<PAGE>
SCHEDULE 14A INFORMATION
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 (Definitive Proxy Material)
- -------------------------------------------------------------------------------
(3)Filing Party:
Saville Systems PLC
- -------------------------------------------------------------------------------
(4)Date Filed:
March 25, 1998
<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 the Glenlo Abbey, Bushypark, Galway,
Ireland, on April 23, 1998 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, 1997 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
two-year term and to re-elect John J. Boyle III, James M. Murray, Jr. and
Bruce A. Saville as Class III 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 re-approve the adoption of the Company's 1995 Share Option Plan, as
amended.
5. To authorize the Directors to determine the remuneration of the
independent auditors.
6. To authorize the holding of the 1999 Annual General Meeting of the
Company in North America.
7. 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
March 25, 1998
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 23, 1998
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 23, 1998 (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,
1997 was mailed to shareholders, along with these proxy materials, on or about
March 25, 1998.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997, 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 ONE VAN DE
GRAAFF DRIVE, BURLINGTON, MASSACHUSETTS 01803, U.S.A.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on March 2, 1998, there were outstanding and
entitled to vote an aggregate of 38,143,414 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 2-for-1 stock split in the form
of a 100% share dividend of Ordinary Shares effective November 7, 1997.
Three shareholders, each 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 (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 a majority of the votes cast by the holders of
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.
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
2
<PAGE>
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 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.
CONSIDERATION OF THE AUDITED ACCOUNTS OF THE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1997
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,
1997 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, 1997, 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 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 1998 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 for a two-year
term and John J. Boyle III, James B. Murray, Jr. and Bruce A. Saville as Class
III Directors for a three-year term, 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 and Messrs. John J. Boyle III, Murray and Saville are
currently Class III 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 and three nominees for Class III Director.
CLASS I DIRECTORS
WILLIAM F. CUNNINGHAM. Mr. Cunningham, age 53, 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.
FERGUS G. MCGOVERN. Mr. McGovern, age 69, 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,
3
<PAGE>
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 45, 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 55, 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 provides paper-based and electronic products and services to
financial institutions and large retailers. 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. Mr. Blanchard is also a member of the Board of Directors of Deluxe
Corp. and Norwest Corp.
BRIAN E. BOYLE. Mr. Boyle, age 50, has been a director of the Company since
January 1995. Since February 1996, Mr. Boyle has served as Vice Chairman of
Boston Communications Group, Inc., a wireless communications company, and as
Chairman, New Wireless Services of that company from January 1994 to February
1996. 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 wireless telephone industry. Mr. Boyle is also a member of
the Board of Directors of Boston Communications Group, Inc.
RICHARD A. LICURSI. Mr. Licursi, age 50, 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.
JOHN W. SIDGMORE. Mr. Sidgmore, age 46, has been a director of the Company
since December 1994. Since June 1994, Mr. Sidgmore has been the President and
Chief Executive Officer of UUNet Technologies, Inc., a provider of worldwide
internet services. Since December 1996, Mr. Sidgmore also has served as the
Chief Operating Officer and Vice Chairman of WorldCom Inc., a provider of long
distance, internet and telecommunication services. From 1989 to June 1994, Mr.
Sidgmore served as President and Chief Executive Officer of CSC Intelicom. Mr.
Sidgmore is also a member of the Board of Directors of WorldCom Inc. and
Earthlink Network Inc.
CLASS III DIRECTORS
JOHN J. BOYLE III. Mr. Boyle, age 51, has served as the Company's President
and Chief Executive Officer since August 1994 and commencing April 1, 1998,
will also serve as the Company's Chairman of the Board of Directors. 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.
4
<PAGE>
JAMES B. MURRAY, JR. Mr. Murray, age 51, 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 also a member of the Board of
Directors of Advanced Radio Telecom Corp.
BRUCE A. SAVILLE. Mr. Saville, age 53, 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. Effective
April 1, 1998, Mr. Saville will no longer serve as the Company's Chairman.
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 twice during the year
ended December 31, 1997. 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 six times during the year ended December 31,
1997. The current members of the Compensation Committee are Messrs. Murray
(Chairman), Brian Boyle and Cunningham.
