-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GVPN+7CyY2LiwpwcIGwh46A+rXBTw/pneWo0AKQjun8/rL/dzHpmA7gJkiQ6jcol RR4x1mQO03WR4SRIMaxaGA== 0000950109-99-003575.txt : 19991018 0000950109-99-003575.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950109-99-003575 CONFORMED SUBMISSION TYPE: F-1/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19991004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SATYAM INFOWAY LTD CENTRAL INDEX KEY: 0001094324 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: F-1/A SEC ACT: SEC FILE NUMBER: 333-10852 FILM NUMBER: 99722304 BUSINESS ADDRESS: STREET 1: MAANASAROVAR TOWERS STREET 2: 271-A ANNA SALAI TEXNAMPET 600 015 CITY: CHENNAI INDIA BUSINESS PHONE: 9144435322 MAIL ADDRESS: STREET 1: MAANASAROVAR TOWERS STREET 2: 271-A ANNA SALAI TEXNAMPET 600 015 CITY: CHENNAI INDIA F-1/A 1 AMENDMENT #1 As filed with the Securities and Exchange Commission on October 4, 1999 Registration No. 333-10852 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- AMENDMENT NO. 1 TO FORM F-1 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------- Satyam Infoway Limited (Exact name of registrant as specified in its charter) Not Applicable (Translation of Registrant's name into English) Republic of India 7379 Not Applicable (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
Maanasarovar Towers 271-A, Anna Salai, Teynampet, Chennai 600 015, India, (91) 44-435-3221 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- CT Corporation System 111 8th Avenue, New York, New York 10011, (212) 894-8940 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: Anthony J. Richmond, Esq. Ellen B. Corenswet, Esq. Latham & Watkins Brobeck, Phleger & Harrison LLP 135 Commonwealth Drive 1633 Broadway, 47th Floor Menlo Park, California 94025 New York, New York 10019 (650) 328-4600 (212) 581-1600
--------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. --------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
Proposed maximum Title of each class of Proposed maximum aggregate Amount of securities to be Amount to be offering price offering registration registered registered(1) per share(2) price(2) fee(3) - -------------------------------------------------------------------------------------- Equity shares, par value Rs.10 per share, each represented by one American Depositary Share(4).............. 4,801,250 $14.00 $67,217,500 $18,687 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
(1) Includes 626,250 equity shares represented by 626,250 American Depositary Shares that the Underwriters have the option to purchase to cover overallotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee, in accordance with Rule 457(a) promulgated under the Securities Act of 1933. (3) An amount equal to $15,985 was paid in connection with the initial filing of this registration statement on September 21, 1999. An additional amount equal to $2,702 is being paid herewith. (4) American Depositary Shares evidenced by American Depositary Receipts issuable upon deposit of the equity shares registered hereby are being registered pursuant to a separate registration statement on Form F-6. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This registration statement includes two prospectuses, which are identical except for the alternate cover page, table of contents, underwriting section, and rear cover page which are provided immediately in front of Part II. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and we are not soliciting an offer to buy + +these securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999 PROSPECTUS 4,175,000 American Depositary Shares [LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE] SATYAM INFOWAY LIMITED Representing 4,175,000 Equity Shares ----------- Satyam Infoway Limited is offering up to 4,175,000 American Depositary Shares, or ADSs, of Satyam Infoway outside India, including in the United States. This prospectus relates to an offering by the U.S. underwriters of up to 2,505,000 American Depositary Shares in the United States and Canada. Additional underwriters are offering up to 1,670,000 American Depositary Shares outside the United States and Canada. Each American Depositary Share represents one equity share. This is Satyam Infoway's initial public offering, and no public market currently exists for Satyam Infoway's equity shares. Satyam Infoway has applied to list its American Depositary Shares on The Nasdaq Stock Market's National Market under the symbol "SIFY." It is anticipated that the price to public per ADS will be between $12.00 and $14.00 per ADS. ----------- Investing in the American Depositary Shares involves certain risks which are described in the Risk Factors beginning on page 7. -----------
Underwriting Price discount and Proceeds to public commissions to us --------- ------------ -------- Per ADS......................................... $ $ $ Total........................................... $ $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Satyam Infoway has granted to the underwriters the right to purchase up to an additional 626,250 American Depositary Shares at the public offering price, less discount and commissions, within 30 days from the date of this prospectus to cover overallotments. ----------- Merrill Lynch & Co. Salomon Smith Barney , 1999 Three panels of graphical information regarding Satyam Infoway Limited consisting of: . a graphical presentation of Satyam Infoway's network covering 25 cities in India, with international Internet gateways in Mumbai, Bangalore, Chennai, Hyderabad, Delhi and Calcutta; . sample web pages from some of Satyam Infoway's content sites, including satyamonline.com and speciality sites related to cars, movies and shopping; and . a list of business-to-business services provided by Satyam Infoway. TABLE OF CONTENTS
Page ---- Prospectus Summary...................................................... 1 Risk Factors............................................................ 7 Conventions Which Apply to This Prospectus.............................. 22 Currency of Presentation................................................ 22 Enforcement of Civil Liabilities........................................ 23 Reports to Our Security Holders......................................... 24 Use of Proceeds......................................................... 25 Dividend Policy......................................................... 26 Capitalization.......................................................... 27 Exchange Rates.......................................................... 28 Dilution................................................................ 29 Selected Financial Data................................................. 30 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 32 Business................................................................ 43 Management.............................................................. 60 Principal Shareholders.................................................. 65 Certain Transactions.................................................... 66 Description of Equity Shares............................................ 67 Description of American Depositary Shares............................... 72 Restrictions on Foreign Ownership of Indian Securities.................. 80 Government of India Approvals........................................... 84 Taxation................................................................ 86 Shares Eligible for Future Sale......................................... 91 Underwriting............................................................ 92 Legal Matters........................................................... 94 Experts................................................................. 94 Change of Accountants................................................... 94 Additional Information.................................................. 94 Index to Financial Statements........................................... F-1
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. Through and including , (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PROSPECTUS SUMMARY This summary highlights information found in greater detail elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under "Risk Factors," before deciding to buy our ADSs. Satyam Infoway Limited Our Business We are the second largest national provider of Internet access and Internet services to consumers and businesses in India, based on number of customers as of August 31, 1999. Our customers primarily use our services to communicate, transmit and share information, access on-line content and conduct business remotely using our private data network or the Internet. Our Internet and network services include the following: . Consumer Internet Access Services. We offer dial-up Internet access, e-mail and web page hosting to consumers in India through convenient on-line registration and user-friendly software. In November 1998 after the deregulation of the Internet service provider market in India, we launched our Internet service provider business and became the first private Internet service provider in India. The largest national Internet service provider is VSNL, which is majority controlled by the Indian government. . Corporate Network and Technology Services. We offer dial-up and dedicated Internet access, private network services, business-to- business electronic commerce solutions and website development and hosting services to businesses in India. Initiated in April 1998, our corporate network and technology services division has formed strategic partnerships with a number of leading technology and electronic commerce companies, including CompuServe Network Services, Sterling Commerce and Open Market. . On-line Portal and Content Offerings. We operate an on-line portal, satyamonline.com, that functions as a principal entry point and gateway for accessing the Internet by providing useful web-related services and links. We also offer related content sites specifically tailored to Indian interests worldwide for news, personal finance, movies, music and automobiles. During August 1999, our six websites generated approximately 6.5 million page views. As of June 30, 1999, we had an accumulated deficit of approximately Rs.366.7 million ($8.4 million). For the fiscal year ended March 31, 1999 and the fiscal quarter ended June 30, 1999, our net loss was approximately Rs.187.4 million ($4.3 million) and Rs.51.7 million ($1.2 million), respectively. Our Customers As of August 31, 1999, we had more than 77,000 consumer Internet access subscribers and more than 300 corporate customers. Our corporate network and technology services customers are in a variety of industries, including financial services, publishing, retail, shipping and manufacturing. Our five largest corporate customers based on revenue for the fiscal quarter ended June 30, 1999 were Carborandum Universal Limited, CDC Advisors Limited, ESPN Software India Limited, GE Capital Services and Hutchinson Corporate Access. The customers listed above accounted for approximately 35% of our corporate network and technology services division revenues in the fiscal quarter ended June 30, 1999. Our Network We currently operate India's largest national private data network utilizing Internet protocol, which is an Internet industry standard for tracking Internet addresses, routing outgoing messages and recognizing 1 incoming messages. We own and operate points of presence in 25 of the largest metropolitan areas in India. Points of presence are telecommunications facilities located in a particular market which allow our customers to connect to the Internet through a local telephone call. We plan to have points of presence in 40 cities in India by April 2000, which we believe will allow us to provide Internet access service via a local telephone call to approximately 85% of the installed personal computer base in India. Our private network infrastructure provides the platform for national delivery of Internet access to consumers as well as the backbone for our broad range of corporate network and technology services. For example, our network provides an alternative to government telecom providers for corporations that wish to establish virtual private networks, which provide secure transmission of data using Internet protocol over our private network infrastructure, and electronic data interchanges. Our Internet service provider license permits us to establish and maintain our own direct international Internet connections via satellite links or transoceanic cable systems as an alternative to government-provided Internet gateways. We believe that as the size and capacity of our network infrastructure grows, its large scale and national coverage will create economies of scale for us and barriers to entry for our competitors. Our Market Opportunity The market for Internet access and electronic commerce, both worldwide and in India, is expanding rapidly. For example, International Data Corporation estimates: . the installed personal and network computer base in India will grow at a rate that averages 44% annually from 1.9 million in 1998 to 8.2 million in 2002; . Internet users in India will grow at a rate that averages 76% annually from 0.5 million in 1998 to 4.5 million in 2002; and . Internet commerce revenues in India will grow at a rate that averages 260% annually from $3.5 million in 1998 to $593.6 million in 2002. Internet usage is expected to grow rapidly in the Indian market as deregulation continues, network bandwidth becomes less expensive, the installed base of personal and network computers increases, alternative Internet-access devices become available and Internet connectivity becomes increasingly important for on-line news and content and electronic commerce transactions. We believe that our company is well positioned to take advantage of this significant market opportunity in India. The market in India is, however, presently at a very early stage of development and involves significant business, competitive and other risks. The International Data Corporation market data presented above and elsewhere in this prospectus shows International Data Corporation's estimates derived from a combination of vendor, user and other market sources and therefore may differ from numbers claimed by specific vendors using different market definitions or methods. There can be no assurances that any of these projected amounts will be achieved. Our Growth Strategy Our goal is to become the premier provider of Internet access, network services and on-line content to consumers and businesses in India. Our principal business strategies to accomplish this objective are: . Increase penetration in our existing markets by expanding awareness of the Satyam Online brand name to capitalize on our first mover advantage in India; . Expand our products and services with new technologies to enable our customers to use the Internet more effectively; . Strengthen our Internet portal and other Internet content websites with more content tailored to Indian interests worldwide; 2 . Expand customer distribution channels through strategic partnerships to take advantage of the sales and marketing capabilities of our strategic partners; . Invest in the continued enhancement and expansion of our network infrastructure to support customer growth, enter new markets and accommodate increased customer usage; and . Pursue selective strategic investments, partnerships and acquisitions to expand our customer base, increase utilization of our network and add new technologies to our product mix. Our Organization Our principal executive offices are located at Maanasarovar Towers, 271- A, Anna Salai, Teynampet, Chennai 600 015, India, and our telephone number is (91) 44-435-3221. Information contained in our websites, including our principal website, satyamonline.com, is not part of this prospectus. We are, and after the offering will continue to be, a majority-owned subsidiary of Satyam Computer Services Limited, a leading Indian information technology services company which is traded on the principal Indian stock exchanges. "Satyam" is a trademark owned by Satyam Computer Services, which has licensed the use of the "Satyam" trademark to us subject to specified conditions. For additional information regarding this license, please see "Business-- Intellectual Property" on page 56. "Satyam Online," "Satyam:Net" and "satyamonline.com" are trademarks used by us for which we have registration applications pending in India. Each trademark, trade name or service mark of any other company appearing in this prospectus belongs to its holder. 3 The Offering American Depositary Shares offered: U.S. offering............................... 2,505,000 ADSs International offering...................... 1,670,000 ADSs -------------- Total................................... 4,175,000 ADSs ============== The ADSs....................................... Each American Depository Share represents one equity share, par value Rs.10 per share. The ADSs will be evidenced by American Depository Receipts. Equity shares outstanding after this offering.. 21,156,000 equity shares Use of proceeds................................ To fund network infrastructure expansion and enhancements, to develop content for our Internet portal business, to advertise and promote our brand and for general corporate purposes, including possible strategic investments, partnerships and acquisitions. For additional information regarding the use of proceeds from this offering, please see "Use of Proceeds" on page 25. Proposed Nasdaq National Market symbol......... SIFY
--------------- The 21,156,000 equity shares outstanding after this offering are based on the 15,750,000 equity shares outstanding as of June 30, 1999 and include: . 481,000 equity shares issued to Sterling Commerce at a price of $10.40 per share in a private- placement pursuant to an agreement reached in July 1999 which closed in September 1999; . 750,000 equity shares to be issued to two existing shareholders, Satyam Computer Services Limited and South Asia Regional Fund, in connection with the exercise of warrants held by those shareholders at an exercise price equal to 66% of the price to public indicated on the cover of this prospectus; and . the 4,175,000 equity shares represented by ADSs sold by us in this offering. The equity shares to be outstanding after this offering exclude, as of June 30, 1999, the following: . any equity shares represented by the ADSs to be issued pursuant to the underwriters' overallotment option; . 5,000 equity shares issuable upon the exercise of options outstanding under our stock option plan at a weighted average exercise price of Rs.70 per share; and . 820,000 equity shares reserved for future issuance under our stock option plan (of which options to acquire 147,000 shares were granted on September 28, 1999 at a weighted average exercise price equal to Rs.335 per share). 4 SUMMARY FINANCIAL DATA You should read the following summary financial data in conjunction with our financial statements and the related notes, "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our financial statements are prepared in Indian rupees and presented in accordance with U.S. GAAP for the fiscal years ended March 31, 1997, 1998 and 1999 and the fiscal quarter ended June 30, 1999. Financial statements for the year ended March 31, 1999 and the quarter ended June 30, 1999 also have been translated into U.S. dollars. The pro forma as adjusted data set forth below are adjusted to give effect to the following: . the sale by our company to Sterling Commerce of 481,000 equity shares in a private placement pursuant to an agreement reached in July 1999 which closed in September 1999 and the application of the $5.0 million of proceeds from this sale primarily towards the repayment of debt; . the sale by our company of 4,175,000 ADSs representing 4,175,000 equity shares offered hereby and the application of the proceeds from the offering at an assumed initial public offering price of $13.00 per ADS and after deducting underwriting discounts and the estimated offering expenses payable by us; and . the exercise of warrants to purchase an aggregate of 750,000 of our equity shares and the application of the $6.4 million aggregate exercise price primarily towards the repayment of debt. For additional information regarding the pro forma as adjusted data, please see "Capitalization" on page 27. The summary consolidated historical financial and other data includes a presentation of EBITDA. EBITDA represents earnings (loss) before depreciation and amortization, interest income and expense, income tax expense (benefit) and extraordinary items. EBITDA is presented because we believe some investors find it to be a useful tool for measuring a company's ability to fund capital expenditures or to service future debts. EBITDA is not determined in accordance with generally accepted accounting principles and should not be considered in isolation or as an alternative to net income as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. Because EBITDA excludes interest expense and capital expenditures, negative EBITDA would limit our ability to fund capital expenditures and service future debt obligations. Our EBITDA is not comparable to that of other companies which may determine EBITDA differently. 5
Fiscal Year Ended March 31, Fiscal Quarter Ended June 30, ------------------------------------------------------ ------------------------------------ 1997 1998 1999 1999 1998 1999 1999 Indian rupees U.S. dollars Indian rupees U.S. dollars ---------------------------------------- ------------ ---------------------- ------------ (in thousands, except share and per share data) Statement of Operations Data: Revenues............... Rs. -- Rs. 6,805 Rs. 103,344 $ 2,378 Rs. 17,558 Rs. 80,803 $ 1,860 Cost of revenues....... -- 19,498 63,651 1,465 7,074 38,897 895 -------------- ----------- ----------- ---------- ---------- ---------- ---------- Gross profit (loss) -- (12,693) 39,693 913 10,484 41,906 965 Operating expenses..... 26,337 80,400 200,282 4,609 30,607 84,338 1,941 Operating loss......... (26,337) (93,093) (160,589) (3,696) (20,123) (42,432) (976) Net loss............... Rs. (26,337) Rs.(100,590) Rs.(187,376) $ (4,312) Rs.(24,829) Rs.(51,749) $ (1,191) Loss per equity share.. Rs.(114,508.27) Rs. (121.66) Rs. (17.31) $ (0.40) Rs. (3.28) Rs. (3.29) $ (0.08) Weighted average equity shares used in computing loss per equity share.......... 230 826,805 10,824,826 10,824,826 7,566,164 15,750,000 15,750,000 Other Financial Data: EBITDA................. Rs. (25,801) Rs. (73,709) Rs.(111,496) $ (2,566) Rs.(11,337) Rs.(21,131) $ (486) Capital expenditures... 3,230 77,070 146,135 3,363 15,057 109,578 2,522 Net cash provided by (used in): Operating activities.. (30,426) (73,950) (171,388) (3,944) (20,590) (37,258) (857) Investing activities.. (3,230) (77,070) (146,000) (3,360) (15,057) (109,578) (2,522) Financing activities.. 35,138 159,449 433,023 9,966 30,504 31,664 729
As of June 30, 1999 ---------------------------------------------------- Pro Forma As Adjusted Pro Forma Actual Actual Indian As Adjusted Indian rupees U.S. dollars rupees U.S. dollars ------------- ------------ ------------ ------------ (in thousands) Balance Sheet Data: Cash and cash equivalents............. Rs.10,375 $ 239 Rs.2,398,447 $55,200 Working capital (deficit)............... (198,325) (4,564) 2,189,747 50,397 Total assets............. 464,473 10,690 2,852,545 65,651 Long-term debt, including current installments.... 259,820 5,980 1,320 30 Total stockholders' equity (deficit)........ 16,075 370 2,662,647 61,281
6 RISK FACTORS Any investment in our ADSs involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before you decide to buy our ADSs. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. In any such case, the market price of our ADSs could decline, and you may lose all or part of the money you paid to buy our ADSs. Risks Related to Investments in Indian Companies We are incorporated in India, and virtually all of our assets and our employees are located in India. Consequently, our financial performance and the market price of our ADSs will be affected by changes in exchange rates and controls, interest rates, government of India policies, including taxation policies, as well as political, social and economic developments affecting India. Political instability related to the formation of a new government in India could halt or delay the liberalization of the Indian economy and adversely affect business and economic conditions in India generally and our business in particular. During the past decade and in particular since 1991, the government of India has pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant. The government of India is in the process of changing for the fifth time since 1996. In April 1999, the then-current government lost a vote of confidence in parliament and the prime minister resigned. The prior government of India, formed in March 1998, announced policies and took initiatives that supported the continued economic liberalization policies that have been pursued by the previous governments. We cannot assure you that these liberalization policies will continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange rates and other matters affecting investment in our securities could change as well. A significant change in India's economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally and our business in particular. Economic sanctions imposed on India by the United States could restrict our access to technology and limit our ability to construct our network and operate our business. In May 1998, the United States imposed economic sanctions against India in response to India's testing of nuclear devices. Since then, the United States has waived some of these sanctions subsequent to its discussions with the government of India. The economic sanctions imposed on India to date have not had a material impact on our company. However, these sanctions, or additional sanctions, could restrict our access to technology that is available only in the United States and that is required to construct our network and operate our business. We cannot assure you that any of these sanctions will continue to be waived, that additional economic sanctions of this nature will not be imposed, or that these sanctions or any additional sanctions that are imposed will not have a material adverse effect on our business or on the market for our ADSs in the United States. Regional conflicts in South Asia could adversely affect the Indian economy and cause our business to suffer. South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. In April 1999, India and Pakistan conducted long-range missile tests. Since May 1999, military confrontations between India and Pakistan have occurred in the disputed Himalayan region of Kashmir. Events of this nature in the future could influence the Indian economy and could have a material adverse effect on the market for securities of Indian companies, including our ADSs, and on the market for our services. 7 Indian law and the terms of our Internet service provider license contain restrictive provisions that limit our ability to raise capital or to be acquired which could prevent us from constructing our network and operating our business or entering into a transaction that is in the best interests of our shareholders. Indian law and the terms of our Internet service provider license constrain our ability to raise capital through the issuance of equity or convertible debt securities. Guidelines issued by the Department of Policy and Promotion, Ministry of Industry in January 1997 state that the maximum foreign equity investment in an Indian company engaged in business in the telecommunications sector is 49%. Additional guidelines issued in November 1998 provide that the maximum foreign equity investment in an Indian company acting as an Internet service provider is also 49%. This 49% limit applies to foreign equity investment in our company. Likewise, our Internet service provider license provides that the total foreign equity in our company may not, at any time, exceed 49% of our total equity. After this offering, we expect that approximately 39%, or 41% if the overallotment option is exercised in full, of our equity interests will be held by foreign investors. As a result of the 49% limit on foreign equity ownership, we will not be permitted to sell more than an additional 10%, or 8% if the overallotment option is exercised in full, of our equity shares to foreign investors in the future. We cannot assure you that other forms of financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or services, or otherwise respond to competitive pressures would be significantly limited. Our business, results of operations and financial condition could be materially adversely affected by any such limitation. The 49% limit on foreign equity ownership also restricts our ability to be acquired by a non-Indian company because a foreign company is prohibited from acquiring a majority of our equity shares. Likewise, the terms of our Internet service provider license prevents us from transferring the license to a third person. This may prevent us from entering into a transaction which would otherwise be beneficial for our company and the holders of our equity shares. For additional information regarding our sources of capital, please see "Use of Proceeds" on page 25, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Expenditures" on page 38. For additional information regarding foreign ownership restrictions, please see "Business--Government Regulation" on page 57 and "Restrictions on Foreign Ownership of Indian Securities" on page 80. We are subject to foreign investment restrictions under Indian law that limit our ability to attract foreign investors which, together with the lack of a public market for our equity shares, may adversely impact the value of our ADSs. Currently there is no public trading market for our equity shares in India nor can we assure you that we will take steps to develop one. After this offering, our equity securities will not trade publicly in India, but will only be traded on Nasdaq through the ADSs as described in this prospectus. Under current Indian laws and regulations, our depositary cannot accept deposits of outstanding equity shares and issue ADRs evidencing ADSs representing such equity shares without prior approval of the government of India. If you elect to surrender your ADSs and receive equity shares, you will not be able to trade those equity shares on any securities market. Under current Indian laws and regulations, you will be prohibited from re-depositing those outstanding equity shares with our depositary without prior approval of the government of India. If in the future a market for our equity shares is established in India or another market outside of the United States, those shares may trade at a discount or premium to the ADSs in part because of restrictions on foreign ownership of the underlying shares. Under current Indian regulations and practice, the approval of the Reserve Bank of India is required for the sale of equity shares underlying ADSs by a non-resident of India to a resident of India as well as for renunciation of rights to a resident of India. Since exchange controls still exist in India, the Reserve Bank of India will approve the price at which the equity shares are transferred based on a specified formula, and a higher price per share may not be permitted. Holders who seek to convert the rupee proceeds from a sale of 8 equity shares in India into foreign currency and repatriate that foreign currency from India will have to obtain Reserve Bank of India approval for each transaction. We cannot assure you that any required approval from the Reserve Bank of India or any other government agency can be obtained. Because we operate our business in India, exchange rate fluctuations may affect the value of our ADSs independent of our operating results. The exchange rate between the rupee and the U.S. dollar has changed substantially in recent years and may fluctuate substantially in the future. During the three-year period from July 1, 1996 through June 30, 1999, the value of the rupee against the U.S. dollar declined by approximately 24%. Devaluations of the rupee will result in higher expenses to our company for the purchase of capital equipment, such as routers, modems and other telecommunications and computer equipment, which is generally manufactured in the U.S. In addition, our market valuation could be materially adversely affected by the devaluation of the rupee if U.S. investors analyze our value based on the U.S. dollar equivalent of our financial condition and results of operations. The government of India may change its regulation of our business or the terms of our license to provide Internet access services without our consent, and any such change could decrease our revenues and/or increase our costs which would adversely affect our operating results. Our business is subject to government regulation under Indian law and to significant restrictions under our Internet service provider license issued by the government of India. These regulations and restrictions include the following: . Our Internet service provider license has a term of 15 years and we have no assurance that the license will be renewed. If we are unable to renew our Internet service provider license in 2013 for any reason, we will be unable to operate as an Internet service provider in India and will lose one of our primary sources of revenue. . The government of India maintains the right to regulate the prices we charge our subscribers. The success of our business model depends on our ability to price our services at levels we believe are appropriate. If the government sets a price floor, we may not be able to attract and retain subscribers. Likewise, if the government sets a price ceiling, we may not be able to generate sufficient revenues to fund our operations. . The government of India maintains the right to take over our entire operations or revoke, terminate or suspend our license for national security and similar reasons without compensation to us. If the government of India were to take any of these actions, we would be prevented from conducting all or part of our business. We had outstanding performance guarantees for various statutory purposes totaling Rs. 22,144,000 ($509,643) as of June 30, 1999. These guarantees are generally provided to government agencies, primarily the Telegraph Authority, as security for compliance with and performance of terms and conditions contained in an Internet service provider license and VSNL towards the supply and installation of an electronic commerce platform. These guarantees may be seized by the governmental agencies if they suffer any losses or damage by reason of our failure to perform our obligations. Any failure on our part to comply with governmental regulations and the terms of our Internet service provider license could result in the loss of our license, which would also prevent us from carrying on a very significant part of our business. Further, additional laws regulating telecommunications, electronic records, the enforceability of electronic documents and the liability of network service providers are under consideration and if enacted could impose additional restrictions on our business. For additional information regarding government regulation, please see "Business--Government Regulation" on page 57. The global financial crisis could cause our business or the price of our ADSs to suffer. Financial turmoil in several Asian countries, Russia and elsewhere in the world in 1998 and 1999 has adversely affected market prices in the world's securities markets, including the United States and Indian 9 markets, for securities of companies which operate in those developing economies. Continued or increased financial downturns in these countries could cause further decreases in prices for securities of companies located in developing economies, such as our company. Surcharges on Indian income taxes will increase our tax liability by an additional 10% and decrease any profits we might have in the future. The statutory corporate income tax rate in India is currently 35.0%. This tax rate is presently subject to a 10.0% surcharge resulting in an effective tax rate of 38.5%. The Finance Minister of India has indicated that the 10.0% surcharge will be effective for a period of only one year, commencing April 1, 1999. However, we cannot assure you that the 10.0% surcharge will be repealed on April 1, 2000 or that additional surcharges will not be implemented by the government of India. Dividends declared, distributed or paid by an Indian corporation are subject to a tax of 11.0%, including the presently applicable surcharge, of the total amount of the dividend declared, distributed or paid at the corporate level. This tax is not paid by shareholders nor is it a withholding requirement, but rather it is a direct tax payable by the corporation. Risks Related to the Internet Market in India Our success will depend in large part on the increased use of the Internet by consumers and businesses in India. However, our ability to exploit the Internet service provider and other data service markets in India is inhibited by a number of factors. If India's limited Internet usage does not grow substantially, our business may not succeed. The success of our business depends on the acceptance of the Internet in India which may be slowed or halted by high bandwidth costs and other technical obstacles in India. Bandwidth, the measurement of the volume of data capable of being transported in a communications system in a given amount of time, remains very expensive in India, especially when compared to bandwidth costs in the United States. Bandwidth rates are commonly expressed in terms of Kbps (kilobits per second, or thousands of bits of data per second) or Mbps (megabits per second, or millions of bits of data per second). Prices for bandwidth capacity are set by the Indian government and have remained high due to, among other things, capacity constraints. Further, limitations in network architecture in India limit Internet connection speeds to 28 Kbps and below, less than the 33 to 56 Kbps connection speeds on conventional dial-up telephone lines, and significantly less than the up to 1.5 Mbps connection speed on cable modems, in the United States. These speed and cost constraints may severely limit the quality and desirability of using the Internet in India. The limited installed personal computer base in India limits our pool of potential customers and restricts the amount of revenues that our consumer Internet access services division may generate. The market penetration rates of personal computers and on-line access in India are far lower than such rates in the United States. For example, according to International Data Corporation, in 1998 the Indian market contained approximately 0.5 million Internet users compared to a total population in India of 984.0 million, while the U.S. market contained approximately 68.2 million Internet users compared to a total population in the U.S. of 270.3 million. Alternate methods of obtaining access to the Internet, such as through cable television modems or set-top boxes for televisions, are currently unavailable in India. There can be no assurance that the number or penetration rate of personal computers in India will increase rapidly or at all or that alternate means of accessing the Internet will develop and become widely available in India. The high cost of accessing the Internet in India limits our pool of potential customers and restricts the amount of revenues that our consumer Internet access services division may generate. Our growth is limited by the cost to Indian consumers of obtaining the hardware, software and communications links necessary to connect to the Internet in India. If the costs required to access the Internet do not significantly decrease, most of India's population will not be able to afford to use our services. The 10 failure of a significant number of additional Indian consumers to obtain affordable access to the Internet would make it very difficult to execute our business plan. The success of our business depends on the acceptance and growth of electronic commerce in India which is uncertain and, to a large extent, beyond our control. Many of our existing and proposed products and services are designed to facilitate electronic commerce in India, although there is virtually no electronic commerce currently being conducted in India. Demand and market acceptance for these products and services by businesses and consumers, therefore, are highly uncertain. Critical issues concerning the commercial use of the Internet, such as legal recognition of electronic records, validity of contracts entered into on-line and the validity of digital signatures, remain unresolved. In addition, many Indian businesses have deferred purchasing Internet access and deploying electronic commerce initiatives for a number of reasons, including the existence or perception of, among other things: . inconsistent quality of service; . need to deal with multiple and frequently incompatible vendors; . lack of legal infrastructure relating to electronic commerce in India; . lack of security of commercial data such as credit card numbers; and . low number of Indian companies accepting credit card numbers over the Internet. If usage of the Internet in India does not substantially increase and the legal infrastructure and network infrastructure in India are not further developed, we are not likely to realize any benefits from our investment in the development of electronic commerce products and services. Risks Related to Satyam Infoway Our very limited operating history makes it difficult to evaluate our business. We commenced operation of our private data network business in April 1998 and launched our Internet service provider operations and Internet portal website in November 1998. Accordingly, we have a very limited operating history to evaluate our business. You must consider the risks and difficulties frequently encountered by companies in the early stages of development, particularly companies in the new and rapidly evolving Internet service markets. These risks and difficulties include our ability to: . continue to develop and upgrade our technology, including our network infrastructure; . maintain and develop strategic relationships with business partners; . offer compelling on-line services and content; and . promptly address the challenges faced by early stage, rapidly growing companies which do not have an experience or performance base to draw on. Not only is our operating history short, but we have determined to compete in three businesses that we believe are complementary. These three businesses are business network and connectivity services, Internet service provider and consumer portal. Our three businesses were started at different times and have only been functioning together since late in 1998. We do not yet know whether these businesses will prove complementary. We cannot assure you that we will successfully address the risks or difficulties described above. Failure to do so could lead to an inability to attract and retain subscribers for our Internet services and corporate customers for our network services as well as the loss of advertising revenues. For additional information regarding our limited operating history, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 32 and our financial statements included elsewhere in this prospectus commencing on page F-1. 11 We have a history of losses and negative cash flows and anticipate this to continue because our business plan, which is unproven, calls for additional subscribers and other customers to attain profitability. Since our founding, we have incurred significant losses and negative cash flows. As of June 30, 1999, we had an accumulated deficit of approximately $8.4 million. We have not been profitable and expect to incur operating losses as we expand our services, invest in expansion of our network infrastructure and sales and marketing staff, and advertise and promote our brand. Our business plan assumes that consumers in India will be attracted to and use Internet access services and content available on the Internet in increasing numbers. Our business plan also assumes that businesses in India will demand private network and related electronic commerce services. This business model is not yet proven in India, and we cannot assure you that we will ever achieve or sustain profitability or that our operating losses will not increase in the future. For additional information regarding our history of losses, please see "Selected Financial Data" on page 30 and "Management's Discussion and Analysis of Financial Condition and Results of Operation" on page 32. Our ability to compete in the Internet service provider market is hindered by the fact that our principal competitor is a government-controlled provider of international telecommunications services in India which enjoys significant competitive advantages over our company. Videsh Sanchar Nigam Limited, or VSNL, is a government-controlled provider of international telecommunications services in India. VSNL is also the largest Internet service provider in India with an estimated 300,000 subscribers as of June 30, 1999. VSNL enjoys significant competitive advantages over our company, including the following: . Lower rates. VSNL currently offers national Internet service provider services at rates approximately 10% less than the fees we charge our subscribers. . Longer service history. VSNL has offered Internet service provider services since August 1995 whereas we have offered Internet service provider services only since November 1998. . Access to network infrastructure. Because VSNL is controlled by the government of India, it has direct access to network infrastructure which is owned by the Indian government. . Greater financial resources. VSNL has significantly greater total assets and annual revenues than our company. If we are unable to distinguish our Internet service provider services from those of VSNL, these competitive advantages may prevent us from attracting and retaining subscribers and generating advertising revenue. This could result in loss of market share, price reductions or reduced margins for our company's operations. We may be required to lower the rates we charge for our products and services in response to new pricing models introduced by new and existing competition in the Internet services market which would significantly decrease our revenues. We expect a significant number of new competitors to enter India's recently liberalized Internet service provider market in the near future. As of June 30, 1999, 129 companies had obtained Internet service provider licenses in India, including 22 companies which have obtained licenses to offer Internet service provider services throughout India. Some of these companies, including WMI, Dishnet, Shrishti and KMR Online, currently offer regional Internet service provider services. New entrants into the national Internet service provider market in India may enjoy significant competitive advantages over our company, including greater financial resources, which could allow them to charge Internet access fees that are lower than ours in order to attract subscribers. In addition, although no Internet service provider in India currently offers unlimited Internet access for a fixed monthly fee or free Internet access, the unlimited access pricing and free Internet access models have been implemented in other markets. If these new entrants offer less costly or free Internet access, or if one or more of them introduce an unlimited Internet access pricing model to the Indian market, we may be forced to lower our prices in order to attract and retain subscribers. 12 Our on-line portal, satyamonline.com, faces significant competition from well-established Indian content providers, including IndiaWorld and RediffontheNet. We also compete with foreign content providers as well as with traditional print and television media companies. Our corporate and technology services business faces significant competition from well-established companies, including Global E-Commerce Limited, Sprint-RPG Limited and WIPRO-CSD. Increased competition may result in reduced operating margins, loss of market share and diminished value in our services, as well as different pricing, service or marketing decisions. We cannot assure you that we will be able to successfully compete against current and future competitors. For additional information regarding competition in our markets, please see "Business--Competition" on page 55. Our marketing campaign to establish brand recognition and loyalty for the Satyam Online brand could be unsuccessful or, if successful, may not benefit our company if in the future we are no longer permitted to use the "Satyam" trademark that we license from Satyam Computer Services. In order to expand our customer base and increase traffic on our websites, we must establish, maintain and strengthen the Satyam Online brand. We plan to increase substantially our marketing expenditures to establish brand recognition and brand loyalty. If our marketing efforts do not produce a significant increase in consumer traffic to offset our marketing expenditures, our losses will be increased or, to the extent that we are generating profits, our profits will be decreased. Furthermore, our Internet portal will be more attractive to advertisers if we have a large audience of consumers with demographic characteristics that advertisers perceive as favorable. Therefore, we intend to introduce additional and enhanced content, interactive tools and other services and features in the future in an effort to retain our current subscribers and users and attract new ones. Our reputation and brand name could be adversely affected if we are unable to do so successfully. "Satyam" is a trademark owned by Satyam Computer Services Limited, or Satyam Computer Services, our parent company. We have a license to use the "Satyam" trademark for so long as Satyam Computer Services continues to own at least 51% of our company. If there is a change of control in our company, however, Satyam Computer Services may terminate our license to use the "Satyam" trademark upon two years' prior written notice. Termination of our license to use the "Satyam" trademark would require us to invest significant funds in building a new brand name and could have a material adverse effect on our business, results of operations and financial condition. If our efforts to retain our subscribers through investment in network infrastructure and customer and technical support are unsuccessful, our revenues will decrease without a corresponding reduction in costs. Our sales, marketing and other costs of acquiring new subscribers are substantial relative to the fees actually derived from these subscribers. Accordingly, our long-term success depends to a great extent on our ability to retain our existing subscribers, while continuing to attract new subscribers. We invest significant resources in our network infrastructure and in our customer and technical support capabilities to provide high levels of customer service. We cannot be certain, however, that these investments will maintain or improve subscriber retention. We believe that intense competition from our competitors, some of whom may offer free hours of service or other enticements for new subscribers, has caused, and may continue to cause, some of our subscribers to switch to our competitors' services. In addition, some new subscribers use the Internet only as a novelty and do not become consistent users of Internet services, and therefore are more likely to discontinue their service. Any decline in our subscriber retention rate could decrease the revenues generated by our consumer Internet access services division. 13 Our future operating results could fluctuate in part because our expenses are relatively fixed in the short-term while future revenues are uncertain, and any adverse fluctuations could negatively impact the price of our ADSs. Our revenues, expenses and operating results have varied in the past and may fluctuate significantly in the future due to a number of factors, many of which are outside our control. Our business involves significant capital outlays and, thus, a significant portion of our investment and cost base is relatively fixed in the short term. Our revenues for the foreseeable future will depend on the following: . the number of subscribers to our Internet service provider service and the level of Internet and other on-line service usage by those subscribers determines the amount of revenues generated by our consumer Internet access services division; . advertising and electronic commerce activity on satyamonline.com determines the amount of revenues generated by our on-line portal and content offerings division; and . the products developed by our strategic partners and the usage thereof by our customers determines the amount of revenues generated by our corporate network and technology services division. Our future revenues are difficult to forecast and, in addition to the foregoing, will depend on the following: . new Internet sites, services, products or pricing policies introduced by our competitors may require us to introduce new offerings or reduce the prices we charge our customers for Internet access; . our capital expenditures and other costs relating to the expansion of our operations could affect the completion of our network or could require us to generate additional revenue in order to be profitable; . the timing and nature of any agreements we enter into with strategic partners will determine the amount of revenues generated by our corporate network and technology services division; . the timing and nature of our marketing efforts could affect the number of our subscribers and the level of electronic commerce activity on our websites; . our ability to successfully integrate operations and technologies from any acquisitions, joint ventures or other business combinations or investments; . the introduction of alternative technologies may require us to reevaluate our business strategy and/or to adapt our products and services to be compatible with such technologies; and . technical difficulties or system failures affecting the telecommunication infrastructure in India, the Internet generally or the operation of our websites. We plan to increase our expenditures for our sales and marketing operations, expand and develop content and enhance our technology and infrastructure development. Many of our expenses are relatively fixed in the short-term. We cannot assure you that our revenues will increase in proportion to the increase in our expenses. We may be unable to adjust spending quickly enough to offset any unexpected revenues shortfall. This could lead to a shortfall in revenues in relation to our expenses. You should not rely on quarter-to-quarter comparisons of our results of operations as indicators of future performance. It is possible that in some future periods our operating results may be below the expectations of public market analysts and investors. In this event, the price of our ADSs may underperform or fall. 14 Because we lack full redundancy for our computer systems, a systems failure could prevent us from operating our business. We rely on the Internet and, accordingly, depend upon the continuous, reliable and secure operation of Internet servers, related hardware and software and network infrastructure such as lines leased from service providers operated by the government of India. We have a back-up data facility but we do not have full redundancy for all of our computer and telecommunications facilities. As a result, failure of key primary or back-up systems to operate properly could lead to a loss of customers, damage to our reputation and violations of our Internet service provider license and contracts with corporate customers. These failures could also lead to a decrease in value of our ADSs, significant negative publicity and litigation. Recently, several large Internet companies have suffered highly publicized system failures which resulted in adverse reactions to their stock prices, significant negative publicity and, in some instances, litigation. We have suffered service outages from time to time. We guarantee to our corporate customers that our network will be operational 99% of the time, and our Internet service provider license requires that we provide an acceptable level of service quality and that we remedy customer complaints within a specified time period. Our computer and communications hardware are protected through physical and software safeguards. However, they are still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. We do not carry business interruption insurance to protect us in the event of a catastrophe even though such an event could lead to a significant negative impact on our business. Any sustained disruption in Internet access provided by third parties could also have a material adverse effect on our business. Security breaches could damage our reputation or result in liability to us. Our facilities and infrastructure must remain secure and be perceived by consumers to be secure, because we retain confidential customer information in our database. Despite the implementation of security measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors or similar disruptive problems. If a person circumvents our security measures, he or she could jeopardize the security of confidential information stored on our systems, misappropriate proprietary information or cause interruptions in our operations. We may be required to make significant additional investments and efforts to protect against or remedy security breaches. A material security breach could damage our reputation or result in liability to us, and we do not carry insurance that protects us from this kind of loss. The security services that we offer in connection with our business customers' networks cannot assure complete protection from computer viruses, break-ins and other disruptive problems. Although we attempt to limit contractually our liability in such instances, the occurrence of these problems could result in claims against us or liability on our part. These claims, regardless of their ultimate outcome, could result in costly litigation and could damage our reputation and hinder ability to attract and retain customers for our service offerings. If we are unable to manage the rapid growth required by our business strategy, our results of operations will be adversely affected. We have experienced and are currently experiencing a period of significant growth. As of June 30, 1999, we had 411 employees, an increase of 135% from the 175 employees we had as of June 30, 1998. We currently anticipate hiring an additional 250 employees during the current fiscal year, most of whom will be hired into our sales, marketing and customer support teams. This growth has placed, and the future growth we anticipate in our operations will continue to place, a significant strain on our managerial, operational, financial and information systems resources. As part of this growth, we will have to implement new operational and financial systems and procedures and controls, expand our office facilities, train and manage our employee base, and maintain close coordination among our technical, accounting, finance, marketing, sales and editorial staffs. If we are unable to manage our growth effectively, we will be unable to implement our growth strategy, upon which the success of our business depends. 15 We face a competitive labor market in India for skilled personnel and therefore are highly dependent on our existing key personnel and on our ability to hire additional skilled employees. Our success depends upon the continued service of our key personnel, particularly Mr. R. Ramaraj, our Chief Executive Officer, and each of our vice presidents. Substantially all of our employees are located in India, and each of them may voluntarily terminate his or her employment with us. We do not carry key person life insurance on any of our personnel. Our success also depends on our ability to attract and retain additional highly qualified technical, marketing and sales personnel. The labor market for skilled employees in India is extremely competitive, and the process of hiring employees with the necessary skills is time-consuming and requires the diversion of significant resources. While we have not experienced difficulty in employee retention or integration to date, we may not be able to continue to retain or integrate existing personnel or identify and hire additional personnel in the future. The loss of the services of key personnel, especially the unexpected death or disability of such personnel, or the inability to attract additional qualified personnel, could disrupt the implementation of our growth strategy, upon which the success of our business depends. For additional information regarding our key personnel and other employees, please see "Management" on page 60 and "Business--Employees" on page 59. We are highly dependent on our relationships with strategic partners to provide key products and services to our customers. We rely on our arrangements with strategic partners to provide key network and electronic commerce products and services to our business clients. Our relationships with CompuServe Network Services, Open Market and Sterling Commerce are exclusive to us within the Indian market with regard to specific products, so long as we maintain stated minimum sales levels. If we were to lose exclusivity, we would likely be subject to intense competition for these products and services. These arrangements can be terminated by our partners in some circumstances. We also rely on our strategic partners to provide us with access to their customer base. If our relationships with our strategic partners do not continue, the ability of our corporate network and technology services division to generate revenues will be decreased significantly. We face risks associated with potential acquisitions, investments, strategic partnerships or other ventures, including whether any such transactions can be located, completed and the other party integrated with our business on favorable terms. We may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets, if appropriate opportunities arise. From time to time we have had discussions and negotiations with companies regarding our acquiring, investing in or partnering with their businesses, products, services or technologies, and we regularly engage in such discussions and negotiations in the ordinary course of our business. Some of those discussions also contemplate the other party making an investment in our company. We may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on commercially acceptable terms or at all. If we acquire another company, we could have difficulty in assimilating that company's personnel, operations, technology and software. In addition, the key personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities would dilute the ownership interests of the holders of our ADSs. As of the date of this prospectus, we have no agreement to enter into any material investment or acquisition transaction. The Reserve Bank of India or government of India must approve under the Foreign Exchange Regulation Act, 1973, any acquisition by our company of any company organized outside of India. 16 Satyam Computer Services will control our company and may have interests which conflict with those of our other shareholders or holders of our ADSs. Satyam Computer Services will beneficially own approximately 59.2% of our equity shares following this offering, or 57.5% if the overallotment option is exercised in full. As a result, it will be able to exercise control over many matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. Under Indian law, a simple majority is sufficient to control all shareholder action except for those items which require approval by a special resolution. If a special resolution is required, the number of votes cast in favor of the resolution must be not less than three times the number of votes cast against it. Examples of actions that require a special resolution include: . altering our Articles of Association; . issuing additional shares of capital stock, except for pro rata issuances to existing shareholders; . commencing any new line of business; or . commencing a liquidation. Circumstances may arise in which the interests of Satyam Computer Services could conflict with the interests of our other shareholders or holder of our ADSs. Satyam Computer Services could delay or prevent a change in control of our company even if a transaction of that sort would be beneficial to our other shareholders, including the holders of our ADSs. In addition, we have an agreement with South Asia Regional Fund, an investor in our company, which assures them a board seat and provides specified additional rights to them. For additional information regarding our arrangements with Satyam Computer Services and South Asia Regional Fund, please see "Management--Board Composition" on page 62 and "Principal Shareholders" on page 65. The Year 2000 problem may adversely affect our company. We do not anticipate receiving Year 2000 compliance certification from the Department of Telecommunications, on which we are dependent for leased lines and international gateways to the Internet. Many existing computer systems and hardware and software products use only two digits to identify a year in the date field and, consequently, cannot distinguish 21st century dates from 20th century dates. This defect, if uncorrected, could result in a system failure or miscalculations causing disruptions of operations, including a temporary inability to process transactions or engage in other normal business activities. We maintain various internal computer systems and equipment and we rely directly and indirectly on systems utilized by our suppliers for telecommunications, utilities and electronic hardware and software applications. We are in the process of assessing the Year 2000 readiness of our systems. Satyam Enterprises, an affiliate of Satyam Computer Services, has completed a Year 2000 assessment of all of our network hardware and software, including our computers, application software, generators and uninterruptible power supply systems and relay switches. We have performed a Year 2000 simulation on our systems to test Year 2000 system readiness which, to date, has indicated no material problems. We are in the process of contacting selected third-party vendors, licensors and providers of hardware, software and services, including the government telecom providers, regarding their Year 2000 readiness. We do not anticipate receiving Year 2000 compliance certification from the Department of Telecommunications, on which we are dependent for leased lines and international gateways to the Internet. Any failure of the Department of Telecommunications to be Year 2000 compliant could cause a substantial disruption to our operations. We are still engaged in an ongoing Year 2000 assessment and have not yet developed any contingency plan. We must make substantial capital expenditures in new network infrastructure which, if not offset by additional revenue, will adversely affect our operating results. We must continue to expand and adapt our network infrastructure as the number of users and the amount of information they wish to transfer increases and as the requirements of our customers change. The 17 expansion of our Internet network infrastructure will require substantial financial, operational and management resources. The development of private Internet access and other data networks in India is a new business for private markets entrants such as our company and we may encounter cost overruns, technical difficulties or other project delays in connection with any or all of the new facilities. We can give no assurance that we will be able to expand or adapt our network infrastructure to meet the additional demand or our customers' changing requirements on a timely basis, or at a commercially reasonable cost, or at all. A portion of our capital expenditures for network development are fixed, and the success of our business depends on our ability to grow our business to utilize this capacity. In addition, if demand for usage of our network were to increase faster than projected, our network could experience capacity constraints, which would adversely affect the performance of the system. The laws of India do not protect intellectual property rights to the same extent as those of the United States, and we may be unsuccessful in protecting our intellectual property rights. Our intellectual property rights are important to our business. We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our intellectual property. Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. In addition, the laws of India do not protect proprietary rights to the same extent as laws in the United States, and the global nature of the Internet makes it difficult to control the ultimate destination of our products and services. For example, Indian statutory law does not protect service marks. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly. We could be subject to intellectual property infringement claims as the number of our competitors grows and the content and functionality of our websites or other product or service offerings overlap with competitive offerings. Defending against these claims, even if not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and forced to develop non- infringing technology, obtain a license or cease selling the applications that contain the infringing technology. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, or at all. For additional information regarding our intellectual property rights, please see "Business--Intellectual Property" on page 56. Our platform infrastructure and its scalability are not proven, and our current systems may not accommodate increased use while maintaining acceptable overall performance. Currently, only a relatively limited number of consumers use our Internet service provider services and Internet portal. We must continue to expand and adapt our network infrastructure to accommodate additional users, increasing transaction volumes and changing customer requirements. We may not be able to project accurately the rate or timing of increases, if any, in the use of our websites or expand and upgrade our systems and infrastructure to accommodate such increases. Our systems may not accommodate increased use while maintaining acceptable overall performance. Service lapses could cause our users to use the on-line services of our competitors. We do not plan to pay dividends in the foreseeable future. We do not anticipate paying cash dividends to the holders of our ADSs in the foreseeable future. Accordingly, investors must rely on sales of their ADSs after price appreciation, which may never occur, as the only way to realize on their investment. Investors seeking cash dividends should not purchase our ADSs. 18 Risks Related to the Internet We may be liable to third parties for information retrieved from the Internet. Because users of our Internet service provider service and visitors to our websites may distribute our content to others, third parties may sue us for defamation, negligence, copyright or trademark infringement, personal injury or other matters. We could also become liable if confidential information is disclosed inappropriately. These types of claims have been brought, sometimes successfully, against on-line services in the United States and Europe. Others could also sue us for the content and services that are accessible from our websites through links to other websites or through content and materials that may be posted by our users in chat rooms or bulletin boards. We do not carry insurance to protect us against these types of claims, and there is no precedent on Internet service provider liability under Indian law. Further, our business is based on establishing the satyamonline.com network as a trustworthy and dependable provider of information and services. Allegations of impropriety, even if unfounded, could damage our reputation, disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. The success of our strategy depends on our ability to keep pace with technological changes. Our future success depends, in part, upon our ability to use leading technologies effectively, to continue to develop our technical expertise, to enhance our existing services and to develop new services that meet changing customer requirements. The market for our service is characterized by rapidly changing technology, evolving industry standards, emerging competition and frequent new service introductions. We may not successfully identify new opportunities and develop and bring new services to market in a timely manner. Our business may not be compatible with delivery methods of Internet access services developed in the future. We face the risk that fundamental changes may occur in the delivery of Internet access services. Currently Internet services are accessed primarily by computers and are delivered by modems using telephone lines. If the Internet becomes accessible by screen-based telephones, television or other consumer electronic devices or becomes deliverable through other means such as coaxial cable or wireless transmission, we will have to develop new technology or modify our existing technology to accommodate these developments. Our pursuit of these technological advances, whether directly through internal development or by third party license, may require substantial time and expense. We may be unable to adapt our Internet service business to alternate delivery means and new technologies may not be available to us at all. Our product and service offerings may not be compatible with industry standards developed in the future. Our ability to compete successfully depends upon the continued compatibility and interoperability of our services with products and architectures offered by various vendors. Although we intend to support emerging standards in the market for Internet access, industry standards may not be established and, if they become established, we may not be able to conform to these new standards in a timely fashion or maintain a competitive position in the market. The announcement or introduction of new products or services by us or our competitors and any change in industry standards could cause customers to deter or cancel purchases of existing products or services. Risk Related to the ADSs and Our Trading Market Our management will have broad discretion in using the proceeds from this offering and therefore investors will be relying on the judgment of our management to invest those funds effectively. Our management will have broad discretion with respect to the expenditure of the net proceeds from this offering. We intend to use the net proceeds to fund network infrastructure expansion and enhancements, to develop content for our Internet portal business, to advertise and promote our brand, to repay debt and for other general corporate purposes. We may also use a portion of the proceeds for possible strategic investments, partnerships and acquisitions. We have not yet finalized the amount of net proceeds to be used specifically for each of these purposes, although we are not permitted to use the proceeds to purchase real estate or to purchase 19 securities on stock exchanges as specified by the Ministry of Finance. Investors will be relying on the judgment of our management regarding the application of these proceeds. For additional information regarding the expenditure of the net proceeds from this offering, please see "Use of Proceeds" on page 25 and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Expenditures" on page 38. Holders of ADSs may be restricted in their ability to exercise preemptive rights under Indian law and thereby may suffer future dilution of their ownership position. Under the Companies Act, 1956 of India, or Companies Act, a company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless the preemptive rights have been waived by adopting a special resolution by holders of three-fourths of the company's shares which are voted on the resolution. U.S. holders of ADSs may be unable to exercise preemptive rights for equity shares underlying ADSs unless approval of the Ministry of Finance of the government of India is obtained and a registration statement under the Securities Act of 1933, as amended, is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any given registration statement as well as the perceived benefits of enabling the holders of our ADSs to exercise their preemptive rights and any other factors that we deem appropriate to consider at the time the decision must be made. We may elect not to file a registration statement related to preemptive rights otherwise available by law to our shareholders. In the case of future issuances, the new securities may be issued to our depositary, which may sell the securities for the benefit of the holders of the ADSs. The value, if any, our depositary would receive upon the sale of such securities cannot be predicted. To the extent that holders of ADSs are unable to exercise preemptive rights granted in respect of the equity shares represented by their ADSs, their proportional interests in our company would be reduced. For additional information regarding the ability of holders of ADSs to exercise preemptive rights, please see "Description of American Depositary Shares" on page 72. Holders of ADSs may be restricted in their ability to exercise voting rights. As a holder of ADSs, you generally will have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the equity shares represented by your ADSs. For additional information regarding the voting rights of holders of equity shares, please see "Description of Equity Shares--Voting Rights" on page 69. At our request, the depositary bank will mail to you any notice of shareholders' meeting received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs. If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities represented by the holder's ADSs in accordance with such voting instructions. However, the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner. Securities for which no voting instructions have been received will not be voted. There has been no prior public market for our ADSs or equity shares and the initial public offering price may not be indicative of future trading prices. Prior to this offering, there has not been a public market for our ADSs or equity shares. The initial public offering price for the ADSs will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. Investors may not be able to resell their shares at or above the initial public offering price. 20 After the IPO, the market price of our ADSs may be highly volatile, as has been the case recently with many other newly-public Internet companies. The financial markets in the United States and other countries have experienced significant price and volume fluctuations, and the market prices of technology companies, particularly Internet-related companies, have been and continue to be extremely volatile. Volatility in the price of our ADSs may be caused by factors outside of our control and may be unrelated or disproportionate to our operating results. In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been instituted against that company. Such litigation could result in substantial costs and a diversion of our management's attention and resources. For additional information regarding our arrangements with the underwriters, please see "Underwriting" on page 92. This offering may not result in an active or liquid market for the ADSs, particularly in light of Indian legal restrictions on equity share conversion and foreign ownership of an Internet service provider. We cannot predict the extent to which this offering will result in the development of an active, liquid public trading market for our ADSs offered by this prospectus. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Although ADS holders are entitled to withdraw the equity shares underlying the ADSs from the depositary at any time, there is no public market for our equity shares in India or the United States. Under current Indian law, equity shares may not be re-deposited into our depositary without prior approval of the government of India. Therefore, the number of outstanding ADSs will decrease to the extent that equity shares are withdrawn from our depositary, which may adversely affect the market price and the liquidity of the market for the ADSs. Furthermore, foreign ownership in our company, which will include all ADSs, is limited to 49% under present Indian law. This limitation means that, unless Indian law changes, 51% of our equity shares will never be available to trade in the United States market being initiated by this offering. New investors will experience immediate and substantial dilution. The purchase price of the ADSs offered by this prospectus will be substantially higher than the tangible book value of our outstanding equity shares. Any ADSs an investor purchases in this offering will have a post- closing net tangible book value per share of $10.11 per share less than the initial public offering price paid, assuming an initial public offering price of $13.00 per share. Investors who purchase ADSs in this offering will therefore experience immediate and significant dilution in the tangible net book value of their investment. For additional information regarding dilution to investors in our ADSs, please see "Dilution" on page 29. The future sales of securities by our company or existing shareholders may hurt the price of our ADSs. The market price of our ADSs could decline as a result of sales of a large number of equity shares or ADSs after this offering or the perception that such sales could occur. Such sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. After this offering, we will have an aggregate of 21,156,000 equity shares outstanding, including 750,000 equity shares to be issued to two existing shareholders in connection with the exercise of warrants held by them. Of the outstanding equity shares, the 4,175,000 ADSs, representing 4,175,000 equity shares, sold in this offering will be freely tradable, other than ADSs purchased by our affiliates. The remaining equity shares may be sold in the United States only pursuant to a registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, including Regulation S. Each of our directors, executive officers and current shareholders, together with the holders of warrants to purchase 750,000 equity shares, has agreed that he, she or it will not offer, sell or agree to sell, directly or indirectly, or otherwise dispose of any equity shares without the prior written consent of the representatives of the U.S. underwriters for a period of 180 days from the date of this prospectus. For additional information regarding possible future sales of our securities, please see "Underwriting" on page 92 and "Shares Eligible for Future Sale" on page 91. 21 Forward-looking statements contained in this prospectus may not be realized. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks faced by us described above and elsewhere in this prospectus. We do not intend to update any of the forward-looking statements after the date of this prospectus to conform such statements to actual results. CONVENTIONS WHICH APPLY TO THIS PROSPECTUS Unless we indicate otherwise, all information in this prospectus reflects the following: . no exercise by the underwriters of their overallotment option to purchase up to 626,250 additional ADSs representing 626,250 equity shares; and . no exercise of outstanding employee stock options. CURRENCY OF PRESENTATION In this prospectus, all references to "Indian rupees," "rupees" and "Rs." are to the legal currency of India and all references to "U.S. dollars," "dollars" and "$" are to the legal currency of the United States. For the convenience of the reader, this prospectus contains translations of some Indian rupee amounts into U.S. dollars which should not be construed as a representation that those Indian rupee or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate, the rate stated below, or at all. Except as otherwise stated in this prospectus, all translations from Indian rupees to U.S. dollars contained in this prospectus have been based on the noon buying rate in the City of New York on June 30, 1999 for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on June 30, 1999 was Rs.43.45 per $1.00. Our financial statements are prepared in Indian rupees and presented in accordance with U.S. GAAP for the fiscal years ended March 31, 1997, 1998 and 1999 and the fiscal quarter ended June 30, 1999. Solely for your convenience, our financial statements as of and for the year ended March 31, 1999 and the quarter ended June 30, 1999 have been translated into U.S. dollars. In this prospectus, any discrepancies in any table between totals and the sums of the amounts listed are due to rounding. For historical information regarding rates of exchange between Indian rupees and U.S. dollars, please see "Exchange Rates" on page 28. 22 ENFORCEMENT OF CIVIL LIABILITIES Our company is a limited liability company under the laws of the Republic of India. All of our directors and executive officers, and several of the experts named in this prospectus, reside outside the United States, and virtually all of our assets and the assets of those persons are located outside the United States. As a result, it may be difficult for investors to effect service of process upon those persons within the United States or to enforce against us or those persons in U.S. courts judgments obtained in U.S. courts, including judgments predicated on the civil liability provisions of the federal securities laws of the United States. India is not a party to any international treaty relating to the recognition or enforcement of foreign judgments. We have been advised by M.G. Ramachandran, our Indian legal counsel, that in India the statutory basis for recognition of foreign judgments is found in Section 13 of the Indian Code of Civil Procedure, 1908, or Indian Civil Code, which provides that a foreign judgment shall be conclusive as to any matter directly adjudicated upon except: . where the judgment has not been pronounced by a court of competent jurisdiction; . where the judgment has not been given on the merits of the case; . where the judgment appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable; . where the proceedings in which the judgment was obtained were opposed to natural justice; . where the judgment has been obtained by fraud; or . where the judgment sustains a claim founded on a breach of any law in force in India. Section 44A of the Indian Civil Code provides that where a foreign judgment has been rendered by a court in any country or territory outside India which the government of India has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. The United States has not been declared by the government of India to be a reciprocating territory for purposes of Section 44A. Accordingly, a judgment of a court in the United States may be enforced in India only by a suit upon the judgment, not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Regulation Act, 1973 to execute the judgment or to repatriate any amount recovered. We have also been advised by M. G. Ramachandran that a party may file suit in India against us, our directors or our executive officers as an original action predicated upon the provisions of the federal securities laws of the United States. To our knowledge, no such suit has ever been brought in Indian courts. As a result, it may be difficult for investors to enforce a judgment obtained in a court in the United States, or to bring an original action in an Indian court, based on the civil liability provisions of the federal securities laws of the United States against us or our directors, executive officers or experts who reside outside the United States. 23 REPORTS TO OUR SECURITY HOLDERS Upon consummation of this offering, we will be subject to the information requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers. As a result, we will be required to file reports, including annual reports on Form 20-F, reports on Form 6-K and other information with the Securities and Exchange Commission. We have further agreed in the underwriting agreement relating to this offering to submit to the SEC quarterly reports on Form 6-K which will include unaudited quarterly financial information, for the first three quarters of each fiscal year, in addition to our annual report on Form 20-F which will include audited annual financial information. We have agreed to file these reports within the same time periods that apply to the filing by domestic issuers of quarterly reports on Form 10-Q and annual reports on Form 10-K. The SEC's rules generally require that domestic issuers file a quarterly report on Form 10-Q within 45 days after the end of the first three fiscal quarters and file an annual report on Form 10-K within 90 days after the end of each fiscal year. These reports and other information filed or to be filed by us can be inspected and copied at the public reference facilities maintained by the SEC at: . Judiciary Plaza 450 Fifth Street, N.W. Room 1024 Washington, D.C. 20549; . Seven World Trade Center 13th Floor New York, New York 10048; and . Northwestern Atrium Center 500 West Madison Street Suite 1400 Chicago, Illinois 60661-2511. Copies of these materials can also be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are not required to use the EDGAR system, but currently intend to do so in order to make our reports available over the Internet. Upon approval of the ADSs for quotation on the Nasdaq National Market, our periodic reports and other information may also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. As a foreign private issuer, we will be exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We will furnish the depositary referred to under "Description of American Depositary Shares" with annual reports, which will include annual audited consolidated financial statements prepared in accordance with U.S. GAAP, and quarterly reports, which will include unaudited quarterly consolidated financial information prepared in accordance with U.S. GAAP. The depositary has agreed with us that, at our request, it will promptly mail these reports to all registered holders of ADSs. We will also furnish to the depositary all notices of shareholders' meetings and other reports and communications that are made generally available to our shareholders. The depositary will arrange for the mailing of these documents to record holders of ADSs. For further details on the responsibilities of the depositary and the information to be made available to persons who purchase our ADSs in this offering, please see "Description of American Depositary Shares" and "Additional Information." 24 USE OF PROCEEDS The net proceeds from this offering, after deducting underwriting discounts and the estimated offering expenses payable by us, are estimated to be approximately $49.5 million, or $57.0 million if the underwriters' overallotment option is exercised in full, assuming an initial public offering price of $13.00 per ADS. We currently estimate that we will use the proceeds from this offering as follows: . approximately $25 million to fund network infrastructure expansion and enhancements; . approximately $10 million to develop content for our Internet portal business; . approximately $5 million to advertise and promote our brand; and . the balance of the proceeds from this offering for general corporate purposes, including possible strategic investments, partnerships and acquisitions. While we have from time to time preliminarily discussed potential investments, strategic partnerships and acquisitions in the ordinary course of our business, we have no current agreements or understandings relating to any such transaction. We have not yet finalized the amount of net proceeds to be used specifically for the purposes specified above. Accordingly, management will have significant flexibility in applying the net proceeds of this offering. Management will not, however, be able to use the proceeds to purchase real estate or to purchase securities on stock exchanges as specified by the Ministry of Finance. We will be required to submit to the Reserve Bank of India and the Ministry of Finance quarterly statements with regard to the periodic repatriation of the net proceeds of this offering. Pending any use, as described above, we intend to invest the net proceeds in dollar or rupee denominated high quality, interest-bearing instruments, provided that the government of India may require us to repatriate the proceeds of this offering, which means converting the proceeds into rupees and holding them in India. 25 DIVIDEND POLICY We have not declared or paid any cash dividends on our equity shares since inception and do not expect to pay any cash dividends for the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Investors seeking cash dividends should not purchase our ADSs. Under Indian law, a corporation may pay dividends upon a recommendation by its Board of Directors and approval by a majority of its shareholders. Any future cash dividends on our equity shares represented by ADSs will be paid to the depositary in rupees and will generally be converted into dollars by the depositary and distributed to holders of ADSs, net of the depositary's fees and expenses. For additional information regarding the payment of dividends, please see "Description of American Depositary Shares--Dividends and Distributions" on page 72. 26 CAPITALIZATION The following table sets forth, as of June 30, 1999, the capitalization of our company on an actual, pro forma and pro forma as adjusted basis. The pro forma data set forth below are adjusted to give effect to the following: . the sale by our company to Sterling Commerce in September 1999 of 481,000 equity shares in a private placement and the application of the $5.0 million of proceeds from this sale primarily towards the repayment of debt; and . the exercise of warrants to purchase an aggregate of 750,000 of our equity shares and the application of the $6.4 million aggregate exercise price primarily towards the repayment of debt. The pro forma as adjusted data set forth below are also adjusted to give effect to the sale by our company of the 4,175,000 ADSs, representing 4,175,000 equity shares, offered hereby and the application of the proceeds from the offering at an assumed initial public offering price of $13.00 per ADS and after deducting underwriting discounts and the estimated offering expenses payable by us. This information should be read in conjunction with our financial statements and the related notes included elsewhere in this prospectus.
As of June 30, 1999 ----------------------------------------------------- Pro Forma As Pro Forma Actual Actual Pro Forma Pro Forma Adjusted As Adjusted Indian rupees U.S. dollars Indian Rupees U.S. Dollars Indian rupees U.S. dollars ------------- ------------ ------------- ------------ ------------- ------------ (in thousands) Cash and cash equivalents............ Rs. 10,375 $ 239 Rs.248,726 $ 5,724 Rs.2,398,447 $55,200 ========== ======= ========== ======= ============ ======= Short-term debt: Current installments of long-term debt..... Rs.167,500 $ 3,855 -- -- -- -- Current installments of capital lease obligations........... 915 21 Rs. 915 $ 21 Rs. 915 $ 21 ---------- ------- ---------- ------- ------------ ------- Total short-term debt................ 168,415 3,876 915 21 915 21 Long-term debt: Long-term debt, excluding current installments.......... 91,000 2,095 -- -- -- -- Capital lease obligations, excluding current installments.......... 405 9 405 9 405 9 ---------- ------- ---------- ------- ------------ ------- Total long-term debt................ 91,405 2,104 405 9 405 9 Stockholders' equity: Equity shares, Rs.10 par value; 25,000,000 shares authorized; 15,750,000 shares issued and outstanding actual; 16,981,000 shares issued and outstanding pro forma; 21,156,000 shares issued and outstanding pro forma as adjusted........... 157,500 3,625 169,810 3,908 211,560 4,869 Additional paid-in capital................ 226,636 5,216 711,177 16,368 2,819,148 64,883 Deferred Compensation-- Employee Stock Offer Plan................... (1,375) (32) (1,375) (32) (1,375) (32) Accumulated deficit..... (366,686) (8,439) (366,686) (8,439) (366,686) (8,439) ---------- ------- ---------- ------- ------------ ------- Total stockholders' equity................ 16,075 370 512,926 11,805 2,662,647 61,281 ---------- ------- ---------- ------- ------------ ------- Total capitalization...... Rs.107,480 $ 2,474 Rs.513,331 $11,814 Rs.2,663,052 $61,290 ========== ======= ========== ======= ============ =======
27 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:
Fiscal Year Ended March 31, Period End Average High Low - --------------------------- ---------- -------- -------- -------- 1996 (from December 12, 1995)............ Rs.34.35 Rs.35.21 Rs.38.05 Rs.34.10 1997..................................... 35.88 35.70 36.85 34.15 1998..................................... 39.53 37.37 40.40 35.71 1999..................................... 42.50 42.27 43.60 39.41 2000 (through September 30, 1999)........ 43.59 43.20 43.59 42.50
28 DILUTION The pro forma net tangible book value of our company as of June 30, 1999 was approximately Rs.504.6 million ($11.6 million), or Rs.29.72 ($0.68) per share. Pro forma net tangible book value per ADS is equal to the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the pro forma number of equity shares outstanding as of June 30, 1999, after giving effect to the following: .the sale by our company to Sterling Commerce in September 1999 of 481,000 equity shares in a private placement and the application of the $5.0 million of proceeds from this sale primarily towards the repayment of debt; and .the exercise of warrants to purchase an aggregate of 750,000 of our equity shares and the application of the $6.4 million aggregate exercise price primarily towards the repayment of debt. Assuming the sale by us of ADSs offered by this prospectus at an initial public offering price of $13.00 per ADS and after deducting underwriting discounts and the estimated offering expenses payable by us, the pro forma as adjusted net tangible book value of our company as of June 30, 1999 would have been Rs.2,654.3 million ($61.1 million), or Rs.125.5 ($2.89) per ADS. This represents an immediate increase in pro forma as adjusted net tangible book value of Rs.95.7 ($2.21) per equity share to existing shareholders and an immediate dilution in pro forma as adjusted net tangible book value of Rs.439.4 ($10.11) per ADS to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per ADS............... $13.00 ------ Pro forma net tangible book value per ADS as of June 30, 1999....................................................... $0.68 Increase in net tangible book value attributable to new investors.................................................. 2.21 ----- Pro forma as adjusted net tangible book value per ADS after this offering.............................................. 2.89 ------ Dilution per ADS to new investors........................... $10.11 ======
The following table summarizes, on a pro forma as adjusted basis as of June 30, 1999, the difference between existing shareholders and new investors with respect to the number of equity shares or ADSs, as applicable, purchased, the total consideration paid and the average price per equity share or ADS, as applicable, paid. The table assumes that the initial offering price will be $13.00 per ADS.
Total ADSs Purchased Consideration Average -------------- --------------- Price Number Percent Amount Percent Per ADS ------ ------- ------- ------- ------- (In thousands, except per ADS data) Existing shareholders.............. 16,981 80.3% $20,244 27.2% $ 1.19 New investors...................... 4,175 19.7 54,275 72.8 $13.00 ------ ---- ------- ---- Total............................ 21,156 100% $74,519 100% ====== ==== ======= ====
The foregoing tables and calculations assume no exercise by the underwriters of their overallotment option and no exercise of outstanding employee stock options. To the extent that the overallotment option or outstanding options are exercised, there will be further dilution to new investors. For additional information regarding our outstanding options and warrants, please see "Management--Employee Benefit Plans" on page 64 and "Description of Equity Shares" on page 67. Prior to this offering, we had issued only equity shares that have not been represented by ADSs. Equity shares purchased and the average price paid per equity share have been converted into ADS equivalents for comparison purposes. 29 SELECTED FINANCIAL DATA You should read the following selected financial data in conjunction with our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statement of operations data for the fiscal years ended March 31, 1997, 1998 and 1999, and the balance sheet data as of March 31, 1998 and 1999, are derived from our audited financial statements included elsewhere in this prospectus which have been audited by KPMG Peat Marwick, India, independent accountants. The statement of operations data for the three months ended June 30, 1999 and the balance sheet data as of June 30, 1999 are derived from our unaudited financial statements. Our unaudited financial statements have been prepared on substantially the same basis as our audited financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for such periods. Our financial statements are prepared in Indian rupees and presented in accordance with U.S. GAAP for the fiscal years ended March 31, 1997, 1998 and 1999 and the fiscal quarter ended June 30, 1999. Financial statements for the year ended March 31, 1999 and the quarter ended June 30, 1999 also have been translated into U.S. dollars. The pro forma as adjusted data set forth below are adjusted to give effect to the following: . the sale by our company to Sterling Commerce of 481,000 equity shares in a private placement pursuant to an agreement reached in July 1999 which closed in September 1999 and the application of the $5.0 million of proceeds from this sale primarily towards the repayment of debt; . the sale by our company of 4,175,000 ADSs, representing 4,175,000 equity shares, offered hereby and the application of the proceeds from the offering at an assumed initial public offering price of $13.00 per ADS and after deducting underwriting discounts and the estimated offering expenses payable by us; and . the exercise of warrants to purchase an aggregate of 750,000 of our equity shares and the application of the $6.4 million aggregate exercise price primarily towards the repayment of debt. For additional information regarding the pro forma as adjusted data, please see "Capitalization" on page 27. Historical results are not indicative of the results to be expected in the future. The selected financial data for the period from December 12, 1995 (Inception) through March 31, 1996 are not presented because we had just begun operations. Our revenues and total operating expenses for the period from December 12, 1995 (Inception) through March 31, 1996 were approximately Rs.0 and Rs.634,000, respectively. As of March 31, 1996, our total assets were approximately Rs.98,000. The selected consolidated historical financial and other data includes a presentation of EBITDA. EBITDA represents earnings (loss) before depreciation and amortization, interest income and expense, income tax expense (benefit) and extraordinary items. EBITDA is presented because we believe some investors find it to be a useful tool for measuring a company's ability to fund capital expenditures or to service future debts. EBITDA is not determined in accordance with generally accepted accounting principles and should not be considered in isolation or as an alternative to net income as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. Because EBITDA excludes interest expense and capital expenditures, negative EBITDA would limit our ability to fund capital expenditures and service future debt obligations. Our EBITDA is not comparable to that of other companies which may determine EBITDA differently. 30
Fiscal Year Ended March 31, Fiscal Quarter Ended June 30, ------------------------------------------------------ ------------------------------------- 1997 1998 1999 1999 1998 1999 1999 -------------- ----------- ----------- ------------ ---------- ----------- ------------ Indian rupees U.S. dollars Indian rupees U.S. dollars ---------------------------------------- ------------ ----------------------- ------------ (in thousands, except share and per share data) Statement of Operations Data: Revenues............... Rs. -- Rs. 6,805 Rs. 103,344 $ 2,378 Rs. 17,558 Rs. 80,803 $ 1,860 Cost of revenues....... -- 19,498 63,651 1,465 7,074 38,897 895 -------------- ----------- ----------- ---------- ---------- ----------- ---------- Gross profit (loss).... -- (12,693) 39,693 913 10,484 41,906 965 Operating expenses: Selling, general and administrative expenses.............. 25,801 61,017 151,189 3,479 21,821 63,037 1,451 Depreciation and amortization.......... 536 19,383 49,093 1,130 8,786 21,301 490 -------------- ----------- ----------- ---------- ---------- ----------- ---------- Total operating expenses............ 26,337 80,400 200,282 4,609 30,607 84,338 1,941 -------------- ----------- ----------- ---------- ---------- ----------- ---------- Operating loss......... (26,337) (93,093) (160,589) (3,696) (20,123) (42,432) (976) Interest expense....... -- (11,306) (27,755) (639) (4,706) (10,410) (240) Other income........... -- 3,809 968 23 -- 1,093 25 -------------- ----------- ----------- ---------- ---------- ----------- ---------- Net loss............... Rs. (26,337) Rs.(100,590) Rs.(187,376) $ (4,312) Rs.(24,829) Rs. (51,749) $ (1,191) ============== =========== =========== ========== ========== =========== ========== Loss per equity share.. Rs.(114,508.27) Rs. (121.66) Rs. (17.31) $ (0.40) Rs. (3.28) Rs. (3.29) $ (0.08) Weighted equity shares used in computing loss per equity share...... 230 826,805 10,824,826 10,824,826 7,566,164 15,750,000 15,750,000 Other Financial Data: EBITDA................. Rs. (25,801) Rs. (73,709) Rs.(111,496) $ (2,566) Rs.(11,337) Rs. (21,131) $ (486) Capital expenditures... 3,230 77,070 146,135 3,363 15,057 109,578 2,522 Net cash provided by (used in): Operating activities... (30,426) (73,950) (171,388) (3,944) (20,590) (37,258) (857) Investing activities... (3,230) (77,070) (146,000) (3,360) (15,057) (109,578) (2,522) Financing activities... 35,138 159,449 433,023 9,966 30,504 31,664 (729)
As of March 31, As of June 30, 1999 -------------------------------------------- --------------------------------------------------- Pro Forma 1997 1998 1999 Pro Forma As Adjusted -------- -------- ---------- 1999 Actual Actual U.S. As Adjusted U.S. Indian rupees U.S. dollars Indian rupees dollars Indian rupees dollars ------------------------------ ------------ ------------- ----------- ------------- ----------- (in thousands) Balance Sheet Data: Cash and cash equivalents........... Rs.1,482 Rs.9,912 Rs.125,547 $ 2,889 Rs.10,375 $ 239 Rs.2,398,447 $55,200 Working capital (deficit)............. (33,628) (5,355) (21,706) (500) (198,325) (4,564) 2,189,747 50,397 Total assets........... 11,970 107,632 454,888 10,469 464,473 10,690 2,852,545 65,651 Long-term debt, including current installments.......... -- 134,455 259,256 5,967 259,820 5,980 1,320 30 Total stockholders' equity................ (26,969) (52,559) 67,618 1,556 16,075 370 2,662,647 61,281
31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of Satyam Infoway should be read in conjunction with the financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. For additional information regarding these risks and uncertainties, please see "Risk Factors" on page 7. Overview We were incorporated in December 1995 as an independent business unit of Satyam Computer Services to develop and offer connectivity-based corporate services allowing businesses in India to exchange information, communicate and transact business electronically. Satyam Computer Services, our parent company, is a leading Indian information technology services company traded on the principal Indian stock exchanges. From December 1995 through 1997, we focused on the development and testing of our private data network. In 1997, we began forming strategic partnerships with a number of leading technology and electronic commerce companies, including CompuServe Network Services, Open Market and Sterling Commerce, in order to broaden our product and service offerings to our corporate customers. In March 1998, we obtained network certification for conformity with Indian and international network operating standards from the Technical Evaluation Committee of India. In April 1998, we began offering private network services to businesses in India. Our initial products and services included electronic data interchange, e-mail and other messaging services, virtual private networks, and related customer support. In October 1998, we agreed to sell 3,000,000 equity shares to South Asia Regional Fund, an investment fund managed by Commonwealth Development Corporation for Rs.210.0 million ($4.8 million). We used the funds from this private financing primarily to develop our consumer Internet access business, expand our network and develop our on-line content business. In October 1998, we initiated our on-line content offerings with two websites: carnaticmusic.com and indiaupdate.com. We also started development of satyamonline.com, our on-line portal, and other related content sites for personal finance, movies and automobiles with the goal of offering a comprehensive suite of websites offering content specifically tailored to Indian interests worldwide. On November 6, 1998, the Indian government opened the Internet service provider marketplace to private competition. Capitalizing on our existing private data network, we launched our Internet service provider business, Satyam Online, on November 22, 1998 and became the first private national Internet service provider in India. We began offering Satyam Online Internet access and related services to India's consumer market as a complement to the network services offered to our business customers. Our Satyam Online service was the first in India to offer ready-to-use CD-ROMs enabling on-line registration and immediate usage. In July 1999, we agreed to sell 481,000 equity shares to Sterling Commerce for $5.0 million. We completed this transaction in September 1999 and used the funds for general corporate purposes, primarily the repayment of debt. We currently operate India's largest private data network utilizing Internet protocol with points of presence in 25 of the largest metropolitan areas in India. As of June 30, 1999, we had more than 300 corporate customers for our private network services, and as of August 31, 1999, we had more than 77,000 subscribers for our Satyam Online services. During August 1999, our six websites generated approximately 6.5 million page views. We conduct our business in India and most of our revenues and expenses are denominated in Indian rupees. However, our revenues generated from CompuServe Network Services and our expenses of purchasing 32 software from Sterling Commerce and Open Market are denominated in U.S. dollars. Our foreign exchange loss was Rs.0, Rs.5,613, Rs.615,189 ($14,158) and Rs.129,344 ($2,977) for fiscal 1997, 1998 and 1999 and the quarter ended June 30, 1999, respectively. Revenues For reporting purposes, we classify our revenues into three divisions: . consumer Internet access services; . corporate network and technology services; and . on-line portal and content offerings. Our consumer Internet access services division derives its revenues primarily from prepaid dial-up subscriptions. We offer our prepaid subscriptions in a number of time period and pricing plans through ready-to-use CD-ROMs sold to our distribution partners. Our distribution partners resell the CD-ROMs to consumers for on-line registration and immediate Internet access. Revenues are recognized ratably as the prepaid subscription is used with any unused portion recognized as revenues at the expiration date of the subscription. We also generate revenues through international roaming and e- mail registration fees. Our consumer Internet access services division accounted for approximately 12.9% of our fiscal 1999 revenues. Our corporate network and technology services division derives its revenues from dial-up and dedicated Internet access, electronic commerce, electronic data interchange, e-mail and other messaging services, virtual private networks and web-based solutions. Our corporate private network customers typically enter into one-year arrangements that provide for an initial installation fee and recurring service fees. Web development is generally charged on a fixed-price basis. We derive revenues from website hosting based upon our customer's bandwidth requirements, and we charge co- location customers for use of our physical facilities. We also generate a small portion of our revenues through the sale of third-party hardware. Our corporate network and technology services division accounted for approximately 87.1% of our fiscal 1999 revenues. Our on-line portal and content offerings division derives revenues from third-party advertising and commissions from electronic commerce transactions on our websites. Advertising fees are recognized over the period in which the advertisements are hosted on our websites. This division does not currently constitute a material portion of our total revenues. Expenses Cost of revenues for the consumer Internet access services division consists primarily of recurring telecommunications costs necessary to provide service to subscribers. Telecommunications costs include the costs of providing local telephone lines to our points of presence, the costs of using third-party networks pursuant to service agreements and leased line costs. We anticipate that our telecommunications costs will increase in the near term as we expand our network and enter new markets. As utilization of our network increases in future years, we expect to realize a reduction in per unit data transmission costs due to our network's scalability and fixed cost structure. Another recurring cost is the personnel and related operating expenses associated with customer support and network operations. We expect that customer support and network operations expenses will decrease as a percentage of revenues as we more efficiently utilize these capabilities across a larger customer base. Cost of revenues for consumer Internet access services also includes startup expenses for new subscribers consisting primarily of the cost of CD-ROMs and other product media, manuals and associated packaging and delivery costs. Cost of revenues for the corporate network and technology services division is divided into three groups: corporate Internet access, corporate network and electronic commerce products, and web development. Cost of revenues for the corporate Internet access subdivision consists of telecommunications costs necessary to provide service, customer support costs and the cost of providing network operations. Cost of revenues for 33 corporate network and electronic commerce consists primarily of third-party software and hardware purchased from our strategic partners for resale, direct labor costs for initial installation and recurring customer support and network operation and associated telecommunications costs. Cost of revenues for web development, website hosting and co-location includes direct labor and associated telecommunications costs. The cost of revenues for the on-line portal and content offerings division includes the labor cost of developing and maintaining our websites, the cost of third-party software and the cost of obtaining content from third- party vendors. Selling, general and administrative expenses consist primarily of salaries and commissions for sales and marketing personnel; salaries and related costs for executives, financial and administrative personnel; sales, marketing, advertising and other brand building costs; travel costs; and occupancy and overhead costs. As we expand the scope of our operations, we expect selling, general and administrative expenses to continue to increase for the foreseeable future. We intend to continue to add more points of presence to our network and hire new sales and marketing personnel for each of our new markets. We also have and intend to continue to increase marketing expenses to build our brand awareness in order to increase our subscriber base. Our business plan assumes these costs will negatively impact our financial results in the short term but will be offset by anticipated increases in revenues from overall subscriber growth. We depreciate our tangible assets on a straight-line basis over the useful life of assets, ranging from two to five years. We depreciate our intangible assets on a straight-line basis over five years. Our planned significant capital expenditures for the expansion and enhancement of our network infrastructure will substantially increase our depreciation expenses in the near future. We may face significant competitive pricing pressure from VSNL, the government-controlled provider of international telecommunications services in India, and a number of new competitors that are entering India's recently opened Internet service provider market. In the face of expected increasing competition, we do not anticipate being able to maintain our present subscriber retention rates as our subscriber base grows. Since our inception, we have experienced negative cash flow from operations and have incurred net losses. Our ability to generate positive cash flow from operations and achieve profitability is dependent on our ability to continue to grow our revenues base and achieve further operating efficiencies. We presently estimate that our consumer Internet access division requires a minimum of 100,000 subscribers in order to achieve positive EBITDA based on our current network of 25 points of presence. As we expand our network to 40 points of presence, we estimate that this minimum number of subscribers will increase to 200,000. These estimates are based on the present business environment in India, including current pricing, marketing and service cost conditions, all of which are subject to change. For the fiscal years ended March 31, 1997, 1998 and 1999 and the quarter ended June 30, 1999, we incurred negative cash flow from operations of approximately Rs.30.4 million, Rs.74.0 million, Rs.171.3 million ($3.9 million) and Rs.37.3 million ($0.9 million), respectively. For the fiscal years ended March 31, 1997, 1998 and 1999 and the quarter ended June 30, 1999, we incurred net losses of approximately Rs.26.3 million, Rs.100.6 million, Rs.187.4 million ($4.3 million) and Rs.51.8 million ($1.2 million), respectively. We intend to substantially increase our operating expenses and capital expenditures to expand and enhance our network infrastructure and on- line content offerings. We expect to experience significant negative cash flow from operations and to incur net losses as a result of these investments. We believe that the investment in our network infrastructure will enable us to achieve further economies of scale as we expand our customer base. Although consumer Internet access and corporate network and technology services account for the majority of our revenues today, we expect our on-line portal and content offerings to generate significant revenue growth through increased third-party advertising and transaction and referral fees. However, we may not be able to realize sufficient future revenues to offset our present investment in network infrastructure and on-line content offerings or achieve positive cash flow or profitability in the future. As of June 30, 1999, we had an accumulated deficit of approximately Rs.366.7 million ($8.4 million). 34 Three months ended June 30, 1999 compared to three months ended June 30, 1998 Revenues. We recognized Rs.80.8 million ($1.9 million) in revenues for the quarter ended June 30, 1999, as compared to Rs.17.6 million for the quarter ended June 30, 1998, representing an increase of Rs.63.2 million, or 359%. This increase is primarily attributable to the commencement of Internet access services in November 1998, which accounted for Rs.40.2 million of revenues for the quarter ended June 30, 1999, a Rs.21.3 million increase in revenues from corporate network services, resulting from an increase in number of corporate customers contributing to revenues in the amount of Rs.15.0 million and a Rs.5.0 million increase in revenues from new service offerings, including web- based solutions. Cost of Revenues. Cost of revenues were Rs.38.9 million ($0.9 million) or 48.1% of revenues for the quarter ended June 30, 1999, compared to Rs.7.1 million or 40.3% of revenues for the quarter ended June 30, 1998, representing an increase of Rs.31.8 million, or 448%. This increase was primarily attributable to a Rs.6.3 million increase in the cost of hardware and software purchased for resale for our corporate network and technology services customers that elect to source the technology through us, a Rs.15.0 million increase in leased line costs resulting from increasing the capacity of our network backbone from 64 Kbps to 2 Mbps and a Rs.8.0 million increase in direct personnel costs for web development and customer technical support. Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.63.0 million ($1.5 million) for the quarter ended June 30, 1999 compared to Rs.21.8 million for the quarter ended June 30, 1998, representing an increase of Rs.41.2 million. This increase was primarily attributable to a growth in staff from 340 as of March 31, 1999 to 411 as of June 30, 1999 resulting in a Rs.10.0 million increase in indirect personnel costs, a Rs.8.6 million increase in selling and marketing expenses resulting from additional expenditure in connection with marketing our Satyam Online business, a Rs.4.0 million increase in travelling expenditures and a Rs.3.0 million increase in the cost of software. Depreciation and amortization. Depreciation and amortization was Rs.21.3 million ($0.5 million) for the quarter ended June 30, 1999, compared to Rs.8.8 million for the quarter ended June 30, 1998, representing an increase of Rs.12.5 million, or 142%. This increase was primarily attributable to capital expenditures associated with the installation of six ATM switches along our network. Interest expense. Interest expense was Rs.10.4 million ($0.2 million) for the quarter ended June 30, 1999, compared to Rs.4.7 million for the quarter ended June 30, 1998, representing an increase of Rs.5.7 million, or 121%. This increase was primarily attributable to the drawdown of Rs.136.5 million of our term loan with the Export Import Bank of India. Other income. Other income was Rs.1.1 million (less than $0.1 million) for the quarter ended June 30, 1999 which was primarily attributable to interest earned on short term deposits with banks. We had no other income for the quarter ended June 30, 1998. Net loss. Our net loss was Rs.51.7 million ($1.2 million) for the quarter ended June 30, 1999, compared to a net loss of Rs.24.8 million for the quarter ended June 30, 1998. Year ended March 31, 1999 compared to the year ended March 31, 1998 Revenues. We recognized Rs.103.3 million ($2.4 million) in revenues for the year ended March 31, 1999, as compared to Rs.6.8 million for the year ended March 31, 1998, representing an increase of Rs.96.5 million. Fiscal 1999 revenues exclude Rs.71.5 million ($1.7 million) of deferred income representing consumer access subscriptions which had been purchased but not yet used by the consumer subscribers. This increase was primarily attributable to the introduction of our business network services in April 1998 and consumer Internet access services in November 1998. From March 31, 1998 to March 31, 1999, our number of corporate customers grew from approximately 30 to more than 300, and our number of subscribers grew to more than 29,000. 35 Cost of Revenues. Cost of revenues were Rs.63.7 million ($1.5 million) or 62% of revenues for the year ended March 31, 1999, compared to Rs.19.5 million or 287% of revenues for the year ended March 31, 1998, representing an increase of Rs.44.2 million, or 227%. This increase was primarily attributable to a Rs.10.5 million increase in software and hardware purchased for resale, a Rs.7.9 million increase in leased line charges due to the increased capacity of our network backbone, Rs.1.8 million towards web development charges and a Rs.23.9 million increase in direct personnel costs for web development and customer technical support. Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.151.2 million ($3.5 million) for the year ended March 31, 1999, compared to Rs.61.0 million for the year ended March 31, 1998, representing an increase of Rs.90.2 million, or 148%. This increase was primarily attributable to a growth in staff from 140 in March 1998 to 340 in March 1999 resulting in an increase in employee expenses of Rs.11.5 million, a Rs.11.5 million increase in marketing expenses relating to the launch of our consumer Internet access services division, and increases in travel expenses of Rs.6.9 million, office rental expenses of Rs.1.3 million and professional and consultant fees of Rs.10.4 million. Depreciation and amortization. Depreciation and amortization was Rs.49.1 million ($1.1 million) for the year ended March 31, 1999, compared to Rs.19.4 million for the year ended March 31, 1998, an increase of Rs.29.7 million, or 153%. This increase was primarily attributable to capital expenditures of Rs.146.1 million during the year ended March 31, 1999, including the purchase of routers, modems, ports, servers and other capital equipment in connection with the addition of eight points of presence to our network. Interest expense. Interest expense was Rs.27.8 million ($0.6 million) for the year ended March 31, 1999, compared to Rs.11.3 million for the year ended March 31, 1998, representing an increase of Rs.16.5 million, or 146%. This increase was attributable to increased interest payments from additional borrowings of Rs.136.5 million during the year under a new term loan. Other income. Other income was Rs.1.0 million (less than $0.1 million) for the year ended March 31, 1999, compared to Rs.3.8 million for the year ended March 31, 1998, representing a decrease of Rs.2.8 million, or 280%. This decrease was primarily attributable to reduced interest income as excess funds were deployed in the business. Net loss. Our net loss was Rs.187.4 million ($4.3 million) for the year ended March 31, 1999, compared to a net loss of Rs.100.6 million for the year ended March 31, 1998. Year ended March 31, 1998 compared to the year ended March 31, 1997 Revenues. We recognized Rs.6.8 million in revenues for the year ended March 31, 1998 from network service charges related to paid customer trials for our private network services projects and the sale of hardware and software. We recognized no revenues for the year ended March 31, 1997. Cost of Revenues. Cost of revenues was Rs.19.5 million for the year ended March 31, 1998, consisting primarily of costs of hardware and software purchased for resale of Rs.3.5 million and leased line costs of Rs.16.0 million. We had no cost of revenues for the year ended March 31, 1997. Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.61.0 million for the year ended March 31, 1998, compared to Rs.25.8 million for the year ended March 31, 1997, representing an increase of Rs.35.2 million. This increase was primarily attributable to a growth in staff from 33 in March 1997 to 140 in March 1998 resulting in an increase in employee expenses of Rs.14.5 million and increases in travel expenses of Rs.3.5 million, office rental expenses of Rs.2.6 million, and general office expenses of Rs.9.1 million related to the development of our consumer Internet access services division. Depreciation and amortization. Depreciation and amortization was Rs.19.4 million for the year ended March 31, 1998, compared to Rs.0.5 million for the year ended March 31, 1997, representing an increase 36 of Rs.18.9 million. This increase was primarily attributable to capital expenditures of Rs.77.1 million during the year ended March 31, 1998, including the purchase of routers, modems, ports, servers and other capital equipment in connection with the expansion of our network. Interest expense. Interest expense was Rs.11.3 million for the year ended March 31, 1998, consisting of interest on privately placed debentures. We had no interest expense for the year ended March 31, 1997. Other income. Other income was Rs.3.8 million for the year ended March 31, 1998, consisting of interest income from short-term deposits. We had no other income for the year ended March 31, 1997. Net loss. Our net loss was Rs.100.6 million for the year ended March 31, 1998, compared to Rs.26.3 million for the year ended March 31, 1997. Quarterly Results of Operations Data The following table sets forth selected unaudited quarterly statements of operations data for each of the four fiscal quarters ended June 30, 1999 both in Rupees and as a percentage of revenues. Our management believes this data has been prepared substantially on the same basis as the audited financial statement included elsewhere in this prospectus, including all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. You should read this quarterly data in conjunction with our financial statements and the related notes included elsewhere in this prospectus.
