<PAGE>
As filed with the Securities and Exchange Commission on July 26, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM F-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
Satyam Infoway Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Transaction of Registrant's name into English)
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<S> <C> <C>
Republic of India 7379 Not Applicable
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Maanasarovar Towers
271-A, Anna Salai, Teynampet
Chennai 600 018
India
(91) 44-435-3221
(Address, including zip code, and telephone number, including area code, of the
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:
Anthony J. Richmond, Esq.
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
(650) 328-4600
---------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
---------------------------
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, as amended, check the following box. [X]
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 this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------------------
CALCULATION OF REGISTRATION FEE CHART
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====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered Share (1) Price(1) Fee
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<S> <C> <C> <C> <C>
Equity shares, par value Rs.10 per share, each 625,000 $70.88 $44,300,000 $11,696
represented by four American Depositary Shares(2)....
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) promulgated under the
Securities Act of 1933. The calculation of the registration fee is based on
$17.72, which was the average of the high and low sales prices of the
American Depositary Shares on the Nasdaq National Market on July 24, 2000.
(2) American Depositary Shares evidenced by American Depositary Receipts
issuable upon deposit of the equity shares registered hereby are registered
pursuant to a separate registration statement on Form F-6 (Reg. No. 333-
10982).
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 that 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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. The +
+ selling stockholders 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 the selling +
+ stockholders are not soliciting offers to buy these securities in any state +
+ where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated July 26, 2000
PROSPECTUS
----------
Up To 2,500,000 American Depositary Shares
[LOGO OF SATYAM]
SATYAM INFOWAY LIMITED
Representing Up To 625,000 Equity Shares
__________________
The selling stockholders identified on page 26 below may offer for resale
up to 2,500,000 of our American Depositary Shares, or ADSs, outside India,
including in the United States. We are not participating in this offering and
will not receive any part of the proceeds from the sale of ADSs by the selling
stockholders. Each ADS represents one-fourth of one equity share. Our ADSs are
listed for trading on the Nasdaq National Market under the symbol "SIFY." On
July 25, 2000, the last reported sale price of our ADSs was $17.93 per ADS.
Investing in the American Depositary Shares involves risks which are
described in the Risk Factors beginning on page 7.
__________________
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.
__________________
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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Page
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Prospectus Summary...................................................... 1
Risk Factors............................................................ 7
Forward-Looking Statements.............................................. 21
Conventions Which Apply To This Prospectus.............................. 21
Currency of Presentation................................................ 21
Enforcement of Civil Liabilities........................................ 22
Reports to Our Security Holders......................................... 23
Use of Proceeds......................................................... 24
Capitalization.......................................................... 24
Exchange Rates.......................................................... 24
Principal Stockholders.................................................. 25
Selling Stockholders.................................................... 26
Plan of Distribution.................................................... 27
Description of Equity Shares............................................ 28
Description of American Depositary Shares............................... 32
Restrictions on Foreign Ownership of Indian Securities.................. 39
Government of India Approvals........................................... 43
Taxation................................................................ 45
Shares Eligible for Future Sale......................................... 49
Legal Matters........................................................... 50
Experts................................................................. 50
Change in Accountants................................................... 50
Additional Information.................................................. 50
</TABLE>
You should rely only on the information contained in this prospectus. We
have not, and the selling stockholders 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. The selling stockholders
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.
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PROSPECTUS SUMMARY
This summary highlights information found in greater detail elsewhere in
this prospectus. In addition to this summary, we urge you to read this entire
prospectus carefully, especially the risks of investing in our ADSs discussed
under "Risk Factors," before deciding to buy our ADSs. The International Data
Corporation market data presented 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.
Satyam Infoway Limited
Our Business
We are the largest private national provider of Internet access and
Internet services to consumers and businesses in India, based on number of
subscribers as of June 30, 2000. Our comprehensive range of products and
services enables our consumer and business customers to communicate, transmit
and share information, access online 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,
including since May 2000 unlimited access for a fixed price, e-mail
and web page hosting to consumers in India through convenient online
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.
. Online Portal and Content Offerings. We operate an online 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, travel, health, shopping and automobiles. In November
1999, we acquired 24.5%, and an option to acquire the remaining 75.5%,
of the outstanding shares of IndiaWorld Communications Private
Limited, a leading provider of Internet content and services in India.
In June 2000, we exercised our option to acquire the remaining 75.5%
of the outstanding shares of IndiaWorld Communications. Also in June
2000, we agreed to acquire a 25% stake in CricInfo Limited, the
leading cricket site on the Internet, which acquisition we completed
in July 2000. Also in July 2000, we entered into an agreement to
acquire IndiaPlaza.com, Inc., an operator of online shopping malls
catering to resident and non-resident Indians, through the issuance of
an aggregate of 480,000 ADSs. We expect to complete this acquisition
in September 2000. We have formed alliances with a number of
strategic partners, including ICICI Bank, Citibank and Bank of Madura,
to offer banking products through satyamonline.com and to develop
payment gateways to facilitate electronic commerce and other
activities through our websites. During June 2000, our websites,
together with IndiaWorld Communications' websites, generated
approximately 80 million page views. Since completion of our
acquisition of IndiaWorld Communications, we estimate that the
aggregate number of page views generated by our websites will be less
than the combined number of page views of our and IndiaWorld
Communications' websites immediately prior to completion of the
acquisition.
. Corporate Network and Technology Services. We offer dial-up and
dedicated Internet access, including since May 2000 unlimited access
for a fixed price, 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 UUNet Technologies, Inc.
(formerly CompuServe Network Services), Sterling Commerce and Open
Market.
As of March 31, 2000, we had an accumulated deficit of approximately
Rs.696.8 million ($16.0 million). For the fiscal year ended March 31, 2000, our
net loss was approximately Rs.381.9 million ($8.7 million).
Our Customers
As of June 30, 2000, we had more than 200,000 consumer Internet access
subscribers and more than 500 corporate customers. Our corporate network and
technology customers are in a variety of industries, including financial
services, publishing, retail, shipping and manufacturing. Our largest corporate
customers based on revenue
1
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for fiscal 2000 include Amtrex Hitachi Appliances Ltd., Aramex Couriers,
Carborundum Universal Ltd., CDC Advisors Private Limited, Computer Associates
India Pvt. Ltd., ECGC, ESPN Software India Pvt. Ltd., GE Capital Services,
India, GMR Vasavi Group, Gray Cell, Hutchison Corporate Access, IBP Co. Limited,
ITC Bhadrachalam Paperboards Limited, Patel Roadways Limited, Philips India
Limited, SEEC Technologies Asia Pvt. Ltd., Stock Holding Corporation Of India
Limited, Tata McGraw Hill Publishing Company, Tata Telecom Limited and Toyota
Kirloskar Motor Pvt. Ltd. No single customer accounted for more than 10% of our
revenues in fiscal 2000.
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 incoming messages.
We own and operate points of presence in 44 of the largest metropolitan areas in
India, which we believe allows us to provide Internet access service via a local
telephone call to approximately 90% of the installed personal computer base 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. 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. In partnership with
Singapore Telecommunications Ltd., we are planning to launch private
international gateways to the Internet in eight strategically located cities
across India. 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 94% annually
from 0.5 million in 1998 to 6.6 million in 2002; and
. Internet commerce revenues in India will grow at a rate that averages
261% annually from $3.0 million in 1998 to $499 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 online 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.
Our Growth Strategy
Our goal is to become the premier provider of Internet access, online
content 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;
. Expand our products and services with new technologies to enable our
customers to use the Internet more effectively;
2
<PAGE>
. Strengthen our Internet portal and other Internet content websites
with more content tailored to Indian interests worldwide, such as the
content we obtained in our acquisition of IndiaWorld Communications
and our investment in CricInfo Limited;
. Increase our range of electronic commerce services to build our online
presence and pursue additional revenue opportunities;
. 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.