The Board of Directors met four times during the year ended December 31,
1997. Each incumbent director attended at least 75% of the aggregate of the
number of Board meetings and the number of meetings held by all committees on
which they 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 "1995 Option 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 1995 Option Plan, see "Reapproval of 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
three 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 1997 exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION(1) AWARD(S)(2)
------------------ --------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL STOCK UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) AWARDS(S) ($) OPTIONS(#) ($)
------------------ ---- --------- -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Saville(3)..... 1997 $195,000 $ -- $ -- 30,000 $ --
Chairman(4) 1996 210,000 -- -- 5,788 --
1995 200,000 -- -- 46,190 --
John J. Boyle, III...... 1997 284,193 284,662 1,031,175(5) 200,000 --
Chief Executive Offi-
cer(4) 1996 224,700 168,525 -- 10,838 --
1995 214,000 160,500 -- 742,368 --
Marc J. Venator......... 1997 165,375 82,688 -- 120,000 --
Chief Operating Officer 1996 157,500 47,250 -- 5,642 15,591
1995 102,116 30,082 -- 360,880 21,574
John Kiley.............. 1997 157,500 78,750 -- 100,000 --
Senior Vice President, 1996 150,000 85,000 -- -- --
Global Sales and Mar-
keting 1995 25,962 10,192 -- 200,000 --
Michael Shulist(3)...... 1997 123,480 61,740 -- 100,000 --
Senior Vice President, 1996 122,640 61,792 -- 4,454 3,218
Global Consulting Serv-
ices 1995 91,832 27,456 -- 265,456 1,184
</TABLE>
- --------
(1) In accordance with the rules of the SEC, 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 10% of the total annual salary and bonus for the Named
Executive Officer.
(2) The Company does not have a long-term incentive plan. The Company did not
grant any restricted stock awards or stock appreciation rights during the
years ended December 31, 1995 and December 31, 1996.
(3) Amounts reflected in this section for 1995 and 1996 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 $0.70) and for 1997 at the conversion ratio
in effect on December 31, 1997 as reported in the New York Times on that
date (US $1.00 = CDN $1.43 equivalent to CDN $1.00 = US $0.70)
(4) Mr. Boyle will serve as the Company's Chairman effective April 1, 1998.
(5) At December 31, 1997, Mr. Boyle held 30,000 shares of Restricted Stock
with an aggregate value of $1,245,000 on that date.
6
<PAGE>
Option Grant Table. The following table sets forth certain information
regarding options granted during the year ended December 31, 1997 by the
Company to the Named Executive Officers.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------- -------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Sa-
ville........ 30,000 1.09% $19.00 1/2/07 $ 364,578 $ 918,160
John J. Boyle,
III.......... 200,000 7.26% 19.00 1/2/07 2,430,522 6,121,065
Marc J.
Venator...... 20,000 0.73% 17.22(2) 1/24/07 315,252 706,016
100,000 3.63% 19.00 1/2/07 1,215,261 3,060,532
John J. Ki-
ley.......... 100,000 3.63% 19.00 1/2/07 1,215,261 3,060,532
Michael
Shulist...... 100,000 3.63% 19.00 1/2/07 1,215,261 3,060,532
</TABLE>
- --------
<TABLE>
<S> <C>
</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.
(2) The 20,000 Ordinary Shares underlying the option granted to Mr. Venator
had a market price of $20.25 on the date of grant.
Year-End Option Table. The following table sets forth certain information
regarding options exercised during the year ended December 31, 1997 and stock
options held as of December 31, 1997 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES AS OF DECEMBER 31, 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL YEAR- IN THE MONEY
SHARES VALUE END OPTIONS AT FISCAL YEAR END(2)
ACQUIRED ON REALIZED ------------------------- -------------------------------
EXERCISABLE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Saville........ 0 $ 0 36,580 45,398 $ 1,337,337 $ 1,247,334
John J. Boyle, III...... 225,350 6,103,696 483,696 287,854 18,305,530 7,749,670
Marc J. Venator......... 68,220 1,963,235 20,000 168,506 485,750 4,785,273
John J. Kiley........... 70,900 2,049,533 3,333 167,577 121,655 4,706,587
Michael Shulist......... 10,760 343,395 178,966 136,552 6,672,394 3,599,241
</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, 1997 ($41.50), the last trading day of the Company's 1997
fiscal year, less the applicable option exercise price.
7
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Exchange Act of 1934 or written representations from certain Reporting
Persons that no Form 5 filing was required for such persons, the Company
believes that during fiscal 1997 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 party to an employment agreement with Mr. Saville for the one
year period ending November 1, 1998. Pursuant to the agreement, Mr. Saville
serves as the Chairman of the Board of Directors of the Company until March
31, 1998, after which the Board has determined he will serve as Chairman
Emeritus. Mr. Saville is entitled to receive an annual base salary of
$120,000, subject to adjustment, in the discretion of the Board of Directors,
based upon Mr. Saville's individual performance and the overall performance of
the Company. The Company may terminate Mr. Saville's employment only for cause
or disability during the term of the agreement.
The Company is also a party to an employment agreement with Mr. John J.
