<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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 Section 240.14a-11(c) or Section 240.14a-12
Segue Software, Inc.
- --------------------------------------------------------------------------------
(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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(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.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
SEGUE SOFTWARE, INC.
June 26, 1996
Dear Stockholder,
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of Segue Software, Inc. (the "Company") to be held at 9:00 a.m. on Friday, July
26, 1996 at the Sheraton Needham Hotel, 100 Cabot Street, Needham,
Massachusetts.
At the Annual Meeting, seven persons will be elected to the Board of
Directors. In addition, the Company will ask the Stockholders to ratify the
selection of Coopers & Lybrand L.L.P. as the Company's independent public
accountants. The Board of Directors recommends the approval of each of these
proposals. Such other business will be transacted as may properly come before
the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your share are
represented. Therefore, you are urged promptly to complete, sign, date and
return the enclosed proxy card in accordance with the instructions set forth on
the card. This will ensure your proper representation at the Annual Meeting.
Sincerely,
Elisabeth Elterman
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
SEGUE SOFTWARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 26, 1996
To the Stockholders of Segue Software, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Segue Software, Inc.,
a Delaware corporation (the "Company"), will be held on Friday, July 26,
1996 at the Sheraton Needham Hotel, 100 Cabot Street, Needham, Massachusetts
at 9:00 a.m. for the following purposes:
1. To elect seven members to the Board of Directors to hold office until the
next annual meeting of Stockholders and until their successors are duly
elected and qualified.
2. To consider and act upon a proposal to ratify the appointment of
Coopers & Lybrand L.L.P. as the Company's independent public
accountants for the fiscal year ending December 31, 1996.
3. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on June 12, 1996 as
the record date for the determination of Stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting.
Whether you plan to attend the Annual Meeting or not, you are requested to
complete, sign, date and return the enclosed proxy card as soon as possible in
accordance with the instructions on the proxy card. A pre-addressed, postage
prepaid return envelope is enclosed for your convenience .
BY ORDER OF THE BOARD OF DIRECTORS
David S. Lintz
Secretary
June 26, 1996
<PAGE>
SEGUE SOFTWARE, INC.
1320 CENTRE STREET
NEWTON CENTRE, MASSACHUSETTS 02159
(617) 796-1000
-------------------------------
PROXY STATEMENT
-------------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Segue Software, Inc. (the "Company"), a Delaware
corporation, of proxies, in the accompanying form, to be used at the Annual
Meeting of Stockholders to be held at the Sheraton Needham Hotel, 100 Cabot
Street, Needham, Massachusetts on Friday, July 26, 1996 at 9:00 a.m., and
any adjournments thereof (the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the seven nominees for director named herein and FOR the
ratification of the appointment of Coopers & Lybrand L.L.P. as the
Company's independent public accountants for the fiscal year ending
December 31, 1996. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before its use by delivering to
the Company a written notice of revocation or a duly executed proxy bearing
a later date. Any Stockholder who has executed a proxy but is present at
the Meeting, and who wishes to vote in person, may do so by revoking his or
her proxy as described in the preceding sentence. Shares represented by
valid proxies in the form enclosed, received in time for use at the Meeting
and not revoked at or prior to the Meeting, will be voted at the Meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Company's common stock, par value $.01 per share
("Common Stock"), is necessary to constitute a quorum at the Meeting.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Meeting is required to approve each proposal, other
than the election of directors, which requires a plurality of the shares
voted affirmatively or negatively at the Meeting. With respect to the
tabulation of votes on any matter, abstentions are treated as votes against
a proposal, while broker non-votes have no effect on the vote.
The close of business on June 12, 1996 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on June 12, 1996, the Company had
6,512,616 shares of Common Stock outstanding and entitled to vote. Holders
of Common Stock are entitled to one vote per share on all matters to be
voted on by Stockholders.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company.
In addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their
expenses in forwarding proxy material to such beneficial owners.
Solicitation of proxies by mail may be supplemented by telephone, telegram,
telex and personal solicitation by the directors, officers or employees of
the Company. No additional compensation will be paid for such solicitation.
This Proxy Statement and the accompanying proxy are being mailed on or
about June 26, 1996 to all Stockholders entitled to notice of and to vote
at the Meeting.
The Annual Report to Stockholders for the fiscal year ended December 31,
1995 is being mailed to the Stockholders with this Proxy Statement, but
does not constitute a part hereof.
<PAGE>
SHARE OWNERSHIP
The following table sets forth certain information as of June 12, 1996
concerning the ownership of Common Stock by each Stockholder known by the
Company to be the beneficial owner of more than 5% of its outstanding
shares of Common Stock, each current member of the Board of Directors, each
executive officer named in the Summary Compensation Table on p. 8 hereof,
and all current directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
------------------------------
Name and Address** Number Percent
- ------------------ --------- -------
<S> <C> <C>
James H. Simons (2)...................... 818,639 12.3%
Renaissance Technology Corp.
800 Third Avenue
New York, New York 10022
John J. Cullinane........................ 437,636 6.7%
c/o The Cullinane Group, Inc.
One Cambridge Center, Suite 404
Cambridge, Massachusetts 02142
William A. Kaynor (3).................... 357,878 5.4%
2901 S. Bayshore Drive
Coconut Grove, Florida 33133
Peter G. Weiner (4)...................... 333,750 5.0%
P.O. Box 6126
Malibu, California 90265
Milton E. Mohr (5)....................... 312,144 4.7%
3418 Shoreheights Drive
Malibu, California 90265
Leonard E. Baum (6)...................... 157,836 2.4%
John R. Levine (7)....................... 194,535 3.0%
Howard L. Morgan (8)..................... 70,000 1.1%
Elisabeth Elterman (9)................... 85,000 1.3%
Brian J. LeSuer (10)..................... 21,075 *
David C. Laroche (11).................... 171,250 2.6%
Michael D. Maggio (12)................... 28,750 *
Paul R. Maguire (13)..................... 37,500 *
All Directors and Executive Officers as
a group (15 Persons) (14)......... 2,359,365 32.8%
- --------------
</TABLE>
* Represents beneficial ownership of less than 1% of the Company's
outstanding shares of Common Stock.
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.
(1) The calculation of percentage ownership for each listed beneficial owner
is based upon the number of shares of Common Stock issued and
outstanding at June 12, 1996 (6,512,616 shares), plus shares of Common
Stock subject to stock options held by each Stockholder that are
currently exercisable or exercisable within 60 days following June 12,
1996, plus shares of Common Stock issuable upon the conversion of the
Company's
-2-
<PAGE>
Convertible Subordinated Notes (the "Convertible Subordinated Notes")
held by each Stockholder. As of June 12, 1996, Convertible
Subordinated Notes in the aggregate principal amount of $593,900 were
convertible into 593,900 shares of Common Stock.
(2) Includes (i) 10,000 shares of Common Stock which may be purchased
within 60 days of June 12, 1996 upon the exercise of stock options,
(ii) 35,000 shares of Common Stock issuable upon conversion of
Convertible Subordinated Notes, and (iii) 706,973 shares of Common
Stock owned by Bermuda Trust Company, as Trustee of the Lord Jim Trust
(a trust of which Dr. Simons and the members of his family are the
beneficiaries), including 120,000 shares of Common Stock issuable upon
the conversion of Convertible Subordinated Notes.
(3) Includes (i) 221,400 shares of Common Stock held by The Irene M. and
William A. Kaynor 1995 Descendants Trust, including 66,000 shares of
Common Stock issuable upon the conversion of Convertible Subordinated
Notes and (ii) 86,478 shares of Common Stock held by United States
Trust Company of New York, as Trustee U/D William A. Kaynor.
(4) Includes 174,900 shares of Common Stock held by RISA, Inc. Money
Purchase Pension Plan II & Trust, of which Mr. Weiner is trustee,
including 148,400 shares of Common Stock issuable upon the conversion
of Convertible Subordinated Notes.
(5) Includes (i) 302,144 shares of Common Stock held by the Milton E. Mohr
Trust, including 50,000 shares of Common Stock issuable upon the
conversion of Convertible Subordinated Notes and (ii) 10,000 shares of
Common Stock which may be purchased within 60 days of June 12, 1996
upon the exercise of stock options.
(6) Includes (i) 10,000 shares of Common Stock which may be purchased
within 60 days of June 12, 1996 upon the exercise of stock options,
(ii) 87,836 shares of Common Stock held by Lebam Advisors Pension
Plan, of which Dr. Baum is a trustee, including 32,000 shares of
Common Stock issuable upon the conversion of Convertible Subordinated
Notes, and (iii) 30,000 shares of Common Stock held by the Baum Family
Irrevocable Trust, of which Dr. Baum's children are trustees, but as
to which Dr. Baum disclaims beneficial ownership.
(7) Includes (i) 10,000 shares of Common Stock issuable upon the
conversion of Convertible Subordinated Notes and (ii) 10,000 shares of
Common Stock which may be purchased within 60 days of June 12, 1996
upon the exercise of stock options.
(8) Includes (i) 8,600 shares of Common Stock issuable upon the conversion
of Convertible Subordinated Notes, and (ii) 20,000 shares of Common
Stock which may be purchased within 60 days of June 12, 1996 upon the
exercise of stock options.
(9) Includes 85,000 shares of Common Stock which may be purchased within
60 days of June 12, 1996 upon the exercise of stock options.
(10) Includes 21,075 shares of Common Stock which may be purchased within
60 days of June 12, 1996 upon the exercise of stock options.
(11) Includes 11,250 shares of Common Stock which may be purchased within
60 days of June 12, 1996 upon the exercise of stock options.
(12) Includes 28,750 shares of Common Stock which may be purchased within
60 days of June 12, 1996 upon the exercise of stock options.
