<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Section 240.14a-11(c) or
Section 240.14a-12
Software Spectrum, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ 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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 15, 1996
TO THE SHAREHOLDERS OF SOFTWARE SPECTRUM, INC.
The Annual Meeting of Shareholders of Software Spectrum, Inc. (the
"Company") will be held on Thursday, August 15, 1996, at 10:00 a.m., Central
time, at the Company's offices located at 2140 Merritt Drive, Garland, Texas,
for the following purposes:
1. To elect a director to serve for a period of three
years and until his successor shall have been elected and qualified;
2. To amend the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock to
20,000,000; and
3. To transact such other business as may properly come
before the meeting or any adjournment(s) thereof.
Information regarding the matters to be acted upon at the annual
meeting is contained in the Proxy Statement attached to this Notice.
Only shareholders of record at the close of business on June 26, 1996
are entitled to notice of, and to vote at, such meeting or any adjournment(s)
thereof. A complete list of the shareholders entitled to vote at the meeting
will be open to the examination of any shareholder, for any purpose germane to
the meeting, during ordinary business hours for a period of 10 days prior to
the meeting at the corporate offices of the Company, 2140 Merritt Drive,
Garland, Texas 75041.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
DEBORAH A. NUGENT
Secretary
Dallas, Texas
July 3, 1996
<PAGE> 3
SOFTWARE SPECTRUM, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 15, 1996
SOLICITATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Software Spectrum, Inc. (the "Company") for use at the Annual
Meeting of Shareholders of the Company (the "Annual Meeting") to be held on
Thursday, August 15, 1996, at 10:00 a.m., Central time and at any
adjournment(s) thereof. Solicitation of proxies may be made in person or by
mail, telephone or telegram by directors, officers, employees, or other
authorized designees of the Company. The Company may also request banking
institutions, brokerage firms, custodians, trustees, nominees and fiduciaries
to forward solicitation material to the beneficial owners of Common Stock held
of record by such persons, and the Company will reimburse the forwarding
expense. All reasonable costs of preparing, printing, assembling and mailing
the form of proxy and the material used in the solicitation thereof and all
clerical and other expenses of solicitation will be paid by the Company. The
firm of Georgeson & Company, Inc. has been retained by the Company to assist in
the solicitation of proxies for the Annual Meeting at an estimated cost of
$6,500 plus direct out-of-pocket expenses. The approximate date on which this
Proxy Statement and form of proxy were first sent to shareholders is July 3,
1996.
The purpose of the Annual Meeting and the matters to be acted upon are
set forth in the foregoing attached Notice of Annual Meeting of Shareholders.
As of the date of this Proxy Statement, the Board of Directors knows of no
other business that will be presented for consideration at the Annual Meeting.
However, if any such other business shall properly come before the Annual
Meeting, votes will be cast pursuant to said proxies in respect of any such
other business in accordance with the judgment of the persons acting under said
proxies.
RECORD DATE AND VOTING RIGHTS
Only shareholders of record at the close of business on June 26, 1996
will be entitled to vote on matters presented at the Annual Meeting or any
adjournment thereof. The stock transfer books will not be closed. At the
record date, there were outstanding and entitled to be voted 4,357,441 shares
of common stock, $.01 par value, of the Company ("Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of the Common Stock of the Company entitled to vote is
necessary to constitute a quorum at the meeting. If a quorum is not present or
represented at the meeting, the shareholders entitled to vote thereat, present
in person or represented by proxy, have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present or represented. Abstentions and broker non-votes (when a
broker holding shares for clients in street name is not permitted to vote on
certain matters without the client's instructions) are counted for purposes of
determining the presence or absence of a quorum for the transaction of
business; however, abstentions and broker non- votes are not counted in the
election of directors and will have no effect in determining whether a proposal
is approved, however, on matters other than the election of directors,
abstentions will be counted as votes cast, which will have the same effect as a
negative vote on such matter.
On all matters submitted to a vote at the Annual Meeting, or any
adjournment(s) thereof, each holder of Common Stock will be entitled to one
vote, in person or by proxy, for each share of stock owned of record at the
close of business on June 26, 1996. Cumulative voting for directors is not
permitted.
<PAGE> 4
A shareholder giving a proxy pursuant to the present solicitation may
revoke it at any time before it is exercised by giving a subsequent proxy or by
delivering to the Secretary of the Company a written notice of revocation prior
to the voting of the proxy at the Annual Meeting. No proxy will be used if the
shareholder is personally present at the Annual Meeting and expresses a desire
to vote his shares in person.
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth as of June 15, 1996, except as noted
below, information as to the beneficial ownership of the Common Stock by each
person known by the Company to beneficially own more than 5% of the outstanding
Common Stock.
