<PAGE>
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- -------------------------------------------------------------------------------
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only(as Permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)14a-11(c) or (S)14a-12
SAVILLE SYSTEMS PLC
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14A (Preliminary Proxy Material)
- -------------------------------------------------------------------------------
(3) Filing Party:
Saville Systems PLC
- -------------------------------------------------------------------------------
(4) Date Filed:
April 3, 1997
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<PAGE>
NOTICE OF ANNUAL GENERAL MEETING
OF
SAVILLE SYSTEMS PLC
----------------
Notice is hereby given that the Annual General Meeting of Saville Systems
PLC (the "Company") will be held at Keswick Hall, 701 Club Drive, Keswick,
Virginia, on April 24, 1997 at 1:00 p.m. local time, to consider and act upon
the following matters:
1. To consider the audited accounts of the Company for the year ended
December 31, 1996 and the Reports of the Directors and the Auditors
thereon.
2. To re-elect John A. Blanchard, III, Brian E. Boyle, Richard A. Licursi
and John W. Sidgmore as Class II Directors of the Company to serve for a
three-year term.
3. To reappoint Ernst & Young as the Company's independent auditors for
the current fiscal year.
4. To authorize an amendment to the Company's 1995 Share Option Plan
increasing from 2,890,000 to 5,000,000 the number of Ordinary Shares
reserved for issuance under the Plan.
5. To authorize an amendment to the Company's Memorandum and Articles of
Association increasing the authorized share capital of the Company from
40,000,000 Ordinary Shares, nominal value $0.0025 per share, to 75,000,000
Ordinary Shares and increasing the number of Ordinary Shares the Board of
Directors of the Company is authorized to allot from 35,972,000 Ordinary
Shares to 75,000,000 Ordinary Shares.
6. To authorize the Directors to determine the remuneration of the
independent auditors.
7. To authorize the holding of the 1998 Annual General Meeting of the
Company in North America.
8. To transact such other business as may properly come before the
meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Peter H. Quinlan
Secretary
April 3, 1997
Registered Office: 67 Lansdowne Road, Dublin 4
A SHAREHOLDER ENTITLED TO ATTEND AND VOTE AT THE ANNUAL GENERAL MEETING IS
ENTITLED TO APPOINT A PROXY (WHO NEED NOT BE A MEMBER OF THE COMPANY) TO
ATTEND, SPEAK AND VOTE INSTEAD OF SUCH SHAREHOLDER. A FORM OF PROXY IS
ENCLOSED.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL GENERAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED TO THE ENCLOSED PROXY IF MAILED IN THE REPUBLIC OF IRELAND.
<PAGE>
SAVILLE SYSTEMS PLC
IDA BUSINESS PARK
DANGAN
GALWAY, IRELAND
PROXY STATEMENT
FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Saville Systems PLC (the
"Company") for use at the Annual General Meeting of Shareholders to be held on
April 24, 1997 (the "Annual General Meeting") and at any adjournment of that
meeting. All proxies will be voted in accordance with the shareholders'
instructions, and if no choice is specified, the proxies will be voted in
favor of the matters set forth in the accompanying Notice of Annual General
Meeting.
To be valid, a proxy must be deposited not less than 48 hours prior to the
time appointed for the holding of the Annual General Meeting at (i) the
registered office of the Company or (ii) the registered office of the
Registrar for the Ordinary Shares, AIB Bank, Registrars' & New Issue
Department, Bankcentre, P.O. Box 954, Ballsbridge, Dublin 4, Ireland (each,
the "Registered Office"). Any proxy may be revoked by a shareholder at any
time before its exercise by (i) voting in person at the Annual General
Meeting, (ii) delivery of a subsequently dated proxy to the Registered Office,
provided that such subsequently dated proxy must be received at the Registered
Office not less than 48 hours prior to the time appointed for the holding of
the Annual General Meeting or (iii) delivery of written revocation of such
proxy, provided that such written revocation must be received at the
Registered Office not less than one hour prior to the time appointed for the
holding of the Annual General Meeting.
The Company's Annual Report to Shareholders for the year ended December 31,
1996 was mailed to shareholders, along with these proxy materials, on or about
April 3, 1997.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC"), EXCEPT FOR EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY
SHAREHOLDER UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT SAVILLE
SYSTEMS PLC, IDA BUSINESS PARK, DANGAN, GALWAY, IRELAND OR AT 25 BURLINGTON
MALL ROAD, SIXTH FLOOR, BURLINGTON, MASSACHUSETTS 01803, U.S.A.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on March 3, 1997, there were outstanding and
entitled to vote an aggregate of 18,127,786 ordinary shares of the Company,
$0.0025 nominal value per share, constituting all of the voting shares of the
Company. All shareholders of record at the time appointed for the holding of
the Annual General Meeting are entitled to vote at the Annual General Meeting.
All ordinary shares of the Company, including those represented by American
Depositary Shares of the Company ("ADSs") are referred to herein as the
"Ordinary Shares." All references in this Proxy Statement to past transactions
in the Company's Ordinary Shares reflect the 400-for-1 division of the
Company's Ordinary Shares which occurred on September 27, 1995, and the
subsequent share dividend of 2.725 Ordinary Shares for each post-division
share.
Three shareholders, appearing in person or represented by proxy, shall
constitute a quorum for the transaction of business at the Annual General
Meeting.
The Bank of New York as depositary (the "Depositary") is the shareholder of
record in respect of those Ordinary Shares represented by ADSs. The Company
has requested the Depositary, and the Depositary is required pursuant to the
Deposit Agreement, to mail to all owners of American Depository Receipts
("ADRs") representing ADSs of the Company (the "Owners") a notice, the form of
which notice will be in the sole
<PAGE>
discretion of the Depositary, containing (a) the information included in the
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 (i.e., a
written vote) 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 to the Depositary to give a
discretionary proxy to a person designated by the Company, as described in the
next paragraph. Upon the written request of an Owner, 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 Owner's 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 depositary 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 ADSs 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.