(13) Includes 37,500 shares of Common Stock which may be purchased within
60 days of June 12, 1996 upon the exercise of stock options.
(14) See notes 2 and 5 through 13. Also includes (i) 12,500 shares of
Common Stock which may be purchased by Betsy Rudnick within 60 days of
June 12, 1996 upon the exercise of stock options and (ii) 12,500
shares of Common Stock which may be purchased by Timothy Perkins
within 60 days of June 12, 1996 upon the exercise of stock options.
-3-
<PAGE>
MANAGEMENT
DIRECTORS
The Company's Charter and By-Laws provide for the Company's business
to be managed by or under the direction of the Board of Directors. Under
the Company's By-Laws, the number of directors is fixed from time to time
by the Board of Directors, but shall not exceed nine members or be less
than five members. The Board of Directors has set the size of the Board of
Directors at seven (7) directorships. Directors serve in office until the
next annual meeting of Stockholders and until their successors have been
elected and qualified.
Pursuant to the Company's By-Laws, the Board of Directors has
nominated James H. Simons, Elisabeth Elterman, Leonard E. Baum, John J.
Cullinane, John R. Levine, Milton E. Mohr and Howard L. Morgan for election
at the Meeting to serve until the next annual meeting of Stockholders and
until their respective successors have been elected and qualified.
The names of the Company's current directors and certain information
about them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
James H. Simons(1)...... 58 Chairman of the Board
Elisabeth Elterman...... 44 President, Chief Executive Officer and Director
Leonard E. Baum......... 64 Director
John J. Cullinane(1).... 61 Director
John R. Levine(2)....... 42 Director
Milton E. Mohr.......... 81 Director
Howard L. Morgan(1)(2).. 50 Director
-----------------
</TABLE>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Dr. Simons has been Chairman of the Board of the Company since 1992
and a director since 1988. Since 1982, Dr. Simons has been the President
and Chairman of Renaissance Technologies Corp. Dr. Simons also is a member
of the Board of Directors of the following publicly held companies: Cylink
Corp., Franklin Electronic Publishers, Inc., Numar Corp. and Kentek
Information Systems, Inc.
Ms. Elterman has served as President, Chief Executive Officer and as a
director of the Company since July 1995. Ms. Elterman joined the Company in
April 1992 as an Executive Vice President and was promoted to Chief
Operating Officer in October 1993. Ms. Elterman held a senior management
position at Softbridge Microsystems, Inc., a software company, prior to
joining the Company from April 1984 through April 1992.
Dr. Baum has been a director of the Company since 1992. Dr. Baum is
currently an officer of three investment firms, Curfin International and
Rieton Corporation, of which he has served as President since 1983 and
1993, respectively, and Lebam Advisers, Inc., of which he has served as
Vice President and a director since 1979. In addition, Dr. Baum has been a
securities and commodities trader for Zeta Partners since 1993.
Mr. Cullinane has been a director of the Company since 1994. Mr.
Cullinane has been the President of The Cullinane Group, Inc. since 1989.
Mr. Cullinane founded Cullinet Software, Inc., a computer software company.
-4-
<PAGE>
Dr. Levine has been a director of the Company since 1992. Since 1991, Dr.
Levine has been employed by I.E.C.C., an Internet and computer services
consulting company.
Mr. Mohr has been a director of the Company since 1989. Mr. Mohr is the
retired President and Chief Executive Officer of Quotron Systems, Inc., a
company that distributes financial information to third parties.
Dr. Morgan has been a director of the Company since 1992. Since June 1989,
Dr. Morgan has been the President of The Arca Group, Inc., a high-tech
consulting and investment management firm. He serves on the boards of the
following publicly traded emerging technology companies: Cylink Corp., Franklin
Electronic Publishers, Inc., HDS Network Systems, Inc., Integrated Circuit
Systems, Inc., MetaTools, Inc., Quarterdeck Corp., Unitronix Corp., Infonautics
Inc. and Kentek Information Systems, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
Meeting Attendance. During the fiscal year ended December 31, 1995 there
were five meetings of the Board of Directors, and the various committees of the
Board of Directors met a total of five times. No director attended fewer than
75% of the total number of meetings of the Board and of committees of the Board
on which he served during fiscal 1995. The Company does not have a standing
Nominating Committee.
Audit Committee. The Audit Committee, which met once in fiscal 1995, has
two members, Mr. Levine and Mr. Morgan. The Audit Committee reviews the
engagement of the Company's independent accountants, reviews annual financial
statements, considers matters relating to accounting policy and internal
controls and reviews the scope of annual audits.
Compensation Committee, Compensation Committee Interlocks and Insider
Participation. The Compensation Committee, which met four times during fiscal
1995, has three members, Dr. Simons, Mr. Cullinane and Dr. Morgan. Dr. Simons,
Mr. Cullinane and Dr. Morgan are all non-employee directors. The Compensation
Committee reviews, approves and makes recommendations on the Company's
compensation policies, practices and procedures to ensure that legal and
fiduciary responsibilities of the Board of Directors are carried out and that
such policies, practices and procedures contribute to the success of the
Company. The Compensation Committee also administers the Company's 1996 Amended
and Restated Incentive and Non-Qualified Stock Option Plan (the "Option Plan")
and 1996 Employee Stock Purchase Plan. The Compensation Committee approves all
stock options granted under the Option Plan. Mr. Cullinane and the Company were
parties to a sales and marketing consulting agreement that was terminated in
June 1995. See "Certain Relationships and Related Transactions." No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION OF DIRECTORS
The Company's policy is to pay no compensation to members of the Board for
attendance at Board meetings or committee meetings. All non-employee directors
are reimbursed for travel and other related expenses incurred in attending
meetings of the Board of Directors. The Company's Option Plan provides for the
automatic grant of non-qualified options to non-employee directors of the
Company. See "Stock Plans--Option Plan." No options were granted under the
Option Plan during fiscal 1995.
-5-
<PAGE>
EXECUTIVE OFFICERS
The names of, and certain information regarding, executive officers of
the Company who are not also directors, are set forth below. Except for
executive officers who have employment agreements with the Company. The
executive officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- -----------
<S> <C> <C>
J. Jeffrey Bingenheimer.. 52 Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary
Brian J. LeSuer.......... 37 Executive Vice President of Research and Development
David C. Laroche......... 31 Chief Technical Officer
Michael D. Maggio........ 35 Vice President of Business Development
Paul R. Maguire.......... 37 Vice President of Sales
Timothy J. Perkins....... 38 Vice President of Marketing
Betsy R. Rudnick......... 45 Vice President of Human Resources and Administration
Stephen L. Adams......... 46 Vice President of International Sales
</TABLE>
Mr. Bingenheimer has served as Vice President, Chief Financial Officer
and Assistant Secretary of the Company since September 1995 and as
Treasurer since February 1996. Prior to joining the Company, Mr.
Bingenheimer served as Vice President-Finance and Administration and
Treasurer of CenterLine Software, Inc., a software company, from April 1991
to September 1995. From April 1985 to March 1991, Mr. Bingenheimer served
as Vice President-Finance and Administration, Senior Vice President of
Finance and Administration and Treasurer of Index Technology Corporation,
a software company.
Mr. LeSuer joined the Company in September 1992 to establish the
Training, Consulting and Quality Assurance Departments. He has served as
Executive Vice President of Research and Development since November of
1995. From May 1991 to September 1992, he was a senior quality assurance
engineer for Datalogix International Inc., a software company. Prior to
1991, he held various positions in quality assurance at People's Bank, the
NASD and The Traveler's Insurance Companies.
Mr. Laroche has served as the Company's Chief Technical Officer since
October 1991. In February 1991, Mr. Laroche co-founded Software Quality
Management (SQM) to assist companies in the implementation and usage of
automated testing technology. From October 1988 to February 1991, Mr.
Laroche held various positions at Softbridge Microsystems, Inc., most
recently as Chief Architect of the Automated Testing Facility.
Mr. Maggio has served as Vice President of Business Development for
the Company since January 1995. From June 1993 to December 1994, Mr. Maggio
served as the Director, Eastern Region in the Company's sales organization.
Mr. Maggio joined the Company in October 1991 and served as the Vice
President of Development until June 1993. From June 1991 to October 1991,
Mr. Maggio was the Manager of the User Environments Group at Honeywell
Bull, a computer manufacturer. Mr. Maggio was the Principal Software
Engineer and Manager at Siemens-Nixdorf Information Systems from June 1988
to June 1991.
Mr. Maguire has served as Vice President of Sales since January 1994.
From November 1992 to December 1993, Mr. Maguire was the Vice President of
Sales and Marketing for Software Partners/32, a software company. From 1985
to November 1992, Mr. Maguire served as Vice President of Sales of V.I.
Corporation, a software company.
Mr. Perkins has served as Vice President of Marketing of the Company
since December 1994. From April 1992 to December 1994, Mr. Perkins held
various positions at Software 2000, Inc., a software company, most recently
as Director of Worldwide Marketing. From July 1991 to April 1992, Mr.
Perkins was a consultant. From
-6-
<PAGE>
1989 to July 1991, Mr. Perkins was a Senior Manager with Price Waterhouse at
its Applied Technology Center, a national software services practice.
Ms. Rudnick has served as Vice President, Human Resources and
Administration since January 1995. Prior to her full-time employment at the
Company, Ms. Rudnick was a consultant to the Company. From August 1987 to
January 1995, Ms. Rudnick worked as an independent consultant to several
software companies in the areas of organizational development, human resource
management and facilities planning and leasing.
Mr. Adams joined the Company as Vice President, International
Sales in March 1996. From April 1993 to March 1996, Mr. Adams was the Director
of International Sales for Atria Software, Inc., a software company. From
September 1988 to February 1993, Mr. Adams was a Regional Sales Manager for NeXT
Computer, Inc., a software company.