<TABLE>
<CAPTION>
Name and Address Shares Percent
of Beneficial Owner Beneficially Owned(1) of Class
- ------------------- --------------------- --------
<S> <C> <C>
Judy O. Sims(2) 379,432(7) 8.61%
Richard G. Sims(2) 379,432(8) 8.61
Frank Tindle(3) 251,277(9) 5.76
Private Capital Management, Inc. 646,554(10) 14.84
and Bruce S. Sherman(4)
Wellington Management Company(5) 347,500(11) 7.97
Strong Capital Management, Inc. 281,000(12) 6.45
and Richard S. Strong(6)
</TABLE>
___________________________
(1) Unless otherwise indicated, to the knowledge of the Company, all
shares are owned directly and the owner has sole voting and investment
power.
(2) The named person's address is 2140 Merritt Drive, Garland, Texas
75041.
(3) The named person's address is One Waterford Estate, Athens, Texas
75751.
(4) The named person's address is 3003 Tamiami Trail North, Naples,
Florida 33940.
(5) The named person's address is 75 State Street, Boston, Massachusetts
02109.
(6) The named person's address is 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051.
(7) Includes 13,668 shares owned of record by the named person's spouse,
27,000 shares which are subject to options held by the named person
and 21,000 shares which are subject to options held by the named
person's spouse, all of which are exercisable within 60 days of June
15, 1996.
(8) Includes 317,764 shares owned of record by the named person's spouse,
21,000 shares which are subject to options held by the named person
and 27,000 shares which are subject to options held by the named
person's spouse, all of which are exercisable within 60 days of June
15, 1996.
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<PAGE> 5
(9) All of such shares are jointly held by Mr. Tindle and his spouse as
tenants-in-common, and Mr. Tindle has shared investment and voting
power with respect thereto. Includes 3,000 shares, all of which are
subject to presently exercisable options.
(10) This information is based on Amendment No. 2 to the Schedule 13G of
Private Capital Management, Inc. ("PCM"), SPS Partners, L.P. ("SPS"),
Bruce S. Sherman and certain other persons dated February 12, 1996.
Mr. Sherman is president of PCM and the managing general partner of
SPS and exercises shared dispositive power with each such entity.
(11) This information is based on Amendment No. 2 to the Schedule 13G of
Wellington Management Company dated February 9, 1996.
(12) This information is based on Amendment No. 4 to the Schedule 13G of
Strong Capital Management, Inc. and Richard S. Strong dated February
13, 1996.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of June 15, 1996 information as to
the beneficial ownership of Common Stock by each director and nominee (except
Ms. Sims and Messrs. Sims and Tindle, whose holdings are shown in the preceding
table) and each of the chief executive officer and the other four most highly
compensated executive officers of the Company (other than Ms. Sims and Mr.
Sims), and by all directors and executive officers as a group (including Ms.
Sims and Messrs. Sims and Tindle).
<TABLE>
<CAPTION>
Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Class
- ------------------------ ------------------ --------
<S> <C> <C>
Mellon C. Baird, Director 5,000(2) *
Keith R. Coogan, Executive Vice President -
Chief Operating Officer 19,882(3) *
Robert D. Graham, Director 5,203(2) *
Roger J. King, Vice President of Sales 34,419(4) *
and Marketing
Robert B. Mercer, Vice President -
Chief Information Officer 8,253(5) *
All directors and executive officers
as a group (10 persons) 725,045 16.21%
</TABLE>
__________________________________
* Indicates less than one percent.
(1) Unless otherwise indicated, to the knowledge of the Company, all
shares are owned directly and the owner has sole voting and investment
power.
(2) Includes 5,000 shares which are subject to presently exercisable
options.
(3) Includes 15,000 shares which are subject to options exercisable within
60 days of June 15, 1996.
-3-
<PAGE> 6
(4) Includes 15,000 shares which are subject to options exercisable within
60 days of June 15, 1996.
(5) Includes 8,000 shares which are subject to options exercisable within
60 days of June 15, 1996.
ACTION TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and
returned will be voted at the Annual Meeting and any adjournment(s) thereof and
will be voted, unless the person giving the proxy specifies otherwise, (1) for
the election of the individual named below as nominee for election as a
director of the Company, to serve for a period of three years and until his
successor is elected and qualified; (2) for the proposal to amend the Company's
Articles of Incorporation to increase the number of authorized shares of Common
Stock to 20,000,000; and (3) in the transaction of such other business as may
properly come before the Annual Meeting or any adjournment(s) thereof.
Management knows of no matters, other than the foregoing, to be
presented for consideration at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournment(s) thereof,
it is the intention of the persons named in the enclosed proxy to vote such
proxy in accordance with their judgment on any such matters.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of six
directorships and is divided into three classes. The term of the first class
expires at the 1996 Annual Meeting of Shareholders, the term of the second
class expires at the 1997 Annual Meeting of Shareholders, and the term of the
third class expires at the 1998 Annual Meeting of Shareholders.