Voting at the Annual 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 Company's Memorandum and
Articles of Association 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
general meetings of shareholders in respect of every resolution on which the
Depositary has been instructed by an owner to vote.
The affirmative vote of the holders of a majority of the Ordinary Shares
voting on the matter is required for the approval of ordinary resolutions,
including all resolutions presented for approval at this Annual General
Meeting other than the resolution to amend the Company's Memorandum and
Articles of Associates (the "Charter Proposal"). The Charter Proposal is a
special resolution and requires the affirmative vote of the holders of 75% of
the outstanding Ordinary Shares.
2
<PAGE>
Ordinary Shares that abstain from voting as to a particular matter, and
shares held in "street name" by a broker or nominee who indicates on a proxy
that he or she does not have discretionary authority to vote such shares as to
a particular matter, will not be counted as votes in favor of such matter, and
also will not be counted as shares voted on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on
matters, including those matters other than the Charter Proposal presented for
shareholder approval at this Annual General Meeting, that require the
affirmative vote of a certain percentage of the shares voting on the matter.
With respect to the Charter Proposal, which requires the affirmative vote of
75% of the outstanding Ordinary Shares, abstentions and "broker non-votes"
will have the same effect as a vote against the Charter Proposal.
CONSIDERATION OF THE AUDITED ACCOUNTS OF THE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE REPORTS OF THE DIRECTORS
AND THE AUDITORS THEREON
Under Irish Company law, the shareholders of the Company are required to
consider the audited accounts of the Company for the year ended December 31,
1996 and the Reports of the Directors and the Auditors thereon which were
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1996, as mailed to the shareholders of the Company along with
these proxy materials. Under Irish Company law, the Directors are required to
lay the accounts before the Annual General Meeting. In addition, under the
Company's Articles of Association, the shareholders must be requested to pass
a resolution that the accounts be considered. However, there is no legal
requirement that such a resolution be passed or that the accounts be otherwise
approved by the shareholders.
ELECTION OF DIRECTORS
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 an ordinary resolution
of the shareholders. The Company's Board of Directors is divided into three
classes, with members of each class holding office for staggered three-year
terms. There are currently three Class I Directors, whose terms expire at the
1999 Annual General Meeting of Shareholders, four Class II Directors, whose
terms expire at the 1997 Annual General Meeting of Shareholders, and three
Class III Directors, whose terms expire at the 1998 Annual General Meeting of
Shareholders (in all cases subject to the election of their successors and to
their earlier death, resignation or removal).
The Chairman of the Annual General Meeting, as the person named in the
enclosed proxy, will vote to elect John A. Blanchard, III, Brian E. Boyle,
Richard A. Licursi and John W. Sidgmore as Class II Directors, unless
authority to vote for the election of any of the nominees is withheld by
marking the proxy to that effect. Messrs. Blanchard, Brian E. Boyle, Licursi
and Sidgmore are currently Class II Directors of the Company. Each of the
nominees has indicated his willingness to serve, if elected, but if any of
them should be unable or unwilling to stand for election, proxies may be voted
for a substitute nominee designated by the Board of Directors.
Set forth below are the name, age and certain information with respect to
each director of the Company, including the four nominees for Class II
Director.
CLASS I DIRECTORS
WILLIAM F. CUNNINGHAM. Mr. Cunningham, age 52, 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.
3
<PAGE>
FERGUS G. MCGOVERN. Mr. McGovern, age 68, 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 Graduate School of Business of
University College Dublin.
DAVID P. MIXER. Mr. Mixer, age 44, 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, a publicly-held communications equipment manufacturing company.
CLASS II DIRECTORS
JOHN A. BLANCHARD, III. Mr. Blanchard, age 54, 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.
BRIAN E. BOYLE. Mr. Boyle, age 48, has been a director of the Company since
January 1995. Since January 1994, Mr. Boyle has served as Chairman, New
Wireless Services, of Boston Communications Group, 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.
RICHARD A. LICURSI. Mr. Licursi, age 49, 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 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.
JOHN W. SIDGMORE. Mr. Sidgmore, age 44, 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.
4
<PAGE>
CLASS III DIRECTORS
JOHN J. BOYLE, III. Mr. Boyle, age 50, 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.
JAMES B. MURRAY, JR. Mr. Murray, age 50, 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. 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.
BRUCE A. SAVILLE. Mr. Saville, age 52, 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).
Executive officers of the Company are generally elected by the Board of
Directors on an annual basis and serve at the Board's discretion. No family
relationships exist among any of the executive officers or directors of the
Company.
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's independent auditors' performance in the annual audit,
reviews auditors' fees, discusses the Company's internal accounting control
policies and procedures and considers and recommends the selection of the
Company's independent auditors. The Audit Committee met once during the year
ended December 31, 1996. The current Audit Committee members are Messrs.
Cunningham (chairman), Licursi and Mixer.
The Company has a standing Compensation Committee of the Board of Directors,
which sets the compensation levels of executive officers of the Company
(subject to review by the Board of Directors), provides recommendations to the
Board regarding compensation programs of the Company, administers and
authorizes option grants to all employees under the Company's 1995 Share
Option Plan and administers the Company's 1996 Employee Share Purchase Plan.
The Compensation Committee met twice during the year ended December 31, 1996.
The current members of the Compensation Committee are Messrs. Mixer
(Chairman), Brian Boyle and Cunningham.
