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Color Chips India Ltd

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					                                                                                 DRAFT LETTER OF OFFER
(Private and Confidential)                                       For Equity Shareholders of the Company only


                                     COLOR CHIPS (INDIA) LIMITED
                                           (Formerly Arham Fiscals Limited)

(The Company was Originally incorporated on 19.03.1990 as “Rusoday Mutual Funds Limited” under the
Companies Act, 1956. The name of the Company was changed to “Rusoday Finance Limited” on
04.06.1996, to “Global Fiscals Limited” on 06.06.1996, to “Arham Fiscals Limited” on 28.04.1997 and
lastly changed to “Color Chips (India) Limited” on 05.01.2000)
     Registered Office: Plot No: 16, Road No: 5, Jubilee Hills, Hyderabad-500 033, Andhra Pradesh.
                 Tel. No: +91-40-23550268/ 23544862-4, Fax. No: +91-40-23559333
              E-mail: rightsissue@colorchipsindia.com; Website: www.colorchipsindia.com
                                 Contact Person: Mr. Y. Suryanarayana
Issue of 68,77,350 Equity Shares of Rs.10/- each for cash at par on Rights basis to the existing
Equity Shareholders of the Company in the ratio of one Equity Share for every two Equity Shares
held [i.e1:2] on Record Date i.e._________ 2005 aggregating to Rs. 687.735 Lakhs.
                                            GENERAL RISKS
Investment in equity and equity related securities involve a degree of risk and investors should not invest
any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are
advised to read the Risk Factors carefully before taking an investment decision in this Issue. For taking
an investment decision, investors must rely on their own examination of the Issuer and the Issue
including the risks involved. The securities have not been recommended or approved by Securities and
Exchange Board of India (“SEBI”) nor does SEBI guarantee the accuracy or adequacy of this document.
The attention of investors is drawn to the statement of Risk Factors appearing on Page __ to __ of
the Letter of Offer.
                                 ISSUER’S ABSOLUTE RESPONSIBILITY
The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Letter
of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of
the Issue, that the information contained in this Letter of Offer is true and correct in all material respects
and is not misleading in any material respect, that the opinions and intentions expressed herein are
honestly held and that there are no other facts, the omission of which makes this document as a whole or
any of such information or the expression of any such opinions or intentions misleading in any material
respect.
                                                  LISTING
The existing equity shares of the Company are listed on The Stock Exchange, Mumbai [BSE]
(Designated Stock Exchange), National Stock Exchange of India Limited [NSE] and The Hyderabad
Stock Exchange Limited [HSE]. The Company will make applications to these Stock Exchanges for
permission to deal in and for an official quotation in respect of the Equity Shares arising out of the issue.
The Company has received ‘in-principle’ approvals from BSE, NSE and HSE vide their letter no. ____
dated ______, letter no. _____ dated ____ and letter no. _____ dated _____ respectively.
                              LEAD MANAGER TO THE ISSUE                  REGISTRAR TO THE ISSUE
                              ASHIKA CAPITAL LIMITED                     VENTURE CAPITAL & CORPORATE
                              7-1-613/14A, Nestcon Lakshmisri,           INVESTMENTS LIMITED
                              Suite No: 6, 2nd Floor, Ameerpet,          6-2-913/914, 3rd Floor,
                              Hyderabad-500 016.                         Progressive Towers, Khairatabad,
                              Tel: 040-55617802 / 23750498               Hyderabad-500004.
                              Fax: 040-55617801                          Tel: 040-23322264
 Your Trust is Our Strength
                              E-Mail: ashika_hyderabad@rediffmail.com    Fax: 040-23324803
                              Website: www.ashikagroup.com               E-mail: vccil_hyd@yahoo.co.in

                                                LAST DATE FOR RECEIVING
             ISSUE OPENS ON                                                          ISSUE CLOSES ON
                                               REQUESTS FOR SPLIT FORMS
              __________ 2005                          __________ 2005                 __________ 2005
                                TABLE OF CONTENTS
S. No                                  Particulars   Page No.
         Definitions / Abbreviations                   3-4
         Risk Factors and Management Perception        5-9
         Highlights                                    10
   I.    GENERAL INFORMATION                          11-17
  II.    CAPITAL STRUCTURE                            18-22
  III.   TERMS OF PRESENT ISSUE                       23-41
 IV.     PARTICULARS OF THE ISSUE                     42-44
  V.     COMPANY, BUSINESS AND MANAGEMENET            44-55
 VI.     INDIAN MULTIMEDIA & ANIMATION INDUSTRY       55-56
 VII.    FINANCIAL PERFORMANCE OF THE COMPANY         57-62
VIII.    MANAGEMENT DISCUSSION AND ANALYSIS           62-65
 IX.     STOCK MARKET DATA                            65-66
  X.     BASIS FOR ISSUE PRICE                         66
 XI.     OUTSTANDING LITGATIONS                        68
 XII.    STATUTORY AND OTHER INFORMATION              74-75
XIII.    MATERIAL CONTRACTS AND DOCUMENTS              76
XIV.     DECLARATION                                   77




                                                                2
                                 DEFINITIONS / ABBREVIATIONS

Act                           The Companies Act, 1956 as amended from time to time
Articles                      Articles of Association of the Company
Board                         Board of Directors of Color Chips (India) Limited
BSE                           The Stock Exchange, Mumbai
CAF(s)                        Composite Application Form
CDSL                          Central Depository Services (India) Limited
CRISIL                        The Credit Rating Information Services of India Limited
CCIL /Color Chips/
                              Color Chips (India) Limited
Company/ Issuer
                              Committee of Board of Directors of Color Chips (India) Limited
Committee of Directors        authorised to take decisions on the matters related to / incidental to the
                              issue
CCAPL                         Color Chips Animation Park Limited
                              A Depository registered with SEBI under the SEBI (Depositories and
Depository
                              Participants) Regulations, 1996, as amended from time to time.
Designated Stock Exchange     The Stock Exchange, Mumbai
DP                            A Depository Participant as defined under the Depositories Act.
EPS                           Earning Per Share
EGM                           Extra-Ordinary General Meeting
                              Equity shareholders whose names appear as Beneficial owners as per
                              the list to be furnished by the depositories in respect of the shares held
                              in the electronic form and on the Register of Members of the Company
Equity Shareholders
                              in respect of the shares held in physical form at the close of business
                              hours on the Record Date i.e. _____and to whom this Issue is being
                              made.
FEMA                          Foreign Exchange Management Act, 1999, as amended from time to
                              time, and rules and regulations framed thereunder
                              Foreign Institutional Investors registered with SEBI under applicable
FII(s)
                              laws
Foreign Shareholders / NRIs   Non-Resident Shareholders / Foreign Investor(s)/FII(s)
FY                            Financial Year
                              Guidelines issued by the Securities and Exchange Board of India under
                              section 11 of the Securities and Exchange Board of India Act, 1992 and
Guidelines/SEBI Guidelines
                              called the Securities and Exchange Board of India (Disclosure and
                              Investor Protection) Guidelines, 2000.
HSE                           The Hyderabad Stock Exchange Limited
                              Issue of 68,77,350 equity Shares of Rs. 10/- each for cash at par on
                              Rights Basis to the existing Equity Shareholders of the Company in the
Issue / Rights Issue
                              ratio of one Equity Share for every Two Equity Shares held [i.e.1: 2] on
                              Record Date i.e. ____aggregating Rs. 687.735 Lakhs
Lead Manager                  Ashika Capital Limited, Hyderabad

                                                                                                           3
Letter of Offer/ LoF/ LOO/      This Letter of Offer circulated to the Equity Shareholders of the
Offer Document                  Company
Memorandum                      Memorandum of Association of the Company
NAV                             Net Asset Value
NRI(s)                          Non-Resident Indians
NSDL                            National Securities Depository Limited
NSE                             The National Stock Exchange of India Limited
OCB(s)                          Overseas Corporate Body (ies)
RBI                             Reserve Bank of India
Record date                     ________ 2005
Registrars to the Issue         Venture capital and Corporate Investments Limited
                                The number of Equity Shares that an Equity Shareholder is entitled to
Rights Entitlement              under this Letter of Offer in proportion to his/ her/ its existing
                                shareholding in the Company as on the Record Date.
SEBI                            Securities and Exchange Board of India
Security Certificates           Equity shares

In this Letter of Offer, all references to “Rs.” refer to Rupees, the lawful currency of India. References to
the singular also refer to the plural and one gender also refers to any other gender wherever applicable.




                                                                                                           4
RISK ENVISAGED BY MANAGEMENT AND MANAGEMENT PERCEPTION
The investors should consider the following risk factors together with all other information included in this
Letter of Offer carefully, in evaluating the Company and its business before making any investment
decision. Any projections, forecasts and estimates contained herein are forward looking statements that
involve risks and uncertainties. Such statements use forward looking terminology like “may”, “believes”,
“will”, “expect”, “anticipate”, “estimate”, “plan” or other similar words. The Company’s actual results could
differ from those anticipated in these forward-looking statements as a result of certain factors including
those, which are set forth in the “Risk factors”.
INTERNAL TO THE ISSUER COMPANY
1. Attracting and retaining of Animation professionals is of vital importance for the success.

    Management perception
    Management has devised various measures in the retention plan such as improving the working
    atmosphere, providing internal and external training for professional growth, Performance appraisal,
    Compensation reviews through informal market surveys, promotions etc. Company has best
    recruitment policy to infuse quality people into the Company. This apart to boost the morale of the
    employees, Company has devised several off the job activities like extra curriculum activities.

2. In respect of Equipments to be acquired, the company has not placed firm Orders.

    Management perception
    Placement of Orders is kept in abeyance, as the equipments are readily available.

3. Company’s clients’ confidential information/data may be misappropriated by the employees
   in violation of secrecy clause of the appointment letter, which may result in customer
   claiming damages from the Company.

    Management perception
    In the event of any violation of secrecy clause of the appointment letter by the employees, Company
    has the right to terminate the services of the employee without notice. However the company gives
    no assurance that the steps taken by them in this regard will be adequate to secure risk. However
    this is a general industry risk and there are no such claims so far.

4. The Animation industry is characterized by rapid technology obsolescence and intense
   competition. This obviously calls for additional investment of funds from time to time to meet
   the requirements of the prevailing technical standards.

    Management perception
    Company has devised systems and procedures to upgrade its technology. A separate cell has been
    formed only to focus on R & D activities. These measures, the Management of the Company feels is
    adequate to maintain the technical strength in the focus areas. With its track record, Company is
    confident of addressing the competition effectively in its focus area both in animation and multimedia.

5. The company is currently operating from the leased premises and the Lease Agreement is not
   registered.

    Management perception
    The company has entered into a Lease Agreement on 1st December 2000 for the Registered Office &
    Development Centre for a period of 5 years and it does not foresee any problem in its renewal.

6. The company is dependent on few customers for its business, which may have material
   adverse effect on it.

    Management perception
    The company has started identifying the key areas of market and to have better market potential to
    increase customer base.
                                                                                                           5
7. Outstanding Litigations against the Company
   -Show Cause Notice issued by SEBI
   SEBI has issued a show cause notice to the Company and its Directors to provide explanation for the
   alleged price manipulation by certain persons in the scrip of the Company during the period January
   2000 to March 2000.

   Management perception
   The present Directors were not in the management of the Company during the alleged manipulation
   in the scrip of the Company and it is understood that the price rise in the scrip of the Company was
   due to the general market boom at that period. The present Directors have made the written
   representation to the SEBI on 17th August 2004 as the reply to the Show cause Notice issued.

   -Litigation/ Disputes/ Defaults/ Criminal Cases:
   A Civil Suit was filed by Tusker Travels Private Ltd. with the II Senior Civil Judge at City Civil Court at
   Hyderabad against the Company for their claim of Rs. 1,18,268/-, (including interest @ 18% p.a. of
   Rs.32, 566/-) for acting as Company’s Travel Agent and booking domestic and international tickets
   for the employees of the Company.

   Management Perception
   The Company has given reply to the Plaint filed under Order 7 Rule 1&2 R/W Section 26 of CPC
   I.A.697/2000 and the matter is pending for hearing.

   - Notice by ROC
   The Company received notice dated 17-08-2004 from the Registrar of Companies, Andhra Pradesh,
   Hyderabad for furnishing informations under section 234(1) of the Companies Act, 1956 on the
   Balance Sheet as at 31.03.2003.

8. Outstanding Litigations against Promoters
   a. Income Tax demands by the Income Tax Department
   Assistant Commissioner of Income Tax, Central Circle-5, Hyderabad has raised a Income Tax
   demand of Rs. 2,38,64,411/- from Mr. Sudhish S Rambhotla, Chairman and Managing Director of the
   Company in the Assessment Order passed for the Block of Assessment Year 1990-91 to 2000-01.

   Assistant Commissioner of Income Tax, Central Circle-5, Hyderabad has also raised a Income Tax
   demand of Rs. 6,08,470/- from him in the Assessment Order passed for the Assessment Year 2001-
   2002.

   Management perception
   The above said Income Tax Orders were passed against the personal return of Mr. Sudhish S
   Rambhotla, Chairman and Managing Director of the Company and the Company is no way
   connected with his personal tax liability. Further, Mr. Sudhish S Rambhotla is contesting the case
   before the Income Tax Appellate Tribunal.

   b. Litigation/ Disputes/ Defaults/Criminal Cases:
   i) A case CC No 990/2001 is pending against Mr. Y. Suryanarayana, Executive Director in the court
   of V Metropolitan Magistrate, Hyderabad under Section 138 of the Negotiable Instruments Act. The
   case was filed by Dr. P. Peetamber, for alleged dishonor of Cheque of Rs. 54 Lakhs.

   Management perception
   Mr. Y. Suryanarayana is contesting the above case. The above case was filed only to avoid
   prosecution under the case CC No. 930/2001 filed by Mr. Y. Suryanarayana against Mr. P. Uttam
   Kumar (Dr. P. Peetamber’s brother) under Section 138 of the Negotiable Instruments Act for the
   dishonor of the Cheque of Rs.91 Lakhs issued by Mr. Uttam P Kumar.



                                                                                                            6
   ii) A Criminal Case CC no 298/2001 is pending against Mr. Mr. Y. Suryanarayana, Executive Director
   of the Company and others in the Court of V Metropolitan Magistrate, Hyderabad under section 379,
   406, 420 and 465 of the Indian Penal Code for alleged theft and forgery of a Cheque of Rs. 91 Lakhs
   issued by Mr. P. Uttam Kumar.

   Management perception
   It is the contention of Mr. Suryanarayana that the above case was filed only as a counter blast to
   avoid prosecution under Section 138 of the Negotiable Instrument Act. He filed a petition to the High
   Court under Section 482 of I.P.C for quashing the above criminal complaint. The Honourable High
   Court of Andhra Pradesh has stayed the further proceedings in the aforesaid case and the matter is
   pending before the Honourable High Court.

   iii) A Civil Suit No-353 of 2003 is pending against Mr. Y. Suryanarayana and Mr. Sudhish S
   Rambhotla before the Court of Chief Judge, City Civil Court, Hyderabad under Section 26 Order VII
   Rule 1 C.P.C. for recovery of Rs. 1,13,51,202.68 and the same has been filed by Dr. P. Peetamber.

   Management Perception
   The suit is a false case filed as a counter blast for the civil suit / legal proceedings initiated against
   Dr. P. Peetamber, P. Uttam Kumar and their family members much earlier to the filing of the above
   civil suit by Dr. P. Peetamber.

9. Short falls in Promise Vs. Performance
   Shortfall in the performance vis-à-vis the promise made in the offer document by the company in
   respect of Initial Public Offering of 1997 is as follows:
                                                            (Rs. in Lakhs)
         Particulars        Projection     Actual % Shortfall as on
                              (Rs.)         (Rs.)        31.03.1998
       Total Income                95.65     103.74                    --
       Net profit                  63.51       0.06               99.90%

    Management Perception
   Shortfall in profit was due to increase in actual expenditure as compared to the projected expenditure
   in the prospectus. However, the present Management took over the Company in the year 2000 from
   the earlier management in pursuant to the SEBI (Substantial Acquisition of Shares and Takeover)
   Regulations, 1997 and changed its Name & Object Clause. The promises made in the Initial Public
   Offering of 1997 relating to financial activities can’t be compared in lines of present activities being
   conducted since 2000 i.e. new projects relating to Animation and Multimedia sector.

10. Assessment of Fund Requirement
    The requirement of funds for the proposed activities are based on the Company’s own estimates and
    the same has not been assessed or appraised by any independent agency, bank or financial
    institution.

   Management Perception
   The Company has experience in the multimedia and animation industry and the management has
   the experience to estimate the funding requirement for proposed activities.

11. Deployment of funds
    The deployment of funds raised through the Issue is completely at the discretion of the Company and
    will not be monitored by any independent agency.

   Management Perception
   The Company is professionally managed with sufficient experience in the business and has
   estimated the funds requirement based upon plans to be implemented by the Company. The
   management believes that in the present environment, the proposed capital expenditure programme

                                                                                                           7
     would strengthen the long-term prospects of the company. However, the company would
     continuously review proposals to ensure optimum deployment of resources depending on the
     emerging economic and competitive scenarios. In addition the Company shall also publish the
     utilisation statement for the funds collected in this Rights Issue under a separate head on a quarterly
     basis.

12. Risk of Attrition of Key Personnel
    The Company’s business is dependent on key executives; the loss of any of them could have a
    material adverse effect on the Company’s business, operating results and financial condition.

     Management Perception
     The Company believes that its success will depend largely on its continued ability to retain and
     attract highly skilled and quality executive personnel. The Company has set up an in house training
     system and has developed a second line of Managers who can take the responsibility in case of
     attrition of any personnel.
13. Profit/ (Loss) levels of the company during the last Five years
                                                                             (Rs. in Lakhs)
                                       st
         Particulars / years ended 31            2004    2003      2002     2001        2000
         March                                   (Rs.)   (Rs.)     (Rs.)    (Rs.)       (Rs.)
         Net Profit/(Loss) after Tax            14.10 (25.61) (140.27) (105.64)          0.16
         Networth                            1149.52 914.68      761.93   889.37      959.96
         Reserves                                 2.21    2.21      2.21     2.21        3.30
         P& L A/c (Debit Balance)            (179.15) (193.25) (244.81) (104.54)         1.09
         EPS (Rs.)                              --       --       --       --          --

14. Profit/ (Loss) levels of the Group Companies
  • Color Chips Animation Park Limited [CCAPL]
                                                                (Rs. in Lakhs)
                                       st            2002         2003       2004
         Particulars / years ended 31 March
                                                     (Rs.)        (Rs.)      (Rs.)
         Share Capital                               209.80       209.80     209.80
         Reserves and Surplus
                                                         Nil          Nil        Nil
         (excluding revaluation reserve)
         Total Income                                   4.21       68.21    (131.51)
         Profit/(Loss) after tax                      (8.94)     (40.17)      (1.34)
         Earning Per Share (Rs.)                          Nil         Nil        Nil
 •     Ravikaanth Portfolio Services Private Limited
                                                           (Rs. in Lakhs)
                                       st           2002      2003       2004
         Particulars / years ended 31 March
                                                    (Rs.)     (Rs.)      (Rs.)
         Share Capital                                 0.02       1.00      2.00
         Share Application Money                     218.88 217.89        216.89
         Reserves and surplus
                                                         Nil         Nil        Nil
         (excluding revaluation reserve)
         Total Income                                  7.02       33.47     159.54
         Profit after Tax                            (2.81)       (2.21)     (0.77)
         Earning per share (Rs.)                         Nil          Nil        Nil

15. Preferential Allotment of Shares-pending Listing at NSE
    The Issuer Company has made Preferential Allotment of 5,00,000 Equity Shares to Color Chips
    Animation Park Limited on September 05, 2003 vide resolution passed in the EGM held on
    18.08.2003 and the listing of the said shares at NSE are still pending.
                                                                                                          8
   Management perception
   The Company has already obtained in-principal approval for Listing of above shares from Hyderabad
   Stock Exchange Limited and The Stock Exchange, Mumbai. However, the company is taking the
   steps to obtain the in-principle listing approval from National Stock Exchange of India Limited.

EXTERNAL TO THE ISSUER COMPANY
1. Changes in Government policy
   Any adverse change in the Government Policies with respect to Animation Sector may affect the
   performance and profitability of the Company.

   Management Perception
   Government of India has identified Animation Sector as a thrust area and incentives are being
   provided to encourage the Industry. Hence, the Company does not foresee any adverse policy
   changes that could be detrimental to the growth of this sector.

2. There could be threat from heavy competition
   The market for Animation services and products is highly competitive and the Company shall be
   exposed to competition from existing as well as new entrants.

   Management Perception
   The Company is confident that its products /services will find a suitable market in the highly
   competitive industry, as has happened so far.

3. Changes in Technology may render the current technologies obsolete or require the
   Company to make substantial capital investments
   The industry segment is prone to high risk of technological obsolescence.

   Management Perception
   The Company has already initiated policies and procedures to meet the technological obsolescence
   with continuous up-gradation of technical skills and machines. The Company has been regularly
   upgrading its systems to reflect the current practices and technology adopted by the industry.

4. Labour Turnover
   Selection, Recruitment and Retention of skilled and quality manpower are crucial factor for the
   success of an Animation Company.

   Management Perception
   The high degree of employee turnover would be minimized to a considerable extent through the
   Company’s sound Human Resource policies, which lay emphasis on regular recruitment and
   continuous training on latest technologies for its personnel.

Notes to Risk Factors
   a. Investors are advised to refer to “Basis for Issue Price” before investing in this Issue.
   b. Networth before the Issue (as on 30.09.2004) is Rs. 1140.68 Lakhs and the Issue size is Rs.
       687.735 Lakhs.
   c. Average Cost of acquisition of Equity Shares of the Promoters is Rs. 9.26.
   d. The book value of the equity shares of the Company as on 30.09.2004 is Rs. 8.57/- per share.
   e. During the last six months, some members of the promoter group have carried out transactions
       in equity shares of the Company. Details of such transactions are follows:
                        Name            No. of shares         Date of          Max.          Min.
                                      purchased/ Sold Transaction Price (Rs.) Price (Rs.)
                Mrs. R. Sreelakshmi      17,515 (Sold)       03.01.2005        11.12         10.95
                Mrs. R. Sreelakshmi      62,485 (Sold)       04.01.2005        11.25         10.95
                Mrs. R. Sreelakshmi      20,000 (Sold)       04.01.2005        11.20         10.95

                                                                                                  9
   f. All legal requirements applicable till the filing of the Letter of Offer with the stock exchanges have
      been complied with.
   g. Financials of issuer/subsidiaries/ group companies have been disclosed as per the SEBI (DIP)
      Guidelines, 2000.
   h. All information shall be made available by the Lead Manager and the Issuer to the public and
      investors at large and no selective or additional information will be made available for a section of
      investors in any manner whatsoever.

HIGHLIGHTS OF THE ISSUE
   • 100% Export Oriented Unit [EOU] registered with the Software Technology Parks of India.
   • The Company is focused on developing its own Content Library and productions of Animation TV
      Series & Films and Live Action Feature Films.




                                                                                                        10
Dear Equity Shareholder(s),

The Board of Directors of the Company (hereinafter referred to as “The Board”) pursuant to the Board
Resolution passed on 25.10.2004 have decided to offer Equity Shares of Rs.10/- each for cash at par on
Rights basis to the existing Equity Shareholders of the Company in the ratio of One Equity Share for
every Two Equity Shares held [i.e.1: 2] as on ________2005 (Record Date).

I. GENERAL INFORMATION
NAME AND ADDRESS OF THE COMPANY

                                COLOR CHIPS (INDIA) LIMITED
                                    (Formerly Arham Fiscals Limited)

(The Company was Originally incorporated on 19.03.1990 as “Rusoday Mutual Funds Limited” under the
Companies Act, 1956. The name of the Company was changed to “Rusoday Finance Limited” on
04.06.1996, to “Global Fiscals Limited” on 06.06.1996, to “Arham Fiscals Limited” on 28.04.1997 and
lastly changed to “Color Chips (India) Limited” on 05.01.2000)

    Registered Office: Plot No: 16, Road No: 5, Jubilee Hills, Hyderabad-500 033, Andhra Pradesh.
                  Tel. No: +91-40-23550268/ 23544862 - 4, Fax. No: +91-40-23559333
               E-mail: rightsissue@colorchipsindia.com; Website: www.colorchipsindia.com
                                  Contact Person: Mr. Y. Suryanarayana
IMPORTANT
a) This offer is open to the existing Shareholders of the Company whose names appear as Beneficial
   owners as per the list to be furnished by the depositories in respect of the shares held in the
   electronic form and on the Register of Members of the Company in respect of the shares held in
   physical form at the close of business hours on the Record Date i.e. _____.
b) Please read this Letter of Offer and the instructions contained in the accompanying Composite
   Application Form (hereinafter referred to as ‘CAF’) carefully before making any investment in the
   issue.
c) The instructions contained in the enclosed CAF are an integral part of this Letter of Offer and must
   be carefully followed. Applications not conforming to the instructions are liable to be rejected.
d) All enquiries in connection with this LoF or the accompanying CAF and requests for split forms must
   be Addressed (quoting the Registered Folio Number, the CAF Number and the name of the first
   shareholder as Mentioned on the CAF and superscribed (“Color Chip-Rights Issue” on the
   envelop) to the Registrars to the Issue at the following address:
   Venture Capital & Corporate Investments Limited,
                           rd
   D. No. 6-2-913/914, 3 Floor,
   Progressive Towers,
   Khairatabad, Hyderabad.
   Tel No. +91-40-22332224 / 226, Fax: +91-40-223303221
   Email: vccil_hyd@yahoo.co.in
   Contact Person Mr. P.V. Srinivas
   Under no circumstances should any request be sent to the Lead Manager to the Offer.
e) The Company undertakes to provide adequate Funds to the Registrars to the Offer for posting of the
   Refund Orders/Letters of Allotment/ Share Certificates by registered post wherever applicable.
f) In case the original CAF is not received, or is misplaced by the applicant, the Registrars will issue a
   duplicate CAF on the request of the applicant who should furnish the Registered Folio Number and
   his/her full name and address to the Registrars to the Issue. Please note that those who are making
   the application in the duplicate form should not utilise the original CAF for any purpose including
   renunciation, even if it is received subsequently. If the applicant violates any of these requirements,
   he/she shall face the risk of rejection of both the applications.
g) It is to be specifically noted that the issue of equity shares is subject to Risk Factors appearing on
   page _______of this LoF.
h) The Rights Issue will be kept open for a minimum period of 30 days. If extended, it will be kept open
   for a maximum of 60 days.
                                                                                                      11
AUTHORITY FOR THE PRESENT ISSUE
The Board of Directors of the Company (hereinafter referred to as “The Board”) pursuant to the resolution
passed at the Extra-Ordinary General Meeting held on 18th August 2003 have decided to offer 68,77,350
Equity Shares of Rs. 10/-each for cash at par on Rights basis to the existing Equity Shareholders of the
Company in the ratio of one Equity Share for every two Equity Shares held [i.e.1:2] on Record Date i.e.
________2005 aggregating to Rs 687.735 Lakhs.

