<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] 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)
SEGUE SOFTWARE, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
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SEGUE SOFTWARE, INC.
201 Spring Street
Lexington, Massachusetts 02421
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 23, 2000
----------------
To the Stockholders of Segue Software, Inc.
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Annual Meeting") of Segue Software, Inc., a Delaware corporation (the
"Company"), will be held on Friday, June 23, 2000 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
2001 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 Employee Stock Purchase Plan, as amended;
3. 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;
4. To consider and act upon a proposal to ratify the appointment of Grant
Thornton LLP, as the Company's independent public accountants for the
fiscal year ending December 31, 2000; 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 May 22, 2000 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.
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
Lexington, Massachusetts
May 24, 2000
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.
201 Spring Street
Lexington, Massachusetts 02421
----------------
PROXY STATEMENT
----------------
FOR 2000 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 23, 2000
May 24, 2000
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 2000 Annual Meeting of Stockholders to be held at the Conference Center of
Goodwin, Procter & Hoar LLP, Exchange Place, 53 State Street, Boston,
Massachusetts on Friday, June 23, 2000 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 "Stock
Purchase Plan Amendment") to the Company's 1996 Employee Stock Purchase Plan,
as amended (the "Stock Purchase Plan"); to approve an amendment (the "1996
Option Plan Amendment") to the Company's 1996 Amended and Restated Incentive
and Non-Qualified Stock Option Plan, as amended (the "1996 Option Plan"); to
consider and act upon a proposal to ratify the appointment of Grant Thornton
LLP, as the Company's independent public accountants for the fiscal year
ending December 31, 2000; 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 May
24, 2000. The Board has fixed the close of business on May 22, 2000 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 9,384,825 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 votes (as defined below) will be counted
as present in determining the presence of a quorum. The Company's By-laws (the
"By-laws") provide that the affirmative vote of a majority of the votes cast
affirmatively or negatively at the Annual Meeting is sufficient to approve
each proposal, other than the election of directors. Under the Nasdaq Stock
Market rules, each of the Stock Purchase Plan Amendment proposal and the 1996
Option Plan Amendment proposal must receive a majority of the total votes cast
on such proposal in person or by proxy. Based on the foregoing, abstentions
and broker non-votes will have no impact on the outcome of the proposals. A
plurality of votes cast will be required for the election of directors.
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
<PAGE>
are given, the proxy will be voted FOR the election of the six nominees for
director of the Company named in this Proxy Statement; FOR the proposal to
approve the Stock Purchase Plan Amendment; FOR the proposal to approve the
1996 Option Plan Amendment; and FOR the ratification of the appointment of
Grant Thornton LLP as the Company's independent public accountants for the
fiscal year ending December 31, 2000. It is not anticipated that any matters
other than those set forth in this Proxy Statement will be presented at the
Annual Meeting. Unless 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 1999 Annual Report to Stockholders (the "Annual Report"),
including financial statements for the fiscal year ended December 31, 1999
("Fiscal 1999"), is being mailed to stockholders with this Proxy Statement,
but does not constitute a part hereof.
PROPOSAL 1:
ELECTION OF DIRECTORS
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 March 22, 2000, in connection with the Annual Meeting, the Board
nominated James H. Simons, Stephen B. Butler, Leonard E. Baum, John R. Levine,
Howard L. Morgan and Jyoti Prakash 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 OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES OF THE BOARD OF DIRECTORS AS DIRECTORS OF THE COMPANY.
INFORMATION REGARDING DIRECTORS AND 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 May 15, 2000.
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. and Franklin Electronic Publishers, Inc. He is 62 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 43 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 68 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 46 years old.
Howard L. Morgan has been a director of the Company since 1992. Since
January 1999, Dr. Morgan has been Vice Chairman of idealab! which creates and
operates internet companies and President of idealab! NY since March 2000. He
has been the President of The Arca Group, Inc., a high technology consulting
and investment management firm since 1989. Dr. Morgan serves on the Board of
Directors of the following publicly held companies: Cylink Corp., Franklin
Electronic Publishers, Inc., Infonautics Inc., Kentek Information Systems,
Inc. and Tickets.com Inc. He is 54 years old.
