<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SAVILLE SYSTEMS PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
REPUBLIC OF IRELAND 7371 NONE
(PRIMARY STANDARD (I.R.S.
(STATE OR OTHER INDUSTRIAL EMPLOYERIDENTIFICATION
JURISDICTION OF CLASSIFICATION CODE NUMBER)
INCORPORATION OR NUMBER)
ORGANIZATION)
--------------
SAVILLE SYSTEMS PLC
IDA BUSINESS PARK DANGAN GALWAY, IRELAND 011-353-9-152-6611
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JOHN J. BOYLE, III PRESIDENT AND CHIEF EXECUTIVE OFFICER SAVILLE SYSTEMS PLC
25 BURLINGTON MALL ROAD SIXTH FLOOR BURLINGTON, MASSACHUSETTS 01803 (617) 270-
6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
MARK G. BORDEN, ESQ. THOMAS L. WILLIAM B. ASHER, JR., ESQ. JOHN A.
BARRETTE, JR., ESQ. HALE AND DORR60 MELTAUS, ESQ. TESTA, HURWITZ &
STATE STREET BOSTON, MASSACHUSETTS THIBEAULT, LLP HIGH STREET TOWER 125
02109 (617) 526-6000 HIGH STREET BOSTON, MASSACHUSETTS
02110 (617) 248-7000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
--------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary Shares, $0.0025
par value per share.... 3,565,000 shares $32.32 $115,220,800 $39,732
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 465,000 shares which the Underwriters have the option to purchase
from the Selling Shareholders to cover over-allotments, if any. See
"Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SAVILLE SYSTEMS PLC
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus........................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front Cover Page; Reports to
Shareholders; Outside Back Cover
Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.... Not Applicable
6. Dilution........................... Not Applicable
7. Selling Security Holders........... Principal and Selling Shareholders
8. Plan of Distribution............... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Capitalization; Description of Share
Registered........................ Capital; Description of American
Depositary Receipts
10. Interests of Named Experts and
Counsel........................... Not Applicable
11. Information With Respect to the Front Cover Page; Prospectus Summary;
Registrant........................ Risk Factors; The Company; Use of
Proceeds; Dividend Policy; Price
Range of ADSs; Capitalization;
Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal and Selling Shareholders;
Shares Eligible for Future Sale;
Description of Share Capital;
Taxation; Description of American
Depositary Receipts; Irish Exchange
Control Regulations; Consolidated
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
MAY 21, 1996
LOGO
3,100,000 American Depositary Shares
Representing
3,100,000 Ordinary Shares
--------
Each American Depositary Share ("ADS") offered hereby represents the right to
receive one Ordinary Share, $0.0025 par value, of Saville Systems PLC
("Saville" or the "Company"), a public limited company incorporated under the
laws of the Republic of Ireland. The ADSs offered hereby will be sold in the
form of American Depositary Receipts ("ADRs"). See "Description of Share
Capital" and "Description of American Depositary Receipts."
Of the 3,100,000 ADSs offered hereby, 100,000 ADSs are being offered by the
Company and 3,000,000 ADSs are being offered by the Selling Shareholders. See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of ADSs by the Selling Shareholders. The Company's ADSs
are quoted on the Nasdaq National Market under the symbol "SAVLY." On May 16,
1996, the last reported sale price of the Company's ADSs was $32.25 per ADS.
See "Price Range of ADSs."
--------
THE ADSS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGE 6 HEREOF.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
A COPY OF THIS DOCUMENT, HAVING ATTACHED THERETO THE DOCUMENTS
SPECIFIED HEREIN, HAS BEEN DELIVERED TO THE REGISTRAR OF
COMPANIES IN THE REPUBLIC OF IRELAND FOR
REGISTRATION.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per ADS........................... $ $ $ $
- --------------------------------------------------------------------------------
Total(2).......................... $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses of the offering estimated at $500,000 payable by
the Company.
(2) The Selling Shareholders have granted the Underwriters a 30-day option to
purchase up to 465,000 additional ADSs solely to cover over-allotments, if
any. To the extent that the option is exercised, the Underwriters will
offer the additional ADSs at the Price to Public shown above. If the option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Shareholders will be $ , $ ,
and $ , respectively. See "Underwriting."
--------
The ADSs are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to the right of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of ADRs evidencing the ADSs will be made at the offices of Alex. Brown
& Sons Incorporated, Baltimore, Maryland, on or about , 1996.
Alex. Brown & Sons
INCORPORATED
Furman Selz
Hambrecht & Quist
Montgomery Securities
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
Picture of puzzle with the following
captions appears here:
Customer Care
Event Processing
Billing
Post Billing
Saville Systems
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE AMERICAN
DEPOSITARY SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE ADSs ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
Saville Systems:
Software solutions that collect, price and invoice customer usage for
local, long distance and wireless telecommunications service providers. Key
functionalities include: customer care, event processing, billing and post
billing.
Event Processing: Event processing encompasses the collection,
conversion and rating of customer call detail records used in the production of
the service invoice. Key functionalities within this application include: Data
Collection, Data Distribution, Conversion/Reformatting, Validation, Guiding,
Rating, Reporting, Error Management, External Interfaces.
Post Billing: Post billing is the primary interface with the service
provider's accounting system and relates to the invoicing and remittance of the
periodic service invoice. Key functionalities within this application include:
Payment Processing, Adjustments, Deposit and Deposit Interest, Accounts
Receivable, Collections and Treatment, Financial Reporting, Commissioning,
Accounting Interface, Trouble Reporting.
<PAGE>
Customer Care:
Customer care enables the customer service representative to interact with the
customer and input, maintain and access customer information beginning at the
customer's initial service request and continuing through the conclusion of
service. Key functionalities within this application include: Customer
Initiation, Bill Cycle Assignment, Phone Number Assignment, Calling Card
Assignment, Inventory Administration, Customer Hierarchy, Customer Search,
Switch Interface, Customer History, Invoice Messaging, System Notation,
Directory Listing, Lead Generation and Management, Customer Information
Maintenance
Billing: Billing integrates customer usage-based charges with recurring charges
and other credits and adjustments to create the periodic service invoice. Key
functionalities within this application include: Multiple Bill Pulls, Rerating,
Discounting, Invoice Generation, Invoice Hierarchy, Multi-Currency,
Multi-Language, Auto Balancing, Recurring Charges, Taxation, Quick Invoicing,
Management Reporting, Revenue Reporting
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus.
Certain of the information contained in this summary and elsewhere in this
Prospectus, including under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," including information with
respect to the Company's plans and strategies for its business and related
financing, are forward-looking statements. For a discussion of important
factors that could cause actual results to differ materially from these
forward-looking statements, see "Risk Factors."
THE COMPANY
Saville creates innovative, high quality, customized billing solutions for
service providers in the increasingly competitive global telecommunications
industry. The Company's billing systems are designed to enable these service
providers to quickly bring new offerings in voice, video and data
communications to market, while billing accurately and reliably for these
services. Working closely with its customers, Saville utilizes its library of
proprietary software applications to provide each customer with a customized,
flexible and cost-effective billing solution. The Company has typically
continued to serve as a billing partner for its customers by implementing new
systems as the customer enters new service categories or geographic markets,
and by further developing and enhancing the customer's installed systems in
response to changes in the customer's service offerings, marketing strategies
and network technology. In addition, Saville offers its customers the option of
having Saville operate the billing system in one of the Company's in-house
service bureaus.
The market for telecommunications services is becoming increasingly
competitive due to worldwide deregulation and privatization. New entrants are
competing for market share with established service providers by providing
discounted service access, offering competitive prices and introducing new
features and services, such as customized usage-based calling plans. In
addition, technological advances are permitting telecommunications service
providers to offer a variety of new features and services to their customers
such as caller ID, call waiting and voice mail. These and other developments
have increased the complexity and variety of telecommunications services, as
service providers seek to differentiate themselves by being more responsive to
their customers and by expanding the number of telecommunications services and
features they offer.
These market trends have created the need for sophisticated and flexible
billing solutions because telecommunications service providers can compete only
if they are able to efficiently and accurately bill customers for the varied
services and features they provide. As a result of their multiple and evolving
billing needs, many established telecommunications service providers are
replacing or augmenting their existing billing systems, which are often
difficult and time consuming to modify. In addition, many emerging
telecommunications service providers are seeking external billing solutions
because efficient, flexible billing software is often too costly and time
consuming for them to develop internally.
Saville has developed, and continuously refines, its sophisticated base
software applications, which it combines and customizes to meet the current and
evolving requirements of its customers. The Company's systems are designed to
operate in a multiservice environment, capable of billing local exchange, long
distance and wireless (cellular, paging and satellite) telecommunications
services. These systems are designed to support the discrete service offerings
of large telecommunications service providers, including industry-leading
customers such as AT&T Corporation ("AT&T") and Sprint Corporation ("Sprint"),
or to serve as the complete billing systems of emerging and small- to medium-
sized service providers, including customers such as Energis Communications
Limited ("Energis"), a United Kingdom long distance telecommunications service
provider, and Frontier Communications of Rochester Inc. ("Frontier"), a local
exchange carrier. The Company supports its customers through offices in Galway,
Ireland; Burlington, Massachusetts; Edmonton, Alberta; and Toronto, Ontario.
3
<PAGE>
RISK FACTORS
The ADSs offered hereby involve a high degree of risk. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
ADSs offered by the Company........ 100,000
ADSs offered by the Selling
Shareholders...................... 3,000,000
Ordinary Shares to be outstanding
after the offering................ 17,676,406(1)
Use of proceeds.................... For working capital and other general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol...... SAVLY
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
------------------------ --------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME (LOSS)
DATA:
Total revenues................. $ 9,309 $20,073 $30,296 $ 7,462 $10,555
Income from operations......... 15 6,856 8,116 2,701 2,237
Minority interest share in
subsidiaries' net income
(loss)(2)..................... (23) 154 70 6 (2)
Net income..................... 13 5,357 6,382 2,038 2,042
Net income per share........... $ 0.00 $ 0.34 $ 0.40 $ 0.13 $ 0.11
Shares used in computing net
income per share (in thou-
sands)........................ 15,667 15,721 16,151 15,797 18,685
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, ----------------------
1995 ACTUAL AS ADJUSTED(3)
------------ ------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $23,722 $21,449 $24,013
Working capital.......................... 28,109 29,767 32,331
Total assets............................. 36,031 38,822 41,386
Long-term debt (excluding current por-
tion)................................... 44 -- --
Total shareholders' equity............... 30,924 32,920 35,509
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1996. Excludes
1,836,299 Ordinary Shares issuable upon exercise of options outstanding on
that date, of which options to purchase 422,213 Ordinary Shares were then
exercisable. See "Management--Share Options" and Note 8 of Notes to
Consolidated Financial Statements. Excludes up to approximately 77,000
Ordinary Shares issuable upon the exercise of options by certain Selling
Shareholders in connection with this offering. See "Principal and Selling
Shareholders."
(2) In connection with the restructuring of the Company effected in September
1995, certain shares of the Company's Canadian and United States
subsidiaries were retained by Invoice Systems (Canada), Inc. ("Invoice
Systems"), a shareholder of the Company. Over 94% of the voting securities
of Invoice Systems are owned or controlled by Bruce A. Saville, the
Company's founder and Chairman of the Board of Directors. Invoice Systems
has agreed not to sell or transfer any securities of the Company, unless it
contributes a proportionate number of shares in each of the subsidiaries to
the Company. Invoice Systems must contribute all of its shares in the
subsidiaries no later than September 1, 2005. Prior to the initial public
offering of the ADSs in November 1995 and prior to this offering, the
minority interest retained by Invoice Systems represented approximately 15%
and 12%, respectively, in each of the subsidiaries, which amounts have been
reflected in the consolidated financial data contained herein. Upon the
sale of ADSs by Invoice Systems (for the benefit of Bruce A. Saville) in
this offering and the corresponding contribution of shares in each of the
subsidiaries, the minority interest will represent approximately 8% in each
of the subsidiaries (approximately 8% if the Underwriters' over-allotment
option is exercised in full). See "The Company," "Principal and Selling
Shareholders" and Notes 1 and 8 of Notes to Consolidated Financial
Statements.
(3) Adjusted to give effect to the sale of the 100,000 ADSs offered by the
Company hereby at an assumed public offering price of $32.25 per ADS and
the application of the estimated net proceeds therefrom, and as adjusted to
reflect the reduction in the minority interest from approximately 12% to
approximately 8% in each of the subsidiaries as a result of the sale of
ADSs by Invoice Systems (for the benefit of Bruce A. Saville) and the
corresponding contribution of shares in each of the subsidiaries of the
Company. Excludes any proceeds to the Company from the possible exercise of
options to purchase up to 77,000 Ordinary Shares by certain Selling
Shareholders in connection with this offering. See "Use of Proceeds" and
"Principal and Selling Shareholders."
4
<PAGE>
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option; (ii) assumes no exercise
of options to purchase up to 77,000 Ordinary Shares by certain Selling
Shareholders in connection with this offering; (iii) gives retroactive effect
to the restructuring of the Company effected in September 1995, pursuant to
which Saville Systems U.S., Inc. ("Saville U.S.") and Saville Systems Canada,
Ltd. ("Saville Canada") became majority-owned subsidiaries of the Company; and
(iv) reflects the 400-for-1 division of all outstanding Ordinary Shares on
September 27, 1995, and subsequent share dividend of 2.725 Ordinary Shares for
each post-division share. See "The Company," "Certain Transactions," "Principal
and Selling Shareholders," "Description of Share Capital," "Underwriting" and
Note 8 of Notes to Consolidated Financial Statements.
----------------
No action has been or will be taken in any jurisdiction by the Company, any
Selling Shareholder or any Underwriter that would permit a public offering of
the ADSs or the Ordinary Shares or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States and certain states within the United States. Persons
into whose possession this Prospectus comes are required by the Company, the
Selling Shareholders and the Underwriters to inform themselves about, and to
observe any restriction as to, the offering of the ADSs and the distribution of
this Prospectus.
----------------
Saville's financial statements are presented in United States dollars and are
prepared in accordance with generally accepted accounting principles ("GAAP")
in the United States. In this Prospectus, references to "dollars" or "$" are to
United States dollars, references to "CDN$" are to Canadian dollars and
references to "IR(Pounds)" are to Irish pounds. Except as otherwise stated
herein, all monetary amounts in this Prospectus have been presented in United
States dollars. The exchange rate of Canadian dollars and Irish pounds for
United States dollars, as reported in The New York Times as quoted from Dow
Jones Telerate as of 3:00 p.m. on March 29, 1996, was US$1.00=CDN$1.36
(equivalent to CDN$1.00=US$0.74) and US$1.00=IR(Pounds)0.63 (equivalent to
IR(Pounds)1.00=US$1.57).
----------------
Saville Systems is a trademark of the Company. This Prospectus also includes
trademarks, trade names and service marks of companies other than Saville.
----------------
ENFORCEMENT OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
Saville is a public limited company incorporated under the laws of the
Republic of Ireland. Certain of Saville's directors and officers, Selling
Shareholders and experts named herein are nonresidents of the United States,
and a significant portion of the assets of Saville and such persons are located
outside the United States. As a result, it may not be possible for investors to
effect service of process within the United States upon such persons or to
enforce against them in U.S. courts judgments predicated upon the civil
liability provisions of the laws of the United States, including the federal
securities laws. Saville has been advised by McCann FitzGerald, its Irish
counsel, that there is doubt as to the enforceability against such persons in
the Republic of Ireland, whether in original actions or in actions for the
enforcement of judgments in U.S. courts, of civil liabilities predicated solely
upon the laws of the United States, including the federal securities laws.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the ADSs
of the Company offered by this Prospectus.
Reliance on Significant Customers. The Company's total revenues from its
four largest customers during 1995 and the first three months of 1996
represented approximately 73.4% and 73.0%, respectively, of total revenues.
AT&T, Energis and Unitel Communications Inc. ("Unitel") each accounted for
over 10% of the Company's total revenues in 1995, and AT&T and Sprint
accounted for 49.3% and 12.0%, respectively, of the Company's total revenues
in the first three months of 1996. This concentration of customers can cause
the Company's revenues and earnings to fluctuate from quarter to quarter,
based on these customers' requirements and the timing of their orders.
Although the Company believes it has good relationships with its largest
customers and has in the past received a substantial portion of its revenues
from repeat business with established customers, none of the Company's major
customers has any obligation to purchase additional products or services, and
these customers generally have acquired fully-paid licenses to their installed
systems. Therefore, there can be no assurance that any of the Company's major
customers will continue to purchase new systems, systems enhancements and
services in amounts similar to previous years. A significant decrease in
business from any of its major customers would have a material adverse effect
on the Company's results of operations and financial condition. Additionally,
the acquisition by a third party of one of the Company's major customers could
result in the loss of that customer and have a material adverse effect on the
Company's results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Customers" and Note
12 of Notes to Consolidated Financial Statements.
Fluctuations in Quarterly Operating Results. The Company has experienced
fluctuations in its quarterly operating results and anticipates that such
fluctuations will continue and could intensify. Fluctuations in operating
results may result in volatility in the price of the ADSs. Although the
Company was profitable in each of the last ten quarters, there can be no
assurance that such profitability will continue in the future or that the
levels of profitability will not vary significantly among quarterly periods.
The Company's operating results may fluctuate as a result of many factors,
including increased competition, the size and timing of significant client
projects and license fees, cancellations of significant projects by customers,
changes in operating expenses, changes in Company strategy, personnel changes,
foreign currency exchange rates and general economic factors. In addition,
prior to the Company's initial public offering, the Company granted options to
purchase an aggregate of 691,448 Ordinary Shares, all of which are currently
exercisable, at exercise prices below estimated fair market value at the date
of grant, and compensation expense is being recorded over the related vesting
periods. Compensation expense of $95,000 and $42,000 was recorded for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively. In the second quarter of 1996, the Company will record
additional compensation expense of $31,000 as a result of the final vesting of
these options.
The Company's expense levels are based in significant part on its
expectations regarding future revenues. Accordingly, the Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Any significant revenue shortfall could therefore have a material
adverse effect on the Company's results of operations. In addition, the
Company hired a significant number of employees in 1995 and the first quarter
of 1996, including several senior executives, and expects to continue hiring
additional sales, marketing and software development employees during 1996.
This significant increase in its workforce has reduced the Company's operating
margins during the second half of 1995 and the first quarter of 1996, and the
Company expects that this increase will continue to affect the Company's
operating margins in the short term. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Quarterly Information."
Management of Expanding Operations. Recently, the Company has expanded its
operations rapidly, which has placed significant demands on the Company's
administrative, operational and financial personnel and systems. Additional
expansion by the Company may further strain the Company's
6
<PAGE>
management, financial and other resources. There can be no assurance that the
Company's systems, procedures, controls and existing space will be adequate to
support expansion of the Company's operations. The Company's future operating
results will substantially depend on the ability of its officers and key
employees to manage changing business conditions and to implement and improve
its operational, financial control and reporting systems. If the Company is
unable to respond to and manage changing business conditions, the quality of
the Company's services, its ability to retain key personnel and its results of
operations could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management."
Highly Competitive Market; Competition. The market for telecommunications
billing systems is highly competitive, and the Company expects this
competition to increase. The Company competes with both independent providers
of billing systems and services and with internal billing departments of
telecommunications service providers. The Company anticipates continued growth
and competition in the telecommunications industry and consequently, the
entrance of new competitors into the billing systems market in the future.
The Company believes that its ability to compete depends in part on a number
of competitive factors outside its control, including the development by
others of software that is competitive with the Company's services and
products, the price at which others offer comparable services and products,
the extent of competitors' responsiveness to customer needs and the ability of
the Company's competitors to hire, retain and motivate key personnel. In
addition, the Company competes with a number of companies that have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition, than the Company. As a result,
the Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than can the Company.
There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors. See
"Business--Competition."
Developing Market and New Service Providers. The Company provides customized
software billing solutions to telecommunications service providers in the
local exchange, long distance and wireless markets. Although these markets
have experienced significant growth and have been characterized by increased
deregulation and competition in recent years, there can be no assurance that
such trends will continue at similar rates, if at all, or that the Company
will be able to effectively market and sell its billing systems. In addition,
many new entrants into the telecommunications market lack significant
financial and other resources. The Company's future success depends in large
part on its ability to develop new customer relationships with successful
telecommunications service providers. There can be no assurance that the
Company will be able to develop such relationships or that service providers
that become customers of the Company will be successful. As the Company has
been dependent historically on a limited number of long-term customer
relationships, the failure of the Company's customers to compete effectively
in the telecommunications market could have a material adverse effect on the
Company's business and results of operations. See "Business--Industry
Background."
Reliance on AS/400. Currently, the Company's billing software runs primarily
on the IBM AS/400 platform, although the Company recently completed developing
software for UNIX-based operating systems. While the AS/400 platform currently
represents a leading platform for existing and new billing systems, there can
be no assurance that other platforms will not emerge as an industry standard.
If there should be a rapid shift away from the current use of the AS/400
platform by many telecommunications service providers for billing, the Company
would be required to expend substantial capital resources to develop new
software and would be likely to experience delays or losses in customer
orders, and as a result, its business would be materially adversely affected.
See "Business--Strategy" and "--Material Contracts--AT&T."
Rapid Technological Change. The market for the Company's products and
services is characterized by rapidly changing technology, evolving industry
standards and changing customer needs. Therefore, the Company's success will
depend upon its ability to enhance its existing products and to introduce new
7
<PAGE>
products and features to meet changing customer requirements. The Company is
continuing to devote significant resources to refining and expanding its base
software modules and to enhancing its recently completed billing software that
operates on UNIX-based operating systems. There can be no assurance that the
Company will successfully complete these projects or that the Company's
present or future products will satisfy the evolving needs of the
telecommunications market. If the Company were unable, due to resource,
technological or other constraints, to adequately anticipate or respond to
such changes, the Company's business and results of operations would be
materially adversely affected. See "Business--Strategy," "--Customers" and "--
Material Contracts--AT&T."
New Management; Dependence on Key Personnel. The current management
structure and the senior management team of the Company have been in place for
a relatively short time. These individuals have not, therefore, been
significantly involved in other than the most recent operating history of the
Company. The Company's future success depends in large part on the continued
service of its key management, sales, product development and operational
personnel, and on its ability to continue to attract, motivate and retain
highly qualified employees, including technical, managerial and sales and
marketing personnel. The Company expects to continue to expand the number of
employees engaged in sales, marketing and product development. The inability
to hire and retain qualified personnel or the loss of the services of key
personnel could have a material adverse effect upon the Company's current
business, new product development efforts and future business prospects.
Although the Company has entered into employment agreements with its key
executives and certain senior managers and employees that contain covenants
not to compete with the Company, there can be no assurance that the Company
will be able to retain such key executives, senior managers and employees. If
such personnel do not remain active in the Company's business, the Company's
operations could be materially adversely affected. See "Business--Employees"
and "Management."
Operations Outside the United States. In 1995 and the first three months of
1996, the Company's sales outside the United States represented a significant
portion of the Company's total revenues. The Company expects that non-U.S.
operations will continue to account for a significant portion of its revenues
and intends to continue to expand its operations outside of the United States.
In addition, the Company is incorporated in the Republic of Ireland and its
research and development organization is located outside the United States.
The Company's business outside the United States is subject to risks such as
fluctuations in exchange rates, difficulties or delays in developing and
supporting non-English language versions of the Company's products, political
and economic conditions in various jurisdictions, unexpected changes in
regulatory requirements, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations and longer accounts receivable
payment cycles. There can be no assurance that such factors will not have a
material adverse effect on the Company's revenues outside the United States or
its overall financial performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 11 of Notes to
Consolidated Financial Statements.
Currency Fluctuations. While the Company's consolidated financial statements
are prepared in United States dollars, the Company's Canadian subsidiary has a
functional currency other than the United States dollar, and a significant
portion of the Company's revenues are denominated in currencies other than the
United States dollar. Fluctuations in exchange rates may have a material
adverse effect on the Company's results of operations, particularly its
operating margins, and could also result in exchange losses. The impact of
future exchange rate fluctuations on the Company's results of operations
cannot be accurately predicted. To date, the Company has not sought to hedge
the risks associated with fluctuations in exchange rates, but may undertake
such transactions in the future. The Company currently does not have a policy
relating to hedging. There can be no assurance that any hedging techniques
implemented by the Company would be successful or that the Company's results
of operations will not be materially adversely affected by exchange rate
fluctuations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Concentration of Ownership. Following this offering, the Company's executive
officers, directors and their affiliates together will beneficially own
approximately 45.1% of the outstanding Ordinary Shares
8
<PAGE>
of the Company (as determined in accordance with the rules of the Securities
and Exchange Commission). The beneficial owners of a majority of the Company's
outstanding Ordinary Shares voting in an election of directors may elect all
directors nominated for election and may determine the outcome of certain
corporate actions requiring shareholder approval irrespective of how other
shareholders of the Company may vote. This concentration of ownership,
therefore, may have the effect of delaying or preventing a change in control
of the Company. See "Management," "Principal and Selling Shareholders" and
"Description of Share Capital."
Risk of Increasing Taxes. The Company has significant operations and
generates a substantial portion of its taxable income in the Republic of
Ireland and, under an incentive tax program due to terminate in 2010, is taxed
on its "manufacturing income" at a 10% rate, which is substantially lower than
United States tax rates. For Irish tax purposes, most of the Company's
operating income earned in the Republic of Ireland is considered
"manufacturing income." Other types of income such as income earned by the
Company on its cash investments and income earned by Saville U.S. and Saville
Canada are not considered "manufacturing income." To qualify for the 10% tax
rate, the Company must satisfy certain conditions, including achieving target
employment levels in the Republic of Ireland and rendering computer services
there. Although the Company believes that it satisfies these conditions, there
can be no assurance that the Company will continue to qualify for this 10% tax
rate. If the Company could no longer qualify for this 10% tax rate or if the
tax laws were rescinded or changed, the Company's net income could be
materially adversely affected. In addition, if United States, Canadian or
other foreign tax authorities were to challenge successfully the manner in
which profits are recognized among the Company and its subsidiaries, the
Company's effective tax rate could increase, and its cash flow and results of
operations could be materially adversely affected. To date, no tax authority
has challenged the manner in which profits are recognized among the Company
and its subsidiaries, but there can be no assurance that such a challenge will
not occur in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Taxation."
Risks Associated with Intellectual Property. The Company regards its
software products as proprietary and relies primarily on a combination of
statutory and common law copyright, trademark and trade secret laws, customer
licensing agreements, employee and third-party nondisclosure agreements and
other methods to protect its proprietary rights. The Company generally enters
into confidentiality agreements with its employees, consultants, clients and
potential clients and limits access to, and distribution of, its proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's technology without
authorization, or to develop similar technology independently. Furthermore,
the laws of certain countries in which the Company sells its products do not
protect the Company's software and intellectual property rights to the same
extent as do the laws of the United States. The Company does not include in
its software any mechanisms to prevent or inhibit unauthorized use, but
generally requires the execution of an agreement that restricts copying and
use of the Company's products. If unauthorized copying or misuse of the
Company's products were to occur to any substantial degree, the Company's
business and results of operations could be materially adversely affected.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.
Although the Company has not received any notices from third parties
alleging infringement claims, there can be no assurance that third parties
will not claim that the Company's current or future products infringe the
proprietary rights of others. The Company expects that software developers
will increasingly be subject to such claims as the number of products and
competitors providing software and services to the telecommunications industry
grows and overlaps occur. Any such claim, with or without merit, could result
in costly litigation or might require the Company to enter into royalty or
licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all. See "Business--Proprietary Rights and
Licenses."
Differences in Shareholders' Rights between United States and Irish
Corporations. The Company is incorporated under the laws of the Republic of
Ireland. The rights of holders of Ordinary Shares and,
9
<PAGE>
therefore, certain of the rights of ADS holders, are governed by Irish law,
including the Companies Acts of the Republic of Ireland, and by the Company's
Articles of Association and certain laws of the European Union. These rights
differ in certain respects from the rights of shareholders in typical United
States corporations. In particular, Irish law significantly limits the
circumstances under which shareholders of Irish corporations may bring
derivative actions. See "Description of Share Capital."
Volatility of ADS Price. The market price of the Company's ADSs has
increased significantly since the Company's initial public offering of ADSs in
November 1995. See "Price Range of ADSs." The period since the initial public
offering was marked by generally rising stock prices, favorable industry
conditions and improved operating results of the Company, all of which are
subject to change. The trading price of the ADSs could be subject to wide
fluctuations in response to the announcement of operating results that differ
from financial analysts' projections, changes in such projections, quarter-to-
quarter variations in operating results, announcements of technological
innovations or new products by the Company or its competitors and other
events. In addition, in recent years the stock market in general, and the
shares of technology companies in particular, have experienced extreme price
and volume fluctuations. This volatility has had a substantial effect on the
market prices of securities issued by many companies for reasons unrelated to
their operating performance. These broad market fluctuations may adversely
affect the market price of the ADSs. The Company has not listed or applied for
listing of the Ordinary Shares on any market in the United States or
elsewhere, and it is not expected that a public market for the Ordinary Shares
will develop after this offering. See "Price Range of ADSs" and
"Underwriting."
Shares Eligible for Future Sale. Sales of a substantial number of ADSs in
the public market (by conversion of outstanding Ordinary Shares into ADSs or
otherwise) following this offering could adversely affect the market price of
the ADSs and could adversely affect the Company's ability to raise capital.
Upon completion of this offering, approximately 17,676,406 Ordinary Shares
will be outstanding. In addition to the 5,750,000 shares sold in the Company's
initial public offering and the 3,100,000 shares offered hereby, approximately
72,105 shares have been registered on a Form S-8 registration statement and
are eligible for sale in the public market without restriction. In addition,
approximately 7,739,787 Ordinary Shares will be available for conversion into
ADSs and sale in the public market in August 1996, and the remaining 1,014,514
will become available for conversion into ADSs and sale in the public market
at various dates between January 1997 and November 1997, subject to compliance
with Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act"). Approximately 8,947,671 Ordinary Shares are subject to lock-up
agreements with the representatives of the Underwriters under which the
holders of such Ordinary Shares have agreed not to sell or otherwise dispose
of any of their Ordinary Shares or ADSs for a period of 90 days after the date
of this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated, which consent may be given at any time and without notice. In
addition, the holders of 8,754,301 Ordinary Shares following this offering
have the right under certain circumstances to require the Company to register
under the Securities Act their shares for resale to the public. See
"Management--Shares Options," "Shares Eligible for Future Sale" and
"Underwriting."
As of March 31, 1996, options to purchase an aggregate of 1,144,851 Ordinary
Shares had been granted and were outstanding under the Company's 1995 Share
Option Plan (the "1995 Option Plan"), of which 187,500 were then exercisable.
In addition, options to purchase an aggregate of 691,448 Ordinary Shares had
been granted pursuant to certain non-plan options, all of which are currently
exercisable and eligible for resale pursuant to Rules 144 and 701. See
"Management--Share Options" and "Shares Eligible for Future Sale--Options."
Effect of Anti-Takeover Provisions. The Company's Articles of Association
provide for a classified Board of Directors serving staggered terms of three
years, which could delay or impede the removal of incumbent directors. In
addition, Irish law requires that any action by written consent must be
unanimous. These provisions may have the effect of deterring hostile takeovers
or delaying or preventing changes in control or management of the Company,
including transactions in which shareholders might otherwise receive a premium
for their shares over then current market prices. In addition, these
provisions may limit the ability of shareholders to approve transactions that
they may deem to be in their best interests. See "Management--Board
Composition and Compensation."
10
<PAGE>
THE COMPANY
Saville was founded in 1982 in Canada as a message processing and billing
software provider to telephone companies in Canada. The Company's United
States office was added in 1991 and its European office was added in 1993. The
Company currently provides billing solutions to telecommunications service
providers serving markets around the world.
On September 27, 1995, Saville Systems Canada, Ltd. ("Saville Canada") and
Saville Systems U.S., Inc. ("Saville U.S.") became majority-owned subsidiaries
of the Company. This restructuring was accomplished through the contribution
of shares of Saville Canada and Saville U.S. to the Company by shareholders of
the subsidiaries who previously beneficially owned identical percentages of
all three companies and through the contribution of all shares of 2916746
Canada, Inc., a Canadian holding corporation whose only material asset is
shares of stock in Saville Canada.
Certain shares of Saville Canada and Saville U.S. were retained by Invoice
Systems (Canada), Inc. ("Invoice Systems"). Over 94% of the voting securities
of Invoice Systems are owned or controlled by Bruce A. Saville, the Company's
founder and Chairman of the Board of Directors. At the time of the
restructuring, Invoice Systems entered into a share restriction and
contribution agreement with the Company, pursuant to which Invoice Systems is
prohibited from selling or transferring any securities of the Company, unless
it first contributes a proportionate percentage of its shares in each of the
subsidiaries to the Company. In addition, Invoice Systems must contribute all
of its remaining shares in the subsidiaries by September 1, 2005. Prior to
this offering, the minority interest retained by Invoice Systems represented
approximately 12% in each of the subsidiaries. Upon the sale of ADSs by
Invoice Systems (for the benefit of Bruce A. Saville) in this offering and the
corresponding contribution of shares in each of the subsidiaries, the minority
interest will represent approximately 8% in each of the subsidiaries
(approximately 8% if the Underwriters' over-allotment option is exercised in
full). See "Principal and Selling Shareholders" and Notes 1 and 8 of Notes to
Consolidated Financial Statements.
The Company was incorporated in the Republic of Ireland in June 1993 as
Saville Systems Ireland Limited, a private limited company. On November 9,
1995 the Company was re-registered as a public limited company and changed its
name to Saville Systems PLC. Unless the context otherwise requires, references
to the "Company" or to "Saville" are to Saville Systems PLC ("Saville
Ireland") and its consolidated subsidiaries. The Company's principal executive
office is located at IDA Business Park, Dangan, Galway, Ireland, and its
telephone number at that address from the United States is (011) 353-9-152-
6611. The address of the Company's United States subsidiary is 25 Burlington
Mall Road, Sixth Floor, Burlington, MA 01803 and its telephone number at that
address is (617) 270-6500. The address of the Company's Canadian subsidiary is
4445 Calgary Trail, Seventh Floor, Edmonton, AB Canada T6H 5R7 and its
telephone number at that address is (403) 430-2000.
REPORTS TO SHAREHOLDERS
The Company intends to furnish to its shareholders annual reports containing
audited consolidated financial statements and a report thereon by its
independent chartered accountants and quarterly reports for the first three
quarters of each fiscal year containing unaudited interim consolidated
financial information. The Company's consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 100,000 ADSs
representing 100,000 Ordinary Shares offered by the Company hereby are
estimated to be $2,563,750 after deducting estimated underwriting discounts
and commissions and offering expenses.
The Company expects to use the net proceeds for working capital and general
corporate purposes. Pending use of the net proceeds for the above purposes,
the net proceeds of this offering will be invested in investment-grade, short-
term, interest-producing investments, including governmental obligations and
other money market instruments, or in dividend-producing investments in
investment-grade companies.
DIVIDEND POLICY
On September 25, 1995, the Company paid a cash dividend of $3.0 million on
its Ordinary Shares, which it determined to pay primarily due to the
incurrence of certain tax liabilities by its majority shareholders as a result
of their ownership interests in the Company and the Company's classification
at that time as a "Controlled Foreign Corporation." See "Taxation." Except for
such payment, Saville has never declared or paid any cash dividends on its
Ordinary Shares. The Company currently intends to retain all future earnings
to finance future operations and therefore does not anticipate paying any cash
dividends in the foreseeable future. Moreover, under the Companies Acts of the
Republic of Ireland, dividends may only be paid out of the profits of the
Company legally available for distribution. See "Description of Share Capital"
and "Irish Exchange Control Regulations."
PRICE RANGE OF ADSS
The Company's ADSs have been traded on the Nasdaq National Market under the
symbol "SAVLY" since November 16, 1995. Each ADS represents one Ordinary Share
of the Company. Prior to November 16, 1995, neither the ADSs nor the Company's
Ordinary Shares were publicly traded. Neither the ADSs nor the Ordinary Shares
of the Company are traded on any market, foreign or domestic, other than the
trading of ADSs on the Nasdaq National Market. The following table sets forth,
for the periods indicated, the high and low sale prices of the ADSs as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
Fourth Quarter
(November 16, 1995 to December 29, 1995).................... $17.375 $ 9.50
1996
First Quarter................................................ $19.00 $13.875
Second Quarter
(April 1, 1996 to May 16, 1996)............................. $34.75 $18.625
</TABLE>
On May 16, 1996, the last reported sale price of the Company's ADSs was
$32.25 per ADS. The depositary for the ADRs representing the ADSs is the Bank
of New York (the "Depositary"), 48 Wall Street, New York, New York 10286. On
May 16, 1996, the Company had approximately 31 holders of Ordinary Shares of
record. The Depositary is the holder of record of the Ordinary Shares
evidenced by the ADSs.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to reflect the sale by the Company of 100,000 ADSs
representing 100,000 Ordinary Shares offered by the Company hereby and the
application of the estimated net proceeds therefrom as described in "Use of
Proceeds" and the reduction in the minority interest from 12% to approximately
8% in each of the subsidiaries as a result of the sale of ADSs by Invoice
Systems (for the benefit of Bruce A. Saville) and the corresponding
contribution of shares in each of the subsidiaries of the Company. This table
should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
PRO FORMA
AS
ACTUAL ADJUSTED(2)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt......................... $ 84 $ 84
======= =======
Long-term debt (excluding current portion)................ -- --
------- -------
Shareholders' equity:
Ordinary Shares, $0.0025 par value; 40,000,000 shares
authorized; 17,576,406 shares issued and outstanding;
17,676,406 issued and outstanding as adjusted(1)....... 44 44
Deferred Shares, IR(Pounds)1.00 par value; 30,000 shares
authorized, issued and outstanding..................... 48 48
Additional paid-in capital.............................. 23,591 26,180
Retained earnings....................................... 9,286 9,286
Cumulative translation account.......................... (49) (49)
------- -------
Total shareholders' equity............................ 32,920 35,509
------- -------
Total capitalization................................. $32,920 $35,509
======= =======
</TABLE>
- --------
(1) Excludes 1,836,299 Ordinary Shares reserved for issuance upon exercise of
options outstanding as of March 31, 1996 at a weighted average exercise
price of $6.61 per Ordinary Share (of which options to purchase 422,213
Ordinary Shares were then exercisable). See "Management--Share Options."
(2) Excludes any proceeds to the Company from the possible exercise of options
to purchase up to 77,000 Ordinary Shares by certain Selling Shareholders
in connection with this offering.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below have been derived
from the consolidated financial statements of the Company for the periods
indicated, which, except in the case of the consolidated financial statements
for the year ended December 31, 1991 and the three months ended March 31, 1995
and 1996, have been audited by Ernst & Young, independent auditors. Management
believes that the unaudited consolidated financial statements for the year
ended December 31, 1991 and the unaudited interim consolidated financial
statements for the three months ended March 31, 1995 and 1996 reflect all
adjustments, consisting only of normal and recurring adjustments, necessary
for a fair presentation of the financial data for such periods. Results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the entire year. This selected
consolidated financial data should be read in conjunction with the audited
Consolidated Financial Statements and the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME (LOSS) DATA:
Revenues:
Services............... $ 4,097 $ 4,967 $ 8,857 $17,597 $25,084 $ 5,845 $ 9,032
License fees........... -- -- 452 2,476 5,212 1,617 1,523
------- ------- ------- ------- ------- ------- -------
Total revenues....... 4,097 4,967 9,309 20,073 30,296 7,462 10,555
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of services....... 2,531 2,989 5,038 8,640 12,221 2,878 4,478
Cost of license fees... -- -- 9 31 65 14 22
Sales and marketing.... 267 239 862 1,391 1,519 333 637
Research and
development........... -- -- -- 184 1,591 133 860
General and
administrative........ 1,799 2,022 3,385 2,971 6,784 1,403 2,321
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 4,597 5,250 9,294 13,217 22,180 4,761 8,318
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (500) (283) 15 6,856 8,116 2,701 2,237
Other income
(expense), net........ (32) (45) 7 252 208 75 243
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... (532) (328) 22 7,108 8,324 2,776 2,480
Provision for income
taxes................. (5) 8 32 1,597 1,872 732 440
------- ------- ------- ------- ------- ------- -------
Income (loss) before
minority interest..... (527) (336) (10) 5,511 6,452 2,044 2,040
Minority interest
share in
subsidiaries' net
income (loss)(1)...... (66) 7 (23) 154 70 6 (2)
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ (461) $ (343) $ 13 $ 5,357 $ 6,382 $ 2,038 $ 2,042
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share................. $ (0.03) $ (0.02) $ 0.00 $ 0.34 $ 0.40 $ 0.13 $ 0.11
======= ======= ======= ======= ======= ======= =======
Dividends per share.... -- -- -- -- $ 0.19 -- --
======= ======= ======= ======= ======= ======= =======
Shares used in
computing net income
(loss) and dividends
per share ............ 15,667 15,667 15,667 15,721 16,151 15,797 18,685
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents.... $ 28 $ 14 $ 697 $3,509 $23,772 $21,449
Working capital (deficiency). (137) (238) (13) 5,800 28,109 29,767
Total assets................. 1,471 1,606 3,207 9,857 36,031 38,822
Long-term debt (excluding
current portion)............ 352 560 -- 689 44 --
Total shareholders' equity
(deficit)................... (87) (468) 189 5,452 30,924 32,920
</TABLE>
- --------
(1) In connection with the restructuring of the Company effected in September
1995, certain shares of the Company's Canadian and United States
subsidiaries were retained by Invoice Systems. Invoice Systems has agreed
not to sell or transfer any securities of the Company, unless it
contributes a proportionate number of shares in each of the subsidiaries
to the Company. Invoice Systems must contribute all of its shares in the
subsidiaries no later than September 1, 2005. Prior to the initial public
offering of the ADSs in November 1995 and prior to this offering, the
minority interest retained by Invoice Systems represented approximately
15% and 12%, respectively, in each of the subsidiaries, which amounts have
been reflected in the consolidated financial data contained herein. Upon
the sale of ADSs by Invoice Systems (for the benefit of Bruce A. Saville)
in this offering and the corresponding contribution of shares in each of
the subsidiaries, the minority interest will represent approximately 8% in
each of the subsidiaries (approximately 8% if the Underwriters' over-
allotment option is exercised in full). See "The Company," "Principal and
Selling Shareholders" and Notes 1 and 8 of Notes to Consolidated Financial
Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company creates innovative, high quality, customized billing solutions
for service providers in the global telecommunications industry. The Company
utilizes its library of proprietary software to provide its customers with
customized, flexible, cost-effective billing systems. Saville typically
continues its relationships with customers by implementing new systems as the
customers enter new service categories or geographic markets and by further
developing and enhancing installed systems in response to its customers'
needs. In addition, Saville offers its customers the option of having Saville
operate the billing system in one of the Company's in-house service bureaus.
The Company's strategy is to continue targeting growth-oriented
telecommunications service providers by leveraging its multi-market experience
and to establish and maintain long-term relationships with its customers. The
successful implementation of the Company's strategy has resulted in revenue
growth over the comparable preceding period of 115.6% and 50.9% in 1994 and
1995, respectively, and of 41.5% in the three months ended March 31, 1996. A
significant portion of the Company's revenues has been concentrated among its
four largest customers: AT&T, Energis, Sprint and Unitel. These customers, in
the aggregate, accounted for 73.4% of total revenues in 1995 and 73.0% of
total revenues for the three months ended March 31, 1996.
The Company derives revenues from two sources: services and license fees.
Revenues from services relate (i) primarily to the development of new systems
and enhancement of existing installed systems and related customer maintenance
and training, which is largely billed on a time and materials basis, and (ii)
to a lesser extent, service bureau operations, whereby a customer contracts
with the Company to operate its billing system in a Company-maintained service
bureau. Service revenues accounted for 95.1%, 87.7%, 82.8% and 85.6% of total
revenues for 1993, 1994 and 1995 and the three months ended March 31, 1996,
respectively. The Company recognizes revenues from services in the period in
which the services are provided. License fees comprise the remainder of the
Company's revenues and are largely recognized at the time of delivery of the
product to the customer, provided that the Company has no significant related
obligations or collection uncertainties remaining. Where there are significant
obligations related to the development and enhancement of the software
installed, license fees are recorded over the expected term of the related
contracts. As a result, the amount of revenues realized by the Company from
license fees in a particular period depends largely on the number of product
installations during that period, and the extent to which any significant
obligations are outstanding.
Cost of services is comprised primarily of the salaries and benefits of
software development, technical, service bureau and client service personnel.
It also includes operating costs of computer equipment and travel expenses.
Cost of license fees consists of the royalty expense for use by the Company
of software that the Company has developed for clients and that is
incorporated into the Company's base software.
Sales and marketing expenses consist of the salaries and benefits of those
employees involved in this function as well as related travel and promotional
expenses.
Research and development expenses are comprised of the salaries and benefits
of the employees involved in internal software development. Prior to 1994,
Company software was developed for customer applications, and related expenses
were included in costs of services for those periods. In 1994, the Company
commenced internally funded research and development efforts. To date, the
Company has not capitalized any software development costs.
15
<PAGE>
General and administrative expenses consist mainly of the salaries and
benefits of management and administrative personnel and general office
administration expenses (rent and occupancy, telephone and other office supply
costs) of the Company. It also includes training and recruitment expenses for
all employees, professional fees and depreciation.
In connection with the restructuring of the Company effected in September
1995, certain shares of Saville U.S. and Saville Canada were retained by
Invoice Systems. Over 94% of the voting securities of Invoice Systems are
owned or controlled by Bruce A. Saville, the Company's founder and Chairman of
the Board of Directors. Immediately after the restructuring, the minority
interest retained by Invoice Systems represented approximately 15% in each of
the subsidiaries, which interest was reduced to approximately 12% following
the Company's initial public offering in November 1995, and these amounts have
been reflected in the Consolidated Financial Statements and consolidated
financial data included herein. Invoice Systems has agreed not to sell or
transfer any securities of the Company, unless it contributes a proportionate
number of shares in each of the subsidiaries to the Company, and in any event
to contribute all of its remaining interest in the subsidiaries to the Company
by September 1, 2005. As a result of the sale of ADSs by Invoice Systems (for
the benefit of Bruce A. Saville) in this offering and the corresponding
contribution of shares in each of the subsidiaries to the Company, the
minority interest will be reduced to approximately 8% (approximately 8% if the
Underwriters' over-allotment option is exercised in full). No assurance can be
made as to the rate at which the remaining minority interest will be
contributed to the Company, if at all, prior to September 1, 2005.
The Company earns significant taxable income in the Republic of Ireland, the
"manufacturing income" of which is taxed at a rate substantially lower than
tax rates in the United States and Canada. The Company anticipates that it
will continue to benefit from this tax treatment until the treatment
terminates in 2010, although the extent of the benefit could vary from period
to period, and there can be no assurance that the Company's tax situation will
not change. See "Risk Factors--Risk of Increasing Taxes."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items in the Company's Consolidated
Statements of Income.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------- --------------------
1993 1994 1995 1995 1996
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Services........................... 95.1% 87.7% 82.8% 78.3% 85.6%
License fees....................... 4.9 12.3 17.2 21.7 14.4
----- ----- ----- --------- ---------
Total revenues.................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- --------- ---------
Costs and expenses:
Cost of services................... 54.0 43.0 40.3 38.5 42.4
Cost of license fees............... 0.1 0.2 0.2 0.2 0.2
Sales and marketing................ 9.3 6.9 5.0 4.5 6.0
Research and development........... 0.0 0.9 5.3 1.8 8.2
General and administrative......... 36.4 14.8 22.4 18.8 22.0
----- ----- ----- --------- ---------
Total costs and expenses.......... 99.8 65.8 73.2 63.8 78.8
----- ----- ----- --------- ---------
Income from operations.............. 0.2 34.2 26.8 36.2 21.2
Other income, net.................. 0.0 1.3 0.7 1.0 2.3
----- ----- ----- --------- ---------
Income before income taxes.......... 0.2 35.5 27.5 37.2 23.5
Provision for income taxes......... 0.3 8.0 6.2 9.8 4.2
----- ----- ----- --------- ---------
Income (loss) before minority inter-
est................................ (0.1) 27.5 21.3 27.4 19.3
Minority interest share in subsidi-
aries' net income (loss).......... (0.2) 0.8 0.2 0.1 0.0
----- ----- ----- --------- ---------
Net income......................... 0.1% 26.7% 21.1% 27.3% 19.3%
===== ===== ===== ========= =========
</TABLE>
16
<PAGE>
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Revenues. Total revenues increased 41.5% from $7.5 million in the three
months ended March 31, 1995 to $10.6 million in the three months ended March
31, 1996. The growth in total revenues resulted from increased demand for the
Company's services.
Services. Service revenues increased 54.5% from $5.8 million in the three
months ended March 31, 1995 to $9.0 million in the three months ended March 31,
1996. The increase in service revenues was primarily due to increased demand
for software enhancements from existing clients and, to a lesser extent,
customizations for new clients.
License Fees. License fee revenues remained relatively constant at $1.6
million in the three months ended March 31, 1995 compared to $1.5 million in
the three months ended March 31, 1996. License fee revenues are largely
dependent on the number of installations in the period.
Cost of Services. Cost of services increased 55.6% from $2.9 million in the
three months ended March 31, 1995 to $4.5 million in the three months ended
March 31, 1996, but remained relatively constant as a percentage of service
revenues, increasing slightly from 49.2% to 49.6% over the same periods,
respectively. The increase in expenses was primarily due to additional
personnel hired to support the increased volume of business.
Cost of License Fees. Cost of license fees increased 57.1% from $14,000 in
the three months ended March 31, 1995 to $22,000 in the three months ended
March 31, 1996. This increase was due to employee sales commissions earned on a
new installation, partially offset by a reduction in royalties paid to a third
party in connection with certain license fees.
Sales and Marketing. Sales and marketing expenses increased 91.3% from
$333,000 in the three months ended March 31, 1995 to $637,000 in the three
months ended March 31, 1996. This increase was primarily due to the expansion
of the Company's sales force in the latter half of 1995. The Company
anticipates that continued expansion of its sales force in North America and
its intention to establish a stronger sales presence in Europe will increase
its sales and marketing expenses through the remainder of 1996.
Research and Development. Research and development expenses increased from
$133,000 in the three months ended March 31, 1995 to $860,000 in the three
months ended March 31, 1996. This increase was due to increased development
efforts by the Company in creating new and enhanced billing and customer care
products. To date, the Company has not capitalized any software development
costs. The Company intends to continue to increase its investment in research
and development efforts in the future and expects that research and development
expenses will increase as a percentage of revenues in future periods.
General and Administrative. General and administrative expenses increased
65.4% from $1.4 million in the three months ended March 31, 1995 to $2.3
million in the three months ended March 31, 1996. This increase was
attributable to the costs of building infrastructure to support the growth in
the Company's employee base and the expansion of the Company's business.
Other Income (Expense), Net. Other income (expense), net primarily includes
interest income, interest expense and foreign exchange gains and losses. Other
income, net of other expenses, increased 224.0% from $75,000 in the three
months ended March 31, 1995 to $243,000 in the three months ended March 31,
1996. This increase was primarily the result of interest earned on cash and
cash equivalents from the net proceeds from the Company's initial public
offering in November 1995.
Provision for Income Taxes. The Company recorded a tax provision of $732,000
in the three months ended March 31, 1995 representing a 26.4% effective tax
rate compared to $440,000 representing a 17.7% effective tax rate in the three
months ended March 31, 1996. The Company's effective tax rate is largely
dependent on the proportion of the Company's income earned in different tax
jurisdictions. The
17
<PAGE>
Company is currently eligible for a 10% tax rate on "manufacturing income"
earned in the Republic of Ireland. The rate is not available for other types
of income such as income earned by the Company on its cash investments. This
eligibility is the reason that the Company's effective tax rate is below the
Irish standard rate of 38%, and below the statutory rates of Canada and the
United States. There can be no assurances that the Company will continue to be
eligible for this 10% tax rate in future periods. See "Risk Factors--Risk of
Increasing Taxes" and "Taxation."
YEARS ENDED DECEMBER 31, 1994 AND 1995
Revenues. Total revenues increased 50.9% from $20.1 million in 1994 to $30.3
million in 1995. A substantial portion of the growth in total revenues
resulted from an increase in revenues from the Company's existing client base.
Both service and license fee revenues increased as described below.
Services. Service revenues increased 42.5% from $17.6 million in 1994 to
$25.1 million in 1995. The increase was due to more developmental programming
services being provided to existing clients by way of enhancements to existing
installations and through development of new projects for clients on both
AS/400 and UNIX platforms. Service bureau revenues also contributed to this
overall increase as service bureau revenues increased 46.9% from $2.6 million
in 1994 to $3.8 million in 1995, due to growth in existing service bureau
clients' call traffic and, to a lesser extent, to new clients choosing to
utilize the Company's service bureaus.
License Fees. License fee revenues increased 110.5% from $2.5 million in
1994 to $5.2 million in 1995. Two new AS/400 installations were completed in
1995 and three license fees were earned on two partially completed UNIX
projects and one partially completed AS/400 project. The remainder of the fees
on these incomplete projects are expected to be earned in the first half of
1996 as the Company completes the development and enhancement for these
projects. In addition, during 1995, the Company continued to earn license fees
with respect to installations made in prior years as the Company completed
certain work on such installations resulting in additional license fees.
Cost of Services. Cost of services increased 41.4% from $8.6 million in 1994
to $12.2 million in 1995, but decreased slightly as a percentage of service
revenues from 49.1% to 48.7%. The increase in total expenses was primarily due
to additional personnel hired during the period to support the growth of the
Company's business.
Cost of License Fees. Cost of license fees increased 109.7% from $31,000 in
1994 to $65,000 in 1995 due to the increase in license fees earned by the
Company which, in turn, required the Company to pay additional royalties.
Sales and Marketing Expenses. Sales and marketing expenses increased 9.2%
from $1.4 million in 1994 to $1.5 million in 1995, but decreased as a
percentage of total revenues from 6.9% to 5.0%. Sales and marketing expenses
in 1994 included a settlement payment of $740,000 related to the termination
of a service contract for marketing of the Company's software with a former
executive and shareholder. Excluding this settlement payment, sales and
marketing expenses increased $868,000 and increased as a percentage of total
revenues from 3.2% to 5.0%. The increase in 1995 was due primarily to the
development of a direct sales force within North America.
Research and Development Expenses. Prior to 1994, Company software was
developed for customer applications, and related expenses were included as
part of cost of services in those periods. Research and development expenses
increased from $184,000 in 1994 to $1.6 million in 1995. In 1994, the Company
commenced internally funded research and development efforts. This increase is
attributable to additional development efforts undertaken during 1995 with
respect to the UNIX-based billing software being developed jointly with AT&T,
and continued internally funded research and development efforts on the AS/400
product.
18
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased 128.3% from $2.9 million in 1994 to $6.8 million in 1995. These
expenses also increased as a percentage of total revenues from 14.8% to 22.4%.
This increase in expenses was primarily attributable to the growth in the
business of the Company. Significant areas in which the Company increased
spending included the addition of senior and middle management, employee
training, relocation to larger office space in both Edmonton and Toronto and
general expenses related to an increased number of employees. In addition, in
1995 the Company recorded an allowance for doubtful accounts of $370,000 and
compensation expenses of $95,000 in connection with certain options that were
granted to employees having an exercise price below the then fair market
value.
Other Income (Expense), Net. Other income decreased 17.5% from $252,000 in
1994 to $208,000 in 1995. The Company's increased profitability, and the
proceeds from the Company's public offering in 1995 resulted in the Company
having substantially higher cash balances which, in turn, generated greater
interest income. This increase in income was partially offset, however, by
foreign exchange losses.
Provision for Income Taxes. The Company recorded a tax provision of $1.6
million in 1994, representing an effective tax rate of 22.5%, as compared to a
provision of $1.9 million in 1995, representing an effective tax rate of
22.4%. The rate may vary period to period due to income being earned in
different jurisdictions. The Company is currently eligible for a 10% tax rate
on "manufacturing income" earned in the Republic of Ireland. The rate is not
available for other types of income, such as income earned by the Company on
its cash investments. This eligibility is the reason that the Company's
effective tax rate is below the Irish standard rate of 38%, effective April 1,
1995, and below the statutory rates of Canada and the United States. There can
be no assurance that the Company will continue to be eligible for this 10% tax
rate. See "Risk Factors--Risk of Increasing Taxes" and "Taxation."
YEARS ENDED DECEMBER 31, 1993 AND 1994
Revenues. Total revenues increased 115.6% from $9.3 million in 1993 to $20.1
million in 1994. A substantial portion of the growth in total revenues
resulted from an increase in revenues from AT&T and the addition of Energis as
a significant customer. Both service and license fee revenues increased as
described below.
Services. Service revenues increased 98.7% from $8.9 million in 1993 to
$17.6 million in 1994. Prior to 1993, the Company began its involvement with
two major U.S. telecommunications service providers as well as Canada's second
largest long distance carrier. In late 1993, the Company commenced development
in Europe for its fourth major client. The increase in service revenues in
1994 was primarily attributable to the increase in both developmental
programming services and service bureau operations for this European client
and the Company's other major clients in 1994.
License Fees. Until 1993, the Company did not charge a license fee to its
clients. License fee revenues increased 447.8% from $452,000 in 1993 to $2.5
million in 1994. The increase in license fees from 1993 to 1994 was due to two
new site installations of billing software in 1994 for which development and
enhancement was ongoing throughout the year. In addition, license fees earned
in 1994 on an installation made in 1993 increased from prior year amounts due
to a change in the formula used to calculate the fee and the increase in the
call volume. The balance of license fee revenues in 1994 related to an
installation made by the Company in 1993 with additional license fee payment
requirements as the Company completed additional work on that installation.
Cost of Services. Cost of services increased 71.5% from $5.0 million in 1993
to $8.6 million in 1994. As a percentage of service revenues, however, cost of
services decreased from 56.9% to 49.1%. The dollar increases in cost of
services were primarily due to additional personnel hired to support the
growth in the Company's business. Cost of services decreased as a percentage
of service revenues as a result of a change in the sales mix weighted towards
higher-margined services.
19
<PAGE>
Cost of License Fees. The Company began to recognize cost of license fees
during 1993 at the same time that it began to recognize license fee revenues.
Cost of license fees increased 244.4% from $9,000 in 1993 to $31,000 in 1994
due to the increase in license fees earned by the Company which, in turn,
required the Company to pay additional royalties.
Sales and Marketing Expenses. Sales and marketing expenses increased 61.4%
from $862,000 in 1993 to $1.4 million in 1994. Sales and marketing expenses of
$1.4 million in 1994 included a $740,000 settlement payment in connection with
the termination of a services contract for marketing of the Company's software
with a former executive and shareholder. Excluding this settlement payment,
sales and marketing expenses decreased 24.5% from $862,000 in 1993 to $651,000
in 1994. As a percentage of revenues, sales and marketing expenses decreased
from 9.3% to 6.9%. The 1993 expenses included substantial consulting service
fees paid to a former executive and shareholder with respect to his
involvement in sales and marketing. Those consulting services terminated in
the first half of 1994 (resulting in the settlement payment described above).
The current Chairman of the Board of the Company was primarily responsible for
sales and marketing during 1994. Accordingly, a substantial portion of sales
and marketing expenses for 1994 was an allocation of the compensation paid to
the Chairman of the Board for his time spent on sales and marketing.
Research and Development Expenses. Prior to 1994, Company software was
developed for customer applications, and related expenses were included as
part of cost of services in those periods. In 1994, the Company commenced
internally funded research and development efforts. Research and development
expenses were $184,000 in 1994. This amount was primarily attributable to
development efforts undertaken with respect to the UNIX-based billing software
being developed jointly with AT&T.
General and Administrative Expenses. General and administrative expenses
decreased 12.2% from $3.4 million in 1993 to $3.0 million in 1994. As a
percentage of total revenues, these expenses decreased from 36.4% to 14.8%. In
1994, the Company recorded compensation expense of $12,000 in connection with
certain options that were granted to employees having an exercise price below
the then fair market value. The relatively higher general and administrative
expenses in 1993, as compared to 1994, was attributable to a number of
factors, including $1.4 million in management bonuses paid primarily to the
former President and, at that time, majority shareholder of the Company
(currently serving as Chairman of the Board), largely offset by higher
management salaries, bonuses, recruitment fees incurred in connection with the
search for a new senior management team for the Company, professional fees
incurred in connection with the completion of contracts with significant new
clients, and increases in general and administrative expenses to support the
growth in the Company's business.
Other Income (Expense), Net. Other income increased from $7,000 in 1993 to
$252,000 in 1994 primarily due to the Company's higher profits in 1994 which
resulted in greater cash reserves earning interest during that period and
because of foreign currency gains.
Provision for Income Taxes. In 1993, the tax provision of the Company was
$32,000 and in 1994 the tax provision was $1.6 million. The Company's
effective tax rate in 1994 was 22.5%. The Company did not begin operations in
the Republic of Ireland until 1993, and as a result, the 1993 tax provision
relates to the entity which is now the Company's Canadian subsidiary. The
Company is eligible for a 10% tax rate on "manufacturing income" earned in the
Republic of Ireland. This rate is not available for other types of income,
such as income earned by the Company on its cash investments. This eligibility
is the reason that the Company's effective tax rate is below the Irish
standard rate of 38%, effective April 1, 1995, and below the statutory rates
of Canada and the United States. There can be no assurance that the Company
will continue to be eligible for this 10% tax rate. See "Risk Factors--Risk of
Increasing Taxes" and "Taxation."
