<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SEGUE SOFTWARE, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
SEGUE SOFTWARE, INC.
1320 CENTRE STREET
NEWTON CENTRE, MASSACHUSETTS 02159
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1998
----------------
To the Stockholders of Segue Software, Inc.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of Segue Software, Inc., a Delaware corporation (the
"Company"), will be held on Friday, June 5, 1998 at 10:00 a.m. at the
Conference Center of Goodwin, Procter & Hoar LLP, Exchange Place, 53 State
Street, Boston, Massachusetts 02109 for the following purposes:
1. To elect six members to the Board of Directors to hold office until the
1999 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified;
2. To consider and act upon a proposal to approve an amendment to the
Company's 1996 Amended and Restated Incentive and Non-Qualified Stock
Option Plan;
3. To consider and act upon a proposal to approve an amendment to the
Company's 1996 Employee Stock Purchase Plan;
4. 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, 1998; and
5. To consider and act upon any other matters that may be properly brought
before the Annual Meeting and at any adjournments or postponements
thereof.
Any action may be taken on the foregoing matters at the Annual Meeting on
the date specified above, or on any date or dates to which, by original or
later adjournment, the Annual Meeting may be adjourned, or to which the Annual
Meeting may be postponed.
The Board of Directors has fixed the close of business on April 29, 1998 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and at any adjournments or postponements thereof.
Only stockholders of record of the Company's common stock, par value $.01 per
share, at the close of business on that date will be entitled to notice of and
to vote at the Annual Meeting and at any adjournments or postponements
thereof. A complete list of the stockholders entitled to vote at the Annual
Meeting will be open to the examination of any stockholder, for any purpose
germane to the Annual Meeting, during ordinary business hours, for a period of
at least 10 days prior to the Annual Meeting at the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, 53 State Street, Boston, Massachusetts
02109.
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, which is being solicited by the
Board of Directors of the Company, and to mail it promptly in the enclosed
pre-addressed, postage-prepaid envelope. Any proxy may be revoked by delivery
of a later dated proxy. Stockholders of record who attend the Annual Meeting
may vote in person, even if they have previously delivered a signed proxy.
By Order of the Board of Directors
Jeffrey C. Hadden
Secretary
Newton Centre, Massachusetts
April 30, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE
PROVIDED. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU
WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
SEGUE SOFTWARE, INC.
1320 CENTRE STREET
NEWTON CENTRE, MASSACHUSETTS 02159
----------------
PROXY STATEMENT
----------------
FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 1998
April 30, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Segue Software, Inc., a Delaware
corporation (the "Company"), of proxies, in the accompanying form, to be used
at its 1998 Annual Meeting of Stockholders to be held at the Conference Center
of Goodwin, Procter & Hoar LLP, Exchange Place, 53 State Street, Boston,
Massachusetts 02109 on Friday, June 5, 1998 at 10:00 a.m., and at any
adjournments or postponements thereof (the "Annual Meeting"). At the Annual
Meeting, stockholders will be asked to vote upon the election of six members
of the Board, to consider and act upon a proposal to approve an amendment (the
"Option Plan Amendment") to the Company's 1996 Amended and Restated Incentive
and Non-Qualified Stock Option Plan (the "Option Plan"), to consider and act
upon a proposal to approve an amendment (the "Stock Plan Amendment") to the
Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"), to
consider and act upon a proposal to ratify the appointment of Coopers &
Lybrand L.L.P. as the Company's independent public accountants, and to
consider and act upon any other matters properly brought before them.
This Proxy Statement and the accompanying Notice of Annual Meeting and Proxy
Card are first being sent to the stockholders of the Company on or about April
30, 1998. The Board has fixed the close of business on April 29, 1998 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting (the "Record Date"). Only stockholders of record of
the Company's common stock, par value $.01 per share (the "Common Stock"), at
the close of business on the Record Date will be entitled to notice of and to
vote at the Annual Meeting. Holders of Common Stock outstanding as of the
close of business on the Record Date will be entitled to one vote for each
share held by them. As of the Record Date, there were 7,997,585 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting.
The presence, in person or by proxy, of holders of at least a majority of
the total number of shares of Common Stock outstanding and entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Both abstentions and broker non-votes (as defined below) will be
counted as present in determining the presence of a quorum. The affirmative
vote of a majority of the shares present or represented and entitled to vote
at the Annual Meeting is required to approve each proposal, other than the
election of directors, which requires a plurality of votes cast at the Annual
Meeting. Abstentions and broker non-votes will be disregarded in determining
the "votes cast" for purposes of electing directors and will not affect the
election of the candidates receiving a plurality of votes. A "broker non-vote"
is a proxy from a broker or other nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to
vote the shares which are the subject of the proxy on a particular matter with
respect to which the broker or other nominee does not have discretionary
voting power.
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED, POSTAGE-PREPAID
ENVELOPE. SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY RECEIVED PRIOR TO
THE VOTE AT THE ANNUAL MEETING AND NOT REVOKED WILL BE VOTED AT THE ANNUAL
MEETING AS DIRECTED ON THE PROXY. IF A PROPERLY EXECUTED PROXY IS SUBMITTED
AND NO INSTRUCTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE
SIX NOMINEES FOR DIRECTOR OF THE COMPANY NAMED
<PAGE>
IN THIS PROXY STATEMENT, FOR THE PROPOSAL TO APPROVE THE OPTION PLAN
AMENDMENT, FOR THE PROPOSAL TO APPROVE THE STOCK PLAN AMENDMENT, 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, 1998.
IT IS NOT ANTICIPATED THAT ANY MATTERS OTHER THAN THOSE SET FORTH IN THE PROXY
STATEMENT WILL BE PRESENTED AT THE ANNUAL MEETING. IF OTHER MATTERS ARE
PRESENTED, PROXIES WILL BE VOTED IN ACCORDANCE WITH THE DISCRETION OF THE
PROXY HOLDERS.
A stockholder of record may revoke his or her proxy 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. A stockholder of record who has executed
a proxy but is present at the Annual Meeting, and who wishes to vote in
person, may do so by revoking his or her proxy as described in the preceding
sentence. The presence (without further action) of a stockholder at the Annual
Meeting will not constitute a revocation of a previously given proxy.
