-----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, JzVAyfmWPVrarccXidlhGufEPmD2Kmjq9rZMDhKhIXOfdrqXOng+zUwOYL8yDu8n 7ih+fvZL1G4GiSJruGZlzg== 0001012870-00-000192.txt : 20000202 0001012870-00-000192.hdr.sgml : 20000202 ACCESSION NUMBER: 0001012870-00-000192 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOSYS TECHNOLOGIES LTD CENTRAL INDEX KEY: 0001067491 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 58176235 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 000-25383 FILM NUMBER: 511224 BUSINESS ADDRESS: STREET 1: ELECTRONICS CITY HOSUR RD STREET 2: BANGALORE KARNATAKA INDIA BUSINESS PHONE: 0119180852 MAIL ADDRESS: STREET 1: ELECTRONIC CITY HOSUR RD STREET 2: BANGALORE KARNATAKA INDIA 6-K 1 FORM 6-K FOR PERIOD ENDED 12/31/1999 United States Securities and Exchange Commission - -------------------------------------------------------------------------------- Washington, DC 20549 FORM 6-K Report of Foreign Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the quarter ended December 31, 1999 Commission File Number 333-72195 INFOSYS TECHNOLOGIES LIMITED (Exact name of Registrant as specified in its charter) Not Applicable (Translation of Registrant's name into English) Bangalore, Karnataka, India (Jurisdiction of incorporation or organization) Electronics City, Hosur Road, Bangalore, Karnataka India 561 229 +91-80-852-0261 (Address of principal executive offices) Indicate by check mark registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ...........x........... Form 40-F ....................... Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of 1934. Yes ............................. No ...........x.................. If "Yes" is marked, indicate below the file number assigned to registrant in connection with Rule 12g 3-2(b). Not applicable. - -------------------------------------------------------------------------------- 1 of 32 Currency of Presentation and Certain Defined Terms Unless the context otherwise requires, references herein to the "company" or to "Infosys" are to Infosys Technologies Limited, a limited liability company organized under the laws of the Republic of India. References to "U.S." or "United States" are to the United States of America, its territories and its possessions. References to "India" are to the Republic of India. Yantra Corporation, a Delaware Corporation ("Yantra"), in which the company holds a minority interest, is considered a subsidiary of the company for purposes of Indian GAAP. "Infosys" is a registered Indian trademark of the company. All other trademarks or tradenames used in this Quarterly Report on Form 6-K ("Quarterly Report") are the property of their respective owners. In this Quarterly Report, references to "$" or "Dollars" or "U.S. Dollars" are to the legal currency of the United States and references to "Rs" or "Rupees" or "Indian Rupees" are to the legal currency of India. The company's financial statements are presented in Indian Rupees and translated into U.S. Dollars and are prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). References to "Indian GAAP" are to Indian generally accepted accounting principles. Except as otherwise specified, financial information is presented in Dollars. References to a particular "fiscal" year are to the company's fiscal year ended March 31 of such year. Unless otherwise specified herein, financial information has been converted into Dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank (the "Noon Buying Rate") on December 31, 1999, which was Rs. 43.51 per $1.00. For the convenience of the reader, this Quarterly Report contains translations of certain Indian rupee amounts into U.S. Dollars which should not be construed as a representation that such Indian Rupee or U.S. Dollar amounts referred to herein could have been, or could be, converted to U.S. Dollars or Indian Rupees, as the case may be, at any particular rate, the rates stated below, or at all. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. Forward-Looking Statements May Prove Inaccurate In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of section 27a of the Securities Act of 1933, as amended, and section 21e of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "management's discussion and analysis of financial condition and results of operations" and elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. In addition, readers should carefully review the other information in this annual report and in the company's periodic reports and other documents filed with the Securities and Exchange Commission ("SEC") from time to time. - -------------------------------------------------------------------------------- 2 of 32 Part I - Financial Information
- ------------------------------------------------------------------------------------------------------------------------- Item 1. Financial Statements Balance Sheets as at - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 (Unaudited) (Unaudited) (Audited) - ------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $106,789,758 $ 22,797,989 $ 98,874,963 Trade accounts receivable, net of allowances 31,814,100 21,270,407 20,056,678 Prepaid expenses and other current assets 8,661,562 5,302,824 5,735,323 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 147,265,420 49,371,220 124,666,964 Property, plant and equipment - net 39,761,952 22,795,198 23,900,313 Deferred tax assets 1,788,180 1,642,311 1,715,375 Investments 177,938 177,938 177,938 Other assets 6,191,282 2,595,128 3,197,006 - ------------------------------------------------------------------------------------------------------------------------- Total assets $195,184,772 $ 76,581,795 $153,657,596 ========================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 157,661 $ 81,400 $ 75,305 Client deposits 56,323 109,809 18,520 Other accrued liabilities 9,016,543 6,186,528 8,399,800 Income taxes payable 1,423,527 1,582,516 955,797 Unearned revenue 5,314,826 5,356,200 4,598,612 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 15,968,880 13,316,453 14,048,034 - ------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $ 0.16 par value*; 100,000,000 shares authorized 8,592,137 4,545,811 8,592,137 Issued and outstanding Equity Shares - 66,138,800, 64,068,800 and 66,138,800 as of December 31, 1999, December 31, 1998 and March 31, 1999 Additional paid-in-capital 121,355,706 44,802,455 120,849,511 Accumulated other comprehensive income (13,728,428) (9,384,666) (9,100,662) Deferred compensation - Employee Stock Offer Plan (18,880,344) (25,813,924) (21,686,799) Retained earnings 81,876,821 49,942,298 40,955,375 Loan to trust - (826,632) - - ------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 179,215,892 63,265,342 139,609,562 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $195,184,772 $ 76,581,795 $153,657,596 =========================================================================================================================
See accompanying notes to financial statements * The figures reflect the 2-for-1 Stock Split approved by the Shareholders on December 29, 1999 Assets December 31, 1999 - ------ ----------------- Property, plant and equipment 20% Accounts Receivable 16% Others 9% Cash & cash equivalents 55% Liabilities and Stockholders' Equity December 31, 1999 - ------------------------------------ ----------------- Stockholders' equity 92% Current liabilities 8% ________________________________________________________________________________ 3 of 32
Statements of income - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended Year ended December 31, December 31, March 31, ------------------------------------------------------------ 1999 1998 1999 1998 1999 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) - ----------------------------------------------------------------------------------------------------------------------------------- REVENUES Revenues $52,158,059 $33,041,304 $139,828,639 $84,943,521 $120,955,226 Cost of revenues 28,524,750 16,416,373 75,248,686 46,023,361 65,331,006 - ----------------------------------------------------------------------------------------------------------------------------------- Gross profit 23,633,309 16,624,931 64,579,953 38,920,160 55,624,220 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Selling, general and administrative expenses 6,647,497 4,333,587 18,129,548 11,474,470 16,199,055 Amortization of deferred stock compensation expense 1,293,002 1,480,903 3,836,104 2,404,057 3,645,576 Compensation arising from stock split - - - - 12,906,962 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 7,940,499 5,814,490 21,965,652 13,878,527 32,751,593 - ----------------------------------------------------------------------------------------------------------------------------------- Operating income 15,692,810 10,810,441 42,614,301 25,041,633 22,872,627 Equity in loss of deconsolidated subsidiary - (419,044) - (2,085,887) (2,085,887) Other income, net 1,636,637 792,084 7,052,919 1,113,647 1,536,998 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 17,329,447 11,183,481 49,667,220 24,069,393 22,323,738 Provisions for income taxes 1,912,519 1,601,802 6,218,902 3,552,566 4,877,650 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $15,416,928 $ 9,581,679 $ 43,448,318 $20,516,827 $ 17,446,088 - ----------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER EQUITY SHARE* Basic $0.24 $0.16 $0.66 $0.34 $0.28 Diluted $0.24 $0.16 $0.66 $0.34 $0.28 WEIGHTED EQUITY SHARES USED IN COMPUTING EARNINGS PER EQUITY SHARE Basic 65,643,334 61,080,000 65,667,845 61,080,000 61,378,850 Diluted 65,718,420 61,401,018 65,692,873 61,249,208 61,507,380 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements *The basic and diluted earnings per Equity Share have been retroactively restated to reflect the increased number of Equity Shares outstanding resulting from the Stock Split of 2-for-1 approved by the shareholders on December 29,1999. - -------------------------------------------------------------------------------- ________________________________________________________________________________ 4 of 32 Statements of Stockholders' Equity - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- Equity Shares Additional paid- Comprehensive Accumulated Deferred Shares Par value in Capital income Other compensation - Comprehensive Employee Stock income Offer Plan - ---------------------------------------------------------------------------------------------------------------------------------- Balance as of March 31, 1997 58,076,800 $2,310,270 $ 15,712,247 - $(3,531,811) $(3,507,715) - ---------------------------------------------------------------------------------------------------------------------------------- Stock split - 2,028,521 - - - - Cash dividends declared - - - - - - Common stock issued upon 5,992,000 207,020 1,813,330 - - - exercise of warrants Compensation related to stock - - 6,890,343 - - (6,890,343) option grants Amortization of compensation - - - - - 2,566,613 related to stock option grants Comprehensive income Net income - - - $12,344,188 - - Other comprehensive income Translation adjustment - - - (3,510,418) (3,510,418) - Comprehensive Income - - - $ 8,833,770 - - - ----------------------------------------------------------------------------------------------------------------------------------- Balance as of March 31, 1998 64,068,800 4,545,811 24,415,920 - (7,042,229) (7,831,445) - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends declared - - - - - - Compensation related to stock - - 20,386,535 - - (20,386,535) option grants Amortization of compensation - - - - - 2,404,056 related to stock option grants Comprehensive income Net income - - - 20,516,827 - - Other comprehensive income Translation adjustment - - - (2,342,437) (2,342,437) - Comprehensive Income - - - $18,174,390 - - Adjustment on deconsolidation - - - - - - of subsidiary Repayment of loan to trust - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 1998 64,068,800 $4,545,811 $ 44,802,455 - $(9,384,666) $25,813,924) - ----------------------------------------------------------------------------------------------------------------------------------- Loan to Trust Retained Total earnings stockholders' equity - -------------------------------------------------------------------------------------- Balance as of March 31, 1997 $ (24,502) $19,681,740 $ 30,640,229 - -------------------------------------------------------------------------------------- Stock split - (2,028,521) - Cash dividends declared - (2,003,139) (2,003,139) Common stock issued upon (911,863) - 1,108,487 exercise of warrants Compensation related to stock - - - option grants Amortization of compensation - - 2,566,613 related to stock option grants Comprehensive income Net income - 12,344,188 12,344,188 Other comprehensive income Translation adjustment - - (3,510,418) Comprehensive Income - - - - -------------------------------------------------------------------------------------- Balance as of March 31, 1998 (936,365) 27,994,268 41,145,960 - -------------------------------------------------------------------------------------- Cash dividends declared - (1,037,628) (1,037,628) Compensation related to stock - - - option grants Amortization of compensation - - 2,404,056 related to stock option grants Comprehensive income Net income - 20,516,827 20,516,827 Other comprehensive income Translation adjustment - - (2,342,437) Comprehensive Income - - - Adjustment on deconsolidation - 2,468,831 2,468,831 of subsidiary Repayment of loan to trust 109,733 - 109,733 - -------------------------------------------------------------------------------------- Balance as of December 31, 1998 $ (826,632) $ 49,942,298 $ 63,265,342 - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 5 of 32
Statements of Stockholders' Equity - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Equity Shares Additional paid- Comprehensive Accumulated Shares Par value -in Capital income Other Comprehensive Income - --------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 1998 64,068,800 $ 4,545,811 $ 44,802,455 - $ (9,384,666) - --------------------------------------------------------------------------------------------------------------------------- Stock split - 3,800,949 - - - Cash dividends declared - - - - - Common stock issued 2,070,000 245,377 66,025,699 - - Compensation related to stock option grants - - 10,021,357 - - Amortization of compensation related to stock option grants - - - - - Comprehensive income Net income - - - (3,070,739) - Other comprehensive income Translation adjustment - - - 284,004 284,004 ------------- Comprehensive Income - - - (2,786,735) - ============= Repayment on loan to trust - - - - - --------------------------------------------------------------------------------------------------------------------------- Balance as of March 31, 1999 66,138,800 8,592,137 120,849,511 - (9,100,662) - --------------------------------------------------------------------------------------------------------------------------- Cash dividends declared - - - - - Common stock issued - - (523,454) - - Compensation related to stock option grants - - 1,029,649 - - Amortization of compensation related to stock option grants - - - - - Comprehensive income Net income - - - 43,448,318 - Other comprehensive income Translation adjustment - - - (4,627,766) (4,627,766) ------------- Comprehensive Income - - - $ 38,820,552 - - --------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 1999 66,138,800 $ 8,592,137 $ 121,355,706 - $ (13,728,428) - --------------------------------------------------------------------------------------------------------------------------- Statements of Stockholders' Equity - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Deferred Loan to Trust Retained Total compensation - earnings stockholders' Employee Stock equity Offer Plan - ------------------------------------------------------------------------------------------------------- Balance as of December 31, 1998 $ (25,813,924) $ (826,632) $ 49,942,298 $ 63,265,342 - ------------------------------------------------------------------------------------------------------- Stock split - - (3,800,949) - Cash dividends declared - - (2,115,235) (2,115,235) Common stock issued - - - 66,271,076 Compensation related to stock option grants (10,021,357) - - - Amortization of compensation related to stock option grants 14,148,482 - - 14,148,482 Comprehensive income Net income - - (3,070,739) (3,070,739) Other comprehensive income Translation adjustment - - - 284,004 Comprehensive Income - - - - Repayment on loan to trust - $ 826,632 - 826,632 - ------------------------------------------------------------------------------------------------------- Balance as of March 31, 1999 (21,686,799) - 40,955,375 139,609,562 - ------------------------------------------------------------------------------------------------------- Cash dividends declared - - (2,526,872) (2,526,872) Common stock issued - - - (523,454) Compensation related to stock option grants (1,029,649) - - - Amortization of compensation related to stock option grants 3,836,104 - - 3,836,104 Comprehensive income Net income - - 43,448,318 43,448,318 Other comprehensive income Translation adjustment - - - (4,627,766) Comprehensive Income - - - - - ------------------------------------------------------------------------------------------------------- Balance as of December 31, 1999 $ (18,880,344) - $ 81,876,821 $ 179,215,892 - -------------------------------------------------------------------------------------------------------
The figures reflect the 2-for-1 Stock Split approved by the Shareholders on December 29, 1999 See accompanying notes to financial statements ______________________________________________________________________________ 6 of 32 Statement of Cash Flows
Nine months ended December 31, Year ended March 31, 1999 1998 1999 (Unaudited) (Unaudited) (Audited) - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 43,448,318 $ 20,516,827 $ 17,446,088 Adjustments to reconcile net income to net cash provided by operating activities Gain on sale of property, plant and equipment (20,139) - - Depreciation 7,976,831 5,101,292 8,521,009 Deferred tax benefit (72,805) (552,363) (625,427) Gain on sale of investment in deconsolidated subsidiary - (620,958) (620,958) Amortization of deferred stock compensation expense 3,836,104 2,404,057 16,552,538 Loss relating to deconsolidated subsidiary - 2,085,887 2,085,887 Changes in assets and liabilities Accounts receivables (11,757,422) (11,327,154) (10,113,425) Prepaid expenses and other current assets (2,926,239) (1,602,704) (2,035,203) Prepaid income taxes 467,730 2,119,485 1,492,766 Accounts payable 82,356 (18,364) (24,459) Client deposits 37,803 (80,364) (171,653) Unearned revenue 716,214 5,356,200 4,598,612 Other accrued liabilities 616,743 1,583,022 3,015,104 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 42,405,494 24,964,863 40,120,879 ====================================================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES Expenditure on property, plant and equipment (23,840,967) (11,598,726) (16,123,557) Proceeds from sale of property, plant and equipment 22,636 5,704 5,704 Loans to employees (2,994,276) (1,579,837) (2,181,715) Proceeds from sale of investment in deconsolidated subsidiary - 1,500,000 1,500,000 Purchase of investments in affiliates - (177,576) (177,576) - ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (26,812,607) (11,850,435) (16,977,144) ====================================================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of Equity Shares (523,454) - 66,271,076 Payment of cash dividends (2,526,872) (1,037,628) (2,371,673) Loan to trust - 109,733 936,365 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (3,050,326) (927,895) 64,835,768 ====================================================================================================================== Effect of exchange rate changes on cash (4,627,766) (2,342,437) (2,058,433) Effect of deconsolidation on cash - (2,465,372) (2,465,372) Net increase/(decrease) in cash and cash equivalents during the period 7,914,795 7,378,724 83,455,698 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the beginning of the period 98,874,963 15,419,265 15,419,265 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period $106,789,758 $ 22,797,989 $ 98,874,963 ====================================================================================================================== Supplementary information: Cash paid towards interest - - - Cash paid towards taxes $ 5,751,172 $ 1,412,515 $ 3,364,318 - ----------------------------------------------------------------------------------------------------------------------
Notes to financial statements - -------------------------------------------------------------------------------- 1. Significant accounting policies 1.1 The company Infosys Technologies Limited (the "company") is one of India's leading information technology ("IT") services company. Infosys utilizes an extensive offshore infrastructure to provide managed software solutions to clients worldwide. Headquartered in Bangalore, India, the company has 12 state-of-the-art offshore software development facilities located throughout India that enable it to provide high quality, cost-effective services to clients in a resource-constrained environment. The company's services, which are offered on either a fixed-price, fixed-time frame or a time-and-materials basis, include custom software development, maintenance (including Year 2000 conversion) and re-engineering services as well as dedicated offshore software development centers for certain clients. In addition, the company develops and markets certain software products. 1.2 Basis of preparation of financial statements The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles ("US GAAP"). All amounts are stated in US dollars. 1.3 Principles of consolidation The financial statements of the company were consolidated with the accounts of its wholly owned subsidiary, Yantra Corporation ("Yantra") during fiscal 1997 and 1998. On October 20, 1998, the company's voting control of Yantra declined to approximately 47%. Accordingly, the company has followed the equity method of accounting for Yantra in fiscal 1999. The company continues to own all the outstanding common shares of Yantra but has no financial obligations or commitments to Yantra and does not intend to provide Yantra with financial support. Accordingly, no losses subsequent to October 20, 1998 have been recognized by the company. The excess of the company's previously recognized losses over the basis of its investments in Yantra as of October 20, 1998 have been credited to retained earnings. Yantra was incorporated in the United States in fiscal 1996 for the development of software products in the retail and distribution areas. All inter-company transactions between the company and Yantra have been eliminated. 1.4 Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include estimates of expected contract costs to be incurred to complete software development, allowance for doubtful accounts, future obligations under employee benefit plans and useful lives of property, plant and equipment. Actual results could differ from those estimates. 1.5 Revenue recognition The company derives its revenues primarily from software services and from the licensing of software products. Revenue with respect to time-and- material contracts is recognized as related costs are incurred. Revenue from fixed-price, fixed-time frame contracts is recognized upon the achievement of specified milestones identified in the related contracts, in accordance with the percentage of completion method. Selling, general and administrative expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates. The company provides its clients with a three-month warranty for corrections of errors and telephone support for all its fixed-price, fixed- time frame contracts. Costs associated with such services are accrued at the time the related revenue is recorded. Revenue from licensing of software products is recognized upon shipment of products and fulfillment of acceptance terms, if any, provided that no significant vendor obligations remain and the collection of the related receivable is probable. When the company receives advance payments for software products, such payments are reported as client deposits until all conditions for revenue recognition are met. Maintenance revenue arising due to the sale of software products is deferred and recognized ratably over the term of the agreement, generally 12 months. Revenue from client training, support, and other services arising due to the sale of software products is recognized as the services are performed. 1.6 Cash and cash equivalents The company considers all highly liquid investments with a remaining maturity at the date of purchase/ investment of three months or less to be cash equivalents. Cash and cash equivalents consist of cash, cash on deposit with banks, marketable securities and deposits with corporations. - -------------------------------------------------------------------------------- 8 of 32 1.7 Property, plant and equipment Property, plant and equipment are stated at cost. The company computes depreciation for all property, plant and equipment using the straight-line method. The estimated useful lives of assets are as follows: Buildings 15 years Furniture and fixtures 5 years Computer equipment 2-5 years Plant and equipment 5 years Vehicles 5 years The cost of software purchased for use in software development and services is charged to the cost of revenues at the time of acquisition. The third party software expense during period ended December 31, 1999, December 31, 1998 and fiscal 1999 were $ 3,169,694, $ 2,899,070 and $ 3,538,590 respectively. Deposits paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date and the cost of property, plant and equipment not put to use before such date are disclosed under Capital work- in-progress. 1.8 Impairment of long-lived assets The company evaluates the recoverability of its long-lived assets and certain identifiable intangibles, if any, whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying value or the fair value less cost to sell. 1.9 Research and development Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is achieved. Software product development costs incurred subsequent to the achievement of technological feasibility have not been significant and have been expensed as incurred. 1.10 Foreign currency translation The accompanying financial statements are reported in US dollars. The functional currency of the company is the Indian rupee. The translation of the Indian rupee into US dollars is performed for balance sheet accounts using the exchange rate in effect at the balance sheet date, and for revenue and expense accounts using a monthly simple average exchange rate for the respective periods. The gains or losses resulting from such translation are reported as other comprehensive income, a separate component of stockholders' equity. The method for translating expenses of overseas operations depends upon the funds used. If the payment were made from a rupee denominated bank account, the exchange rate prevailing on the date of the payment would apply. If the payment is made from a foreign currency, i.e., non-rupee denominated account, the translation into rupees is performed at the average monthly exchange rate. 1.11 Foreign currency transactions The company enters into foreign exchange forward contracts to limit the effect of exchange rate changes on its foreign currency receivables. Gains and losses on these contracts are recognized as income or expense in the statements of income as incurred, over the life of the contract. 1.12 Earnings per share On January 1, 1998, the company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". In accordance with SFAS No. 128, the basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive. 1.13 Income taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized as income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future realization is uncertain. 1.14 Fair value of financial instruments The carrying amounts reflected in the balance sheets for cash, cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short maturities of these instruments. - -------------------------------------------------------------------------------- 9 of 32 1.15 Concentration of risk Financial instruments that potentially subject the company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The company's cash resources are invested with corporations, financial institutions and banks with high investment grade credit ratings. Limitations have been established by the company as to the maximum amount of cash that may be invested with any such single entity. To reduce its credit risk, the company performs ongoing credit evaluations of clients. 1.16 Retirement benefits to employees 1.16.1 Gratuity In accordance with the Indian law, the company provides for gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment of an amount based on the respective employee's salary and the years of employment with the company. Until March 31, 1997, the company contributed each year to a gratuity fund maintained by the Life Insurance Corporation of India based upon actuarial valuations. No additional contributions were required to be made by the company in excess of the unpaid contributions to the plan. Effective April 1, 1997, the company established the Infosys Technologies Limited Employees' Group Gratuity Fund Trust (the "Gratuity Fund Trust"). Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, based upon which the company makes contributions to the Gratuity Fund Trust. Trustees administer the contributions made to the Gratuity Fund Trust. The funds contributed to the Gratuity Fund Trust are invested in specific securities as mandated by the law and generally consist of federal and state government bonds and the debt instruments of government-owned corporations. 1.16.2 Superannuation Apart from being covered under the Gratuity Plan described above, the senior officers of the company are also participants in a defined contribution benefit plan maintained by the company. The plan is termed the superannuation plan to which the company makes monthly contributions based on a specified percentage of each covered employee's salary. The company has no further obligations under the plan beyond its monthly contributions. 1.16.3 Provident Fund In addition to the above benefits, all employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and employer make monthly contributions to the plan, each equal to 12% of the covered employee's salary. Until July 1996, the company contributed to the employees' provident fund maintained by the Government of India. Effective August 1996, the company established a provident fund trust to which a part of the contributions are made each month. The remainder of the contributions are made to the Government's provident fund. The company has no further obligations under the plan beyond its monthly contributions. 1.17 Investments Investments where the company controls between 20% and 50% of the voting interest are accounted for using the equity method. Investment securities in which the company controls less than 20% voting interest are currently classified as "available-for-sale" securities. Investment securities designated as "available-for-sale" is carried at fair value based on quoted market prices, with unrealized gains and losses, net of deferred income taxes, reported as a separate component of stockholders' equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in the statements of income. The cost of securities sold is based on the specific identification method. Interest and dividend on securities classified as "available-for-sale" are included in interest income. 1.18 Stock-based compensation The company uses the intrinsic value-based method of Accounting Principles Board ("APB") Opinion No. 25 to account for its employee stock-based compensation plan. The company has therefore adopted the pro forma disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". - -------------------------------------------------------------------------------- 10 of 32 2. Notes to financial statements 2.1 Cash and cash equivalents The cost and fair values for cash and cash equivalents as of December 31, 1999, December 31, 1998 and fiscal 1999 are as follows:
------------------------------------------------------------------------------------------------------------ Cost and fair value ------------------------------------------------------------------------------------------------------------ December 31, 1999 Cash and cash equivalents Cash and bank deposits $ 90,879,330 Deposits with corporations 15,910,428 ------------------------------------------------------------------------------------------------------------ $ 106,789,758 ------------------------------------------------------------------------------------------------------------ December 31, 1998 Cash and cash equivalents Cash and bank deposits $ 22,797,989 Deposits with corporations - ------------------------------------------------------------------------------------------------------------ $ 22,797,989 ------------------------------------------------------------------------------------------------------------ March 31, 1999 Cash and cash equivalents Cash and bank deposits $ 96,119,672 Deposits with corporations 2,755,291 ------------------------------------------------------------------------------------------------------------ $ 98,874,963 ------------------------------------------------------------------------------------------------------------
2.2 Accounts receivable The accounts receivable, as of December 31, 1999, amounted to $ 31,814,100, net of allowance for doubtful accounts of $ 783,495 and the accounts receivable, as of December 31, 1998, amounted to $ 21,270,407, net of allowance for doubtful accounts of $ 317,325. The accounts receivable, as of March 31, 1999 amounted to 20,056,678, net of allowance for doubtful accounts of $ 301,930. The age profile is as given below.
in % ---------------------------------------------------------------------------------------------------------- Period in days December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------- 0 - 30 51.3 50.1 58.8 31 - 60 30.7 34.9 24.5 61 - 90 9.1 11.0 10.8 More than 90 8.9 4.0 5.9 ---------------------------------------------------------------------------------------------------------- 100.0 100.0 100.0 ----------------------------------------------------------------------------------------------------------
2.3 Prepaid expenses and other current assets Prepaid expenses and other current assets consist of the following:
---------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------- Rent deposits $ 1,754,705 $ 1,383,499 $ 1,403,445 Deposits with government organizations 352,183 82,421 172,386 Loans to employees 3,845,537 1,603,769 1,983,319 Prepaid expenses 2,692,995 2,078,932 2,120,036 Other deposits 16,142 154,203 56,137 ---------------------------------------------------------------------------------------------------------- $ 8,661,562 $ 5,302,824 $ 5,735,323 ----------------------------------------------------------------------------------------------------------
Other deposits represent advance payments to vendors for the supply of goods and rendering of services. Deposits with government organizations relate principally to leased telephone lines and electricity supplies. - -------------------------------------------------------------------------------- 11 of 32 2.4 Property, plant and equipment - net Property, plant and equipment consist of the following:
---------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------- Land $ 4,027,893 $ 2,564,102 $ 2,580,924 Buildings 9,171,521 6,075,633 6,831,097 Furniture and fixtures 6,489,863 4,287,533 4,966,929 Computer equipment 23,576,766 15,852,251 18,290,126 Plant and machinery 10,263,152 6,702,198 7,375,578 Vehicles 31,370 41,546 41,684 Capital work-in-progress 12,929,569 3,577,410 3,531,936 ---------------------------------------------------------------------------------------------------------- 66,490,134 39,100,673 43,618,274 Accumulated depreciation (26,728,182) (16,305,475) (19,717,961) ---------------------------------------------------------------------------------------------------------- $ 39,761,952 $ 22,795,198 $ 23,900,313 ----------------------------------------------------------------------------------------------------------
Depreciation expense amounted to $ 7,976,831, $ 5,101,292 and $ 8,521,009 for the period ended December 31, 1999, December 31, 1998 and fiscal 1999 respectively. 2.5 Other assets Other assets mainly represent the non-current portion of loans to employees. 2.6 Related parties The company grants loans to employees for acquiring assets such as property and cars. Such loans are repayable over fixed periods ranging from 1 to 100 months. The rates at which the loans have been made to employees vary between 0% to 4%. No loans have been made to employees in connection with equity issues. The loans are generally secured by the assets acquired by the employees. As of December 31, 1999, December 31, 1998 and March 31, 1999, amounts receivable from officers amounting to $ 382,632, $ 276,849 and $ 265,669, are included in prepaid expenses and other current assets and other assets in the accompanying balance sheets. The required repayments of loans by employees are as detailed below.