20
<PAGE>
QUARTERLY INFORMATION
The following table presents selected unaudited consolidated financial
information for the Company's last nine quarters, as well as the percentage of
the Company's total revenues represented by each item. In the opinion of the
Company's management, this unaudited information reflects all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
this information when read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. The
Company's operating results for any one quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31 MARCH 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
--------- -------- --------- -------- --------- -------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Services............... $3,723 $4,282 $4,524 $5,068 $5,845 $6,549 $5,807 $6,883 $ 9,032
License fees........... 216 463 926 871 1,617 1,054 1,239 1,302 1,523
------ ------ ------ ------ ------ ------ ------ ------ -------
Total revenues........ 3,939 4,745 5,450 5,939 7,462 7,603 7,046 8,185 10,555
------ ------ ------ ------ ------ ------ ------ ------ -------
Costs and expenses:
Cost of services....... 1,861 1,944 2,164 2,671 2,878 2,957 2,930 3,456 4,478
Cost of license fees... 6 5 10 10 14 15 24 12 22
Sales and marketing.... 192 879 133 187 333 332 370 484 637
Research and
development........... 8 45 63 68 133 289 553 616 860
General and
administrative........ 418 630 834 1,089 1,403 1,666 1,687 2,028 2,321
------ ------ ------ ------ ------ ------ ------ ------ -------
Total costs and
expenses............. 2,485 3,503 3,204 4,025 4,761 5,259 5,564 6,596 8,318
------ ------ ------ ------ ------ ------ ------ ------ -------
Income from operations.. 1,454 1,242 2,246 1,914 2,701 2,344 1,482 1,589 2,237
Other income (expense),
net................... (3) 54 -- 201 75 57 8 68 243
------ ------ ------ ------ ------ ------ ------ ------ -------
Income before income
taxes.................. 1,451 1,296 2,246 2,115 2,776 2,401 1,490 1,657 2,480
Provision for income
taxes................. 397 152 530 518 732 475 388 277 440
------ ------ ------ ------ ------ ------ ------ ------ -------
Income before minority
interest............... 1,054 1,144 1,716 1,597 2,044 1,926 1,102 1,380 2,040
Minority interest share
in subsidiaries' net
income (loss)......... 98 10 46 -- 6 37 48 (21) (2)
------ ------ ------ ------ ------ ------ ------ ------ -------
Net income............ $ 956 $1,134 $1,670 $1,597 $2,038 $1,889 $1,054 $1,401 $ 2,042
====== ====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
--------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Services............... 94.5% 90.2% 83.0% 85.3% 78.3% 86.1% 82.4% 84.1% 85.6%
License fees........... 5.5 9.8 17.0 14.7 21.7 13.9 17.6 15.9 14.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Costs and expenses:
Cost of services....... 47.2 41.0 39.7 45.0 38.5 38.9 41.6 42.2 42.4
Cost of license fees... 0.2 0.1 0.2 0.2 0.2 0.2 0.3 0.2 0.2
Sales and marketing.... 4.9 18.5 2.4 3.2 4.5 4.4 5.3 5.9 6.0
Research and
development........... 0.2 0.9 1.2 1.1 1.8 3.8 7.9 7.5 8.2
General and
administrative........ 10.6 13.3 15.3 18.3 18.8 21.9 23.9 24.8 22.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total costs and
expenses............. 63.1 73.8 58.8 67.8 63.8 69.2 79.0 80.6 78.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from operations.. 36.9 26.2 41.2 32.2 36.2 30.8 21.0 19.4 21.2
Other income (expense),
net................... (0.0) 1.1 0.0 3.4 1.0 0.8 0.1 0.8 2.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................. 36.9 27.3 41.2 35.6 37.2 31.6 21.1 20.2 23.5
Provision for income
taxes................. 10.1 3.2 9.8 8.7 9.8 6.3 5.5 3.4 4.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before minority
interest............... 26.8 24.1 31.4 26.9 27.4 25.3 15.6 16.8 19.3
Minority interest share
in subsidiaries' net
income (loss)......... 2.5 0.2 0.8 0.0 0.1 0.5 0.7 (0.3) 0.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income............ 24.3% 23.9% 30.6% 26.9% 27.3% 24.8% 14.9% 17.1% 19.3%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors such as increased competition,
the size and timing of significant client projects and license fees,
cancellations of significant projects by customers, changes in operating
expenses, changes in Company strategy, personnel changes, foreign currency
exchange rates and general economic factors. See "Risk Factors--Fluctuations
in Quarterly Operating Results."
The Company's expense levels are based, in part, on its expectations as to
future revenues. If revenue levels are below expectations, operating results
are likely to be adversely affected. Net income may be disproportionately
affected by a reduction in revenues because a proportionately smaller amount
of the Company's expenses varies with its revenues. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance.
During 1995 and the first three months of 1996, the Company made significant
investments in personnel and infrastructure to support anticipated future
growth. These strategic investments have adversely impacted earnings in the
second half of 1995 and the first quarter of 1996, and the Company expects
that these strategic investments will continue to impact earnings in the short
term.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $2.3 million from $23.7 million at
December 31, 1995 to $21.4 million at March 31, 1996. The decrease was
primarily due to an increase in accounts receivable. Funds were also used to
purchase fixed assets and to repay capital lease obligations.
As of March 31, 1996 the Company had $12.7 million in net accounts
receivable. As of April 29, 1996, the Company had collected 29.5% of the
balance. Approximately $397,000 of the balance remaining outstanding is
greater than 180 days old. The age of the accounts as of March 31, 1996 was
comparable with recent quarters.
As of May 1, 1996, the Company had no material commitments for capital
expenditures. The Company believes that the net proceeds from the sale of the
ADSs in this offering, together with existing cash balances and funds
generated by operations, will be sufficient to meet its anticipated liquidity
and working capital requirements for at least the next twelve months.
FOREIGN CURRENCY EXPOSURE
Sales outside of the United States represented a significant portion of the
Company's total revenues in 1995 and the first three months of 1996. A
substantial amount of the Company's revenues derived from sales outside the
United States are invoiced and paid in currencies other than the United States
dollar, primarily Pounds Sterling and Canadian dollars. The impact of foreign
currency translation has not been material to the Company's operations. See
"Risk Factors--Currency Fluctuations."
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS 123 "Accounting for
Stock Based Compensation." which is effective for the Company's December 31,
1996 year end. SFAS 123 allows an entity to continue the application of the
accounting prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued To Employees," however, pro forma footnote
disclosures of net income and earnings per share, as if SFAS 123 had been
applied are required. The Company intends to continue its current accounting
under APB No. 25 and provide the required pro forma footnote disclosures
commencing with its fiscal 1996 year end financial statements.
23
<PAGE>
BUSINESS
Saville creates innovative, high quality, customized billing solutions for
service providers in the increasingly competitive global telecommunications
industry. The Company's billing systems are designed to enable these service
providers to quickly bring new offerings in voice, video and data
communications to market, while billing accurately and reliably for these
services. Working closely with its customers, Saville utilizes its library of
proprietary software applications to provide each customer with a customized,
flexible and cost-effective billing solution. The Company has typically
continued to serve as a billing partner for its customers by implementing new
systems as the customer enters new service categories or geographic markets,
and by further developing and enhancing the customer's installed systems in
response to changes in the customer's service offerings, marketing strategies
and network technology. In addition, Saville offers its customers the option
of having Saville operate the billing system in one of the Company's in-house
service bureaus.
The Company's systems are designed to operate in a multiservice environment,
capable of billing local exchange, long distance and wireless (cellular,
paging and satellite) telecommunications services for service providers
offering programs with subscribers numbering in the thousands to subscribers
numbering in the millions. Saville's billing systems may be implemented to
support discrete service offerings of large telecommunications service
providers, including industry-leading customers such as AT&T and Sprint, or as
the complete billing system of emerging and small- to medium-sized
telecommunications service providers, including customers such as Energis, a
United Kingdom long distance carrier, and Frontier, a local exchange carrier
serving Rochester, New York.
INDUSTRY BACKGROUND
The Telecommunications Industry
The telecommunications services industry in the United States generated over
$190 billion in revenue in 1994 and is becoming increasingly competitive due
to deregulation and the development of new service technologies. Competition
in this market began to increase in 1984 when AT&T was required to divest its
local telephone operations, and the long distance market was opened to new
entrants. By 1994, there were over 500 long distance service providers in a
market that was primarily dominated by AT&T a decade earlier. New long
distance competitors, such as MCI Communications Corp. ("MCI") and Sprint,
initially competed by providing discounted service and later by offering new
features and services, such as customized usage-based calling plans. As a
result of increased competition, consumer long distance rates have been
reduced by over 60% from 1984 to 1994 while overall long distance industry
revenues have increased from $38.8 billion in 1984 to $67.4 billion in 1994.
Local exchange primarily remains a regulated market. Improved switching
technology is permitting local exchange telecommunications service providers
to offer a variety of new features and services to their customers such as
caller ID, call waiting, voice mail and others. New service-based
technologies, which facilitated the commercial introduction of cellular
telephony in the mid-1980's and the current licensing of radio frequencies
allocated for Personal Communications Services ("PCS"), have substantially
increased the complexity and variety of telecommunications services, as
providers seek to compete and differentiate themselves with enhanced
telecommunications service offerings.
The Telecommunications Act of 1996 is expected to increase competition in
the telecommunications service market in the United States by allowing local,
long distance and cable companies to offer competing services, provided they
meet specified regulatory benchmarks. Many service providers are expected to
compete by offering multiple services, including combinations of local
exchange, long distance, wireless and data communications services, to
customers in single geographic markets.
Internationally, privatization and deregulation are resulting in increased
international competition and the emergence of newly authorized
telecommunications service providers. For example, approximately
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150 new communications licenses were granted in the United Kingdom during the
period between 1991 and 1995. When new markets are opened to competition,
local and emerging service providers within these markets typically compete
for market share with more established carriers, such as AT&T and British
Telecommunications PLC, initially by providing access to service and then by
providing competitive prices and introducing new features and services. In
addition, technological advances and global expansion by multinational service
providers are opening markets in less developed countries to enhanced
telecommunications services and competition.
As a result of these factors, telecommunications service providers are
differentiating themselves by being more responsive to customers and by
expanding the number of telecommunications services and features they offer.
These trends, in turn, have created the need for sophisticated and flexible
billing solutions. Telecommunications service providers can compete only if
they are able to efficiently and accurately bill customers for the varied
services and features they provide.
Telecommunications Billing
Telecommunications billing is the process of collecting and pricing customer
telecommunications usage in order to generate residential and business
telephone invoices for local, long distance and wireless service. Billing
systems typically interact with most aspects of the telecommunications network
and generally incorporate data collection, processing and invoice generation.
The billing function continues to evolve from primarily a service support
function to a revenue enhancement tool used to differentiate services, such as
competitive long distance rate plans offered by AT&T, Sprint, MCI and others.
Within the regulated local exchange market, billing systems support features
made available by new switching technologies such as caller ID, call waiting
and voice mail. The rapid pace of technological change coupled with the
emphasis on time to market for new services and features places a significant
burden on the telecommunications service provider to install and then modify
its billing system quickly. This has created significant demand for software
that can perform all functions in a timely, accurate, cost-effective manner
for a variety of services.
Established telecommunications service providers have existing billing
systems, many of which are maintained in-house. Frequently, however, these
systems were designed prior to deregulation to provide a single-service
billing function. These older systems generally are difficult to maintain and
modify and often do not meet the multiple and evolving needs of the
telecommunications service provider. Many of these service providers are
therefore seeking to replace or augment their in-house billing systems through
outsourced billing solutions.
Many emerging telecommunications service providers lack billing systems. One
of the primary challenges that these newer service providers face is to bring
new services to market quickly. They typically focus their capital resources
on developing networking and switching technology and on creating marketable
services rather than on creating billing systems. These providers typically
seek external billing solutions because efficient, flexible billing solutions
are often too costly and time consuming to develop internally.
THE SAVILLE SOLUTION
Saville provides advanced billing solutions that address a spectrum of
billing and customer care functions, ranging from sales support and order
processing, through actual invoice calculation and production to management
reporting and marketing analysis. The Company's billing systems are designed
to enable telecommunications service providers to meet their primary
competitive objectives, including:
. Reducing costs of development, implementation, operation and
enhancement of core systems
. Reducing time to market for new services and features
. Improving marketing and planning through better customer information
. Enhancing customer retention by providing accurate and useful
information to customers
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Saville has developed, and continuously refines, its sophisticated base
software applications, which it combines and customizes to meet the current
and evolving requirements of its customers. The Company develops close,
ongoing relationships with its customers to identify customer needs, and then
designs and implements a customized billing solution that can operate on a
stand-alone basis or interface with a provider's existing billing system.
Saville typically continues to work closely with its customers after initial
implementation, particularly as customers require additional customized
billing applications that enable them to offer new features and services,
expand into additional geographic markets or operate with new network
technologies and protocols. In addition, the Company provides ongoing support,
maintenance and training related to the customer's billing system. Saville
also offers its customers the option of retaining the Company to operate all
or part of the customized billing system at a Company-maintained service
bureau.
In order to meet the significant technological challenges in developing and
implementing telecommunications billing software, as of March 31, 1996, 315 of
Saville's 447 employees were dedicated primarily to software development. The
experience and expertise of Saville's personnel enable Saville to provide
billing solutions for the varied requirements of the Company's global client
base, which includes local exchange, long distance and wireless service
providers, as well as providers of other specialty applications, such as data
communications and audio- and video-conferencing services. The Company has
developed relationships with customers ranging from small service providers to
industry leaders such as AT&T and Sprint. Based on its experience with these
customers, the Company believes that it is a leader in providing billing
software systems for small- to medium-sized telecommunications service
providers as well as to large telecommunications service providers that
utilize the Company's software and services to support new market expansions
or as an integral component of a larger billing system.
STRATEGY
The Company's objective is to be a market leader in providing billing
solutions to the global telecommunications industry. The critical elements of
the Company's strategy include:
Develop and Maintain Long-Term Customer Relationships. Saville seeks to
establish and maintain long-term working relationships with its customers,
which enable the Company to gain an ongoing understanding of customer needs.
The implementation of features that meet these needs makes the Company's
billing solutions a critical competitive component of the customer's service
offering. This customer-driven focus is key to creating a loyal customer base
and providing product direction. In 1995, 99.0% of the Company's total
revenues was derived from service providers who were customers in 1994.
Focus on Growth-Oriented Telecommunications Service Providers and Leverage
Existing Multi-Market Experience. The Company's marketing emphasis is on two
types of telecommunications service providers. First, the Company focuses on
existing providers who are either replacing their older billing systems,
augmenting their existing systems to support new features and services or
adding new billing systems to enable them to expand into new geographic
markets. Second, the Company focuses on emerging providers that are expected
to offer new types of services such as PCS or that are entering existing
service markets newly opened to competition. These emerging providers require
sophisticated and flexible billing solutions like the Company's that can be
deployed on a timely and cost-effective basis. In addition, as the
telecommunications industry continues to evolve, with individual providers
offering more diverse services, these providers require increasingly flexible
billing systems. The Company believes that its experience in providing billing
services to multiple markets within the telecommunications industry, including
local exchange, long distance and wireless, provides it with a significant
competitive advantage.
Expand Internal Software Development. Saville is focusing its internal
software development on capturing and refining its existing software features
into Company-standard software modules, which are designed to work together
and serve as the base for further customized systems. In addition, the Company
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plans to expand the number of features available in its modules. The Company
expects that this effort will reduce the amount of customization required for
each system and enable customers to initiate services more rapidly. The
Company believes that these improvements will be particularly important for
the more complex billing requirements expected to arise as the
telecommunications market converges and single providers offer a more varied
array of services.
Expand Direct Sales and Develop Strategic Relationships. The Company has
recently begun to invest significantly in the development of a direct sales
force and sales support organization to focus on new customer opportunities in
North America and Europe. The Company is also seeking to create additional
strategic distribution and marketing alliances as a means of expanding new
business opportunities and entering new markets. For example, the Company
provides billing solutions to divisions of AT&T and Sprint in a number of
markets now being addressed by those divisions.
Support Leading Hardware Platforms. Saville intends to continue to develop
and support software for the IBM AS/400 platform, which is widely used
throughout the telecommunications industry and which the Company believes will
continue to be a leading platform for telecommunications billing systems. The
Company also recently completed joint development with AT&T of a UNIX-based
billing system, which the Company believes will offer additional opportunities
to provide billing solutions through AT&T. See "--Customers--AT&T" and "--
Material Contracts--AT&T." In addition, the Company is also developing a UNIX-
based billing system for use on personal computers or workstations by small
wireless local-loop telecommunications service providers, particularly in
developing countries such as China.
Develop and Offer Complementary Customer Applications. The Company's long-
term strategy includes the expansion of its product offerings to include
software applications complementary to the billing system. The Company's
software currently interfaces with other aspects of the customer's operating
systems. To the extent the Company successfully expands its suite of software
products, the Company believes that it can take advantage of its established
position in the billing systems market and leverage its existing customer
accounts and distribution channels to promote the sale of new product
offerings.
PRODUCTS AND SERVICES
The Company's primary business is the development and subsequent delivery or
operation of billing solutions to meet its customers' specific needs. Due to
the flexibility inherent in the Company's software and the expertise of its
software development personnel, the Company is able to develop solutions that
allow service providers to bill for multiple services on a single invoice.
This functionality is key to enabling telecommunications service providers to
offer on a cost-effective basis multiple services such as local, long
distance, cellular and data communications.
The Company's customer relationships typically begin with the Company
providing, on a time and materials basis, system design, customization and
installation services. After the system is in operation, the Company continues
the relationship by providing upgrading, ongoing system management and system
enhancement to accommodate new telecommunications services and technologies.
The customer can choose either to operate the billing system directly,
resulting in a license fee to the Company, or may choose to retain the Company
to perform all or a substantial part of the customer's billing operations in a
Company- maintained service bureau, resulting in ongoing processing fees.
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Software Applications Modules
The Company uses its library of proprietary software to provide each of its
customers with a customized billing solution. The Company's software makes
extensive use of relational databases, which allow billing rates and other key
parameters to be changed without reprogramming the software code. The
Company's software may be grouped into four general categories: Customer Care,
Event Processing, Billing and Post Billing. These categories include hundreds
of discrete software functionalities.
Customer Care. Customer care enables the customer service representative to
interact with the customer and input, maintain and access customer information
beginning at the customer's initial service request and continuing through the
conclusion of service. Key functionalities within this application include:
Customer Initiation Switch Interface
Bill Cycle Assignment Customer History
Phone Number Assignment Invoice Messaging
Calling Card Assignment System Notation
Inventory Administration Directory Listing
Customer Hierarchy Lead Generation and Management
Customer Search Customer Information Maintenance
Event Processing. Event processing encompasses the collection, conversion
and rating of customer call detail records used in the production of the
service invoice. Key functionalities within this application include:
Data Collection Rating
Data Distribution Reporting
Conversion/Reformatting Error Management
Validation External Interfaces
Guiding
Billing. Billing integrates customer usage-based charges with recurring
charges and other credits and adjustments to create the periodic service
invoice. Key functionalities within this application include:
Multiple Bill Pulls Auto Balancing
Rerating Recurring Charges
Discounting Taxation
Invoice Generation Quick Invoicing
Invoice Hierarchy Management Reporting
Multi-Currency Revenue Reporting
Multi-Language
Post Billing. Post billing is the primary interface with the service
provider's accounting system and relates to the invoicing and remittance of
the periodic service invoice. Key functionalities within this application
include:
Payment Processing Financial Reporting
Adjustments Commissioning
Deposit and Deposit Interest Accounting Interface
Accounts Receivable Trouble Reporting
Collections and Treatment
Development and Enhancement Services
Saville provides ongoing development and enhancement services to nearly all
of its customers on a time and materials basis. The Company establishes a
relationship with a customer at the design stage,
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when the Company assists the customer in designing the required billing system
based on the customer's market segment, network configuration and protocols
and other customer-specific requirements. The Company then develops customized
applications of the Company's base software for the customer. Once the Company
develops a billing system, its relationship with the customer usually
continues with ongoing development, maintenance, training, systems analysis
and further expansion of systems to accommodate new products and technologies.
Frequently, a customer will initially retain Saville because of its ability to
develop and install a basic billing system in a relatively short time and then
continue to retain Saville to develop enhancements for the installed system.
As of March 31, 1996, the Company had 20, 185 and 110 employees providing
ongoing development and enhancement services in its Galway, Edmonton and
Toronto facilities, respectively.
Service Bureaus
A customer of the Company may elect to contract with the Company to operate
its billing system in a Company-maintained service bureau. In a typical
service bureau arrangement, the Company develops the customer's billing system
and installs it in one of the Company's technical data centers. The customer
then transmits its customer usage data to the Company, or the Company obtains
the information directly from the switch. In either case, the Company
processes and rates the information using the billing system developed for the
customer and then either (i) transmits the processed and rated information to
a third party or the customer for printing and mailing or, less frequently,
(ii) prints and mails the invoice.
Customers are charged a negotiated fee for utilizing the Company's service
bureaus. This fee is typically comprised of a charge per invoice produced and
a charge per call based on the amount and type of information contained in the
bill's call detail record. The Company's service bureau contracts typically
have three-year terms.
SALES AND MARKETING AND CUSTOMER SUPPORT
Historically, the Company's sales and marketing activities were handled by a
small group of senior executives of the Company whose experience in the
telecommunications industry, coupled with Saville's reputation for providing
high-quality software solutions, resulted in "word-of-mouth" sales. More
recently, the Company has established a direct sales organization to support
the sales and marketing activities of senior executives. The Company's sales
strategy is to pursue strategic relationships with its customers through a
consultative sales process, working closely with customers to understand and
define their needs and determine how they can be addressed by the Company's
products. The Company, through ongoing sales, maintenance, training and
systems analysis activities, maintains close contact with its existing
customers in order to determine the customers' evolving requirements for
updates and enhancements to their billing systems. For new customers, the
Company generally has a lengthy sales cycle that typically requires
involvement of the Company's senior executives and systems design personnel.
The Company's sales force focuses on local exchange, long distance and
wireless (cellular, satellite, paging and PCS) opportunities primarily in
North America. The Company believes that it has significant growth
opportunities outside North America due to increased deregulation and the
resulting competition in these markets. To date, the Company has primarily
pursued these opportunities through certain of its existing customers who are
expanding into other markets around the world. The Company plans to continue
to expand its sales and marketing efforts in these markets through the
expansion of its direct sales force, particularly in its Galway, Ireland
location, and through the establishment of additional strategic distribution
and marketing alliances. During 1993, 1994, 1995 and the three months ended
March 31, 1996, sales by Saville Ireland and Saville Canada represented
approximately 85.8%, 95.1%, 84.6% and 79.3%, respectively, of the Company's
total revenues. A significant portion of sales by Saville Ireland are made to
United States-based customers. United States-based customers who purchase
products from either Saville Ireland or Saville U.S. may, in turn, deploy the
products sold to them outside of the United States. See Note 11 of Notes to
Consolidated Financial Statements.
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The Company has technical support capabilities in Canada and the Republic of
Ireland. The Company is expanding its customer service and support
capabilities to provide technical support to its customers on a 24-hour per
day, 7-day per week basis. The Company believes that it is essential to
provide a high level of reliable service to customers in order to solidify
customer relationships and to be the vendor of choice when new services or
system expansions are sought by its customers.
In October 1995, the Company entered into a non-binding letter of intent
with General Electric Capital Corporation ("GE Capital") to form a strategic
marketing alliance. Under the anticipated terms of the alliance, which the
Company and GE Capital are still negotiating, GE Capital and the Company would
jointly offer turnkey billing solutions to telecommunications service
providers in North America. GE Capital would provide billing fulfillment
services such as bill printing, remittance processing and recovery services.
Saville would develop, install and manage the billing software for the
alliance's customers on an exclusive basis. Both companies would provide sales
and service support. Because the Company and GE Capital are still negotiating
the terms of this alliance, there can be no assurance that they will enter
into a definitive agreement or that the alliance will be of benefit to the
Company.
CUSTOMERS
The Company provides its software and services to a range of
telecommunications service providers, including those providing local
exchange, long distance, wireless, and audio- and video-conferencing services.
The Company's typical customers are small- to medium-sized telecommunications
service providers that require complete billing systems, and large service
providers that require the Company's software and services to support new
market expansions or as integral components of larger billing systems.
During 1995 and the first three months of 1996, the Company's four largest
customers accounted for approximately 73.4% and 73.0%, respectively, of the
Company's total revenues. AT&T, Energis and Unitel each accounted for over 10%
of the Company's total revenues in 1995, and AT&T and Sprint accounted for
49.3% and 12.0%, respectively, of the Company's total revenues in the first
three months of 1996. See "Risk Factors--Reliance on Significant Customers."
A description of the types of work performed and services provided by the
Company for certain of its customers follows.
AT&T
AT&T is the largest telecommunications company in the United States. The
Company began its relationship with AT&T in 1993 by providing domestic billing
services. The Company currently provides domestic or international billing
services to four divisions of AT&T. The Company worked with AT&T to develop
the billing system for a program designed to provide AT&T calling cards to
international telecommunications customers with direct billing to the user's
commercial credit card. The Company also developed a single feature,
inexpensive method of billing AT&T's small business customers. The Company
provides ongoing support and service for this software. The Company has also
recently developed UNIX-based billing software jointly with AT&T. See "--
Strategy" and "--Material Contracts."
Ed Tel Inc. ("Ed Tel")
Ed Tel is an Edmonton-based public telecommunications provider owned by
Telus Corp. The Company began designing a long distance billing system for Ed
Tel in 1982. The Company continues to provide ongoing support and maintenance
to Ed Tel. See "--Material Contracts."
Energis
The Company has been working with Energis since 1994, when Energis began
providing long distance services in the United Kingdom. The Company developed
a complete turnkey billing system for
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Energis to support its entry into the long distance market. The Company also
provided on-site facilities management to Energis, including systems
maintenance, technical support and operational staffing. See "--Material
Contracts."
Sprint
In 1994, Sprint was the third largest long distance service provider in the
United States. The Company has provided domestic and international billing
services to Sprint for the past three years. For one division of Sprint, the
Company provides long distance billing systems to international subsidiaries
of Sprint and expects to continue to support Sprint's entry into certain new
international markets. For a second division, the Company implemented an
automated billing system that manages the on-demand use of video conferencing
products and services, including network usage, access fees, equipment
purchases and other charges. See "--Material Contracts."
Unitel
In 1992, the Company began working with Unitel, Canada's second largest long
distance carrier, to develop a billing system that would support both
residential and small business customers. The Company enhanced its base
software modules to support Unitel's entrance into the Canadian long distance
market. The Company has continued to upgrade and enhance this billing system
for Unitel since installation in order to bill for new features, such as
calling card billing, and to interface with other network technology and
operating systems. See "--Material Contracts."
Frontier
Frontier is a local exchange carrier located in Rochester, New York, the
first competitive local exchange market in the United States. Frontier
contracted with the Company in September 1994 to provide domestic billing
services that integrate local, long distance and cellular services on a single
invoice. Saville operates the billing system through its Toronto service
bureau under a three year agreement.
COMPETITION
The market for telecommunications billing systems is highly competitive, and
the Company expects this competition to increase. The Company competes with
both independent providers of billing systems and services and with the
internal billing departments of telecommunications service providers. The
Company expects that the continued growth of the telecommunications industry
will encourage new competitors to enter the telecommunications billing market
in the future.
The Company believes that the principal competitive factors in its market
include responsiveness to client needs, timeliness of implementation, quality
of service, price, project management capability and technical expertise. The
Company also believes that its ability to compete depends in part on a number
of competitive factors outside its control, including the development by
others of software that is competitive with the Company's services and
products, the price at which competitors offer comparable services and
products, the extent of competitors' responsiveness to customer needs and the
ability of the Company's competitors to hire, retain and motivate key
personnel.
In addition, the Company competes with a number of companies that have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition than the Company. As a result,
the Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than can the Company.
PROPRIETARY RIGHTS AND LICENSES
The Company does not currently hold any patents and relies upon a
combination of statutory and common law copyright, trademark and trade secret
laws to establish and maintain its proprietary rights to
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its products. The Company believes that, because of the rapid pace of
technological change in the telecommunication and software industries, the
legal protections for its products are less significant factors in the
Company's success than the knowledge, ability and experience of the Company's
employees, the frequency of product enhancements and the timeliness and
quality of support services provided by the Company.
The Company generally enters into confidentiality agreements with its
employees, consultants, clients and potential clients and limits access to,
and distribution of, its proprietary information. Use of the Company's
software products is usually restricted to specified locations and is subject
to terms and conditions prohibiting unauthorized reproduction or transfer of
the software products. The Company also seeks to protect the source code of
its software as a trade secret and as a copyrighted work. See "Risk Factors--
Risks Associated with Intellectual Property."
EMPLOYEES
As of March 31, 1996, the Company employed a total of 447 employees. None of
the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relations are
good.
PROPERTIES
The Company leases office space at the following locations: Galway, Toronto,
Edmonton and Burlington, Massachusetts. The Galway office is the Company's
corporate headquarters and is used for software development and customer
support. The Burlington office is primarily used for sales and marketing,
corporate development and finance. The Edmonton and Toronto locations are
primarily used for software development, customer support and service bureau
operations.
The following shows information concerning the Company's leased facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
-------- -------------- -----------------
<S> <C> <C>
Galway, Ireland............................ 4,000 April 1, 2004
Burlington, Massachusetts.................. 2,977 November 30, 1996
Edmonton, Alberta.......................... 38,060 April 30, 2000
Toronto, Ontario........................... 19,626 January 31, 2005
Toronto, Ontario........................... 42,958 June 30, 2005
</TABLE>
The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as required.
MATERIAL CONTRACTS
The following is a summary of certain of the Company's material contracts:
AT&T
In January 1994, the Company entered into a five year agreement with AT&T
(the "AT&T Agreement") pursuant to which the Company licenses its existing
AS/400-based billing software to AT&T in connection with billing systems to be
provided by the Company to AT&T. Pursuant to the AT&T Agreement, the Company
has jointly developed with AT&T UNIX-based telecommunications billing
software.
The AT&T Agreement provides that for each project in which AT&T utilizes the
Company's AS/400-based software, AT&T must retain the Company to install and
maintain the software. AT&T is not, however, required to license any minimum
amount of the Company's base software. To the extent AT&T hires the Company to
install its base software, AT&T must pay to the Company license and
development fees as well as other fees for the particular services provided by
the Company.
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Under the AT&T Agreement, the Company maintains its ownership interest in
the AS/400 base software licensed to AT&T, and AT&T owns any additional
applications developed specifically for AT&T. The jointly-developed UNIX
product is jointly owned by AT&T and the Company. AT&T and the Company may
also agree, prior to creation of additional applications for either platform,
that those applications will be jointly owned. The AT&T Agreement provides
AT&T and the Company the right to use the other party's technology; however,
AT&T has agreed not to license the Company's AS/400 base software and other
technology to certain of the Company's competitors specified in the AT&T
Agreement, and the Company has agreed not to license AT&T's technology to
AT&T's competitors in certain countries. Furthermore, the Company and AT&T
have each agreed not to license jointly-owned technology (including the UNIX-
based software developed by the parties) to certain of their respective
competitors as specified in the AT&T Agreement.
After the initial five-year period, the AT&T Agreement will automatically
renew for two successive twelve month periods. The AT&T Agreement may be
terminated by either party upon 30 days written notice after January 1, 1996,
provided that all work then in progress must either be completed or
terminated. The AT&T Agreement may also be terminated at any time upon 45 days
notice by the non-defaulting party upon a material default by the other party.
Ed Tel
Pursuant to a Marketing and License Agreement between Ed Tel and the
Company, effective as of January 1, 1992, the Company licenses certain
technology from Ed Tel, which technology represents a portion of the Company's
core billing software. Saville Canada is required to pay royalties to Ed Tel
based on a percentage of the annual increase in total revenues of Saville
Canada over Saville Canada's base revenue established in 1991. The original
agreement expired on December 31, 1995. The Company has entered into a five
year extension of this agreement with royalties fixed at CDN$50,000
(approximately $37,000 at March 29, 1996) annually during the extension
period. The Company has also agreed not to provide telecommunications billing
services in Alberta to other service providers so long as the Company is
providing core processing services to Ed Tel. Ed Tel may terminate the
agreement upon 15 days notice upon a breach of the agreement by the Company.
The Company has also entered into a Core Processing Agreement with Ed Tel
effective January 1, 1992, whereby the Company provides service bureau
functions, including data processing for third parties, as well as software
development and provision of licensed software to Ed Tel. Ed Tel may terminate
this agreement upon four months notice to the Company.
Energis
The Company has entered into an agreement with Energis whereby the Company
agreed to install the Company's billing and record keeping software on Energis
computer equipment under a perpetual and irrevocable license granted by the
Company to Energis to use such software in the United Kingdom. In addition,
the Company agreed to develop, at the request of Energis from time to time and
based on Energis' functional specifications, certain customized billing,
rating and customer interface software, which will be owned by Energis. The
Company also entered into a Support and Maintenance Agreement with Energis to
provide maintenance and support services for the software licensed and
developed thereunder. The Support and Maintenance Agreement is terminable by
Energis after January 1, 1996 by giving three months' written notice and by
the Company after October 8, 1997 by giving twelve months' written notice.
Sprint
The Company has entered into two agreements with entities affiliated with
Sprint. First, the Company has entered into an agreement with Sprint
Communications Company, L.P. ("Sprint Communications")
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whereby the Company has developed an invoice, billing and customer interface
system for use with the video teleconferencing services provided by Sprint
Video Group, a division of Sprint, and provides certain rating, billing and
reporting services on a remote batch processing basis for Sprint's video
teleconferencing services. The Company also agreed to grant to Sprint
Communications a fully paid-up, non-exclusive license to use the Company's
base billing, rating and customer interface software for a one- time payment
of a license fee.
This agreement, effective May 24, 1993, is renewable by mutual agreement of
the parties. Sprint Communications may terminate the agreement upon 90 days
written notice. If not terminated, the agreement will continue until May 24,
1996. The Company is in the process of negotiating an extension to this
agreement, however, there can be no assurance that the parties will enter into
such an extension.
The Company also entered into an agreement with Sprint International
Communications Corporation ("Sprint International") pursuant to which the
Company has developed and provided Sprint International with a billing system
for its affiliated non-U.S. telecommunications service providers for the long
distance market and has assisted Sprint International in operating these
systems through a service bureau arrangement. In addition, the Company has
agreed, at the request of Sprint International from time to time, to make
enhancements to the software in connection with the modifications and
supplements to the services to be provided thereunder and the extension of
services to other international markets. The Company will retain proprietary
rights in the base software and related enhancements, but has agreed not to
license the software developed specifically for Sprint International to a
third party without the prior consent of Sprint International. The Company
also granted Sprint International an option to purchase a perpetual, non-
exclusive, non-transferable license from the Company to use the Company's
software in the United Kingdom.
This agreement continues until April 19, 1997 and will continue for
successive renewal terms of one year each, unless otherwise terminated by
either party upon notice given at least 90 days prior to the end of the
initial or renewal term.
Unitel
The Company entered into a development and support agreement with Unitel
pursuant to which the Company has developed a billing system to support both
residential and small commercial customers and created certain customer-
specific applications owned by Unitel. The parties also entered into a
software license agreement by which the Company licensed to Unitel its base
software and the documentation relating to any enhancements made pursuant to
this agreement. The development and support agreement continues until July
1998. This agreement may be terminated by Unitel if the concurrent software
license agreement between the parties is terminated, and by either party upon
a default by the other party.
LEGAL PROCEEDINGS
The Company is not party to any legal proceedings.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce A. Saville................. 51 Chairman of the Board of Directors
John J. Boyle, III............... 49 President, Chief Executive Officer and
Director
Marc J. Venator.................. 39 Chief Financial Officer
Padraig W. Kenny................. 35 Managing Director, Ireland
John J. Kiley.................... 40 Senior Vice President, Sales and Marketing
Michael A. Shulist............... 40 Senior Vice President, Operations
John A. Blanchard, III........... 53 Director
Brian E. Boyle(1)................ 48 Director
William F. Cunningham(1)(2)...... 51 Director
Richard A. Licursi(2)............ 48 Director
Fergus G. McGovern............... 67 Director
David P. Mixer(1)(2)............. 44 Director
James B. Murray, Jr.............. 49 Director
John W. Sidgmore................. 44 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Saville founded the Company in 1982 and served as the Company's
President and Chief Executive Officer until becoming the Company's Chairman of
the Board of Directors in August 1994. Prior to founding the Company, Mr.
Saville served as the General Manager of Compu/Data Ltd., a computer service
bureau, from 1976 until 1982. From 1974 to 1976, Mr. Saville served as Manager
of Systems and Procedure for Northern Telephone Limited, a telephone company.
Prior to that time, Mr. Saville was a programmer and Programmer/Systems
Analyst for Goodyear Tire & Rubber Company and then for the Canada System
Group (CSG).
Mr. John J. Boyle has served as the Company's President and Chief Executive
Officer since August 1994. From 1981 to August 1994, Mr. Boyle served in
various management positions with CSC Intelicom, a global supplier of
information technology, most recently as Senior Vice President of Work
Process/ Network Practice. Prior to 1981, Mr. Boyle held various management
positions with New England Telephone & Telegraph Company over the course of 14
years.
Mr. Venator has been Saville's Chief Financial Officer since joining the
Company in April 1995. From March 1992 to April 1995, Mr. Venator was
Corporate Controller for Systems Software Associates, Inc., a provider of
applications software to industrial businesses worldwide. Mr. Venator served
as Manager, Corporate Financial Reporting for the Quaker Oats Company, a
manufacturer of foods, pet foods and beverages, from November 1988 to March
1992. Prior to November 1988, Mr. Venator served for three years as Manager,
Corporate Reporting of Gould, Inc., and for seven years with Coopers & Lybrand
in various audit positions.
Mr. Kenny has served as Managing Director, Ireland since joining the Company
in May 1995. From March 1990 to May 1995, Mr. Kenny served in various
positions with AT&T, most recently as Project Manager of AT&T wireless
services. Prior to 1990, Mr. Kenny served for 12 years with Telecom Eireann, a
telecommunications operating company in the Republic of Ireland, most recently
as Head of Marketing in the International Division.
Mr. Kiley has served as Senior Vice President, Sales and Marketing of the
Company since October 1995. From January 1994 to September 1995, Mr. Kiley
served as President and Chief Operating Officer of
35
<PAGE>
Performance Software, Inc., a provider of commercial UNIX server based
automated software testing products and services. From November 1992 to
November 1993, Mr. Kiley served as Vice President, Consulting of Oracle Corp.,
a provider of systems integration, application development and consulting
services. From January 1979 to November 1992, Mr. Kiley served in a variety of
positions, including most recently Vice President Eastern Sales, with Comshare
Inc., a software provider.
Mr. Shulist has served as Senior Vice President, Operations of the Company
since March 1995. From June 1991 to March 1995, Mr. Shulist served in various
positions with Unitel, a long distance provider in Canada, most recently as
Vice President of Customer and Network Maintenance. Mr. Shulist was a Director
in charge of Customer Services Development at Bell Canada, a telecommunications
company, from August 1990 to June 1991.
Mr. Blanchard has been a director of the Company since December 1994. Since
May 1995, Mr. Blanchard has served as President and Chief Executive Officer of
Deluxe Corporation, a publicly-held company that manufactures banking forms.
From January 1994 through April 1995, he served as Executive Vice President of
General Instrument Corporation, a publicly-held electronics systems and
components company. From April 1991 through May 1993, Mr. Blanchard served as
Chairman and Chief Executive Officer of Harbridge Merchant Services, a
privately-held credit card processing company. Between 1965 and 1990, Mr.
Blanchard held a variety of senior executive positions with AT&T. Mr. Blanchard
is also a director of Telular Corp., a publicly-held communications equipment
manufacturing company.
Mr. Brian E. Boyle has been a director of the Company since January 1995.
Since January 1994, Mr. Boyle has served in various positions and is currently
Vice Chairman of Boston Communications Group, Inc., a wireless communications
company. From July 1990 to September 1993, Mr. Boyle served as Chief Executive
Officer of Credit Technologies, Inc., a supplier of customer application
software for the cellular telephone industry. Prior to 1990, Mr. Boyle founded
and operated a number of ventures servicing the telecommunications industry,
including APPEX Corp. (now EDS Personal Communications Division, a division of
EDS Corporation, a global telecommunications service company) and Leasecomm
Corp., a micro-ticket leasing company. Mr. Boyle is also a director of several
private companies.
Mr. Cunningham has been a director of the Company since March 1995. Mr.
Cunningham is a senior partner with McGovern, Hurley, Cunningham, a Toronto-
based chartered accounting firm, which he co-founded in 1984. Mr. Cunningham is
a member of the Canadian Institute of Chartered Accountants, the Canadian Tax
Foundation and the Estate Planning Council of Toronto.
Mr. Licursi has been a director of the Company since December 1994. In June
1994, Mr. Licursi founded Phoenix Wireless Group, Inc., a developer of
software-based systems and services for wireless telecommunications, and
currently serves as its President and Chief Executive Officer. From November
1992 to June 1994, Mr. Licursi served as Senior Vice President of the Worldwide
Telecom Delivery Unit of SHL Systemhouse, Inc., a telecommunications billing
software provider. Mr. Licursi served as President of Abraxus International,
Inc., a telecommunications consulting company, from February 1991 to November
1992 and prior to February 1991, Mr. Licursi served as President of Cincinnati
Bell Information Systems, Inc, a telecommunications company.
Mr. McGovern has been a director of the Company since June 1995. From January
1989 until his retirement in April 1994, Mr. McGovern was Chief Executive
Officer of Telecom Eireann, a national telecommunications operating company in
the Republic of Ireland. Mr. McGovern has also served on the Executive
Committee of the Confederation of Irish Industry, as Chairman and President of
the Irish Management Institute, as Trustee of the International Institute of
Communications and as Chairman of Cablelink, the largest cable television
company in the Republic of Ireland. He is currently a director of the Irish Gas
Board (a state-owned national gas utility) and a member of the Board of the
Graduate School of Business of University College Dublin.
36
<PAGE>
Mr. Mixer has been a director of the Company since April 1994. Since its
inception in March 1989, Mr. Mixer has been a Managing Director of Columbia
Capital Corporation, a Virginia-based investment services company specializing
in the telecommunications industry. Since 1988, Mr. Mixer has also been the
President of Bay Cellular, a cellular communications company. Mr. Mixer is a
member of the Board of Directors of Telular Corporation.
Mr. Murray has been a director of the Company since January 1994. Since its
inception in March 1989, Mr. Murray has been a Managing Director of Columbia
Capital Corporation and since January 1995, has been a director of The
Columbia Group Incorporated. From January 1990 to January 1993, Mr. Murray was
also the President of Randolph Cellular Corp., a cellular communications
company. Mr. Murray is a member of the Board of Directors of several
privately-held telecommunications companies, including GO Communications
Corporation, Merrick Tower Corporation, Contact New Mexico, Inc. and Columbia
Spectrum Management, Inc.
Mr. Sidgmore has been a director of the Company since December 1994. Since
June 1994, Mr. Sidgmore has been the President and Chief Executive Officer and
director of UUNet Technologies, Inc., a provider of worldwide internet
services. From 1989 to June 1994, Mr. Sidgmore served as President and Chief
Executive Officer of CSC Intelicom. From 1975 to 1989, Mr. Sidgmore was
employed by General Electric Information Services ("GEIS"), a provider of
telecommunications and computing services and a division of General Electric
Co., where he was Vice President and General Manager of GEIS North America.
Executive officers of the Company are elected by and serve at the discretion
of the Board of Directors. There are no family relationships among any of the
executive officers or directors of the Company.
BOARD COMPOSITION AND COMPENSATION
Under Irish company law, the Company must have a minimum of two directors.
The Company's Articles of Association set the maximum number of directors of
the Company at twelve, which number may be changed by a resolution of the
shareholders. The Company's Articles of Association divide the Company's Board
of Directors into three classes and provide that the members of each class of
Directors will serve for staggered three-year terms. The Board currently
consists of three Class I Directors (Messrs. Cunningham, Mixer and McGovern),
four Class II Directors (Messrs. Blanchard, Brian Boyle, Licursi and Sidgmore)
and three Class III Directors (Messrs. John Boyle, Murray and Saville), whose
initial terms will expire upon the election and qualification of directors at
the annual general meeting of shareholders held following the years ending
December 31, 1998, 1996 and 1997, respectively. At each annual general meeting
of shareholders, directors will be reelected or elected for a full term of
three years to succeed those directors whose terms are expiring.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee oversees actions taken by the Company's
independent auditors, recommends the engagement of auditors and reviews any
internal audits the Company may perform. The current members of the Audit
Committee are Messrs. Cunningham, Licursi and Mixer. The Compensation
Committee approves the compensation of executives of the Company, makes
recommendations to the Board of Directors with respect to standards for
setting compensation levels and administers the Company's 1995 Share Option
Plan. The current members of the Compensation Committee are Messrs. Brian
Boyle, Cunningham and Mixer.
Non-employee directors receive $1,000 per meeting attended for their
services as members of the Board of Directors and are reimbursed for their
expenses in attending Board and Committee meetings. Directors who serve on the
Audit Committee or Compensation Committee receive $500 for each such committee
meeting attended. In 1995, each of the Company's current non-employee
directors (other than Messrs. Cunningham, McGovern, Mixer and Murray) was
granted an option to purchase 20,806 Ordinary
37
<PAGE>
Shares at an exercise price of $2.40 per share. Additional options may be
granted to members of the Board of Directors in the future under the Company's
1995 Share Option Plan. See "--Share Options" and Note 8 of Notes to
Consolidated Financial Statements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Brian Boyle,
Cunningham and Mixer. During 1994 and part of 1995, Mr. John Boyle, the
Company's President and Chief Executive Officer since August 1994, served on
the Company's Compensation Committee. Mr. John Boyle ceased to serve on the
Compensation Committee in June 1995.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information relating to compensation earned by the Company's Chief Executive
Officer and each of its other executive officers whose compensation exceeded
$100,000 for the year ended December 31, 1995 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION(2)
------------------------ ---------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(3)
- --------------------------- ------------- ---------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Bruce A. Saville(4)...... 1995 $200,000 $ -- 23,095 $ --
Chairman of the Board of 1994 266,667 1,376,839 -- 13,403
Directors and Former
President and Chief
Executive Officer
John J. Boyle, III(5).... 1995 214,000 160,500 371,684 --
President and Chief 1994 129,462 50,000 150,490 2,123
Executive Officer
Marc J. Venator(6)....... 1995 102,116 30,082 180,940 21,574
Chief Financial Officer
Michael A. Shulist(4)(7). 1995 91,832 27,456 133,228 1,184
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or ten percent of the total
annual salary and bonus reported for the executive officer during the
years reported.
(2) The Company did not grant any restricted stock awards or stock
appreciation rights during the years reported. The Company does not have
any long term incentive plan.
(3) Consists of amounts paid by the Company for automobile lease payments in
the case of Messrs. Saville and Shulist. Consists of amounts paid by the
Company for insurance premiums in the case of Mr. Boyle. Consists of
amounts paid by the Company for relocation expenses in the case of Mr.
Venator.
(4) Amounts reflected in this section have been converted into U.S. dollars at
the conversion ratio in effect on December 29, 1995 as reported in the New
York Times on that date (US$1.00 = CDN$1.36 equivalent to
CDN$1.00 = US$0.73).
(5) Mr. Boyle joined the Company in August 1994. See "--Employment
Agreements."
(6) Mr. Venator joined the Company in April 1995. See "--Employment
Agreements."
(7) Mr. Shulist joined the Company in March 1995. See "--Employment
Agreements."
38
<PAGE>
Option Grants. The following table provides information on option grants
made during the year ended December 31, 1995 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF SHARE
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------------- -------------------
EXERCISE
% OF TOTAL PRICE PER
OPTIONS OPTIONS GRANTED ORDINARY EXPIRATION
NAME GRANTED(#) TO EMPLOYEES SHARE($) DATE 5% 10%
---- ---------- --------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Saville........ 23,095 1.3% $ 8.66 9/1/05 $125,781 $ 318,753
John J. Boyle, III...... 166,450 9.5 2.40 1/1/00 110,513 244,204
129,734 7.4 8.66 9/1/05 706,561 1,790,564
75,000 4.3 10.00 11/21/00 207,211 457,883
500 -- 10.00 12/21/95 21 41
Marc J. Venator......... 41,612 2.4 2.40 1/1/00 27,628 61,050
101,328 5.8 8.66 9/1/05 551,855 1,398,510
37,500 2.1 10.00 11/21/00 103,606 228,941
500 -- 10.00 12/21/95 21 41
Michael A. Shulist...... 41,612 2.4 2.40 1/1/00 27,628 61,050
53,616 3.1 8.66 9/1/05 292,005 739,998
37,500 2.1 10.00 11/21/00 103,606 228,941
500 -- 10.00 12/21/95 21 41
</TABLE>
OPTION GRANTS DURING FISCAL YEAR 1995
- --------
(1) This column shows the hypothetical gains or option spreads of the options
granted based on the fair market value of the Ordinary Shares on the date
of grant and assumed annual compound share appreciation rates of 5% and
10% over the term of the options. The assumed rates of appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future share prices.
Actual gains, if any, on option exercises are dependent on the timing of
such exercise and the future performance of the Company's ADSs. There can
be no assurance that the rates of appreciation assumed in this table can
be achieved. Values shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the
exercise.
Option Exercises and Unexercised Option Holdings. The following table
provides information regarding certain option exercises and unexercised share
options held as of December 31, 1995 by each of the Named Executive Officers:
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
ORDINARY SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END(#) OPTIONS AT YEAR-END($)(2)
------------------------- -------------------------
ORDINARY
SHARES
ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Saville........ 0 $ 0 0 23,095 $ 0 $ 129,101
John J. Boyle, III(3)... 500 2,063 156,756 364,918 1,513,676 3,394,379
Marc J. Venator......... 500 2,063 25,000 155,440 106,250 1,112,651
Michael A Shulist....... 500 2,063 25,000 107,728 106,250 845,941
</TABLE>
- --------
(1) The values in this column represent the last reported sale price of the
Company's ADSs on the Nasdaq National Market on the exercise date
(December 21, 1995), $14.125, less the respective option exercise price.
(2) The values in this column represent the last reported sale price of the
Company's ADSs on the Nasdaq National Market on December 29, 1995, $14.25,
less the respective option exercise price.
(3) Shares exercisable include 56,593 shares which became exercisable on
January 1, 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into the following employment agreements with the
Named Executive Officers:
The Company is a party to an employment agreement with Mr. Saville for the
three year period ending August 2, 1997. Pursuant to the agreement, Mr.
Saville serves as the Chairman of the Board of Directors of the Company and is
entitled to receive an initial annual base salary of $200,000, subject to
39
<PAGE>
adjustment, in the discretion of the Board of Directors, based upon a
consideration of Mr. Saville's individual performance and the overall
performance of the Company. The Company may terminate Mr. Saville's employment
only for cause.
The Company is also a party to an employment agreement with Mr. Boyle for
the three year period ending August 7, 1997. Pursuant to the agreement, Mr.
Boyle serves as the Chief Executive Officer of the Company and is entitled to
receive an initial annual base salary of $200,000, subject to cost-of-living
adjustments after the first year. In addition to his base salary, Mr. Boyle is
eligible to receive an incentive bonus of up to 75% of his base salary at the
end of each calendar year during the term of the agreement and at the
expiration of the agreement. The amount of any such bonus is dependent upon
Mr. Boyle's individual performance and the overall performance of the Company,
as determined by the Board of Directors of the Company.
Pursuant to Mr. Boyle's agreement, the Company agreed to grant Mr. Boyle
non-statutory share options to purchase the number of Ordinary Shares
described below within 60 days of the end of calendar years 1994, 1995 and
1996 and within 60 days after the termination of the agreement. The number of
Ordinary Shares subject to each option to be granted to Mr. Boyle on each of
such dates is determined by dividing (i) three times the sum of Mr. Boyle's
base salary and bonus during the relevant period by (ii) the market price of
the Ordinary Shares on the date of grant. Such options are exercisable at a
price per share equal to the fair market value of the Ordinary Shares on the
date of grant. Pursuant to this formula, at the end of calendar year 1994, Mr.
Boyle was granted an option to purchase 166,450 Ordinary Shares at an exercise
price of $2.40 per Ordinary Share and, in lieu of his grant within 60 days of
the end of 1995, has been granted an option to purchase 129,734 Ordinary
Shares at an exercise price of $8.66 per share.
In addition, Mr. Boyle's agreement required him to purchase 80,460 Ordinary
Shares at a purchase price per share of $2.49. Saville U.S. loaned Mr. Boyle
$100,000 of the purchase price on a full recourse basis with interest accruing
at the Prime Rate as established by Chase Manhattan Bank, with the principal
due on the last day of the term of the agreement. Mr. Boyle pledged the shares
as security for such loan. If Mr. Boyle's employment with the Company is
terminated for cause (as defined in the agreement) or if Mr. Boyle resigns
prior to the expiration of the term of the agreement, the Company may, subject
to applicable law, repurchase all Ordinary Shares of the Company held by Mr.
Boyle at a price equal to Mr. Boyle's purchase price paid for those shares. If
Mr. Boyle's employment is terminated other than for cause, or upon Mr. Boyle's
resignation, the Company may repurchase such shares at their then fair market
value.
The Company may terminate Mr. Boyle's employment at any time with or without
cause. In the event the Company terminates Mr. Boyle's employment without
cause, if Mr. Boyle resigns or if Mr. Boyle's duties are materially diminished
such that his ability to function as Chief Executive Officer is impaired, he
is eligible to receive the amount of his salary and the maximum bonus payment
to which he would have been entitled to receive for the lesser of (i) one year
or (ii) the remainder of his employment term. Such payment shall be made in
equal monthly installments over the period during which Mr. Boyle would be
entitled to receive such payments if still employed by the Company.
The Company has also entered into employment agreements with Messrs. Venator
and Shulist. Pursuant to these agreements, the Company is obligated to pay a
base salary of $150,000 and CDN $160,000 (approximately $118,400 at March 29,
1996) to Messrs. Venator and Shulist, respectively. In addition, each of
Messrs. Venator and Shulist is entitled to receive a year-end bonus based on a
combination of individual and Company performance. Upon joining the Company,
Messrs. Venator and Shulist were each granted an option to purchase 41,612
Ordinary Shares at an exercise price of $2.40 per share. The Company may
terminate the employment of Messrs. Venator and Shulist with or without cause.
If the Company terminates the employment of either executive without cause
during the first two years of his employment, the Company must pay such
executive an amount equal to his salary for the lesser of (i) one year or (ii)
the number of months remaining in the first two years of such executive's
employment.
40
<PAGE>
SHARE OPTIONS
1995 Share Option Plan. The Company's 1995 Share Option Plan (the "1995
Option Plan") was adopted by the Board of Directors in August 1995 and
approved by the shareholders of the Company in September 1995. The 1995 Option
Plan provides for the grant of options to purchase Ordinary Shares to
employees, officers and directors of, and consultants and advisers to, the
Company and its subsidiaries. Under the 1995 Option Plan, the Company may
grant options that are intended to qualify as incentive stock options within
the meaning of Section 422 of the United States Internal Revenue Code of 1986,
as amended (the "Code") ("incentive stock options"), or options not intended
to qualify as incentive stock options ("non-statutory options"). Incentive
stock options may only be granted to employees of the Company. A total of
2,980,000 Ordinary Shares may be issued upon the exercise of options granted
under the 1995 Option Plan. The maximum number of shares with respect to which
options may be granted to any employee under the 1995 Option Plan shall not
exceed 223,500 Ordinary Shares during any calendar year.
The 1995 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1995 Option Plan, the
Compensation Committee has the authority to select the employees to whom
options are granted and determine the terms of each option, including (i) the
number of Ordinary Shares subject to the option, (ii) when the option becomes
exercisable, (iii) the option exercise price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a shareholder owning in excess of 10% of the Company's
Ordinary Shares) of the fair market value of the Ordinary Shares as of the
date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years).
Payment of the option exercise price may be made in cash (or by delivery of
a promissory note payable on terms specified by the Compensation Committee) in
a manner consistent with Section 422 of the Code and Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Options are not assignable or transferable except by will or the laws of
descent and distribution and, in the case of non-statutory options, pursuant
to a qualified domestic relations order (as defined in the Code).
As of March 31, 1996, the Company had 447 employees, all of whom were
eligible to participate in the 1995 Option Plan. As of March 31, 1996, options
to purchase an aggregate of 1,144,851 Ordinary Shares had been granted and
were outstanding under the 1995 Option Plan.
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1995 Option Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Compensation Committee, so long as
not inconsistent with the 1995 Option Plan or applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1995
Option Plan may be exercised.
Other Option Grants. Prior to adopting the 1995 Option Plan, the Company
granted options to purchase 691,448 shares to certain of its officers and
directors at a weighted average exercise price of $2.25 per share, all of
which are currently exercisable.
1996 Employee Share Purchase Plan. The Company's 1996 Employee Share
Purchase Plan (the "1996 Purchase Plan") was adopted by the Board of Directors
in March 1996 and approved by the shareholders in April 1996. The 1996
Purchase Plan authorizes the issuance of up to an aggregate of 1,000,000
Ordinary Shares to participating employees.
41
<PAGE>
The 1996 Purchase Plan is administered by the Compensation Committee of the
Board of Directors which is authorized to decide questions of eligibility and
to make rules and regulations for the administration and interpretation of the
1996 Purchase Plan. With certain exceptions, all employees employed by the
Company prior to the applicable offering commencement date are eligible to
participate in the 1996 Purchase Plan. As of March 31, 1996, the Company had
approximately 447 eligible employees. Directors who are not employees of the
Company are not eligible to participate in the 1996 Purchase Plan.
The Company will make one or more offerings ("Offerings") to employees to
purchase Ordinary Shares under the 1996 Purchase Plan. During each Offering,
the maximum number of shares which may be purchased by a participating
employee will be determined on the first day of the Offering period. In any
event, no employee may receive Ordinary Shares in any calendar year period
that are valued in excess of $25,000, as determined on the first day of the
applicable Offering period or Offering periods. An employee may elect to have
up to 10% deducted from his or her regular salary for the purpose of acquiring
shares under the 1996 Purchase Plan. The price at which an employee's option
is exercised is the lower of (i) 85% of the average of the closing price of
the ADSs on the Nasdaq National Market on the five trading days immediately
preceeding the day that the Offering commences or (ii) 85% of the average of
the closing price of the ADSs on the Nasdaq National Market on the five
trading days immediately preceding the day that the Offering terminates.
CERTAIN TRANSACTIONS
RELATED PARTY LOANS
Between 1990 and 1994, Pro/38 Inc., a Canadian corporation wholly owned by
the family of Bruce A. Saville, Chairman of the Board of the Company, loaned
varying amounts to Saville Systems Canada, Ltd. ("Saville Canada"), which were
repaid from time to time. In August 1994, the outstanding balance of this loan
was converted to a CDN$250,000 (approximately $185,000 at March 29, 1996) term
loan, bearing interest at a variable rate based on the Prime Rate as
established by Chase Manhattan Bank, which is due June 1, 1997. The
outstanding balance of this note was repaid with the proceeds of the Company's
initial public offering in November 1995.
Throughout 1991 and 1992, The InVoice Group, Inc., a Virginia corporation
affiliated with Columbia Saville Investors, L.P. and Columbia Saville Ireland
Investors, L.P., both significant shareholders of the Company, loaned to
Invoice Systems, Inc., the predecessor entity to Saville Systems U.S., Inc.
("Saville U.S."), an aggregate of $559,600, $300,000 of which bore interest at
the federal short term borrowing rate and $259,600 of which bore interest at a
fixed rate of 20%. James B. Murray, Jr. and David P. Mixer, both directors of
the Company, are limited partners of Columbia Saville Investors, L.P. and
Columbia Saville Ireland Investors, L.P. and are shareholders of Columbia
Capital Corporation, the general partner of Columbia Saville Investors, L.P.
The principal and interest of this debt were forgiven by the lender as
described below.
In June 1992, advances were made by Mr. Saville to Saville Canada for
working capital purposes, the outstanding balance of which aggregated
approximately CDN$125,000 (approximately $92,500 at March 29, 1996) at
December 31, 1992. This indebtedness had no fixed terms of repayment, did not
bear interest and was repaid in full by June 30, 1993.
In April 1993, Saville U.S. was capitalized with a contribution of $90,000
by Invoice Systems (Canada), Inc., a Canadian corporation controlled by Mr.
Saville, a contribution of $60,000 by The InVoice Group, Inc. and the
forgiveness of approximately $651,000 of principal and interest owed by
Invoice Systems, Inc. to The InVoice Group, Inc.
42
<PAGE>
In June 1993, advances were made by Mr. Saville to Saville Canada for
working capital purposes, the outstanding balance of which aggregated
approximately $222,000 at December 31, 1993. This indebtedness had no fixed
terms of repayment, did not bear interest and was repaid by December 31, 1994.
Pursuant to a shareholders' agreement made in August 1994, certain
shareholders of the Company were committed to loan the Company up to
$2,000,000 on a pro rata basis when and as called upon by the Company's Board
of Directors. No funds were requested by the Company under this agreement. In
connection with this agreement, Grannarville Interest Group Inc.
("Grannarville"), a Canadian company majority-owned by Mr. Saville, loaned
Saville Canada $500,000 pursuant to a note due August 1, 1997 and bearing
interest at a variable rate based on the Prime Rate as established by Chase
Manhattan Bank. $200,000 of this note was repaid in September 1995 and the
remainder was repaid in November 1995.
TRANSACTIONS WITH COLUMBIA CAPITAL CORPORATION AND ITS AFFILIATES
In April 1993, Invoice Systems (Canada), Inc. sold a portion of its interest
in Saville Canada to 2916746 Canada Inc., a Canadian corporation affiliated
with Columbia Saville Investors, L.P.
In August 1994, Columbia Saville Investors, L.P. purchased from Invoice
Systems (Canada), Inc. a portion of the shares of the Company. Approximately
one-half of the purchase price for these shares was paid in cash and the
remainder was financed by a note payable to Invoice Systems (Canada), Inc.
This note was guaranteed by a pledge of the shares purchased by Columbia
Saville Investors, L.P. to Invoice Systems (Canada), Inc.
In August 1994, for an aggregate purchase price of approximately $157,418,
Invoice Systems (Canada), Inc. sold Columbia Capital Corporation, the general
partner of Columbia Saville Investors, L.P., and eight individuals affiliated
with Columbia Capital Corporation, an option to purchase, in the aggregate,
1,490,000 Ordinary Shares of the Company at an exercise price of $2.01 per
share multiplied by a factor designed to account for the period of time
elapsed since the grant. This option was exercised in full in September 1995
for an aggregate exercise price of approximately $3,510,410.