-7-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and each of
the four other most highly compensated persons who were serving as executive
officers of the Company as of December 31, 1995 (collectively, the "Named
Executive Officers") for services rendered to the Company in all capacities
during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- ------------
COMMISSIONS
AND UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) SALARY BONUSES OPTIONS COMPENSATION
- --------------------------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Elisabeth Elterman (2)......... $140,000 $ 40,000 130,000 $ -
President and Chief
Executive Officer
Brian J. LeSuer................ 110,000 41,005 - -
Executive Vice President
Research & Development
David C. Laroche............... 121,754 10,000 5,000 4,443(3)
Chief Technical Officer
Michael D. Maggio.............. 110,000 29,678 26,000 -
Vice President, Business
Development
Paul R. Maguire................ 105,000 122,715 50,000 6,000(4)
Vice President, Sales
</TABLE>
- --------
(1) In June 1995, the Company and Laurence R. Kepple, the Company's former
President and Chief Executive Officer, agreed to terminate Mr. Kepple's
employment. In connection with the termination of Mr. Kepple's
employment, the Company entered into an Employment Separation Agreement
(the "Kepple Agreement") with Mr. Kepple that provides for certain
payments and other benefits to him. Under the Kepple Agreement, the
Company agreed to pay Mr. Kepple $168,000 per year for two years
commencing July 1, 1995. The Company paid Mr. Kepple $112,500 in order
to cancel vested options to purchase 45,000 shares of Common Stock.
Designees of the Company purchased 280,000 shares of Common Stock owned
by Mr. Kepple for an aggregate purchase price of $980,000, or $3.50 per
share. The Company will also provide certain health and dental
insurance benefits to Mr. Kepple. During the fiscal year ending
December 31, 1995, Mr. Kepple received a salary of $84,000, no bonus
and $95,663 in other compensation. Such other compensation reflects
compensation paid pursuant to the Kepple Agreement and includes $11,663
paid to Mr. Kepple as reimbursement for certain estimated taxes owed by
Mr. Kepple.
(2) Ms. Elterman was elected President and Chief Executive Officer of the
Company on July 1, 1995. She previously served as Chief Operating
Officer.
(3) Includes $4,443 paid as reimbursement for estimated taxes owed by Mr.
Laroche in connection with the Company's forgiveness of a portion of
the Laroche Note pursuant to the Employment Agreement. See "Employment
Contracts and Change of Control Arrangements."
(4) This amount represents a car allowance paid at the rate of $500 per
month.
-8-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each stock option
granted during the fiscal 1995 year to each of the Named Executive Officers.
The potential realizable values that would exist for the respective options
are based on assumed rates of annual compound stock price appreciation of 5%
and 10% from the date of grant over the full term of the option. Actual
gains, if any, on stock options, exercises and Common Stock holdings are
dependent on the future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION --------------------
NAME(1) GRANTED(2) FISCAL YEAR PER SHAREA(3) DATE 5% 10%
- -------------------- ---------- ---------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Elisabeth Elterman.. 90,000 10.9% $2.00 12/31/04 $113,201 $286,874
40,000 4.8 3.00 7/21/05 75,467 191,249
Brian J. LeSuer..... -- -- -- -- -- --
David C. Laroche.... 5,000 0.6 2.00 12/31/04 6,289 15,937
Michael D. Maggio... 20,000 2.4 2.00 12/31/04 25,156 63,750
6,000 0.7 3.50 10/14/01 13,207 33,469
Paul R. Maguire..... 50,000 6.1 2.00 12/31/04 62,889 159,374
</TABLE>
- --------
(1) Does not include options granted in 1995 to purchase 180,000 shares of
Common Stock, which options were cancelled in connection with the
Kepple Agreement in June 1995.
(2) The options, which were granted under the Option Plan, become
exercisable in four equal annual installments, commencing on the first
anniversary of the grant date. Options are subject to the employee's
continued employment. The options terminate ten years after the grant
date, subject to earlier termination in accordance with the Option Plan
and the applicable option agreement. See "Stock Plans."
(3) The exercise price is equal to the market value on the date of the
grant. The amounts shown as potential realizable value illustrate what
might be realized upon exercise immediately prior to expiration of the
option term using the 5% and 10% appreciation rates established in
regulations of the Securities and Exchange Commission, compounded
annually. The potential realizable value is not intended to predict
future appreciation of the price of the Company's Common Stock. The
values shown do not consider nontransferability, vesting or termination
of the options upon termination of employment.
-9-
<PAGE>
The following table sets forth for each of the Named Executive Officers
certain information concerning stock options held as of December 31, 1995.
No Named Executive Officer exercised stock options during 1995:
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END AT FY-END(2)
-------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Elisabeth Elterman.. 67,500 172,500 $1,110,000 $2,740,000
Brian J. LeSuer..... 18,075 35,075 295,200 563,200
David C. Laroche.... 11,250 13,750 190,000 230,000
Michael D. Maggio... 30,750 19,750 500,500 318,500
Paul R. Maguire..... 25,000 75,000 400,000 1,200,000
</TABLE>
- --------
(1) All of Mr. Kepple's outstanding options were cancelled in connection
with the Kepple Agreement in June 1995.
(2) There was no public trading market for the Common Stock as of December
31, 1995. Accordingly, these values have been calculated on the basis
of an initial public offering price of $18.00 per share, less the
applicable exercise price.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
In 1991, the Company entered into an Employment Agreement (as amended,
the "Employment Agreement") with David C. Laroche, its Chief Technical
Officer. The Employment Agreement expires on September 30, 1996, provided
that it may be extended by the Company and Mr. Laroche for additional one
year periods. Pursuant to the Employment Agreement, Mr. Laroche receives a
base salary, plus a minimum annual increase. Mr. Laroche also received an
option to purchase 100,000 shares of Common Stock for an exercise price of
$0.375 per share. In April 1992, Mr. Laroche exercised the option by
executing a promissory note (the "Laroche Note") in favor of the Company for
the aggregate exercise price of $37,500. In connection with Mr. Laroche's
transfer of certain intellectual property to the Company in 1993, the
Company agreed to forgive ratably all indebtedness due under the Laroche
Note over a three year period ending on September 30, 1996, as long as Mr.
Laroche remains an employee of the Company, and to reimburse Mr. Laroche for
the taxes incurred as a result of the issuance of the Common Stock and the
cancellation of the Laroche Note. The Employment Agreement provides that if
Mr. Laroche's employment is terminated by the Company without cause or by
Mr. Laroche for cause, which includes a change of control of the Company,
Mr. Laroche is entitled to receive a lump sum severance payment equal to 18
months of his base salary, plus $25,000. If Mr. Laroche terminates his
employment without cause, the Company may repurchase any Common Stock
purchased by Mr. Laroche through the exercise of any stock option.
Each of the Named Executive Officers has entered into a non-
competition, non-solicitation, non-disclosure and assignment of inventions
agreement with the Company (the "Non-Compete Agreement"), which restricts
such officer from competing with the Company and from soliciting, diverting
or attempting to solicit or divert any customers or employees of the Company
during the term of the officer's employment and for one year after
termination of such employment. The Non-Compete Agreement also obliges the
Named Executive Officer not to reveal any trade secrets or confidential
information of the Company during the term of the officer's employment and
for five years after termination of such employment. The Non-Compete
Agreement requires the Named Executive Officers to assign to the Company all
right and interest in any intellectual property related to the business of
the Company and developed by the officer during the term of the officer's
employment with the Company.
The Compensation Committee, as the administrator of the Company's
Option Plan, has the authority to accelerate vesting of the shares of Common
Stock held by any of the Named Executive Officers in connection with certain
changes of control of the Company.
-10-
<PAGE>
The Company has entered into a severance arrangement with Ms. Elterman
pursuant to which she is entitled to receive an amount equal to her annual
salary in the event that her employment with the Company is terminated by the
Company.
STOCK PLANS
Option Plan. The Company's Option Plan was initially approved by the
Company's Board of Directors and Stockholders in 1990, and subsequently amended
and/or restated by the Board and Stockholders, most recently in February 1996.
The Option Plan provides that employees of the Company are eligible to receive
incentive stock options and employees, consultants, directors and officers of
the Company are eligible to receive non-qualified stock options. The Option Plan
provides for the issuance of up to 2,450,000 shares of the Company's Common
Stock. As of the date of this Proxy Statement, the Company has 114 employees and
six non-employee directors, all of whom are eligible to receive options under
the Option Plan. As of June 12, 1996, the market value of the Common Stock,
based on the closing price of such Common Stock as quoted on The Nasdaq Stock
Market, was $36.75 per share.
The Option Plan also provides for the automatic grant of non-qualified
options to non-employee directors of the Company. Any non-employee director
joining the Board of Directors after April 2, 1996 will receive an option for
12,000 shares of Common Stock, vesting over three years as follows, 2,000 shares
after the initial six months of service and 1,000 shares every three months
thereafter, assuming continued membership on the Board. After three years of
Board service, on each anniversary of such director's appointment to the Board
of Directors, the non-employee director will be granted an option for 4,000
shares, vesting 2,000 shares after six months and 1,000 shares every three
months thereafter, assuming continued Board membership. Non-employee directors
who were appointed to the Board of Directors prior to April 2, 1996 received,
and on each April 2 thereafter will receive, an option for 4,000 shares, vesting
2,000 shares after six months and 1,000 shares every three months thereafter,
assuming continued Board membership. Non-qualified options granted to non-
employee directors will have an exercise price equal to the fair market value of
the Common Stock on the date of grant.