The Board of Directors met five times during the year ended December 31,
1996. Each incumbent director, except Messrs. McGovern and Sidgmore, attended
at least 75% of the aggregate of the number of Board meetings and the number
of meetings held by all committees on which he then served.
COMPENSATION FOR DIRECTORS
The Company's non-employee directors receive $1,000, plus reasonable travel
and out-of-pocket expenses, for each meeting of the Board of Directors they
attend and are entitled to participate in the Company's 1995 Share Option Plan
(the "Plan"). Directors who serve on the Audit Committee or Compensation
Committee receive $500 for each such Committee Meeting attended. For a further
description of the Plan, see "Authorization of Amendment to 1995 Share Option
Plan" below.
5
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for the last
two fiscal years of the Company's Chief Executive Officer and the Company's
four other most highly paid executive officers whose annual salary and bonus
for 1996 exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(2)(3)
-------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)(4)
- --------------------------- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Sa-
ville(5)....... 1996 $ 210,000 $ -- $-- 2,894 $ --
Chairman 1995 200,000 -- -- 23,095 --
John J. Boyle,
III............ 1996 224,700 168,525 -- 6,094 --
Chief Executive
Officer 1995 214,000 160,500 -- 371,684 --
Marc J.
Venator(6)..... 1996 157,500 47,250 -- 2,821 15,591
Chief Operating
Officer 1995 102,116 30,082 -- 180,940 21,574
John Kiley(7)... 1996 150,000 85,000 -- 450 --
Senior Vice
President, 1995 25,962 10,192 -- 100,000 --
Global Sales
and Marketing
Michael
Shulist(5)(8).. 1996 122,640 61,792 -- 2,602 3,218
Senior Vice
President, 1995 91,832 27,456 -- 132,728 1,184
Global Consult-
ing Services
</TABLE>
- --------
(1) In accordance with the rules of the SEC, other compensation in the form of
prerequisites and other personal benefits has been omitted because such
prerequisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Office.
(2) The Company does not have a long-term compensation program that includes
long-term incentive payouts. No restricted stock awards or stock
appreciation rights were granted to any of the Named Executive Officers
during the years ended December 31, 1995 or December 31, 1996.
(3) The Company did not grant any restricted stock awards or stock
appreciation rights during the years ended December 31, 1995 and December
31, 1996. The Company does not have any long term incentive plan.
(4) Consists of amounts paid by the Company for relocation expenses in the
case of Mr. Venator. Consists of amounts paid by the Company for
automobile lease payments in the case of Mr. Shulist.
(5) Amounts reflected in this section have been converted into U.S. dollars at
the conversion ratio in effect on December 31, 1996 as reported in the New
York Times on that date (US $1.00 = CDN $1.36 equivalent to CDN $1.00 = US
$0.73).
(6) Mr. Venator joined the Company in April 1995. See "--Agreements with Named
Executive Officers."
(7) Mr. Kiley joined the Company in October 1995. See "--Agreements with Named
Executive Officers."
(8) Mr. Shulist joined the Company in March 1995. See "--Agreements with Named
Executive Officers."
6
<PAGE>
Option Grant Table. The following table sets forth certain information
regarding options granted during the year ended December 31, 1996 by the
Company to the Named Executive Officers.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED (#) YEAR (#/SH) DATE 5% ($) 10% ($)
---- ----------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Sa-
ville...... 2,894 2.30% $16.38 1/1/06 $ 29,812 $ 75,549
John J.
Boyle,
III........ 5,419 4.2% 16.38 1/1/06 55,823 141,466
675 0.5% 21.76 2/28/97 489 978
Marc J.
Venator.... 2,821 2.2% 16.38 1/1/06 29,060 73,644
John J. Ki-
ley........ 450 0.3% 21.76 2/28/97 326 652
Michael
Shulist.... 2,227 1.7% 16.38 1/1/06 22,941 58,137
375 0.3% 21.76 2/28/97 272 543
</TABLE>
- --------
(1) These columns show 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 full term of the options. The assumed rates of appreciation
are mandated by the rules of the SEC and do not represent the Company's
estimate or projection of future share prices. Actual gains, if any, on
option exercises will depend on the timing of such exercise and the future
performance of the Company's ADSs. Values shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise.
7
<PAGE>
Year-End Option Table. The following table sets forth certain information
regarding options exercised during the year ended December 31, 1996 and stock
options held as of December 31, 1996 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES AS OF DECEMBER 31, 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES VALUE FISCAL YEAR-END FISCAL YEAR END(2)
ACQUIRED ON REALIZED ------------------------- -------------------------
EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A.
Saville.. 0 $0 10,592 15,397 $ 316,232 $ 492,165
John J.
Boyle,
III...... 10,000 $229,471 310,603 87,165 10,970,611 2,777,387
20,000 $610,819
50,000 $2,061,262
25,000 $1,071,179
8,000 $330,577
17,000 $703,726
Marc J.
Venator.. 30,000 $666,806 334 67,552 10,676 2,159,300
11,612 $287,070
1,763 $30,191
20,000 $444,376
30,000 $1,027,293
15,737 $566,532
2,821 $83,558
3,442 $128,524
John J.
Kiley.... 30,000 $1,040,625 3,333 67,117 102,073 2,050,166
Michael
Shulist.. 22,600 $502,327 76,611 36,119 2,500,384 1,149,631
</TABLE>
- --------
(1) The values in this column represent the last reported sale price of the
ADSs on the respective date of exercise, less the respective option
exercise price.