In August 1994, Columbia Saville Investors, L.P. granted to Shawmut National
Ventures Corporation, a shareholder of the Company, an option to purchase
84,930 Ordinary Shares at an aggregate exercise price of $52,472.50 multiplied
by a factor designed to account for the period of time elapsed since the
grant. Shawmut National Ventures Corporation paid to Columbia Saville
Investors, L.P. approximately $157,418 in consideration of the grant of the
option. This option was exercised immediately after the closing of the
Company's initial public offering in November 1995.
In its capacity as an underwriter in the Company's initial public offering,
The Columbia Group Incorporated (the "Columbia Group") purchased an aggregate
of 230,000 ADSs pursuant to an Underwriting Agreement among the Company and
the underwriters of the initial public offering. Following this offering,
approximately 38.3% of the Company's outstanding Ordinary Shares will be held
by affiliates of the Columbia Group. In addition, James B. Murray, Jr. and
David P. Mixer, directors of the Company, are shareholders of the Columbia
Group, and Mr. Murray is a director of the Columbia Group. See "Principal and
Selling Shareholders" and "Underwriting."
On November 8, 1995, Columbia Saville Ireland Investors, L.P., Columbia
Saville Investors, L.P., Columbia Capital Corporation and certain individuals
associated with such entities agreed, pursuant to a stock purchase agreement,
to sell an aggregate of 750,000 Ordinary Shares to certain unaffiliated third
parties at a price per share of $10.00.
43
<PAGE>
OTHER TRANSACTIONS
In April 1993, Saville U.S. paid Oliver Bush, the former President of
Saville U.S., approximately $100,000, net of expenses, in settlement of
certain disputes and obligations. At the same time, Saville Canada contracted
with Qolus Financial Corporation ("Qolus"), a Canadian company (a majority of
which was owned by Mr. Bush), to provide consulting services to Saville
Canada. Over a twelve month period, Saville Canada paid Qolus approximately
$174,000 for such services. In June 1994, Saville Canada, Saville U.S.,
shareholders of both of those entities, Qolus and Mr. Bush terminated this
consulting agreement and certain options which had been granted to Mr. Bush by
affiliates of Columbia Saville Investors, L.P. to purchase shares of the
Company. $740,000 was paid by the Company and $25,000 was paid by Columbia
Saville Investors, L.P. to Qolus and Mr. Bush in connection with the
termination of these options and Mr. Bush's affiliation with the Company.
Dale Saville, Mr. Saville's wife, served as Vice President of Administration
and Finance of the Company from 1985 to December 1994 and, at the time of the
termination of her employment, was paid an annual salary of CDN$81,600
(approximately $60,384 at March 29, 1996). In 1995, Saville Canada paid
CDN$85,900 (approximately $63,566 at March 29, 1996) to Dalgran Systems Group,
Inc., a Canadian company owned by Dale Saville, for consulting services
relating to Ms. Saville's responsibilities as Vice President of Administration
and Human Resources.
During the period January 1, 1992 to September 30, 1995, the Company paid
fees of CDN$69,700 (approximately $51,578 at March 29, 1996) to M.H.C.
Financial Consultants Ltd. for consulting services and CDN$75,000
(approximately $55,500 at March 29, 1996) to McGovern, Hurley, Cunningham for
accounting services. William F. Cunningham, a chartered accountant with an
approximately 23% ownership interest in each of M.H.C. Financial Consultants
and McGovern, Hurley, Cunningham, is a director of the Company.
The Company has entered into employment agreements with each of Padraig W.
Kenny and John J. Kiley, executive officers of the Company. Pursuant to these
agreements, the Company is obligated to pay a base salary of IR(Pounds) 65,000
(approximately $102,050 at March 29, 1996) and $150,000 to Messrs. Kenny and
Kiley, respectively. In addition, each of these executive officers is entitled
to receive a year-end bonus based on a combination of individual and Company
performance. Upon joining the Company, Mr. Kiley was granted an option to
purchase 100,000 Ordinary Shares at an exercise price of $10.00 per share. The
Company may terminate the employment of these executives with or without
cause, subject, in the case of Mr. Kenny, to certain limitations imposed by
Irish law. In the case of Mr. Kiley, if the Company terminates such employment
without cause during the first two years of employment, the Company must pay
an amount equal to such executive's salary for the lesser of (i) one year or
(ii) the number of months remaining in the first two years of his employment.
In September 1995, the Company paid a dividend of $3.0 million to the
shareholders of the Company, which it determined to pay primarily due to the
incurrence of certain tax liabilities by its majority shareholders as a result
of their ownership interests in the Company and the Company's classification
at that time as a "Controlled Foreign Corporation." See "Dividend Policy" and
"Taxation."
The Company believes that the terms of the foregoing transactions involving
the Company were no less favorable to the Company than could have been
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and affiliates will be on terms no less
favorable to the Company than could be obtained from unrelated third parties
and will be approved by a majority of the Board of Directors and by a majority
of the disinterested members of the Company's Board of Directors.
44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Ordinary Shares as of May 1, 1996 and as adjusted
to reflect the sale of the ADSs offered hereby by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Ordinary
Shares, (ii) each director and Named Executive Officer of the Company, (iii)
each Selling Shareholder and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated, the persons named in this
table have sole voting and sole investment power with respect to all shares
shown as beneficially owned, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING(1) SHARES OFFERING(1)
------------------ BEING -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED(2) NUMBER PERCENT
------------------------ ---------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
OFFICERS, DIRECTORS AND 5%
SHAREHOLDERS:
Entities affiliated with
Columbia Capital
Corporation(3)................ 7,723,485 43.9% 1,624,223 6,099,262 34.5%
201 N. Union St.
Alexandria, VA 22314
Bruce A. Saville(4)............ 1,750,394 10.0% 547,352 1,203,042 6.8%
Saville Systems PLC
4445 Calgary Trail
Edmonton, AB
Canada, T6H 5R7
John J. Boyle, III(5).......... 478,319 2.7% 60,805 417,514 2.3%
David P. Mixer(6).............. 189,632 1.1% 39,879 149,753 *
James B. Murray, Jr.(6)........ 189,632 1.1% 39,879 149,753 *
Marc J. Venator(7)............. 82,433 * 18,376 64,057 *
Michael A. Shulist(8).......... 81,839 * 13,546 68,293 *
Padraig W. Kenny(9)............ 40,375 * 8,687 31,688 *
John A. Blanchard, III(10)..... 20,806 * 0 20,806 *
Brian E. Boyle(11)............. 20,806 * 0 20,806 *
William F. Cunningham(10)...... 20,806 * 0 20,806 *
Richard A. Licursi(10)......... 20,806 * 0 20,806 *
Fergus G. McGovern(10)......... 20,806 * 0 20,806 *
John W. Sidgmore(10)........... 20,806 * 0 20,806 *
All officers and directors as a
group
(14 persons)(12).............. 10,660,945 58.2% 2,352,747 8,308,198 45.1%
OTHER SELLING SHAREHOLDERS:
Fleet Growth Resources, Inc. .. 655,780 3.7% 213,909 441,871 2.5%
Technology Crossover Ventures,
L.P.(13)...................... 372,501 2.1% 71,813 300,688 1.7%
Applewood Associates, L.P.(14). 250,000 1.4% 80,000 170,000 *
Mark Warner(6)................. 189,632 1.1% 39,879 149,753 *
Robert Blow(6)................. 179,990 1.0% 37,851 142,139 *
Woodland Venture, L.P.(15)..... 100,000 * 40,000 60,000 *
Mark Kington(6)................ 95,605 * 20,052 75,553 *
Andrew Dong(16)................ 77,531 * 9,429 68,102 *
Ronald Howe(16)................ 75,207 * 9,196 66,011 *
Stuart Palace(16).............. 72,301 * 8,906 63,395 *
Glenn Pociluyko(16)............ 71,901 * 8,866 63,035 *
Seneca Venture, L.P.(17)....... 70,000 * 28,000 42,000 *
Technology Crossover Ventures,
C.V.(18)...................... 29,499 * 5,687 23,812 *
Bayview III, L.P.(19).......... 20,000 * 20,000 0 *
David A. Duffield Trust, Dated
7/14/88....................... 20,000 * 20,000 0 *
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING(1) SHARES OFFERING(1)
-------------- BEING ------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED(2) NUMBER PERCENT
------------------------ ------ ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Margaret L. Taylor................ 10,000 * 10,000 0 *
Kuwait Middle East Financial
Investment Company(20)........... 10,000 * 10,000 0 *
KME Ventures III, L.P.(21)........ 10,000 * 10,000 0 *
R. Philip Herget(6)............... 5,356 * 748 4,608 *
Barton Schneider(6)............... 5,356 * 748 4,608 *
Mark McCormack(22)................ 4,523 * 1,493 3,030 *
Neil P. Byrne(6).................. 3,214 * 676 2,538 *
</TABLE>
- --------
* Represents less than 1% of the total.
(1) The number of Ordinary Shares outstanding prior to this offering includes
(i) 17,576,406 Ordinary Shares outstanding as of May 1, 1996 and (ii)
shares issuable by the Company pursuant to options held by the respective
person or group which may be exercised within 60 days after May 1, 1996
("Presently Exercisable Options"). The number of Ordinary Shares deemed
outstanding after this offering includes an additional 100,000 Ordinary
Shares which are being offered for sale by the Company in this offering.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Presently Exercisable Options are deemed to be
outstanding and to be beneficially owned by the person or group holding
such options for the purpose of computing the percentage ownership of such
person or group but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or group.
(2) If the Underwriters exercise their over-allotment option to purchase up to
465,000 ADSs, then the following shareholders named in the table above
will sell up to the following number of additional ADSs: Columbia Saville
Ireland Investors L.P., 147,098 shares; Columbia Saville Investors L.P.,
104,629 shares; Invoice Systems (Canada), Inc., 84,840 shares; Mr. Boyle,
9,425; Mr. Mixer, 6,181 shares; Mr. Murray, 6,181 shares; Mr. Venator,
2,849 shares; Mr. Shulist, 2,100 shares; Mr. Kenny, 1,346 shares; Fleet
Growth Resources, Inc., 33,156 shares; Mr. Warner, 6,181 shares; Mr. Blow,
5,867 shares; Mr. Kington, 3,108 shares; Mr. Dong, 1,434 shares; Mr. Howe,
1,425 shares; Mr. Palace, 1,380 shares; Mr. Pociluyko, 1,374 shares;
Applewood Associates, L.P., 12,400 shares; Technology Crossover Ventures,
L.P., 11,131 shares; Woodland Ventures, L.P., 6,200 shares; Seneca
Venture, L.P., 4,400 shares; Bayview III, L.P., 3,100 shares; David A.
Duffield Trust, Dated 7/14/88, 3,100 shares; Margaret L. Taylor, 1,549
shares; Kuwait Middle East Financial Investment Company, 1,549 shares; KME
Ventures III, L.P., 1,549 shares; Technology Crossover Ventures, C.V., 881
shares; Mr. Herget, 116 shares; Mr. Schneider, 116 shares; Mr. McCormack,
230 shares; and Mr. Byrne, 105 shares.
(3) Includes 4,498,669 shares and 3,224,816 shares owned by Columbia Saville
Ireland Investors L.P. and Columbia Saville Investors, L.P., respectively,
and 949,194 shares, and 675,029 shares being sold in this offering by such
entities, respectively. Messrs. Blow, Kington, Mixer, Murray and Warner
share investment control of the shares held by such shareholder entities
and may be deemed to beneficially own such shares. Excludes shares held by
Messrs. Blow, Byrne, Herget, Kington, Mixer, Murray, Schneider and Warner,
who are affiliated with such shareholder entities and as to whose shares
each such shareholder entity disclaims beneficial ownership, except to the
extent of such individual's interest in such entities.
(4) Includes 2,894 shares issuable pursuant to Presently Exercisable Options
and 1,747,500 shares owned of record by Invoice Systems (Canada), Inc. Mr.
Saville indirectly owns 94.68% of the voting securities of Invoice Systems
(Canada), Inc., and the remainder of such securities are held by certain
employees of the Company and a trust of which Mr. Saville and his wife are
co-trustees.
(5) Includes 397,359 shares issuable pursuant to Presently Exercisable
Options. Does not include 129,734 shares issuable upon the exercise of
options not exercisable within 60 days of May 1, 1996.
(6) Excludes shares held by Columbia Saville Ireland Investors L.P. and
Columbia Saville Investors L.P. Messrs. Blow, Kington, Mixer, Murray and
Warner share investment control of the shares held by such shareholder
entities and may be deemed to beneficially own such shares. Messrs. Byrne,
Herget and Schneider are affiliated with such shareholder entities. Each
of Messrs. Blow, Byrne, Herget, Kington, Mixer, Murray, Schneider and
Warner disclaims beneficial ownership of the shares held by such
shareholder entities, except to the extent of such individual's interest
in such entities.
(7) Includes 81,933 shares issuable pursuant to Presently Exercisable Options,
some of which will be exercised in connection with this offering. Does not
include 101,328 shares issuable upon the exercise of options not
exercisable within 60 days of May 1, 1996.
(8) Includes 81,339 shares issuable pursuant to Presently Exercisable Options,
some of which will be exercised in connection with this offering. Does not
include 53,616 shares issuable upon the exercise of options not
exercisable within 60 days of May 1, 1996.
(9) Includes 39,875 shares issuable pursuant to Presently Exercisable Options,
some of which will be exercised in connection with this offering. Does not
include 46,494 shares issuable upon the exercise of options not
exercisable within 60 days of May 1, 1996.
(10) Comprised solely of shares issuable pursuant to Presently Exercisable
Options
(11) Comprised solely of shares issuable pursuant to Presently Exercisable
Options that are held in trust for the benefit of Mr. Boyle's children.
Mr. Boyle disclaims beneficial ownership of these shares.
(12) Includes (i) shares held by entities affiliated with Columbia Capital
Corporation (of which Messrs. Mixer and Murray are affiliates) and (ii)
728,236 shares issuable pursuant to Presently Exercisable Options, some
of which will be exercised in connection with this offering.
46
<PAGE>
(13) Excludes 29,499 shares owned by Technology Crossover Ventures, C.V.,
whose general partner is the general partner of Technology Crossover
Ventures, L.P. Excludes 20,000 shares owned by Bayview III, L.P., certain
limited partners of which are employees of a special limited partner of
Technology Crossover Ventures, L.P. and Technology Crossover Ventures,
C.V.
(14) Excludes 100,000 shares and 70,000 shares owned by Woodland Venture, L.P.
("Woodland") and Seneca Venture, L.P. ("Seneca"), respectively, one of
whose general partners is also a general partner of Applewood Associates,
L.P. ("Applewood")
(15) Excludes 250,000 shares and 70,000 shares owned by Applewood and Seneca,
respectively, one of whose general partners is also a general partner of
Woodland.
(16) Includes 43,700 shares issuable pursuant to Presently Exercisable
Options, some of which will be exercised in connection with this
offering. Does not include 16,755 shares issuable upon the exercise of
options not exercisable within 60 days of May 1, 1996. Excludes shares
held by Invoice Systems (Canada), Inc., of which such Selling
Shareholders are minority stockholders.
(17) Excludes 250,000 shares and 100,000 shares owned by Applewood and
Woodland, respectively, one of whose general partners is also a general
partner of Seneca.
(18) Excludes 372,501 shares owned by Technology Crossover Ventures, L.P.,
whose general partner is the general partner of Technology Crossover
Ventures, C.V. Excludes 20,000 shares owned by Bayview III, L.P., certain
limited partners of which are employees of a special limited partner of
Technology Crossover Ventures, L.P. and Technology Crossover Ventures,
C.V.
(19) Excludes 372,501 shares and 29,499 shares owned by Technology Crossover
Ventures, L.P. and Technology Crossover Ventures, C.V. (the "Crossover
Funds"), respectively. Certain limited partners of Bayview III, L.P. are
employees of a special limited partner of the Crossover Funds.
(20) Excludes 10,000 shares owned by KME Ventures III, L.P. Excludes 10,000
shares owned by Kuwait Middle East Financial Investment Company, which
owns the general partner of KME Ventures III, L.P.
(21) Excludes 10,000 shares owned by Kuwait Middle East Financial Investment
Company. Excludes 10,000 shares owned by KME Ventures III, L.P., whose
general partner is owned by Kuwait Middle East Financial Investment
Company.
(22) Does not include 10,404 shares issuable upon the exercise of options not
exercisable within 60 days of May 1, 1996.
47
<PAGE>
DESCRIPTION OF SHARE CAPITAL
The following brief descriptions of the Company's share capital and certain
provisions of the Company's Articles of Association do not purport to be
complete and are subject to and are qualified in their entirety by reference
to the provisions of the Company's Articles of Association.
GENERAL
The authorized share capital of the Company is $100,000 and IR(Pounds)30,000
divided into 40,000,000 Ordinary Shares (nominal value $0.0025 per share), and
30,000 Deferred Shares (nominal value IR(Pounds)1.00 per share), respectively.
All of the Ordinary Shares issued and outstanding are fully paid, duly
authorized and validly issued. Holders of Ordinary Shares, as such, have no
conversion, preemptive or other subscription rights (except as described below
under "Preemptive Rights"), and there are no redemption provisions applicable
to the Ordinary Shares. There are no appraisal rights under Irish law for
dissenting shareholders. In the following description, a "shareholder" is the
person registered in the Company's Register of Members as the holder of the
relevant share. The Bank of New York, as depositary (the "Depositary"), is the
shareholder of record in respect of those Ordinary Shares represented by ADSs
against which ADRs are issued pursuant to the Deposit Agreement. The rights
attaching to ADSs are described below under "Description of American
Depositary Receipts."
Irish law requires that a certain amount of the Company's share capital be
denominated in Irish pounds, and the Deferred Shares meet this requirement.
The Deferred Shares carry no voting or dividend rights and carry only minimal
rights on a liquidation.
On September 27, 1995, the Company completed a 400-for-1 division of all
Ordinary Shares and subsequently declared and allotted a share dividend of
2.725 Ordinary Shares for each post-division share outstanding.
RIGHTS ON A LIQUIDATION OR WINDING-UP
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Ordinary Shares will be entitled to receive the amount paid up
thereon plus an additional amount of $100,000 for every $0.000025 paid up
thereon out of the assets, if any, remaining for distribution after payment of
debts and liabilities and after provision has been made for each class of
shares, if any, having preference over the Ordinary Shares. Any remaining
surplus assets will then be distributed to the holders of Deferred Shares to
the extent of the amount paid up thereon and any balance will be distributed
pro rata to the holders of Ordinary Shares.
DIVIDENDS
Holders of Ordinary Shares are entitled to receive such dividends as may be
recommended by the Board of Directors of the Company and approved by the
shareholders and/or such interim dividends as the Board of Directors of the
Company may decide. Except for the dividend paid on September 25, 1995, no
cash dividends have been paid on the Ordinary Shares in any of the six fiscal
years immediately preceding the issue of this Prospectus. Under Irish law,
dividends may be paid only out of profits available for distribution, namely,
accumulated realized profits less accumulated realized income.
VOTING RIGHTS
Voting at any general meeting of shareholders is by a show of hands unless a
poll (i.e., a written vote) is duly demanded. Votes may be given either
personally or by proxy. Subject to the Articles of Association
48
<PAGE>
and to any rights or restrictions attaching to any class or classes of shares,
on a show of hands each shareholder present in person and every proxy has one
vote but so that no individual can have more than one vote, and on a poll each
shareholder shall have one vote for each share of which he is the holder.
Where there is an equality of votes, whether on a show of hands or on a poll,
the chairman of the meeting is entitled to a casting vote in addition to any
other vote he may have. A poll may be demanded by (i) the chairman of the
meeting, or (ii) at least three shareholders present (in person or by proxy)
entitled to vote at the meeting, or (iii) any shareholder or shareholders
present (in person or by proxy) representing not less than one-tenth of the
total voting rights of all the shareholders entitled to vote at the meeting,
or (iv) any shareholder or shareholders present (in person or by proxy)
holding shares conferring the right to vote at the meeting being shares on
which there have been paid up sums in the aggregate equal to not less than
one-tenth of the total sum paid up on all the shares conferring that right.
The Depositary has agreed to demand a poll at all general meetings of
shareholders.
A majority of votes cast is required to pass ordinary resolutions, however,
a 75% vote in favor of the resolution is required for the adoption of special
resolutions. A special resolution is required to effect certain actions, for
example, to alter the Memorandum or Articles of Association, to change the
name of the Company or to make a determination to wind up either voluntarily
or by court action. Where there is more than one class of shares, variation of
the rights attached to any class of shares requires the approval of a special
resolution of the shareholders of the class in question or the consent in
writing of the holders of 75% of the shares of that class. Shareholders do not
have cumulative voting rights for the election of directors. For a description
of the method by which the Ordinary Shares held by the Depositary are voted,
see "Description of American Depositary Receipts--Voting of Deposited
Securities."
SHAREHOLDER MEETINGS
Irish law provides for two types of shareholder meetings, the annual general
meeting and the extraordinary general meeting. An annual general meeting must
be held once every calendar year within nine months of the fiscal year end
provided that no more than fifteen months may elapse between such meetings.
Extraordinary general meetings of a company may be convened by the board of
directors or at the request of shareholders holding not less than one-tenth of
such of the paid-up capital as carries the right of voting at general
meetings. Shareholders must receive at least 21 days' written notice of an
annual general meeting and of an extraordinary general meeting convened for
the passing of a special resolution and at least 14 days' written notice of
other extraordinary general meetings. The Articles of Association provide that
a quorum for a general meeting is three persons entitled to vote at the
meeting, each being a shareholder or proxy.
Under Irish law, the Company's annual general meeting must take place in the
Republic of Ireland, unless all shareholders entitled to attend and vote at
such meeting consent in writing to the meeting being held elsewhere or a
resolution providing that the meeting be held elsewhere has been passed at the
preceding annual general meeting. At the Company's 1996 Annual General
Meeting, the Company's shareholders passed a resolution authorizing the
holding of the 1997 Annual General Meeting of Shareholders in the United
States.
ISSUANCE OF SHARES
Irish law restricts the power of the directors of a company (other than
under certain employee share plans) to allot shares or to grant share
subscription rights and rights to convert any security into shares unless
either the articles of association of such company or a resolution of the
shareholders authorizes the board of directors to do so. No such authority may
be given for a period in excess of five years. By an ordinary resolution of
the Company's shareholders passed on September 27, 1995, the Board of
Directors has been authorized to allot up to 35,972,000 Ordinary Shares during
the period ending on September 27, 2000. Notwithstanding this authority, the
rules of the Nasdaq National Market specify certain circumstances in which the
shareholders by ordinary resolution must authorize the allotment of shares,
e.g., where the allotment would result in a change of control of the Company.
In addition, the Company may not pay, directly or indirectly, a commission in
excess of 10% of the price at which shares are issued to any person in
consideration of his subscribing for or procuring subscriptions for those
shares or of his agreeing to do so.
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PREEMPTIVE RIGHTS
Irish law provides that, in general, a company may not allot any shares (or
grant a right to subscribe for or to convert any securities into shares in a
company) for cash unless it has first offered those shares, on a pro rata
basis, to the existing shareholders of the company. This preemptive right may
be disapplied for a period of up to five years by the articles of association
of the company or by a special resolution passed by the shareholders of the
company. By a special resolution of the shareholders of the Company passed on
September 27, 1995, this preemptive right was disapplied in respect of all
allotments of shares to be made by the Board of Directors pursuant to the
authorization given to them by the ordinary resolution referred to above under
"Issuance of Shares".
DERIVATIVE ACTION SUITS
As a general principle of Irish law, only a company itself can be the proper
plaintiff for the purposes of maintaining proceedings in respect of wrongs
done to the company. Neither an individual shareholder nor any group of
shareholders has any right of action in such circumstances. There are,
however, certain exceptions to this principle available under equitable
principles on a case-by-case basis. For example, the controlling shareholders
cannot perpetrate a fraud on the minority shareholders or commit an act that
is illegal or ultra vires. Additionally, if a company purports to act on the
strength of a decision by a simple majority of votes where such a decision
requires more than a simple majority, an individual shareholder is entitled to
bring suit. In certain circumstances, if controlling shareholders fail to
institute proceedings in the name of the company when such proceedings are
properly called for, one or more of the aggrieved minority shareholders may
apply to the court to bring what has come to be known as a derivative action,
namely an action that derives from the injury to the company rather than the
injury to individual shareholders. The defendants in any such proceedings
would normally be the company itself and those persons who are alleged to have
committed the wrong.
MEMBERS' SUITS
In contrast to a derivative action, Irish law permits an action by a
shareholder in his own right where he alleges that his personal rights have
been infringed. Such a shareholder may commence a suit in a representative
capacity on behalf of himself and other affected consenting shareholders of
the same class if their rights are identical. Additionally, under Irish law
any shareholder of a company who claims that the affairs of the company are
being conducted, or that the powers of the directors of the company are being
exercised, in a manner oppressive to him or any of the shareholders (including
himself) or in disregard of his or their interests as shareholders, may apply
to the courts for an appropriate order.
INTERLOCKING AND INTERESTED DIRECTORS
Irish law provides that it shall be the duty of a director of a company who
is any way, whether directly or indirectly, interested in a contract or
proposed contract with the company to declare the nature of his interest at a
meeting of the directors of the company. Under the Company's Articles of
Association, a director may not, subject to certain exceptions, vote at a
meeting of the directors on any resolution concerning a matter in which he
has, directly or indirectly, a material interest or a duty that conflicts with
the interests of the Company, nor may a director be counted in the quorum
present at a meeting in relation to a resolution on which such director is not
entitled to vote.
DISCLOSURE REQUIREMENTS
Under Irish law, a person who has or acquires an interest in 5% or more of
the issued voting share capital of any class of a public limited company (such
as the Company) must notify such company (in the prescribed manner and
normally within five business days) of his interest and of certain
circumstances and events affecting that interest. In general, such a person
must give notice of any change in his interest above the 5% level and any
reduction in his interest which takes it below the 5% level. Any interest of a
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person in an ADS, either direct or through a spouse, a minor child, a company
which he is deemed to control or, in certain circumstances, other persons with
whom he is acting in concert, would be regarded for this purpose as an
interest in the Ordinary Share represented by that ADS. Failure by any person
to notify punctually and properly is an offense, and as a consequence of such
failure (except where it relates to his ceasing to be interested in shares) no
right or interest in respect of the relevant shares will be enforceable by
him, directly or indirectly, by action or legal proceeding. Application may be
made to the Irish courts to remove this restriction, but this would not be
successful unless the court was satisfied that the failure to notify was not
due to any deliberate act or omission on the part of the applicant. In
addition, the company is obliged to keep a register showing all notifications
received and to keep it open to inspection by the public. Furthermore, the
company may also (and is obliged on a request by shareholders holding not less
than 10% of its paid-up voting capital to) require a person whom the company
believes to be interested in the voting share capital to disclose information
concerning the interests in the relevant shares. If such person fails to
provide the information requested, the company may apply to the court for an
order restricting the voting, dividend and transfer rights in respect of the
relevant shares.
Under the Articles of Association, the Board of Directors may require a
holder of Ordinary Shares to disclose, among other things, the identity of the
persons having beneficial interests in those shares and the nature of any
arrangements with any persons regarding the disposition or voting of those
shares. If the directors determine that the holder of the relevant shares has
not provided a satisfactory disclosure, the directors may restrict the voting,
dividend and transfer rights in respect of those shares.
IRISH MERGERS LEGISLATION
Subject to certain exceptions and if certain financial thresholds are
exceeded, any person or persons acting in concert proposing to acquire
Ordinary Shares or ADSs must provide advance notice of such acquisition to the
Minister for Enterprise and Employment of the Republic of Ireland if, after
such acquisition, that person or those persons would obtain the right to
shares carrying more than 25% of the voting rights in the Company. Failure to
so notify is an offense under Irish law, and title to the Ordinary Shares
concerned will not pass unless either clearance for such acquisition has been
obtained from such Minister or the prescribed statutory period following
notification of such acquisition has expired without the Minister having
prohibited the proposed acquisition.
PRESENTATION OF FINANCIAL STATEMENTS TO SHAREHOLDERS
The Board of Directors is required to present to the shareholders at each
annual general meeting the statutory consolidated financial statements of the
Company and its subsidiaries and a report by the directors on the state of
affairs of the Company and its subsidiaries.
PURCHASE OF OWN SHARES
Under Irish law, a company may, if so authorized by its articles of
association, purchase its own shares, including redeemable shares. The Company
has such an authority in its Articles of Association. This power may not be
exercised by the Company unless, in the case of a purchase other than on a
recognized stock exchange (currently, the Irish Stock Exchange is the only
recognized stock exchange for this purpose), the terms of the contract
relating to such purchase have first been authorized by a special resolution
of the Company before the contract is entered into and, in the case of a
purchase on a recognized stock exchange, the purchase has first been
authorized by an ordinary resolution of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Ordinary Shares is Allied Irish
Bank, p.l.c., Registrars' & New Issue Department, Bankcentre, Ballsbridge,
Dublin 4, Ireland. The Transfer Agent and Registrar for the ADSs is The Bank
of New York.
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TAXATION
The statements of United States, Irish and Canadian tax laws set out below
are based on the laws, regulations, administrative rulings and practices of
the United States Internal Revenue Service (the "IRS"), the Revenue
Commissioners of Ireland and Revenue Canada in force and as interpreted by the
relevant taxation authorities as of the date of this Prospectus and are
subject to any changes in United States, Irish or Canadian law, or in the
interpretation thereof by the relevant taxation authorities, or in the double
taxation conventions between the Republic of Ireland and the United States
(the "Conventions") and between the Republic of Ireland and Canada, occurring
after such date (the Conventions were ratified in 1951 and are currently being
renegotiated).
The following is a general summary of certain Republic of Ireland and United
States federal income tax consequences of the purchase, ownership and
disposition of ADSs evidenced by ADRs for U.S. Holders. For purposes of this
discussion, a "U.S. Holder" means an individual citizen or resident of the
United States for United States federal income tax purposes, a corporation or
partnership created or organized under the laws of the United States or any
state thereof or the District of Columbia, or an estate or trust the income of
which is subject to U.S. federal income taxation regardless of its source, in
each case who (i) is not also a resident of, or ordinarily resident in, the
Republic of Ireland for Irish tax purposes, (ii) is not engaged in trade or
business in the Republic of Ireland through a permanent establishment and
(iii) does not own, directly, indirectly or by attribution, 10% or more of the
shares of the Company (by vote or value).
This summary is of a general nature only and does not discuss all aspects of
United States and Irish taxation that may be relevant to a particular
investor. The summary deals only with ADRs held as capital assets and does not
address special classes of purchasers, such as dealers in securities, U.S.
Holders whose functional currency is not the United States dollar and certain
U.S. Holders (including, but not limited to, insurance companies, tax-exempt
organizations, financial institutions and persons subject to the alternative
minimum tax) who may be subject to special rules not discussed below. In
particular the following summary does not address the adverse tax treatment of
U.S. Holders who own, directly, or by attribution, 10% or more of the
Company's outstanding voting stock in the event that the Company were to be
classified as a "Controlled Foreign Corporation" for United States federal
income tax purposes. Although the Company was not a Controlled Foreign
Corporation at March 31, 1996, there can be no assurance that it will not be a
Controlled Foreign Corporation in the future.
PROSPECTIVE PURCHASERS OF ADSs ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES,
AS WELL AS WITH RESPECT TO THE TAX CONSEQUENCES IN THE REPUBLIC OF IRELAND AND
OTHER JURISDICTIONS, OF THE OWNERSHIP OF ADSs AND THE ORDINARY SHARES
REPRESENTED THEREBY APPLICABLE IN THEIR PARTICULAR TAX SITUATIONS.
For purposes of the Conventions and the Internal Revenue Code of 1986, as
amended (the "Code"), U.S. Holders will be treated as the owners of the
Ordinary Shares represented by ADSs evidenced by ADRs.
TAXATION OF THE COMPANY
Republic of Ireland Taxation. For Irish tax purposes, the residence of a
company is in the jurisdiction where the central management and control of the
company is located. Companies which are resident in the Republic of Ireland
are subject to Irish corporation tax on their total profits (wherever arising
and, generally, whether or not remitted to the Republic of Ireland). The
question of residence is essentially one of fact. It is the present intention
of the Company's management to manage and control the Company from the
Republic of Ireland, so that the Company will be resident in the Republic of
Ireland.
The standard rate of Irish corporation tax on both trading and non-trading
income is currently 38%. However, in 1980, the Irish government enacted
legislation, with the approval of the European Union,
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enabling companies to pay a reduced 10% rate of tax on profits from the
manufacture of goods in the Republic of Ireland and certain other activities
deemed to be the manufacture of goods. Current legislation provides that the
reduced rate will be available until 2010. Certain activities of the Company in
the Republic of Ireland qualify for the 10% rate. See "Risk Factors--Risk of
Increasing Taxes."
United States Taxation. Under the Convention relating to income taxation (the
"Income Tax Convention"), the Company will generally not be subject to United
States federal income tax unless it engages in a trade or business in the
United States through a permanent establishment. The Company currently operates
in the United States through Saville U.S., its subsidiary. Saville Ireland
intends to conduct its business activities in a manner that will not result in
its being considered to be engaged in a trade or business or to have a
permanent establishment in the United States, even though Saville U.S. is a
United States taxpayer. Dividends paid by Saville U.S. to the Company will
generally be subject to United States withholding tax at the rate of 5%, which
tax should generally be creditable by the Company against Irish corporation
tax. Saville U.S. is currently subject to United States federal and state
income taxation at a rate of approximately 41%.
Canadian Taxation. The Company carries on business in Canada through Saville
Canada. Saville Canada is currently subject to Canadian federal and provincial
taxation at a rate of approximately 44.5%. Entities other than Saville Canada
would be subject to Canadian taxation only with respect to income derived by
them from Canada in the form of royalties, license fees, interest, dividends
and similar payments, from the disposition of "taxable Canadian property" (as
defined in the Income Tax Act (Canada)) or from business activities carried on
through permanent establishments in Canada as determined under tax treaties
entered into by Canada with the Republic of Ireland and the United States.
Dividends paid by Saville Canada to the Company will generally be subject to
Canadian withholding tax at a rate of 15%, which tax should generally be
creditable against Irish corporation tax.
TAXATION OF DIVIDENDS
Republic of Ireland Taxation. The Company does not expect to pay cash
dividends for the foreseeable future. Should the Company begin paying
dividends, the dividends will carry an imputed tax credit (the "Tax Credit").
The amount of the Tax Credit is calculated as a weighted average of tax credits
applicable to different portions of the dividend, which vary depending on the
nature of the income out of which the dividend is paid. Accordingly, dividends
paid out of profits taxable at the standard corporation tax rate of 38% carry a
Tax Credit equal to 23/77 of the amount of such dividend; dividends paid out of
profits taxable at the 10% incentive corporation tax rate carry a Tax Credit
equal to 1/18 of the amount of such dividend.
The Company would be required, when paying a dividend in respect of the
Ordinary Shares, to account to the Revenue Commissioners of Ireland for a
payment known as advance corporation tax ("ACT") equal to the amount of the Tax
Credit. ACT would be available for setoff against the corporation tax liability
of the Company on its profits exclusive of taxable gains.
Persons who are neither resident nor ordinarily resident in the Republic of
Ireland do not have an Irish income tax liability on dividends received from
Irish resident companies. Although a net Irish income tax is imposed, the
income tax liability of each such person is restricted to the amount of the Tax
Credit attaching to the dividend and, as the Tax Credit is allowed against the
restricted liability, the Irish income tax liability is fully offset by the Tax
Credit. Individuals are liable for Irish health and employment levies of 2.25%
on such dividends. There is no Irish withholding tax on dividends paid by an
Irish resident company.
United States Taxation. For United States federal income tax purposes, the
gross amount (i.e., including the amount of the Tax Credit) of any dividend
paid (to the extent of the current or accumulated earnings and profits of the
Company) will be included in gross income and treated as foreign source
dividend income in the year the shareholder becomes entitled to such dividend.
The dividend will not be eligible for the dividends-received deduction allowed
to United States corporations. The amount includable in income will be the
United States dollar value of the payment on the date of payment
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regardless of whether the payment is in fact converted into United States
dollars. Generally, gain or loss (if any) resulting from currency fluctuations
during the period from the date any dividend is paid to the date such payment
is converted into United States dollars will be treated as ordinary income or
loss. The IRS has ruled privately that a U.S. Holder will be eligible for a
United States foreign tax credit under Article XIII of the Income Tax
Convention for the Irish tax imposed on a dividend paid by an Irish company.
The amount of the allowable foreign tax credit will not exceed the amount of
the Irish Tax Credit described above. Although private letter rulings are not
binding authority and are directed only to the taxpayer who requests them, they
are considered persuasive in determining the position of the IRS.
If the U.S. Holder is a United States partnership, trust or estate, the
foreign tax credit will be available only to the extent that the income derived
by such partnership, trust or estate is subject to United States tax as the
income of a resident either in its hands or in the hands of its partners or
beneficiaries, as the case may be.
TAXATION OF CAPITAL GAINS
A U.S. Holder is not subject to Irish capital gains tax on the disposal of
ADSs quoted on the Nasdaq National Market. It is the intention of the Company's
management to continue the Company's quotation on the Nasdaq National Market.
Subject to the discussion below under the heading "Passive Foreign Investment
Company Considerations," a U.S. Holder will be liable for United States federal
income tax on such gains to the same extent as on any other gains from sales or
dispositions of shares.
A U.S. Holder that is liable for both Irish and U.S. tax on a gain on the
disposal of the ADSs will generally be entitled, subject to certain limitations
and pursuant to the Income Tax Convention, to credit the amount of Irish
capital gains or corporation tax, as the case may be, paid in respect of such
gain against such U.S. Holder's United States federal income tax liability.
Such gain is, however, likely to be considered to be from sources within the
United States, which may effectively limit the amount of foreign tax credit
allowed to the U.S. Holder.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
The Company will be classified as a passive foreign investment company
("PFIC") for United States federal income tax purposes in the year of the
offering or in subsequent years if either (i) 75% or more of its gross income
is passive income or (ii) on average for the taxable year, 50% or more of its
assets (by value or, if the Company so elects or if the Company is classified
as a Controlled Foreign Corporation for United States federal income tax
purposes, by adjusted tax bases) produce or are held for the production of
passive income. While there can be no assurance, the Company expects, based on
projections of its income and assets and the manner in which the Company
intends to manage its business, that it will not be a PFIC. The Company will
monitor its status and will, promptly following the end of each taxable year,
notify shareholders if it believes that it is properly classified as a PFIC for
that taxable year. The consequences of the Company being classified as a PFIC
will depend in part on whether an election (a "QEF Election") to treat the
Company as a qualified electing fund (a "QEF") under Section 1295 of the Code
is, with respect to the particular U.S. Holder, in effect for each taxable year
in such U.S. Holder's holding period in which the Company is a PFIC.
If the Company is a PFIC during a U.S. Holder's holding period for its ADSs
and the U.S. Holder does not make a QEF Election, the U.S. Holder will
generally be required to pay a special U.S. tax (the "Special Tax"), in lieu of
the U.S. tax that would otherwise apply, if such U.S. Holder (a) realizes a
gain on disposition of ADSs or (b) receives an "excess distribution" from the
Company on ADSs. An "excess distribution" is a distribution that exceeds 125%
of the average distribution over the shorter of the preceding three years or
the U.S. Holder's holding period. For purposes of calculating the Special Tax,
a gain on disposition or "excess distribution" would be treated as having been
realized by the U.S. Holder over such U.S. Holder's holding period for its
ADSs. The amount of the Special Tax would be the sum of
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the taxes resulting from the following calculations: (i) the amount deemed
realized in the taxable year of disposition or "excess distribution"
(including amounts allocated to any period prior to the first taxable year of
the Company in which it becomes a PFIC) would be includable in gross income as
ordinary income for the taxable year of disposition or "excess distribution",
(ii) amounts deemed realized in each of the other taxable years would be taxed
at the highest marginal U.S. federal income tax rates in effect for the
applicable class of taxpayer in the year of deemed realization and (iii) an
additional tax in the form of an interest charge would be imposed on the tax
deemed deferred from the year of deemed realization to the year of actual
realization. The tax liability with respect to amounts deemed realized in
years prior to the taxable year of disposition or "excess distribution" cannot
be offset by any net operating losses, and gains (but not losses) realized on
the sale of ADSs cannot be treated as capital, even if the ADSs are held as
capital assets.
The Special Tax would not apply to any disposition of ADSs by a U.S. Holder,
or to any distribution by the Company to such U.S. Holder, if a QEF Election
is in effect with respect to that U.S. Holder for each of the years during
such U.S. Holder's holding period that the Company is a PFIC, and the U.S.
Holder complies with certain reporting requirements (discussed below).
The Company will comply with all reporting requirements necessary for a U.S.
Holder to make a QEF Election and will, promptly following the end of any
taxable year in which the Company determines that it is properly classified as
a PFIC, provide registered holders of Ordinary Shares with U.S. addresses
(including the Depositary), and to other registered shareholders on request,
information necessary for such an election. The Depositary has agreed to
distribute such information to registered holders of ADRs.
If a U.S. Holder makes a QEF Election, the U.S. Holder would be currently
taxable on its pro rata share of the Company's ordinary earnings and net
capital gain (at ordinary income and capital gains rates, respectively) for
each taxable year of the Company that the Company is classified as a PFIC,
even if no dividend distributions were received. Once a QEF election is made,
it will apply to all subsequent years that the Company is a PFIC and may be
revoked only with the consent of the IRS. A U.S. Holder will not be currently
taxed on the ordinary income and net capital gain of a QEF for any year that
the QEF is not classified as a PFIC. Prospective investors should consult
their own tax advisers concerning the merits of making a QEF Election if the
Company is a PFIC for any taxable year. In addition, certain classes of
investors, such as regulated investment companies and tax-exempt entities, may
be subject to special rules and should consult their own tax advisers
concerning the application of the United States federal income tax rules
governing PFICs in their particular circumstances.
Under current U.S. law, if the Company is a PFIC in any year, a U.S. Holder
must file an annual return on IRS Form 8621, which describes the income
received (or deemed to be received pursuant to a QEF Election) from the
Company and any gain realized on a disposition of ADSs.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, the amount of dividends paid to U.S. Holders of ADSs, the name
and address of the recipient and the amount, if any, of tax withheld must be
reported annually to the IRS. A similar report is sent to the U.S. Holder.
Backup withholding tax at the rate of 31% will apply to certain payments
made to U.S. Holders who fail to furnish certain identifying information under
the United States information reporting rules. Amounts withheld from payments
will be allowed as a credit against such U.S. Holders' United States federal
income tax liability.
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IRISH CAPITAL ACQUISITIONS TAX
Irish capital acquisitions tax ("CAT") applies to gifts and inheritances (i)
where the person making the gift or inheritance is domiciled in the Republic
of Ireland at the date of the gift or inheritance or (ii) to the extent that
the property of which the gift or inheritance consists is situated in the
Republic of Ireland at the date of the gift or inheritance. The person by whom
CAT is primarily payable is the person who receives the gift or inheritance.
Persons who are secondarily liable include the donor, an agent, trustee,
personal representative or other person in whose care the property
constituting the gift or inheritance or the income therefrom is placed. All
taxable gifts and inheritances received by an individual since June 2, 1982
are aggregated and only the excess over a certain tax-free threshold is taxed.
The tax-free threshold is dependent on the relationship between the donor and
donee and the aggregation of all previous gifts and inheritances. The tax-free
threshold amounts currently range from IR(Pounds)12,170 (approximately $19,107
at March 29, 1996) in the case of persons who are not related to one another
to IR(Pounds)24,340 (approximately $36,644 at March 29, 1996) in the case of
gifts and inheritances received from a brother, sister or from a brother or
sister of a parent or from a grandparent to IR(Pounds)182,550 (approximately
$286,603 at March 29, 1996) in the case of gifts and inheritances received
from a parent. Gifts and inheritances passing between spouses are exempt from
CAT. CAT is charged at progressive rates ranging in the case of gifts from 15%
to 30% and in the case of inheritances from 20% to 40%.
Although ADSs may be held by persons who are neither domiciled nor resident
in the Republic of Ireland, the underlying Ordinary Shares are deemed to be
situated in the Republic of Ireland because the Company is required to
maintain its Ordinary Share register in the Republic of Ireland. Accordingly,
ADSs may be subject to CAT notwithstanding the fact that the holder may be
domiciled and/or resident outside of the Republic of Ireland. The Convention
between the United States and the Republic of Ireland relating to estate taxes
generally provides for CAT paid on inheritances in the Republic of Ireland to
be credited against tax payable in the United States and for tax paid in the
United States to be credited against tax payable in the Republic of Ireland,
based on priority rules set forth in that Convention, in a case where an ADS
is subject to both Irish CAT with respect to inheritance and U.S. federal
estate tax. The Convention does not apply to gifts.
In addition to gift and inheritance taxes, a probate tax of 2% applies to
the value of all assets passing under the will or intestacy of an Irish-
domiciled person other than to the spouse of the deceased. Where the deceased
was not domiciled in the Republic of Ireland, only assets situated in Ireland
are liable for this tax.
UNITED STATES GIFT AND ESTATE TAX
An individual U.S. Holder will be subject to United States gift and estate
taxes with respect to the ADRs in the same manner and to the same extent as
with respect to other types of personal property.
IRISH STAMP DUTY
Irish stamp duty, which is a tax on certain documents, is payable on all
transfers of Ordinary Shares in companies incorporated in the Republic of
Ireland wherever the instrument of transfer may be executed. In the case of a
sale, stamp duty will be charged at the rate of IR(Pounds)1.00 for every
IR(Pounds)100 (or part thereof) of the amount of value of the consideration
(i.e., purchase price). Where the consideration for the sale is expressed in a
currency other than Irish pounds, the duty will be charged on the Irish pound
equivalent calculated at the rate of exchange prevailing on the date of the
transfer. In the case of a transfer by way of gift (subject to certain
exceptions) or for a consideration less than the market value of the shares
transferred, stamp duty will be charged at the above rate on such market
value.
A transfer to the Depositary or custodian of Ordinary Shares for deposit
under the Deposit Agreement in return for ADRs will be similarly chargeable
with stamp duty as will a transfer of Ordinary Shares from the Depositary or
the custodian upon surrender of an ADR for the purpose of the withdrawal of
the underlying Ordinary Shares in accordance with the terms of the Deposit
Agreement, unless, in either case, the transfer does not relate to a sale or
contemplated sale or any other change in the beneficial ownership of such
Ordinary Shares, in which case the transfer will be chargeable with nominal
duty of IR(Pounds)10.
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Transfers of ADRs are exempt from Irish stamp duty as long as the ADSs are
traded on the Nasdaq National Market or any recognized stock exchange in the
United States.
The person accountable for payment of stamp duty is the transferee or, in
the case of a transfer by way of gift or for a consideration less than the
market value, both parties to the transfer. Stamp duty is normally payable
within 30 days after the date of execution of the transfer. Late or inadequate
payment of stamp duty will result in liability to interest, penalties and
fines.
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of certain provisions of the Deposit Agreement
(the "Deposit Agreement") entered into by the Company, The Bank of New York,
as depositary (the "Depositary"), and the registered holders of ADRs (the
"Owners") and the owners of a beneficial interest in book entry ADRs (the
"Beneficial Owners"), pursuant to which the ADRs are to be issued.
This summary does not purport to be complete and is subject to and qualified
in its entirety by reference to the Deposit Agreement, including the form of
ADR. Terms used herein and not otherwise defined will have the meanings set
forth in the Deposit Agreement. Copies of the Deposit Agreement and the
Memorandum and Articles of Association of the Company are available for
inspection at the Corporate Trust Office of the Depositary, currently located
at 101 Barclay Street, New York, New York 10286, and, at the principal office
of the agent of the Depositary (the "Custodian"), currently located at the
Dublin office of A.I.B. Custodial Services. Copies of the Deposit Agreement
can also be inspected by holders of the ADRs and copied at the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Depositary's principal executive office is located at 48 Wall
Street, New York, New York 10286.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing ADSs are issuable by the Depositary pursuant to the Deposit
Agreement. Each ADS will represent one Ordinary Share or evidence of the right
to receive one Ordinary Share (together with any additional Ordinary Shares at
any time deposited or deemed deposited under the Deposit Agreement and any and
all other securities, cash and property received by the Depositary or the
Custodian in respect thereof and at such time held under the Deposit
Agreement, "Deposited Securities"). Only persons in whose names ADRs are
registered on the books of the Depositary will be treated by the Depositary
and the Company as Owners.
DEPOSIT, TRANSFER AND WITHDRAWAL
The Depositary has agreed, subject to the terms and conditions of the
Deposit Agreement, that upon delivery to the Custodian of Ordinary Shares (or
evidence of rights to receive Ordinary Shares) and pursuant to appropriate
instruments of transfer in a form satisfactory to the Custodian, the
Depositary will, upon payment of the fees, charges and taxes provided in the
Deposit Agreement, execute and deliver at its Corporate Trust Office to, or
upon the written order of, the person or persons named in the notice of the
Custodian delivered to the Depositary or requested by the person depositing
such Ordinary Shares with the Depositary, an ADR or ADRs, registered in the
name or names of such person or persons, and evidencing any authorized number
of ADSs requested by such person or persons.
Upon surrender at the Corporate Trust Office of the Depositary of an ADR for
the purpose of withdrawal of the Deposited Securities represented by the ADSs
evidenced by such ADR, and upon payment of the fees of the Depositary for the
surrender of ADRs, governmental charges and taxes provided in the Deposit
Agreement, and subject to the terms and conditions of the Deposit Agreement,
the Owner of such ADR will be entitled to delivery, to the Owner or upon the
Owner's order, of the amount of Deposited Securities at the time represented
by one or more ADSs evidenced by such ADR. The forwarding of share
certificates, other securities, property, cash and other documents of title
for such delivery will be at the risk and expense of the Owner.
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No Ordinary Share will be accepted for deposit unless accompanied by
evidence satisfactory to the Depositary that any necessary approval has been
granted by the governmental body in the Republic of Ireland, if any, which is
then performing the function of the regulation of currency exchange or which
has jurisdiction over foreign investment or regulated foreign ownership of
Irish companies, if any.
Subject to the terms and conditions of the Deposit Agreement and any
limitations established by the Depositary, the Depositary may deliver ADRs
prior to the receipt of Ordinary Shares (a "Pre-Release") and deliver Ordinary
Shares upon the receipt and cancellation of ADRs which have been Pre-Released,
whether or not such cancellation is prior to the termination of such Pre-
Release or the Depositary knows that such ADR has been Pre-Released. The
Depositary may receive ADRs in lieu of Ordinary Shares in satisfaction of a
Pre-Release. Each Pre-Release must be (i) preceded or accompanied by a written
representation from the person to whom the ADRs or Ordinary Shares are to be
delivered that such person, or its customer, owns the Ordinary Shares or ADRs
to be remitted, as the case may be and will hold such Ordinary Shares or ADRs
in trust for the Depositary until their delivery to the Depositary and deliver
such Ordinary Shares or ADRs upon the Depositary's request, (ii) at all times
fully collateralized with cash or such other collateral as the Depositary
deems appropriate, (iii) terminable by the Depositary on not more than five
business days' notice and (iv) subject to such further indemnities and credit
regulations as the Depositary deems appropriate.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
Subject to any restrictions imposed by Irish law, regulations or applicable
permits, the Depositary is required to convert or cause to be converted into
dollars, to the extent that in its judgment it can do so on a reasonable basis
and can transfer the resulting dollars to the United States, all cash
dividends and other cash distributions denominated in a currency other than
dollars, including Irish pounds ("Foreign Currency"), that it receives in
respect of the deposited Ordinary Shares, and to distribute the resulting
dollar amount (net of reasonable and customary expenses incurred by the
Depositary in converting such Foreign Currency) to the Owners entitled
thereto, in proportion to the number of ADSs representing such Deposited
Securities evidenced by ADRs held by them, respectively. Such distribution may
be made upon an averaged or other practicable basis without regard to any
distinctions among Owners on account of exchange restrictions or the date of
delivery of any ADR or ADRs or otherwise. The amount distributed to the Owners
of ADRs will be reduced by any amount on account of taxes to be withheld by
the Company or the Depositary. See "--Liability of Owner for Taxes".
If the Depositary determines that in its judgment any Foreign Currency
received by the Depositary or the Custodian cannot be converted on a
reasonable basis into dollars transferable to the United States, or if any
approval or license of any government or agency thereof which is required for
such conversion is denied or in the opinion of the Depositary is not
obtainable, or if any such approval or license is not obtained within a
reasonable period as determined by the Depositary, the Depositary may
distribute the Foreign Currency received by the Depositary or the Custodian
to, or in its discretion may hold such Foreign Currency uninvested and without
liability for interest thereon for the respective accounts of, the Owners
entitled to receive the same. If any such conversion of Foreign Currency, in
whole or in part, cannot be effected for distribution to some of the Owners
entitled thereto, the Depositary may in its discretion make such conversion
and distribution in dollars to the extent permissible to the Owners entitled
thereto, and may distribute the balance of the Foreign Currency received by
the Depositary to, or hold such balance uninvested and without liability for
interest thereon for, the respective accounts of, the Owners entitled thereto.
If the Company declares a dividend in, or free distribution of, Ordinary
Shares, the Depositary may, and will if the Company so requests, distribute to
the Owners of outstanding ADRs entitled thereto, in proportion to the number
of ADSs evidenced by the ADRs held by them respectively, additional ADRs
evidencing an aggregate number of ADSs that represents the amount of Ordinary
Shares received as such dividend or free distribution, subject to the terms
and conditions of the Deposit Agreement with respect
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to the deposit of Ordinary Shares and the issuance of ADSs evidenced by ADRs,
including the withholding of any tax or other governmental charge and the
payment of fees of the Depositary. The Depositary may withhold any such
distribution of ADRs if it has not received satisfactory assurances from the
Company that such distribution does not require registration under the
Securities Act or is exempt from registration under the provisions of such
Act. In lieu of delivering ADRs for fractional ADSs in the event of any such
dividend or free distribution, the Depositary will sell the amount of Ordinary
Shares represented by the aggregate of such fractions and distribute the net
proceeds in accordance with the Deposit Agreement. If additional ADRs are not
so distributed, each ADS will thenceforth also represent the additional
Ordinary Shares distributed upon the Deposited Securities represented thereby.
If the Company offers or causes to be offered to the holders of any
Deposited Securities any rights to subscribe for additional Ordinary Shares or
any rights of any other nature, the Depositary will have discretion as to the
procedure to be followed in making such rights available to any Owners of ADRs
or in disposing of such rights for the benefit of any Owners and making the
net proceeds available in United States dollars to such Owners or, if by the
terms of such rights offering or for any other reason, the Depositary may not
either make such rights available to any owners or dispose of such rights and
make the net proceeds available to such Owners, then the Depositary shall
allow the rights to lapse; provided, however, if at the time of the offering
of any rights the Depositary determines in its discretion that it is lawful
and feasible to make such rights available to all Owners or to certain Owners
but not to other Owners, the Depositary may distribute to any Owner to whom it
determines the distribution to be lawful and feasible, in proportion to the
number of ADSs held by such Owner, warrants or other instruments therefor in
such form as it deems appropriate. If the Depositary determines in its
discretion that it is not lawful and feasible to make such rights available to
certain Owners, it may sell the rights, warrants or other instruments in
proportion to the number of ADSs held by the Owners to whom it has determined
it may not lawfully or feasibly make such right available, and allocate the
net proceeds of such sales for the account of such Owners otherwise entitled
to such rights, warrants or other instruments, upon an averaged or other
practical basis without regard to any distinctions among such Owners because
of exchange restrictions or the date or delivery of any ADR or ADRs, or
otherwise. The Depositary will not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner or Owners in particular.
In circumstances in which rights would not otherwise be distributed, if an
Owner of ADRs requests the distribution of warrants or other instruments in
order to exercise the rights allocable to the ADSs of such Owner, the
Depositary will make such rights available to such Owner upon written notice
from the Company to the Depositary that (a) the Company has elected in its
sole discretion to permit such rights to be exercised and (b) such owner has
executed such documents as the Company has determined in its sole discretion
are reasonably required under applicable law. Upon instruction pursuant to
such warrants or other instruments to the Depositary from such Owner to
exercise such rights, upon payment by such Owner to the Depositary for the
account of such Owner of an amount equal to the purchase price of the Ordinary
Shares to be received in exercise of the rights, and upon payment of the fees
of the Depositary as set forth in such warrants or other instruments, the
Depositary will, on behalf of such Owner, exercise the rights and purchase the
Ordinary Shares, and the Company shall cause the Ordinary Shares purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such
Owner, the Depositary will cause the Ordinary Shares so purchased to be
deposited, and will execute and deliver ADRs to such Owner, pursuant to the
Deposit Agreement.
The Depositary will not offer rights to Owners having an address in the
United States unless both the rights and the securities to which such rights
relate are either exempt from registration under the Securities Act with
respect to a distribution to all Owners or are registered under the provisions
of the Securities Act; provided, that nothing in the Deposit Agreement will
create, or be construed to create, any obligation on the part of the Company
to file a registration statement with respect to such rights or underlying
securities or to endeavor to have such a registration statement declared
effective. If an Owner
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of ADRs requests the distribution of warrants or other instruments,
notwithstanding that there has been no such registration under the Securities
Act, the Depositary will not effect such distribution unless it has received
an opinion from recognized counsel in the United States for the Company upon
which the Depositary may rely that such distribution to such Owner is exempt
from such registration. The Depositary will not be responsible for any failure
to determine that it may be lawful or feasible to make such rights available
to Owners in general or any Owner in particular.
Whenever the Depositary receives any distribution other than cash, Ordinary
Shares or rights in respect of the Deposited Securities, the Depositary will
cause the securities or property received by it to be distributed to the
Owners entitled thereto, after deduction or upon payment of any fees and
expenses of the Depositary or any taxes or other governmental charges, in
proportion to their holdings, respectively, in any manner that the Depositary
may reasonably deem equitable and practicable for accomplishing such
distribution; provided, however, that if in the opinion of the Depositary such
distribution cannot be made proportionately among the Owners entitled thereto,
or if for any other reason (including, but not limited to, any requirement
that the Company or the Depositary withhold an amount on account of taxes or
other governmental charges or that such securities must be registered under
the Securities Act in order to be distributed to Owners or Beneficial Owners)
the Depositary deems such distribution not to be feasible, the Depositary may
adopt such method as it may deem equitable and practicable for the purpose of
effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus received, or any part thereof,
and the net proceeds of any such sale (net of the fees of the Depositary) will
be distributed by the Depositary to the Owners entitled thereto as in the case
of a distribution received in cash.
If the Depositary determines that any distribution of property (including
Ordinary Shares and rights to subscribe therefor) is subject to any taxes or
other governmental charges which the Depositary is obligated to withhold, the
Depositary may, by public or private sale, dispose of all or a portion of such
property in such amount and in such manner as the Depositary deems necessary
and practicable to pay such taxes or charges and the Depositary will
distribute the net proceeds of any such sale after deduction of such taxes or
charges to the Owners entitled thereto in proportion to the number of ADSs
held by them, respectively.
Upon any change in nominal or par value, split-up, consolidation or any
other reclassification of Deposited Securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the
Company or to which it is a party, any securities which shall be received by
the Depositary or Custodian in exchange for, in conversion of, or in respect
of Deposited Securities will be treated as new Deposited Securities under the
Deposit Agreement, and the ADSs will thenceforth represent, in addition to the
existing Deposited Securities, the right to receive the new Deposited
Securities so received in exchange or conversion, unless additional ADRs are
delivered pursuant to the following sentence. In any such case the Depositary
may, after consultation with the Company, and will, if the Company so
requests, execute and deliver additional ADRs as in the case of a distribution
in Ordinary Shares, or call for the surrender of outstanding ADRs to be
exchanged for new ADRs specifically describing such new Deposited Securities.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become payable
or any distribution other than cash shall be made, or whenever rights shall be
issued with respect to the Deposited Securities, or whenever for any reason
the Depositary causes a change in the number of Ordinary Shares that are
represented by each ADS, or whenever the Depositary shall receive notice of
any meeting of holders of Ordinary Shares or other Deposited Securities, or
whenever the Depositary shall find it necessary or convenient, the Depositary
will fix a record date, which shall be the record date, if any, established by
the Company for such purpose or, if different, as close thereto as
practicable, (a) for the determination of the Owners who will be (i) entitled
to receive such dividend, distribution or rights, or the net proceeds
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of the sale thereof, or (ii) given instructions for the exercise of voting
rights at any such meeting, or (b) on or after which each ADS will represent
the changed number of Ordinary Shares, all subject to the provisions of the
Deposit Agreement.
VOTING OF DEPOSITED SECURITIES
Upon receipt of notice of any meeting or solicitation of consents or proxies
of holders of Ordinary Shares or other Deposited Securities, if requested in
writing by the Company, the Depositary will, as soon as practicable
thereafter, mail to all Owners a notice, the form of which notice will be in
the sole discretion of the Depositary, containing (a) the information included
in such notice of meeting received by the Depositary from the Company, (b) a
statement that the Owners as of the close of business on a specified record
date will be entitled, subject to any applicable provision of Irish law and of
the Memorandum and Articles of Association of the Company, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
amount of Ordinary Shares or other Deposited Securities represented by their
respective ADSs, (c) a statement that Owners who instruct the Depositary as to
the exercise of their voting rights will be deemed to have instructed the
Depositary or its authorized representative to call for a poll with respect to
each matter for which instructions are given, subject to any applicable
provisions of Irish law and of the Company's Memorandum and Articles of
Association and (d) a statement as to the manner in which such instructions
may be given, including an express indication that instructions may be given
or deemed given in accordance with the last sentence of this paragraph if no
instruction is received, to the Depositary to give a discretionary proxy to a
person designated by the Company. Upon the written request of an Owner on such
date, received on or before the date established by the Depositary for such
purpose, the Depositary will endeavor, insofar as practicable, to vote or
cause to be voted the amount of Ordinary Shares or other Deposited Securities
represented by the ADSs evidenced by such ADRs in accordance with the
nondiscretionary instructions set forth in such request. Accordingly, pursuant
to the Company's Memorandum and Articles of Association and applicable Irish
law, the Depositary will cause its authorized representative to attend each
meeting of holders of Ordinary Shares and call for a poll as instructed in
accordance with clause (c) above for the purpose of effecting such vote. The
Depositary will not vote or attempt to exercise the right to vote that
attaches to the Ordinary Shares or other Deposited Securities, other than in
accordance with such instructions or deemed instructions.
