enable such holders to exercise such
rights if it is lawful and reasonably practicable to make the rights available
to holders of ADSs, and if we provide all of the documentation contemplated in
the deposit agreement (such as opinions to address the lawfulness of the
transaction). You may have to pay fees, expenses, taxes and other governmental
charges to subscribe for the new ADSs upon the exercise of your rights. The
depositary bank is not obligated to establish procedures to facilitate the
distribution and exercise by holders of rights to purchase new equity shares
directly rather than new ADSs.
The depositary bank will not distribute the rights to you if:
. we do not request that the rights be distributed to you or we ask
that the rights not be distributed to you;
. we fail to deliver satisfactory documents to the depositary bank; or
. it is not reasonably practicable to distribute the rights.
The depositary bank will sell the rights that are not exercised or not
distributed if such sale is lawful and reasonably practicable. The proceeds of
such sale will be distributed to holders as in the case of a cash distribution.
If the depositary bank is unable to sell the rights, it will allow the rights
to lapse.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of
shareholders either in cash or in additional shares, we will give prior notice
thereof to the depositary bank and will indicate whether we wish the
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elective distribution to be made available to you. In such case, we will assist
the depositary bank in determining whether such distribution is lawful and
reasonably practical.
The depositary bank will make the election available to you only if it is
reasonably practical and if we have provided all of the documentation
contemplated in the deposit agreement. In such case, the depositary bank will
establish procedures to enable you to elect to receive either cash or
additional ADSs, in each case as described in the deposit agreement.
If the election is not made available to you, you will receive either
cash or additional ADSs, depending on what a shareholder in India would receive
for failing to make an election, as more fully described in the deposit
agreement.
Other Distributions
Whenever we intend to distribute property other than cash, equity shares
or rights to purchase additional equity shares, we will notify the depositary
bank in advance and will indicate whether we wish such distribution to be made
to you. If so, we will assist the depositary bank in determining whether such
distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to you and if
we provide all of the documentation contemplated in the deposit agreement, the
depositary bank will distribute the property to the holders in a manner it
deems practicable.
The distribution will be made net of fees, expenses, taxes and
governmental charges payable by holders under the terms of the deposit
agreement. In order to pay such taxes and governmental charges, the depositary
bank may sell all or a portion of the property received.
The depositary bank will not distribute the property to you and will sell
the property if:
. we do not request that the property be distributed to you or if we
ask that the property not be distributed to you;
. we do not deliver satisfactory documents to the depositary bank; or
. the depositary bank determines that all or a portion of the
distribution to you is not reasonably practicable.
The proceeds of such a sale will be distributed to holders as in the case
of a cash distribution.
Redemption
Whenever we decide to redeem any of the securities on deposit with the
custodian, we will notify the depositary bank. If it is reasonably practicable
and if we provide all of the documentation contemplated in the deposit
agreement, the depositary bank will mail notice of the redemption to the
holders.
The custodian will be instructed to surrender the shares being redeemed
against payment of the applicable redemption price. The depositary bank will
convert the redemption funds received into U.S. dollars upon the terms of the
deposit agreement and will establish procedures to enable holders to receive
the net proceeds from the redemption upon surrender of their ADSs to the
depositary bank. You may have to pay fees, expenses, taxes and other
governmental charges upon the redemption of your ADSs. If less than all ADSs
are being redeemed, the ADSs to be retired will be selected by lot or on a pro
rata basis, as the depositary bank may determine.
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Changes Affecting Equity Shares
The equity shares held on deposit for your ADSs may change from time to
time. For example, there may be a change in nominal or par value, a split-up,
cancellation, consolidation or classification of such equity shares or a
recapitalization, reorganization, merger, consolidation or sale of assets.
If any such change were to occur, your ADSs would, to the extent
permitted by law, represent the right to receive the property received or
exchanged in respect of the equity shares held on deposit. The depositary bank
may in such circumstances deliver new ADSs to you or call for the exchange of
your existing ADSs for new ADSs. If the depositary bank may not lawfully
distribute such property to you, the depositary bank may sell such property and
distribute the net proceeds to you as in the case of a cash distribution.
Issuance of ADSs upon Deposit of Equity Shares
Under current Indian laws and regulations, the depositary cannot accept
deposits of outstanding equity shares and issue ADRs evidencing ADSs
representing such equity shares without prior approval of the government of
India. If you elect to surrender your ADSs and receive equity shares, under
current Indian laws and regulations, you will be prohibited from re-depositing
those outstanding equity shares with our depositary without prior approval of
the government of India. For additional information, please see "Risk Factors--
Foreign investment restrictions and the lack of a public market for our equity
shares may impact the value of our ADSs" and "--This offering may not result in
an active or liquid market for the ADSs."
If permitted under applicable law, the depositary bank may create ADSs on
your behalf if you or your broker deposit equity shares with the custodian. The
depositary bank will deliver these ADSs to the person you indicate only after
you obtain all necessary government approvals and pay any applicable issuance
fees and any charges and taxes payable for the transfer of the equity shares to
the custodian.
The issuance of ADSs may be delayed until the depositary bank or the
custodian receives confirmation that all required approvals have been given and
that the equity shares have been duly transferred to the custodian. The
depositary bank will only issue ADSs in whole numbers.
If you are permitted to make a deposit of equity shares, you will be
responsible for transferring good and valid title to the depositary bank. As
such, you will be deemed to represent and warrant that:
. the equity shares are duly authorized, validly issued, fully paid,
non-assessable and legally obtained;
. all preemptive (and similar) rights, if any, with respect to such
equity shares have been validly waived or exercised;
. you are duly authorized to deposit the equity shares;
. the equity shares presented for deposit are free and clear of any
lien, encumbrance, security interest, charge, mortgage or adverse
claim, and are not, and the ADSs issuable upon such deposit will not
be, "restricted securities" (as defined in the deposit agreement);
and
. the equity shares presented for deposit have not been stripped of any
rights or entitlements.
If any of the representations or warranties are incorrect in any way, we
and the depositary bank may, at your cost and expense, take any and all actions
necessary to correct the consequences of the misrepresentations.
Withdrawal of Shares Upon Cancellation of ADSs
As a holder, you will be entitled to present your ADSs to the depositary
bank for cancellation and then receive the underlying equity shares at the
custodian's offices. In order to withdraw the equity shares
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represented by your ADSs, you will be required to pay to the depositary the
fees for cancellation of ADSs and any charges and taxes payable upon the
transfer of the equity shares being withdrawn. You assume the risk for delivery
of all funds and securities upon withdrawal. Once canceled, the ADSs will not
have any rights under the deposit agreement.
If you hold an ADR registered in your name, the depositary bank may ask
you to provide proof of identity and genuineness of any signature and certain
other documents as the depositary bank may deem appropriate before it will
cancel your ADSs. The withdrawal of the equity shares represented by your ADSs
may be delayed until the depositary bank receives satisfactory evidence of
compliance with all applicable laws and regulations. Please keep in mind that
the depositary bank will only accept ADSs for cancellation that represent a
whole number of securities on deposit.
You will have the right to withdraw the securities represented by your
ADSs at any time except for:
. Temporary delays that may arise because (i) the transfer books for
the equity shares or ADSs are closed, or (ii) equity shares are
immobilized on account of a shareholders' meeting or a payment of
dividends.
. Obligations to pay fees, taxes and similar charges.
. Restrictions imposed because of laws or regulations applicable to
ADSs or the withdrawal of securities on deposit.
The deposit agreement may not be modified to impair your right to
withdraw the securities represented by your ADSs except to comply with
mandatory provisions of law.
Voting Rights
As a holder, you generally have the right under the deposit agreement to
instruct the depositary bank to exercise the voting rights for the equity
shares represented by your ADSs. The voting rights of holders of equity shares
are described in "Description of Equity Shares--Voting Rights."
At our request, the depositary bank will mail to you any notice of
shareholders' meeting received from us together with information explaining how
to instruct the depositary bank to exercise the voting rights of the securities
represented by ADSs.
If the depositary bank timely receives voting instructions from a holder
of ADSs, it will endeavor to vote the securities represented by the holder's
ADSs in accordance with such voting instructions.
Please note that the ability of the depositary bank to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. We cannot assure you that you will receive voting
materials in time to enable you to return voting instructions to the depositary
bank in a timely manner. Securities for which no voting instructions have been
received will not be voted.
Fees and Charges
As an ADS holder, you will be required to pay the following service fees
to the depositary bank:
<TABLE>
<CAPTION>
Service Fees
------- ----
<S> <C>
Issuance of ADSs Up to 5c per ADS issued
Cancellation of ADSs Up to 5c per ADS canceled
Exercise of rights to purchase Up to 5c per ADS issued
additional ADSs
Distribution of cash upon sale Up to 2c per ADS held
of rights and other entitlements
</TABLE>
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As an ADS holder you will also be responsible to pay certain fees and
expenses incurred by the depositary bank and certain taxes and governmental
charges such as:
. fees for the transfer and registration of equity shares (i.e., upon
deposit and withdrawal of equity shares);
. expenses incurred for converting foreign currency into U.S. dollars;
. expenses for cable, telex and fax transmissions and for delivery of
securities; and
. Taxes and duties upon the transfer of securities (i.e., when equity
shares are deposited or withdrawn from deposit).
We have agreed to pay certain other charges and expenses of the
depositary bank. Note that the fees and charges you may be required to pay may
vary over time and may be changed by us and by the depositary bank. You will
receive prior notice of such changes.
Amendments and Termination
We may agree with the depositary bank to modify the deposit agreement at
any time without your consent. We undertake to give holders 30 days' prior
notice of any modifications that would prejudice any of their substantial
rights under the deposit agreement (except in very limited circumstances
enumerated in the deposit agreement).
You will be bound by the modifications to the deposit agreement if you
continue to hold your ADSs after the modifications to the deposit agreement
become effective. The deposit agreement cannot be amended to prevent you from
withdrawing the equity shares represented by your ADSs (except as permitted by
law).
We have the right to direct the depositary bank to terminate the deposit
agreement. Similarly, the depositary bank may in certain circumstances on its
own initiative terminate the deposit agreement. In either case, the depositary
bank must give notice to the holders at least 30 days before termination.
Upon termination, the following will occur under the deposit agreement:
. For a period of six months after termination, you will be able to
request the cancellation of your ADSs and the withdrawal of the
equity shares represented by your ADSs and the delivery of all other
property held by the depositary bank in respect of those equity
shares on the same terms as prior to the termination. During such six
months' period the depositary bank will continue to collect all
distributions received on the equity shares on deposit (i.e.,
dividends) but will not distribute any such property to you until you
request the cancellation of your ADSs.
. After the expiration of such six months' period, the depositary bank
may sell the securities held on deposit. The depositary bank will
hold the proceeds from such sale and any other funds then held for
the holders of ADSs in a non-interest bearing account. At that point,
the depositary bank will have no further obligations to holders other
than to account for the funds then held for the holders of ADSs still
outstanding.
Books of Depositary
The depositary bank will maintain ADS holder records at its depositary
office. You may inspect such records at such office during regular business
hours but solely for the purpose of communicating with other holders in the
interest of business matters relating to the ADSs and the deposit agreement.
The depositary bank will maintain in New York facilities to record and
process the issuance, cancellation, combination, split-up and transfer of ADRs.
These facilities may be closed from time to time, to the extent not prohibited
by law.
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Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositary bank's
obligations to you. Please note the following:
. We and the depositary bank are obligated only to take the actions
specifically stated in the depositary agreement without negligence or
bad faith.
. The depositary bank disclaims any liability for any failure to carry
out voting instructions, for any manner in which a vote is cast or
for the effect of any vote, provided it acts in good faith and in
accordance with the terms of the deposit agreement.
. The depositary bank disclaims any liability for any failure to
determine the lawfulness or practicality of any action, for the
content of any document forwarded to you on our behalf or for the
accuracy of any translation of such a document, for the investment
risks associated with investing in equity shares, for the validity or
worth of the equity shares, for any tax consequences that result from
the ownership of ADSs, for the credit worthiness of any third party,
for allowing any rights to lapse under the terms of the deposit
agreement, for the timeliness of any of our notices or for our
failure to give notice.
. We and the depositary bank will not be obligated to perform any act
that is inconsistent with the terms of the deposit agreement.
. We and the depositary bank disclaim any liability if we are prevented
or forbidden from acting on account of any law or regulation, any
provision of our Articles of Association or Memorandum of
Association, any provision of any securities on deposit or by reason
of any act of God or war or other circumstances beyond our control.
. We and the depositary bank disclaim any liability by reason of any
exercise of, or failure to exercise, any discretion provided for the
deposit agreement or in our Articles of Association or Memorandum of
Association or in any provisions of securities on deposit.
. We and the depositary bank further disclaim any liability for any
action or inaction in reliance on the advice or information received
from legal counsel, accountants, any person presenting equity shares
for deposit, any holder of ADSs or authorized representative thereof,
or any other person believed by either of us in good faith to be
competent to give such advice or information.
. We and the depositary bank also disclaim liability for the inability
by a holder to benefit from any distribution, offering, right or
other benefit which is made available to holders equity shares but is
not, under the terms of the deposit agreement, made available to you.
. We and the depositary bank may rely without any liability upon any
written notice, request or other document believed to be genuine and
to have been signed or presented by the proper parties.
Pre-Release Transactions
The depositary bank may, in certain circumstances, issue ADSs before
receiving a deposit of equity shares or release equity shares before receiving
ADSs. These transactions are commonly referred to as "pre-release
transactions." The deposit agreement limits the aggregate size of pre-release
transactions and imposes a number of conditions on such transactions (i.e., the
need to receive collateral, the type of collateral required, the
representations required from brokers, etc.). The depositary bank may retain
the compensation received from the pre-release transactions.
Taxes
You will be responsible for the taxes and other governmental charges
payable on the ADSs and the securities represented by the ADSs. We, the
depositary bank and the custodian may deduct from any
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distribution the taxes and governmental charges payable by holders and may sell
any and all property on deposit to pay the taxes and governmental charges
payable by holders. You will be liable for any deficiency if the sale proceeds
do not cover the taxes that are due.
The depositary bank may refuse to issue ADSs, to deliver transfer, split
and combine ADRs or to release securities on deposit until all taxes and
charges are paid by the applicable holder. The depositary bank and the
custodian may take reasonable administrative actions to obtain tax refunds and
reduced tax withholding for any distributions on your behalf. However, you may
be required to provide to the depositary bank and to the custodian proof of
taxpayer status and residence and such other information as the depositary bank
and the custodian may require to fulfill legal obligations. You are required to
indemnify us, the depositary bank and the custodian for any claims with respect
to taxes based on any tax benefit obtained for you.
Foreign Currency Conversion
The depositary bank will arrange for the conversion of all foreign
currency received into U.S. dollars if such conversion is practical, and it
will distribute the U.S. dollars in accordance with the terms of the deposit
agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency
exchange controls and other governmental requirements.
If the conversion of foreign currency is not practical or lawful, or if
any required approvals are denied or not obtainable at a reasonable cost or
within a reasonable period, the depositary bank may take the following actions
in its discretion:
. convert the foreign currency to the extent practical and lawful and
distribute the U.S. dollars to the holders for whom the conversion
and distribution is lawful and practical;
. distribute the foreign currency to holders for whom the distribution
is lawful and practical; and
. hold the foreign currency (without liability for interest) for the
applicable holders.
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RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES
Foreign investment in Indian securities is regulated by the Foreign
Exchange Regulation Act, 1973. Under Section 29(1)(b) of the Foreign Exchange
Regulation Act, no person or company resident outside India that is not
incorporated in India (other than a banking company) can purchase the shares of
any company carrying on any trading, commercial or industrial activity in India
without the permission of the Reserve Bank of India. Also, under Section
19(1)(d) of the Foreign Exchange Regulation Act, the transfer and issuance of
any security of any Indian company to a person resident outside India requires
the permission of the Reserve Bank of India. Under Section 19(5) of the Foreign
Exchange Regulation Act, no transfer of shares in a company registered in India
by a non-resident to a resident of India is valid unless the transfer is
confirmed by the Reserve Bank of India upon application filed by the transferor
or the transferee. Furthermore, the issuance of rights and other distributions
of securities to a non-resident also requires the prior consent of the Reserve
Bank of India. The Reserve Bank of India has issued notifications over the past
few years relating the restrictions on foreign investment in Indian companies.
These notifications have provided that foreign investment in high priority
industries do not require prior approval of the Reserve Bank of India under
some conditions. Under these circumstances, a post-investment declaration is
required to be filed with the Reserve Bank of India. The Reserve Bank of India
has granted an exemption from application of some of these provisions in
connection with this offering. For additional information, please see
"Government of India Approvals" on page 84.
General
Shares of Indian companies represented by ADSs are required to be
approved for issuance to foreign investors by the Ministry of Finance under the
Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through
Depositary Receipt Mechanism) Scheme, 1993, as modified from time to time,
notified by the government of India. The Issue of Foreign Currency Convertible
Bonds and Ordinary Shares Scheme is distinct from other policies or facilities,
as described below, relating to investments in Indian companies by foreign
investors. The issuance of ADSs pursuant to the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares Scheme also affords to holders of ADSs
the benefits of Section 115AC of the Indian Income-tax Act, 1961 for purposes
of the application of Indian tax law. For additional information, please see
"Taxation--Indian Taxation" on page 86.
Foreign Direct Investment
In July 1991, the government of India commenced the liberalization
process and raised the limit on foreign equity holdings in Indian companies
from 40% to 51% in high priority industries. The Foreign Investment Promotion
Board currently under the Ministry of Industry of the government of India was
thereafter formed to negotiate with large foreign companies wishing to make
long-term investments in India. Since then, the government of India has relaxed
the restrictions on foreign investment considerably. Our business is not deemed
to be a high priority industry. As a result, the maximum foreign equity
investment in an Indian company operating as an Internet service provider is
49%.
Under current Indian law, no prior approval of the Reserve Bank of India
or the Foreign Investment Promotion Board is required in respect of foreign
equity participation up to 50%, 51%, 74% or 100%, depending on industry
category, in high priority industries in a new issue of shares, including the
purchase of ADSs representing equity securities issued by Indian companies.
However, within a period of 30 days from the date of the investment being made,
a declaration in the prescribed form is required to be filed with the Reserve
Bank of India. For foreign direct investment in the high priority industries in
excess of 50%, 51% or 74% (depending on the category of industry) or in the
industries in which direct foreign investment is permitted up to 100%, or for
any issue of equity securities to foreign investors by a company not in a high-
priority industry, approval of the Foreign Investment Promotion Board is
required if the amount of investment is up to Rs.6 billion ($142.9 million).
Proposals in excess of Rs.6 billion ($142.9 million) require the approval of
the Cabinet Committee on Foreign Investment. Proposals involving the public
sector and other sensitive areas require the approval of Cabinet Committee on
Economic Affairs. These facilities are designed for foreign direct
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investments by non-residents of India who are not non-resident Indians,
overseas corporate bodies or foreign institutional investors, all of which we
refer to as foreign direct investors, and do not include transfers of shares
from residents to non-residents. The Department of Industrial Policy and
Promotion, a part of the Ministry of Industry, issued detailed guidelines in
January 1997 for consideration of foreign direct investment proposals by the
Foreign Investment Promotion Board. Under these guidelines, sector specific
guidelines for foreign direct investment and the levels of permitted equity
participation have been established. The issues to be considered by the Foreign
Investment Promotion Board and the Foreign Investment Promotion Board's areas
of priority in granting approvals are also set out in the guidelines. The basic
objective of the guidelines is to improve the transparency and objectivity of
the Foreign Investment Promotion Board's consideration of proposals. However,
because the guidelines are administrative and have not been codified as either
law or regulations, they are not legally binding with respect to any
recommendation made by the Foreign Investment Promotion Board or with respect
to any decision taken by the government of India in cases involving foreign
direct investment.
The high priority industries referred to above are classified into the
following four categories under Annexure III to the New Industrial Policy,
1991:
. Part A lists three industries, comprised mainly of mining-related
industries, in which up to 50% foreign equity participation is
permitted;
. Part B lists 21 industries, including software development,
agricultural production, food product manufacturing, textile
products, paper and basic chemicals, in which up to 51% foreign
equity participation is permitted;
. Part C lists seven industries, including medical equipment
manufacturing, iron ore manufacturing, land transport, water
transport and storage and warehousing services, in which up to 74%
foreign equity participation is permitted; and
. Part D lists two industries, including electricity generation,
transmission and distribution and construction, in which up to 100%
foreign equity participation is permitted.
In May 1994, the government of India announced that purchases by foreign
investors of ADSs and foreign currency convertible bonds of Indian companies
will be treated as foreign direct investment in the equity issued by Indian
companies for such offerings. Therefore, offerings that involve the issuance of
equity that results in foreign direct investors holding more than the
stipulated percentage of foreign direct investments (which depends on the
category of industry) in high priority industries or for any issue of equity to
foreign investors by companies not in high priority industries, would require
approval from the Foreign Investment Promotion Board. In addition, in
connection with offerings of any such securities to foreign investors, approval
of the Foreign Investment Promotion Board is required for Indian companies
whether or not the stipulated percentage limit would be reached, if the
proceeds therefrom are to be used for investment in non-high priority
industries. With respect to the activities of our company, Foreign Investment
Promotion Board approval is required for any foreign direct investment in our
stock. As a result, we will require Foreign Investment Promotion Board approval
before allotting the equity shares underlying the ADSs.
In November 1998, the Reserve Bank of India issued a notification to the
effect that foreign investment in preferred shares will be considered as part
of the share capital of a company and the provisions relating to foreign direct
investment in the equity shares of a company discussed above would apply.
Accordingly, no prior approval of the Reserve Bank of India or the Foreign
Investment Promotion Board would be required in respect of foreign investment
in the preferred stock of an Indian company up to 50%, 51%, 74% or 100% in high
priority industries. All other proposals for foreign investment in the
preferred stock of an Indian company will be processed by the Foreign
Investment Promotion Board. Investments in preferred shares are included as
foreign direct investment for the purposes of sectoral caps on foreign equity,
if such preferred shares carry a conversion option. If the preferred shares are
structured without a conversion option, they would fall outside the foreign
direct investment limit.
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Notwithstanding the foregoing, the terms of our Internet service provider
license provide that the maximum total foreign equity investment in our company
is 49%.
Investment by Non-Resident Indians and Overseas Corporate Bodies Owned At Least
60% By Non-Resident Indians
A variety of special facilities for making investments in India in shares
of Indian companies is available to individuals of Indian nationality or origin
residing outside India, or non-resident Indians, and to overseas corporate
bodies, at least 60% owned by such persons, or overseas corporate bodies. These
facilities permit non-resident Indians and overseas corporate bodies to make
portfolio investments in shares and other securities of Indian companies on a
basis not generally available to other foreign investors. These facilities are
different and distinct from investments by foreign direct investors described
above.
Apart from portfolio investments in Indian companies, non-resident
Indians and overseas corporate bodies may also invest in Indian companies
through foreign direct investments. For additional information, please see "--
Foreign Direct Investment" on page 80. Under the foreign direct investment
rules, non-resident Indians and overseas corporate bodies may invest up to 100%
in high-priority industries in which other foreign investors are permitted to
invest only up to 50%, 51%, 74% or 100%, depending on the industry category.
Investment by Foreign Institutional Investors
In September 1992, the government of India issued guidelines which enable
foreign institutional investors, including institutions such as pension funds,
investment trusts, asset management companies, nominee companies and
incorporated/institutional portfolio managers, to make portfolio investments in
all the securities traded on the primary and secondary markets in India. Under
the guidelines, foreign institutional investors must obtain an initial
registration from the Securities and Exchange Board of India and a general
permission from the Reserve Bank of India to engage in transactions regulated
under the Foreign Exchange Regulation Act. Foreign institutional investors must
also comply with the provisions of the Securities and Exchange Board of India
(Foreign Institutional Investors) Regulations, 1995. When it receives the
initial registration, the foreign institutional investor also obtains general
permission from the Reserve Bank of India to engage in transactions regulated
under the Foreign Exchange Regulation Act. Together, the initial registration
and the Reserve Bank of India's general permission enable the registered
foreign institutional investor to buy, subject to the ownership restrictions
discussed below, and sell freely securities issued by Indian companies whether
or not they are listed, to realize capital gains on investments made through
the initial amount invested in India, to subscribe or renounce rights offerings
for shares, to appoint a domestic custodian for custody of investments held and
to repatriate the capital, capital gains, dividends, income received by way of
interest and any compensation received towards sale or renunciation of rights
offerings of shares.
Apart from making portfolio investments in Indian companies as described
above, foreign institutional investors may make direct foreign investments in
Indian companies. For additional information, please see "--Foreign Direct
Investment" on page 80.
Ownership Restrictions
The Securities and Exchange Board of India and Reserve Bank of India
regulations restrict portfolio investments in Indian companies by foreign
institutional investors, non-resident Indians and overseas corporate bodies,
all of which we refer to as foreign portfolio investors. The Reserve Bank of
India issued a circular in August 1998 stating that foreign institutional
investors in aggregate may hold no more than 30% of the equity shares of an
Indian company and non-resident Indians and overseas corporate bodies in
aggregate may hold no more than 10% of the shares of an Indian company through
portfolio investments. The Reserve Bank of India circular also states that no
single foreign institutional investor may hold more than 10% of the shares of
an Indian company and no single non-resident Indian or overseas corporate body
may hold more than 5% of the shares of an Indian company. The Foreign
Investment Promotion Board guidelines issued by the Foreign
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Investment Promotion Board in January 1997 state that the total cap on foreign
investment in the telecommunications sector would be 49%. The Guidelines and
General Information for Internet Service Provider announced by the Telecom
Commission of the government of India in November 1998 also state that the
total foreign equity investment in a company acting as an Internet service
provider would be capped at 49%. This cap of 49% applies to foreign equity
investment by foreign portfolio investors and foreign direct investors in our
company.
There is uncertainty under Indian law about the tax regime applicable to
foreign institutional investors that hold and trade ADSs. Foreign institutional
investors are urged to consult with their Indian legal and tax advisers about
the relationship between the foreign institutional investor regulations and the
ADSs and any equity shares withdrawn upon surrender of ADSs.
More detailed provisions relating to foreign institutional investor
investment have been introduced by the Securities and Exchange Board of India
with the introduction of the foreign institutional investor Regulations in
1995. These provisions relate to the registration of foreign institutional
investors, their general obligations and responsibilities and investment
conditions and restrictions. One such restriction is that unless the foreign
institutional investor is registered as a debt fund with the Securities and
Exchange Board of India the total investment in equity and equity-related
instruments should not be less than 70% of the aggregate of all investments of
an foreign institutional investor in India.
Under the Securities and Exchange Board of India (Substantial Acquisition
of Shares and Takeovers) Regulations, 1997 approved by the Securities and
Exchange Board of India in January 1997 and notified by the government of India
in February 1997, which replaced the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 1994, upon the
acquisition of more than 5% of the outstanding shares or voting rights of a
listed public Indian company, a purchaser is required to notify the company and
the company and the purchaser are required to notify all the stock exchanges on
which the shares of such company are listed. Upon the acquisition of 15% or
more of such shares or voting rights or a change in control of the company, the
purchaser is required to make an open offer to the other shareholders offering
to purchase at least 20% of all the outstanding shares of the company at a
minimum offer price as determined pursuant to the new regulations. Upon
conversion of ADSs into equity shares, an ADS holder will be subject to the new
regulations. However, since Satyam Infoway is an unlisted company, the
provisions of the new regulations will not apply to us. If our shares are
listed on an Indian stock exchange in the future, the new regulations will
apply to the holders of our ADSs.
Open market purchases of securities of Indian companies in India by
foreign direct investors or investments by non-resident Indians, overseas
corporate bodies and foreign institutional investors above the ownership levels
set forth above require government of India approval on a case-by-case basis.
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GOVERNMENT OF INDIA APPROVALS
The Ministry of Finance and the Ministry of Industry of the government of
India and the Reserve Bank of India have approved this offering. In addition,
we have obtained the required approval from the Ministry of Finance to enter
into the underwriting agreements and the depository agreement referred to
elsewhere in this prospectus. Various tax concessions are expected to be
available with respect to this offering in accordance with the provisions of
Section 115AC of the Indian Income-tax Act, 1961. Copies of the approvals from
the Ministry of Industry and the Reserve Bank of India will be made available
for public inspection at our corporate office or provided upon written request
to our Chief Financial Officer. For additional information, please see
"Taxation--Indian Taxation" on page 86.
The Reserve Bank of India has granted our company general approvals which
permit:
. foreign investors to acquire ADSs and equity shares issued by us;
. us to issue the ADSs and transfer and register the equity shares in
the name of the depositary or its nominee;
. us to remit dividends on the equity shares issued by us and
represented by ADSs at market rates, as and when due subject to the
payment of any applicable Indian taxes;
. us to issue any rights or bonus equity shares represented by the ADSs
issued by us;
. us to repatriate in free foreign exchange the proceeds of a sale of
the equity shares received upon surrender of ADSs and any rights or
bonuses that may accrue in respect of the equity shares, subject to
applicable Indian taxes;
. us to export the equity shares from India for transfer thereof
outside of India upon withdrawal from the depositary facility; and
. the free transfer of the ADSs issued by us outside India between non-
residents of India.
Specific approval of the Reserve Bank of India will have to be obtained,
however, for the sale of the underlying equity shares by a person resident
outside India to a person resident in India as well as for any renunciation of
rights to a person resident in India. Pursuant to the Indian Foreign Exchange
Regulation Act, 1973, a person resident in India is: (1) a citizen of India who
has not left India with an intention of staying outside India; and (2) a non-
citizen of India who stays in India for a purpose indicating an intention to
stay in India. Transfers of securities in Indian companies from a person
resident outside India to a person resident in India require approval from the
Reserve Bank of India under Section 19(5) of the Foreign Exchange Regulation
Act. Currently, however, no prior approval of the Reserve Bank of India is
required in respect of such sales if the company whose shares are being sold is
listed in India and if such sales are made in the stock market through a
registered Indian broker and through a recognized stock exchange in India at
prevailing market rates. In such cases, the sale proceeds may be repatriated
after payment of applicable taxes and stamp duties. Since the equity shares of
Satyam Infoway are not presently listed in India, however, the prior approval
of the Reserve Bank of India will be required for a person resident outside
India who is a shareholder in our company to sell his equity shares in our
company to a person resident in India. The Reserve Bank of India will approve
the price at which the shares can be sold based on a formula. Because the sale
would result in an outflow of foreign exchange, the Reserve Bank of India would
generally not approve a price higher than that arrived at by using the formula.
For additional information, please see "Taxation--Indian Taxation--Taxation of
Distributions" on page 86.
Any person resident outside India desiring to sell equity shares received
upon surrender of ADSs or otherwise transfer such equity shares within India
should seek the advice of Indian counsel as to the requirements applicable at
that time. The Reserve Bank of India has approved the free transferability of
our ADSs outside India between two non-residents. However, under current Indian
law, the sale and transfer of our equity shares withdrawn from the depositary
to any person resident in India would require additional approvals to be
obtained from the Reserve Bank of India. Under current regulations and
practice, since we are not listed
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on any recognized stock exchange in India, a person resident outside of India
intending to sell our securities within India or to a person resident in India
is required to apply for Reserve Bank of India approval by submitting a Form
TS1, which requires information as to the transferor, transferee, the
shareholding structure of our company, the proposed sale price per share and
other information. The proceeds from such transfers may be transferred outside
India after payment of applicable taxes and stamp duties. The Reserve Bank of
India will approve the price at which shares are to be transferred from a non-
resident holder of shares in our company to a person resident in India based on
a formula. The Reserve Bank of India is not required to respond to a Form TS1
application within any specific time period and may grant or deny the
application in its discretion.
Prior to the effectiveness of the registration statement of which this
prospectus is a part, we will receive the approval of the Department of Company
Affairs to the effect that we are not required to file this prospectus under
the Companies Act. The Ministry of Finance may request that a copy of this
prospectus be filed with the Securities and Exchange Board of India and the
Registrar of Companies in Andhra Pradesh, which is the state in India where our
registered office is located.
The equity shares issued and outstanding prior to the offering are not
listed on any Indian stock exchanges, and no such listing is presently planned.
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TAXATION
Indian Taxation
General. The following is based on the opinion of M.G. Ramachandran
regarding the principal Indian tax consequences for holders of ADSs and equity
shares received upon withdrawal of such equity shares who are not resident in
India, whether of Indian origin or not. We refer to these persons as non-
resident holders. The following is based on the provisions of the Income-tax
Act, 1961, including the special tax regime contained in Section 115AC and the
Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through
Depository Receipt Mechanism) Scheme, 1993. The Income-tax Act is amended every
year by the Finance Act of the relevant year. Some or all of the tax
consequences of the Section 115AC may be amended or changed by future
amendments of the Income-tax Act.
This opinion is not intended to constitute a complete analysis of the
individual tax consequences to non-resident holders under Indian law for the
acquisition, ownership and sale of ADSs and equity shares by non-resident
holders. Personal tax consequences of an investment may vary for non-resident
holders in various circumstances and potential investors should therefore
consult their own tax advisers on the tax consequences of such acquisition,
ownership and sale, including specifically the tax consequences under the law
of the jurisdiction of their residence and any tax treaty between India and
their country of residence.
Residence. For purposes of the Income-tax Act, an individual is
considered to be a resident of India during any fiscal year if he or she is in
India in that year for:
. a period or periods amounting to 182 days or more; or
. 60 days or more and, in case of a citizen of India or a person of
Indian origin, who, being outside India, comes on a visit to India,
is in India for 182 days or more effective April 1, 1995 and in each
case within the four preceding years has been in India for a period
or periods amounting to 365 days or more.
A company is a resident of India if it is registered in India or the control
and the management of its affairs is situated wholly in India. Individuals and
companies that are not residents of India would be treated as non-residents for
purposes of the Income-tax Act.
Taxation of Distributions. Pursuant to the Finance Act, 1997, withholding
tax on dividends paid to shareholders no longer applies. However, the company
paying the dividend would be subject to a dividend distribution tax of 11%
including the presently applicable surcharge, of the total amount it
distributes, declares or pays as a dividend. This dividend distribution tax is
in addition to the normal corporate tax of 38.5%, including the presently
applicable surcharge. The surcharge was introduced by the Finance Act, 1999.
Any distributions of additional ADSs, equity shares or rights to
subscribe for equity shares made to non-resident holders with respect to ADSs
or equity shares will not be subject to Indian tax.
Taxation of Capital Gains. Any gain realized on the sale of our ADSs or
equity shares by a non-resident holder to any non-resident outside India is not
subject to Indian capital gains tax. However, because subscription rights are
not expressly covered by the Section 115AC, it is unclear, and M.G.
Ramachandran is therefore unable to give an opinion, as to whether capital gain
derived from the sale of subscription rights by a non-resident holder not
entitled to an exemption under a tax treaty to any non-resident outside India
will be subject to Indian capital gains tax. If such subscription rights are
deemed by the Indian tax authorities to be situated within India, the gains
realized on the sale of such subscription rights will be subject to customary
Indian taxation on capital gains as discussed below.
Since the offering has been approved by the government of India under the
Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, non-
resident holders of the ADSs will have the benefit of tax concessions available
under Section 115AC. The effect of the Scheme in the context of Section 115AC
is
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unclear, and M.G. Ramachandran is therefore unable to give an opinion, as to
whether such tax treatment is available to a non-resident who acquires equity
shares outside India from a non-resident holder of equity shares after receipt
of the equity shares upon surrender of the ADSs. If concessional tax treatment
is not available, gains realized on the sale of such equity shares will be
subject to customary Indian taxation on capital gains as discussed below. The
Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme provides
that if the equity shares are sold on a recognized stock exchange in India
against payment in Indian rupees, they will no longer be eligible for such
concessional tax treatment.
Subject to any relief provided pursuant to an applicable tax treaty, any
gain realized on the sale of equity shares to an Indian resident or inside
India generally will be subject to Indian capital gains tax which is to be
withheld at the source by the buyer. Under the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares Scheme, the cost of acquisition of equity
shares received in exchange for ADSs will be the cost of the underlying shares
on the date that the depositary gives notice to the custodian of the delivery
of the equity shares in exchange for the corresponding ADSs. In the case of
companies listed in India, the cost of acquisition of the equity shares would
be the price of the equity shares prevailing on the Stock Exchange, Mumbai or
the National Stock Exchange on the date the depositary gives notice to the
custodian of the delivery of the equity shares in exchange for the
corresponding ADSs. However, the Issue of Foreign Currency Convertible Bonds
and Ordinary Shares Scheme and Section 115AC do not provide for determination
of the cost of acquisition for the purposes of computing capital gains tax
where the shares of the Indian company are not listed on the Stock Exchange,
Mumbai or the National Stock Exchange in India. Therefore, in the case of our
company, which is not listed on either the Stock Exchange, Mumbai or the
National Stock Exchange, M.G. Ramachandran is unable to give an opinion on the
mode of determination of the cost of acquisition of equity shares. Therefore,
the original cost of acquisition of the ADSs may be treated as the cost of
acquisition for the purposes of determining the capital gains tax. According to
the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, a
non-resident holder's holding period for purposes of determining the applicable
Indian capital gains tax rate in respect of equity shares received in exchange
for ADSs commences on the date of the notice of the redemption by the
depositary to the custodian. The India-U.S. Treaty does not provide an
exemption from the imposition of Indian capital gains tax.
Under Section 115AC, taxable gain realized in respect of equity shares
held for more than 12 months, or long-term gain, is subject to tax at the rate
of 10%. Taxable gain realized in respect of equity shares held for 12 months or
less, or short-term gain, is subject to tax at variable rates with a maximum
rate of 48%. If Section 115AC is not applicable, then a tax rate of 20% applies
to long-term capital gains. The actual rate of tax on short-term gain depends
on a number of factors, including the residential status of the non-resident
holder and the type of income chargeable in India.
Buy-back of Securities. Currently, Indian companies are not subject to
any tax in respect of the buy-back of their shares. However, the shareholders
will be taxed on any gain at the long-term or short-term, as applicable,
capital gains rates. For additional information, please see "--Taxation of
Capital Gains" on page 87.
Stamp Duty and Transfer Tax. Upon issuance of the equity shares
underlying our ADSs, we will be required to pay a stamp duty of Rs.0.30 per
share certificate issued by us. However, for purposes of convenience, instead
of paying a stamp duty of Rs.0.30 per share certificate, we will pay a stamp
duty of Rs.1 per share certificate issued by us in respect of the underlying
equity shares. A transfer of ADSs is not subject to Indian stamp duty. However,
upon the acquisition of equity shares from the depositary in exchange for ADSs,
the non-resident holder will be liable for Indian stamp duty at the rate of
0.5% of the market value of the ADSs or equity shares exchanged. A sale of
equity shares by a non-resident holder will also be subject to Indian stamp
duty at the rate of 0.5% of the market value of the equity shares on the trade
date, although customarily such tax is borne by the transferee.
Wealth Tax. The holding of the ADSs in the hands of non-resident holders
and the holding of the underlying equity shares by the depositary as a
fiduciary and the transfer of ADSs between non-resident holders and the
depositary will be exempt from Indian wealth tax. Non-resident holders are
advised to consult their own tax advisers in this context.
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Gift Tax and Estate Duty. Indian gift tax was abolished in October 1998,
although it may be restored in the future. In India, there is no estate duty
law. As a result, no estate duty would be applicable to non-resident holders.
Non-resident holders are advised to consult their own tax advisors in this
context.
United States Federal Taxation
The following is a summary of the material U.S. federal income and estate
tax consequences that may be relevant with respect to the acquisition,
ownership and disposition of equity shares or ADSs. This summary addresses the
U.S. federal income and estate tax considerations of holders that are U.S.
persons, i.e., citizens or residents of the United States, partnerships or
corporations created in or under the laws of the United States or any political
subdivision thereof or therein, estates, the income of which is subject to U.S.
federal income taxation regardless of its source and trusts for which a U.S.
court exercises primary supervision and a U.S. person has the authority to
control all substantial decisions and that will hold equity shares or ADSs as
capital assets and holders that are not U.S. persons. We refer to these persons
as U.S. holders and non-U.S. holders, respectively. This summary does not
address tax considerations applicable to holders that may be subject to special
tax rules, such as banks, insurance companies, dealers in securities or
currencies, tax-exempt entities, persons that will hold equity shares or ADSs
as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes, persons that have a "functional currency" other
than the U.S. dollar or holders of 10% or more, by voting power or value, of
the stock of our company. This summary is based on the tax laws of the United
States as in effect on the date of this prospectus and on United States
Treasury Regulations in effect or, in some cases, proposed, as of the date of
this prospectus, as well as judicial and administrative interpretations thereof
available on or before such date and is based in part on representations of the
depositary and the assumption that each obligation in the deposit agreement and
any related agreement will be performed in accordance with its terms. All of
the foregoing are subject to change, which change could apply retroactively and
could affect the tax consequences described below.
Each prospective investor should consult his, her or its own tax advisor
with respect to the U.S. Federal, state, local and foreign tax consequences of
acquiring, owning or disposing of equity shares or ADSs.
Ownership of ADSs. For U.S. federal income tax purposes, holders of ADSs
will be treated as the owners of equity shares represented by such ADSs.
Dividends. Distributions of cash or property (other than equity shares,
if any, distributed pro rata to all shareholders of our company, including
holders of ADSs) with respect to equity shares will be includible in income by
a U.S. holder as foreign source dividend income at the time of receipt, which
in the case of a U.S. holder of ADSs generally will be the date of receipt by
the depositary, to the extent such distributions are made from the current or
accumulated earnings and profits of our company. Such dividends will not be
eligible for the dividends received deduction generally allowed to corporate
U.S. holders. To the extent, if any, that the amount of any distribution by our
company exceeds our company's current and accumulated earnings and profits as
determined under U.S. federal income tax principles, it will be treated first
as a tax-free return of the U.S. holder's tax basis in the equity shares or
ADSs and thereafter as capital gain.
A U.S. holder will not be eligible for a foreign tax credit against its
U.S. federal income tax liability for Indian dividend distribution taxes paid
by our company, unless it is a U.S. company holding at least 10% of the Indian
company paying the dividends. U.S. holders should be aware that dividends paid
by our company generally will constitute "passive income" for purposes of the
foreign tax credit.
If dividends are paid in Indian rupees, the amount of the dividend
distribution includible in the income of a U.S. holder will be in the U.S.
dollar value of the payments made in Indian rupees, determined at a spot
exchange rate between Indian rupees and U.S. dollars applicable to the date
such dividend is includible in the income of the U.S. holder, regardless of
whether the payment is in fact converted into U.S. dollars. Generally, gain or
loss, if any, resulting from currency exchange fluctuations during the period
from the date the dividend is paid to the date such payment is converted into
U.S. dollars will be treated as ordinary income or loss.
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A non-U.S. holder of equity shares or ADSs generally will not be subject
to U.S. federal income tax or withholding tax on dividends received on equity
shares or ADSs unless such income is effectively connected with the conduct by
such non-U.S. holder of a trade or business in the United States.
Sale or Exchange of equity shares or ADSs. A U.S. holder generally will
recognize gain or loss on the sale or exchange of equity shares or ADSs equal
to the difference between the amount realized on such sale or exchange and the
U.S. holder's tax basis in the equity shares or ADSs, as the case may be. Such
gain or loss will be capital gain or loss, and will be long-term capital gain
or loss if the equity shares or ADSs, as the case may be, were held for more
than one year. Gain or loss, if any, recognized by a U.S. holder generally will
be treated as U.S. source passive income or loss for U.S. foreign tax credit
purposes.
A non-U.S. holder of equity shares or ADSs generally will not be subject
to U.S. federal income or withholding tax on any gain realized on the sale or
exchange of such equity shares or ADSs unless:
. such gain is effectively connected with the conduct by such non-U.S.
holder of a trade or business in the U.S.; or
. in the case of any gain realized by an individual non-U.S. holder,
such holder is present in the United States for 183 days or more in
the taxable year of such sale and other conditions are met.
Estate Taxes. An individual shareholder who is a citizen or resident of
the United States for U.S. federal estate tax purposes will have the value of
the equity shares or ADSs owned by such holder included in his or her gross
estate for U.S. federal estate tax purposes. An individual holder who actually
pays Indian estate tax with respect to the equity shares will, however, be
entitled to credit the amount of such tax against his or her U.S. federal
estate tax liability, subject to a number of conditions and limitations.
Backup Withholding Tax and Information Reporting Requirements. Under
current U.S. Treasury Regulations, dividends paid on equity shares, if any,
generally will not be subject to information reporting and generally will not
be subject to U.S. backup withholding tax. Information reporting will apply to
payments of dividends on, and to proceeds from the sale or redemption of,
equity shares or ADSs by a paying agent, including a broker, within the United
States to a U.S. holder, other than an "exempt recipient," including a
corporation, a payee that is a non-U.S. holder that provides an appropriate
certification and other persons. In addition, a paying agent within the United
States will be required to withhold 31% of any payments of the proceeds from
the sale or redemption of equity shares or ADSs within the United States to a
holder, other than an "exempt recipient," if such holder fails to furnish its
correct taxpayer identification number or otherwise fails to comply with such
backup withholding requirements.
Passive Foreign Investment Company. A non-U.S. corporation will be
classified as a passive foreign investment company for U.S. Federal income tax
purposes if either:
. 75% or more of its gross income for the taxable year is passive
income; or
. on average for the taxable year by value (or, if it is not a publicly
traded corporation and so elects, by adjusted basis) 50% or more of
its assets produce or are held for the production of passive income.
We do not believe that we satisfy either of the tests for passive foreign
investment company status. If we were to be a passive foreign investment
company for any taxable year, U.S. holders would be required to either:
. pay an interest charge together with tax calculated at maximum
ordinary income rates on "excess distributions," which is defined to
include gain on a sale or other disposition of equity shares;
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. if a qualified electing fund election is made, to include in their
taxable income their pro rata share of undistributed amounts of our
income; or
. if the equity shares are "marketable" and a mark-to-market election
is made, to mark-to-market the equity shares each taxable year and
recognize ordinary gain and, to the extent of prior ordinary gain,
ordinary loss for the increase or decrease in market value for such
taxable year.
The above summary is not intended to constitute a complete analysis of
all tax consequences relating to ownership of equity shares or ADSs. You should
consult your own tax advisor concerning the tax consequences of your particular
situation.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our ADSs
or equity shares, and no prediction can be made as to the effect, if any, that
market sales of ADSs or equity shares or the availability of ADSs for sale will
have on the market price of the ADSs prevailing from time to time.
Nevertheless, sales of substantial amounts of ADSs in the public market, or the
perception that such sales could occur, could adversely affect the market price
of ADSs and could impair our future ability to raise capital through the sale
of our equity securities. For additional information, please see "Risk
Factors--The future sales of securities by our company or existing shareholders
may hurt the price of our ADSs" on page 21.
Upon the closing of this offering, we will have an aggregate of
21,156,000 equity shares outstanding, assuming no exercise of the underwriters'
overallotment option or outstanding employee stock options, but assuming the
exercise of the 750,000 warrants presently held by SARF and Satyam Computer
Services. Of the outstanding equity shares, the ADSs sold in this offering will
be freely tradable, except that any shares held by "affiliates" as defined
under Rule 144 under the Securities Act may only be sold in compliance with the
limitations described below. The remaining equity shares were all issued in
accordance with Regulation S, other than the 481,000 shares issued to Sterling
Commerce which were issued pursuant to Regulation D. None of these shares may,
under present law, be converted into ADSs without government of India approval.
If converted into ADSs, all equity shares issued in accordance with Regulation
S and held by non-affiliates may immediately be resold, subject to any
applicable lock-up periods. All equity shares issued in accordance with
Regulation D may be resold in accordance with Rule 144 after complying with a
holding period of at least one year and the other requirements of that rule.
In September 1999, we entered into a registration rights agreement with
SARF and Sterling Commerce relating to our company. Commencing 180 days after
the completion of this offering, each of SARF and Sterling Commerce may up to
make three requests of our company to register their equity shares. In
addition, SARF and Sterling Commerce have specified rights to sell equity
shares in connection with any public offering of our equity shares in India or
any other country, excluding the United States. The registration rights
agreement also grants to SARF and Sterling Commerce "piggy-back" registration
rights and contains other customary provisions. SARF also has similar rights to
require the listing of its shares in markets other than the United States under
specified circumstances.
Our company, each of our executive officers and directors, the holders of
warrants to purchase 750,000 equity shares and substantially all of our
shareholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any equity shares or securities convertible into, exchangeable for
or representing the right to receive equity shares, for a period of 180 days
after the date of this prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner and Smith Incorporated. These agreements do not cover (1)
the grant of stock options under our existing stock option plan or (2) equity
shares issued upon the conversion of convertible or exchangeable securities or
the exercise of an option or warrant outstanding as of the date of this
prospectus. These lock-up agreements cover substantially all equity shares
outstanding prior to this offering.
We have agreed not to sell or otherwise dispose of any equity shares
during the 180-day period following the date of the prospectus, except we may
issue, and grant options to purchase, equity shares under our Associate Stock
Option Plan and other pre-existing agreements. In addition, we may issue equity
shares in connection with any acquisition of another company if the terms of
such issuance provide that such equity shares shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. For
additional information, please see "Risk Factors--The future sales of
securities by our company or existing shareholders may hurt the price of our
ADSs" on page 21.
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UNDERWRITING
The offering consists of:
. the U.S. offering of 2,505,000 ADSs in the United States and
Canada; and
. the international offering of 1,670,000 ADSs outside the United
States and Canada.
We and the underwriters for the U.S. offering named below have entered
into an underwriting agreement with respect to the ADSs being offered in the
U.S. offering. Each U.S. underwriter has severally agreed to purchase the
number of ADSs indicated in the table below. Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Smith Barney Inc. are the representatives of the
U.S. underwriters.
<TABLE>
<CAPTION>
Number
of
U.S. Underwriters ADSs
----------------- ------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................
Salomon Smith Barney Inc. ..........................................
----
Total..........................................................
====
</TABLE>
The U.S. underwriters have agreed to purchase all the ADSs being offered
in the U.S. offering, other than those covered by the overallotment option
described below, if they purchase any of these ADSs.
We have granted to the underwriters in the U.S. and international
offerings an option, exercisable within 30 days after the date of this
prospectus, to purchase up to 626,250 additional ADSs at the public offering
price less the underwriting commission. The underwriters may exercise this
option solely for the purpose of covering overallotments, if any, in connection
with the offerings. The representatives of the U.S. underwriters will decide on
behalf of the underwriters whether to exercise the option and whether to
allocate any ADSs covered by the option to the U.S. offering or the
international offering. If the underwriters exercise the overallotment option,
each U.S. underwriter will purchase a number of additional ADSs approximately
proportionate to the underwriter's initial purchase commitment.
The U.S. underwriters will initially offer the ADSs at the public
offering price set out on the cover of this prospectus. The U.S. underwriters
may sell ADSs to securities dealers at a discount of up to $ per ADS from
the initial public offering price. Any of these securities dealers may resell
any securities purchased from the U.S. underwriters to other brokers or dealers
at a discount of up to $ per ADS from the initial public offering price. If
all the ADSs are not sold at the initial offering price, the representatives of
the U.S. underwriters may change the offering price and the other selling
terms.
We have also entered into an underwriting agreement for the sale of
1,670,000 ADSs outside the United States and Canada. Merrill Lynch (Singapore)
Pte. Ltd. and Salomon Brothers International Limited are the representatives of
the underwriters for the international offering. The U.S. and international
offerings are conditioned on each other. The initial offering price and
aggregate underwriting commissions per ADS for the U.S. offering and the
international offering are identical.
The underwriters have entered into an agreement in which they agree to
restrictions on where and to whom they and any dealer purchasing from them may
offer ADSs in connection with the offering. The U.S. and international
underwriters also have agreed that they may sell shares between their
respective underwriting groups.
Our company, each of our executive officers and directors, the holders of
warrants to purchase 750,000 equity shares and substantially all of our
shareholders have agreed not to offer, sell, contract to sell or
92
<PAGE>
otherwise dispose of any equity shares or securities convertible into,
exchangeable for or representing the right to receive equity shares, for a
period of 180 days after the date of this prospectus without the prior written
consent of Merrill Lynch, Pierce, Fenner and Smith Incorporated. These
agreements do not cover (1) the grant of stock options under our existing stock
option plan or (2) equity shares issued upon the conversion of convertible or
exchangeable securities or the exercise of an option or warrant outstanding as
of the date of this prospectus. These lock-up agreements cover substantially
all equity shares outstanding prior to this offering.
The ADSs offered under this prospectus are expected to be approved for
listing on the Nasdaq National Market.
In connection with the offering, the U.S. and international underwriters
may purchase and sell ADSs in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of securities than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the ADSs while the
offering is in progress.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the ADSs. As a result, the price of the ADSs may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, the underwriters may discontinue these
transactions at any time. The underwriters may effect transactions through the
Nasdaq National Market, in the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some
liabilities, including liabilities under the Securities Act of 1933.
The underwriters and their affiliates engage and may in the future engage
in investment banking and commercial banking transactions with us.
The underwriters have reserved up to 200,000 ADSs for sale at our request
to persons associated with our company at the same price and on the same terms
as the shares sold by the underwriters to the general public. The number of
ADSs available for sale to the general public will be reduced to the extent any
reserved ADSs are purchased. Any reserved ADSs not so purchased will be offered
by the underwriters on the same basis as the other ADSs offered hereby.
The underwriters expect to deliver ADSs against payment for the ADSs in
U.S. dollars in New York, New York on or about , 1999.
Selling Restrictions
This prospectus does not constitute an offer or an invitation by, or on
behalf of, us or by or on behalf of the underwriters, to subscribe for or
purchase any of our equity shares or ADSs in any jurisdiction to any person to
whom it is unlawful to make such an offer or solicitation in that jurisdiction.
The distribution of this prospectus and the offering of our equity shares or
ADSs in certain jurisdictions may be restricted by law. Persons into whose
possession this prospectus comes are required by us and the underwriters to
inform themselves about and to observe any such restrictions.
93
<PAGE>
LEGAL MATTERS
The validity of the ADSs offered hereby will be passed upon for Satyam
Infoway Limited by Latham & Watkins, Menlo Park, California. The validity of
the equity shares represented by the ADSs offered hereby and the principal
Indian tax consequences for holders of ADSs and equity shares received upon
withdrawal of such equity shares who are not resident in India will be passed
upon by M.G. Ramachandran, New Delhi, India, Indian counsel for Satyam Infoway
Limited. Matters in connection with the offering will be passed upon on behalf
of the underwriters by Brobeck, Phleger & Harrison, LLP, New York, New York,
and Nishith Desai Associates, Mumbai, India, counsel for the Underwriters.
Latham & Watkins may rely upon M.G. Ramachandran with respect to matters
governed by Indian law.
EXPERTS
The U.S. GAAP financial statements of Satyam Infoway Limited as of March
31, 1998 and 1999, and for each of the years in the three-year period ended
March 31, 1999, have been included herein in reliance upon the report of KPMG
Peat Marwick, India, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in auditing and accounting.
CHANGE OF ACCOUNTANTS
Effective May 1998, Bharat S. Raut and Company was engaged as the
principal independent accountants for Satyam Infoway for Indian GAAP reporting,
replacing Fraser & Ross, who resigned at that time. The change was approved by
our Directors and at the annual general meeting held on May 23, 1998.
In connection with the audits of the fiscal years ended March 31, 1996,
1997 and 1998, and for the interim period from April 1, 1998 through May 23,
1998, there were no disagreements with Fraser & Ross on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction
of Fraser & Ross, would have caused them to make reference to the matter in
their report, except that during the fiscal year ended March 31, 1998 Fraser &
Ross qualified its opinion regarding whether or not Section 58A of the
Companies Act applied to Satyam Infoway's issuance of debentures to Citibank.
Section 58A prohibits Indian companies, other than banks, from accepting
"deposits" in an amount in excess of 25% of their share capital. Fraser & Ross
concluded that the debentures should be classified as "deposits" while Satyam
Infoway concluded that they should be classified as a bank loan. The audit
reports of Fraser & Ross for the financial statements of Satyam Infoway as of
and for the fiscal years ended March 31, 1996, 1997 and 1998 did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty or audit scope, except for a qualification of the
financial statements at March 31, 1998 prepared under Indian GAAP related to
the treatment of the Citibank debentures as described above.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1, which
includes amendments, exhibits, schedules and supplements, under the Securities
Act of 1933, as amended, and the rules and regulations of the SEC, for the
registration of the ADSs and underlying equity shares offered by this
prospectus. Although this prospectus, which forms a part of the registration
statement, contains all material information included in the registration
statement, part of the registration statement have been omitted from this
prospectus as permitted by the rules and regulations of the SEC. A related
registration statement on Form F-6 has also been filed to register our ADSs as
represented by the ADRs. For further information with respect to
94
<PAGE>
our company and the ADSs offered by this prospectus, please refer to the
registration statement. Although this prospectus contains all material terms of
the contracts or other documents referred to in this prospectus, the
descriptions of these contracts or other documents contained in this prospectus
are not necessarily complete.
You may read and copy all or any portion of the registration statement or
any other information that we file, or obtain a copy of those materials,
through facilities maintained by the SEC as described in the front of this
prospectus under the caption "Reports to our Security Holders."
95
<PAGE>
SATYAM INFOWAY LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMG Peat Marwick, Independent Auditors.......................... F-2
Balance Sheets............................................................. F-3
Statements of Income....................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Satyam Infoway Limited:
We have audited the accompanying balance sheets of Satyam Infoway
Limited as of March 31, 1998 and 1999, and the related statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended March 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Satyam Infoway
Limited as of March 31, 1998 and 1999, and the results of its operations and
its cash flows for each of the years in the three-year period ended March 31,
1999, in conformity with accounting principles generally accepted in the
United States.
The United States dollar amounts are presented in the accompanying
financial statements solely for the convenience of the readers and are
arithmetically correct on the basis disclosed in footnote 1(b).
KPMG Peat Marwick
Chennai, India
April 19, 1999
F-2
<PAGE>
SATYAM INFOWAY LIMITED
BALANCE SHEETS
(Expressed in Indian Rupees, except share data and as otherwise stated)
<TABLE>
<CAPTION>
As of
------------------------------------------------------------------------------
March 31, March 31, March 31, June 30, June 30, June 30,
1998 1999 1999 1998 1999 1999
Rs. Rs. US$ Rs. Rs. US$
------------ ------------ ---------- ------------ ------------ ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ 9,911,667 125,547,453 2,889,470 4,768,486 10,375,381 238,789
Accounts receivable, net
of allowances of Rs
Nil, Rs. 501,839 and
Rs. 726,060 as of March
31, 1998, 1999 and
June 30, 1999,
respectively........... 1,945,483 45,087,639 1,037,692 10,515,365 53,157,565 1,223,419
Due from officers and
employees.............. 87,302 573,143 13,191 123,676 570,806 13,137
Inventories............. -- 6,758,190 155,539 102,755 5,925,745 136,381
Other current assets.... 10,978,160 73,688,213 1,695,931 12,358,743 87,638,648 2,017,000
------------ ------------ ---------- ------------ ------------ ----------
Total current assets... 22,922,612 251,654,638 5,791,823 27,869,025 157,668,145 3,628,726
Plant and equipment--
net.................... 63,240,894 162,833,876 3,747,615 70,106,064 252,429,715 5,809,660
Intangible asset........ 11,295,502 8,916,052 205,203 10,700,639 8,321,190 191,512
Other assets............ 10,173,248 31,483,855 724,599 10,825,159 46,053,778 1,059,925
------------ ------------ ---------- ------------ ------------ ----------
Total assets........... 107,632,256 454,888,421 10,469,240 119,500,887 464,472,828 10,689,823
============ ============ ========== ============ ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt......... -- 144,750,000 3,331,415 -- 167,500,000 3,855,006
Current installments of
capital lease
obligations............ 2,541,263 596,740 13,734 2,689,165 914,901 21,056
Short term borrowings... -- -- -- -- 31,823,824 732,424
Trade accounts payable.. 15,471,302 17,275,480 397,595 21,748,862 23,118,809 532,079
Due to parent company... 1,508,887 3,980,370 91,608 1,890,222 5,481,776 126,163
Accrued expenses........ 3,685,525 19,028,671 437,944 4,294,524 15,152,329 348,730
Deferred revenue........ -- 71,506,440 1,645,719 1,491,293 92,480,652 2,128,439
Advances from
customers.............. 1,641,292 11,747,346 270,365 919,373 8,596,943 197,858
Other current
liabilities............ 3,429,204 4,476,322 103,022 2,585,996 10,923,424 251,402
------------ ------------ ---------- ------------ ------------ ----------
Total current
liabilities........... 28,277,473 273,361,369 6,291,402 35,619,435 355,992,658 8,193,157
Non-current liabilities:
Long-term debt,
excluding current
installments........... 122,000,000 113,750,000 2,617,952 122,000,000 91,000,000 2,094,361
Capital lease
obligations, excluding
current installments... 9,913,961 159,244 3,665 9,269,877 404,806 9,317
Other liabilities....... -- -- -- -- 1,000,000 23,015
------------ ------------ ---------- ------------ ------------ ----------
Total liabilities...... 160,191,434 387,270,613 8,913,019 166,889,312 448,397,464 10,319,850
============ ============ ========== ============ ============ ==========
Stockholders' equity:
Common stock, Rs. 10 par
value; 15,000,000,
25,000,000 and
25,000,000 Equity
Shares authorized as of
March 31, 1998, 1999
and June 30, 1999;
Issued and outstanding
Equity Shares--
7,500,230, 15,750,000
and 15,750,000 as of
March 31, 1998, 1999
and June 30, 1999...... 75,002,300 157,500,000 3,624,856 105,002,300 157,500,000 3,624,856
Additional paid-in
capital................ -- 226,636,200 5,216,023 -- 226,636,200 5,216,023
Accumulated deficit
during development
stage.................. (127,561,478) -- -- -- -- --
Deferred Compensation--
Employee Stock Offer
Plan................... -- (1,581,249) (36,392) -- (1,374,999) (31,646)
Accumulated deficit..... -- (314,937,143) (7,248,266) (152,390,725) (366,685,837) (8,439,260)
------------ ------------ ---------- ------------ ------------ ----------
Total stockholders'
equity................ (52,559,178) 67,617,808 1,556,221 (47,388,425) 16,075,364 369,973
------------ ------------ ---------- ------------ ------------ ----------
Total liabilities and
stockholders' equity.. 107,632,256 454,888,421 10,469,240 119,500,887 464,472,828 10,689,823
============ ============ ========== ============ ============ ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
SATYAM INFOWAY LIMITED
STATEMENTS OF INCOME
(Expressed in Indian Rupees, except share data and as otherwise stated)
<TABLE>
<CAPTION>
Years ended March 31 Quarter ended June 30,
--------------------------------------------------- ------------------------------------
1997 1998 1999 1999 1998 1999 1999
Rs. Rs. Rs. US$ Rs. Rs. US$
----------- ------------ ------------ ---------- ----------- ----------- ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... -- 6,805,020 103,343,832 2,378,454 17,557,719 80,803,252 1,859,684
Cost of revenues....... -- (19,497,654) (63,651,265) (1,464,931) (7,074,081) (38,896,630) (895,204)
----------- ------------ ------------ ---------- ----------- ----------- ----------
Gross profit/(loss).... -- (12,692,634) 39,692,567 913,523 10,483,638 41,906,622 964,480
----------- ------------ ------------ ---------- ----------- ----------- ----------
Operating expenses:
Selling, general and
administrative
expenses............. 26,336,901 80,399,677 200,212,761 4,607,888 30,607,474 84,131,759 1,936,289
Amortization of
deferred stock
compensation
expense.............. -- -- 68,751 1,582 -- 206,250 4,747
----------- ------------ ------------ ---------- ----------- ----------- ----------
Total operating
expenses.............. 26,336,901 80,399,677 200,281,512 4,609,470 30,607,474 84,338,009 1,941,036
----------- ------------ ------------ ---------- ----------- ----------- ----------
Operating loss......... (26,336,901) (93,092,311) (160,588,945) (3,695,947) (20,123,836) (42,431,387) (976,556)
Other expense, net..... -- (7,498,053) (26,786,720) (616,495) (4,705,411) (9,317,307) (214,437)
----------- ------------ ------------ ---------- ----------- ----------- ----------
Net loss............... (26,336,901) (100,590,364) (187,375,665) (4,312,442) (24,829,247) (51,748,694) (1,190,993)
=========== ============ ============ ========== =========== =========== ==========
Loss per Equity Share.. (114,508.27) (121.66) (17.31) (0.40) (3.28) (3.29) (0.08)
=========== ============ ============ ========== =========== =========== ==========
Weighted Equity Shares
used in computing loss
per equity share...... 230 826,805 10,824,826 10,824,826 7,566,164 15,750,000 15,750,000
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
SATYAM INFOWAY LIMITED
STATEMENTS OF STOCK HOLDERS EQUITY
(Expressed in Indian Rupees, except share data and as otherwise stated)
<TABLE>
<CAPTION>
Deferred
Common Stock Accumulated Compensation- Total
---------------------- Additional Paid Deficit During Employee Accumulated Stockholders'
Shares Par Value In Capital Development Stage Stock Offer Plan Deficit Equity
---------- ----------- --------------- ----------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of March
31, 1996.......... 230 2,300 -- (634,213) -- -- (631,913)
Net loss........... -- -- -- (26,336,901) -- -- (26,336,901)
---------- ----------- ----------- ------------ ---------- ------------ ------------
Balance as of March
31, 1997.......... 230 2,300 -- (26,971,114) -- -- (26,968,814)
Common stock issued
to the parent
Company........... 7,500,000 75,000,000 -- -- -- -- 75,000,000
Net loss........... -- -- -- (100,590,364) -- -- (100,590,364)
---------- ----------- ----------- ------------ ---------- ------------ ------------
Balance as of March
31, 1998.......... 7,500,230 75,002,300 -- (127,561,478) -- -- (52,559,178)
Deficit transfer... -- -- -- 127,561,478 -- (127,561,478) --
Common stock issued
to the parent
Company........... 4,879,770 48,797,700 44,986,200 -- -- -- 93,783,900
Other issuances of
common stock...... 3,370,000 33,700,000 180,000,000 -- -- -- 213,700,000
Net loss........... -- -- -- -- -- (187,375,665) (187,375,665)
Compensation
related to stock
option grants..... -- -- 1,650,000 -- (1,650,000) -- --
Amortization of
compensation
related to stock
option grants..... -- -- -- -- 68,751 -- 68,751
---------- ----------- ----------- ------------ ---------- ------------ ------------
Balance as of March
31, 1999.......... 15,750,000 157,500,000 226,636,200 -- (1,581,249) (314,937,143) 67,617,808
Net loss
(unaudited)....... -- -- -- -- -- (51,748,694) (51,748,694)
Amortization of
compensation
related to stock
option grants
(unaudited)....... -- -- -- -- 206,250 -- 206,250
---------- ----------- ----------- ------------ ---------- ------------ ------------
Balance as of June
30, 1999
(unaudited)....... 15,750,000 157,500,000 226,636,200 -- (1,374,999) (366,685,837) 16,075,364
========== =========== =========== ============ ========== ============ ============
Balance as of March
31, 1999 (in
US$).............. 15,750,000 3,624,856 5,216,023 -- (36,392) (7,248,266) 1,556,221
========== =========== =========== ============ ========== ============ ============
Balance as of June
30, 1999 (in US$)
(unaudited)....... 15,750,000 3,624,856 5,216,023 -- (31,646) (8,439,260) 369,973
========== =========== =========== ============ ========== ============ ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
SATYAM INFOWAY LIMITED
STATEMENTS OF CASH FLOWS
(Expressed in Indian Rupees, except share data and as otherwise stated)
<TABLE>
<CAPTION>
Years ended March 31, Quarter ended June 30,
--------------------------------------------------- --------------------------------------
1997 1998 1999 1999 1998 1999 1999
Rs. Rs. Rs. US$ Rs. Rs. US$
----------- ------------ ------------ ---------- ----------- ------------ -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ (26,336,901) (100,590,364) (187,375,665) (4,312,442) (24,829,247) (51,748,694) (1,190,993)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation of plant
and equipment......... 535,975 18,781,598 46,714,402 1,075,130 8,191,497 20,705,897 476,545
Amortization of
technical know how
fees.................. -- 601,748 2,379,450 54,763 594,863 594,862 13,691
Amortization of
deferred stock
compensation
expense............... -- -- 68,751 1,582 -- 206,250 4,747
Loss on sale of plant
and equipment......... -- -- 37,627 866 -- -- --
Changes in assets and
liabilities:
Accounts receivable
(net)............... -- (1,945,483) (43,142,156) (992,916) (8,569,882) (8,069,926) (185,727)
Inventories.......... -- -- (6,758,190) (155,539) (102,755) 832,445 19,159
Other current
assets.............. (4,710,247) (6,204,993) (62,710,053) (1,443,269) (1,380,583) (13,950,435) (321,070)
Other assets......... (2,780,684) (7,212,564) (21,218,607) (488,345) (651,911) (14,538,260) (334,598)
Due to parent
company............. -- 1,508,887 1,387,583 31,935 (618,665) 1,501,406 34,555
Accrued expenses..... 2,743,173 942,352 15,343,146 353,122 608,999 (3,876,342) (89,215)
Deferred revenue..... -- -- 71,506,440 1,645,718 1,491,293 20,974,212 482,721
Trade accounts
payable............. -- 15,471,302 1,804,178 41,523 6,277,560 5,843,329 134,484
Advances from
customers........... -- 1,641,292 10,106,054 232,590 (721,919) (3,150,403) (72,506)
Other current
liabilities......... 327,643 3,082,704 1,047,118 24,098 (843,208) 6,447,102 148,379
Advances given to
officers and
employees........... (205,341) (26,961) (577,841) (13,299) (36,374) (29,326) (675)
Other liabilities.... -- -- -- -- -- 1,000,000 23,015
----------- ------------ ------------ ---------- ----------- ------------ ----------
Net cash used in
operating activities... (30,426,382) (73,950,482) (171,387,763) (3,944,483) (20,590,332) (37,257,883) (857,488)
----------- ------------ ------------ ---------- ----------- ------------ ----------
Cash flows from
investing activities:
Expenditure on plant and
equipment.............. (3,229,593) (65,172,385) (146,134,547) (3,363,281) (15,056,667) (109,577,914) (2,521,931)
Expenditure on technical
know how............... -- (11,897,250) -- -- -- -- --
Proceeds from sale of
plant and equipment.... -- -- 135,000 3,107 -- -- --
----------- ------------ ------------ ---------- ----------- ------------ ----------
Net cash used in
investing activities... (3,229,593) (77,069,635) (145,999,547) (3,360,174) (15,056,667) (109,577,914) (2,521,931)
----------- ------------ ------------ ---------- ----------- ------------ ----------
Cash flows from
financing activities:
Principal payments of
long-term debt......... -- (860,000) -- -- -- -- --
Proceeds from issuance
of long-term debt...... 860,000 122,000,000 136,500,000 3,141,542 -- -- --
Proceeds from short term
loans.................. -- -- -- -- -- 31,823,824 732,423
Principal payments under
capital lease
obligations............ -- (1,701,265) (12,044,704) (277,208) (496,182) (160,099) (3,685)
Net proceeds from
issuance of common
stock.................. -- 38,453,000 307,483,900 7,076,730 30,000,000 -- --
Due to parent company... 34,278,465 1,557,559 1,083,900 24,946 1,000,000 -- --
----------- ------------ ------------ ---------- ----------- ------------ ----------
Net cash provided by
financing activities... 35,138,465 159,449,294 433,023,096 9,966,010 30,503,818 31,663,725 728,738
----------- ------------ ------------ ---------- ----------- ------------ ----------
Net increase/(decrease)
in cash and cash
equivalents............ 1,482,490 8,429,177 115,635,786 2,661,353 (5,143,181) (115,172,072) (2,650,681)
Cash and cash
equivalents at the
beginning of the
year/quarter........... -- 1,482,490 9,911,667 228,117 9,911,667 125,547,453 2,889,470
----------- ------------ ------------ ---------- ----------- ------------ ----------
Cash and cash
equivalents at the end
of the year/quarter.... 1,482,490 9,911,667 125,547,453 2,889,470 4,768,486 10,375,381 238,789
=========== ============ ============ ========== =========== ============ ==========
Supplementary
Information
Cash paid towards
interest............... -- 11,307,320 27,754,615 638,770 4,422,500 10,060,759 231,547
Supplemental schedule of
non cash financing
activity
Additional common stock
issued upon conversion
of amounts payable to
parent company......... -- 7,565,690 1,083,900 24,946 1,000,000 -- --
Capital leases.......... -- 14,156,489 161,443 3,716 -- 723,822 16,659
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
1. Summary of Significant Accounting Policies
(a) Description of Business
Satyam Infoway Limited ("Satyam" or "the Company") was incorporated on
December 12, 1995 in Chennai, India with the objective of offering electronic
commerce and Internet/intranet based solutions. Headquartered at Chennai, the
Company has 25 points of presence throughout the country. Prior to April 1,
1998, the Company was in the development stage and its primary activities
included raising capital, developing strategic alliances, developing, deploying
and certifying its network, acquiring plant and equipment and other operating
assets and identifying markets. As of April 1, 1998, the Company is no longer
in the development stage.