Quarter Ended ----------------------------------------------------------------------------- September 30, 1998 December 31, 1998 March 31, 1999 June 30, 1999 ----------------------------------------- ----------------- ---------------- (in thousands, except percentages) Revenues Rs.17,801 100.0% Rs.22,014 100.0% Rs.45,971 100.0% Rs.80,803 100.0% Cost of revenues........ 11,962 67.2 18,152 82.5 26,464 57.6 38,897 48.1 ---------- ------- ---------- ------- --------- ------ --------- ----- Gross profit (loss)..... 5,839 32.8 3,862 17.5 19,507 42.4 41,906 51.9 Operating expenses: Selling, general and administrative expenses............. 33,165 186.3 38,767 176.1 57,365 124.7 62,831 77.6 Depreciation and amortization 10,942 61.5 13,707 62.3 15,728 34.2 21,507 26.6 ---------- ------- ---------- ------- --------- ------ --------- ----- Total operating expenses............ 44,107 247.8 52,474 238.4 73,093 158.9 84,338 104.2 Operating loss.......... (38,268) (215.0) (48,612) (220.9) (53,586) (116.5) (42,432) (52.3) Interest expense........ (5,912) (33.2) (7,877) (35.8) (9,261) (20.1) (10,410) (12.9) Other income............ -- -- 340 1.5 628 1.4 1,093 1.4 ---------- ------- ---------- ------- --------- ------ --------- ----- Net loss................ Rs.44,180 248.2% Rs.56,149 255.2% Rs.62,219 135.2% 51,749 63.8% ========== ======= ========== ======= ========= ====== ========= =====
A high percentage of our operating expenses, particularly personnel and facilities, are fixed in advance of any particular quarter. As a result, unanticipated variations in the number and timing of consumer subscribers and corporate customers, as well as the introduction of new product and service offerings may cause significant variations in operating results in any particular quarter. Due to the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of revenues and operating results are not necessarily meaningful and you should not rely upon them as indications of future performance. As indicated in the quarterly data, revenues increased substantially during the quarters ended March 31, 1999 and June 30, 1999, primarily as a result of the rapid growth in the number of subscribers for our Satyam Online Internet access service. The number of Satyam Online subscribers increased from approximately 4,700 on December 31, 1998 to approximately 28,500 on March 31, 1999 to approximately 60,000 on June 30, 1999 to more than 77,000 on August 31, 1999. The number of corporate customers also increased from approximately 130 on December 31, 1998 to approximately 170 on March 31, 1999 to more 37 than 300 on June 30, 1999. Cost of revenues as a percentage of revenues increased from 67.2% for the quarter ended September 30, 1998 to 82.5% for the quarter ended December 31, 1998, before decreasing to 57.6% for the quarter ended March 31, 1999 and 48.1% for the quarter ended June 30, 1999. The increase in cost of revenues as a percent of revenues for the quarter ended December 31, 1998 reflects the higher operating costs associated with our expanded network backbone. During this quarter, we increased the capacity of our network backbone from 64Kbps to 2Mbps. The decrease in cost of revenues as a percentage of revenues during the quarters ended March 31, 1999 and June 30, 1999 reflects operating efficiencies generated by spreading the fixed costs of our network operations over a larger customer base. Selling, general and administrative expenses increased over the four quarters as a result of the aggressive marketing and promotion activities used to launch our Satyam Online service nationally in India as well as an increase in our employee base. The number of employees increased from 175 at June 30, 1998 to 411 employees at June 30, 1999. Selling, general and administrative expenses as a percentage of revenue decreased from 176.1% for the quarter ended December 31, 1998, to 125.0% for the quarter ended March 31, 1999, to 78.0% for the quarter ended June 30, 1999, reflecting efficiencies generated from our larger revenue and customer base. Depreciation and amortization increased over the four quarters as a result of the purchase of additional routers, modems, ports, servers and other capital equipment in connection with the expansion of our network. Interest expense increased over the four quarters as a result of increased borrowings used to fund the expansion of our operations. Seasonality Given the early stage of the development of the Internet in India, the rapidly evolving nature of our business and our limited operating history, we cannot predict to what extent, if at all, our operations will prove to be seasonal. Liquidity and Capital Expenditures Since inception, we have financed our operations primarily through a combination of private equity sales and borrowings from institutions and banks. During the fiscal years ended March 31, 1998 and 1999, we received Rs.38.5 million and Rs.307.5 million ($7.1 million), respectively, in net proceeds from the sale of equity shares. The following table summarizes our statements of cash flows for the periods presented:
Fiscal Year Ended March 31, Fiscal Quarter Ended June 30, -------------------------------------------------- ------------------------------------ 1997 1998 1999 1999 1998 1999 1999 Indian rupees U.S. dollars Indian rupees U.S. dollars ------------------------------------ ------------ ---------------------- ------------ (in thousands) Net loss................ Rs.(26,337) Rs.(100,590) Rs.(187,376) $(4,312) Rs.(24,829) Rs.(51,749) $(1,191) Net decrease (increase) in working capital..... (4,625) 7,257 (33,212) (764) (4,547) (7,016) (161) Other adjustments for non-cash items......... 536 19,383 49,200 1,132 8,786 21,507 495 Net cash provided by (used in) operating activities............. (30,426) (73,950) (171,388) (3,944) (20,590) (37,258) (857) Net cash provided by (used in) investing activities............. (3,230) (77,070) (145,999) (3,360) (15,057) (109,578) (2,522) Net cash provided by (used in) financing activities............. 35,138 159,449 433,023 9,966 30,504 31,664 729 Net increase (decrease) in cash and cash equivalents............ 1,482 8,429 115,636 2,661 (5,143) (115,172) (2,651)
38 Our principal capital and liquidity needs historically have related to developing our network infrastructure and our corporate network and electronic commerce products, establishing our customer service and support operations, developing our sales and marketing activities and for general working capital needs. Prior to 1998, our capital needs were primarily met by funding from our parent company, Satyam Computer Services, and borrowings from institutions and banks. As we placed greater emphasis on expanding our network infrastructure and developing our consumer Internet access and on-line portal and content services, we sought additional capital from other sources, including vendor capital leases and other vendor financing arrangements and through private placements of our securities, as detailed below. Cash used in operating activities of Rs.171.4 million ($3.9 million) during fiscal 1999 was primarily attributable to a net loss of Rs.187.4 million ($4.3 million), increases in accounts receivable of Rs.43.1 million ($1.0 million), other current assets of Rs.62.7 million ($1.4 million) and other assets of Rs.21.2 million ($0.5 million), partially offset by depreciation of plant and equipment of Rs.46.7 million ($1.1 million) and an increase in deferred revenues of Rs.71.5 million ($1.7 million). Cash used in investment activities during fiscal 1999 was Rs.146.0 million ($3.4 million), principally as a result of the purchase of routers, modems, ports, servers and other capital equipment in connection with the expansion of our network. Cash provided from financing activities was Rs.433.0 million ($10.0 million) for fiscal 1999, which consisted primarily of Rs.307.5 million ($7.1 million) of net proceeds raised in a private placement of our equity shares to South Asia Regional Fund and Satyam Computer Services, and Rs.136.5 million ($3.1 million) of proceeds from a term loan from the Export Import Bank of India. Our aggregate billings for fiscal 1999 were approximately Rs.174.8 million. This amount represents amounts receivable by us from our customers for services to be provided over various periods of time. In accordance with our revenue recognition policy, we recognized Rs. 103.3 million and deferred Rs.71.5 million of billings in fiscal 1999. Our deferred revenues balance was Rs.92.5 million as of June 30, 1999. Cash used in operating activities of Rs.74.0 million during fiscal 1998 was primarily attributable to a net loss of Rs.100.6 million, partially offset by depreciation of plant and equipment of Rs.18.8 million and an increase in trade accounts payable of Rs.15.5 million. Cash used in investment activities during fiscal 1998 was Rs.77.1 million, principally as a result of the purchase of network equipment and software. Cash provided from financing activities was Rs.159.4 million in fiscal 1998, which consisted primarily of Rs.122.0 million of unsecured debentures issued to Citibank, N.A. and Rs.38.5 million of net proceeds raised in a private placement of our equity shares to Satyam Computer Services. As part of our business strategy, we intend to invest significant amounts of capital over the next 12 to 24 months to fund network infrastructure expansion and enhancements, to develop content for our Internet portal business, to advertise and promote our brand and to repay debt. As of June 30, 1999, we had spent approximately Rs.355.7 million ($8.2 million) to develop and deploy our network infrastructure. We estimate that we will spend approximately Rs.869 million ($20 million) to extend our network infrastructure to 40 cities in India by April 2000. As of June 30, 1999, we had aggregate commitments for capital expenditures in an amount equal to approximately Rs.28.2 million ($0.6 million) of which we had advanced approximately Rs.7.2 million ($0.2 million). We expect to incur operating losses and negative cash flows from operations for the foreseeable future. As of June 30, 1999, we had approximately Rs.10.4 million ($0.2 million) of cash and cash equivalents for our working capital needs, as compared to Rs.4.8 million as of June 30, 1998. As of June 30, 1999, we had Rs.78.5 million ($1.8 million) of capacity under our Rs.215.0 million ($4.9 million) term loan with the Export Import Bank of India. We may use a portion of the proceeds from this offering for possible strategic investments, partnerships and acquisitions. If appropriate opportunities can be developed, we believe that our growth could be accelerated by selective investments or acquisitions in India, particularly in Internet service providers that have developed local or regional points of presence in markets where we have not yet established a presence. We may also consider opportunities to acquire sources of content for our Internet portal. We have engaged in 39 preliminary discussions involving several transactions of this sort, but have no agreements as of the date of this prospectus. We expect that once we have the net proceeds provided by this offering available to us, we will become more aggressive in our efforts to identify one or more investment or acquisition opportunities. However, we cannot assure you that we will be able to identify or complete any such transaction on favorable terms, or at all. We currently anticipate that our available cash resources combined with the net proceeds from this offering will be sufficient to meet our anticipated working capital and capital expenditure requirements as discussed above for at least 12 months after the date of this prospectus. Our ability to raise funds through the sale of equity is limited by foreign ownership restrictions imposed on us by Indian law and the terms of our Internet service provider license. These restrictions provide that the maximum total foreign equity investment in our company is 49%. For additional information, please see "Restrictions on Foreign Ownership of Indian Securities" on page 80. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders and the holders of our ADSs will be reduced and these securities may have rights, preferences or privileges senior to those of our shareholders and the holders of our ADSs. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund and expand our operations, take advantage of unanticipated opportunities, develop or enhance Internet content, features or services, or otherwise respond to competitive pressures will be significantly limited. Our business, results of operations and financial condition could be materially adversely affected by any such limitation. Income Tax Matters As of June 30, 1999, we had a net operating loss carryforward of approximately Rs.42.4 million ($1.0 million) for financial reporting purposes. Under Indian law, loss carryforwards from a particular year may be used to offset taxable income over the next eight years. The statutory corporate income tax rate in India is currently 35.0%. This tax rate is presently subject to a 10.0% surcharge resulting in an effective tax rate of 38.5%. The Finance Minister of India has indicated that the 10.0% surcharge would be effective for a period of only one year, commencing April 1, 1999. However, we cannot assure you that the 10.0% surcharge will be in effect for only one year or that additional surcharges will not be implemented by the government of India. Dividends declared, distributed or paid by an Indian corporation are subject to a dividend tax of 11.0%, including the presently applicable surcharge, of the total amount of the dividend declared, distributed or paid. This tax is not paid by shareholders nor is it a withholding requirement, but rather it is a direct tax payable by the corporation. Effects of Inflation Inflation has not had a significant effect on our results of operations and financial condition to date. However, India has experienced relatively high rates of inflation. According to the Economist Intelligence Unit, the rates of inflation in India for 1996, 1997 and 1998 were 9.0%, 7.2% and 14.0%, respectively, and the projected rate of inflation in India for 1999 is 9.3%. Under our Internet service provider license, we are given the right to establish the prices we charge to our subscribers, as determined by market forces. However, under the conditions of our license, the Telecom Regulatory Authority of India may review and fix the prices we charge our subscribers at any time. If the Telecom Regulatory Authority were to fix prices for the Internet service provider services we provide, we might not be able to increase the prices we charge our subscribers to mitigate the impact of inflation, which could have a material adverse effect on our business, results of operations and financial condition. 40 Debt Financing In June 1998, we obtained from the Export Import Bank of India a term loan of Rs.215.0 million. This term loan is secured by a first charge on our fixed assets and is guaranteed by Satyam Computer Services. The loan bears interest at a rate of 15.5% per annum and is repayable in six equal half-yearly installments commencing on December 20, 1999. We used the proceeds from the sale of equity shares to Sterling Commerce primarily to repay a portion of this loan. In June 1999, we obtained from IDBI Bank Ltd. short term loan commitments aggregating Rs.100.0 million and a short-term credit facility of Rs.10.0 million. We used the proceeds from the short-term loans and the short-term credit facility to purchase telecommunication equipment, including Internet switches, for our network, and in turn repaid substantially all of this indebtedness with the proceeds from the issuance of equity shares to Sterling Commerce. Impact of the Year 2000 Introduction. The term "Year 2000 issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date, meaning that the computer may fail to distinguish dates in the 2000's from dates in the 1900's. If not corrected, these miscalculations could result in a disruption of our operations. State of Readiness. We are currently implementing a comprehensive plan for us to become Year 2000 ready. Our overall readiness plan consists of the following phases: . preparing an inventory of all software and hardware items affected by the Year 2000 issue; . testing our internally developed software for quality assurance; . contacting third-party vendors, licensors and providers of hardware, software and services regarding their Year 2000 readiness; . repairing or replacing components that are determined not to be Year 2000 compliant; and . creating contingency plans to address potential Year 2000 failures that we cannot control or have not previously been able to detect or repair. Specific steps in our Year 2000 assessment which we have completed to date include: . retaining Satyam Enterprises, an affiliate of Satyam Computer Services, to conduct a Year 2000 assessment of all of our network hardware and software, including our computers, applications software, power supply systems and relay switches; . identifying critical suppliers and communicating with them about their plans and progress in addressing any Year 2000 problems they may face; and . performing Year 2000 simulations to verify performance by artificially moving the date forward from December 31, 1999 to January 1, 2000. The Year 2000 readiness plan described above is being carried out across the three critical areas where we believe the Year 2000 issue might affect our business: . software products which are supplied by us to our subscribers and customers; . our information and technology systems; and . our non-information technology systems. 41 The results of the steps we have completed indicate that substantially all of our information technology and non-information technology systems are Year 2000 compliant. As a result, we do not anticipate upgrading or modifying any major internal computers, applications or equipment. In addition, we have contacted, and obtained verbal or written certification of Year 2000 compliance from, more than 25 of our third-party vendors, licensors and providers of hardware, software and services. We expect to receive certification from all of our private vendors, licensors and providers by September 1999. However, we do not anticipate receiving Year 2000 compliance certification from the Department of Telecommunications on which we are dependent for leased lines and international gateways to the Internet. We cannot assure you that these facilities are Year 2000 compliant. Costs. We have not incurred any material expenses to date in connection with the implementation of our Year 2000 program, and we estimate that we will incur a total of Rs.2.0 million in expenses. These costs will be expensed as incurred. We currently believe these costs will not have a material effect on our financial condition, liquidity or results of operations. To date, we have not deferred any specific information technology projects due to our Year 2000 efforts. Risks. We are not currently aware of any significant Year 2000 compliance problems which would materially harm our business, results of operations or financial condition. During our remaining assessment, we may discover Year 2000 compliance problems in our hardware, software or computer systems that may require substantial repair or replacement. In addition, material third-party software, hardware or services incorporated into our systems may contain Year 2000 compliance problems that require substantial repair and/or replacement. The failure to correct any material Year 2000 problem, including a failure on the part of the Department of Telecommunications to be Year 2000 compliant, could materially harm our business, results of operations and financial condition for the following reasons: . new subscribers or customers may not be able to sign up for our Internet services, resulting in reduced growth and lower effectiveness of our marketing efforts; . current subscribers or customers may have difficulty using our services or receiving adequate customer support, which may result in increased attrition, higher customer support costs and reduced revenue; and . we may be subject to claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend and, if defended unsuccessfully, could result in the imposition of substantial fines or judgments. We cannot assure you that governmental agencies, utility companies, third-party service providers and others outside our control will be Year 2000 compliant. The failure by these entities to be Year 2000 compliant could result in a systemic failure beyond our control, including, for example, a prolonged failure of Internet, telecommunication and/or electrical systems, which could also prevent us from providing our services, or prevent users from accessing our services, either of which would materially harm our business, results of operations and financial condition. Contingency Plans. We are still engaged in an ongoing Year 2000 assessment and have not yet developed any contingency plan. Contingency planning will be conducted as our ongoing assessment and as feedback received from third parties necessitates. We estimate that the development of our contingency plan will be substantially completed by November 1999. Impact of Recently Issued Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. We currently do not engage or plan to engage in derivative instruments or hedging activities. 42 BUSINESS Background We are the second largest national provider of Internet access and Internet services to consumers and businesses in India, based on number of customers as of August 31, 1999. We offer Internet access to both consumers and corporate customers. We provide private network services, business-to-business electronic commerce solutions and website development and hosting services to businesses in India. We also operate an on-line portal and other on-line services. Our comprehensive range of products and services enables our consumer and business customers to communicate, transmit and share information, access on-line content and conduct business remotely using our private data network or the Internet. We began providing corporate network and electronic commerce services to businesses in April 1998, and we currently have more than 300 corporate customers. We launched our Internet service provider business in November 1998, becoming the first private Internet service provider to begin service after the Indian government, which controls the largest Internet service provider in India, opened the market to private competition. As of August 31, 1999, we had more than 77,000 subscribers for our consumer Internet access service, Satyam Online. We also operate an on-line portal, satyamonline.com, and related content sites specifically tailored for Indian interests worldwide. During August 1999, our six websites generated approximately 6.5 million page views. We currently operate India's largest national private data network utilizing Internet protocol, which is an Internet industry standard for tracking Internet addresses, routing outgoing messages and recognizing incoming messages. We own and operate points of presence in 25 of the largest metropolitan areas in India. Points of presence are telecommunications facilities located in a particular market which allow our customers to connect to the Internet through a local telephone call. We seek to become the premier provider of Internet services in the Indian market. We believe that demand for our services is significant in India and growing rapidly as consumers and businesses seek alternatives to the communications services offered by India's government-controlled telecom providers. We intend to continue to focus on providing superior network performance and high levels of customer service and technical support to increase our subscriber base and maximize customer satisfaction. Industry Overview Development of the Internet. According to International Data Corporation, the total number of Internet users worldwide is expected to grow from approximately 140 million in 1998 to 400 million in 2002. The International Data Corporation market data presented above and elsewhere in this prospectus shows International Data Corporation's estimates derived from a combination of vendor, user and other market sources and therefore may differ from numbers claimed by specific vendors using difference market definitions or methods. There can be no assurances that this projected amount will be achieved. The large and increasing number of home and office computers linked to the Internet, advances in network design, increased availability of Internet-based software and applications, the emergence of useful content and electronic commerce technologies, and convenient, fast and inexpensive Internet access will drive Internet growth and usage in the near future. 43 Special Communications Needs of Businesses. As the Internet becomes more developed and reliable, businesses are increasingly utilizing the Internet for functions critical to their core business strategies such as sales and marketing, customer service and project coordination. The Internet presents a compelling profit opportunity for businesses by enabling them to reduce operating costs, access valuable information and reach new markets. To maintain a significant presence on the Internet, businesses typically purchase Internet access services and establish a website. Internet access provides a company with its basic gateway to the Internet, allowing it to transfer e-mail, access information and connect with employees, customers and suppliers. A website provides a company with a tangible identity and an interactive presence on the Internet. Many corporations are also converting their information systems and databases to web-enabled systems. International Data Corporation estimates that revenue from Internet web hosting services worldwide will grow at a rate that averages 96.0% annually from $0.8 billion in 1998 to $11.8 billion in 2002. International Data Corporation also estimates that revenue from electronic commerce spending worldwide will grow at a rate that averages 98% annually from $50.4 million in 1998 to $733.6 million in 2002. The Opportunity in India. As with many developing nations, the telecommunications infrastructure in India historically has been controlled by government-controlled telecom providers. The resulting service has been and remains inferior to service in developed countries. Consequently, the services available and the penetration of those services into the base of businesses and consumers in India has, to date, been limited. At the same time, however, the Indian economy continues to modernize and expand, particularly in sectors such as software development that are dependent on a reliable communications network. The growth of these industries is leading to an increasing base of personal computers and wired homes and businesses in India with a resulting increased demand for Internet services. We believe these trends, which mirror trends in more mature economies, will continue to develop in India. Set forth below is a table comparing the penetration of computers and on-line access in India compared to the United States and the Asia-Pacific region in 1998:
Asia-Pacific India United States Region(1) ----- ------------- ------------ (in millions, except percentages) Population(2).......................... 984.0 270.3 2,769.6 Internet users......................... 0.5 62.8 10.2 Internet users as a percentage of population............................ 0.0% 23.2% 0.4% On-line devices........................ 0.3 87.4 9.5 On-line devices as a percentage of installed base........................ 11.0% 54.5% 24.9%
-------- (1) Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New Zealand, Philippines, China, Singapore, Taiwan, Thailand and Vietnam. (2) 1998 population data from U.S. Census Bureau. Source: International Data Corporation, 1999. The ability to exploit the Internet service provider and other data service markets in India is currently inhibited by bandwidth limitations imposed by cost and technical obstacles. Bandwidth refers to the measurement of the volume of data capable of being transported in a communications system in a given amount of time. Bandwidth rates are commonly expressed in terms of Kpbs (kilobits per second, or thousands of bits of data per second) or Mpbs (megabits, or millions of bits of data per second). Generally, bandwidth remains very expensive in India. Prices for bandwidth are set by two governmental agencies in India, the Department of Telecommunications and the Telecom Regulatory Authority and have remained high due to, among other things, capacity constraints. Further, limitations in network architecture limit consumer telephone dial-up connection speeds to 28 Kbps and below, less than the 33 to 56 Kbps on conventional dial-up telephone lines, and significantly less than the up to 1.5 Mbps on cable modems, in the United States. Improvements in the public telecommunications infrastructure and private network expansion are expected to diminish these limitations over time. As network capacity increases worldwide and the cost to transmit data over the Internet continues to decrease, we also expect the demand for Internet access, on-line content and similar services to increase. 44 To date, a significant amount of the usage of Indian content sites on the World Wide Web has been driven by Internet users outside of India. We expect this growth in personal computers and Internet users to increase the demand for Internet content directed towards domestic Indian consumers as well as the amount of electronic commerce in India. Set forth below is a table summarizing International Data Corporation's projections for Internet use and electronic commerce revenue in India:
Annualized 1998 2002 growth ------------ -------------- ----------------- (in millions, except annualized growth) Indian Internet users........ 0.5 4.5 76% Indian Installed personal and network computer base....... 1.9 8.2 44% Indian Internet commerce revenues.................... $ 3.5 $ 593.6 260%
-------- Source: International Data Corporation, 1999 Private market participants have not been able to exploit the market opportunities in India until recently because the regulatory environment in India largely prevented any competition with the national government-controlled telecom providers. Until November 1998, the only Internet service provider permitted in India was VSNL, a government sponsored and majority owned entity, which at that time had approximately 150,000 subscribers. VSNL began providing Internet access on August 15, 1995. We currently estimate that VSNL has approximately 300,000 subscribers. On November 6, 1998, the government opened the Indian Internet service provider market to private competition. As of June 30, 1999, the Indian government had granted Internet service provider licenses to 129 companies, including 22 national licenses, 42 regional licenses and 65 local licenses. The licensees include cable television operators and joint ventures between local companies and large international telecom providers. Internet service provider licenses are granted for 15 years, with only nominal license fees. Internet telephony is not permitted by the current regulations. Currently, pricing of Internet service provider services is not regulated by the government of India, although it has the power to elect to do so. Satyam Solution We believe that the growth of the Internet and other network services in India has been inhibited by relatively high costs and poor user experiences caused by an inadequate telecommunications infrastructure and slow network connection speeds. We are committed to expanding and enhancing our private network backbone and to providing high quality technical support to attract users to our services. We believe that our products and services provide our customers with the ability to exchange information, communicate and transact business over the Internet with speed, efficiency, reliability and security superior to other Internet service providers. Key advantages of the Satyam solution include: . National private Internet protocol network backbone. We currently operate India's only private national Internet protocol data network. Our network provides the platform for the national delivery of Internet access to consumers as well as the backbone for our full range of corporate network and technology services. Our private network infrastructure allows corporations to establish virtual private networks and electronic data interchanges without dealing directly with the government telecom providers. The planned development of our own Internet gateways will further reduce our reliance on the government telecom providers. . Superior end-user performance and customer support. We provide a high level of customer service, network performance and technical support to maximize customer satisfaction. Currently, approximately 40% of our employees are engaged in our customer service or technical support departments, which operate 24-hours-a-day, seven-days-a-week. Our network engineers continually monitor network traffic and congestion points to deliver consistent, high quality network performance. We plan to maintain a relatively low ratio of subscribers to modems. As of June 30, 1999, our subscriber to modem ratio was approximately ten to one. Our strategy of providing superior network performance and customer service is designed to result in significant customer growth from referrals and industry recognition. 45 . End-to-end network solutions for business customers. We provide our business customers with a comprehensive range of Internet, connectivity and private network solutions complemented by a broad base of web-based business applications. Our corporate services range from dial-up and dedicated Internet access, international roaming to virtual private networks, web implementation and electronic commerce solutions. Our end-to-end solutions enable our corporate customers to address their networking and data communication needs efficiently without having to assemble products and services from different value-added resellers, Internet service providers and information technology firms. . Internet content and electronic commerce websites customized for the Indian market. We view the Indian market as a series of specific market segments with unique cultural and topical interests, rather than an extension of a homogeneous, worldwide Internet market. We have assembled a team of India-based employees familiar with the local culture, language and business environments in our markets to develop Internet content and electronic commerce websites tailored for the Indian market. We regularly incorporate new and original third-party content suited to our local and regional audiences to enhance our customers' on-line experience and to attract new users both within India and abroad. As a result of our local market knowledge, we have been able to increase traffic flow to our websites and to create brand awareness for the Satyam Online service. . Strategic partnerships with industry leaders. We have developed exclusive strategic relationships with leading Internet and telecommunications manufacturers. For example, we are the exclusive network partner for CompuServe Network Services, providing its customers with roaming services in India. Our exclusive arrangements with Sterling Commerce and Open Market provide our customers access to cutting edge business-to-business electronic data and communication applications and Internet electronic commerce software. Business Strategy Our goal is to become the premier provider of Internet and network services to consumers and businesses in India. Our principal business strategies to accomplish this objective are: . Increase penetration in our existing markets by expanding awareness of the Satyam Online brand name to capitalize on our first mover advantage in India. We intend to capitalize on our first-to-market advantage in India to establish national service and a brand name in advance of other private competitors. We are presently the largest national independent Internet service provider in India, based on number of subscribers. We currently operate in 25 cities in India and expect to provide service in 40 cities by April 2000. We intend to accelerate penetration within our existing markets and enter additional targeted markets by creating awareness of the "Satyam Online" brand name. We intend to make Satyam Online synonymous with superior Internet connectivity and with on-line content tailored specifically for the Indian market and Indian interests worldwide. Our marketing strategy includes print, television and radio advertising, direct mailing campaigns targeting personal computer owners, co-branding with "cybercafes" and joint-marketing programs with leading schools and universities in India. . Expand our products and services with new technologies to enable our customers to use the Internet more effectively. We continually seek to expand the breadth of our product and service offerings with new technologies. For example, we recently opened the first prototype Satyam cybercafe to tap the large non-personal computer owner market in India. Our cybercafes will prominently display the Satyam Online brand and offer a full range of our Internet connectivity services. We intend to introduce a number of other new products and services in the near future, including e-mail designed for regional Indian dialects, a user customized portal site, tele-voice mail, e-mail to fax, micro-payments and a supply chain management product. 46 . Strengthen our Internet portal and other Internet content websites with more India-specific content tailored to Indian interests worldwide. Our portal, satyamonline.com, functions as an initial gateway to the Internet, the user's starting point for web browsing and other Internet services, for our consumer Internet service provider subscribers. The Satyam Online portal is a media rich, user friendly, interactive website offering hyperlinks to a wide variety of websites and services, including our own websites. To achieve our goal of developing the premier Internet portal focused on the Indian market, we intend to continue to expand and improve the quality of satyamonline.com, and are actively developing additional proprietary websites oriented towards topical and cultural interests of Indians worldwide. As the availability of Internet access expands in India, we believe that increasing numbers of Internet users will be attracted to our high quality websites and on-line content designed specifically for the Indian consumer. We will seek to attract advertisers, electronic commerce merchants and third-party content providers trying to reach our users in order to generate incremental revenues for Satyam Online. . Expand customer distribution channels through strategic partnerships to take advantage of the sales and marketing capabilities of our strategic partners. We intend to continue to expand our customer acquisition channels, for both our consumer Internet access and corporate network and technology services. We have arrangements with two leading personal computer manufacturers, Compaq and Hewlett- Packard, to bundle our Satyam Online Internet access service with the sale of their personal computers in India. We are working with Philips Electronics to deploy a television set-top box in India for accessing the Internet using phone lines. We have also formed strategic alliances with computer and electronics retailers. We expect to form additional strategic alliances and referral programs in the future with selected telecommunication service and equipment suppliers, network service companies, systems integrators, computer resellers and retail chains in India. . Invest in the continued enhancement and expansion of our network infrastructure to support customer growth, enter new markets and accommodate increased customer usage. We intend to continue to increase the capacity and geographic reach of our network in order to support subscriber growth, enter new markets and accommodate increased customer usage. We remain committed to using proven technologies and equipment and to providing superior network performance. We recently deployed asynchronous transfer mode, or ATM, switches on six points of presence along our network. These ATM switches enable us to allocate our network capacity more efficiently. Our Internet service provider license permits us to establish and maintain our own direct connections to the international Internet, either by purchasing satellite earth stations or by leasing or purchasing capacity on transoceanic fiber optic cables. We believe that as the size and capacity of our network infrastructure grows, its large scale and national coverage will create economies of scale and barriers to entry for our competitors. . Pursue selective strategic investments, partnerships and acquisitions to expand our customer base, increase utilization of our network and add new technologies to our product mix. We believe that our growth can be supplemented by selective acquisitions of complementary businesses, particularly Internet service providers that have developed local or regional points of presence and that have a significant or growing subscriber base in our current or targeted markets. We believe that as the Internet service provider market in India evolves, customers will place greater emphasis on Internet service provider performance, network coverage, reliability, value- added services and customer support. As a result, smaller start-up Internet service providers may be unable to remain competitive on a national or regional basis, unless they significantly expand the scope of their operations. These trends could lead to a future consolidation of Internet service providers in India. In addition, we may seek to expand our market presence in our corporate network business through the acquisition of web hosting, data center, web implementation and/or systems integration companies. We may also consider opportunities to acquire third-party websites and sources of additional on-line content and technology for our Internet portal and proprietary website businesses. 47 Service Offerings We offer a wide range of Internet and other network services to meet the needs of consumers and corporate customers. These services can be divided into three categories: . consumer Internet access services; . corporate network and technology services; and . on-line portal and content offerings. Consumer Internet Access Services We launched our consumer Internet service provider business on November 22, 1998, just 15 days after the government of India opened the market to private competition. Within 45 days, we had initiated service in 12 cities, including Ahmedabad, Bangalore, Bombay (Mumbai), Calcutta, Cochin, Coimbatore, Delhi, Hyderabad, Ludhiana, Madras (Chennai), Pondicherry and Pune. We currently own and operate points of presence in 25 of the largest metropolitan areas in India. We plan to extend service to 40 cities by April 2000 which we believe will allow us to provide Internet access services to approximately 85% of the installed personal computer base in India. As of August 31, 1999, we had more than 77,000 subscribers. Our expansion plan targets major metropolitan areas and state capitals that we believe have a sufficient number of installed personal computers to support a point of presence. Our strategy is to offer better and more extensive services to our subscribers than our competitors, with an emphasis on ease of use. With VSNL and many of the regional access providers, the user must apply for service and, frequently, wait one or more weeks for service to begin. Our subscribers purchase a ready-to-use CD-ROM available at bookstores, computer stores and universities, or bundled with a personal computer, to access our service immediately. Our on-line registration process is available to initiate service and purchase renewals. We also support our subscribers with a 24-hour-a-day, seven-day-a-week call center staffed with trained technicians. Our service offerings come in a number of packages, designed to attract beginning Internet users and service the needs of advanced users. Our Discover 25 offering is a "starter pack" designed for anyone wishing to explore the Internet or as a second connection for subscribers who primarily use one of our competitors' services. Each of our other Discover offerings is designed for regular Internet users. All of our Discover Internet access offerings are bundled with a package of value-added products, including one megabyte of either POP3 or Imap e-mail, a one page pre-templated web page and our 24-hour- a-day, seven-day-a-week customer service. Our Discover offerings are offered only on a prepaid basis and can be renewed on-line. Each Discover offering is bundled with approximately Rs.4,000 ($92) retail value of licensed software, including Viagrafix and E-safe. Viagrafix is an interactive computer-based tutorial designed to introduce the Internet to new users. E-safe is a virus removal and parental control tool. We also offer e-mail capability without Internet access. Our consumer Internet service provider offerings include:
Service Summary Description Initial Price Renewal Price ------------ ---------------------------- --------------- --------------- Discover 25 25 hours of Internet access Rs.990 ($23) Not applicable over a 3-month period Discover 100 100 hours of Internet access Rs.3,300 ($76) Rs.2,600 ($60) over a 10-month period Discover 250 250 hours of Internet access Rs.6,000 ($138) Rs.5,600 ($129) over a 12-month period Discover 500 500 hours of Internet access Rs.8,900 ($205) Rs.8,400 ($193) over a 12-month period Venture 500 500 hours of Internet access Rs.17,000 ($391) Rs.16,000 ($368) over a 12-month period by up to five concurrent users NetMail Additional e-mail capability Rs.2,000 ($46) Not applicable without Internet access
48 The most common connection technique is for subscribers to dial-up to our system using a personal computer configured with a modem. A subscriber who is within local dialing range of one of our points of presence can access the Internet with a local telephone call. In addition to paying for Internet access, the customer is responsible for the cost of the call, which currently is 1.3 rupees (3.0c) per 3 minutes. We estimate that substantially all of our subscribers access our services with a local telephone call. Subscribers who access our services with a long-distance telephone call are responsible for the long-distance charges. We recently announced a collaboration with Indira Gandhi National Open University to make trial Internet access available to 70,000 students of the School of Information and Computer Science. Under the program, participating students pay approximately 40% of our normal hourly access charges for 20 hours of Internet access between the hours of 11:00 p.m. and 7:00 a.m. These students comprised approximately 5,000 of our 60,000 subscribers as of June 30, 1999 and approximately 5,000 of our more than 77,000 subscribers as of August 31, 1999. We believe that a critical element of consumer satisfaction is to have an adequate number of access lines available to assure prompt and reliable connection to our service. Telephone lines are in short supply in India, and there is frequently a waiting period of one or more months to acquire additional lines. We have ordered in advance a significant number of additional lines to provide timely capacity additions as we grow our service. We plan to maintain a relatively low ratio of subscribers to modems. When we commence service in a city, we initially have approximately one modem-equipped line available for each ten subscribers. As of June 30, 1999, our subscriber to modem ratio was approximately ten to one. Subscribers local to a call center can call our call center facility for customer service and technical support through a local telephone number. Subscribers can also e-mail their questions directly to a customer service and technical support address at our company. Corporate Network and Technology Services We offer a comprehensive suite of technology products and network-based services that provide our corporate customers with end-to-end Internet and private network access. Our products and services enable our corporate customers to offer a full range of business-to-business and electronic commerce-related services. Our business services consist of the following: Internet Access. We offer dial-up Internet access as well as a variety of dedicated Internet access solutions which provide high-speed continuous access to the Internet. Our dedicated Internet access services are provided to corporate customers at speeds ranging from 28 Kbps to 128 Kbps. Our Venture 500 Plan provides dial-up access to the Internet tailored to corporate customers requiring multiple e-mail identifications and includes our 24-hour-a-day, seven-day-a-week customer service. A corporate customer which is within local dialing range of one of our points of presence can access our services with a local telephone call. We also offer an international roaming service which caters to business executives who travel outside of India. Our principal Internet access options for corporate customers include:
Service Summary Description Pricing ----------- ----------------------------- ----------------------------- --- Leased Line Dedicated high speed Internet Rs.500,000 ($11,507) annually access at up to 64 Kbps ISDN Dedicated high speed Internet Rs.350,000 ($8,055) annually access at up to 128 Kbps PSTN Dedicated Internet access at Rs.180,000 ($4,143) annually up to 28.8 Kbps NetName Domain name registration Rs.5,000 ($115) NetWorld 25 hours of Internet access Rs.7,000 ($161) over a 12-month period while roaming outside India NetMail Additional e-mail capability Rs.2,000 ($46) without Internet access
49 Private Network Services. We offer a wide variety of private network services for our small to large corporate customers. Many companies today in India have established private data communication networks, which are often referred to as wide area networks, or WANs, and built on expensive leased lines, to transfer proprietary data between office locations. We were the first company in India to offer a cost-effective replacement alternative to WANs using virtual private networks which provide secure transmission of data using Internet protocol over our private network infrastructure. Virtual private network products, often in combination with a website, are also the basis for offering intranet and extranet services. Intranets are corporate networks that rely on Internet-based technologies to provide secure links between corporate offices and secure access to company data. Extranets expand the network to selected business partners through secure links on the Internet. We also allow a company to outsource all of its WAN requirements to us. Our virtual private network solutions offer internetworking without the wait periods created when obtaining these services from the government provider. Our nationwide Lotus Notes management system provides the software and framework for our customers to utilize their private network systems to interlink their offices and exchange information. We also support the Microsoft Exchange messaging system. We are the exclusive network partner to CompuServe Network Services in India, and provide the India portion of CompuServe's global network. Through our partnership, we provide the ability for CompuServe customers traveling in India to connect to their corporate network and systems resources using the Internet. We offer Internet access through a local phone call in all locations in India serviced by our network points of presence. Our service allows Internet connectivity from India without incurring international telephone charges. For providing our network services, we receive a portion of the fees paid by CompuServe's customers to CompuServe when using its service in India. Business-to-Business Commerce Solutions. We deliver complete electronic data interchange, or EDI, and business-to-business electronic commerce solutions to our corporate customers through our relationships with key vendors of Internet-related hardware, software and services. Our EDI solutions provide supply chain integration and help coordinate the manufacturing and distribution process for our corporate customers. Our electronic commerce solutions enable business-to-business electronic commerce over our network or the Internet. We have an exclusive agreement with Sterling Commerce to provide their EDI and electronic commerce software and systems in India. These products include: . The CONNECT product line that provides the software infrastructure for moving and managing information inside and outside the enterprise; . The COMMERCE product line that provides value-added services to help customers build, manage, and service global commerce business communities; . The GENTRAN product line that provides software for the integration of business processes and the automation of business transactions; and . EC Managed Services which offer businesses a full range of electronic commerce outsourcing services and consulting solutions. Web-based Solutions. We provide comprehensive website design, development, implementation and hosting services. Since April 1998, we have developed over 600 websites which we believe makes us one of the largest website developers in India. Our customers' websites range from basic informational sites to complex interactive sites featuring sophisticated graphics, animation, sound and other multimedia content. Our interactive development capabilities utilize tools such as Hypertext Markup Language, or HTML, Virtual Reality Markup Language, or VRML, computer animation, composting and motion capture. We have a dedicated team of design and development personnel who are available for large-scale web development projects. We have a long-term exclusive agreement with Open Market to provide their electronic commerce products and services in India. These products include: . web-based Internet catalogs with database capabilities of various sizes; 50 . Internet publishing software; . a transaction engine that enables an organization to conduct commerce over the Internet; and . a payment gateway to facilitate commerce services to other service providers or merchants. We also offer web hosting accounts for companies and other organizations that wish to create their own websites without maintaining their own web servers and Internet connections. Our web hosting services feature state-of- the-art web servers for high speed and reliability, high capacity connections to the Internet and specialized customer support and security features. We also offer co-location services for customers who prefer to own their servers, but require the high performance and reliability of our Internet data center. Co- location customers are typically larger enterprises employing more sophisticated Internet hardware and software and having the expertise to maintain their websites and related equipment. On-line Portal and Content Offerings We operate an on-line portal, satyamonline.com, and five related on-line content sites tailored to needs of Indian interests worldwide. Our portal site is designed to be the initial launch screen for all of our Satyam Online customers, but can also be accessed by Internet users worldwide. We seek to establish satyamonline.com as a leading Indian Internet portal. As a portal, we provide a gateway to the Internet by offering information services, directory tools, e-mail, contests, Internet chat and electronic commerce activities such as online shopping and classified ads. We also allow the user to personalize the satyamonline.com start page to include links to the user's most frequently used features on the Internet, including particular search engines, free mail providers and favorite content sites. Our customization features encourage users to make satyamonline.com their first stop on the Internet and allow us to provide special privileges and benefits to our Internet service provider subscribers compared to users who access satyamonline.com through another service provider. Our objective is to attract as many users as possible to generate revenues from advertising, sponsorship fees and electronic commerce transaction commissions. In addition to satyamonline.com, our India-specific content sites include:
Feature Website Description ----------------- ----------------- ------------------------------------------ News and Features indiaupdate.com Real-time news site with domestic and international news, weather and entertainment. Car and Auto carstreet.com Comparison shopping site for automobiles. Indian Movies indiatalkies.com Indian movie channel featuring movie reviews, archives, interviews, chats and local movie listings. Carnatic Music carnaticmusic.com Indian classical music site where users may chat with artists, hear CD music clips and buy concert tickets on-line. This site also contains a link to an on-line music store. Personal Finance walletwatch.com Personal finance site featuring stock quotes, portfolio manager, links to brokerage firms and editorial content.
Today, there are probably more non-resident Indians, than Indians residing domestically, with access to the Internet. As a result, many content sites, including satyamonline.com, have more users located outside of India than within. However, we believe that the market for content and services within India will develop rapidly. As a result, this market is the primary focus of our attention, and the market of non-resident Indians is secondary. Current Indian residents present a market that advertisers and merchants desire to reach. To expand usage of our services domestically, we believe that we must provide more services of daily value, such as the ability to buy groceries or movie tickets on-line or to check an up-to-date movie review before buying a ticket. New features that we expect to deploy in 1999 include a drugstore, travel services featuring hotel and transportation reservation and ticketing, and an auction service. 51 Strategic Partnerships We maintain a number of strategic relationships with key vendors of Internet-related hardware, software and services. Several of these relationships are exclusive to us in India, subject in some cases to minimum sales thresholds. These relationships result in two significant benefits. First, they provide us with the ability to offer valuable products and services exclusively to our customers in India. In addition, these relationships help us market our services by providing us with access to our partners' customer bases. Our network and related services are focused on meeting the needs of corporate customers, particularly in manufacturing and service organizations, which have a need to coordinate their activities with satellite operations such as dealers, distributors, agents and suppliers. Our key partners are as follows: CompuServe Network Services. CompuServe Network Services, a unit of MCI Worldcom, is a world-wide provider of data services. We are the exclusive network partner to CompuServe Network Services in India, acting as the access gateway to its global network from India. CompuServe's network business operates, manages and maintains a global value-added enhanced data network. In April 1997, we entered into a three-year agreement with CompuServe pursuant to which each party provides dial-up access services that are sent to the other party via an international network connection. Each party surcharges its customers for traffic originated on the other party's network, bills and collects the amount of such surcharge and remits a portion thereof to the other party. The cost of the leased line connection between our network and CompuServe's network is shared between the parties, and each party's proprietary rights remain the sole and exclusive property of that party. Our agreement with CompuServe automatically renews at the end of the initial term and each subsequent term for a period of one year provided there is no default and the parties have satisfied their respective monetary obligations, subject to each party's right to elect not to renew the agreement by providing written notice to the other party at least six months prior to the end of the initial or any succeeding term. Sterling Commerce. Sterling Commerce is a leader in the market for business-to-business electronic commerce software, including communications software, electronic data interchange, or EDI, software and banking systems software. In February 1997, we entered into a five-year agreement with Sterling Commerce pursuant to which Sterling Commerce granted to us the exclusive right in India, subject to minimum sales thresholds, to market, provide, sublicense, install, facilitate, maintain and support the electronic commerce network services, support services and other products developed by Sterling Commerce. We pay to Sterling Commerce an annual maintenance fee and a percentage of invoiced charges for Sterling Commerce's products purchased by our customers. We also paid a license fee to Sterling Commerce in 1997. The license permits us to use specified proprietary information, as well as trademarks, service marks and tradenames, of Sterling Commerce in connection with advertising, promoting and marketing Sterling Commerce's products in India. Our agreement with Sterling Commerce terminates in 2002 provided that the parties may agree to renew the term within 30 days of the end of the term, subject to Sterling Commerce's right to terminate the agreement if we fail to meet any annual sales threshold. As of June 30, 1999, we had met all sales thresholds under our agreement with Sterling Commerce. Open Market. Open Market is a leading platform provider for Internet commerce worldwide. In June 1997, we entered into a two-year distribution agreement with Open Market pursuant to which Open Market made us its exclusive distributor in India of some of its Internet commerce software products, provided we continue to meet minimum sales thresholds. We purchase copies of software from Open Market which we resell to our customers. Open Market pays us a referral fee for software sold to our customers which is not covered by the agreement. Open Market has granted us a license to use specified proprietary information and trademarks in connection with our marketing of Open Market software. Our agreement with Open Market automatically renewed on an exclusive basis at the end of the initial term through September 2000 and will automatically renew at the end of each subsequent term provided we continue to meet minimum sales thresholds, subject to each party's right to elect not to renew by providing written notice to the other party. Any such additional extension may be on an exclusive or non-exclusive basis depending on whether we continue to meet minimum sales thresholds. Open Market may terminate the agreement if we fail to meet the minimum sales thresholds. 52 Customer Service and Technical Support We believe that excellent customer support is critical to our success in attracting and retaining subscribers. We currently provide customer service and technical support via a local telephone call in all 25 cities in which we have points of presence. Subscribers can also e-mail their questions directly to a customer service and technical support address at our company. Our customer service and technical support staff handles all questions regarding a subscriber's account and the provision of our services and is available 24-hours-a-day, seven-days-a-week. As of June 30, 1999, we had approximately 174 customer service and technical support employees. Corporate Customers We have established a diversified base of corporate customers in a variety of data intensive industries, including financial services, publishing, retail, shipping and manufacturing. As of June 30, 1999, our corporate customer base had grown to over 300 customers. Our largest corporate customers based on revenue for the fiscal quarter ended June 30, 1999 include American Express Bank, Carborandum Universal Limited, CDC Advisors Limited, Citibank, Compaq, Computer Associates, Dupont, ESPN Software India Limited, GE Capital Services, Henkel, Johnson & Johnson, Hutchison Corporate Access, Levi Strauss, Maruti Suzuki, Philips India, Standard Chartered Bank, Tata British Petroleum, Tata McGraw Hill, Toyota Kirloskar and Whirlpool India. The customers listed above accounted for approximately 47% of our revenues in the fiscal quarter ended June 30, 1999. Sales and Marketing Consumer Offerings. A key element of our business strategy is to increase our brand awareness and market penetration among consumers through a number of means including: . an expanded advertising campaign focused primarily on print advertising combined with a modest amount of television and radio advertising; . direct mail; and . free software to consumers who become subscribers. In addition, we intend to establish cybercafes under the Satyam Online brand name, and to enter into relationships with independent cybercafes to co-brand our websites with their businesses, in order to expand access to our portal and websites by consumers who do not own a personal computer or have Internet access at home. We are also developing programs with Indian schools and universities to provide Internet access to Satyam Online websites. For example, we recently announced a collaboration with Indira Gandhi National Open University to make trial Internet access available to 70,000 students of the School of Information and Computer Science. Under this program, participating students pay a reduced rate for 20 hours of Internet access during off-peak hours. As of June 30 and August 31, 1999, students under this program constituted approximately 5,000 of our subscribers. To increase Internet access and use of our websites by personal computer buyers, we have entered into arrangements with personal computer manufacturers and vendors, including Compaq and Hewlett-Packard, to have our Internet access software bundled with their computers. Corporate Offerings. The principal focus of our sales and marketing staff is existing and potential corporate customers. We seek to penetrate this market through trade publication ads, industry trade shows and seminars for the benefit of industry associations and potential customers. As of June 30, 1999, we had 411 employees, 178 of whom were dedicated to sales and marketing. We intend to hire approximately 250 new employees over the next year, most of whom will be hired into our sales, marketing and customer support teams. Each new point of presence which becomes operational will be staffed with between two and five sales and support personnel to call on potential corporate customers and service our existing customers. 53 Technology and Network Infrastructure We currently operate India's largest national Internet protocol private data network with points of presence in 25 cities. We own and operate our network facilities and customer service operations which gives us greater control over the utilization and quality of our network. We have designed and built our network using advanced technologies and equipment which allows us to continue to expand the geographic range of our network, integrate improved data processing technologies and enhance speed and capacity with little or no disruption to our customers. Geographic Coverage. Through our national network of points of presence, our consumer and business Internet access customers are able to access the Internet in 25 of the largest markets in India via a local phone call. A point of presence is commonly defined as the ability to access on-line services in a market through a local telephone call or local leased lines. As of June 30, 1999, we had backbone points of presence in Ahmedabad, Bangalore, Bombay (Mumbai), Calcutta, Cochin, Coimbatore, Delhi, Hyderbad, Ludhiana, Madras (Chennai) and Pune. These backbone points of presence, also called primary nodes, reside at the core of a larger Internet protocol network with a meshed topology architecture. We also have additional points of presence, or secondary nodes, in Baroda, Belgaum, Bhopal, Davengere, Goa, Hubli, Indore, Jaipur, Jamshedpur, Lucknow, Mangalore, Nagpur and Pondicherry. Each point of presence contains data communications equipment housed in a secure facility owned or leased by our company located near a Department of Telecommunications or Mahanagar Telephone Nigam Limited telephone switching station. Each point of presence contains a modem bank which receives and aggregates incoming calls from customers who access our system by modem connection through a local call on the public telephone system. Our larger corporate customers access the point of presence directly through leased lines. We plan to have points of presence in 40 cities by April 2000. Network Architecture. We ensure network reliability through several methods and have invested in proven technologies. We use Cisco routers to route traffic between nodes and an IGX WAN switch to terminate traffic. The routers and WAN switches are interconnected using a high speed interface. Our applications and network verification servers are manufactured by Hewlett- Packard. The primary nodes on the backbone network are connected by up to 2 Mbps high speed fiber optic lines that we lease from the Department of Telecommunications. The secondary nodes are connected by multiple 64 Kbps leased fiber optic lines. Each node is accessible from at least two other nodes, allowing us to reroute traffic. We minimize the possibility that system failures do not interrupt service by automatically activating an ISDN dial-up on the backbone network in the event any segment goes down. We reduce our exposure to failures on the local loop by usually locating our points of presence within one segment of the central telephone exchange. To further assure our network integrity, we are installing fiber optic connections directly from each of our primary nodes to the central exchange. We connect to the international Internet through international gateways in Bangalore, Calcutta, Delhi, Bombay (Mumbai), Hyderabad and Madras (Chennai). We currently use international gateways operated by VSNL, the government- controlled provider of international telecommunications services in India. We intend to use a portion of the net proceeds from this offering to establish our own international gateways to the Internet, either by purchasing or leasing satellite earth stations or by leasing or purchasing capacity on transoceanic fiber optic cables. In addition to a fundamental emphasis on reliability, our network design philosophy has focused on compatibility, interoperability and scalability. At each level of data transmission, our network is fully compliant with ISO standards. We use ethernet and Internet protocols to transmit data, thus ensuring that our network is completely interoperable with other networks and systems and that we may port any application onto our network. The modular design of our network is fully scalable, allowing us to expand without changing the network design or architecture, thus ensuring little or no service disruption. Finally, we recently deployed Cisco ATM switches on six points of presence along our network. These ATM switches allow us to allocate our existing capacity more efficiently by offering frame relay and dedicated bandwidth. 54 Network Operations Center. We maintain a network operation center located in Madras (Chennai) and a back-up data facility in Bombay (Mumbai). This facility houses our central network servers as well as our network staff which monitors network traffic, service quality and equipment at all our points of presence to ensure a reliable Internet service. Our network operations center is staffed 24-hours-a-day, seven-days-a-week. We have backup power generators and software and hardware systems designed to prevent network downtime in the event of system failures. In the future, we may add additional facilities to supplement or add redundancy to our current network monitoring capability. Competition General. We face competition in each of our markets and expect that this competition will intensify as the market in India for Internet service provider services, on-line content and corporate network services and technology products develops and expands. We compete primarily on the basis of service, reliability and customer support. Price and ease of use are also competitive factors. Internet Access Services. Our principal competitor is VSNL, the government-controlled telecom provider. VSNL currently has significantly more subscribers than we do because private companies, such as our company, were not permitted to enter the Internet service provider market until November 1998. As of June 30, 1999, 128 private parties, other than our company, have been granted licenses to operate Internet service providers, 21 of which permit operation on a national basis in the same manner that we are allowed under our license. While no other parties had launched a private national Internet service provider service as of June 30, 1999, we expect competitors to emerge. Further, we believe that it is inevitable that the large, foreign providers of Internet service provider services will eventually attempt to enter the Indian market through local joint ventures or other means. Indian law currently limits foreign ownership of an Internet service provider to 49%. In addition, we could face competition from companies that develop new and innovative techniques to access the Internet. Although growing rapidly, International Data Corporation estimates that India had an installed base of only approximately 1.9 million personal computers in 1998. Technology which permits a connection to the Internet through alternative, less capital intensive means is likely to be attractive to Indian consumers. A number of companies, including several collaborating with our company, are planning alternative Internet access devices, such as set-top boxes for televisions, to create demand for Internet services in excess of that which could be supported by the installed base of personal computers. The provider who develops this technology is likely to have a significant advantage in the marketplace. On-line Portal. There are several other companies in India that have developed websites, including indiaworld.com, rediff.com and others, designed to act as Internet portals. These sites currently have greater traffic than our site and offer some features that we do not. Further, the dominant Internet portals continue to be the on-line services and search engine companies based in the United States, such as America Online, Microsoft Network, Yahoo!, Excite@Home, Infoseek and Lycos. These companies have been developing specially branded or co-branded products designed for audiences in specific markets. Although none of these companies has developed a product designed for India yet, we believe one or more of them is likely to do so, creating a new source of competition. Corporate Network and Technology Services. Our competitors for many private network services include government services, companies that have built and operate their own private data networks, satellite communications agencies such as Hughes, Comsat, HCL Comnet and Bharti BT, and terrestrial network providers such as Sprint RPG (a joint venture between Sprint and RPG Group), Wipro Communications Services and Global Electronic Commerce Services. Many of our existing or potential competitors enjoy substantial competitive advantages compared to our company, including: . the ability to offer a wider array of services; 55 . larger production and technical staffs; . greater name recognition and larger marketing budgets and resources; . larger subscriber bases; and . substantially greater financial, technical and other resources. To be competitive, we must respond promptly and effectively to the challenges of technological change, evolving standards and our competitors' innovations by continuing to enhance our products and services, as well as our sales and marketing channels. Increased competition could result in loss of market share, reduced prices or reduced margins, any of which could adversely affect our business. Competition is likely to increase significantly as new companies enter the market and current competitors expand their services. Intellectual Property Our intellectual property rights are important to our business. We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our intellectual property. We require employees, independent contractors and, when possible, suppliers to enter into confidentiality agreements upon the commencement of their relationships with our company. These agreements generally provide that confidential information developed or made known during the course of a relationship with our company be kept confidential. Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. In addition, the laws of India do not protect proprietary rights to the same extent as laws in the United States, and the global nature of the Internet makes it difficult to control the ultimate destination of our products and services. For example, Indian statutory law does not protect service marks. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly. We could be subject to intellectual property infringement claims as the number of our competitors grows and the content and functionality of our website or other product or service offerings overlap with competitive offerings. Defending against these claims, even if not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and be forced to develop non-infringing technology, obtain a license or cease selling the applications that contain the infringing technology. We may be unable to develop non- infringing technology or obtain a license on commercially reasonable terms, or at all. We also rely on a variety of technologies that are licensed from third parties, including CompuServe, Sterling Commerce and Open Market. The software developed by these and other companies is used in the satyamonline.com website to perform key functions. These third-party licenses may not be available to us on commercially reasonable terms in the future. The loss of any of these licenses could delay the introduction of software enhancements, interactive tools and other features until equivalent technology could be licensed or developed. Any such delays could materially adversely affect our business, results of operations and financial condition. The trademark "Satyam" is owned by Satyam Computer Services, our parent company, and licensed to our company for so long as Satyam Computer Services continues to own at least 51% of our company. Upon the occurrence of a change of control in our company, however, Satyam Computer Services may terminate our license to use the "Satyam" trademark on two years prior written notice. We have filed trademark applications for "Satyam Online," "Satyam:Net" and "satyamonline.com" in India. These applications are currently pending, and we plan to file applications for these marks in the United States. 56 Government Regulation Our business is subject to comprehensive regulation by the Ministry of Communications through the Telecom Commission and the Department of Telecommunications pursuant to the provisions of the Indian Telegraph Act of 1885, or Telegraph Act, the India Wireless Telegraphy Act, 1933, or Wireless Act, and the terms of the Internet service provider license agreement we entered into with the Department of Telecommunications under which we operate. Pursuant to the Telegraph Act, the provision of any telecommunications services in India requires a license from the government of India, obtained through the Department of Telecommunications. While the Telegraph Act sets the legal framework for regulation of the telecommunications sector and the Wireless Act regulates the possession of wireless telegraphy equipment, much of the supervision and regulation of our company is implemented more informally through the general administrative powers of the Department of Telecommunications, including those reserved to the Department of Telecommunications and other governmental agencies under our license. In March 1997, the government of India established the Telecom Regulatory Authority, an independent regulatory authority under the provisions of the Telecom Regulatory Authority of India Act. The Telecom Regulatory Authority is an autonomous body consisting of a chairperson and at least two and not more than four members, and has primary responsibility for the following: . facilitating competition and promoting efficiency; . protecting the interests of consumers; . regulating revenue sharing among service providers; . ensuring compliance with license conditions; . setting and ensuring compliance with the time period applicable to service providers for providing local and long-distance telecommunications lines; . ensuring technical compatibility and effective interconnectivity among different service providers; . settling differences between service providers; . advising the government of India on matters relating to the development of the telecommunications industry; and . ensuring effective compliance with universal service obligations. The Telecom Regulatory Authority also has the authority to, from time to time, set the rates at which domestic and international telecommunications services are provided in India. The Telecom Regulatory Authority does not have authority to grant licenses to service providers or renew licenses, functions which remain with the Department of Telecommunications. The Telecom Regulatory Authority, however, has the following powers: . to call on service providers to furnish information relating to their operations; . to appoint persons to make official inquiries; . to inspect the books of service providers; and . to issue directives to service providers to ensure their proper functioning. Failure to follow Telecom Regulatory Authority directives may lead to the imposition of fines. Decisions of the Telecom Regulatory Authority may be appealed to High Courts in India. The authority of the Telecom Regulatory Authority has been the subject of recent litigation, particularly with respect to its role in introducing new telecommunications licensees and the scope of its authority to settle disputes regarding the grant by the Department of Telecommunications of 57 telecommunications licenses. The Delhi High Court has held that the authority of the Department of Telecommunications to issue or amend licenses is not subject to any prior recommendations of the Telecom Regulatory Authority, and that any such recommendations are not mandatory. In addition, the Delhi High Court determined that the Telecom Regulatory Authority does not have jurisdiction to decide disputes regarding the grant or amendment of a Department of Telecommunications license. The judgment is subject to the outcome of a pending appeal. The final outcome of this litigation will affect the sharing of regulatory authority as between the Department of Telecommunications and the Telecom Regulatory Authority. The government of India has formulated the New Telecom Policy, 1999, or NTP. The NTP was cleared by the Union Cabinet in March 1999 and contemplates a new regime for the telecom operators, a larger role for Telecom Regulatory Authority, a restructuring of the Department of Telecommunications and opening up of the market for long-distance calls. We began offering Internet access services on November 22, 1998, and we operate 25 Internet access nodes. In November 1998, the government of India opened the Internet service provider market to private competition, and the Department of Telecommunications instituted a mandatory license requirement for the provision of Internet services. We entered into a license agreement with the Department of Telecommunications on November 12, 1998 with effect on the same day, under which we were granted a license to provide national Internet services on a non-exclusive basis. The terms of our license are generally consistent with the policy for licensing Internet service providers. The term of our license is 15 years. Our license can be revoked by the Department of Telecommunications if we breach the terms and conditions of the license. The Department of Telecommunications retains the right to take over our network and to modify, revoke, terminate or suspend the terms and conditions of the license at any time if, in its opinion, it is necessary or expedient to do so in the interest of general public, or for the proper operation of the telecommunications sector or for security considerations. The Department of Telecommunications also retains the right to review the terms of our license based on changes in national telecommunications policy. We are not allowed to assign or transfer our rights under our license without the prior written consent of the Department of Telecommunications. The license provides that the total foreign equity in our company may not, at any time, exceed 49% of our total equity. Telephony on the Internet is not permitted in India, and the license requires us to take measures to ban carriage of telephone traffic over the Internet. Our license also requires us to ensure that objectionable, obscene and unauthorized content, or any other content, messages or communications infringing copyrights, intellectual property rights and domestic and international cyberlaws or which is inconsistent with the laws of India, is not carried on our network. Although under the terms of our license we are free to fix the prices we charge our subscribers, the Telecom Regulatory Authority may set prices for the provision of Internet access services generally. We are permitted to use encryption to safeguard information transmitted over our network. However, if we use a higher level of encryption than that specified by the government of India, our license requires us to deposit a set of keys with the government of India. License fees are waived through October 31, 2003, and a nominal license fee of Rs.1 per annum is payable from November 1, 2003. Our obligations under the license are secured by a performance bank guarantee in the amount of Rs.20.0 million ($0.5 million). We may be required to import into India computer hardware and Internet related software purchased from foreign manufacturers for business purposes. These imports will be subject to the Export and Import Policy as declared by the Ministry of Commerce. At the time of import, we will be required to pay a customs duty pursuant to the Customs Tariff Act, 1975. We will also be subject to the Foreign Exchange Regulation Act, 1973 in connection with payments in foreign currency to the manufacturers of these products. We will require the approval of the Reserve Bank of India prior to making these payments. We may wish to invest in the securities of foreign companies. The Foreign Exchange Regulation Act, 1973 requires that we obtain permission from the Reserve Bank of India prior to making any such investment. In addition, foreign investors may wish to invest in our securities. For information regarding restrictions on foreign investment in our company, please see "Restrictions on Foreign Ownership of Indian Securities" on page 80. 58 Employees As of June 30, 1999, we had 411 employees. We currently anticipate hiring an additional 250 employees, most of whom will be hired into our sales and marketing and technical support and customer care teams, over the next year. Of our current employees, 59 are administrative, 178 form our sales and marketing staffs and 174 are dedicated to technical support and customer care. None of our employees are represented by a union. We believe that our relationship with our employees is good. Facilities Our approximately 15,000 square foot corporate headquarters are located in Madras (Chennai), India. We also have additional facilities located in Ahmedabad, Bangalore, Baroda, Belgaum, Bhopal, Bombay (Mumbai), Calcutta, Cochin, Coimbatore, Davengere, Goa, Hubli, Hyderabad, Indore, Jaipur, Jamshedpur, Lucknow, Luhiana, Madras (Chennai), Mangalore, New Delhi, Nagpur, Pondicherry and Pune aggregating approximately 42,000 square feet. As we expand our operations, we anticipate leasing additional facilities in each city in which we develop a point of presence. We lease all of our current facilities under leases with terms ranging from 33 months to nine years. Legal Proceeding As of the date of this prospectus, we are not a party to any material legal proceedings. 59 MANAGEMENT The following table sets forth, as of June 30, 1999, the name, age and position of each director and executive officer of our company.
Name Age Position ---- --- -------- R. Ramaraj(1)(2) 49 Chief Executive Officer and Director A. Srinivasagopalan 44 Senior Vice President George A. Ajit 40 Vice President, Human Resources Vice President, Electronic Commerce Lalit Bhojwani 43 Business Padma Chandrasekaran 38 Vice President, On-line Services V.V. Kannan 40 Vice President, Internet Sales Pradeep Lakshmanan 50 Vice President, Internet Sales N. Shekhar 44 Vice President, Web Services Rahul Swarup 40 Vice President, Technology T.R. Santhanakrishnan 42 Chief Financial Officer T. Suresh Kumar 45 General Manager, Network Control Group K. Thiagarajan 33 General Manager, Finance B. Ramalinga Raju(1)(2) 43 Chairman of the Board of Directors Pranab Barua 46 Director T.H. Chowdary 67 Director Donald Peck(2) 47 Director C. Srinivasa Raju 38 Director S. Srinivasan(1) 65 Director
- -------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. R. Ramaraj has served as Chief Executive Officer of our company since April 1998. Mr. Ramaraj has served as a Director since August 1996, prior to which he served as an advisor to our company since June 1996. From 1992 to 1996, Mr. Ramaraj served as a Director of Sterling Cellular Limited, a mobile telephone company based in India. Mr. Ramaraj is a Director of Universal Print Systems Ltd., a publicly held printing company based in India. Mr. Ramaraj received a B.Tech from Madras University and a P.G.D.M. from IIM Calcutta. A. Srinivasagopalan has served as Senior Vice President of our company since February 1996. From 1993 to 1995, Mr. Srinivasagopalan held various management positions with Abu Dhabi National Oil Co., an oil company based in the Middle East. Mr. Srinivasagopalan received a B.E. from Madras University and a P.G.D.M. from IIM Ahmedabad. George A. Ajit has served as Vice President, Human Resources of our company since May 1999. From 1998 to 1999, Mr. Ajit was Vice President, Human Resources of Mobil India, an oil company. From 1996 to 1998, Mr. Ajit was General Manager, Human Resources, of Mahindra Holidays and Resorts. From 1994 to 1996, Mr. Ajit was Deputy General Manager, BioProducts Division of E.I.D. Parry, a manufacturing company. Lalit Bhojwani has served as Vice President, Electronic Commerce Business of our company since July 1999. From 1997 to 1999, Mr. Bhojwani was Vice President of Sales of DSS Mobile Communications Limited, a telecommunications company. Mr. Bhojwani received a B.E. degree from Mumbai University and a P.G.D.B.M. from IIM, Ahmedabad. Padma Chandrasekaran has served as Vice President, On-line Services of our company since March 1996. From 1995 to 1996, Ms. Chandrasekaran was General Manager, Business Development of ELNET 60 Technologies, a messaging company based in India. From 1993 to 1994, she was Group Business Manager of ICIM, Mumbai, a computer hardware company based in India. Ms. Chandrasekaran received a B.Sc. in Statistics from Calcutta University, a P.G.D.M. from IIM Ahmedabad and an MBA in Telecommunications Management from the University of San Francisco. V.V. Kannan has served as Vice President, Internet Sales of our company since July 1999. From 1996 to 1999, Mr. Kannan was Vice President, Marketing of G.M. Pens International Limited, a manufacturing company. From 1995 to 1996, he was Vice President, Retail Sales of Real Value Marketing Sales Limited, and from 1992 to 1995, he was Marketing Manager of ITC Agri Business Division, a manufacturing company. Mr. Kannan received a B.E. from Madras University and a P.G.D.M. from IIM Calcutta. Pradeep Lakshmanan has served as Vice President, Internet Access of our company since September 1998. From 1997 to 1998, Mr. Lakshmanan was Associate Vice President of Amco Batteries Ltd., a battery manufacturing company based in India. From 1991 to 1997, Mr. Lakshmanan was General Manager of Berger Paints Limited, an international paint manufacturing company based in India. Mr. Lakshmanan received B.Sc. in Chemical Engineering from Trichur Engineering College. N. Shekhar has served as Vice President, Web Services of our company since July 1999. From 1995 to 1999, Mr. Shekhar was Chief Executive Officer of SSA India Private Limited, a global enterprise resource planning company. Mr. Shekhar received a B.E. from Bangalore University, an M.S. from the University of Texas and an M.B.A. from San Jose State University. Rahul Swarup has served as Vice President, Technology of our company since September 1999. From 1989 to 1999, Mr. Swarup was Vice President of Citicorp Global Technology Infrastructure. Mr. Swarup received a B.E. in Electrical Engineering from Indian Institute of Technology, Kanpur. T.R. Santhanakrishnan has served as Chief Financial Officer of our company since September 1999. From 1997 to 1999, Mr. Santhanakrishnan was Executive Vice President, Finance of Sanmar Engineering Corporation. From 1990 to 1997, he served in a senior financial position for Royal Dutch/Shell Oil Company. Mr. Santhankrishnan received a degree in Commerce from the University of Madras and is a member of the Institute of Chartered Accountants of India and the Institute of Cost and Works Accountants of India. T. Suresh Kumar has served as General Manager, Network Control Group of our company since March 1999. From 1996 to 1999, Mr. Kumar was Corporate Manager, Information Services of Compaq Computer Technologies, India Ltd., a technology company. From 1994 to 1996, he was Senior Manager of W.S. Telesystems Ltd., a manufacturing company. Mr. Kumar received a B.E. degree from Madras University. K. Thiagarajan has served as General Manager, Finance of our company since October 1997. From 1990 to 1997, Mr. Thiagarajan was Chief Financial Officer of Coromandel Garments Limited, an export garment manufacturing company owned by the House of Tata. Mr. Thiagarajan received a B.Com from Loyola College of Madras and is a member of the Institute of Chartered Accountants of India and the Institute of Cost and Works Accountants of India. B. Ramalinga Raju is a co-founder of our company and has served as a Director since 1995. Mr. B. Ramalinga Raju has served as the Chairman of the Board of Directors since January 1996. Mr. B. Ramalinga Raju was the Chief Executive Officer of Samrat Spinners Limited, a spinning mill, until 1995. Mr. B. Ramalinga Raju is the Chief Executive Officer of Satyam Computer Services and is a Director of Satyam Computer Services, Satyam Renaissance Consulting Limited, Satyam Spark Solutions Limited, Gouthami Power Limited, Samrat Spinners Limited and Maytas Infra Limited. Mr. B. Ramalinga Raju received an M.B.A. in Business Management from Ohio State University. 61 Pranab Barua has served as a Director of Satyam Infoway since April 1999. Mr. Barua has been Chief Executive Officer of Reckitt & Coleman of India Ltd., a toiletries manufacturing company, and Regional Director of Reckitt & Coleman, South Asia since July 1998. Prior to that, Mr. Barua served in various management positions at Brooke Bond India Ltd. T.H. Chowdary has served as a Director of our company since February 1996. Mr. Chowdary is a Director of Renaissance Technologies Limited, a software company based in India. Mr. Chowdary retired as the Chief Executive Officer of VSNL, the government-controlled provider of international telecommunications services in India, in 1987. Donald Peck has served as a Director of Satyam Infoway since March 1999. Mr. Peck has been with Commonwealth Development Corporation, a UK-based institution investing in developing markets, since 1991. He has been based in India since 1995, initially as head of International Venture Capital Management, or IVCM, and since April 1998 as Chief Executive Officer of CDC Advisors Private Limited, a Commonwealth Development Corporation subsidiary providing advisory services to IVCM. Mr. Peck received a PhD in Latin American Economic History from Oxford University. C. Srinivasa Raju has served as a Director of our company since February 1996. From 1994 to 1995, Mr. C. Srinivasa Raju was Chief Executive Officer of Dun & Bradstreet Satyam Software Limited, a software services company based in India. Mr. C. Srinivasa Raju is a Director of Satyam Computer Services, Satyam Renaissance Consulting Limited and Satyam Enterprise Solutions Limited. Mr. C. Srinivasa Raju received an M.S. from Utah State University. S. Srinivasan has served as a Director of our company since February 1996. From 1989 to 1995, Mr. Srinivasan was Chief Executive Officer of AT&T India Limited. Mr. Srinivasan received a BE in Engineering and a PG in Management from Madras University. Board Composition Our Articles of Association set the minimum number of directors at two and the maximum number of directors at 12. We currently have seven directors. The Companies Act and our Articles of Association require the following: . at least two-thirds of our directors shall be subject to re-election by our shareholders; and . at least one-third of our directors who are subject to re-election shall be up for re-election at each annual meeting of our shareholders. Our Articles of Association provide that B. Ramalinga Raju shall be a permanent director not subject to re-election. Our Articles of Association also provide that South Asia Regional Fund, or SARF, is entitled to nominate one director as long as it continues to own at least 7.5% of the issued ordinary share capital of our company. B. Ramalinga Raju and C. Srinivasa Raju are brothers-in-law. There are no other family relationships between any of the directors or executive officers of our company. On February 5, 1999, we entered into a Share Subscription and Shareholders' Agreement, or Shareholders' Agreement, with Satyam Computer Services, South Asia Regional Fund, or SARF, and Mr. B. Ramalinga Raju, the Chairman of our Board of Directors, which was subsequently amended effective September 14, 1999. The Shareholders' Agreement provides, among other things, that: . so long as SARF owns at least 5.0% of our issued ordinary share capital, it is entitled to nominate one director to our Board of Directors; . so long as Satyam Computer Services owns at least 50.1% of our issued ordinary share capital, it is entitled to nominate four directors to our Board of Directors; and . a quorum for a meeting of our Board of Directors shall be no less than three directors. 62 SARF's current nominee to our Board of Directors is Mr. Peck. Satyam Computer Services' current nominees to our Board of Directors are Messrs. Ramaraj, B. Ramalinga Raju, T.H. Chowdary and C. Srinivasa Raju. Board Committees The Audit Committee of the Board of Directors reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the recommendation of our independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, the performance of our independent auditors and our accounting practices. The members of the Audit Committee are Messrs. B. Ramalinga Raju, Ramaraj and Peck. The Compensation Committee of the Board of Directors determines the salaries, benefits and stock option grants for our employees, consultants, directors and other individuals compensated by our company. The Compensation Committee also administers our compensation plans. The members of the Compensation Committee are Messrs. B. Ramalinga Raju, Ramaraj and Srinivasan. Director Compensation Our Articles of Association provide that each of our directors receives a sitting fee not exceeding Rs.200 for every Board and Committee meeting. In fiscal 1999, we did not pay any fees to our non-employee directors. Mr. Ramaraj, who is employed by Satyam Infoway as our Chief Executive Officer, does not receive any additional compensation for his service on our Board of Directors. Directors are reimbursed for travel and out-of-pocket expenses in connection with their attendance at Board and Committee meetings. Employment, Severance And Other Agreements On May 18, 1998, our Board of Directors appointed Mr. Ramaraj as Chief Executive Officer of Satyam Infoway for a term of five years effective April 1, 1998. Mr. Ramaraj's appointment as Chief Executive Officer was approved by our shareholders as required under the Companies Act on July 3, 1998. Pursuant to the terms of his appointment, Mr. Ramaraj receives a monthly salary of Rs.83,250 ($1,916). Mr. Ramaraj also receives medical, vacation and other benefits, including membership fees for up to two clubs. Executive Compensation The following table sets forth all compensation awarded to, earned by or paid to R. Ramaraj, our Chief Executive Officer, during the fiscal year ended March 31, 1999 for services rendered in all capacities to us during the fiscal year ended March 31, 1999. Mr. Ramaraj was appointed Chief Executive Officer of our company in April 1998. None of our other executive officers earned a combined salary and bonus in excess of $100,000 during any of the last three fiscal years. In accordance with the rules of the SEC, other compensation in the form of perquisites and other personal benefits has been omitted because the aggregate amount of such perquisites and personal benefits constituted less than the lesser of $50,000 or 10% of the total of annual salary and bonuses in fiscal 1999. The amounts in the following table are in dollars based on the noon buying rate of Rs.43.45 per dollar on June 30, 1999. The total remuneration received by our officers and directors for their services to us for the fiscal year ended March 31, 1999 was approximately $105,700.
Long-Term Compensation Annual Compensation Awards ------------------- ----------------- Shares Underlying Name and Principal Position Salary Bonus Options - --------------------------- ------------------------------------- R. Ramaraj, Chief Executive Officer $ 22,992 -- --
63 Option Grants In Last Year There were no option grants to our Chief Executive Officer during the fiscal year ended March 31, 1999. Of the 147,000 options granted to employees on September 28, 1999, 7,500 options with an exercise price of Rs.350 per equity share were granted to Mr. Ramaraj. Fiscal Year-End Option Values Our Chief Executive Officer did not exercise or hold any options during the fiscal year ended March 31, 1999. Employee Benefit Plans We have an Associates Stock Option Plan, or ASOP, which provides for the grant of options to employees of our company. The ASOP was approved by our Board of Directors and our shareholders in March 1999. A total of 825,000 equity shares were reserved for issuance under the ASOP. As of June 30, 1999, we had granted an aggregate of 5,000 options under the ASOP at an exercise price equal to Rs.70 per share. On September 28, 1999, we granted options to acquire an additional 147,000 equity shares at a weighted exercise price equal to Rs.335 per share. The ASOP is administered by the Compensation Committee of our Board of Directors. Pursuant to the provisions of the ASOP, the Satyam Infoway Associates Trust, or Trust, is allotted options to purchase our equity shares pursuant to resolutions passed at our general meetings. The Trust holds these options for and on behalf of our employees. The Compensation Committee makes recommendations to the Trust regarding employees who should be considered for option grants. On the recommendation of the Compensation Committee, the Trust will advise our company to transfer the options to identified employees, with the right to convert the issued options into our equity shares at the rates indicated in the options. The consideration for transfer of the options will be Rs.1 per option to be paid by the employee before transfer of the options. An employee holding options may apply for conversion of the options on a date specified therein which is referred to as the conversion date. The options are not transferable by an employee on or before the conversion date, except to the Trust should the employee cease to be an employee by reason of resignation, dismissal or termination of employment due to reasons of non-performance or otherwise. On exercise of the option, the employee submits a letter of conversion to the Trust for allotment of our equity shares in his or her name. The Trust collects the consideration for conversion arrived at as a product of number of options converted and the conversion price as reduced by the price of the options paid by the employee for the number of options converted by the employee. The equity shares transferred to the employee after conversion from options is the absolute property of the employee and will be held by the employee. 64 PRINCIPAL SHAREHOLDERS The following table sets forth information with respect to the beneficial ownership of our equity shares as of June 30, 1999, and as adjusted to reflect the sale of the ADSs offered hereby, by (1) each person or group of affiliated persons who is known by us to beneficially own 5% or more of the equity shares, (2) each director and our Chief Executive Officer and (3) all directors and executive officers as a group. The table gives effect to equity shares issuable within 60 days of June 30, 1999 upon the exercise of all options and other rights beneficially owned by the indicated shareholders on that date and thereby gives effect to the exercise by Satyam Computer Services and South Asia Regional Fund of warrants to acquire 750,000 equity shares in the aggregate. The table also gives effect to the purchase by Sterling Commerce in September 1999 of 481,000 equity shares in a private placement. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to equity shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all equity shares beneficially owned. Mr. B. Ramalinga Raju is the Chief Executive Officer, Chairman of the Board of Directors and a shareholder of Satyam Computer Services. CDC Advisors Limited, an institutional investor with which Mr. Donald Peck, a director of our company, is affiliated, exercises voting control and dispositive power over the equity shares owned by South Asia Regional Fund.