Recent Developments
IndiaWorld Communications. On June 30, 2000, we completed our previously
announced acquisition of IndiaWorld Communications. We had initially acquired
24.5% of IndiaWorld Communications in November 1999 and in that transaction also
acquired an option to acquire the remaining 75.5%. The option was exercised in a
part cash, part stock transaction involving approximately $48 million in cash
and 268,500 newly-issued equity shares. Assuming the June 23, 2000 market value
of our ADSs on the Nasdaq National Market, these equity shares had an aggregate
value of approximately $25 million assuming the one-for-four ADS ratio. However,
our equity shares are not listed in India and under present law may not be
converted into ADSs.
IndiaPlaza.com. On July 13, 2000, we entered into an agreement to acquire
IndiaPlaza.com, Inc., an operator of online shopping malls catering to
resident and non-resident Indians, through the issuance of an aggregate of
480,000 ADSs. We expect to complete this transaction in September 2000.
Quarterly Results. Based on our unaudited results of operations for the
fiscal quarter ended June 30, 2000, we recognized approximately Rs.321.7 million
in revenues for the quarter ended June 30, 2000. Our net loss was approximately
Rs.178.3 million for the quarter ended June 30, 2000.
Our Organization
We were incorporated under the laws of the Republic of India on December
12, 1995. Our principal executive offices are located at Maanasarovar Towers,
271-A, Anna Salai, Teynampet, Chennai 600 018, 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 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. "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
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The Offering
American Depositary Shares offered........... Up to 2,500,000 ADSs.
The ADSs..................................... Each American Depositary Share
represents one-fourth of one
equity share, par value Rs.10
per share. The ADSs are
evidenced by American
Depositary Receipts.
Equity shares outstanding................... 23,142,925 equity shares.
ADSs outstanding............................ 23,573,700 ADSs.
Use of proceeds............................. This prospectus relates solely
to the resale by certain
holders of ADSs issued to them
privately in connection with
our investment in CricInfo
Limited. We are not
participating in this offering
and will not receive any
proceeds from the sale of ADSs
by the selling stockholders.
Nasdaq National Market Symbol............... SIFY
The 23,142,925 equity shares outstanding is based on the equity shares
outstanding as of July 26, 2000 and excludes 313,160 equity shares issuable upon
the exercise of options outstanding under our stock option plan at a weighted-
average exercise price of approximately Rs.2,338 per equity share as of March
31, 2000. Unless otherwise specified herein, all equity share and ADS amounts
contained in this prospectus give effect to the issuance of 2,500,000 ADSs
(representing 625,000 equity shares) in connection with our acquisition of a
25% stake in CricInfo Limited. All ADS amounts in this prospectus have been
adjusted to reflect the 4-for-1 split of our ADSs effective January 10, 2000.
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
Our financial statements are prepared in Indian rupees and are presented in
accordance with U.S. GAAP for the fiscal years ended March 31, 1998, 1999 and
2000. Financial statements for the year ended March 31, 2000 also have been
translated into U.S. dollars. Our financial statements have been consolidated
with the accounts of IndiaWorld Communications from December 1, 1999. We
completed our acquisition of IndiaWorld Communications on June 30, 2000.
The summary 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
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Fiscal Year Ended March 31,
--------------------------------------------------------------------
1998 1999 2000 2000
------------ ------------ ------------ -------------
Indian rupees U.S. dollars
------------------------------------------------ -------------
(in thousands, except share and per share data)
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Statement of Operations Data:
Revenues........................................ Rs. 6,805 Rs. 103,344 Rs. 671,025 $ 15,373
Cost of revenues................................ 19,498 63,651 293,731 6,729
------------ ------------ ------------ -------------
Gross profit (loss)............................. (12,693) 39,693 377,294 8,644
Operating expenses:
Selling, general and administrative expenses... 61,016 151,120 577,224 13,224
Depreciation and amortization.................. 19,383 49,162 262,509 6,014
------------ ------------ ------------ -------------
Total operating expenses..................... 80,399 200,282 839,733 19,238
------------ ------------ ------------ -------------
Operating loss.................................. (93,092) (160,589) (462,439) (10,594)
------------ ------------ ------------ -------------
Interest expense, net........................... 7,498 27,146 (75,642) (1,732)
Other income.................................... -- 359 1,623 38
Income taxes.................................... -- -- 1,478 34
Minority interest............................... -- -- 1,799 41
------------ ------------ ------------ -------------
Net loss........................................ Rs. (100,590) Rs. (187,376) Rs. (381,897) $ (8,749)
============ ============ ============ =============
Net loss per equity share....................... Rs. (121.66) Rs. (17.31) Rs. (20.59) $ (0.47)
Weighted average equity shares used in
computing net loss per equity
share.......................................... 826,805 10,824,826 18,545,399 18,545,399
Other Financial Data:
EBITDA.......................................... Rs. (73,709) Rs. (111,068) Rs. (198,307) $ (4,543)
Capital expenditures............................ 77,070 146,135 867,445 19,873
Net cash provided by (used in):
Operating activities........................... (73,950) (171,388) (373,938) (8,567)
Investing activities........................... (77,070) (146,000) (2,611,694) (59,833)
Financing activities........................... 159,449 433,023 10,167,709 232,937
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As of March 31, 2000
---------------------------------
Indian rupees U.S. dollars
---------------------------------
Balance Sheet Data: (in thousands)
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Cash and cash equivalents....................... Rs. 7,307,625 $ 167,414
Working capital (deficit)....................... 7,503,519 171,902
Total assets.................................... 10,634,004 243,620
Long-term debt, including
current installments.......................... 215,537 4,938
Total stockholders' equity (deficit)............ 9,927,841 227,442
</TABLE>
6
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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 company could be
seriously harmed. 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 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, 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 recently changed for the fifth
time since 1996. 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 Kargil and other border areas. Further, in October
1999 the leadership of Pakistan changed as a result of a coup led by the
military. 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.
Indian law and the terms of our Internet service provider license contain
restrictive provisions that limit our ability to raise capital, to issue
equity securities in consideration for acquisitions we may make 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 stockholders.
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 or to issue equity securities in consideration for acquisitions we
may make. 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
7
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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.
Approximately 44% of our equity interests are presently 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 5% 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.
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. Our equity
securities are not traded publicly in India, but are only 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. To our knowledge, as of the date of this
prospectus, such an approval had never been granted by the Government of India
in respect of ADSs traded in the United States. 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,
unless the sale of equity shares underlying the ADSs is through a recognized
stock exchange or in connection with the offer made under the regulations
regarding takeovers. 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 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 April 1, 1997 through March 31, 2000, the
value of the rupee against the U.S. dollar declined by approximately 22%.
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.
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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 and the Telecom Regulatory Authority of India,
or TRAI, maintain 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 or the TRAI sets a price floor, we may not be able to
attract and retain subscribers. Likewise, if the government or the
TRAI 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.23.05 million ($0.5 million) as of March 31, 2000. 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 and any amount
outstanding as performance guarantees, 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.
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%. However, we cannot assure you that the 10.0% surcharge will be
repealed in the future 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 22.0%, 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 stockholders 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
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the Indian government and the Telecom Regulatory Authority of India 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 online 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 62.8 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 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 online 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;
. inadequate 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 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 limited operating history to
evaluate our business. You must consider the risks and difficulties frequently
encountered by companies in the early
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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 online 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.
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 March 31, 2000, we had an accumulated deficit of approximately
$16.0 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.
Our ability to compete in the Internet service provider market is hindered
by the fact that our largest 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 which we estimate had approximately 350,000
subscribers as of March 31, 2000. This amount is only an estimate because VSNL
does not publicly disclose this information. VSNL enjoys significant competitive
advantages over our company, including the following:
. 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.
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We may be required to further 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.
A significant number of new competitors have recently entered India's
recently liberalized Internet service provider market, and we expect additional
competitors to emerge in the near future. As of May 20, 2000, approximately 315
companies had obtained Internet service provider licenses in India, including 54
companies which have obtained licenses to offer Internet service provider
services throughout India. 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.
