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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _________________
Commission file number 0-19349
SOFTWARE SPECTRUM, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1878002
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 MERRITT DRIVE, GARLAND, TEXAS 75041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 840-6600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value on July 18, 1997 of the Registrant's voting
securities held by non-affiliates was $50,703,247.
At July 18, 1997, the Registrant had outstanding 4,362,314 shares of its Common
Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report on Form
10-K certain of the information contained in the registrant's proxy statement
for its annual meeting of shareholders to be held September 18, 1997, which
will be filed by the registrant within 120 days after April 30, 1997 and in
Part II of this Annual Report certain of the information contained in the
registrant's annual report to shareholders for the fiscal year ended April 30,
1997.
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PART I
ITEM 1. BUSINESS
Software Spectrum, Inc. (the "Company") is a leading worldwide
supplier of personal computer business software and technology services to
organizations. The Company's customers are primarily large entities including
many multinational organizations with a significant number of personal
computers. The Company also sells products and services to mid-tier and small
businesses through its outbound telephone sales organization. The Company
provides its customers with a wide variety of business software products,
volume software licensing services and technology and assists them in the
implementation, deployment and ongoing support of their personal computing
strategies. The Company has established supply arrangements with major personal
computer software publishers, including Microsoft, IBM/Lotus, Novell, Netscape,
Attachmate, Symantec, and Corel. The Company markets software titles for IBM,
IBM-compatible and Macintosh personal computers, including software for all
major operating systems such as Windows, Windows 95, OS/2, DOS, Novell NetWare
and Microsoft Windows NT.
The Company was incorporated under the laws of the State of Texas in
April 1983. The Company's principal facilities and its executive offices are
located at 2140 Merritt Drive, Garland, Texas 75041, and its telephone number
at that location is (972) 840-6600. Except where the context otherwise
requires, the term "Company" as used herein includes Software Spectrum, Inc.
and its subsidiaries.
FORWARD LOOKING INFORMATION
The Company or its representatives from time to time may make or may
have made certain forward-looking statements, whether orally or in writing,
including without limitation any such statements made or to be made in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, press releases and other information contained in its various
filings with the Securities and Exchange Commission. The Company wishes to
ensure that such statements are accompanied by meaningful cautionary
statements, so as to ensure to the fullest extent possible the protections of
the safe harbor established in the Private Securities Litigation Reform Act of
1995. Accordingly, such statements are qualified in their entirety by
reference to and are accompanied by the following discussion of certain
important factors that could cause actual results to differ materially from
those projected in such forward-looking statements. The Company cautions the
reader that this list of factors may not be exhaustive. The Company operates
in a rapidly changing business, and new risk factors emerge from time to time.
Management cannot predict every risk factor, nor can it assess the impact, if
any, of all such risk factors on the Company's business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those projected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results.
Reliance on Financial Incentives, Marketing Funds and Volume Discounts
As part of its supply agreements with certain publishers and
distributors, the Company receives substantial incentives in the form of
rebates, cooperative advertising funds, market development funds and volume
purchase discounts. A reduction or discontinuance of these incentives,
discounts or advertising allowances could have a material adverse effect on the
Company's business and financial results.
Dependence on Vendors
A large percentage of the Company's sales are represented by popular
personal computer business software products from a small number of vendors.
In fiscal 1997, approximately 64% of the Company's net sales were derived from
products published by Microsoft and IBM/Lotus. Most of the Company's contracts
with vendors are terminable by either party, without cause, upon 30 to 60 days'
notice. The loss or significant change of the Company's relationship with
these vendors could have a material adverse effect on the Company's business
and financial results. Although the Company believes the software products
would be available from other parties, the Company may have to obtain such
products on terms that would adversely affect its financial results.
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Volume Licensing and Maintenance Agreements
The Company serves as a designated services provider for volume
licensing and maintenance ("VLM") agreements between many of its customers and
major publishers of personal computer software. VLM agreements are typically
used by customers seeking to standardize desktop software applications and
consequently involve significant quantities of unit sales for each customer.
Although unit volume sales are increased by sales through VLM agreements, lower
gross margins are generally realized on such sales as compared to sales of
full-packaged software products. If the Company continues to experience an
increase in the percentage of sales made pursuant to VLM agreements, overall
gross margin percentages on the sale of software products are likely to
decline.
Economic Conditions and Geographic Expansion
The Company's business is sensitive to the spending patterns of its
customers, which in turn are subject to prevailing economic and business
conditions. Further, sales to large corporations have been important to the
Company's growth and its ability to continue its historic rate of growth is
dependent on its continued success in such market. The Company's geographic
expansion outside the United States in the past few years involves currency
exchange risks, political risks and other risks of conducting business abroad.
Highly Competitive Environment
The desktop technology marketplace is intensely competitive. The
Company faces competition from a wide variety of sources including other
software suppliers, hardware manufacturers and resellers, technology service
providers, personal computer retail stores (including superstores), mail order
and other discount business suppliers and software publishers. Many of the
Company's competitors, particularly software publishers, have substantially
greater financial resources than the Company. Because of the intense
competition within the personal computer software channel, companies that
compete in this market, including the Company, are characterized by low gross
and operating margins. Consequently, the Company's profitability, particularly
during periods of rapid growth, is highly dependent upon effective cost and
management controls.
New Developments and Rapid Technological Change
The market for the Company's products and services is characterized by
rapidly changing technology, evolving industry standards and frequent
introductions of new products and services. The Company's future success will
depend in part on its ability to enhance existing technology services and to
offer new services on a timely basis as well as its ability to attract and
retain skilled technical professionals required to deliver these services.
Additionally, the Company's business results can be adversely affected by
disruptions in customer ordering patterns and the impact of new product
releases.
Changing Methods of Software Distribution
The manner in which personal computer software products are
distributed and sold is continually changing, and new methods of distribution
may emerge or expand. Software publishers may intensify their efforts to sell
their products directly to end-users, including current and potential customers
of the Company. Other products and methodologies for distributing software to
users may be introduced by publishers, present competitors or other third
parties. If personal computer software suppliers' participation in these
programs is reduced or eliminated or if other methods of distribution of
software, which exclude the personal computer software channel become common,
the Company's business and financial results could be materially adversely
affected.
OVERVIEW
The Company is a leader in the personal computer business software
industry focusing on providing personal computer business software and
technology services to organizations. The Company's strategy is to invest in
its infrastructure, both in terms of people and systems, to provide a high
level of customer service while maintaining a cost-efficient operating
structure to enable the Company to competitively price its products. The
Company controls its costs in part by centralizing its administrative support
and customer service operations while utilizing a geographically dispersed
field sales force and technology services staff strategically located in major
business markets. The majority
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of the Company's revenues are derived from sales to large organizations,
including a significant number of multinational entities.
The Company derives revenues from three primary areas including sales
of personal computer and client/server software to large organizations ("Large
Account Sales"), sales of software to mid-tier and small accounts ("Mid-Tier
Sales") and sales of technology services through its Technology Services Group
(the "Technology Services Group").
The largest component of the Company's business is providing personal
computer software, licenses and related services to large organizations with
over 1,000 desktop computers, including a majority of the companies in the
Fortune 500 ("Large Account Sales"). Large Account Sales concentrates on
building and expanding relationships through personal sales contacts made
throughout major global desktop technology markets. The Company's field sales
representatives market not only personal computer software products, but also
the fee-based services available to customers through the Company's Technology
Services Group. Through its strategically located, centralized operations
centers in North America, Europe and Asia/Pacific, the Company supports the
global marketing efforts of the Large Account Sales group.
Mid-Tier Sales serves mid-tier and small businesses that have less
than 1,000 desktop computers through the Company's outbound calling and catalog
sales efforts. At April 30, 1997, this group consisted of approximately 95
people located in Garland, Texas and Spokane, Washington which markets Software
Spectrum's products and services by phone to organizations throughout North
America. In the fiscal year ended April 30, 1997, revenues derived from the
Mid-Tier Sales group accounted for approximately 14% of the Company's revenues.
The Company's home page on the Internet also has an electronic catalog
which can be used by customers to purchase products. For certain large
customers, the Company is currently developing customer specific catalogs which
contain products and prices unique to that customer's purchasing requirements.
The Company's Technology Services Group provides fee-based services,
including consulting, training and support for a number of specific
technologies including advanced networking infrastructure, enterprise messaging
and groupware, distributed client/server application development, enterprise
software management services, and Internet/Intranet services. Technology
Services Group's strategy is to focus on a limited number of technologies to
allow its personnel to develop in depth knowledge to support complex customer
requirements. In fiscal 1997, the Technology Services Group introduced
services to assist customers in determining where and how technology and
products can be implemented to reduce the cost of managing and supporting
enterprise networks. The Technology Services Group also provides fee-based
telephone support services in North America, Europe and Australia. This
service, provided by the Company's Technology Support Center, is utilized by
organizations that choose to outsource their internal help desk function, as
well as by software publishers that desire to outsource their technical support
services. In fiscal 1997, the Company's Technology Support Center business
continued to expand and the Company recently was awarded a contract to support
complex client server products for one of the Company's major suppliers. As of
April 30, 1997, the Company had over 600 consultants and 23 Technology Services
Group offices in North America, Asia/Pacific and Europe. For the year ended
April 30, 1997, the Technology Services Group represented approximately 4% of
the Company's revenues. See "Global Operations" and "Technology Services Group"
below.
The Company adapts its services to specific customer requests,
consults with customers on developing strategies to efficiently manage the
customer's investment in desktop software and hardware and provides accurate
and timely delivery of products. The Company provides its customers with
information, advice and assistance through its marketing, sales and technical
staff on the wide range of software procurement choices available. For
customers electing to standardize desktop software applications or otherwise
take advantage of right-to-copy arrangements, the Company provides volume
licensing and maintenance ("VLM") agreement services and support. Under VLM
agreements, the Company acts as a designated service provider to sell licensing
rights to software that permit customers to make copies of a publisher's
software program from a master diskette and distribute this software within a
customer's organization for a fee for each copy made. Maintenance agreements
entitle customers to all upgrades of certain products during a specified period
of time, typically two years. By utilizing VLM agreements, customers are able
to consolidate their worldwide purchases and acquire software under a single
master agreement for a given publisher from a global supplier such as the
Company. Among its other services, the Company offers on-site consultants for
large
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corporations, training and support of complex technologies, strategic planning
for information systems departments, software selection assistance and
determination of price and availability of hard to find software products.