---------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------- 1999 - $ 1,603,769 - 2000 $ 3,845,537 779,478 $ 1,983,319 2001 1,703,585 628,652 953,440 2002 1,283,160 421,730 755,672 2003 799,396 310,974 528,918 2004 668,118 - 394,854 Thereafter 1,737,023 454,294 564,122 ---------------------------------------------------------------------------------------------------------- Total $ 10,036,819 $ 4,198,897 $ 5,180,325 ----------------------------------------------------------------------------------------------------------
The estimated fair value amounts of the related party receivables at the balance sheet date, amounts to $ 9,420,503, $ 3,940,938 and $ 4,858,797 as of December 31, 1999, December 31, 1998 and fiscal 1999. These amounts have been determined using available market information and appropriate valuation methodologies. Considerable judgement is required to develop the estimates of fair value. Thus, the estimates provided herein are not necessarily indicative of the amounts that the company could realize in the market. 2.7 Other accrued liabilities
---------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------- Accrued compensation to staff $ 4,230,913 $ 2,418,987 $ 3,116,559 Accrued dividends 373,662 597,252 2,146,039 Provision for post sales client support 1,244,062 827,216 829,964 Others 3,167,906 2,343,073 2,307,238 ---------------------------------------------------------------------------------------------------------- $ 9,016,543 $ 6,186,528 $ 8,399,800 ----------------------------------------------------------------------------------------------------------
Accrued dividends represent dividends recommended and proposed by the board of directors, subject to the approval of the shareholders. - -------------------------------------------------------------------------------- 12 of 32 2.8 Employee post-retirement benefits 2.8.1 Superannuation benefits The company contributed $ 169,696, $ 108,784 and $ 145,051 to the superannuation plan during the period ended December 31, 1999, December 31, 1998 and fiscal 1999, respectively. 2.8.2 Provident fund benefits In addition, the company contributed $ 865,029, $ 585,358 and $ 812,117 to the provident fund plan during the period ended December 31, 1999, December 31, 1998 and fiscal 1999, respectively. 2.9 Preferred stock of subsidiary In September 1997, the company's subsidiary, Yantra, sold 5,000,000 shares of Series A Convertible Preferred Stock, par value $ 0.01 per share ("Series A Convertible Preferred") at $ 0.75 per share for $ 3,750,000 in cash. The related offering costs of $ 49,853 were offset against the proceeds of the issue. Of these, 2,000,000 shares were issued to the company and 3,000,000 shares were issued to third party investors. The preferred stock issued to the company is eliminated upon consolidation. Preferred stock issued to third party investors is reported in the balance sheet as preferred stock of subsidiary. In August 1998, Yantra sold 4,800,000 shares of Series B Convertible Preferred Stock, par value $ 0.01 per share ("Series B Convertible Preferred") at $ 1.25 per share for $ 6,000,000 in cash to venture capitalists. The related offering costs of $ 44,416 were offset against the proceeds of the issue. In connection with this sale, Yantra issued warrants to purchase 810,811 shares of Series B-1 Convertible Preferred Stock, par value $ 0.01 per share ("Series B-1 Convertible Preferred"), at $ 0.01 per share for $ 8,108 in cash. Such warrants are immediately exercisable and expire in seven years. The exercise price of the warrants is based upon the then current market price of the Series B-1 Convertible Preferred at the time of exercise. The holders of Series A Convertible Preferred are entitled to the following rights, privileges and restrictions: Holders of Series A Convertible Preferred vote with holders of common stock on an as-converted basis, except as otherwise required by Delaware law. The Series A Convertible Preferred are convertible into common stock at a 1:1 ratio (subject to certain adjustments): (i) automatically in the event of an initial public offering with gross proceeds of $ 10,000,000 or more; or (ii) at any time at the holder's option. The holders of Series A Convertible Preferred are entitled to a 6% cumulative dividend ($ 0.045 per share) and to receive additional dividends at the same rate of dividends, if any, declared and paid on the common stock, calculated on an as- converted basis. Upon a liquidation or sale of Yantra, holders of the Series A Convertible Preferred are entitled to a liquidation preference of $ 0.75 per share plus accrued and unpaid dividends; and any remaining assets will be distributed to holders of the common stock. The Series A Convertible Preferred is redeemable at the election of holders of 75% of the outstanding shares of Series A Convertible Preferred at any time after September 29, 2004 at a redemption price of $ 0.75 per share plus accrued but unpaid dividends. The holders of Series B and B-1 Convertible Preferred are entitled to similar rights, privileges and restrictions as that of Series A Convertible Preferred. In October 1998, Infosys sold 1,363,637 shares of Series A Convertible Preferred in Yantra, having a cost basis of $ 879,042 to a third party investor for $ 1,500,000 thereby recognizing a gain of $ 620,958 and reducing its voting interest in Yantra to approximately 47%. The company presently accounts for Yantra by the equity method. De-consolidation of Yantra has resulted in a credit to the company's retained earnings of an amount of $ 2,468,831 representing the excess of Yantra's losses previously recognized by the company, amounting to $ 4,445,903, over the company's residual investment basis in Yantra amounting to $ 1,977,072. The net assets and liabilities of Yantra as of March 31, 1998 and October 20, 1998 (unaudited) respectively, are presented below:
------------------------------------------------------------------------------------------------------ October 20, 1998 March 31, 1998 (unaudited) ------------------------------------------------------------------------------------------------------ Preferred stock (net of Infosys' holdings) $ 9,485,228 $2,317,500 Current liabilities 1,288,913 325,947 ------------------------------------------------------------------------------------------------------ Total liabilities 10,774,141 2,643,447 Current assets 7,422,303 2,836,372 Property, plant and equipment 491,044 243,196 Other assets 391,963 10,314 ------------------------------------------------------------------------------------------------------ Total assets $ 8,305,310 $3,089,882 ------------------------------------------------------------------------------------------------------ Net (Assets)/Liabilities $ 2,468,831 $ (446,435) ------------------------------------------------------------------------------------------------------
________________________________________________________________________________ 13 of 32 2.10 Stockholders' equity The company has only one class of capital stock referred to herein as equity shares. In fiscal 1999, the board of directors authorized a two-for-one stock split of the company's equity shares effected in the form of a stock dividend. Also, during the period ending December 31, 1999, the board of directors authorized a two-for-one stock split of the company's equity shares. All references in the financial statements to number of shares, per share amounts and market prices of the company's equity shares have been retroactively restated to reflect the increased number of shares outstanding resulting from the stock splits. 2.11 Equity shares Voting Each holder of equity shares is entitled to one vote per share. Dividends Should the company declare and pay dividends, such dividends will be paid in Indian Rupees and is paid pro rata from the date of holding such shares. Indian law mandates that any dividend be declared out of distributable profits only after the transfer of up to 10% of net income computed in accordance with current regulations to a general reserve. Also, the remittance of dividends outside India is governed by Indian law on foreign exchange. Such dividend payments are also subject to applicable withholding taxes. The company declared a cash dividend of $ 2,526,872, $ 1,037,628 and $ 3,152,863 during the period ended December 31, 1999, December 31, 1998 and fiscal 1999, respectively. Liquidation In the event of any liquidation of the company, the holders of common stock shall be entitled to receive all of the remaining assets of the company, after distribution of all preferential amounts, if any. Such amounts will be in proportion to the number of shares of equity shares held by the shareholders. Stock options There are no voting, dividend or liquidation rights to the holders of warrants issued under the company's stock option plan. 2.12 Other income, net Other income, net, consists of the following:
-------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 -------------------------------------------------------------------------------------------------------- Interest income and others $4,464,709 $ 492,689 $ 916,040 Gain on sale of investment in subsidiary - 620,958 620,958 Income from sale of special import licenses 468,098 - - Exchange differences on translation of foreign currency deposits 2,120,112 - - -------------------------------------------------------------------------------------------------------- $7,052,919 $1,113,647 $1,536,998 --------------------------------------------------------------------------------------------------------
2.13 Operating leases The company has various operating leases for office buildings that are renewable on a periodic basis at its option. Rental expense for operating leases for the period ended December 31, 1999, December 31, 1998 and fiscal 1999 were $ 1,704,656, $ 1,287,611 and $ 1,770,413, respectively. The operating leases are can be cancelled at the company's option. The company leases some of its office space under several non-cancellable operating leases for the periods ranging from 3 to 5 years. The schedule of minimum future rental payments is as follows :
-------------------------------------------------------------------- Period ending December 31, -------------------------------------------------------------------- 2000 $ 758,271 2001 706,998 2002 733,719 2003 516,968 2004 107,976 -------------------------------------------------------------------- Total $2,823,932 --------------------------------------------------------------------
2.14 Research and development Selling, general and administrative expenses in the accompanying statements of income include research and development expenses of $1,337,656, $ 2,227,225 and $ 2,819,326, for the period ended December 31, 1999, December 31, 1998 and fiscal 1999, respectively. ________________________________________________________________________________ 14 of 32 2.15 Employees Stock Offer Plan 1994 Employees Stock Offer Plan. In September 1994, the company established the Employees Stock Offer Plan ("ESOP") which provides for the issuance of 6,000,000 warrants (as adjusted for the stock split effective June 1997, December 1998 and December 1999) to eligible employees. The warrants were issued to an employee welfare trust (the "Trust") at Re.1 each and were purchased by the Trust using the proceeds of a loan obtained from the company. The Trust holds the warrants and transfers them to eligible employees at Re.1 each. Each warrant entitles the holder to purchase one of the company's equity shares at a price of Rs.100 per share. The warrants and the equity shares received upon the exercise of warrants are subject to a five-year aggregate vesting period from the date of issue of warrants to employees. The warrants expire upon the earlier of five years from the date of issue or September 1999. The fair market value of each warrant is the market price of the underlying equity shares on the date of the grant. In 1997, in anticipation of a share dividend to be declared by the company, the Trust exercised all warrants held by it and converted them into equity shares with the proceeds of a loan obtained from the company. In connection with the warrant exercise and the share dividend, on an adjusted basis, 3,011,200 equity shares were issued to employees of the company who exercised stock purchase rights and 2,988,800 equity shares were issued to the Trust for future issuance to employees pursuant to the ESOP. Following such exercise, there were no longer any rights to purchase equity shares from the company in connection with the ESOP. Only equity shares held by the Trust remained for future issues to employees, subject to vesting provisions. The equity shares acquired upon the exercise of the warrants vests 100% upon the completion of five years of service. The warrant holders were entitled to exercise early, but the shares received are subject to the five-year vesting period. As of December 31, 1999, the company's outstanding equity shares included 506,800 shares held by the Trust of which 345,200 were allotted to employees, subject to vesting provisions and have been included in the calculation of diluted earnings per share. The balance 161,600 equity shares have not been considered outstanding in the diluted earnings per share calculations. The warrants allotted and the underlying equity shares are not subject to any repurchase obligations by the company. The company has elected to use the intrinsic value-based method of APB Opinion No. 25 to account for its employee stock-based compensation plan. During fiscal 1999, the company recorded deferred compensation of $ 30,407,892, for the difference, on the grant date, between the exercise price and the fair value as determined by quoted market prices of the common stock underlying the warrants. The deferred compensation is amortized on a straight-line basis over the vesting period of the warrants/equity shares. In fiscal 1999, the company declared a stock split of two equity shares for each equity share outstanding to all its shareholders including participants in the ESOP in the form of a stock dividend and consequently recognized an accelerated compensation charge at the time of the stock dividend amounting to $ 12,906,962. 1998 Employees Stock Option Plan (the 1998 Plan). The company's 1998 Plan provides for the grant of non-statutory stock options and incentive stock options to employees of the company. The 1998 Plan was approved by the board of directors in December 1997 and by the shareholders in January 1998. The Government of India has approved the 1998 Plan, subject to a limit of 1,470,000 equity shares representing 2,940,000 American Depositary Shares to be issued under the Plan. Unless terminated sooner, the 1998 Plan will terminate automatically in January 2008. All options under the 1998 Plan will be exercisable for equity shares represented by American Depositary Shares (ADSs). The 1998 Plan may be administered by the board of directors or a committee of the board. 1999 Stock Option Plan (the 1999 Plan) The 1999 Plan was approved by the shareholders and the board of directors in June 1999. The 1999 Plan provides for the issue of 6,600,000 equity shares to employees. The 1999 Plan is administered by a compensation committee comprising a maximum of seven members, the majority of whom are independent directors on the board of directors. Under the 1999 Plan, options will be issued to employees at an exercise price not less than the Fair Market Value. Fair Market Value means the closing price of the company's shares on the stock exchange where there is the highest trading volume on a given date and if the shares are not traded on that day, the closing price on the next trading day. Under the 1999 Plan, options may also be issued to employees at exercise prices that are less than Fair Market Value only if specifically approved by the members of the Company in a general meeting. Activity in the warrants/Options held by the 1994 Employee Stock Offer Plan, the 1998 Plan and the 1999 Plan during the period adjusted to reflect the 2-for-1 Stock Split approved by the Shareholders on December 29, 1999 is as follows:
--------------------------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 --------------------------------------------------------------------------------------------------------------------------- Shares arising Weighted Shares arising Weighted Shares arising Weighted out of options average out of options average out of options average exercise price exercise price exercise price --------------------------------------------------------------------------------------------------------------------------- 1994 Option plan: Outstanding at the beginning of the year 328,000 - 1,037,200 - 1,037,200 - Granted 30,000 $ 1.16 1,656,400 $ 1.18 1,984,400 $ 0.59 Forfeited (12,800) $ 1.16 (18,800) $ 1.18 (36,400) 0.59 Exercised - - (2,657,200) Outstanding at the end of the year 345,200 - 2,674,800 - 328,000 - Exercisable at the end of the year Weighted-average fair value of grants during the period at less than market $ 35.48 $13.04 $18.43 1998 Option plan: Outstanding at the beginning of the year 213,000 - - - - -
________________________________________________________________________________ 15 of 32
--------------------------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 --------------------------------------------------------------------------------------------------------------------------- Shares arising Weighted Shares arising Weight Shares arising Weighted out of options average out of options average out of options average exercise price exercise price exercise price --------------------------------------------------------------------------------------------------------------------------- Granted 116,000 $ 179.00 - - 213,000 $ 34.00 Forfeited (3,500) $ 34.00 - - - - Exercised - - - - - - Outstanding at the end of the year 325,500 - - - 213,000 - Exercisable at the end of the year - - - - - - Weighted-average fair value of grants during the year - - - - 34.00 - 1999 Option plan: Outstanding at the beginning - - - - - - of the year Granted 953,200 $ 94.03 - - - - Forfeited - - - - - - Exercised - - - - - - Outstanding at the end of the year 953,200 - - - - - Exercisable at the end of the year - - - - - - Weighted-average fair value of grants during the year - - - - - - ---------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding as of December 31, 1999:
---------------------------------------------------------------------------------------------------------------------- Outstanding Exercisable ------------------------------------------------------------------------------------------------ Range of exercise Number of Weighted average Weighted Number of Weighted Price shares arising remaining average shares arising average exercise out of options contractual life exercise out of options price price ---------------------------------------------------------------------------------------------------------------------- $ 1.16-$ 179.00 1,623,900 3.07 years $72.62 1,623,900 $72.62 ----------------------------------------------------------------------------------------------------------------------
2.16 Income taxes The provision for income taxes was composed of:
---------------------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------------------- Current taxes Domestic taxes $1,844,357 $1,416,049 $ 777,351 Foreign taxes 4,447,350 2,688,880 4,725,726 ---------------------------------------------------------------------------------------------------------------------- 6,291,707 4,104,929 5,503,077 ---------------------------------------------------------------------------------------------------------------------- Deferred taxes Domestic taxes (72,805) (552,363) (625,427) Foreign taxes - - - ---------------------------------------------------------------------------------------------------------------------- (72,805) (552,363) (625,427) ---------------------------------------------------------------------------------------------------------------------- Aggregate taxes $6,218,902 $3,552,566 $4,877,650 ======================================================================================================================
The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities and a description of the financial statement items that created these differences are:
---------------------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 March 31, 1999 ---------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Property, plant and equipment $2,238,180 $1,642,311 $2,315,375 ---------------------------------------------------------------------------------------------------------------------- 2,238,180 1,642,311 2,315,375 Less: Valuation allowance (450,000) - (600,000) ---------------------------------------------------------------------------------------------------------------------- Net deferred tax assets $1,788,180 $1,642,311 $1,715,375 ----------------------------------------------------------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of the projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable ________________________________________________________________________________ 16 of 32 taxable income over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not the company will realize the benefits of those deductible differences, net of the existing valuation differences at December 31, 1999. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. The difference in net deferred tax expense (benefit) during the period ended December 31, 1999, December 31, 1998 and fiscal 1999 has been allocated as follows:
----------------------------------------------------------------------------------------------------------------- December 31, December 31, March 31, 1999 1998 1999 ----------------------------------------------------------------------------------------------------------------- Deferred tax expense/ (benefit) allocated to: Continuing operations $ (72,805) $ (552,363) $ (625,427) ----------------------------------------------------------------------------------------------------------------- $ (72,805) $ (552,363) $ (625,427) ================================================================================================================= ----------------------------------------------------------------------------------------------------------------- December 31, December 31, March 31, 1999 1998 1999 ----------------------------------------------------------------------------------------------------------------- Net income before taxes $ 49,667,220 $24,069,393 $22,323,738 Enacted tax rates in India 38.5% 35.0% 35.0% ----------------------------------------------------------------------------------------------------------------- Computed expected tax expense 19,121,880 8,424,288 7,813,308 Less: Tax effect due to non-taxable export income (18,905,103) (8,359,751) (7,680,942) Others (235,820) 819,149 19,558 Effect of tax rate change 1,738,353 - - Effect of prior period tax adjustments 52,242 - - ----------------------------------------------------------------------------------------------------------------- Provision for Indian income tax 1,771,552 883,686 151,924 Effect of tax on foreign income 4,447,350 2,668,880 3,701,898 Effect of prior period foreign tax adjustments - - 1,023,828 ----------------------------------------------------------------------------------------------------------------- Total current taxes $ 6,218,902 $ 3,552,566 $ 4,877,650 -----------------------------------------------------------------------------------------------------------------
The provision for foreign taxes is due to income taxes payable overseas, principally in the United States. At present, in India, profits from export activities are deductible from taxable income. Further, most of the company's operations come from "100% export oriented units", which are entitled to a tax holiday for a period of ten years from the date of commencement of operations. 2.17 Earnings per share The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
------------------------------------------------------------------------------------------------------------------------------ December 31, December 31, March 31, 1999 1998 1999 ------------------------------------------------------------------------------------------------------------------------------ Basic earnings per equity share - weighted average 65,643,334 61,080,000 61,378,850 number of common shares outstanding Effect of dilutive common equivalent shares - stock 75,086 169,208 128,530 options outstanding ------------------------------------------------------------------------------------------------------------------------------ Diluted earnings per equity share - weighted average 65,718,420 61,249,208 61,507,380 number of common shares and common equivalent shares outstanding ------------------------------------------------------------------------------------------------------------------------------
The figures reflect the 2-for-1 Stock Split approved by the Shareholders on December 29, 1999 2.18 Lines of credit The company has a line of credit from its bankers for its working capital requirement of $ 1,150,000, bearing interest at prime lending rates as applicable from time to time. As of December 31, 1999, the prime lending rate for all its bankers was 13.0%. This facility is secured by inventories and accounts receivable. The line of credit contains certain financial covenants and restrictions on indebtedness and is renewable every 12 months. As of December 31, 1999, the company had no balance outstanding under this facility. 2.19 Financial instruments Foreign exchange forward contracts The company enters into foreign exchange forward contracts to offset the foreign currency risk arising from the accounts receivable denominated in currencies other than the Indian rupee, primarily the US dollar. The counterparty to the company's foreign currency forward contracts is generally a bank. The company considers that risks or economic consequences of non-performance by the counterparty are not material. ________________________________________________________________________________ 17 of 32 There were no significant foreign exchange gains and losses during the period ended December 31, 1999, December 31, 1998 and fiscal 1999. As of December 31, 1999 the company does not have any open foreign exchange forward contracts. 2.20 Segment reporting 2.20.1 Revenue by geographic area ------------------------------------------------------------------------ December 31, December 31, March 31, 1999 1998 1999 ------------------------------------------------------------------------ North America $109,421,935 $27,152,769 $ 99,203,989 Europe 20,077,366 2,971,757 11,302,791 India 1,576,174 385,349 2,051,492 Rest of the world 8,753,164 2,531,429 8,396,954 ------------------------------------------------------------------------ $139,828,639 $33,041,304 $120,955,226 ------------------------------------------------------------------------ 2.20.2 Significant clients No client accounted for more than 10% of the revenues during the period ended December 31, 1999, December 31, 1998 and fiscal 1999. 2.21 Year 2000 Infosys had made preparations to support internal systems and customers during the transition to the Year 2000. Teams were, and continue to be in place at all the development centers and in U.S., Europe and Japan and precautions were taken to assess the effect on communication infrastructure. As of the date of this quarterly report, no material disruption has been reported. However, the company does not expect to arrive at a conclusive picture of the effect of the transition immediately and continues to monitor the transition and is in touch with its customers to assess any problems. The full cost of transition support is still being computed, but is estimated to be insignificant. 2.22 Commitments and contingencies The company has outstanding performance guarantees for various statutory purposes totaling $ 365,239, $ 552,040 and $ 760,329 as of December 31, 1999, December 31, 1998 and fiscal 1999 respectively. These guarantees are generally provided to governmental agencies. 2.23 Litigation The company is subject to legal proceedings and claims, which have arisen, in the ordinary course of its business. These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material effect on the results of operations or the financial position of the company. 2.24 Recent accounting pronouncements The American Institute of Certified Public Accountants recently issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires that certain costs related to the development of software for internal-use be capitalized or amortized over the estimated useful life of the software. SOP 98-1 is effective for financial statements issued for fiscal years beginning after December 15, 1998. The company estimates that all software acquired for internal use has a relatively short useful life, usually less than a year. The company, therefore, currently charges, to income, the cost of acquiring such software, entirely at the time of acquisition. The company does not believe that adopting the provisions of SOP 98-1 will have a significant impact on its financial statements. Item 2. Management Discussion and Analysis of Financial Conditions and Results of Operations Investors are cautioned that this discussion contains forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate", "believe", "estimate", "intend", "will" and "expect" and other similar expressions as they relate to the company or its business are intended to identify such forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. Factors that could cause or contribute to such differences include those described under the heading "Risk Factors" in the Prospectus filed with the SEC, the factors discussed in the Form 20-F and 6-K, filed with the SEC, and those factors discussed elsewhere in this report. Readers are cautioned not to place undue reliance on these forward- looking statements that speak only as of their dates. The following discussion and analysis should be read in conjunction with the company's financial statements included herein and the notes thereto. 2.1 Overview Infosys is an India-based IT services company formed in 1981 that utilizes an extensive offshore infrastructure to provide managed software solutions to clients worldwide. The company's services include custom software development, maintenance (including Year 2000 conversion) and re- engineering services as well as dedicated Offshore Software Development Centers (OSDC) for certain clients. From fiscal 1995 through fiscal 1999, total revenue increased from $18.1 million to $120.96 million, the number of the company's software professionals worldwide increased from approximately 585 to approximately 3,160 and the number of its India-based software development centers increased from two to eleven. ______________________________________________________________________________ 18 of 32 The company's revenues are generated principally from software services provided either on a fixed-price, fixed-time frame or a time-and-materials basis. Revenues from services provided on a time-and-materials basis are recognized in the month that services are provided and related costs are incurred. Revenues from services provided on a fixed-price, fixed-time frame basis are recognized upon the achievement of specified milestones identified in the related contracts, in accordance with the percentage of completion method. Cost of completion estimates are subject to periodic revisions. Although the company has revised its project completion estimates from time to time, such revisions have not, to date, had a material adverse effect on the company's operating results or financial condition. Since the company bears the risk of cost overruns and inflation with respect to its fixed-price, fixed-time frame projects, the company's operating results could be adversely affected by inaccurate estimates of contract completion costs and dates, including wage inflation rates and currency exchange rates that may affect cost projections. The company also develops and markets certain software products, including banking software that is licensed primarily to clients in Asia and Africa. Such software products represented 2.0% of total revenue during the quarter ended December 31,1999. The company derived 78.9% of its total revenue from North America, 12.4% from Europe, 0.9% from India and 7.8% from the rest of the world during the quarter ended December 31, 1999. In third quarter of fiscal 2000 and fiscal 1999, the company derived 5.8% and 19.0% of its total revenue, respectively, from Year 2000 conversion projects.. In line with its risk management policies, the company has consistently limited its dependence on Year 2000 conversion projects, and has only accepted such projects where there are opportunities to create long-term relationships with its clients. The company expects that the decline in Year 2000 conversion projects will be adequately made up by other projects from these and other clients, and that the decline in Year 2000 conversion projects will not have a material adverse effect upon the company's business, financial condition and results of operations. However, there can be no assurance that: the company will be successful in generating additional business from its Year 2000 clients for other services, the company will be successful in replacing Year 2000 conversion projects with other projects as the Year 2000 business declines, or the margins from any such future projects will be comparable to those obtained from Year 2000 conversion projects. Cost of revenue consists, primarily, of salary and other compensation expenses, depreciation, data communications expenses, computer maintenance, cost of software for internal use, certain pre-opening expenses for new software development centers, and foreign travel expenses. The company depreciates personal computers and servers over two years and mainframe computers over three years. Third party software is expensed in the period in which it is acquired. The company assumes full project management responsibility for each project that it undertakes. Approximately 70% of the work on a project is performed at the company's facilities in India, and the balance of the work is performed at the client site. The proportions of work performed at company facilities and at client sites varies from quarter to quarter. The company charges higher rates and incurs higher compensation expenses for work performed at the client site. Services performed at a client site typically generate higher revenues per capita, but at a lower gross margin as a percentage of revenue, than the same quantum of services performed at company facilities in India. As a result, total revenue, cost of revenue and gross profit in absolute terms, and as a percentage of revenue, fluctuate from quarter to quarter based on the proportions of work performed offshore at company facilities and at client sites. Revenue and gross profit are also affected by employee utilization rates. Utilization rates depend, among other factors, on the number of employees enrolled for in-house training programs, particularly the 14-week training course provided to new employees. Since a large percentage of new hires begin their training in the second quarter, utilization rates have historically been lower in the second and third quarters of a fiscal year. Selling, general and administrative expenses consist primarily of expenses relating to salary and other compensation, travel, marketing, telecommunications, management, finance, administration and rentals. Other income includes interest income and income from the sale of special import licenses. Under current export-import policy, exports by Indian companies generate credits for the exporter called "special import licenses". These credits can be sold and also used for the import of goods included on a "restricted list" maintained by the Government of India. The value of these special import licenses has declined over time, as the restricted list has been shortened. The company's general policy is to sell such special import licenses in the period in which it receives such credits. 2.2 Results of operations 2.2.1 Quarter ended December 31, 1999 compared to quarter ended December 31, 1998 Revenue. Total revenue was $52.2 million for the quarter ended December 31, 1999, representing an increase of 57.9% over total revenue of $33.0 million during the same period in the prior year. Revenue continued to increase in all segments of the company's services. Custom software development, re- engineering, maintenance and software development through OSDCs formed a majority of the company's revenues. The increase in revenue was attributable, in part, to a substantial increase in business from certain existing clients and from certain new clients, particularly in the insurance, banking and financial services industries. Net sales of Bancs2000 and other products represented 2.0% of total revenue for the quarter ended December 31, 1999 as compared to 2.7% during the same period in the prior year. Revenue from services represented 98.0% of total revenue for the quarter ended December 31, 1999 as compared to 97.3% during the same period in the prior year. Revenue from fixed-price, fixed-time frame contracts and from time-and-materials contracts represented 32.3% and 67.7%, respectively, of total revenue for the quarter ended December 31, 1999 as compared to 35.8% and 64.2%, respectively, during the same period in the prior year. Revenue from North America and Europe represented 78.9% and 12.4%, respectively, of total revenue for the quarter ended December 31, 1999 as compared to 82.2% and 9.0%, respectively, during the same period in the prior year. Cost of Revenue. Cost of revenue was $28.5 million for the quarter ended December 31, 1999, representing an increase of 73.8% over the cost of revenue of $16.4 million for the same period in the prior year. The cost of revenue represented 54.7% and 49.7% of total revenues for the quarter ended December 31, 1999 and December 31, 1998, respectively. This increase in costs as a percentage of total revenue was attributable to increase in onsite salaries and compensation expenses. The onsite direct costs of employees had gone up to 27.4% of revenues during the quarter ended December 31, 1999 as compared to 22.7% of revenues during the quarter ended December 31, 1998. The average number of ________________________________________________________________________________ 19 of 32 employees working onsite had gone up to 20.4% of the total manpower during the quarter ended December 31, 1999 as compared to 16.9% during the quarter ended December 31, 1998. The cost of revenue for services represented 54.3% and 49.3% of revenues for services for the quarter ended December 31, 1999 and December 31, 1998, respectively. Cost of revenue for product sales represented 73.2% and 63.1% of revenues for product sales for the quarter ended December 31, 1999 and December 31, 1998, respectively. Gross Profit. Gross profit was $23.7 million for the quarter ended December 31,1999 representing an increase of 42.2% over the gross profit of $16.6 million for the same period in the prior year. As a percentage of total revenue, the gross profit decreased to 45.3% for the quarter ended December 31, 1999 from 50.3% for the same period in the prior year. This decrease was attributable to an increase in onsite salaries and compensation expenses. The gross profit from services was $ 23.4 million for the quarter ended December 31, 1999, an increase of 43.3% over the gross profit of $16.3.million for the same period in the prior year. The gross profit from the sales of Bancs2000 and other products was $0.3 million for the quarter ended December 31, 1999 and December 31, 1998. As a percentage of service revenues, the gross profit from services decreased to 45.7% for the quarter ended December 31, 1999 from 50.7% for the same period in the prior year. As a percentage of product revenue, the gross profit from product sales decreased to 26.8% for the quarter ended December 31,1999 from gross profit of 36.9% for the same period in the prior year. Selling, General and Administrative expenses. Selling, general and administrative expenses were $6.7 million for the quarter ended December 31, 1999, an increase of 53.4% over selling, general and administrative expenses of $4.3 million for the same period in the prior year. Selling, general and administrative expenses were 12.7% and 13.1% of total revenue for the quarter ended December 31, 1999 and December 31, 1998, respectively. This decrease in expense as a percentage of revenues was a result of the company's ability to increase revenues in the current quarter without a proportionate increase in management, finance, administrative, and occupancy costs. While Research Grant expenses decreased from 1.6% of revenues during the quarter ended December 31, 1998 to 0.6 of revenues during the quarter ended December 31, 1999, the brand building expenses had increased to 1.1% of revenues during the quarter ended December 31, 1999. There was no brand building expenses during the quarter ended December 31, 1998. Amortization of Deferred Stock Compensation Expense. Amortization of deferred stock compensation expense was $1.3 million for the quarter ended December 31, 1999, adecrease of 12.7% over amortization of deferred stock compensation expense of $1.5million for the same period in the prior year. Operating Income. The operating income was $15.7 million for the quarter ended December 31, 1999, an increase of 45.1% over the operating income of $10.8 million for the same period in the prior year. As a percentage of revenues, operating income decreased to to 30.1% for the quarter ended December 31, 1999 from 32.7% for the same period in the prior year. Other Income. Other income was $1.6 million for the quarter ended December 31, 1999 as compared to $792,000 for the same period in the prior year. Other income during the quarter ended December 31, 1999 includes a loss of $ 145,000 arising due to exchange differences on translation of foreign currency deposits, a profit of $167,000 from the sale of Special Import Licenses and interest income of $968,000 earned on deployment of funds raised through the issue of American Depositary shares. Provision for Income Taxes. Provision for income taxes was $1.9 million for the quarter ended December 31, 1999 as compared to $1.6 million for the same period in the prior year. The company's effective tax rate decreased to 11.0% for the quarter ended December 31, 1999 as compared to 14.3% for the same period in the prior year. Net Income. The net income was $15.4 million for the quarter ended December 31, 1999, an increase of 60.9% over the net income of $9.6 million for the same period in the prior year. As a percentage of total revenue, the net income increased to 29.6% for the quarter ended December 31, 1999 from 29.0% for the same period in the prior year. 2.3 Liquidity and capital resources The growth of the company has been financed largely from cash generated from operations and, to a lesser extent, from the proceeds of equity issues and borrowings. In 1993, the company raised approximately $4.4 million in gross aggregate proceeds from its initial public offering of equity shares on Indian stock exchanges. In 1994, the company raised an additional $7.7 million through private placement of its equity shares with foreign institutional investors. During 1999, the company raised $66.3 million through issue of American Depositary Receipts (ADRs) with foreign investors. As on December 31, 1999, the company had $106.8 million in cash and cash equivalents, $131.3 million in working capital and no outstanding bank borrowings. As on December 31, 1999, the company also had an aggregate facility of $1.1 million in working capital line of credit from two commercial banks. Net cash provided by operating activities was $42.4 million and $24.9 million for the nine months ended December 31, 1999 and the corresponding period in the prior year, respectively. Net cash provided by operations consisted primarily of net income offset, in part, by an increase in accounts receivable. In recent years, accounts receivable have increased at a rate faster than sales. Accounts receivable as a percentage of total revenue, represented 17.1% and 18.8% for the nine months ended December 31, 1999, and the corresponding period in the prior year, respectively. The company's policy on accounts receivable includes a periodic review of all such outstandings. The company reviews, among other things, the age, amount, and quality of each account receivable; the relationship with, size of, and history of the client; and the quality of service delivered by the company for the client to determine the classification of an account receivable. Should the review so demand, the company will classify the accounts into secured and unsecured (doubtful) accounts. The company makes provisions for all accounts receivable classified as unsecured or doubtful and for all accounts receivable that are outstanding more than 180 days. Prepaid expenses and other current assets increased by $ 2.9 million and $1.6 million during the nine months period ended December 31, 1999 and the corresponding periods in the prior year respectively. The increase during the nine months ended December 31, 1999 was primarily due to increase in loans disbursed to employees. Unearned revenue as on December 31, 1999 was $5.3 million and consists primarily of advance client billings on fixed-price, fixed-time frame contracts for which related costs were not yet incurred. _______________________________________________________________________________ 20 of 32 Net cash used in investing activities was $26.8 million and $11.9 million, during the nine months ended December 31, 1999 and December 31, 1998 respectively. Net cash used in investing activities during the nine months ended December 31, 1999 and December 31, 1998, consisted primarily of $23.8million and $11.6 million, respectively, towards acquisition of property, plant and equipment. Publicly-traded Indian companies customarily pay dividends. For fiscal 1999, the company declared a dividend of $3.2 million, which was paid partly in fiscal 1999. During the nine months period ended December 31, 1999 and December 31, 1998, the company declared a dividend of $2.5 million and $1.0 million, respectively. As on December 31, 1999, the company had contractual commitments for capital expenditure of $16.0 million. The company has not yet made contractual commitments for the majority of its budgeted capital expenditure. 2.4 Reconciliation between US and Indian GAAP There are material differences between the financial statements prepared as per Indian and US GAAP. These differences arise due to provision for deferred taxes, accounting for stock-based compensation, valuation of short- term investments (which are marked to market and adjusted against retained earnings), and consolidation of accounts of subsidiaries, as required by US GAAP. Indian GAAP does not require provision for deferred taxes, amortization of deferred stock compensation, consolidation of accounts of subsidiaries and only requires a provision for diminution in the value of current investments.
- -------------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months period ended ------------------ ------------------------ December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------------------------------------- Net profit as per Indian GAAP 16,993,187 9,504,545 46,351,903 21,949,476 Adjustments: Provision for investments - 837,300 - 1,675,060 Deferred tax 437,330 309,912 72,805 552,363 Net loss of subsidiary included on consolidation - (376,781) - (2,043,623) Amortization of deferred stock compensation (1,293,002) (1,480,902) (3,836,104) (2,404,056) Provision for contingencies/ e-inventing the (720,587) 787,607 859,714 787,607 company - -------------------------------------------------------------------------------------------------------------------------------- Net income as per US GAAP 15,416,928 9,581,681 43,448,318 20,516,827 - --------------------------------------------------------------------------------------------------------------------------------