Jyoti Prakash has served as Senior Vice President and General Manager of
Worldwide Product Development since June 1999 and has been a director since
March 2000. Prior to joining the Company, Mr. Prakash served as Vice-President
of Engineering at MediaWay, Inc., an e-commerce software company, from June
1997 to June 1999. Prior to that, Mr. Prakash held Vice President of
Engineering positions at MediaLink, a networking software company, from March
1996 to May 1997, and Chorus Systems, a software company, from January 1995 to
March 1996. Prior to that, Mr. Prakash served as Vice President of Software at
Quickturn Design, Inc., an electronic design automation company, from June
1990 to January 1995. He is 56 years old.
Executive Officers Who Are Not Directors
Douglas Zaccaro joined the Company in May 1999 and has served as Chief
Financial Officer of the Company since March 2000. From February 2000 to March
2000, he served as Vice President and Corporate Controller and Acting Chief
Financial Officer of the Company, after serving as Vice President and
Corporate Controller from January 2000 to February 2000, and Corporate
Controller from May 1999 to December 1999. Mr. Zaccaro served as a consultant
to the Company, providing Controller services from April 1999 until May 1999
when he joined the Company as Corporate Controller. Prior to that, Mr. Zaccaro
was Vice President of Finance and Administration at Aranex Corporation
(formerly IDEAssociates/IDE Corporation) from June 1996 to June 1998, and was
Controller at Aranex Corporation from March 1992 to June 1996. He is 51 years
old.
Alexander M. Levi joined the Company in December 1997 as Senior Vice
President of International Operations and has served as Senior Vice President
of Worldwide Operations since October 1998. 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 42 years old.
3
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Meetings and Committees of the Board of Directors
Meeting Attendance. During Fiscal 1999, there were 8 meetings of the Board,
and the various committees of the Board met a total of 9 times. Ronald Fisher,
who resigned from the Board in December 1999, attended fewer than 75% of total
number of meetings of the Board and of committees of the Board on which he
served during Fiscal 1999. No other director attended fewer than 75% of the
total number of meetings of the Board and of committees of the Board on which
he served during Fiscal 1999.
Audit Committee. The Board has established an Audit Committee which met a
total of 6 times in Fiscal 1999. The current members of the Audit Committee
are Dr. Levine and Dr. Morgan. The Audit Committee reviews the engagement of
the Company's independent accountants, reviews annual and quarterly 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 3 times during Fiscal 1999. The current
members of the Compensation Committee are Dr. Simons and Dr. Morgan, who are
both 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 Company's 1996
Option Plan, the Company's 1998 Employee Stock Option and Grant Plan, as
amended (the "1998 Option Plan"), and the Company's Stock Purchase Plan. In
administering the 1996 Option Plan and 1998 Option Plan, the Compensation
Committee determines the options to be issued to eligible persons under the
respective Option Plan and prescribes the terms and provisions of such
options. In addition, the Compensation Committee construes and interprets each
of the 1996 Option Plan and 1998 Option Plan and issuances thereunder, and
establishes, amends and revokes rules and regulations for administration of
each of the Option Plans.
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 1996 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.
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 1996
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.