The Company serves an important role in the software industry by
providing a service-oriented and cost- effective means for personal computer
software publishers to market, sell, distribute and provide support for their
products. The services provided by the Company assist publishers by building
product awareness, marketing products directly on behalf of publishers to
businesses and other organizations, and providing additional technical support
and services for software products. The Company is also instrumental in the
selection, design and implementation of VLM programs for its customers. The
Company believes that maintaining its relationships with major publishers is
important to the Company's future growth and profitability. The Company will
often coordinate product introductions and marketing programs with publishers,
which may involve joint regional product seminars and cross-selling of selected
complementary products. Due to its volume of purchases, the Company believes
it is able to obtain favorable pricing, avail itself of marketing funds
provided by major publishers and work closely with publisher personnel on
various marketing and selling matters such as the introduction of new products,
programs and related service opportunities.
The Company has continued to experience significant growth in the sale
of software to its customers through VLM agreements. For fiscal 1997, sales
through VLM agreements represented approximately 59% of net sales of the
Company, compared to 46% and 36% of net sales for fiscal years 1996 and 1995,
respectively. Since individual software packages and documentation may not be
provided to each user, and due to volume pricing incentives and lower
distribution costs, customers utilizing VLM agreements can purchase licenses
for software at a lower cost than by purchasing individual shrink-wrapped
software packages. In general, the Company receives lower gross margins, as a
percent of sales, on sales made through VLM agreements. The lower gross
margins on sales made pursuant to VLM agreements are partially offset by lower
operating costs associated with such agreements.
In May 1996, the Company acquired from Egghead, Inc., certain
operating assets of Egghead's corporate, government and education division
("CG&E"). During the fiscal year ended April 30, 1997, the Company integrated
the North American sales force of the two organizations, stabilized CG&E's
customer base and expanded its operations to include a call center facility
located in Spokane, Washington, which serves several thousand customers and
also provides Technology Support Center services.
The Company is one of the world's largest providers of personal
computer business software and technology services to organizations. The
Company's customer base includes an expanded group of multinational customers
which should enhance the Company's global growth. Also, the larger customer
base provides additional opportunities for growth of the Technology Services
Group.
GLOBAL OPERATIONS
Under VLM agreements, multinational customers can consolidate their
worldwide volume purchases of software under a single master agreement for a
given publisher. The Company is able to sell software through these VLM
programs globally and this ability has been a key factor that has led to the
Company's global expansion.
The Company's North American operations are based in Garland, Texas
and Spokane, Washington. The Company's European sales headquarters is located
in The Hague, The Netherlands and its operations center is located in Dublin,
Ireland. The Company augmented European operations by establishing a
Technology Services Group office in London, England in 1996 and another
Technology Services Group office in Frankfurt, Germany in early 1997. The
Company's acquisition of The Essentially Group Limited ("Essentially Group") a
leading information technology company in Australia and New Zealand in April
1996 significantly extended Software Spectrum's geographic coverage by
providing an immediate presence in the Asia/Pacific region. With this
acquisition, the Company obtained an established customer base, management team
and services capabilities to provide the Company with many of the key resources
needed to permit further expansion throughout the Asia/Pacific region and in
fiscal 1997 the Company established sales offices in Hong Kong and Singapore.
During fiscal 1997, the Company implemented its plan to consolidate the
administrative and support functions of its Asia/Pacific operations in Sydney
to more closely align with the centralized structure and operations of the
Company's North American operations and has recently installed information
systems which should become fully operational during the first half of fiscal
1998. Due to these and other factors, including lower sales than expected, the
Company's operations in Asia/Pacific incurred operating losses of approximately
$4.9 million in the fiscal year ended April 30, 1997.
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In fiscal 1997, the Company entered into a joint venture in Japan with
Uchida-Yoko Co., Ltd. Through this joint venture, the Company now has the
ability to sell software products and technology services to customers in
Japan.
With centralized operations centers in North America, Europe and
Asia/Pacific, the Company is able to serve the major desktop technology markets
around the world. Today, Software Spectrum provides software or fulfillment
services to customers located in over 50 countries, provides support services
in 13 languages, invoices customers in many local currencies, and can provide
consolidated worldwide reporting to customers.
TECHNOLOGY SERVICES GROUP
Through its Technology Services Group, the Company provides fee-based
technical services including consulting, training and support services. The
Company's service offerings are centered around a number of specific
technologies including advanced networking infrastructure, enterprise messaging
and groupware, distributed client/server application development, enterprise
software management ("ESM") services and Internet/Intranet services. These
technologies address customers' needs (i) to provide access to information at
sites throughout the world within their organizations; (ii) to enable employees
at different locations to communicate with each other in a cost-efficient
manner; (iii) to provide more flexible access to mission critical information;
and (iv) to provide strategies for controlling the rising cost of supporting
distributed computing.
To support these service offerings, the Company developed the
Institute for Microsoft Technology and the Institute for IBM/Lotus Technology.
The institutes provide advanced training for technical certification, as well
as service delivery methodology and advanced consulting skills, enabling
consultants to develop and deploy complex solutions.
The Company is an industry leader in assisting customers implementing
Microsoft's Systems Management Server ("SMS"). The Company founded the
Software Spectrum SMS Alliance several years ago in cooperation with Microsoft
and is its managing member. Members of the SMS Alliance collectively represent
more than one million desktops, and meet regularly to share SMS deployment and
management solutions.
As of April 30, 1997, the Company had Technology Services Group
offices in Chicago, Dallas, Atlanta, Boston, Houston, San Antonio, San
Francisco, Seattle, Denver, Detroit, Los Angeles, Minneapolis, New York,
Sydney, Melbourne, Auckland, Wellington, Toronto, London and Frankfurt. TSG
also has established satellite offices in Raleigh-Durham, and Phoenix.
Through its joint venture in Japan, Uchida Spectrum, the Company has the
ability to offer TSG services to its customers in Japan.
The Company is a Microsoft Solutions Provider, Lotus Notes Business
Partner and Novell Platinum Reseller and is authorized to sell, support, train
and develop applications in many complex products. The Company's advanced
networking infrastructure design capabilities cover a broad range of topologies
and protocols including local area and wide area networks and the ability to
provide interfaces to many mainframes and minicomputers. The Company provides
messaging and information-sharing solutions to provide a stable communications
platform for enterprise-wide connectivity.
The Company's ESM services are designed to help customers with the
evaluation, implementation, operation, and support of electronic desktop
management solutions, such as Microsoft's Systems Management Server. These
services help customers manage and support their software assets at various
sites from a single location. Utilizing these electronic software distribution
products and ESM services, customers can inventory hardware and software
assets, perform software product distribution, and provide electronic help desk
services.
In addition, the Company offers education and technical training
opportunities for information technology professionals in the various advanced
technologies supported by the Company, with such seminars and training provided
at the customer's or the Company's location.
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Technology Support Center
The Company also provides fee-based telephone support services on
behalf of software publishers and to end users of business customers that
choose to fully or partially outsource their internal help desk function on a
number of technologies, including client/server applications and network
operating systems. In fiscal 1997, the Company's telephone technical support
business conducted by the Technology Support Center continued to grow, and in
the first quarter of fiscal 1998, the Company was awarded a contract to support
complex client server products for one of the Company's major suppliers.
The Company's Technology Support Center provides support for
organizations in three principal business categories. First, the Technology
Support Center contracts with software publishers, hardware providers and OEM
manufacturers to provide telephone support on their behalf to customers.
Second, technical support personnel handle support calls from customers'
technical personnel for escalation services. The staff in the Company's
Technology Support Center is experienced in over 150 major personal computer
software titles and can provide support for software products running on most
major personal computer operating systems and environments, including Windows,
Windows 95, DOS, Macintosh, Microsoft Windows NT, Novell Netware and other
network operating systems. Third, the Company provides technical support to
large organizations to augment or replace the customer's internal help desk
capabilities for the customer's employees. This service has various support
options from desktop application products to advanced technical products to
enterprise software solutions. The Company's Technology Support Center service
is designated as a Microsoft Authorized Support Center (one of eight in the
United States), a Lotus Premium Business Partner and a Novell Authorized
Service Center. The Technology Support Center includes large capacity file
servers, multiple CD ROM databases and other sources that enable the Company's
support personnel to recreate a customer's individual problem, develop a
solution and guide the customer through the solution in a step-by-step basis.
The Company's software evaluation library and demonstration equipment
allow the Company's staff to test applications before recommending a solution
or product. Customers may also utilize the Internet as an electronic means to
forward support questions and receive answers from the Company.
The Company's Technology Support Center services business grew rapidly
in the 1997 fiscal year. The growth in the Technology Support Center has been
primarily in providing help desk services under contracts with software
publishers, although the Company also provides end user and professional
support to organizations. The Technology Support Center maintains offices in
Garland, Texas; Spokane, Washington; Dublin, Ireland and Sydney, Australia.
CUSTOMER SERVICES
Licensing, Procurement, Distribution and Deployment Services
The Company's customers can purchase software applications in a number
of different ways. VLM agreements, or right-to-copy agreements, allow a
customer to either purchase a license for each user in a transaction-based
process or track and periodically report its software copies, paying a license
fee for each copy made. The Company sells, supports and services the various
VLM arrangements currently utilized by software publishers. For customers, the
overall cost of using one of these methods of acquiring personal computer
software is likely to be substantially less than the option of purchasing
shrink-wrapped full packaged software products.
Since each major publisher has chosen a different set of procedures
for implementing VLM agreements, businesses are faced with a significant
challenge to sort through all such alternatives and procedures to ensure that
they are utilizing the appropriate agreements, complying with the publishers'
licensing terms and properly reporting and paying for their software licenses.
In order to address the wide range of procurement choices available to its
customers, the Company provides information, advice and assistance to its
customers relating to their procurement decisions through its licensing
consultants as well as by means of the Company's marketing and sales staff and
through its publications. See "World Wide Web Site Publications and Software
Library" and "Sales and Marketing."
Increasingly, large corporate customers are electing to standardize
desktop applications and coordinate their enterprise-wide personal computer
management responsibilities. To help these customers develop or improve their
personal computer software management programs, the Company developed a
software management process that is
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called the Assurance Process. The Assurance Process and corresponding
implementation services allow these customers to effectively utilize the
benefits associated with VLM programs. Assurance provides the Company's
customers with a methodology for evaluating the individual customer's personal
computer software management process and analyzing issues in implementing VLM
programs offered by various publishers. The service options available from the
Company are designed to assist the customer in implementing its software
management plan, including internal distribution services, communication with
end users, telephone support and reporting and compliance under VLM
arrangements.