Equity Shares Equity Shares Beneficially Owned Beneficially Owned Prior To This After This Offering Offering ------------------ ------------------ Beneficial Owner Number Percent Number Percent - ---------------- ---------- ------- ---------- ------- Satyam Computer Services Limited........ 12,529,800 73.8% 12,529,800 59.2% Mayfair Centre, S P Road Secunderabad 500 003 India South Asia Regional Fund................ 3,600,000 21.2 3,600,000 17.0 Les Cascades Building Edith Cavell Street Port Louis Mauritius R. Ramaraj.............................. 370,000 2.2 370,000 1.7 B. Ramalinga Raju....................... 100 * 100 * Pranab Barua............................ -- -- -- -- T. H. Chowdary.......................... -- -- -- -- Donald Peck............................. -- -- -- -- C. Srinivasa Raju....................... -- -- -- -- S. Srinivasan........................... -- -- -- -- All directors and executive officers as a group (18 persons)........................... 370,100 2.2 370,100 1.7
- -------- * Less than 1% of total. 65 CERTAIN TRANSACTIONS Satyam Computer Services is our parent company. In fiscal 1999 and the quarter ended June 30, 1999, we sold an aggregate of Rs.0.4 million (less than $0.1 million) and Rs.9.1 million ($0.2 million), respectively, in services to Satyam Computer Services and its affiliates. In fiscal 1998 and 1999 and the quarter ended June 30, 1999, we purchased an aggregate of Rs.1.4 million, Rs.3.0 million and Rs.1.2 million (less than $0.1 million), respectively, in software and services from Satyam Computer Services and its affiliates. In addition, we paid an aggregate of Rs.0.8 million in training and consulting fees to Satyam Computer Services in fiscal 1998. We believe that the foregoing transactions with Satyam Computer Services and its affiliates were on terms no less favorable to our company than could have been obtained from independent third parties. Since fiscal 1997, Satyam Computer Services had made advances of working capital to us. The aggregate of all advances we received from Satyam Computer Services in fiscal 1997, 1998 and 1999 were Rs.5.3 million, Rs.5.6 million and Rs.1.3 million (less than $0.1 million), respectively. As of the end of fiscal 1998 and 1999 and the quarter ended June 30, 1999, our balances payable to Satyam Computer Services were Rs.1.5 million, Rs.4.0 million (less than $0.1 million) and Rs.5.5 million ($0.1 million), respectively. In fiscal 1998, we repaid an aggregate of Rs.7.6 million through the issuance to Satyam Computer Services of an aggregate of 756,569 equity shares. In fiscal 1999, we repaid an aggregate of Rs.1.1 million through the issuance to Satyam Computer Services of an aggregate of 108,390 equity shares. As of the end of fiscal 1999 and the quarter ended June 30, 1999, we had a balance of Rs.0.2 million (less than $0.1 million) and Rs.0.2 million (less than $0.1 million), respectively, in receivables from affiliates of Satyam Computer Services. In fiscal 1998, we placed short-term deposits with Satyam Computer Services at a rate of 18% per annum for periods ranging from three to six months. On February 5, 1999, we entered into a Share Subscription and Shareholders' Agreement, or Shareholders' Agreement, with Satyam Computer Services, South Asia Regional Fund, or SARF, and Mr. B. Ramalinga Raju, the Chairman of our Board of Directors, which was subsequently amended effective September 14, 1999. Pursuant to the Shareholders' Agreement, Satyam Computer Services and SARF purchased 750,000 and 3,000,000, respectively, of our equity shares at a price equal to Rs.70 per equity share. Pursuant to the terms of the Shareholders' Agreement, we are required to use the proceeds from this sale of our equity shares to set up a value-added network servicing 25 cities in India for the purpose of offering information technology connectivity, electronic commerce and Internet solutions. The Shareholders' Agreement contains provisions regarding our directors and management. For additional information regarding how the Shareholders Agreement affects the compensation of our Board of Directors, please see "Management--Board Composition" on page 62. The Shareholders' Agreement grants to SARF registration rights and, in the event of a sale of our equity shares by Satyam Computer Services, "tag-along" rights. The Shareholders' Agreement also grants to Satyam Computer Services and SARF warrants to purchase up to an aggregate of 750,000 of our equity shares. The exercise price of the warrants is equal to eight times our fully diluted earnings per equity share, as shown on our latest audited financial statements; provided that the exercise price may not be less than 66% of the fair market value of an equity share on the exercise date. Since we had a net loss in fiscal 1999, if the warrants were currently exercisable the exercise price would be 66% of the fair market value, as determined by three merchant banks, of the underlying equity shares on the exercise date. The warrants are exercisable for a period commencing on June 30, 2001 and terminating on June 30, 2003, provided that the warrants become immediately exercisable if Satyam Computer Services sells any of our equity shares or if we file an application for listing or a petition to wind up our affairs voluntarily. As a result, the warrants will be exercisable upon completion of this offering. Both Satyam Computer Services and SARF have notified the Company of their intent to exercise the warrants, the exercise price for which will be equal to 66% of the price to public indicated on the cover of this prospectus. For additional information regarding these warrants, please see "Description of Equity Shares" on page 67. 66 DESCRIPTION OF EQUITY SHARES The following are summaries of our Articles of Association and Memorandum of Association and the Companies Act which govern our affairs. Our Articles of Association provides that the regulations contained in Table "A' of the Companies Act apply to Satyam Infoway. We have filed complete copies of our Memorandum of Association and Articles of Association as well as Table "A' of the Companies Act as exhibits to our registration statement on Form F-1 of which this prospectus is a part. In this prospectus, all references to our Articles of Association include the regulations of Table "A' of the Companies Act incorporated into our Articles of Association. General Our authorized share capital is 25,000,000 shares, par value Rs.10 per share. As of June 30, 1999, 15,750,000 equity shares, options to purchase an additional 5,000 equity shares and warrants to purchase an additional 750,000 equity shares were issued and outstanding. The equity shares are our only class of share capital. However, our Articles of Association and the Companies Act permit us to issue classes of securities in addition to the equity shares. For the purposes of this prospectus, "shareholder" means a shareholder who is registered as a member in the register of members of our company. A total of 825,000 equity shares are reserved for issuance under our ASOP. As of June 30, 1999, we had granted an aggregate of 5,000 options under our ASOP at an exercise price equal to Rs.70 per share. On September 28, 1999, we granted options to acquire an additional 147,000 equity shares at a weighted exercise price equal to Rs. 335 per share. On February 5, 1999, we entered into a Share Subscription and Shareholders' Agreement, or Shareholders' Agreement, with Satyam Computer Services, South Asia Regional Fund, or SARF, and Mr. B. Ramalinga Raju, the Chairman of our Board of Directors, which was subsequently amended effective September 14, 1999. The Shareholders' Agreement grants "tag-along" rights to SARF in the event of a sale of our equity shares by Satyam Computer Services as well as customary information and inspection rights. Sterling Commerce has similar rights pursuant to the stockholders agreement in connection with the sale of our equity shares to Sterling Commerce. The Shareholders' Agreement with SARF provides that upon the occurrence of specified events, SARF may require Satyam Computer Services to repurchase our equity shares owned by SARF. The Shareholders' Agreements also grants to Satyam Computer Services and SARF warrants to purchase up to an aggregate of 750,000 of our equity shares. Pursuant to the warrants, Satyam Computer Services and SARF may purchase 150,000 and 600,000, respectively, of our equity shares. The exercise price of the warrants is equal to eight times our fully diluted earnings per equity share, as shown on our latest audited financial statements; provided that the exercise price may not be less than 66% of the fair market value of an equity share on the exercise date. Since we had a net loss in fiscal 1999, if the warrants were currently exercisable the exercise price would be 66% of the fair market value, as determined by three merchant banks, of the underlying equity shares on the exercise date. The warrants are exercisable for a period commencing on June 30, 2001 and terminating on June 30, 2003, provided that the warrants become immediately exercisable if Satyam Computer Services sells any of our equity shares or if we file an application for listing or a petition to wind up our affairs voluntarily. As a result, the warrants will be exercisable upon completion of this offering. Both Satyam Computer Services and SARF have notified the Company of their intent to exercise the warrants, the exercise price for which will be equal to 66% of the price to public indicated on the cover of this prospectus. Dividends Under the Companies Act, unless our Board of Directors recommends the payment of a dividend, we may not declare a dividend. Similarly, under our Articles, although the shareholders may, at the annual general meeting, approve a dividend in an amount less than that recommended by the Board, they cannot increase the amount of the dividend. In India, dividends generally are declared as a percentage of the par value of a 67 company's equity shares. The dividend recommended by the Board, if any, and subject to the limitations described above, is distributed and paid to shareholders in proportion to the paid up value of their shares within 42 days of the approval by the shareholders at the annual general meeting. Pursuant to our Articles, our Board has discretion to declare and pay interim dividends without shareholder approval. With respect to equity shares issued during a particular fiscal year (including any equity shares underlying ADSs issued to the depositary in connection with the offering or in the future), cash dividends declared and paid for such fiscal year generally will be prorated from the date of issuance to the end of such fiscal year. Under the Companies Act, dividends can only be paid in cash to the registered shareholder at a record date fixed on or prior to the annual general meeting or to his order or his banker's order. Under the Companies Act, dividends may be paid out of profits of a company in the year in which the dividend is declared or out of the undistributed profits of previous fiscal years. Before declaring a dividend greater than 10% of the par value of its equity shares, a company is required under the Companies Act to transfer to its reserves a minimum percentage of its profits for that year, ranging from 2.5% to 10% depending upon the dividend percentage to be declared in such year. The Companies Act further provides that, in the event of an inadequacy or absence of profits in any year, a dividend may be declared for such year out of the company's accumulated profits, subject to the following conditions: . the rate of dividend to be declared may not exceed 10% of its paid up capital or the average of the rate at which dividends were declared by the company in the prior five years, whichever is less; . the total amount to be drawn from the accumulated profits earned in the previous years and transferred to the reserves may not exceed an amount equivalent to 10% of its paid up capital and free reserves, and the amount so drawn is to be used first to set off the losses incurred in the fiscal year before any dividends in respect of preference or equity shares are declared; and . the balance of reserves after withdrawals shall not fall below 15% of its paid up capital. For additional information, please see "Dividend Policy" on page 26. A tax of 11%, including the presently applicable surcharge, of the total dividend declared, distributed or paid for a relevant period is payable by our company. For additional information, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 32. Bonus Shares In addition to permitting dividends to be paid out of current or retained earnings as described above, the Companies Act permits us to distribute an amount transferred from the general reserve or surplus in our profit and loss account to our shareholders in the form of bonus shares, which are similar to a stock dividend. The Companies Act also permits the issuance of bonus shares from a share premium account. Bonus shares are distributed to shareholders in the proportion recommended by the Board. Shareholders of record on a fixed record date are entitled to receive such bonus shares. Preemptive Rights and Issue of Additional Shares The Companies Act gives shareholders the right to subscribe for new shares in proportion to their respective existing shareholdings unless otherwise determined by a special resolution passed by a general meeting of the shareholders. For approval, this special resolution must be approved by a number of votes which is not less than three times the number of votes against the special resolution. If the special resolution is not approved, the new shares must first be offered to the existing shareholders as of a fixed record date. The offer must include: (1) the right, exercisable by the shareholders of record, to renounce the shares offered in favor of any other person; and (2) the number of shares offered and the period of the offer, which may not be less than 15 days from the date of offer. If the offer is not accepted it is deemed to have been declined. Our Board is authorized under the Companies Act to distribute any new shares not purchased by the preemptive rights holders in the manner that it deems most beneficial to our company. 68 Annual General Meetings of Shareholders We must convene an annual general meeting of shareholders within six months after the end of each fiscal year and may convene an extraordinary general meeting of shareholders when necessary or at the request of a shareholder or shareholders holding at least 10% of our paid up capital carrying voting rights. The annual general meeting of the shareholders is generally convened by our Secretary pursuant to a resolution of the Board. Written notice setting out the agenda of the meeting must be given at least 21 days (excluding the days of mailing and receipt) prior to the date of the general meeting to the shareholders of record. Shareholders who are registered as shareholders on the date of the general meeting are entitled to attend or vote at such meeting. The annual general meeting of shareholders must be held at our registered office or at such other place within the city in which the registered office is located; meetings other than the annual general meeting may be held at any other place if so determined by the Board. Our registered office is located at Mayfair Trade Center, IInd Floor, 1-8-303/36, S.P. Road, Secunderabad 500 003, India. Our Articles provide that a quorum for a general meeting is the presence of at least five shareholders in person. Voting Rights At any general meeting, voting is by show of hands unless a poll is demanded by a shareholder or shareholders present in person or by proxy holding at least 10% of the total shares entitled to vote on the resolution or by those holding shares with an aggregate paid up capital of at least Rs.50,000. Upon a show of hands, every shareholder entitled to vote and present in person has one vote and, on a poll, every shareholder entitled to vote and present in person or by proxy has voting rights in proportion to the paid up capital held by such shareholders. Our Chairman of the Board has a deciding vote in the case of any tie. For a description of voting of ADSs, please see "Description of American Depositary Shares--Voting Rights" on page 76. Any shareholder may appoint a proxy. The instrument appointing a proxy must be delivered to us at least 48 hours prior to the meeting. A proxy may not vote except on a poll. A corporate shareholder may appoint an authorized representative who can vote on behalf of the shareholder, both upon a show of hands and upon a poll. Ordinary resolutions may be passed by simple majority of those present and voting at any general meeting for which the required period of notice has been given. However, specified resolutions such as amendments to our Articles and the Memorandum of Association, commencement of a new line of business, the waiver of preemptive rights for the issuance of any new shares and a reduction of share capital, require that votes cast in favor of the resolution (whether by show of hands or poll) are not less than three times the number of votes, if any, cast against the resolution. Register of Shareholders; Record Dates; Transfer of Shares We maintain a register of shareholders. For the purpose of determining the shares entitled to annual dividends, the register is closed for a specified period prior to the annual general meeting. The date on which this period begins is the record date. To determine which shareholders are entitled to specified shareholder rights, we may close the register of shareholders. The Companies Act requires us to give at least seven days' prior notice to the public before such closure. We may not close the register of shareholders for more than thirty consecutive days, and in no event for more than forty-five days in a year. Following the introduction of the Depositories Act, 1996, and the repeal of Section 22A of the Securities Contracts (Regulation) Act, 1956, which enabled companies to refuse to register transfers of shares in some circumstances, the equity shares of a public company are freely transferable, subject only to the 69 provisions of Section 111A of the Companies Act. Since we are a public company, the provisions of Section 111A will apply to us. Our Articles currently contain provisions which give our directors discretion to refuse to register a transfer of shares in some circumstances. According to our Articles, our directors are required to exercise this right in the best interests of our company. While our directors are not required to provide a reason for any such refusal in writing, they must give notice of the refusal to the transferee within one month after receipt of the application for registration of transfer by our company. In accordance with the provisions of Section 111A(2) of the Companies Act, our directors may exercise this discretion if they have sufficient cause to do so. If our directors refuse to register a transfer of shares, the shareholder wishing to transfer his, her or its shares may file a civil suit or an appeal with the Company Law Board, or CLB. Pursuant to Section 111A(3), if a transfer of shares contravenes any of the provisions of the Securities and Exchange Board of India Act, 1992 or the regulations issued thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 or any other Indian laws, the CLB may, on application made by the company, a depositary incorporated in India, an investor, the Securities and Exchange Board of India or other parties, direct the rectification of the register of records. The CLB may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares before making or completing its investigation into the alleged contravention. Notwithstanding such investigation, the rights of a shareholder to transfer the shares will not be restricted. Under the Companies Act, unless the shares of a company are held in a dematerialized form, a transfer of shares is effected by an instrument of transfer in the form prescribed by the Companies Act and the rules thereunder together with delivery of the share certificates. Our transfer agent is . Disclosure of Ownership Interest Section 187C of the Companies Act requires beneficial owners of shares of Indian companies who are not holders of record to declare to us details of the holder of record and the holder of record to declare details of the beneficial owner. Any person who fails to make the required declaration within 30 days may be liable for a fine of up to Rs.1,000 for each day the declaration is not made. Any lien, promissory note or other collateral agreement created, executed or entered into with respect to any equity share by its registered owner, or any hypothecation by the registered owner of any equity share, shall not be enforceable by the beneficial owner or any person claiming through the beneficial owner if such declaration is not made. Failure to comply with Section 187C will not affect our obligation to register a transfer of shares or to pay any dividends to the registered holder of any shares pursuant to which the declaration has not been made. While it is unclear under Indian law whether Section 187C applies to holders of ADSs, investors who exchange ADSs for the underlying equity shares will be subject to the restrictions of Section 187C. Additionally, holders of ADSs may be required to comply with the notification and disclosure obligations pursuant to the provisions of the deposit agreement to be entered into by us, such holders and a depositary. For additional information regarding the deposit agreement, please see "Description of American Depositary Shares" on page 72. Audit and Annual Report At least 21 days before the annual general meeting of shareholders excluding the days of mailing and receipt, we must distribute to our shareholders a detailed version of our audited balance sheet and profit and loss account and the related reports of the Board and the auditors, together with a notice convening the annual general meeting. Under the Companies Act, we must file the balance sheet and annual profit and loss account presented to the shareholders within 30 days of the conclusion of the annual general meeting with the Registrar of Companies in Andhra Pradesh, India, which is the state in which our registered office is located. We must also file an annual return containing a list of our shareholders and other information, within 60 days of the conclusion of the meeting. Company Acquisition of Equity Shares Under the Companies Act, approval of at least 75% of a company's shareholders voting on the matter and approval of the High Court of the State in which the registered office of the company is situated is required to reduce a company's share capital. A company may, under some circumstances, acquire its own equity shares 70 without seeking the approval of the High Court. However, a company would have to extinguish the shares it has so acquired within the prescribed time period. A company is not permitted to acquire its own shares for treasury operations. An acquisition by a company of its own shares (without having to obtain the approval of the High Court) must comply with prescribed rules, regulations and conditions as laid down in the Companies Act and the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998, or Buy-back Regulations. However, the Buy-back Regulations apply only to public companies listed on a recognized Indian stock exchange and will therefore not apply to Satyam Infoway. The guidelines for the buy-back of securities by unlisted companies have not yet been prescribed. Liquidation Rights Subject to the rights of creditors, employees and the holders of any shares entitled by their terms to preferential repayment over the equity shares, if any, in the event of our winding-up the holders of the equity shares are entitled to be repaid the amounts of paid up capital or credited as paid up on those equity shares. All surplus assets after payments due to the holders of any preference shares at the commencement of the winding-up shall be paid to holders of equity shares in proportion to their shareholdings. 71 DESCRIPTION OF AMERICAN DEPOSITARY SHARES Citibank, N.A. will act as the depositary bank for the American Depositary Shares. Citibank's depositary offices are located at 111 Wall Street, New York, New York 10005. American Depositary Shares are frequently referred to as "ADSs" and represent ownership interests in securities that are on deposit with the depositary bank. ADSs are normally represented by certificates that are commonly known as American Depositary Receipts or "ADRs." The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A.--Mumbai Branch, located at 81 Dr. Annie Besant Road, Worli, Mumbai India 400 018. We have appointed Citibank as depositary bank pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. We are providing you with a summary description of the ADSs and your rights as an owner of ADSs. Please remember that summaries by their nature lack the precision of the information summarized and that a holder's rights and obligations as an owner of ADSs will be determined by the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety as well as the form of ADR attached to the deposit agreement. Each ADS represents one equity share on deposit with the custodian bank. An ADS will also represent any other property received by the depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations. If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of the ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances. The deposit agreement is governed by New York law. However, our obligations to the holders of equity shares will continue to be governed by the laws of India, which may be different from the laws in the United States. As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name or through a brokerage or safekeeping account. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Please consult with your broker or bank to determine what those procedures are. This summary description assumes you have opted to own the ADSs directly by means of an ADR registered in your name and, as such, we will refer to you as the "holder." When we refer to "you," we assume the reader owns new ADSs and will own ADSs at the relevant time. Dividends and Distributions As a holder, you generally have the right to receive the distributions we make on the securities deposited with the custodian bank. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of a specified record date. Distributions of Cash Whenever we make a cash distribution for the securities on deposit with the custodian, we will notify the depositary bank. Upon receipt of such notice the depositary bank will arrange for the funds to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders. 72 The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The amounts distributed to holders will be net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities on deposit. Distributions of Shares Whenever we make a free distribution of equity shares for the securities on deposit with the custodian, we will notify the depositary bank. Upon receipt of such notice, the depositary bank will either distribute to holders new ADSs representing the equity shares deposited or modify the ADS to equity shares ratio, in which case each ADS you hold will represent rights and interests in the additional equity shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution. The distribution of new ADSs or the modification of the ADS-to-Share ratio upon a distribution of equity shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary bank may sell all or a portion of the new equity shares so distributed. No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable. If the depositary bank does not distribute new ADSs as described above, it will use its best efforts to sell the equity shares received and will distribute the proceeds of the sale as in the case of a distribution of cash. Distributions of Rights Whenever we intend to distribute rights to purchase additional equity shares, we will give prior notice to the depositary bank and we will assist the depositary bank in determining whether it is lawful and reasonably practicable to distribute rights to purchase additional ADSs to holders. The depositary bank will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not obligated to establish procedures to facilitate the distribution and exercise by holders of rights to purchase new equity shares directly rather than new ADSs. The depositary bank will not distribute the rights to you if: . we do not request that the rights be distributed to you or we ask that the rights not be distributed to you; . we fail to deliver satisfactory documents to the depositary bank; or . it is not reasonably practicable to distribute the rights. The depositary bank will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights to lapse. Elective Distributions Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary bank and will indicate whether we wish the 73 elective distribution to be made available to you. In such case, we will assist the depositary bank in determining whether such distribution is lawful and reasonably practical. The depositary bank will make the election available to you only if it is reasonably practical and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement. If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in India would receive for failing to make an election, as more fully described in the deposit agreement. Other Distributions Whenever we intend to distribute property other than cash, equity shares or rights to purchase additional equity shares, we will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary bank in determining whether such distribution to holders is lawful and reasonably practicable. If it is reasonably practicable to distribute such property to you and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will distribute the property to the holders in a manner it deems practicable. The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received. The depositary bank will not distribute the property to you and will sell the property if: . we do not request that the property be distributed to you or if we ask that the property not be distributed to you; . we do not deliver satisfactory documents to the depositary bank; or . the depositary bank determines that all or a portion of the distribution to you is not reasonably practicable. The proceeds of such a sale will be distributed to holders as in the case of a cash distribution. Redemption Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank. If it is reasonably practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will mail notice of the redemption to the holders. The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary bank will convert the redemption funds received into U.S. dollars upon the terms of the deposit agreement and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary bank. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary bank may determine. 74 Changes Affecting Equity Shares The equity shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, a split-up, cancellation, consolidation or classification of such equity shares or a recapitalization, reorganization, merger, consolidation or sale of assets. If any such change were to occur, your ADSs would, to the extent permitted by law, represent the right to receive the property received or exchanged in respect of the equity shares held on deposit. The depositary bank may in such circumstances deliver new ADSs to you or call for the exchange of your existing ADSs for new ADSs. If the depositary bank may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net proceeds to you as in the case of a cash distribution. Issuance of ADSs upon Deposit of Equity Shares Under current Indian laws and regulations, the depositary cannot accept deposits of outstanding equity shares and issue ADRs evidencing ADSs representing such equity shares without prior approval of the government of India. If you elect to surrender your ADSs and receive equity shares, under current Indian laws and regulations, you will be prohibited from re-depositing those outstanding equity shares with our depositary without prior approval of the government of India. For additional information, please see "Risk Factors-- Foreign investment restrictions and the lack of a public market for our equity shares may impact the value of our ADSs" and "--This offering may not result in an active or liquid market for the ADSs." If permitted under applicable law, the depositary bank may create ADSs on your behalf if you or your broker deposit equity shares with the custodian. The depositary bank will deliver these ADSs to the person you indicate only after you obtain all necessary government approvals and pay any applicable issuance fees and any charges and taxes payable for the transfer of the equity shares to the custodian. The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been given and that the equity shares have been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers. If you are permitted to make a deposit of equity shares, you will be responsible for transferring good and valid title to the depositary bank. As such, you will be deemed to represent and warrant that: . the equity shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained; . all preemptive (and similar) rights, if any, with respect to such equity shares have been validly waived or exercised; . you are duly authorized to deposit the equity shares; . the equity shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, "restricted securities" (as defined in the deposit agreement); and . the equity shares presented for deposit have not been stripped of any rights or entitlements. If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations. Withdrawal of Shares Upon Cancellation of ADSs As a holder, you will be entitled to present your ADSs to the depositary bank for cancellation and then receive the underlying equity shares at the custodian's offices. In order to withdraw the equity shares 75 represented by your ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the equity shares being withdrawn. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement. If you hold an ADR registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and certain other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the equity shares represented by your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary bank will only accept ADSs for cancellation that represent a whole number of securities on deposit. You will have the right to withdraw the securities represented by your ADSs at any time except for: . Temporary delays that may arise because (i) the transfer books for the equity shares or ADSs are closed, or (ii) equity shares are immobilized on account of a shareholders' meeting or a payment of dividends. . Obligations to pay fees, taxes and similar charges. . Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit. The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law. Voting Rights As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the equity shares represented by your ADSs. The voting rights of holders of equity shares are described in "Description of Equity Shares--Voting Rights." At our request, the depositary bank will mail to you any notice of shareholders' meeting received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs. If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities represented by the holder's ADSs in accordance with such voting instructions. Please note that the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner. Securities for which no voting instructions have been received will not be voted. Fees and Charges As an ADS holder, you will be required to pay the following service fees to the depositary bank:
Service Fees ------- ---- Issuance of ADSs Up to 5c per ADS issued Cancellation of ADSs Up to 5c per ADS canceled Exercise of rights to purchase Up to 5c per ADS issued additional ADSs Distribution of cash upon sale Up to 2c per ADS held of rights and other entitlements
76 As an ADS holder you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such as: . fees for the transfer and registration of equity shares (i.e., upon deposit and withdrawal of equity shares); . expenses incurred for converting foreign currency into U.S. dollars; . expenses for cable, telex and fax transmissions and for delivery of securities; and . Taxes and duties upon the transfer of securities (i.e., when equity shares are deposited or withdrawn from deposit). We have agreed to pay certain other charges and expenses of the depositary bank. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes. Amendments and Termination We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days' prior notice of any modifications that would prejudice any of their substantial rights under the deposit agreement (except in very limited circumstances enumerated in the deposit agreement). You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the equity shares represented by your ADSs (except as permitted by law). We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before termination. Upon termination, the following will occur under the deposit agreement: . For a period of six months after termination, you will be able to request the cancellation of your ADSs and the withdrawal of the equity shares represented by your ADSs and the delivery of all other property held by the depositary bank in respect of those equity shares on the same terms as prior to the termination. During such six months' period the depositary bank will continue to collect all distributions received on the equity shares on deposit (i.e., dividends) but will not distribute any such property to you until you request the cancellation of your ADSs. . After the expiration of such six months' period, the depositary bank may sell the securities held on deposit. The depositary bank will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding. Books of Depositary The depositary bank will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement. The depositary bank will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs. These facilities may be closed from time to time, to the extent not prohibited by law. 77 Limitations on Obligations and Liabilities The deposit agreement limits our obligations and the depositary bank's obligations to you. Please note the following: . We and the depositary bank are obligated only to take the actions specifically stated in the depositary agreement without negligence or bad faith. . The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement. . The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in equity shares, for the validity or worth of the equity shares, for any tax consequences that result from the ownership of ADSs, for the credit worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice. . We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement. . We and the depositary bank disclaim any liability if we are prevented or forbidden from acting on account of any law or regulation, any provision of our Articles of Association or Memorandum of Association, any provision of any securities on deposit or by reason of any act of God or war or other circumstances beyond our control. . We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for the deposit agreement or in our Articles of Association or Memorandum of Association or in any provisions of securities on deposit. . We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting equity shares for deposit, any holder of ADSs or authorized representative thereof, or any other person believed by either of us in good faith to be competent to give such advice or information. . We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit which is made available to holders equity shares but is not, under the terms of the deposit agreement, made available to you. . We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties. Pre-Release Transactions The depositary bank may, in certain circumstances, issue ADSs before receiving a deposit of equity shares or release equity shares before receiving ADSs. These transactions are commonly referred to as "pre-release transactions." The deposit agreement limits the aggregate size of pre-release transactions and imposes a number of conditions on such transactions (i.e., the need to receive collateral, the type of collateral required, the representations required from brokers, etc.). The depositary bank may retain the compensation received from the pre-release transactions. Taxes You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary bank and the custodian may deduct from any 78 distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due. The depositary bank may refuse to issue ADSs, to deliver transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the custodian proof of taxpayer status and residence and such other information as the depositary bank and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit obtained for you. Foreign Currency Conversion The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements. If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary bank may take the following actions in its discretion: . convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical; . distribute the foreign currency to holders for whom the distribution is lawful and practical; and . hold the foreign currency (without liability for interest) for the applicable holders. 79 RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES Foreign investment in Indian securities is regulated by the Foreign Exchange Regulation Act, 1973. Under Section 29(1)(b) of the Foreign Exchange Regulation Act, no person or company resident outside India that is not incorporated in India (other than a banking company) can purchase the shares of any company carrying on any trading, commercial or industrial activity in India without the permission of the Reserve Bank of India. Also, under Section 19(1)(d) of the Foreign Exchange Regulation Act, the transfer and issuance of any security of any Indian company to a person resident outside India requires the permission of the Reserve Bank of India. Under Section 19(5) of the Foreign Exchange Regulation Act, no transfer of shares in a company registered in India by a non-resident to a resident of India is valid unless the transfer is confirmed by the Reserve Bank of India upon application filed by the transferor or the transferee. Furthermore, the issuance of rights and other distributions of securities to a non-resident also requires the prior consent of the Reserve Bank of India. The Reserve Bank of India has issued notifications over the past few years relating the restrictions on foreign investment in Indian companies. These notifications have provided that foreign investment in high priority industries do not require prior approval of the Reserve Bank of India under some conditions. Under these circumstances, a post-investment declaration is required to be filed with the Reserve Bank of India. The Reserve Bank of India has granted an exemption from application of some of these provisions in connection with this offering. For additional information, please see "Government of India Approvals" on page 84. General Shares of Indian companies represented by ADSs are required to be approved for issuance to foreign investors by the Ministry of Finance under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993, as modified from time to time, notified by the government of India. The Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme is distinct from other policies or facilities, as described below, relating to investments in Indian companies by foreign investors. The issuance of ADSs pursuant to the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme also affords to holders of ADSs the benefits of Section 115AC of the Indian Income-tax Act, 1961 for purposes of the application of Indian tax law. For additional information, please see "Taxation--Indian Taxation" on page 86. Foreign Direct Investment In July 1991, the government of India commenced the liberalization process and raised the limit on foreign equity holdings in Indian companies from 40% to 51% in high priority industries. The Foreign Investment Promotion Board currently under the Ministry of Industry of the government of India was thereafter formed to negotiate with large foreign companies wishing to make long-term investments in India. Since then, the government of India has relaxed the restrictions on foreign investment considerably. Our business is not deemed to be a high priority industry. As a result, the maximum foreign equity investment in an Indian company operating as an Internet service provider is 49%. Under current Indian law, no prior approval of the Reserve Bank of India or the Foreign Investment Promotion Board is required in respect of foreign equity participation up to 50%, 51%, 74% or 100%, depending on industry category, in high priority industries in a new issue of shares, including the purchase of ADSs representing equity securities issued by Indian companies. However, within a period of 30 days from the date of the investment being made, a declaration in the prescribed form is required to be filed with the Reserve Bank of India. For foreign direct investment in the high priority industries in excess of 50%, 51% or 74% (depending on the category of industry) or in the industries in which direct foreign investment is permitted up to 100%, or for any issue of equity securities to foreign investors by a company not in a high- priority industry, approval of the Foreign Investment Promotion Board is required if the amount of investment is up to Rs.6 billion ($142.9 million). Proposals in excess of Rs.6 billion ($142.9 million) require the approval of the Cabinet Committee on Foreign Investment. Proposals involving the public sector and other sensitive areas require the approval of Cabinet Committee on Economic Affairs. These facilities are designed for foreign direct 80 investments by non-residents of India who are not non-resident Indians, overseas corporate bodies or foreign institutional investors, all of which we refer to as foreign direct investors, and do not include transfers of shares from residents to non-residents. The Department of Industrial Policy and Promotion, a part of the Ministry of Industry, issued detailed guidelines in January 1997 for consideration of foreign direct investment proposals by the Foreign Investment Promotion Board. Under these guidelines, sector specific guidelines for foreign direct investment and the levels of permitted equity participation have been established. The issues to be considered by the Foreign Investment Promotion Board and the Foreign Investment Promotion Board's areas of priority in granting approvals are also set out in the guidelines. The basic objective of the guidelines is to improve the transparency and objectivity of the Foreign Investment Promotion Board's consideration of proposals. However, because the guidelines are administrative and have not been codified as either law or regulations, they are not legally binding with respect to any recommendation made by the Foreign Investment Promotion Board or with respect to any decision taken by the government of India in cases involving foreign direct investment. The high priority industries referred to above are classified into the following four categories under Annexure III to the New Industrial Policy, 1991: . Part A lists three industries, comprised mainly of mining-related industries, in which up to 50% foreign equity participation is permitted; . Part B lists 21 industries, including software development, agricultural production, food product manufacturing, textile products, paper and basic chemicals, in which up to 51% foreign equity participation is permitted; . Part C lists seven industries, including medical equipment manufacturing, iron ore manufacturing, land transport, water transport and storage and warehousing services, in which up to 74% foreign equity participation is permitted; and . Part D lists two industries, including electricity generation, transmission and distribution and construction, in which up to 100% foreign equity participation is permitted. In May 1994, the government of India announced that purchases by foreign investors of ADSs and foreign currency convertible bonds of Indian companies will be treated as foreign direct investment in the equity issued by Indian companies for such offerings. Therefore, offerings that involve the issuance of equity that results in foreign direct investors holding more than the stipulated percentage of foreign direct investments (which depends on the category of industry) in high priority industries or for any issue of equity to foreign investors by companies not in high priority industries, would require approval from the Foreign Investment Promotion Board. In addition, in connection with offerings of any such securities to foreign investors, approval of the Foreign Investment Promotion Board is required for Indian companies whether or not the stipulated percentage limit would be reached, if the proceeds therefrom are to be used for investment in non-high priority industries. With respect to the activities of our company, Foreign Investment Promotion Board approval is required for any foreign direct investment in our stock. As a result, we will require Foreign Investment Promotion Board approval before allotting the equity shares underlying the ADSs. In November 1998, the Reserve Bank of India issued a notification to the effect that foreign investment in preferred shares will be considered as part of the share capital of a company and the provisions relating to foreign direct investment in the equity shares of a company discussed above would apply. Accordingly, no prior approval of the Reserve Bank of India or the Foreign Investment Promotion Board would be required in respect of foreign investment in the preferred stock of an Indian company up to 50%, 51%, 74% or 100% in high priority industries. All other proposals for foreign investment in the preferred stock of an Indian company will be processed by the Foreign Investment Promotion Board. Investments in preferred shares are included as foreign direct investment for the purposes of sectoral caps on foreign equity, if such preferred shares carry a conversion option. If the preferred shares are structured without a conversion option, they would fall outside the foreign direct investment limit. 81 Notwithstanding the foregoing, the terms of our Internet service provider license provide that the maximum total foreign equity investment in our company is 49%. Investment by Non-Resident Indians and Overseas Corporate Bodies Owned At Least 60% By Non-Resident Indians A variety of special facilities for making investments in India in shares of Indian companies is available to individuals of Indian nationality or origin residing outside India, or non-resident Indians, and to overseas corporate bodies, at least 60% owned by such persons, or overseas corporate bodies. These facilities permit non-resident Indians and overseas corporate bodies to make portfolio investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. These facilities are different and distinct from investments by foreign direct investors described above. Apart from portfolio investments in Indian companies, non-resident Indians and overseas corporate bodies may also invest in Indian companies through foreign direct investments. For additional information, please see "-- Foreign Direct Investment" on page 80. Under the foreign direct investment rules, non-resident Indians and overseas corporate bodies may invest up to 100% in high-priority industries in which other foreign investors are permitted to invest only up to 50%, 51%, 74% or 100%, depending on the industry category. Investment by Foreign Institutional Investors In September 1992, the government of India issued guidelines which enable foreign institutional investors, including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers, to make portfolio investments in all the securities traded on the primary and secondary markets in India. Under the guidelines, foreign institutional investors must obtain an initial registration from the Securities and Exchange Board of India and a general permission from the Reserve Bank of India to engage in transactions regulated under the Foreign Exchange Regulation Act. Foreign institutional investors must also comply with the provisions of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. When it receives the initial registration, the foreign institutional investor also obtains general permission from the Reserve Bank of India to engage in transactions regulated under the Foreign Exchange Regulation Act. Together, the initial registration and the Reserve Bank of India's general permission enable the registered foreign institutional investor to buy, subject to the ownership restrictions discussed below, and sell freely securities issued by Indian companies whether or not they are listed, to realize capital gains on investments made through the initial amount invested in India, to subscribe or renounce rights offerings for shares, to appoint a domestic custodian for custody of investments held and to repatriate the capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares. Apart from making portfolio investments in Indian companies as described above, foreign institutional investors may make direct foreign investments in Indian companies. For additional information, please see "--Foreign Direct Investment" on page 80. Ownership Restrictions The Securities and Exchange Board of India and Reserve Bank of India regulations restrict portfolio investments in Indian companies by foreign institutional investors, non-resident Indians and overseas corporate bodies, all of which we refer to as foreign portfolio investors. The Reserve Bank of India issued a circular in August 1998 stating that foreign institutional investors in aggregate may hold no more than 30% of the equity shares of an Indian company and non-resident Indians and overseas corporate bodies in aggregate may hold no more than 10% of the shares of an Indian company through portfolio investments. The Reserve Bank of India circular also states that no single foreign institutional investor may hold more than 10% of the shares of an Indian company and no single non-resident Indian or overseas corporate body may hold more than 5% of the shares of an Indian company. The Foreign Investment Promotion Board guidelines issued by the Foreign 82 Investment Promotion Board in January 1997 state that the total cap on foreign investment in the telecommunications sector would be 49%. The Guidelines and General Information for Internet Service Provider announced by the Telecom Commission of the government of India in November 1998 also state that the total foreign equity investment in a company acting as an Internet service provider would be capped at 49%. This cap of 49% applies to foreign equity investment by foreign portfolio investors and foreign direct investors in our company. There is uncertainty under Indian law about the tax regime applicable to foreign institutional investors that hold and trade ADSs. Foreign institutional investors are urged to consult with their Indian legal and tax advisers about the relationship between the foreign institutional investor regulations and the ADSs and any equity shares withdrawn upon surrender of ADSs. More detailed provisions relating to foreign institutional investor investment have been introduced by the Securities and Exchange Board of India with the introduction of the foreign institutional investor Regulations in 1995. These provisions relate to the registration of foreign institutional investors, their general obligations and responsibilities and investment conditions and restrictions. One such restriction is that unless the foreign institutional investor is registered as a debt fund with the Securities and Exchange Board of India the total investment in equity and equity-related instruments should not be less than 70% of the aggregate of all investments of an foreign institutional investor in India. Under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 approved by the Securities and Exchange Board of India in January 1997 and notified by the government of India in February 1997, which replaced the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994, upon the acquisition of more than 5% of the outstanding shares or voting rights of a listed public Indian company, a purchaser is required to notify the company and the company and the purchaser are required to notify all the stock exchanges on which the shares of such company are listed. Upon the acquisition of 15% or more of such shares or voting rights or a change in control of the company, the purchaser is required to make an open offer to the other shareholders offering to purchase at least 20% of all the outstanding shares of the company at a minimum offer price as determined pursuant to the new regulations. Upon conversion of ADSs into equity shares, an ADS holder will be subject to the new regulations. However, since Satyam Infoway is an unlisted company, the provisions of the new regulations will not apply to us. If our shares are listed on an Indian stock exchange in the future, the new regulations will apply to the holders of our ADSs. Open market purchases of securities of Indian companies in India by foreign direct investors or investments by non-resident Indians, overseas corporate bodies and foreign institutional investors above the ownership levels set forth above require government of India approval on a case-by-case basis. 83 GOVERNMENT OF INDIA APPROVALS The Ministry of Finance and the Ministry of Industry of the government of India and the Reserve Bank of India have approved this offering. In addition, we have obtained the required approval from the Ministry of Finance to enter into the underwriting agreements and the depository agreement referred to elsewhere in this prospectus. Various tax concessions are expected to be available with respect to this offering in accordance with the provisions of Section 115AC of the Indian Income-tax Act, 1961. Copies of the approvals from the Ministry of Industry and the Reserve Bank of India will be made available for public inspection at our corporate office or provided upon written request to our Chief Financial Officer. For additional information, please see "Taxation--Indian Taxation" on page 86. The Reserve Bank of India has granted our company general approvals which permit: . foreign investors to acquire ADSs and equity shares issued by us; . us to issue the ADSs and transfer and register the equity shares in the name of the depositary or its nominee; . us to remit dividends on the equity shares issued by us and represented by ADSs at market rates, as and when due subject to the payment of any applicable Indian taxes; . us to issue any rights or bonus equity shares represented by the ADSs issued by us; . us to repatriate in free foreign exchange the proceeds of a sale of the equity shares received upon surrender of ADSs and any rights or bonuses that may accrue in respect of the equity shares, subject to applicable Indian taxes; . us to export the equity shares from India for transfer thereof outside of India upon withdrawal from the depositary facility; and . the free transfer of the ADSs issued by us outside India between non- residents of India. Specific approval of the Reserve Bank of India will have to be obtained, however, for the sale of the underlying equity shares by a person resident outside India to a person resident in India as well as for any renunciation of rights to a person resident in India. Pursuant to the Indian Foreign Exchange Regulation Act, 1973, a person resident in India is: (1) a citizen of India who has not left India with an intention of staying outside India; and (2) a non- citizen of India who stays in India for a purpose indicating an intention to stay in India. Transfers of securities in Indian companies from a person resident outside India to a person resident in India require approval from the Reserve Bank of India under Section 19(5) of the Foreign Exchange Regulation Act. Currently, however, no prior approval of the Reserve Bank of India is required in respect of such sales if the company whose shares are being sold is listed in India and if such sales are made in the stock market through a registered Indian broker and through a recognized stock exchange in India at prevailing market rates. In such cases, the sale proceeds may be repatriated after payment of applicable taxes and stamp duties. Since the equity shares of Satyam Infoway are not presently listed in India, however, the prior approval of the Reserve Bank of India will be required for a person resident outside India who is a shareholder in our company to sell his equity shares in our company to a person resident in India. The Reserve Bank of India will approve the price at which the shares can be sold based on a formula. Because the sale would result in an outflow of foreign exchange, the Reserve Bank of India would generally not approve a price higher than that arrived at by using the formula. For additional information, please see "Taxation--Indian Taxation--Taxation of Distributions" on page 86. Any person resident outside India desiring to sell equity shares received upon surrender of ADSs or otherwise transfer such equity shares within India should seek the advice of Indian counsel as to the requirements applicable at that time. The Reserve Bank of India has approved the free transferability of our ADSs outside India between two non-residents. However, under current Indian law, the sale and transfer of our equity shares withdrawn from the depositary to any person resident in India would require additional approvals to be obtained from the Reserve Bank of India. Under current regulations and practice, since we are not listed 84 on any recognized stock exchange in India, a person resident outside of India intending to sell our securities within India or to a person resident in India is required to apply for Reserve Bank of India approval by submitting a Form TS1, which requires information as to the transferor, transferee, the shareholding structure of our company, the proposed sale price per share and other information. The proceeds from such transfers may be transferred outside India after payment of applicable taxes and stamp duties. The Reserve Bank of India will approve the price at which shares are to be transferred from a non- resident holder of shares in our company to a person resident in India based on a formula. The Reserve Bank of India is not required to respond to a Form TS1 application within any specific time period and may grant or deny the application in its discretion. Prior to the effectiveness of the registration statement of which this prospectus is a part, we will receive the approval of the Department of Company Affairs to the effect that we are not required to file this prospectus under the Companies Act. The Ministry of Finance may request that a copy of this prospectus be filed with the Securities and Exchange Board of India and the Registrar of Companies in Andhra Pradesh, which is the state in India where our registered office is located. The equity shares issued and outstanding prior to the offering are not listed on any Indian stock exchanges, and no such listing is presently planned. 85 TAXATION Indian Taxation General. The following is based on the opinion of M.G. Ramachandran regarding the principal Indian tax consequences for holders of ADSs and equity shares received upon withdrawal of such equity shares who are not resident in India, whether of Indian origin or not. We refer to these persons as non- resident holders. The following is based on the provisions of the Income-tax Act, 1961, including the special tax regime contained in Section 115AC and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993. The Income-tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences of the Section 115AC may be amended or changed by future amendments of the Income-tax Act. This opinion is not intended to constitute a complete analysis of the individual tax consequences to non-resident holders under Indian law for the acquisition, ownership and sale of ADSs and equity shares by non-resident holders. Personal tax consequences of an investment may vary for non-resident holders in various circumstances and potential investors should therefore consult their own tax advisers on the tax consequences of such acquisition, ownership and sale, including specifically the tax consequences under the law of the jurisdiction of their residence and any tax treaty between India and their country of residence. Residence. For purposes of the Income-tax Act, an individual is considered to be a resident of India during any fiscal year if he or she is in India in that year for: . a period or periods amounting to 182 days or more; or . 60 days or more and, in case of a citizen of India or a person of Indian origin, who, being outside India, comes on a visit to India, is in India for 182 days or more effective April 1, 1995 and in each case within the four preceding years has been in India for a period or periods amounting to 365 days or more. A company is a resident of India if it is registered in India or the control and the management of its affairs is situated wholly in India. Individuals and companies that are not residents of India would be treated as non-residents for purposes of the Income-tax Act. Taxation of Distributions. Pursuant to the Finance Act, 1997, withholding tax on dividends paid to shareholders no longer applies. However, the company paying the dividend would be subject to a dividend distribution tax of 11% including the presently applicable surcharge, of the total amount it distributes, declares or pays as a dividend. This dividend distribution tax is in addition to the normal corporate tax of 38.5%, including the presently applicable surcharge. The surcharge was introduced by the Finance Act, 1999. Any distributions of additional ADSs, equity shares or rights to subscribe for equity shares made to non-resident holders with respect to ADSs or equity shares will not be subject to Indian tax. Taxation of Capital Gains. Any gain realized on the sale of our ADSs or equity shares by a non-resident holder to any non-resident outside India is not subject to Indian capital gains tax. However, because subscription rights are not expressly covered by the Section 115AC, it is unclear, and M.G. Ramachandran is therefore unable to give an opinion, as to whether capital gain derived from the sale of subscription rights by a non-resident holder not entitled to an exemption under a tax treaty to any non-resident outside India will be subject to Indian capital gains tax. If such subscription rights are deemed by the Indian tax authorities to be situated within India, the gains realized on the sale of such subscription rights will be subject to customary Indian taxation on capital gains as discussed below. Since the offering has been approved by the government of India under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, non- resident holders of the ADSs will have the benefit of tax concessions available under Section 115AC. The effect of the Scheme in the context of Section 115AC is 86 unclear, and M.G. Ramachandran is therefore unable to give an opinion, as to whether such tax treatment is available to a non-resident who acquires equity shares outside India from a non-resident holder of equity shares after receipt of the equity shares upon surrender of the ADSs. If concessional tax treatment is not available, gains realized on the sale of such equity shares will be subject to customary Indian taxation on capital gains as discussed below. The Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme provides that if the equity shares are sold on a recognized stock exchange in India against payment in Indian rupees, they will no longer be eligible for such concessional tax treatment. Subject to any relief provided pursuant to an applicable tax treaty, any gain realized on the sale of equity shares to an Indian resident or inside India generally will be subject to Indian capital gains tax which is to be withheld at the source by the buyer. Under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, the cost of acquisition of equity shares received in exchange for ADSs will be the cost of the underlying shares on the date that the depositary gives notice to the custodian of the delivery of the equity shares in exchange for the corresponding ADSs. In the case of companies listed in India, the cost of acquisition of the equity shares would be the price of the equity shares prevailing on the Stock Exchange, Mumbai or the National Stock Exchange on the date the depositary gives notice to the custodian of the delivery of the equity shares in exchange for the corresponding ADSs. However, the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme and Section 115AC do not provide for determination of the cost of acquisition for the purposes of computing capital gains tax where the shares of the Indian company are not listed on the Stock Exchange, Mumbai or the National Stock Exchange in India. Therefore, in the case of our company, which is not listed on either the Stock Exchange, Mumbai or the National Stock Exchange, M.G. Ramachandran is unable to give an opinion on the mode of determination of the cost of acquisition of equity shares. Therefore, the original cost of acquisition of the ADSs may be treated as the cost of acquisition for the purposes of determining the capital gains tax. According to the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, a non-resident holder's holding period for purposes of determining the applicable Indian capital gains tax rate in respect of equity shares received in exchange for ADSs commences on the date of the notice of the redemption by the depositary to the custodian. The India-U.S. Treaty does not provide an exemption from the imposition of Indian capital gains tax. Under Section 115AC, taxable gain realized in respect of equity shares held for more than 12 months, or long-term gain, is subject to tax at the rate of 10%. Taxable gain realized in respect of equity shares held for 12 months or less, or short-term gain, is subject to tax at variable rates with a maximum rate of 48%. If Section 115AC is not applicable, then a tax rate of 20% applies to long-term capital gains. The actual rate of tax on short-term gain depends on a number of factors, including the residential status of the non-resident holder and the type of income chargeable in India. Buy-back of Securities. Currently, Indian companies are not subject to any tax in respect of the buy-back of their shares. However, the shareholders will be taxed on any gain at the long-term or short-term, as applicable, capital gains rates. For additional information, please see "--Taxation of Capital Gains" on page 87. Stamp Duty and Transfer Tax. Upon issuance of the equity shares underlying our ADSs, we will be required to pay a stamp duty of Rs.0.30 per share certificate issued by us. However, for purposes of convenience, instead of paying a stamp duty of Rs.0.30 per share certificate, we will pay a stamp duty of Rs.1 per share certificate issued by us in respect of the underlying equity shares. A transfer of ADSs is not subject to Indian stamp duty. However, upon the acquisition of equity shares from the depositary in exchange for ADSs, the non-resident holder will be liable for Indian stamp duty at the rate of 0.5% of the market value of the ADSs or equity shares exchanged. A sale of equity shares by a non-resident holder will also be subject to Indian stamp duty at the rate of 0.5% of the market value of the equity shares on the trade date, although customarily such tax is borne by the transferee. Wealth Tax. The holding of the ADSs in the hands of non-resident holders and the holding of the underlying equity shares by the depositary as a fiduciary and the transfer of ADSs between non-resident holders and the depositary will be exempt from Indian wealth tax. Non-resident holders are advised to consult their own tax advisers in this context. 87 Gift Tax and Estate Duty. Indian gift tax was abolished in October 1998, although it may be restored in the future. In India, there is no estate duty law. As a result, no estate duty would be applicable to non-resident holders. Non-resident holders are advised to consult their own tax advisors in this context. United States Federal Taxation The following is a summary of the material U.S. federal income and estate tax consequences that may be relevant with respect to the acquisition, ownership and disposition of equity shares or ADSs. This summary addresses the U.S. federal income and estate tax considerations of holders that are U.S. persons, i.e., citizens or residents of the United States, partnerships or corporations created in or under the laws of the United States or any political subdivision thereof or therein, estates, the income of which is subject to U.S. federal income taxation regardless of its source and trusts for which a U.S. court exercises primary supervision and a U.S. person has the authority to control all substantial decisions and that will hold equity shares or ADSs as capital assets and holders that are not U.S. persons. We refer to these persons as U.S. holders and non-U.S. holders, respectively. This summary does not address tax considerations applicable to holders that may be subject to special tax rules, such as banks, insurance companies, dealers in securities or currencies, tax-exempt entities, persons that will hold equity shares or ADSs as a position in a "straddle" or as part of a "hedging" or "conversion" transaction for tax purposes, persons that have a "functional currency" other than the U.S. dollar or holders of 10% or more, by voting power or value, of the stock of our company. This summary is based on the tax laws of the United States as in effect on the date of this prospectus and on United States Treasury Regulations in effect or, in some cases, proposed, as of the date of this prospectus, as well as judicial and administrative interpretations thereof available on or before such date and is based in part on representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below. Each prospective investor should consult his, her or its own tax advisor with respect to the U.S. Federal, state, local and foreign tax consequences of acquiring, owning or disposing of equity shares or ADSs. Ownership of ADSs. For U.S. federal income tax purposes, holders of ADSs will be treated as the owners of equity shares represented by such ADSs. Dividends. Distributions of cash or property (other than equity shares, if any, distributed pro rata to all shareholders of our company, including holders of ADSs) with respect to equity shares will be includible in income by a U.S. holder as foreign source dividend income at the time of receipt, which in the case of a U.S. holder of ADSs generally will be the date of receipt by the depositary, to the extent such distributions are made from the current or accumulated earnings and profits of our company. Such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders. To the extent, if any, that the amount of any distribution by our company exceeds our company's current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of the U.S. holder's tax basis in the equity shares or ADSs and thereafter as capital gain. A U.S. holder will not be eligible for a foreign tax credit against its U.S. federal income tax liability for Indian dividend distribution taxes paid by our company, unless it is a U.S. company holding at least 10% of the Indian company paying the dividends. U.S. holders should be aware that dividends paid by our company generally will constitute "passive income" for purposes of the foreign tax credit. If dividends are paid in Indian rupees, the amount of the dividend distribution includible in the income of a U.S. holder will be in the U.S. dollar value of the payments made in Indian rupees, determined at a spot exchange rate between Indian rupees and U.S. dollars applicable to the date such dividend is includible in the income of the U.S. holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, gain or loss, if any, resulting from currency exchange fluctuations during the period from the date the dividend is paid to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss. 88 A non-U.S. holder of equity shares or ADSs generally will not be subject to U.S. federal income tax or withholding tax on dividends received on equity shares or ADSs unless such income is effectively connected with the conduct by such non-U.S. holder of a trade or business in the United States. Sale or Exchange of equity shares or ADSs. A U.S. holder generally will recognize gain or loss on the sale or exchange of equity shares or ADSs equal to the difference between the amount realized on such sale or exchange and the U.S. holder's tax basis in the equity shares or ADSs, as the case may be. Such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the equity shares or ADSs, as the case may be, were held for more than one year. Gain or loss, if any, recognized by a U.S. holder generally will be treated as U.S. source passive income or loss for U.S. foreign tax credit purposes. A non-U.S. holder of equity shares or ADSs generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange of such equity shares or ADSs unless: . such gain is effectively connected with the conduct by such non-U.S. holder of a trade or business in the U.S.; or . in the case of any gain realized by an individual non-U.S. holder, such holder is present in the United States for 183 days or more in the taxable year of such sale and other conditions are met. Estate Taxes. An individual shareholder who is a citizen or resident of the United States for U.S. federal estate tax purposes will have the value of the equity shares or ADSs owned by such holder included in his or her gross estate for U.S. federal estate tax purposes. An individual holder who actually pays Indian estate tax with respect to the equity shares will, however, be entitled to credit the amount of such tax against his or her U.S. federal estate tax liability, subject to a number of conditions and limitations. Backup Withholding Tax and Information Reporting Requirements. Under current U.S. Treasury Regulations, dividends paid on equity shares, if any, generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. Information reporting will apply to payments of dividends on, and to proceeds from the sale or redemption of, equity shares or ADSs by a paying agent, including a broker, within the United States to a U.S. holder, other than an "exempt recipient," including a corporation, a payee that is a non-U.S. holder that provides an appropriate certification and other persons. In addition, a paying agent within the United States will be required to withhold 31% of any payments of the proceeds from the sale or redemption of equity shares or ADSs within the United States to a holder, other than an "exempt recipient," if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with such backup withholding requirements. Passive Foreign Investment Company. A non-U.S. corporation will be classified as a passive foreign investment company for U.S. Federal income tax purposes if either: . 75% or more of its gross income for the taxable year is passive income; or . on average for the taxable year by value (or, if it is not a publicly traded corporation and so elects, by adjusted basis) 50% or more of its assets produce or are held for the production of passive income. We do not believe that we satisfy either of the tests for passive foreign investment company status. If we were to be a passive foreign investment company for any taxable year, U.S. holders would be required to either: . pay an interest charge together with tax calculated at maximum ordinary income rates on "excess distributions," which is defined to include gain on a sale or other disposition of equity shares; 89 . if a qualified electing fund election is made, to include in their taxable income their pro rata share of undistributed amounts of our income; or . if the equity shares are "marketable" and a mark-to-market election is made, to mark-to-market the equity shares each taxable year and recognize ordinary gain and, to the extent of prior ordinary gain, ordinary loss for the increase or decrease in market value for such taxable year. The above summary is not intended to constitute a complete analysis of all tax consequences relating to ownership of equity shares or ADSs. You should consult your own tax advisor concerning the tax consequences of your particular situation. 90 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has not been any public market for our ADSs or equity shares, and no prediction can be made as to the effect, if any, that market sales of ADSs or equity shares or the availability of ADSs for sale will have on the market price of the ADSs prevailing from time to time. Nevertheless, sales of substantial amounts of ADSs in the public market, or the perception that such sales could occur, could adversely affect the market price of ADSs and could impair our future ability to raise capital through the sale of our equity securities. For additional information, please see "Risk Factors--The future sales of securities by our company or existing shareholders may hurt the price of our ADSs" on page 21. Upon the closing of this offering, we will have an aggregate of 21,156,000 equity shares outstanding, assuming no exercise of the underwriters' overallotment option or outstanding employee stock options, but assuming the exercise of the 750,000 warrants presently held by SARF and Satyam Computer Services. Of the outstanding equity shares, the ADSs sold in this offering will be freely tradable, except that any shares held by "affiliates" as defined under Rule 144 under the Securities Act may only be sold in compliance with the limitations described below. The remaining equity shares were all issued in accordance with Regulation S, other than the 481,000 shares issued to Sterling Commerce which were issued pursuant to Regulation D. None of these shares may, under present law, be converted into ADSs without government of India approval. If converted into ADSs, all equity shares issued in accordance with Regulation S and held by non-affiliates may immediately be resold, subject to any applicable lock-up periods. All equity shares issued in accordance with Regulation D may be resold in accordance with Rule 144 after complying with a holding period of at least one year and the other requirements of that rule. In September 1999, we entered into a registration rights agreement with SARF and Sterling Commerce relating to our company. Commencing 180 days after the completion of this offering, each of SARF and Sterling Commerce may up to make three requests of our company to register their equity shares. In addition, SARF and Sterling Commerce have specified rights to sell equity shares in connection with any public offering of our equity shares in India or any other country, excluding the United States. The registration rights agreement also grants to SARF and Sterling Commerce "piggy-back" registration rights and contains other customary provisions. SARF also has similar rights to require the listing of its shares in markets other than the United States under specified circumstances. Our company, each of our executive officers and directors, the holders of warrants to purchase 750,000 equity shares and substantially all of our shareholders have agreed not to offer, sell, contract to sell or otherwise dispose of any equity shares or securities convertible into, exchangeable for or representing the right to receive equity shares, for a period of 180 days after the date of this prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner and Smith Incorporated. These agreements do not cover (1) the grant of stock options under our existing stock option plan or (2) equity shares issued upon the conversion of convertible or exchangeable securities or the exercise of an option or warrant outstanding as of the date of this prospectus. These lock-up agreements cover substantially all equity shares outstanding prior to this offering. We have agreed not to sell or otherwise dispose of any equity shares during the 180-day period following the date of the prospectus, except we may issue, and grant options to purchase, equity shares under our Associate Stock Option Plan and other pre-existing agreements. In addition, we may issue equity shares in connection with any acquisition of another company if the terms of such issuance provide that such equity shares shall not be resold prior to the expiration of the 180-day period referenced in the preceding sentence. For additional information, please see "Risk Factors--The future sales of securities by our company or existing shareholders may hurt the price of our ADSs" on page 21. 91 UNDERWRITING The offering consists of: . the U.S. offering of 2,505,000 ADSs in the United States and Canada; and . the international offering of 1,670,000 ADSs outside the United States and Canada. We and the underwriters for the U.S. offering named below have entered into an underwriting agreement with respect to the ADSs being offered in the U.S. offering. Each U.S. underwriter has severally agreed to purchase the number of ADSs indicated in the table below. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. are the representatives of the U.S. underwriters.
Number of U.S. Underwriters ADSs ----------------- ------ Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................... Salomon Smith Barney Inc. .......................................... ---- Total.......................................................... ====
The U.S. underwriters have agreed to purchase all the ADSs being offered in the U.S. offering, other than those covered by the overallotment option described below, if they purchase any of these ADSs. We have granted to the underwriters in the U.S. and international offerings an option, exercisable within 30 days after the date of this prospectus, to purchase up to 626,250 additional ADSs at the public offering price less the underwriting commission. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, in connection with the offerings. The representatives of the U.S. underwriters will decide on behalf of the underwriters whether to exercise the option and whether to allocate any ADSs covered by the option to the U.S. offering or the international offering. If the underwriters exercise the overallotment option, each U.S. underwriter will purchase a number of additional ADSs approximately proportionate to the underwriter's initial purchase commitment. The U.S. underwriters will initially offer the ADSs at the public offering price set out on the cover of this prospectus. The U.S. underwriters may sell ADSs to securities dealers at a discount of up to $ per ADS from the initial public offering price. Any of these securities dealers may resell any securities purchased from the U.S. underwriters to other brokers or dealers at a discount of up to $ per ADS from the initial public offering price. If all the ADSs are not sold at the initial offering price, the representatives of the U.S. underwriters may change the offering price and the other selling terms. We have also entered into an underwriting agreement for the sale of 1,670,000 ADSs outside the United States and Canada. Merrill Lynch (Singapore) Pte. Ltd. and Salomon Brothers International Limited are the representatives of the underwriters for the international offering. The U.S. and international offerings are conditioned on each other. The initial offering price and aggregate underwriting commissions per ADS for the U.S. offering and the international offering are identical. The underwriters have entered into an agreement in which they agree to restrictions on where and to whom they and any dealer purchasing from them may offer ADSs in connection with the offering. The U.S. and international underwriters also have agreed that they may sell shares between their respective underwriting groups. Our company, each of our executive officers and directors, the holders of warrants to purchase 750,000 equity shares and substantially all of our shareholders have agreed not to offer, sell, contract to sell or 92 otherwise dispose of any equity shares or securities convertible into, exchangeable for or representing the right to receive equity shares, for a period of 180 days after the date of this prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner and Smith Incorporated. These agreements do not cover (1) the grant of stock options under our existing stock option plan or (2) equity shares issued upon the conversion of convertible or exchangeable securities or the exercise of an option or warrant outstanding as of the date of this prospectus. These lock-up agreements cover substantially all equity shares outstanding prior to this offering. The ADSs offered under this prospectus are expected to be approved for listing on the Nasdaq National Market. In connection with the offering, the U.S. and international underwriters may purchase and sell ADSs in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of securities than they are required to purchase in the offering. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the ADSs while the offering is in progress. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, the underwriters may discontinue these transactions at any time. The underwriters may effect transactions through the Nasdaq National Market, in the over-the-counter market or otherwise. We have agreed to indemnify the several underwriters against some liabilities, including liabilities under the Securities Act of 1933. The underwriters and their affiliates engage and may in the future engage in investment banking and commercial banking transactions with us. The underwriters have reserved up to 200,000 ADSs for sale at our request to persons associated with our company at the same price and on the same terms as the shares sold by the underwriters to the general public. The number of ADSs available for sale to the general public will be reduced to the extent any reserved ADSs are purchased. Any reserved ADSs not so purchased will be offered by the underwriters on the same basis as the other ADSs offered hereby. The underwriters expect to deliver ADSs against payment for the ADSs in U.S. dollars in New York, New York on or about , 1999. Selling Restrictions This prospectus does not constitute an offer or an invitation by, or on behalf of, us or by or on behalf of the underwriters, to subscribe for or purchase any of our equity shares or ADSs in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. The distribution of this prospectus and the offering of our equity shares or ADSs in certain jurisdictions may be restricted by law. Persons into whose possession this prospectus comes are required by us and the underwriters to inform themselves about and to observe any such restrictions. 93 LEGAL MATTERS The validity of the ADSs offered hereby will be passed upon for Satyam Infoway Limited by Latham & Watkins, Menlo Park, California. The validity of the equity shares represented by the ADSs offered hereby and the principal Indian tax consequences for holders of ADSs and equity shares received upon withdrawal of such equity shares who are not resident in India will be passed upon by M.G. Ramachandran, New Delhi, India, Indian counsel for Satyam Infoway Limited. Matters in connection with the offering will be passed upon on behalf of the underwriters by Brobeck, Phleger & Harrison, LLP, New York, New York, and Nishith Desai Associates, Mumbai, India, counsel for the Underwriters. Latham & Watkins may rely upon M.G. Ramachandran with respect to matters governed by Indian law. EXPERTS The U.S. GAAP financial statements of Satyam Infoway Limited as of March 31, 1998 and 1999, and for each of the years in the three-year period ended March 31, 1999, have been included herein in reliance upon the report of KPMG Peat Marwick, India, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting. CHANGE OF ACCOUNTANTS Effective May 1998, Bharat S. Raut and Company was engaged as the principal independent accountants for Satyam Infoway for Indian GAAP reporting, replacing Fraser & Ross, who resigned at that time. The change was approved by our Directors and at the annual general meeting held on May 23, 1998. In connection with the audits of the fiscal years ended March 31, 1996, 1997 and 1998, and for the interim period from April 1, 1998 through May 23, 1998, there were no disagreements with Fraser & Ross on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Fraser & Ross, would have caused them to make reference to the matter in their report, except that during the fiscal year ended March 31, 1998 Fraser & Ross qualified its opinion regarding whether or not Section 58A of the Companies Act applied to Satyam Infoway's issuance of debentures to Citibank. Section 58A prohibits Indian companies, other than banks, from accepting "deposits" in an amount in excess of 25% of their share capital. Fraser & Ross concluded that the debentures should be classified as "deposits" while Satyam Infoway concluded that they should be classified as a bank loan. The audit reports of Fraser & Ross for the financial statements of Satyam Infoway as of and for the fiscal years ended March 31, 1996, 1997 and 1998 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty or audit scope, except for a qualification of the financial statements at March 31, 1998 prepared under Indian GAAP related to the treatment of the Citibank debentures as described above. ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form F-1, which includes amendments, exhibits, schedules and supplements, under the Securities Act of 1933, as amended, and the rules and regulations of the SEC, for the registration of the ADSs and underlying equity shares offered by this prospectus. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, part of the registration statement have been omitted from this prospectus as permitted by the rules and regulations of the SEC. A related registration statement on Form F-6 has also been filed to register our ADSs as represented by the ADRs. For further information with respect to 94 our company and the ADSs offered by this prospectus, please refer to the registration statement. Although this prospectus contains all material terms of the contracts or other documents referred to in this prospectus, the descriptions of these contracts or other documents contained in this prospectus are not necessarily complete. You may read and copy all or any portion of the registration statement or any other information that we file, or obtain a copy of those materials, through facilities maintained by the SEC as described in the front of this prospectus under the caption "Reports to our Security Holders." 95 SATYAM INFOWAY LIMITED INDEX TO FINANCIAL STATEMENTS
Page ---- Report of KPMG Peat Marwick, Independent Auditors.......................... F-2 Balance Sheets............................................................. F-3 Statements of Income....................................................... F-4 Statements of Stockholders' Equity......................................... F-5 Statements of Cash Flows................................................... F-6 Notes to Financial Statements.............................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Satyam Infoway Limited: We have audited the accompanying balance sheets of Satyam Infoway Limited as of March 31, 1998 and 1999, and the related statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Satyam Infoway Limited as of March 31, 1998 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 1999, in conformity with accounting principles generally accepted in the United States. The United States dollar amounts are presented in the accompanying financial statements solely for the convenience of the readers and are arithmetically correct on the basis disclosed in footnote 1(b). KPMG Peat Marwick Chennai, India April 19, 1999 F-2 SATYAM INFOWAY LIMITED BALANCE SHEETS (Expressed in Indian Rupees, except share data and as otherwise stated)
As of ------------------------------------------------------------------------------ March 31, March 31, March 31, June 30, June 30, June 30, 1998 1999 1999 1998 1999 1999 Rs. Rs. US$ Rs. Rs. US$ ------------ ------------ ---------- ------------ ------------ ---------- (unaudited) (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents............ 9,911,667 125,547,453 2,889,470 4,768,486 10,375,381 238,789 Accounts receivable, net of allowances of Rs Nil, Rs. 501,839 and Rs. 726,060 as of March 31, 1998, 1999 and June 30, 1999, respectively........... 1,945,483 45,087,639 1,037,692 10,515,365 53,157,565 1,223,419 Due from officers and employees.............. 87,302 573,143 13,191 123,676 570,806 13,137 Inventories............. -- 6,758,190 155,539 102,755 5,925,745 136,381 Other current assets.... 10,978,160 73,688,213 1,695,931 12,358,743 87,638,648 2,017,000 ------------ ------------ ---------- ------------ ------------ ---------- Total current assets... 22,922,612 251,654,638 5,791,823 27,869,025 157,668,145 3,628,726 Plant and equipment-- net.................... 63,240,894 162,833,876 3,747,615 70,106,064 252,429,715 5,809,660 Intangible asset........ 11,295,502 8,916,052 205,203 10,700,639 8,321,190 191,512 Other assets............ 10,173,248 31,483,855 724,599 10,825,159 46,053,778 1,059,925 ------------ ------------ ---------- ------------ ------------ ---------- Total assets........... 107,632,256 454,888,421 10,469,240 119,500,887 464,472,828 10,689,823 ============ ============ ========== ============ ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt......... -- 144,750,000 3,331,415 -- 167,500,000 3,855,006 Current installments of capital lease obligations............ 2,541,263 596,740 13,734 2,689,165 914,901 21,056 Short term borrowings... -- -- -- -- 31,823,824 732,424 Trade accounts payable.. 15,471,302 17,275,480 397,595 21,748,862 23,118,809 532,079 Due to parent company... 1,508,887 3,980,370 91,608 1,890,222 5,481,776 126,163 Accrued expenses........ 3,685,525 19,028,671 437,944 4,294,524 15,152,329 348,730 Deferred revenue........ -- 71,506,440 1,645,719 1,491,293 92,480,652 2,128,439 Advances from customers.............. 1,641,292 11,747,346 270,365 919,373 8,596,943 197,858 Other current liabilities............ 3,429,204 4,476,322 103,022 2,585,996 10,923,424 251,402 ------------ ------------ ---------- ------------ ------------ ---------- Total current liabilities........... 28,277,473 273,361,369 6,291,402 35,619,435 355,992,658 8,193,157 Non-current liabilities: Long-term debt, excluding current installments........... 122,000,000 113,750,000 2,617,952 122,000,000 91,000,000 2,094,361 Capital lease obligations, excluding current installments... 9,913,961 159,244 3,665 9,269,877 404,806 9,317 Other liabilities....... -- -- -- -- 1,000,000 23,015 ------------ ------------ ---------- ------------ ------------ ---------- Total liabilities...... 160,191,434 387,270,613 8,913,019 166,889,312 448,397,464 10,319,850 ============ ============ ========== ============ ============ ========== Stockholders' equity: Common stock, Rs. 10 par value; 15,000,000, 25,000,000 and 25,000,000 Equity Shares authorized as of March 31, 1998, 1999 and June 30, 1999; Issued and outstanding Equity Shares-- 7,500,230, 15,750,000 and 15,750,000 as of March 31, 1998, 1999 and June 30, 1999...... 75,002,300 157,500,000 3,624,856 105,002,300 157,500,000 3,624,856 Additional paid-in capital................ -- 226,636,200 5,216,023 -- 226,636,200 5,216,023 Accumulated deficit during development stage.................. (127,561,478) -- -- -- -- -- Deferred Compensation-- Employee Stock Offer Plan................... -- (1,581,249) (36,392) -- (1,374,999) (31,646) Accumulated deficit..... -- (314,937,143) (7,248,266) (152,390,725) (366,685,837) (8,439,260) ------------ ------------ ---------- ------------ ------------ ---------- Total stockholders' equity................ (52,559,178) 67,617,808 1,556,221 (47,388,425) 16,075,364 369,973 ------------ ------------ ---------- ------------ ------------ ---------- Total liabilities and stockholders' equity.. 107,632,256 454,888,421 10,469,240 119,500,887 464,472,828 10,689,823 ============ ============ ========== ============ ============ ==========
See accompanying notes to financial statements F-3 SATYAM INFOWAY LIMITED STATEMENTS OF INCOME (Expressed in Indian Rupees, except share data and as otherwise stated)
Years ended March 31 Quarter ended June 30, --------------------------------------------------- ------------------------------------ 1997 1998 1999 1999 1998 1999 1999 Rs. Rs. Rs. US$ Rs. Rs. US$ ----------- ------------ ------------ ---------- ----------- ----------- ---------- (unaudited) (unaudited) (unaudited) Revenues............... -- 6,805,020 103,343,832 2,378,454 17,557,719 80,803,252 1,859,684 Cost of revenues....... -- (19,497,654) (63,651,265) (1,464,931) (7,074,081) (38,896,630) (895,204) ----------- ------------ ------------ ---------- ----------- ----------- ---------- Gross profit/(loss).... -- (12,692,634) 39,692,567 913,523 10,483,638 41,906,622 964,480 ----------- ------------ ------------ ---------- ----------- ----------- ---------- Operating expenses: Selling, general and administrative expenses............. 26,336,901 80,399,677 200,212,761 4,607,888 30,607,474 84,131,759 1,936,289 Amortization of deferred stock compensation expense.............. -- -- 68,751 1,582 -- 206,250 4,747 ----------- ------------ ------------ ---------- ----------- ----------- ---------- Total operating expenses.............. 26,336,901 80,399,677 200,281,512 4,609,470 30,607,474 84,338,009 1,941,036 ----------- ------------ ------------ ---------- ----------- ----------- ---------- Operating loss......... (26,336,901) (93,092,311) (160,588,945) (3,695,947) (20,123,836) (42,431,387) (976,556) Other expense, net..... -- (7,498,053) (26,786,720) (616,495) (4,705,411) (9,317,307) (214,437) ----------- ------------ ------------ ---------- ----------- ----------- ---------- Net loss............... (26,336,901) (100,590,364) (187,375,665) (4,312,442) (24,829,247) (51,748,694) (1,190,993) =========== ============ ============ ========== =========== =========== ========== Loss per Equity Share.. (114,508.27) (121.66) (17.31) (0.40) (3.28) (3.29) (0.08) =========== ============ ============ ========== =========== =========== ========== Weighted Equity Shares used in computing loss per equity share...... 230 826,805 10,824,826 10,824,826 7,566,164 15,750,000 15,750,000
See accompanying notes to financial statements F-4 SATYAM INFOWAY LIMITED STATEMENTS OF STOCK HOLDERS EQUITY (Expressed in Indian Rupees, except share data and as otherwise stated)
Deferred Common Stock Accumulated Compensation- Total ---------------------- Additional Paid Deficit During Employee Accumulated Stockholders' Shares Par Value In Capital Development Stage Stock Offer Plan Deficit Equity ---------- ----------- --------------- ----------------- ---------------- ------------ ------------- Balance as of March 31, 1996.......... 230 2,300 -- (634,213) -- -- (631,913) Net loss........... -- -- -- (26,336,901) -- -- (26,336,901) ---------- ----------- ----------- ------------ ---------- ------------ ------------ Balance as of March 31, 1997.......... 230 2,300 -- (26,971,114) -- -- (26,968,814) Common stock issued to the parent Company........... 7,500,000 75,000,000 -- -- -- -- 75,000,000 Net loss........... -- -- -- (100,590,364) -- -- (100,590,364) ---------- ----------- ----------- ------------ ---------- ------------ ------------ Balance as of March 31, 1998.......... 7,500,230 75,002,300 -- (127,561,478) -- -- (52,559,178) Deficit transfer... -- -- -- 127,561,478 -- (127,561,478) -- Common stock issued to the parent Company........... 4,879,770 48,797,700 44,986,200 -- -- -- 93,783,900 Other issuances of common stock...... 3,370,000 33,700,000 180,000,000 -- -- -- 213,700,000 Net loss........... -- -- -- -- -- (187,375,665) (187,375,665) Compensation related to stock option grants..... -- -- 1,650,000 -- (1,650,000) -- -- Amortization of compensation related to stock option grants..... -- -- -- -- 68,751 -- 68,751 ---------- ----------- ----------- ------------ ---------- ------------ ------------ Balance as of March 31, 1999.......... 15,750,000 157,500,000 226,636,200 -- (1,581,249) (314,937,143) 67,617,808 Net loss (unaudited)....... -- -- -- -- -- (51,748,694) (51,748,694) Amortization of compensation related to stock option grants (unaudited)....... -- -- -- -- 206,250 -- 206,250 ---------- ----------- ----------- ------------ ---------- ------------ ------------ Balance as of June 30, 1999 (unaudited)....... 15,750,000 157,500,000 226,636,200 -- (1,374,999) (366,685,837) 16,075,364 ========== =========== =========== ============ ========== ============ ============ Balance as of March 31, 1999 (in US$).............. 15,750,000 3,624,856 5,216,023 -- (36,392) (7,248,266) 1,556,221 ========== =========== =========== ============ ========== ============ ============ Balance as of June 30, 1999 (in US$) (unaudited)....... 15,750,000 3,624,856 5,216,023 -- (31,646) (8,439,260) 369,973 ========== =========== =========== ============ ========== ============ ============
See accompanying notes to financial statements F-5 SATYAM INFOWAY LIMITED STATEMENTS OF CASH FLOWS (Expressed in Indian Rupees, except share data and as otherwise stated)
Years ended March 31, Quarter ended June 30, --------------------------------------------------- -------------------------------------- 1997 1998 1999 1999 1998 1999 1999 Rs. Rs. Rs. US$ Rs. Rs. US$ ----------- ------------ ------------ ---------- ----------- ------------ ----------- (unaudited) (unaudited) (unaudited) Cash flows from operating activities: Net loss................ (26,336,901) (100,590,364) (187,375,665) (4,312,442) (24,829,247) (51,748,694) (1,190,993) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of plant and equipment......... 535,975 18,781,598 46,714,402 1,075,130 8,191,497 20,705,897 476,545 Amortization of technical know how fees.................. -- 601,748 2,379,450 54,763 594,863 594,862 13,691 Amortization of deferred stock compensation expense............... -- -- 68,751 1,582 -- 206,250 4,747 Loss on sale of plant and equipment......... -- -- 37,627 866 -- -- -- Changes in assets and liabilities: Accounts receivable (net)............... -- (1,945,483) (43,142,156) (992,916) (8,569,882) (8,069,926) (185,727) Inventories.......... -- -- (6,758,190) (155,539) (102,755) 832,445 19,159 Other current assets.............. (4,710,247) (6,204,993) (62,710,053) (1,443,269) (1,380,583) (13,950,435) (321,070) Other assets......... (2,780,684) (7,212,564) (21,218,607) (488,345) (651,911) (14,538,260) (334,598) Due to parent company............. -- 1,508,887 1,387,583 31,935 (618,665) 1,501,406 34,555 Accrued expenses..... 2,743,173 942,352 15,343,146 353,122 608,999 (3,876,342) (89,215) Deferred revenue..... -- -- 71,506,440 1,645,718 1,491,293 20,974,212 482,721 Trade accounts payable............. -- 15,471,302 1,804,178 41,523 6,277,560 5,843,329 134,484 Advances from customers........... -- 1,641,292 10,106,054 232,590 (721,919) (3,150,403) (72,506) Other current liabilities......... 327,643 3,082,704 1,047,118 24,098 (843,208) 6,447,102 148,379 Advances given to officers and employees........... (205,341) (26,961) (577,841) (13,299) (36,374) (29,326) (675) Other liabilities.... -- -- -- -- -- 1,000,000 23,015 ----------- ------------ ------------ ---------- ----------- ------------ ---------- Net cash used in operating activities... (30,426,382) (73,950,482) (171,387,763) (3,944,483) (20,590,332) (37,257,883) (857,488) ----------- ------------ ------------ ---------- ----------- ------------ ---------- Cash flows from investing activities: Expenditure on plant and equipment.............. (3,229,593) (65,172,385) (146,134,547) (3,363,281) (15,056,667) (109,577,914) (2,521,931) Expenditure on technical know how............... -- (11,897,250) -- -- -- -- -- Proceeds from sale of plant and equipment.... -- -- 135,000 3,107 -- -- -- ----------- ------------ ------------ ---------- ----------- ------------ ---------- Net cash used in investing activities... (3,229,593) (77,069,635) (145,999,547) (3,360,174) (15,056,667) (109,577,914) (2,521,931) ----------- ------------ ------------ ---------- ----------- ------------ ---------- Cash flows from financing activities: Principal payments of long-term debt......... -- (860,000) -- -- -- -- -- Proceeds from issuance of long-term debt...... 860,000 122,000,000 136,500,000 3,141,542 -- -- -- Proceeds from short term loans.................. -- -- -- -- -- 31,823,824 732,423 Principal payments under capital lease obligations............ -- (1,701,265) (12,044,704) (277,208) (496,182) (160,099) (3,685) Net proceeds from issuance of common stock.................. -- 38,453,000 307,483,900 7,076,730 30,000,000 -- -- Due to parent company... 34,278,465 1,557,559 1,083,900 24,946 1,000,000 -- -- ----------- ------------ ------------ ---------- ----------- ------------ ---------- Net cash provided by financing activities... 35,138,465 159,449,294 433,023,096 9,966,010 30,503,818 31,663,725 728,738 ----------- ------------ ------------ ---------- ----------- ------------ ---------- Net increase/(decrease) in cash and cash equivalents............ 1,482,490 8,429,177 115,635,786 2,661,353 (5,143,181) (115,172,072) (2,650,681) Cash and cash equivalents at the beginning of the year/quarter........... -- 1,482,490 9,911,667 228,117 9,911,667 125,547,453 2,889,470 ----------- ------------ ------------ ---------- ----------- ------------ ---------- Cash and cash equivalents at the end of the year/quarter.... 1,482,490 9,911,667 125,547,453 2,889,470 4,768,486 10,375,381 238,789 =========== ============ ============ ========== =========== ============ ========== Supplementary Information Cash paid towards interest............... -- 11,307,320 27,754,615 638,770 4,422,500 10,060,759 231,547 Supplemental schedule of non cash financing activity Additional common stock issued upon conversion of amounts payable to parent company......... -- 7,565,690 1,083,900 24,946 1,000,000 -- -- Capital leases.......... -- 14,156,489 161,443 3,716 -- 723,822 16,659
See accompanying notes to financial statements F-6 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) 1. Summary of Significant Accounting Policies (a) Description of Business Satyam Infoway Limited ("Satyam" or "the Company") was incorporated on December 12, 1995 in Chennai, India with the objective of offering electronic commerce and Internet/intranet based solutions. Headquartered at Chennai, the Company has 25 points of presence throughout the country. Prior to April 1, 1998, the Company was in the development stage and its primary activities included raising capital, developing strategic alliances, developing, deploying and certifying its network, acquiring plant and equipment and other operating assets and identifying markets. As of April 1, 1998, the Company is no longer in the development stage. The Company commenced its Internet service operations on November 22, 1998, consequent to the privatization of Internet services by the Government of India. The Company is a majority owned subsidiary of Satyam Computer Services Limited ("Satyam Computer Services"). As of June 30, 1999, Satyam Computer Services held approximately 78.6% of the voting control of the Company represented by 12,379,800 Equity Shares of Rs. 10 each. (b) Basis of Preparation of Financial Statements The accompanying financial statements have been prepared in Indian Rupees (Rs.), the national currency of India. Solely for the convenience of the reader, the financial statements as of and for the year ended March 31, 1999 and quarter ended June 30, 1999 have been translated into United States dollars at the noon buying rate in New York City on June 30, 1999 for cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of New York of US$ 1 = Rs. 43.45. No representation is made that the Indian rupee amounts have been, could have been or could be converted into United States dollars at such a rate or at any other certain rate on June 30, 1999 or at any other date. (c) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash, Cash Equivalents and Short-term Investments The Company considers all highly liquid investments with original maturities, at the date of purchase/investment, of three months or less to be cash equivalents. Cash and cash equivalents currently consist of cash and cash on deposit with banks. (e) Revenue Recognition Revenues from corporate network services which include providing e- commerce solutions, electronic data interchange and other network based services are recognized upon actual usage of such services by customers and is based on either the time for which the network is used or the volume of data transferred or F-7 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) both. The Company enters into contracts with its corporate customers for the use of its networks on both a time and usage basis. In accordance with the terms of these contracts, customers are allowed to transmit certain volumes of data free of cost through the Company's networks. No revenues are recognized for such data transfers. Data transfers above the minimum exempt volumes are charged to customers at specified rates. Customers also receive the right to use the Company's networks free of cost for specified periods of time. No revenues are recognized for such exempt periods of time. Network usage over and above the exempt periods of time are billed to customers at agreed rates. The Company recognizes such revenues based on actual usage of the networks by customers both in terms of time and data transferred. Revenues from web-site design and development are recognized upon completion of the project once the customer's web links are commissioned and available on the world-wide-web. Revenues from web-site hosting are recognized ratably over the period for which the site is hosted. Internet access is sold to customers for a specified number of hours, which is to be utilized within a specified period of time. Customers purchase a CD ROM that allows them to access the Internet. The amounts received from customers on the sale of these CD ROMs are not refundable. The Company recognizes revenue based on usage by the customer over the specified period. At the end of the specified time frame, the remaining unutilized hours, if any, are recognized as revenue. Electronic mail access is sold to customers for a specified period of time over which the related revenue is recognized. Revenues from banner advertisements are recognized ratably over the period in which the advertisement is displayed, provided that no significant Company obligations remain at the end of the period and the collection of the related receivable is probable. Revenues from sponsorship contracts are recognized ratably over the period in which the sponsors' advertisements are displayed provided no significant Company obligations remain at the end of the period and collection of the resulting receivable is probable. Revenues from electronic commerce transactions are recognized when the transaction is completed provided there are no significant remaining Company obligations and collection of the resulting receivable is probable. The Company has entered into a three-year agreement with CompuServe Network Services ("CompuServe") to provide dial up access services. The Company recognizes revenues from this agreement on the basis of usage of its networks by CompuServe's customers. Revenues from the sale of communication hardware and software required to provide the Company's network based services is recognized when the sale is complete with the passing of title. (f) Inventories Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method for all classes of inventories other than CD ROMs used for Internet service activities for which the weighted average method is used to determine cost. F-8 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) (g) Plant and Equipment Plant and equipment are stated at cost. Plant and equipment under capital leases are stated at the present value of minimum lease payments. The Company computes depreciation for all plant and equipment using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the shorter of the primary lease period or estimated useful life of the asset. The estimated useful lives of assets are as follows: Plant and machinery............................................... 5 years Computer equipment................................................ 2 years Office equipment.................................................. 5 years Furniture and fixtures............................................ 5 years Vehicles.......................................................... 5 years System software................................................... 3 years
The Company purchases certain application software for internal use. It is estimated that such software has a relatively short useful life, usually less than one year. The Company, therefore, charges to income the cost of acquiring such software, entirely at the time of acquisition. Deposits paid towards the acquisition of plant and equipment outstanding at each balance sheet date and the cost of plant and equipment not put to use before such date are disclosed under Construction-in-progress. (h) Intangible Asset The Company entered into a five year agreement effective September 1997 with Sterling Commerce International Inc ("Sterling") whereby Sterling agreed to grant the Company certain rights to market, provide, install, facilitate, maintain and support Sterling's proprietary electronic commerce technology. In consideration for granting this proprietary technology, the Company paid Sterling a licencing fee of $ 300,000, which was capitalized. The Company currently amortizes this fee over five years, this being the initial period over which it is entitled to use the electronic commerce technology. The amortization related to the licence is included under "Depreciation and amortization" and is classified in the Income Statement under the caption "Selling, general and administrative expenses." (i) Earnings Per Share On January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. In accordance with SFAS No. 128, basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti- dilutive. (j) Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on F-9 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future realization is uncertain. (k) Retirement Benefits to Employees Provident fund: In accordance with Indian law, all employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and employer each make monthly contributions to the plan equal to 12% of the covered employee's basic salary. The Company has no further obligations under the plan beyond its monthly contributions. Gratuity: In addition to the above benefits, the Company provides for gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering all employees. The Gratuity Plan commenced on April 1, 1997. The plan provides a lump sum payment to vested employees at retirement or termination of employment in an amount based on the respective employee's salary and the years of employment with the Company. The Company contributes each year to a gratuity fund maintained by the Life Insurance Corporation of India ("LIC") based upon actuarial valuations. No additional contributions were required to be made by the Company in excess of the unpaid contributions to the plan. The LIC has no recourse to the Company in the event of any shortfall in its obligations to vested employees and is entirely responsible for meeting all unfunded liabilities. Consequently, all additional liabilities that may arise will be borne by the LIC. Further, vested employees do not have any recourse to the Company in the event the LIC does not fulfil its obligations to them. The Company does not carry any pension liability in its financial statements and has no further obligations under the plan beyond its monthly contributions. (l) Stock-based Compensation The Company uses the intrinsic value-based method of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, to account for its employee stock-based compensation plan. The Company has therefore adopted the pro forma disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. (2) Cash and Cash Equivalents The cost and fair values for cash and cash equivalents as of March 31, 1998 and 1999 and June 30, 1999, are set out below.