(2) Value is based on the closing sales price of the Company's ADSs on
December 31, 1996 ($40.625), the last trading day of the Company's 1996
fiscal year, less the applicable option exercise price.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company filed a Registration Statement on Form S-1 (the "Registration
Statement") which was declared effective on June 20, 1996. In connection with
the Registration Statement, each of the Company's directors and executive
officer and filed a Form 4 reporting such persons beneficial ownership
Ordinary Shares on June 20. Since the Registration Statement was declared
effective based solely on its review of copies of reports filed by all persons
required to file reports ("Reporting Persons") pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
written representations from certain Reporting Persons that no Form 5 filing
was required for such persons, the Company believes that during fiscal 1996
all filings required to be made by its Reporting Persons were timely made in
accordance with the requirements of the Exchange Act.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
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
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 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
8
<PAGE>
is entitled to receive an initial annual base salary of $200,000, subject to
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, in lieu of his grant within 60 days of the
end of 1995 he was granted an option to purchase 129,734 Ordinary Shares at an
exercise price of $8.66 per share on September 1, 1995, and, in lieu of his
grant within 60 days of the end of 1996, was granted an option to purchase
100,000 Ordinary Shares at an exercise price of $38.00 per share on January 2,
1997.
In addition, Mr. Boyle's agreement required him to purchase 80,460 Ordinary
Shares at a purchase price per share of $2.49. Saville Systems U.S., Inc., a
majority-owned subsidiary of the Company, 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 Ordinary 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, 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, Shulist and Kiley. Pursuant to the agreement with Mr. Venator, the
Company is obligated to pay a base salary of $150,000, subject to adjustment
after the first year. In addition, Mr. Venator is entitled to receive a year-
end bonus, the amount of which is dependent upon Mr. Venator's individual
performance and the overall performance of the Company. Upon joining the
Company, Mr. Venator was 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 Mr. Venator with or without cause. If the Company terminates Mr.
Venator's employment without cause during the first two years of his
employment, the Company must pay Mr. Venator 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 his employment.
Pursuant to the agreement with Mr. Shulist, the Company is obligated to pay
a base salary of CDN$160,000 (approximately $116,800 at March 3, 1997),
subject to adjustment after the first year. In addition, Mr. Shulist is
entitled to receive a year- end bonus, the amount of which is dependent upon
Mr. Shulist's individual performance and the overall performance of the
Company. Upon joining the Company, Mr. Shulist was granted an option to
purchase 41,612 Ordinary Shares at an exercise price of $2.40 per share. The
Company may
9
<PAGE>
terminate the employment of Mr. Shulist with or without cause. If the Company
terminates Mr. Shulist's employment without cause during the first two years
of his employment, the Company must pay Mr. Shulist 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 his employment.
Pursuant to the agreement with Mr. Kiley, the Company is obligated to pay a
base salary of $150,000, subject to adjustment after the first year. In
addition, Mr. Kiley is entitled to receive a year-end bonus, the amount of
which is dependent upon Mr. Kiley's individual performance and the overall
performance of the Company. 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 Mr. Kiley with or without
cause. If the Company terminates Mr. Kiley's employment without cause during
the first two years of his employment, the Company must pay Mr. Kiley 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 his employment.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, which is currently comprised of Messrs. Mixer (Chair),
Brian Boyle and Cunningham. The Compensation Committee is responsible for
determining the compensation package of each executive officer and
recommending it to the Board of Directors. In the year ended December 31,
1996, the Board of Directors did not modify or reject in any material way any
action or recommendation of the Compensation Committee. In making decisions
regarding executive compensation, the Compensation Committee considers the
input of the Company's other directors, including the input of Mr. Saville
with respect to the compensation of the Company's executive officers other
than Mr. Saville and of Mr. John J. Boyle with respect to the compensation of
the Company's executive officers other than Mr. Boyle.
Policies and Philosophy
The Company's executive compensation program is structured and administered
to achieve three broad goals in a manner consistent with shareholder
interests. First, the Compensation Committee structures executive compensation
programs and decisions regarding individual compensation in a manner that the
Compensation Committee believes will enable the Company to attract and retain
key executives. Second, the Compensation Committee establishes compensation
programs that are designed to reward executives for the achievement of
specified business objectives of the Company. Finally, the Compensation
Committee designs the Company's executive compensation programs to provide
executives with long-term ownership opportunities in the Company in an attempt
to align executive and shareholder interests.
In evaluating both individual and corporate performance for purposes of
determining salary and bonus levels and share option grants, the Compensation
Committee places significant emphasis on the extent to which strategic and
business plan goals are met, including the progress and success of the Company
with respect to matters such as achieving operating budgets, establishing
strategic licensing, distribution and development alliances, product
development and enhancement of the Company's licensing position, as well as on
the Company's overall financial performance.
Executive Officer Compensation in Fiscal 1996
The compensation programs for the Company's executives established by the
Compensation Committee consist of three elements based upon the foregoing
objectives: (i) base salary and benefits competitive with the marketplace;
(ii) bonus packages and (iii) share-based equity incentives in the form of
participation in the 1995 Option Plan. The Compensation Committee believes
that providing a base salary and benefits to its executive officers that are
competitive with the marketplace enables the Company to attract and retain key
executives. In addition, the Compensation Committee believes that bonuses
based on both corporate and individual performance provides incentives to its
executive officers that align their interests with those of the Company as a
10
<PAGE>
whole. The Compensation Committee generally provides executive officers
discretionary share option awards to reward them for achieving specified
business objectives and to provide them with long-term ownership
opportunities. In evaluating the salary and bonus level and equity incentives
to award to each current executive officer, the Compensation Committee
examines the progress which the Company has made in areas under the particular
executive officer's supervision, such as development or sales, and the overall
performance of the Company. Two-thirds of each executive officer's bonus and
equity awards are based upon specific goals or milestones that are established
at the beginning of each fiscal year. Additional bonus and equity awards are
based upon each executive officer's compensation after taking into account
actions by such officer to accomplish established Company goals.