The present issue of Equity Shares is being made pursuant to the Board Resolution passed at the Board
of Directors meeting held on 25.10.2004 for specific approval of the Rights Issue. The Letter of Offer has
been approved at the Board meeting held on March 10, 2005.

PROHIBITION BY SEBI
The Company, its Promoters, its Directors or any of the Company’s associates or group companies and
companies with which the Directors of the Company are associated as Directors or Promoters, or
Directors or Promoters in control of, of the promoting Company, are currently not prohibited from
accessing the capital market under any order or direction passed by SEBI except the Show Cause Notice
issued by SEBI whose details are mentioned elsewhere in this Letter of Offer. The listing of any
securities of the issuer has never been refused at any time by any of the Stock Exchanges in India or
abroad. Further the Promoters, their relatives (as per Act), the Company, group companies, associate
companies are not detained as willful defaulters by RBI / Government authorities.

ELIGIBILITY FOR THE ISSUE
CCIL is an existing Company under the Companies Act, whose equity shares are listed on BSE, NSE
and HSE. The issuer company is exempted from the eligibility norms in terms of Clause 2.4.1(iv) as
defined under Chapter II of The SEBI (DIP) Guidelines, 2000.

LICENSES AND OTHER APPROVALS
Software Technology Parks of India, Hyderabad granted its approval for establishing a 100% EOU under
STP Scheme to the Company vide its letter No. STPH/IMSC/99-00/595/21838 dated 31.03.2000 for a
period of 5 years.

The Importer-Exporter Code (IEC) Number of the Company is “0999010620”.

The current Rights Issue is not designed to effect any immediate alteration in equity shareholding pattern,
which could impact the above requirements. However, at the time of allotment of any equity shares
arising from this Rights Issue, the Company will be required to adhere to the then prevailing Guidelines
and the terms of approval of the FEMA Act and regulations made thereunder. This may limit the
Company’s ability to allot equity shares held by foreign investors beyond their entitlement.

No further consent of the Government of India is required for the present Issue. It must be distinctly
understood that the Government of India / RBI does not take any responsibility for the financial
soundness of any scheme or project or for the correctness of any statements made or any opinions
expressed with regard to them. The Company can undertake the activities proposed by it in view of the
present approvals and no further approvals from any Government Authorities/RBI are required by the
Company to undertake the proposed activities.

DISCLAIMER CLAUSE
AS REQUIRED, A COPY OF THIS LETTER OF OFFER HAS BEEN SUBMITTED TO THE
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). IT IS TO BE DISTINCTLY UNDERSTOOD
THAT THE SUBMISSION OF LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE
DEEMED/ CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI
DOES NOT TAKE ANY RESPOSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY
SCHEME FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF
THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE LETTER OF OFFER. THE LEAD
MANAGER ASHIKA CAPITAL LIMITED HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE
                                                                                                       12
LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI
GUIDELINES FOR DISCLOSURE AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING.
THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR
MAKING INVESTMENT IN THE PROPOSED ISSUE.

IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS
PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL
RELEVANT INFORMATION IN THE OFFER DOCUMENT, THE LEAD MANAGER IS EXPECTED TO
EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS
RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE, THE LEAD
MANAGER ASHIKA CAPITAL LIMTIED HAS FURNISHED TO SEBI A DUE DILIGENCE
CERTIFICATE DATED MARCH 10, 2005 IN ACCORDANCE WITH THE SEBI (MERCHANT
BANKERS) REGULATIONS, 1992 WHICH READ AS FOLLOWS:
WE, THE UNDER NOTED LEAD MERCHANT BANKER (S) TO THE ABOVE MENTIONED
FORTHCOMING ISSUE STATE AS FOLLOWS:
    (i) WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO
        LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH
        COLLABORATORS ETC. AND OTHER MATERIALS MORE PARTICULARLY REFERRED TO
        IN THE ANNEXURE HERETO IN CONNECTION WITH THE FINALISATION OF THE
        PROSPECTUS/LETTER OF OFFER PERTAINING TO THE SAID ISSUE;
    (ii) ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY,
         ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT
         VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE,
         PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THE
         DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE
         COMPANY,
WE CONFIRM THAT:
    (a) THE PROSPECTUS/LETTER OF OFFER FORWARDED TO THE BOARD IS IN
        CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE
        ISSUE;
      (b) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE
          GUIDELINES, INSTRUCTIONS, ETC. ISSUED BY THE BOARD, THE GOVERNMENT AND
          ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED
          WITH; AND
      (c) THE DISCLOSURES MADE IN THE PROSPECTUS / LETTER OF OFFER ARE TRUE, FAIR
          AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL INFORMED
          DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE.
    (iii) WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE
          LETTER OF OFFER ARE REGISTERED WITH THE BOARD AND THAT TILL DATE SUCH
          REGISTRATION IS VALID.

THE FILING OF THE LETTER OF OFFER DOES NOT, HOWEVER, ABSOLVE THE COMPANY FROM
ANY LIABILITIES UNDER SECTION 63 OF THE COMPANIES ACT, 1956 OR FROM THE
REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCE AS MAY BE
REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE
RIGHT TO TAKE UP, AT ANY POINT OF TIME, WITH THE LEAD MANAGER (MERCHANT BANKER)
ANY IRREGULARITIES OR LAPSES IN THE LETTER OF OFFER.

CAUTION
The Company and the Lead manager accept no responsibility for statements made otherwise than in the
Letter of Offer or in the advertisement or any other material issued by or at the instance of the Company
and that anyone placing reliance on any other source of information would be doing so at his/her/their
own risk.
                                                                                                     13
The Lead Manager and the Issuer shall make all information available to the public and investors at large
and no selective or additional information would be available for a section of investors in any manner
whatsoever, after filing of the draft Letter of Offer with SEBI. The Lead Managers and the Company shall
update the Letter of Offer and keep the public informed of any material changes till the listing and trading
commences.

DISCLAIMER WITH RESPECT TO JURISDICTION
This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and
regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the
appropriate court(s) in Hyderabad, India only.

DISCLAIMER CLAUSE OF THE STOCK EXCHANGES

Disclaimer Clause of The Stock Exchange, Mumbai
“The Stock Exchange, Mumbai (“BSE”’) has given, vide its letter no. ____________ dated _____ 2005,
permission to the Company to use their name in this Letter of Offer as one of the stock exchanges on
which Company’s Equity Shares being issued in terms of this Letter of Offer are proposed to be listed.
BSE has scrutinized this Letter of Offer for its limited internal purpose of deciding on the matter of
granting the aforesaid permission to the Company.

It is to be distinctly understood that the aforesaid permission given by BSE should not in any way be
deemed or construed that the letter of Offer has been cleared or approved by BSE nor does it in any
manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter
of Offer; nor does it warrant that Company’s securities will be listed or will continue to be listed on the
Exchange nor does it take any responsibility for the financial or other soundness of the Company,
promoters, management or any scheme or project of Company.

Every person who desires to apply for or otherwise acquires any securities of the Company may do so
pursuant to independent inquiry, investigation and analysis and shall not have any claim against the
Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in
connection with such subscription/acquisition whether by reason of anything stated or omitted to be
stated herein or for any other reason whatsoever.”

Disclaimer Clause of The National Stock Exchange of India Limited
The National Stock Exchange of India Limited (“NSE”) has given vide its letter no. ________ dated
_______ 2005, permission to the Company to use their name in this Letter of Offer as one of the stock
exchanges on which Company’s Equity Shares being issued in terms of this Letter of Offer are proposed
to be listed. NSE has scrutinized this Letter of Offer for its limited internal purpose of deciding on the
matter of granting the aforesaid permission to the Company.

It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be
deemed or construed that the Letter of Offer has been cleared or approved by NSE nor does it in any
manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter
of Offer nor does it warrant that the Company’s securities will be listed or will continue to be listed on the
Exchange; nor does it take any responsibility for the financial or other soundness of the Company, its
promoters, its management or any scheme or project of the Company.

Every person who desires to apply for or otherwise acquire any securities of the Company may do so
pursuant to independent inquiry, investigation and analysis and shall not have any claim against the
Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in
connection with such subscription/ acquisition whether by reason of anything stated or omitted to be
stated herein or any other reason whatsoever.




                                                                                                          14
Disclaimer Clause of The Hyderabad Stock Exchange Limited
The Hyderabad Stock Exchange Limited (“HSE”) has given vide its letter no. ________ dated _____
2005, permission to the Company to use their name in this Letter of Offer as one of the stock exchanges
on which Company’s Equity Shares being issued in terms of this Letter of Offer are proposed to be listed.
HSE has scrutinized this Letter of Offer for its limited internal purpose of deciding on the matter of
granting the aforesaid permission to the Company.

It is to be distinctly understood that the aforesaid permission given by HSE should not in any way be
deemed or construed that the Letter of Offer has been cleared or approved by HSE nor does it in any
manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter
of Offer nor does it warrant that the Company’s securities will be listed or will continue to be listed on the
Exchange; nor does it take any responsibility for the financial or other soundness of the Company, its
promoters, its management or any scheme or project of the Company.

Every person who desires to apply for or otherwise acquire any securities of the Company may do so
pursuant to independent inquiry, investigation and analysis and shall not have any claim against the
Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in
connection with such subscription/ acquisition whether by reason of anything stated or omitted to be
stated herein or any other reason whatsoever.

FILING
                                                                 rd
The Letter of Offer has been filed with SEBI, D’Monte Building, 3 Floor, 32, D’Monte Colony, TTK Road,
Alwarpet, Chennai-600018 for its observations. SEBI has given its observations vide its letter dated
________and the final Letter of Offer has been filed with The Stock Exchange, Mumbai, the Designated
Stock Exchange.

LISTING
The existing Equity Shares of the Company are listed on The Stock Exchange, Mumbai [BSE], National
Stock Exchange of India Limited [NSE] and The Hyderabad Stock Exchange Limited [HSE]. The
Company will make applications to these Stock Exchanges for permission to deal in and for an official
quotation in respect of the Equity Shares arising out of the issue. The Company has received ‘in-
principle’ approvals from BSE, NSE and HSE vide their letter no. ______ dated _______ 2005, letter no.
______ dated ______ 2005 and letter no. ______ dated ______ 2005 respectively.

IMPERSONATION
As a matter of abundant caution, attention of the applicants is specifically drawn to the provisions of
subsection (1) of Section 68A of the Companies Act, 1956 which is reproduced below:

“Any person who
   a. makes in a fictitious name an application to a Company for acquiring, or subscribing for,
       any shares therein, or
   b. otherwise induces a Company to allot, or register any transfer of shares therein to him, or
       any other person in a fictitious name, shall be punishable with imprisonment for a term
       which may extend to five years”

MINIMUM SUBSCRIPTION
If the Company does not receive minimum subscription of 90% of the issued amount on the date of
closure of the issue, or if the subscription level falls below 90% after the closure of the issue on account
of cheques having being returned unpaid or withdrawal of applications, the company will forthwith refund
the entire subscription amount received within forty-two days from the Date of Closure of the Issue. If
there is delay in the refund of subscription by more than 8 days after the Company becomes liable to pay
the subscription amount (i.e. forty two days after Closure of the Issue), the Company will pay interest for
the delayed period, at the rates prescribed under sub-sections (2) and (2A) of Section 73 of the
Companies Act, 1956.



                                                                                                          15
ALLOTMENT LETTERS / REFUND ORDERS
The Company will issue and dispatch letters of allotment/ securities certificates and/ or letters of regret
along with refund order or credit the allotted securities to the respective beneficiary accounts, if any within
a period of forty-two days from the Date of Closure of the Issue. If such money is not repaid within 8 days
from the day the Company becomes liable to pay it, the Company shall pay interest for the delayed
period, at the rates prescribed under sections 73(2) / 73(2A) of the Companies Act, 1956.

UTILISATION OF ISSUE PROCEEDS
The Board of Directors declare that:
i. “All monies received out of the issue shall be transferred to a separate bank account other than the
     bank account referred to in sub-section (3) of Section 73 of the Companies Act, 1956
ii. Details of all monies utilised out of the Issue referred to in sub-item i above shall be disclosed under
     an appropriate separate head in the balance sheet of the Company indicating the purpose for which
     such monies had been utilised; and
iii. Details of all unutilised monies out of the issue of shares referred to in sub-item i above shall be
     disclosed under an appropriate separate head in the balance sheet of the Company indicating the
     form in which such unutilised monies have been invested.”
iv. The sum received against this Rights Issue will be kept in a separate bank account and the Company
     will not have any access to such funds unless it satisfies the BSE (the Designated Stock Exchange)
     with suitable documentary evidence that the minimum subscription of 90% of the Issue has been
     received by the Company.

ISSUE SCHEDULE
The subscription list will open at the commencement of banking hours and will close at the close of
banking hours on the dates mentioned below or on such extended date (subject to a maximum of 60
days) as may be determined by the Rights Committee/Board, subject to necessary approval.

        Issue Opening Date                                        __________ 2005
        Last date for receiving requests for split forms          __________ 2005
        Issue Closing Date                                        __________ 2005

The Issuer and the Lead Manager are obliged to update the Letter of Offer and keep the investors /
Public informed of any material changes till the commencement of trading.

ISSUE MANAGEMENT TEAM
                             LEAD MANAGER TO THE ISSUE                 REGISTRAR TO THE ISSUE
                             ASHIKA CAPITAL LIMITED                    VENTURE CAPITAL & CORPORATE
                             7-1-613/14A, Nestcon Lakshmisri,          INVESTMENTS LIMITED
                                           nd                                         rd
                             Suite No: 6, 2 Floor, Ameerpet,           6-2-913/914, 3 Floor,
                             Hyderabad-500 016.                        Progressive Towers, Khairatabad,
                             Tel: 040-55617802 / 23750498              Hyderabad-500004.
                             Fax: 040-55617801                         Tel: 040-23322264, Fax: 040-23324803
                             E-Mail: ashika_hyderabad@rediffmail.com   E-mail: vccil_hyd@yahoo.co.in
  Your Trust is Our Strength Website: www.ashikagroup.com
AUDITORS                                                               COMPLIANCE OFFICER
S. N. Murthy & Co,                                                     Mr. P. Satish,
Chartered Accountants                                                  Company Secretary,
D. No. 1-8-27/14/A/1, Upstairs,                                        Plot #112, H. No. 1-9-278/3/1,
Chikkadpally, Hyderabad-500020.                                        Lalitha Nagar, Hyderabad-44
Tel: 040-27660168




                                                                                                           16
BANKERS TO THE ISSUE                                                  BANKERS TO THE COMPANY
ICICI Bank Limited                                                    Oriental Bank of Commerce,
Capital Market Division,                                              Ameerpet,
30, Mumbai Samachar Marg,                                             Hyderabad.
Fort, Mumbai-400 001, India.
Tel No. 022-2655285/2655206. Fax: 022-2611138
E-Mail: mumbai@icicibank.com
Website: www.icicibank.com

Note: The Registrar is not an Associate of the Issuer Company. The investors are advised to contact the
Registrar / Compliance Officer to the Issue/ Company in case of any Pre-Issue/ Post-Issue related
problems such as non-receipt of Letter of Offer/ Letter of Allotment/ share certificates/ refund orders, etc.
Mr. P. Satish, Company Secretary of the Company has been appointed as the Compliance Officer for the
captioned Rights Issue and will be in charge of handling all investors’ grievances and redressal of
complaints, if any, consequent upon the securities of Color Chips (India) Limited being offered through
the Rights Issue and thereby listed at various stock exchanges.

CREDIT RATING
This being an issue of Equity Shares, no credit rating is required.

UNDERWRITING
The present issue is not underwritten.




                                                                                                         17
II. CAPITAL STRUCTURE OF THE COMPANY
  Sl.                                                          Nominal        Share       Total Value
                 SHARE CAPITAL
 No.                                                          Value (Rs.)    Premium         (Rs.)
A.    Authorised
      3,93,10,000 Equity Shares of Rs. 10/- each             39,31,00,000           NIL   39,31,00,000
B.    Issued, Subscribed and Paid-Up
      1,37,54,700 Equity Shares of Rs. 10/- each             13,75,47,000           NIL   13,75,47,000
C.    Present Rights Issue through this Letter of Offer
      68,77,350 Equity Shares of Rs. 10/- each at par          6,87,73,500          NIL    6,87,73,500
D.    Total Paid-Up Capital after the Offer
      2,06,32,050 Equity Shares of Rs. 10/- each             20,63,20,500           NIL   20,63,20,500
E.    Share Premium Account
      Before the Offer                                                 NIL          NIL            NIL
      After the Offer                                                  NIL          NIL            NIL

Notes to the Capital Structure
1. The Share Capital of the Company is as follows:
   i. The Authorised Share Capital after the Initial Public Offering was Rs. 10,50,00,000 comprising of
       1,05,00,000 Equity shares of Rs. 10/- each. The same was increased to Rs. 11,10,50,000
       comprising of 1,11,05,000 Equity shares of Rs. 10/- each through the Shareholders resolution
       passed on 2nd May 2002. The same was further increased to Rs. 39,31,50,000 comprising
       3,93,15,000 equity shares of Rs. 10/- each through the Shareholders Resolution passed on 18th
       August 2003.

     ii. The Issued, Subscribed and Paid-up Capital of the Company as on 09.03.2005 consisted of
         1,37,54,700 Equity Shares of Rs. 10/- each aggregating to Rs. 13,75,47,000.

     iii. The following preferential allotments were made at par after the Company became a listed
          Company till the date of the filing of this Letter of Offer:

         Date of EGM         Particulars of the shareholder         No. of shares No. of warrants
         02.05.2002          Color Chips Animation Park Limited        10,00,000             --
         18.08.2003          N.W. Insurance Services Pvt. Ltd.         15,00,000             --
         18.08.2003*         Color Chips Animation Park Limited *       5,00,000*            --
         30.09.2003+         Mr. Sudhish S Rambhotla +                     --           20,00,000+
                                             TOTAL                     30,00,000         20,00,000
     * Listing permission is awaited from National Stock Exchange of India Limited for the shares allotted
     in the EGM held on 18.08.2003. However, the Company has obtained in-principle listing approval for
     all the above equity shares from the Hyderabad Stock Exchange Limited and The Stock Exchange,
     Mumbai.

     + Out of 20,00,000 warrants, Mr. Sudhish has opted for conversion of 6,50,000 warrants into Equity
     and the same has been allotted to him on 29.01.2005. The leftover warrants i.e. 13,50,000 has since
     been lapsed.

     M/s. S.N. Murthy & Co., Chartered Accountants given certificate dated 05.09.2003 certifying
     compliance of guidelines for Preferential Allotment. The contents of the certificate are as follows:




                                                                                                        18
    “We hereby certify that Preferential Issue of 20,00,000 equity shares made by M/s Color Chips
    (India) Limited, is done in accordance with the Provisions of the guidelines for Preferential issue
    (Chapter XIII) SEBI (Preferential Allotment) guidelines, 2000 and its amendments thereof.”

           Sl.                                                No. of
                            Name of Allottee                                  Issue Price            Amount
          No.                                                Shares
        1.       M/s. N.W. Insurance Services Pvt. Ltd.      15,00,000     Rs. 10/- per share       1,50,00,000
        2.       M/s. Color Chips Animation Park Ltd.         5,00,000     Rs. 10/- per share         50,00,000

M/s. S.N. Murthy & Co., Chartered Accountants vide their certificate dated 15.02.2005 has certified
compliance of guidelines for Preferential Allotment. The contents of the certificate are as follows:

“We hereby certify that Preferential Issue of 20,00,000 warrants made by M/s Color Chips (India) Limited,
a Company incorporated under the Companies Act, 1956 having its Registered Office at Plot No. 16,
Road No. 5, Jubilee Hills, Hyderabad-500 033 is done in accordance with the Provisions of the guidelines
for Preferential Issue (Chapter XIII) of SEBI (Disclosure & Investor Protection) Guidelines, 2000 and its
amendments thereof. Out of the said warrants 6,50,000 warrants were converted into equity shares on
29.01.2005 as opted by Mr. Sudhish S Rambhotla”.

2. Capital History of the Company (Capital Build up)
         Date of        Number of   Face    Issue    % of Pre-            Consideration         Remarks
        Allotment         shares    Value   Price      issue                  (Rs.)
                                    (Rs.)    (Rs.)    Capital
      On                         70    10       10           0.0                    Cash       Subscription
      Incorporation                                                                                 to MOA
      30.03.1992             10,000    10       10        0.073                     Cash          Allotment
      14.03.1994             67,000    10       10        0.487                     Cash          Allotment
      28.09.1994             42,240    10       10        0.307                     Cash          Allotment
      30.03.1996           8,80,690    10       10        6.402                     Cash          Allotment
      17.09.1996           6,00,000    10       10        4.362                     Cash          Allotment
      26.07.1997         85,04,700     10       10        61.83                     Cash       Public issue
      10.07.2002         10,00,000     10       10         7.27                     Cash        Preferential
                                                                                                  Allotment
        05.09.2003         20,00,000       10        10           14.54             Cash        Preferential
                                                                                                  Allotment
        29.01.2005          6,50,000       10        10            4.73             Cash        Preferential
                                                                                                  Allotment
                         1,37,54,700                           100.00
3. Present Rights Issue:
       Type of       Ratio         Face Value          No. of       Issue Price     Consideration
     Instrument                       (Rs.)            Shares          (Rs.)
    Equity Shares     1:2              10/-           68,77,350         10/-               Cash

4. Pre & Post Issue Shareholding Pattern of the Company:
The Shareholding Pattern of the company is as follows:
                                             Pre-Issue Shareholding             *Post-Issue Shareholding
S. No.             Category                  No. of          % of                No. of          % of
                                             Shares      Shareholding            Shares      Shareholding
A.      Promoter’s Holding
        1. Promoters
                -Indian Promoters            15,44,966           11.23            23,17,449               11.23
                -Foreign Promoters                   Nil            Nil                  Nil                 Nil
        2. Person Acting in Concert                  Nil            Nil                  Nil                 Nil

                                                                                                         19
          Sub-Total                          15,44,966             11.23        23,17,449              11.23
B.        Non-Promoter Holding
          1. Institutional Investors
             a. Mutual Funds and UTI                Nil               Nil              Nil                 Nil
             b. Banks, Financial
                Institutions/ Insurance             Nil               Nil              Nil                 Nil
                Companies
             c. FIIs                                Nil               Nil              Nil                 Nil
          Sub-Total                                 Nil               Nil              Nil                Nil
          2. Others
             a. Private Corporate Bodies     24,19,259             17.59        36,28,889              17.59
             b. Indian Public                97,62,677             70.98    1,46,44,015                70.98
             c. NRIs                            27,798              0.20           41,697                0.20
             d. Others                              Nil               Nil              Nil                 Nil
             Sub-Total                     1,22,09,734             88.77    1,83,14,601                88.77
             Grand Total                   1,37,54,700            100.00    2,06,32,050              100.00
* Post issue shareholding is based on the assumption that all shareholders will subscribe to their entire
rights entitlement.


5. The shareholding pattern of the Promoter Group is as detailed below:
                                                               No. of         % to
                          Particulars
                                                           Equity Shares Present Equity
        a) Promoters                                                     15,30,391              11.13
        b) Immediate relative of promoter                                    14,575               0.10
           (Spouse, parent, child, brother, sister)
        c) Company in which 10% or more of the share capital                       -                  -
           is held by the promoter his immediate relative firm
           or HUF in which the promoter or his immediate
           relative is a member
        d) Company in which the Company mentioned in (c)                           -                  -
           above holds 10% or more of the share capital of the
           issuer Company
        e) HUF in which aggregate share of the promoter and                        -                  -
           his immediate relatives is equal or more than 10%
           of the total Capital
                                  TOTAL                                  15,44,966              11.23

     The promoters/directors/associates intend to subscribe to their entitlement in this rights issue in full.
     In case of under subscription, promoters/directors/associates have undertaken vide their letter-dated
     February 15, 2005 to subscribe to unsubscribed portion in full. Presuming no subscription is received
     from other shareholders, the promoters’ shareholding shall increase to 40.82% of the post rights
     issue equity capital of the Company.