One director will be elected at the Annual Meeting. The director to
be elected at the Annual Meeting will hold office for a term of three years and
will serve until his successor is elected and qualified. Proxies cannot be
voted for more than one nominee.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, any director or directors may
be removed from office at any time, but only by the affirmative vote of (i) the
holders of at least two-thirds of the voting power of the then outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class, or (ii) a majority of
the members of the Board then serving. The person named below is the Board of
Director's nominee for election as a director of the Company. The nominee
presently is a director of the Company and has served as such since the date of
election indicated. Further information with respect to such nominee and the
other directors continuing in office is set forth below.
Should the nominee named herein for the office of director become
unwilling to accept nomination or election, it is intended that the persons
acting under the proxy will vote for the election, in his stead, of such other
person as the Board of Directors of the Company may recommend. The Board of
Directors has no reason to believe that the nominee will be unable or unwilling
to serve if elected.
The vote of a majority of the shares entitled to vote on the election
of directors and represented in person or by proxy at the Annual Meeting is
required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEE.
-4-
<PAGE> 7
NOMINEE FOR DIRECTOR
Term expires in 1996
Richard G. Sims, age 42, is a co-founder of the Company and has been a
director of the Company since 1983. In April 1996, Mr. Sims assumed the
position of Senior Vice President with responsibility for the Company's
Asia/Pacific expansion and operations. He is also integrally involved with
internal information systems design. From 1983 to March 1996, Mr. Sims served
as President of the Company. From 1980 to 1983, Mr. Sims served as controller
for International Power Machines ("IPM"), a publicly-held manufacturer of
uninterruptable power supply systems for mainframe computers. Prior to joining
IPM, Mr. Sims served as controller for Sue Ann, Inc., a publicly-held women's
sportswear manufacturer, and as a staff accountant for Coopers & Lybrand LLP.
Mr. Sims is a Certified Public Accountant. Mr. Sims is married to Judy Sims.
There is currently a vacancy in this class of directors. The Board of
Directors is seeking an appropriate candidate to fill this vacancy.
DIRECTORS CONTINUING IN OFFICE
Term expires in 1997
Judy O. Sims, age 43, is a co-founder of the Company and has been a
director of the Company since its inception in 1983. Ms. Sims served as
Treasurer of the Company from 1983 to October 1990 and as Vice President from
April 1987 to April 1988, and has served as Chief Executive Officer since April
1988 and Chairman of the Board since July 1992. In April 1996, Ms. Sims also
assumed the title of President of the Company. Ms. Sims was employed by the
national accounting firm of Grant Thornton LLP from 1977 to 1985, where she
last served as an audit partner. Prior to joining Grant Thornton LLP, Ms. Sims
was employed by the national accounting firm of Coopers & Lybrand LLP. Ms.
Sims is a Certified Public Accountant. Ms. Sims is married to Richard Sims.
Frank Tindle, age 44, is a co-founder of the Company and has been a
director of the Company since 1983. From 1983 to April 1992, Mr. Tindle served
as Vice President of the Company. From 1980 to 1983, Mr. Tindle was the
principal accounting officer of Southmark Corporation. Prior to joining
Southmark, Mr. Tindle was employed by the national accounting firms of Grant
Thornton LLP and Ernst & Young LLP. Mr. Tindle is a Certified Public
Accountant.
Term expires in 1998
Mellon C. Baird, age 65, has been a director of the Company since June
1991. Mr. Baird has been President and Chief Executive Officer of Delfin
Systems since November 1990, and Chairman of the Board since April 1991.
Delfin Systems is a privately-held developer and supplier of information
systems, products and services for government and commercial markets. Mr.
Baird also serves as a director of EDO Corporation. From September 1986 to
December 1987, Mr. Baird served as President, Chief Operating Officer and a
director of Tracor, Inc., and from January 1988, after Tracor, Inc. became a
subsidiary of privately-held Westmark Systems, Inc., until December 1989, he
served as President and Chief Executive Officer of this diversified
technological products and services company. Mr. Baird served as President of
the Defense and Electronics Group of Eaton Corporation from 1982 to September
1986.
Robert D. Graham, age 41, has been a director of the Company since May
1991. Mr. Graham is a shareholder in the law firm of Locke Purnell Rain
Harrell (A Professional Corporation), counsel to the Company, where he has been
employed since 1980.
MEETINGS AND COMMITTEES OF BOARD OF DIRECTORS
The Board of Directors of the Company has an Audit Committee which is
currently composed of Messrs. Baird and Graham. The Committee held two
meetings during fiscal year 1996. The functions
-5-
<PAGE> 8
performed by the Audit Committee include (i) making recommendations concerning
the Company's independent auditors, (ii) reviewing and approving the scope of
the annual audit plan for the Company and (iii) periodically interviewing the
Company's independent public accountants in order to analyze the strengths and
weaknesses of the Company's financial staff and systems and the adequacy of its
internal controls.