The Deposit Agreement provides that if no instructions are received by the
Depositary from any Owner with respect to any of the Deposited Securities
represented by the ADS evidenced by such Owner's ADRs on or before the date
established by the Depositary for such purpose, the Depositary will deem such
Owner to have instructed the Depositary to give a discretionary proxy to a
person designated by the Company with respect to such Deposited Securities and
the Depositary will give a discretionary proxy to a person designated by the
Company to vote such Deposited Securities, under circumstances and according
to the terms as set forth in the Deposit Agreement: provided, that no such
instructions will be deemed given and no such discretionary proxy will be
given with respect to any matter as to which the Company informs the
Depositary in writing that the Company does not wish such proxy to be given.
There can be no assurance that the Owners generally or any Owner in
particular will receive the notice described in the preceding paragraph
sufficiently prior to the date established by the Depositary for the receipt
of instructions to ensure that the Depositary will in fact receive such
instructions on or before such date. Neither the Depositary nor the Company
shall be responsible for any failure to carry out any instructions to vote any
of the Deposited Securities, or for the manner in which any such vote is cast
or the effect of any such vote, provided that any such action or non-action is
in good faith.
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REPORTS AND OTHER COMMUNICATIONS
The Depositary will make available for inspection by ADR Owners at its
Corporate Trust Office any reports and communications, including any proxy
soliciting material, received from the Company, which are both (a) received by
the Depositary as the holder of the Deposited Securities and (b) generally
made available to the holders of such Deposited Securities by the Company. The
Depositary also will send to the Owners copies of such reports when furnished
by the Company pursuant to the Deposit Agreement. Any such reports and
communications, including any proxy soliciting material, furnished to the
Depositary by the Company will be furnished in English.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of ADRs and any provisions of the Deposit Agreement may at any time
and from time to time be amended by agreement between the Company and the
Depositary in any respect which they may deem necessary or desirable without
the consent of the Owners of ADRs; provided, however, that any amendment that
imposes or increases any fees or charges (other than taxes and other
governmental charges, registration fees, cable, telex or facsimile
transmission costs, delivery costs or other such expenses), or which otherwise
prejudices any substantial existing rights of ADR Owners, will not take effect
as to outstanding ADRs until the expiration of 30 days after notice of any
amendment has been given to the Owners of outstanding ADRs. Every Owner of an
ADR, at the time any amendment becomes effective, will be deemed, by
continuing to hold such ADR, to consent and agree to such amendment and to be
bound by the Deposit Agreement as amended thereby. In no event will any
amendment impair the right of the Owner of any ADR to surrender such ADR and
receive therefore the Deposited Securities represented thereby, except to
comply with mandatory provisions of applicable law.
The Depositary will at any time at the direction of the Company terminate
the Deposit Agreement by mailing notice of such termination to the Owners of
the ADRs then outstanding at least 90 days prior to the date fixed in such
notice for such termination. The Depositary may likewise terminate the Deposit
Agreement by mailing notice of such termination to the Company and the Owners
of all ADRs then outstanding if, any time after 90 days have expired after the
Depositary will have delivered to the Company a written notice of its election
to resign, a successor depositary will not have been appointed and accepted
its appointment, in accordance with the terms of the Deposit Agreement. If any
ADRs remain outstanding after the date of termination of the Deposit
Agreement, the Depositary thereafter will discontinue the registration of
transfers of ADRs, will suspend the distribution of dividends to the Owners
thereof and will not give any further notices or perform any further acts
under the Deposit Agreement, except the collection of dividends and other
distributions pertaining to the Deposited Securities, the sale of rights and
other property and the delivery of underlying Ordinary Shares, together with
any dividends or other distributions received with respect thereto and the net
proceeds of the sale of any rights or other property, in exchange for
surrendered ADRs (after deducting, in each case, the fees of the Depositary
for the surrender of an ADR and other expenses set forth in Deposit Agreement
and any applicable taxes or governmental charges). At any time after the
expiration of one year from the date of termination, the Depositary may sell
the Deposited Securities then held thereunder and hold uninvested the net
proceeds of such sale, together with any other cash, unsegregated and without
liability for interest, for the pro rata benefit of the Owners that have not
theretofore surrendered their Receipts, such Owners thereupon becoming general
creditors of the Depositary with respect to such net proceeds. After making
such sale, the Depositary will be discharged from all obligations under the
Deposit Agreement, except to account for net proceeds and other cash (after
deducting, in each case, the fee of the Depositary and other expenses set
forth in the Deposit Agreement for the surrender of an ADR and any applicable
taxes or other governmental charges).
CHARGES OF DEPOSITARY
The Depositary will charge any party depositing or withdrawing Ordinary
Shares or any party surrendering ADRs or to whom ADRs are issued (including,
without limitation, issuance pursuant to a
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stock dividend or stock split declared by the Company or an exchange of stock
regarding the ADRs or Deposited Securities or a distribution of ADRs pursuant
to the Deposit Agreement) where applicable: (1) taxes and other governmental
charges; (2) such registration fees as may from time to time be in effect for
the registration of transfers of Ordinary Shares generally on the share
register of the Company or the appointed agent of the Company for transfer and
registration of Ordinary Shares and applicable to transfers of Ordinary Shares
to the name of the Depositary or its nominee or the Custodian or its nominee
on the making of deposits or withdrawals; (3) such cable, telex and facsimile
transmission expenses as are expressly provided in the Deposit Agreement to be
at the expense of persons depositing Ordinary Shares or Owners; (4) such
expenses as are incurred by the Depositary in the conversion of Foreign
Currency pursuant to the Deposit Agreement; (5) a fee not in excess of $5.00
per 100 ADSs (or portion thereof) for the issuance and surrender,
respectively, of ADRs pursuant to the Deposit Agreement; (6) a fee not in
excess of $0.02 per ADS (or portion thereof) for any cash distribution made
pursuant to the Deposit Agreement; (7) a fee for the distribution of
securities pursuant to the Deposit Agreement, such fee being in an amount
equal to the fee for the execution and delivery of ADSs referred to above
which would have been charged as a result of the deposit of such securities
(for purposes of this clause 7 treating all such securities as if they were
Ordinary Shares), but which securities are instead distributed by the
Depositary to Owners and the net proceeds distributed; and (8) a fee not in
excess of $1.50 per certificate for an ADR or ADRs for transfers made pursuant
to the Deposit Agreement.
The Depositary, pursuant to the Deposit Agreement, may own and deal in any
class of securities of the Company and its affiliates and in ADRs. The fees of
the Depositary may differ from those charged by other depositaries for
services rendered in connection with ADSs and ADRs. A schedule of fees charged
pursuant to the Deposit Agreement is available without charge from the
Depositary at its principal executive office located at 48 Wall Street, New
York, New York 10286. Each registered holder of an ADR will receive 30 days
notice of any change in the fees charged by the Depositary.
LIABILITY OF OWNER FOR TAXES
If any tax or other governmental charge shall become payable by the
Custodian or the Depositary with respect to any ADR or any Deposited
Securities represented by the ADS evidenced by such ADR, such tax or other
governmental charge will be payable by the Owner or Beneficial Owner of such
ADR to the Depositary. The Depositary may refuse to effect any transfer of
such ADR or any withdrawal of Deposited Securities underlying such ADR until
such payment is made, and may withhold any dividends or other distributions,
or may sell for the account of the Owner or Beneficial Owner thereof any part
or all of the Deposited Securities underlying such ADR and may apply such
dividends, distributions or the proceeds of any such sale to pay any such tax
or other governmental charge and the Owner or Beneficial Owner of such ADR
will remain liable for any deficiency.
DISCLOSURE OF INTERESTS
Each ADR Owner agrees to comply with the Company's Articles of Association,
as they may be amended from time to time, and the laws of the Republic of
Ireland, if applicable, with respect to any disclosure requirements regarding
ownership of Ordinary Shares, all as if such ADRs were, for this purpose, the
Ordinary Shares represented thereby. Each ADR Owner has agreed to be bound by
the provisions of the Deposit Agreement mandating compliance with the
disclosure requirements of Irish company law. See "Description of Share
Capital--Disclosure Requirements."
GENERAL
Neither the Depositary nor the Company nor any of their respective
directors, employees, agents or affiliates will be liable to any Owner or
Beneficial Owner of ADRs, if by reason of any provision of any present or
future law or regulation of the United States, the Republic of Ireland or any
other country, or of any other governmental or regulatory authority or stock
exchange, or by reason of any provision,
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present or future, of the Memorandum and Articles of Association of the
Company, or by reason of any provision of any securities issued or distributed
by the Company, or any offering or distribution thereof, or by reason of any
act of God or war or other circumstances beyond its control, the Depositary or
the Company or any of their respective directors, employees, agents, or
affiliates shall be prevented, delayed or forbidden from, or be subject to any
civil or criminal penalty on account of, doing or performing any act or thing
which by the terms of the Deposit Agreement or the Deposited Securities it is
provided will be done or performed; nor will the Depositary or the Company
incur any liability to any Owner or Beneficial Owner of any ADR by reason of
any nonperformance or delay, caused aforesaid, in the performance of any act
or thing which by the terms of the Deposit Agreement it is provided will or
may be done or performed, or by reason of any exercise of, or failure to
exercise, any discretion provided for under the Deposit Agreement. Where, by
the terms of a distribution pursuant to the Deposit Agreement, or an offering
pursuant to the Deposit Agreement, or for any other reason, such distribution
or offering may not be made available to Owners, and the Depositary may not
dispose of such distribution or offering on behalf of such Owners and make the
net proceeds available to such Owners, then the Depositary will not make such
distribution or offering, and will allow the rights, if applicable, to lapse.
The Company and the Depositary assume no obligation nor will they be subject
to any liability under the Deposit Agreement to Owners or Beneficial Owners of
ADRs, except that they agree to perform their respective obligations
specifically set forth under the Deposit Agreement without negligence or bad
faith.
The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books at any time or from time to time when
deemed expedient by it in connection with the performance of its duties or at
the written request of the Company. As a condition precedent to the execution
and delivery, registration of transfer, split-up, combination or surrender of
any ADR or withdrawal of any Deposited Securities, the Depositary, the
Custodian or the Registrar may require payment from the person presenting the
ADR or the depositor of the Ordinary Shares of a sum sufficient to reimburse
it for any tax or other governmental charge and any stock transfer or
registration fee with respect thereto (including any such tax or charge and
fee with respect to Ordinary Shares being deposited or withdrawn) and payment
of any applicable fees payable by the Owners and Beneficial Owners of ADRs.
The Depositary may refuse to deliver ADRs, to register the transfer of any ADR
or to make any distribution on, or related to, Ordinary Shares until it has
received such proof of citizenship or residence, exchange control approval or
other information as it may deem necessary or proper. The delivery, transfer,
registration or transfer of outstanding ADRs and surrender of ADRs generally
may be suspended or refused during any period when the transfer books of the
Depositary, the Company or the Foreign Registrar are closed or if any such
action is deemed necessary or advisable by the Depositary or the Company, at
any time or from time to time.
The Depositary keeps books at its Corporate Trust Office for the
registration and transfer of ADRs, which at all reasonable times is open for
inspection by the Owners, provided that such inspection will not be for the
purpose of communications with Owners in the interest of a business or object
other than the business of the Company or a matter related to the Deposit
Agreement or the ADRs.
The Depositary may appoint one or more co-transfer agents for the purpose of
effecting transfers, combinations and split-ups of ADRs at designated transfer
offices on behalf of the Depositary. In carrying out its functions, a co-
transfer agent may require evidence of authority and compliance with laws and
other requirements by Owners or persons entitled to ADRs and will be entitled
to protection and indemnity to the same extent as the Depositary.
GOVERNING LAW
The Deposit Agreement is governed by the laws of the State of New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have approximately
17,676,406 Ordinary Shares outstanding, based upon shares outstanding as of
March 31, 1996. The 5,750,000 ADSs sold in the Company's initial public
offering and the 3,100,000 ADSs offered hereby and the 8,850,000 Ordinary
Shares they represent will be freely tradeable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitation of Rule 144 described below.
SALES OF RESTRICTED SHARES
Approximately, 8,754,301 of the remaining 8,826,406 Ordinary Shares
outstanding are deemed "Restricted Shares" under Rule 144. These Restricted
Shares will not be eligible for resale under Rule 144 until after the
expiration of a two-year holding period from the date such Restricted Shares
were acquired from, and the full purchase price therefor was paid to, the
Company or an Affiliate, and may be resold in the public market only in
compliance with the registration requirements of the Securities Act or
pursuant to a valid exemption therefrom. Of these shares, 7,739,787 shares
will be eligible for conversion to ADSs and resale pursuant to Rule 144 in
August 1996; and 1,014,514 shares will be eligible for conversion into ADSs
and resale pursuant to Rule 144 at various dates between January 1, 1997 and
November 8, 1997, all upon expiration of their respective two-year holding
periods. Approximately 8,947,671 of the Restricted Shares are subject to the
lock-up agreements described below (the "Lock-up Agreements"). In addition,
8,754,301 Restricted Shares are entitled to registration rights as described
below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is permitted to sell, within
any three-month period, a number of such shares (in the form of ADSs or
otherwise) that does not exceed the greater of (i) one percent of the then
outstanding ADSs (approximately 176,764 shares immediately after this
offering) or (ii) the average weekly trading volume in the ADSs on the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of such sale is filed, provided certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. Affiliates must comply with the restrictions and requirements of
Rule 144, other than the two-year holding period requirement, in order to sell
Ordinary Shares (in the form of ADSs or otherwise) which are not restricted
securities. In addition, under Rule 144(k), a person who is not an Affiliate
and has not been an Affiliate for at least three months prior to the sale and
who has beneficially owned Restricted Shares for at least three years may
resell such shares (in the form of ADSs or otherwise) without compliance with
the foregoing requirements. In meeting the two and three year holding periods
described above, a holder of Restricted Shares can include the holding periods
of a prior owner who was not an Affiliate. The two and three year holding
periods described above do not begin to run until after the full purchase
price or other consideration is paid by the person acquiring the Restricted
Shares from the issuer or an Affiliate.
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period required for shares subject to Rule 144
to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k).
As of March 31, 1996, options to purchase an aggregate of 1,144,851 Ordinary
Shares had been granted and were outstanding under the 1995 Option Plan, of
which 187,500 were then exercisable. The Company has registered the shares
issuable under the 1995 Option Plan pursuant to a registration statement on
Form S-8. In addition, options to purchase an aggregate of 691,448 Ordinary
Shares had been granted pursuant to certain non-plan options, all of which are
currently exercisable and eligible for resale pursuant to Rules 144 and 701.
See "Management--Share Options."
65
<PAGE>
LOCK-UP AGREEMENTS
The Company, certain Selling Shareholders and all executive officers and
directors of the Company, who in the aggregate will hold, following the
offering, approximately 8,947,671 Ordinary Shares, have agreed, pursuant to
the Lock-up Agreements, that they will not, directly or indirectly, without
the prior written consent of Alex. Brown & Sons Incorporated, offer, sell,
offer to sell, contract to sell, or otherwise dispose of any ADSs or Ordinary
Shares, or any securities convertible into or exercisable for ADSs or Ordinary
Shares, beneficially owned by them for a period of 90 days after the date of
this Prospectus, except that the Company may issue up to 691,448 Ordinary
Shares under outstanding non-plan options and may grant options to purchase
Ordinary Shares under its 1995 Option Plan and 1996 Share Purchase Plan. The
Company has agreed with the Underwriters that it will not, except as described
above, grant options to purchase Ordinary Shares which are exercisable prior
to 90 days after the date of this Prospectus.
REGISTRATION RIGHTS
At the completion of this offering, certain securityholders of the Company
will be entitled to require the Company to register under the Securities Act
up to a total of 8,754,301 Ordinary Shares (the "Registrable Shares") under
the terms of (i) an agreement (the "First Registration Agreement") among the
Company and certain securityholders of the Company holding an aggregate of
8,299,801 Ordinary Shares (the "First Rightsholders") and (ii) an agreement
(the "Second Registration Agreement") among the Company and certain other
securityholders of the Company holding an aggregate of 454,500 Ordinary Shares
(the "Second Rightsholders").
Pursuant to the terms of the First Registration Agreement and the Second
Registration Agreement, in the event the Company proposes to register any of
its securities under the Act at any time or times, the First Rightsholders and
the Second Rightsholders, subject to certain exceptions, are entitled to
include Registrable Shares in such registration. However, the managing
underwriter of any such offering may exclude for marketing reasons some or all
of such Registrable Shares from such registration. In addition, certain of the
First Rightsholders have, subject to certain conditions and limitations,
additional rights to require the Company to prepare and file a registration
statement under the Securities Act with respect to the Registrable Shares held
by such First Rightsholders at any time six months or more after the
termination of the effectiveness of a previous registration statement.
The Second Rightsholders also have, subject to certain conditions and
limitations, additional rights to require the Company to prepare and file a
registration statement under the Securities Act with respect to the
Registrable Shares held by such Second Rightsholders at any time during the
period between six months and twelve months after the closing of this
offering. In addition, the Company must register all Registrable Shares held
by the Second Rightsholders on the later to occur of the first anniversary of
the closing of the Company's initial public offering or on such later date as
the Company becomes eligible to file a Registration Statement on Form S-3.
The Company is generally required to bear the expense of all such
registrations, except underwriting discounts and commissions.
66
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Furman Selz LLC, Hambrecht & Quist LLC and
Montgomery Securities, have severally agreed to purchase from the Company and
the Selling Shareholders the following respective numbers of ADSs at the
public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF ADSS
----------- -------
<S> <C>
Alex. Brown & Sons Incorporated....................................
Furman Selz LLC....................................................
Hambrecht & Quist LLC..............................................
Montgomery Securities..............................................
---------
Total............................................................ 3,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the ADSs offered hereby if any of such ADSs are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the ADSs to the public
at the public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $ per
ADS. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per ADS to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Representatives.
The Selling Shareholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 465,000 additional ADSs at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of ADSs to be purchased by it shown in
the above table bears to 3,100,000, and such Selling Shareholders will be
obligated, pursuant to the option, to sell such ADSs to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of ADSs offered hereby. If purchased, the
Underwriters will offer such additional ADSs on the same terms as those on
which the 3,100,000 ADSs are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
67
<PAGE>
The Company, all of the Selling Shareholders, and all executive officers and
directors of the Company, who in the aggregate will hold, following the
offering, approximately 8,947,161 Ordinary Shares, have agreed, pursuant to
the Lock-up Agreements, that they will not, directly or indirectly, without
the prior written consent of Alex. Brown & Sons Incorporated, offer, sell,
offer to sell, contract to sell or otherwise dispose of any Ordinary Shares or
ADSs or securities convertible into or exercisable for ADSs or Ordinary Shares
beneficially owned by them for a period of 90 days after the date of this
Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated, except that the Company may, without such consent, issue shares
upon the exercise of outstanding non-plan options or grant options pursuant to
the Company's 1995 Option Plan and 1996 Share Purchase Plan. Alex. Brown &
Sons Incorporated may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to Lock-up Agreements.
The Company has agreed with the Underwriters that it will not, except as
described above, grant options to purchase Ordinary Shares which are
exercisable prior to 90 days after the date of this Prospectus. See "Shares
Eligible for Future Sale."
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market
making on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act during the two business day period before the commencement of
offers or sales of the ADSs in this offering. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at
a price not in excess of the highest independent bid for such security; if all
independent bids are lowered before the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the Ordinary Shares represented by the ADSs offered hereby
and certain legal matters under Irish law will be passed upon by McCann
FitzGerald, Irish counsel for the Company. Certain legal matters under United
States law in connection with this offering will be passed upon for the
Company and the Selling Shareholders by Hale and Dorr, Boston, Massachusetts.
Certain matters in connection with the offering will be passed upon on behalf
of the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts,
counsel for the Underwriters. Testa, Hurwitz & Thibeault, LLP and Hale and
Dorr will rely upon McCann FitzGerald with respect to certain matters governed
by Irish law.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1994, and for each of the years in the three year period ended December
31, 1995, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young, independent auditors, as set forth in its reports
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained
68
<PAGE>
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices in New York
(Seven World Trade Center, Suite 1300, New York, New York 10048), and Chicago
(Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661). Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549. The Company's
ADSs are listed for trading on the Nasdaq National Market under the trading
symbol SAVLY. Reports, proxy statements and other information about the
Company may also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
ADSs offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
IRISH EXCHANGE CONTROL REGULATIONS
Irish exchange control regulations ceased to apply from and after December
31, 1992. Except as indicated below, there are no restrictions on non-
residents of the Republic of Ireland dealing in domestic securities, which
includes shares or depositary receipts of Irish companies such as the Company,
and dividends and redemption proceeds are freely transferable to non-resident
holders of such securities.
The Financial Transfers Act, 1992 gives power to the Minister for Finance of
the Republic of Ireland to make provision for the restriction of financial
transfers between the Republic of Ireland and other countries. Financial
transfers are broadly defined and include all transfers which would be
movements of capital or payments within the meaning of the treaties governing
the European Communities. The acquisition or disposal of ADRs representing
shares issued by an Irish incorporated company and associated payments may
fall within this definition. In addition, dividend, redemption and liquidation
payments in respect of shares in an Irish incorporated company would fall
within this definition. Currently, orders under this Act prohibit any
financial transfer to or by the order of or on behalf of residents of the
Federal Republic of Yugoslavia (Serbia and Montenegro), Iraq and Libya, unless
permission for the transfer has been given by the Central Bank of Ireland.
The Company does not anticipate that orders under the Financial Transfers
Act, 1992 will have a material effect on its business.
69
<PAGE>
SAVILLE SYSTEMS PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ 2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996..................................................................... 3
Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1995 and 1996......... 4
Consolidated Statements of Changes in Shareholders' Equity for the the
years ended December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1996........................................................... 5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996... 6
Notes to Consolidated Financial Statements................................ 7-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of Saville Systems PLC
We have audited the accompanying consolidated balance sheets of Saville
Systems PLC and its subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the years in the three year period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Saville Systems PLC and its subsidiaries at December 31, 1995 and 1994 and
the consolidated results of their operations and their cash flows for each of
the years in the three year period ended December 31, 1995 in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young
Chartered Accountants
Galway, Ireland January 26, 1996
F-2
<PAGE>
SAVILLE SYSTEMS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
--------- ---------- --------------
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............... $ 3,509 $ 23,722 $ 21,449
Accounts receivable, less allowance for
doubtful accounts of $0, $370 and $447,
respectively........................... 5,611 8,177 12,734
Prepaid expenses and other assets....... 170 1,056 1,271
--------- ---------- ----------
9,290 32,955 35,454
--------- ---------- ----------
Property and equipment, net [note 3]...... 517 2,335 2,624
Long-term receivable [note 4]............. 741 744
Loan to an officer [note 5]............... 50
--------- ---------- ----------
Total assets.......................... $ 9,857 $ 36,031 $ 38,822
========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable........................ $ 678 $ 1,079 $ 1,438
Accrued compensation and related
benefits................................ 724 1,527 1,414
Accrued royalties....................... 315 663 500
Income taxes payable.................... 1,101 1,228 1,668
Other current liabilities............... 547 296 583
Related party advances [note 5]......... 14
Current portion of long-term debt [note
6]...................................... 111 53 84
--------- ---------- ----------
3,490 4,846 5,687
--------- ---------- ----------
Long-term debt [note 6]................... 689 44
Minority interest [note 8]................ 226 217 215
--------- ---------- ----------
915 261 215
--------- ---------- ----------
Commitments and contingencies [note 7]
Shareholders' equity
Share capital [note 8].................. 10 92 92
Additional paid-in capital [note 8]..... 1,662 23,636 23,591
Retained earnings....................... 3,862 7,244 9,286
Cumulative translation account [note 8]. (82) (48) (49)
--------- ---------- ----------
Total shareholders' equity............ 5,452 30,924 32,920
--------- ---------- ----------
Total liabilities and shareholders'
equity............................... $ 9,857 $ 36,031 $ 38,822
========= ========== ==========
</TABLE>
See accompanying notes
F-3
<PAGE>
SAVILLE SYSTEMS PLC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Services.............. $ 8,857 $ 17,597 $ 25,084 $ 5,845 $ 9,032
License fees.......... 452 2,476 5,212 1,617 1,523
---------- ----------- ----------- --------- ----------
9,309 20,073 30,296 7,462 10,555
---------- ----------- ----------- --------- ----------
Expenses:
Cost of services...... 5,038 8,640 12,221 2,878 4,478
Cost of license fees.. 9 31 65 14 22
Sales and marketing... 862 1,391 1,519 333 637
Research and
development........... 184 1,591 133 860
General and
administrative........ 3,385 2,971 6,784 1,403 2,321
---------- ----------- ----------- --------- ----------
9,294 13,217 22,180 4,761 8,318
---------- ----------- ----------- --------- ----------
Income from operations.. 15 6,856 8,116 2,701 2,237
Other income, net
[note 9].............. 7 252 208 75 243
---------- ----------- ----------- --------- ----------
Income before income
taxes................... 22 7,108 8,324 2,776 2,480
Provision for income
taxes
[note 10]............ 32 1,597 1,872 732 440
---------- ----------- ----------- --------- ----------
Income (loss) before
minority interest....... (10) 5,511 6,452 2,044 2,040
Minority interest
share in
subsidiaries' net
income (loss)........ (23) 154 70 6 (2)
---------- ----------- ----------- --------- ----------
Net income.............. $ 13 $ 5,357 $ 6,382 $ 2,038 $ 2,042
========== =========== =========== ========= ==========
Net income per share.... $ 0.00 $ 0.34 $ 0.40 $ 0.13 $ 0.11
========== =========== =========== ========= ==========
Shares used in computing
net income per share
(in thousands)......... 15,667 15,721 16,151 15,797 18,685
</TABLE>
See accompanying notes
F-4
<PAGE>
SAVILLE SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
SHARE CAPITAL ADDITIONAL RETAINED CUMULATIVE TOTAL
------------------ PAID-IN EARNINGS TRANSLATION SHAREHOLDERS'
SHARES AMOUNTS CAPITAL (DEFICIT) ACCOUNT EQUITY
---------- ------- ---------- --------- ----------- -------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, $ 1 $ (476) $ 7 $ (468)
1992....................
Ordinary Shares issued. 2,980 $ 0
Cash, notes and
interest payable
converted to paid-in
capital............... 681 681
Dividends paid by (29) (29)
subsidiary..............
Net income............. 13 13
Foreign currency (8) (8)
translation adjustment..
---------- --- ------- ------- ---- -------
Balance at December 31, 2,980 0 682 (492) (1) 189
1993....................
Ordinary Shares issued. 14,897,020 10 10
Increase in paid-in 980 (980)
capital.................
Dividends paid by (23) (23)
subsidiary..............
Net income............. 5,357 5,357
Foreign currency (81) (81)
translation adjustment..
---------- --- ------- ------- ---- -------
Balance at December 31, 14,900,000 10 1,662 3,862 (82) 5,452
1994....................
Ordinary Shares issued. 2,676,406 34 25,772 25,806
Deferred Shares issued. 30,000 48 (48)
Shares issued by 148 148
subsidiary companies....
Public offering costs.. (3,914) (3,914)
Reduction in minority 116 116
interest................
Note receivable on sale
of shares by
subsidiary prior to
reorganization........ (100) (100)
Dividends paid......... (3,000) (3,000)
Net income............. 6,382 6,382
Foreign currency 34 34
translation adjustment..
---------- --- ------- ------- ---- -------
Balance at December 31, 17,606,406 92 23,636 7,244 (48) 30,924
1995....................
Net income............. 2,042 2,042
Public offering costs.. (45) (45)
Foreign currency (1) (1)
translation adjustment..
---------- --- ------- ------- ---- -------
Balance at March 31, 17,606,406 $92 $23,591 $ 9,286 $(49) $32,920
1996....................
========== === ======= ======= ==== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
SAVILLE SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- -----------------------
1993 1994 1995 1995 1996
----- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 13 $ 5,357 $ 6,382 $ 2,038 $ 2,042
Adjustments to reconcile net
income to net
cash provided by operating
activities:
Depreciation and 63 222 360 60 147
amortization..................
Allowance for doubtful 370 168 75
accounts......................
Minority interest in net (23) 154 70 6 (2)
income........................
Changes in operating assets
and liabilities:
Accounts receivable......... (933) (3,476) (2,936) (2,112) (4,632)
Other current assets........ (14) (87) (886) 81 (215)
Long term receivable........ (741)
Accounts payable and other (133) 237 401 297 359
accrued liabilities...........
Accrued compensation and 308 415 803 134 (113)
benefits......................
Accrued royalties........... 95 220 348 71 (163)
Income taxes payable........ 2 1,099 127 (395) 440
Other current liabilities... 223 324 (251) (162) 287
----- ------- ------- ------- -------
Net cash provided by (used
in) operating
activities............. (399) 4,465 4,047 186 (1,775)
----- ------- ------- ------- -------
Cash flows from investing
activities:
Purchase of property and (72) (327) (2,178) (537) (428)
equipment.....................
----- ------- ------- ------- -------
Net cash used in investing (72) (327) (2,178) (537) (428)
activities....................
----- ------- ------- ------- -------
Cash flows from financing
activities:
Loan repayments from an 37 7 50
officer.......................
Proceeds from long-term debt. 500
Repayment of long-term debt.. (57) (703) (34) (13)
Advances from related 1,817 759
parties.......................
Repayments to related (807) (2,423) (14) (21)
parties.......................
Additional paid-in capital... 150 35
Proceeds from share 10 25,880 66
issuances.....................
Dividends paid by subsidiary
prior to company
reorganization............ (34) (25)
Public offering costs........ (3,914) (45)
Dividends paid............... (3,000)
----- ------- ------- ------- -------
Net cash provided by (used
in) financing
activities............. 1,163 (1,229) 18,299 46 (58)
----- ------- ------- ------- -------
Effect of exchange rate (9) (97) 45 16 (12)
changes on cash...............
----- ------- ------- ------- -------
Net increase (decrease) in 683 2,812 20,213 (289) (2,273)
cash and cash equivalents...
Cash and cash equivalents, 14 697 3,509 3,509 23,722
beginning of period...........
----- ------- ------- ------- -------
Cash and cash equivalents, $ 697 $ 3,509 $23,722 $ 3,220 $21,449
end of period.................
===== ======= ======= ======= =======
Supplement disclosure of cash
flow information:
Cash paid for interest...... $ 7 $ 71 $ 182 $ 17 $ 6
===== ======= ======= ======= =======
Cash paid for income taxes.. $ 17 $ 471 $ 1,894 $ 1,125
===== ======= ======= =======
Computer equipment under $ 177
capital lease.................
=======
Note receivable from sale of $ 100 $ 100
shares........................
======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(1) ORGANIZATION
Saville Systems PLC (formerly Saville Systems Ireland Limited) (the
"Company") is a company incorporated under the laws of the Republic of Ireland
in 1993.
Saville Systems Ireland Limited, Saville Systems Canada, Ltd. ("Saville
Canada") and Saville Systems U.S. Inc. ("Saville U.S.") were companies under
common control and with identical share ownership structures.
On September 27, 1995, Saville Canada and Saville U.S. (collectively, the
"Subsidiaries") became majority-owned subsidiaries of the Company (the
"Restructuring"). The Restructuring was accomplished through the contribution
of shares of the Subsidiaries to the Company by all but one of the
shareholders of the Subsidiaries who previously owned, directly or indirectly,
identical percentages of all three companies; and through the contribution of
100% of the shares of 2916746 Canada, Inc., a Canadian holding corporation
whose only material asset is shares in Saville Canada.
The Restructuring has been accounted for in a manner similar to a pooling of
interests and accordingly the consolidated financial statements of the Company
include the results of the Company and its two subsidiaries since their
inception, which in the case of Saville Canada was 1982 and Saville U.S. was
1991. The share capital of the subsidiaries has been presented as additional
paid-in capital in these consolidated financial statements.
An approximate 15% interest in Saville Canada and Saville U.S. was not
contributed by one of the shareholders as at the date of Restructuring and has
been presented as a minority interest. As at December 31, 1995 and as at March
31, 1996 this minority interest has decreased to approximately 12%.
The Company's principal line of business is the design and development of
customized billing solutions for the use of its customers in the global
telecommunications industry. In addition, the Company licenses the use of its
software to customers throughout the world and operates its software for
certain customers under a service bureau arrangement. The Company's principal
markets are currently located in the United States, Europe and Canada.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with such principles
requires management to make estimates and assumptions that affect the reported
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
The unaudited interim consolidated financial statements, in the opinion of
management, reflect all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of the results of the interim
periods ended March 31, 1995 and 1996 and the financial position at March 31,
1996.
F-7
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Basis of presentation and principles of consolidation. These consolidated
financial statements include the accounts of the Company and its subsidiaries.
All intercompany accounts and transactions have been eliminated on
consolidation.
Revenue recognition. Services are provided primarily on a time and materials
basis for which revenue is recognized in the period that the services are
provided. These services primarily include system design, customization and
installation services, upgrades, ongoing system management, system
enhancements and service bureau processing fees.
Revenue from the licensing of software rights is recognized at the time of
delivery of the product to the customer, provided that the Company has no
significant related obligations or collection uncertainties remaining. Where
there are significant obligations related to the development and enhancement
of the software delivered, license fees are recorded over the expected term of
the related contract.
Foreign currency translation. The Company uses the United States dollar as
the unit of measurement of its financial statements, as a significant portion
of the Company's operating and financing activities are transacted in United
States dollars. The functional currencies of the Company's subsidiaries are
their local currencies.
Transactions and balances denominated in currencies other than the
functional currencies of the Company or its subsidiaries are remeasured in the
applicable functional currency. Translation adjustments arising on such
remeasurement are included in the determination of net income.
The balance sheets of the Company's foreign subsidiaries are translated at
year-end rates of exchange and results of operations are translated at
weighted average rates of exchange for the fiscal period reported. Translation
adjustments resulting from this process are recorded in shareholders' equity
as an adjustment to the cumulative translation account.
Property and equipment. Property and equipment are stated at cost.
Depreciation is computed using various methods over the estimated useful lives
as follows:
<TABLE>
<CAPTION>
RATE BASIS
---- -----
<S> <C> <C>
Furniture and equipment............................... 20% Declining balance
Computer equipment.................................... 25% Straight-line
Leasehold improvements................................ 20% Straight-line
Automobiles........................................... 30% Declining balance
</TABLE>
Gains or losses resulting from sales or retirements are recorded as
incurred, at which time related costs and accumulated depreciation are removed
from the accounts. Maintenance and repairs are expensed as incurred.
Leases. Leases are recorded as capital or operating leases. Any lease where
substantially all of the benefits and risks related to the ownership of the
leased asset are transferred to the lessee, as defined by Statement of
Financial Accounting Standards (SFAS) No. 13 "Leases" is accounted for as if
the asset were acquired and as if the obligation were assumed as of the date
of lease. All other leases are recorded as operating leases and payments are
expensed as they become due.
F-8
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICES--(CONTINUED)
Software development costs. Software development costs, principally the
design and development of billing software, are expensed as incurred. Costs
incurred after technological feasibility has been established, as defined by
SFAS No. 86, "Software Development Costs," have not been significant.
Stock options. The Company records compensation expense relating to stock
based compensation in accordance with Accounting Principles Board Opinion No.
25 (APB No. 25) "Accounting for Stock Issued to Employees" and related
interpretations.
Income tax. Income taxes are accounted for in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this method, the Company provides
deferred and prepaid taxes for temporary differences in the recognition of
income and expense for financial reporting and tax accounting purposes.
Net income per share. Net income per share is computed based upon the
weighted average number of Ordinary Shares and dilutive share equivalents
outstanding and gives effect to certain adjustments described below. Share
equivalents are not included in the per share calculations where the effect of
their inclusion would be antidilutive, except that, in accordance with
Securities and Exchange Commission requirements, common and common share
equivalents issued during the twelve month period prior to the filing of the
initial public offering have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and the initial
public offering price.
Cash equivalents. Cash equivalents are recorded at cost which approximates
market value, and include only short-term highly liquid investments with
maturities at the date purchased of less than three months.
(3) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
----------------- ------------------- -------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION COST DEPRECIATION
---- ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Furniture and equipment. $339 $104 $1,503 $266 $1,711 $333
Computer equipment...... 231 108 744 207 881 246
Computer equipment under 177 44 182 91 183 103
capital lease...........
Leasehold improvements.. 71 54 521 59 612 88
Automobiles............. 26 17 28 20 28 21
---- ---- ------ ---- ------ ----
$844 $327 $2,978 $643 $3,415 $791
---- ---- ------ ---- ------ ----
Net book value.......... $517 $2,335 $2,624
==== ====== ======
</TABLE>
(4) LONG-TERM RECEIVABLE
The Company has made arrangements with one of its customers whereby the
payment of one half of certain license fees earned during the period from
January 1, 1995 to December 31, 1995 are deferred. These amounts are non-
interest bearing, and minimum monthly repayments of approximately $100,000
(approximately CDN$135,000) will commence on the earlier of reaching an
established level of total revenues from this customer or, August 31, 1998.
F-9
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(5) RELATED PARTY TRANSACTIONS AND BALANCES
In addition to promissory notes payable to companies controlled by an
officer, Grannarville Interest Group Inc. and Pro/38 Inc., as described in
Note 6, the following balances were outstanding with related parties:
As at December 31, 1994 a demand loan bearing no interest was outstanding to
an officer of the company in the amount of $50,000. The loan was fully repaid
during 1995.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Related Party Advances
Advances from Columbia Capital
Corporation, a shareholder.............. $10
Interest payable on promissory notes.... 4
--- --- ---
$14
=== === ===
</TABLE>
In 1995, Saville U.S. extended a loan to an officer in the amount of
$100,000 due August 1, 1997 in connection with the issue of shares of Saville
U.S. This loan is presented as a reduction of additional paid-in capital in
the statement of changes in shareholders' equity (note 8). Interest is payable
on a quarterly basis at the annual Chase Manhattan Bank Prime Rate (8 1/4% at
March 31, 1996).
Details of the Company's transactions with related parties are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest expense on Pro/38 Inc. demand note
payable
and promissory note....................... $15 $15 $ 11 $ 3 $
Interest expense on Grannarville Interest
Group Inc. promissory note................. 17 36 11
Interest expense, InVoice Group Inc., a
shareholder................................ 20
Consulting fees paid to a related party of
a shareholder.............................. 75 26
Commitment fee paid to Fleet Bank, a
shareholder................................ 25
--- --- ---- ----- ------
$35 $57 $122 $40 $
=== === ==== ===== ======
</TABLE>
(6) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
MARCH 31,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Related parties:
Grannarville Interest Group Inc. promissory note
Interest at the annual Chase Manhattan Bank Prime Rate
was payable monthly................................... $ 500
Pro/38 Inc. promissory note
Interest at the annual Chase Manhattan Bank Prime Rate
was payable monthly................................... 157
Other parties:
Capital lease obligation
Payable in 24 monthly payments of $5 and one payment of
$44 at the end of the lease (7.2% interest rate). The
lease is denominated in Canadian dollars.............. 143 97 84
------ ----- ---
800 97 84
Less amount due within one year........................ 111 53 84
------ ----- ---
$689 $44
====== ===== ===
</TABLE>
F-10
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(7) COMMITMENTS AND CONTINGENCIES
The Company is committed to make operating lease payments on premises,
computer hardware, and equipment under agreements which expire over the next
five years as follows:
<TABLE>
<S> <C> <C>
March 31 1997....................................... $2,471
1998....................................... 2,160
1999....................................... 1,599
2000....................................... 866
2001....................................... 451
Thereafter................................. 951
------
$8,498
======
</TABLE>
Total rental expense was approximately $639,000, $992,000 and $1,950,000 for
the years ended December 31, 1993, 1994 and 1995, respectively, and
approximately $419,000 and $754,000 for the three months ended March 31, 1995
and 1996, respectively.
Saville Canada entered into an exclusive agreement with Ed Tel Inc. to
market and license a Message Processing System whereby Saville Canada was
required to pay royalties based on a percentage of the annual increase in
total gross revenue of Saville Canada over base revenue established in 1991.
The royalty expense for the years ended December 31, 1993, 1994 and 1995 was
$125,000, $328,000 and $655,000, respectively, and for the three months ended
March 31, 1995 and 1996 was $135,000 and $10,500, respectively. The original
agreement expired on December 31, 1995. The Company has entered into a five
year extension period with the royalties fixed at CDN$50,000 annually for that
period.
(8) SHARE CAPITAL
Details of the authorized and issued share capital are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
--------- MARCH 31,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Authorized
40,000,000 Ordinary Shares, nominal value $0.0025 per
share
30,000 Deferred Shares, nominal value IR(Pounds)1.00
per share
Issued
17,576,406 Ordinary Shares (1995--17,576,406, 1994--
14,900,000)............................................... $10 44 $44
30,000 Deferred Shares (1995--30,000, 1994--nil).... 48 48
--- --- ---
$10 $92 $92
=== === ===
</TABLE>
(a) Authorized share capital
Upon incorporation, the Company's authorized share capital comprised 100,000
Ordinary Shares.
On January 20, 1995, the Company redesignated each of its Ordinary Shares
authorized and issued to be Class A voting, convertible, participating shares
and increased its authorized share capital by 100,000 Class B non-voting,
convertible, participating shares which ranked pari passu in all respects with
the Class A shares. Each fully paid Class B non-voting, convertible,
participating share could be converted at any
F-11
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(8) SHARE CAPITAL--(CONTINUED)
time into a Class A voting, convertible, participating share on the basis of
one to one. Likewise, each fully paid Class A voting, convertible,
participating share could be converted at any time into a Class B non-voting,
convertible, participating share on the basis of one to one.
In connection with the Restructuring, authorized share capital was amended
by the cancellation of 100,000 Class B shares, the redesignation of Class A
shares as Ordinary Shares with a nominal value of $0.0025 per share and the
authorization of 30,000 Deferred Shares with a nominal value of IR(Pounds)1.00
per share. Authorized capital was then increased to 40,000,000 Ordinary
Shares.
(b) Issued share capital
An analysis of the number of shares issued and outstanding for the three
year period ended December 31, 1995 and for the three months ended March 31,
1996 is as follows:
. during 1993, the Company issued 2,980 Ordinary Shares for cash
consideration of $2;
. during 1994, the Company issued 14,897,020 Ordinary Shares for cash
consideration of $9,998;
. on January 20, 1995, the Company's 14,900,000 issued and outstanding
Ordinary Shares were redesignated as Class A shares;
. during the year ended December 31, 1995, the Company issued 176,406
Ordinary Shares to officers and employees for cash consideration of
$805,808 and conducted a public offering issuing 2,500,000 ordinary shares
for total gross proceeds of $25,000,000.
In connection with the Restructuring, 15,004,300 Class A shares were
redesignated as 15,004,300 Ordinary Shares, one additional Ordinary Share was
issued, and the Company issued 30,000 Deferred Shares. In addition, on
September 27, 1995, the Company completed a 400-for-1 division of all Ordinary
Shares and subsequently declared and allotted a share dividend of 2.725
Ordinary Shares for each post-division share outstanding. All outstanding
shares and per share amounts in these consolidated financial statements have
been retroactively adjusted to reflect this share division and dividend. The
division and dividend were approved by the shareholders by unanimous written
consent on September 27, 1995.
(c) Additional paid-in capital
During 1993, shareholders of Saville U.S. contributed additional capital to
this subsidiary comprising cash of $150,000 and forgiveness of debt totalling
$651,019. This contribution has been reflected as an increase in additional
paid-in capital in the amount of $681,000 and an increase in minority interest
of $120,019.
During 1994, Saville Canada reorganized its share capital, reducing its
retained earnings and increasing its share capital by an amount of $1,153,985.
The increase in this subsidiary's share capital has been reflected as an
increase in additional paid-in capital in these financial statements in the
amount of $980,000 and an increase in minority interest of $173,985.
F-12
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(8) SHARE CAPITAL--(CONTINUED)
During 1995 and prior to the Restructuring described in note 1, 70.04 shares
of Saville Canada and 6.135 shares of Saville U.S. were issued for aggregate
cash consideration of $174,000 and a note receivable of $100,000. The
aggregate cash consideration, net of the note receivable, has been reflected
in these financial statements as additional paid-in capital in the amount of
$148,000 and an increase in minority interest of $26,000.
(d) Dividends
Shareholders are entitled to receive dividends as may be recommended by the
Board of Directors of the Company and approved by the shareholders, which will
be declared and paid in United States dollars. Under Irish Company law,
dividends are payable only out of profits available for distribution, where
profits are determined in accordance with accounting principles generally
accepted in the Republic of Ireland. The amount available for distribution to
shareholders includes only the retained earnings of the Company, and not that
of its subsidiaries, calculated in accordance with accounting principles
generally accepted in the Republic of Ireland which amounted to approximately
$9,057,000 at March 31, 1996.
(e) Minority interest
Concurrent with the Restructuring of the Company, the minority shareholder
has entered into a share restriction and contribution agreement which
prohibits the minority shareholder from transferring any securities of the
Company, unless a proportionate number of Subsidiary shares are contributed to
the Company. The minority shareholder must contribute all of its shares in the
Subsidiaries no later than September 1, 2005.
(f) Share options
During the years ended December 31, 1994 and 1995 prior to the restructuring
described in note 1, the Company granted share "option units' to certain
officers, directors and employees of the Company. Each option unit was
comprised of 1 Class A share of the Company, 1 common share of Saville Canada
and .0875 common shares of Saville U.S. upon exercise of the option unit.
In connection with the Restructuring, each option unit outstanding at that
date was exchanged for options which entitle the holder to 1 Ordinary Share
for each option exercised.
F-13
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(8) SHARE CAPITAL--(CONTINUED)
The following table summarizes the activity in options to March 31, 1996,
after giving effect to the reorganization:
<TABLE>
<CAPTION>
NUMBER OF ORDINARY SHARES
-------------------------------------
AVAILABLE FOR EXERCISE PRICE
GRANT UNEXERCISED EXERCISABLE PER SHARE
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at December 31,
1993 and 1992.............
Granted................... 150,490 $ 1.68
---------
Balance at December 31,
1994...................... 150,490
---------
Granted................... 540,958 2.40
1995 Share Option Plan
adopted................... 2,890,000
Granted................... (1,205,748) 1,205,748 8.66-10.00
Vested.................... 367,309 10.00
Exercised................. (72,105) (72,105) 10.00
Expired................... (1,030) (1,030) 10.00
Cancelled................. 21,922 (21,922) 8.66
---------- --------- -------
Balance at December 31,
1995...................... 1,706,174 1,802,139 294,174
---------- --------- -------
Granted................... (35,088) 35,088 15.00-16.63
Vested.................... 128,039
Cancelled................. 928 (928) 8.66
---------- --------- -------
Balance at March 31, 1996. 1,672,014 1,836,299 422,213
========== ========= =======
</TABLE>
Vesting of the 150,490 options having an exercise price of $1.68 per share
and the 540,958 options having an exercise price of $2.40 per share was
accelerated upon completion of the initial public offering, such that all of
these options become fully exercisable by May 19, 1996. These options were
granted below estimated fair market value at the date of grant and
compensation expense is being recorded over the related vesting periods.
Compensation expense of $12,000 and $95,000 was recorded in the years ended
December 31, 1994 and 1995, respectively, and $42,000 was recorded for the
three months ended March 31, 1996. In future periods, the Company will record
additional compensation expense of $31,000 as these options vest. These
options generally expire 5 years from date of grant.
On August 21, 1995, the Board of Directors approved the 1995 Share Option
Plan which provides for the grant of stock to employees, officers, directors,
consultants and advisors of the Company. These options generally expire ten
years from the date of grant and vest over periods of one to five years.
During the period ended March 31, 1996, the Company adopted the 1996
Employee Share Purchase Plan for certain officers and employees of the
Company.
(g) Cumulative translation account
Changes in the Canadian dollar exchange rate relative to the United States
dollar has caused the adjustments to the cumulative translation account.
F-14
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(9) OTHER INCOME
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- --------------------
1993 1994 1995 1995 1996
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income......................... $ 9 $118 $369 $ 18 $311
Interest on long-term debt.............. (20) (24) (61) (14) (2)
Other interest expense.................. (26) (54) (15) (3) (4)
Foreign exchange gains (losses), net.... 182 (70) 74 (76)
Other................................... 44 30 (15) 14
---- ---- ---- --------- ---------
$ 7 $252 $208 $ 75 $243
==== ==== ==== ========= =========
</TABLE>
(10) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ -------------------
1993 1994 1995 1995 1996
---- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Ireland................................ $ 533 $1,165 $482 $396
Foreign................................ $32 1,064 707 250 44
--- ------ ------ --------- ---------
$32 $1,597 $1,872 $732 $440
=== ====== ====== ========= =========
</TABLE>
Pretax income (loss) from foreign operations amounted to $350,000 $2,078,000
and $1,677,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $383,000 and $(312,000) for the three months ended March 31,
1995 and 1996, respectively.
The effective income tax rate differed from the statutory federal income tax
rate due to:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1993 1994 1995
----- ------- -------
<S> <C> <C> <C>
Standard Irish federal income tax rate................ 40.0% 40.0% 38.5%
Computed tax provision................................ $ 9 $ 2,843 $ 3,205
Tax relief on Irish manufacturing operations.......... (1,539) (1,750)
Foreign tax rate differences.......................... 10 93 95
Change in valuation allowance in respect of subsidiary
losses................................................ (91) 27 152
Other................................................. 104 173 170
----- ------- -------
$ 32 $ 1,597 $ 1,872
===== ======= =======
Per share effect of the tax relief on Irish
manufacturing operations.............................. $ $ 0.10 $ 0.11
===== ======= =======
</TABLE>
The Company has significant operations and generates a substantial portion
of its taxable income in the Republic of Ireland, and under an incentive tax
program due to terminate in 2010, is taxed on its "manufacturing income" at a
10% rate. To qualify for the 10% tax rate, the Company must satisfy certain
conditions, including achieving target employment levels in the Republic of
Ireland and rendering computer services there. The Irish standard rate was
reduced from 40% to 38% effective April 1, 1995.
F-15
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(10) INCOME TAXES--(CONTINUED)
Deferred income taxes reflect loss carryforwards and the tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred taxes as of December 31, 1994
and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
----------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Loss carryforwards................................................ 272 120
Depreciation........................................................ 28 60
---- ----
300 180
Valuation allowance for deferred tax assets......................... (300) (180)
---- ----
Net deferred taxes..................................................
==== ====
</TABLE>
A valuation allowance of 100% has been recorded to offset noncurrent
deferred tax assets due to the uncertainty of realizing the benefit of these
assets. The valuation allowance decreased by $120,000 in the year ended
December 31, 1995.
For federal income tax purposes at December 31, 1995 the Company's foreign
subsidiary, Saville U.S., had approximately $300,000 of net operating loss
carryforwards which expire in the year 2007.
Undistributed earnings of the Company's foreign subsidiaries amount to
approximately $881,000 at December 31, 1995. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for withholding
taxes has been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to withholding
taxes payable in the amount of approximately $132,000 to various foreign
governments. Determination of the amount of the unrecognized deferred income
tax liability is not practicable because of the complexities associated with
its hypothetical calculation; however, unrecognized foreign tax credit
carryforwards would be available to reduce some portion of the liability.
(11) INDUSTRY AND GEOGRAPHIC INFORMATION
The Company and its subsidiaries operate primarily in one industry segment,
the development and marketing of proprietary customer administration and
billing systems. Transfers between geographic areas are accounted for using
methods designed to approximate comparable arm's length amounts. Such
transfers are eliminated in the consolidated financial statements.
Identifiable assets are those assets that can be directly associated with a
particular geographic area.
F-16
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(11) INDUSTRY AND GEOGRAPHIC INFORMATION--(CONTINUED)
The following is a summary of operations within geographic areas.
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED AND
IRELAND CANADA STATES ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Quarter ended March 31,
1996
Sales to unaffiliated $ 6,586 $ 1,788 $2,181 $10,555
customers................
Transfers between 4,511 $ (4,511)
geographic areas.........
------- ------- ------ -------- -------
Total revenues........ $ 6,586 $ 6,299 $2,181 $ (4,511) $10,555
======= ======= ====== ======== =======
Operating profit (loss). $ 2,389 $ (541) $ 368 $ 21 $ 2,237
======= ======= ====== ======== =======
Identifiable assets..... $29,357 $ 6,052 $3,695 $ (282) $38,822
======= ======= ====== ======== =======
Year ended December 31,
1995
Sales to unaffiliated $16,519 $ 9,098 $4,679 $30,296
customers................
Transfers between (210) 11,309 210 $(11,309)
geographic areas.........
------- ------- ------ -------- -------
Total revenues........ $16,309 $20,407 $4,889 $(11,309) $30,296
======= ======= ====== ======== =======
Operating profit........ $ 6,141 $ 1,534 $ 357 $ 84 $ 8,116
======= ======= ====== ======== =======
Identifiable assets..... $27,737 $ 5,598 $2,995 $ (299) $36,031
======= ======= ====== ======== =======
Year ended December 31,
1994
Sales to unaffiliated $10,470 $ 8,612 $ 991 $20,073
customers................
Transfers between 5,950 40 $ (5,990)
geographic areas.........
------- ------- ------ -------- -------
Total revenues........ $10,470 $14,562 $1,031 $ (5,990) $20,073
======= ======= ====== ======== =======
Operating profit (loss). $ 4,753 $ 2,091 $ (119) $ 131 $ 6,856
======= ======= ====== ======== =======
Identifiable assets..... $ 5,545 $ 4,793 $1,157 $ (1,638) $ 9,857
======= ======= ====== ======== =======
Year ended December 31,
1993
Sales to unaffiliated $ 101 $ 7,888 $1,320 $ 9,309
customers................
Transfers between 1,167 $ (1,167)
geographic areas.........
------- ------- ------ -------- -------
Total revenues........ $ 101 $ 9,055 $1,320 $ (1,167) $ 9,309
======= ======= ====== ======== =======
Operating profit (loss). $ (77) $ 192 $ 150 $ (250) $ 15
======= ======= ====== ======== =======
Identifiable assets..... $ 352 $ 3,387 $1,203 $ (1,735) $ 3,207
======= ======= ====== ======== =======
</TABLE>
All of the sales to unaffiliated customers for Ireland are export sales for
all periods presented. Of these export sales, sales to customers located in
the United States accounted for 55.5%, 68.5% and 68.0% for the years ended
December 31, 1993, 1994 and 1995, respectively, and 66.2% and 77.5% for the
three months ended March 31, 1995 and 1996, respectively. Sales to customers
located in the United Kingdom and Europe accounted for the balance of export
sales for all periods presented.
F-17
<PAGE>
SAVILLE SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR INFORMATION IS IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE
SPECIFIED)
(INFORMATION AS AT MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
(12) SALES TO MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company has contracts with certain customers which comprise a
significant portion of consolidated revenues as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
---------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
AT&T Corporation............................... 13% 28% 37% 37% 49%
Sprint Corporation............................. 3 5 9 9 12
Energis Communications Limited................. 1 24 16 19 5
Unitel Communications Limited.................. 45 18 11 15 7
Ed Tel, Inc.................................... 19 9 5 5 3
Blood Trac Systems Inc......................... 12 8 4 6 3
--- --- --- ------ ------
93% 92% 82% 91% 79%
=== === === ====== ======
</TABLE>
Financial instruments which potentially subject the Company to
concentrations of credit risk consists of cash and cash equivalents and trade
receivables. The Company sells its products to customers primarily in the
telecommunications industry within North America. The Company performs ongoing
credit evaluations of its customers and does not require collateral. The
Company provides an allowance for potential credit losses and such losses were
not material during the periods reported.
The aggregate accounts receivable balances relating to the above customers
totalled $4,729,000 and $6,853,000 at December 31, 1994 and 1995,
respectively, and $10,943,000 at March 31, 1996. In addition, the long-term
receivable of $741,000 at December 31, 1995 and $744,000 at March 31, 1996
relates to one of these customers.
The Company's cash and cash equivalents include approximately $20,791,000
and $19,631,000 as at December 31, 1995 and March 31, 1996, on deposit with
one institution, the majority of which is invested in short-term commercial
paper.
(13) GOVERNMENT ASSISTANCE
The Company is eligible for government assistance in certain jurisdictions
for certain expenditures incurred. The Company accrues and offsets these
eligible grants against the related costs. The amounts included in income were
$124,000 and $196,000 for the years ended December 31, 1994 and 1995,
respectively, and $nil and $52,000 for the three months ended March 31, 1995
and 1996, respectively.
(14) RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS 123 "Accounting for
Stock Based Compensation." which is effective for the Company's December 31,
1996 year end. SFAS 123 allows an entity to continue the application of the
accounting prescribed by APB No. 25, however, pro forma footnote disclosures
of net income and earnings per share, as if SFAS 123 had been applied are
required. The Company intends to continue its current accounting under APB No.
25 and provide the required pro forma footnote disclosures commencing with its
fiscal 1996 year end financial statements.
F-18
<PAGE>
ADDITIONAL INFORMATION REQUIRED PURSUANT TO THE COMPANIES ACTS, 1963 TO 1990,
OF THE REPUBLIC OF IRELAND
1. The nominal share capital of Saville Systems PLC (the "Company") is
$100,000 and IR(Pounds)30,000 divided into 40,000,000 Ordinary Shares of
$0.0025 each and 30,000 Deferred Shares of IR(Pounds)1.00 each of which
17,576,406 Ordinary Shares and 30,000 Deferred Shares have been issued and are
fully paid.
2. The Articles of Association of the Company provide as follows with regard
to the remuneration of Directors:
(a) Ordinary remuneration of Directors
The ordinary remuneration of the Directors shall be determined from
time to time by an ordinary resolution of the Company and shall be
divisible (unless such resolution shall provide otherwise) among the
Directors as they may agree, or, failing agreement, equally, except
that any Director who shall hold office for only part of the period in
respect of which such remuneration is payable shall be entitled only to
rank in such division for a proportion of the remuneration related to
the period during which he has held office.
(b) Special remuneration of Directors
Any Director who holds any executive office (including for this purpose
the office of Chairman or Deputy Chairman) or who serves on any
committee, or who otherwise performs services which in the opinion of
the Directors are outside the scope of the ordinary duties of a
Director, may be paid such extra remuneration by way of salary,
commission or otherwise as the Directors may determine.
(c) Expenses of Directors
The Directors may be paid all travelling, hotel and other expenses
properly incurred by them in connection with their attendance at
meetings of Directors or committees of Directors or general meetings or
separate meetings of the holders of any class of shares or of
debentures of the Company or otherwise in connection with the discharge
of their duties.
(d) Entitlement to grant pensions
The Directors may provide benefits, whether by way of pensions,
gratuities or otherwise, for any Director, former Director or other
officer or former officer of the Company or to any person who holds or
has held any employment with the Company or with any body corporate
which is or has been a subsidiary or associated company of the Company
or a predecessor in business of the Company or of any such subsidiary
or associated company and to any member of his family or any person who
is or was dependent on him and may set up, establish, support, alter,
maintain and continue any scheme for providing all or any such benefits
and for such purposes any Director accordingly may be, become or remain
a member of, or rejoin, any scheme and receive or retain for his own
benefit all benefits to which he may be or become entitled thereunder.
The Directors may pay out of the funds of the Company any premiums,
contributions or sums payable by the Company under the provisions of
any such scheme in respect of any of the persons or class of persons
above referred to who are or may be or become members thereof.
A-1
<PAGE>
3. The following are the names, addresses and descriptions of the Directors:
<TABLE>
<CAPTION>
NAME ADDRESS DESCRIPTION
---- ------- -----------
<S> <C> <C>
Bruce A. Saville........ c/o Saville Systems PLC Chairman of the Board of Directors
4445 Calgary Trail
7th Floor
Edmonton, Alberta
T6H 5R7
John J. Boyle, III...... c/o Saville Systems PLC President and Chief Executive Officer;
25 Burlington Mall Rd. Corporate Director
Sixth Floor
Burlington, MA 01803
John A. Blanchard, III.. c/o Deluxe Corporation Corporate Director
1080 West Country Rd. F
Shoreview, MN 55126-8201
Brian E. Boyle.......... c/o Boston Communications Group Corporate Director
One McKinley Square
Boston, MA 02109
William F. Cunningham... c/o McGovern, Hurley & Cunningham Corporate Director
2005 Sheppard Ave. East
Suite 503
North York, Ontario
M2J 5B4
Richard A. Licursi...... c/o Phoenix Wireless Group, Inc. Corporate Director
2300 Maitland Center Parkway
Suite 200
Maitland, FL 32751
Fergus G. McGovern...... 8 Foxrock Avenue Corporate Director
Foxrock
Dublin 18
Ireland
David P. Mixer.......... c/o Columbia Capital Corporation Corporate Director
5586 Post Road
Suite 110
Greenwich, RI 02818
James B. Murray, Jr..... c/o Columbia Capital Corporation Corporate Director
""0'' Court Square
P.O. Box 1465
Charlottesville, VA 22902
John W. Sidgmore........ c/o UUNet Technologies Corporate Director
3060 Williams Drive
Suite 601
Fairfax, VA 22031
</TABLE>
A-2
<PAGE>
4. The minimum amount which, in the opinion of the Directors, must be raised
by the Company by the sale of the ADSs being sold by the Company in this
offering in order to provide the sums required to be provided in respect of
each of the following matters:
(a) the purchase price of any property purchased or to be purchased which
is to be defrayed in whole or in part out of the proceeds of the issue;
(b) any preliminary expenses payable by the Company, and any commission
so payable to any person in consideration of his agreeing to subscribe for,
or of his procuring or agreeing to procure subscriptions for, any shares of
the Company;
(c) the repayment of any moneys borrowed by the Company in respect of any
of the foregoing matters;
(d) working capital;
is nil.
5. The subscription lists will open at 10:00 a.m. on , 1996 and may be
closed at any time thereafter.
6. The price at which ADSs are being offered to the public in this offering
will be payable in full on application.