     The allotment to the promoters/directors/associates, even if they subscribe to unsubscribed portion
     as undertaken, will not result in public shareholding falling below the permissible minimum level.
     Thus the provisions of clause 17 of SEBI (Delisting of Securities) Guidelines 2003 are not applicable.

6. The present issue being a rights issue, provisions of promoters’ contribution are not applicable.

7. The promoters vide their letter dated February 15, 2005 have confirmed that they intend to subscribe
   to the promoters entitlement in full either through self or by renouncing the said holding in favour of

                                                                                                          20
   other Promoter / Promoter Entities / companies entirely held and controlled by them as disclosed
   elsewhere in this Letter of Offer. The acquisition of additional securities or subscription to the
   shortfall shall be exempt in terms of proviso to Regulation 3(1)(b)(ii) of the SEBI (Substantial
   Acquisition of Shares and Takeovers) Regulations, 1997. Further this acquisition will not result in
   change of control of the management of the Company.

8. The promoters, directors and Lead Managers to the Issue have not entered into any buy-back,
   standby or similar arrangements for any of the securities being issued through this Letter of Offer.

9. Top Ten Shareholders as on Date of Filing the Letter of Offer with Stock Exchanges are as follows:
   (as on ________)
        S. No.   Name of the shareholder        Shares % of issued Post Issue capital
                                                              capital    assuming all shares
                                                                          offered are allotted
           a.
           b.
           c.
           d.
           e.
           f.
           g.
           h.
           i.
           j.

10. Top Ten Shareholders as on ten days prior to the Date of Filing the Letter of Offer with Stock
    Exchanges are as follows: (as on _______)
        S. No.    Name of the shareholder     Shares % of issued Post Issue capital
                                                          capital     assuming all shares
                                                                       offered are allotted
           a.
           b.
           c.
           d.
           e.
           f.
           g.
           h.
           i.
           j.

11. Top Ten Shareholders as on quarter ended immediately before the Date of Filing the Letter of Offer
    with Stock Exchanges are as follows:
         S. No.    Name of the shareholder     Shares % of issued Post Issue capital
                                                           capital    assuming all shares
                                                                       offered are allotted
           a.

                                                                                                    21
            b.
            c.
            d.
            e.
            f.
            g.
            h.
            i.
            j.

12. The total number of members of the Company as on _____2005 (Record Date) is_______.

13. The Aggregate Shareholding of the Promoter Group including Persons Acting in Concert is
    15,44,966 equity shares aggregating to 11.23% of the total issued and paid-up share capital of the
    company as on ____ 2005 (Record Date).

14. The Directors, Promoters and Promoter Group of the Company have not entered into any purchase
    or sale transactions of the Company’s shares in the last six months except the following:
                        Name           No. of shares           Date of       Max.          Min.
                                      purchased/ Sold Transaction Price (Rs.) Price (Rs.)
                Mrs. R. Sreelakshmi     17,515 (Sold)        03.01.2005      11.12         10.95
                Mrs. R. Sreelakshmi     62,485 (Sold)        04.01.2005      11.25         10.95
                Mrs. R. Sreelakshmi     20,000 (Sold)        04.01.2005      11.20         10.95

15. The Company has not availed of “bridge loans” to be repaid from the proceeds of the Issue, for
    incurring expenditure on the Objects of the Issue.

16. The Equity Shareholders of the Company do not hold any warrant, option or convertible loan or any
    debenture, which would entitle them to acquire further shares in the Company.

17. Further, presently the Company does not have any proposal, intention, negotiation or consideration
    to alter the capital structure by way of split/ consolidation of the denomination of the shares/ issue of
    shares on a preferential basis or issue of bonus or rights or public Issue of Equity Shares or any
    other securities within a period of six months from the date of opening of the present Issue.
    However, if business needs of the Company so require, the Company may alter the capital structure
    by way of split/ consolidation of the denomination of the shares/ issue of shares on a preferential
    basis or issue of bonus or rights or public issue of shares or any other securities during the period of
    six months from the date of listing of the Equity Shares issued under this Letter of Offer or from the
    date the application moneys are refunded on account of failure of the Issue, after seeking and
    obtaining all the approvals which may be required for such alteration.

18. The promoters, directors and Lead Managers to the Issue have not paid any amount, whether direct
    or indirect and in cash or kind, in the nature of discount, commission, allowance or otherwise to any
    person.

19. The securities offered through this issue will be made fully paid up or may be forfeited within 12
    months from the date of allotment.




                                                                                                         22
III. TERMS OF THE PRESENT ISSUE
The Equity shares now being offered are subject to the terms and conditions of this Letter of Offer, the
enclosed Composite Application Form (“CAF”), the Memorandum and Articles of Association of the
Company, Foreign Exchange Management Act, 1999 (FEMA) and the provisions of the Companies Act,
1956, guidelines issued by Securities and Exchange Board of India, guidelines, notifications and
regulations for issue of capital and for listing of securities issued by Government of India and/ or other
statutory authorities and bodies from time to time, terms and conditions as stipulated in the allotment
advice or letter of allotment or Security Certificate and rules as may be applicable and introduced from
time to time.

AUTHORITY FOR THE PRESENT ISSUE
The Board of Directors of the Company (hereinafter referred to as “The Board”) Pursuant to the
resolution passed at the Extra-Ordinary General Meeting held on 18th August 2003 have decided to offer
68,77,350 Equity Shares on Rights basis to the existing Equity Shareholders of the Company in the ratio
of one Equity Share for every two Equity Share held [i.e.1:2] on Record Date i.e. ________2005
aggregating to Rs. 687.735 Lakhs.

The present issue of Equity Shares is being made pursuant to the Board Resolution passed at the Board
of Directors meeting held on 25.10.2004 for specific approval of the Rights Issue. This Letter of Offer has
been approved at the Board meeting held on March 10, 2005.

BASIS OF OFFER
The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders
whose names appear on the Register of Members of the Company at the close of business hours on
____, 2005 being the record date fixed in consultation with The Stock Exchange, Mumbai (The
Designated Stock Exchange). The equity shares are being offered for subscription in the ratio of 1 Equity
Shares for every 2 Equity Shares held by the Equity Shareholders.

FRACTIONAL ENTITLEMENT
On applying the rights ratio, the rights entitlement may contain certain fractional entitlements, in such
case the fractional entitlement shall be rounded off to the next higher integer. The additional shares
required to accommodate such rounding off will be adjusted out of the entitlement of the one of the
promoter group shares.

ARRANGEMENT FOR DISPOSAL OF ODD LOTS
Since the shares of the Company are tradable in compulsory demat segment the minimum trading lot is
one Equity Share.

ISSUE OF SHARE CERTIFICATE
In case of physical certificates, the Company would issue one Certificate for the Equity Shares allotted to
one person (“Consolidated Certificate”). In respect of consolidated certificate, the Company will only upon
receipt of a request from the Equity Shareholder split such consolidated certificate into smaller
denomination within 3 days from the date of receipt of Application. No fee would be charged by the
Company for splitting the consolidated certificate.

For shareholders seeking allotment in physical form, one single consolidated certificate shall be issued
against their entitlement unless otherwise desired by the shareholder(s). The Company shall split the
shares and return the same to the shareholder, into lots as specified and specifically requested in writing
by the shareholder (who holds physical certificates) within 7 days from the date of receipt of such request
by the Company.

RIGHTS ENTITLEMENT
As your name appears on the Register of Members of the Company as an Equity Shareholder on
________2005, being the Record Date, you are being offered in the ratio of One Equity Share for every
Two Equity Shares held as shown in Part A of the enclosed Composite Application Form.

                                                                                                       23
OFFER TO NON RESIDENT/FIIs SHAREHOLDERS
Presently 27,798 equity shares aggregating to 0.20% of the present issued capital are held by NRIs/FIIs
on repatriation basis. As per the notification no. FEMA/20/2000-RB dated May 05, 2000 issued by RBI
general permission is granted to FIIs/ NRIs to invest in Indian companies subject to certain conditions. In
the case of FIIs, the total holding of each FII/SEBI approved sub account shall not exceed 10% of the
total paid up capital of the issuer company and the total holdings of all FIIs/sub-accounts of FIIs put
together shall not exceed 24% of the paid-up capital. In the case of NRIs under Portfolio Investment
Scheme (“PIS”) it is to be ensured that the paid-up value of shares purchased by an NRI under PIS route
should not exceed 5% of the paid up capital. The aggregate paid-up value of shares purchased by all
NRIs should not exceed 10% of the paid-up capital of the company. The company is required to file the
declaration in prescribed form to the concerned Regional Office of RBI within 30 days of allotment of
equity shares to FIIs/NRIs on repatriation basis.

NOMINATION FACILITY
The applicant may indicate the name of the nominee in the CAF, in respect of the Equity Shares that may
be allocated to him or for the existing shares. As per Section 109A of the Companies Act, a holder of
shares may, at any time, nominate, in the prescribed manner, a person to whom his Equity Shares in the
Company shall vest, in the event of his death. Please ensure that the Bank account details in the
application form are filled in the space provided for the purpose. Applications without these details are
liable to be rejected.

FACE VALUE
The Equity Shares of the issuer company is of face value of Rs 10/- and is being offered at Par.

ISSUE PRICE
As per Clause 3.1.1 of the SEBI (DIP) Guidelines a listed company whose equity shares are listed on a
stock exchange, may freely price its equity shares and any security convertible into equity at a later date,
offered through a public or rights issue.

TERMS OF PAYMENT
     On Application                            Rs. 2.50 per share
     On Allotment                              Rs. 7.50 per share
     TOTAL                                     Rs. 10/- per Equity Share

Where an applicant is allotted lesser number of Equity Shares than he/she has applied for, the excess
amount paid on application shall be adjusted towards the amount due on allotment. Further, unadjusted
amount, if any, shall be refunded to the applicant. No interest would be payable on application money
pending allotment up to 30 days from the date of closure of the issue.

ALLOTMENT MONEY
Failure to pay the amount due on allotment on or before the appointed date for payment thereon will
render the allottees liable to pay interest not exceeding 18% per annum or such other lower rate as the
Board of Directors may determine on the amount outstanding from the date so appointed for payment
thereof to the time of actual payment and will also render the Equity Shares including the amount already
paid thereon liable for forfeiture in terms of the Articles of Association of the Company.

RANKING OF EQUITY SHARES
The Equity Shares being issued in the Rights Issue and those arising from this issue shall be subject to
the Memorandum and Articles of Association of the Company and shall rank pari-passu in all respects
with the existing Equity Shares of the Company including dividends. Except, that the shares arising from
this issue shall be eligible for dividends only after allotment. Company undertakes that at any given time
there shall be only one denomination for the Equity Shares respectively of the Company issued under
this Rights Issue and that it will comply with such disclosure and accounting norms as specified by SEBI
from time to time.


                                                                                                        24
RIGHTS OF SHARE HOLDERS
a. The shares shall be transferable and transmittable in the same manner and to the same extent and
   be subject to the same restrictions and limitations and other related matters as in the case of
   Ordinary Shares of the Company.
b. The Shares shall not confer upon the holders thereof any right to receive any notice of the meeting
   of the Shareholders of the Company or Annual Report of the Company and or to attend/vote at any
   of the General Meetings of the Shareholders of the Company
c. Save and except the right of subscription to the Company’s Ordinary Shares as per the terms of the
   Issue, the holders of the Rights in their capacity as Share holders shall have no other rights or
   privileges
d. The Shareholders inter-se, shall rank pari passu without any preference or priority of one over the
   other or others.
e. The rights, privileges and conditions attached to the shares may be modified or varied or abrogated
   with the consent of the holders of the shares by a Special Resolution passed at a meeting of the
   share holders provided that nothing in such resolution shall be operative against the Company when
   such resolution modifies or varies the terms and conditions governing the shares if the same is not
   acceptable to the Company. At a meeting of the Shareholders, every shareholder, and in the case of
   joint holders the one whose name stands first in the Register, shall be entitled to vote, either in
   person or by proxy, in respect of such Shares. The Shares holder will be entitled to one vote on a
   show of hands and his / her voting rights on a poll shall be in proportion to the outstanding number of
   the shares held by him / her. The quorum for such meetings shall be at least five shareholders
   present in person.

ACCEPTANCE OF OFFER
You may accept this offer either in full or in part. Please fill up Part A of the CAF for the number of Equity
Shares you would like to subscribe and submit the same together with the application money in the
prescribed manner to the Bankers to the Issue mentioned on the reverse of the CAF or to the Registrars
to the Issue, as the case may be, before the close of banking hours on _______2005.

APPLICATION FOR ADDITIONAL EQUITY SHARES
You are also eligible to apply for additional equity shares over and above the number of equity shares
offered to you provided you have applied for all the shares offered to you without renouncing them in full
or in part. However, the additional equity shares cannot be renounced in full or in part, in favour of any
other person(s).

If you desire to apply for additional equity shares, you may fill in the number of additional equity shares in
Part A of the CAF. The allotment of additional equity shares will be at the sole discretion of the Board on
an equitable basis with reference to the number of Equity Shares held by you on the Record Date in
consultation with The Designated Stock Exchange. In the case of requests for additional equity shares by
Non Residents, the allotment will be subject to the approval of Reserve Bank of India.

JOINT HOLDERS
Where two or more persons are registered as the holders of any Shares, they shall be deemed to hold
the same as joint tenants with benefits of survivorship subject to other provisions contained in the
Articles.

ISSUE OF DUPLICATE EQUITY SHARE CERTIFICATE
If any Equity Share is/are mutilated or defaced or the pages for recording transfers of Equity Share are
fully utilized, the Company against the surrender of such Certificate(s) may replace the same. Provided,
where the Equity Share Certificate(s) are mutilated or defaced, the same will be replaced as aforesaid
only if the Certificate numbers and the Distinctive numbers are legible. If any Equity Shares Certificate is
destroyed, stolen or lost, then upon production of proof thereof to the satisfaction of the Company and
upon furnishing such indemnity/ surety and/or documents as the Company may deem adequate,
duplicate Equity Share Certificate(s) shall be issued.



                                                                                                          25
RENUNCIATION
You may renounce all or any of the equity shares, you are entitled to in favour of any individual, limited
Companies, or statutory corporations / institutions. However renunciation in favour of more than three
persons as joint holders, trust or society (unless the same is registered under the Societies Registration
Act, 1860 or any other applicable trust laws and is authorised under its constitution to hold shares in a
Company), minors (unless acting through natural or legal guardians), Partnership Firms, or their
nominees, or any of them will not be accepted.

Any renunciation from Resident(s) to Non- Resident(s) is subject to the renouncer(s)/ renouncee(s)
obtaining requisite approval(s) of the Reserve Bank of India (RBI) under the provisions of the Foreign
Exchange Management Act, 2000, and other applicable laws and such permission should be attached
with the CAF.

PROCEDURE FOR RENUNCIATION
(a) To Renounce in WHOLE
If you wish to renounce this offer in whole, please complete PART ‘B’ of the Composite Application Form
(CAF) enclosed with the Letter of Offer for the number of equity shares renounced and deliver the CAF
duly signed to the person(s) in whose favour the equity shares are so renounced. In case of joint holding,
all joint holders must sign as per specimen signatures recorded with the Company at the place provided
for the purpose and in the same order.

The person(s), in whose favour the offer has been renounced (renouncees) should complete and sign
PART C of the CAF. In case of joint renouncees, all joint renouncees must sign.

(b) To Renounce in Part
If you wish to accept this offer in part and renounce the balance of this offer the CAF must first be split
into the requisite number of forms, by applying to the Registrar to the Issue. Please indicate your
requirement of split forms in the space provided for this purpose in PART D of the CAF and return the
entire CAF to the Registrar to the Issue so as to reach them latest by the close of business hours on or
before the last date for receiving requests for split forms, i.e. ______2005.

If you wish to apply for equity shares jointly with any person(s) who is/are not already joint holder(s) with
you, then it would amount to renunciation and the procedure of renunciation as mentioned above shall
have to be followed. Even a change in the sequence of the name of joint holders shall amount to
renunciation and the procedure as stated above shall have to be followed.

Further, this right of renunciation is subject to the express condition that the Board shall be entitled in its
absolute and unqualified discretion to reject any such request for allotment of equity shares from
renouncee(s) without assigning any reason thereof save where the equity shares have been renounced
in favour of a person who is already a member of the Company.

In case the signature of the shareholder(s) who has renounced the Rights Equity Shares, does not match
with the specimen registered with the Company, the application will be rejected.

(c) Renouncee(s)
    The person in whose favour the instruments are renounced should fill in and sign Part C and submit
    the entire CAF to the Bankers to the Issue on or before ______2005 along with the application
    money.

Change and/or introduction of additional holders
If you wish to apply for Equity Shares jointly with any other person or persons, not more than three, who
is/are not already joint holders with you, it shall amount to renunciation and the procedure as stated
above for renunciation shall have to be followed. Even a change in the sequence of the name of joint
holders shall amount to renunciation and the procedure, as stated above, shall have to be followed.


                                                                                                           26
Please note that:
a. Part A of the CAF must not be used by any person(s) other than those in whose favour this offer has
    been made. If used, this will render the application invalid.
b. Request for split forms, one for each of the renouncee(s) and one for the renouncer, should be made
    for all the Equity Shares applied for.
c. Only the person to whom this Letter of Offer has been addressed shall be entitled to apply for split
    forms. Forms once split cannot be split again.
d. Renouncee(s) cannot apply for split forms.
e. Split form(s) will be sent to the applicant(s) by post at the applicant’s risk.

REQUEST FOR SPILT FORMS:
 • Request for Split Forms should be addressed to the Registrar to the Issue so as to reach them on
    or before the last date for receiving of request for split forms by filling in PART D of the CAF.
 • Requests for Split Forms will be entertained only once.

HOW TO APPLY
Applications should be made only on the enclosed CAF provided by the Company. The enclosed CAF
should be completed in all respects, as explained in the INSTRUCTIONS indicated in the CAF before
submitting it to the Bankers to the Issue or the Registrars to the Issue. Different parts of the CAF should
not be detached under any circumstance. Detailed instructions as to how to apply have been given in the
CAF.

The prescribed colour of the CAF for various categories, is as follows:
S. No.    Category                                              Colour of Composite Application Form
1.        Residents, NRI applying on a non-repatriation CAF Printed with Black Ink
          basis
2.        NRI, or FII applying on a repatriation basis          CAF Printed with Red Ink

All applications should be made only on the printed CAF provided by the Company or on blank paper in
case of non-receipt f CAF.

You may exercise any of the following options with regard to the Equity Shares/offered to you, using the
enclosed CAF:
Options available                                   Action required
1 Accept entitlement in full                        Fill in and sign ‘Part A’ of the CAF
2. Accept entitlement in full and apply for         Fill in and sign ‘Part A’ of the CAF after indicating in Block
additional Equity Shares                            IV the number of additional Equity Shares applied for.
3. Accept entitlement in part without renouncing    Fill in and sign ‘Part A’ of the CAF, after indicating in
the balance.                                        Block III the number of Equity Shares accepted.
4. Renounce the entitlement in full to one person   Fill in and sign ‘Part B’ of the CAF indicating the number
(renouncee) (joint renouncees are considered as     of Equity Shares renounced and hand over the entire
one renouncee) (joint renouncees cannot exceed      CAF to the renouncee. The renouncee must fill in and
more than three) without applying for Equity        sign ‘Part C’ of the CAF.
Shares




                                                                                                         27
5. Accept entitlement in part and then renounce      Fill in and sign ‘Part D’ of the CAF for split forms after
the balance to one or more renounces                 indicating the required number of split forms and send the
                                                     entire CAF to the Registrars so as to reach them on or
                                                     before the last date for receiving requests for split forms
                                                     indicated in the CAF. On receipt of the split forms take
                                                     action as indicated below: i) For the Equity Shares, if any,
                                                     which you want to accept, fill in and sign ‘Part A’ of one
                                                     Split CAF. ii) For the Equity Shares you want to renounce,
                                                     fill in and sign ‘Part B’ in the required number of CAFs
                                                     indicating the number of Equity Shares renounced to
                                                     each renouncee. iii) Each renouncee should then fill in
                                                     and sign ‘Part C’ of the respective split CAF for the Equity
                                                     Shares accepted by each renouncee.
6. Introduce a joint holder or change the            This will be treated as a renunciation. Fill in and sign Part
sequence of joint holders.                           B and the renouncees must fill in and sign Part C.

Availability of duplicate CAF
In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will
issue a duplicate CAF on the request of the applicant who should furnish the registered folio number/ DP
and Client ID No. and his / her full name and address to the Registrar to the Issue. Please note that those
who are making the application in the duplicate form should not utilise the original CAF for any purpose
including renunciation, even if it is received/ found subsequently. If the applicant violates any of these
requirements, he/ she shall face the risk of rejection of both the applications as well as forfeiture of
amounts remitted along with the applications.

APPLICATION ON PLAIN PAPER
An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the
duplicate CAF may make an application to subscribe to the Rights Issue on plain paper, along with an
Account Payee Cheque / Demand Draft payable at Hyderabad which should be drawn in favour of
“COLOR CHIPS-RIGHTS ISSUE “and send the same by registered post directly to the Registrar to the
Issue.

The application on plain paper, duly signed by the applicants including joint holders, in the same order as
per specimen recorded with the Company should contain the following particulars:
  1. Name of the shareholder including joint-holders
  2. Address of sole / first holder
  3. Folio No./DP ID Number and Client ID Number
  4. Number of shares held as on _________ 2005 (Record Date)
  5. Certificate numbers and Distinctive numbers, if held in physical form
  6. Number of shares to which entitled
  7. Number of shares applied for, out of entitlement
  8. Number of additional shares applied for, if any
  9. Total number of shares applied for
  10. Amount payable on application
  11. Particulars of Cheque/Draft enclosed
  12. Savings/Current Account Number and Name and Address of the Bank
  13. PAN/GIR number and Income tax Circle/Ward/District of the sole/all the joint applicants where the
       application is for shares of a value of Rs.50,000/- or more
  14. In case of Non-Resident shareholders, NRE/FCNR/NRO Account No., name and address of the
       bank and branch.
  15. Signature of shareholders in the same order as appearing in the records of the Company.
Please note that those who are making the application on plain paper shall not be entitled to renounce
their rights and should not utilise the CAF for any purpose including renunciation even if it is received
subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of
both the applications. The Company shall refund such application amount to the applicant without any
interest thereon.
                                                                                                         28
GENERAL INSTRUCTION FOR Applicants
(a) Please read the instructions printed on the enclosed CAF carefully.
(b) Application should be made on the printed CAF, provided by the Company except as mentioned
    under the head ‘Application on Plain Paper’ in the LOF and should be complete in all respects. The
    CAF found incomplete with regards to any of the particulars required to be given therein, and/or
    which is not completed in conformity with the terms of this LOF is liable to be rejected and the money
    paid, if any, in respect thereof will be refunded without interest and after deduction of bank
    commission and other charges, if any. The CAF must be filled in English and the names of all the
    applicants, details of occupation, address, father’s/husband’s name must be filled in block letters.
(c) Signatures should be either in English or Hindi or the languages specified in the Eighth Schedule to
    the Constitution of India. A Notary Public or a Special Executive Magistrate under his/her official seal
    must attest signatures other than in the aforesaid languages or thumb impression.
(d) In case of an application under Power of Attorney or by a body corporate or by a society, a certified
    true copy of the relevant Power of Attorney or relevant resolution or authority to make investment and
    sign the application along with the copy of the memorandum and articles of association and/or bye
    laws must be lodged with the Registrars to the Issue giving reference of the serial number of the
    CAF. In case the above-referred documents are already registered with the Company, the same
    need not be furnished again. However, the serial number of registration or reference of the letter,
    vide which these papers were lodged with the Company/Registrar must be mentioned just below the
    signature(s) on the application. In no case should these papers be attached to the application
    submitted to the Bankers to the Issue.
(e) The shareholders must sign the CAF as per the specimen signature recorded with the Company. In
    case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as
    per the specimen signature(s) recorded with the Company. Further, in case of joint applicants who
    are renouncees, the number of applicants should not exceed three.
(f) In case of joint applicants, reference, if any, will be made in the first applicant’s name and all
    communication will be addressed to the first applicant at the address given in the CAF.
(g) In case a Non-Resident or NRI shareholder has specific approval from the RBI in connection with his
    shareholding, he should enclose a copy of such approval with the CAF. Application(s) received from
    Non-Resident, NRIs, or persons of Indian origin residing abroad for allotment of Equity Shares shall,
    inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA in
    the matter of refund of application money, allotment of Equity Shares, subsequent issue and
    allotment of Equity Shares, dividend, export of Equity Shares certificates, etc. In case a Non-
    Resident or NRI shareholder has specific approval from the RBI, in connection with his shareholding,
    he should enclose a copy of such approval with the CAF.
(h) Bank Account Details: It is mandatory for the applicant to mention the applicant’s savings
    bank/current account number and the name of the bank with whom such account is held in the space
    provided in the CAF, to enable the Registrars to the Issue, to print the said details in the refund
    orders after the name of the payees. Such applications not containing the above details are liable to
    be rejected.
(i) PAN/GIR Number: Where an application for allotment of shares individually is for a total value of Rs.
    50,000/- or more i.e. the total number of shares applied for multiplied by the issue price is Rs.
    50,000/- or more, the applicant or in case of applications in joint names, each of the applicant(s)
    should mention their Permanent Account Number (PAN) allotted under the Income-tax Act, 1961 or
    where the same has not been allotted, the GIR number under the Income tax Circle/Ward/District. In
    case where neither the PAN nor the GIR number has been allotted, the fact of non-allotment should
    be mentioned in the CAF. CAF without this information will be considered incomplete and will be
    liable to be rejected.
(j) Payment by cash: The payment against the share application should not be effected in cash if the
    amount to be paid is Rs. 20,000/- or more. In case payment is effected in contravention of this, the
    application will be deemed invalid and the application money will be refunded and no interest will be
    paid thereon.
(k) All communication in connection with application for the shares, including any change in address of
    the shareholders should be addressed to the Registrars to the Issue quoting the name of the
    first/sole applicant shareholder, folio number and CAF number.

