<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission file number: 0-27794
SEGUE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 95-4188982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1320 Centre Street, Newton Centre, Massachusetts 02159
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 796-1000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such a shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
The number of shares of Registrant's Common Stock outstanding as of
May 5, 1997, was 7,269,676.
<PAGE>
SEGUE SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets
March 31, 1997 and December 31, 1996 2
Statements of Operations
Three months ended March 31, 1997 and 1996 3
Statements of Cash Flows
Three months ended March 31, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibits Index 11
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEGUE SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 6,216 $ 7,112
Short-term investments 34,730 34,092
Accounts receivable, net of
allowances of $240 and $200 3,801 3,023
Other current assets 1,567 1,365
------- -------
Total current assets 46,314 45,592
Property and equipment, net 2,122 1,960
Other assets 75 79
------- -------
Total assets $48,511 $47,631
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 415 $ 474
Accrued compensation and benefits 570 885
Accrued expenses 761 642
Deferred revenue 2,078 1,876
Accrued royalties 947 1,047
------- -------
Total current liabilities 4,771 4,924
Stockholders' equity:
Common Stock; $.01 par value;
30,000,000 shares authorized;
7,264,571 and 7,195,857
issued and outstanding 73 72
Additional paid-in capital 46,492 46,194
Unearned compensation (404) (440)
Accumulated deficit (2,421) (3,119)
------- -------
Total stockholders' equity 43,740 42,707
------- -------
Total liabilities and stockholders' equity $48,511 $47,631
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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SEGUE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1997 1996
------ ------
<S> <C> <C>
Revenue:
Software $4,006 $2,598
Services 1,395 991
------ ------
Total revenue 5,401 3,589
Cost of revenue:
Cost of software 199 76
Cost of services 544 336
------ ------
Total cost of revenue 743 412
Gross margin 4,658 3,177
Operating expenses:
Sales and marketing 2,577 1,826
Research and development 1,089 824
General and administrative 780 518
------ ------
Total operating expenses 4,446 3,168
Income from operations 212 9
Other income (expense), net 534 (7)
------ ------
Income before provision for income taxes 746 2
Provision for income taxes 48 -
------ ------
Net income $ 698 $ 2
====== ======
Net income per common and common
equivalent share $ .09 $ -
====== ======
Weighted average common and common
equivalent shares outstanding 8,084 5,123
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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SEGUE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 698 $ 2
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 206 124
Noncash compensation charges 36 22
Net changes in operating assets and liabilities:
Accounts receivable (778) (564)
Other current assets (202) (179)
Other assets - (8)
Accounts payable (59) (101)
Accrued expenses, compensation and benefits (296) 146
Deferred revenue 202 262
------- -----
Net cash used by operating activities (193) (296)
------- -----
Cash flows from investing activities:
Additions to property and equipment (364) (344)
Maturities (purchases) of short-term investments, net (638) -
------- -----
Net cash used by investing activities (1,002) (344)
------- -----
Cash flows from financing activities:
Proceeds from stock options and stock purchase plan 299 264
Expenditures for initial public offering of common stock - (58)
------- -----
Net cash provided by financing
activities 299 206
------- -----
Net decrease in cash and cash equivalents (896) (434)
Cash and cash equivalents, beginning of period 7,112 442
------- -----
Cash and cash equivalents, end of period $ 6,216 $ 8
======= =====
Supplemental disclosure of noncash
financing transactions:
Conversion of convertible debt into
common stock $ - $ 31
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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SEGUE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading. However, it is suggested that these
financial statements be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1996, included in its 1996 Annual
Report on Form 10-K.
This financial information reflects, in the opinion of management, all
adjustments of a normal recurring nature necessary to present fairly the results
for the interim periods. Results of interim periods may not be indicative of
results for the full year.
2. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, and
No. 129 ("SFAS 129"), Disclosure of Information About Capital Structure, which
are effective for financial statements issued for periods ending after December
15, 1997. SFAS 128 addresses the computation, presentation and disclosure
requirements associated with earnings per share. SFAS 129 addresses specific
disclosures about an entity's capital structure. SFAS 128 and SFAS 129 will be
adopted by the Company in the fourth quarter of 1997.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Percentage of Revenue for
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue:
Software 74.2% 72.4%
Services 25.8 27.6
----- -----
Total revenue 100.0 100.0
Cost of revenue:
Cost of software 3.7 2.1
Cost of services 10.1 9.3
----- -----
Total cost of revenue 13.8 11.4
Gross margin 86.2 88.6
Operating expenses:
Sales and marketing 47.7 50.9
Research and development 20.2 23.0
General and administrative 14.4 14.4
----- -----
Total operating expenses 82.3 88.3
Income from operations 3.9 0.3
Other income (expense), net 9.9 (0.2)
----- -----
Income before provision for incomes taxes 13.8 0.1
Provision for income taxes 0.9 -
----- -----
Net income 12.9% 0.1%
===== =====
</TABLE>
REVENUE
Revenue from Software. Software revenue increased 54% to $4,006,000 during
the first quarter of 1997 from $2,598,000 in the first quarter of 1996. These
increases are primarily due to the continuing growth in unit shipments of QA
Partner and QA Organizer. The increase in unit shipments came largely through
the direct domestic channel. Revenue from the domestic indirect channels and
from international distributors accounted for 8% and 10% of the product revenue
in the quarter compared with 8% and 12% of product revenue in the first quarter
of 1996, respectively.
6
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Revenue from Services. Service revenue increased 41% to $1,395,000 during
the first quarter of 1997 from $991,000 in the first quarter of 1996 driven by
the increase in maintenance revenue and training and consulting revenue related
to the increase in software licenses sold. Due to growth of the installed base
of licenses sold, maintenance revenue increased 42% and training and consulting
revenue increased 39%.
COST OF REVENUE
Cost of Software. Cost of software increased to $199,000 during the first
quarter of 1997 from $76,000 in the first quarter of 1996. As a percent of
software license revenue, costs in the current quarter increased to 5.0% of
revenue from 2.9% of revenue in the corresponding prior year period. This
increase is largely attributable to the increase in the number of distribution
and operations employees.
Cost of Services. Cost of services increased 62% to $544,000 during the
first quarter of 1997 from $336,000 in the first quarter of 1996. As a percent
of service revenue, costs in the current quarter increased to 39% from 34% in
the corresponding prior year period. The increase in the current quarter over
the prior year is largely the result of the increase in the number of employees
in the training and consulting organization.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased 41% to
$2,577,000 during the first quarter of 1997 from $1,826,000 in the first quarter
of 1996. These increases are largely due to an increased investment in
marketing programs, sales commissions related to the increase in revenue and
additional sales and marketing personnel to support the growth of the business.
The total number of employees in sales and marketing totaled 52 as of March 31,
1997. This is an increase of 11 employees over the same period last year.
Research and Development. Research and development expenses increased 32%
to $1,089,000 during the first quarter of 1997 from $824,000 in the first
quarter of 1996. This increase is largely due to the growth of the research and
development staff in order to continue to enhance the Company's products and
develop new products. The staff grew to 39 employees as of March 31, 1997 from
28 employees as of March 31, 1996. To date, all of the Company's costs for
research and development have been charged to operations as incurred, since the
amount of software development costs qualifying for capitalization has been
immaterial.
General and Administrative. General and administrative expenses increased
51% to $780,000 during the first quarter of 1997 from $518,000 in the first
quarter of 1996. This increase is largely attributable to the increase in the
general and administrative staff, professional fees and the reserve for bad
debts. The increase in the reserve for bad debts is related to the increased
volume of revenues during this period.
7
<PAGE>
OTHER INCOME (EXPENSE), NET
Other income (expense), net is comprised primarily of interest income from
cash, cash equivalents and short-term investments. The $541,000 increase to
$534,000 resulted primarily from interest income related to the $39.5 million
net proceeds received from the initial public offering of common stock which was
consummated on April 2, 1996. The Company invests primarily in U.S. Government
and government agency securities, in investment-grade commercial paper and in
money market accounts until such time as the proceeds are needed to fund
operations.
PROVISION FOR INCOME TAXES
The Company recorded a provision for state income taxes of $48,000 for the
first quarter of 1997, but no provision for federal income taxes due to
utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased from
$41,204,000 at December 31, 1996 to $40,946,000 at March 31, 1997 primarily as a
result of the growth in accounts receivable and the purchase of computers,
software and furniture for use by employees.
In the first three months of 1997, the Company used $193,000 for operating
activities, resulting from the growth in accounts receivable and other current
assets and the decrease in accrued compensation and benefits.
The Company utilized $1,002,000 for investing activities in the first three
months of 1997 as a result of the continued investment of the initial public
offering proceeds in short-term investments and of capital expenditures to
provide computers, software and furniture for use by employees.
The Company generated funds from financing activities of $299,000 in the
first three months of 1997, related to the exercise of stock options and
issuance of stock pursuant to the stock purchase plan.