4
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Executive Officers. The following table provides certain information for the
fiscal years ended December 31, 1999, 1998 and 1997 concerning compensation
awarded to, earned by or paid 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, 1999, and two other most
highly compensated persons who served as executive officers in 1999, but were
not serving as executive officers of the Company as of December 31, 1999
(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
Name and Principal and Underlying All Other
Positions(s) Year Salary Bonuses Options Compensation
------------------ ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen B. Butler............. 1999 $ 250,000 $ -- -- $ --
President and Chief 1998 212,500 52,300 -- --
Executive Officer 1997(1) 62,949 -- 400,000 --
Alexander M. Levi............. 1999 150,000 270,214 23,000 --
Senior Vice President 1998(2) 148,962 71,359 -- --
of Worldwide Operations 1997 -- -- 62,500 --
Anthony G. Kolish(3).......... 1999 140,833 120,448 23,100 --
Senior Vice President 1998 109,167 11,914 20,000 --
of Operations 1997 91,494 9,500 10,000 --
Jyoti Prakash(4).............. 1999 93,923 23,500 150,000 --
Senior Vice President, 1998 -- -- -- --
General Manager Worldwide 1997 -- -- -- --
Product Development
Dennis Favero(5).............. 1999 115,032 14,500 100,000 --
Senior Vice President and 1998 -- -- -- --
Chief Financial Officer 1997 -- -- -- --
Michael Maggio(6)............. 1999 80,000 46,870 20,000 119,487(7)
General Manager 1998 137,500 14,414 20,000 --
1997 112,250 28,012 10,000 --
Carl Blandino(8).............. 1999 78,000 58,740 10,800 156,000(9)
Senior Vice President 1998 75,903 3,114 50,000 --
and Chief Financial Officer 1997 -- -- -- --
</TABLE>
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(1) Mr. Butler was appointed Chief Executive Officer of the Company on
September 5, 1997.
(2) Mr. Levi joined the Company in December 1997 as Senior Vice President of
International Operations, however, Mr. Levi did not receive any
compensation until January 1998. Mr. Levi has served as Senior Vice
President of Worldwide Operations since October 1998.
(3) Mr. Kolish resigned from the Company in May 2000.
(4) Mr. Prakash joined the Company in June 1999.
(5) Mr. Favero joined the Company in May 1999 and resigned from the Company in
February 2000.
(6) Mr. Maggio resigned from the Company in June 1999.
(7) Other compensation includes $93,333 pursuant to a termination agreement
dated June 30, 1999, $20,000 for forgiveness of an advance against
bonuses, and $6,154 for vacation pay accrued but not taken.
(8) Mr. Blandino joined the Company in July 1998 and resigned from the Company
in June 1999.
(9) Other compensation includes $156,000 pursuant to a termination agreement
dated June 16, 1999.
5
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Option Grants in Last Fiscal Year. The following table sets forth
information regarding stock options granted to each of the Named Executive
Officers during the year ended December 31, 1999 to purchase shares of the
Company's Common Stock. 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
Percent of Realizable Value at
Total Assumed Annual
Number of Options Rates of Stock
Securities Granted to Exercise Price Appreciation
Underlying Employees or Base for Option Term(2)
Options in Fiscal Price Expiration -------------------
Granted Year Per Share Date 5% 10%
---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen B. Butler....... -- -- % $ -- -- $ -- $ --
Alexander M. Levi....... 8,000(1) 0.50 11.875 2/12/09 59,745 151,406
15,000(4) 0.94 6.313 6/01/09 59,553 150,919
Anthony G. Kolish....... 8,100(1) 0.51 11.875 2/12/09 60,492 153,298
15,000(4) 0.94 6.313 6/01/09 59,553 150,919
Jyoti Prakash........... 150,000(3) 9.37 7.250 7/01/09 683,923 1,733,195
Dennis Favero........... 75,000(4) 4.68 6.313 6/01/09 297,766 754,597
25,000(4) 1.56 10.188 9/09/09 160,179 405,926
Michael Maggio.......... 20,000(1) 1.25 11.875 2/12/09 149,362 378,514
Carl D. Blandino........ 10,800(1) 0.67 11.875 2/12/09 80,656 204,397
</TABLE>
- --------
(1) 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) 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) The options for Mr. Prakash vest as follows: 25,000 shares became vested
on December 31, 1999 and 4,166.67 shares vest monthly thereafter until all
150,000 shares are vested.