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ --------- ----------- --------- ----------- ---------- (unaudited) (unaudited) Cost and fair values Cash and cash equivalents.......... 9,911,667 125,547,453 2,889,470 10,375,381 238,789
Cash and cash equivalents include deposits of Rs. 69,200, Rs. 7,261,200 (US$ 167,116) and Rs. 7,634,477 (US$ 175,707) as of March 31, 1998 and 1999 and June 30, 1999, respectively placed in "No-charge-no-lien" accounts as security towards performance guarantees issued by the Company's bankers on the Company's behalf. The Company cannot utilize these amounts until the guarantees are discharged or revoked. F-10 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) Cash and cash equivalents as of March 31, 1999 also include deposits of Rs. 115,000,000 (US$ 2,646,720) placed with banks as short-term deposits. (3) Inventories Inventories consist of the following:
March 31, March 31, March 31, June 30, June 30, June 30, 1998 1999 1999 1998 1999 1999 Rs. Rs. US$ Rs. Rs. US$ --------- --------- --------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Compact discs........... -- 120,192 2,765 -- 178,378 4,105 Communication hardware.. -- 3,288,496 75,685 -- 2,345,114 53,973 Application software.... -- 3,349,502 77,089 102,755 3,402,253 78,303 --- --------- ------- ------- --------- ------- -- 6,758,190 155,539 102,755 5,925,745 136,381 === ========= ======= ======= ========= =======
(4) Other Current Assets Other current assets consist of the following:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ ---------- ---------- --------- ----------- ---------- (unaudited) (unaudited) Advance for expenses.... 818,285 1,617,959 37,238 5,976,618 137,552 Prepaid expenses........ 9,398,921 70,329,478 1,618,630 79,850,894 1,837,765 Prepaid telephone rentals................ 51,750 296,250 6,818 296,250 6,818 Advance tax payments.... 709,204 959,516 22,083 1,225,783 28,211 Due from associate company................ -- 190,104 4,375 224,993 5,178 Other advances.......... -- 294,906 6,787 64,110 1,476 ---------- ---------- --------- ---------- --------- 10,978,160 73,688,213 1,695,931 87,638,648 2,017,000 ========== ========== ========= ========== =========
Prepaid expenses consist mainly of the unexpired portion of annual rentals paid to the Department of Telecommunications, Ministry of Communications, Government of India for use of leased telecommunication lines. F-11 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) (5) Plant and Equipment Plant and equipment consist of the following:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ ----------- ----------- ---------- ----------- ---------- (unaudited) (unaudited) Leasehold improvements.. 1,455,293 6,164,699 141,880 8,799,064 202,510 Plant and machinery..... 20,979,507 101,558,254 2,337,359 193,243,376 4,447,489 Computer equipment...... 41,055,959 72,577,533 1,670,369 82,403,663 1,896,517 Office equipment........ 1,299,341 1,727,654 39,762 2,104,818 48,442 Furniture and fixtures.. 4,636,715 7,665,644 176,424 8,211,437 188,986 Vehicles................ -- 161,443 3,716 885,265 20,374 System software......... 11,039,530 20,022,142 460,809 20,925,905 481,609 Construction-in- progress............... 2,092,122 18,977,088 436,757 22,582,665 519,739 ----------- ----------- ---------- ----------- ---------- 82,558,467 228,854,457 5,267,076 339,156,193 7,805,666 Accumulated depreciation........... (19,317,573) (66,020,581) (1,519,461) (86,726,478) (1,996,006) ----------- ----------- ---------- ----------- ---------- 63,240,894 162,833,876 3,747,615 252,429,715 5,809,660 =========== =========== ========== =========== ==========
Depreciation expense amounted to Rs. 535,975, Rs. 18,781,598, Rs. 46,714,402 (US$ 1,075,130) and Rs. 20,705,897 (US$ 476,545) for fiscal years 1997, 1998, 1999 and for the quarter ended June 30, 1999, respectively. (6) Technical know-how fees as of March 31, 1998 and 1999 and June 30, 1999, net of accumulated amortization of Rs. 601,748, Rs. 2,981,198 (US$ 68,612) and Rs. 3,576,060 (US$ 82,303) respectively amounted to Rs. 11,295,502, Rs. 8,916,052 (US$ 205,203) and Rs. 8,321,190 (US$ 191,512) respectively. (7) Leases The Company is obligated under capital leases that expire in fiscal 1999 through 2002 for certain items of computers and vehicles. The gross amount and related accumulated amortization recorded under capital leases were as follows:
March 31, March 31, March June 30, June 30, 1998 1999 31, 1999 1999 1999 Rs. Rs. US$ Rs. US$ ---------- ----------- -------- ----------- ----------- (unaudited) (unaudited) Computer equipment...... 14,156,489 14,156,489 325,811 1,649,789 37,970 Vehicles................ -- 161,443 3,716 885,265 20,374 ---------- ----------- -------- ---------- ------- Total................... 14,156,489 14,317,932 329,527 2,535,054 58,344 ========== =========== ======== ========== ======= Accumulated depreciation........... (3,526,065) (10,628,548) (244,616) (1,706,580) (39,277)
F-12 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) Depreciation on assets held under capital leases is included in total depreciation expense. Future minimum capital lease payments as of June 30, 1999 (unaudited) are:
Year ending March 31, June 30, ----------- ----------------- ---------------------- Rs. US$ Rs. US$ -------- ------- ----------- ---------- (unaudited) (unaudited) 2000.......................... 701,804 16,152 1,094,487 25,190 2001.......................... 166,461 3,831 253,140 5,826 2002.......................... -- -- 210,950 4,855 -------- ------- --------- ------- Total minimum lease payments.. 868,265 19,983 1,558,577 35,871 Less: Amount representing interest..................... (112,281) (2,584) (238,870) (5,498) -------- ------- --------- ------- Present value of net minimum capital lease payments....... 755,984 17,399 1,319,707 30,373 Less: Current installments of obligations under capital leases....................... (596,740) (13,734) (914,901) (21,056) -------- ------- --------- ------- Obligations under capital leases, excluding current installments................. 159,244 3,665 404,806 9,317 ======== ======= ========= =======
During fiscal 1999 the Company prepaid certain of its capital lease obligations acquiring ownership of the related assets. The principal repaid amounted to Rs. 1,121,696 and Rs. 11,385,004 (US$ 262,025) in fiscal 1998 and 1999, respectively. (8) Other Assets Other assets consist of the following:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ ---------- ---------- --------- ----------- ----------- (unaudited) (unaudited) Rent and maintenance deposits............... 5,948,129 8,239,345 189,627 9,803,140 225,619 Telephone deposits...... 2,334,000 17,308,000 398,343 30,330,076 698,045 Other deposits.......... 139,822 392,197 9,026 418,647 9,635 Prepaid telephone rentals................ 1,606,297 5,307,313 122,148 5,233,252 120,443 Staff advances recoverable after one year................... 145,000 237,000 5,455 268,663 6,183 ---------- ---------- ------- ---------- --------- 10,173,248 31,483,855 724,599 46,053,778 1,059,925 ========== ========== ======= ========== =========
F-13 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) (9) Short term borrowings Short term borrowings comprise the following:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ --------- --------- --------- ----------- ----------- (unaudited) (unaudited) Short term loan......... -- -- -- 20,000,000 460,299 Cash credit facilities from banks............. -- -- -- 11,823,824 272,125 --- --- --- ---------- ------- -- -- -- 31,823,824 732,424 === === === ========== =======
In June 1999, the Company obtained a short term loan facility from the IDBI Bank Limited ("IDBI") in an amount of Rs. 100,000,000. This loan is secured by a subordinated charge on the fixed assets (both present and future) of the Company and also by a corporate guarantee provided by Satyam Computer Services. The loan carries an interest rate of 12.75% per annum and is repayable within 90 days. As of June 30, 1999, the Company has availed an amount of Rs. 20,000,000 (US$ 460,299) under this facility, which is repayable in the month of September 1999. The Company has also availed of a cash credit facility from IDBI to meet its working capital requirements. The facility carries an interest rate of 15.81% per annum. This loan is secured by a senior charge on all present and future goods, book debts and other movable current assets of the Company. (10) Long-term Debt Long-term debt consists of the following:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ ----------- ------------ ---------- ------------ ---------- (unaudited) (unaudited) Unsecured debentures.... 122,000,000 122,000,000 2,807,825 122,000,000 2,807,825 Term loan from Export Import Bank of India... -- 136,500,000 3,141,542 136,500,000 3,141,542 ----------- ------------ ---------- ------------ ---------- Total long-term debt.... 122,000,000 258,500,000 5,949,367 258,500,000 5,949,367 Less: Current installments........... -- (144,750,000) (3,331,415) (167,500,000) (3,855,006) ----------- ------------ ---------- ------------ ---------- Long-term debt, excluding current installments........... 122,000,000 113,750,000 2,617,952 91,000,000 2,094,361 =========== ============ ========== ============ ==========
Long term debt includes 1,220,000 unsecured debentures of Rs. 100 each issued to Citibank NA, redeemable on August 31, 1999 and guaranteed by Satyam Computer Services, the Company's holding company. These debentures carry a floating rate of interest subject to a minimum rate of 14.5% per annum and an additional mark-up rate. This additional mark-up rate is based on the difference between the "base reference rate" and the "reference rate". The "base reference rate" and the "reference rate" are calculated based on the performance of the Indian National Stock Exchange indices through certain designated periods. Such additional interest will be payable if the reference rate as of August 31, 1999 exceeds the base reference rate and consequently will be accounted for at the time of redemption, i.e. on August 31, 1999. F-14 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) In June 1998, the Company obtained a facility from the Export Import Bank of India for a term loan of Rs. 215,000,000. This term loan is secured by a first charge on the fixed assets (both present and future) of the Company and is also guaranteed by Satyam Computer Services. The loan carries an interest rate of 15.5% per annum and will be repaid in six equal half-yearly installments commencing on December 20, 1999. As of June 30, 1999, the Company has availed an amount of Rs. 136,500,000 (US$ 3,141,542) under this facility. Aggregate maturities of long-term debt for each of the years subsequent to June 30, 1999 are as follows: June 30, 2000 - Rs. 167,500,000; June 30, 2001 - Rs. 45,500,000 and June 30, 2002 - Rs. 45,500,000. (11) Income Taxes The Company has incurred book and tax operating losses since inception and has not provided for any deferred income tax because of the uncertainty associated with the realization of such deferred tax assets. The composition of the deferred tax asset is as follows:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ ----------- ------------ ---------- ------------ ---------- (unaudited) (unaudited) Deferred tax assets Operating loss carry forwards............. 35,433,113 95,590,394 2,200,009 123,081,836 2,832,723 Plant and equipment and intangibles...... 1,091,277 5,807,119 133,651 8,160,313 187,809 ----------- ------------ ---------- ------------ ---------- Total deferred tax assets................. 36,524,390 101,397,513 2,333,660 131,242,149 3,020,532 Less: Valuation allowance.............. (36,524,390) (101,397,513) (2,333,660) (131,242,149) (3,020,532) ----------- ------------ ---------- ------------ ---------- Net deferred tax assets................. -- -- -- -- -- =========== ============ ========== ============ ==========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not the Company will not realize the benefit of these deductible differences. Under Indian law, loss carry-forwards from a particular year may be used to offset taxable income over the next eight years. (12) Common Stock Dividends: Should the Company declare and pay dividends, such dividends will be paid in Indian rupees. Indian law mandates that any dividend can be declared out of distributable profits only after the transfer of up to 10% of net income computed in accordance with current regulations to a general reserve. Also, the remittance of dividends outside India is governed by Indian law on foreign exchange. Such dividend payments are also subject to applicable withholding taxes. F-15 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) (13) Stock Purchase Plan In fiscal 1999, the Company entered into an agreement with Satyam Computer Services and the South Asia Regional Fund ("SARF"). Under the terms of this agreement, the Company agreed to issue warrants to Satyam Computer Services and SARF. Each warrant entitles the registered holder thereof to subscribe for and be allotted one Equity Share in the Company. The warrants are exercisable at a price calculated at a multiple of eight times the fully diluted earnings per share, subject to a minimum price of the higher of: (a) 66% of the fair market value of a share as determined by three merchant bankers acceptable to shareholders, and (b) par value of the shares subscribed. These warrants are exercisable anytime: (a) between June 30, 2001 through June 30, 2003; or (b) if the Company decides to sell any of its shares prior to June 30, 2001; or (c) on a date not later than the date on which the Company files an application for listing or petitions for voluntary liquidation. As of June 30, 1999, the Company had issued 150,000 and 600,000 warrants to Satyam Computer Services and SARF respectively. The Company has been notified by Satyam Computer Services and SARF of their intent to exercise the warrants issued to them in the event of an Initial Public Offering made by the Company. (14) Employee Post Retirement Benefits Contributions to the gratuity plan managed by the Life Insurance Corporation of India in fiscal 1998 and 1999 was Rs. 313,733 and Rs. 319,606 (US$ 7,356) respectively. No contribution has been made for the quarter ended June 30, 1999 as the amount had not fallen due on the Balance Sheet date. In addition the Company contributed Rs. 266,328, Rs. 679,830, Rs. 2,122,963 (US$ 48,860), and Rs. 986,842 (US$ 22,712) to the provident fund managed by Government of India in fiscal 1997, 1998, 1999 and quarter ended June 30, 1999 respectively. (15) Other Expense Other expense, net, consists of the following:
March 31, March 31, March 31, March 31, June 30, June 30, 1997 1998 1999 1999 1999 1999 Rs. Rs. Rs. US$ Rs. US$ --------- ---------- ---------- --------- ----------- ----------- (unaudited) (unaudited) Interest expense........ -- 11,307,320 27,754,615 638,771 10,060,759 231,547 Other finance charges... -- -- -- -- 349,650 8,047 Interest income......... -- (3,809,267) (609,020) (14,017) (785,361) (18,075) Internet management fees................... -- -- -- -- (300,000) (6,904) Other income............ -- -- (358,875) (8,259) (7,741) (178) ----- ---------- ---------- ------- ---------- ------- -- 7,498,053 26,786,720 616,495 9,317,307 214,437 ===== ========== ========== ======= ========== =======
(16) Commitments and Contingencies The Company had outstanding performance guarantees for various statutory purposes totaling Rs. 144,000, Rs. 22,144,000 (US$ 509,643) and Rs. 22,144,000 (US$ 509,643) as of March 31, 1998 and 1999 and June 30, 1999, respectively. These guarantees are generally provided to government agencies, primarily the Telegraph Authority, as security for compliance with and performance of terms and conditions contained in the Internet Service Provider licence granted to the Company, and Videsh Sanchar Nigam Limited, towards the F-16 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) supply and installation of an electronic commerce platform, respectively. These guarantees may be invoked by the governmental agencies if they suffer any losses or damage by reason of breach of any of the covenants contained in the licence. As of June 30, 1999, the Company had contractual commitments of Rs.21,066,110 ($484,836) for capital expenditures relating to new network infrastructure. (17) Related Party Transactions An analysis of transactions with Satyam Computer Services is set out below.
March 31, March 31, March 31, March 31, June 30, June 30, 1997 1998 1999 1999 1999 1999 Rs. Rs. Rs. US$ Rs. US$ ---------- ----------- ----------- ---------- ----------- ----------- (unaudited) (unaudited) Balance at beginning of the year............... 710,976 34,989,440 1,508,887 34,727 3,980,370 91,608 Advances received towards working capital................ 5,297,155 5,590,982 1,308,714 30,121 341,936 7,869 Advance received against equity................. 28,981,309 38,453,000 92,700,000 2,133,487 -- -- Allocation of facilities costs.................. -- -- 636,747 14,655 1,107,394 25,487 Expenses incurred on behalf of the Company......... -- -- 809,922 18,640 52,076 1,199 Purchases from Satyam Computer Services...... -- -- 800,000 18,411 -- -- Allotment of equity..... -- (75,000,000) (93,783,900) (2,158,433) -- -- Interest income received............... -- (2,524,535) -- -- -- -- ---------- ----------- ----------- ---------- --------- ------- Balance at the end of the year............... 34,989,440 1,508,887 3,980,370 91,608 5,481,776 126,163 ========== =========== =========== ========== ========= =======
Advance against equity represents interest free advances received from the Company's parent company, Satyam Computer Services to be adjusted against subsequent issues of common stock. There are no other terms against which such advances have been made. The Company received temporary advances from Satyam Computer Services to meet its working capital requirements in fiscal 1997 through 1999. Of these, advances amounting to Rs. 7,565,690 and Rs. 1,083,900 were settled by the issue of 756,569 and 108,390 equity shares of Rs. 10 each in fiscal 1998 and 1999 respectively and is disclosed in the statement of cash flows as a non-cash financing activity. The fair value of each equity share on the dates of issuance of these shares equaled their face value. The Company made sales to Satyam Computer Services for cash amounting to Rs. 390,000 (US$ 8,976) and Rs. 9,039,000 (US$ 208,032) during the year March 31, 1999 and quarter ended June 30, 1999 respectively. The Company also paid Satyam Computer Services Rs. 757,141 towards training and consultancy fees in fiscal 1998. During fiscal 1998, the Company placed short term deposits with Satyam Computer Services at a rate of 18% per annum for periods ranging between three to six months. F-17 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) Particulars of significant related transactions with other affiliated companies are set out below.
March 31, March 31, March 31, March 31, June 30, June 30, 1997 1998 1999 1999 1999 1999 Rs. Rs. Rs. US$ Rs. US$ --------- --------- --------- --------- ----------- ----------- (unaudited) (unaudited) Sales to affiliates..... -- -- 45,000 1,036 -- -- Purchases of software/cables from affiliates............. -- 1,370,938 800,000 18,411 -- --
No interest is charged by Satyam Computer Services on the balances payable to them. The balances payable to Satyam Computer Services as of March 31, 1998, 1999 and June 30, 1999 were as follows:
March 31, March 31, March 31, June 30, June 30, 1998 1999 1999 1999 1999 Rs. Rs. US$ Rs. US$ --------- --------- --------- ----------- ----------- (unaudited) (unaudited) Due to Satyam Computer Services............... 1,508,887 3,980,370 91,608 5,481,776 126,163
No amounts were receivable from Satyam Computer Services as of March 31, 1998, March 31, 1999 and June 30, 1999. Included in other current assets is an amount of Rs. 190,104 (US$ 4,375) and Rs. 224,993 (US$ 5,178) receivable from affiliates as of March 31, 1999 and June 30, 1999 respectively. No other amounts were receivable from or payable to affiliates as of March 31, 1998, 1999 and June 30, 1999. The Company grants interest free advances to officers and employees. Such loans are repayable over fixed periods ranging from one to sixty months. As of March 31, 1998, 1999 and June 30, 1999, the amounts recoverable from officers and employees were Rs. 232,302, Rs. 810,143 (US$ 18,645) and Rs. 839,469 (US$ 19,320) respectively, of which Rs. 87,302, Rs. 573,143 (US$ 13,191) and Rs. 570,806 (US$ 13,137) respectively were recoverable within one year from those dates. (18) Segment Reporting In accordance with the provisions of SFAS 131, Disclosures about Segments of an Enterprise and Related Information, the Company has determined that it has three operating segments: . Internet Access Services, providing Internet access services to subscribers; . Corporate Services, providing dial up and dedicated Internet access, e-commerce, electronic data interchange, e-mail and other messaging services, virtual private networks, and web based solutions to businesses, web page hosting to individuals; and . Online Portal Services, operating an Internet portal and offering related content sites. F-18 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) These operating segments were identified from the structure of the Company's internal organization. Currently, the chief operating decision-maker of the Company receives and reviews information relating to segment revenues only. Products and services revenues are presented below.
March 31, March 31, March 31, March 31, June 30, June 30, 1997 1998 1999 1999 1999 1999 Rs. Rs. Rs. US$ Rs. US$ --------- --------- ----------- --------- ----------- ---------- (unaudited) (unaudited) Internet access services............... -- -- 13,310,800 306,348 40,148,279 924,011 Corporate services...... -- 6,805,020 89,973,032 2,070,725 40,076,347 922,356 Online portal services.. -- -- 60,000 1,381 578,626 13,317 --- --------- ----------- --------- ---------- --------- Revenues................ -- 6,805,020 103,343,832 2,378,454 80,803,252 1,859,684 === ========= =========== ========= ========== =========
SFAS 131 also requires that an enterprise report a measure of profit or loss and total assets for each reportable segment. Certain expenses such as bandwidth costs (telecommunication), depreciation on plant and machinery, etc., which form a significant component of total expenses, are not specifically allocable to these business segments as the services are used interchangeably between reportable segments. Management believes that it is not practical to provide segment disclosures relating to segment costs and expenses, and consequently segment profits or losses, since a realistic allocation cannot be made. The fixed assets used in the Company's business are not identifiable to any particular reportable segment and can be used interchangeably among segments. Consequently, management believes that it is not practical to provide segment disclosures relating to total assets since a realistic analysis among the various operating segments is not possible. (19) Employee Stock Offer Plan In fiscal 1999, the Company established the Employee Stock Offer Plan ("ESOP") which provides for the issuance of 825,000 warrants to eligible employees. The warrants were issued to an employee welfare trust (the "Trust") at Rs. 1 each. The Trust holds the warrants and transfers them to eligible employees over a period of three years. The warrants are transferred to employees at Rs. 1 each and each warrant entitles the holder to purchase one of the Company's equity shares at an exercise price of Rs. 70 per share. The warrants and the equity shares received upon the exercise of warrants are subject to progressive vesting over a three-year period from the date of issue of warrants to employees. The fair market value of each of the issued warrants was determined by the Board of Directors to be Rs. 400. The warrants allotted and the underlying equity shares are not subject to any repurchase obligations by the Company. During fiscal 1999, 5,000 warrants were granted to a single employee resulting in a deferred compensation of Rs. 1,650,000, for the difference between the exercise price and the fair market value of the common stock underlying the warrants, as of the date the warrants were unconditionally made available to the employee. Deferred compensation is amortized over the vesting period of the warrants. The weighted average remaining useful life of the outstanding warrants as of June 30, 1999 was 2.11 years. F-19 SATYAM INFOWAY LIMITED NOTES TO FINANCIAL STATEMENTS--(Continued) (Expressed in Indian Rupees, except share data and as otherwise stated) (Information as of June 30, 1999 and for the quarter ended June 30, 1998 and 1999 is unaudited) The Company has adopted the pro forma disclosure provisions of SFAS No. 123. Had compensation cost for the Company's stock-based compensation plan been determined in a manner consistent with the fair value approach described in SFAS No. 123, the Company's net loss would have increased to the pro forma amounts indicated below.
March 31, March 31, June 30, June 30, 1999 1999 1999 1999 Rs. US$ Rs. US$ ------------ ---------- ----------- ----------- (unaudited) (unaudited) Net loss As reported.......... (187,375,665) (4,312,442) (51,748,694) (1,190,993) Adjusted pro forma... (187,378,430) (4,312,507) (51,756,994) (1,191,185) Basic loss per share As reported.......... (17.31) (0.40) (3.29) (0.08) Adjusted pro forma... (17.31) (0.40) (3.29) (0.08)
The fair value of each warrant is estimated on the date of grant using the Black-Scholes model with the following assumptions:
March 31, June 30, 1999 1999 --------- ----------- (unaudited) Dividend yield %..................................... 0.00% 0.00% Expected life........................................ 3 years 3 years Risk free interest rates............................. 11.00% 11.00% Volatility........................................... 0.01% 0.01%
(20) Year 2000 Certain organizations anticipate that they will experience operational difficulties at the beginning of the Year 2000 as a result of computer programs being written using two digits rather than four to define the applicable year. The Company's plan for the Year 2000 calls for compliance verification with external vendors supplying the Company software, testing in-house engineering and manufacturing software tools, testing software in the Company's products for the Year 2000, and communication with significant suppliers to determine the readiness of third parties remediation of their own Year 2000 issues. To date, the Company has not encountered any material Year 2000 issues concerning its respective computer programs. The Company plans to complete its Year 2000 research and testing by July 1999. All costs associated with the Company's plan for the Year 2000 are being expensed as incurred. The costs associated with the Year 2000 are not expected to have a material adverse effect on the Company's business, financial condition and results of operations. Nevertheless there is uncertainty concerning the potential costs and effects associated with any Year 2000 compliance. F-20 Three panels of graphical information regarding Satyam Infoway Limited consisting of: . a graphical presentation of Satyam Infoway's network covering 25 cities in India, with international Internet gateways in Mumbai, Bangalore, Chennai, Hyderabad, Delhi and Calcutta; . sample web pages from some of Satyam Infoway's content sites, including specialty sites related to personal finance and classified ads; . a picture of the Satyam Online CD-ROM; . a list of products and services provided by Satyam Infoway; . a picture of equipment in Satyam's data center; and . a description of some of the features of Satyam Online. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,175,000 American Depositary Shares Representing 4,175,000 equity shares [LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE] SATYAM INFOWAY LIMITED American Depositary Shares ---------------- P R O S P E C T U S ---------------- Merrill Lynch & Co. Salomon Smith Barney , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +The information in this offering circular is not complete and may be changed. + +We may not sell these securities until the registration statement filed with + +the Securities and Exchange Commission is effective. This offering circular + +is not an offer to sell these securities and we are not soliciting an offer + +to buy these securities in any jurisdiction where the offer or sale is not + +permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999 OFFERING CIRCULAR 4,175,000 American Depositary Shares [LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE] SATYAM INFOWAY LIMITED Representing 4,175,000 Equity Shares ----------- Satyam Infoway Limited is offering up to 4,175,000 American Depositary Shares, or ADSs, of Satyam Infoway outside India, including in the United States. This offering circular relates to an offering by the international underwriters of up to 1,670,000 American Depositary Shares outside the United States and Canada. Additional underwriters are offering up to 2,505,000 American Depositary Shares in the United States and Canada. Each American Depositary Share represents one equity share. This is Satyam Infoway's initial public offering, and no public market currently exists for Satyam Infoway's equity shares. Satyam Infoway has applied to list its American Depositary Shares on The Nasdaq Stock Market's National Market under the symbol "SIFY." It is anticipated that the price to public per ADS will be between $12.00 and $14.00 per ADS. ----------- Investing in the American Depositary Shares involves certain risks which are described in the Risk Factors beginning on page 7. -----------
Underwriting Price discount and Proceeds to public commissions to us --------- ------------ -------- Per ADS......................................... $ $ $ Total........................................... $ $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Satyam Infoway has granted to the underwriters the right to purchase up to an additional 626,250 American Depositary Shares at the public offering price, less discount and commissions, within 30 days from the date of this offering circular to cover overallotments. ----------- Merrill Lynch International Salomon Smith Barney International , 1999 TABLE OF CONTENTS
Page ---- Prospectus Summary...................................................... 1 Risk Factors............................................................ 7 Conventions Which Apply to This Prospectus.............................. 22 Currency of Presentation................................................ 22 Enforcement of Civil Liabilities........................................ 23 Reports to Our Security Holders......................................... 24 Use of Proceeds......................................................... 25 Dividend Policy......................................................... 26 Capitalization.......................................................... 27 Exchange Rates.......................................................... 28 Dilution................................................................ 29 Selected Financial Data................................................. 30 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 32 Business................................................................ 43 Management.............................................................. 60 Principal Shareholders.................................................. 65 Certain Transactions.................................................... 66 Description of Equity Shares............................................ 67 Description of American Depositary Shares............................... 72 Restrictions on Foreign Ownership of Indian Securities.................. 80 Government of India Approvals........................................... 84 Taxation................................................................ 86 Shares Eligible for Future Sale......................................... 91 Underwriting............................................................ 92 Legal Matters........................................................... 95 Experts................................................................. 95 Change of Accountants................................................... 95 Additional Information.................................................. 95 Index to Financial Statements........................................... F-1
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. Through and including , (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. UNDERWRITING The global offering consists of: . the international offering of 1,670,000 ADSs outside the United States and Canada; and . the U.S. offering of 2,505,000 ADSs in the United States and Canada. We and the underwriters for the international offering named below have entered into an underwriting agreement with respect to the ADSs being offered in the international offering. Each international underwriter has severally agreed to purchase the number of ADSs indicated in the table below. Merrill Lynch (Singapore) Pte. Ltd. and Salomon Brothers International Limited are the representatives for the international underwriters. Merrill Lynch International will be selling in Europe.
Number of International Underwriters ADSs -------------------------- ------ Merrill Lynch (Singapore) Pte. Ltd................................... Salomon Brothers International Limited............................... ---- Total........................................................... ====
The international underwriters have agreed to purchase all the ADSs being offered in the international offering, other than those covered by the overallotment option described below, if they purchase any of these ADSs. We have granted to the underwriters in the international and U.S. offerings an option, exercisable within 30 days after the date of this prospectus, to purchase up to 626,250 additional ADSs at the public offering price less the underwriting commission. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, in connection with the offerings. The representatives of the U.S. underwriters will decide on behalf of the underwriters whether to exercise the option and whether to allocate any ADSs covered by the option to the U.S. offering or the international offering. If the international underwriters purchase overallotment ADSs, each international underwriter will purchase a number of additional ADSs approximately proportionate to the underwriter's initial purchase commitment. The international underwriters will initially offer the ADSs at the public offering price set out on the cover of this prospectus. The international underwriters may sell ADSs to securities dealers at a discount of up to $ per ADS from the initial public offering price. Any of these securities dealers may resell any securities purchased from the international underwriters to other brokers or dealers at a discount of up to $ per ADS from the initial public offering price. If all the ADSs are not sold at the initial offering price, the representatives of the international underwriters may change the offering price and the other selling terms. We have also entered into an underwriting agreement for the sale of 2,505,000 ADSs in the United States and Canada. Merrill Lynch and Co. and Salomon Smith Barney Inc. are the representatives of the underwriters for the U.S. offering. The international and U.S. offerings are conditioned on each other. The initial offering price and aggregate underwriting commissions per ADS for the international offering and the U.S. offering are identical. The underwriters have entered into an agreement in which they agree to restrictions on where and to whom they and any dealer purchasing from them may offer ADSs in connection with the offering. The international and U.S. underwriters also have agreed that they may sell shares between their respective underwriting groups. Our company, each of our executive officers and directors, the holders of warrants to purchase 750,000 equity shares and substantially all of our shareholders have agreed not to offer, sell, contract to sell or otherwise dispose of any equity shares or securities convertible into, exchangeable for or representing the right to receive equity shares, for a period of 180 days after the date of this prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. These agreements do not cover (1) the grant of stock options under our existing stock option plan or (2) equity shares issued upon the conversion of convertible or exchangeable securities or the exercise of an option or warrant outstanding as of the date of this prospectus. These lock-up agreements cover substantially all equity shares outstanding prior to this offering. 92 The ADSs offered under this prospectus are expected to be approved for listing on the Nasdaq National Market. In connection with the global offering, the international and U.S. underwriters may purchase and sell ADSs in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of securities than they are required to purchase in the offering. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the ADSs while the offering is in progress. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the ADSs. As a result, the price of the ADSs may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, the underwriters may discontinue these transactions at any time. The underwriters may effect transactions through the Nasdaq National Market, in the over-the-counter market or otherwise. We have agreed to indemnify the several underwriters against some liabilities, including liabilities under the Securities Act of 1933. The underwriters and their affiliates engage and may in the future engage in investment banking and commercial banking transactions with us. The underwriters have reserved up to 200,000 ADSs for sale at our request to persons associated with our company at the same price and on the same terms as the shares sold by the underwriters to the general public. The number of ADSs available for sale to the general public will be reduced to the extent any reserved ADSs are purchased. Any reserved ADSs not so purchased will be offered by the underwriters on the same basis as the other ADSs offered hereby. The underwriters expect to deliver ADSs against payment for the ADSs in U.S. dollars in New York, New York on or about , 1999. Selling Restrictions The prospectus does not constitute an offer or an invitation by, or on behalf of, us or by or on behalf of the underwriters, to subscribe for or purchase any of the equity shares or the offered ADSs in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. The distribution of this prospectus and the offering of the equity shares or the ADSs in certain jurisdictions may be restricted by law. Persons into whose possession this prospectus comes are required by us and the underwriters to inform themselves about and to observe any such restrictions. Each international underwriter has represented and agreed that it has not distributed and will not distribute, directly or indirectly, any prospectus relating to the ADSs in India or to residents of India and that it has not offered or sold and will not offer or sell, directly or indirectly, any ADSs in India or to, or for the account or benefit of, any resident of India. Each international underwriter has represented and agreed that (1) it has not offered or sold and prior to the expiry of the period of six months from the initial issue date of the ADSs will not offer or sell any ADSs to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (2) it has completed and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the ADSs in, from or otherwise involving the United Kingdom; and (3) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the 93 issue of the ADSs to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, as amended, or is a person to whom such document may otherwise lawfully be issued or passed on. Each international underwriter has represented and agreed that (1) it has not offered or sold and will not offer or sell in the Hong Kong Special Administrative Region of the People's Republic of China, or Hong Kong, by means of any document, the ADSs other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32 of the laws of Hong Kong) and (2) unless permitted to do so under the securities laws of Hong Kong, it has not issued or had in its possession for the purpose of issue and will not issue or have in its possession for the purpose of issue any invitation, advertisement or document relating to the ADSs in Hong Kong other than with respect to such ADSs intended to be disposed of to persons outside Hong Kong or to persons whose business involves the acquisition, disposal or holding of securities (whether as principal or agent). This prospectus has not been registered with the Registrar of Companies and Business in Singapore. Accordingly, each international underwriter has represented and agreed that is has not and will not offer or sell any ADSs or distribute this prospectus or any other document or material in connection with the ADSs, either directly or indirectly, (1) to constitute an offer or sale of the ADSs to the public of Singapore or (2) to the public or any member of the public in Singapore other than pursuant to, and in accordance with the conditions of, an exemption invoked under Division 5A of Part IV of the Companies Act, Chapter 50 of Singapore and to persons to whom the ADSs may be offered or sold under such exemption. The Registrar of Companies and Businesses in Singapore takes no responsibility as to the contents of this document. Each international underwriter has represented and agreed that the ADSs have not been registered under the Securities and Exchange Law of Japan and are not being offered or sold and may not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan or to any persons for reoffering or resale, directly or indirectly, in Japan or to any residents of Japan, except (1) pursuant to an exemption from the registration requirements of the Securities and Exchange law of Japan and (2) in compliance with any other applicable requirements of Japanese law. 94 LEGAL MATTERS The validity of the ADSs offered hereby will be passed upon for Satyam Infoway Limited by Latham & Watkins, Menlo Park, California. The validity of the equity shares represented by the ADSs offered hereby and the principal Indian tax consequences for holders of ADSs and equity shares received upon withdrawal of such equity shares who are not resident in India will be passed upon by M.G. Ramachandran, New Delhi, India, Indian counsel for Satyam Infoway Limited. Matters in connection with the offering will be passed upon on behalf of the underwriters by Brobeck, Phleger & Harrison, LLP, New York, New York, and Nishith Desai Associates, Mumbai, India, counsel for the Underwriters. Latham & Watkins may rely upon M.G. Ramachandran with respect to matters governed by Indian law. EXPERTS The U.S. GAAP financial statements of Satyam Infoway Limited as of March 31, 1998 and 1999, and for each of the years in the three-year period ended March 31, 1999, have been included herein in reliance upon the report of KPMG Peat Marwick, India, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting. CHANGE OF ACCOUNTANTS Effective May 1998, Bharat S. Raut and Company was engaged as the principal independent accountants for Satyam Infoway for Indian GAAP reporting, replacing Fraser & Ross, who resigned at that time. The change was approved by our Directors and at the annual general meeting held on May 23, 1998. In connection with the audits of the fiscal years ended March 31, 1996, 1997 and 1998, and for the interim period from April 1, 1998 through May 23, 1998, there were no disagreements with Fraser & Ross on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Fraser & Ross, would have caused them to make reference to the matter in their report, except that during the fiscal year ended March 31, 1998 Fraser & Ross qualified its opinion regarding whether or not Section 58A of the Companies Act applied to Satyam Infoway's issuance of debentures to Citibank. Section 58A prohibits Indian companies, other than banks, from accepting "deposits" in an amount in excess of 25% of their share capital. Fraser & Ross concluded that the debentures should be classified as "deposits" while Satyam Infoway concluded that they should be classified as a bank loan. The audit reports of Fraser & Ross for the financial statements of Satyam Infoway as of and for the fiscal years ended March 31, 1996, 1997 and 1998 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty or audit scope, except for a qualification of the financial statements at March 31, 1998 prepared under Indian GAAP related to the treatment of the Citibank debentures as described above. ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form F-1, which includes amendments, exhibits, schedules and supplements, under the Securities Act of 1933, as amended, and the rules and regulations of the SEC, for the registration of the ADSs and underlying equity shares offered by this prospectus. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, part of the registration statement have been omitted from this prospectus as permitted by the rules and regulations of the SEC. A related registration statement on Form F-6 has also been filed to register our ADSs as represented by the ADRs. For further information with respect to 95 our company and the ADSs offered by this prospectus, please refer to the registration statement. Although this prospectus contains all material terms of the contracts or other documents referred to in this prospectus, the descriptions of these contracts or other documents contained in this prospectus are not necessarily complete. You may read and copy all or any portion of the registration statement or any other information that we file, or obtain a copy of those materials, through facilities maintained by the SEC as described in the front of this prospectus under the caption "Reports to our Security Holders." 96 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,175,000 American Depositary Shares Representing 4,175,000 equity shares [LOGO OF SATYAM INFOWAY LIMITED APPEARS HERE] SATYAM INFOWAY LIMITED American Depositary Shares ---------------- OFFERING CIRCULAR ---------------- Merrill Lynch International Salomon Smith Barney International , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than the underwriting discount, payable by the Registrant in connection with the sale of the ADSs being registered. All amounts are estimates except the SEC registration fee, the NASD filing fees and the Nasdaq National Market listing fee.
Amount to Be Paid ---------- SEC registration fee............................................. $ 18,687 NASD filing fee.................................................. 7,222 Nasdaq National Market listing fee............................... 60,000 Legal fees and expenses.......................................... 500,000 Accounting fees and expenses..................................... 120,000 Printing and engraving........................................... 200,000 Blue sky fees and expenses (including legal fees)................ 10,000 Reimbursement of offering expenses by Depositary................. (75,000) Miscellaneous.................................................... 159,091 ---------- Total.......................................................... $1,000,000 ==========
- -------- * To be supplied by amendment. Item 14. Indemnification of Directors and Officers We expect to amend our Articles of Association to provide that our directors and officers shall be indemnified by our company against loss in defending any proceeding brought against officers and directors in their capacity as such, if the indemnified officer or director receives judgment in his favor or is acquitted in such proceeding. In addition, we expect to amend our Articles of Association to provide that our company shall indemnify our officers and directors in connection with any application pursuant to Section 633 of the Companies Act, 1956 in which relief is granted by the court. We expect to enter into indemnification agreements with our directors and officers, pursuant to which our company will agree to indemnify them against a number of liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer. The form of underwriting agreement to be filed as Exhibit 1.1 to this registration statement will also provide for indemnification of our company and our officers and directors. Our company may obtain directors and officers insurance providing indemnification for a number of our directors, officers, affiliates, partners or employees for specified errors and omissions. Item 15. Recent Sales of Unregistered Securities The registrant has sold and issued the following securities since December 12, 1995 (Inception): (1) On December 12, 1995, we issued on aggregate of (a) 100 equity shares to B. Ramalinga Raju, (b) 100 equity shares to B. Rama Raju and (c) 30 equity shares to Satyam Computer Services for a purchase price of Rs.2,300. (2) On August 13, 1997, we issued an aggregate of 1.3 million equity shares to Satyam Computer Services for a purchase price of Rs.13.0 million. (3) On March 30, 1998, we issued an aggregate of 6.2 million equity shares to Satyam Computer Services for a purchase price of Rs.62.0 million. II-1 (4) On June 30, 1998, we issued an aggregate of 3.0 million equity shares, to Satyam Computer Services for a purchase price of Rs.30.0 million. (5) On September 25, 1998, we issued an aggregate of (a) 370,000 equity shares to R. Ramaraj and (b) 1,130,000 equity shares to Satyam Computer Services for a purchase price of Rs.15.0 million. (6) On December 24, 1998, we issued an aggregate of 749,770 equity shares to Satyam Computer Services for a purchase price of Rs.52.5 million. (7) In March 1999, we issued (a) an aggregate of 3.0 million equity shares to SARF for a purchase price of Rs.210.0 million and (b) warrants to purchase an aggregate of 750,000 equity shares to SARF and Satyam Computer Services. (8) In September 1999, we issued an aggregate of 481,000 equity shares to Sterling Commerce for a purchase price of $5.0 million. (9) On or about the effective date of this registration statement, we will issue an aggregate of 750,000 equity shares to SARF and Satyam Computer Services upon the exercise of warrants. The sale of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act, except that the issuance described under (8) was deemed exempt in reliance on Regulation D and Section 4(2) under the Securities Act. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits.
Number Description ------ ----------- *1.1 Form of Underwriting Agreement. 3.1 Articles of Association of Satyam Infoway Limited. 3.2 Memorandum of Association of Satyam Infoway Limited. 3.3 Table "A' of the Companies Act, 1956. 4.1 Share Subscription and Shareholders' Agreement, dated as of February 5, 1999, by and among Satyam Infoway Limited, Satyam Computer Services Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju. 4.2 Amendment No. 1 to Share Subscription and Shareholders' Agreement, dated as of September 14, 1999, by and among Satyam Infoway Limited, Satyam Computer Services Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju. *4.3 Form of Deposit Agreement among Satyam Infoway Limited, Citibank, N.A. and holders from time to time of American Depositary Receipts issued thereunder (including as on exhibit, the form of American Depositary Receipt). *4.4 Satyam Infoway Limited's Specimen Certificate for equity shares. 4.5 Rupee Loan Agreement, dated as of July 3, 1998, by and between Satyam Infoway Limited and Export-Import Bank of India. 4.6 Letter Agreement, dated as of September 14, 1999, by and between Satyam Infoway Limited and Sterling Commerce, Inc. 4.7 Stockholders Agreement, dated as of September 14, 1999, by and among Satyam Infoway Limited, Sterling Commerce, Inc. and Satyam Computer Services Limited. 4.8 Registration Rights Agreement, dated as of September 14, 1999, by and among Satyam Infoway Limited, Sterling Commerce, Inc. and South Asia Regional Fund. *5.1 Opinion of M. G. Ramachandran. *10.1 Associate Stock Option Plan (including Administration Manual and Deed of Trust). *10.2 Form of Indemnification Agreement.
II-2
Number Description ------ ----------- 10.3 License Agreement For Provision of Internet Service, dated as of November 12, 1998, by and between Satyam Infoway Limited and the Government of India, Ministry of Communications, the Department of Telecommunications, Telecom Commission. 10.4 Bank Guarantee, dated as of November 4, 1998. *10.5 CompuServe Network Services Strategic Alliance Agreement, dated of April 18, 1997, by and between Satyam Infoway Limited and CompuServe Incorporated. *10.6 International Electronic Commerce Provider Agreement, dated as of February 14, 1997, by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.7 Amendment No. 1 to International Electronic Commerce Provider Agreement by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.8 Amendment No. 2 to International Electronic Commerce Provider Agreement by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.9 Amendment No. 3 to International Electronic Commerce Provider Agreement, dated as of September 14, 1999, by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.10 Distribution Agreement, dated as of June 1997, by and between Satyam Infoway Limited and Open Market, Inc. 10.11 User Agreement, effective as of April 1, 1999 by and between Satyam Infoway Limited and Satyam Computer Services Limited. *16.1 Letter from Fraser & Ross regarding Change in Certifying Accountant. *23.1 Consent of Latham & Watkins. *23.2 Consent of M.G. Ramachandran (included in Exhibit 5.1). 23.3 Consent of KPMG Peat Marwick, India, Independent Auditors. 23.4 Consent of International Data Corporation. 24.1 Power of Attorney (included on Page S-1 of prior filing). *27.1 Financial Data Schedule
- -------- * To be supplied by amendment. (b)Financial Statement Schedules. None. Item 17. Undertakings The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and II-3 contained in a form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or 497(h) under the Securities Act of 1933, shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Chennai, State of Tamil Nadu, Country of India, on this 4th day of October, 1999. Satyam Infoway Limited /s/ R. Ramaraj By: _________________________________ Name: R. Ramaraj Title: Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated:
Signature Title Date --------- ----- ---- /s/ R. Ramaraj Chief Executive Officer and October 4, 1999 ____________________________________ Director (Principal R. Ramaraj Executive Officer) * Chief Financial Officer October 4, 1999 ____________________________________ (Principal Financial and T.R. Santhanakrishnan Accounting Officer) * Director October 4, 1999 ____________________________________ B. Ramalinga Raju * Director October 4, 1999 ____________________________________ Pranab Barua * Director October 4, 1999 ____________________________________ T. H. Chowdary * Director October 4, 1999 ____________________________________ Donald Peck
II-5
Signature Title Date --------- ----- ---- * Director October 4, 1999 ____________________________________ C. Srinivasa Raju * Director October 4, 1999 ____________________________________ S. Srinivasan * Authorized Representative in October 4, 1999 ____________________________________ the United States Donald J. Puglisi
/s/ R. Ramaraj *By: _____________________ R. Ramaraj, Attorney-in-Fact II-6 EXHIBIT INDEX
Number Description ------ ----------- *1.1 Form of Underwriting Agreement. 3.1 Articles of Association of Satyam Infoway Limited. 3.2 Memorandum of Association of Satyam Infoway Limited. 3.3 Table "A' of the Companies Act, 1956. 4.1 Share Subscription and Shareholders' Agreement, dated as of February 5, 1999, by and among Satyam Infoway Limited, Satyam Computer Services Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju. 4.2 Amendment No. 1 to Share Subscription and Shareholders' Agreement, dated as of September 14, 1999, by and among Satyam Infoway Limited, Satyam Computer Services Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju. *4.3 Form of Deposit Agreement among Satyam Infoway Limited, Citibank, N.A. and holders from time to time of American Depositary Receipts issued thereunder (including as on exhibit, the form of American Depositary Receipt). *4.4 Satyam Infoway Limited's Specimen Certificate for equity shares. 4.5 Rupee Loan Agreement, dated as of July 3, 1998, by and between Satyam Infoway Limited and Export-Import Bank of India. 4.6 Letter Agreement, dated as of September 14, 1999, by and between Satyam Infoway Limited and Sterling Commerce, Inc. 4.7 Stockholders Agreement, dated as of September 14, 1999, by and among Satyam Infoway Limited, Sterling Commerce, Inc. and Satyam Computer Services Limited. 4.8 Registration Rights Agreement, dated as of September 14, 1999, by and among Satyam Infoway Limited, Sterling Commerce, Inc. and South Asia Regional Fund. *5.1 Opinion of M. G. Ramachandran. *10.1 Associate Stock Option Plan (including Administration Manual and Deed of Trust). *10.2 Form of Indemnification Agreement. 10.3 License Agreement For Provision of Internet Service, dated as of November 12, 1998, by and between Satyam Infoway Limited and the Government of India, Ministry of Communications, the Department of Telecommunications, Telecom Commission. 10.4 Bank Guarantee, dated as of November 4, 1998. *10.5 CompuServe Network Services Strategic Alliance Agreement, dated of April 18, 1997, by and between Satyam Infoway Limited and CompuServe Incorporated. *10.6 International Electronic Commerce Provider Agreement, dated as of February 14, 1997, by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.7 Amendment No. 1 to International Electronic Commerce Provider Agreement by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.8 Amendment No. 2 to International Electronic Commerce Provider Agreement by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.9 Amendment No. 3 to International Electronic Commerce Provider Agreement, dated as of September 14, 1999, by and between Satyam Infoway Limited and Sterling Commerce International Inc. *10.10 Distribution Agreement, dated as of June 1997, by and between Satyam Infoway Limited and Open Market, Inc. 10.11 User Agreement, effective as of April 1, 1999 by and between Satyam Infoway Limited and Satyam Computer Services Limited. *16.1 Letter from Fraser & Ross regarding Change in Certifying Accountant. *23.1 Consent of Latham & Watkins. *23.2 Consent of M.G. Ramachandran (included in Exhibit 5.1). 23.3 Consent of KPMG Peat Marwick, India, Independent Auditors.
1
Number Description ------ ----------- 23.4 Consent of International Data Corporation. 24.1 Power of Attorney (included on Page S-1 of prior filing). *27.1 Financial Data Schedule
- -------- * To be supplied by amendment. 2 EX-3.1 2 ARTICLES OF ASSOCIATION OF SATYAM INFOWAY LIMITED EXHIBIT 3.1 UNDER THE COMPANIES ACT, 1956 [1 OF 1956] COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF SATYAM INFOWAY LIMITED The following articles shall be the regulations of the management of the Company. PRELIMINARY 1. Subject to as provided here in after the regulations contained in Table `A' of the Companies Act, 1956, herein after, referred to as Table `A' shall apply to the Company except, those regulations as do not apply to private Companies. 2. [/3/] CAPITAL 3. The authorised share capital of the Company shall be as stated in clause V of the Memorandum of Association. (i) [Where at any time subsequent to the first allotment of shares, it is proposed to increase the subscribed capital by the issue of new shares, subject to any directions to the contrary which may be given by the company in general meeting and subject only to these directions, such new shares shall be issued in accordance with the provisions of section 81 of the Act.]/4/ 4. The Directors of the Company may from time to time determine the amount payable on application and allotment at the time of issue of shares and may also make calls upon the members in respect of any money unpaid on their shares of such amount and payable at such time and place as they may from time to time decide. 5. Every person whose name is entered as a member in the register of members shall be entitled to receive within three months of the date of allotment one certificate for all his shares under the seal of the Company and if, any member so desires, he can have more than one certificate in respect of each or more of his shares on payment of Rs.10/-as certificate. The Company shall not be bound to issue more than one certificate in respect of the same share to joint holders. 6. If a share certificate is defaced, lost or destroyed, it may be renewed on payment of Rs.30/-and on executing an indemnity bond in respect of the shares comprised in the certificate after the Directors are satisfied as to the genuineness of the case. ______________________________ /3/ Provisions relating to Private Companies deleted by Special Resolution passed in an Extra-ordinary General Meeting held on 30th November 1998. /4/ Inserted vide Special resolution passed in Extra-ordinary General meeting held on 30th June 1997 SHARE WARRANTS 6A. 1) The company may issue share warrants subject to, and in accordance with the provisions of Section 114 and 115; and accordingly the Board may in its discretion with respect to any share which is fully paid-up, on application in writing signed by the person registered as holder of the share, and authenticated by such evidence (if any) as the Board may, from time to time, require as to the identity of the person signing the application, and on receiving the certificate (if any) of the share, and the amount of the stamp duty on the warrant and such fee as the Board may from time to time require, issue a share warrant. 2) The Board may, from time to time, make rules as to the terms of which (if it shall think fit) a new share warrant or coupon may be issued by way of renewal in case of defacement, loss or destruction. 3) The warrant issued shall entitle the registered holder thereof a right to subscribe (the "Subscription Right(s)") for one fully paid share in the capital of the company at any time during the warrant exercise period for the warrant exercise price on the following conditions 4) The Warrant Exercise price per shall be calculated by applying, at the "Warrant exercise date" a multiple of eight to the fully diluted earnings per share calculated using the latest annual audited accounts of the company. The term "fully diluted" shall for the purposes of this clause mean that the number of shares used to calculated the earnings per share will be the number of shares used to calculated the earnings per share will the number of shares that would be in issue if all the warrants and options in issue at the Warrant exercise date were converted into shares, subject to a minimum price of the higher of (a) 66% of the fair market value of a share on the warrant exercise date, fair market value being arrived at by taking the mean price per share determined by three reputable merchant banks acceptable to the share holders at the time and (b) the par value of shares subscribed. If the share holders cannot agree on three reputable merchant banks, the President for the time-being of the International Chambers of Commerce, India will select and appoint such remaining reputable Merchant bankers as may be required, at the request of any of the parties hereto. 5) The Warrants exercise period shall be any time between 30th June 2001 to 30 June 2003 during which warrants can be exercised failing which the relevant warrants will lapse and cease to have any further effect. Once a notice exercising the warrant has been given, such notice may not be withdrawn except with written consent of the company. The warrants shall have to be exercised in not more than 3 tranches by the warrant holders. 6) Each warrant holder shall be entitled to warrant certificates in such denominations as he may request. The warrant certificates shall be issued under the seal of the company. The conditions of the warrants and the warrants shall be binding upon the company and the warrant holders and all persons claiming through or under them respectively. 7) As long as any of the subscription rights remain exercisable: (a) all shares allotted and issued on exercise of the subscription shall rant pari passu in all respects with the fully paid shares in the company and shall accordingly entitle the holders to participate in full in all dividends or other distributions paid or made on in respect of the shares from the relevant warrant exercise date; and (b) the company shall send to each warrant holder, at the same time as the same are sent to the holders of shares, its audited accounts and all other notices, 2 reports and communications despatched by it to the holders of the shares generally. (c) Warrants shall be transferable by instrument of transfer in any usual or common form or such other form as may be approved by the Directors. The provisions relating to the registration transmission and transfer of shares and register of members shall apply mutatis mutandis, to the registration, transmission and transfer of the warrants and the register. REGISTRATION RIGHTS 6B [/5/] (a) Notwithstanding anything to the contrary contained herein, at any time commencing 180 days after an initial public offering outside India, Sterling Commerce, Inc. ("Sterling Commerce"), may make one written request, and South Asian Regional Fund ("SARF") may make three written requests ("Demand Registration"), for a registration of Registrable Securities under the United States Securities Act of 1933 ("Securities Act"), pursuant to a registration statement on the appropriate form. "Registrable Security" means each equity share of the Company until (i) it has been effectively registered under the Securities Act and disposed of pursuant to an effective registration statement, (ii) it is sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, including a sale pursuant to the provisions of Rule 144(k), (iii) it has been otherwise Transferred and the certificate or other evidence of ownership for it is not required to bear the legend required pursuant to Article 11B and it may be resold by the person receiving such certificate without registration under the Securities Act or (iv) the Holder thereof ceases to hold at least one percent (1.0%) of the outstanding Equity Shares and all of such Holder's Equity Shares may be resold in one 90-day period without (x) a volume limitation or (y) reliance on Rule 144(k). The request for a Demand Registration shall specify the number of Registrable Securities proposed to be sold (which shall be at least the lesser of (i) U.S. $5.0 million in fair market value or (ii) all equity shares then beneficially owned by Sterling Commerce or SARF, as the case may be) and will also specify the intended method of disposition thereof. The Company shall not be required to keep any shelf registration statement requested pursuant to a Demand Registration continuously effective for more than 90 days. (b) A registration will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the United States Securities and Exchange Commission ("Commission") and the Company has complied in all material respects with its obligations with respect thereto; provided that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the Commission or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the acts or omissions of the Holder who commenced the Demand Registration), such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Article 6B is deemed not to have been effected or (ii) the registration requested pursuant to this Article 6B does not remain effective for a period of at least 90 days beyond the effective date thereof or until the earlier consummation of the distribution by the Holder who commenced the Demand Registration of the Registrable Securities included in such registration statement by it, then such registration statement shall not count as a Demand Registration pursuant to Article 6B (a) and the Company shall continue to be obligated to effect the registrations pursuant to this Article 6B as though the request for such Demand Registration had never been made. At the request of the Holder who commenced the Demand Registration, the Company shall withdraw the Demand Registration at any time prior to the time it becomes effective, provided that such Holder shall reimburse the ___________________________ /5/ Inserted vide Special resolution passed in Extra-ordinary General meeting held on 8th September, 1999 3 Company for all reasonable out-of-pocket expenses (including reasonable counsel fees and expenses) incurred prior to such withdrawal and shall thereafter be entitled to the Demand Registration rights that existed prior to such withdrawal. (c) If the Holder commencing the Demand Registration so elects, the offering of Registrable Securities pursuant to a Demand Registration shall be in the form of an underwritten offering. The Holder commencing the Demand Registration shall select one or more nationally recognized firms of investment bankers to act as the book-running managing Underwriter or Underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; provided that such investment bankers and managers must be reasonably satisfactory to the Company. (d) In connection with a Demand Registration under this Article 6B only, the Holders participating in the Demand Registration shall have the sole right to determine the offering price per share and underwriting discount, if applicable, in connection with any resales of Registrable Securities by them, after consultation with the Company and due regard for the Company's views relating thereto. 6C [/5/] Piggy-Back Registration: If at any time the Company proposes to file a - ------------------------ registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any security holders of any class of its equity securities for cash, including without limitation, a registration statement filed in response to a request for Demand Registration pursuant to Article 6B (other than a registration statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders or for any compensatory benefit plan), then the Company shall give written notice of such proposed filing to each Holder as soon as practicable (but in no event less than 14 days before the anticipated filing date), and such notice shall offer each other Holder the opportunity to register such number of Registrable Securities as such Holder may request (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "Piggy-Back ---------- Registration"). - ------------ The Company shall use its reasonable best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested by each other Holder to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. A Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Article 6C by giving written notice to the Company of its request to withdraw. No registration effected under this Article 6C, and no failure to effect a registration under this Article 6C, shall relieve the Company of its obligations pursuant to Article 6B, and no failure to effect a registration under this Article 6C and to complete the sale of equity shares in connection therewith shall relieve the Company of any other obligation. 6D[/5/] Reduction of Offering. (a) Demand Registration. As provided for in Article - --------------------- ------------------- 6C, the Company may include in a Demand Registration Equity Shares for the account of the Company, the other Holders or other holders thereof exercising contractual piggy back or demand rights, on the same terms and conditions as the Registrable Securities to be included therein for the account of the ______________________________ /5/ 4 Holder commencing the Demand Registration; provided, however, that (i) if the managing Underwriter or Underwriters of any underwritten offering described in Article 6B have informed the Company in writing that it is their opinion that the total number of Equity Shares which the Company and the Holders and any other holders participating therein intend to include in such offering is such as to materially and adversely affect the success of such offering, then (x) the number of Equity Shares to be offered for the account of such other holders (if any) shall be reduced (to zero, if necessary), in the case of this clause (x) pro rata in proportion to the respective number of Equity Shares requested to be registered, (y) thereafter, if necessary, the number of Equity Shares to be offered for the account of the Company (if any) shall be reduced (to zero, if necessary) and (z) thereafter, if necessary, the number of Equity Shares to be offered for the account of the Holder (other than the Holder commencing the Demand Registration) (if any) shall be reduced (to zero, if necessary), to the extent necessary to reduce the total number of Equity Shares requested to be included in such offering to the number of Equity Shares, if any, recommended by such managing Underwriters and (ii) if the offering is not underwritten, no other party, including the Company, shall be permitted to offer securities under any such Demand Registration unless the Holder commencing the Demand Registration consents to the inclusion of such Equity Shares therein, such consent not to be unreasonably withheld. (b) Piggy-Back Registration. Notwithstanding anything to the contrary ----------------------- contained herein, if the managing Underwriter or Underwriters of any underwritten offering described in Article 6C have informed the Company in writing that it is their opinion that the total number of Equity Shares that the Company and the Holders and any other Persons desiring to participate in a registration other than a Demand Registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of Equity Shares to be offered for the account of the Holders and all such other Persons (other than the Company) participating in such registration shall be reduced (to zero if necessary) or limited pro rata in proportion to the respective number of Equity Shares requested to be registered to the extent necessary to reduce the total number of Equity Shares requested to be included in such offering to the number of Equity Shares, if any, recommended by such managing Underwriters; provided, however, that if such offering is effected for the account of any other security holder of the Company pursuant to the demand registration rights of such security holder, then (x) the number of Equity Shares to be offered for the account of the Company (if any) shall be reduced (to zero, if necessary) and (y) thereafter, if necessary, the number of Equity Shares to be offered for the account of the Holders and any other holders that have requested to include Equity Shares in such registration (but not such security holders who have exercised their demand registration rights) shall be reduced (to zero, if necessary), in the case of this clause (y) pro rata in proportion to the respective number of Equity Shares requested to be registered, to the extent necessary to reduce the total number of Equity Shares requested to be included in such offering to the number of Equity Shares, if any, recommended by such managing Underwriters. 6E [/5/] Registration Rights in India. - ---------------------------- In connection with any registered public offering by the Company of equity shares in India, the Company shall, subject to all necessary approvals of the Government of India, use its reasonable best efforts to register the equity shares held by Sterling Commerce under Indian law and, at the request of Sterling Commerce, include the equity shares held by Sterling Commerce in such offering on terms that treat it pro rata with the other holders of equity shares with registration rights applicable to an offering in India. TRANSFERS ____________________________ /5/ 5 7. The shareholder shall not except with the prior written consent of the other shareholders: (1) pledge, mortgage, charge or otherwise encumber any of its shares, options or warrants or any interest in any such shares options or warrants; (2) transfer, dispose of or grant an option over any of its shares or any interest (legal or beneficial) in any such shares, options or warrants; or (3) enter into any agreement in respect of the votes attached to any of its shares, options or warrants. 8. Satyam Computer Services Limited shall not be entitled to transfer any shares, warrants or options to a buyer unless it ensures that the buyer makes a written offer (open for acceptance for a period of at least 28 days and with adequate security as to the performance of its obligations) to purchase all of the shares held by South Asia Regional Fund at the Tag Along price per share. Any such offer shall be on the terms that the consideration shall be payable in cash in full without any set off within 21 days of acceptance of the offer. Satyam Computer Services Limited shall also ensure that the buyer completes the purchase from South Asia Regional Fund all of its shares before or at the same time as the buyer completes the purchase of shares from it. "Tag Along Price" shall mean the higher of (a) the highest consideration offered for each share the proposed transfer of which has led to the offer; and (b) the highest consideration paid by the buyer for any share in the twelve months up to the relevant offer. 9. If any shareholder transfers any shares, warrants or options owned by it in accordance with the provisions of any share subscription agreement other than to the other shareholder(s) (transferee) of the company, such transfer shall be made upon the condition that the transfer shall be made upon the condition that the transferee(s) shall execute a Deed of Adherence, in form agreed to by the parties by which, on and as of the date on which such shares, warrants or options are transferred to it, the transferee(s) shall become subject to the same obligations and shall be entitled to the same rights as bound and accrued to the transferor pursuant to such share subscription agreement. 10. The registration of transfer of shares, warrants or options shall be carried out by the board of directors only if they are effected in accordance with any Share Subscription Agreement entered into by the company and the transferee has fulfilled the obligations pursuant to such an agreement. 11. If South Asia Regional Fund becomes entitled to exercise the Exit Option in accordance with Share Subscription Agreement may at its option: (i) require Satyam Computer Services Limited makes available for sale the requisite number of its shares along with South Asia Regional Fund's shareholding, meeting the minimum listing requirements on the BSE or the NSE or other recognised stock exchange in India or abroad, through an offer for sale to public (ii) sell its holding to a trade buyer or financial investor in which case the sponsor will undertake all steps to facilitate such a sale, including making available necessary number of its shares which when combined with the shares owned by South Asia Regional Fund will give the trade buyer or financial investor at least a 25.1% shareholding in the company, and both Satyam Computer Services Limited and South Asia Regional Fund sell their shares on the same terms and conditions (iii) require the company to buy back all of its shares or such of South Asia Regional Fund's shares as are permitted under Indian law, at a price per share agreed between South Asia Regional Fund and the company, or failing such agreement at Fair Market value. 6 11A [/5/] (a) Notwithstanding any other provisions of these Articles of Association, except for as provided in Article 11C, Sterling Commerce shall not transfer its pecuniary interest in any equity shares of the Company for a period of 180 days from the date of the allotment of shares to it for the first time in the Company, except transfers to a wholly-owned subsidiary or parent corporation. (b) In the event of an initial public offering in which (i) the gross proceeds from the shares of Equity Shares sold are at least $20 million, and (ii) immediately after such offering the Equity Shares, or American Depositary Shares representing the Equity Shares, are listed for trading on either the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market National Market System ("Qualified IPO"), neither Sterling Commerce, Inc. nor Satyam Computer Systems Limited ("SCSL") shall transfer any equity shares for a period (the "Lockup Period") commencing on the date on which such Qualified IPO is consummated, provided that all (i) members of the Board of Directors, (ii) Affiliates of members of the Board of Directors, which Affiliates own Equity Shares and (iii) Similarly Situated Investors agree to a substantially identical lockup. The length of the Lockup Period shall be determined by the Company, after consultation with the underwriters in connection with the Qualified IPO, but in no event shall be longer than 180 days. (c) Neither Sterling Commerce nor SCSL shall transfer any Equity Shares (other than transfers (1) to the Company, (2) to any Affiliate, (3) pursuant to a merger or consolidation involving the Company or the sale of all or substantially all of the outstanding equity shares or (4) Transfers constituting a bona fide public distribution pursuant to (x) any registration statement filed under the Securities Act (the U.S. Securities Act of 1933) or any Public Offering ("Public Offering" shall mean any underwritten public distribution of equity securities of the Company in the United States pursuant to an effective registration statement under the Securities Act) or (y) Rule 144 Open Market Transactions) unless (i) the certificates representing such Equity Shares issued to the Transferee bear the legend provided in Article 11B, if required by such Article, and (ii) the Transferee (if not already a party hereto) has executed and delivered to each other party hereto, as a condition precedent to such Transfer, an instrument or instruments, reasonably satisfactory to such parties, confirming that the Transferee agrees to be bound by the terms of this Agreement in the same manner as such Transferee's transferor, except as otherwise specifically provided in this Agreement. 11B [/5/] In the cases of Sterling Commerce and SCSL, each outstanding certificate representing equity shares issued to them, or any certificate issued in exchange for any similarly legended certificate (including any related depositary receipt), shall, unless sold in a transaction pursuant to Article 11A (c)(1), (2), (3) or (4), bear a legend reading substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS OF ANY STATE WITHIN THE UNITED STATES, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SECURITIES MAY BE REQUIRED TO DELIVER TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY TRANSFER OF THESE SECURITIES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED). THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY ________________________ /5/ /5/ 7 TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 13, 1999. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH STOCKHOLDERS AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE WITHIN FIVE (5) DAYS AFTER THE COMPANY'S RECEIPT OF A WRITTEN REQUEST THEREFOR. 11C [/5/] (a) Notwithstanding any other provisions of these Articles of Association, (a) In the event that SCSL proposes to effect a Tag-Along Sale, SCSL shall afford Sterling Commerce the opportunity to participate therein in accordance with this Article 11C. (b) With respect to each Tag-Along Sale, Sterling Commerce shall have the right to Transfer, at the same price and upon identical terms and conditions as such proposed Transfer (except as set forth below), the number of Equity Shares owned by Sterling Commerce equal to the Transfer Allotment; provided, however, that in the event of a Tag-Along Sale pursuant to a Transfer by SCSL of an interest in a Person that directly or indirectly owns Equity Shares, the price and other terms and conditions of such Tag-Along Sale applicable to Sterling Commerce shall as closely approximate those of the proposed Transfer as is reasonably practicable. At the time any Tag-Along Sale is proposed, SCSL shall give written notice to Sterling Commerce of its right to sell Equity Shares hereunder (the "Transfer Notice"), which notice shall identify the Proposed Purchaser and state the number of Equity Shares proposed to be Transferred, the proposed offering price (including the form and terms of any non-cash consideration to be received in connection therewith), the proposed date of any such Transfer (the "Transfer Date") and any other material terms and conditions of the proposed Transfer. The Transfer Notice shall also contain a complete and correct copy of any offer to, or agreement with, SCSL by the Proposed Purchaser to purchase such Equity Shares. SCSL shall use its reasonable best efforts to deliver the Transfer Notice at least 30 days prior to the Transfer Date and in no event shall SCSL provide such Transfer Notice later than 21 days prior to the Transfer Date. (c) If Sterling Commerce wishes to participate in the Tag-Along Sale, it shall provide written notice (the "Tag-Along Notice") to SCSL no less than seven days prior to the Transfer Date. The Tag-Along Notice shall set forth the number of Equity Shares that Sterling Commerce elects to include in the Transfer, which shall not exceed the Transfer Allotment; provided that the failure of Sterling Commerce to correctly specify a number of Equity Shares not exceeding the Transfer Allotment shall not affect the rights Sterling Commerce may otherwise have under this Article 11C. Any Tag-Along Notice given by Sterling Commerce shall constitute its binding agreement to sell such Equity Shares on the terms and conditions applicable to the Transfer. If a Tag-Along Notice is not received by SCSL from Sterling Commerce prior to the seven-day period specified above, SCSL shall have the right to sell or otherwise Transfer the number of Equity Shares specified in the Transfer Notice to the Proposed Purchaser specified in the Transfer Notice without any participation by Sterling Commerce, but only on terms and conditions with respect to the consideration paid by the Proposed Purchaser no more favorable (and other material terms and conditions which a reasonable investor would consider significant to the decision to include Equity Shares in the Transfer no more favorable in any material respect) to the Proposed Purchaser than as stated in the Transfer Notice to Sterling Commerce, and only if such Transfer occurs on a date within 60 Business Days of the Transfer Date. (d) The provisions of this Article 11C shall not apply to any Transfers (i) by SCSL to ______________________ /5/ 8 a permitted transferee of SCSL (provided that such permitted transferee has agreed to be bound by this Agreement as contemplated by Article 11A hereof), (ii) pursuant to a Public Offering, or (iii) pursuant to a Rule 144 Open Market Transaction of which Sterling Commerce has been provided at least two Business Days prior written notice. 12. The Board of Directors can in the best interest of the company, if they thought fit, refuse registration of any company application for transfer without assigning any reason for so doing and they shall give notice of refusal in all such cases within one month. 13. BSE means "Bombay Stock Exchange" of India and NSE means "National Stock Exchange" of India. South Asia Regional Fund includes its subsidiaries for the time being. 14. [/6/] 15. [/7/] MEETINGS 16. All General Meetings including Annual General Meetings may be called by giving not less than [twenty one clear days]/8/ notice in writing. 17. The provisions of Sec.173 of the Companies Act, 1956 shall not apply to the Company. The provisions of Section 176(2) shall not apply the Company. MANAGEMENT 18. The quorum of meeting of Directors shall be three or one third of the strength of the Board whichever is higher. 18A 1) As long as South Asia Regional Fund own at least 7.5% of the issued ordinary share capital of the company, be entitled by notice in writing to the company, to nominate one Director to the Board of the company and to require the removal or substitution of any such director appointed by it. Such a Director appointed need not retire by rotation notwithstanding anything contrary contained in any other clause in the Articles of Association. 2) The Board shall comprise of a majority of independent non-executive directors. At the time of completion of any sale, assignment, transfer or other disposition of all the shares held by a shareholder, the shareholder shall procure the resignation of each director nominated by it. Where a shareholder sells, assigns transfers or otherwise disposes, part of its shares, such transferee shall not be entitled to appoint any director unless and until all of the transferring shareholder's original holding is transferred to it, unless the shareholders agree to the contrary. 3) The company shall provide at least 15 business days notice of meetings of the Board to those entitled to attend Board meetings unless a shorter duration is agreed to by all the ____________________ /6/ Deleted vide Special Resolution passed in Extra-ordinary General Meeting held on 30/th/ November 1998 /7/ Deleted vide Special Resolution passed in Extra-ordinary General Meeting held on 30/th/ November 1998 /8/ Replaced in lieu of the words "seven days" vide Special Resolution passed in Extra-ordinary General Meeting held on 30/th/ November 1998 9 directors entitled to attend board meetings. The company shall prepare an agenda for each meeting, providing the full details of matters to be considered, and details of all resolutions proposed to be passed at the meeting of the Board. Business Day means a day on which banks are open for business (including dealings in foreign currency deposits and exchange) in India. 4) South Asia Regional Fund shall have the right through its nominated Director to participate on all Board committees, including executive committee, the audit and finance committee and the remuneration committee. 18B [/5/] (a) For so long as Sterling Commerce owns at least 2.0% of the issued and outstanding equity shares, Sterling Commerce shall be entitled to designate one non-voting observer to the Board of Directors (the "Board Observer"), provided that the Board Observer shall at all times be a senior officer of Sterling Commerce reasonably acceptable to the Chief Executive Officer of the Company. The Board Observer shall be entitled to all of the rights and privileges of members of the Board of Directors, including without limitation, access to all information to which members of the Board of Directors have access, except that (i) the Board Observer shall not be entitled to vote on any matter brought before the Board of Directors, (ii) the Board Observer shall be excluded from any portion of any meeting, at the good faith discretion of the Chief Executive Officer of the Company or the Chairman of the Board of Directors, to protect the competitive interests of the Company or where a conflict of interest exists, including, without limitation, matters relating to the relationship between the Company and Sterling Commerce, (iii) if the Company has been advised by outside counsel that providing certain information to Board Observers would be reasonably likely to cause such information to be not subject to an applicable attorney-client or similar privilege, the Company shall be entitled to withhold such information from the Board Observer, and (iv) upon request, the Board Observer shall execute a confidentiality agreement in customary form with respect to information obtained in his or her capacity as a Board Observer. (b) The Board Observer shall be entitled to observe meetings of Committees of the Board of Directors, which committees (the "General Committees") have been have been delegated general authority by the Board of Directors, including, without limitation, any Executive Committee. The Company agrees to inform promptly Sterling Commerce of business conducted by committees of the Board of Directors other than General Committees. (c) The Board Observer shall be provided advance notice of all meetings of the Board of Directors and General Committees, such notice to be given in the same manner as the notice given to the members of the Board of Directors or General Committees, as applicable. 19. Subject to any rights or restrictions for the time being attached to equity shares, on poll, every member holding the share in the equity capital of the company, shall have voting right in proportion to the share of the paid up equity capital of the Company. 20. If two or more members are jointly registered as holders of any one share, any of such persons may at any Meeting either personally or by proxy or attorney as if he were solely entitled thereto and if more than one of such joint holders be present at meeting personally or by proxy or attorney one of such persons so present whose name stands first in register in respect of such share shall alone be entitled to vote, in respect of several executors or administrators of a deceased member in whose name any share stands, shall for the purpose of this clause, be deemed to be joint holders. 21. Unless otherwise determined by the Company in a General Meeting, the number of directors of the Company shall not be less than two or more than twelve including nominated, technical or special directors, if any and inclusive of any other type of directors of the Board. _______________________________ /5/ 10 22. "The Company shall be managed by its Board of Directors. The following persons will constituted the First Directors and they shall be permanent directors not liable to retire by rotation. First Directors 1. B. Ramalinga Raju 2. B. Rama Raju Two thirds of the members of the Board other than the Permanent Directors shall retire by rotation". 23. The Company shall subject to the provisions of the Act, be entitled to agree with any person firm corporation or other body that he or it shall have the right to appoint his or its nominee or nominees on the Board of Directors of the company upon such terms and conditions as the company may deem fit. Such nominees and their successors in office appointed under this article shall be called Special Directors. The special directors appointed under this clause shall be entitled to hold office until requested to retire by the persons, firm corporation or the body who may have appointed them and will not be bound to be retired by rotation. A special director shall not be required to hold any qualification share. As and whenever, a special director shall not be required to vacate office, whether upon requests as aforesaid or by death resignation or otherwise, the person, firm, corporation or body who appointed such special director may appoint any other director in his place. The special director may at any time by notice in writing to Company resign his office. Subject to aforesaid, a special director shall be entitled to the same rights and privileges and be subject to the same obligations as other directors of the company. 24. Unless otherwise determined by the company in general meeting a director shall not be required to hold any shares in the company as qualification. 25. The Board shall have power to co-opt one or more persons to be directors, subject to Article 24, supra. 26. Every Director of the company shall be entitled to receive from the Company a sitting fee not exceeding Rs.2000/- for every meeting of the Board of Directors or of a committee of Directors attended by him in addition to all traveling and out of pocket expenses incurred by him in attending and returning from such meetings. 27. The Directors are liable to retire by rotation except the first directors appointed under article 25 supra. 28. The Managing Director or the chairman of the Board shall have the power to convene the meeting of the Board of Directors or of the shareholders of the company and to fix the date, time, place and agenda for such meetings. 29. Subject to the provision of Section 219 of the Companies Act 1956, a resolution in writing appointed approved and signed by majority of Directors of the Company shall be as valid and effectual as if passed at a meeting of Directors of the company duly called and convened. POWERS OF BOARD OF DIRECTORS 30. The business of the company shall be managed by the Board of Directors with the assistance of the managing director of the Company. The Board shall have all the powers to execute and carry out the various objects of the Company enumerated in the Memorandum of Association of the Company and particularly all powers conferred on the Board by the 11 provisions of the Act as far as they are applicable to a private company and by the clauses and provisions of their Memorandum and Articles of Association. 31. In addition to the expressed powers in the presents and in the Act, the Board shall have such powers as may be directed by the Company in General Meeting subject however to the Companies Act, 1956 and the Memorandum of Association of the Company. 32. The Board of Directors of the Company may from time to time and at any time at its discretion raise or borrow any sum of money for the purpose of the Company. The Board of Directors may secure the repayment of such money's on such terms and conditions in all respects as it thinks fit and in particular by the issue of debenture stocks charged upon all or any part of the properties of the Company (both present and future) including its uncalled capital for the time being. 33. Subject to the provisions of Section 297, 299 and 314 of the Companies Act, 1956 a Director of the Company, his relative, a firm of which such a director or relative is partner, any other partner in such a firm and a private Company may enter into any contact with company, a) To rendering of services to the Company b) For supplying materials to the Company. c) For rendering all or any of the above services. 34. The directors shall have power to remunerate any person who renders services to the Company or supplies materials or enters into any contracts for any kind of services to the Company. They can also appoint a body corporate to any office of profit and the company excepting that of the Manager or Secretary; such remuneration may be monthly payment or a remuneration based on profits of the company as the Board think fit and desirable. 35. The Board shall have the powers, subject to Sec. 292 of the Companies Act. a) to sell, lease or otherwise dispose of the whole or substantial the whole of the undertaking of the Company as and when they deem fit, but such power shall be exercised by means of a resolution passed at a Board Meeting. b) To remit or give time for repayment of any debt due by a Director. c) To borrow money for the purpose of the business of the Company even though the limits exceed the paid-up capital and reserves of the Company as the Board of Directors deem it necessary for the purpose or the business of the Company. d) To contribute to any charitable or benevolent purpose or to public utilities such amount as the Directors think fit but not in any case exceeding 5% of the average net profits of the company or Rs.50000/- in each financial year, whichever is greater. 35A 1) Decisions relating to any of the following matters require approval of Satyam Computer Services Limited and South Asia Regional Fund at the Shareholders' meeting or as the case may be the approval of the Board of Directors including the vote in favour of or consent in writing to the relevant matter by South Asia Regional Fund's nominated Director; (a) any change in the Memorandum and Articles of Association of the Company; (b) any change in the capital structure of the company or issue of further shares or equity interest or creation of any options, warrants or other rights to subscribed for, acquire or call for shares or redemption or purchase by the company of shares or a reduction in the share capital of the company or in any way alteration of the rights attaching to the share capital of the company; (c) issue of any debenture or loan stock (secured or unsecured) or creation of any mortgage, charge, lien, encumbrance or other third party right over any of the 12 company's assets or by giving by the company of any guarantee or indemnity or becoming a surety for any third party; (d) any arrangement for any joint venture or partnership or for the acquisition of the whole or substantially the whole of the assets and undertaking of the company or an acquisition by the company of any part of (or the whole of) the issued share capital, stock, or interest or of the assets and undertakings (or any rights over the same) of another company; (e) declaration of any dividend, distribution of company's share capital or purchase, redemption or any kind of acquisition of any of the company's shares or capital stock or any warrant or option over the same; (f) approval or amendment of annual operating plans or budgets or any activity outside the scope of the annual budget of the company; (g) any change in the nature or material modification of the project or change in the business undertaken by the company; (h) the merger, acquisition or winding up of the company or participation in any scheme of reconstruction or any settlement whatsoever involving the company, or liquidation or dissolution of the company; (i) making of any loan, creation, renewal or extension of any borrowings or indebtedness by the company or granting of any credit (other than credit given in the normal course of the company's business) in excess of equivalent rupee value of US$50,000 by the company; (j) the appointment, remuneration, compensation, transfer and discharge of any director, or employee earning in excess of the equivalent rupee value of US$50000 per annum; (k) the acquisition or construction or lease of items of tangible or intangible property involving an estimated expenditure of the equivalent rupee value of US$100,000 or more in each individual case, which is not previously expressly authorised in the budget; (l) any transaction by the company with any shareholder or any associated company of any shareholder or any directors of the company and/or the sponsor and/or members of their respective families and/or associated companies of such Directors; (m) any obligation of the company outside the normal course of trading which would involve the payment by it, in cash or otherwise, of amounts in excess of the equivalent rupee value of US$100,000 in the aggregate in any 12 month period; (n) the assignment, sale or other disposal, lease or lending in any 12 month period of any asset or related group of assets of the company having a net book value in aggregate of the equivalent rupee value of US$100,000 or more; (o) any change in the company's accounting policies or the company's auditors, bankers, financial year or bank mandates; (p) the establishment of any retirement benefit scheme in relation to the company's employees, or the making of any contribution to any third party scheme for the provision of retirement benefits; (q) any expenditure or commitments for expenditure in any financial year exceeding in aggregate the equivalent rupee value of US$150,000 which is not expressly authorised in the approved budget; (r) granting or entering into of any license, sub-license, agreement or similar arrangement concerning any part of the name of the company or any of the company's intellectual property rights; (s) the making, granting or allowing of any claim, disclaimer, surrender, election or consent for taxation purposes in excess of the equivalent rupee value of US$25,000; (t) the company entering into the occupation, purchase, sale, transfer, lease or licence of any freehold or leasehold property with an individual aggregate annual cost to the company of more than the equivalent rupee value of US$50,000; 13 (u) the company forming or having any subsidiary or holding or acquiring any shares, stock or interest in any company (wherever incorporated) or any rights over the same; (v) early repayment of any moneys advanced to the company pursuant to any term loan agreement; (w) appointing any Director (executive or non executive) or any shadow director of the company or appointing any committee of the board or delegating any of the powers of the board to any committee; (x) the company establishing any bonus, profit sharing, share option or other incentive scheme for any director or employee of the company; (y) write off of any amounts of money or otherwise due and owing to the company; (z) the pricing, quantum, timing of an initial public offering (IPO) and identity of the lead managers, at the time of the IPO. (aa) The giving by the company of any power of attorney not in the ordinary course of business; and (ab) Any modification of any significant commercial contracts or business agreements. 35B[/5/] No consent or approval of Sterling Commerce shall be required in connection with the making of any decision, or the taking of any action, by the Board of Directors, including, without limitation, any future equity financing at a price per equity share equal to or greater than the purchase price paid by Sterling Commerce provided that the rights to transfer or otherwise dispose of, and registration rights and other liquidity rights with respect to, equity shares of the then existing stockholders of the Company are diluted on a pro rata basis. 36. Subject to section 314 of the Act, any one or more of the Directors or their successors, legal heir or legal representatives or partners, or the Company in which such directors or such person or directors or members can be remunerated for any special service rendered to the Company other than that of the service of director or Managing Director and the Board shall from time to time fix the remuneration payable to such persons, firms or companies as it deem fit. MANAGING DIRECTOR 37. The Board may employ one of the Directors as Managing Director of the Company. The Managing Director so appointed shall subject to provision of Section 292 and subject to superintendence and control of Board of Directors, have power to manage whole of the affairs of the Company. Such appointment of the Managing Director may be made on such remuneration, and such period and upon such terms and conditions as the Board of Directors may deem fit. Approval of the Board of Directors shall be obtained in respect of the following matters: Borrowings, guarantees and other indebtedness and liabilities incurred by the Company in excess of Rs.10,00,000/- in the aggregate; Extension of loans and other credit by the Company not in the ordinary course of business; Encumberation of the Company's assets; Declaration and distribution of dividends; Capital expenditure or other investments by the Company in excess of Rs.2,00,000/- Change in the nature of the Company's business by expansion or otherwise; Sale or other disposal of any assets of the Company other than in the ordinary course of business; A merger or consolidation of the Company with, or into any other Company, or extension of the objects of the Company; Commencement of any litigation by the Company as plaintiff or the settlement by the Company of any claim or litigation by or against it having, in either case, a value in excess of Rs.50,000/- _________________________ /5/ 14 Appointment of auditors or any Directors or any Director of the Company in order to fill a vacancy; Winding up or liquidation of the Company; Issuance of share capital of the Company. CHAIRMAN 38. The Board shall have the right to appoint one of the Directors of the Company as the Chairman of the Board of Directors of the Company. The said Chairman shall have a casting vote in addition to his own vote. [/9/]. In any meeting of the Board, if the Chairman is not present within fifteen minutes after the time appointed for holding the same, the directors present may choose one of their members to be chairman of the Meeting. COMMON SEAL 39. The Board shall provide a common seal for the Company and they shall have power from time to time to destroy the same substitute a new seal in lieu thereof, and the common seal shall be kept at the Registered office of the Company and Committee to the custody of the Managing Director or the Secretary if there is one. [The seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board or of a committee of the Board authorised by it in that behalf, and except in the presence of one director and of the secretary or such other person as the Board may appoint for the purpose; and that director and the secretary or other person as aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence]/10/. ACCOUNTS 40. The Managing Director under the supervision of the Directors shall cause true accounts to be kept of the paid up capital for the time being of the Company, and of all sums of money received and expended by the Company and the matter in respect of which receipt and expenditure have taken place and of the assets and liabilities of the Company and generally of all commercial financial and other affairs transactions and engagements and of all other matters necessary for showing true financial state or condition of the Company and the Accounts shall be kept either in English or in the Regional language or in both languages and such books shall be kept in such place in India as the Directors think fit. 41. The Directors shall from time to time determine in accordance with the provisions of Companies Act, 1956 whether and to what extent and place and under what conditions or regulations the accounts and books, register, agreements and minutes of the General Body or any of them shall be open to the inspection of member who shall have any right of inspecting any accounts or books or documents or registers of the Company as conferred by the Act. DIVIDENDS AND RESERVES 41A 1) The company in general meeting may declare dividends, but no dividend shall exceed the amount recommended by the board _______________________ /9/ The following text "The Chairman shall also have power to defer or reserve the decision of the Board on any matter" deleted vide Special Resolution passed in an Extraordinary General Meeting held on /30th/ November 1998. /10/ Inserted with effect from /3rd/ July 1998. 15 2) The board before recommending dividend, make proper prudent reserves and provisions to meeting any planned capital expenditure and increase in the requirements of working capital as in the opinion of the Board ought reasonably to be made. SECRECY 42. No member shall be entitled to visit or inspect the Company's work place without the permission of the Managing Director or to require discovery of or information respecting any details of the Company's trading or any matter which is or may be in the nature of a trade secret, mystery of trade, secret process or any other matter which, may relate to the conduct of the business of the Company and which, in the opinion of the Director, it would be inexpedient in the matter of the members of the Company's to communicate to the public. 16
Sl.No Name, address, description and occupation Name, address, description, of subscribers and signatures occupation and signature of witness - ----------------------------------------------------------------------------------------------- 1. B. Ramalinga Raju, Plot No.1242, Road No.62, Jubilee Hills, Hyderabad 500 033. OCCUPATION: BUSINESS Sd/- A. VENKATARAMAPPA, B.Com, CA Final - ------------------------------------------------- 109 Venkata Ramana Towers, 2. B. Rama Raju Opp. Skyline Theatre, H.NO.:1-10-72/A Baheerbagh, Chikoti Gardens, Hyderabad 500 029. Begumpet, Hyderabad 500 016. Sd/- OCCUPATION: BUSINESS Sd/- - ------------------------------------------------- 3. Satyam Computer Services Ltd. I Floor May Fair Buildings, S.P. Road, Secunderabad. - -------------------------------------------------
Date : 4-11-95 Place: Hyderabad 17 EX-3.2 3 MEMORANDUM OF ASSOCIATION OF SATYAM INFOWAY LTD. EXHIBIT 3.2 UNDER THE COMPANIES ACT, 1956 (1 OF 1956) COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION OF SATYAM INFOWAY LIMITED I The name of the Company is "SATYAM INFOWAY LIMITED [/1/]. II The Registered Office of the Company will be situated in the State of `Andhra Pradesh'. III The objects for which the Company is established are: (A) THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE: 1. To develop, service & sell / lease data based through direct or electronic media, to develop a wide area communication network of sell / lease the network or provide value added services on the network to develop, service, buy / sell computers, software, peripherals and related products to provide marketing services rising direct as well as electronic media; 2. To undertake the designing and development of systems and applications software either for its own use or for sale in India or for export outside India and to design and develop such systems and application software for or on behalf of manufacturers, owners and users of computer systems and digital / electronic equipment in India or elsewhere in the world; 3. To set up and run electronic data processing centres and to carry on the business of data processing, word processing, software consultancy, system studies, management consultancy, techno-economic feasibility studies of projects, design and development of management information systems, share / debenture issues management and / or registration and share / debenture transfer agency; 4. To undertake and execute feasibility studies for computerization, setting up of all kind of computer systems and digital/electronic equipment and the selection, acquisition and installation thereof whether for the company or its customers or other users; 5. To conduct, sponsor or otherwise participate in training programmes, courses, seminar conferences in respect of any of the objects of the company and for spreading or imparting the knowledge and use of computers and computer programming languages including the publication of books, journals, bulletins, study / course materials, circulars and news-letters; and to undertake the business as agents, stockists, distributors, franchise holders or otherwise for trading or dealing in computer systems, peripherals, accessories, parts and computer consumables, continuous and non-continuous stationery, ribbons and other allied products and things and standard software packages. ________________________ /1/ With effect from 31/st/ August 1997 the Company has become a Deemed Public Company u/s 43A of the Companies Act, 1956. (B) THE OBJECTS THAT ARE INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS 1. To pay either in cash or by allotment of shares or otherwise as the company deems fit, all costs, charges and expenses incurred or sustained in or about the promotion and establishment of the company which the company shall consider to be in the nature of preliminary expenses; 2. To purchase or otherwise acquire, take on lease or rent computer systems and digital / electronic equipment of all kinds; 3. To adopt and carry into effect, with or without modification, all or any of the arrangements made for the purpose of achieving any of the company's objects mentioned in clauses III(A) and III(C) hereof; 4. To purchase, take on lease or otherwise acquire for the purpose of the company estates, lands, buildings, easements or other interests in real estate, and to sell, let on lease or otherwise dispose of or grant rights over any real property belonging to the Company; 5. To purchase, take on lease or otherwise acquire, erect, maintain, reconstruct and adopt offices, factories, sheds, workshops, mills, plant, machinery and other things found necessary or convenient for the purposes of the company; 6. To purchase or otherwise acquire all or any part of the business, properties and liabilities of any company, society, partnership or person, formed for all or any part of the purpose within the objects of this company and to conduct and carry on, or liquidate and wind up any such business; 7. To promote any other company or companies for the purpose of taking over all or any of the properties, rights and liabilities of the company, or for any other purpose which may seem directly or indirectly calculated to benefit the company; 8. To enter into any arrangements with any Government authority, undertakings or corporations controlled or owned by any Government or any person(s) including any individual, firm body corporate or other association of individuals, whether incorporated or not, society and trust whether in India or abroad that may seem conducive to the company's objects or any of them and to obtain from any such Government, authority, undertakings, corporations and person(s) any rights privileges and concessions which the company may deem desirable to obtain and to carry out, exercise and comply with any such arrangements, rights, privileges and concession; 9. To amalgamate or enter into partnership or into any arrangement for sharing of profits, union of interest, cooperation, joint venture, reciprocal; concession or otherwise with any person, whether an individual, association, firm, body corporate, corporation or otherwise carrying on or engaged in or about to carry on or engage in any business or transaction which the company is authorised to carry on or engage in, or in any business or transaction capable of being conducted so as directly or indirectly to benefit the company; 10. To acquire and undertake the whole or any part of the business properties and liabilities of any person whether an individual, association, firm, body corporate, corporation or otherwise carrying on any business which the company is authorised to carry on, or possessed of property suitable for the purposes of the Company; 2 11. To enter into arrangement or agreements, with any other person, whether an individual, association, firm, body corporate, corporation or otherwise, for the carrying out by such other person on behalf of the company, of any of the objects of the Company; 12. To apply, for purchase or otherwise acquire any patents, patent rights, copyrights, trademarks, formulae, licences, concessions and the like, conferring any exclusive, non-exclusive or limited right to use, or any secret or other information to any invention which may seem capable of being used for any of the purposes of the company, or the acquisition of which may seem calculated directly or indirectly to benefit the company and to use, exercise, develop, or grant licences in respect of, or otherwise turn to account the property, rights of information so acquired; 13. To enter into collaboration agreement(s) with any person(s) including Government(s) or any other authority within or outside India, whether the nature of the agreement is financial, technical or otherwise on such terms and conditions as the company deems fit; 14. To import into and export from India the technology in respect of the products mentioned in clauses III(A) and III(C) hereof on such terms and conditions as the company deems fit; 15. To do research and development work and experiments in connection with the business of the company; 16. To let on lease or on hire or otherwise the whole or any part of the real and personal properties of the company on such terms as the company shall determine; 17. Subject to section 3(i) (iii) of the Companies Act, 1956, to issue shares, debentures, debenture stock or other securities on such terms and conditions as the company shall determine and to purchase, redeem, pay off or convert into equity any such securities on such terms and conditions as the company shall determine; 18. To borrow, raise money(s) or secure obligations (whether of the company or any other person) in any manner and subject to such terms and conditions including the payment of guarantee commission to persons including the directors of the company as the company shall determine; 19. To advance and lend money(s) with or without security, and on such terms and conditions as the company shall determine; 20. To invest and deal with the money(s) with or without security, and on such terms and conditions as the company shall determine; 21. Subject to section 58A of the Companies Act, 1956 and the rules framed there under in consultation with the Reserve Bank of India, to receive money(s) on deposit, on such terms and conditions as the company shall determine, without carrying on banking business within the meaning of the Banking Regulations Act 1949 and also to pay brokerage on such deposits; 22. To subsidise, assist and guarantee any payment of money by, or the performance of any contract, engagement or obligation by, any person; 23. To open bank accounts of all kinds including overdrafts and to draw, make, accept, endorse, discount, negotiate, execute and issue cheques, bills of exchange, promissory notes, bills of lading, warrants and other negotiable or transferable instruments of securities; 24. To adopt such means of making known and advertising the business and products of the company as may seem expedient to the company; 3 25. To appoint officers, staff, trainees and other types of personnel for the company and to dispense with their services and to carry out or cause to be carried out all functions necessary to implement the objects of the company; 26. To transfer, sell or otherwise dispose of all or any of the business, properties and undertakings of the company for any consideration which the company may deem fit to accept; 27. To establish agencies and to regulate and discontinue the same and to pay such remuneration to agents as the company shall determine; 28. To open, maintain and close branches and depots; 29. To establish, promote and otherwise assist any person whether an individual, firm association, body corporate including companies or corporation or otherwise for the purpose of acquiring any property(ies) or furthering any objects of the company; 30. To do in any part of the world all or any of the matters hereby authorised either alone or jointly, whether as factors, trustees or agents; 31. To do all such things as are necessary for the company or its nominee(s) to become members or to be otherwise associated with national and international associations, institutes or other organisations, so as to promote or strengthen the company's interests on such terms and condition as may be determined by the company; 32. (a) To undertake, carry out, promote, sponsor or to otherwise assist any activity for the promotion and growth of national economy and for what the company may consider to be its moral or social responsibility to the public or a section thereof, or what the company considers likely to promote national welfare or social, economic or moral uplift of the public or any section thereof in such manner as the company thinks fit; (b) Without prejudice to the generality of the foregoing, the company may undertake, carry out, promote and sponsor any activity in connection with the publication of any books, literature, newspaper or other documents or organising lectures or seminars for advancing the said objects or giving merit awards, scholarships, loans or any other assistance to deserving persons directly or through an institution, fund or trust; (c) In order to achieve any of the foregoing, the company may divest without consideration or such fair or concessional rates as it thinks or otherwise transfer any properties or goods of the company to or in favour of any public or local body or authority, central or state government, governmental agencies, public institutions, trusts or funds recognised or approved by the central government or state governments or any authorities specified for the purpose by such government; 33. Subject to the provisions of the Act, to subscribe to or contribute to or undertake or otherwise assist any national, charitable, benevolent, religious, public, scientific, rural, general or other useful object or institution as the company deems fit; 34. To provide for the welfare of directors or persons in the employment of the company, or formerly in the employment of the company and the wives, widows and other family members of such persons by grants of money, pensions, superannuation gratuity, insurance, bonus, medical benefits or otherwise; 4 35. To establish and maintain or procure the establishment and maintenance of any non-contributory or contributory provident, gratuity, pension or superannuation funds and give and procure the giving of money, pension, superannuation, gratuity, insurance, bonus, medical benefits or other amounts to any directors or persons who are or were at any time in the employment or service of the company; 36. To establish, undertake and execute or procure the establishment, undertaking execution of any trust, either gratuitously or otherwise; 37. To procure the company to be registered or recognised in any foreign country; 38. To arrange for risks of all kinds likely to affect the company to be covered by insurance. 39. Subject to the provisions of the Companies Act, 1956 as amended by the Companies (Amendment) Act, 1985, to contribute to any political party or for any political purpose to any person. (C) THE OTHER OBJECTS FOR WHICH THE COMPANY IS FORMED ARE: 1. To carry on the business of giving on lease or rent, or sell under a scheme of hire-purchase or instalment, computers, digital / electronic equipments, computer hardware and software products, computer peripherals and consumables and accessories thereof; 2. To undertake and execute systems audits for persons owning or using computer systems and to generally assist them in the more economic and / or efficient utilisation therefore; 3. To provide consultancy services in regard to the design, development, manufacture and use of all products and things incorporated in clauses III(A) and III(C) hereof; 4. To undertake and execute job works in relation to and / or to give others job works in respect of, any of the business mentioned in the main and other objects of the company; 5. To set up and run electronic video game parlours and recreation centres; IV The liability of the members in the Company is limited. V The authorised share capital of the Company is Rs. 25.00 crores (Rs. Twenty Five crores)[/2/] divided into 2,50,00,000 (Two crores Fifty lakhs only) shares of Rs.10/-(Rs. Ten) each. The company shall have power, at any time and from time to time, to increase or reduce its capital. Any of the said shares and any new shares may, at any time and from time to time, be divided into shares of several classes in such manner as the articles of association of the Company may prescribe and the shares of each class may confer such preferred or other special rights and privileges and impose such restrictions and conditions whether in regard to dividend, voting, return of capital or otherwise as will be prescribed in or under the articles of association. _______________________ /2/ Authorised Share Capital increased from Rs.25 lakhs to Rs.15 crores by Special Resolution passed in an Extra-ordinary General Meeting held on 30/th/ June 1997. By Special Resolution passed on an Extra-ordinary General Meeting held on 30/th/ November 1998, the authorised share capital was increased from Rs.15 crores to Rs.17 crores. Further the same has increased from Rs. 17.00 crores to 25.00 crores vide special resolution passed in the Extraordinary General Meeting held on 19.03.1999. 5 We, the several persons whose names and addresses have been subscribed hereunder are desirous of being formed into a Company in pursuance of the Memorandum of Association and we respectively agree to take the number of shares in the capital of the Company set opposite our respective names.