The Company commenced its Internet service operations on November 22,
1998, consequent to the privatization of Internet services by the Government of
India.
The Company is a majority owned subsidiary of Satyam Computer Services
Limited ("Satyam Computer Services"). As of June 30, 1999, Satyam Computer
Services held approximately 78.6% of the voting control of the Company
represented by 12,379,800 Equity Shares of Rs. 10 each.
(b) Basis of Preparation of Financial Statements
The accompanying financial statements have been prepared in Indian Rupees
(Rs.), the national currency of India. Solely for the convenience of the
reader, the financial statements as of and for the year ended March 31, 1999
and quarter ended June 30, 1999 have been translated into United States dollars
at the noon buying rate in New York City on June 30, 1999 for cable transfers
in Indian rupees, as certified for customs purposes by the Federal Reserve Bank
of New York of US$ 1 = Rs. 43.45. No representation is made that the Indian
rupee amounts have been, could have been or could be converted into United
States dollars at such a rate or at any other certain rate on June 30, 1999 or
at any other date.
(c) 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 at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with original
maturities, at the date of purchase/investment, of three months or less to be
cash equivalents. Cash and cash equivalents currently consist of cash and cash
on deposit with banks.
(e) Revenue Recognition
Revenues from corporate network services which include providing e-
commerce solutions, electronic data interchange and other network based
services are recognized upon actual usage of such services by customers and is
based on either the time for which the network is used or the volume of data
transferred or
F-7
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
both. The Company enters into contracts with its corporate customers for the
use of its networks on both a time and usage basis. In accordance with the
terms of these contracts, customers are allowed to transmit certain volumes of
data free of cost through the Company's networks. No revenues are recognized
for such data transfers. Data transfers above the minimum exempt volumes are
charged to customers at specified rates. Customers also receive the right to
use the Company's networks free of cost for specified periods of time. No
revenues are recognized for such exempt periods of time. Network usage over and
above the exempt periods of time are billed to customers at agreed rates. The
Company recognizes such revenues based on actual usage of the networks by
customers both in terms of time and data transferred.
Revenues from web-site design and development are recognized upon
completion of the project once the customer's web links are commissioned and
available on the world-wide-web. Revenues from web-site hosting are recognized
ratably over the period for which the site is hosted.
Internet access is sold to customers for a specified number of hours,
which is to be utilized within a specified period of time. Customers purchase a
CD ROM that allows them to access the Internet. The amounts received from
customers on the sale of these CD ROMs are not refundable. The Company
recognizes revenue based on usage by the customer over the specified period. At
the end of the specified time frame, the remaining unutilized hours, if any,
are recognized as revenue. Electronic mail access is sold to customers for a
specified period of time over which the related revenue is recognized.
Revenues from banner advertisements are recognized ratably over the
period in which the advertisement is displayed, provided that no significant
Company obligations remain at the end of the period and the collection of the
related receivable is probable. Revenues from sponsorship contracts are
recognized ratably over the period in which the sponsors' advertisements are
displayed provided no significant Company obligations remain at the end of the
period and collection of the resulting receivable is probable. Revenues from
electronic commerce transactions are recognized when the transaction is
completed provided there are no significant remaining Company obligations and
collection of the resulting receivable is probable.
The Company has entered into a three-year agreement with CompuServe
Network Services ("CompuServe") to provide dial up access services. The Company
recognizes revenues from this agreement on the basis of usage of its networks
by CompuServe's customers. Revenues from the sale of communication hardware and
software required to provide the Company's network based services is recognized
when the sale is complete with the passing of title.
(f) Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method for all classes of inventories
other than CD ROMs used for Internet service activities for which the weighted
average method is used to determine cost.
F-8
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
(g) Plant and Equipment
Plant and equipment are stated at cost. Plant and equipment under capital
leases are stated at the present value of minimum lease payments. The Company
computes depreciation for all plant and equipment using the straight-line
method. Leasehold improvements are amortized on a straight-line basis over the
shorter of the primary lease period or estimated useful life of the asset. The
estimated useful lives of assets are as follows:
<TABLE>
<S> <C>
Plant and machinery............................................... 5 years
Computer equipment................................................ 2 years
Office equipment.................................................. 5 years
Furniture and fixtures............................................ 5 years
Vehicles.......................................................... 5 years
System software................................................... 3 years
</TABLE>
The Company purchases certain application software for internal use. It
is estimated that such software has a relatively short useful life, usually
less than one year. The Company, therefore, charges to income the cost of
acquiring such software, entirely at the time of acquisition. Deposits paid
towards the acquisition of plant and equipment outstanding at each balance
sheet date and the cost of plant and equipment not put to use before such date
are disclosed under Construction-in-progress.
(h) Intangible Asset
The Company entered into a five year agreement effective September 1997
with Sterling Commerce International Inc ("Sterling") whereby Sterling agreed
to grant the Company certain rights to market, provide, install, facilitate,
maintain and support Sterling's proprietary electronic commerce technology. In
consideration for granting this proprietary technology, the Company paid
Sterling a licencing fee of $ 300,000, which was capitalized. The Company
currently amortizes this fee over five years, this being the initial period
over which it is entitled to use the electronic commerce technology. The
amortization related to the licence is included under "Depreciation and
amortization" and is classified in the Income Statement under the caption
"Selling, general and administrative expenses."
(i) 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, 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.
(j) Income Taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the 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 carry-forwards. 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 on
F-9
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
deferred tax assets and liabilities of a change in tax rates is recognized in
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.
(k) Retirement Benefits to Employees
Provident fund: In accordance with Indian law, all employees receive
benefits from a provident fund, which is a defined contribution plan. Both the
employee and employer each make monthly contributions to the plan equal to 12%
of the covered employee's basic salary. The Company has no further obligations
under the plan beyond its monthly contributions.
Gratuity: In addition to the above benefits, the Company provides for
gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering all
employees. The Gratuity Plan commenced on April 1, 1997. The plan provides a
lump sum payment to vested employees at retirement or termination of employment
in an amount based on the respective employee's salary and the years of
employment with the Company. The Company contributes each year to a gratuity
fund maintained by the Life Insurance Corporation of India ("LIC") based upon
actuarial valuations. No additional contributions were required to be made by
the Company in excess of the unpaid contributions to the plan. The LIC has no
recourse to the Company in the event of any shortfall in its obligations to
vested employees and is entirely responsible for meeting all unfunded
liabilities. Consequently, all additional liabilities that may arise will be
borne by the LIC. Further, vested employees do not have any recourse to the
Company in the event the LIC does not fulfil its obligations to them. The
Company does not carry any pension liability in its financial statements and
has no further obligations under the plan beyond its monthly contributions.
(l) Stock-based Compensation
The Company uses the intrinsic value-based method of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, 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.
(2) Cash and Cash Equivalents
The cost and fair values for cash and cash equivalents as of March 31,
1998 and 1999 and June 30, 1999, are set out below.
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
--------- ----------- --------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cost and fair values
Cash and cash
equivalents.......... 9,911,667 125,547,453 2,889,470 10,375,381 238,789
</TABLE>
Cash and cash equivalents include deposits of Rs. 69,200, Rs. 7,261,200
(US$ 167,116) and Rs. 7,634,477 (US$ 175,707) as of March 31, 1998 and 1999 and
June 30, 1999, respectively placed in "No-charge-no-lien" accounts as security
towards performance guarantees issued by the Company's bankers on the Company's
behalf. The Company cannot utilize these amounts until the guarantees are
discharged or revoked.
F-10
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
Cash and cash equivalents as of March 31, 1999 also include deposits of Rs.
115,000,000 (US$ 2,646,720) placed with banks as short-term deposits.
(3) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30, June 30,
1998 1999 1999 1998 1999 1999
Rs. Rs. US$ Rs. Rs. US$
--------- --------- --------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Compact discs........... -- 120,192 2,765 -- 178,378 4,105
Communication hardware.. -- 3,288,496 75,685 -- 2,345,114 53,973
Application software.... -- 3,349,502 77,089 102,755 3,402,253 78,303
--- --------- ------- ------- --------- -------
-- 6,758,190 155,539 102,755 5,925,745 136,381
=== ========= ======= ======= ========= =======
</TABLE>
(4) Other Current Assets
Other current assets consist of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
---------- ---------- --------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Advance for expenses.... 818,285 1,617,959 37,238 5,976,618 137,552
Prepaid expenses........ 9,398,921 70,329,478 1,618,630 79,850,894 1,837,765
Prepaid telephone
rentals................ 51,750 296,250 6,818 296,250 6,818
Advance tax payments.... 709,204 959,516 22,083 1,225,783 28,211
Due from associate
company................ -- 190,104 4,375 224,993 5,178
Other advances.......... -- 294,906 6,787 64,110 1,476
---------- ---------- --------- ---------- ---------
10,978,160 73,688,213 1,695,931 87,638,648 2,017,000
========== ========== ========= ========== =========
</TABLE>
Prepaid expenses consist mainly of the unexpired portion of annual
rentals paid to the Department of Telecommunications, Ministry of
Communications, Government of India for use of leased telecommunication lines.
F-11
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
(5) Plant and Equipment
Plant and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
----------- ----------- ---------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Leasehold improvements.. 1,455,293 6,164,699 141,880 8,799,064 202,510
Plant and machinery..... 20,979,507 101,558,254 2,337,359 193,243,376 4,447,489
Computer equipment...... 41,055,959 72,577,533 1,670,369 82,403,663 1,896,517
Office equipment........ 1,299,341 1,727,654 39,762 2,104,818 48,442
Furniture and fixtures.. 4,636,715 7,665,644 176,424 8,211,437 188,986
Vehicles................ -- 161,443 3,716 885,265 20,374
System software......... 11,039,530 20,022,142 460,809 20,925,905 481,609
Construction-in-
progress............... 2,092,122 18,977,088 436,757 22,582,665 519,739
----------- ----------- ---------- ----------- ----------
82,558,467 228,854,457 5,267,076 339,156,193 7,805,666
Accumulated
depreciation........... (19,317,573) (66,020,581) (1,519,461) (86,726,478) (1,996,006)
----------- ----------- ---------- ----------- ----------
63,240,894 162,833,876 3,747,615 252,429,715 5,809,660
=========== =========== ========== =========== ==========
</TABLE>
Depreciation expense amounted to Rs. 535,975, Rs. 18,781,598, Rs.
46,714,402 (US$ 1,075,130) and Rs. 20,705,897 (US$ 476,545) for fiscal years
1997, 1998, 1999 and for the quarter ended June 30, 1999, respectively.
(6) Technical know-how fees as of March 31, 1998 and 1999 and June 30, 1999,
net of accumulated amortization of Rs. 601,748, Rs. 2,981,198 (US$ 68,612) and
Rs. 3,576,060 (US$ 82,303) respectively amounted to Rs. 11,295,502, Rs.
8,916,052 (US$ 205,203) and Rs. 8,321,190 (US$ 191,512) respectively.
(7) Leases
The Company is obligated under capital leases that expire in fiscal 1999
through 2002 for certain items of computers and vehicles. The gross amount and
related accumulated amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
March 31, March 31, March June 30, June 30,
1998 1999 31, 1999 1999 1999
Rs. Rs. US$ Rs. US$
---------- ----------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Computer equipment...... 14,156,489 14,156,489 325,811 1,649,789 37,970
Vehicles................ -- 161,443 3,716 885,265 20,374
---------- ----------- -------- ---------- -------
Total................... 14,156,489 14,317,932 329,527 2,535,054 58,344
========== =========== ======== ========== =======
Accumulated
depreciation........... (3,526,065) (10,628,548) (244,616) (1,706,580) (39,277)
</TABLE>
F-12
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
Depreciation on assets held under capital leases is included in total
depreciation expense.
Future minimum capital lease payments as of June 30, 1999 (unaudited)
are:
<TABLE>
<CAPTION>
Year ending March 31, June 30,
----------- ----------------- ----------------------
Rs. US$ Rs. US$
-------- ------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
2000.......................... 701,804 16,152 1,094,487 25,190
2001.......................... 166,461 3,831 253,140 5,826
2002.......................... -- -- 210,950 4,855
-------- ------- --------- -------
Total minimum lease payments.. 868,265 19,983 1,558,577 35,871
Less: Amount representing
interest..................... (112,281) (2,584) (238,870) (5,498)
-------- ------- --------- -------
Present value of net minimum
capital lease payments....... 755,984 17,399 1,319,707 30,373
Less: Current installments of
obligations under capital
leases....................... (596,740) (13,734) (914,901) (21,056)
-------- ------- --------- -------
Obligations under capital
leases, excluding current
installments................. 159,244 3,665 404,806 9,317
======== ======= ========= =======
</TABLE>
During fiscal 1999 the Company prepaid certain of its capital lease
obligations acquiring ownership of the related assets. The principal repaid
amounted to Rs. 1,121,696 and Rs. 11,385,004 (US$ 262,025) in fiscal 1998 and
1999, respectively.
(8) Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
---------- ---------- --------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Rent and maintenance
deposits............... 5,948,129 8,239,345 189,627 9,803,140 225,619
Telephone deposits...... 2,334,000 17,308,000 398,343 30,330,076 698,045
Other deposits.......... 139,822 392,197 9,026 418,647 9,635
Prepaid telephone
rentals................ 1,606,297 5,307,313 122,148 5,233,252 120,443
Staff advances
recoverable after one
year................... 145,000 237,000 5,455 268,663 6,183
---------- ---------- ------- ---------- ---------
10,173,248 31,483,855 724,599 46,053,778 1,059,925
========== ========== ======= ========== =========
</TABLE>
F-13
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
(9) Short term borrowings
Short term borrowings comprise the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
--------- --------- --------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Short term loan......... -- -- -- 20,000,000 460,299
Cash credit facilities
from banks............. -- -- -- 11,823,824 272,125
--- --- --- ---------- -------
-- -- -- 31,823,824 732,424
=== === === ========== =======
</TABLE>
In June 1999, the Company obtained a short term loan facility from the
IDBI Bank Limited ("IDBI") in an amount of Rs. 100,000,000. This loan is
secured by a subordinated charge on the fixed assets (both present and future)
of the Company and also by a corporate guarantee provided by Satyam Computer
Services. The loan carries an interest rate of 12.75% per annum and is
repayable within 90 days. As of June 30, 1999, the Company has availed an
amount of Rs. 20,000,000 (US$ 460,299) under this facility, which is repayable
in the month of September 1999. The Company has also availed of a cash credit
facility from IDBI to meet its working capital requirements. The facility
carries an interest rate of 15.81% per annum. This loan is secured by a senior
charge on all present and future goods, book debts and other movable current
assets of the Company.
(10) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
----------- ------------ ---------- ------------ ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Unsecured debentures.... 122,000,000 122,000,000 2,807,825 122,000,000 2,807,825
Term loan from Export
Import Bank of India... -- 136,500,000 3,141,542 136,500,000 3,141,542
----------- ------------ ---------- ------------ ----------
Total long-term debt.... 122,000,000 258,500,000 5,949,367 258,500,000 5,949,367
Less: Current
installments........... -- (144,750,000) (3,331,415) (167,500,000) (3,855,006)
----------- ------------ ---------- ------------ ----------
Long-term debt,
excluding current
installments........... 122,000,000 113,750,000 2,617,952 91,000,000 2,094,361
=========== ============ ========== ============ ==========
</TABLE>
Long term debt includes 1,220,000 unsecured debentures of Rs. 100 each
issued to Citibank NA, redeemable on August 31, 1999 and guaranteed by Satyam
Computer Services, the Company's holding company. These debentures carry a
floating rate of interest subject to a minimum rate of 14.5% per annum and an
additional mark-up rate. This additional mark-up rate is based on the
difference between the "base reference rate" and the "reference rate". The
"base reference rate" and the "reference rate" are calculated based on the
performance of the Indian National Stock Exchange indices through certain
designated periods. Such additional interest will be payable if the reference
rate as of August 31, 1999 exceeds the base reference rate and consequently
will be accounted for at the time of redemption, i.e. on August 31, 1999.
F-14
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
In June 1998, the Company obtained a facility from the Export Import Bank
of India for a term loan of Rs. 215,000,000. This term loan is secured by a
first charge on the fixed assets (both present and future) of the Company and
is also guaranteed by Satyam Computer Services. The loan carries an interest
rate of 15.5% per annum and will be repaid in six equal half-yearly
installments commencing on December 20, 1999. As of June 30, 1999, the Company
has availed an amount of Rs. 136,500,000 (US$ 3,141,542) under this facility.
Aggregate maturities of long-term debt for each of the years subsequent
to June 30, 1999 are as follows: June 30, 2000 - Rs. 167,500,000; June 30,
2001 - Rs. 45,500,000 and June 30, 2002 - Rs. 45,500,000.
(11) Income Taxes
The Company has incurred book and tax operating losses since inception
and has not provided for any deferred income tax because of the uncertainty
associated with the realization of such deferred tax assets.
The composition of the deferred tax asset is as follows:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
----------- ------------ ---------- ------------ ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Deferred tax assets
Operating loss carry
forwards............. 35,433,113 95,590,394 2,200,009 123,081,836 2,832,723
Plant and equipment
and intangibles...... 1,091,277 5,807,119 133,651 8,160,313 187,809
----------- ------------ ---------- ------------ ----------
Total deferred tax
assets................. 36,524,390 101,397,513 2,333,660 131,242,149 3,020,532
Less: Valuation
allowance.............. (36,524,390) (101,397,513) (2,333,660) (131,242,149) (3,020,532)
----------- ------------ ---------- ------------ ----------
Net deferred tax
assets................. -- -- -- -- --
=========== ============ ========== ============ ==========
</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 those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future 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 not
realize the benefit of these deductible differences. Under Indian law, loss
carry-forwards from a particular year may be used to offset taxable income over
the next eight years.
(12) Common Stock
Dividends: Should the Company declare and pay dividends, such dividends
will be paid in Indian rupees.
Indian law mandates that any dividend can 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.
F-15
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
(13) Stock Purchase Plan
In fiscal 1999, the Company entered into an agreement with Satyam
Computer Services and the South Asia Regional Fund ("SARF"). Under the terms of
this agreement, the Company agreed to issue warrants to Satyam Computer
Services and SARF. Each warrant entitles the registered holder thereof to
subscribe for and be allotted one Equity Share in the Company. The warrants are
exercisable at a price calculated at a multiple of eight times the fully
diluted earnings per share, subject to a minimum price of the higher of: (a)
66% of the fair market value of a share as determined by three merchant bankers
acceptable to shareholders, and (b) par value of the shares subscribed. These
warrants are exercisable anytime: (a) between June 30, 2001 through June 30,
2003; or (b) if the Company decides to sell any of its shares prior to June 30,
2001; or (c) on a date not later than the date on which the Company files an
application for listing or petitions for voluntary liquidation. As of June 30,
1999, the Company had issued 150,000 and 600,000 warrants to Satyam Computer
Services and SARF respectively. The Company has been notified by Satyam
Computer Services and SARF of their intent to exercise the warrants issued to
them in the event of an Initial Public Offering made by the Company.
(14) Employee Post Retirement Benefits
Contributions to the gratuity plan managed by the Life Insurance
Corporation of India in fiscal 1998 and 1999 was Rs. 313,733 and Rs. 319,606
(US$ 7,356) respectively. No contribution has been made for the quarter ended
June 30, 1999 as the amount had not fallen due on the Balance Sheet date.
In addition the Company contributed Rs. 266,328, Rs. 679,830, Rs.
2,122,963 (US$ 48,860), and Rs. 986,842 (US$ 22,712) to the provident fund
managed by Government of India in fiscal 1997, 1998, 1999 and quarter ended
June 30, 1999 respectively.
(15) Other Expense
Other expense, net, consists of the following:
<TABLE>
<CAPTION>
March 31, March 31, March 31, March 31, June 30, June 30,
1997 1998 1999 1999 1999 1999
Rs. Rs. Rs. US$ Rs. US$
--------- ---------- ---------- --------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest expense........ -- 11,307,320 27,754,615 638,771 10,060,759 231,547
Other finance charges... -- -- -- -- 349,650 8,047
Interest income......... -- (3,809,267) (609,020) (14,017) (785,361) (18,075)
Internet management
fees................... -- -- -- -- (300,000) (6,904)
Other income............ -- -- (358,875) (8,259) (7,741) (178)
----- ---------- ---------- ------- ---------- -------
-- 7,498,053 26,786,720 616,495 9,317,307 214,437
===== ========== ========== ======= ========== =======
</TABLE>
(16) Commitments and Contingencies
The Company had outstanding performance guarantees for various statutory
purposes totaling Rs. 144,000, Rs. 22,144,000 (US$ 509,643) and Rs. 22,144,000
(US$ 509,643) as of March 31, 1998 and 1999 and June 30, 1999, respectively.
These guarantees are generally provided to government agencies, primarily the
Telegraph Authority, as security for compliance with and performance of terms
and conditions contained in the Internet Service Provider licence granted to
the Company, and Videsh Sanchar Nigam Limited, towards the
F-16
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
supply and installation of an electronic commerce platform, respectively. These
guarantees may be invoked by the governmental agencies if they suffer any
losses or damage by reason of breach of any of the covenants contained in the
licence.
As of June 30, 1999, the Company had contractual commitments of
Rs.21,066,110 ($484,836) for capital expenditures relating to new network
infrastructure.
(17) Related Party Transactions
An analysis of transactions with Satyam Computer Services is set out
below.
<TABLE>
<CAPTION>
March 31, March 31, March 31, March 31, June 30, June 30,
1997 1998 1999 1999 1999 1999
Rs. Rs. Rs. US$ Rs. US$
---------- ----------- ----------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
the year............... 710,976 34,989,440 1,508,887 34,727 3,980,370 91,608
Advances received
towards working
capital................ 5,297,155 5,590,982 1,308,714 30,121 341,936 7,869
Advance received against
equity................. 28,981,309 38,453,000 92,700,000 2,133,487 -- --
Allocation of facilities
costs.................. -- -- 636,747 14,655 1,107,394 25,487
Expenses incurred on
behalf
of the Company......... -- -- 809,922 18,640 52,076 1,199
Purchases from Satyam
Computer Services...... -- -- 800,000 18,411 -- --
Allotment of equity..... -- (75,000,000) (93,783,900) (2,158,433) -- --
Interest income
received............... -- (2,524,535) -- -- -- --
---------- ----------- ----------- ---------- --------- -------
Balance at the end of
the year............... 34,989,440 1,508,887 3,980,370 91,608 5,481,776 126,163
========== =========== =========== ========== ========= =======
</TABLE>
Advance against equity represents interest free advances received from
the Company's parent company, Satyam Computer Services to be adjusted against
subsequent issues of common stock. There are no other terms against which such
advances have been made. The Company received temporary advances from Satyam
Computer Services to meet its working capital requirements in fiscal 1997
through 1999. Of these, advances amounting to Rs. 7,565,690 and Rs. 1,083,900
were settled by the issue of 756,569 and 108,390 equity shares of Rs. 10 each
in fiscal 1998 and 1999 respectively and is disclosed in the statement of cash
flows as a non-cash financing activity. The fair value of each equity share on
the dates of issuance of these shares equaled their face value.
The Company made sales to Satyam Computer Services for cash amounting to
Rs. 390,000 (US$ 8,976) and Rs. 9,039,000 (US$ 208,032) during the year March
31, 1999 and quarter ended June 30, 1999 respectively. The Company also paid
Satyam Computer Services Rs. 757,141 towards training and consultancy fees in
fiscal 1998.
During fiscal 1998, the Company placed short term deposits with Satyam
Computer Services at a rate of 18% per annum for periods ranging between three
to six months.
F-17
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
Particulars of significant related transactions with other affiliated
companies are set out below.
<TABLE>
<CAPTION>
March 31, March 31, March 31, March 31, June 30, June 30,
1997 1998 1999 1999 1999 1999
Rs. Rs. Rs. US$ Rs. US$
--------- --------- --------- --------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Sales to affiliates..... -- -- 45,000 1,036 -- --
Purchases of
software/cables from
affiliates............. -- 1,370,938 800,000 18,411 -- --
</TABLE>
No interest is charged by Satyam Computer Services on the balances
payable to them. The balances payable to Satyam Computer Services as of March
31, 1998, 1999 and June 30, 1999 were as follows:
<TABLE>
<CAPTION>
March 31, March 31, March 31, June 30, June 30,
1998 1999 1999 1999 1999
Rs. Rs. US$ Rs. US$
--------- --------- --------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Due to Satyam Computer
Services............... 1,508,887 3,980,370 91,608 5,481,776 126,163
</TABLE>
No amounts were receivable from Satyam Computer Services as of March 31,
1998, March 31, 1999 and June 30, 1999. Included in other current assets is an
amount of Rs. 190,104 (US$ 4,375) and Rs. 224,993 (US$ 5,178) receivable from
affiliates as of March 31, 1999 and June 30, 1999 respectively. No other
amounts were receivable from or payable to affiliates as of March 31, 1998,
1999 and June 30, 1999.
The Company grants interest free advances to officers and employees. Such
loans are repayable over fixed periods ranging from one to sixty months. As of
March 31, 1998, 1999 and June 30, 1999, the amounts recoverable from officers
and employees were Rs. 232,302, Rs. 810,143 (US$ 18,645) and Rs. 839,469
(US$ 19,320) respectively, of which Rs. 87,302, Rs. 573,143 (US$ 13,191) and
Rs. 570,806 (US$ 13,137) respectively were recoverable within one year from
those dates.
(18) Segment Reporting
In accordance with the provisions of SFAS 131, Disclosures about Segments
of an Enterprise and Related Information, the Company has determined that it
has three operating segments:
. Internet Access Services, providing Internet access services to
subscribers;
. Corporate Services, providing dial up and dedicated Internet
access, e-commerce, electronic data interchange, e-mail and other
messaging services, virtual private networks, and web based
solutions to businesses, web page hosting to individuals; and
. Online Portal Services, operating an Internet portal and offering
related content sites.
F-18
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
These operating segments were identified from the structure of the
Company's internal organization. Currently, the chief operating decision-maker
of the Company receives and reviews information relating to segment revenues
only. Products and services revenues are presented below.
<TABLE>
<CAPTION>
March 31, March 31, March 31, March 31, June 30, June 30,
1997 1998 1999 1999 1999 1999
Rs. Rs. Rs. US$ Rs. US$
--------- --------- ----------- --------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Internet access
services............... -- -- 13,310,800 306,348 40,148,279 924,011
Corporate services...... -- 6,805,020 89,973,032 2,070,725 40,076,347 922,356
Online portal services.. -- -- 60,000 1,381 578,626 13,317
--- --------- ----------- --------- ---------- ---------
Revenues................ -- 6,805,020 103,343,832 2,378,454 80,803,252 1,859,684
=== ========= =========== ========= ========== =========
</TABLE>
SFAS 131 also requires that an enterprise report a measure of profit or
loss and total assets for each reportable segment. Certain expenses such as
bandwidth costs (telecommunication), depreciation on plant and machinery, etc.,
which form a significant component of total expenses, are not specifically
allocable to these business segments as the services are used interchangeably
between reportable segments. Management believes that it is not practical to
provide segment disclosures relating to segment costs and expenses, and
consequently segment profits or losses, since a realistic allocation cannot be
made. The fixed assets used in the Company's business are not identifiable to
any particular reportable segment and can be used interchangeably among
segments. Consequently, management believes that it is not practical to provide
segment disclosures relating to total assets since a realistic analysis among
the various operating segments is not possible.
(19) Employee Stock Offer Plan
In fiscal 1999, the Company established the Employee Stock Offer Plan
("ESOP") which provides for the issuance of 825,000 warrants to eligible
employees. The warrants were issued to an employee welfare trust (the "Trust")
at Rs. 1 each. The Trust holds the warrants and transfers them to eligible
employees over a period of three years. The warrants are transferred to
employees at Rs. 1 each and each warrant entitles the holder to purchase one of
the Company's equity shares at an exercise price of Rs. 70 per share. The
warrants and the equity shares received upon the exercise of warrants are
subject to progressive vesting over a three-year period from the date of issue
of warrants to employees. The fair market value of each of the issued warrants
was determined by the Board of Directors to be Rs. 400. The warrants allotted
and the underlying equity shares are not subject to any repurchase obligations
by the Company.
During fiscal 1999, 5,000 warrants were granted to a single employee
resulting in a deferred compensation of Rs. 1,650,000, for the difference
between the exercise price and the fair market value of the common stock
underlying the warrants, as of the date the warrants were unconditionally made
available to the employee. Deferred compensation is amortized over the vesting
period of the warrants. The weighted average remaining useful life of the
outstanding warrants as of June 30, 1999 was 2.11 years.
F-19
<PAGE>
SATYAM INFOWAY LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Expressed in Indian Rupees, except share data and as otherwise stated)
(Information as of June 30, 1999 and for the quarter ended June 30, 1998 and
1999 is unaudited)
The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost for the Company's stock-based compensation plan been
determined in a manner consistent with the fair value approach described in
SFAS No. 123, the Company's net loss would have increased to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
March 31, March 31, June 30, June 30,
1999 1999 1999 1999
Rs. US$ Rs. US$
------------ ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss
As reported.......... (187,375,665) (4,312,442) (51,748,694) (1,190,993)
Adjusted pro forma... (187,378,430) (4,312,507) (51,756,994) (1,191,185)
Basic loss per share
As reported.......... (17.31) (0.40) (3.29) (0.08)
Adjusted pro forma... (17.31) (0.40) (3.29) (0.08)
</TABLE>
The fair value of each warrant is estimated on the date of grant using
the Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
--------- -----------
(unaudited)
<S> <C> <C>
Dividend yield %..................................... 0.00% 0.00%
Expected life........................................ 3 years 3 years
Risk free interest rates............................. 11.00% 11.00%
Volatility........................................... 0.01% 0.01%
</TABLE>
(20) Year 2000
Certain organizations anticipate that they will experience operational
difficulties at the beginning of the Year 2000 as a result of computer programs
being written using two digits rather than four to define the applicable year.
The Company's plan for the Year 2000 calls for compliance verification with
external vendors supplying the Company software, testing in-house engineering
and manufacturing software tools, testing software in the Company's products
for the Year 2000, and communication with significant suppliers to determine
the readiness of third parties remediation of their own Year 2000 issues.
To date, the Company has not encountered any material Year 2000 issues
concerning its respective computer programs. The Company plans to complete its
Year 2000 research and testing by July 1999. All costs associated with the
Company's plan for the Year 2000 are being expensed as incurred. The costs
associated with the Year 2000 are not expected to have a material adverse
effect on the Company's business, financial condition and results of
operations. Nevertheless there is uncertainty concerning the potential costs
and effects associated with any Year 2000 compliance.
F-20
<PAGE>
Three panels of graphical information regarding Satyam Infoway Limited
consisting of:
. a graphical presentation of Satyam Infoway's network covering 25 cities
in India, with international Internet gateways in Mumbai, Bangalore,
Chennai, Hyderabad, Delhi and Calcutta;
. sample web pages from some of Satyam Infoway's content sites, including
specialty sites related to personal finance and classified ads;
. a picture of the Satyam Online CD-ROM;
. a list of products and services provided by Satyam Infoway;
. a picture of equipment in Satyam's data center; and
. a description of some of the features of Satyam Online.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,175,000 American Depositary Shares
Representing 4,175,000 equity shares
[LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE]
SATYAM INFOWAY LIMITED
American Depositary Shares
----------------
P R O S P E C T U S
----------------
Merrill Lynch & Co.
Salomon Smith Barney
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this offering circular is not complete and may be changed. +
+We may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This offering circular +
+is not an offer to sell these securities and we are not soliciting an offer +
+to buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999
OFFERING CIRCULAR
4,175,000 American Depositary Shares
[LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE]
SATYAM INFOWAY LIMITED
Representing 4,175,000 Equity Shares
-----------
Satyam Infoway Limited is offering up to 4,175,000 American Depositary
Shares, or ADSs, of Satyam Infoway outside India, including in the United
States. This offering circular relates to an offering by the international
underwriters of up to 1,670,000 American Depositary Shares outside the United
States and Canada. Additional underwriters are offering up to 2,505,000
American Depositary Shares in the United States and Canada. Each American
Depositary Share represents one equity share.
This is Satyam Infoway's initial public offering, and no public market
currently exists for Satyam Infoway's equity shares.
Satyam Infoway has applied to list its American Depositary Shares on The
Nasdaq Stock Market's National Market under the symbol "SIFY."
It is anticipated that the price to public per ADS will be between $12.00
and $14.00 per ADS.
-----------
Investing in the American Depositary Shares involves certain risks which
are described in the Risk Factors beginning on page 7.
-----------
<TABLE>
<CAPTION>
Underwriting
Price discount and Proceeds
to public commissions to us
--------- ------------ --------
<S> <C> <C> <C>
Per ADS......................................... $ $ $
Total........................................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Satyam Infoway has granted to the underwriters the right to purchase up to
an additional 626,250 American Depositary Shares at the public offering price,
less discount and commissions, within 30 days from the date of this offering
circular to cover overallotments.
-----------
Merrill Lynch International Salomon Smith Barney International
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................... 1
Risk Factors............................................................ 7
Conventions Which Apply to This Prospectus.............................. 22
Currency of Presentation................................................ 22
Enforcement of Civil Liabilities........................................ 23
Reports to Our Security Holders......................................... 24
Use of Proceeds......................................................... 25
Dividend Policy......................................................... 26
Capitalization.......................................................... 27
Exchange Rates.......................................................... 28
Dilution................................................................ 29
Selected Financial Data................................................. 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 32
Business................................................................ 43
Management.............................................................. 60
Principal Shareholders.................................................. 65
Certain Transactions.................................................... 66
Description of Equity Shares............................................ 67
Description of American Depositary Shares............................... 72
Restrictions on Foreign Ownership of Indian Securities.................. 80
Government of India Approvals........................................... 84
Taxation................................................................ 86
Shares Eligible for Future Sale......................................... 91
Underwriting............................................................ 92
Legal Matters........................................................... 95
Experts................................................................. 95
Change of Accountants................................................... 95
Additional Information.................................................. 95
Index to Financial Statements........................................... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
Through and including , (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
UNDERWRITING
The global offering consists of:
. the international offering of 1,670,000 ADSs outside the United
States and Canada; and
. the U.S. offering of 2,505,000 ADSs in the United States and
Canada.
We and the underwriters for the international offering named below have
entered into an underwriting agreement with respect to the ADSs being offered
in the international offering. Each international underwriter has severally
agreed to purchase the number of ADSs indicated in the table below. Merrill
Lynch (Singapore) Pte. Ltd. and Salomon Brothers International Limited are the
representatives for the international underwriters. Merrill Lynch International
will be selling in Europe.
<TABLE>
<CAPTION>
Number
of
International Underwriters ADSs
-------------------------- ------
<S> <C>
Merrill Lynch (Singapore) Pte. Ltd...................................
Salomon Brothers International Limited...............................
----
Total...........................................................
====
</TABLE>
The international underwriters have agreed to purchase all the ADSs being
offered in the international offering, other than those covered by the
overallotment option described below, if they purchase any of these ADSs.
We have granted to the underwriters in the international and U.S.
offerings an option, exercisable within 30 days after the date of this
prospectus, to purchase up to 626,250 additional ADSs at the public offering
price less the underwriting commission. The underwriters may exercise this
option solely for the purpose of covering overallotments, if any, in connection
with the offerings. The representatives of the U.S. underwriters will decide on
behalf of the underwriters whether to exercise the option and whether to
allocate any ADSs covered by the option to the U.S. offering or the
international offering. If the international underwriters purchase
overallotment ADSs, each international underwriter will purchase a number of
additional ADSs approximately proportionate to the underwriter's initial
purchase commitment.
The international underwriters will initially offer the ADSs at the
public offering price set out on the cover of this prospectus. The
international underwriters may sell ADSs to securities dealers at a discount of
up to $ per ADS from the initial public offering price. Any of these
securities dealers may resell any securities purchased from the international
underwriters to other brokers or dealers at a discount of up to $ per ADS
from the initial public offering price. If all the ADSs are not sold at the
initial offering price, the representatives of the international underwriters
may change the offering price and the other selling terms.
We have also entered into an underwriting agreement for the sale of
2,505,000 ADSs in the United States and Canada. Merrill Lynch and Co. and
Salomon Smith Barney Inc. are the representatives of the underwriters for the
U.S. offering. The international and U.S. offerings are conditioned on each
other. The initial offering price and aggregate underwriting commissions per
ADS for the international offering and the U.S. offering are identical.
The underwriters have entered into an agreement in which they agree to
restrictions on where and to whom they and any dealer purchasing from them may
offer ADSs in connection with the offering. The international and U.S.
underwriters also have agreed that they may sell shares between their
respective underwriting groups.
Our company, each of our executive officers and directors, the holders of
warrants to purchase 750,000 equity shares and substantially all of our
shareholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any equity shares or securities convertible into, exchangeable for
or representing the right to receive equity shares, for a period of 180 days
after the date of this prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. These agreements do not cover (1)
the grant of stock options under our existing stock option plan or (2) equity
shares issued upon the conversion of convertible or exchangeable securities or
the exercise of an option or warrant outstanding as of the date of this
prospectus. These lock-up agreements cover substantially all equity shares
outstanding prior to this offering.
92
<PAGE>
The ADSs offered under this prospectus are expected to be approved for
listing on the Nasdaq National Market.
In connection with the global offering, the international and U.S.
underwriters may purchase and sell ADSs in the open market. These transactions
may include short sales, stabilizing transactions and purchases to cover
positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of securities than they are required to
purchase in the offering. Stabilizing transactions consist of bids or purchases
made for the purpose of preventing or retarding a decline in the market price
of the ADSs while the offering is in progress.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the ADSs. As a result, the price of the ADSs may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, the underwriters may discontinue these
transactions at any time. The underwriters may effect transactions through the
Nasdaq National Market, in the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some
liabilities, including liabilities under the Securities Act of 1933.
The underwriters and their affiliates engage and may in the future engage
in investment banking and commercial banking transactions with us.
The underwriters have reserved up to 200,000 ADSs for sale at our request
to persons associated with our company at the same price and on the same terms
as the shares sold by the underwriters to the general public. The number of
ADSs available for sale to the general public will be reduced to the extent any
reserved ADSs are purchased. Any reserved ADSs not so purchased will be offered
by the underwriters on the same basis as the other ADSs offered hereby.
The underwriters expect to deliver ADSs against payment for the ADSs in
U.S. dollars in New York, New York on or about , 1999.
Selling Restrictions
The prospectus does not constitute an offer or an invitation by, or on
behalf of, us or by or on behalf of the underwriters, to subscribe for or
purchase any of the equity shares or the offered ADSs in any jurisdiction to
any person to whom it is unlawful to make such an offer or solicitation in that
jurisdiction. The distribution of this prospectus and the offering of the
equity shares or the ADSs in certain jurisdictions may be restricted by law.
Persons into whose possession this prospectus comes are required by us and the
underwriters to inform themselves about and to observe any such restrictions.
Each international underwriter has represented and agreed that it has not
distributed and will not distribute, directly or indirectly, any prospectus
relating to the ADSs in India or to residents of India and that it has not
offered or sold and will not offer or sell, directly or indirectly, any ADSs in
India or to, or for the account or benefit of, any resident of India.
Each international underwriter has represented and agreed that (1) it has
not offered or sold and prior to the expiry of the period of six months from
the initial issue date of the ADSs will not offer or sell any ADSs to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purpose of their business or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(2) it has completed and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the ADSs in, from or otherwise involving the United Kingdom; and (3) it has
only issued or passed
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the
93
<PAGE>
issue of the ADSs to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, as amended, or is a person to whom such document may otherwise lawfully
be issued or passed on.
Each international underwriter has represented and agreed that (1) it has
not offered or sold and will not offer or sell in the Hong Kong Special
Administrative Region of the People's Republic of China, or Hong Kong, by means
of any document, the ADSs other than to persons whose ordinary business is to
buy or sell shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Ordinance (Cap. 32 of the laws of Hong Kong) and (2) unless
permitted to do so under the securities laws of Hong Kong, it has not issued or
had in its possession for the purpose of issue and will not issue or have in
its possession for the purpose of issue any invitation, advertisement or
document relating to the ADSs in Hong Kong other than with respect to such ADSs
intended to be disposed of to persons outside Hong Kong or to persons whose
business involves the acquisition, disposal or holding of securities (whether
as principal or agent).
This prospectus has not been registered with the Registrar of Companies
and Business in Singapore. Accordingly, each international underwriter has
represented and agreed that is has not and will not offer or sell any ADSs or
distribute this prospectus or any other document or material in connection with
the ADSs, either directly or indirectly, (1) to constitute an offer or sale of
the ADSs to the public of Singapore or (2) to the public or any member of the
public in Singapore other than pursuant to, and in accordance with the
conditions of, an exemption invoked under Division 5A of Part IV of the
Companies Act, Chapter 50 of Singapore and to persons to whom the ADSs may be
offered or sold under such exemption. The Registrar of Companies and Businesses
in Singapore takes no responsibility as to the contents of this document.
Each international underwriter has represented and agreed that the ADSs
have not been registered under the Securities and Exchange Law of Japan and are
not being offered or sold and may not be offered or sold, directly or
indirectly, in Japan or to or for the account of any resident of Japan or to
any persons for reoffering or resale, directly or indirectly, in Japan or to
any residents of Japan, except (1) pursuant to an exemption from the
registration requirements of the Securities and Exchange law of Japan and (2)
in compliance with any other applicable requirements of Japanese law.
94
<PAGE>
LEGAL MATTERS
The validity of the ADSs offered hereby will be passed upon for Satyam
Infoway Limited by Latham & Watkins, Menlo Park, California. The validity of
the equity shares represented by the ADSs offered hereby and the principal
Indian tax consequences for holders of ADSs and equity shares received upon
withdrawal of such equity shares who are not resident in India will be passed
upon by M.G. Ramachandran, New Delhi, India, Indian counsel for Satyam Infoway
Limited. Matters in connection with the offering will be passed upon on behalf
of the underwriters by Brobeck, Phleger & Harrison, LLP, New York, New York,
and Nishith Desai Associates, Mumbai, India, counsel for the Underwriters.
Latham & Watkins may rely upon M.G. Ramachandran with respect to matters
governed by Indian law.
EXPERTS
The U.S. GAAP financial statements of Satyam Infoway Limited as of March
31, 1998 and 1999, and for each of the years in the three-year period ended
March 31, 1999, have been included herein in reliance upon the report of KPMG
Peat Marwick, India, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in auditing and accounting.
CHANGE OF ACCOUNTANTS
Effective May 1998, Bharat S. Raut and Company was engaged as the
principal independent accountants for Satyam Infoway for Indian GAAP reporting,
replacing Fraser & Ross, who resigned at that time. The change was approved by
our Directors and at the annual general meeting held on May 23, 1998.
In connection with the audits of the fiscal years ended March 31, 1996,
1997 and 1998, and for the interim period from April 1, 1998 through May 23,
1998, there were no disagreements with Fraser & Ross on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction
of Fraser & Ross, would have caused them to make reference to the matter in
their report, except that during the fiscal year ended March 31, 1998 Fraser &
Ross qualified its opinion regarding whether or not Section 58A of the
Companies Act applied to Satyam Infoway's issuance of debentures to Citibank.
Section 58A prohibits Indian companies, other than banks, from accepting
"deposits" in an amount in excess of 25% of their share capital. Fraser & Ross
concluded that the debentures should be classified as "deposits" while Satyam
Infoway concluded that they should be classified as a bank loan. The audit
reports of Fraser & Ross for the financial statements of Satyam Infoway as of
and for the fiscal years ended March 31, 1996, 1997 and 1998 did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty or audit scope, except for a qualification of the
financial statements at March 31, 1998 prepared under Indian GAAP related to
the treatment of the Citibank debentures as described above.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1, which
includes amendments, exhibits, schedules and supplements, under the Securities
Act of 1933, as amended, and the rules and regulations of the SEC, for the
registration of the ADSs and underlying equity shares offered by this
prospectus. Although this prospectus, which forms a part of the registration
statement, contains all material information included in the registration
statement, part of the registration statement have been omitted from this
prospectus as permitted by the rules and regulations of the SEC. A related
registration statement on Form F-6 has also been filed to register our ADSs as
represented by the ADRs. For further information with respect to
95
<PAGE>
our company and the ADSs offered by this prospectus, please refer to the
registration statement. Although this prospectus contains all material terms of
the contracts or other documents referred to in this prospectus, the
descriptions of these contracts or other documents contained in this prospectus
are not necessarily complete.
You may read and copy all or any portion of the registration statement or
any other information that we file, or obtain a copy of those materials,
through facilities maintained by the SEC as described in the front of this
prospectus under the caption "Reports to our Security Holders."
96
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,175,000 American Depositary Shares
Representing 4,175,000 equity shares
[LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE]
SATYAM INFOWAY LIMITED
American Depositary Shares
----------------
OFFERING CIRCULAR
----------------
Merrill Lynch International
Salomon Smith Barney International
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale
of the ADSs being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount
to Be Paid
----------
<S> <C>
SEC registration fee............................................. $ 18,687
NASD filing fee.................................................. 7,222
Nasdaq National Market listing fee............................... 60,000
Legal fees and expenses.......................................... 500,000
Accounting fees and expenses..................................... 120,000
Printing and engraving........................................... 200,000
Blue sky fees and expenses (including legal fees)................ 10,000
Reimbursement of offering expenses by Depositary................. (75,000)
Miscellaneous.................................................... 159,091
----------
Total.......................................................... $1,000,000
==========
</TABLE>
- --------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
We expect to amend our Articles of Association to provide that our
directors and officers shall be indemnified by our company against loss in
defending any proceeding brought against officers and directors in their
capacity as such, if the indemnified officer or director receives judgment in
his favor or is acquitted in such proceeding. In addition, we expect to amend
our Articles of Association to provide that our company shall indemnify our
officers and directors in connection with any application pursuant to Section
633 of the Companies Act, 1956 in which relief is granted by the court.
We expect to enter into indemnification agreements with our directors
and officers, pursuant to which our company will agree to indemnify them
against a number of liabilities and expenses incurred by such persons in
connection with claims made by reason of their being such a director or
officer.
The form of underwriting agreement to be filed as Exhibit 1.1 to this
registration statement will also provide for indemnification of our company
and our officers and directors.
Our company may obtain directors and officers insurance providing
indemnification for a number of our directors, officers, affiliates, partners
or employees for specified errors and omissions.
Item 15. Recent Sales of Unregistered Securities
The registrant has sold and issued the following securities since
December 12, 1995 (Inception):
(1) On December 12, 1995, we issued on aggregate of (a) 100 equity
shares to B. Ramalinga Raju, (b) 100 equity shares to B. Rama Raju and (c) 30
equity shares to Satyam Computer Services for a purchase price of Rs.2,300.
(2) On August 13, 1997, we issued an aggregate of 1.3 million equity
shares to Satyam Computer Services for a purchase price of Rs.13.0 million.
(3) On March 30, 1998, we issued an aggregate of 6.2 million equity
shares to Satyam Computer Services for a purchase price of Rs.62.0 million.
II-1
<PAGE>
(4) On June 30, 1998, we issued an aggregate of 3.0 million equity
shares, to Satyam Computer Services for a purchase price of Rs.30.0 million.
(5) On September 25, 1998, we issued an aggregate of (a) 370,000 equity
shares to R. Ramaraj and (b) 1,130,000 equity shares to Satyam Computer
Services for a purchase price of Rs.15.0 million.
(6) On December 24, 1998, we issued an aggregate of 749,770 equity
shares to Satyam Computer Services for a purchase price of Rs.52.5 million.
(7) In March 1999, we issued (a) an aggregate of 3.0 million equity
shares to SARF for a purchase price of Rs.210.0 million and (b) warrants to
purchase an aggregate of 750,000 equity shares to SARF and Satyam Computer
Services.
(8) In September 1999, we issued an aggregate of 481,000 equity shares
to Sterling Commerce for a purchase price of $5.0 million.
(9) On or about the effective date of this registration statement, we
will issue an aggregate of 750,000 equity shares to SARF and Satyam Computer
Services upon the exercise of warrants.
The sale of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Regulation S under the
Securities Act, except that the issuance described under (8) was deemed exempt
in reliance on Regulation D and Section 4(2) under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Articles of Association of Satyam Infoway Limited.
3.2 Memorandum of Association of Satyam Infoway Limited.
3.3 Table "A' of the Companies Act, 1956.
4.1 Share Subscription and Shareholders' Agreement, dated as of February 5,
1999, by and among Satyam Infoway Limited, Satyam Computer Services
Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju.
4.2 Amendment No. 1 to Share Subscription and Shareholders' Agreement,
dated as of September 14, 1999, by and among Satyam Infoway Limited,
Satyam Computer Services Limited, South Asia Regional Fund and Mr. B.
Ramalinga Raju.
*4.3 Form of Deposit Agreement among Satyam Infoway Limited, Citibank, N.A.
and holders from time to time of American Depositary Receipts issued
thereunder (including as on exhibit, the form of American Depositary
Receipt).
*4.4 Satyam Infoway Limited's Specimen Certificate for equity shares.
4.5 Rupee Loan Agreement, dated as of July 3, 1998, by and between Satyam
Infoway Limited and Export-Import Bank of India.
4.6 Letter Agreement, dated as of September 14, 1999, by and between Satyam
Infoway Limited and Sterling Commerce, Inc.
4.7 Stockholders Agreement, dated as of September 14, 1999, by and among
Satyam Infoway Limited, Sterling Commerce, Inc. and Satyam Computer
Services Limited.
4.8 Registration Rights Agreement, dated as of September 14, 1999, by and
among Satyam Infoway Limited, Sterling Commerce, Inc. and South Asia
Regional Fund.
*5.1 Opinion of M. G. Ramachandran.
*10.1 Associate Stock Option Plan (including Administration Manual and Deed
of Trust).
*10.2 Form of Indemnification Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.3 License Agreement For Provision of Internet Service, dated as of
November 12, 1998, by and between Satyam Infoway Limited and the
Government of India, Ministry of Communications, the Department of
Telecommunications, Telecom Commission.
10.4 Bank Guarantee, dated as of November 4, 1998.
*10.5 CompuServe Network Services Strategic Alliance Agreement, dated of
April 18, 1997, by and between Satyam Infoway Limited and CompuServe
Incorporated.
*10.6 International Electronic Commerce Provider Agreement, dated as of
February 14, 1997, by and between Satyam Infoway Limited and Sterling
Commerce International Inc.
*10.7 Amendment No. 1 to International Electronic Commerce Provider Agreement
by and between Satyam Infoway Limited and Sterling Commerce
International Inc.
*10.8 Amendment No. 2 to International Electronic Commerce Provider Agreement
by and between Satyam Infoway Limited and Sterling Commerce
International Inc.
*10.9 Amendment No. 3 to International Electronic Commerce Provider
Agreement, dated as of September 14, 1999, by and between Satyam
Infoway Limited and Sterling Commerce International Inc.
*10.10 Distribution Agreement, dated as of June 1997, by and between Satyam
Infoway Limited and Open Market, Inc.
10.11 User Agreement, effective as of April 1, 1999 by and between Satyam
Infoway Limited and Satyam Computer Services Limited.
*16.1 Letter from Fraser & Ross regarding Change in Certifying Accountant.
*23.1 Consent of Latham & Watkins.
*23.2 Consent of M.G. Ramachandran (included in Exhibit 5.1).
23.3 Consent of KPMG Peat Marwick, India, Independent Auditors.
23.4 Consent of International Data Corporation.
24.1 Power of Attorney (included on Page S-1 of prior filing).
*27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
(b)Financial Statement Schedules.
None.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
II-3
<PAGE>
contained in a form of prospectus filed by the registrant pursuant to
Rule 424 (b)(1) or (4), or 497(h) under the Securities Act of 1933,
shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Chennai,
State of Tamil Nadu, Country of India, on this 4th day of October, 1999.
Satyam Infoway Limited
/s/ R. Ramaraj
By: _________________________________
Name: R. Ramaraj
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. Ramaraj Chief Executive Officer and October 4, 1999
____________________________________ Director (Principal
R. Ramaraj Executive Officer)
* Chief Financial Officer October 4, 1999
____________________________________ (Principal Financial and
T.R. Santhanakrishnan Accounting Officer)
* Director October 4, 1999
____________________________________
B. Ramalinga Raju
* Director October 4, 1999
____________________________________
Pranab Barua
* Director October 4, 1999
____________________________________
T. H. Chowdary
* Director October 4, 1999
____________________________________
Donald Peck
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director October 4, 1999
____________________________________
C. Srinivasa Raju
* Director October 4, 1999
____________________________________
S. Srinivasan
* Authorized Representative in October 4, 1999
____________________________________ the United States
Donald J. Puglisi
</TABLE>
/s/ R. Ramaraj
*By: _____________________
R. Ramaraj, Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Articles of Association of Satyam Infoway Limited.
3.2 Memorandum of Association of Satyam Infoway Limited.
3.3 Table "A' of the Companies Act, 1956.
4.1 Share Subscription and Shareholders' Agreement, dated as of February 5,
1999, by and among Satyam Infoway Limited, Satyam Computer Services
Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju.
4.2 Amendment No. 1 to Share Subscription and Shareholders' Agreement,
dated as of September 14, 1999, by and among Satyam Infoway Limited,
Satyam Computer Services Limited, South Asia Regional Fund and Mr. B.
Ramalinga Raju.
*4.3 Form of Deposit Agreement among Satyam Infoway Limited, Citibank, N.A.
and holders from time to time of American Depositary Receipts issued
thereunder (including as on exhibit, the form of American Depositary
Receipt).
*4.4 Satyam Infoway Limited's Specimen Certificate for equity shares.
4.5 Rupee Loan Agreement, dated as of July 3, 1998, by and between Satyam
Infoway Limited and Export-Import Bank of India.
4.6 Letter Agreement, dated as of September 14, 1999, by and between Satyam
Infoway Limited and Sterling Commerce, Inc.
4.7 Stockholders Agreement, dated as of September 14, 1999, by and among
Satyam Infoway Limited, Sterling Commerce, Inc. and Satyam Computer
Services Limited.
4.8 Registration Rights Agreement, dated as of September 14, 1999, by and
among Satyam Infoway Limited, Sterling Commerce, Inc. and South Asia
Regional Fund.
*5.1 Opinion of M. G. Ramachandran.
*10.1 Associate Stock Option Plan (including Administration Manual and Deed
of Trust).
*10.2 Form of Indemnification Agreement.
10.3 License Agreement For Provision of Internet Service, dated as of
November 12, 1998, by and between Satyam Infoway Limited and the
Government of India, Ministry of Communications, the Department of
Telecommunications, Telecom Commission.
10.4 Bank Guarantee, dated as of November 4, 1998.
*10.5 CompuServe Network Services Strategic Alliance Agreement, dated of
April 18, 1997, by and between Satyam Infoway Limited and CompuServe
Incorporated.
*10.6 International Electronic Commerce Provider Agreement, dated as of
February 14, 1997, by and between Satyam Infoway Limited and Sterling
Commerce International Inc.
*10.7 Amendment No. 1 to International Electronic Commerce Provider Agreement
by and between Satyam Infoway Limited and Sterling Commerce
International Inc.
*10.8 Amendment No. 2 to International Electronic Commerce Provider Agreement
by and between Satyam Infoway Limited and Sterling Commerce
International Inc.
*10.9 Amendment No. 3 to International Electronic Commerce Provider
Agreement, dated as of September 14, 1999, by and between Satyam
Infoway Limited and Sterling Commerce International Inc.
*10.10 Distribution Agreement, dated as of June 1997, by and between Satyam
Infoway Limited and Open Market, Inc.
10.11 User Agreement, effective as of April 1, 1999 by and between Satyam
Infoway Limited and Satyam Computer Services Limited.
*16.1 Letter from Fraser & Ross regarding Change in Certifying Accountant.
*23.1 Consent of Latham & Watkins.
*23.2 Consent of M.G. Ramachandran (included in Exhibit 5.1).
23.3 Consent of KPMG Peat Marwick, India, Independent Auditors.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
23.4 Consent of International Data Corporation.
24.1 Power of Attorney (included on Page S-1 of prior filing).
*27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
2
<PAGE>
EXHIBIT 3.1
UNDER THE COMPANIES ACT, 1956
[1 OF 1956]
COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
SATYAM INFOWAY LIMITED
The following articles shall be the regulations of the management of the
Company.
PRELIMINARY
1. Subject to as provided here in after the regulations contained in Table `A'
of the Companies Act, 1956, herein after, referred to as Table `A' shall
apply to the Company except, those regulations as do not apply to private
Companies.
2. [/3/]
CAPITAL
3. The authorised share capital of the Company shall be as stated in clause V
of the Memorandum of Association.
(i) [Where at any time subsequent to the first allotment of shares, it is
proposed to increase the subscribed capital by the issue of new
shares, subject to any directions to the contrary which may be given
by the company in general meeting and subject only to these
directions, such new shares shall be issued in accordance with the
provisions of section 81 of the Act.]/4/
4. The Directors of the Company may from time to time determine the amount
payable on application and allotment at the time of issue of shares and may
also make calls upon the members in respect of any money unpaid on their
shares of such amount and payable at such time and place as they may from
time to time decide.
5. Every person whose name is entered as a member in the register of members
shall be entitled to receive within three months of the date of allotment
one certificate for all his shares under the seal of the Company and if,
any member so desires, he can have more than one certificate in respect of
each or more of his shares on payment of Rs.10/-as certificate. The
Company shall not be bound to issue more than one certificate in respect of
the same share to joint holders.
6. If a share certificate is defaced, lost or destroyed, it may be renewed on
payment of Rs.30/-and on executing an indemnity bond in respect of the
shares comprised in the certificate after the Directors are satisfied as to
the genuineness of the case.
______________________________
/3/ Provisions relating to Private Companies deleted by Special Resolution
passed in an Extra-ordinary General Meeting held on 30th November 1998.
/4/ Inserted vide Special resolution passed in Extra-ordinary General meeting
held on 30th June 1997
<PAGE>
SHARE WARRANTS
6A.
1) The company may issue share warrants subject to, and in accordance with
the provisions of Section 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 person 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.
2) The Board may, from time to time, make rules as to the terms of 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.
3) The warrant issued shall entitle the registered holder thereof a right
to subscribe (the "Subscription Right(s)") for one fully paid share in
the capital of the company at any time during the warrant exercise
period for the warrant exercise price on the following conditions
4) The Warrant Exercise price per shall be calculated by applying, at the
"Warrant exercise date" a multiple of eight to the fully diluted
earnings per share calculated using the latest annual audited accounts
of the company. The term "fully diluted" shall for the purposes of this
clause mean that the number of shares used to calculated the earnings
per share will be the number of shares used to calculated the earnings
per share will the number of shares that would be in issue if all the
warrants and options in issue at the Warrant exercise date were
converted into shares, subject to a minimum price of the higher of (a)
66% of the fair market value of a share on the warrant exercise date,
fair market value being arrived at by taking the mean price per share
determined by three reputable merchant banks acceptable to the share
holders at the time and (b) the par value of shares subscribed. If the
share holders cannot agree on three reputable merchant banks, the
President for the time-being of the International Chambers of Commerce,
India will select and appoint such remaining reputable Merchant bankers
as may be required, at the request of any of the parties hereto.
5) The Warrants exercise period shall be any time between 30th June 2001
to 30 June 2003 during which warrants can be exercised failing which
the relevant warrants will lapse and cease to have any further effect.
Once a notice exercising the warrant has been given, such notice may
not be withdrawn except with written consent of the company. The
warrants shall have to be exercised in not more than 3 tranches by the
warrant holders.
6) Each warrant holder shall be entitled to warrant certificates in such
denominations as he may request. The warrant certificates shall be
issued under the seal of the company. The conditions of the warrants
and the warrants shall be binding upon the company and the warrant
holders and all persons claiming through or under them respectively.
7) As long as any of the subscription rights remain exercisable:
(a) all shares allotted and issued on exercise of the subscription
shall rant pari passu in all respects with the fully paid
shares in the company and shall accordingly entitle the
holders to participate in full in all dividends or other
distributions paid or made on in respect of the shares from
the relevant warrant exercise date; and
(b) the company shall send to each warrant holder, at the same
time as the same are sent to the holders of shares, its
audited accounts and all other notices,
2
<PAGE>
reports and communications despatched by it to the holders of
the shares generally.
(c) Warrants shall be transferable by instrument of transfer in
any usual or common form or such other form as may be approved
by the Directors. The provisions relating to the registration
transmission and transfer of shares and register of members
shall apply mutatis mutandis, to the registration,
transmission and transfer of the warrants and the register.
REGISTRATION RIGHTS
6B [/5/]
(a) Notwithstanding anything to the contrary contained herein, at any
time commencing 180 days after an initial public offering outside India,
Sterling Commerce, Inc. ("Sterling Commerce"), may make one written request, and
South Asian Regional Fund ("SARF") may make three written requests ("Demand
Registration"), for a registration of Registrable Securities under the United
States Securities Act of 1933 ("Securities Act"), pursuant to a registration
statement on the appropriate form. "Registrable Security" means each equity
share of the Company until (i) it has been effectively registered under the
Securities Act and disposed of pursuant to an effective registration statement,
(ii) it is sold under circumstances in which all of the applicable conditions of
Rule 144 (or any similar provisions then in force) under the Securities Act are
met, including a sale pursuant to the provisions of Rule 144(k), (iii) it has
been otherwise Transferred and the certificate or other evidence of ownership
for it is not required to bear the legend required pursuant to Article 11B and
it may be resold by the person receiving such certificate without registration
under the Securities Act or (iv) the Holder thereof ceases to hold at least one
percent (1.0%) of the outstanding Equity Shares and all of such Holder's Equity
Shares may be resold in one 90-day period without (x) a volume limitation or (y)
reliance on Rule 144(k).
The request for a Demand Registration shall specify the number of
Registrable Securities proposed to be sold (which shall be at least the lesser
of (i) U.S. $5.0 million in fair market value or (ii) all equity shares then
beneficially owned by Sterling Commerce or SARF, as the case may be) and will
also specify the intended method of disposition thereof. The Company shall not
be required to keep any shelf registration statement requested pursuant to a
Demand Registration continuously effective for more than 90 days.
(b) A registration will not be deemed to have been effected as a
Demand Registration unless it has been declared effective by the United States
Securities and Exchange Commission ("Commission") and the Company has complied
in all material respects with its obligations with respect thereto; provided
that if, after it has become effective, the offering of Registrable Securities
pursuant to such registration is or becomes the subject of any stop order,
injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the sale of Registrable Securities pursuant to the registration (for any
reason other than the acts or omissions of the Holder who commenced the Demand
Registration), such registration will be deemed not to have been effected. If
(i) a registration requested pursuant to this Article 6B is deemed not to have
been effected or (ii) the registration requested pursuant to this Article 6B
does not remain effective for a period of at least 90 days beyond the effective
date thereof or until the earlier consummation of the distribution by the Holder
who commenced the Demand Registration of the Registrable Securities included in
such registration statement by it, then such registration statement shall not
count as a Demand Registration pursuant to Article 6B (a) and the Company shall
continue to be obligated to effect the registrations pursuant to this Article 6B
as though the request for such Demand Registration had never been made. At the
request of the Holder who commenced the Demand Registration, the Company shall
withdraw the Demand Registration at any time prior to the time it becomes
effective, provided that such Holder shall reimburse the
___________________________
/5/ Inserted vide Special resolution passed in Extra-ordinary General meeting
held on 8th September, 1999
3
<PAGE>
Company for all reasonable out-of-pocket expenses (including reasonable counsel
fees and expenses) incurred prior to such withdrawal and shall thereafter be
entitled to the Demand Registration rights that existed prior to such
withdrawal.
(c) If the Holder commencing the Demand Registration so elects, the
offering of Registrable Securities pursuant to a Demand Registration shall be in
the form of an underwritten offering. The Holder commencing the Demand
Registration shall select one or more nationally recognized firms of investment
bankers to act as the book-running managing Underwriter or Underwriters in
connection with such offering and shall select any additional investment bankers
and managers to be used in connection with the offering; provided that such
investment bankers and managers must be reasonably satisfactory to the Company.
(d) In connection with a Demand Registration under this Article 6B
only, the Holders participating in the Demand Registration shall have the sole
right to determine the offering price per share and underwriting discount, if
applicable, in connection with any resales of Registrable Securities by them,
after consultation with the Company and due regard for the Company's views
relating thereto.
6C [/5/]
Piggy-Back Registration: If at any time the Company proposes to file a
- ------------------------
registration statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any security holders of
any class of its equity securities for cash, including without limitation, a
registration statement filed in response to a request for Demand Registration
pursuant to Article 6B (other than a registration statement filed in connection
with an exchange offer or offering of securities solely to the Company's
existing security holders or for any compensatory benefit plan), then the
Company shall give written notice of such proposed filing to each Holder as soon
as practicable (but in no event less than 14 days before the anticipated filing
date), and such notice shall offer each other Holder the opportunity to register
such number of Registrable Securities as such Holder may request (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder and the intended method of distribution thereof) (a "Piggy-Back
----------
Registration").