(4) The options become exercisable over a four year period as follows: 1/8th
of the number of options on the six month anniversary of the grant date
and 1/48th of the number of options every month thereafter. The 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 agreement.
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 the year ended December 31, 1999 by each of the Named Executive
Officers and certain information concerning stock options held by the Named
Executive Officers as of December 31, 1999.
Aggregate Option Exercise in Last Fiscal Year and
Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options at
Acquired Year-End Fiscal Year-End(1)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Stephen B. Butler....... -- $ -- 200,000/200,000 $3,020,000/$3,020,000
Alexander M. Levi....... 11,275 70,069 22,163/ 50,062 319,943/ 793,637
Anthony G. Kolish....... 5,000 87,813 12,688/ 40,912 184,512/ 610,105
Jyoti Prakash........... -- -- 25,000/125,000 443,750/ 2,218,750
Dennis Favero........... 9,375 127,144 1,563/ 89,062 29,208/ 1,567,427
Michael Maggio.......... 41,125 390,250 --/-- --/--
Carl D. Blandino........ -- -- --/-- --/--
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock of $25.00 per share,
the price of the last reported trade of the Common Stock on the Nasdaq
National Market on December 31, 1999, 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.
Employment Contracts and Change of Contracts 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 1998, 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, 1999, 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.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Seque Software, Inc.
Prepared by the Center for Research in Security Prices
Produced on 05/09/2000 including data to 12/31/1999
[GRAPH]
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 03/1996 12/1996 12/1997 12/1998 12/1999
- ----------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Seque Software, Inc. 100.0 84.9 50.6 94.2 116.3
Nasdaq Stock Market (US Companies) 100.0 118.3 145.0 204.4 378.9
NASDAQ Stocks (SIC 7370-7379 US + Foreign)
Computer Prog, Data Proc, & Other Computer
Related Services 100.0 118.7 145.8 260.1 573.2
</TABLE>
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board consists of James H. Simons,
Chairman and Howard L. Morgan. Dr. Simons and Dr. Morgan are both 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 1996
Option Plan, the 1998 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 1999.
General
The Compensation Committee (the "Committee") of the Board is composed of two
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 Fiscal 1999. Under the program, fifty 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 fifty
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 1999 was $650,000 of which the Committee determined to pay out a total
of $162,000. 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 1996 and 1998 Option Plans 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 vesting over a four-year period. 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 4 and the compensation for Mr. Butler is also
discussed below.
9
<PAGE>
Compensation of the Chief Executive Officer
Stephen B. Butler. The CEO of the Company received a base salary of $250,000
in Fiscal 1999, which was determined by reference to competitive compensation
survey data as well as the Company's historical practices and internal salary
structures. The Committee has voted to keep the salary of the CEO at the same
level for the year ended December 31, 2000.
For Fiscal 1999, Mr. Butler was not awarded any bonus nor any stock options.
Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), 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
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 Compensation
Committee.
10
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 11, 2000
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 (9 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)....................... 834,639 8.89%
Renaissance Technology Corp.
800 Third Avenue
New York, New York 10022
Bank of America Corporation(3)........... 507,650 5.41%
NationsBank Corporate Center
100 North Tryon Street
Charlotte, NC 28255
Dimensional Fund Advisors(4)............. 493,100 5.25%
1299 Ocean Avenue
Santa Monica, CA 90401
RS Investment Management Co(5)........... 528,250 5.63%
388 Market Street, Suite 200
San Francisco, CA 94111
FMR Corp.(6)............................. 494,936 5.27%
82 Devonshire Street
Boston, MA 02109
Stephen B. Butler(7)..................... 200,000 2.13%
Alexander Levi(7)........................ 26,038 *
Anthony Kolish(7)........................ 20,963 *
Dennis Favero(7)......................... -- --
Jyoti Prakash(7)......................... 50,000 *
Michael Maggio(7)........................ -- --
Carl D. Blandino(7)...................... -- --
Leonard E. Baum(8)....................... 111,836 1.20%
John R. Levine(9)........................ 159,618 1.71%
Howard L. Morgan(10)..................... 31,000 *
All Directors and Executive Officers as a
group
(9 Persons)............................. 1,438,552 15.33%
</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 May 11, 2000 (9,384,075 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 May 11, 2000.
