Sterlite Industries (India) Limited - Sterlite Industries India Ltd.

Call Option Over Shares in BALCO
On March 2, 2001, we acquired a 51.0% interest in BALCO from the Government of India for a cash consideration of Rs. 5,532 million. On
the same day, we entered into a shareholders’ agreement with the Government of India and BALCO to regulate, among other things, the
management of BALCO and dealings in BALCO’s shares. The shareholders’ agreement provides that as long as we hold at least 51.0% of the
share capital of BALCO, we are entitled to appoint one more director to the board of BALCO than the Government of India and are entitled to
appoint the managing director. There are various other matters reserved for approval by both the Government of India and us under the
shareholders’ agreement, including amendments to BALCO’s Articles of Association, the commencement of a new business, non-pre-emptive
issues of shares or convertible debentures and the provision of loans or guarantees or security to other companies under the same management
as BALCO.
Under the shareholders’ agreement, if either the Government of India or we wish to sell our shares in BALCO to a third party, the selling
party must first offer the shares to the other party at the same price at which it is proposing to sell the shares to a third party. The other party
shall then have the right to purchase all, but not less than all, of the shares so offered. If a shareholder does not exercise its first right of refusal
it shall have a tag along right to participate in the sale pro rata and on the same terms as the selling party, except that if the sale is by the
Government of India by way of public offer the tag along right will not apply. However, a transfer of shares representing not more than 5.0%
of the equity share capital of BALCO by the Government of India to the employees of BALCO is not subject to such right of first refusal by
Sterlite.
The Government of India also granted to us an option to acquire the remaining shares in BALCO held by the Government of India at the
time of exercise. The exercise price is the higher of:
• the fair value of the shares on the exercise date, as determined by an independent valuer; and
• the original sale price (Rs. 49.01 per share) ($0.96 per share) together with interest at a rate of 14% per annum compounded half yearly
from March 2, 2001 through the exercise date, less all dividends received by the Government of India since March 2, 2001 through the
exercise date.
Based on a valuation report commissioned by the Government of India and us in December 2007, the fair value of the remaining shares in
BALCO held by the Government of India was Rs. 12,438 million ($244.5 million).
Under the terms of the shareholders’ agreement between us and the Government of India, we were granted an option to acquire the shares of
BALCO held by the Government of India at the time of exercise. We exercised this call option on March 19, 2004. However, the Government
of India has contested the purchase price and validity of the option, contending that the restriction imposed by the shareholders’ agreement on
the transfer of shares violates Section 111A of the Indian Companies Act. As negotiations for an amicable resolution were unsuccessful, on
direction of the court, arbitrators were appointed by the parties, as provided for under the terms of the shareholders’ agreement. Arbitration
proceedings commenced on February 16, 2009 and we submitted our claim statement to the arbitrators. The Government of India has been
directed by the arbitrators to file its reply to our claim statement by July 10, 2009. The next hearing on this matter has been scheduled for
August 26, 2009. Notwithstanding the outcome of the dispute, the Government of India retains the right and has expressed an intention to sell
5.0% of BALCO to BALCO employees. See “Item 4. Information on the Company — B. Business Overview — Our Business — Options to
Increase Interests in HZL and BALCO.”
See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business — The Government of India has disputed our exercise
of the call option to purchase its remaining 49.0% ownership interest in BALCO.”
Employees
As of March 31, 2009, we had 13,368 employees as follows:
Company Location Primary Company Function Total Employees
Copper
Sterlite Industries (India) Limited India Copper smelting and refining 1,231
Copper Mines of Tasmania Pty Ltd. Australia Copper mining 98
Zinc
Hindustan Zinc Limited India Zinc and lead production 6,661
Aluminum
Bharat Aluminium Company Limited India Aluminum production 5,310
Power
Sterlite Energy Limited India Commercial power generation 68
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