The Board of Directors of the Company has a Compensation Committee
which is currently composed of Messrs. Tindle and Baird. The Committee held
three meetings during fiscal year 1996. The functions performed by the
Compensation Committee include (i) periodically establishing the compensation
paid to officers of the Company and reporting its determinations to the Board
of Directors concerning such compensation and (ii) administering the Company's
1993 Long Term Incentive Plan.
The Company's Board of Directors held seven meetings during fiscal
year 1996 and acted by written consent on three occasions. Each director
attended during the year at least 75% of the aggregate of (i) the total number
of meetings held by the Board and (ii) the total number of meetings held by all
committees on which he served.
-6-
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table shows all cash compensation paid by the Company
during the fiscal years ended March 31, 1996, 1995, and 1994 to the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company (the "Named Officers").
<TABLE>
<CAPTION>
=================================================================================================
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-----------------------------------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS ($) OPTIONS (#) COMPENSATION($)(1)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Judy O. Sims 1996 300,000 125,000 20,000 2,745
Chairman of the 1995 215,000 145,000 20,000 4,408
Board, Chief 1994 180,000 97,750 25,000 7,742
Executive Officer
and President
Richard G. Sims 1996 215,000 90,625 15,000 2,534
Senior Vice 1995 190,000 126,000 15,000 4,235
President 1994 165,000 93,500 20,000 7,471
Roger J. King 1996 145,000 91,073 10,000 32,547(3)
Vice President of 1995 136,000 95,499 10,000 72,345(3)
Sales and Marketing 1994 130,000 72,197 15,000 11,943
Keith R. Coogan 1996 162,500 63,566 10,000 5,279
Executive Vice 1995 130,000 68,273 10,000 6,422
President - Chief 1994 120,000 54,775 15,000 10,186
Operating Officer
Robert B. Mercer 1996 129,000 42,625 10,000 2,640
Vice President - 1995 123,000 53,000 5,000 34,278(4)
Chief Information 1994 27,000 12,797 10,000 -0-
Officer(2)
=================================================================================================
</TABLE>
(1) Except as otherwise noted, principally represents amounts accrued for
the Named Officers under the Company's Savings and Profit Sharing
Plan.
(2) Mr. Mercer joined the Company in January 1994.
(3) Includes approximately $27,000 and $65,000 in 1996 and 1995,
respectively, in payments associated with Mr. King's temporary
relocation and assignment to The Netherlands.
(4) Represents relocation costs reimbursed by the Company.
-7-
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of
stock options during the fiscal year ended March 31, 1996 to the Named
Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION FOR>OPTION TERM
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------- ---------- -------------------- -------------- ----------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Judy O. Sims 20,000 16.5% $17.25 5/25/01 $117,000 $266,000
Richard G. Sims 15,000 12.4 17.25 5/25/01 88,000 200,000
Roger J. King 10,000 8.2 17.25 5/25/01 59,000 133,000
Keith R. Coogan 10,000 8.2 17.25 5/25/01 59,000 133,000
Robert B. Mercer 10,000 8.2 17.25 5/25/01 59,000 133,000
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth information regarding the exercise of
stock options during the fiscal year ended March 31, 1996 by the Named Officers
and the estimated values of unexercised options held by such individuals at
fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)
----------------------------- ----------------------
SHARES
ACQUIRED ON VALUE UNEXER- UNEXER-
EXERCISE (#) REALIZED EXERCISABLE CISABLE EXERCISABLE CISABLE
------------ -------- ----------- ------- ----------- -------
($)
---
<S> <C> <C> <C> <C> <C> <C>
Judy O. Sims -0- -0- 14,000 51,000 $33,000 $192,000
Richard G. Sims -0- -0- 11,000 39,000 24,750 144,000
Roger J. King 20,325 431,906 8,000 27,000 16,500 96,000
Keith R. Coogan -0- -0- 8,000 27,000 16,500 96,000
Robert B. Mercer -0- -0- 5,000 20,000 25,250 88,500
</TABLE>
COMPENSATION OF DIRECTORS
The Company pays each outside director an annual retainer of $15,000,
payable in quarterly installments for their service as a member of the Board of
Directors. Pursuant to the Non-Employee Directors' Retainer Stock Plan, the
outside directors may elect to receive all or a portion of their annual
retainer fees in the form of Common Stock of the Company, or to defer receipt
of a portion of such fees and have the deferred amounts treated as if invested
in Common Stock.
The Company also pays each outside director a fee of $1,000 for
attendance at each meeting of the Board of Directors, and $800 for each
committee meeting attended. In addition, the Company in the past has granted
to each of its non-employee directors options to purchase 1,000 shares of
Common Stock for each year of service, exercisable at the fair market value of
the Common Stock on the date of grant. Such options are granted under the
Company's 1993 Long Term Incentive Plan. The Company plans to increase to
2,000 the number of shares subject to options to be granted annually under the
terms of the Company's 1993 Long Term Incentive Plan to each non-employee
director, for each year of service as a director. The Company's outside
directors are reimbursed by the Company for their travel expenses incurred in
connection with their attendance at meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank Tindle, who serves as a member of the Compensation Committee of
the Board of Directors, served as Vice President of the Company from 1983
through April 1, 1992.