The Company's 1997 Annual Report to Stockholders (the "Annual Report"),
including financial statements for the fiscal year ended December 31, 1997
("Fiscal 1997"), is being mailed to stockholders with this Proxy Statement,
but does not constitute a part hereof.
PROPOSAL 1: ELECTION OF DIRECTORS
INTRODUCTION
The Company's By-Laws (the "By-laws") provide for the Company's business to
be managed by or under the direction of the Board. Directors serve in office
until the next annual meeting of stockholders and until their successors have
been elected and qualified. On September 5, 1997, the Board voted to increase
the number of directors on the Board from eight directors to nine directors
and, in accordance with the By-laws, appointed Stephen B. Butler as a director
to fill the vacancy created thereby. Subsequently, Elisabeth Elterman resigned
from the Board effective as of December 31, 1997. On February 25, 1998, the
Board voted to decrease the total number of directors on the Board from nine
directors to six directors and, in connection with the Annual Meeting,
nominated James H. Simons, Stephen B. Butler, Leonard E. Baum, Ronald D.
Fisher, John R. Levine, and Howard L. Morgan to serve as directors (the
"Nominees"). Each of the Nominees is currently serving as a director of the
Company. The Board anticipates that each of the Nominees will serve, if
elected, as a director. However, if any person nominated by the Board is
unable to accept election, the proxies will be voted for the election of such
other person or persons as the Board may recommend. The Board will consider a
nominee for election to the Board recommended by a stockholder of record if
the stockholder submits the nomination in compliance with the requirements of
the By-laws. See "Other Matters--Stockholder Proposals" for a summary of these
requirements.
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a plurality of the votes
cast is necessary to elect a nominee as a director of the Company.
RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES.
INFORMATION REGARDING THE NOMINEES AND EXECUTIVE OFFICERS
The following biographical descriptions set forth certain information with
respect to the Nominees for election as directors at the Annual Meeting and
the executive officers who are not directors, based on information furnished
to the Company by each director and officer. The following information is as
of April 1, 1998.
Nominees for Election as Directors
JAMES H. SIMONS has been Chairman of the Board 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
2
<PAGE>
of the Board of Directors of the following publicly held companies: Cylink
Corp., Franklin Electronic Publishers, Inc. and Kentek Information Systems,
Inc. He is 59 years old.
STEPHEN B. BUTLER has served as Chief Executive Officer and as a director of
the Company since September 5, 1997. Mr. Butler was elected to the office of
President in January 1998. Prior to joining the Company, Mr. Butler served as
President and Chief Executive Officer of TriQuest Design Automation Inc., an
electronic design automation company, from October 1995 to July 1997. Prior to
that, Mr. Butler held senior management positions at Quickturn Design Systems,
Inc., an electronic design automation company where he served as Senior Vice
President of Sales, Marketing and Support from May 1993 until July 1995, and
as Vice President of Sales from July 1991 until May 1993. He is 41 years old.
LEONARD E. BAUM has been a director of the Company since 1992. Dr. Baum is
currently an officer of three investment firms, Curfin International Ltd. and
Rieton Corporation, of which he has served as President since 1980 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 and a trustee of Lebam
Advisers Pension Plan and Trust since 1993. He is 66 years old.
RONALD D. FISHER has been a director of the Company since March 1997. Since
October 1995, Mr. Fisher has been the Vice Chairman of Softbank Holdings,
Inc., an investment firm. From January 1990 to September 1995, he was the
Chief Executive Officer of Phoenix Technologies Ltd., a software company. Mr.
Fisher also is a member of the Board of Directors of each of the following
publicly held companies: Phoenix Technologies Ltd., Microtouch Systems, Inc.
and Xionics Document Technologies, Inc. He is 50 years old.
JOHN R. 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. He is 43 years old.
HOWARD L. 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
technology consulting and investment management firm. Dr. Morgan serves on the
Board of Directors of the following publicly held companies: Cylink Corp.,
Franklin Electronic Publishers, Inc., Neoware Systems, Inc., Quarterdeck
Corp., Unitronix Corp., Infonautics Inc. and Kentek Information Systems, Inc.
He is 52 years old.
Executive Officers Who Are Not Directors
J. JEFFREY 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 of Finance and Administration and Treasurer of
CenterLine Software, Inc., a software company, from April 1991 to September
1995. He is 54 years old.
JEANNINE A. BARTLETT joined the Company in June 1997. Ms. Bartlett has
served as Senior Vice President of Research and Development since February
1998. Ms. Bartlett served as Vice President of Product Management from
November 1997 until February 1998 and as Director of Product Management from
June 1997 until October 1997. Prior to joining the Company, Ms. Bartlett
served as Director of Marketing, Director of Software Development and Senior
Marketing Manager from November 1994 until June 1997 at Praxis International,
Inc., a software company. Prior to that, Ms. Bartlett served as Director of
Business Development from September 1993 until October 1994 at Marketpulse, a
division of Computer Corporation of America. She is 37 years old.
STEWART A. BUSH joined the Company in October 1997 as Senior Vice President
of North American Sales. Prior to that, Mr. Bush served in several roles at
Talarian Corporation, a software company, from 1991 until he joined the
Company; these roles included Director of North American Sales, National Sales
Manager of Messaging and Director of Eastern Region Sales. He is 41 years old.
3
<PAGE>
ANTHONY G. KOLISH joined the Company in September 1995 and has served as
Senior Vice President of Services since February 1998. Prior to that, Mr.
Kolish served as Vice President of Services, Director of Marketing Strategy
and Director of Product Management. Prior to joining the Company, Mr. Kolish
served as Senior Systems Manager at Fidelity Investments from January 1994
until August 1995. He is 38 years old.
ALEXANDER M. LEVI joined the Company in December 1997 as Senior Vice
President of International Operations. Prior to that, Mr. Levi served in a
variety of roles at Quickturn Design Systems, Inc., an electronic design
automation company, from February 1991 until he joined the Company. Mr. Levi's
most recent role at Quickturn Design Systems was that of Vice President of
Asia Pacific Operations, which he held from October 1996 until he joined the
Company. He is 40 years old.