Generally, under the Option Plan, an option is not transferable by the
optionholder except by will or by the laws of descent and distribution. No
option may be exercised more than 90 days following termination of employment or
service as a director unless the termination is due to death or disability, in
which case the option is exercisable for a maximum of 180 days after such
termination, in the case of a non-employee director, and one year after such
termination, in all other instances. Options granted under the Option Plan
expire ten years from the date of grant or five years from the date of grant in
the case of incentive stock options issued to employees holding more than 10% of
the total voting power of the Company.
The Option Plan is administered by the Compensation Committee of the Board
of Directors, which is composed of disinterested directors of the Company.
Subject to the provisions of the Option Plan, the Compensation Committee has the
authority to select the optionees and determine the terms of the options
granted, including: (i) the number of shares subject to each option, (ii) when
the option becomes exercisable, (iii) the exercise price of the option (which in
the case of an incentive stock option cannot be less than the market price of
the Common Stock as of the date of grant or, in the case of employees holding
more than 10% of the voting power of the Company, 110% of the market price of
the Common Stock as of the date of grant), (iv) the duration of the option, and
(v) the time, manner and form of payment upon exercise of an option.
The Option Plan may be amended by the Stockholders of the Company. The
Option Plan may also be amended by the Board of Directors or the Compensation
Committee, provided that any amendment approved by the Board of Directors or the
Compensation Committee which is of a scope that requires Stockholder approval in
order to ensure favorable federal income tax treatment for any incentive stock
options under Internal Revenue Code
-11-
<PAGE>
Section 422 or requires Stockholder approval in order to ensure the
qualification of the Plan under Rule 16b-3 under the Securities Exchange Act
of 1934, is subject to obtaining such Stockholder approval.
OPTION INFORMATION
The following table sets forth as of March 31, 1996, all options
granted pursuant to the Option Plan to (i) the Named Executive Officers,
(ii) all current executive officers of the Company as a group, (iii) all
current directors of the Company who are not executive officers as a group,
and (iv) all employees, including all current officers who are not executive
officers, as a group.
<TABLE>
<CAPTION>
NO. OF OPTIONS
NAME TITLE GRANTED (#)(1)
- -------------------------------------------------------- ---------------------------------------------------- ---------------
<S> <C> <C>
Elisabeth Elterman...................................... President and Chief Executive Officer 245,000
Brian J. LeSuer......................................... Executive Vice President of Research and Development 73,150
David C. Laroche........................................ Chief Technical Officer 35,000
Michael D. Maggio....................................... Vice President of Business Development 58,500
Paul R. Maguire......................................... Vice President of Sales 105,000
All current executive officers as a group (9 persons)......................................................... 736,650
All current directors who are not executive officers as a group (6 persons)................................... 60,000
All employees who are not executive officers as a group(2).................................................... 616,658
</TABLE>
- --------
(1) Does not include options to purchase 20,000, 100,000, 2,000 shares of
Common Stock which have been previously exercised by Ms. Elterman, Mr.
Laroche and Mr. Maggio, respectively.
(2) Net of all cancelled options. Does not include options to purchase
160,000 shares of Common Stock that have been exercised by all such
employees.
Stock Purchase Plan. The Company's 1996 Employee Stock Purchase Plan
(the "Stock Purchase Plan"), which was adopted and approved by the Board of
Directors and the Stockholders of the Company in February 1996, provides
that a maximum of 100,000 shares of Common Stock may be purchased by
eligible employees. All employees of the Company who have been employed for
at least three months by the Company and work at least 20 hours per week and
at least five months per calendar year are eligible to participate in the
Purchase Plan, except for persons who are deemed under Section 423(b)(3) of
the Internal Revenue Code of 1986, as amended, to own 5% or more of the
voting stock of the Company. The Stock Purchase Plan will be administered by
the Compensation Committee of the Board of Directors.
The Stock Purchase Plan provides for two "purchase periods" within each
year, the first commencing on January 2 of each year and continuing through
June 30 of such year, and the second commencing on July 1 of each year and
continuing through December 31 of such year. Eligible employees may elect to
become participants in the Stock Purchase Plan by enrolling prior to each
semi-annual date for the granting of an option to purchase shares under the
Stock Purchase Plan. Shares are purchased through the accumulation of
payroll deductions of not less than 1% nor more than 10% of each
participant's compensation (up to a maximum of $21,250 per calendar year).
The number of shares to be purchased is determined by dividing the
participant's balance in the plan account on the last day of the purchase
period by the purchase price per share for the stock. The purchase price per
share will be the lower of 85% of the fair market value of the Common Stock
at the beginning of the purchase period or 85% of the fair market value of
the Common Stock as of the date of the semi-annual purchase of shares for
the participant's account. An option granted under the Stock Purchase Plan
is not transferable by the participant except by will or by the laws of
descent and distribution. Employees may cease their participation in the
offering at any time during the offering period, and participation
automatically ceases on termination of employment with the Company.
-12-
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the Option Plan:
Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it is
granted or exercised, provided that no disposition is made by the optionee
of the shares acquired pursuant to the option within two years after the
date of grant of the option nor within one year after the date of issuance
of shares to him (the "ISO holding period"). However, the difference
between the fair market value of the shares on the date of exercise and the
option price will be an item of tax preference includible in "alternative
minimum taxable income." Upon disposition of the shares after the
expiration of the ISO holding period, the optionee will generally recognize
long term capital gain or loss based on the difference between the
disposition proceeds and the option price paid for the shares. If the
shares are disposed of prior to the expiration of the ISO holding period,
the optionee generally will recognize taxable compensation, and the Company
will have a corresponding deduction, in the year of the disposition, equal
to the excess of the fair market value of the shares on the date of exercise
of the option over the option price. Any additional gain realized on the
disposition will normally constitute capital gain. If the amount realized
upon such a disqualifying disposition is less than fair market value of the
shares on the date of exercise, the amount of compensation income will be
limited to the excess of the amount realized over the optionee's adjusted
basis in the shares.
Non-Qualified Stock Options. The grant of a non-qualified option will
not result in taxable income to the optionee or deduction to the Company at
the time of grant. The optionee will recognize taxable compensation, and
the Company will have a corresponding deduction, at the time of exercise in
the amount of the excess of the then fair market value of the shares
acquired over the option price. Upon disposition of the shares, the
optionee will generally realize capital gain or loss, and his basis for
determining gain or loss will be the sum of the option price paid for the
shares plus the amount of compensation income recognized on exercise of the
option.
-13-
<PAGE>
REPORT OF COMPENSATION COMMITTEES
ON EXECUTIVE COMPENSATION
The Compensation Committee reviewed the compensation of the Company's
chief executive officer and chief financial officer for the 1995 fiscal year. It
did not review the compensation of the other executive officers, whose annual
compensation is determined by the chief executive officer. The Compensation
Committee's policies with respect to these two executive officers consisted
primarily of (i) salaries based on historical salary levels and competitive
market conditions, (ii) discretionary bonuses, (iii) stock options, and (iv)
annual stock options based upon the Company's performance. The chief executive
officer's compensation, while not tied to measures of the Company's performance,
was continued at a level consistent with the level of compensation for the chief
executive officer in the 1994 fiscal year.
The Compensation Committee is reviewing the Company's compensation
position and policies as a whole as a result of the Company becoming a public
company in March 1996. The Compensation Committee is currently considering
salary, bonus and equity incentive plans, the historical and current
arrangements at the Company and arrangements in place at similar companies. The
Compensation Committee expects to evaluate such plans and arrangements during
1996, and to adopt and implement policies that apply to all of the Company's
executive officers which are based, in part, on the Company's performance.
The Compensation Committee
James H. Simons
John J. Cullinane
Howard L. Morgan
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Common
Stock during the period from the Company's initial public offering through May
31, 1996, with (i) the cumulative total return on the NASDAQ Stock Market Index
(U.S. Companies) and (ii) a peer group index consisting of NASDAQ Stocks
Standard Industry Codes 7370-7379 (computer programming, data processing and
other related services). The comparison assumes $100 was invested on March 28,
1996 in the Common Stock and in each of the foregoing indices and assumes any
dividends were reinvested.
-14-
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURNS(1)(2)(3)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
03/28/96 04/30/96 05/31/96
-------- -------- --------
<S> <C> <C> <C>
Segue Software, Inc. $100.0 $137.2 $160.5
Nasdaq Stock Market (US Companies) 100.0 109.0 114.1
NASDAQ Stocks (SIC 7370-7379 US Companies) 100.0 112.5 116.1
Computer Prog. Data Proc, & Other Computer
Related Services
</TABLE>
- --------
(1) Prior to March 28, 1996, the Common Stock was not publicly traded.
Comparative data is provided only for the period since that date. This
graph is not "soliciting material," is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933
or the Securities Exchange Act of 1934 made before or after the date
hereof and irrespective of any general incorporation language in any
such filing.
(2) The stock price information shown on the graph is not necessarily
indicative of future price performance. Information used on the graph
was obtained from the Center for Research in Security Prices, Chicago,
Illinois, a source believed to be reliable, but the Company is not
responsible for any errors or omissions in such information.
(3) The indices are reweighted daily, using the market capitalization on
the previous trading day. If the monthly interval, based on the fiscal
year-end, is not a trading day, the preceding trading day is used. The
index level for all series was set to $100.0 on March 28, 1996.
-15-
<PAGE>
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission (the
"SEC") initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Common Stock and other equity securities of the
Company. Officers, directors and greater than 10% beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. The Company's officers, directors and 10% beneficial owners became
subject to Section 16(a) when the Company became a public company in March 1996
and, accordingly, no reports pursuant to Section 16(a) were due during the
fiscal year ended December 31, 1995.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1994, the Company entered into a consulting agreement with
John J. Cullinane, a director of the Company, pursuant to which Mr. Cullinane
provided sales and marketing services to the Company. The Company and Mr.