2.5 Investment in Yantra Corporation Prior to October 20, 1998, the company owned a majority of the voting stock of Yantra, which develops and markets an open system software package for warehouse management. As a result, all of Yantra's operating losses through October 20, 1998 were recognized in the company's consolidated financial statements. For fiscal 1998 and fiscal 1999, Yantra losses recognized in the company's financial statements were $1.6 million and $2.0 million, respectively. On October 20, 1998, the company sold a portion of the Yantra shares held by it, thereby reducing its interest to less than one-half of the voting stock of Yantra. As a result, Yantra's results after October 20, 1998 have not been recognized in the company's financial statements under U.S. GAAP. On June 14, 1999, Yantra issued Series C Preferred Stock amounting to $15.0 million to various existing and new investors. Yantra's revenues were $1.3 million and $2.0 million for fiscal 1998 and for the period ended October 20, 1998, respectively, while gross profits were $574,000 and $546,000, respectively, for these same periods. Yantra's revenues were 1.9% and 2.3% of the company's revenues for fiscal 1998 and for the period ended October 20, 1998, respectively. Yantra's gross profits were 2.0% and 1.4% of the company's gross profits for these same periods. No minority interest has been recorded because all of the common stock is owned by the company. 2.6 Principles of Currency Translation In the quarter ending December 31, 1999, over 97% of the company's revenues were generated in U.S. dollars and European currencies. A majority of the company's expenses were incurred in rupees, and the balance was incurred in U.S. dollars and European currencies. The functional currency of the company is the Indian rupee. Revenues generated in foreign currencies are translated into Indian rupees using the exchange rate prevailing on the date the revenue is recognized. Expenses of overseas operations incurred in foreign currencies are translated into Indian rupees at either the monthly average exchange rate or the exchange rate on the date the expense is incurred, depending on the source of payment. Assets and liabilities of foreign branches held in foreign currency are translated into Indian rupees at the end of the applicable reporting period. For U.S. GAAP reporting, the financial statements are translated into U.S. dollars using the average monthly exchange rate for revenues and expenses and the period end rate for assets and liabilities. The gains or losses from such translation are reported as other comprehensive income, a separate component of shareholders' equity. The company expects that a majority of its revenues will continue to be generated in U.S. dollars for the foreseeable future and that a significant portion of the company's expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in rupees. Consequently, the company's results of operations will be adversely affected to the extent the rupee appreciates against the U.S. dollar. - ------------------------------------------------------------------------------- 21 of 32 2.7 Income Tax Matters The company benefits from certain significant tax incentives provided to software firms under the Indian tax laws. These incentives presently include: (i) an exemption from payment of Indian corporate income taxes for a period of ten consecutive years of operation of software development facilities designated as "Software Technology Parks" (the "STP Tax Holiday"); and (ii) a tax deduction for profits derived from exporting computer software (the "Export Deduction"). Under present law, the Export Deduction remains available after expiration of the STP Tax Holiday. All but one of the company's software development facilities are located in designated Software Technology Parks. The benefits of these tax incentive programs have historically resulted in an effective tax rate for the company well below statutory rates, and the company expects this trend to continue absent a change in policy by the Government of India. There is no assurance that the Government of India will continue to provide these incentives. The company pays corporate income tax in foreign countries on income derived from operations in those countries. 2.8 Effects of Inflation The company's most significant costs are salaries and related benefits for its employees. Competition in India and the United States for IT professionals with the advanced technological skills necessary to perform the services offered by the company have caused wages to increase at a rate greater than the general rate of inflation. As with other IT service providers, the company must adequately anticipate wage increases and other cost increases, particularly on its long-term contracts. Historically, the company's wage costs in India have been significantly lower than prevailing wage costs in the United States for comparably-skilled employees, although wage costs in India are presently increasing at a faster rate than in the United States. There can be no assurance that the company will be able to recover cost increases through increases in the prices that it charges for its services in the United States. 2.9 Year 2000 Compliance The company has evaluated each of its IT services and software products and believes that each is substantially Year 2000 compliant. However, there can be no assurance that the company's IT services and products are or will ultimately be Year 2000 compliant. The Company believes that its internal systems are substantially Year 2000 compliant. As of the date of this Quarterly Report, the company has not experienced any material Year 2000 related problems. However, there can be no assurance that modifications and upgrades made to its internal systems will be able to anticipate all of the problems resulting from the actual impact of the Year 2000 problem. The company has been led to believe that its telecommunication service providers are substantially Year 2000 ready and therefore does not expect significant disruption of these facilities. As of the date of this Quarterly Report, there has been no sustained disruption to the Company's voice and data transmission links during the Year 2000 transition. However there can be no assurance that the Company may not face any problems in the future. Systems such as air conditioning and security systems at the company's These facilities are found to be Year 2000 ready and the Company has not experienced any problems with them during the initial transition to Year 2000. To minimize the impact of any potential disruptions, teams were, and continue to be in place at all the development centers and in U.S., Europe and Japan and precautions were taken to assess the effect on communication infrastructure. As of the date of this quarterly report, no material disruption has been reported. However, the company does not expect to arrive at a conclusive picture of the effect of the transition immediately and continues to monitor the transition and is in touch with its customers to address any problems. The full cost of transition support is still being computed, but is estimated to be insignificant. The information above contains forward-looking statements which reflect the current views of the company with respect to Year 2000 compliance of the company's internal systems and third party suppliers, and the related costs and potential impact on the company's financial performance. As indicated above, these assessments may ultimately prove to be inaccurate. 2.10 Accounting Pronouncements The American Institute of Certified Public Accountants recently issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that certain costs related to the development of internal-use software be capitalized or amortized over the estimated useful life of the software. SOP 98-1 is effective for financial statements issued for fiscal years beginning after December 15, 1998. The company estimates that all software acquired for internal use has a relatively short useful life, usually less than one year. The company, therefore, currently charges to income the cost of acquiring such software entirely at the time of acquisition. The company does not believe that adopting the provisions of SOP 98-1 will have a significant impact on its consolidated financial statements. 2.11 Risk factors 2.11.1 Management of growth The company has experienced significant growth in recent periods. The company's revenues in quarter ended December 31, 1999 grew by 57.9% over the quarter ended December 31, 1998. As of December 31, 1999, the company employed approximately 4,966 software professionals worldwide with 12 software development facilities in India as compared to approximately 3,501 as of December 31, 1998. The company's growth is expected to place significant demands on its management and other resources and will require it to continue to develop and improve its operational, financial and other internal controls, both in India and elsewhere. In particular, continued growth increases the challenges involved in: recruiting and retaining sufficient skilled technical, marketing and management personnel; providing adequate training and supervision to maintain the company's high quality standards; and preserving the company's culture and values and its entrepreneurial environment. The company's inability to manage its growth effectively could have a material adverse effect on the quality of the company's services and projects, its ability to attract clients as well as skilled personnel, its business prospects, and its results of operations and financial condition. - ------------------------------------------------------------------------------- 21 of 32 2.11.2 Potential fluctuations in future operating results Historically, the company's operating results have fluctuated, and may continue to fluctuate in future, depending on a number of factors, including: the size, timing and profitability of significant projects; the proportion of services that are performed at client sites rather than at the company's offshore facilities; the accuracy of estimates of resources and time required to complete ongoing projects, particularly projects performed under fixed-price, fixed-time frame contracts; a change in the mix of services provided to its clients or in the relative proportion of services and product revenues; the timing of tax holidays and other Government of India incentives; the effect of seasonal hiring patterns and the time required to train and productively utilize new employees; the size and timing of facilities expansion; unanticipated increases in wage rates; the company's success in expanding its sales and marketing programs; currency exchange rate fluctuations and other general economic factors. A high percentage of the company's operating expenses, particularly personnel and facilities, are fixed in advance of any particular quarter. As a result, unanticipated variations in the number and timing of the company's projects or in employee utilization rates may cause significant variations in operating results in any particular quarter. The company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Due to all of the foregoing factors, it is possible that in some future quarter the company's operating results may be below the expectations of public market analysts and investors. In such event, the market price of the equity shares and ADSs are likely to be materially adversely affected. 2.11.3 Risks related to investments in Indian securities The company is incorporated in India, and substantially all of its assets and a substantial majority of its employees are located in India. Consequently, the company's performance may be affected by changes in exchange rates and controls, interest rates, Government of India policies, including taxation policy, as well as political, social and economic developments affecting India. Political and Economic Environment. During the past decade and particularly since 1991, the Government of India has pursued policies of economic liberalization, including significant relaxation of restrictions on the private sector. Nevertheless, the role of the Indian central and state Governments in the Indian economy as producers, consumers and regulators has remained significant. Additionally, since 1996, the Government of India has changed three times. The current interim Government of India, , has since taking office in March 1998 announced policies and taken initiatives that support the continuation of the economic liberalization policies pursued by previous governments and has, in addition, set up a special IT task force to promote the IT industry. However, the speed of economic liberalization could change, and specific laws and policies affecting IT companies, foreign investment, currency exchange rates and other matters affecting investment in the company's securities could change as well. Further, there can be no assurance that the liberalization policies will continue in the future. A significant change in the Government of India's economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally and the company's business in particular. On May 13, 1998, the United States imposed economic sanctions against India in response to India's testing of nuclear devices. While these sanctions imposed on India have not had a material impact on the company to date, there can be no assurance that additional economic sanctions of this nature will not be imposed, or that such sanctions will not have a material adverse effect on the company's business. Furthermore, financial turmoil in certain Asian countries, Russia and elsewhere in the world has affected market prices in the world's securities markets, including the United States and Indian markets. Continued or increased financial downturns in these countries could cause further decreases in securities prices on the United States and Indian exchanges, including the market prices of the company's equity shares and ADSs. South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries. Events of this nature in the future could influence the Indian economy and could have a material adverse effect on the market for securities of Indian companies and on the business of the company. Government of India Incentives and Regulation. The company benefits from a variety of incentives given to software firms in India, such as relief from import duties on hardware, a tax exemption for income derived from software exports, and tax holidays and infrastructure support for companies, such as Infosys, operating in specially designated "Software Technology Parks". There can be no assurance that these incentives will continue in future. Further, there is a risk that changes in tax rates or laws affecting foreign investment, currency exchange rates or other regulations will render the Government of India's regulatory scheme less favorable to the company and could adversely affect the market price of the company's equity shares and its ADSs. Should the regulations and incentives promulgated by the Government of India become less favorable to the company, the company's results of operations and financial condition could be adversely affected. Restrictions on Foreign Investment. Foreign investment in Indian securities is generally regulated by the Foreign Exchange Regulation Act, 1973. In certain emerging markets, including India, Global Depositary Shares and ADSs may trade at a discount or premium, as the case may be, to the underlying shares, in part because of restrictions on foreign ownership of the underlying shares. In addition, under current Indian laws and regulations, the Depositary cannot accept deposits of outstanding equity shares and issue ADRs evidencing ADSs representing such equity shares. Therefore, a holder of ADSs who surrenders ADSs and withdraws equity shares is not permitted subsequently to deposit such equity shares and obtain ADSs nor would a holder to whom such equity shares are transferred be permitted to deposit such equity shares. This inability to convert equity shares into ADSs increases the probability that the price of the ADSs will not trade on par with the price of the equity shares as quoted on the Indian stock exchanges. Holders who seek to sell in India any equity shares withdrawn from the depositary facility and to convert the rupee proceeds from such sale into foreign currency and repatriate such foreign currency from India will have to obtain RBI approval for each such transaction. Further, under current Indian regulations and practice, the approval of the RBI is required for the sale of equity shares underlying ADSs by a non-resident of India to a resident of India as well as for renunciation of rights to a resident of India. There can be no assurance that any such approval can be obtained. Exchange Rate Fluctuations. The exchange rate between the rupee and the US dollar has changed substantially in recent years and may fluctuate substantially in the future. During the four-year period from March 31, 1995 through March 31, 1999, the value of the rupee against the US dollar declined by 35.2%. For quarter ended December 31, 1999 and 1998, the company's US dollar-denominated revenues represented 89.6% and 89.2%, respectively, of total revenue. The company expects that a majority of its revenues will continue to be generated in US dollars for the foreseeable future and that a significant portion of the company's expenses, including personnel costs as well as capital and - ------------------------------------------------------------------------------- 23 of 32 operating expenditures, will continue to be denominated in rupees. Consequently, the company's results of operations will be adversely affected to the extent the rupee appreciates against the US dollar. The company has sought to reduce the effect of exchange rate fluctuations on operating results by periodically purchasing foreign exchange forward contracts to cover a portion of outstanding accounts receivable. As of December 31, 1999, the company had no outstanding forward contracts . These contracts typically mature within three months, must be settled on the day of maturity and may be canceled subject to the payment of any gains or losses in the difference between the contract exchange rate and market exchange rate on the date of cancellation. The company uses these instruments only as a hedging mechanism and not for speculative purposes. There can be no assurance that the company will purchase contracts adequate to insulate itself from foreign exchange currency risks or that any such contracts will perform adequately as a hedging mechanism. Depreciation of the rupee will result in foreign currency translation losses. For example, for fiscal 1998, fiscal 1999 and the nine months ended ended December 31, 1999, the company's foreign currency translation losses were approximately $3.5 million, $2.1million and $ 4.6million respectively. Fluctuations in the exchange rate between the rupee and the US dollar also will affect the US dollar conversion by the Depositary of any cash dividends paid in rupees on the equity shares represented by the ADSs. In addition, fluctuations in the exchange rate between the Indian rupee and the US dollar will affect the US dollar equivalent of the Indian rupee price of equity shares on the Indian Stock Exchanges and, as a result, are likely to affect the market prices of the ADSs in the United States, and vice versa. Such fluctuations will also affect the dollar value of the proceeds a holder would receive upon the sale in India of any equity shares withdrawn from the Depositary under the Depositary Agreement. There can be no assurance that holders will be able to convert rupee proceeds into US dollars or any other currency or with respect to the rate at which any such conversion could occur. 2.11.4 Substantial investment in new facilities As of December 31, 1999, the company had contractual commitments of $16.0 million for capital expenditure and has budgeted for significant expansion of infrastructure in the near future. Since such an expansion will significantly increase the company's fixed costs, the company's results of operations will be materially adversely affected if the company is unable to grow its business proportionately. Although the company has successfully developed new facilities in the past, there can be no assurance that the company will not encounter cost overruns or project delays in connection with any or all of the new facilities. Furthermore, there can be no assurance that future financing for additional facilities, whether within India or elsewhere, would be available on attractive terms or at all. 2.11.5 Restrictions on US immigration The company's professionals who work on-site at client facilities in the United States on temporary and extended assignments are typically required to obtain visas. As of December 31, 1999, substantially all of the company's personnel in the United States were working pursuant to H-1B visas (630 persons) or L-1 visas ( 221 persons). Although there is no limit to new L-1 petitions, there is a limit to the number of new H-1B petitions that the United States Immigration and Naturalization Service may approve in any government fiscal year. In years in which this limit is reached, the company may be unable to obtain the H-1B visas necessary to bring its critical Indian IT professionals to the United States on an extended basis. This limit was reached in June 1999 for the US government's fiscal year ending September 30, 1999. While the company anticipated that such limit would be reached prior to the end of the US government's fiscal year and made efforts to plan accordingly, there can be no assurance that the company will continue to be able to obtain a sufficient number of H-1B visas. Changes in existing US immigration laws that make it more difficult for the company to obtain H-1B and L-1 visas could impair the company's ability to compete for and provide services to clients and could have a material adverse effect on the company's results of operations and financial condition. 2.11.6 Risks related to international operations While to date all of the company's software development facilities are located in India, the company intends to develop new software development facilities in other regions, including potentially Southeast Asia, Latin America and Europe. The company has not yet made substantial contractual commitments to develop such new software development facilities, and there can be no assurance that the company will not significantly alter or reduce its proposed expansion plans. The company's lack of experience with facilities outside of India subject the company to further risk with regard to foreign regulation and overseas facilities management. Increasing the number of software development facilities and the scope of operations outside of India subjects the company to a number of risks, including, among other things, difficulties relating to administering its business globally, managing foreign operations, currency exchange rate fluctuations, restrictions against the repatriation of earnings, export requirements and restrictions, and multiple and possibly overlapping tax structures. Such developments could have a material adverse effect on the company's business, results of operations and financial condition. 2.11.7 Dependence on skilled personnel; risks of wage inflation The company's ability to execute project engagements and to obtain new clients depends, in large part, on its ability to attract, train, motivate and retain highly skilled IT professionals, particularly project managers, software engineers and other senior technical personnel. An inability to hire and retain additional qualified personnel will impair the company's ability to bid for or obtain new projects and to continue to expand its business. The company believes that there is significant competition for IT professionals with the skills necessary to perform the services offered by the company. There can be no assurance that the company will be able to assimilate and manage new IT professionals effectively. Any increase in the attrition rates experienced by the company, particularly the rate of attrition of experienced software engineers and project managers, would adversely affect the company's results of operations and financial condition. There can be no assurance that the company will be successful in recruiting and retaining a sufficient number of replacement IT professionals with the requisite skills to replace those IT professionals who leave. Further, there can be no assurance that the company will be able to re-deploy and retrain its IT professionals to keep pace with continuing changes in IT, evolving standards and changing client preferences. Historically, the company's wage costs in India have been significantly lower than wage costs in the United States for comparably skilled IT professionals. However, wage costs in India are presently increasing at a faster rate than in the United States. In the long-term, wage increases may have an adverse effect on the company's profit margins unless the company is able to continue increasing the efficiency and productivity of its professionals. - ------------------------------------------------------------------------------- 24 of 32 2.11.8 Client concentration The company has derived, and believes that it will continue to derive, a significant portion of its revenues from a limited number of large corporate clients. For fiscal 1998 and fiscal 1999 and the quarter ended December 31, 1999, the company's largest client accounted for 10.5%, 6.4% and 7.5% respectively, of the company's total revenue and its five largest clients accounted for 35.1%, 28.4% and 31.3 % respectively, of the company's total revenue. The volume of work performed for specific clients is likely to vary from year to year, particularly since the company is usually not the exclusive outside service provider for its clients. Thus, a major client in one year may not provide the same level of revenues in a subsequent year. The loss of any large client could have a material adverse effect on the company's results of operations and financial condition. Since many of the contracted projects are critical to the operations of its clients' businesses, any failure to meet client expectations could result in a cancellation or non-renewal of a contract. However, there are a number of factors other than the company's performance that could cause the loss of a client and that may not be predictable. For example, in 1995, the company chose to reduce significantly the services provided to its then-largest client rather than accept the price reductions and increased company resources sought by the client. In other circumstances, the company reduced significantly the services provided to its client when the client either changed its outsourcing strategy by moving more work in-house and reducing the number of its vendors, or replaced its existing software with packaged software supported by the licensor. There can be no assurance that the same circumstances may not arise in future. 2.11.9 Fixed-price, fixed-time frame contracts As a core element of its business strategy, the company continues to offer a significant portion of its services on a fixed-price, fixed-time frame basis, rather than on a time-and-materials basis. Although the company uses specified software engineering processes and its past project experience to reduce the risks associated with estimating, planning and performing fixed-price, fixed- time frame projects, the company bears the risk of cost overruns, completion delays and wage inflation in connection with these projects. The company's failure to estimate accurately the resources and time required for a project, future rates of wage inflation and currency exchange rates or its failure to complete its contractual obligations within the time frame committed could have a material adverse effect on the company's results of operations and financial condition. 2.11.10 Infrastructure and potential disruption in telecommunications A significant element of the company's business strategy is to continue to leverage its various software development centers in Bangalore, Bhubaneswar, Chennai, Mangalore and Pune in India and to expand the number of such centers in India as well as abroad. The company believes that the use of a strategically located network of software development centers will provide the company with cost advantages, the ability to attract highly skilled personnel in various regions, the ability to service clients on a regional and global basis, and the ability to provide 24-hour service to its clients. Pursuant to its service delivery model, the company must maintain active voice and data communication facilities between its main offices in Bangalore, the offices of its clients, and its other software development facilities. Although the company maintains redundant voice and data communication links, any significant loss of the company's ability to transmit voice and/or data would have a material adverse effect on the company's results of operations and financial condition. 2.11.11 Expected decrease in demand for Year 2000 services Year 2000 conversion projects represented 5.8% and 19.0% of the company's total revenue for the quarter ended December 31, 1999 and quarter ended December 31, 1998, respectively. The company expects that Year 2000 conversion projects will continue to represent a material portion of the company's business in fiscal 2000. The high demand for these time-sensitive projects results in pricing and margins that are favorable to the company. The company believes that demand for Year 2000 conversion services will begin to diminish rapidly as many Year 2000 conversion solutions are implemented and tested. There can be no assurance that the company will be successful in generating additional business from its Year 2000 clients for other services, that the company will be successful in replacing Year 2000 conversion projects with other projects as the Year 2000 business declines or that margins from any such future projects will be comparable to those obtained from Year 2000 conversion projects. There is an additional risk that the company may be unable to retrain and re-deploy IT professionals who are currently assigned to Year 2000 conversion projects involving legacy computer systems after such projects are completed. Furthermore, as Year 2000 conversion projects are completed, there is a likelihood of increased competition for other types of projects from firms formerly dependent on Year 2000 business. 2.11.12 Competition The market for IT services is highly competitive. Competitors include IT services companies, large international accounting firms and their consulting affiliates, systems consulting and integration firms, temporary employment agencies, other technology companies and clients' in-house MIS departments. Competitors include international firms as well as national, regional and local firms located in the United States, Europe and India. The company expects that future competition will increasingly include firms with operations in other countries, potentially including countries with lower personnel costs than those prevailing in India. Historically, one of the company's key competitive advantages has been a cost advantage relative to service providers in the United States and Europe. Since wage costs in India are presently increasing at a faster rate than those in the United States, the company's ability to compete effectively will become increasingly dependent on its reputation, the quality of its services, and its expertise in specific markets. Many of the company's competitors have significantly greater financial, technical and marketing resources and generate greater revenue than the company, and there can be no assurance that the company will be able to compete successfully with such competitors and will not lose existing clients to such competitors. The company believes that its ability to compete also depends in part on a number of factors outside its control, including the ability of its competitors to attract, train, motivate and retain highly skilled IT professionals, the price at which its competitors offer comparable services, and the extent of its competitors' responsiveness to client needs. - ------------------------------------------------------------------------------- 25 of 32 2.11.13 Dependence on key personnel The company's success depends to a significant degree upon continued contributions of members of the company's senior management and other key research and development and sales and marketing personnel. The company generally does not enter into employment agreements with its senior management and other key personnel that provide for substantial restrictions on such persons leaving the company. The loss of any of such persons could have a material adverse effect on the company's business, financial condition and results of operations. 2.11.14 Potential liability to clients; risk of exceeding insurance coverage Many of the company's contracts involve projects that are critical to the operations of its clients' businesses and provide benefits that may be difficult to quantify. Any failure in a client's system could result in a claim for substantial damages against the company, regardless of the company's responsibility for such failure. Although the company attempts to limit its contractual liability for damages arising from negligent acts, errors, mistakes or omissions in rendering its services, there can be no assurance that the limitations of liability set forth in its service contracts will be enforceable in all instances or will otherwise protect the company from liability for damages. The company maintains general liability insurance coverage, including coverage for errors or omissions; however, there can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against the company that exceed available insurance coverage or changes in the company's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect the company's results of operations and financial condition. 2.11.15 Risks associated with possible acquisitions The company intends to evaluate potential acquisitions and strategic investments on an ongoing basis. As of the date, however, the company has no understanding, commitment or agreement with respect to any material future acquisition or investment. Since the company has not made any acquisitions in the past, there can be no assurance that the company will be able to identify suitable acquisition candidates available for sale at reasonable prices, consummate any acquisition, or successfully integrate any acquired business into the company's operations. Further, acquisitions may involve a number of special risks, including diversion of management's attention, failure to retain key acquired personnel and clients, unanticipated events or circumstances, legal liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the company's results of operations and financial condition. Under Indian law, except in certain limited circumstances, the company may not make any acquisition of, or investment in, a non-Indian company without RBI and, in most cases, Government of India approval. Even if the company does encounter an attractive acquisition candidate, there can be no assurance that RBI and, if required, Government of India approval can be obtained. 2.11.16 Risks related to software product sales In the quarter ended December 31, 1999, the company derived 2.0% of its total revenue from the sale of software products. The development of the company's software products requires significant investments. The markets for the company's primary software product are competitive and currently located in developing countries, and there can be no assurance that such a product will continue to be commercially successful. In addition, there can be no assurance that any new products developed by the company will be commercially successful or that the costs of developing such new products will be recouped. A decrease in the company's product revenues or margins could adversely affect the company's results of operations and financial condition. Additionally, software product revenues typically occur in periods subsequent to the periods in which the costs are incurred for development of such products. There can be no assurance that such delayed revenues will not cause periodic fluctuations of the company's results of operations and financial condition. 2.11.17 Restrictions on exercise of preemptive rights by ADS holders Under the Indian Companies Act, 1956 (the "Indian Companies Act"), a company incorporated in India must offer its holders of equity shares pre-emptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless such preemptive rights have been waived by three-fourths of the company's shareholders. US holders of ADSs may be unable to exercise pre- emptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. The company's decision to file a registration statement will depend on the costs and potential liabilities associated with any such registration statement as well as the perceived benefits of enabling the holders of ADSs to exercise their preemptive rights and any other factors the company considers appropriate at the time. No assurance can be given that the company would file a registration statement under these circumstances. If the company issues any such securities in future, such securities may be issued to the Depositary, which may sell such securities for the benefit of the holders of the ADSs. There can be no assurance as to the value, if any, the Depositary would receive upon the sale of such securities. To the extent that holders of ADSs are unable to exercise preemptive rights granted in respect of the equity shares represented by their ADSs, their proportional interests in the company would be reduced. 2.11.18 Intellectual property rights The company relies upon a combination of non-disclosure and other contractual arrangements and copyright, trade secrets and trademark laws to protect its proprietary rights in intellectual property. Ownership of software and associated deliverables created for clients is generally retained by or assigned to the client, and the company does not retain an interest in such software and deliverables. The company also develops foundation and application software products, or software "tools", which are licensed to clients and remain the property of the company. The company has obtained registration of INFOSYS as a trademark in India but not in the United States, and does not have any patents or registered copyrights in the United States. The company currently requires its IT professionals to enter into non-disclosure and assignment of rights agreements to limit use of, access to, and distribution of its proprietary information. There can be no assurance that the steps taken by the - ------------------------------------------------------------------------------- 26 of 32 company in this regard will be adequate to deter misappropriation of proprietary information or that the company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. Although the company believes that its services and products do not infringe upon the intellectual property rights of others, there can be no assurance that such a claim will not be asserted against the company in future. Assertion of such claims against the company could result in litigation, and there can be no assurance that the company would be able to prevail in such litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on commercially reasonable terms. There can be no assurance that the company will be able to protect such licenses from infringement or misuse, or prevent infringement claims against the company in connection with its licensing efforts. The company expects that the risk of infringement claims against the company will increase if more of the company's competitors are able to obtain patents for software products and processes. Any such claims, regardless of their outcome, could result in substantial cost to the company and divert management's attention from the company's operations. Any infringement claim or litigation against the company could, therefore, have a material adverse effect on the company's results of operations and financial condition. 2.11.19 Control by principal shareholders, officers and directors; anti-takeover provisions The company's officers and directors, together with members of their immediate families, in the aggregate, beneficially own approximately 29.4% of the company's issued equity shares. As a result, such persons, acting together, will likely still have the ability to exercise significant control over most matters requiring approval by the shareholders of the company, including the election and removal of directors and significant corporate transactions. Such control by the company's officers and directors could delay, defer or prevent a change in control of the company, impede a merger, consolidation, takeover or other business combination involving the company, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company. The Indian Companies Act and the company's Articles of Association (the "Articles") require that: (i) at least two-thirds of the company's directors shall serve for a specified term and shall be subject to re-election by the company's shareholders at the expiration of such terms; and (ii) at least one- third of the company's directors who are subject to re-election shall be up for re-election at each annual meeting of the company's shareholders. In addition, the company's Articles provide that Mr. N. R. Narayana Murthy, one of the company's principal founders and its Chairman of the Board and Chief Executive Officer, shall serve as the company's Chairman of the Board and shall not be subject to re-election as long as he and his relatives own at least 5% of the company's outstanding equity securities. Furthermore, any amendment to the company's Articles would require the affirmative vote of three-fourths of the company's shareholders. Finally, foreign investment in Indian companies is highly regulated. These provisions could delay, defer or prevent a change in control of the company, impede a business combination involving the company or discourage a potential acquirer from attempting to obtain control of the company. 2.11.20 Year 2000 compliance While the company has evaluated each of its IT services and software products and believes that each is substantially Year 2000 compliant, there can be no assurance that the company's IT services and products are or will ultimately be Year 2000 compliant. The Company believes that its internal systems are substantially Year 2000 compliant. As of the date of this Quarterly Report, the company has not experienced any Year 2000 related problems. The company relies directly and indirectly on systems utilized by its suppliers for telecommunications, utilities, electronic hardware and software applications. However there can be no assurance that these third party suppliers and their products are or will ultimately be Year 2000 compliant. Any failure of these third party suppliers to resolve their Year 2000 problems could disrupt the company's operations, which could have a material adverse effect on the company's business, results of operations and financial condition. As of the date of this quarterly report, no material disruption has been reported. However, the company does not expect to arrive at a conclusive picture of the effect of the transition immediately and continues to monitor the transition and is in touch with its customers to address any problems. The full cost of transition support is still being computed, but is estimated to be insignificant. Item 3. Quantitative and Qualitative Disclosure About Market Risk 3.1 Foreign Currency Market Risk Market risks relating to the Company's operations result primarily from changes in interest rates and changes in foreign exchange rates. The Company's functional currency is the Indian Rupee although it transacts a major portion of its business in foreign currencies and accordingly has foreign currency exposure through its sales in the United States and purchases from overseas suppliers in U.S. dollars. In its U.S. operations, the Company currently does not actively hedge against exchange rate fluctuations, although it may elect to do so in the future. Accordingly, changes in exchange rates may have a material adverse effect on the Company's net sales, cost of services sold, gross margin and net income, any of which alone or in the aggregate may in turn have a material adverse effect on the Company's business, operating results and financial condition. The exchange rate between the rupee and the U.S. dollar has changed substantially in recent years and may fluctuate substantially in the future. During the four-year period from March 31, 1995 through March 31, 1999, the value of the rupee against the U.S. dollar declined by approximately 35.2%. For the quarter ended December 31, 1999, fiscal 1999 and fiscal 1998, the Company's U.S. dollar-denominated revenues represented 89.6%, 88.1% and 90.0%, respectively, of total revenues. The Company expects that a majority of its revenues will continue to be generated in U.S. dollars for the foreseeable future and that a significant portion of the Company's expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in rupees. Consequently, the Company's results of operations will be adversely affected to the extent the rupee appreciates against the U.S. dollar. The Company has sought to reduce the effect of exchange rate fluctuations on operating results by periodically purchasing foreign exchange forward contracts to cover a portion of outstanding accounts receivable. As of December 31, 1999, the Company had no outstanding forward contracts. These contracts typically mature within three months, must be settled on the day of maturity and may be canceled subject to the payment of any gains or losses in the difference between the contract exchange rate and market exchange rate on the date of cancellation. The Company uses these instruments only as a hedging mechanism and not for speculative purposes. There can be no assurance that the Company will purchase contracts adequate to insulate itself from foreign exchange currency risks or that any such contracts will perform adequately as a hedging mechanism. Devaluation of - ------------------------------------------------------------------------------- 27 of 32 the rupee will result in foreign currency translation losses. For example, for fiscal 1998 and fiscal 1999, the Company's foreign currency translation losses were approximately $3.5 million and $2.1 million, respectively. - ------------------------------------------------------------------------------- 28 of 32 Part II - Other Information Item 1. Legal Proceedings On October 8, 1999, the company received a demand notice from the Indian Income Tax Authorities (the "Income Tax Authorities") requesting payment of approximately $14.32 million in unpaid income tax liability and $2.07 million for accrued interest on such income tax for employee income taxes that should have been witheld by the company on stock options issued to its employees under the company's 1994 Employee Stock Offer Plan (the "1994 Stock Plan"). The company has requested relief and clarifications on the taxability of such stock option issuances from the Income Tax Authorities since 1995 and has received a legal opinion that the company would have no tax liability on its 1994 Stock Plan. Additionally, the company has entered into indemnification agreements with each option holder which indemnify the company in the event such tax liabilities are assessed by the Income Tax Authorities. Accordingly, the company believes that any payment of such taxes would have no material adverse impact on its earnings. During December 1999, the Company paid the Income Tax demand in full, even though it has not abandoned legal recourses against the demand. For this purpose the equity shares of the Optionees held for indemnifying the company against any tax liability imposed in connection with the the 1994 Stock Plan have been pledged by the Infosys Technologies Limited Employee Welfare Trust, (the body administering the 1994 Stock Plan) with HDFC Ltd. The loan obtained by such pledge has been used for paying the Income Tax Demand. Item 2. Changes in Securities and Use of Proceeds The Board of Directors approved and recommended for approval of the members in general meeting, a two-for-one stock split of its equity shares and ADSs. Accordingly, the shareholders in an Extra-ordinary General Meeting, held on December 29, 1999 have approved the sub-division of each of the existing equity shares of par value Rs.10/- per share into two equity shares of par value Rs.5 each. Concurrently, each of the existing ADSs will be split into two ADSs. Accordingly, the shareholders also approved as a special resolution in the Extra-ordinary General Meeting, the amendment of the 1998 Option Plan and the 1999 Stock Option Plan authorising the company to make appropriate adjustments for the Stock Split. The Board has fixed February 11, 2000 as the Record date for determining the shareholders/ADSs holders entitled to the split. As of December 31, 1999, $19.8 million of the net proceeds were used for capital expenditure incurred on construction of the Company's software development facilities at Pune, Mangalore, Chennai, Bhuvaneshwar and construction of Infosys Park, Phase I & II, adjacent to the company's headquarters in Electronics City. Item 3. Default upon senior securities None Item 4. Submission of matters to a vote of security holders During the quarterly period ending December 31, 1999 the company convened an Extra-ordinary General Meeting of the Shareholders ("EGM") on December 29, 1999 to consider and approve the two-for-one split as recommended by the Board The following is a brief description of the matters voted upon at the EGM of the company held on December 29, 1999 along with votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each matter. The matters to be voted upon were notified to the shareholders on record and all Registered Holders of the American Depositary Receipts (the "ADRs") who were holding the ADRs as on a record date determined by the Depositary.
- ------------------------------------------------------------------------------------------------------------- Brief Description of the matter put to vote Votes for/ Votes Abstentions/ against/ Broker Withheld Non-votes - ------------------------------------------------------------------------------------------------------------- (1) (2)(3) (1) (2)(3) (1) (2) (3) 1. To consider and if thought fit, to pass with or without modifications, as an ORDINARY RESOLUTION the following: a) RESOLVED THAT, each of the existing fully paid up Equity Share of par value Rs. 10 be and is hereby sub-divided into two fully paid up Equity Shares of par value Rs. 5 per share. b) FURTHER RESOLVED THAT, each of the existing fully paid up American Depositary Share be and is hereby sub-divided into two fully paid up American Depositary Shares. 203 1 - 2. To consider and if though fit, to pass with or without modifications, as an ORDINARY RESOLUTION the following: RESOLVED THAT the Authorized Share Capital of the Company be and is hereby altered from the existing Rs. 50,00,00,000 -(Rupees Fifty crores only) divided into 5,00,00,000 (Five crores only) Equity Shares of Rs. 10 each (Rupees Ten only) to Rs. 50,00,00,000 (Rupees Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees Five only). 203 1 -
- -------------------------------------------------------------------------------- 29 of 32
- ---------------------------------------------------------------------------------------------------------------- Brief Description of the matter put to vote Vote for/ Votes Abstantions/ against/ Broker Non- withheld votes - ---------------------------------------------------------------------------------------------------------------- (1) (2)(3) (1) (2)(3) (1) (2) (3) 3. To consider and if thought fit, to pass with or without modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT the Articles of Association of the Company be and is hereby altered by deleting the existing Article `3' and substituting in place and stead thereof the following new Article `3': "The Authorized Share Capital of the Company is Rs. 50,00,00,000 (Rupees Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees Five only) with powers to increase or reduce the same in accordance with the provisions of the Companies Act, 1956". 203 1 - 4. To consider and if thought fit, to pass with or without modifications, as an ORDINARY RESOLUTION the following: RESOLVED THAT for the purpose of giving effect to the sub-division of the Equity Shares and American Depositary Shares, the Board and other designated officers of the Company be and are hereby authorized on behalf of the Company to do all such acts, deeds, matters and things as it may at its discretion deem necessary or desirable for such purpose. 203 1 - 5. To consider and if though fit, to pass with or without modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT for the purpose of giving effect to the sub-division of the Equity Shares and American Depositary Shares the Board of Directors be and are hereby authorized to appropriately adjust the 1998 Option Plan. 203 1 - 6. To consider and if though fit, to pass with or without modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT for the purpose of giving effect to the sub-division of the Equity Shares and American Depositary Shares the Board of Directors be and are hereby authorized to appropriately adjust the 1998 Option Plan. 203 1 - - ----------------------------------------------------------------------------------------------------------------