MICHAEL D. MAGGIO joined the Company in October 1991 and has served as
Senior Vice President of Marketing since February 1998. He served as Vice
President of Business Development for the Company from January 1995 to January
1997. From June 1993 to December 1994, Mr. Maggio served as the Director,
Eastern Region in the Company's sales organization, and from 1991 to June 1993
as the Vice President of Development. He is 36 years old.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Meeting Attendance. During Fiscal 1997, there were nine meetings of the
Board, and the various committees of the Board met a total of 10 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 or she served during Fiscal 1997.
Audit Committee. The Board has established an Audit Committee which met a
total of four times in Fiscal 1997. The current members of the Audit Committee
are Mr. Levine and Dr. 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. The Board has also established a Compensation
Committee which met a total of six times during Fiscal 1997. The current
members of the Compensation Committee are Dr. Simons, Mr. Cullinane and Dr.
Morgan, who are all non-employee directors. The Compensation Committee
reviews, approves and makes recommendations on the Company's compensation
policies, practices and procedures. The Compensation Committee also
administers the Option Plan and the Stock Purchase Plan. In administering the
Option Plan, the Compensation Committee determines the options to be issued to
eligible persons under the Option Plan and prescribes the terms and provisions
of such options. In addition, the Compensation Committee construes and
interprets the Option Plan and issuances thereunder, and establishes, amends
and revokes rules and regulations for administration of the Option Plan.
The Board does not have a standing nominating committee. The full Board
performs the function of such a committee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors. No directors of the Company receive compensation for their
services as directors or as members of any of the committees of the Board. All
non-employee directors are reimbursed for travel and other related expenses
incurred in attending meetings of the Board or meetings of any of the
committees of the Board. Pursuant to the Option Plan, each non-employee
director who becomes a member of the Board after April 2, 1996 receives a non-
qualified stock option to purchase up to 12,000 shares of Common Stock, which
option will vest over three years with 2,000 shares vesting after an initial
six months of service and 1,000 shares vesting every three months thereafter
assuming such non-employee director continues to serve on the Board. After
serving on the Board for three years, such director shall receive on each
anniversary of such director's appointment to the Board, a non-qualified stock
option to purchase up to 4,000 shares of Common Stock, with 2,000 shares
vesting after six months and 1,000 shares every three months thereafter
assuming continued Board membership.
4
<PAGE>
Non-employee directors who were serving on the Board as of April 2, 1996
received, and will receive on each anniversary of such date, a non-qualified
stock option to purchase up to 4,000 shares of Common Stock, with 2,000 shares
vesting after six months and 1,000 shares every three months thereafter
assuming such non-employee director continues to serve on the Board. Non-
qualified stock options granted to non-employee directors pursuant to the
Option Plan will have an exercise price equal to the fair market value of
shares of Common Stock on the date of grant and will have a ten-year term.
Executive Officers. The following table provides certain information for the
fiscal years ended December 31, 1995, 1996 and 1997 concerning compensation
awarded to 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, 1997 (collectively, the "Named Executive Officers")
for services rendered to the Company in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
COMMISSIONS SECURITIES
AND UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUSES OPTIONS COMPENSATION
- --------------------------- ---- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen B. Butler......... 1997(1) $62,949 $ -- 400,000 $ --
Chief Executive Officer 1996 -- -- -- --
1995 -- -- -- --
Elisabeth Elterman........ 1997(2) 180,000 -- 40,000 --
President and Chief
Executive Officer 1996 165,000 60,000 25,000 --
1995(3) 140,000 40,000 130,000 --
J. Jeffrey Bingenheimer... 1997 145,800 20,200 25,000 --
Vice President and Chief 1996 135,000 35,000 55,000 --
Financial Officer 1995(4) 36,346 5,000 50,000 --
Brian J. LeSuer........... 1997(5) 150,000 15,450 25,000 --
Executive Vice President, 1996 135,000 35,000 70,000 --
Research and Development 1995 110,000 41,005 -- --
Paul R. Maguire........... 1997 105,000 56,057 10,000 6,000(6)
Vice President, Channel
Development 1996 105,000 120,192 5,000 6,000(6)
1995 105,000 122,715 50,000 6,000(6)
Gareth S. Taube........... 1997(7) 142,500 31,800 25,000 --
Senior Vice President,
Marketing 1996(8) 17,909 1,000 50,000 --
1995 -- -- -- --
</TABLE>
- --------
(1) Mr. Butler was appointed Chief Executive Officer of the Company on
September 5, 1997.
(2) Ms. Elterman resigned as Chief Executive Officer of the Company on
September 5, 1997 and as President and director of the Company effective
as of December 31, 1997.
(3) Ms. Elterman was appointed President and Chief Executive Officer of the
Company on July 1, 1995.
(4) Mr. Bingenheimer was appointed Vice President and Chief Financial Officer
of the Company in September 1995.
(5) Mr. LeSuer resigned from the Company in February 1998.
(6) Amount represents car allowance payments for Mr. Maguire paid by the
Company at a rate of $500 per month.
(7) Mr. Taube resigned from the Company in February 1998.
(8) Mr. Taube was appointed Senior Vice President, Marketing in November 1996.
5
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth
information regarding each stock option granted during Fiscal 1997 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
OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION ---------------------------
GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
---------- ---------------- ------------- ---------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen B. Butler....... 360,000 31.2% $ 9.00 9/5/07 $ 2,037,619 $ 5,163,726
40,000 3.5 18.00 9/5/07 0 213,747
Elisabeth Elterman(3)... 40,000 3.5 14.00 1/21/07 352,181 892,496
J. Jeffrey
Bingenheimer........... 25,000 2.2 14.00 1/21/07 220,113 557,810
Brian J. LeSuer(4)...... 25,000 2.2 14.00 1/21/07 220,113 557,810
Paul R. Maguire......... 10,000 0.9 11.75 11/24/07 73,895 187,265
Gareth S. Taube(5)...... 25,000 2.2 8.50 7/25/07 133,640 338,670
</TABLE>
- --------
(1) Unless otherwise indicated, the options 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.
(2) Except with respect to options to purchase 40,000 shares granted to Mr.
Butler, 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.
(3) Ms. Elterman resigned as Chief Executive Officer of the Company on
September 5, 1997 and as President and director of the Company effective
as of December 31, 1997.
(4) Mr. LeSuer resigned from the Company in February 1998.