Assuming there is no significant change in the Company's business, the
Company believes that the existing cash and short-term investments as well as
cash flows from operations will be sufficient to meet its working capital
requirements for at least the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, and
No. 129 ("SFAS 129"), Disclosure of Information About Capital Structure, which
are effective for financial statements issued for periods ending after December
15, 1997. SFAS 128 addresses the computation, presentation and disclosure
requirements associated with earnings per share. SFAS 129 addresses specific
8
<PAGE>
disclosures about an entity's capital structure. SFAS 128 and SFAS 129 will be
adopted by the Company in the fourth quarter of 1997.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Various important factors, including but not limited to the following, may cause
the Company's future results to differ materially from those set forth in the
forward-looking statements: risks associated with the Company's limited
operating history; the dependence upon license revenues from the Company's
principal product, QA Partner; uncertainties regarding the development of the
automated software testing marketplace; the dependence upon the growth of a
viable commercial marketplace for the Internet's World Wide Web and Internet-
related products; changes in technology and industry standards; the Company's
ability to develop and introduce product enhancements and new products; risks
related to the management of the Company's growth; risks related to the
development of the Company's sales and marketing strategy; the Company's ability
to attract, train and retain qualified personnel; the development of an
international market and distribution channel for the Company's products; the
Company's ability to develop strategic partnerships; the timing of the receipt
of orders from major customers; increased competition, including competition
from the recent consolidation in the automated software quality market; and
general economic conditions. In addition, a significant portion of the
Company's revenue within a quarter is typically not realized until late in that
quarter. As a result, it may be difficult for the Company to predict its total
revenue for a quarter or to quickly adapt its spending levels within a quarter
to reflect changes in demand for its products. The market price of the
Company's common stock has been, and in the future will likely be, subject to
significant fluctuations in response to variations in quarterly operating
results and other factors, such as announcements of technological innovations or
new products by the Company or its competitors, or other events. For a more
detailed discussion of those factors affecting future operating results, see the
discussion contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, under the heading "Certain Factors Affecting Future
Operating Results".
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Segue Software, Inc. Special Termination and Vesting Plan
11.1 Computation of primary and fully-diluted net income (loss)
per common share for the three months ended March 31, 1997
and 1996.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1997
SEGUE SOFTWARE, INC.
/s/ ELISABETH ELTERMAN
----------------------
President and Chief Executive Officer
/s/ J. JEFFREY BINGENHEIMER
---------------------------
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
10
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- --- -----------
10.1 Segue Software, Inc. Special Termination and Vesting Plan
11.1 Computation of primary and fully-diluted net income (loss) per common
share for the three months ended March 31, 1997 and March 31, 1996
27.1 Financial Data Schedule
11
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EXHIBIT 10.1
SEGUE SOFTWARE, INC.
SPECIAL TERMINATION AND VESTING PLAN
1. Executives Covered. This Special Termination and Vesting Plan (the
"Plan") shall apply to all executive employees with the title of President,
Chief Executive Officer, Chief Financial Officer, Chief Technical Officer,
Senior Vice President and Executive Vice President (each, a "Covered Executive;"
collectively, the "Covered Executives") of Segue Software, Inc. (the "Company")
or any of its subsidiaries or affiliates.
2. Certain Definitions. For purposes of this Plan, the following terms
shall have the following meanings:
(a) Change in Control. A "Change in Control" shall mean the
occurrence of any one of the following events:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Act") (other than
the Company, any of its subsidiaries, any trustee, fiduciary or other
person or entity holding securities under any employee benefit plan or
trust of the Company, or any of its subsidiaries), together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Act) of such person, shall become the "beneficial owner" (as
such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 50% or more of
the then outstanding shares of Common Stock of the Company (the
"Stock") (other than as a result of an acquisition of securities
directly from the Company); or
(ii) persons who, as of the date hereof, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to the date hereof whose election or nomination
for election was approved by a vote of at least a majority of the
Incumbent Directors shall, for purposes of this Plan, be considered an
Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any subsidiary of the
Company where the shareholders of the Company, immediately prior to
the consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, shares representing
in the aggregate 50% of the voting shares of the corporation issuing
12
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cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (B) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated
or arranged by any party as a single plan) of all or substantially all
of the assets of the Company or (C) any plan or proposal for the
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as
the result of an acquisition of securities by the Company which, by
reducing the number of shares of Stock outstanding, increases the
proportionate number of shares of Stock beneficially owned by any person to
50% or more of the shares of Stock then outstanding; provided, however,
that if any such person shall thereafter become the beneficial owner of any
additional shares of Stock (other than pursuant to a share split, stock
dividend, or similar transaction), then a "Change in Control" shall be
deemed to have occurred for purposes of the foregoing clause (i).