Commencing in May 2000, we offer unlimited Internet access to consumers for a
fixed price. A number of our competitors, including Dishnet, Zee Telefilms and
VSNL, also offer unlimited Internet access for a fixed price. In addition, at
least one of our competitors offers free Internet service. We expect the market
for consumer Internet access to become increasingly price competitive as late
market entrants attempt to acquire customers.
Our online portal, satyamonline.com, faces significant competition from
well-established Indian content providers, including RediffontheNet. Some of
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 online
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. We expect that these companies will deploy
services that are targeted at the Indian market. For example, Yahoo! launched an
Indian service in June 2000.
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 or operating
losses, 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.
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
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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.
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 online 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 online 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, including our joint ventures with ICICI Bank, Citibank,
Bank of Madura and RPG Netcom and our acquisition of IndiaWorld
Communications and investment in CricInfo;
. 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 yearly 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 March 31, 2000, we had 622 employees, an increase of 83% from the
340 employees we had as of March 31, 1999. We currently anticipate hiring an
additional 120 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.
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, Mr. Zacharias, our
President and Chief Operating Officer, Mr. Santhanakrishnan, our Chief
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Financial 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.
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 UUNet Technologies, 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 performance 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.
IndiaWorld Communications is engaged in disputes which, if resolved
unfavorably, could diminish the value of the business we are acquiring,
impose costs on us or have other undesirable effects.
We and IndiaWorld Communications have been contacted by a party located in
the United States which has alleged that the activities of IndiaWorld
Communications infringe with a United States trademark for the term
"IndiaWorld," and associated logos and trade dress purportedly owned by this
third party. We have been advised by the prior owners of IndiaWorld
Communications that no such infringement has taken place and that they have
commenced legal action in federal court in New York to cancel the United States
trademark which they believe was improperly granted and to assert other claims.
Our contract with the prior owners of IndiaWorld Communications includes an
indemnity for past infringement. Further, we presently do not believe that the
disputed marks are material to our business strategy as this dispute does not at
this time pertain to the key assets of IndiaWorld Communications, including the
websites samachar.com, khel.com, khoj.com, dhan.com and bawarchi.com. We and
IndiaWorld Communications have also been contacted by a party who alleges, among
other things, that he is entitled to an equity ownership in IndiaWorld
Communications. We believe that this claim is also covered by the contractual
indemnity provided by the prior owners of IndiaWorld Communications.
Nonetheless, any dispute such as those described above creates uncertainty as to
the possible outcome, including whether or not our indemnity will be effective
in protecting us, and also could divert management time and attention away from
the business.
We face risks associated with our joint ventures with ICICI Bank, Citibank,
Bank of Madura and RPG Netcom, our acquisition of IndiaWorld
Communications, our investment in CricInfo Limited and with other 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.
In November 1999, we acquired 24.5% of the outstanding shares of IndiaWorld
Communications, together with an option to acquire IndiaWorld Communications'
remaining outstanding shares which we exercised in June 2000. In November and
December 1999, we also formed alliances with ICICI Bank, Citibank, Bank of
Madura and RPG Netcom. In May 2000, we entered into a partnership with VeriSign
to provide managed digital certificate-based authentication services in India.
In June 2000, we also agreed to acquire a 25% stake in CricInfo Limited and
entered into an agreement with America Online to distribute a co-branded version
of the AOL Instant Messenger. We completed our investment in CricInfo Limited in
July 2000. These transactions were only recently entered into and none of these
ventures is yet operational. We may acquire or make investments in other
complementary businesses, technologies, services or products, or enter into
additional strategic partnerships with parties who can provide access to those
assets, if appropriate opportunities arise in the future. From time to time we
have had discussions and
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negotiations with a number of 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 in the future, or if we do
identify suitable candidates, we may not complete those transactions on
commercially acceptable terms or at all. We may experience difficulty in
integrating the services of ICICI Bank, Citibank, Bank of Madura, RPG Netcom,
VeriSign, CricInfo and AOL Instant Messenger with our services, and these
alliances may not provide all or a portion of the anticipated benefits. We could
have difficulty in assimilating IndiaWorld Communications' personnel,
operations, technology and software, or that of another company we acquire, with
our company. In addition, the key personnel of an 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 which could adversely
affect our operating results and cause the price of our ADSs to decline.
Furthermore, we may incur indebtedness or issue additional equity securities to
pay for any future acquisitions. The issuance of additional equity securities
would dilute the ownership interests of the holders of our ADSs.
Satyam Computer Services controls our company and may have interests which
conflict with those of our other stockholders or holders of our ADSs.
As of the date of this prospectus, Satyam Computer Services beneficially
owned approximately 53% of our equity shares. As a result, it is able to
exercise control over many matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. Under Indian law, a simple majority is sufficient to control all
stockholder 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 not be 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 stockholders;
. commencing any new line of business; and
. commencing a liquidation.
Circumstances may arise in which the interests of Satyam Computer Services
could conflict with the interests of our other stockholders or holders of our
ADSs. Satyam Computer Services could delay or prevent a change of control of our
company even if a transaction of that sort would be beneficial to our other
stockholders, 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.
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 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.
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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 and trademark laws, trade secrets, 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.
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
online 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.
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 online 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.
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<PAGE>
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. As the Internet
becomes accessible by cellular telephones, personal data assistants, television
set-top boxes and other consumer electronic devices, and becomes deliverable
through other means involving digital subscriber lines, coaxial cable or
wireless transmission mediums, 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
Holders of ADSs are 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. At our 2000 Annual General Meeting, our stockholders approved a
special resolution pursuant to which we may issue up to one million equity
shares in connection with acquisitions, 268,500 of which we issued in connection
with our acquisition of IndiaWorld Communications and 625,000 of which we issued
in connection with our acquisition of a 25% stake in CricInfo Limited. As a
result, ADS holders are deemed to have waived their preemptive rights with
respect to their shares. In addition, 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 stockholders. 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.
18
<PAGE>
Holders of ADSs may be restricted in their ability to exercise voting
rights.
As a holder of ADSs, 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.
At our request, the depositary bank will mail to you any notice of
stockholders' 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
on a poll.
The market price of our ADSs has been and may continue to be highly
volatile.
The market price of our ADSs has fluctuated widely and may continue to do
so. For example, since our initial public offering in October 1999 through July
6, 2000 and, after giving effect to the 4-for-1 split of our ADSs in January
2000, the trading price of our ADSs has ranged from a high of $113 per ADS to a
low of $7.50 per ADS. Many factors could cause the market price of our ADSs to
rise and fall. Some of these factors include:
. our failure to integrate successfully our operations with those of
IndiaWorld Communications;
. actual or anticipated variations in our quarterly operating results;
. announcement of technological innovations;
. conditions or trends in the Internet and electronic commerce
industries;
. the successful implementation by competitors of the free Internet
access model, or the introduction of alternative pricing models, in
India;
. the perceived attractiveness of investment in Indian companies;
. acquisitions and alliances by us or others in the industry;
. changes in estimates of our performance or recommendations by
financial analysts;
. market conditions in the industry and the economy as a whole;
. introduction of new services by us or our competitors;
. changes in the market valuations of other Internet service companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
. additions or departures of key personnel; and
. other events or factors, many of which are beyond our control.
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.
An active or liquid market for the ADSs is not assured, 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 an active, liquid public trading
market for our ADSs will exist. Active, liquid trading markets generally result
in lower price volatility and more efficient execution of buy and sell orders
for
19
<PAGE>
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 includes 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.
The future sales of securities by our company or existing stockholders 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 or the perception that such sales could occur.
Such sales could include the sale of the ADSs described in this prospectus which
were originally issued in a private transaction. 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. We intend to issue additional equity shares and
ADSs to fund acquisitions and investments and the parties to any such future
transactions could also decide to sell them.
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.