-8-
<PAGE> 11
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission reports of ownership and changes in
ownership of Common Stock of the Company. Executive officers, directors and
greater than ten-percent shareholders are required by regulations of the SEC to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1996, all Section
16(a) filing requirements applicable to its executive officers, directors and
greater than ten-percent beneficial owners were observed.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is currently composed of two outside directors of the Company. The Committee
establishes salary levels and performance pay plans for executive officers and
reports its determination to the Board of Directors. The Committee also
administers the Company's 1993 Long Term Incentive Plan and determines grants
under it for all employees including executive officers. Prior to the adoption
of the 1993 Long Term Incentive Plan in August 1993, the Committee received
recommendations from the Stock Option Committee regarding those executive
officers who were eligible for grants under the Company's 1989 Stock Option
Plan.
Compensation Philosophy
The compensation philosophy for executive officers generally conforms to
the compensation philosophy of the Company for all employees. The Company's
compensation is designed to:
o provide compensation comparable to that offered by companies
with similar businesses or of similar size, allowing the
Company to successfully attract and retain the employees
necessary to its long-term success;
o provide compensation which relates to the performance of the
individual and differentiates based upon individual
performance;
o provide incentive compensation that varies directly with both
Company performance and individual contribution to that
performance; and
o provide an appropriate linkage between compensation and the
creation of shareholder value through awards tied to the
Company's performance and through facilitating employee stock
ownership.
The following is a report submitted by the Committee addressing the
Company's compensation policies as they relate to the Company's executive
officers for the fiscal year ended March 31, 1996.
In setting compensation for executive officers, the Committee attempts
to strike a balance in the relationship between executive pay and the
enhancement of shareholder value, while at the same time motivating and
retaining key employees. Further, the Committee operates within the overall
philosophy of the Company, which stresses teamwork, fairness, and the overall
emphasis on cost control, which includes compensation expense. To achieve the
basic goals of the Company's compensation policies, the Committee establishes
annual compensation for each of the executive officers, including base salary,
discretionary quarterly performance pay plans for all executive officers other
than the CEO and Senior Vice President, and a discretionary annual performance
pay plan for all executive officers. The Committee receives recommendations
from the Chief Executive Officer ("CEO") concerning base salary, performance
pay plans
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<PAGE> 12
and grants under the 1993 Long Term Incentive Plan for all executive officers
other than the CEO and Senior Vice President. The compensation of the CEO and
the Senior Vice President is based in part on the Company's financial
performance, although there remains a large degree of subjectivity exercised by
the Committee in setting the CEO's and Senior Vice President's salary and
incentive compensation.
The Committee establishes the compensation for the executive officers by
also considering the salaries and other benefits, including stock-based
incentive grants, of executive officers in comparable companies according to
data obtained by the Committee from independent sources. The Committee
believes that an individual officer's personal performance as well as the
Company's financial performance should be appropriately weighted in determining
compensation for executive officers. Consequently, the discretionary
performance pay plans are significant components of the overall compensation of
each executive officer of the Company.
The discretionary quarterly performance pay plan, which is applicable to
all executive officers except the CEO and the Senior Vice President, relates to
the executive's ability to achieve certain objectives during each quarter of
the Company's fiscal year. This performance payment is paid quarterly, and is
dependent upon the executive's ability to achieve the particular goals
established for that individual as evaluated by either the CEO or Executive
Vice President. Additionally, the Company's Vice President of Sales and
Marketing and Vice President of Customer Operations are subject to a quarterly
performance pay plan dependent upon the Company's attainment of specified gross
profit goals during each quarter of the fiscal year.
The discretionary annual performance pay plan, which is applicable to
all executive officers including the CEO and the Senior Vice President,
includes two components, an individual performance component for each officer
and an overall Company financial performance component. The individual
performance component is weighted towards a subjective evaluation by the
Committee, with the input and advice of the CEO for all executive officers
other than the CEO and Senior Vice President, relating to each individual's
performance in his or her position with the Company. The subjective individual
performance component of these discretionary payments reflects various
criteria, including the performance of those departments under the management
of the officer and effective implementation and achievement of strategic goals.
The component of the discretionary annual performance pay plan that is
based upon the Company's financial performance is calculated by comparing the
Company's financial results during the year with previously determined,
internally established financial goals. The financial goals are established by
the Committee at the beginning of the fiscal year by taking into consideration
the Company's prior financial performance, current established financial
objectives, the performance of other companies within the Company's industry
and recommendations from the CEO. The Committee considers the Company's net
earnings, earnings per share and revenue growth in establishing financial
goals. Fifty percent of the total incentive compensation available under the
discretionary annual compensation plan for the fiscal year 1996 was tied
directly to the Company's financial performance and growth. In the fiscal year
1996, the Company achieved less than 100% of its financial performance and
growth goals and, as a result, the Committee accordingly reduced payments of
the financial incentive compensation component of the discretionary performance
plan to each executive officer including the CEO and Senior Vice President.