The Company's licensing consultants are Software Publishing
Association ("SPA") certified software managers that are trained to provide
customers with advice in the evaluation of various VLM programs offered by
publishers and customer activity analysis. In addition to the Company's
extensive experience dealing with VLM agreements, it has continued to invest in
technology based systems to support the special requirements necessary to
service VLM agreements for its customers. The Company has developed a custom,
client/server based system called SOLO 95, which provides individualized
customer contract management data, assists customers in complying with VLM
agreements, and provides customers with necessary reporting mechanisms.
The Company provides disk duplication services for a number of
customers that have purchased software through VLM agreements. The Company
will duplicate diskettes for software purchased through VLM agreements on
behalf of customers, may bundle this software with a customer's internal
documentation and third party software manuals and will distribute these
diskettes and bundles to a customer's various sites and locations.
A component of the Company's procurement services is its ability to
provide timely delivery of its products to customers by maintaining a
sufficient inventory of the most popular software products. The Company's
United States distribution operations are located in Louisville, Kentucky. In
Australia and New Zealand, the Company also operates distribution facilities
for customers located in those countries. In countries where the Company does
not operate warehouses, products are ordered through distributors and are
shipped directly to customers. Products stocked by the Company or its
distributors are generally shipped the same day that the Company receives a
customer order. Most of the Company's products are ordered by the customer's
procurement or information systems department and often are billed to the
department of the end-user, which may be located at a different site than the
procurement or information systems department. The Company provides customers,
upon request, open-order status and purchase activity reports formatted to each
customer's specifications. Also, the Company's electronic data interchange
("EDI") capabilities allow customers to submit orders (or other data) from
their computer systems to the Company via modem. EDI improves order accuracy
and reduces administrative costs for corporate customers and the Company.
Maintenance and Upgrade Services
A number of customers who have elected to purchase software licenses
through VLM agreements have also purchased maintenance which allows customers
to receive new versions, upgrades or updates of software products during the
maintenance period in exchange for a specified annual fee, which may be paid in
monthly, quarterly or annual installments. Upgrades and updates are revisions
to previously published software that improve or enhance certain features of
the software and correct any errors found in previous versions.
The Company believes it offers several advantages to its customers in
the upgrade process. Customers that have not elected to purchase maintenance
agreements are still able to upgrade multiple units of specific products, often
bypassing cumbersome publisher requirements. The Company stocks a number of
upgrade products and provides detailed tracking and reporting of customer
upgrade purchases. Upgrades are sold on the same basis and with the same
payment terms as other products sold by the Company.
Electronic Services and Capabilities
The Company offers a number of services and is implementing systems to
support its customers' gradual migration toward electronic commerce and
electronic software distribution ("ESD").
ESD takes two forms; the first is distributing software within an
organization, via a company's internal network. ESD technology within the
large organization is a means to permit an organization to reduce the total
cost of ownership of desktop computing assets. ESD can provide hardware and
software asset management, remote desktop
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support and automatic installation of operating systems, packaged and customer
applications, and their related upgrades, to the desktop.
Through its Technology Services Group, the Company supplies enterprise
software management services for customers who adopt ESD within their
organizations. These services help manage distributed PC environments through
use of products such as the Microsoft Systems Management Server.
The second form of ESD is between businesses via electronic links such
as the Internet. This form of ESD supports the fast, convenient delivery of
software products. The Company has entered into agreements to permit the
electronic distribution of software from the Company's World Wide Web site.
The Company intends to participate in this method of distribution as
communication technology improvements enable this form of ESD to become more
widely used.
The Company's World Wide Web site on the Internet contains an on-line
catalog of thousands of products that can be purchased over the Internet and
provides customers with links to useful information about the Company, its
products and services and publishers the Company represents. The Internet
catalog provides information about products through a comprehensive search
engine, extensive product descriptions, and third-party reviews. For certain
large customers the Company is developing specific catalog offerings available
over the Internet to that customer's employees. These specialized electronic
catalogs will contain specific products and pricing unique to that customer and
will contain information particular to the VLM agreements in which that
customer is enrolled. The Company also plans to develop government and
education specific electronic catalogs.
Seminars
Seminars are an important means by which the Company markets and sells
products and services. Through these seminars, businesses are able to acquaint
members of their organizations with new product offerings and upgrades and
receive information concerning trends in personal computer technology and the
industry in general. The Company's seminar series includes events addressing
VLM arrangements and electronic distribution, as well as strategic
implementation of client/server and other advanced product technologies and
solutions. A portion of the marketing funds the Company receives from various
publishers is used to defray the costs of presenting these seminars that
generally are conducted in conjunction with publisher representatives. Members
of the Company's marketing and support staff present and coordinate all aspects
of these seminars. In fiscal 1997, the Company presented 247 seminars in over
47 major metropolitan areas throughout North America, in Western Europe and in
Asia/Pacific.
World Wide Web Site, Publications and Software Library
The Company's World Wide Web site on the Internet provides customers
with information concerning the Company, its products and services, and the
publishers represented by the Company. The Company also provides information
through various Company publications. A portion of the marketing funds
provided to the Company by publishers is used to offset the Company's cost of
producing these publications. The Company publishes newsletters, service and
product brochures, product catalogs, and also provides other timely information
coincident with major product releases. The Company's "MicroNews" is a monthly
newsletter distributed, both electronically via the Internet and in hard copy,
that features new product announcements and news articles on current industry
topics and technical white papers.
The Company distributes a semi-annual publication which includes more
in-depth analyses of various product offerings called the "Licensing and
Software Management Guide." This publication provides comprehensive
information on the many facets of software licensing. The Guide provides the
purchasing requirements and qualification restrictions of the numerous VLM
publisher programs. Issues such as concurrent licensing and copying software
on home or portable computers are identified. Because of the potential savings
a corporation can realize by utilizing alternative procurement methods,
customers have displayed a significant amount of interest in this publication.
In addition, the Software Publishers Association utilizes this publication in
connection with its certified software manager course curriculum.
The Company offers a software evaluation library which enables a
customer to evaluate software programs without charge or obligation. The
Company's software evaluation library consists of many popular software
packages
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marketed by the Company, which are provided as demonstration copies. Upon
request, customers may use the demonstration copies in order to assist them in
making a purchasing decision.
The Company also markets to mid-tier and small businesses by
publishing merchandising catalogs which offer a large range of software and
peripheral products. In addition to its Internet on-line catalog described
above, the Company plans to publish and distribute over 1,700,000 catalogs
during the 1998 fiscal year. See "Electronic Services and Capabilities" above.
SALES AND MARKETING
The Company performs sales and marketing activities for its large
account customers through its account executives, customer service
representatives and its marketing and support staff. The Company organizes
account management teams to service and support each of its major customers.
Generally each team consists of one account executive and a team of customer
service representatives. These teams are supported by technical, marketing and
sales support personnel located at one of the Company's operations centers.
Account executives are assigned a specific territory and/or specific
accounts by the Company, which generally includes major metropolitan areas in
one or more countries, states or provinces. Account executives market the
overall service and price advantages of using the Company as the customer's
preferred software and services supplier. The account executive concentrates
on generating new customer relationships, maintaining and improving existing
customer relationships and increasing the volume of software and services
provided to large corporate customers.
Account executives work directly with procurement managers, management
information system managers and computer support managers of existing and
potential customers to identify the specific needs of each customer and to
facilitate the purchase of software products and services by the customer's
organization. Account executives maintain close contact with customers in
order to provide them with timely communications and assistance with any
special or strategic requests. Account executives' responsibilities include
providing customers with useful and relevant product information to assist the
customer in its selection of software available for the desired application,
providing customers with information and guidance on software procurement
options including VLM agreements, implementation and deployment of software
under VLM agreements, assisting customers in identifying and defining technical
service needs, and planning product presentations and seminars by
representatives of the Company and publishers. For national and international
accounts, there may be several account executives working with the customer in
different parts of North America, Europe and Asia/Pacific with all efforts
being coordinated by a designated national or global account executive. The
number of accounts handled by each account executive depends on the relative
size of the accounts and the level of service required by each customer within
the territory assigned to the account executive.
The Company's licensing consultants work with the Company's customers
to provide advice and consultation on VLM programs and to complete detailed
customer account analysis and reporting. The Company also assigns a team of
customer service representatives to each account. Customer service
representatives, who are based primarily at the Company's operations centers
located in Garland, Spokane, Dublin and Sydney handle all aspects of the
day-to-day customer account servicing, including common presale technical
questions, customer order placement, order status inquiries, requests for a
demonstration product for evaluation and searches for hard-to-find products.
This enables customer service representatives to develop close relationships
with individuals within the customer's organization and to better service them
by being familiar with their account. By assigning a specific team of customer
service representatives to specific customers, the Company adds additional
direct contacts that reinforce customer relationships.
To solicit business from mid-tier and small organizations, the Company
utilizes its Mid-Tier Sales group. While product price and delivery terms are
key factors in mid-tier organization markets, the Company also provides a broad
range of VLM agreement support and services and technical services to this
category of customers. Initial contact and sales are made typically through
telephone inquiries.
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SUPPORT SYSTEMS
In fiscal 1997 the Company substantially completed conversion of its
operating and financial reporting systems to the client/server environment.
The Company has developed certain proprietary support systems that facilitate
the delivery of product and services to its customers. The Company has
invested in technology based systems to support the special requirements
necessary to service VLM agreements for its customers. SOLO 95, a custom,
client/server-based system, provides individualized contract management data,
assists customers in complying with the terms of their VLM agreements and
provides customers with necessary reporting mechanisms. Using individualized
data in SOLO 95 in conjunction with the Company's contract management database,
the Company representatives can guide a customer through the various purchasing
options and assist in administering VLM agreements. SOLO 95 also provides the
Company's customer service representatives with customer profile and account
status, order status information, and product pricing and availability details.
The Company's on-line purchase order entry system provides its purchasing
department with a daily queue of orders to be placed based on current inventory
levels, daily sales orders, and pre-established minimum and maximum levels of
inventory for each part number. Once purchase orders are placed with a vendor,
the Company's accounting records are automatically updated and orders are held
pending on-line receipt, using a bar code receiving system.