(5) Mr. Taube resigned from the Company in February 1998.
6
<PAGE>
Option Exercises and Year-End Holdings. The following table sets forth the
shares of Common Stock acquired and the value realized upon exercise of stock
options during Fiscal 1997 by each of the Named Executive Officers and certain
information concerning stock options held by the Named Executive Officers as
of December 31, 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
ACQUIRED ON VALUE --------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Stephen B. Butler....... 0 $ 0 0/400,000 $ 0/$675,000
Elisabeth Elterman(2)... 13,000 117,163 262,000/ 0 1,802,250/ 0
J. Jeffrey
Bingenheimer........... 0 0 38,500/ 90,000 178,000/ 189,063
Brian J. LeSuer......... 0 0 61,150/ 83,000 405,269/ 111,938
Paul R. Maguire......... 35,500 288,247 25,000/ 37,500 204,375/ 226,563
Gareth S. Taube......... 0 0 12,500/ 62,500 0/ 59,375
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock of $10.875 per share,
the price of the last reported trade of the Common Stock on the Nasdaq
National Market on December 31, 1997, less the option exercise price per
share. Options are in-the-money if the fair market value of the shares
covered thereby is greater than the option exercise price.
(2) In connection with Ms. Elterman's resignation as President and director of
the Company effective as of December 31, 1997, the Company and Ms.
Elterman entered into a Separation Agreement pursuant to which the vesting
of unvested options to purchase 110,000 shares of Common Stock was
accelerated such that such options vested as of December 31, 1997 and are
exerciseable through September 30, 1998. See "Compensation Committee
Report on Executive Compensation--Compensation of the Chief Executive
Officers."
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
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.
In February 1997, the Board adopted a policy that provides for the payment
of severance benefits to, and the acceleration of the vesting of stock options
held by, certain executive officers of the Company, including certain of the
Named Executive Officers, in the event that such officer's employment with the
Company or any successor entity is terminated either by the Company without
cause (as defined) or by the officer for good reason (as defined) within the
first year after a change in control (as defined) of the Company.
7
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph provides a comparison of cumulative total stockholder
return for the period from March 28, 1996 (the date on which the Common Stock
was first publicly traded) through December 31, 1997, among the Company, the
Nasdaq National Market-US Companies Index (the "Nasdaq-US Index") and the
Center for Research in Security Prices ("CRSP") Computer and Data Processing
Stocks Index (the "Peer Group Index," an index of Nasdaq National Market
traded companies (both domestic and foreign) with Standard Industrial
Classification Code Numbers from 7370 to 7379). The Stock Performance Graph
assumes an investment of $100 in each of the Company and the two indices, and
the reinvestment of any dividends. The historical information set forth below
is not necessarily indicative of future performance. Data for the Nasdaq-US
Index and the Peer Group Index was provided to the Company by CRSP.
[STOCK PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
03/28/96 06/28/96 12/31/96 06/30/97 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Segue Software, Inc. 100.0 138.4 84.9 63.4 50.6
Nasdaq Stock Market Market
(US Companies) 100.0 108.9 118.3 132.4 145.2
Nasdaq Computer and Data
Processing Stocks 100.0 111.9 118.7 141.2 145.8
</TABLE>
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board consists of James H. Simons,
Chairman, John J. Cullinane and Howard L. Morgan. Dr. Simons, Mr. Cullinane
and Dr. Morgan are all non-employee directors.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for officers of the Company and administers the incentive
compensation and benefit plans of the Company. These plans include the Option
Plan and the Stock Purchase Plan. The members of the Compensation Committee
have prepared the following report on the Company's executive compensation
policies and philosophy for Fiscal 1997.
GENERAL
The Compensation Committee (the "Committee") of the Board is composed of
three independent outside directors. There are no insiders on the Committee
and there are no Committee members with interlocking relationships with the
Company. The Chief Executive Officer ("CEO") and the Chief Financial Officer
("CFO") of the Company are invited to attend and participate in Committee
meetings from time to time, except when their compensation is being discussed.
The CEO makes recommendations to the Committee regarding compensation for all
other executive officers and for any incentive bonuses for all other
employees. Base pay, discretionary year-end bonus payments and commission
payments to sales employees are determined by the CEO in conjunction with
other members of the management team. The Compensation Committee considers the
CEO's recommendations, approves or revises them, and submits its conclusions
to the Board. The Board has final authority regarding executive compensation
and any incentive bonus compensation for all other employees.
COMPENSATION PHILOSOPHY
In recognition that the recruitment of personnel in the computer software
industry is highly competitive, the Company's compensation policies, both for
executive and non-executive employees, are structured to attract and retain
highly skilled technical, marketing, sales and management personnel. The
Committee and the Board believe that the compensation of the Company's
executive officers should be significantly influenced by the Company's
performance. Accordingly, the Company's practice has been to establish base
cash salaries at levels deemed appropriate by the Committee based on historic
Company compensation levels and the Committee's experience and knowledge as to
compensation levels at other companies. In assessing compensation levels, the
Committee has periodically reviewed industry specific compensation surveys and
consulted with the Company's Human Resources Department.
The Committee has established a formal bonus program for the executive
officers for the year ended December 31, 1998 ("Fiscal 1998"). Under the
program, sixty percent of each executive officer's individual potential bonus
is based on the Company achieving certain quarterly and annual revenue and
profitability goals; the remaining forty percent is based on the attainment of
certain individually tailored goals. The total available pool for the bonus
program for the executive officers for Fiscal 1998 is $230,000. The bonus pool
allocated to the executive officers is based on the Committee's evaluation of
historical performance and discussions with the CEO.
The Company also maintains the Option Plan to provide long-term incentives
to maximize stockholder value by rewarding employees for the long-term
appreciation of the Company's share price. Stock options are typically subject
to four-year vesting. Generally, option grants are made to employees in
connection with their initial hire. The Board also approves option grants in
connection with a significant change in responsibilities, as a reward for
outstanding performance, and to provide incentives for continued employment.
The number of shares subject to each stock option granted is based on
anticipated future contribution and the ability of the individual to affect
corporate results.
The total compensation for the Named Executive Officers is described in this
Proxy Statement starting on page 5 and the compensation for each of Mr. Butler
and Ms. Elterman is also discussed below.