- ------------
The Company shall use its reasonable best efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the Registrable Securities requested by each other Holder to be included
in a Piggy-Back Registration to be included on the same terms and conditions as
any similar securities of the Company or any other security holder included
therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. A
Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any registration statement pursuant to this Article 6C
by giving written notice to the Company of its request to withdraw.
No registration effected under this Article 6C, and no failure to
effect a registration under this Article 6C, shall relieve the Company of its
obligations pursuant to Article 6B, and no failure to effect a registration
under this Article 6C and to complete the sale of equity shares in connection
therewith shall relieve the Company of any other obligation.
6D[/5/]
Reduction of Offering. (a) Demand Registration. As provided for in Article
- --------------------- -------------------
6C, the Company may include in a Demand Registration Equity Shares for the
account of the Company, the other Holders or other holders thereof exercising
contractual piggy back or demand rights, on the same terms and conditions as the
Registrable Securities to be included therein for the account of the
______________________________
/5/
4
<PAGE>
Holder commencing the Demand Registration; provided, however, that (i) if the
managing Underwriter or Underwriters of any underwritten offering described in
Article 6B have informed the Company in writing that it is their opinion that
the total number of Equity Shares which the Company and the Holders and any
other holders participating therein intend to include in such offering is such
as to materially and adversely affect the success of such offering, then (x) the
number of Equity Shares to be offered for the account of such other holders (if
any) shall be reduced (to zero, if necessary), in the case of this clause (x)
pro rata in proportion to the respective number of Equity Shares requested to be
registered, (y) thereafter, if necessary, the number of Equity Shares to be
offered for the account of the Company (if any) shall be reduced (to zero, if
necessary) and (z) thereafter, if necessary, the number of Equity Shares to be
offered for the account of the Holder (other than the Holder commencing the
Demand Registration) (if any) shall be reduced (to zero, if necessary), to the
extent necessary to reduce the total number of Equity Shares requested to be
included in such offering to the number of Equity Shares, if any, recommended by
such managing Underwriters and (ii) if the offering is not underwritten, no
other party, including the Company, shall be permitted to offer securities under
any such Demand Registration unless the Holder commencing the Demand
Registration consents to the inclusion of such Equity Shares therein, such
consent not to be unreasonably withheld.
(b) Piggy-Back Registration. Notwithstanding anything to the contrary
-----------------------
contained herein, if the managing Underwriter or Underwriters of any
underwritten offering described in Article 6C have informed the Company in
writing that it is their opinion that the total number of Equity Shares that the
Company and the Holders and any other Persons desiring to participate in a
registration other than a Demand Registration intend to include in such offering
is such as to materially and adversely affect the success of such offering, then
the number of Equity Shares to be offered for the account of the Holders and all
such other Persons (other than the Company) participating in such registration
shall be reduced (to zero if necessary) or limited pro rata in proportion to the
respective number of Equity Shares requested to be registered to the extent
necessary to reduce the total number of Equity Shares requested to be included
in such offering to the number of Equity Shares, if any, recommended by such
managing Underwriters; provided, however, that if such offering is effected for
the account of any other security holder of the Company pursuant to the demand
registration rights of such security holder, then (x) the number of Equity
Shares to be offered for the account of the Company (if any) shall be reduced
(to zero, if necessary) and (y) thereafter, if necessary, the number of Equity
Shares to be offered for the account of the Holders and any other holders that
have requested to include Equity Shares in such registration (but not such
security holders who have exercised their demand registration rights) shall be
reduced (to zero, if necessary), in the case of this clause (y) pro rata in
proportion to the respective number of Equity Shares requested to be registered,
to the extent necessary to reduce the total number of Equity Shares requested to
be included in such offering to the number of Equity Shares, if any, recommended
by such managing Underwriters.
6E [/5/]
Registration Rights in India.
- ----------------------------
In connection with any registered public offering by the Company of equity
shares in India, the Company shall, subject to all necessary approvals of the
Government of India, use its reasonable best efforts to register the equity
shares held by Sterling Commerce under Indian law and, at the request of
Sterling Commerce, include the equity shares held by Sterling Commerce in such
offering on terms that treat it pro rata with the other holders of equity shares
with registration rights applicable to an offering in India.
TRANSFERS
____________________________
/5/
5
<PAGE>
7. The shareholder shall not except with the prior written consent of the
other shareholders:
(1) pledge, mortgage, charge or otherwise encumber any of its shares,
options or warrants or any interest in any such shares options or
warrants;
(2) transfer, dispose of or grant an option over any of its shares or
any interest (legal or beneficial) in any such shares, options or
warrants; or
(3) enter into any agreement in respect of the votes attached to any
of its shares, options or warrants.
8. Satyam Computer Services Limited shall not be entitled to transfer any
shares, warrants or options to a buyer unless it ensures that the buyer
makes a written offer (open for acceptance for a period of at least 28 days
and with adequate security as to the performance of its obligations) to
purchase all of the shares held by South Asia Regional Fund at the Tag
Along price per share. Any such offer shall be on the terms that the
consideration shall be payable in cash in full without any set off within
21 days of acceptance of the offer. Satyam Computer Services Limited shall
also ensure that the buyer completes the purchase from South Asia Regional
Fund all of its shares before or at the same time as the buyer completes
the purchase of shares from it. "Tag Along Price" shall mean the higher of
(a) the highest consideration offered for each share the proposed transfer
of which has led to the offer; and (b) the highest consideration paid by
the buyer for any share in the twelve months up to the relevant offer.
9. If any shareholder transfers any shares, warrants or options owned by it in
accordance with the provisions of any share subscription agreement other
than to the other shareholder(s) (transferee) of the company, such transfer
shall be made upon the condition that the transfer shall be made upon the
condition that the transferee(s) shall execute a Deed of Adherence, in form
agreed to by the parties by which, on and as of the date on which such
shares, warrants or options are transferred to it, the transferee(s) shall
become subject to the same obligations and shall be entitled to the same
rights as bound and accrued to the transferor pursuant to such share
subscription agreement.
10. The registration of transfer of shares, warrants or options shall be
carried out by the board of directors only if they are effected in
accordance with any Share Subscription Agreement entered into by the
company and the transferee has fulfilled the obligations pursuant to such
an agreement.
11. If South Asia Regional Fund becomes entitled to exercise the Exit Option in
accordance with Share Subscription Agreement may at its option:
(i) require Satyam Computer Services Limited makes available for sale the
requisite number of its shares along with South Asia Regional Fund's
shareholding, meeting the minimum listing requirements on the BSE or
the NSE or other recognised stock exchange in India or abroad,
through an offer for sale to public
(ii) sell its holding to a trade buyer or financial investor in which case
the sponsor will undertake all steps to facilitate such a sale,
including making available necessary number of its shares which when
combined with the shares owned by South Asia Regional Fund will give
the trade buyer or financial investor at least a 25.1% shareholding
in the company, and both Satyam Computer Services Limited and South
Asia Regional Fund sell their shares on the same terms and conditions
(iii) require the company to buy back all of its shares or such of South
Asia Regional Fund's shares as are permitted under Indian law, at a
price per share agreed between South Asia Regional Fund and the
company, or failing such agreement at Fair Market value.
6
<PAGE>
11A [/5/]
(a) Notwithstanding any other provisions of these Articles of
Association, except for as provided in Article 11C, Sterling Commerce shall not
transfer its pecuniary interest in any equity shares of the Company for a period
of 180 days from the date of the allotment of shares to it for the first time in
the Company, except transfers to a wholly-owned subsidiary or parent
corporation.
(b) In the event of an initial public offering in which (i) the gross
proceeds from the shares of Equity Shares sold are at least $20 million, and
(ii) immediately after such offering the Equity Shares, or American Depositary
Shares representing the Equity Shares, are listed for trading on either the New
York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market
National Market System ("Qualified IPO"), neither Sterling Commerce, Inc. nor
Satyam Computer Systems Limited ("SCSL") shall transfer any equity shares for a
period (the "Lockup Period") commencing on the date on which such Qualified IPO
is consummated, provided that all (i) members of the Board of Directors, (ii)
Affiliates of members of the Board of Directors, which Affiliates own Equity
Shares and (iii) Similarly Situated Investors agree to a substantially identical
lockup. The length of the Lockup Period shall be determined by the Company,
after consultation with the underwriters in connection with the Qualified IPO,
but in no event shall be longer than 180 days.
(c) Neither Sterling Commerce nor SCSL shall transfer any Equity
Shares (other than transfers (1) to the Company, (2) to any Affiliate, (3)
pursuant to a merger or consolidation involving the Company or the sale of all
or substantially all of the outstanding equity shares or (4) Transfers
constituting a bona fide public distribution pursuant to (x) any registration
statement filed under the Securities Act (the U.S. Securities Act of 1933) or
any Public Offering ("Public Offering" shall mean any underwritten public
distribution of equity securities of the Company in the United States pursuant
to an effective registration statement under the Securities Act) or (y) Rule 144
Open Market Transactions) unless (i) the certificates representing such Equity
Shares issued to the Transferee bear the legend provided in Article 11B, if
required by such Article, and (ii) the Transferee (if not already a party
hereto) has executed and delivered to each other party hereto, as a condition
precedent to such Transfer, an instrument or instruments, reasonably
satisfactory to such parties, confirming that the Transferee agrees to be bound
by the terms of this Agreement in the same manner as such Transferee's
transferor, except as otherwise specifically provided in this Agreement.
11B [/5/] In the cases of Sterling Commerce and SCSL, each outstanding
certificate representing equity shares issued to them, or any certificate issued
in exchange for any similarly legended certificate (including any related
depositary receipt), shall, unless sold in a transaction pursuant to Article 11A
(c)(1), (2), (3) or (4), bear a legend reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY STATE SECURITIES LAWS OF ANY STATE WITHIN THE UNITED STATES, AND MAY BE
OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. THE HOLDER OF THESE SECURITIES MAY BE REQUIRED TO DELIVER TO THE
COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR QUALIFICATION UNDER
STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY TRANSFER OF THESE
SECURITIES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY
________________________
/5/
/5/
7
<PAGE>
TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS
AGREEMENT, DATED AS OF SEPTEMBER 13, 1999. NO TRANSFER OF SUCH SECURITIES WILL
BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE
WITH THE TERMS OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE
BOUND BY THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT. THE COMPANY
WILL MAIL A COPY OF SUCH STOCKHOLDERS AGREEMENT TO THE HOLDER HEREOF WITHOUT
CHARGE WITHIN FIVE (5) DAYS AFTER THE COMPANY'S RECEIPT OF A WRITTEN REQUEST
THEREFOR.
11C [/5/]
(a) Notwithstanding any other provisions of these Articles of
Association, (a) In the event that SCSL proposes to effect a Tag-Along Sale,
SCSL shall afford Sterling Commerce the opportunity to participate therein in
accordance with this Article 11C.
(b) With respect to each Tag-Along Sale, Sterling Commerce shall have
the right to Transfer, at the same price and upon identical terms and conditions
as such proposed Transfer (except as set forth below), the number of Equity
Shares owned by Sterling Commerce equal to the Transfer Allotment; provided,
however, that in the event of a Tag-Along Sale pursuant to a Transfer by SCSL of
an interest in a Person that directly or indirectly owns Equity Shares, the
price and other terms and conditions of such Tag-Along Sale applicable to
Sterling Commerce shall as closely approximate those of the proposed Transfer as
is reasonably practicable.
At the time any Tag-Along Sale is proposed, SCSL shall give written
notice to Sterling Commerce of its right to sell Equity Shares hereunder (the
"Transfer Notice"), which notice shall identify the Proposed Purchaser and state
the number of Equity Shares proposed to be Transferred, the proposed offering
price (including the form and terms of any non-cash consideration to be received
in connection therewith), the proposed date of any such Transfer (the "Transfer
Date") and any other material terms and conditions of the proposed Transfer. The
Transfer Notice shall also contain a complete and correct copy of any offer to,
or agreement with, SCSL by the Proposed Purchaser to purchase such Equity
Shares. SCSL shall use its reasonable best efforts to deliver the Transfer
Notice at least 30 days prior to the Transfer Date and in no event shall SCSL
provide such Transfer Notice later than 21 days prior to the Transfer Date.
(c) If Sterling Commerce wishes to participate in the Tag-Along Sale,
it shall provide written notice (the "Tag-Along Notice") to SCSL no less than
seven days prior to the Transfer Date. The Tag-Along Notice shall set forth the
number of Equity Shares that Sterling Commerce elects to include in the
Transfer, which shall not exceed the Transfer Allotment; provided that the
failure of Sterling Commerce to correctly specify a number of Equity Shares not
exceeding the Transfer Allotment shall not affect the rights Sterling Commerce
may otherwise have under this Article 11C. Any Tag-Along Notice given by
Sterling Commerce shall constitute its binding agreement to sell such Equity
Shares on the terms and conditions applicable to the Transfer.
If a Tag-Along Notice is not received by SCSL from Sterling Commerce
prior to the seven-day period specified above, SCSL shall have the right to sell
or otherwise Transfer the number of Equity Shares specified in the Transfer
Notice to the Proposed Purchaser specified in the Transfer Notice without any
participation by Sterling Commerce, but only on terms and conditions with
respect to the consideration paid by the Proposed Purchaser no more favorable
(and other material terms and conditions which a reasonable investor would
consider significant to the decision to include Equity Shares in the Transfer no
more favorable in any material respect) to the Proposed Purchaser than as stated
in the Transfer Notice to Sterling Commerce, and only if such Transfer occurs on
a date within 60 Business Days of the Transfer Date.
(d) The provisions of this Article 11C shall not apply to any
Transfers (i) by SCSL to
______________________
/5/
8
<PAGE>
a permitted transferee of SCSL (provided that such permitted transferee has
agreed to be bound by this Agreement as contemplated by Article 11A hereof),
(ii) pursuant to a Public Offering, or (iii) pursuant to a Rule 144 Open Market
Transaction of which Sterling Commerce has been provided at least two Business
Days prior written notice.
12. The Board of Directors can in the best interest of the company, if they
thought fit, refuse registration of any company application for transfer
without assigning any reason for so doing and they shall give notice of
refusal in all such cases within one month.
13. BSE means "Bombay Stock Exchange" of India and NSE means "National Stock
Exchange" of India. South Asia Regional Fund includes its subsidiaries for
the time being.
14. [/6/]
15. [/7/]
MEETINGS
16. All General Meetings including Annual General Meetings may be called by
giving not less than [twenty one clear days]/8/ notice in writing.
17. The provisions of Sec.173 of the Companies Act, 1956 shall not apply to the
Company. The provisions of Section 176(2) shall not apply the Company.
MANAGEMENT
18. The quorum of meeting of Directors shall be three or one third of the
strength of the Board whichever is higher.
18A
1) As long as South Asia Regional Fund own at least 7.5% of the issued
ordinary share capital of the company, be entitled by notice in writing to
the company, to nominate one Director to the Board of the company and to
require the removal or substitution of any such director appointed by it.
Such a Director appointed need not retire by rotation notwithstanding
anything contrary contained in any other clause in the Articles of
Association.
2) The Board shall comprise of a majority of independent non-executive
directors. At the time of completion of any sale, assignment, transfer or
other disposition of all the shares held by a shareholder, the shareholder
shall procure the resignation of each director nominated by it. Where a
shareholder sells, assigns transfers or otherwise disposes, part of its
shares, such transferee shall not be entitled to appoint any director
unless and until all of the transferring shareholder's original holding is
transferred to it, unless the shareholders agree to the contrary.
3) The company shall provide at least 15 business days notice of meetings of
the Board to those entitled to attend Board meetings unless a shorter
duration is agreed to by all the
____________________
/6/ Deleted vide Special Resolution passed in Extra-ordinary General Meeting
held on 30/th/ November 1998
/7/ Deleted vide Special Resolution passed in Extra-ordinary General Meeting
held on 30/th/ November 1998
/8/ Replaced in lieu of the words "seven days" vide Special Resolution passed
in Extra-ordinary General Meeting held on 30/th/ November 1998
9
<PAGE>
directors entitled to attend board meetings. The company shall prepare an
agenda for each meeting, providing the full details of matters to be
considered, and details of all resolutions proposed to be passed at the
meeting of the Board. Business Day means a day on which banks are open for
business (including dealings in foreign currency deposits and exchange) in
India.
4) South Asia Regional Fund shall have the right through its nominated
Director to participate on all Board committees, including executive
committee, the audit and finance committee and the remuneration committee.
18B [/5/]
(a) For so long as Sterling Commerce owns at least 2.0% of the issued and
outstanding equity shares, Sterling Commerce shall be entitled to designate one
non-voting observer to the Board of Directors (the "Board Observer"), provided
that the Board Observer shall at all times be a senior officer of Sterling
Commerce reasonably acceptable to the Chief Executive Officer of the Company.
The Board Observer shall be entitled to all of the rights and privileges of
members of the Board of Directors, including without limitation, access to all
information to which members of the Board of Directors have access, except that
(i) the Board Observer shall not be entitled to vote on any matter brought
before the Board of Directors, (ii) the Board Observer shall be excluded from
any portion of any meeting, at the good faith discretion of the Chief Executive
Officer of the Company or the Chairman of the Board of Directors, to protect the
competitive interests of the Company or where a conflict of interest exists,
including, without limitation, matters relating to the relationship between the
Company and Sterling Commerce, (iii) if the Company has been advised by outside
counsel that providing certain information to Board Observers would be
reasonably likely to cause such information to be not subject to an applicable
attorney-client or similar privilege, the Company shall be entitled to withhold
such information from the Board Observer, and (iv) upon request, the Board
Observer shall execute a confidentiality agreement in customary form with
respect to information obtained in his or her capacity as a Board Observer.
(b) The Board Observer shall be entitled to observe meetings of Committees
of the Board of Directors, which committees (the "General Committees") have been
have been delegated general authority by the Board of Directors, including,
without limitation, any Executive Committee. The Company agrees to inform
promptly Sterling Commerce of business conducted by committees of the Board of
Directors other than General Committees.
(c) The Board Observer shall be provided advance notice of all meetings of
the Board of Directors and General Committees, such notice to be given in the
same manner as the notice given to the members of the Board of Directors or
General Committees, as applicable.
19. Subject to any rights or restrictions for the time being attached to equity
shares, on poll, every member holding the share in the equity capital of
the company, shall have voting right in proportion to the share of the paid
up equity capital of the Company.
20. If two or more members are jointly registered as holders of any one share,
any of such persons may at any Meeting either personally or by proxy or
attorney as if he were solely entitled thereto and if more than one of such
joint holders be present at meeting personally or by proxy or attorney one
of such persons so present whose name stands first in register in respect
of such share shall alone be entitled to vote, in respect of several
executors or administrators of a deceased member in whose name any share
stands, shall for the purpose of this clause, be deemed to be joint
holders.
21. Unless otherwise determined by the Company in a General Meeting, the number
of directors of the Company shall not be less than two or more than twelve
including nominated, technical or special directors, if any and inclusive
of any other type of directors of the Board.
_______________________________
/5/
10
<PAGE>
22. "The Company shall be managed by its Board of Directors. The following
persons will constituted the First Directors and they shall be permanent
directors not liable to retire by rotation.
First Directors
1. B. Ramalinga Raju
2. B. Rama Raju
Two thirds of the members of the Board other than the Permanent Directors
shall retire by rotation".
23. The Company shall subject to the provisions of the Act, be entitled to
agree with any person firm corporation or other body that he or it shall
have the right to appoint his or its nominee or nominees on the Board of
Directors of the company upon such terms and conditions as the company may
deem fit. Such nominees and their successors in office appointed under this
article shall be called Special Directors. The special directors appointed
under this clause shall be entitled to hold office until requested to
retire by the persons, firm corporation or the body who may have appointed
them and will not be bound to be retired by rotation. A special director
shall not be required to hold any qualification share. As and whenever, a
special director shall not be required to vacate office, whether upon
requests as aforesaid or by death resignation or otherwise, the person,
firm, corporation or body who appointed such special director may appoint
any other director in his place. The special director may at any time by
notice in writing to Company resign his office. Subject to aforesaid, a
special director shall be entitled to the same rights and privileges and be
subject to the same obligations as other directors of the company.
24. Unless otherwise determined by the company in general meeting a director
shall not be required to hold any shares in the company as qualification.
25. The Board shall have power to co-opt one or more persons to be directors,
subject to Article 24, supra.
26. Every Director of the company shall be entitled to receive from the Company
a sitting fee not exceeding Rs.2000/- for every meeting of the Board of
Directors or of a committee of Directors attended by him in addition to all
traveling and out of pocket expenses incurred by him in attending and
returning from such meetings.
27. The Directors are liable to retire by rotation except the first directors
appointed under article 25 supra.
28. The Managing Director or the chairman of the Board shall have the power to
convene the meeting of the Board of Directors or of the shareholders of the
company and to fix the date, time, place and agenda for such meetings.
29. Subject to the provision of Section 219 of the Companies Act 1956, a
resolution in writing appointed approved and signed by majority of
Directors of the Company shall be as valid and effectual as if passed at a
meeting of Directors of the company duly called and convened.
POWERS OF BOARD OF DIRECTORS
30. The business of the company shall be managed by the Board of Directors with
the assistance of the managing director of the Company. The Board shall
have all the powers to execute and carry out the various objects of the
Company enumerated in the Memorandum of Association of the Company and
particularly all powers conferred on the Board by the
11
<PAGE>
provisions of the Act as far as they are applicable to a private company
and by the clauses and provisions of their Memorandum and Articles of
Association.
31. In addition to the expressed powers in the presents and in the Act, the
Board shall have such powers as may be directed by the Company in General
Meeting subject however to the Companies Act, 1956 and the Memorandum of
Association of the Company.
32. The Board of Directors of the Company may from time to time and at any time
at its discretion raise or borrow any sum of money for the purpose of the
Company. The Board of Directors may secure the repayment of such money's on
such terms and conditions in all respects as it thinks fit and in
particular by the issue of debenture stocks charged upon all or any part of
the properties of the Company (both present and future) including its
uncalled capital for the time being.
33. Subject to the provisions of Section 297, 299 and 314 of the Companies Act,
1956 a Director of the Company, his relative, a firm of which such a
director or relative is partner, any other partner in such a firm and a
private Company may enter into any contact with company,
a) To rendering of services to the Company
b) For supplying materials to the Company.
c) For rendering all or any of the above services.
34. The directors shall have power to remunerate any person who renders
services to the Company or supplies materials or enters into any contracts
for any kind of services to the Company. They can also appoint a body
corporate to any office of profit and the company excepting that of the
Manager or Secretary; such remuneration may be monthly payment or a
remuneration based on profits of the company as the Board think fit and
desirable.
35. The Board shall have the powers, subject to Sec. 292 of the Companies Act.
a) to sell, lease or otherwise dispose of the whole or substantial the
whole of the undertaking of the Company as and when they deem fit, but
such power shall be exercised by means of a resolution passed at a
Board Meeting.
b) To remit or give time for repayment of any debt due by a Director.
c) To borrow money for the purpose of the business of the Company even
though the limits exceed the paid-up capital and reserves of the
Company as the Board of Directors deem it necessary for the purpose or
the business of the Company.
d) To contribute to any charitable or benevolent purpose or to public
utilities such amount as the Directors think fit but not in any case
exceeding 5% of the average net profits of the company or Rs.50000/- in
each financial year, whichever is greater.
35A
1) Decisions relating to any of the following matters require
approval of Satyam Computer Services Limited and South Asia
Regional Fund at the Shareholders' meeting or as the case may be
the approval of the Board of Directors including the vote in
favour of or consent in writing to the relevant matter by South
Asia Regional Fund's nominated Director;
(a) any change in the Memorandum and Articles of Association of
the Company;
(b) any change in the capital structure of the company or issue
of further shares or equity interest or creation of any
options, warrants or other rights to subscribed for, acquire
or call for shares or redemption or purchase by the company
of shares or a reduction in the share capital of the company
or in any way alteration of the rights attaching to the share
capital of the company;
(c) issue of any debenture or loan stock (secured or unsecured)
or creation of any mortgage, charge, lien, encumbrance or
other third party right over any of the
12
<PAGE>
company's assets or by giving by the company of any guarantee
or indemnity or becoming a surety for any third party;
(d) any arrangement for any joint venture or partnership or for
the acquisition of the whole or substantially the whole of
the assets and undertaking of the company or an acquisition
by the company of any part of (or the whole of) the issued
share capital, stock, or interest or of the assets and
undertakings (or any rights over the same) of another
company;
(e) declaration of any dividend, distribution of company's share
capital or purchase, redemption or any kind of acquisition of
any of the company's shares or capital stock or any warrant
or option over the same;
(f) approval or amendment of annual operating plans or budgets or
any activity outside the scope of the annual budget of the
company;
(g) any change in the nature or material modification of the
project or change in the business undertaken by the company;
(h) the merger, acquisition or winding up of the company or
participation in any scheme of reconstruction or any
settlement whatsoever involving the company, or liquidation
or dissolution of the company;
(i) making of any loan, creation, renewal or extension of any
borrowings or indebtedness by the company or granting of any
credit (other than credit given in the normal course of the
company's business) in excess of equivalent rupee value of
US$50,000 by the company;
(j) the appointment, remuneration, compensation, transfer and
discharge of any director, or employee earning in excess of
the equivalent rupee value of US$50000 per annum;
(k) the acquisition or construction or lease of items of tangible
or intangible property involving an estimated expenditure of
the equivalent rupee value of US$100,000 or more in each
individual case, which is not previously expressly authorised
in the budget;
(l) any transaction by the company with any shareholder or any
associated company of any shareholder or any directors of the
company and/or the sponsor and/or members of their respective
families and/or associated companies of such Directors;
(m) any obligation of the company outside the normal course of
trading which would involve the payment by it, in cash or
otherwise, of amounts in excess of the equivalent rupee value
of US$100,000 in the aggregate in any 12 month period;
(n) the assignment, sale or other disposal, lease or lending in
any 12 month period of any asset or related group of assets
of the company having a net book value in aggregate of the
equivalent rupee value of US$100,000 or more;
(o) any change in the company's accounting policies or the
company's auditors, bankers, financial year or bank mandates;
(p) the establishment of any retirement benefit scheme in
relation to the company's employees, or the making of any
contribution to any third party scheme for the provision of
retirement benefits;
(q) any expenditure or commitments for expenditure in any
financial year exceeding in aggregate the equivalent rupee
value of US$150,000 which is not expressly authorised in the
approved budget;
(r) granting or entering into of any license, sub-license,
agreement or similar arrangement concerning any part of the
name of the company or any of the company's intellectual
property rights;
(s) the making, granting or allowing of any claim, disclaimer,
surrender, election or consent for taxation purposes in
excess of the equivalent rupee value of US$25,000;
(t) the company entering into the occupation, purchase, sale,
transfer, lease or licence of any freehold or leasehold
property with an individual aggregate annual cost to the
company of more than the equivalent rupee value of US$50,000;
13
<PAGE>
(u) the company forming or having any subsidiary or holding or
acquiring any shares, stock or interest in any company
(wherever incorporated) or any rights over the same;
(v) early repayment of any moneys advanced to the company
pursuant to any term loan agreement;
(w) appointing any Director (executive or non executive) or any
shadow director of the company or appointing any committee of
the board or delegating any of the powers of the board to any
committee;
(x) the company establishing any bonus, profit sharing, share
option or other incentive scheme for any director or employee
of the company;
(y) write off of any amounts of money or otherwise due and owing
to the company;
(z) the pricing, quantum, timing of an initial public offering
(IPO) and identity of the lead managers, at the time of the
IPO.
(aa) The giving by the company of any power of attorney not in the
ordinary course of business; and
(ab) Any modification of any significant commercial contracts or
business agreements.
35B[/5/] No consent or approval of Sterling Commerce shall be required in
connection with the making of any decision, or the taking of any action, by the
Board of Directors, including, without limitation, any future equity financing
at a price per equity share equal to or greater than the purchase price paid by
Sterling Commerce provided that the rights to transfer or otherwise dispose of,
and registration rights and other liquidity rights with respect to, equity
shares of the then existing stockholders of the Company are diluted on a pro
rata basis.
36. Subject to section 314 of the Act, any one or more of the Directors or
their successors, legal heir or legal representatives or partners, or the
Company in which such directors or such person or directors or members can
be remunerated for any special service rendered to the Company other than
that of the service of director or Managing Director and the Board shall
from time to time fix the remuneration payable to such persons, firms or
companies as it deem fit.
MANAGING DIRECTOR
37. The Board may employ one of the Directors as Managing Director of the
Company. The Managing Director so appointed shall subject to provision of
Section 292 and subject to superintendence and control of Board of
Directors, have power to manage whole of the affairs of the Company. Such
appointment of the Managing Director may be made on such remuneration, and
such period and upon such terms and conditions as the Board of Directors
may deem fit.
Approval of the Board of Directors shall be obtained in respect of the
following matters:
Borrowings, guarantees and other indebtedness and liabilities incurred by
the Company in excess of Rs.10,00,000/- in the aggregate;
Extension of loans and other credit by the Company not in the ordinary
course of business;
Encumberation of the Company's assets;
Declaration and distribution of dividends;
Capital expenditure or other investments by the Company in excess of
Rs.2,00,000/-
Change in the nature of the Company's business by expansion or otherwise;
Sale or other disposal of any assets of the Company other than in the
ordinary course of business;
A merger or consolidation of the Company with, or into any other Company,
or extension of the objects of the Company;
Commencement of any litigation by the Company as plaintiff or the
settlement by the Company of any claim or litigation by or against it
having, in either case, a value in excess of Rs.50,000/-
_________________________
/5/
14
<PAGE>
Appointment of auditors or any Directors or any Director of the Company in
order to fill a vacancy;
Winding up or liquidation of the Company;
Issuance of share capital of the Company.
CHAIRMAN
38. The Board shall have the right to appoint one of the Directors of the
Company as the Chairman of the Board of Directors of the Company. The said
Chairman shall have a casting vote in addition to his own vote. [/9/]. In
any meeting of the Board, if the Chairman is not present within fifteen
minutes after the time appointed for holding the same, the directors
present may choose one of their members to be chairman of the Meeting.
COMMON SEAL
39. The Board shall provide a common seal for the Company and they shall have
power from time to time to destroy the same substitute a new seal in lieu
thereof, and the common seal shall be kept at the Registered office of the
Company and Committee to the custody of the Managing Director or the
Secretary if there is one. [The seal of the Company shall not be affixed to
any instrument except by the authority of a resolution of the Board or of a
committee of the Board authorised by it in that behalf, and except in the
presence of one director and of the secretary or such other person as the
Board may appoint for the purpose; and that director and the secretary or
other person as aforesaid shall sign every instrument to which the seal of
the company is so affixed in their presence]/10/.
ACCOUNTS
40. The Managing Director under the supervision of the Directors shall cause
true accounts to be kept of the paid up capital for the time being of the
Company, and of all sums of money received and expended by the Company and
the matter in respect of which receipt and expenditure have taken place and
of the assets and liabilities of the Company and generally of all
commercial financial and other affairs transactions and engagements and of
all other matters necessary for showing true financial state or condition
of the Company and the Accounts shall be kept either in English or in the
Regional language or in both languages and such books shall be kept in such
place in India as the Directors think fit.
41. The Directors shall from time to time determine in accordance with the
provisions of Companies Act, 1956 whether and to what extent and place and
under what conditions or regulations the accounts and books, register,
agreements and minutes of the General Body or any of them shall be open to
the inspection of member who shall have any right of inspecting any
accounts or books or documents or registers of the Company as conferred by
the Act.
DIVIDENDS AND RESERVES
41A
1) The company in general meeting may declare dividends, but no
dividend shall exceed the amount recommended by the board
_______________________
/9/ The following text "The Chairman shall also have power to defer or reserve
the decision of the Board on any matter" deleted vide Special Resolution passed
in an Extraordinary General Meeting held on /30th/ November 1998.
/10/ Inserted with effect from /3rd/ July 1998.
15
<PAGE>
2) The board before recommending dividend, make proper prudent reserves
and provisions to meeting any planned capital expenditure and
increase in the requirements of working capital as in the opinion of
the Board ought reasonably to be made.
SECRECY
42. No member shall be entitled to visit or inspect the Company's work place
without the permission of the Managing Director or to require discovery of
or information respecting any details of the Company's trading 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 Director,
it would be inexpedient in the matter of the members of the Company's to
communicate to the public.
16
<PAGE>
<TABLE>
<CAPTION>
Sl.No Name, address, description and occupation Name, address, description,
of subscribers and signatures occupation and signature of
witness
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
1. B. Ramalinga Raju,
Plot No.1242,
Road No.62,
Jubilee Hills,
Hyderabad 500 033.
OCCUPATION: BUSINESS
Sd/- A. VENKATARAMAPPA, B.Com, CA Final
- ------------------------------------------------- 109 Venkata Ramana Towers,
2. B. Rama Raju Opp. Skyline Theatre,
H.NO.:1-10-72/A Baheerbagh,
Chikoti Gardens, Hyderabad 500 029.
Begumpet,
Hyderabad 500 016. Sd/-
OCCUPATION: BUSINESS
Sd/-
- -------------------------------------------------
3. Satyam Computer Services Ltd.
I Floor May Fair Buildings,
S.P. Road, Secunderabad.
- -------------------------------------------------
</TABLE>
Date : 4-11-95
Place: Hyderabad
17
<PAGE>
EXHIBIT 3.2
UNDER THE COMPANIES ACT, 1956
(1 OF 1956)
COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
SATYAM INFOWAY LIMITED
I The name of the Company is "SATYAM INFOWAY LIMITED [/1/].
II The Registered Office of the Company will be situated in the State of
`Andhra Pradesh'.
III The objects for which the Company is established are:
(A) THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE:
1. To develop, service & sell / lease data based through direct or electronic
media, to develop a wide area communication network of sell / lease the
network or provide value added services on the network to develop, service,
buy / sell computers, software, peripherals and related products to provide
marketing services rising direct as well as electronic media;
2. To undertake the designing and development of systems and applications
software either for its own use or for sale in India or for export outside
India and to design and develop such systems and application software for
or on behalf of manufacturers, owners and users of computer systems and
digital / electronic equipment in India or elsewhere in the world;
3. To set up and run electronic data processing centres and to carry on the
business of data processing, word processing, software consultancy, system
studies, management consultancy, techno-economic feasibility studies of
projects, design and development of management information systems, share /
debenture issues management and / or registration and share / debenture
transfer agency;
4. To undertake and execute feasibility studies for computerization, setting
up of all kind of computer systems and digital/electronic equipment and the
selection, acquisition and installation thereof whether for the company or
its customers or other users;
5. To conduct, sponsor or otherwise participate in training programmes,
courses, seminar conferences in respect of any of the objects of the
company and for spreading or imparting the knowledge and use of computers
and computer programming languages including the publication of books,
journals, bulletins, study / course materials, circulars and news-letters;
and to undertake the business as agents, stockists, distributors, franchise
holders or otherwise for trading or dealing in computer systems,
peripherals, accessories, parts and computer consumables, continuous and
non-continuous stationery, ribbons and other allied products and things and
standard software packages.
________________________
/1/ With effect from 31/st/ August 1997 the Company has become a Deemed Public
Company u/s 43A of the Companies Act, 1956.
<PAGE>
(B) THE OBJECTS THAT ARE INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN
OBJECTS
1. To pay either in cash or by allotment of shares or otherwise as the company
deems fit, all costs, charges and expenses incurred or sustained in or
about the promotion and establishment of the company which the company
shall consider to be in the nature of preliminary expenses;
2. To purchase or otherwise acquire, take on lease or rent computer systems
and digital / electronic equipment of all kinds;
3. To adopt and carry into effect, with or without modification, all or any of
the arrangements made for the purpose of achieving any of the company's
objects mentioned in clauses III(A) and III(C) hereof;
4. To purchase, take on lease or otherwise acquire for the purpose of the
company estates, lands, buildings, easements or other interests in real
estate, and to sell, let on lease or otherwise dispose of or grant rights
over any real property belonging to the Company;
5. To purchase, take on lease or otherwise acquire, erect, maintain,
reconstruct and adopt offices, factories, sheds, workshops, mills, plant,
machinery and other things found necessary or convenient for the purposes
of the company;
6. To purchase or otherwise acquire all or any part of the business,
properties and liabilities of any company, society, partnership or person,
formed for all or any part of the purpose within the objects of this
company and to conduct and carry on, or liquidate and wind up any such
business;
7. To promote any other company or companies for the purpose of taking over
all or any of the properties, rights and liabilities of the company, or for
any other purpose which may seem directly or indirectly calculated to
benefit the company;
8. To enter into any arrangements with any Government authority, undertakings
or corporations controlled or owned by any Government or any person(s)
including any individual, firm body corporate or other association of
individuals, whether incorporated or not, society and trust whether in
India or abroad that may seem conducive to the company's objects or any of
them and to obtain from any such Government, authority, undertakings,
corporations and person(s) any rights privileges and concessions which the
company may deem desirable to obtain and to carry out, exercise and comply
with any such arrangements, rights, privileges and concession;
9. To amalgamate or enter into partnership or into any arrangement for sharing
of profits, union of interest, cooperation, joint venture, reciprocal;
concession or otherwise with any person, whether an individual,
association, firm, body corporate, corporation or otherwise carrying on or
engaged in or about to carry on or engage in any business or transaction
which the company is authorised to carry on or engage in, or in any
business or transaction capable of being conducted so as directly or
indirectly to benefit the company;
10. To acquire and undertake the whole or any part of the business properties
and liabilities of any person whether an individual, association, firm,
body corporate, corporation or otherwise carrying on any business which the
company is authorised to carry on, or possessed of property suitable for
the purposes of the Company;
2
<PAGE>
11. To enter into arrangement or agreements, with any other person, whether an
individual, association, firm, body corporate, corporation or otherwise,
for the carrying out by such other person on behalf of the company, of any
of the objects of the Company;
12. To apply, for purchase or otherwise acquire any patents, patent rights,
copyrights, trademarks, formulae, licences, concessions and the like,
conferring any exclusive, non-exclusive or limited right to use, or any
secret or other information to any invention which may seem capable of
being used for any of the purposes of the company, or the acquisition of
which may seem calculated directly or indirectly to benefit the company and
to use, exercise, develop, or grant licences in respect of, or otherwise
turn to account the property, rights of information so acquired;
13. To enter into collaboration agreement(s) with any person(s) including
Government(s) or any other authority within or outside India, whether the
nature of the agreement is financial, technical or otherwise on such terms
and conditions as the company deems fit;
14. To import into and export from India the technology in respect of the
products mentioned in clauses III(A) and III(C) hereof on such terms and
conditions as the company deems fit;
15. To do research and development work and experiments in connection with the
business of the company;
16. To let on lease or on hire or otherwise the whole or any part of the real
and personal properties of the company on such terms as the company shall
determine;
17. Subject to section 3(i) (iii) of the Companies Act, 1956, to issue shares,
debentures, debenture stock or other securities on such terms and
conditions as the company shall determine and to purchase, redeem, pay off
or convert into equity any such securities on such terms and conditions as
the company shall determine;
18. To borrow, raise money(s) or secure obligations (whether of the company or
any other person) in any manner and subject to such terms and conditions
including the payment of guarantee commission to persons including the
directors of the company as the company shall determine;
19. To advance and lend money(s) with or without security, and on such terms
and conditions as the company shall determine;
20. To invest and deal with the money(s) with or without security, and on such
terms and conditions as the company shall determine;
21. Subject to section 58A of the Companies Act, 1956 and the rules framed
there under in consultation with the Reserve Bank of India, to receive
money(s) on deposit, on such terms and conditions as the company shall
determine, without carrying on banking business within the meaning of the
Banking Regulations Act 1949 and also to pay brokerage on such deposits;
22. To subsidise, assist and guarantee any payment of money by, or the
performance of any contract, engagement or obligation by, any person;
23. To open bank accounts of all kinds including overdrafts and to draw, make,
accept, endorse, discount, negotiate, execute and issue cheques, bills of
exchange, promissory notes, bills of lading, warrants and other negotiable
or transferable instruments of securities;
24. To adopt such means of making known and advertising the business and
products of the company as may seem expedient to the company;
3
<PAGE>
25. To appoint officers, staff, trainees and other types of personnel for the
company and to dispense with their services and to carry out or cause to be
carried out all functions necessary to implement the objects of the
company;
26. To transfer, sell or otherwise dispose of all or any of the business,
properties and undertakings of the company for any consideration which the
company may deem fit to accept;
27. To establish agencies and to regulate and discontinue the same and to pay
such remuneration to agents as the company shall determine;
28. To open, maintain and close branches and depots;
29. To establish, promote and otherwise assist any person whether an
individual, firm association, body corporate including companies or
corporation or otherwise for the purpose of acquiring any property(ies) or
furthering any objects of the company;
30. To do in any part of the world all or any of the matters hereby authorised
either alone or jointly, whether as factors, trustees or agents;
31. To do all such things as are necessary for the company or its nominee(s) to
become members or to be otherwise associated with national and
international associations, institutes or other organisations, so as to
promote or strengthen the company's interests on such terms and condition
as may be determined by the company;
32. (a) To undertake, carry out, promote, sponsor or to otherwise assist any
activity for the promotion and growth of national economy and for what
the company may consider to be its moral or social responsibility to
the public or a section thereof, or what the company considers likely
to promote national welfare or social, economic or moral uplift of the
public or any section thereof in such manner as the company thinks
fit;
(b) Without prejudice to the generality of the foregoing, the company may
undertake, carry out, promote and sponsor any activity in connection
with the publication of any books, literature, newspaper or other
documents or organising lectures or seminars for advancing the said
objects or giving merit awards, scholarships, loans or any other
assistance to deserving persons directly or through an institution,
fund or trust;
(c) In order to achieve any of the foregoing, the company may divest
without consideration or such fair or concessional rates as it thinks
or otherwise transfer any properties or goods of the company to or in
favour of any public or local body or authority, central or state
government, governmental agencies, public institutions, trusts or
funds recognised or approved by the central government or state
governments or any authorities specified for the purpose by such
government;
33. Subject to the provisions of the Act, to subscribe to or contribute to or
undertake or otherwise assist any national, charitable, benevolent,
religious, public, scientific, rural, general or other useful object or
institution as the company deems fit;
34. To provide for the welfare of directors or persons in the employment of the
company, or formerly in the employment of the company and the wives, widows
and other family members of such persons by grants of money, pensions,
superannuation gratuity, insurance, bonus, medical benefits or otherwise;
4
<PAGE>
35. To establish and maintain or procure the establishment and maintenance of
any non-contributory or contributory provident, gratuity, pension or
superannuation funds and give and procure the giving of money, pension,
superannuation, gratuity, insurance, bonus, medical benefits or other
amounts to any directors or persons who are or were at any time in the
employment or service of the company;
36. To establish, undertake and execute or procure the establishment,
undertaking execution of any trust, either gratuitously or otherwise;
37. To procure the company to be registered or recognised in any foreign
country;
38. To arrange for risks of all kinds likely to affect the company to be
covered by insurance.
39. Subject to the provisions of the Companies Act, 1956 as amended by the
Companies (Amendment) Act, 1985, to contribute to any political party or
for any political purpose to any person.
(C) THE OTHER OBJECTS FOR WHICH THE COMPANY IS FORMED ARE:
1. To carry on the business of giving on lease or rent, or sell under a scheme
of hire-purchase or instalment, computers, digital / electronic equipments,
computer hardware and software products, computer peripherals and
consumables and accessories thereof;
2. To undertake and execute systems audits for persons owning or using
computer systems and to generally assist them in the more economic and / or
efficient utilisation therefore;
3. To provide consultancy services in regard to the design, development,
manufacture and use of all products and things incorporated in clauses
III(A) and III(C) hereof;
4. To undertake and execute job works in relation to and / or to give others
job works in respect of, any of the business mentioned in the main and
other objects of the company;
5. To set up and run electronic video game parlours and recreation centres;
IV The liability of the members in the Company is limited.
V The authorised share capital of the Company is Rs. 25.00 crores (Rs. Twenty
Five crores)[/2/] divided into 2,50,00,000 (Two crores Fifty lakhs only) shares
of Rs.10/-(Rs. Ten) each. The company shall have power, at any time and from
time to time, to increase or reduce its capital. Any of the said shares and any
new shares may, at any time and from time to time, be divided into shares of
several classes in such manner as the articles of association of the Company may
prescribe and the shares of each class may confer such preferred or other
special rights and privileges and impose such restrictions and conditions
whether in regard to dividend, voting, return of capital or otherwise as will be
prescribed in or under the articles of association.
_______________________
/2/ Authorised Share Capital increased from Rs.25 lakhs to Rs.15 crores by
Special Resolution passed in an Extra-ordinary General Meeting held on 30/th/
June 1997. By Special Resolution passed on an Extra-ordinary General Meeting
held on 30/th/ November 1998, the authorised share capital was increased from
Rs.15 crores to Rs.17 crores. Further the same has increased from Rs. 17.00
crores to 25.00 crores vide special resolution passed in the Extraordinary
General Meeting held on 19.03.1999.
5
<PAGE>
We, the several persons whose names and addresses have been subscribed
hereunder are desirous of being formed into a Company in pursuance of the
Memorandum of Association and we respectively agree to take the number of shares
in the capital of the Company set opposite our respective names.
<TABLE>
<CAPTION>
Sl.No Name, address, description and occupation Number of Equity Name, address, description,
of subscribers and signatures Shares taken by occupation and signature of
each subscriber witness
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. B. Ramalinga Raju, 100 A. VENKATARAMAPPA, B.Com, CA Final
Plot No.1242, (One 109 Venkata Ramana Towers,
Road No.62, hundred Opp. Skyline Theatre,
Jubilee Hills, only) Baheerbagh,
Hyderabad 500 033. Hyderabad 500 029.
OCCUPATION: BUSINESS
Sd/-
Sd/-
- -----------------------------------------------------------------------
2. B. Rama Raju 100
H.NO.:1-10-72/A (One
Chikoti Gardens, hundred
Begumpet, only)
Hyderabad 500 016.
OCCUPATION: BUSINESS
Sd/-
- -----------------------------------------------------------------------
3. Satyam Computer Services Ltd. 30
I Floor May Fair Buildings, (Thirty only)
S.P. Road, Secunderabad.
- -----------------------------------------------------------------------
230
(Two
Total Shares Taken Hundred
Thirty only)
----------------------------------------------------------------------
</TABLE>
Date : 4-11-95
Place: Hyderabad
6
<PAGE>
EXHIBIT 3.3
SCHEDULE I
[See sections 2(2), 14, 28(1), 29 and 223]
TABLE A
REGULATIONS FOR MANAGEMENT OF
A COMPANY LIMITED BY SHARES
Interpretation
1. (1) In these regulations--
(a) "the Act" means the Companies Act, 1956,
(b) "the seal" means the common seal of the company.
(2) Unless the context otherwise requires, words or expressions contained in
these regulations shall bear the same meaning as in the Act or any statutory
modification thereof in force at the date at which these regulations become
binding on the company.
Share capital and variation of rights
2. Subject to the provisions of section 80, any preference shares may, with
the sanction of an ordinary resolution, be issued on the terms that they are, or
at the option of the company are liable, to be redeemed on such terms and in
such manner as the company before the issue of the shares may, by special
resolution, determine.
3. (1) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, subject to the provisions of sections
106 and 107, and whether or not the company is being wound up, be varied with
the consent in writing of the holders of three-fourths of the issued shares of
that class, or with the sanction of a special resolution passed at a separate
/89/[***] meeting of the holders of the shares of that class.
(2) To every such separate /89/[***] meeting, the provisions of these
regulations relating to general meetings shall mutatis mutandis apply, but so
that the necessary quorum shall be two persons at least holding or representing
by proxy one-third of the issued shares of the class in question.
4. The rights conferred upon the holders of the shares of any class issued with
preferred or other rights shall not, unless otherwise expressly provided by the
terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
5. (1) The company may exercise the powers of paying commissions conferred by
section 76, provided that the rate per cent or the amount of the commission paid
or agreed to be paid shall be disclosed in the manner required by that section.
_________________________
/89/ "general" omitted by the Companies (Amendment) Act, 1960.
<PAGE>
(2) The rate of the commission shall not exceed the rate of five percent of the
price at which the shares in respect whereof the same is paid are issued or an
amount equal to five per cent of such price, as the case may be.
(3) The commission may be satisfied by the payment of cash or the allotment of
fully or partly paid shares or partly in the one way and partly in the other.
(4) The company may also, on any issue of shares, pay such brokerage as may be
lawful.
6. Except as required by law, no person shall be recognised by the company as
holding any share upon any trust, and the company shall not be bound by, or be
compelled in any way to recognise (even when having notice thereof) any
equitable, contingent, future or partial interest in any share, or any interest
in any fractional part of a share, or (except only as by these regulations or by
law otherwise provided) any other rights in respect of any share except an
absolute right to the entirety thereof in the registered holder.
7. (1) Every person whose name is entered as a member in the register of
members shall be entitled to receive within three months after allotment or
/90/[within two months after the application for the] registration of transfer
(or within such other period as the conditions of issue shall provide)--
(a) one certificate for all his shares without payment; or
(b) several certificates, each for one or more of his shares, upon
payment of one rupee for every certificate after the first.
(2) Every certificate shall be under the seal and shall specify the shares to
which it relates and the amount paid up thereon.
(3) In respect of any share or shares 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 one of several joint holders shall be sufficient
delivery to all such holders.
8. If a share certificate is defaced, lost or destroyed, it may be renewed on
payment of such fee, if any, not exceeding /91/[two rupees], and on such terms,
if any, as to evidence and indemnity and the payment of out-of-pocket expenses
incurred by the company in investigating evidence, as the directors think fit.
Lien
9. (1) The company shall have a first and paramount lien--
(a) on every share (not being a fully-paid share), for all moneys
(whether presently payable or not) called, or payable at a fixed
time, in respect of that share; and
(b) on all shares (not being fully-paid shares) standing registered
in the name of a single person, for all moneys presently payable
by him or his estate to the company:
___________________________
/90/ Inserted by Notification No. GSR 631, dated 23-4-1966.
/91/ Substituted for "eight annas", ibid.
<PAGE>
Provided that the Board of directors may at any time declare any share to be
wholly or in part exempt from the provisions of this clause.
(2) The company's lien, if any, on a share shall extend to all dividends
payable thereon.
10. The company may sell, in such manner as the Board thinks fit, any shares on
which the company has a lien:
Provided that no sale shall be made--
(a) unless a sum in respect of which the lien exists is presently
payable; or
(b) until the expiration of fourteen days after a notice in writing
stating and demanding payment of such part of the amount in
respect of which the lien exists as is presently payable, has been
given to the registered holder for the time being of the share or
the person entitled thereto by reason of his death or insolvency.
11. (1) To give effect to any such sale, the Board may authorise some person
to transfer the shares sold to the purchaser thereof.
(2) The purchaser shall be registered as the holder of the shares comprised in
any such transfer.
(3) The purchaser shall not be bound to see to the application of the purchase
money, nor shall his title to the shares be affected by any irregularity or
invalidity in the proceedings in reference to the sale.
12. (1) The proceeds of the sale shall be received by the company and applied
in payment of such part of the amount in respect of which the lien exists as is
presently payable.
(2) The residue, if any, shall, subject to a like lien for sums not presently
payable as existed upon the shares before the sale, be paid to the person
entitled to the shares at the date of the sale.
Calls on shares
13. (1) The Board may, from time to time, make calls upon the members in
respect of any moneys unpaid on their shares (whether on account of the nominal
value of the shares or by way of premium) and not by the conditions of allotment
thereof made payable at fixed times:
Provided that no call shall exceed one-fourth of the nominal value of the share
or be payable at less than one month from the date fixed for the payment of the
last preceding call.
(2) Each member shall, subject to receiving at least fourteen days' notice
specifying the time or times and place of payment, pay to the company, at the
time or times and place so specified, the amount called on his shares.
(3) A call may be revoked or postponed at the discretion of the Board.
14. A call shall be deemed to have been made at the time when the resolution of
the Board authorising the call was passed and may be required to be paid by
instalments.
<PAGE>
15. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
16. (1) If a sum called in respect of a share is not paid before or on the day
appointed for payment thereof, the person from whom the sum is due shall pay
interest thereon from the day appointed for payment thereof to the time of
actual payment at five per cent per annum or at such lower rate, if any, as the
Board may determine.
(2) The Board shall be at liberty to waive payment of any such interest wholly
or in part.
17. (1) Any sum which by the terms of issue of a share becomes 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 regulations, be
deemed to be a call duly made and payable on the date on which by the terms of
issue such sum becomes payable.
(2) In case of non-payment of such sum, all the relevant provisions of these
regulations 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.
18. The Board--
(a) may, if it thinks fit, receive from any member willing to advance
the same, all or any part of the moneys uncalled and unpaid upon
any shares held by him; and
(b) upon all or any of the moneys so advanced, may (until the same
would, but for such advance, become presently payable) pay
interest at such rate not exceeding, unless the company in general
meeting shall otherwise direct, six per cent per annum, as may be
agreed upon between the Board and the member paying the sum in
advance.
Transfer of shares
19. (1) The instrument of transfer of any share in the company shall be
executed by or on behalf of both the transferor and transferee.
(2) The transferor shall be deemed to remain a holder of the share until the
name of the transferee is entered in the register of members in respect thereof.
/92/[20. Subject to the provisions of section 108, the shares in the company
shall be transferred in the following form, namely:--
_____________________________
/92/ Substituted by Notification No. GSR 631, dated 23-4-1966.
<PAGE>
/93/FORM NO. 7B
DATE OF PRESENTATION TO
THE PRESCRIBED AUTHORITY
Share Transfer Form
[PURSUANT TO SECTION 108(lA) OF THE COMPANIES ACT, 1956]
- --------------------------------------------------------------------------------
FOR THE CONSIDERATION stated below the "Transferor(s)" named do hereby transfer
to the "Transferee(s)" named the shares specified below subject to the
conditions on which the said shares are now held by the Transferor(s) and
Transferee(s) do hereby agree to accept and hold the said shares subject to the
conditions aforesaid.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FULL NAME OF COMPANY NAME OF THE RECOGNISED STOCK EXCHANGE WHERE
DEALT IN, IF ANY
- --------------------------------------------------------------------------------
DESCRIPTION OF EQUITY/PREFERENCE SHARES
- --------------------------------------------------------------------------------
No. in figures Number in words Consideration Consideration
(in figures) (in words)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distinctive From
-----------------------------------------------------------------
numbers To
- --------------------------------------------------------------------------------
Corresponding
Certificate Nos.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSFEROR(S) [SELLER(S)] PARTICULARS Regd. Signature(s)
Folio No.
Name(s) in full 1................ 1................
2................ 2................
3................ 3................
4................ 4................
- -----------------------------------------
ATTESTATION Signature of witness
I, hereby attest the signature of the
Transferor(s) herein mentioned Name & address of witness
..............................
Signature ..............................
Name ..............................
Address/Seal ..............................
*Please see overleaf for instructions ..............................
PIN
..............................
- -----------------------------------------
TRANSFEREE(S) [BUYER(S)] PARTICULARS Signature(s)
Name(s) in full 1................ 1.............................
2................ 2.............................
3................ 3.............................
- --------------------------------------------------------------------------------
Occupation Address Father's/Husband's name
- --------------------------------------------------------------------------------
1.
- --------------------------------------------------------------------------------
2.
- --------------------------------------------------------------------------------
3.
- --------------------------------------------------------------------------------
______________________________
/93/ Substituted by Notification No. GSR 480(E), dated 22-4-1988. Earlier, Form
No. 7B was substituted by GSR 631, dated 23-4-1966.
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Transferee(s) existing Folio, Value of
if any, in same order of names [___________] Stamps affixed Rs. [____________]
- ---------------------------------------------------------------------------------------------------------
Dated this..........day of............One Thousand Nine Hundred............Place.........
- ---------------------------------------------------------------------------------------------------------
Folio [__________] Company Code [___________]
For office use only
Checked by.............................. Specimen 1.....................
Signatures tallied by........................ Signature(s) of 2.....................
Entered in Register of Transfer No........... Transferee(s) 3.....................
Approval date................................
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Continuation of front page (herein enter the Distinctive numbers when the space
in the back page is found to be insufficient)
- --------------------------------------------------------------------------------
Distrinctive From
---------------------------------------------------------
numbers To
- --------------------------------------------------------------------------------
Corresponding
Certificate Nos.
- --------------------------------------------------------------------------------
*INSTRUCTIONS FOR ATTESTATION
Attestation, where required (thumb impressions, marks, signature difference,
etc.) should be done by a Magistrate, Notary Public or Special Executive
Magistrate or a similar authority holding a Public Office and authorised to use
the Seal of his office or a member of a recognised Stock Exchange through whom
the shares are introduced or a manager of the transferor's bank.
Note: Names must be rubber stamped preferably in a straight line. Chronological
order should be maintained. Broker's Clearing Number should be stated when
delivery is given by a Clearing Member Bank.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------- --------------------------------------------------------------
Name of delivery Broker or Date Power of Attorney Probate Death Certificate
Clearing Number
--------------------------------------------------------------
Letters of Administration
--------------------------------------------------------------
Registered with the Company
No............. Date..................
--------------------------------------------------------------
(Signature [not initials] of Broker, Bank, Company or Stock
Exchange Clearing House)
--------------------------------------------------------------
--------------------------------------------------------------
+Lodged by__________________________________________
Full Address________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
--------------------------------------------------------------
--------------------------------------------------------------
Share certificates to be returned to
(Fill in the name and address to which the Certificates
are required to be returned)
Name and address____________________________________
____________________________________________________
____________________________________________________
____________________________________________________
- ---------------------------------------- --------------------------------------------------------------
</TABLE>
<PAGE>
- ------------------------------ ----------------------------------------
Share Transfer Stamps
- ------------------------------ ----------------------------------------
+To be filled only if the documents are lodged by a person other than the
transferee.
21. The Board may, subject to the right of appeal conferred by section 111,
decline to register--
(a) the transfer of a share, not being a fully-paid share, to a person
of whom they do not approve; or
(b) any transfer of shares on which the company has a lien.
22. The Board may also decline to recognise any instrument of transfer unless--
(a) a fee of two rupees is paid to the company in respect thereof;
(b) the instrument of transfer is accompanied by the certificate of
the shares to which it relates, and such other evidence as the
Board may reasonably require to show the right of the transferor
to make the transfer; and
(c) the instrument of transfer is in respect of only one class of
shares.
/94/[23. Subject to the provisions of section 154, the registration of
transfers may be suspended at such times and for such periods as the Board may
from time to time determine:
Provided that such registration shall not be suspended for more than thirty days
at any one time or for more than forty-five days in the aggregate in any year.]
24. The company shall be entitled to charge a fee not exceeding two rupees on
the registration of every probate, letters of administration, certificate of
death or marriage, power of attorney, or other instrument.
Transmission of shares
25. (1) On the death of a member, the survivor or survivors where the member
was a joint holder, and his legal representatives where he was a sole holder,
shall be the only persons recognised by the company as having any title to his
interest in the shares.
(2) Nothing in clause (1) shall release the estate of a deceased joint holder
from any liability in respect of any share which had been jointly held by him
with other persons.
26. (1) Any person becoming entitled to a share in consequence of the death or
insolvency of a member may, upon such evidence being produced as may from time
to time properly be required by the Board and subject as hereinafter provided,
elect, either--
(a) to be registered himself as holder of the share; or
(b) to make such transfer of the share as the deceased or insolvent
member could have made.
_______________________________
/94/ Substituted by Notification No. GSR 631, dated 23-4-1966.
<PAGE>
(2) The Board shall, in either case, have the same right to decline or suspend
registration as it would have had, if the deceased or insolvent member had
transferred the share before his death or insolvency.
27. (1) If the person so becoming entitled shall elect to be registered as
holder of the share himself, he shall deliver or sent to the company a notice in
writing signed by him stating that he so elects.
(2) If the person aforesaid shall elect to transfer the share, he shall testify
his election by executing a transfer of the share.
(3) All the limitations, restrictions and provisions of these regulations
relating to the right to transfer and the registration of transfers of shares
shall be applicable to any such notice or transfer as aforesaid as if the death
or insolvency of the member had not occurred and the notice or transfer were a
transfer signed by that member.
28. A person becoming entitled to a share by reason of the death or insolvency
of the holder shall be entitled to the same dividends and other advantages to
which he would be entitled if he were the registered holder of the share, except
that he shall not, before being registered as a member in respect of the share,
be entitled in respect of it to exercise any right conferred by membership in
relation to meetings of the company:
Provided that the Board may, at any time, give notice requiring any such person
to elect either to be registered himself or to transfer the share, and if the
notice is not complied with within ninety days, the Board may thereafter
withhold payment of all dividends, bonuses or other moneys payable in respect of
the share, until the requirements of the notice have been complied with.
Forfeiture of shares
29. If a member fails to pay any call, or instalment of a call, on the day
appointed for payment thereof, the Board may, at any time thereafter during such
time as any part of the call or instalment remains unpaid, serve a notice on him
requiring payment of so much of the call or instalment as is unpaid, together
with any interest which may have accrued.
30. The notice aforesaid shall--
(a) name a further day (not being earlier than the expiry of fourteen
days from the date of service of the notice) on or before which the
payment required by the notice is to be made; and
(b) state that, in the event of non-payment on or before the day so
named, the shares in respect of which the call was made will be
liable to be forfeited.
31. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which the notice has been given may, at any time
thereafter, before the payment required by the notice has been made, be
forfeited by a resolution of the Board to that effect.
32. (1) A forfeited share may be sold or otherwise disposed of on such terms
and in such manner as the Board thinks fit.
<PAGE>
(2) At any time before a sale or disposal as aforesaid, the Board may cancel
the forfeiture on such terms as it thinks fit.
33. (1) A person whose shares have been forfeited shall cease to be a member
in respect of the forfeited shares, but shall, notwithstanding the forfeiture,
remain liable to pay to the company all moneys which, at the date of forfeiture,
were presently payable by him to the company in respect of the shares.
(2) The liability of such person shall cease if and when the company shall have
received payment in full of all such moneys in respect of the shares.
34. (1) A duly verified declaration in writing that the declarant is a
director *[, the managing agent, the secretaries and treasurers], the manager or
the secretary, of the company, and that a share in the company has been duly
forfeited on a 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.
(2) The company may receive the consideration, if any, given for the share on
any sale or disposal thereof and may execute a transfer of the share in favour
of the person to whom the share is sold or disposed of.
(3) The transferee shall thereupon be registered as the holder of the share.
(4) The transferee shall not be bound to see to the application of the purchase
money, if any, nor shall his title to the share be affected by any irregularity
or disposal of the invalidity in the proceedings in reference to the forfeiture,
sale or disposal of the share.
35. The provisions of these regulations as to forfeiture shall apply in the
case of non-payment of any sum which, by the terms of issue of a share, becomes
payable at a fixed time, whether on account of the nominal value of the share or
by way of premium, as if the same had been payable by virtue of a call duly made
and notified.
Conversion of shares into stock
36. The company may, by ordinary resolution,--
(a) convert any paid-up shares into stock; and
(b) reconvert any stock into paid-up shares of any denomination.
37. The holders of stock may transfer the same or any part thereof in the same
manner as, and subject to the same regulations under which, the shares from
which the stock arose might before the conversion have been transferred, or as
near thereto as circumstances admit:
Provided that the Board may, from time to time, fix the minimum amount of stock
transferable, so however that such minimum shall not exceed the nominal amount
of the shares from which the stock arose.
38. 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 or 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.
<PAGE>
39. Such of the regulations of the company (other than those relating to share
warrants), as are applicable to paid-up shares shall apply to stock and the
words "share" and "shareholder" in those regulations shall include "stock" and
"stockholder" respectively.
Share warrants
40. 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 person 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.
41. (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 shares 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.
42. (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 privilege 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 were named in the register of
members as the holder of the shares included in the warrant, and he shall be a
member of the company.
43. 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.
Alteration of capital
44. The company may, from time to time, by ordinary resolution increase the
share capital by such sum, to be divided into shares of such amount, as may be
specified in the resolution.
45. The company may, by ordinary resolution,--
(a) consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares;
<PAGE>
(b) sub-divide its existing shares or any of them into shares of smaller
amount than is fixed by the memorandum, subject, nevertheless, to the
provisions of clause (d) of sub-section (1) of section 94;
(c) cancel any shares which, at the date of the passing of the resolution,
have not been taken or agreed to be taken by any person.
46. The company may, by special resolution, reduce in any manner and with, and
subject to, any incident authorised and consent required by law,--
(a) its share capital;
/95/[(b) any capital redemption reserve account; or]
(c) any share premium account.
General meetings
47. All general meetings other than annual general meetings shall be called
extraordinary general meetings.
48. (1) The Board may, whenever it thinks fit, call an extraordinary general
meeting.
(2) If at any time there are not within India directors capable of acting who
are sufficient in number to form a quorum, any director or any two members of
the company may call an extraordinary general meeting in the same manner, as
nearly as possible, as that in which such a meeting may be called by the Board.
Proceedings at general meetings
49. (1) No business shall be transacted at any general meeting unless a quorum
of members is present at the time when the meeting proceeds to business.
(2) Save as herein otherwise provided, five members present in person (in the
case of a public company--two members present in person, in the case of a
private company) shall be a quorum.
50. The chairman, if any, of the Board shall preside as chairman at every
general meeting of the company.
51. If there is no such chairman, or if he is not present within fifteen
minutes after the time appointed for holding the meeting, or is unwilling to act
as chairman of the meeting, the directors present shall elect one of their
number to be chairman of the meeting.
52. If at any meeting no director is willing to act as chairman or if no
director is present within fifteen minutes after the time appointed for holding
the meeting, the members present shall choose one of their number to be chairman
of the meeting.
53. (1) The chairman may, with the consent of any meeting at which a quorum is
present, and shall, if so directed by the meeting, adjourn the meeting from time
to time and from place to place.
(2) No business shall be transacted at any adjourned meeting other than the
business left unfinished at the meeting from which the adjournment took place.
____________________________
/95/ Substituted by Notification No. GSR 631, dated 23-4-1966.
<PAGE>
(3) When a meeting is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.
(4) Save as aforesaid, it shall not be necessary to give any notice of an
adjournment or of the business to be transacted at an adjourned meeting.
54. In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman of the meeting at which the show of hands takes place, or at
which the poll is demanded, shall be entitled to a second or casting vote.
55. Any business other than that upon which a poll has been demanded may be
proceeded with, pending the taking of the poll.
Votes of members
56. Subject to any rights or restrictions for the time being attached to any
class or classes of shares,--
(a) on a show of hands, every member present in person shall have one
vote; and
(b) on a poll, the voting rights of members shall be as laid down in
section 87.
57. In the case of joint holders, the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders.
For this purpose, seniority shall be determined by the order in which the names
stand in the register of members.
58. 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 hands or
on a poll, by his committee or other legal guardian, and any such committee or
guardian may, on a poll, vote by proxy.
59. No member shall be entitled to vote at any general meeting unless all calls
or other sums presently payable by him in respect of shares in the company have
been paid.
60. (1) No objection shall be raised to the qualification of any voter except
at the meeting or adjourned meeting at which the vote objected to is given or
tendered, and every vote not disallowed at such meeting shall be valid for all
purposes.
(2) Any such objection made in due time shall be referred to the chairman of
the meeting, whose decision shall be final and conclusive.
61. 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 registered office of the
company not less than 48 hours before the time for holding the meeting or
adjourned meeting at which the person named in the instrument proposes to vote,
or, in the case of a poll, not less than 24 hours before the time appointed for
the taking of the poll; and in default the instrument of proxy shall not be
treated as valid.
62. An instrument appointing a proxy shall be in either of the forms in
Schedule IX to the Act or a form as near thereto as circumstances admit.
<PAGE>
63. A vote given in accordance with the terms of in instrument of proxy shall
be valid, notwithstanding the previous death or insanity of the principal or the
revocation of the proxy or of the authority under which the proxy was executed
or the transfer of the shares in respect of which the proxy is given:
Provided that no intimation in writing of such death, insanity, revocation or
transfer shall have been received by the company at its office before the
commencement of the meeting or adjourned meeting at which the proxy is used.
Board of directors
64. The number of the directors and the names of the first directors shall be
determined in writing by the subscribers of the memorandum or a majority of
them.
65. (1) The remuneration of the directors shall, in so far as it consists of a
monthly payment, be deemed to accrue from day to day.
(2) In addition to the remuneration payable to them in pursuance of the Act,
the directors may be paid all travelling, hotel and other expenses properly
incurred by them--
(a) in attending and returning from meetings of the Board of directors or
any committee thereof or general meetings of the company; or
(b) in connection with the business of the company.
66. The qualification of a director shall be the holding of at least one share
the company.
67. The Board may pay all expenses incurred in getting up and registering the
company.