In determining the salary and bonus of each executive officer, including the
Named Executives, the Compensation Committee and the Board of Directors
consider numerous factors such as (i) the individual's performance, including
the expected contribution of the executive officer to the Company's goals,
(ii) the Company's long-term needs and goals, including attracting and
retaining key management personnel and (iii) the Company's competitive
position, including data on the payment of executive officers at comparable
companies that are familiar to members of the Compensation Committee. The
companies described under the caption "Comparative Stock Performance" below
constitute a much broader group of companies at various stages of development
than those considered by the Compensation Committee to compare compensation
levels of the Company's executive officers. Rather, the companies used by the
Compensation Committee to compare executive compensation are companies of
which the members of the Compensation Committee have specific knowledge and
are considered as of the time those companies were at similar stages of
development as the Company. To the extent determined to be appropriate, the
Compensation Committee also considers general economic conditions and the
historic compensation levels of the individual. The Compensation Committee
believes that the salary levels of its executive officers are in the middle
third when compared to the compensation levels of companies at similar stages
of development as the Company.
Share option grants made pursuant to the 1995 Option Plan in the year ended
December 31, 1996 were designed to make a portion of the overall compensation
of the executive officers receiving such awards vary depending upon the
performance of the Company's ADSs on the Nasdaq National Market. Such grants,
as a result of vesting arrangements applicable to such share options, also
serve as a means of retaining these individuals. In making share option grants
to executives, the Compensation Committee considers a number of factors,
including the performance of the executive, the responsibilities of the
executive, the salary and bonus to be earned by the executive and the
executive's current share or option holdings.
During 1996, the Named Executives received options under the 1995 Option
Plan to purchase an aggregate of 14,861 Ordinary Shares, at a weighted average
exercise price of $16.92 per share, all current executive officers as a group
received options to purchase an aggregate of 17,445 Ordinary Shares, at a
weighted average exercise price of $16.91 per share, and all employees,
excluding current executive officers as a group, received options to purchase
an aggregate of 111,142 Ordinary Shares, at a weighted average exercise price
of $26.81 per share. During 1996, no non-employee director received options
under the 1995 Option Plan. For additional information regarding the ownership
of options by the Named Executives, see "Executive Compensation--Option
Grants" and "--Option Exercises and Holdings." On March 3, 1997, the closing
price of the ADSs on the Nasdaq National Market was $34.375, and options to
purchase an aggregate of 1,981,473 Ordinary Shares were outstanding under the
1995 Option Plan.
Compensation of the Chief Executive Officer in Fiscal 1996
The compensation philosophy applied by the Compensation Committee in
establishing the compensation for the Company's President and Chief Executive
Officer is the same as for the other senior management of the Company--to
provide a competitive compensation opportunity that rewards performance.
Mr. John J. Boyle served in the positions of President and Chief Executive
Officer of the Company during the year ended December 31, 1996. The
Compensation Committee set Mr. Boyle's base salary during 1996 at
11
<PAGE>
$224,700, considered by the Compensation Committee to be the middle third of
the compensation of Chief Executive Officers at other publicly-traded
companies at the same stage of development as the Company. In addition, Mr.
Boyle received a bonus of $168,525 and options to purchase 6,094 Ordinary
Shares during 1996, which amounts were partially based on achievement of
certain performance related goals that were established at the beginning of
1996. In considering Mr. Boyle's performance, the Compensation Committee
considered the hiring of certain key management level employees of the Company
and the Company's achievement of its internal earnings targets.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1,000,000 paid to the corporation's Chief Executive Officer
and four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. Although the Company has no current plan to pay
any of its executive officers annual compensation over $1,000,000, it
currently intends to structure the performance-based portion of the
compensation of its executive officers in a manner that complies with Section
162(m) of the Code to mitigate any disallowance of deductions.
COMPENSATION COMMITTEE
David P. Mixer, Chairman
Brian E. Boyle
William F. Cunningham
12
<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Ordinary Shares as of March 3, 1997 (i) by each person who is known by the
Company to beneficially own more than 5% of the outstanding Ordinary Shares,
(ii) by each director or nominee for director, (iii) by each of the Named
Executives, and (iv) by all current directors and executive officers as a
group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED (1) ORDINARY SHARES(2)
- ------------------- ------------ ------------------
<S> <C> <C>
FMR Corp.(3)................................... 1,536,400 8.1%
82 Devonshire Street
Boston, MA 02109
Bruce A. Saville(4)............................ 1,115,841 5.9%
Saville Systems PLC
4445 Calgary Trail
Edmonton, AB
Canada, T6H 5R7
David P. Mixer(5).............................. 1,240,812 6.6%
James B. Murray, Jr.(6)........................ 1,223,547 6.5%
John J. Boyle, III(7).......................... 301,434 1.6%
Michael Shulist(8)............................. 77,486 *
Marc J. Venator(9)............................. 44,276 *
John A. Blanchard, III(10)..................... 23,005 *
Brian E. Boyle(11)............................. 20,806 *
Richard A. Licursi(12)......................... 20,806 *
Fergus G. McGovern(12)......................... 20,806 *
John W. Sidgmore(12)........................... 20,806 *
William F. Cunningham(12)...................... 15,806 *
John J. Kiley(13).............................. 3,783 *
All current directors and executive officers as
a group
(14 persons)(14).............................. 4,128,764 21.8%
</TABLE>
- --------
* Less than 1% of the Ordinary Shares outstanding.
(1) Each person has sole investment and voting power with respect to the
shares indicated, except as otherwise noted. The number of Ordinary
Shares beneficially owned by each director, nominee for director or
executive officer is determined under the rules of the SEC and the
information is not necessarily indicative of beneficial ownership for any
other purpose. The inclusion herein of any shares as beneficially owned
does not constitute an admission of beneficial ownership. Any reference
in these footnotes to shares subject to share options held by the person
in question refers to share options held by such person that are
currently exercisable or exercisable within 60 days after March 3, 1997
("Presently Exercisable Options").