Boyle, III for the five-year period from August 1, 1997 to August 1, 2002.
Pursuant to the agreement, Mr. Boyle serves as President and Chief Executive
Officer of the Company through April 1, 1998, as President, Chief Executive
Officer and Chairman of the Board of the Company from April 1, 1998 through
July 31, 1999 and as a Director of the Company through August 1, 2002. That
period could be extended further if agreed upon by Mr. Boyle and the Board of
Directors. Pursuant to the agreement, Mr. Boyle will receive a base salary for
the period from August 1, 1997 through July 31, 1998 of $350,000. His base
salary for each of the subsequent twelve-month periods shall be adjusted as
determined by the Board of Directors. During the final two years of the
agreement, when Mr. Boyle has agreed to serve as a Director of the Company,
the Company will not be obligated to pay him a base salary. In addition to his
base salary, Mr. Boyle is eligible to receive an incentive bonus of up to 100%
of his base salary at the end of each calendar year in which he serves as
Chief Executive Officer or Chairman of the Board of the Company. The amount of
any such bonus is dependent upon Mr. Boyle's individual performance and the
overall financial performance of the Company with respect to the applicable
calendar year.
In connection with Mr. Boyle's agreement to continue to be associated with
the Company for five years, the Company's Board of Directors agreed, in
October 1997, to issue to Mr. Boyle 15,000 Ordinary Shares (30,000 Ordinary
Shares on a post-split basis) at a purchase price of $0.0025 per share. The
shares issued to Mr. Boyle are subject to a Stock Restriction Agreement which
requires Mr. Boyle to contribute to the capital of the Company any shares
which have not vested at the time that Mr. Boyle ceases to be a member of the
Company's Board of Directors. The Stock Restriction Agreement also prohibits
Mr. Boyle from transferring any of the shares for so long as they are not
vested. Of the shares purchased by Mr. Boyle, 6,000 shares vest on August 1,
1998 and, thereafter, 6,000 shares vest on August 1 of each year until all
shares have vested as of August 1, 2002.
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 one year or
the period from the date of termination to July 31, 1999. 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.
8
<PAGE>
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, which is currently comprised of Messrs. Murray
(Chairman), 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,
1997, 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, III with respect to the
compensation of the Company's executive officers other than Mr. John J. Boyle,
III.
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 relationships, 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 1997
The compensation programs for the Company's executive officers 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 whole. The Compensation Committee generally provides executive officers
with 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 Executive Officers, 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
9
<PAGE>
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, 1997 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 executive officers, the Compensation Committee considers a number of
factors, including the performance of the executive officer, 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 1997, the Named Executive Officers received options under the 1995
Option Plan to purchase an aggregate of 550,000 Ordinary Shares, at a weighted
average exercise price of $18.94 per share, all current executive officers as
a group received options to purchase an aggregate of 750,000 Ordinary Shares,
at a weighted average exercise price of $18.77 per share, and all employees,
excluding current executive officers as a group, received options to purchase
an aggregate of 2,006,500 Ordinary Shares, at a weighted average exercise
price of $21.27 per share. During 1997, non-employee Directors received as a
group options to purchase an aggregate of 240,000 Ordinary Shares, at a
weighted average exercise price of $19.00 per share, under the 1995 Option
Plan. For additional information regarding the ownership of options by the
Named Executive Officers, see "Executive Compensation--Option Grants" and "--
Option Exercises and Holdings." On March 2, 1998, the closing price of the
ADSs on the Nasdaq National Market was $45.50 and options to purchase an
aggregate of 5,300,395 Ordinary Shares were outstanding under the 1995 Option
Plan.
Compensation of the Chief Executive Officer in Fiscal 1997
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, III served in the positions of President and Chief
Executive Officer of the Company during the year ended December 31, 1997. The
Compensation Committee set Mr. Boyle's base salary during 1997 at $284,193,
considered by the Compensation Committee to be in 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 $284,662 and options to purchase 200,000 Ordinary Shares at an
exercise price of $19.00 per share during 1997, which amounts were partially
based on achievement of certain performance related goals that were
established at the beginning of 1997. 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.
In addition to the cash compensation, bonus and option grants received by
Mr. Boyle in 1997, the Board of Directors awarded Mr. Boyle the right to
purchase 30,000 Ordinary Shares at a purchase price of $0.0025 per share. This
award was made in connection with the negotiation of Mr. Boyle's new
employment agreement and the determination by the Board of Directors that it
should be a priority for the Company to retain Mr. Boyle as
10
<PAGE>
its Chief Executive Officer and as a member of its Board of Directors. The
Ordinary Shares purchased by Mr. Boyle vest over a five-year period. See
"Agreements with Named Executive Officers" above.