7. As of March 31, 1996, the Company had outstanding options to purchase an
aggregate of 1,836,299 Ordinary Shares. Additional information with respect to
these options is as follows:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
DATE OF GRANT OPTIONS PRICE TERM
------------- ------- -------- --------
<S> <C> <C> <C>
July 8, 1994.................................... 150,490 $1.68 5 years
January 1, 1995................................. 416,122 $2.40 5 years
March 1, 1995................................... 104,030 $2.40 5 years
June 1, 1995.................................... 20,806 $2.40 5 years
September 1, 1995............................... 827,113 $8.66 10 years
November 16, 1995............................... 305,500 $10.00 10 years
December 21, 1995............................... 73,135 $10.00 10 years
January 1, 1996................................. 24,088 $16.38 10 years
January 8, 1996................................. 3,000 $15.00 10 years
January 15, 1996................................ 3,000 $16.30 10 years
March 1, 1996................................... 5,000 $16.63 10 years
</TABLE>
As of the date of this Prospectus, options to purchase an additional 3,000
Ordinary Shares have been granted at an exercise price of $18.75 per share
with a term of ten years.
The Company did not receive consideration for the grant of the options
described above. Copies of the option agreements and other records relating to
the options described above may be inspected at the offices of the Company at
IDA Business Park, Dangan, Galway, Ireland, during normal business hours on
any weekday (Saturdays and public holidays excepted) for a period of 14 days
after the date of this Prospectus.
8. The Company will pay or allow to the Underwriters, in consideration of
their obligations to purchase and offer to the public the 100,000 ADSs which
are being sold by the Company in this offering, commissions and discounts
aggregating approximately $161,250, being at the rate of $1.61 per each such
ADS.
9. The estimated amount of the expenses of the offering, including
underwriting commissions and discounts is $5,498,750 of which $661,250 will be
payable by the Company and the balance of $4,837,500 will be payable by the
Selling Shareholders. If the Underwriters exercise in whole or in part their
option to purchase additional ADSs from the Selling Shareholders, the
estimated amount of further expenses of up to $749,813 thereby incurred will
be payable by the Selling Shareholders. The net amount of the consideration
estimated to be received by the Company in respect of the ADSs comprised in
the offering is $2,563,750.
A-3
<PAGE>
11. The following contracts (not being contracts entered into in the
ordinary course of business) have been entered into within the five years
immediately preceding the date of this document and are or may be material:
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S> <C>
Underwriting Agreement dated November 15, 1995.
Form of Underwriting Agreement.
Deposit Agreement, dated as of November 15, 1995.
Contribution Agreement between the Registrant and certain
shareholders of the Registrant, dated as of September 27,
1995.
Stock Restriction Agreement and Contribution Agreement between
Invoice Systems (Canada) Inc. and the Company, dated as of
September 27, 1995.
Contribution Agreement between the Registrant, 2916746 Canada,
Inc. and Columbia Saville Ireland Investors, L.P., dated as
of September 27, 1995.
1995 Share Option Plan.
Amended and Restated Employment Agreement between the Registrant
and Bruce A. Saville, dated as of August 2, 1994.
Employment Agreement between the Registrant and John J. Boyle,
III, dated as of July 8, 1994, amended as of January 31,
1995.
Employment Letter Agreement between Saville Systems Ireland
Limited and Padraig W. Kenny, dated March 30, 1995.
Employment Letter Agreement between Saville Systems U.S., Inc.
and Michael A. Shulist, dated February 21, 1995.
Employment Letter Agreement between Saville Systems U.S., Inc.
and Marc J. Venator, dated March 22, 1995.
Employment Letter Agreement between the Registrant and John J.
Kiley, dated as of October 17, 1995.
Sublease between Evered Bardon USA, Inc. and Saville Systems
U.S., Inc., dated December 1, 1994.
Lease Agreement between Barbican Properties Inc. and Saville
Systems Canada, Ltd. made as of May 1, 1995.
Letter Agreement between Barbican Properties Inc. and Saville
Systems Canada, Ltd. dated July 19, 1995.
Indenture between Orfus Investments and Saville Systems Canada,
Ltd. dated November 25, 1994.
Lease between Clybaun Construction Limited, Saville Systems
Ireland Limited, Saville Systems Canada, Ltd. and Anglo Irish
Bank Corporation PLC, dated April 27, 1994.
Deed between Saville Systems Ireland Limited and Clybaun
Construction Limited, dated April 27, 1994.
Lease between Clybaun Construction Limited, Saville Systems
Ireland Limited and Remington Fox Ireland Limited, dated July
1, 1994.
Promissory Note in the amount of $500,000 executed by Saville
Systems Canada, Ltd. in favor of 167,818 Canada Ltd (now
known as Grannarville Interest Group Ltd.), dated August 2,
1994.
Agreement between Saville Systems Ireland Limited, Saville
Systems Canada, Ltd. and Industrial Development Agency
(Ireland), dated June 9, 1995.
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<C> <S> <C>
Intellectual Property
Purchase Agreement
between the
Registrant and
Saville Systems
Canada, Ltd., made as
of July 1, 1993.
Letter Agreement between
Saville Systems
Canada, Ltd. and Ed
Tel, Inc., dated June
30, 1995.
Sublease Agreement
between Saville
Systems U.S., Inc.
and Boston Private
Bank & Trust Company,
dated November 22,
1995.
Lease Agreement between
Saville Systems
Canada, Ltd. and
Orfus Investments,
dated
April 25, 1996.
Indemnity Agreement
between the
Registrant and Orfus
Investments, dated
April 25, 1996.
1996 Employee Share
Purchase Agreement.
</TABLE>
A copy of each of the above-mentioned agreements may be inspected at the
offices of the Company at IDA Business Park, Dangan, Galway, Ireland during
normal business hours on any weekday (Saturdays and public holidays excepted)
for a period of 14 days after the date of this Prospectus.
12. The auditors of the Company are Ernst & Young, Chartered Accountants, of
Kiltartan House, Forster Street, Galway, Republic of Ireland.
13. The Company has been carrying on business since August 1993.
14. Ernst & Young and McCann FitzGerald have given and not withdrawn their
respective written consents to the issue of this document with the inclusion
therein of the references to them, and of their report in the case of Ernst &
Young, in the form and context in which they are included.
15. Copies of the material contracts and consents referred to in paragraphs
11 and 14 above were attached to the copy of this document which has been
delivered to the Registrar of Companies in the Republic of Ireland for
registration.
A-5
<PAGE>
[Picture of billing invoice appears here]
[Saville Systems logo appears here]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 11
Reports to Shareholders................................................... 11
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Price Range of ADSs....................................................... 12
Capitalization............................................................ 13
Selected Consolidated Financial Data...................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 24
Management................................................................ 35
Certain Transactions...................................................... 42
Principal and Selling Shareholders........................................ 45
Description of Share Capital.............................................. 48
Taxation.................................................................. 52
Description of American Depositary Receipts............................... 57
Shares Eligible for Future Sale........................................... 65
Underwriting.............................................................. 67
Legal Matters............................................................. 68
Experts................................................................... 68
Additional Information.................................................... 68
Irish Exchange Control Regulations........................................ 69
Index to Consolidated Financial Statements................................ F-1
Additional Information Required by the Irish Companies Act................ A-1
</TABLE>
------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE AMERICAN DEPOSITARY RECEIPTS OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,100,000
American Depositary Shares
Representing
3,100,000 Ordinary Shares
LOGO
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
Furman Selz
Hambrecht & Quist
Montgomery Securities
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 39,732
NASD Filing Fee.................................................... 12,023
Nasdaq National Market Listing Fee................................. 17,500
Blue Sky Fees and Expenses (including legal fees).................. 20,000
Transfer Agent, Depositary and Registrar Fees...................... 15,000
Accounting Fees and Expenses....................................... 70,000
Legal Fees and Expenses............................................ 250,000
Printing, Engraving and Mailing Expenses........................... 50,000
Miscellaneous...................................................... 25,745
--------
Total............................................................ $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as hereinafter set forth, there is no provision of the Company's
Memorandum or Articles of Association, or any contract, arrangement or statute
under which any director or officer of the Company is insured or indemnified
in any manner against any liability that he may incur in his capacity as such.
Article 130 of the Articles of Association of the Company provides:
"Subject to the provisions of and so far as may be admitted by the Acts,
but without prejudice to any indemnity to which he or they may otherwise be
entitled, every Director and other officer of the Company and the Auditors
shall be indemnified out of the assets of the Company against any
liability, loss or expenditure incurred by him or them in the execution or
discharge of his or their duties or the exercise of his or their powers or
otherwise in relation to or in connection with his or their duties, powers
or office including (without prejudice to the generality of the foregoing)
any liability incurred by him or them in defending any proceedings, whether
civil or criminal, which relate to anything done or omitted to be done or
alleged to have been done or omitted to be done by him or them as officers
or employees of the Company and in which judgment is given in his or their
favour or in which he or they are acquitted or which are otherwise disposed
of without any finding or admission of guilt or breach of duty on his or
their part, or incurred by him or them in connection with any application
under any statute for relief from liability in respect of any such act or
omission in which relief is granted to him or them by the Court. To the
extent permitted by law, the Directors may arrange insurance cover at the
cost of the Company in respect of any liability, loss or expenditure
incurred by any Director, officer or the Auditors of the Company in
relation to anything done or alleged to have been done or omitted to be
done by him or them as Director, officer or Auditors."
Section 200 of the Companies Act, 1963 of the Republic of Ireland (as
amended by the Companies (Amendment) Act, 1983) prohibits the giving (whether
in the articles of association of a company or in any contract with a company
or otherwise) of any exemption from or indemnity against any liability which
by virtue of any rule of law would otherwise attach to an officer in respect
of any negligence, default, breach of duty or breach of trust of which he may
be guilty in relation to the company. Any such officer
II-1
<PAGE>
may however be indemnified by the company against any liability incurred by
him in defending proceedings, whether civil or criminal, in which judgment is
given in his favor or in which he is acquitted, or in connection with any
application under section 391 of the Companies Act, 1963 or section 42 of the
Companies (Amendment) Act, 1983 in which relief is granted to him by the
court.
Section 391 of the Companies Act, 1963 permits an Irish court to relieve an
officer from liability for negligence, default, breach of duty or breach of
trust if the court considers that the officer acted honestly and reasonably,
and that, having regard to all the circumstances of the case, it considers
that the officer ought fairly to be excused from liability.
Under section 42 of the Companies (Amendment) Act, 1983, a director of a
company may be held liable for any amount that a nominee of the company fails
to pay for the purposes of paying up any outstanding capital or paying any
premium on shares held by the nominee on behalf of the company. Section 42 of
the Companies (Amendment) Act, 1983, however, also permits an Irish court to
relieve a director from such liability if the court considers that the
director acted honestly and reasonably, and that, having regard to all the
circumstances of the case, it considers that the director ought fairly to be
excused from liability.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors and officers of the
Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of Ordinary Shares and Deferred Shares issued, and the number of
options granted, by the Registrant since March 31, 1993. Further included is
the consideration, if any, received by the Registrant for such shares and
options, and information relating to the section of the Securities Act, or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed. All awards of options did not involve any sale under
the Securities Act and none of these securities was registered under the
Securities Act.
(a) Issuances of Capital Stock.
On June 14, 1993, the Company issued 1,490 Ordinary Shares to each of Robert
Burke and Olivia McCann each at a purchase price of approximately $0.0007 per
share.
On August 2, 1994, the Company issued 8,938,510 Ordinary Shares to Invoice
Systems (Canada), Inc. at a purchase price of approximately $0.0007 per share.
On August 2, 1994, the Company issued 5,958,510 Ordinary Shares to Columbia
Saville Investors, L.P., an affiliate of the Columbia Group, at a purchase
price of approximately $0.0007 per share.
On January 31, 1995, the Company issued 80,460 Ordinary Shares to John J.
Boyle at a purchase price of approximately $2.49 per share.
On March 15, 1995, the Company issued an aggregate of 23,840 Ordinary Shares
to certain employees at a purchase price of approximately $2.46 per share.
On September 27, 1995, the Company completed a 400-for-1 share division of
all outstanding Ordinary Shares and subsequently declared a share dividend of
2.725 Ordinary Shares for each post-division Ordinary Share outstanding.
On September 27, 1995, the Company issued an aggregate of 30,000 Deferred
Shares to its shareholders on a pro rata basis.
II-2
<PAGE>
On September 27, 1995, the Company issued one Ordinary Share to an employee
of the Company at a purchase price of $8.66.
(b) Certain Grants and Exercises of Stock Options
Between July 8, 1994 and September 1, 1995, the Company granted options to
purchase an aggregate of 691,448 Ordinary Shares to certain directors and
employees of the Company. The exercise prices of these options ranged from
approximately $1.68 to $2.40 per share.
The Company's 1995 Share Option Plan was adopted by the Board of Directors
in August 1995 and by the shareholders in September 1995. In September 1995,
options to purchase an aggregate of 827,113 Ordinary Shares were issued under
such plan. All of these options were granted at an exercise price of $8.66 per
share.
Except as set forth above, no underwriters were engaged in connection with
any of the foregoing sales of securities. The securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering, and in certain cases, such transactions also
were exempt from the registration requirements of the Securities Act, as such
securities were offered and sold outside the United States to persons who were
neither citizens nor residents of the United States.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.
*2.1 -- Contribution Agreement between the Registrant and certain
shareholders of the Registrant, dated as of September 27, 1995.
*2.2 -- Stock Restriction and Contribution Agreement between Invoice
Systems (Canada), Inc. and the Registrant, dated as of September
27, 1995.
*2.3 -- Contribution Agreement between the Registrant, 2916746 Canada, Inc.
and Columbia Saville Ireland Investors, L.P., dated as of September
27, 1995.
*3.1 -- Memorandum of Association of the Registrant.
*3.2 -- Articles of Association of the Registrant.
*4.1 -- Specimen Certificate for Ordinary Shares, $0.0025 par value, of the
Registrant.
**4.2 -- Deposit Agreement among the Registrant, The Bank of New York, as
Depositary, and the holders from time to time of American
Depositary Shares issued thereunder (including as an exhibit the
form of American Depositary Receipt).
*4.3 -- Amended and Restated Saville Systems Agreement among the
Registrant, Saville Systems Canada, Ltd., and Saville Systems U.S.,
Inc., and the Shareholders thereof, dated as of August 2, 1994.
*4.4 -- Amendment No. 1 to Amended and Restated Saville Systems Agreement
among the Registrant, Saville Systems Canada, Ltd., and Saville
Systems U.S., Inc., and the Shareholders thereof, dated as of
September 27, 1995
**4.5 -- Waiver and Amendment No. 2 to Amended and Restated Saville Systems
Agreement among the Registrant, Saville Systems Canada, Ltd. and
Saville Systems U.S., Inc., and the Shareholders thereof, dated as
of November 8, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**4.6 -- Registration Rights Agreement among the Registrant and certain
shareholders thereof, dated as of November 8, 1995.
***5.1 -- Opinion of McCann FitzGerald as to the validity of the Ordinary
Shares.
***8.1 -- Opinion of McCann FitzGerald as to Irish tax matters.
*10.1+ -- Software Development and Support Agreement between the Registrant
and American Telephone and Telegraph Company, dated as of January
1, 1994.
*10.2+ -- Software Development and Support Agreement between Invoice
Systems, Inc., B.A. Saville & Associates Limited and Unitel
Communications Inc., dated as of February 24, 1993.
*10.3 -- Letter Agreement between Invoice Systems, Inc., B.A. Saville &
Associates Limited and Unitel Communications Inc. dated September
1, 1993.
*10.4+ -- Software License Agreement between Invoice Systems, Inc., B.A.
Saville & Associates Limited and Unitel Communications Inc., dated
as of February 24, 1993.
*10.5+ -- Processing Services Contract between Saville Systems U.S., Inc.
and Frontier Communications of Rochester Inc., dated as of
September 15, 1994.
*10.6 -- Master Services Agreement between Saville Systems U.S., Inc. and
Frontier Communications of Rochester Inc., dated as of September
15, 1994.
*10.7+ -- Marketing and License Agreement between Saville Systems Canada,
Ltd. and Edmonton Telephones Corporation, effective as of January
1, 1992 and dated as of February 14, 1994.
*10.8 -- Letters from Saville Systems Canada, Ltd. to the Legal Counsel and
the Chief Financial Officer of Ed Tel, Inc. dated June 30, 1995
renewing the Marketing and License Agreement between Saville
Systems Canada, Ltd. and Edmonton Telephones Corporation.
*10.9+ -- Core Processing Agreement between Saville Systems Canada, Ltd. and
Ed Tel, Inc., dated as of February 14, 1994.
*10.10+ -- Agreement for Software System Development and Billing Services
between Saville Systems U.S., Inc., Saville Systems Canada, Ltd.
and Sprint Communications Company, L.P., dated as of March 1,
1993.
*10.11 -- Software License Agreement between Saville Systems U.S., Inc.,
Saville Systems Canada, Ltd. and Sprint Communications Company,
L.P., dated as of March 1, 1993.
*10.12+ -- Agreement between Saville Systems U.S., Inc., Saville Systems
Canada, Ltd. and Sprint International Communications Corporation,
dated as of April 19, 1993.
*10.13+ -- Supply Agreement between the Registrant and Energis Communications
Limited, effective as of October 8, 1994 and dated as of July 25,
1995.
*10.14 -- Guarantee and Assignment between Saville Systems Canada, Ltd. and
Energis Communications Limited, dated July 25, 1995.
*10.15 -- 1995 Share Option Plan.
*10.16 -- Amended and Restated Employment Agreement between the Registrant
and Bruce A. Saville, dated as of August 2, 1994.
*10.17 -- Employment Agreement between the Registrant and John J. Boyle,
III, dated as of July 8, 1994, amended as of January 31, 1995.
*10.18 -- Sublease between Evered Bardon USA, Inc. and Saville Systems U.S.,
Inc., dated December 1, 1994.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*10.19 -- Lease Agreement between Barbican Properties Inc. and Saville
Systems Canada, Ltd. made as of May 1, 1995.
*10.20 -- Letter Agreement between Barbican Properties Inc. and Saville
Systems Canada, Ltd. dated July 19, 1995.
*10.21 -- Indenture between Orfus Investments and Saville Systems Canada,
Ltd. dated November 25, 1994.
*10.22 -- Lease between Clybaun Construction Limited, Saville Systems
Ireland Limited, Saville Systems Canada, Ltd. and Anglo Irish
Bank Corporation PLC, dated April 27, 1994.
*10.23 -- Deed between Saville Systems Ireland Limited and Clybaun
Construction Limited, dated April 27, 1994.
*10.24 -- Lease between Clybaun Construction Limited, Saville Systems
Ireland Limited and Remington Fox Ireland Limited, dated July 1,
1994.
*10.25 -- Promissory Note in the amount of $500,000 executed by Saville
Systems Canada, Ltd. in favor of 167818 Canada Ltd (now known as
Grannarville Interest Group Ltd.), dated August 2, 1994.
*10.26 -- Agreement between Saville Systems Ireland Limited, Saville
Systems Canada, Ltd. and Industrial Development Agency (Ireland),
dated June 9, 1995.
*10.27+ -- Intellectual Property Purchase Agreement between the Registrant
and Saville Systems Canada, Ltd., made as of July 1, 1993.
*10.28 -- Employment Letter Agreement between Saville Systems Ireland
Limited and Padraig W. Kenny, dated March 30, 1995.
*10.29 -- Employment Letter Agreement between Saville Systems U.S., Inc.
and Michael A. Shulist, dated February 21, 1995.
*10.30 -- Employment Letter Agreement between Saville Systems U.S., Inc.
and Marc J. Venator, dated March 22, 1995.
*10.31 -- Employment Letter Agreement between the Registrant and John J.
Kiley, dated October 17, 1995
**10.32 -- Letter Agreement between Saville Systems Canada, Ltd. and Ed Tel,
Inc., dated June 30, 1995.
**10.33 -- Sublease Agreement between Saville Systems U.S., Inc. and Boston
Private Bank & Trust Company, dated November 22, 1995.
**10.34 -- 1996 Employment Share Purchase Agreement.
10.35 -- Lease Agreement between Saville Systems Canada, Ltd. and Orfus
Investments, dated April 25, 1996.
10.36 -- Indemnity Agreement between the Registrant and Orfus Investments,
dated April 25, 1996.
11.1 -- Calculation of shares used in determining earnings per share.
*21.1 -- List of Subsidiaries.
***23.1 -- Consent of McCann Fitzgerald (included in Exhibits 5.1 and 8.1).
23.2 -- Consent of Hale and Dorr.
23.3 -- Consent of Ernst & Young.
24.1 -- Powers of Attorney (included on page II-7).
27.1 -- Financial Data Schedule.
</TABLE>
- --------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
and incorporated herein by reference (File No. 33-97576).
** Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.
***To be filed by amendment.
+ Confidential treatment previously granted as to certain portions, which
portions are omitted and filed separately with the Commission.
II-5
<PAGE>
(b) Financial Statement Schedules
The following financial statement schedule is filed as part of the
registration statement:
Schedule II Valuation of Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Memorandum and Articles
of Association of the Registrant and the laws of the Republic of Ireland, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement ADRs in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of
Burlington, Commonwealth of Massachusetts, on this 21st day of May, 1996.
Saville Systems PLC
/s/ John J. Boyle, III
By: _________________________________
JOHN J. BOYLE, IIIPRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Saville Systems PLC, hereby
severally constitute and appoint John J. Boyle, III, Marc J. Venator, Mark G.
Borden and Thomas L. Barrette, Jr., and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, to sign for
us and in our names in the capacities indicated below, this Registration
Statement, including any and all pre-effective and post-effective amendments to
said Registration Statement and any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John J. Boyle, III President, Chief May 21, 1996
- ------------------------------------- Executive Officer
JOHN J. BOYLE, III and Director
(Principal
Executive Officer)
/s/ Marc J. Venator Chief Financial May 21, 1996
- ------------------------------------- Officer (Principal
MARC J. VENATOR Financial and
Accounting Officer)
/s/ Bruce A. Saville Chairman of the May 21, 1996
- ------------------------------------- Board of Directors
BRUCE A. SAVILLE
/s/ John A. Blanchard, III Director May 21, 1996
- -------------------------------------
JOHN A. BLANCHARD, III
/s/ Brian E. Boyle Director May 21, 1996
- -------------------------------------
BRIAN E. BOYLE
II-7
<PAGE>
SIGNATURE TITLE DATE
Director May , 1996
- -------------------------------------
WILLIAM F. CUNNINGHAM
/s/ Richard A. Licursi Director May 21, 1996
- -------------------------------------
RICHARD A. LICURSI
/s/ Fergus McGovern Director May 21, 1996
- -------------------------------------
FERGUS MCGOVERN
/s/ David P. Mixer Director May 21, 1996
- -------------------------------------
DAVID P. MIXER
/s/ James B. Murray, Jr. Director May 21, 1996
- -------------------------------------
JAMES B. MURRAY, JR.
/s/ John W. Sidgmore Director May 21, 1996
- -------------------------------------
JOHN W. SIDGMORE
II-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Directors of Saville Systems PLC
We have audited the consolidated financial statements of Saville Systems PLC
as of December 31, 1995 and 1994 and for each of the years in the three year
period ended December 31, 1995, and have issued our report thereon dated
January 26, 1996 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young
Chartered Accountants
Galway, Ireland
January 26, 1996
<PAGE>
SCHEDULE II (VALUATION AND QUALIFYING ACCOUNTS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------
ADDITIONS DEDUCTIONS
BALANCE AT BALANCE AT
BEGINNING TO COSTS & CHARGED TO END OF
DESCRIPTION OF YEAR EXPENSES OTHER ACCOUNTS YEAR
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
Dec. 31, 1993 73 (73) nil
Dec. 31, 1994 nil nil
Dec. 31, 1995 nil 370 370
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
*2.1 -- Contribution Agreement between the Registrant and certain
shareholders of the Registrant, dated as of September 27,
1995.
*2.2 -- Stock Restriction and Contribution Agreement between Invoice
Systems (Canada), Inc. and the Registrant, dated as of
September 27, 1995.
*2.3 -- Contribution Agreement between the Registrant, 2916746
Canada, Inc. and Columbia Saville Ireland Investors, L.P.,
dated as of September 27, 1995.
*3.1 -- Memorandum of Association of the Registrant.
*3.2 -- Articles of Association of the Registrant.
*4.1 -- Specimen Certificate for Ordinary Shares, $0.0025 par value,
of the Registrant.
**4.2 -- Deposit Agreement among the Registrant, The Bank of New
York, as Depositary, and the holders from time to time of
American Depositary Shares issued thereunder (including as
an exhibit the form of American Depositary Receipt).
*4.3 -- Amended and Restated Saville Systems Agreement among the
Registrant, Saville Systems Canada, Ltd., and Saville
Systems U.S., Inc., and the Shareholders thereof, dated as
of August 2, 1994.
*4.4 -- Amendment No. 1 to Amended and Restated Saville Systems
Agreement among the Registrant, Saville Systems Canada,
Ltd., and Saville Systems, U.S., Inc., and the Shareholders
thereof, dated as of September 27, 1995.
**4.5 -- Waiver and Amendment No. 2 to Amended and Restated Saville
Systems Agreement among the Registrant, Saville Systems
Canada, Ltd. and Saville Systems U.S., Inc. and the
Shareholder thereof, dated as of November 8, 1995.
**4.6 -- Registration Rights Agreement among the Registrant and
certain shareholders thereof, dated as of November 8, 1995.
***5.1 -- Opinion of McCann FitzGerald as to the validity of the
Ordinary Shares.
***8.1 -- Opinion of McCann FitzGerald as to Irish tax matters.
*10.1+ -- Software Development and Support Agreement between the
Registrant and American Telephone and Telegraph Company,
dated as of January 1, 1994.
*10.2+ -- Software Development and Support Agreement between Invoice
Systems, Inc., B.A. Saville & Associates Limited and Unitel
Communications Inc., dated as of February 24, 1993.
*10.3 -- Letter Agreement between Invoice Systems, Inc., B.A. Saville
& Associates Limited and Unitel Communications Inc. dated
September 1, 1993.
*10.4+ -- Software License Agreement between Invoice Systems, Inc.,
B.A. Saville & Associates Limited and Unitel Communications
Inc., dated as of February 24, 1993.
*10.5+ -- Processing Services Contract between Saville Systems U.S.,
Inc. and Frontier Communications of Rochester Inc., dated as
of September 15, 1994.
*10.6 -- Master Services Agreement between Saville Systems U.S., Inc.
and Frontier Communications of Rochester Inc., dated as of
September 15, 1994.
*10.7+ -- Marketing and License Agreement between Saville Systems
Canada, Ltd. and Edmonton Telephones Corporation, effective
as of January 1, 1992 and dated as of February 14, 1994.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
*10.8 -- Letters from Saville Systems Canada, Ltd. to the Legal
Counsel and the Chief Financial Officer of Ed Tel, Inc.
dated June 30, 1995 renewing the Marketing and License
Agreement between Saville Systems Canada, Ltd. and Edmonton
Telephones Corporation.
*10.9+ -- Core Processing Agreement between Saville Systems Canada,
Ltd. and Ed Tel, Inc., dated as of February 14, 1994.
*10.10+ -- Agreement for Software System Development and Billing
Services between Saville Systems U.S., Inc., Saville Systems
Canada, Ltd. and Sprint Communications Company, L.P., dated
as of March 1, 1993.
*10.11 -- Software License Agreement between Saville Systems U.S.,
Inc., Saville Systems Canada, Ltd. and Sprint Communications
Company, L.P., dated as of March 1, 1993.
*10.12+ -- Agreement between Saville Systems U.S., Inc., Saville
Systems Canada, Ltd. and Sprint International Communications
Corporation, dated as of April 19, 1993.
*10.13+ -- Supply Agreement between the Registrant and Energis
Communications Limited, effective as of October 8, 1994 and
dated as of July 25, 1995.
*10.14 -- Guarantee and Assignment between Saville Systems Canada,
Ltd. and Energis Communications Limited, dated July 25,
1995.
*10.15 -- 1995 Share Option Plan.
*10.16 -- Amended and Restated Employment Agreement between the
Registrant and Bruce A. Saville, dated as of August 2, 1994.
*10.17 -- Employment Agreement between the Registrant and John J.
Boyle, III, dated as of July 8, 1994, amended as of January
31, 1995.
*10.18 -- Sublease between Evered Bardon USA, Inc. and Saville Systems
U.S., Inc., dated December 1, 1994.
*10.19 -- Lease Agreement between Barbican Properties Inc. and Saville
Systems Canada, Ltd. made as of May 1, 1995.
*10.20 -- Letter Agreement between Barbican Properties Inc. and
Saville Systems Canada, Ltd. dated July 19, 1995.
*10.21 -- Indenture between Orfus Investments and Saville Systems
Canada, Ltd. dated November 25, 1994.
*10.22 -- Lease between Clybaun Construction Limited, Saville Systems
Ireland Limited, Saville Systems Canada, Ltd. and Anglo
Irish Bank Corporation PLC, dated April 27, 1994.
*10.23 -- Deed between Saville Systems Ireland Limited and Clybaun
Construction Limited, dated April 27, 1994.
*10.24 -- Lease between Clybaun Construction Limited, Saville Systems
Ireland Limited and Remington Fox Ireland Limited, dated
July 1, 1994.
*10.25 -- Promissory Note in the amount of $500,000 executed by
Saville Systems Canada, Ltd. in favor of 167818 Canada Ltd
(now known as Grannarville Interest Group Ltd.), dated
August 2, 1994.
*10.26 -- Agreement between Saville Systems Ireland Limited and
Industrial Development Agency (Ireland), dated June 7, 1995.
*10.27+ -- Intellectual Property Purchase Agreement between the
Registrant and Saville Systems Canada, Ltd., made as of July
1, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
*10.28 -- Employment Letter Agreement between Saville Systems Ireland
Limited and Padraig W. Kenny, dated March 30, 1995.
*10.29 -- Employment Letter Agreement between Saville Systems U.S.,
Inc. and Michael A. Shulist, dated February 21, 1995.
*10.30 -- Employment Letter Agreement between Saville Systems U.S.,
Inc. and Marc J. Venator, dated March 22, 1995.
*10.31 -- Employment Letter Agreement between the Registrant and John
J. Kiley, dated October 17, 1995.
**10.32 -- Letter Agreement between Saville Systems Canada, Ltd. and
Ed Tel, Inc., dated June 30, 1995.
**10.33 -- Sublease Agreement between Saville Systems U.S., Inc. and
Boston Private Bank & Trust Company, dated November 22,
1995.
**10.34 -- 1996 Employee Share Purchase Agreement.
10.35 -- Lease Agreement between Saville Systems Canada, Ltd. and
Orfus Investments, dated April 25, 1996.
10.36 -- Indemnity Agreement between the Registrant and Orfus
Investments, dated April 25, 1996.
11.1 -- Calculation of shares used in determining earnings per
share.
*21.1 -- List of Subsidiaries.
***23.1 -- Consent of McCann Fitzgerald (included in Exhibits 5.1 and
8.1).
23.2 -- Consent of Hale and Dorr.
23.3 -- Consent of Ernst & Young.
24.1 -- Powers of Attorney (included on page II-7).
27.1 -- Financial Data Schedule.
</TABLE>
- --------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
and incorporated herein by reference (File No. 33-97576).
** Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.
***To be filed by amendment.
+ Confidential treatment previously granted as to certain portions, which
portions are omitted and filed separately with the Commission.
<PAGE>
Draft 5/17/96
-------------
3,100,000 AMERICAN DEPOSITARY SHARES
REPRESENTING ORDINARY SHARES
(par value $.0025 per share)
SAVILLE SYSTEMS PLC
UNDERWRITING AGREEMENT
----------------------
June ____, 1996
Alex. Brown & Sons Incorporated
HAMBRECHT & QUIST, LLC
Montgomery Securities
Furman Selz LLC
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Saville Systems PLC, a public limited company incorporated under the laws
of the Republic of Ireland (the "Company") and certain shareholders of the
Company (the "Selling Shareholders") named in Schedule II hereto, propose to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 3,100,000 American depositary shares (the "Firm American Depositary Shares")
representing 3,100,000 ordinary shares of par value $.0025 each of the Company
(the "Firm Shares"), to be deposited pursuant to the Deposit Agreement
hereinafter referred to. Of the 3,100,000 Firm American Depositary Shares to be
sold to the Underwriters, 100,000 Firm American Depositary Shares will be sold
by the Company and 3,000,000 Firm American Depositary Shares will be sold by the
Selling Shareholders. The respective amounts of the Firm American Depositary
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto, and the respective amounts to be sold by the
Selling Shareholders are set forth opposite their names in Schedule II hereto.
The Company and the Selling Shareholders are sometimes referred to herein
collectively as the "Sellers." Invoice
<PAGE>
-2-
Systems (Canada), Inc. ("Invoice Systems"), Columbia Saville Ireland Investors
L.P. and Columbia Capital Corporation are sometimes referred to herein
collectively as the "Principal Shareholders." The Selling Shareholders also
propose to sell at the Underwriters' option an aggregate of up to 465,000
additional American Depositary Shares (the "Option American Depositary Shares")
representing an additional 465,000 ordinary shares, par value $.0025 per share
of the Company (the "Option Shares") to be deposited pursuant to the Deposit
Agreement if and to the extent that you shall have determined to exercise the
right to exercise such option as set forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm American
Depositary Shares set forth opposite their respective names in Schedule I, plus
their pro rata portion of the Option American Depositary Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
several Underwriters. The Firm American Depositary Shares and the Option
American Depositary Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "ADSs," and the Firm Shares and
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares." The ADSs will be evidenced by American
Depositary Receipts (the "ADRs") issuable in accordance with a Deposit Agreement
dated as of November 15, 1995 among the Company, The Bank of New York, as
Depositary (the "Depositary"), and all owners and beneficial owners from time to
time of the ADSs (the "Deposit Agreement"). Unless the context otherwise
requires, references herein to the ADSs shall include the ADRs evidencing the
ADSs. The ordinary shares, par value $.0025 per share, of the Company
outstanding at any time, including any Shares, are herein collectively called
the "Ordinary Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
-------------------------------------------------------------
SHAREHOLDERS.
- ---------------
(a) The Company and the Principal Shareholders represent and warrant to
each of the Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-______) with
respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission
under the Act. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the
requirements of the Rules and Regulations) contained therein and
the exhibits, financial statements and schedules, as amended and
revised through the date hereof, have heretofore
<PAGE>
-3-
been delivered by the Company to you and, to the extent applicable,
were identical to the electronically transmitted copies thereof
filed with the Commission pursuant to the Commission's Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR"), except to
the extent permitted by Regulation S-T. Such registration statement
on Form S-1 with respect to the Shares, together with any
registration statement filed by the Company pursuant to Rule 462(b)
under the Act, herein referred to as the "Registration Statement,"
which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred
to below, has become effective under the Act, and no post-effective
amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of
prospectus first filed by the Company with the Commission pursuant
to its Rule 424(b) or (b) the term sheet or abbreviated term sheet
filed by the Company with the Commission pursuant to Rule 424(b)(7)
together with the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective
or filed pursuant to Rule 424(a) under the Act that is delivered by
the Company to the Underwriters for delivery to purchasers of the
ADSs. Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective or filed pursuant
to Rule 424(a) under the Act is herein referred to as a
"Preliminary Prospectus." For purposes of this Agreement, all
references to the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement to any
of the foregoing, shall be deemed to include the respective copies
thereof filed with the Commission pursuant to EDGAR.
(ii) A post-effective amendment to the Company's registration statement
on Form F-6 (File No. 33-98664) with respect to the ADRs and the
ADSs has been carefully prepared by the Company in conformity with
the requirements of the Act and the Rules and Regulations and has
been filed with the Commission under the Act. The Company has
complied with the conditions for the use of Form F-6. Copies of
such registration statement, including any amendments thereto, the
prospectus (meeting the requirements of the Rules and Regulations)
contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been
delivered by the Company to you and, to the extent applicable, were
identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T. The registration statement on Form F-6
with respect to the ADRs and the ADSs, as amended at the time when
it becomes effective as to the aforementioned post-effective
amendment, is herein referred to as the "ADR Registration
Statement" and shall be deemed to include the copies thereof filed
with the Commission pursuant to EDGAR applicable, to the extent
applicable.
(iii) The Company has been duly organized and is validly existing as a
public limited company in good standing under the laws of the
Republic of Ireland, with corporate power and authority to own or
lease its properties and conduct its
<PAGE>
-4-
business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit 21.1 to Item 16(a)
of the Registration Statement (collectively, the "Subsidiaries")
has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease
its properties and conduct its business as described in the
Registration Statement. The Subsidiaries are the only subsidiaries,
direct or indirect, of the Company. The Company and each of the
Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification except where the failure to be so qualified could not
present a material risk to the business property, financial
position or operations of the Company or any Subsidiary. The
outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company free and clear of all
liens, charges, encumbrances, security interests, restrictions and
claims except for (i) 1,500 shares (the "Canadian Excluded Shares")
of the capital stock of Saville Systems Canada, Ltd., a corporation
organized under the laws of Canada ("Saville Canada"), and (ii)
131.25 shares (the "U.S. Excluded Shares") of the capital stock of
Saville Systems U.S., Inc., a corporation organized under the laws
of the State of Delaware ("Saville US"), owned by Invoice Systems,
which shares are subject to restrictions in favor of the Company
pursuant to an agreement dated as of September 26, 1995, between
the Company and Invoice Systems (the "Stock Restriction
Agreement"), such Canadian Excluded Shares and U.S. Excluded Shares
to be hereinafter collectively referred to as "Excluded Shares";
and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in
the Subsidiaries are outstanding.
(iv) The Ordinary Shares outstanding prior to the issuance of the Shares
underlying the ADSs to be sold by the Company hereunder have been
duly authorized and are validly issued, fully paid and not subject
to any call.
(v) The Company has consummated a restructuring (the "Restructuring")
pursuant to various capital contribution and related agreements
dated as of September 27, 1995 by and among the Company and each of
the stockholders and other securityholders of the Subsidiaries.
Pursuant to a Contribution Agreement dated as of September 27, 1995
between the Company and 2916746 Canada, Inc. and Columbia Saville
Ireland Investors, L.P., the Company has acquired full right and
title to all of the outstanding shares of 2916746 Canada, Inc. As a
result of the Restructuring, the Company has acquired all the
outstanding shares of each of its Subsidiaries, other than the
Excluded Shares. The outstanding options to purchase shares of
capital stock of Saville Canada and Saville US prior to the
Restructuring have been terminated and are no longer of any force
and effect. The Restructuring has been duly and validly authorized
by all necessary corporate action on the part of each of Saville
Canada, Saville US and the Company
<PAGE>
-5-
pursuant to the provisions of the applicable Memorandum or Articles
of Association or the organizational documents of each such
corporation and applicable law; and all necessary consents and
approvals to the Restructuring and transfer, if any, of the
outstanding share capital of Saville Canada and Saville US to the
Company pursuant to the Restructuring have been obtained. The
Restructuring and the consummation of the transactions thereby
contemplated have not and will not (i) violate any provision of the
Memorandum or Articles of Association or the charter and by-laws of
the Company, Saville Canada and Saville US, (ii) conflict with,
result in the breach or violation of, or constitute, either by
itself or upon notice or passage of time, or both, a default under
any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company, Saville
Canada or Saville US, is or was, as the case may be, a party or by
which the Company, Saville Canada or Saville US, or any of their
respective properties, may be or may have been, as the case may be,
bound or affected, or (iii) conflict with or violate any statute or
any authorization, judgment, decree, order, rule or regulation of
any court or any regulatory body, administrative agency or other
governmental body applicable to the Company, Saville Canada or
Saville US, or any of their respective properties, in any such case
in a manner which would have a material adverse effect on the
Company and its Subsidiaries taken as a whole. All of the shares of
Saville Canada or Saville US were issued in compliance with all
registration and qualification provisions of applicable securities
laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase
securities.
(vi) The Company has full legal right, power and authority to enter into
the Stock Restriction Agreement and perform its obligations
thereunder. The Stock Restriction Agreement has been duly
authorized, executed and delivered by each of the Company and
Invoice Systems and constitutes the valid and binding obligations
of each of the Company and Invoice Systems, enforceable in
accordance with its terms.
(vii) The Shares underlying the ADSs to be sold by the Company hereunder
have been duly authorized and when issued and deposited under the
Deposit Agreement in accordance with the terms of this Agreement
will be validly issued, fully paid and not subject to any call. The
Shares underlying the ADSs to be sold by the Selling Shareholders
hereunder have been duly authorized and when deposited under the
Deposit Agreement in accordance with the terms of this Agreement
will be fully paid and not subject to any call other than those
which have been waived or satisfied. The issuance of such Shares,
and the offering, sale and issuance of the ADSs and the ADRs will
not be subject to any preemptive or similar rights other than those
which have been waived or satisfied. Neither the filing of the
Registration Statement, the post-effective amendment to the ADR
Registration Statement, nor the offering and sale of the ADSs as
contemplated by this Agreement and the Deposit Agreement gives rise
to any rights, other than those
<PAGE>
-6-
which have been waived or satisfied, for or relating to the
registration of any Ordinary Shares or other capital stock of the
Company.
(viii) Upon the deposit of the Shares underlying the ADSs to be sold by
the Sellers hereunder with the Depositary pursuant to the Deposit
Agreement against issuance of the ADRs representing such ADSs, all
right, title and interest in such Shares, subject to the Deposit
Agreement, will be transferred to the Depositary or its nominee, as
the case may be, free and clear of all liens, charges,
encumbrances, security interests, restrictions, and claims; upon
the due issuance by the Depositary of ADRs evidencing ADSs against
the deposit of the Shares in accordance with the provisions of the
Deposit Agreement, such ADRs will be duly and validly issued and
persons in whose names such ADRs are registered will be entitled to
the rights of registered holders of ADRs specified therein and in
the Deposit Agreement.
(ix) The issuance and deposit with the Depositary of the Shares
underlying the ADSs to be sold by the Sellers hereunder against
issuance of the ADRs evidencing such ADSs, the sale and delivery of
such ADSs and the execution and delivery by the Sellers of, and the
performance by the Sellers of their obligations under, this
Agreement and the Deposit Agreement will not contravene any
provision that is material to the Company and its Subsidiaries
taken as a whole, of the federal laws of the United States, the
federal or provincial laws of Canada, or the laws of the Republic
of Ireland or the Memorandum or Articles of Association of the
Company, the charter and by-laws of the Subsidiaries or any
agreement or other instrument binding upon the Company or any of
its Subsidiaries that is material to the Company and its
Subsidiaries taken as a whole or any judgment, or decree of any
governmental body, agency or court having jurisdiction over the
Company or any of its Subsidiaries, and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Sellers of
their obligations under this Agreement and the Deposit Agreement
except such as may be required by the securities or Blue Sky laws
of the various states within the U.S. in connection with the offer
and sale of the ADSs.
(x) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. The Shares, the ADSs, and the ADRs
conform in all material respects as to legal matters to the
descriptions thereof contained in the Registration Statement and
the ADR Registration Statement.
(xi) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus or Prospectus relating to the
proposed offering of the ADSs nor instituted proceedings for that
purpose. Each Preliminary Prospectus at the time of filing thereof
did not contain any untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in
which they were made, not
<PAGE>
-7-
misleading; provided, however, that the Company and the Selling
Shareholders make no representations or warranties as to
information contained in or omitted from any Preliminary Prospectus
in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through
the Representatives, specifically for use in the preparation
thereof. The Registration Statement and the ADR Registration
Statement contain and the Prospectus and any amendments or
supplements thereto contain all statements which are required to be
stated therein by, and in all respects conformed or will conform,
as the case may be, to the requirements of, the Act and the Rules
and Regulations. Neither the Registration Statement, the ADR
Registration Statement, nor any amendment thereto contains or will
contain, as the case may be, any untrue statement of a material
fact or omits or will omit to state any material fact required to
be stated therein or necessary to make the statements therein, not
misleading and neither the Prospectus nor any amendment or
supplement thereto contains or will contain, as the case may be,
any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that
the Company and the Selling Shareholders make no representations or
warranties as to information contained in or omitted from the
Registration Statement, the ADR Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(xii) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set
forth in the Registration Statement, present fairly the financial
position and the results of operations and cash flows of the
Company and the Subsidiaries consolidated, at the indicated dates
and for the indicated periods. Such financial statements have been
prepared in accordance with U.S. generally accepted accounting
principles consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results
for such periods have been made. The amounts reserved in such
financial statements for the payment of future U.S. federal,
Canadian or Irish or other income taxes are adequate. The summary
financial and statistical data included in the Registration
Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements
presented therein. The pro forma financial information included in
the Registration Statement and the Prospectus have been prepared in
accordance with the Commission's rules and guidelines with respect
to such pro forma financial information, have been properly
compiled on the pro forma bases described therein, and, in the
reasonable opinion of the Company, except to the extent otherwise
required to comply with the Commission's rules and guidelines with
respect to pro forma financial information, the assumptions used in
the
<PAGE>
-8-
preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein.
(xiii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of
the Subsidiaries before any court or administrative agency or
otherwise which might reasonably be expected to result in any
material adverse change in the business, properties, assets,
rights, operations, condition (financial or otherwise) or prospects
of the Company and of the Subsidiaries taken as a whole or to
prevent the consummation of the transactions contemplated hereby.
(xiv) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge,
charge, security interest or encumbrance of any kind except those
reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. The
Company and the Subsidiaries occupy their leased properties under
valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
(xv) The Company and the Subsidiaries have filed all U.S. federal, state
and foreign income and franchise tax returns which are required to
have been filed through the date hereof and have paid all taxes
indicated by said returns and all assessments received by them or
any of them to the extent that such taxes have become due.
(xvi) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not
been any material transaction entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course of
business and changes and transactions contemplated by the
Registration Statement, as it may be amended or supplemented. The
Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Registration Statement,
as it may be amended or supplemented.
(xvii) Neither the Company nor any of the Subsidiaries is, nor do there
exist facts or circumstances that, with the giving of notice or the
passage of time or both, would cause the Company or any of the
Subsidiaries to be, in violation of or in default under the
Memorandum or Articles of Association or other organizational
documents of the Company and the Subsidiaries or under any
agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by
<PAGE>
-9-
which it, or any of its properties, is bound and which default is
of material significance in respect of the business or financial
condition of the Company and the Subsidiaries taken as a whole. The
consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in
a breach of any of the terms or provisions of, or constitute a
default under any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a
party that is material to the Company and the Subsidiaries taken as
a whole, or of the Memorandum or Articles of Association or other
organizational documents of the Company or any Subsidiary or any
order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction.
(xviii) The Company has full legal right, power and authority to enter into
this Agreement and the Deposit Agreement and perform the
transactions contemplated hereby. This Agreement and the Deposit
Agreement have been duly authorized, executed and delivered by the
Company and constitute valid and binding obligations of the Company
in accordance with their terms, except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors
rights generally or by general equitable principles.
(xix) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution
and delivery by the Company of this Agreement and the Deposit
Agreement and the consummation of the transactions contemplated by
such agreements (except such additional steps as may be required by
the National Association of Securities Dealers, Inc. (the "NASD")
or except as may be necessary to qualify the ADSs for public
offering by the Underwriters under U.S. state securities or Blue
Sky laws) has been obtained or made and is in full force and
effect.
(xx) The Company and each of the Subsidiaries holds all material
licenses, certificates and permits from governmental authorities
which are necessary to the conduct of their businesses.
(xxi) The Company and the Subsidiaries have the right to use all
trademarks, trade names, trade secrets, servicemarks, inventions,
patent rights, mask works, copyrights, licenses, software code,
audiovisual works, formats, algorithms and underlying data,
approvals and governmental authorizations now used in, or which are
necessary for fulfillment of their respective obligations or the
conduct of their respective businesses as now conducted or proposed
to be conducted as described in the Prospectus; the expiration of
any trademarks, trade names, trade secrets, servicemarks,
inventions, patent rights, mask works, copyrights, licenses,
approvals or governmental authorizations would not have a material
adverse
<PAGE>
-10-
effect on the condition (financial or otherwise), business, results
of operations or prospects of the Company and the Subsidiaries
taken together; and the Company has no knowledge of any
infringement by it or by any Subsidiary of trademark, trade name
rights, patent rights, mask works, copyrights, licenses, trade
secret, servicemarks or other similar rights of others, and there
is no claim being made against the Company or any Subsidiary
regarding trademark, trade name, patent, mask work, copyright,
license, trade secret or other infringement or assertion of
intellectual property rights would could have a material adverse
effect on the condition (financial or otherwise), business, results
of operations or prospects of the Company and the Subsidiaries,
taken together. To the Company's knowledge, no person or entity has
infringed any of the Company's or any Subsidiary's patents, patent
rights, trade names, trademarks or copyrights, which infringement
is material to the business of the Company and the Subsidiaries
taken as a whole.
(xxii) Ernst & Young, who have certified certain of the financial
statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
(xxiii) Neither the Company nor, to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization
or manipulation of the price of the ADSs or the Ordinary Shares to
facilitate the sale or resale of the ADSs. The Company acknowledges
that the Underwriters may engage in passive market making
transactions in the ADSs on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(xxiv) Neither the Company, nor any of its Subsidiaries is, nor upon
consummation of the transactions contemplated hereby and the
application of the proceeds as described in the Registration
Statement under "Use of Proceeds" shall be, subject to registration
as an "investment company" under the Investment Company Act of
1940, as amended.
(xxv) The Ordinary Shares are registered pursuant to Section 12(g) of the
Exchange Act and the ADSs have been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, and
the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Ordinary Shares
under the Exchange Act, nor has the Company received any
notification that the Commission is contemplating terminating such
registration.
(xxvi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets;
<PAGE>
-11-
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxvii) The Company and each of its Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate
for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies
engaged in similar industries.
(xxviii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of doing Business
-----------------------------------------------
with Cuba, and the Company further agrees that if it or any
---------
Subsidiary commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective
with the Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or
with any person or affiliate in Cuba changes in any material way,
the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(xxix) Neither the Company nor any of its Subsidiaries is involved in any
labor dispute, nor, to the knowledge of the Company, is any such
dispute threatened, other than individual employee grievances in
the ordinary course of business.
(xxx) The Company and the Subsidiaries have not incurred any liability
for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the
transactions contemplated by this Agreement and the Deposit
Agreement other than as contemplated hereby and thereby.
(xxxi) All material transactions during the Company's current or last
three fiscal years between the Company, the Subsidiaries and the
officers, directors and 5% shareholders of the Company have been
accurately disclosed in the Prospectus to the extent required by
the Rules and Regulations; and the terms of each such transaction
are in all material respects fair to the Company and the
Subsidiaries and no less favorable to the Company and the
Subsidiaries than the terms that could have been obtained from
unrelated parties.
(xxxii) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the
Company's officers, directors or 5% or greater securityholders,
except as set forth in the Registration Statement or as otherwise
disclosed in writing to the Representatives.
<PAGE>
-12-
(xxxiii) The Company is not, and upon the consummation of the transactions
contemplated hereby and the application of the proceeds as described
in the Registration Statement under the caption "Use of Proceeds" will
not become, a "passive foreign investment company" ("PFIC") as defined
in Section 1296 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Company is not a "controlled foreign corporation" as
defined in Section 957 of the Code. The Company will use its best
efforts, including but not limited to complying with the guidelines
set forth in Schedule A attached hereto and executing the forms of
----------
letter set forth in Exhibit A attached hereto, to ensure that it will
---------
not become a PFIC or, if it becomes a PFIC, to comply with the
reporting and other requirements of Subparts A, B and C of Part VI of
Subchapter P of the Code.
(b) Each of the Selling Shareholders severally represents and warrants as
follows:
(i) Such Selling Shareholder has as of the date of this Agreement and at
the Closing Date and the Option Closing Date, as the case may be (as
such dates are hereinafter defined), will have good and valid title to
the Shares deposited by it with the Depositary hereunder, free of any
liens, charges, encumbrances, security interests, restrictions and
claims and full right, power and authority to effect such deposit and
the sale and delivery of the ADSs representing such Shares; and upon
the sale and delivery of the ADSs to be sold by such Selling
Shareholder hereunder, good and valid title thereto, free of any
liens, charges, encumbrances, security interests, restrictions and
claims, subject to the Deposit Agreement, will be transferred to the
several Underwriters.
(ii) Such Selling Shareholder has full right, power and authority to
execute and deliver this Agreement, and the Power of Attorney and
Custody Agreement referred to below and to perform such Selling
Shareholder's obligations under such documents. The execution and
delivery of this Agreement, the Power of Attorney and the Custody
Agreement, the consummation by such Selling Shareholder of the
transactions herein and therein contemplated and the fulfillment by
such Selling Shareholder of the terms hereof and thereof will not
require any consent, approval, authorization or order of or
declaration or filing with any court, regulatory body, administrative
agency or other governmental body (except as may be required under the
Act or U.S. state securities laws or Blue Sky laws) and will not
result in a breach of any of the terms and provisions of, or
constitute a default under, the organizational documents of such
Selling Shareholder, if not an individual, or any indenture, mortgage,
deed of trust or other agreement or instrument to which such Selling
Shareholder is a party, or of any order, rule or regulation applicable
to such Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be
<PAGE>
-13-
expected to cause or result in stabilization or manipulation of the
price of the ADSs or the Ordinary Shares to facilitate the sale or
resale of the ADSs.
(iv) Without having undertaken to determine independently the accuracy or
completeness of either the representations and warranties of the
Company contained herein or the information contained in the
Registration Statement, each Selling Shareholder other than the
Principal Shareholders has no reason to believe that the
representations and warranties of the Company contained in this
Section 1 are not true and correct, is familiar with the Registration
Statement and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement which has
adversely affected or may adversely affect the business of the Company
or the Subsidiaries; and the sale of the Firm Shares and Option Shares
by such Selling Shareholder pursuant hereto is not prompted by any
information concerning the Company or the Subsidiaries which is not
set forth in the Registration Statement. The information pertaining to
such Selling Shareholder under the caption "Principal and Selling
Shareholders" in the Prospectus is complete and accurate in all
material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM AMERICAN DEPOSITARY SHARES.
-------------------------------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $ per American Depositary Share, the number of
-----
Firm American Depositary Shares set forth opposite the name of each Underwriter
in Schedule I hereof, subject to adjustments in accordance with Section 9
hereof. The number of Firm American Depositary Shares to be purchased by each
Underwriter from each Seller shall be as nearly as practicable in the same
proportion to the total number of Firm American Depositary Shares being sold by
each Seller as the number of Firm American Depositary Shares being purchased by
each Underwriter bears to the total number of Firm American Depositary Shares to
be sold hereunder. The obligations of the Company and of each of the Selling
Shareholders shall be several and not joint.
ADRs in negotiable form representing the total number of ADSs (with stock
transfer forms executed in blank) to be sold hereunder by the Selling
Shareholders have been placed in custody with the Company or its agent as
custodian (the "Custodian") pursuant to the Custody Agreement and Power of
Attorney executed by each Selling Shareholder for delivery of all Firm American
Depositary Shares and any Option American Depositary Shares to be sold hereunder
by the Selling Shareholders. Each of the Selling Shareholders specifically
agrees that the Firm American Depositary Shares and any Option American
Depositary Shares represented by the certificates held in custody for the
Selling Shareholders under the Custody Agreement and Power of Attorney are
subject to the interests of the Underwriters hereunder, that the arrangements
made by the Selling Shareholders for such custody are to that extent
irrevocable, and that the obligations of the Selling Shareholders hereunder
shall not be terminable by any act or deed of the Selling Shareholders (or by
any other person, firm or corporation including the Company, the
<PAGE>
-14-
Custodian or the Underwriters) or by operation of law (including the death of an
individual Selling Shareholder or the dissolution of a Selling Shareholder that
is not an individual) or by the occurrence of any other event or events, except
as set forth in the Custody Agreement and Power of Attorney. If any such event
should occur prior to the issuance and delivery of the ADRs evidencing the ADSs
to the Underwriters hereunder, ADRs evidencing the Firm American Depositary
Shares or the Option American Depositary Shares, as the case may be, shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such event had not occurred. The Custodian is authorized to
receive and acknowledge receipt of the proceeds of sale of the ADSs held by it
against delivery of ADRs representing such ADSs.
The Company and each Selling Shareholder, as the case may be, shall pay any
transfer or other taxes in connection with the sale and delivery of ADSs by the
Company or such Selling Shareholder, as the case may be, as contemplated by this
Agreement, including, without limitation, any Republic of Ireland stamp duty and
any Republic of Ireland income, capital gains, withholding, transfer or other
tax, including any indirect tax, incident to the deposit of the Shares pursuant
to the Deposit Agreement, the creation by the Depositary of the ADSs, the issue
by the Depositary of the ADSs, the delivery to the Company or the Selling
Shareholders, as the case may be, of the ADSs against receipt of the Shares by
the Depositary, the issue or delivery by the Company or the Selling Shareholder,
as the case may be, of the ADSs to the Underwriters and the sale and delivery of
the ADSs by the Underwriters to the initial purchasers thereof.
(b) Payment for the Firm American Depositary Shares to be sold hereunder
is to be made in New York Clearing House funds by certified or bank cashier's
checks drawn to the order of the Company for the shares to be sold by it and to
the order of the Custodian for the shares to be sold by the Selling
Shareholders, in each case against delivery of ADRs therefor to the
Representatives for the several accounts of the Underwriters. Such payment and
delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on
the third business day after the date of this Agreement, unless otherwise
required by the Commission pursuant to Rule 15c6-1 of the Exchange Act, or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.) The
ADRs evidencing the Firm American Depositary Shares will be delivered in such
denominations and in such registrations as the Representatives request in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection if requested by the Representatives at
least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Selling
Shareholders listed on Schedule III hereto hereby grant an option to the several
Underwriters to purchase the Option American Depositary Shares at the price per
ADSs as set forth in the first paragraph of this Section 2. The option granted
hereby may be exercised once, in whole or in part, at any time upon written
notice given within 30 days after the date of this Agreement, by you, as
<PAGE>
-15-
Representatives of the several Underwriters, to the Company and the Custodian
setting forth the number of Option American Depositary Shares as to which the
several Underwriters are exercising the option, the names and denominations in
which the ADRs evidencing the Option American Depositary Shares are to be
registered and the time and date at which such ADRs are to be delivered. If the
option granted hereby is exercised in part, the respective number of Option
American Depositary Shares to be sold by each of the Selling Shareholders listed
in Schedule III hereto shall be determined on a pro rata basis in accordance
with the percentages set forth opposite the names on Schedule III hereto
adjusted by you in such manner as to avoid fractional shares. The time and date
at which ADRs evidencing Option American Depositary Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option American Depositary Shares
to be purchased by each Underwriter shall be in the same proportion to the total
number of Option American Depositary Shares being purchased as the number of
Firm American Depositary Shares being purchased by such Underwriter bears to
, adjusted by you in such manner as to avoid fractional shares. The
- ----------
option with respect to the Option American Depositary Shares granted hereunder
may be exercised only to cover over-allotments in the sale of the Firm American
Depositary Shares by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Custodian. To the extent, if
any, that the option is exercised, payment for the Option American Depositary
Shares shall be made on the Option Closing Date in New York Clearing House funds
by certified or bank cashier's check drawn to the order of the Custodian against
delivery of ADRs therefor at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS. It is understood that the several
-----------------------------
Underwriters are to make a public offering of the Firm American Depositary
Shares as soon as the Representatives deem it advisable to do so. The Firm
American Depositary Shares are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The Representatives
may from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option American Depositary
Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer
them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the ADSs in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
------------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters that:
<PAGE>
-16-
(i) The Company will (A) if the procedure in Rule 430A of the Rules and
Regulations is followed, prepare and timely file with the Commission
under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, (B) not file any
amendment to the Registration Statement, the ADR Registration
Statement, or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished
with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations and (C) file on a timely basis all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission subsequent to the date of the Prospectus
and prior to the termination of the offering of the ADSs by the
Underwriters. To the extent applicable, the copies of the Registration
Statement and each amendment thereto (including all exhibits filed
therewith), any Preliminary Prospectus or Prospectus (in each case, as
amended or supplemented) furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) The Company will advise the Representatives promptly (A) when any
post-effective amendment thereto shall have become effective, (B) of
the receipt of any comments from the Commission, (C) of any request of
the Commission for amendment of the Registration Statement, the ADR
Registration Statement, or for supplement to the Prospectus or for any
additional information, and (D) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the ADR Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any
such stop order preventing or suspending the use of the Prospectus and
to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in endeavoring to
qualify the ADSs for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that
purpose, provided the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction where it is not now so qualified or required to
file such a consent. The Company will, from time to time, prepare and
file such statements, reports, and other documents, as are or may be
required to continue such qualifications in effect for so long a
period as the Representatives may reasonably request for distribution
of the ADSs.
<PAGE>
-17-
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as
many copies of the Prospectus in final form, or as thereafter amended
or supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, five signed copies of the Registration Statement and the ADR
Registration Statement and all amendments thereto including all
exhibits filed therewith, and will deliver to the Representatives such
number of copies of the Registration Statement and the ADR
Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply to the best of its ability with the Act and
the Rules and Regulations, and the Exchange Act, and the rules and
regulations of the Commission thereunder, so as to permit the
completion of the distribution of the ADSs as contemplated in this
Agreement and the Prospectus. If during the period in which a
prospectus is required by law to be delivered by an Underwriter or
dealer any event shall occur as a result of which, in the judgment of
the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission an appropriate amendment to the
Registration Statement or the ADR Registration Statement or supplement
to the Prospectus so that the Prospectus as so amended or supplemented
will not, in the light of the circumstances when it is so delivered,
be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15
months after the effective date of the Registration Statement and the
ADR Registration Statement, an earning statement (which need not be
audited) in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement and the ADR Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of
all other documents, reports and information furnished by the Company
to its stockholders or filed with any securities exchange or the
Nasdaq National Market pursuant to the
<PAGE>
-18-
requirements of such exchange or the Nasdaq National Market or with
the Commission pursuant to the Act or the Exchange Act. The Company
will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements. To the extent applicable, such reports or documents shall
be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(viii) No offering, sale, short sale or other disposition of any Ordinary
Shares or ADSs or any other capital stock of the Company or other
securities convertible into or exchangeable or exercisable for
Ordinary Shares or ADSs will be made until 90 days after the effective
date of the Registration Statement (the "Lock-Up Period") directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of Alex. Brown & Sons Incorporated, except that the
Company may, without such consent, issue up to Ordinary
----------
Shares (A) upon the exercise of options outstanding on the date of
this Agreement and grant options pursuant to the 1995 Share Option
Plan (the "1995 Share Plan") and (B) pursuant to the Employee Share
Purchase Plan. The Company will not issue any options or other
purchase rights to acquire Shares which will become exercisable within
the Lock-Up Period without the prior written consent of Alex. Brown &
Sons Incorporated.