68. The company may exercise the powers conferred by section 50 with regard to
having an official [seal] for use abroad, and such powers shall be vested in the
Board.
69. The company may exercise the powers conferred on it by sections 157 and 158
with regard to the keeping of a foreign register; and the Board may (subject to
the provisions of those sections) make and vary such regulations as it may think
fit respecting the keeping of any such register.
70. All cheques, promissory notes, drafts, hundis, bills of exchange and other
negotiable instruments, and all receipts for moneys paid to the company, shall
be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be,
*[by the managing agent or secretaries and treasurers of the company, or where
there is no managing agent or secretaries and treasurers,] by such person and in
such manner as the Board shall from time to time by resolution determine.
71. Every director present at any meeting of the Board or of a committee
thereof shall sign his name in a book to be kept for that purpose.
/96/72. (1) The Board shall have power at any time, and from time to time, to
appoint a person as an additional director, provided the number of the directors
and additional directors together shall not at any time exceed the maximum
strength fixed for the Board by the articles.
___________________________
/96/ Substituted by Notification No. GSR 521, dated 23-4-1959.
<PAGE>
(2) Such person shall hold office only up to the date of the next annual
general meeting of the company but shall be eligible for appointment by the
company as a director at that meeting subject to the provisions of the Act.]
Proceedings of Board
73. (1) The Board of directors may meet for the despatch of business, adjourn
and otherwise regulate its meetings, as it thinks fit.
(2) A director may, and the *[managing agent, secretaries and treasurers,]
manager or secretary on the requisition of a director shall, at any time, summon
a meeting of the Board.
74. (1) Save as otherwise expressly provided in the Act, questions arising at
any meeting of the Board shall be decided by a majority of votes.
(2) In case of an equality of votes, the chairman of the Board, if any, shall
have a second or casting vote.
75. The continuing directors may act notwithstanding any vacancy in the Board;
but, if and so long as their number is reduced below the quorum fixed by the Act
for a meeting of the Board, the continuing directors or director may act for the
purpose of increasing the number of directors to that fixed for the quorum, or
of summoning a general meeting of the company, but for no other purpose.
76. (1) The Board may elect a chairman of its meetings and determine the
period for which he is to hold office.
(2) If no such chairman is elected, or if at any meeting the chairman is not
present within five minutes after the time appointed for holding the meeting,
the directors present may choose one of their number to be chairman of the
meeting.
77. (1) The Board may, subject to the provisions of the Act, delegate any of
its powers to committees consisting of such member or members of its body as it
thinks fit.
(2) Any committee so formed shall, in the exercise of the powers so delegated,
conform to any regulations that may be imposed on it by the Board.
78. (1) A committee may elect a chairman of its meetings.
(2) If no such chairman is elected, or if at any meeting the chairman is not
present within five minutes after the time appointed for holding the meeting,
the members present may choose one of their number to be chairman of the
meeting.
79. (1) A committee may meet and adjourn as it thinks proper.
(2) Questions arising at any meeting of a committee shall be determined by a
majority of votes of the members present, and in case of an equality of votes,
the chairman shall have a second or casting vote.
80. All acts done by any meeting of the Board or of a committee thereof or by
any person acting as a director, shall, notwithstanding that it may be
afterwards discovered that there was some defect in the appointment of any one
or more such directors or of any person acting as aforesaid, or that they or any
of them were disqualified, be as valid as if every such director or such person
had been duly appointed and was qualified to be a director.
<PAGE>
81. Save as otherwise expressly provided in the Act, a resolution in writing,
signed by all the members of the Board or of a committee thereof, for the time
being entitled to receive notice of a meeting of the Board or committee, shall
be as valid and effectual as if it had been passed at a meeting of the Board or
committee, duly convened and held.
Manager or secretary
/97/[82. Subject to the provisions of the Act,--
(1) A manager or secretary may be appointed by the Board for such
term, at such remuneration and upon such conditions as it may
think fit; and any manager or secretary so appointed may be
removed by the Board;
(2) A director may be appointed as manager or secretary.]
83. A provision of the Act or these regulations requiring or authorising a
thing to be done by or to a director and the manager or secretary shall not be
satisfied by its being done by or to the same person acting both as director and
as, or in place of, the manager or secretary.
The seal
84. (1) The Board shall provide for the safe custody of the seal.
(2) The seal of the company shall not be affixed to any instrument except by
the authority of a resolution of the Board or of a committee of the Board
authorised by it in that behalf, and except in the presence of at least two
directors and of the secretary or such other person as the Board may appoint for
the purpose; and those two directors and the secretary or other person aforesaid
shall sign every instrument to which the seal of the company is so affixed in
their presence.
Dividends and reserve
85. The company in general meeting may declare dividends, but no dividend shall
exceed the amount recommended by the Board.
86. The Board may from time to time pay to the members such interim dividends
as appear to it to be justified by the profits of the company.
87. (1) The Board may, before recommending any dividend, set aside out of the
profits of the company such sums as it thinks proper as a reserve or reserves
which shall, at the discretion of the Board, be applicable for any purpose to
which the profits of the company may be properly applied, including provision
for meeting contingencies or for equalising dividends; and pending such
application, may, at the like discretion, either be employed in the business of
the company or be invested in such investments (other than shares of the
company) as the Board may, from time to time, think fit.
(2) The Board may also carry forward any profits which it may think prudent not
to divide, without setting them aside as a reserve.
_____________________________
/97/ Substituted by Notification No. GSR 631, dated 23-4-1966.
<PAGE>
88. (1) 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 the dividend is paid, but if and so long as nothing is paid upon any of
the shares in the company, dividends may be declared and paid according to the
amounts of the shares.
(2) No amount paid or credited as paid on a share in advance of calls shall be
treated for the purposes of this regulation as paid on the share.
(3) 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 share is issued on
terms providing that it shall rank for dividend as from a particular date such
share shall rank for dividend accordingly.
89. The Board may deduct from any dividend payable to any member all sums of
money, if any, presently payable by him to the company on account of calls or
otherwise in relation to the shares of the company.
90. [Omitted by Notification No. GSR 631, dated 23-4-1966.]
91. (1) Any dividend, interest or other moneys payable in cash in respect of
shares may be paid by cheque or warrant sent through the post directed to the
registered address of the holder or, in the case of joint holders, to the
registered address of that one of the joint holders who is first named on the
register of members, or to such person and to such address as the holder or
joint holders may in writing direct.
(2) Every such cheque or warrant shall be made payable to the order of the
person to whom it is sent.
92. Any one of two or more joint holders of a share may give effectual receipts
for any dividends, bonuses or other moneys payable in respect of such share.
93. Notice of any dividend that may have been declared shall be given to the
persons entitled to share therein in the manner mentioned in the Act.
94. No dividend shall bear interest against the company.
Accounts
95. (1) The Board shall from time to time determine whether and to what extent
and at what times and places and under what conditions or regulations, the
accounts and books of the company, or any of them, shall be open to the
inspection of members not being directors.
(2) No member (not being a director) shall have any right of inspecting any
account or book or document of the company except as conferred by law or
authorised by the Board or by the company in general meeting.
Capitalisation of profits
96. (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
<PAGE>
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 provision contained in clause (3), either in or towards--
(i) paying up any amounts for the time being unpaid on any shares held
by such members respectively;
(ii) paying up in full, unissued shares /98/[***] 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 /99/[account] may,
for the purposes 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.
97. (1) Whenever such a resolution as aforesaid shall have been passed, the
Board shall--
(a) make all appropriations and applications of the undivided profits
solved to be capitalised thereby, and all allotments and issues of
fully paid shares /98/[***], if any; and
(b) generally do all acts and 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 fractions; 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 /98/[***] to which they may be entitled upon such
capitalisation, or (as the case may require) for the payment up by the
company on their behalf, by the application thereto of their
respective proportions 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.
_________________________
/98/ "or debentures" omitted by Notification No. GSR 631, dated 23-4-1966.
/99/ Substituted for "fund", ibid.
<PAGE>
Winding up
98. (1) If the company shall be wound up, the liquidator may, with the
sanction of a special resolution of the company and any other sanction required
by the Act, divide amongst the members, in specie or kind, the whole or any part
of the assets of the company, whether they shall consist of property of the same
kind or not.
(2) For the purpose aforesaid, the liquidator may set such value as he deems
fair upon any property to be divided as aforesaid and may determine how such
division shall be carried out as between the members of different classes of
members.
(3) The liquidator may, with the like sanction, vest the whole or any part of
such assets in trustees upon such trusts for the benefit of the contributories
as the liquidator, with the like sanction, shall think fit, but so that no
member shall be compelled to accept any shares or other securities whereon there
is any liability.
Indemnity
99. Every officer or agent for the time being of the company shall be
indemnified out of the assets of the company against any liability incurred by
him in defending any proceedings, whether civil or criminal, in which judgment
is given in his favour or in which he is acquitted or in connection with any
application under section 633 in which relief is granted to him by the Court.
<PAGE>
EXHIBIT 4.1
[Indian Currency -- 100 Rupee Note]
==============================================================================
DATED FEBRUARY 5, 1999
SATYAM INFOWAY LIMITED
and
SATYAM COMPUTER SERVICES LIMITED
and
SOUTH ASIA REGIONAL FUND
and
MR B RAMALINGA RAJU
________________________________________
SHARE SUBSCRIPTION AND SHAREHOLDERS'
AGREEMENT
relating to Satyam Infoway Limited
==============================================================================
<PAGE>
PARTIES
(1) SATYAM INFOWAY LIMITED ("the Company")
(2) SATYAM COMPUTER SERVICES LIMITED ("the Sponsor")
(3) SOUTH ASIA REGIONAL FUND ("SARF")
(4) MR B RAMALINGA RAJU ("MR RAMALINGA RAJU")
<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. INTERPRETATION...................................................... 5
2. REPRESENTATIONS AND WARRANTIES...................................... 5
3. CONDITIONS PRECEDENT................................................ 5
4. SUBSCRIPTION........................................................ 6
5. COVENANTS........................................................... 7
6. DIRECTORS AND MANAGEMENT............................................ 14
7. PROVISION OF SERVICES............................................... 16
8. FINANCING........................................................... 16
9. DIVIDENDS........................................................... 17
10. ENFORCEMENT OF COMPANY'S RIGHTS..................................... 17
11. ACTIONS TO BE TAKEN BY BOARD RESOLUTION OR BY SHAREHOLDER CONSENT... 18
12. DEALING IN SHARES................................................... 22
13. LISTING............................................................. 23
14. TAG ALONG PROVISIONS................................................ 25
15. WARRANTS............................................................ 26
16. EXIT OPTIONS........................................................ 29
17. COVENANTS NOT TO COMPETE............................................ 31
18. COMPLIANCE WITH THIS AGREEMENT AND THE ARTICLES..................... 33
</TABLE>
<PAGE>
<TABLE>
<S> <C>
19. TERMINATION......................................................... 33
20. CONFIDENTIALITY..................................................... 34
21. COSTS............................................................... 36
22. ARBITRATION......................................................... 36
23. MISCELLANEOUS....................................................... 39
24. SCHEDULES 1 to 9.................................................... 44
25. APPENDICES.......................................................... 80
</TABLE>
<PAGE>
THIS AGREEMENT is made by way of deed the day of 1998
BETWEEN -
(1) SATYAM INFOWAY LIMITED whose registered office is at Mayfair Centre, S.P.
Road, Secunderabad Andhra Pradesh, India Pin Code 500 003 ("the Company");
(2) SATYAM COMPUTER SERVICES LIMITED, whose registered office is at Mayfair
Centre, S.P. Road, Secunderabad, Andhra Pradesh, India 500 003 a company
based in Hyderabad, India ("the Sponsor");
(3) SOUTH ASIA REGIONAL FUND a company, incorporated in Mauritius and having
its registered office at Les Cascades Building, Edith Cavell Street, Port
Louis, Mauritius ("SARF"); and
(4) MR B. RAMALINGA RAJU, son of Mr. B. Satyanarayana Raju, aged about 42
years, presently residing at Plot # 1242, Road No 62, Jubilee Hills,
Hyderabad, A.P., India 500 003 ("Mr. B. Ramalinga Raju").
WHEREAS -
A The Company intends to carry out the Project described in Schedule 1.
B The Company has estimated that as at 1st day of August 1998 the cost of
the Project would amount to Rs 504.50 million made up as shown in Part I
of Schedule 2 and the Company intends to finance such cost in the manner
shown in Part II of that Schedule.
C SARF has agreed to subscribe and pay in cash for 3,000,000 (Three million)
Shares of 10 Rs each in the capital of the Company at a price of 70 Rs per
Share subject to and upon the terms hereinafter appearing.
D The Sponsor has agreed to subscribe and pay in cash for 750,000 (Seven
Hundred and Fifty Thousand) Shares of 10 Rs each in the capital of the
Company at a price of 70 Rs per Share subject to and upon the terms
hereinafter appearing.
4
<PAGE>
E The parties have also agreed to enter into certain commitments and to
regulate the exercise of their rights in relation to the Company in
the manner hereinafter appearing.
I INTERPRETATION
1.1 Terms used in this Agreement shall, except where the context otherwise
requires, have the meaning set out in Schedule 7.
2 REPRESENTATIONS AND WARRANTIES
2.1 The Company and the Sponsor acknowledge that SARF has entered into
this Agreement in reliance on the warranties and representations by
the Company and the Sponsor set out in Schedule 5 and the Company and
the Sponsor hereby accordingly jointly and severally represent and
warrant to SARF that the statements set out in Schedule 5 are true and
accurate.
3. CONDITIONS PRECEDENT
3.1 The obligations of SARF to the Company hereunder are subject to the
condition that SARF shall have received all of the documents, items
and evidence specified in Schedule 3, in each case in form and
substance satisfactory to SARF, or, as the case may be, shall be
satisfied as to the matters therein specified and that SARF shall have
notified the Company in writing of such satisfaction. In addition the
Sponsor and the Company agree that the representations and the
Warranties referred to in Clause 2.1 will be repeated mutatis mutandis
for the benefit of SARF immediately prior to the subscription for the
Shares by SARF referred to in Clause 4.
3.2. If any of the conditions referred to in Clause 3.1 are waived or
deferred by SARF, SARF may attach to such waiver or deferral such
requirements and further on other conditions as SARF thinks fit.
5
<PAGE>
3.3 If any of the conditions referred to in Clause 3.1 shall not have been
fulfilled to SARF's satisfaction before the expiry of 90 days from the
date of hereof for such extended period as SARF may approve in
writing, any obligations on the part of SARF then subsisting under
this Agreement shall cease.
4. SUBSCRIPTION
4.1 The Sponsor and SARF (subject to Clauses 3.1 and 4.2) each undertake
for the benefit of the other and the Company to subscribe for, and
against payment in full of the relative Subscription Monies, and the
Company undertakes for the benefit of each of the Shareholders to
allot or to procure the allotment of, the following Shares -
Applicant No. of ordinary 10 Rs Shares
Sponsor 750,000
SARF 3,000,000
4.2 SARF shall not be required to subscribe for the Shares specified
opposite its name in Clause 4.1 until the Sponsor shall have
subscribed and paid in full for all of the Shares specified opposite
its name in Clause 4.1 and such Shares have been allotted to it.
4.3 Promptly following the allotment of Shares to the Sponsor and subject
to Clause 3, SARF shall pay the Subscription Monies due from it.
4.4 The Company shall allot and issue to the relevant Shareholder the
Shares (credited as fully paid) subscribed for, free of all
encumbrances of any kind and deliver to each Shareholder share
certificates constituting valid title to the Shares subscribed for by
such Shareholder pursuant to the terms of this Agreement, such
certificates to be denominated in lots of 50,000 Shares. In addition,
the Company will furnish the relevant Shareholder with evidence
satisfactory to that Shareholder, that all necessary corporate
formalities (including registration in the register of members of the
Company) in connection with the issue of such Shares have been
completed, and, will deliver a statement giving details of the entire
issued share capital of the
6
<PAGE>
Company and the amount paid up thereon as at the date of issue
referred to in this Clause 4.4.
4.5. The Subscription Monies received pursuant to Clause 4.1 shall be
exclusively applied by the Company towards the Project.
4.6. On execution of this Agreement the Company will forthwith pay to (a)
SARF a Documentation fee of US$17,500 and (b) CDC Advisors Private
Limited an Advisory fee of the Indian Rupee equivalent of US$17,500,
calculated by reference to the average middle spot price for buying
Indian Rupees from Barclays Bank plc (London) on the business day
immediately preceding, the date of execution of this Agreement.
5 COVENANTS
5.1 Without prejudice to the provisions of Clause 11 the Company will, and
the Sponsor will procure that the Company will:
5.1.1 carry out and complete the Project with due diligence and efficiency
and in accordance with sound commercial, financial and business
practices;
5.1.2 except as SARF may otherwise agree in writing, cause all subscription
moneys paid by SARF and the Sponsor hereunder to be applied
exclusively to the cost of the Project;
5.1.3 furnish to SARF promptly upon their preparation all programmes, plans,
specifications, reports and contract documents relating to the Project
or business of the Company (or any part thereof) and any material
modifications thereof in such detail as SARF shall request;
5.1.4 retain until at least one year after the Closing Date all records
(including payroll records, invoices, bills and receipts) evidencing
expenditure on account of the Project;
7
<PAGE>
5.1.5 promptly after completion of the Project but in any event not later
than 30 days after the Closing Date or such later date as may be
agreed for this purpose between the Company and SARF, prepare and
furnish to SARF at the Company's expense a report of such scope and in
such detail as SARF shall reasonably request on the execution and
initial operation of the Project, the cost and the benefits derived
and to be derived therefrom, and the performance by the Company of its
obligations under this Agreement;
5.1.6 at the request of SARF exchange views with SARF with regard to the
progress of the Project and the performance of the Company's
obligations under this Agreement;
5.1.7 promptly inform SARF of any circumstance or event which interferes or
threatens to interfere with the carrying out of the Project or the
performance by the Company of any of its obligations hereunder or
which will increase or threaten to increase materially the estimated
cost of the Project;
5.1.8 maintain ecological, environmental and occupational health and safety
standards satisfactory to SARF and in accordance with World Bank
Environmental and Safety Guidelines and with the laws and guidelines
of India relevant to its operations, and furnish to SARF an annual
compliance report thereon within 3 months after the end of each
Financial Year;
5.1.9 carry on its undertaking properly and efficiently and in accordance
with sound administrative, business and financial practices and pay
promptly all Taxes and relevant fees;
5.1.10 in accordance with sound commercial practice and in a form to be
acceptable to SARF, insure and keep adequately insured its business
and assets to their full reinstatement value against fire, accidental
damage, storm and flood and all such risks as should prudently be
insured against or as SARF may reasonably require with reputable
insurers acceptable to SARF;
8
<PAGE>
5.1.11 to the extent such insurance is available to the Company in India,
insure against any and all losses and costs incurred (whether pursuant
to litigation or otherwise) in relation to claims made by customers
relating to any problems associated with the Company being Year 2000
Compliant;
5.1.12 within 14 days after the end of each Financial Year submit to SARF a
certificate showing the assets insured pursuant to Clause 5.1.10 and
5.1.11, the respective amounts of cover for such assets, the risks
insured against and the names of the insurers together with any
excesses and exclusions to which any such insurance may be subject;
5.1.13 keep such of its assets as are of a repairable nature in good repair
and condition;
5.1.14 take all steps within its powers to obtain, maintain and when
necessary renew all rights, powers, privileges, licences, consents,
approvals and agreements the benefit of which it may enjoy from time
to time and which may be of material benefit to it or the Project and
defend any action, claim or other proceedings in any court or tribunal
which may be brought against it by any person including, but without
limitation all intellectual property licenses and the Internet
Services Provisions Licence ("ISPL") granted by the Government of
India to the Company dated 820 - 49/98 - LR dated Nov 12, 1998;
5.1.15 promptly inform SARF of, any default or any breach of any loan
agreement or other agreement or arrangements which would have a
material effect on the business of the Company (and of the steps if
any being taken to remedy the same), any material adverse financial
condition of the Company or the Project, any event likely to lead to
such a change and any major litigation which has commenced or which
is, to the best of the Company's knowledge or belief, threatened
against the Company;
9
<PAGE>
5.1.16 operate a proper and efficient accounting system and maintain books of
account and other records (in the English language) adequate to
reflect truly and fairly, and in conformity with generally accepted
accounting principles consistently applied, the financial position of
the Company;
5.1.17 procure that its accounts are audited at least twice in every
financial year by auditors acceptable to SARF. The Company will cause
the auditors of the Company to directly communicate with SARF to
provide specific financial and accounting information sought by SARF
(substantially in the form set out in Schedule 6);
5.1.18 furnish to SARF-
5.1.18.1 within thirty (30) days of the end of each quarter of each Financial
Year, two copies of each of (a) the management accounts of the Company
for such quarter; (b) a balance sheet showing the Company's state of
affairs at the end of such quarter and (c) a report on the physical
and financial progress and prospects of the Company's operations
(including the Project) at the end of the quarter;
5.1.18.2 as soon as they are available and in any case within 6 calendar weeks
after the end of each half yearly audit accounting period of the
Company, two copies of each of (a) the audited accounts of the Company
for such half yearly period, (b) the auditors' report thereon (such
report to include separate confirmation to SARF from the auditors of
the Company as to the matters referred to in paragraph 6 of Schedule
3) and (c) any management letter or other document referred to
therein;
10
<PAGE>
5.18.1.3 copies of any other report or communication received by the Company
from its auditors relating to the financial position or affairs of the
Company which is of a material nature;
5.1.18.4 at least 1 calendar month before the beginning of each Financial Year,
two copies of each of (a) the Company's projected balance sheets at
the beginning and end of such Financial Year, (b) estimated quarterly
trading and profit and loss accounts for such Financial Year, (c) a
quarterly statement of the physical and financial programme and basic
assumptions on which items (a) and (b) are based (d) a statement
showing, the estimated source and application of funds for such
Financial Year, and (e) a business and operations plan complete with
marketing plans, product launch and manpower plan; all of the above to
be prepared taking into consideration anticipated exchange rate
movements;
5.1.18.5 forthwith on request such further information concerning the Company's
operations and affairs as SARF may from time to time reasonably
request;
5.1.19 permit duly authorised representatives and agents of SARF at any time
and from time to time (on reasonable notice - except where SARF
suspects that the Company is involved in fraudulent or similar
activity where SARF will not be required to provide notice) to have
access to and to inspect the Company's land and premises and its
accounting and other records and permit such representatives and
agents to take copies of or extracts from any such accounting and
other records as aforesaid;
11
<PAGE>
5.1.20 employ suitable qualified and experienced staff in adequate numbers
and obtain such technical, financial and other advice as may from time
to time be necessary to ensure the efficient conduct of its
operations;
5.1.21 comply at all times with all applicable laws, rules, regulations,
authorisations and licences relating to the Project, the Company's
undertaking and the allotment and issue of Shares and/or Warrants
contemplated by this Agreement;
5.1.22 comply in all respects with the terms and conditions of all
Environmental Licences and all Environmental Laws which in either case
affect the Project;
5.1.23 promptly upon receipt of all notifications of the same notify SARF of
any claim, notice or other communication received by it in respect of
any actual or alleged breach of any Environmental Law or Environmental
Licence which in either case affects the Project;
5.1.24 at all times ensure that the Memorandum of Association and Articles of
Association of the Company are consistent with the provisions of this
Agreement (including inter alia for the avoidance of doubt taking
forthwith all steps necessary to incorporate the provisions of Clauses
6, 9, 11, 12, 14 and 15 of this Agreement into the Articles of
Association of the Company) (including in addition making any
necessary amendments requested by SARF); and
5.1.25 take all necessary steps to ensure that the Warrants once issued
remain exercisable in accordance with their terms.
5.2 Unless agreed to the contrary by SARF, the Sponsor will:
5.2.1 provide a guarantee for all the long term debt related obligations of
the Company when required to do so by the Company;
12
<PAGE>
5.2.2 not share any resources with the Company and will build and maintain
the Company's business independently of its own;
5.2.3 procure that the Board of the Company comprises a majority of
independent non-executive Directors agreeable to SARF;
5.2.4 unconditionally and indefinitely allow the Company to use the Brand
name "Satyam" ("the Brand Name"), together with any associated logos,
copyrights and ancillary rights, (being registered in India) free of
charge, so long as SCSL continues to be the largest shareholder of the
Company;
5.3 The Sponsor hereby agrees -
5.3.1 to immediately advise SARF on becoming aware of the occurrence of or
the likelihood of an occurrence of any of the events set out in Clause
16.1;
5.3.2 to the listing, and sale of such number of its Shares as SARF may
require pursuant to Clause 16.2, and will take all steps necessary
(corporate and otherwise) to comply with such request including but
not limited to complying with any requests, rules and regulations of
the relevant stock exchange; and
5.3.3 that if SARF decides to exercise the Exit Option set out in Clause
16.2.2, to carry out all actions reasonably in its control, to
facilitate such a trade sale; and
5.3.4 to take all steps necessary to alter the Articles of Association of
the Company (including voting in favour of such alteration) in
accordance with Clause 5.1.24.
5.4 Mr. Ramalinga Raju hereby agrees -
5.4.1 to immediately advise SARF on becoming aware of the occurrence of or
the likelihood of an occurrence of any of the events set out in Clause
16.1;
13
<PAGE>
5.4.2 to cause the listing and sale of such number of Shares of the Company
in which the Sponsor is interested as SARF may require pursuant to
Clause 16.2 and will take all steps necessary (corporate or otherwise)
to comply with such request including, but not limited to complying
with any requests, rules and regulations of the relevant stock
exchange; and
5.4.3 that if SARF decides to exercise the Exit Option set out in Clause
16.2.2, to carry out all actions reasonably in his control, to
facilitate such trade sale.
6 DIRECTORS AND MANAGEMENT
6.1 SARF shall, for so long as it owns at least 7.5% of the issued
ordinary share capital of the Company be entitled, by notice in
writing to the Company, to nominate one Director to the Board of the
Company and to require the removal or substitution of any such
Director appointed by it. The Sponsor hereby agrees at all times to
take all actions necessary or appropriate to enable SARF to exercise
its right to such nomination, removal or substitution, including by
voting in favour of any such nomination, removal or substitution both
at shareholders' meetings and Board meetings.
6.2 The Sponsor shall be entitled, by notice in writing to the Company, to
nominate 4 (four) Directors of the Board of the Company and to require
the removal of substitution of any such Director approved by it. SARF
hereby agrees at all times to take all actions necessary and
appropriate to enable the Sponsor to exercise its right to such
nomination, removal or substitution, including voting in favour of
such nomination, removal or substitution both at shareholders meetings
and Board meetings.
6.3 Unless otherwise agreed by all the Shareholders, the maximum number of
Directors of the Company, excluding nominees of financial institutions
or banks in terms of loan agreements with the Company, will be twelve
Directors and the minimum number of Directors of the Company will be
three Directors.
14
<PAGE>
6.4 The Shareholders shall procure that the Board comprises of a majority
of independent non executive Directors. For the avoidance of doubt an
independent Director means a Director who is not a nominee of SARF or
the Sponsor.
6.5 At the time of the completion of any sale, assignment, transfer or
other disposition pursuant to the terms hereof of all of the Shares
held by a Shareholder the Shareholder shall procure the resignation of
each director nominated by it.
6.6 Unless the parties agree to the contrary, if a Shareholder sells,
assigns, transfers or otherwise disposes of sonic but not all of its
Shares, such transferee shall not be entitled to appoint any director
unless and until all of the transferring Shareholder's original
holding (determined as of the date hereof) is transferred to it and
references to a Shareholder in this Clause 6 shall be construed as a
reference to the transferring Shareholder only.
6.7 A Shareholder removing a nominee Director shall be responsible for and
agrees with the other Shareholder (contracting for itself and as
trustee for the Company) to indemnify the other Shareholder and the
Company against all losses, liabilities and costs which the other
Shareholder or the Company may incur arising out of, or in connection
with, any claim by the director for wrongful or unfair dismissal or
redundancy or other compensation arising out of the director's removal
or loss of office.
6.8 The quorum for a meeting of the Board shall be no less than 3
Directors. The Company will, and the Sponsor will procure that the
Company prepares an agenda for each meeting of the Board of the
Company, providing full details of the matters to be considered, and
details of all resolutions proposed to be passed at the relevant
meeting of the Board. Such agenda will be sent to all of the Directors
along with all documents or notes relating to such Board meeting, at
least 15 Business Days before the date of the relevant Board meeting.
The Parties hereto agree that the Board will not be entitled to
transact any business or pass any resolution other than as set out
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in the agenda at such meeting of the Board unless the Director
nominated by SARF is present at such meeting.
6.9 SARF shall have the right through its nominated Director to
participate on all Board committees, including, without limitation,
the executive committee, the audit and finance committee and the
remuneration committee.
6.10 The Company shall indemnify the Director and officers nominated by
SARF from time to time against all losses, claims, liabilities, costs
or other expense arising from the performance of their duties
(hereinafter "damages") except where such damages arise as a result of
fraud, willful misconduct or gross negligence on the part of such
Director or officer seeking, such indemnity. In addition the Company
agrees to take out adequate insurance, to the extent available in
India, to cover such damages.
6.11 The Company agrees to provide at least 15 Business Days notice of
meetings of the Board to those entitled to attend Board meetings.
6.12 The Sponsor and the Company agree that the Director nominated by SARF
will not be required to retire by rotation and that such Director will
not be required to hold any qualifying Shares in the Company and that
they will procure that the Articles of Association of the Company
reflect the provisions of this Clause.
7 PROVISION OF SERVICES
7.1 Except as set out herein, any services to be provided by or to the
Company by or to the Sponsor, and any agreements between the Company
and the Sponsor shall be on an arms-length basis.
8 FINANCING
8.1 Should the Company at any time and from time to time determine that
the funds available to the Company from the sources specified in the
Financial Plan shall not be or may not be sufficient (i) to complete
the Project, and/or (ii) to enable the Company to meet its financial
obligations, and/or (iii) to
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meet cash losses arising in the Company's operations from the date
hereof to the Financial Year of the Company ending in 2001, (each a
"Deficiency") whether as a result of an increase in the estimated cost
(including, but without limitation, cost of overruns) of the Project
or of a shortfall in the Financial Plan, the Company may at any time
during the period of three calendar years commencing with the date
hereof issue by facsimile, a notice to the Sponsor specifying the
relevant Deficiency. For the duration of this period the Sponsor
undertakes to provide funding to the Company in an amount equal to the
Deficiency in such manner and on such terms acceptable to SARF in
writing from time to time. Any such funding provided under this clause
will not be repayable until SARF ceases to hold any Shares in the
Company.
9 DIVIDENDS
9.1 Each Shareholder shall procure that, subject to the making of proper
and prudent reserves and provisions to meet ongoing and planned
capital expenditure and increases in working capital as in the opinion
of the Board ought reasonably to be made, substantially all of the
profits available for distribution (as determined in accordance with
the laws of India) in respect of each Financial Year during the term
of this Agreement is distributed by the Company to the Company's
Shareholders by way of dividends within six months of the end of the
Company's financial year.
10 ENFORCEMENT OF COMPANY'S RIGHTS
10.1 In the event that the Company has a right of action against any
Shareholder (or any associated company of such) in respect of a breach
of this Agreement a committee of directors (other than those appointed
by such Shareholder) shall be formed immediately after such breach.
10.2 In the event that the Company has a right of action against all
Shareholders, such committee shall include directors appointed by each
Shareholder, subject to Clause 6.
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10.3 Such committee shall have full authority on behalf of the Company to
take any action it considers appropriate in respect of such claim and
the Shareholders shall take all steps within their power (subject to
complying with the provisions of Clause 22) to give effect to the
provisions of this Clause 10.
11 ACTIONS TO BE TAKEN BY BOARD RESOLUTION OR BY SHAREHOLDER CONSENT
11.1 Without prejudice to the provisions of Clause 5, any decision relating
to any of the following matters shall as required under the Company's
Act 1956 or any other applicable law in force in India, require
approval of SCSL and SARF at the Shareholders' meeting or as
appropriate the approval of the Board of Directors including the vote
in favour of or consent in writing to the relevant matter by SARF's
nominated Director;
11.1.1 any change in the Memorandum and Articles of Association of the
Company;
11.1.2 any change in the capital structure of the Company (including, but
without limitation, any consolidation, sub-division, reconstruction or
conversion of the Company's share capital) or the issue of further
shares (of whatever class) or equity interest or the creation of any
options, warrants (except for the Warrants referred to in Clause 15)
or employee stock options, other rights to subscribe for, acquire or
call for Shares or redemption or purchase by the Company of Shares or
a reduction in the share capital of the Company or in any way
alteration of the rights attaching to the share capital of the
Company;
11.1.3 the issue by the Company of any debenture or loan stock (whether
secured or unsecured) or the creation of any mortgage, charge, lien,
encumbrance or other third party right over any of the Company's
assets or the giving by the Company of any guarantee or indemnity to
or becoming a surety for any third party;
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11.1.4 any arrangement for any joint venture or partnership (or than
agreements relating to arrangements with resellers or marketing
partners for the development of Web Sites and such other
products/services managed on a day to day basis by the Company as
authorised by the Board) or for the acquisition of the whole or
substantially, the whole of the assets and undertaking of the Company
or an acquisition by the Company of any part of (or the whole of) the
issued share capital, stock, or interest or of the assets and
undertakings (or any rights over the same) of another company;
11.1.5 the declaration of any dividend by the Company or the making of any
distribution of the Company's share capital or the purchase,
redemption or any kind of acquisition of any of the Company's shares
or capital stock or any warrant or option over the same;
11.1.6 approval or amendment of annual operating plans or budgets or any
activity outside the scope of the annual budget of the Company;
11.1.7 any change in the nature or material modification of the Project or
change in the business undertaken by the Company;
11.1.8 the merger, acquisition or winding up of the Company or participation
in any scheme of reconstruction or any settlement whatsoever involving
the Company, or any liquidation or dissolution of the Company;
11.1.9 the making of any loan or the creation, renewal or extension of any
borrowings or indebtedness by the Company or the granting of any
credit (other than credit given in the normal course of the Company's
business) in excess of the equivalent value in the relevant currency
of US $50,000 (or such revised limit as SARF may agree from time to
time in writing with the Company) by the Company;
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11.1.10 the appointment, remuneration, compensation, transfer and discharge of
any Director, or employee earning in excess of the equivalent value in
the relevant currency of US $50,000 a year;
11.1.11 the acquisition or construction or lease of items of tangible or
intangible property involving an estimated expenditure of the
equivalent value in the relevant currency of US$100,000 or more in
each individual case (or such revised limit as SARF may agree from
time to time in writing with the Company), which is not expressly
authorised in the approved budget referred to in Clause 11.1.6 above;
11.1.12 any transaction by the Company with any Shareholder or any associated
company of any Shareholder or any Directors of the Company and/or the
Sponsor and/or members of their respective families and/or associated
companies of such Directors;
11.1.13 any obligation of the Company outside the normal course of trading
which could involve the payment by it, in cash or otherwise, of
amounts in excess of the equivalent value in the relevant currency of
US$100,000 (or such revised limit as SARF may agree from time to time
in writing with the Company) in the aggregate in any 12 month period;
11.1.14 the assignment, sale or other disposal, lease or lending in any 12
month period of any asset or related group of assets of the Company
having a net book value in aggregate of the equivalent value in the
relevant currency of US$100,000 or more;
11.1.15 any change in the Company's accounting policies or the Company's
auditors, bankers, Financial Year or bank mandates;
11.1.16 the establishment of any retirement benefit scheme in relation to the
Company's employees, or the making of any contribution to any third
party scheme for the provision of retirement benefits;
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11.1.17 any expenditures or commitments for expenditures in any Financial Year
exceeding in aggregate the equivalent value in the relevant currency
of US$150,000 (or such revised limit as SARF may agree from time to
time in writing with the Company) which is not expressly authorised in
the approved budget referred to in Clause 11.1.6 above;
11.1.18 the granting or entering into of any licence, sub-licence, agreement
or similar arrangement concerning any part of the name of the Company
or any of the Company's intellectual property rights;
11.1.19 the making, granting or allowing of any claim, disclaimer, surrender,
election or consent for taxation purposes in excess of the equivalent
value in the relevant currency of US$25,000 (or such revised limit as
SARF may agree from time to time in writing with the Company);
11.1.20 the Company entering into the occupation, purchase, sale, transfer,
lease or licence of any freehold or leasehold property, with an
individual aggregate annual cost to the Company of more than the
equivalent value in the relevant currency of US$50,000 (or such
revised limit as SARF may agree from time to time in writing with the
Company);
11.1.21 the Company forming or having any Subsidiary or holding or acquiring
any shares, stock or interest in any company (wherever incorporated)
or any rights over the same;
11.1.22 early repayment of any moneys advanced to the Company pursuant to any
term loan agreement;
11.1.23 appointing any Director (executive or non executive) or any shadow
director of the Company (other than those nominated by the Sponsor) or
appointing any committee of the Board or delegating any of the powers
of the Board to any committee;
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11.1.24 the Company establishing any bonus, profit sharing, share option or
other incentive scheme for any director or employee of the Company;
11.1.25 write off of any amounts of money or otherwise due and owing to the
Company;
11.1.26 the pricing, quantum, timing of an initial public offering ("IPO"),
and identity of the lead managers, at the time of the IPO, subject to
the provisions of Clause 13 hereof,
11.1.27 the giving by the Company of any power of attorney not in the ordinary
course of business; and
11.1.28 any modification of any significant commercial contracts or business
agreements.
12 DEALING IN SHARES
12.1 The Sponsor shall not except with the prior written consent of SARF or
in accordance with this Agreement.
12.1.1 pledge, mortgage, charge or otherwise encumber any of its Shares,
options or warrants or any interest in any such Shares, options or
warrants;
12.1.2 transfer, dispose of or grant an option over any of its Shares or any
interest (legal or beneficial) in any such Shares, options, or
warrants; or
12.1.3 enter into any agreement in respect of the votes attached to any of
its Shares, options, or warrants.
12.2 The Company shall procure that each share certificate issued by it
will carry the following statement -
"Any" disposition, transfer, charge of or dealing in any other manner
in the Shares represented by this certificate is restricted by a
Shareholders
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Agreement dated _____________ and made between the Company, South Asia Regional
Fund and Satyam Computer Services Limited and Mr. B. Ramalinga Raju."
12.3 The Shareholders and the Company shall procure that the Board only
approves for registration a transfer of Shares, warrants or options
carried Out in accordance with the provisions of this Agreement.
12.4 Subject to Clause 12.3, if a Shareholder sells, transfers, assigns or
otherwise disposes of all of its Shares, warrants or options it shall
be released from its obligations hereunder except for those contained
in Clauses 17 (if appropriate), 20, 22, and 23.1 to 23.3.
12.5 If any Shareholder ("the Transferor") transfers any Shares, warrants
or options owned by it in accordance with the provisions of this
Agreement other than to the other Shareholder(s) (such person(s)
hereinafter called "the Transferee(s)") such transfer shall be made
upon the condition that the Transferee(s) shall execute a Deed of
Adherence, substantially in the form as set out in Schedule 8 by
which, on and as of the date on which such Shares, warrants or options
are transferred to it, the Transferee(s) shall become subject to the
same obligations and shall be entitled to the same rights as bound and
accrued to the Transferor pursuant to this Agreement.
13 LISTING
13.1 The Company and the Sponsor severally undertake to obtain a Listing of
the Shares by making an IPO on the Bombay Stock Exchange ("BSE") or
the National Stock Exchange ("NSE") on or before March 31, 2003.
13.2 Subject to the provisions of this Agreement, the Company undertakes to
cause the existing Shares of the Company to be listed and take such
steps as are necessary (either by way of a fresh issue of Shares
and/or by causing the existing issued Shares to be sold) to obtain a
Listing. The Sponsor and the Company severally undertake to ensure
compliance with all applicable regulations, and guidelines in force at
the relevant date in relation to the
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making of the IPO or for obtaining a Listing. The Sponsor and the
Company further severally undertake to use their best efforts to
obtain all necessary consents and approvals required for the making of
the IPO or for obtaining a Listing.
13.3 SARF will have the option to offer part or all of its Shares for an
offer for Sale at the time of the IPO. For the avoidance of doubt, the
balance of Shares necessary to meet all Listing requirements shall be
provided either by way of a fresh issue of Shares and/or by the
Sponsor's Shares being offered for sale.
13.4 The quantum, price and timing of the IPO shall be decided only with
the prior written consent of SARF.
13.5 The Company shall, if so required by SARF, enter into underwriting
agreements with underwriters, acceptable to SARF, for underwriting the
Shares or other securities offered in the IPO.
13.6 All costs incurred in relation to the IPO shall be met by the Company.
In respect of the Listing. the Company will comply with all ongoing
Listing costs and requirements including inter alia, payment of all
present and future costs relating to the Listing and, sponsorship,
underwriting fees, listing fees, merchant bankers fees, bankers fees,
brokerage, commission and any other costs that may be incurred due to
the changes/modifications of the law and regulations for the time
being in force.
13.7 The Company and the Sponsor agree that SARF shall not, upon Listing or
sale of the Shares held by it, be required to give any warranties or
indemnities to any underwriter, broker, Stock Exchange, any other
Competent Authority or other person except as to title of its shares,
and SARF shall in no circumstances be construed as a promoter under
applicable law.
13.8 The Sponsor and the Company shall ensure fulfillment of all listing
requirements to the satisfaction of the Stock Exchanges and Securities
Exchange Board of India and/or any other regulatory/statutory
authority.
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13.9 If for any reason the Company fails to qualify for a listing on the
BSE, the NSE or another recognised Stock Exchange in India or the
United States of America approved by SARF the Company may seek to list
the Shares on any other recognised Stock Exchange anywhere in the
world, provided that the listing of the Shares of any other Stock
Exchange shall require the prior written consent of SARF. For the
avoidance of doubt, for the purposes of this Clause 13, if the Company
seeks to list its shares of any exchange other than a recognised stock
exchange in India or the United States of America, the provisions of
this Clause 13 will apply to such listing.
14 TAG ALONG PROVISIONS
14.1 For the purposes of this Clause 14 -
14.1.1 "Buyer" means any person and/or a nominee of such person;
14.1.2 the "Tag Along, Price" shall mean the higher of -
14.1.2.1 the highest consideration offered for each Share the proposed transfer
of which has led to the offer;
14.1.2.2 the highest consideration paid by the Buyer for any Share in the
twelve months up to the relevant offer.
14.2 Notwithstanding any other provisions of this Agreement (including, but
not limited to Clause 12), the Sponsor shall not be entitled to
transfer any Shares (which term for the purposes of this Clause 14
will include any warrants or options) to a Buyer unless it shall have
first procured that the Buyer makes a written offer (open for
acceptance for a period of at least 28 days and with adequate security
as to the performance of its obligations) to purchase all of the
Shares held by SARF at the Tag Along Price per Share. Any such offer
shall be on terms that the consideration shall be payable in cash in
full without any set off within 21 days of acceptance of the offer.
14.3 The Sponsor shall procure that the Buyer shall complete the purchase
from SARF of all of its Shares before or at the same time as the Buyer
completes the purchase of Shares from the Sponsor. The Shareholders
shall procure
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that the Directors shall not register any transfer to the Buyer and
the Buyer shall not be entitled to exercise or direct the exercise of
any rights in respect of any Shares to be transferred to the Buyer
until in each case the Buyer has fulfilled all his obligations
pursuant to this Clause 14 and Clause 12.5.
15 WARRANTS
15.1 The issue of Warrants and subscription rights and all matters related
thereto specified in this Clause 15 shall be subject to all applicable
laws, rules and regulations in force in India at the date of signing
of this Agreement.
15.2 Conditional upon SARF or the Sponsor (as the case may be) subscribing
and paying in full for the number of Shares set out opposite their
respective names in Clause 4.1, and the Company obtaining necessary
approvals for the issue of Warrants, the Company hereby agrees and
undertakes to issue Warrants to SARF and the Sponsor as set out in
Clause 15-.3 below ("Warrants"). Each Warrant shall entitle the
registered holder thereof a right to subscribe (the "Subscription
Right(s)") for one fully paid Share in the capital of the Company at
any time during the Warrant Exercise Period or as provided in Clause
15.2.2. for the Warrant Exercise Price on the following conditions
(and those conditions endorsed on the Warrant Certificate
substantially in the form set out in Schedule 9) (together the
"Conditions"):
15.2.1 The Warrant exercise price (the "Warrant Exercise Price") per Share
will be calculated by applying, at the "Warrant Exercise Date"
(hereinafter defined), a multiple of eight to the fully diluted
earnings per Share calculated using the latest annual audited accounts
of the Company. The term "fully diluted" shall for the purposes of
this Clause mean that the number of Shares used to calculate the
earnings per Share will be the number of Shares that would be in issue
if all the warrants and options (for the avoidance of doubt, this will
include all Employee and Management Share Option Schemes) in issue at
the Warrant Exercise Date were converted into Shares, subject to a
minimum
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price of the higher of (a) 66% of the fair market value of a Share on
the Warrant Exercise Date, fair market value being arrived at by
taking the mean price per Share determined by three reputable merchant
banks acceptable to the Shareholders at that time ("Fair Market
Value") and (b) the par value of Shares subscribed. If the
Shareholders cannot agree on three reputable merchant banks, the
President for the time-being of the International Chambers of
Commerce, India will select and appoint such remaining reputable
Merchant Bankers as may be required, at the request of any of the
parties hereto and any costs associated therewith will be payable by
the Company;
15.2.2 The Warrants will be exercisable at any time between 30 June 2001 and
30 June 2003 (the "Warrant Exercise Period") or if the Sponsor sells
any of its Shares prior to 30 June 2001, or on a date not later than
the date on which the Company files an application for Listing or
petitions wind up voluntarily, by serving a written notice (the
"Warrant Exercise Notice") on the Company substantially in the form,
set out in Schedule 9 stating the Warrant Exercise Price and number of
Warrants being exercised and enclosing a cheque (or other form of
payment acceptable to the Company and SARF and/or the Sponsor as
appropriate) for the relevant sum the date of receipt of the notice
together with the Warrants and the cheque towards payment of the
appropriate amount shall be the "Warrant Exercise Date." The Warrants
can only be exercised during the Warrant Exercise Period, or under any
of the other circumstances set out at the beginning of this Clause
15.2.2., failing which the relevant Warrants will lapse and cease to
have any further effect. Once a notice exercising the Warrant has been
given, such notice may not be withdrawn except with written consent of
the Company. The Warrants shall have to be exercised in not more than
3 (three) tranches by the Warrantholders.
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15.3 The number of Warrants to be issued by the Company pursuant to and on
the terms and conditions set out in Clause 15.2 will be -
SARF - 600,000
Sponsor - 150,000
15.4 Each Warrantholder will be entitled to Warrant Certificates in such
denominations as SARF and/or the Sponsor may request in the form or
substantially in the form shown in Schedule 9.
15.5 All Warrant Certificates shall be issued under the Seal of the Company
or under a seal adopted for that purpose in accordance with the Articles
of Association of the Company.
15.6 The Conditions of the Warrants and the Warrants shall be binding upon
the Company and the Warrantholders and all persons claiming through or
under them respectively.
15.7 Without prejudice to the generality of Clause 15.5 the Company shall
upon exercise of all or any of the Subscription Rights from time to time
during the Warrant Exercise Period or in accordance with Clause 15.2.2
allot and issue the appropriate number of Shares in accordance with this
Agreement and the Conditions but subject to applicable laws and
regulations in India at the date of this Agreement. The Warrants once
exercised by the Warrantholders shall be cancelled forthwith by the
Company.
15.8 The Company covenants with SARF and the Sponsor that so long as any of
the Subscription Rights remain exercisable:
15.8.1 all Shares allotted and issued on exercise of the Subscription Rights
shall rank pari passu in all respects with the fully paid Shares in the
Company and shall accordingly entitle the holders to participate in full
in all dividends or other distributions paid or made on in respect of
the Shares from the relevant Warrant Exercise Date; and
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15.8.2 it will send to each Warrantholder, at the same time as the same are
sent to the holders of Shares, its audited accounts and all other
notices, reports and communications despatched by it to the holders of
the Shares generally.
15.9 Warrants shall be transferable by instrument of transfer in any usual or
common form or such other form as may be approved by the Directors. For
this purpose, the Company shall maintain a Register in accordance with
applicable laws and regulations. Transfers of Warrants must be executed
by both the transferor and the transferee. The provisions of the
Company's Articles of Association for the time being in relation to the
registration, transmission and transfer of Shares and the register of
members shall apply, mutatis mutandis, to the registration, transmission
and transfer of the Warrants and the Register and shall have full effect
as if the same had been incorporated herein. For the avoidance of doubt
SARF may sell some or all of the Warrants owned by it at any time.
15.10 The Parties agree to procure as soon as possible that all steps
necessary for the Company to lawfully issue the Warrants shall be taken,
including, but without limitation amending the Articles of Association
of the Company.
15.11 All conditions and rights contained under Clauses 12, 14 and 16 shall
apply mutatis mutandis to any issued but unexercised Warrants as if the
Warrants were Shares.
16 EXIT OPTIONS
16.1 Notwithstanding SARF's right to sell its Shares at any given point of
time or anything to the contrary contained elsewhere in this Agreement,
the Sponsor hereby agrees that SARF shall also have the right to sell
its Shares and terminate this Agreement and exercise the option (the
"Exit Option") as set forth in Clause 16.2 hereof, on the occurrence of
any of the following events:
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16.1.1 any material breach of this Agreement by the Company and/or the Sponsor
which is not remedied within 45 Business Days of receipt of written
notice from SARF;
16.1.2 the bankruptcy or insolvency of the Sponsor or for the suspension or
termination of its operations or any resolution is proposed for the
distribution of any of its assets among all or any of its creditors;
16.1.3 there is no IPO made on or before March 31, 2003 or such later date as
may be agreed between SARF, the Sponsor and the Company;
16.1.4 Mr. Ramalinga Raju ceases to be the Chairman of the Sponsor;
16.1.5 there is a Change in Control of the Sponsor; or
16.1.6 the Sponsor ceases to be a public listed company on the NSE/BSE or other
recognised stock exchange.
16.2 If SARF becomes entitled to exercise the Exit Option above, SARF may, at
its option:
16.2.1 require the Sponsor to, and Mr. Ramalinga Raju to procure, that the
Sponsor makes available for sale the requisite number of its Shares
which, along with SARF's shareholding, meets the minimum listing
requirements on the BSE or the NSE or other recognized stock exchange in
India or the United States of America or other stock exchange (subject
to Clause 16.3), through an offer for sale to the public, and the
Company shall bear the cost of making the offer for sale; and/or
16.2.2 sell its holding to a trade buyer or financial investor, in which case
the Sponsor will, and Mr. Ramalinga Raju will procure, that he and the
Sponsor will undertake all necessary steps to facilitate and make happen
such a sale including, the Sponsor will make available the necessary
number of its Shares, which when combined with all of the shares owned
by SARF at that point in
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time, will give the trade buyer/financial investor at least 25.1%
shareholding in the Company, and both SARF and the Sponsor will sell
their shares on the same terms and conditions; and/or
16.2.3 require the Company to buy back all of SARF's Shares, or such number of
SARF's Shares as are permitted under Indian law, at a price per Share
agreed between SARF and the Company, or failing such agreement at Fair
Market Value.
16.3 The Parties agree that except to the extent that SARF's rights pursuant
to this Agreement are inconsistent with Listing requirements, all of
SARF's rights pursuant hereunder shall continue in full force and effect
following Listing. SARF and the Sponsor shall have the obligation to
accord consent to the amendment of the Articles of Association of the
Company for the purpose of Listing only to the extent necessary for
Listing and such as the Sponsor's and SARF's legal counsel in
consultation with Company's legal advisors shall agree, and SARF and the
Sponsor undertake to vote in favour of such modifications.
16.4 If SARF exercises its Exit Option, the Company agrees to use its best
endeavours to procure or effect the provisions of clause 16.2 as soon as
possible including, but without limitation in the case of Clause 16.2.3,
obtaining SARF's approval prior to any capital expenditure or other
deployment of funds in the event that the Company cannot buy back all of
SARF's shares.
17 COVENANTS NOT TO COMPETE
17.1 While SARF or any associated company of SARF is the holder of any
Shares, and for the period set out in Clause 17.2, the Sponsor shall not
without the prior written consent of SARF either alone or jointly with,
through (which includes by ownership of any Share, direct or indirect
control) or on behalf of (whether as director, partner, consultant,
manager, employee, agent or otherwise) any person, directly or
indirectly -
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17.1.1 carry on or be engaged or concerned or interested (or seek to take such
action) in any business which is in competition with the Project or the
business carried on by the Company in relation to electronic commerce
and internet business (the "Restricted Business") as carried on at any
time during the term of this Agreement anywhere in the world, nor seek
to, directly or indirectly, procure orders from or do business or
contract with any person who is or has been a customer or, (in such a
way as to adversely affect the Company) a contractor or supplier of the
Company at any time during the term of this Agreement;
17.1.2 in connection with any business competing with the Project or the
business carried on by the Company in relation to the Restricted
Business during the term of this Agreement engage or employ, or contact
with a view to doing so, any person who has been an employee, officer or
manager of the Company at any time during the term of this Agreement;
17.1.3 do or say anything which is harmful to the reputation of the Company or
materially affects its existing business relationship with any person;
with the intent that each of these restrictions shall constitute an
entirely separate and independent restriction on the Sponsor and any
associated company of the Sponsor.
17.2 The restrictions in Clause 17.1 shall apply also for a period of 12
calendar months from the date on which the Sponsor or any associated
company of the Sponsor ceases to be legally and/or beneficially
interested in any Share (the "Cessation Date") in all cases by
references to either the Project or the business of the Company or
customers, employees, officers, managers or contracting parties of the
Company at the Cessation Date, as the context may require.
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17.3 The Parties undertake to use their best endeavours to procure that the
restrictions set out in this Clause 17 will apply mutatis mutandis to
the Directors and, senior employees earning in excess of the relevant
currency equivalent of US$30,000 per annum (or such revised limit as
SARF may agree from time to time in writing with the Company), of the
Company.
17.4 The restrictions contained in respect of Clauses 17.1 and 17.2 above are
considered reasonable by the Parties but in the event that any such
restrictions shall be found to be void but would be valid if some part
or parts thereof were deleted or the period or area of application
reduced, such restrictions shall apply with such modifications as may be
necessary to make it valid and effective.
18 COMPLIANCE WITH THIS AGREEMENT AND THE ARTICLES
18.1 Each Shareholder and the Company undertakes to the others that it shall
take (or shall cause to be taken) all practicable steps and actions
including, without limitation, the exercise of votes it directly or
indirectly controls at meetings of the Board and general meetings of the
Company necessary or appropriate to ensure that the terms of this
Agreement are complied with and to procure that the Board and the
Company complies expeditiously and efficiently with its obligations and
that it shall do all such other acts and things as may be necessary or
desirable to implement this Agreement.
18.2 Each Shareholder and the Company undertakes to the others to amend the
Articles of Association of the Company so that each and every provision
(subject to Clause 18.1) shall be enforceable by the Shareholders as
between themselves in whatever capacity.
19 TERMINATION
19.1 This Agreement shall remain in full force and effect as between the
Shareholders and the Company until the earlier of -
19.1.1 Without prejudice to Clause 16, the acquisition by one Shareholder or a
Buyer of all the Shares held by the other Shareholder(s); or
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19.1.2 the agreement of all the parties that it be terminated.
19.2 For the avoidance of doubt, in the event of a transfer of Shares in
accordance with this Agreement, unless expressly stipulated to the
contrary herein, this Agreement shall not terminate but shall continue
in full force and effect.
19.3 Termination of this Agreement shall be without prejudice to any accrued
rights or obligations of the Parties up to the date of termination.
20 CONFIDENTIALITY
20.1 During the term of this Agreement and for the period of two years after
termination or expiration of this Agreement for any reason whatsoever,
the Receiving Party shall -
20.1.1 keep the Confidential Information confidential;
20.1.2 not disclose the Confidential Information to any other person other than
with the prior written consent of the Disclosing Party or in accordance
with Clauses 20.2 and 20.3; and
20.1.3 not use the Confidential Information for any purpose other than the
performance of its obligations under this Agreement.
20.2 During the term of this Agreement the Receiving Party may disclose the
Confidential Information to its directors, officers or employees (or
employees, directors, and officers of its holding company, subsidiaries,
or group companies ), and advisors including for the avoidance of doubt
in the case of the Company, the Company's financiers and/or bankers,
(the "Recipient") to the extent that it is necessary for the purposes of
this Agreement.
20.3 The Receiving Party shall procure that each Recipient is made aware of
and complies with all the Receiving Party's obligations of
confidentiality under this Agreement as if the Recipient was a party to
this Agreement.
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20.4 The obligations contained in Clauses 20.1 to 20.3 shall not apply to any
Confidential Information which -
20.4.1 is at the date of this Agreement or at any time after the date of this
Agreement comes into the public domain other than through breach of this
Agreement by the Receiving Party or any Recipient;
20.4.2 can be shown by the Receiving Party to the reasonable satisfaction of
the Disclosing Party to have been known to the Receiving Party prior to
it being disclosed by the Disclosing Party to the Receiving Party;
20.4.3 subsequently comes lawfully into the possession of the Receiving Party
from a third party;
20.4.4 is required by law to be disclosed to any person who is authorised by
law to receive the same;
20.4.5 is required to be disclosed by the regulations of any recognised
exchange upon which the share capital of the Disclosing Party is listed
or is proposed to be listed from time to time;
20.4.6 is disclosed to a court, arbitrator or administrative tribunal in the
course of proceedings before it to which the Disclosing Party is a party
in a case where disclosure is required by such proceedings.
20.5 For the purposes of this Clause, "Confidential Information" means all
information of a confidential nature disclosed in writing by one party
(the "Disclosing Party) to any other party (the "Receiving Party")
whether before or after the date of this Agreement.
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21 COSTS
21.1 Except as otherwise provided herein, each party will bear its own costs
arising out of or incidental to the negotiation, preparation, execution
and implementation by it of this Agreement and of all other documents
referred to in it.
22. ARBITRATION
22.1 Except as expressly stated herein, any and all claims, disputes,
questions or controversies involving the parties and arising out of or
in connection with this Agreement, or the execution, interpretation,
validity, performance, breach or termination hereof (including, without
limitation, the provisions of this Clause 22) (collectively, "Disputes")
which cannot be finally resolved by the Parties within sixty (60)
calendar days of the arising of a Dispute by amicable negotiation and
conciliation shall first be submitted for settlement by informal
arbitration to an arbitral panel consisting of one member of the Board
of Directors (or any nominee thereof) of each of SARF and the Sponsor.
If any such panel, negotiating in good faith, is unable to resolve and
settle the dispute within sixty (60) calendar days after the Dispute is
first submitted to it, then any representative on such panel shall be
entitled to cause the Dispute to be submitted for settlement pursuant to
the terms of Section 22.2 hereof.
22.2 Any Dispute which is not settled after an attempt by the parties to the
Dispute at amicable negotiations and conciliation under Section 22.1
shall be resolved by final and binding arbitration. The arbitration
shall be held in Singapore in accordance with the Rules of United
Nations Commission for International Trade Law ("UNCITRAL Rules") as
then existing and shall be heard and determined by an arbitral tribunal
composed of three (3) arbitrators. Each of the Shareholders shall
appoint one arbitrator, and both of such arbitrators shall appoint a
third arbitrator who shall serve as the Chairman of such arbitral
tribunal, provided that such third arbitrator is not a citizen of the
United Kingdom or India. If either Shareholder fails or decides against
appointing an arbitrator within a period of thirty (30) days
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after the appointment of the first arbitrator, or if the arbitrators
designated by the Shareholders fail or otherwise are unable to appoint
the third arbitrator within (30) days of the appointment of the second
arbitrator, then the remaining arbitrator(s) shall be selected by the
President of the International Chamber of Commerce, Singapore, which
shall act as the appointing authority.
22.2.1 All arbitration proceedings shall be conducted in the English language
and the arbitral award (the "Award") shall be rendered no later than six
(6) months from the commencement of the arbitration or as otherwise
provided by the UNCITRAL Rules, unless otherwise extended by the
arbitral tribunal for no more than an additional six (6) months for
reasons that are just and equitable. In connection with the arbitration
proceedings, the parties hereby agree to co-operate in good faith with
each other and the arbitral tribunal and to use their respective best
efforts to respond promptly to any reasonable discovery demand made by
any party and the arbitral tribunal.
22.2.2 Except as otherwise required by law or any applicable stock exchange
rules and regulations, the arbitral proceedings and the Award shall not
be made public without the joint consent of the parties to the Dispute
and each such party shall maintain the confidentiality of such
proceedings or the Award, unless otherwise permitted by the other party
in writing. The costs of the arbitration shall be borne by the parties
to the Dispute in accordance with the applicable provisions stipulated
in the UNCITRAL Rules. Unless the Award provides for non-monetary
remedies, any such Award shall be made and shall be promptly payable in
US Dollars or other designated currency net of any tax or other
deduction. The Award shall include interest from the date of any breach
or other violation of this Agreement and the rate of such interest shall
be specified by the arbitral tribunal and shall be calculated from the
date of any such breach or other
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violation to the date when the Award is paid in full; provided, however,
-------- -------
that in no event shall such interest rate be lower than the prime
commercial lending rate announced by Citibank, NA at its principal
office at New York, United States of America for ninety (90) day loans
extended to responsible commercial borrowers.
22.2.3 All notices and other communications by one party to the Dispute to the
other or by the arbitral tribunal to any of the Parties in connection
with the arbitration hereunder shall be in accordance with the
provisions of Clauses 23.1 to 23.3.
22.2.4 The parties expressly understand and agree that the award shall be the
sole, exclusive, final and binding remedy between them regarding any and
all Disputes presented to the arbitral tribunal. Application shall be
made to any court having jurisdiction over the party (or its assets)
against whom the Award is rendered for a judicial acceptance of the
Award and an order of enforcement. The Parties acknowledge and agree
that this Agreement and any Award pursuant hereto shall be governed by
the 1958 New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards and the Indian Arbitration and Conciliation Act,
1996.
22.3 Neither the existence of any Dispute nor the fact that any arbitration
is pending hereunder, shall relieve any of the parties of their
respective obligations under this Agreement.
22.4 Each party hereby agrees that all of the transactions contemplated by
this Agreement shall constitute and shall be deemed to constitute
commercial activities. To the extent that any party may be entitled in
any jurisdiction whatsoever to claim immunity, whether characterized as
sovereign or otherwise, from litigation, execution, set-off, attachment
or other legal process of any nature whatsoever, it hereby expressly and
irrevocably waives such immunity.
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23 MISCELLANEOUS
23.1 All notices and other communications to be given under this Agreement
shall be made in writing and by letter or facsimile transmission (save
as otherwise stated) and shall be deemed to be duly given or made when
delivered (in the case of personal delivery), when despatched (in the
case of facsimile transmission, provided that the sender has received a
receipt indicating proper transmission) or, in the case of a letter, 10
Business Days after being deposited in the post (by the quickest mail
available), postage prepaid, to such party at its address or facsimile
number specified in Clause 23.2, or at such other address or facsimile
number as such party may hereafter specify for such purposes to the
other by notice in writing.
23.2 The addresses referred to in Clause 23.1 are -
23.2.1 in the case of a notice given to the Company -
35 Velachery Road
Little Mount Chennai
India 600 015
Facsimile number: (91) 44 235 4771
With a copy to
Mayfair Centre, S.P. Road
Secunderabad, Andhra Pradesh
India 500 003
Fax Number - (91) 40 840 058
23.2.2 in the case of a notice given to SARF -
Les Cascades Building
Edith Cavell Street
Port Louis
Mauritius
Facsimile number: (230) 212 9833
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with a copy to-
Commonwealth Eli Development Corporation
One Bessborough Gardens
London SWIV 2JQ
England
Facsimile number: (44) 171 828 6505; and
CDC Advisors PVT Ltd
Thapar Niketan
7/4 Brunton Road
Bangalore - 560 025
Facsimile number: (91) 80 555 0592
23.2.3 in the case of a notice given to the Sponsor.
Mayfair Centre, S.P. Road
Secunderabad, Andhra Pradesh
India 500 003
Fax number: (91) 40 840 058
23.2.4 In the case a notice given to Mr. Ramalinga Raju
Plot 1242, Road NO 6
Jubilee Hills
Hyderabad 500 033
India
Facsimile number:_____________
23.3 A notice or other communication received on a day other than a business
day, or after business hours in the place of receipt, shall be deemed to
be given on the next following business day in such place.
23.4 If there is any conflict or inconsistency between the provisions of this
Agreement and the Memorandum and Articles of Association of the Company,
this Agreement shall prevail so far as permitted under Indian law.
Nothing in this Agreement shall be deemed to constitute an amendment of
the Memorandum and Articles of Association of the Company or any
previous articles of association of the Company.
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23.5 Nothing in this Agreement or in any document referred to in it shall
constitute any of the parties a partner of any other, nor shall the
execution, completion and implementation of this Agreement confer on any
party any power to bind or impose any obligations to any third parties
on any other party or to pledge the credit of any other party.
23.6 None of the parties hereto may assign any of their respective rights or
obligations under this Agreement nor any of the documents referred to in
this Agreement in whole or in part (otherwise than pursuant to a
transfer of Shares in accordance in all respects with the provisions and
requirements of this Agreement).
23.7 Any provision in this Agreement which is or may become prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction without prejudice to the foregoing. The parties will
immediately negotiate in good faith to replace such provision with a
proviso which is not prohibited or unenforceable and has, as far as
possible, the same legal and commercial effect as that which it
replaces.
23.8 The Company, Mr. Ramalinga Raju and the Sponsor severally undertake, at
the request and cost of SARF, to execute or procure the execution of
such documents and do or procure the doing of such acts and things that
SARF may reasonably require for the purpose of giving to SARF the full
benefit of all the provisions of this Agreement or any document related
thereto.
23.9 Save as SARF may otherwise agree, all notices, certificates, reports,
information and documents given to SARF pursuant to this Agreement shall
be in the English language.
23.10 This Agreement may be executed in several counterparts, each of which
shall be an original but all of which shall together constitute one and
the same instrument.
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23.11 This Agreement represents the entire agreement between the parties and
shall supersede and extinguish any previous drafts, agreements or
understandings between all or any of the parties (whether oral or in
writing) relating to the subject matter herein, except to the extent
that the same are repeated in this Agreement.
23.12 Rights etc. cumulative and other matters -
23.12.1 The rights, powers, privileges and remedies provided in this Agreement
are cumulative and are not exclusive of any rights, powers, privileges
or remedies provided by law or otherwise.
23.12.2 No failure to exercise nor any delay in exercising any right, power,
privilege or remedy under this Agreement shall in any way impair or
affect the exercise thereof or operate as a waiver thereof in whole or
in part.
23.12.3 No single or partial exercise of any right, power, privilege or remedy
under this Agreement shall prevent any further or other exercise thereof
or the exercise of any other right, power, privilege or remedy.
23.13 Release of Warrantors -
23.13.1 SARF may release or compromise the liability of Mr. Ramalinga Raju, the
Sponsor or the Company hereunder without affecting the liability of the
other.
23.14 All payments including dividends to be made by the Company hereunder
shall be made in US$ and -
23.14.1 Without set-off or counterclaim; and
23.14.2 Free and clear of and without deduction or withholding for or on account
of Taxes unless the Company is compelled by law to make payment subject
to such Taxes.
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23.15 All Taxes payable by the Company hereunder in respect of this Agreement
shall be paid by the Company when due and in any event prior to the date
on which penalties attach thereto. The Company agrees to indemnify SARF
respect of all such Taxes. In addition, if any Taxes imposed, levied or
assessed in any jurisdiction, or amounts in respect thereof, must be
deducted or withheld from any amounts payable or paid by the Company
hereunder, the Company shall, subject as aforesaid, pay such additional
amounts as may be necessary to ensure that SARF receives a net amount
equal to the full amount which it would have received had payment not
been made subject to such Tax and shall promptly pay the full amount to
be deducted to the relevant Taxation authorities.
23.16 This Agreement and its performance shall be governed by and construed in
all respects in accordance with the laws of the Republic of India.
IN WITNESS WHEREOF the parties have executed and delivered this Agreement as a
deed on the day and year first above written.
EXECUTED on the date --- herein above )
under the Seal of [Satyam Infoway Limited Seal]
SATYAM INFOWAY LIMITED )
by Ramaria R. and )
---------- ------------ )
EXECUTED on the date --- herein above )
Under the Seal of [Satyam Computer Services Ltd.
SATYAM COMPUTER SERVICES ) SEAL]
LIMITED )
by B. Rama Raju and
------------- ------------ )
THE COMMON SEAL OF SOUTH )
ASIA REGIONAL FUND WAS )
AFFIXED HERETO IN THE PRESENCE )
OF )
acting by [ ] )
Director and [ ] Director/Secretary ) [South Asia Regional Fund Seal]
to the Board
SIGNED BY MR B RAMALINGA RAJU )
AS HIS DEED in the presence of ) [illegible]
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SCHEDULE 1
(referred to in Recital A)
Description of the Project
Setting up a value added network servicing across 25 cities in India for the
purpose of offering information technology connectivity, electronic commerce and
internet solutions in accordance with the Financial Plan set out in Schedule 2
Part (II).