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<PAGE>
FORWARD-LOOKING STATEMENTS
We have included statements in this prospectus which contain words or
phrases such as "may," "will," "will likely result," "believe," "expect," "will
continue," "anticipate," "estimate," "intend," "plan," "contemplate," "seek to,"
"future," "objective," "goal," "project," "should" and similar expressions or
variations of such expressions, that are "forward-looking statements." Actual
results may differ materially from those suggested by the forward-looking
statements due to risks or uncertainties associated with our expectations with
respect to, but not limited to, our ability to implement our strategy and our
growth and expansion. 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.
In addition, other factors that could cause results to differ materially
from those estimated by the forward-looking statements contained in this
prospectus include, but are not limited to, general economic and political
conditions in India, Southeast Asia, and other countries which have an impact on
our business activities, changes in Indian and foreign laws, regulations and
taxes, changes in competition and other factors beyond our control, including
the factors described above in "Risk Factors."
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus reflects
the following:
. the 4-for-1 split of our ADSs in January 2000; 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 March 31, 2000 for cable transfers in Indian rupees as certified
for customs purposes by the Federal Reserve Bank of New York. The noon buying
rate on March 31, 2000 was Rs.43.65 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, 1998, 1999 and
2000. Solely for your convenience, our financial statements as of the year
ended March 31, 2000 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."
21
<PAGE>
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.
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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<PAGE>
REPORTS TO OUR SECURITY HOLDERS
We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended, applicable to foreign private issuers. As a result, we
are required to file reports, including annual reports on Form 20-F, reports on
Form 6-K and other information with the SEC. We intend 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 also intend 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.
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 we currently do so in
order to make our reports available over the Internet.
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 are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements, and our
executive officers, directors and principal stockholders are 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 stockholders' meetings and other reports and communications that are made
generally available to our stockholders. 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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<PAGE>
USE OF PROCEEDS
This prospectus relates solely to the resale by certain holders of ADSs
issued to them privately in connection with our investment in CricInfo Limited.
We are not participating in this offering and will not receive any proceeds from
the sale of ADSs by the selling stockholders.
CAPITALIZATION
The following table sets forth, as of March 31, 2000, the cash, short-term
debt and capitalization of our company.
<TABLE>
<CAPTION>
As of March 31, 2000
---------------------------------------------------
Indian Rupees U.S. Dollars
------------------- ---------------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents................................................ Rs. 7,307,625 $ 167,414
=================== =====================
Short term debt:
Current installments of long-term debt................................. Rs. 40,267 $ 922
Current installment of capital lease obligations....................... 2,104 48
------------------- ---------------------
Total short-term debt................................................ Rs. 42,371 $ 971
=================== =====================
Long-term debt:
Long-term debt, excluding current installments......................... Rs. 168,860 $ 3,869
Capital lease obligations, excluding current installments.............. 4,306 99
------------------- ---------------------
Total long-term debt................................................. 173,166 3,967
Stockholders' equity: equity shares, par value Rs.10 per share;
25,000,000 authorized; 22,249,425 issued and outstanding................ 222,494 5,097
Additional paid-in capital............................................... 10,520,953 241,030
Deferred compensation - employee stock offer plan........................ (120,225) (2,754)
Accumulated deficit...................................................... (696,834) (15,964)
Accumulated other comprehensive income................................... 1,451 33
------------------- ---------------------
Total stockholders' equity............................................ 9,927,841 227,442
------------------- ---------------------
Total capitalization.................................................. Rs. 10,101,006 $ 231,409
=================== =====================
</TABLE>
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 34.15 26.85
1998..................................................... 39.53 37.37 40.40 35.71
1999..................................................... 42.50 42.27 43.60 39.41
2000..................................................... 43.65 43.46 43.75 42.50
2001 (through June 30, 2000)............................. 44.60 43.76 44.78 43.42
</TABLE>
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our equity shares as of June 30, 2000 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) all directors and our CEO and (3) all directors and executive
officers as a group. The table gives effect to equity shares issuable within 60
days of June 30, 2000 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. 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
stockholder of Satyam Computer Services. Messrs. Satyam Ramnauth and Pierre Guy
Noel, directors of International Venture Capital Management, which manages South
Asia Regional Fund, exercise voting control and dispositive power over the
equity shares owned by South Asia Regional Fund. Mr. Peck, a director of our
company, is affiliated with South Asia Regional Fund.
<TABLE>
<CAPTION>
Equity Shares
Beneficially Owned
---------------------------------------
Beneficial Owner Number Percent
---------------- ---------------- -----------------
<S> <C> <C>
Satyam Computer Services Limited....................... 12,182,600 53.0
Mayfair Center, S P Road
Secunderabad 500 003
India
South Asia Regional Fund............................... 3,600,000 15.7
Les Cascades Building
Edith Cavell Street
Port Louis
Mauritius
R. Ramaraj............................................ 370,000 1.6
B. Ramalinga Raju..................................... 100 *
Pranab Barua........................................... -- --
T. H. Chowdary....................................... -- --
Donald Peck............................................ -- --
C. Srinivasa Raju..................................... -- --
S. Srinivasan......................................... -- --
All directors and executive officers as a group
(20 persons)......................................... 370,100 1.6
</TABLE>
_____________________
* Less than 1% of total
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information, as of July 6, 2000 with
respect to the ADSs owned and to be offered hereby from time to time by Michael
Watt and CricInfo Limited (together, the "Selling Stockholders"). Because the
Selling Stockholders may sell all or any part of the ADSs pursuant to this
prospectus, no estimate can be given as to the number and percentage of our ADSs
that will be held by the Selling Stockholders upon termination of the offering.
Assuming all of the ADSs being offered are sold, the Selling Stockholders will
own no ADSs. See "Plan of Distribution."
<TABLE>
<CAPTION>
ADSs Beneficially Owned Prior
to this Offering
---------------------------------------- ADSs Offered
Beneficial Owner Number Percent(1) Hereby
------------------------------------------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
Michael Watt........................................... 1,433,333 1.5 1,433,333
c/o Indigo Holdings Limited
c/o The Langtry Trust Group
P.O. Box 124 Langtry House
40 La Motte Street
St. Helier, Jersey JE4 8QR
Channel Islands, British Isles
CricInfo Limited....................................... 1,066,667 1.2 1,066,667
Hartham Park
Corsham
Wiltshire, England SN13 ORP
England
</TABLE>
____________________
(1) Based on the percentage of outstanding equity shares represented by the
equity shares underlying such holder's ADSs.
Pursuant to an agreement between our company and the Selling Stockholders,
we have agreed to file a registration statement, of which this prospectus forms
a part, to register the potential resale of the ADSs by the Selling
Stockholders.
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<PAGE>
PLAN OF DISTRIBUTION
Sales of the ADSs covered by this prospectus and the related registration
statement may be made from time to time by the Selling Stockholders in one or
more transactions on the Nasdaq National Market or any other national securities
exchange on which the ADSs may be traded (which, subject to applicable law, may
involve transactions solely between a broker-dealer and its customers which are
not traded across an open market and block trades), in the over-the-counter
market, in privately negotiated transactions or otherwise or in any combination
of such transactions at market prices then prevailing, at prices related to the
then current market price, at negotiated prices or at fixed prices. In addition,
any ADSs covered by this prospectus which qualify for sale pursuant to Section
4(1) of the Securities Act, Rule 144 promulgated thereunder or any other
transaction exempt from registration under the Securities Act may be sold under
such provisions rather than pursuant to this prospectus. The ADSs may be offered
in any manner permitted by law, including through underwriters, brokers, dealers
or agents, and directly to one or more purchasers. Without limiting the
generality of the foregoing, the ADSs offered by this prospectus may be sold in
one or more of the following types of transactions:
. sales to underwriters who will acquire the ADSs for their own account
and resell them in one or more transactions at fixed prices or at
varying prices determined at the time of sale;
. a block trade in which the broker-dealer so engaged will attempt to
sell the ADSs as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
. purchases by a broker or dealer as principal and resale by such broker
or dealer for its account;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. an exchange distribution in accordance with the rules of such
exchange; and
. transactions between sellers and purchasers without a broker-dealer.