Sl.No Name, address, description and occupation Number of Equity Name, address, description, of subscribers and signatures Shares taken by occupation and signature of each subscriber witness - ------------------------------------------------------------------------------------------------------------------- 1. B. Ramalinga Raju, 100 A. VENKATARAMAPPA, B.Com, CA Final Plot No.1242, (One 109 Venkata Ramana Towers, Road No.62, hundred Opp. Skyline Theatre, Jubilee Hills, only) Baheerbagh, Hyderabad 500 033. Hyderabad 500 029. OCCUPATION: BUSINESS Sd/- Sd/- - ----------------------------------------------------------------------- 2. B. Rama Raju 100 H.NO.:1-10-72/A (One Chikoti Gardens, hundred Begumpet, only) Hyderabad 500 016. OCCUPATION: BUSINESS Sd/- - ----------------------------------------------------------------------- 3. Satyam Computer Services Ltd. 30 I Floor May Fair Buildings, (Thirty only) S.P. Road, Secunderabad. - ----------------------------------------------------------------------- 230 (Two Total Shares Taken Hundred Thirty only) ----------------------------------------------------------------------
Date : 4-11-95 Place: Hyderabad 6 EX-3.3 4 TABLE "A" OF THE COMPANIES ACT, 1956 EXHIBIT 3.3 SCHEDULE I [See sections 2(2), 14, 28(1), 29 and 223] TABLE A REGULATIONS FOR MANAGEMENT OF A COMPANY LIMITED BY SHARES Interpretation 1. (1) In these regulations-- (a) "the Act" means the Companies Act, 1956, (b) "the seal" means the common seal of the company. (2) Unless the context otherwise requires, words or expressions contained in these regulations shall bear the same meaning as in the Act or any statutory modification thereof in force at the date at which these regulations become binding on the company. Share capital and variation of rights 2. Subject to the provisions of section 80, any preference shares may, with the sanction of an ordinary resolution, be issued on the terms that they are, or at the option of the company are liable, to be redeemed on such terms and in such manner as the company before the issue of the shares may, by special resolution, determine. 3. (1) If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to the provisions of sections 106 and 107, and whether or not the company is being wound up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of a special resolution passed at a separate /89/[***] meeting of the holders of the shares of that class. (2) To every such separate /89/[***] meeting, the provisions of these regulations relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum shall be two persons at least holding or representing by proxy one-third of the issued shares of the class in question. 4. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. 5. (1) The company may exercise the powers of paying commissions conferred by section 76, provided that the rate per cent or the amount of the commission paid or agreed to be paid shall be disclosed in the manner required by that section. _________________________ /89/ "general" omitted by the Companies (Amendment) Act, 1960. (2) The rate of the commission shall not exceed the rate of five percent of the price at which the shares in respect whereof the same is paid are issued or an amount equal to five per cent of such price, as the case may be. (3) The commission may be satisfied by the payment of cash or the allotment of fully or partly paid shares or partly in the one way and partly in the other. (4) The company may also, on any issue of shares, pay such brokerage as may be lawful. 6. Except as required by law, no person shall be recognised by the company as holding any share upon any trust, and the company shall not be bound by, or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share, or any interest in any fractional part of a share, or (except only as by these regulations or by law otherwise provided) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. 7. (1) Every person whose name is entered as a member in the register of members shall be entitled to receive within three months after allotment or /90/[within two months after the application for the] registration of transfer (or within such other period as the conditions of issue shall provide)-- (a) one certificate for all his shares without payment; or (b) several certificates, each for one or more of his shares, upon payment of one rupee for every certificate after the first. (2) Every certificate shall be under the seal and shall specify the shares to which it relates and the amount paid up thereon. (3) In respect of any share or shares held jointly by several persons, the company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all such holders. 8. If a share certificate is defaced, lost or destroyed, it may be renewed on payment of such fee, if any, not exceeding /91/[two rupees], and on such terms, if any, as to evidence and indemnity and the payment of out-of-pocket expenses incurred by the company in investigating evidence, as the directors think fit. Lien 9. (1) The company shall have a first and paramount lien-- (a) on every share (not being a fully-paid share), for all moneys (whether presently payable or not) called, or payable at a fixed time, in respect of that share; and (b) on all shares (not being fully-paid shares) standing registered in the name of a single person, for all moneys presently payable by him or his estate to the company: ___________________________ /90/ Inserted by Notification No. GSR 631, dated 23-4-1966. /91/ Substituted for "eight annas", ibid. Provided that the Board of directors may at any time declare any share to be wholly or in part exempt from the provisions of this clause. (2) The company's lien, if any, on a share shall extend to all dividends payable thereon. 10. The company may sell, in such manner as the Board thinks fit, any shares on which the company has a lien: Provided that no sale shall be made-- (a) unless a sum in respect of which the lien exists is presently payable; or (b) until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share or the person entitled thereto by reason of his death or insolvency. 11. (1) To give effect to any such sale, the Board may authorise some person to transfer the shares sold to the purchaser thereof. (2) The purchaser shall be registered as the holder of the shares comprised in any such transfer. (3) The purchaser shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. 12. (1) The proceeds of the sale shall be received by the company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable. (2) The residue, if any, shall, subject to a like lien for sums not presently payable as existed upon the shares before the sale, be paid to the person entitled to the shares at the date of the sale. Calls on shares 13. (1) The Board may, from time to time, make calls upon the members in respect of any moneys unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times: Provided that no call shall exceed one-fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call. (2) Each member shall, subject to receiving at least fourteen days' notice specifying the time or times and place of payment, pay to the company, at the time or times and place so specified, the amount called on his shares. (3) A call may be revoked or postponed at the discretion of the Board. 14. A call shall be deemed to have been made at the time when the resolution of the Board authorising the call was passed and may be required to be paid by instalments. 15. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 16. (1) If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest thereon from the day appointed for payment thereof to the time of actual payment at five per cent per annum or at such lower rate, if any, as the Board may determine. (2) The Board shall be at liberty to waive payment of any such interest wholly or in part. 17. (1) Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall, for the purposes of these regulations, be deemed to be a call duly made and payable on the date on which by the terms of issue such sum becomes payable. (2) In case of non-payment of such sum, all the relevant provisions of these regulations as to payment of interest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 18. The Board-- (a) may, if it thinks fit, receive from any member willing to advance the same, all or any part of the moneys uncalled and unpaid upon any shares held by him; and (b) upon all or any of the moneys so advanced, may (until the same would, but for such advance, become presently payable) pay interest at such rate not exceeding, unless the company in general meeting shall otherwise direct, six per cent per annum, as may be agreed upon between the Board and the member paying the sum in advance. Transfer of shares 19. (1) The instrument of transfer of any share in the company shall be executed by or on behalf of both the transferor and transferee. (2) The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the register of members in respect thereof. /92/[20. Subject to the provisions of section 108, the shares in the company shall be transferred in the following form, namely:-- _____________________________ /92/ Substituted by Notification No. GSR 631, dated 23-4-1966. /93/FORM NO. 7B DATE OF PRESENTATION TO THE PRESCRIBED AUTHORITY Share Transfer Form [PURSUANT TO SECTION 108(lA) OF THE COMPANIES ACT, 1956] - -------------------------------------------------------------------------------- FOR THE CONSIDERATION stated below the "Transferor(s)" named do hereby transfer to the "Transferee(s)" named the shares specified below subject to the conditions on which the said shares are now held by the Transferor(s) and Transferee(s) do hereby agree to accept and hold the said shares subject to the conditions aforesaid. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FULL NAME OF COMPANY NAME OF THE RECOGNISED STOCK EXCHANGE WHERE DEALT IN, IF ANY - -------------------------------------------------------------------------------- DESCRIPTION OF EQUITY/PREFERENCE SHARES - -------------------------------------------------------------------------------- No. in figures Number in words Consideration Consideration (in figures) (in words) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Distinctive From ----------------------------------------------------------------- numbers To - -------------------------------------------------------------------------------- Corresponding Certificate Nos. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRANSFEROR(S) [SELLER(S)] PARTICULARS Regd. Signature(s) Folio No. Name(s) in full 1................ 1................ 2................ 2................ 3................ 3................ 4................ 4................ - ----------------------------------------- ATTESTATION Signature of witness I, hereby attest the signature of the Transferor(s) herein mentioned Name & address of witness .............................. Signature .............................. Name .............................. Address/Seal .............................. *Please see overleaf for instructions .............................. PIN .............................. - ----------------------------------------- TRANSFEREE(S) [BUYER(S)] PARTICULARS Signature(s) Name(s) in full 1................ 1............................. 2................ 2............................. 3................ 3............................. - -------------------------------------------------------------------------------- Occupation Address Father's/Husband's name - -------------------------------------------------------------------------------- 1. - -------------------------------------------------------------------------------- 2. - -------------------------------------------------------------------------------- 3. - -------------------------------------------------------------------------------- ______________________________ /93/ Substituted by Notification No. GSR 480(E), dated 22-4-1988. Earlier, Form No. 7B was substituted by GSR 631, dated 23-4-1966. - --------------------------------------------------------------------------------------------------------- Transferee(s) existing Folio, Value of if any, in same order of names [___________] Stamps affixed Rs. [____________] - --------------------------------------------------------------------------------------------------------- Dated this..........day of............One Thousand Nine Hundred............Place......... - --------------------------------------------------------------------------------------------------------- Folio [__________] Company Code [___________] For office use only Checked by.............................. Specimen 1..................... Signatures tallied by........................ Signature(s) of 2..................... Entered in Register of Transfer No........... Transferee(s) 3..................... Approval date................................ - ---------------------------------------------------------------------------------------------------------
Continuation of front page (herein enter the Distinctive numbers when the space in the back page is found to be insufficient) - -------------------------------------------------------------------------------- Distrinctive From --------------------------------------------------------- numbers To - -------------------------------------------------------------------------------- Corresponding Certificate Nos. - -------------------------------------------------------------------------------- *INSTRUCTIONS FOR ATTESTATION Attestation, where required (thumb impressions, marks, signature difference, etc.) should be done by a Magistrate, Notary Public or Special Executive Magistrate or a similar authority holding a Public Office and authorised to use the Seal of his office or a member of a recognised Stock Exchange through whom the shares are introduced or a manager of the transferor's bank. Note: Names must be rubber stamped preferably in a straight line. Chronological order should be maintained. Broker's Clearing Number should be stated when delivery is given by a Clearing Member Bank. - ---------------------------------------- -------------------------------------------------------------- Name of delivery Broker or Date Power of Attorney Probate Death Certificate Clearing Number -------------------------------------------------------------- Letters of Administration -------------------------------------------------------------- Registered with the Company No............. Date.................. -------------------------------------------------------------- (Signature [not initials] of Broker, Bank, Company or Stock Exchange Clearing House) -------------------------------------------------------------- -------------------------------------------------------------- +Lodged by__________________________________________ Full Address________________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ -------------------------------------------------------------- -------------------------------------------------------------- Share certificates to be returned to (Fill in the name and address to which the Certificates are required to be returned) Name and address____________________________________ ____________________________________________________ ____________________________________________________ ____________________________________________________ - ---------------------------------------- --------------------------------------------------------------
- ------------------------------ ---------------------------------------- Share Transfer Stamps - ------------------------------ ---------------------------------------- +To be filled only if the documents are lodged by a person other than the transferee. 21. The Board may, subject to the right of appeal conferred by section 111, decline to register-- (a) the transfer of a share, not being a fully-paid share, to a person of whom they do not approve; or (b) any transfer of shares on which the company has a lien. 22. The Board may also decline to recognise any instrument of transfer unless-- (a) a fee of two rupees is paid to the company in respect thereof; (b) the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; and (c) the instrument of transfer is in respect of only one class of shares. /94/[23. Subject to the provisions of section 154, the registration of transfers may be suspended at such times and for such periods as the Board may from time to time determine: Provided that such registration shall not be suspended for more than thirty days at any one time or for more than forty-five days in the aggregate in any year.] 24. The company shall be entitled to charge a fee not exceeding two rupees on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, or other instrument. Transmission of shares 25. (1) On the death of a member, the survivor or survivors where the member was a joint holder, and his legal representatives where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares. (2) Nothing in clause (1) shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by him with other persons. 26. (1) Any person becoming entitled to a share in consequence of the death or insolvency of a member may, upon such evidence being produced as may from time to time properly be required by the Board and subject as hereinafter provided, elect, either-- (a) to be registered himself as holder of the share; or (b) to make such transfer of the share as the deceased or insolvent member could have made. _______________________________ /94/ Substituted by Notification No. GSR 631, dated 23-4-1966. (2) The Board shall, in either case, have the same right to decline or suspend registration as it would have had, if the deceased or insolvent member had transferred the share before his death or insolvency. 27. (1) If the person so becoming entitled shall elect to be registered as holder of the share himself, he shall deliver or sent to the company a notice in writing signed by him stating that he so elects. (2) If the person aforesaid shall elect to transfer the share, he shall testify his election by executing a transfer of the share. (3) All the limitations, restrictions and provisions of these regulations relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or insolvency of the member had not occurred and the notice or transfer were a transfer signed by that member. 28. A person becoming entitled to a share by reason of the death or insolvency of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the company: Provided that the Board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within ninety days, the Board may thereafter withhold payment of all dividends, bonuses or other moneys payable in respect of the share, until the requirements of the notice have been complied with. Forfeiture of shares 29. If a member fails to pay any call, or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued. 30. The notice aforesaid shall-- (a) name a further day (not being earlier than the expiry of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made; and (b) state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited. 31. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. 32. (1) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Board thinks fit. (2) At any time before a sale or disposal as aforesaid, the Board may cancel the forfeiture on such terms as it thinks fit. 33. (1) A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding the forfeiture, remain liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares. (2) The liability of such person shall cease if and when the company shall have received payment in full of all such moneys in respect of the shares. 34. (1) A duly verified declaration in writing that the declarant is a director *[, the managing agent, the secretaries and treasurers], the manager or the secretary, of the company, and that a share in the company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. (2) The company may receive the consideration, if any, given for the share on any sale or disposal thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of. (3) The transferee shall thereupon be registered as the holder of the share. (4) The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or disposal of the invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. 35. The provisions of these regulations as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified. Conversion of shares into stock 36. The company may, by ordinary resolution,-- (a) convert any paid-up shares into stock; and (b) reconvert any stock into paid-up shares of any denomination. 37. The holders of stock may transfer the same or any part thereof in the same manner as, and subject to the same regulations under which, the shares from which the stock arose might before the conversion have been transferred, or as near thereto as circumstances admit: Provided that the Board may, from time to time, fix the minimum amount of stock transferable, so however that such minimum shall not exceed the nominal amount of the shares from which the stock arose. 38. The holders of stock shall, according to the amount of stock held by them, have the same rights, privileges and advantages as regards dividends, voting at meetings of the company, and other matters, as if they held the shares from which the stock arose; but no such privilege or advantage (except participation in the dividends and profits of the company and in the assets on winding up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred that privilege or advantage. 39. Such of the regulations of the company (other than those relating to share warrants), as are applicable to paid-up shares shall apply to stock and the words "share" and "shareholder" in those regulations shall include "stock" and "stockholder" respectively. Share warrants 40. The company may issue share warrants subject to, and in accordance with, the provisions of sections 114 and 115; and accordingly the Board may in its discretion, with respect to any share which is fully paid up, on application in writing signed by the person registered as holder of the share, and authenticated by such evidence (if any) as the Board may, from time to time, require as to the identity of the person signing the application, and on receiving the certificate (if any) of the share, and the amount of the stamp duty on the warrant and such fee as the Board may from time to time require, issue a share warrant. 41. (1) The bearer of a share warrant may at any time deposit the warrant at the office of the company, and so long as the warrant remains so deposited, the depositor shall have the same right of signing a requisition for calling a meeting of the company, and of attending, and voting and exercising the other privileges of a member at any meeting held after the expiry of two clear days from the time of deposit, as if his name were inserted in the register of members as the holder of the shares included in the deposited warrant. (2) Not more than one person shall be recognised as depositor of the share warrant. (3) The company shall, on two days' written notice, return the deposited share warrant to the depositor. 42. (1) Subject as herein otherwise expressly provided, no person shall, as bearer of a share warrant, sign a requisition for calling a meeting of the company, or attend, or vote or exercise any other privilege of a member at a meeting of the company, or be entitled to receive any notices from the company. (2) The bearer of a share warrant shall be entitled in all other respects to the same privileges and advantages as if he were named in the register of members as the holder of the shares included in the warrant, and he shall be a member of the company. 43. The Board may, from time to time, make rules as to the terms on which (if it shall think fit) a new share warrant or coupon may be issued by way of renewal in case of defacement, loss or destruction. Alteration of capital 44. The company may, from time to time, by ordinary resolution increase the share capital by such sum, to be divided into shares of such amount, as may be specified in the resolution. 45. The company may, by ordinary resolution,-- (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (b) sub-divide its existing shares or any of them into shares of smaller amount than is fixed by the memorandum, subject, nevertheless, to the provisions of clause (d) of sub-section (1) of section 94; (c) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person. 46. The company may, by special resolution, reduce in any manner and with, and subject to, any incident authorised and consent required by law,-- (a) its share capital; /95/[(b) any capital redemption reserve account; or] (c) any share premium account. General meetings 47. All general meetings other than annual general meetings shall be called extraordinary general meetings. 48. (1) The Board may, whenever it thinks fit, call an extraordinary general meeting. (2) If at any time there are not within India directors capable of acting who are sufficient in number to form a quorum, any director or any two members of the company may call an extraordinary general meeting in the same manner, as nearly as possible, as that in which such a meeting may be called by the Board. Proceedings at general meetings 49. (1) No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. (2) Save as herein otherwise provided, five members present in person (in the case of a public company--two members present in person, in the case of a private company) shall be a quorum. 50. The chairman, if any, of the Board shall preside as chairman at every general meeting of the company. 51. If there is no such chairman, or if he is not present within fifteen minutes after the time appointed for holding the meeting, or is unwilling to act as chairman of the meeting, the directors present shall elect one of their number to be chairman of the meeting. 52. If at any meeting no director is willing to act as chairman or if no director is present within fifteen minutes after the time appointed for holding the meeting, the members present shall choose one of their number to be chairman of the meeting. 53. (1) The chairman may, with the consent of any meeting at which a quorum is present, and shall, if so directed by the meeting, adjourn the meeting from time to time and from place to place. (2) No business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. ____________________________ /95/ Substituted by Notification No. GSR 631, dated 23-4-1966. (3) When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. (4) Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. 54. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place, or at which the poll is demanded, shall be entitled to a second or casting vote. 55. Any business other than that upon which a poll has been demanded may be proceeded with, pending the taking of the poll. Votes of members 56. Subject to any rights or restrictions for the time being attached to any class or classes of shares,-- (a) on a show of hands, every member present in person shall have one vote; and (b) on a poll, the voting rights of members shall be as laid down in section 87. 57. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority shall be determined by the order in which the names stand in the register of members. 58. A member of unsound mind, or in respect of whom an order has been made by any Court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee or other legal guardian, and any such committee or guardian may, on a poll, vote by proxy. 59. No member shall be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the company have been paid. 60. (1) No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. (2) Any such objection made in due time shall be referred to the chairman of the meeting, whose decision shall be final and conclusive. 61. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, shall be deposited at the registered office of the company not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, or, in the case of a poll, not less than 24 hours before the time appointed for the taking of the poll; and in default the instrument of proxy shall not be treated as valid. 62. An instrument appointing a proxy shall be in either of the forms in Schedule IX to the Act or a form as near thereto as circumstances admit. 63. A vote given in accordance with the terms of in instrument of proxy shall be valid, notwithstanding the previous death or insanity of the principal or the revocation of the proxy or of the authority under which the proxy was executed or the transfer of the shares in respect of which the proxy is given: Provided that no intimation in writing of such death, insanity, revocation or transfer shall have been received by the company at its office before the commencement of the meeting or adjourned meeting at which the proxy is used. Board of directors 64. The number of the directors and the names of the first directors shall be determined in writing by the subscribers of the memorandum or a majority of them. 65. (1) The remuneration of the directors shall, in so far as it consists of a monthly payment, be deemed to accrue from day to day. (2) In addition to the remuneration payable to them in pursuance of the Act, the directors may be paid all travelling, hotel and other expenses properly incurred by them-- (a) in attending and returning from meetings of the Board of directors or any committee thereof or general meetings of the company; or (b) in connection with the business of the company. 66. The qualification of a director shall be the holding of at least one share the company. 67. The Board may pay all expenses incurred in getting up and registering the company. 68. The company may exercise the powers conferred by section 50 with regard to having an official [seal] for use abroad, and such powers shall be vested in the Board. 69. The company may exercise the powers conferred on it by sections 157 and 158 with regard to the keeping of a foreign register; and the Board may (subject to the provisions of those sections) make and vary such regulations as it may think fit respecting the keeping of any such register. 70. All cheques, promissory notes, drafts, hundis, bills of exchange and other negotiable instruments, and all receipts for moneys paid to the company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, *[by the managing agent or secretaries and treasurers of the company, or where there is no managing agent or secretaries and treasurers,] by such person and in such manner as the Board shall from time to time by resolution determine. 71. Every director present at any meeting of the Board or of a committee thereof shall sign his name in a book to be kept for that purpose. /96/72. (1) The Board shall have power at any time, and from time to time, to appoint a person as an additional director, provided the number of the directors and additional directors together shall not at any time exceed the maximum strength fixed for the Board by the articles. ___________________________ /96/ Substituted by Notification No. GSR 521, dated 23-4-1959. (2) Such person shall hold office only up to the date of the next annual general meeting of the company but shall be eligible for appointment by the company as a director at that meeting subject to the provisions of the Act.] Proceedings of Board 73. (1) The Board of directors may meet for the despatch of business, adjourn and otherwise regulate its meetings, as it thinks fit. (2) A director may, and the *[managing agent, secretaries and treasurers,] manager or secretary on the requisition of a director shall, at any time, summon a meeting of the Board. 74. (1) Save as otherwise expressly provided in the Act, questions arising at any meeting of the Board shall be decided by a majority of votes. (2) In case of an equality of votes, the chairman of the Board, if any, shall have a second or casting vote. 75. The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company, but for no other purpose. 76. (1) The Board may elect a chairman of its meetings and determine the period for which he is to hold office. (2) If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the meeting, the directors present may choose one of their number to be chairman of the meeting. 77. (1) The Board may, subject to the provisions of the Act, delegate any of its powers to committees consisting of such member or members of its body as it thinks fit. (2) Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the Board. 78. (1) A committee may elect a chairman of its meetings. (2) If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the meeting, the members present may choose one of their number to be chairman of the meeting. 79. (1) A committee may meet and adjourn as it thinks proper. (2) Questions arising at any meeting of a committee shall be determined by a majority of votes of the members present, and in case of an equality of votes, the chairman shall have a second or casting vote. 80. All acts done by any meeting of the Board or of a committee thereof or by any person acting as a director, shall, notwithstanding that it may be afterwards discovered that there was some defect in the appointment of any one or more such directors or of any person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such director or such person had been duly appointed and was qualified to be a director. 81. Save as otherwise expressly provided in the Act, a resolution in writing, signed by all the members of the Board or of a committee thereof, for the time being entitled to receive notice of a meeting of the Board or committee, shall be as valid and effectual as if it had been passed at a meeting of the Board or committee, duly convened and held. Manager or secretary /97/[82. Subject to the provisions of the Act,-- (1) A manager or secretary may be appointed by the Board for such term, at such remuneration and upon such conditions as it may think fit; and any manager or secretary so appointed may be removed by the Board; (2) A director may be appointed as manager or secretary.] 83. A provision of the Act or these regulations requiring or authorising a thing to be done by or to a director and the manager or secretary shall not be satisfied by its being done by or to the same person acting both as director and as, or in place of, the manager or secretary. The seal 84. (1) The Board shall provide for the safe custody of the seal. (2) The seal of the company shall not be affixed to any instrument except by the authority of a resolution of the Board or of a committee of the Board authorised by it in that behalf, and except in the presence of at least two directors and of the secretary or such other person as the Board may appoint for the purpose; and those two directors and the secretary or other person aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence. Dividends and reserve 85. The company in general meeting may declare dividends, but no dividend shall exceed the amount recommended by the Board. 86. The Board may from time to time pay to the members such interim dividends as appear to it to be justified by the profits of the company. 87. (1) The Board may, before recommending any dividend, set aside out of the profits of the company such sums as it thinks proper as a reserve or reserves which shall, at the discretion of the Board, be applicable for any purpose to which the profits of the company may be properly applied, including provision for meeting contingencies or for equalising dividends; and pending such application, may, at the like discretion, either be employed in the business of the company or be invested in such investments (other than shares of the company) as the Board may, from time to time, think fit. (2) The Board may also carry forward any profits which it may think prudent not to divide, without setting them aside as a reserve. _____________________________ /97/ Substituted by Notification No. GSR 631, dated 23-4-1966. 88. (1) Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect whereof the dividend is paid, but if and so long as nothing is paid upon any of the shares in the company, dividends may be declared and paid according to the amounts of the shares. (2) No amount paid or credited as paid on a share in advance of calls shall be treated for the purposes of this regulation as paid on the share. (3) All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portions of the period in respect of which the dividend is paid; but if any share is issued on terms providing that it shall rank for dividend as from a particular date such share shall rank for dividend accordingly. 89. The Board may deduct from any dividend payable to any member all sums of money, if any, presently payable by him to the company on account of calls or otherwise in relation to the shares of the company. 90. [Omitted by Notification No. GSR 631, dated 23-4-1966.] 91. (1) Any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the registered address of that one of the joint holders who is first named on the register of members, or to such person and to such address as the holder or joint holders may in writing direct. (2) Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. 92. Any one of two or more joint holders of a share may give effectual receipts for any dividends, bonuses or other moneys payable in respect of such share. 93. Notice of any dividend that may have been declared shall be given to the persons entitled to share therein in the manner mentioned in the Act. 94. No dividend shall bear interest against the company. Accounts 95. (1) The Board shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations, the accounts and books of the company, or any of them, shall be open to the inspection of members not being directors. (2) No member (not being a director) shall have any right of inspecting any account or book or document of the company except as conferred by law or authorised by the Board or by the company in general meeting. Capitalisation of profits 96. (1) The company in general meeting may, upon the recommendation of the Board, resolve-- (a) that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the company's reserve accounts, or to the credit of the profit and loss account, or otherwise available for distribution; and (b) that such sum be accordingly set free for distribution in the manner specified in clause (2) amongst the members who would have been entitled thereto, if distributed by way of dividend and in the same proportions. (2) The sum aforesaid shall not be paid in cash but shall be applied, subject to the provision contained in clause (3), either in or towards-- (i) paying up any amounts for the time being unpaid on any shares held by such members respectively; (ii) paying up in full, unissued shares /98/[***] of the company to be allotted and distributed, credited as fully paid up, to and amongst such members in the proportions aforesaid; or (iii) partly in the way specified in sub-clause (i)and partly in that specified in sub-clause (ii). (3) A share premium account and a capital redemption reserve /99/[account] may, for the purposes of this regulation, only be applied in the paying up of unissued shares to be issued to members of the company as fully paid bonus shares. (4) The Board shall give effect to the resolution passed by the company in pursuance of this regulation. 97. (1) Whenever such a resolution as aforesaid shall have been passed, the Board shall-- (a) make all appropriations and applications of the undivided profits solved to be capitalised thereby, and all allotments and issues of fully paid shares /98/[***], if any; and (b) generally do all acts and things required to give effect thereto. (2) The Board shall have full power-- (a) to make such provision, by the issue of fractional certificates or by payment in cash or otherwise as it thinks fit, for the case of shares or debentures becoming distributable in fractions; and also (b) to authorise any person to enter, on behalf of all the members entitled thereto, into an agreement with the company providing for the allotment to them respectively, credited as fully paid up, of any further shares /98/[***] to which they may be entitled upon such capitalisation, or (as the case may require) for the payment up by the company on their behalf, by the application thereto of their respective proportions of the profits resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares. (3) Any agreement made under such authority shall be effective and binding on all such members. _________________________ /98/ "or debentures" omitted by Notification No. GSR 631, dated 23-4-1966. /99/ Substituted for "fund", ibid. Winding up 98. (1) If the company shall be wound up, the liquidator may, with the sanction of a special resolution of the company and any other sanction required by the Act, divide amongst the members, in specie or kind, the whole or any part of the assets of the company, whether they shall consist of property of the same kind or not. (2) For the purpose aforesaid, the liquidator may set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members of different classes of members. (3) The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability. Indemnity 99. Every officer or agent for the time being of the company shall be indemnified out of the assets of the company against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application under section 633 in which relief is granted to him by the Court. EX-4.1 5 SHARE SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT EXHIBIT 4.1 [Indian Currency -- 100 Rupee Note] ============================================================================== DATED FEBRUARY 5, 1999 SATYAM INFOWAY LIMITED and SATYAM COMPUTER SERVICES LIMITED and SOUTH ASIA REGIONAL FUND and MR B RAMALINGA RAJU ________________________________________ SHARE SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT relating to Satyam Infoway Limited ============================================================================== PARTIES (1) SATYAM INFOWAY LIMITED ("the Company") (2) SATYAM COMPUTER SERVICES LIMITED ("the Sponsor") (3) SOUTH ASIA REGIONAL FUND ("SARF") (4) MR B RAMALINGA RAJU ("MR RAMALINGA RAJU")
Section Page 1. INTERPRETATION...................................................... 5 2. REPRESENTATIONS AND WARRANTIES...................................... 5 3. CONDITIONS PRECEDENT................................................ 5 4. SUBSCRIPTION........................................................ 6 5. COVENANTS........................................................... 7 6. DIRECTORS AND MANAGEMENT............................................ 14 7. PROVISION OF SERVICES............................................... 16 8. FINANCING........................................................... 16 9. DIVIDENDS........................................................... 17 10. ENFORCEMENT OF COMPANY'S RIGHTS..................................... 17 11. ACTIONS TO BE TAKEN BY BOARD RESOLUTION OR BY SHAREHOLDER CONSENT... 18 12. DEALING IN SHARES................................................... 22 13. LISTING............................................................. 23 14. TAG ALONG PROVISIONS................................................ 25 15. WARRANTS............................................................ 26 16. EXIT OPTIONS........................................................ 29 17. COVENANTS NOT TO COMPETE............................................ 31 18. COMPLIANCE WITH THIS AGREEMENT AND THE ARTICLES..................... 33
19. TERMINATION......................................................... 33 20. CONFIDENTIALITY..................................................... 34 21. COSTS............................................................... 36 22. ARBITRATION......................................................... 36 23. MISCELLANEOUS....................................................... 39 24. SCHEDULES 1 to 9.................................................... 44 25. APPENDICES.......................................................... 80
THIS AGREEMENT is made by way of deed the day of 1998 BETWEEN - (1) SATYAM INFOWAY LIMITED whose registered office is at Mayfair Centre, S.P. Road, Secunderabad Andhra Pradesh, India Pin Code 500 003 ("the Company"); (2) SATYAM COMPUTER SERVICES LIMITED, whose registered office is at Mayfair Centre, S.P. Road, Secunderabad, Andhra Pradesh, India 500 003 a company based in Hyderabad, India ("the Sponsor"); (3) SOUTH ASIA REGIONAL FUND a company, incorporated in Mauritius and having its registered office at Les Cascades Building, Edith Cavell Street, Port Louis, Mauritius ("SARF"); and (4) MR B. RAMALINGA RAJU, son of Mr. B. Satyanarayana Raju, aged about 42 years, presently residing at Plot # 1242, Road No 62, Jubilee Hills, Hyderabad, A.P., India 500 003 ("Mr. B. Ramalinga Raju"). WHEREAS - A The Company intends to carry out the Project described in Schedule 1. B The Company has estimated that as at 1st day of August 1998 the cost of the Project would amount to Rs 504.50 million made up as shown in Part I of Schedule 2 and the Company intends to finance such cost in the manner shown in Part II of that Schedule. C SARF has agreed to subscribe and pay in cash for 3,000,000 (Three million) Shares of 10 Rs each in the capital of the Company at a price of 70 Rs per Share subject to and upon the terms hereinafter appearing. D The Sponsor has agreed to subscribe and pay in cash for 750,000 (Seven Hundred and Fifty Thousand) Shares of 10 Rs each in the capital of the Company at a price of 70 Rs per Share subject to and upon the terms hereinafter appearing. 4 E The parties have also agreed to enter into certain commitments and to regulate the exercise of their rights in relation to the Company in the manner hereinafter appearing. I INTERPRETATION 1.1 Terms used in this Agreement shall, except where the context otherwise requires, have the meaning set out in Schedule 7. 2 REPRESENTATIONS AND WARRANTIES 2.1 The Company and the Sponsor acknowledge that SARF has entered into this Agreement in reliance on the warranties and representations by the Company and the Sponsor set out in Schedule 5 and the Company and the Sponsor hereby accordingly jointly and severally represent and warrant to SARF that the statements set out in Schedule 5 are true and accurate. 3. CONDITIONS PRECEDENT 3.1 The obligations of SARF to the Company hereunder are subject to the condition that SARF shall have received all of the documents, items and evidence specified in Schedule 3, in each case in form and substance satisfactory to SARF, or, as the case may be, shall be satisfied as to the matters therein specified and that SARF shall have notified the Company in writing of such satisfaction. In addition the Sponsor and the Company agree that the representations and the Warranties referred to in Clause 2.1 will be repeated mutatis mutandis for the benefit of SARF immediately prior to the subscription for the Shares by SARF referred to in Clause 4. 3.2. If any of the conditions referred to in Clause 3.1 are waived or deferred by SARF, SARF may attach to such waiver or deferral such requirements and further on other conditions as SARF thinks fit. 5 3.3 If any of the conditions referred to in Clause 3.1 shall not have been fulfilled to SARF's satisfaction before the expiry of 90 days from the date of hereof for such extended period as SARF may approve in writing, any obligations on the part of SARF then subsisting under this Agreement shall cease. 4. SUBSCRIPTION 4.1 The Sponsor and SARF (subject to Clauses 3.1 and 4.2) each undertake for the benefit of the other and the Company to subscribe for, and against payment in full of the relative Subscription Monies, and the Company undertakes for the benefit of each of the Shareholders to allot or to procure the allotment of, the following Shares - Applicant No. of ordinary 10 Rs Shares Sponsor 750,000 SARF 3,000,000 4.2 SARF shall not be required to subscribe for the Shares specified opposite its name in Clause 4.1 until the Sponsor shall have subscribed and paid in full for all of the Shares specified opposite its name in Clause 4.1 and such Shares have been allotted to it. 4.3 Promptly following the allotment of Shares to the Sponsor and subject to Clause 3, SARF shall pay the Subscription Monies due from it. 4.4 The Company shall allot and issue to the relevant Shareholder the Shares (credited as fully paid) subscribed for, free of all encumbrances of any kind and deliver to each Shareholder share certificates constituting valid title to the Shares subscribed for by such Shareholder pursuant to the terms of this Agreement, such certificates to be denominated in lots of 50,000 Shares. In addition, the Company will furnish the relevant Shareholder with evidence satisfactory to that Shareholder, that all necessary corporate formalities (including registration in the register of members of the Company) in connection with the issue of such Shares have been completed, and, will deliver a statement giving details of the entire issued share capital of the 6 Company and the amount paid up thereon as at the date of issue referred to in this Clause 4.4. 4.5. The Subscription Monies received pursuant to Clause 4.1 shall be exclusively applied by the Company towards the Project. 4.6. On execution of this Agreement the Company will forthwith pay to (a) SARF a Documentation fee of US$17,500 and (b) CDC Advisors Private Limited an Advisory fee of the Indian Rupee equivalent of US$17,500, calculated by reference to the average middle spot price for buying Indian Rupees from Barclays Bank plc (London) on the business day immediately preceding, the date of execution of this Agreement. 5 COVENANTS 5.1 Without prejudice to the provisions of Clause 11 the Company will, and the Sponsor will procure that the Company will: 5.1.1 carry out and complete the Project with due diligence and efficiency and in accordance with sound commercial, financial and business practices; 5.1.2 except as SARF may otherwise agree in writing, cause all subscription moneys paid by SARF and the Sponsor hereunder to be applied exclusively to the cost of the Project; 5.1.3 furnish to SARF promptly upon their preparation all programmes, plans, specifications, reports and contract documents relating to the Project or business of the Company (or any part thereof) and any material modifications thereof in such detail as SARF shall request; 5.1.4 retain until at least one year after the Closing Date all records (including payroll records, invoices, bills and receipts) evidencing expenditure on account of the Project; 7 5.1.5 promptly after completion of the Project but in any event not later than 30 days after the Closing Date or such later date as may be agreed for this purpose between the Company and SARF, prepare and furnish to SARF at the Company's expense a report of such scope and in such detail as SARF shall reasonably request on the execution and initial operation of the Project, the cost and the benefits derived and to be derived therefrom, and the performance by the Company of its obligations under this Agreement; 5.1.6 at the request of SARF exchange views with SARF with regard to the progress of the Project and the performance of the Company's obligations under this Agreement; 5.1.7 promptly inform SARF of any circumstance or event which interferes or threatens to interfere with the carrying out of the Project or the performance by the Company of any of its obligations hereunder or which will increase or threaten to increase materially the estimated cost of the Project; 5.1.8 maintain ecological, environmental and occupational health and safety standards satisfactory to SARF and in accordance with World Bank Environmental and Safety Guidelines and with the laws and guidelines of India relevant to its operations, and furnish to SARF an annual compliance report thereon within 3 months after the end of each Financial Year; 5.1.9 carry on its undertaking properly and efficiently and in accordance with sound administrative, business and financial practices and pay promptly all Taxes and relevant fees; 5.1.10 in accordance with sound commercial practice and in a form to be acceptable to SARF, insure and keep adequately insured its business and assets to their full reinstatement value against fire, accidental damage, storm and flood and all such risks as should prudently be insured against or as SARF may reasonably require with reputable insurers acceptable to SARF; 8 5.1.11 to the extent such insurance is available to the Company in India, insure against any and all losses and costs incurred (whether pursuant to litigation or otherwise) in relation to claims made by customers relating to any problems associated with the Company being Year 2000 Compliant; 5.1.12 within 14 days after the end of each Financial Year submit to SARF a certificate showing the assets insured pursuant to Clause 5.1.10 and 5.1.11, the respective amounts of cover for such assets, the risks insured against and the names of the insurers together with any excesses and exclusions to which any such insurance may be subject; 5.1.13 keep such of its assets as are of a repairable nature in good repair and condition; 5.1.14 take all steps within its powers to obtain, maintain and when necessary renew all rights, powers, privileges, licences, consents, approvals and agreements the benefit of which it may enjoy from time to time and which may be of material benefit to it or the Project and defend any action, claim or other proceedings in any court or tribunal which may be brought against it by any person including, but without limitation all intellectual property licenses and the Internet Services Provisions Licence ("ISPL") granted by the Government of India to the Company dated 820 - 49/98 - LR dated Nov 12, 1998; 5.1.15 promptly inform SARF of, any default or any breach of any loan agreement or other agreement or arrangements which would have a material effect on the business of the Company (and of the steps if any being taken to remedy the same), any material adverse financial condition of the Company or the Project, any event likely to lead to such a change and any major litigation which has commenced or which is, to the best of the Company's knowledge or belief, threatened against the Company; 9 5.1.16 operate a proper and efficient accounting system and maintain books of account and other records (in the English language) adequate to reflect truly and fairly, and in conformity with generally accepted accounting principles consistently applied, the financial position of the Company; 5.1.17 procure that its accounts are audited at least twice in every financial year by auditors acceptable to SARF. The Company will cause the auditors of the Company to directly communicate with SARF to provide specific financial and accounting information sought by SARF (substantially in the form set out in Schedule 6); 5.1.18 furnish to SARF- 5.1.18.1 within thirty (30) days of the end of each quarter of each Financial Year, two copies of each of (a) the management accounts of the Company for such quarter; (b) a balance sheet showing the Company's state of affairs at the end of such quarter and (c) a report on the physical and financial progress and prospects of the Company's operations (including the Project) at the end of the quarter; 5.1.18.2 as soon as they are available and in any case within 6 calendar weeks after the end of each half yearly audit accounting period of the Company, two copies of each of (a) the audited accounts of the Company for such half yearly period, (b) the auditors' report thereon (such report to include separate confirmation to SARF from the auditors of the Company as to the matters referred to in paragraph 6 of Schedule 3) and (c) any management letter or other document referred to therein; 10 5.18.1.3 copies of any other report or communication received by the Company from its auditors relating to the financial position or affairs of the Company which is of a material nature; 5.1.18.4 at least 1 calendar month before the beginning of each Financial Year, two copies of each of (a) the Company's projected balance sheets at the beginning and end of such Financial Year, (b) estimated quarterly trading and profit and loss accounts for such Financial Year, (c) a quarterly statement of the physical and financial programme and basic assumptions on which items (a) and (b) are based (d) a statement showing, the estimated source and application of funds for such Financial Year, and (e) a business and operations plan complete with marketing plans, product launch and manpower plan; all of the above to be prepared taking into consideration anticipated exchange rate movements; 5.1.18.5 forthwith on request such further information concerning the Company's operations and affairs as SARF may from time to time reasonably request; 5.1.19 permit duly authorised representatives and agents of SARF at any time and from time to time (on reasonable notice - except where SARF suspects that the Company is involved in fraudulent or similar activity where SARF will not be required to provide notice) to have access to and to inspect the Company's land and premises and its accounting and other records and permit such representatives and agents to take copies of or extracts from any such accounting and other records as aforesaid; 11 5.1.20 employ suitable qualified and experienced staff in adequate numbers and obtain such technical, financial and other advice as may from time to time be necessary to ensure the efficient conduct of its operations; 5.1.21 comply at all times with all applicable laws, rules, regulations, authorisations and licences relating to the Project, the Company's undertaking and the allotment and issue of Shares and/or Warrants contemplated by this Agreement; 5.1.22 comply in all respects with the terms and conditions of all Environmental Licences and all Environmental Laws which in either case affect the Project; 5.1.23 promptly upon receipt of all notifications of the same notify SARF of any claim, notice or other communication received by it in respect of any actual or alleged breach of any Environmental Law or Environmental Licence which in either case affects the Project; 5.1.24 at all times ensure that the Memorandum of Association and Articles of Association of the Company are consistent with the provisions of this Agreement (including inter alia for the avoidance of doubt taking forthwith all steps necessary to incorporate the provisions of Clauses 6, 9, 11, 12, 14 and 15 of this Agreement into the Articles of Association of the Company) (including in addition making any necessary amendments requested by SARF); and 5.1.25 take all necessary steps to ensure that the Warrants once issued remain exercisable in accordance with their terms. 5.2 Unless agreed to the contrary by SARF, the Sponsor will: 5.2.1 provide a guarantee for all the long term debt related obligations of the Company when required to do so by the Company; 12 5.2.2 not share any resources with the Company and will build and maintain the Company's business independently of its own; 5.2.3 procure that the Board of the Company comprises a majority of independent non-executive Directors agreeable to SARF; 5.2.4 unconditionally and indefinitely allow the Company to use the Brand name "Satyam" ("the Brand Name"), together with any associated logos, copyrights and ancillary rights, (being registered in India) free of charge, so long as SCSL continues to be the largest shareholder of the Company; 5.3 The Sponsor hereby agrees - 5.3.1 to immediately advise SARF on becoming aware of the occurrence of or the likelihood of an occurrence of any of the events set out in Clause 16.1; 5.3.2 to the listing, and sale of such number of its Shares as SARF may require pursuant to Clause 16.2, and will take all steps necessary (corporate and otherwise) to comply with such request including but not limited to complying with any requests, rules and regulations of the relevant stock exchange; and 5.3.3 that if SARF decides to exercise the Exit Option set out in Clause 16.2.2, to carry out all actions reasonably in its control, to facilitate such a trade sale; and 5.3.4 to take all steps necessary to alter the Articles of Association of the Company (including voting in favour of such alteration) in accordance with Clause 5.1.24. 5.4 Mr. Ramalinga Raju hereby agrees - 5.4.1 to immediately advise SARF on becoming aware of the occurrence of or the likelihood of an occurrence of any of the events set out in Clause 16.1; 13 5.4.2 to cause the listing and sale of such number of Shares of the Company in which the Sponsor is interested as SARF may require pursuant to Clause 16.2 and will take all steps necessary (corporate or otherwise) to comply with such request including, but not limited to complying with any requests, rules and regulations of the relevant stock exchange; and 5.4.3 that if SARF decides to exercise the Exit Option set out in Clause 16.2.2, to carry out all actions reasonably in his control, to facilitate such trade sale. 6 DIRECTORS AND MANAGEMENT 6.1 SARF shall, for so long as it owns at least 7.5% of the issued ordinary share capital of the Company be entitled, by notice in writing to the Company, to nominate one Director to the Board of the Company and to require the removal or substitution of any such Director appointed by it. The Sponsor hereby agrees at all times to take all actions necessary or appropriate to enable SARF to exercise its right to such nomination, removal or substitution, including by voting in favour of any such nomination, removal or substitution both at shareholders' meetings and Board meetings. 6.2 The Sponsor shall be entitled, by notice in writing to the Company, to nominate 4 (four) Directors of the Board of the Company and to require the removal of substitution of any such Director approved by it. SARF hereby agrees at all times to take all actions necessary and appropriate to enable the Sponsor to exercise its right to such nomination, removal or substitution, including voting in favour of such nomination, removal or substitution both at shareholders meetings and Board meetings. 6.3 Unless otherwise agreed by all the Shareholders, the maximum number of Directors of the Company, excluding nominees of financial institutions or banks in terms of loan agreements with the Company, will be twelve Directors and the minimum number of Directors of the Company will be three Directors. 14 6.4 The Shareholders shall procure that the Board comprises of a majority of independent non executive Directors. For the avoidance of doubt an independent Director means a Director who is not a nominee of SARF or the Sponsor. 6.5 At the time of the completion of any sale, assignment, transfer or other disposition pursuant to the terms hereof of all of the Shares held by a Shareholder the Shareholder shall procure the resignation of each director nominated by it. 6.6 Unless the parties agree to the contrary, if a Shareholder sells, assigns, transfers or otherwise disposes of sonic but not all of its Shares, such transferee shall not be entitled to appoint any director unless and until all of the transferring Shareholder's original holding (determined as of the date hereof) is transferred to it and references to a Shareholder in this Clause 6 shall be construed as a reference to the transferring Shareholder only. 6.7 A Shareholder removing a nominee Director shall be responsible for and agrees with the other Shareholder (contracting for itself and as trustee for the Company) to indemnify the other Shareholder and the Company against all losses, liabilities and costs which the other Shareholder or the Company may incur arising out of, or in connection with, any claim by the director for wrongful or unfair dismissal or redundancy or other compensation arising out of the director's removal or loss of office. 6.8 The quorum for a meeting of the Board shall be no less than 3 Directors. The Company will, and the Sponsor will procure that the Company prepares an agenda for each meeting of the Board of the Company, providing full details of the matters to be considered, and details of all resolutions proposed to be passed at the relevant meeting of the Board. Such agenda will be sent to all of the Directors along with all documents or notes relating to such Board meeting, at least 15 Business Days before the date of the relevant Board meeting. The Parties hereto agree that the Board will not be entitled to transact any business or pass any resolution other than as set out 15 in the agenda at such meeting of the Board unless the Director nominated by SARF is present at such meeting. 6.9 SARF shall have the right through its nominated Director to participate on all Board committees, including, without limitation, the executive committee, the audit and finance committee and the remuneration committee. 6.10 The Company shall indemnify the Director and officers nominated by SARF from time to time against all losses, claims, liabilities, costs or other expense arising from the performance of their duties (hereinafter "damages") except where such damages arise as a result of fraud, willful misconduct or gross negligence on the part of such Director or officer seeking, such indemnity. In addition the Company agrees to take out adequate insurance, to the extent available in India, to cover such damages. 6.11 The Company agrees to provide at least 15 Business Days notice of meetings of the Board to those entitled to attend Board meetings. 6.12 The Sponsor and the Company agree that the Director nominated by SARF will not be required to retire by rotation and that such Director will not be required to hold any qualifying Shares in the Company and that they will procure that the Articles of Association of the Company reflect the provisions of this Clause. 7 PROVISION OF SERVICES 7.1 Except as set out herein, any services to be provided by or to the Company by or to the Sponsor, and any agreements between the Company and the Sponsor shall be on an arms-length basis. 8 FINANCING 8.1 Should the Company at any time and from time to time determine that the funds available to the Company from the sources specified in the Financial Plan shall not be or may not be sufficient (i) to complete the Project, and/or (ii) to enable the Company to meet its financial obligations, and/or (iii) to 16 meet cash losses arising in the Company's operations from the date hereof to the Financial Year of the Company ending in 2001, (each a "Deficiency") whether as a result of an increase in the estimated cost (including, but without limitation, cost of overruns) of the Project or of a shortfall in the Financial Plan, the Company may at any time during the period of three calendar years commencing with the date hereof issue by facsimile, a notice to the Sponsor specifying the relevant Deficiency. For the duration of this period the Sponsor undertakes to provide funding to the Company in an amount equal to the Deficiency in such manner and on such terms acceptable to SARF in writing from time to time. Any such funding provided under this clause will not be repayable until SARF ceases to hold any Shares in the Company. 9 DIVIDENDS 9.1 Each Shareholder shall procure that, subject to the making of proper and prudent reserves and provisions to meet ongoing and planned capital expenditure and increases in working capital as in the opinion of the Board ought reasonably to be made, substantially all of the profits available for distribution (as determined in accordance with the laws of India) in respect of each Financial Year during the term of this Agreement is distributed by the Company to the Company's Shareholders by way of dividends within six months of the end of the Company's financial year. 10 ENFORCEMENT OF COMPANY'S RIGHTS 10.1 In the event that the Company has a right of action against any Shareholder (or any associated company of such) in respect of a breach of this Agreement a committee of directors (other than those appointed by such Shareholder) shall be formed immediately after such breach. 10.2 In the event that the Company has a right of action against all Shareholders, such committee shall include directors appointed by each Shareholder, subject to Clause 6. 17 10.3 Such committee shall have full authority on behalf of the Company to take any action it considers appropriate in respect of such claim and the Shareholders shall take all steps within their power (subject to complying with the provisions of Clause 22) to give effect to the provisions of this Clause 10. 11 ACTIONS TO BE TAKEN BY BOARD RESOLUTION OR BY SHAREHOLDER CONSENT 11.1 Without prejudice to the provisions of Clause 5, any decision relating to any of the following matters shall as required under the Company's Act 1956 or any other applicable law in force in India, require approval of SCSL and SARF at the Shareholders' meeting or as appropriate the approval of the Board of Directors including the vote in favour of or consent in writing to the relevant matter by SARF's nominated Director; 11.1.1 any change in the Memorandum and Articles of Association of the Company; 11.1.2 any change in the capital structure of the Company (including, but without limitation, any consolidation, sub-division, reconstruction or conversion of the Company's share capital) or the issue of further shares (of whatever class) or equity interest or the creation of any options, warrants (except for the Warrants referred to in Clause 15) or employee stock options, other rights to subscribe for, acquire or call for Shares or redemption or purchase by the Company of Shares or a reduction in the share capital of the Company or in any way alteration of the rights attaching to the share capital of the Company; 11.1.3 the issue by the Company of any debenture or loan stock (whether secured or unsecured) or the creation of any mortgage, charge, lien, encumbrance or other third party right over any of the Company's assets or the giving by the Company of any guarantee or indemnity to or becoming a surety for any third party; 18 11.1.4 any arrangement for any joint venture or partnership (or than agreements relating to arrangements with resellers or marketing partners for the development of Web Sites and such other products/services managed on a day to day basis by the Company as authorised by the Board) or for the acquisition of the whole or substantially, the whole of the assets and undertaking of the Company or an acquisition by the Company of any part of (or the whole of) the issued share capital, stock, or interest or of the assets and undertakings (or any rights over the same) of another company; 11.1.5 the declaration of any dividend by the Company or the making of any distribution of the Company's share capital or the purchase, redemption or any kind of acquisition of any of the Company's shares or capital stock or any warrant or option over the same; 11.1.6 approval or amendment of annual operating plans or budgets or any activity outside the scope of the annual budget of the Company; 11.1.7 any change in the nature or material modification of the Project or change in the business undertaken by the Company; 11.1.8 the merger, acquisition or winding up of the Company or participation in any scheme of reconstruction or any settlement whatsoever involving the Company, or any liquidation or dissolution of the Company; 11.1.9 the making of any loan or the creation, renewal or extension of any borrowings or indebtedness by the Company or the granting of any credit (other than credit given in the normal course of the Company's business) in excess of the equivalent value in the relevant currency of US $50,000 (or such revised limit as SARF may agree from time to time in writing with the Company) by the Company; 19 11.1.10 the appointment, remuneration, compensation, transfer and discharge of any Director, or employee earning in excess of the equivalent value in the relevant currency of US $50,000 a year; 11.1.11 the acquisition or construction or lease of items of tangible or intangible property involving an estimated expenditure of the equivalent value in the relevant currency of US$100,000 or more in each individual case (or such revised limit as SARF may agree from time to time in writing with the Company), which is not expressly authorised in the approved budget referred to in Clause 11.1.6 above; 11.1.12 any transaction by the Company with any Shareholder or any associated company of any Shareholder or any Directors of the Company and/or the Sponsor and/or members of their respective families and/or associated companies of such Directors; 11.1.13 any obligation of the Company outside the normal course of trading which could involve the payment by it, in cash or otherwise, of amounts in excess of the equivalent value in the relevant currency of US$100,000 (or such revised limit as SARF may agree from time to time in writing with the Company) in the aggregate in any 12 month period; 11.1.14 the assignment, sale or other disposal, lease or lending in any 12 month period of any asset or related group of assets of the Company having a net book value in aggregate of the equivalent value in the relevant currency of US$100,000 or more; 11.1.15 any change in the Company's accounting policies or the Company's auditors, bankers, Financial Year or bank mandates; 11.1.16 the establishment of any retirement benefit scheme in relation to the Company's employees, or the making of any contribution to any third party scheme for the provision of retirement benefits; 20 11.1.17 any expenditures or commitments for expenditures in any Financial Year exceeding in aggregate the equivalent value in the relevant currency of US$150,000 (or such revised limit as SARF may agree from time to time in writing with the Company) which is not expressly authorised in the approved budget referred to in Clause 11.1.6 above; 11.1.18 the granting or entering into of any licence, sub-licence, agreement or similar arrangement concerning any part of the name of the Company or any of the Company's intellectual property rights; 11.1.19 the making, granting or allowing of any claim, disclaimer, surrender, election or consent for taxation purposes in excess of the equivalent value in the relevant currency of US$25,000 (or such revised limit as SARF may agree from time to time in writing with the Company); 11.1.20 the Company entering into the occupation, purchase, sale, transfer, lease or licence of any freehold or leasehold property, with an individual aggregate annual cost to the Company of more than the equivalent value in the relevant currency of US$50,000 (or such revised limit as SARF may agree from time to time in writing with the Company); 11.1.21 the Company forming or having any Subsidiary or holding or acquiring any shares, stock or interest in any company (wherever incorporated) or any rights over the same; 11.1.22 early repayment of any moneys advanced to the Company pursuant to any term loan agreement; 11.1.23 appointing any Director (executive or non executive) or any shadow director of the Company (other than those nominated by the Sponsor) or appointing any committee of the Board or delegating any of the powers of the Board to any committee; 21 11.1.24 the Company establishing any bonus, profit sharing, share option or other incentive scheme for any director or employee of the Company; 11.1.25 write off of any amounts of money or otherwise due and owing to the Company; 11.1.26 the pricing, quantum, timing of an initial public offering ("IPO"), and identity of the lead managers, at the time of the IPO, subject to the provisions of Clause 13 hereof, 11.1.27 the giving by the Company of any power of attorney not in the ordinary course of business; and 11.1.28 any modification of any significant commercial contracts or business agreements. 12 DEALING IN SHARES 12.1 The Sponsor shall not except with the prior written consent of SARF or in accordance with this Agreement. 12.1.1 pledge, mortgage, charge or otherwise encumber any of its Shares, options or warrants or any interest in any such Shares, options or warrants; 12.1.2 transfer, dispose of or grant an option over any of its Shares or any interest (legal or beneficial) in any such Shares, options, or warrants; or 12.1.3 enter into any agreement in respect of the votes attached to any of its Shares, options, or warrants. 12.2 The Company shall procure that each share certificate issued by it will carry the following statement - "Any" disposition, transfer, charge of or dealing in any other manner in the Shares represented by this certificate is restricted by a Shareholders 22 Agreement dated _____________ and made between the Company, South Asia Regional Fund and Satyam Computer Services Limited and Mr. B. Ramalinga Raju." 12.3 The Shareholders and the Company shall procure that the Board only approves for registration a transfer of Shares, warrants or options carried Out in accordance with the provisions of this Agreement. 12.4 Subject to Clause 12.3, if a Shareholder sells, transfers, assigns or otherwise disposes of all of its Shares, warrants or options it shall be released from its obligations hereunder except for those contained in Clauses 17 (if appropriate), 20, 22, and 23.1 to 23.3. 12.5 If any Shareholder ("the Transferor") transfers any Shares, warrants or options owned by it in accordance with the provisions of this Agreement other than to the other Shareholder(s) (such person(s) hereinafter called "the Transferee(s)") such transfer shall be made upon the condition that the Transferee(s) shall execute a Deed of Adherence, substantially in the form as set out in Schedule 8 by which, on and as of the date on which such Shares, warrants or options are transferred to it, the Transferee(s) shall become subject to the same obligations and shall be entitled to the same rights as bound and accrued to the Transferor pursuant to this Agreement. 13 LISTING 13.1 The Company and the Sponsor severally undertake to obtain a Listing of the Shares by making an IPO on the Bombay Stock Exchange ("BSE") or the National Stock Exchange ("NSE") on or before March 31, 2003. 13.2 Subject to the provisions of this Agreement, the Company undertakes to cause the existing Shares of the Company to be listed and take such steps as are necessary (either by way of a fresh issue of Shares and/or by causing the existing issued Shares to be sold) to obtain a Listing. The Sponsor and the Company severally undertake to ensure compliance with all applicable regulations, and guidelines in force at the relevant date in relation to the 23 making of the IPO or for obtaining a Listing. The Sponsor and the Company further severally undertake to use their best efforts to obtain all necessary consents and approvals required for the making of the IPO or for obtaining a Listing. 13.3 SARF will have the option to offer part or all of its Shares for an offer for Sale at the time of the IPO. For the avoidance of doubt, the balance of Shares necessary to meet all Listing requirements shall be provided either by way of a fresh issue of Shares and/or by the Sponsor's Shares being offered for sale. 13.4 The quantum, price and timing of the IPO shall be decided only with the prior written consent of SARF. 13.5 The Company shall, if so required by SARF, enter into underwriting agreements with underwriters, acceptable to SARF, for underwriting the Shares or other securities offered in the IPO. 13.6 All costs incurred in relation to the IPO shall be met by the Company. In respect of the Listing. the Company will comply with all ongoing Listing costs and requirements including inter alia, payment of all present and future costs relating to the Listing and, sponsorship, underwriting fees, listing fees, merchant bankers fees, bankers fees, brokerage, commission and any other costs that may be incurred due to the changes/modifications of the law and regulations for the time being in force. 13.7 The Company and the Sponsor agree that SARF shall not, upon Listing or sale of the Shares held by it, be required to give any warranties or indemnities to any underwriter, broker, Stock Exchange, any other Competent Authority or other person except as to title of its shares, and SARF shall in no circumstances be construed as a promoter under applicable law. 13.8 The Sponsor and the Company shall ensure fulfillment of all listing requirements to the satisfaction of the Stock Exchanges and Securities Exchange Board of India and/or any other regulatory/statutory authority. 24 13.9 If for any reason the Company fails to qualify for a listing on the BSE, the NSE or another recognised Stock Exchange in India or the United States of America approved by SARF the Company may seek to list the Shares on any other recognised Stock Exchange anywhere in the world, provided that the listing of the Shares of any other Stock Exchange shall require the prior written consent of SARF. For the avoidance of doubt, for the purposes of this Clause 13, if the Company seeks to list its shares of any exchange other than a recognised stock exchange in India or the United States of America, the provisions of this Clause 13 will apply to such listing. 14 TAG ALONG PROVISIONS 14.1 For the purposes of this Clause 14 - 14.1.1 "Buyer" means any person and/or a nominee of such person; 14.1.2 the "Tag Along, Price" shall mean the higher of - 14.1.2.1 the highest consideration offered for each Share the proposed transfer of which has led to the offer; 14.1.2.2 the highest consideration paid by the Buyer for any Share in the twelve months up to the relevant offer. 14.2 Notwithstanding any other provisions of this Agreement (including, but not limited to Clause 12), the Sponsor shall not be entitled to transfer any Shares (which term for the purposes of this Clause 14 will include any warrants or options) to a Buyer unless it shall have first procured that the Buyer makes a written offer (open for acceptance for a period of at least 28 days and with adequate security as to the performance of its obligations) to purchase all of the Shares held by SARF at the Tag Along Price per Share. Any such offer shall be on terms that the consideration shall be payable in cash in full without any set off within 21 days of acceptance of the offer. 14.3 The Sponsor shall procure that the Buyer shall complete the purchase from SARF of all of its Shares before or at the same time as the Buyer completes the purchase of Shares from the Sponsor. The Shareholders shall procure 25 that the Directors shall not register any transfer to the Buyer and the Buyer shall not be entitled to exercise or direct the exercise of any rights in respect of any Shares to be transferred to the Buyer until in each case the Buyer has fulfilled all his obligations pursuant to this Clause 14 and Clause 12.5. 15 WARRANTS 15.1 The issue of Warrants and subscription rights and all matters related thereto specified in this Clause 15 shall be subject to all applicable laws, rules and regulations in force in India at the date of signing of this Agreement. 15.2 Conditional upon SARF or the Sponsor (as the case may be) subscribing and paying in full for the number of Shares set out opposite their respective names in Clause 4.1, and the Company obtaining necessary approvals for the issue of Warrants, the Company hereby agrees and undertakes to issue Warrants to SARF and the Sponsor as set out in Clause 15-.3 below ("Warrants"). Each Warrant shall entitle the registered holder thereof a right to subscribe (the "Subscription Right(s)") for one fully paid Share in the capital of the Company at any time during the Warrant Exercise Period or as provided in Clause 15.2.2. for the Warrant Exercise Price on the following conditions (and those conditions endorsed on the Warrant Certificate substantially in the form set out in Schedule 9) (together the "Conditions"): 15.2.1 The Warrant exercise price (the "Warrant Exercise Price") per Share will be calculated by applying, at the "Warrant Exercise Date" (hereinafter defined), a multiple of eight to the fully diluted earnings per Share calculated using the latest annual audited accounts of the Company. The term "fully diluted" shall for the purposes of this Clause mean that the number of Shares used to calculate the earnings per Share will be the number of Shares that would be in issue if all the warrants and options (for the avoidance of doubt, this will include all Employee and Management Share Option Schemes) in issue at the Warrant Exercise Date were converted into Shares, subject to a minimum 26 price of the higher of (a) 66% of the fair market value of a Share on the Warrant Exercise Date, fair market value being arrived at by taking the mean price per Share determined by three reputable merchant banks acceptable to the Shareholders at that time ("Fair Market Value") and (b) the par value of Shares subscribed. If the Shareholders cannot agree on three reputable merchant banks, the President for the time-being of the International Chambers of Commerce, India will select and appoint such remaining reputable Merchant Bankers as may be required, at the request of any of the parties hereto and any costs associated therewith will be payable by the Company; 15.2.2 The Warrants will be exercisable at any time between 30 June 2001 and 30 June 2003 (the "Warrant Exercise Period") or if the Sponsor sells any of its Shares prior to 30 June 2001, or on a date not later than the date on which the Company files an application for Listing or petitions wind up voluntarily, by serving a written notice (the "Warrant Exercise Notice") on the Company substantially in the form, set out in Schedule 9 stating the Warrant Exercise Price and number of Warrants being exercised and enclosing a cheque (or other form of payment acceptable to the Company and SARF and/or the Sponsor as appropriate) for the relevant sum the date of receipt of the notice together with the Warrants and the cheque towards payment of the appropriate amount shall be the "Warrant Exercise Date." The Warrants can only be exercised during the Warrant Exercise Period, or under any of the other circumstances set out at the beginning of this Clause 15.2.2., failing which the relevant Warrants will lapse and cease to have any further effect. Once a notice exercising the Warrant has been given, such notice may not be withdrawn except with written consent of the Company. The Warrants shall have to be exercised in not more than 3 (three) tranches by the Warrantholders. 27 15.3 The number of Warrants to be issued by the Company pursuant to and on the terms and conditions set out in Clause 15.2 will be - SARF - 600,000 Sponsor - 150,000 15.4 Each Warrantholder will be entitled to Warrant Certificates in such denominations as SARF and/or the Sponsor may request in the form or substantially in the form shown in Schedule 9. 15.5 All Warrant Certificates shall be issued under the Seal of the Company or under a seal adopted for that purpose in accordance with the Articles of Association of the Company. 15.6 The Conditions of the Warrants and the Warrants shall be binding upon the Company and the Warrantholders and all persons claiming through or under them respectively. 15.7 Without prejudice to the generality of Clause 15.5 the Company shall upon exercise of all or any of the Subscription Rights from time to time during the Warrant Exercise Period or in accordance with Clause 15.2.2 allot and issue the appropriate number of Shares in accordance with this Agreement and the Conditions but subject to applicable laws and regulations in India at the date of this Agreement. The Warrants once exercised by the Warrantholders shall be cancelled forthwith by the Company. 15.8 The Company covenants with SARF and the Sponsor that so long as any of the Subscription Rights remain exercisable: 15.8.1 all Shares allotted and issued on exercise of the Subscription Rights shall rank pari passu in all respects with the fully paid Shares in the Company and shall accordingly entitle the holders to participate in full in all dividends or other distributions paid or made on in respect of the Shares from the relevant Warrant Exercise Date; and 28 15.8.2 it will send to each Warrantholder, at the same time as the same are sent to the holders of Shares, its audited accounts and all other notices, reports and communications despatched by it to the holders of the Shares generally. 15.9 Warrants shall be transferable by instrument of transfer in any usual or common form or such other form as may be approved by the Directors. For this purpose, the Company shall maintain a Register in accordance with applicable laws and regulations. Transfers of Warrants must be executed by both the transferor and the transferee. The provisions of the Company's Articles of Association for the time being in relation to the registration, transmission and transfer of Shares and the register of members shall apply, mutatis mutandis, to the registration, transmission and transfer of the Warrants and the Register and shall have full effect as if the same had been incorporated herein. For the avoidance of doubt SARF may sell some or all of the Warrants owned by it at any time. 15.10 The Parties agree to procure as soon as possible that all steps necessary for the Company to lawfully issue the Warrants shall be taken, including, but without limitation amending the Articles of Association of the Company. 15.11 All conditions and rights contained under Clauses 12, 14 and 16 shall apply mutatis mutandis to any issued but unexercised Warrants as if the Warrants were Shares. 16 EXIT OPTIONS 16.1 Notwithstanding SARF's right to sell its Shares at any given point of time or anything to the contrary contained elsewhere in this Agreement, the Sponsor hereby agrees that SARF shall also have the right to sell its Shares and terminate this Agreement and exercise the option (the "Exit Option") as set forth in Clause 16.2 hereof, on the occurrence of any of the following events: 29 16.1.1 any material breach of this Agreement by the Company and/or the Sponsor which is not remedied within 45 Business Days of receipt of written notice from SARF; 16.1.2 the bankruptcy or insolvency of the Sponsor or for the suspension or termination of its operations or any resolution is proposed for the distribution of any of its assets among all or any of its creditors; 16.1.3 there is no IPO made on or before March 31, 2003 or such later date as may be agreed between SARF, the Sponsor and the Company; 16.1.4 Mr. Ramalinga Raju ceases to be the Chairman of the Sponsor; 16.1.5 there is a Change in Control of the Sponsor; or 16.1.6 the Sponsor ceases to be a public listed company on the NSE/BSE or other recognised stock exchange. 16.2 If SARF becomes entitled to exercise the Exit Option above, SARF may, at its option: 16.2.1 require the Sponsor to, and Mr. Ramalinga Raju to procure, that the Sponsor makes available for sale the requisite number of its Shares which, along with SARF's shareholding, meets the minimum listing requirements on the BSE or the NSE or other recognized stock exchange in India or the United States of America or other stock exchange (subject to Clause 16.3), through an offer for sale to the public, and the Company shall bear the cost of making the offer for sale; and/or 16.2.2 sell its holding to a trade buyer or financial investor, in which case the Sponsor will, and Mr. Ramalinga Raju will procure, that he and the Sponsor will undertake all necessary steps to facilitate and make happen such a sale including, the Sponsor will make available the necessary number of its Shares, which when combined with all of the shares owned by SARF at that point in 30 time, will give the trade buyer/financial investor at least 25.1% shareholding in the Company, and both SARF and the Sponsor will sell their shares on the same terms and conditions; and/or 16.2.3 require the Company to buy back all of SARF's Shares, or such number of SARF's Shares as are permitted under Indian law, at a price per Share agreed between SARF and the Company, or failing such agreement at Fair Market Value. 16.3 The Parties agree that except to the extent that SARF's rights pursuant to this Agreement are inconsistent with Listing requirements, all of SARF's rights pursuant hereunder shall continue in full force and effect following Listing. SARF and the Sponsor shall have the obligation to accord consent to the amendment of the Articles of Association of the Company for the purpose of Listing only to the extent necessary for Listing and such as the Sponsor's and SARF's legal counsel in consultation with Company's legal advisors shall agree, and SARF and the Sponsor undertake to vote in favour of such modifications. 16.4 If SARF exercises its Exit Option, the Company agrees to use its best endeavours to procure or effect the provisions of clause 16.2 as soon as possible including, but without limitation in the case of Clause 16.2.3, obtaining SARF's approval prior to any capital expenditure or other deployment of funds in the event that the Company cannot buy back all of SARF's shares. 17 COVENANTS NOT TO COMPETE 17.1 While SARF or any associated company of SARF is the holder of any Shares, and for the period set out in Clause 17.2, the Sponsor shall not without the prior written consent of SARF either alone or jointly with, through (which includes by ownership of any Share, direct or indirect control) or on behalf of (whether as director, partner, consultant, manager, employee, agent or otherwise) any person, directly or indirectly - 31 17.1.1 carry on or be engaged or concerned or interested (or seek to take such action) in any business which is in competition with the Project or the business carried on by the Company in relation to electronic commerce and internet business (the "Restricted Business") as carried on at any time during the term of this Agreement anywhere in the world, nor seek to, directly or indirectly, procure orders from or do business or contract with any person who is or has been a customer or, (in such a way as to adversely affect the Company) a contractor or supplier of the Company at any time during the term of this Agreement; 17.1.2 in connection with any business competing with the Project or the business carried on by the Company in relation to the Restricted Business during the term of this Agreement engage or employ, or contact with a view to doing so, any person who has been an employee, officer or manager of the Company at any time during the term of this Agreement; 17.1.3 do or say anything which is harmful to the reputation of the Company or materially affects its existing business relationship with any person; with the intent that each of these restrictions shall constitute an entirely separate and independent restriction on the Sponsor and any associated company of the Sponsor. 17.2 The restrictions in Clause 17.1 shall apply also for a period of 12 calendar months from the date on which the Sponsor or any associated company of the Sponsor ceases to be legally and/or beneficially interested in any Share (the "Cessation Date") in all cases by references to either the Project or the business of the Company or customers, employees, officers, managers or contracting parties of the Company at the Cessation Date, as the context may require. 32 17.3 The Parties undertake to use their best endeavours to procure that the restrictions set out in this Clause 17 will apply mutatis mutandis to the Directors and, senior employees earning in excess of the relevant currency equivalent of US$30,000 per annum (or such revised limit as SARF may agree from time to time in writing with the Company), of the Company. 17.4 The restrictions contained in respect of Clauses 17.1 and 17.2 above are considered reasonable by the Parties but in the event that any such restrictions shall be found to be void but would be valid if some part or parts thereof were deleted or the period or area of application reduced, such restrictions shall apply with such modifications as may be necessary to make it valid and effective. 18 COMPLIANCE WITH THIS AGREEMENT AND THE ARTICLES 18.1 Each Shareholder and the Company undertakes to the others that it shall take (or shall cause to be taken) all practicable steps and actions including, without limitation, the exercise of votes it directly or indirectly controls at meetings of the Board and general meetings of the Company necessary or appropriate to ensure that the terms of this Agreement are complied with and to procure that the Board and the Company complies expeditiously and efficiently with its obligations and that it shall do all such other acts and things as may be necessary or desirable to implement this Agreement. 18.2 Each Shareholder and the Company undertakes to the others to amend the Articles of Association of the Company so that each and every provision (subject to Clause 18.1) shall be enforceable by the Shareholders as between themselves in whatever capacity. 19 TERMINATION 19.1 This Agreement shall remain in full force and effect as between the Shareholders and the Company until the earlier of - 19.1.1 Without prejudice to Clause 16, the acquisition by one Shareholder or a Buyer of all the Shares held by the other Shareholder(s); or 33 19.1.2 the agreement of all the parties that it be terminated. 19.2 For the avoidance of doubt, in the event of a transfer of Shares in accordance with this Agreement, unless expressly stipulated to the contrary herein, this Agreement shall not terminate but shall continue in full force and effect. 19.3 Termination of this Agreement shall be without prejudice to any accrued rights or obligations of the Parties up to the date of termination. 20 CONFIDENTIALITY 20.1 During the term of this Agreement and for the period of two years after termination or expiration of this Agreement for any reason whatsoever, the Receiving Party shall - 20.1.1 keep the Confidential Information confidential; 20.1.2 not disclose the Confidential Information to any other person other than with the prior written consent of the Disclosing Party or in accordance with Clauses 20.2 and 20.3; and 20.1.3 not use the Confidential Information for any purpose other than the performance of its obligations under this Agreement. 20.2 During the term of this Agreement the Receiving Party may disclose the Confidential Information to its directors, officers or employees (or employees, directors, and officers of its holding company, subsidiaries, or group companies ), and advisors including for the avoidance of doubt in the case of the Company, the Company's financiers and/or bankers, (the "Recipient") to the extent that it is necessary for the purposes of this Agreement. 20.3 The Receiving Party shall procure that each Recipient is made aware of and complies with all the Receiving Party's obligations of confidentiality under this Agreement as if the Recipient was a party to this Agreement. 34 20.4 The obligations contained in Clauses 20.1 to 20.3 shall not apply to any Confidential Information which - 20.4.1 is at the date of this Agreement or at any time after the date of this Agreement comes into the public domain other than through breach of this Agreement by the Receiving Party or any Recipient; 20.4.2 can be shown by the Receiving Party to the reasonable satisfaction of the Disclosing Party to have been known to the Receiving Party prior to it being disclosed by the Disclosing Party to the Receiving Party; 20.4.3 subsequently comes lawfully into the possession of the Receiving Party from a third party; 20.4.4 is required by law to be disclosed to any person who is authorised by law to receive the same; 20.4.5 is required to be disclosed by the regulations of any recognised exchange upon which the share capital of the Disclosing Party is listed or is proposed to be listed from time to time; 20.4.6 is disclosed to a court, arbitrator or administrative tribunal in the course of proceedings before it to which the Disclosing Party is a party in a case where disclosure is required by such proceedings. 20.5 For the purposes of this Clause, "Confidential Information" means all information of a confidential nature disclosed in writing by one party (the "Disclosing Party) to any other party (the "Receiving Party") whether before or after the date of this Agreement. 35 21 COSTS 21.1 Except as otherwise provided herein, each party will bear its own costs arising out of or incidental to the negotiation, preparation, execution and implementation by it of this Agreement and of all other documents referred to in it. 22. ARBITRATION 22.1 Except as expressly stated herein, any and all claims, disputes, questions or controversies involving the parties and arising out of or in connection with this Agreement, or the execution, interpretation, validity, performance, breach or termination hereof (including, without limitation, the provisions of this Clause 22) (collectively, "Disputes") which cannot be finally resolved by the Parties within sixty (60) calendar days of the arising of a Dispute by amicable negotiation and conciliation shall first be submitted for settlement by informal arbitration to an arbitral panel consisting of one member of the Board of Directors (or any nominee thereof) of each of SARF and the Sponsor. If any such panel, negotiating in good faith, is unable to resolve and settle the dispute within sixty (60) calendar days after the Dispute is first submitted to it, then any representative on such panel shall be entitled to cause the Dispute to be submitted for settlement pursuant to the terms of Section 22.2 hereof. 22.2 Any Dispute which is not settled after an attempt by the parties to the Dispute at amicable negotiations and conciliation under Section 22.1 shall be resolved by final and binding arbitration. The arbitration shall be held in Singapore in accordance with the Rules of United Nations Commission for International Trade Law ("UNCITRAL Rules") as then existing and shall be heard and determined by an arbitral tribunal composed of three (3) arbitrators. Each of the Shareholders shall appoint one arbitrator, and both of such arbitrators shall appoint a third arbitrator who shall serve as the Chairman of such arbitral tribunal, provided that such third arbitrator is not a citizen of the United Kingdom or India. If either Shareholder fails or decides against appointing an arbitrator within a period of thirty (30) days 36 after the appointment of the first arbitrator, or if the arbitrators designated by the Shareholders fail or otherwise are unable to appoint the third arbitrator within (30) days of the appointment of the second arbitrator, then the remaining arbitrator(s) shall be selected by the President of the International Chamber of Commerce, Singapore, which shall act as the appointing authority. 22.2.1 All arbitration proceedings shall be conducted in the English language and the arbitral award (the "Award") shall be rendered no later than six (6) months from the commencement of the arbitration or as otherwise provided by the UNCITRAL Rules, unless otherwise extended by the arbitral tribunal for no more than an additional six (6) months for reasons that are just and equitable. In connection with the arbitration proceedings, the parties hereby agree to co-operate in good faith with each other and the arbitral tribunal and to use their respective best efforts to respond promptly to any reasonable discovery demand made by any party and the arbitral tribunal. 22.2.2 Except as otherwise required by law or any applicable stock exchange rules and regulations, the arbitral proceedings and the Award shall not be made public without the joint consent of the parties to the Dispute and each such party shall maintain the confidentiality of such proceedings or the Award, unless otherwise permitted by the other party in writing. The costs of the arbitration shall be borne by the parties to the Dispute in accordance with the applicable provisions stipulated in the UNCITRAL Rules. Unless the Award provides for non-monetary remedies, any such Award shall be made and shall be promptly payable in US Dollars or other designated currency net of any tax or other deduction. The Award shall include interest from the date of any breach or other violation of this Agreement and the rate of such interest shall be specified by the arbitral tribunal and shall be calculated from the date of any such breach or other 37 violation to the date when the Award is paid in full; provided, however, -------- ------- that in no event shall such interest rate be lower than the prime commercial lending rate announced by Citibank, NA at its principal office at New York, United States of America for ninety (90) day loans extended to responsible commercial borrowers. 22.2.3 All notices and other communications by one party to the Dispute to the other or by the arbitral tribunal to any of the Parties in connection with the arbitration hereunder shall be in accordance with the provisions of Clauses 23.1 to 23.3. 22.2.4 The parties expressly understand and agree that the award shall be the sole, exclusive, final and binding remedy between them regarding any and all Disputes presented to the arbitral tribunal. Application shall be made to any court having jurisdiction over the party (or its assets) against whom the Award is rendered for a judicial acceptance of the Award and an order of enforcement. The Parties acknowledge and agree that this Agreement and any Award pursuant hereto shall be governed by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Indian Arbitration and Conciliation Act, 1996. 22.3 Neither the existence of any Dispute nor the fact that any arbitration is pending hereunder, shall relieve any of the parties of their respective obligations under this Agreement. 22.4 Each party hereby agrees that all of the transactions contemplated by this Agreement shall constitute and shall be deemed to constitute commercial activities. To the extent that any party may be entitled in any jurisdiction whatsoever to claim immunity, whether characterized as sovereign or otherwise, from litigation, execution, set-off, attachment or other legal process of any nature whatsoever, it hereby expressly and irrevocably waives such immunity. 38 23 MISCELLANEOUS 23.1 All notices and other communications to be given under this Agreement shall be made in writing and by letter or facsimile transmission (save as otherwise stated) and shall be deemed to be duly given or made when delivered (in the case of personal delivery), when despatched (in the case of facsimile transmission, provided that the sender has received a receipt indicating proper transmission) or, in the case of a letter, 10 Business Days after being deposited in the post (by the quickest mail available), postage prepaid, to such party at its address or facsimile number specified in Clause 23.2, or at such other address or facsimile number as such party may hereafter specify for such purposes to the other by notice in writing. 23.2 The addresses referred to in Clause 23.1 are - 23.2.1 in the case of a notice given to the Company - 35 Velachery Road Little Mount Chennai India 600 015 Facsimile number: (91) 44 235 4771 With a copy to Mayfair Centre, S.P. Road Secunderabad, Andhra Pradesh India 500 003 Fax Number - (91) 40 840 058 23.2.2 in the case of a notice given to SARF - Les Cascades Building Edith Cavell Street Port Louis Mauritius Facsimile number: (230) 212 9833 39 with a copy to- Commonwealth Eli Development Corporation One Bessborough Gardens London SWIV 2JQ England Facsimile number: (44) 171 828 6505; and CDC Advisors PVT Ltd Thapar Niketan 7/4 Brunton Road Bangalore - 560 025 Facsimile number: (91) 80 555 0592 23.2.3 in the case of a notice given to the Sponsor. Mayfair Centre, S.P. Road Secunderabad, Andhra Pradesh India 500 003 Fax number: (91) 40 840 058 23.2.4 In the case a notice given to Mr. Ramalinga Raju Plot 1242, Road NO 6 Jubilee Hills Hyderabad 500 033 India Facsimile number:_____________ 23.3 A notice or other communication received on a day other than a business day, or after business hours in the place of receipt, shall be deemed to be given on the next following business day in such place. 23.4 If there is any conflict or inconsistency between the provisions of this Agreement and the Memorandum and Articles of Association of the Company, this Agreement shall prevail so far as permitted under Indian law. Nothing in this Agreement shall be deemed to constitute an amendment of the Memorandum and Articles of Association of the Company or any previous articles of association of the Company. 40 23.5 Nothing in this Agreement or in any document referred to in it shall constitute any of the parties a partner of any other, nor shall the execution, completion and implementation of this Agreement confer on any party any power to bind or impose any obligations to any third parties on any other party or to pledge the credit of any other party. 23.6 None of the parties hereto may assign any of their respective rights or obligations under this Agreement nor any of the documents referred to in this Agreement in whole or in part (otherwise than pursuant to a transfer of Shares in accordance in all respects with the provisions and requirements of this Agreement). 23.7 Any provision in this Agreement which is or may become prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction without prejudice to the foregoing. The parties will immediately negotiate in good faith to replace such provision with a proviso which is not prohibited or unenforceable and has, as far as possible, the same legal and commercial effect as that which it replaces. 23.8 The Company, Mr. Ramalinga Raju and the Sponsor severally undertake, at the request and cost of SARF, to execute or procure the execution of such documents and do or procure the doing of such acts and things that SARF may reasonably require for the purpose of giving to SARF the full benefit of all the provisions of this Agreement or any document related thereto. 23.9 Save as SARF may otherwise agree, all notices, certificates, reports, information and documents given to SARF pursuant to this Agreement shall be in the English language. 23.10 This Agreement may be executed in several counterparts, each of which shall be an original but all of which shall together constitute one and the same instrument. 41 23.11 This Agreement represents the entire agreement between the parties and shall supersede and extinguish any previous drafts, agreements or understandings between all or any of the parties (whether oral or in writing) relating to the subject matter herein, except to the extent that the same are repeated in this Agreement. 23.12 Rights etc. cumulative and other matters - 23.12.1 The rights, powers, privileges and remedies provided in this Agreement are cumulative and are not exclusive of any rights, powers, privileges or remedies provided by law or otherwise. 23.12.2 No failure to exercise nor any delay in exercising any right, power, privilege or remedy under this Agreement shall in any way impair or affect the exercise thereof or operate as a waiver thereof in whole or in part. 23.12.3 No single or partial exercise of any right, power, privilege or remedy under this Agreement shall prevent any further or other exercise thereof or the exercise of any other right, power, privilege or remedy. 23.13 Release of Warrantors - 23.13.1 SARF may release or compromise the liability of Mr. Ramalinga Raju, the Sponsor or the Company hereunder without affecting the liability of the other. 23.14 All payments including dividends to be made by the Company hereunder shall be made in US$ and - 23.14.1 Without set-off or counterclaim; and 23.14.2 Free and clear of and without deduction or withholding for or on account of Taxes unless the Company is compelled by law to make payment subject to such Taxes. 