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SCHEDULE 2
(referred to in Recital B)
PART I
Estimated Cost of the Project
- ----------------------------------------------------------------------------
Project Cost Rsm US$m
- ----------------------------------------------------------------------------
Premises 58.9 1.38
Network Related Expenses 48.4 1.14
Hardware and Software 159.5 3.75
Misc equipment 52.9 1.24
Investment for ISP 114.7 2.69
Pre-operating expenses 48.5 1.14
Margin on working capital 13.0 0.30
Contingencies 8.6 2.02
Total 504.5 11.87
- ----------------------------------------------------------------------------
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SCHEDULE 2
(referred to in Recital B)
PART II
Financial Plan
Financial plan: Number of Shares (m) Total Cost (Rs)(m)
Party
Existing Shareholding
Sponsor & Mr. Ramraj 12.00 120.00
Number of Shares to be
subscribed
Sponsor 0.75 52.50
SARF 3.00 210.00
Total 15.75 382.50
Term Debt Amount (Rs)(m)
Exim Bank of 122.00
India/Citibank
Total 504.50
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SCHEDULE 3
(referred to in Clause 3.2)
Conditions Precedent
The conditions precedent referred to in Clause 3.1 are -
1. the grant and continuance in force of all governmental, government
agencies, RBI, corporate, creditors, shareholders and other permissions,
licences (including the ISPL), consents, registrations and authorisations
requisite under the laws of India to render this Agreement legal, valid,
binding and enforceable and to enable the Company to allot and issue,
Shares and to issue Warrants to SARF on the terms of this Agreement, to
perform its other obligations under this Agreement, and to carry out its
business and construct and operate the Project, the compliance by the
Company with all conditions attaching to each such permission, licence,
consent, registration and authorisation and the provision to SARF of
certified true copies thereof;
2 receipt by SARF in form and substance satisfactory to SARF, of a
certificate from the Auditors of the Company certifying that the Sponsor
has irrevocably and unconditionally subscribed and paid in full for
750,000 ordinary 10 Rs Shares in the Capital of the Company (for a
consideration of Rs52.5m);
3. the Memorandum & Articles of Association of the Company, (including for
the avoidance of doubt the inclusion of the provisions of Clauses 6, 9,
11, 12, 14 and 15 mutatis mutandis into the Articles of Association of the
Company) as well as all relevant corporate documents necessary for
approving the same, shall be in form and substance satisfactory to SARF
and the Company shall have provided a certified true copy of each to SARF;
4 the making of arrangements satisfactory to SARF for the installation by
the Company of efficient cost control, management information and
accounting systems;
5 the receipt by SARF of the following documents in form and substance
satisfactory to SARF -
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5.1 a certified copy of one or more resolutions of the Board and of the Board
of the Sponsor authorising the execution and performance of this
Agreement, any other documents and instruments contemplated hereby and
specifying therein a person or persons authorised to execute each such
agreement, document or instrument and to make any communications or
execute or certify any other document on behalf of the Company and
authorising the Board to allot and issue Shares and the Warrants in
sufficient numbers to enable the Company to comply with its obligations to
SARF under this Agreement;
5.2 a certificate of the Chairman of the Company or Company Secretary of the
Company setting out the names and signatures of the person or persons
authorised to execute this Agreement and to make any communications or
execute or certify any document on behalf of the Company;
5.3 a satisfactory opinion from SARF's legal counsel in India, substantially
in the form set out in Schedule 4;
5.4 a certified true copy of the insurance policy or policies referred to in
Clause 5.1.10 and 5.1.11 of this Agreement;
5.5 a certified true copy of the Memorandum & Articles of Association of the
Sponsor.
6 the Company shall have appointed auditors acceptable to SARF, shall have
provided to SARF evidence of the acceptance by such auditors of such
appointment and shall have authorised such auditors to communicate
directly with SARF (substantially in the form set out in Schedule 6) and
the Company shall have furnished a copy of such authorisation to SARF;
7 the valid and effective execution of this Agreement and such other
documentation as SARF may advise the Company of in writing;
8 agreement to have been reached on the composition of the Board between the
Sponsor, the Company and SARF;
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9 a plan satisfactory to SARF to have been put in place by the Company for
the ISP Division of the Company, including without limitation, systems for
monitoring the performance and development of this business unit;
10 the Company to have supplied copies of the employment/service contracts of
such of the management of the Company as SARF shall request in writing.
For SATYAM INFOWAY LIMITED
AUTHORISED SIGNATORY.
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SCHEDULE 4
(referred to in paragraph 5.3 of Schedule 3)
Form of Legal Opinion
We refer to the Share Subscription and Shareholders Agreement ("the SSA") dated
_______________ between Satyam Infoway Limited ("the Company"), Satyam Computer
Services Limited ("the Sponsor"), Mr. B. Ramalinga Raju and "South Asia Regional
Fund".
Words used in this opinion which are defined in the SSA have the respective
meanings set out therein.
For the purposes of giving this opinion we have examined executed originals or
copies which have been certified by the Secretary of the Company as being true,
complete and up to date copies of the following documents -
(a) Minutes of a Meeting of the Board of Directors of the Company and the
Sponsor dated [ ];
(b) the Memorandum & Articles of Association of the Company and the Sponsor;
(c) the SSA;
(d) [relevant consents and approvals].
We have also examined originals or copies, certified or otherwise identified to
our satisfaction, of such records, certificates, resolutions and other documents
as we have considered necessary or appropriate and have carried out such
searches as we have deemed relevant and necessary as the basis for the opinion
expressed below.
This opinion relates only to the laws of India as in force at the date of this
opinion and we express no opinion as to the laws of any other jurisdiction. For
the purposes of giving this opinion, we have assumed -
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(a) the authenticity of all seals, or signatures and of any duty stamp or
marking and the completeness and conformity to originals of all copy
documents submitted to us;
(b) that insofar as any obligation under any of the documents referred to
above is to be performed in any jurisdiction outside India, its
performance will not be illegal or ineffective by virtue of the law of
that jurisdiction.
(c) that there are no provisions of the laws of any jurisdiction other than
those of India which would be contravened by the execution, delivery or
performance of any of the documents referred to above;
(d) that any document executed after the date of this opinion is executed in
the form of the draft examined by us.
On the basis of the foregoing assumptions we are of the opinion as follows -
1 The Company is a deemed public company, and the Sponsor is a public
company listed on the BSE and the NSE and both are duly incorporated and
validly existing and in good standing under the laws of India and have
power to own their property and assets, to carry on their business as
presently conducted, to implement and carry out the Project and to enter
into and perform their respective obligations under the SSA.
2 The Company and the Sponsor have taken all necessary corporate action to
authorise the execution and performance of their respective obligations of
the SSA.
3 The SSA has been duly executed and delivered by the Company and the
Sponsor, and constitutes legal, valid and binding obligations of the
Company and Sponsor enforceable in India in accordance with their express
terms.
4 Neither the execution and delivery of the SSA nor the compliance with the
terms of such Agreement will contravene any law or legal requirement of
India nor will it violate the Memorandum and Articles of Association of
the Company nor the Sponsor or any of the terms, conditions or provisions
of, or constitute a default or require any consent under, any indenture,
agreement or other instrument to which the Company or the Sponsor are a
party or by which they are bound or violate any
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of the terms or provisions of any judgment, decree or order or any statute, rule
or regulation applicable to the Company, the Sponsor or the Project.
5 All permissions, licences, consents (including, but without limitation all
RBI consents and approvals), registrations and other authorisations for
the time being required under the laws of India to authorise the
subscription, the allotment and issue of Shares and the issue of Warrants
pursuant to the SSA or the carrying out and completion of the Project or
for the validity or enforceability of the SSA, have been obtained and are
in full force and effect.
6 The Company has an authorised share capital of Rs 170,000,000 comprised of
17,000,000 shares of Rs 10/-each and has an issued share capital of
120,002,300/- There are no rights of pre-emption in favour of existing
shareholders which would apply in relation to the allotment and issue of
Shares to SARF under the SSA.
Except as required by the laws of India and notified to SARF, it is not
necessary or advisable that this Agreement be filed, registered, recorded
or enrolled with any court, public office or other authority in any
jurisdiction or that any documentary, registration or similar Tax or duty
be paid on or in relation to any such Agreement.
[The opinions set out above are subject to the following qualifications -
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SCHEDULE 5
(referred to in Clause 2.1)
Representations and Warranties
1 The Company is a deemed public company, and the Sponsor is a public
company listed on the NSE and the BSE, both are duly incorporated and
validly existing and in good standing under the laws of India and have
power to own their respective properties and assets, to carry on their
respective businesses as presently conducted or proposed to be conducted,
to implement and carry out the Project, to enter into and perform their
respective obligations under this Agreement and for the Company to allot
and issue any shares or warrants to be issued pursuant to this Agreement.
2 The Company and the Sponsor have taken all necessary corporate action to
authorise the execution of this Agreement.
3 The report and financial statements of the Company for the period ended 30
September 1998 have been prepared in accordance with generally accepted
accounting principles and practices consistently applied and give a true
and fair view of the financial condition, assets and liabilities of the
Company at the date to which such financial statements have been prepared
and since that date there has been no material adverse change in the
financial condition or the business, assets or operations of the Company.
4 This Agreement has been duly executed and delivered by the Company and the
Sponsor, constitutes legal, valid and binding obligations of the Company
and the Sponsor respectively and is enforceable in accordance with its
express terms.
5 Neither the execution and delivery of this Agreement nor the compliance
with the terms of such Agreement will violate the Memorandum and Articles
of Association Company, nor will it violate the Memorandum and Articles of
Association of the Sponsor or any of the terms, conditions or provisions
of, or constitute a default or require any consent under, any indenture,
agreement or other instrument to which the Company or the Sponsor is a
party or by which it is bound or violate any of the terms or provisions of
any judgement, decree or order or any statute, rule or regulation
applicable to the Sponsor, the Company or the Project.
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6 The Company is not in breach of or in default under any agreement
(including but without limit any financing agreement) to which it is a
party or by which it is bound to an extent or in a manner which might have
a material adverse effect of the business or financial condition of the
Company.
7 All permissions, licences, consents, registrations and authorisations and
other approvals for the time being required under the laws of India to
authorise the Subscription and allotment and issue of Shares and the
Warrants under this Agreement and the carrying out and completion of the
Project and for the validity or enforceability of this Agreement, have
been obtained and are in full force and effect including but without
limitation the Internet Services Provision Licence ("ISPL") with the
Government of India.
8 The Company is not engaged in any significant litigation or arbitration
proceedings and is not aware of any facts likely to give rise to any
significant litigation or arbitration proceedings.
9 In any proceedings taken in its jurisdiction of incorporation in relation
to this Agreement, it will not be entitled to claim for itself or any of
its assets immunity from suit, execution, attachment or other legal
process.
10 The Company is not in default in the payment of any due and payable taxes,
interest or penalties, or in the filing, registration or recording of any
document or in breach of any legal or statutory obligation or requirement
of the Company or of the Project.
11 Except as required by the laws of India and notified to SARF, it is not
necessary or advisable that this Agreement be filed, registered, recorded
or enrolled with any court, public office or other authority in any
jurisdiction or that any documentary, registration or similar Tax or duty
be paid on or in relation to any such Agreement. To the extent that any
such amounts are payable, the Company warrants that such amounts shall be
paid by it.
12 For the purposes of paragraphs 12 and 13 the following words shall have
the following meanings -
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12.1.1 "Encumbrance" means any interest or equity of any Person (including any
right to acquire, option or right of pre-emption); any mortgage,
charge, pledge, lien, assignment, hypothecation, security interest
(including any created by law), title retention or other security
arrangement or agreement; and any rental, hire purchase, credit sale or
other agreement for payment of deferred terms.
12.1.2 "Hardware" means any computer equipment used by or for the benefit of
the company at any time including, without limitation, parts of
computer equipment such as firmware, screens, terminals, keyboards,
disks and including without limitation, cabling and other peripheral
and associated electronic equipment but excluding all software.
12.1.3 "Intellectual property" means patents, trade marks, service marks,
rights (registered or unregistered) in any designs; applications for
any of the foregoing, trade or business names; copyright (including
rights in computer software) and topography rights; know-how; secret
formulae and processes; lists of suppliers and customers and other
confidential and proprietary knowledge and information; rights
protecting goodwill and reputation; database rights such things and all
rights and forms of protection of a similar nature to any of the
foregoing or having equivalent effect anywhere in the world and all
rights under licences and consents in respect of any of the rights and
forms of protection mentioned in this definition.
12.1.4 "Intellectual Property Agreements" means agreements or arrangements
relating in any way whether wholly or partly to Intellectual Property.
12.1.5 "Listed Intellectual Property" means the intellectual property referred
to in the list annexed at Appendix A to this Agreement.
12.1.6 "Listed Intellectual Property Agreements" means the Intellectual
Property Agreements set out in the list annexed at Appendix B to this
Agreement.
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12.1.7 "Software" means any set of instructions for execution by a computer
processor used by or for the benefit of the Company at any time
irrespective of application, language or medium.
12.1.8 "Software Products" means any software and associated documentation and
materials, which is now or has at any previous time been supplied by the
Company.
12.2 The Company and/or the Sponsor is/are the sole legal and beneficial
owner/s free from Encumbrances of the Listed Intellectual Property and
(where such property is capable of registration) the registered
proprietor thereof and (save for copyrights and unregistered design
rights not included in the Listed Intellectual Property) owns no other
Intellectual Property.
12.3 Save as may appear from the Listed Intellectual Property Agreements no
person has been authorised to make any use whatsoever of any
Intellectual Property owned by the Company.
12.4 Save as may appear from the Listed Intellectual Property Agreements all
the Intellectual Property used by the Company and/or Sponsor is owned by
it and it does not use any Intellectual Property in respect of which any
third party has any right, title or interest.
12.5 All the Intellectual Property rights owned or used by the Company and/or
Sponsor are valid and enforceable and nothing has been done, omitted or
permitted whereby any of them has ceased or might cease to be valid and
enforceable.
12.6 None of the processes or products of the Company infringes any
Intellectual Property or any right of any other person relating to
Intellectual Property or involves the unlicensed use of confidential
information disclosed to the Company by any person in circumstances
which might entitle that person to make a claim against the Company.
12.7 None of the Listed Intellectual Property is being used, claimed, applied
for, opposed or attached by any person.
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12.8 The Company and the Sponsor are not aware of any infringement of the
Listed Intellectual Property or of any rights relating to it by any
person.
12.9 There are no outstanding claims against the Company or the Sponsor for
infringement of any Intellectual Property or of any rights relating to
it used (or which has been used) by the Company or the Sponsor and
during the last three years no such claims have been settled by the
giving of undertakings which remain in force. Neither the Company nor
the Sponsor has received any actual or threatened claim that any of the
Listed Intellectual Property is invalid nor is the Company or the
Sponsor aware of any reason why any patents should be amended.
12.10 Confidential information and know-how used by the Company and the
Sponsor is kept strictly confidential and the Company and the Sponsor
operates and fully comply with procedures which maintain such
confidentiality. The Company and the Sponsor are not aware of any such
confidentiality having been breached. The Company and the Sponsor have
not disclosed (except in the ordinary Course of the Company's business)
any of the Company's know-how, trade secrets or list of customers to
any other person.
12.11 All application and renewal fees, costs, charges, taxes and other steps
required for the maintenance or protection of the Listed Intellectual
Property have been duly paid on time or taken and none of such rights
are subject to any existing challenge or attach by a third party or
competent authority and there are no outstanding patent office or trade
marks registry deadlines which expire within three months of the date
of this Agreement.
12.12 The Listed Intellectual Property Agreements are all the intellectual
property agreements to which the Company is a party and each of them is
valid and binding and the Company and/or the Sponsor is/are not in
breach of any of the provisions of such agreements.
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12.13 All current advertising, marketing and sales promotions by the Company
and the Sponsor comply with all applicable codes of practice and self-
regulatory schemes. Neither the Company nor the Sponsor has been
disciplined under any scheme or code in respect of any such
advertising, marketing or sales promotion and no complaint has been
made against it in respect thereof and there are no outstanding
complaints or disciplinary proceedings against the company in respect
thereof.
12.14 All persons retained or employed by the Company who, in the course of
their work for the Company will or might reasonably be expected to
bring into existence Intellectual Property or things protected by
Intellectual Property are, so far as is reasonably practicable,
individually bound by agreements with the Company whereby all
Intellectual Property which such persons may bring into existence
during their work for the Company vets in the Company and all such
agreements contain terms which, so far as is reasonably practicable,
prevent such persons disclosing any confidential information about the
Company and its business.
12.15 None of the Intellectual Property owned or used by the Company is
subject to compulsory licensing or the granting of any licences of
right nor, so far as the Company is aware, will it become so by
operation of law.
12.16 The Company does not use on its letterhead, brochures, sales literature
or vehicles nor does it otherwise carry on its business under any name
other than its corporate name.
13 Computer Systems
13.1 The Hardware has been satisfactorily maintained and supported and has
the benefit of an appropriate maintenance and support agreement
terminable by the contractor by not less than 24 months notice.
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13.2 The Hardware and Software have adequate capability and capacity for the
projected requirements of the Company for not less than one year
following the date of this Agreement for the processing and other
functions required to be performed for the purposes of the business of
the Company and the Project.
13.3 Disaster recovery plans are in effect and are adequate to ensure that
the Hardware, Software and data can be replaced or substituted without
material disruption to the business of the Company.
13.4 In the event that any person providing maintenance or support services
for the hardware, Software and Data ceases or is unable to do so the
Company has all necessary rights and information to procure the
carrying out of such services by employees or by a third party without
undue expense or delay.
13.5 The Company has sufficient technically competent and trained employees
to ensure proper, handling, operation, monitoring and use of its
computer systems.
13.6 The Company has adequate procedures to ensure internal and external
security of the Hardware, Software and Data, including (without
limitation) procedures for preventing unauthorised access, preventing
the introduction of a virus, taking and storing on-site and off-site
back-up copies of Software and Data.
13.7 Where any of the records of the Company are stored electronically, the
Company is the owner of all hardware and software licences necessary to
enable it to keep, copy, maintain and use such records in the course of
its business and does not share any hardware or software relating to
the records with any person.
13.8 The Company has all the rights necessary (including rights over the
source code if available) to obtain, without undue expense or delay,
modified versions of the Software which are required at any time to
improve in any regard the operation and/or efficiency of the Software.
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13.9 The Company owns, and is in possession and control of, original copies
of all the manuals, guides, instruction books and technical documents
(including any corrections and updates) required to operate effectively
the Hardware and Software.
13.10 The Hardware and Software have never unduly interrupted or hindered the
running or operation of the Company's business, and have no defects in
operation which so affect the Company's business.
13.11 The Hardware is the absolute property of the Company free from
encumbrances except to the extent disclosed by the Company in Appendix
C;
13.12 All Hardware, Software, Software Products and other equipment used by
the Company is Year 2000 Compliant.
13.13 "Year 2000 Compliant" means the ability to provide all the following
functions:
13.13.1 accurate processing of all date information whether before, during or
after 01 January 2000, including, without limitation, accepting date
input, providing accurate date output and performing accurate
calculations involving dates or portions of dates;
13.13.2 performing all processing accurately, efficiently and without
interruption before, during and after 01 January 2000 without any
change in operations, or in any input or output procedures;
13.13.3 processing date input accurately in a way that does not create any
ambiguity as to century;
13.13.4 storing, retrieving and processing date information accurately and in a
manner that does not create any ambiguity as to century; and
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13.13.5 presenting all date output information accurately and in a manner that
does not create any ambiguity as to century.
14 The Company has disclosed to SARF in writing all information, estimates
and forecasts relevant for the disclosure to a person contemplating
making an equity investment in the Company. All information, estimates
and forecasts so disclosed were prepared with due care and the Company
is not aware of any reason why any such information, estimate or
forecast should now be altered in any material respect.
15 As at the date of this Agreement-
15.1 the [authorised/issued] share capital of the Company is [ ],
divided into [ ] ordinary shares of [ ] each par value,
which are [all] [issued], outstanding and fully paid;
15.2 immediately prior to the execution of this Agreement all of the shares
referred to in paragraph 15 are legally and beneficially owned by the
Sponsor;
15.3 there are no agreements or arrangements in force which provide for the
present or future allotment, issue or transfer of, or grant to any
person the right (whether conditional or otherwise) to call for the
allotment, issue or transfer of any share or loan capital of the
Company [(including any option or right of pre-emption or conversion)
there are no rights of pre-emption in favour of existing shareholders
which would apply in relation to the allotment and issue of Shares to
SARF under this Agreement] [OR] [all rights of pre-emption in favour of
existing shareholders have been duly disapplied for the purposes of
permitting the allotment and issue of Shares to SARF under this
Agreement];
16 Save as expressly disclosed to SARF, no indebtedness, mortgage, charge,
pledge, lien or other Encumbrance exists over all or any of the present
or future revenues, undertaking or assets of the Company and there is
no subsisting agreement on the part of the Company to create any such
mortgage, charge, pledge, lien or
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Encumbrance. The Company has not incurred, assumed or permitted to
exist any indebtedness which has not been disclosed to SARF; and
17 The Company is lawfully entitled to issue the Warrants and any such
issue of Warrants will be intra vires.
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SCHEDULE 6
(referred to in Schedule 3, paragraph 6)
Form of Authorisation from the Company to its Auditors
[LETTERHEAD OF THE COMPANY]
To: The Auditors
[Address]
[Date]
Dear Sirs,
We hereby authorise and request you to give to Commonwealth Development
Corporation ("SARF") of One Bessborough Gardens, London SW2V 2JQ, England, all
such information as SARF may reasonably request with regard to the financial
statements of Satyam Infoway Limited ("the Company"), both audited and
unaudited, which the Company has agreed to supply under the terms of the
Shareholders and Share Subscription Agreement between the Company, Satyam
Computer Services Limited, Mr. B. Ramalinga Raju and SARF dated [
19 ] ("the SARF Shareholders and Share Subscription Agreement"). For your
information, we enclose a copy of the SARF Shareholders and Share Subscription
Agreement.
We authorise you to send the audited accounts of the Company to SARF to enable
us to satisfy certain obligations to SARF under the SARF Shareholders and Share
Subscription Agreement. When submitting the same to SARF, you are also requested
to send, at the same time, a copy of your full report on such accounts in a form
acceptable to SARF. Your attention is also drawn to the information,
certificates, reports and confirmation to be provided by you pursuant to Clause
5.1.18 of the SARF Shareholders and Share Subscription Agreement. Please note
that under Clause 5.1.18.3 of the SARF Shareholders and Share Subscription
Agreement, the Company is obliged to provide SARF with a copy of any report or
communication sent by the auditors to the Company its relation to the financial
position or affairs of the Company which is of a material
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nature. You are accordingly hereby also requested to submit the same to
SARF in accordance with the SARF Shareholders and Share Subscription
Agreement.
For our records, please ensure that you send to us a copy of every letter
which you receive from SARF immediately upon receipt and a copy of each
reply made by you immediately upon issue thereof.
Yours faithfully
for and on behalf of
Satyam Infoway Limited
copied to - CDC Advisors Private Ltd
11, Golf Links, New Delhi, India
Fax - 011 2691693
Enc - SARF Share Subscription Agreement
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Schedule 7
Definitions and Interpretation
In this Agreement, except where the context otherwise requires -
"Board" means the Board of Directors of the Company as constituted from time to
time;
"Business Day" means a day on which banks are open for business (including
dealings in foreign currency deposits and exchange) in India and, in the context
of a payment being made to or from a bank in a place other than India, such
other place;
"Brand Name" shall bear the meaning ascribed to it in Clause 5.2.4;
"CDC Advisors Private Ltd" means CDC Advisors Private Ltd, a company
incorporated under the Company's Act 1956 and having its registered office at
11, Golf Links, New Delhi, India Pin Code 110 003.
"SARF Group" means SARF and its Subsidiaries for the time being;
"Change of Control" when applied to the Sponsor shall be deemed to have occurred
if (a) Mr. B Ramalinga Raju ceases to be on the board of directors of the
Sponsor, and/or (b) the Sponsor is the subject of a successful takeover, and/or
(c) any person acquires (directly or indirectly) or becomes the owner (legally
or beneficially) of (either by way of a single acquisition or over a period of
time by way of multiple acquisitions) 25.1 % or more of the issued share capital
of the Sponsor after the date hereof;
"Closing Date" means 31.10.99 or such later date as SARF and the Company may
agree in writing;
"Company", "Sponsor", "Mr. B. Ramalinga Raju", and "SARF" shall bear the
respective meanings assigned to those expressions at the beginning of this
Agreement and in each case shall include the successors in title and permitted
assigns of the party in question;
"Conditions" shall bear the meaning set out in Clause 15.2;
"Dangerous Substance" means any natural or artificial substance which may give
rise to material risk of causing harm to man or other living organism or
damaging the
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environment including any controlled, special hazard, toxic, radioactive or
dangerous waste;
"Director" means a director of the Company from time to time;
"Environmental Law" means any law, common law, regulation, directive, treaty,
code of best practice, constitution, or the like concerning the protection of
human health, the environment or the condition of the workplace or the
generation, transportation, storage, treatment, processing or disposal of any
Dangerous Substance;
"Environmental Licenses" means any permit, license, authorisation, consent or
other approval required by any Environmental Law;
"Fair Market Value" shall bear the meaning set out in Clause 15.2.1;
"Financial Year" means the financial year of the Company commencing on April 1
every year and ending on March 31 of the following year, or such other financial
year of the Company as the Company may, with SARF's prior consent, from time to
time legally designate as its financial year;
"ISPL" shall bear the meaning set out in Schedule 5, paragraph 7;
"Listing" means the unconditional admission of the Shares to the official list
of either the NSE, the BSE or such other recognised stock exchange in India or
the United States of America approved by SARF;
"Project" shall bear the meaning set out in Schedule 1;
"Register" means the register of Warrant holders required to be maintained
pursuant to Clause 15.9;
"RBI" means the Reserve Bank of India;
"Rupees" or "Rs" means Indian rupees, the lawful currency for India for the time
being.
"SEBI" means the Securities and Exchange Board of India, a body established
under the provisions of the Securities and Exchange Board of India Act, 1992;
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"Shareholders" means SARF and the Sponsor or any purchaser or transferee of
Shares in accordance with this Agreement and individually a "Shareholder";
"Shares" means ordinary shares in the capital of the Company having a par value
of Rs10 each;
"Shareholding Percentage" means in relation to a Shareholder, a fraction the
numerator of which is the total number of Shares held by the Shareholder and the
denominator of which is the total number of Shares (including Shares held by
that Shareholder):
(a) in issue; or
(b) where the reference requires something to be apportioned between a
number of Shareholders, held by those Shareholders;
(c) which fraction is expressed as a percentage.
"Stock Exchanges" means the NSE, the BSE or such other recognised stock exchange
in India or the United States of America or other stock exchanges as envisaged
by Clause 13.9, as approved by SARF;
"Subscription Monies" means, in respect of:
the Sponsor: Rs52.50m
SARF: Rs210m
"Subsidiary" of a company or corporation means any company or corporation:
(a) which is controlled, directly or indirectly, by the first mentioned
company or corporation; or
(b) more than half the issued share capital of which is beneficially owned,
directly or indirectly, by the first mentioned company or corporation; or
(c) which is a subsidiary of another subsidiary of the first mentioned company
or corporation;
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"Taxes means all present and future income and other taxes, levies, rates,
imposts, duties, deductions, charges and withholdings whatsoever imposed by any
authority having power to tax and all penalties, fines, surcharges, interest or
other payments on or in respect thereof and "Tax" and "Taxation" shall be
construed accordingly.
"Warrantholder" means on the Company granting Warrants to SARF and the Sponsor
in accordance with Clause 15, SARF and the Sponsor or, if the Company does not
grant Warrants to either of SARF or the Sponsor if they fail to fulfill the
condition attaching to Clause 15, then SARF/the Sponsor as appropriate;
"Warrants", "Warrant Exercise Price", "Warrant Exercise Period", "Exercise
Date", "Subscription Right(s)", "Warrant Exercise Notice" and "Warrant Exercise
Date" shall each bear the meaning set out in Clause 15.
"Web Sites" means software developed by the Company or its marketing agents for
creating customer business information and service so that it can be positioned
on the Internet.
"Year 2000 Compliant" shall bear the meaning set out in Schedule 5, Clause 13.
Unless the context or the express provisions of this Agreement otherwise require
(a) words importing the singular shall include the plural and vice versa;
(b) references to persons shall include any firm, company, corporation,
government, state or agency of a state or any association or partnership
(whether or not having separate legal personality) of two or more of the
foregoing and any other legal entity;
(c) the expressions "hereof", "herein" and similar expressions shall be
construed as references to this Agreement as a whole and not be limited to
the particular Clause or provision in which the relevant expression
appears;
(d) a company or corporation is to be treated as another's "associated
company" at a given time if at that time one of the two has control of the
other or both are under the control of the same person or persons; and
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(e) a company or corporation shall be treated as being controlled by another
if that other company or corporation is able to direct its affairs and/or
to control the composition of its Board of Directors or equivalent body;
(f) references to Recitals, Sections, Clauses, Schedules and paragraphs are
references to, respectively, Recitals, Sections, Clauses of and Schedules
and paragraphs to this Agreement;
(g) the Index hereto and headings herein shall not affect the construction of
this Agreement;
(h) any reference to any agreement or document shall be construed as a
reference to such agreement or document as the same may have been amended,
varied, supplemented or novated in writing at the relevant time in
accordance with the requirements of such agreement or document and, if
applicable, of this Agreement with respect to amendments;
(i) this Agreement is divided into Sections and the Sections are divided into
Clauses; and
(j) where, unless expressly stipulated to the contrary, there is a reference
to "equivalent value of the relevant currency", such value will be
calculated by reference to the average middle spot price for buying the
relevant currency from Barclays Bank Plc on the Business Day immediately
preceding the date of calculation of the sum referred to.
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SCHEDULE 8
Form of Deed of Adherence
THIS DEED OF ADHERENCE is made on [ ]
BY
[insert name of New Shareholder] of [insert address of New Shareholder] (the
"New Shareholder") in favour of the persons whose names are set out in the
Schedule to this Deed ("Existing Shareholders") and is supplemental to the Share
Subscription and Shareholders' Agreement dated [ ] 1998 between (1)
Satyam Computer Services Limited, (2) B. Ramalinga Raju, (3) South Asia Regional
Fund and (4) Satyam Infoway Limited (the Company) (the "Agreement").
THE NEW SHAREHOLDER UNDERTAKES AS FOLLOWS -
1 The New Shareholder confirms that it has read a copy of the Agreement and
the Articles of Association of the Company, and covenants with each person
named in the Schedule to this Deed (each Existing Shareholder agreeing as
follows) to be subject to the same obligations and entitled to the same
rights as the party whose Shares the New Shareholder has/will acquire and
to otherwise perform and be bound by all the terms of the Agreement as if
the New Shareholder were named in the agreement as a party thereto. The
Parties hereto agree to take all steps necessary to give effect to the
provisions of this Deed.
2 This Deed (and any dispute controversy, proceedings or claim arising out
of or in any way relating to this Deed or its formation) shall be governed
by and construed in accordance with the laws of India.
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3 Any and all claims, disputes, questions or controversies involving the
parties and arising out of or in connection with this Deed, or the
execution, interpretation, validity, performance, breach or termination
hereof (including, without limitation, the provisions of this Section 3
collectively, "Disputes") which cannot be finally resolved by the parties
within sixty (60) calendar days of the arising of a Dispute by amicable
negotiation and conciliation shall first be submitted for settlement by
informal arbitration to an arbitral panel consisting of one member of the
Board of Directors (or any nominee thereof) of each of the Related
Subscribers and the New Shareholder. If any such panel, negotiating in
good faith, is unable to resolve and settle the dispute within sixty (60)
calendar days after the Dispute is first submitted to it, then any
representative of such panel shall be entitled to cause the Dispute to be
submitted for settlement pursuant to the terms of Section 3.1 hereof.
3.1 Any Dispute which is not settled after an attempt by the parties to the
Dispute at amicable negotiations and conciliation under Section 3 shall be
resolved by final and binding arbitration. The arbitration shall be held
in Singapore in accordance with the Rules of United Nations Commission for
International Trade Law ("UNICITRAL Rules") as then existing and shall be
heard and determined by an arbitral tribunal composed of three (3)
arbitrators. Each of the Related Subscribers and the New Shareholder
shall appoint one arbitrator, and both of such arbitrators shall appoint a
third arbitrator who shall serve as the Chairman of such arbitral
tribunal, provided that such third arbitrator is not a citizen of the
United Kingdom or India. If any of the Related Subscribers or the New
Shareholder fails or decides against appointing an arbitrator within a
period of thirty (30) days after the appointment of the first arbitrator,
or if the arbitrators designated by the Related Subscriber or New
Shareholder fail or otherwise are unable to appoint the third arbitrator
within (30) days of the appointment of the second arbitrator, then the
remaining arbitrator(s) shall be selected by the President of the
International Chamber of Commerce, Singapore, which shall act as the
appointing authority.
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3.2 All arbitration proceedings shall be conducted in the English language and
the arbitral award (the "Award") shall be rendered no later thin six (6
months from the commencement of the arbitration or as otherwise provided
by the UNICITRAL Rules, unless otherwise extended by the arbitral tribunal
for no more than an additional six (6) months for reasons that are just
and equitable. In connection with the arbitration proceedings, the
parties hereby agree to co-operate in good faith with each other and the
arbitral tribunal and to use their respective best efforts to respond
promptly to any reasonable discovery demand made by any party and the
arbitral tribunal.
3.3 Except as otherwise required by law or any applicable stock exchange rules
and regulations, the arbitral proceedings and the Award shall not be made
public without the joint consent of the parties to the Dispute and each
such party shall maintain the confidentiality of such proceedings or the
Award, unless otherwise permitted by the other party in writing. The
costs of the arbitration shall be borne by the parties to the Dispute in
accordance with the applicable provisions stipulated in the UNCITRAL
Rules. Unless the Award provides for non-monetary remedies, any such
Award shall be made and shall be promptly payable in US Dollars or other
Designated Currency net of any tax or other deduction. The Award shall
include interest from the date of any breach or other violation of this
Deed and the rate of such interest shall be specified by the arbitral
tribunal and shall be calculated from the date of any such breach or other
violation to the date when the Award is paid in full; provided, however,
that in no event shall such interest rate be lower than the prime
commercial lending rate announced by Citibank, NA at its principal office
at New York, United States of America for ninety (90) day loans extended
to responsible commercial borrowers.
3.4 All notices and other communications by one party to the Dispute to the
other or by the arbitral tribunal to any of the parties in connection with
the arbitration hereunder shall be in accordance with the provisions of
Clauses 23.1 to 23.3 of the Agreement save for the fact that the New
Shareholder's details are contained at the start of this Deed.
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3.5 The parties expressly understand and agree that the award shall be the
sole, exclusive, final and binding remedy between them regarding any and
all Disputes presented to the arbitral tribunal. Application shall be
made to any court having jurisdiction over the party (or its assets)
against whom the Award is rendered for a judicial acceptance of the Award
and an order of enforcement. The parties acknowledge and agree that this
Deed and any Award pursuant hereto shall be governed by the 1958 New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
and the [Indian] Arbitration and Conciliation Act, 1996.
3.6 Neither the existence of any Dispute nor the fact that any arbitration is
pending hereunder, shall relieve any of the parties of their respective
obligations under this Deed.
3.7 Each party hereby agrees that all of the transactions contemplated by this
Deed shall constitute and shall be deemed to constitute commercial
activities. To the extent that any party may be entitled in any
jurisdiction whatsoever to claim immunity, whether characterised as
sovereign or otherwise, from litigation, execution, set-off, attachment or
other legal process of any nature whatsoever, it hereby expressly and
irrevocably waives such immunity.
4 Terms defined in the Agreement shall, except where otherwise indicated
herein, have the same meanings as those set out in the Agreement.
IN WITNESS whereof this Deed has been executed by the New Shareholder and the
Existing Shareholders and is intended to be and is hereby delivered on the date
first above written.
[Schedule to Deed to include all parties (including by way of earlier Deeds of
Adherence) to the Agreement]
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SCHEDULE 9
Form of Registered Warrant Certificate
[Face]
CERTIFICATE NUMBER OF TOTAL
NUMBER WARRANTS EXERCISE MONEYS
SATYAM INFOWAY LIMITED
REGISTERED WARRANTS TO SUBSCRIBE FOR SHARES
THIS IS TO CERTIFY that the undermentioned person(s) is/are the registered
holder(s) of the number of Warrants specified below and is/are entitled, upon
and subject to the conditions set out below and on the reverse hereof and in a
Share Subscription and Shareholders Agreement between Satyam Infoway Limited
(the "Company"), Satyam Computer Services Limited, South Asia Regional Fund and
Mr. B. Ramalinga Raju dated [ ] 1998 (the "SSA") on any of the Warrant
Exercise Date(s) or as otherwise set out in the SSA to subscribe in respect of
each Warrant at the Warrant Exercise Price per Warrant specified below for fully
paid Share(s) of Satyam Infoway Limited.
Number of Warrants:
Warrant Exercise Price per Warrant: As set out in the SSA.
[Name and address of Warrantholder]
Terms not defined herein shall bear the meaning set out in the SSA.
GIVEN under the Seal of Satyam Infoway Limited on this day of 199 .
NO TRANSFER OF THE WHOLE OR ANY PORTION OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE WILL BE REGISTERED UNLESS ACCOMPANIED BY THIS CERTIFICATE.
REGISTRAR:
74
<PAGE>
CONDITIONS
1. Definitions
1.1 In those conditions terms defined in the SSA shall have the same meaning
herein.
2. Exercise of Subscription Rights
2.1 Subject to the provisions hereof and to compliance with all fiscal and
other laws and regulations applicable thereto the registered holder of the
Warrants represented by this Warrant certificate shall have the right,
which may be exercised in whole or in part at any time during the Warrant
Exercise Period, or as otherwise specified in the SSA under to subscribe
for fully paid Shares at the Warrant Exercise Price per Share, subject to
and in accordance with the SSA.
2.2 As soon as practicable after the relevant allotment of Shares under this
condition (and not later than 14 days after the relevant Warrant Exercise
Date) the Company will or will procure the issue free of charge to the
Warrantholder(s) of the Warrant represented by this Warrant certificate:
2.2.1 a certificate (or certificates) for the relevant Shares in the name(s) of
such Warrantholder(s);
2.2.2 (if applicable) a balancing Warrant certificate in the registered form in
the name(s) of such Warrantholder(s) in respect of any Subscription Rights
represented by this Warrant certificate and remaining unexercised; and
2.3 The certificate(s) for Shares arising on the exercise of the Subscription
Rights, the balancing Warrant certificate (if any) will be available for
collection at the registered office of the Company or, if so requested,
will be sent by registered mail to the address specified in the Warrant
Exercise Notice at the risk of that person.
75
<PAGE>
3. Registered Warrants
The Warrants are issued in registered form. The Company shall be entitled
to treat the registered holder of any Warrant as the absolute owner
thereof and accordingly shall not, except as ordered by a Court of
competent jurisdiction or required by law, be bound to recognise any
equitable or other claim to or interest in such Warrant on the part of any
other person, whether or not it shall have express or other notice
thereof.
4. Transfer, Transmission and Register
4.1 Warrants are transferable, by instrument of transfer in any usual or
common form or in any other form which may be approved by the Directors.
The Company shall maintain the Register accordingly. The Register may be
as required or permitted under Indian law or regulation to be closed from
time to time. Transfers of Warrants must be executed by both the
transferor and the transferee. The provisions of the Company's Articles
of Association relating to the registration, transmissions and transfer of
Shares and the register of members shall, mutatis mutandis, apply to the
registration, transmission and transfer of the Warrants and the Register.
5. Purchase and Cancellation
5.1 The Company or any of its Subsidiaries may so far as permitted by law in
India (subject to the agreement of SARF if it is desirous of selling) at
any time purchase Warrants from SARF. All Warrants purchased as aforesaid
shall be cancelled forthwith and may not be reissued or re-sold.
6. Replacement of Warrant Certificates
If a Warrant Certificate is mutilated, defaced, lost or destroyed, it may,
at the discretion of the Company, be replaced at the principal office of
the Registrar on payment of such costs as may be incurred in connection
therewith and on such terms as to evidence, indemnity and/or security as
the Company may require. Mutilated or defaced Warrant certificates must be
surrendered before replacements will be issued.
76
<PAGE>
7. Rights of Warrantholders on winding up
The SSA provides that if an effective resolution is passed for the winding
up of the Company, then Warrantholders may have certain options.
8. Governing Law
The Warrants are governed by and will be construed in accordance with the
laws of India.
9. The Warrants are (in addition to the above conditions) issued subject to
the terms and conditions set out in a Shareholders and Share Subscription
Agreement between SARF, Satyam Computer Services Ltd and Satyam Infoway
Ltd dated [ ] 1998.
77
<PAGE>
EXERCISE NOTICE
(To be executed and lodged with the Registrar to exercise the Subscription
Rights represented by this Warrant certificate)
To: Satyam Infoway Limited
(the "Company")
Terms not defined herein shall have the same meaning as in the SSA (as defined
below). The undersigned, being the duly registered holder(s) of the Warrant(s)
represented by this Warrant certificate:-
(A) hereby irrevocably elect(s) to exercise the Subscription Rights in respect
of [ ] Warrants represented by this Warrant certificate and to
subscribe for the relevant number of Shares in the capital of the Company
at the applicable Warrant Exercise Price, and agree(s) to accept such
Shares on the terms of the Memorandum of Association and Articles of
Association of the Company and subject to the rights and restrictions set
out in the Share Subscription and Shareholders Agreement between South
Asia Regional Fund, Satyam Computer Services Limited, Mr. B. Ramalinga
Raju and Satyam Infoway Limited dated [ ] 1998 ("SSA");
(B) make(s) payment in full for such Shares by sending herewith a cheque,
draft or money order drawn on a bank account in India for value no later
than the relevant Warrant Exercise Date, for the full amount of [ ]
[(NOTE (1)];and
(C) request(s) that a certificate for such Shares and a balancing Warrant
certificate (if any) in registered form in respect of any Subscription
Rights represented by this Warrant certificate and remaining unexercised
be issued in the name(s) of the person(s) whose name(s) stand(s) in the
Register of
78
<PAGE>
Warrantholders as the Warrantholder(s) of the Warrant(s) represented by
this Warrant certificate and such certificate(s), be sent by post at the
risk of such Warrantholder(s) to the address of such Warrantholder(s).
Dated:
Signature(s)
NOTES:-
(1) Cheques, drafts or money orders should be drawn in Rupees on a bank
account in India or such other place as may be determined by the Directors
and be made payable to Satyam Infoway Limited.
(2) In the case of a joint holding, all joint holders must sign.
79
<PAGE>
APPENDICES
List of Registered Intellectual Property and Intellectual Property Agreements
Intellectual Property
Satyam - brand name and logo Applied for registration in the name of Satyam
Computer Services Ltd. in India
Intellectual Property Agreements
1) International Electronic Commerce Agreement dated February 14, 1997
between "Sterling Commerce International Inc., a Delaware, USA corporation
and "Satyam Infoway Ltd".
2) Agreement dated June - 1997 between Open Market Inc. Massachusetts, USA
and "Satyam Infoway Ltd".
3) Agreement dated April 18, 1997 between "Compuserve Inc"., Columbus, Ohio,
USA and "Satyam Infoway Ltd"; and
4) Agreement dated November 12, 1998 between "ELIASCHEM", Israel and "Satyam
Infoway Ltd".
80
<PAGE>
EXHIBIT 4.2
AMENDMENT NUMBER ONE TO
SHARE SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT
RELATING TO SATYAM INFOWAY LIMITED
Dated February 5, 1999
among
Satyam Infoway Limited,
Satyam Computer Services Limited,
South Asia Regional Fund and
Mr. B. Ramalinga Raju
Date of Amendment: September 14, 1999
1. Introduction. Satyam Infoway Limited (the "Company"), Satyam Computer
------------ -------
Services Limited ("SCSL"), South Asia Regional Fund ("SARF") and Mr. B.
---- ----
Ramalinga Raju ("RAJU" and, collectively with the Company, SCSL and SARF, the
----
"Parties") entered into a Share Subscription and Shareholders Agreement, dated
-------
as of February 5, 1999, a copy of which is attached hereto as Exhibit A (the
"Agreement"). The Parties now desire to amend the Agreement as set forth herein
----------
(the "Amendment"), it being expressly understood that this Amendment shall only
---------
become effective upon the terms and subject to the conditions set forth in
Section 11, and in all other instances the Agreement shall remain in full force
and effect without regard to this Amendment.
2. Amendments to Covenants. Section 5 of the Agreement entitled "Covenants" is
----------------------- ---------
amended as follows:
(a) Section 5.1.17 of the Agreement is deleted in its entirety and
--------------
replaced with the following:
procure that its accounts are audited at least once in every financial year
in accordance with generally accepted accounting principles as applicable
in India by an accounting firm acceptable to SARF, it being understood that
the Indian affiliate of any of the "Big 5" accounting firms (including,
without limitation, the present auditors of the Company) shall be deemed to
be acceptable to SARF;
(b) The lead-in to Section 5.1.18 of the Agreement is deleted in
--------------
its entirety and replaced with the following (it being understood that no
amendment is made in subsections 5.1.18.1 through 5.1.18.5):
-------------------------------------
For so long as SARF owns at least 5.0% of the issued ordinary share
capital of the Company, furnish to SARF, upon SARF's request-;
(c) Section 5.2.3 of the Agreement is deleted in its entirety and
-------------
replaced with the following:
<PAGE>
procure that the Board of the Company at all times includes at least two
independent non-executive Directors (excluding any Director(s) designated
by SARF or the Sponsor);
(d) Section 6.1 of the Agreement is amended by deleting the
-----------
term "7.5%" in the first line of such section and replacing it with "5.0%".
(e) Section 6.2 of the Agreement is deleted in its entirety and
-----------
replaced with the following:
For so long as it owns at least 50.1% of the issued ordinary share capital
of the Company, the Sponsor shall be entitled, by notice in writing to the
Company, to nominate 4 (four) Directors of the Board of the Company and to
require the removal or substitution of any such Director approved by it.
SARF hereby agrees at all times to take all actions necessary and
appropriate to enable the Sponsor to exercise its rights to such
nomination, removal or substitution, including voting in favor of such
nomination, removal or substitution both at shareholders meetings and Board
meetings.
(f) Section 6.3 of the Agreement is deleted in its entirety.
-----------
(g) Section 6.4 of the Agreement is deleted in its entirety.
-----------
(h) Section 6.10 of the Agreement is deleted in its entirety and
------------
replaced with the following:
The Company shall indemnify the Director and officers nominated by SARF
from time to time against all losses, claims, liabilities, costs or other
expense arising from the performance of their duties (hereinafter
"damages") except where such damages arise as a result of fraud, willful
misconduct or gross negligence on the part of such Director or officer
seeking such indemnity or where such indemnification is not permitted by
applicable law. In addition the Company agrees to take out adequate
insurance, to the extent available in India on commercially reasonable
terms as determined in good faith by the Board of Directors, to cover such
damages.
3. Amendment to Financing. Section 8 of the Agreement entitled "Financing" is
---------------------- ---------
deleted in its entirety.
4. Amendment to Dividends. Section 9 of the Agreement entitled "Dividends" is
---------------------- ---------
deleted in its entirety.
5. Amendment to Enforcement of Company's Rights. Section 10 of the Agreement
-------------------------------------------- ----------
entitled "Enforcement of Company's Rights" is amended as follows:
Section 10.2 of the Agreement is deleted in its entirety.
------------
2
<PAGE>
6. Amendment to Actions to be Taken by Board Resolution or by Shareholder
----------------------------------------------------------------------
Consent. Section 11 of the Agreement entitled "Actions to be Taken by Board
- ------- ----------
Resolution or by Shareholder Consent" is deleted in its entirety.
7. Amendment to Listing. Section 13 of the Agreement entitled "Listing" is
-------------------- ----------
amended as follows:
13.1 The Company and the Sponsor severally undertake to use their
respective reasonable best efforts to obtain a Listing of the Shares by
making an IPO on the Bombay Stock Exchange ("BSE") or the National Stock
---
Exchange ("NSE") as soon as reasonably practicable after such time as the
---
Company has satisfied the applicable qualifications for Listing.
13.2 Subject to the provisions of this Agreement, the Company undertakes to
use its reasonable best efforts to cause the existing Shares of the Company
to be listed and take such steps as are necessary (either by way of a fresh
issue of Shares and/or by causing the existing issued Shares to be sold) to
obtain a Listing. The Sponsor and the Company severally undertake to ensure
compliance with all applicable regulations, and guidelines in force at the
relevant date in relation to the making of the IPO or for obtaining a
Listing. The Sponsor and the Company further severally undertake to use
their reasonable best efforts to obtain all necessary consents and
approvals required for the making of the IPO or for obtaining a Listing.
13.3 SARF will have the option to offer part or all of its Shares for an
offer for Sale at the time of the IPO. For the avoidance of doubt, the
balance of Shares necessary to meet all Listing requirements shall be
provided either by way of a fresh issue of Shares and/or by the Sponsor's
Shares being offered for sale.
13.4 The quantum, price and timing of the IPO shall be decided by a duly
established pricing committee of the Board of Directors of the Company with
one member thereof consisting of the Board designee of SARF.
13.5 The Company shall, if so required by SARF, enter into underwriting
agreements with underwriters for underwriting the Shares or other
securities offered in the IPO, which underwriters shall be approved by a
duly established pricing committee of the Board of Directors of the Company
with one member thereof consisting of the Board designee of SARF.
13.6 All costs incurred in connection with any public offering shall be met
by the Company. In respect of the Listing, the Company will comply with
ongoing Listing costs and requirements including, inter alia, payment of
all present and future costs relating to the Listing and, sponsorship,
underwriting fees, listing fees, merchant bankers fee, bankers fees,
brokerage commission and any other costs that may be incurred due to the
changes/modifications of the law and regulations for the time being in
force. Notwithstanding any other provision of this Subsection 13.6 to the
contrary, however, the Company shall not be obligated
3
<PAGE>
to incur underwriting discounts, brokerage commissions or similar costs
solely related to the sale of Shares for the account of any shareholder of
the Company.
13.7 SARF agrees that, upon Listing or sale of the Shares held by it, SARF
will give warranties and/or indemnities to any underwriter, broker, Stock
Exchange, any other Competent Authority or other person as to the title of
its shares and similar matters as is customary under prevailing commercial
practice for institutional investors which do not enjoy management control,
direct supervision or information except as an outside non-management
director, and the Company and Sponsor agree that SARF shall in no
circumstances be construed as a promoter under applicable law.
13.8 The Sponsor and the Company shall use their respective reasonable best
efforts to ensure fulfillment of all listing requirements to the
satisfaction of the Stock Exchanges and Securities Exchange Board of India
and/or any other regulatory/statutory authority. To the extent that the
Company seeks to list its shares on any exchange other than a recognized
stock exchange in India or the United States of America, the provisions of
this Clause 13 will apply to such listing.
13.9 From and after (but conditioned upon) the execution of a Registration
Rights Agreement by and between the Company, SARF and Sterling Commerce,
Inc., dated as of September 14, 1999 (the "Registration Rights Agreement"),
-----------------------------
such agreement shall apply exclusively with respect to any resale of Shares
owned by SARF in the United States of America, including any related (a)
registration of such Shares and/or related American Depositary Shares with
the United States Securities and Exchange Commission and (b) listing on any
United States stock exchange or automated quotation system, such as Nasdaq,
and the previously applicable provisions of this Agreement, including this
Clause 13, shall thereafter cease to apply with respect to the sale of
shares in the United States, except for Section 13.10.
13.10 At such time as a market is created in the United States of America
for American Depositary Shares representing equity shares of the Company,
the Company, the Sponsor and SARF will use their respective reasonable best
efforts to obtain all Government of India and other approvals required for
SARF to deposit the equity shares acquired by it from the Company with the
depositary and receive in exchange therefor American Depositary Receipts
evidencing American Depositary Shares.
8. Amendment Exit Options. Section 16 of the Agreement entitled "Exit
---------------------- ----------
Options" is amended as follows:
(a) the following shall be added to the end of Section 16.2.1 after the
--------------
word "sale" and before the semi-colon: "(it being understood that the
requirements of this Section 16.2.1 shall be deemed satisfied if at
any time (i) the Company's Shares, or related American Depositary
Shares ("ADSs"), are approved for listing on the BSE, NSE, New York
----
Stock
4
<PAGE>
Exchange or Nasdaq National Market and (ii) there shall have been
obtained all Government of India and other approvals required for SARF
to deposit the equity shares acquired by it from the Company with the
depositary and receive in exchange therefor American Depositary
Receipts evidencing ADSs)".
(b) A period shall be placed at the end of Section 16.2.2 after the word
--------------
"conditions" and Section 16.2.3 shall be deleted.
--------------
(c) Section 16.4 shall be amended by inserting a period after the word
------------
"possible" on the third line, and deleting the balance of the section.
(d) A new Section 16.5 shall be added as follows:
------------
In connection with the offering in the United States of ADSs representing
Shares of the Company (the "ADS Offering"), SARF shall not, directly or
indirectly, transfer, sell, assign, pledge, hypothecate, encumber or
otherwise dispose of any Shares, or any pecuniary interest therein, for a
period of 180 days after the date on which the ADS Offering is consummated,
except with the prior written consent of the underwriters for the ADS
Offering. To carry out the intent and purposes of this Section 16.5, SARF
shall, at the request of the underwriters for the ADS Offering, enter into
a "lockup agreement" containing customary provisions with the
representatives of such underwriters.
9. Amendment to Covenants Not to Compete. Section 17 of the Agreement entitled
------------------------------------- ----------
"Covenants Not to Compete" is amended as follows:
The following shall be deleted from Section 17.1.1: "or the business
--------------
carried on by the Company in relation to electronic commerce and internet
business".
10. Warrant Exercise. SARF hereby exercises the warrants held by it to purchase
600,000 Shares, such exercise to be effective only upon the successful
completion of the ADS Offering prior to December 31, 1999. The Company
hereby accepts such exercise. The parties agree that because the exercise
price of the warrants can not be calculated unless and until the ADS
Offering is completed, SARF may, and hereby agrees to, remit to the Company
the exercise price for the warrants not later than the fifth business days
after the closing of the ADS Offering. Such remittance will be in official
funds paid to a bank account designated by the Company. For purposes of
calculating such period, business days shall mean days in which commercial
banks and stock exchanges are generally open for business in London,
England.
11. Effectiveness of This Amendment. This Amendment, except for new Sections
-------------------------------
13.9, 13.10 and 16.5, shall become effective upon the consummation of the
ADS Offering if, but only if, such offering is completed prior to December
31, 1999. Section 13.9 shall become effective upon execution of the
Registration Rights Agreement, and Sections 13.10 and 16.5 shall become
effective upon the execution of this Amendment and the consummation of the
ADS Offering if, but
5
<PAGE>
only if, such offering is completed prior to December 31, 1999. In all
other instances, the Agreement shall remain in full force and effect
without regard to this Amendment.
(Signature Page Follows)
6
<PAGE>
Intending to be legally bound and for the purpose of evidencing their
approval of this Amendment, the undersigned, constituting all of the
shareholders of the Company, hereby approve and adopt this Amendment.
SATYAM INFOWAY LIMITED
/s/ R. Ramaraj
_________________________
Name: R. Ramaraj
Title: Chief Executive Officer
SATYAM COMPUTER SERVICES LIMITED
/s/ B. Ramalinga Raju
_________________________
Name: B. Ramalinga Raju
Title: Chairman
SOUTH ASIA REGIONAL FUND
[illegible]
_________________________
Name:
Title:
/s/ B. Ramalinga Raju
_________________________
B. Ramalinga Raju
/s/ R. Ramaraj
_________________________
R. Ramaraj
7
<PAGE>
EXHIBIT 4.5
[INDIAN CURRENCY -- 100 RUPEE NOTE]
RUPEE LOAN AGREEMENT
THIS AGREEMENT made the 3rd day of July 1998 Between SATYAM INFOWAY
LIMITED, a company within the meaning of the Companies Act, 1956 and having its
Registered Office at May Fair Centre, 1/8-303/36 S.P. Road, Secunderabad
(hereinafter referred to as "the Borrower", which expression shall, unless it be
repugnant to the subject or context thereof, include its successors and
permitted assigns) of the ONE PART And EXPORT-IMPORT BANK OF INDIA, a
corporation established under the Export-Import Bank of India Act, 1981 and
having its Head Office at Centre One, Floor 21, World Trade Centre, Cuffe
Parade, Mumbai 400 005 (hereinafter referred to as "Exim Bank" which expression
shall, unless it be repugnant to the subject or context thereof, include its
successors and assigns) of the OTHER PART.
<PAGE>
WHEREAS
i) The Borrower has requested Exim Bank to grant to it financial
assistance by way of a Rupee Loan for the purpose mentioned in Schedule I.
ii) Exim Bank has agreed to grant the said financial assistance to
the Borrower upon the terms and conditions hereinafter mentioned.
NOW IT IS HEREBY AGREED as follows:
I. Definitions
All expressions wherever used in this Agreement and in the Schedules
and Annexure hereto shall, unless the context may otherwise require, have the
meanings assigned to them in Schedule I.
II. Rupee Loan
Exim Bank hereby agrees to lend and disbursement to the Borrower and
the Borrower agrees to avail of the Rupee Loan facility from Exim Bank for the
purpose and upon the terms and subject to the conditions contained in this
Agreement.
III. Conditions for Disbursement
The obligation on the part of Exim Bank to make a disbursement to the
Borrower hereunder and maintain the Rupee Loan shall be subject to compliance by
the Borrower with the following among other conditions contained in the Rupee
Loan Agreement, to the satisfaction of the Exim Bank:
(i) the Borrower shall have produced a certified true copy each of the
contract, if any, with overseas supplier for import of machinery and equipment,
and all related documents and documentary evidence that may be listed in the
Letter of Sanction including for arrangements made with bank(s)/financial
institution(s) for financing the projected expenditure and the working capital
requirements as per the financing plan submitted to Exim Bank;
(ii) The Borrower shall have furnished a drawdown schedule to Exim Bank
within a period of 30 days from the date of this Agreement indicating the
amount(s) of disbursement required and the proposed date(s) thereof,
2
<PAGE>
and shall have complied with the disbursement Procedure prescribed by the
Lender.
(iii) the proposed date for a disbursement hereunder shall be a Business
Day failing on or before the Termination Date, unless otherwise agreed by Exim
Bank;
(iv) the Borrower shall have obtained or shall have made arrangements
satisfactory to Exim Bank for obtaining all necessary approvals, licences,
consents and clearances from the Government, Reserve Bank of India and other
concerned regulatory and corporate authorities as may be specified in the Letter
of Sanction, for the borrowings under the Rupee Loan Agreement, the carrying on
of the business of the Borrower as contemplated to be carried on, the
implementation of the Project as also for the due execution and delivery of and
performance under the Rupee Loan Agreement and documents hereby contemplated and
for creation of the Security as herein provided;
(v) the Borrower shall have produced to Exim Bank a certificate of the
Borrower's Statutory auditors in the form prescribed by Exim Bank certifying to
the effect that the aggregate amount of the Rupee Loan facility together with
the moneys borrowed by the Borrower will not exceed the limit on borrowings
fixed by its shareholders in terms of the relevant provisions of the Companies
Act, 1956;
(vi) the Borrower shall have created valid Security and furnished
Security Documents in favour of Exim Bank and, wherever applicable, shall have
produced evidence satisfactory to Exim Bank of the filing of particulars of
creation of charge(s) constituting the Security with the concerned registering
authorities;
(vii) the Borrower shall have furnished/procured all necessary documents
in form and substance acceptable to Exim Bank and shall have also fulfilled all
condition(s) precedent to disbursement including payment offer, charges and
other dues, if any, as may have been stipulated by Exim Bank in the Letter of
Sanction;
(viii) All representations and warranties made by the Borrower in its
application for the Rupee Loan facility and in the Rupee Loan Agreement shall
have remained true and correct on the date of disbursement hereunder as if each
of them shall have been repeated herein with respect to the facts and
circumstances existing on the date thereof;
(ix) no Event of Default and no event which, with the giving of notice
or lapse of time or both would become an Event of Default, shall have happened
and be continuing.
3
<PAGE>
IV. Fee
The Borrower shall pay to Exim Bank a Fee at the rate and in the
manner as may be specified in Schedule I hereto. The Fee shall not be refunded
by Exim Bank even if the Rupee Loan facility or any part thereof shall not be
availed of or cancelled for any reason whatsoever.
V. Interest
The Borrower shall pay to Exim Bank interest on the principal amount
of the Rupee Loan outstanding from time to time half-yearly on June 20 and
December 20 in each year at the Interest Rate specified in Schedule I Provided
that any interest accrued and remaining outstanding on the final Repayment Date
shall be paid on that date.
VI. Repayment
The Rupee Loan shall be repaid to Exim Bank in accordance with the
repayment schedule set out in Schedule II hereto.
VII. Liquidated Damages
In the event of any default in payment of an instalment of principal,
interest or any other monies when due under this Agreement, the Borrower shall
be liable to pay, without prejudice to the remedies available to Exim Bank under
this Agreement or otherwise, additional interest by way of liquidated damages on
the defaulted amount(s) for the period of default at the rate of two percent
(2%) per annum payable in the manner and on the dates specified above for
payment of interest.
VIII. Security
Repayment of the Rupee Loan together with payment of interest,
compound interest, additional interest by way of liquidated damages in case of
default, costs, charges and expenses and all other monies whatsoever stipulated
in the Rupee Loan Agreement shall be secured by the Borrower by creation of the
Security and/or execution and delivery of the Security Documents specified in
Schedule III-A in accordance with the provisions of the Rupee Loan Agreement.
Any mortgage/charge comprised in the Security shall rank in the order of
priority set out in Schedule III-B.
4
<PAGE>
IX. Communication
Any notice or other communication herein contemplated to be given by
one party to the other shall be sent to such party's address specified in
Schedule IV.
X. General Conditions to form an integral part of Agreement
This Agreement shall be read with the General Conditions contained in
the Annexure hereto which shall form an integral part of this Agreement and be
deemed incorporated herein by reference and the parties hereto agree to accept
and be bound by the provisions thereof.
5
<PAGE>
SCHEDULES
FOR
RUPEE LOAN AGREEMENT
<PAGE>
SCHEDULE I
(Ref. Clause I)
DEFINITIONS
"Business Day" shall be construed as reference to a day on which banks
(and Exim Bank) shall remain open for business in Mumbai for the purpose
contemplated by this Agreement;
"Event of Default" shall mean any of the events specified in Section
XXI(2) of the General Conditions;
"Fee" shall mean one time non-refundable service fee payable by the
Borrower to Exim Bank at the rate of one per cent (1%) of the amount of the
Rupee Loan facility within a period of 30 days from the date of Letter of
Sanction;
"General Conditions" shall mean the general terms, conditions,
covenants and other provisions and stipulations set out in the Annexure hereto
which shall form an integral part of this Agreement and be deemed to be
incorporated herein by reference;
"Interest Rate" shall mean the rate of 15.5% per annum at which
interest shall be chargeable by the Lender hereunder on the amount of the Rupee
Loan:
"Letter of Sanction" shall mean the letter No. OIF:EOU:D-282:254 dated
June 05, 1998 addressed to the Borrower by Exim Bank and incorporated herein by
reference, advising sanction of the Rupee Loan facility upon the main terms and
conditions therein stipulated and duly accepted by the Borrower, and shall
include amendment(s)/modification(s) therein as may be issued by Exim Bank from
time to time;
"Loan Agreement" shall mean this Agreement read with the General
Conditions;
"Project" shall mean the setting up of a public data network for
providing Electronic Commerce, Electronic Data Interchange and Internet
services;
"Repayment Date" shall mean a date on which an instalment of the Rupee
Loan falls due for payment in accordance with the amortization schedule set out
in Schedule II hereto;
"Rupee Loan" shall mean the rupee loan facility agreed to be provided
by the Lender to the Borrower in pursuance of Clause II hereof under its lending
programme for Export Oriented Units (Export Facilitation Activities) up to the
sum not exceeding Rs 21.50 crores (Rupees Twenty One crores and Fifty Lacs only)
for the purpose of financing/ payment/funding/remittance of:
6
<PAGE>
(i) a part of the cost and related expense of supplies and/or
services required for execution of the Project and/or
"Security and/or Security Documents" shall mean the security and/or
the documents mentioned in Schedule III-A hereto, each in form and substance
acceptable to Exim Bank;
"tax" shall be construed so as to include any tax, levy, impost, duty
or other charges of a similar nature;
"Termination Date" shall mean the earlier of (a) December 31, 1990 and
(b) the first Business Day on which the entire Rupee Loan has been disbursed.
7
<PAGE>
SCHEDULE II
(Ref. Clause VI)
AMORTIZATION SCHEDULE
The Rupee Loan shall be repaid by the Borrower in 6 (Six)
substantially equal half-yearly instalments, commencing from December 20, 1999,
or such other date closer to that date as may be advised by Exim Bank at the
time of making the first disbursement.
8
<PAGE>
SCHEDULE III-A
(Ref. Clause VIII)
*SECURITY AND/OR SECURITY DOCUMENTS
(i) A certified true copy of the resolutions paused by the board of
directors of the Borrower, inter alia authorising the borrowing of the Rupee
Loan, execution of the Rupee Loan Agreement and Security Documents and creation
of the Security for the Rupee Loan.
(ii) (a) A first charge by way of hypothecation in favour of Exim
Bank over the Borrower's moveable fixed assets, both present and future.
(b) A mortgage of the Borrower's lands and other immoveable,
properties, both present and future, in the form acceptable to Exim Bank.
(iii) An irrevocable and unconditional guarantee in favour of Exim
Bank from Satyam Computer Services Ltd, guaranteeing the due repayment of the
Rupee Loan and payment of interest thereon and all costs, charges, expenses and
other monies payable by the Borrower to Exim Bank under the Loan Agreement.
9
<PAGE>
SCHEDULE III-B
(Ref. Clause VIII)
(ORDER OF PRIORITY OF CHARGE)*
The mortgage and charge constituting Security in favour of Exim Bank
shall rank in the following order of priority:
<TABLE>
<CAPTION>
Amount Secured/To be Secured by
Mortgage/Charge
-------------------------------
<S> <C>
(1) Pari passu with the mortgage(s)/charge(s) created/to be NA
created by the Borrower as under:
(2) Exclusive first charge in favour of Exim Bank
(3) Prior and paramount over charge(s) created/to be created by NA
the Borrower in favour of:
(4) Second and subject to the charge(s) created/to be created NA
by the Borrower in favour of the following financial
institution(s)/bank(s):
</TABLE>
*To be modified as per sanction terms.
10
<PAGE>
SCHEDULE IV
(Ref. Clause IX)
ADDRESS OF THE PARTIES FOR SERVICE OF NOTICE/COMMUNICATION
<TABLE>
<CAPTION>
Name Mailing Address
- ---- ---------------
<S> <C> <C>
1. Satyam Infoway Limited 35, Velachery Road
Little Mount
Chennai - 600 015
Telephone: 044-2354770
Fax : 044-2354771
2. Export-import Bank of India Post Bag 16100 Cable EXIMINDIA
Centre One, Floor 21
World Trade Centre Telex
Cuffe Parade
Mumbai 400 005 Fax
India
</TABLE>
11
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
**The Common Seal of Satyam Infoway Limited has, pursuant to the
Resolution passed by its Board of Directors at their meeting held on
July 3, 1998 hereunto been affixed in the presence of Shri Ramaraj R
one of its Directors and Shri Thiagarajank Secretary/Authorised Person who
have signed these presents in token thereof,
SIGNED AND DELIVERED BY EXPORT-IMPORT BANK OF INDIA by the hand of
Shri _____________________ its ____________________________.
**Common Seal provision to be modified if necessary, in order to conform to the
Articles of Association of the Borrower.