9
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICERS
Stephen B. Butler. Mr. Butler was elected as CEO effective as of September
5, 1997 with an annual base salary of $200,000. This annual base salary was
determined by the Committee and was based on its review of competitive
compensation survey data and an evaluation of the Company's historical
practices and internal salary structures. Mr. Butler was not awarded any bonus
for Fiscal 1997.
Mr. Butler was also awarded stock options to purchase an aggregate of
400,000 shares of Common Stock. Of such options, options to purchase 360,000
shares of Common Stock were issued with an exercise price of $9.00 per share
and options to purchase 40,000 shares of Common Stock were issued with an
exercise price of $18.00 per share. All of such options vest in equal annual
installments over four years in accordance with the Company's standard vesting
schedule. The exercise price of $9.00 per share was determined to be equal to
the fair market value of the Common Stock as of the date of grant. The
exercise price of $18.00 per share was determined to be in excess of the fair
market value of the Common Stock as of the date of grant and was intended to
create and promote an alignment of Mr. Butler's interests with those of the
stockholders of the Company.
Elisabeth Elterman. Ms. Elterman served as CEO during Fiscal 1997 until she
resigned as CEO effective as of September 5, 1997 and as President through
December 31, 1997 with an annual base salary of $180,000. Ms. Elterman
received her entire annual base salary of $180,000 for Fiscal 1997. Ms.
Elterman's annual base salary was determined by the Committee based on its
review of competitive compensation survey data and an evaluation of the
Company's historical practices and internal salary structures.
On December 31, 1997, Ms. Elterman resigned as President and director of the
Company. Ms. Elterman and the Company entered into a Separation Agreement
pursuant to which the Company agreed to pay certain severance benefits to Ms.
Elterman. As part of such agreement, Ms. Elterman will receive cash payments
totaling $180,000 and certain health insurance benefits from the Company over
Fiscal 1998. In addition, the Company agreed to accelerate the vesting of
unvested options to purchase 110,000 shares of Common Stock of Ms. Elterman
such that such options vested as of December 31, 1997 and are exerciseable
through September 30, 1998.
The CEO's performance bonus is based on the Company's achievement of certain
financial goals and agreed-upon objectives for the year. For the year ended
December 31, 1996, Ms. Elterman received a cash bonus of $60,000 which
represented 36% of her salary for such year. Neither Ms. Elterman nor Mr.
Butler received any bonus for Fiscal 1997.
INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, places a
per-person limit of $1,000,000 on the amount of compensation that may be
deducted by the Company in any year with respect to certain of the Company's
most highly compensated officers. Section 162(m) does not, however, disallow a
deduction for the qualified "performance based compensation" the material
terms of which are disclosed to and approved by stockholders. The Company does
not anticipate that the compensation for any of the Named Executive Officers
will exceed $1,000,000 in the current taxable year, but intends to take
appropriate action to comply with such regulations, if applicable, in the
future.
James H. Simons
John J. Cullinane
Howard L. Morgan
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION; CERTAIN 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 Board or the Committee.
10
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of April 1, 1998
concerning the ownership of Common Stock by (i) each person or "group" (as
that term is defined in Section 13(d)(3) of the Exchange Act) known by the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each of the Named Executive Officers, (iii) each director and nominee for
director of the Company and (iv) all directors and executive officers as a
group (14 persons). Except as otherwise indicated, each person listed below
has sole voting and investment power over the shares of Common Stock shown as
beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------
NAME AND ADDRESS** NUMBER PERCENT
------------------ ---------------- --------------
<S> <C> <C>
James H. Simons(2)...................... 826,639 10.4%
Renaissance Technology Corp.
800 Third Avenue
New York, New York 10022
Stephen B. Butler....................... 0 *
Leonard E. Baum(3)...................... 165,836 2.1
John J. Cullinane(4).................... 272,721 3.4
Ronald D. Fisher(5)..................... 36,425 *
John R. Levine(6)....................... 159,118 2.0
Milton E. Mohr(7)....................... 285,144 3.6
Howard L. Morgan(8)..................... 68,000 *
J. Jeffrey Bingenheimer(9).............. 57,250 *
Jeannine A. Bartlett.................... 0 *
Stewart A. Bush......................... 8,500 *
Anthony G. Kolish(10)................... 250 *
Alexander M. Levi....................... 0 *
Michael D. Maggio(11)................... 34,625 *
All Directors and Executive Officers as
a group (14 Persons)................... 1,914,508 23.5%
</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 April 1, 1998 (7,950,835 shares), plus shares of Common Stock subject
to stock options held by each listed beneficial owner that are currently
exercisable or exercisable within 60 days following April 1, 1998.
(2) Includes (i) 18,000 shares of Common Stock which may be purchased within
60 days of April 1, 1998 upon the exercise of stock options and (ii)
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).
(3) Includes (i) 18,000 shares of Common Stock which may be purchased within
60 days of April 1, 1998 upon the exercise of stock options, (ii) 87,836
shares of Common Stock held by Lebam Advisors Pension Plan, of which Dr.
Baum is one trustee of three trustees and shares voting and investment
power over such shares 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.
(4) Includes (i) 8,000 shares of Common Stock which may be purchased within
60 days of April 1, 1998 upon the exercise of stock options and (ii)
153,841 shares of Common Stock held by The Charles River Charitable
Foundation, of which Mr. Cullinane is a trustee, but as to which Mr.
Cullinane disclaims beneficial ownership.
(5) Includes (i) 4,000 shares of Common Stock which may be purchased within
60 days of April 1, 1998, (ii) 5,000 shares of Common Stock held by Mr.
Fisher's spouse as to which Mr. Fisher disclaims beneficial ownership,
(iii) 2,500 shares of Common Stock held by Mr. Fisher as nominee for his
brother as to which
11
<PAGE>
Mr. Fisher disclaims beneficial ownership, and (iv) 11,500 shares of
Common Stock held by the Fisher Family Trust, of which Mr. Fisher's wife
is the trustee, but as to which Mr. Fisher also disclaims beneficial
ownership.
(6) Includes 18,000 shares of Common Stock which may be purchased within 60
days of April 1, 1998 upon the exercise of stock options.