(b) Terminating Event. A "Terminating Event" shall mean any of the
following events:
(i) termination by the Company of the employment of the Covered
Executive with the Company for any reason other than for Cause or the
death of the Covered Executive. "Cause" shall mean, and shall be
limited to, the occurrence of any one or more of the following events:
(A) a willful act of dishonesty by the Covered Executive
with respect to any matter involving the Company or any
subsidiary or affiliate; or
(B) conviction of the Covered Executive of a crime involving
moral turpitude; or
(C) the deliberate or willful failure by the Covered
Executive (other than by reason of the Covered Executive's
physical or mental illness, incapacity or disability) to
substantially perform the Covered Executive's duties with the
Company and the continuation of such failure for a period of 30
days after delivery by the Company to the Covered Executive of
written notice specifying the scope and nature of such failure
and its intention to terminate the Covered Executive for Cause.
A Terminating Event shall not be deemed to have occurred pursuant
to this Section 2(b)(i) solely as a result of the Covered Executive
being an employee of any direct or indirect successor to the business
13
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or assets of the Company, rather than continuing as an employee of the
Company following a Change in Control. For purposes of clauses (A)
and (C) of this Section 2(b)(i), no act, or failure to act, on the
Covered Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Covered Executive without reasonable belief
that the Covered Executive's act, or failure to act, was in the best
interest of the Company and its subsidiaries and affiliates; or
(ii) termination by the Covered Executive of the Covered
Executive's employment with the Company for Good Reason. "Good
Reason" shall mean the occurrence of any of the following events:
(A) a substantial adverse change, not consented to by the
Covered Executive, in the nature or scope of the Covered
Executive's responsibilities, authorities, powers, functions, or
duties from the responsibilities, authorities, powers, functions,
or duties exercised by the Covered Executive immediately prior to
the Change in Control; or
(B) a reduction in the Covered Executive's annual base
salary as in effect on the date of adoption of this Plan or as
the same may be increased from time to time except for across-
the-board salary reductions similarly affecting all or
substantially all management employees; or
(C) the relocation of the Company's offices at which the
Covered Executive is principally employed immediately prior to
the date of a Change in Control to a location more than fifty
(50) miles from such offices, or the requirement by the Company
for the Covered Executive to be based anywhere other than the
Company's offices at such location, except for required travel on
the Company's business to an extent substantially consistent with
the Covered Executive's business travel obligations immediately
prior to the Change in Control; or
(D) the failure by the Company to pay to the Covered
Executive any portion of his compensation or to pay to the
Covered Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company within fifteen (15) days of the date such compensation is
due without prior written consent of the Covered Executive; or
(E) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this
Agreement.
14
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Any termination by the Covered Executive of such Covered Executive's
employment with the Company for any reason other than Good Reason shall not be
deemed to be a Terminating Event hereunder.
3. Special Termination Benefits. Subject to the provisions of Section 4
below, in the event that a Terminating Event occurs with respect to a Covered
Executive within one (1) year after a Change in Control, such Covered Executive
shall be provided with the following Special Termination Benefits:
(a) the Company shall pay to the Covered Executive an amount equal to
the base salary received by the Covered Executive in the calendar year
immediately prior to the Change in Control, determined prior to any
reductions for pre-tax contributions to a cash or deferred arrangement or a
cafeteria plan. Said amount shall be paid in periodic installments in
accordance with the Company's usual practice for its senior executives;
(b) the Company shall continue to provide health, dental, long-term
disability, and life insurance benefits to the Covered Executive, on the
same terms and conditions as though the Covered Executive had remained an
active employee, for a period of twelve (12) months; and
(c) the Company shall provide COBRA benefits to the Covered Executive
following the end of the period referred to in Section 3(b) above, such
benefits to be determined as though employment had terminated at the end of
such period.
4. Adjustments in Special Termination Benefits. The Special Termination
Benefits payable pursuant to Section 3 above shall be adjusted as follows:
(a) All payments shall be reduced by the amount of any severance pay
benefits payable to any officer under any employment, change in control or
special termination agreement or severance pay benefits or notice pay to
any employee under any "tin parachute," WARN, or similar law.