12
<PAGE>
ANNEXURE
GENERAL CONDITIONS
INDEX
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
I. Definitions & Interpretation................................... 1
II. Terms of Disbursement.......................................... 1
III. Computation of Interest........................................ 2
IV. Interim Disbursement........................................... 3
V. Deferment of Repayment Date.................................... 3
VI. Prepayment..................................................... 3
VII. Appropriation of Payments...................................... 4
VIII. Security....................................................... 5
IX. Place and Mode of Payment by the Borrower...................... 6
X. Representations and Warranties................................. 6
XI. Affirmative Covenants.......................................... 8
XII. Negative Covenants............................................. 11
XIII. Project Records and Inspection................................. 12
XIV. Other conditions to apply during the currency of the Rupee Loan 13
XV. Cancellation, Suspension & Termination......................... 14
XVI. Acceleration of Repayment...................................... 15
XVII. Reimbursement of Costs and Expenses............................ 17
XVIII. Miscellaneous.................................................. 18
</TABLE>
<PAGE>
ANNEXURE
GENERAL CONDITIONS
I. Definitions & Interpretation
----------------------------
(1) Except as expressly specified herein, all expressions used in the
General Conditions and defined in the Loan Agreement of which the
General Conditions form a part, shall have the same meanings as given
to them in the Loan Agreement. In the event of any inconsistency
between any provision of the Loan Agreement and the General
Conditions, the relative provision of the Loan Agreement shall
prevail.
(2) In the Loan Agreement and in the General Conditions, words denoting
the singular shall include the plural and vice-versa. Reference to a
specified Clause or sub-Clause shall be construed as a reference to
that specified Clause or sub-Clause of the Loan Agreement and
reference to a specified Section or sub-Section shall be construed as
a reference to that specified Section or sub-Section of the General
Conditions.
(3) The headings of various Clauses and Sections in the Loan Agreement are
given for convenience of reference only and shall not affect the
interpretation of the relative provisions.
II. Terms of Disbursement
---------------------
(1) The Borrower shall be required to submit a drawdown schedule to Exim
Bank within 30 days from the date of the Loan Agreement. The Rupee
Loan facility shall be made available to the Borrower in one or more
disbursement(s) as may be decided by Exim Bank subject to the Borrower
complying with the provisions of the Loan Agreement and the
disbursement procedure stipulated by Exim Bank and provided the
financing of the expenditure shall be in consonance with the details
furnished to Exim Bank.
(2) Exim Bank shall make disbursement by payment for account of the
Borrower to the credit of such account with a bank in India as may be
advised by the Borrower. Exim Bank shall have the right to review the
costs incurred and progress made by the Borrower in connection with
the Project since the date of the first/previous disbursement before
making further disbursement(s). All collection/remittance charges, if
any, in respect thereof shall be borne by the Borrower. Interest on
the disbursement shall begin to accrue from the date of
transfer/authorisation by Exim Bank.
1
<PAGE>
(3) Exim Bank may, at its discretion, deduct from sums to be lent and
advanced by it to the Borrower, any monies then remaining due and
payable by the Borrower to Exim Bank under any other account(s) of the
Borrower.
III. Computation of Interest
-----------------------
(1) Notwithstanding anything to the contrary contained in the Agreement,
Exim Bank shall be entitled at all times during the currency of the
Rupee Loan to increase the Interest Rate whenever Exim Bank may deem
it necessary, having regard to any change in the directive, guidelines
or policy of the Government or of any regulatory, corporate or other
authority, applicable to Exim Bank, after notifying the Borrower in
writing of its intention to do so, and upon being notified by Exim
Bank, the Borrower shall be liable to pay interest on the amount of
the Rupee Loan then outstanding at such increased Interest Rate from
the date of notification. Provided However that if the increased
Interest Rate shall not be acceptable to the Borrower, then the
Borrower shall be at liberty to prepay, without any premium but after
giving 30 days' notice in writing to Exim Bank, the entire amount of
the Rupee Loan then outstanding together with interest accrued thereon
at such increased rate up to the date of prepayment and all other
monies then due and payable hereunder.
(2) Interest on the Rupee Loan and on all other monies accruing due under
the Loan Agreement shall, in case the same be not paid when due, carry
further interest at the same rate as aforesaid computed from the
respective due dates and shall become payable upon the footing of
compound interest with rests taken or made half-yearly. Provided
However that payment of such interest by the Borrower shall not
entitle it to withhold or defer payment of any moneys then due and
payable nor shall it in any manner prejudice the right of Exim Bank to
proceed against the Borrower for any default under the Loan Agreement.
(3) Computation of interest which shall have accrued under the Loan
Agreement for even periods of six months shall be made on an annual
basis. In all other cases, such computation shall be made on the
basis of actual number of days elapsed (including the first day of the
period during which it accrues but excluding the last) using 365 days
a year factor.
(4) All payments of interest to Exim Bank under the Loan Agreement shall
include interest tax and any other deduction(s) that may be required
at law to be made and/or paid by Exim Bank from the amount of interest
payable to it, to the intent that Exim Bank shall receive interest
from the Borrower free and clear of all taxes and deductions
whatsoever.
2
<PAGE>
IV. Interim Disbursement
--------------------
(1) In the event of Exim Bank, agreeing to make a disbursement at the
request of the Borrower pending compliance by it with any of the pre-
disbursement conditions and formalities, disbursement may be made by
Exim Bank against such interim securities/arrangements as may be
decided by it, and the Borrower shall be liable to pay interest on
such interim disbursement(s) at a higher rate if so stipulated by Exim
Bank until the Borrower shall have fully complied with all the pre-
disbursement conditions and formalities to the satisfaction of Exim
Bank. The Borrower shall also execute in favour of Exim Bank such
documents as may be required by it in this behalf.
(2) The Borrower shall be liable to repay interim disbursement(s) on
demand if so required by Exim Bank, and save as otherwise stipulated,
all interim disbursement(s) shall be deemed to have been made under
the Loan Agreement and accordingly all the provisions of the Loan
Agreement shall be applicable thereto. Any security including
guarantee(s) that may be furnished by the Borrower to Exim Bank for
securing interim disbursement(s) shall remain in full force and effect
until creation of the final security in terms of the Loan Agreement.
V. Deferment of Repayment Date
---------------------------
(1) Exim Bank may, at the request of the Borrower, in suitable
circumstances and at its absolute discretion agree to revise, vary or
postpone the Repayment Date of any instalment of the Rupee Loan or any
part thereof upon such terms, and conditions including the charging of
a higher rate of interest as may be decided by Exim Bank.
(2) If for any reason, the amount finally disbursed by Exim Bank out of
the Rupee Loan facility shall be less than the amount agreed to be
lent and disbursed to the Borrower under the Loan Agreement, the
amount of repayment instalments of the Rupee Loan shall stand reduced
proportionately but shall be payable on the Repayment Date(s)
specified in the Loan Agreement, or the repayment instalment(s) shall
be reduced by the unavailed portion of the facility in the inverse
order of maturity, at the discretion of Exim Bank.
VI. Prepayment
----------
(1) The Borrower may at any time after the Termination Date, prepay the
whole or any part of the Rupee Loan together with accrued interest
thereon subject
3
<PAGE>
to payment of prepayment premium at such rate as may be determined by
Exim Bank, having regard to the then remaining maturity period of the
Rupee Loan, and provided the Borrower shall have given to Exim Bank
not less than thirty days' notice in writing of its intention to
prepay.
(2) A notice given pursuant to sub-Section (1) shall be irrevocable; it
shall specify the amount and the date on which prepayment is proposed
to be made and shall oblige the Borrower to make such prepayment. Any
prepayment so made shall satisfy pro-tanto the Borrower's obligations
for repayment under Clause VI of the Loan Agreement. Amounts prepaid
may not be re-borrowed hereunder.
(3) If profitability of the Borrower, its cash flow and other
circumstances shall in the opinion of Exim Bank so warrant, then Exim
Bank shall be entitled to require the Borrow to repay the Rupee Loan
on dates earlier than the Repayment Date(s) specified in the Loan
Agreement and/or to increase the amount of instalment(s) of the Rupee
Loan, notwithstanding anything to the contrary contained therein.
VII. Appropriation of Payments
-------------------------
(1) Unless otherwise required by Exim Bank, any payment under the Loan
Agreement when made to or received/recovered by Exim Bank, shall be
appropriated in the following order and the Borrower waives any right
it may have to direct appropriation in any other order:
(a) costs and expenses;
(b) Fee;
(c) additional interest by way of liquidated damages;
(d) compound interest;
(e) interest; and
(f) instalments of principal due under the Loan Agreement.
(2) Notwithstanding anything contained in sub-Section (1) hereinabove,
Exim Bank may at its discretion, appropriate such payment towards
satisfaction of dues, if any, payable by the Borrower in respect of
other loan(s) borrowed from Exim Bank.
4
<PAGE>
VIII. Security
--------
(1) The Borrower shall, wherever applicable, furnish to Exim
Bank permission under Section 281(1) of the Income-Tax Act,
1961, and any other permission/consent of competent
authorities as may be required for the creation of valid
Security in favour of Exim Bank. The Borrower shall also
ensure that original of the relevant Security Document, as
applicable, and documentary evidence of registration of
creation/modification of charge in favour of Exim Bank,
shall be forwarded to Exim Bank upon registration.
(2) The Borrower shall also furnish to the Exim Bank prior
written consent of other charge-holder(s), if any,
permitting creation of the Security in favour of Exim Bank.
If the assets constituting the Security shall be required to
be charged exclusively in favour of the Exim Bank, then the
Borrower shall also furnish written consent of other charge-
holder(s), if any, in form and substance acceptable to Exim
Bank, for excluding such assets from the scope of security
in its/their favour.
` (3) The rights of Exim Bank under the Security and the Security
Document's shall, save if exclusively created in its favour,
rank pari passu with the rights thereover of any co-financer
to the Project without any preference or priority of one
over the other or others of them for all purposes and to all
intents but shall however at all times during the currency
of the Security rank prior to the rights of other charge-
holder(s) under charge(s), if any, created or that may
hereafter be created by the Borrower for securing borrowings
for its working capital or other requirements unless
otherwise agreed by Exim Bank.
(4) If Exim Bank shall at any time be of the opinion that the
Security provided by the Borrower shall have become
inadequate to secure the discharge of its liabilities and
obligations as then outstanding under the Loan Agreement,
then the Borrower shall forthwith on demand by Exim Bank,
provide such additional security as may be acceptable to
Exim Bank within the period, if any, stipulated by Exim
Bank. In such event, the Borrower shall furnish to Exim Bank
written consent of prior charge-holder(s), if any,
permitting creation of such additional security in favour of
Exim Bank which shall rank in the order of priority required
by Exim Bank.
(5) The Borrower shall keep Exim Bank advised in writing from
time to time of all its acquisitions of immoveable
properties and fixed assets, and whenever called upon by
Exim Bank, make out a clear and marketable title thereto to
the satisfaction of Exim Bank and charge the properties and
assets in its favour in such form and manner and within such
time as may be required by Exim Bank.
5
<PAGE>
IX. Place and Mode of Payment by the Borrower
-----------------------------------------
(1) Any payment to be made by the Borrower to Exim Bank under the
Loan Agreement shall be made by means of telegraphic, telex or
mail transfer by cheque or bank draft drawn in favour of Exim
Bank on a bank at Mumbai or at such other place and for the
credit of such account as may be notified by Exim Bank, so as to
enable it to realise the amount at par on or before the relative
due date. Credit for all payments by cheque/bank draft which is
realised, shall be given on the date of realisation or on the
relative due date whichever is later.
(2) All payments by the Borrower hereunder shall be made free and
clear of _________ without deduction for or on account of (i) any
set-off or counter-claim or (ii) any present or future tax,
except as may be required by law.
(3) Whenever any payment hereunder shall become due on a day which is
not a Business Day, the due date thereof shall be advanced to the
immediately preceding Business Day and the amount (if any) of
interest and Fee shall be adjusted accordingly.
X. Representations and Warranties
------------------------------
Except as otherwise disclosed in writing to Exim Bank, the
Borrower shall be deemed to have made the following representations and
warranties, namely, that:
(i) the Borrower is a company duly organised and existing under
the laws of India and has all necessary corporate powers to
carry on its business, to avail of the Rupee Loan facility
and to enter into the Loan Agreement and each of the
documents thereby contemplated and to perform its
obligations hereunder and thereunder, and all corporate and
other actions required to authorise the execution of the
Loan Agreement and each of such documents and the
performance by the Borrower of its obligations hereunder and
thereunder have been duly taken;
(ii) the Borrower has not taken any corporate action nor have any
other steps been taken or legal proceedings been commenced
or (to the best of the Borrower's knowledge and belief)
threatened against the Borrower for its winding-up or
dissolution or reorganisation or for the appointment of a
receiver, trustee or similar officer of itself or of any of
its assets or revenues;
6
<PAGE>
(iii) the Borrower is not in breach of or default under any
agreement to which it is a party or which is binding on the
Borrower or any of its assets to an extent or in a manner
which, in the opinion of Exim Bank, might have a material
adverse effect on its business or financial condition;
(iv) the information furnished by the Borrower to Exim Bank in its
application for the Rupee Loan facility and in connection with
its business activities and the Project which shall be deemed
to be the basis on which the Rupee Loan facility shall have
been sanctioned, has remained true, complete and accurate in
all material respects and the Borrower is not aware of any
material facts or circumstances that have not been disclosed
to Exim Bank which, if disclosed, might adversely affect the
decision of a bank to provide similar facility to the
Borrower;
(v) the execution of the Loan Agreement and each of the documents
thereby contemplated when executed, the borrowings hereunder
and the performance by the Borrower of its obligations
hereunder and thereunder, will not constitute or result in
breach of any law, rule or regulation or contravene any
judgement, decree or order of any court or governmental
authority binding on the Borrower;
(vi) the obligations expressed to be assumed by the Borrower in the
Loan Agreement are, and in each of the documents thereby
contemplated when executed by the Borrower shall be, legally
valid obligations binding on the Borrower in accordance with
the terms hereof and thereof;
(vii) the Borrower is conducting its business and operations in
compliance with all applicable laws and directives of
governmental authorities having the force of law as also with
all applicable published guidelines and policy statements
whether or not having the force of law;
(viii) the Borrower has filed true, complete and timely tax returns
and has paid all taxes due in respect of its business
operations except to the extent where payment of such taxes is
being contested in good faith, adequate reserves having been
provided for the payment thereof;
(ix) nothing contained in the Loan Agreement conflicts with the
Memorandum and Articles of Association or any other
constitutional document of the Borrower or with any other
document to which the Borrower is a party or by which it is
bound;
(x) the Borrower has a good, clear and marketable title to all the
properties and assets ownership of which is reflected in its
most recent audited financial statements and the notes
thereto, and that all such properties and assets are free and
clear of mortgages, liens,
7
<PAGE>
charges and other encumbrances, save as reflected in the notes
to the audited financial statements or disclosed to Exim Bank;
(xi) no consent, approval, exemption or other action by, or notice
to or filing with any governmental authority is necessary in
connection with the execution, delivery, performance or
enforcement of the Loan Agreement or any of the documents
thereby contemplated, except as may have been obtained and
certified true copies of which have been delivered to Exim
Bank;
(xii) there are no suits, proceedings, claims or disputes pending or
threatened against or affecting the Borrower or any of its
properties and assets, the adverse determination of which, in
the opinion of the Exim Bank, might affect the Borrower's
financial condition or operations or impair its ability to
perform its obligations under the Loan Agreement or under any
of the documents thereby contemplated;
(xiii) the Borrower is not in breach or violation of any applicable
law, rule or regulation in force within or outside India
governing the implementation of the Project or utilisation of
the Rupee Loan facility or borrowings under the Loan
Agreement;
(xiv) no event has occurred and is continuing which is, or with the
lapse of time or notice or both, would constitute an Event of
Default;
(xv) all financial statements, information and data furnished by
the Borrower to Exim Bank are complete and correct and such
financial statements have been prepared in accordance with the
generally accepted accounting principles and practices in
India consistently applied and they accurately and fairly
present the financial condition and result of operations of
the Borrower as of the date thereof. Since the date of its
most recent financial statements, there has been no change in
the Borrower's financial condition or results of operations to
an extent as may impair the Borrower's ability to repay the
Rupee Loan on the Repayment Date(s) or to perform any other
obligation under the Loan Agreement in accordance with the
terms thereof. The Borrower has no contingent obligations,
liabilities for taxes or other outstanding financial
obligations which are material in the aggregate, except as
disclosed in such statements, information and data.
XI. Affirmative Covenants
---------------------
The Borrower covenants and agrees that so long as the Rupee Loan
and/or any other monies due and payable by the Borrower to Exim Bank under the
Loan Agreement shall remain unpaid, the Borrower will:
8
<PAGE>
(a) apply all moneys borrowed hereunder for the purpose for which
the Rupee Loan has been sanctioned by Exim Bank;
(b) (i) as soon as available but no later than 45 days after the
close of each quarter of its financial year furnish its
unaudited financial statements for such period to Exim Bank,
duly certified by an officer of the Borrower not below the
designation of company secretary or if Exim Bank shall so
require, by its managing director, as being complete and
correct and fairly representing its financial condition and
results of operation;
(ii) as soon as available but no later than 180 days after the
close of each financial year of the Borrower, furnish its
financial statements for the year then ended to Exim Bank,
audited and certified by an independent auditor acceptable to
Exim Bank. Such certificate shall not be qualified or limited
because of restricted or limited examination of such auditor
and shall be accompanied by a statement that, during such
examination, the auditor observed no evidence of an Event of
Default or any circumstances which upon lapse of time or
notice or both, would become an Event of Default, or a
statement that evidence of an Event of Default or any such
circumstances was found;
(iii) within 30 days after the end of each quarter of its financial
year, submit a status report on the Project in such form and
containing such information as Exim Bank may request, signed
by a responsible officer of the Borrower referred to in
paragraph (i) above;
(iv) furnish such other statements, lists of property, accounts,
budgets, projections, opinions, certificates, information
and/or other documents as Exim Bank may reasonably require;
(c) maintain adequate books of accounts and records in accordance
with generally accepted accounting principles and practices in
India consistently applied and permit employees or agents of
Exim Bank at all reasonable times to inspect its properties
and to examine or audit its books of accounts and records and
make copies and memoranda thereof;
(d) promptly give written notice to Exim Bank of:
(i) any litigation, arbitration or other proceedings commenced or
threatened against the Borrower including any application for
its winding-up, which if determined against the Borrower may
impair its ability to discharge its obligations under the Loan
Agreement;
(ii) any dispute between the Borrower and any governmental
authority or Project authority or between the Borrower and its
sub-contractor or supplier concerned with the Project;
9
<PAGE>
(iii) any Event of Default or any event which but for the giving of
notice or lapse of time or both would constitute an Event of
Default;
(iv) any event or incident such as strike, lock-out, fire or an act
of God or force-majeure, happened or likely to happen which
may disable or make it improbable for the Borrower to conduct
its business activities or to complete the Project or which
may delay its completion or cause cost escalation or compel
the Borrower to abandon the Project; and
(v) any other matter which has caused or might lead to a material
adverse change in the Borrower's financial condition or
operations, or adversely affect the observance and performance
of its obligations hereunder;
(e) obtain, maintain and promptly renew from time to time all
authorisations, approvals, consents, licences and exemptions
as may be required to enable it to perform its obligations
under the Loan Agreement or under the documents thereby
contemplated or as may be required for the validity or
enforceability thereof, or otherwise necessary for the
Project;
(f) maintain and preserve its corporate existence and all rights
and privileges enjoyed by it, conduct its business in an
orderly, efficient and customary manner, maintain and keep all
its properties in good working order and condition and fully
and effectively insured; comply with all laws, rules,
regulations and directions of any governmental authority non-
compliance of which may adversely affect its business or
assets, and discharge all its indebtedness and perform all
contractual obligations promptly pursuant to agreements to
which it is a party or by which it is bound;
(g) pay regularly all taxes, assessments, dues, duties and imposts
in respect of its business, income and immoveable properties,
including any tax payable on interest on the Rupee Loan;
(h) maintain personnel for implementation of the Project to the
satisfaction of Exim Bank, and whenever required, submit bio-
data and other relevant particulars of such personnel to Exim
Bank;
(i) regularly pay premia in respect of all its insurance policies
and keep the same in full force and effect and reimburse Exim
Bank for any premium paid by it;
(j) ensure that its payment obligations under the Loan Agreement
will at all times rank in right of payment at least pari passu
with all its other secured debts, whether now or hereafter
outstanding, and discharge its liabilities to Exim Bank
without preference or priority, to any other lender;
10
<PAGE>
(k) cause its promoters to meet any shortfall in resources or
costs overrun for completion of the Project or meeting any
increase in the cost of machinery to be acquired by means of
the Rupee Loan, on terms satisfactory to Exim Bank;
(l) constitute a project management committee of its directors and
representatives of lenders financing the Project, including
Exim Bank, for the purpose of supervising and monitoring the
progress of implementation as also operation of the Project.
XII. Negative Covenants
------------------
The Borrower further covenants and agrees that until full and final
payment by the Borrower of all its indebtedness under the Loan Agreement, it
shall not, without the prior written consent of Exim Bank:
(a) create any mortgage, charge, lien or other encumbrance in any
form whatsoever over any of its properties and assets
constituting the Security except a pari passu mortgage/charge
in favour of any term lender(s) who may have co-financed or
agreed to co-finance the Project;
(b) create, incur or assume any further indebtedness of any nature
whether for borrowed money or otherwise, except any
indebtedness for its working capital or otherwise arising out
of the ordinary course of business;
(c) enter into any merger/amalgamation or consolidation or sell,
lease or transfer all or a substantial portion of its
undertaking and/or assets otherwise than in the ordinary
course of business;
(d) effect any material change in composition of its board of
directors or in the management set-up or ownership of its
business;
(e) assume, guarantee, endorse or in any manner become directly or
contingently liable for or in connection with the obligation
of any person, firm, company or corporation except for
transactions in the ordinary course of business;
(f) amend its Memorandum and Articles of Association or alter its
capital structure or its shareholding pattern;
(g) alter the scope of the Project or undertake any
diversification, modernisation or expansion of its business
activities or set up a new project;
11
<PAGE>
(h) allow transfer/disposal of shareholding of any of the
promoters in its equity/quasi equity capital or permit
withdrawal of any subordinated loans or deposits obtained at
any time by the Borrower from its directors and their friends
and associates to finance a part of the cost of the Project or
the working capital requirements of the Borrower, or make
prepayment of any long-term debt;
(i) enter into any transaction with any person or entity otherwise
than in the ordinary course of business on usual commercial
terms or in which the Borrower would be obligated to pay more
than the nominal commercial price for any purchase or to
receive less than the full commercial price (subject to normal
trade discounts for its services);
(j) declare or pay any dividend or make any other distribution to
any of the shareholders if the Borrower shall be in default in
making any payment under the Loan Agreement, and then only out
of the profits of the then current financial year after making
necessary provisions.
XIII. Project Records and Inspection
------------------------------
So long as any part of the Rupee Loan shall remain outstanding, the
Borrower shall:
(a) maintain separate records showing expenditure incurred in
respect of the Project and the machinery, if any, acquired by
means of the Rupee Loan and the operations and financial
condition of the Borrower, and permit the authorised agents
and representatives of Exim Bank to carry out all technical
survey and inspections of works during the stage of setting-up
and operations of the Project as also inspection of the
records, registers and accounts of the Borrower. Such agents
and representatives of Exim Bank shall have free access at all
reasonable times to such records, registers and accounts and
to all schedules, cost estimates, plans and specifications
relating to such works, and they shall receive full co-
operation and assistance from the Borrower. The cost of such
inspection shall be payable by the Borrower forthwith on
receipt of a notice of demand from Exim Bank;
(b) forward to Exim Bank on demand a chart showing the actual
progress of the Project as compared to original schedule
together with percentage of completion of all major phases of
acquisition and/or construction/erection of equipment, plant
and machinery, and on completion of the Project, furnish to
Exim Bank a statement with various heads of expenditure
showing the final cost of the Project as compared to the
original estimate together with reasons for variation(s), if
any.
12
<PAGE>
XIV. Other conditions to apply during the currency of the Rupee Loan
---------------------------------------------------------------
(1) (i) Exim Bank shall be entitled to appoint any person, firm, company
or association of persons engaged in technical, management or
consultancy business or any chartered accountant/cost accountant for
carrying out any specific assignment to supervise and monitor progress
of the Project, examine systems and procedures adopted by the Borrower
for its working or to act as its concurrent or internal auditors or
for conducting a special audit of the Borrower. Such
consultants/accountants shall give their report to Exim Bank.
(ii) The Borrower shall give full co-operation and provide necessary
assistance to the person or firm so appointed by Exim Bank in
carrying out his/their assignment. The costs, charges and
expenses including professional fees and travelling and other
expenses of and incidental to such appointment shall be payable
by the Borrower and shall be reimbursed to Exim Bank forthwith on
receipt of a notice of demand in this behalf.
(2) Exim Bank shall also have the right to review the management set-up of
the Borrower and if found necessary, to require restructuring thereof
including the formation of committees or sub-committees of the
management of the Borrower with such powers, authorities and functions
as shall be considered desirable by Exim Bank.
(3) The Borrower shall not avail of any double finance from any source in
respect of the same expenditure being financed by Exim Bank hereunder
nor shall it avail of any additional finance in respect of the Project
from any undisclosed source without the prior written consent of Exim
Bank.
(4) Without in any way affecting the Borrower's obligations hereunder,
Exim Bank shall be entitled to apply, set-off and appropriate, at its
discretion and without reference to the Borrower, any moneys belonging
to the Borrower or lying at credit in any account of the Borrower with
Exim Bank or to which it may otherwise be entitled, (so far as the
same may extend) in or towards reimbursement/payment of any amount
payable by the Borrower under the Loan Agreement, and to the extent
that such monies may be denominated in a foreign currency, to apply
monies in such foreign currency to the extent as shall on the date of
such application, set-off or appropriation, be equivalent of the
amounts due hereunder, and for the purpose, also to obtain approvals,
consents and permissions from all competent authorities as may be
necessary in this behalf.
(5) All other conditions stipulated in the Letter of Sanction or
subsequently imposed by Exim, Bank shall continue to remain applicable
to the Rupee
13
<PAGE>
Loan as if each of them were repeated in extenso herein and
accordingly, the Borrower shall also be liable to observe and perform
all such conditions.
XV. Cancellation, Suspension & Termination
--------------------------------------
(1) Cancellation by Notice to Exim Bank
The Borrower may, by a notice in writing to Exim Bank, cancel the
Rupee Loan facility or any part thereof which the Borrower may not have availed
of prior to the Termination Date.
(2) Suspension
Access by the Borrower to drawal of the Rupee Loan or any part thereof
may be suspended without Prejudice to Exim Bank's right of termination:
(a) if an Event of Default shall have happened; or
(b) if any change in the Borrower's set-up shall have taken place,
which in the opinion of Exim Bank (which shall be final and
binding on the Borrower), may adversely affect the conduct of the
Borrower's business or its financial position or the efficiency
of the Borrower's management or personnel or completion of the
Project.
(3) Suspension to Continue till Default Remedied
The right of the Borrower to make drawal of the Rupee Loan shall
continue to be suspended until the event which gave rise to such suspension has
ceased to exist to the satisfaction of Exim Bank, and Exim Bank shall have
notified the Borrower that its right to make drawal has been restored.
(4) Termination
If any of the events specified hereinabove shall have happened as may
entitle Exim Bank to suspend drawal of the Rupee Loan, then Exim Bank may at its
option, by a notice in writing to the Borrower, terminate the Borrower's right
to make any drawal of the Rupee Loan. Upon such notice, the unavailed portion
of the Rupee Loan facility shall stand cancelled.
(5) Notwithstanding any cancellation, suspension or termination pursuant
to the aforesaid provisions, all the provisions of the Loan Agreement
shall continue to be in full force and effect as therein specifically
provided.
14
<PAGE>
XVI. Acceleration of Repayment
-------------------------
(1) If any of the Events of Default specified in sub-Section (2) shall
have happened and be continuing for a period of 30 days from the date
of its happening without being remedied to the satisfaction of Exim
Bank, the decision of Exim Bank as to whether any Event of Default
shall have happened and/or been continuing being final and binding on
the Borrower, then Exim Bank may, by a notice in writing to the
Borrower, declare the unpaid principal amount of and all accrued
interest on the Rupee Loan (together with other monies payable under
the Loan Agreement) to become immediately due and payable whereupon
the whole of the outstanding principal amount of the Rupee Loan and
accrued interest thereon as also all other monies accrued or payable
thereunder as mentioned in such notice shall, notwithstanding anything
to the contrary contained in the Loan Agreement, become immediately
due and payable without any presentment, demand, protest or notice of
any kind whatsoever, all of which are hereby expressly waived by the
Borrower, and the Security created in favour of Exim Bank shall become
enforceable.
(2) Events of Default
(a) Default shall have occurred in the payment of any principal
amount of the Rupee Loan or any interest thereon, when due.
(b) Default shall have occurred in the performance of any other
obligation of the Borrower under the Loan Agreement or under any
other agreement between the Borrower and Exim Bank.
(c) Any breach or default shall have occurred under any other
agreement involving the borrowing of money or the extension of
credit under which the Borrower may be obligated as a borrower or
guarantor, if such default shall permit or cause termination of
any commitment to lend or acceleration of any indebtedness or if
such default shall consist of the failure on the part of the
Borrower to pay any indebtedness or any instalment thereof when
due.
(d) Any breach or default shall have occurred in the observance or
performance of any obligation by a guarantor or surety or any
other person liable for the Borrower, under any agreement or
document furnished to or executed in favour of Exim Bank in
respect of the Rupee Loan facility.
(e) Any representation or warranty contained herein or in the
application for sanction of the Rupee Loan facility or in any
other agreement or document executed pursuant to the Loan
Agreement shall prove to have been false, incomplete or
misleading in any material respect when made or deemed to have
been made.
15
<PAGE>
(f) Any licence, consent, approval or exemption of any competent
authority as may be necessary for the Project or otherwise
required for the validity, enforceability or legality of the
Rupee Loan Agreement, Security, or any of the Security Documents
or for the performance hereof or thereof, shall be revoked,
withheld or materially modified or shall otherwise not be renewed
or fail to remain in full force and effect and such circumstances
shall remain unremedied for a period of fourteen (14) days from
the date of commencement thereof.
(g) The Borrower shall fail to pay or shall admit in writing its
inability to pay its debts as they mature or shall declare a
general moratorium on payment of its debts or shall enter into a
composition or arrangement with or make a general assignment for
the benefit of its creditors.
(h) A petition shall have been presented in a court of competent
jurisdiction for the winding-up, liquidation or dissolution of
the Borrower or any similar or analogous proceedings shall have
been taken.
(i) A receiver or liquidator shall be appointed of all or any part of
the undertaking of the Borrower.
(j) Any attachment or distraint shall be levied on the properties or
assets of the Borrower or any part thereof or certificate
proceedings shall be taken or commenced for recovery of any dues
from the Borrower or any decree or judgement for money, damages
or for a fine or penalty in excess of Rs. 1,00,000/- shall be
entered against the Borrower, and not paid and discharged or
stayed within 30 days.
(k) All or a substantial part of the undertaking or assets of the
Borrower shall be seized, nationalised, confiscated,
expropriated, requisitioned or compulsorily purchased by or under
authority of any government or its agency or shall be disposed of
without the prior written consent of Exim Bank at less than full
market value thereof.
(l) A strike, lock-out or lay-off shall occur with respect to the
Project or the Borrowers business or its contractors/suppliers or
an extraordinary situation shall occur which in the opinion of
Exim Bank shall make it improbable for the Borrower to perform or
observe its obligations in the normal course under the Loan
Agreement or under any other document delivered in connection
therewith.
(m) The right of the Borrower to make drawal of the Rupee Loan shall
be terminated by Exim Bank pursuant to the provisions of the Loan
Agreement.
(n) Any breach or default not specifically referred to above in this
sub-Section shall have occurred and such breach or default shall
16
<PAGE>
continue without being remedied to Exim Bank's satisfaction for a
period of 30 days after Exim Bank shall have given a written
notice thereof to the Borrower.
(3) If any Event of Default or any event which, after notice or lapse of
time, or both would constitute an Event of Default, shall have
happened and been continuing for a period of 30 days from the date of
its occurrence, the Borrower shall forthwith give notice thereof to
Exim Bank in writing specifying the nature of such Event of Default or
of such event.
(4) All expenses incurred by Exim Bank, after an Event of Default shall
have occurred in connection with preservation of the Borrower's assets
and collection of amounts due under the Loan Agreement shall be
forthwith payable by the Borrower, and until payment, shall carry
interest at the Interest Rate besides additional interest by way of
liquidated damages at the rate provided in the Loan Agreement.
XVII. Reimbursement of Costs and Expenses
-----------------------------------
(1) The Borrower shall be liable to pay stamp duty, registration charges,
duties and taxes, if any, at any time payable on the Loan Agreement,
the Security and the Security Documents, as also interest/penalty for
any delay or default in making such payment, and shall within 30 days
from the date of notice of demand from Exim Bank, pay to or as the
case may be, reimburse Exim Bank for all such sums of money and costs,
charges and expenses paid or incurred by Exim Bank in connection
therewith and for the preparation, negotiation, execution and
performance of this Agreement and the documents thereby contemplated
as also for the protection and preservation of the Security and for
actual or attempted enforcement thereof. All such sums shall, whether
or not debited to the Borrower's account with Exim Bank, carry
interest from the date of incurring of the expenditure by Exim Bank
till reimbursement, at the Interest Rate besides additional interest
by way of liquidated damages at the rate provided in the Loan
Agreement.
(2) The Borrower agrees to indemnify Exim Bank from and against all
losses, claims, demands, damages, liabilities, costs (legal costs on a
full indemnity basis), charges and expenses of any nature whatsoever,
which Exim Bank may suffer, pay, incur or be put to in the premises by
reason of any default on the part of the Borrower under the Loan
Agreement or the Security Documents or otherwise howsoever.
17
<PAGE>
XVIII. Miscellaneous
-------------
(1) Evidence of Debt
(a) Exim Bank shall maintain, in accordance with its usual
practice, a Rupee Loan account in the name of the Borrower
evidencing inter alia the amount(s) from time to time lent
by and owing to Exim Bank and interest and other moneys
payable under the Loan Agreement as also amount(s) received
or recovered by it.
(b) In any legal proceedings arising out of or in connection
with the Loan Agreement, the entries made in the Rupee Loan
account maintained as aforesaid shall be prima-facie
evidence of the existence of the liability of the Borrower
as therein recorded.
(2) Partial Invalid ity
If at any time, any provision of the Loan Agreement shall become
illegal, invalid or unenforceable in any respect under the law of any
jurisdiction, then neither the legality, validity or enforceability of the
remaining provisions thereof nor the legality, validity or enforceability of
such provision under the law of any other jurisdiction shall in any way be
thereby affected or impaired.
(3) Waiver
No delay in exercising or omission to exercise any right, power or
remedy accruing to Exim Bank upon any default under the Loan Agreement, Security
Documents or any other agreement or document executed pursuant thereto, shall
impair any such right, power or remedy or shall constitute a waiver thereof or
of any obligation of the Borrower hereunder or thereunder or be construed as an
acquiescence in such default, nor shall the action or inaction of Exim Bank in
respect of any default or any acquiescence by it in any default, affect or
impair any right, power or remedy of Exim Bank in respect of any other default.
The rights and remedies provided in the Loan Agreement are cumulative and not
exclusive of any rights and remedies to which Exim Bank shall otherwise be
entitled.
(4) Jurisdiction
(a) The parties hereto agree that any legal action or
proceedings in connection with this Agreement or the Rupee
Loan or for
18
<PAGE>
enforcement of the Security may be brought in the courts/tribunals
at Mumbai, and by execution and delivery of this Agreement, the
Borrower hereby unconditionally and irrevocably submits to and
accepts with regard to any such action or proceedings for itself
and in respect of its properties, the jurisdiction of the
courts/tribunals at Mumbai.
(b) The submission by the Borrower to such jurisdiction, however,
shall not (and shall not be construed so as to) limit the right of
Exim Bank to take any legal action or proceedings against the
Borrower in any other jurisdiction nor shall the taking of any
legal action or proceedings by Exim Bank in any one or more
jurisdiction preclude the taking of legal action or proceedings in
any other jurisdiction, whether or not concurrently.
(c) The Borrower, hereby irrevocably waives any objection which it may
now or hereafter have to the laying of the venue of any such legal
action or proceedings in a court/tribunal located at Mumbai, or at
the election of Exim Bank, in any other court/tribunal having
jurisdiction, and hereby further irrevocably waives any claim that
such legal action or proceedings brought in any such
court/tribunal has been brought in an inconvenient forum.
(5) Certification by Exim Bank
Where pursuant to any provision of the Loan Agreement, Exim Bank may
certify or determine a rate of interest or an amount to be payable by the
Borrower or any other matter, such certificate or determination shall be
conclusive and binding on the Borrower in the absence of manifest error.
(6) Language
The Loan Agreement shall be executed also in Hindi language. In the
event of any inconsistency in the provisions of the English and the Hindi
versions of the Loan Agreement, the document in the English language shall
prevail.
(7) Benefit of the Loan Agreement
The Loan Agreement shall be binding upon and enure to the benefit of
each party thereto and its successors and assigns provided however that the
Borrower shall not be entitled to assign or transfer any of its rights, benefits
or obligations hereunder. An assignment, transfer or sub-participation by Exim
Bank of all or a part of its rights and obligations hereunder shall be effective
and binding on the Borrower.
19
<PAGE>
(8) Service of Notice
Any notice or communication to be given or made to Exim Bank or to the
Borrower shall be in writing. Such notice or communication shall be deemed to
have been given or made when it shall be delivered by hand or despatched by mail
or transmitted by telegram, telex or fax to the party to which it is required to
be given or made at such party's address mentioned in the Agreement or at such
other address as such party shall have notified in writing to the party sending
notice or communication.
20
<PAGE>
EXHIBIT 4.6
SATYAM INFOWAY LIMITED
Maansarovar Towers
271-A, Anna Salai, Teynampet
Chennai - 600 018
India
September 14, 1999
Sterling Commerce, Inc.
4600 Lakehurst Court
Dublin, Ohio 43106
Gentlemen:
Satyam Infoway Limited, a limited liability company under the laws of
the Republic of India (the "Company"), hereby agrees with you as follows:
-------
SECTION 1. PURCHASE AND SALE OF EQUITY SHARES
1.1 Issue of Equity Shares
----------------------
On or before the Closing Date (as hereinafter defined), the Company
will have authorized the issuance of 481,000 of its equity shares, par value
Rs.10 per share (the "Equity Shares"), in accordance with the applicable
-------------
provisions of the Company's Memorandum and Articles of Association and the
Companies Act, 1956 of India.
Capitalized terms used in this agreement (the "Agreement") without
---------
definition shall have the meanings specified in Section 5 hereof.
Each Equity Share to be purchased by you will be dated as provided in
Section 1.2 hereof.
1.2 Sale and Purchase of the Equity Shares; the Closing
---------------------------------------------------
In reliance upon the representations made in Section 1.3 hereof and
subject to the terms and conditions set forth herein and in the other Documents,
the Company hereby agrees to sell to you 481,000 Equity Shares at a purchase
price equal to Five Million U.S. Dollars ($5,000,000.00). In reliance upon the
representations and warranties of the Company contained herein and in the other
Documents, and subject to the terms and conditions set forth herein and therein,
you hereby agree to purchase such Equity Shares from the Company.
The sale and purchase of the Equity Shares shall take place at a
closing (the "Closing") at the offices of the Company, as identified above, on
-------
September 14, 1999 or such other business day as may be agreed upon by you and
the Company (the "Closing Date"). At the
------------
<PAGE>
Closing, upon receipt by the Company of the full purchase price of the Equity
Shares subscribed for hereunder by intra-bank or federal funds bank wire
transfer of same day funds to such bank account as the Company shall designate
at least two business days prior to the Closing, the Company will deliver to you
the Equity Shares to be purchased by you (in such permitted denomination or
denominations and registered in your name or the name of such nominee or
nominees (not to exceed ten (10) in number) as you may request).
If at the Closing any of the conditions to the Closing specified in
this Agreement shall not have been fulfilled to your reasonable satisfaction or
if the Closing fails to occur on or before November 13, 1999 due to no fault of
your own, you shall, at your election and notwithstanding anything to the
contrary in this Agreement, be relieved of all further obligations under this
Agreement without thereby waiving any rights you may have by reason of such
nonfulfillment or failure. Nothing in this Section 1.2 shall operate to relieve
the Company from any of its obligations under this Agreement.
You hereby waive any and all preemptive rights, as a holder of Equity
Shares, to purchase additional Equity Shares in the proposed initial public
offering in the United States of American Depositary Shares and related
transactions (the "IPO").
---
1.3 Purchaser Representations; Source of Funds
------------------------------------------
(a) You represent that you are purchasing the Equity Shares solely for
your own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof or any
other jurisdiction, without prejudice, however, to your right at all times to
sell or otherwise dispose of all or any part of such Equity Shares pursuant to a
registration statement under the Securities Act or pursuant to an exemption from
the registration requirements of the Securities Act.
You further represent that you are knowledgeable, sophisticated and
experienced in business and financial matters; that you have previously invested
in restricted securities issued by private companies and fully understand the
limitations on transfer described in Section 1.3(b) hereof and the restrictions
on sales and other dispositions in this Agreement and the other Documents; that
you are knowledgeable about the Company's business; that you are able to bear
the economic risk of investment in the Equity Shares and are presently able to
afford the complete loss of such investment; that you are an "accredited
investor" as defined in Regulation D promulgated under the Securities Act; and
that you have been afforded access to information about the Company and the
Company's financial condition, results of operations, business, property,
management and prospects sufficient to enable you to evaluate your investment in
the Equity Shares, including, without limitation, financial statements as of
March 31 and June 30, 1999. You acknowledge that you have conducted your own
analysis of the Company's financial condition and other foregoing factors which
is the basis for your decision to purchase the Equity Shares.
(b) If you desire to sell or otherwise dispose of all or any part of
the Equity Shares in a transaction which invokes the jurisdiction of the United
States federal securities laws and in reliance upon an exemption from
registration under the Securities Act, if requested by the
2
<PAGE>
Company, you will deliver to the Company an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that an exemption from
registration under the Securities Act is available. Upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Securities Act, the Equity Shares (and in each
case all securities issued upon conversion thereof, in exchange therefor, or in
substitution thereof) shall bear the legend set forth in the Stockholders
Agreement.
(c) You represent that no part of the funds to be used to purchase the
Equity Shares to be purchased by you constitutes assets allocated to any trust
which contains the assets of any employee pension benefit plan with respect to
which the Company or any corporation considered an affiliate of the Company
within the meaning of Section 407(d)(7) of ERISA is a party in interest or
disqualified person. The representation made by you in the preceding sentence
is made in reliance upon your review of the list of employee pension benefit
plans provided by the Company. As used in this Section 1.3(c), the terms
"employee pension benefit plan," "separate account" and "party in interest"
shall have the meanings assigned to such terms in Section 3 of ERISA and the
terms "disqualified person" and "prohibited transaction" shall have the meanings
assigned to such terms in Section 4975 of the Code.
(d) You are a Delaware corporation, and your primary place of business
is Ohio.
1.4 Ordinary Course
---------------
During the period from the date hereof to the Closing Date, the
Company shall conduct its business only in the ordinary course and consistent
with past practice, other than IPO.
1.5 Further Action
--------------
During the period from the date hereof to the Closing Date, the
Company shall use its reasonable best efforts, and shall take all action
necessary or appropriate (including, without limitation, the execution of an
amendment to the Company's Articles of Association), to consummate the
transactions contemplated hereby, including obtaining all licenses, consents,
approvals or other authorizations of any governmental entity or regulatory body,
and to cause its representations and warranties contained in Section 4 hereof to
be true as of the Closing Date, after giving effect to the transactions
contemplated by this Agreement, as if made on and as of such date.
SECTION 2. PURCHASER CLOSING CONDITIONS
----------------------------
Your obligation to purchase and pay for the Equity Shares shall be
subject to the satisfaction of the following conditions on or before the Closing
Date:
2.1 Representations and Warranties True
-----------------------------------
The representations and warranties of the Company contained in Section
4 hereof qualified as to materiality shall be true, and those not so qualified
shall be true in all material
3
<PAGE>
respects, in each case at and as of the Closing Date (unless they purport to be
as of a different date), after giving effect to the transactions contemplated by
this Agreement, as if made on and as of such date.
2.2 Compliance with this Agreement
------------------------------
The Company shall have performed and complied in all material respects
with all agreements, covenants and conditions contained herein, in the other
Documents and any other document contemplated hereby or thereby which are
required to be performed or complied with by the Company on or before the
Closing Date.
2.3 Officer's Certificate
---------------------
You shall have received a certificate or certificates, dated the
Closing Date and signed by the Chief Executive Officer or Chief Financial
Officer of the Company, certifying that the conditions set forth in Sections 2.1
and 2.2 hereof are satisfied on and as of such date.
2.4 Proceedings Satisfactory
------------------------
All proceedings taken in connection with the sale of the Equity
Shares, the transactions contemplated hereby, and all documents and papers
relating thereto, shall be reasonably satisfactory to you. You and your counsel
shall have received copies of such documents and papers as you or they may
reasonably request in connection therewith, all in form and substance
satisfactory to you. Any document annexed to this Agreement or any other
document contemplated by this Agreement not approved by you in writing as to
form and substance on the date this Agreement is executed shall be reasonably
satisfactory in form and substance to you.
2.5 Stockholders Agreement and Other Documents
------------------------------------------
The Stockholders Agreement and the other Documents shall have been
entered into by the parties thereto, and you shall have received an original,
duly executed by the parties thereto, of the Stockholders Agreement. All other
agreements entered into by the Company on or prior to the Closing Date and the
certificates representing the Equity Shares shall be in form and substance
reasonably satisfactory to you, and originals or copies of such agreements shall
be provided to you.
2.6 Governmental Approvals
----------------------
The Company shall have received all Government of India and any other
approvals of any governmental or regulatory body required in connection with the
transactions contemplated by this Agreement and the other Documents.
SECTION 3. COMPANY CLOSING CONDITIONS
--------------------------
The Company's obligation to issue and sell to you the Equity Shares
shall be subject to the satisfaction of the following conditions on or before
the Closing Date:
4
<PAGE>
3.1 Representations and Warranties True
-----------------------------------
Your representations and warranties contained in Section 1.3 hereof
qualified as to materiality shall be true, and those not so qualified shall be
true in all material respects, in each case at and as of the Closing Date
(unless they purport to be as of a different date), after giving effect to the
transactions contemplated by this Agreement, as if made on and as of such date.
3.2 Compliance with this Agreement
------------------------------
You shall have performed and complied in all material respects with
all agreements, covenants and conditions contained herein, in the other
Documents and any other document contemplated hereby or thereby which are
required to be performed or complied with by the Company on or before the
Closing Date.
3.3 Stockholders Agreement and Other Documents
------------------------------------------
The Stockholders Agreement and the other Documents shall have been
entered into by the parties thereto, and the Company shall have received an
original, duly executed by the parties thereto, of the Stockholders Agreement.
3.4 Governmental Approvals
----------------------
The Company shall have received all Government of India and any other
approvals of any governmental or regulatory body required in connection with the
transactions contemplated by this Agreement and the other Documents.
SECTION 4. REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants as follows:
4.1 Due Incorporation and Authorization; Capitalization
---------------------------------------------------
(a) The Company is a deemed public company and is duly incorporated
and validly existing and in good standing under the laws of India and has power
to own its properties and assets, to carry on its businesses as presently
conducted or proposed to be conducted, to enter into and perform its obligations
under this Agreement and the other Documents and to allot and issue the Equity
Shares to be issued pursuant to this Agreement. The Memorandum and Articles of
Association which have been furnished to you are correct and complete as of the
date hereof. The Company is not in violation of any term of its Memorandum or
Articles of Association. The Company has taken all necessary action to
authorize the execution of this Agreement and the other Documents.
(b) The authorized share capital of the Company is 25,000,000 Equity
Shares. As of the Closing Date, 15,750,000 Equity Shares, options to purchase
5,000 Equity Shares and warrants to purchase 750,000 Equity Shares are issued
and outstanding. Except as previously set
5
<PAGE>
forth above, the Company has not issued or agreed to issue and is not obligated
to issue any warrants, options or other rights to purchase or acquire any shares
of its capital stock, other than the IPO. All preemptive rights of existing
stockholders have been duly disapplied for the purposes of permitting the
allotment and issuance of Equity Shares to you under this Agreement.
(c) All securities issued by the Company prior to the date hereof have
been issued in transactions which comply with applicable securities laws,
including, to the extent applicable, the Securities Act.
4.2 Financial Statements
--------------------
The report and financial statements of the Company for the period
ended March 31, 1999 and June 30, 1999 have been prepared in accordance with
generally accepted accounting principles and practices as applicable in the
United States consistently applied, are consistent with the Company's books and
records and give a true and fair view of the financial condition, assets and
liabilities of the Company as of such date, and since June 30, 1999 the Company
has conducted its business in the ordinary course and consistent with past
practices and there has been no material adverse change in the financial
condition or the business, assets, operations or prospects of the Company.
Except as and to the extent reflected or reserved against in the Company's
financial statements for the period ended June 30, 1999 or as incurred in the
ordinary course of business, since the date thereof the Company does not have
and is not subject to any material liability or obligation of any nature which
is required to be set forth in its financial statements, whether accrued,
absolute, contingent or otherwise.
4.3 Due Execution and Delivery
--------------------------
This Agreement and the other Documents have been duly executed and
delivered by the Company, constitute legal, valid and binding obligations of the
Company and are enforceable in accordance with their respective terms.
4.4 No Violation
------------
Neither the execution and delivery of this Agreement or the other
Documents nor the compliance with the terms thereof will violate (a) the
Company's Memorandum and Articles of Association Company, (b) any of the terms,
conditions or provisions of, or constitute a default or require any consent
under, any indenture, agreement or other instrument to which the Company is a
party or by which it is bound or violate any of the terms or provisions of any
judgment, decree or order or any statute, rule or regulation applicable to the
Company or (c) result in a violation of, or constitute a default under, any
provision of any law regulation or rule applicable to the Company, except in the
case of clause (b) or (c) any such violations which are not material to the
business or financial condition of the Company.
6
<PAGE>
4.5 Absence of Breach
-----------------
The Company is not in breach of, or in default under, any agreement,
including without limitation, any financing agreement, to which it is a party or
by which it is bound to an extent or in a manner which could reasonably be
expected to have a Material Adverse Effect.
4.6 Consents
--------
All permissions, licenses, consents, registrations and authorizations
and other approvals for the time being required under the laws of India or any
other jurisdiction or of any third party to authorize the allotment and issue of
Equity Shares under this Agreement and for the validity or enforceability of
this Agreement and the other Documents and the consummation of the transactions
contemplated hereby and thereby, have been obtained and are in full force and
effect.
4.7 Litigation
----------
The Company is not engaged in any significant litigation or
arbitration proceeding and is not aware of any facts likely to give rise to any
significant litigation or arbitration proceedings.
4.8 Immunity
--------
In any proceedings in the Company's jurisdiction of incorporation in
relation to this Agreement, the Company will not be entitled to claim for itself
or any of its assets immunity from suit, execution, attachment or other legal
process.
4.9 No Default
----------
The Company is not in default in the payment of any due and payable
taxes, interest or penalties, or in the filing, registration or recording of any
document or in breach of any legal or statutory obligation or requirement of the
Company.
4.10 Required Filings
----------------
Except as required by the laws of India and disclosed to you, it is
not necessary or advisable that this Agreement be filed, registered, recorded or
enrolled with any court, public office or other authority in any jurisdiction or
that any documentary, registration or similar tax or duty be paid on or in
relation to any such Agreement. To the extent that any such amounts are payable
(including stamp duties required by Indian law), the Company covenants that such
amounts shall be paid by it and that duly stamped copies of the Documents shall
be provided to you.
7
<PAGE>
4.11 Intellectual Property
---------------------
Except as set forth on Schedule 4.11, to the best of the Company's
knowledge, the Company has good title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others. Except as set forth on Schedule 4.11, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. To the best of the Company's knowledge, (a) the Company
has not violated and, by conducting its business as proposed, will not violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity and (b) no
other Person has violated or is violating any of the Company's intellectual
property rights to a material extent.
4.12 Hardware and Software; Year 2000 Compliance
-------------------------------------------
(a) The Hardware has been satisfactorily maintained and supported and
has the benefit of an appropriate maintenance and support agreement. The Company
has sufficient technically competent and trained employees to ensure proper
handling, operation, monitoring and use of its computer systems. Disaster
recovery plans are in effect and are adequate to ensure that the Hardware,
Software and data can be replaced or substituted without material disruption to
the business of the Company. The Company has adequate procedures to ensure
internal and external security of the Hardware, Software and Data, including
(without limitation) procedures for preventing unauthorized access, preventing
the introduction of a virus, taking and storing on-site and off-site back-up
copies of Software and Data.
(b) All Hardware, Software, Software Products and other equipment used
by the Company are Year 2000 Compliant, except as would not reasonably be
expected to have a Material Adverse Effect.
4.13 Affiliate Transactions
----------------------
Since June 30, 1999 there has been no Affiliate Transaction in excess
of U.S.$60,000.
4.14 Disclosure
----------
This Agreement and the other Documents and each certificate, document,
agreement, report or instrument referred to in the Schedules, taken as a whole,
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
8
<PAGE>
SECTION 5. INDEMNIFICATION
----------------
5.1 Indemnification by the Company
------------------------------
Subject to Section 5.3, the Company agrees to indemnify and hold
harmless you, your officers and directors and each person, if any, who controls
you within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and judgments relating to or arising from the untruth, inaccuracy or breach of a
representation contained in Section 4 of this Agreement or from the breach of
any covenant or agreement on the part of the Company under this Agreement,
except that the obligation of the Company under this Section 5.1 with respect to
such losses, claims, damages, liabilities and judgments shall not exceed the
purchase price for the Equity Shares purchased by you.
5.2 Indemnification by the Purchaser
--------------------------------
Subject to Section 5.3, you agree to indemnify and hold harmless the
Company, the Company's officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages,
liabilities and judgments relating to or arising from the untruth, inaccuracy or
breach of a representation contained in Section 1.3 of this Agreement or from
the breach of any covenant or agreement on your part under this Agreement,
except that your obligation under this Section 5.2 with respect to such losses,
claims, damages, liabilities and judgments shall not exceed the purchase price
for the Equity Shares purchased by you.
5.3 Limitation of Rights; Termination
---------------------------------
Neither you nor the Company shall have any rights under this Section 5
with respect to any claim for which written notice is not delivered to the other
party prior to the date on which the IPO is consummated. Except with respect to
claims for which written notice is delivered to the other party prior to the
date on which the IPO is consummated, all obligations of the parties under this
Section 5 shall terminate upon consummation of the IPO.
SECTION 6. DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Affiliate: With respect to any specified Person, any other Person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. Without limiting the
foregoing, (i) all directors and officers of a Person that is a corporation, and
all managing members of a Person that is a limited liability company, shall be
deemed Affiliates of such Person for all purposes hereunder, and (ii) in the
case
9
<PAGE>
of an individual, Affiliate shall include (a) members of such specified Person's
immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K
under the Securities Act) and (b) trusts, the trustee and all beneficiaries of
which are such specified Person or members of such Person's immediate family as
determined in accordance with the foregoing clause (a).
"Affiliate Transaction" shall mean (i) any sale, lease, transfer or
---------------------
other disposition by the Company or its subsidiaries of any of their respective
properties or assets to, (ii) any purchase of property or assets by the Company
or its subsidiaries from, (iii) any investment by the Company or its
subsidiaries in, (iv) any agreement (including without limitation, the Company's
Memorandum and Articles of Association, and including any amendments,
supplements or any other modifications to such agreements) by the Company or its
subsidiaries with or for the benefit of, or (v) any other transaction between
the Company or its subsidiaries with SCSL, any of its Affiliates or any other
Affiliate of the Company.
Agreement: See Section 1.1.
---------
Amendment: Amendment 3 to Electronic Commerce Provider Agreement of
---------
even date herewith by and among you, Sterling Commerce International, Inc. and
the Company.
Closing: See Section 1.2.
-------
Closing Date: See Section 1.2.
------------
Code: The Internal Revenue Code of 1986, as amended from time to
----
time, and any successor statute or law thereto.
Company: Satyam Infoway Limited, a limited liability company under
-------
the laws of the Republic of India, registered with the registrar of companies in
Andhra Pradesh and having its registered office at IInd Floor, Mayfair Centre,
1-8-303/36, S.P. Road, Secunderabad - 500 003, India.
Documents: This Agreement, the Stockholders Agreement, the
---------
Registration Rights Agreement, the Amendment and the Equity Shares.
Encumbrance: Any interest or equity of any persons (including any
-----------
right to acquire, option or preemptive right); any mortgage, charge, pledge,
lien, assignment, hypothecation, security interest (including any created by
law), title retention or other security or agreement; and any rental, hire
purchase, credit sale or other agreement for payment on deferred terms.
Equity Shares: See Section 1.1.
-------------
Exchange Act: The U.S. Securities Exchange Act of 1934, as amended
------------
from time to time, and any successor statute or law thereto.
10
<PAGE>
ERISA: The U.S. Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute or law thereto.
GAAP: Those generally accepted accounting principles and practices
----
which are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or by the Financial
Accounting Standards Board or through other appropriate boards or committees
thereof and which are consistently applied for all periods after the date hereof
so as to properly reflect the financial conditions, and the results of
operations and cash flows, of the Company and its consolidated Subsidiaries,
except that any accounting principle or practice required to be changed by the
Accounting Principles Board or Financial Accounting Standards Board (or other
appropriate board or committee of such boards) in order to continue as a
generally accepted accounting principle or practice may so be changed.
Hardware: Any computer equipment used by or for the benefit of the
--------
Company at any time including, without limitation, parts of computer equipment
such as firmware, screens, terminals, keyboards, disks and including without
limitation, cabling and other peripheral and associated electronic equipment but
excluding all software.
IPO: See Section 1.4.
---
Lien: Any material mortgage, pledge, lien, encumbrance, charge or
----
adverse claim affecting title or resulting in a charge against real or personal
property, or security interest of any kind (including, without limitation, any
conditional sale or other title retention agreement; provided however, that the
term Lien shall not include (i) liens for taxes or other governmental charges
not yet due and owing, and those being contested in good faith by appropriate
proceedings and as to which adequate reserves have been made on the books of the
Company; (ii) mechanics', materialmans', carriers', landlords', and other
similar liens arising in the ordinary course of business for sums not yet due
and owing, and those being contested in good faith by appropriate proceedings;
and (iii) deposits or pledges to secure the performance of bids tenders,
contracts (other than for borrowed money), leases, statutory obligations,
surety, fidelity, and appeal bonds, or other deposits or pledges for purposes of
a general nature incurred in the ordinary course of business).
Material Adverse Effect: (i) Any material adverse effect whatsoever
-----------------------
upon the validity, perfection or enforceability of any Document, the Equity
Shares, (ii) any material adverse effect on the results of operations, financial
condition, properties, assets, business or prospects of the Company, or (iii)
any material adverse effect on the ability of the Company to fulfill its
obligations under the Documents, the Equity Shares or any document contemplated
hereby or thereby.
Person: An individual, partnership, corporation, limited liability
------
company, trust or unincorporated organization or a government or agency or
political subdivision thereof.
Registration Rights Agreement: The Registration Rights Agreement of
-----------------------------
even date herewith by and between the Company and you.
11
<PAGE>
SCSL: Satyam Computer Services Limited, the Company's parent.
----
Securities Act: The U.S. Securities Act of 1933, as amended from time
--------------
to time, and any successor statute or law thereto.
Software Products: Any software and associated documentation and
-----------------
materials, which is now or has at any previous time been supplied by the
Company.
Stockholders Agreement: The Stockholders Agreement of even date
----------------------
herewith by and among the Company, SCSL and you.
Subsidiary: With respect to any Person (the "parent"), any
----------
corporation, association or other business entity of which securities or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent.
Year 2000 Compliant: The ability to provide all the following
-------------------
functions:
(a) accurate processing of all date information whether before, during
or after January 1, 2000, including, without limitation, accepting date
input, providing accurate date output and performing accurate calculations
involving dates or portions of dates;
(b) performing all processing accurately, efficiently and without
interruption before, during and after January 1, 2000 without any change in
operations, or in any input or output procedures;
(c) processing date input accurately in a way that does not create any
ambiguity as to century; and
(d) storing, retrieving and processing date information accurately and
in a manner that does not create any ambiguity as to century.
SECTION 7. MISCELLANEOUS
-------------
7.1 Notices
-------
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, telecopier, or overnight air courier
guaranteeing next day delivery:
(a) if to any of you, at 4600 Lakehurst Court, Dublin, Ohio 43106,
Attention: Al Hoover, with a copy (which shall not constitute notice) to
Skadden, Arps, Slate Meagher & Flom, LLP, 919 Third Avenue, New York, New York
10022, Attention: Eric J. Friedman, Esq.; and
(b) if to the Company, at Maansarovar Towers, 271-A, Anna Salai,
Teynampet, Chennai - 600 018, India, Attention: R. Ramaraj, with a copy to IInd
Floor, Mayfair Centre, 1-8-
12
<PAGE>
303/36, S.P. Road, Secunderabad - 500 003, India, and to M.G. Ramachandran, B 12
Kalindi Colony, New Delhi - 110 065, India, and to Latham & Watkins, 135
Commonwealth Drive, Menlo Park, California 94025, Attention: Anthony J.
Richmond, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt
acknowledged, if telecopied; and the next business day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
7.2 Successors and Assigns
----------------------
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, including, without limitation,
and without the need for an express assignment, subsequent holders of Equity
Shares.
7.3 Amendment and Waiver
--------------------
This Agreement and the other Documents may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by you and the
Company.
7.4 Counterparts
------------
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
7.5 Headings
--------
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
7.6 Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of India.
7.7 Entire Agreement
----------------
This Agreement, together with the other Documents and the Equity
Shares, is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This Agreement, together
13
<PAGE>
with the other Documents, and the Equity Shares, supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
7.8 Severability
------------
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that all of your rights and privileges shall be enforceable to the
fullest extent permitted by law.
7.9 Confidentiality
---------------
You agree that you will not, and will not permit your officers,
directors, employees or agents to, disclose to any other Person (except your
Affiliates) any confidential or proprietary information furnished to you by the
Company or any Subsidiary, except (i) as required by law or legal process or by
any governmental authority, (ii) such information as becomes or is generally
available to the public other than as a result of a disclosure prohibited
hereby, (iii) such information that is or becomes available to you on a non-
confidential basis from a source not bound by this or another confidentiality
agreement with the Company or any Subsidiary, (iv) such information that you
disclose to your respective attorneys, advisors and representatives, provided
that each such Person shall be deemed to be bound by the terms of this Section
7.9; and (v) such information that you disclose to a Person who is a prospective
assignee of some or all Equity Shares, provided that such Person has first
signed a confidentiality agreement substantially identical to that set forth in
this Section.
7.10 Survival of Representations and Warranties
------------------------------------------
The representations and warranties in this Agreement shall survive the
Closing Date and terminate upon the one-year anniversary of the Closing Date.
7.11 Arbitration
-----------
(a) Any and all claims, disputes, questions or controversies
involving the parties hereto and arising out of or in connection with this
Agreement, or the execution, interpretation, validity, performance, breach or
termination hereof (collectively, "Disputes") shall, upon the written request of
--------
any party to this Agreement, be first referred to senior officers of each party
for resolution. The senior officers shall meet immediately and attempt to
negotiate a resolution of the Dispute. If such officers, negotiating in good
faith, are unable to resolve and settle the dispute within fifteen (15) calendar
days after the Dispute is first submitted to them, then any such officer shall
be entitled to cause the Dispute to be submitted for settlement pursuant to the
terms of Section 7.11(b).
(b) Any Dispute which is not settled after an attempt by the parties
hereto by amicable negotiation under Section 7.11(a) shall be resolved by final
and binding arbitration. The arbitration shall be held in London in accordance
with the Rules of Arbitration of the International
14
<PAGE>
Chamber of Commerce as then existing and shall be heard and determined by an
arbitral tribunal composed of three (3) arbitrators. Each party shall nominate
one arbitrator within thirty (30) days after the date on which the Dispute is
submitted to arbitration pursuant to this 7.11(b), and both of such arbitrators
shall nominate a third arbitrator, who shall serve as the Chairman of such
arbitral tribunal, within sixty (60) days after the date on which the Dispute is
submitted to arbitration pursuant to this 7.11(b). If any arbitrator has not
been named within the time limits specified herein, such appointment shall be
made by the International Court of Arbitration of the International Chamber of
Commerce, upon the written request of any party, if possible within thirty (30)
days of such request. In the event there are more than two parties to a Dispute,
whether as claimants or respondents, the procedure for selection of arbitrators
remains the same as above, except that each of the multiple claimants and/or
respondents shall jointly appoint an arbitrator.
(c) Neither the existence of any Dispute nor the fact that any
arbitration is pending hereunder shall relieve either party hereto of its
respective obligations under this Agreement.
(d) Each party agrees that all of the transactions contemplated by
this Agreement shall constitute and shall be deemed to constitute commercial
activities. To the extent that any party may be entitled in any jurisdiction
whatsoever to claim immunity, whether characterized as sovereign or otherwise,
from litigation, execution, set-off, attachment or other legal process of any
nature whatsoever, it hereby expressly and irrevocable waives such immunity.
(e) Any arbitration proceedings, decision or award rendered hereunder
and the validity, effect and interpretation of this arbitration agreement shall
be governed by the laws of the place of arbitration and by the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June
10, 1958. The award shall be final and binding on the parties and judgment upon
any award may be entered in any court of competent jurisdiction.
(f) To the fullest extent permitted by law, the parties hereby waive
any rights of appeal to any court of competent jurisdiction with respect to any
question of law arising in the course of the arbitration or with respect to any
award, whether interlocutory or final. The parties expressly agree that leave
to appeal or state a special case under Section 45 or Section 69 of the English
Arbitration Act of 1996 shall not be sought with respect to any question of law
arising during the course of the arbitration or with respect to any award made.
However, the parties do not intent to deprive any court of its jurisdiction to
issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid
of the arbitration proceedings or in connection with the enforcement of any
award. Without prejudice to the availability of provisional remedies under the
jurisdiction of a competent court, the arbitral tribunal shall have fully
authority to grant provisional remedies.
(g) The arbitral tribunal may consolidate an arbitration arising under
or relating to this Agreement, the Stockholders Agreement and the Registration
Rights Agreement with any other arbitration arising under or relating to any of
these agreements, if the subject of the disputes in the arbitrations arises out
of or relates essentially to the same set of facts or transactions, and no party
would be prejudiced thereby. Such consolidated arbitration(s) shall be
determined by the arbitral tribunal appointed for the arbitration proceeding
that was commenced first in time.
15
<PAGE>
(h) The arbitration proceedings conducted pursuant to this Agreement
shall be confidential. Neither party shall disclose or permit the disclosure of
any information about the evidence adduced or the documents produced by the
other party in the arbitration proceedings or about the existence, contents or
results of the arbitration without the prior written consent of the other party
except as required by law or in the course of a judicial, regulatory or
arbitration proceeding, as may be requested or required by a governmental
authority or as required for the enforcement of an arbitral award. Before
making any disclosure permitted by the preceding sentence, the party intending
to make such disclosure shall give the other party reasonable written notice of
the intended disclosure and afford the other party a reasonable opportunity to
protect its interests.
7.12 Specific Performance
--------------------
The parties hereto agree that the provisions of this Agreement are
reasonable and necessary to protect the interests of the parties and that the
parties' remedies at law for breach of any of the provisions of this Agreement
will be inadequate and that, in connection with any such breach, the parties
will be entitled, in addition to any other remedies (whether at law or in
equity), to temporary and permanent injunctive relief in accordance with
applicable law.
(Signature pages follow)
16
<PAGE>
If this Agreement is satisfactory to you, please so indicate by
signing the acceptance on a counterpart of this Agreement and deliver such
counterpart to the Company whereupon this Agreement will become binding between
us in accordance with its terms.
Very truly yours,
SATYAM INFOWAY LIMITED
By: /s/ R. Ramaraj
----------------------------
Name: R. Ramaraj
Title: Managing Director
Witnessed by:
/s/ K. Thiagarajan
-------------------------------
Name: K. Thiagarajan
Title: General Manager - Finance
Acknowledged and Agreed:
STERLING COMMERCE, INC.
By: /s/ Albert K. Hoover
------------------------------
Name: Albert K. Hoover
Title: Senior Vice President and General Counsel
Witnessed by:
/s/ Shelly R. Boggs
- ---------------------------------
Name: Shelly R. Boggs
Title: Legal Administrative Assistant
<PAGE>
Schedule 4.11
-------------
Intellectual Property
---------------------
User Agreement, effective April 1, 1999, by and between the Company and Satyam
Computer Services Limited
18
<PAGE>
EXHIBIT 4.7
STOCKHOLDERS AGREEMENT
----------------------
STOCKHOLDERS AGREEMENT, dated as of September 14, 1999, by and among Satyam
Infoway Limited (the "Company"), Satyam Computer Services Limited ("SCSL") and
------- ----
Sterling Commerce, Inc. ("Sterling Commerce").