Compliance with United States Internal Revenue Code Section 162(m)
Section 162(m) of the United States 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 company'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
James B. Murray, Jr., Chairman
Brian E. Boyle
William F. Cunningham
11
<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 2, 1998 (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>
PERCENTAGE
NUMBER OF OF
SHARES OUTSTANDING
BENEFICIALLY ORDINARY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) SHARES(2)
- ------------------------------------ ------------ -----------
<S> <C> <C>
Pilgrim Baxter & Associates Ltd.(3).................. 3,935,600 10.3%
825 Duportail Road
Wayne, PA 19087-5525
Putnam Investment Management, Inc.(4)................ 3,641,100 9.5%
One Post Office Square
Boston, MA 02109
James B. Murray, Jr.(5).............................. 1,423,620 3.7%
Bruce A. Saville(6) ................................. 1,052,416 2.8%
David P. Mixer(7).................................... 657,422 1.7%
John J. Boyle, III(8)................................ 576,836 1.5%
Michael Shulist(9)................................... 82,010 *
John A. Blanchard, III(10)........................... 56,612 *
Brian E. Boyle(10)................................... 56,612 *
John W. Sidgmore(10)................................. 56,612 *
Fergus G. McGovern(10)............................... 45,000 *
Richard A. Licursi(10)............................... 35,812 *
William F. Cunningham(10)............................ 20,000 *
John J. Kiley(11).................................... 5,220 *
Marc J. Venator...................................... -- *
All current directors and executive officers as a 4,132,839 10.6%
group (15 persons)(12)..............................
</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 2, 1998 ("Presently
Exercisable Options").
(2) The number of shares deemed outstanding includes 38,143,414 shares
outstanding as of March 2, 1998 and any shares subject to share options
held by the person or entity in question that are Presently Exercisable
Options.
(3) Based solely on information contained in a Schedule 13G filed with the
Commission on February 11, 1998.
(4) Includes 3,524,400 shares owned by Putnam Investment Management, Inc. and
116,700 shares owned by the Putnam Advisory Company, Inc., each a wholly-
owned subsidiary of Putnam Investments, Inc. Based solely on information
contained in Schedule 13G filed with the Commission on January 28, 1998.
12
<PAGE>
(5) Includes 63,012 shares held by The James B. and Bruce R. Murray, Jr.
Foundation, of which Mr. Murray is the sole trustee and 15,000 shares
issuable pursuant to Presently Exercisable Options.
(6) All shares are owned of record by Grannarville Interest Group Inc. Mr.
Saville owns 100% of the voting securities of Grannarville Interest Group
Inc. Includes 51,580 shares issuable pursuant to Presently Exercisable
Options.
(7) Includes 10,000 shares held by the Trimix Foundation, of which Mr. Mixer
is one of three directors and 15,000 shares issuable pursuant to
Presently Exercisable Options.
(8) Includes 543,696 shares issuable pursuant to Presently Exercisable
Options.
(9) Includes 79,454 shares issuable pursuant to Presently Exercisable
Options.
(10) Consists solely of shares issuable pursuant to Presently Exercisable
Options.
(11) Includes 3,333 shares issuable pursuant to Presently Exercisable Options.
(12) Includes 1,035,377 shares issuable pursuant to Presently Exercisable
Options.
13
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total shareholder return on the
ADSs representing Ordinary Shares of the Company between November 16, 1995
(the date on which the Company's ADSs first became publicly traded) and
December 31, 1997 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
November 16, 1995 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. Measurement points are November 16,
1995, December 31, 1995, December 31, 1996 and December 31, 1997.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Saville Systems S&P 500 S&P Computers
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
11/16/95 100 100 100
- ----------------------------------------------------------------------------
12/95 128 106 95
- ----------------------------------------------------------------------------
12/96 365 131 147
- ----------------------------------------------------------------------------
12/97 746 174 205
- ----------------------------------------------------------------------------
</TABLE>
14
<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.
REAPPROVAL OF THE 1995 SHARE OPTION PLAN
Section 162(m) of the Code precludes a deduction for compensation in excess
of $1,000,000 paid by a public company to the Company's Chief Executive
Officer and its four other most highly compensated executive officers. Certain
performance-based compensation is excluded from this limitation. In
particular, income recognized upon the exercise of a stock option is not
subject to this limitation if the option was issued under a plan approved by
shareholders that provides a limit to the number of shares that may be issued
under the plan to any individual. As of March 2, 1998, approximately 2,995,000
Ordinary Shares remained available for future awards under the Company's 1995
Share Option Plan, as amended (the "1995 Option Plan"). The 1995 Option Plan
was adopted by the Board of Directors in August 1995, approved by the
shareholders in September 1995, and amended by the shareholders in October
1997. The transition rules which govern Section 162(m) require that the entire
1995 Option Plan be reapproved by the shareholders within three years of the
Company's initial public offering. Therefore, in order to ensure compliance
with Section 162(m) of the Code, the 1995 Option Plan must be reapproved by
the shareholders at the 1998 Annual General Meeting.