                                                                                                        29
(l) Split Forms cannot be re-split.
(m) Only the person or persons to whom equity shares have been offered and not renouncee(s) shall be
    entitled to obtain Split Forms.
(n) Nomination: The sole Shareholder or first Shareholder, along with other joint Shareholder (being
    individual(s)) may nominate any person(s) who, in the event of the death of the sole holder or all the
    joint-holders, as the case may be, shall become entitled to the Equity Shares. Person(s), being a
    nominee, becoming entitled to the Equity Shares by reason of the death of the original Shareholder,
    shall be entitled to the same advantages to which he would be entitled if he were the registered
    holder of the Shares. Where the nominee is a minor, the Shareholder(s) may also make a nomination
    to appoint, in the prescribed manner, any person to become entitled to the Shareholder(s), in the
    event of death of the said holder, during the minority of the nominee. A nomination shall stand
    rescinded upon the sale of the Equity Shares by the person nominating. A buyer will be entitled to
    make a fresh nomination in the manner prescribed. When two or more persons hold the Equity
    Share, the nominee shall become entitled to receive the Equity Shares only on the demise of all the
    holders. Fresh nominations can be made only in the prescribed form available on request at the
    Registered Office of the Company or company’s share transfer agents or such other person at such
    addresses as may be notified by the Company. Applicant can make the nomination by filling in the
    relevant portion in the CAF.
(o) In case the allotment of Equity Shares is in demateralised form, there is no need to make a separate
    nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective
    depository participant of the Applicant would prevail. If the Applicant requires changing the
    nomination, they are requested to inform their respective depository participant.
(p) All inquiries in connection with this Letter of Offer or accompanying Composite Application Form and
    requests for split application forms must be addressed (quoting the Registered Folio Number/DP and
    Client ID Number, the CAF(s) number and the name of the first equity shareholder as mentioned on
    the CAF(s) and superscribed “Color Chips (India) Ltd - Rights Issue” on the envelope) to the
    Registrars to the Issue at the following address:
    Venture Capital & Corporate Investments Limited
    D. No 6-2-913/914, 3rd Floor, Progressive Towers, Khairtabad, Hyderabad-500004.
    Tel: 040-23322264, Fax: 040-23324803
    E-mail: vccil_hyd@yahoo.co.in
(q) The issue of shares are subject to the Risk factors appearing on the page no. of this offer letter.
(r) The Rights issue will not be kept open for more than 30 days unless extended in which case its will
    be kept open for a maximum of 60 days

MODE OF PAYMENT
For Resident Shareholders
Only one mode of payment per application should be used. The payment must be either in cash or by
cheque/ demand draft drawn on any of the banks, which is situated at, and is a member or a sub member
of the Bankers Clearing House located at the centre indicated on the reverse of the CAF where the
application is to be submitted. A separate cheque/ draft must accompany each CAF. Outstation/post-
dated cheques or demand drafts and postal/ money orders will not be accepted and applications
accompanied by any such instruments will be rejected. The Registrars to the Issue will not accept cash
along with the CAF.

All cheques/ drafts accompanying the CAF should be drawn in favour of the Bankers to the Issue
(specified on the reverse of the CAF) crossed “A/C Payee only” and marked “COLOR CHIPS-RIGHTS
ISSUE”. No receipt will be issued for application money received. Please note that applicants should not
deduct any bank charges or postal charges while remitting the application money.

Applicants residing at places other than places where the bank collection centres have been opened by
the Company for collecting applications, are requested to send their applications together with Demand
Draft (net of DD and postal charges) drawn in favour of “COLOR CHIPS-RIGHTS ISSUE” and marked
“A/c payee only” payable at Hyderabad, directly to the Registrars to the Issue by REGISTERED POST so
as to reach them on or before the closure of the Issue.


                                                                                                      30
No receipt will be issued for the application money received. However, the Collection Centre receiving
the application will acknowledge receipt of the application by stamping and returning the
acknowledgement slip at the bottom of each CAF. The Company or the Registrars to the Issue is not
responsible for any postal delay/ loss in transit on this account, if any.

For Non-Resident Applicants/FIIs
As regards the application by Non-Resident shareholders, the further conditions as given below shall
apply. As per notification No. FEMA 20/2000-RB dated May 3, 2000 of the RBI, the RBI has given
general permission to Indian companies to issue shares on Rights/Bonus shares to Non-Resident
Indians. Hence the Company does not need in-principle permission from RBI for Issue of shares to Non-
Resident Indians, on a repatriable basis, up to their entitlement.

Payment by NRIs/FIIs must be made by Demand Draft/Cheque payable at Hyderabad in any of the
following ways:

Applications with Repatriation benefits
a. By Indian Rupee drafts purchased abroad and payable at Hyderabad; OR
b. By cheque/draft on a Non-Resident External Account (NRE) or FCNR Account maintained in
   Hyderabad; OR
c. Rupee draft purchased by debit to NRE/FCNR Account maintained elsewhere in India and payable
   in Hyderabad;
d. FIIs registered with SEBI must remit funds from special Non-Resident Rupee deposit account.

Application without Repatriation Benefits
As far as NRIs holding shares on non-repatriation basis is concerned, in addition to the ways specified
above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary) Account
maintained in Hyderabad or Rupee Draft purchased out of NRO Account maintained elsewhere in India
but payable at Hyderabad. In such cases, the allotment of Equity Shares will be on non-repatriation
basis.

All cheques/drafts submitted by NRIs/FIIs should be drawn in favour of “ COLOR CHIPS-RIGHTS
ISSUE-NRI” payable at Hyderabad and must be crossed “A/c Payee only” for the amount payable. The
CAF duly completed together with the amount payable on application must be deposited with the
collecting bank indicated on the reverse of the CAF before the close of banking hours on the issue
closing date. A separate cheque or bank draft must accompany each CAF.

Applicants may note that where payment is made by drafts purchased from NRE/FCNR/NRO accounts
as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft
has been issued by debiting the NRE/FCNR/NRO account should be enclosed with the CAF. Otherwise
the application shall be considered incomplete and will be liable to be rejected.

Note: In case where repatriation benefit is available, dividend and sales proceeds derived from the
investment in shares can be remitted outside India, subject to tax, as applicable according to Income-tax
Act, 1961. In case Equity Shares are allotted on non-repatriation basis, the dividend/sale proceeds of the
Equity Shares cannot be remitted outside India.

In case of applications received from Non-Residents, refunds and other distribution, if any, will be made
in accordance with the guidelines/rules prescribed by RBI as applicable at the time of making such
remittance and subject to necessary approvals.

Application will not be accepted by the Lead Manager or by the Company.

LAST DATE FOR APPLICATION
The last date for submission of CAF is _____ 2005. The Board will have the right to extend the said date
for such period as it may determine from time to time but not exceeding sixty days from the date the
issue opens.
                                                                                                      31
If the CAF together with the amount payable is not received by the Bankers to the Issue/Registrars to the
Issue on or before the close of banking hours on the aforesaid last date or such date as may be
extended by the Board, the offer contained in this Letter of Offer shall be deemed to have been declined
and the Board shall be at liberty to dispose off the Equity Shares hereby offered, as provided under the
heading “Basis of Allotment”.

DISPOSAL OF APPLICATION AND APPLICATION MONEY
No acknowledgment will be issued for the application moneys received by the Company. However, the
Bankers to the Issue/Registrars to the Issue receiving the CAF will acknowledge its receipt by stamping
and returning the acknowledgement slip at the bottom of each CAF.

The Board reserves its full, unqualified and absolute right to accept or reject any application, in whole or
in part, and in either case, without assigning any reason.

In case an application is rejected in full, the whole of the application money received will be refunded
without interest and after deducting bank charges. Wherever an application is rejected in part, the
balance of application money, if any, after adjusting any money due on Equity Shares allotted, will be
refunded without interest and after deduction of bank charges to the applicant within six weeks from the
close of the Issue.

SHAREHOLDER ELIGIBILITY
Vide Notification dated 18th June 2003, bearing number FEMA 94/2003, RBI has granted general
permission to Indian companies to issue shares on rights/bonus Equity Shares to existing Non-Resident
shareholders. OCBs vide A.P (DIR Series) Circular No. 44, dated December 8, 2003 shall not be
ineligible to apply / renounce in the issue. Further, any renunciations by Non-Resident(s) are may be
subject to the renouncer(s) / renouncee(s) obtaining the necessary approval of the RBI under the
provisions of the Foreign Exchange Management Act, 2000, and other applicable laws and such
permission should be attached with the CAF.

In view of the same Non-Resident Shareholders of the Company would be entitled to apply for Equity
Shares to the extent of their entitlement as detailed in Part A of the attached CAF. The Non-Resident
shareholders and other Non-Resident entities can also apply for Equity Shares renounced in their favour
by any other Non-Resident shareholder.

Further, any Resident shareholders of the Company can renounce their entitlement in the favour of Non-
Resident entities to the extent as may be permitted by the Reserve Bank of India and Foreign Exchange
Management Act, 2000 and other applicable laws either generally or specified from time to time or
through specific approval on case to case basis granted on an application made for the same. Non
Resident shareholders are allowed to apply for additional Equity Shares to the extent permitted under
general permission or specific permission that may be granted on an application made for the purpose, in
case such applications are received by the Company they shall be considered to the extent of the
shareholder’s entitlement or to the extent of permissible limits as may be prescribed under FEMA or
Reserve Bank of India from time to time. Further, any renunciations by Non-Resident(s) are also subject
to the renouncer(s)/ renouncee(s) obtaining the necessary approval of the RBI under the provisions of
the Foreign Exchange Management Act, 2000, and other applicable laws and such permission should be
attached with the CAF.

Further, resident shareholders would be entitled to apply for Equity Shares to the extent of their
entitlement as detailed in Part A and can apply for additional Equity Shares as well as for Equity Shares
renounced in their favour by any other shareholder. They can renounce the Equity Shares offered either
in full or part thereof in only in favour of another resident entity named by them.

Investors are advised to ensure that any application from them shall not exceed the investment limits or
maximum number of Equity Shares that can be held by them under the relevant regulations or statutory
guidelines.
                                                                                                        32
PROCEDURE FOR APPLICATION
Please read the instructions printed overleaf on the enclosed CAF carefully.
Application should be made on the printed CAF, provided by the Company and should be completed in
all respects.

The CAF found incomplete with regard to any of the particulars required to be given therein, and/or which
are not completed in conformity with the terms of this Letter of Offer are liable to be rejected and the
money paid, if any, inrespect thereof will be refunded without interest and after deduction of bank
commission and other charges, if any.The CAF must be filled in English and the names of all the
applicants, details of occupation, address, father’s/husband’s name, Bank Account Details must be filled
in block letters.

The CAF together with cheque/demand draft should be sent to the Bankers to the Issue or to the
Registrars to the Issue and not to the Lead Managers to the Issue. Applicants residing at places other
than cities where the branches of the Bankers to the Issue have been authorised by the Company for
collecting applications, will have to make payment by Demand Draft payable at Hyderabad and send their
application forms to the Registrars to the Issue BY REGISTERED POST after deducting DD and Postal
Charges. If any portion(s) of the CAF is/are detached or separated, such application is liable to be
rejected.

The payment against the application should not be effected in cash if the amount to be paid is Rs
20,000/- or more. In case payment is effected in contravention of this, the application may be deemed
invalid and the application money will be refunded and no interest will be paid thereon. Payment against
the application if made in cash, subject to conditions as mentioned above, should be made only to the
bankers to the Issue or the Registrars to the Issue as mentioned above.

Quoting of PAN/GIR No. in the application forms
Where an application is for allotment of securities in response to a rights issue, for a total value of Rs.
50,000/- or more, i.e. the total number of securities applied for multiplied by the issue price, is Rs.
50,000/- or more the applicant or in the case of applications in joint names, each of the applicants, should
mention his/her permanent account number (PAN) allotted under the Income-Tax Act, 1961 or where the
same has not been allotted, the GIR number and the Income-Tax Circle/Ward/District. In case neither the
PAN nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the
application forms. Application forms without this information will be considered incomplete and are liable
to be rejected.

Thumb impressions and signatures other than in English, Hindi, Marathi or any other language specified
in the 8th Schedule to the Constitution of India, must be attested by a Magistrate or a Notary Public or a
Special Executive Magistrate under his/her official seal.

In case of an application under Power of Attorney or by a Body Corporate or by a Society, a certified true
copy of the relevant Power of Attorney or relevant resolution or authority to make investment and sign the
application along with the copy of the Memorandum & Articles of Association and/or bye laws must be
lodged with the Registrars to the Issue giving reference of the serial number of the CAF within 7 days of
closure of the Issue. In case the above referred documents are already registered with the Company, the
same need not be furnished again; however, the serial number of registration or reference of the letter,
vide which these papers were lodged with the Company must be mentioned just below the signature(s)
on the application. In no case should these papers be attached to the application submitted to the
Bankers to the Issue.

APPLICATION BY MUTUAL FUNDS
A separate application can be made in respect of each scheme of an Indian Mutual Fund registered with
the Board and that such application shall not be treated as multiple applications. The applications made
by the AMCs or Custodians of a Mutual Fund shall clearly indicate the name of the concerned scheme for
which Application is being made.
                                                                                                        33
In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as
per the specimen signature(s) recorded with the Company. Further, in case of joint applicants who are
renouncees, the number of applicants should not exceed three.

In case of joint applicants, reference, if any, will be made in the first applicant’s name and all
communication will be addressed to the first applicant.

The shareholders must sign the CAF as per the specimen signatures recorded with the Company.

Application(s) received from Non-Residents, or persons of Indian origin residing abroad for allotment of
Equity Shares shall, inter-alia, be subject to conditions, as may be imposed from time to time by the RBI
under FEMA in the matter of refund of application money, allotment of Equity Shares, subsequent issue
and allotment of Equity Shares, dividend, export of share certificates, etc. In case a Non-Resident
shareholder has specific approval from the RBI, in connection with his/ her shareholding, the person
should enclose a copy of such approval with the CAF.

All communication in connection with application for the Equity Shares, including any change in address
of the shareholders should be addressed to the Registrars to the Issue quoting the name of the first/sole
applicant shareholder, folio numbers and CAF number.

Split forms cannot be re-split.

Only the person or persons to whom Equity Shares have been offered shall be entitled to obtain split
forms.

Renouncee(s) shall not be entitled to obtain split forms.

BASIS OF ALLOTMENT
The Board subject to provisions contained in this Letter of Offer and the Articles of Association of the
Company will proceed to allot the Equity Shares in the following order of priority:

(a) Full allotment to those shareholders who have applied for their rights entitlement in full or in part.
    Also to the Resident renouncee(s) who has/ have applied for Equity Shares renounced in their
    Favour, in full or in part and to Non-Resident renouncee(s) who has/have applied for Equity Shares
    renounced in their favour in full or in part by another Non-Resident shareholder.
(b) To the Resident shareholders only who having applied for all the Equity Shares offered to them,
    have applied for additional Equity Shares provided there is an under subscribed portion after making
    full allotment in (a) above. The allotment of such additional shares will be made as far as possible on
    an equitable basis with reference to the number of equity shares held on the Record Date in
    consultation with the designated Stock Exchange.
(c) Allotment to renouncees who having applied for all the shares renounced in their favour have applied
    for additional shares provided there is a surplus remaining after (a) and (b) above.
(d) Allotment to any other person as the Board may in its absolute discretion deem fit provided there is a
    surplus available after making full allotment under (a), (b), and (c) above.

The application for additional Equity Shares shall be considered and allotment shall be made at the
absolute discretion of the Board or Committee of Directors of the Company authorised in this behalf by
the Board having the power to reject any such application for additional Equity Shares without assigning
any reasons and in the event of over subscription, the allotment will be subject to the clause mentioned
under ‘Basis of Allotment’ and if necessary shall be made in consultation with the “Designated Stock
Exchange”. The allotment of additional Equity Shares will be made as far as possible on an equitable
basis with reference to the number of Equity Shares held by you on the Record date.




                                                                                                       34
In the event of under-subscription, the unsubscribed portion shall be first used to round off any fractional
entitlement and thereafter disposed off by Board of Directors authorised in this behalf by the Board upon
such terms and conditions and to such person/persons and in such manner as the Board may in its
absolute discretion deem fit.

In the event of over-subscription, the Promoter / Promoter group’s entitlement shall be first used to round
off any fractional entitlement.

The word “under subscribed” above shall mean under subscribed as defined in regulation 3 (1) (b) of the
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,
1997.

After taking into account the full allotment under (a), (b) and (c) above, if there is any unsubscribed
portion, the Rights Issue, shall be deemed to be “unsubscribed” to that extent for the purpose of
regulation 3(1)(b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeover) Regulations, 1997. The unsubscribed portion may be applied after the closure of the time limit
for subscription mentioned elsewhere in this Letter of Offer. In that event allotment shall be made in
terms of (3) above.

The Company expects to complete the allotment of Equity Share within a period of 42 days from the date
of closure of the subscription list in accordance with the listing agreement.

PROCEDURE FOR REFUND/ALLOCATION
1. The Issuer Company reserves, at its sole, absolute and uncontrolled discretion and without assigning
   any reason therefore, the right to accept or reject any application in whole or in part. If any
   application is rejected in full, the whole of the application money received will be refunded to the
   applicant. If an application is accepted in part, the excess application money received, if any, will be
   adjusted towards the allocation money payable and the balance, if any, thereafter will be refunded to
   the applicant in terms of section 73 of the Act (within 10 weeks from the date of closure of the
   subscription list).

2. Letters of allocation / letters of regret along with refund cheques or pay orders of value over
   Rs.1500/- if any will be despatched by registered post at the applicants' risk, within ten weeks from
   the closure of subscription list and if such money is not repaid within 8 days from the day the
   Company becomes liable to pay it, the Company and every Director of the Company who is an
   Officer in default, shall, on and from the expiry of the 8th day be jointly and severally liable to repay
   that money with interest @ 15% per annum as prescribed under Section 73 of the Act.

3. Refunds will be made by refund orders or pay orders drawn on the Company's Bankers and Bank
   Charges, if any, for en cashing such refund orders or pay orders will be borne by the applicant. Such
   refund orders or pay orders will however be payable at par at all centers where applications are
   accepted. In case of Joint Applications, refund pay Orders, if any will be made out to the first name
   applicant and all communications will be addressed to the applicant whose name appears first at
   his/her address as stated in the application form. All Cheques, pay orders of value over Rs.1500/-,
   letters of allocation and share certificates (as the case may be) will be despatched to the applicant at
   his/her registered address and at the risk of the applicant by registered post. Refund Orders of value
   not over Rs.1500/- will be despatched under Certificate of Posting.

4. The subscription received against the Offer for Sale will be kept in separate bank accounts and the
   Issuer Company will not have access to such funds unless despatch of refund orders / share
   certificates is completed and confirmation of credit in demat form is received by the applicants.

5. The Issuer Company undertake to make available to the Registrars to the Offer, adequate funds for
   the purpose of despatch of refund orders/allocation letters by registered post.



                                                                                                        35
LETTER OF ALLOTMENT AND REFUND ORDERS
The Company will issue and dispatch letters of allotment/ Security Certificates and/ or letters of regret
along with refund order or credit the allotted securities to the respective beneficiary accounts, if any within
a period of 42 Days from the date of closure of the Issue. If such money is not repaid within 8 days from
the day the Company becomes liable to pay it, the Company shall pay that money with interest as
stipulated under Section 73 of the Act.

Letters of allotment/ Security Certificates / refund orders above the value of Rs. 1,500/- will be dispatched
by Registered Post to the sole/ first applicant’s registered address. However, refund orders for value not
exceeding Rs1,500 shall be sent to the applicants under certificate of posting. Such cheques or pay
orders will be payable at par at all the centres where the applications were originally accepted and will be
marked “A/c Payee” and would be drawn in the name of the sole/ first applicant. Adequate funds would
be made available to the Registrar to the Issue for dispatch of the Letters of allotment/ Security
Certificates / refund orders. Bank charges, if any, for encashing such cheques or pay orders will be borne
by the applicants.

In case the Company issues Letters of Allotment, the corresponding Security Certificates will be kept
ready within three months from the date of allotment thereof or such extended time as may be approved
by the Company Law Board under Section 113 of the Companies Act, 1956 or other applicable
provisions, if any. Allottees are requested to preserve such Letters of Allotment, which would be
exchanged later for the Security Certificates.

For Non-Resident applicants, refunds, if any, will be made as under:
Where applications are accompanied by Indian rupee drafts purchased abroad and payable at
Hyderabad, India, refunds will be made in convertible foreign exchange equivalent to Indian rupees to be
refunded.

Indian rupees will be converted into foreign exchange at the rate of exchange, which is prevailing on the
date of refund. The exchange rate risk on such refunds shall be borne by the concerned applicant and
the Company shall not bear any part of the risk.

Where the applications made are accompanied by NRE/FCNR/NRO cheques, refunds will be credited to
NRE/FCNR/NRO accounts respectively, on which such cheques were drawn and details of which were
provided in the CAF.

PRINTING OF BANK PARTICULARS ON REFUND ORDERS
As a matter of precaution against possible fraudulent encashment of refund orders due to loss or
misplacement, the particulars of the applicant’s bank account are mandatory and are to be provided for
printing on the refund orders. Bank account particulars will be printed on the refund orders, which can
then be deposited only in the account specified. The Company will in no way be responsible if any loss
occurs through these instruments falling into improper hands either through forgery or fraud.

DESPATCH OF ALLOTMENT/SHARE CERTIFICATES/ REFUND ORDERS
Share Certificates for the Equity Shares or Letters of Regret, as the case may be, together with Refund
Orders if any, will be despatched within 6 weeks from the date of closure of the issue. The Company
shall ensure despatch of the refund orders of value up to Rs. 1500 under Certificate of Posting and those
over Rs. 1500 and share certificates by Registered Post only. Adequate funds for the purpose will be
available to the Registrars to the Issue for mailing the share certificates by Registered Post. Particulars of
the applicant’s Savings/Current Bank Account may be given in the space provided thereof in the
application form so as to enable the Registrars to the Issue to print the same on the refund order, if any.

As regards allotment/refund to Non-Residents, the following further conditions shall apply: In case of
NRIs, who remit their application monies from funds held in NRE/FCNR accounts, refunds and/or
payment of dividend and other disbursement, if any, shall be credited to such accounts, details of which

                                                                                                           36
should be furnished in the CAF. Subject to the approval of the RBI, in case of NRIs/Non Residents, who
remit their application monies through Indian Rupee draft purchased from abroad, refund and/or payment
of dividend and any other disbursement, shall be credited to such accounts, details of which should be
furnished in the CAF. Subject to the approval of RBI, in case of NRIs/Non Residents, who remit their
application monies through Indian Rupee draft purchased from abroad, refund and/or payment of
dividend and any other disbursements will be made net of bank charges/commission in U.S Dollars, at
the rate of exchange prevailing at such time. The Company will not be responsible for any loss on
account of exchange fluctuations for converting the Indian Rupee amount into U.S Dollars. The share
certificates for the Equity Shares will be sent by registered post at the address of the NRI / Non-Resident
applicant.

INTEREST IN CASE OF DELAY IN DESPATCH OF ALLOTMENT / REFUND ORDERS
The Company agrees that:
   (i) Allotment of securities hereby offered shall be made within a period of 42 days of the date of
        closure of the issue.
   (ii) If Allotment is not made and /or Share certificate / letter of allotment or letter of regret together
        with refund order are not despatched within 8 days from the day the Company becomes liable to
        pay it, the Company shall, as stipulated under sections 73(2)/73 (2A) of the Companies Act,
        1956, pay that money with interest at the rate of 15% p.a.

UNDERTAKINGS BY THE COMPANY
The Company has given undertakings that:
  i. the complaints received in respect of the Issue shall be attended to by the Company expeditiously
       and satisfactorily;
  ii. the Company shall take necessary steps for the purpose of getting the securities listed in the
       concerned stock exchange within the specified time;
  iii. the funds required for despatch of refund orders/allotment letters/certificates by Registered Post
       shall be made available to the Registrars to the Issue by the Company;
  iv. the despatch of share certificates/refund orders and demat credit shall be completed and allotment
       and listing documents will be submitted to the Stock Exchanges within the specified time limit.
  v. the certificates of the securities/refund orders to the Non-Residents shall be dispatched within
       specified time;
  vi. no further issue of securities shall be made till the securities offered through this Offer Letter are
       listed or till the application moneys are refunded on account of non-listing, under-subscription etc.