In effecting sales, brokers or dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers to participate in the resales.
Brokers, dealers or agents may receive compensation in the form of
commissions, underwriting discounts or concessions from the Selling Stockholders
in amounts to be negotiated in connection with the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
In the event the Selling Stockholders engage an underwriter in connection
with the sale of the ADSs, to the extent required, a prospectus supplement will
be distributed, which will set forth the number of ADSs being offered and the
terms of the offering, including the names of the underwriters, any discounts,
commissions and other items constituting compensation to underwriters, dealers
or agents, the public offering price and any discounts, commissions or
concessions allowed or reallowed or paid by underwriters to dealers.
All costs, expenses and fees in connection with the registration of the
ADSs offered hereby shall be borne by our company. Commissions and discounts, if
any, and any other selling expenses attributable to the sale of ADSs hereunder
will be borne by the Selling Stockholders.
Persons participating in the distribution of the ADSs offered hereby may
but are not obligated to engage in transactions that stabilize the price of our
ADSs. In the event such stabilization is conducted, it may be terminated at any
time.
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DESCRIPTION OF EQUITY SHARES
The following are summaries of our Articles of Association and Memorandum
of Association and the Companies Act 1956 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 incorporate by reference complete
copies of our Memorandum of Association and Articles of Association, as well as
Table "A" of the Companies Act, as exhibits to our Form F-2, 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 equity shares, par value Rs.10
per share. As of March 31, 2000, 22,249,425 equity shares, including options to
purchase 312,460 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 preference
shares in addition to the equity shares. For the purposes of this prospectus,
"stockholder" means a stockholder 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 March 31, 2000, we had granted an aggregate of 313,160 options under our
ASOP with a weighted average exercise price equal to approximately Rs.2,338 per
equity share.
On February 5, 1999, we entered into a Share Subscription and Stockholders'
Agreement, or Stockholders' 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
Stockholders' 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 Stockholders' Agreement provides that upon the
occurrence of specified events, SARF may require Satyam Computer Services to
repurchase our equity shares owned by SARF. The Stockholders' Agreements also
granted to Satyam Computer Services and SARF warrants to purchase up to an
aggregate of 750,000 of our equity shares. Upon the completion of our initial
public offering in October 1999, Satyam Computer Services and SARF exercised
these warrants for an exercise price equal to approximately 67% of our initial
public offering price, or $12.00 per equity share, and we issued an aggregate of
150,000 and 600,000 equity shares to Satyam Computer Services and SARF
respectively upon exercise of these warrants.
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 stockholders 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 company's equity shares. The dividend
recommended by the board, if any, and subject to the limitations described
above, is distributed and paid to stockholders in proportion to the paid up
value of their shares within 42 days of the approval by the stockholders at the
annual general meeting. Pursuant to our Articles, our Board has discretion to
declare and pay interim dividends without stockholder 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 this 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 stockholder at a record date fixed during 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 our accumulated profits, subject to the following conditions:
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. 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.
A tax of 22%, including the presently applicable surcharge, of the total
dividend declared, distributed or paid for a relevant period is payable by our
company.
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 stockholders 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 stockholders in the
proportion recommended by the Board. Stockholders 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 stockholders 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
stockholders. For approval, a 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. At our 2000 Annual General Meeting, our stockholders approved a
special resolution pursuant to which we may issue up to one million equity
shares in connection with acquisitions, 268,500 of which we issued in connection
with our acquisition of IndiaWorld Communications and 625,000 of which we issued
in connection with our acquisition of a 25% stake in CricInfo Limited. As a
result, ADS holders are deemed to have waived their preemptive rights with
respect to these shares. If we issue additional equity shares in the future for
which our stockholders have not waived their preemptive rights and a special
resolution is not approved by our stockholders, the new shares must first be
offered to the existing stockholders as of a fixed record date. The offer must
include: (1) the right, exercisable by the stockholders 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.
Annual General Meetings of Stockholders
We must convene an annual general meeting of stockholders within six months
after the end of each fiscal year to adopt the accounts for such fiscal year and
to transact other businesses and may convene an extraordinary general meeting of
stockholders when necessary or at the request of a stockholder or stockholders
holding at least 10% of our paid up capital carrying voting rights. The annual
general meeting of the stockholders 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 day of mailing) prior
to the date of the general meeting to the stockholders on record. Stockholders
who are registered as stockholders on the date of the general meeting are
entitled to attend or vote at such meeting.
The annual general meeting of stockholders 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, 2nd Floor, 1-8-303/36, S.P. Road, Secunderabad 600 003, India.
Our Articles provide that a quorum for a general meeting is the presence of
at least five stockholders in person.
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Voting Rights
At any general meeting, voting is by show of hands unless a poll is
demanded by a stockholder or stockholders 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 value of at least Rs.50,000. Upon a
show of hands, every stockholder entitled to vote and present in person has one
vote and, on a poll, every stockholder entitled to vote and present in person or
by proxy has voting rights in proportion to the paid up capital held by such
stockholders. 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 Share--Voting Rights."
Any stockholder 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 stockholder may appoint an authorized
representative who can vote on behalf of the stockholder, 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, special resolutions such as amendments to our Articles and the
object clause of 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 Stockholders; Record Dates; Transfer of Shares
We maintain a register of stockholders. 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 stockholders are entitled to specified stockholder
rights, we may close the register of stockholders. 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 stockholders 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
provisions of Section 111A of the Companies Act. Since we are a public company,
the provisions of Section 111A will apply to us. 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 stockholder 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 stockholder 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 a duly stamped
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 Citibank, N.A., Mumbai branch.
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,
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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."
Audit and Annual Report
At least 21 days prior to the date of the annual general meeting of
stockholders (excluding the day of mailing), we must distribute to our
stockholders 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
stockholders 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 stockholders 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
stockholders 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 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. Generally, 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.
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. acts 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 and any amendment to date is on file
with the SEC under cover of a registration statement on Form F-6 (Reg. No. 333-
10982). You may obtain a copy of the deposit agreement from the SEC's Public
Reference Room at Judiciary Plaza, 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-fourth of 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. 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.
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Distributions of Equity Shares
Whenever we make a free distribution of equity shares for the securities on
deposit with the custodian, we will notify the depositary bank and deposit the
applicable number of equity shares with the custodian. 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-equity
shares 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). 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 timely request that the rights be distributed to you or we
request 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.
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.
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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 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.
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--
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 impact the value of our 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.
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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 Equity 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 corresponding number of underlying
equity shares at the custodian's offices, subject to the laws of India. In order
to withdraw the equity shares 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. Please also keep in mind that the Depositary
will deliver the underlying shares only in uncertificated form.
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 stockholders' 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
stockholders' 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. In the event that voting takes
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place by a show of hands, the depositary bank will cause the custodian to vote
all deposited securities in accordance with the instructions received by holders
of a majority of the ADSs for which the depositary bank receives voting
instructions. In the event that voting takes place on a poll, the depositary
will vote all deposited securities in accordance with the instructions received
from holders of a majority of the deposited securities for which instructions
have been given to the depositary.
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 except as discussed above.
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
Distribution of ADSs.......................................... Up to 2c per ADS issued
Distribution of cash dividends or other cash distributions.... Up to 2c per ADS held
</TABLE>
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;
. taxes and duties upon the transfer of securities (i.e., when equity
shares are deposited or withdrawn from deposit); and
. fees and expenses as are incurred with compliance with exchange
control regulations and other regulatory requirements.
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.
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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 an unsegregated 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.
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 reasonable 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 of the
United States, the Republic of India or any other country, any
provision of our Articles of Association and 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 and 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.
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. 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.
. We and the depositary bank disclaim liability for any consequential or
punitive damages for any breach of the terms of the deposit agreement.
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 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 practicable, 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 practicable 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 practicable and lawful and
distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practicable;
. distribute the foreign currency to holders for whom the distribution
is lawful and practicable; and
. hold the foreign currency (without liability for interest) for the
applicable holders.