The following summary describes the 1995 Option Plan. 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.
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
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 10,000,000 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 447,000
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).
15
<PAGE>
Payment of the option exercise price may be made in cash (or, subject to
applicable law, 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).
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
such provisions are 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 Executive Officers, by all current executive officers as a group, by
non-employee directors as a group or by all current non-executive officers 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 1997, the
Named Executive Officers received options under the 1995 Option Plan to
purchase an aggregate of 550,000 Ordinary Shares, at a weighted average
exercise price of $18.94 per share, all current executive officers as a group
received options to purchase an aggregate of 750,000 Ordinary Shares, at a
weighted average exercise price of $18.77 per share, and all employees,
excluding current executive officers as a group, received options to purchase
an aggregate of 2,006,500 Ordinary Shares, at a weighted average exercise
price of $21.27 per share. During 1997, non-employee directors received as a
group options to purchase an aggregate of 240,000 Ordinary Shares, at a
weighted average exercise price of $19.00 per share, under the 1995 Option
Plan. For additional information regarding the ownership of options by the
Named Executive Officers, see "Executive Compensation--Option Grants" and "--
Option Exercises and Holdings." On March 2, 1998, the closing price of the
ADSs on the Nasdaq National Market was $45.50, and options to purchase an
aggregate of 5,300,395 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 are without reference
to any proposed changes in these jurisdictions. 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.
16
<PAGE>
Irish Tax Consequences
Resident Optionees. The grant of an option to a person who is domiciled and
resident in the Republic of Ireland and not a resident in any other
jurisdiction and is an employee or director of the Company (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 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 a person who
is not domiciled, a resident of or ordinarily resident in the Republic of
Ireland, but is an employee or director of the Company (a "Non-resident
Optionee"), 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 (or are citizens of) the United States for U.S. federal income tax
purposes. Generally, persons who are not resident in (nor citizens of) 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.
17
<PAGE>
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.
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 rate 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 non-
statutory stock option. Unlike the case of an incentive stock option, however,
a participant who exercises a non-statutory 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.
Maximum Income Tax Rates on Capital Gain and Ordinary Income
Long-term capital gain will be taxable at a maximum rate of 20% if
attributable to Ordinary Shares held for more than eighteen months and at a
maximum rate of 28% if attributable to Ordinary Shares held for more than one
year but not more than eighteen months. Short-term capital gain and ordinary
income will be taxable at a maximum rate of 39.6%. Phaseouts of personal
exemptions and reductions of allowable itemized deductions at higher levels of
income may result in slightly higher marginal tax rates. Ordinary compensation
income will also be subject to a medicare tax and, under certain
circumstances, a social security tax.
Tax Consequences to the Company
The grant of an incentive or non-statutory stock option under the 1995
Option Plan will have no tax consequences to the Company. Moreover, in
general, neither the exercise of an incentive stock option nor the sale of any
Ordinary Shares acquired under the 1995 Option Plan will have any tax
consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the 1995 Option Plan, including as a
result of the exercise of a non-statutory stock option or a Disqualifying
Disposition. Any such deduction will be subject to the limitations of Section
162(m) of the Code. The Company will have a withholding obligation with
respect to any ordinary compensation income recognized under the 1995 Option
Plan (other than income recognized as a result of a Disqualifying Disposition)
by participants who are employees or are otherwise subject to United States
income tax withholding.
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
18
<PAGE>
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 CAD $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.
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.
BOARD RECOMMENDATION
The Board of Directors believes that the future growth and profitability of
the Company depends, in large part, upon the ability of the Company to
maintain a competitive position in attracting, retaining and motivating key
personnel. Accordingly, the Board of Directors recommends a vote FOR the
reapproval of the 1995 Option Plan in order to ensure compliance with Section
162(m).
19
<PAGE>
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 1997, 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 1999 ANNUAL GENERAL MEETING
Under Irish company law, the 1999 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 1999 Annual General Meeting in North
America. Such authorization will permit the Company to hold the 1999 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.
20
<PAGE>
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS AT THE 1999 ANNUAL GENERAL
MEETING
Proposals of shareholders intended to be presented at the 1999 Annual
General Meeting of Shareholders must be received by the Company at its
principal office in Galway, Ireland not later than November 25, 1998 for
inclusion in the proxy statement for that meeting.