UTILISATION OF ISSUE PROCEEDS
The Board of Directors undertake that:
(a) all monies received out of this Rights Issue shall be transferred to a separate bank account other than
   the bank account referred to in sub-section (3) of section 73;
(b) Details of all monies utilised out of this Rights Issue referred to in sub-item (a) shall be disclosed
   under an appropriate separate head in the balance-sheet of the Company indicating the purpose for
   which such monies had been utilised; and
(c) Details of all unutilised monies out of this Rights Issue, if any, referred to in sub item (a) shall be
   disclosed under an appropriate separate head in the balance-sheet of the Company indicating the
   form in which such unutilised monies have been invested.

OPTION TO INVESTORS TO APPLY FOR EQUITY SHARES IN DEMATERIALISED FORM
As per the provisions of the Depositories Act, 1996, the shares of a body corporate may be held in
dematerialized form i.e. not in the form of physical certificates but be fungible and be represented by the
statement issued through electronic mode. The equity shares of CCIL are traded in the demat segment
The Company has entered into a tripartite agreement dated 1st August 2000 with the National Securities
Depository Ltd. (NSDL) and Venture Capital and Corporate Investments Limited (Registrar and Transfer
Agent) for dematerialisation of the equity shares of the Company. The Company has also entered into a
tripartite agreement dated 1st August 2000 with the Central Depository Services Limited (CDSL) and
Venture Capital and Corporate Investments Limited for dematerialisation of the equity shares of the
Company.
                                                                                                          37
The ISIN No. granted to the equity shares of the Company is INE 737B01017.

In this Rights Issue, the allottees who have opted for Equity Shares in dematerialised form will receive
their Equity Shares in the form of an electronic credit to their beneficiary account with a depository
participant. Investor will have to give the relevant particulars for this purpose in the appropriate place in
the CAF. Applications, which do not accurately contain this information, will be given the securities in
physical form. No separate applications for securities in physical and dematerialised form should be
made. If such applications are made, the application for physical securities will be treated as multiple
applications and is liable to be rejected. In case of partial allotment, allotment will be done in demat
option for the shares sought in demat and balance, if any, will be allotted in physical shares.

Procedure for opting for this facility for allotment of Equity Shares arising out of this Issue in electronic
form is as under:
 1. Open a Beneficiary Account with any Depository Participant (care should be taken that the
    Beneficiary Account should carry the name of the holder in the same manner as is exhibited in the
    records of the Company. In case of joint holding, the Beneficiary Account should be opened carrying
    the names of the holders in the same order as with the Company). In case of Investors having
    various folios in the Company with different joint holders, the investors will have to open separate
    accounts for such holdings. This step need not be adhered to by those shareholders who have
    already opened such Beneficiary Account(s).
 2. For shareholders holding shares in dematerialised form as on Record Date, the beneficial account
    number shall be printed on the CAF. For those who open accounts later or those who change their
    accounts and wish to receive their Rights Equity Shares by way of credit to such account the
    necessary details of their beneficiary account should be filled in the space provided in the CAF. It
    may be noted that the allotment of Equity Shares arising out of this Issue can be received in a
    dematerialised form even if the original Equity Shares of the Company are not dematerialised.
    Nonetheless, it should be ensured that the Depository Account is in the name(s) of the shareholders
    and the names are in the same order as in the records of the Company.
 3. Responsibility for correctness of applicant’s age and other details given in the CAF vis-à-vis those
    with the applicant’s Depository Participant would rest with the applicant. Applicants should ensure
    that the names of the applicants and the order in which they appear in CAF should be same as
    registered with the applicant’s Depository Participant.
 4. If incomplete/incorrect Beneficiary Account details are given in the CAF or where the investor does
    not opt to receive the Rights Equity Shares in dematerialised form, the Company will issue Equity
    Shares in the form of physical certificate(s).
 5. The Rights Equity Shares allotted to investors opting for dematerialised form, would be directly
    credited to the Beneficiary Account as given in the CAF after verification. Allotment advice, refund
    order (if any) would be sent directly to the applicant by the Registrars to the Issue but the
    confirmation of the credit of the Rights Equity Shares to the applicant’s Depository Account will be
    provided to the applicant by the applicant’s Depository Participant.
 6. Renouncees can also exercise this option to receive Equity Shares in the dematerialised form by
    indicating in the relevant block and providing the necessary details about their Beneficiary Account.

Investors may please note that the Equity Shares of the Company can be traded on the Stock
Exchange only in demat form.

TAX BENEFITS TO THE COMPANY AND ITS SHAREHOLDERS
M/s. S. N. Murthy & Co., Chartered Accountants and Statutory Auditors of the CCIL have vide their letter
dated 15.02.2005 advised that under the current provisions of Income Tax Act (hereinafter referred as
(“the Act”), 1961 and existing laws for the time being in force, the following benefits are available to the
Company and to its Shareholders. Several of these benefits are dependent on the Company or its
shareholders fulfilling the conditions prescribed under the relevant tax laws.




                                                                                                         38
Hence, the ability of the Company or its shareholders to derive the tax benefits is dependent upon
fulfilling such conditions, which based on business imperatives the Company faces in the future, the
Company may or may not choose to fulfill.

To the Company
1. In accordance with, and subject to the provisions of Section 32 of the Act, the Company will be entitled
to claim depreciation on tangible and specified intangible assets.

2. By virtue of section 10(34) of the Act, any dividend income received by the Company will be exempt
from tax.

3. In accordance with and subject to the conditions specified in section 35D of the Income Tax Act, the
Company is entitled to amortization, over a period of five years, of all expenditure of connection with the
proposed Rights Issue, subject to the overall limit prescribed in the said section.

4. Interest income accruing to the Company on long term finance provided to enterprises engaged in the
infrastructure business comprising of housing projects as per section 80-IB(10), will be exempt from tax,
subject to conditions prescribed under section 10(23G) of the Act.

5. By virtue of new section 10(35) of the Act, the following income shall be exempt, subject to certain
conditions, in the hands of the Company:-
(a) income received in respect of the unit of a Mutual Fund specified under clause (23D); or
(b) income received in respect of units from the Administration of the specified undertaking; or
(c) income received in respect of units from the specified Company;

6. By virtue of new section 10(38) of the Act that long-term capital gains on sale of shares where the
transaction of sale is entered into on a recognized stock exchange in India, on or after 01.10.2004, shall
be exempt from tax.

7. By virtue of new section 111A of the Act that short-term capital gains on sale of shares where the
transaction of sale is entered into on a recognized stock exchange in India, on or after 01.10.2004 shall
be subject to tax at a rate of 10 per cent (plus applicable surcharge and Education Cess).

To the Shareholders of the Company
1. Income received by any assessee as dividend from an Indian Company is exempt under section
10(34) of the Act.

2. In accordance with section 48 of the Act, long-term capital gains arising out of sale of shares of the
Company shall be computed after indexing the cost of acquisition/improvement. Under Section 112 of the
Act, such gains which are not exempt under the proposed section 10(38) of the Act, shall be taxed at the
rate of 20% (subject to surcharge as applicable), where the tax so payable exceeds 10% (subject to
surcharge as applicable) of the amount of capital gains computed before indexing the cost of acquisition,
improvement, then such excess shall be ignored.

3. By virtue of new section 111A of the Act that short-term capital gains on sale of shares where the
transaction of sale is entered into in a recognized stock exchange in India, on or after 01.10.2004 shall
be subject to tax at a rate of 10 per cent (plus applicable surcharge and Education Cess).

4. By virtue of new section 10(38) of the Act that long-term capital gains on sale of shares where the
transaction of sale is entered into in a recognized stock exchange in India, on or after 01.10.2004 shall
be exempt from tax.

5. In accordance with, and subject to the conditions and to the extent specified in section 54EC and
54ED of the Act, long term capital gains tax arising on transfer of the shares of the Company, shall be
exempt from capital gains tax if the gains are invested within six months from the date of transfer in the
purchase/acquisition of specified assets.

                                                                                                       39
6. In accordance with, and subject to the conditions and to the extent specified in Section 54F of the Act,
long term capital gains arising on the transfer of the shares of the Company held by an individual or
Hindu Undivided family shall be exempt from capital gains tax if the net sales consideration is utilized,
within a period of one year before, or two years after the date of transfer, in the purchase of a new
residential house, or for construction of a residential house within three years subject to the condition that
the assessee should not own more than one residential house, other than the new asset, on the date of
transfer of original asset and the assessee should not purchase or construct any residential house, other
than the new asset, in case of purchase within a period of one year after the date of transfer of original
asset and in case of construction, within a period of three years after the date of transfer of original asset.

7. In accordance with, and subject to Section 48 of the Act, capital gains arising to Non-Resident, out of
transfer of capital assets being shares in an Indian Company shall be computed by converting the cost of
acquisition, expenditure in connection with such transfer and full value of the consideration received or
accruing as a result of the transfer of the capital assets into the same foreign currency as was initially
utilized in the purchase of shares and the capital gains computed in such foreign currency shall be
reconverted into Indian currency.

8. Non-Resident Indian has the option to be governed by the provisions of Chapter XII-A of the Act
according to which;
i. Under Section 115E of the Act, any income from investment acquired out of convertible foreign
exchange will be taxable at 20% (subject to surcharge as applicable) while income from long-term capital
gains on transfer of shares of the Company acquired out of convertible foreign exchange shall be taxed
at the rate of 10% (subject to surcharge as applicable)

ii. Under Section 115F of the Act, subject to the conditions and to the extent specified therein, long-term
capital gains arising to a Non-Resident Indian from transfer of shares of the Company acquired out of
convertible foreign exchange shall be exempt from capital gains tax if the net consideration is invested
within six months of the date of transfer of the act.

iii. Under Section 115G of the Act, it is not necessary for a Non-Resident Indian to file a return of income
under Section 139(1) of the Act, if his total income consists only of investment income and/or long-term
capital gains earned on transfer of such investment acquired out of convertible foreign exchange, and the
tax has been deducted at source from such income under the provisions of Chapter XVII-B of the Act.

9. Under section 10(23FB) of the Act, all venture capital companies/funds registered with Securities and
Exchange Board of India, subject to the conditions specified, are eligible for exemption from income tax
on all their income, including income from sale of shares of the Company.

Under the Wealth Tax Act, 1957
Shares of the Company held by the shareholder will not be treated as an asset within the meaning of
section 2(ea) of the Wealth Tax act, 1957; hence Wealth Tax Act will not be applicable.

Under The Gift Tax Act, 1958
Gift of shares of the Company made on or after October 1, 1998, would not be liable to Gift Tax.

Please note that all the above tax benefits will be available only to the sole/first named holder in case the
shares are held by joint holders. Legislation, its judicial interpretation and the policies of the regulatory
authorities are subject to change from time to time, and these may have a bearing on the advice that we
have given.

Accordingly, any change or amendment in the law or relevant regulations would necessitate a review of
the above. Unless specifically requested, we have no responsibility to carry out any review of our
comments for changes in laws or regulations occurring after the date of issue of this Note.



                                                                                                           40
In respect of Non-Residents, the tax rates and the consequent taxation mentioned above shall be further
subject to any benefits available under the Double Taxation Avoidance Agreements, if any, between India
and the country in which the Non-Resident has fiscal domicile.

The above Statement of Possible Direct Tax Benefits sets out the provisions of law in a summary manner
only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership
and disposal of ordinary shares. The statements made above are based on the tax laws in force and as
interpreted by the relevant taxation authorities as of date. Investors are advised to consult their tax
advisors with respect to the tax consequences of their holdings based on their residential status and the
relevant double taxation conventions.

Benefits available to the company under Indirect tax Laws:
The Company has one unit registered under the Software Technology Parks (“STP”) Scheme .The Key
benefits that could be available under indirect tax laws to a STP unit, subject to satisfaction of the
specified conditions are as under.

Indirect Tax STP Units:
Customs duty on specified goods, which are in the nature of capital goods, office equipment, components
etc procured by a STP unit are exempt from customs duty. All goods other than prohibited goods under
the EXIM policy are exempt from Customs duty and Excise duty. Specified goods such as capital goods
and consumables etc procured from Local manufacturers are exempt from excise duty.
Further, in order to avail the above benefits, the unit will be required to meet prescribed export
obligations.




                                                                                                       41
IV. PARTICULARS OF ISSUE

OBJECTS OF THE ISSUE
Objects of the present issue of Equity Shares are:
   1. To augment the Long Term Working Capital requirement of the Company.
   2. To acquire Capital Equipment for Production of Animation Series & Films and Live Action Films.
   3. To meet the Issue Expenses

The Main Objects clause of the Memorandum of Association of the Company enables the Company to
undertake the activities, which the Company has been carrying out till date, and the proposed activities
for which funds are proposed to be raised through this Rights Issue.

COST OF PROJECT AND MEANS OF FINANCE
The cost of the project and the means of finance as estimated by the management of Color Chips is as
follows:
                                                                 (Rs. In Lakhs)
                                                                        Amount
                                      Particulars
         S. No.                                                           (Rs.)
                 FUNDS REQUIREMENT
      a)         Augmenting the long-term working capital resources        478.145
      b)         Cost of Capital Equipments                                196.000
      c)         Meeting Issue Expenses                                     13.590
                 Total                                                     687.735
                 MEANS OF FINANCE
                 Present Rights issue                                      687.735
                 Total                                                     687.735

Working Capital Requirement:
The incremental working capital requirements as estimated by the management of the Company are as
under:
                                                         (Rs. In Lakhs)
                              PARTICULARS                        2005-06
                                                                  (Rs.)

             CURRENT ASSETS
             Projects in Progress                                   618.25
             Inventories                                            225.00
             Sundry Debtors                                         240.00
             Loans & advances                                       450.00
             Total Current Assets                                  1533.25
             CURRENT LIABILITIES
             Sundry Creditors                                       500.00
             Total Current Liabilities
             NET WORKING CAPITAL                                   1033.25
             Existing working capital as on 30th September 2004     555.10
             INCREMENTAL NET WORKING CAPITAL                        478.15




                                                                                                     42
Assumptions:
Color Chips estimate working capital blockage in Animation Series & Films -Debtors for about 6 months,
Work-in-progress @ 75% of the cost of production, finished stock of television software rights of 4
months, creditors for production at 4 months.

The Debtors and Creditors for the financial year 2005-06 have been estimated on an enhanced revenue
base. Due to additional fund flow on account of Rights issue, increased number of new Animation content
is expected to commence and expected to generate more receivables as compared to financial year
2004-05. This will result in incremental working capital for financial year 2005-06 increasing
disproportionately in comparison to previous financial years.

No Banks, Financial Institutions or Independent authority has appraised the long-term working capital
requirement of the company.

Breakup of Issue Expenses:
The Issue Expenses have been estimated as under:
                                      (Rs. In Lakhs)
                                               Amount
                      Particulars
                                                 (Rs.)
        Fees to Merchant Banker                     3.86
        Fees to Registrar to Issue                  0.30
        Advertisement & Mailing Expenses            6.20
        Printing & Stationery                       2.00
        Miscellaneous Expenditure                   1.23
                         TOTAL                     13.59

Details of Capital Equipments:
                                                                                                   Total
S.                                                        Supplier/        No of     Date of
                        Description                                                                Cost
No.                                                      Manufacturer      Units    Quotation
                                                                                                   (Rs.)
1.    Flame HD v8 for SGI Tezro Workstation             Aditya Infotech   1        01.03.2005    195
       Consisting of                                    Ltd.,                                    Lakhs
       a. Flame Image Integrator v8 Software            Secunderabad.     1

       b. Tezro 4P System includes                                        1
             Tezro Tower, 4x700MHz R16K/4MB
            cache mem & disk FTO code, base FTO                           1
            1GB mem & FTO 18GB disk
             First-time-only 1 GB base memory for 2P
            and 4P Tezrro only (2x512MB DIMMs)                            1
             Dataram memory 2GB kit (2x1GB
            DIMMs) for Onyx350/Tezro                                      1
             24” FD Trinitron Superwide monitor for
            Octane, Octane2, Silicon Graphics Fuel                        1
            and Tezro
             Dual Channel Display daughter card for
            V12 Silicon Graphics Fuel & Tezro, and
            Octane2, Dual V12 Graphics card                               1
            assembly
             IRIX 6.5 Advanced Workstation
            Environment for Visualisation Systems
            (O2, Octane2, Onyx3000)
             8 Channel Digital Audio PCI Card with                        1
            BNC AES connector
                                                                                                    43
               Standard Cable Kit                                          1
               Optional internal CD/DVD-ROM for
              Tezro 73GB Ultra 160 SCSI, 10,000 RPM                        1
               SFP transceiver module, optical LC
              Cable Kit                                                    1
               First-time-only upgrade for first internal
              drive for Tezro, 73GB Ultra 160SCSI,                         1
              10,000 RPM
               DmediaPro DM3 & DM5 HD/SD Video                             1
              I/O with HDGVO Option Bundle for Tezro
              Tower Workstation includes VBOB                              1
               Discreet native audio for flame/smoke
              Tezro, smoke Octane1/2, fire/inferno
              Onyx350 & fireOnyx3 includes PCI Serial                      1
              Card

       c.   Stone IR73 Storage System                                      1

       d. 12 x 18 Transparent Overlay Surface Tablet
          w/UP-201 Stylus                                                  1

       e. Discreet Stonefs v2 high performance file
          system for SGI and Linux Workstation.                            1

V. COMPANY, BUSINESS AND MANAGEMENT

BRIEF HISTORY
Color Chips (India) Limited (herein referred to as CCIL) was originally incorporated under the Companies
Act, 1956 on 19th March 1990 under the name and style of “Rusoday Mutual Funds Limited” and obtained
                                                    rd
Certificate for Commencement of Business on 23 March 1990. The name of the Company has been
changed to “Rusoday Finance Limited” vide special resolution passed at its Extra-ordinary Meeting held
on 20th July 1995 and obtained Certificate of Incorporation consequent to the change of name on 4th June
1996 and subsequently changed its name to “Global Fiscals Limited” vide special resolution passed at its
Extra-ordinary General Meeting held on 6th May 1996 and Obtained a fresh Certificate of Incorporation
from the Registrar of Companies, Andhra Pradesh, Hyderabad on 6th June 1996.

In accordance with the direction of Regional Director, Department of Company Affairs, Ministry of
Finance, Chennai, the name of the Company has been Changed to “Arham Fiscals Limited” by passing
                                                                      nd
a special resolution at its Extra-ordinary General Meeting held on 22 April 1997 and Obtained a fresh
certificate of incorporation from the Registrar of Companies, Andhra Pradesh, Hyderabad on 28th April
1997 and in accordance with a special resolution passed at its Extra-ordinary General Meeting on 03rd
January 2000 the name of the Company was changed to “Color Chips (India) Limited” and a fresh
certificate of incorporation was obtained from Registrar of Companies on 5th day of January 2000.

The Company commenced its operations as a finance Company, however, in January 2000, Color Chips
Animation Park Limited [CCAPL] desired to acquire the management control of the Issuer Company for
undertaking animation activities in India. Through the acquisition of management control, CCAPL
preferred to establish its base in the country to undertake businesses in India in tune with the
management principles. CCAPL was better placed to improve the profitability of the Issuer Company as
per its corporate strategy. CCAPL has acquired by an agreement dated 17.01.2000, for 36,00,000 fully
paid up equity Shares representing 35.63% of the Subscribed Capital of 1,01,04,700 Equity shares
(72.44% of the Voting Capital) of CCIL. CCAPL made an Open Offer to the extent of 20,21,000 Equity
Shares (13,69,900 fully paid up Shares & 6,51,100 partly paid up shares) representing 20% of
Subscribed Capital in terms of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 to the shareholders of CCIL in January 2000. The aforesaid acquisition and Open Offer was made


                                                                                                     44
at a price of Rs.10/- each for fully paid up shares and for partly paid up shares to the extent of amount
paid up per equity share.

The company has also passed a resolution for change in control in December, 1999 under Regulation 12
of SEBI (substantial acquisition of shares & Takeover) Regulations, 1997 and the main objects were
altered to include 2D Animation; 3D Animation; S Effects; Syndication & Publication of Content etc., and
today it is an Integrated Software Solutions Service Provider in the field of Media and Entertainment.
CCIL is now planning to venture into Production and Co-production of Animation Films, Television
Serials, Live Action Films etc.

MAIN OBJECTS OF THE COMPANY
The Object Clause of the Memorandum of Association of the Company enables it to undertake the
activities for which the funds are being raised in the present Issue. Furthermore, the activities the
Company has been carrying out until now is in accordance with the objects of the MoA. The objects for
which the Company is established are:

    1. To acquire, provide, consultancy, know-how for setting up of animation studios, simulation
       centres, entertainment parks, Hi-tech museums and theme parks and to maintain them.
    2. To carry on the business of production, distribution and exhibition of cinematography films, ad-
       films, television films, video films, cartoons films, 3-D films, animation films and all other movies,
       picture films, toys and to acquire, sell any rights in relation thereon and to carry on the
       advertising business in all its branches.
    3. To carry on the business syndication, publication, printing and distribution of multimedia, 3-D
       Characters, paintings, cartoons, caricatures, comics, stickers, greeting cards and such other
       special or general purpose publishing or printing activities.
    4. To start, takeover, operate, run, maintain, export, import, terrestrial television channels, satellite
       television channels, cable television network, and to run operate and maintain studios, facilities
       for the production and relay of program’s for own channels or for other television channels and to
       produce necessary software.
    5. To carry on and undertake for the benefits of the members the business of portfolio investments
       and deal in equity shares, debentures (convertible and non-convertible), preference share,
       stocks, company deposits, Government Securities including Government Bonds, Loans, National
       Savings Certificates, Post office savings scheme, units of investments and to take over any or all
       kinds of organizations and to maintain, run, finance and to dispose them in a commercial
       manner.

BUSINESS OF THE COMPANY
In a short span, the Company has developed relations with Companies like BKN International, BEN’J
Productions, ESPN Software India Private Limited, UK Trade Corp, ETV Network-a Division of
Ushodaya Enterprises Ltd., Reliance Communications Infrastructure Limited, etc.

MAJOR ACHIVEMENTS
1. Album titled HANUMAN CHALISA was produced by CCIL with the Audio Visual Recording at
Saregama India Limited. Hanuman Chalisa is a devotional song rendition of 40 verses, to propitiate Lord
Hanuman and seek his blessings for health and prosperity. Color Chips (India) Limited has made a
thorough study of the verses and the artists have created the visuals that would synergies with the
thoughts of the author, Tulasidas. The Chalisa reveals Hanuman as a model devotee for human beings;
the recitation of the verses by the young and old alike will lead towards spiritual satisfaction. The Chalisa
explains the great deeds of Hanuman from his childhood to his serving his master, Lord Rama and the
chanting of the verses ensures everlasting satisfaction to the human soul.

2. CCIL in January 2003 signed an agreement with the Reliance Communications and Infrastructure
Limited to supply content and software based applications for dissemination to and use by its customers
on test and trail basis. The agreement is valid for a period of one year.



                                                                                                         45
3. CCIL has developed four (4) characters exclusively for ESPN. The four characters Anda Miyan, Gilli
Swamy, Runjeet Singh & Yogi are die-heard cricket fans who made their debut during the opening tie of
TVS Cup between India & Bangladesh in the year 2003 and joined the cricket enthusiasts with all the
spirit and passion embodied in them.

                       Anda Miyan is a cricket-loving duck with a problem: He just can’t score! Anda Miyan
                       hails from Hyderabad, and loves biryani besides cricket. On the field, he has an
                       unenviable record; he has consistently never ever scored. Look out for him on the
                       screen when another member of his tribe walks back to the pavilion without opening
                       his account.

                       Gilli Swamy is another cricket fan with a special love – he just loves wickets, especially
                       when a batsman is bowled. A resident of Kochi, he enjoys appams and stew. Ever on
                       the lookout for an uprooted stump, he comes charging out on screen when those bails
                       come off.

                       Yogi-The ‘other’ Third Umpire from Patna. This acclaimed astrologer also knows his
                       cricket and is ever ready to come to the umpire’s aid when tricky decisions have to be
                       announced. Usually a quiet character, he prefers to hide behind his designed
                       sunglasses-but comes on screen whenever an umpire on the ground need the TV
                       umpire’s assistance. When not watching cricket, this sweet tooth can be found gorging
                       on jalebis and rabri at the local markets.

                       Runjeet Singh is a cricket fan with a special talent – he just loves runs and breaks into
                       bhangra whenever the batsman scores a 50 or a 100. A resident of Jalandhar, he
                       loves colourful clothes (he has a special costume for cricket matches) enjoys his
                       Tandoori chicken besides big scores on the board. He has worked out two separate
                       routines to celebrate the real big ones – 50s and 100s, and he does them both in great
                       style.

4. Gaming
CCIL is proposing to enter the highly lucrative gaming business. The company already developed a
prototype of the first game it is proposing to launch and is currently in talks with a French company for
marketing and distribution in the European market. The company is also in talks with various players in
US for rights in the US market.
                                                                                     th
5. CCIL entered into an agreement with BKN International AG, Germany on 30 January 2004 with
regards to the property entitled “Legend of the Dragon” consisting of twenty-six half-hour episodes of
animation.