(2) Includes (i) 111,666 shares of Common Stock owned by Dr. Simons, (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), but as to which Dr. Simons disclaims
beneficial ownership and (iii) 16,000 shares of Common Stock which may be
purchased within 60 days of May 11, 2000 upon the exercise of stock
options.
11
<PAGE>
(3) Based solely on a Schedule 13G filed on behalf of Bank of America
Corporation ("BankAmerica") with the Securities and Exchange Commission on
February 2, 2000. According to such Schedule 13G, BankAmerica was the
beneficial owner of 507,650 shares of Common Stock.
(4) Based solely on a Schedule 13G filed on behalf of Dimensional Fund
Advisors ("Dimensional") with the Securities and Exchange Commission on
February 3, 2000. According to such Schedule 13G, Dimensional was the
beneficial owner of 493,100 shares of Common Stock.
(5) Based solely on a Schedule 13G filed on behalf of RS Investment Management
Co. ("RSInvestment") with the Securities and Exchange Commission on
February 15, 2000. According to such Schedule 13G, RSInvestment was the
beneficial owner of 528,250 shares of Common Stock.
(6) Based solely on a Schedule 13G filed on behalf of FMR Corp. with the
Securities and Exchange Commission on February 14, 2000. According to such
Schedule 13G, FMR Corp. was the beneficial owner of 507,650 shares of
Common Stock.
(7) Shares of Common Stock which may be purchased within 60 days of May 11,
2000 upon the exercise of stock options.
(8) Includes (i) 26,000 shares of Common Stock which may be purchased within
60 days of May 11, 2000 upon the exercise of stock options, (ii) 30,000
shares of Common Stock owned by Dr. Baum, and (iii) 55,836 shares of
Common Stock held by Lebam Advisors Pension Plan, of which Dr. Baum is one
of three trustees and shares voting and investment power over such shares,
but as to which Dr. Baum disclaims beneficial ownership.
(9) Includes (i) 26,000 shares of Common Stock which may be purchased within
60 days of May 11, 2000 upon exercise of stock options and (ii) 133,618
shares of Common Stock owned by Dr. Levine.
(10) Includes (i) 16,000 shares of Common Stock which may be purchased within
60 days of May 11, 2000 upon the exercise of stock options, and (ii)
15,000 shares of Common Stock owned by Dr. Morgan.
PROPOSAL 2: APPROVAL OF
THE STOCK PURCHASE PLAN AMENDMENT
The Company's Board of Directors has adopted, and is seeking stockholder
approval of, an amendment (the "Stock Purchase Plan Amendment") to the
Company's 1996 Employee Stock Purchase Plan, as amended (the "Stock Purchase
Plan"), that would increase the number of shares of Common Stock available for
purchase by eligible employees of the Company through the Stock Purchase Plan
from 200,000 to 300,000.
The Board believes that it is in the best interest of the Company to
encourage stock ownership by employees of the Company. The increase in the
number of shares of Common Stock available for purchase under the Stock
Purchase Plan will allow eligible employees of the Company to continue to
purchase shares of the Company directly from the Company. On May 11, 2000, the
closing price of the Common Stock as reported on the Nasdaq Stock Market was
$9.00 per share.
At the Annual Meeting, the stockholders of the Company will be asked to
approve the Stock Purchase 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.
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.
12
<PAGE>
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
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 either the
beginning or ending date of the semi-annual purchase period 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 under the Stock Purchase Plan
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 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 or she has held the shares for at least 12 months. 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 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.