PRODUCTS
In addition to selling, supporting and servicing the various VLM
arrangements available from software publishers, the Company inventories
approximately 2,200 business software titles, ranging in price from
approximately $10 to $35,000. In certain international markets, the Company
also sells hardware, peripheral products and accessories, such as modems,
expansion cards and keyboards. Although the Company maintains an inventory of
only the most popular products in locations where it maintains warehouse
facilities, the Company offers more than 38,000 different software and
peripheral products to its customers.
The software applications offered by the Company include major
business programs such as spreadsheet, word processing, electronic mail,
groupware, database, and graphics, as well as operating systems, utilities and
languages. For the fiscal year ended April 30, 1997, the top 20 software
titles sold by the Company represented approximately 50% of the Company's net
sales.
The Company maintains an extensive database of hard-to-find software
required by customers as well as software available from the Company's major
publishers and vendors. The Company continually adds to its database,
information on these types of products and their sources of supply in order to
expedite customer requests.
The Company expects that for the foreseeable future, sales from
software products will continue to be its primary source of revenues.
DISTRIBUTION AND INVENTORY CONTROL
In the United States and Asia/Pacific, the Company generally ships
products that it carries in inventory the same day the Company receives the
customer order utilizing independent carriers. In addition, the Company also
utilizes the services of publishers and distributors to ship products directly
to its customers, both in the United States and other countries. During its
fiscal year ended April 30, 1997, the Company shipped an average of 1,600
orders per day. The Company bar codes every product in its inventory in order
to reduce the risk of shipping errors and to provide better inventory control.
The Company conducts a physical inventory three to four times each year and
seeks to maintain strict control of inventories to minimize the risk of product
obsolescence and to maximize inventory turns. As of April 30, 1997, the
Company held approximately 25 days of anticipated sales of shippable products
in inventory. On average, the Company turns its inventory twelve times per
year. The Company has exchange and return privileges with the major vendors
with which it does business. These arrangements reduce the risk of loss
resulting from obsolete goods and damaged merchandise. As of April 30, 1997,
the Company did not have a significant order backlog.
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CUSTOMERS
In fiscal 1997, the Company handled more than 6,300 active customer
accounts. The Company's customer base includes corporations, government
agencies, educational institutions, non-profit institutions and other business
entities. The Company's acquisitions during fiscal 1997 significantly
increased the North American government sales segment of the Company's business
to federal, state, provincial and local government agencies. The Company also
has established a presence in the educational market and the Company has
authorizations from all major educational product publishers. The Company also
sells software to mid-tier and small organizations through its Mid-Tier Sales
group. Sales contracts with large customers for the procurement of products
generally cover a one to three year period subject to the customers' rights to
terminate the contract upon notice. These contracts usually include provisions
regarding price, availability, payment terms and return policy. Contracts
covering technology services vary in length depending on the services to be
provided and are generally terminable upon 30 days' notice. Standard payment
terms with the Company's customers are net 30 days from the date of invoice or
net 10 days in the case of summary periodic billings to customers. Although
customer arrangements vary, the Company generally affords its customers with
product return and exchange privileges, which are typically limited to 30 to 60
days following shipment or invoicing, with respect to unopened stocked products
and defective or damaged products. With respect to VLM transactions, generally
returns are either not permitted or are very limited for maintenance purchased,
and licenses may be returned only for a limited period following invoicing,
depending upon specific publisher requirements. In the fiscal year ended April
30, 1997, no single customer represented more than 3% of the Company's revenues
and the Company's customer base included 340 of the 1996 Fortune 500 companies
and 225 of the Fortune Global 500 companies. The Company does not believe that
the loss of any single customer would have a material adverse effect on its
business.
The Company recognizes revenue from products sold at the time the
product is shipped to or a license is purchased by the customer. The Company
believes that returns of full packaged products by customers are not, and have
not historically been, material. Due to the complexity of licensing programs,
adjustments arising from the invoicing pursuant to VLM agreements have
increased in the past year and have resulted in increased credits and
reinvoicing of customers. The Company is currently upgrading its systems and
procedures to reduce the number of adjustments required. Maintenance and
services revenue is recognized ratably over the contractual period or as the
services are provided.
VENDORS
Substantially all of the Company's sales from software are derived
from products purchased from publishers and distributors. The decision whether
to buy products directly from publishers or through distributors is determined
on a vendor-by-vendor basis based on publisher requirements, cost,
availability, return privileges, demand for a particular product and the
benefits of a close strategic relationship. For the fiscal year ended April
30, 1997, approximately 75% of the Company's sales represented products
purchased from its ten largest vendors. For the fiscal years ended April 30,
1997 and March 31, 1996, products from Microsoft accounted for approximately
55% and 44% of net sales, respectively, and products from IBM/Lotus accounted
for approximately 10% of net sales in each year. In fiscal 1997, products
published by Microsoft and IBM/Lotus represented the largest concentration of
products sold by the Company.
The Company has contractual relationships with all its major vendors
covering price, payment terms and return privileges. These contracts are
non-exclusive and non-territorial and are generally terminable by either party
without cause upon 30 to 60 days' notice. The Company's contracts with its
major vendors are generally for one or two year terms, and the majority contain
no provision for automatic renewal.
Publisher contracts generally permit the Company to return or dispose
of products within certain specified time periods in exchange for credit
against future purchases in the event that a product is defective or made
obsolete, whether through the development of upgrades or new releases or
otherwise. In addition, such contracts permit the Company to stock balance its
inventory, generally on a quarterly basis, by allowing returns for credit
against future purchases of a limited portion (usually 3% to 15%) of the
products previously purchased by the Company. Publisher contracts also
generally permit the Company to submit adjustment reports for license and
maintenance transactions within a certain time period after the transaction is
reported. The agreements also typically provide that the Company may obtain
credit against future purchases if the vendor subsequently lowers its prices on
products that have been purchased by the Company within a 30 to 90 day period
prior to such price decrease. The purpose of the foregoing
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stock balancing and price protection provisions is to permit the Company to
maintain an inventory of products that is sufficient to meet its customers'
needs while reducing the obsolescence risks associated therewith. Such
contracts do not typically require the Company to ensure end-user compliance
with its publishers' licensing and copyright or patent right protection
provisions. Certain of the Company's contracts with vendors provide for early
payment discounts. Under the terms of its vendor contracts, the Company is not
generally required to meet any minimum purchase or sales requirements, except
to the extent that the Company's level of purchases or sales may affect the
amount or availability of financial incentives, advertising allowances and
marketing funds. The reduction in amount, discontinuance of or the Company's
inability to meet requirements established by vendors for achieving financial
incentives, advertising allowances and marketing funds could have an adverse
effect on the Company's business and financial results. The material terms of
the Company's contracts with Microsoft and IBM/Lotus do not differ in any
material respect from the comparable terms of the Company's arrangements with
other major publishers.
COMPETITION
The personal computer software market is intensely competitive. The
Company faces competition from a wide variety of sources, including traditional
software resellers, hardware dealers and aggregators and large systems
integrators. Current competitors from the software reseller category would
include Corporate Software and Technology, Inc., ASAP Corporate Express,
Softmart and Softwarehouse International. The Company believes that it
possesses a number of significant differentiating features from this group.
These features include the Company's operations presence in major global
personal computer business markets, its extensive technology services
capabilities and offerings, extensive VLM services and systems that support
the Company's business and knowledgeable, industry-experienced personnel.
Competitors also include hardware dealers and aggregators. These
companies also compete in the large organization market with marketing efforts
to provide customers with complete software and hardware services. Other
competitors include large systems integrators such as Digital Equipment
Corporation and Electronic Data Systems. These companies do have a global
presence and technology services. The Company believes its VLM services,
custom computing systems specifically designed to support the Company's
business and knowledgeable industry-experienced personnel are differentiating
factors in this group of competitors.
In the technology services market, there are a significant number of
competitors, ranging from small local consulting services practices to large
companies such as Corporate Software and Technology, Inc., the technology
services divisions of major hardware resellers such as VanStar Corporation,
ENTEX Information Services, Inc. and Compucom Systems, Inc. and the consulting
divisions of national accounting firms such as Anderson Consulting. The
Company believes that its concentration on high-end enterprise architectural
planning and consultation covering multiple key specific technologies helps to
differentiate the Company from other competitors in the technology services
area of its business.
The manner in which personal computer software products are
distributed and sold is continually changing and new methods of distribution
may emerge or expand. Software publishers may intensify their efforts to sell
their products directly to end-users, including current and potential customers
of the Company. In the past, direct sales from software publishers to
end-users have not been significant, although end-users have traditionally been
able to purchase upgrades directly from publishers. From time to time, some
publishers have instituted programs for the direct sale of single large order
quantities of software to major corporate accounts, and the Company anticipates
that these types of transactions will continue to be used by various publishers
in the future. The Company could be adversely affected if major software
publishers successfully implement programs for the direct sale of software
through volume purchase agreements or other arrangements intended to exclude
the channel. The Company believes that the total range of services it provides
to its customers cannot be easily substituted by publishers, particularly
because publishers do not offer the scope of services or product offerings
required by most of the Company's customers. However, there can be no
assurance that publishers will not increase their efforts to sell substantial
quantities of software directly to end users. In addition, the acceptance of
VLM agreements by organizations as a method to purchase software has continued
to expand over the past year. Should publishers permit others to sell VLM
agreements, or should additional competitors develop the capabilities required
to service and support large licensing programs, the Company's competitive
advantage could be negatively impacted. If the channel's participation in VLM
agreements is reduced or eliminated or if other methods of distribution of
software become common, the Company's business and financial results could be
materially adversely affected. Management believes that greater acceptance of
VLM agreements will be one of the factors that
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over time will lead to electronic distribution of software. The Company
intends to participate in this method of software distribution as demand for
this service by large organizations emerge and as communications technology
improvements permit electronic software distribution to be made securely and
efficiently. The Company's continuing investment in electronic software
distribution and electronic commerce reflects the Company's commitment to
meeting the changing needs of its customers. There continues to be an increase
in the sale of personal computers to home and small businesses with many
popular software application programs bundled with the hardware. If bundling
of software with hardware becomes accepted by large corporate customers in the
future, such bundling could have an adverse effect on the Company's business.
EMPLOYEES
As of April 30, 1997, the Company had approximately 1,600 employees in
North America, Europe and Asia/Pacific. The Company has entered into
non-competition agreements and/or non-solicitation agreements with
substantially all of its sales and Technology Services Group personnel. None
of the Company's employees are represented by a union.