6. CCIL signed an agreement on 25.02.2004 with M/s Hanrej Software Solutions Private Limited for
acquiring games content developed by Hanrej. The games are developed basically for mobile phone
users who can play these games on their hand sets either by downloading from, or subscribing to their
service provider for the same.

7. CCIL signed up an agreement with M/s American Solutions Inc., USA on 10.03.2004 for providing Web
Designing Services. As per the terms of the understanding, Color Chips will be providing Web designing
and Maintenance services to American Solutions Inc, USA. The contract is of a continuous nature, which
would generate revenue of Rs. 50 Lakhs per annum.

8. CCIL has tied up with I-MAC ARTS & MOHAN SRUTHI CREATIONS for providing graphics, animation
and special effects services for the film "19 REVOLUTIONS" produced by I-MAC Arts, written and
directed by Sridhar Reddy, a US-born filmmaker whose previous short films have been shown at several
prestigious film festivals including the Toronto International Film Festival, and the New York International
film Festival.
                                                                                                        46
PROMOTERS DETAILS

Background of Promoters:
Color Chips Animation Park Limited [CCAPL]
CCAPL was originally incorporated as Color Chips Animation Park Private Limited on August 25, 1999
and converted into public limited company vide fresh Certificate of Incorporation dated October 4, 1999.
The Registered Office of the Company is situated at Plot No. 16, Road No. 5, Jubilee Hills, Hyderabad.
The Company was promoted to carry on the business of 3D & 2D animation, feature Syndications and
other related works. The main Promoter of the Company was Mr. P. Uttam Kumar. Later on, he resigned
from the Board on 28.10.2000.

The present Board of Directors of the Company are as under:
   1. Mr. Sudhish S Rambhotla
   2. Mr. Y Suryanarayana
   3. Mrs. R. Sreelakshmi
Shareholding pattern is given below:
Name                        No. of Shares Percentage
Mr. Sudhish S Rambhotla       2,05,050      37.94%
Mr. Y. Suryanarayana          1,05,050      19.44%
Others                        2,30,350      42.62%
TOTAL                         5,40,500     100.00%
Brief Financial Results of the Company is as under:
                                        (Amount-Rs. In Lakhs)
As on March 31,                     2002       2003         2004
Share Capital                       209.80     209.80       209.80
Reserves and Surplus
                                        Nil           Nil      Nil
(excluding revaluation reserve)
Total Income                           4.21      68.21 (131.51)
Profit/(Loss) after tax              (8.94)    (40.17)   (1.34)
Earning Per Share (Rs.)                  Nil        Nil     Nil

Mr. Sudhish S. Rambhotla
                    Mr. Sudhish S Rambhotla, S/o Mr. R N Sastry, aged about 37 Years is a resident of
                    Plot No. 91, Women’s Coperative Society, Road No.5, Jubilee Hills, Hyderabad-
                    500033. He completed his LLB from Osmania University in the year 2003 and
                    became Chartered Accountant in the year 1991. He also received Doctor of
                    Philosophy in Business Management (Ph.D.) in the year 2003 from Burkes
                    University. He was a Management Consultant before becoming Chairman and
                    Managing Director of this Company. He has been conferred with Awards of Samaikya
                    Bharata Gourav Satkar by Delhi Telugu Academy.


Mr. Y. Suryanarayana
                        Mr. Y Suryanarayana, S/o Late Y V Ramana, aged 39 Years is a resident of 8-2-
                        283/A, Bunglow No. 2, Gharonda Ashish Bhavan, Road No.3, Opp. Police Station,
                        Banjara Hills, Hyderabad-34. He completed his Bachelor in Commerce in the year
                        1988 from Osmania University. He was a corporate law consultant before becoming
                        Executive Director of this Company.




                                                                                                    47
Other Details of Promoters
                                              Bank Account         Voter ID      Driving License     Passport
         Name                  IT PAN
                                                                                                     Number
                                            110710142
                                            Oriental Bank of
Color Chips Animation                                                                        Not
                          AABCC4664J        Commerce,          Not Applicable Not Applicable
Park Limited [CCAPL]                                                                         Applicable
                                            Ameerpet,
                                            Hyderabad.
                                            007601009626
                                            ICICI Bank Ltd.,
                                            Lakshmi Towers,
Mr. Sudhish S
                          ABAPR7580F        Plot No. 1259,      FZZ7754542    Not Available F 1360157
Rambhotla
                                            Road No. 36,
                                            Jubilee Hills,
                                            Hyderabad
                                            11070119988
                                            Global Trust Bank,               DLDAP00927360
Mr. Y. Suryanarayana      AAEPY1619B                           Not Available                 Z1069468
                                            Ameerpet,                             2004
                                            Hyderabad

INTEREST OF PROMOTERS/DIRECTORS
All the Promoters/Directors may be deemed to be interested to the extent of the sitting fees and other
remuneration for the services rendered and the reimbursement of expenses, if any, payable to them
under the articles. The Directors may also be deemed to be interested to the extent of:
  • the shares, if any, held by them or by the relatives or by firms or companies of which any of them is
       a partner and a Director/ Member, as the case may be.
  • the shares if any, out of the present Offer that may be subscribed for and allotted to them or their
       relatives or any Company in which they are Directors / members or firms in which they are
       partners.

OTHER VENTURES OF THE PROMOTERS
1. Ravikaanth Portfolio Services Private Limited
Mr. Sudhish S Rambhotla, the present Chairman and Managing Director of CCIL has promoted this
Company and it was incorporated on 10th December 1999.The Company is incorporated to carry out the
business of Portfolio Managers, Financial Analysts, security analysts and Management Consultants
including credit information and risk evaluations and conducting feasibility studies. The Registered Office
of the Company is situated at Plot No. 90&91, Women’s Coperative Society, Road No.5, Jubilee Hills,
Hyderabad-500033 and the present directors of the Company are as under:

1. Mr. Sudhish S Rambhotla
2. Mr. R. Durgaram

The Shareholding pattern is given below:
                                      Number of           % of
         Name of Shareholder
                                       Shares         Shareholding
       Mr. Sudhish S Rambhotla           10,000             50.00%
        Mrs. R. Sreelakshmi                 10,000           50.00%




                                                                                                       48
Brief Financial Results of the Company is as under:
                                                         (Amount Rs. In Lakhs)
As on March 31,                            2002          2003          2004
Share Capital                              0.02           2.00           2.00
Reserves and surplus
                                             Nil            Nil            Nil
(excluding revaluation reserve)
Total Income                               7.02          33.47         159.54
Profit after Tax                          (2.81)         (2.21)         (0.77)
Earning per share (Rs.)                      Nil            Nil            Nil

2. Color Chips Entertainment and Media Limited
Mr. Sudhish S Rambhotla, Chairman and Managing Director of CCIL along with other Persons Acting in
Concert has made an application to SEBI for exemption from regulation 10 of SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 for acquisition of 1,65,100 Shares aggregating
to 66.30% of the paid up capital of Color Chips Entertainment and Media Limited, New Delhi. SEBI vide
its Order no. MO/112/CFD//10/04 dated 14th October 2004 exempted the Acquirers from making a Public
Announcement under regulation 10& 12(2) of SEBI (SAST) Regulations, 1997, and advised the Acquirers
to comply with the other regulations as applicable in this regard.

The Acquirers are in the process of completing the requirements relating to the Open Offer for acquisition
of shares.

UNDERTAKINGS BY PROMOTERS RELATED TO VENTURES PROMOTED BY THEM
The Promoters have certified except as stated elsewhere in this Letter of Offer, there are no contingent
liabilities not provided for, outstanding litigations, disputes, non payment of statutory dues, overdues to
banks/ financial institutions, defaults against banks/ financial institutions, defaults in dues towards
instrument holders like debenture holders, fixed deposits, and arrears on cumulative preference shares
issued by the Company, defaults in creation of full security as per terms of issue/ other liabilities,
proceedings initiated for economic/ civil/ any other offences (including past cases where penalties may or
may not have been awarded and irrespective of whether they are specified under paragraph (i) of part 1
of Schedule XIII of the Companies Act, 1956) against any of the abovementioned Companies.

There are no pending litigations against any of the above-mentioned companies. There has also been no
history of labour problems / closure etc.

MANAGEMENT-BOARD OF DIRECTORS OF THE COMPANY
 Name, Designation & Residential Address   Date of                    Other Directorships            % of
        Age                              Appointment                                               holding
                                                                                                   in CCIL
 Mr.     Sudhish     S Plot No. 91,                                • Color Chips Animation
 Rambhotla             Women’s                                       Park Limited
 Chairman          cum Cooperative Society,                        • Ravikanth Portfolio
 Managing Director      Road No.5,                                   Services Private
 37 Years              Jubilee Hills,                 30.10.2000                                    7.48
                                                                     Limited
                       Hyderabad-33                                • Color Chips
                                                                     Entertainment and
                                                                     Media Limited
 Mr. Y Suryanarayana       No.2,       Gharonda                    Color Chips Animation
 Executive Director        Ashish,                                 Park Limited
 39 Years                  8-2-283/ A,
                                                      30.10.2000                                     NIL
                           Road No.3
                           Banjara Hills,
                           Hyderabad-28

                                                                                                       49
     Mr. Y Suryanarayana      No.2 Gharonda
     (as Alternate Director   Ashish,
     to Mr. William Bill      8-2-283/ A,             29.01.2005
                                                                   Color Chips Animation
     Buck)                    Road No.3,                                                          NIL
                                                                   Park Limited
                              Banjara Hills,
                              Hyderabad-28

     Mr. William Bill Buck    No. 4212,
     Director                 Skybrook,
                                                      30.10.2000              NIL                 NIL
     54 years                 California,
                              USA
     Mr. K. Ch A V S N        Plot No. 29,
     Murthy                   Salivahana Nagar,
     Director                 Srinagar Colony,        02.12.2001              NIL                 NIL
     46 Years                 Hyderabad

     Mr. Yadhati Kasipathy    Plot No. 202,
     Director                 Nestle Apartments,
                                                      05.09.2003              NIL                 NIL
     62 Years                 Gandhi         Nagar,
                              Hyderabad-80.
     Dr G. Chandra Bushan     117, Road No.2,
     Director                 Trimurthy     Colony,                In Anim Graphix Private
                                                      28.11.2004                                  0.20
     50 Years                 Mahendra Hills,                      Limited
                              Secunderabad

    Details of Guarantees by Directors
    CCIL has no outstanding secured or unsecured loans and hence there is no outstanding guarantees by
    any directors of the Company.

    KEY MANAGERIAL PERSONNEL
    The team of professionals is headed by the Chairman and Managing Director Mr. Sudhish S Rambhotla.
    He has wide and varied experience of nearly 13 years. He is assisted by the following key personnel:

     Details & Brief Background of Management Personnel
                   Date of     Age                                          Current
     Name                               Designation      Qualification                    Experience
                    joining  (Years)                                    Responsibility
Mr. S.S. Phalke 17-04-2004      36   Chief Operating B. Tech,          Over all        Over a decade of
                                     Officer                           Operations      experience in 2D
                                                                                       Animation Feature
                                                                                       Films.
Mr. S. Sridhar  19-07-2004      42   Vice    President- B. Com,        Business        Over a decade of
                                     Business           PGDPR          Development and experience in the
                                     Development                       Training        areas like
                                                                                       Accounts, Auditing
                                                                                       & Administration.
Mr. Kishan Rao 29-12-2000       61   General Manager B. Sc.            Security,       Retired as
                                     (Operations)                      Administration, Superintendent of
                                                                       Personal        Police, AP
                                                                       Management
Mr. Sarparaj    26-11-2004      49   GM HR & Admin M.Com.,             Recruitments,   Experience in
                                                        PGDPM &IR selection, training, Personnel &
                                                                       HR policies,    Administration
                                                                       appraisals etc.


                                                                                                     50
Mr. P. Satish   18.11.2004       35    Company            ACS             Secretarial            Worked as
                                       Secretary                          Department and         Company
                                                                          listing formalities    Secretary in
                                                                          & other                Ambica Agarbatti
                                                                          compliances            Industries Limited
Mr.       Kaizar 14 .04.2000     29    Manager     (Pre- Bachelor     of All pre production      Experience in
Mandal                                 production)       Visual      Art, activities including   Animations
                                                         Diploma       in conceptualization,
                                                         Traditional and story boarding,
                                                         digital          layout etc.
                                                         animation

     All the Key Managerial Personnel mentioned above are permanent employees and are in the rolls of the
     Company. No advances are outstanding against Key Managerial Personnel other than those as per the
     terms of employment. None of the Key Managerial Personnel is holding any shares of CCIL. The
     company will meet the additional manpower requirement in future by recruiting the required skilled
     personnel, which are abundantly available.

     Presently, the Company has overall 252 Employees and the breakup is as under:
             S. No.   Level                  No. of
                                             Employees
                  1.  Senior Management                4
                  2.  Middle Management               11
                  3.  Others                         237
                      TOTAL                          252

     Changes in the Key Managerial Personnel in the last 3 Years
     There are changes in the Key Management Personnel in the last three       years and the details are as
     under:
     Name                      Designation                Date of              Date of Cession
                                                          Appointment
     Mr. S.S. Phalke           Chief Operating Officer    17.04.2004                    --
     Mr. S.Sridhar             Vice President-Business    19.07.2004                    --
                               Development
     Mrs. S. Surekha           GM Corporate Affairs       19.07.2004                   --
     Mr. Sarparaj              GM HR & Admin              26.11.2004                   --
     Mr. P. Satish             Company Secretary          18.11.2004                   --
     Mr. Manoj Kumar           GM Marketing               01.06.2002           31.03.2004
     Mr. E Pandu Ranga Vittal  Senior Manager (Finance) 09.05.2001             31.12.2003
     Ms. B Pallavi Hegde       Company Secretary          28.11.2002           30.11.2003




                                                                                                            51
   ORGANISATION CHART

                                              Board of Directors




                                       Chairman & Managing Director




Vice-President                        COO                                          Executive Director




                                                 GM-Operations           GM-Corp. Affairs       GM -HR&Admin.



             2D Animation -Mgr       3D Animation -Mgr             Animators




      Key               BG                IB            Cleanup            Digital             Post
    Animator         In-Charge        In-Charge         In-Charge        In-Charge          Production
                                                                                            In-Charge



    Asst.           Asst. BG       Asst. IB        Asst. Cleanup         Asst. Digital        Asst. Post
   Animator                                                                                   Production



   GM
 Marketing




Managers          Reg. Mgr       Reg. Mgr.
                   (West)         (North)



   DETAILS OF PAYMENT MADE TO THE DIRECTORS/ PERSONS HOLDING PLACE OF PROFIT OF
   THE COMPANY
   None of the Whole time Directors viz. Mr. Sudhish S Rambhotla, Chairman and Managing Director and
   Mr. Y. Suryanarayana, Executive are receiving any remuneration from the Company and neither any
   Director is holding office or place of profit nor is being paid any remuneration towards the same except
   for payment of sitting fees.




                                                                                                           52
Details of Service contract including compensation of the Directors, Whole-time directors, date of
appointment and expiration of current term are as follows:
There is no service contract with Directors and Whole-time directors.
The other directors have a three-year rolling term and upon completion of the term they are re-elected
depending on their availability.

TERMS OF REMUNERATION OF DIRECTORS
In view of the absence of profits the Promoter Directors have taken conscious decision not to receive any
remuneration till the profits are earned even though the share holders have approved the payment of
remuneration to the Managing Director and Executive Director.

CORPORATE GOVERNANCE
The Company has complied with all mandatory and also some of the non-mandatory requirements of
corporate governance norms as enumerated in clause 49 of the listing agreements with stock exchanges.
The Board has constituted an Audit Committee, Shareholders Grievance Committee in accordance with
the listing agreements. The company also undertakes that it will take necessary steps to comply with the
amended Clause 49 of the Listing Agreement.

Audit Committee
The Audit Committee of the Company comprises entirely of Independent Non-Executive Directors,
possessing knowledge of Corporate Finance, Accounts and Company Laws. The Chairman of the
committee is an Independent Non-Executive Director nominated by the Board. The role and terms of
reference of the Audit Committee covers the matters specified under clause 49 of the Listing Agreement
and Section 292A of the Companies Act 1956, besides other terms as may be referred by the Board.

The Committee comprises three Directors, being Independent Non-Executive Directors.
The names of the Committee Members are as below:
        Mr. Y. Kasipathy                            Independent Non Executive-Chairman
        Mr. Kch.A.V.S.N. Murthy                     Independent Non Executive-Member
        Dr. Chadra Bhushan (w.e.f 28.11.2004)       Independent Non Executive-Member

The committee deals with the various aspects of financial statements, adequacy of internal controls,
various audit reports, compliance with accounting standards and the Company’s financial & risk
management policies. It reports to the Board of Directors about its findings & recommendations
pertaining to above matters. The Company Secretary acts as the Secretary to the Audit Committee.

The primary objective of the Committee is to monitor and provide effective supervision of the financial
control and reporting system. The audit committee reviews Internal audit reports, Auditor’s Report on the
Financial Statements, the strength and weakness of the internal controls and recommendations relating
thereto, compliance with accounting standards etc. The Committee holds discussions with Statutory
Auditors.

Remuneration Committee
No Remuneration Committee has been constituted since a conscious decision was taken by the
promoter directors not to receive any remuneration even though the shareholders have authorized the
payment of remuneration to the Managing Director and the Executive Director in view of absence of
profits.

Shareholders / Investor Grievances Committee
The objective of the committee is to look into redressal of grievances of shareholders relating to transfer
of shares, non-receipt of certificates, change of address, dematerialisation of shares etc. Focus of the
committee is on the basic rights of the shareholders including transfer of shares, transmission
/transposition of shares, issue of duplicate/split certificates/sub-division/consolidation of shares,


                                                                                                       53
consolidation of folios, dematerialisation/ rematerialisation of shares, and such other issues relating to
shares.

The Committee comprises three Directors, two being Independent Non-Executive Directors. The
composition of the committee is as under:
        Mr. Y. Kasipathy            Independent Non Executive-Chairman
        Mr. Kch.A.V.S.N. Murthy     Independent Non Executive-Member
        Mr. Y. Suryanarayana         Independent Executive -Member

LOCATION
The Registered Office and development center of the company is located at Plot No. 16, Road No.5,
Jubilee Hills, Hyderabad. The total area occupied is 25,000 Sq. Feet and the said premise have been
taken on lease from Mr. V. Sandeep Reddy, S/o Sri V. Krishna Reddy aged about 25 Years, resident of
H. No. 997, Road No. 46, Jubilee Hills, Hyderabad-500 033, who is not related with the
Company/Promoters, on a monthly rent of Rs. 72,500/- for a period of 5 years commencing from 1st
December 2000.

DEVELOPMENT PROCCESS
2D Animation
   • Layout
   • Background
   • Animation
   • Key-Clean
   • In-between
   • Animation Checking
   • Line Test
   • Digital Ink & Paint
   • Editing

3D Animation
   • Concepts & Story Boarding
   • 3D Character Animation
   • 3D Character Modeling
   • 3D Animation Effects
   • 3D Digital Effects

Film Composing
    • Digital Composing
    • Optical Composing
    • Digital Matte Painting
    • Cloning
    • Digital Imaging
    • Image Manipulating
    • Rig and Wire Removal

Comics & Contents
   • Cartoon based Syndication
   • Customized supplements
   • Print and Digital publishing
   • Electronic News bulletins
   • Product Designing



                                                                                                      54
STARTEGIC ALLIANCES
1. CCIL has entered into an MOU on January 13, 2004 with Gwangju Information & Cultere Industry
Promotion Agency (GITCT) South Korea to collaborate with each other for the purpose of promotion of
strategic business tie-ups and alliances between Color Chips (India) Limited and South Korea Animation
Studios.

2. CCIL has entered into an Assignment Agreement on 31st October 2003 with Saregama India Ltd
(Formerly Known as The Gramaphone Company of India Ltd) for production, distribution, marketing and
sale of the album Hanuman Chalisa. As per the terms of the agreement Saregama India Ltd shall be
producing, marketing and distributing globally the Hindi Version of the album for a period of five years
and Color Chips shall be paid royalty of 19% for CDs & VCDs and 10% for audio cassettes. Color Chips
has kept its options for the other Indian languages.

SCHEDULE OF IMPLEMENTATION
                   Activity                       Commencement               Completion
Production of Animation Films, Televisions          June, 2005               March, 2006
Serials, Live Action Films
Purchase of Capital Equipment                        June, 2005               July, 2005

AREAS OF EXPERTISE/PRODUCTS
Color Chips (India) Limited has a library of content in the form of Cartoons, Features, Stories and other
print media related titles.
    • 2D Animation, 3D Animation, Game Development & Queuing, Special FX
    • Graphic designing and Print publication services.
    • Content creation.
    • Multi-media and Web development.
    • Character Designing for Animation

CREATION & SYNDICATION of cartoon and comic strips, designing of Customized supplements etc.

MULTIMEDIA - Corporate presentations, Web designing, Development of logos, Production of
commercials films etc.

VI. INDIAN MULTIMEDIA/ ANIMATION INDUSTRY
-Segment wise analysis of the Industry
The volume in the computer gaming segment alone has been projected at about 3 times that of
Hollywood. Gaming has a huge potential in India because of the available huge talent pool and low
production cost. A full-fledged 3D animation movie costs a mammoth amount to produce even one hour
of animation footage.

The high cost of production is one of the key reasons why studios are willing to outsource animation work
to India. Overseas markets, already impressed by the country’s proven success in the IT industry are
increasingly looking at India to cut costs, as studios here offer services at lower rates due to availability of
skilled yet cheaper manpower. India also has a strong advantage in getting outsourced work from the
West because of the fast growing consumer class and lack of language barrier.

Animated versions of stories or serials based on Indian mythology are already being telecasted in the
Indian houses and many more are in the pipeline. Animated serials like Tenali Rama, The Pandavas,
Bhagmati, Panchatantra and Hanuman are winning recognitions internationally.




                                                                                                            55
Prospects in the Animation Industry
Animation is not just about cartoon; it is just one genre of animation. Animation has several applications
like educational CDs, online education, video games, Internet, mobile phones, commercials and industry-
specific applications in architecture, medical, law and insurance. Besides, newer applications for
animation are already in progress. In a classical sense, animation is converting drawing skills to a moving
format it could be either on paper (2D) or on the computer (3D). By 2008, the global animation market is
expected to grow at the rate of 8%, while the Indian market is expected to have a 2.5% growth rate,
according to a study carried out by the Nasscom.

The study carried out by Nasscom puts the animation production from Indian producers at $600 million in
2001 and projects it to touch $1.5 billion by 2005. The global animation market is expected to generate
revenues of $50 billion to $70 billion by 2005.
(Source: Nasscom)

Competition
The main Competitors for the Company includes all domestic animation companies like Heart Animation,
Hyderabad; Data Quest, Hyderabad; Esco Toonz Limited, New Delhi; UTV Toons, Mumbai; Penta Media
Graphics, Chennai; Crest Communications Ltd. etc. The company also faces stiff competition from Far
East companies located in countries like China, Japan, Phillippines, Taiwan etc. The other major
challenge faced by the company being changing technologies, and upgrading the technologies is a task
in itself. Our strength vis-a-vis our competitors are our trained staff, content library and creative team.
Colorchips holds a strong creative team of professionals and suitable infrastructure to cater to
requirements of print media, visual media & corporate communications. The above strengths give our
company a wider market and more visibility.

CHANGES IN THE DIRECTORS IN THE LAST THREE YEARS
Changes in the Board of Directors during the last three years are as under:
 Name                             Date of            Date of              Reason for change
                              Appointment           Cession
 Mr. Ugandhar                   10.08.2002         30.09.2003                Pre-occupations
 Mr. A V Rao                    02.12.2001         05.09.2003                Pre-occupations
 Mr. K. Ch. A.V. S.N Murthy     02.12.2001             ---         To broad base the strength of Board
 Dr. Chandra Bhushan            28.11.2004              --         To broad base the strength of Board
 Mr. Y. Suryanarayana as                                --        Due to the Absence for a period of
 Alternate Director to Mr.      29.01.2005                        more than 3 months from the place
 William Bill Buck                                                in which the meeting of Board of
                                                                  Directors is regularly held.
 Dr. Jayadev Babu               19.04.2002         26.10.2004                 Pre-occupation
 Mr. Yadathi Kasipathy          05.09.2003              --        To broad base the strength of Board

Besides the above, there has been no change in the Board of Directors in the last three years other than
retirement by rotation and re-election at the Annual General Meetings.

CHANGES IN THE AUDITORS IN THE LAST THREE YEARS
There is no change in the Auditors of the Company in the last 3 Years.




                                                                                                         56
VII. FINANCIAL PERFORMANCE OF THE COMPANY

                                            Auditors’ Report

To
The Board of Directors
Color Chips (India) Limited,
Hyderabad.

1. We have examined the accompanying ‘Statement of Adjusted Profits and Losses’ of Color Chips
   (India) Limited (the Company) for each of the financial years/ periods ended 31st March, 2000, 31st
   March, 2001, 31st March, 2002, 31st March, 2003, 31st March, 2004 and 30th September, 2004 the
   accompanying ‘Statement of Adjusted Assets and Liabilities’ as at those dates read together with the
   Notes thereon.