13
<PAGE>
Vote Required For Approval
A quorum being present, the affirmative vote of a majority of the votes cast
affirmatively or negatively is necessary under the By-laws for the approval of
the Stock Purchase Plan Amendment. A quorum being present, the affirmative
vote of a majority of the total votes cast in person or by proxy is necessary
under the Nasdaq Stock Market rules for the approval of the Stock Purchase
Plan Amendment.
Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE INCREASE IN SHARES UNDER STOCK PURCHASE PLAN.
PROPOSAL 3: APPROVAL OF THE 1996 OPTION PLAN AMENDMENT
Introduction
In February 1996, the Board and the stockholders of the Company approved the
1996 Option Plan. The 1996 Option Plan was amended in 1997, by both Board and
shareholder approval, to increase the maximum number of shares of Common Stock
available for issuance under the 1996 Option Plan from 2,450,000 to 3,000,000
and again in 1998, by both Board and shareholder approval, to increase the
maximum number of shares of Common Stock available for issuance from 3,000,000
to 3,250,000. At a meeting of the Board on March 22, 2000, the Board
unanimously voted to amend the 1996 Option Plan, subject to approval by
stockholders of the Company at a duly called and held meeting of the
stockholders, to increase the maximum number of shares available for issuance
under the 1996 Option Plan to 3,700,000, with provision for an additional
increase in shares available for issuance on January 1, 2001 and on January 2,
2002 of five percent (5%) of the number of shares of Common Stock of the
Company outstanding on each such date.
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 1996 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 increases in the number of shares of Common Stock issuable under
the 1996 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 1996 Option Plan Amendment described above. Approval by the
stockholders of the Company is required for the 1996 Option Plan, as so
amended, to qualify for favorable treatment under the Code. Under the Code,
stockholder approval is necessary for stock options relating to the additional
shares of Common Stock issuable under the 1996 Option Plan to qualify as
incentive stock options under Section 422 of the Code.
Summary of the 1996 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 1996 Option Plan is currently 3,250,000 shares of
Common Stock. If adopted, the 1996 Option Plan Amendment would increase the
number of shares of Common Stock initially by 450,000 to 3,700,000 shares of
Common Stock. The 1996 Option Plan Amendment also provides for two subsequent
automatic increases in the number of shares of Common Stock that may be issued
under the 1996 Option Plan equal to five percent (5%) of the number of shares
of Common Stock of the Company outstanding as of the date of each such
increase, respectively (the first increase would occur on January 1, 2001 and
the second on January 1, 2002).
14
<PAGE>
Plan Administration; Eligibility. The 1996 Option Plan is administered by
the Compensation Committee which is composed of non-employee directors of the
Company. Subject to the provisions of the 1996 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 stock option cannot be less
than the market price of the Common Stock as of the date of grant or, in the
case of incentive stock options granted to 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 1996 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. To
comply with Section 162(m) of the Code, the 1996 Option Plan provides that
options with respect to no more than 1,000,000 shares of Common Stock may be
granted to any employee in any calendar year.
As described under "Compensation of Directors and Executive Officers--
Directors", non-employee directors receive non-qualified options pursuant to
the 1996 Option Plan.
Stock Options. The 1996 Option Plan provides for the grant of incentive
stock options under Section 422 of the Code to employees and the grant of non-
qualified stock options to employees, consultants, directors and officers of
the Company.
Amendments. The 1996 Option Plan may be amended by the stockholders of the
Company. The 1996 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 within a scope that requires stockholder
approval in order to ensure favorable federal income tax treatment for any
incentive stock options under Section 423 of the Code or to comply with Rule
16b-3 under the Exchange Act shall also be approved by the stockholders of the
Company in such a manner and to such a degree as so required.
Transferability. Generally, under the 1996 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 1996 Option Plan expire ten years from the date of
grant or five years from the date of grant in the case of incentive stock
options issued to employees holding more than 10% of the total voting power of
the Company.