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RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES
Prior to June 1, 2000, investment in Indian securities was regulated by the
Indian Foreign Exchange Regulation Act, 1973. Under Section 29(1)(b) of the
Indian Foreign Exchange Regulation Act, 1973, no person or company resident
outside India not incorporated in India (other than a banking company) could
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 Indian Foreign Exchange Regulation
Act, 1973, the transfer and issuance of any security of any Indian company to a
person resident outside India required the permission of the Reserve Bank of
India. Under Section 19(5) of the Indian Foreign Exchange Regulation Act, 1973,
no transfer of shares in a company registered in India by a non-resident to a
resident of India was valid unless the transfer was 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.
However, the Reserve Bank of India has issued notifications over the past few
years relaxing the restrictions on foreign investment in Indian companies.
As of June 1, 2000, the Indian Foreign Exchange Regulation Act, 1973 was
replaced by the Indian Foreign Exchange Management Act, 1999. The Indian Foreign
Exchange Management Act, 1999 contains provisions regarding current account
convertibility and amendments to the definition of a resident of India. However,
some of the preexisting controls and restrictions on capital account
transactions remain in force. While many of the restrictions imposed by the
Indian Foreign Exchange Regulation Act, 1973 have been relaxed under this new
legislation, the Notifications and Guidelines issued by the Reserve Bank of
India which are not inconsistent with the Indian Foreign Exchange Management
Act, 1999 continue to be in force. The purchase and the transfer of shares of
Indian companies continues to be regulated by the RBI. Therefore, transaction
involving foreign investment in Indian securities is regulated by the provisions
of the Indian Foreign Exchange Management Act, 1999 and continues to be
regulated by the Reserve Bank of India.
ADR Guidelines
Shares of Indian companies represented by ADSs are no longer required to be
approved for issuance to foreign investors by the either Ministry of Finance or
the Reserve Bank of India 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. This change was
effected through the guidelines for ADR and GDR issues by Indian companies
issued by the Ministry of Finance on January 19, 2000 and a notification issued
by the Reserve Bank of India. Hence we do not require the approval of the
Ministry of Finance and the Reserve Bank of India under the Issue of Foreign
Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt
Mechanism) Scheme, 1993. However, we will be required to furnish full
particulars of the issue, including the underlying equity shares representing
the ADRs, to the Ministry of Finance and the Reserve Bank of India within 30
days of the completion of an offering.
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 owners 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."
Foreign Direct Investment
Currently, due to recent changes in Indian policy, subject to certain
exceptions, foreign direct investment and investment by individuals of Indian
nationality or origin residing outside India, or non-resident Indians, and
overseas corporate bodies at least 60% owned by such persons, or overseas
corporate bodies, in Indian companies do not require the approval of the Foreign
Investment Promotion Board, or FIPB, a body formed by the Government of India to
negotiate with large foreign companies interested in making long-term
investments in India. Furthermore, henceforth no prior approval of the Reserve
Bank of India is required although a post-investment declaration in giving
details of the foreign investment in the company pursuant to the ADR issue must
be filed with the Reserve Bank of India within thirty days of an ADR offering.
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In cases where FIPB approval is obtained, no prior approval of the Reserve
Bank of India is required, although a declaration in the prescribed form as
mentioned above must be filed with the Reserve Bank of India once the foreign
investment is made in the Indian company. In cases where no prior approval of
the FIPB is required, prior approval of the Reserve Bank of India would also not
be required. However, a declaration in the prescribed form giving details of the
foreign investment must be filed with the Reserve Bank of India once the foreign
investment is made in the Indian company.
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.
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.
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.
The discussion on the foreign direct investment regime in India set forth
above applies only to a new issuance of shares made by Indian companies, not to
a transfer of shares.
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
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 ("OCBs"), at least 60% owned by such persons. 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." 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 to make these
investments. Foreign institutional investors must also comply with the
provisions of the Securities 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 Indian 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. The foreign institutional investor regulations also set out the general
obligations and responsibilities and investment conditions and restrictions
applicable to foreign institutional investors. One such restriction is that
unless the foreign Institutional Investor is
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registered as a debt fund with the Securities 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 a foreign institutional investor in
India.
Apart from making portfolio investments in Indian companies as described
above, foreign institutional investors may direct foreign investments in Indian
companies. For additional information, please see "--Foreign Direct Investment."
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.
Under current Indian law, foreign institutional investors in the aggregate may
hold no more than 24% 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
24% limit referred to above may be increased to 40% if the stockholders of the
company pass a special resolution to that effect. 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.
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.
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) Resolutions, upon the
acquisition of more than 5% of the outstanding shares of a 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
the company are listed. Upon the acquisition of 15% or more of such shares or a
change in control of the company, the purchaser is required to make an open
offer to the other stockholders 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 Takeover Code. However, since we are 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.
Voting Rights of Deposited Equity Shares Represented by ADSs
Holders of ADSs generally have the right under the deposit agreement to
instruct the depositary bank to exercise the voting rights for the equity shares
represented by the related ADSs.
At our request, the depositary bank will mail to the holders of ADSs any
notice of stockholders' 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. In the event that voting takes
place by a show of hands, the depositary bank will cause the custodian to vote
all deposited securities in accordance
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with the instructions received by holders of a majority of the ADSs for which
the depositary bank receives 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 ADS holders will receive
voting materials in time to enable them 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 except as discussed above.
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GOVERNMENT OF INDIA APPROVALS
Currently, under Indian regulations, we are not required to obtain the
prior approval of the Ministry of Finance and the Reserve Bank of India for an
offering. However, we will be required to furnish full particulars of the issue,
including the number of ADSs issued, the percentage of the foreign shareholding
in our company subsequent to an offering and detailed parameters of the issue to
the Ministry of Finance and the Reserve Bank of India within 30 days of an
offering. We are also required to furnish to the Reserve Bank of India, the
capital structure of our Company prior to an offering as well as the capital
structure after an offering, within 30 days of an offering. We are also required
to inform the Reserve Bank of India of any repatriation of issue proceeds held
abroad immediately on such repatriation. Various tax concessions are expected to
be available with respect to an 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 letter from the Ministry of Finance stating
that the approval of the Ministry of Finance will not be required for an
offering will be made available for public inspection at our corporate office or
provided upon written request to our Chief Financial Officer.
On January 20, 2000, the Reserve Bank of India issued a notification under
the provisions of the Indian Foreign Exchange Regulation Act, 1973 relaxing the
requirement of prior approval for an Indian company issuing ADS, provided that
the issuing company is eligible to issue ADSs in terms of the guidelines issued
by the Ministry of Finance and the issuing company has the necessary approval
from the Foreign Investment Promotion Board. We satisfy both the criteria
mentioned above and hence we will not be required to obtain the prior approval
of the Reserve Bank of India for an offering. Through this notification the
Reserve Bank of India has also granted general permission for the following:
. 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, through an Authorized Dealer, 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; and
. us to export the equity shares from India for transfer thereof outside
of India upon withdrawal from the depositary facility.
The Reserve Bank of India has granted general permission for 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 resident of India. Currently, investment in Indian securities is
regulated by the Foreign Exchange Regulation Act, 1973, which may be replaced by
the Indian Foreign Exchange Management Act, 1999. Pursuant to the Indian Foreign
Exchange Regulation Act, 1973, a resident of 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 resident of India require approval from the Reserve
Bank of India under Section 19(5) of the Indian Foreign Exchange Regulation Act,
1973. 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 our equity shares are
not presently listed in India, the prior approval of the Reserve Bank of India
will be required for a person resident outside India who is a stockholder 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.
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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 an 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 resident of India would require additional approvals to be obtained from the
Reserve Bank of India. Under current regulations and practice, since we are not
listed on any recognized stock exchange in India, a non-resident of India
intending to sell our securities within India or to a resident of 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 resident of 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.
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.