  These statements reflect the ‘Profits or Losses’ and ‘Assets and Liabilities’ for each of the relevant
  periods as extracted from the Profit and Loss Account for the accounting periods ended 31st March,
  2000, 31st March, 2001, 31st March, 2002, 31st March, 2003, 31st March, 2004 and 30th September,
  2004 the Balance Sheets as at that dates audited by us after making therein the disclosures and
  adjustments required to be made in accordance with the provisions of paragraph 6.18.7 of the
  Securities and Exchanges Board of India (Disclosures and Investor Protection) Guidelines, 2000.

2. We have examined the accompanying ‘Statement of Accounting Ratios’ of the Company for each of
   the financial years/periods ended 31st March, 2000, 31st March, 2001, 31st March, 2002, 31st March,
            st                    th
   2003, 31 March, 2004 and 30 September, 2004 and report that, in our opinion, the accounting ratios
   have been computed from the figures as stated in the ‘Statement of Adjusted Profits and Losses’ and
   ‘Statement of Adjusted Assets and Liabilities‘ of the Company referred to in paragraph 1 above.

3. This report is being issued by us f or the pur pose of incorporating the same in the ‘Letter of Offer’ to
   be issued by Color Chips (India) Limited in connection with its proposed rights issue of Equity shares
   to the existing shareholders of the Company.
                                                          For S.N Murthy & Co.
                                                         Chartered Accountants

Hyderabad                                                 P.S.N Murthy
15.02.2005                                                Proprietor
                                                          Membership No. 21862




                                                                                                        57
  ANNEXURE I
  The Financial highlights of Color Chips for the last five financial years
  STATEMENT OF PROFITS AND LOSSES
                                                                                                  (Rs. in Lakhs)
                           30.09.2004      31.03.2004    31.03.2003      31.03.2002       31.03.2001 31.03.2000
                            Audited         Audited         Audited         Audited          Audited      Audited
Particulars                   (Rs.)           (Rs.)            (Rs.)           (Rs.)            (Rs.)        (Rs.)
Income
Sales                           355.53         621.77         325.92            63.73          68.44       139.99
Other Income                      2.01           2.97           0.23             8.86          35.04        21.78
Increase/(Decrease) in
                                (10.35)         25.35         (82.41)           94.70        (40.00)      (152.81)
Inventory
 Total Income                   347.19         650.09         243.74           167.29          63.48         8.96

Expenditure
Manufacturing
Expenses                         94.58         374.29          77.13            24.49           8.79           Nil
Staff & Administrative          210.04
Expenses                                       162.26         125.23           152.69         119.25         6.30
Selling and Distribution
Expenses                           2.97           4.84           2.56             5.28         24.06           Nil
Bad Debts/Sundry
Receivables Written                 Nil
Off                                                Nil             Nil              Nil           Nil          Nil
Loss on Fixed Assets                Nil
discarded                                          Nil             Nil          29.19             Nil        0.74
Deferred Revenue
Expenses written off               0.37          0.75            1.19             1.19          1.19         1.19
Interest                             Nil           Nil             Nil            1.79          0.87           Nil
Depreciation                     48.81          93.86           88.71            92.94         14.96           Nil
Profit before Tax                (9.58)         14.10         (51.08)         (140.27)      (105.64)         0.74
Provision for Tax                    Nil           Nil             Nil              Nil           Nil        0.58
Deferred Tax                         Nil           Nil          25.47               Nil           Nil          Nil
Net Profit after Tax             (9.58)         14.10         (25.61)         (140.27)      (105.64)         0.16




                                                                                                             58
STATEMENT OF ASSETS AND LIABILITIES
                                                                                     (Rs. in Lakhs)
      As at                     30.09.2004     31.03.2004 31.03.2003 31.03.2002 31.03.2001 31.03.2000
                                 Audited        Audited    Audited    Audited    Audited       Audited
                                   (Rs.)          (Rs.)      (Rs.)      (Rs.)      (Rs.)        (Rs.)
A.   Fixed Assets:
     Gross Block                     851.18         818.77        770.60         791.46        793.18      175.41
     Less: Depreciation              338.44         289.63        195.77         107.08         14.96           -
     Net Block                       512.74         529.14        574.83         684.38        778.22      175.41
B.   Investments                      72.84              -             -              -         25.10       25.10
C.   Current Assets,
     Loans and
     Advances:
     Inventories                      10.35         231.13         18.89          97.30          2.60       40.00
     Sundry Debtors                  249.76         164.37        311.43           8.91         16.16        0.71
     Loans & Advances                548.62         353.39        153.20          54.44        104.56      313.81
     Cash & Bank                      32.98          35.46          2.39           4.25         24.80      429.43
     Balances
D.   Less: Liabilities and
     Provisions:
     Secured Loans                      NIL            NIL           NIL            NIL            NIL        NIL
     Unsecured Loans                    NIL            NIL           NIL            NIL            NIL        NIL
     Current Liabilities and         286.61         163.97        146.05          87.35          62.07      24.50
     Provisions
E.   Net Current Assets              555.10        620.38       339.86         77.55            86.05      759.45
     Total                          1140.68       1149.52         914.69        761.93         889.37      959.96
     Represented by
     1. Share Capital               1330.47       1330.47        1110.47        1010.47        998.82      997.81
     2. Reserves &                     2.21          2.21           2.21           2.21          2.21        2.21
        Surplus
     3. Misc. Expenditure            (3.27)         (4.01)          (4.75)        (5.94)         (7.12)    (41.15)
     4. P & L Account              (188.73)       (179.15)       (193.25)      (244.81)       (104.54)        1.09
F.   Networth                      1140.68        1149.52          914.68        761.93         889.37     959.96

Notes forming part of Accounts

1.Significant Accounting Policies
a. Accounting Convention
 These accounts are prepared on the historical cost convention and on the mercantile basis.

b. Revenue Recognition

c. Fixed Assets
Fixed assets are stated at their original cost of acquisition/installation less depreciation. All direct
expenses attributable to acquisition/installation of assets are capitalised.

d. Depreciation
Depreciation fixed assets is provided on straight line method in accordance with the ratesspecified under
Schedule XIVof the Companies Act, 1956.. Depreciation on Art features is provided on the basi of
estimated useful life of 20 years. Depreciation is charged on prorata basis on fixed assets purchased or
sold

e. Inventory
Inventories are valued at lower of cost or net realizable value

                                                                                                           59
f. Investments
Current investments are carried forward agt lower of cost or fair value.

g. Retirement Benefits
i. The Company’s contribution to the Employees’ Provident Fund are charged to the profit and loss
account
ii. None of the employee of the Company has completed the requisite no. of years of service as such
provision for gratuity is not required to be made.

h. Miscellaneous Expenditure
Preliminary Expenses and share issue expenses are amortised over a period of 10 years of period

i. Foreign Currency Transaction
Expenditure in foreign currency is accounted at the conversion rate prevailing at the time of such
 expenditure incurred.
j. Provisions for Income Tax
Income tax comprises current tax and deferred tax. Deferred tax assets and liabilities are recognised for
the future tax consequences of timing differences, subject to the consideration of prudence. Deferred tax
assets and liabilities are measured using the tax rates enacted or substantively enacted by the balance
sheet date.

2. Contingent liabilities (Rupees Lakhs)            -Nil-

3. Secured Loans (As at 31 March, 2004)            -Nil-

4. Unsecured Loans                                 -Nil-

5. Remuneration paid to Director                   -Nil-

6. Related Party Disclosure                       -Nil-

7. Other Income                                   -Nil-

8.Tax Shelter Statement
                                                                                     (Rs. in Lakhs)
Particulars                                        31.03.04      31.03.03    31.03.02 31.03.01
                                                   (Rs.)         (Rs.)       (Rs.)         (Rs.)
Tax Rate (including surcharge)                             Nil         Nil          Nil         Nil
Adjusted net profit before tax and after prior          14.10      (51.08)    (111.28)        0.74
period / extraordinary item adjustments
Net profit before tax as per audited accounts
(for tax year)                                          14.10     (51.08)    (111.28)        0.74
Book Depreciation                                       93.86       88.71       92.94          Nil
Tax Depreciation                                       101.48     106.50       242.24          Nil
Difference between tax and book depreciation             7.62       17.79      149.30          Nil
Other adjustments                                          Nil         Nil         Nil         Nil
Net adjustments (A)                                        Nil         Nil         Nil         Nil
Tax saving on net adjustments (B)                          Nil         Nil         Nil         Nil
Tax (A-B)                                                 Nil         Nil         Nil         Nil




                                                                                                      60
9. Loans and Advances (Unsecured, considered good)
                                                                                     (Rs. in Lakhs)
                                                    31.03.04     31.03.03     31.03.02 31.03.01
                                                    (Rs.)        (Rs.)        (Rs.)        (Rs.)
Amounts due from subsidiaries for
                                                           Nil          Nil        Nil         Nil
loans/advance
Security and other deposits                            318.83        119.27      93.08      71.39
Advances recoverable in cash or in kind or for
value to be received                                    34.56         33.92     38.73       33.17
Total                                                  353.39        153.19    131.81      104.56

10. Debtors (Unsecured)
                                                                                     (Rs. in Lakhs)
                                                    31.03.04     31.03.03     31.03.02 31.03.01
                                                    (Rs.)        (Rs.)        (Rs.)        (Rs.)
Debts outstanding for over six months                     6.55       6.55         4.08        2.25
Other debts                                            159.61      306.67         6.62       14.05
Less: Provision for doubtful debts                        1.79       1.79         1.79        0.15
Total                                                  164.37      311.43         8.91       16.15

11. Loans and advances due from directors / officers of the Company
                                                                                     (Rs. in Lakhs)
                                                    31.03.04     31.03.03     31.03.02 31.03.01
                                                    (Rs.)        (Rs.)        (Rs.)        (Rs.)
Loans and advances due from directors /
                                                           Nil          Nil        Nil        Nil
officers of the Company
Maximum amount due during the year / period                Nil          Nil        Nil        Nil

ANNEXURE - II
    1. Significant Accounting Policies
System of Accounting                             Mercantile system
Fixed Assets & Depreciation                      N.A.
Advertisement cost                               N.A.
Programming Expenses                             N.A.
Investments                                      At cost
Inventories                                      N.A.
Retirement Benefits                              N.A.
Sales Purchases                                  N.A.
Foreign Currency Transactions                    N.A.

    2. Auditors Remuneration
Particulars                                      Amount in Rs.
Audit Fees                                               10,000
Legal & Professional Fees                                 5,000
Other Services                                                 --




                                                                                                      61
  ANNEXURE III
  Accounting Ratios
               st
  Year ended 31 March                     30.9.2004          2004      2003    2002    2001    2000
                                                            Audited Audited Audited Audited Audited
  Earning per Share (Rs.)                         Nil              Nil     Nil     Nil     Nil     Nil
  Net Asset Value (Rs. Per share)               8.57             8.64    8.24    7.54    8.90    9.62
  Return on Net Worth (%)                         Nil              Nil     Nil     Nil     Nil     Nil

  ANNEXURE IV
  Capitalisation Statement
                                                                        (Rs. in Lakhs)
                                                                Pre-issue (as on     As adjusted for the
                                                                15.02.2005) (Rs.)        Issue (Rs.)
          Debts                                                                  Nil                   Nil
          Short Term Debts                                                       Nil                   Nil
          Long Term Debts                                                        Nil                   Nil
          Total Debts                                                           Nil                   Nil

          Shareholders Funds
          Share Capital                                                     1375.47                    2063.20
          Reserves & Surplus and                                               2.21                       2.21
          Profit & Loss Account & Share Premium                                 -----                      -----
          Total Shareholders Fund                                           1377.68                    2065.41
          Long-term Debt to Equity Ratio*                                        Nil                        Nil
          Total debt to Total shareholders fund                                   Nil                       Nil

      Long term Debt to Equity ratio is NIL since Long term Debt are NIL

  VIII. MANAGEMENT DISCUSSION AND ANALYSIS
  Comparison of significant items of Income and Expenditure:
  STATEMENT OF PROFITS AND LOSSES
                                                                                             (Rs. in Lakhs)
                           30.09.2004      31.03.2004        31.03.2003    31.03.2002    31.03.2001 31.03.2000
                            Audited         Audited             Audited       Audited       Audited      Audited
Particulars                   (Rs.)           (Rs.)                (Rs.)         (Rs.)         (Rs.)        (Rs.)
Income
Sales                         355.53           621.77            325.92        63.73          68.44           139.99
Other Income                    2.01             2.97              0.23         8.86          35.04            21.78
Increase/(Decrease) in
                              (10.35)           25.35            (82.41)        94.70       (40.00)          (152.81)
Inventory
 Total Income                 347.19           650.09            243.74        167.29         63.48                8.96

Expenditure
Manufacturing
Expenses                        94.58          374.29             77.13         24.49          8.79                 Nil
Staff & Administrative
                              210.04           162.26            125.23        152.69        119.25                6.30
Expenses
Selling and Distribution
                                 2.97            4.84              2.56          5.28         24.06                 Nil
Expenses
Bad Debts/Sundry
Receivables Written                                   Nil            Nil           Nil           Nil                Nil
                                    Nil
Off

                                                                                                                   62
Loss on Fixed Assets
                                 Nil          Nil              Nil     29.19            Nil         0.74
discarded
Deferred Revenue
                               0.37          0.75             1.19       1.19         1.19          1.19
Expenses written off
Interest                        Nil           Nil            Nil         1.79         0.87            Nil
Depreciation                 48.81         93.86          88.71         92.94        14.96            Nil
Profit before Tax            (9.58)        14.10        (51.08)      (140.27)     (105.64)          0.74
Provision for Tax               Nil           Nil            Nil           Nil          Nil         0.58
Deferred Tax                    Nil           Nil         25.47            Nil          Nil           Nil
Net Profit after Tax         (9.58)        14.10        (25.61)      (140.27)     (105.64)          0.16
                                                         th
 Review of Operations for the period April 1, 2004 to 30 September 2004 (Audited)
 The company recorded a Sales Turnover of Rs. 355.53 Lakhs with an operating loss of Rs. 9.58 Lakhs
 for the 6 months period ended 30.09.04. These results cannot be compared to the corresponding
 previous period, as the Company has not carried out the exercise in the previous period.

 Comparison of FY2004 and FY2003
 Revenues
 Sale of programmes and services
 The Revenue from Sales/Operations increased by Rs. 295.85 Lakhs i.e. from Rs. 325.92 in FY 2003 to
 Rs. 621.77 Lakhs in the FY2004. This increase in revenue was primarily due to the increase in
 outsourcing jobs secured by the Company from the market abroad.

 Other Income
 The Company’s other income increased to Rs. 2.97 Lakhs in FY 2004 from Rs. 0.23 Lakhs in FY2003.

 Other Manufacturing Expenses
 The Company’s manufacturing expenses increased to Rs. 374.29 Lakhs in FY 2004 from Rs. 77.13
 Lakhs in FY2003. This is on account of increased consumption of consumables.

 Staff & Administrative and other Costs
 The Company’s Staff & Administrative Expenses increased to Rs 162.26 Lakhs in FY 2004 from Rs
 125.23 Lakhs in FY2003. This is on account of additional measures taken for securing intellectual
 property of the Company.

 The Company’s other costs (Selling and Distribution expenses Increased to Rs 4.84 Lakhs in FY 2004
 from Rs 2.56 Lakhs in FY2003. This is on account of high volume of marketing resulted in increase in
 sales.

  Deferred tax
 Deferred tax has been computed as per Accounting Standard 22 on “Accounting for taxes on Income”
 issued by Institute of Chartered Accountants of India. The deferred tax expense was Rs. 0.94 Lakhs
 during the FY2004. Profit/ (Loss) After Tax Adjusted Loss after tax was Rs. 14.10 Lakhs in FY2004 as
 compared to a loss of Rs. 51.08 Lakhs in FY2003.

 Comparison of FY2003 over FY2002:
 Revenues
 Sale of programmes and services

 The revenue from Sales of operations increased by 262.19 Lakhs i.e. from 63.73 Lakhs in FY 2002 to Rs.
 325.92 Lakhs in the FY2003. This increase in revenue was primarily due to the increase due to improved
 marketing strategies.



                                                                                                    63
Other Income
The Company’s other income decreased to Rs. 0.23 Lakhs in FY 2003 from Rs. 8.86 Lakhs in FY2002.

Other Manufacturing Expenses
The Company’s other manufacturing expenses increased to Rs. 77.13 Lakhs in FY 2003 from Rs. 24.48
Lakhs in FY2002. This is on account of increased consumption of consumables.

Staff & Administrative and other Costs
The Company’s Staff & Administrative expenses decreased to Rs. 125.23 Lash in FY 2003 from Rs.
152.69 Lakhs in FY2002. This is on account of cost control measure taken by the management.

The Company’s other costs (Selling and Distribution expenses) decreased to Rs. 2.56 Lash in FY 2003
from Rs. 3.63 Lakhs in FY2002. This is on account of cost control measure taken by the management.

 Deferred tax
Deferred tax has been computed as per Accounting Standard 22 on “Accounting for taxes on Income”
issued by Institute of Chartered Accountants of India. The deferred tax expense was Rs. 0.94 Lakhs
during the FY2003. Profit/ (Loss) After Tax Adjusted Loss after tax was Rs. 14.10 Lakhs in FY2003 as
compared to a loss of Rs. 51.08 Lakhs in FY2002

Segment performance review and analysis
The Company does not operate in different business segments. It operates in the creation of Animation
and syndication only.

Sale of the Business News Undertaking
There are no known trends or uncertainties that have had or expected to have a material adverse impact
on sales, revenue or income from continuing operations.

Turnover of each major industry segment in which the Company operated
There is no organised data, which gives such information for the media industry.

Unusual and infrequent events or transactions:
There are no unusual or infrequent events or transactions.

Significant economic changes likely to materially affect the income from continuing operations:
There are no significant economic changes likely to materially affect the income from continuing
operations.

Known trends or uncertainties that have had or are expected to have a material adverse impact
on sales, revenue or income from continuing operations:
 There are no trends or uncertainties that have had or are expected to have a material adverse impact on
sales, revenue or income from continuing operations.

Future Changes in relationship between costs and revenues in case events such as future
increase in labour or material costs or prices that will cause a material change:
The company is operating in the animation industry, which is hugely manpower intensive and for any
increase in the labour costs there would be a correspondence increase in the revenue since the cost and
revenues in this industry are inflation driven.

Status of any publicly announced new products or new segment:
There are no publicly announced new products or new segments

The extent to which business is seasonal:
The business of the company is not seasonal.



                                                                                                    64
Dependence on single or few suppliers or customers:
The Company is not dependent on a single customer but it is dependent on few suppliers or
customers.
Competitive Conditions:
The Company faces competition from established large software developers involved in development of
similar products/services.
IX. STOCK MARKET DATA
The Company’s shares are listed on BSE, NSE and HSE. As the shares are actively traded on The Stock
Exchange, Mumbai and National Stock Exchange of India Limited, the Company’s stock market data has
been given for BSE and NSE. The Company’s shares are not actively traded on HSE.
The high and low closing prices recorded on NSE and BSE for the preceding three years and the number
of shares traded on the days the high and low prices were recorded are stated below:
BSE
      Year                       High                             Low                         Average*
                   High        Date       Volume     Low         Date            Volume         (Rs.)
                   (Rs.)                             (Rs.)
      2002        13.40    30.05.2001          1500   3.65    03.10.2001                200    8.525
      2003        16.84    08.07.2002        225088  4.60     03.04.2002             108350    10.72
      2004        16.00    15.12.2003        293582  6.00     01.04.2003               8200    11.00
*Average calculated as mean of high and low prices.
(Source: Official website of The Stock Exchange, Mumbai: wwwbseindia.com)
NSE
         Year                    HIGH                                   LOW                     Average
                   High         Date            Volume     Low          Date         Volume      (Rs.)
                   (Rs.)                                   (Rs.)
         2002      11.90      June, 06           51,704    3.00        Oct, 29       1000        7.45
         2003      13.50      July, 05          6,07,441   4.05      Apr, 03 & 05 1,12,522 &     8.78
                                                                                    47,253
         2004       16.90     Dec, 15       3,24,251        5.00       Apr, 01       9,800       10.95
*Average calculated as mean of closing high and low prices.
 (Source: National Stock Exchange of India Limited official website: www.nseindia.com)

Monthly high and low prices for the preceding six months and volume of transactions on the
respective dates of high and low:

BSE
                                     High                                      Low                     Average*
      Month             High                                       Low                                   (Rs.)
                                         Date        Volume                   Date        Volume
                        (Rs.)                                      (Rs.)
September, 2004              9.00    13.09.2004        151321         7.10 08.09.2004      108695         8.05
October, 2004                9.99    11.10.2004          67482        7.80 25.10.2004       14755        8.89
November, 2004             12.75     24.12.2004          96002        9.00 05.11.2004        86858       10.87
December, 2004             10.99     28.12.2004       1,34,427        9.20 06.12.2005 /    36201 /       10.10
                                                                            22.12.2004      32,014
January, 2005                 14.30   05.01.2005 3,54,395             8.40 24.01.2005       23,150       11.35
February, 2005                11.65   14.02.2005     99,175           9.00 15.02.2005     1,26,651       11.32
*Average calculated as mean of closing high and low prices.
(Source: Official website of The Stock Exchange, Mumbai: wwwbseindia.com)
                                                                                                         65
NSE
                                         High                                       Low                       Average*
       Month                                                                                                    (Rs.)
                       High (Rs.)        Date         Volume       Low (Rs.)        Date         Volume
September, 2004                9.20     30.09.2004      1,04,311          7.20    07.09.2004         8,402      8.20
October, 2004                 10.10     11.10.2004        81,798          7.85    25.10.2004         9,075      8.97
November, 2004                12.60     24.11.2004        78,752          9.25   01.11.2004 /      34,483 /     10.92
                                                                                  03.11.2004      1,01,093
December, 2004                12.50     29.12.2004        39,926          9.10    08.12.2004        35,302      10.80
January, 2005                 14.85     05.01.2005      2,18,657          8.60    17.01.2005      3,36,491      11.72
February, 2005                11.50     14.02.2005        29,076          8.80    15.02.2004      1,64,850
*Average calculated as mean of closing high and low prices.
 (Source: National Stock Exchange of India Limited official website: www.nseindia.com)

X. BASIS FOR ISSUE PRICE
Qualitative Factors:
   • 100% Export Oriented Unit [EOU] registered with the Software Technology Parks of India.
   • Professional Board of Directors
   • Experienced and qualified management team with focused approach.
Quantities Factors:
1. Adjusted Earnings Per Share (EPS):
       Year                EPS
                           (Rs.)
       2003-04                  0.11
       2002-03             Negative
       2001-02             Negative
       Weighted Average        0.11*
*Note: EPS of the year 2003-04 only has been considered since there was a negative EPS in the earlier two years.
2. Price/Earnings Ratio (P/E) in relation to Issue price of Rs. 10/- per share:
        a. Based on EPS of 2003-04 - 90.91
        b. Industry P/E:
                i. Highest-     110.00
                ii. Lowest-       1.30
                iii. Average-    28.70
[Source: Capital Market (volume XIX/20dated Dec. 6-19, 2004) Sector: Entertainment/Electronic Media Software]
3. Return on Net Worth:
        Year                      %
        2003-04                  1.23
        2002-03               Negative
        2001-02               Negative
        Weighted Average         1.23
*Note: Return on Net Worth of the year 2003-04 only has been considered since there was a negative
Return on Net Worth in the earlier two years.

4. Minimum Return on Total Net Worth after issue needed to be maintained EPS at Rs.0.11 - 1.19%

5. Net Asset Value (NAV)
       a.   As at March 31, 2004           8.64
       b.   After Issue (Rs.)              9.22
       c.   Issue Price (Rs.)             10.00

Considering the above factors and the future prospects of the company, in our opinion, the issue price of
Rs.10/- per share appears to be reasonable and justified.

                                                                                                                66
WORKING RESULTS
The working results of the Company for the period from 01.04.2004 to 30.09.2004 (Audited) are given
hereunder:
                                      Rs. In Lakhs
                                        30.09.2004
               Particulars                 (Rs.)
   Sales                                     355.53
   Other Income                               2.01
   Total Expenditure                        307.59
   Gross profit after interest but           39.60
   before depreciation & amortization
   Depreciation & amortization               49.18
   Profit/(Loss) before Taxation             (9.58)
   Provision for Taxation                       Nil
   Net Profit/(Loss) after Taxation          (9.58)
   Paid up Equity Share Capital            1330.47

Week end price of equity shares of CCIL on BSE:
                                          Closing
              Week ended
                                         Price (Rs.)
   11.02.2005                                    10.88
   18.02.2005                                     9.90
   25.02.2005                                     9.53
   04.03.2005                                     9.40
Source: BSE Website

Week end price of equity shares of CCIL on NSE:
                                          Closing
               Week ended
                                         Price (Rs.)
    11.02.2005                                   10.95
    18.02.2005                                   10.00
    25.02.2005                                    9.50
    04.03.2005                                    9.40
Source: NSE Website

The Closing Market Price of the Equity Shares of the Company on 04.03.2005 at BSE was Rs. 9.40 and
at NSE it was Rs. 9.40.

LISTED COMPANIES UNDER THE SAME MANAGEMENT
There are no listed companies under the same management within the meaning of Section 370 (1B) of
the Act have made any capital issue in the last 3 Years.