(ix) The Company will use its best efforts to list, subject to notice of
issuance, the ADSs on the Nasdaq National Market.
(x) The Company shall cause each executive officer and director and
Selling Shareholder to furnish to you, on or prior to the date of this
Agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not
to offer, sell, sell short or otherwise dispose of any Ordinary Shares
or ADSs of the Company or other capital stock of the Company, or any
other securities convertible into, exchangeable or exercisable for
Ordinary Shares or ADSs owned by such person (or as to which such
person has the right to direct the disposition of) during the Lock-Up
Period, except with the prior written consent of Alex. Brown & Sons
Incorporated.
(xi) The Company shall apply the net proceeds of the sale of the ADSs
hereunder as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the ADSs and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds received
by the Company from the sale of the shares to the Underwriters in such
a manner as would require the Company or any of the Subsidiaries to
register as an investment
<PAGE>
-19-
company under the Investment Company Act of 1940, as amended (the
"1940 Act").
(xiii) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company or if required for the
Nasdaq National Market designation, a registrar for its Ordinary
Shares and ADSs.
(xiv) The Company will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price
of any securities of the Company to facilitate the sale or resale of
Ordinary Shares or the ADSs.
(xv) The Company will use its best efforts, including but not limited to
complying with the guidelines set forth in Exhibit A attached hereto,
---------
to ensure that it will not become a PFIC or, if it becomes a PFIC, to
comply with the reporting and other requirement of Subparts A, B and C
of Part VI of Subchapter P of the Code.
(b) Each of the Selling Shareholders covenants and agrees with the several
Underwriters that:
(i) No offering, sale or other disposition of any Ordinary Shares or ADSs
or any other capital stock of the Company, including any right,
convertible, exchangeable or exercisable into Ordinary Shares or ADSs,
will be made during the Lock-Up Period, directly or indirectly, by
such Selling Shareholder otherwise than hereunder or with the prior
written consent of Alex. Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983
with respect to the transactions herein contemplated, each of the
Selling Shareholders agrees to deliver to you prior to or at the
Closing Date a properly completed and executed U.S. Treasury
Department Form W-8 or W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
(iii) Such Selling Shareholder will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES. The Company will pay all costs, expenses and fees
-------------------
incident to the performance of the obligations of the Sellers under this
Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of counsel
for the Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, the ADR Registration
<PAGE>
-20-
Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the
Agreement Among Underwriters, the Underwriters' internal Selling Memorandum, the
Underwriters' Questionnaire, the Invitation Letter, the Deposit Agreement, the
Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and expenses, including the fees and
disbursements of counsel for the Underwriters, incident to securing any required
review by the National Association of Securities Dealers, Inc. (the "NASD") of
the terms of the sale of the ADSs; the Listing Fee of the Nasdaq National
Market; and the filing fees and expenses, including the fees and disbursements
of counsel for the Underwriters, incurred in connection with the qualification
of the Shares and the ADSs under U.S. state securities or Blue Sky laws and the
qualification of the Shares and the ADSs under the federal or provincial laws of
Canada. To the extent, if at all, that any of the Selling Shareholders engage
special legal counsel to represent them in connection with this offering, the
fees and expenses of such counsel shall be borne by such Selling Shareholder.
Any transfer taxes (including, without limitation, Republic of Ireland stamp
duty) imposed on the sale of the ADSs to the several Underwriters will be paid
by the Sellers pro rata. The Company shall not, however, be required to pay for
any of the Underwriters' expenses (other than those related to qualification
under U.S. state securities or Blue Sky laws or qualification under the federal
or provincial laws of Canada, and those incident to securing any required review
by the NASD) except that, if this Agreement shall not be consummated because the
conditions in Section 6 hereof are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 11 hereof, or by reason of
any failure, refusal or inability on the part of the Company or any of the
Selling Shareholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the ADSs or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the ADSs.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several obligations
----------------------------------------------
of the Underwriters to purchase the Firm American Depositary Shares representing
the Firm Shares on the Closing Date and the Option American Depositary Shares
representing the Option Shares, if any, on the Option Closing Date are subject
to the accuracy, as of the Closing Date or the Option Closing Date, as the case
may be, of the representations and warranties of the Company and the Selling
Shareholders contained herein, and to the performance by the Company and the
Selling Shareholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and ADR Registration Statement and all
post-effective amendments thereto shall have become effective and any and all
filings required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional information (to
be included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the Registration
Statement and ADR
<PAGE>
-21-
Registration Statement, as amended from time to time, shall have been issued and
no proceedings for that purpose shall have been taken or, to the knowledge of
the Company and the Selling Shareholders, shall be contemplated by the
Commission.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinions of Hale and Dorr, special
counsel for the Company and special counsel for each Selling Shareholder, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) Saville US has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus; The Company and
Saville US are each duly qualified to transact business in each
jurisdiction listed on Schedule IV attached hereto; the outstanding
shares of capital stock of Saville US have been duly authorized and
validly issued and are fully paid and non-assessable and, except for
the U.S. Excluded Shares, are owned of record by the Company; and, to
the best of such counsel's knowledge, no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into any shares of capital stock or
of ownership interests in the Company or Saville US are outstanding.
(ii) The issuance and deposit with the Depositary of the Shares underlying
the ADSs to be sold by the Company and the Selling Shareholders under
this Agreement against issuance of the ADRs evidencing such ADSs, the
sale and delivery of such ADSs on the Closing Date or the Option
Closing Date, and the execution and delivery of this Agreement and the
Deposit Agreement and the consummation of the transactions
contemplated by such agreements do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under, any material agreement or instrument listed as an
Exhibit to the Registration Statement to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the
Subsidiaries may be bound and do not and will not contravene any
provision of the federal laws of the United States, or to the best of
such counsel's knowledge, any judgment or decree of any U.S.
governmental body, agency or court having jurisdiction over the
Company or any of its Subsidiaries.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights
of any character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such
stock; and
<PAGE>
-22-
except as described in the Prospectus, to the knowledge of such
counsel, there is no holder of any securities of the Company or any
other person who has the right, which has not been waived and which
does not terminate on or before the Closing Date, contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or
to permit them to underwrite the sale of, any of the Ordinary Shares
or the ADSs or the right to have any Ordinary Shares or ADSs or other
securities of the Company included in the Registration Statement or
the ADR Registration Statement or the right, as a result of the filing
of the Registration Statement or the ADR Registration Statement or the
consummation of the transactions contemplated therein, to require
registration under the Act of any Ordinary Shares or ADSs or other
securities of the Company.
(iv) The Registration Statement and the ADR Registration Statement have
become effective under the Act and, to the knowledge of such counsel,
no stop order proceedings with respect thereto have been instituted or
are pending or threatened under the Act.
(v) The Registration Statement, the ADR Registration Statement, all
Preliminary Prospectuses, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations
thereunder (except that such counsel need express no opinion as to the
financial statements, schedules and other financial and statistical
information included therein).
(vi) The statements under the caption "Description of American Depositary
Receipts" in the Prospectus, insofar as such statements constitute a
summary of the terms of the ADSs and the ADRs, fairly and correctly
present the information called for with respect to the terms of the
ADSs and the ADRs. The statements under the captions "Risk Factors -
Shares Eligible for Future Sale," and "Taxation" (insofar as such
matters relate to U.S. federal law) in the Prospectus, and the
statements under Item 15 of Part II of the Registration Statement,
insofar as such statements constitute a summary of documents referred
to therein or matters of law, are accurate summaries and fairly and
correctly present the information called for with respect to such
documents and matters.
(vii) Such counsel does not know of any contracts or documents required to
be filed as exhibits to the Registration Statement or ADR Registration
Statement, or described in the Registration Statement, the ADR
Registration Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as summarized
in the Registration Statement or the Prospectus are fairly summarized
in all material respects.
(viii) This Agreement and the Deposit Agreement have been duly authorized,
executed and delivered by the Company.
<PAGE>
-23-
(ix) No approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions
herein contemplated (other than as may be required by the National
Association of Securities Dealers, Inc. or as required by State
securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made.
(x) The Company is not, and will not become as a result of the
consummation of the transactions contemplated by this Agreement,
required to register as an investment company under the 1940 Act.
(xi) Such counsel knows of no material legal or governmental proceedings
pending or threatened against the Company or any of the Subsidiaries,
except as set forth in the Prospectus.
(xii) The Company has full legal right, power and authority to enter into
the Stock Restriction Agreement and perform its obligations
thereunder. The Stock Restriction Agreement has been duly authorized,
executed and delivered by the Company and, assuming due execution and
delivery to the Company by Invoice Systems, constitutes valid and
binding obligations of the Company and Invoice Systems, enforceable in
accordance with its terms.
(xiii) Each of this Agreement, the Custody Agreement and the related Power of
Attorney has been duly authorized, executed and delivered by or on
behalf of each of the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right, power and authority,
and any approval required by law (other than as required by U.S. state
securities and Blue Sky laws as to which such counsel need express no
opinion), to sell, assign, transfer and deliver the portion of the
ADSs to be sold by such Selling Shareholder.
(xv) The Custody Agreement and the Power of Attorney executed and delivered
by each Selling Shareholder are valid, binding and enforceable in
accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the rights and remedies of creditors
generally and to general principles of equity.
(xvi) The Underwriters (assuming that they are bona fide purchasers within
the meaning of the Uniform Commercial Code) have acquired good and
marketable title to the ADSs being sold by each Selling Shareholder on
the Closing Date, and the Option Closing Date, as the case may be,
free and clear of all liens, encumbrances, equities and claims.
<PAGE>
-24-
In rendering such opinion Hale and Dorr, may rely as to matters governed by
the laws of states other than Massachusetts and Delaware and federal laws on
local counsel in such jurisdictions and as to the matters set forth in
subparagraphs (xv), (xvi) and (xvii) on opinions of other counsel representing
the respective Selling Shareholders, provided that in each case Hale and Dorr
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that (i) the
Registration Statement and the ADR Registration Statement, or any post-effective
amendment thereto, as of the time they became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading (except that such counsel need
express no view as to financial statements and other financial and statistical
information included therein). With respect to such statement, Hale and Dorr
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of McCann Fitzgerald,
Solicitors, Irish counsel for the Company dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters to the effect
that:
(i) The Company has been duly organized and is a validly existing
corporation under the laws of the Republic of Ireland, with corporate
power and authority to own and lease its properties and conduct its
business as described in the Prospectus; the Company, is duly qualified
to transact business in all jurisdictions listed on Schedule IV attached
hereto; the outstanding shares of capital stock of the Company have been
duly authorized and validly issued, are fully paid and non-assessable;
to the best of such counsel's knowledge, except as described in the
Prospectus, there are no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests
in the Company.
(ii) The Shares underlying the ADSs to be sold by the Company and the Selling
Shareholders under this Agreement have been duly authorized and, when
issued and deposited under the Deposit Agreement in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-
assessable, and not subject to any preemptive or similar rights.
(iii) This Agreement has been duly authorized and executed by the Company and
assuming this Agreement creates valid and binding obligations of the
parties
<PAGE>
-25-
under Maryland law, the laws of the Republic or Ireland will not prevent
this Agreement from being the valid and binding obligation of the
Company.
(iv) The issuance and deposit with the Depositary of the Shares underlying
the ADSs to be sold by the Company and the Selling Shareholders under
this Agreement, the sale and delivery of such ADSs on the Closing Date
or the Option Closing Date, and the execution and delivery of this
Agreement and the Deposit Agreement and the consummation of the
transactions contemplated by such agreements do not and will not
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, the Memorandum or Articles of
Association of the Company, or any agreement or instrument known to such
counsel to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries may be bound, and do not
and will not contravene any provision of the laws of the Republic of
Ireland, or to the best of such counsel's knowledge, any judgment or
decree of any Republic of Ireland court in which such counsel has
represented the Company.
(v) The Registration Statement and the ADR Registration Statement have been
duly authorized and executed by the Company and the filing of such
documents with the Commission has been duly authorized by the Company.
(vi) No approval, consent, order, authorization, or filing by or with any
Republic of Ireland regulatory, administrative or other governmental
body or agency is necessary in connection with the issue of the ADSs or
any of the Shares represented thereby or the sale of the ADSs and the
execution and delivery of this Agreement and the Deposit Agreement and
the consummation of the transactions therein contemplated by the Company
and the Selling Shareholders except such as have been obtained or made,
specifying the same.
(vii) The Company has authorized and outstanding share capital as set forth
under the caption "Capitalization" in the Prospectus and such share
capital conforms to the description thereof contained in the Prospectus.
(viii) Except as disclosed in the Prospectus, (x) no stamp or other issue or
transfer taxes or duties and no capital gains, income, withholding or
other taxes are payable to the Republic of Ireland or any political
subdivision or taxing authority thereof or therein in connection with
(A) the deposit with the Custodian under the Custody Agreement of the
Shares by the Selling Shareholders, (B) the deposit with the Depositary
of the Shares by the Company and the Selling Shareholders against the
creation of ADSs and the issue of the ADRs, (C) the issue of Shares by
the Company or the issue and delivery by or on behalf of the Company and
the Selling Shareholders of such ADSs to or for the respective accounts
of the Underwriters or (D) the sale and delivery by the Underwriters of
such ADSs to the initial purchasers thereof and (y) any dividends and
other distributions declared and payable on the Shares may under
Republic of Ireland laws and regulations be
<PAGE>
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paid to the Depositary in Irish pounds that may be converted into
foreign currency, including U.S. dollars that may be freely transferred
out of the Republic of Ireland.
(ix) The statements under the captions "Taxation" in the Prospectus,
insofar as such statements relate to Republic of Ireland tax matters
currently applicable to the U.S. holders referred to therein, accurately
reflect as of the date of the Prospectus the material tax consequences
of owning Ordinary Shares or Ordinary Shares represented by ADSs.
(x) The statements under the captions "Description of Share Capital" and
"Irish Exchange Control Regulations" in the Prospectus, and in Items 14
and 15 in the Registration Statement, insofar as such statements
constitute a summary of documents referred to therein governed by
Republic of Ireland law or Republic of Ireland matters of law, are
accurate summaries and fairly and correctly present the information
called for with respect to such documents and matters.
(xi) The Prospectus was, on or before the date of its publication, duly
delivered to the Registrar of Companies in the Republic of Ireland for
registration in accordance with Sections 47 and 51 of the Irish
Companies Act having endorsed thereon, or attached thereto, all such
matters as are required by the said Section 47 to be endorsed on or
attached to it.
(xii) Such counsel is not presently representing the Company in any legal
proceedings which have been commenced in the courts of the Republic of
Ireland.
(xiii) The Company has the power to submit, and has taken all necessary
corporate action to submit to the jurisdiction of any U.S. federal or
Maryland court and to appoint CT Corporation System as the authorized
agent of the Company for the purpose described in Section 14 of this
Agreement.
(xiv) On the assumption that the jurisdiction clause in Section 14 of this
Agreement is valid and binding under the laws of the State of Maryland
by which it is expressly governed, the Republic of Ireland courts would
normally give effect to the parties' choice of courts in Maryland to
settle disputes arising from this Agreement. Under Republic of Ireland
law, the choice of the laws of the State of Maryland is a valid choice
of the governing law of this Agreement. The validity and binding nature
of the obligations contained in this Agreement are governed by the law
of the State of Maryland.
(xv) A final conclusive judgment against the Company for a definitive sum of
money entered by any court in the United States in any action arising
out of or in connection with or with respect to any transaction
contemplated by this Agreement or the Deposit Agreement would be
enforced by the Republic of Ireland courts, without reexamination or re-
litigation of the matters adjudicated
<PAGE>
-27-
upon, provided that (A) enforcement of the judgment would not be
contrary to Republic of Ireland public policy; (B) the judgment was not
obtained by fraud; (C) the judgment was not obtained in proceedings
contrary to natural justice; (D) the judgment is not inconsistent with a
Republic of Ireland judgment in respect of the same matter; (E) the
judgment is not for multiple damages; and (F) enforcement proceedings
are instituted within six years after the date of the judgment.
(d) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Owens, Wright,
Barristers & Solicitors, counsel for Saville Canada, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters to
the effect that:
(i) Each of Saville Canada and 2916746 Canada, Inc. has been duly organized
and is a validly existing corporation under the laws of Canada, with
corporate power and authority to own and lease its properties and
conduct its business as described in the Prospectus; Saville Canada is
duly qualified to transact business in all jurisdictions listed on
Schedule IV attached hereto; the outstanding shares of capital stock of
Saville Canada have been duly authorized and validly issued, are fully
paid and non-assessable and are owned by the Company except for (i) the
Canadian Excluded Shares and (ii) the 4,000 Shares of Saville Canada
which are owned by 2916746 Canada, Inc., a wholly-owned subsidiary of
the Company; and to the best of such counsel's knowledge, except as
described in the Prospectus, there are no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into any shares of capital stock or of
ownership interests in Saville Canada.
(ii) Such counsel knows of no material legal or governmental proceedings
pending or threatened against Saville Canada except as set forth in the
Prospectus.
(e) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Emmet, Marvin & Martin,
LLP, counsel for the Depositary, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters to the effect that:
(i) The Deposit Agreement has been duly authorized, executed and delivered
by the Depositary and constitutes a valid and binding obligation of the
Depositary.
(ii) Upon the issuance by the Depositary of ADRs evidencing ADSs against the
deposit of the Shares in accordance with the provisions of the Deposit
Agreement (assuming such Shares were, at the time of such deposit, (a)
duly authorized, validly issued, fully paid and non-assessable and (b)
registered in compliance with the Act), such ADRs will be duly and
validly issued and persons in whose name such ADRs are registered will
be entitled to the rights or registered holders of ADRs specified
therein and in the Deposit Agreement.
<PAGE>
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(f) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be that,
(i) Substantially to the effect specified in subparagraphs (ii), (iii),
(iv), (ix) and (x) of Paragraph (b) of this Section 6, and that Saville
US is a duly incorporated and validly existing corporation under the
laws of the State of Delaware.
(ii) Upon the due issuance by the Depositary of ADRs evidencing ADSs against
the deposit of the Shares in accordance with the provisions of the
Deposit Agreement such ADRs will be duly and validly issued and persons
in whose name such ADRs are registered will be entitled to the rights of
registered holders of ADRs specified therein and in the Deposit
Agreement.
In rendering such opinion, Testa, Hurwitz & Thibeault, LLP may rely as to all
matters governed other than by the laws of the State of Delaware or U.S. federal
laws on the opinion of counsel referred to in Paragraph (b), (d) and (e) of this
Section 6. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement and the
ADR Registration Statement, or any amendment thereto, as of the time they became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (except that such counsel need express no view as to
financial statements and other financial and statistical information included
therein). With respect to such statement, Testa, Hurwitz & Thibeault, LLP may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(g) The Representatives shall have received at or prior to the Closing Date
from Testa, Hurwitz & Thibeault, LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the ADSs under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(h) The Representatives shall have received, on each of the date of this
Agreement and the Closing Date and the Option Closing Date, a letter dated the
date of delivery thereof in form and substance satisfactory to you, of Ernst &
Young confirming that they are independent accountants within the meaning of the
Act and the applicable published Rules and Regulations thereunder and stating
that in their opinion the financial statements examined by them and included in
the Registration Statement comply as to form in all material respects with the
<PAGE>
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applicable accounting requirements of the Act and the related published Rules
and Regulations and disclosing any deviations, if any, from such accounting
requirements, and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and Prospectus.
(i) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement and the ADR Registration Statement have
become effective under the Act and no stop order suspending the
effectiveness of the Registration Statement or the ADR Registration
Statement has been issued, and no proceedings for such purpose have been
taken or are, to his knowledge, contemplated by the Commission;
(ii) He does not know of any litigation instituted or threatened against the
Company of a character required to be disclosed in the Registration
Statement which is not so disclosed; he does not know of any material
contract required to be filed as an exhibit to the Registration
Statement or the ADR Registration Statement which is not so filed; and
the representations and warranties of the Company contained in Section 1
hereof are true and correct as of the Closing Date or the Option Closing
Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or 430A
under the Act have been made;
(iv) He has carefully examined the Registration Statement, the ADR
Registration Statement and the Prospectus and, in his opinion, as of the
effective date of the Registration Statement and the ADR Registration
Statement, the statements contained in the Registration Statement and
the ADR Registration Statement were true and correct, and such
Registration Statement, ADR Registration Statement and Prospectus did
not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading and in
his opinion, since the effective date of the Registration Statement and
the ADR Registration Statement, no event has occurred which should have
been set forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given in the
Registration Statement, the ADR Registration Statement and Prospectus,
there has not been any material adverse change or any development
involving a prospective adverse change in or affecting the condition,
financial or otherwise, of the Company and its Subsidiaries taken as a
whole or the earnings, business affairs, management or
<PAGE>
-30-
business prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(j) The Company and the Selling Shareholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties contained herein and related matters as the
Representatives may reasonably have requested.
(k) The Firm American Depositary Shares and American Depositary Option
Shares, if any, have been approved for designation upon notice of issuance on
the Nasdaq National Market.
(l) The Company shall have delivered to you written agreements (the "Lockup
Agreements") described in Section 4 (a)(x).
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Testa, Hurwitz & Thibeault,
LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company and the Selling Shareholders of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Selling Shareholders the Company and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS. The obligations of the
--------------------------------------------
Sellers to sell and deliver the portion of the ADSs required to be delivered as
and when specified in this Agreement are subject to the conditions that at the
Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement or the ADR
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
----------------
(a) The Company and the Principal Shareholders, jointly and severally agree
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act against any losses,
claims, damages or liabilities to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, the ADR
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto,
<PAGE>
-31-
or in Section 1 hereto, or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter and each
such controlling person within five (5) days of demand for such reimbursement
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding and expenses reasonably
incurred in responding to a subpoena or governmental inquiry whether or not such
Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company and the Principal Shareholders will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
the ADR Registration Statement, any Preliminary Prospectus, the Prospectus, or
such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof; and
provided further that no Principal Shareholder shall be liable for an amount in
- ----------------
excess of the product obtained by multiplying (i) one and one-half (1.5) by (ii)
the proceeds received by such Principal Shareholder from the sale of Shares
pursuant to this Agreement. This indemnity agreement will be in addition to any
liability which the Company or the Principal Shareholders may otherwise have.
(b) The Selling Shareholders (other than the Principal Shareholders),
jointly and severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arises out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, the ADR Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse each Underwriter and each such controlling person within five (5)
days of demand for any legal or other expenses reasonably incurred by such
Underwriter and each such controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
such action or proceeding; provided, however, that the Company and the Selling
Shareholders (other than the Principal Shareholders) will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission, made in the Registration Statement, the ADR
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. In no event, however, shall
the liability of any Selling Shareholder (other than the Principal Shareholders)
for indemnification under this Section 8(b) exceed the proceeds received by such
Selling Shareholder from the Underwriters in the offering. This indemnity
agreement will be in addition to any liability which the Company or the Selling
Shareholders may otherwise have.
<PAGE>
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(c) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and the Selling Shareholders and each person,
if any, who controls the Company or the Selling Shareholders within the meaning
of the Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer, Selling Shareholder or controlling person
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the ADR Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
Selling Shareholder or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that each Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, the ADR Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(d) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a), (b) or (c)
shall be available to any party who shall fail to give notice as provided in
this Section 8(d) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, but the failure to give such notice shall
not relieve the indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of the provisions of Section 8(a), (b) or (c). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same
<PAGE>
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counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
for all such indemnified parties. Such firm shall be designated in writing by
you in the case of parties indemnified pursuant to Section 8(a) or 8(b) and by
the Company in the case of parties indemnified pursuant to Section 8(c). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party hereunder
will not, without the prior written consent of the indemnified party hereunder,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be sought
hereunder (whether or not any indemnified party is an actual or potential party
to such claim, action or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a), (b) or
(c) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other hand from the offering of the
ADSs. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Shareholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Shareholders on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(e)
were determined by pro rata
<PAGE>
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allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(e). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the ADSs
purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) In any proceeding relating to the Registration Statement, the ADR
Registration Statement, any Preliminary Prospectus, the Prospectus or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option Closing
-----------------------
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the ADSs which such Underwriter has agreed to purchase and pay for on
such date (otherwise than by reason of any default on the part of the Company or
a Selling Shareholder), you, as Representatives of the Underwriters, shall use
your best efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon and upon the terms set forth herein, the Firm American Depositary
Shares or Option American Depositary Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm American Depositary Shares or
Option American Depositary Shares, as the case may be, agreed to be purchased by
the defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm American Depositary Shares or Option American Depositary Shares, as the
case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm American Depositary
Shares or Option American Depositary Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm American Depositary Shares
or Option American Depositary Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate number
of shares of Firm American Depositary Shares or Option American Depositary
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm American Depositary Shares or Option American Depositary
Shares, as the case may be, covered hereby,
<PAGE>
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the Company or you as the Representatives of the Underwriters will have the
right, by written notice given within the next 36-hour period to the parties to
this Agreement, to terminate this Agreement without liability on the part of the
nondefaulting Underwriters or of the Company or of the Selling Shareholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement, the ADR
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES. All communications hereunder shall be in writing and, except
-------
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
Mr. Patrick J. Kerins; with a copy to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202, Attention: General Counsel; if to
the Company or the Selling Shareholders to Saville Systems PLC, 25 Burlington
Mall Road, Sixth Floor, Burlington, Massachusetts 01803, Attention: John J.
Boyle, III, with a copy to Thomas L. Barrette, Jr., Esq., Hale and Dorr, 60
State Street, Boston, Massachusetts 02109.
11. TERMINATION. This Agreement may be terminated by you by notice to the
-----------
Company as follows:
(a) at any time prior to the earlier of (i) the time the ADSs evidenced by
ADRs are released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m. on the first business day following the date of this Agreement;
(b) at any time after the date hereof if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement, the ADR Registration Statement, and the Prospectus, any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business affairs,
management or business prospects of the Company and its Subsidiaries taken as a
whole, whether or not arising in the ordinary course of business, (ii) any
outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets of
the United States or elsewhere would, in your reasonable judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or limitation on prices (other than
limitations on hours or numbers of days of trading and other than suspensions
relating to information systems failures) for securities on any such Exchange or
Market, (iv) the
<PAGE>
-36-
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or will materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by Republic of Ireland, United States or New York State authorities, or (vi) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States or elsewhere; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS. This Agreement has been and is made solely for the
----------
benefit of the Underwriters, the Company and the Selling Shareholders and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. No purchaser of any of the
ADSs from any Underwriter shall be deemed a successor or assign merely because
of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS. The Company, the Selling
------------------------------------
Shareholders and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), information provided in
connection with Item 502(d) of Regulation S-K under the Act and information set
forth in the first and third paragraphs under the caption "Underwriting" in the
Prospectus.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
-------------
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and (c) delivery of and payment for the
ADSs under this Agreement. The other covenants of the Company in this Agreement
shall remain in full force and effect regardless of (x) any investigation made
by or on behalf of any Underwriter or controlling person thereof and (y)
delivery of and payment for the ADSs under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland (without regard to the choice of law provisions
thereof).
The Company and each of the Selling Shareholders hereby irrevocably agree
that any legal action, suit, or proceedings against any of them with respect to
any of their obligations, liabilities or any other matter under or arising out
of or in connection with this suit or proceedings may be brought in any state or
federal court in Maryland and, by execution and
<PAGE>
-37-
delivery of this Agreement, the Company and each Selling Shareholder hereby
irrevocably accept and submit to the non-exclusive jurisdiction of each of the
aforesaid courts in personam generally and unconditionally with respect to any
such action, suit, or proceeding for themselves and in respect of any of their
property. The Company and each of the Selling Shareholders further agree that
final judgment against any of them in any action, suit or proceeding referred to
herein shall be conclusive and may be enforced in any other jurisdiction, within
or outside the United States, by suit on the judgment, a certified or
exemplified copy of each shall be conclusive evidence of the fact and of the
amount of its obligations and liabilities.
In addition, the Company and each of the Selling Shareholders hereby
irrevocably and unconditionally waive any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions, suits or
proceedings arising out of or in connection with this Agreement brought in any
of the aforesaid courts, and hereby further irrevocably and unconditionally
waive and agree not to plead or claim that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
Each of the Selling Shareholders who is not a U.S. resident hereby appoints
CT Corporation System as his, her or its authorized agent (the "Authorized
Agent") upon which state or federal court in Maryland by any Underwriter or by
any person controlling any Underwriter. Such Selling Shareholders represent to
each Underwriter that they have notified CT Corporation System of such
appointment and that CT Corporation System has accepted the same in writing.
Such appointment shall be irrevocable for a period of five years from and after
the Closing Date unless and until a successor Authorized Agent shall be
appointed and such successor shall accept such appointment for the remainder of
such five-year period. Such Selling Shareholder will notify each Underwriter in
writing of the appointment. Such Selling Shareholder will taken any and all
action, including the filing of any and all documents and instruments, that may
be necessary to continue such appointment or appointments in full force and
effect as aforesaid. Service of process upon the Authorized Agent (or its
successor) and written notice of such service to such Selling Shareholder by
mail to the address for such Selling Shareholder specified pursuant to Section
10, shall be deemed in every respect, effective service of process upon such
Selling Shareholder. In addition to any other method of service of process on a
Selling Shareholder under applicable law, service of process on a Selling
Shareholder by notice sent registered mail return receipt requested or
delivered, by courier or otherwise, to the address for such Selling Shareholder
specified pursuant to Section 10, shall be deemed in every respect, effective
service of process upon such Selling Shareholder.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Shareholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which Authorizes such Attorney-in-Fact to take such
action.
<PAGE>
-38-
Very truly yours,
SAVILLE SYSTEMS PLC
By: _____________________________________
Name:_________________________________
Title:________________________________
SELLING SHAREHOLDERS LISTED ON
SCHEDULE II
By:______________________________________
Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Alex. Brown & Sons Incorporated
HAMBRECHT & QUIST LLC
Montgomery securities
Furman Selz LLC
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: __________________________________
Authorized Officer
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM AMERICAN
DEPOSITARY SHARES
UNDERWRITER TO BE PURCHASED
- ----------- ------------------------
<S> <C>
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Montgomery Securities
Furman Selz LLC
Total ________
========
</TABLE>
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Selling Shareholder Number of Firm American
- ------------------- -----------------------
Depositary Shares to be Sold
----------------------------
<S> <C>
__________
Total
=====
</TABLE>
<PAGE>
SCHEDULE III
SCHEDULE OF OPTION AMERICAN DEPOSITARY SHARES
<TABLE>
<CAPTION>
Maximum Number of Percentage of Total
Option American Number of Option
Depositary American Depositary
Name of Seller Shares to be Sold Shares
- --------------------------- ----------------- -------------------
<S> <C> <C>
____________ ______________
Total 100%
======= ====
</TABLE>
<PAGE>
SCHEDULE IV
FOREIGN QUALIFICATION
Saville Systems U.S., Inc. is qualified to do business in the
following jurisdictions:
Massachusetts
Virginia
<PAGE>
EXHIBIT A
June , 1996
Hale and Dorr
60 State Street
Boston, MA 02109
Gentlemen:
We are delivering this letter to you in connection with the
preparation of the Registration Statement of Saville Systems PLC (the "Company")
on Form S-1 filed with the United States Securities and Exchange Commission on
_________________, 1996, as amended (the "Registration Statement").
We refer to our discussions concerning the possible classification of
the Company as a passive foreign investment corporation (a "PFIC") as defined in
Section 1296 of the United States Internal Revenue Code of 1986, as amended (the
"Code") following the completion of its initial public offering. In that
connection, you have advised us that the Company will be a PFIC for any taxable
year in which either (i) 75% or more of its gross income is passive income or
(ii) on average for the taxable year, 50% or more of its assets (by value or,
if the Company is a "controlled foreign corporation" as defined in the Code, by
adjusted tax bases) produce or are held for the production of passive income
("passive assets"). For this purpose, passive assets include cash and other
current assets readily convertible into cash (but not trade or service
receivables arising in the ordinary course of the Company's business), and
generally include other assets that give rise to dividends, interest, royalties
and certain types of gains.
We have reviewed the restated consolidated financial statements of the
Company and its subsidiaries for the year ended December 31, 1995. Since that
date, there has been no material change in the composition of the income or
assets of the Company and its subsidiaries nor do we anticipate any such change
following the offering, except as set forth below.
For the period ended March 31, 1996, the total gross income of the
Company and its subsidiaries was approximately $___________, of which
approximately $___________ (or approximately _______%) was passive income. As
of _______________, 1995, the total fair market value of the assets of the
Company and its subsidiaries was approximately $__________, of which
approximately $_____________ (or approximately _________%) were passive assets
and the total adjusted tax bases of the assets of the Company and its
subsidiaries was approximately $___________ of which approximately $___________
(or approximately _____%) were passive assets.
In connection with the preparation of the Registration Statement,
the Company represents as follows:
<PAGE>
1. The Company will monitor (in accordance with the guidelines set
forth in Schedule A to this letter) and adjust the composition of its assets
such that as of the end of each quarter in a taxable year, (a) the fair market
value (or the adjusted tax basis, if, as described above, the Company is a
controlled foreign corporation) of the Company's nonpassive assets represents at
least 55% of the fair market value (or the adjusted tax basis, if, as described
above, the Company is a controlled foreign corporation) of the Company's total
assets (in each case as determined for purposes of Section 1296 of the Code),
and (b) the average of the percentages determined in accordance with clause (a)
for such quarter and the three immediately preceding quarters equals or exceeds
55%. In addition, the Company will monitor its gross income and adjust the
composition of its income-producing assets such that its passive income for any
taxable year will not equal or exceed 75% of its total gross income for such
year (as determined for purposes of Section 1296 of the Code).
2. The Company will waive the benefits of any applicable treaty which
would otherwise prevent the imposition of the tax imposed by Section 531 of the
Code, and will take any such action as may be now or subsequently required by
U.S. law to ensure that such waiver is and remains effective.
3. The Company will, promptly following the end of each taxable year,
determine whether it is properly classified as a PFIC for such taxable year and
notify its shareholders if it believes that it is properly classified as a PFIC
for such taxable year.
4. The Company will comply with all reporting requirements necessary
for shareholders to make a "qualified electing fund" election under Section 1295
of the Code with respect to the Company and will, promptly following the end of
any taxable year in which the Company determines that it is a PFIC, provide to
registered holders of Ordinary Shares with U.S. addresses (including the
Depositary), and to other registered shareholders on request, the information
necessary for such an election.
You are authorized to rely upon the statements set forth above in
preparing the Registration Statement and in rendering your opinion regarding the
section thereof entitled "Taxation."
Very truly yours,
__________________________________
Name:
Title:
<PAGE>
June _____, 1996
Hale and Dorr
60 State Street
Boston, MA 02109
Gentlemen:
We are delivering this letter to you in connection with the
preparation of the registration statement of Saville Systems PLC (the "Company")
on Form S-1 filed with the United States Securities and Exchange Commission on
__________ _____, 1996, as amended (the "Registration Statement").
We refer to our discussions and previous letter to you (the "First
Representation Letter"), concerning the possible classification of the Company
as a passive foreign investment corporation ("PFIC") as defined in Section 1296
of the United States Internal Revenue Code of 1986, as amended (the "Code")
following the completion of its initial public offering. In that connection,
you have advised us that the Company will be a PFIC for any taxable year in
which either (1) 75% or more of its gross income is passive income; or (2) on
average for the taxable year, 50% or more of its assets (by value or, if the
Company is a controlled foreign corporation ("CFC") as defined in the Code, by
adjusted tax bases) produce or are held for the production of passive income
("passive assets").
As you will recall, the First Representation Letter provided
information needed to calculate the asset portion of the PFIC test. This letter
will focus on income figures needed to determine whether 75% or more of the
Company's gross income is passive income.
In providing this financial data to you, we acknowledge that the
following principles have been explained to us and applied by us:
Passive income for PFIC purposes is defined in Section 1296(b)(1) to
have the same meaning as foreign personal holding company income under Section
954(c) of the Code. Although Section 1296(b)(2) establishes three exceptions to
the term "passive income," those exceptions are not directly relevant to the
Company since it is in the business of providing personal services with regard
to telecommunications billing software.
Section 954(c) states that foreign personal holding company income
includes: (1) dividends, interests, royalties, rents, and annuities; (2) gains
from the sale or exchange of certain property; (3) gains from certain
commodities transactions; (4) foreign currency gains; and (5) income equivalent
to interest. In computing foreign personal holding company income, certain
amounts are excluded such as rents and royalties derived in active business,
which are received from a person other than a related person. Section
954(c)(2)(A).
The statutory definitions in Sections 1296 and 954 do not require
that personal service income, such as amounts received from providing consulting
services, be included in the
<PAGE>
calculation of passive income. In addition, Section 954(c) excludes royalties
received from an active trade or business from the scope of passive income.
The Company derives revenues from services and license fees. The
service revenue relates primarily to development of new systems and enhancement
of existing systems. License fees are derived from software products delivered
to the customer. These fees normally constitute a non-recurring income item
which is largely recognized at the time of delivery. Therefore, the amount of
revenues realized from license fees in particular years depends on the number of
product installations.
Also, in determining whether a corporation is a PFIC, certain look-
thru rules must also be applied. Section 1296(c)(1) provides that when the
Company owns (directly or indirectly) at least 25% (by value) of the stock of
another corporation, the Company shall be treated as if it received directly its
proportionate share of income of such other corporation.
The following data has been prepared bearing all the aforementioned
principles in mind and with the intention that these figures would be used in
determining whether the Company was a PFIC for the period at issue.
For the period ended __________ _____, 1996, the total gross income of
the Company and its subsidiaries/1/ was approximately $____________.
Approximately $_________ (or approximately _____%) was passive income.
Very truly yours,
______________________
Name:
Title:
- --------------------------
/1/ Only 85% of the subsidiaries' income will be counted since there is a 15%
minority interest.
<PAGE>
Schedule A
Guidelines for Monitoring PFIC Status
Saville Systems PLC (the "Company") should follow the guidelines set
forth below in order to determine whether it is properly classified as a passive
foreign investment company (a "PFIC") as defined in Section 1296 of the United
States Internal Revenue Code of 1986, as amended (the "Code").
The Company will be a PFIC for any taxable year in which either (i)
75% or more of its gross income is "passive income" within the meaning of
Section 1296(b) of the Code or (ii) on average for the taxable year, 50% or more
of its assets (by value or, if the Company is a "controlled foreign corporation"
as defined in the Code, by adjusted tax basis), produce or are held for the
production of passive income ("passive assets"). Assets which do not produce
passive income are hereinafter referred to as "nonpassive assets."
1. Within 30 business days following the end of each of the first three
quarters of each taxable year of the Company, the Chief Financial Officer
of the Company (the "CFO") should review the financial position of the
Company to determine the extent of its passive and nonpassive income for
the quarter. For purposes of this determination, the CFO should apply the
guidelines contained in IRS Notice 88-22, 1988-1 CB 489 (copy attached), or
such other regulatory or administrative pronouncements as may have been
issued by the Internal Revenue Service or such judicial interpretations as
may have been rendered prior to the date of such review.
2. If, based upon such review, the CFO determines that it is likely that, as
of the end of such quarter, the Company may have had passive income which
exceeds 70% of its total gross income or passive assets which exceed 45% of
its total assets, then the CFO should immediately so inform the Chief
Executive Officer of the Company (the "CEO") and consider with the CEO what
steps, if any, can reasonably be taken by the Company to reduce the amount
of passive income and/or the amount of passive assets, as the case may be,
during the remaining quarters of such taxable year.
3. Promptly following the end of each taxable year, the CFO should again
review the financial position of the Company and make a final determination
of the extent of its passive and nonpassive income for such taxable year
and its passive and nonpassive assets as of the end of such taxable year,
applying the same guidelines as are referenced in paragraph 1 above. In
the event that the CFO determines that the Company may have had passive
income which exceeds 70% of its total gross income or passive assets which
exceed 45% of its total assets, then the CFO should immediately so inform
the CEO and consider with the CEO what steps, if any, can reasonably be
taken by the Company to reduce the amount of passive income and/or the
amount of passive assets, as the case may be, during the next following
taxable year.
Attachments
<PAGE>
EXHIBIT 10.35
TABLE OF CONTENTS
OFFICE LEASE
Paragraph Page
1. Premises.............................................. 3
2. Definitions........................................... 4
3. Term.................................................. 11
4. Basic Rent............................................ 11
5. Taxes................................................. 11
6. Operating Costs....................................... 13
7. Recovery of Adjustments............................... 20
8. Tenant's Covenants:................................... 20
(a) Pay Rent.......................................... 20
(b) Utility Charges................................... 20
(c) Maintain and Repair............................... 21
(d) Repair Where Tenant At Fault...................... 22
(e) Assigning or Subletting........................... 22
(f) Rules and Regulations............................. 24
(g) Use of Premises................................... 24
(h) Observance of Law................................. 25
(i) Waste and Nuisance................................ 25
(j) Entry by Landlord................................. 25
(k) Indemnity......................................... 25
(l) Exhibiting Premises............................... 26
(m) Alterations....................................... 26
(n) Interior Walls and Exterior Walls................. 27
(o) Signs............................................. 27
(p) Name of Building.................................. 28
(q) Glass............................................. 28
(r) Certificates...................................... 28
(s) Evidence of Payment............................... 29
(t) Notice of Accidents............................... 29
(u) Tenant Insurance.................................. 29
(v) Surrender on Termination.......................... 30
(w) Fire and Safety................................... 30
(x) Energy Conservation............................... 30
9. Quiet Enjoyment....................................... 30
10. Landlord's Covenants:................................. 31
(a) Heating & Air Conditioning........................ 31
(b) Taxes............................................. 31
(c) Elevator.......................................... 31
(d) Access............................................ 32
(e) Washrooms......................................... 32
(f) Janitor Services.................................. 32
11. Fixtures.............................................. 32
12. Damage or Destruction................................. 33
13. Expansion, Alteration................................. 34
<PAGE>
14. Injuries, Loss and Damage............................. 35
15. Impossibility Unavoidable Delays...................... 37
16. Re-entry.............................................. 37
17. Bankruptcy, etc....................................... 37
18 Distress.............................................. 38
19. Entry as Agent........................................ 38
20. Right of Termination.................................. 38
21. Non-waiver............................................ 38
22. Overholding........................................... 38
23. Landlord Performing Tenant's Covenant................. 39
24. Payments to Landlord.................................. 39
25. Recovery of Adjustments............................... 39
26. Registration.......................................... 40
27. Mortgages............................................. 40
28. Assignment by Landlord................................ 41
29. Captions.............................................. 41
30. Guarantee............................................. 41
31. Notice................................................ 41
32. Effect of Lease....................................... 42
33. Interpretation of Lease............................... 43
34. Time of Essence....................................... 43
35. Law .................................................. 43
36. Intent of Lease....................................... 43
Rules & Regulations................................... 45
-2-
<PAGE>
This Indenture made the 25th day of April, 1996
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT
BETWEEN: ORFUS INVESTMENTS, a partnership registered under
The Partnership Registration Act of Ontario,
hereinafter called the "Landlord,"
OF THE FIRST PART,
-and-
SAVILLE SYSTEMS CANADA, LTD.
hereinafter called the "Tenant,"
OF THE SECOND PART,
Premises 1. WITNESSETH that in consideration of the rents,
covenants and agreements hereinafter reserved and
contained on the part of the Tenant to be paid,
observed and performed, the Landlord does demise
and lease unto the Tenant the Premises (the
"Premises") on the 5th and 6th floor of Building A
on the Lands described in Schedule A hereto
annexed, the Premises being shown as outlined in
red on the floor plan hereto annexed as Schedule B
and being exclusive of any part of the exterior
face of the building. The usable area of the
Premises is approximately 42,958 square feet and
the Rentable Area of the Premises is approximately
42,958 square feet each of 5th and 6th floor --
approximately 21,479 square feet of Rentable Area.
Definitions 2. For the Purposes of this Lease:
(a) "Additional Rent" means all amounts payable by
the Tenant under the terms of this Lease,
whether payable to the Landlord or otherwise,
over and above Basic Rent.
(b) "Basic Rent" means those amounts set out as
Basic Rent in section 4 of this Lease.
"Building A" means the West Tower of 675
Cochrane Drive, Markham, Ontario.
-3-
<PAGE>
(c) "Landlord's Architect" means a qualified
architect, engineer or Ontario Land Surveyor
from time to time chosen by the Landlord.
Lands means the lands and premises described
in Schedule "A" hereto.
(d) "Lease" means this Lease and any alterations
from time to time made to this Lease in
accordance with the provisions herein set out.
(e) "Normal Business Hours" means 7:00 a.m. to
7:00 p.m. Monday through Friday (but excluding
Saturdays, Sundays and holidays), as such
hours may be varied by the Landlord from time
to time.
See Page 1A.
(f) deleted in original
(g) deleted in original
(h) deleted in original
(i) deleted in original
-4-
<PAGE>
Page 1A
2. For the purposes of this Lease:
"Building B" means the East Tower of 675 Cochrane Drive,
Markham, Ontario.
"Building C" means any building which may be constructed on
the Lands which will form part of the development municipally
known as 675 Cochrane Drive, Markham.
"Capital Tax" means the tax or excise imposed upon the
Landlord by the provincial and/or federal government or other
applicable taxing authority which is measured by or based in
whole or in part upon the capital employed by the Landlord as
at the date of the substantial completion of construction of
Building A and Building B and the Shared Common Areas and
Facilities until construction of Building C, imputed as if
the amount of such tax were that amount due if such property
were the only real property of the Landlord and includes the
amount of any capital or place of business tax levied by the
provincial and/or federal government or other applicable
taxing authority against the Landlord with respect to such
property. Once Building C and any additional Shared Common
Areas and Facilities which are constructed in respect thereof
have been substantially completed, Capital Tax shall be
deemed to include the tax or excise imposed upon the Landlord
in respect of the Complex.
"Common Areas and Facilities" means the areas, facilities,
utilities, improvements, equipment and installations in the
Complex or serving the Complex that from time to time are not
intended to be leased to tenants of the Complex and that are
provided for the general non-exclusive benefit of the tenants
of Building A only and their employees, customers and other
invitees.
"Complex" means Building A, Building B, Building C (once
constructed), the Shared Common Areas and Facilities, the
Common Areas and Facilities and all other common areas and
facilities, and includes the parking to be made available to
the Tenant hereunder and access to the Complex, said parking
and access located on the Lands.
"Complex Proportionate Share" means that fraction having as
its numerator the Rentable Area of the Premises, and having
as its denominator the Rentable Area of all premises
(excluding storage and parking areas) leased or set aside
from time to time by the Landlord for leasing in the Complex,
such areas being as certified from time to time by the
-5-
<PAGE>
Landlord's Architect. The aggregate of the fractional
Complex proportionate shares shall total one.
---
"Operating Costs" means the aggregate of all costs, expenses
or amounts incurred, whether by the Landlord or others on
behalf of the Landlord, in connection with the complete
maintenance, operation, management and repair of the Complex
and all components thereof and all improvements of the
Landlord thereon or therein including, without limiting the
foregoing and without duplication: the costs of maintaining,
operating and repairing any heating, ventilating and air
conditioning or other equipment and fuel, energy and other
costs of providing heat, ventilating and air conditioning;
depreciation and interest expense on capital items which by
their nature are intended to reduce the Operating Costs of
Building A or the Complex in accordance with reasonable
return on investment criteria, including without limiting the
generality of the foregoing, all expenditures made by the
Landlord in an effort to promote energy conservation as set
out in Section 8(x) of this Lease; the cost of operating and
maintaining elevators; the cost of maintaining, repairing and
replacing exterior glass walls; the cost of providing hot and
cold water; interest and depreciation (in accordance with
generally accepted accounting principles from time to time)
of all capital items, security equipment and maintenance
equipment which by its nature requires periodic replacement
including all heating, ventilating, and air conditioning
equipment, provided that the cost of repairs to the roof
membrane shall be an Operating Cost but if the cost is for
replacement only interest and depreciation charged in
accordance with generally accepted accounting principles
shall be included as an Operating Cost; the cost of any
capital item (including without limitation for the roof
membrane) under $10,000 in the Year incurred shall not be
depreciated but shall be an Operating Cost in such Year; the
cost of electricity including lighting not otherwise charged
to tenants; the cost of snow, ice and refuse clearance and
removal; landscape maintenance and window cleaning; Capital
Tax; the cost of all insurance including "all risks"
(including flood and earthquake), boiler and machinery
liability and other casualties and loss of rental income
insurance; accounting costs incurred in connection with
preparation of statements and opinions for tenants; the cost
of providing security services; the cost of consultants,
retained with intent of saving or reducing costs; the cost of
all rental equipment and building supplies used by the
Landlord for all such operations and maintenance or any other
purpose; the cost of providing and operating the management
office in Building A or if there is only one management
office for the Complex, such management office if situate in
-6-
<PAGE>
Building B or Building C; amounts paid on service contracts;
the amount of all salaries, wages and benefits paid to or on
behalf of persons engaged in cleaning, supervision,
maintenance, operation direct costs of on site management,
and repair; any business taxes which may be imposed on the
Landlord by reason of its operation of the Complex or parts
thereof; and management fees or charges of managing agents if
the Landlord does not undertake management itself.
In computing Operating Costs there shall be credited as a
deduction the amounts of proceeds of insurance, relating to
insured damage and other damage actually recovered by the
Landlord (or if the Landlord is deemed to self-insure, a
corresponding application of reserves) applicable to the
damage.
Any report of the Landlord's auditor or other licensed public
accountant appointed by the Landlord for the purpose shall be
conclusive as to the amount of Operating Cost for any period
to which such report relates.
If less than ninety-seven (97%) percent of Building A is
occupied by tenants, then the amount of such Operating Costs
shall be deemed to be increased to an amount equal to the
amount of Operating Costs which would have been incurred had
ninety-seven (97%) per cent of Building A been occupied by
tenants throughout the entire period for which Operating
Costs are being calculated.
Operating Costs shall not include interest on Landlord's debt
or capital retirement of debt or amounts directly chargeable
to capital account, save as otherwise herein provided for.
The Tenant shall not be responsible to pay for Operating
Costs attributable solely to (i) Building B and/or (once
------
constructed), Building C and/or (ii) any common areas and
facilities for the exclusive use of the tenants of
Buildings B and/or C.
In calculating Operating Costs the Landlord will act
reasonably in determining the attribution of Operating Costs
amongst the components of the Complex.
"Proportionate Share" means that fraction having as its
numerator the Rentable Area of the Premises, and having as
its denominator the Rentable Area of Building A, such areas
as being as certified from time to time by the Landlord's
Architect. The aggregate of the fractional proportionate
shares with respect to Rentable Area of Building A shall
total one.
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<PAGE>
"Rentable Area of Building A" means the total of the Rentable
Areas of all premises, leased or set aside from time to time
by the Landlord for leasing in Building A, (excluding storage
and parking areas), such premises being measured in
accordance with the provisions of the leases for such
premises for Building A, and for vacant premises, being
measured in accordance with BOMA, (excluding storage and
parking areas) being as certified from time to time by the
Landlord's Architect.
"Shared Common Areas and Facilities" means the areas,
facilities, utilities, improvements, equipment,
installations, parking facilities and landscaped areas in the
Complex or serving the Complex that from time to time are not
intended to be leased to all tenants of the Complex and that
are provided for the general nonexclusive benefit of all
tenants of the Complex and/or their employees, customers and
other invitees in common with others entitled to use them.
Additional areas, facilities, utilities, improvements,
equipment and installations which serve the Complex for the
general non-exclusive benefit of all tenants of the Complex
and/or their employees, customers and other invitees in
common with others entitled to use them may be constructed in
conjunction with the construction of Building C.
(j) "Rentable Area of the Premises" means the area of
the Premises expressed in square feet or square
meters in a certificate prepared by the Landlord's
Architect, which certificate shall be conclusive
and binding subject as herein provided and shall be
delivered to the Tenant on or after the
commencement of the Term, at which time any
adjustment to the area that is required thereby
shall be made.
The Rentable Area of the Premises shall be
measured and determined in accordance with
BOMA.
(k) "Basic Rent" means the basic rent herein set forth
was calculated on basis of the rentable area as
defined in paragraph 2(j) being sq. ft.)
(usable area of the Premises sq. ft. plus
portion of public and service areas sq. ft. =
sq. ft.) at the basic rent of $
per sq. ft. See Page 2A.
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<PAGE>
(l) "Rules and Regulations" means those Rules and
Regulations attached to this Lease, and any
additional Rules and Regulations made from time to
time in accordance with section 8(f) of this Lease.
(m) "Taxes" means all taxes, rates, duties, levies and
assessments whatsoever whether municipal,
parliamentary or otherwise, levied, charged or
assessed upon the lands and building or upon any
part or parts thereof and all improvements now or
hereafter erected or placed on the Lands, or
charged against the Landlord on account thereof,
including local improvement charges but excluding:
the amount by which separate school taxes (if any
should be payable) exceed the amount which would
have been payable for school taxes if no assessment
for separate school taxes had been made but an
assessment for public school taxes had been made
and any taxes such as corporate, income, profit and
excess profit taxes assessed upon the income of the
Landlord. In addition to the foregoing, Taxes
shall include any and all taxes, charges, levies or
assessments which may in the future be levied,
charged or assessed in lieu therefor in addition
thereto. Taxes shall also include all costs and
expenses incurred by the Landlord in obtaining or
attempting to obtain a reduction or prevent an
increase in the amount of such Taxes. In
calculating Taxes, if less than ninety-seven (97%)
per cent of the Building is occupied by tenants
then the amount of such taxes shall be deemed to be
increased to an amount equal to the amount of Taxes
which would have been incurred had ninety-seven
(97%) per cent of the Building been occupied by
tenants throughout the entire period for which
Taxes are being calculated.
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<PAGE>
Page 2A
The Basic Rent for the Term shall be based upon the gross rentable
square footage of 21,479 sq. ft. from the 1st day of July, 1996 to
the 30th day of November, 1997, and, based upon the gross rentable
square footage of 42,958 sq. ft. for the period from the 1st day
of December, 1997 to the 30th day of June, 2005, and the per
square foot rate of Basic Rent is set out below for the respective
periods:
July 1, 1996-June 30, 1998 = $9.60 per sq. ft. Rentable Area per
annum
July 1, 1998-June 30, 2001 = $10.60 per sq. ft. Rentable Area per
annum
July 1, 2001-June 30, 2005 = $11.60 per sq. ft. Rentable Area per
annum
The above is subject to adjustment in the event that the
provisions of paragraphs 5(g)(iii) or (iv) or 9(b) of Schedule "C"
are applicable.
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<PAGE>
(n) "Term" means that Term set out in section 3 of
this Lease or as such Term may be altered,
extended or reduced in accordance with the
provisions of this Lease.
(o) "Year" means each calendar year, or, at the
Landlord's option, the Landlord's fiscal year
where such reference is related to calculation
of Additional Rent, the whole or part of which
is included within the Term.
Term 3. To have and to hold the Premises for and during the
Term of (see Page 3A) years commencing on the
day of , 19 , and ending on the
day of , 19 .
Basic Rent 4. Yielding and paying therefor yearly and every year
during the Term unto the Landlord as Basic Rent for
the Premises without set-offs, deductions or
defalcation whatsoever, the sum of (see Page 3B)
($ ) of lawful money of Canada to be paid in
equal monthly installments of
($ ) on the first day of each and every month
during the Term to the Landlord at the address
hereinafter designated or at such other place as
the Landlord shall designate, the first of such
payments to be made on the first day of ,
19 . If the term commences on any day other than
the first or ends on any day other than the last
day of a month, Basic Rent and Additional Rent for
the fractions of a month at the commencement and at
the end of the Term shall be adjusted pro rata on a
per diem basis.
The Landlord acknowledges receipt of $175,251.40
(includes G.S.T.) to be applied as rent for first
and last months Basic and the Tenant is hereby
directed to make all payments to ORFUS INVESTMENTS.
Additional Rent (applied on account).
Taxes 5. (a) See Page 3C
(b) If the Taxes are increased by reason of any
installations made in or upon or any
alterations made in or to the Premises by the
Tenant or by the Landlord on behalf of the
Tenant, the Tenant shall pay the amount of
such increase forthwith to the Landlord upon
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<PAGE>
receipt of notice thereof. The Tenant shall
also pay every tax and license fee in respect
of any business carried on upon the Premises.
(c) The Landlord shall be entitled at any time or
times in any Year, upon at least fifteen (15)
days' notice to the Tenant to require the
Tenant to pay to the Landlord monthly, on the
date for payment of monthly rental
installments, as Additional Rent, an amount
equal to one ninth (1/9) of the amount
estimated by the Landlord to be the amount of
the Taxes for such Year. The Landlord shall
be entitled subsequently during such Year,
upon at least fifteen (15) days' notice to the
Tenant, to revise its estimate of the amount
of Tax Increase and the said monthly
instalment shall be revised accordingly. All
amounts received under this provision in any
Year on account of the estimated amount of the
Taxes shall be applied in reduction of the
actual amount of the Taxes for such Year. If
the amount received is less than the actual
Taxes, the Tenant shall pay any deficiency to
the Landlord as additional rent within fifteen
(15) days following receipt by the Tenant of
notice of the amount of such deficiency. If
the amount received is greater than the actual
Taxes, the Landlord shall either refund the
excess to the Tenant as soon as possible after
the end of the Year in respect of which such
payments were made, or the Landlord's option
shall apply such excess against any amounts
owing or becoming due to the Landlord by the
Tenant.
(d) If the Term of this Lease commences or ends on
any day other than the first or last day,
respectively, of a Year, the Tenant shall be
liable only for the portion of the Taxes for
such Year as falls with the Term, determined
on a per diem basis.
(e) The Taxes and all other payments referred to
in subparagraph 5(b) above will be paid and
discharged by the Tenant as soon as they
become due and payable, and the Tenant will,
upon the written request of the Landlord,
promptly deliver to the Landlord receipts
evidencing such payment where applicable.
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<PAGE>
Operating Costs (See Page 3C)
6. (a) The Tenant covenants to pay the Tenant's
Proportionate Share of the Operating Costs for
the Year during each Year of the Term, to the
Landlord as Additional Rent within fifteen
(15) days following receipt by the Tenant of
written notice of the amount of such Operating
Costs for such Year, notwithstanding that the
Year in question or the Term may have ended.
Any amounts payable pursuant to this
subparagraph (a) shall be determined and
certified by the Landlord following the end of
the Year for which such amounts are payable.
If only part of a Year is included within the
Term, any such amount payable shall be
pro-rated accordingly and shall be paid on the
last day of the Term. Any balance remaining
unpaid or any excess paid shall,
notwithstanding such termination, be adjusted
between the Landlord and Tenant within a
reasonable period thereafter.
(b) The Landlord shall be entitled at any time or
times in any Year, upon at least fifteen (15)
days' notice to the Tenant to require the
Tenant to pay to the Landlord monthly, on the
date for payment of monthly rental
installments, as Additional Rent, an amount
equal to one-twelfth (1/12) of the amount
estimated by the Landlord to be the amount of
the Operating Costs for such Year. The
Landlord shall be entitled subsequently during
such Year, upon at least fifteen (15) days'
notice to the Tenant, to revise its estimate
of the amount of the Operating Costs and the
said monthly instalment shall be revised
accordingly. All amounts received under this
provision in any Year on account of the
estimated amount of Operating Costs shall be
applied in reduction of the actual amount of
Operating Costs for such Year, the Tenant
shall pay any deficiency to the Landlord as
Additional Rent within fifteen (15) days
following receipt by the Tenant of notice of
the amount of such deficiency. If the amount
received is greater than the actual Operating
Costs, the Landlord shall either refund the
excess to the Tenant as soon as possible after
the end of the Year in respect of which such
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<PAGE>
payments were made, or at the Landlord's
option, shall apply such excess against any
amount owing or becoming due to the Landlord
by the Tenant.
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<PAGE>
Page 3A
Term
3. TO HAVE AND TO HOLD that part of the Premises consisting of
the sixth (6) floor of Building A for and during the term of
nine (9) years commencing on the 1st day of July, 1996 and
ending on the 30th day of June, 2005.
TO HAVE AND TO HOLD that part of the Premises constituting
the fifth (5) floor of Building A for and during the term of
seven (7) years and seven (7) months commencing on the 1st
day of December, 1997 and ending on the 30th day of June,
2005, subject to the provisions of paragraph 9(b) of Schedule
"C."
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<PAGE>
Page 3B
4. The following paragraph sets out the Basic Rent for the
Premises.
(a) yielding and paying as Basic Rent during the period
commencing the 1st day of July, 1996 to and including
the 30th day of November, 1997, the sum of $206,198.40
per annum, in lawful money of Canada, to be payable in
equal consecutive monthly installments of $17,183.20
each, each due in advance on the 1st day of each and
every month during said period, the first such payment
due on the 1st day of July, 1996;
(b) and yielding and paying as Basic Rent during the period
commencing the 1st day of December, 1997 to and
including the 30th day of June, 1998, the sum of
$412,396.80 per annum, in lawful money of Canada, to be
payable in equal consecutive monthly installments of
$34,366.40 each. Each due in advance on the 1st day of
each and every month during said period;
(c) and yielding and paying as Basic Rent for the period
commencing the 1st day of July 1998 to and including the
30th day of June, 2001 the sum of $455,354.80 per annum,
in lawful money of Canada, to be payable in equal
consecutive monthly installments of $37,946.23 each,
each due in advance on the 1st day of each and every
month during said period;
(d) and yielding and paying as Basic Rent for the period
commencing on the 1st day of July, 2001 to and including
the 30th day of June, 2005, the sum of $498,312.80 per
annum, in lawful money of Canada, to be payable in equal
consecutive monthly installments of $41,526.07 each,
each due in advance on the 1st day of each and every
month during said period.
The above Basic Rent is subject to adjustment in the event that
the provisions of paragraph 5(g)(iii) or (iv) or 9(b) of Schedule
"C" are applicable.