(2) The number of shares deemed outstanding includes 18,127,786 shares
outstanding as of March 3, 1997 and any shares subject to share options
held by the person or entity in question that are Presently Exercisable
Options.
(3) Includes 1,447,400 shares owned by Fidelity Management & Research Company
and 89,000 shares owned by Fidelity Management Trust Company, each a
wholly owned subsidiary of FMR Corp.
(4) All shares are owned of record by Grannarville Interest Group Inc. Mr.
Saville owns 100% of the voting securities of Grannarville Interest Group
Inc.
(5) Includes 40,287 shares held by the Trimix Foundation, of which Mr. Mixer
is one of three directors.
13
<PAGE>
(6) Includes 57,553 shares held by The James B. and Bruce R. Murray, Jr.
Foundation, of which Mr. Murray is the sole trustee.
(7) Includes 300,603 shares issuable pursuant to Presently Exercisable
Options.
(8) Includes 76,611 shares issuable pursuant to Presently Exercisable
Options.
(9) Includes 43,776 shares issuable pursuant to Presently Exercisable
Options.
(10) Includes 20,806 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) Comprised solely of shares issuable pursuant to Presently Exercisable
Options.
(13) Includes 3,333 shares issuable pursuant to Presently Exercisable Options.
(14) Includes 544,159 shares issuable pursuant to Presently Exercisable
Options.
14
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total shareholder return on the
ADSs representing Ordinary Shares of the Company for the year ended December
31, 1996 with the cumulative total return of (i) the Standard & Poor's 500
Stock Index ("S&P 500") and (ii) the Standard & Poor's Software & Services
Index ("S&P Computers"). This graph assumes the investment of $100 on January
1, 1996 in the ADSs representing Ordinary Shares, the Standard & Poor's 500
Stock Index and the Standard & Poor's Software & Services Index, and assumes
dividends are reinvested.
[COMPARATIVE STOCK PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
11/16/95 12/31/95 12/31/96
<S> <C> <C> <C>
Saville Systems PLC $100.00 $143.00 $406.00
S & P 500 100.00 106.00 131.00
S & P Computers 100.00 95.00 147.00
</TABLE>
15
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Ernst & Young has served as the Company's independent auditors since 1993.
The Board of Directors acknowledges the retirement of Ernst & Young as the
Company's independent auditors in accordance with the Companies Acts, 1963 to
1990, of the Republic of Ireland. Ernst & Young has expressed their
willingness to serve as the Company's independent auditors for the current
year.
Representatives of Ernst & Young are expected to be present at the Annual
General Meeting, will have the opportunity to make a statement if they desire
to do so and will also be available to respond to appropriate questions from
shareholders.
BOARD RECOMMENDATION
The Board of Directors recommends a vote FOR the reappointment of Ernst &
Young as the Company's independent auditors.
AUTHORIZATION OF AMENDMENT TO THE 1995 SHARE OPTION PLAN
The Board of Directors believes the continued growth and profitability of
the Company depends, in large part, upon the ability, of the Company to
maintain a competitive position in attracting and retaining key personnel.
Currently, 741,380 Ordinary Shares remain available for future awards under
the Company's 1995 Share Option Plan (the "1995 Option Plan"). Accordingly, on
April 24, 1997, the Board of Directors adopted, subject to shareholder
approval, an amendment to the 1995 Option Plan that increased from 2,890,000
to 5,000,000 the number of Ordinary Shares available for issuance under the
1995 Option Plan (subject to a proportionate adjustment for certain changes in
the Company's capitalization, such as a stock split) (the "Plan Amendment").
The following summary describes the 1995 Option Plan, as amended by the Plan
Amendment. This summary is qualified in all respects by reference to the full
text of the 1995 Option Plan, a copy of which is available upon request from
the Secretary of the Company.
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. As of March 3, 1997, approximately 629 persons
were eligible to participate in the 1995 Option Plan.
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 5,000,000 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).
16
<PAGE>
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 Internal Revenue 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).
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.
The Compensation Committee may amend the 1995 Option Plan at any time.
However, no such amendment shall be made without prior approval of the
shareholders of the Company if such amendment requires shareholder approval
under Section 422 of the Code or any successor provision with respect to
incentive stock options, or under Rule 16b-3.
As option grants under the 1995 Option Plan are discretionary, the Company
cannot now determine the number of options to be received by the Company's
Named Executives, by all current executive officers as a group, by non-
employee directors as a group or by non-executive officer employees as a
group. The number of such options shall be determined by the Compensation
Committee pursuant to the terms of the 1995 Option Plan. During 1996, the
Named Executives received options under the 1995 Option Plan to purchase an
aggregate of 14,861 Ordinary Shares, at a weighted average exercise price of
$16.92 per share, all current executive officers as a group received options
to purchase an aggregate of 17,445 Ordinary Shares, at a weighted average
exercise price of $16.91 per share, and all employees, excluding current
executive officers as a group, received options to purchase an aggregate of
111,142 Ordinary Shares, at a weighted average exercise price of $26.81 per
share. During 1996, no non-employee director received options under the 1995
Option Plan. For additional information regarding the ownership of options by
the Named Executives, see "Executive Compensation--Option Grants" and "--
Option Exercises and Holdings." On March 3, 1997, the closing price of the
ADSs on the Nasdaq National Market was $34.375, and options to purchase an
aggregate of 1,981,473 Ordinary Shares were outstanding under the 1995 Option
Plan.