The Committee believes that incentives based upon the Company's stock
performance are an important component of each of the executive officer's
overall compensation package. The Committee believes that the number of stock
options to be granted to each officer should be determined by a subjective
evaluation of each executive officer's ability to influence the Company's
long-term growth and profitability. During fiscal 1996, the Committee
recommended and the Company granted options to the executive officers as set
forth in the Executive Compensation Table herein. Since the value of an option
bears directly to the Company's stock price, the committee believes that option
grants are an effective incentive for executive officers to create value for
the shareholders.
Mellon C. Baird and Frank Tindle
-10-
<PAGE> 13
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative
total return of the Company's Common Stock, the Nasdaq National Market (U.S.
Companies) and an index of Nasdaq Stocks under SIC 504, a broad index including
Computers, Computer Peripherals and Software, prepared by the University of
Chicago's Center for Research in Security Prices. The graph assumes an initial
investment of $100 on July 12, 1991, the date the Company's Common Stock began
trading on the Nasdaq National Market System and the reinvestment of dividends,
if any.
[GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Software Spectrum, Inc. 180.9 200.0 127.7 142.6 172.3
- --------------------------------------------------------------------------------
NASDAQ Stock Market - (U.S.) 124.3 142.8 154.2 171.9 232.9
- --------------------------------------------------------------------------------
NASDAQ Stocks - SIC 504 173.0 166.8 172.4 140.0 174.1
- --------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 14
PROPOSAL 2
PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION
The Restated Articles of Incorporation of the Company presently
authorize the issuance of 10,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock. At June 26, 1996, 4,357,441 shares of the Company's
Common Stock were issued and outstanding and no shares of Preferred Stock were
issued and outstanding. In 1989, the Board of Directors of the Company
authorized for issuance 600,000 shares of Series A Preferred Stock, none of
which are currently outstanding. Pursuant to the terms of the Series A
Preferred Stock, the shares of Series A Preferred Stock previously issued were
not available for reissuance by the Company. In June 1996, the Company
eliminated the Series A Preferred Stock and the 600,000 shares designated for
such Series resumed the status of authorized but unissued Preferred Stock.
The proposed amendment to Article Four of the Restated Articles of
Incorporation would increase the number of authorized shares of Common Stock
from 10,000,000 to 20,000,000. The full text of Article Four as proposed to be
amended is set forth in Appendix A to this Proxy Statement.
If the proposed amendment to Article Four is adopted, the additional
shares of Common Stock will be available for issuance from time to time at the
discretion of the Board of Directors for various corporate purposes and on such
terms and conditions as the Board of Directors, in its discretion, might then
determine, without future action by the shareholders.
The Board of Directors believes that the increased number of authorized
shares are necessary to give the flexibility required to meet future needs of
the Company. The Company has no arrangements, agreements or understandings at
the present time for the issuance or use of the additional shares of stock to
be authorized in connection with acquisitions or otherwise. However, the Board
of Directors believes that it would be advantageous to the Company to have such
additional shares available for issuance to meet possible future requirements,
without the expense and delay of calling a special meeting of the shareholders
to secure authorization each time a specific need arises. The issuance by the
Company of additional shares of stock may, depending upon the context in which
they are issued, dilute the stock ownership of the existing shareholders of the
Company. In addition, the issuance of additional shares could have the effect
of making it more difficult to acquire a majority of the outstanding stock of
the Company.
The proposed amendment to Article Four of the Company's Restated
Articles of Incorporation will be adopted if it receives the affirmative vote
of the holders of two-thirds of the shares of the Company's Common Stock
outstanding and entitled to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION.
-12-
<PAGE> 15
CERTIFIED PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended March 31,
1996 have been audited by Grant Thornton LLP, independent auditors ("Grant
Thornton"), and the Board of Directors has selected Grant Thornton to audit and
report on the financial statements of the Company for the current fiscal year,
which will end on March 31, 1997. A representative of Grant Thornton is
expected to be present at the Annual Meeting with an opportunity to make a
statement, and such representative is expected to be available to respond to
appropriate questions.
On June 11, 1994, the Company dismissed its prior independent
accountants, Coopers & Lybrand LLP ("C&L") and retained Grant Thornton as its
new independent accountants. C&L's reports on the Company's financial
statements for the fiscal years ended March 31, 1993 and March 31, 1992
contained no adverse opinion or a disclaimer of opinion, and were not qualified
or modified in any respect. The decision to change accountants was approved by
the Company's Audit Committee and its Board of Directors.
The Company was notified by C&L on the evening of May 16, 1994, that C&L
needed additional time to complete its audit procedures. At that time, C&L
also requested an attorney's letter concerning legal release of liabilities.