By Order of the Board of Directors,
Peter M. Quinlan,
Secretary
March 25, 1998
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.
21
<PAGE>
Appendix A
----------
PROXY SAVILLE SYSTEMS PLC PROXY
PROXY FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 1998
The undersigned, revoking all prior proxies, hereby appoint(s) the Chairman of
the Annual General Meeting as proxy to represent and vote, as designated herein,
all Ordinary Shares of Saville Systems PLC (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual General Meeting of
Shareholders of the Company to be held at the GlenLo Abbey, Bushypark, Galway,
the Republic of Ireland on April 23, 1998 at 1:00 pm local time, and at any
adjournment thereof.
This proxy when properly executed will be voted in the manner directed by the
undersigned shareholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3, 4, 5 AND 6. Attendance of the undersigned at the meeting
or any adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing before it is exercised or
affirmatively indicate his intent to vote in person.
________________________________________________________________________________
FOR AGAINST ABSTAIN
[_] [_] [_]
1. To consider the audited accounts of the
Company for the year ended December 31, 1997
and the Reports of the Directors and the
Auditors thereon.
2. a) To re-elect the following Class II Directors [_] For all nominees
(except as marked below):
John A. Blanchard, III, Brian E. Boyle, [_] Withold Authority to
Richard A. Licursi, and John W. Sidgmore vote for all nominees
[_] For all nominees except
the following:
.................................................
b) To re-elect the following Class III Directors [_] For all nominees
(except as marked below)
John J. Boyle, III, James B. Murray, Jr., and [_] Withold Authority to
Bruce A. Saville vote for all nominees
[_] For all nominees except
the following:
.................................................
3. To re-appoint Ernst & Young as the Company's [_] [_] [_]
independent auditors for the current fiscal year.
4. To re-approve the adoption of the Company's 1995 [_] [_] [_]
Share Option Plan, as amended.
5. To authorize the Directors to determine the [_] [_] [_]
renumeration of the independent auditors.
6. To authorize the holding of the 1999 Annual [_] [_] [_]
General Meeting of the Company in North America.
THIS PROXY IS SOLICITED Signature: _________________________
ON BEHALF OF THE BOARD Date: _________________________
OF DIRECTORS OF THE Signature: _________________________
COMPANY Date: _________________________
________________________________________________________________________________
NOTES:
a. A corporation may execute this proxy form under its common seal or by the
signature of a duly authorized officer.
b. In the case of joint holders, any joint holder may execute this proxy form
but the vote of the senior who tenders a vote shall be accepted to the
exclusion of the votes of the other joint holders; and for this purpose
seniority shall be determined by the order in which the names stand in the
Register of Members in respect of the joint holding.
c. To be valid this proxy form, and, if applicable, any authority under which
it is executed (or a copy of such authority, certified notarially or in
some other way approved by the Directors), must be deposited with the
Registrars' and New Issue Department, AIB Bank, Bankcentre, P.O. Box 954,
Ballsbridge, Dublin 4, Ireland, or the Registered Office of the Company, 67
Landsdowne Road, Dublin 4, Ireland, not less than 48 hours before the time
appointed for the holding of the meeting.
<PAGE>
Appendix B
----------
SAVILLE SYSTEMS PLC
1995 SHARE OPTION PLAN
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for Saville Systems PLC
(the "Company") and its shareholders the benefits arising from capital stock
ownership by employees, officers and directors of, and consultants or advisors
to, the Company and its subsidiary corporations who are expected to contribute
to the Company's future growth and success. Except where the context otherwise
requires the term "Company" shall include all present and future subsidiaries of
the Company as defined in Sections 424(e) and 424(f) of the internal Revenue
Code of 1986, as amended or replaced from time to time (the "Code"). Those
provisions of the Plan which make express reference to Section 422 shall apply
only to Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
----------------------------------
(a) Types of Options and Administration. Options granted pursuant to the
-----------------------------------
Plan may be either incentive stock options ("Incentive Stock options") meeting
the requirements of Section 422 of the Code or Non- Statutory options ("Non-
Statutory options") which are not intended to meet the requirements of Section
422 of the Code.
(b) Administration.
--------------
(i) The Plan will be administered by the Board of Directors of the
Company whose construction and jnterpretation of the terms and provisions of the
Plan shall be final and conclusive. The Board of Directors may in its sole
discretion grant options to purchase shares of the Company's Class A ordinary
Shares, or any
1
<PAGE>
successor shares ("ordinary Shares") and issue shares upon exercise of such
options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to construe the respective option agreements and
the Plan, to prescribe amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements
which need not be identical, and to make all other determinations which are, in
the judgment of the Directors may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any option agreement in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. No director or person
acting pursuant to authority delegated by the Board of Directors shall be liable
for any action or determination under the Plan made in good faith.