Cullinane mutually agreed to terminate the agreement in June 1995. Mr. Cullinane
received compensation of $45,000 and $120,000 from the Company for his
consulting services in 1994 and 1995, respectively.
The Company believes that the consulting agreement with Mr.
Cullinane was made on terms no less favorable to the Company than would have
been obtained from unaffiliated third parties. The Company has adopted a policy
whereby all future transactions between the Company and its officers, directors
and affiliates will be on terms no less favorable to the Company than could be
obtained from unrelated third parties and will be approved by a majority of the
disinterested members of the Company's Board of Directors.
-16-
<PAGE>
ELECTION OF DIRECTORS
(NOTICE ITEM 1)
Under the Company's By-Laws, the number of directors is fixed from time to
time by the Board of Directors, but shall not exceed nine members or be less
than five members. The Board of Directors has set the size of the Board of
Directors at seven (7) directorships. Directors serve in office until the next
annual meeting of Stockholders and until their successors have been elected and
qualified.
Pursuant to the Company's By-Laws, the Board of Directors has nominated
James H. Simons, Elisabeth Elterman, Leonard E. Baum, John J. Cullinane, John R.
Levine, Milton E. Mohr and Howard L. Morgan for election at the Meeting to serve
until the next annual meeting of Stockholders and until their respective
successors have been elected and qualified.
Unless authority to vote for any of the nominees named above is withheld,
the shares represented by the enclosed proxy will be voted FOR the election as
directors of such nominees. In the event that any nominee shall become unable or
unwilling to serve, the shares represented by the enclosed proxy will be voted
for the election of such other person as the Board of Directors may recommend in
his place. The Board has no reason to believe that any nominee will be unable or
unwilling to serve.
A plurality of the shares voted affirmatively or negatively at the Meeting
is required to elect each nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF JAMES H. SIMONS,
ELISABETH ELTERMAN, LEONARD E. BAUM, JOHN J. CULLINANE, JOHN R. LEVINE, MILTON
E. MOHR AND HOWARD L. MORGAN, AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
INDEPENDENT PUBLIC ACCOUNTANTS
(NOTICE ITEM 2)
The Board of Directors has appointed Coopers & Lybrand L.L.P., independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1996. The Board proposes that the Stockholders
ratify this appointment. Coopers & Lybrand L.L.P. audited the Company's
financial statements for the fiscal year ended December 31, 1995. The Company
expects that representatives of Coopers & Lybrand L.L.P. will be present at the
Meeting, with the opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
In the event that ratification of the appointment of Coopers & Lybrand
L.L.P. as the independent public accountants for the Company is not obtained at
the Meeting, the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares voted affirmatively or
negatively at the Meeting is required to ratify the appointment of the
independent public accountants.
-17-
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT PUBLIC ACCOUNTANTS, AND
PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
to the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1997, Stockholder proposals must be received, marked for the
attention of: Secretary, Segue Software, Inc., 1320 Centre Street, Newton
Centre, Massachusetts 02159, not later than February 26, 1997. In addition, the
Company's By-Laws require that notice of Stockholder proposals and nominations
for director for the 1997 Annual Meeting be delivered to the Secretary of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
July 26, 1997, unless the date of the 1997 Annual Meeting is more than thirty
(30) days before or more than sixty (60) days after July 26, 1997, in which
event Stockholders may deliver such notice not earlier than the ninetieth (90th)
day prior to the 1997 Annual Meeting and not later than the close of business on
the later of the sixtieth (60th) day prior to the 1997 Annual Meeting or the
close of business on the tenth (10th) day following the day on which public
disclosure of the date of the meeting was made. Nothing in this paragraph shall
be deemed to require the Company to include in its proxy statement and proxy
relating to the 1997 Annual Meeting any stockholder proposal that does not meet
all of the requirements for inclusion established by the Securities and Exchange
Commission in effect at the time such proposal is received.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors:
David S. Lintz
Secretary
June 26, 1996
-18-
<PAGE>
APPENDIX A
SEGUE SOFTWARE, INC.
1996 AMENDED AND RESTATED INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires,
the following terms, as used in this Segue Software, Inc. 1996
Amended and Restated Incentive and Non-Qualified Stock Option Plan,
have the following meanings:
Administrator means the Board of Directors, unless it has delegated
power to act on its behalf to a committee. (See Paragraph 4 )
Affiliate means a corporation which, for purposes of Section 424 of
Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as
amended.
Committee means the Committee to which the Board of Directors has
delegated power to act under or pursuant to the provisions of the
Plan.
Common Stock means shares of the Company's common stock, no par value.
Company means Segue Software, Inc., a Delaware corporation.
Disability or Disabled means permanent and total disability as
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, either (a) the average of
the closing or last prices of the Common Stock on the Composite
Tape or other comparable reporting system for the ten (10)
consecutive trading days immediately preceding the applicable date
or (b) the closing or last price of the Common Stock on the
Composite Tape or other comparable reporting system for the
trading day immediately preceding the applicable date, as the
Administrator shall determine.
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading days or day referred to in clause (1), and if bid and
asked prices for the Common Stock are regularly reported, either
(a) the average of the mean between the bid and the asked price
for the Common Stock at the close of trading in the over-the-
counter market for the ten (10) trading days on which Common Stock
was traded immediately preceding the applicable date or (b) the
mean between the bid and the asked price for the Common Stock at
the close of trading in the
<PAGE>
over-the-counter market for the trading day on which Common Stock was
traded immediately preceding the applicable date, as the
shall determine; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
under Code Section 422.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Options
under the Plan.
Non-Qualified Option means an option which is not intended to
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the
Plan.
Option Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan.
Participant means a Key Employee, director or consultant to whom
one or more Options are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Participant's Survivors means a deceased Participant's legal
representatives and/or any person or persons who acquired the
Participant's rights to an Option by will or by the laws of
descent and distribution.
Plan means this Segue Software, Inc. 1996 Amended and Restated
Incentive and Non-Qualified Stock Option Plan.
Shares means shares of the Common Stock as to which Options have
been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The
Shares issued upon exercise of Options granted under the Plan may
be authorized and unissued shares or shares held by the Company in
its treasury, or both.
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key
Employees, directors and certain consultants to the Company in order to
attract such people, to induce them to work for the benefit of the
Company or of an Affiliate and to provide additional incentive for them
to promote the success of the Company or of an Affiliate. The Plan
provides for the granting of ISOs and Non-Qualified Options.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares subject to this Plan as to which Options may be
granted from time to time shall be 2,450,000, or the equivalent of such
number of Shares after the Administrator, in its sole discretion, has
interpreted the effect of any stock split, stock dividend, combination,
recapitalization or similar transaction in accordance with Paragraph 16
of the Plan.
-2-
<PAGE>
If an Option ceases to be "outstanding", in whole or in part, the
Shares which were subject to such Option shall be available for the
granting of other Options under the Plan. Any Option shall be treated
as "outstanding" until such Option is exercised in full, or terminates
or expires under the provisions of the Plan, or by agreement of the
parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except
to the extent the Board of Directors delegates its authority to a
Committee of the Board of Directors. Following the date on which the
Common Stock is registered under the Securities and Exchange Act of
1934, as amended (the "1934 Act"), the Plan is intended to comply in
all respects with Rule 16b-3 or its successors, promulgated pursuant to
Section 16 of the 1934 Act with respect to Participants who are subject
to Section 16 of the 1934 Act, and any provision in this Plan with
respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of the Plan, the Administrator
is authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall
be designated as Key Employees and which of the Key Employees,
directors and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or Options
shall be granted; and
d. Specify the terms and conditions upon which an Option or Options
may be granted;
provided, however, that all such interpretations, rules,
determinations, terms and conditions shall be made and prescribed in
the context of preserving the tax status under Code Section 422 of
those Options which are designated as ISOs. Subject to the foregoing,
the interpretation and construction by the Administrator of any
provisions of the Plan or of any Option granted under it shall be
final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants
in the Plan, provided, however, that each Participant must be a Key
Employee, director or consultant of the Company or of an Affiliate at
the time an Option is granted. Members of the Company's Board of
Directors who are not employees of the Company or of an Affiliate may
receive options pursuant to Paragraph 6, Subparagraph A(e), but only
pursuant thereto. Notwithstanding any of the foregoing provisions, the
Administrator may authorize the grant of an Option to a person not then
an employee, director or consultant of the Company or of an Affiliate.
The actual grant of such Option, however, shall be conditioned upon
such person becoming eligible to become a Participant at or prior to
the time of the execution of the Option Agreement evidencing such
Option. ISOs may be granted only to Key Employees. Non-Qualified
Options may be granted to any Key Employee, director or consultant of
the Company or an Affiliate. In no event shall any employee be granted
in any calendar year Options to purchase more than 1,000,000 shares of
Common Stock. The granting of any Option to any individual shall
neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
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<PAGE>
Each Option shall be set forth in writing in an Option Agreement,
duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. The Administrator may
provide that Options be granted subject to such conditions as the
Administrator may deem appropriate including, without limitation,
subsequent approval by the shareholders of the Company of this Plan or
any amendments thereto. The Option Agreements shall be subject to at
least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best
interest of the Company, subject to the following minimum
standards for any such Non-Qualified Option:
a. Option Price: The option price (per share) of the Shares
covered by each Option shall be determined by the Administrator
but shall not be less than the par value per share of Common
Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer
be exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form
satisfactory to the Administrator providing for certain
projections for the Company and its other shareholders
including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
e. Directors' Options:
------------------
(i) Each director of the Company who is not an employee of the
Company or any Affiliate ("Non-Employee Directors"), who is
first elected or appointed to the Board of Directors after the
date on which the initial underwritten public offering of the
Company's Common Stock is consummated, upon such election or
appointment, shall be granted a Non-Qualified Option to purchase
12,000 Shares. Each such Option shall (i) have an exercise price
equal to the Fair Market Value (per share) of the Shares on the
date of grant of the Option, (ii) have a term of ten (10) years,
and (iii) shall become cumulatively exercisable over three (3)
years as follows: upon completion of the initial six (6)
continuous months of service, the option shall become
exercisable with respect to 2,000 Shares; thereafter, upon
completion of each additional three (3) continuous months of
service, the option shall become exercisable with respect to an
additional 1,000 Shares.