(b) In the event that the Special Termination Benefits payable to any
Covered Executive pursuant to this Plan, together with any payments to or
for the benefit of the Covered Executive under any other agreement or plan
pursuant to which the Covered Executive is entitled to receive payments or
benefits, in the aggregate exceeds the amount that may be deducted by the
entity making the payment by reason of the operation of Section 280G of the
Internal Revenue Code of 1986, as amended, the amount of the Special
Termination Benefits shall be reduced to the maximum which may be deducted
by such entity.
15
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(c) All payments will be subject to usual and customary tax
withholding.
(d) Notwithstanding anything to the contrary contained herein, the
Special Termination Benefits payable pursuant to Section 3 above shall be
subject to the Covered Executive's continued compliance with any non-compete,
confidentiality or other obligations of such Covered Executive pursuant to any
written agreement between the Company and the Covered Executive.
5. Vesting of Options. In the event that a Terminating Event occurs with
respect to a Covered Executive within one (1) year after a Change in Control,
notwithstanding anything to the contrary contained in the Company's Amended and
Restated Incentive and Non-qualified Stock Option Plan (as amended from time to
time, the "Option Plan"), any option agreement granted under the Option Plan or
any other agreement between the Company and a Covered Executive pursuant to
which options to purchase shares of Stock of the Company have been or are
granted (including, without limitation, the definition of "cause" contained
therein), upon such Terminating Event, all outstanding options held by such
Covered Executive, whether or not previously exercisable by such Covered
Executive, shall become exercisable by the Covered Executive.
6. Enforceability. If any portion or provision of this Plan shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Plan, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Plan shall be valid and enforceable to the fullest
extent permitted by law.
7. Effect on Other Plans. Nothing in this Plan shall be construed to
limit the rights of the Covered Executive under the Company's benefit plans,
programs or policies except as otherwise provided in Section 3 hereof, and
except that the Covered Executive shall have no rights to any severance benefits
under any severance pay plan.
8. Obligations of Successors. In addition to any obligations imposed by
law upon any successor to the Company, the Company will use its best efforts to
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform this Plan in the
same manner and to the same extent that the Company would be required to perform
if no such succession had taken place.
9. Amendment or Termination of Plan. The Company may amend or terminate
this Plan at any time or from time to time; provided, however, that no such
amendment or termination shall, without the written consent of the Covered
Executives, in any material adverse way affect the rights of a Covered Executive
with respect to benefits earned prior to the date of amendment or termination.
16
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10. No Contract for Continuing Services. This Plan shall not be construed
as creating any contract for continued services between the Company and any
Covered Executive and nothing herein contained shall give any Covered Executive
the right to be retained as an employee of the Company.
11. Governing Law. This Plan shall be construed, administered, and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
Adopted: February 5, 1997
17
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EXHIBIT 11.1
SEGUE SOFTWARE, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Primary Fully diluted
income (loss) income (loss)
per common share per common share
------------------ -----------------
For the three months ended March 31, 1997:
<S> <C> <C>
Net income $ 698 $ 698
====== ======
Weighted average common shares outstanding
during the period 7,218 7,218
Dilutive effect of stock options 866 865
Weighted average common and common
equivalent shares outstanding 8,084 8,083
====== ======
Net income per common and common
equivalent shares $ .09 $ .09
====== ======
For the three months ended March 31, 1996:
Net income $ 2 $ 2
====== ======
Weighted average common shares outstanding
during the period 5,001 5,146
Weighted average cheap stock outstanding
during the period /(1)/ 122 122
------ ------
Weighted average common and common
equivalent shares outstanding 5,123 5,268
====== ======
Net income (loss) per common and common
equivalent shares $ $
- -
====== ======
</TABLE>
/ (1)/ In accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 83, issuances of Common Stock and Common Stock
equivalents within one year prior to the initial filing date of the registration
statement, at share prices less than the assumed initial public offering price,
are considered to have been made in anticipation of the public offering which
was completed April 2, 1996. Accordingly, these equity issuances are treated as
if issued and outstanding, using the treasury stock method, for the three months
ended March 31, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,216
<SECURITIES> 34,730
<RECEIVABLES> 4,041
<ALLOWANCES> 240
<INVENTORY> 61
<CURRENT-ASSETS> 46,314
<PP&E> 3,316
<DEPRECIATION> 1,194
<TOTAL-ASSETS> 48,511
<CURRENT-LIABILITIES> 4,771
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 43,667
<TOTAL-LIABILITY-AND-EQUITY> 48,511
<SALES> 5,401
<TOTAL-REVENUES> 5,401
<CGS> 199
<TOTAL-COSTS> 743
<OTHER-EXPENSES> 4,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 746
<INCOME-TAX> 48
<INCOME-CONTINUING> 698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