(7) Includes (i) 267,144 shares of Common Stock held by the Milton E. Mohr
Trust and (ii) 18,000 shares of Common Stock which may be purchased
within 60 days of April 1, 1998 upon the exercise of stock options.
(8) Includes (i) 28,000 shares of Common Stock which may be purchased within
60 days of April 1, 1998 upon the exercise of stock options, and (ii)
5,000 shares of Common Stock held by the Eleanor Howard Morgan Family
Foundation, of which Mr. Morgan is a trustee and shares voting and
investment power over such shares, but as to which Mr. Morgan disclaims
beneficial ownership.
(9) Shares of Common Stock which may be purchased within 60 days of April 1,
1998 upon the exercise of stock options.
(10) Shares of Common Stock which may be purchased within 60 days of April 1,
1998 upon the exercise of stock options.
(11) Shares of Common Stock which may be purchased within 60 days of April 1,
1998 upon the exercise of stock options.
PROPOSAL 2: APPROVAL OF AN AMENDMENT
TO THE OPTION PLAN
INTRODUCTION
In February 1996, the Board and the stockholders of the Company approved the
Option Plan. In February 1997, the Board unanimously voted to amend the Option
Plan to increase the maximum number of shares of Common Stock available for
issuance under the Option Plan from 2,450,000 to 3,000,000 and such amendment
was approved by the affirmative vote of a majority of the shares present or
represented and entitled to vote at the Company's 1997 Annual Meeting of
Stockholders. At a meeting of the Board on February 25, 1998, the Board voted
to amend the Option Plan, subject to approval by the affirmative vote of a
majority of the shares present or represented and entitled to vote at a duly
called and held meeting of the stockholders of the Company, to increase the
maximum number of shares of Common Stock available for issuance under the
Option Plan to 3,250,000 shares of Common Stock.
The Board believes that the Company's growth and long-term success depend in
large part upon retaining and motivating key management personnel and that
this can be achieved in part through the design and implementation of
effective compensation policies and practices. The Board also believes that
stock options and other share-based incentive awards can play an important
role in the success of the Company by encouraging and enabling the officers
and other employees of the Company, upon whose judgment, initiative and
efforts the Company largely depends for sustained growth and profitability, to
acquire a proprietary interest in the long-term performance of the Company.
The Board anticipates that providing such persons with a direct stake in the
Company will assure a closer identification of the interests of the
participants in the Option Plan with those of the Company, thereby stimulating
their efforts to promote the Company's future success and strengthen their
desire to remain with the Company. The Board believes that the proposed
increase in the number of shares of Common Stock issuable under the Option
Plan will help the Company accomplish these goals and will keep the Company's
share-based incentive compensation competitive with that of its competitors.
At the Annual Meeting, the stockholders of the Company will be asked to
approve the Option Plan Amendment described above. Approval by the
stockholders of the Company is required for the Option Plan, as so amended, to
qualify for favorable treatment under the Internal Revenue Code of 1986, as
amended (the "Code"). Under the Code, stockholder approval is necessary for
stock options relating to the additional shares of Common Stock issuable under
the Option Plan to qualify as incentive stock options under Section 422 of the
Code ("Incentive Options").
12
<PAGE>
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a majority of the votes cast
is necessary to amend the Option Plan.
RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE OPTION PLAN.
SUMMARY OF THE OPTION PLAN
Number of Shares Issuable. Subject to adjustment for stock splits, dividends
and similar events, the total number of shares of Common Stock that may be
issued under the Option Plan is currently 3,000,000 shares of Common Stock. If
adopted, the Option Plan Amendment would increase the number of shares of
Common Stock by 250,000 to 3,250,000 shares of Common Stock.
Plan Administration; Eligibility. The Option Plan is administered by the
Compensation Committee which is composed of non-employee 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 options (which in the case of an Incentive 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.
Persons eligible to receive stock options under the Option Plan include
those employees, consultants, directors and officers of the Company who are
responsible for or contribute to the management, growth or profitability of
the Company, as selected from time to time by the Compensation Committee.
Stock Options. The Option Plan provides for the grant of Incentive Options
to employees and the grant of non-qualified stock options to employees,
consultants, directors and officers of the Company ("Non-Qualified Options").
Amendments. The Option Plan may be amended by the stockholders of the
Company. The Option Plan may also be amended by the Board or the Compensation
Committee, provided that any amendment approved by the Board or the
Compensation Committee which is a scope that requires stockholder approval in
order to ensure favorable federal income tax treatment for any Incentive
Options.
Transferability. Generally, under the Option Plan, a stock option is not
transferable by the optionholder except by will or by the laws of descent and
distribution. No stock 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 stock 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. Stock
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 Options issued
to employees holding more than 10% of the total voting power of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal federal income tax
considerations pertaining to options granted under the Plan. It does not
describe all federal tax consequences under the Plan, nor does it describe
state or local tax considerations.
Incentive Options. Under the Code, an employee will not realize taxable
income by reason of the grant or the exercise of an Incentive Option. If an
employee exercises an Incentive Option and does not dispose of the
13
<PAGE>
shares until the later of (a) two years from the date the option was granted
or (b) one year from the date the shares were transferred to the employee, the
entire gain, if any, realized upon disposition of such shares will be taxable
to the employee as capital gain, and the Company will not be entitled to any
deduction. If an employee disposes of the shares within such one-year or two-
year period in a manner so as to violate the holding period requirements (a
"disqualifying disposition"), the employee generally will realize ordinary
income in the year of disposition, and the Company will receive a
corresponding deduction, in an amount equal to the excess of (1) the lesser of
(x) the amount, if any, realized on the disposition and (y) the fair market
value of the shares on the date the option was exercised over (2) the option
price. Any additional gain realized on the disposition of the shares acquired
upon exercise of the option will be long-term, mid-term or short-term capital
gain and any loss will be long-term, mid-term or short-term capital loss
depending upon the holding period for such shares. The employee will be
considered to have disposed of his shares if he sells, exchanges, makes a gift
of or transfers legal title to the shares (except by pledge or by transfer on
death). If the disposition of shares is by gift and violates the holding
period requirements, the amount of the employee's ordinary income (and the
Company's deduction) is equal to the fair market value of the shares on the
date of exercise less the option price. If the disposition is by sale or
exchange, the employee's tax basis will equal the amount paid for the shares
plus any ordinary income realized as a result of the disqualifying
disposition. The exercise of an Incentive Option may subject the employee to
the alternative minimum tax.
Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of his Incentive Option.
An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.
Non-Qualified Options. There are no federal income tax consequences to
either the optionee, or the Company on the grant of a Non-Qualified Option. On
the exercise of a Non-Qualified Option, the optionee (except as described
below) has taxable ordinary income equal to the excess of the fair market
value of the Common Stock received on the exercise date over the option price
of the shares. The optionee's tax basis for the shares acquired upon exercise
of a Non-Qualified Option is increased by the amount of such taxable income.
The Company will be entitled to a federal income tax deduction in an amount
equal to such excess. Upon the sale of the shares acquired by exercise of a
Non-Qualified Option, the optionee will realize long-term, mid-term or short-
term capital gain or loss depending upon his or her holding period for such
shares.
Special rules apply if an optionee surrenders shares of Common Stock in
payment of the exercise price of a Non-Qualified Option.
Capital Gains Rates. For transactions occurring after July 28, 1997, the
Taxpayer Relief Act of 1997 has created three different types of capital gains
for individuals: short-term gains (on assets held for one year or less) which
are taxed at ordinary income rates; mid-term capital gains (from the sale of
assets held more than a year but not more than 18 months) which are taxed at a
maximum rate of 28%; and long-term capital gains (from the sale of assets held
more than 18 months) which are taxed at a maximum rate of 20%.
Parachute Payments. The exercise of any portion of any option that is
accelerated due to the occurrence of a change of control may cause a portion
of the payments with respect to such accelerated options to be treated as
"parachute payments" as defined in the Code. Any such parachute payments may
be non-deductible to the Company, in whole or in part, and may subject the
recipient to a non-deductible 20% federal excise tax on all or portion of such
payment (in addition to other taxes ordinarily payable).
Limitation on Company's Deductions. As a result of Section 162(m) of the
Code, the Company's federal tax deduction for certain awards under the Plan
may be limited to the extent that the Chief Executive Officer or
14
<PAGE>
other executive officer whose compensation is required to be reported in the
summary compensation table receives compensation (other than performance-based
compensation) in excess of $1 million a year.
OPTION PLAN BENEFITS
The Compensation Committee has not granted any stock options covering the
additional 250,000 shares of Common Stock issuable under the Option Plan if
the Option Plan Amendment is adopted by the stockholders. Accordingly, the
benefits or amounts that will be received by or allocated to any individual or
group of individuals under the Option Plan as amended by the Option Plan
Amendment are not determinable.
PROPOSAL 3: APPROVAL OF AN AMENDMENT
TO THE STOCK PURCHASE PLAN
INTRODUCTION
In February 1996, the Board and the stockholders of the Company approved the
Stock Purchase Plan. At a meeting of the Board on February 25, 1998, the Board
voted to amend the Stock Purchase Plan, subject to approval by the affirmative
vote of a majority of the shares present or represented and entitled to vote
at a duly called and held meeting of the stockholders of the Company, to
increase the maximum number of shares of Common Stock that may be purchased by
eligible employees under the Stock Purchase Plan from 100,000 to 200,000.
The Board believes that it is in the best interests of the Company to
encourage stock ownership by employees of the Company. The Stock Purchase Plan
will allow eligible employees of the Company to purchase shares of Common
Stock directly from the Company.
At the Annual Meeting, the stockholders of the Company will be asked to
approve the Stock Plan Amendment described above. Approval by the stockholders
of the Company is required for the Stock Purchase Plan, as so amended, to
qualify for favorable treatment under the Code.
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a majority of the votes cast
is necessary to amend the Stock Purchase Plan.
RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE STOCK PURCHASE PLAN.
SUMMARY OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan provides that 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 Stock Purchase Plan, except for persons who are deemed
under Section 423(b)(3) of the Code to own 5% or more of the voting stock of
the Company. The Stock Purchase Plan is administered by the Compensation
Committee.
The Stock Purchase Plan provides for two "purchase periods" within each
year, the first commencing on February 16 of each year and continuing through
August 15 of such year, and the second commencing on August 16 of each year
and continuing through February 15 of the following 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
15
<PAGE>
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 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.
FEDERAL INCOME TAX CONSIDERATIONS
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 423(b) of the Code, which provides that
an employee participating in the plan is not required to pay any federal
income tax when joining the Stock Purchase Plan or when purchasing the shares
of Common Stock at the end of an offering. The employee is, however, required
to pay federal income tax on the difference, if any, between the price at
which he or she sells the shares and the price he or she paid for them.
The following is a summary of the federal income tax consequences resulting
from acquiring stock under the Stock Purchase Plan:
If shares acquired under the Stock Purchase Plan are sold more than two
years after the first day of the purchase period pursuant to which the shares
were purchased, no taxable income results if the proceeds of the sale are
equal to or less than the price paid for the shares. If the proceeds of the
sale are higher than the purchase price, the employee will recognize ordinary
income for the year in which the sale occurs equal to the lesser of (a) 15% of
the fair market value of the Common Stock on the first day of the purchase
period pursuant to which the shares were purchased or (b) the excess of the
amount actually received for the shares over the amount paid. In addition, the
employee may recognize long-term or mid-term capital gain or loss in an amount
equal to the difference between the proceeds of the sale and the employee's
basis in the shares (i.e., the employee's purchase price plus the amount taxed
to the employee as ordinary income). The employee will receive long-term
capital gain or loss treatment if he has held the shares for at least 18
months. If the employee has held the shares for less than 18 months but more
than 12 months, he will receive mid-term capital gain or loss treatment. No
deduction is allowed to the Company.
If shares acquired under the Stock Purchase Plan are sold within two years
of the first day of the purchase period pursuant to which the shares were
purchased, the employee will recognize ordinary income equal to the difference
between the fair market value of the shares on the exercise date and the
employee's purchase price. This amount is reportable as ordinary income even
if no profit was realized on the sale of shares or the shares were sold at a
loss. Long-term, mid-term or short-term (depending on the holding period for
the shares) capital gain or loss will be recognized in an amount equal to the
difference between the proceeds of sale and the employee's basis in the
shares. The amount reportable as ordinary income from a sale made within two
years of the first day of the purchase period pursuant to which the shares
were purchased will generally be allowed as a tax deduction to the Company.