42 23.15 All Taxes payable by the Company hereunder in respect of this Agreement shall be paid by the Company when due and in any event prior to the date on which penalties attach thereto. The Company agrees to indemnify SARF respect of all such Taxes. In addition, if any Taxes imposed, levied or assessed in any jurisdiction, or amounts in respect thereof, must be deducted or withheld from any amounts payable or paid by the Company hereunder, the Company shall, subject as aforesaid, pay such additional amounts as may be necessary to ensure that SARF receives a net amount equal to the full amount which it would have received had payment not been made subject to such Tax and shall promptly pay the full amount to be deducted to the relevant Taxation authorities. 23.16 This Agreement and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India. IN WITNESS WHEREOF the parties have executed and delivered this Agreement as a deed on the day and year first above written. EXECUTED on the date --- herein above ) under the Seal of [Satyam Infoway Limited Seal] SATYAM INFOWAY LIMITED ) by Ramaria R. and ) ---------- ------------ ) EXECUTED on the date --- herein above ) Under the Seal of [Satyam Computer Services Ltd. SATYAM COMPUTER SERVICES ) SEAL] LIMITED ) by B. Rama Raju and ------------- ------------ ) THE COMMON SEAL OF SOUTH ) ASIA REGIONAL FUND WAS ) AFFIXED HERETO IN THE PRESENCE ) OF ) acting by [ ] ) Director and [ ] Director/Secretary ) [South Asia Regional Fund Seal] to the Board SIGNED BY MR B RAMALINGA RAJU ) AS HIS DEED in the presence of ) [illegible] 43 SCHEDULE 1 (referred to in Recital A) Description of the Project Setting up a value added network servicing across 25 cities in India for the purpose of offering information technology connectivity, electronic commerce and internet solutions in accordance with the Financial Plan set out in Schedule 2 Part (II). 44 SCHEDULE 2 (referred to in Recital B) PART I Estimated Cost of the Project - ---------------------------------------------------------------------------- Project Cost Rsm US$m - ---------------------------------------------------------------------------- Premises 58.9 1.38 Network Related Expenses 48.4 1.14 Hardware and Software 159.5 3.75 Misc equipment 52.9 1.24 Investment for ISP 114.7 2.69 Pre-operating expenses 48.5 1.14 Margin on working capital 13.0 0.30 Contingencies 8.6 2.02 Total 504.5 11.87 - ---------------------------------------------------------------------------- 45 SCHEDULE 2 (referred to in Recital B) PART II Financial Plan Financial plan: Number of Shares (m) Total Cost (Rs)(m) Party Existing Shareholding Sponsor & Mr. Ramraj 12.00 120.00 Number of Shares to be subscribed Sponsor 0.75 52.50 SARF 3.00 210.00 Total 15.75 382.50 Term Debt Amount (Rs)(m) Exim Bank of 122.00 India/Citibank Total 504.50 46 SCHEDULE 3 (referred to in Clause 3.2) Conditions Precedent The conditions precedent referred to in Clause 3.1 are - 1. the grant and continuance in force of all governmental, government agencies, RBI, corporate, creditors, shareholders and other permissions, licences (including the ISPL), consents, registrations and authorisations requisite under the laws of India to render this Agreement legal, valid, binding and enforceable and to enable the Company to allot and issue, Shares and to issue Warrants to SARF on the terms of this Agreement, to perform its other obligations under this Agreement, and to carry out its business and construct and operate the Project, the compliance by the Company with all conditions attaching to each such permission, licence, consent, registration and authorisation and the provision to SARF of certified true copies thereof; 2 receipt by SARF in form and substance satisfactory to SARF, of a certificate from the Auditors of the Company certifying that the Sponsor has irrevocably and unconditionally subscribed and paid in full for 750,000 ordinary 10 Rs Shares in the Capital of the Company (for a consideration of Rs52.5m); 3. the Memorandum & Articles of Association of the Company, (including for the avoidance of doubt the inclusion of the provisions of Clauses 6, 9, 11, 12, 14 and 15 mutatis mutandis into the Articles of Association of the Company) as well as all relevant corporate documents necessary for approving the same, shall be in form and substance satisfactory to SARF and the Company shall have provided a certified true copy of each to SARF; 4 the making of arrangements satisfactory to SARF for the installation by the Company of efficient cost control, management information and accounting systems; 5 the receipt by SARF of the following documents in form and substance satisfactory to SARF - 47 5.1 a certified copy of one or more resolutions of the Board and of the Board of the Sponsor authorising the execution and performance of this Agreement, any other documents and instruments contemplated hereby and specifying therein a person or persons authorised to execute each such agreement, document or instrument and to make any communications or execute or certify any other document on behalf of the Company and authorising the Board to allot and issue Shares and the Warrants in sufficient numbers to enable the Company to comply with its obligations to SARF under this Agreement; 5.2 a certificate of the Chairman of the Company or Company Secretary of the Company setting out the names and signatures of the person or persons authorised to execute this Agreement and to make any communications or execute or certify any document on behalf of the Company; 5.3 a satisfactory opinion from SARF's legal counsel in India, substantially in the form set out in Schedule 4; 5.4 a certified true copy of the insurance policy or policies referred to in Clause 5.1.10 and 5.1.11 of this Agreement; 5.5 a certified true copy of the Memorandum & Articles of Association of the Sponsor. 6 the Company shall have appointed auditors acceptable to SARF, shall have provided to SARF evidence of the acceptance by such auditors of such appointment and shall have authorised such auditors to communicate directly with SARF (substantially in the form set out in Schedule 6) and the Company shall have furnished a copy of such authorisation to SARF; 7 the valid and effective execution of this Agreement and such other documentation as SARF may advise the Company of in writing; 8 agreement to have been reached on the composition of the Board between the Sponsor, the Company and SARF; 48 9 a plan satisfactory to SARF to have been put in place by the Company for the ISP Division of the Company, including without limitation, systems for monitoring the performance and development of this business unit; 10 the Company to have supplied copies of the employment/service contracts of such of the management of the Company as SARF shall request in writing. For SATYAM INFOWAY LIMITED AUTHORISED SIGNATORY. 49 SCHEDULE 4 (referred to in paragraph 5.3 of Schedule 3) Form of Legal Opinion We refer to the Share Subscription and Shareholders Agreement ("the SSA") dated _______________ between Satyam Infoway Limited ("the Company"), Satyam Computer Services Limited ("the Sponsor"), Mr. B. Ramalinga Raju and "South Asia Regional Fund". Words used in this opinion which are defined in the SSA have the respective meanings set out therein. For the purposes of giving this opinion we have examined executed originals or copies which have been certified by the Secretary of the Company as being true, complete and up to date copies of the following documents - (a) Minutes of a Meeting of the Board of Directors of the Company and the Sponsor dated [ ]; (b) the Memorandum & Articles of Association of the Company and the Sponsor; (c) the SSA; (d) [relevant consents and approvals]. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records, certificates, resolutions and other documents as we have considered necessary or appropriate and have carried out such searches as we have deemed relevant and necessary as the basis for the opinion expressed below. This opinion relates only to the laws of India as in force at the date of this opinion and we express no opinion as to the laws of any other jurisdiction. For the purposes of giving this opinion, we have assumed - 50 (a) the authenticity of all seals, or signatures and of any duty stamp or marking and the completeness and conformity to originals of all copy documents submitted to us; (b) that insofar as any obligation under any of the documents referred to above is to be performed in any jurisdiction outside India, its performance will not be illegal or ineffective by virtue of the law of that jurisdiction. (c) that there are no provisions of the laws of any jurisdiction other than those of India which would be contravened by the execution, delivery or performance of any of the documents referred to above; (d) that any document executed after the date of this opinion is executed in the form of the draft examined by us. On the basis of the foregoing assumptions we are of the opinion as follows - 1 The Company is a deemed public company, and the Sponsor is a public company listed on the BSE and the NSE and both are duly incorporated and validly existing and in good standing under the laws of India and have power to own their property and assets, to carry on their business as presently conducted, to implement and carry out the Project and to enter into and perform their respective obligations under the SSA. 2 The Company and the Sponsor have taken all necessary corporate action to authorise the execution and performance of their respective obligations of the SSA. 3 The SSA has been duly executed and delivered by the Company and the Sponsor, and constitutes legal, valid and binding obligations of the Company and Sponsor enforceable in India in accordance with their express terms. 4 Neither the execution and delivery of the SSA nor the compliance with the terms of such Agreement will contravene any law or legal requirement of India nor will it violate the Memorandum and Articles of Association of the Company nor the Sponsor or any of the terms, conditions or provisions of, or constitute a default or require any consent under, any indenture, agreement or other instrument to which the Company or the Sponsor are a party or by which they are bound or violate any 51 of the terms or provisions of any judgment, decree or order or any statute, rule or regulation applicable to the Company, the Sponsor or the Project. 5 All permissions, licences, consents (including, but without limitation all RBI consents and approvals), registrations and other authorisations for the time being required under the laws of India to authorise the subscription, the allotment and issue of Shares and the issue of Warrants pursuant to the SSA or the carrying out and completion of the Project or for the validity or enforceability of the SSA, have been obtained and are in full force and effect. 6 The Company has an authorised share capital of Rs 170,000,000 comprised of 17,000,000 shares of Rs 10/-each and has an issued share capital of 120,002,300/- There are no rights of pre-emption in favour of existing shareholders which would apply in relation to the allotment and issue of Shares to SARF under the SSA. Except as required by the laws of India and notified to SARF, it is not necessary or advisable that this Agreement be filed, registered, recorded or enrolled with any court, public office or other authority in any jurisdiction or that any documentary, registration or similar Tax or duty be paid on or in relation to any such Agreement. [The opinions set out above are subject to the following qualifications - 52 SCHEDULE 5 (referred to in Clause 2.1) Representations and Warranties 1 The Company is a deemed public company, and the Sponsor is a public company listed on the NSE and the BSE, both are duly incorporated and validly existing and in good standing under the laws of India and have power to own their respective properties and assets, to carry on their respective businesses as presently conducted or proposed to be conducted, to implement and carry out the Project, to enter into and perform their respective obligations under this Agreement and for the Company to allot and issue any shares or warrants to be issued pursuant to this Agreement. 2 The Company and the Sponsor have taken all necessary corporate action to authorise the execution of this Agreement. 3 The report and financial statements of the Company for the period ended 30 September 1998 have been prepared in accordance with generally accepted accounting principles and practices consistently applied and give a true and fair view of the financial condition, assets and liabilities of the Company at the date to which such financial statements have been prepared and since that date there has been no material adverse change in the financial condition or the business, assets or operations of the Company. 4 This Agreement has been duly executed and delivered by the Company and the Sponsor, constitutes legal, valid and binding obligations of the Company and the Sponsor respectively and is enforceable in accordance with its express terms. 5 Neither the execution and delivery of this Agreement nor the compliance with the terms of such Agreement will violate the Memorandum and Articles of Association Company, nor will it violate the Memorandum and Articles of Association of the Sponsor or any of the terms, conditions or provisions of, or constitute a default or require any consent under, any indenture, agreement or other instrument to which the Company or the Sponsor is a party or by which it is bound or violate any of the terms or provisions of any judgement, decree or order or any statute, rule or regulation applicable to the Sponsor, the Company or the Project. 53 6 The Company is not in breach of or in default under any agreement (including but without limit any financing agreement) to which it is a party or by which it is bound to an extent or in a manner which might have a material adverse effect of the business or financial condition of the Company. 7 All permissions, licences, consents, registrations and authorisations and other approvals for the time being required under the laws of India to authorise the Subscription and allotment and issue of Shares and the Warrants under this Agreement and the carrying out and completion of the Project and for the validity or enforceability of this Agreement, have been obtained and are in full force and effect including but without limitation the Internet Services Provision Licence ("ISPL") with the Government of India. 8 The Company is not engaged in any significant litigation or arbitration proceedings and is not aware of any facts likely to give rise to any significant litigation or arbitration proceedings. 9 In any proceedings taken in its jurisdiction of incorporation in relation to this Agreement, it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process. 10 The Company is not in default in the payment of any due and payable taxes, interest or penalties, or in the filing, registration or recording of any document or in breach of any legal or statutory obligation or requirement of the Company or of the Project. 11 Except as required by the laws of India and notified to SARF, it is not necessary or advisable that this Agreement be filed, registered, recorded or enrolled with any court, public office or other authority in any jurisdiction or that any documentary, registration or similar Tax or duty be paid on or in relation to any such Agreement. To the extent that any such amounts are payable, the Company warrants that such amounts shall be paid by it. 12 For the purposes of paragraphs 12 and 13 the following words shall have the following meanings - 54 12.1.1 "Encumbrance" means any interest or equity of any Person (including any right to acquire, option or right of pre-emption); any mortgage, charge, pledge, lien, assignment, hypothecation, security interest (including any created by law), title retention or other security arrangement or agreement; and any rental, hire purchase, credit sale or other agreement for payment of deferred terms. 12.1.2 "Hardware" means any computer equipment used by or for the benefit of the company at any time including, without limitation, parts of computer equipment such as firmware, screens, terminals, keyboards, disks and including without limitation, cabling and other peripheral and associated electronic equipment but excluding all software. 12.1.3 "Intellectual property" means patents, trade marks, service marks, rights (registered or unregistered) in any designs; applications for any of the foregoing, trade or business names; copyright (including rights in computer software) and topography rights; know-how; secret formulae and processes; lists of suppliers and customers and other confidential and proprietary knowledge and information; rights protecting goodwill and reputation; database rights such things and all rights and forms of protection of a similar nature to any of the foregoing or having equivalent effect anywhere in the world and all rights under licences and consents in respect of any of the rights and forms of protection mentioned in this definition. 12.1.4 "Intellectual Property Agreements" means agreements or arrangements relating in any way whether wholly or partly to Intellectual Property. 12.1.5 "Listed Intellectual Property" means the intellectual property referred to in the list annexed at Appendix A to this Agreement. 12.1.6 "Listed Intellectual Property Agreements" means the Intellectual Property Agreements set out in the list annexed at Appendix B to this Agreement. 55 12.1.7 "Software" means any set of instructions for execution by a computer processor used by or for the benefit of the Company at any time irrespective of application, language or medium. 12.1.8 "Software Products" means any software and associated documentation and materials, which is now or has at any previous time been supplied by the Company. 12.2 The Company and/or the Sponsor is/are the sole legal and beneficial owner/s free from Encumbrances of the Listed Intellectual Property and (where such property is capable of registration) the registered proprietor thereof and (save for copyrights and unregistered design rights not included in the Listed Intellectual Property) owns no other Intellectual Property. 12.3 Save as may appear from the Listed Intellectual Property Agreements no person has been authorised to make any use whatsoever of any Intellectual Property owned by the Company. 12.4 Save as may appear from the Listed Intellectual Property Agreements all the Intellectual Property used by the Company and/or Sponsor is owned by it and it does not use any Intellectual Property in respect of which any third party has any right, title or interest. 12.5 All the Intellectual Property rights owned or used by the Company and/or Sponsor are valid and enforceable and nothing has been done, omitted or permitted whereby any of them has ceased or might cease to be valid and enforceable. 12.6 None of the processes or products of the Company infringes any Intellectual Property or any right of any other person relating to Intellectual Property or involves the unlicensed use of confidential information disclosed to the Company by any person in circumstances which might entitle that person to make a claim against the Company. 12.7 None of the Listed Intellectual Property is being used, claimed, applied for, opposed or attached by any person. 56 12.8 The Company and the Sponsor are not aware of any infringement of the Listed Intellectual Property or of any rights relating to it by any person. 12.9 There are no outstanding claims against the Company or the Sponsor for infringement of any Intellectual Property or of any rights relating to it used (or which has been used) by the Company or the Sponsor and during the last three years no such claims have been settled by the giving of undertakings which remain in force. Neither the Company nor the Sponsor has received any actual or threatened claim that any of the Listed Intellectual Property is invalid nor is the Company or the Sponsor aware of any reason why any patents should be amended. 12.10 Confidential information and know-how used by the Company and the Sponsor is kept strictly confidential and the Company and the Sponsor operates and fully comply with procedures which maintain such confidentiality. The Company and the Sponsor are not aware of any such confidentiality having been breached. The Company and the Sponsor have not disclosed (except in the ordinary Course of the Company's business) any of the Company's know-how, trade secrets or list of customers to any other person. 12.11 All application and renewal fees, costs, charges, taxes and other steps required for the maintenance or protection of the Listed Intellectual Property have been duly paid on time or taken and none of such rights are subject to any existing challenge or attach by a third party or competent authority and there are no outstanding patent office or trade marks registry deadlines which expire within three months of the date of this Agreement. 12.12 The Listed Intellectual Property Agreements are all the intellectual property agreements to which the Company is a party and each of them is valid and binding and the Company and/or the Sponsor is/are not in breach of any of the provisions of such agreements. 57 12.13 All current advertising, marketing and sales promotions by the Company and the Sponsor comply with all applicable codes of practice and self- regulatory schemes. Neither the Company nor the Sponsor has been disciplined under any scheme or code in respect of any such advertising, marketing or sales promotion and no complaint has been made against it in respect thereof and there are no outstanding complaints or disciplinary proceedings against the company in respect thereof. 12.14 All persons retained or employed by the Company who, in the course of their work for the Company will or might reasonably be expected to bring into existence Intellectual Property or things protected by Intellectual Property are, so far as is reasonably practicable, individually bound by agreements with the Company whereby all Intellectual Property which such persons may bring into existence during their work for the Company vets in the Company and all such agreements contain terms which, so far as is reasonably practicable, prevent such persons disclosing any confidential information about the Company and its business. 12.15 None of the Intellectual Property owned or used by the Company is subject to compulsory licensing or the granting of any licences of right nor, so far as the Company is aware, will it become so by operation of law. 12.16 The Company does not use on its letterhead, brochures, sales literature or vehicles nor does it otherwise carry on its business under any name other than its corporate name. 13 Computer Systems 13.1 The Hardware has been satisfactorily maintained and supported and has the benefit of an appropriate maintenance and support agreement terminable by the contractor by not less than 24 months notice. 58 13.2 The Hardware and Software have adequate capability and capacity for the projected requirements of the Company for not less than one year following the date of this Agreement for the processing and other functions required to be performed for the purposes of the business of the Company and the Project. 13.3 Disaster recovery plans are in effect and are adequate to ensure that the Hardware, Software and data can be replaced or substituted without material disruption to the business of the Company. 13.4 In the event that any person providing maintenance or support services for the hardware, Software and Data ceases or is unable to do so the Company has all necessary rights and information to procure the carrying out of such services by employees or by a third party without undue expense or delay. 13.5 The Company has sufficient technically competent and trained employees to ensure proper, handling, operation, monitoring and use of its computer systems. 13.6 The Company has adequate procedures to ensure internal and external security of the Hardware, Software and Data, including (without limitation) procedures for preventing unauthorised access, preventing the introduction of a virus, taking and storing on-site and off-site back-up copies of Software and Data. 13.7 Where any of the records of the Company are stored electronically, the Company is the owner of all hardware and software licences necessary to enable it to keep, copy, maintain and use such records in the course of its business and does not share any hardware or software relating to the records with any person. 13.8 The Company has all the rights necessary (including rights over the source code if available) to obtain, without undue expense or delay, modified versions of the Software which are required at any time to improve in any regard the operation and/or efficiency of the Software. 59 13.9 The Company owns, and is in possession and control of, original copies of all the manuals, guides, instruction books and technical documents (including any corrections and updates) required to operate effectively the Hardware and Software. 13.10 The Hardware and Software have never unduly interrupted or hindered the running or operation of the Company's business, and have no defects in operation which so affect the Company's business. 13.11 The Hardware is the absolute property of the Company free from encumbrances except to the extent disclosed by the Company in Appendix C; 13.12 All Hardware, Software, Software Products and other equipment used by the Company is Year 2000 Compliant. 13.13 "Year 2000 Compliant" means the ability to provide all the following functions: 13.13.1 accurate processing of all date information whether before, during or after 01 January 2000, including, without limitation, accepting date input, providing accurate date output and performing accurate calculations involving dates or portions of dates; 13.13.2 performing all processing accurately, efficiently and without interruption before, during and after 01 January 2000 without any change in operations, or in any input or output procedures; 13.13.3 processing date input accurately in a way that does not create any ambiguity as to century; 13.13.4 storing, retrieving and processing date information accurately and in a manner that does not create any ambiguity as to century; and 60 13.13.5 presenting all date output information accurately and in a manner that does not create any ambiguity as to century. 14 The Company has disclosed to SARF in writing all information, estimates and forecasts relevant for the disclosure to a person contemplating making an equity investment in the Company. All information, estimates and forecasts so disclosed were prepared with due care and the Company is not aware of any reason why any such information, estimate or forecast should now be altered in any material respect. 15 As at the date of this Agreement- 15.1 the [authorised/issued] share capital of the Company is [ ], divided into [ ] ordinary shares of [ ] each par value, which are [all] [issued], outstanding and fully paid; 15.2 immediately prior to the execution of this Agreement all of the shares referred to in paragraph 15 are legally and beneficially owned by the Sponsor; 15.3 there are no agreements or arrangements in force which provide for the present or future allotment, issue or transfer of, or grant to any person the right (whether conditional or otherwise) to call for the allotment, issue or transfer of any share or loan capital of the Company [(including any option or right of pre-emption or conversion) there are no rights of pre-emption in favour of existing shareholders which would apply in relation to the allotment and issue of Shares to SARF under this Agreement] [OR] [all rights of pre-emption in favour of existing shareholders have been duly disapplied for the purposes of permitting the allotment and issue of Shares to SARF under this Agreement]; 16 Save as expressly disclosed to SARF, no indebtedness, mortgage, charge, pledge, lien or other Encumbrance exists over all or any of the present or future revenues, undertaking or assets of the Company and there is no subsisting agreement on the part of the Company to create any such mortgage, charge, pledge, lien or 61 Encumbrance. The Company has not incurred, assumed or permitted to exist any indebtedness which has not been disclosed to SARF; and 17 The Company is lawfully entitled to issue the Warrants and any such issue of Warrants will be intra vires. 62 SCHEDULE 6 (referred to in Schedule 3, paragraph 6) Form of Authorisation from the Company to its Auditors [LETTERHEAD OF THE COMPANY] To: The Auditors [Address] [Date] Dear Sirs, We hereby authorise and request you to give to Commonwealth Development Corporation ("SARF") of One Bessborough Gardens, London SW2V 2JQ, England, all such information as SARF may reasonably request with regard to the financial statements of Satyam Infoway Limited ("the Company"), both audited and unaudited, which the Company has agreed to supply under the terms of the Shareholders and Share Subscription Agreement between the Company, Satyam Computer Services Limited, Mr. B. Ramalinga Raju and SARF dated [ 19 ] ("the SARF Shareholders and Share Subscription Agreement"). For your information, we enclose a copy of the SARF Shareholders and Share Subscription Agreement. We authorise you to send the audited accounts of the Company to SARF to enable us to satisfy certain obligations to SARF under the SARF Shareholders and Share Subscription Agreement. When submitting the same to SARF, you are also requested to send, at the same time, a copy of your full report on such accounts in a form acceptable to SARF. Your attention is also drawn to the information, certificates, reports and confirmation to be provided by you pursuant to Clause 5.1.18 of the SARF Shareholders and Share Subscription Agreement. Please note that under Clause 5.1.18.3 of the SARF Shareholders and Share Subscription Agreement, the Company is obliged to provide SARF with a copy of any report or communication sent by the auditors to the Company its relation to the financial position or affairs of the Company which is of a material 63 nature. You are accordingly hereby also requested to submit the same to SARF in accordance with the SARF Shareholders and Share Subscription Agreement. For our records, please ensure that you send to us a copy of every letter which you receive from SARF immediately upon receipt and a copy of each reply made by you immediately upon issue thereof. Yours faithfully for and on behalf of Satyam Infoway Limited copied to - CDC Advisors Private Ltd 11, Golf Links, New Delhi, India Fax - 011 2691693 Enc - SARF Share Subscription Agreement 64 Schedule 7 Definitions and Interpretation In this Agreement, except where the context otherwise requires - "Board" means the Board of Directors of the Company as constituted from time to time; "Business Day" means a day on which banks are open for business (including dealings in foreign currency deposits and exchange) in India and, in the context of a payment being made to or from a bank in a place other than India, such other place; "Brand Name" shall bear the meaning ascribed to it in Clause 5.2.4; "CDC Advisors Private Ltd" means CDC Advisors Private Ltd, a company incorporated under the Company's Act 1956 and having its registered office at 11, Golf Links, New Delhi, India Pin Code 110 003. "SARF Group" means SARF and its Subsidiaries for the time being; "Change of Control" when applied to the Sponsor shall be deemed to have occurred if (a) Mr. B Ramalinga Raju ceases to be on the board of directors of the Sponsor, and/or (b) the Sponsor is the subject of a successful takeover, and/or (c) any person acquires (directly or indirectly) or becomes the owner (legally or beneficially) of (either by way of a single acquisition or over a period of time by way of multiple acquisitions) 25.1 % or more of the issued share capital of the Sponsor after the date hereof; "Closing Date" means 31.10.99 or such later date as SARF and the Company may agree in writing; "Company", "Sponsor", "Mr. B. Ramalinga Raju", and "SARF" shall bear the respective meanings assigned to those expressions at the beginning of this Agreement and in each case shall include the successors in title and permitted assigns of the party in question; "Conditions" shall bear the meaning set out in Clause 15.2; "Dangerous Substance" means any natural or artificial substance which may give rise to material risk of causing harm to man or other living organism or damaging the 65 environment including any controlled, special hazard, toxic, radioactive or dangerous waste; "Director" means a director of the Company from time to time; "Environmental Law" means any law, common law, regulation, directive, treaty, code of best practice, constitution, or the like concerning the protection of human health, the environment or the condition of the workplace or the generation, transportation, storage, treatment, processing or disposal of any Dangerous Substance; "Environmental Licenses" means any permit, license, authorisation, consent or other approval required by any Environmental Law; "Fair Market Value" shall bear the meaning set out in Clause 15.2.1; "Financial Year" means the financial year of the Company commencing on April 1 every year and ending on March 31 of the following year, or such other financial year of the Company as the Company may, with SARF's prior consent, from time to time legally designate as its financial year; "ISPL" shall bear the meaning set out in Schedule 5, paragraph 7; "Listing" means the unconditional admission of the Shares to the official list of either the NSE, the BSE or such other recognised stock exchange in India or the United States of America approved by SARF; "Project" shall bear the meaning set out in Schedule 1; "Register" means the register of Warrant holders required to be maintained pursuant to Clause 15.9; "RBI" means the Reserve Bank of India; "Rupees" or "Rs" means Indian rupees, the lawful currency for India for the time being. "SEBI" means the Securities and Exchange Board of India, a body established under the provisions of the Securities and Exchange Board of India Act, 1992; 66 "Shareholders" means SARF and the Sponsor or any purchaser or transferee of Shares in accordance with this Agreement and individually a "Shareholder"; "Shares" means ordinary shares in the capital of the Company having a par value of Rs10 each; "Shareholding Percentage" means in relation to a Shareholder, a fraction the numerator of which is the total number of Shares held by the Shareholder and the denominator of which is the total number of Shares (including Shares held by that Shareholder): (a) in issue; or (b) where the reference requires something to be apportioned between a number of Shareholders, held by those Shareholders; (c) which fraction is expressed as a percentage. "Stock Exchanges" means the NSE, the BSE or such other recognised stock exchange in India or the United States of America or other stock exchanges as envisaged by Clause 13.9, as approved by SARF; "Subscription Monies" means, in respect of: the Sponsor: Rs52.50m SARF: Rs210m "Subsidiary" of a company or corporation means any company or corporation: (a) which is controlled, directly or indirectly, by the first mentioned company or corporation; or (b) more than half the issued share capital of which is beneficially owned, directly or indirectly, by the first mentioned company or corporation; or (c) which is a subsidiary of another subsidiary of the first mentioned company or corporation; 67 "Taxes means all present and future income and other taxes, levies, rates, imposts, duties, deductions, charges and withholdings whatsoever imposed by any authority having power to tax and all penalties, fines, surcharges, interest or other payments on or in respect thereof and "Tax" and "Taxation" shall be construed accordingly. "Warrantholder" means on the Company granting Warrants to SARF and the Sponsor in accordance with Clause 15, SARF and the Sponsor or, if the Company does not grant Warrants to either of SARF or the Sponsor if they fail to fulfill the condition attaching to Clause 15, then SARF/the Sponsor as appropriate; "Warrants", "Warrant Exercise Price", "Warrant Exercise Period", "Exercise Date", "Subscription Right(s)", "Warrant Exercise Notice" and "Warrant Exercise Date" shall each bear the meaning set out in Clause 15. "Web Sites" means software developed by the Company or its marketing agents for creating customer business information and service so that it can be positioned on the Internet. "Year 2000 Compliant" shall bear the meaning set out in Schedule 5, Clause 13. Unless the context or the express provisions of this Agreement otherwise require (a) words importing the singular shall include the plural and vice versa; (b) references to persons shall include any firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing and any other legal entity; (c) the expressions "hereof", "herein" and similar expressions shall be construed as references to this Agreement as a whole and not be limited to the particular Clause or provision in which the relevant expression appears; (d) a company or corporation is to be treated as another's "associated company" at a given time if at that time one of the two has control of the other or both are under the control of the same person or persons; and 68 (e) a company or corporation shall be treated as being controlled by another if that other company or corporation is able to direct its affairs and/or to control the composition of its Board of Directors or equivalent body; (f) references to Recitals, Sections, Clauses, Schedules and paragraphs are references to, respectively, Recitals, Sections, Clauses of and Schedules and paragraphs to this Agreement; (g) the Index hereto and headings herein shall not affect the construction of this Agreement; (h) any reference to any agreement or document shall be construed as a reference to such agreement or document as the same may have been amended, varied, supplemented or novated in writing at the relevant time in accordance with the requirements of such agreement or document and, if applicable, of this Agreement with respect to amendments; (i) this Agreement is divided into Sections and the Sections are divided into Clauses; and (j) where, unless expressly stipulated to the contrary, there is a reference to "equivalent value of the relevant currency", such value will be calculated by reference to the average middle spot price for buying the relevant currency from Barclays Bank Plc on the Business Day immediately preceding the date of calculation of the sum referred to. 69 SCHEDULE 8 Form of Deed of Adherence THIS DEED OF ADHERENCE is made on [ ] BY [insert name of New Shareholder] of [insert address of New Shareholder] (the "New Shareholder") in favour of the persons whose names are set out in the Schedule to this Deed ("Existing Shareholders") and is supplemental to the Share Subscription and Shareholders' Agreement dated [ ] 1998 between (1) Satyam Computer Services Limited, (2) B. Ramalinga Raju, (3) South Asia Regional Fund and (4) Satyam Infoway Limited (the Company) (the "Agreement"). THE NEW SHAREHOLDER UNDERTAKES AS FOLLOWS - 1 The New Shareholder confirms that it has read a copy of the Agreement and the Articles of Association of the Company, and covenants with each person named in the Schedule to this Deed (each Existing Shareholder agreeing as follows) to be subject to the same obligations and entitled to the same rights as the party whose Shares the New Shareholder has/will acquire and to otherwise perform and be bound by all the terms of the Agreement as if the New Shareholder were named in the agreement as a party thereto. The Parties hereto agree to take all steps necessary to give effect to the provisions of this Deed. 2 This Deed (and any dispute controversy, proceedings or claim arising out of or in any way relating to this Deed or its formation) shall be governed by and construed in accordance with the laws of India. 70 3 Any and all claims, disputes, questions or controversies involving the parties and arising out of or in connection with this Deed, or the execution, interpretation, validity, performance, breach or termination hereof (including, without limitation, the provisions of this Section 3 collectively, "Disputes") which cannot be finally resolved by the parties within sixty (60) calendar days of the arising of a Dispute by amicable negotiation and conciliation shall first be submitted for settlement by informal arbitration to an arbitral panel consisting of one member of the Board of Directors (or any nominee thereof) of each of the Related Subscribers and the New Shareholder. If any such panel, negotiating in good faith, is unable to resolve and settle the dispute within sixty (60) calendar days after the Dispute is first submitted to it, then any representative of such panel shall be entitled to cause the Dispute to be submitted for settlement pursuant to the terms of Section 3.1 hereof. 3.1 Any Dispute which is not settled after an attempt by the parties to the Dispute at amicable negotiations and conciliation under Section 3 shall be resolved by final and binding arbitration. The arbitration shall be held in Singapore in accordance with the Rules of United Nations Commission for International Trade Law ("UNICITRAL Rules") as then existing and shall be heard and determined by an arbitral tribunal composed of three (3) arbitrators. Each of the Related Subscribers and the New Shareholder shall appoint one arbitrator, and both of such arbitrators shall appoint a third arbitrator who shall serve as the Chairman of such arbitral tribunal, provided that such third arbitrator is not a citizen of the United Kingdom or India. If any of the Related Subscribers or the New Shareholder fails or decides against appointing an arbitrator within a period of thirty (30) days after the appointment of the first arbitrator, or if the arbitrators designated by the Related Subscriber or New Shareholder fail or otherwise are unable to appoint the third arbitrator within (30) days of the appointment of the second arbitrator, then the remaining arbitrator(s) shall be selected by the President of the International Chamber of Commerce, Singapore, which shall act as the appointing authority. 71 3.2 All arbitration proceedings shall be conducted in the English language and the arbitral award (the "Award") shall be rendered no later thin six (6 months from the commencement of the arbitration or as otherwise provided by the UNICITRAL Rules, unless otherwise extended by the arbitral tribunal for no more than an additional six (6) months for reasons that are just and equitable. In connection with the arbitration proceedings, the parties hereby agree to co-operate in good faith with each other and the arbitral tribunal and to use their respective best efforts to respond promptly to any reasonable discovery demand made by any party and the arbitral tribunal. 3.3 Except as otherwise required by law or any applicable stock exchange rules and regulations, the arbitral proceedings and the Award shall not be made public without the joint consent of the parties to the Dispute and each such party shall maintain the confidentiality of such proceedings or the Award, unless otherwise permitted by the other party in writing. The costs of the arbitration shall be borne by the parties to the Dispute in accordance with the applicable provisions stipulated in the UNCITRAL Rules. Unless the Award provides for non-monetary remedies, any such Award shall be made and shall be promptly payable in US Dollars or other Designated Currency net of any tax or other deduction. The Award shall include interest from the date of any breach or other violation of this Deed and the rate of such interest shall be specified by the arbitral tribunal and shall be calculated from the date of any such breach or other violation to the date when the Award is paid in full; provided, however, that in no event shall such interest rate be lower than the prime commercial lending rate announced by Citibank, NA at its principal office at New York, United States of America for ninety (90) day loans extended to responsible commercial borrowers. 3.4 All notices and other communications by one party to the Dispute to the other or by the arbitral tribunal to any of the parties in connection with the arbitration hereunder shall be in accordance with the provisions of Clauses 23.1 to 23.3 of the Agreement save for the fact that the New Shareholder's details are contained at the start of this Deed. 72 3.5 The parties expressly understand and agree that the award shall be the sole, exclusive, final and binding remedy between them regarding any and all Disputes presented to the arbitral tribunal. Application shall be made to any court having jurisdiction over the party (or its assets) against whom the Award is rendered for a judicial acceptance of the Award and an order of enforcement. The parties acknowledge and agree that this Deed and any Award pursuant hereto shall be governed by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the [Indian] Arbitration and Conciliation Act, 1996. 3.6 Neither the existence of any Dispute nor the fact that any arbitration is pending hereunder, shall relieve any of the parties of their respective obligations under this Deed. 3.7 Each party hereby agrees that all of the transactions contemplated by this Deed shall constitute and shall be deemed to constitute commercial activities. To the extent that any party may be entitled in any jurisdiction whatsoever to claim immunity, whether characterised as sovereign or otherwise, from litigation, execution, set-off, attachment or other legal process of any nature whatsoever, it hereby expressly and irrevocably waives such immunity. 4 Terms defined in the Agreement shall, except where otherwise indicated herein, have the same meanings as those set out in the Agreement. IN WITNESS whereof this Deed has been executed by the New Shareholder and the Existing Shareholders and is intended to be and is hereby delivered on the date first above written. [Schedule to Deed to include all parties (including by way of earlier Deeds of Adherence) to the Agreement] 73 SCHEDULE 9 Form of Registered Warrant Certificate [Face] CERTIFICATE NUMBER OF TOTAL NUMBER WARRANTS EXERCISE MONEYS SATYAM INFOWAY LIMITED REGISTERED WARRANTS TO SUBSCRIBE FOR SHARES THIS IS TO CERTIFY that the undermentioned person(s) is/are the registered holder(s) of the number of Warrants specified below and is/are entitled, upon and subject to the conditions set out below and on the reverse hereof and in a Share Subscription and Shareholders Agreement between Satyam Infoway Limited (the "Company"), Satyam Computer Services Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju dated [ ] 1998 (the "SSA") on any of the Warrant Exercise Date(s) or as otherwise set out in the SSA to subscribe in respect of each Warrant at the Warrant Exercise Price per Warrant specified below for fully paid Share(s) of Satyam Infoway Limited. Number of Warrants: Warrant Exercise Price per Warrant: As set out in the SSA. [Name and address of Warrantholder] Terms not defined herein shall bear the meaning set out in the SSA. GIVEN under the Seal of Satyam Infoway Limited on this day of 199 . NO TRANSFER OF THE WHOLE OR ANY PORTION OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE REGISTERED UNLESS ACCOMPANIED BY THIS CERTIFICATE. REGISTRAR: 74 CONDITIONS 1. Definitions 1.1 In those conditions terms defined in the SSA shall have the same meaning herein. 2. Exercise of Subscription Rights 2.1 Subject to the provisions hereof and to compliance with all fiscal and other laws and regulations applicable thereto the registered holder of the Warrants represented by this Warrant certificate shall have the right, which may be exercised in whole or in part at any time during the Warrant Exercise Period, or as otherwise specified in the SSA under to subscribe for fully paid Shares at the Warrant Exercise Price per Share, subject to and in accordance with the SSA. 2.2 As soon as practicable after the relevant allotment of Shares under this condition (and not later than 14 days after the relevant Warrant Exercise Date) the Company will or will procure the issue free of charge to the Warrantholder(s) of the Warrant represented by this Warrant certificate: 2.2.1 a certificate (or certificates) for the relevant Shares in the name(s) of such Warrantholder(s); 2.2.2 (if applicable) a balancing Warrant certificate in the registered form in the name(s) of such Warrantholder(s) in respect of any Subscription Rights represented by this Warrant certificate and remaining unexercised; and 2.3 The certificate(s) for Shares arising on the exercise of the Subscription Rights, the balancing Warrant certificate (if any) will be available for collection at the registered office of the Company or, if so requested, will be sent by registered mail to the address specified in the Warrant Exercise Notice at the risk of that person. 75 3. Registered Warrants The Warrants are issued in registered form. The Company shall be entitled to treat the registered holder of any Warrant as the absolute owner thereof and accordingly shall not, except as ordered by a Court of competent jurisdiction or required by law, be bound to recognise any equitable or other claim to or interest in such Warrant on the part of any other person, whether or not it shall have express or other notice thereof. 4. Transfer, Transmission and Register 4.1 Warrants are transferable, by instrument of transfer in any usual or common form or in any other form which may be approved by the Directors. The Company shall maintain the Register accordingly. The Register may be as required or permitted under Indian law or regulation to be closed from time to time. Transfers of Warrants must be executed by both the transferor and the transferee. The provisions of the Company's Articles of Association relating to the registration, transmissions and transfer of Shares and the register of members shall, mutatis mutandis, apply to the registration, transmission and transfer of the Warrants and the Register. 5. Purchase and Cancellation 5.1 The Company or any of its Subsidiaries may so far as permitted by law in India (subject to the agreement of SARF if it is desirous of selling) at any time purchase Warrants from SARF. All Warrants purchased as aforesaid shall be cancelled forthwith and may not be reissued or re-sold. 6. Replacement of Warrant Certificates If a Warrant Certificate is mutilated, defaced, lost or destroyed, it may, at the discretion of the Company, be replaced at the principal office of the Registrar on payment of such costs as may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Company may require. Mutilated or defaced Warrant certificates must be surrendered before replacements will be issued. 76 7. Rights of Warrantholders on winding up The SSA provides that if an effective resolution is passed for the winding up of the Company, then Warrantholders may have certain options. 8. Governing Law The Warrants are governed by and will be construed in accordance with the laws of India. 9. The Warrants are (in addition to the above conditions) issued subject to the terms and conditions set out in a Shareholders and Share Subscription Agreement between SARF, Satyam Computer Services Ltd and Satyam Infoway Ltd dated [ ] 1998. 77 EXERCISE NOTICE (To be executed and lodged with the Registrar to exercise the Subscription Rights represented by this Warrant certificate) To: Satyam Infoway Limited (the "Company") Terms not defined herein shall have the same meaning as in the SSA (as defined below). The undersigned, being the duly registered holder(s) of the Warrant(s) represented by this Warrant certificate:- (A) hereby irrevocably elect(s) to exercise the Subscription Rights in respect of [ ] Warrants represented by this Warrant certificate and to subscribe for the relevant number of Shares in the capital of the Company at the applicable Warrant Exercise Price, and agree(s) to accept such Shares on the terms of the Memorandum of Association and Articles of Association of the Company and subject to the rights and restrictions set out in the Share Subscription and Shareholders Agreement between South Asia Regional Fund, Satyam Computer Services Limited, Mr. B. Ramalinga Raju and Satyam Infoway Limited dated [ ] 1998 ("SSA"); (B) make(s) payment in full for such Shares by sending herewith a cheque, draft or money order drawn on a bank account in India for value no later than the relevant Warrant Exercise Date, for the full amount of [ ] [(NOTE (1)];and (C) request(s) that a certificate for such Shares and a balancing Warrant certificate (if any) in registered form in respect of any Subscription Rights represented by this Warrant certificate and remaining unexercised be issued in the name(s) of the person(s) whose name(s) stand(s) in the Register of 78 Warrantholders as the Warrantholder(s) of the Warrant(s) represented by this Warrant certificate and such certificate(s), be sent by post at the risk of such Warrantholder(s) to the address of such Warrantholder(s). Dated: Signature(s) NOTES:- (1) Cheques, drafts or money orders should be drawn in Rupees on a bank account in India or such other place as may be determined by the Directors and be made payable to Satyam Infoway Limited. (2) In the case of a joint holding, all joint holders must sign. 79 APPENDICES List of Registered Intellectual Property and Intellectual Property Agreements Intellectual Property Satyam - brand name and logo Applied for registration in the name of Satyam Computer Services Ltd. in India Intellectual Property Agreements 1) International Electronic Commerce Agreement dated February 14, 1997 between "Sterling Commerce International Inc., a Delaware, USA corporation and "Satyam Infoway Ltd". 2) Agreement dated June - 1997 between Open Market Inc. Massachusetts, USA and "Satyam Infoway Ltd". 3) Agreement dated April 18, 1997 between "Compuserve Inc"., Columbus, Ohio, USA and "Satyam Infoway Ltd"; and 4) Agreement dated November 12, 1998 between "ELIASCHEM", Israel and "Satyam Infoway Ltd". 80 EX-4.2 6 AMENDMENT #1 TO SHARE SUBSCRIPTION AGREEMENT EXHIBIT 4.2 AMENDMENT NUMBER ONE TO SHARE SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT RELATING TO SATYAM INFOWAY LIMITED Dated February 5, 1999 among Satyam Infoway Limited, Satyam Computer Services Limited, South Asia Regional Fund and Mr. B. Ramalinga Raju Date of Amendment: September 14, 1999 1. Introduction. Satyam Infoway Limited (the "Company"), Satyam Computer ------------ ------- Services Limited ("SCSL"), South Asia Regional Fund ("SARF") and Mr. B. ---- ---- Ramalinga Raju ("RAJU" and, collectively with the Company, SCSL and SARF, the ---- "Parties") entered into a Share Subscription and Shareholders Agreement, dated ------- as of February 5, 1999, a copy of which is attached hereto as Exhibit A (the "Agreement"). The Parties now desire to amend the Agreement as set forth herein ---------- (the "Amendment"), it being expressly understood that this Amendment shall only --------- become effective upon the terms and subject to the conditions set forth in Section 11, and in all other instances the Agreement shall remain in full force and effect without regard to this Amendment. 2. Amendments to Covenants. Section 5 of the Agreement entitled "Covenants" is ----------------------- --------- amended as follows: (a) Section 5.1.17 of the Agreement is deleted in its entirety and -------------- replaced with the following: procure that its accounts are audited at least once in every financial year in accordance with generally accepted accounting principles as applicable in India by an accounting firm acceptable to SARF, it being understood that the Indian affiliate of any of the "Big 5" accounting firms (including, without limitation, the present auditors of the Company) shall be deemed to be acceptable to SARF; (b) The lead-in to Section 5.1.18 of the Agreement is deleted in -------------- its entirety and replaced with the following (it being understood that no amendment is made in subsections 5.1.18.1 through 5.1.18.5): ------------------------------------- For so long as SARF owns at least 5.0% of the issued ordinary share capital of the Company, furnish to SARF, upon SARF's request-; (c) Section 5.2.3 of the Agreement is deleted in its entirety and ------------- replaced with the following: procure that the Board of the Company at all times includes at least two independent non-executive Directors (excluding any Director(s) designated by SARF or the Sponsor); (d) Section 6.1 of the Agreement is amended by deleting the ----------- term "7.5%" in the first line of such section and replacing it with "5.0%". (e) Section 6.2 of the Agreement is deleted in its entirety and ----------- replaced with the following: For so long as it owns at least 50.1% of the issued ordinary share capital of the Company, the Sponsor shall be entitled, by notice in writing to the Company, to nominate 4 (four) Directors of the Board of the Company and to require the removal or substitution of any such Director approved by it. SARF hereby agrees at all times to take all actions necessary and appropriate to enable the Sponsor to exercise its rights to such nomination, removal or substitution, including voting in favor of such nomination, removal or substitution both at shareholders meetings and Board meetings. (f) Section 6.3 of the Agreement is deleted in its entirety. ----------- (g) Section 6.4 of the Agreement is deleted in its entirety. ----------- (h) Section 6.10 of the Agreement is deleted in its entirety and ------------ replaced with the following: The Company shall indemnify the Director and officers nominated by SARF from time to time against all losses, claims, liabilities, costs or other expense arising from the performance of their duties (hereinafter "damages") except where such damages arise as a result of fraud, willful misconduct or gross negligence on the part of such Director or officer seeking such indemnity or where such indemnification is not permitted by applicable law. In addition the Company agrees to take out adequate insurance, to the extent available in India on commercially reasonable terms as determined in good faith by the Board of Directors, to cover such damages. 3. Amendment to Financing. Section 8 of the Agreement entitled "Financing" is ---------------------- --------- deleted in its entirety. 4. Amendment to Dividends. Section 9 of the Agreement entitled "Dividends" is ---------------------- --------- deleted in its entirety. 5. Amendment to Enforcement of Company's Rights. Section 10 of the Agreement -------------------------------------------- ---------- entitled "Enforcement of Company's Rights" is amended as follows: Section 10.2 of the Agreement is deleted in its entirety. ------------ 2 6. Amendment to Actions to be Taken by Board Resolution or by Shareholder ---------------------------------------------------------------------- Consent. Section 11 of the Agreement entitled "Actions to be Taken by Board - ------- ---------- Resolution or by Shareholder Consent" is deleted in its entirety. 7. Amendment to Listing. Section 13 of the Agreement entitled "Listing" is -------------------- ---------- amended as follows: 13.1 The Company and the Sponsor severally undertake to use their respective reasonable best efforts to obtain a Listing of the Shares by making an IPO on the Bombay Stock Exchange ("BSE") or the National Stock --- Exchange ("NSE") as soon as reasonably practicable after such time as the --- Company has satisfied the applicable qualifications for Listing. 13.2 Subject to the provisions of this Agreement, the Company undertakes to use its reasonable best efforts to cause the existing Shares of the Company to be listed and take such steps as are necessary (either by way of a fresh issue of Shares and/or by causing the existing issued Shares to be sold) to obtain a Listing. The Sponsor and the Company severally undertake to ensure compliance with all applicable regulations, and guidelines in force at the relevant date in relation to the making of the IPO or for obtaining a Listing. The Sponsor and the Company further severally undertake to use their reasonable best efforts to obtain all necessary consents and approvals required for the making of the IPO or for obtaining a Listing. 13.3 SARF will have the option to offer part or all of its Shares for an offer for Sale at the time of the IPO. For the avoidance of doubt, the balance of Shares necessary to meet all Listing requirements shall be provided either by way of a fresh issue of Shares and/or by the Sponsor's Shares being offered for sale. 13.4 The quantum, price and timing of the IPO shall be decided by a duly established pricing committee of the Board of Directors of the Company with one member thereof consisting of the Board designee of SARF. 13.5 The Company shall, if so required by SARF, enter into underwriting agreements with underwriters for underwriting the Shares or other securities offered in the IPO, which underwriters shall be approved by a duly established pricing committee of the Board of Directors of the Company with one member thereof consisting of the Board designee of SARF. 13.6 All costs incurred in connection with any public offering shall be met by the Company. In respect of the Listing, the Company will comply with ongoing Listing costs and requirements including, inter alia, payment of all present and future costs relating to the Listing and, sponsorship, underwriting fees, listing fees, merchant bankers fee, bankers fees, brokerage commission and any other costs that may be incurred due to the changes/modifications of the law and regulations for the time being in force. Notwithstanding any other provision of this Subsection 13.6 to the contrary, however, the Company shall not be obligated 3 to incur underwriting discounts, brokerage commissions or similar costs solely related to the sale of Shares for the account of any shareholder of the Company. 13.7 SARF agrees that, upon Listing or sale of the Shares held by it, SARF will give warranties and/or indemnities to any underwriter, broker, Stock Exchange, any other Competent Authority or other person as to the title of its shares and similar matters as is customary under prevailing commercial practice for institutional investors which do not enjoy management control, direct supervision or information except as an outside non-management director, and the Company and Sponsor agree that SARF shall in no circumstances be construed as a promoter under applicable law. 13.8 The Sponsor and the Company shall use their respective reasonable best efforts to ensure fulfillment of all listing requirements to the satisfaction of the Stock Exchanges and Securities Exchange Board of India and/or any other regulatory/statutory authority. To the extent that the Company seeks to list its shares on any exchange other than a recognized stock exchange in India or the United States of America, the provisions of this Clause 13 will apply to such listing. 13.9 From and after (but conditioned upon) the execution of a Registration Rights Agreement by and between the Company, SARF and Sterling Commerce, Inc., dated as of September 14, 1999 (the "Registration Rights Agreement"), ----------------------------- such agreement shall apply exclusively with respect to any resale of Shares owned by SARF in the United States of America, including any related (a) registration of such Shares and/or related American Depositary Shares with the United States Securities and Exchange Commission and (b) listing on any United States stock exchange or automated quotation system, such as Nasdaq, and the previously applicable provisions of this Agreement, including this Clause 13, shall thereafter cease to apply with respect to the sale of shares in the United States, except for Section 13.10. 13.10 At such time as a market is created in the United States of America for American Depositary Shares representing equity shares of the Company, the Company, the Sponsor and SARF will use their respective reasonable best efforts to obtain all Government of India and other approvals required for SARF to deposit the equity shares acquired by it from the Company with the depositary and receive in exchange therefor American Depositary Receipts evidencing American Depositary Shares. 8. Amendment Exit Options. Section 16 of the Agreement entitled "Exit ---------------------- ---------- Options" is amended as follows: (a) the following shall be added to the end of Section 16.2.1 after the -------------- word "sale" and before the semi-colon: "(it being understood that the requirements of this Section 16.2.1 shall be deemed satisfied if at any time (i) the Company's Shares, or related American Depositary Shares ("ADSs"), are approved for listing on the BSE, NSE, New York ---- Stock 4 Exchange or Nasdaq National Market and (ii) there shall have been obtained all Government of India and other approvals required for SARF to deposit the equity shares acquired by it from the Company with the depositary and receive in exchange therefor American Depositary Receipts evidencing ADSs)". (b) A period shall be placed at the end of Section 16.2.2 after the word -------------- "conditions" and Section 16.2.3 shall be deleted. -------------- (c) Section 16.4 shall be amended by inserting a period after the word ------------ "possible" on the third line, and deleting the balance of the section. (d) A new Section 16.5 shall be added as follows: ------------ In connection with the offering in the United States of ADSs representing Shares of the Company (the "ADS Offering"), SARF shall not, directly or indirectly, transfer, sell, assign, pledge, hypothecate, encumber or otherwise dispose of any Shares, or any pecuniary interest therein, for a period of 180 days after the date on which the ADS Offering is consummated, except with the prior written consent of the underwriters for the ADS Offering. To carry out the intent and purposes of this Section 16.5, SARF shall, at the request of the underwriters for the ADS Offering, enter into a "lockup agreement" containing customary provisions with the representatives of such underwriters. 9. Amendment to Covenants Not to Compete. Section 17 of the Agreement entitled ------------------------------------- ---------- "Covenants Not to Compete" is amended as follows: The following shall be deleted from Section 17.1.1: "or the business -------------- carried on by the Company in relation to electronic commerce and internet business". 10. Warrant Exercise. SARF hereby exercises the warrants held by it to purchase 600,000 Shares, such exercise to be effective only upon the successful completion of the ADS Offering prior to December 31, 1999. The Company hereby accepts such exercise. The parties agree that because the exercise price of the warrants can not be calculated unless and until the ADS Offering is completed, SARF may, and hereby agrees to, remit to the Company the exercise price for the warrants not later than the fifth business days after the closing of the ADS Offering. Such remittance will be in official funds paid to a bank account designated by the Company. For purposes of calculating such period, business days shall mean days in which commercial banks and stock exchanges are generally open for business in London, England. 11. Effectiveness of This Amendment. This Amendment, except for new Sections ------------------------------- 13.9, 13.10 and 16.5, shall become effective upon the consummation of the ADS Offering if, but only if, such offering is completed prior to December 31, 1999. Section 13.9 shall become effective upon execution of the Registration Rights Agreement, and Sections 13.10 and 16.5 shall become effective upon the execution of this Amendment and the consummation of the ADS Offering if, but 5 only if, such offering is completed prior to December 31, 1999. In all other instances, the Agreement shall remain in full force and effect without regard to this Amendment. (Signature Page Follows) 6 Intending to be legally bound and for the purpose of evidencing their approval of this Amendment, the undersigned, constituting all of the shareholders of the Company, hereby approve and adopt this Amendment. SATYAM INFOWAY LIMITED /s/ R. Ramaraj _________________________ Name: R. Ramaraj Title: Chief Executive Officer SATYAM COMPUTER SERVICES LIMITED /s/ B. Ramalinga Raju _________________________ Name: B. Ramalinga Raju Title: Chairman SOUTH ASIA REGIONAL FUND [illegible] _________________________ Name: Title: /s/ B. Ramalinga Raju _________________________ B. Ramalinga Raju /s/ R. Ramaraj _________________________ R. Ramaraj 7 EX-4.5 7 RUPEE LOAN AGREEMENT EXHIBIT 4.5 [INDIAN CURRENCY -- 100 RUPEE NOTE] RUPEE LOAN AGREEMENT THIS AGREEMENT made the 3rd day of July 1998 Between SATYAM INFOWAY LIMITED, a company within the meaning of the Companies Act, 1956 and having its Registered Office at May Fair Centre, 1/8-303/36 S.P. Road, Secunderabad (hereinafter referred to as "the Borrower", which expression shall, unless it be repugnant to the subject or context thereof, include its successors and permitted assigns) of the ONE PART And EXPORT-IMPORT BANK OF INDIA, a corporation established under the Export-Import Bank of India Act, 1981 and having its Head Office at Centre One, Floor 21, World Trade Centre, Cuffe Parade, Mumbai 400 005 (hereinafter referred to as "Exim Bank" which expression shall, unless it be repugnant to the subject or context thereof, include its successors and assigns) of the OTHER PART. WHEREAS i) The Borrower has requested Exim Bank to grant to it financial assistance by way of a Rupee Loan for the purpose mentioned in Schedule I. ii) Exim Bank has agreed to grant the said financial assistance to the Borrower upon the terms and conditions hereinafter mentioned. NOW IT IS HEREBY AGREED as follows: I. Definitions All expressions wherever used in this Agreement and in the Schedules and Annexure hereto shall, unless the context may otherwise require, have the meanings assigned to them in Schedule I. II. Rupee Loan Exim Bank hereby agrees to lend and disbursement to the Borrower and the Borrower agrees to avail of the Rupee Loan facility from Exim Bank for the purpose and upon the terms and subject to the conditions contained in this Agreement. III. Conditions for Disbursement The obligation on the part of Exim Bank to make a disbursement to the Borrower hereunder and maintain the Rupee Loan shall be subject to compliance by the Borrower with the following among other conditions contained in the Rupee Loan Agreement, to the satisfaction of the Exim Bank: (i) the Borrower shall have produced a certified true copy each of the contract, if any, with overseas supplier for import of machinery and equipment, and all related documents and documentary evidence that may be listed in the Letter of Sanction including for arrangements made with bank(s)/financial institution(s) for financing the projected expenditure and the working capital requirements as per the financing plan submitted to Exim Bank; (ii) The Borrower shall have furnished a drawdown schedule to Exim Bank within a period of 30 days from the date of this Agreement indicating the amount(s) of disbursement required and the proposed date(s) thereof, 2 and shall have complied with the disbursement Procedure prescribed by the Lender. (iii) the proposed date for a disbursement hereunder shall be a Business Day failing on or before the Termination Date, unless otherwise agreed by Exim Bank; (iv) the Borrower shall have obtained or shall have made arrangements satisfactory to Exim Bank for obtaining all necessary approvals, licences, consents and clearances from the Government, Reserve Bank of India and other concerned regulatory and corporate authorities as may be specified in the Letter of Sanction, for the borrowings under the Rupee Loan Agreement, the carrying on of the business of the Borrower as contemplated to be carried on, the implementation of the Project as also for the due execution and delivery of and performance under the Rupee Loan Agreement and documents hereby contemplated and for creation of the Security as herein provided; (v) the Borrower shall have produced to Exim Bank a certificate of the Borrower's Statutory auditors in the form prescribed by Exim Bank certifying to the effect that the aggregate amount of the Rupee Loan facility together with the moneys borrowed by the Borrower will not exceed the limit on borrowings fixed by its shareholders in terms of the relevant provisions of the Companies Act, 1956; (vi) the Borrower shall have created valid Security and furnished Security Documents in favour of Exim Bank and, wherever applicable, shall have produced evidence satisfactory to Exim Bank of the filing of particulars of creation of charge(s) constituting the Security with the concerned registering authorities; (vii) the Borrower shall have furnished/procured all necessary documents in form and substance acceptable to Exim Bank and shall have also fulfilled all condition(s) precedent to disbursement including payment offer, charges and other dues, if any, as may have been stipulated by Exim Bank in the Letter of Sanction; (viii) All representations and warranties made by the Borrower in its application for the Rupee Loan facility and in the Rupee Loan Agreement shall have remained true and correct on the date of disbursement hereunder as if each of them shall have been repeated herein with respect to the facts and circumstances existing on the date thereof; (ix) no Event of Default and no event which, with the giving of notice or lapse of time or both would become an Event of Default, shall have happened and be continuing. 3 IV. Fee The Borrower shall pay to Exim Bank a Fee at the rate and in the manner as may be specified in Schedule I hereto. The Fee shall not be refunded by Exim Bank even if the Rupee Loan facility or any part thereof shall not be availed of or cancelled for any reason whatsoever. V. Interest The Borrower shall pay to Exim Bank interest on the principal amount of the Rupee Loan outstanding from time to time half-yearly on June 20 and December 20 in each year at the Interest Rate specified in Schedule I Provided that any interest accrued and remaining outstanding on the final Repayment Date shall be paid on that date. VI. Repayment The Rupee Loan shall be repaid to Exim Bank in accordance with the repayment schedule set out in Schedule II hereto. VII. Liquidated Damages In the event of any default in payment of an instalment of principal, interest or any other monies when due under this Agreement, the Borrower shall be liable to pay, without prejudice to the remedies available to Exim Bank under this Agreement or otherwise, additional interest by way of liquidated damages on the defaulted amount(s) for the period of default at the rate of two percent (2%) per annum payable in the manner and on the dates specified above for payment of interest. VIII. Security Repayment of the Rupee Loan together with payment of interest, compound interest, additional interest by way of liquidated damages in case of default, costs, charges and expenses and all other monies whatsoever stipulated in the Rupee Loan Agreement shall be secured by the Borrower by creation of the Security and/or execution and delivery of the Security Documents specified in Schedule III-A in accordance with the provisions of the Rupee Loan Agreement. Any mortgage/charge comprised in the Security shall rank in the order of priority set out in Schedule III-B. 4 IX. Communication Any notice or other communication herein contemplated to be given by one party to the other shall be sent to such party's address specified in Schedule IV. X. General Conditions to form an integral part of Agreement This Agreement shall be read with the General Conditions contained in the Annexure hereto which shall form an integral part of this Agreement and be deemed incorporated herein by reference and the parties hereto agree to accept and be bound by the provisions thereof. 5 SCHEDULES FOR RUPEE LOAN AGREEMENT SCHEDULE I (Ref. Clause I) DEFINITIONS "Business Day" shall be construed as reference to a day on which banks (and Exim Bank) shall remain open for business in Mumbai for the purpose contemplated by this Agreement; "Event of Default" shall mean any of the events specified in Section XXI(2) of the General Conditions; "Fee" shall mean one time non-refundable service fee payable by the Borrower to Exim Bank at the rate of one per cent (1%) of the amount of the Rupee Loan facility within a period of 30 days from the date of Letter of Sanction; "General Conditions" shall mean the general terms, conditions, covenants and other provisions and stipulations set out in the Annexure hereto which shall form an integral part of this Agreement and be deemed to be incorporated herein by reference; "Interest Rate" shall mean the rate of 15.5% per annum at which interest shall be chargeable by the Lender hereunder on the amount of the Rupee Loan: "Letter of Sanction" shall mean the letter No. OIF:EOU:D-282:254 dated June 05, 1998 addressed to the Borrower by Exim Bank and incorporated herein by reference, advising sanction of the Rupee Loan facility upon the main terms and conditions therein stipulated and duly accepted by the Borrower, and shall include amendment(s)/modification(s) therein as may be issued by Exim Bank from time to time; "Loan Agreement" shall mean this Agreement read with the General Conditions; "Project" shall mean the setting up of a public data network for providing Electronic Commerce, Electronic Data Interchange and Internet services; "Repayment Date" shall mean a date on which an instalment of the Rupee Loan falls due for payment in accordance with the amortization schedule set out in Schedule II hereto; "Rupee Loan" shall mean the rupee loan facility agreed to be provided by the Lender to the Borrower in pursuance of Clause II hereof under its lending programme for Export Oriented Units (Export Facilitation Activities) up to the sum not exceeding Rs 21.50 crores (Rupees Twenty One crores and Fifty Lacs only) for the purpose of financing/ payment/funding/remittance of: 6 (i) a part of the cost and related expense of supplies and/or services required for execution of the Project and/or "Security and/or Security Documents" shall mean the security and/or the documents mentioned in Schedule III-A hereto, each in form and substance acceptable to Exim Bank; "tax" shall be construed so as to include any tax, levy, impost, duty or other charges of a similar nature; "Termination Date" shall mean the earlier of (a) December 31, 1990 and (b) the first Business Day on which the entire Rupee Loan has been disbursed. 7 SCHEDULE II (Ref. Clause VI) AMORTIZATION SCHEDULE The Rupee Loan shall be repaid by the Borrower in 6 (Six) substantially equal half-yearly instalments, commencing from December 20, 1999, or such other date closer to that date as may be advised by Exim Bank at the time of making the first disbursement. 8 SCHEDULE III-A (Ref. Clause VIII) *SECURITY AND/OR SECURITY DOCUMENTS (i) A certified true copy of the resolutions paused by the board of directors of the Borrower, inter alia authorising the borrowing of the Rupee Loan, execution of the Rupee Loan Agreement and Security Documents and creation of the Security for the Rupee Loan. (ii) (a) A first charge by way of hypothecation in favour of Exim Bank over the Borrower's moveable fixed assets, both present and future. (b) A mortgage of the Borrower's lands and other immoveable, properties, both present and future, in the form acceptable to Exim Bank. (iii) An irrevocable and unconditional guarantee in favour of Exim Bank from Satyam Computer Services Ltd, guaranteeing the due repayment of the Rupee Loan and payment of interest thereon and all costs, charges, expenses and other monies payable by the Borrower to Exim Bank under the Loan Agreement. 9 SCHEDULE III-B (Ref. Clause VIII) (ORDER OF PRIORITY OF CHARGE)* The mortgage and charge constituting Security in favour of Exim Bank shall rank in the following order of priority:
Amount Secured/To be Secured by Mortgage/Charge ------------------------------- (1) Pari passu with the mortgage(s)/charge(s) created/to be NA created by the Borrower as under: (2) Exclusive first charge in favour of Exim Bank (3) Prior and paramount over charge(s) created/to be created by NA the Borrower in favour of: (4) Second and subject to the charge(s) created/to be created NA by the Borrower in favour of the following financial institution(s)/bank(s):
*To be modified as per sanction terms. 10 SCHEDULE IV (Ref. Clause IX) ADDRESS OF THE PARTIES FOR SERVICE OF NOTICE/COMMUNICATION
Name Mailing Address - ---- --------------- 1. Satyam Infoway Limited 35, Velachery Road Little Mount Chennai - 600 015 Telephone: 044-2354770 Fax : 044-2354771 2. Export-import Bank of India Post Bag 16100 Cable EXIMINDIA Centre One, Floor 21 World Trade Centre Telex Cuffe Parade Mumbai 400 005 Fax India
11 IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed the day and year first hereinabove written. **The Common Seal of Satyam Infoway Limited has, pursuant to the Resolution passed by its Board of Directors at their meeting held on July 3, 1998 hereunto been affixed in the presence of Shri Ramaraj R one of its Directors and Shri Thiagarajank Secretary/Authorised Person who have signed these presents in token thereof, SIGNED AND DELIVERED BY EXPORT-IMPORT BANK OF INDIA by the hand of Shri _____________________ its ____________________________. **Common Seal provision to be modified if necessary, in order to conform to the Articles of Association of the Borrower. 12 ANNEXURE GENERAL CONDITIONS INDEX
SECTION HEADING PAGE I. Definitions & Interpretation................................... 1 II. Terms of Disbursement.......................................... 1 III. Computation of Interest........................................ 2 IV. Interim Disbursement........................................... 3 V. Deferment of Repayment Date.................................... 3 VI. Prepayment..................................................... 3 VII. Appropriation of Payments...................................... 4 VIII. Security....................................................... 5 IX. Place and Mode of Payment by the Borrower...................... 6 X. Representations and Warranties................................. 6 XI. Affirmative Covenants.......................................... 8 XII. Negative Covenants............................................. 11 XIII. Project Records and Inspection................................. 12 XIV. Other conditions to apply during the currency of the Rupee Loan 13 XV. Cancellation, Suspension & Termination......................... 14 XVI. Acceleration of Repayment...................................... 15 XVII. Reimbursement of Costs and Expenses............................ 17 XVIII. Miscellaneous.................................................. 18
ANNEXURE GENERAL CONDITIONS I. Definitions & Interpretation ---------------------------- (1) Except as expressly specified herein, all expressions used in the General Conditions and defined in the Loan Agreement of which the General Conditions form a part, shall have the same meanings as given to them in the Loan Agreement. In the event of any inconsistency between any provision of the Loan Agreement and the General Conditions, the relative provision of the Loan Agreement shall prevail. (2) In the Loan Agreement and in the General Conditions, words denoting the singular shall include the plural and vice-versa. Reference to a specified Clause or sub-Clause shall be construed as a reference to that specified Clause or sub-Clause of the Loan Agreement and reference to a specified Section or sub-Section shall be construed as a reference to that specified Section or sub-Section of the General Conditions. (3) The headings of various Clauses and Sections in the Loan Agreement are given for convenience of reference only and shall not affect the interpretation of the relative provisions. II. Terms of Disbursement --------------------- (1) The Borrower shall be required to submit a drawdown schedule to Exim Bank within 30 days from the date of the Loan Agreement. The Rupee Loan facility shall be made available to the Borrower in one or more disbursement(s) as may be decided by Exim Bank subject to the Borrower complying with the provisions of the Loan Agreement and the disbursement procedure stipulated by Exim Bank and provided the financing of the expenditure shall be in consonance with the details furnished to Exim Bank. (2) Exim Bank shall make disbursement by payment for account of the Borrower to the credit of such account with a bank in India as may be advised by the Borrower. Exim Bank shall have the right to review the costs incurred and progress made by the Borrower in connection with the Project since the date of the first/previous disbursement before making further disbursement(s). All collection/remittance charges, if any, in respect thereof shall be borne by the Borrower. Interest on the disbursement shall begin to accrue from the date of transfer/authorisation by Exim Bank. 1 (3) Exim Bank may, at its discretion, deduct from sums to be lent and advanced by it to the Borrower, any monies then remaining due and payable by the Borrower to Exim Bank under any other account(s) of the Borrower. III. Computation of Interest ----------------------- (1) Notwithstanding anything to the contrary contained in the Agreement, Exim Bank shall be entitled at all times during the currency of the Rupee Loan to increase the Interest Rate whenever Exim Bank may deem it necessary, having regard to any change in the directive, guidelines or policy of the Government or of any regulatory, corporate or other authority, applicable to Exim Bank, after notifying the Borrower in writing of its intention to do so, and upon being notified by Exim Bank, the Borrower shall be liable to pay interest on the amount of the Rupee Loan then outstanding at such increased Interest Rate from the date of notification. Provided However that if the increased Interest Rate shall not be acceptable to the Borrower, then the Borrower shall be at liberty to prepay, without any premium but after giving 30 days' notice in writing to Exim Bank, the entire amount of the Rupee Loan then outstanding together with interest accrued thereon at such increased rate up to the date of prepayment and all other monies then due and payable hereunder. (2) Interest on the Rupee Loan and on all other monies accruing due under the Loan Agreement shall, in case the same be not paid when due, carry further interest at the same rate as aforesaid computed from the respective due dates and shall become payable upon the footing of compound interest with rests taken or made half-yearly. Provided However that payment of such interest by the Borrower shall not entitle it to withhold or defer payment of any moneys then due and payable nor shall it in any manner prejudice the right of Exim Bank to proceed against the Borrower for any default under the Loan Agreement. (3) Computation of interest which shall have accrued under the Loan Agreement for even periods of six months shall be made on an annual basis. In all other cases, such computation shall be made on the basis of actual number of days elapsed (including the first day of the period during which it accrues but excluding the last) using 365 days a year factor. (4) All payments of interest to Exim Bank under the Loan Agreement shall include interest tax and any other deduction(s) that may be required at law to be made and/or paid by Exim Bank from the amount of interest payable to it, to the intent that Exim Bank shall receive interest from the Borrower free and clear of all taxes and deductions whatsoever. 2 IV. Interim Disbursement -------------------- (1) In the event of Exim Bank, agreeing to make a disbursement at the request of the Borrower pending compliance by it with any of the pre- disbursement conditions and formalities, disbursement may be made by Exim Bank against such interim securities/arrangements as may be decided by it, and the Borrower shall be liable to pay interest on such interim disbursement(s) at a higher rate if so stipulated by Exim Bank until the Borrower shall have fully complied with all the pre- disbursement conditions and formalities to the satisfaction of Exim Bank. The Borrower shall also execute in favour of Exim Bank such documents as may be required by it in this behalf. (2) The Borrower shall be liable to repay interim disbursement(s) on demand if so required by Exim Bank, and save as otherwise stipulated, all interim disbursement(s) shall be deemed to have been made under the Loan Agreement and accordingly all the provisions of the Loan Agreement shall be applicable thereto. Any security including guarantee(s) that may be furnished by the Borrower to Exim Bank for securing interim disbursement(s) shall remain in full force and effect until creation of the final security in terms of the Loan Agreement. V. Deferment of Repayment Date --------------------------- (1) Exim Bank may, at the request of the Borrower, in suitable circumstances and at its absolute discretion agree to revise, vary or postpone the Repayment Date of any instalment of the Rupee Loan or any part thereof upon such terms, and conditions including the charging of a higher rate of interest as may be decided by Exim Bank. (2) If for any reason, the amount finally disbursed by Exim Bank out of the Rupee Loan facility shall be less than the amount agreed to be lent and disbursed to the Borrower under the Loan Agreement, the amount of repayment instalments of the Rupee Loan shall stand reduced proportionately but shall be payable on the Repayment Date(s) specified in the Loan Agreement, or the repayment instalment(s) shall be reduced by the unavailed portion of the facility in the inverse order of maturity, at the discretion of Exim Bank. VI. Prepayment ---------- (1) The Borrower may at any time after the Termination Date, prepay the whole or any part of the Rupee Loan together with accrued interest thereon subject 3 to payment of prepayment premium at such rate as may be determined by Exim Bank, having regard to the then remaining maturity period of the Rupee Loan, and provided the Borrower shall have given to Exim Bank not less than thirty days' notice in writing of its intention to prepay. (2) A notice given pursuant to sub-Section (1) shall be irrevocable; it shall specify the amount and the date on which prepayment is proposed to be made and shall oblige the Borrower to make such prepayment. Any prepayment so made shall satisfy pro-tanto the Borrower's obligations for repayment under Clause VI of the Loan Agreement. Amounts prepaid may not be re-borrowed hereunder. (3) If profitability of the Borrower, its cash flow and other circumstances shall in the opinion of Exim Bank so warrant, then Exim Bank shall be entitled to require the Borrow to repay the Rupee Loan on dates earlier than the Repayment Date(s) specified in the Loan Agreement and/or to increase the amount of instalment(s) of the Rupee Loan, notwithstanding anything to the contrary contained therein. VII. Appropriation of Payments ------------------------- (1) Unless otherwise required by Exim Bank, any payment under the Loan Agreement when made to or received/recovered by Exim Bank, shall be appropriated in the following order and the Borrower waives any right it may have to direct appropriation in any other order: (a) costs and expenses; (b) Fee; (c) additional interest by way of liquidated damages; (d) compound interest; (e) interest; and (f) instalments of principal due under the Loan Agreement. (2) Notwithstanding anything contained in sub-Section (1) hereinabove, Exim Bank may at its discretion, appropriate such payment towards satisfaction of dues, if any, payable by the Borrower in respect of other loan(s) borrowed from Exim Bank. 4 VIII. Security -------- (1) The Borrower shall, wherever applicable, furnish to Exim Bank permission under Section 281(1) of the Income-Tax Act, 1961, and any other permission/consent of competent authorities as may be required for the creation of valid Security in favour of Exim Bank. The Borrower shall also ensure that original of the relevant Security Document, as applicable, and documentary evidence of registration of creation/modification of charge in favour of Exim Bank, shall be forwarded to Exim Bank upon registration. (2) The Borrower shall also furnish to the Exim Bank prior written consent of other charge-holder(s), if any, permitting creation of the Security in favour of Exim Bank. If the assets constituting the Security shall be required to be charged exclusively in favour of the Exim Bank, then the Borrower shall also furnish written consent of other charge- holder(s), if any, in form and substance acceptable to Exim Bank, for excluding such assets from the scope of security in its/their favour. ` (3) The rights of Exim Bank under the Security and the Security Document's shall, save if exclusively created in its favour, rank pari passu with the rights thereover of any co-financer to the Project without any preference or priority of one over the other or others of them for all purposes and to all intents but shall however at all times during the currency of the Security rank prior to the rights of other charge- holder(s) under charge(s), if any, created or that may hereafter be created by the Borrower for securing borrowings for its working capital or other requirements unless otherwise agreed by Exim Bank. (4) If Exim Bank shall at any time be of the opinion that the Security provided by the Borrower shall have become inadequate to secure the discharge of its liabilities and obligations as then outstanding under the Loan Agreement, then the Borrower shall forthwith on demand by Exim Bank, provide such additional security as may be acceptable to Exim Bank within the period, if any, stipulated by Exim Bank. In such event, the Borrower shall furnish to Exim Bank written consent of prior charge-holder(s), if any, permitting creation of such additional security in favour of Exim Bank which shall rank in the order of priority required by Exim Bank. (5) The Borrower shall keep Exim Bank advised in writing from time to time of all its acquisitions of immoveable properties and fixed assets, and whenever called upon by Exim Bank, make out a clear and marketable title thereto to the satisfaction of Exim Bank and charge the properties and assets in its favour in such form and manner and within such time as may be required by Exim Bank. 5 IX. Place and Mode of Payment by the Borrower ----------------------------------------- (1) Any payment to be made by the Borrower to Exim Bank under the Loan Agreement shall be made by means of telegraphic, telex or mail transfer by cheque or bank draft drawn in favour of Exim Bank on a bank at Mumbai or at such other place and for the credit of such account as may be notified by Exim Bank, so as to enable it to realise the amount at par on or before the relative due date. Credit for all payments by cheque/bank draft which is realised, shall be given on the date of realisation or on the relative due date whichever is later. (2) All payments by the Borrower hereunder shall be made free and clear of _________ without deduction for or on account of (i) any set-off or counter-claim or (ii) any present or future tax, except as may be required by law. (3) Whenever any payment hereunder shall become due on a day which is not a Business Day, the due date thereof shall be advanced to the immediately preceding Business Day and the amount (if any) of interest and Fee shall be adjusted accordingly. X. Representations and Warranties ------------------------------ Except as otherwise disclosed in writing to Exim Bank, the Borrower shall be deemed to have made the following representations and warranties, namely, that: (i) the Borrower is a company duly organised and existing under the laws of India and has all necessary corporate powers to carry on its business, to avail of the Rupee Loan facility and to enter into the Loan Agreement and each of the documents thereby contemplated and to perform its obligations hereunder and thereunder, and all corporate and other actions required to authorise the execution of the Loan Agreement and each of such documents and the performance by the Borrower of its obligations hereunder and thereunder have been duly taken; (ii) the Borrower has not taken any corporate action nor have any other steps been taken or legal proceedings been commenced or (to the best of the Borrower's knowledge and belief) threatened against the Borrower for its winding-up or dissolution or reorganisation or for the appointment of a receiver, trustee or similar officer of itself or of any of its assets or revenues; 6 (iii) the Borrower is not in breach of or default under any agreement to which it is a party or which is binding on the Borrower or any of its assets to an extent or in a manner which, in the opinion of Exim Bank, might have a material adverse effect on its business or financial condition; (iv) the information furnished by the Borrower to Exim Bank in its application for the Rupee Loan facility and in connection with its business activities and the Project which shall be deemed to be the basis on which the Rupee Loan facility shall have been sanctioned, has remained true, complete and accurate in all material respects and the Borrower is not aware of any material facts or circumstances that have not been disclosed to Exim Bank which, if disclosed, might adversely affect the decision of a bank to provide similar facility to the Borrower; (v) the execution of the Loan Agreement and each of the documents thereby contemplated when executed, the borrowings hereunder and the performance by the Borrower of its obligations hereunder and thereunder, will not constitute or result in breach of any law, rule or regulation or contravene any judgement, decree or order of any court or governmental authority binding on the Borrower; (vi) the obligations expressed to be assumed by the Borrower in the Loan Agreement are, and in each of the documents thereby contemplated when executed by the Borrower shall be, legally valid obligations binding on the Borrower in accordance with the terms hereof and thereof; (vii) the Borrower is conducting its business and operations in compliance with all applicable laws and directives of governmental authorities having the force of law as also with all applicable published guidelines and policy statements whether or not having the force of law; (viii) the Borrower has filed true, complete and timely tax returns and has paid all taxes due in respect of its business operations except to the extent where payment of such taxes is being contested in good faith, adequate reserves having been provided for the payment thereof; (ix) nothing contained in the Loan Agreement conflicts with the Memorandum and Articles of Association or any other constitutional document of the Borrower or with any other document to which the Borrower is a party or by which it is bound; (x) the Borrower has a good, clear and marketable title to all the properties and assets ownership of which is reflected in its most recent audited financial statements and the notes thereto, and that all such properties and assets are free and clear of mortgages, liens, 7 charges and other encumbrances, save as reflected in the notes to the audited financial statements or disclosed to Exim Bank; (xi) no consent, approval, exemption or other action by, or notice to or filing with any governmental authority is necessary in connection with the execution, delivery, performance or enforcement of the Loan Agreement or any of the documents thereby contemplated, except as may have been obtained and certified true copies of which have been delivered to Exim Bank; (xii) there are no suits, proceedings, claims or disputes pending or threatened against or affecting the Borrower or any of its properties and assets, the adverse determination of which, in the opinion of the Exim Bank, might affect the Borrower's financial condition or operations or impair its ability to perform its obligations under the Loan Agreement or under any of the documents thereby contemplated; (xiii) the Borrower is not in breach or violation of any applicable law, rule or regulation in force within or outside India governing the implementation of the Project or utilisation of the Rupee Loan facility or borrowings under the Loan Agreement; (xiv) no event has occurred and is continuing which is, or with the lapse of time or notice or both, would constitute an Event of Default; (xv) all financial statements, information and data furnished by the Borrower to Exim Bank are complete and correct and such financial statements have been prepared in accordance with the generally accepted accounting principles and practices in India consistently applied and they accurately and fairly present the financial condition and result of operations of the Borrower as of the date thereof. Since the date of its most recent financial statements, there has been no change in the Borrower's financial condition or results of operations to an extent as may impair the Borrower's ability to repay the Rupee Loan on the Repayment Date(s) or to perform any other obligation under the Loan Agreement in accordance with the terms thereof. The Borrower has no contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate, except as disclosed in such statements, information and data. XI. Affirmative Covenants --------------------- The Borrower covenants and agrees that so long as the Rupee Loan and/or any other monies due and payable by the Borrower to Exim Bank under the Loan Agreement shall remain unpaid, the Borrower will: 8 (a) apply all moneys borrowed hereunder for the purpose for which the Rupee Loan has been sanctioned by Exim Bank; (b) (i) as soon as available but no later than 45 days after the close of each quarter of its financial year furnish its unaudited financial statements for such period to Exim Bank, duly certified by an officer of the Borrower not below the designation of company secretary or if Exim Bank shall so require, by its managing director, as being complete and correct and fairly representing its financial condition and results of operation; (ii) as soon as available but no later than 180 days after the close of each financial year of the Borrower, furnish its financial statements for the year then ended to Exim Bank, audited and certified by an independent auditor acceptable to Exim Bank. Such certificate shall not be qualified or limited because of restricted or limited examination of such auditor and shall be accompanied by a statement that, during such examination, the auditor observed no evidence of an Event of Default or any circumstances which upon lapse of time or notice or both, would become an Event of Default, or a statement that evidence of an Event of Default or any such circumstances was found; (iii) within 30 days after the end of each quarter of its financial year, submit a status report on the Project in such form and containing such information as Exim Bank may request, signed by a responsible officer of the Borrower referred to in paragraph (i) above; (iv) furnish such other statements, lists of property, accounts, budgets, projections, opinions, certificates, information and/or other documents as Exim Bank may reasonably require; (c) maintain adequate books of accounts and records in accordance with generally accepted accounting principles and practices in India consistently applied and permit employees or agents of Exim Bank at all reasonable times to inspect its properties and to examine or audit its books of accounts and records and make copies and memoranda thereof; (d) promptly give written notice to Exim Bank of: (i) any litigation, arbitration or other proceedings commenced or threatened against the Borrower including any application for its winding-up, which if determined against the Borrower may impair its ability to discharge its obligations under the Loan Agreement; (ii) any dispute between the Borrower and any governmental authority or Project authority or between the Borrower and its sub-contractor or supplier concerned with the Project; 9 (iii) any Event of Default or any event which but for the giving of notice or lapse of time or both would constitute an Event of Default; (iv) any event or incident such as strike, lock-out, fire or an act of God or force-majeure, happened or likely to happen which may disable or make it improbable for the Borrower to conduct its business activities or to complete the Project or which may delay its completion or cause cost escalation or compel the Borrower to abandon the Project; and (v) any other matter which has caused or might lead to a material adverse change in the Borrower's financial condition or operations, or adversely affect the observance and performance of its obligations hereunder; (e) obtain, maintain and promptly renew from time to time all authorisations, approvals, consents, licences and exemptions as may be required to enable it to perform its obligations under the Loan Agreement or under the documents thereby contemplated or as may be required for the validity or enforceability thereof, or otherwise necessary for the Project; (f) maintain and preserve its corporate existence and all rights and privileges enjoyed by it, conduct its business in an orderly, efficient and customary manner, maintain and keep all its properties in good working order and condition and fully and effectively insured; comply with all laws, rules, regulations and directions of any governmental authority non- compliance of which may adversely affect its business or assets, and discharge all its indebtedness and perform all contractual obligations promptly pursuant to agreements to which it is a party or by which it is bound; (g) pay regularly all taxes, assessments, dues, duties and imposts in respect of its business, income and immoveable properties, including any tax payable on interest on the Rupee Loan; (h) maintain personnel for implementation of the Project to the satisfaction of Exim Bank, and whenever required, submit bio- data and other relevant particulars of such personnel to Exim Bank; (i) regularly pay premia in respect of all its insurance policies and keep the same in full force and effect and reimburse Exim Bank for any premium paid by it; (j) ensure that its payment obligations under the Loan Agreement will at all times rank in right of payment at least pari passu with all its other secured debts, whether now or hereafter outstanding, and discharge its liabilities to Exim Bank without preference or priority, to any other lender; 10 (k) cause its promoters to meet any shortfall in resources or costs overrun for completion of the Project or meeting any increase in the cost of machinery to be acquired by means of the Rupee Loan, on terms satisfactory to Exim Bank; (l) constitute a project management committee of its directors and representatives of lenders financing the Project, including Exim Bank, for the purpose of supervising and monitoring the progress of implementation as also operation of the Project. XII. Negative Covenants ------------------ The Borrower further covenants and agrees that until full and final payment by the Borrower of all its indebtedness under the Loan Agreement, it shall not, without the prior written consent of Exim Bank: (a) create any mortgage, charge, lien or other encumbrance in any form whatsoever over any of its properties and assets constituting the Security except a pari passu mortgage/charge in favour of any term lender(s) who may have co-financed or agreed to co-finance the Project; (b) create, incur or assume any further indebtedness of any nature whether for borrowed money or otherwise, except any indebtedness for its working capital or otherwise arising out of the ordinary course of business; (c) enter into any merger/amalgamation or consolidation or sell, lease or transfer all or a substantial portion of its undertaking and/or assets otherwise than in the ordinary course of business; (d) effect any material change in composition of its board of directors or in the management set-up or ownership of its business; (e) assume, guarantee, endorse or in any manner become directly or contingently liable for or in connection with the obligation of any person, firm, company or corporation except for transactions in the ordinary course of business; (f) amend its Memorandum and Articles of Association or alter its capital structure or its shareholding pattern; (g) alter the scope of the Project or undertake any diversification, modernisation or expansion of its business activities or set up a new project; 11 (h) allow transfer/disposal of shareholding of any of the promoters in its equity/quasi equity capital or permit withdrawal of any subordinated loans or deposits obtained at any time by the Borrower from its directors and their friends and associates to finance a part of the cost of the Project or the working capital requirements of the Borrower, or make prepayment of any long-term debt; (i) enter into any transaction with any person or entity otherwise than in the ordinary course of business on usual commercial terms or in which the Borrower would be obligated to pay more than the nominal commercial price for any purchase or to receive less than the full commercial price (subject to normal trade discounts for its services); (j) declare or pay any dividend or make any other distribution to any of the shareholders if the Borrower shall be in default in making any payment under the Loan Agreement, and then only out of the profits of the then current financial year after making necessary provisions. XIII. Project Records and Inspection ------------------------------ So long as any part of the Rupee Loan shall remain outstanding, the Borrower shall: (a) maintain separate records showing expenditure incurred in respect of the Project and the machinery, if any, acquired by means of the Rupee Loan and the operations and financial condition of the Borrower, and permit the authorised agents and representatives of Exim Bank to carry out all technical survey and inspections of works during the stage of setting-up and operations of the Project as also inspection of the records, registers and accounts of the Borrower. Such agents and representatives of Exim Bank shall have free access at all reasonable times to such records, registers and accounts and to all schedules, cost estimates, plans and specifications relating to such works, and they shall receive full co- operation and assistance from the Borrower. The cost of such inspection shall be payable by the Borrower forthwith on receipt of a notice of demand from Exim Bank; (b) forward to Exim Bank on demand a chart showing the actual progress of the Project as compared to original schedule together with percentage of completion of all major phases of acquisition and/or construction/erection of equipment, plant and machinery, and on completion of the Project, furnish to Exim Bank a statement with various heads of expenditure showing the final cost of the Project as compared to the original estimate together with reasons for variation(s), if any. 12 XIV. Other conditions to apply during the currency of the Rupee Loan --------------------------------------------------------------- (1) (i) Exim Bank shall be entitled to appoint any person, firm, company or association of persons engaged in technical, management or consultancy business or any chartered accountant/cost accountant for carrying out any specific assignment to supervise and monitor progress of the Project, examine systems and procedures adopted by the Borrower for its working or to act as its concurrent or internal auditors or for conducting a special audit of the Borrower. Such consultants/accountants shall give their report to Exim Bank. (ii) The Borrower shall give full co-operation and provide necessary assistance to the person or firm so appointed by Exim Bank in carrying out his/their assignment. The costs, charges and expenses including professional fees and travelling and other expenses of and incidental to such appointment shall be payable by the Borrower and shall be reimbursed to Exim Bank forthwith on receipt of a notice of demand in this behalf. (2) Exim Bank shall also have the right to review the management set-up of the Borrower and if found necessary, to require restructuring thereof including the formation of committees or sub-committees of the management of the Borrower with such powers, authorities and functions as shall be considered desirable by Exim Bank. (3) The Borrower shall not avail of any double finance from any source in respect of the same expenditure being financed by Exim Bank hereunder nor shall it avail of any additional finance in respect of the Project from any undisclosed source without the prior written consent of Exim Bank. (4) Without in any way affecting the Borrower's obligations hereunder, Exim Bank shall be entitled to apply, set-off and appropriate, at its discretion and without reference to the Borrower, any moneys belonging to the Borrower or lying at credit in any account of the Borrower with Exim Bank or to which it may otherwise be entitled, (so far as the same may extend) in or towards reimbursement/payment of any amount payable by the Borrower under the Loan Agreement, and to the extent that such monies may be denominated in a foreign currency, to apply monies in such foreign currency to the extent as shall on the date of such application, set-off or appropriation, be equivalent of the amounts due hereunder, and for the purpose, also to obtain approvals, consents and permissions from all competent authorities as may be necessary in this behalf. (5) All other conditions stipulated in the Letter of Sanction or subsequently imposed by Exim, Bank shall continue to remain applicable to the Rupee 13 Loan as if each of them were repeated in extenso herein and accordingly, the Borrower shall also be liable to observe and perform all such conditions. XV. Cancellation, Suspension & Termination -------------------------------------- (1) Cancellation by Notice to Exim Bank The Borrower may, by a notice in writing to Exim Bank, cancel the Rupee Loan facility or any part thereof which the Borrower may not have availed of prior to the Termination Date. (2) Suspension Access by the Borrower to drawal of the Rupee Loan or any part thereof may be suspended without Prejudice to Exim Bank's right of termination: (a) if an Event of Default shall have happened; or (b) if any change in the Borrower's set-up shall have taken place, which in the opinion of Exim Bank (which shall be final and binding on the Borrower), may adversely affect the conduct of the Borrower's business or its financial position or the efficiency of the Borrower's management or personnel or completion of the Project. (3) Suspension to Continue till Default Remedied The right of the Borrower to make drawal of the Rupee Loan shall continue to be suspended until the event which gave rise to such suspension has ceased to exist to the satisfaction of Exim Bank, and Exim Bank shall have notified the Borrower that its right to make drawal has been restored. (4) Termination If any of the events specified hereinabove shall have happened as may entitle Exim Bank to suspend drawal of the Rupee Loan, then Exim Bank may at its option, by a notice in writing to the Borrower, terminate the Borrower's right to make any drawal of the Rupee Loan. Upon such notice, the unavailed portion of the Rupee Loan facility shall stand cancelled. (5) Notwithstanding any cancellation, suspension or termination pursuant to the aforesaid provisions, all the provisions of the Loan Agreement shall continue to be in full force and effect as therein specifically provided. 