(ii) The Board of Directors may, to the full extent permitted by or
consistent with applicable laws or regulations and Section 3(b) of this Plan,
delegate any or all of its powers under the Plan to a committee (the "Committee)
appointed by the Board of Directors, and if the Committee is so appointed all
references to the Board of Directors in the Plan shall mean and relate to such
Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
---------------------------
express reference to Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor rule ('Rule 16b-3"), or
which are required in order for certain option transactions to qualify for
exemption under Rule 16b-3, shall apply only to such persons as are required to
file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
-----------
(a) General. Options may be granted to persons who are, at the time of
-------
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that the class of employees to whom Incentive Stock Options
--------
may be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine. Subject to
adjustment as provided in Section 15 below, the maximum number of shares with
respect to which options may be granted to any employee under the Plan shall not
exceed 150 shares of ordinary shares during any calendar year. For the purpose
of calculating such maximum number, (a) an option shall continue to be treated
as outstanding notwithstanding its repricing, cancellation or expiration and (b)
the repricing of an outstanding option or the issuance of a new option in
substitution for a cancelled option shall be deemed to constitute the grant of a
new additional option separate from the original grant of the option that is
repriced or cancelled.
2
<PAGE>
a new additional option separate from the original grant of the option that is
repriced or cancelled.
(b) Grant of Options to Directors and Officers. From and after the
------------------------------------------
registration of the Ordinary Shares of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors,
of which all members shall be "disinterested persons" (as hereinafter defined),
or (ii) by two or more directors having full authority to act in the matter,
each of whom shall be a "disinterested person." For the purposes of the Plan, a
director shall be deemed to be a "disinterested person" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
4. Stock Subject to Plan.
---------------------
Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Ordinary Shares which may be issued and sold under the Plan is
2,000 shares. If an option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares subject
to such option shall again be available for subsequent option grants under the
Plan. If shares issued upon exercise of an option under the Plan are tendered
to the Company in payment of the exercise price of an option granted under the
Plan, such tendered shares shall again be available for subsequent option grants
under the Plan; provided, that in no event shall such shares be made available
for issuance to Reporting Persons or pursuant to exercise of Incentive Stock
Options.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
--------------
(a) General. Subject to Section 3(b), the purchase price per share of
-------
stock deliverable upon the exercise of an option shall be determined by the
Board of Directors, provided, however, that in the case of an Incentive Stock
--------- -------
Option, the exercise price shall not be less than 100% of the fair market value
of such stock, as
3
<PAGE>
determined by the Board of Directors, at the time of grant of such option, or
less than 110% of such fair market value in the case of options described in
Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may provide
-------------------------
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Ordinary Shares of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised or (ii) by any other means (including, without
limitation, by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Regulation T
promulgated by the Federal Reserve Board). The fair market value of any shares
of the Company's Ordinary Shares or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that, in the case of an
Incentive Stock Option, such date shall not be later than ten years after the
date on which the option is granted and, in all cases, options shall be subject
to earlier termination as provided in the Plan.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
-----------------------------
Options shall not be assignable or transferable by the person to whom they
are granted, either voluntarily or by operation of law, except by will or the
laws of descent and distribution, and, during the life of the optionee, shall be
exercisable only by the optionee; provided, however, that Non-Statutory Options
may be transferred pursuant to a qualified domestic relations order (as defined
in Rule 16b-3).
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the
4
<PAGE>
period of time during which an optionee may exercise an option following (i) the
termination of the optionee's employment or other relationship with the Company
or (ii) the death or disability of the optionee. Such periods shall be set forth
in the agreement evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
-------------------
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is
---------------
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Ordinary Shares subject to
such Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Ordinary Shares at the time of grant; and
(ii) the option exercise period shall not exceed five years from the
date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
-----------------
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Ordinary Shares with an aggregate fair market value (determined as
of the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment Death or Disability. No Incentive Stock
---------------------------------------------
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
5
<PAGE>
option agreement), provided, that the agreement with respect to such option
--------
may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-statutory
option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e) (3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may be
specified in the applicable option agreement) For all purposes of the Plan
and any option granted hereunder, "employment" shall be defined in
accordance with the provisions of Section 1.421-7(h) of the Income Tax
Regulations (or any successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its expiration
date.