STOCK PURCHASE PLAN BENEFITS
No employee of the Company has purchased shares of Common Stock out of the
additional 100,000 shares of Common Stock that may be purchased by eligible
employees under the Stock Purchase Plan if the Stock Plan Amendment is adopted
by the stockholders. Accordingly, the benefits or amounts that will be
received by or allocated to any individual or group of individuals under the
Stock Purchase Plan as amended by the Stock Plan Amendment are not
determinable.
PROPOSAL 4: APPROVAL OF INDEPENDENT
PUBLIC ACCOUNTANTS
The Company has appointed the accounting firm of Coopers & Lybrand L.L.P. to
serve as the Company's independent public accountants for the fiscal year
ending December 31, 1998. Coopers & Lybrand L.L.P. has
16
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served the Company in such capacity since 1992. The Company expects that
representatives of Coopers & Lybrand L.L.P. will be present at the Annual
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 Company's independent public accountants is not obtained at the
Annual Meeting, the Board will reconsider its appointment.
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a majority of the votes cast
is necessary to ratify the appointment of the independent public accountants.
RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPOINTMENT OF COOPERS &
LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC") and the
Nasdaq National Market, Inc. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon a review of
copies of Forms 3 and 4 and amendments thereto furnished to the Company
pursuant to Rule 16a-3(e) of the Exchange Act during Fiscal 1997, Form 5 and
amendments thereto furnished to the Company with respect to Fiscal 1997 and
written representations to the Company that no other reports were required
during, or with respect to, Fiscal 1997, all Section 16(a) filing requirements
applicable to the Company's executive officers and directors, and persons who
are more than 10% of a registered class of the Company's equity securities
were satisfied.
OTHER MATTERS
EXPENSES OF SOLICITATION
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.
STOCKHOLDER PROPOSALS
Any stockholder proposals submitted pursuant to Rule 14a-8 of the Exchange
Act and intended to be presented at the Company's 1999 Annual Meeting of
Stockholders must be received by the Company on or before December 29, 1998 to
be eligible for inclusion in the proxy statement and form of proxy to be
distributed by the Board in connection with such meeting.
Any stockholder proposals intended to be presented at the Company's 1999
Annual Meeting, other than a stockholder proposal submitted pursuant to Rule
14a-8 of the Exchange Act, must be received in writing by the Secretary of the
Company at the principal executive office of the Company no later than the
close of business on April 6, 1999, nor prior to March 7, 1999, together with
all supporting documentation required by the Company's By-laws.
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OTHER MATTERS
The Board does not know of any matters other than those described in this
Proxy Statement which will be presented for action at the Annual Meeting. If
other matters are presented, proxies will be voted in accordance with the best
judgment of the proxy holders.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL 1997
(INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO), WHICH WAS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1998, WILL BE PROVIDED
WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT IS MAILED UPON THE
WRITTEN REQUEST OF ANY SUCH PERSON TO J. JEFFREY BINGENHEIMER, VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER, SEGUE SOFTWARE, INC., 1320 CENTRE STREET, NEWTON
CENTRE, MASSACHUSETTS 02159.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD TODAY.
By order of the Board of Directors:
JEFFREY C. HADDEN
Secretary
Newton Centre, Massachusetts
April 30, 1998
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LOGO
SEGUE SOFTWARE, INC.
1320 CENTRE STREET
NEWTON CENTRE, MASSACHUSETTS 02159
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen B. Butler, J. Jeffrey Bingenheimer
and Jeffrey C. Hadden, and each of them, as proxies of the undersigned (the
"Proxies"), with full power to substitute, and authorizes each of them to
represent and to vote all shares of common stock, par value $.01 per share,
(the "Common Stock") of Segue Software, Inc. (the "Company") held by the
undersigned at the close of business on April 29, 1998, at the 1998 Annual
Meeting of Stockholders of the Company (the "Annual Meeting"), to be held at
the offices of Goodwin, Procter & Hoar LLP at Exchange Place, 53 State Street,
Boston, Massachusetts 02109 on Friday, June 5, 1998 at 10:00 a.m., Boston time,
and at any adjournments or postponements thereof. The undersigned hereby
revokes any proxy previously given in connection with such meeting and
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement and the 1997 Annual Report to Stockholders.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THE UNDERSIGNED'S VOTE
WILL BE CAST "FOR" THE PROPOSALS IN PARAGRAPHS 1, 2, 3 AND 4, AND IN THE
DISCRETION OF THE PROXIES, "FOR" ANY MATTER DESCRIBED IN PARAGRAPH 5. A
stockholder wishing to vote in accordance with the recommendation of the Board
of Directors of the Company need only sign and date this Proxy and return it to
the Company. PLEASE SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
1. Proposal to elect James H. Simons, Stephen B. Butler, Leonard E. Baum,
Ronald D. Fisher, John R. Levine and Howard L. Morgan as directors of the
Company, to hold office until the 1999 Annual Meeting of Stockholders and until
their respective successors are duly elected and qualified.
[_] FOR ALL [_] WITHHELD FOR ALL ________________________________________
Withheld as to the nominees noted above
2. To approve an amendment to the Company's 1996 Amended and Restated Incentive
and Non-Qualified Stock Option Plan (the "Option Plan") to increase the maximum
number of shares of Common Stock available for issuance under the Option Plan
from 3,000,000 to 3,250,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
<PAGE>
LOGO
3. To approve an amendment to the Company's 1996 Employee Stock Purchase Plan
(the "Stock Purchase Plan") to increase the maximum number of shares of Common
Stock that may be purchased by eligible employees of the Company under the
Stock Purchase Plan from 100,000 to 200,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the fiscal year ending December 31, 1998.
[_] FOR [_] AGAINST [_] ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon any other
matter that may be properly brought before the Annual Meeting and at any
adjournments or postponements thereof.
___________________________________________
Signature
___________________________________________
Signature
___________________________________________
Date
FOR JOINT ACCOUNTS, EACH OWNER SHOULD
SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES,
CORPORATE OFFICERS AND OTHERS ACTING IN A
REPRESENTATIVE CAPACITY SHOULD GIVE FULL
TITLE OR AUTHORITY.