Tax Consequences
The following summary of certain tax consequences of the grant and exercise
of options under the 1995 Option Plan is based on the laws, regulations,
administrative rulings and Revenue practices of the Republic of Ireland, the
United States and Canada in force and as interpreted by the relevant
authorities as of the date of this Proxy Statement, and such laws, regulations
and administrative rulings are subject to change in the future.
This summary is of a general nature only and does not discuss all aspects of
Irish, U.S. or Canadian tax that may be relevant to a particular optionee.
Optionees are advised to consult their own tax advisers with respect to the
tax consequences in the Republic of Ireland, the United States and Canada of
being an optionee. Each person who receives options under the 1995 Option Plan
is given a copy of the Prospectus relating to the 1995 Option Plan, which
contains more detailed information regarding the tax consequences of being an
optionee.
Irish Tax Consequences
Resident Optionees. The grant of an option to a Resident Optionee does not
create a taxable benefit for the Resident Optionee at the date of grant. The
optionee will, however, realize taxable income for Irish income tax purposes
upon the exercise of the option in an amount equal to the excess of the market
value of the Ordinary
17
<PAGE>
Shares at the date of exercise of the option over the amount paid for the
Ordinary Shares by the Resident Optionee. The amount is treated as taxable
income of the Resident Optionee for the tax year in which the option is
exercised and is taxable at the Resident Optionee's appropriate rate of tax.
Upon the sale of the Ordinary Shares, Irish capital gains tax will be
imposed. The taxable gain is calculated by taking the indexed cost of the
shares and subtracting it from the sale proceeds. However, added to the cost
is the amount of income, if any, realized upon the exercise of the option. The
allowable cost of the Ordinary Shares can be indexed by reference to the rate
of inflation as published in official statistics between the date of
acquisition and the date of disposal, provided that the length of time exceeds
twelve months.
Non-Resident Optionees. The Irish income tax consequences for Non-resident
Optionees on the exercise of options are uncertain as such consequences depend
on a number of variable factors, for example the applicable double taxation
treaty. Non-resident Optionees should consult their own tax advisors to
determine the Irish tax consequences for them of being Non-resident Optionees.
Assuming that the ADSs representing the Ordinary Shares issuable upon the
exercise of options under the 1995 Option Plan will be quoted on the Nasdaq
National Market, Non-resident Optionees will have no liability for Irish
capital gains tax in respect of disposal of the Ordinary Shares.
U.S. Federal Income Tax Consequences
The following is a summary of the U.S. federal income tax treatment of
incentive and non-statutory stock options received by persons who are resident
in the United States for U.S. federal income tax purposes. Generally, persons
who are not resident in the United States for U.S. federal income tax purposes
and who have not performed services in the United States will not be subject
to any United States taxes upon the grant or exercise of options or upon the
disposition of Ordinary Shares.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of Ordinary Shares acquired through
the exercise of the option ("ISO Stock"). The exercise of an incentive stock
option, however, may subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, if any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.
If the participant sells ISO Stock for less than the exercise price, then
the participant will recognize capital loss equal to the excess of the
exercise price over the sale price of the ISO Stock. This capital loss will be
a long-term capital loss if the participant has held the ISO Stock for more
than one year prior to the date of sale.
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For purposes of the "alternative minimum tax" applicable to individuals, the
exercise of an incentive stock option is treated in the same manner as the
exercise of a non-qualified option. Thus, in the year of option exercise an
optionee must include the difference between the exercise price and the fair
market value of the shares on the date of exercise in alternative minimum
taxable income. The alternative minimum tax is imposed upon an individual's
alternative minimum taxable income at a rates of 26% to 28% but only to the
extent that such tax exceeds the taxpayer's regular income tax liability for
the taxable year.
Non-Qualified Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair
market value of the Ordinary Shares acquired through the exercise of the
option ("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will
be a long-term gain or loss if the participant has held the NSO Stock for more
than one year prior to the date of sale.
Canadian Federal Income Tax Consequences
There are no Canadian federal income tax consequences to the Company or to
an optionee upon the grant of an option under the 1995 Option Plan.
An optionee who is a resident of Canada at the time an option is exercised
will be subject to Canadian federal income tax in respect of the benefit
received upon exercising the option, as described below. To the extent that
the stock option benefit relates to duties of an office (including the
position of director) or employment performed in a country other than Canada
and such benefit is subject to tax in that country, an optionee may claim a
deduction from Canadian tax otherwise payable in respect of such foreign tax
paid.
To the extent that the granting of an option relates to the duties of an
office (including the position of director) or employment performed in Canada
by an optionee who is non-resident in Canada at the time of exercising, the
optionee will be subject to Canadian federal income tax in respect of the
benefit received upon exercising the option.
An optionee who is a resident of the United States will be exempt by virtue
of the Canada-United States Income Tax Convention from the otherwise
applicable Canadian federal income tax in respect of the benefit received upon
exercising an option that represents remuneration for the duties of employment
performed in a particular year in Canada, provided that the amount of the
benefit, together with all other remuneration in respect of those duties, does
not exceed CDN $10,000, or provided that the optionee is present in Canada for
a period or periods not exceeding a total of 183 days in that year.
An optionee who is a resident of the Republic of Ireland will be exempt by
virtue of the Canada-Ireland Income Tax Agreement from the otherwise
applicable Canadian federal income tax in respect of the benefit received upon
exercising an option that represents remuneration for the duties of employment
performed in a particular year in Canada, provided that the optionee is
present in Canada for a period or periods not exceeding a total of 183 days in
that year, the remuneration is not paid by or on behalf of a Canadian resident
employer, and the remuneration is not deducted from the profits of a permanent
establishment or a fixed base which the Company has in Canada.