However, we may be required to list the equity shares on Indian Stock Exchanges
within three years from the time we first earn profits.
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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 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. A firm or
other association of persons is resident in India except where the control and
management of its affairs is situated wholly outside India. Individuals,
companies, firms and other associations of persons that are not resident of
India would be treated as non-residents for purposes of the Income-tax Act.
Taxation of Distributions
Withholding tax on dividends paid to stockholders no longer applies.
However, the company paying the dividend would be subject to a dividend
distribution tax of 22%, including the presently applicable surcharge of 10%, 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 present surcharge of 10%.
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. Similarly, the acquisition by a non-
resident holder of equity shares upon redemption of ADSs will not constitute a
taxable event for Indian income tax purposes. Such acquisition will, however,
give rise to a stamp duty as described below under "--Stamp Duty and Transfer
Tax."
Taxation of Capital Gains
Any gain realized on the sale of our ADSs 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 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
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<PAGE>
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.
In an offering under the Issue of Foreign Currency Convertible Bonds and
Equity 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 unclear, and M.G. Ramachandran is unable to give an
opinion as to whether such tax treatment is available to 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. 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%. Taxation 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%. In addition, non-corporate foreign assesses are subject to a
surcharge of 15%. 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 stockholders 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."
Stamp Duty and Transfer Tax
Upon issuance of any physical equity shares underlying our ADSs, we will be
required to pay a stamp duty of 0.1% of the aggregate value of the shares we
issue. Issue of dematerialized shares are not subject to Indian stamp duty. A
transfer of ADSs is not subject to Indian stamp duty. However, upon the
acquisition of physical 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 equity shares on the redemption date. Similarly upon
a sale of shares in physical form, stamp duty at the rate of 0.5% of the market
value of the equity shares on the trade date is payable although customarily
such duty us borne by the purchaser.
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 will be
exempt from Indian wealth tax. Non-resident holders are advised to consult their
own tax advisers in this context.
Gift Tax and Estate Duty
Indian gift tax was abolished in October 1998. In India, there is no estate
duty law. As a result, while no estate duty would be payable in India, non-
resident holders are advised to consult their own tax Advisors in this context.
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Service Tax
Brokerage or commissions paid to stockbrokers in connection with the sale
or purchase of shares is subject to a service tax of 0.5%. The stockbroker is
responsible for collecting the service tax and paying it to the relevant
authority.
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, corporations or
any other entities 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. It also addresses, to a limited extent, the U.S.
federal income tax considerations relevant to holders that are not U.S. persons.
We refer to these persons as U.S. holders. 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 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 stockholders of our company, including holders
of ADSs) with respect to equity shares or ADSs 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 as determined under U.S. federal
income tax principles. 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, 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 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.
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
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<PAGE>
the U.S. holder's tax basis in the equity shares or ADSs. Subject to special
rules described below governing passive foreign investment companies, 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 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 gain
or loss for U.S. foreign tax credit purposes. The deductibility of capital
losses may be subject to limitation.
Estate Taxes. An individual stockholder 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.
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 a quarterly 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;
. if a qualified electing fund election is made, include in their
taxable income their pro rata share of undistributed amounts of our
income; or
. if the exchanges on which the equity shares or ADSs are traded meet
certain trading, listing, financial disclosure and other requirements
of a qualified exchange under applicable U.S. Treasury Regulations, a
U.S. holder that makes a valid mark-to-market election will recognize
as ordinary income each year the excess in the fair market value, if
any, of its equity shares or ADSs at the end of the taxable year over
such holder's adjusted tax basis in such equity shares or ADSs and, to
the extent of prior inclusions of ordinary income, recognize ordinary
loss for the decrease in value of such equity shares or ADSs. The ADSs
are expected to be listed on the Nasdaq National Market which is a
qualified exchange.
Backup Withholding Tax and Information Reporting Requirements. Under
current U.S. Treasury Regulations, dividends paid on equity shares, if any, may
be subject to information reporting and generally will not be subject to U.S.
backup withholding tax. In addition, information reporting will apply to
payments of proceeds from the sale or redemption of, equity shares or ADSs by a
paying agent, including a broker, within the United States to a holder, other
than an "exempt recipient," including a corporation and a non-U.S. holder that
provides an appropriate certification. 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.
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 our initial public offering in October 1999, there had not been a
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 stockholders may hurt the price of our ADSs."
As of July 26, 2000, we had an aggregate of 23,142,925 equity shares and
23,573,700 ADSs outstanding, assuming no exercise of the outstanding employee
stock options. Our ADSs are freely tradable, except that any ADSs held by
"affiliates" as defined under Rule 144 under the Securities Act may only be sold
in compliance with the limitations described below. Our equity shares not
underlying ADSs 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 general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of our initial public
offering, a number of shares that does not exceed the greater of 1.0% of the
then outstanding equity shares (including equity shares represented by ADSs)
(231,429 shares) or the average weekly trading volume in the equity shares
(including equity shares represented by ADSs) during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person who is not deemed to have been an affiliate
of our company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Certain resales may be permitted pursuant to
Sections 903 and 904 of Regulation S even if the Rule 144 holding periods are
not satisfied. Satyam Computer Services Limited and South Asia Regional Fund may
be deemed affiliates of our company. Therefore, sales by them in the United
States of the 15,782,600 equity shares owned by them may continue to be subject
to the volume limitations of Rule 144.
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 our initial public offering in October 1999, each of SARF and
Sterling Commerce may make up to 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.
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LEGAL MATTERS
The validity of the ADSs offered hereby will be passed upon for Satyam
Infoway 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.
Latham & Watkins may rely upon M.G. Ramachandran with respect to matters
governed by Indian law. Certain employees of Latham & Watkins own an aggregate
of less than one percent of our outstanding ADSs.
EXPERTS
The U.S. GAAP financial statements of Satyam Infoway Limited as of March
31, 1998, 1999 and 2000, and for each of the years in the three-year period
ended March 31, 2000, have been incorporated by reference herein in reliance
upon the report of KPMG, India, independent accountants, and upon the
authority of said firm as experts in auditing and accounting.
CHANGE IN 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 thank banks, from accepting "deposits" in an amount in
excess of 25% of their shares 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-2, 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. We have not included in this prospectus all of the information
contained in the registration statement, and you should refer to the
registration statement and its exhibits for further information.
You may review and obtain copies of the registration statement, including
exhibits and schedules filed with it, at the Public Reference Room of the SEC,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. You may also find the registration statement with
exhibits, other than confidential filings, at the SEC's Website at
http://www.sec.gov.
We file with the SEC annual reports on Form 20-F and quarterly and other
reports on Form 6-K. Our annual and quarterly reports include financial
statements prepared in accordance with generally accepted accounting principles,
except as disclosed therein. Our annual financial statements are examined by our
independent accountants.
The SEC's rules let us "incorporate by reference" information which we have
previously filed with the SEC, which means we can disclose important information
to you by referring you to those documents. This prospectus incorporates:
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<PAGE>
. our Annual Report on From 20-F for the year ended March 31, 2000 which
we filed with the SEC on June 29, 2000; and
. our Current Report on Form 6-K which we filed with the SEC on July 12,
2000.
The information incorporated by reference is an important part of this
prospectus. We will provide to each person, including any beneficial owner, to
whom a prospectus is delivered, a copy of any or all of the information that has
been incorporated by reference in this prospectus but not delivered with this
prospectus. We will provide this information at no cost to you upon written or
oral request directed to Satyam Infoway Limited, Maanasarovar Towers, 271-A,
Anna Salai, Teynampet, Chennai 600018, India, Attn: Investor Relations,
Telephone: (91) 40-435-3221.
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================================================================================
Up To 2,500,000 American Depositary Shares
[LOGO OF SATYAM APPEARS HERE]
SATYAM INFOWAY LIMITED
Representing Up To 625,000 Equity Shares
-------------------
P R O S P E C T U S
-------------------
, 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the ADSs being registered. All amounts
are estimates except the SEC registration fee.