ITEM 2. PROPERTIES
The Company currently leases approximately 160,000 square feet of
space in Garland, Texas (a suburb of Dallas) for its corporate headquarters.
As of April 30, 1997, the Garland leases had a remaining term of 36 months with
monthly payments of approximately $64,000. The Company leases approximately
54,000 square feet of office space in Spokane, Washington at a monthly rental
of approximately $32,500 in fiscal 1997 increasing to approximately $40,000 in
fiscal 1998. The Company's distribution facility in Louisville, Kentucky
consists of approximately 62,500 square feet of space which is leased for
approximately $18,000 per month. The remaining term of the Louisville lease is
approximately four years. Within North America, the Company also leases office
space in various markets for its Technology Services Group.
With respect to its European-based operations, the Company currently
leases space in Dublin, Ireland, The Hague, The Netherlands and London,
England. In Asia/Pacific, the Company occupies leased office space in seven
markets.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions
arising in the ordinary course of business. The ultimate disposition of these
matters will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during
the fourth quarter of the fiscal year ended April 30, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded over the counter and is listed on
the Nasdaq National Market System under the symbol SSPE. The information
appearing on page 32 of the Company's 1997 Annual Report to Shareholders under
the caption "Quarterly Financial Data and Market Information" is incorporated
herein by reference.
On July 18, 1997 there were 150 holders of record (representing
approximately 2,000 beneficial owners) of the Company's common stock. The
Company has never paid cash dividends on its common stock. The Board of
Directors presently intends to retain all earnings for use in the Company's
business and does not anticipate paying cash dividends in the near term.
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ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears on page 17 of the
Company's 1997 Annual Report to Shareholders under the caption "Selected
Consolidated Financial Data", which information is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information appearing on pages 18 through 21 of the Company's 1997
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information appearing on pages 22 through 30 of the Company's 1997
Annual Report to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the current directors of the Company, and the
persons nominated for election as directors of the Company at its Annual
Meeting of Shareholders to be held on September 18, 1997, will appear in the
Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders under the caption "Election of Directors" to be filed pursuant to
Regulation 14A. Such information is incorporated herein by reference.
EXECUTIVE OFFICERS
Officers are elected annually by the Board of Directors and serve
until their successors are elected and qualified. The current executive
officers of the Company are as follows:
<TABLE>
<CAPTION>
Officer
Name Position Since Age
---- -------- ------- ---
<S> <C> <C> <C>
Judy O. Sims Chief Executive Officer and President 1988 44
Richard G. Sims Senior Vice President 1983 43
Keith R. Coogan Executive Vice President, Chief 1990 45
Operating Officer
Robert D. Graham Vice President Strategic Relationships 1997 42
and General Counsel, Secretary
Roger J. King Vice President of Sales and Marketing 1990 44
Robert B. Mercer Vice President, Chief 1994 45
Information Officer
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C> <C>
Deborah A. Nugent Vice President of Finance and 1992 43
Treasurer
Lisa M. Stewart Vice President of Customer Operations 1996 35
</TABLE>
Judy O. Sims has served as Chief Executive Officer of the Company
since April 1988 and Chairman of the Board since July 1992. In April 1996, she
also assumed the title of President. Ms. Sims 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. 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. Ms. Sims is a Certified Public Accountant. Ms. Sims is
married to Richard Sims.
Richard G. Sims is a co-founder of the Company and has been a director
of the Company since 1983. In April 1996, Mr. Sims assumed the title 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.
Prior to 1983, Mr. Sims served as controller for various companies. Mr. Sims
is a Certified Public Accountant. Mr. Sims is married to Judy Sims.
Keith R. Coogan has been Executive Vice President and Chief Operating
Officer since April 1996. Mr. Coogan has been a Vice President of the Company
since October 1990 and was Secretary of the Company from May 1991 through July
1992. From October 1990 to March 1992, Mr. Coogan also served as Treasurer of
the Company. From May 1989 until joining the Company, Mr. Coogan served as
Vice President of Finance for Leather Center Holdings, Inc. a privately-held
manufacturer and retailer of leather furniture. From January 1986 to May 1989,
he was Vice President and Chief Financial Officer of Trinity Texas Corporation
and Ward Hunt Investments, both of which were privately-held real estate sales
and development organizations. Mr. Coogan is a Certified Public Accountant.
Robert D. Graham was elected Vice President Strategic Relationships
and General Counsel in January 1997 and Secretary in February 1997. Mr. Graham
served on the Board of Directors of the Company from 1991 until February 1997.
From 1980 through January 1997, Mr. Graham was in private practice of law with
the law firm of Locke Purnell Rain Harrell, P.C. (and its predecessor) in
Dallas, Texas.
Roger J. King has been Vice President of Sales and Marketing since
April 1996. From September 1990 to March 1996, Mr. King served as Vice
President of Sales of the Company. Mr. King was employed by Lotus Development
Corporation from September 1987 to September 1990, where he last served as
Regional Manager for the software business group and was responsible for
product sales in a 14-state region. From July 1985 to September 1987, Mr. King
was a Vice President of the banking software group of Sterling Software, Inc.,
a software development company. Prior thereto, he spent nine years with IBM in
various sales and sales management positions.
Robert B. Mercer has been a Vice President and the Chief Information
Officer of the Company since January 1994. Mr. Mercer is responsible for
internal software application development and information systems processing
for the Company. From March 1992 until joining the Company, Mr. Mercer was the
Vice President and Chief Information Officer of Lechters, Inc., a publicly-held
specialty retailer. From 1988 to March 1992, he served as Senior Vice
President and Chief Information Officer of KG Men's Store, a privately-held
clothing store chain.
Deborah A. Nugent has been Vice President of Finance and Treasurer
since March 1992 and Secretary of the Company from July 1992 to February 1997.
From July 1991 until joining the Company, Ms. Nugent served as Assistant
Treasurer and Chief Financial Officer of Mothers Against Drunk Driving. From
April 1988 to April 1991, she served as Vice President, Treasurer and Chief
Financial Officer of USF&G Capital Investors, Inc., a capital investments
subsidiary of USF&G Corporation. From July 1986 to April 1988, she was Chief
Financial Officer of The Tower Group, Inc., a privately-held real estate sales
and development company. Prior thereto, Ms. Nugent was employed by the
national accounting firms of Grant Thornton LLP and Coopers & Lybrand LLP. Ms.
Nugent is a Certified Public Accountant.
Lisa M. Stewart has been Vice President of Customer Operations since
April 1996. From January 1994 through March 1996, Ms. Stewart served as
Director of Customer Operations for the Company after having served in
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<PAGE> 17
various sales and sales management and operations positions. Prior to joining
the Company in 1988, Ms. Stewart was employed by Fox T.V. and Hilton Services
Corporation.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will appear in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on September
18, 1997, under the caption "Executive Compensation", which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will appear in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on September
18, 1997, under the captions "Stock Ownership of Principal Shareholders" and
"Stock Ownership of Management", which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert D. Graham was until January 1997 a shareholder of the law firm
of Locke Purnell Rain Harrell (A Professional Corporation), counsel to the
Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) and (2) - Index to Financial Statements and Schedules - The
information required by this portion of Item 14 is set forth in a
separate section following Part IV of this Report.
(3) - The following documents are filed or incorporated by reference
as exhibits to this Report:
2 Asset Purchase Agreement dated as of March 23, 1996 by and
among Software Spectrum, Inc., Egghead, Inc. and DJ&J
Software Corporation, as amended by First Amendment to
Asset Purchase Agreement dated May 13, 1996 (incorporated
by reference to the Company's Current Report on Form 8-K
dated March 26, 1996 and the Company's Current Report on
Form 8-K dated May 23, 1996).
3.1(a) Restated Articles of Incorporation of the Company, filed
with the Secretary of State of Texas on May 12, 1989, as
amended (incorporated by reference to the Company's
Registration Statement No. 33-40794 on Form S-1).
3.1(b) Statement of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to the Company's
Current Report on Form 8-K dated December 13, 1996).
3.1(c) Articles of Amendment to Restated Articles of
Incorporation, filed with the Secretary of State of Texas
on November 25, 1996.
3.1(d) Statement of Cancellation of Treasury Shares, filed with
the Secretary of State of Texas on March 21, 1997.
3.2 Restated Bylaws of the Company, as amended (incorporated by
reference to the Company's Registration Statement No.
33-40794 on Form S-1).
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<PAGE> 18
3.3 Rights Agreement between the Company and KeyCorp Shareholder
Services, Inc. dated December 13, 1996, (incorporated by
reference to the Company's Current Report on Form 8-K dated
December 13, 1996).
10.1 IBM Business Partner Agreement between the Company, IBM
Corporation and Lotus Development Corporation dated June 30,
1997.
10.2(a) Microsoft 1995/1996 Channel Agreement dated July 1, 1995
between Microsoft Corporation and the Company, including
Addenda dated July 1, 1995 (Appointment as a Direct
Reseller) and Addenda dated July 1, 1995 (Appointment as a
Large Account Reseller) (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996).
10.2(b) Large Account Reseller Rebate Addendum to the 1995/1996
Microsoft Channel Agreement dated July 1, 1995, as amended
by Amendment No.1 dated January 1, 1996 ("LAR Addendum")
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996).
10.2(c) Amendment No. 2 to LAR Addendum dated August 2, 1996
between Microsoft Corporation and the Company.
10.2(d) Amendment No. 3 to the LAR Addendum dated January 17, 1997
between Microsoft Corporation and the Company.
10.2(e) Microsoft Government Select Government Contractor Addendum
to the 1995/1996 Microsoft Channel Agreement dated as of
July 1, 1995 (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1996).
10.2(f) Rebate and Marketing Fund Addendum to the 1995/1996
Microsoft Channel Agreement dated as of July 1, 1995, as
amended by Amendment No. 1 dated January 1, 1996 (the
"Rebate and Marketing Fund Addendum") (incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996).
10.2(g) Amendment No. 2 to the Rebate and Marketing Fund Addendum
dated August 2, 1996 between Microsoft Corporation and the
Company.
10.2(h) Amendment No. 3 to the Rebate and Marketing Fund Addendum
dated January 17, 1997 between Microsoft Corporation and
the Company.
10.3 Microsoft Corporation 1995/1996 Authorized Government Large
Account Reseller Agreement dated April 1, 1995 between
Microsoft Corporation and the Company (incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996)
10.4(a) Commercial Lease Agreement, dated May 1, 1990, between CIIF
Associates II Limited Partnership and the Company
(incorporated by reference to the Company's Registration
Statement No. 33-40794 on Form S-1).