-----------------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in connection with the issuance and sale by the Company, and
purchase by Sterling Commerce, of 481,000 Equity Shares of the Company, the
parties desire to enter into this agreement (the "Agreement");
---------
WHEREAS, this Agreement shall become effective (the "Effective Date") on
--------------
the date of, and simultaneously with, the closing under the Stock Purchase
Agreement by and between the Company and Sterling Commerce relating to the issue
and sale of the Equity Shares to Sterling Commerce (the "Stock Purchase
--------------
Agreement");
- ---------
WHEREAS, on the Effective Date SCSL shall beneficially own 12,379,800
Equity Shares of the Company; and
WHEREAS, the parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of Equity Shares by SCSL and Sterling
Commerce and to provide for certain rights and obligations in respect to the
Equity Shares and the Company as hereinafter provided.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms
-----------
have the following meanings:
"ADS" shall have the meaning set forth in Section 3.1.
---
"Agreement" shall have the meaning set forth in the preamble.
---------
"Affiliate" shall mean, with respect to any specified Person, any other
---------
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
Without limiting the foregoing, (i) all directors and officers of a Person that
is a corporation, and all managing members of a Person that is a limited
liability company, shall be deemed Affiliates of such Person for all purposes
hereunder, and (ii) in the case of an individual, Affiliate shall include (a)
members of such specified Person's immediate family (as defined in Instruction 2
of Item 404(a) of Regulation S-K under the Securities Act) and (b) trusts, the
trustee and all beneficiaries of which are such specified Person or members of
such Person's immediate family as determined in accordance with the foregoing
clause (a).
<PAGE>
"Affiliate Transaction" shall mean (i) any sale, lease, transfer or other
---------------------
disposition by the Company or its subsidiaries of any of their respective
properties or assets to, (ii) any purchase of property or assets by the Company
or its subsidiaries from, (iii) any investment by the Company or its
subsidiaries in, (iv) any agreement (including without limitation, the Formation
Documents, and including any amendments, supplements or any other modifications
to such agreements) by the Company or its subsidiaries with or for the benefit
of, or (v) any other transaction between the Company or its subsidiaries with
SCSL, any of its Affiliates or any other Affiliate of the Company.
"Board Observer" shall have the meaning set forth in Section 4.1(a).
--------------
"Board of Directors" shall mean the Board of Directors of the Company.
------------------
"Business Day" shall mean a day other than a Saturday or Sunday or any
------------
holiday on which banks are permitted to be closed in New York, New York or
Chennai, India.
"Company" shall have the meaning set forth in the preamble.
-------
"Effective Date" shall have the meaning set forth in the recitals.
--------------
"Equity Shares" shall mean the equity shares, par value Rs.10 per share, of
-------------
the Company.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations thereunder.
"General Committee" shall have the meaning set forth in Section 4.1(b).
------------------
"Initial Public Offering" shall mean the initial primary Public Offering of
-----------------------
equity securities by the Company (other than (i) pursuant to a registration
statement on Form S-8 or otherwise relating to equity securities issuable
exclusively under the Company's Stock Option Plan, or (ii) pursuant to a merger,
consolidation or reorganization).
"Pecuniary Interest" in any security shall mean the opportunity, directly
------------------
or indirectly, to profit or share in any profit derived from a transaction in
such security.
"Permitted Exchange" shall mean the New York Stock Exchange, the American
------------------
Stock Exchange or the Nasdaq Stock Market National Market System.
"Permitted Transferee" shall mean, with respect to any Person, any
--------------------
Affiliate of such Person.
"Person" shall mean an individual or a corporation, partnership, limited
------
liability company, trust, or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Proposed Purchaser" shall mean a Person or group of Persons to which SCSL
------------------
proposes to Transfer Equity Shares in accordance with Section 2.4.
"Public Offering" shall mean any underwritten public distribution of equity
---------------
securities of the Company in the United States pursuant to an effective
registration statement under the Securities Act.
2
<PAGE>
"Qualified IPO" shall mean an Initial Public Offering in which (i) the
-------------
gross proceeds from the shares of Equity Shares sold are at least $20 million,
and (ii) immediately after such offering the Equity Shares, or American
Depositary Shares representing the Equity Shares, are listed for trading on a
Permitted Exchange.
"Registration Rights Agreement" shall mean that certain Registration Rights
-----------------------------
Agreement, dated as of the date hereof, by and among the Company, South Asia
Regional Fund and Sterling Commerce.
"Rule 144 Open Market Transaction" shall mean any bona fide public sale of
--------------------------------
securities in an open market transaction under Rule 144 of the Securities Act
(or any successor rule) if such sale is in compliance with the requirements of
paragraphs (c), (d), (e), (f) and (g) or paragraph (k) of such rule.
"Securities Act" shall mean the U.S. Securities Act of 1933, as amended,
--------------
and the rules and regulations thereunder.
"Similarly Situated Investor" shall mean any stockholder of the Company
---------------------------
which is entitled to designate any member of, or observer to, the Board of
Directors.
"Stock Purchase Agreement" shall have the meaning set forth in the
------------------------
recitals.
"Tag-Along Notice" shall have the meaning set forth in Section 2.4(c).
----------------
"Tag-Along Sale" shall mean a Transfer of SCSL's Pecuniary Interest in
--------------
Equity Shares resulting in SCSL holding less than 51% of the issued and
outstanding Equity Shares, including, without limitation, by means of such
SCSL's Transfer of an interest in any Person owning such Equity Shares.
"Third Party" shall mean any prospective purchaser of Equity Shares (that
-----------
is not an Affiliate or Permitted Transferee of the transferor) in an arm's
length purchase from such transferor.
"Transfer" shall mean (i) when used as a noun: any direct or indirect
--------
transfer, sale, assignment, pledge, hypothecation, encumbrance or other
disposition and (ii) when used as a verb: to directly or indirectly transfer,
sell, assign, pledge, hypothecate, encumber or otherwise dispose of.
"Transferee" shall mean any Person to whom Equity Shares have been
----------
Transferred in compliance with the terms of this Agreement.
"Transfer Allotment" shall mean the product of (i) the total number of
------------------
Equity Shares proposed to be Transferred in such Tag-Along Sale multiplied by
(ii) a fraction, the numerator of which is the total number of Equity Shares
owned by Sterling Commerce and its Affiliates as of the close of business on the
second day immediately preceding the mailing date of the Transfer Notice and the
denominator of which is the total number of Equity Shares then owned by SCSL and
Sterling Commerce and its Affiliates.
"Transfer Date" shall have the meaning set forth in Section 2.4(b).
-------------
"Transfer Notice" shall have the meaning set forth in Section 2.4(b).
---------------
3
<PAGE>
ARTICLE II
RESTRICTIONS ON TRANSFERS
Section 2.1 Transfers in Contravention of this Agreement. Any attempt to
--------------------------------------------
Transfer, or purported Transfer of, any Equity Shares in violation of the terms
of this Agreement shall be null and void and neither the Company nor any
transfer agent shall register upon its books any such Transfer. A copy of this
Agreement shall be filed with the Secretary of the Company and kept with the
records of the Company.
Section 2.2 Transfers. (a) Subject to Section 2.4, Sterling Commerce
---------
shall not Transfer any Pecuniary Interest in any Equity Shares for a period of
180 days commencing on the Effective Date, except Transfers to a wholly-owned
subsidiary or parent corporation.
(b) In the event of a Qualified IPO, neither Sterling Commerce nor SCSL
shall Transfer any Equity Shares for a period (the "Lockup Period") commencing
-------------
on the date on which such Qualified IPO is consummated, provided that all (i)
members of the Board of Directors, (ii) Affiliates of members of the Board of
Directors, which Affiliates own Equity Shares and (iii) Similarly Situated
Investors agree to a substantially identical lockup. The length of the Lockup
Period shall be determined by the Company, after consultation with the
underwriters in connection with the Qualified IPO, but in no event shall be
longer than 180 days.
(c) Neither Sterling Commerce nor SCSL shall Transfer any Equity Shares
(other than Transfers (1) to the Company, (2) to any Affiliate, (3) pursuant to
a merger or consolidation involving the Company or the sale of all or
substantially all of the outstanding Equity Shares or (4) Transfers constituting
a bona fide public distribution pursuant to (x) any registration statement filed
under the Securities Act or any Public Offering or (y) Rule 144 Open Market
Transactions) unless (i) the certificates representing such Equity Shares issued
to the Transferee bear the legend provided in Section 2.3, if required by such
Section, and (ii) the Transferee (if not already a party hereto) has executed
and delivered to each other party hereto, as a condition precedent to such
Transfer, an instrument or instruments, reasonably satisfactory to such parties,
confirming that the Transferee agrees to be bound by the terms of this Agreement
in the same manner as such Transferee's transferor, except as otherwise
specifically provided in this Agreement.
Section 2.3 Legend. Sterling Commerce hereby agrees that each outstanding
------
certificate representing Equity Shares issued to it, or any certificate issued
in exchange for any similarly legended certificate (including any related
depositary receipt), shall, unless sold in a transaction pursuant to Section
2.2(c)(1), (2), (3) or (4), bear a legend reading substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS OF ANY STATE WITHIN THE UNITED STATES, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE
HOLDER OF THESE SECURITIES MAY BE REQUIRED TO DELIVER TO THE COMPANY, IF THE
COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT (OR QUALIFICATION UNDER STATE SECURITIES LAWS) IS
AVAILABLE WITH RESPECT TO ANY TRANSFER OF THESE SECURITIES THAT HAS NOT BEEN SO
REGISTERED (OR QUALIFIED).
4
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE
AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF SEPTEMBER 14, 1999. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE
TERMS OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE
RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT. THE COMPANY WILL MAIL A
COPY OF SUCH STOCKHOLDERS AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE WITHIN
FIVE (5) DAYS AFTER THE COMPANY'S RECEIPT OF A WRITTEN REQUEST THEREFOR.
Section 2.4 Tag-Along Rights. (a) In the event that SCSL proposes to
----------------
effect a Tag-Along Sale, SCSL shall afford Sterling Commerce the opportunity to
participate therein in accordance with this Section 2.4.
(b) With respect to each Tag-Along Sale, Sterling Commerce shall have the
right to Transfer, at the same price and upon identical terms and conditions as
such proposed Transfer (except as set forth below), the number of Equity Shares
owned by Sterling Commerce equal to the Transfer Allotment; provided, however,
that in the event of a Tag-Along Sale pursuant to a Transfer by SCSL of an
interest in a Person that directly or indirectly owns Equity Shares, the price
and other terms and conditions of such Tag-Along Sale applicable to Sterling
Commerce shall as closely approximate those of the proposed Transfer as is
reasonably practicable.
At the time any Tag-Along Sale is proposed, SCSL shall give written notice
to Sterling Commerce of its right to sell Equity Shares hereunder (the "Transfer
--------
Notice"), which notice shall identify the Proposed Purchaser and state
- ------
the number of Equity Shares proposed to be Transferred, the proposed offering
price (including the form and terms of any non-cash consideration to be received
in connection therewith), the proposed date of any such Transfer (the "Transfer
--------
Date") and any other material terms and conditions of the proposed Transfer.
- ----
The Transfer Notice shall also contain a complete and correct copy of any offer
to, or agreement with, SCSL by the Proposed Purchaser to purchase such Equity
Shares. SCSL shall use its reasonable best efforts to deliver the Transfer
Notice at least 30 days prior to the Transfer Date and in no event shall SCSL
provide such Transfer Notice later than 21 days prior to the Transfer Date.
(c) If Sterling Commerce wishes to participate in the Tag-Along Sale, it
shall provide written notice (the "Tag-Along Notice") to SCSL no less than seven
----------------
days prior to the Transfer Date. The Tag-Along Notice shall set forth the number
of Equity Shares that Sterling Commerce elects to include in the Transfer, which
shall not exceed the Transfer Allotment; provided that the failure of Sterling
Commerce to correctly specify a number of Equity Shares not exceeding the
Transfer Allotment shall not affect the rights Sterling Commerce may otherwise
have under this Section 2.4. Any Tag-Along Notice given by Sterling Commerce
shall constitute its binding agreement to sell such Equity Shares on the terms
and conditions applicable to the Transfer.
If a Tag-Along Notice is not received by SCSL from Sterling Commerce prior
to the seven-day period specified above, SCSL shall have the right to sell or
otherwise Transfer the number of Equity Shares specified in the Transfer Notice
to the Proposed Purchaser specified in the Transfer Notice without any
participation by Sterling Commerce, but only on terms and conditions with
respect to the consideration paid by the Proposed Purchaser no more favorable
(and other material terms and conditions which a reasonable investor would
consider significant to the decision to include Equity Shares in the Transfer no
more favorable in any material respect) to the Proposed Purchaser than as stated
in the
5
<PAGE>
Transfer Notice to Sterling Commerce, and only if such Transfer occurs on a date
within 60 Business Days of the Transfer Date.
(d) The provisions of this Section 2.4 shall not apply to any Transfers (i)
by SCSL to a Permitted Transferee of SCSL (provided that such Permitted
Transferee has agreed to be bound by this Agreement as contemplated by Section
2.2 hereof), (ii) pursuant to a Public Offering, or (iii) pursuant to a Rule 144
Open Market Transaction of which Sterling Commerce has been provided at least
two Business Days prior written notice.
(e) The parties acknowledge that South Asia Regional Fund has transfer
rights pursuant to Article 14 of the Share Subscription and Shareholders'
Agreement, dated as of February 5, 1999, by and among the Company, SCSL, South
Asia Regional Fund and Mr. B. Ramalinga Raju, which provides, among other
things, that SCSL shall not be entitled to transfer any Equity Shares to a buyer
unless it shall have first procured that the buyer makes a written offer to
purchase all of the Equity Shares held by South Asia Regional Fund.
Section 2.5 Deliveries at Closing; Method of Payment of Purchase Price.
----------------------------------------------------------
SCSL and Sterling Commerce, as applicable, shall deliver to the Proposed
Purchaser, against delivery of the purchase price for the Equity Shares being
sold by it, (i) certificates appropriately endorsed and representing the Equity
Shares being sold, free and clear of any lien, claim or encumbrance, and (ii)
such other documents, including, without limitation, executed stock powers and
evidence of ownership and authority, as the purchasers may reasonably request.
ARTICLE III
ADDITIONAL AGREECMENTS
Section 3.1 In connection with a Qualified IPO, at such time as a market is
created in the United States for American Depositary Shares ("ADSs")
----
representing Equity Shares, the Company and Sterling Commerce will use their
respective reasonable best efforts to obtain all Government of India and other
approvals required for Sterling to deposit the Equity Shares acquired by it from
the Company with the depositary and receive in exchange therefor American
Depositary Receipts evidencing ADSs.
ARTICLE IV
CORPORATE GOVERNANCE AND VOTING
Section 4.1 Boards of Directors. (a) Sterling Commerce shall not be
-------------------
entitled to designate any members of the Board of Directors by virtue of this
Agreement. For so long as Sterling Commerce owns at least 2.0% of the issued
and outstanding Equity Shares, Sterling Commerce shall be entitled to designate
one non-voting observer to the Board of Directors (the "Board Observer"),
--------------
provided that the Board Observer shall at all times be a senior officer of
Sterling Commerce reasonably acceptable to the Chief Executive Officer of the
Company. The Board Observer shall be entitled to all of the rights and
privileges of members of the Board of Directors, including without limitation,
access to all information to which members of the Board of Directors have
access, except that (i) the Board Observer shall not be entitled to vote on any
matter brought before the Board of Directors, (ii) the Board Observer shall be
excluded from any portion of any meeting, at the good faith discretion of the
Chief Executive Officer of the Company or the Chairman of the Board of
Directors, to protect the competitive interests of the Company or where a
conflict of interest exists, including, without limitation, matters relating to
the
6
<PAGE>
relationship between the Company and Sterling Commerce, (iii) if the Company
has been advised by outside counsel that providing certain information to Board
Observers would be reasonably likely to cause such information to be not subject
to an applicable attorney-client or similar privilege, the Company shall be
entitled to withhold such information from the Board Observer, and (iv) upon
request, the Board Observer shall execute a confidentiality agreement in
customary form with respect to information obtained in his or her capacity as a
Board Observer.
(b) The Board Observer shall be entitled to observe meetings of Committees
of the Board of Directors, which committees (the "General Committees") have been
------------------
delegated general authority by the Board of Directors, including, without
limitation, any Executive Committee. The Company agrees to inform promptly
Sterling Commerce of business conducted by committees of the Board of Directors
other than General Committees.
(c) The Board Observer shall be provided advance notice of all meetings of
the Board of Directors and General Committees, such notice to be given in the
same manner as the notice given to the members of the Board of Directors or
General Committees, as applicable.
Section 4.2 Action by the Board of Directors. (a) Prior to the
--------------------------------
consummation of a Qualified IPO, no consent or approval of Sterling Commerce
shall be required in connection with the making of any decision, or the taking
of any action, by the Board of Directors, including, without limitation, any
future equity financing at a price per Equity Share equal to or greater than the
purchase price paid by Sterling Commerce provided that the rights to transfer or
otherwise dispose of, and registration rights and other liquidity rights with
respect to, Equity Shares of the then existing stockholders of the Company are
diluted on a pro rata basis.
(b) Prior to the consummation of a Qualified IPO, the Company shall not
take, or agree to take, any action regarding the following matters without the
consent of at least 71%, or such higher percentage as may be required by
applicable law, of the issued and outstanding Equity Shares:
(i) any amendment to the Company's Memorandum or Articles of
Association;
(ii) issuing to any Person more than 100,000 Equity Shares, or any
options, warrants or other rights to acquire more than 100,000 Equity
Shares, except for (x) a Qualified IPO, (y) issuances to a Person which
provides content and/or infrastructure to the Company for use in the
Company's business or (z) compensatory employee benefits plans,
(iii) declaring or paying dividends on, or making distributions
with respect to, any Equity Shares;
(iv) any merger, consolidation or other sale of the Company, including
any sale or other transfer of all or a material portion of the Company's
assets;
(v) making loans in excess of U.S.$1.0 million in the aggregate;
(vi) any entry into any business which is unrelated to the Company's
existing business;
(vii) any Affiliate Transaction in excess of U.S. $60,000, other than
compensation of executive officers approved by the Board of Directors; and
7
<PAGE>
(viii) any material change in the Company's accounting policies, other
than changes required to comply with generally accepted accounting
principles.
ARTICLE V
TERMINATION
Section 5.1 Termination. Except as otherwise provided herein with
-----------
respect to certain specific provisions, this Agreement shall terminate upon the
earlier to occur of:
(i) the mutual agreement of the parties hereto,
(ii) the date on which Sterling Commerce (or its Permitted
Transferees) ceases to own any Equity Shares; or
(iii) on the tenth anniversary of the Effective Date.
ARTICLE VI
MISCELLANEOUS
Section 6.1 No Inconsistent Agreements. Except for the Share Subscription
--------------------------
and Shareholders' Agreement, dated as of February 5, 1999, by and among the
Company, SCSL, South Asia Regional Fund and Mr. B. Ramalinga Raju, as amended,
each party represents and agrees that, as of the Effective Date, there is no,
and from and after the Effective Date they will not enter into any, agreement
(written or oral) that is inconsistent in any material respect with this
Agreement.
Section 6.2 Recapitalization, Exchanges, etc. If any capital stock or
--------------------------------
other securities are issued in respect of, in exchange for, or in substitution
of, any Equity Shares by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Equity Shares or any other change in capital
structure of the Company, then appropriate adjustments shall be made with
respect to the relevant provisions of this Agreement so as to fairly and
equitably preserve, as far as practicable, the original rights and obligations
of the parties hereto under this Agreement and the term "Equity Shares" as used
herein, shall be deemed to include shares of such capital stock or other
securities, as appropriate. Without limiting the foregoing, whenever a
particular number of Equity Shares is specified herein, such number shall be
adjusted to reflect stock dividends, stock-splits, combinations or other
reclassifications of stock or any similar transactions.
Section 6.3 Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto, and their respective
successors and permitted assigns; provided that (i) neither this Agreement nor
any rights or obligations hereunder may be transferred or assigned by the
Company (except by operation of law in any merger); (ii) neither this Agreement
nor any rights or obligations hereunder may be transferred or assigned by SCSL
except to any Person to whom it has Transferred Equity Shares in compliance with
this Agreement and who has become bound by this Agreement pursuant to Section
2.2 hereof; and (iii) the rights of the parties under Section 2.4 and Article IV
hereof may not be assigned to any Person except as explicitly provided therein.
If any party hereto shall acquire additional Equity Shares, such Equity Shares
shall, except as otherwise expressly
8
<PAGE>
provided herein, be held subject to (and entitled to all the benefits of) all of
the terms of this Agreement.
Section 6.4 No Waivers; Amendments. (a) No failure or delay by any party
----------------------
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
(b) This Agreement may not be amended or modified, nor may any provision
hereof be waived, other than by a written instrument signed by the Company, SCSL
and Sterling Commerce.
Section 6.5 Notices.
-------
All notices and other communications provided for or permitted hereunder
shall be made by hand-delivery, telecopier, or overnight air courier
guaranteeing next day delivery:
(a) if to Sterling Commerce, at 4600 Lakehurst Court, Dublin, Ohio 43106,
Attention Al Hoover, with a copy (which shall not constitute notice) to Skadden,
Arps, Slate, Meagher & Flom, LLP, 919 Third Avenue, New York, New York 10022,
Attention: Eric J. Friedman, Esq;
(b) if to the Company, at Maansarovar Towers, 271-A, Anna Salai, Teynampet,
Chennai - 600 018, India, Attention: R. Ramaraj, with a copy (which shall not
constitute notice) to IInd Floor, Mayfair Centre, 1-8-303/36, S.P. Road,
Secunderabad - 500 003, India, Attention: R. Ramaraj, with a copy (which shall
not constitute notice) to M.G. Ramachandran, B 12 Kalindi Colony, New Delhi -
110 065, India, and to Latham & Watkins, 135 Commonwealth Drive, Menlo Park,
California 94025, Attention: Anthony J. Richmond, Esq.;
(c) if to SCSL, at Mayfair Centre, S P Road, Secunderabad 500 003, India,
Attention: B. Ramalinga Raju.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt
acknowledged, if telecopied; and the next business day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
Section 6.6 Inspection. So long as this Agreement shall be in effect, this
----------
Agreement and, amendments hereto and waivers hereof shall be distributed to all
parties hereto after becoming effective and shall be available upon the request
of any party hereto.
Section 6.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of India.
Section 6.8 Section Headings. The section headings contained in this
----------------
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
Section 6.9 Entire Agreement. This Agreement, together with the Stock
----------------
Purchase Agreement, the Registration Rights Agreement and the other Documents
(as defined in the Stock Purchase Agreement), constitutes the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof and thereof and supersedes any and all prior agreements and
understandings, written or oral, relating, to the subject matter hereof as
between the parties hereto. Without limiting the
9
<PAGE>
independent obligations of the Company to Sterling Commerce contained herein,
the parties acknowledge that the Company and SCSL are parties to the Share
Subscription and Shareholders' Agreement, dated as of February 5, 1999, by and
among the Company, SCSL, South Asia Regional Fund and Mr. B. Ramalinga Raju.
Section 6.10 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdictions, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
Section 6.11 Counterparts. This Agreement may be signed in counterparts,
------------
each of which shall constitute an original and which together shall constitute
one and the same agreement.
Section 6.12 Time of Essence. Time shall be of the essence in this
---------------
Agreement.
Section 6.13 Arbitration.
-----------
(a) Any and all claims, disputes, questions or controversies involving the
parties hereto and arising out of or in connection with this Agreement, or the
execution, interpretation, validity, performance, breach or termination hereof
(collectively, "Disputes") shall, upon the written request of any party to this
--------
Agreement, be first referred to senior officers of each party for resolution.
The senior officers shall meet immediately and attempt to negotiate a resolution
of the Dispute. If such officers, negotiating in good faith, are unable to
resolve and settle the dispute within fifteen (15) calendar days after the
Dispute is first submitted to them, then any such officer shall be entitled to
cause the Dispute to be submitted for settlement pursuant to the terms of
Section 6.13(b).
(b) Any Dispute which is not settled after an attempt by the parties hereto
by amicable negotiation under Section 6.13(a) shall be resolved by final and
binding arbitration. The arbitration shall be held in London in accordance with
the Rules of the International Chamber of Commerce as then existing and shall be
heard and determined by an arbitral tribunal composed of three (3) arbitrators.
Each party shall nominate one arbitrator within thirty (30) days after the date
on which the Dispute is submitted to arbitration pursuant to this 6.11(b), and
both of such arbitrators shall nominate a third arbitrator, who shall serve as
the Chairman of such arbitral tribunal, within sixty (60) days after the date on
which the Dispute is submitted to arbitration pursuant to this 6.11(b). If any
arbitrator has not been named within the time limits specified herein, such
appointment shall be made by the International Court of Arbitration of the
International Chamber of Commerce, upon the written request of any party, if
possible within thirty (30) days of such request. In the event there are more
than two parties to a Dispute, whether as claimants or respondents, the
procedure for selection of arbitrators remains the same as above, except that
each of the multiple claimants and/or respondents shall jointly appoint an
arbitrator.
(c) Neither the existence of any Dispute nor the fact that any arbitration
is pending hereunder shall relieve either party hereto of its respective
obligations under this Agreement.
(d) Each party agrees that all of the transactions contemplated by this
Agreement
10
<PAGE>
shall constitute and shall be deemed to constitute commercial activities. To the
extent that any party may be entitled in any jurisdiction whatsoever to claim
immunity, whether characterized as sovereign or otherwise, from litigation,
execution, set-off, attachment or other legal process of any nature whatsoever,
it hereby expressly and irrevocable waives such immunity.
(e) Any arbitration proceedings, decision or award rendered hereunder and
the validity, effect and interpretation of this arbitration agreement shall be
governed by the laws of the place or arbitration and by the United Nations
Convention on Recognition and Enforcement of Foreign Arbitral Awards of June 10,
1958. The award shall be final and binding on the parties and judgment upon any
award may be entered in any court of competent jurisdiction.
(f) To the fullest extent permitted by law, the parties hereby waive any
rights of appeal to any court of competent jurisdiction with respect to any
question of law arising in the course of the arbitration or with respect to any
award, whether interlocutory or final. The parties expressly agree that leave to
appeal or state a special case under Section 45 or Section 69 of the English
Arbitration Act of 1996 shall not be sought with respect to any question of law
arising during the course of the arbitration or with respect to any award made.
However, the parties do not intent to deprive any court of its jurisdiction to
issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid
of the arbitration proceedings or in connection with the enforcement of any
award. Without prejudice to the availability of provisional remedies under the
jurisdiction of a competent court, the arbitral tribunal shall have fully
authority to grant provisional remedies.
(g) The arbitral tribunal may consolidate an arbitration arising under or
relating to this Agreement, the Stock Purchase Agreement and the Registration
Rights Agreement with any other arbitration arising under or relating to any of
these agreements, if the subject of the disputes in the arbitrations arises out
of or relates essentially to the same set of facts or transactions, and no party
would be prejudiced thereby. Such consolidated arbitration(s) shall be
determined by the arbitral tribunal appointed for the arbitration proceeding
that was commenced first in time.
(h) The arbitration proceedings conducted pursuant to this Agreement shall
be confidential. Neither party shall disclose or permit the disclosure of any
information about the evidence adduced or the documents produced by the other
party in the arbitration proceedings or about the existence, contents or results
of the arbitration without the prior written consent of the other party except
as required by law or in the course of a judicial, regulatory or arbitration
proceeding, as may be requested or required by a governmental authority or as
required for the enforcement of an arbitral award. Before making any disclosure
permitted by the preceding sentence, the party intending to make such disclosure
shall give the other party reasonable written notice of the intended disclosure
and afford the other party a reasonable opportunity to protect its interests.
Section 6.14 Specific Performance.
--------------------
The parties hereto agree that the provisions of this Agreement are
reasonable and necessary to protect the interests of the parties and that the
parties' remedies at law for breach of any of the provisions of this Agreement
will be inadequate and that, in connection with any such breach, the parties
will be entitled, in addition to any other remedies (whether at law or in
equity), to temporary and permanent injunctive relief in accordance with
applicable law.
(Signature pages follow)
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SATYAM INFOWAY LIMITED
By:/s/ R. Ramaraj
---------------------------
Name: R. Ramaraj
Title: Managing Director
Witnessed by:
/s/ K. Thiagarajan
------------------------------
Name: K. Thiagarajan
Title: General Manager - Finance
SATYAM COMPUTER SERVICES LIMITED
By: /s/ B. Ramolings Raju
------------------------------
Name: B. Ramolings Raju
Title: Chairman
Witnessed by:
/s/ V. Seegharanian
---------------------------------
Name: V. Seegharanian
Title: Manager
STERLING COMMERCE, INC.
By: /s/ Albert K. Hoover
------------------------------
Name: Albert K. Hoover
Title: Senior Vice President and General Counsel
Witnessed by:
/s/ Shelly R. Boggs
---------------------------------
Name: Shelly R. Boggs
Title: Legal Administrative Assistant
<PAGE>
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of September 14, 1999, by and
among Satyam Infoway Limited, a limited liability company under the laws of the
Republic of India (the "Company"), South Asia Regional Fund, a company
-------
incorporated in Mauritius ("SARF"), and Sterling Commerce, Inc., a Delaware
----
corporation ("Sterling Commerce").
-----------------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, in connection with the issuance and sale by the Company, and
the purchase by Sterling Commerce, of 481,000 Equity Shares, the parties desire
to provide registration rights to Sterling Commerce;
WHEREAS, the Company has already provided certain registration rights
to SARF in a Share Subscription and Shareholders Agreement, dated February 5,
1999 (the "SARF Subscription Agreement"); and
---------------------------
WHEREAS, the parties desire to enter into this Agreement to supercede
the SARF Subscription Agreement regarding the sale of Equity Shares by SARF in
the United States and to provide a single, coordinated agreement, regarding the
Company's obligation to register Equity Shares (or related American Depositary
Shares) owned by SARF or Sterling Commerce.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used herein and not
-----------
otherwise defined herein have the meanings ascribed to them in the Stockholders
Agreement, dated as of the date hereof (the "Stockholders Agreement"), by and
----------------------
among the Company, Sterling Commerce and Satyam Computer Services Limited,
provided that the parties agree that any subsequent amendment to the
Stockholders Agreement will not alter the meaning of any defined terms in this
Agreement. In addition, the following terms shall have the meanings ascribed to
them below:
"Commission" means the United States Securities and Exchange
----------
Commission.
"Demand Registration" means a registration of Registrable Securities
-------------------
under the Securities Act pursuant to a request made under Section 2.1(a).
"Equity Shares" means the equity shares, par value Rs.10 per share, of
-------------
the Company and any other equity securities representing, or received in
exchange for, such equity shares, including, without limitation, American
Depositary Receipts and American Depositary Shares.
"Holder" shall mean a holder of Registrable Securities entitled to
------
rights and subject to obligations hereunder, with the Initial Holders being SARF
and Sterling Commerce.
<PAGE>
"Registrable Security" means each Equity Share until (i) it has been
--------------------
effectively registered under the Securities Act and disposed of pursuant to an
effective registration statement, (ii) it is sold under circumstances in which
all of the applicable conditions of Rule 144 (or any similar provisions then in
force) under the Securities Act are met, including a sale pursuant to the
provisions of Rule 144(k), (iii) it has been otherwise Transferred and the
certificate or other evidence of ownership for it is not required to bear the
legend required pursuant to the Stockholders Agreement and it may be resold by
the person receiving such certificate without registration under the Securities
Act or (iv) the Holder thereof ceases to hold at least one percent (1.0%) of the
outstanding Equity Shares and all of such Holder's Equity Shares may be resold
in one 90-day period without (x) a volume limitation or (y) reliance on Rule
144(k).
"Underwriter" means a securities dealer who purchases any Registrable
-----------
Securities as principal in an underwritten offering or other transaction.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 Demand Registration. (a) Request for Registration by
------------------- ---------------------------
Sterling Commerce or SARF. At any time commencing 180 days after an Initial
- -------------------------
Public Offering, Sterling Commerce may make two written requests, and SARF may
make three written requests, for a Demand Registration, pursuant to a
registration statement on the appropriate form. Notwithstanding the foregoing,
in the event that Sterling Commerce (i) has made two written requests for a
Demand Registration under this Section 2.1 and (ii) continues to hold Equity
Shares, Sterling Commerce may make one additional written request for a Demand
Registration with respect to not less than all of the Registrable Securities
then held by Sterling Commerce pursuant to a registration statement on the
appropriate form.
The request for a Demand Registration shall specify the number of
Registrable Securities proposed to be sold (which shall be at least the lesser
of (i) U.S. $5.0 million in fair market value or (ii) all Equity Shares then
beneficially owned by Sterling Commerce or SARF, as the case may be) and will
also specify the intended method of disposition thereof. The Company shall not
be required to keep any shelf registration statement requested pursuant to a
Demand Registration continuously effective for more than 90 days.
(b) Effective Registration. A registration will not be deemed to
----------------------
have been effected as a Demand Registration unless it has been declared
effective by the Commission and the Company has complied in all material
respects with its obligations under this Agreement with respect thereto;
provided that if, after it has become effective, the offering of Registrable
Securities pursuant to such registration is or becomes the subject of any stop
order, injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the sale of Registrable Securities pursuant to the registration (for any
reason other than the acts or omissions of the Holder who commenced the Demand
Registration), such registration will be deemed not to have been effected. If
(i) a registration requested pursuant to this Section 2.1 is deemed not to have
been effected or (ii) the registration requested pursuant to this Section 2.1
does not remain effective for a period of at least 90 days beyond the effective
date thereof or until the earlier consummation of the distribution by the Holder
who commenced the Demand Registration of the Registrable Securities included in
such registration statement by it, then such registration statement shall not
count as a Demand Registration pursuant to Section 2.1(a) and the Company shall
continue to be obligated to effect the registrations
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<PAGE>
pursuant to this Section 2.1 as though the request for such Demand Registration
had never been made. At the request of the Holder who commenced the Demand
Registration, the Company shall withdraw the Demand Registration at any time
prior to the time it becomes effective, provided that such Holder shall
reimburse the Company for all reasonable out-of-pocket expenses (including
reasonable counsel fees and expenses) incurred prior to such withdrawal and
shall thereafter be entitled to the Demand Registration rights that existed
prior to such withdrawal.
(c) Selection of Underwriter. If the Holder commencing the Demand
------------------------
Registration so elects, the offering of Registrable Securities pursuant to a
Demand Registration shall be in the form of an underwritten offering. The
Holder commencing the Demand Registration shall select one or more nationally
recognized firms of investment bankers to act as the book-running managing
Underwriter or Underwriters in connection with such offering and shall select
any additional investment bankers and managers to be used in connection with the
offering; provided that such investment bankers and managers must be reasonably
satisfactory to the Company.
(d) Price Determination. In connection with a Demand Registration
-------------------
under this Section 2.1 only, the Holders participating in the Demand
Registration shall have the sole right to determine the offering price per share
and underwriting discount, if applicable, in connection with any resales of
Registrable Securities by them, after consultation with the Company and due
regard for the Company's views relating thereto.
Section 2.2 Piggy-Back Registration. If at any time the Company
-----------------------
proposes to file a registration statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any
security holders of any class of its equity securities for cash, including
without limitation, a registration statement filed in response to a request for
Demand Registration pursuant to Section 2.1 (other than a registration statement
filed in connection with an exchange offer or offering of securities solely to
the Company's existing security holders or for any compensatory benefit plan),
then the Company shall give written notice of such proposed filing to each
Holder as soon as practicable (but in no event less than 14 days before the
anticipated filing date), and such notice shall offer each other Holder the
opportunity to register such number of Registrable Securities as such Holder may
request (which request shall specify the Registrable Securities intended to be
disposed of by such Holder and the intended method of distribution thereof) (a
"Piggy-Back Registration").
-----------------------
The Company shall use its reasonable best efforts to cause the
managing Underwriter or Underwriters of a proposed underwritten offering to
permit the Registrable Securities requested by each other Holder to be included
in a Piggy-Back Registration to be included on the same terms and conditions as
any similar securities of the Company or any other security holder included
therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. A
Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any registration statement pursuant to this Section
2.2 by giving written notice to the Company of its request to withdraw.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligations pursuant to Section 2.1, and no failure to effect a registration
under this Section 2.2 and to complete the sale of Equity Shares in connection
therewith shall relieve the Company of any other obligation under this Agreement
(including, without limitation, the Company's obligations under Sections 3.2 and
4.1).
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<PAGE>
Section 2.3 Reduction of Offering. (a) Demand Registration. As
--------------------- -------------------
provided for in Section 2.2, the Company may include in a Demand Registration
Equity Shares for the account of the Company, the other Holders or other holders
thereof exercising contractual piggy back or demand rights, on the same terms
and conditions as the Registrable Securities to be included therein for the
account of the Holder commencing the Demand Registration; provided, however,
that (i) if the managing Underwriter or Underwriters of any underwritten
offering described in Section 2.1 have informed the Company in writing that it
is their opinion that the total number of Equity Shares which the Company and
the Holders and any other holders participating therein intend to include in
such offering is such as to materially and adversely affect the success of such
offering, then (x) the number of Equity Shares to be offered for the account of
such other holders (if any) shall be reduced (to zero, if necessary), in the
case of this clause (x) pro rata in proportion to the respective number of
Equity Shares requested to be registered, (y) thereafter, if necessary, the
number of Equity Shares to be offered for the account of the Company (if any)
shall be reduced (to zero, if necessary) and (z) thereafter, if necessary, the
number of Equity Shares to be offered for the account of the Holders (including
the Holder commencing the Demand Registration) shall be reduced pro rata in
proportion to the respective number of Equity Shares requested to be registered
to the extent necessary to reduce the total number of Equity Shares requested to
be included in such offering to the number of Equity Shares, if any, recommended
by such managing Underwriters and (ii) if the offering is not underwritten, no
other party, including the Company, shall be permitted to offer securities under
any such Demand Registration unless the Holder commencing the Demand
Registration consents to the inclusion of such Equity Shares therein, such
consent not to be unreasonably withheld.
(b) Piggy-Back Registration. Notwithstanding anything to the
-----------------------
contrary contained herein, if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 have informed the Company in
writing that it is their opinion that the total number of Equity Shares that the
Company and the Holders and any other Persons desiring to participate in a
registration other than a Demand Registration intend to include in such offering
is such as to materially and adversely affect the success of such offering, then
the number of Equity Shares to be offered for the account of the Holders and all
such other Persons (other than the Company) participating in such registration
shall be reduced (to zero if necessary) or limited pro rata in proportion to the
respective number of Equity Shares requested to be registered to the extent
necessary to reduce the total number of Equity Shares requested to be included
in such offering to the number of Equity Shares, if any, recommended by such
managing Underwriters; provided, however, that if such offering is effected for
the account of any other security holder of the Company pursuant to the demand
registration rights of such security holder, then (x) the number of Equity
Shares to be offered for the account of the Company (if any) shall be reduced
(to zero, if necessary) and (y) thereafter, if necessary, the number of Equity
Shares to be offered for the account of the Holders and any other holders that
have requested to include Equity Shares in such registration (but not such
security holders who have exercised their demand registration rights) shall be
reduced (to zero, if necessary), in the case of this clause (y) pro rata in
proportion to the respective number of Equity Shares requested to be registered,
to the extent necessary to reduce the total number of Equity Shares requested to
be included in such offering to the number of Equity Shares, if any, recommended
by such managing Underwriters.
Section 2.4 Registration Rights in India.
----------------------------
(a) Sterling Commerce. In connection with any registered public
-----------------
offering by the Company of Equity Shares in India, the Company shall, subject to
all necessary approvals of the Government of India, use its reasonable best
efforts to register the Equity Shares held by Sterling Commerce under Indian law
and, at the request of Sterling Commerce, include the Equity Shares held by
Sterling Commerce in such offering on terms that treat it pro rata with the
other holders of Equity Shares
4
<PAGE>
with registration rights applicable to an offering in India.
(b) SARF. The Company confirms the rights granted to SARF in Clause
----
13 of the SARF Subscription Agreement.
ARTICLE III
REGISTRATION PROCEDURES
Section 3.1 Filings; Information. If the Company is required to
--------------------
effect or cause the registration of Registrable Securities pursuant to Section
2.1, the Company will use its reasonable best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request:
(a) The Company will as expeditiously as possible prepare and file with the
Commission a registration statement on an appropriate form for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its reasonable best efforts to
cause such filed registration statement to become and remain effective for a
period of not less than 90 days (or such shorter period as is required to
complete the distribution of the Equity Shares); provided that the Company may
postpone the filing of a registration statement for a period of not more than
120 days from the date of receipt of the request in accordance with Section 2.1
if the Company reasonably determines that such a filing would (i) require the
disclosure of material non-public information concerning the Company, which
disclosure would be reasonably expected to materially adversely affect the
Company or (ii) prevent, delay or otherwise adversely affect the Company from
making an offering of equity securities for its own account (which offering the
Company has a good faith intention to consummate) in which case the Holders
shall have the piggy-back registration rights set forth in Section 2.2, and in
the case of (i) or (ii) furnishes to the Holder requesting registration a
certificate signed by an executive officer of the Company to such effect;
provided that the Company shall only be entitled to postpone any such filing two
times in any twenty-four month period. If the Company postpones the filing of a
Registration Statement, it shall promptly notify the Holders in writing when the
events or circumstances permitting such postponement have ended.
(b) The Company will as expeditiously as possible prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement continuously effective for a period of not less
than 90 days or such shorter period which will terminate when all securities
covered by such registration statement have been sold and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holders participating
therein as set forth in such registration statement.
(c) Upon request, the Company will, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
Holder participating in such offering, counsel representing each Holder (if
requested), and each Underwriter, if any, of the Registrable Securities covered
by such registration statement copies of such registration statement as proposed
to be filed, together with exhibits thereto, which documents will be subject to
review and comment by the foregoing (and the Company and its Counsel shall give
due regard to such comments) promptly after delivery, and thereafter furnish to
such Holders, counsel and Underwriter, if any, for their review and
5
<PAGE>
comment such number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents or
information as such Holder, counsel or Underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by the
participating Holders.
(d) After the filing of the registration statement, the Company will
promptly notify each Holder participating in such offering, and (if requested by
any Holder) confirm such notice in writing, (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the issuance by the Commission or any other Federal or state
governmental authority of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that purpose,
(iv) if at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities the
representations and warranties of the Company contained in any agreement
contemplated by Section 3.1(h) (including any underwriting agreement) cease to
be true and correct in all material respects, (v) of the receipt by the Company
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (vi) of the happening of any event which makes any statement made in
such registration statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or which requires the making of any changes in a registration statement,
prospectus or documents incorporated therein by reference so that, in the case
of the registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the prospectus, it will not contain any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (vii)
of the Company's reasonable determination that a post-effective amendment to a
registration statement would be necessary.
(e) The Company will use its reasonable best efforts to (i) register
or qualify the Registrable Securities under such other securities or blue sky
laws of such jurisdictions in the United States as the Holders participating in
the offering reasonably (in light of the intended plan of distribution) requests
and (ii) cause such Registrable Securities to be registered with or approved by
such other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably necessary or advisable to
enable the participating Holders to consummate the disposition of the
Registrable Securities owned by them; provided that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (e), (B)
subject itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction.
(f) The Company will take all reasonable actions required to prevent
the entry, or obtain the withdrawal, of any order suspending the effectiveness
of a registration statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any Registrable Securities
for sale in any jurisdiction, at the earliest moment.
6
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(g) Upon the occurrence of any event contemplated by paragraph
3.1(d)(iv), (vi) or (vii) above, the Company will (i) prepare a supplement or
post-effective amendment to such registration statement or a supplement to the
related prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
promptly make available to the Holders any such supplement or amendment.
(h) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form and which is reasonably
satisfactory to the Company) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities.
(i) The Company will furnish to each Holder participating in the
offering and to each Underwriter, if any, a signed counterpart, addressed to
such Holder or Underwriter, of (i) an opinion or opinions of counsel to the
Company, and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letter, as the case may
be, as such Holder(s) or the managing Underwriter therefor reasonably requests
so long as consistent with the professional standards then applicable to such
letters.
(j) The Company will use its reasonable best efforts (a) to cause any
class of Registrable Securities (including, as appropriate, related American
Depositary Shares) to be listed on a national securities exchange (if such
Equity Shares are not already so listed) and on each additional national
securities exchange on which similar securities issued by the Company are then
listed (if any), if the listing of such Registrable Securities is then permitted
under the rules of such exchange or (b) to secure designation of all such
Registrable Securities covered by such registration statement as a Nasdaq
"national market system security" within the meaning of Rule 11Aa2-1 of the
Commission or, failing that, to secure Nasdaq authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to use its
reasonable best efforts to arrange for at least two market makers to register as
such with respect to such Registrable Securities with the National Association
of Securities Dealers, Inc. (the "NASD").
----
The Company may require each Holder participating in an offering
covered by this Agreement to furnish promptly in writing to the Company such
information regarding the distribution of the Registrable Securities by such
Holder as the Company may from time to time reasonably request and such other
information as may be legally required in connection with such registration
including, without limitation, all such information as may be requested by the
Commission or the NASD. The Company may delay or withdraw such registration, or
exclude a Holder from participating, if a Holder fails to provide such
information.
Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Sections 3.1(d)(iii),
(iv), (v), (vi) and (vii) hereof, the Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3.1(g) hereof,
and, if so directed by the Company, each Holder will deliver to the Company all
copies, other than permanent file copies, then in such Holder's possession of
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<PAGE>
the most recent prospectus covering such Registrable Securities at the time of
receipt of such notice. In the event the Company shall give such notice, the
Company shall extend the period during which such registration statement shall
be maintained effective (including the period referred to in Section 3.1(a)
hereof) by the number of days during the period from and including the date of
the giving of notice pursuant to Section 3.1(d)(iii), (iv), (v), (vi) or (vii)
hereof to the date when the Company shall make available to the Holder(s) a
prospectus supplemented or amended to conform with the requirements of Section
3.1(g) hereof.
In connection with any registration of Registrable Securities pursuant
to Section 2.2, the Company will take the actions contemplated by paragraphs
(c), (d), (e), (i) and (j) above.
(k) In connection with any underwritten Demand Registration pursuant
to Section 2.1, the Company will participate in a reasonable manner in any
marketing efforts reasonably requested by the underwriters.
Section 3.2 Registration Expenses. In connection with the Demand
---------------------
Registration pursuant to Section 2.1 hereof, and any registration statement
filed pursuant to Section 2.2 hereof, the Company shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
---------------------
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv) the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties)
and all fees and expenses incident to the performance of or compliance with this
Agreement by the Company, (v) the fees and expenses incurred in connection with
the listing of the Registrable Securities, (vi) reasonable fees and
disbursements of counsel for the Company, (vii) in connection with a Demand
Registration pursuant to Section 2.1 only, reasonable fees and disbursements of
counsel for the Holder commencing the demand registration (not to exceed $25,000
in the aggregate), (viii) customary fees and expenses for independent certified
public accountants retained by the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters in customary form if
such letter may be rendered under then-applicable standards of professional
conduct), and (ix) the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration. The Company shall
have no obligation to pay (A) any fees and expenses of counsel for the Holders
(except as specified in clause (vii) above), or (B) any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
Section 4.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Holder, its officers, directors, employees and
agents, and each Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, together
with the partners, officers, directors, employees and agents of such controlling
Person (collectively, the "Controlling Persons"), from and against any loss,
-------------------
claim, damage, liability, reasonable attorneys' fees, cost or expense and costs
and expenses of investigating and defending any such claim (collectively, the
"Damages"), joint or several, and any action in respect thereof to which any
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such
8
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Holder, its officers, directors, employees and agents, and each such Controlling
Person for any legal and other expenses reasonably incurred by such Holder, its
officers, directors, employees and agents, or any such Controlling Person in
investigating or defending or preparing to defend against any such Damages or
proceedings; provided, however, that the Company shall not be liable to a Holder
to the extent that (a) any such Damages arise out of or are based upon an untrue
statement or omission made in any preliminary prospectus if (i) the Holder
failed to send or deliver a copy of the final prospectus with or prior to the
delivery of written confirmation of the sale by or on behalf of the Holder to
the Person asserting the claim from which such Damages arise, and (ii) the final
prospectus would have corrected such untrue statement or such omission; or (b)
any such Damages arise out of or are based upon an untrue statement or omission
in any prospectus if (x) such untrue statement or omission is corrected in an
amendment or supplement to such prospectus, and (y) having previously been
furnished by or on behalf of the Company with copies of such prospectus as so
amended or supplemented, the Holder thereafter fails to deliver such prospectus
as so amended or supplemented prior to or concurrently with the sale of a
Registrable Security to the Person asserting the claim from which such Damages
arise. The Company also agrees to indemnify any Underwriter, selling brokers or
other person participating in the distribution of the Registrable Securities,
their officers and directors and each Person who controls such Underwriter or
other person on substantially the same basis as that of the indemnification of
the Holders provided in this Section 4.1 and to acknowledge such indemnification
in writing if reasonably requested to do so.
Section 4.2 Indemnification by Holders. Each Holder agrees to
--------------------------
indemnify and hold harmless the Company, along with its officers, directors,
employees and agents and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the partners, officers, directors, employees and agents of
such controlling Person, to the same extent as the foregoing indemnity from the
Company to the Holders, but only with reference to information related to such
Holder, or its plan of distribution, either (a) furnished in writing by the
Holder or on its behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus, or (b) omitted by the Holder
from any registration statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus, and necessary to make the statements contained therein with respect
to the Holder or its plan of distribution not misleading. In case any action or
proceeding shall be brought against the Company or its officers, directors,
employees or agents or any such controlling Person or its partners, officers,
directors, employees or agents, in respect of which indemnity may be sought
against a Holder, such indemnifying Holder shall have the rights and duties
given to the Company, and the Company or its officers, directors, employees or
agents, controlling Person, or its partners, officers, directors, employees or
agents, shall have the rights and duties given to such Holder, under Section
4.1. Each Holder also agrees to indemnify and hold harmless any other Person
selling Registrable Securities and the Underwriters of the Registrable
Securities, and their respective officers and directors and each Person who
controls each other such other Person or Underwriter on substantially the same
basis as that of the indemnification of the Company provided in this Section
4.2. The Company shall be entitled to receive indemnities from Underwriters,
selling brokers,
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dealer managers and similar securities industry professionals participating in
the distribution, to the same extent as provided above, with respect to
information either (a) furnished in writing by such Persons specifically for
inclusion in any prospectus or registration statement or (b) omitted by such
Persons from any registration statement or prospectus and necessary to make the
statements contained therein about such Person and, if applicable, its plan of
distribution not misleading. In no event shall the liability of any Holder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
Section 4.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
-----------------
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
------------------
claim or the commencement of such action, provided that the failure to notify
the Indemnifying Party shall not relieve it from any liability except to the
extent of any material prejudice resulting therefrom. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Parry thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party; provided, that the
Indemnifying Party acknowledges, in a writing in form and substance reasonably
satisfactory to such Indemnified Party, such Indemnifying Party's liability for
all Damages of such Indemnified Party to the extent specified in, and in
accordance with this Article IV. After notice from the Indemnifying Party to
the Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its controlling
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of the Indemnified Party, representation of both parties by
the same counsel would be inappropriate due to actual or potential conflicts of
interest between them, it being understood, however, that the Indemnifying Party
shall not, in connection with any one such claim or action or separate but
substantially similar or related claims or actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Indemnified Parties, or for fees
and expenses that are not reasonable. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding. Whether or not the defense of any claim or action
is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.
Section 4.4 Contribution. If the indemnification provided for in
------------
this Article IV is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
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<PAGE>
payable by such Indemnified Party as a result of such Damages (i) as between the
Company and the Holders on the one hand and the Underwriters on the other, in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Holders on the one hand and the Underwriters on the other
from the offering of the Registrable Securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits but also the relative fault of the Company and the
Holders on the one hand and of the Underwriters on the other in connection with
the statements or omissions which resulted in such Damages, as well as any other
relevant equitable considerations, and (ii) as between the Company on the one
hand and the Holders on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of each Holder in connection with
such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Holders
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and each Holder bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company and each Holder
on the one hand and of the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and each Holder or by the
Underwriters. The relative fault of the Company on the one hand and of each
Holders on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4.4, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of the Holder were offered to the public (less underwriting discounts
and commissions) exceeds the amount of any damages which the Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation
The indemnity, contribution and expense reimbursement obligations
contained in this Article IV are in addition to any liability any Indemnifying
Party may otherwise have to an Indemnified Party or otherwise. The provisions
of this Article IV shall survive for a period equal to the statute of
limitations of the underlying claim under applicable law, notwithstanding any
transfer of the Registrable Securities by a Holder or any termination of this
Agreement.
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<PAGE>
ARTICLE V
MISCELLANEOUS
Section 5.1 Participation in Underwritten Registrations. No Person
-------------------------------------------
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and these registration rights;
provided that (i) a Holder shall not be required to make any representations or
warranties except those which relate solely to such Holder and its intended
method of distribution, and (ii) the liability of a Holder to any Underwriter
under such underwriting agreement will be limited to liability arising from
misstatements or omissions regarding such Holder and its intended method of
distribution and any such liability shall not exceed an amount equal to the
amount of net proceeds the Holder derives from such registration; provided,
however, that in an offering by the Company in which a Holder requests to be
included in a Piggy-Back Registration, the Company shall use its reasonable best
efforts to arrange the terms of the offering such that the provisions set forth
in clauses (i) and (ii) of this Section 5.1 are true; provided further, that if
the Company fails in its reasonable best efforts to so arrange the terms, the
Holder may withdraw all or any part of its Registrable Securities from the
Piggy-Back Registration and the Company shall reimburse the withdrawing Holder
for all reasonable out-of-pocket expenses (including reasonable out-of-pocket
counsel fees and expenses) incurred prior to such withdrawal.
Section 5.2 Holdback Agreements. Sterling Commerce shall comply with
-------------------
all of its obligations set forth in Section 2.2(b) of the Stockholders
Agreement.
Section 5.3 Amendment and Modification. Any provision of this
--------------------------
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
Except for a waiver applicable to a single party and consented to by that party,
this Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the Company, Sterling Commerce and SARF. No course
of dealing between or among any Persons having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any Person under or by reason of this
Agreement.
Section 5.4 Successors and Assigns; Entire Agreement. (a) This
----------------------------------------
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
and executors, administrators and heirs; provided, however, that except as
otherwise specifically permitted pursuant to this Agreement, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by the Company without the prior written consent of Sterling Commerce
and SARF. If a Holder shall acquire additional Equity Shares, such Equity Shares
shall, except as otherwise expressly provided herein, be held subject to (and
entitled to all the benefits of) all of the terms of this Agreement.
(b) This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and
12
<PAGE>
understandings of any and every nature among them.
Section 5.5 Separability. In the event that any provision of this
------------
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 5.6 Notices.
-------
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, telecopier, or overnight air courier
guaranteeing next day delivery:
(a) if to Sterling Commerce, at 4600 Lakehurst Court, Dublin, Ohio
43103, Attention: Al Hoover, with a copy (which shall not
constitute notice) to Skadden, Arps, Slate Meagher & Flom, LLP,
919 Third Avenue, New York, New York 10022, Attention: Eric J.
Friedman, Esq.;
(b) if to SARF, at Les Cascades Building, Edith Cavell Street, Port
Louis, Mauritius, with a copy to Commonwealth Development Corporation, One
Bessborough Gardens, London SW1V 2JQ, England, with a copy to CDC Advisors PVT
Ltd., Thapar Niketan, 7/4 Brunton Road, Bangalore - 560 025, India; and
(c) if to the Company, at Maansarovar Towers, 271-A, Anna Salai,
Teynampet, Chennai - 600 018, India, with a copy to IInd Floor, Mayfair Centre,
1-8-303/36, S.P. Road, Secunderabad - 500 003, India, with a copy to M.G.
Ramachandran, B 12 Kalindi Colony, New Delhi - 110 065, India, and to Latham &
Watkins, 135 Commonwealth Drive, Menlo Park, California 94025, Attention:
Anthony J. Richmond, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt
acknowledged, if telecopied; and the next business day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
Section 5.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal law of the State of New York, without
giving effect to principles of conflicts of law.
Section 5.8 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
Section 5.9 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original
instrument and all of which together shall constitute one and the same
instrument.
13
<PAGE>
Section 5.10 Further Assurances. Each party shall cooperate and take
------------------
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 5.11 Termination. Unless sooner terminated in accordance
-----------
with its terms or as otherwise herein provided, this Agreement shall terminate
upon the earlier to occur of (i) the mutual agreement by the parties hereto,
(ii) such time as no Holder holds at least one percent (1.0%) of the outstanding
Equity Shares and all of each such Holder's Equity Shares may be resold in one
90-day period without (x) a volume limitation or (y) reliance on Rule 144(k) or
(iii) the three-year anniversary of an Initial Public Offering.
Section 5.12 Remedies. In the event of a breach or a threatened
--------
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall
be specifically enforceable, it being agreed by the parties that the remedy at
law, including monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense or objection in any
action for specific performance or injunctive relief that a remedy at law would
be adequate is waived.
Section 5.13 Pronouns. Whenever the context may require, any
--------
pronouns used herein shall be deemed also to include the corresponding neuter,
masculine or feminine forms.
Section 5.14 Recapitalization, Exchanges, etc. If any capital stock
--------------------------------
or other securities are issued in respect of, in exchange for, or in
substitution of, any Equity Shares by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Equity Shares or any other change in capital
structure of the Company, then appropriate adjustments shall be made with
respect to the relevant provisions of this Agreement so as to fairly and
equitably preserve, as far as practicable, the original rights and obligations
of the parties hereto under this Agreement and the term "Equity Shares" as used
herein, shall be deemed to include shares of such capital stock or other
securities, as appropriate. Without limiting the foregoing, whenever a
particular number of Equity Shares is specified herein, such number shall be
adjusted to reflect stock dividends, stock-splits, combinations or other
reclassifications of stock or any similar transactions.
Section 5.15 Arbitration.
-----------
(a) Any and all claims, disputes, questions or controversies
involving the parties hereto and arising out of or in connection with this
Agreement, or the execution, interpretation, validity, performance, breach or
termination hereof (collectively, "Disputes") shall, upon the written request of
--------
any party to this Agreement, be first referred to senior officers of each party
for resolution. The senior officers shall meet immediately and attempt to
negotiate a resolution of the Dispute. If such officers, negotiating in good
faith, are unable to resolve and settle the dispute within fifteen (15) calendar
days after the Dispute is first submitted to them, then any such officer shall
be entitled to cause the Dispute to be submitted for settlement pursuant to the
terms of Section 5.15(b).
14
<PAGE>
(b) Any Dispute which is not settled after an attempt by the parties
hereto by amicable negotiation under Section 5.15(a) shall be resolved by final
and binding arbitration. The arbitration shall be held in London in accordance
with the Rules of the International Chamber of Commerce as then existing and
shall be heard and determined by an arbitral tribunal composed of three (3)
arbitrators. Each party shall nominate one arbitrator within thirty (30) days
after the date on which the Dispute is submitted for settlement pursuant to this
5.15(b), and both of such arbitrators shall nominate a third arbitrator, who
shall serve as the Chairman of such arbitral tribunal, within sixty (60) days
after the date on which the Dispute is submitted to arbitration pursuant to this
5.15(b). If any arbitrator has not been named within the time limits specified
herein, such appointment shall be made by the International Court of Arbitration
of the International Chamber of Commerce, upon the written request of any party,
if possible within thirty (30) days of such request. In the event there are
more than two parties to a Dispute, whether as claimants or respondents, the
procedure for selection of arbitrators remains the same as above, except that
each of the multiple claimants and/or respondents shall jointly appoint an
arbitrator.
(c) Neither the existence of any Dispute nor the fact that any
arbitration is pending hereunder shall relieve either party hereto of its
respective obligations under this Agreement.
(d) Each party agrees that all of the transactions contemplated by
this Agreement shall constitute and shall be deemed to constitute commercial
activities. To the extent that any party may be entitled in any jurisdiction
whatsoever to claim immunity, whether characterized as sovereign or otherwise,
from litigation, execution, set-off, attachment or other legal process of any
nature whatsoever, it hereby expressly and irrevocable waives such immunity.
(e) Any arbitration proceedings, decision or award rendered hereunder
and the validity, effect and interpretation of this arbitration agreement shall
be governed by the laws of the place of arbitration and by the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June
10, 1958. The award shall be final and binding on the parties and judgment upon
any award may be entered in any court of competent jurisdiction.
(f) To the fullest extent permitted by law, the parties hereby waive
any rights of appeal to any court of competent jurisdiction with respect to any
question of law arising in the course of the arbitration or with respect to any
award, whether interlocutory or final. The parties expressly agree that leave to
appeal or state a special case under Section 45 or Section 69 of the English
Arbitration Act of 1996 shall not be sought with respect to any question of law
arising during the course of the arbitration or with respect to any award made.
However, the parties do not intent to deprive any court of its jurisdiction to
issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid
of the arbitration proceedings or in connection with the enforcement of any
award. Without prejudice to the availability of provisional remedies under the
jurisdiction of a competent court, the arbitral tribunal shall have fully
authority to grant provisional remedies.
(g) The arbitral tribunal may consolidate an arbitration arising
under or relating to this Agreement, the Stock Purchase Agreement, dated as of
even date herewith, by and between the Company and Sterling Commerce, and the
Registration Rights Agreement, dated as of even date herewith, by and among the
Company, Satyam Computer Services Limited and Sterling Commerce with
15
<PAGE>
any other arbitration arising under or relating to any of these agreements, if
the subject of the disputes in the arbitrations arises out of or relates
essentially to the same set of facts or transactions, and no party would be
prejudiced thereby. Such consolidated arbitration(s) shall be determined by the
arbitral tribunal appointed for the arbitration proceeding that was commenced
first in time.
(h) The arbitration proceedings conducted pursuant to this Agreement
shall be confidential. Neither party shall disclose or permit the disclosure of
any information about the evidence adduced or the documents produced by the
other party in the arbitration proceedings or about the existence, contents or
results of the arbitration without the prior written consent of the other party
except as required by law or in the course of a judicial, regulatory or
arbitration proceeding, as may be requested or required by a governmental
authority or as required for the enforcement of an arbitral award. Before
making any disclosure permitted by the preceding sentence, the party intending
to make such disclosure shall give the other party reasonable written notice of
the intended disclosure and afford the other party a reasonable opportunity to
protect its interests.
(Signature pages follow)
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SATYAM INFOWAY LIMITED
By: /s/ R. Ramaraj
_______________________
Name: R. Ramaraj
Title: Managing Director
Witnessed by:
/s/ K. Thiagarajan
___________________________
Name: K. Thiagarajan
Title: General Manager - Finance
STERLING COMMERCE, INC.
By: /s/ Albert K. Hoover
------------------------
Name: Albert K. Hoover
Title: Senior Vice President and General Counsel
Witnessed by:
/s/ Shelly R. Boggs
---------------------------
Name: Shelly R. Boggs
Title: Legal Administrative Assistant
SOUTH ASIA REGIONAL FUND
By: /s/ [Illegible]
------------------------
Name:
Title:
Witnessed by:
/s/ [Illegible]
---------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT 10.3
GOVERNMENT OF INDIA
MINISTRY OF COMMUNICATIONS
DEPARTMENT OF TELECOMMUNICATIONS
TELECOM COMMISSION
LICENCE AGREEMENT
FOR PROVISION OF
INTERNET SERVICE
NO. 820-49/98-LR DATED 12th November, 1998
TOTAL PAGES Twenty Nine (29) + (3)
<PAGE>
CONTENTS
<TABLE>
<S> <C>
1. Licence Agreement.......................................................... 3
2. Schedule `A' -- Service Area............................................... 8
3. Schedule `B' -- Quantum of Licence......................................... 9
4. Schedule `C'............................................................... 9
PART I - DEFINITIONS................................................. 9
PART II - TERMS AND CONDITIONS........................................ 12
Condition 1: Requirement to provide the service.......................... 14
Security consideration...................................... 15
Application of Indian Telegraph Act......................... 17
Prohibition of certain activities........................... 17
Application of the TRAI Act................................. 18
Condition 2: Acceptance Testing and Quality Assurance:................... 19
Condition 3: Delivery of the Services.................................... 19
Condition 4: Complaint - Booking and Treatment........................... 20
Condition 5: Right to Inspect............................................ 20
Condition 6: Force - Majeure............................................. 21
Condition 7: Interconnection with other networks......................... 21
Condition 8: Requirement to Furnish Information to the Licensor/Telecom
Authority................................................... 23
Condition 9: Extension of Licence........................................ 23
Condition 10: Termination of Licence...................................... 23
Condition 11: Disputes with other parties................................. 26
Condition 12: Arbitration of Disputes..................................... 27
Condition 13: Financial Conditions........................................ 27
Condition 14: Set Off..................................................... 29
PART III - COMPLIANCE STATEMENT........................................ 26
</TABLE>
2
<PAGE>
LICENCE AGREEMENT
-----------------
THIS AGREEMENT made on the 12th day of November 1998 between the
President of India acting through Assistant Director General (LR-1), Ministry of
Communications, Department of Telecommunications, Sanchar Bhavan, 20, Ashoka
Road, New Delhi-110 001 (hereinafter called the LICENSOR) of the ONE PART
And
M/s SATYAM INFOWAY (P) LIMITED a company registered under the
Companies Act 1956 and having its registered office at MayFair Centre, 1-
38/303/36, S.P. Road, Secunderabad (hereinafter called the LICENSEE which
expression shall unless repugnant to the context, include its successor in
business, administrators, liquidators and assigns or legal representatives) of
the OTHER PART.
WHEREAS pursuant to the request of the LICENSEE, the LICENSOR has
agreed to grant licence to the LICENSEE on the terms and conditions appearing
hereinafter to establish, maintain and operate Internet Service (hereinafter
called the SERVICE) in the country of India as given in Schedule "A" annexed
hereto and the LICENSEE has agreed to accept the same.
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
1. In consideration of observance of mutual covenants as well as payment of
the licence fee payable in terms of schedule 'B' and due performance of all the
terms and conditions on the part of the LICENSEE, the LICENSOR does, hereby,
grant on nonexclusive basis, licence to establish, maintain and operate Service
in the area given in Schedule "A", on the terms and conditions mentioned in
Schedule "C" annexed hereto.
2. The licence is granted initially for a period of 15 years unless terminated
for default or for insolvency or for convenience or for transfer of the licence
under the provisions of condition "12" of Part II, Schedule "C". If requested
by LICENSEE, extension of the Licence, unless terminated earlier under condition
"10" of the Schedule "C" Part -II, may be granted by the LICENSOR at suitable
terms and conditions for a period of FIVE YEARS or more at one time. The
decision of the LICENSOR in this respect shall be final. The Licensor may
extend or refuse the extension of the Licence on request of the licensee
received latest by the end of 14/TH/ YEAR from the effective date and in the
absence of such request for extension, the Licence shall automatically be
terminated as per due date.
3. The licence shall be governed by the provisions of the Indian Telegraph Act
1885, Indian Wireless Telegraphy Act 1933 and TRAI Act 1997 as modified from
time to time.
3
<PAGE>
4. Unless otherwise stated or appearing from context, all the schedules
annexed hereto including the certificates given along with application form and
Guide lines on Internet service no. 845-51/97-VAS will form part and parcel of
this agreement. Provided, however, in case of conflict or variance on an issue
relating to this agreement, the terms set out in the main body of this agreement
read with all the Schedules annexed hereto shall prevail.
5. In this Agreement, words and expressions will have the same meaning as is
respectively assigned to them in Schedule "C".
6. The LICENSOR may at any time revoke the Licence by giving a written notice
of 30 days after affording a reasonable opportunity of hearing on the breach of
any of the terms and conditions herein contained or in default of payment of any
consideration payable by the Licensee as provided hereunder.
7.1 The LICENSEE shall clearly indicate the specifications of the
SERVICE to the subscribers at the time of entering into contract with such
subscriber.
7.2 In case of any complaint or dispute with regard to the Service from
any subscriber of the service, such complaint or dispute shall be a matter
between such subscriber of the service and the licensee only. The
Government/licensor, DOT, MTNL, VSNL or any other service provider licensed to
provide connectable systems shall not be party to any such complaint/dispute.
The licensee shall be responsible to suitably notify the above to all his
subscribers of the service before registering a request for and provisioning of
the service.
7.3 The Licensee shall be solely responsible for installation, networking
and operation of necessary equipment and systems, treatment of subscribers'
complaints, issue of bills to its subscribers, collection of the revenue,
attending to claims and damages arising out of the services provided by him.
The LICENSEE shall make its own arrangements for all infrastructures involved in
providing the SERVICE. Further the Licensee shall clearly display and publicise
major specifications of subscriber terminal equipment at his premises which are
necessary for interworking/interfacing to telephone network.
8. The licensee shall be free to fix his own tariff to be charged from
subscribers. The tariff shall be left open to be decided by market forces.
However, the TRAI (Telecom Regulatory Authority of India) may review and fix a
tariff at any time during the validity of the licence which shall be binding on
the Licensee.