Federal Income Tax Considerations
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of stock options under the 1996
Option Plan:
Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it is
granted or exercised, provided that no disposition is made by the optionee of
the shares acquired pursuant to the option within two years after the date of
grant of the option nor within one year after the date of issuance of shares
to him (the "ISO holding period"). However, the difference between the fair
market value of the shares on the date of exercise and the option price will
be an item of tax preference includible in "alternative minimum taxable
income." Upon disposition of the shares before the expiration of the ISO
holding period (a "disqualifying disposition"), the optionee generally will
recognize taxable compensation, and the Company will have a corresponding
deduction, in the year of the disqualifying disposition, equal to the excess
of the fair market value of the shares on the date of exercise of the option
over the option price. Any additional gain realized on the disqualified
disposition will normally constitute capital gain. If the amount realized upon
such a disqualifying disposition is less than the fair market value on the
shares on the date of exercise, the amount of compensation income will be
limited to the excess of the amount realized over the optionee's adjusted
basis in the shares.
15
<PAGE>
Non-Qualified Stock Options. The grant of a non-qualified option will not
result in taxable income to the optionee or deduction to the Company at the
time of grant. The optionee will recognize taxable compensation, and the
Company will have a corresponding deduction, at the time of exercise in the
amount of the excess of the then fair market value of the shares acquired over
the option price. Upon disposition of the shares, the optionee will generally
realize capital gain or loss, and his basis for determining gain or loss will
be the sum of the option price paid for the shares plus the amount of
compensation income recognized on exercise of the option.
1996 Option Plan Benefits
The Compensation Committee has not granted any stock options covering the
additional 450,000 shares of Common Stock issuable and the additional shares
of Common Stock to be available for issuance on January 1, 2001 and January 1,
2002 under the 1996 Option Plan if the 1996 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
1996 Option Plan as amended by the 1996 Option Plan Amendment are not
determinable.
Vote Required for Approval
A quorum being present, the affirmative vote of a majority of the votes cast
affirmatively or negatively is necessary under the By-laws for the approval of
the 1996 Option Plan Amendment. A quorum being present, the affirmative vote
of a majority of the total votes cast in person or by proxy is necessary under
the Nasdaq Stock Market rules for the approval of the 1996 Option Plan
Amendment.
Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE 1996 OPTION PLAN AMENDMENT.
PROPOSAL 4: APPROVAL OF INDEPENDENT
PUBLIC ACCOUNTANTS
On February 1, 2000, PricewaterhouseCoopers LLP resigned as the independent
accountants of the Company for the fiscal year ended December 31, 1999. The
reports of PricewaterhouseCoopers LLP on the Company's financial statements
for the past two fiscal years ended December 31, 1998 and 1997 contained no
adverse opinion or disclaimer of opinion and were not qualified as to
uncertainty, audit scope or accounting principle.
In connection with its audits for the two most recent fiscal years and
through February 7, 2000 there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years.
During the two most recent fiscal years and through February 7, 2000, there
have been no reportable events (as defined in Item 304(a)(1)(v) of Regulation
S-K), except that the Company announced on February 7, 2000 that it would
revise the amount of the charge initially recorded in the fourth quarter of
1997 for in-process research and development resulting from its acquisition of
SQLBench. The revision resulted in the restatement of the Company's financial
statements in its Annual Reports on Form 10-K for the years ended December 31,
1997 and 1998 and its Quarterly Reports on Form 10-Q for the first three
quarters in each of 1998 and 1999.
The Company had requested that PricewaterhouseCoopers LLP furnish it with a
letter addressed to the Securities Exchange Commission (the "Commission")
stating whether or not it agreed with the above statements. A copy of such
letter dated February 7, 2000 was filed as an exhibit to the Report on Form 8-
K filed by the Company with the Commission on February 8, 2000.