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<PAGE>
Page 3C
Add to Section 5 re: Taxes
5. (a)(i) In the event that Taxes are separately assessed to
the Tenant, the Tenant covenants to pay such Taxes
as separately assessed together with its
Proportionate Share of the Taxes applicable to the
Common Areas and Facilities and shall also pay its
Complex Proportionate Share of the Taxes applicable
to the Shared Common Areas and Facilities, all
without duplication, during each Year of the Term,
to the Landlord as Additional Rent as hereinafter
provided.
(ii) In the event that the Tenant is not separately
assessed for Taxes, then the Tenant covenants to
pay its Proportionate Share of the Taxes applicable
to Building A and to the Common Areas and
Facilities and covenants to pay the Complex
Proportionate Share of the Taxes applicable to the
Shared Common Areas and Facilities, during each
Year of the Term, to the Landlord as Additional
Rent as hereinafter provided.
Add to Section 5 re: Taxes
(f) In the event that the Tenant is not separately
assessed for Taxes and in the event that different
components of Building A are assessed differently,
then the Tenant may not be paying the Proportionate
Share of the Taxes applicable to Building A but,
the Landlord, acting reasonably shall equitably
apportion the Taxes assessed with respect to the
different components of Building A as they are
assessed differently, to the Tenant, and the
payment of the same by the Tenant shall be governed
by the provisions of Section 5, mutatis mutandis.
Add to Section 6 re: Operating Costs
It is understood and agreed that the Tenant will pay the
Tenant's Proportionate Share of the Operating Costs
attributable to Building A and the Common Areas and
Facilities and to pay the Tenant's Complex Proportionate
Share of the Operating Costs attributable to the Shared
Common Areas and Facilities, or attributable to Building A
together with another component of the Complex, and Section 6
shall be read accordingly.
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<PAGE>
Add as Section 6(c) the following:
(c) Subject to paragraph 2(a) of Schedule "C," in the event
that the Landlord does not contract out the management
of the Complex or Building A and undertakes management
itself, the Tenant shall pay as Additional Rent to the
Landlord during such Year or part thereof and during
each such Year or part thereof during the Term, a
management fee to the Landlord equal to the sum of four
per cent (4%) per annum of all Basic Rent (which
includes the commission component and the Tenant
Inducement component), and all Additional Rent during
such Year or part thereof and during such Year or part
thereof during the Term. The Landlord shall be entitled
at any time or times in any Year, upon at least fifteen
(15) days' notice to the Tenant to require the Tenant to
pay to the Landlord monthly, on the date for payment of
monthly rental installments, as Additional Rent, an
amount equal to one-twelfth (1/12th) of the amount
estimated by the Landlord to be the amount payable for
the said management fee for such year. All amounts
received under this provision in any Year on account of
the estimated amount of the said management fee shall be
applied in reduction of the actual amount of the said
management fee for such Year, the Tenant shall pay any
deficiency to the Landlord as Additional Rent within
fifteen (15) days following receipt by the Tenant of
notice of the amount of such deficiency. If the amount
received is greater than the actual management fee for
such Year, the Landlord shall either refund the excess
to the Tenant as soon as possible after the end of the
Year in respect of which such payments were made, or at
the Landlord's option shall apply such excess against
any amounts owing or becoming due to the Landlord by the
Tenant.
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<PAGE>
Page 4A
Notwithstanding the foregoing, structural repairs for
which the Landlord is responsible shall not include
repair and replacement of the roof membrane which shall
be included in Operating Costs as described in the
definition thereof and shall not include the repair and
replacement of glass walls which shall be included in
Operating Costs.
-19-
<PAGE>
Recovery of
Adjustments
7. The Landlord (in addition to any other right or
remedy of the Landlord) shall have the same rights
and remedies in the event of the default by the
Tenant in payment of any amounts payable pursuant
to paragraph 5 and 6 as the Landlord would have in
the case of default in payment of rent.
Tenant's
Covenants:
8. The Tenant covenants with the Landlord:
Pay Rent (a) to pay Basic Rent and Additional Rent payable
by the Tenant to the Landlord under this
lease.
Utility Charges
Bulbs, etc. &
Meters (b) (i) and to pay all charges for telephone,
electric current and all other utilities
supplied to or used in connection with
the Premises, and the total cost of any
replacement of electric bulbs, tubes,
starters and ballasts in the Premises.
If there are no separate meters for
measuring the consumption of such
utilities, the Tenant shall pay to the
Landlord, in advance by monthly
installments as Additional Rent, such
amount as may be reasonably estimated by
the Landlord from time to time as the
cost of such utilities for the Premises.
In the event of any dispute between the
Landlord and the Tenant as to the amount
of such utility costs, the opinion of the
Landlord's Architect shall be final and
binding on the Landlord and the Tenant.
The Tenant shall advise the Landlord
forthwith of any installations,
appliances or business machines used by
the Tenant and consuming or likely to
consume large amounts of electricity or
other utilities and further on request
shall properly provide the Landlord with
a list of all installations, appliances
and business machines used in the
-20-
<PAGE>
Premises, and the Landlord shall have the
right to require the Tenant to install a
separate meter at the Tenant's expense.
(ii) The Tenant covenants to pay for the cost
of any metering which may be requested by
the Tenant to be installed by the
Landlord in the Building for the purpose
of determining any utility (including
electricity and water) consumed in the
Premises or which may be required by the
Landlord to measure excess usage of
electricity or water.
(iii) The Landlord shall have the exclusive
right to attend to any replacement of
electric light bulbs, tubes and ballasts
in the Premises throughout the Term and
any renewal thereof. The Landlord may
adopt a system of relamping and
reballasting periodically on a group
basis in accordance with good practice.
Maintain
and
Repair (c) to repair, maintain and keep the Premises in
good and substantial repair as a prudent owner
would do, reasonable wear and tear and damage
by fire and any other peril against which the
Landlord is required under this lease to be
insured, and structural repairs only excepted,
and that the Landlord may enter and view state
of repair; and that the Tenant will repair in
accordance with notice in writing, reasonable
wear and tear and damage by fire and any other
insured peril, and structural repairs only
excepted; and that the Tenant will leave the
Premises in good repair, reasonable wear and
tear and damage by fire and any other insured
peril, only excepted; provided that if the
Tenant neglects to so maintain or to make such
repairs promptly alter notice, the Landlord
may, at its option, do such maintenance or
make such repairs at the expense of the
Tenant, and in any and every such case the
Tenant covenants with the Landlord to pay to
the Landlord forthwith as Additional Rent all
sums which the Landlord may have expended in
doing such maintenance and making such
repairs; provided further that the doing of
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<PAGE>
such maintenance or the making of any repairs
by the Landlord shall not relieve the Tenant
from the obligation to maintain and repair;
See Page 4A
Repair Where
Tenant At
Fault (d) if the Building, including the Premises, the
elevators, boilers, engines, pipes and other
apparatus (or any of them) used for the
purposes of heating, ventilating or
air-conditioning the Building or operating the
elevators, or if the water pipes, drainage
pipes, electric lighting or other equipment of
the Building or the roof or outside walls of
the Building get out of repalr or become
damaged or destroyed through the wilful act,
negligence, carelessness or misuse of the
Tenant, its servants, agents, employees, or
anyone permitted by the Tenant to be in the
Building, or through it or them in any way
stopping up or injuring the heating,
ventilating or air-conditioning apparatus,
elevators, water pipes, drainage pipes, or
other equipment or part of the Building, the
expense of the necessary repairs, replacements
or alterations, shall be borne by the Tenant
who shall pay the same to the Landlord
forthwith upon demand;
Assigning or
SubLetting (e) not to assign this Lease or sublet or
franchise, license, grant concessions in, or
otherwise part with or share possession of the
Premises, or any part thereof, without the
prior written consent of the Landlord; at the
time the Tenant requests such consent the
Tenant shall deliver to the Landlord such
information in writing (the "required
information") as the Landlord may reasonably
require, including a copy of the proposed
offer or agreement, if any, to assign or
sublet or otherwise, the name, address, nature
of business and evidence as to the financial
strength of the proposed assignee or
subtenant; upon receipt of such request and
all required information, the Landlord shall
have the right, exercisable within fourteen
(14) days alter such receipt, to terminate
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<PAGE>
this Lease if the request relates to all of
the Premises or, if the request relates to a
portion of the Premises only, the Landlord
shall have the right to terminate this Lease
with respect to such portion and the rent
payable by the Tenant under this Lease shall
abate in the proportion that the area of the
portion of the Premises for which this Lease
is terminated bears to the area of the
Premises. If the Landlord exercises such
right, the Tenant shall surrender possession
of the Premises or such portion thereof, as
the case may be, not less than sixty (60) days
and not more than ninety (90) days following
the Landlord's notice of exercise of its right
hereunder in accordance with all the
provisions of this Lease relating to the
surrender. If the Landlord does not exercise
such right, then the Landlord's prior written
consent shall not be unreasonably delayed or
withheld. In no event shall any assignment or
subletting to which the Landlord has consented
release the Tenant from its obligations fully
to perform all the terms, conditions and
covenants of this Lease. The Tenant shall pay
on demand the Landlord's reasonable costs
incurred in connection with the Tenant's
request for such consent. The Landlord's
consent may be conditional upon the subtenant
or assignee entering into a covenant with the
Landlord in form satisfactory to the Landlord
to observe and perform all tenant's covenants
in the Lease. If the Tenant is a private
corporation and any part or all of the
corporate shares shall be transferred by sale,
assignment, bequest, inheritance, operation of
law or other dispositions or dispositions so
as to result in a change in the control of the
corporation, such change of control shall be
considered an assignment of this Lease and
shall be subject to the aforesaid provisions;
the Tenant shall make available to the
landlord upon its request for inspection and
copying, all books and records of the Tenant,
any assignee or subtenant and their respective
shareholders which, alone or with other data,
may show the applicability or inapplicability
of this clause.
-23-
<PAGE>
The foregoing is subject to the provisions of
paragraph 4 and 19 of Schedule "C."
-24-
<PAGE>
The Tenant shall not advertise or allow the
Premises or a portion thereof to be advertised
as being available for assignment, sublease or
otherwise without the prior written approval
of the Landlord to the form and content of
such advertisement, which approval shall not
be unreasonably withheld, provided that no
such advertising shall contain any reference
to the rental or the rental rate of the
Premises;
Rules and
Regulations (f) that the Tenant and its employees and all
persons visiting or doing business with them
on the Premises shall be bound by and shall
observe and perform the Rules and Regulations
and any further and other reasonable Rules and
Regulations made hereafter by the Landlord of
which notice in writing shall be given to the
Tenant and all such Rules and Regulations
shall be deemed to be incorporated into and
form part of this Lease;
Use of
Premises (g) Subject to paragraph 4 and 19 of Schedule "C,"
not to use the Premises nor allow the Premises
to be used for any purpose other than an
office; and that if the costs of insurance on
the Building shall be increased by reason of
the use made of the Premises or by reason of
anything done or omitted or permitted by the
Tenant or by anyone permitted by the Tenant to
be upon the Premises, the Tenant shall pay to
the Landlord on demand as Additional Rent the
amount of such increase; and if any insurance
policy upon the Building shall be cancelled or
be under notice of possible cancellation by
the insurer by reason of the use or occupation
of the Premises or any part thereof by the
Tenant or any assignee or subtenant or by
anyone permitted by the Tenant to be upon the
Premises, the Landlord may at its option
terminate this Lease and thereupon rent and
any other payments for which the Tenant is
liable under this Lease shall be apportioned
and paid in full to the later of the date of
such termination or the date on which actual
possession is given up or taken, and the
Tenant shall immediately deliver up possession
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<PAGE>
of the Premises to the Landlord and the
Landlord may re-enter and take possession of
same;
Observance
of Law (h) in its use and occupation of the Premises, not
to violate any law or ordinance or any order,
rule, regulation or requirement of any
federal, provincial or municipal government
and any appropriate department, commission,
board or officer thereof, and to comply
promptly and at the Tenant's sole cost with
all of the foregoing;
Waste and
Nuisance (i) not to do or suffer any waste, damage,
disfiguration or injury to the Premises or the
fixtures and equipment thereof or permit or
suffer any overloading of the floors thereof;
and not to use or permit to be used any part
of the Premises for any dangerous, noxious or
offensive trade or business and not to cause
or maintain any nuisance in, at or on the
Premises or cause any annoyance, nuisance or
disturbance to the occupiers or owners of any
adjoining lands and/or premises;
Entry by
Landlord (j) to permit the Landlord and its servants or
agents to enter upon the Premises at any time
and from time to time for the purpose of
inspecting and making repairs, alterations or
improvements to the Premises or the Building,
and the Tenant shall not be entitled to any
compensation for any inconvenience, nuisance
or discomfort occasioned thereby;
Indemnity (k) to promptly indemnify and save harmless the
Landlord from any and all liabilities,
damages, costs, claims, suits or actions
arising out of: any breach, violation or
non-observance by the Tenant of any of its
covenants and obligations under the Lease; any
damage to property while said property shall
be in or about the Premises including the
systems, furnishings and amenities thereof, as
a result of the wilful or negligent act or
omission of the Tenant, its invitees,
licensees, agents, servants or employees; and
any injury to any licensee, invitee, agent,
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<PAGE>
servant or employee of the Tenant, including
death resulting at any time therefrom,
occurring on or about the Premises or the
Building; and this indemnity shall survive the
expiry or earlier termination of this Lease,
in respect of any of the foregoing
circumstances during the Term;
Exhibiting
Premises (l) to permit the Landlord or its agents to
exhibit the Premises to prospective tenants
during the last six (6) months of the Term or
any renewal thereof;
Alterations (m) that the Tenant will not, without the prior
written consent of the Landlord, make or erect
in or to the Premises any installations,
alterations, additions, partitions, repairs or
improvements, or do anything which might
affect the proper operation of the electrical,
lighting, heating, ventilating,
air-conditioning, sprinkler, fire protection
or other systems; the Tenant's request for
consent shall be in writing and accompanied by
an adequate description of the contemplated
work, and where appropriate, working drawings
and specifications therefor; the Landlord's
costs of having its architects, engineers or
others examine such drawings and
specifications shall be payable by the Tenant
upon demand as Additional Rent; the Landlord
may require that any or all work to be done
hereunder be done by the Landlord's
contractors or workmen or by contractors or
workmen engaged by the Tenant but first
approved by the Landlord and shall be
performed in subject to inspection by and the
reasonable supervision of the Landlord and
shall be performed in accordance with all laws
and any reasonable conditions (including a
reasonable supervision fee of the Landlord to
be paid by the Tenant) or regulations imposed
by the Landlord and completed in a good and
workmanlike manner and with reasonable
diligence in accordance with the approvals
given by the Landlord; any connections of
apparatus to the electrical system, plumbing
lines, or heating, ventilating or
air-conditioning systems shall be deemed to be
an alteration within the meaning of this
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<PAGE>
paragraph; the Tenant shall, at its own cost
and before commencement of any work, obtain
all necessary building or other permits and
keep same in force and the Tenant shall
promptly pay all charges incurred by it for
any work, materials or services and shall
forthwith discharge any liens resulting
therefrom; if the Tenant fails to so discharge
any liens, the Landlord may (but shall be
under no obligation to) pay into court the
amount required, or otherwise obtain a
discharge of the lien in the name of the
Tenant and any amount so paid together with
all costs incurred in respect of such
discharge shall be payable by the Tenant to
the Landlord forthwith upon demand plus
interest on all such amounts at the rate
hereafter set out in this lease; the Tenant
shall not create any mortgage, conditional
sale agreement, or other encumbrance in
respect of its leasehold improvements or trade
fixtures nor shall the Tenant lease the same
from any third party, nor permit any such
encumbrance to attach to the Premises or to
the Building;
Interior Walls
and Exterior
Walls (n) that the Tenant will not deface or mark any
part of the building and will not permit any
hole to be drilled or made or nails, screws,
hooks or spikes to be driven into the exterior
or interior walls, doors or floors or stone or
brick work of the Building or any
appurtenances thereof without the prior
written consent of the Landlord;
(o) that the Tenant will not paint, place, affix,
inscribe or display on any of the windows of
the Premises or the Building or on any part of
the outside or inside thereof, any sign,
picture, direction, lettering, advertisement
or notice without the prior written consent of
the Landlord, and the Landlord shall have the
right to prescribe the size, material, color,
method of attachment, pattern and location of
identification signs for the Tenant, on the
Tenant ceasing to be a tenant of the Premises,
the Landlord will cause any sign to be removed
or obliterated, the Tenant shall be entitled
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<PAGE>
to have one name shown upon the directory
board or boards of the Building and any
additional names or subsequent changes shall
be paid for by the Tenant, but the Landlord
shall in its sole discretion design the style
of such identification and allocate the space
on the directory board or boards therefor; the
foregoing is subject to Section of Schedule
"C";
Name of
Building (p) not to refer to the Building by any name or
names other than such name or names as may be
designated from time to time by the Landlord,
nor to use such name or names for any purpose
other than that of the business address of the
Tenant;
Glass (q) the Landlord shall replace and the Tenant
shall pay to the Landlord on demand as
Additional Rent the cost of replacement with
as good quality any glass on or within or in
the walls or doors (exterior or interior)
abutting or forming part of the Premises,
which is broken during the Term or any
renewals thereof, unless such breakage is
solely the result of the negligence of the
Landlord;
Certificates (r) the Tenant will at any time and from time to
time, at no cost to the Landlord, and upon not
less than ten (10) days' prior notice, execute
and deliver to the Landlord a statement in
writing certifying that this Lease is
unmodified and in full force and effect (or if
modified, stating the modifications and that
the Lease is in full force and effect as
modified), the amount of the annual rental
then being paid hereunder, the dates to which
the same, by instalment or otherwise, and
other charges hereunder have been paid,
whether or not there is any existing default
on the part of the Landlord of which the
Tenant has notice, and any other information
reasonably required;
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<PAGE>
Evidence of
Payments (s) to produce to the Landlord upon request,
satisfactory evidence of the due payment by
the Tenant of all payments required to be made
by the Tenant under this Lease;
Notice of
Accidents (t) to notify the Landlord promptly and in writing
of any accident or damages to or defect in the
Premises, the Building, or any part thereof
including the heating, ventilating and
air-conditioning apparatus, water and gas
pipes, telephone lines, electrical apparatus
or other building services;
Tenant
Insurance (u) At its expense to maintain in force (in
addition to the insurance coverage provided by
the Landlord included under the operating
costs provision paragraph in 2(f) during the
term and any renewals thereof:
(i) comprehensive general liability insurance
against claims for personal injury, death
or property damage arising out of all
operations of the Tenant, (including
tenants' legal liability, personal
liability, property damage and
contractual liability to cover all
indemnities and repair obligations) with
respect to the business carried on in and
from the Premises, in amounts required b
the Landlord and any mortgagee of the
Project or any part thereof from time to
time but in no event less than Two
Million Dollars per occurrence;
(ii) all risks direct damage insurance
covering all chattels and fixtures and
all leasehold improvements,
installations, additions and partitions
made by the Tenant or by the Landlord at
the Tenant's expense, in an amount equal
to the full replacement value thereof;
and,
(iii) such other forms of insurance as may be
reasonably required by the Landlord and
any mortgagee from time to time; and the
tenant agrees to furnish upon request
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<PAGE>
from the Landlord verification of
compliance with the provisions of this
paragraph.
Surrender on
Termination (v) at the expiration or sooner termination
of the Term, to deliver up possession of
the Premises to the Landlord, together
with all fixtures or improvements which
the Tenant is required or permitted to
leave therein or thereon free of all
rubbish and in a clean and tidy
condition, and to deliver to the Landlord
all keys and security devices;
Fire and
Safety (w) the Tenant acknowledges that it may be or
become desirable or necessary for the
Landlord to organize and coordinate
arrangements within the Building for the
safety of all tenants and occupants in
the event of fire or similar event, and
the Tenant, its employees, servants,
agents and invitees shall cooperate and
participate in any fire drills,
evacuation drills and similar exercises
as may be arranged or organized by the
Landlord from time to time, and to hold
the Landlord harmless from any personal
or material loss, damage or injury
arising therefrom; and
Energy
Conservation (x) to cooperate with the Landlord in
conserving energy of all types in the
Building, including complying at the
Tenant's own cost with all reasonable
requests and demands of the Landlord made
with a view to energy conservation; any
reasonable capital expenditures made by
the Landlord in an effort to promote
energy conservation shall be added to
Operating Costs in the Year such
expenditures are incurred.
Quiet
Enjoyment 9. The Landlord covenants with the Tenant for
quiet enjoyment.
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<PAGE>
Landlord's
Covenants
Heating & Air
Conditioning 10. The Landlord further covenants with the Tenant
as follows:
(a) subject to any payment referred to in
section 6 above required to be made by
the Tenant in respect thereof, to provide
heating of the Premises and to operate
the air-conditioning and ventilating
equipment to an extent sufficient to
maintain a reasonable temperature therein
at all times during Normal Business Hours
except during the making of repairs; but
should the Landlord default in so doing,
the Landlord shall not be liable for
indirect or consequential damages of any
kind or damages for personal discomfort
or illness by reason of the operation or
non-operation of such equipment or
otherwise;
In the event that the Tenant requires
heating or air-conditioning during other
than Normal Business Hours, then the
Tenant shall pay to the Landlord the cost
of providing said additional heating and
air-conditioning as may be reasonably
determined by the Landlord; in accordance
with Schedule "C."
Taxes (b) subject to any payment referred to in
section 5 above required to be made by
the Tenant in respect thereof, to pay or
cause to be paid any Taxes, the payment
of which are not the responsibility of
the Tenant under this Lease;
Elevator (c) to furnish, except when repairs are being
made, passenger elevator service during
Normal Business Hours and limited
elevator service at other times;
operatorless and automatic elevator
service if made available shall be deemed
elevator service; and to permit the
Tenant and its employees to have free use
of such elevator service in common with
others;
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<PAGE>
Access (d) to permit the Tenant and its employees
and all persons lawfully requiring
communication with them access in common
with others of the entrances, stairways,
corridors and halls in the Building
leading to the Premises and to have the
use of the same during Normal Business
Hours and during Non Normal Business
Hours by the Building Security System;
Washrooms (e) to permit the Tenant and its employees in
common with others entitled thereto to
use the washrooms in the Building which
may be designated for the Premises;
Janitor
Services (f) to cause when reasonably necessary from
time to time the floors to be swept and
windows to be cleaned and the desks,
tables and other furniture of the Tenant
to be dusted all in keeping with a
first-class office building but with the
exception of the obligation to cause such
work to be done, the Landlord shall not
be responsible for any act of omission or
commission on the part of the person or
persons employed to perform such work;
such work shall be done at the Landlord's
direction without interference by the
Tenant, his servants or employees. The
Tenant acknowledges that the Landlord
shall be relieved from the foregoing
obligations in respect of any part of the
Premises to which access in not granted
to the person or persons employed or
retained to do such work.
Fixtures 11. Provided that the Tenant may remove its fixtures
and chattels if and only if all rent and other charges
due or to become due are fully paid; provided further,
however, that all leasehold improvements, installations,
additions, partitions and fixtures (other than trade or
tenant's fixtures in or upon the Premises, which terms
shall in no case include any heating, ventilating and
air-conditioning equipment or other building services or
carpeting) whether placed there by the Tenant or the
Landlord, shall be the Landlord's property upon the
termination of this Lease without compensation therefor
to the Tenant and shall not be removed from the Premises
at any time either during or after the Term.
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<PAGE>
Notwithstanding anything herein contained the Landlord
shall be under no obligation to replace, repair or
maintain such leasehold improvements, installations,
additions, partitions and fixtures.
Damage or
Destruc-
tion 12. (a) If the Premises or any portion thereof are
damaged or destroyed by fire or by other
casualty against which the Landlord is
required to be insured, rent shall abate in
proportion to the area of that portion of the
Premises which, in the reasonable opinion of
the Landlord, is thereby rendered unfit for
the purposes of the Tenant until the Premises
are repaired and rebuilt and the Landlord
agrees that it will, with reasonable
diligence, repair and rebuild the Premises.
The Landlord's obligation to rebuild and
restore the Premises shall not include the
obligation to rebuild, restore, replace or
repair any chattel, fixture, leasehold
improvement, installation, addition or
partition in respect of which the Tenant is to
maintain insurance under section 8(u), or any
other thing that is the property of the Tenant
(in this clause collectively called" Tenant's
Improvements"); the Premises shall be deemed
restored and rebuilt and fit for the Tenant's
purposes when the Landlord's Architect
certifies that they have been substantially
restored and rebuilt to the point where the
Tenant could occupy them for the purpose of
rebuilding, restoring, replacing or repairing
the Tenant's Improvements; the issuance of the
certificate shall not relieve the Landlord of
its obligation to complete the rebuilding and
restoration as aforesaid, but the Tenant shall
forthwith after issuance of the certificate
proceed to rebuild, restore, replace and
repair the Tenant's Improvements, and the
provisions of section 8 (m) shall apply to
such work, mutatis mutandis; See Page 7A.
(b) Notwithstanding section 12(a), if the Premises
or any portion thereof are damaged or
destroyed by any cause whatsoever and cannot
in the reasonable opinion of the Landlord be
rebuilt or made fit for the purposes of the
Tenant as aforesaid within ninety (90) days of
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<PAGE>
the damage or destruction, the Landlord
instead of rebuilding or making Premises fit
for the Tenant may, at its option, terminate
this lease by giving to the Tenant within
thirty (30) days alter such damage or
destruction notice of termination and
thereupon rent and any other payments for
which the Tenant is liable under this Lease
shall be apportioned and paid to the date of
such damage and the Tenant shall immediately
deliver up possession of the Premises to the
Landlord;
(c) Irrespective of whether the Premises or any
portion thereof are damaged or destroyed as
aforesaid, in the event that fifty per cent
(50%) or more, as determined by the Landlord,
of the Building, is damaged or destroyed by
any cause whatsoever, and if, in the
reasonable opinion of the Landlord such area
cannot be rebuilt or made fit for the purpose
of the tenants thereof within one hundred and
eighty (180) days of such damage or
destruction, the Landlord may at its option
terminate this Lease by giving to the Tenant
within thirty (30) days after such damage
notice of termination requiring vacant
possession of the Premises sixty (60) days
after delivery of the notice of termination
and thereupon rent and any other payments for
which the Tenant is liable under this Lease
shall be apportioned and paid to the date on
which vacant possession is given and the
Tenant shall deliver up possession of the
Premises to the Landlord in accordance with
such notice of termination.
Expansion,
Alteration 13. The Landlord shall have the right to enter into the
Premises and to bring its workmen and materials
thereon to make additions, alterations,
improvements, installations and repairs to the
Lands, the Building, and the common areas and
services thereof as such may exist from time to
time, including the right to erect new buildings
and facilities. The Landlord may cause such
reasonable obstructions and interference with the
use and enjoyment of the Lands, the Building and
the Premises as may be necessary for the purposes
aforesaid and may interrupt or suspend the supply
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<PAGE>
of electricity, water of other utilities or
services when necessary and until the additions,
alterations, improvements, installations or repairs
have been completed, and there shall be no
abatement in rent nor shall the Landlord be liable
by reason thereof, provided all such work is done
as expeditiously as reasonably possible. The
Landlord shall have the right to use, install,
maintain and repair pipes, wires, ducts, shafts or
other installations in, under or through the
Premises for or in connection with the supply of
any services to the Premises or any other premises
in the Building. The Landlord further reserves the
right to monitor access to any of the parking areas
by means of barriers, control booths or any other
method which the Landlord deems proper. The
Landlord reserves the right to change the location,
layout or size of the parking area and to charge
for the use of parking spaces, except as expressly
set out in this Lease.
Injuries,
Loss and
Damage 14. The Landlord shall not be responsible in any way
for any injury to any person (including death) or
for any loss of or damage to any property belonging
to the Tenant or to other occupants of the Premises
or to their respective invitees, licensees, agents,
servants or other persons from time to time
attending at the Premises while such person or
property is in or about the Lands, the Premises,
the Building, or any areaways, parking areas,
lawns, sidewalks, steps, truckways, platforms,
corridors, stairways, elevators or escalators in
connection therewith, including without limiting
the foregoing, any loss or damage to any property
caused by theft or breakage, or by steam, water,
rain or snow or for any loss or damage caused by or
attributable to the condition or arrangements of
any electric or other wiring or for any damage
caused by smoke or anything done or omitted to be
done by any other tenant of premises in the
Building or for any other loss whatsoever with
respect to the Premises, goods placed therein or
any business carried on therein.
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<PAGE>
Page 7A - Add to the end of Section 12(a):
** The Tenant shall restore the Premises and reinstate all
leasehold improvements at its own expense; without limiting
the generality of the foregoing, the Landlord shall not be
obligated to provide any tenant allowance or tenant
inducement to assist the Tenant in rebuilding, restoring,
replacing or repairing the Tenant's Improvements, regardless
of whether or not the Landlord had originally provided any
tenant allowance or tenant inducement in respect thereof.
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<PAGE>
Impossibility
Unavoidable
Delays 15. Whenever and to the extent the Landlord is unable
to fulfil or shall be delayed or restricted in the
fulfillment of any obligation hereunder by reason
of being unable to obtain the material, goods,
equipment, service, utility or labor required to
enable it to fulfil such obligation or by reason of
any statute, law, regulation, by-law or order or by
reason of any other cause beyond its reasonable
control, whether of the same nature as the
foregoing or not, the Landlord shall be relieved
from the fulfillment of such obligation and the
Tenant shall not be entitled to compensation for
any inconvenience, nuisance or discomfort thereby
occasioned. There shall be no deduction from the
rent or other moneys payable hereunder by reason of
any such failure or cause.
Re-Entry 16. PROVISO for re-entry by the said Landlord on
non-payment of rent or non-performance of
covenants.
Bankruptcy,
etc. 17. Provided further that in case without the written
consent of the Landlord, the Premises shall be used
by any other person than the Tenant or for any
other purpose than that for which the same were let
or in case the Premises shall be vacated or remain
unoccupied for fifteen (15) days, or in case the
Term or any of the goods and chattels of the Tenant
shall be at any time seized in execution or
attachment by any creditor of the Tenant or the
Tenant shall make any assignment for the benefit of
the creditors or any bulk sale or become bankrupt
or insolvent or take the benefit of any Act now or
hereafter in force for bankrupt or insolvent
debtors, or, if the Tenant is a corporation and any
order shall be made for the winding-up of the
Tenant, or other termination of the corporate
existence of the Tenant, then in any such case this
Lease shall, at the option of the Landlord, cease
and determine and the Term shall immediately become
forfeited and void and the then current months'
rent and the next ensuing three (3) month's rent
(including in both cases all other amounts payable
as Additional Rent) shall immediately become due
and be paid and the Landlord without prejudice to
any claim for damages for any antecedent breach of
covenant, may re-enter and take possession of the
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<PAGE>
Premises as though the Tenant or other occupant or
occupants of the Premises was or were holding over
after the expiration of the Term without any right
whatever.
Distress 18. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting
the Landlord's right of distress, and covenants and
agrees that notwithstanding any such statute none
of the goods and chattels of the Tenant on the
Premises at any time during the Term shall be
exempt from levy by distress for rent in arrears.
Entry as
Agent 19. deleted in original
Right of
Term-
ination 20. deleted in original
Non-
waiver 21. No condoning, excusing or overlooking by the
Landlord or any default, breach or non-observance
by the Tenant at any time or times in respect of
any covenant, proviso or condition herein contained
shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or
subsequent default, breach or non-observance, or so
as to defeat or affect in any way the rights of the
Landlord herein in respect of any such continuing
or subsequent default or breach, and no waiver
shall be inferred from or implied by anything done
or omitted by the Landlord save only express waiver
in writing. All rights and remedies of the
Landlord in this Lease contained shall be
cumulative and not alternative.
Over-
holding 22. If the Tenant shall continue to occupy all or part
of the Premises after the expiration of this Lease
with the consent of the Landlord, and without any
further written agreement, the Tenant shall be a
monthly tenant at the basic monthly rental payable
during the last year of this Lease and otherwise on
the terms and condition herein set out except as to
length of tenancy.
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<PAGE>
Landlord
Performing
Tenant's
Covenants 23. If the Tenant fails to perform or cause to be
performed any of the covenants or obligations of
the Tenant herein, the Landlord shall have the
right (but shall not be obligated) to perform or
cause to be performed and to do or cause or be done
such things as may be necessary or incidental
thereto (including without limiting the foregoing,
the right to make repairs, installations, erections
and expend moneys) and all payments, expenses,
charges, fees and disbursements incurred or paid by
or on behalf of the Landlord in respect thereof
shall be paid by the Tenant to the Landlord
forthwith upon demand.
Payments to
Landlord 24. All payments to be made by the Tenant under this
Lease shall be made, at such place or places as the
Landlord may designate in writing, and to the
Landlord or to such agent of the Landlord as the
Landlord shall from time to time direct. The
Tenant shall pay the Landlord interest on all
overdue rentals including Basic Rent and Additional
Rent or other amounts, all such interest to be
calculated from the date upon which the amount is
first due or demanded until actual payment thereof
and at a rate of five (5%) per cent per annum in
excess of the minimum lending rate to prime
commercial borrowers from time to time current at
chartered banks in the municipality in which the
building is situate.
Recovery
of Adjust-
ments 25. The Landlord shall have (in addition to any other
right or remedy of the Landlord) the same rights
and remedies in the event of default by the Tenant
in payment of any amount payable by the Tenant
hereunder, as the Landlord would have in the case
of default in payment of rent.
Registration
& Planning
Act 26. (a) The Tenant covenants and agrees with the
Landlord that the Tenant will not register or
record this Lease against the title to the
Lands, except by way of notice.
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<PAGE>
(b) Where applicable, this Lease shall be
subject to the condition that it is
effective only if The Planning Act is
complied with. Pending such compliance
the Term, and any renewal periods, shall
be deemed to be for a total period of one
(1) day less than the maximum lease term
permitted by law without such compliance.
Mortgages 27. Subject to Section 25 of Schedule "C" at the option
of the Landlord, this Lease shall be subject and
subordinate to any and all mortgages, charges and
deeds of trust, which may now or at any time
hereafter affect the Premises in whole or in part,
or the Lands, Building whether or not any such
mortgage, charge or deed of trust affects only the
Premises or the Lands, the building or affects
other premises as well. On request at any time and
from time to time of the Landlord or of the
mortgagee, chargee or trustee under any such
mortgage, charge or deed of trust, the Tenant shall
promptly, at no cost to the Landlord or mortgagee,
chargee or trustee;
(a) attorn to such mortgagee, chargee or trustee
and become its tenant of the Premises or the
Tenant of the Premises of any purchaser from
such mortgagee, chargee or trustee in the
event of an exercise of any permitted power of
sale contained in any such mortgage, charge or
deed of trust for the then unexpired residue
of the Term on the terms herein contained,
and/or
(b) postpone and subordinate this Lease to such
mortgage, charge or deed of trust to the
intent that this Lease and all right, title
and interest of the Tenant in the Premises
shall be subject to the rights of such
mortgagee, chargee or trustee as fully as if
such mortgage, charge or deed of trust had
been executed and registered and the money
thereby secured had been advanced before the
execution of this Lease (and notwithstanding
any authority or consent of such mortgagee, or
trustee, express or implied, to the making of
this Lease).
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<PAGE>
Any such attornment or postponement and
subordination shall extend to all renewals,
modifications, consolidations, replacements
and extension of any such mortgage, charge or
deed of trust and every instrument
supplemental or ancillary thereto or in
implementation thereof. The Tenant shall
forthwith execute any instruments of
attornment or postponement and subordination
which may be so requested to give effect to
this section.
Assignment
Landlord 28. If the Landlord sells or leases the Lands, the
Building or any part thereof, or assigns this
Lease, and to the extent that the purchaser, lessee
or assignee is responsible for compliance with the
covenants and obligations of the Landlord
hereunder, the Landlord without further written
agreement will be discharged and relieved of
liability under the said covenants and obligations.
Captions 29. The captions appearing in the margin of this Lease
have been inserted as a matter of convenience and
for reference only and in no way define, limit or
enlarge the scope of meaning of this Lease nor any
of the provisions hereof.
Guarantee 30. deleted in original
(if
applicable)
Notice 31. (a) Any notice, request, statement or other
writing pursuant to this Lease shall be deemed
to have been given if Notice sent by
registered prepaid post as follows:
TO THE LANDLORD
8 Vinci Crescent
Downsview, Ontario M3H 2Y7
or such other address as the Landlord shall
notify the Tenant in writing any time or from
time to time; TO THE TENANT -- at the Premises
and such notice shall be deemed to have been
received by the Landlord, Tenant as the case
may be, on the third business day after the
date on which it shall have been so mailed (in
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<PAGE>
the event that there is an interruption of
postal service, the aforesaid period shall be
extended for a period equivalent to the period
of interruption).
(b) Notice shall also be sufficiently given
if and when the same shall be delivered,
in the case of notice to Landlord, to an
executive officer of the Landlord, and in
the case of notice to the Tenant, to him
personally or to an executive officer of
the Tenant if the Tenant is a
corporation. Such notice, if delivered,
shall be conclusively deemed to have been
given and received at the time of such
delivery. If in this Lease two or more
persons are named as Tenant, such notice
shall also be sufficiently given if and
when the same shall be delivered
personally to any one of such persons.
Provided that either party may, by notice
to the other, from time to time designate
another address in Canada to which
notices mailed more than ten (10) days
thereafter shall be addressed.
Effect of
Lease 32. This indenture and everything herein contained
shall extend to and bind and may be taken advantage
of by the respective heirs, executors,
administrators, successors and assigns, as the case
may be, of each and every of the parties hereto,
subject to the granting of consent by the Landlord
as provided herein to any assignment or sublease,
and where there is more than one tenant or there is
a female party or a corporation, the provisions
hereof shall be read with all grammatical changes
thereby rendered necessary and all covenants shall
be deemed joint and several.
Interpretation
of Lease 33. All of the Provisions contained in this Lease are
to be construed as covenants and agreements and if
any provision is illegal or unenforceable, it shall
be considered separate and severable from the
remaining provisions, which shall remain in force
and be binding upon the Landlord and the Tenant.
Time of
Essence 34. Time shall be of the essence of this Lease.
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<PAGE>
Law 35. This Lease shall be governed by and construed in
accordance with the laws of the Province of
Ontario.
Intent of
Lease 36. This is a carefree lease and it is the mutual
intention of the parties hereto that the basic rent
herein provided to be paid shall be net to the
Landlord and clear of all taxes, costs and charges
arising from or relating to the lands and building
in that the Tenant shall bear its proportionate
share of all costs of and be responsible for all
matters in relation to the operation, maintenance
and repair of the lands and building (save as
otherwise provided herein) including and without
limiting the generality of the foregoing the
Tenant's proportionate share of taxes and operating
costs. Charges of a kind personal to the Landlord
such as taxes on the income of the Landlord,
Corporation Tax, estate and inheritance tax and
similar taxes, principal and interest payments to
be made by the Landlord in satisfaction of
mortgages now or hereinafter registered against the
said lands and building shall not be the
responsibility or obligation of the Tenant.
37. Schedule "A," "B," "C," "E" and "F" and Rules
and Regulations attached form part of this Lease.
38. The Landlord entering into this Lease transaction
is conditional upon the following occurring
contemporaneously with the execution of this Lease
by the Tenant.
(a) Saville Systems PLC executing and
delivering to the Landlord the Indemnity
in form attached as Schedule "E" hereto,
and
(b) Saville Systems PLC delivering four
copies of an opinion of its Irish counsel
addressed to the Landlord, its
solicitors, Aird & Berlis, 3170497 Canada
Inc. and its solicitors, Gardiner,
Roberts, in form attached as Schedule
"F."
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<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this lease.
SIGNED, SEALED AND DELIVERED
in the presence of ORFUS INVESTMENTS
BY /s/ HOWARD ORFUS
------------------------
SAVILLE SYSTEMS CANADA, LTD.
BY /s/ MARC J. VENATOR
------------------------
Authorized Signing Officer
MARC J. VENATOR, CFO TENANT CS
------------------
Authorizing Signing Officer
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<PAGE>
RULES AND REGULATIONS
1. The Tenant shall not place or permit to be placed or left in
or upon any part of the Building outside of the Premises, or in or
upon any part of the Building of which the Premises form a part,
any debris or refuse.
2. The Landlord shall permit the Tenant and the Tenant's
employees and all persons lawfully requiring communication with
them to have the use during Normal Business Hours in common with
others entitled thereto of the main entrance and the stairways,
corridors, elevators or other mechanical means of access leading
to the Premises. At times other than during Normal Business Hours
the Tenant and the employees of the Tenant and persons lawfully
requiring communication with the Tenant shall have access to the
Building and to the Premises.
3. The Landlord shall permit the Tenant and the employees of the
Tenant in common with others entitled thereto, to use the
washrooms on the floor of the Building on which the Premises are
situated or, in lieu thereof, those washrooms designated by the
Landlord, save and except when the general water supply may be
turned off from the public main or at such other times when repair
and maintenance undertaken by the Landlord shall necessitate the
non-use of the facilities.
4. The Tenant shall not permit any cooking in the Premises
without the written consent of the Landlord.
5. The sidewalks, entries, passages, escalators, elevators and
staircases shall not be obstructed or used by the Tenant, its
agents, servants, contractors, invitees or employees for any
purpose other than ingress to and egress from the offices. The
Landlord reserves entire control of all parts of the Building
employed for the common benefit of the tenants and without
restricting the generality of the foregoing, the sidewalks,
entries, corridors and passages not within the Premises,
washrooms, lavatories, air-conditioning closets, fan rooms,
janitor's closets, electrical closets and other closets, stairs,
escalators, elevator shafts, flues, stacks, pipe shafts and ducts
and shall have the right to place such signs and appliances
therein, as it may deem advisable, provided that ingress to and
egress from the Premises is not unduly impaired thereby.
6. The Tenant, its agents, servants, contractors, invitees or
employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Building without first obtaining the consent in
<PAGE>
writing of the Landlord. In giving such consent, the Landlord
shall have the right in its sole discretion, to prescribe the
weight permitted and the position thereof, and the use and design
of planks, skids, or platforms, to distribute the weight thereof.
All damage done to the Building by moving or using any such heavy
equipment or other office equipment or furniture shall occur only
by prior arrangement with the Landlord. No Tenant shall employ
anyone to do its moving in the Building other than the staff of
the Building, unless permission to employ anyone else is given by
the Landlord and the reasonable cost of such moving shall be paid
by the Tenant. Safes and other heavy office equipment and
machinery shall be moved through the halls and corridors only upon
steel bearing plates. No freight or bulky matter of any
description will be received into the Building or carried in the
elevators except during hours approved by the Landlord.
7. The Tenant shall not place or cause to be placed any
additional locks upon any doors of the Premises without the
approval of the Landlord and subject to any conditions imposed by
the Landlord. Two keys shall be supplied to the Landlord for each
door to the Leased Premises and all locks shall be standard to
permit access to the Landlord's master key. If additional keys
are requested, they must be paid for by the Tenant. No one, other
than the Landlord's staff will have keys to the outside entrance
doors of the Building,
8. The water closets and other water apparatus shall not be used
for any purpose other than those for which they were constructed,
and no sweepings, rubbish, rags, ashes or other substances shall
be thrown therein. Any damage resulting by misuse shall be borne
by the Tenant by whom or by whose agents, servants, or employees
the same is caused. The Tenant shall not let the water run unless
it is in actual use, and shall not deface or mark any part of the
Building, or drive nails, spikes, hooks, or screws into the walls
or woodwork of the Building.
9. The Tenant shall not do or permit anything to be done in the
Premises, or bring or keep anything therein which will in any way
increase the risk of fire or the rate of fire insurance on the
said Building or on property kept therein, or obstruct or
interfere with the rights of other tenants or in any way injure or
annoy them or the Landlord, or violate or act at variance with the
laws relating to fires or with the regulations of the Fire
Department, or with any insurance upon said Building or any part
thereof, or violate or act in conflict with any of the rules and
ordinances of the Board of Health or with any statute or municipal
by-law.
<PAGE>
10. No one shall use the Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or
articles other than those required for business purposes.
11. The Tenant shall permit window cleaners to clean the windows
of the Premises during Normal Business Hours.
12. Canvassing, soliciting and peddling in or about the Building
and in the parking area are prohibited.
13. The Tenant shall not receive or ship articles of any kind
except through facilities, and designated doors and at hours
designated by the Landlord and under the supervision of the
Landlord.
14. It shall be the duty of the respective tenants to assist and
cooperate with the Landlord in preventing injury to the premises
demised to them respectively.
15. No inflammable oils or other inflammable, dangerous or
explosive materials save those approved in writing by Landlord's
insurers shall be kept or permitted to be kept in the Premises.
16. No bicycles or other vehicles shall be brought within the
Building without the consent of the Landlord.
17. No animals or birds shall be brought into the Building
without the consent of the Landlord.
18. The Tenant shall not install or permit the installation or
use of any machine dispensing goods for sale in the Premises or
the Building or permit the delivery of any food or beverage to the
Premises without the approval of the Landlord or in contravention
of any regulations fixed or to be fixed by the Landlord. Only
persons authorized by the Landlord shall be permitted to deliver
or to use the elevators in the Building for the purpose of
delivering food or beverages to the Premises.
19. If the Tenant desires telegraphic or telephonic connections,
the Landlord will direct the electricians as to where and how the
wires are to be introduced, and without such directions no boring
or cutting for wires will be permitted. No gas pipe or electric
wire will be permitted which has not been ordered or authorized by
the Landlord. No outside radio or television materials shall be
allowed on the Leased Premises without authorization in writing by
the Landlord.
20. The Tenant shall not cover or obstruct any of the skylights
and windows that reflect or admit light into any part of the
Building except for the proper use of approved blinds and drapes.
<PAGE>
21. Any hand trucks, carryalls, or similar appliances used in the
Building with the consent of the Landlord, shall be equipped with
rubber tires, slide guards and such other safeguards as the
Landlord shall require.
22. The Tenant shall not permit undue accumulations of garbage,
trash, rubbish or other refuse within or without the Premises or
cause or permit objectionable odors to emanate or be dispelled
from the Leased Premises.
23. The Tenant shall not place or maintain any supplies or other
articles in any vestibule or entry of the Premises, on the
footwalks adjacent thereto or elsewhere on the exterior of the
Premises or the Building.
24. The Landlord shall have the right to make such other and
further reasonable rules and regulations as in its judgment may
from time to time be needful for the safety, security, care and
cleanliness of the Building, and for the preservation of good
order therein, and the same shall be kept and observed by the
Tenants, their clerks and servants.
25. The Tenant agrees to the foregoing Rules and Regulations,
which are hereby made a part of this Lease, and each of them, and
agrees that for such persistent infraction of them, or any of
them, as determined by a competent court having jurisdiction be
calculated to annoy or disturb the quiet enjoyment of any other
tenant, or for gross misconduct upon the part of the Tenant, or
any one under it, the Landlord may declare a forfeiture and
cancellation of the accompanying Lease and may demand possession
of the Premises upon one (1) week's notice.
<PAGE>
SCHEDULE "A"
Attached to and forming part of a Lease between ORFUS INVESTMENTS as
Landlord, and SAVILLE SYSTEMS CANADA, LTD. as Tenant
Town of Markham, Regional Municipality of York consisting
of Part of Lots 3 and 4 and all of Lot 5, Plan 65M-2326,
designated as Parts 5, 6, 8 and 9 on 65R-14021
<PAGE>
SCHEDULE "B"
Schedule B depicts the layout of the leased space on the fifth floor
and on the sixth floor at 675 Cochrane Drive, West Tower.
<PAGE>
SCHEDULE "C"
To a lease made the 25th day of April, 1996 between Orfus Investments
as Landlord and Saville Systems Canada, Ltd. as Tenant.
1. TENANT'S INSURANCE
Tenant covenants that, with respect to policies of Tenant's
insurance as required pursuant to Section 8(u) of the Lease, that
such policies shall include provisions showing the Landlord as
named insured in the policy and requiring that the insurer provide
at least thirty (30) days' written notice to the Landlord prior to
termination or material amendment to the policy during the lease
term or any renewal or extension thereof. Tenant shall, forthwith
upon demand, deliver to Landlord evidence of such insurance
policies by way of a certificate from the insurer.
Every such policy of insurance shall contain a waiver by the
insurer of any rights of subrogation or indemnity or any other
claim over against the Landlord or the agents or employees of the
Landlord. If Tenant shall fail to take out or keep in force such
insurance as is required hereunder, or if the evidence submitted
therefor is unacceptable to the Landlord pursuant to this Lease,
then the Landlord may, but shall not be obliged to, obtain some or
all such insurance, and the Tenant shall pay all premiums or other
reasonable expenses incurred by the Landlord as a result thereof
on demand, as rent.
The Tenant shall furnish to the Landlord, upon request, evidence
as to the full replacement cost of the Tenant's fixtures,
furniture and equipment, and Tenant shall ensure that the
insurance coverage under Section 8(u)(ii) is adequate to cover
such fixtures, furniture and equipment.
Landlord's right of termination in Section 8(g) shall apply only
if Tenant does not rectify the cause of insurance cancellation (to
the effect that the Landlord is enabled to insure as before)
within 72 hours of written notice from Landlord to do so.
Landlord shall insure Building A against risk of fire and other
property damage and shall maintain liability insurance and such
amounts and for such risks as would a reasonably prudent landlord
of a similar property. The costs of such insurance shall be
included in Operating Costs.
2. ADDITIONAL RENT
(a) The Landlord agrees that Operating Costs, Taxes and hydro,
plus, if applicable, management fees provided for in Section
6(c), for the Landlord's fiscal year ending April 30, 1996
will not exceed Ten Dollars and Twenty-Three Cents ($10.23)
per sq.ft. of the Rentable Area of the Premises. The Landlord
further warrants and represents and agrees that the Operating
Costs (which is for the Landlord's fiscal year ending April
30, 1996, Five Dollars and Eighty-One Cents ($5.81) per
sq.ft. of the Rentable Area of the Premises) which does not
include hydro or Taxes but does include management fees
provided for in Section 6(c), if applicable, plus the cost of
replacement of electric bulbs, tubes, starters and ballasts
in the Premises, shall not, during the term of this Lease,
excluding any extension or renewal periods, exceed the lesser
of
<PAGE>
(i) the actual amount incurred for said costs per square
foot of Rentable Area of the Premises, and
(ii) the following amounts:
I Year 1 $6.10 per square foot
II Year 2 $6.41 per square foot
III Year 3 $6.73 per square foot
IV Year 4 $7.06 per square foot
V Year 5 $7.42 per square foot
VI Year 6 $7.79 per square foot
VII Year 7 $8.18 per square foot
VIII Year 8 $8.58 per square foot
IX Year 9 $9.01 per square foot
Reference to "Year" shall be to the particular Year or
portion thereof in the initial term following the
commencement date of the term of that part of the Premises
located on the 6th Floor of Building A.
Hydro and Taxes will not be capped.
(b) HVAC supplied to the Premises during Normal Business Hours
shall be included in Operating Costs, and subject to the
limitation on Operating Costs set out above in subparagraph
(a). After Normal Business Hours HVAC shall be available at
all times to Tenant with prior arrangement, at a cost which
is now estimated to be One Dollar and Twenty-Five Cents
($1.25) per heat pump per hour.
(c) Landlord shall provide Tenant annually, an unaudited
statement of Additional Rent within 180 days of the end of
each Year. Said statement shall be completed by a certified
accountant or other independent qualified financial person.
The Landlord or the Tenant as the case may be has the right
to remedy any differences between said statements and the
Additional Rent paid by the Tenant to the Landlord in the
previous Year, within 30 days of the statement being
delivered.
3. GOODS AND SERVICES TAX ("GST")
The Tenant covenants with the Landlord to pay, to the person or
authority to whom they are payable, on or before the due date
thereof, any and all sales or services taxes on the Tenant's
Premises, however designated, which are levied, imposed or
assessed by lawful authority and whether they are levied, imposed
or assessed against the Landlord or the Tenant. The Tenant further
covenants to indemnify and save the Landlord harmless from any and
all liability, costs, expenses or penalties incurred by the
Landlord as a result of such sales or services taxes. The Landlord
will comply with all provisions of the Goods and Services Tax
legislation.
<PAGE>
In connection with GST, the Tenant covenants to pay the Landlord
when due, in addition to all other amounts payable under this
Lease, any goods and services tax ("GST") which shall be
applicable to, or which may be assessed, imposed or levied against
the Basic Rent and/or Additional Rent payable hereunder and all
such GST shall be collectable hereunder in the same manner as
rent.
The obligations of the Tenant in this paragraph 3 shall survive
the expiration or the termination of this Lease.
4. USE OF THE PREMISES
Notwithstanding the provisions of paragraph 8(g) of the Lease:
(a) The Tenant shall, subject to what is hereinafter provided,
use the Premises for business offices and as a 24 hour data
centre and if applicable, all other uses permitted by
prevailing municipal by-laws, subject however to paragraph
4(b)(ii) below.
(b) The Tenant shall ensure that during the Term and any renewal
or extension thereof, no part of the Premises may be used:
(i) (except by Saville Systems Canada, Ltd.,) by anyone in
the primary business of marketing, financing and/or
servicing computers, computer software, hardware or
related material or products, considered a competitor
by Digital Equipment of Canada Limited, ("Digital")
named on a list by Digital from time to time, the most
current list being that set forth in Schedule "D". The
Tenant acknowledges that Digital has the right to
provide an updated list annually to the Landlord
setting forth no more than ten (10) entities which
Digital considers to be a competitor and that the
Landlord has covenanted with Digital not to lease
directly or indirectly by sublet, assignment or
otherwise, any premises in Building A to tenants
considered to be competitors of Digital as aforesaid.
The Tenant acknowledges that the Landlord shall have
no obligation to provide such annual updated list to
the Tenant but shall provide same upon request of the
Tenant;
(ii) by any agency or organization providing social
services to the public at large at Building A; and/ or
(iii) by anyone which carries on a business at Building A
not consistent with a first-class building.
5. LEASEHOLD IMPROVEMENTS
(a) The Landlord agrees that the Tenant shall be entitled to use
all leasehold improvements existing as of the date hereof at
the Premises. The Tenant may demolish any of such existing
leasehold improvements as it sees fit (the "Demolition"),
subject to what is hereinafter provided.
(b) (i) The Landlord will pay to the Tenant, once only as a
contribution towards the costs of leasehold
improvements and the Demolition, as hereinafter
provided, an amount up to $20.00 per square foot of
Rentable Area which
<PAGE>
shall be $429,580 for that part of the Premises
constituting the 6th floor of Building A (the "6th Floor
Premises").
(ii) Provided that the Landlord, acting reasonably,
determines that the financial condition of the Tenant
and Saville Systems PLC is no worse than that existing
as of the date hereof, which determination is to be made
no later than the 1st day of September, 1997, and,
provided further that the Tenant has not been in
material default of any financial obligations under this
Lease, then the Landlord will pay to the Tenant, once
only as a contribution towards the costs of leasehold
improvements and the Demolition, as hereinafter
provided, an amount up to $20.00 per square foot of
Rentable Area which shall be $429,580 for that part of
the Premises constituting the 5th floor of Building A
(the "5th Floor Premises").
The Tenant and Saville Systems PLC shall provide to the
Landlord up-to-date financial information.
(c) All payments made by the Landlord towards the cost of
leasehold improvements and the demolition shall be for the
purposes of Demolition aforesaid and otherwise used solely
for leasehold improvements at the Premises and may not be
utilized towards the cost of furniture, equipment or any
other cost or expense which is not a leasehold improvement
for the Premises.
(d) Any costs in excess of $20.00 per square foot of Rentable
Area of the Premises shall be payable by the Tenant, it being
intended that the leasehold improvement allowance for that
part of the Premises constituting the 6th Floor Premises is
$429,580 and the leasehold improvement allowance for that
part of the Premises constituting the 5th Floor Premises is
$429,580 (in each case based on the assumption that each such
part of the Premises is 21,479 square feet of Rentable Area).
If no leasehold improvement allowance is payable by the
Landlord in respect of the 5th Floor Premises all costs for
the 5th Floor Premises shall be payable by the Tenant.
(e) The Landlord agrees to provide two written estimates from
reputable contractors for the leasehold improvements to be
installed at the 6th Floor Premises and at the 5th Floor
Premises. The Tenant shall have the right to select either of
the contractors which have given the written estimates.
(f) Provided that the Landlord delivers the letter of credit
referred to in paragraph 6 below, the Tenant shall sign the
construction contracts for the Demolition (if applicable) and
the installation of leasehold improvements at the 6th Floor
Premises and when applicable, at the 5th Floor Premises.
(g) (i) Upon completion of the construction of leasehold
improvements for the 6th Floor Premises, the Tenant
shall provide to the Landlord a summary of the actual
costs for the leasehold improvements plus Demolition, if
applicable, for the 6th Floor Premises.
(ii) In the event that the leasehold improvement allowance is
payable by the Landlord in respect of the 5th Floor
Premises, upon completion of the construction of
leasehold improvements for the 5th Floor Premises, the
Tenant shall provide to the Landlord a summary of the
actual costs for the
<PAGE>
leasehold improvements plus Demolition, if applicable,
for the 5th Floor Premises.
(iii) In the event that less than $429,580 is used
towards leasehold improvements and Demolition for
the 6th Floor Premises, or, in the event that less
than $429,580 is used towards leasehold
improvements and Demolition for the 5th Floor
Premises then the amortized monthly amount of the
difference, if any, over the then remaining balance
of the Term (excluding renewals or extensions) at
11% per annum shall be applied towards reduction of
the monthly Basic Rent. In each case the said
figure of $429,580 is based on the assumption each
such part of the Premises is 21,479 square feet of
Rentable Area.
(iv) In the event that the Landlord is not obligated to
pay the leasehold improvement allowance for the 5th
Floor Premises as a result of the provisions of
paragraph 5(b)(ii), then the monthly Basic Rent for
the 5th Floor Premises shall be reduced for the
balance of the Term (excluding renewals or
extensions) based upon a total reduction of
$429,580 amortized at 11% per annum.
(h) There shall be no administrative overhead or profit charged
by the Landlord for the improvements or alterations performed
at any time by the Tenant.
6. PAYMENT OF LEASEHOLD IMPROVEMENT ALLOWANCE
(a) With respect to the leasehold improvement allowance referred
to in paragraph 5 above, in respect of the 6th Floor Premises
only, the Landlord agrees to provide to the Tenant on the
date of execution of this Lease by the Landlord and the
Tenant, an irrevocable letter of credit from a Schedule 1
Canadian chartered bank in an amount equal to $429,580
Canadian dollars (based upon the assumption that the Rentable
Area of the 6th Floor Premises is 21,479 square feet), which
letter of credit shall be in a form and substance
satisfactory to the Tenant, acting reasonably, and shall
provide, inter alia, that the issuer bank will honour demand
for payment made thereunder without inquiry as to whether the
Tenant has the right as between itself and the customer on
whose behalf the issuer bank has issued the letter of credit,
to make such demand and without recognizing any claim of said
customer; provided, however, that the letter of credit shall
provide for delivery of the certificates hereinafter
described in order for payment to be made thereunder.
The letter of credit shall be in favour of the Tenant and shall
allow partial draw downs (less holdbacks to ensure at all times
that applicable holdbacks are maintained at all times), based upon
work in place and upon a certificate of the Tenant's architect
(being a firm satisfactory to the Landlord, acting reasonably)
certifying to the Landlord and to the bank which has issued the
letter of credit:
(i) the amount of the Demolition costs or the work in place
at the 6th Floor Premises of the West Tower (Building A)
of 675 Cochrane Drive, Markham, undertaken by or on
behalf of the Tenant, together with reasonable details
thereof;
(ii) the holdbacks applicable under the Construction Lien Act
to ensure that the applicable holdbacks are maintained
at all times;
<PAGE>
(iii) that in connection with the said work for which a
draw down is being requested under the said letter
of credit:
I the amount of the draw requested is approved, or,
the amount that is approved, as the case may be;
II the work has been installed in accordance with
working drawings and specifications approved by the
Landlord;
III the work has been performed in accordance with all
laws and in a good and workmanlike manner;
IV that all necessary building or other permits have
been maintained;
V that there is no claim for any lien in respect of
the improvements being undertaken at said Premises;
VI the architect has not received written notice from
the Landlord that the Tenant is in default in its
obligation to pay any amounts due under this Lease;
VII in the case of the final holdback being released,
the architect shall certify the above, together
with the certificate that all lien periods have
expired with respect to such improvements and no
liens have been registered or claimed.
In the event that the Landlord sells the building in which the
Premises are located, the Tenant agrees to either accept, in
substitution or in lieu of the letter of credit being issued by
the Landlord named herein, either a cash collateral account in the
amount left to be draw under the said letter of credit, a
substitute letter of credit in the principal amount of the undrawn
amount of the said letter of credit, or, evidence that the new
landlord has at least $50,000,000 of shareholders equity. Upon the
said cash collateral account being established, the said
substitute letter of credit being issued to the Tenant, or, the
evidence being supplied as to the shareholders equity of the new
landlord as aforesaid, the Tenant shall release to the Landlord
named herein, the letter of credit which the Landlord named herein
will have provided to the Tenant, and requests for payment shall
be made to the new Landlord supplying to the new Landlord the
information, material and certificates referred to in paragraph 6
(a)(i)-(iii) of this Schedule "C".
Once the leasehold improvements at the 6th Floor Premises have
been completed, the Landlord shall have the right to receive the
said letter of credit, (the said cash collateral account or the
said substitute letter of credit as the case may be), returned to
it, forthwith, for amounts not drawn thereunder.
(b) In the event that the Landlord is obligated to provide the
leasehold improvement allowance with respect to the 5th Floor
Premises, pursuant to paragraph 5(b)(ii), the Landlord shall
be under no obligation to post an irrevocable letter of
credit or any other security, provided however in the event
that the Landlord is in default of its obligations to fund
the leasehold improvement allowance for the 5th Floor
Premises in accordance with the provisions hereof, the Tenant
may give fifteen (15) days' written notice of such default,
and failing the remedying of such default within the
aforesaid fifteen (15) day period, the Tenant shall be
entitled to remedy such default
<PAGE>
and to receive a credit therefor against Basic Rent; such
credit shall be equal to 110% of the aggregate of the amounts
paid by or on behalf of the Tenant to cure such default and
shall be applied against Basic Rent as it becomes due. Such
right of set off shall be subject to an accounting being
provided by the Tenant to the Landlord.