14 XVI. Acceleration of Repayment ------------------------- (1) If any of the Events of Default specified in sub-Section (2) shall have happened and be continuing for a period of 30 days from the date of its happening without being remedied to the satisfaction of Exim Bank, the decision of Exim Bank as to whether any Event of Default shall have happened and/or been continuing being final and binding on the Borrower, then Exim Bank may, by a notice in writing to the Borrower, declare the unpaid principal amount of and all accrued interest on the Rupee Loan (together with other monies payable under the Loan Agreement) to become immediately due and payable whereupon the whole of the outstanding principal amount of the Rupee Loan and accrued interest thereon as also all other monies accrued or payable thereunder as mentioned in such notice shall, notwithstanding anything to the contrary contained in the Loan Agreement, become immediately due and payable without any presentment, demand, protest or notice of any kind whatsoever, all of which are hereby expressly waived by the Borrower, and the Security created in favour of Exim Bank shall become enforceable. (2) Events of Default (a) Default shall have occurred in the payment of any principal amount of the Rupee Loan or any interest thereon, when due. (b) Default shall have occurred in the performance of any other obligation of the Borrower under the Loan Agreement or under any other agreement between the Borrower and Exim Bank. (c) Any breach or default shall have occurred under any other agreement involving the borrowing of money or the extension of credit under which the Borrower may be obligated as a borrower or guarantor, if such default shall permit or cause termination of any commitment to lend or acceleration of any indebtedness or if such default shall consist of the failure on the part of the Borrower to pay any indebtedness or any instalment thereof when due. (d) Any breach or default shall have occurred in the observance or performance of any obligation by a guarantor or surety or any other person liable for the Borrower, under any agreement or document furnished to or executed in favour of Exim Bank in respect of the Rupee Loan facility. (e) Any representation or warranty contained herein or in the application for sanction of the Rupee Loan facility or in any other agreement or document executed pursuant to the Loan Agreement shall prove to have been false, incomplete or misleading in any material respect when made or deemed to have been made. 15 (f) Any licence, consent, approval or exemption of any competent authority as may be necessary for the Project or otherwise required for the validity, enforceability or legality of the Rupee Loan Agreement, Security, or any of the Security Documents or for the performance hereof or thereof, shall be revoked, withheld or materially modified or shall otherwise not be renewed or fail to remain in full force and effect and such circumstances shall remain unremedied for a period of fourteen (14) days from the date of commencement thereof. (g) The Borrower shall fail to pay or shall admit in writing its inability to pay its debts as they mature or shall declare a general moratorium on payment of its debts or shall enter into a composition or arrangement with or make a general assignment for the benefit of its creditors. (h) A petition shall have been presented in a court of competent jurisdiction for the winding-up, liquidation or dissolution of the Borrower or any similar or analogous proceedings shall have been taken. (i) A receiver or liquidator shall be appointed of all or any part of the undertaking of the Borrower. (j) Any attachment or distraint shall be levied on the properties or assets of the Borrower or any part thereof or certificate proceedings shall be taken or commenced for recovery of any dues from the Borrower or any decree or judgement for money, damages or for a fine or penalty in excess of Rs. 1,00,000/- shall be entered against the Borrower, and not paid and discharged or stayed within 30 days. (k) All or a substantial part of the undertaking or assets of the Borrower shall be seized, nationalised, confiscated, expropriated, requisitioned or compulsorily purchased by or under authority of any government or its agency or shall be disposed of without the prior written consent of Exim Bank at less than full market value thereof. (l) A strike, lock-out or lay-off shall occur with respect to the Project or the Borrowers business or its contractors/suppliers or an extraordinary situation shall occur which in the opinion of Exim Bank shall make it improbable for the Borrower to perform or observe its obligations in the normal course under the Loan Agreement or under any other document delivered in connection therewith. (m) The right of the Borrower to make drawal of the Rupee Loan shall be terminated by Exim Bank pursuant to the provisions of the Loan Agreement. (n) Any breach or default not specifically referred to above in this sub-Section shall have occurred and such breach or default shall 16 continue without being remedied to Exim Bank's satisfaction for a period of 30 days after Exim Bank shall have given a written notice thereof to the Borrower. (3) If any Event of Default or any event which, after notice or lapse of time, or both would constitute an Event of Default, shall have happened and been continuing for a period of 30 days from the date of its occurrence, the Borrower shall forthwith give notice thereof to Exim Bank in writing specifying the nature of such Event of Default or of such event. (4) All expenses incurred by Exim Bank, after an Event of Default shall have occurred in connection with preservation of the Borrower's assets and collection of amounts due under the Loan Agreement shall be forthwith payable by the Borrower, and until payment, shall carry interest at the Interest Rate besides additional interest by way of liquidated damages at the rate provided in the Loan Agreement. XVII. Reimbursement of Costs and Expenses ----------------------------------- (1) The Borrower shall be liable to pay stamp duty, registration charges, duties and taxes, if any, at any time payable on the Loan Agreement, the Security and the Security Documents, as also interest/penalty for any delay or default in making such payment, and shall within 30 days from the date of notice of demand from Exim Bank, pay to or as the case may be, reimburse Exim Bank for all such sums of money and costs, charges and expenses paid or incurred by Exim Bank in connection therewith and for the preparation, negotiation, execution and performance of this Agreement and the documents thereby contemplated as also for the protection and preservation of the Security and for actual or attempted enforcement thereof. All such sums shall, whether or not debited to the Borrower's account with Exim Bank, carry interest from the date of incurring of the expenditure by Exim Bank till reimbursement, at the Interest Rate besides additional interest by way of liquidated damages at the rate provided in the Loan Agreement. (2) The Borrower agrees to indemnify Exim Bank from and against all losses, claims, demands, damages, liabilities, costs (legal costs on a full indemnity basis), charges and expenses of any nature whatsoever, which Exim Bank may suffer, pay, incur or be put to in the premises by reason of any default on the part of the Borrower under the Loan Agreement or the Security Documents or otherwise howsoever. 17 XVIII. Miscellaneous ------------- (1) Evidence of Debt (a) Exim Bank shall maintain, in accordance with its usual practice, a Rupee Loan account in the name of the Borrower evidencing inter alia the amount(s) from time to time lent by and owing to Exim Bank and interest and other moneys payable under the Loan Agreement as also amount(s) received or recovered by it. (b) In any legal proceedings arising out of or in connection with the Loan Agreement, the entries made in the Rupee Loan account maintained as aforesaid shall be prima-facie evidence of the existence of the liability of the Borrower as therein recorded. (2) Partial Invalid ity If at any time, any provision of the Loan Agreement shall become illegal, invalid or unenforceable in any respect under the law of any jurisdiction, then neither the legality, validity or enforceability of the remaining provisions thereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be thereby affected or impaired. (3) Waiver No delay in exercising or omission to exercise any right, power or remedy accruing to Exim Bank upon any default under the Loan Agreement, Security Documents or any other agreement or document executed pursuant thereto, shall impair any such right, power or remedy or shall constitute a waiver thereof or of any obligation of the Borrower hereunder or thereunder or be construed as an acquiescence in such default, nor shall the action or inaction of Exim Bank in respect of any default or any acquiescence by it in any default, affect or impair any right, power or remedy of Exim Bank in respect of any other default. The rights and remedies provided in the Loan Agreement are cumulative and not exclusive of any rights and remedies to which Exim Bank shall otherwise be entitled. (4) Jurisdiction (a) The parties hereto agree that any legal action or proceedings in connection with this Agreement or the Rupee Loan or for 18 enforcement of the Security may be brought in the courts/tribunals at Mumbai, and by execution and delivery of this Agreement, the Borrower hereby unconditionally and irrevocably submits to and accepts with regard to any such action or proceedings for itself and in respect of its properties, the jurisdiction of the courts/tribunals at Mumbai. (b) The submission by the Borrower to such jurisdiction, however, shall not (and shall not be construed so as to) limit the right of Exim Bank to take any legal action or proceedings against the Borrower in any other jurisdiction nor shall the taking of any legal action or proceedings by Exim Bank in any one or more jurisdiction preclude the taking of legal action or proceedings in any other jurisdiction, whether or not concurrently. (c) The Borrower, hereby irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any such legal action or proceedings in a court/tribunal located at Mumbai, or at the election of Exim Bank, in any other court/tribunal having jurisdiction, and hereby further irrevocably waives any claim that such legal action or proceedings brought in any such court/tribunal has been brought in an inconvenient forum. (5) Certification by Exim Bank Where pursuant to any provision of the Loan Agreement, Exim Bank may certify or determine a rate of interest or an amount to be payable by the Borrower or any other matter, such certificate or determination shall be conclusive and binding on the Borrower in the absence of manifest error. (6) Language The Loan Agreement shall be executed also in Hindi language. In the event of any inconsistency in the provisions of the English and the Hindi versions of the Loan Agreement, the document in the English language shall prevail. (7) Benefit of the Loan Agreement The Loan Agreement shall be binding upon and enure to the benefit of each party thereto and its successors and assigns provided however that the Borrower shall not be entitled to assign or transfer any of its rights, benefits or obligations hereunder. An assignment, transfer or sub-participation by Exim Bank of all or a part of its rights and obligations hereunder shall be effective and binding on the Borrower. 19 (8) Service of Notice Any notice or communication to be given or made to Exim Bank or to the Borrower shall be in writing. Such notice or communication shall be deemed to have been given or made when it shall be delivered by hand or despatched by mail or transmitted by telegram, telex or fax to the party to which it is required to be given or made at such party's address mentioned in the Agreement or at such other address as such party shall have notified in writing to the party sending notice or communication. 20 EX-4.6 8 LETTER AGREEMENT DATED 09/14/1999 EXHIBIT 4.6 SATYAM INFOWAY LIMITED Maansarovar Towers 271-A, Anna Salai, Teynampet Chennai - 600 018 India September 14, 1999 Sterling Commerce, Inc. 4600 Lakehurst Court Dublin, Ohio 43106 Gentlemen: Satyam Infoway Limited, a limited liability company under the laws of the Republic of India (the "Company"), hereby agrees with you as follows: ------- SECTION 1. PURCHASE AND SALE OF EQUITY SHARES 1.1 Issue of Equity Shares ---------------------- On or before the Closing Date (as hereinafter defined), the Company will have authorized the issuance of 481,000 of its equity shares, par value Rs.10 per share (the "Equity Shares"), in accordance with the applicable ------------- provisions of the Company's Memorandum and Articles of Association and the Companies Act, 1956 of India. Capitalized terms used in this agreement (the "Agreement") without --------- definition shall have the meanings specified in Section 5 hereof. Each Equity Share to be purchased by you will be dated as provided in Section 1.2 hereof. 1.2 Sale and Purchase of the Equity Shares; the Closing --------------------------------------------------- In reliance upon the representations made in Section 1.3 hereof and subject to the terms and conditions set forth herein and in the other Documents, the Company hereby agrees to sell to you 481,000 Equity Shares at a purchase price equal to Five Million U.S. Dollars ($5,000,000.00). In reliance upon the representations and warranties of the Company contained herein and in the other Documents, and subject to the terms and conditions set forth herein and therein, you hereby agree to purchase such Equity Shares from the Company. The sale and purchase of the Equity Shares shall take place at a closing (the "Closing") at the offices of the Company, as identified above, on ------- September 14, 1999 or such other business day as may be agreed upon by you and the Company (the "Closing Date"). At the ------------ Closing, upon receipt by the Company of the full purchase price of the Equity Shares subscribed for hereunder by intra-bank or federal funds bank wire transfer of same day funds to such bank account as the Company shall designate at least two business days prior to the Closing, the Company will deliver to you the Equity Shares to be purchased by you (in such permitted denomination or denominations and registered in your name or the name of such nominee or nominees (not to exceed ten (10) in number) as you may request). If at the Closing any of the conditions to the Closing specified in this Agreement shall not have been fulfilled to your reasonable satisfaction or if the Closing fails to occur on or before November 13, 1999 due to no fault of your own, you shall, at your election and notwithstanding anything to the contrary in this Agreement, be relieved of all further obligations under this Agreement without thereby waiving any rights you may have by reason of such nonfulfillment or failure. Nothing in this Section 1.2 shall operate to relieve the Company from any of its obligations under this Agreement. You hereby waive any and all preemptive rights, as a holder of Equity Shares, to purchase additional Equity Shares in the proposed initial public offering in the United States of American Depositary Shares and related transactions (the "IPO"). --- 1.3 Purchaser Representations; Source of Funds ------------------------------------------ (a) You represent that you are purchasing the Equity Shares solely for your own account and not as nominee or agent for any other person and not with a view to, or for offer or sale in connection with, any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States of America or any state thereof or any other jurisdiction, without prejudice, however, to your right at all times to sell or otherwise dispose of all or any part of such Equity Shares pursuant to a registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. You further represent that you are knowledgeable, sophisticated and experienced in business and financial matters; that you have previously invested in restricted securities issued by private companies and fully understand the limitations on transfer described in Section 1.3(b) hereof and the restrictions on sales and other dispositions in this Agreement and the other Documents; that you are knowledgeable about the Company's business; that you are able to bear the economic risk of investment in the Equity Shares and are presently able to afford the complete loss of such investment; that you are an "accredited investor" as defined in Regulation D promulgated under the Securities Act; and that you have been afforded access to information about the Company and the Company's financial condition, results of operations, business, property, management and prospects sufficient to enable you to evaluate your investment in the Equity Shares, including, without limitation, financial statements as of March 31 and June 30, 1999. You acknowledge that you have conducted your own analysis of the Company's financial condition and other foregoing factors which is the basis for your decision to purchase the Equity Shares. (b) If you desire to sell or otherwise dispose of all or any part of the Equity Shares in a transaction which invokes the jurisdiction of the United States federal securities laws and in reliance upon an exemption from registration under the Securities Act, if requested by the 2 Company, you will deliver to the Company an opinion of counsel, reasonably satisfactory in form and substance to the Company, that an exemption from registration under the Securities Act is available. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Equity Shares (and in each case all securities issued upon conversion thereof, in exchange therefor, or in substitution thereof) shall bear the legend set forth in the Stockholders Agreement. (c) You represent that no part of the funds to be used to purchase the Equity Shares to be purchased by you constitutes assets allocated to any trust which contains the assets of any employee pension benefit plan with respect to which the Company or any corporation considered an affiliate of the Company within the meaning of Section 407(d)(7) of ERISA is a party in interest or disqualified person. The representation made by you in the preceding sentence is made in reliance upon your review of the list of employee pension benefit plans provided by the Company. As used in this Section 1.3(c), the terms "employee pension benefit plan," "separate account" and "party in interest" shall have the meanings assigned to such terms in Section 3 of ERISA and the terms "disqualified person" and "prohibited transaction" shall have the meanings assigned to such terms in Section 4975 of the Code. (d) You are a Delaware corporation, and your primary place of business is Ohio. 1.4 Ordinary Course --------------- During the period from the date hereof to the Closing Date, the Company shall conduct its business only in the ordinary course and consistent with past practice, other than IPO. 1.5 Further Action -------------- During the period from the date hereof to the Closing Date, the Company shall use its reasonable best efforts, and shall take all action necessary or appropriate (including, without limitation, the execution of an amendment to the Company's Articles of Association), to consummate the transactions contemplated hereby, including obtaining all licenses, consents, approvals or other authorizations of any governmental entity or regulatory body, and to cause its representations and warranties contained in Section 4 hereof to be true as of the Closing Date, after giving effect to the transactions contemplated by this Agreement, as if made on and as of such date. SECTION 2. PURCHASER CLOSING CONDITIONS ---------------------------- Your obligation to purchase and pay for the Equity Shares shall be subject to the satisfaction of the following conditions on or before the Closing Date: 2.1 Representations and Warranties True ----------------------------------- The representations and warranties of the Company contained in Section 4 hereof qualified as to materiality shall be true, and those not so qualified shall be true in all material 3 respects, in each case at and as of the Closing Date (unless they purport to be as of a different date), after giving effect to the transactions contemplated by this Agreement, as if made on and as of such date. 2.2 Compliance with this Agreement ------------------------------ The Company shall have performed and complied in all material respects with all agreements, covenants and conditions contained herein, in the other Documents and any other document contemplated hereby or thereby which are required to be performed or complied with by the Company on or before the Closing Date. 2.3 Officer's Certificate --------------------- You shall have received a certificate or certificates, dated the Closing Date and signed by the Chief Executive Officer or Chief Financial Officer of the Company, certifying that the conditions set forth in Sections 2.1 and 2.2 hereof are satisfied on and as of such date. 2.4 Proceedings Satisfactory ------------------------ All proceedings taken in connection with the sale of the Equity Shares, the transactions contemplated hereby, and all documents and papers relating thereto, shall be reasonably satisfactory to you. You and your counsel shall have received copies of such documents and papers as you or they may reasonably request in connection therewith, all in form and substance satisfactory to you. Any document annexed to this Agreement or any other document contemplated by this Agreement not approved by you in writing as to form and substance on the date this Agreement is executed shall be reasonably satisfactory in form and substance to you. 2.5 Stockholders Agreement and Other Documents ------------------------------------------ The Stockholders Agreement and the other Documents shall have been entered into by the parties thereto, and you shall have received an original, duly executed by the parties thereto, of the Stockholders Agreement. All other agreements entered into by the Company on or prior to the Closing Date and the certificates representing the Equity Shares shall be in form and substance reasonably satisfactory to you, and originals or copies of such agreements shall be provided to you. 2.6 Governmental Approvals ---------------------- The Company shall have received all Government of India and any other approvals of any governmental or regulatory body required in connection with the transactions contemplated by this Agreement and the other Documents. SECTION 3. COMPANY CLOSING CONDITIONS -------------------------- The Company's obligation to issue and sell to you the Equity Shares shall be subject to the satisfaction of the following conditions on or before the Closing Date: 4 3.1 Representations and Warranties True ----------------------------------- Your representations and warranties contained in Section 1.3 hereof qualified as to materiality shall be true, and those not so qualified shall be true in all material respects, in each case at and as of the Closing Date (unless they purport to be as of a different date), after giving effect to the transactions contemplated by this Agreement, as if made on and as of such date. 3.2 Compliance with this Agreement ------------------------------ You shall have performed and complied in all material respects with all agreements, covenants and conditions contained herein, in the other Documents and any other document contemplated hereby or thereby which are required to be performed or complied with by the Company on or before the Closing Date. 3.3 Stockholders Agreement and Other Documents ------------------------------------------ The Stockholders Agreement and the other Documents shall have been entered into by the parties thereto, and the Company shall have received an original, duly executed by the parties thereto, of the Stockholders Agreement. 3.4 Governmental Approvals ---------------------- The Company shall have received all Government of India and any other approvals of any governmental or regulatory body required in connection with the transactions contemplated by this Agreement and the other Documents. SECTION 4. REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants as follows: 4.1 Due Incorporation and Authorization; Capitalization --------------------------------------------------- (a) The Company is a deemed public company and is duly incorporated and validly existing and in good standing under the laws of India and has power to own its properties and assets, to carry on its businesses as presently conducted or proposed to be conducted, to enter into and perform its obligations under this Agreement and the other Documents and to allot and issue the Equity Shares to be issued pursuant to this Agreement. The Memorandum and Articles of Association which have been furnished to you are correct and complete as of the date hereof. The Company is not in violation of any term of its Memorandum or Articles of Association. The Company has taken all necessary action to authorize the execution of this Agreement and the other Documents. (b) The authorized share capital of the Company is 25,000,000 Equity Shares. As of the Closing Date, 15,750,000 Equity Shares, options to purchase 5,000 Equity Shares and warrants to purchase 750,000 Equity Shares are issued and outstanding. Except as previously set 5 forth above, the Company has not issued or agreed to issue and is not obligated to issue any warrants, options or other rights to purchase or acquire any shares of its capital stock, other than the IPO. All preemptive rights of existing stockholders have been duly disapplied for the purposes of permitting the allotment and issuance of Equity Shares to you under this Agreement. (c) All securities issued by the Company prior to the date hereof have been issued in transactions which comply with applicable securities laws, including, to the extent applicable, the Securities Act. 4.2 Financial Statements -------------------- The report and financial statements of the Company for the period ended March 31, 1999 and June 30, 1999 have been prepared in accordance with generally accepted accounting principles and practices as applicable in the United States consistently applied, are consistent with the Company's books and records and give a true and fair view of the financial condition, assets and liabilities of the Company as of such date, and since June 30, 1999 the Company has conducted its business in the ordinary course and consistent with past practices and there has been no material adverse change in the financial condition or the business, assets, operations or prospects of the Company. Except as and to the extent reflected or reserved against in the Company's financial statements for the period ended June 30, 1999 or as incurred in the ordinary course of business, since the date thereof the Company does not have and is not subject to any material liability or obligation of any nature which is required to be set forth in its financial statements, whether accrued, absolute, contingent or otherwise. 4.3 Due Execution and Delivery -------------------------- This Agreement and the other Documents have been duly executed and delivered by the Company, constitute legal, valid and binding obligations of the Company and are enforceable in accordance with their respective terms. 4.4 No Violation ------------ Neither the execution and delivery of this Agreement or the other Documents nor the compliance with the terms thereof will violate (a) the Company's Memorandum and Articles of Association Company, (b) any of the terms, conditions or provisions of, or constitute a default or require any consent under, any indenture, agreement or other instrument to which the Company is a party or by which it is bound or violate any of the terms or provisions of any judgment, decree or order or any statute, rule or regulation applicable to the Company or (c) result in a violation of, or constitute a default under, any provision of any law regulation or rule applicable to the Company, except in the case of clause (b) or (c) any such violations which are not material to the business or financial condition of the Company. 6 4.5 Absence of Breach ----------------- The Company is not in breach of, or in default under, any agreement, including without limitation, any financing agreement, to which it is a party or by which it is bound to an extent or in a manner which could reasonably be expected to have a Material Adverse Effect. 4.6 Consents -------- All permissions, licenses, consents, registrations and authorizations and other approvals for the time being required under the laws of India or any other jurisdiction or of any third party to authorize the allotment and issue of Equity Shares under this Agreement and for the validity or enforceability of this Agreement and the other Documents and the consummation of the transactions contemplated hereby and thereby, have been obtained and are in full force and effect. 4.7 Litigation ---------- The Company is not engaged in any significant litigation or arbitration proceeding and is not aware of any facts likely to give rise to any significant litigation or arbitration proceedings. 4.8 Immunity -------- In any proceedings in the Company's jurisdiction of incorporation in relation to this Agreement, the Company will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process. 4.9 No Default ---------- The Company is not in default in the payment of any due and payable taxes, interest or penalties, or in the filing, registration or recording of any document or in breach of any legal or statutory obligation or requirement of the Company. 4.10 Required Filings ---------------- Except as required by the laws of India and disclosed to you, it is not necessary or advisable that this Agreement be filed, registered, recorded or enrolled with any court, public office or other authority in any jurisdiction or that any documentary, registration or similar tax or duty be paid on or in relation to any such Agreement. To the extent that any such amounts are payable (including stamp duties required by Indian law), the Company covenants that such amounts shall be paid by it and that duly stamped copies of the Documents shall be provided to you. 7 4.11 Intellectual Property --------------------- Except as set forth on Schedule 4.11, to the best of the Company's knowledge, the Company has good title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. Except as set forth on Schedule 4.11, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. To the best of the Company's knowledge, (a) the Company has not violated and, by conducting its business as proposed, will not violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity and (b) no other Person has violated or is violating any of the Company's intellectual property rights to a material extent. 4.12 Hardware and Software; Year 2000 Compliance ------------------------------------------- (a) The Hardware has been satisfactorily maintained and supported and has the benefit of an appropriate maintenance and support agreement. The Company has sufficient technically competent and trained employees to ensure proper handling, operation, monitoring and use of its computer systems. Disaster recovery plans are in effect and are adequate to ensure that the Hardware, Software and data can be replaced or substituted without material disruption to the business of the Company. The Company has adequate procedures to ensure internal and external security of the Hardware, Software and Data, including (without limitation) procedures for preventing unauthorized access, preventing the introduction of a virus, taking and storing on-site and off-site back-up copies of Software and Data. (b) All Hardware, Software, Software Products and other equipment used by the Company are Year 2000 Compliant, except as would not reasonably be expected to have a Material Adverse Effect. 4.13 Affiliate Transactions ---------------------- Since June 30, 1999 there has been no Affiliate Transaction in excess of U.S.$60,000. 4.14 Disclosure ---------- This Agreement and the other Documents and each certificate, document, agreement, report or instrument referred to in the Schedules, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. 8 SECTION 5. INDEMNIFICATION ---------------- 5.1 Indemnification by the Company ------------------------------ Subject to Section 5.3, the Company agrees to indemnify and hold harmless you, your officers and directors and each person, if any, who controls you within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and judgments relating to or arising from the untruth, inaccuracy or breach of a representation contained in Section 4 of this Agreement or from the breach of any covenant or agreement on the part of the Company under this Agreement, except that the obligation of the Company under this Section 5.1 with respect to such losses, claims, damages, liabilities and judgments shall not exceed the purchase price for the Equity Shares purchased by you. 5.2 Indemnification by the Purchaser -------------------------------- Subject to Section 5.3, you agree to indemnify and hold harmless the Company, the Company's officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and judgments relating to or arising from the untruth, inaccuracy or breach of a representation contained in Section 1.3 of this Agreement or from the breach of any covenant or agreement on your part under this Agreement, except that your obligation under this Section 5.2 with respect to such losses, claims, damages, liabilities and judgments shall not exceed the purchase price for the Equity Shares purchased by you. 5.3 Limitation of Rights; Termination --------------------------------- Neither you nor the Company shall have any rights under this Section 5 with respect to any claim for which written notice is not delivered to the other party prior to the date on which the IPO is consummated. Except with respect to claims for which written notice is delivered to the other party prior to the date on which the IPO is consummated, all obligations of the parties under this Section 5 shall terminate upon consummation of the IPO. SECTION 6. DEFINITIONS ----------- As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified Person, any other Person --------- directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. Without limiting the foregoing, (i) all directors and officers of a Person that is a corporation, and all managing members of a Person that is a limited liability company, shall be deemed Affiliates of such Person for all purposes hereunder, and (ii) in the case 9 of an individual, Affiliate shall include (a) members of such specified Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (b) trusts, the trustee and all beneficiaries of which are such specified Person or members of such Person's immediate family as determined in accordance with the foregoing clause (a). "Affiliate Transaction" shall mean (i) any sale, lease, transfer or --------------------- other disposition by the Company or its subsidiaries of any of their respective properties or assets to, (ii) any purchase of property or assets by the Company or its subsidiaries from, (iii) any investment by the Company or its subsidiaries in, (iv) any agreement (including without limitation, the Company's Memorandum and Articles of Association, and including any amendments, supplements or any other modifications to such agreements) by the Company or its subsidiaries with or for the benefit of, or (v) any other transaction between the Company or its subsidiaries with SCSL, any of its Affiliates or any other Affiliate of the Company. Agreement: See Section 1.1. --------- Amendment: Amendment 3 to Electronic Commerce Provider Agreement of --------- even date herewith by and among you, Sterling Commerce International, Inc. and the Company. Closing: See Section 1.2. ------- Closing Date: See Section 1.2. ------------ Code: The Internal Revenue Code of 1986, as amended from time to ---- time, and any successor statute or law thereto. Company: Satyam Infoway Limited, a limited liability company under ------- the laws of the Republic of India, registered with the registrar of companies in Andhra Pradesh and having its registered office at IInd Floor, Mayfair Centre, 1-8-303/36, S.P. Road, Secunderabad - 500 003, India. Documents: This Agreement, the Stockholders Agreement, the --------- Registration Rights Agreement, the Amendment and the Equity Shares. Encumbrance: Any interest or equity of any persons (including any ----------- right to acquire, option or preemptive right); any mortgage, charge, pledge, lien, assignment, hypothecation, security interest (including any created by law), title retention or other security or agreement; and any rental, hire purchase, credit sale or other agreement for payment on deferred terms. Equity Shares: See Section 1.1. ------------- Exchange Act: The U.S. Securities Exchange Act of 1934, as amended ------------ from time to time, and any successor statute or law thereto. 10 ERISA: The U.S. Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any successor statute or law thereto. GAAP: Those generally accepted accounting principles and practices ---- which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the date hereof so as to properly reflect the financial conditions, and the results of operations and cash flows, of the Company and its consolidated Subsidiaries, except that any accounting principle or practice required to be changed by the Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of such boards) in order to continue as a generally accepted accounting principle or practice may so be changed. Hardware: Any computer equipment used by or for the benefit of the -------- Company at any time including, without limitation, parts of computer equipment such as firmware, screens, terminals, keyboards, disks and including without limitation, cabling and other peripheral and associated electronic equipment but excluding all software. IPO: See Section 1.4. --- Lien: Any material mortgage, pledge, lien, encumbrance, charge or ---- adverse claim affecting title or resulting in a charge against real or personal property, or security interest of any kind (including, without limitation, any conditional sale or other title retention agreement; provided however, that the term Lien shall not include (i) liens for taxes or other governmental charges not yet due and owing, and those being contested in good faith by appropriate proceedings and as to which adequate reserves have been made on the books of the Company; (ii) mechanics', materialmans', carriers', landlords', and other similar liens arising in the ordinary course of business for sums not yet due and owing, and those being contested in good faith by appropriate proceedings; and (iii) deposits or pledges to secure the performance of bids tenders, contracts (other than for borrowed money), leases, statutory obligations, surety, fidelity, and appeal bonds, or other deposits or pledges for purposes of a general nature incurred in the ordinary course of business). Material Adverse Effect: (i) Any material adverse effect whatsoever ----------------------- upon the validity, perfection or enforceability of any Document, the Equity Shares, (ii) any material adverse effect on the results of operations, financial condition, properties, assets, business or prospects of the Company, or (iii) any material adverse effect on the ability of the Company to fulfill its obligations under the Documents, the Equity Shares or any document contemplated hereby or thereby. Person: An individual, partnership, corporation, limited liability ------ company, trust or unincorporated organization or a government or agency or political subdivision thereof. Registration Rights Agreement: The Registration Rights Agreement of ----------------------------- even date herewith by and between the Company and you. 11 SCSL: Satyam Computer Services Limited, the Company's parent. ---- Securities Act: The U.S. Securities Act of 1933, as amended from time -------------- to time, and any successor statute or law thereto. Software Products: Any software and associated documentation and ----------------- materials, which is now or has at any previous time been supplied by the Company. Stockholders Agreement: The Stockholders Agreement of even date ---------------------- herewith by and among the Company, SCSL and you. Subsidiary: With respect to any Person (the "parent"), any ---------- corporation, association or other business entity of which securities or other ownership interests representing more than 50% of the ordinary voting power are, at the time as of which any determination is being made, owned or controlled by the parent or one or more subsidiaries of the parent. Year 2000 Compliant: The ability to provide all the following ------------------- functions: (a) accurate processing of all date information whether before, during or after January 1, 2000, including, without limitation, accepting date input, providing accurate date output and performing accurate calculations involving dates or portions of dates; (b) performing all processing accurately, efficiently and without interruption before, during and after January 1, 2000 without any change in operations, or in any input or output procedures; (c) processing date input accurately in a way that does not create any ambiguity as to century; and (d) storing, retrieving and processing date information accurately and in a manner that does not create any ambiguity as to century. SECTION 7. MISCELLANEOUS ------------- 7.1 Notices ------- All notices and other communications provided for or permitted hereunder shall be made by hand-delivery, telecopier, or overnight air courier guaranteeing next day delivery: (a) if to any of you, at 4600 Lakehurst Court, Dublin, Ohio 43106, Attention: Al Hoover, with a copy (which shall not constitute notice) to Skadden, Arps, Slate Meagher & Flom, LLP, 919 Third Avenue, New York, New York 10022, Attention: Eric J. Friedman, Esq.; and (b) if to the Company, at Maansarovar Towers, 271-A, Anna Salai, Teynampet, Chennai - 600 018, India, Attention: R. Ramaraj, with a copy to IInd Floor, Mayfair Centre, 1-8- 12 303/36, S.P. Road, Secunderabad - 500 003, India, and to M.G. Ramachandran, B 12 Kalindi Colony, New Delhi - 110 065, India, and to Latham & Watkins, 135 Commonwealth Drive, Menlo Park, California 94025, Attention: Anthony J. Richmond, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. The parties may change the addresses to which notices are to be given by giving five days' prior notice of such change in accordance herewith. 7.2 Successors and Assigns ---------------------- This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent holders of Equity Shares. 7.3 Amendment and Waiver -------------------- This Agreement and the other Documents may be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may be given, provided that the same are in writing and signed by you and the Company. 7.4 Counterparts ------------ This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 7.5 Headings -------- The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 7.6 Governing Law ------------- This Agreement shall be governed by and construed in accordance with the laws of India. 7.7 Entire Agreement ---------------- This Agreement, together with the other Documents and the Equity Shares, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, together 13 with the other Documents, and the Equity Shares, supersedes all prior agreements and understandings between the parties with respect to such subject matter. 7.8 Severability ------------ In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected, it being intended that all of your rights and privileges shall be enforceable to the fullest extent permitted by law. 7.9 Confidentiality --------------- You agree that you will not, and will not permit your officers, directors, employees or agents to, disclose to any other Person (except your Affiliates) any confidential or proprietary information furnished to you by the Company or any Subsidiary, except (i) as required by law or legal process or by any governmental authority, (ii) such information as becomes or is generally available to the public other than as a result of a disclosure prohibited hereby, (iii) such information that is or becomes available to you on a non- confidential basis from a source not bound by this or another confidentiality agreement with the Company or any Subsidiary, (iv) such information that you disclose to your respective attorneys, advisors and representatives, provided that each such Person shall be deemed to be bound by the terms of this Section 7.9; and (v) such information that you disclose to a Person who is a prospective assignee of some or all Equity Shares, provided that such Person has first signed a confidentiality agreement substantially identical to that set forth in this Section. 7.10 Survival of Representations and Warranties ------------------------------------------ The representations and warranties in this Agreement shall survive the Closing Date and terminate upon the one-year anniversary of the Closing Date. 7.11 Arbitration ----------- (a) Any and all claims, disputes, questions or controversies involving the parties hereto and arising out of or in connection with this Agreement, or the execution, interpretation, validity, performance, breach or termination hereof (collectively, "Disputes") shall, upon the written request of -------- any party to this Agreement, be first referred to senior officers of each party for resolution. The senior officers shall meet immediately and attempt to negotiate a resolution of the Dispute. If such officers, negotiating in good faith, are unable to resolve and settle the dispute within fifteen (15) calendar days after the Dispute is first submitted to them, then any such officer shall be entitled to cause the Dispute to be submitted for settlement pursuant to the terms of Section 7.11(b). (b) Any Dispute which is not settled after an attempt by the parties hereto by amicable negotiation under Section 7.11(a) shall be resolved by final and binding arbitration. The arbitration shall be held in London in accordance with the Rules of Arbitration of the International 14 Chamber of Commerce as then existing and shall be heard and determined by an arbitral tribunal composed of three (3) arbitrators. Each party shall nominate one arbitrator within thirty (30) days after the date on which the Dispute is submitted to arbitration pursuant to this 7.11(b), and both of such arbitrators shall nominate a third arbitrator, who shall serve as the Chairman of such arbitral tribunal, within sixty (60) days after the date on which the Dispute is submitted to arbitration pursuant to this 7.11(b). If any arbitrator has not been named within the time limits specified herein, such appointment shall be made by the International Court of Arbitration of the International Chamber of Commerce, upon the written request of any party, if possible within thirty (30) days of such request. In the event there are more than two parties to a Dispute, whether as claimants or respondents, the procedure for selection of arbitrators remains the same as above, except that each of the multiple claimants and/or respondents shall jointly appoint an arbitrator. (c) Neither the existence of any Dispute nor the fact that any arbitration is pending hereunder shall relieve either party hereto of its respective obligations under this Agreement. (d) Each party agrees that all of the transactions contemplated by this Agreement shall constitute and shall be deemed to constitute commercial activities. To the extent that any party may be entitled in any jurisdiction whatsoever to claim immunity, whether characterized as sovereign or otherwise, from litigation, execution, set-off, attachment or other legal process of any nature whatsoever, it hereby expressly and irrevocable waives such immunity. (e) Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the laws of the place of arbitration and by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958. The award shall be final and binding on the parties and judgment upon any award may be entered in any court of competent jurisdiction. (f) To the fullest extent permitted by law, the parties hereby waive any rights of appeal to any court of competent jurisdiction with respect to any question of law arising in the course of the arbitration or with respect to any award, whether interlocutory or final. The parties expressly agree that leave to appeal or state a special case under Section 45 or Section 69 of the English Arbitration Act of 1996 shall not be sought with respect to any question of law arising during the course of the arbitration or with respect to any award made. However, the parties do not intent to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid of the arbitration proceedings or in connection with the enforcement of any award. Without prejudice to the availability of provisional remedies under the jurisdiction of a competent court, the arbitral tribunal shall have fully authority to grant provisional remedies. (g) The arbitral tribunal may consolidate an arbitration arising under or relating to this Agreement, the Stockholders Agreement and the Registration Rights Agreement with any other arbitration arising under or relating to any of these agreements, if the subject of the disputes in the arbitrations arises out of or relates essentially to the same set of facts or transactions, and no party would be prejudiced thereby. Such consolidated arbitration(s) shall be determined by the arbitral tribunal appointed for the arbitration proceeding that was commenced first in time. 15 (h) The arbitration proceedings conducted pursuant to this Agreement shall be confidential. Neither party shall disclose or permit the disclosure of any information about the evidence adduced or the documents produced by the other party in the arbitration proceedings or about the existence, contents or results of the arbitration without the prior written consent of the other party except as required by law or in the course of a judicial, regulatory or arbitration proceeding, as may be requested or required by a governmental authority or as required for the enforcement of an arbitral award. Before making any disclosure permitted by the preceding sentence, the party intending to make such disclosure shall give the other party reasonable written notice of the intended disclosure and afford the other party a reasonable opportunity to protect its interests. 7.12 Specific Performance -------------------- The parties hereto agree that the provisions of this Agreement are reasonable and necessary to protect the interests of the parties and that the parties' remedies at law for breach of any of the provisions of this Agreement will be inadequate and that, in connection with any such breach, the parties will be entitled, in addition to any other remedies (whether at law or in equity), to temporary and permanent injunctive relief in accordance with applicable law. (Signature pages follow) 16 If this Agreement is satisfactory to you, please so indicate by signing the acceptance on a counterpart of this Agreement and deliver such counterpart to the Company whereupon this Agreement will become binding between us in accordance with its terms. Very truly yours, SATYAM INFOWAY LIMITED By: /s/ R. Ramaraj ---------------------------- Name: R. Ramaraj Title: Managing Director Witnessed by: /s/ K. Thiagarajan ------------------------------- Name: K. Thiagarajan Title: General Manager - Finance Acknowledged and Agreed: STERLING COMMERCE, INC. By: /s/ Albert K. Hoover ------------------------------ Name: Albert K. Hoover Title: Senior Vice President and General Counsel Witnessed by: /s/ Shelly R. Boggs - --------------------------------- Name: Shelly R. Boggs Title: Legal Administrative Assistant Schedule 4.11 ------------- Intellectual Property --------------------- User Agreement, effective April 1, 1999, by and between the Company and Satyam Computer Services Limited 18 EX-4.7 9 STOCKHOLDERS AGMT DATED 09/14/1999 EXHIBIT 4.7 STOCKHOLDERS AGREEMENT ---------------------- STOCKHOLDERS AGREEMENT, dated as of September 14, 1999, by and among Satyam Infoway Limited (the "Company"), Satyam Computer Services Limited ("SCSL") and ------- ---- Sterling Commerce, Inc. ("Sterling Commerce"). ----------------- W I T N E S S E T H: - - - - - - - - - - WHEREAS, in connection with the issuance and sale by the Company, and purchase by Sterling Commerce, of 481,000 Equity Shares of the Company, the parties desire to enter into this agreement (the "Agreement"); --------- WHEREAS, this Agreement shall become effective (the "Effective Date") on -------------- the date of, and simultaneously with, the closing under the Stock Purchase Agreement by and between the Company and Sterling Commerce relating to the issue and sale of the Equity Shares to Sterling Commerce (the "Stock Purchase -------------- Agreement"); - --------- WHEREAS, on the Effective Date SCSL shall beneficially own 12,379,800 Equity Shares of the Company; and WHEREAS, the parties hereto desire to restrict the sale, assignment, transfer, encumbrance or other disposition of Equity Shares by SCSL and Sterling Commerce and to provide for certain rights and obligations in respect to the Equity Shares and the Company as hereinafter provided. NOW THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. As used in this Agreement, the following terms ----------- have the following meanings: "ADS" shall have the meaning set forth in Section 3.1. --- "Agreement" shall have the meaning set forth in the preamble. --------- "Affiliate" shall mean, with respect to any specified Person, any other --------- Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. Without limiting the foregoing, (i) all directors and officers of a Person that is a corporation, and all managing members of a Person that is a limited liability company, shall be deemed Affiliates of such Person for all purposes hereunder, and (ii) in the case of an individual, Affiliate shall include (a) members of such specified Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (b) trusts, the trustee and all beneficiaries of which are such specified Person or members of such Person's immediate family as determined in accordance with the foregoing clause (a). "Affiliate Transaction" shall mean (i) any sale, lease, transfer or other --------------------- disposition by the Company or its subsidiaries of any of their respective properties or assets to, (ii) any purchase of property or assets by the Company or its subsidiaries from, (iii) any investment by the Company or its subsidiaries in, (iv) any agreement (including without limitation, the Formation Documents, and including any amendments, supplements or any other modifications to such agreements) by the Company or its subsidiaries with or for the benefit of, or (v) any other transaction between the Company or its subsidiaries with SCSL, any of its Affiliates or any other Affiliate of the Company. "Board Observer" shall have the meaning set forth in Section 4.1(a). -------------- "Board of Directors" shall mean the Board of Directors of the Company. ------------------ "Business Day" shall mean a day other than a Saturday or Sunday or any ------------ holiday on which banks are permitted to be closed in New York, New York or Chennai, India. "Company" shall have the meaning set forth in the preamble. ------- "Effective Date" shall have the meaning set forth in the recitals. -------------- "Equity Shares" shall mean the equity shares, par value Rs.10 per share, of ------------- the Company. "Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as ------------ amended, and the rules and regulations thereunder. "General Committee" shall have the meaning set forth in Section 4.1(b). ------------------ "Initial Public Offering" shall mean the initial primary Public Offering of ----------------------- equity securities by the Company (other than (i) pursuant to a registration statement on Form S-8 or otherwise relating to equity securities issuable exclusively under the Company's Stock Option Plan, or (ii) pursuant to a merger, consolidation or reorganization). "Pecuniary Interest" in any security shall mean the opportunity, directly ------------------ or indirectly, to profit or share in any profit derived from a transaction in such security. "Permitted Exchange" shall mean the New York Stock Exchange, the American ------------------ Stock Exchange or the Nasdaq Stock Market National Market System. "Permitted Transferee" shall mean, with respect to any Person, any -------------------- Affiliate of such Person. "Person" shall mean an individual or a corporation, partnership, limited ------ liability company, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Proposed Purchaser" shall mean a Person or group of Persons to which SCSL ------------------ proposes to Transfer Equity Shares in accordance with Section 2.4. "Public Offering" shall mean any underwritten public distribution of equity --------------- securities of the Company in the United States pursuant to an effective registration statement under the Securities Act. 2 "Qualified IPO" shall mean an Initial Public Offering in which (i) the ------------- gross proceeds from the shares of Equity Shares sold are at least $20 million, and (ii) immediately after such offering the Equity Shares, or American Depositary Shares representing the Equity Shares, are listed for trading on a Permitted Exchange. "Registration Rights Agreement" shall mean that certain Registration Rights ----------------------------- Agreement, dated as of the date hereof, by and among the Company, South Asia Regional Fund and Sterling Commerce. "Rule 144 Open Market Transaction" shall mean any bona fide public sale of -------------------------------- securities in an open market transaction under Rule 144 of the Securities Act (or any successor rule) if such sale is in compliance with the requirements of paragraphs (c), (d), (e), (f) and (g) or paragraph (k) of such rule. "Securities Act" shall mean the U.S. Securities Act of 1933, as amended, -------------- and the rules and regulations thereunder. "Similarly Situated Investor" shall mean any stockholder of the Company --------------------------- which is entitled to designate any member of, or observer to, the Board of Directors. "Stock Purchase Agreement" shall have the meaning set forth in the ------------------------ recitals. "Tag-Along Notice" shall have the meaning set forth in Section 2.4(c). ---------------- "Tag-Along Sale" shall mean a Transfer of SCSL's Pecuniary Interest in -------------- Equity Shares resulting in SCSL holding less than 51% of the issued and outstanding Equity Shares, including, without limitation, by means of such SCSL's Transfer of an interest in any Person owning such Equity Shares. "Third Party" shall mean any prospective purchaser of Equity Shares (that ----------- is not an Affiliate or Permitted Transferee of the transferor) in an arm's length purchase from such transferor. "Transfer" shall mean (i) when used as a noun: any direct or indirect -------- transfer, sale, assignment, pledge, hypothecation, encumbrance or other disposition and (ii) when used as a verb: to directly or indirectly transfer, sell, assign, pledge, hypothecate, encumber or otherwise dispose of. "Transferee" shall mean any Person to whom Equity Shares have been ---------- Transferred in compliance with the terms of this Agreement. "Transfer Allotment" shall mean the product of (i) the total number of ------------------ Equity Shares proposed to be Transferred in such Tag-Along Sale multiplied by (ii) a fraction, the numerator of which is the total number of Equity Shares owned by Sterling Commerce and its Affiliates as of the close of business on the second day immediately preceding the mailing date of the Transfer Notice and the denominator of which is the total number of Equity Shares then owned by SCSL and Sterling Commerce and its Affiliates. "Transfer Date" shall have the meaning set forth in Section 2.4(b). ------------- "Transfer Notice" shall have the meaning set forth in Section 2.4(b). --------------- 3 ARTICLE II RESTRICTIONS ON TRANSFERS Section 2.1 Transfers in Contravention of this Agreement. Any attempt to -------------------------------------------- Transfer, or purported Transfer of, any Equity Shares in violation of the terms of this Agreement shall be null and void and neither the Company nor any transfer agent shall register upon its books any such Transfer. A copy of this Agreement shall be filed with the Secretary of the Company and kept with the records of the Company. Section 2.2 Transfers. (a) Subject to Section 2.4, Sterling Commerce --------- shall not Transfer any Pecuniary Interest in any Equity Shares for a period of 180 days commencing on the Effective Date, except Transfers to a wholly-owned subsidiary or parent corporation. (b) In the event of a Qualified IPO, neither Sterling Commerce nor SCSL shall Transfer any Equity Shares for a period (the "Lockup Period") commencing ------------- on the date on which such Qualified IPO is consummated, provided that all (i) members of the Board of Directors, (ii) Affiliates of members of the Board of Directors, which Affiliates own Equity Shares and (iii) Similarly Situated Investors agree to a substantially identical lockup. The length of the Lockup Period shall be determined by the Company, after consultation with the underwriters in connection with the Qualified IPO, but in no event shall be longer than 180 days. (c) Neither Sterling Commerce nor SCSL shall Transfer any Equity Shares (other than Transfers (1) to the Company, (2) to any Affiliate, (3) pursuant to a merger or consolidation involving the Company or the sale of all or substantially all of the outstanding Equity Shares or (4) Transfers constituting a bona fide public distribution pursuant to (x) any registration statement filed under the Securities Act or any Public Offering or (y) Rule 144 Open Market Transactions) unless (i) the certificates representing such Equity Shares issued to the Transferee bear the legend provided in Section 2.3, if required by such Section, and (ii) the Transferee (if not already a party hereto) has executed and delivered to each other party hereto, as a condition precedent to such Transfer, an instrument or instruments, reasonably satisfactory to such parties, confirming that the Transferee agrees to be bound by the terms of this Agreement in the same manner as such Transferee's transferor, except as otherwise specifically provided in this Agreement. Section 2.3 Legend. Sterling Commerce hereby agrees that each outstanding ------ certificate representing Equity Shares issued to it, or any certificate issued in exchange for any similarly legended certificate (including any related depositary receipt), shall, unless sold in a transaction pursuant to Section 2.2(c)(1), (2), (3) or (4), bear a legend reading substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS OF ANY STATE WITHIN THE UNITED STATES, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THE HOLDER OF THESE SECURITIES MAY BE REQUIRED TO DELIVER TO THE COMPANY, IF THE COMPANY SO REQUESTS, AN OPINION OF COUNSEL (REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY) TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (OR QUALIFICATION UNDER STATE SECURITIES LAWS) IS AVAILABLE WITH RESPECT TO ANY TRANSFER OF THESE SECURITIES THAT HAS NOT BEEN SO REGISTERED (OR QUALIFIED). 4 THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND OBLIGATIONS, TO WHICH ANY TRANSFEREE AGREES BY HIS ACCEPTANCE HEREOF, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 14, 1999. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT AND BY AN AGREEMENT OF THE TRANSFEREE TO BE BOUND BY THE RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH STOCKHOLDERS AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE WITHIN FIVE (5) DAYS AFTER THE COMPANY'S RECEIPT OF A WRITTEN REQUEST THEREFOR. Section 2.4 Tag-Along Rights. (a) In the event that SCSL proposes to ---------------- effect a Tag-Along Sale, SCSL shall afford Sterling Commerce the opportunity to participate therein in accordance with this Section 2.4. (b) With respect to each Tag-Along Sale, Sterling Commerce shall have the right to Transfer, at the same price and upon identical terms and conditions as such proposed Transfer (except as set forth below), the number of Equity Shares owned by Sterling Commerce equal to the Transfer Allotment; provided, however, that in the event of a Tag-Along Sale pursuant to a Transfer by SCSL of an interest in a Person that directly or indirectly owns Equity Shares, the price and other terms and conditions of such Tag-Along Sale applicable to Sterling Commerce shall as closely approximate those of the proposed Transfer as is reasonably practicable. At the time any Tag-Along Sale is proposed, SCSL shall give written notice to Sterling Commerce of its right to sell Equity Shares hereunder (the "Transfer -------- Notice"), which notice shall identify the Proposed Purchaser and state - ------ the number of Equity Shares proposed to be Transferred, the proposed offering price (including the form and terms of any non-cash consideration to be received in connection therewith), the proposed date of any such Transfer (the "Transfer -------- Date") and any other material terms and conditions of the proposed Transfer. - ---- The Transfer Notice shall also contain a complete and correct copy of any offer to, or agreement with, SCSL by the Proposed Purchaser to purchase such Equity Shares. SCSL shall use its reasonable best efforts to deliver the Transfer Notice at least 30 days prior to the Transfer Date and in no event shall SCSL provide such Transfer Notice later than 21 days prior to the Transfer Date. (c) If Sterling Commerce wishes to participate in the Tag-Along Sale, it shall provide written notice (the "Tag-Along Notice") to SCSL no less than seven ---------------- days prior to the Transfer Date. The Tag-Along Notice shall set forth the number of Equity Shares that Sterling Commerce elects to include in the Transfer, which shall not exceed the Transfer Allotment; provided that the failure of Sterling Commerce to correctly specify a number of Equity Shares not exceeding the Transfer Allotment shall not affect the rights Sterling Commerce may otherwise have under this Section 2.4. Any Tag-Along Notice given by Sterling Commerce shall constitute its binding agreement to sell such Equity Shares on the terms and conditions applicable to the Transfer. If a Tag-Along Notice is not received by SCSL from Sterling Commerce prior to the seven-day period specified above, SCSL shall have the right to sell or otherwise Transfer the number of Equity Shares specified in the Transfer Notice to the Proposed Purchaser specified in the Transfer Notice without any participation by Sterling Commerce, but only on terms and conditions with respect to the consideration paid by the Proposed Purchaser no more favorable (and other material terms and conditions which a reasonable investor would consider significant to the decision to include Equity Shares in the Transfer no more favorable in any material respect) to the Proposed Purchaser than as stated in the 5 Transfer Notice to Sterling Commerce, and only if such Transfer occurs on a date within 60 Business Days of the Transfer Date. (d) The provisions of this Section 2.4 shall not apply to any Transfers (i) by SCSL to a Permitted Transferee of SCSL (provided that such Permitted Transferee has agreed to be bound by this Agreement as contemplated by Section 2.2 hereof), (ii) pursuant to a Public Offering, or (iii) pursuant to a Rule 144 Open Market Transaction of which Sterling Commerce has been provided at least two Business Days prior written notice. (e) The parties acknowledge that South Asia Regional Fund has transfer rights pursuant to Article 14 of the Share Subscription and Shareholders' Agreement, dated as of February 5, 1999, by and among the Company, SCSL, South Asia Regional Fund and Mr. B. Ramalinga Raju, which provides, among other things, that SCSL shall not be entitled to transfer any Equity Shares to a buyer unless it shall have first procured that the buyer makes a written offer to purchase all of the Equity Shares held by South Asia Regional Fund. Section 2.5 Deliveries at Closing; Method of Payment of Purchase Price. ---------------------------------------------------------- SCSL and Sterling Commerce, as applicable, shall deliver to the Proposed Purchaser, against delivery of the purchase price for the Equity Shares being sold by it, (i) certificates appropriately endorsed and representing the Equity Shares being sold, free and clear of any lien, claim or encumbrance, and (ii) such other documents, including, without limitation, executed stock powers and evidence of ownership and authority, as the purchasers may reasonably request. ARTICLE III ADDITIONAL AGREECMENTS Section 3.1 In connection with a Qualified IPO, at such time as a market is created in the United States for American Depositary Shares ("ADSs") ---- representing Equity Shares, the Company and Sterling Commerce will use their respective reasonable best efforts to obtain all Government of India and other approvals required for Sterling to deposit the Equity Shares acquired by it from the Company with the depositary and receive in exchange therefor American Depositary Receipts evidencing ADSs. ARTICLE IV CORPORATE GOVERNANCE AND VOTING Section 4.1 Boards of Directors. (a) Sterling Commerce shall not be ------------------- entitled to designate any members of the Board of Directors by virtue of this Agreement. For so long as Sterling Commerce owns at least 2.0% of the issued and outstanding Equity Shares, Sterling Commerce shall be entitled to designate one non-voting observer to the Board of Directors (the "Board Observer"), -------------- provided that the Board Observer shall at all times be a senior officer of Sterling Commerce reasonably acceptable to the Chief Executive Officer of the Company. The Board Observer shall be entitled to all of the rights and privileges of members of the Board of Directors, including without limitation, access to all information to which members of the Board of Directors have access, except that (i) the Board Observer shall not be entitled to vote on any matter brought before the Board of Directors, (ii) the Board Observer shall be excluded from any portion of any meeting, at the good faith discretion of the Chief Executive Officer of the Company or the Chairman of the Board of Directors, to protect the competitive interests of the Company or where a conflict of interest exists, including, without limitation, matters relating to the 6 relationship between the Company and Sterling Commerce, (iii) if the Company has been advised by outside counsel that providing certain information to Board Observers would be reasonably likely to cause such information to be not subject to an applicable attorney-client or similar privilege, the Company shall be entitled to withhold such information from the Board Observer, and (iv) upon request, the Board Observer shall execute a confidentiality agreement in customary form with respect to information obtained in his or her capacity as a Board Observer. (b) The Board Observer shall be entitled to observe meetings of Committees of the Board of Directors, which committees (the "General Committees") have been ------------------ delegated general authority by the Board of Directors, including, without limitation, any Executive Committee. The Company agrees to inform promptly Sterling Commerce of business conducted by committees of the Board of Directors other than General Committees. (c) The Board Observer shall be provided advance notice of all meetings of the Board of Directors and General Committees, such notice to be given in the same manner as the notice given to the members of the Board of Directors or General Committees, as applicable. Section 4.2 Action by the Board of Directors. (a) Prior to the -------------------------------- consummation of a Qualified IPO, no consent or approval of Sterling Commerce shall be required in connection with the making of any decision, or the taking of any action, by the Board of Directors, including, without limitation, any future equity financing at a price per Equity Share equal to or greater than the purchase price paid by Sterling Commerce provided that the rights to transfer or otherwise dispose of, and registration rights and other liquidity rights with respect to, Equity Shares of the then existing stockholders of the Company are diluted on a pro rata basis. (b) Prior to the consummation of a Qualified IPO, the Company shall not take, or agree to take, any action regarding the following matters without the consent of at least 71%, or such higher percentage as may be required by applicable law, of the issued and outstanding Equity Shares: (i) any amendment to the Company's Memorandum or Articles of Association; (ii) issuing to any Person more than 100,000 Equity Shares, or any options, warrants or other rights to acquire more than 100,000 Equity Shares, except for (x) a Qualified IPO, (y) issuances to a Person which provides content and/or infrastructure to the Company for use in the Company's business or (z) compensatory employee benefits plans, (iii) declaring or paying dividends on, or making distributions with respect to, any Equity Shares; (iv) any merger, consolidation or other sale of the Company, including any sale or other transfer of all or a material portion of the Company's assets; (v) making loans in excess of U.S.$1.0 million in the aggregate; (vi) any entry into any business which is unrelated to the Company's existing business; (vii) any Affiliate Transaction in excess of U.S. $60,000, other than compensation of executive officers approved by the Board of Directors; and 7 (viii) any material change in the Company's accounting policies, other than changes required to comply with generally accepted accounting principles. ARTICLE V TERMINATION Section 5.1 Termination. Except as otherwise provided herein with ----------- respect to certain specific provisions, this Agreement shall terminate upon the earlier to occur of: (i) the mutual agreement of the parties hereto, (ii) the date on which Sterling Commerce (or its Permitted Transferees) ceases to own any Equity Shares; or (iii) on the tenth anniversary of the Effective Date. ARTICLE VI MISCELLANEOUS Section 6.1 No Inconsistent Agreements. Except for the Share Subscription -------------------------- and Shareholders' Agreement, dated as of February 5, 1999, by and among the Company, SCSL, South Asia Regional Fund and Mr. B. Ramalinga Raju, as amended, each party represents and agrees that, as of the Effective Date, there is no, and from and after the Effective Date they will not enter into any, agreement (written or oral) that is inconsistent in any material respect with this Agreement. Section 6.2 Recapitalization, Exchanges, etc. If any capital stock or -------------------------------- other securities are issued in respect of, in exchange for, or in substitution of, any Equity Shares by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split-up, sale of assets, distribution to stockholders or combination of the Equity Shares or any other change in capital structure of the Company, then appropriate adjustments shall be made with respect to the relevant provisions of this Agreement so as to fairly and equitably preserve, as far as practicable, the original rights and obligations of the parties hereto under this Agreement and the term "Equity Shares" as used herein, shall be deemed to include shares of such capital stock or other securities, as appropriate. Without limiting the foregoing, whenever a particular number of Equity Shares is specified herein, such number shall be adjusted to reflect stock dividends, stock-splits, combinations or other reclassifications of stock or any similar transactions. Section 6.3 Successors and Assigns. This Agreement shall be binding upon ---------------------- and shall inure to the benefit of the parties hereto, and their respective successors and permitted assigns; provided that (i) neither this Agreement nor any rights or obligations hereunder may be transferred or assigned by the Company (except by operation of law in any merger); (ii) neither this Agreement nor any rights or obligations hereunder may be transferred or assigned by SCSL except to any Person to whom it has Transferred Equity Shares in compliance with this Agreement and who has become bound by this Agreement pursuant to Section 2.2 hereof; and (iii) the rights of the parties under Section 2.4 and Article IV hereof may not be assigned to any Person except as explicitly provided therein. If any party hereto shall acquire additional Equity Shares, such Equity Shares shall, except as otherwise expressly 8 provided herein, be held subject to (and entitled to all the benefits of) all of the terms of this Agreement. Section 6.4 No Waivers; Amendments. (a) No failure or delay by any party ---------------------- in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. (b) This Agreement may not be amended or modified, nor may any provision hereof be waived, other than by a written instrument signed by the Company, SCSL and Sterling Commerce. Section 6.5 Notices. ------- All notices and other communications provided for or permitted hereunder shall be made by hand-delivery, telecopier, or overnight air courier guaranteeing next day delivery: (a) if to Sterling Commerce, at 4600 Lakehurst Court, Dublin, Ohio 43106, Attention Al Hoover, with a copy (which shall not constitute notice) to Skadden, Arps, Slate, Meagher & Flom, LLP, 919 Third Avenue, New York, New York 10022, Attention: Eric J. Friedman, Esq; (b) if to the Company, at Maansarovar Towers, 271-A, Anna Salai, Teynampet, Chennai - 600 018, India, Attention: R. Ramaraj, with a copy (which shall not constitute notice) to IInd Floor, Mayfair Centre, 1-8-303/36, S.P. Road, Secunderabad - 500 003, India, Attention: R. Ramaraj, with a copy (which shall not constitute notice) to M.G. Ramachandran, B 12 Kalindi Colony, New Delhi - 110 065, India, and to Latham & Watkins, 135 Commonwealth Drive, Menlo Park, California 94025, Attention: Anthony J. Richmond, Esq.; (c) if to SCSL, at Mayfair Centre, S P Road, Secunderabad 500 003, India, Attention: B. Ramalinga Raju. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. The parties may change the addresses to which notices are to be given by giving five days' prior notice of such change in accordance herewith. Section 6.6 Inspection. So long as this Agreement shall be in effect, this ---------- Agreement and, amendments hereto and waivers hereof shall be distributed to all parties hereto after becoming effective and shall be available upon the request of any party hereto. Section 6.7 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of India. Section 6.8 Section Headings. The section headings contained in this ---------------- Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Section 6.9 Entire Agreement. This Agreement, together with the Stock ---------------- Purchase Agreement, the Registration Rights Agreement and the other Documents (as defined in the Stock Purchase Agreement), constitutes the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersedes any and all prior agreements and understandings, written or oral, relating, to the subject matter hereof as between the parties hereto. Without limiting the 9 independent obligations of the Company to Sterling Commerce contained herein, the parties acknowledge that the Company and SCSL are parties to the Share Subscription and Shareholders' Agreement, dated as of February 5, 1999, by and among the Company, SCSL, South Asia Regional Fund and Mr. B. Ramalinga Raju. Section 6.10 Severability. Any term or provision of this Agreement which ------------ is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdictions, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. Section 6.11 Counterparts. This Agreement may be signed in counterparts, ------------ each of which shall constitute an original and which together shall constitute one and the same agreement. Section 6.12 Time of Essence. Time shall be of the essence in this --------------- Agreement. Section 6.13 Arbitration. ----------- (a) Any and all claims, disputes, questions or controversies involving the parties hereto and arising out of or in connection with this Agreement, or the execution, interpretation, validity, performance, breach or termination hereof (collectively, "Disputes") shall, upon the written request of any party to this -------- Agreement, be first referred to senior officers of each party for resolution. The senior officers shall meet immediately and attempt to negotiate a resolution of the Dispute. If such officers, negotiating in good faith, are unable to resolve and settle the dispute within fifteen (15) calendar days after the Dispute is first submitted to them, then any such officer shall be entitled to cause the Dispute to be submitted for settlement pursuant to the terms of Section 6.13(b). (b) Any Dispute which is not settled after an attempt by the parties hereto by amicable negotiation under Section 6.13(a) shall be resolved by final and binding arbitration. The arbitration shall be held in London in accordance with the Rules of the International Chamber of Commerce as then existing and shall be heard and determined by an arbitral tribunal composed of three (3) arbitrators. Each party shall nominate one arbitrator within thirty (30) days after the date on which the Dispute is submitted to arbitration pursuant to this 6.11(b), and both of such arbitrators shall nominate a third arbitrator, who shall serve as the Chairman of such arbitral tribunal, within sixty (60) days after the date on which the Dispute is submitted to arbitration pursuant to this 6.11(b). If any arbitrator has not been named within the time limits specified herein, such appointment shall be made by the International Court of Arbitration of the International Chamber of Commerce, upon the written request of any party, if possible within thirty (30) days of such request. In the event there are more than two parties to a Dispute, whether as claimants or respondents, the procedure for selection of arbitrators remains the same as above, except that each of the multiple claimants and/or respondents shall jointly appoint an arbitrator. (c) Neither the existence of any Dispute nor the fact that any arbitration is pending hereunder shall relieve either party hereto of its respective obligations under this Agreement. (d) Each party agrees that all of the transactions contemplated by this Agreement 10 shall constitute and shall be deemed to constitute commercial activities. To the extent that any party may be entitled in any jurisdiction whatsoever to claim immunity, whether characterized as sovereign or otherwise, from litigation, execution, set-off, attachment or other legal process of any nature whatsoever, it hereby expressly and irrevocable waives such immunity. (e) Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the laws of the place or arbitration and by the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958. The award shall be final and binding on the parties and judgment upon any award may be entered in any court of competent jurisdiction. (f) To the fullest extent permitted by law, the parties hereby waive any rights of appeal to any court of competent jurisdiction with respect to any question of law arising in the course of the arbitration or with respect to any award, whether interlocutory or final. The parties expressly agree that leave to appeal or state a special case under Section 45 or Section 69 of the English Arbitration Act of 1996 shall not be sought with respect to any question of law arising during the course of the arbitration or with respect to any award made. However, the parties do not intent to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid of the arbitration proceedings or in connection with the enforcement of any award. Without prejudice to the availability of provisional remedies under the jurisdiction of a competent court, the arbitral tribunal shall have fully authority to grant provisional remedies. (g) The arbitral tribunal may consolidate an arbitration arising under or relating to this Agreement, the Stock Purchase Agreement and the Registration Rights Agreement with any other arbitration arising under or relating to any of these agreements, if the subject of the disputes in the arbitrations arises out of or relates essentially to the same set of facts or transactions, and no party would be prejudiced thereby. Such consolidated arbitration(s) shall be determined by the arbitral tribunal appointed for the arbitration proceeding that was commenced first in time. (h) The arbitration proceedings conducted pursuant to this Agreement shall be confidential. Neither party shall disclose or permit the disclosure of any information about the evidence adduced or the documents produced by the other party in the arbitration proceedings or about the existence, contents or results of the arbitration without the prior written consent of the other party except as required by law or in the course of a judicial, regulatory or arbitration proceeding, as may be requested or required by a governmental authority or as required for the enforcement of an arbitral award. Before making any disclosure permitted by the preceding sentence, the party intending to make such disclosure shall give the other party reasonable written notice of the intended disclosure and afford the other party a reasonable opportunity to protect its interests. Section 6.14 Specific Performance. -------------------- The parties hereto agree that the provisions of this Agreement are reasonable and necessary to protect the interests of the parties and that the parties' remedies at law for breach of any of the provisions of this Agreement will be inadequate and that, in connection with any such breach, the parties will be entitled, in addition to any other remedies (whether at law or in equity), to temporary and permanent injunctive relief in accordance with applicable law. (Signature pages follow) 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SATYAM INFOWAY LIMITED By:/s/ R. Ramaraj --------------------------- Name: R. Ramaraj Title: Managing Director Witnessed by: /s/ K. Thiagarajan ------------------------------ Name: K. Thiagarajan Title: General Manager - Finance SATYAM COMPUTER SERVICES LIMITED By: /s/ B. Ramolings Raju ------------------------------ Name: B. Ramolings Raju Title: Chairman Witnessed by: /s/ V. Seegharanian --------------------------------- Name: V. Seegharanian Title: Manager STERLING COMMERCE, INC. By: /s/ Albert K. Hoover ------------------------------ Name: Albert K. Hoover Title: Senior Vice President and General Counsel Witnessed by: /s/ Shelly R. Boggs --------------------------------- Name: Shelly R. Boggs Title: Legal Administrative Assistant EX-4.8 10 REGISTRATION STATEMENT AGREEMENT, DATED 09/14/1999 EXHIBIT 4.8 REGISTRATION RIGHTS AGREEMENT ----------------------------- REGISTRATION RIGHTS AGREEMENT, dated as of September 14, 1999, by and among Satyam Infoway Limited, a limited liability company under the laws of the Republic of India (the "Company"), South Asia Regional Fund, a company ------- incorporated in Mauritius ("SARF"), and Sterling Commerce, Inc., a Delaware ---- corporation ("Sterling Commerce"). ----------------- W I T N E S S E T H - - - - - - - - - - WHEREAS, in connection with the issuance and sale by the Company, and the purchase by Sterling Commerce, of 481,000 Equity Shares, the parties desire to provide registration rights to Sterling Commerce; WHEREAS, the Company has already provided certain registration rights to SARF in a Share Subscription and Shareholders Agreement, dated February 5, 1999 (the "SARF Subscription Agreement"); and --------------------------- WHEREAS, the parties desire to enter into this Agreement to supercede the SARF Subscription Agreement regarding the sale of Equity Shares by SARF in the United States and to provide a single, coordinated agreement, regarding the Company's obligation to register Equity Shares (or related American Depositary Shares) owned by SARF or Sterling Commerce. NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used herein and not ----------- otherwise defined herein have the meanings ascribed to them in the Stockholders Agreement, dated as of the date hereof (the "Stockholders Agreement"), by and ---------------------- among the Company, Sterling Commerce and Satyam Computer Services Limited, provided that the parties agree that any subsequent amendment to the Stockholders Agreement will not alter the meaning of any defined terms in this Agreement. In addition, the following terms shall have the meanings ascribed to them below: "Commission" means the United States Securities and Exchange ---------- Commission. "Demand Registration" means a registration of Registrable Securities ------------------- under the Securities Act pursuant to a request made under Section 2.1(a). "Equity Shares" means the equity shares, par value Rs.10 per share, of ------------- the Company and any other equity securities representing, or received in exchange for, such equity shares, including, without limitation, American Depositary Receipts and American Depositary Shares. "Holder" shall mean a holder of Registrable Securities entitled to ------ rights and subject to obligations hereunder, with the Initial Holders being SARF and Sterling Commerce. "Registrable Security" means each Equity Share until (i) it has been -------------------- effectively registered under the Securities Act and disposed of pursuant to an effective registration statement, (ii) it is sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, including a sale pursuant to the provisions of Rule 144(k), (iii) it has been otherwise Transferred and the certificate or other evidence of ownership for it is not required to bear the legend required pursuant to the Stockholders Agreement and it may be resold by the person receiving such certificate without registration under the Securities Act or (iv) the Holder thereof ceases to hold at least one percent (1.0%) of the outstanding Equity Shares and all of such Holder's Equity Shares may be resold in one 90-day period without (x) a volume limitation or (y) reliance on Rule 144(k). "Underwriter" means a securities dealer who purchases any Registrable ----------- Securities as principal in an underwritten offering or other transaction. ARTICLE II REGISTRATION RIGHTS Section 2.1 Demand Registration. (a) Request for Registration by ------------------- --------------------------- Sterling Commerce or SARF. At any time commencing 180 days after an Initial - ------------------------- Public Offering, Sterling Commerce may make two written requests, and SARF may make three written requests, for a Demand Registration, pursuant to a registration statement on the appropriate form. Notwithstanding the foregoing, in the event that Sterling Commerce (i) has made two written requests for a Demand Registration under this Section 2.1 and (ii) continues to hold Equity Shares, Sterling Commerce may make one additional written request for a Demand Registration with respect to not less than all of the Registrable Securities then held by Sterling Commerce pursuant to a registration statement on the appropriate form. The request for a Demand Registration shall specify the number of Registrable Securities proposed to be sold (which shall be at least the lesser of (i) U.S. $5.0 million in fair market value or (ii) all Equity Shares then beneficially owned by Sterling Commerce or SARF, as the case may be) and will also specify the intended method of disposition thereof. The Company shall not be required to keep any shelf registration statement requested pursuant to a Demand Registration continuously effective for more than 90 days. (b) Effective Registration. A registration will not be deemed to ---------------------- have been effected as a Demand Registration unless it has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the Commission or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the acts or omissions of the Holder who commenced the Demand Registration), such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 2.1 is deemed not to have been effected or (ii) the registration requested pursuant to this Section 2.1 does not remain effective for a period of at least 90 days beyond the effective date thereof or until the earlier consummation of the distribution by the Holder who commenced the Demand Registration of the Registrable Securities included in such registration statement by it, then such registration statement shall not count as a Demand Registration pursuant to Section 2.1(a) and the Company shall continue to be obligated to effect the registrations 2 pursuant to this Section 2.1 as though the request for such Demand Registration had never been made. At the request of the Holder who commenced the Demand Registration, the Company shall withdraw the Demand Registration at any time prior to the time it becomes effective, provided that such Holder shall reimburse the Company for all reasonable out-of-pocket expenses (including reasonable counsel fees and expenses) incurred prior to such withdrawal and shall thereafter be entitled to the Demand Registration rights that existed prior to such withdrawal. (c) Selection of Underwriter. If the Holder commencing the Demand ------------------------ Registration so elects, the offering of Registrable Securities pursuant to a Demand Registration shall be in the form of an underwritten offering. The Holder commencing the Demand Registration shall select one or more nationally recognized firms of investment bankers to act as the book-running managing Underwriter or Underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; provided that such investment bankers and managers must be reasonably satisfactory to the Company. (d) Price Determination. In connection with a Demand Registration ------------------- under this Section 2.1 only, the Holders participating in the Demand Registration shall have the sole right to determine the offering price per share and underwriting discount, if applicable, in connection with any resales of Registrable Securities by them, after consultation with the Company and due regard for the Company's views relating thereto. Section 2.2 Piggy-Back Registration. If at any time the Company ----------------------- proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any security holders of any class of its equity securities for cash, including without limitation, a registration statement filed in response to a request for Demand Registration pursuant to Section 2.1 (other than a registration statement filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders or for any compensatory benefit plan), then the Company shall give written notice of such proposed filing to each Holder as soon as practicable (but in no event less than 14 days before the anticipated filing date), and such notice shall offer each other Holder the opportunity to register such number of Registrable Securities as such Holder may request (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "Piggy-Back Registration"). ----------------------- The Company shall use its reasonable best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested by each other Holder to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. A Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw. No registration effected under this Section 2.2, and no failure to effect a registration under this Section 2.2, shall relieve the Company of its obligations pursuant to Section 2.1, and no failure to effect a registration under this Section 2.2 and to complete the sale of Equity Shares in connection therewith shall relieve the Company of any other obligation under this Agreement (including, without limitation, the Company's obligations under Sections 3.2 and 4.1). 3 Section 2.3 Reduction of Offering. (a) Demand Registration. As --------------------- ------------------- provided for in Section 2.2, the Company may include in a Demand Registration Equity Shares for the account of the Company, the other Holders or other holders thereof exercising contractual piggy back or demand rights, on the same terms and conditions as the Registrable Securities to be included therein for the account of the Holder commencing the Demand Registration; provided, however, that (i) if the managing Underwriter or Underwriters of any underwritten offering described in Section 2.1 have informed the Company in writing that it is their opinion that the total number of Equity Shares which the Company and the Holders and any other holders participating therein intend to include in such offering is such as to materially and adversely affect the success of such offering, then (x) the number of Equity Shares to be offered for the account of such other holders (if any) shall be reduced (to zero, if necessary), in the case of this clause (x) pro rata in proportion to the respective number of Equity Shares requested to be registered, (y) thereafter, if necessary, the number of Equity Shares to be offered for the account of the Company (if any) shall be reduced (to zero, if necessary) and (z) thereafter, if necessary, the number of Equity Shares to be offered for the account of the Holders (including the Holder commencing the Demand Registration) shall be reduced pro rata in proportion to the respective number of Equity Shares requested to be registered to the extent necessary to reduce the total number of Equity Shares requested to be included in such offering to the number of Equity Shares, if any, recommended by such managing Underwriters and (ii) if the offering is not underwritten, no other party, including the Company, shall be permitted to offer securities under any such Demand Registration unless the Holder commencing the Demand Registration consents to the inclusion of such Equity Shares therein, such consent not to be unreasonably withheld. (b) Piggy-Back Registration. Notwithstanding anything to the ----------------------- contrary contained herein, if the managing Underwriter or Underwriters of any underwritten offering described in Section 2.2 have informed the Company in writing that it is their opinion that the total number of Equity Shares that the Company and the Holders and any other Persons desiring to participate in a registration other than a Demand Registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of Equity Shares to be offered for the account of the Holders and all such other Persons (other than the Company) participating in such registration shall be reduced (to zero if necessary) or limited pro rata in proportion to the respective number of Equity Shares requested to be registered to the extent necessary to reduce the total number of Equity Shares requested to be included in such offering to the number of Equity Shares, if any, recommended by such managing Underwriters; provided, however, that if such offering is effected for the account of any other security holder of the Company pursuant to the demand registration rights of such security holder, then (x) the number of Equity Shares to be offered for the account of the Company (if any) shall be reduced (to zero, if necessary) and (y) thereafter, if necessary, the number of Equity Shares to be offered for the account of the Holders and any other holders that have requested to include Equity Shares in such registration (but not such security holders who have exercised their demand registration rights) shall be reduced (to zero, if necessary), in the case of this clause (y) pro rata in proportion to the respective number of Equity Shares requested to be registered, to the extent necessary to reduce the total number of Equity Shares requested to be included in such offering to the number of Equity Shares, if any, recommended by such managing Underwriters. Section 2.4 Registration Rights in India. ---------------------------- (a) Sterling Commerce. In connection with any registered public ----------------- offering by the Company of Equity Shares in India, the Company shall, subject to all necessary approvals of the Government of India, use its reasonable best efforts to register the Equity Shares held by Sterling Commerce under Indian law and, at the request of Sterling Commerce, include the Equity Shares held by Sterling Commerce in such offering on terms that treat it pro rata with the other holders of Equity Shares 4 with registration rights applicable to an offering in India. (b) SARF. The Company confirms the rights granted to SARF in Clause ---- 13 of the SARF Subscription Agreement. ARTICLE III REGISTRATION PROCEDURES Section 3.1 Filings; Information. If the Company is required to -------------------- effect or cause the registration of Registrable Securities pursuant to Section 2.1, the Company will use its reasonable best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the Commission a registration statement on an appropriate form for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its reasonable best efforts to cause such filed registration statement to become and remain effective for a period of not less than 90 days (or such shorter period as is required to complete the distribution of the Equity Shares); provided that the Company may postpone the filing of a registration statement for a period of not more than 120 days from the date of receipt of the request in accordance with Section 2.1 if the Company reasonably determines that such a filing would (i) require the disclosure of material non-public information concerning the Company, which disclosure would be reasonably expected to materially adversely affect the Company or (ii) prevent, delay or otherwise adversely affect the Company from making an offering of equity securities for its own account (which offering the Company has a good faith intention to consummate) in which case the Holders shall have the piggy-back registration rights set forth in Section 2.2, and in the case of (i) or (ii) furnishes to the Holder requesting registration a certificate signed by an executive officer of the Company to such effect; provided that the Company shall only be entitled to postpone any such filing two times in any twenty-four month period. If the Company postpones the filing of a Registration Statement, it shall promptly notify the Holders in writing when the events or circumstances permitting such postponement have ended. (b) The Company will as expeditiously as possible prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement continuously effective for a period of not less than 90 days or such shorter period which will terminate when all securities covered by such registration statement have been sold and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the Holders participating therein as set forth in such registration statement. (c) Upon request, the Company will, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Holder participating in such offering, counsel representing each Holder (if requested), and each Underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, together with exhibits thereto, which documents will be subject to review and comment by the foregoing (and the Company and its Counsel shall give due regard to such comments) promptly after delivery, and thereafter furnish to such Holders, counsel and Underwriter, if any, for their review and 5 comment such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents or information as such Holder, counsel or Underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the participating Holders. (d) After the filing of the registration statement, the Company will promptly notify each Holder participating in such offering, and (if requested by any Holder) confirm such notice in writing, (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the Commission or any other Federal or state governmental authority of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities the representations and warranties of the Company contained in any agreement contemplated by Section 3.1(h) (including any underwriting agreement) cease to be true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event which makes any statement made in such registration statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or which requires the making of any changes in a registration statement, prospectus or documents incorporated therein by reference so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be necessary. (e) The Company will use its reasonable best efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as the Holders participating in the offering reasonably (in light of the intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable the participating Holders to consummate the disposition of the Registrable Securities owned by them; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (f) The Company will take all reasonable actions required to prevent the entry, or obtain the withdrawal, of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any Registrable Securities for sale in any jurisdiction, at the earliest moment. 6 (g) Upon the occurrence of any event contemplated by paragraph 3.1(d)(iv), (vi) or (vii) above, the Company will (i) prepare a supplement or post-effective amendment to such registration statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) promptly make available to the Holders any such supplement or amendment. (h) The Company will enter into customary agreements (including, if applicable, an underwriting agreement in customary form and which is reasonably satisfactory to the Company) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities. (i) The Company will furnish to each Holder participating in the offering and to each Underwriter, if any, a signed counterpart, addressed to such Holder or Underwriter, of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letter, as the case may be, as such Holder(s) or the managing Underwriter therefor reasonably requests so long as consistent with the professional standards then applicable to such letters. (j) The Company will use its reasonable best efforts (a) to cause any class of Registrable Securities (including, as appropriate, related American Depositary Shares) to be listed on a national securities exchange (if such Equity Shares are not already so listed) and on each additional national securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange or (b) to secure designation of all such Registrable Securities covered by such registration statement as a Nasdaq "national market system security" within the meaning of Rule 11Aa2-1 of the Commission or, failing that, to secure Nasdaq authorization for such Registrable Securities and, without limiting the generality of the foregoing, to use its reasonable best efforts to arrange for at least two market makers to register as such with respect to such Registrable Securities with the National Association of Securities Dealers, Inc. (the "NASD"). ---- The Company may require each Holder participating in an offering covered by this Agreement to furnish promptly in writing to the Company such information regarding the distribution of the Registrable Securities by such Holder as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the NASD. The Company may delay or withdraw such registration, or exclude a Holder from participating, if a Holder fails to provide such information. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 3.1(d)(iii), (iv), (v), (vi) and (vii) hereof, the Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.1(g) hereof, and, if so directed by the Company, each Holder will deliver to the Company all copies, other than permanent file copies, then in such Holder's possession of 7 the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 3.1(a) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 3.1(d)(iii), (iv), (v), (vi) or (vii) hereof to the date when the Company shall make available to the Holder(s) a prospectus supplemented or amended to conform with the requirements of Section 3.1(g) hereof. In connection with any registration of Registrable Securities pursuant to Section 2.2, the Company will take the actions contemplated by paragraphs (c), (d), (e), (i) and (j) above. (k) In connection with any underwritten Demand Registration pursuant to Section 2.1, the Company will participate in a reasonable manner in any marketing efforts reasonably requested by the underwriters. Section 3.2 Registration Expenses. In connection with the Demand --------------------- Registration pursuant to Section 2.1 hereof, and any registration statement filed pursuant to Section 2.2 hereof, the Company shall pay the following registration expenses incurred in connection with the registration hereunder (the "Registration Expenses"): (i) all registration and filing fees, (ii) fees --------------------- and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) printing expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties) and all fees and expenses incident to the performance of or compliance with this Agreement by the Company, (v) the fees and expenses incurred in connection with the listing of the Registrable Securities, (vi) reasonable fees and disbursements of counsel for the Company, (vii) in connection with a Demand Registration pursuant to Section 2.1 only, reasonable fees and disbursements of counsel for the Holder commencing the demand registration (not to exceed $25,000 in the aggregate), (viii) customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters in customary form if such letter may be rendered under then-applicable standards of professional conduct), and (ix) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration. The Company shall have no obligation to pay (A) any fees and expenses of counsel for the Holders (except as specified in clause (vii) above), or (B) any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities. ARTICLE IV INDEMNIFICATION AND CONTRIBUTION Section 4.1 Indemnification by the Company. The Company agrees to ------------------------------ indemnify and hold harmless each Holder, its officers, directors, employees and agents, and each Person, if any, who controls such Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling Person (collectively, the "Controlling Persons"), from and against any loss, ------------------- claim, damage, liability, reasonable attorneys' fees, cost or expense and costs and expenses of investigating and defending any such claim (collectively, the "Damages"), joint or several, and any action in respect thereof to which any ------- such 8 Holder, its officers, directors, employees and agents, and each such Controlling Person for any legal and other expenses reasonably incurred by such Holder, its officers, directors, employees and agents, or any such Controlling Person in investigating or defending or preparing to defend against any such Damages or proceedings; provided, however, that the Company shall not be liable to a Holder to the extent that (a) any such Damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) the Holder failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by or on behalf of the Holder to the Person asserting the claim from which such Damages arise, and (ii) the final prospectus would have corrected such untrue statement or such omission; or (b) any such Damages arise out of or are based upon an untrue statement or omission in any prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such prospectus, and (y) having previously been furnished by or on behalf of the Company with copies of such prospectus as so amended or supplemented, the Holder thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Registrable Security to the Person asserting the claim from which such Damages arise. The Company also agrees to indemnify any Underwriter, selling brokers or other person participating in the distribution of the Registrable Securities, their officers and directors and each Person who controls such Underwriter or other person on substantially the same basis as that of the indemnification of the Holders provided in this Section 4.1 and to acknowledge such indemnification in writing if reasonably requested to do so. Section 4.2 Indemnification by Holders. Each Holder agrees to -------------------------- indemnify and hold harmless the Company, along with its officers, directors, employees and agents and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling Person, to the same extent as the foregoing indemnity from the Company to the Holders, but only with reference to information related to such Holder, or its plan of distribution, either (a) furnished in writing by the Holder or on its behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus, or (b) omitted by the Holder from any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus, and necessary to make the statements contained therein with respect to the Holder or its plan of distribution not misleading. In case any action or proceeding shall be brought against the Company or its officers, directors, employees or agents or any such controlling Person or its partners, officers, directors, employees or agents, in respect of which indemnity may be sought against a Holder, such indemnifying Holder shall have the rights and duties given to the Company, and the Company or its officers, directors, employees or agents, controlling Person, or its partners, officers, directors, employees or agents, shall have the rights and duties given to such Holder, under Section 4.1. Each Holder also agrees to indemnify and hold harmless any other Person selling Registrable Securities and the Underwriters of the Registrable Securities, and their respective officers and directors and each Person who controls each other such other Person or Underwriter on substantially the same basis as that of the indemnification of the Company provided in this Section 4.2. The Company shall be entitled to receive indemnities from Underwriters, selling brokers, 9 dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above, with respect to information either (a) furnished in writing by such Persons specifically for inclusion in any prospectus or registration statement or (b) omitted by such Persons from any registration statement or prospectus and necessary to make the statements contained therein about such Person and, if applicable, its plan of distribution not misleading. In no event shall the liability of any Holder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Section 4.3 Conduct of Indemnification Proceedings. Promptly after -------------------------------------- receipt by any Person in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the ----------------- commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the ------------------ claim or the commencement of such action, provided that the failure to notify the Indemnifying Party shall not relieve it from any liability except to the extent of any material prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Parry thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party; provided, that the Indemnifying Party acknowledges, in a writing in form and substance reasonably satisfactory to such Indemnified Party, such Indemnifying Party's liability for all Damages of such Indemnified Party to the extent specified in, and in accordance with this Article IV. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of the Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties, or for fees and expenses that are not reasonable. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. Section 4.4 Contribution. If the indemnification provided for in ------------ this Article IV is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or 10 payable by such Indemnified Party as a result of such Damages (i) as between the Company and the Holders on the one hand and the Underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and the Holders on the one hand and the Underwriters on the other from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and the Holders on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Damages, as well as any other relevant equitable considerations, and (ii) as between the Company on the one hand and the Holders on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each Holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Holders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and each Holder bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and each Holder on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and each Holder or by the Underwriters. The relative fault of the Company on the one hand and of each Holders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of the Holder were offered to the public (less underwriting discounts and commissions) exceeds the amount of any damages which the Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation The indemnity, contribution and expense reimbursement obligations contained in this Article IV are in addition to any liability any Indemnifying Party may otherwise have to an Indemnified Party or otherwise. The provisions of this Article IV shall survive for a period equal to the statute of limitations of the underlying claim under applicable law, notwithstanding any transfer of the Registrable Securities by a Holder or any termination of this Agreement. 11 ARTICLE V MISCELLANEOUS Section 5.1 Participation in Underwritten Registrations. No Person ------------------------------------------- may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights; provided that (i) a Holder shall not be required to make any representations or warranties except those which relate solely to such Holder and its intended method of distribution, and (ii) the liability of a Holder to any Underwriter under such underwriting agreement will be limited to liability arising from misstatements or omissions regarding such Holder and its intended method of distribution and any such liability shall not exceed an amount equal to the amount of net proceeds the Holder derives from such registration; provided, however, that in an offering by the Company in which a Holder requests to be included in a Piggy-Back Registration, the Company shall use its reasonable best efforts to arrange the terms of the offering such that the provisions set forth in clauses (i) and (ii) of this Section 5.1 are true; provided further, that if the Company fails in its reasonable best efforts to so arrange the terms, the Holder may withdraw all or any part of its Registrable Securities from the Piggy-Back Registration and the Company shall reimburse the withdrawing Holder for all reasonable out-of-pocket expenses (including reasonable out-of-pocket counsel fees and expenses) incurred prior to such withdrawal. Section 5.2 Holdback Agreements. Sterling Commerce shall comply with ------------------- all of its obligations set forth in Section 2.2(b) of the Stockholders Agreement. Section 5.3 Amendment and Modification. Any provision of this -------------------------- Agreement may be waived, provided that such waiver is set forth in a writing executed by the party against whom the enforcement of such waiver is sought. Except for a waiver applicable to a single party and consented to by that party, this Agreement may not be amended, modified or supplemented other than by a written instrument signed by the Company, Sterling Commerce and SARF. No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement. Section 5.4 Successors and Assigns; Entire Agreement. (a) This ---------------------------------------- Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and executors, administrators and heirs; provided, however, that except as otherwise specifically permitted pursuant to this Agreement, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Company without the prior written consent of Sterling Commerce and SARF. If a Holder shall acquire additional Equity Shares, such Equity Shares shall, except as otherwise expressly provided herein, be held subject to (and entitled to all the benefits of) all of the terms of this Agreement. (b) This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and 12 understandings of any and every nature among them. Section 5.5 Separability. In the event that any provision of this ------------ Agreement or the application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision unless that provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. Section 5.6 Notices. ------- All notices and other communications provided for or permitted hereunder shall be made by hand-delivery, telecopier, or overnight air courier guaranteeing next day delivery: (a) if to Sterling Commerce, at 4600 Lakehurst Court, Dublin, Ohio 43103, Attention: Al Hoover, with a copy (which shall not constitute notice) to Skadden, Arps, Slate Meagher & Flom, LLP, 919 Third Avenue, New York, New York 10022, Attention: Eric J. Friedman, Esq.; (b) if to SARF, at Les Cascades Building, Edith Cavell Street, Port Louis, Mauritius, with a copy to Commonwealth Development Corporation, One Bessborough Gardens, London SW1V 2JQ, England, with a copy to CDC Advisors PVT Ltd., Thapar Niketan, 7/4 Brunton Road, Bangalore - 560 025, India; and (c) if to the Company, at Maansarovar Towers, 271-A, Anna Salai, Teynampet, Chennai - 600 018, India, with a copy to IInd Floor, Mayfair Centre, 1-8-303/36, S.P. Road, Secunderabad - 500 003, India, with a copy to M.G. Ramachandran, B 12 Kalindi Colony, New Delhi - 110 065, India, and to Latham & Watkins, 135 Commonwealth Drive, Menlo Park, California 94025, Attention: Anthony J. Richmond, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. The parties may change the addresses to which notices are to be given by giving five days' prior notice of such change in accordance herewith. Section 5.7 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal law of the State of New York, without giving effect to principles of conflicts of law. Section 5.8 Headings. The headings in this Agreement are for -------- convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect. Section 5.9 Counterparts. This Agreement may be executed in any ------------ number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute one and the same instrument. 13 Section 5.10 Further Assurances. Each party shall cooperate and take ------------------ such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. Section 5.11 Termination. Unless sooner terminated in accordance ----------- with its terms or as otherwise herein provided, this Agreement shall terminate upon the earlier to occur of (i) the mutual agreement by the parties hereto, (ii) such time as no Holder holds at least one percent (1.0%) of the outstanding Equity Shares and all of each such Holder's Equity Shares may be resold in one 90-day period without (x) a volume limitation or (y) reliance on Rule 144(k) or (iii) the three-year anniversary of an Initial Public Offering. Section 5.12 Remedies. In the event of a breach or a threatened -------- breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense or objection in any action for specific performance or injunctive relief that a remedy at law would be adequate is waived. Section 5.13 Pronouns. Whenever the context may require, any -------- pronouns used herein shall be deemed also to include the corresponding neuter, masculine or feminine forms. Section 5.14 Recapitalization, Exchanges, etc. If any capital stock -------------------------------- or other securities are issued in respect of, in exchange for, or in substitution of, any Equity Shares by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split-up, sale of assets, distribution to stockholders or combination of the Equity Shares or any other change in capital structure of the Company, then appropriate adjustments shall be made with respect to the relevant provisions of this Agreement so as to fairly and equitably preserve, as far as practicable, the original rights and obligations of the parties hereto under this Agreement and the term "Equity Shares" as used herein, shall be deemed to include shares of such capital stock or other securities, as appropriate. Without limiting the foregoing, whenever a particular number of Equity Shares is specified herein, such number shall be adjusted to reflect stock dividends, stock-splits, combinations or other reclassifications of stock or any similar transactions. Section 5.15 Arbitration. ----------- (a) Any and all claims, disputes, questions or controversies involving the parties hereto and arising out of or in connection with this Agreement, or the execution, interpretation, validity, performance, breach or termination hereof (collectively, "Disputes") shall, upon the written request of -------- any party to this Agreement, be first referred to senior officers of each party for resolution. The senior officers shall meet immediately and attempt to negotiate a resolution of the Dispute. If such officers, negotiating in good faith, are unable to resolve and settle the dispute within fifteen (15) calendar days after the Dispute is first submitted to them, then any such officer shall be entitled to cause the Dispute to be submitted for settlement pursuant to the terms of Section 5.15(b). 14 (b) Any Dispute which is not settled after an attempt by the parties hereto by amicable negotiation under Section 5.15(a) shall be resolved by final and binding arbitration. The arbitration shall be held in London in accordance with the Rules of the International Chamber of Commerce as then existing and shall be heard and determined by an arbitral tribunal composed of three (3) arbitrators. Each party shall nominate one arbitrator within thirty (30) days after the date on which the Dispute is submitted for settlement pursuant to this 5.15(b), and both of such arbitrators shall nominate a third arbitrator, who shall serve as the Chairman of such arbitral tribunal, within sixty (60) days after the date on which the Dispute is submitted to arbitration pursuant to this 5.15(b). If any arbitrator has not been named within the time limits specified herein, such appointment shall be made by the International Court of Arbitration of the International Chamber of Commerce, upon the written request of any party, if possible within thirty (30) days of such request. In the event there are more than two parties to a Dispute, whether as claimants or respondents, the procedure for selection of arbitrators remains the same as above, except that each of the multiple claimants and/or respondents shall jointly appoint an arbitrator. (c) Neither the existence of any Dispute nor the fact that any arbitration is pending hereunder shall relieve either party hereto of its respective obligations under this Agreement. (d) Each party agrees that all of the transactions contemplated by this Agreement shall constitute and shall be deemed to constitute commercial activities. To the extent that any party may be entitled in any jurisdiction whatsoever to claim immunity, whether characterized as sovereign or otherwise, from litigation, execution, set-off, attachment or other legal process of any nature whatsoever, it hereby expressly and irrevocable waives such immunity. (e) Any arbitration proceedings, decision or award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the laws of the place of arbitration and by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958. The award shall be final and binding on the parties and judgment upon any award may be entered in any court of competent jurisdiction. (f) To the fullest extent permitted by law, the parties hereby waive any rights of appeal to any court of competent jurisdiction with respect to any question of law arising in the course of the arbitration or with respect to any award, whether interlocutory or final. The parties expressly agree that leave to appeal or state a special case under Section 45 or Section 69 of the English Arbitration Act of 1996 shall not be sought with respect to any question of law arising during the course of the arbitration or with respect to any award made. However, the parties do not intent to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid of the arbitration proceedings or in connection with the enforcement of any award. Without prejudice to the availability of provisional remedies under the jurisdiction of a competent court, the arbitral tribunal shall have fully authority to grant provisional remedies. (g) The arbitral tribunal may consolidate an arbitration arising under or relating to this Agreement, the Stock Purchase Agreement, dated as of even date herewith, by and between the Company and Sterling Commerce, and the Registration Rights Agreement, dated as of even date herewith, by and among the Company, Satyam Computer Services Limited and Sterling Commerce with 15 any other arbitration arising under or relating to any of these agreements, if the subject of the disputes in the arbitrations arises out of or relates essentially to the same set of facts or transactions, and no party would be prejudiced thereby. Such consolidated arbitration(s) shall be determined by the arbitral tribunal appointed for the arbitration proceeding that was commenced first in time. (h) The arbitration proceedings conducted pursuant to this Agreement shall be confidential. Neither party shall disclose or permit the disclosure of any information about the evidence adduced or the documents produced by the other party in the arbitration proceedings or about the existence, contents or results of the arbitration without the prior written consent of the other party except as required by law or in the course of a judicial, regulatory or arbitration proceeding, as may be requested or required by a governmental authority or as required for the enforcement of an arbitral award. Before making any disclosure permitted by the preceding sentence, the party intending to make such disclosure shall give the other party reasonable written notice of the intended disclosure and afford the other party a reasonable opportunity to protect its interests. (Signature pages follow) 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SATYAM INFOWAY LIMITED By: /s/ R. Ramaraj _______________________ Name: R. Ramaraj Title: Managing Director Witnessed by: /s/ K. Thiagarajan ___________________________ Name: K. Thiagarajan Title: General Manager - Finance STERLING COMMERCE, INC. By: /s/ Albert K. Hoover ------------------------ Name: Albert K. Hoover Title: Senior Vice President and General Counsel Witnessed by: /s/ Shelly R. Boggs --------------------------- Name: Shelly R. Boggs Title: Legal Administrative Assistant SOUTH ASIA REGIONAL FUND By: /s/ [Illegible] ------------------------ Name: Title: Witnessed by: /s/ [Illegible] --------------------------- Name: Title: S-1 EX-10.3 11 LICENSE AGREEMENT FOR PROVISION OF INTEREST SERVICE EXHIBIT 10.3 GOVERNMENT OF INDIA MINISTRY OF COMMUNICATIONS DEPARTMENT OF TELECOMMUNICATIONS TELECOM COMMISSION LICENCE AGREEMENT FOR PROVISION OF INTERNET SERVICE NO. 820-49/98-LR DATED 12th November, 1998 TOTAL PAGES Twenty Nine (29) + (3) CONTENTS 1. Licence Agreement.......................................................... 3 2. Schedule `A' -- Service Area............................................... 8 3. Schedule `B' -- Quantum of Licence......................................... 9 4. Schedule `C'............................................................... 9 PART I - DEFINITIONS................................................. 9 PART II - TERMS AND CONDITIONS........................................ 12 Condition 1: Requirement to provide the service.......................... 14 Security consideration...................................... 15 Application of Indian Telegraph Act......................... 17 Prohibition of certain activities........................... 17 Application of the TRAI Act................................. 18 Condition 2: Acceptance Testing and Quality Assurance:................... 19 Condition 3: Delivery of the Services.................................... 19 Condition 4: Complaint - Booking and Treatment........................... 20 Condition 5: Right to Inspect............................................ 20 Condition 6: Force - Majeure............................................. 21 Condition 7: Interconnection with other networks......................... 21 Condition 8: Requirement to Furnish Information to the Licensor/Telecom Authority................................................... 23 Condition 9: Extension of Licence........................................ 23 Condition 10: Termination of Licence...................................... 23 Condition 11: Disputes with other parties................................. 26 Condition 12: Arbitration of Disputes..................................... 27 Condition 13: Financial Conditions........................................ 27 Condition 14: Set Off..................................................... 29 PART III - COMPLIANCE STATEMENT........................................ 26
2 LICENCE AGREEMENT ----------------- THIS AGREEMENT made on the 12th day of November 1998 between the President of India acting through Assistant Director General (LR-1), Ministry of Communications, Department of Telecommunications, Sanchar Bhavan, 20, Ashoka Road, New Delhi-110 001 (hereinafter called the LICENSOR) of the ONE PART And M/s SATYAM INFOWAY (P) LIMITED a company registered under the Companies Act 1956 and having its registered office at MayFair Centre, 1- 38/303/36, S.P. Road, Secunderabad (hereinafter called the LICENSEE which expression shall unless repugnant to the context, include its successor in business, administrators, liquidators and assigns or legal representatives) of the OTHER PART. WHEREAS pursuant to the request of the LICENSEE, the LICENSOR has agreed to grant licence to the LICENSEE on the terms and conditions appearing hereinafter to establish, maintain and operate Internet Service (hereinafter called the SERVICE) in the country of India as given in Schedule "A" annexed hereto and the LICENSEE has agreed to accept the same. NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: 1. In consideration of observance of mutual covenants as well as payment of the licence fee payable in terms of schedule 'B' and due performance of all the terms and conditions on the part of the LICENSEE, the LICENSOR does, hereby, grant on nonexclusive basis, licence to establish, maintain and operate Service in the area given in Schedule "A", on the terms and conditions mentioned in Schedule "C" annexed hereto. 2. The licence is granted initially for a period of 15 years unless terminated for default or for insolvency or for convenience or for transfer of the licence under the provisions of condition "12" of Part II, Schedule "C". If requested by LICENSEE, extension of the Licence, unless terminated earlier under condition "10" of the Schedule "C" Part -II, may be granted by the LICENSOR at suitable terms and conditions for a period of FIVE YEARS or more at one time. The decision of the LICENSOR in this respect shall be final. The Licensor may extend or refuse the extension of the Licence on request of the licensee received latest by the end of 14/TH/ YEAR from the effective date and in the absence of such request for extension, the Licence shall automatically be terminated as per due date. 3. The licence shall be governed by the provisions of the Indian Telegraph Act 1885, Indian Wireless Telegraphy Act 1933 and TRAI Act 1997 as modified from time to time. 3 4. Unless otherwise stated or appearing from context, all the schedules annexed hereto including the certificates given along with application form and Guide lines on Internet service no. 845-51/97-VAS will form part and parcel of this agreement. Provided, however, in case of conflict or variance on an issue relating to this agreement, the terms set out in the main body of this agreement read with all the Schedules annexed hereto shall prevail. 5. In this Agreement, words and expressions will have the same meaning as is respectively assigned to them in Schedule "C". 6. The LICENSOR may at any time revoke the Licence by giving a written notice of 30 days after affording a reasonable opportunity of hearing on the breach of any of the terms and conditions herein contained or in default of payment of any consideration payable by the Licensee as provided hereunder. 7.1 The LICENSEE shall clearly indicate the specifications of the SERVICE to the subscribers at the time of entering into contract with such subscriber. 7.2 In case of any complaint or dispute with regard to the Service from any subscriber of the service, such complaint or dispute shall be a matter between such subscriber of the service and the licensee only. The Government/licensor, DOT, MTNL, VSNL or any other service provider licensed to provide connectable systems shall not be party to any such complaint/dispute. The licensee shall be responsible to suitably notify the above to all his subscribers of the service before registering a request for and provisioning of the service. 7.3 The Licensee shall be solely responsible for installation, networking and operation of necessary equipment and systems, treatment of subscribers' complaints, issue of bills to its subscribers, collection of the revenue, attending to claims and damages arising out of the services provided by him. The LICENSEE shall make its own arrangements for all infrastructures involved in providing the SERVICE. Further the Licensee shall clearly display and publicise major specifications of subscriber terminal equipment at his premises which are necessary for interworking/interfacing to telephone network. 8. The licensee shall be free to fix his own tariff to be charged from subscribers. The tariff shall be left open to be decided by market forces. However, the TRAI (Telecom Regulatory Authority of India) may review and fix a tariff at any time during the validity of the licence which shall be binding on the Licensee. 8.1 The licensee shall be responsible to obtain its own IP address and domain name from the competent authorities. In case the IP addresses are taken from the Department of Telecommunications, the same are non-portable and have to be returned to DOT at the termination of connectivity contract. 4 9. The Performance Bank Guarantee of requisite amount shall be furnished from time to time by the LICENSEE as required under the terms and conditions of this Licence Agreement and in the proforma as provided in Schedule 'D' annexed hereto. 10. The LICENSEE shall not, without the prior written consent of the Licensor, either directly or indirectly, assign or transfer its rights in any manner whatsoever to any other party or enter into any agreement for sub-licence and/or partnership relating to any subject matter of the licence to any third party either in whole or in part. Any violation of this term shall be construed as a breach of Licence Agreement and the licence shall be liable for termination. Provided, however, that installation of systems, equipment and network can be given on contract, but, providing the SERVICE can not be given to another party on contract. Provided, further, that the licensee can always employ or appoint agents and servants. Provided, that the aforesaid written consent permitting transfer or assignment will be granted in accordance with the terms and conditions and procedures described in Tripartite Agreement if duly executed amongst LICENSOR, LICENSEE and LENDERS. 11. The LICENSOR reserves the right to, in case of a default of any of the terms and conditions stipulated in the Licence Agreement, impose any penalty as it may deem fit under the provisions of this agreement. 12. Notwithstanding anything contained hereinbefore, it is further agreed and declared by the parties that: (i) The licence is issued on non-exclusive basis i.e. other vendors may be granted licence for the same service in the same area at the discretion of the Licensor. DOT itself or through a designated Public Authority, has the right to operate the service in any/all service areas. (ii) The LICENSOR reserves the right to modify at any time the terms and conditions of the licence covered under Schedule "A", "B", "C" and "D" annexed hereto, if, in the opinion of the LICENSOR, it is necessary or expedient to do so in the interest of the general public or for the proper conduct of telegraphs or on security consideration, provided further that the licensor reserves right to review the terms of this agreement based on the policy of further liberalization whenever articulated in the context of New Telecom Policy. (iii) Notwithstanding anything contained anywhere else in the Licence Agreement, the LICENSOR's decision shall be final on all matters relating to this Agreement and application of terms and conditions herein. (iv) The LICENSOR reserves the right to take over the entire services, equipment and networks of the LICENSEE, in part or in whole of the Service Area, or revoke/terminate/suspend the licence in the interest of national security or in the event of a national emergency/war or low intensity conflict or any other eventuality in public 5 interest as declared by the Government of India. The specific orders or directions from the Government issued under such conditions shall be applicable to the LICENSEE. 13. Individuals or groups of organisations both in private and Government sectors are permitted to deploy, indigenous or imported, encryption equipments for providing secrecy in transmission up to a level of encryption to be specified by Telecom Authority. However, if encryption equipments of levels higher than specified are to be deployed, individuals/groups/organisations shall obtain Government clearance and shall deposit one set of keys with the Telecom Authority. 14. In supersession of any thing provided elsewhere, the effective date of this licence shall be 12.11.98. 15. The Licence is granted to the LICENSEE on the condition that any change in the Indian Partners or their equity participation should be as stipulated in the Indian Companies Act 1956. The LICENSEE shall be responsible to ensure that the total foreign equity in the LICENSEE Company does not, at any time, exceed 49% of the total equity. The present Indian & Foreign partners/promoters and their equity held in the LICENSEE Company as intimated by the company are recorded as follows:
Equity held in the Promoter/partner Indian/Foreign LICENSEE Company Promoters Indian 33% F.I.I. Foreign 28% Mutual Funds Indian 15% Public Indian 28%
16. All matters relating to this licence will be subject to jurisdiction of Courts in Delhi/New Delhi only. 6 IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed through their respective authorised representatives the day and year first above written. [illegible] Signed and Delivered for and on behalf of President of India By Shri P.C. TERWARI ------------ Assistant Director General (LR-1), DOT Signed on behalf of M/s SATYAM INFOWAY LIMITED By AJOY DASGUPTA, holder of General Power of Attorney dated 4-11-98 executed in accordance with the Resolution No. ___________ dated 3-10-98 passed by the Board of Directors, in the presence of: Witnesses: 1. [illegible] --------------------- 2. [illegible] --------------------- 7 Schedule A ---------- SERVICE AREA - 'A' The service area under the scope of this licence is "WHOLE OF INDIA". For the purpose of providing the service, the licensee may install his equipment anywhere within the service area. However, the subscribers will be responsible for procurement of Customer Premises Equipment (CPE). The leased line subscribers of the service shall be located within the service area. However, this restriction does not apply to dial up subscribers. DOT is committed to provide local call facilities to the nearest node. In case where the nearest INTERNET node is located in a different local area, the local call facility will be available to that node. However, as soon as a node is set up in the local area, this facility will cease. 8 Schedule 'B' 1.1 QUANTUM OF LICENCE FEE AND SCHEDULE OF PAYMENTS (i) The licence fee is payable by the licensee in consideration for grant of this licence, for the complete duration for which this licence is granted. This has no relation to the actual start/provision of service by the licensee or any mutual obligations between the licensee and any other service provider/DOT/MTNL/VSNL/Departments of the Central or State Government/local or statutory bodies . (ii) The Telecom Authority has decided to waive the Licence Fee for a_period up to 31.10.2003. For those ISPs also who obtain licences prior to 01.11.2003, a nominal licence fee of One Rupee per annum will become payable from 01.11.2003. 9 Schedule 'C' Part I. DEFINITIONS, INTERPRETATIONS AND PROVISIONS RELATING TO THE CONDITIONS Unless the context otherwise requires, the following expressions shall have the meaning assigned to them in these conditions:- 1. APPLICABLE SYSTEMS: The "applicable system" means all the necessary equipments/systems engineered to provide INTERNET Service as per operational/technical and quality requirements and other terms and conditions of the licence agreement and as laid down in the Guidelines for INTERNET Service No. 845-51/97-VAS . 2. CONNECTABLE SYSTEM means a telecommunication system which is authorised to be run under a licence which can be connected to the applicable system. 3. THE AUDITOR means the Licensee's auditor for the time being appointed in accordance with the requirements of the Companies Act, 1956. 4. DIAS: DOT's Gateway Internet Access Services. 5. DIRECT EXCHANGE LINE (DEL): A telephone connection between the subscriber's terminal equipment and a local exchange. 6. DOMAIN NAME: Domain names in India are at present registered by NCST (National Centre for Software Technology), Mumbai, who allot the same to legitimate IP address holder on receipt of a written application. 10 7. DOT means Department of Telecommunications, India, Government of India and/or its successors as the Licensor. Wherever the expression DOT is used to mean a service provider, this will include MTNL also. 8. EFFECTIVE DATE: The date on which this Licence Agreement is signed by the parties and if the parties have signed on different dates, the latter of the two dates. 9. EMERGENCY means an emergency of any kind, including any circumstances whatever resulting from major accidents, natural disasters and incidents involving toxic or radio-active materials. 10. EMERGENCY SERVICES means in respect of any locality, the relevant public, police, fire, ambulance and coast guard services for that locality. 11. ENGINEERING; The technical application of the dimensioning rules and results thereof in order to provide the specified GRADE OF SERVICE (G.O.S.). 12. GIAS, VSNL's Gateway Internet Access Services. 13. INTERNET: Internet is a global information system that: *is logically linked together by a globally unique address, based on Internet Protocol (IP) or its subsequent enhancements/upgradations; *is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) suite or its subsequent enhancements/upgradations, and all other IP compatible protocols; and 14. IP ADDRESSES: Operation of Internet Service requires IP addresses which is at present a 32 bit binary address. This address is required for each permanent connection on Internet. Typically, it is required for ports of routers and other ISP equipment and also for leased line connections to be provided to end users. 15. ISP: means Internet Service Provider licensed to provide Internet Service under this licence. 16. LICENCE means a licence granted or having effect as if granted under Section 4 of the Indian Telegraph Act 1885 and Indian Wireless Telegraphy Act 1933. 17. LICENSEE: A registered Indian Company that has been awarded licence for providing the SERVICE. 18. LICENSOR shall refer to the President of India acting through any authorised person, who granted Licence under Section 4 of Indian Telegraph Act 1885 and Indian Wireless Telegraphy Act 1933, unless otherwise specified. 11 19. LOCAL AREA: Local Area is the Short Distance Charging Area (SDCA) of Department of Telecommunication. 20. MESSAGE means anything falling within Sub Clause/paragraph (3) of Section 3 of the Indian Telegraph Act 1885. 21. MTNL means Mahanagar Telephone Nigam Limited. 22. OPERATOR means any person who is authorised by the LICENSOR to run a Relevant Connectable System. 23. SERVICE AREA: Separate licences shall be granted to any applicant company for each service area. For this purpose, the country has been divided into separate service areas in three categories as indicated below: (i) Category "A" - This covers the territorial jurisdiction of the Union of India except specified areas that may be notified to be excluded from time to time. (ii) Category "B" - Any of the 20 Territorial Telecom Circles, four Metro Telephone Districts of Delhi, Mumbai, Calcutta or Chennai and four major telephone districts of Ahmedabad, Bangalore, Hyderabad or Pune are Category 'B' service areas. The four Metro Telephone Districts (Delhi, Mumbai, Calcutta & Chennai) are not part of any Telecom Circle, whereas the four major Telephone Districts Ahmedabad, Bangalore, Hyderabad & Pune) are part of respective Telecom Circles. (iii) Category "C" Service Area - Any Secondary Switching Area (SSA) of DOT with geographical boundaries as on 1.4.98, will form a separate category "C" Service Area with the exception that each of the four Metro Telephone Districts of Delhi, Mumbai, Calcutta & Chennai and of four major Telephone Districts of Ahmedabad, Bangalore, Hyderabad & Pune of the DOT with geographical boundaries as on 1.4.98, will form a separate category "B" Service Area. Applicants will be required to submit separate application for each service area. The ISP will be required to set up his nodes i.e., Routes/servers within the geographical limits of the service area. An applicant company may be granted any number of licences. Also, there shall be no limit on number of licences that can be granted in a particular service area. The leased line subscribers shall be from within the service area. However, the ISP can offer dial up service from any part of the country. Existing E-Mail and VSAT Service Licensees may also obtain separate ISP Licence for any number of the above mentioned service areas subject to fulfillment of eligibility criteria. 24. SERVICES OR SERVICE means all types of Internet Access/content services except telephony on Internet. 12 25. SERVICE PROVIDER means the Government and includes a licensee. 26. SUBSCRIBER - Subscriber means any person or legal entity who avails the service from the licensee. 27. TELECOM AUTHORITY: The Director General, Telecommunications, Government of India and includes any officer empowered by him to perform all or any of the functions of the Telegraph Authority under the Indian Telegraph Act, 1885 or such other authority as may be established by law. 28. TECHNICAL SPECIFICATIONS: As laid down in the Guidelines for INTERNET Service No. 845-51/97-VAS. 29. TARIFF: Charges payable by a subscriber for the service provided. 30. TRAI - means the Telecom Regulatory Authority of India established under the TRAI Act, 1997. 31. VALIDITY OF THE LICENCE: The period for which this licence is effective. 32. VSNL means "Videsh Sanchar Nigam Ltd." 33. W.P.C. means Wireless Planning & Co-ordination Wing of the Ministry of Communications, Department of Telecommunications, Government of India. 13 SCHEDULE "C" ------------ Part II. TERMS AND CONDITIONS Condition 1: REQUIREMENT TO PROVIDE TBE SERVICE 1.1 The LICENSEE shall commission the Applicable Systems within 18 months from the effective date of the licence and offer the service on demand to its customers. 1.2 LICENSEE shall be solely responsible for the installation, networking and operation of necessary equipment and systems, treatment of the subscribers' complaints, issue of bills to its subscribers, attending to claims and damages arising out of his operation. The LICENSEE shall make its own arrangements for all infrastructures involved in providing the SERVICE. 1.3 For the purpose of providing the SERVICE, the LICENSEE shall install his own suitable equipment so as to be compatible with the other service providers' equipment and connect the same DIAS or GIAS or a Gateway owned by a public/Government organisation for routing International Internet Traffic. Private ISPs are also allowed to set up International Gateways after obtaining security clearance/approval from Authority. 1.3.1 Internet Subscribers can procure their own terminal equipment or lease the same from the ISP . 1.4 In the process of operating the SERVICE, the LICENSEE shall be responsible for: (i) The installation of the Internet Nodes i.e., routers/Servers etc. (ii) the proper operation and maintenance of his network infrastructure; 1.5 If the LICENSEE has, in addition, leased or rented other telecommunication resources from the DOT/MTNL/VSNL or any other Telecom Service Provider authorised by the Government of India, purely for the purposes of providing the service and networking its geographically dispersed equipment, such resources will be a matter 14 between the ISP and the service provider(s) and will be subject to tariff as fixed by DOT/MTNL/VSNL/other Telecom Service Provider from time to time. 1.6 "WARRANTY AS TO QUALITY": The LICENSEE shall warrant that SERVICES to be provided by him shall be of the acceptable grade, consistent with the established and generally accepted standards. 1.7 The licensee shall provide to the Telecom Authority, a monthly report indicating the details of ISP nodes or points of presence with their locations. In case new nodes are to be installed, one month prior notice is required to be given to the licensor . 1.8 The billing disputes or differences, between the LICENSEE and its subscribers will be settled amongst themselves. 1.9 MTTR (Mean Time To Restore): 1.9.1 90% of faults resulting due to subscribers complaints should be rectified within 24 hours and 99% within 3 days. 1.9.2 The Licensee will keep a record of number of faults and rectification reports in respect of each service area and produce the same to the Authority as and when required. 1.10 SECURITY CONSIDERATION: 1.10.1 Individuals or groups of organisations both in private and Government sectors are permitted to deploy, indigenous or imported, encryption equipments for providing secrecy in transmission up to a level of encryption to be specified by Telecom Authority. However, if encryption equipments of levels higher than specified are to be deployed, individuals/groups/organisations shall obtain clearance from the Government of India and shall deposit one set of keys with the Telecom Authority. 1.10.2 The LICENSEE shall provide to the LICENSOR, location details of the equipment provided by ISP. Implementation of any installation of the concerned equipment and execution of the concerned project shall be taken up only after the approval by the LICENSOR and locations of these centres shall not be changed without prior approval of the LICENSOR. This requirement shall be applicable only to such areas as are sensitive from security point of view, as may be notified from time to time by the LICENSOR. 1.10.3 Each ISP must maintain a log of all users connected and the service they are using (mail, telnet, http etc.). The ISPs must also log every outward login or telnet through their computers. These logs, as well as copies of all the packets originating from the Customer Premises Equipment (CPE) of the ISP, must be available in REAL TIME to 15 Telecom Authority. Type of logins, where the identity of the logged-in user is not known, should not be permitted. 1.10.4 The LICENSEE shall provide necessary facilities to the Government to counteract espionage, subversive act, sabotage or any other unlawful activity. The said facilities to be provided by the LICENSEE will depend upon the specific situation at the relevant time. Type and extent of facility(ies) required shall be at the sole discretion of the Government of India. 1.10.5 The LICENSEE shall not use any hardware/software which are identified as unlawful and/or render network security vulnerable. The LICENSEE shall make available, on demand, to the agencies authorised by the Government Of India, full access to the equipment provided by the ISP for technical scrutiny and detailed inspection. 1.10.6 All foreign personnel likely to be deployed by the LICENSEE for installation, operation and maintenance of the LICENSEE's network shall be required to obtain security clearance by the Government of India prior to their deployment. The security clearance will be obtained from the Ministry of Home Affairs, Government of India. 1.10.7 Software used by each ISP shall conform to a set of latest operational requirements which will be periodically published by the Telecom Authority. 1.10.8 LICENSOR shall have the right to take over the SERVICE, equipment and networks of the LICENSEE either in part or in whole of the Service Area as per directions if any, issued in the public interest or national security by the Government in case of emergency or war or low intensity conflict or any other eventuality. Provided any specific orders or direction from the Government issued under such conditions shall be applicable to the LICENSEE and shall be strictly complied with. 1.10.9 LICENSOR reserves the right to modify these conditions or incorporate new conditions considered necessary in the interest of national security. 1.10.10 On Security related issues, an Inter-Ministerial Committee shall be set up consisting of the representatives of DOT, Cabinet Secretariat, MHA, MOD, DOE and NIC and representatives from NASSCOM to look into the technical aspects of monitoring of communications in this sector (including Internet) to enable the setting up of the monitoring infrastructure (which, in many cases, would have to be funded by the ISPs). Any condition imposed by this Inter-Ministerial Committee during the validity of the licence shall be binding on the licensee. 16 1.11 APPLICATION OF INDIAN TELEGRAPH ACT: 1.11.1 The LICENSEE shall furnish all necessary means and facilities as required for the application of provisions of Section 5(2) of the Indian Telegraph Act, 1885, whenever occasion so demands. At present Section 5(2) of Indian Telegraph Act reads as follows: "on the occurrence of any public emergency or in the interest of public safety, the Central Government or a State Government or any officer specially authorised in their behalf by the Central Government or a State Government may, if satisfied that it is necessary or expedient to do so in the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign states or public order or for preventing incitement to the commission of an offence for reasons to be recorded by order, direct that any message or class of messages to or from any person or class of persons or relating to any particular subject, brought for transmission by or transmitted or received by any telegraph, shall not be transmitted or shall be intercepted or detained or shall be disclosed to the Government making the order or an officer thereof mentioned in the order: Provided that press messages intended to be published in India, or correspondents accredited to the Central Government or a State Government shall not be intercepted or detained, unless their transmission has been prohibited under this subsection." 1.11.2 The LICENSEE shall frame a set of commercial code that govern registration, provisioning and tariffication for the services offered to the public. This should be done before commercial launch of the service and shall be consistent with the terms and conditions of licence. 1.11.3 Nothing provided and contained anywhere in this Licence Agreement shall be deemed to affect adversely anything provided or laid under the provisions of Indian Telegraphs Act, 1885 or any other law in force, as enacted/amended from time to time. 1.12 PROHIBITION OF CERTAIN ACTIVITIES BY THE LICENSEE. 1.12.1 The LICENSEE shall not engage provision of any other Telecom SERVICE unless so licensed. 1.12.2 For the avoidance of doubt, it is, hereby declared that nothing contained in Condition 1.12.1 above shall preclude the LICENSEE from engaging in advertising and promotional activities relating to any of the Applicable Systems. 1.12.3 Telephony on the Internet: Telephony on the Internet is not permitted. The licence will be liable for termination for any violation of this clause of the Licence Agreement. The licensee shall also take measures on his own and as and when directed by the Government at his own cost to bar carriage of Telephone traffic over Internet. 17 1.12.4 Obscene material and applicability of Cyber Laws: The LICENSEE shall ensure that objectionable, obscene, unauthorized or any other content, messages or communications infringing copyright, Intellectual property right and international & domestic cyber laws, in an form or inconsistent with the laws of India, are not carried in his network, the ISP should take all necessary measures to prevent it. In particular, LICENSEE is obliged to provide, without delay, all the tracing facilities of the nuisance or malicious messages or communications transported through his equipment and network, to authorised officers of Government of India/State Government, when such information is required for investigations of crimes or in the interest of national security. Cyber Laws as and when framed shall be applicable. Any damages arising out of default an the part of licensee in this respect shall be sole responsibility of the licensee. 1.12.5 The use of the network for anti-national activities would be construed as an offence punishable under the Indian Penal Code or other applicable law. The networks cannot be used in such a manner as to endanger or make vulnerable a networked infrastructure. Acts such as break-ins or attempted break-ins of Indian networks shall be regarded as an anti-national act and shall be dealt with in accordance with the Indian Penal Code. ISPs must ensure that their services are not used for such purposes. 1.12.6 In case any confidential information is divulged to the LICENSEE for proper implementation of the Agreement, it shall be binding on the LICENSEE, its sub-contractors, agents and servants to maintain its secrecy and confidentiality. 1.13 APPLICATION OF THE TRAI ACT 1997 The licence shall be governed by the provisions of the TRAI Act, 1997, as modified from time to time. The attention of the licensee is specifically drawn to the following provisions of the TRAI Act 1997 which reads as follows: Section 11.(1) Notwithstanding anything contained in the Indian Telegraph Act 1885, the functions of the Authority shall be to (c) ensure technical compatibility and effective inter-connection between different service providers; (i) protect the interest of the consumers of telecommunication service; (j) monitor the quality of service and conduct the periodical survey of such provided by the service providers; (k) inspect the equipment used in the network and recommend the type of equipment to be used by the service providers Section 12(l) Where the Authority considers it expedient to do so, it may, by order in writing, 18 (a) call upon any service provider at any time to furnish in writing such information or explanation relating to its affairs as tile Authority may require; or (b) appoint one or more persons to make an inquiry in relation to the affairs of any service provider; and (c) direct any of its officers or employees to inspect the books of account or other documents of any service provider. CONDITION - 2: ACCEPTANCE TESTING & QUALITY ASSURANCE: 2.1 ACCEPTANCE TESTING: The Acceptance Testing of any interface equipment connected to the DOT network will be carried out by the Acceptance Testing party of the DOT. The Acceptance Testing schedule shall be mutually agreed. Adequate time, not less than 30 days, will be given by the licensee for these tests. 2.2 QUALITY ASSURANCE: The Telecom Authority shall have right to check and measure the quality of service provided by the licensee at any time during the currency of the licence. The LICENSEE shall submit to the LICENSOR a half yearly report on the quality of SERVICE offered to its subscribers indicating the levels of performance achieved. CONDITION 3: DELIVERY OF THE SERVICES 3.1 The LICENSEE shall be responsible for installation, testing and commissioning of all the equipment to provide the services. It will be the responsibility of the Licensee to obtain IP address, domain name etc. from competent authority. (In case the IP addresses are taken from the Department of Telecommunications, the same are nonportable and have to be returned to DOT at the termination of connectivity contract.) However, all performance tests required for successful commissioning of the service may also be carried out by the LICENSOR, if it so desires, before the services are commissioned for public use. The LICENSEE shall supply all necessary literature, drawings, installation materials regarding the equipment installed for commissioning of the services, The LICENSEE shall supply all the tools, test instruments and other accessories to the testing party of the LICENSOR for conducting the tests. 3.2 The licensee shall provide service within 18 months from the date of signing of the licence agreement. Date of commercial launch will be the date on which full commercial services are provided to the subscribers. 19 3.3 The list of performance tests will be furnished by the LICENSEE one month prior to the date of commissioning to the LICENSOR. 3.4 In case the Licensor chooses to conduct performance test, delay caused due to rectification of deficiencies, if any, in the commissioning/provision of SERVICES, will be to the account of the LICENSEE. 3.5 The LICENSEE shall provide the SERVICE in the Service Area to any individual or legal person including customers located in Rural Belt(s) of the licensed service area without any discrimination unless directed by the LICENSOR in writing to so refuse. 3.6 The LICENSEE indemnifies the LICENSOR against all actions brought against the LICENSOR for breach of privacy or unauthorised interruption of data transmitted by the subscribers. CONDITION 4: COMPLAINT - BOOKING AND TREATMENT 4.1 The LICENSEE shall be responsive to the complaints lodged by his subscribers. He shall rectify the defects within the MTTR specified. 4.2 The LICENSEE shall equip himself with adequate system to deal with the complaints from his subscribers, test the part of the equipment and external plant wherever relevant, and take necessary corrective measures to bring the faulty elements back into satisfactory operation. It shall maintain the history sheets for each installation, statistics and analysis on the overall maintenance status. 4.3 The Licensee shall log all complaints reported by his subscribers chronologically and with details of action taken on the same. CONDITION 5: RIGHT TO INSPECT The LICENSOR, or its authorised representative shall have the right to inspect the internet nodes set up by the Licensee to give service to his subscribers. The LICENSOR shall, in particular but not limited to, have the right to have access to leased lines, junctions, terminating interfaces, hardware/software, memories of semiconductor, magnetic and optional varieties, wired options, distribution frames, and to enter into dialogue with the system through Input/output devices or terminals. The LICENSEE will provide the necessary facilities for continuous monitoring of the same, if required by the LICENSOR or its authorised representative(s). The LICENSOR will ordinarily carry out inspection after reasonable notice except in circumstances where giving such a notice will defeat the very purpose of the inspection. 20 CONDITION 6: FORCE - MAJEURE If, at any time during the continuance of this licence, the performance in whole or in part, by either party, of any obligation under it is prevented or delayed, by reason of war or hostility, acts of the public enemy, civil commotion, sabotage, fire, flood, Act of State or direction from Statutory Authority, explosion, epidemic, quarantine restriction, strikes and lock-outs (as are not limited to the establishments and facilities of the LICENSEE), or act of GOD (each hereinafter referred to as EVENT), provided notice of happenings of any such EVENT is given by either party to the other, within 21 days from the date of occurrence thereof, neither party shall, by reason of such EVENT, be entitled to terminate the licence, nor shall either party have any such claims for damage as against the other, in respect of such non-performance or delay in performance. Provided SERVICE under the licence shall be resumed as soon as practicable, alter such EVENT comes to an end or ceases to exist. The decision of the LICENSOR as to whether the SERVICE may be so resumed (and the time frame within which the SERVICE may be resumed) or not, shall be final and conclusive. However, the Force Majeure events noted above will not in any way cause extension of the period of Licence and will also not be a ground for non- payment of Licence fee. CONDITION 7: INTERCONNECTION WITH OTHER NETWORKS 7.1 Direct interconnectivity between two separately licensed ISPs shall be permitted. Authorised public/Government organisations will be allowed to provide INTERNET Gateway access including international leased circuits directly without going through VSNL Gateways. Private ISPs are allowed to provide such Gateways after obtaining Security clearances for which the Interface of Private ISPs shall only be with the Telecom Authority. 7.2 The licensee may obtain the transmission link on lease from DOT, Licensed Basic Service Operators, Railways, State Electricity Boards, National Power Grid Corporation or any other operator specially authorised to lease such lines to the ISPs. The licensee may also establish its own transmission links within its service area for carrying traffic originated and terminated by his subscribers, provided that such capacities are not available from any other authorised agencies and subject to permission of Telecom Authority. 7.3 An ISP may provide Internet Service to any VSAT subscriber (who could be served by a shared hub commercial service provider or captive private VSAT network), if the VSAT is located within the service area of the ISP. For this purpose, a direct interconnection of VSAT or VSAT-hub through leased line obtained from an authorised provider to the ISP's node/server shall be permitted only for the flow of Internet traffic. The existing Licence for Closed Users Group Domestic 64 KBPS Data Network via Insar Satellite System does not grant long distance carrier rights to the licensee. The ISP shall provide to the Telecom Authority a monthly statement of VSAT subscribers served with 21 their locations and details of leased line interconnection with the VSAT hub. The VSAT hub, however, need not be located in the service area of the ISP. 7.4 Resources required for interconnecting the licensee's network to the network of upstream internet access provider (DOT/VSNL etc.) or any other service provider licensed by the Telecom Authority including time frame for provision of the same, will be mutually agreed between the parties concerned. The resources may refer to include, but not limited to physical junctions. PCM derived channels, private wires, leased lines, data circuits and other network elements. The licensee shall apply for and obtain the network resources from the concerned parties. The tariff of such network resources is outside the scope of this licence agreement. Licensor will have no obligation to obtain such resources from other parties 7.5 Interconnectivity Requirements: Private ISPs shall use IP (Internet Protocol) in conjunction with Transmission Control Protocol (TCP) and shall meet the interface requirements of the Internet Access Providers such as DOT/MTNL/VSNL to whose network, his node is connected. Some of the interfaces required are given below: Interface Requirements (i) Subscriber Dial up Access 2 wire access over PSTN for modern interface. 2 wire dial up access on ISDIN Basic &- Primary rate interfaces. (ii) Leased Line Interface 64K, N x 64K or 2.048 Mb/s, IN x 2.048 Mb/s Leased lines. Frame Relay. X.25 ATM G. 703 Access to internet through authorised Cable Operator shall be permitted without additional licensing subject to applicable Cable Laws (The Cable Television Networks (Regulation) Act, 1995) as modified from time to time. 'Last mile' linkages shall be freely permitted within Local Area either by fibre optic or radio communication for ISPs. In case of radio links, clearance from WPC wing or the DOT shall be required to be obtained by the ISPs to avoid frequency interference. 7.6 QUALITY OF SERVICE: The quality of service over internet is not defined as yet. As such, the QUALITY OF SERVICE is not being defined for the time being. However, it may be defined at a later date based on the experience gained and inputs from the Internet Engineering Task Force (IETF). 22 CONDITION 8: REQUIREMENT TO FURNISH INFORMATION TO THE LICENSOR/TELECOM AUTHORITY 8.1 Subject to Condition 8.2, the LICENSEE shall furnish to the TELECOM AUTHORITY, in such manner and at such times as the AUTHORITY may require, such documents, accounts, estimates, returns or other information. 8.2 The LICENSEE may not be required to procure or furnish a report which would not normally be available to it unless the TELECOM AUTHORITY considers the particular report essential to enable it to exercise its functions. 8.3 Engineering details: The LICENSEE shall furnish complete technical details including traffic for proper engineering, planning and dimensioning of the interconnect equipment at the network --network interface (NNI). CONDITION 9: EXTENSION OF LICENCE: This licence is valid initially for a period of FIFTEEN YEARS unless ------------- terminated earlier. If requested by the LICENSEE, extension may be granted by the LICENSOR at suitable terms for a period of five years or more at a time. The decision of the LICENSOR shall be final in the matter. The LICENSOR shall extend or refuse extension of the licence on a request received by it. Such request for extension may be made during 14th year of Licence and in any case before expiry of 14 years from effective date. If no request for extension is received by then, the licence shall automatically stand terminated as per due date. The licence will ordinarily be renewed on such terms and conditions as may be determined by the LICENSOR. CONDITION 10: TERMINATION OF THE LICENCE: 10.1 TERMINATION FOR DEFAULT: The LICENSOR may, without prejudice to any other remedy for breach of conditions of licence, by written notice of 30 days, issued to LICENSEE at its registered office 30 days in advance, terminate this licence in whole or part under any of the following circumstances: (a) if the LICENSEE fails to commission or deliver the SERVICE within the time period(s) specified in the licence or in any extension thereof, if granted by the LICENSOR. However, this does not prevent the licensee from commissioning the 23 service even after scheduled date of commissioning, provided the licence does not already stand terminated and the Performance Tests are satisfactory. (b) If the LICENSEE fails to perform any other obligation under the Licence including remittance of timely payments of Licence fee due to the LICENSOR and the LICENSEE does not rectify the failure within a notice period of 30 days or during such further period, as the LICENSOR may authorise in writing in this regard. In the event of such termination of licence, the amount equivalent to Performance Bank Guarantee (PBG) shall be recovered by encashing the PBG and money so recovered shall be forfeited. The Licensee shall not be entitled to any damages or compensation for such termination. 10.2 TERMINATION FOR INSOLVENCY: The LICENSOR may, at any time, terminate the licence without compensation to him, if the LICENSEE becomes bankrupt or otherwise insolvent or applies for being adjudicated as insolvent/bankrupt, provided such termination shall not prejudice or affect any right or action which has accrued or will accrue thereafter to the LICENSOR. The right of termination will arise on the LICENSEE being adjudicated or applying for being adjudicated as bankrupt. 10.3 TERMINATION FOR CONVENIENCE: If the LICENSEE desires to surrender the licence, it shall give an advance notice of 30 days to the Licensor to this effect. If the service is in operation, the licensee shall also intimate its subscribers of consequential withdrawal of service by serving a 15 days notice to them. The financial liability of the licensee company for termination of the licence for convenience shall be as below: (a) After start of service: If during the notice period, acceptable level of service is not delivered to the customer, the Licensee shall forfeit all claims on the Performance Bank Guarantee which shall be encashed and the amount shall be adjusted towards damages. (b) Before start of service: (Either prior to or after the scheduled date of commissioning). Amount equivalent to Performance Bank Guarantee (PBG) shall be recovered by encashment of PBG and money so recovered shall be forfeited. 10.4 TERMINATION FOR TRANSFER OF THE LICENCE: 24 The LICENSEE shall not, in any manner whatsoever, transfer the licensing rights granted to it, to any other party without written consent of Licensor. Any violation shall be construed as a breach of licence and the licence shall be terminated in accordance with the provisions as contained in condition 10.1 hereinabove. 10.5 ACTIONS PURSUANT TO TERMINATION OF LICENCE AS PER CLAUSES 10.1, 10.2, 10.3 AND 10.4 ABOVE: 10.5.1 In the event of termination of the licence, the LICENSOR may procure upon such terms and conditions and in such manner as deemed appropriate/fit, the required resources will make up for those not installed, not delivered or not brought into commission so as to enable provision of SERVICE and the LICENSEE shall be liable to the LICENSOR for any excess/extra costs for such corrective efforts. The criteria for determining the terms and conditions for such procurement will depend upon the market prices, prevailing at the time of procurement. The decision of the LICENSOR in this matter shall be final in all respects. 10.5.2 Whenever the licence is terminated or not extended, the LICENSOR may, in order to ensure the continuity of the SERVICE, take such steps, as are necessary, including the following: (i) permit the Department of Telecommunications/MTNL or its successor to take over; or (ii) issue licence to another Indian Company for running the SERVICE. The LICENSEE shall facilitate taking over by DOT/MTNL or the new LICENSEE all those assets as are essential for the continuity of the SERVICE. 10.5.3 During the period when a notice for termination of licence is pending, the Quality of Service to the Subscribers shall be maintained. If the SERVICE quality is not maintained, (during the notice period), it will be treated as breach of licence conditions and will be dealt with as such including recovery of damages. 10.5.4 The Performance Bank Guarantee, if due, shall be returned to the licensee company 6 months after the termination of the licence and after ensuring clearance of any dues which the licensee company is liable to pay. CONDITION 11: DISPUTES WITH OTHER PARTIES 11.1 In the event of any dispute of the LICENSEE with any other service provider or any party other than licensor due to any reason whatsoever, the dispute will be sorted out among themselves and LICENSOR will have no liability in any manner. However, in case of dispute arising with other parties due to non-observance of rules and regulations by the LICENSEE as provided in this licence, the LICENSOR will have full powers to take any action against licensee as is provided in the relevant clauses of this licence. The 25 LICENSEE undertakes to indemnify LICENSOR in respect of any action against LICENSOR for acts of commission or omission on the part of the LICENSEE, its agents and servants. CONDITION 12: ARBITRATION OF DISPUTES: 12.1 In the event of any question, dispute or difference between parties arising under the licence, or in connection therewith, except as to the matter, the decision of which is specifically provided under the licence, the same shall be referred to the sole arbitration of the TELECOM AUTHORITY or in case its designation has changed or its office is abolished, then, in such case, to the sole arbitration of the officer for the time being entrusted, whether in addition to his duties the functions of the TELECOM AUTHORITY or by whatever designation such officer may be called (hereinafter referred to as the said officer), and if the TELECOM AUTHORITY or the said officer is unable or unwilling to act as such, to the sole arbitration, of some other person appointed by the TELECOM AUTHORITY or the said officer. The arbitration proceedings shall be in accordance with the Indian Arbitration and Conciliation Act, 1996 and rules framed thereunder or any modifications or re-enactment thereof made from time to time. 12.2 There will be no objection to any such appointment that the Arbitrator is a Government Servant, or he has to deal with the matter to which the licence relates. The award of the arbitrator shall be final and binding on the parties. In the event of such Arbitrator, to whom the matter is originally referred, being transferred or vacating his office, or being unable to act for any reason whatsoever, in case the Telecom Authority or the said officer was himself acting as an officer, his successor in office shall act as an Arbitrator or may appoint some other person to act as an Arbitrator. In case the retiring Arbitrator was a person appointed by the Telecom Authority or the said officer, a new Arbitrator shall be appointed in his place by the Telecom Authority or the said officer and the new Arbitrator shall be entitled to proceed from the stage at which it was left out by his predecessor. 12.3 The venue of arbitration proceeding shall be the office of TELECOM AUTHORITY at New Delhi or such other place as the arbitrator may decide. CONDITION 13: FINANCIAL CONDITIONS 13.1 TARIFF: LICENSEE will be free to fix its own tariff to be charged from subscriber. The tariff shall be left open to be decided by market forces. The licensee company shall intimate the Telecom Authority, the tariff for the service to be charged from its subscribers and any changes thereof. However, the TRAI (Telecom Regulatory Authority of India) may review and fix a tariff at any time during the validity of the licence which scale of tariff shall be binding on the Licensee. 26 13.2 OWNERSHIP OF THE CUSTOMER PREMISES EQUIPMENT: The provision of Customer Premises Equipment (CPE) at subscriber's premises shall be responsibility of the subscriber. 13.3 THE COMMUNICATION RESOURCES & OTHER SUPPORT FACILITIES: LICENSEE will have to make its own arrangement for all infrastructure involved in providing the SERVICE. However, the charges for any communication resources required for the purpose of networking and delivery of Internet Traffic to the upstream network access provider, i.e., DOT/MTNL/VSNL/or other licensed service provider on the request of the LICENSEE will be at the rates fixed by the DOT/MTNL/VSNL or other licensed service provider from time to time. 13.4 The LICENSEE shall be bound by the terms and conditions of the licence granted as well as by such regulations and instructions as are issued by the LICENSOR and/or its successors from time to time. 13.5 PREPARATION OF ACCOUNTS: The LICENSEE shall; (a) maintain and prepare accounting records, sufficient to show and explain its transactions in respect of each financial year or part thereof of the LICENCE during which this Licence is in force, or of such lesser periods as the LICENSOR may specify, fairly presenting the costs (including capital costs), revenue and financial position of the LICENSEE's business and including a reasonable assessment of the assets employed in and liabilities attributable to the LICENSEE's business. (b) procure in respect of each of those accounting statements prepared in respect of a financial year or part thereof of the LICENSEE, a report by the LICENSEE'S Auditor stating whether in his opinion that statement is adequate for the purposes of the condition; and (c) deliver to the LICENSOR a copy of each of the accounting statements not later than six months after the end of the period to which they relate. In this condition: the "Auditor" means the LICENSEE's auditor for the time being appointed in accordance with the requirements of the Companies' Act, 1956. 13.6 PERFORMANCE BANK GUARANTEE (PBG): A performance bank guarantee of Rs. 2.00 crores for category 'A' Service Area, Rs. 20.00 lakhs for each category 'B' Service Area and Rs. 3.00 lakhs for each category 'C' Service Area valid for two years from any Scheduled Bank in the prescribed form (Schedule 'D' of the draft Licence Agreement) shall be submitted along with the application for each service area. The licensee will be liable to extend the validity of 27 Performance Bank Guarantee two months prior to its date of expiry on its own without demand from the Licensor for a further period of one year on year to year basis. On any failure to do so which failures shall amount to the breach of this Licence, the performance bank guarantee will be encashed without giving any notice. This is without prejudice to any other action that may be taken under the terms and conditions of the licence. 13.7 LICENSOR, without prejudice to its rights to any other remedies, is free to encash the Performance Bank Guarantee in part or in full, in case of any breach of terms and conditions of the licence by the LICENSEE including non- payment of licence fee etc. 13.8 Breach or non-fulfillment of licence conditions may come to the notice of the LICENSOR through complaints or as part of regular monitoring. Wherever considered necessary, LICENSOR will conduct an inquiry to determine whether there has been any breach of the terms and conditions of the licence. The LICENSEE will be given an opportunity of hearing before any action adverse to his interest is taken. The LICENSOR shall decide in each case the penalty to be levied for any breach of the terms and conditions of the Licence. If the penalty is not discharged or complied with, the LICENSOR has the right to encash, in part or in full, the Performance Bank Guarantees. 13.9 CHARGES FOR NETWORK RESOURCES The LICENSEE shall also separately pay charges for network resources provided to the Licensee on licensee's request by the Department of Telecommunications /MTNL/VSNL/other licensed service providers at rates applicable from time to time. CONDITION 14: SETOFF Any sum of money due and payable to the LICENSEE under this licence may be appropriated by the Government or any other person or persons including contracting through the Government of India and the same may be set off against any claim of the Government or such other persons, for payment of a sum of money arising out of this licence or under any other licence made by the LICENSEE with the Government or such other person or persons including TELECOM AUTHORITY. 28 SCHEDULE `C' Part III. COMPLIANCE STATEMENT This company, hereby, agrees to fully comply with all General, Technical, Commercial and Financial terms and conditions of the Application Form, Guidelines and General Information on Internet Services and amendments/clarifications issued by the Telecom Authority, without any deviation and reservations. The company, hereby, agrees and undertakes to fully comply with all terms and conditions stipulated in this Licence Agreement without any deviation and reservation. Signature of the authorised signatory of the operating company (Licensee). For and on behalf of M/s SATYAM INFOWAY LIMITED ----------------------- (Name of the Company) [illegible] 29 SCHEDULE - D PROFORMA FOR PERFORMANCE BANK GUARANTEE To The President of India Acting through the Telegraph Authority In consideration of the President of India acting through the Telegraph Authority (hereinafter referred to as 'the Authority') having agreed to grant a licence to M/s _________________________ of _________________________ (hereinafter called the 'LICENSEE') to establish, maintain and operate Internet service (hereinafter called 'the SERVICE') on the terms and conditions contained in the said Licence, which interalia provides for production of a Bank Guarantee to the extent of Rs ____________________________________ ( in words) for the service by way of security for the due observance and performance of the terms and conditions of the said licence we ______________________ (indicate the name and address and other particulars of the Bank) (hereinafter referred to as 'the Bank') at the request of the LICENSEE hereby irrevocably and unconditionally guarantee to the Authority that the Licensee shall render all necessary and efficient services which may be required to be rendered by the LICENSEE in connection with and/or for the performance of the said LICENSEE and further guarantees that the service which shall be provided by the LICENSEE under the said licence, shall be actually performed in accordance with terms and conditions of the LICENCE to the satisfaction of the Authority. 2. We, the bank hereby undertake to pay to the Authority an amount not exceeding Rs _____________ (Rupees ___________ only) against any loss or damage caused to or suffered or would be caused to or suffered by the Authority by reason of any breach by the said LICENSEE of any of the terms and conditions contained in the said licence. 3. We, the bank hereby, in pursuance of the terms of the said licence, absolutely, irrevocably and unconditionally guarantee as primary oblige and not merely as surety the payment of an amount of Rs ______________ (Rupees ____________________ only) to the Authority to secure due and faithful performance by the LICENSEE of all his/their obligations under the said Licence. 4. We, the bank hereby also undertake to pay the amounts due and payable under this guarantee without any demur, merely on a demand from the Authority stating that the amount claimed is due by way of loss or damage caused or would be 30 caused to or suffered by the Authority by reason of breach by the said LICENSEE of any of the terms or conditions contained in the said Licence or by reason of the LICENSEE's failure to perform any of its obligations under the said Licence. 5. We, the bank, do hereby agree that the decision of the Authority as to whether the licensee has failed to or neglected to perform or discharge his duties and obligations as aforesaid and/or whether the service is free from deficiencies and defects and is in accordance with or not of the terms & conditions of the said Licence and as to the amount payable to the Authority by the Bank hereunder shall be final and binding on the Bank. WE, THE BANK, DO HEREBY DECLARE AND AGREE that: (a) the Guarantee herein contained shall remain in full force and effect for a period of two years from the date hereof and that it shall continue to be enforceable till all the dues of the Authority and by virtue of the said Licence have been fully paid and its claims satisfied or discharged or till Authority satisfies that the terms and conditions of the said licence have been fully and properly carried out by the said LICENSEE and accordingly discharged this guarantee. (b) the Authority shall have the fullest liberty without our consent and without affecting in any manner our obligations hereunder to vary any of the terms and conditions of the said Licence or to extend time of performance of any obligations by the said LICENSEE from time to time or to postpone for any time or from time to time any of the powers exercisable by the Authority against the said LICENSEE and to forbear or to enforce any of the terms and conditions relating to the said Licence and we shall not be relieved from our liability by reason of any variation or extension being granted to the said LICENSEE or forbearance act or omission on the part of the Authority or any indulgence by the Authority to the said LICENSEE or to give such matter or thing whatsoever which under the law relating to sureties would but for this provision, have effect of so relieving us. (c) any claim which we have against the LICENSEE shall be subject and subordinate to the prior payment and performance in full of all the obligations of us hereunder and we will not without prior written consent of the Authority exercise any legal right or remedy of any kind in respect of any such payment or performance so long as the obligations of us hereunder remains owing and outstanding. (d) This guarantee shall be irrevocable and the obligations of us herein shall not be conditional of any prior notice by us or by the LICENSEE. 31 7. We the BANK undertake not to revoke this Guarantee during __________ except with the previous consent of the Authority in writing. Dated: __________________ day for___________________________ (name of the Bank) witness: 1.______________________________ 2.__________________________________ ________________________________ __________________________________ ________________________________ __________________________________ 32 Certificates: 1. I hereby certify that I have carefully read the guidelines and draft License Agreement on Internet Service. I fully comply with the terms and conditions therein. 2. I understand that this application, if found incomplete in any respect and/or if found with conditional compliance or not accompanied with the processing fee and/or requisite bank guarantee, shall be summarily rejected. 3. I understand that processing fee is non-refundable irrespective of whether or not the license is granted to me. 4. I undertake to sign the Licence Agreement, a draft of which has been supplied to me within the prescribed time notified to me, failing which my application shall be rejected and processing forfeited. 5. I understand that all matters relating to the application or licence if granted to me will be subject to jurisdiction of courts in Delhi/New Delhi only. 6. I understand that such companies and their allied or sister concerns who have failed to carry out the contractual obligations with regard to other Telecom Service Licenses granted under Section 4 of Indian Telegraph Act, 1885 shall be granted ISP license on the condition that any decision with regard to said default or breach whenever taken at the discretion of the Central Government will be applicable in all respects on me. *7. (a) I certify that none of the companies mentioned in Item 13 of the application form are in default of the conditions of license granted under Section 4 of Indian Telegraph Act, 1885. * - strike (a or b) whichever is not applicable. 8. I understand that if at any time any averments made or information furnished for obtaining the licence is found incorrect, my application shall be liable to be rejected and any license granted on the basis of this application shall be liable for termination. Date: 12-11-98 For Satyam Infoway Ltd. Place: Delhi Authorised Signatory Signature and name of the Authorised Signatory (Company's Seal) 33 EX-10.4 12 BANK GUARANTEE, DATED 04/01/1999 EXHIBIT 10.4 [INDIAN CURRENCY -- FIFTY RUPEE NOTE] PROFORMA FOR PERFORMANCE BANK GUARANTEE To The President of India acting through the Telegraph Authority In consideration of the President of India acting through the Telegraph Authority (hereinafter referred to as 'the Authority') having agreed to grant a licence to Satyam Infoway Limited, 35 Velachery Road, Little Mount, Chennai 600 015, (hereinafter called the 'LICENSEE' to establish, maintain and operate Internet service (hereinafter called the SERVICE') on the terms and conditions contained in the said Licence, which interalia provides for production of a Bank Guarantee to the extent of Rs. 2,00,00,000/- (Rupees two crores only) for the service by way of security for the due observance and performance of the terms and conditions of the said licence, we IDBI Bank Ltd., a company incorporated under the Companies Act 1956 and a banking company within the meaning of the Banking Regulation Act, 1949 and having its registered office at Chaturvedi Mansion, 2nd Floor, 26/4 Old Palasia, Agra-Bomaby, Road, Indore 452 001 and among other places a branch at P.M. Towers, 37 Greams Road, Chennai 600 006 (hereinafter referred to as 'the Bank') at the request of the LICENSEE hereby irrevocably and unconditionally guarantee to the Authority that the Licensee shall render all necessary and efficient services which may be required to be rendered by the LICENSEE in connection with and/or for the performance of the said LICENSEE and further guarantees that the service which shall be provided by the LICENSEE under the said licence, shall be actually performed in accordance with terms & conditions of the LICENCE to the satisfaction of the Authority. 2. We, the bank hereby undertake to pay to the Authority an amount not exceeding Rs. 2,00,00,000/- (Rupees two crores only) against any loss or damage caused to or suffered or would be caused to or suffered by the Authority by reason of any breach by the said LICENSEE of any of the terms and conditions contained in the said licence. 3. We, the bank hereby, in pursuance of the terms of the said licence, absolutely, irrevocably and unconditionally guarantee as primary obliger and not merely as surety the payment of an amount of Rs. 2,00,00,000/- (Rupees two crores only) to the Authority to secure due and faithful performance by the LICENSEE of all his/their obligations under the said Licence. 4. We, the bank hereby also undertake to pay the amounts due and payable under this guarantee without any demur, merely on a demand from the Authority stating that the amount claimed is due by way of loss or damage caused or would be caused to or suffered by the Authority by reason of breach by the said LICENSEE of any of the terms or conditions contained in the said Licence or by reason of the LICENSEE's failure to perform any of it's obligations under the said Licence." 5. We, the bank, do hereby agree that the decision of the Authority as to whether the licensee has failed to or neglected to perform or discharge his duties and obligations as aforesaid and/or whether the service is free from deficiencies and defects and is in accordance with or not of the terms & conditions of the said Licence and as to the amount payable to the Authority by the Bank hereunder shall be final and binding on the Bank. 6. WE, THE BANK, DO HEREBY DECLARE AND AGREE that: a) the Guarantee herein contained shall remain in full force and effect for a period of two years from the date hereof and that it shall continue to be enforceable till all the dues of the Authority and by virtue of the said Licence have been fully paid and its claims satisfied or discharged or till Authority satisfies that the terms and conditions of the said licence have been fully and properly carried out by the said LICENSEE and accordingly discharged this guarantee. b) the Authority shall have the fullest liberty without our consent and without affecting in any manner our obligations hereunder to vary any of the terms and conditions of the said Licence or to extend time of performance of any obligations by the said LICENSEE from time to time or to postpone for any time or from time to time any of the powers exercisable by the Authority against the said LICENSEE and to forbear or to enforce any of the terms and conditions relating to the said Licence and we shall not be relieved from our liability by reason of any variation or extension being granted to the said LICENSEE or forbearance act or omission on the part of the Authority or any indulgence by the Authority to the said LICENSEE or to give such matter or thing whatsoever which under the law relating to sureties would but for this provision, have effect of so relieving us. c) any claim which we have against the LICENSEE shall be subject and subordinate to the prior payment and performance in full of all the obligations of us hereunder and we will not without prior written consent of the Authority exercise any legal right or remedy of any kind in respect of any such payment or performance so long as the obligations of us hereunder remains owing and outstanding. d) this Guarantee shall be irrevocable and the obligations of us herein shall not be conditional of any prior notice by us or by the LICENSEE. 7. We the BANK undertake not to revoke this Guarantee during its currency except with the previous consent of the Authority in writing. Notwithstanding anything contained hereinabove: (i) our liability under this guarantee shall not exceed Rs. 2,00,00,000/-(Rupees two crores only) (ii) this Bank Guarantee shall be valid up to and including 3rd November 2000. (iii) We are liable to pay the guaranteed amount or any part thereof under this Bank Guarantee only and only if you serve upon us a written claim or demand on or before the expiry of this guarantee. Dated this 4/th/ day of November 1998. For IDBI BANK LTD. [IDBI BANK LTD. SEAL] Witness: 1. 2. EX-10.11 13 USER AGMT, DATED 04/01/99 EXHIBIT 10.11 ------------- [INDIA CURRENCY -- ONE HUNDRED RUPEE NOTE] U S E R A G R E E M E N T - - - - - - - - - - - - - THIS AGREEMENT is made between - SATYAM COMPUTER SERVICES LIMITED, a Company incorporated under the Companies Act, 1956 and having its registered office at Mayfair Centre, Sardar Patel Road, Secunederabad - 500 003, State of Andhra Pradesh, (hereinafter referred to as "the Proprietor" which expression shall include its successors in interest and permitted assigns); of the ONE PART; AND SATYAM INFOWAY LIMITED, a Company organised under the Laws of India, whose principal place of business is at No. 35, Velachery Road, Little Mount, Chennai- 600 015, State of Tamil Nadu, India, (hereinafter referred to as "the User") of the OTHER PART. 2 WHEREAS A. The Proprietor is an internationally renowned software developer and distributor in, inter alia, computer software, and all related products/tools and equipments, books, stationery, instructional and teaching material, manuals, data sheets as mentioned in the trade mark applications filed at the Trade Mark Office, related products and in connection therewith is the Proprietor of the Trade Mark SATYAM applied for registration under numbers 769398, 769399, 769400, 769401 in class 9 and 16, (hereinafter called "the said Trade Mark"). The details of the applications are set our Schedule "A" annexed hereunder. B. The User is desirous of using the said Trade Mark on and in relation to the products dealt in by the User (hereinafter called "the contract products") and the proprietor is agreeable thereto; the contract products are listed in Schedule "B" annexed hereunder; and C. The relationship between the Proprietor and the User is contractual. NOW THIS AGREEMENT WITNESSETH that in consideration of mutual promises and covenants contained herein, the parties have agreed as follows: 1. The Proprietor grants to the User the non-assignable and non-sub-licensable right to use the said Trade Mark on and in relation to the Contract Products manufactured by or for the User for sale in India, as long as the Agreement remains in force. 3 2. At the request of the Proprietor, the User shall join the Proprietor in making application/s to the Registrar of Trade Marks for registration of the User as Registered User of the said Trade Mark. The User agrees to execute all applications, Agreement/s, deeds and documents as may be deemed necessary in this behalf by the Proprietor. The costs of prosecution of any such application/s shall be borne by the Proprietor. 3. The User shall not be the exclusive User of the said Trade Mark. Notwithstanding the aforegoing, the Proprietor shall have the right to Use the said Trade Mark. 4. The said Trade Mark shall be used by the User only on and in relation to the contract products manufactured by or for the User in accordance with the technical data, formulae, specifications, directions and quality control standards which shall, from time to time, be communicated or approved by the Proprietor and shall not be used on and in relation to any goods other that the contract products so handled. 5. The User shall at all times during the continuance of this Agreement permit the proprietor or any representative/s duly authorised by the Proprietor to enter any part or parts of any factory or premises where manufacture of the contract products and/or the method of manufacturing them and shall, when called upon to do so by the Proprietor, supply the Proprietor or its authorised representatives with samples of the contract products manufactured by or 4 for the User and in the event of any such samples being found sub-standard, upon which question the decision of the Proprietor will be final, the remainder of the batch from which the samples were drawn shall be disposed of in such manner as the Proprietor may direct but without any compensation whatsoever being payable to the User. 6. No remuneration whether by way of royalty or otherwise shall be payable to the Proprietor in respect of the use of the said Trade Mark. 7. The manner in which the said trade Mark may be used by the User on or in relation to the contract products and on labels, packaging, printed material or wheresoever shall be approved in writing by the Proprietor prior to any such use. The User shall, at all times, describe the said Trade mark in a manner as to clearly indicate that, that is the Trade Mark of the Proprietor and are being used by the User only by way of permitted use. neither during the term of this agreement, nor thereafter shall the User adopt or use any word or mark or design which is or is likely to be similar to or confusing with the said Trade Mark. 8. a) The User undertakes to bring to the notice of the Proprietor all causes of infringement and/or passing off of the said Trade Mark or registration or attempted registration of the said Trade Mark or of any Trade Marks similar thereto. The User undertakes both during the term of this Agreement and thereafter, at the request of the Proprietor, to render to the Proprietor all assistance which the Proprietor may require from time to time in respect of the defence 5 of the said Trade Mark including the registration and/or maintenance thereof and more particularly in the event that the Proprietor proceeds against any third party to restrain misuse of the said Trade Mark. In the event of the Proprietor undertaking an opposition to or any action to restrain or punish such act or acts, the User agrees to co-operate fully freely with the Proprietor and, if required by the Proprietor, shall permit the Proprietor to undertake such opposition or action in the name of the User. The costs of any such action shall be borne by the parties in such proportion as may be mutually agreed upon. b) If the User or any or its customers is sued for alleged misuse of the said Trade Mark, the User on service upon it of any notice of any such claim shall forthwith give the Proprietor written notice thereof and of all particulars thereof and the Proprietor shall have the right to participate in the defence of such suit at its own expense. Pursuant to the foregoing the User shall advise the proprietor of any misuse of the said Trade Mark of which it obtains knowledge and the Proprietor shall, in this sole discretion, decide whether or not to institute proceedings against the infringing party. 9. a) This Agreement shall stand terminated forthwith if the User goes into liquidation (otherwise than for the purpose of reorganisation of capital), has receiver of its assets appointed, makes composition with creditors, causes to carry on business or merges 6 or amalgamates with another company or there shall occur, in the opinion of the Proprietor, a substantial change in the management or control of the User. b) This Agreement may be terminated by the Proprietor forthwith if the User shall happen to be in breach of any of the terms and (if capable of rectification) shall have failed to rectify such breach within 30 days of a notice in this respect having been served on the User. c) This Agreement may be terminated by the Proprietor forthwith if circumstances beyond its control prevent the commercial exploitation of this Agreement, including (but without limiting the generality of the foregoing) strikes, lockouts of employees or employment disputes, riots or civil commotion, legislation of or intervention by any governmental authority. d) This Agreement may be terminated by the Proprietor forthwith if the group of companies to which the Proprietor belongs will lose for whatever reason its majority shareholding in User, and is not otherwise in a position to exercise control over the User. 10. Upon termination of this Agreement, for any reason whatsoever; a) The user shall immediately cease any further use of the said Trade Mark, labels, tradename/s or description which the User might have been authorised to use by the Proprietor. 7 b) The User hereby covenants and agrees that it shall hand over to the Proprietor or its duly authorised representative/s all dyes, blocks, labels, packaging printed material or the like featuring the said Trade Mark, tradename/s codes or description of any sort which is obtained from and was authorised to use by the Proprietor. c) The User undertakes to do all such acts as may be necessary to produce the cancellation of the User as a registered User if it has been recorded as such. The User shall join the Proprietor in an application to have the entry of the User as a registered User cancelled at the Trade Marks office, and for this purpose undertakes to do such acts or sign such papers or sign such papers or documents as may be requisite to this end and in the event of failure by the User to comply with the requirements of this provision, the Proprietor is hereby given full and irrevocable power of attorney by the User in the User's place and stead to do such acts or sign such papers or documents as may be necessary on behalf of the User to effect cancellation of the User as the registered User in respect of the said Trade Mark. d) No compensation or indemnity whatsoever shall be due or may be claimed by one party from the other by reason of the non-renewal or termination of this Agreement under Sub clause 9 c or 9 d above. 11. The User recognises the title of the proprietor to the said Trade Mark and shall not at any time, during the term of this Agreement or thereafter, do or suffer to be done any act or thing which will in any way challenge the validity of or impair the rights of the 8 Proprietor in and to the said Trade Mark. It is understood that the User shall not acquire and shall not claim any rights by virtue of this Agreement or through its use of the said Trade Mark. The User shall not use or register the said Trade Mark or any other Trade Mark similar thereto as a Trade Mark or as part of the User's corporate or trade name. The covenant aforegoing shall survive the termination of this Agreement. 12. The Proprietor shall have the exclusive right to assign its rights under this Agreement. This Agreement shall be binding on successors-in-title and assigns of the Proprietor, subject to the User duly performing its obligations under this Agreement; and the User shall have the uninterrupted right to use the said Trade Mark, irrespective of the assignment of the said Trade Mark to any third party by the Proprietor, but subject to clause 9 hereinabove. 13. This Agreement shall be governed by the laws of India. The substantive law for the purpose of interpreting this Agreement shall be the laws enacted for the purpose of determining contractual obligations between the parties. If any dispute or difference arises in respect of this Agreement, the same shall be referred to arbitration. The Arbitration shall be held in accordance with Arbitration and conciliation Act, 1996 or any other Arbitration law in force in India from time to time. The venue of the arbitration shall be Hyderabad, State of Andhra Pradesh. The award should be a speaking order passed on merits and in writing. 9 14. The Agreement will come into effect from 1 April, 1999. IN WITNESS WHEREOF the parties hereto have executed these presents the day month and year written against their respective signatures. SIGNED: For and on behalf of: SATYAM COMPUTER SERVICES LIMITED Signature: [illegible] Designation: Managing Director of Satyam Computer Services LTD, Seal: WITNESS ------- Signature: Name: SIGNED: For and on behalf of: SATYAM INFOWAY LIMITED, Signature: /s/ R. Ramaraj Designation:: Managing Director of Satyam Infoway Seal: WITNESS ------- Signature: Name: 10 Schedule "A" ------------ 1. Trade Mark : SATYAM LOGO Application No. : 769398 Date : 26-9-97 Class : 16 Goods : As mentioned below in Class 16. 2. Trade Mark : SATYAM (WORD) Application No. : 769400 Date : 26-9-97 Class : 16 Goods : As mentioned below in Class 16. Goods in Class 16: PAPER AND PAPER ARTICLES, CARDBOARD AND CARDBOARD ARTICLES, PRINTED MATTER, NEWSPAPERS AND PERIODICALS, BOOKS, BOOKS-BINDING MATERIAL, PHOTOGRAPHS, STATIONERY ADHESIVE MATERIALS (STATIONARY) ARTISTS MATERIALS, PAINT BRUSHES, TYPEWRITERS AND OFFICE REQUISITES (OTHER THAN FURNITURE) INSTRUCTIONAL AND TEACHING MATERIAL (OTHER THAN APPARATUS) PLAYING CARDS (PRINTERS) TYPE AND CLICHES (STEREOTYPE), COMPUTER HARD WARE AND SOFTWARE MANUALS COMPUTER DOCUMENTATION NAMELY, REFERENCE USER INSTRUCTIONAL AND GENERAL UTILITY MANUALS AND DATA SHEETS FOR COMPUTER HARDWARE AND SOFTWARE MANUFACTURES, PRODUCERS AND USERS ALL BEING GOODS INCLUDED IN CLASS 16". 11 3. Trade Mark : SATYAM LOGO Application No. : 769399 Date : 26-9-97 Class : 9 Goods : As mentioned below in Class 9. 4. Trade Mark : SATYAM (WORD) Application No. : 769401 Date : 26-9-97 Class : 9 Goods : As mentioned below in Class 9. Goods in Class 9: ELECTRIC AND ELECTRONIC GOODS, APPARATUS AND APPLIANCES AND PARTS, FITTINGS AND ACCESSORIES THEREOF INCLUDING MAGNETIC DATA CARRIERS, COMPUTERS, DATA PROCESSING EQUIPMENTS, INTERFACES, COMPUTER HARDWARE, COMPUTER PERIPHERALS, TERMINALS, DISC DRIVE AND DRIVERS, PRINTERS, MODEMS, FLOPPY DISCS, DISKETTE HOLDERS, MONITORS, INTEGRATED CIRCUITS, PRINTED CIRCUIT BOARDS, MAGNETIC RECORDING, ELECTRONIC TYPEWRITERS, VOLTAGE STABILIZERS, REGULATORS, TRANSFORMERS, INVERTORS, CONVERTORS, UNINTERRUPTED TREATABLE POWER SUPPLIERS, APPARATUS FOR RECORDING TRANSMISSION OR REPRODUCTION OF SOUND OR IMAGES, PHOTOGRAPHIC, CINEMATOGRAPHIC, OPTICAL WEIGHING, MEASURING, SIGNALING CHECKING AND TEACHING APPARATUS AND INSTRUMENTS, COINS, COUNTERFEED APPARATUS, TALKING MACHINES, CASH REGISTERS, CALCULATING MACHINES, FIRE EXTINGUISHER APPARATUS INCLUDED IN CLASS 9". Schedule "B" ------------ CONTRACT PRODUCTS EX-23.3 14 CONSENT OF KPMG PEAT MARWICK EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Satyam Infoway Limited: We consent to the use of our reports included herein and to the reference to our firm under the headings "Selected Financial Data" and "Experts" in the prospectus. /s/ KPMG Peat Marwick Chennai, India October 1, 1999 EX-23.4 15 CONSENT OF INTERNATIONAL DATA CORPORATION Exhibit 23.4 To whom it may concern: Per our discussion, you have approval to use the following statistics as stated below: International Data Corporation, or IDC, estimates that: . The number of Internet users in India will increase from 0.5 million at the end of 1998 to 4.5 million at the end of 2002.(1) . The installed base of personal and network computers in India will increase from 1.9 million at the end of 1998 to 8.2 million at the end of 2002.(2) . The number of on-line devices in India was 0.3 million in 1998.(3) . The number of online devices as a percentage of the installed computer base in India was 11.0% in 1998.(4) . The amount of Internet commerce revenues in India will increase from $3.5 million at the end of 1998 to $593.6 million at the end 2002.(5) . The number of Internet users in the United States was 62.8 million at the end of 1998.(6) . The number of Internet users in the Asia / Pacific Region was 10.2 million at the end of 1998.(7) . The number of online devices in the United States was 87.4 million at the end of 1998.(8) . The number of online devices in the Asia / Pacific Region was 9.5 million at the end of 1998.(9) . The number of online devices as a percentage of the installed computer base in the United States was 54.5% at the end of 1998.(10) . The number of online devices as a percentage of the installed base in the Asia / Pacific Region was 24.9% at the end of 1998.(11) . The total number of Internet users worldwide will increase from 142.2 million at the end of 1998 to 398.6 million at the end of 2002.(12) . Revenues from Internet services worldwide such as web hosting will increase from 770 million at the end of 1998 to 11,825 million at the end of 2002.(13) _______________________ (1) IDC Report 19127, Internet India; the One-Rupee Market!, p. 5. (2) IDC Bulletin (Analyst: Richard Jacobson), Asia / Pacific Internet Infrastructure, p. 2. (3) IDC Report 18697, The Internet Market in Asia Pacific (excluding Japan) 1997-2003., p. 120. (4) Source: IDC. (5) IDC Bulletin (Analyst: Richard Jacobson), Asia / Pacific Internet Infrastructure, p. 2. (6) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 17. (7) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 19. (8) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 17. (9) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 19. (10) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 17. (11) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 19. (12) IDC Report 19262, The Global Market Forecast for Internet Usage and Commerce, p. 3. (13) IDC Report 16894, Web Hosting and E-Commerce Service Providers, p.7. . Revenues from Internet services worldwide such as e-commerce spending will increase from 50.4 billion at the end of 1998 to 733.6 billion at the end of 2002.(14) Sincerely /s/ Alexa McCoughan [Alexa McCoughan Senior Vice President] -----END PRIVACY-ENHANCED MESSAGE-----