However, Mr. Sudhish S Rambhotla, Chairman and Managing Director of CCIL along with other Persons
Acting in Concert has made an application to SEBI for exemption from regulation 10 of SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 for acquisition of 1,65,100 Shares aggregating
to 66.30% of the paid up capital of Color Chips Entertainment and Media Limited, New Delhi. SEBI vide
its Order no. MO/112/CFD//10/04 dated 14th October 2004 exempted the Acquirers from making a Public
Announcement under regulation 10& 12(2) of SEBI (SAST) Regulations, 1997, and advised the Acquirers
to comply with the other regulations as applicable in this regard.

                                                                                                      67
The Acquirers are in the process of completing the requirements relating to the Open Offer for acquisition
of shares.

PROMISE VS PERFORMANCE
The company has come out with Initial Public Offering of 65,00,000 Equity Shares of Rs. 10/- each for
cash at par and the issue opened for public subscription on 18th June 1997. Promise versus performance
in respect of the issue is given below:
                                                         (Rs. in Lakhs)
         Particulars       Projection   Actual    % Shortfall as on
                               (Rs.)     (Rs.)        31.03.1998
        Total Income              95.65 103.74                      --
        Net profit                63.51    0.06                99.90%

FINANCIAL PERFORMANCE OF THE GROUP COMPANIES
Brief Financial Results of Ravikaanth Portfolio Services Private Limited is as under:
                                                                   (Rs. In Lakhs)
         As on March 31,                      2002 (Rs.)      2003 (Rs.)     2004 (Rs.)
        Share Capital                               0.02            2.00          2.00
        Reserves and surplus
                                                      Nil            Nil            Nil
        (excluding revaluation reserve)
        Total Income                                7.02          33.47        159.54
        Profit after Tax                          (2.81)          (2.21)        (0.77)
        Earning per share (Rs.)                       Nil            Nil            Nil

XI. OUTSTANDING LITIGATIONS, DEFAULTS, ADVERSE EVENTS AND MATERIAL
    DEVELOPMENT

Outstanding Litigations against CCIL
   -Show Cause Notice issued by SEBI
   SEBI issued a Show Cause Notice to the Company and its Directors to provide explanation for the
   alleged price manipulation by certain persons in the scrip of the Company during the period January
   2000 to March 2000. The present Directors have made the written representation to SEBI on 17th
   August 2004 as the reply to the Show Cause Notice.

    -Litigation/ Disputes/ Defaults/ Criminal Cases:
    A Civil Suit was filed by Tusker Travels Private Ltd. before II Senior Civil Judge, City Civil Court,
    Hyderabad against the Company for their claim of Rs. 1,18,268/-, (including interest @ 18% p.a. of
    Rs.32, 566/-) for acting as Company’s Travel Agent and booking domestic and international tickets
    for the employees of the Company. The Company has given reply to the Plaint filed under Order 7
    Rule 1&2 R/W Section 26 of CPC I.A.697/2000 and the matter is pending for hearing.

    - Notice by ROC
    The Company received notice dated 17-08-2004 from the Registrar of Companies, Andhra Pradesh,
    Hyderabad for furnishing informations under section 234(1) of the Companies Act, 1956 on the
    Balance Sheet as at 31.03.2003 and the Company furnished the required information.

Outstanding Litigations against the Promoters
   -Income Tax demands by the Income Tax Department
   • Assistant Commissioner of Income Tax, Central Circle-5, Hyderabad has raised an Income Tax
       demand of Rs. 2,38,64,411/- from Mr. Sudhish S Rambhotla, Chairman and Managing Director
       of the Company in the Assessment Order passed for the Block of Assessment Year 1990-91 to
       2000-01.

                                                                                                      68
    •   Assistant Commissioner of Income Tax, Central Circle-5, Hyderabad has also raised an Income
        Tax demand of Rs. 6,08,470/- from Mr. Sudhish S Rambhotla, Chairman and Managing Director
        of the Company in the Assessment Order passed for the Assessment Year 2001-2002.

    -Litigation/ Disputes/ Defaults/ Criminal Cases:
    i) A case CC No 990/2001 is pending against Mr. Y. Suryanarayana, Executive Director before the
    court of V Metropolitan Magistrate, Hyderabad under Section 138 of the Negotiable Instruments Act.
    The case was filed by Dr. P. Peetamber, for alleged dishonor of Cheque of Rs. 54 Lakhs.

    ii) A criminal case CC no 298/2001 is pending against Mr. Mr. Y. Suryanarayana, Executive Director
    of the Company and others in the Court of V Metropolitan Magistrate, Hyderabad under section 379,
    406, 420 and 465 of the Indian Penal Code for alleged theft and forgery of a Cheque of Rs. 91 Lakhs
    issued by Mr. P. Uttam Kumar.

    iii) A civil Suit No-353 of 2003 is pending against Mr. Y. Suryanarayana and Mr. Sudhish S
    Rambhotla before the court of Chief Judge, City Civil Court, Hyderabad under section 26 Order VII
    Rule 1 C.P.C. for recovery of Rs. 1,13,51,202.68 and the same was filed by Dr. P. Peetamber.

Apart from as stated above:
   • There are no pending litigations in which the promoters are involved, defaults to the financial
         institutions/banks, non-payment of statutory dues and dues towards instrument holders like
         debenture holders, fixed deposits, and arrears on cumulative preference shares by the promoters
         and the companies/firms promoted by the promoters.
   • Further, there are no cases of pending litigations, defaults, etc. in respect of
         companies/firms/ventures with which the promoters/Directors were associated in the past but are
         no longer associated.
   • There are no litigations against the promoter or directors involving violation of statutory
         regulations or criminal offence
   • There are no pending proceedings initiated for economic offences against the directors, the
         promoters, companies and firms promoted by the promoters
   • There are no small scale undertaking(s) to whom the Company owes a sum exceeding Rs. 1
         Lakh which is outstanding for more than 30 days.

DEFAULTS
The Company has not defaulted in meeting any statutory dues, institutional dues or bank dues. The
Company has not defaulted in making any payment/refunds for debentures, fixed deposits and interest
on debentures and fixed deposits.

ADVERSE EVENTS
There has been no adverse event affecting the operations of the Company occurring within one year
prior to the date of filing of the Letter of Offer with the Stock Exchanges.

MATERIAL DEVELOPMENTS SUBSEQUENT TO LAST BALANCE SHEET:
There are no material changes affecting the performance and prospects of the Company since the latest
Balance Sheet for the period ending 31.03.2004. All known and identified liabilities have been
acknowledged and accounted for and necessary disclosures made in the Letter of Offer.

THE DIRECTORS OF THE COMPANY IN THEIR OPINION HEREBY STATE THAT THERE IS NO
MATEIRAL DEVELOPMENT AFTER THE DATE OF THE LAST FINANCIAL STATEMENTS
DISCLOSED IN THE LETTER OF OFFER WHICH IS LIKELY TO MATERIALLY AND ADVERSELY
AFFECT OR IS LIKELY TO AFFECT THE TRADING OR PROFITABILITY OF THE COMPANY OR
THE VALUE OF ITS ASSETS, OR ITS ABILITY TO PAY ITS LIABILITIES WITHIN THE NEXT
TWELVE MONTHS.


                                                                                                     69
RISK ENVISAGED BY MANAGEMENT AND MANAGEMENT PERCEPTION

INTERNAL TO THE ISSUER COMPANY
1. Attracting and retaining of Animation professionals is of vital importance for the success.

   Management perception
   Management has devised various measures in the retention plan such as improving the working
   atmosphere, providing internal and external training for professional growth, Performance appraisal,
   Compensation reviews through informal market surveys, promotions etc. Company has best
   recruitment policy to infuse quality people into the Company. This apart to boost the morale of the
   employees, Company has devised several off the job activities like extra curriculum activities.

2. In respect of Equipments to be acquired, the company has not placed firm Orders.

   Management perception
   Placement of Orders is kept in abeyance, as the equipments are readily available.

3. Company’s clients’ confidential information/data may be misappropriated by the employees
   in violation of secrecy clause of the appointment letter, which may result in customer
   claiming damages from the Company.

   Management perception
   In the event of any violation of secrecy clause of the appointment letter by the employees, Company
   has the right to terminate the services of the employee without notice. However the company gives
   no assurance that the steps taken by them in this regard will be adequate to secure risk. However
   this is a general industry risk and there are no such claims so far.

4. The Animation industry is characterized by rapid technology obsolescence and intense
   competition. This obviously calls for additional investment of funds from time to time to meet
   the requirements of the prevailing technical standards.

   Management perception
   Company has devised systems and procedures to upgrade its technology. A separate cell has been
   formed only to focus on R & D activities. These measures, the Management of the Company feels is
   adequate to maintain the technical strength in the focus areas. With its track record, Company is
   confident of addressing the competition effectively in its focus area both in animation and multimedia.

5. The company is currently operating from the leased premises and the Lease Agreement is not
   registered.

   Management perception
   The company has entered into a Lease Agreement on 1st December 2000 for the Registered Office &
   Development Centre for a period of 5 years and it does not foresee any problem in its renewal.

6. The company is dependent on few customers for its business, which may have material
   adverse effect on it.

   Management perception
   The company has started identifying the key areas of market and to have better market potential to
   increase customer base.




                                                                                                      70
7. Outstanding Litigations against the Company
   -Show Cause Notice issued by SEBI
   SEBI has issued a show cause notice to the Company and its Directors to provide explanation for the
   alleged price manipulation by certain persons in the scrip of the Company during the period January
   2000 to March 2000.

   Management perception
   The present Directors were not in the management of the Company during the alleged manipulation
   in the scrip of the Company and it is understood that the price rise in the scrip of the Company was
   due to the general market boom at that period. The present Directors have made the written
                                   th
   representation to the SEBI on 17 August 2004 as the reply to the Show cause Notice issued.

   -Litigation/ Disputes/ Defaults/ Criminal Cases:
   A Civil Suit was filed by Tusker Travels Private Ltd. with the II Senior Civil Judge at City Civil Court at
   Hyderabad against the Company for their claim of Rs. 1,18,268/-, (including interest @ 18% p.a. of
   Rs.32, 566/-) for acting as Company’s Travel Agent and booking domestic and international tickets
   for the employees of the Company.

   Management Perception
   The Company has given reply to the Plaint filed under Order 7 Rule 1&2 R/W Section 26 of CPC
   I.A.697/2000 and the matter is pending for hearing.

   - Notice by ROC
   The Company received notice dated 17-08-2004 from the Registrar of Companies, Andhra Pradesh,
   Hyderabad for furnishing informations under section 234(1) of the Companies Act, 1956 on the
   Balance Sheet as at 31.03.2003.

8. Outstanding Litigations against Promoters
   a. Income Tax demands by the Income Tax Department
   Assistant Commissioner of Income Tax, Central Circle-5, Hyderabad has raised a Income Tax
   demand of Rs. 2,38,64,411/- from Mr. Sudhish S Rambhotla, Chairman and Managing Director of the
   Company in the Assessment Order passed for the Block of Assessment Year 1990-91 to 2000-01.

   Assistant Commissioner of Income Tax, Central Circle-5, Hyderabad has also raised a Income Tax
   demand of Rs. 6,08,470/- from him in the Assessment Order passed for the Assessment Year 2001-
   2002.

   Management perception
   The above said Income Tax Orders were passed against the personal return of Mr. Sudhish S
   Rambhotla, Chairman and Managing Director of the Company and the Company is no way
   connected with his personal tax liability. Further, Mr. Sudhish S Rambhotla is contesting the case
   before the Income Tax Appellate Tribunal.

   b. Litigation/ Disputes/ Defaults/Criminal Cases:
   i) A case CC No 990/2001 is pending against Mr. Y. Suryanarayana, Executive Director in the court
   of V Metropolitan Magistrate, Hyderabad under Section 138 of the Negotiable Instruments Act. The
   case was filed by Dr. P. Peetamber, for alleged dishonor of Cheque of Rs. 54 Lakhs.

   Management perception
   Mr. Y. Suryanarayana is contesting the above case. The above case was filed only to avoid
   prosecution under the case CC No. 930/2001 filed by Mr. Y. Suryanarayana against Mr. P. Uttam
   Kumar (Dr. P. Peetamber’s brother) under Section 138 of the Negotiable Instruments Act for the
   dishonor of the Cheque of Rs.91 Lakhs issued by Mr. Uttam P Kumar.

   ii) A Criminal Case CC no 298/2001 is pending against Mr. Mr. Y. Suryanarayana, Executive Director
   of the Company and others in the Court of V Metropolitan Magistrate, Hyderabad under section 379,
                                                                                                          71
   406, 420 and 465 of the Indian Penal Code for alleged theft and forgery of a Cheque of Rs. 91 Lakhs
   issued by Mr. P. Uttam Kumar.

   Management perception
   It is the contention of Mr. Suryanarayana that the above case was filed only as a counter blast to
   avoid prosecution under Section 138 of the Negotiable Instrument Act. He filed a petition to the High
   Court under Section 482 of I.P.C for quashing the above criminal complaint. The Honourable High
   Court of Andhra Pradesh has stayed the further proceedings in the aforesaid case and the matter is
   pending before the Honourable High Court.

   iii) A Civil Suit No-353 of 2003 is pending against Mr. Y. Suryanarayana and Mr. Sudhish S
   Rambhotla before the Court of Chief Judge, City Civil Court, Hyderabad under Section 26 Order VII
   Rule 1 C.P.C. for recovery of Rs. 1,13,51,202.68 and the same has been filed by Dr. P. Peetamber.

   Management Perception
   The suit is a false case filed as a counter blast for the civil suit / legal proceedings initiated against
   Dr. P. Peetamber, P. Uttam Kumar and their family members much earlier to the filing of the above
   civil suit by Dr. P. Peetamber.

9. Short falls in Promise Vs. Performance
   Shortfall in the performance vis-à-vis the promise made in the offer document by the company in
   respect of Initial Public Offering of 1997 is as follows:
                                                            (Rs. in Lakhs)
         Particulars        Projection     Actual % Shortfall as on
                              (Rs.)         (Rs.)        31.03.1998
       Total Income                95.65     103.74                    --
       Net profit                  63.51       0.06               99.90%

    Management Perception
   Shortfall in profit was due to increase in actual expenditure as compared to the projected expenditure
   in the prospectus. However, the present Management took over the Company in the year 2000 from
   the earlier management in pursuant to the SEBI (Substantial Acquisition of Shares and Takeover)
   Regulations, 1997 and changed its Name & Object Clause. The promises made in the Initial Public
   Offering of 1997 relating to financial activities can’t be compared in lines of present activities being
   conducted since 2000 i.e. new projects relating to Animation and Multimedia sector.

10. Assessment of Fund Requirement
    The requirement of funds for the proposed activities are based on the Company’s own estimates and
    the same has not been assessed or appraised by any independent agency, bank or financial
    institution.

   Management Perception
   The Company has experience in the multimedia and animation industry and the management has
   the experience to estimate the funding requirement for proposed activities.

11. Deployment of funds
    The deployment of funds raised through the Issue is completely at the discretion of the Company and
    will not be monitored by any independent agency.

   Management Perception
   The Company is professionally managed with sufficient experience in the business and has
   estimated the funds requirement based upon plans to be implemented by the Company. The
   management believes that in the present environment, the proposed capital expenditure programme
   would strengthen the long-term prospects of the company. However, the company would
   continuously review proposals to ensure optimum deployment of resources depending on the

                                                                                                         72
     emerging economic and competitive scenarios. In addition the Company shall also publish the
     utilisation statement for the funds collected in this Rights Issue under a separate head on a quarterly
     basis.

12. Risk of Attrition of Key Personnel
    The Company’s business is dependent on key executives; the loss of any of them could have a
    material adverse effect on the Company’s business, operating results and financial condition.

     Management Perception
     The Company believes that its success will depend largely on its continued ability to retain and
     attract highly skilled and quality executive personnel. The Company has set up an in house training
     system and has developed a second line of Managers who can take the responsibility in case of
     attrition of any personnel.
13. Profit/ (Loss) levels of the company during the last Five years
                                                                             (Rs. in Lakhs)
         Particulars / years ended 31st          2004    2003      2002     2001        2000
         March                                   (Rs.)   (Rs.)     (Rs.)    (Rs.)       (Rs.)
         Net Profit/(Loss) after Tax            14.10 (25.61) (140.27) (105.64)          0.16
         Networth                            1149.52 914.68      761.93   889.37      959.96
         Reserves                                 2.21    2.21      2.21     2.21        3.30
         P& L A/c (Debit Balance)            (179.15) (193.25) (244.81) (104.54)         1.09
         EPS (Rs.)                              --       --       --       --          --

14. Profit/ (Loss) levels of the Group Companies
  • Color Chips Animation Park Limited [CCAPL]
                                                                (Rs. in Lakhs)
                                       st            2002         2003       2004
         Particulars / years ended 31 March
                                                     (Rs.)        (Rs.)      (Rs.)
         Share Capital                               209.80       209.80     209.80
         Reserves and Surplus
                                                         Nil          Nil        Nil
         (excluding revaluation reserve)
         Total Income                                   4.21       68.21    (131.51)
         Profit/(Loss) after tax                      (8.94)     (40.17)      (1.34)
         Earning Per Share (Rs.)                          Nil         Nil        Nil
 •     Ravikaanth Portfolio Services Private Limited
                                                           (Rs. in Lakhs)
                                                    2002      2003       2004
         Particulars / years ended 31st March
                                                    (Rs.)     (Rs.)      (Rs.)
         Share Capital                                 0.02       1.00      2.00
         Share Application Money                     218.88 217.89        216.89
         Reserves and surplus
                                                         Nil         Nil        Nil
         (excluding revaluation reserve)
         Total Income                                  7.02       33.47     159.54
         Profit after Tax                            (2.81)       (2.21)     (0.77)
         Earning per share (Rs.)                         Nil          Nil        Nil

15. Preferential Allotment of Shares-pending Listing at NSE
    The Issuer Company has made Preferential Allotment of 5,00,000 Equity Shares to Color Chips
    Animation Park Limited on September 05, 2003 vide resolution passed in the EGM held on
    18.08.2003 and the listing of the said shares at NSE are still pending.


                                                                                                        73
    Management perception
    The Company has already obtained in-principal approval for Listing of above shares from Hyderabad
    Stock Exchange Limited and The Stock Exchange, Mumbai. However, the company is taking the
    steps to obtain the in-principle listing approval from National Stock Exchange of India Limited.

EXTERNAL TO THE ISSUER COMPANY
1. Changes in Government policy
   Any adverse change in the Government Policies with respect to Animation Sector may affect the
   performance and profitability of the Company.

    Management Perception
    Government of India has identified Animation Sector as a thrust area and incentives are being
    provided to encourage the Industry. Hence, the Company does not foresee any adverse policy
    changes that could be detrimental to the growth of this sector.

2. There could be threat from heavy competition
   The market for Animation services and products is highly competitive and the Company shall be
   exposed to competition from existing as well as new entrants.

    Management Perception
    The Company is confident that its products /services will find a suitable market in the highly
    competitive industry, as has happened so far.

3. Changes in Technology may render the current technologies obsolete or require the
   Company to make substantial capital investments
   The industry segment is prone to high risk of technological obsolescence.

    Management Perception
    The Company has already initiated policies and procedures to meet the technological obsolescence
    with continuous up-gradation of technical skills and machines. The Company has been regularly
    upgrading its systems to reflect the current practices and technology adopted by the industry.

4. Labour Turnover
   Selection, Recruitment and Retention of skilled and quality manpower are crucial factor for the
   success of an Animation Company.

    Management Perception
    The high degree of employee turnover would be minimized to a considerable extent through the
    Company’s sound Human Resource policies, which lay emphasis on regular recruitment and
    continuous training on latest technologies for its personnel.

XII. STATUTORY AND OTHER INFORMATION

MINIMUM SUBSCRIPTION
If the Company does not receive minimum subscription of 90% of the issued amount on the date of
closure of the issue, or if the subscription level falls below 90% after the closure of the issue on account
of cheques having being returned unpaid or withdrawal of applications, the company will forthwith refund
the entire subscription amount received within forty-two days from the Date of Closure of the Issue. If
there is delay in the refund of subscription by more than 8 days after the Company becomes liable to pay
the subscription amount (i.e. forty two days after Closure of the Issue), the Company will pay interest for
the delayed period, at the rates prescribed under sub-sections (2) and (2A) of Section 73 of the
Companies Act, 1956.

UNDERWRITING
Since the Issue is not being underwritten, no underwriting commission is payable.


                                                                                                        74
EXPERT OPINION
Save as otherwise stated in this Letter of Offer, the company has not obtained any expert opinion.

OPTION TO SUBSCRIBE IN DEMATERIALISED FORM
The Investors have an option to subscribe to the shares of the Company either in the physical form or
dematerialised form Applicants must indicate in the application form the number of shares they wish to
receive in dematerialised and physical form out of the total number of shares applied for. In case of
partial allotment, shares will be first allotted in dematerialised form and the balance Equity Shares; in
excess of the applicant’s request for Equity Shares in dematerialised form will be allotted in physical
form. Shareholders opting to receive Equity shares in physical mode will be issued a consolidated Equity
Share certificate for all the Equity Shares allotted to them in this Offer. (Refer the “Terms of Issue” for
details)

ISSUE OF SHARES OTHERWISE THAN FOR CASH
The Company has not issued any Shares for consideration other than Cash.

DETAILS OF PREVIOUS ISSUE
The Company has not made any public/rights issue in the past five years, other than those disclosed
under notes to capital structure.

PAYMENT OR BENEFIT TO THE DIRECTORS AND OFFICERS OF THE COMPANY
Save as stated elsewhere in the Letter of Offer no amount or benefit has been paid or given or is
intended to be paid or given to any Director or Officer of the Company except their normal remuneration
and/or reimbursement for the services rendered to the Company to which they are entitled or may
become entitled to under the articles of the Company, provisions of the Companies Act or otherwise in
accordance with the Law.




                                                                                                       75
XIII. MATERIAL CONTRACTS AND DOCUMENTS
The Contracts referred to in para (A) below (not being contracts entered into in the ordinary course of the
business carried on by the Company or entered into more than two years before the date of this Letter of
Offer) which are or may be deemed material, have been entered into by the Company. The contracts
together with the documents referred to in paragraph (B) below, copies of all of which have been
attached to the copy of this Letter of Offer may be inspected at the Registered Office of the Company
between 11.00 a.m. to 1.00 p.m. on any working day from the date of this Letter of Offer until the closing
of the subscription list.

A. MATERIAL CONTRACTS
1. Memorandum of Understanding entered into between the Company and Lead Manager to the issue
    March 9, 2005.
2. Memorandum of Understanding entered into between the Company and Venture capital and
    Corporate Investments Limited, Registrar to the Issue dated 25th October 2004.
3. Tripartite agreement entered between the Company, Registrar and National Securities Depository
    Limited dated 1st August 2000.
4. Tripartite agreement entered between the Company, Registrar and Central Depository Services
    (India) Limited dated 1st August 2000.

B. MATERIAL DOCUMENTS
1. Copy of Memorandum and Articles of Association of the Company.
2. Annual reports of CCIL for the last five years.
3. Copies of Memorandum and Articles of Association and Annual Reports of Group Companies for the
    relevant Years.
4. In-principle approval dated ________ from BSE for listing of the securities offered in this Issue.
5. In-principle approval dated ________ from NSE for listing of the securities offered in this Issue.
6. In-principle approval dated _______ from HSE for listing of the securities offered in this Issue.
7. Copy of the Board resolution passed on 25th October 2004 for the proposed Rights Issue.
8. Copy of the Shareholders resolution passed in the AGM held on 18.08.2003 for the proposed Rights
    Issue.
9. Consents from Directors, Auditors, Bankers to the Company, Bankers to the Issue, Lead Manager to
    the Issue and the Registrar to the Issue, Company Secretary cum Compliance Officer.
10. Auditors’ Report dated 15.02.2005 giving the financial information of CCIL.
11. Auditors’ certificate dated 15.02.2005 regarding Tax Benefits.
12. Letters of intent, received from the promoters dated 15.02.2005, for the subscription to rights
    entitlement and unsubscribed portion.
13. Copies of Strategic Alliances and Development Agreements/MOUs.
14. Copy of lease agreement for the Registered Office & development center of the Company.
15. Copy of STPI Registration Certificate.




                                                                                                       76
XIV.    DECLARATION
No statement made in this Form shall contravene any of the provisions of the Companies Act, 1956 and
the rules made thereunder. All the legal requirements connected with the said issue as also the
guidelines, instructions etc. issued by SEBI, Government and any other competent authority in this behalf
have been duly complied with.

The Company accepts no responsibility for statements made otherwise than in the Letter of Offer or in
the advertisement or any other material issued by or at the instance of the Company and that any one
placing reliance on any other source of information would be doing so at their own risk.

The Directors of the Issuer Company certify that all the disclosures made in the Letter of Offer are true
and correct.


Yours faithfully
For Color Chips (India) Limited

Signed by Directors


Mr. Sudhish S Rambhotla
Chairman and Managing Director


Mr. Y. Suryanarayana
Executive Director


Mr. William Bill Buck*
Director


Mr. KCh A V S N Murthy*
Director


Mr. Y. Kasipathy
Director


Dr G. Chandra Bushan*
Director

*Signed on behalf of the directors by their constituted attorney Mr. Y. Suryanarayana

Place: Hyderabad
Date: March 10, 2005


Encl: Composite Application Form




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