(1) Under the Indian Companies Act, voting is by show of hands unless a poll is demanded by a member or members present in person, or by proxy holding at least one-tenth of the total shares entitled to vote on the resolution or by those holding paid-up capital of at least Rs. 50,000. Under the Articles of the Company a member present by proxy shall be entitled to vote only on a poll but not on a show of hands, unless such member is a body corporate present by a representative in which case such proxy shall have a vote on the show of hand as if he were a member. (2) Under the Indian Companies Act and as per the Articles of the Company, on a show of hands every member present in person shall have one vote and upon a poll the voting rights of every member whether present in person or by proxy, shall be in proportion to his share of the paid-up capital of the Company. (3) The votes represent the number of votes in a show of hands. No poll was demanded during the AGM. Item 5. Other Information The Board approved the appointment of Mr. Philip Yeo as a non-executive director on October 29, 1999. Mr. Yeo is the Executive Chairman of the Singapore Economic Development Board since January 1986 and is Deputy Chairman of Singapore's National Science and Technology Board since June 1999. Mr. Yeo was the first Chairman of Singapore's National Computer Board from 1981 to 1987.. Mr. Yeo joined the Administrative Service in 1970 and served in the Ministry of Defence where he held several appointments including the appointment of Permanent Secretary for logistics, technology research & development and defence industries January 1986. He retired from the Administrative Service on March 31, 1999. Mr. Yeo graduated in 1970 in Applied Science (Industrial Engineering) from the University of Toronto, Canada under a Colombo Plan Scholarship. He later obtained a Master of Science (Systems Engineering) from the University of Singapore in 1974. In 1976, he obtained a Master in Business Administration from Harvard University, under a Fulbright scholarship. He is the recipient of many international awards, and was conferred an Honorary Doctorate in Engineering from the University of Toronto. _______________________________________________________________________________ 30 of 32 Item 6 Exhibits and Reports Infosys filed no reports on Form 8-K during the quarter ended December 31, 1999. EXHIBIT INDEX - ------------------------------------------------------------------------------- Exhibit Number Description of Document - ------------------------------------------------------------------------------- 3.1 Articles of Association 3.2 Memorandum of Association 3.3 Certificate of Incorporation 19.1. Infosys Quarterly report to the shareholders for the quarter ended December 31, 1999. 27.1. Financial Data Schedule. 99.1 Proxy Information Statement to holders of American Depositary Shares. 99.2 Proxy Information Statement to holders of Equity Shares. 99.3 Proxy Form to holders of Equity Shares. 99.4 Proxy Form to holders of American Depositary Shares. - ------------------------------------------------------------------------------- 31 of 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly organized. Dated: January 21, 2000 INFOSYS TECHNOLOGIES LIMITED By: /s/ Narayana N. R. Murthy - ------------------------------------------------------------------------------- Narayana N. R. Murthy, Chairman and Chief Executive Officer /s/ Nandan M. Nilekani - ------------------------------------------------------------------------------- Nandan M. Nilekani, Managing Director, President and Chief Operating Officer - ------------------------------------------------------------------------------- 32 of 32 EX-3.1 2 ARTICLES OF ASSOCIATION EXHIBIT 3.1 ARTICLES OF ASSOCIATION THE COMPANIES ACT, 1956 COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF INFOSYS TECHNOLOGIES LIMITED CONSTITUTION TABLE A NOT TO APPLY BUT COMPANY TO BE GOVERNED BY THESE ARTICLES 1. No regulations contained in Table A, in the first Schedule to the Companies Act, 1956 shall apply to this Company, but the regulations for the management of this Company and for the observance of the members thereof and their representatives, shall, subject to any exercise of the statutory powers of the Company with reference to the repeal or alteration of, or addition to, its regulations by Special Resolution, as prescribed by the Companies Act, 1956, be such as are contained in these Articles. INTERPRETATION INTERPRETATION CLAUSE 2. 1) In the Interpretation of these Articles, unless repugnant to the subject or context:- "THE ACT" AND THE SAID ACT" "The Act" or the said Act" and reference to any section or provision thereof respectively means and includes the Companies Act, 1956 (1 of 1956) and any statutory modification or re-enactment thereof for the time being in force and reference to the section or provisions of the said Act or such statutory modification. "AUDITORS" "Auditors" means and includes those persons appointed as such for the time being by the Company. "BOARD" "Board" or "Board of Directors means a meeting of the Directors duly called and constituted, or as the case may be, the Directors assembled at the Board or the Directors of the Company collectively. "CAPITAL" "Capital" means the share capital for the time being raised or authorised to be raised for the purpose of the Company. 2 "THE COMPANY" OR "THIS COMPANY" "The Company" or "This Company" means INFOSYS TECHNOLOGIES LIMITED. "DIRECTORS" "Directors" means the Directors for the time being of the Company or as the case may be the Directors assembled at a Board. "DIVIDEND" "Dividend" includes bonus. "GENDERS" Words importing the masculine gender also include the feminine gender. "IN WRITING" "In writing" and "written" include printing or lithography or any other modes of representing or reproducing words in visible form. "MONTH" "Month" means calendar month. "OFFICE" "Office" means the Registered Office for the time being of the Company. "PAID UP" "Paid up" includes credited as paid-up. "PERSONS" "Persons" includes corporations as well as individuals. "THE REGISTRAR" "The Registrar" means the Registrar of Companies of the State in which the office of the Company if for the time being situate. "SEAL" "Seal" means the common seal for the time being of the Company. "SINGULAR NUMBER" Words importing the singular number include where the context admits or requires, the plural number and vice versa. "YEAR" AND "FINANCIAL YEAR" "Year" means the calendar year and "Financial Year" shall have the meaning assigned thereto by Section 2(17) of the Act. "THESE PRESENTS" "These Presents" means these articles as modified from time to time. 2) Unless the context otherwise requires words and expressions contained in the Articles shall bear the same meaning as in the Act. 3) The marginal notes used in these Articles shall not affect the construction hereof. Save as aforesaid, any words or expressions defined in the Act, shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. a) That at the end of the existing Article 2(1) the following sub-clauses shall be inserted namely: "Beneficial owner" shall mean beneficial owner as defined in Clause (a) of sub-Section (1) of Section 2 of the Depositories Act, 1996. Depositories Act, 1996 shall include any statutory modification or reenactment thereof and Depository shall mean a Depository as defined under Clause (e) of sub-section (1) of Section 2 of the Depositories Act, 1996. RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 b) That the following new definition be added at the end of Article 2(1) "Shareholder" or "Member" means the duly registered holder of the shares from time to time and includes the subscribers to the Memorandum of Association of the company and the beneficial owner(s) as defined in clause (a) of sub-section(1) of Section 2 of the Depositories Act, 1996. RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 3 CAPITAL AND INCREASE AND REDUCTION OF CAPITAL 3). "The Authorized Share Capital of the company is Rs. 50,00,00,000 (Rupees fifty crores only) divided into 10,00,00,000 (ten crores only) Equity Shares of Rs. 5 each (Rupees five only) with powers to increase or reduce the same in accordance with the provisions of the Companies Act, 1956". RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON DECEMBER 29, 1999 "The company shall be entitled to dematerialize its existing shares, rematerialize its shares held in the Depositories and/or to offer its fresh shares in a dematerialized form pursuant to the Depositories Act, 1996 and the rules framed thereunder, if any". RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 3 INCREASE OF CAPITAL OF THE COMPANY AND HOW CARRIED INTO EFFECT 4. The Company in General Meeting, may from time to time, increase its capital by the creation of new shares, such increase to be of such aggregate amount and to be divided into shares of such amounts as the resolution shall prescribe. Subject to the provisions of the act, any shares of the original or increased capital shall be issued upon such terms and conditions and with such rights and privileges annexed thereto, as the General Meeting resolving upon the creation thereof shall prescribe and if no direction be given, as the Directors shall determine and in particular, such shares may be issued with a preferential or qualified right to dividends, and in the distribution of assets of the Company and with a right of voting at General Meetings of the Company, in conformity with Sections 87 and 88 of the Act. Whenever the capital of the Company has been increased under the provisions of these Articles, the Directors shall comply with the provisions of Section 97 of the Act. ALLOTMENT OTHERWISE THAN FOR CASH 5. Subject to the provisions of the Act and these Articles, the Directors may allot and issue shares in the capital of the Company as payment or part- payment for any property or assets of any kind whatsoever, sold or to be sold or transferred or to be transferred or for goods or machinery supplied or to be supplied or for services rendered or to be rendered or for technical assistance or know-how made or to be made available to the Company or the conduct of its business and shares which may be so allotted may be issued as fully or partly paid-up otherwise than in cash and if so issued, shall be deemed to be fully or partly paid as the case may be. ADDITIONAL CAPITAL TO FORM PART OF EXISTING CAPITAL 6. Except so far as otherwise provided by the conditions of issue or by these presents, any capital raised by the creation of new shares, shall be considered as part of the existing capital, and shall be subject to the provisions herein contained, with reference to the payment of calls and installments, forfeiture, lien, surrender, transfer and transmission, voting and otherwise. REDEEMABLE PREFERENCE SHARES 7. Subject to the provisions of Section 80 of the Act, the Company shall have the power to issue Preferential Shares which are or at the option of the Company are to be liable to be redeemed and the resolution authorising such issue shall prescribe the manner, terms and conditions of redemption. REDUCTION OF CAPITAL 8. The Company may (subject to the provisions of Sections 78, 80, 100 to 105 inclusive, of the Act) from time to time by Special Resolution, reduce its capital and any Capital Redemption Reserve Account or Share Premium Account in any manner for the time being authorised by law, and in particular, capital may be paid off on the footing that it may be called up again or otherwise. This Article is not to derogate from any power the Company would have if it were omitted. VARIATION OF RIGHTS 9. If at any time the share capital is divided into different classes of shares, all or any of the rights and privileges attached to the shares of any class may subject to the provisions of Sections 106 and 107 be varied, commuted, affected, dealt with or abrogated with the consent in writing of the holders of not less than three-fourths of the issued shares of that 4 class or with the sanction of a Special Resolution at a separate meeting of the holders of the issued shares of that class. ISSUE OF FURTHER PARI PASSU SHARES NOT TO AFFECT THE RIGHT OF SHARES ALREADY ISSUED 10. The rights conferred upon the holders of the shares of any class issued with preferred or any other rights shall not, unless, otherwise expressly provided by the terms of issue of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. SUB-DIVISION AND CONSOLIDATION OF SHARES 11. Subject to the provisions of Section 94 of the Act, the Company in General Meeting may from time to time, sub-divide or consolidate its shares, or any of them, and the resolution whereby any share is sub-divided, may determine that, as between the holders of the shares resulting from such sub-division one or more of such shares shall have some preference or special advantage as regards dividend, capital or otherwise over or as compared with the other or others. Subject as aforesaid the Company in General Meeting may also cancel shares which have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of shares so cancelled. The cancellation of shares in pursuance of this Article shall not be deemed to be a reduction of the share capital. 11A. The Directors are hereby authorised to issue Equity Shares or Debentures (whether or not convertible into equity shares) for offer and allotment to such of the officers, employees and workers of the Company as the Directors may select or the trustees of such trust as may be set up for the benefit of the officers; employees and workers in accordance with the terms and conditions of such scheme, plan or proposal as the Directors may formulate. Subject to the consent of the Stock Exchanges and of the Securities Exchange Board of India, the Directors may impose the condition that the shares in or debentures of the Company so allotted shall not be transferable for a specified period. SHARES AND CERTIFICATES SHARES TO BE NUMBERED PROGRESSIVELY AND NO SHARES TO BE SUB-DIVIDED 12. The shares in the capital shall be numbered progressively according to their several denominations and except in the manner hereinbefore mentioned no share shall be sub-divided. Every forfeited or surrendered share shall continue to bear the number by which the same was originally distinguished. SHARES AT THE DISPOSAL OF THE DIRECTORS 13. Subject to the provisions of these Articles and the Act, the shares in the capital of the Company for the time being (including any shares forming part of any increased capital of the Company) shall be under the control of the Directors who may issue, allot or otherwise dispose of the same or any one of them to such persons in such proportion and on such terms and conditions and either at a premium or at par or (subject to compliance with the provisions of the Act) at a discount and at such times as they may from time to time think fit and proper and with the sanction of the Company in General Meeting to give to any person the option to call for or allotted shares of any class of the Company either at par or at premium or subject as aforesaid at a discount during such time and for such consideration and such option being exercisable at such times as the Directors think fit; and any shares which may be so allotted may be issued as fully paid-up shares and if so issued shall be deemed to be fully paid-up shares. The Board shall cause to be filed the returns as to allotment provided for in Section 75 of the Act. Provided that the option or right to call of 5 shares shall not be given to any person except With the sanction of the company in the General Meeting. ACCEPTANCE OF SHARES 14. Any application signed by, or on behalf of, an applicant for shares in the Company followed by an allotment of any shares therein, shall be an acceptance of shares within the meaning of these Articles; and every person who thus or otherwise accepts any shares and whose name is entered in its Register of Members shall, for the purpose of these Articles, be a member of the Company. DEPOSIT AND CALL, ETC. TO BE A DEBT PAYABLE IMMEDIATELY 15. The money (if any) which the Directors shall, on the allotment of any shares being made by them, require or direct to be paid by way of deposits, call or otherwise, in respect of any shares allotted by them, shall, immediately on the inscription of the name of the allottee in the Register of Members as the holder of such shares, become a debt due to and recoverable by the Company from the allottee thereof and shall be paid by him accordingly. LIABILITY OF MEMBERS 16. Every member, or his heirs, executors, administrators or other representatives, shall pay to the Company the portion of the capital represented by his share or shares, which may, for the time being, remain unpaid thereon, in such amounts, at such time or times, and in such manner as the Directors shall, from time to time, in accordance with the Company's Regulations require or fix for the payment thereof. SHARE CERTIFICATE 17 a) The share certificates shall be issued in market lots and where share certificates are issued in either more or less than market lots, subdivision or consolidation of share certificates into market lots shall be done free of charge. b) Any two or more joint allottees of a share shall, for the purposes of this Article, be treated as a single Member, and the certificate of any share which may be the subject of joint ownership, may be delivered to any one of such joint owners on behalf of all of them. For any further certificate the Board shall be entitled but shall not be bound, to prescribe a charge not exceeding Rupee One. The Company shall comply with the provisions of Section 113 of the Act. c) A Directors may sign a share certificate by affixing his signature thereon by means of any machine, equipment or other mechanical means, such as engraving in metal or lithography, but not by means of a rubber stamp, provided that the Director shall be responsible for the safe custody of such machine, equipment or other material used for the purpose. RENEWAL OF SHARE CERTIFICATE 18. a) No fee shall be charged for issue of new share certificates in replacement of those which are old, decrepit, worn-out or where the cages on the reverse of the share certificates for recording transfers have been fully utilised. b) When a new share certificate has been issued in pursuance of Clause (a) of this Article, it shall state on the face of it and against the stub or counterfoil to the effect 6 that it is "Issued in lieu of Share Certificate No______ sub-divided/replaced/on consolidation of shares. If a share certificate is lost or destroyed, a new certificate in lieu thereof shall be issued only with the prior consent of the Board and on payment of such fee, not exceeding Rupees two as the Board may from time to time fix, and on such terms, if any, as to evidence and indemnity as to payment of such out-of-pocket expenses incurred by the Company in investigating evidence, as the Board thinks fit. When a new share certificate has been issued in pursuance of Clause (c) of this Article, it shall state on the face of it and against the stub or counterfoil to the effect that it is "a duplicate issued in lieu of share certificate No_________". The word "duplicate" shall be stamped or punched in bold letters across the face of the share certificate. Where a new share certificate has been issued in pursuance of Clause (a) or Clause (c) of this Article, particulars of every such share certificate shall be entered in a Register of Renewed and Duplicate Certificates indicating against the name or names of the person or persons to whom the Certificate is issued the number and date of issue of the share certificate in lieu of which the new certificate is issued, and the necessary changes indicated in Register of Members by suitable cross reference in the "Remarks" column. All blank forms to be used for issue of share certificates shall be printed and the printing shall be done only on the authority or a resolution of the Board. The blank forms shall be consecutively machine numbered and the forms and blocks, engravings, facsimiles and hues relating to the printing of such forms shall be kept in the custody of the Secretary or such other person as the Board may appoint for the purposes; and the Secretary or the other person aforesaid shall be responsible for rendering an account of these forms to the Board. The Managing Director of the Company for the time being or, if the Company has no Managing Director, every Director of the Company shall be responsible for the maintenance, preservation and safe custody of all books an documents relating to the issue of share certificates except the blank forms of share certificates referred to in sub-clause (f). h) All books referred to in sub-clause (9) shall be preserved in good order permanently. 18(i) "The Shares in the Capital shall be numbered progressively according to their several denominations, provided however, that the provisions relating to progressive numbering shall not apply to the shares of the company which are dematerialized or may be dematerialized in future or issued in future in dematerialized form. Except in the manner hereinbefore mentioned, no share shall be sub-divided. Every forfeited or surrendered share held in material form shall continue to bear the number by which the same was originally distinguished" RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 DELIVERY OF SHARE/DEBENTURE CERTIFICATES 19. The Company shall within three months after the allotment of any of its shares or debentures or debenture-stock and within one month after the application for the registration of the transfer of any such shares or debentures or debenture-stock, complete and have ready for delivery the certificates of all shares, debentures or debenture stock allotted or transferred unless the conditions of issue of shares or debentures or debenture-stock otherwise provided. The expression "transfer" for the purpose of this Article means, a transfer duly stamped and otherwise valid and does not include any transfer which the Company is for any reason entitled to refuse to register and does not register. LIABILITY OF JOINT HOLDERS 20. If any share stands out in the names of two or more persons all the joint holders of the share shall be severally as well as jointly liable for the payment of all deposits, installments, and calls due in respect of such shares, and for all incidents thereof according to the Company's Regulations, but the person first named in the Register shall, as regards receipt of dividend or bonus or service of notice, and all or any other matters connected with the Company, except 7 voting at meetings and the transfer of the shares, and any other matter by the said Act or herein otherwise provided, be deemed the sole holder thereof. REGISTERED HOLDER ONLY THE OWNER OF THE SHARES 21. Except as ordered by a Court of competent jurisdiction or by law required, the company shall be entitled to treat the person whose name appears on the Register of Members as the holder of any share or whose name appears as the beneficial owner of shares in the records of the Depository, as the absolute owner thereof and accordingly shall not be bound to recognize any benami, trust or equity or equitable, contingent or other claim to or interest in such share on the part of any other person whether or not he shall have express or implied notice thereof. The Board shall be entitled at their discretion to register any shares in the joint names of any two or more persons or the survivor or survivors of them. RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 SHARE CERTIFICATE FOR JOINT MEMBERS 22. The Company shall not be bound to register more than three persons as the joint holders of any share except in the case of executors or trustees of a deceased member and in respect of a share held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to any one of the several joint holders shall be sufficient delivery to all such holders. FRACTIONAL CERTIFICATES 23. The Company may issue such fractional coupons as the Board may approve in respect of any of the shares of the Company on such terms as the Board thinks fit as to the period within which the fractional coupons are to be converted into share certificates. UNDERWRITING AND BROKERAGE - COMMISSION MAY BE PAID 24. Subject to the provisions of Section 76 of the Act, the Company may at any time pay a commission to any person, in consideration of his subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares or debentures of the Company, or procuring, or agreeing to procure subscriptions (whether absolute or conditional) for any shares or debentures in the Company; But so that the commission shall not exceed in case of shares five percent of the price at which the shares are issued and in case of debentures two and a half percent of the price at which the debentures are issued. BROKERAGE 25. The Company may pay a reasonable sum for brokerage. INTEREST OUT OF CAPITAL - INTEREST MAY BE PAID OUT OF CAPITAL 26. Where any shares are issued for purpose of raising money to defray the expenses of the construction of any works or buildings or the provision of any land, which cannot be made profitable for a lengthy period. the Company may pay interest on so much of that share capital as is for the time being paid up for the period, at the rate and subject to the conditions and restrictions provided by Section 208 of the Act and may charge the same to capital as part of the cost of construction of the works or buildings or provision of plant. 8 CALLS DIRECTORS MAY MAKE CALLS 27. The Board may from time to time, subject to the terms on which any shares may have been issued and subject to the conditions of allotment, by a resolution passed at a meeting of the Board (and not by circular resolution) make such calls as it thinks fit upon the Members in respect of al! monies unpaid on the shares held by them respectively and each member shall pay the amount of every call so made on him to the person or persons and at the time and place appointed by the Board. A call may be made payable by instalments. NOTICE OF CALLS 28. Thirty days notice in writing of any call shall be given by the Company specifying the time and place of payment, and the person or persons to whom such calls shall be made. CALLS TO DATE FROM RESOLUTION 29. A call shall be deemed to have been made at the time when the resolution authorising such call was passed at a meeting of the Board. CALL MAY BE REVOKED 30. A call may be revoked or postponed at the discretion of the Board. LIABILITY OF JOINT HOLDERS 31. A joint-holder of a share shall be jointly and severally liable to pay all calls in respect thereof. DIRECTORS MAY EXTEND TIME 32. The Board may, from time to time at its discretion, extend the time fixed for payment of any call, and may extend such time as to all or any of the members who from residence at a distance or other cause, the Board may deem fairly entitled to such extension save as a matter of grace and favour. OVERDUE CALLS TO CARRY INTEREST 33. If any member fails to pay any call due from him on the day appointed for payment thereof, or any such extension thereof as aforesaid, he shall be liable to pay interest on the same from the day appointed for the payment thereof to the time of actual payment at such rate as shall from time to time be fixed by the Board but nothing in this Article shall render it obligatory for the Board to demand or recover any interest from any such member and the Board shall be at liberty to waive payment of such interest either wholly or in part. SUMS DEEMED TO BE CALLS 34. Any sum, which by the terms of issue of a share become payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium shall for the purposes of these Articles be deemed to be a call duly made and payable on the date on which by the terms of issue of the same becomes payable, and in the case of non-payment all the relevant provisions of theses Articles as to payment of interest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 9 PART PAYMENT ON ACCOUNT OF CALL ETC. NOT TO PRECLUDE FORFEITURE 35. Neither a judgement nor a decree in favour of the company for calls or other moneys due in respect of any shares nor any part payment or satisfaction thereunder nor the receipt by the company of a portion of any money which shall from time to time be due from any member to the company in respect of his shares, either by way of principal or interest, nor any indulgence granted by the Company in respect of payment of any such money, shall preclude the company from thereafter. PROOF ON TRIAL OR SUIT FOR MONEY ON SHARES 36. On the trial or hearing of any action or suit brought by the Company against any member or his legal representative to recover any moneys claimed to be due to the company for any call or other sum in respect of his shares, it shall be sufficient to prove a) that the name of the Member, in respect of whose shares the money is ought to be recovered, appears entered in the Register of Members as the holder Or one of the holders, at or subsequent to the date at which the money sought to be recovered is alleged to have become due, on the said shares; b) that the resolution making the call is duly recorded in the minutes books, and c) that notice of such call was duly given to the Member or his legal representatives issued in pursuance of these Articles; and that it shall not be necessary to prove the appointment of the Directors who made such call, nor that a quorum of Directors was present at the Board at which such call was made, nor that the meeting at which such call was made was duly convened or constituted nor any other matter whatsoever, but the proof of the matters aforesaid shall be conclusive evidence of the debt and the same shall be recovered by the company against the Member or his representative from whom it is ought to be recovered, unless it shall be proved, on behalf of such Member or his representatives against the company that the name of such Member was improperly inserted in the Register or that the money sought to be recovered has actually been paid. PAYMENT OF UNPAID SHARE CAPITAL IN ADVANCE 37. a) The Board may if it thinks fit, subject to the provisions of the Act, agree to and receive from any Member willing to advance the same, either in money or moneys worth the whole or any part of the amount remaining unpaid on the shares held by him beyond the sum actually called up and upon the moneys so paid or satisfied in advance, or so much thereof, as from time to time and at any time thereafter exceeds the amount of the calls then made upon and due in respect of the shares on account of which such advances have been made, the Board may pay or allow interest at such rate as the Member paying such advance and the Board agree upon; provided always that if at any time after the payment of any such money the rate of interest so agreed to be paid to any such Member appears to the Board to be excessive, it shall be lawful for the Board from time to time to repay to such Member so much of such money as shall then exceed the amount of the calls made upon such shares, unless there be an express agreement to the contrary; and after such repayment such member shall be liable to pay, and such shares shall be charged with the payment of all future calls as if no such advance had been made; provided also that if at any time after the payment of any money so paid in advance, the company shall go into liquidation, either voluntary or otherwise, before the full amount of the money so advanced shall have become due by the members to the Company, on instalments or calls, or in any other manner, the maker of such advance shall be entitled (as between himself and the other Members) to receive back from the Company the full 10 balance of such moneys rightly due to him by the Company in priority to any payment to members on account of capital. b) No Member paying any such sum in advance shall be entitled to any voting rights, dividend or right to participate in profits in respect of money so advanced by him until the same would but for such payment become presently payable. FORFEITURE AND SURRENDER OF AND LIEN ON SHARES IF MONEY PAYABLE ON SHARE NOT PAID NOTICE TO BE GIVEN TO MEMBERS 38. If any Member fails to pay any call or instalment of call on or before the day appointed for the payment of the same or any such extension thereof as aforesaid, the Board may, at any time thereafter, during such time as the call or instalment remains unpaid, give notice to him requiring him to pay the same together with any interest that may have accrued and all expenses that may have been incurred by the Company by reason of such non-payment. TERMS OF NOTICE 39. The notice shall name a day (not being earlier than the expiry of fourteen days from the date of service of notice) and a place or places on and at which such call or instalment and such interest thereon at such rate as the Directors shall determine from the day on which such call or instalment ought to have been paid and expenses as aforesaid are to be paid. The notice shall also state that, in the event of the non-payment at or before the time and the place appointed, the share in respect of which the call was made or instalment is payable will be liable to be forfeited: IN DEFAULT OF PAYMENT, SHARES MAY BE FORFEITED 40. If the requirements of any such notice as aforesaid are not complied with, every or any share in respect of which such notice has been given, may at any time thereafter, but before payment of all calls or instalments, interest and expenses due in respect thereof, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends and bonuses declared in respect of the forfeited shares and not actually paid before the forfeiture. NOTICE OF FORFEITURE 41. When any share shall have been so forfeited, notice of the forfeiture shall be given to the Member in whose name it stood immediately prior to the forfeiture or to any of his legal representatives, or to any of the persons entitled to the shares by transmission and an entry of the forfeiture, with the date thereof, shall forthwith be made in the Register of Members but no forfeiture, shall be in any manner invalidated by any omission or neglect to give such notice or to make such entry as aforesaid. FORFEITED SHARES TO BECOME PROPERTY OF THE COMPANY AND MAY BE SOLD, ETC. 42. Any share so forfeited shall be deemed to be the property of the Company and may be sold, re-allotted or otherwise disposed of, either to the original holder thereof or to any other person, upon such terms and in such manner as the Board shall think fit. MEMBERS STILL LIABLE TO PAY MONEY DUE NOTWITHSTANDING THE FORFEITURE 43. Any member whose shares have been forfeited shall, notwithstanding the forfeiture, be liable to pay, and shall forthwith pay to the Company on demand all calls, amounts, instalments, 11 interest and expenses owing upon or in respect of such shares at the time of the forfeiture, together with interest thereon from the time of the forfeiture until payment, at such rate as the Board may determine and the Board may enforce the payment thereof if it thinks fit. EFFECT OF FORFEITURE 44. The forfeiture of a share shall involve extinction, at the time of the forfeiture, of all interest in and of all claims and demands against the Company, in respect of the share, and all other rights incidental to the share, except only such of those rights as by these Articles are expressly saved. SURRENDER OF SHARES 45. The Directors may subject to the provisions of the Act, accept a surrender of any shares from or by any Member desirous of surrendering them on such terms as they think fit. EVIDENCE OF FORFEITURE 46. A declaration in writing that the declarant is a Director or Secretary of the Company and that a share in the Company has been duly forfeited in accordance with these Articles on the date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. COMPANY'S LIEN ON SHARES 47. The Company shall have a first and paramount lien upon all the shares, not being fully paid-up shares, registered in the name of each Member (whether solely or jointly with another or others), and upon the proceeds of sale thereof, for all moneys (whether presently payable or not) called or payable at a fixed time in respect of such shares and no equitable interest in any share shall be created except upon the footing and condition that Article 21 hereof is to have full effect. Any such lien shall extend to all dividends from time to time declared in respect of such shares. Unless otherwise agreed, the registration of a transfer of shares shall operate as a waiver of the Company's lien if any on such shares. The Board of Directors may at any time declare any shares to be exempt, wholly or partially from the provisions of this Article. LIEN ENFORCED BY SALE 48. For the purpose of enforcing such lien, the Directors may sell the shares subject thereto in such manner as they think fit and for that purpose may cause to be issued a duplicate certificate in respect of such shares and may authorise one of their member or some other person to execute a transfer thereof on behalf of and in the name of such member. No such sale shall be made until such time as the moneys in respect of which such lien exists or some part thereof is presently payable or the liability in respect of which such lien exists is liable to be presently fulfilled or discharged and until notice in writing of the intention to sell shall have been served on such Member, or his heirs, executors, administrators, or other representatives or upon the persons (if any) entitled by transmission to the shares or any one or more of such heirs, executors, administrators, representatives or persons, and default shall have been made by him or them in payment, fulfilment or discharge of such debts, liabilities or engagements for fourteen days after such notice. APPLICATION OF SALE PROCEEDS 49. The net proceeds of any such sale after payment of the costs of such sale shall be applied in or towards the satisfaction of such debts, liabilities or engagements and the residue (if any) 12 paid to such Member, or any of his heirs, executors, administrators, representatives or assigns or any of the persons (if any) entitled by transmission to the shares sold. VALIDITY OF SALE UNDER ARTICLES 50. Upon any sale after forfeiture or for enforcing a lien in purported exercise of the powers hereinbefore given, the Board may appoint some person to execute an instrument of transfer of the shares sold and cause the purchaser's name to be entered in the Register in respect of the Shares sold and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money and after his name has been entered in the Register in respect of such shares, the validity of the sale shall not be impeached by any person and the remedy of any person aggrieved by the sale shall be in damages only in and against the Company exclusively. CANCELLATION OF SHARE CERTIFICATE IN RESPECT OF FORFEITED SHARES 51. Upon any sale, re-allotment or other disposal under the provisions of the preceding Articles, the certificate or certificates originally issued in respect of the relative shares shall (unless the same shall on demand by the Company have been previously surrendered to it by the defaulting Member) stand cancelled and become null and void and of no effect, and the Directors shall be entitled to issue a new certificate or certificates in respect of the said shares to the person or persons entitled thereto. POWER TO ANNUL FORFEITURE 52. The Board may at any time before any share so forfeited shall have been sold, re-allotted or otherwise disposed of, annul the forfeiture thereof upon such conditions as it thinks fit. TRANSFER AND TRANSMISSION OF SHARES REGISTER OF TRANSFERS 53. "The company shall keep a Register of Transfers and shall have recorded therein fairly and distinctly particulars of every transfer or transmission of any share held in material form". RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 FORM OF TRANSFER 54. Shares in the Company shall be transferred by an instrument in writing in such form as prescribed under Section 108 of the Companies Act, 1956, or under rules made thereunder from time to time. TO BE EXECUTED BY TRANSFEROR AND TRANSFEREE 55. The instrument of transfer duly stamped and executed by the transferor and the transferee shall be delivered to the Company in accordance with the provisions of the Act. The instrument of transfer shall be accompanied by such evidence as the Board may require to prove the title of the transferor and his right to transfer the shares and every registered instrument of transfer shall remain in the custody of the Company until destroyed by an order of the Board. The transferor shall be deemed to be the holder of such shares until the name of the transferee shall have been entered in the Register of Members in respect thereof. Before the registration of a transfer, the certificate or certificates of the shares must be delivered to the Company. 55 A "In the case of transfer or transmission of shares or other marketable Securities where the company has not issued any certificates and where such shares or Securities are being held in any electronic and fungible form in a Depository, the provisions of the Depositories Act 1996 shall apply" RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON JANUARY 6, 1998 13 DIRECTORS MAY REFUSE TO REGISTER TRANSFERS 56. Subject to the provisions of Section 111 of the Act, the Board, may at its own absolute and uncontrolled discretion, and without assigning any reason, decline to register or acknowledge any transfer of shares whether fully paid or not, (notwithstanding that the proposed transferee be already a Member), but in such cases it shall, within one month from the date on which the instrument of transfer was lodged with the Company, send to the transferee and the transferor notice of refusal to register such transfer. Provided that registration of a transfer shall not be refused on the ground that the transferor being either alone or jointly with any other person or persons indebted to the Company on any account whatsoever except on shares. REFUSAL TO REGISTER TRANSFER 57. In particular and without prejudice to the generality of the above powers, the Board may subject to the provisions of Section 111 of the Companies Act, 1956 decline to register in exceptional circumstances when it is felt that the transferee is not a desirable person from the larger point of view of the interest of the Company as a whole subject to the provisions of the clause (c) of subsection (4) of Section 22A of the Securities Contract (Regulation) Act. SUB-DIVISION/CONSOLIDATION IN MARKETABLE LOTS ONLY 58. Transfer of shares in whatever lot should not be refused, though there would be no objection to the company refusing to split a share certificate into several scrips of any small denominations or to consider a proposal for transfer of shares comprised in a share certificate to several parties, involving such splitting, if on the face of it such splitting/transfer appears to be unreasonable or without a genuine need. The Company should not, therefore, refuse transfer of shares in violation of the Stock Exchange listing requirements on the ground that the number of shares to be transferred is less than any specified number. DEATH OF ONE OR MORE JOINT HOLDERS OF SHARES 59. In case of the death of any one or more of the persons named in the Register of Members as the joint holders of any share, the survivor or survivors shall be the only persons recognised by the Company as having any title to or interest in such share, but nothing herein contained shall be taken to release the estate or a deceased joint-holder for any liability on shares held by him jointly with any other person. TITLE TO SHARES OF DECEASED MEMBER 60. The executors or administrators or holders of a Succession Certificate or the legal representatives of a deceased Member(not being one of two or more joint-holders) shall be the only person recognised by the Company as having any title to the shares registered in the name of such Member, and the Company shall not be bound to recognise such executors or administrators or holders of a Succession Certificate or the legal representatives unless such executors or administrators or legal representatives shall have first obtained Probate or Letter of Administration or Succession Certificate, as the case may be, from a duly constituted court in the Union of India provided that in case where the Board in its absolute discretion think fit, the Board may dispense with production of Probate or Letters of Administration or Succession Certificate, upon such terms as to indemnity or otherwise as the Board in its absolute discretion may think necessary and under Article 59 register the name of any person who claims to be absolutely entitled to shares standing in the name of a deceased Member, as a Member. 14 NO TRANSFER TO INSOLVENT, ETC. 61. No share shall in any circumstances, be transferred to any insolvent or person of unsound mind. REGISTRATION OF PERSON ENTITLED TO SHARES OTHERWISE THAN BY TRANSFER 62. Subject to the provisions of the Act and Articles 59 end 60 any person becoming entitled to shares in consequences of death, lunacy, bankruptcy or insolvency of any Member, or by any lawful means other than by a transfer in accordance with these Articles, may with the consent of the Board (which it shall not be under any obligation to give) upon producing such evidence that he sustains the character in respect of which he proposes to act under this Article, or of his title, as the Board thinks sufficient, either be registered himself as the holder of the shares or elect to have some persons nominated by him and approved by the Board, registered as such holder; provided nevertheless, that if such person shall elect to have his nominee registered, he shall testify the election by executing in favour of his nominee an instrument of transfer in accordance with the provisions herein contained, and until he does so he shall not be freed from any liability in respect of the shares. PERSONS ENTITLED MAY RECEIVE DIVIDENDS WITHOUT BEING REGISTERED AS MEMBERS 63. A person entitled to a share by transmission shall, subject to the right of the Directors to retain such dividends or money as hereinafter provided be entitled to receive, and may give a discharge for any dividends or other moneys payable in respect of the shares. FEE ON TRANSFER OR TRANSMISSION 64. No fee shall be charged for transfer and, transmission of Shares or for registration of any of power of attorney, probate, letter of administration or other similar documents. THE COMPANY NOT LIABLE FOR DISREGARD OF A NOTICE PROHIBITING REGISTRATION OF A TRANSFER 65. The Company shall incur no liability or responsibility whatever in consequence of its registering or giving effect to any transfer of shares made or purporting to be made by any apparent legal owner thereof (as shown or appearing in the Register of Members) to the prejudice of a person or persons having or claiming any equitable right, title or interest to or in the said shares, notwithstanding that the Company may have any notice of such equitable right, title or interest or notice prohibiting registration of such transfer and may have entered such notice or referred thereto, in any book of the company, and the Company shall not be bound or required to regard or attend or give effect to any notice which may be given to it of any equitable right, title or interest, or be under any liability whatsoever for refusing or neglecting so to do, though it may have been entered or referred to in some book of the company, but the company shall nevertheless be at liberty to regard and attend to any such notice, and give effect thereto if the Board shall so think fit. BORROWING POWERS POWER TO BORROW 66. Subject to the provisions of Sections 58A, 292 and 293 of the Act and of these Articles, the Board may, from time to time at its discretion, by a resolution passed at a Meeting of the Board accept deposits from Members, either in advance of call or otherwise, and generally raise or borrow or secure the payment of any sum or sums of money for the purposes of the company provided however, where the moneys to be borrowed together with the moneys already borrowed (apart from temporary loans obtained from the Company's bankers in the 15 ordinary course of business) exceed the aggregate of the paid up capital of the Company and its free reserves (that is to say, reserves not set apart for any specific purpose) the Board shall not borrow such moneys without the consent of the Company in General Meeting. THE PAYMENT OR REPAYMENT OF MONIES BORROWED 67. The payment or repayment of moneys borrowed as aforesaid may be secured in such manner and upon such terms and conditions in all respects as the Board may think fit, and in particular by a resolution passed at a meeting of the Board (and not by Circular Resolution) by the issue of debentures of the Company, charged upon all or any part of the property of the Company (both present and future) including its uncalled capital for the time being, and debentures, and other securities may be made assignable free from any equities between the Company and the person to whom the same may be issued. TERMS OF ISSUE OF DEBENTURES 68. Any debentures, debenture-stock or other securities may be issued at a discount, premium or otherwise and maybe issued on condition that they or any part of them shall be convertible into shares of any denomination, and with any privileges and conditions as to redemption, surrender, drawing, allotment of shares and attending (but not voting at) General Meetings, appointment of Directors and otherwise. Debentures with a right to conversion or allotment of shares shall be issued only with the consent of the Company in General Meeting. REGISTER OF MORTGAGES, ETC. TO BE KEPT 69. The Board shall cause a proper register to be kept in accordance with the provisions of Section 143 of the Act of all mortgages, debentures and charges specifically affecting the property of the Company; and shall cause the requirements of Sections 118, 125, and 127 to 144 (both inclusive) of the Act, in that behalf to be duly complied with (within the time prescribed by the said sections of such extensions thereof as may be permitted by the Company Law Board or the Court or the Registrar as the case may be) so far as they fail to be complied with by the Board. REGISTER AND INDEX OF DEBENTURE HOLDERS 70. The Company shall, if any time it issues debentures, keep a Register and Index of Debenture holders in accordance with Section 152 of the Act. The Company shall have the power to keep in any State or Country outside India a Branch Register of Debenture-holders resident in that State or Country. SHARE WARRANT POWER TO ISSUE SHARE WARRANTS 71. The Company may issue share warrants subject to, and in accordance with the provisions of sections 114 and 115, and accordingly the Board may in its discretion, with respect to any share which is fully paid-up on application in writing signed by the persons registered as holder of the share, and authenticated, by such evidence (if any) as the Board may, from time to time, require as to the identity of the person signing the application, and on receiving the certificate (if any) of the share, and the amount of the stamp duty on the warrant and such fee as the Board may from time to time require, issue a share warrant. 16 DEPOSIT OF SHARE WARRANT 72. 1) The bearer of a share warrant may at any time deposit the warrant at the office of the Company, and so long as the warrant remains so deposited, the depositor shall have the same right of signing a requisition for calling a meeting of the Company, and of attending, and voting and exercising the other privileges of a Member at any meeting held after the expiry of two clear days from the time of deposit as if his name were inserted in the Register of Members as the holder of the share included in the deposited warrant. 2) Not more than one person shall be recognised as depositor of the share warrant. 3) The Company shall, on two days' written notice, return the deposited share warrant to the depositor. PRIVILEGES AND DISABILITIES OF THE HOLDERS OF SHARE WARRANT 73. 1) Subject as herein otherwise expressly provided, no person shall, as bearer of a share warrant sign a requisition for calling a meeting of the Company, or attend or vote or exercise any other privileges of a Member at a meeting of the Company, or be entitled to receive any notices from the Company. 