12. Additional Provisions.
---------------------
(a) Additional Option Provisions. The Board of Directors may, in its sole
----------------------------
discretion, include additional provisions in option agreements covering options
granted under the 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 Board of
Directors; provided that such additional provisions shall not be inconsistent
-------------
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
----------------------------
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised.
6
<PAGE>
13. General Restrictions.
--------------------
(a) Investment Representations. The Company may require any person to whom
--------------------------
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Ordinary Shares subject to the option for his or
her own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Ordinary Shares.
(b) Compliance With Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
-----------------------
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
--------------------------------------------------------------------
(a) General. If, through or as a result of any merger, consolidation, sale
-------
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Ordinary
Shares are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the
7
<PAGE>
Company or other non-cash assets are distributed with respect to such shares of
Ordinary Shares or other securities, an appropriate and proportionate adjustment
may be made in (x) the maximum number and kind of shares reserved for issuance
under the Plan, (y) the number and kind of shares or other securities subject to
any then outstanding options under the Plan, and (z) the price for each share
subject to any then outstanding options under the Plan, without changing the
aggregate purchase price as to which such options remain exercisable.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 15 if such adjustment would cause the Plan to fail to comply with
Section 422 of the Code.
(b) Board Authority to Make Adjustments. Any adjustments under this
-----------------------------------
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, Etc.
---------------------------------------------------
(a) General. In the event of a consolidation or merger or sale of all or
-------
substantially all of the assets of the Company in which outstanding shares of
Ordinary Shares are exchanged for securities, cash or other property of any
other corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
--------
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Ordinary Shares
of the Company will receive upon consummation thereof a cash payment for each
share surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the optionees equal to the difference between (A) the Merger Price
times the number of shares of Ordinary Shares subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event.
(b) Substitute Options. The Company may grant options under the Plan in
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substitution for options held by employees of another corporation who become
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employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
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Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
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(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or under Rule 16b-
3, the Board of Directors may not effect such modification or amendment without
such approval.
(b) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected,
the Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to
amend or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
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20. Withholding.
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(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Ordinary Shares otherwise issuable pursuant to the exercise
of an option or (ii) by delivering to the Company shares of ordinary Shares
already owned by the optionee. The shares so delivered or withheld shall have a
fair market value equal to such withholding obligation. The fair market value
of the shares used to satisfy such withholding obligation shall be determined by
the Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Ordinary
Shares which are not subject to any repurchase, forfeiture, unfulfilled vesting
or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3 (unless
it is intended that the transaction not qualify for exemption under Rule 16b-3)
21. Cancellation and New Grant of Options Etc.
------------------------------------------
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution there for of new options under the Plan covering the same or
different numbers of shares of Ordinary Shares and having an option exercise
price per share which may be lower or higher than the exercise price per share
of the cancelled options or (ii) the amendment of the terms of any and all
outstanding options under the Plan to provide an option exercise price per share
which is higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
---------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
--------------
Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of
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the Board's adoption of the Plan, options previously granted under the Plan
shall not vest and shall terminate and no options shall be granted thereafter.
Amendments to the Plan not requiring shareholder approval shall become effective
when adopted by the Board of Directors; amendments requiring shareholder
approval (as provided in Section 19) shall become effective when adopted by the
Board of Directors, but no option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such option to a particular person) unless and
until such amendment shall have been approved by the Company's shareholders. If
such shareholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any options granted on or after the date of such
amendment shall terminate to the extent that such amendment was required to
enable the Company to grant such option to a particular optionee. Subject to
this limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
-----------
the Plan shall terminate upon the close of business on the day next preceding
the tenth anniversary of the date of its adoption by the Board of Directors.
Options outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.
23. Provision for Foreign Participants.
----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of Directors on August 21, 1995.
Approved by the Shareholders on September 1, 1995
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SAVILLE SYSTEMS PLC
AMENDMENT TO 1995 SHARE OPTION PLAN
Adopted by the Board of Directors on April 24, 1997
Approved by the Shareholders on October 23, 1997
Section 4 as amended and restated. Section 4 of the 1995 Share Option Plan of
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Saville Systems PLC shall be deleted in its entirety and the following shall be
substituted in its place:
4. Stock Subject to the Plan.
-------------------------
Subject to adjustment as provided in Section 15 below, the maximum number
of Ordinary Shares which may be issued and sold under the Plan is 5,000,000
shares. If an option granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan. If shares issued upon exercise of an option under the Plan are tendered
to the Company in payment of the exercise price of an option granted under the
Plan, such tendered shares shall again be available for subsequent option grants
under the Plan; provided, that in no event shall such shares be made available
for issuance to Reporting Persons or pursuant to exercise of Incentive Stock
Options.
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