10.4(b) Amendment to Lease Agreement dated March 31, 1995 between
CIIF Associates II Limited Partnership and the Company
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995).
10.5(a) Commercial Lease Agreement dated as of April 19, 1993,
between Kancro, L.P. and the Company (incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993).
-17-
<PAGE> 19
10.5(b) Amendment #2 - Expansion Agreement to Lease Agreement dated
as of June 20, 1994 between Kancro, L.P. and the Company
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994).
10.5(c) Third Amendment to Commercial Lease Agreement dated
effective April 1, 1995 between Kancro, L.P. and the
Company (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31,
1995).
10.5(d) Fourth Amendment to Commercial Lease Agreement dated
effective as November 25, 1996 between Kranco, L.P. and the
Company.
10.6 Form of Call Center Lease (Spokane) between DD&J Software
Corporation and the Company (incorporated by reference to
the Company's Current Report on Form 8-K dated March 26,
1996).
10.7 Lease Agreement dated March 8, 1996 by and between Riverport
Commerce Center, Inc. and the Company (incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996).
10.8 Lease Agreement dated April 26, 1996 by and between
Beneficiaries of American National Bank Trust Number
104601-03 and the Company (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996).
10.8(a) Credit Agreement dated as of May 3, 1996 among the Company,
Texas Commerce Bank, National Association, as Agent and
other participating financial institutions (the "Credit
Agreement") (incorporated by reference to the Company's
Current Report on Form 8-K dated May 23, 1996).
10.8(b) First Amendment and Second Amendment to Credit Agreement
dated as of June 28, 1996 (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996).
10.8(c) Amendment Letter to Credit Agreement dated as of September
30, 1996 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1996).
10.8(d) Fourth Amendment to Credit Agreement (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1996).
10.8(e) Fifth Amendment to Credit Agreement dated as of March 31,
1997.
10.9 1989 Stock Option Plan of the Company, as amended
(incorporated by reference to the Company's Registration
Statement No. 33-40794 on Form S-1).
10.10 Software Spectrum, Inc. Employee Stock Purchase Plan, as
amended.
10.11 The Software Spectrum, Inc. 1993 Long Term Incentive Plan
(incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994).
10.12 Employees' Profit Sharing Plan of the Company, Adoption
Agreement dated December 14, 1994 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
10.13 Form of Management Continuity Agreement between the Company
and certain executive officers dated as of January 10,
1997.
-18-
<PAGE> 20
10.14 Non-Employee Directors' Retainer Stock Plan (incorporated
by reference to the Company's Quarterly Report on Form 10-Q
for the Quarter ended December 31, 1995).
11.1 Statement regarding Computation of Primary Earnings Per
Share.
11.2 Statement regarding Computation of Fully Diluted Earnings
Per Share.
13 Software Spectrum, Inc.'s 1997 Annual Report to
Shareholders.
23 Consent of Grant Thornton LLP, Independent Accountants
24 Power of Attorney (included on the signature page of this
Form 10-K).
27 Financial Data Schedule
99 Purchase and Sale Agreement dated as of April 2, 1996 by and
among Software Spectrum, Inc., Software Spectrum (NZ)
Limited and Essentially Group Limited, Essentially Group
(NZ) Limited, Essentially Software (Wellington) Limited, The
McNabb Family Trust, McNabb No. 2 Family Trust, McNabb No. 3
Family Trust, RMAD Trust, David Colvin and Gary McNabb
("Purchase and Sale Agreement") (incorporated by reference
to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996).
99.1 First Amendment to Purchase and Sale Agreement dated
September 1996 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period ended
September 30, 1996).
(b) REPORTS ON FORM 8-K
During the three months ended April 30, 1997, a Current Report on Form
8-K dated March 26, 1997 was filed by the Company on April 9, 1997,
reporting the Company's change in its fiscal year end to April 30 of
each year.
-19-
<PAGE> 21
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Software Spectrum, Inc., a
Texas corporation, and the undersigned directors and officers of Software
Spectrum, Inc., hereby constitutes and appoints Judy O. Sims its or his true
and lawful attorney-in-fact and agent, for it or him and in its or his name,
place and stead, in any and all capacities, with full power to act alone, to
sign any and all amendments to this Report, and to file each such amendment to
this Report, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorney-in-fact and agent full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue
hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOFTWARE SPECTRUM, INC.
By: /s/ Judy O. Sims
----------------------------------
Judy O. Sims,
Chief Executive Officer and
President
Date: July 28, 1997
-20-
<PAGE> 22
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Judy O. Sims Chief Executive Officer, President and July 28, 1997
- ---------------------------------- Director (Principal Executive Officer)
Judy O. Sims
/s/ Richard G. Sims Senior Vice President and Director July 28, 1997
- ----------------------------------
Richard G. Sims
/s/ Deborah A. Nugent Vice President of Finance and Treasurer July 28, 1997
- ---------------------------------- (Principal Financial Officer and
Deborah A. Nugent Principal Accounting Officer)
/s/ Mellon C. Baird Director July 25, 1997
- ----------------------------------
Mellon C. Baird
/s/ Carl S. Ledbetter Director July 25, 1997
- ----------------------------------
Carl S. Ledbetter
/s/ Frank Tindle Director July 28, 1997
- ----------------------------------
Frank Tindle
</TABLE>
-21-
<PAGE> 23
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of Software Spectrum,
Inc. and subsidiaries appearing on pages 22 through 31 of the Company's 1997
Annual Report to Shareholders have been incorporated herein by reference under
Item 8 of Part II of this report.
Report of Grant Thornton LLP
Consolidated Balance Sheets as of April 30, 1997 and March 31, 1996
Consolidated Statements of Operations for the year ended April 30,
1997, the month ended April 30, 1996 and the two years ended March 31,
1996
Consolidated Statements of Shareholders' Equity for the year ended
April 30, 1997, the month ended April 30, 1996 and the two years
ended March 31, 1996
Consolidated Statements of Cash Flows for the year ended April 30,
1997, the month ended April 30, 1996 and the two years ended March
31, 1996
Notes to Consolidated Financial Statements
The following financial schedule of Software Spectrum, Inc. and
subsidiaries for the year ended April 30, 1997 and the two years ended March
31, 1996, is filed herewith:
Report of Grant Thornton LLP S-1
Schedule II Valuation and Qualifying Accounts and Reserves S-2
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required or are inapplicable and therefore have been omitted. Individual
financial statements of Software Spectrum, Inc. have been omitted since
consolidated financial statements are being filed and no significant amount of
the assets of the subsidiaries included in the consolidated financial
statements being filed are restricted as to transfer to Software Spectrum, Inc.
-22-
<PAGE> 24
Report of Independent Certified Public Accountants on Schedules
Board of Directors
Software Spectrum, Inc.
In connection with our audit of the consolidated financial statements of
Software Spectrum, Inc. and subsidiaries referred to in our report dated July
7, 1997, which is included in the annual report to shareholders and
incorporated by reference in Part II of this form, we have also audited Schedule
II for the year ended April 30, 1997, the month ended April 30, 1996 and the
years ended March 31, 1996 and 1995. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
Dallas, Texas
July 7, 1997
S-1
<PAGE> 25
SOFTWARE SPECTRUM, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
DEDUCTIONS-
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING COSTS AND NET OF AT END
OF YEAR EXPENSES RECOVERIES OF YEAR
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
- -------------------------------
Year ended April 30, 1997: $1,488,000 $2,001,000 ($ 827,000) $2,421,000
Month ended April 30, 1996 $1,201,000 $ 46,000 -- $1,247,000
Year ended March 31, 1996: $1,371,000 $ 633,000 ($803,000) $1,201,000
Year ended March 31, 1995: $1,662,000 $ 244,000 ($535,000) $1,371,000
Inventory Valuation Account:
- ---------------------------
Year ended April 30, 1997: $ 805,000 $2,219,000 ($1,121,000) $1,903,000
Month ended April 30, 1996 $ 997,000 $ 57,000 ($ 249,000) $ 805,000
Year ended March 31, 1996: $ 1,123,000 $1,249,000 ($1,375,000) $ 997,000
Year ended March 31, 1995: $ 985,000 $1,173,000 ($1,035,000) $1,123,000
</TABLE>
S-2
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERING
EXHIBIT PAGE NO.
- ------- ----------
<S> <C> <C>
2 Asset Purchase Agreement dated as of March 23, 1996 by and among Software
Spectrum, Inc., Egghead, Inc. and DJ&J Software Corporation, as amended by First
Amended to Asset Purchase Agreement dated May 13, 1996 (incorporated by reference
to the Company's Current Report on Form 8-K dated March 26, 1996 and the
Company's Current Report on Form 8-K dated May 23, 1996).
3.1(a) Restated Articles of Incorporation of the Company, filed with the Secretary of
State of Texas on May 12, 1989, as amended (incorporated by reference to the
Company's Registration Statement No. 33-40794 on Form S-1).
3.1(b) Statement of Designation of Series A Junior Participating Preferred Stock
(incorporated by reference to the Company's Current Report on Form 8-K dated
December 13, 1996).
3.1(c) Articles of Amendment to Restated Articles of Incorporation, filed with the
Secretary of State of Texas on November 25, 1996. 30
3.1(d) Statement of Cancellation of Treasury Shares, filed with the Secretary of State
of Texas on March 21, 1997. 32
3.2 Restated Bylaws of the Company, as amended (incorporated by reference to the
Company's Registration Statement No. 33-40794 on Form S-1).
3.3 Rights Agreement between the Company and KeyCorp Shareholder Services, Inc.
dated December 1996, (incorporated by reference to the Company's Current Report
on Form 8-K dated December 13, 1996).
10.1 IBM Business Partner Agreement between the Company, IBM Corporation and Lotus
Development Corporation dated June 30, 1997. 33
10.2(a) Microsoft 1995/1996 Channel Agreement dated July 1, 1995 between Microsoft
Corporation and the Company, including Addenda dated July 1, 1995 (Appointment as
a Direct Reseller) and Addenda dated July 1, 1995 (Appointment as a Large Account
Reseller) (incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996).
10.2(b) Large Account Reseller Rebate Addendum to the 1995/1996 Microsoft Channel
Agreement dated July 1, 1995, as amended by Amendment No.1 dated January 1, 1996
("LAR Addendum") (incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1996).