2) The bearer of a share warrant shall be entitled in all other respects to the same privileges and advantages as if he was named in the Register of Members as the holder of the share included in the warrant, and shall be a Member of the Company. ISSUE OF NEW SHARE WARRANT OR COUPON 74. The Board may, from time to time, make rules as to the terms on which (if it shall think fit) a new share warrant or coupon may be issued by way of renewal in case of defacement, loss or destruction. CONVERSION OF SHARE INTO STOCK AND RECONVERSION SHARES MAY BE CONVERTED INTO STOCK 75. The Company in General Meeting may convert any paid-up shares into stock; and when any shares have been converted into stock, the several holders of such stock may thenceforth transfer their respective interest therein, or any part of such interest, in the said manner and subject to the same Regulations as, and subject to which shares from which the stock arose might have been transferred if no such conversion had taken place, or as near thereto as circumstance will admit. The Company may at any time reconvert any stock into paid-up shares of any denomination. RIGHT OF STOCKHOLDERS 76. The holders of stock shall, according to the amount of stock held by them, have the same rights, privileges and advantages as regards dividends, voting at meetings of the Company, and other matters, as if they held the shares from which the stock arose, but no such privilege advantage (except participation in the dividends and profits of the Company and in the assets on winding-up) shall be conferred by an amount of stock which would not, if existing in shares, have conferred that privilege or advantage. 17 MEMBERS' MEETINGS ANNUAL GENERAL MEETING 77. Annual General Meeting of the company may be convened subject to Section 166 and Section 210 of the Act by giving not less than 21 days notice in writing. Subject to the provisions of Section 171 (2) a meeting may be convened after giving a shorter notice. EXTRA ORDINARY GENERAL MEETING 78. The Board may, whenever it thinks fit, call an Extraordinary General Meeting and it shall do so upon a requisition in writing by any Member or Members holding in the aggregate not less than one tenth of such of the paid-up capital; as at that date carried the right of voting in regard to the matter in respect of which the requisition has been made. REQUISITION OF MEMBERS TO STATE OBJECTS OF MEETING 79. Any valid requisition so made by the Members must state the object or objects of the meeting proposed to be called, and must be signed by the requisitionists and be deposited at the office; provided that such requisition may consist of several documents in like form each signed by one or more requisitionists. ON RECEIPT OF REQUISITION, DIRECTORS TO CALL MEETING AND IN DEFAULT REQUISITIONISTS MAY DO SO 80. Upon the receipt of any such requisition, the Board shall forthwith call an Extraordinary General Meeting; and if it does not proceed within twenty-one days from the date of the requisition being deposited at the Office to cause a meeting to be called on a day not later than forty-five days from the date of deposit of the requisition, the requisitionists, or such of their number as represent either a majority in value of the paid- up. share capital held by all of them or not less than one-tenth of such of the paid-up share capital of the Company as is referred to in Section 169 (4) of the Act, whichever is less, may themselves call the meeting, but in either case any meeting so called shall be held within three months from the date of deposit of the requisition as aforesaid. MEETING CALLED BY REQUISITIONISTS 81. Any meeting called under the foregoing Articles by the requisitionists shall be called in the same manner, as nearly as possible, as that in which meetings are to be called by the Board. QUORUM AT GENERAL MEETING 82. Five members present in person shall be a quorum for a General Meeting. BODY CORPORATE PERSONALLY PRESENT 83. A body corporate being a member shall be deemed to be personally present if it is represented in accordance with Section 187 of the Act. IF QUORUM NOT PRESENT MEETING TO BE DISSOLVED OR ADJOURNED 84. If, at the expiration of half an hour from the time appointed for holding a meeting of the Company, a quorum shall not be present, the meeting it convened by or upon the requisition of Members, shall stand dissolved, but in any other case the meeting shall stand adjourned to 18 the same day in the next week or if that day is a public holiday until the next succeeding day which is not a public holiday at the same time and place or to such other day at such other time and place within the city or town in which the Office of the Company is situate as the Board may determine, and if at such adjourned meeting a quorum is not present at the expiration of half an hour from the time appointed for holding the meeting, the Members present shall be a quorum, and may transact, the business for which the meeting was called. 85. The Chairman (if any) of the Directors shall be entitled to take the chair at every General Meeting, whether Annual or Extraordinary. If there be no such Chairman of the Directors, or if at any meeting he shall not be present within fifteen minutes of the time appointed for holding such meeting then the members present shall elect another Director as Chairman and if no Director be present or if all Directors present decline to take the Chair, then the members present shall elect one of their members to be the Chairman. BUSINESS CONFINED TO ELECTION OF CHAIRMAN WHILST CHAIR VACANT 86. No business shall be discussed at any General Meeting except the election of a Chairman, whilst the chair is vacant. CHAIRMAN WITH CONSENT MAY ADJOURN MEETING 87. The Chairman with the consent of the meeting may adjourn any meeting from time to time and from place to place within the city or town in which the office of the Company is situated for the time being but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. QUESTION AT GENERAL MEETING HOW DECIDED 88. At any General Meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by a member or members present in person or by proxy and holding shares in the Company which confer a power to vote on the resolution not being less than 1/10th of the total voting power in respect of the Resolution or on which an aggregate sum of not less than Rs. 50,OOO/- has been paid up. The demand for a poll may be withdrawn at any time by the person or persons who made the demand. CHAIRMAN'S CASTING VOTE 89. In the case of any equality of votes, the Chairman shall both on a show of hands and at a poll (if any) have a casting vote in addition to the votes to which he may be entitled as a Member. DEMAND FOR POLL NOT TO PREVENT TRANSACTION OF OTHER BUSINESS 90. The demand for a poll except on the question of the election of the Chairman and of an adjournment shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded. MEMBER IN ARREARS NOT TO VOTE 91. No member shall be entitled to vote either personally or by proxy at any General Meeting or meeting of a class of shareholders either upon a show of hands or upon a poll in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid or in regard to which the Company has, and has exercised, any right of lien. 19 NUMBER OF VOTES TO WHICH MEMBER ENTITLED 92. Subject to the provisions of these Articles and without prejudice to any special privileges or restrictions as to voting for the time being attached to any class of shares for the time being forming part of the capital of the Company, every member, not disqualified by the last preceding Article shall be entitled to be present and to speak and vote at such meeting, and on a show of hands every member present in person shall have one vote and upon a poll the voting rights of every member whether present in person or by proxy, shall be in proportion to his share of the paid-up equity capital of the Company. CASTING OF VOTES BY A MEMBER ENTITLED TO MORE THAN ONE VOTE 93. On a poll taken at a meeting of the Company, a member entitled to more than one vote, or his proxy, or other person entitled to vote for him as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses. VOTES OF MEMBERS OF UNSOUND MIND AND MINORS 94. A member of unsound mind or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hand or on a poll, by his committee or other legal guardian, and any such committee or guardian may, on a poll vote by proxy. If any member be a minor, the votes in respect of his share or shares shall be by his guardian or any of his guardians, if more than one, to be elected in case of dispute by the Chairman of the meeting. VOTES OF JOINT MEMBERS 95. If there be joint registered holders of any shares, any one of such persons may vote at any meeting or may appoint another person (whether a Member or not) as his proxy in respect of such shares as if he were solely entitled therein but the proxy so appointed shall not have any right to speak at the meeting and, if more than one of such joint-holders be present at any meeting, that one of the said person so present whose name stands higher on the Register shall alone be entitled to speak and to vote in respect of such shares, but the other or others of the joint- holders shall be entitled to be present at the meeting. Several executors or administrators of a deceased member in whose names share stand shall for the purpose of these Articles be deemed joint holders thereof. VOTING IN PERSON OR BY PROXY 96. Subject to the provisions of these Articles votes may be given either personally or by proxy. A body corporate being a member may vote either by a proxy or by a representative duly authorised in accordance with Section 187 of the Act and such representative shall be entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the body corporate which he represents as the body could exercise if it were an individual member. VOTES IN RESPECT OF SHARES OF DECEASED OR INSOLVENT MEMBERS 97. Any person entitled under Article 62 to transfer any shares may vote at any General Meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that 48 hours, at least, before the time of holding the meeting or adjourned meeting as the case may be at which he proposed to vote he shall satisfy the Directors of his right to transfer such shares and give such indemnity (if any) as the Directors may require or the Directors shall have previously admitted his right to vote at such meeting in respect thereof. 20 APPOINTMENT OF PROXY 98. Every proxy (whether a member or not) shall be appointed in writing under the hand of the appointer or his attorney, or if such appointer is a corporation under the common seal of such corporation, or be signed by an officer or an Attorney duly authorised by it and any committee or guardian may appoint such proxy. The proxy so appointed shall not have any right to speak at the meeting. PROXY EITHER FOR A SPECIFIED MEETING OR FOR SPECIFIED PERIOD 99. An instrument of proxy may appoint a proxy either for purpose of a particular meeting specified in the instrument and any adjournment thereof or it may appoint for the purposes of every meeting of the Company, or of every meeting to be held before the date specified in the instrument and any adjournment of any such meeting. NO PROXY EXCEPT FOR A BODY CORPORATE TO VOTE ON A SHOW OF HANDS 100. A member present by proxy shall be entitled to vote only on a poll but not on a show of hands, unless such member is a body corporate present by a representative in which case such proxy shall have a vote on the show of hand as if he were a member. DEPOSIT OF INSTRUMENT OF PROXY 101. The instrument appointing a proxy and the Power of Attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority shall be deposited at the office not later than forty eight hours before the time for holding the meeting at which the person named in the instrument proposes to vote, and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution. FORM OF PROXY 102. Every instrument of proxy whether for specified meeting or otherwise shall, as nearly as circumstances will admit, be in any of the forms set out in Schedule lX of the Act. VALIDITY OF VOTES GIVEN BY PROXY NOTWITHSTANDING DEATH OF MEMBER 103. A vote given in accordance within the norms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the Principal, or revocation of the proxy or of any power of attorney under which such proxy was signed, or the transfer of the share in respect of which the vote is given, provided that no intimation in writing of the death or insanity, revocation or transfer shall have been received at the office before the meeting. TIME FOR OBJECTION TO VOTE 104. No objection shall be made to the validity of any vote; except at any meeting or poll at which such vote shall be tendered and every vote, whether given personally or by proxy, not disallowed at such meeting or poll shall be deemed valid for all purposes of such meeting or poll whatsoever. 21 CHAIRMAN OF ANY MEETING TO BE THE JUDGE OF VALIDITY OF VOTE 105. The Chairman of any meeting shall be the sole judge of the validity of every vote tendered at such meeting. The Chairman present at the taking of a poll shall be the sole judge of the validity of every vote tendered at such poll. DIRECTORS NUMBER OF DIRECTORS 106. Until otherwise determined by the company in a General Meeting and subject to the provisions of Section 252 of the Act, the number of directors (excluding Debenture Directors and Directors appointed under Article 111 hereof and Alternate Directors) shall not be less than three nor more than twelve. NON-RETIRING DIRECTORS 107. If and so long as Mr. N. R. Narayana Murthy and/or his relatives shall hold not less than 5% of the issued equity share capital of the Company, Mr. N. R. Narayana Murthy shall be the Managing Director of the Company and shall not be liable to retire by rotation. 108. The Board may appoint, from time to time, one or more of their members to be the Managing Director or Joint Managing Director or Wholetime Director or Deputy Managing Director or Manager of the Company on such terms and on such remuneration {whether by way of salary or commission, or partly in one and partly in another) as they may think fit and the directors so appointed shall not while holding that office, be subject to retirement by rotation or taken into account in determining the rotation of retirement of directors, but their appointment shall be subject to determination ipso facto if they cease from any cause to be a director or if the company in General Meeting resolve that their tenure of the office of Managing Director or Joint Managing Director or Wholetime Director or Deputy Managing Director or Manager be determined. 109. Subject to the provisions of the Act, the Directors, may from time to time entrust and confer upon a Managing Director for the time being such of the powers exercisable upon such terms and conditions and with such restrictions as they may think fit either collaterally with or to the exclusion of and in substitution for all or any of their own powers and from time to time revoke, withdraw, alter or vary ail or any of such powers. APPOINTMENT OF SPECIAL DIRECTORS 110. On behalf of the Company, whenever Directors enter into a contract with any Government, Central, State or Local, any Bank or Financial institution or any person or persons (hereinafter referred to as "the appointer") for borrowing any money or for providing any guarantee or security or for technical collaboration or assistance or for underwriting or entering into any other arrangement whatsoever the Directors shall have, subject to the provisions of Section 255 of the Act, the power to agree that such appointer shall have right to appoint or nominate by notice in writing addressed to the Company one or more Directors on the Board for such period and upon such conditions as may be mentioned in the agreement and that such Director or Directors may not be liable to retire by rotation nor be required to hold any qualification shares. The Directors may also agree that any such Director or Directors may be removed from time to time by the appointer entitled to appoint or nominate them and the appointer may appoint another or others in his or their place and also fill in any vacancy which may occur as a result of any such Director or Directors ceasing to hold that office for any reason whatsoever. The Directors appointed or nominated under this Article shall be entitled to exercise and enjoy all or any of the rights and privileges exercised and enjoyed by the 22 Directors of the Company including payment of remuneration and travelling expenses to such Director or Directors as may be agreed by the Company with the appointer. DEBENTURE DIRECTORS 111. If it is provided by any Trust Deed, security or otherwise, in connection with any issue of debentures of the Company that any person or persons shall have power to nominate a Director or Directors of the Company, then in the case of any and every such issue of debentures, the person or persons having such power may exercise such power from time to time and appoint a Director or Directors accordingly. Any Director so appointed is herein referred to as "Debenture Director". A Debenture Director may be removed from office at any time by the person or persons in whom for the time being is vested the power under which he was appointed and another director may be appointed in his place. A debenture director shall not be bound to hold any qualification shares. A debenture director shall not if so agreed by the company be liable to retire by rotation; but shall automatically cease to hold office as a director if and when the debentures are fully discharged. NOMINEE DIRECTORS 112. Nominee Directors: So long as any moneys remain owing by the Company to The Industrial Development Bank of India, Industrial Finance Corporation of India, The Industrial Credit and Investment Corporation of India Limited, The Industrial Reconstruction Corporation of India Limited, Life Insurance Corporation of India, General Insurance Corporation of India, National Insurance Company Limited, The Oriental Fire & General Insurance Company Limited, The New India Assurance Company Limited, United India Insurance Company Ltd., Karnataka State Industrial Investment and Development Corporation Ltd. or any State Financial Corporation or any Financial Institution owned or controlled by the Central Government or any State Government or the Reserve Bank of India or by two or more of them by Central Government themselves (each of the above and Unit Trust of India are hereinafter referred to as the Corporation) out of any loans/debentures, assistance granted by them to the Company or so long as the Corporation holds or continues to hold Debentures/Shares in the Company as a result of any guarantee furnished by the Corporation on behalf of the Company and remaining outstanding, the Corporation shall have a right to appoint from time to time, any person as Director, Wholetime or non-Wholetime (which Director or Directors, is/are hereinafter referred to as 'Nominee Director/s') on the Board of the Company and to remove from such office any person or persons so appointed and to appoint any person in his or their places. The Board shall have no power to remove from the office of the Nominee Directors. At the option of the Corporation such Nominee Director/s shall not be liable to retirement by rotation. Subject as aforesaid, Nominee Director/s shall be entitled to the same rights and privileges and be subject to the same obligations as any other Directors of the Company. PERIOD OF HOLDING OF OFFICE BY NOMINEE DIRECTORS 113. The Nominee Director/s so appointed shall hold the said office only so long as any moneys remain owing by the Company to the Corporation or so long as the Corporation holds or continues to hold Debentures/shares in the Company as a result of underwriting or by direct subscription or private placement or the liability of the Company arising out of the guarantee is outstanding and the Nominee Director/s so appointed in exercise of the said powers shall ipso facto vacate such office immediately the moneys owing by the Company to the Corporation are paid off or on the Corporation ceasing to hold Debentures/ shares in the Company or on the satisfaction of liability of the Company arising out of any guarantee furnished by the Corporation. 23 CO-OPTION OF DIRECTORS 114. Directors shall have power at any time and from time to time to co-opt any other person as a director either to fill a casual vacancy or as an additional director, so that the total number of directors shall not at any time exceed the maximum fixed. Any director appointed to fill casual vacancy shall hold office only upto the date upto which the director in whose place he has been placed would have held the office if it had not been vacated. Any additional director shall hold office only upto the date of next Annual General Meeting of the Company but shall be eligible for re-election at such meeting. ALTERNATE DIRECTORS 115. The Board may appoint an alternate director to act for a director (hereinafter called "original director during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. An alternate director appointed under this Article shall not hold office as such for a period longer than that permissible to the original director and shall vacate office if. and when the original director returns to the State aforesaid. If the term of office of original director is determined before he so returns to the State aforesaid any provision for automatic re-appointment of retiring directors in default of another appointment shall apply to the original and not to the alternate director. QUALIFICATION SHARES OF DIRECTORS 116. A Director shall not be required to hold any qualification shares. REMUNERATION OF DIRECTORS 117. The remuneration of Directors and Executives of the Company, including the fees payable to the Directors of the Company in attending the Meeting of the Board or the Committees of the Board, shall be determined by the Board of Directors from time to time, provided that the sitting fees payable to the Directors as aforesaid shall be within the maximum limits of such fees that may be prescribed under the proviso to Section 310 of the Companies Act, 1956. DIRECTORS' TRAVELLING EXPENSES 118. In addition to the remuneration payable to them, the Directors shall be entitled to be paid all travelling, hotel and other incidental expenses properly incurred by them in attending and returning from meetings of the Board of Directors or any Committee thereof or General Meetings or in connection with the business of the Company. The rules in this regard may be framed by the Board of Directors from time to time. SPECIAL REMUNERATION FOR PERFORMING EXTRA SERVICES 119. If any Director be called upon to perform extra services or special exertions or efforts (which expression shall include work done by a Director as a Member of any committee formed by the Director(s) the Board may arrange with such Directors for such special remuneration for such extra services or special exertions or efforts either by a fixed sum or otherwise as may be determined by the Board and such remuneration may be either in addition to or in substitution for his remuneration, subject to provisions of the Act and confirmation by the Company in General Meeting. DIRECTORS MAY ACT NOTWITHSTANDING ANY VACANCY 120. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board 24 of Directors, the continuing Director or Directors may act for the purpose of increasing the number of Directors to that fixed for a quorum or for summoning a General Meeting but for no other purpose. TERMS OF OFFICE OF DIRECTORS 121. Not less than two-thirds of the total number of Directors shall be persons whose period of office is liable to determination by retirement of Directors by rotation. RETIREMENT OF DIRECTORS BY ROTATION 122. At every annual general meeting of the Company one-third of such of the Directors for the time being as are liable to retire by rotation, or if their number is not three or a multiple of three, then the number nearest to one third, shall retire from office. ASCERTAINMENT OF DIRECTORS TO RETIRE 123. The Directors to retire by rotation under the foregoing article shall be those who have been longest in office since their last appointment but as between persons who become Directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot. A retiring Director shall be eligible for re-election. COMPANY TO APPOINT SUCCESSORS 124. The Company, at the annual general meeting at which a Director retires in manner aforesaid, may, fill up the vacated office by electing the retiring Director or some other person thereto. PROVISIONS IN DEFAULT OF APPOINTMENT 125. a) If the place of the retiring Director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday at the same time and place. b) If at the adjourned meeting also, the place of the retiring Director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring Director shall be deemed to have been re-appointed at the adjourned meeting, unless: i) at the meeting or at the previous meeting a resolution for the re-appointment of such Director has been put to the meeting and lost; ii) the retiring Director has, by 5 notice in writing addressed to the Company or its Board of Directors expressed his unwillingness to be so re-appointed; iii) he is not qualified or is disqualified for appointment; iv) a resolution, whether special or ordinary is required for the appointment or reappointment by virtue of any provisions of the Act; or v) the provision to sub-section (2) of Section 263 is applicable to the case. 25 COMPANY MAY INCREASE OR REDUCE NUMBER OF DIRECTORS 126. Subject to Sections 252, 256 and 259 of the Act, the Company in general meeting may from time 10 time, increase or reduce the number of Directors, within the limits fixed in that behalf by these Articles. REMOVAL OF DIRECTORS 127. The Company may (subject to the provisions of Section 284 of the Act) remove any Director before the expiration of his period of office and appoint another person in his stead. PROCEEDINGS OF THE BOARD OF DIRECTORS MEETING OF DIRECTORS 128. The Directors may meet together as a Board for the dispatch of business from time to time and shall so meet at least once in every three calendar months and at least four such meetings shall be held in every year. The Directors may adjourn and otherwise regulate their meetings as they may think fit. NOTICE OF BOARD MEETINGS 129. Notice of every meeting of the Board shall be given in writing to every Director for the time being in India and at his address in India to every other Director. QUORUM 130. Subject to Section 287 of the Act, the quorum for a meeting of the Board shall be one-third of its total strength (excluding Directors, if any, whose places may be vacant at the time. and any fraction contained in that one-third being rounded off as one), or two Directors whichever is higher. Provided that where at any time the number of interested Directors exceeds or is equal to two- thirds of the total strength, the number of the remaining Directors, that is to say, the number of the Directors who are not interested present at the meeting being not less than two, shall be the quorum during such meeting. ADJOURNMENT OF MEETINGS FOR WANT OF QUORUM 131. If a meeting of the .Board could not be held for want of quorum, then the meeting shall automatically stand adjourned to such other time as may be fixed by the Chairman. SECRETARY TO CALL BOARD MEETING 132. The Secretary shall, and when directed by any Director to do so, convene a meeting of the Board by giving a notice in writing to every other Director. CHAIRMAN OF DIRECTORS 133. The Directors shall choose one of their number to be the Chairman of the Directors who shall hold such office until the Directors otherwise determine. If at any meeting the Chairman of the Directors shall not be present at the time appointed for holding the same, the Directors present shall choose some one of their member to be the Chairman of such meeting. 26 QUESTIONS HOW DECIDED 134. Questions arising at any meeting of the Board shall be decided by a majority of votes and in the case of an equality of votes the Chairman shall have second or a casting vote. POWERS OF BOARD MEETING 135. A meeting of the Board for the time being at which a quorum is present, shall be competent to exercise all or any of the authorities, power and discretions which by or under the Act or the Articles of the Company are for the time being vested in or exercisable by the Board generally. APPOINTMENT OF SUB-COMMITTEE 136. The Board may appoint from time to time a sub-committee consisting of one or more Director(s) and or one or more senior executive(s) of the Company to deal with matters relating to transfer / transmission of shares / debentures and such other matters incidental thereto with such powers and duties, as the Board deems fit. DIRECTORS MAY APPOINT COMMITTEES 137. Subject to the restrictions contained in Section 292 of the Act, the Board may delegate any of its powers to committees of the Board consisting of such members of its body as it thinks fit, and it may from time to time revoke and discharge any such committee of the Board either wholly or in part, and either as to persons or purposes but every committee of the Board so formed shall in the exercise of the powers so delegated, confirm to any Regulations that may from time to time be imposed on it by the Board. All acts done by any such committee of the Board in conformity with such Regulations and in fulfilment of the purpose of their appointment but not otherwise shall have the like force and effect as if done by the Board. MEETINGS OF COMMITTEE HOW TO BE GOVERNED 138. The meetings and proceedings of any such committee of the Board consisting of two or more members shall be governed by the provisions herein contained for regulating the meetings and proceedings of the Directors so far as the same are applicable thereto and are not superseded by any Regulations made by the Directors under the last preceding Article. The provisions of Article 134 shall mutatis mutandis apply to the meetings of such committee. CIRCULAR RESOLUTION 139. No resolution shall be deemed to have been duly passed by the Board or by a Committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the Directors or to ail the members of the committee then in India (not being less in number than the quorum fixed for a meeting of the Board or Committee, as the case may be), and to all other Directors or members of the Committee, at their usual address in India and has been approved by such of the Directors or members of the Committee as are then in India, or by majority of such of them as are entitled to vote on the resolution. VALIDITY OF DIRECTORS ACTS 140. All acts done by any meeting of the Board or by a Committee or by a sub- committee of the Board, or by any person acting as a Director shall notwithstanding that it shall afterwards be discovered that there was some defect in the appointment of such Directors, or persons acting as aforesaid, or that they or any of them were disqualified or had vacated office or that 27 the appointment of any of them were disqualified or had vacated office or that the appointment of any of them had been terminated by virtue of any provisions contained in the Act or in these Articles, be as valid as if every such person had been duly appointed and was qualified to be a Director and had not vacated his office or his appointment had not been terminated. Provided that nothing in this Article shall be deemed to give validity to acts done by a Director after his appointment has been shown to the Company to be invalid or to have terminated. POWERS OF DIRECTORS 141. The business of the Company shall be managed by the Board of Directors, who may exercise all such powers of the Company and do all such acts and things as are not, by the Act, or any other Act or by the Memorandum or by the Articles of the Company required to be exercised by the Company in General Meeting, subject nevertheless to the Regulations of these Articles to the provisions of the Act, or any other Act and to such Regulations being not inconsistent with the aforesaid Regulations or provisions as may be prescribed by the Company in General Meeting but no Regulation made by the Company in General Meeting shall invalidate any prior act of the Board which would have been valid if that Regulation had not been made. Provided that the Board of Directors shall not except with the consent of the Company in General Meeting:- a. sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the Company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking; b. remit or give time for the repayment of, any debt by a Director; c. invest, otherwise than in trust securities, the amount of compensation received by the company in respect of the compulsory acquisition of any such undertaking as is referred to in Clause (a) or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time; d. borrow moneys, where the moneys to be borrowed together with the moneys already borrowed by the company (apart from temporary loans obtained from the company's Bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the company and its free reserves, that is to say, reserves not set apart for any specific purposes. Provided further that the powers specified in Section 292 of the Act shall be exercised only at meetings of he Board unless the same be delegated to the extent therein stated; or e. contribute to Charitable and other funds not directly relating to the business of the Company or the welfare of its employees any amounts, the aggregate of which will in any financial year exceed Rupees Fifty Thousand only or five percent of its average net profits as determined in accordance with the provisions of Sections 349 and 350 of the Act during the three financial years immediately preceding, whichever is greater. CERTAIN POWERS TO BE EXERCISED BY THE BOARD ONLY AT MEETINGS 142. The Board of Directors of the Company shall exercise the following powers on behalf of the Company and it shall do so only by means of resolutions passed at meetings of the Board:- a. The power to make calls on share holders in respect of money unpaid on their shares; b. The power to issue debentures; 28 c. The power to borrow money otherwise than on debentures; d. The power to invest the funds of the Company; e. The power to make loans; Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of Directors, the Manager or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e) of this Article to the extent specified in sub-sections (2), (3) and (4) respectively of Section 292 of the Act, on such condition as the Board may prescribe. in respect of dealings between the company and its bankers. the exercise by the company of the powers specified in Clause (c) shall mean the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day to day operation on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of. CERTAIN POWERS OF THE BOARD 143. Without prejudice 10 the general powers conferred by the last preceding Article and so as not in any way to limit or restrict these powers, and without prejudice to the other powers conferred by these Articles, but subject to the restrictions contained in the last preceding Article, it is hereby declared that the Directors shall have the following powers, that is to say, power: 1) To pay the costs, charges and expenses preliminary and incidental to the promotion, formation, establishment and registration of the company. PAYMENT OUT OF CAPITAL 2) To pay and charge to the capital account of the company any commission or interest lawfully payable thereout under the provisions of Sections 76 and 208 of the Act, TO ACQUIRE PROPERTY 3) Subject to Sections 292 and 297 of the Act to purchase or otherwise acquire for the Company any property, rights, privileges which the Company is authorised to acquire, at or for such price or consideration and generally on such terms and conditions as they think fit, and in any such purchases or other acquisition to accept such title as the Directors may believe or may be advised to be reasonably satisfactory, TO PAY FOR PROPERTY, ETC. 4) At their discretion and subject to the provisions of the Act, to pay for any property, rights, or privileges acquired or services rendered in the Company either wholly or partially, in cash or in shares, bonds, debentures, mortgages, or other securities of the such amount credited as paid up thereon as may be agreed upon and any such bonds; debentures, mortgages or other securities may be either, specifically charged upon all or any part of the property of the Company and its uncalled capital or not so charged. TO SECURE CONTRACTS 5) To secure the fulfilment of any contracts or engagements entered into by the Company by mortgage or charge of all or any of the property of the Company and its uncalled capital for the time being or in such manner as they may think fit. 29 TO ACCEPT SURRENDER OF SHARES 6) To accept from any member, as far as may be permissible by law, a surrender of his shares or any part thereof, on such terms and conditions as shall be agreed. TO APPOINT TRUSTEES 7) To appoint any person to accept and to hold in trust for the Company any property belonging to the Company, or in which it is interested, or for any other purposes; and to execute and do all such deeds and things as may be required in relation to any such trust, and to provide for the remuneration of such trustee or trustees. TO BRING AND DEFEND ACTIONS 8) To institute, conduct, defend, compound, or abandon any legal proceedings by or against the Company or its officers or otherwise payment or satisfaction of any debts due, and of any claims or demands by or against the Company, and to refer any differences to arbitration, and observe and perform any awards made thereon. TO ACT IN INSOLVENCY MATTERS 9) To act on behalf of the Company in all matters relating to bankrupts and insolvents. TO GIVE RECEIPTS 10) To make and give receipts, releases and other discharges for moneys payable to the Company, and for the claims and demands of the Company. TO INVEST MONEYS 11) Subject to the provisions of Sections 292, 293 (1) (c), 295, 370 and 372 of the Act, to invest, deposit and deal with any moneys of the Company not immediately required for the purpose thereof, upon such security (not being shares of this Company), or without security and in such manner as they may think fit, and from time to time to vary or realise such investments. Save as provided in Section 49 of the Act, all investments shall be made and held in the Company's own name. TO PROVIDE FOR PERSONAL LIABILITIES 12) To execute in the name and on behalf of the Company in favour of any Director or other person who may incur or be about to incur any personal liability whether as principal or surety; for the benefit of the Company such mortgages of the Company's property (present and future) as they think fit; and any such mortgage may contain a power of sale, and such other powers, provisions, covenants and agreements as shall be agreed upon. TO AUTHORISE ACCEPTANCES 13) To determine from time to time who shall be entitled to sign, on the Company's behalf, bills, notes, receipts, acceptances, endorsements, cheques, dividend warrants, releases, contracts and documents and to give necessary authority for such purpose. TO DISTRIBUTE BONUS 14) To distribute by way of bonus amongst the staff of the Company a share in the profits of the Company, and to give to any officer or other person employed by the Company 30 a commission on the profits of any particular business or transaction and to charge such bonus or commission as part of the working expenses of the Company. TO PROVIDE FOR WELFARE OF EMPLOYEES 15) To provide for the welfare of Directors or Ex-Directors or employees or ex-employees of the Company and their wives, widows and families or the dependants or connections of such persons by building or contributing to the building of houses, dwellings or chawls or by grants of moneys, pensions, gratuities, allowances, bonus or other payments; or by creating and from time to time subscribing or contributing to provident and other associations, institutions or funds or trusts and by providing or subscribing or contributing towards places of instruction and recreation, hospitals and dispensaries, medical and other attendance and other assistance as the Board shall think fit, and subject to the provisions of Section 293 (1) (e) of the Act. To subscribe or contribute or otherwise to assist or to guarantee money to any charitable, benevolent, religious, scientific, national or other institutions or objects which shall have any moral or other claim to support or aid by the Company either by reason of locality of operation, or of public and general utility or otherwise. TO CREATE RESERVE FUND 16) Before recommending any dividend to set aside, out of the profits of the Company such sums as they may think proper for depreciation or to a Depreciation Fund or to an Insurance Fund or as a Reserve Fund or Sinking Fund or any special fund to meet contingencies or to repay debentures or debenture-stock, or for special dividends or for equalising dividends or for repairing, improving, extending and maintaining any of the property of the Company and for such other purposes (including the purposes referred to in the preceding clause), as the Board may in their absolute discretion think conducive to the interest of the Company, and subject to Section 292 of the Act, to invest the several sums so set aside or so much thereof as required to be invested, upon such investments (other than shares of the Company) as they think fit, and from time to time to deal with and vary such investments and dispose of and apply and expend all or any part thereof for the benefit of the Company, in such manner and for such purposes as the Board in their absolute discretion, think, conducive to the interest of the company notwithstanding that the matters to which the Board apply or upon which they expend the same, or any part thereof, may be matters to or upon which the capital moneys of the company might rightly be applied or expended, and to divide the reserve fund into such special funds as the Board may think fit with full power to transfer the whole or any portion of the Reserve Fund into such special funds as the Board may think fit, with full power to transfer the whole or any portion of a Reserve Fund or division of a Reserve Fund and with full power to employ the assets constituting all or any of the above funds, including the Depreciation Fund, in the business of the company or in the purchase or repayment of debentures or debenture-stock, and without being bound to keep the same separate from the other assets and without being bound to pay interest on the same with power however to the Board at their discretion to pay or allow to the credit of such funds interest at such rate as the Board may think proper. TO APPOINT MANAGERS ETC. 17) To appoint, and at their discretion remove or suspend such general managers, secretaries, assistants, supervisors, clerks, agents and servants for permanent, temporary or special services as they may from time to time think fit, and to determine their powers and duties and fix their salaries, or emoluments or remuneration, and to require security in such instances and to such amount as they may think fit. And also from time to time to provide for the management and transaction of the affairs of the company in any specified locality in India or elsewhere in such manner as they think fit. 31 TO COMPLY WITH LOCAL LAWS 18) To comply with requirements of any local law which in their opinion it shall in the interest of the Company be necessary or expedient to comply with. TO APPOINT LOCAL BOARD 19) From time to time and at any lime to establish any Local Board for managing any of the affairs of the Company in any specified locality in India or elsewhere and to appoint any persons to be Members of such Local Boards. and to fix their remuneration. TO DELEGATE POWERS 20) Subject to Section 292 of the Act, from time to time and at any time to delegate to any persons so appointed any of the powers, authorities and discretions for the time being vested in the Board, other than their power to make call or to make loans or borrow moneys and to authorise the members for the time being of any such Local Board, or any of them, to fill up any vacancies therein and to act notwithstanding vacancies, and any such appointment or delegation may be made on such terms, and subject to such conditions as the Board may think fit, and the Board may at any time remove any persons so appointed and may annul any such delegation. TO AUTHORISE BY POWER OF ATTORNEY 21) At any time and from time to time by Power of Attorney under the Seal of the Company, to appoint any person or persons to be the Attorney or Attorneys of the Company, for such purposes and with such powers, authorities, and discretions (not exceeding those vested in or exercisable by the Board under these presents and excluding the power to make calls and excluding also except in the limits authorised by the Board, the power to make loans and borrow moneys) and for such period and subject to such conditions as the Board may from time to time think fit, and any such appointment may (if the Board thinks fit) be made in favour of the members of any local board, established as aforesaid or in favour of any company or the shareholders, directors, nominees or managers of any company or firm or otherwise in favour of any fluctuating body of persons whether nominated directly, or indirectly by the Board and any such Power of Attorney may contain such powers for the protection or convenience of persons dealing with such Attorneys as the Board may think fit, and may contain Powers enabling any such delegates or Attorneys as aforesaid to sub-delegate all or any of the Powers, authorities and discretions for the time- being vested in them. TO NEGOTIATE. 22) Subject to Sections 294 and 297 of the Act for or in relation to any of the matters aforesaid or otherwise for the purposes of the Company to enter into all such negotiations and contracts and rescind and vary all such contracts, and execute and do all such acts. deeds, and things in the name and on behalf of the Company as they may consider expedient. TO MAKE AND VARY REGULATIONS 23) From time to time make, vary or repeal bye-laws for the regulation of the business of the Company, its officers and servants. 32 AMENDMENTS TO ACCOUNTS 24) The directors shall, if they consider it to be necessary and in the interest of the company, be entitled to amend the Audited Accounts of the company of any financial year which have been laid before the Company in General Meeting. The amendments to the Accounts effected by the directors in pursuance of this Article shall be placed before the members in General Meeting for their consideration and approval. TO FORMULATE SCHEMES, ETC. 25) The directors may formulate, create, institute or set up such schemes, trusts, plans or proposals as they may deem fit for the purpose of providing incentive to the officers, employees and workers of the company, including without limiting the generality of the foregoing, formulation of schemes for the subscription by the officers, employees and workers to shares in, or debentures of, the company. SIGNING OF CHEQUES 144. All cheques, promissory notes, drafts, bills of exchange, and other negotiable instruments, and all receipts for moneys paid by the company, shall be signed, drawn, accepted or otherwise executed as the case may be, in such manner as the directors shall from time to time by resolution determine. FOREIGN REGISTER 145. The company may exercise the powers conferred upon the company by Sections 157 and 158 of the Act with regard to the keeping of branch registers of members or debenture holders residing in any State or Country outside India, and the directors may (subject to the provisions of those Sections) make and vary such Regulations as they may think fit respecting the keeping of any such register. DECLARATION OF SECRECY 146. Every director including Managing, Wholetime, Debenture or Special Director, Manager, Secretary, Treasurer, Trustees for the time being of the company, member or Debenture holder, member of a committee, officer, servant, agent, accountant or any other person employed in or about the company business shall if so required by the Board of Directors before entering upon his duties, sign a declaration pledging himself to observe strict secrecy respecting all transactions of the company with its customers and the state of accounts with individuals and all manufacturing, technical and business information of the company, except when required so to do by the Board or by any meeting or by a Court of law and except so far as may be necessary in order to comply with any of the provisions in these Articles contained. SECRECY OF WORKS AND INFORMATION 147. No member or other person (not being a director) shall be entitled to visit or inspect any works of the company without the permission of the directors or to require discovery of any information concerning the business, trading or customers of the Company, or any matter which is or may be in the nature of a trade secret, mystery of trade, secret process, or any other matter which may relate to the conduct of the business of the Company and which in the opinion of the Directors, it would be inexpedient in the interest of the Company to disclose. 33 PROHIBITION OF SIMULTANEOUS APPOINTMENT OF MANAGING DIRECTOR AND MANAGER 148. The Company shall not appoint or employ at the same time more than one of the following categories of management personnel namely: a. Managing Director and b. Manager SECRETARY 149. The Directors shall from time to time appoint a Secretary and at their discretion remove any such Secretary to perform any functions, which by the Act are to be performed by the Secretary and to execute any other ministerial or administrative duties, which may from time to time be assigned to the Secretary by the Directors. The Director may also at any time appoint any person or persons (who need not be the Secretary) to keep the registers required to be kept by the Company. THE SEAL, ITS CUSTODY AND USE 150. a. The Board shall provide a Common Seal for the purposes of the Company and shall have power from time to time to destroy the same and substitute a new seal in lieu thereof and the Board shall provide for the safe custody of the Seal for the time being and the Seal shall never be used except by the authority of the Board or a Committee of the Board previously given. b. The Company shall also be at liberty to have an official Seal in accordance with Section 50 of the Act, for use in any territory, district or place outside India. DEED HOW EXECUTED 151. Every Deed Or Other instrument, to which the Seal of the Company is required to be affixed, shall unless the same is executed by a duly constituted attorney be signed by one Director or some other person appointed by the Board for the purpose provided that in respect of the Share Certificate the Seal shall be affixed in accordance with Rule 6 of the Companies (Issue of Share Certificates) Rules, 1960. DIVISION OF PROFITS 152. The profits of the Company, subject to any special rights relating thereto created or authorised to be created by these Articles, shall be divisible among the Members in proportion to the amount of capital paid-up or credited as paid-up and to the period during the year for which the capital is paid-up on the shares held by them respectively. THE COMPANY IN GENERAL MEETING MAY DECLARE DIVIDENDS 153. Subject to the provisions of Section 205 of the Companies Act, 1956 the Company in General Meeting may declare dividends, to be paid to its Members according to their respective rights but no dividends shall exceed the amount recommended by the Board, but the Company in General Meeting may declare a smaller dividend. INTERIM DIVIDEND 154. The Board may, from time to time, pay to the members such interim dividend as in their judgement the position of the Company justifies. 34 CAPITAL PAID-UP IN ADVANCE CARRYING INTEREST NOT TO EARN DIVIDEND 155. Where capital is paid in advance of calls, such capital may carry interest but shall not be in respect thereof confer a right to dividend or participate in profits. DIVIDEND TO BE PAID PRO-RATA 156. a. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect whereof dividend is paid but if and so long as nothing is paid upon any shares in the Company, dividends may be declared and paid according to the amounts of the shares. b. No amount paid or credited as paid on shares in advance of calls shall be treated for the purpose of this regulation as paid on shares. c. All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portions of the period in respect of which the dividend is paid. but if any shares is issued on terms providing that it shall rank for dividend as from a particular date such shares shall rank for dividend accordingly. RETENTION OF DIVIDENDS UNTIL COMPLETION OF TRANSFER UNDER ARTICLE 62 157. The Board may retain the dividends payable upon shares in respect of which any person is, under Article 62 entitled to become a Member, which any person under that Article is entitled to transfer, until such person shall become a member in respect of such shares or shall duly transfer the same. DIVIDEND, ETC. TO JOINT-HOLDERS 158. Any one of the several persons who are registered as the joint-holders of any share may give effectual receipts for all dividends or bonus and payment on account of dividends or bonus or other moneys payable in respect of such shares. NO MEMBER TO RECEIVE DIVIDEND WHILST INDEBTED TO THE COMPANY AND COMPANY'S RIGHT TO REIMBURSEMENT THEREOF 159. No member shall be entitled to receive payment of any interest or dividend in respect of his share or shares, whilst any money may be due or owing from him to the Company in respect of such share or shares or otherwise howsoever either alone or jointly with any other person or persons; and the Board may deduct from the interest or dividend payable to any member all sums of money so due from him to the Company. TRANSFER OF SHARES TO BE REGISTERED 160. A transfer of shares shall not pass the right to any dividend declared thereon before the registration of the transfer. MANNER OF PAYMENT OF DIVIDEND 161. Unless otherwise directed, any dividend may be paid by cheque or warrant or by a pay slip or receipt having the force of a cheque or warrant sent through the post to the registered address of member or person entitled or in case of joint holder to that one of them first named in the Register in respect of the joint holder. Every such cheque or warrant shall be made 35 payable to the order of the person to whom it is sent. The company shall not be responsible for any cheque or warrant or pay slip or receipt lost in transmission or for any dividend lost to the member or person entitled thereto by the forged signature of any pay slip or receipt or the fraudulent recovery of the dividend by any other means. INTEREST ON DIVIDENDS 162. No unpaid dividend shall bear interest as against the Company. No unclaimed dividend shall be forfeited by the Board unless the claim thereto becomes barred by law and the Company shall comply with all the provisions of Section 205A of the Act in respect of unpaid or unclaimed dividend. DIVIDEND AND CALL TOGETHER 163. Any General Meeting declaring a dividend may on the recommendation of the Directors make a call on the Members of such amount as the meeting fixes, but so that the call on each member shall not exceed the dividend payable to him and so that the call may be made payable at the same time as the dividend and the dividend may, if so arranged between the Company and the Members, be set off against the call. CAPITALISATION OF PROFITS 164. 1) The Company in General Meeting may, upon the recommendation of the Board, resolve;- a) that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the company's reserve accounts or to the credit of the profit and loss account, or otherwise available for distribution; and b) that such sum be accordingly set free for distribution in the manner specified in clause (2) amongst the members who would have been entitled thereto, if distributed by way of dividend and in the same proportions. 2) The sum aforesaid shall not be paid in cash but shall be applied, subject to the provisions contained in clause (3), either in or towards:- i) paying up any amounts for the time being unpaid on any shares held by such member respectively; ii) paying up in full, unissued shares of the company to be allotted and distributed, credited as fully paid up to and amongst such members in the proportions aforesaid; or iii) partly in the way specified in sub-clause (i) and partly in that specified in sub-clause (ii). 3) A share premium account and a capital redemption reserve account may, for the purpose of this Regulation, only be applied in the paying up of unissued shares to be issued to members of the company as fully paid bonus shares. 4) The Board shall give effect to the resolution passed by the Company in pursuance of this Regulation. 165. 1) Whenever such a resolution as aforesaid shall have been passed, the Board shall:- 36 a) make all appropriation and application of the undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid shares, if any; and b) generally do all acts end things required to give effect thereto. 2) The Board shall have full power:- a) to make such provision, by the issue of fractional certificates or by payment in cash or otherwise, as it thinks fit, for the case of shares or debentures becoming distributable in fraction; and also b) to authorise any person to enter, on behalf of all the members entitled thereto, into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares to which they may be entitled upon such capitalisation or (as the case may require) for the payment of by the company on their behalf by the application thereto of their respective proportion of the profits resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares. 3) Any agreement made under such authority shall be effective and binding on all such members. BOARD REPORT 166. There shall be attached to every such balance sheet a report of the Board as to the state of the Company's affairs and as to the amounts, if any, which it proposes to carry to any reserves in such balance sheet and the amount, if any, which it recommends should be paid by way of dividend; and material changes and commitments, if any, affecting the financial position of the Company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of the report. The Board's report shall so far as is material for the appreciation of the state of the Company's affairs by its members and will not in the Board's opinion be harmful to the business of the company or any of its subsidiaries, deal with any changes which have occurred during the financial year in the nature of the Company's business, in the Company's subsidiaries or in the nature of the business carried on by them and generally in the classes of business in which the company has an interest and any other information as may be required by Section 217 of the .Act, The Board shall also give the fullest information and explanations in its report aforesaid or in an addendum to that report, on every reservation, qualification or adverse remark contained in the auditor's report. The Board's report and any addendum thereto shall be signed by its Chairman if he is authorised in that behalf by the Board; and when he is not so authorised, shall be signed by not less than two Directors. SIGNING OF BALANCE SHEET 167. The profit and loss account and balance sheet shall be signed by the Secretary if any, and by not less than two Directors, one of whom shall be a Managing Director if there is one provided that if there is only one Director present in India at the time, the profit and loss account and balance sheet shall be signed by such Director but in such a case there shall be attached to the profit and loss account and balance sheet a statement signed by such Director explaining the reason for non-compliance with the aforesaid provision requiring the signature of Directors. The profit and loss account shall be annexed to the balance sheet and the auditor's report (including the auditor's separate, special or supplementary report, if any), shall be attached thereto, and such report shall be read before the Company in general meeting and shall be open to inspection by any member. 37 RIGHTS OF MEMBERS TO COPIES OF BALANCE SHEET AND AUDITOR'S REPORT 168. The Company shall comply with the requirements of Section 219 of the Act. DOCUMENTS AND NOTICES SERVICE OF DOCUMENTS OR NOTICES ON MEMBERS BY THE COMPANY 169. A document or notice may be served or given by the Company on any member either personally or by sending it by post to him to his registered address, or (if he has no registered address in India) to the address supplied by him to the Company for serving documents or notices on him. MANNER OF SERVICE OF DOCUMENTS OR NOTICES 170. Where a document or notice is sent by post, service of the document or notice shall be deemed to be effected by properly addressing; prepaying and posting a letter containing the documents or notice, provided that where a member has intimated to the Company in advance that documents or notices should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the Company a sum sufficient to defray the expenses of doing so, service of the document or notice shall not be deemed to be effected unless it is sent in the manner intimated by the Member and such service shall be deemed to have been effected in the case of notice of a Meeting at the expiration of forty-eight hours after the letter containing the document or notice is posted and in any other case at the time of which the letter would be delivered in the ordinary course of post. BY ADVERTISEMENT 171. A document or notice advertised in a newspaper circulating in the city in which the office of the Company is situated shall be deemed to be duly served or sent on the day on which the Advertisement appears on or to every Member who has no registered address in India and has not supplied to the Company an address within India for the serving of documents on or the sending of notice to him. ON PERSONAL REPRESENTATIVES, ETC. 172. A document or notice may be served or given by the Company on or to persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in a prepaid letter addressed to them by name or by the title of representative of the deceased, or assignee of the insolvent or by any like description, at the address (if any) in India supplied for the purpose by the persons claiming to be so entitled or (until such an address) has been so supplied by serving the documents or notice in any manner in which the same might have been given if the death or insolvency had not occurred. ON JOINT-HOLDERS 173. A document or notice may be served or given by the Company to the joint holders of share by serving or giving the document or notice on or to the joint holder named first in the register of members in respect of the share. 38 TO WHOM DOCUMENTS OR NOTICES MUST BE SERVED OR GIVEN 174. Documents or notices of every General Meeting shall be served or given in some manner hereinbefore authorised on or to (a) every Member, (b) every person entitled to a share in consequence of the death or insolvency of a member and (c) the Auditor/s for the time being of the Company. MEMBERS BOUND BY DOCUMENTS OR NOTICES SERVED ON OR GIVEN TO PREVIOUS HOLDERS 175. Every person, who, by operation of law, transfer or other means whatsoever, shall become entitled to any share shall be bound by every document or notice in respect of such share. which prior to his name and address being entered on the Register of Members, shall have been duly served on or given to the person from whom he derives his title to such share. DOCUMENTS OR NOTICES BY COMPANY AND SIGNATURE THEREOF 176. Any document or notice to be served or given by the Company may be signed by a Director or some person duly authorised by the Board of Directors for such purposes and the signature thereto may be written, printed or lithographed. SERVICE OF DOCUMENTS OR NOTICE BY MEMBER 177. All documents or notices to be served or given by Members on or to the Company or any officer at the office by post under a Certificate of Posting or by Registered Post, or by leaving it at the office. WINDING UP DISTRIBUTION OF ASSETS 178. The Liquidator on any winding up (whether voluntary and supervision or compulsory) may with the sanction of a Special Resolution, but subject to the rights attached to any preference share capital, divide among the contributories in specie any part of the assets of the Company and may, with the like sanction, vest any part of the assets of the Company in trustees upon such trusts for the benefit of the contributors, as the liquidator, with the like sanction shall think fit. INDEMNITY AND RESPONSIBILITY OFFICER'S AND OTHERS RIGHT TO INDEMNITY 179. Every officer or agent for the time being of the Company shall be indemnified out of the assets of the Company against all liability incurred by him in relation to the business of the company in defending any proceedings whether civil or criminal in which judgement is given in his favour or in which he is acquitted or in connection with any application under Section 633 of the Act in which relief is granted to him by the Court. DIRECTORS, MANAGERS ETC. NOT LIABLE FOR ACTS OF OTHERS 180. Subject to provisions of Section 201 of the Act no Director, Manager or other Officer of the Company shall be liable for the act, receipts, neglects of any other director or officer or for joining in any receipts or other act for conformity or for any loss or expenses happening to the company through the insufficiency or deficiency of title to any property acquired by order of the directors, for and on behalf of the company or for the insufficiency or deficiency of any 39 security in or upon which any of the moneys of the company shall be invested or for any loss or damage arising from bankruptcy, insolvency or tortious act of any person with whom any moneys, securities, or effects shall be deposited or for any loss occasioned by an error of judgement or oversight on his part, or for any other loss, damages or misfortunes whatever which shall happen in the execution of the duties of this officer or in relation thereto unless the same happens through his own dishonesty. We the several persons whose names and addresses are subscribed below are desirous of being formed into a Company in pursuance of this Articles of Association and we respectively agree to take the number of shares in the Capital of the Company set opposite to our respective names. - -------------------------------------------------------------------------------- Signature, Name, Address, Number of Equity description and occupation of Shares taken by each Subscribers Subscriber Witness - -------------------------------------------------------------------------------- Nagavara Ramarao Narayana Murthy 1 (Son of Nagavara Ramarao) (One equity) Flat 6, Padmanabhan Apartment, 1126/2, Shivajinagar, Pune - 411 016 Consultant Nadathur Srinivasa Raghavan 1 (Son of N. Sarangapani) (One equity) 5, "Ravikripa", Station Road, Matunga (C. R.), Bombay- 400019. Consultant VIPUL DEVENDRA Senapathy Gopalakrishnan 1 KINKHABWALA (Son of P. G. Senapathy) (One equity) (S/o. Devendra Vithaldas Krishna Vihar, Kalapalayam Lane, Kinkhabwala) Pathenchanthai, 14, Thakurdwar Road, Trivandrum - 695 001. Zaveri Building, Bombay - 400 002. Service Consultant Nandan Mohan Nilekani 1 (Son of M. R. Nilekani) (One equity) 37, Saraswatput, Dharwar - 580 002. KARNATAKA Consultant -------------------------- 4 (Four equity) - -------------------------------------------------------------------------------- Dated this 15th day of June 1981. EX-3.2 3 MEMORANDUM OF ASSOCIATION EXHIBIT 3.2 THE COMPANIES ACT, 1956 COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION OF INFOSYS TECHNOLOGIES LIMITED I. The name of the Company is INFOSYS TECHNOLOGIES LIMITED. II. The registered office of the Company will be situated in the State of Karnataka. III. The objects for which the Company is established are: (A) MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION:- 1. To establish, maintain, conduct, provide, procure or make available services of every kind including commercial, statistical, financial, accountancy, medical, legal, management, educational, engineering, data processing, communication and other technological social or other services. 2. To carry on the business as importer, exporter, buyers, lessers, and sellers of and dealers in all types of electronic components and equipment necessary for attaining the above objects. (B) OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS: 3. To carry on all kinds of promotion business, and in particular to form, constitute, float, lend money to assist, and control any companies, associations, or undertakings whatsoever. 4. To establish, provide, maintain and conduct or otherwise subsidise research laboratories, experimental stations, workshops and libraries for scientific, industrial, commercial and technical research and experiments; to undertake and carry on scientific, industrial, commercial, economic, statistical and technical research, surveys and investigations; to promote studies, research investigation and invention, both scientific and technical by providing, subsiding, endowing, or assisting laboratories, colleges, universities, workshops, libraries, lectures, meetings, exhibitions and conferences and by providing for the remuneration to scientists, scientific or technical professors or teachers and the award of scholarship, grants and prizes to students, research-workers and inventors or otherwise and generally to encourage, promote and reward studies, research, investigations, experiments, tests and inventions of any kind. 5. To provide for the welfare of employees or ex-employees of the Company and the wives, widows, families or dependants of such persons by building or contributing to the building of houses, dwellings or chawls or by grants of money, pensions, allowances, gratuities, bonus or other payments or by creating and from time-to-time subscribing or contributing to provident and other funds, institutions and trusts and by providing or subscribing or contributing towards 2 places of instruction and recreation, hospitals and dispensaries, medical and other attendance and assistance as the Company shall think fit. 6. To subscribe or contribute or otherwise to assist or to guarantee money to charitable, benevolent, religious, scientific, national, public or any other useful institutions, objects or purposes or for any exhibition. 7. To establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or employments to any person who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary company, or who are or were at any time Directors or Officers of the Company or of any such other company as aforesaid, and wives, widows, families, and dependants of any such persons and also establish and subsidise and subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well being of the Company or of any such other company as aforesaid, and make payments to or towards the insurance of any such person as aforesaid and to do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid. 8. To undertake and execute any trust the undertaking of which may seem to the Company desirable and either gratuitously or otherwise. 9. To act as agents, registrars or brokers and as trustees for any person or company and to undertake and perform sub-contracts. 10. To buy, sell, manufacture, repair, alter and exchange, let on hire, export, and deal in all kinds of articles and things which may be required for the purposes of any of the said businesses, or commonly supplied or dealt in by persons engaged in any such businesses, or which may seem capable of being profitably dealt with in connection with any of the said businesses. 11. To adopt such means of making known the business of the Company and/or associate companies or others as may seem expedient and in particular by advertising in the press, public places and theatres, by radio, by television, by circulars, by purchase and exhibition or works of art or interest, by publication of books, pamphlets, bulletins or periodicals, by organising or participating in exhibitions and by granting prizes, rewards and donations. 12. To apply for and acquire any statutory or other powers, rights or concessions. 13. To act as Aadatias, Selling Agents, Purchasing Agents, Factors, Muccadums, Carriers, Jatha Merchants, Landing and Forwarding Agents, Brokers, Guaranteed Brokers, in respect of goods, materials and merchandise and produce and articles of all kinds and descriptions. 14. To construct and develop residential or industrial colonies for the general advancement of members, employees or others. 15. To purchase, or otherwise acquire and undertake the whole or any part of the business, property, rights, and liabilities of any person, firm or company carrying on any business which this company is authorised to carry on or possessed of property or rights suitable for any of the purposes of the Company and to purchase, acquire, sell and deal in property, shares, stocks, debentures or debenture-stocks of any such person, firm or company and to conduct, make or carry into effect any arrangements in regard to the winding up of the business of any such persons, firm or company. 16. To enter into partnership or into any arrangements for sharing of profits, union of interest, reciprocal concession or co-operation with any person, partnership, or company and to promote, constitute, form and organise, and aid in promoting, constituting, forming and 3 organising companies, syndicates or partnerships of all kinds for all the purposes or acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects thereof or for any other purposes which this Company may think expedient. As also to pay for any properties, rights or privileges required by this Company either in shares of the Company or partly in cash or otherwise and to give shares or stock of this Company in exchange for shares or stock of any other company. 17. To apply for, purchase or otherwise acquire patents, brevet inventions, licences, concessions and the like conferring any exclusive or non-exclusive or limited right to use any secret or other information as to any invention which may seem capable of being used for any of the purposes of the Company or benefit the Company and to use, exercise, or develop or grant licences in respect of or otherwise turn to account the property, rights or information so acquired. 18. To receive money, valuable, and goods and materials of all kinds of depositor for safe custody. 19. To lend money and other property, to guarantee the performance of contracts and obligations of all kinds, to act as agents in the management, sale and purchase of property, and generally to transact business as capitalists and financiers. 20. To lend, invest or otherwise employ or deal with moneys belonging to or entrusted to the Company upon making arrangements to secure repayment or payment of principal and interest thereon. 21. To borrow or raise or secure the payment of money or to receive money on deposit at interest for any of the purpose of the Company and at such time and from time to time and in such manner as may be thought fit and in particular by the issue of debentures, or debenture-stocks, perpetual or otherwise including debentures or debenture-stock convertible into shares of this or any other company or perpetual annuities and in security for any such money so borrowed, raised or received or any such debentures or debenture-stocks so issued, to mortgage, pledge or charge the whole or any part of the property, assets or revenue and profits of the Company, present or future, including its uncalled capital by special assignments or otherwise or to transfer or convey the same absolutely or in trust and to give the lenders power of sale and other powers as may seem expedient and to purchase, redeem or pay off any such securities provided the Company shall not carry on banking business as defined in the Banking Regulation Act, 1949. 22. To draw, make, accept, endorse, discount, execute, issue, negotiate, assign and otherwise deal with cheques, drafts, bills of exchange, promissory notes, hundies, debentures, bonds, bills of lading, railway receipts, warrants and all other negotiable or transferable instruments. 23. To amalgamate with any other company or companies. 24. To distribute any of the property of the Company amongst the members in specie or kind subject to the provisions of the Companies Act in the event of winding up. 25. To apply for, tender, purchase, or otherwise acquire any contracts, subcontracts licences and concessions for or in relation to the objects or business herein mentioned or any of them, and to undertake, execute, carry out, dispose of or otherwise turn to account the same. 26. To do all or any of them in any part of the world either as principals, agents, contractors, trustees or otherwise and either by or through agents, trustees, sub-contractors or otherwise, either alone or in conjunction with others and to allow any property to remain outstanding in such agents or trustees. 27. To do all such other things as are incidental or conducive to the attainment of the above objects or any of them. 4 (C) OTHER OBJECTS: 28. To carry on the business of an investment company and to buy, underwrite and to invest in the acquire and hold shares, stocks, debentures, debenture-stocks, bonds, obligations and securities issued or guaranteed by any company constituted or carrying on business in India or elsewhere and debentures, debenture-stocks, bonds, obligations and securities issued or guaranteed by any Government, State, Dominion, Sovereign, Ruler, Commissioners, Public body or authority supreme, municipal, local or otherwise or firm or person whether in India or elsewhere and to deal and turn to account the same. 29. To carry on business related to the electronic industry, Textiles, Chemicals, Hotels, Construction & Engineering items. 30. To transact and carry on all kinds of agency business and in particular to collect rents and debts, and to negotiate loans, to find investments, and to issue and place shares, stocks, debentures, debenture-stocks or securities for the above business of the Company. 31. To carry on business of every kind and to act as merchants, traders, Commission or other agents or in any other capacity whatsoever in India or in any part of the world, to carry on the business of providing services of every kind and to import, export, buy, sell, barter, exchange, pledge, make advances upon or otherwise deal in goods, produce, article, merchandise, services, conveniences and amenities of every kind which will be required for the business of the Company. 32. To carry on business as capitalists, financiers; concession and merchants and to undertake and carry on and execute all kinds of financial, commercial, trading and other operations. 33. To sell or purchase or otherwise deal in any goods, products, articles or things and to carry on business as merchants, traders, and dealers in any goods, commodities, articles and things whatsoever in or outside India and generally to carry on business as exporters, importers and dealers. 34. To carry on the business of advertising contractors and agents and any other business which may be usefully carried on in connection with such business and to acquire and undertake the whole or any part of the business property and liabilities of any person or company carrying on business as such contractor or agents, or any other business which may be usefully carried on in connection therewith. 35. To manufacture, maintain, export, import, buy, sell, rent, hire or lease or otherwise acquire, dispose of or deal in all kinds of digital systems, numerical controller, flexible manufacturing systems, robots, communication systems, computers, computer peripherals, computer software, computer hardware, computer technology, machines, computer aided teaching aids, energy saving devices, alternative sources of energy, electrical and electronics components, devices, instruments, equipments and controls for any engineering applications, and all other related components, parts and products used in communication and computers. AND IT IS HEREBY DECLARED that the word "company" in this Memorandum when applied otherwise than to this Company shall whenever the context shall so require or admit be deemed to include any authority, partnership or other body of persons whether incorporated or un-incorporated and whether domiciled in India or elsewhere and that the intention is that the objects specified in the several paragraphs of this Memorandum shall be regarded as independent objects and shall accordingly shall be in no wise limited or restricted in its application (except when otherwise expressed in such paragraphs) by reference to the objects in any other paragraph or the name of the company, but may be carried out in as full and ample a manner and construed and applied in as wide a sense as if each of the said paragraphs defines the objects of a separate, distinct and independent Company. 5 IV. The liability of the members is limited. V. "The Authorized Share Capital of the company is Rs. 50,00,00,000 (Rupees fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees five only) with power to increase and reduce the capital of the company and to divide the shares in the capital for the time being into several classes and attach thereto respectively such preferential, deferred, qualified or special rights, privileges or conditions as may be determined by or in accordance with the Articles of Association of the company for the time being and to vary, modify or abrogate any such rights, privileges or conditions in such manner as may be permitted by the Companies Act, 1956 or by the Articles of Association of the company for the time being". RESOLUTION PASSED AT THE EXTRAORDINARY GENERAL MEETING HELD ON DECEMBER 29, 1999 We the several persons whose names and addresses are subscribed below are desirous of being formed into a Company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the Capital of the Company set opposite to our respective names.
- ------------------------------------------------------------------------------------------------------------------ Signature, Name, Address, Number of Equity Signature, Name, Address, description and occupation of Shares taken by each description and occupation of Subscribers Subscriber Witness - ------------------------------------------------------------------------------------------------------------------ Nagavara Ramarao Narayana Murthy (Son of Nagavara Ramarao) 1 Flat 6, Padmanabhan Apartment, (One equity) 1126/2, Shivajinagar, Pune - 411 016 Consultant Nadathur Srinivasa Raghavan (Son of N. Sarangapani) 1 5, "Ravikripa", Station Road, (One equity) Matunga (C. R.), Bombay - 400 019. Consultant Senapathy Gopalakrishnan VIPUL DEVENDRA (Son of P. G. Senapathy) 1 KINKHABWALA Krishna Vihar, Kalapalayam Lane, (One equity) (S/o. Devendra Vithaldas Pathenchanthai, Kinkhabwala) Trivandrum - 695 001. 14, Thakurdwar Road, Zaveri Building, Bombay - 400 002. Service Consultant Nandan Mohan Nilekani (Son of M. R. Nilekani) 1 37, Saraswatput, (One equity) Dharwar - 580 002. KARNATAKA Consultant ------------------- 4 (Four equity) - ------------------------------------------------------------------------------------------------------------------
Dated this 15th day of June 1981. EX-3.3 4 CERTIFICATE OF INCORPORATION EXHIBIT 3.3 Company No. 13115 - ----------------- [LOGO APPEARS HERE] FRESH CERTIFICATE OF INCORPORATION CONSEQUENT ON CHANGE OF NAME In the Office of the Registrar of Companies Karnataka, Bangalore. ------------------------------------- (Under the Companies Act 1956 (1 of 1956) IN THE MATTER OF INFOSYS TECHNOLOGIES PRIVATE LIMITED ---------------------------------------------------------------- I hereby certify that Infosys Technologies Pvt. Limited, which was originally incorporated on Second day of July 1981 under the Companies Act, and under the name Infosys Consultants Private Limited having duly Passed the necessary resolution in terms of section 21/44 of Companies Act, 1956. The name of the said company is this day changed to INFOSYS TECHNOLOGIES Limited and this certificate is issued pursuant to section 23(1) of the said Act. Given under my hand at Bangalore this Second day of June 1992 (One thousand nine hundred Ninety two) /s/ R. Mantra Murphy (R. MANTRA MURTHY) [STAMP APPEARS HERE] ASSTT. Registrar of Companies Karnataka, Bangalore ________________________________________________________________________________ Here give the name of the Company as existing prior to the change. Here give the name of the Act (s) under which the Company was originally registered and incorporated. [The above language appears both in Hindi and English.] The foregoing document contains both Hindi and English versions of the same text. I hereby certify that the English text is a fair and accurate translation of the accompanying Hindi text. /s/ T.V. Mohandas Pai --------------------------- T.V. Mohandas Pai EX-19.1 5 INFOSYS QUARTERLY REPORT TO SHAREHOLDERS EXHIBIT 19.1 INFOSYS TECHNOLOGIES LIMITED Report for the third quarter ended December 31, 1999 [ITLINFOSYS LOGO] ________________________________________________________________________________ 1 of 27 At a glance - Indian GAAP - -------------------------------------------------------------------------------- Rs. in crores, except per equity share data - --------------------------------------------------------------------------------
Quarter ended Nine months ended Year ended December 31, December 31, March 31, 1999 ---------------------------------------------------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- For the period Total revenue 233.52 140.17 635.46 359.03 512.74 Export revenue 224.41 137.83 598.10 352.31 500.25 Operating profit (PBIDT) 98.47 54.65 262.32 128.32 191.75 Profit after tax (PAT) from ordinary activities 73.79 37.74 200.10 89.81 132.92 PBIDT as a percentage of total revenue 42.32% 38.99% 40.42% 35.74% 37.40% PAT (from ordinary activities) as a percentage of 31.78% 26.93% 30.49% 25.02% 25.92% total revenue Earnings per share (from ordinary activities) 22.50 12.12 57.74 27.87 40.19 Dividend per share NA NA 3.00 2.50 7.50 Dividend amount NA NA 9.92 4.00 12.11 Capital investment 46.98 19.75 106.74 52.92 71.68 At the end of the period Total assets 761.26 260.71 574.43 Fixed assets - net 172.92 96.38 100.72 Cash and equivalents 464.43 96.39 416.66 Working capital 587.58 163.58 472.96 Total debt - - - Net worth 761.26 260.71 574.43 Equity 33.07 16.02 33.07 Market capitalization 47,843.98 4,760.31 9,672.80 - --------------------------------------------------------------------------------------------------------------------------------
Note: Rs. One crore equals Rs. 10 million. All ratios are calculated excluding income from exchange differences on translation of foreign currency deposits kept abroad. Market capitalization is calculated by considering the Indian market price for shares outstanding at the period / year-end. EPS figures have been calculated for the period and has not been annualized. Total Revenue Rs. in crores Year Ended Nine months ended Nine months ended March 31, 1999 December 31, 1998 December 31, 1999 512.7 359.0 635.5 Exports Rs. in crores Year Ended Nine months ended Nine months ended March 31, 1999 December 31, 1998 December 31, 1999 500.3 352.3 598.1 Net Profit Rs. in crores Year Ended Nine months ended Nine months ended March 31, 1999 December 31, 1998 December 31, 1999 132.9 89.8 200.1 - -------------------------------------------------------------------------------- 2 of 27 Letter to shareholders - -------------------------------------------------------------------------------- Dear Shareholder, It gives us pleasure to report on yet another successful quarter. Total income (Revenues) for the quarter was Rs. 233.52 crore ($52.2 million) compared to Rs. 140.17 crore ($33.0 million) for the corresponding quarter in the previous year, a growth of 66.6% (57.9%). Export income (Export revenues) grew to Rs. 224.41 crore ($51.7 million) from Rs. 137.83 crore ($32.7 million) for the corresponding quarter in the previous year, a growth of 62.8% (58.1%). Net profit from ordinary activities (Net income) for the quarter was Rs. 73.79 crore ($15.4 million) as compared to Rs. 37.74 crore ($9.6 million) for the corresponding quarter in the previous year, an increase of 95.5% (60.9%). Operating profit (Operating income) was Rs. 98.47 crore ($15.7 million) as compared to Rs. 54.66 crore ($10.8 million) for the corresponding quarter in the previous year, a growth of 80.2% (45.2%). Other income (Other income, net) of Rs. 7.11 crore ($1.6 million) in the current quarter includes Rs. 4.20 crore ($1.0 million) of interest on deployment of funds raised through issue of American Depositary Shares (ADS), Rs. 0.72 crore ($0.1 million) from the sale of Special Import Licenses, and loss of Rs. 0.61 crore ($0.1 million) arising from exchange rate differences on translation of foreign currency deposits. Excluding the above, net profit (net income) for the current quarter was Rs. 69.48 crore ($14.4 million), an 84.1% (50.3%) increase over the comparable net profit of Rs. 37.74 crore (net income of $9.6 million) for the quarter ended December 31, 1998. E-commerce initiatives have become an integral part of every business around the world. Your company has made investments in building the skills required in this new paradigm, and now has the experience, the people and the ability to support its clients in their e-business endeavors. During this quarter, 15.6 % of your company's total income was e-commerce related and we continue to focus on this area. Your company has successfully managed to convert the opportunity of providing Year 2000 conversion solutions into long-term relationships with its clients. The company had capped Year 2000 conversion business at 25% of total revenue and gradually reduced revenue from this service as the Year 2000 approached. We are happy to report that even with revenues from Year 2000 projects declining to just 5.8% this quarter, we have been able to maintain a healthy top- and bottom- line growth. Your company had made preparations to support its internal systems and its clients during the transition to the Year 2000. Teams were, and continue to be in place at all development centers and in the U.S., Europe and Japan. Further, precautions were taken to monitor the impact on communication infrastructure. As of the date of this letter, no material disruption has been reported. However, your company does not expect to arrive at a conclusive picture of the effect of the transition immediately and continues to monitor its systems and is in touch with its clients to address any problems. The full cost of transition support is still being computed; but is expected to be insignificant. We would like to record our appreciation of all employees who worked very hard to ensure that our clients transition to the Year 2000 smoothly. Your company added 23 new clients in the quarter. New clients include e-business clients like Fitme.com, Interval Research, Medschool.com and Beyond.com. The company continues to execute significant cutting-edge projects in voice and data communication technologies, the basic infrastructure of the Internet. During the quarter, your company added another 218 employees (net), increasing the total strength to 4,996 as of the end of the quarter. The new e-commerce paradigm requires the company to keep personnel on "bench" so that it can quickly respond to market requirements. The company's global delivery model enables it to maintain this reserve without significantly impacting margins. Your company was assessed at the highest level, Level 5, of the Capability Maturity Model, a software-specific quality standard formulated by the Software Engineering Institute at Carnegie Mellon University. This represents another significant milestone in the company's continuous quality journey, which began 7 years ago. Phase I of the software development facility at Pune Infotech Park, Hinjawadi, Pune was inaugurated in the quarter. Construction of phase II of this facility is also progressing satisfactorily. Construction of one more block of 75,000 sq. ft of Infosys Park, Phase I is progressing well. Construction of 2,70,000 sq.ft at Infosys Park, Phase II, adjacent to the Company's headquarters in Electronic City, is progressing as per schedule. Work began on a new software development facility in Chennai, with a ground- breaking ceremony. A new facility, with a capacity to accommodate 100 employees, was occupied in Mangalore. This facility is part of a larger building that the company is in the process of acquiring. The company completed the acquisition of 25 acres of land in Bhubaneswar, and will begin construction of a software development campus in due course. ________________________________________________________________________________ 3 of 27 Your company was again voted as the "Best Managed Company" in India in a poll conducted by Asiamoney among the international investment community. Your company was voted "India's Most Admired Company" in a survey conducted by The Economic Times. The Institute of Chartered Accountants of India has adjudged the Annual Report and Accounts of the company for the year ended March 31, 1999 as the best amongst the entries received from Non-Financial Private Sector Companies for the Best Presented Accounts Competition 1998-99. This is the fifth consecutive year that Infosys is winning this prestigious award. We thank all Infoscions, who through their unwavering commitment to the Infosys ideals of quality, hard work and cost control, have made this yet another successful quarter, and look forward to reporting to you the results of the quarter and year ending March 31, 2000. ------------------------- ------------------------ /s/ Nandan M. Nilekani /s/ N. R. Narayana Murthy ------------------------- ------------------------ Bangalore, India Nandan M. Nilekani N. R. Narayana Murthy January 11, 2000 Managing Director, President Chairman and Chief Operating Officer and Chief Executive Officer Note: Figures and terminology in parenthesis refer to US GAAP financial statements, and are in US dollars. ________________________________________________________________________________ 4 of 27 Auditor's report to the members of Infosys Technologies Limited - -------------------------------------------------------------------------------- We have audited the attached Balance Sheet of Infosys Technologies Limited (the Company) as at 31, December, 1999 and the Profit and Loss Accounts of the Company for the nine month period and quarter ended on that date, annexed thereto, and report that: 1. As required by the Manufacturing and Other Companies (Auditor's Report) Order, 1988, issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 2. Further to our comments in the Annexure referred to in paragraph 1 above: a. We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit. b. In our opinion, proper books of account, as required by law, have been kept by the Company so far as appears from our examination of these books. c. The Balance Sheet and Profit and Loss Accounts dealt with by this report are in agreement with the books of account. d. In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report are prepared in compliance with the accounting standards referred to in sub section(3C) of Section 211 of the Companies Act, 1956, to the extent applicable; e. In our opinion, and to the best of our information, and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required, and give a true and fair view: i. in the case of the Balance Sheet, of the state of affairs of the Company as at 31 December, 1999; and ii. in the case of the Profit and Loss Accounts, of the profit for the nine months period and quarter ended on that date. 3. We have also examined the attached Cash Flow Statements of the Company for the nine month period and quarter ended 31 December, 1999. The Statements have been prepared by the Company in accordance with the requirements of Clause 32 of the listing agreements entered into with the Stock Exchanges. for Bharat S Raut & Co. Chartered Accountants Bangalore Ravi Ramu January 11, 2000 Partner ________________________________________________________________________________ 5 of 27
Balance Sheet as at - ----------------------------------------------------------------------------------------------------------------- in Rs. - ----------------------------------------------------------------------------------------------------------------- December 31 March 31 ------------------------------------- 1999 1998 1999 - ----------------------------------------------------------------------------------------------------------------- SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 33,06,95,500 16,01,73,500 33,06,95,500 Reserves and surplus 728,18,83,990 244,69,23,518 541,36,15,748 - ----------------------------------------------------------------------------------------------------------------- 761,25,79,490 260,70,97,018 574,43,11,248 ================================================================================================================= APPLICATION OF FUNDS FIXED ASSETS Gross block 232,93,48,993 150,19,23,526 168,92,38,345 Less : Depreciation 116,24,08,642 68,93,95,453 83,09,14,934 - ----------------------------------------------------------------------------------------------------------------- Net block 116,69,40,351 81,25,28,073 85,83,23,411 Add : Capital work-in-progress 56,23,06,951 15,12,52,880 14,88,35,800 - ----------------------------------------------------------------------------------------------------------------- 172,92,47,302 96,37,80,953 100,71,59,211 INVESTMENTS 75,48,469 75,48,469 75,48,469 CURRENT ASSETS, LOANS AND ADVANCES Sundry debtors 138,35,95,210 89,93,12,816 84,51,88,425 Cash and bank balances 395,23,42,087 96,38,98,984 405,04,82,999 Loans and advances 178,21,08,869 47,43,24,156 68,35,96,522 - ----------------------------------------------------------------------------------------------------------------- 711,80,46,166 233,75,35,956 557,92,67,946 Less: Current liabilities 57,84,73,154 46,11,36,190 42,83,42,481 Provisions 66,37,89,293 24,06,32,170 42,13,21,897 - ----------------------------------------------------------------------------------------------------------------- NET CURRENT ASSETS 587,57,83,719 163,57,67,596 472,96,03,568 - ----------------------------------------------------------------------------------------------------------------- 761,25,79,490 260,70,97,018 574,43,11,248 =================================================================================================================
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS The Schedules referred to above and the notes thereon form an integral part of the Balance Sheet. This is the Balance Sheet referred to in our report of even date. for Bharat S Raut & Co. Chartered Accountants Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Partner Chairman and Managing Director, President Director Chief Executive Officer and Chief Operating Officer Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan Director Joint Managing Director Deputy Managing Director Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
________________________________________________________________________________ 6 of 27
Profit and Loss Account - ------------------------------------------------------------------------------------------------------------------------------------ in Rs. - ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended December 31 Nine months ended December 31 Year ended March 31 ----------------------------------------------------------------------- 1999 1998 1999 1998 1999 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME Software development services and products - Overseas 224,40,92,531 137,82,71,833 598,10,25,956 352,30,43,148 500,25,40,418 - Domestic 2,00,37,227 1,61,76,460 6,87,97,826 4,66,23,604 8,63,71,250 Other income 7,11,00,819 72,25,046 30,48,32,499 2,06,22,369 3,84,71,833 - ------------------------------------------------------------------------------------------------------------------------------------ 233,52,30,577 140,16,73,339 635,46,56,281 359,02,89,121 512,73,83,501 ==================================================================================================================================== EXPENDITURE Software development expenses 117,78,46,621 66,46,78,959 320,04,95,341 188,21,71,058 261,51,74,052 Administration and other expenses 17,27,30,083 12,18,33,522 46,26,00,508 32,10,23,822 45,75,30,137 Provision for Contingencies - 3,33,00,000 3,33,00,000 3,33,00,000 6,66,00,000 Provision towards e-inventing the Company - - 3,50,00,000 - - Provision for investment in subsidiary - 3,52,95,674 - 7,05,95,674 7,05,95,674 - ------------------------------------------------------------------------------------------------------------------------------------ 135,05,76,704 85,51,08,155 373,13,95,849 230,70,90,554 320,98,99,863 Operating profit (PBIDT) 98,46,53,873 54,65,65,184 262,32,60,432 128,31,98,567 191,74,83,638 Interest - - - - - Depreciation 14,47,99,080 9,12,45,179 34,52,40,998 21,46,81,271 35,89,30,078 Profit before tax 83,98,54,793 45,53,20,005 227,80,19,434 106,85,17,296 155,85,53,560 Provision for tax - earlier periods 6,00,000 2,57,00,000 23,00,000 4,32,00,000 4,32,00,000 - current period 10,14,00,000 5,22,00,000 27,47,00,000 12,72,00,000 18,62,00,000 Profit after tax from ordinary activities 73,78,54,793 37,74,20,005 200,10,19,434 89,81,17,296 132,91,53,560 Extraordinary income (net of tax) - 2,34,54,103 - 2,34,54,103 2,34,54,103 Net profit 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 135,26,07,663 - ------------------------------------------------------------------------------------------------------------------------------------ AMOUNT AVAILABLE FOR APPROPRIATION 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 135,26,07,663 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend - Interim - - 9,92,08,200 4,00,43,000 4,00,43,011 - Final 8,10,32,734 - Dividend Tax - - 1,09,12,902 40,04,300 1,21,07,574 Amount transferred - - capital reserve - - - - 2,34,54,103 - - general reserve - - - - 119,59,70,241 Balance in Profit and Loss Account 73,78,54,793 40,08,74,108 189,08,98,332 87,75,24,099 - - ------------------------------------------------------------------------------------------------------------------------------------ 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 135,26,07,663 ====================================================================================================================================
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS The Schedules referred to above and the notes thereon form an integral part of the Profit and Loss Account. This is the Profit & Loss Account referred to in our report of even date. for Bharat S Raut & Co. Chartered Accountants Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Partner Chairman and Managing Director, President Director Chief Executive Officer and Chief Operating Officer Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan Director Joint Managing Director Deputy Managing Director Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