(c) The leasehold improvement allowance in respect of the 5th
Floor Premises shall be payable provided the Tenant is not
then in default in its obligations to pay any amount due
under this Lease, upon receipt of the certificate of the
Tenant's architect (being a firm satisfactory to the Landlord
acting reasonably), and the following shall apply:
(i) the certificate shall certify the amount of the
Demolition costs or the work in place at the 5th Floor
Premises of the West Tower (Building A) of 675
Cochrane Drive, Markham, undertaken by or on behalf of
the Tenant, together with reasonable details thereof;
(ii) the certificate shall state the holdbacks applicable
under the Construction Lien Act, and, at all times,
draw downs against the leasehold improvement allowance
shall be made less holdbacks to ensure at all times
that applicable holdbacks are maintained at all times
for purposes of the Construction Lien Act;
(iii) the certificate shall state that in connection with
the said work for which a draw down is being
requested:
I the amount of the draw requested is approved,
or, the amount that is approved, as the case
may be;
II the work has been installed in accordance with
working drawings and specifications approved
by the Landlord;
III the work has been performed in accordance with
all laws and in a good and workmanlike manner;
IV that all necessary building or other permits
have been maintained;
V that there is no claim for any lien in respect
of the improvements being undertaken at said
Premises;
VI in the case of the final holdback being
released, the architects shall certify the
above, together with a certificate that all
lien periods have expired with respect to such
improvements and no liens have been registered
or claimed.
7. ACCESS TO 6TH FLOOR PREMISES
Forthwith upon execution of this Lease by the Tenant, the Tenant
shall be entitled to enter the 6th Floor Premises for the purposes
of undertaking Demolition to the existing leasehold improvements,
if applicable, and, undertaking any new leasehold improvements
which it will be undertaking at the 6th Floor Premises, subject
however to the following terms and conditions:
<PAGE>
(a) Prior to the Tenant undertaking any work or demolition it
desires to undertake at the 6th Floor Premises, the Tenant
shall comply with the provisions of Section 8(m) of this
Lease.
(b) The Tenant shall have provided evidence of appropriate and
adequate insurance both in respect of its obligations
pursuant to the provisions of this Lease and in connection
with undertaking Demolition and improvements to the 6th Floor
Premises prior to undertaking its work; and except for the
payment of Basic Rent and Additional Rent all covenants and
obligations of the Tenant to be performed during the term
shall apply from and after its taking of possession of the
6th Floor Premises mutatis mutandis.
(c) The Tenant and its contractors shall be responsible for
removing garbage and debris from Building A, and from any
common areas and facilities, each day, and from the Premises
as reasonably required so that there is no undue accumulation
of garbage and debris, and to place same into garbage
containers for that purpose as provided, as it undertakes its
work. If the Landlord's forces remove such garbage, the
Tenant shall be responsible to pay for the cost of same.
(d) There shall be no Basic Rent or Additional Rent payable
notwithstanding the permission hereby granted for the Tenant
to enter the 6th Floor Premises, provided that Basic Rent and
Additional Rent shall commence to be payable from and after
the 1st day of July, 1996 notwithstanding that the Tenant's
leasehold improvements may not have been finished at such
time.
8. SPACE PLAN
The Landlord agrees to provide a space plan with one revision or
to pay space planning fees directly to a planner of the Tenant's
choice for the 6th Floor Premises and, when applicable, for the
5th Floor Premises, at the Landlord's sole cost and expense, which
shall not exceed the cost of .08 per square foot of Rentable Area
of the 6th Floor Premises and the 5th Floor Premises,
respectively.
9. INTERIM USE OF 5TH FLOOR PRIOR TO THE TERM IN RESPECT THEREOF
COMMENCING
(a) Notwithstanding that the term in respect of the 5th Floor
Premises has not commenced, the Landlord agrees that upon
execution of this Lease by the Tenant, and subject to the
terms and conditions herein contained, the Tenant shall be
permitted at its sole option to take possession of the 5th
Floor Premises. The following are the terms and conditions
applicable thereto:
(i) prior to being able to take possession of the 5th Floor
Premises aforesaid, the Tenant shall meet with the
Landlord's building manager and execute a letter
accepting responsibility for any damage, save and except
reasonable wear and tear, to the 5th Floor Premises;
(ii) such occupancy shall be temporary only and shall only be
permitted until such time as the 6th Floor Premises are
ready for occupancy by the Tenant once the Tenant has
undertaken all the work which it desires to undertake at
the 6th Floor Premises; the Tenant shall also be
permitted interim occupancy of the 5th Floor Premises
for the purposes of demolishing
<PAGE>
existing leasehold improvements and fixturing the 5th
Floor Premises which it shall be permitted to do
(subject to the terms and provisions herein contained)
from the 1st day of October, 1997, provided that it is
not then in default pursuant to the provisions of this
Lease;
(iii) during the period of time that the Tenant is occupying
the 5th Floor Premises pursuant to paragraph 9(a)(ii)
above, until it vacates same once the 6th Floor
Premises are ready for occupancy, the Tenant shall pay
its Proportionate Share for the 5th Floor Premises of
the Operating Costs attributable to Building A and the
Common Areas and Facilities and its Complex
Proportionate Share for the 5th Floor Premises of the
Operating Costs attributable to the Shared Common
Areas and Facilities, plus taxes as referred to in the
provisions of Section 5 of this Lease (as supplemented
by the provisions of page 3C of this Lease) plus the
management fee referred to in the provisions of
Section 6(c) of this Lease. Such amount shall be
payable monthly on the first day of each and every
month during the period within which such payments are
applicable and the provisions of Sections 5 and 6 of
the Lease shall apply thereto, mutatis mutandis;
provided that in the event that the Tenant has not
completed all improvements which it desires to[C make
to the 6th Floor Premises as at the 1st day of July,
1996 and is accordingly not in a position to occupy
the 6th Floor Premises for the purposes of carrying on
business therein as at the 1st day of July, 1996, from
and after the 1st day of July, 1996, until it vacates
the 5th Floor Premises once the 6th Floor Premises are
ready for occupancy, the Tenant shall pay for hydro
costs only with respect to the 5th Floor Premises,
during such period (which shall be in addition to the
payments required pursuant to paragraph 9(a)(iv)
below);
(iv) the Tenant shall be responsible to pay to the
Landlord, whether or not it is occupying the same, an
amount per square foot per annum of the Rentable Area
of the 5th Floor Premises, at the following rates:
I from the 1st day of July, 1996, (whether or
not the Tenant has taken occupancy), to and
including the 30th day of June, 1997, the sum
of $3.00 per square foot of the Rentable Area
of the 5th Floor Premises per annum;
II from the 1st day of July, 1997 to and
including the 30th day of September, 1997, the
sum of $6.00 per square foot of Rentable Area
of the 5th Floor Premises per annum;
III from the 1st day of October, 1997 to and
including the 30th day of November, 1997, the
sum of $9.00 per square foot Rentable Area of
the 5th Floor Premises per annum.
The said amounts shall be payable in equal consecutive monthly
installments each due in advance on the 1st day of each and every
month during the periods hereinbefore provided;
(v) each time prior to taking occupancy of the 5th Floor
Premises, the Tenant shall have provided evidence of
appropriate and adequate insurance in respect thereof;
<PAGE>
(vi) during the occupancy by the Tenant of the 5th Floor
Premises prior to the commencement of the term
therefor, the terms and provisions, save and except
for the payment of Basic Rent and Additional Rent,
(subject however to paragraph 9(a)(iii) and (iv)
above), and all covenants and obligations of the
Tenant to be performed during the Term under this
Lease, for the 6th Floor Premises, shall apply mutatis
mutandis;
(vii) prior to the Tenant undertaking any work which it
desires to undertake at the 5th Floor Premises, the
Tenant shall have complied with the provisions of
Section 8(m) of the Lease, shall have provided
evidence of appropriate and adequate insurance in
connection with its undertaking demolition or
improvements to the 5th Floor Premises prior to
undertaking such work and all provisions of paragraph
7(a) and (c) of this Schedule "C" shall apply, mutatis
mutandis.
(b) On the earlier of the 1st day of December, 1997 and the date
upon which the Tenant has fixtured the 5th Floor Premises so
that the Tenant can carry on business at any part of the 5th
Floor Premises, the commencement of the term for the 5th
Floor Premises shall be deemed to have occurred, with Basic
Rent payable therefor in accordance with the schedule of
rental rates set forth on page 2A of this Lease, and in
addition, the Tenant from and after such date shall be
responsible to pay all Additional Rent in respect of the 5th
Floor Premises, instead of the rent payable provided for in
the provisions of paragraph 9(a)(ii) above.
10. CONDITION OF PREMISES
The Tenant shall inspect the 6th Floor Premises prior to
undertaking any demolition or work thereto, and the 5th Floor
Premises at the same time as the inspection for the 6th Floor
Premises is being undertaken, as well as prior to undertaking any
demolition or work to the 5th Floor Premises, for the purposes of
satisfying itself that the base building systems servicing them,
are in good condition and repair. The Tenant and the Landlord
shall decide on a deficiency list for such base building systems,
if any, each acting reasonably and the Landlord shall rectify any
agreed to deficiencies for such base building systems for the 6th
Floor Premises and for the 5th Floor Premises prior to the Tenant
taking possession December 1, 1997.
11. PARKING
The Tenant shall be entitled to use the underground parking area
servicing Building A free of charge other than the cost of cards
and what is otherwise provided for below, for the term of this
Lease including any renewals or extensions thereof at the rate of
three point five (3.5) cars for every one thousand (1,000) square
feet of the Premises. In the event that the Landlord at any time
during the Term or any renewals or extensions changes the current
nature of the entire parking areas servicing Building A, or any
other buildings or improvements constructed on the Lands, being
unreserved and free of charge, to be reserved, the Landlord shall
give sufficient notice to the Tenant of its intent so to do and
the Tenant shall have the right to its proportionate share of
reserved parking spaces based on three point five (3.5) cars for
every one thousand (1,000) square feet of the Premises, the
location of reserved parking to be as designated by the Landlord.
The Tenant shall further be entitled to use an additional fifty
(50) parking spaces within the parking areas for the Complex at no
charge other than the cost of cards referred to below
<PAGE>
on an unreserved basis throughout the term of the Lease (excluding
renewals or extensions).
Parking for all spaces including the aforesaid fifty (50) parking
spaces shall be afforded by access parking cards at a charge of
$15.00 per card.
The rights of the Tenant to 3.5 cars for every one thousand
(1,000) square feet of the Premises shall only apply with respect
to that part of the Premises constituting the 5th Floor Premises
when the term therefor has commenced.
The provisions of paragraph 13 of the Lease except with respect to
charges of fees, shall apply to the parking arrangement in this
paragraph 11 of this Schedule "C".
12. BUILDING ACCESS
Except in cases of emergency, the Landlord agrees to provide the
Tenant with access to Building A on a 24 hour basis 7 days a week
to the main lobbies, stairs and entrances as well as parking lots
and all elevators that have card access. The Landlord agrees that
the existing security (card access) or the equivalent will be made
available to the Tenant throughout the Term of this Lease and that
there will be no access to the Premises other than through card
access in the elevators or stairs.
The Tenant agrees to be mindful of building security when
accessing the building after hours including ensuring that doors
are not left open unnecessarily and that the Tenant will not
interfere with maintenance workers or snow clearing contractors.
13. NO RESTORATION ON EXPIRY
Notwithstanding the provisions requiring same in the Lease, the
Tenant shall not be required upon termination of the term of this
Lease herein to restore the Premises to the original condition in
which they were in prior to this Lease, unless the Tenant has
installed improvements or alterations in contravention of the
provisions of paragraph 8(m) of the Lease.
14. RIGHT OF FIRST REFUSAL TO LEASE ON FOURTH FLOOR
Provided that the Tenant is not then in breach of this Lease, and
provided that the Tenant has not exercised its termination right
contained in paragraph 15 of this Schedule "C", the Tenant shall
have the right of first refusal for any offer to lease in respect
of any space on the 4th floor of Building A that becomes available
from time to time and at all times during the initial Term of this
Lease, subject to the terms and conditions of this paragraph 14.
In the event that the Landlord receives a bona fide offer to lease
any of the space in the 4th floor of Building A which the Landlord
is prepared to accept, the Landlord shall notify and offer the
space to the Tenant on the same terms and conditions as contained
in said offer. The Tenant shall have 48 hours after notification
from the Landlord to exercise its right of first refusal and lease
the space on the same terms and conditions as contained in the
offer, failing which, the Landlord may lease such space to the
third party.
It is acknowledged and agreed that the right of the Tenant
contained herein shall not apply in respect of any extension of
term or other arrangements made by the existing tenant of the 4th
floor of Building A and the Landlord shall be free to deal with
said existing tenant, free from any obligations pursuant to the
provisions of this paragraph 14 of this Schedule "C".
<PAGE>
The parties further agree that notwithstanding the terms and
provisions of the bona fide offer to lease, the lease for any
space taken by the Tenant on the 4th floor of Building A pursuant
to this right of first refusal shall contain provisions similar to
those provided for in paragraph 20 of this Schedule "C" as the
same relates to the commission payable to CB Commercial in respect
of space taken on the 4th floor of Building A.
In addition, regardless of the terms of the bona fide offer to
lease, the Landlord agrees that the Tenant shall have the right to
use the leasehold improvements at the space to be rented on the
4th Floor of Building A, subject to any tenant's rights to remove
the same.
In the event that the Tenant exercises its right of first refusal
as contained in the provisions of this paragraph 14 of this
Schedule "C", the premises to be leased by the Tenant pursuant
thereto shall be herein called the "Expansion Premises".
The lease termination rights, the option to extend the Term,
parking and any other provisions referring to the Premises herein,
shall not apply to the Expansion Premises, but subject to the
third paragraph of this paragraph 14 in respect of the increase in
the basic rent, the bona fide offer to lease shall govern all the
terms and provisions of the lease between the Landlord and the
Tenant with respect to space on the 4th floor of Building A.
15. LEASE TERMINATION
Notwithstanding anything contained in this Lease to the contrary
and provided Saville Systems Canada, Ltd. is itself carrying on
business in the entire 6th Floor Premises and the 5th Floor
Premises, and provided further that it is not then in default of
this Lease, the Tenant shall have the right to terminate this
Lease as of the 31st day of March, 2001, 2002, 2003 or 2004,
provided that in order for the Tenant's right pursuant to this
paragraph 15 to terminate this Lease to be validly exercised and
to be effective:
(a) The Tenant must give to the Landlord at least six (6) months
prior written notice of its election to terminate this Lease
pursuant to the provisions of this paragraph 15.
(b) Any time after such notice, the Tenant shall have the right
to continue to occupy the 6th Floor Premises and the 5th
Floor Premises under the terms of this Lease, or the Tenant
may vacate the said Premises and pay the Landlord by
certified funds a lump sum equal to the gross rent (Basic
Rent and Additional Rent remaining during said notice
period), following which the Landlord shall be free to lease
the space to another party; said payment is separate from and
in addition to the Termination Payment referred to below.
(c) In consideration of the Tenant's right of termination
aforesaid, the Landlord shall receive from the Tenant and the
Tenant shall pay to the Landlord by certified funds at least
sixty (60) days prior to the termination date (but in no
event shall the Tenant be entitled to vacate the Premises
until it has made all payments payable pursuant to the
provisions of this paragraph 15), a termination payment as
set out below:
Termination Date Termination Payment
------------------------------------------------------
March 31, 2001 12 months Basic Rent at the rate of
$11.60 per sq.ft of Rentable Area of
the Premises per annum (subject to
reduction if paragraph 5(g)(iii) or
(iv) applies) plus 12 months of
<PAGE>
Additional Rent that would be
payable for the period the 1st day
of April, 2001 to and including the
31st day of March, 2002, as
estimated by the Landlord
March 31, 2002 10 months Basic Rent at the rate of
$11.60 per sq.ft. of Rentable Area
of the Premises (subject to
reduction if paragraph 5(g)(iii) or
(iv) applies) per annum plus 10
months of Additional Rent that would
be payable for the period the 1st
day of April, 2002 to 31st day of
January, 2003, as estimated by the
Landlord
March 31, 2003 8 months Basic Rent at the rate of
$11.60 per sq.ft. of Rentable Area
of the Premises per annum (subject
to reduction if paragraph 5(g)(iii)
or (iv) applies) plus 8 months of
Additional Rent that would be
payable for the period the 1st day
of April, 2003 to 30th day of
November, 2003, as estimated by the
Landlord
March 31, 2004 6 months Basic Rent at the rate of
$11.60 per sq.ft. of Rentable Area
of the Premises per annum plus
(subject to reduction if paragraph
5(g)(iii) or (iv) applies) 6 months
of Additional Rent that would be
payable for the period the 1st day
of April, 2004 to 30th day of
September, 2004, as estimated by the
Landlord
The termination rights in this paragraph 15 shall not apply to the
Expansion Premises but only to the 5th Floor Premises and the 6th
Floor Premises.
16. OPTION TO EXTEND LEASE TERM
Provided Saville Systems Canada, Ltd. is itself in occupancy of
the 6th Floor Premises and the 5th Floor Premises and is then not
in default of this Lease, the Tenant shall be entitled to extend
the term of this Lease for all of the 6th Floor Premises and the
5th Floor Premises for a further term of five years immediately
following upon the expiration of the initial Lease term which
expires on the 30th day of June, 2005, upon the same terms and
conditions as are set forth in this Lease, except for:
(a) There shall be no further options to extend or renew.
(b) There shall be no leasehold improvement allowance, tenant
inducement or Landlord's work required whatsoever.
(c) There shall be no fixturing periods.
(d) There shall be no Basic Rent free or Additional Rent free
periods.
<PAGE>
(e) The Premises shall be rentable on an "as is"/"where is" basis
with no obligation of the Landlord to undertake any work
thereto or to Building A or any part thereof.
(f) The right of first refusal in paragraph 14 of this Schedule
"C" shall not apply.
(g) The Basic Rent for the Premises during the Extension Period
shall be an annual rate equivalent to the prevailing fair
market rate for tenants for comparable premises in comparable
buildings, such amount to be agreed upon between the Landlord
and the Tenant not less than ninety (90) days prior to the
expiry date of the initial term, failing which, the rate for
the Basic Rent due during the Extension Period shall be
determined by arbitration pursuant to the provisions of the
Arbitration Act of Ontario or any successor legislation. In
the event that the rate of Basic Rent has not been determined
prior to commencement of the Extension Period, the rate of
Basic Rent payable in the last month prior to expiry of the
initial term shall be payable monthly until a decision is
reached, after which the rent shall be retroactively adjusted
in accordance with the decision of the arbitration.
(h) The provisions of paragraph 11 of this Schedule "C" that
specifically do not apply to extensions or renewals.
In order to exercise the option to extend, the Tenant shall give
written notice to the Landlord not more than twelve (12) months
prior but at least six (6) months prior to the expiration of the
initial term hereof, failing which, the option to extend as
contained herein, shall be null and void.
17. IDENTIFICATION
The Landlord shall provide the Tenant with one identification sign
posted on the ground floor lobby directory board of Building A at
the Landlord's cost and on the building exterior pylon at the
Tenant's cost, in a location determined by the Landlord.
18. OTHER SIGNAGE
Subject to the rights in favour of Digital, its subtenants and its
assignees to have the exclusive right to exterior signage on
Building A, the exclusive right to signage on the mechanical
penthouse on the top of Building A, the right to have one interior
sign located in the lobby of Building A near the elevator, and the
right to name Building A, and provided that Saville Systems
Canada, Ltd. is the actual Tenant and is itself occupying at least
two full floors of Building A and/or is the largest tenant in
Building A and is itself in possession of and conducting its
business from the whole of the 6th Floor Premises and the 5th
Floor Premises, the Tenant shall have the sole right to instal a
rooftop corporate sign (the "Sign") at the Tenant's sole expense,
to be located on and affixed to Building A. Provided, however:
(a) Details as to location, colour, size, style, wording,
character, installation, operation, maintenance and materials
(as each relates to the Sign) shall be provided in writing to
the Landlord for the Landlord's prior written approval
thereto.
(b) The Tenant must receive written approval from the Landlord
prior to installation of the Sign. As to the design of the
sign, the Landlord will accept a sign which has nothing
displayed on it other than the current corporate logo of the
Tenant.
<PAGE>
(c) The Sign shall in all respects be in full compliance with all
existing and any future governmental regulations and/or by-
laws.
(d) All signs shall be consistent with a first class office
building.
(e) The Tenant shall be responsible to obtain and maintain all
necessary approvals and permits in order to erect and
maintain signs.
(f) The Tenant shall assume all related costs of the signage and
shall assume any liability regarding the Sign identification
to the complete discharge of the Landlord.
(g) The Tenant shall pay all costs of removal of signage at
termination of this Lease or immediately upon the Tenant
losing its special signage rights as provided for in this
paragraph 18.
(h) The Tenant shall be responsible to maintain and keep in good
order and repair all such signage in keeping with the Complex
as a first-class office complex.
(i) The Tenant shall be responsible for any damage caused by the
removal of the Sign.
(j) The Tenant shall be responsible for all insurance costs for
the signage and shall provide proof to the Landlord forthwith
upon request therefor.
The Tenant acknowledges that presently Digital and its subtenants
and assignees have exclusive right to (a) exterior signage on
---------
Building A, (b) roof top signage on the mechanical penthouse on
the top of Building A, and, (c) to name Building A and in
addition, Digital and its subtenants and assignees have the right
to have one name on the outside pylon sign applicable to Building
A and the right to special lobby signage.
19. SUBLETS AND ASSIGNMENTS
The parties acknowledge that provided the Tenant is not in
default, the Tenant shall have the right to assign or sublet the
Premises subject to the provisions of Section 8(e) of the Lease
and subject to the restrictions with respect to use of the
Premises as set out at paragraph 4(b) of this Schedule "C".
20. LEASING COMMISSION
(a) The Landlord and Tenant agree that the Landlord shall be
responsible to pay a commission relating to the consummation
of the tenancy contemplated herein to CB Commercial ("CB");
which commission payable will be equivalent to $5.40 per
square foot of Rentable Area of the 6th Floor Premises and
the sum of $4.50 per square foot of Rentable Area of the 5th
Floor Premises. The Landlord and Tenant agree that the Tenant
shall first occupy the 6th Floor Premises and that the Tenant
shall occupy the 5th Floor Premises at a later date and in no
event shall the Tenant occupy the 5th Floor Premises later
than 17 months after the commencement date of the Lease for
the 6th Floor Premises. The commission for the 6th Floor
tenancy shall be due and payable to CB on the latest of:
(i) July 1, 1996;
(ii) execution of the Lease; and
(iii) when the 6th Floor Premises is open for business by
the Tenant.
<PAGE>
The commission for the 5th Floor tenancy shall be due and
payable to CB on the later of:
(i) December 1, 1997; and
(ii) when the 5th Floor Premises is open for business on
a permanent basis by the Tenant.
(b) In addition to Section 20 (a) above and as a separate
agreement to this Lease which is hereby incorporated into
this Lease, the Landlord and Tenant agree that in
consideration of the payment of Ten Dollars ($10.00) by CB to
each of the Landlord and Tenant and for other good and
valuable consideration given by CB to each of the Landlord
and the Tenant, the receipt and sufficiency whereof is
acknowledged by each of the Landlord and Tenant, the Landlord
and Tenant agree that in the event the Landlord shall fail to
pay CB the commission due to CB in respect of this Lease as
set out in Section 20(a) above, and provided that there is no
valid dispute CB shall be entitled to notify the Landlord
that the commission payable to CB in respect of this Lease
has not been paid in full by the Landlord and specifying the
balance of commission still outstanding and unpaid to CB;and
CB shall further be entitled to direct the Tenant by written
direction, that the Tenant shall pay to CB the Basic Rent
payable for each month of the term of the Lease on a
continuous basis until the balance of the commission
outstanding and payable to CB by the Landlord has been paid
in full. The Landlord and the Tenant agree to respect this
direction and to co-operate in making the monthly Basic
Rental payments to CB until its commission has been paid in
full. This direction is intended to bind the Landlord and the
Tenant and their successors, heirs and assigns. Nothing
herein shall obligate the Tenant to be liable to pay any
amounts the effect of which will require payments in excess
of any amounts payable under this Lease. The Tenant shall
provide an accounting to the Landlord as to amounts it has
paid to CB.
21. SET OFFS
Except for the provisions of paragraph 2(c), 6(b) and 20 of this
Section "C", the Tenant shall pay all Basic Rent, Additional Rent
and all other amounts due and payable hereunder, without any right
of set off, deductions, or defalcation whatsoever.
22. LANDLORD'S RIGHT OF ENTRY
Landlord's right of entry and Section 8(j) and 13 of the Lease
shall be subject to reasonable notice, and work done thereunder
(except emergency work) shall be upon reasonable notice, having
regard to the circumstances.
23. UNAVOIDABLE DELAY
The relief for unavoidable delay in Section 15 of the Lease shall
apply equally to the Landlord and the Tenant, provided that
unavoidable delay shall in no event relieve the Tenant from its
obligation to pay all Basic Rent, Additional Rent and any other
monies payable to the Landlord hereunder.
<PAGE>
24. INSTALMENT OF TAXES
For greater clarity the requirement in Section 5(c) of the Lease
to pay installments of 1/9th of annual taxes shall be limited to
nine such installments per year.
25. NON-DISTURBANCE AGREEMENT
The Tenant shall not be required to execute any postponement or
subordination to a mortgagee pursuant to Section 27 of the Lease
unless and until the Tenant has received a Non-Disturbance
Agreement from such mortgagee or assurances that such Non-
Disturbance Agreement shall be delivered forthwith. In the event
that the Tenant shall be required to postpone or subordinate to a
mortgagee pursuant to Section 27 of the Lease, the Landlord agrees
to use best efforts to provide the Tenant with a Non-Disturbance
Agreement from such mortgagee.
26. RIGHT OF RE-ENTRY RE BREACH
The Landlord's right of re-entry for any breach of the Tenant
other than non-payment of rent shall be preceded by five days
written notice to the Tenant of the default claimed in respect of
which the Landlord seeks to use its right of re-entry.
27. LANDLORD'S RIGHT AND REMEDIES
Upon default of the performance of any of the obligations of the
Tenant under the Lease, the Landlord shall have the following
rights and remedies:
(a) Subject to the provisions of paragraph 26 of this Schedule
"C", the immediate right of re-entry upon the Premises to
repossess the same and enjoy them as of its former state and
the Tenant hereby consents to the Landlord expelling all
persons and removing all property at the said Premises from
the said Premises and such property may be removed and sold
or disposed of by the Landlord by public auction or otherwise
and either in bulk or by individual item as the Landlord in
its sole discretion may decide or may be stored in a public
warehouse or elsewhere at the cost and for the account of the
Tenant all without service of notice or resort to legal
process and without the Landlord being considered guilty of
trespass or becoming liable for any loss or damage which may
be occasioned thereby or for any claim for damages. Such re-
entry shall not be deemed to constitute a termination of the
Lease unless the Landlord expressly in writing terminates the
Lease;
(b) The Landlord, in addition to all of the rights, shall have
the right to enter the Premises as the agent of the Tenant
either by force or otherwise, without being liable for any
prosecution therefor and to relet the said Premises as the
agent of the Tenant and to receive the rent therefor and as
the agent of the Tenant to take possession of any furniture
or other property on the said Premises and to sell the same
at a public or a private sale without notice and to apply the
proceeds of such sale and any rent derived from reletting the
said Premises upon account of the rent under the Lease and
the Tenant shall be liable to the Landlord for the
deficiency, if any, for the remainder of the term as if such
re-entry had not been made unless the actual amount received
by the Landlord after such re-entry in respect of any
reletting applicable to the remainder of the term. The Tenant
shall also reimburse the Landlord for all reasonable legal
and other costs incurred as a result of such
<PAGE>
re-entry and reletting. No such re-entry or taking possession
of the said Premises by the Landlord shall be construed as an
election on its part to terminate the Lease unless the
written notice of such intention is given to the Tenant by
the Landlord. Notwithstanding any such reletting without
termination, the Landlord may at any time thereafter elect to
terminate the Lease as a result of default;
(c) The Landlord, in addition to all other rights, shall have the
right to determine forthwith this Lease and the term by
leaving upon the said Premises notice in writing of its
intention so to do and the Tenant shall immediately deliver
up possession of the said Premises to the Landlord, and the
Landlord may re-enter and take possession of the same. If the
Landlord at any time terminates the Lease for any default, in
addition to any other remedies it may have, it may recover
from the Tenant all damages it incurs by reason of such
breach including without limitation the cost of recovering
the said Premises, solicitor's fees (on a solicitor and his
client basis) and including the worth at the time of such
termination of the excess, if any, of the amount of Basic
Rent, Additional Rent and other charges payable under the
Lease required to be paid pursuant thereto and hereto for the
remainder of the term over the then reasonable rental value
of the said Premises for the remainder of the term, all of
which amount shall be immediately due and payable by the
Tenant to the Landlord.
28. REMEDIES GENERALLY
Mention in this Lease of any particular remedy of the Landlord in
respect of the default by the Tenant does not exclude the Landlord
from any other remedy in respect thereof whether available at law
or at equity or by statute or expressly provided for in this
Lease. No remedy shall be exclusive or dependant upon any other
remedy and the Landlord may from time to time exercise one or more
of such remedies independently or in combination, such remedies
being cumulative and not alternative.
Whenever the Tenant seeks a remedy in order to enforce the
observance or performance of one of the terms, covenants and
conditions contained in this Lease on the part of the Landlord to
be observed or performed, the Tenant's only remedy shall be for
such damages as the Tenant shall be able to prove in a court of
competent jurisdiction that it has suffered as a result of a
breach (if established) by the Landlord in the observance or
performance of any of the terms, covenants or conditions contained
herein on the part of the Landlord to be observed and performed,
except where the Lease provides the Landlord's consent or approval
is not to be unreasonably withheld, the Tenant's sole remedy if
the Landlord unreasonably withholds consent or approval, shall be
an action for a specific performance and the Landlord shall not be
liable for any damages.
29. TENANT'S LETTER OF CREDIT
Prior to the Tenant being permitted access to the 6th Floor
Premises for the purposes of demolition or undertaking leasehold
improvements at the 6th Floor Premises, the Tenant shall provide
to the Landlord an irrevocable letter of credit in favour of the
Landlord issued by a Schedule 1 Canadian chartered bank in the
principal amount of $225,000, which letter of credit shall be in
form and substance satisfactory to the Landlord, acting
reasonably, provided that the letter of credit shall contain at
least the following provisions:
<PAGE>
(a) The letter of credit shall be fully transferrable or
assignable by the Landlord without consent of the issuer bank
(the Landlord and such assignee being herein for the purposes
of this Section 29 be called the "Landlord").
(b) The issuer bank will honour demand for payment made
thereunder without inquiry as to whether the Landlord has the
right as between itself and the customer on whose behalf the
issuer bank has issued the letter of credit, to make such
demand and without recognizing any claim of said customer.
(c) Monies may be payable under the letter of credit upon
presentation of a certificate signed by the Landlord that the
Tenant is in default of its obligations under this Lease
which default has continued for a period of five days after
written notice of default from the Landlord to the Tenant;
(d) The letter of credit shall either have a term expiring no
earlier than June 30, 1998, or, shall contain an "evergreen"
clause which will provide that the letter of credit will be
deemed to be automatically extended and renewed for one year
and thereafter from year to year from the present or any
future expiration date unless thirty days prior to any such
expiration date or extended expiration date, the issuer bank
notifies the Landlord in writing that it elects not to
consider the letter of credit renewed for such additional
period, in which case, the letter of credit shall provide
that upon receipt by the Landlord of such notice, the
Landlord may draw fully upon the letter of credit by means of
a demand only and without the necessity of the certificate
referred to as aforesaid.
The said letter of credit shall be returned forthwith after the
expiry date thereof.
30. NOTICE
Notice hereunder may also be given by facsimile transmission to
such telephone number or telefacsimile number as the party may
have designated in writing for the purpose of notice and shall be
deemed received at the time of confirmed transmission during
normal business hours and on the next ensuing business day if sent
on a Saturday, Sunday or statutory holiday.
31. CONFLICT
To the extent that there is any conflict between the provisions of
this Schedule "C" and the printed lease form, (as the same may be
amended), the provisions of this Schedule "C" shall prevail.
<PAGE>
SCHEDULE "E"
to the Lease dated April 25, 1996, between Orfus Investments (Landlord)
and Saville Systems Canada, Ltd. (Tenant).
INDEMNITY AGREEMENT
THIS AGREEMENT dated April , 1996.
BETWEEN:
SAVILLE SYSTEMS PLC
(the "Indemnifier"),
OF THE FIRST PART
- and -
ORFUS INVESTMENTS
(the "Landlord"),
OF THE SECOND PART
WHEREAS the Indemnifier and the Tenant have requested the
Landlord to enter into a lease (the "Lease") dated April , 1996,
between Orfus Investments as landlord and Saville Systems Canada, Ltd.
as tenant (the "Tenant") relating to premises in the building known as
the West Tower of 675 Cochrane Drive, Markham, Ontario and the Landlord
has agreed to do so only if the Indemnifier executes and delivers this
agreement in favour of the Landlord;
NOW THEREFORE for good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the
Indemnifier), the Indemnifier hereby agrees with the Landlord as
follows:
I. The Indemnifier shall indemnify and save the Landlord
harmless from all losses, damages and costs incurred by the Landlord
if, during the period which is expressed by Section 3 of the Lease to
be its term, and during any renewal or extension thereof, the Landlord
does not receive any amount payable by the Tenant under the Lease for
such period which, if the Lease were in full force and effect and in
good standing, would be payable under the Lease;
<PAGE>
II. If the Tenant defaults in the payment of any amount
payable under the Lease or in the due performance of any other
obligation of the Tenant under the Lease, the Indemnifier shall
forthwith upon demand by the Landlord pay to the Landlord all amounts
so payable and all damages that may arise upon the default by the
Tenant in the payment thereof or in the due performance of any such
obligation;
III. The Indemnifier shall be jointly and severally bound
with the Tenant to the Landlord for the performance of the obligations
of the Tenant under the Lease, including the payment of all Basic Rent
and Additional Rent, and its liability shall be that of a direct and
primary obligor and not merely that of a surety;
IV. In the event of the occurrence of a default by the
Tenant under the Lease or in the event of a default by the Indemnifier
under this Indemnity, the Indemnifier waives any right to require the
Landlord to:
(i) proceed against the Tenant or pursue any rights
or remedies with respect to the Lease;
(ii) proceed against or exhaust any security of the
Tenant or any other person and which is held by
the Landlord; or
(iii) pursue any other remedy whatsoever in the
Landlord's power.
The Landlord has the right to enforce the within Indemnity regardless
of the acceptance of additional security from the Tenant or any other
person and regardless of the release or discharge of the Tenant or any
other person who has provided security to the Landlord, by the Landlord
or by others or by operation of any law;
V. This Indemnity is absolute and unconditional and the
obligations of the Indemnifier shall not be released, discharged,
mitigated or in any way be affected by any delay, neglect or
forbearance by the Landlord in enforcing performance by the Tenant of
its obligations under the Lease or by the granting by the Landlord to
the Tenant of any extension of time or by any waiver by the Landlord of
any of the Tenant's obligations or by any assignment or sublease or
other dealing by the Tenant with the Lease or the premises whether with
or without the consent of the Landlord or by any want of notice to the
Indemnifier or by any dealing between the Landlord and the Tenant with
or without notice to the Indemnifier or by any dealing between the
Landlord and the Tenant with or without notice to the Indemnifier
whereby the respective obligations and rights of either the Landlord or
the Tenant are amended including any amendment of the Lease or by any
other act or failure to act by the Landlord which would release,
discharge or affect the obligations of the Indemnifier if it were a
mere surety, and with the intent that this indemnity shall not be
released or affected or the rights of the Landlord hereunder in any way
impaired until such time as all the obligations of the Tenant under the
Lease have been fully performed and satisfied;
VI. Without limiting the generality of the foregoing, the
obligations of the Indemnifier hereunder shall not and shall not be
deemed to be released, discharged or affected by reason of the release
or discharge of the Tenant in any receivership, bankruptcy, winding up
or other creditors' proceedings or the rejection, disaffirmance or
disclaimer of the Lease in any proceeding and shall continue with
respect to the periods prior to and thereafter, for and with respect to
the term (and any renewal or extension thereof) as if the Lease had not
been disaffirmed or disclaimed, and without limiting the generality of
the foregoing, the obligations of the Indemnifier hereunder shall not
and shall not be deemed to be released, discharged or affected by
reason of the Tenant ceasing to exist (whether by winding-up,
forfeiture, cancellation or surrender
<PAGE>
of charter, or any other circumstance) or by any event terminating the
Lease including a re-entry or termination pursuant to the Lease; and in
furtherance hereof, the Indemnifier agrees, upon any disaffirmance,
disclaimer, or any other event which has the effect of terminating the
Lease, the Indemnifier shall, at the option of the Landlord, become the
Tenant of the Landlord upon the same terms and conditions as are
contained in the Lease, applied mutatis mutandis. The liability of the
Indemnifier shall not be affected by any repossession of the premises
by the Landlord. Nothing in this subparagraph or elsewhere in this
Indemnity will be construed so as to confer any rights on the
Indemnifier to occupy or use the premises or to claim any interest or
rights in the premises or the Lease whether or not the Indemnifier is
required to perform any covenants under this Indemnity or under the
Lease;
VII. The Indemnifier hereby expressly waives notice of the
acceptance of this Indemnity and notice of non-performance, non-payment
or non-observance on the part of the Tenant of the terms, covenants and
conditions in the Lease. Without limiting the generality of the
foregoing, any notice which the Landlord desires to give to the
Indemnifier shall be sufficiently given if delivered in person, if
mailed, by prepaid registered mail, or sent by telefacsimile, and sent
to the following:
Saville Systems PLC
c/o
Attention:
Telefacsimile No.:
Any such notice is deemed to have been given upon the day it was
delivered in person, if mailed, 72 hours after the date it was mailed,
and if given by telefacsimile, on the date upon which it was sent;
VIII. No action or proceedings brought or instituted
under this Indemnity and no recovery in pursuance thereof shall be a
bar or defence to any further action or proceeding which may be brought
under this Indemnity by reason of any further default hereunder or in
the performance and observance of the terms, covenants and conditions
contained in the Lease;
IX. No modification of this Indemnity shall be effective
unless it is in writing and is executed by both the Indemnifier and the
Landlord;
X. The Indemnifier shall be bound by any account settled
between the Landlord and the Tenant;
XI. The Indemnifier hereby irrevocably submits and attorns
to the jurisdiction of the courts of the Province of Ontario;
XII. The obligations of the Indemnifier hereunder may be
assigned by the Landlord, will benefit and be enforceable by the
successors and assigns of the Landlord and shall bind the heirs,
executors and legal representatives and the successors and assigns of
the Indemnifier; any assignment by the Landlord of any of its interest
in the Lease shall operate automatically as an assignment to such
assignee of the benefit of this Indemnity;
XIII. The grammatical changes required to make the
provisions of this agreement apply in the plural sense where the
Indemnifier comprises more than one person and to corporations, firms,
partnerships, or individuals male or female, will be assumed as though
in each case fully expressed, and if the Indemnifier consists of more
than one person, the agreements of the Indemnifier shall be deemed to
be joint and several agreements of each such person;
<PAGE>
XIV. This Indemnity constitutes the entire agreement between
the Indemnifier and the Landlord and neither party hereto shall be
bound by any representations or agreements made by any other person
which would in any way reduce, impair or detract from the obligations
of the Indemnifier hereunder other than any which are expressly set out
herein;
XV. This agreement shall be governed by the laws of the
Province of Ontario, and shall be treated in all respects as an Ontario
contract.
Each of the parties represents and warrants to the other that
the recital set out above is true and correct in substance and in fact,
as such recital relates to such party, and such recital is incorporated
as an integral part of this Indemnity.
The Indemnifier acknowledges receipt of a copy of the Lease.
In witness whereof the Landlord and the Indemnifier have
executed this agreement.
SAVILLE SYSTEMS PLC
by:___________________
c/s
Title:________________
ORFUS INVESTMENTS
by:___________________
Howard L. Orfus
<PAGE>
Schedule "F"
Draft No. 1: 24 April 1996
RB/BO'C/sq/U.10 [ ] 1996
Orfus Investments The Great-West Life Assurance Company
8 Vinci Crescent Suite 1400
Downsview, Ontario 200 King Street West
M3H 2Y7 Toronto, Ontario
M5H 3T4
Aird & Berlis Gardiner, Roberts
BCE Place, Suite 1800 40 King Street West
181 Bay Street Suite 3100
Toronto, Ontario Toronto, Ontario
M5J 2T9 M5H 3Y2
Indemnity given by Saville Systems PLC to Orfus Investments in
respect of the lease of premises at 675 Cochrane Drive, Markham,
Ontario by Saville Systems Canada Limited
Dear Sirs
We have been requested by you to give an opinion in connection
with an indemnity given by Saville Systems PLC (the "Company") to
Orfus Investments and are qualified to give this legal opinion
under Irish law on the basis, under the assumptions and subject to
the reservations and qualifications set out below.
1. Basis of opinion
1.1 No opinion is expressed below as to laws other than the laws
of Ireland as of the date hereof. This opinion is for your
use and that of no one else.
1.2 This opinion is confined to and given on the basis of Irish
law as currently applied by the Irish courts and will be
construed in accordance with Irish law. We have made no
independent investigation and do not express or imply any
opinion as to the laws of any other jurisdiction and we have
assumed, without enquiry, that there is nothing in the laws
of any such other jurisdiction which would or might affect
our opinion as stated herein.
<PAGE>
1.3 This opinion is limited strictly to the matters stated herein
and is not to be read as extending, by implication or
otherwise, to any other matters.
1.4 We have examined copies of the following documents:
(1) An Indemnity Agreement dated [ ] (the "Indemnity")
entered into by the Company in favour of Orfus
Investments in respect of the lease of premises in the
building known as the West Tower at 675 Cochrane Drive,
Markham, Ontario by Saville Systems Canada Limited
("SSC") from Orfus Investments.
(2) Certificate of Incorporation, Certificate of
Incorporation on Change of Name and Memorandum and
Articles of Association of the Company.
(3) Minutes of the Meeting of the Board of Directors held on
[ ] 1996.
2. Assumptions
We have assumed:
(a) that all copy documents examined by us were correct,
complete and up to date and that all signatures examined
by us were genuine;
(b) that the copy produced to us of the minutes of the
meeting held on [ ] 1996 and the resolution therein
is a true copy and correctly record the proceedings at
such meeting and the subject matter which they purport
to record; that the meeting referred to in such copy was
duly convened and held, that those present at such
meeting acted bona fide throughout, that the resolution
set out in the copy minutes was duly passed and that no
further resolutions have been passed, or corporate or
other action taken which would or might alter the
effectiveness thereof;
(c) the capacity, power and authority of, and due execution
and delivery by, each party other than the Company;
(d) insofar as the laws of any jurisdiction other than
Ireland may be relevant, that such laws do not prohibit,
and are not inconsistent with, any of the obligations or
rights expressed in the Indemnity or the transactions
contemplated thereby;
<PAGE>
(e) that all approvals, filings and other steps necessary
under all applicable laws (other than the laws of
Ireland) in order to permit the execution, delivery or
performance of the Indemnity by the Company or to
perfect, protect or preserve any of the interests
created thereby, have been obtained, made or done or
will be obtained, made or done within the period
permitted by those laws:
(f) that all obligations under the Indemnity are valid,
legally binding upon and enforceable against, the
respective parties thereto as a matter of all relevant
laws (other than the laws of Ireland) most notably the
expressed governing law in each case; that the choice of
such governing law is valid as a matter of the governing
law; and that there is no provision of the laws of any
jurisdiction (other than Ireland) that would change the
foregoing statements; and
(g) SSC is not connected (within the meaning of Section 26
of the Companies Act, 1990) with any director or shadow
director of the Company for the purposes of Section 31
of the Companies Act, 1990 (which prohibits companies,
inter alia, from entering into guarantees or providing
security in connection with a loan, quasi-loan or credit
transaction made by any other person for a director of
the company or a person connected with such director);
for the purposes of Section 26 of the Companies, Act
1990, a body corporate is deemed to be connected with a
director of a company if it is controlled by that
director and a director is deemed to control a body
corporate if he is, alone or together with his spouse,
parent, brother, sister, child, any person acting in his
capacity as the trustee of any trust (the principal
beneficiaries of which are the director, his spouse or
any of his children or any body corporate which he
controls) or a partner of that director interested in
more than one-half of the equity share capital of that
body or entitled to exercise or control the exercise of
more than one-half of the voting power at any general
meeting of that body (voting power exercised by a
director includes voting power exercised by another body
corporate which that director controls).
<PAGE>
3. Reservations
Our opinion is subject to the following reservations:
(1) The description of obligations as "enforceable"
refer to the legal character of the obligations in
question, i.e. that they are of a character which
Irish law recognises and enforces. It does not
mean that the Indemnity will be enforced in all
circumstances or that any particular remedy will be
available. Equitable remedies, such as specific
performance and injunction, are in the discretion
of the court and may not be available.
Furthermore, the court may not allow termination of
an agreement where an event of default occurs that
it considers immaterial, and, more generally, the
court may require that the person declaring the
event of default acts with reasonableness and good
faith.
(2) The obligations of the Company are subject to all
insolvency, bankruptcy, reorganisation, moratorium
and other similar laws affecting creditors' rights
generally including, without limitation, the
provisions of the Companies (Amendment) Act, 1990.
(3) Where an obligation is to be performed outside
Ireland, it may not be enforceable in Ireland to
the extent that performance would be illegal under
the law of that jurisdiction.
(4) Any judgement of the Irish courts for monies due
under the Indemnity may be expressed in a currency
other than Irish pounds but the order may issue out
of the Central Office of the Irish High Court
expressed in Irish pounds by reference to the
official rate of exchange prevailing on the date of
issue.
(5) Notwithstanding a provision of a document to the
contrary, it may be capable of being amended by
oral agreement of the parties.
(6) With your agreement, we have not reviewed any of
the documents creating the obligations secured by
the Indemnity or any of the documents referred to
therein or otherwise relating to the transaction.
On review has been limited in this way
notwithstanding that the obligation constituted by
an indemnity depends on the obligation whose
<PAGE>
performance it is intended to secure and,
accordingly, our opinion set out below must be
regarded as qualified to the extent that, following
a review of all such documents, we would have found
it necessary of appropriate to include any further
qualifications. In addition we have assumed
without investigation that had we been aware of the
meaning of any defined term used in the Indemnity
but not defined therein we would not have found it
necessary or appropriate to alter the terms of this
Opinion in any way.
4. Opinion
Subject to the assumptions set out in 2 above and the
reservations set out in 3 above we are of the opinion as
follows:
(1) Due Incorporation
The company is duly incorporated and validly
existing under the laws of Ireland as a limited
liability company. The search by Brady & Co.
Limited dated [ ] 1996 of the file relating to
the Company in the Companies Registration Office in
Dublin does not disclose that any steps have been
taken to appoint a receiver or examiner of the
Company or its assets or to wind up the Company.
(2) Corporate Capacity
The Company has full legal capacity to enter into,
deliver and perform the Indemnity.
(3) Corporate Authorisation
All necessary corporate action has been taken by
the Company to authorise the entry into, delivery
and execution of the Indemnity and to perform the
obligations undertaken by it thereunder and no
limitation on the powers of the Company will be
exceeded as a result thereof.
(4) Due execution
The Indemnity has been duly executed on behalf of
the Company.
<PAGE>
(5) Official Authorisations
No consent, approval or authorisation of any
governmental or other authority of Ireland is
required in connection with the execution, delivery
or performance of the Indemnity by the Company.
(6) Registrations and Filings
No declaration, filing, registration or other
formality under the laws of Ireland is requisite or
desirable for the validity and enforceability of
the Indemnity against the Company.
(7) No Breach of Law
Neither the execution and delivery of nor
performance of the Indemnity will contravene any
existing applicable law, statute, rule or
regulation to which the Company is subject, or
contravene or conflict with any provision of the
Memorandum and Articles of Association of the
Company.
(8) Valid, Binding and Enforceable
The Indemnity constitute the valid, legally binding
and enforceable obligations of the Company.
(9) Valid Choice of Law
The Rome Convention on the law applicable to
contractual obligations ("the 1980 Convention")
other than Article 7(1) thereof, has force of law
in Ireland. The incorporation of the laws of the
Province of Ontario as the governing law of the
Indemnity is valid in accordance with the 1980
Convention and, accordingly, subject to and in
accordance with the provisions of the 1980
Convention, Ontarian law will be applied by the
Courts of Ireland if the Indemnity or any claim
thereunder comes under their jurisdiction.
(10) Validity of Jurisdiction Clause
The submission by the Company to the jurisdiction
of the Courts of the Province of Ontario pursuant
to the Indemnity is valid and binding on the
Company and not subject to revocation.
<PAGE>
(11) Enforceability of Foreign Judgement
Any judgement in relation to the Indemnity obtained
in the Courts of the Province of Ontario against
the Company would be recognised and enforced in
Ireland without retrial or examination of the
merits of the case provided that:
(i) the judgement has not been obtained or
alleged to have been obtained by fraud or a
trick;
(ii) the decision of the Courts of the Province
of Ontario and the enforcement thereof was
not and would not be contrary to national
justice under Irish law;
(iii) the enforcement of the judgement would not
be contrary to public policy as understood
by the Irish Courts or constitute the
enforcement of a judgement of a penal or
revenue nature;
(iv) the judgement is final and conclusive and is
for a debt or definite sum of money;
(v) the procedural rules of the Courts of the
Province of Ontario have been observed.
Yours faithfully
McCann FitzGerald
<PAGE>
CERTIFICATE AND DECLARATION
Orfus Investments 3170497 Canada Inc.
8 Vinci Crescent Suite 1400, 200 King Street West
Downsview, Ontario Toronto, Ontario
M3H 2Y7 M5H 3T4
Aird & Berlis Gardiner, Roberts
BCE Place, Suite 1800 Scotia Plaza, Suite 3100
181 Bay Street 40 King Street West
Toronto, Ontario Toronto, Ontario
M5J 2T9 M5H 3Y2
RE: Indemnity given by Saville Systems P.L.C. ("The Irish
Company") dated May _____, 1996 in respect of the Lease of
premises at 675 Cochrane Drive, Markham, Ontario by Saville
Systems Canada Limited ("The Canadian Company")
I, ____________________ of the ________________ of ______________,
Ireland certify and declare as follows:
1. I am the ____________________ of The Irish Company.
2. No director of The Irish Company alone or together with
a spouse, parent, brother, sister, child, any person acting in his
capacity as the trustee of any trust, (the principal beneficiaries
of which are the director, his spouse or any of his children or
any body corporate which he controls) or a partner of that
director is interested in more than one-half of the equity shares
of The Canadian Company or is entitled to exercise or controls the
exercise of more than one-half of the voting powers at any general
meeting of The Canadian Company (which includes voting power
exercised by another body corporate which that director controls).
AND I make this solemn Certificate and Declaration conscientiously
believing it to be true, and knowing that it is of the same force
and effect as if made under oath.
Declared before me at the )
_________ of _____________________,)
in the County of _________________ ) ____________________________
this _____ day of _________________)
1996. )
<PAGE>
EXHIBIT 10.36
INDEMNITY AGREEMENT
THIS AGREEMENT dated April 25, 1996.
BETWEEN:
SAVILLE SYSTEMS PLC
(the "Indemnifier"),
OF THE FIRST PART
- and -
ORFUS INVESTMENTS
(the "Landlord"),
OF THE SECOND PART
WHEREAS the Indemnifier and the Tenant have requested the
Landlord to enter into a lease (the "Lease") dated April 25, 1996,
between Orfus Investments as landlord and Saville Systems Canada, Ltd.
as tenant (the "Tenant") relating to premises in the building known as
the West Tower of 675 Cochrane Drive, Markham, Ontario and the Landlord
has agreed to do so only if the Indemnifier executes and delivers this
agreement in favour of the Landlord;
NOW THEREFORE for good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the
Indemnifier), the Indemnifier hereby agrees with the Landlord as
follows:
I. The Indemnifier shall indemnify and save the Landlord
harmless from all losses, damages and costs incurred by the Landlord
if, during the period which is expressed by Section 3 of the Lease to
be its term, and during any renewal or extension thereof, the Landlord
does not receive any amount payable by the Tenant under the Lease for
such period which, if the Lease were in full force and effect and in
good standing, would be payable under the L ease;
II. If the Tenant defaults in the payment of any amount
payable under the Lease or in the due performance of any other
obligation of the Tenant under the Lease, the Indemnifier shall
forthwith upon demand by the Landlord pay to the Landlord all amounts
so payable and all damages that may arise upon the default by the
Tenant in the payment thereof or in the due performance of any such
obligation;
III. The Indemnifier shall be jointly and severally bound
with the Tenant to the Landlord for the performance of the obligations
of the Tenant under the Lease, including the payment of all Basic Rent
and Additional Rent, and its liability shall be that of a direct and
primary obligor and not merely that of a surety;
<PAGE>
IV. In the event of the occurrence of a default by the
Tenant under the Lease or in the event of a default by the Indemnifier
under this Indemnity, the Indemnifier waives any right to require the
Landlord to:
(i) proceed against the Tenant or pursue any rights or
remedies with respect to the Lease;
(ii) proceed against or exhaust any security of the
Tenant or any other person and which is held by
the Landlord; or
(iii) pursue any other remedy whatsoever in the
Landlord's power.
The Landlord has the right to enforce the within Indemnity regardless
of the acceptance of additional security from the Tenant or any other
person and regardless of the release or discharge of the Tenant or any
other person who has provided security to the Landlord, by the Landlord
or by others or by operation of any law;
V. This Indemnity is absolute and unconditional and the
obligations of the Indemnifier shall not be released, discharged,
mitigated or in any way be affected by any delay, neglect or
forbearance by the Landlord in enforcing performance by the Tenant of
its obligations under the Lease or by the granting by the Landlord to
the Tenant of any extension of time or by any waiver by the Landlord of
any of the Tenant's obligations or by any assignment or sublease or
other dealing by the Tenant with the Lease or the premises whether with
or without the consent of the Landlord or by any want of notice to the
Indemnifier or by any dealing between the Landlord and the Tenant with
or without notice to the Indemnifier or by any dealing between the
Landlord and the Tenant with or without notice to the Indemnifier
whereby the respective obligations and rights of either the Landlord or
the Tenant are amended including any amendment of the Lease or by any
other act or failure to act by the Landlord which would release,
discharge or affect the obligations of the Indemnifier if it were a
mere surety, and with the intent that this indemnity shall not be
released or affected or the rights of the Landlord hereunder in any way
impaired until such time as all the obligations of the Tenant under the
Lease have been fully performed and satisfied;
VI. Without limiting the generality of the foregoing, the
obligations of the Indemnifier hereunder shall not and shall not be
deemed to be released, discharged or affected by reason of the release
or discharge of the Tenant in any receivership, bankruptcy, winding up
or other creditors' proceedings or the rejection, disaffirmance or
disclaimer of the Lease in any proceeding and shall continue with
respect to the periods prior to and thereafter, for and with respect to
the term (and any renewal or extension thereof) as if the Lease had not
been disaffirmed or disclaimed, and without limiting the generality of
the foregoing, the obligations of the Indemnifier hereunder shall not
and shall not be deemed to be released, discharged or affected by
reason of the Tenant ceasing to exist (whether by winding-up,
forfeiture, cancellation or surrender of charter, or any other
circumstance) or by any event terminating the Lease including a re-
entry or termination pursuant to the Lease; and in furtherance hereof,
the Indemnifier agrees, upon any disaffirmance, disclaimer, or any
other event which has the effect of terminating the Lease, the
Indemnifier shall, at the option of the Landlord, become the Tenant of
the Landlord upon the same terms and conditions as are contained in the
Lease, applied mutatis mutandis. The liability of the Indemnifier shall
not be affected by any repossession of the premises by the Landlord.
Nothing in this subparagraph or elsewhere in this Indemnity will be
construed so as to confer any rights on the Indemnifier to occupy or
use the premises or to claim any interest or rights in the premises or
the Lease whether or not the Indemnifier is required to perform any
covenants under this Indemnity or under the Lease;
<PAGE>
VII. The Indemnifier hereby expressly waives notice of the
acceptance of this Indemnity and notice of non-performance, non-payment
or non-observance on the part of the Tenant of the terms, covenants and
conditions in the Lease. Without limiting the generality of the
foregoing, any notice which the Landlord desires to give to the
Indemnifier shall be sufficiently given if delivered in person, if
mailed, by prepaid registered mail, or sent by telefacsimile, and sent
to the following:
Saville Systems PLC
675 Cochrane Drive
Markham, Ontario
Attention: President
Any such notice is deemed to have been given upon the day it was
delivered in person, if mailed, 72 hours after the date it was mailed,
and if given by telefacsimile, on the date upon which it was sent;
VIII. No action or proceedings brought or instituted under
this Indemnity and no recovery in pursuance thereof shall be a bar or
defence to any further action or proceeding which may be brought under
this Indemnity by reason of any further default hereunder or in the
performance and observance of the terms, covenants and conditions
contained in the Lease;
IX. No modification of this Indemnity shall be effective
unless it is in writing and is executed by both the Indemnifier and the
Landlord;
X. The Indemnifier shall be bound by any account settled
between the Landlord and the Tenant;
XI. The Indemnifier hereby irrevocably submits and attorns
to the jurisdiction of the courts of the Province of Ontario;
XII. The obligations of the Indemnifier hereunder may be
assigned by the Landlord, will benefit and be enforceable by the
successors and assigns of the Landlord and shall bind the heirs,
executors and legal representatives and the successors and assigns of
the Indemnifier; any assignment by the Landlord of any of its interest
in the Lease shall operate automatically as an assignment to such
assignee of the benefit of this Indemnity;
XIII. The grammatical changes required to make the provisions
of this agreement apply in the plural sense where the Indemnifier
comprises more than one person and to corporations, firms,
partnerships, or individuals male or female, will be assumed as though
in each case fully expressed, and if the Indemnifier consists of more
than one person, the agreements of the Indemnifier shall be deemed to
be joint and several agreements of each such person;
XIV. This Indemnity constitutes the entire agreement between
the Indemnifier and the Landlord and neither party hereto shall be
bound by any representations or agreements made by any other person
which would in any way reduce, impair or detract from the obligations
of the Indemnifier hereunder other than any which are expressly set out
herein;
XV. This agreement shall be governed by the laws of the
Province of Ontario, and shall be treated in all respects as an Ontario
contract.
<PAGE>
Each of the parties represents and warrants to the other that
the recital set out above is true and correct in substance and in fact,
as such recital relates to such party, and such recital is incorporated
as an integral part of this Indemnity.
The Indemnifier acknowledges receipt of a copy of the Lease.
<PAGE>
In witness whereof the Landlord and the Indemnifier have
executed this agreement.
SAVILLE SYSTEMS PLC
by:___________________________
c/s
Title:________________________
ORFUS INVESTMENTS
by:___________________________
Howard L. Orfus
<PAGE>
EXHIBIT 11.1
CALCULATION OF SHARES USED IN DETERMINING
NET INCOME PER SHARE(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income...................... $ 13 $ 5,357 $ 6,382 $ 2,038 $ 2,042
======== ======== ======= ========= =========
Weighted average number of
Ordinary equivalent shares:
Ordinary Shares............... 15,004 15,004 15,316 15,004 17,756
Non-qualified share
options(2)................... 663 717 835 793 1,109
-------- -------- ------- --------- ---------
Weighted average shares
outstanding................ 15,667 15,721 16,151 15,797 18,685
======== ======== ======= ========= =========
Net income per share.......... $ 0.00 $ 0.34 $ 0.40 $ 0.13 $ 0.11
======== ======== ======= ========= =========
</TABLE>
- --------
(1) This Exhibit should be read in connection with "Net income per share" in
Note 2 of the Notes to the Consolidated Financial Statements.
(2) Pursuant to the requirements of the Securities and Exchange Commission,
Ordinary Shares and share equivalents issued during the twelve month
period prior to the Company's initial public offering in November 1995
have been included in the calculation (using the treasury stock method and
the initial public offering price) as if they were outstanding for all
periods presented.
<PAGE>
EXHIBIT 23.2
May 20, 1996
Saville Systems PLC
IDA Business Park
Dangan, Gallway
Ireland
Ladies and Gentlemen:
We hereby consent to use of our name in the Registration Statement on Form
S-1 of Saville Systems PLC relating to the registration statement of 3,565,000
American Depositary Shares, representing 3,565,000 Ordinary Shares, and in the
related Prospectus under the caption "Legal Matters."
Very truly yours,
/s/ Hale and Dorr
_______________
HALE AND DORR
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our reports dated
January 26, 1996 with respect to the financial statements and financial
statement schedule of Saville Systems PLC included in the Registration
Statement (Form S-1) and related Prospectus of Saville Systems PLC, for the
registration of 3,565,000 ADSs.
/s/ Ernst & Young
Chartered Accountants
Galway, Ireland
May 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 23,722 21,449
<SECURITIES> 0 0
<RECEIVABLES> 8,547 13,181
<ALLOWANCES> 370 447
<INVENTORY> 0 0
<CURRENT-ASSETS> 32,955 35,454
<PP&E> 2,978 3,415
<DEPRECIATION> 643 791
<TOTAL-ASSETS> 36,031 38,822
<CURRENT-LIABILITIES> 4,846 5,687
<BONDS> 0 0
0 0
48 48
<COMMON> 44 44
<OTHER-SE> 30,832 32,828
<TOTAL-LIABILITY-AND-EQUITY> 36,031 38,822
<SALES> 0 0
<TOTAL-REVENUES> 30,296 10,555
<CGS> 0 0
<TOTAL-COSTS> 13,805 5,137
<OTHER-EXPENSES> 7,721 2,855
<LOSS-PROVISION> 370 77
<INTEREST-EXPENSE> 76 6
<INCOME-PRETAX> 8,324 2,480
<INCOME-TAX> 1,872 440
<INCOME-CONTINUING> 6,382<F1> 2,042<F1>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,382 2,042
<EPS-PRIMARY> 0.40 0.11
<EPS-DILUTED> 0.40 0.11
<FN>
<F1>After deducting (adding) minority interest of 70 and (2), respectively
</FN>
</TABLE>