<TABLE>
<CAPTION>
Amount
to be Paid
-------------------
<S> <C>
SEC registration fee......................................................... $ 11,696
Legal fees and expenses...................................................... 50,000
Accounting fees and expenses................................................. 10,000
Printing and engraving....................................................... 10,000
Blue sky fees and expenses (including legal fees)............................ 5,000
Miscellaneous................................................................ 13,304
-----------------
Total..................................................................... $ 100,000
=================
</TABLE>
Item 15. 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.
Our company has obtained directors and officers insurance providing
indemnification for a number of our directors, officers, affiliates, partners or
employees for specified errors and omissions.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
Number Description
------ -----------
4.1 Share Subscription and Stockholders' 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. (1)
4.2 Amendment No. 1 to Share Subscription and Stockholders' 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. (1)
4.3 Form of Deposit Agreement among Satyam Infoway Limited, Citibank, N.A.
and holders from time to time of American Depositary Shares evidenced
by American Depositary Receipts issued thereunder (including as an
exhibit, the form of American Depositary Receipt). (3)
4.4 Amendment No. 1 of the Deposit Agreement dated as of January 6, 2000.
(5)
4.5 Satyam Infoway Limited's Specimen Certificate for equity shares. (2)
4.6 Rupee Loan Agreement, dated as of July 3, 1998, by and between Satyam
Infoway Limited and Export-Import Bank of India. (1)
II-1
<PAGE>
Number Description
------ -----------
4.7 Letter Agreement, dated as of September 14, 1999, by and between
Satyam Infoway Limited and Sterling Commerce, Inc. (1)
4.8 Stockholders Agreement, dated as of September 14, 1999, by and among
Satyam Infoway Limited, Sterling Commerce, Inc. and Satyam Computer
Services Limited. (1)
4.9 Registration Rights Agreement, dated as of September 14, 1999, by and
among Satyam Infoway Limited, Sterling Commerce, Inc. and South Asia
Regional Fund. (1)
5.1 Opinion of M.G. Ramachandran.
10.1 Associate Stock Option Plan (including Deed of Trust). (2)
10.2 Form of Indemnification Agreement. (2)
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. (1)
10.4 Bank Guarantee, dated as of November 4, 1998. (1)
+10.5 UUNet Technologies Strategic Alliance Agreement, dated of April 18,
1997, by and between Satyam Infoway Limited and UUNet Technologies.
(3)
+10.6 International Electronic Commerce Provider Agreement, dated as of
February 14, 1997, by and between Satyam Infoway Limited and Sterling
Commerce International Inc. (3)
+10.7 Amendment No. 1 to International Electronic Commerce Provider
Agreement by and between Satyam Infoway Limited and Sterling Commerce
International Inc. (3)
+10.8 Amendment No. 2 to International Electronic Commerce Provider
Agreement by and between Satyam Infoway Limited and Sterling Commerce
International Inc. (3)
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. (2)
+10.10 Distribution Agreement, dated as of June 1997, by and between Satyam
Infoway Limited and Open Market, Inc. (3)
10.11 User Agreement, effective as of April 1, 1999 by and between Satyam
Infoway Limited and Satyam Computer Services Limited. (1)
10.12 Share Purchase Agreement, dated November 29, 1999, by and among Satyam
Infoway Limited, IndiaWorld Communications Private Limited, Mr.
Rajeesh Jain and the other stockholders of IndiaWorld Communications
Private Limited listed on the signature pages thereto. (4)
10.13 Agreement for Option to Purchase Shares, dated November 29, 1999, by
and among Satyam Infoway Limited, IndiaWorld Communications Private
Limited, Mr. Rajeesh Jain and the other stockholders of IndiaWorld
Communications Private Limited listed on the signature page thereto.
(4)
10.14 Debenture Subscription Agreement, dated as of March 16, 2000, by and
between Satyam Infoway Limited and IDBI Bank. (7)
10.15 Debenture Subscription Agreement, dated as of March 31, 2000, by and
between Satyam Infoway Limited and IDBI Bank. (7)
10.16 Agreement for the Sale of Shares in CricInfo Limited by and between
Indigo Holdings Limited and Satyam Infoway Limited.
10.17 Subscription Agreement by and among CricInfo Limited, Satyam Infoway
Limited and the Senior Management.
10.18 Agreed Form of Shareholders Agreement by and among CricInfo Limited,
Satyam Infoway Limited and the Non-SIL Shareholders.
10.19 Letter Agreement between Satyam Infoway Limited and Indigo Holdings
Limited.
10.20 Share Purchase Agreement, dated as of June 30, 2000, by and among
Rajesh Jain, Bhavana Jain, C.M. Jain Impex and Investments Private
Limited, Satyam Infoway Limited and IndiaWorld Communications Private
Limited.
16.1 Letter from Fraser & Ross regarding Change in Certifying Accountant.
(2)
23.1 Consent of Latham & Watkins.
23.2 Consent of M.G. Ramachandran (included in Exhibit 5.1).
23.3 Consent of KPMG, India, Independent Auditors.
23.4 Consent of International Data Corporation. (6)
24.1 Power of Attorney.
__________________
II-2
<PAGE>
+ Registrant has obtained confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit
with the Commission.
* To be filed by amendment.
(1) Previously filed as an exhibit to Amendment No. 1 to the Registration
Statement on Form F-1 (File No. 333-10852) filed with the Commission on
October 4, 1999 and incorporated herein by reference.
(2) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement on Form F-1 (File No. 333-10852) filed with the Commission on
October 13, 1999 and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 3 to the Registration
Statement on Form F-1 (File No. 333-10852) filed with the Commission on
October 15, 1999 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Form 6-K (File No. 000-27663) filed
with the Commission on December 3, 1999 and incorporated herein by
reference.
(5) Previously filed with the Commission on February 3, 2000 as an exhibit to
the Registration Statement on Form F-1 (File No. 333-96111) and
incorporated herein by reference.
(6) Previously filed with the Commission on February 16, 2000 as an exhibit to
Amendment No. 1 to the Registration Statement on Form F-1 (File No. 333-
96111) and incorporated herein by reference.
(7) Previously filed with the Commission as an exhibit to the Annual Report on
Form 20-F (File No. 000-27663 filed with the Commission on June 29, 2000
and incorporated herein by reference.
(b) Financial Schedules.
Not required.
Item 17. Undertakings
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to which the prospectus is sent or
given, (i) the registrant's latest filing on Form 20-F, Form 40-F, or Form 10-K;
and any filing on Form 10-Q, Form 8-K or Form 6-K incorporated by reference into
the prospectus; and (ii) the latest annual report to security holders that is
incorporated by reference in this prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in this prospectus to provide such interim financial information.
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 Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against public
policy as expressed in the Securities Act of 1933 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 Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-2 and 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 26th day of July, 2000.
SATYAM INFOWAY LIMITED
By /s/ R. Ramaraj
------------------------------------------
Name: R. Ramaraj
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints R. Ramaraj and T.R. Santhanakrishnan, and each of
them, his attorneys-in-fact, each with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same Offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the SEC, granting unto said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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 Director July 26, 2000
R. Ramaraj (Principal Executive Officer)
/s/ T.R. Santhanakrishnan
--------------------------------- Chief Financial Officer July 26, 2000
T.R. Santhanakrishnan (Principal Financial and Accounting Officer)
/s/ B. Ramalinga Raju
--------------------------------- Director July 26, 2000
B. Ramalinga Raju
/s/ Pranab Barua
--------------------------------- Director July 26, 2000
Pranab Barua
--------------------------------- Director July , 2000
T.H. Chowdary
/s/ Donald Peck
--------------------------------- Director July 26, 2000
Donald Peck
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
--------------------------------- Director July , 2000
C. Srinivasa Raju
--------------------------------- Director July , 2000
S. Srinivasan
/s/ Donald J. Puglisi
--------------------------------- Authorized Representative in the United States July 26, 2000
Donald J. Puglisi
</TABLE>
II-5