16
<PAGE>
The Company engaged Grant Thornton LLP as its new independent accountants as
of February 1, 2000. The engagement was approved by the Audit Committee of the
Company's Board of Directors. During the two most recent fiscal years and the
interim period through February 1, 2000, the Company did not consult with
Grant Thornton LLP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed, (ii) the
type of audit opinion that might be rendered on the Company's financial
statements, or (iii) any matter that was either the subject of a disagreement,
as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the
related instructions to Item 304 of Regulation S-K, or a reportable event, as
that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Although the Corporation is not required to submit the ratification and
approval of the selection of its accountants to a vote of stockholders, the
Board of Directors believes it is sound policy and in the best interests of
the stockholders to do so. In the event that ratification of the appointment
of Grant Thornton LLP as the Company's independent public accountants is not
obtained at the Annual Meeting, the Board will reconsider its appointment.
Representatives of Grant Thornton LLP will be present at the meeting and will
have an opportunity to make a statement if they desire to do so. They will be
available to respond to appropriate questions.
Vote Required For Approval
A quorum being present, the affirmative vote of a majority of the votes cast
affirmatively or negatively is necessary to ratify the appointment of the
independent public accountants.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons
who own more than 10% of Company's outstanding shares of Common Stock, to file
reports of ownership and changes in ownership with the Commission and The
Nasdaq Stock Market. Officers, directors and greater than 10% shareholders are
required by applicable regulations to furnish the Company with copies of all
reports filed by such persons pursuant to Section 16(a) of the Exchange Act
and the rules and regulations promulgated thereunder. Based solely on its
review of the copies of such reports received by it, the Company believes that
for the fiscal year ended December 31, 1999, all filing requirements
applicable to its officers, directors and such 10% beneficial owners were
complied with, except that one report for Jyoti Prakash, relating becoming a
reporting person and one report for Leonard Baum, relating to one transaction,
were inadvertently not filed on a timely basis. As of the date of this proxy
statement all such reports have since been filed.
17
<PAGE>
OTHER MATTERS
Independent Public Accountants
The accounting firm of PricewaterhouseCoopers LLP served as the Company's
independent public accountants during 1999 and resigned as the Company's
independent public accountants in February 2000. Grant Thornton LLP was
appointed as the Company's independent public accountants in February 2000 and
is expected to continue to do so for fiscal year 2000. A representative of
Grant Thornton LLP is expected to be present at the Annual Meeting, will be
given an opportunity to make a statement if he or she so desires and will be
available to respond to appropriate questions.
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 2001 Annual Meeting of
Stockholders must be received by the Company on or before January 24, 2001 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 2001
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 24, 2001, nor prior to March 25, 2001, together
with all supporting documentation required by the Company's By-laws.
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 1999
(INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO), WHICH WAS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000, WILL BE PROVIDED
WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT IS MAILED UPON THE
WRITTEN REQUEST OF ANY SUCH PERSON TO DOUGLAS ZACCARO, CHIEF FINANCIAL
OFFICER, SEGUE SOFTWARE, INC., 201 SPRING STREET, LEXINGTON, MASSACHUSETTS
02421.
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
Lexington, Massachusetts
May 24, 2000
18
<PAGE>
SEGUE SOFTWARE, INC.
201 Spring Street
Lexington, Massachusetts 02421
Proxy for Annual Meeting of Stockholders
To be held June 23, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen B. Butler, Douglas Zaccaro 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 May 22, 2000, at the 2000 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 23, 2000 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 1999 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. In their
discretion, the Proxies are each authorized to vote upon such other business as
may properly come before the Annual Meeting and any adjournment or postponement
thereof. 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, John
R. Levine, Howard L. Morgan and Jyoti Prakash as directors of the Company, to
hold office until the 2001 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
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
<PAGE>
2. To approve an amendment to the Company's 1996 Employee Stock Purchase Plan,
as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve an amendment to the Company's 1996 Amended and Restated Incentive
and Non-Qualified Stock Option Plan, as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To ratify the appointment of Grant Thornton LLP as the Company's independent
public accountants for the fiscal year ending December 31, 2000.
[_] 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.