(ii) Any Non-Employee Director serving on the Board of Directors
on the date on which the initial underwritten public offering of
the Company's Common Stock is consummated, who has been a member
of the Board of Directors prior to such date shall be granted on
such date and upon every anniversary thereof, a Non-Qualified
Option to purchase 4,000 Shares,
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<PAGE>
provided that on such date such director has been in the
continued and uninterrupted service of the Company as a director
since his or her election or appointment and is a director of
the Company and is not an employee of the Company at such time.
Any Non-Employee Director who, having been first elected or
appointed to the Board of Directors after the date on which the
initial underwritten public offering of the stock has been
consummated, continues to serve on the Board of Directors after
the third anniversary of the date of such director's initial
election or appointment to the Board of Directors, shall be
granted on such third anniversary and upon every annual
anniversary thereafter, a Non-Qualified Option to purchase 4,000
shares, provided that on such date such director has been in the
continued and uninterrupted service of the Company as a director
since his or her election or appointment and is a director of
the Company and is not an employee of the Company at such time.
If any Non-Employee Director should cease to be a director and
thereafter shall be elected or appointed to the Board of
Directors, upon such election or appointment and upon every
anniversary thereof, provided that on such dates such director
has been in the continued and uninterrupted service of the
Company as a director since his or her election or appointment
and is a director of the Company and is not an employee of the
Company at such times, such director shall be granted a Non-
Qualified Option to purchase 4,000 Shares. Each such Option
shall (i) have an exercise price equal to the Fair Market Value
(per Share) of the Shares on the date of the grant of the
Option, (ii) have a term of ten (10) years, and (iii) shall
become cumulatively exercisable over one year as follows: upon
completion of the initial six (6) months of continuous service,
the Option shall become exercisable with respect to 2,000
Shares; thereafter, upon completion of each additional three (3)
continuous months of service, the Option shall become
exercisable with respect to an additional 1,000 Shares.
Any director entitled to receive an Option grant under this
subparagraph may elect to decline the Option. Notwithstanding the
provisions of Paragraph 23 concerning amendment of the Plan, the
provisions of this subparagraph shall not be amended more than once
every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder. The
provisions of Paragraphs 10, 11, 12 and 13 below shall not apply to
Options granted pursuant to this subparagraph.
Except as otherwise provided in the pertinent Option Agreement, if a
director who received Options pursuant to this subparagraph (e):
i. ceases to be a member of the Board of Directors of the
Company for any reason other than death or Disability, any
then unexercised Options granted to such director may be
exercised by the director within a period of ninety (90) days
after the date the director ceases to be a member of the
Board of Directors, but only to the extent of the number of
shares with respect to which the Options are exercisable on
the date the director ceases to be a member of the Board of
Directors, and in no event later than the expiration date of
the Option;
ii. ceases to be a member of the Board of Directors of the
Company by reason of his or her death or Disability, any then
unexercised Options granted to such director may be exercised
by the director (or by the Participant's personal
representative, or Participant's Survivors in the event of
death) within a period of one hundred eighty (180) days after
the date the director ceases to be a member of the Board of
Directors, but only to the extent of the number of Shares
with respect to which the Options are exercisable on the date
the director ceases to be a member of the Board of Directors,
and in no event later than the expiration date of the Option.
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<PAGE>
B. ISOs: Each Option intended to be an ISO shall be issued only to a
Key Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Code Section 422 and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described above, except
clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Code Section 424(d):
i. Ten percent (10%) or less of the total combined voting power
of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred percent
(100%) of the Fair Market Value per share of the Shares on
the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date of the grant or at such earlier
time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company
or an Affiliate) so that the aggregate Fair Market Value
(determined at the time each ISO is granted) of the stock with
respect to which ISOs are exercisable for the first time by the
Participant in any calendar year does not exceed one hundred
thousand dollars ($100,000), provided that this subparagraph
(e) shall have no force or effect if its inclusion in the Plan
is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
e. Limitation on Grant of ISOs: No ISOs shall be granted after
February 12, 2006, the date which is the earlier of ten (10)
years from the date of the adoption of the Plan by the Company
and the date of the approval of the Plan by the shareholders of
the Company.
7. EXERCISE OF OPTION AND ISSUE OF SHARES.
--------------------------------------
An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal office address,
together with provision for payment of the full purchase price in
accordance with this paragraph for the Shares as to which such Option
is being exercised, and upon
-6-
<PAGE>
compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising
the Option, shall state the number of Shares with respect to which the
Option is being exercised and shall contain any representation required
by the Plan or the Option Agreement. Payment of the purchase price for
the Shares as to which such Option is being exercised shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion
of the Administrator, through delivery of shares of Common Stock having
a fair market value equal as of the date of the exercise to the cash
exercise price of the Option, determined in good faith by the
Administrator, or (c) at the discretion of the Administrator, by
delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the applicable
Federal rate, as defined in Section 1274(d) of the Code, or (d) at the
discretion of the Administrator, in accordance with a cashless exercise
program established with a securities brokerage firm, and approved by
the Administrator or (e) at the discretion of the Administrator, by any
combination of (a), (b), (c) and (d) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise
of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to
which such Option was exercised to the Participant (or to the
Participant's Survivors, as the case may be). In determining what
constitutes "reasonably promptly," it is expressly understood that the
delivery of the Shares may be delayed by the Company in order to comply
with any law or regulation which requires the Company to take any
action with respect to the Shares prior to their issuance. The Shares
shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the
Administrator shall not accelerate the exercise date of any installment
of any Option granted to any Key Employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to Paragraph 19) if such
acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in paragraph 6(e).
The Administrator may, in its discretion, amend any term or condition
of an outstanding Option provided (i) such term or condition as amended
is permitted by the Plan, (ii) any such amendment shall be made only
with the consent of the Participant to whom the Option was granted, or
in the event of the death of the Participant, the Participant's
Survivors, if the amendment is adverse to the Participant, (iii) any
such amendment of any ISO shall be made only after the Administrator,
after consulting the counsel for the Company, determines whether such
amendment would constitute a "modification" of any Option which is an
ISO (as that term is defined in Section 424(h) of the Code) or would
cause any adverse tax consequences for the holders of such ISO, and
(iv) with respect to any Option held by any Participant who is subject
to the provisions of Section 16(a) of the 1934 Act, any such amendment
shall be made only after the Administrator, after consulting with
counsel for the Company, determines whether such amendment would
constitute the grant of a new Option.
-7-
<PAGE>
8. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have
rights as a shareholder with respect to any Shares covered by such
Option, except after due exercise of the Option and tender of the full
purchase price for the Shares being purchased pursuant to such
exercise and registration of the Shares in the Company's share
register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be
transferable by the Participant other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement
Income Security Act or the rules thereunder, provided, however, that
the designation of a beneficiary of an Option by a Participant shall
not be deemed a transfer prohibited by this Paragraph. Except as
provided in the preceding sentence, an Option shall be exercisable,
during the Participant's lifetime, only by such Participant (or by his
or her legal representative) and shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and
shall not be subject to execution, attachment or similar process. Any
attempted transfer, assignment, pledge, hypothecation or other
disposition of any Option or of any rights granted thereunder contrary
to the provisions of this Plan, or the levy of any attachment or
similar process upon an Option, shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
-------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in
the event of a termination of service (whether as an employee, director
or consultant) with the Company or an Affiliate before the Participant
has exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or
consultant of the Company or of an Affiliate (for any reason
other than termination "for cause", Disability, or death for
which events there are special rules in Paragraphs 11, 12, and
13, respectively), may exercise any Option granted to him or
her to the extent that the Option is exercisable on the date
of such termination of service, but only within such term as
the Administrator has designated in the pertinent Option
Agreement.
b. In no event may an Option Agreement provide, if the Option is
intended to be an ISO, that the time for exercise be later
than three (3) months after the Participant's termination of
employment.
c. The provisions of this Paragraph, and not the provisions of
Paragraph 12 or 13, shall apply to a Participant who
subsequently becomes disabled or dies after the termination of
employment, director status or consultancy, provided, however,
in the case of a Participant's death within three (3) months
after the termination of employment, director status or
consulting, the Participant's Survivors may exercise the
Option within one (1) year after the date of the Participant's
death, but in no event after the date of expiration of the
term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent
to a Participant's termination of employment, termination of
director status or termination of consultancy, but prior to
the exercise of an Option, the Board of Directors determines
that, either prior or subsequent to the Participant's
termination, the Participant engaged in conduct which would
constitute "cause", then such Participant shall forthwith
cease to have any right to exercise any Option.