As a result, the Company's scheduled May 17, 1994 announcement of its financial
results for the fiscal year ended March 31, 1994 was delayed. During the
subsequent weeks, C&L continued to work on completing its audit and had been in
discussions with the Company concerning the appropriate accounting treatment
relating to certain credits recorded primarily to sales and cost of sales
during the fiscal year ended March 31, 1994. At a meeting between the Company
and C&L on May 31, 1994, C&L suggested that the Company might want to review
with another independent accounting firm the appropriate accounting treatment
for these credits. On June 1, 1994, the Company retained Grant Thornton to
analyze the accounting issues relating to these credit items. On June 2, 1994,
Grant Thornton met privately with C&L to ensure there was a mutual
understanding of the facts and circumstances relative to the credit items. On
June 6, 1994, Grant Thornton met again with C&L to review and discuss the
appropriate accounting treatment for these items. After further research,
discussion and consultation, the Company determined that it disagreed with
C&L's position. On June 11, 1994, the Company's Audit Committee met with C&L
to review the accounting issues relating to these credit items. Following this
meeting, C&L was dismissed from its engagement as the auditors for the Company
and the Company engaged Grant Thornton. The Company authorized C&L to respond
fully to all inquiries of Grant Thornton including those related to the subject
matter of the disagreement.
The Company disagreed with the position C&L took regarding the proper
accounting treatment for certain credit items arising from inventory and
receivables activity. C&L took the position that certain credit items recorded
on the Company's balance sheet represented liabilities and therefore could not
be removed from the balance sheet and recorded to the income statement until
the statute of limitations expires or there is a legal release, regardless of
the remote possibility that the Company would be required to utilize its assets
to pay future claims. C&L indicated that it had relied on SFAS No. 76 to
determine the appropriate accounting treatment of these credits arising from
inventory and receivable activity. While C&L did not complete its audit
procedures, C&L indicated that application of its approach to accounting for
these credit items would result in an estimated reduction of net income for the
nine months ended December 31, 1993 of approximately $300,000 - $600,000 and
might require restatement of quarterly financial information as well as changes
in disclosure.
The Company's accounting practice has been to record these credit items
as payables at the time they arise. The Company's experience has been that
when these items reach a certain age, they will not result in a probable future
transfer or use of assets and therefore do not represent liabilities.
Accordingly, the Company has concluded the excess credits should be removed
from the balance sheet. During the quarter ended June 30, 1993, the Company
refined its methodology and applied a more objective, systematic approach to
eliminating these excess credits from the balance sheet and recording them to
the income statement. Previously, the Company made periodic determinations to
take these excess credit items into income.
-13-
<PAGE> 16
Grant Thornton advised the Company orally that it was of the opinion
that the Company's treatment of these items was in accordance with generally
accepted accounting principles. Grant Thornton reviewed the above information
and advised the Company that it did not have any new information or
clarification of the Company's views and it agreed with the foregoing
statements made by the Company.
In response to the Company's request, C&L provided the Company with a
letter addressed to the Securities and Exchange Commission stating that in
C&L's judgment the Company did not correctly account for the foregoing credits
in three principal respects. First, C&L stated that the Company should not
have recorded the credits as income until they had been legally released and it
was improbable that the Company would make payments on these credits. C&L
stated that at the time of its dismissal the Company had not provided it with
sufficient competent evidential matter to demonstrate that all of the credits
recognized in the first three quarters and proposed for the fourth quarter had
been legally released and that C&L was not persuaded that payments would not be
made by the Company. Second, C&L stated that in its fiscal 1994 Form 10-Qs the
Company did not disclose the amount or nature of these credits included in
income. In C&L's opinion, the Company should have separately set forth these
items in its income statement, as well as disclosed the nature of these items
in the footnotes and management's discussion and analysis section of its
quarterly reports. Finally, C&L stated that in its view the Company should
have taken these credits into income only at the time the Company had been
legally released from all liability and it was improbable that the Company
would make payments on them. C&L considered it inappropriate under generally
accepted accounting principles for the Company to have taken these items into
income in any other manner. C&L stated that on May 16, 1994 it advised the
Company that it should document the legal status of these credits in order that
C&L could complete its audit. C&L stated that it advised the Company that it
would require a legal opinion that the amounts taken to income in fiscal 1994
had been legally released.
C&L stated it agreed with the Company's statements with respect to its
financial statements and C&L's reports thereon for the fiscal years 1993 and
1992.
SHAREHOLDERS' PROPOSALS
Any proposal by a shareholder of the Company intended to be presented at
the 1997 Annual Meeting of Shareholders must be received by the Company at its
principal executive office by March 8, 1997 to be considered for inclusion in
the Company's Proxy Statement and form of proxy. Any such proposal must also
comply with the other requirements of the proxy solicitation rules of the
Securities and Exchange Commission.
ANNUAL REPORT
The Company's 1996 Annual Report to Shareholders is being mailed to all
shareholders of record together herewith.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDING MARCH 31, 1996, UPON THE WRITTEN REQUEST
OF ANY PERSON WHO WAS A SHAREHOLDER (OF RECORD OR BENEFICIALLY) AT THE CLOSE OF
BUSINESS ON JUNE 26, 1996. REQUESTS FOR SUCH REPORT SHOULD BE DIRECTED TO THE
COMPANY AT 2140 MERRITT DRIVE, GARLAND, TEXAS 75041, ATTENTION: DEBORAH A.