10.2(c) Amendment No. 2 to LAR Addendum dated August 2, 1996 between Microsoft
Corporation and the Company. 59
10.2(d) Amendment No. 3 to the LAR Addendum dated January 17, 1997 between Microsoft
Corporation and the Company. 64
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
Sequential
Numbering
Exhibit Page No.
- ------- ----------
<S> <C> <C>
10.2(e) Microsoft Government Select Government Contractor Addendum to the 1995/1996
Microsoft Channel Agreement dated as of July 1, 1995 (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1996).
10.2(f) Rebate and Marketing Fund Addendum to the 1995/1996 Microsoft Channel Agreement
dated as of July 1, 1995, as amended by Amendment No. 1 dated January 1, 1996 (the
"Rebate and Marketing Fund Addendum") (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996).
10.2(g) Amendment No. 2 to the Rebate and Marketing Fund Addendum dated
August 2,1 996 between Microsoft Corporation and the Company. 69
10.2(h) Amendment No. 3 to the Rebate and Marketing Fund Addendum dated
January 17, 199 between Microsoft Corporation and the Company. 79
10.3 Microsoft Corporation 1995/1996 Authorized Government Large Account Reseller
Agreement dated April 1, 1995 between Microsoft Corporation and the Company
(incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996).
10.4(a) Commercial Lease Agreement, dated May 1, 1990, between CIIF Associates II Limited
Partnership and the Company (incorporated by reference to the Company's
Registration Statement No. 33-40794 on Form S-1).
10.4(b) Amendment to Lease Agreement dated March 31, 1995 between CIIF Associates II
Limited Partnership and the Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.5(a) Commercial Lease Agreement dated as of April 19, 1993, between Kancro, L.P. and
the Company (incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1993).
10.5(b) Amendment #2 - Expansion Agreement to Lease Agreement dated as of June 20, 1994
between Kancro, L.P. and the Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.5(c) Third Amendment to Commercial Lease Agreement dated effective April 1, 1995
between Kancro, L.P. and the Company (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.5(d) Fourth Amendment to Commercial Lease Agreement dated effective as of November 25,
1996 between Kranco, L.P. and the Company. 90
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
Sequential
Numbering
Exhibit Page No.
- ------- ----------
<S> <C> <C>
10.6 Form of Call Center Lease (Spokane) between DD&J Software corporation
and the Company (incorporated by reference to the Company's Current
Report on Form 8-K dated March 26, 1996).
10.7 Lease Agreement dated March 8, 1996 by and between Riverport Commerce Center, Inc.
and the Company (incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1996).
10.8 Lease Agreement dated April 26, 1996 by and between Beneficiaries of American
National Bank Trust Number 104601-03 and the Company (incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1996).
10.8(a) Credit Agreement dated as of May 3, 1996 among the Company, Texas
Commerce Bank, National Association, as Agent and other participating
financial institutions (the "Credit Agreement") (incorporated by reference to
the Company's Current Report on Form 8-K dated May 23, 1996).
10.8(b) First Amendment and Second Amendment to Credit Agreement dated as of
June 28, 1996 (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1996).
10.8(c) Amendment Letter to Credit Agreement dated as of September 30, 1996
(incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1996).
10.8(c) Fourth Amendment to Credit Agreement dated as of December 31, 1996
(incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1996).
10.8(e) Fifth Amendment to Credit Agreement dated as of March 31, 1997. 97
10.9 1989 Stock Option Plan of the Company, as amended (incorporated by reference
to the Company's Registration Statement No. 33-40794 on Form S-1).
10.10 Software Spectrum, Inc. Employee Stock Purchase Plan, as amended. 109
10.11 The Software Spectrum, Inc. 1993 Long Term Incentive Plan (incorporated by
reference to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994).
10.12 Employees' Profit Sharing Plan of the Company, Adoption Agreement dated
December 14, 1994 (incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995).
10.13 Form of Management Continuity Agreement between the Company and certain 120
executive officers dated as of January 10, 1997.
</TABLE>
-25-
<PAGE> 29
<TABLE>
<CAPTION>
Sequential
Numbering
Exhibit Page No.
- ------- ----------
<S> <C> <C>
10.14 Non-Employee Directors' Retainer Stock Plan (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter ended December 31, 1995).
11.1 Statement regarding Computation of Primary Earnings Per Share. 137
11.2 Statement regarding Computation of Fully Diluted Earnings Per Share. 138
13 Software Spectrum, Inc.'s 1997 Annual Report to Shareholders. 139
23 Consent of Grant Thornton LLP, Independent Accountants 178
24 Power of Attorney (included on the signature page of this Form 10-K).
27 Financial Data Schedule 179
99 Purchase and Sale Agreement dated as of April 2, 1996 by and among
Software Spectrum, Inc., Software Spectrum (NZ) Limited and Essentially Group
Limited, Essentially Group (NZ) Limited, Essentially Software (Wellington)
Limited, The McNabb Family Trust, McNabb No. 2 Family Trust, McNabb No. 3 Family
Trust, RMAD Trust, David Colvin and Gary McNabb ("Purchase and Sale Agreement")
(incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996).
99.1 First Amendment to Purchase and Sale Agreement dated September 1996 (incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996).
</TABLE>
<PAGE> 1
EXHIBIT 3.1(c)
ARTICLES OF AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION
OF
SOFTWARE SPECTRUM, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Restated Articles of Incorporation:
FIRST: The name of the corporation is SOFTWARE SPECTRUM, INC.
SECOND: The following amendment to the Restated Articles of Incorporation
of the corporation was adopted by the shareholders of the corporation on August
15, 1996 in the manner prescribed by the Texas Business Corporation Act:
BE IT RESOLVED, that Article IV of the Restated Articles of Incorporation,
as amended, of the Corporation be amended to read in its entirety as follows:
"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
<PAGE> 2
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 sham 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."
THIRD: The number of shares of the corporation outstanding at the time of
the adoption of such amendment was 4,335,233 shares of the corporation's common
stock, $.01 par value per share; and the number of shares entitled to vote
thereon was 4,335,233.
FOURTH: The number of shares voted for the foregoing amendment was
3,248,598.1590; and the number of shares voted against such amendment was
59,849.1640.
IN WITNESS WHEREOF, the undersigned officer of the corporation has
executed the Articles of Amendment on behalf of the corporation this 21st day
of October, 1996.
SOFTWARE SPECTRUM, INC.
By /s/ JUDY O. SIMS
-------------------------------------
Judy O. Sims, Chief Executive Officer
<PAGE> 1
EXHIBIT 3.1(d)
STATEMENT OF
CANCELLATION OF TREASURY SHARES
OF
SOFTWARE SPECTRUM, INC.
To the Secretary of State of the State of Texas:
Pursuant to the provisions of Article 4.11 of the Texas Business
Corporation Act, Software Spectrum, Inc. a Texas corporation, submits the
following statement of cancellation, by resolution of its board of directors,
of shares of the corporation reacquired by it, other than redeemable shares
redeemed or purchased:
1. The name of the corporation is Software Spectrum, Inc.
2. A resolution was duly adopted by the Board of Directors of Software
Spectrum, Inc. on February 27, 1997, authorizing the cancellation of
58,139 shares of Common Stock of the corporation held as treasury
shares of the corporation. The amount of stated capital represented
by the shares to be cancelled is Five Hundred Eighty One Dollars and
Thirty Nine Cents ($581.39).
3. The aggregate number of issued shares, itemized by class and and
series and par value, if any, after giving effect to such
cancellation is 4,360,692, itemized as follows:
<TABLE>
<CAPTION>
Par
Class Value Number of Shares
----- ----- ----------------
<S> <C> <C>
Common Stock $.01 4,360,692
</TABLE>
4. The amount of the stated capital of the corporation, after giving
effect to such cancellation is $43,606.92
IN WITNESS WHEREOF, I have set my hand hereto as of this 5th day of
March, 1997.
SOFTWARE SPECTRUM, INC.
By: /s/ Judy O. Sims
-----------------------------------
Judy O. Sims,
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.1
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
DISTRIBUTOR/RESELLER PROFILE FOR WORKSTATION SOFTWARE
- --------------------------------------------------------------------------------
We welcome you as our remarketer of workstation software which includes
Programs and Services from the IBM Corporation or the Lotus Development
Corporation, an IBM Company, or both.
This Profile covers the details of your approval as our Business
Partner-Distributor for Workstation Software or as our Business
Partner-Reseller for Workstation Software, to actively market and diligently
promote Programs and Services.
By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):
(a) this Profile;
(b) General Terms (Zl25-5478);
(c) the applicable Attachments referred to in this Profile; and
(d) Exhibits.
This Agreement and its applicable transaction documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Profile is signed, 1) any reproduction of
this Agreement or a transaction document made by reliable means (for example,
photocopy or facsimile) is considered an original, to the extent permissible
under applicable law and 2) all Programs and Services you market and Services
you perform under this Agreement are subject to it. If you have not already
signed an Agreement for Exchange of Confidential Information (AECI), your
signature on this Profile includes your acceptance of the AECI.
After signing this Profile, please return a copy to the address shown below.
<TABLE>
<S> <C>
Revised Profile (yes/no): No Date received by IBM/Lotus:
---------------- ----------------
Agreed to: (Business Partner name) Agreed to:
Software Spectrum, Inc. (IBM/Lotus Country Organization Name)
By /s/ [ILLEGIBLE] By
---------------------------------------- ----------------------------------------
Authorized signature Authorized signature
Name (type or print): Name (type or print): Joseph P. McLaughlin
Date: Date:
Business Partner no.: IBM/Lotus address:
Business Partner address: Lotus Development Corporation
55 Cambridge Parkway
Software Spectrum, Inc. Cambridge, MA 02142
2140 Merritt Drive
Garland, TX 75041
</TABLE>
<PAGE> 2
DETAILS OF OUR RELATIONSHIP
Contract Start Date (month/year): 7/97 Duration: 2 years
----- -----------
RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS:
For each approved relationship and additional terms, each of us agrees to the
terms of the following by signing this Profile. Copies of the Attachments are
included.