-8-
<PAGE>
e. A Participant to whom an Option has been granted under the Plan
who is absent from work with the Company or with an Affiliate
because of temporary disability (any disability other than a
permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during
the period of any such absence, be deemed, by virtue of such
absence alone, to have terminated such Participant's employment,
director status or consultancy with the Company or with an
Affiliate, except as the Administrator may otherwise expressly
provide.
f. Options granted under the Plan shall not be affected by any
change of employment or other service within or among the Company
and any Affiliates, so long as the Participant continues to be an
employee, director or consultant of the Company or any Affiliate,
provided, however, if a Participant's employment by either the
Company or an Affiliate should cease (other than to become an
employee of an Affiliate or the Company), such termination shall
affect the Participant's rights under any Option granted to such
Participant in accordance with the terms of the Plan and the
pertinent Option Agreement.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have
been exercised:
a. All outstanding and unexercised Options as of the date the
Participant is notified his or her service is terminated "for
cause" will immediately be forfeited, unless the Option Agreement
provides otherwise.
b. For purposes of this Paragraph, "cause" shall include (and is not
limited to) dishonesty with respect to the employer,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of cause will be conclusive on the Participant and the
Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that
the Administrator's finding of "cause" occur prior to
termination. If the Administrator determines, subsequent to a
Participant's termination of service but prior to the exercise of
an Option, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would
constitute "cause", then the right to exercise any Option is
forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition
of "cause" for termination and which is in effect at the time of
such termination, shall supersede the definition in this Plan
with respect to such Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the
Company or of an Affiliate by reason of Disability may exercise any Option
granted to such Participant:
a. To the extent exercisable but not exercised on the date of
Disability; and
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<PAGE>
b. In the event rights to exercise the Option accrue periodically,
to the extent of a pro rata portion of any additional rights as
would have accrued had the Participant not become Disabled prior
to the end of the accrual period which next ends following the
date of Disability. The proration shall be based upon the number
of days of such accrual period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period
of not more than one (1) year after the date that the Participant became
Disabled, notwithstanding that the Participant might have been able to
exercise the Option as to some or all of the Shares on a later date if he
or she had not become disabled and had continued to be an employee,
director or consultant or, if earlier, within the originally prescribed
term of the Option.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure
for such determination is set forth in another agreement between the
Company and such Participant, in which case such procedure shall be used
for such determination). If requested, the Participant shall be examined by
a physician selected or approved by the Administrator, the cost of which
examination shall be paid for by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in
the event of the death of a Participant to whom an Option has been granted
while the Participant is an employee, director or consultant of the Company
or of an Affiliate, such Option may be exercised by the Participant's
Survivors:
a. To the extent exercisable but not exercised on the date of death;
and
b. In the event rights to exercise the Option accrue periodically,
to the extent of a pro rata portion of any additional rights which
would have accrued had the Participant not died prior to the end
of the accrual period which next ends following the date of death.
The proration shall be based upon the number of days of such
accrual period prior to the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must
take all necessary steps to exercise the Option within one (1) year after
the date of death of such Participant, notwithstanding that the decedent
might have been able to exercise the Option as to some or all of the Shares
on a later date if he or she had not died and had continued to be an
employee, director or consultant or, if earlier, within the originally
prescribed term of the Option.
14. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the
particular exercise of an Option shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have
been fulfilled:
a. The person(s) who exercise such Option shall warrant to the
Company, prior to the receipt of such Shares, that such person(s)
are acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the
certificate(s) evidencing their Shares issued pursuant to such
exercise or such grant:
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<PAGE>
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws.
b. The Company shall have received an opinion of its counsel that
the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under
any applicable law (including, without limitation, state securities or
"blue sky" laws).
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options
granted under this Plan which as of such date shall not have been exercised
will terminate and become null and void; provided, however, that if the
rights of a Participant or a Participant's Survivors have not otherwise
terminated and expired, the Participant or the Participant's Survivors will
have the right immediately prior to such dissolution or liquidation to
exercise any Option to the extent that the Option is exercisable as of the
date immediately prior to such dissolution or liquidation.
16. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Option granted to him or her hereunder which
have not previously been exercised in full shall be adjusted as
hereinafter provided, unless otherwise specifically provided in the
written agreement between the Participant and the Company relating to
such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of such Option shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend. The number of Shares subject to options to
be granted to directors pursuant to Subparagraph (A)(e) of Paragraph 6
shall also be proportionately adjusted upon the occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Administrator or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
Shares then subject to such Options either the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii)
upon written notice to the Participants, provide that all Options must be
exercised (either to the extent then exercisable or, at the discretion of
the Administrator, all Options being made fully exercisable for purposes of
this subsection), within a specified number of days of the date of such
notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess
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<PAGE>
of the Fair Market Value of the shares subject to such Options (either to
the extent then exercisable or, at the discretion of the Administrator, all
Options being made fully exercisable for purposes of this subsection) over
the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, a Participant upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise
the securities he or she would have received if he or she had exercised
such Option prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraph A, B or C with respect to ISOs
shall be made only after the Administrator, after consulting with counsel
for the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424(h) of
the Code) or would cause any adverse tax consequences for the holders of
such ISOs. If the Administrator determines that such adjustments made with
respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments, unless the holder of an ISO
specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of
such "modification" on his or her income tax treatment with respect to the
ISO.
17. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares subject
to Options. Except as expressly provided herein, no adjustments shall
be made for dividends paid in cash or in property (including without
limitation, securities) of the Company.
18. FRACTIONAL SHARES.
-----------------
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of
such fractional share equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS:
----------------------------------------------
TERMINATION OF ISOs.
-------------------
The Administrator, at the written request of any Participant, may
in its discretion take such actions as may be necessary to convert
such ISOs (or any portions thereof) that have not been exercised on
the date of conversion into Non-Qualified Options at any time prior to
the expiration of such ISOs, regardless of whether the Participant is
an employee of the Company or an Affiliate at the time of such
conversion. Such actions may include, but not be limited to, extending
the exercise period or reducing the exercise price of the appropriate
installments of such Options. At the time of such conversion, the
Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as
the Administrator in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any Participant the right to have such
Participant's ISO's converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Administrator takes
appropriate action. The Administrator, with
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the consent of the Participant, may also terminate any portion of any ISO
that has not been exercised at the time of such termination.
20. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes,
employment taxes, Federal Insurance Contributions Act ("F.I.C.A.")
withholdings or other amounts are required by applicable law or
governmental regulation to be withheld from the Option holder's salary,
wages or other remuneration in connection with the exercise of an Option or
a Disqualifying Disposition (as defined in Paragraph 21), the Option holder
shall advance in cash to the Company, or to any Affiliate of the Company
which employs or employed the Option holder, the amount of such
withholdings unless a different withholding arrangement, including the use
of shares of the Company's Common Stock, is authorized by the Administrator
(and permitted by law), provided, however, that with respect to persons
subject to Section 16 of the 1934 Act, any such withholding arrangement
shall be in compliance with any applicable provisions of Rule 16b-3
promulgated under Section 16 of the 1934 Act. For purposes hereof, the fair
market value of the shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Paragraph 1 above, as of the
most recent practicable date prior to the date of exercise. If the fair
market value of the shares withheld is less than the amount of payroll
withholdings required, the Option holder may be required to advance the
difference in cash to the Company or the Affiliate employer. The
Administrator in its discretion may condition the exercise of an Option for
less than the then Fair Market Value on the Participant's payment of such
additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company
in writing immediately after the Key Employee makes a Disqualifying
Disposition of any shares acquired pursuant to the exercise of an ISO. A
Disqualifying Disposition is any disposition (including any sale) of such
shares before the later of (a) two years after the date the Key Employee
was granted the ISO, or (b) one year after the date the Key Employee
acquired shares by exercising the ISO. If the Key Employee has died before
such stock is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
22. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on February 12, 2006, the date which is ten
(10) years from the earlier of the date of its adoption and the date of its
approval by the shareholders of the Company. The Plan may be terminated at
an earlier date by vote of the shareholders of the Company; provided,
however, that any such earlier termination will not affect any Options
granted or Option Agreements executed prior to the effective date of such
termination.
23. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan
may also be amended by the Administrator, including, without limitation, to
the extent necessary to qualify any or all outstanding Options granted
under the Plan or Options to be granted under the Plan for favorable
federal income tax treatment (including deferral of taxation upon exercise)
as may be afforded incentive stock options under Section 422 of the Code,
to the extent necessary to ensure the qualification of the Plan under Rule
16b-3, at such time, if any, as the Company has a class of stock registered
pursuant to Section 12 of the 1934 Act,
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<PAGE>
and to the extent necessary to qualify the shares issuable upon exercise of
any outstanding Options granted, or Options to be granted, under the Plan
for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which is of a scope that requires shareholder
approval in order to ensure favorable federal income tax treatment for any
incentive stock options or requires shareholder approval in order to ensure
the compliance of the Plan with Rule 16b-3 at such time, if any, as the
Company has a class of stock registered pursuant to Section 12 of the 1934
Act, shall be subject to obtaining such shareholder approval. Any
modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect his or her rights under an Option previously
granted to him or her. With the consent of the Participant affected, the
Administrator may amend outstanding Option Agreements in a manner which may
be adverse to the Participant but which is not inconsistent with the Plan.
In the discretion of the Administrator, outstanding Option Agreements may
be amended by the Administrator in a manner which is not adverse to the
Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to
prevent the Company or an Affiliate from terminating the employment,
consultancy or director status of a Participant, nor to prevent a
Participant from terminating his or her own employment, consultancy or
director status or to give any Participant a right to be retained in
employment or other service by the Company or any Affiliate for any period
of time.
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<PAGE>
25. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law
of the State of Delaware.
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<PAGE>
APPENDIX B
SEGUE SOFTWARE, INC.
--------------------
1996 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1996 Employee Stock Purchase
Plan (the "Plan") of Segue Software, Inc. (the "Company").
1. Purpose. The purpose of the Plan is to provide Employees of the Company and
its Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The provisions of the Plan shall, accordingly, be construed so
as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company, or a
committee of the Board of Directors named by the Board to administer the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock, no par value, of the
Company.
(d) "Company" shall mean Segue Software, Inc., a Delaware corporation.
(e) "Compensation" shall mean all regular straight time gross earnings
excluding payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses, commissions and other compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of a
participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(i) "Employee" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exercise Date" shall mean the last day of each Offering Period of the
Plan.