8.1 The licensee shall be responsible to obtain its own IP address and
domain name from the competent authorities. In case the IP addresses are taken
from the Department of Telecommunications, the same are non-portable and have to
be returned to DOT at the termination of connectivity contract.
4
<PAGE>
9. The Performance Bank Guarantee of requisite amount shall be furnished from
time to time by the LICENSEE as required under the terms and conditions of this
Licence Agreement and in the proforma as provided in Schedule 'D' annexed
hereto.
10. The LICENSEE shall not, without the prior written consent of the Licensor,
either directly or indirectly, assign or transfer its rights in any manner
whatsoever to any other party or enter into any agreement for sub-licence and/or
partnership relating to any subject matter of the licence to any third party
either in whole or in part. Any violation of this term shall be construed as a
breach of Licence Agreement and the licence shall be liable for termination.
Provided, however, that installation of systems, equipment and network can be
given on contract, but, providing the SERVICE can not be given to another party
on contract. Provided, further, that the licensee can always employ or appoint
agents and servants.
Provided, that the aforesaid written consent permitting transfer or
assignment will be granted in accordance with the terms and conditions and
procedures described in Tripartite Agreement if duly executed amongst LICENSOR,
LICENSEE and LENDERS.
11. The LICENSOR reserves the right to, in case of a default of any of the
terms and conditions stipulated in the Licence Agreement, impose any penalty as
it may deem fit under the provisions of this agreement.
12. Notwithstanding anything contained hereinbefore, it is further agreed and
declared by the parties that:
(i) The licence is issued on non-exclusive basis i.e. other vendors may be
granted licence for the same service in the same area at the discretion of the
Licensor. DOT itself or through a designated Public Authority, has the right to
operate the service in any/all service areas.
(ii) The LICENSOR reserves the right to modify at any time the terms and
conditions of the licence covered under Schedule "A", "B", "C" and "D" annexed
hereto, if, in the opinion of the LICENSOR, it is necessary or expedient to do
so in the interest of the general public or for the proper conduct of telegraphs
or on security consideration, provided further that the licensor reserves right
to review the terms of this agreement based on the policy of further
liberalization whenever articulated in the context of New Telecom Policy.
(iii) Notwithstanding anything contained anywhere else in the Licence
Agreement, the LICENSOR's decision shall be final on all matters relating to
this Agreement and application of terms and conditions herein.
(iv) The LICENSOR reserves the right to take over the entire services,
equipment and networks of the LICENSEE, in part or in whole of the Service Area,
or revoke/terminate/suspend the licence in the interest of national security or
in the event of a national emergency/war or low intensity conflict or any other
eventuality in public
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interest as declared by the Government of India. The specific orders or
directions from the Government issued under such conditions shall be applicable
to the LICENSEE.
13. Individuals or groups of organisations both in private and Government
sectors are permitted to deploy, indigenous or imported, encryption equipments
for providing secrecy in transmission up to a level of encryption to be
specified by Telecom Authority. However, if encryption equipments of levels
higher than specified are to be deployed, individuals/groups/organisations shall
obtain Government clearance and shall deposit one set of keys with the Telecom
Authority.
14. In supersession of any thing provided elsewhere, the effective date of this
licence shall be 12.11.98.
15. The Licence is granted to the LICENSEE on the condition that any change in
the Indian Partners or their equity participation should be as stipulated in the
Indian Companies Act 1956.
The LICENSEE shall be responsible to ensure that the total foreign
equity in the LICENSEE Company does not, at any time, exceed 49% of the total
equity.
The present Indian & Foreign partners/promoters and their equity held
in the LICENSEE Company as intimated by the company are recorded as follows:
<TABLE>
<CAPTION>
Equity held in the
Promoter/partner Indian/Foreign LICENSEE Company
<S> <C> <C>
Promoters Indian 33%
F.I.I. Foreign 28%
Mutual Funds Indian 15%
Public Indian 28%
</TABLE>
16. All matters relating to this licence will be subject to jurisdiction of
Courts in Delhi/New Delhi only.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed through their respective authorised representatives the day and year
first above written.
[illegible]
Signed and Delivered for and on behalf of President of India
By Shri P.C. TERWARI
------------
Assistant Director General (LR-1), DOT
Signed on behalf of M/s SATYAM INFOWAY LIMITED
By AJOY DASGUPTA, holder of General Power of Attorney dated 4-11-98
executed in accordance with the Resolution No. ___________ dated 3-10-98 passed
by the Board of Directors, in the presence of:
Witnesses:
1. [illegible]
---------------------
2. [illegible]
---------------------
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Schedule A
----------
SERVICE AREA - 'A'
The service area under the scope of this licence is "WHOLE OF INDIA".
For the purpose of providing the service, the licensee may install his equipment
anywhere within the service area. However, the subscribers will be responsible
for procurement of Customer Premises Equipment (CPE). The leased line
subscribers of the service shall be located within the service area. However,
this restriction does not apply to dial up subscribers. DOT is committed to
provide local call facilities to the nearest node. In case where the nearest
INTERNET node is located in a different local area, the local call facility will
be available to that node. However, as soon as a node is set up in the local
area, this facility will cease.
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Schedule 'B'
1.1 QUANTUM OF LICENCE FEE AND SCHEDULE OF PAYMENTS
(i) The licence fee is payable by the licensee in consideration
for grant of this licence, for the complete duration for which this licence is
granted. This has no relation to the actual start/provision of service by the
licensee or any mutual obligations between the licensee and any other service
provider/DOT/MTNL/VSNL/Departments of the Central or State Government/local or
statutory bodies .
(ii) The Telecom Authority has decided to waive the Licence Fee
for a_period up to 31.10.2003. For those ISPs also who obtain licences prior to
01.11.2003, a nominal licence fee of One Rupee per annum will become payable
from 01.11.2003.
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Schedule 'C'
Part I. DEFINITIONS, INTERPRETATIONS AND PROVISIONS
RELATING TO THE CONDITIONS
Unless the context otherwise requires, the following expressions shall
have the meaning assigned to them in these conditions:-
1. APPLICABLE SYSTEMS: The "applicable system" means all the necessary
equipments/systems engineered to provide INTERNET Service as per
operational/technical and quality requirements and other terms and conditions of
the licence agreement and as laid down in the Guidelines for INTERNET Service
No. 845-51/97-VAS .
2. CONNECTABLE SYSTEM means a telecommunication system which is
authorised to be run under a licence which can be connected to the applicable
system.
3. THE AUDITOR means the Licensee's auditor for the time being appointed
in accordance with the requirements of the Companies Act, 1956.
4. DIAS: DOT's Gateway Internet Access Services.
5. DIRECT EXCHANGE LINE (DEL): A telephone connection between the
subscriber's terminal equipment and a local exchange.
6. DOMAIN NAME: Domain names in India are at present registered by NCST
(National Centre for Software Technology), Mumbai, who allot the same to
legitimate IP address holder on receipt of a written application.
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7. DOT means Department of Telecommunications, India, Government of India
and/or its successors as the Licensor. Wherever the expression DOT is used to
mean a service provider, this will include MTNL also.
8. EFFECTIVE DATE: The date on which this Licence Agreement is signed by
the parties and if the parties have signed on different dates, the latter of the
two dates.
9. EMERGENCY means an emergency of any kind, including any circumstances
whatever resulting from major accidents, natural disasters and incidents
involving toxic or radio-active materials.
10. EMERGENCY SERVICES means in respect of any locality, the relevant
public, police, fire, ambulance and coast guard services for that locality.
11. ENGINEERING; The technical application of the dimensioning rules and
results thereof in order to provide the specified GRADE OF SERVICE (G.O.S.).
12. GIAS, VSNL's Gateway Internet Access Services.
13. INTERNET: Internet is a global information system that:
*is logically linked together by a globally unique address, based on
Internet Protocol (IP) or its subsequent enhancements/upgradations;
*is able to support communications using the Transmission Control
Protocol/Internet Protocol (TCP/IP) suite or its subsequent
enhancements/upgradations, and all other IP compatible protocols; and
14. IP ADDRESSES: Operation of Internet Service requires IP addresses
which is at present a 32 bit binary address. This address is required for each
permanent connection on Internet. Typically, it is required for ports of
routers and other ISP equipment and also for leased line connections to be
provided to end users.
15. ISP: means Internet Service Provider licensed to provide Internet
Service under this licence.
16. LICENCE means a licence granted or having effect as if granted under
Section 4 of the Indian Telegraph Act 1885 and Indian Wireless Telegraphy Act
1933.
17. LICENSEE: A registered Indian Company that has been awarded licence
for providing the SERVICE.
18. LICENSOR shall refer to the President of India acting through any
authorised person, who granted Licence under Section 4 of Indian Telegraph Act
1885 and Indian Wireless Telegraphy Act 1933, unless otherwise specified.
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19. LOCAL AREA: Local Area is the Short Distance Charging Area (SDCA) of
Department of Telecommunication.
20. MESSAGE means anything falling within Sub Clause/paragraph (3) of
Section 3 of the Indian Telegraph Act 1885.
21. MTNL means Mahanagar Telephone Nigam Limited.
22. OPERATOR means any person who is authorised by the LICENSOR to run a
Relevant Connectable System.
23. SERVICE AREA: Separate licences shall be granted to any applicant
company for each service area. For this purpose, the country has been divided
into separate service areas in three categories as indicated below:
(i) Category "A" - This covers the territorial jurisdiction of the Union
of India except specified areas that may be notified to be excluded from time to
time.
(ii) Category "B" - Any of the 20 Territorial Telecom Circles, four Metro
Telephone Districts of Delhi, Mumbai, Calcutta or Chennai and four major
telephone districts of Ahmedabad, Bangalore, Hyderabad or Pune are Category 'B'
service areas. The four Metro Telephone Districts (Delhi, Mumbai, Calcutta &
Chennai) are not part of any Telecom Circle, whereas the four major Telephone
Districts Ahmedabad, Bangalore, Hyderabad & Pune) are part of respective Telecom
Circles.
(iii) Category "C" Service Area - Any Secondary Switching Area (SSA) of
DOT with geographical boundaries as on 1.4.98, will form a separate category "C"
Service Area with the exception that each of the four Metro Telephone Districts
of Delhi, Mumbai, Calcutta & Chennai and of four major Telephone Districts of
Ahmedabad, Bangalore, Hyderabad & Pune of the DOT with geographical boundaries
as on 1.4.98, will form a separate category "B" Service Area.
Applicants will be required to submit separate application for each
service area. The ISP will be required to set up his nodes i.e., Routes/servers
within the geographical limits of the service area. An applicant company may be
granted any number of licences. Also, there shall be no limit on number of
licences that can be granted in a particular service area. The leased line
subscribers shall be from within the service area. However, the ISP can offer
dial up service from any part of the country.
Existing E-Mail and VSAT Service Licensees may also obtain separate
ISP Licence for any number of the above mentioned service areas subject to
fulfillment of eligibility criteria.
24. SERVICES OR SERVICE means all types of Internet Access/content
services except telephony on Internet.
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<PAGE>
25. SERVICE PROVIDER means the Government and includes a licensee.
26. SUBSCRIBER - Subscriber means any person or legal entity who avails
the service from the licensee.
27. TELECOM AUTHORITY: The Director General, Telecommunications,
Government of India and includes any officer empowered by him to perform all or
any of the functions of the Telegraph Authority under the Indian Telegraph Act,
1885 or such other authority as may be established by law.
28. TECHNICAL SPECIFICATIONS: As laid down in the Guidelines for INTERNET
Service No. 845-51/97-VAS.
29. TARIFF: Charges payable by a subscriber for the service provided.
30. TRAI - means the Telecom Regulatory Authority of India established
under the TRAI Act, 1997.
31. VALIDITY OF THE LICENCE: The period for which this licence is
effective.
32. VSNL means "Videsh Sanchar Nigam Ltd."
33. W.P.C. means Wireless Planning & Co-ordination Wing of the Ministry of
Communications, Department of Telecommunications, Government of India.
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<PAGE>
SCHEDULE "C"
------------
Part II. TERMS AND CONDITIONS
Condition 1: REQUIREMENT TO PROVIDE TBE SERVICE
1.1 The LICENSEE shall commission the Applicable Systems within 18
months from the effective date of the licence and offer the service on demand to
its customers.
1.2 LICENSEE shall be solely responsible for the installation,
networking and operation of necessary equipment and systems, treatment of the
subscribers' complaints, issue of bills to its subscribers, attending to claims
and damages arising out of his operation. The LICENSEE shall make its own
arrangements for all infrastructures involved in providing the SERVICE.
1.3 For the purpose of providing the SERVICE, the LICENSEE shall
install his own suitable equipment so as to be compatible with the other service
providers' equipment and connect the same DIAS or GIAS or a Gateway owned by a
public/Government organisation for routing International Internet Traffic.
Private ISPs are also allowed to set up International Gateways after obtaining
security clearance/approval from Authority.
1.3.1 Internet Subscribers can procure their own terminal
equipment or lease the same from the ISP .
1.4 In the process of operating the SERVICE, the LICENSEE shall be
responsible for:
(i) The installation of the Internet Nodes i.e., routers/Servers
etc.
(ii) the proper operation and maintenance of his network
infrastructure;
1.5 If the LICENSEE has, in addition, leased or rented other
telecommunication resources from the DOT/MTNL/VSNL or any other Telecom Service
Provider authorised by the Government of India, purely for the purposes of
providing the service and networking its geographically dispersed equipment,
such resources will be a matter
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between the ISP and the service provider(s) and will be subject to tariff as
fixed by DOT/MTNL/VSNL/other Telecom Service Provider from time to time.
1.6 "WARRANTY AS TO QUALITY": The LICENSEE shall warrant that SERVICES
to be provided by him shall be of the acceptable grade, consistent with the
established and generally accepted standards.
1.7 The licensee shall provide to the Telecom Authority, a monthly
report indicating the details of ISP nodes or points of presence with their
locations. In case new nodes are to be installed, one month prior notice is
required to be given to the licensor .
1.8 The billing disputes or differences, between the LICENSEE and its
subscribers will be settled amongst themselves.
1.9 MTTR (Mean Time To Restore):
1.9.1 90% of faults resulting due to subscribers complaints
should be rectified within 24 hours and 99% within 3 days.
1.9.2 The Licensee will keep a record of number of faults and
rectification reports in respect of each service area and produce the same to
the Authority as and when required.
1.10 SECURITY CONSIDERATION:
1.10.1 Individuals or groups of organisations both in private
and Government sectors are permitted to deploy, indigenous or imported,
encryption equipments for providing secrecy in transmission up to a level of
encryption to be specified by Telecom Authority. However, if encryption
equipments of levels higher than specified are to be deployed,
individuals/groups/organisations shall obtain clearance from the Government of
India and shall deposit one set of keys with the Telecom Authority.
1.10.2 The LICENSEE shall provide to the LICENSOR, location
details of the equipment provided by ISP. Implementation of any installation of
the concerned equipment and execution of the concerned project shall be taken up
only after the approval by the LICENSOR and locations of these centres shall not
be changed without prior approval of the LICENSOR. This requirement shall be
applicable only to such areas as are sensitive from security point of view, as
may be notified from time to time by the LICENSOR.
1.10.3 Each ISP must maintain a log of all users connected and
the service they are using (mail, telnet, http etc.). The ISPs must also log
every outward login or telnet through their computers. These logs, as well as
copies of all the packets originating from the Customer Premises Equipment (CPE)
of the ISP, must be available in REAL TIME to
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<PAGE>
Telecom Authority. Type of logins, where the identity of the logged-in user is
not known, should not be permitted.
1.10.4 The LICENSEE shall provide necessary facilities to the
Government to counteract espionage, subversive act, sabotage or any other
unlawful activity. The said facilities to be provided by the LICENSEE will
depend upon the specific situation at the relevant time. Type and extent of
facility(ies) required shall be at the sole discretion of the Government of
India.
1.10.5 The LICENSEE shall not use any hardware/software which
are identified as unlawful and/or render network security vulnerable. The
LICENSEE shall make available, on demand, to the agencies authorised by the
Government Of India, full access to the equipment provided by the ISP for
technical scrutiny and detailed inspection.
1.10.6 All foreign personnel likely to be deployed by the
LICENSEE for installation, operation and maintenance of the LICENSEE's network
shall be required to obtain security clearance by the Government of India prior
to their deployment. The security clearance will be obtained from the Ministry
of Home Affairs, Government of India.
1.10.7 Software used by each ISP shall conform to a set of
latest operational requirements which will be periodically published by the
Telecom Authority.
1.10.8 LICENSOR shall have the right to take over the SERVICE,
equipment and networks of the LICENSEE either in part or in whole of the Service
Area as per directions if any, issued in the public interest or national
security by the Government in case of emergency or war or low intensity conflict
or any other eventuality. Provided any specific orders or direction from the
Government issued under such conditions shall be applicable to the LICENSEE and
shall be strictly complied with.
1.10.9 LICENSOR reserves the right to modify these conditions
or incorporate new conditions considered necessary in the interest of national
security.
1.10.10 On Security related issues, an Inter-Ministerial
Committee shall be set up consisting of the representatives of DOT, Cabinet
Secretariat, MHA, MOD, DOE and NIC and representatives from NASSCOM to look into
the technical aspects of monitoring of communications in this sector (including
Internet) to enable the setting up of the monitoring infrastructure (which, in
many cases, would have to be funded by the ISPs). Any condition imposed by this
Inter-Ministerial Committee during the validity of the licence shall be binding
on the licensee.
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1.11 APPLICATION OF INDIAN TELEGRAPH ACT:
1.11.1 The LICENSEE shall furnish all necessary means and
facilities as required for the application of provisions of Section 5(2) of the
Indian Telegraph Act, 1885, whenever occasion so demands.
At present Section 5(2) of Indian Telegraph Act reads as follows:
"on the occurrence of any public emergency or in the interest of
public safety, the Central Government or a State Government or any officer
specially authorised in their behalf by the Central Government or a State
Government may, if satisfied that it is necessary or expedient to do so in the
interests of the sovereignty and integrity of India, the security of the State,
friendly relations with foreign states or public order or for preventing
incitement to the commission of an offence for reasons to be recorded by order,
direct that any message or class of messages to or from any person or class of
persons or relating to any particular subject, brought for transmission by or
transmitted or received by any telegraph, shall not be transmitted or shall be
intercepted or detained or shall be disclosed to the Government making the order
or an officer thereof mentioned in the order:
Provided that press messages intended to be published in India, or
correspondents accredited to the Central Government or a State Government shall
not be intercepted or detained, unless their transmission has been prohibited
under this subsection."
1.11.2 The LICENSEE shall frame a set of commercial code that
govern registration, provisioning and tariffication for the services offered to
the public. This should be done before commercial launch of the service and
shall be consistent with the terms and conditions of licence.
1.11.3 Nothing provided and contained anywhere in this Licence
Agreement shall be deemed to affect adversely anything provided or laid under
the provisions of Indian Telegraphs Act, 1885 or any other law in force, as
enacted/amended from time to time.
1.12 PROHIBITION OF CERTAIN ACTIVITIES BY THE LICENSEE.
1.12.1 The LICENSEE shall not engage provision of any other
Telecom SERVICE unless so licensed.
1.12.2 For the avoidance of doubt, it is, hereby declared that
nothing contained in Condition 1.12.1 above shall preclude the LICENSEE from
engaging in advertising and promotional activities relating to any of the
Applicable Systems.
1.12.3 Telephony on the Internet: Telephony on the Internet is not
permitted. The licence will be liable for termination for any violation of this
clause of the Licence Agreement. The licensee shall also take measures on his
own and as and when directed by the Government at his own cost to bar carriage
of Telephone traffic over Internet.
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1.12.4 Obscene material and applicability of Cyber Laws:
The LICENSEE shall ensure that objectionable, obscene, unauthorized or
any other content, messages or communications infringing copyright, Intellectual
property right and international & domestic cyber laws, in an form or
inconsistent with the laws of India, are not carried in his network, the ISP
should take all necessary measures to prevent it. In particular, LICENSEE is
obliged to provide, without delay, all the tracing facilities of the nuisance or
malicious messages or communications transported through his equipment and
network, to authorised officers of Government of India/State Government, when
such information is required for investigations of crimes or in the interest of
national security. Cyber Laws as and when framed shall be applicable. Any
damages arising out of default an the part of licensee in this respect shall be
sole responsibility of the licensee.
1.12.5 The use of the network for anti-national activities would
be construed as an offence punishable under the Indian Penal Code or other
applicable law. The networks cannot be used in such a manner as to endanger or
make vulnerable a networked infrastructure. Acts such as break-ins or attempted
break-ins of Indian networks shall be regarded as an anti-national act and shall
be dealt with in accordance with the Indian Penal Code. ISPs must ensure that
their services are not used for such purposes.
1.12.6 In case any confidential information is divulged to the
LICENSEE for proper implementation of the Agreement, it shall be binding on the
LICENSEE, its sub-contractors, agents and servants to maintain its secrecy and
confidentiality.
1.13 APPLICATION OF THE TRAI ACT 1997
The licence shall be governed by the provisions of the TRAI Act, 1997,
as modified from time to time. The attention of the licensee is specifically
drawn to the following provisions of the TRAI Act 1997 which reads as follows:
Section 11.(1) Notwithstanding anything contained in the Indian
Telegraph Act 1885, the functions of the Authority shall be to
(c) ensure technical compatibility and effective inter-connection
between different service providers;
(i) protect the interest of the consumers of telecommunication
service;
(j) monitor the quality of service and conduct the periodical survey
of such provided by the service providers;
(k) inspect the equipment used in the network and recommend the type
of equipment to be used by the service providers
Section 12(l) Where the Authority considers it expedient to do so, it
may, by order in writing,
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(a) call upon any service provider at any time to furnish in writing
such information or explanation relating to its affairs as tile Authority may
require; or
(b) appoint one or more persons to make an inquiry in relation to the
affairs of any service provider; and
(c) direct any of its officers or employees to inspect the books of
account or other documents of any service provider.
CONDITION - 2: ACCEPTANCE TESTING & QUALITY ASSURANCE:
2.1 ACCEPTANCE TESTING:
The Acceptance Testing of any interface equipment connected to the DOT
network will be carried out by the Acceptance Testing party of the DOT. The
Acceptance Testing schedule shall be mutually agreed. Adequate time, not less
than 30 days, will be given by the licensee for these tests.
2.2 QUALITY ASSURANCE:
The Telecom Authority shall have right to check and measure the
quality of service provided by the licensee at any time during the currency of
the licence.
The LICENSEE shall submit to the LICENSOR a half yearly report on the
quality of SERVICE offered to its subscribers indicating the levels of
performance achieved.
CONDITION 3: DELIVERY OF THE SERVICES
3.1 The LICENSEE shall be responsible for installation, testing and
commissioning of all the equipment to provide the services. It will be the
responsibility of the Licensee to obtain IP address, domain name etc. from
competent authority. (In case the IP addresses are taken from the Department of
Telecommunications, the same are nonportable and have to be returned to DOT at
the termination of connectivity contract.) However, all performance tests
required for successful commissioning of the service may also be carried out by
the LICENSOR, if it so desires, before the services are commissioned for public
use. The LICENSEE shall supply all necessary literature, drawings, installation
materials regarding the equipment installed for commissioning of the services,
The LICENSEE shall supply all the tools, test instruments and other accessories
to the testing party of the LICENSOR for conducting the tests.
3.2 The licensee shall provide service within 18 months from the date of
signing of the licence agreement. Date of commercial launch will be the date on
which full commercial services are provided to the subscribers.
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3.3 The list of performance tests will be furnished by the LICENSEE one
month prior to the date of commissioning to the LICENSOR.
3.4 In case the Licensor chooses to conduct performance test, delay caused
due to rectification of deficiencies, if any, in the commissioning/provision of
SERVICES, will be to the account of the LICENSEE.
3.5 The LICENSEE shall provide the SERVICE in the Service Area to any
individual or legal person including customers located in Rural Belt(s) of the
licensed service area without any discrimination unless directed by the LICENSOR
in writing to so refuse.
3.6 The LICENSEE indemnifies the LICENSOR against all actions brought
against the LICENSOR for breach of privacy or unauthorised interruption of data
transmitted by the subscribers.
CONDITION 4: COMPLAINT - BOOKING AND TREATMENT
4.1 The LICENSEE shall be responsive to the complaints lodged by his
subscribers. He shall rectify the defects within the MTTR specified.
4.2 The LICENSEE shall equip himself with adequate system to deal with the
complaints from his subscribers, test the part of the equipment and external
plant wherever relevant, and take necessary corrective measures to bring the
faulty elements back into satisfactory operation. It shall maintain the history
sheets for each installation, statistics and analysis on the overall maintenance
status.
4.3 The Licensee shall log all complaints reported by his subscribers
chronologically and with details of action taken on the same.
CONDITION 5: RIGHT TO INSPECT
The LICENSOR, or its authorised representative shall have the right to
inspect the internet nodes set up by the Licensee to give service to his
subscribers. The LICENSOR shall, in particular but not limited to, have the
right to have access to leased lines, junctions, terminating interfaces,
hardware/software, memories of semiconductor, magnetic and optional varieties,
wired options, distribution frames, and to enter into dialogue with the system
through Input/output devices or terminals. The LICENSEE will provide the
necessary facilities for continuous monitoring of the same, if required by the
LICENSOR or its authorised representative(s). The LICENSOR will ordinarily
carry out inspection after reasonable notice except in circumstances where
giving such a notice will defeat the very purpose of the inspection.
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CONDITION 6: FORCE - MAJEURE
If, at any time during the continuance of this licence, the
performance in whole or in part, by either party, of any obligation under it is
prevented or delayed, by reason of war or hostility, acts of the public enemy,
civil commotion, sabotage, fire, flood, Act of State or direction from Statutory
Authority, explosion, epidemic, quarantine restriction, strikes and lock-outs
(as are not limited to the establishments and facilities of the LICENSEE), or
act of GOD (each hereinafter referred to as EVENT), provided notice of
happenings of any such EVENT is given by either party to the other, within 21
days from the date of occurrence thereof, neither party shall, by reason of such
EVENT, be entitled to terminate the licence, nor shall either party have any
such claims for damage as against the other, in respect of such non-performance
or delay in performance. Provided SERVICE under the licence shall be resumed as
soon as practicable, alter such EVENT comes to an end or ceases to exist. The
decision of the LICENSOR as to whether the SERVICE may be so resumed (and the
time frame within which the SERVICE may be resumed) or not, shall be final and
conclusive. However, the Force Majeure events noted above will not in any way
cause extension of the period of Licence and will also not be a ground for non-
payment of Licence fee.
CONDITION 7: INTERCONNECTION WITH OTHER NETWORKS
7.1 Direct interconnectivity between two separately licensed ISPs shall be
permitted. Authorised public/Government organisations will be allowed to
provide INTERNET Gateway access including international leased circuits directly
without going through VSNL Gateways. Private ISPs are allowed to provide such
Gateways after obtaining Security clearances for which the Interface of Private
ISPs shall only be with the Telecom Authority.
7.2 The licensee may obtain the transmission link on lease from DOT,
Licensed Basic Service Operators, Railways, State Electricity Boards, National
Power Grid Corporation or any other operator specially authorised to lease such
lines to the ISPs. The licensee may also establish its own transmission links
within its service area for carrying traffic originated and terminated by his
subscribers, provided that such capacities are not available from any other
authorised agencies and subject to permission of Telecom Authority.
7.3 An ISP may provide Internet Service to any VSAT subscriber (who could
be served by a shared hub commercial service provider or captive private VSAT
network), if the VSAT is located within the service area of the ISP. For this
purpose, a direct interconnection of VSAT or VSAT-hub through leased line
obtained from an authorised provider to the ISP's node/server shall be permitted
only for the flow of Internet traffic. The existing Licence for Closed Users
Group Domestic 64 KBPS Data Network via Insar Satellite System does not grant
long distance carrier rights to the licensee. The ISP shall provide to the
Telecom Authority a monthly statement of VSAT subscribers served with
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their locations and details of leased line interconnection with the VSAT hub.
The VSAT hub, however, need not be located in the service area of the ISP.
7.4 Resources required for interconnecting the licensee's network to the
network of upstream internet access provider (DOT/VSNL etc.) or any other
service provider licensed by the Telecom Authority including time frame for
provision of the same, will be mutually agreed between the parties concerned.
The resources may refer to include, but not limited to physical junctions. PCM
derived channels, private wires, leased lines, data circuits and other network
elements. The licensee shall apply for and obtain the network resources from
the concerned parties. The tariff of such network resources is outside the
scope of this licence agreement. Licensor will have no obligation to obtain
such resources from other parties
7.5 Interconnectivity Requirements: Private ISPs shall use IP (Internet
Protocol) in conjunction with Transmission Control Protocol (TCP) and shall meet
the interface requirements of the Internet Access Providers such as
DOT/MTNL/VSNL to whose network, his node is connected. Some of the interfaces
required are given below:
Interface Requirements
(i) Subscriber Dial up Access
2 wire access over PSTN for modern interface.
2 wire dial up access on ISDIN Basic &- Primary rate interfaces.
(ii) Leased Line Interface
64K, N x 64K or 2.048 Mb/s, IN x 2.048 Mb/s Leased lines.
Frame Relay.
X.25
ATM
G. 703
Access to internet through authorised Cable Operator shall be
permitted without additional licensing subject to applicable Cable Laws (The
Cable Television Networks (Regulation) Act, 1995) as modified from time to time.
'Last mile' linkages shall be freely permitted within Local Area
either by fibre optic or radio communication for ISPs. In case of radio links,
clearance from WPC wing or the DOT shall be required to be obtained by the ISPs
to avoid frequency interference.
7.6 QUALITY OF SERVICE: The quality of service over internet is not
defined as yet. As such, the QUALITY OF SERVICE is not being defined for the
time being. However, it may be defined at a later date based on the experience
gained and inputs from the Internet Engineering Task Force (IETF).
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CONDITION 8: REQUIREMENT TO FURNISH INFORMATION TO THE LICENSOR/TELECOM
AUTHORITY
8.1 Subject to Condition 8.2, the LICENSEE shall furnish to the TELECOM
AUTHORITY, in such manner and at such times as the AUTHORITY may require, such
documents, accounts, estimates, returns or other information.
8.2 The LICENSEE may not be required to procure or furnish a report which
would not normally be available to it unless the TELECOM AUTHORITY considers the
particular report essential to enable it to exercise its functions.
8.3 Engineering details:
The LICENSEE shall furnish complete technical details including
traffic for proper engineering, planning and dimensioning of the interconnect
equipment at the network --network interface (NNI).
CONDITION 9: EXTENSION OF LICENCE:
This licence is valid initially for a period of FIFTEEN YEARS unless
-------------
terminated earlier. If requested by the LICENSEE, extension may be granted by
the LICENSOR at suitable terms for a period of five years or more at a time.
The decision of the LICENSOR shall be final in the matter. The LICENSOR shall
extend or refuse extension of the licence on a request received by it. Such
request for extension may be made during 14th year of Licence and in any case
before expiry of 14 years from effective date. If no request for extension is
received by then, the licence shall automatically stand terminated as per due
date.
The licence will ordinarily be renewed on such terms and conditions as
may be determined by the LICENSOR.
CONDITION 10: TERMINATION OF THE LICENCE:
10.1 TERMINATION FOR DEFAULT:
The LICENSOR may, without prejudice to any other remedy for breach of
conditions of licence, by written notice of 30 days, issued to LICENSEE at its
registered office 30 days in advance, terminate this licence in whole or part
under any of the following circumstances:
(a) if the LICENSEE fails to commission or deliver the SERVICE within
the time period(s) specified in the licence or in any extension thereof, if
granted by the LICENSOR. However, this does not prevent the licensee from
commissioning the
23
<PAGE>
service even after scheduled date of commissioning, provided the licence does
not already stand terminated and the Performance Tests are satisfactory.
(b) If the LICENSEE fails to perform any other obligation under the
Licence including remittance of timely payments of Licence fee due to the
LICENSOR and the LICENSEE does not rectify the failure within a notice period of
30 days or during such further period, as the LICENSOR may authorise in writing
in this regard.
In the event of such termination of licence, the amount equivalent to
Performance Bank Guarantee (PBG) shall be recovered by encashing the PBG and
money so recovered shall be forfeited. The Licensee shall not be entitled to
any damages or compensation for such termination.
10.2 TERMINATION FOR INSOLVENCY:
The LICENSOR may, at any time, terminate the licence without
compensation to him, if the LICENSEE becomes bankrupt or otherwise insolvent or
applies for being adjudicated as insolvent/bankrupt, provided such termination
shall not prejudice or affect any right or action which has accrued or will
accrue thereafter to the LICENSOR. The right of termination will arise on the
LICENSEE being adjudicated or applying for being adjudicated as bankrupt.
10.3 TERMINATION FOR CONVENIENCE:
If the LICENSEE desires to surrender the licence, it shall give an
advance notice of 30 days to the Licensor to this effect. If the service is in
operation, the licensee shall also intimate its subscribers of consequential
withdrawal of service by serving a 15 days notice to them. The financial
liability of the licensee company for termination of the licence for convenience
shall be as below:
(a) After start of service: If during the notice period, acceptable
level of service is not delivered to the customer, the Licensee shall forfeit
all claims on the Performance Bank Guarantee which shall be encashed and the
amount shall be adjusted towards damages.
(b) Before start of service: (Either prior to or after the scheduled
date of commissioning). Amount equivalent to Performance Bank Guarantee (PBG)
shall be recovered by encashment of PBG and money so recovered shall be
forfeited.
10.4 TERMINATION FOR TRANSFER OF THE LICENCE:
24
<PAGE>
The LICENSEE shall not, in any manner whatsoever, transfer the
licensing rights granted to it, to any other party without written consent of
Licensor. Any violation shall be construed as a breach of licence and the
licence shall be terminated in accordance with the provisions as contained in
condition 10.1 hereinabove.
10.5 ACTIONS PURSUANT TO TERMINATION OF LICENCE AS PER CLAUSES 10.1, 10.2,
10.3 AND 10.4 ABOVE:
10.5.1 In the event of termination of the licence, the LICENSOR
may procure upon such terms and conditions and in such manner as deemed
appropriate/fit, the required resources will make up for those not installed,
not delivered or not brought into commission so as to enable provision of
SERVICE and the LICENSEE shall be liable to the LICENSOR for any excess/extra
costs for such corrective efforts. The criteria for determining the terms and
conditions for such procurement will depend upon the market prices, prevailing
at the time of procurement. The decision of the LICENSOR in this matter shall be
final in all respects.
10.5.2 Whenever the licence is terminated or not extended, the
LICENSOR may, in order to ensure the continuity of the SERVICE, take such steps,
as are necessary, including the following:
(i) permit the Department of Telecommunications/MTNL or
its successor to take over; or
(ii) issue licence to another Indian Company for running
the SERVICE. The LICENSEE shall facilitate taking over by DOT/MTNL or the new
LICENSEE all those assets as are essential for the continuity of the SERVICE.
10.5.3 During the period when a notice for termination of licence
is pending, the Quality of Service to the Subscribers shall be maintained. If
the SERVICE quality is not maintained, (during the notice period), it will be
treated as breach of licence conditions and will be dealt with as such including
recovery of damages.
10.5.4 The Performance Bank Guarantee, if due, shall be returned
to the licensee company 6 months after the termination of the licence and after
ensuring clearance of any dues which the licensee company is liable to pay.
CONDITION 11: DISPUTES WITH OTHER PARTIES
11.1 In the event of any dispute of the LICENSEE with any other service
provider or any party other than licensor due to any reason whatsoever, the
dispute will be sorted out among themselves and LICENSOR will have no liability
in any manner. However, in case of dispute arising with other parties due to
non-observance of rules and regulations by the LICENSEE as provided in this
licence, the LICENSOR will have full powers to take any action against licensee
as is provided in the relevant clauses of this licence. The
25
<PAGE>
LICENSEE undertakes to indemnify LICENSOR in respect of any action against
LICENSOR for acts of commission or omission on the part of the LICENSEE, its
agents and servants.
CONDITION 12: ARBITRATION OF DISPUTES:
12.1 In the event of any question, dispute or difference between parties
arising under the licence, or in connection therewith, except as to the matter,
the decision of which is specifically provided under the licence, the same shall
be referred to the sole arbitration of the TELECOM AUTHORITY or in case its
designation has changed or its office is abolished, then, in such case, to the
sole arbitration of the officer for the time being entrusted, whether in
addition to his duties the functions of the TELECOM AUTHORITY or by whatever
designation such officer may be called (hereinafter referred to as the said
officer), and if the TELECOM AUTHORITY or the said officer is unable or
unwilling to act as such, to the sole arbitration, of some other person
appointed by the TELECOM AUTHORITY or the said officer. The arbitration
proceedings shall be in accordance with the Indian Arbitration and Conciliation
Act, 1996 and rules framed thereunder or any modifications or re-enactment
thereof made from time to time.
12.2 There will be no objection to any such appointment that the
Arbitrator is a Government Servant, or he has to deal with the matter to which
the licence relates. The award of the arbitrator shall be final and binding on
the parties. In the event of such Arbitrator, to whom the matter is originally
referred, being transferred or vacating his office, or being unable to act for
any reason whatsoever, in case the Telecom Authority or the said officer was
himself acting as an officer, his successor in office shall act as an Arbitrator
or may appoint some other person to act as an Arbitrator. In case the retiring
Arbitrator was a person appointed by the Telecom Authority or the said officer,
a new Arbitrator shall be appointed in his place by the Telecom Authority or the
said officer and the new Arbitrator shall be entitled to proceed from the stage
at which it was left out by his predecessor.
12.3 The venue of arbitration proceeding shall be the office of
TELECOM AUTHORITY at New Delhi or such other place as the arbitrator may decide.
CONDITION 13: FINANCIAL CONDITIONS
13.1 TARIFF: LICENSEE will be free to fix its own tariff to be charged from
subscriber. The tariff shall be left open to be decided by market forces. The
licensee company shall intimate the Telecom Authority, the tariff for the
service to be charged from its subscribers and any changes thereof. However,
the TRAI (Telecom Regulatory Authority of India) may review and fix a tariff at
any time during the validity of the licence which scale of tariff shall be
binding on the Licensee.
26
<PAGE>
13.2 OWNERSHIP OF THE CUSTOMER PREMISES EQUIPMENT: The provision of
Customer Premises Equipment (CPE) at subscriber's premises shall be
responsibility of the subscriber.
13.3 THE COMMUNICATION RESOURCES & OTHER SUPPORT FACILITIES: LICENSEE
will have to make its own arrangement for all infrastructure involved in
providing the SERVICE. However, the charges for any communication resources
required for the purpose of networking and delivery of Internet Traffic to the
upstream network access provider, i.e., DOT/MTNL/VSNL/or other licensed service
provider on the request of the LICENSEE will be at the rates fixed by the
DOT/MTNL/VSNL or other licensed service provider from time to time.
13.4 The LICENSEE shall be bound by the terms and conditions of the
licence granted as well as by such regulations and instructions as are issued by
the LICENSOR and/or its successors from time to time.
13.5 PREPARATION OF ACCOUNTS:
The LICENSEE shall;
(a) maintain and prepare accounting records, sufficient to show
and explain its transactions in respect of each financial year or part thereof
of the LICENCE during which this Licence is in force, or of such lesser periods
as the LICENSOR may specify, fairly presenting the costs (including capital
costs), revenue and financial position of the LICENSEE's business and including
a reasonable assessment of the assets employed in and liabilities attributable
to the LICENSEE's business.
(b) procure in respect of each of those accounting statements
prepared in respect of a financial year or part thereof of the LICENSEE, a
report by the LICENSEE'S Auditor stating whether in his opinion that statement
is adequate for the purposes of the condition; and
(c) deliver to the LICENSOR a copy of each of the accounting
statements not later than six months after the end of the period to which they
relate.
In this condition: the "Auditor" means the LICENSEE's auditor for
the time being appointed in accordance with the requirements of the Companies'
Act, 1956.
13.6 PERFORMANCE BANK GUARANTEE (PBG):
A performance bank guarantee of Rs. 2.00 crores for category 'A'
Service Area, Rs. 20.00 lakhs for each category 'B' Service Area and Rs. 3.00
lakhs for each category 'C' Service Area valid for two years from any Scheduled
Bank in the prescribed form (Schedule 'D' of the draft Licence Agreement) shall
be submitted along with the application for each service area. The licensee
will be liable to extend the validity of
27
<PAGE>
Performance Bank Guarantee two months prior to its date of expiry on its own
without demand from the Licensor for a further period of one year on year to
year basis. On any failure to do so which failures shall amount to the breach of
this Licence, the performance bank guarantee will be encashed without giving any
notice. This is without prejudice to any other action that may be taken under
the terms and conditions of the licence.
13.7 LICENSOR, without prejudice to its rights to any other remedies, is
free to encash the Performance Bank Guarantee in part or in full, in case of any
breach of terms and conditions of the licence by the LICENSEE including non-
payment of licence fee etc.
13.8 Breach or non-fulfillment of licence conditions may come to the
notice of the LICENSOR through complaints or as part of regular monitoring.
Wherever considered necessary, LICENSOR will conduct an inquiry to determine
whether there has been any breach of the terms and conditions of the licence.
The LICENSEE will be given an opportunity of hearing before any action adverse
to his interest is taken.
The LICENSOR shall decide in each case the penalty to be levied for
any breach of the terms and conditions of the Licence. If the penalty is not
discharged or complied with, the LICENSOR has the right to encash, in part or in
full, the Performance Bank Guarantees.
13.9 CHARGES FOR NETWORK RESOURCES
The LICENSEE shall also separately pay charges for network resources
provided to the Licensee on licensee's request by the Department of
Telecommunications /MTNL/VSNL/other licensed service providers at rates
applicable from time to time.
CONDITION 14: SETOFF
Any sum of money due and payable to the LICENSEE under this licence
may be appropriated by the Government or any other person or persons including
contracting through the Government of India and the same may be set off against
any claim of the Government or such other persons, for payment of a sum of money
arising out of this licence or under any other licence made by the LICENSEE with
the Government or such other person or persons including TELECOM AUTHORITY.
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<PAGE>
SCHEDULE `C'
Part III. COMPLIANCE STATEMENT
This company, hereby, agrees to fully comply with all General,
Technical, Commercial and Financial terms and conditions of the Application
Form, Guidelines and General Information on Internet Services and
amendments/clarifications issued by the Telecom Authority, without any deviation
and reservations.
The company, hereby, agrees and undertakes to fully comply with all
terms and conditions stipulated in this Licence Agreement without any deviation
and reservation.
Signature of the authorised signatory of the operating company
(Licensee).
For and on behalf of M/s SATYAM INFOWAY LIMITED
-----------------------
(Name of the Company)
[illegible]
29
<PAGE>
SCHEDULE - D
PROFORMA FOR PERFORMANCE BANK GUARANTEE
To
The President of India
Acting through the Telegraph Authority
In consideration of the President of India acting through the
Telegraph Authority (hereinafter referred to as 'the Authority') having agreed
to grant a licence to M/s _________________________ of _________________________
(hereinafter called the 'LICENSEE') to establish, maintain and operate Internet
service (hereinafter called 'the SERVICE') on the terms and conditions contained
in the said Licence, which interalia provides for production of a Bank Guarantee
to the extent of Rs ____________________________________ ( in words) for the
service by way of security for the due observance and performance of the terms
and conditions of the said licence we ______________________ (indicate the name
and address and other particulars of the Bank) (hereinafter referred to as 'the
Bank') at the request of the LICENSEE hereby irrevocably and unconditionally
guarantee to the Authority that the Licensee shall render all necessary and
efficient services which may be required to be rendered by the LICENSEE in
connection with and/or for the performance of the said LICENSEE and further
guarantees that the service which shall be provided by the LICENSEE under the
said licence, shall be actually performed in accordance with terms and
conditions of the LICENCE to the satisfaction of the Authority.
2. We, the bank hereby undertake to pay to the Authority an amount
not exceeding Rs _____________ (Rupees ___________ only) against any loss or
damage caused to or suffered or would be caused to or suffered by the Authority
by reason of any breach by the said LICENSEE of any of the terms and conditions
contained in the said licence.
3. We, the bank hereby, in pursuance of the terms of the said
licence, absolutely, irrevocably and unconditionally guarantee as primary oblige
and not merely as surety the payment of an amount of Rs ______________ (Rupees
____________________ only) to the Authority to secure due and faithful
performance by the LICENSEE of all his/their obligations under the said Licence.
4. We, the bank hereby also undertake to pay the amounts due and
payable under this guarantee without any demur, merely on a demand from the
Authority stating that the amount claimed is due by way of loss or damage caused
or would be
30
<PAGE>
caused to or suffered by the Authority by reason of breach by the said LICENSEE
of any of the terms or conditions contained in the said Licence or by reason of
the LICENSEE's failure to perform any of its obligations under the said Licence.
5. We, the bank, do hereby agree that the decision of the Authority
as to whether the licensee has failed to or neglected to perform or discharge
his duties and obligations as aforesaid and/or whether the service is free from
deficiencies and defects and is in accordance with or not of the terms &
conditions of the said Licence and as to the amount payable to the Authority by
the Bank hereunder shall be final and binding on the Bank.
WE, THE BANK, DO HEREBY DECLARE AND AGREE that:
(a) the Guarantee herein contained shall remain in full force and
effect for a period of two years from the date hereof and that it shall continue
to be enforceable till all the dues of the Authority and by virtue of the said
Licence have been fully paid and its claims satisfied or discharged or till
Authority satisfies that the terms and conditions of the said licence have been
fully and properly carried out by the said LICENSEE and accordingly discharged
this guarantee.
(b) the Authority shall have the fullest liberty without our consent
and without affecting in any manner our obligations hereunder to vary any of the
terms and conditions of the said Licence or to extend time of performance of any
obligations by the said LICENSEE from time to time or to postpone for any time
or from time to time any of the powers exercisable by the Authority against the
said LICENSEE and to forbear or to enforce any of the terms and conditions
relating to the said Licence and we shall not be relieved from our liability by
reason of any variation or extension being granted to the said LICENSEE or
forbearance act or omission on the part of the Authority or any indulgence by
the Authority to the said LICENSEE or to give such matter or thing whatsoever
which under the law relating to sureties would but for this provision, have
effect of so relieving us.
(c) any claim which we have against the LICENSEE shall be subject and
subordinate to the prior payment and performance in full of all the obligations
of us hereunder and we will not without prior written consent of the Authority
exercise any legal right or remedy of any kind in respect of any such payment or
performance so long as the obligations of us hereunder remains owing and
outstanding.
(d) This guarantee shall be irrevocable and the obligations of us
herein shall not be conditional of any prior notice by us or by the LICENSEE.
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<PAGE>
7. We the BANK undertake not to revoke this Guarantee during
__________ except with the previous consent of the Authority in writing.
Dated: __________________ day for___________________________
(name of the Bank)
witness:
1.______________________________ 2.__________________________________
________________________________ __________________________________
________________________________ __________________________________
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<PAGE>
Certificates:
1. I hereby certify that I have carefully read the guidelines and draft
License Agreement on Internet Service. I fully comply with the terms and
conditions therein.
2. I understand that this application, if found incomplete in any respect
and/or if found with conditional compliance or not accompanied with the
processing fee and/or requisite bank guarantee, shall be summarily
rejected.
3. I understand that processing fee is non-refundable irrespective of whether
or not the license is granted to me.
4. I undertake to sign the Licence Agreement, a draft of which has been
supplied to me within the prescribed time notified to me, failing which my
application shall be rejected and processing forfeited.
5. I understand that all matters relating to the application or licence if
granted to me will be subject to jurisdiction of courts in Delhi/New Delhi
only.
6. I understand that such companies and their allied or sister concerns who
have failed to carry out the contractual obligations with regard to other
Telecom Service Licenses granted under Section 4 of Indian Telegraph Act,
1885 shall be granted ISP license on the condition that any decision with
regard to said default or breach whenever taken at the discretion of the
Central Government will be applicable in all respects on me.
*7. (a) I certify that none of the companies mentioned in Item 13 of the
application form are in default of the conditions of license granted under
Section 4 of Indian Telegraph Act, 1885.
* - strike (a or b) whichever is not applicable.
8. I understand that if at any time any averments made or information
furnished for obtaining the licence is found incorrect, my application
shall be liable to be rejected and any license granted on the basis of this
application shall be liable for termination.
Date: 12-11-98 For Satyam Infoway Ltd.
Place: Delhi Authorised Signatory
Signature and name of the
Authorised Signatory
(Company's Seal)
33
<PAGE>
EXHIBIT 10.4
[INDIAN CURRENCY -- FIFTY RUPEE NOTE]
PROFORMA FOR PERFORMANCE BANK GUARANTEE
To
The President of India
acting through the Telegraph Authority
In consideration of the President of India acting through the Telegraph
Authority (hereinafter referred to as 'the Authority') having agreed to grant a
licence to Satyam Infoway Limited, 35 Velachery Road, Little Mount, Chennai 600
015, (hereinafter called the 'LICENSEE' to establish, maintain and operate
Internet service (hereinafter called the SERVICE') on the terms and conditions
contained in the said Licence, which interalia provides for production of a Bank
Guarantee to the extent of Rs. 2,00,00,000/- (Rupees two crores only) for the
service by way of security for the due observance and performance of the terms
and conditions of the said licence, we IDBI Bank Ltd., a company incorporated
under the Companies Act 1956 and a banking company within the meaning of the
Banking Regulation Act, 1949 and having its registered office at Chaturvedi
Mansion, 2nd Floor, 26/4 Old Palasia, Agra-Bomaby, Road, Indore 452 001 and
among other places a branch at P.M. Towers, 37 Greams Road, Chennai 600 006
(hereinafter referred to as 'the Bank') at the request of the LICENSEE hereby
irrevocably and unconditionally guarantee to the Authority that the Licensee
shall render all necessary and efficient services which may be required to be
rendered by the LICENSEE in connection with and/or for the performance of the
said LICENSEE and further guarantees that the service which shall be provided by
the LICENSEE under the said licence, shall be actually performed in accordance
with terms & conditions of the LICENCE to the satisfaction of the Authority.
<PAGE>
2. We, the bank hereby undertake to pay to the Authority an amount not
exceeding Rs. 2,00,00,000/- (Rupees two crores only) against any loss or
damage caused to or suffered or would be caused to or suffered by the
Authority by reason of any breach by the said LICENSEE of any of the terms
and conditions contained in the said licence.
3. We, the bank hereby, in pursuance of the terms of the said licence,
absolutely, irrevocably and unconditionally guarantee as primary obliger
and not merely as surety the payment of an amount of Rs. 2,00,00,000/-
(Rupees two crores only) to the Authority to secure due and faithful
performance by the LICENSEE of all his/their obligations under the said
Licence.
4. We, the bank hereby also undertake to pay the amounts due and payable under
this guarantee without any demur, merely on a demand from the Authority
stating that the amount claimed is due by way of loss or damage caused or
would be caused to or suffered by the Authority by reason of breach by the
said LICENSEE of any of the terms or conditions contained in the said
Licence or by reason of the LICENSEE's failure to perform any of it's
obligations under the said Licence."
5. We, the bank, do hereby agree that the decision of the Authority as to
whether the licensee has failed to or neglected to perform or discharge his
duties and obligations as aforesaid and/or whether the service is free from
deficiencies and defects and is in accordance with or not of the terms &
conditions of the said Licence and as to the amount payable to the
Authority by the Bank hereunder shall be final and binding on the Bank.
6. WE, THE BANK, DO HEREBY DECLARE AND AGREE that:
a) the Guarantee herein contained shall remain in full force and effect
for a period of two years from the date hereof and that it shall continue to be
enforceable till all the dues of the Authority and by virtue of the said Licence
have been fully paid and its claims satisfied or discharged or till Authority
satisfies that the terms and conditions of the said licence have been fully and
properly carried out by the said LICENSEE and accordingly discharged this
guarantee.
b) the Authority shall have the fullest liberty without our consent and
without affecting in any manner our obligations hereunder to vary any of the
terms and conditions of the said Licence or to extend time of performance of any
obligations by the said LICENSEE from time to time or to postpone for any time
or from time to time any of the powers exercisable by the Authority against the
said LICENSEE and to forbear or to enforce any of the terms and conditions
relating to the said Licence and we shall not be relieved from our liability by
reason of any variation or extension being granted to the said LICENSEE or
forbearance act or
<PAGE>
omission on the part of the Authority or any indulgence by the
Authority to the said LICENSEE or to give such matter or thing
whatsoever which under the law relating to sureties would but for this
provision, have effect of so relieving us.
c) any claim which we have against the LICENSEE shall be subject and
subordinate to the prior payment and performance in full of all the obligations
of us hereunder and we will not without prior written consent of the Authority
exercise any legal right or remedy of any kind in respect of any such payment or
performance so long as the obligations of us hereunder remains owing and
outstanding.
d) this Guarantee shall be irrevocable and the obligations of us herein
shall not be conditional of any prior notice by us or by the LICENSEE.
7. We the BANK undertake not to revoke this Guarantee during its currency
except with the previous consent of the Authority in writing.
Notwithstanding anything contained hereinabove:
(i) our liability under this guarantee shall not exceed Rs.
2,00,00,000/-(Rupees two crores only)
(ii) this Bank Guarantee shall be valid up to and including 3rd
November 2000.
(iii) We are liable to pay the guaranteed amount or any part thereof
under this Bank Guarantee only and only if you serve upon us a written claim or
demand on or before the expiry of this guarantee.
Dated this 4/th/ day of November 1998.
For IDBI BANK LTD.
[IDBI BANK LTD. SEAL]
Witness:
1.
2.
<PAGE>
EXHIBIT 10.11
-------------
[INDIA CURRENCY -- ONE HUNDRED RUPEE NOTE]
U S E R A G R E E M E N T
- - - - - - - - - - - - -
THIS AGREEMENT is made between -
SATYAM COMPUTER SERVICES LIMITED, a Company incorporated under the Companies
Act, 1956 and having its registered office at Mayfair Centre, Sardar Patel Road,
Secunederabad - 500 003, State of Andhra Pradesh, (hereinafter referred to as
"the Proprietor" which expression shall include its successors in interest and
permitted assigns); of the ONE PART; AND
SATYAM INFOWAY LIMITED, a Company organised under the Laws of India, whose
principal place of business is at No. 35, Velachery Road, Little Mount,
Chennai- 600 015, State of Tamil Nadu, India, (hereinafter referred to as "the
User") of the OTHER PART.
<PAGE>
2
WHEREAS
A. The Proprietor is an internationally renowned software developer and
distributor in, inter alia, computer software, and all related
products/tools and equipments, books, stationery, instructional and
teaching material, manuals, data sheets as mentioned in the trade mark
applications filed at the Trade Mark Office, related products and in
connection therewith is the Proprietor of the Trade Mark SATYAM applied for
registration under numbers 769398, 769399, 769400, 769401 in class 9 and
16, (hereinafter called "the said Trade Mark"). The details of the
applications are set our Schedule "A" annexed hereunder.
B. The User is desirous of using the said Trade Mark on and in relation to the
products dealt in by the User (hereinafter called "the contract products")
and the proprietor is agreeable thereto; the contract products are listed
in Schedule "B" annexed hereunder; and
C. The relationship between the Proprietor and the User is contractual.
NOW THIS AGREEMENT WITNESSETH that in consideration of mutual promises and
covenants contained herein, the parties have agreed as follows:
1. The Proprietor grants to the User the non-assignable and non-sub-licensable
right to use the said Trade Mark on and in relation to the Contract
Products manufactured by or for the User for sale in India, as long as the
Agreement remains in force.
<PAGE>
3
2. At the request of the Proprietor, the User shall join the Proprietor in
making application/s to the Registrar of Trade Marks for registration of
the User as Registered User of the said Trade Mark. The User agrees to
execute all applications, Agreement/s, deeds and documents as may be deemed
necessary in this behalf by the Proprietor. The costs of prosecution of any
such application/s shall be borne by the Proprietor.
3. The User shall not be the exclusive User of the said Trade Mark.
Notwithstanding the aforegoing, the Proprietor shall have the right to Use
the said Trade Mark.
4. The said Trade Mark shall be used by the User only on and in relation to
the contract products manufactured by or for the User in accordance with
the technical data, formulae, specifications, directions and quality
control standards which shall, from time to time, be communicated or
approved by the Proprietor and shall not be used on and in relation to any
goods other that the contract products so handled.
5. The User shall at all times during the continuance of this Agreement permit
the proprietor or any representative/s duly authorised by the Proprietor to
enter any part or parts of any factory or premises where manufacture of the
contract products and/or the method of manufacturing them and shall, when
called upon to do so by the Proprietor, supply the Proprietor or its
authorised representatives with samples of the contract products
manufactured by or
<PAGE>
4
for the User and in the event of any such samples being found sub-standard,
upon which question the decision of the Proprietor will be final, the
remainder of the batch from which the samples were drawn shall be disposed
of in such manner as the Proprietor may direct but without any compensation
whatsoever being payable to the User.
6. No remuneration whether by way of royalty or otherwise shall be payable to
the Proprietor in respect of the use of the said Trade Mark.
7. The manner in which the said trade Mark may be used by the User on or in
relation to the contract products and on labels, packaging, printed
material or wheresoever shall be approved in writing by the Proprietor
prior to any such use. The User shall, at all times, describe the said
Trade mark in a manner as to clearly indicate that, that is the Trade Mark
of the Proprietor and are being used by the User only by way of permitted
use. neither during the term of this agreement, nor thereafter shall the
User adopt or use any word or mark or design which is or is likely to be
similar to or confusing with the said Trade Mark.
8. a) The User undertakes to bring to the notice of the Proprietor all causes
of infringement and/or passing off of the said Trade Mark or registration
or attempted registration of the said Trade Mark or of any Trade Marks
similar thereto. The User undertakes both during the term of this Agreement
and thereafter, at the request of the Proprietor, to render to the
Proprietor all assistance which the Proprietor may require from time to
time in respect of the defence
<PAGE>
5
of the said Trade Mark including the registration and/or maintenance
thereof and more particularly in the event that the Proprietor proceeds
against any third party to restrain misuse of the said Trade Mark. In the
event of the Proprietor undertaking an opposition to or any action to
restrain or punish such act or acts, the User agrees to co-operate fully
freely with the Proprietor and, if required by the Proprietor, shall permit
the Proprietor to undertake such opposition or action in the name of the
User. The costs of any such action shall be borne by the parties in such
proportion as may be mutually agreed upon.
b) If the User or any or its customers is sued for alleged misuse of the
said Trade Mark, the User on service upon it of any notice of any such
claim shall forthwith give the Proprietor written notice thereof and of all
particulars thereof and the Proprietor shall have the right to participate
in the defence of such suit at its own expense. Pursuant to the foregoing
the User shall advise the proprietor of any misuse of the said Trade Mark
of which it obtains knowledge and the Proprietor shall, in this sole
discretion, decide whether or not to institute proceedings against the
infringing party.
9. a) This Agreement shall stand terminated forthwith if the User goes into
liquidation (otherwise than for the purpose of reorganisation of capital),
has receiver of its assets appointed, makes composition with creditors,
causes to carry on business or merges
<PAGE>
6
or amalgamates with another company or there shall occur, in the opinion of
the Proprietor, a substantial change in the management or control of the
User.
b) This Agreement may be terminated by the Proprietor forthwith if the
User shall happen to be in breach of any of the terms and (if capable of
rectification) shall have failed to rectify such breach within 30 days of a
notice in this respect having been served on the User.
c) This Agreement may be terminated by the Proprietor forthwith if
circumstances beyond its control prevent the commercial exploitation of
this Agreement, including (but without limiting the generality of the
foregoing) strikes, lockouts of employees or employment disputes, riots or
civil commotion, legislation of or intervention by any governmental
authority.
d) This Agreement may be terminated by the Proprietor forthwith if the
group of companies to which the Proprietor belongs will lose for whatever
reason its majority shareholding in User, and is not otherwise in a
position to exercise control over the User.
10. Upon termination of this Agreement, for any reason whatsoever;
a) The user shall immediately cease any further use of the said Trade Mark,
labels, tradename/s or description which the User might have been
authorised to use by the Proprietor.
<PAGE>
7
b) The User hereby covenants and agrees that it shall hand over to the
Proprietor or its duly authorised representative/s all dyes, blocks,
labels, packaging printed material or the like featuring the said Trade
Mark, tradename/s codes or description of any sort which is obtained from
and was authorised to use by the Proprietor.
c) The User undertakes to do all such acts as may be necessary to produce the
cancellation of the User as a registered User if it has been recorded as
such. The User shall join the Proprietor in an application to have the
entry of the User as a registered User cancelled at the Trade Marks office,
and for this purpose undertakes to do such acts or sign such papers or sign
such papers or documents as may be requisite to this end and in the event
of failure by the User to comply with the requirements of this provision,
the Proprietor is hereby given full and irrevocable power of attorney by
the User in the User's place and stead to do such acts or sign such papers
or documents as may be necessary on behalf of the User to effect
cancellation of the User as the registered User in respect of the said
Trade Mark.
d) No compensation or indemnity whatsoever shall be due or may be claimed by
one party from the other by reason of the non-renewal or termination of
this Agreement under Sub clause 9 c or 9 d above.
11. The User recognises the title of the proprietor to the said Trade Mark and
shall not at any time, during the term of this Agreement or thereafter, do
or suffer to be done any act or thing which will in any way challenge the
validity of or impair the rights of the
<PAGE>
8
Proprietor in and to the said Trade Mark. It is understood that the User
shall not acquire and shall not claim any rights by virtue of this
Agreement or through its use of the said Trade Mark. The User shall not
use or register the said Trade Mark or any other Trade Mark similar thereto
as a Trade Mark or as part of the User's corporate or trade name. The
covenant aforegoing shall survive the termination of this Agreement.
12. The Proprietor shall have the exclusive right to assign its rights under
this Agreement. This Agreement shall be binding on successors-in-title and
assigns of the Proprietor, subject to the User duly performing its
obligations under this Agreement; and the User shall have the uninterrupted
right to use the said Trade Mark, irrespective of the assignment of the
said Trade Mark to any third party by the Proprietor, but subject to clause
9 hereinabove.
13. This Agreement shall be governed by the laws of India. The substantive law
for the purpose of interpreting this Agreement shall be the laws enacted
for the purpose of determining contractual obligations between the parties.
If any dispute or difference arises in respect of this Agreement, the same
shall be referred to arbitration. The Arbitration shall be held in
accordance with Arbitration and conciliation Act, 1996 or any other
Arbitration law in force in India from time to time. The venue of the
arbitration shall be Hyderabad, State of Andhra Pradesh. The award should
be a speaking order passed on merits and in writing.
<PAGE>
9
14. The Agreement will come into effect from 1 April, 1999.
IN WITNESS WHEREOF the parties hereto have executed these presents the day month
and year written against their respective signatures.
SIGNED:
For and on behalf of:
SATYAM COMPUTER SERVICES LIMITED
Signature: [illegible]
Designation: Managing Director of Satyam Computer Services LTD,
Seal:
WITNESS
-------
Signature:
Name:
SIGNED:
For and on behalf of:
SATYAM INFOWAY LIMITED,
Signature: /s/ R. Ramaraj
Designation:: Managing Director of Satyam Infoway
Seal:
WITNESS
-------
Signature:
Name:
<PAGE>
10
Schedule "A"
------------
1. Trade Mark : SATYAM LOGO
Application No. : 769398
Date : 26-9-97
Class : 16
Goods : As mentioned below in Class 16.
2. Trade Mark : SATYAM (WORD)
Application No. : 769400
Date : 26-9-97
Class : 16
Goods : As mentioned below in Class 16.
Goods in Class 16: PAPER AND PAPER ARTICLES, CARDBOARD AND CARDBOARD
ARTICLES, PRINTED MATTER, NEWSPAPERS AND PERIODICALS, BOOKS, BOOKS-BINDING
MATERIAL, PHOTOGRAPHS, STATIONERY ADHESIVE MATERIALS (STATIONARY) ARTISTS
MATERIALS, PAINT BRUSHES, TYPEWRITERS AND OFFICE REQUISITES (OTHER THAN
FURNITURE) INSTRUCTIONAL AND TEACHING MATERIAL (OTHER THAN APPARATUS)
PLAYING CARDS (PRINTERS) TYPE AND CLICHES (STEREOTYPE), COMPUTER HARD WARE
AND SOFTWARE MANUALS COMPUTER DOCUMENTATION NAMELY, REFERENCE USER
INSTRUCTIONAL AND GENERAL UTILITY MANUALS AND DATA SHEETS FOR COMPUTER
HARDWARE AND SOFTWARE MANUFACTURES, PRODUCERS AND USERS ALL BEING GOODS
INCLUDED IN CLASS 16".
<PAGE>
11
3. Trade Mark : SATYAM LOGO
Application No. : 769399
Date : 26-9-97
Class : 9
Goods : As mentioned below in Class 9.
4. Trade Mark : SATYAM (WORD)
Application No. : 769401
Date : 26-9-97
Class : 9
Goods : As mentioned below in Class 9.
Goods in Class 9: ELECTRIC AND ELECTRONIC GOODS, APPARATUS AND APPLIANCES
AND PARTS, FITTINGS AND ACCESSORIES THEREOF INCLUDING MAGNETIC DATA
CARRIERS, COMPUTERS, DATA PROCESSING EQUIPMENTS, INTERFACES, COMPUTER
HARDWARE, COMPUTER PERIPHERALS, TERMINALS, DISC DRIVE AND DRIVERS,
PRINTERS, MODEMS, FLOPPY DISCS, DISKETTE HOLDERS, MONITORS, INTEGRATED
CIRCUITS, PRINTED CIRCUIT BOARDS, MAGNETIC RECORDING, ELECTRONIC
TYPEWRITERS, VOLTAGE STABILIZERS, REGULATORS, TRANSFORMERS, INVERTORS,
CONVERTORS, UNINTERRUPTED TREATABLE POWER SUPPLIERS, APPARATUS FOR
RECORDING TRANSMISSION OR REPRODUCTION OF SOUND OR IMAGES, PHOTOGRAPHIC,
CINEMATOGRAPHIC, OPTICAL WEIGHING, MEASURING, SIGNALING CHECKING AND
TEACHING APPARATUS AND INSTRUMENTS, COINS, COUNTERFEED APPARATUS, TALKING
MACHINES, CASH REGISTERS, CALCULATING MACHINES, FIRE EXTINGUISHER APPARATUS
INCLUDED IN CLASS 9".
Schedule "B"
------------
CONTRACT PRODUCTS
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Satyam Infoway Limited:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick
Chennai, India
October 1, 1999
<PAGE>
Exhibit 23.4
To whom it may concern:
Per our discussion, you have approval to use the following statistics as stated
below:
International Data Corporation, or IDC, estimates that:
. The number of Internet users in India will increase from 0.5 million at the
end of 1998 to 4.5 million at the end of 2002.(1)
. The installed base of personal and network computers in India will increase
from 1.9 million at the end of 1998 to 8.2 million at the end of 2002.(2)
. The number of on-line devices in India was 0.3 million in 1998.(3)
. The number of online devices as a percentage of the installed computer base
in India was 11.0% in 1998.(4)
. The amount of Internet commerce revenues in India will increase from
$3.5 million at the end of 1998 to $593.6 million at the end 2002.(5)
. The number of Internet users in the United States was 62.8 million at the
end of 1998.(6)
. The number of Internet users in the Asia / Pacific Region was 10.2 million
at the end of 1998.(7)
. The number of online devices in the United States was 87.4 million at the
end of 1998.(8)
. The number of online devices in the Asia / Pacific Region was 9.5 million
at the end of 1998.(9)
. The number of online devices as a percentage of the installed computer base
in the United States was 54.5% at the end of 1998.(10)
. The number of online devices as a percentage of the installed base in the
Asia / Pacific Region was 24.9% at the end of 1998.(11)
. The total number of Internet users worldwide will increase from 142.2
million at the end of 1998 to 398.6 million at the end of 2002.(12)
. Revenues from Internet services worldwide such as web hosting will increase
from 770 million at the end of 1998 to 11,825 million at the end of
2002.(13)
_______________________
(1) IDC Report 19127, Internet India; the One-Rupee Market!, p. 5.
(2) IDC Bulletin (Analyst: Richard Jacobson), Asia / Pacific Internet
Infrastructure, p. 2.
(3) IDC Report 18697, The Internet Market in Asia Pacific (excluding Japan)
1997-2003., p. 120.
(4) Source: IDC.
(5) IDC Bulletin (Analyst: Richard Jacobson), Asia / Pacific Internet
Infrastructure, p. 2.
(6) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 17.
(7) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 19.
(8) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 17.
(9) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 19.
(10) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 17.
(11) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 19.
(12) IDC Report 19262, The Global Market Forecast for Internet Usage and
Commerce, p. 3.
(13) IDC Report 16894, Web Hosting and E-Commerce Service Providers, p.7.
<PAGE>
. Revenues from Internet services worldwide such as e-commerce spending will
increase from 50.4 billion at the end of 1998 to 733.6 billion at the end
of 2002.(14)
Sincerely
/s/ Alexa McCoughan
[Alexa McCoughan
Senior Vice President]