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Where an optionee subject to Canadian federal income tax acquires shares in
a particular year by exercising an option under the 1995 Option Plan, the
excess, if any, of the value of those shares at the time of acquisition over
the price paid for the shares will be a taxable benefit from employment to the
optionee in that year. An amount equal to one-quarter of this taxable benefit
may be deducted in computing the taxable income of the optionee, provided that
(a) the option was granted after February 15, 1984, (b) the exercise price is
not less than the fair market value of the shares at the time the option was
granted and (c) immediately after the option was granted, the optionee was
dealing at arm's-length with the Company.
The amount of the taxable benefit, if any, received by an optionee upon
exercise of an option will be added to the adjusted cost base of the Ordinary
Shares acquired pursuant to the option. The adjusted cost base to an optionee
of shares acquired under the 1995 Option Plan will be averaged with the
adjusted cost base to the optionee of any shares acquired otherwise than under
the 1995 Option Plan.
The excess of proceeds of disposition of the shares over their adjusted cost
base is treated as a capital gain, 75% of which is included in income for
Canadian tax purposes. Non-residents of Canada will generally be exempt from
Canadian tax on the gain.
APPROVAL OF AMENDMENT TO THE COMPANY'S MEMORANDUM AND
ARTICLES OF ASSOCIATION
The following brief descriptions of the Company's share capital and certain
provisions of the Company's Memorandum and 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 Memorandum and Articles of
Association.
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
30,0000 Deferred Shares (nominal value IR(Pounds)1.00 per share),
respectively. All of the Ordinary Shares issued and outstanding are issued and
fully paid.
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.
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.
BOARD RECOMMENDATION
The Board of Directors believes that in order to maintain maximum
flexibility, it is in the best interests of the Company to increase the
Company's authorized share capital to 75,000,000 Ordinary Shares, and for the
shareholders to authorize the Board of Directors to allot up to such number of
shares from time to time during the period ending on April 24, 2002. Such
shares may be allotted pursuant to existing and other share option plans and
for other general corporate purposes. Therefore, the Board of Directors
recommends a vote FOR amending the Memorandum and Articles of Association of
the Company to increase the authorized share capital of the Company and FOR
the authorization of the Board of Directors to allot such shares from time to
time.
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AUTHORIZATION OF DETERMINATION BY THE BOARD OF DIRECTORS
OF THE REMUNERATION OF INDEPENDENT AUDITORS
Under Irish company law, the remuneration of the Company's independent
auditors must be determined by the shareholders of the Company or in such
manner as the shareholders may approve at the Annual General Meeting. The
Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's independent auditors' performance in the annual audit,
reviews auditors' fees, discusses the Company's internal accounting control
policies and procedures and considers and recommends the selection of the
Company's independent auditors. The current Audit Committee members are
Messrs. Cunningham (Chairman), Licursi and Mixer. During 1996, the Audit
Committee determined the appropriate remuneration of the Company's independent
auditors based upon discussions with the auditors and a number of factors,
including the fees of other accounting firms of similar reputation, the
quality of the work of the auditors and the responsiveness of the auditors to
the requirements of the Company.
BOARD RECOMMENDATION
The Board of Directors believes that the Audit Committee is in the best
position to determine the remuneration of the Company's independent auditors
and that it is in the best interests of the Company for the Audit Committee to
make this determination. Therefore, the Board of Directors recommends a vote
FOR authorizing the Board of Directors, through the Audit Committee, to
determine the remuneration of the Company's independent auditors upon
consideration of factors deemed relevant by the Audit Committee, which may
include some or all of the factors described above.
AUTHORIZATION OF LOCATION OF 1998 ANNUAL GENERAL MEETING
Under Irish company law, the 1998 Annual General Meeting of Shareholders of
the Company must be held in the Republic of Ireland, unless the shareholders
of the Company authorize the Company to hold such Annual General Meeting
elsewhere. To maintain maximum flexibility, the Board of Directors believes
that it is in the best interests of the Company for the shareholders to
authorize the Company to hold the 1998 Annual General Meeting in North
America. Such authorization will permit the Company to hold the 1998 Annual
General Meeting in the Republic of Ireland or in North America, as determined
by the Board of Directors to be in the best interests of the Company.
BOARD RECOMMENDATION
The Board of Directors believes that this flexibility is in the best
interests of the Company and recommends a vote FOR this proposal.
OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the Annual General Meeting. However, if any other matters are properly
presented to the Annual General Meeting, it is the intention of the Chairman
of the Annual General Meeting, as the person named in the accompanying proxy,
to vote, or otherwise act, in accordance with his judgment on such matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph and personal interviews, and the Company reserves the
right to retain outside agencies for the purpose of soliciting proxies.
Brokers, custodians and fiduciaries will be requested to forward proxy
soliciting material to the owners of shares held in their names, and the
Company will reimburse them for their out-of-pocket expenses in this
connection. The Depositary is required pursuant to the Deposit Agreement to
mail to all Owners a notice, which indicates the voting rights of such Owners
with respect to their ADRs as more fully described in this Proxy Statement.
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DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS AT THE 1998 ANNUAL GENERAL
MEETING
Proposals of shareholders intended to be presented at the 1998 Annual
General Meeting of Shareholders must be received by the Company at its
principal office in Galway, Ireland not later than December 4, 1997 for
inclusion in the proxy statement for that meeting.
By Order of the Board of Directors,
Peter M. Quinlan, Secretary
April 3, 1997
THE BOARD OF DIRECTORS HOPES THAT SHAREHOLDERS WILL ATTEND THE ANNUAL
GENERAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL GENERAL MEETING
AND YOUR COOPERATION WILL BE APPRECIATED. SHAREHOLDERS WHO ATTEND THE ANNUAL
GENERAL MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH THEY HAVE SENT IN
THEIR PROXIES.
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