________________________________________________________________________________ 7 of 27 Schedules to the Profit and Loss Account - --------------------------------------------------------------------------------
in Rs. - ----------------------------------------------------------------------------------------------------------------------- Quarter ended December 31 Nine months ended December 31 ------------------------------------------------------------------------ 1999 1998 1999 - ----------------------------------------------------------------------------------------------------------------------- OTHER INCOME Interest received on deposits with banks and 6,87,87,893 69,09,057 18,98,10,230 others Tax deducted at source Rs. 1,01,56,924 (Rs. 9,04,710) Sale of special import licenses 72,35,156 - 2,02,31,549 Profit on sale of assets 4,06,879 - 8,70,656 Miscellaneous income 7,96,726 3,15,989 22,87,198 Exchange differences * (61,25,835) - 9,16,32,866 - ----------------------------------------------------------------------------------------------------------------------- 7,11,00,819 72,25,046 30,48,32,499 ======================================================================================================================= *Exchange differences on translation of foreign currency deposit maintained abroad SOFTWARE DEVELOPMENT EXPENSES Salaries and bonus including overseas staff 81,15,35,725 38,84,96,572 213,58,96,745 expenses Staff welfare 1,20,75,533 75,27,821 3,17,77,904 Contribution to provident and other funds 3,83,57,945 3,29,45,875 9,93,25,259 Foreign tour and travel 20,19,68,835 17,02,42,715 57,55,38,493 Consumables 59,07,518 24,59,618 1,65,15,050 Cost of software packages for own use 4,42,89,192 1,91,84,159 13,71,43,852 for domestic software development 15,50,489 20,09,803 56,15,548 Provision for post-sales client support 22,79,710 34,55,084 1,98,75,864 Computer maintenance 1,46,47,267 55,75,358 2,47,25,626 Communication expenses 3,94,21,621 2,16,80,859 13,41,81,710 Consultancy charges 58,12,786 1,11,01,095 1,98,99,290 - ----------------------------------------------------------------------------------------------------------------------- 117,78,46,621 66,46,78,959 320,04,95,341 ======================================================================================================================= ADMINISTRATION AND OTHER EXPENSES Rent 2,94,91,308 1,84,64,043 7,37,30,739 Legal and professional charges 2,12,23,219 1,16,19,478 5,07,17,048 Travelling and conveyance 2,12,19,985 98,22,877 4,83,98,364 Telephone charges 1,34,11,165 1,22,44,813 3,80,10,382 Power and fuel 1,24,49,207 63,42,281 3,25,57,317 Provision for bad and doubtful debts 25,07,614 (44,14,374) 2,15,50,851 Office maintenance 1,50,73,562 56,80,833 3,32,62,319 Printing and stationery 59,54,552 28,85,245 2,13,46,379 Donations 80,00,000 69,86,000 2,21,86,367 Sundry marketing expenses 99,89,474 56,59,255 2,30,42,736 Other miscellaneous expenses 26,60,338 53,16,363 1,54,47,750 Advertisements (1,69,062) 31,98,633 1,10,67,865 Brand Building 47,97,411 - 47,97,411 Insurance charges 87,73,960 33,01,187 1,78,04,591 Postage and courier 33,70,815 18,39,321 95,70,551 Rates and taxes 19,31,644 11,28,444 76,75,290 Repairs to plant and machinery 21,39,787 25,27,848 62,89,049 Repairs to building 17,62,336 36,11,585 57,67,172 Commission Charges 15,94,215 2,43,713 50,79,015 Research Grants 37,50,000 2,34,00,000 62,50,000 Books and periodicals 13,34,638 5,07,660 34,83,388 Bank charges and commission 9,67,665 10,80,817 27,30,597 Auditor's remuneration - - audit fees 4,46,250 3,50,000 13,38,750 - - certification charges - - - - - other services - - - - - out-of-pocket expenses 50,000 37,500 1,50,000 Bad loans and advances written off - - 3,46,577 - ----------------------------------------------------------------------------------------------------------------------- 17,27,30,083 12,18,33,522 46,26,00,508 ======================================================================================================================= Year ended March 31 ------------- 1998 1999 - ------------------------------------------------------------------------------------------------- OTHER INCOME Interest received on deposits with banks and 1,92,19,735 3,67,00,927 others Tax deducted at source Rs. 1,01,56,924 (Rs. 9,04,710) Sale of special import licenses - - Profit on sale of assets - - Miscellaneous income 14,02,634 17,70,906 Exchange differences * - - - ------------------------------------------------------------------------------------------------- 2,06,22,369 3,84,71,833 ================================================================================================= *Exchange differences on translation of foreign currency deposit maintained abroad SOFTWARE DEVELOPMENT EXPENSES Salaries and bonus including overseas staff 108,16,78,208 151,56,56,923 expenses Staff welfare 2,15,69,875 3,06,17,200 Contribution to provident and other funds 7,93,10,336 11,42,90,209 Foreign tour and travel 41,69,80,391 58,11,20,975 Consumables 52,23,483 1,06,44,207 Cost of software packages for own use 12,17,18,189 14,86,91,737 for domestic software development 60,26,671 1,78,19,890 Provision for post-sales client support 2,26,64,868 2,19,18,587 Computer maintenance 2,41,96,902 3,29,08,467 Communication expenses 6,95,79,151 9,59,08,515 Consultancy charges 3,32,22,984 4,55,97,342 - ------------------------------------------------------------------------------------------------- 188,21,71,058 261,51,74,052 ================================================================================================= ADMINISTRATION AND OTHER EXPENSES Rent 5,40,88,667 7,44,54,587 Legal and professional charges 3,51,57,262 5,37,56,388 Travelling and conveyance 2,85,48,258 4,15,37,200 Telephone charges 3,89,60,752 5,15,34,846 Power and fuel 1,81,49,488 2,73,37,769 Provision for bad and doubtful debts - (13,06,919) Office maintenance 2,02,62,136 2,95,44,190 Printing and stationery 1,11,92,404 1,76,34,923 Donations 1,10,07,335 1,49,82,357 Sundry marketing expenses 1,20,37,107 1,92,56,725 Other miscellaneous expenses 1,56,13,109 1,80,79,939 Advertisements 58,88,486 76,84,502 Brand Building - Insurance charges 90,48,428 1,28,78,968 Postage and courier 54,37,428 79,15,959 Rates and taxes 79,13,000 1,16,79,290 Repairs to plant and machinery 67,37,563 86,47,678 Repairs to building 81,40,482 1,08,24,460 Commission Charges 7,40,413 7,40,413 Research Grants 2,34,00,000 3,09,00,000 Books and periodicals 45,79,373 76,72,725 Bank charges and commission 29,59,631 38,95,031 Auditor's remuneration - - audit fees 10,50,000 14,35,000 - - certification charges - 2,00,000 - - other services - 8,00,000 - - out-of-pocket expenses 1,12,500 1,50,000 Bad loans and advances written off - 52,94,106 - ------------------------------------------------------------------------------------------------- 32,10,23,822 45,75,30,137 =================================================================================================
________________________________________________________________________________ 8 of 27 Statement of Cash Flows - ------------------------------------------------------------------------------- in Rs. - -------------------------------------------------------------------------------
Quarter ended December 31, Nine Months ended December 31, ------------------------------------------------------------------- 1999 1998 1999 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Profit before tax 83,98,54,793 45,53,20,005 227,80,19,434 Other Income (6,30,68,937) (69,21,567) (28,23,13,752) Increase (decrease) in provision for contingencies (1,05,17,012) - 2,27,82,988 Increase (decrease) in provision for e-inventing the (2,08,21,326) - 1,41,78,674 Company Provision for investment in subsidiary - 3,52,95,674 - Depreciation, depletion and amortization 14,47,99,080 9,12,45,179 34,52,40,998 Decrease (increase) in sundry debtors (4,88,85,406) (30,91,78,176) (53,84,06,785) Decrease (increase) in loans and advances (9,21,43,936) (4,15,34,593) (26,95,41,820) Increase (decrease) in current liabilities and (70,61,317) 29,81,47,641 17,00,06,537 provisions Income taxes paid (11,69,30,617) (1,32,51,866) (25,53,68,098) - -------------------------------------------------------------------------------------------------------------------------- Net cash from operations 62,52,25,322 50,91,22,297 148,45,98,176 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING Proceeds from issue of American Depositary Shares - - - Expenses relating to issue of American Depositary (21,00,000) - (2,26,30,090) Shares Dividends paid (including dividend tax) (11,01,21,102) (4,40,47,300) (19,92,57,109) - -------------------------------------------------------------------------------------------------------------------------- Net cash used for financing (11,22,21,102) (4,40,47,300) (22,18,87,199) - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING Income from investments 6,87,87,893 69,21,567 18,98,10,230 Proceeds of sale of investments (net of tax) - 6,06,20,029 - Proceeds of sale of fixed assets 4,06,879 - 9,78,588 Purchase of fixed assets (46,98,20,540) (19,75,39,275) (106,74,37,021) Other long-term investments - (75,38,109) - - -------------------------------------------------------------------------------------------------------------------------- Net cash used for investing (40,06,25,768) (13,75,35,788) (87,66,48,203) - -------------------------------------------------------------------------------------------------------------------------- Effect of exchange differences on translation of (61,25,835) - 9,16,32,866 foreign currency deposit maintained abroad Total increase (decrease) in cash and cash equivalents 11,23,78,452 32,75,39,209 38,60,62,774 during the period CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE 453,80,33,967 63,63,59,775 416,65,90,944 PERIOD - -------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 464,42,86,584 96,38,98,984 464,42,86,584 ========================================================================================================================== Nine Months Ended December 31, Year ended ------------------------------ March 31, 1999 1998 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATIONS Profit before tax 106,85,17,296 155,85,53,560 Other Income (1,92,78,534) (3,67,00,927) Increase (decrease) in provision for contingencies - 6,66,00,000 Increase (decrease) in provision for e-inventing the - - Company Provision for investment in subsidiary 7,05,95,674 7,05,95,674 Depreciation, depletion and amortization 21,46,81,271 35,89,30,078 Decrease (increase) in sundry debtors (50,04,64,149) (44,63,39,758) Decrease (increase) in loans and advances (14,57,43,306) (15,32,76,222) Increase (decrease) in current liabilities and 40,50,64,204 33,82,24,214 provisions Income taxes paid (8,22,91,668) (16,79,23,184) - ----------------------------------------------------------------------------------------------------------- Net cash from operations 101,10,80,788 158,86,63,435 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING Proceeds from issue of American Depositary Shares - 296,86,28,400 Expenses relating to issue of American Depositary - (17,33,14,415) Shares Dividends paid (including dividend tax) (10,20,36,824) (10,20,36,824) - ----------------------------------------------------------------------------------------------------------- Net cash used for financing (10,20,36,824) 269,32,77,161 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING Income from investments 1,92,78,534 3,67,00,927 Proceeds of sale of investments (net of tax) 6,06,20,029 6,06,20,029 Proceeds of sale of fixed assets 2,39,716 2,39,716 Purchase of fixed assets (52,91,64,859) (71,67,91,924) Other long-term investments (75,38,109) (75,38,109) - ----------------------------------------------------------------------------------------------------------- Net cash used for investing (45,65,64,689) (62,67,69,361) - ----------------------------------------------------------------------------------------------------------- Effect of exchange differences on translation of - - foreign currency deposit maintained abroad Total increase (decrease) in cash and cash equivalents 45,24,79,275 365,51,71,235 during the period CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE 51,14,19,709 51,14,19,709 PERIOD - ----------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 96,38,98,984 416,65,90,944 ===========================================================================================================
These are the Cash Flow Statements referred to in our report of even date. for Bharat S Raut & Co. Chartered Accountants Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Partner Chairman and Managing Director President Director Chief Executive Officer and Chief Operating Officer Marti G. Subrabmanyam N.S. Raghavan S. Gopalakrishnan Director Joint Managing Director Deputy Managing Director Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
________________________________________________________________________________ 9 of 27 Reconciliation of Balance Sheet items with cash flow items - -------------------------------------------------------------------------------- in Rs. - --------------------------------------------------------------------------------
Quarter ended December 31, Nine months ended December 31, Year ended March 31, 1999 --------------------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- 1. Loans and advances As per Balance sheet 178,21,08,869 47,43,24,156 178,21,08,869 47,43,24,156 68,35,96,522 Less: Deposits with financial (69,19,44,497) - (69,19,44,497) - (11,61,07,945) institutions/body corporate, included in cash equivalents Advance income taxes considered (44,42,14,197) (10,54,48,717) (44,42,14,197) (10,54,48,717) (19,10,80,222) separately - ---------------------------------------------------------------------------------------------------------------------------------- Balance considered for preparing the cash flow 64,59,50,175 36,88,75,439 64,59,50,175 36,88,75,439 37,64,08,355 statement - ---------------------------------------------------------------------------------------------------------------------------------- 2. Additions to fixed assets As per Balance sheet 32,04,12,874 16,89,29,222 65,39,65,870 45,11,25,251 64,11,69,396 Add: Closing capital work-in-progress 56,23,06,951 15,12,52,880 56,23,06,951 15,12,52,880 14,88,35,800 Less: Opening capital work-in-progress (41,28,99,285) (12,26,42,827) (14,88,35,800) (7,32,13,272) (7,32,13,272) - ---------------------------------------------------------------------------------------------------------------------------------- Balance considered for preparing the cash flow statement 46,98,20,540 19,75,39,275 106,74,37,021 52,91,64,859 71,67,91,924 - ---------------------------------------------------------------------------------------------------------------------------------- 3. Cash and cash equivalents As per Balance sheet 395,23,42,087 96,38,98,984 395,23,42,087 96,38,98,984 405,04,82,999 Add: Deposits with financial 69,19,44,497 - 69,19,44,497 - 11,61,07,945 institutions/body corporate (as per 1 above) - ---------------------------------------------------------------------------------------------------------------------------------- Balance considered for preparing the cash flow statement 464,42,86,584 96,38,98,984 464,42,86,584 96,38,98,984 416,65,90,944 - ---------------------------------------------------------------------------------------------------------------------------------- 4. Income taxes paid As per Profit and Loss account 10,20,00,000 7,79,00,000 27,70,00,000 17,04,00,000 22,94,00,000 Add: Decrease(increase) in balance in (10,14,38,084) (8,07,00,000) (27,47,65,877) (9,76,52,482) (15,66,52,471) provision for taxes account Increase(decrease) in balance in 11,63,68,701 1,60,51,866 25,31,33,975 95,44,150 9,51,75,655 advance income tax account - ---------------------------------------------------------------------------------------------------------------------------------- Balance considered for preparing the cash flow statement 11,69,30,617 1,32,51,866 25,53,68,098 8,22,91,668 16,79,23,184 - ---------------------------------------------------------------------------------------------------------------------------------- 5. Other income As per Profit and Loss account 7,11,00,819 72,25,046 30,48,32,499 2,06,22,369 3,84,71,833 Less: Income from operating activities (80,31,882) (3,03,479) (2,25,18,747) (13,43,835) (17,70,906) - ---------------------------------------------------------------------------------------------------------------------------------- Balance considered for preparing the cash flow statement 6,30,68,937 69,21,567 28,23,13,752 1,92,78,534 3,67,00,927 - ---------------------------------------------------------------------------------------------------------------------------------- 6. Current liabilities and provisions As per Balance sheet 124,22,62,447 70,17,68,360 124,22,62,447 70,17,68,360 84,96,64,378 Less: Provision for taxation considered (50,61,23,365) (17,23,57,487) (50,61,23,365) (17,23,57,487) (23,13,57,488) separately Provision for dividend considered - - - - (8,10,32,734) separately Provision for dividend tax - - - - (81,03,273) considered separately Provision for contingencies (8,93,82,988) - (8,93,82,988) - (6,66,00,000) Provision for e-inventing the (1,41,78,674) - (1,41,78,674) - - Company --------------------------------------------------------------------------------------------------------------------------------- Balance considered for preparing the cash flow statement 63,25,77,420 52,94,10,873 63,25,77,420 52,94,10,873 46,25,70,883 ---------------------------------------------------------------------------------------------------------------------------------
These are the Cash Flow Statements referred to in our report of even date. for Bharat S Raut & Co. Chartered Accountants Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Partner Chairman and Managing Director, President Director Chief Executive Officer and Chief Operating Officer Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan Director Joint Managing Director Deputy Managing Director Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan Date: January 11, 2000 Director Director Sr. Vice-President (F&A) Company Secretary
- -------------------------------------------------------------------------------- 10 of 27 Significant accounting policies - -------------------------------------------------------------------------------- 1 Basis for preparation of financial statements The financial statements are prepared under the historical cost convention, in accordance with Indian Generally Accepted Accounting Principles (GAAP), the accounting standards issued by the Institute of Chartered Accountants of India and the provisions of the Companies Act, 1956, as adopted consistently by the Company. All income and expenditure having a material bearing on the financial statements are recognized on accrual basis. The preparation of the financial statements in conformity with GAAP requires that the management makes estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Examples of such estimates include estimates of expected contract costs to be incurred to complete software development, provision for doubtful debts, future obligations under employee retirement benefit plans and the useful lives of fixed assets. Actual results could differ from those estimates. 2 Revenue recognition Revenue from software development on a time-and-material basis is recognized based on software developed and billed to clients as per the terms of specific contracts. In the case of fixed-price contracts, revenue is recognized based on the milestones achieved as specified in the contracts, on the percentage of completion basis. Revenue from the sale of software products is recognized when the sale has been completed with the passing of title. Revenues from Annual Technical Services (ATS) is recognized on a pro rata basis over the period in which such services are rendered. Interest on deployment of surplus funds is recognized using the time-proportion method, based on interest rates implicit in the transaction. Dividend income is recognized when the right to receive dividend is established. Revenue from the sale of Special Import Licences is recognized when the licences are actually sold. 3 Expenditure Expenses are accounted on accrual basis and provisions are made for all known losses and liabilities. Provisions are made for future unforeseeable factors which may affect the ultimate profit on fixed-price software development contracts. The cost of software purchased for use in software development and services is charged to revenue in the same year. The leave encashment liability of the Company is provided on the basis of actuarial valuation. Provisions are made towards likely expenses on providing post- sales client support for fixed-price contracts. 4 Fixed assets Fixed assets are stated at the cost of acquisition, less accumulated depreciation. Direct costs are capitalized till the assets are ready to be put to use. These costs include financing costs relating to specific borrowing(s) attributable to fixed assets. 5 Capital work-in-progress Advances paid towards the acquisition of fixed assets, and the cost of assets not put to use before the period-end, are disclosed under capital work-in-progress. 6 Depreciation Depreciation on fixed assets is provided using the straight-line method, based on useful lives as estimated by the management. Depreciation is charged on a pro rata basis for assets purchased / sold during the period. Individual assets costing less than Rs. 5,000 are depreciated in full in the year of purchase. The management's estimate of useful lives for the various fixed assets is given below. Building 15 years Plant and machinery 5 years Computer equipment 2-5 years Furniture and fixtures 5 years Vehicles 5 years 7 Retirement benefits to employees 7.1 Gratuity In accordance with Indian law, Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement, death or termination of employment, based on the respective employee's salary, and the years of employment with the Company. The Company has established the Infosys Technologies Limited Employees' Group Gratuity Fund Trust (the Trust). Liabilities with regard to the gratuity plan are determined by actuarial valuation, based upon which, the Company makes contributions to the Trust. Trustees administer the contributions made to the Trust. The funds contributed to the Trust are invested in specific designated securities as mandated by law and generally comprises central and state government bonds, and debt instruments of government-owned corporations. 7.2 Superannuation Apart from being covered under the gratuity plan described above, the senior officers of the Company are also participants of a defined contribution benefit plan. The plan is termed the superannuation plan to which the Company makes monthly contributions, based on a - -------------------------------------------------------------------------------- 11 of 27 specified percentage of each covered employee's salary. The Company has no further obligations under the plan beyond its monthly contributions. 7.3 Provident fund In addition to the above benefits, all employees receive benefits from a provident fund which is a defined contribution plan. Both the employee and the employer make monthly contributions to the plan equal to 12% of the covered employee's salary. The Company has established a Provident Fund Trust to which a part of the contributions are made each month. The remainder of the contributions are made to the Government's provident fund. The Company has no further obligations under the plan beyond its monthly contributions. 8 Research and development Capital and revenue expenditure incurred on research and development is charged off to revenue in the same year in which such expenditure is incurred. 9 Foreign currency transactions Sales made to clients outside India and realizations deposited into foreign currency bank accounts are accounted for on the basis of the exchange rate as on the date of the transaction. Adjustments are made for any variations in the sale proceeds on conversion into Indian currency upon actual receipt. Expenditure in foreign currency is accounted at the exchange rate prevalent when such expenditure is incurred. Disbursements made out of foreign currency bank accounts are reported at a rate that approximates the actual monthly rate. Fixed assets purchased at overseas offices are accounted for on the basis of the actual cost incurred at the exchange rate prevalent at the time of purchase. Depreciation is charged as per Company policy. Exchange differences arising on foreign currency transactions are recognized as income or expense in the period in which they arise. Current assets and current liabilities denominated in foreign currency are translated at the exchange rate prevalent at the date of the balance sheet. The resulting difference is accounted for in the profit and loss account. In the case of forward contracts, the difference between the forward rate and the exchange rate on the date of the transaction is recognized as income or expense over the life of the contract. 10 Investments Investments are classified into current investments and long-term investments. Current investments are carried at the lower of the cost and the fair value, and provision is made to recognize any decline in the carrying value. Long-term investments are carried at cost, and provision is made to recognize any decline, other than temporary, in the value of such investment. Overseas investments are carried at their original rupee cost less provision as described above. 11 Investment in subsidiary The investment in the subsidiary is accounted on the cost method, whereby, the Company recognizes only dividends received from the subsidiary as income. In case of losses made by the subsidiary, other than temporary, adequate provision is made to recognize any decline in the value of the investment. 12 Income tax Provision is made for income tax on an annual basis, under the tax-payable method, based on the tax liability as computed after taking credit for allowances and exemptions. In case of matters under appeal, due to disallowances or otherwise, full provision is made when the said liabilities are accepted by the Company. - -------------------------------------------------------------------------------- 12 of 27 Notes on accounts - -------------------------------------------------------------------------------- The previous period's figures have been recast / restated, wherever necessary, to conform to the current period's classification. 1. Contingent liabilities a. The estimated amount of contracts remaining to be executed on capital account, and not provided for (net of advance) is Rs. 69,54,19,558 as at December 31, 1999. The amount of such contracts as at December 31, 1998 was Rs. 26,76,79,915. b. The company has outstanding counter guarantees of Rs. 1,58,84,263 as at December 31, 1999, to various banks, in respect of guarantees given by the said banks in favour of various government authorities. The counter guarantees outstanding, as atDecember 31, 1998 was Rs. 2,33,40,263. c. Claims against the company, not acknowledged as debts, amounted to Rs. 17,91,814 as at December 31, 1999. Such claims as at December 31, 1998 was Rs. 17,91,814. d. The Company has issued letters of credit outstanding to various vendors amounting to Rs. Nil as at December 31, 1999. The corresponding figure as at December 31, 1998 was Rs. 6,59,000 2. Quantitative details The company is engaged in the development and maintenance of computer software. The production and sale of such software cannot be expressed in any generic unit. Hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 3, 4C and 4D of part II of Schedule VI to the Companies Act, 1956. 3. Managerial remuneration paid to the chairman, managing director and whole- time directors
in Rs. -------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended December 31, December 31, --------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------------------- Salary 9,73,800 9,73,800 29,21,400 29,21,400 Contribution to provident and other funds 3,09,780 3,09,780 9,29,340 9,29,340 Perquisites 11,19,870 8,68,811 26,98,239 26,04,316
4. Managerial remuneration paid to non-whole-time directors
in Rs. -------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended December 31, December 31, --------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------------------- Sitting fees 34,000 18,000 78,000 48,000 Reimbursement of expenses 4,45,123 2,43,343 9,01,728 6,55,044
5. Imports on CIF basis
in Rs. -------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended December 31, December 31, --------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------------------- Capital goods 7,31,57,517 8,14,20,026 22,70,52,455 20,15,86,695 Software packages 20,60,167 - 2,28,66,965 2,62,35,025
6. Expenditure in foreign currency
in Rs. -------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended December 31, December 31, --------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------------------- Travel expenses 18,62,06,010 13,76,54,956 49,97,76,870 36,93,49,752 Professional charges 80,48,926 38,07,487 2,01,25,172 1,39,68,407 Other expenditure incurred overseas for software development 62,24,10,619 24,52,71,643 154,40,25,716 74,44,15,529
- -------------------------------------------------------------------------------- 13 of 27 7. Earnings in foreign exchange
in Rs. -------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended December 31, December 31, ---------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------------------- Income from software development charges and products on a 216,85,95,849 107,14,80,666 565,67,38,823 302,28,56,794 receipt basis Interest received on deposits with banks 4,63,87,145 37,32,109 13,19,57,503 1,42,90,010
8. Depreciation on assets costing less than Rs. 5,000 each The Company charged depreciation at one hundred percent in respect of assets costing less than Rs. 5,000 each, amounting to Rs. 4,22,62,848 and Rs. 6,49,71,753 for the three months period ended December 31, 1999 and nine months period ended December, 1999 respectively. The corresponding figure for the previous period amounted to Rs. 3,90,98,888 and Rs. 9,15,81,384 respectively. 9. Depreciation With effect from October 1, 1998, the Company revised the estimates of useful lives of buildings (software centers and others) from 28 years / 58 years to 15 years. Due to this change, depreciation for the three months period ended December 31,1999 and nine months period ended December 31, 1999 is higher by Rs. 59,22,474 and Rs. 1,67,99,035. As a result, the profit for the three months period ended December 31, 1999 and nine months period ended December 31,1999 is lower by Rs. 59,22,474 and Rs. 1,67,99,035 on a comparative basis. 10. Exchange differences The Company has earned net realized and unrealized exchange gains of Rs. 4.98 crore and Rs. 8.88 crore for the three months period ended December 31, 1999 and December 31, 1998 respectively and Rs. 23.61 crore and Rs. 22.37 crore for the nine months period ended December 31, 1999 and December 31, 1998 respectively. This includes Rs. (0.61) crore (previous period Rs. nil) and Rs. 9.16 crore (previous period Rs. nil) for the three months and nine months period ended December 31, 1999 respectively arising from exchange differences on translation of foreign currency deposits maintained abroad, disclosed separately under "Other income" in the financial statements. The balance of Rs. 5.59 crore and Rs. 8.88 crore, for the three months period ended December 31, 1999 and December 31, 1998 and Rs. 14.45 crore and Rs. 22.37 crore for the nine months period ended December 31, 1999 and December 31, 1998 respectively, and is included under "Income from software development services and products-overseas". 11 Research and development expenditure Research and development expenses charged to the Profit and Loss Account on both capital and revenue accounts for the three month period ended December 31, 1999 and nine month period ended December 31, 1999 amounted to Rs. 2,27,65,340 and Rs. 6,16,17,330 respectively (previous period - Rs. 4,12,33,470 and Rs. 7,31,28,970 respectively). This includes Rs. nil being the depreciation charged at 100% in respect of R & D assets acquired during three month period ended December 31, 1999 and nine month period ended December 31, 1999 (previous period - Rs. 30,30,000 and Rs. 32,33,250). 12 Investment in subsidiary During the quarter ended December 31, 1998, the Company made a provision for Rs. 3,52,95,674 on its investment in Yantra Corporation, a subsidiary company. The corresponding figure for the current quarter is nil. 13 Provision for contingencies The Company had instituted a contingency plan effective October 1, 1998 to meet any possible disruption in client support due to the Year 2000 impact on the technology and communication infrastructure provided to the Company by its vendors. The contingency plan called for the creation of a total provision of Rs. 20.00 crore based on an initial estimate. This provision was required to be made over six quarters starting October 1998. Accordingly, the Company had made a total provision of Rs. 9.99 crore upto the quarter ended June 30, 1999 (including Rs. 3.33 crore for the quarter ended June 30, 1999). The Company had been led to believe that all its telecommunication service providers were Year 2000 ready and therefore did not expect significant disruption of these facilities. During second quarter, the Company made an appraisal and re-estimated the provision required for meeting such contingencies over the next two quarters and was of the opinion that the provision already made was adequate for the purpose and hence no further provision was required. During the quarter, Rs. 1.05 crore was spent towards support during the Year 2000 transition and the same was set-off against the provision made earlier. After such set-off, a balance of Rs. 8.94 crore remains as provision for contingency as on December 31, 1999. - -------------------------------------------------------------------------------- 14 of 27 14. Provision for e-inventing the Company During the quarter ended September 30, 1999, the company had announced that it may be required to incur business restructuring costs for creating knowledge infrastructure, acquiring people with technical skills in the e- commerce area and for e-inventing the company. This was a result of the rapid shift in the business towards e-commerce related work. Accordingly, the company made a provision of Rs. 3.50 crore during the quarter ended September 30, 1999. During this quarter, the company made an appraisal of the restructuring and is of the opinion that the existing provision is adequate for the purpose. Therefore, no further provision has been made. During the quarter, an amount of Rs. 2.08 crore was incurred towards e- inventing the company and was set-off against the provision made earlier. After this set-off, a balance of Rs. 1.42 crore remains as provision for e- inventing the company as on December 31, 1999. 15 Unearned revenue Unearned revenue as of December 31, 1999 of Rs. 23,11,41,772(Previous period Rs. 22,64,60,140) consists primarily of client billings on fixed- price, fixed-time-frame contracts for which related costs are not yet incurred. 16 Dues to Small-Scale Industrial undertakings As of December 31, 1999, the Company had no outstanding dues to small-scale industrial undertakings. 17 Balance of unutilized money raised by issue of ADSs During the year ended March 31, 1999, the Company made an Initial Public Offering (IPO) of American Depositary Shares (ADSs) amounting to Rs. 296.86 crore (equivalent to US$ 70,380,000). The ADSs are listed on the NASDAQ National Market in the United States (US). The unutilized monies out of the issue, after meeting issue expenses, and including interest earned on such monies amounted to Rs. 238.45 crore (equivalent to US$ 54,828,514) and Rs. 65.62 crore (equivalent to US$ 15,089,828)is included under "Deposit accounts in foreign currency with Scheduled Banks" and " Deposits accounts in foreign currency with non-Scheduled Banks" in the financial statements respectively. 18 ADS issue expenses During the nine month period ended December 31, 1999, the company received additional bills for costs incurred during the ADS issue. The details of such expenses are given under: in Rs. --------------------------------------------------------------------------- Legal and accounting fees 1,49,26,437 --------------------------------------------------------------------------- Printing charges 77,03,653 --------------------------------------------------------------------------- TOTAL 2,26,30,090 --------------------------------------------------------------------------- 19 Stock options The Company currently has two stock option plans. These are summarized below. 1998 Stock Option plan(the 1998 plan) The Company's 1998 Plan provides for the grant of non-statutory stock options and incentive stock options to employees of the Company. The establishment of the 1998 Plan was approved by the Board of Directors in December 1997 and by the shareholders in January 1998. The Government of India approved the 1998 Plan, subject to a limit of US$ 50 million on the aggregate value of equity shares reserved under the 1998 Plan. Accordingly, the number of equity shares reserved under the 1998 Plan may be reduced by the Board of Directors from time to time to comply with this limit of US$ 50 million. A total of 8,00,000 equity shares corresponding to 16,00,000 ADSs (the Ministry of Finance, Government of India has allowed the Company to issue a maximum of 1.47 million ADSs under the plan) are currently reserved for issuance pursuant to the 1998 Plan. These options may be issued at an exercise price that is not less than 90% of the fair market value of the underlying equity share on the date of the grant. The 1998 Plan will terminate in January 2008, unless terminated earlier. All options under the 1998 Plan are exercisable for ADSs representing equity shares. A committee of the Board of Directors administers the 1998 Plan. Options to acquire an aggregate of 2,13,000 ADSs corresponding to 1,06,500 equity shares were granted to employees concurrent with the Company's IPO in the US at an exercise price equal to the IPO issue price. Of these, options to acquire 3,500 ADSs corresponding to 1,750 equity shares were forfeited and returned to the Option pool due to the separation of the optionees from the Company. Options to acquire 1,16,000 ADSs corresponding to 58,000 equity shares were granted to the employees of the Company at an exercise price of $179 on November 10, 1999. 1999 Stock Option Plan (the 1999 Plan) In fiscal 2000, the Company instituted the 1999 Plan. The 1999 Plan was approved by the share holders and the Board of Directors in June 1999. The 1999 Plan provides for the issue of 33,00,000 equity shares to the employees. The 1999 Plan is administered by a Compensation Committee comprising a maximum of seven members, the majority of whom are independent directors on the Board of Directors. Under the 1999 Plan, options will be issued to employees at an exercise price which shall not be less than the Fair Market Value. Fair Market Value means the closing price of the Company's shares in the stock exchange where there is the highest trading - -------------------------------------------------------------------------------- 15 of 27 volume on a given date and if the shares are not traded on that day, the closing price on the next trading day. Under the 1999 Plan, options may also be issued to employees at exercise prices that are less than FMV only if specifically approved by the members of the Company in a general meeting. As of December 31, 1999, 4,76,600 options have been issued to employees under the 1999 Plan. As of the date of this report, options to acquire 1,100 equity shares were forfeited and returned to the option pool due to the separation of the optionees of the company. 20 Employee Stock Offer Plan (ESOP) The Securities and Exchange Board of India (SEBI) recently issued the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 which is effective for all stock option schemes established after June 19, 1999. In accordance with these guidelines, the excess of the market price of the underlying equity shares as of the date of the grant of the options over the exercise price of the options, including up-front payments, if any is to be recognized and amortized on a straight line basis over the vesting period. The Companies 1994 stock offer plan was established prior to the SEBI guidelines on stock options. Had the stock compensation costs for this stock option plan been determined as per the guidelines issued by SEBI, the Company's reported net profit would have been reduced to the proforma amounts indicated below.
in Rs. -------------------------------------------------------------------------------------------------------------------------- Three months ended Nine months ended December 31, December 31, ---------------------------------------------------------- 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------------------- Net profit : - As reported 73,78,54,793 40,08,74,108 200,10,19,434 92,15,71,399 - Adjusted pro forma 68,17,38,506 33,83,65,192 183,51,84,658 82,06,25,046
21 Provision for taxation The Company's profits from export activities are deductible from taxable income. Further, most of the Company's operations are conducted through 100% Export Oriented Units, which are entitled to a tax holiday for a period of ten years from the date of commencement of operations. The provision for taxation includes taxes payable in respect of domestic income and that arising on the Company's overseas operations, primarily in the United States, Europe, Far East and South East Asia. 22 Cash and Bank balance The Company has a deposit of USD 1,854,225 (Rs. 8,06,41,779) in EEFC account as at December 31, 1999. Bank balances in overseas deposit account includes an net amount of USD 69,918,343 (Rs. 304,07,48,715) received on ADS program and maintained abroad as deposit along with the interest earned. 23 Loans and advances Advances recoverable in cash or kind or for value to be received mainly comprise of prepaid travel and per-diem expenses and advance paid to vendors towards current assets. Deposits with financial institutions consists of Rs. 25,50,22,081 and Rs. 18,10,98,742 deposited with Housing Development Finance Corporation Limited, and ICICI Limited, respectively. Mr. Deepak M Satwalekar, Director of the company, is also the Managing Director in Housing Development Finance Corporation Limited. Mr. N R Narayana Murthy, Chairman and CEO of the company and Prof. Marti G. Subrahmanyam, Director of the company, are also Directors in ICICI Limited. Except as directors in these financial institutions, they have no direct interest in these transactions. "Deposit with a body corporate" consists of Rs. 25,58,23,674 deposited with GE Capital Services India. All these financial institutions and a body corporate have AAA rating from CRISIL. There is no unpaid interest as on date. Provision for doubtful loans and advances comprise of provisions made for deposit kept with a Company and for loans and advances given to employees. The Company has filed recovery suit against this company in a court of law and the court has attached the property of this company against the claims of unpaid deposit amount. The adjudication on this issue is pending. However, as matter of abundant precaution, a provision has been made. 24 Current liabilities Sundry creditors for other liabilities represent mainly the retention amount payable to the vendors, and amounts accrued for various other operational expenses. 25 Fixed assets The Company has entered into lease- cum- sale agreements to acquire certain properties. In accordance with the terms of these agreements, the Company has the option to purchase the properties outright at the expiry of the lease period. The Company has already paid 99% of the value of the properties at the time of entering into the lease- cum -sale agreement. These amounts are disclosed as "Land - leasehold" under "Fixed assets" in the financial statements. 26 Set off of unearned revenues The Company entered into an agreement with a customer for providing software services in an earlier year. The Company collected a portion of amounts receivable from this customer in respect of work performed for the customer under this agreement. The customer subsequently went into liquidation. In fiscal 1999, the company raised invoices in its books of account for the remainder of the contracted value of the services to be performed under the agreement amounting to Rs. 3,24,52,521 in order to stake its claim in the - -------------------------------------------------------------------------------- 16 of 27 liquidation proceedings. The Company subsequently informed the Reserve Bank of India about the claim raised by it on the customer. This amount was treated as "Unearned revenues" in the financial statements for fiscal 1999. The Company has set off the amount receivable from the customer against the amount earlier treated as "Unearned revenue", in the previous quarter. The Company is actively pursuing liquidation proceedings to recover this amount. 27 Income Tax demand for stock options The Income Tax department raised a tax demand of Rs. 73.52 crore on the Company for payment of tax deductible at source on stock options granted to the Company's employees during the financial years 1996-97, 1997-98 and 1998-99. The Company has contested this tax demand by filing an appeal before the appellate authority. However, any tax liability on stock option issued under the Employees Stock Offer Plan is adequately covered by indemnities from employees and by the stock exercisable by them under ESOP. Consequently, employees have paid the tax due and the entire tax demand has been discharged in full. Thus, there is no impact on the earnings of the Company on this account. 28 Stock split The shareholders of Infosys approved the 2-for-1 split of its equity shares, i.e., a sub-division of every equity share from the current par value of Rs. 10 into 2 equity shares of par value Rs. 5 each, at the Extraordinary General Meeting held on December 29, 1999. The Board of Directors of the company has fixed February 11, 2000 as the Record Date for determining the shareholders/ADSs holders entitled to the split. As the split will be effectuated after the Record Date, the same is not reflected in the financial statements as per Indian GAAP for the quarter and nine- month period ended December 31, 1999. - -------------------------------------------------------------------------------- 17 of 27 At a glance - US GAAP
- ------------------------------------------------------------------------------------------------------------------------------------ US$ in millions, except per equity share data - ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended Nine months ended Year ended ----------------------------------------------------------- December 31, December 31, December 31, December 31, March 31,1999 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ For the period Total revenue 52.16 33.04 139.83 84.94 120.96 Operating income 15.69 10.81 42.61 25.04 22.87 Net income 15.42 9.58 43.45 20.52 17.45 Operating income as a percentage of total revenue 30.08% 32.72% 30.47% 29.48% 18.91% Net income as a percentage of total revenue 29.56% 29.00% 31.07% 24.16% 14.42% Basic earnings per share 0.24 0.16 0.66 0.34 0.28 Capital investment 10.87 4.60 23.84 11.59 16.12 At the end of the period Total assets 195.18 76.58 153.66 Property, plant and equipment - net 39.76 22.80 23.90 Cash and equivalents 106.79 22.80 98.87 Working capital 131.30 36.05 110.62 Total debt - - - Shareholders' equity 179.22 63.27 139.61 Common stock 8.59 4.55 8.59 Market capitalization 21,825.80 47,603.12 2,852.24 - ------------------------------------------------------------------------------------------------------------------------------------
Note: Market capitalization is calculated by considering the NASDAQ market price for shares outstanding at the period/year end except as of December 31,1998 where the same has been calculated by considering the Indian market price. TOTAL REVENUE US $ in millions Year ended March 31, 1999 Nine months ended Nine months ended December 31, 1998 December 31, 1999 120.96 84.94 139.83 NET INCOME US $ in millions Year ended March 31, 1999 Nine months ended Nine months ended December 31, 1998 December 31, 1999 17.45 20.52 43.45 - -------------------------------------------------------------------------------- 18 of 27 Shareholder information - ------------------------------------------------------------------------------- 1. Listing on stock exchanges in India at Bangalore Stock Exchange Ltd. Stock Exchange Towers, No. 51, 1st Cross, J.C. Road, Bangalore - 560027. Tel.: 91-80-299 5234, Fax: 91-80-299 5242 The Stock Exchange, Mumbai Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001. Tel.: 91-22-265 5581, Fax: 91-22-265 8121 National Stock Exchange of India Ltd. Trade World, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013. Tel.: 91-22-497 2950, Fax: 91-22-491 4275/85 2. Listing fees Paid for all the above stock exchanges for 1999-2000. 3. Listing on stock exchanges NASDAQ National Market in the United States outside India 33 Whitehall Street, New York, NY-1004-4087 Tel.: 1-212-709-2400, Fax: 1-212-709-2496 4. Registered office Electronics City, Hosur Road, Bangalore - 561 229, India. Tel.: 91-80-852 0261, Fax: 91-80-852 0362 Homepage: www.itlinfosys.com
5. Stock market data relating to shares listed in India a. The company's market capitalization is included in the computation of the BSE-30 Sensitive Index (Sensex), the BSE Dollex and S&P CNX NIFTY Index. b. Monthly high and low quotations as well as the volume of shares traded at Mumbai, National and Bangalore Stock Exchanges during the three-month period ended December 31, 1999 are:
-------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- BSE NSE BgSE -------------------------------------------------------------------------------------------- High Low Volume High Low Volume High Low Volume Rs. Rs. Nos. Rs. Rs. Nos. Rs. Rs. Nos. -------------------------------------------------------------------------------------------------------------------------------- October, 1999 8,720 6,832 23,81,639 8,875 6,845 23,23,938 8,550 6,900 4,601 November 9,750 6,590 21,87,553 9,773 6,600 26,66,213 9,750 6,450 2,126 December 14,649 9,001 23,08,042 14,527 9,031 20,80,825 14,600 9,100 1,707 -------------------------------------------------------------------------------------------------------------------------------- Total 68,77,234 70,70,976 8,434 -------------------------------------------------------------------------------------------------------------------------------- % of volume traded to total number of shares outstanding # 21.47% 22.07% 0.03%
# The number of shares outstanding has been taken to be 3,20,34,400. The American Depositary Shares (ADSs) have been excluded for the purpose of this calculation. 6. Share transfers in physical form Karvy Consultants Limited and other communication regarding Registrars and Share Transfer Agents share certificates, dividends, and T.K.N. Complex, No. 51/2, Vanivilas Road, change of address, etc., in India Opp. National College, Basavanagudi, may be addressed to Bangalore - 560 004. Tel.: 91-80-662 1184, Fax: 91-80-662 1169 Email: KARVY.BGL@KARVY.sprintrpg.ems.vsnl.net.in
7. Share transfer system The Securities and Exchange Board of India (SEBI) has mandated that investors should compulsorily trade in dematerialized form in the securities of Infosys from January 4, 1999. Investors are required to open an account with a Depositary Participant to trade in dematerialized form. A list of Depositary Participants is available with the National Securities Depositary Limited (NSDL). A booklet entitled "An Investor's Guide to Depositaries" is available at www.itlinfosys.com. Shares sent for physical transfer are generally registered and returned within a period of 15 days from the date of receipt, if the documents are clear in all respects. The Share Transfer Committee of the company meets as often as required. The total number of shares transferred in physical form during the quarter ended December 31, 1999 were 18,110 (previous year - 1,98,997). 96.69% of transfers (previous year - 75.49%) were completed within 15 days. Shares in dematerialized form were transferred within 10 days, on the average.