NUGENT, VICE PRESIDENT OF FINANCE AND SECRETARY.
-14-
<PAGE> 17
OTHER MATTERS
The Company is not aware of any matters that may come before the
Annual Meeting other than those referred to in the Notice of Annual Meeting of
Shareholders. If any other matters shall properly come before the meeting, the
persons named in the accompanying proxy form intend to vote thereon in
accordance with their best judgment.
By Order of the Board of Directors
DEBORAH A. NUGENT
Secretary
Dallas, Texas
July 3, 1996
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY.
-15-
<PAGE> 18
APPENDIX A
The full text of Article Four of the Restated Articles of
Incorporation is set forth below; however, the amendment modifies only the
first paragraph of the Restated Articles of Incorporation, which is set forth
in italics below. The remaining provisions of Article Four have not been
proposed to be modified or amended.
ARTICLE FOUR
OF THE RESTATED ARTICLES OF
INCORPORATION OF
SOFTWARE SPECTRUM, INC.
The aggregate, number of shares which the Corporation shall have
authority to issue is Twenty-One Million (21,000,000), of which Twenty Million
(20,000,000) shares shall be Common Stock, par value of $.01 per share, and One
Million (1,000,000) shares shall be Preferred Stock, par value of $.01 per
share.
The following is a statement of the existing designations,
preferences, limitations, and relative rights in respect of the shares of each
class of stock of the Corporation:
A. Preferred Stock
Shares of the Preferred Stock of the Corporation may be issued from
time to time in one or more series, the shares of each series to have such
voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional or other special rights, and
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors of the Corporation. The Board of Directors
of the Corporation is hereby expressly authorized, subject to the limitations
provided by law as to variation of rights and preferences as between series of
the same class of stock, to establish and designate series of the Preferred
Stock, to fix the number of shares constituting each series, and fix the
designations and the relative powers, rights, preferences and limitations of
the shares of each series and the variations of the relative powers, rights,
preferences, and limitations as between series, and to increase and to decrease
the number of shares constituting each series.
B. Common Stock
1. Subject to the prior rights and preferences of the Preferred
Stock and subject to the provisions and on the conditions set forth in the
foregoing part A of this Article Four or in any resolution or resolutions
providing for the issue of a series of Preferred Stock, such dividends (payable
in cash, stock or otherwise) as may be determined by the Board of Directors of
the Corporation may be declared and paid on the Common Stock from time to time
out of any funds legally available therefor.
2. The shares of Common Stock shall be fully voting stock at the
rate of one vote for each share of Common Stock held.
3. After payment shall have been made in full to the holders of
the Preferred Stock in the event of any liquidation, dissolution, or winding up
of the affairs of the Corporation, the remaining assets and funds of the
Corporation shall be distributed among the holders of the Common Stock
according to their respective shares.
-16-
<PAGE> 19
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS OF SOFTWARE SPECTRUM, INC.
P ANNUAL MEETING OF SHAREHOLDERS -- AUGUST 15, 1996
R The undersigned hereby appoints Judy O. Sims and Deborah A. Nugent
and each of them with full power of substitution, attorneys, agents and
proxies of the undersigned to vote as directed on the reverse side of
this card the shares of stoack which the undersigned would be entitled
O to vote, if personally present, at the Annual Meeting of Shareholders of
Software Spectrum, Inc. (the "Company") to be held at the offices of the
Company, 2140 Merritt Drive, Garland, Texas, Thursday, August 15, 1996,
at 10:00 a.m. Central time, and at any adjournment or adjournments
X thereof. If more than one of the above attorneys shall be present in
person or by substitution at such meeting or at any adjournment
thereof, both of said attorneys so present and voting, either in person
or by substitution, shall exercise all of the powers hereby given. The
undersigned hereby revokes any proxy or proxies heretofore given to vote
Y upon or act with respect to such shares of stock and hereby ratifies
and confirms all that said attorneys, their substitutes, or any of them,
may lawfully do by virtue hereof.
<PAGE> 20
[X] Please mark your
votes as in this
example
WITHHOLD
FOR AUTHORITY
1. ELECTION OF DIRECTORS: [ ] [ ] Richard G. Sims
2. Amendment to the Company's Articles of Incorporation
FOR AGAINST
the the
Amendment Amendment ABSTAIN
[ ] [ ] [ ]
3. In their discretion on such other matters as may properly come before the
meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1 AND 2.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
SIGNATURE(S)_________________________________________ DATE _______________, 1996
_____________________________________________________ DATE _______________, 1996
Please sign exactly as your name appears on the proxy. If your stock is
jointly owned, both parties must sign. Fiduciaries and representatives should
so indicate when signing, and when more than one is named, a majority should
sign. If signed by a corporation, its seal should be affixed.