(l) "Offering Date" shall mean the first business day of each Offering
Period of the Plan, except that in the case of an individual who becomes an
eligible Employee after the first business
<PAGE>
day of an Offering Period but on or prior to the first business day of the last
calendar quarter of such Offering Period, the term "Offering Date" shall mean
the first business day of the calendar quarter coinciding with or next
succeeding the day on which that individual becomes an eligible Employee.
Options granted after the first business day of an Offering Period will
be subject to the same terms as the options granted on the first business day of
such Offering Period except that they will have a different grant date (thus,
potentially, a different exercise price) and, because they expire at the same
time as the options granted on the first business day of such Offering Period, a
shorter term.
(m) "Offering Period" shall mean a period of six (6) months.
(n) "Plan" shall mean this Segue Software, Inc. 1996 Employee Stock
Purchase Plan.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who has been continuously employed as an Employee for three
(3) months as of the Offering Date of a given Offering Period shall be eligible
to participate in such Offering Period under the Plan, provided that such person
was not eligible to participate in such Offering Period as of any prior Offering
Date, and further, subject to the requirements of paragraph 5(a) and the
limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or of any Subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its Subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time. Any option granted under the Plan
shall be deemed to be modified to the extent necessary to satisfy this paragraph
(b).
4. Offering Periods. The Plan shall be implemented by a series of Offering
Periods, with a new Offering Period commencing on January 2 and July 1 of each
year (or at such other time or times as may be determined by the Board of
Directors). The initial Offering Period shall commence at a time to be
determined by the Board. The Plan shall continue until terminated in accordance
with paragraph 19 hereof. The Board of Directors of the Company shall have the
power to change the duration and/or the frequency of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
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<PAGE>
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement on the form provided by the Company and filing it with
the Company prior to the applicable Offering Date, unless a later time for
filing the subscription agreement is set by the Board for all eligible Employees
with respect to a given Offering Period. The subscription agreement shall set
forth the percentage of the participant's Compensation (which shall be not less
than 1% and not more than 10%) to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following the
Offering Date and shall end on the last payroll paid on or prior to the Exercise
Date of the offering to which the subscription agreement is applicable, unless
sooner terminated by the participant as provided in paragraph 10.
6. Method of Payment of Contributions.
(a) The participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than ten percent (10%) of such participant's Compensation on each
such payday; provided that the aggregate of such payroll deductions during the
Offering Period shall not exceed ten percent (10%) of the participant's
aggregate Compensation during said Offering Period. All payroll deductions made
by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan as
provided in paragraph 10, or, on one occasion only during the Offering Period,
may decrease, but may not increase, the rate of his or her Contributions during
the Offering Period by completing and filing with the Company a new subscription
agreement within the ten (10) day period immediately preceding the second
calendar quarter during the Offering Period. The change in rate shall be
effective as of the beginning of the calendar quarter following the date of
filing of the new subscription agreement.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's payroll
deductions may be decreased to 0% at such time during any Offering Period which
is scheduled to end during the current calendar year that the aggregate of all
payroll deductions accumulated with respect to such Offering Period and any
other Offering Period ending within the same calendar year equals $21,250.
Payroll deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in paragraph 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
the Exercise Date of such Offering Period a number of shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Exercise Date and retained
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<PAGE>
in the participant's account as of the Exercise Date by the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date, or (ii) eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the Exercise Date; provided
however, that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. The fair market value of a share of the Company's
Common Stock shall be determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a given Offering
Period shall be the lower of (i) 85% of the fair market value of a share of the
Common Stock of the Company on the Offering Date; or (ii) 85% of the fair market
value of a share of the Common Stock of the Company on the Exercise Date. The
fair market value of the Company's Common Stock on a given date shall be
determined by the Board in its discretion based on the closing price of the
Common Stock for such date (or, in the event that the Common Stock is not traded
on such date, on the immediately preceding trading date), as reported by the
National Association of Securities Dealers Automated Quotation (NASDAQ) National
Market System or, if such price is not reported, the mean of the bid and asked
prices per share of the Common Stock as reported by NASDAQ or, in the event the
Common Stock is listed on a stock exchange, the fair market value per share
shall be the closing price on such exchange on such date (or, in the event that
the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the Offering Period, and the
maximum number of full shares subject to option will be purchased for him or her
at the applicable option price with the accumulated Contributions in his or her
account. If a fractional number of shares results, then such number shall be
rounded down to the next whole number and any unapplied cash shall be carried
forward to the next Exercise Date, unless the participant requests a cash
payment. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Exercise Date. During his
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any cash remaining to the credit of a participant's account
under the Plan after a purchase by him or her of shares at the termination of
each Offering Period, or which is insufficient to purchase a full share of
Common Stock of the Company, shall be carried forward to the next Exercise Date
unless the participant requests a cash payment.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the Contributions
credited to his or her account under the Plan at any time prior to the Exercise
Date of the Offering Period by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of shares will be made during the Offering
Period.
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<PAGE>
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date of the Offering Period for any reason, including
retirement or death, the Contributions credited to his or her account will be
returned to him or her or, in the case of his or her death, to the person or
persons entitled thereto under paragraph 14, and his or her option will be
automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an
Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the Employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a participant
in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 100,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in
paragraph 18. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) hereof on the Offering Date of an
Offering Period exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. Any amounts remaining in
an Employee's account not applied to the purchase of stock pursuant to this
Section 12 shall be refunded on or promptly after the Exercise Date. In such
event, the Company shall give written notice of such reduction of the number of
shares subject to the option to each Employee affected thereby and shall
similarly reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in shares covered
by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse, as indicated on the participant's subscription agreement.
13. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act, pursuant to Rule 16b-3 promulgated
thereunder.
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<PAGE>
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Exercise Date of the Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant (and
his or her spouse, if any) at any time by written notice. In the event of the
death of a participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one or
more dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
15. Transferability. Neither Contributions credited to a participant's account
nor any rights with regard to the exercise of an option or to receive shares
under the Plan may be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will, the laws of descent and distribution or as provided
in paragraph 14 hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
paragraph 10.
16. Use of Funds. All Contributions received or held by the Company under the
Plan may be used by the Company for any corporate purpose, and the Company shall
not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees
promptly following the Exercise Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but have not yet been placed under option (collectively, the "Reserves"), as
well as the price per share of Common Stock covered by each option under the
Plan which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
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<PAGE>
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) days prior to the New Exercise
Date, that the Exercise Date for his or her option has been changed to the New
Exercise Date and that his or her option will be exercised automatically on the
New Exercise Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in paragraph 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock and the sale of
assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination. The Board of Directors of the Company may at any
time terminate or amend the Plan. Except as provided in paragraph 18, no such
termination may affect options previously granted, nor may an amendment make any
change in any option theretofore granted which adversely affects the rights of
any participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any successor rule
or provision or any applicable law or regulation), the Company shall obtain
stockholder approval in such a manner and to such a degree as so required.
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<PAGE>
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Right to Terminate Employment. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any Employee or other
optionee the right to continue in the employment of the Company or any
Subsidiary, or affect any right which the Company or any Subsidiary may have to
terminate the employment of such Employee or other optionee.
23. Rights as a Stockholder. Neither the granting of an option nor a deduction
from payroll shall constitute an Employee the owner of Shares covered by an
option. No optionee shall have any right as a stockholder unless and until an
option has been exercised, and the Shares underlying the option have been
registered in the Company's share register in the Employee's name.
24. Term of Plan. The Plan became effective upon its adoption by the Board of
Directors in February 1996 and shall continue in effect for a term of twenty
(20) years unless sooner terminated under paragraph 19.
25. Additional Restrictions of Rule 16b-3. The terms and conditions of options
granted hereunder to, and the purchase of shares by, persons subject to Section
16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-
3. This Plan shall be deemed to contain, and such options shall contain, and the
shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to quality for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
26. Severability. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or any action by the administrator of the
Plan fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the administrator of the Plan.
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<PAGE>
SEGUE SOFTWARE, INC.
THIS PROXY IS BEING SOLICITED BY SEGUE SOFTWARE, INC.'S
BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated June 26, 1996 in
connection with the Annual Meeting to be held at 9:00 a.m. on Friday, July 26,
1996 at the Sheraton Needham Hotel, 100 Cabot Street, Needham, Massachusetts and
hereby appoints Elisabeth Elterman and J. Jeffrey Bingenheimer, and each of them
(with full power to act alone), the attorneys and proxies of the undersigned,
with power of substitution to each, to vote all shares of the Common Stock of
Segue Software, Inc. registered in the name provided herein which the
undersigned is entitled to vote at the 1996 Annual Meeting of Stockholders, and
at any adjournments thereof, with all the powers the undersigned would have if
personally present. Without limiting the general authorization hereby given,
said proxies are, and each of them is, instructed to vote or act as follows on
the proposals set forth in said Proxy.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSAL 2.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
ELECTION OF DIRECTORS (or if any nominee is not available for election, such
substitute as the Board of Directors may designate)
Nominees: James H. Simons, Elisabeth Elterman, Leonard E. Baum, John J.
Cullinane, John R. Levine, Milton E. Mohr and Howard L. Morgan.
SEE REVERSE SIDE FOR ALL THREE PROPOSALS. If you wish to vote in accordance with
the Board of Directors' recommendations, just sign on the reverse side. You need
not mark any boxes.
(SEE REVERSE SIDE)
------------------
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
1. Election of Directors (See reverse). FOR [ ] WITHHELD [ ]
_____________________________________________________
[ ] For all nominees except as noted above.
2. Proposal to Ratify the Appointment of Coopers & Lybrand L.L.P. as
the Company's independent public accountants for the fiscal year ending
December 31, 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign exactly as name(s) appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature:______________________ Date_________
Signature:______________________ Date_________