---------------------------------------------------------------------------------------------------------------------- 1999 1998 ------------------------------------------------------------------------------------------------------- Transfer period No. of No. of No. of No. of in days transferees (folios) shares % transferees (folios) shares % New Existing New Existing ----------------------------------------------------------------------------------------------------------------------- 1-10 29 12 17,400 96.08 48 18 95,400 47.94 11-15 1 1 110 0.61 41 29 54,815 27.55 16 - 20 0 0 0 0.00 34 17 38,320 19.26 *21 and above 1 1 600 3.31 29 24 10,462 5.25 - ---------------------------------------------------------------------------------------------------------------------------
20 of 27
---------------------------------------------------------------------------------------------------------------------- 1999 1998 ------------------------------------------------------------------------------------------------------- No. of No. of transferees (folios) transferees (folios) ----------------------------------------------------------------------------------------------------------------------- 31 14 18,110 100.00 152 88 1,98,997 100.00 -----------------------------------------------------------------------------------------------------------------------
* Delays beyond 21 days were due to compliance of legal requirements. 8. Investors' services - Complaints received during the three-month period ended December 31
----------------------------------------------------------------------------------------------------------------------------- 1999 1998 ------------------------------------------------------------------------ Nature of complaints Received Cleared Received Cleared ----------------------------------------------------------------------------------------------------------------------------- 1. Non-receipt of share certificates 0 0 15 15 2. Non-receipt of bonus shares 3 3 0 0 3. Letters from Stock Exchanges, SEBI, etc. 0 0 0 0 4. Non-receipt of dividend warrants 19 19 10 10 ----------------------------------------------------------------------------------------------------------------------------- 22 22 25 25 -----------------------------------------------------------------------------------------------------------------------------
The Company has attended to most of the investors' grievances / correspondence within a period of 10 days from the date of receipt of the same, during the quarter ended December 31, 1999. 9. Legal proceedings There are some pending cases relating to disputes over title to shares, in which the company is made a party. These cases are however not material in nature. 10. Distribution of shareholding as on December 31
------------------------------------------------------------------------------------------------------------------------------ 1999 1998 -------------------------------------------------------------------------------------------------- No. of equity No. of % of No. of % of No. of % of No. of % of shares held share- share- shares share- share- share- shares share- holders holders holding holders holders holding ------------------------------------------------------------------------------------------------------------------------------ 1- 100 12,098 57.17 2,91,072 0.91 1,375 20.92 1,16,092 0.72 101- 200 2,294 10.84 4,31,774 1.35 1,737 26.43 3,16,448 1.98 201- 500 2,800 13.23 10,42,071 3.25 1,935 29.44 7,61,164 4.76 501- 1000 2,071 9.79 15,58,575 4.87 722 10.99 5,05,028 3.15 1001- 5000 1,395 6.59 28,91,911 9.03 511 7.78 6,89,192 4.30 5001- 10000 208 0.98 14,96,681 4.67 94 1.43 3,21,500 2.01 10001 and above 297 1.40 2,40,07,171 74.94 198 3.01 1,33,07,776 83.08 Shares in transit in NSDL - - 3,15,145 0.98 - - - - ------------------------------------------------------------------------------------------------------------------------------ 21,163 100.00 3,20,34,400 100.00 6,572 100.00 1,60,17,200 100.00 American Depositary Shares 1* 10,35,000 - - ------------------------------------------------------------------------------------------------------------------------------ Total 21,164 3,30,69,400 6,572 1,60,17,200 ------------------------------------------------------------------------------------------------------------------------------ * Held by beneficial owners outside India. - ------------------------------------------------------------------------------------------------------------------------------------
21 of 27 11. Categories of shareholders as on December 31
- ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 -------------------------------------------------------------------------------------------------- Category No. of Voting No. of No. of Voting No. of shareholders strength (%) shares held shareholders strength (%) shares held - ------------------------------------------------------------------------------------------------------------------------------------ Individuals 19,698 25.84 85,46,128 6,141 21.97 35,18,042 Companies 988 1.52 5,01,804 185 7.25 11,61,658 FIIs 209 24.88 82,27,179 130 25.88 41,44,550 OCBs and NRIs 143 0.72 2,37,832 27 0.25 40,100 Founders and their families 18 29.44 97,35,130 18 30.74 49,23,300 Mutual Funds, Banks, FIs 107 13.52 44,71,182 71 13.91 22,29,550 Shares in transit in NSDL - 0.95 3,15,145 - - - American Depositary Shares 1* 3.13 10,35,000 - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total 21,164 100.00 3,30,69,400 6,572 100.00 1,60,17,200 - ------------------------------------------------------------------------------------------------------------------------------------
* Held by beneficial owners outside India. 12. Shares under lock-in Details of shares held by employees under the Employee Stock Offer Plan (ESOP) subject to lock-in are given below. These shares are also included in the categories of shareholders given in (11) above.
----------------------------------------------------------------------------------------------------------------------- Number of shares subject to lock-in as on December 31 ----------------------------------------------------------------------------------------- 1999 1998 ----------------------------------------------------------------------------------------- Period of lock-in No. of shares No. of employees No. of shares No. of employees ----------------------------------------------------------------------------------------------------------------------- 4-5 years 3,92,300 1,042 - - 3-4 years 2,50,400 341 1,06,200 156 2-3 years 1,02,000 151 1,32,600 110 1-2 years 1,28,600 105 1,11,100 76 0-1 years 1,06,300 74 - - -----------------------------------------------------------------------------------------------------------------------
As on December 31, 1999, 581 employees hold rights to 1,72,600 shares which are subject to a lock-in of 4-5 years under the 1994 Stock Offer Plan. Currently, 1,667 employees hold shares under the 1994 Stock Offer Plan. Shares subject to lock-in held by the employees will be transferred back to the ITL Employees Welfare Trust when such employees leave the services of the company. The ITL Employees Welfare Trust holds, as on December 31, 1999, 80,800 shares. The 1994 Stock Offer Plan has since been terminated. The Company established the 1998 Stock Option Plan which provides for the grant of non-statutory stock options and incentive stock options to the employees of the Company. This Plan was approved by the Board of Directors in December 1997 and by the share holders in January 1998. A total of 8,00,000 equity shares corresponding to 16,00,000 ADSs are currently reserved for issuance pursuant to the 1998 Plan. During the quarter ended December 31, 1999, options to acquire 1,16,000 ADSs corresponding to 58,000 equity shares were granted under the 1998 Stock Option Plan to 53 employees. As on December 31, 1999, 87 employees hold options to acquire 3,25,500 ADSs corresponding to 1,62,750 equity shares under the 1998 Stock Option Plan. In fiscal 2000, the Company instituted the 1999 Stock Option Plan. The 1999 Plan was approved by the Board of Directors and the share holders in June 1999. The Plan provides for the issue of 33,00,000 equity shares to the employees. During the quarter ended December 31, 1999, options to acquire 4,65,300 equity shares were granted to 1,148 employees under the 1999 Stock Option Plan. 13. Dematerialization of shares and liquidity Your company was the first in India to pay a one-time custodial fee of Rs. 44.43 lakh to National Securities Depositary Limited (NSDL). Consequently, the company's shareholders do not have to pay depositary participants the custodial fee charged by the NSDL, on their holding. This payment of a one- time custodial fee extends to the issue of bonus shares too. The company hopes that this initiative will enthuse shareholders to dematerialize their holding in the company. Over 88.50% of the company's shares are now held in electronic form. A detailed letter explaining the methodology of using a Depositary as well as a booklet entitled "An Investor's Guide to Depositaries" was sent to all shareholders in November 1998. Copies of this booklet are available to shareholders on request. The Stock Exchange, Mumbai has permitted trading of your company's share in the `A' group. This move is expected to increase the liquidity of your company's shares. 14. Financial calendar (tentative and subject to change) Financial results for the year ending March 31, 2000 April 11, 2000 Annual General Meeting for the year ending March 31, 2000 May 2000 15. Investors' correspondence in India Any queries relating to the financial statements of the may be addressed to: company may be addressed to: Mr. V. Viswanathan, Mr. T. V. Mohandas Pai, Company Secretary, Investors' Service Cell, Senior Vice President (F&A), Infosys Technologies Ltd., Electronics City, Infosys Technologies Ltd., Electronics City, Hosur Road, Hosur Road, Bangalore - 561 229, India. Bangalore - 561 229, India. Tel.: 91-80-852 1518, Fax: 91-80-852 0362 Tel.: 91-80-852 0396, Fax: 91-80-852 0362 (e-mail address: invest@itlinfosys.com) (e-mail address: mdpai@itlinfosys.com)
16. Reuters code - INFY.BO (BSE) Bloomberg code - INFO IN (BSE) Bridge code - IN;INF (BSE) INFY.NS (NSE) NINFO IN (NSE) IN;INFN (NSE) INFY.O (NASDAQ) US;INFY (NASDAQ)
- -------------------------------------------------------------------------------- 22 of 27 17. Stock market data relating to American Depositary Shares (ADSs) a. ADS listed at NASDAQ National Market in the United States b. Ratio of ADS to equity shares 2 ADS for one equity share c. ADS symbol INFY
d. The American Depositary Shares issued under the ADS program of the company were listed on the NASDAQ National Market in the United States on March 11, 1999. The monthly high and low quotations as well as the volume of ADSs traded at NASDAQ National Market for the quarter ended December 31, 1999 are:
---------------------------------------------------------------------------------- High Low Volume $ Rs.# $ Rs.# Nos. ---------------------------------------------------------------------------------- October, 1999 179.50 15,552 131.00 11,350 17,12,400 November 235.00 20,398 143.00 12,412 13,14,600 December 360.00 31,313 204.13 17,755 14,79,100 ----------------------------------------------------------------------------------
Percentage of volume traded to total float 217.69% US$ have been converted into Rupees at the monthly closing rates. # 2 ADS = 1 equity share e. American Depositary Shares premium to the shares traded in the Indian Stock Exhanges [CHART APPEARS HERE] * 2 ADSs = 1 equity share (Source: Bloomberg) - -------------------------------------------------------------------------------- 23 of 27 f. Investor correspondence in P. R. Ganapathy the US may be addressed to Investor Relations Officer Infosys Technologies Limited 34760, Campus Drive, Fremont CA 94555, USA. Tel.: 1-510-742-3030, Mobile: 1-510-872-4412, Fax: 1-510-742-2930, E-mail: guns@itlinfosys.com ------------------- g. Name and address of the Bankers Trust Company Depositary bank (Part of the Deutsche Bank Group), Four, Albany Street New York, NY 10006, USA. Tel.: 1-212-250-8500, Fax: 1-212-250-5644. Corporate Trust and Agency Services Deutsche Bank A.G. 1st Floor, Kodak House 222, Dr. D. N. Road. Fort, Mumbai - 400 001 Tel.: 91-22-207 9566,Fax: 91-22-207 9614 h. Name and address of the ICICI Limited Custodian in India ICICI Towers, Bandra-Kurla Complex, Mumbai - 400 051, India. Tel.: 91-22-653 1414, Fax: 91-22-653 1165.
________________________________________________________________________________ 24 of 27 Segment information - --------------------------------------------------------------------------------
Rs. in lakhs - ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended Nine months ended December 31, December 31, December 31, 1999 December 31, 1998 Year ended 1999 1998 March 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Geographical segment North America 18,273.82 11,460.80 49,356.35 29,348.71 41,739.11 Europe 2,680.14 1,252.83 8,556.73 3,478.55 4,753.03 Rest of the World 1,925.10 1,069.08 3,923.29 2,403.17 3,533.26 India 473.25 234.02 1,710.20 672.46 1,248.43 - ------------------------------------------------------------------------------------------------------------------------------------ 23,352.31 14,016.73 63,546.57 35,902.89 51,273.83 ==================================================================================================================================== Business segment Branded services 1,395.24 2,774.60 5,638.42 8,948.57 11,321.57 Products 444.48 210.92 1,576.81 718.86 1,444.89 Software development and maintenance 20,801.59 10,958.96 53,283.03 26,029.24 38,122.66 Treasury 711.00 72.25 3,048.31 206.22 384.71 - ------------------------------------------------------------------------------------------------------------------------------------ 23,352.31 14,016.73 63,546.57 35,902.89 51,273.83 ====================================================================================================================================
* Exchange differences arising on translation of foreign currency deposits kept abroad have been included under Treasury. By geographical area - quarter ended December 31, 1999. By business segment - quarter ended December 31, 1999 By Geographical Area - By Business Segment - quarter ended December 31, 1999 quarter ended December 31, 1999
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE] Europe 12% Treasury 3% Rest of the World 8% Brand services 6% India 2% Products 2% North America 78% Software development and maintenance 89%
- -------------------------------------------------------------------------------- 25 of 27 Ratio analysis - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Quarter ended Nine months ended ---------------------------------------------------------- December 31, December 31, December 31, December 31, Year ended 1999 1998 1999 1998 March 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios - Financial performance Export revenue/Total revenue (%) 95.85 98.33 95.50 98.13 97.50 Domestic revenue/Total revenue (%) 0.86 1.15 1.10 1.30 1.68 Other income/Total revenue (%) 3.30 0.52 3.40 0.57 0.75 Employee costs/Total revenue (%) 36.81 30.60 36.20 32.94 32.39 Administration expenses/Total revenue (%) 7.38 8.69 7.39 8.94 8.92 Operating expenses/Total revenue (%) 57.68 61.01 59.58 64.26 62.60 Depreciation/Total revenue (%) 6.18 6.51 5.51 5.98 7.00 Tax/Total revenue (%) 4.36 5.56 4.42 4.75 4.47 Effective tax rate (Tax/PBT) (%) 12.06 17.11 12.67 15.95 14.72 EBIDTA/Total revenue (%) 42.32 38.99 40.42 35.74 37.40 PAT from ordinary activities/Total revenue (%) 31.78 26.93 30.49 25.02 25.92 PAT from ordinary activities/Average net worth (%)* 39.35 58.17 36.35 50.80 54.16 ROCE (PBIT/Average capital employed) (%)* 44.75 70.17 41.62 60.44 63.51 Return on invested capital (%)* 94.13 83.09 91.62 72.92 86.30 Invested capital output ratio* 3.15 3.12 3.21 2.96 3.39 Ratios - Balance Sheet Debt-Equity ratio - - - Debtors turnover (Days) 63 69 61 Current ratio 5.73 3.33 6.57 Cash and equivalents/Total assets (%) 61.01 36.97 72.51 Cash and equivalents/Total assets (%) (excluding ADR 38.67 36.97 46.50 issue proceeds) Depreciation for the period/Average gross block (%) 22.91 22.42 26.19 Technology investment/Total revenue (%) 6.42 8.58 8.55 Ratios - Growth** Export revenue (%) 63 94 70 102 99 Total revenue (%) 67 91 74 98 97 Operating expenses (%) 58 79 62 92 87 Operating profit (%) 81 114 97 112 116 Net profit (from ordinary activities) (%) 97 107 113 118 120 Per share data Earnings per share from ordinary activities (Rs.) 22.50 12.12 57.74 27.87 40.19 Cash earnings per share from ordinary activities (Rs.) 26.88 14.88 68.18 34.36 51.05 Book value (Rs.), period end 227.43 78.84 227.43 78.84 174.00 Price/Earning, end of the period 160.75 61.29 187.93 79.98 72.77 - -----------------------------------------------------------------------------------------------------------------------------------
* Annualized ** Denotes growth compared with figures of the corresponding period in the previous year. Note: The ratio calculations are based on Indian GAAP. All ratios are calculated excluding income from exchange differences on translation of foreign currency deposit kept abroad. EPS figures have been calculated for the period and has not been annualized. Invested capital ratios has been calculated by adjusting the average liquid assets against the average net worth and adjusting the revenue earned from liquid assets after taxes against net profits. - -------------------------------------------------------------------------------- 26 of 27 US Infosys Technologies Limited 34760, Campus Drive Fremont CA 94555. Tel: (510) 742-3000 Fax: (510) 742-3090 Infosys Technologies Limited 20 Commerce Drive Cranford NJ 07016. Tel: (908) 497-1710 Fax: (908) 497-1770 Canada Infosys Technologies Limited 208 Evans Avenue #207 Toronto ON M8Z 1J7, Canada. Tel: 416-259-9578 Fax: 416-259-1046 UK Infosys Technologies Limited Suite 412, Premier Suites Exchange House 494 Midsummer Boulevard Milton Keynes MK9 2EA, UK. Tel: 44-1-908-608-272 Fax: 44-1-908-608-279 Germany Infosys Technologies Limited T.O.P.A.S 2 Mergenthalerallee 79-81 Bankers 65760 Eschborn, Frankfurt State Bank of Mysore Germany. Hongkong and Shanghai Banking Corporation Ltd. Tel: 49-6196-9202115 State Bank of India Fax: 49-6196-9202200 ICICI Banking Corporation Limited Bank of America Japan Infosys Technologies Limited Company Secretary 4F, Madre Matsuda Building V. Viswanathan 4-13 Kioi-cho, Chiyoda-ku Tokyo 102-0094, Japan. Auditors Tel: 81-3-3234-3597 Bharat S Raut and Company Fax: 81-2-3239-3300 Chartered Accountants India Independent auditors - US GAAP Infosys Technologies Limited KPMG Peat Marwick Electronics City, Hosur Road Bangalore 561 229, India. Tel: 91-80-8520261 Fax: 91-80-8520362 Visit Infosys on the Worldwide Web at www.itlinfosys.com Send your e-mail to infosys@itlinfosys.com Call us at 1-800-ITL INFO (C) 2000 Infosys Technologies Limited, Bangalore, India. Infosys acknowledges the proprietary rights in the trademarks and product names of other companies mentioned in this document.
EX-27.1 6 FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS YEAR MAR-31-2000 MAR-31-1999 MAR-31-1999 OCT-01-1999 OCT-01-1998 APR-01-1998 DEC-31-1999 DEC-31-1998 MAR-31-1999 106,789,758 22,797,989 98,874,963 177,938 177,938 177,938 31,814,100 21,270,407 20,056,678 783,495 317,325 301,930 0 0 0 147,265,420 49,371,220 124,666,964 39,761,952 22,795,198 23,900,313 7,976,831 5,101,292 8,521,009 195,184,772 76,581,795 153,657,596 15,968,880 13,316,453 14,048,034 0 0 0 0 0 0 0 0 0 8,592,137 4,545,811 8,592,137 0 0 0 195,184,772 76,581,795 153,657,596 52,158,059 33,041,304 120,995,226 52,158,059 33,041,304 120,995,226 28,524,750 16,416,373 65,331,006 28,524,750 16,416,373 65,331,006 7,940,499 5,814,490 32,751,593 0 0 0 0 0 0 17,329,447 11,183,481 22,323,738 1,912,519 1,601,802 4,877,650 15,416,928 9,581,679 17,446,088 0 0 0 0 0 0 0 0 0 15,416,928 9,581,679 17,446,088 0.24 0.16 0.28 0.24 0.16 0.28
EX-99.1 7 DEPOSITARY RECEIPTS EXHIBIT 99.1 Bankers Trust Company (Part of the Deutsche Bank Group) November 29, 1999 DEPOSITARY RECEIPTS Depositary's Notice of Extra-ordinary General Meeting of Shareholders of Infosys Technologies Ltd. Issue: Infosys Technologies Ltd./Cusip 456786108 Country: India Meeting Details: Extra-ordinary General Meeting of Shareholders - Wednesday, December 29/th/ at 2.30 P.M. at Hotel Taj Residency, No. 41/3, M.G. Road, Bangalore 560 001 Meeting Agenda: The Company's Notice of Meeting including the Agenda is attached Voting Deadline: On or before Dec. 24 1999 at 5:00 PM (New York City time) ADR Record Date: Nov 30, 1999 Ordinary: ADR ratio: 1 Ordinary Share: 2 ADR In accordance with Section 4.07 of the Deposit Agreement between Infosys Technologies Ltd ("the Company") and Bankers Trust as Depositary ("the Depositary"), Holders of Infosys Technologies Ltd. American Depositary Shares (ADSs) are hereby notified of the Company's Extra-ordinary General Meeting. A copy of the Notice of Meeting from the Company, which includes the agenda for such Meeting, is enclosed. Holders of Infosys ADSs at the close of business of the above-specified record will be entitled, subject to any applicable provision of Indian law, of the Deposited Securities or of the Memorandum and Articles of Association of the Company, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the amount of Shares or other Deposited Securities represented by their respective American Depositary Shares. Upon receipt of the enclosed Voting Instruction Form, duly signed, by the above-stated deadline, the Depositary shall notify such voting instruction to the Chairman of the Company, or such other director that the Chairman may designate, and appoint the Chairman or that other person designated by the Chairman as representative of the Depositary and the Registered Holders to attend such meeting and vote the Deposited Securities in the direction so instructed by such Registered Holder. If the Depositary does not receive instructions from a Registered Holder, such Registered Holder may under certain circumstances be deemed to have instructed the Depositary to give a discretionary proxy to a person designated by the Company to vote such Deposited Securities. Upon the written request of a Registered Holder on such record date, received on or before the date established by the Depositary for such purpose, the Depositary shall endeavor insofar as is practicable and permitted under the applicable provisions of law and of the Memorandum and Articles of Association governing Deposited Securities of the Company to vote or cause to be voted the amount of Deposited Securities represented by such American Depositary Shares evidenced by such Receipt in accordance with the instructions set forth in such request. For the purposes of this Section 4.07, in the event that the Depositary receives express instructions from Registered Holders to demand a poll with respect to any matter to be voted on by Holders, the Depositary may notify the Chairman or a person designated by the Chairman of such instructions and request the Chairman or such designee to demand a poll with respect to such matters and the Company agrees that the Chairman or such designee will make their reasonable best efforts to demand a poll at the meeting at which such matters are to be voted on and to vote such Shares in accordance with such Registered Holder's instructions; provided, however, that prior to any demand of a poll or request to demand poll by 1 the Depositary upon the terms set forth herein, the Company shall, at its expense, deliver to the Depositary an opinion of Indian counsel, reasonably satisfactory to the Depositary, stating that such action is in conformity with all applicable laws and regulations and that the demand for a poll by the Depositary or a person designated by the Depositary will not expose the Depositary to any liability to any person. The Depositary shall not have any obligation to demand a poll or request the demand of a poll if the Company shall not have delivered to the Depositary the local counsel Opinion set forth in this paragraph. Under Indian law voting of Shares is by show of hands unless a poll is demanded by a member or members present in person or by proxy holding at least one-tenth of the total Shares entitled to vote on the resolution or by those holding paid up capital of at least Rs. 50,000. A proxy may not vote except in a poll. The Depositary agrees not to, and shall ensure that the Custodian and each of their nominees does not, vote, attempt to exercise the right to vote, or in any way make use of, for purposes of establishing a quorum or otherwise, the Shares or other Deposited Securities represented by the American Depositary Shares evidenced by a Receipt other than in accordance with such instructions from the Registered Holder, or as provided below. The Depositary may not itself exercise any voting discretion over any Shares. If the Depositary does not receive instructions from any Registered Holder with respect to any of the Deposited Securities represented by the American Depositary Shares evidenced by such Registered Holder's Receipts on or before the date established by the Depositary for such purpose, such Registered Holder shall be deemed, and the Depositary shall deem such Registered Holder, to have instructed the Depositary to give discretionary proxy to a person designated by the Company to vote such Deposited Securities; provided that (x) no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writing) that (i) the Company does not wish such proxy given, (ii) substantial opposition exists or (iii) the rights of the holders of Shares will be adversely affected and (y) the Depositary shall not have any obligation to give such discretionary proxy to a person designated by the Company if the Company shall not have delivered to the Depositary the local counsel opinion and representation letter set forth in the next paragraph. Prior to each request for a discretionary proxy upon the terms set forth herein, the Company shall, at its own expense, deliver to the Depositary (aa) an opinion of Indian counsel, reasonably satisfactory to the Depositary, stating that such action is in conformity with all applicable laws and regulations (bb) a representation and indemnity letter from the Company (executed by a senior officer of the Company) which (i) designates the person to whom any discretionary proxy should be given, (ii) confirms that the Company wishes such discretionary proxy to be given and (iii) certifies that the Company has not and shall not request the discretionary proxy to be given as to any matter as to which substantial opposition exists or which may adversely affect the rights of holders of Shares. Shares which have been withdrawn from the despositary facility and transferred on the Company's Register of Members to a person other than the Depositary or its nominee may be voted by such persons. However, Registered Holders who wish to withdraw Shares to vote at a shareholders meeting may not receive sufficient advance notice of shareholders meetings to enable them to make such withdrawal of the Shares in time to vote at the meeting. In addition once withdrawn from the depositary facility, Shares may not be redeposited. For more Information, contact: Paul Martin Bankers Trust Company 212 250 5065 212 250 5644(fax) 2 EX-99.2 8 PROXY INFORMATION STATEMENT TO HOLDERS EXHIBIT 99.2 Infosys Technologies Limited Extra-ordinary General Meeting of Shareholders ________________________________________________________________________________ ___________________________________ (Name of ADR holder) ___________________________________ (Number of ADRs held) Issues presented for consideration at the Extra-ordinary General Meeting of Shareholders on 29 December 1999 Resolution # Affirmative Negative Abstained - ----------------------------------------------------------------- 1. - ----------------------------------------------------------------- 2. - ----------------------------------------------------------------- 3. - ----------------------------------------------------------------- 4. - ----------------------------------------------------------------- 5. - ----------------------------------------------------------------- 6. - ----------------------------------------------------------------- ________________________________ (Signature) ________________________________________________________________________________ EX-99.3 9 PROXY FORM TO HOLDERS OF EQUITY SHARES EXHIBIT 99.3 [Infosys LOGO] NOTICE Notice is hereby given that an Extraordinary General Meeting of the members of Infosys Technologies Limited will be held on Wednesday, December 29, 1999 at 2.30 p.m., at Hotel Taj Residency, No. 41/3, M.G. Road, Bangalore - 560 001, to transact the following business: SPECIAL BUSINESS 1. To consider and if thought fit, to pass with or without modifications, as an ORDINARY RESOLUTION the following: a) RESOLVED THAT pursuant to the provisions of Section 94 of the Companies Act, 1956 and all other applicable provisions of the Companies Act, 1956 and relevant provisions of the Memorandum and Articles of Association of the Company, each of the existing fully paid up Equity Share of par value Rs. 10 be and is hereby sub-divided into two fully paid up Equity Shares of par value Rs. 5 per share. b) FURTHER RESOLVED THAT pursuant to the relevant provisions of the Memorandum and Articles of Association of the Company and subject to any registration statement to be filed with the Securities and Exchange Commission, U.S.A., and any other requirement under any law, each of the existing fully paid up American Depositary Share be and is hereby sub-divided into two fully paid up American Depositary Shares. 2. To consider and if thought fit, to pass with or without, modifications, as an ORDINARY RESOLUTION the following: RESOLVED THAT the Authorized Share Capital of the Company be and is hereby altered from the existing Rs. 50,00,00,000 - (Rupees Fifty crores only) divided into 5,00,00,000 (Five crores only) Equity Shares of Rs. 10 each (Rupees Ten only) to Rs. 50,00,00,000 (Rupees Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees Five only), and consequently the existing clause V of the Memorandum of Association of the Company be and is hereby altered by deleting the same and substituting in place and stead thereof, the following as the new clause V: "The Authorized Share Capital of the Company is Rs. 50,00,00,000 (Rupees Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees Five only) with power to increase and reduce the capital of the Company and to divide the shares in the capital for the time being into several classes and attach thereto respectively such preferential, deferred, qualified or special rights, privileges or conditions as may be determined by or in accordance with the Articles of Association of the Company for the time being and to vary, modify or abrogate any such rights, privileges or conditions in such manner as may be permitted by the Companies Act, 1956 or by the Articles of Association of the Company for the time being". 3. To consider and if thought fit, to pass with or without modifications, as a SPECIAL RESOLUTION the following: RESOLVED THAT the Articles of Association of the Company be and is hereby altered by deleting the existing Article '3' and substituting in place and stead thereof the following new Article '3': "The Authorized Share Capital of the Company is Rs. 50,00,00,000 (Rupees Fifty crores only) divided into 10,00,00,000 (Ten crores only) Equity Shares of Rs. 5 each (Rupees Five only) with powers to increase or reduce the same in accordance with the provisions of the Companies Act, 1956". 4. To consider and if thought fit, to pass with or without modifications, as an ORDINARY RESOLUTION the following: RESOLVED THAT for the purpose of giving effect to the sub-division of the Equity Shares and American Depositary Shares resolved hereinbefore, the issuance of Equity Shares and/or American Depositary Shares or Instruments or Securities representing the same, the Board and other designated officers of the Company be and are hereby authorized on behalf of the Company to do all such acts, deeds, matters and things as it may at its discretion deem necessary or desirable for such purpose, including without limitation, filing a registration statement, if any, and other documents with the Securities and Exchange Commission, U.S.A., and/or the Securities and Exchange Board of India, listing the additional Equity Shares/American Depositary Shares on the Bangalore Stock Exchange. The Stock Exchange, Mumbai, The National Stock Exchange of India and the NASDAQ National Market, as the case may be, amending, if necessary, the relevant sections of the Agreement entered into between the Company, Bankers Trust Company, New York (the Depositary to the Company's ADSs) and the American Depositary Receipt Holders (the "Depositary Agreement") in connection with the Company's ADS offering and listing on the NASDAQ and the entering into of any depositary arrangements in regard to any such sub-division as it may in its absolute discretion deem fit. 5. To consider and if thought fit, to pass with or without modifications, as a SPECIAL RESOLUTION the following: a) RESOLVED THAT for the purpose of giving effect to the sub-division of the Equity Shares and American Depositary Shares resolved hereinbefore, Clause '3' of the 1998 Stock Opinion Plan of the Company be and is hereby altered by deleting the words "8,00,000 shares" appearing in the existing Clause '3' and substituting in place and stead thereof the words "16,00,000 shares". b) FURTHER RESOLVED THAT for the purpose of giving effect to the sub- division of the Equity Shares and American Depositary Shares resolved hereinbefore, and pursuant to Clause 11 of the 1998 Stock Option Plan the Board of Directors be and are hereby authorized to proportionately adjust the number of ADSs covered by each outstanding Option, and the number of Shares (in the form of ADSs) which have been authorized for issuance under the Plan but as to which no 1 [INFOSYS LOGO] Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, and also the price per ADS covered by each such outstanding Option, shall be proportionately adjusted for any increase in the number of issued Shares resulting from the sub-division. c) FURTHER RESOLVED THAT the Board be and is hereby authorized to settle all questions, difficulties or doubts that may arise in regard to giving effect to the sub-division of the Equity Shares and American Depositary Shares resolved herein before, as it may in its absolute discretion deem fit without being required to seek any further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto, expressly by the authority of this resolution. 6. To consider and if though fit, to pass with or without modifications, as a SPECIAL RESOLUTION the following: a) RESOLVED THAT for the purpose of giving effect to the sub-division of the Equity Shares and American Depositary Shares resolved hereinbefore, Clause `3 (t)' of the 1999 Stock Option Plan of the Company be and is hereby altered by deleting the figures and words "Rs. 10 (Rupees Ten only)" appearing in the existing Clause `3 (t)' and substituting in place and stead thereof the figures and words "Rs.5 (Rupees Five only). b) FURTHER RESOLVED THAT for the purpose of giving effect to the sub- division of the Equity Shares and American Depositary Shares resolved hereinbefore, Clause `4' of the 1999 Stock Option Plan of the Company be and is hereby altered by deleting the words "33,00,000 shares" appearing in the existing Clause `4' and substituting in place and stead thereof the words "66,00,000 shares". c) FURTHER RESOLVED THAT for the purpose of giving effect to the sub- division of the Equity Shares and American Depositary Shares resolved hereinbefore, and pursuant to Clause 15 of the 1999 Stock Option Plan the Board of Directors be and are hereby authorized to proportionately adjust the number of Equity Shares covered by each outstanding Option, and the number of Equity Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, and also the price per Equity Share covered by each such outstanding Option, shall be proportionately adjusted for any increase in the number of issued Shares resulting from the sub- division. d) FURTHER RESOLVED THAT the Board be and is hereby authorized to settle all questions, difficulties or doubts that may arise in regard to giving effect to the sub-division of the Equity Shares and American Depositary Shares resolved herein before, as it may in its absolute discretion deem fit without being required to seek any further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto, expressly by the authority of this resolution. Registered Office: By Order of the Board Electronics City, Hosur Road, V. Viswanathan Bangalore - 561 229. Company Secretary Date: November 29, 1999 2 Infosys NOTES 1. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend the meeting and the proxy need not be a member of the Company. Under the Companies Act, voting is by show of hands unless a poll is demanded by a member or members present in person, or by proxy holding at least one-tenth of the total shares entitled to vote on the resolution or by those holding paid-up capital of at least Rs. 50,000. A proxy may not vote except in a poll. 2. An Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956 is annexed hereto. 3. The instrument appointing the proxy should be deposited at the Registered Office of the Company not less than 48 hours before the commencement of the meeting. 4. Members/Proxies should bring duly filled Attendance Slips sent herewith for attending the meeting. 5. Subject to the approval of the sub-division by the members, the Board has fixed February 11, 2000 as the Record Date for ascertaining the Shareholders/ADS holders entitled for the sub-division. EXPLANATORY STATEMENT UNDER SECTION 173(2) OF THE COMPANIES ACT, 1956 ITEM 1 The par value of the Company's existing Equity Shares is Rs. 10. The Board of Directors of the Company has recommended a Stock Split, i.e., a sub-division of each equity share of par value Rs. 10 into two Equity Shares of par value Rs. 5 each. As a resultant development, the Board has also recommended a 2-for-1 split of the Company's American Depositary Shares (ADSs). The Board has recommended the Stock Split to improve the liquidity of the Company's stock. In order to make such s sub-division of the existing Equity Shares and ADSs, the Board requires approval of the members by way of ORDINARY RESOLUTION pursuant to Section 94 of the Companies Act, 1956 and Article 11 of the Articles of the Company. The ORDINARY RESOLUTION, if passed will have the effect of entitling the holders of the Equity Shares to receive, two Equity Shares of par value Rs. 5 each for every Equity Share and the holder of the ADSs to receive, two ADSs for every ADS held as on the Record Date of February 11, 2000 or such other date as the Board may determine. The Board recommends the resolution for the approval of members. ITEM 2 & 3 On account of the proposal to sub-divide the existing Equity Shares of par value Rs. 10 per share into two Equity Shares of par value Rs. 5 each and the proposal to sub-divide each existing ADS into two ADSs as contained in Item 1 of this Notice, it is necessary to amend the Capital Clause contained in the Company's Memorandum of Association. Likewise, the resolution at Item 3 seeks to amend Article 3 pertaining to the Authorized Capital in the Company's Articles of Association. A copy of the Company's Memorandum and Articles of Association is open for inspection during business hours on any working day. The Board recommends the said resolutions for the approval of members. ITEM 4 In view of the proposal contained in Item 1 of this Notice, it is necessary to authorize the Board of Directors of the Company to complete all the regulatory formalities that may be prescribed by the Securities and Exchange Board of India, the Securities and Exchange Commission, U.S.A., the Stock Exchanges on which the Company's securities are listed and any other regulatory authority, including without limitation the filing of any registration statement and/or other filings, with the Securities Exchange Commission, U.S.A. in connection with the sub-division of the par value of the Equity Shares/American Depositary Shares and if necessary, the amending of the Depositary Agreement and/or entering into any new depositary arrangement in connection with such sub- division. The Board recommends the resolution for the approval of members. ITEM 5 In view of the proposal contained in Item 1 of this Notice, it is necessary to increase the total number of ADSs and underlying Equity Shares reserved under the 1998 Stock Option Plan, from 8,00,000 Equity Shares of par value Rs. 10 each, initially reserved, to 16,00,000 Equity Shares of par value Rs. 5 each and proportionately adjust the number of ADSs covered by each outstanding Option, the total number of ADSs and underlying Equity Shares which have been authorized and reserved for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per ADS covered by each such outstanding Option, so as to reflect the increase in the number of ADSs/Equity Shares, the consequent change in the price of each ADS and the decrease in the par value of each Equity Share resulting from the sub-division. The Board recommends the resolution for the approval of members, pursuant to Clause 11 of the 1988 Stock Option Plan. [INFOSYS LOGO] ITEM 6 In view of the proposal contained in Item 1 of this Notice, it is necessary to increase the total number of Equity Shares reserved under the 1999 Stock Option Plan, from 33,000,000 Equity Shares of par value Rs. 10 each, initially reserved, to 66,000,000 Equity Shares of par value Rs. 5 each and proportionately adjust the number of Equity Shares covered by each outstanding Option, the total number of Equity Shares which have been authorized and reserved for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Equity Share covered by each such outstanding Option, so as to reflect the increase in the number of Equity Shares, the consequent change in the price of each Equity Share and the decrease in the par value of each Equity Share resulting from the sub-division. The Board recommends the resolution for the approval of members, pursuant to Clause 15 of the 1999 Stock Option Plan. None of the Directors of the Company are interested in any of the Items of Business contained in this Notice. Registered Office: By Order of the Board Electronics City, Hosur Road, V. Viswanathan Bangalore - 561 229. Company Secretary Date: November 29, 1999 EX-99.4 10 PROXY FORM TO HOLDERS OF AMERICAN DEPOSITORY SHARE EXHIBIT 99.4 [INFOSYS LOGO] INFOSYS TECHNOLOGIES LIMITED Registered Office ELECTRONICS CITY, HOSUR ROAD, BANGALORE - 561 229 PROXY FORM Regd. Folio No.____________________ Client ID No. ____________________ I/We .................................................. of ..................... in the district of .................................. being a member/members of Infosys Technologies Limited hereby appoint ................................... of ........................................................ in the district of ............................................................. or failing him/her ..................................... of ....................................... in the district of .......................................... as my/our proxy to vote for me/us on my/our behalf at the EXTRAORDINARY GENERAL MEETING of the company to be held at 2.30 p.m. on Wednesday, December 29, 1999 and at any adjournment(s) thereof. Signed this ........................ day of ........................... 199..... ----------- Rupee one Signature Revenue Stamp ----------- Notes: This form, in order to be effective, should be completed, duly signed and stamped and must be deposited at the Registered Office of the company, not less than 48 hours before the meeting. - -------------------------------------------------------------------------------- Please tear here [INFOSYS LOGO] INFOSYS TECHNOLOGIES LIMITED Registered Office ELECTRONICS CITY, HOSUR ROAD, BANGALORE - 561 229 ATTENDANCE SLIP Extraordinary General Meeting - December 29, 1999 Regd. Folio No. _______________________ No. of shares held __________ Client ID No. _______________________ I certify that I am a registered shareholder/proxy for the registered shareholder of the company. I hereby record my presence at the EXTRAORDINARY GENERAL MEETING of the company at Hotel Taj Residency, No. 41/3, M.G. Road, Bangalore - 560 001 at 2.30 p.m. on Wednesday, December 29, 1999. ................................ ......................... Member's/Proxy's name in Signature of Member/Proxy BLOCK Letters Note: Please fill up this attendance slip and hand it over at the entrance of the meeting hall. 5 -----END PRIVACY-ENHANCED MESSAGE-----