<TABLE>
<CAPTION>
APPLICABLE
APPROVED RELATIONSHIP (YES/NO) ATTACHMENT
<S> <C> <C> <C>
Remarketer Terms Attachment for Workstation Software yes Z125-5496-00 11/96
-----
Distributor Attachment for Workstation Software no Z125-5493-00 11/96
-----
You are approved to market to:
Remarketers no
-----
Reseller Attachment for Workstation Software yes Zl25-5492-00 11/96
-----
You are approved to market to:
End Users yes
-----
Remarketers no
-----
ADDITIONAL TERMS:
Advantage Attachment for Distributors Z125-5367-03 3/97
of Workstation Software no
-----
Advantage Attachment for Resellers Z125-5368-03 3/97
of Workstation Software yes
-----
Passport Attachment for Distributors Z125-5565-00 03/97
of Workstation Software no
-----
Passport Attachment for Resellers Z125-5566-00 03/97
of Workstation Software yes
-----
Academic Programs Attachment Z125-5563-00 03/97
for Distributors of Workstation Software no
-----
Academic Programs Attachment Z125-5564-00 03/97
for Resellers of Workstation Software yes
-----
Federal Alliance Offering Attachment Z125-5347-01 03/97
for Distributors of Workstation Software no
-----
Federal Alliance Offering Attachment Z125-5346-01 03/97
for Resellers of Workstation Software yes
-----
</TABLE>
Page 2 of 3
<PAGE> 3
PROGRAMS AND SERVICES:
You are approved to market the Programs and Services listed in the Workstation
Software Exhibit.
Workstation Software Programs requiring certification are specified in the
Exhibit.
The terms of the Exhibit apply to the Programs and Services listed in it.
MINIMUM ANNUAL ATTAINMENT (annual objective of your sales of Programs to your
Customers. The amount of a sale is the price you paid us for the Program):
---------------
Resellers: $3.OM in combined Lotus and IBM Programs
A minimum of $1.0M of the $3.OM must be in each of the
Lotus and IBM brands
Page 3 of 3
<PAGE> 4
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
GENERAL TERMS
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
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1. Definitions ............................................................. 2
2. Agreement Structure and Contract Duration ............................... 3
3. Our Relationship ........................................................ 4
4. Status Change ........................................................... 5
5. Confidential Information ................................................ 5
6. Marketing Funds and Promotional Offerings ............................... 6
7. Production Status ....................................................... 6
8. Patents and Copyrights .................................................. 6
9. Liability ............................................................... 7
10. Trademarks .............................................................. 7
11. Changes to the Agreement Terms .......................................... 8
12. Internal Use Products ................................................... 8
13. Demonstration, Development and Evaluation
Products ................................................................ 8
14. Electronic Communications ............................................... 9
15. Geographic Scope ........................................................ 9
16. Governing Law ........................................................... 9
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IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
GENERAL TERMS
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1. DEFINITIONS
BUSINESS PARTNER is a business entity which is approved by us to market
Products and Services under this Agreement.
CUSTOMER is either an End User or a Remarketer. We specify in your
Profile if we approve you to market to End Users or Remarketers, or
both.
END USER is anyone, who is not part of the Enterprise of which you are a
part, who uses Services or acquires Products for its own use and not for
resale.
ENTERPRISE is any legal entity (such as a corporation) and the
subsidiaries it owns by more than 50 percent. An Enterprise also
includes other entities as IBM and the Enterprise agree in writing.
LICENSED INTERNAL CODE is called "Code". Certain Machines we specify
(called "Specific Machines") use Code. International Business Machines
Corporation or one of its subsidiaries owns copyrights in Code or has
the right to license Code. IBM or a third party owns all copies of Code,
including all copies made from them.
MACHINE is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine" includes an
IBM Machine and any non-IBM Machine (including other equipment) that we
approve you to market.
PRODUCT is a Machine or Program, that we approve you to market, as we
specify in your Profile.
PROGRAM is an IBM Program or a non-IBM Program provided by us, under its
applicable license terms, that we approve you to market.
RELATED COMPANY is any corporation, company or other business entity:
1. more than 50 percent of whose voting shares are owned or controlled
indirectly, by either of us, or
2. which owns or controls, directly or indirectly, more than 50
percent of the voting shares of either of us, or
3. more than 50 percent of whose voting shares are under common
ownership or control directly or indirectly with the voting shares
of either of us.
However, any such corporation, company or other business entity is
considered to be a Related Company only so long as such ownership or
control exists. "Voting shares" are outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority.
REMARKETER is a business entity which acquires Products and Services, as
applicable, for the purpose of marketing.
SERVICE is performance of a task, provision of advice and counsel,
assistance, or use of a resource (such as a network and associated
enhanced communication and support) that we approve you to market.
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2. AGREEMENT STRUCTURE AND CONTRACT DURATION
PROFILES
We specify the details of our relationship (for example, the type of
Business Partner you are) in a document called a "Profile." Each of us
agrees to the terms of the Profile, the General Terms, the applicable
Attachments referred to in the Profile, and the Exhibit (collectively
called the "Agreement") by signing the Profile.
GENERAL TERMS
The General Terms apply to all of our Business Partners.
ATTACHMENTS
We describe, in a document entitled an "Attachment", additional terms
that apply. Attachments may include, for example, terms that apply to
the method of Product distribution (Remarketer Terms Attachment or
Complementary Marketing Terms Attachment) and terms that apply to the
type of Business Partner you are, for example, the terms that apply to
a Distributor relationship as described in the Distributor Attachment.
We specify in your Profile the Attachments that apply.
EXHIBITS
We describe in an Exhibit, specific information about Products and
Services, for example, the Products and Services you may market, and
warranty information about the Products.
TRANSACTION DOCUMENTS
We will provide to you the appropriate "transaction documents." The
following are examples of transaction documents, with examples of the
information and responsibilities they may contain:
1. invoices (item, quantity, price, payment terms and amount due); and
2. order acknowledgements (confirmation of Products and quantities
ordered).
CONFLICTING TERMS
If there is a conflict among the terms in the various documents, the
terms of:
1. a transaction document prevail over those of all the documents;
2. an Exhibit prevail over the terms of the Profile, Attachments and
the General Terms;
3. a Profile prevail over the terms of an Attachment and the General
Terms; and
4. an Attachment prevail over the terms of the General Terms.
If there is an order of precedence within a type of document, such
order will be stated in the document (for example, the terms of the
Distributor Attachment prevail over the terms of the Remarketer Terms
Attachment, and will be so stated in the Distributor Attachment).
OUR ACCEPTANCE OF YOUR ORDER
Products and Services become subject to this Agreement when we accept
your order by:
1. sending you a transaction document; or
2. providing the Products or Services.
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ACCEPTANCE OF THE TERMS IN A TRANSACTION DOCUMENT
You accept the terms in a transaction document by doing any of the
following:
1. signing it (those requiring a signature must be signed);
2. accepting the Product or Services;
3. providing the Product or Services to your Customer; or
4. making any payment for the Product or Services.
CONTRACT DURATION
We specify the contract start date and the duration in your Profile.
Unless we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. Each of us is
responsible to provide the other with three months written notice if
this Agreement will not be renewed.
3. OUR RELATIONSHIP
RESPONSIBILITIES
Each of us agrees that:
1. you are an independent contractor, and this Agreement is
non-exclusive. Neither of us is a legal representative or legal
agent of the other. Neither of us is legally a partner of the other
(for example, neither of us is responsible for debts incurred by
the other), and neither of us is an employee or franchise of the
other, nor does this Agreement create a joint venture between us;
2. each of us is responsible for our own expenses regarding
fulfillment of our responsibilities and obligations under the terms
of this Agreement;
3. neither of us will disclose the terms of this Agreement, unless
both of us agree in writing to do so, or unless required by law;
4. neither of us will assume or create any obligations on behalf of
the other or make any representations or warranties about the
other, other than those authorized;
5. any terms of this Agreement, which by their nature extend beyond
the date this Agreement ends, remain in effect until fulfilled and
apply to respective successors and assignees;
6. we may withdraw a Product or Service from marketing at any time;
7. we will allow the other a reasonable opportunity to comply before
it claims the other has not met its obligations, unless we specify
otherwise in the Agreement;
8. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise
provided by local law without the possibility of contractual
waiver;
9. failure by either of us to insist on strict performance or to
exercise a right when entitled does not prevent either of us from
doing so at a later time, either in relation to that default or any
subsequent one;
10. neither of us is responsible for failure to fulfill obligations
due to causes beyond the reasonable control of either of us;
11. IBM reserves the right to assign, in whole or in part, this
Agreement and any orders hereunder, to any other IBM Related
Company;
12. IBM does not guarantee the results of any of its marketing plans;
and
13. each of us will comply with all applicable laws and regulations
(such as those governing consumer transactions).
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OTHER RESPONSIBILITIES
You agree:
1. to be responsible for customer satisfaction for all your
activities, and to participate in customer satisfaction programs as
we determine;
2. that your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber
them in any way. For example, you can not sell your approval to
market our Products or Services or your rights to use our
Trademarks;
3. to maintain the criteria we specified when we approved you;
4. to achieve and maintain the certification requirements for the
Products and Services you are approved to market, as we specify in
your Profile;
5. not to assign or otherwise transfer this Agreement, your rights
under it, or any of its approvals, or delegate any duties, unless
expressly permitted to do so under this Agreement. Otherwise, any
attempt to do so is void;
6. to conduct business activities with us (including placing orders)
which we specify in the operations guide, using our automated
electronic system if available. You agree to pay all your expenses
associated with it such as your equipment and communication costs;
7. that when we provide you with access to our information systems, it
is only in support of your marketing activities. Programs we
provide to you for your use with our information systems, which are
in support of your marketing activities, are subject to the terms
of their applicable license agreements, except you may not transfer
them;
8. to promptly provide us with IBM documents we may require from you
or the End User (for example, our license agreement signed by the
End User) when applicable; and
9. to comply with the highest ethical principles in performing under
the Agreement. You will not offer or make payments or gifts
(monetary or otherwise) to anyone for the purpose of wrongfully
influencing decisions in favor of IBM, directly or indirectly. IBM
may terminate this Agreement immediately in case of 1) a breach of
this clause or 2) when IBM reasonably believes such a breach has
occurred.
OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT
We may periodically review your compliance with this Agreement. You
agree to provide us with relevant records on request. We may reproduce
and retain copies of these records. We, or an independent auditor, may
conduct a review of your compliance with this Agreement on your
premises during your normal business hours.
If, during our review of your compliance with this Agreement, we find
you have materially breached the terms of this relationship, in
addition to our rights under law and the terms of this Agreement, for
transactions that are the subject of the breach, you agree to refund
the amount equal to the discount (or fee, if applicable) we gave you
for the Products or Services or we may offset any amounts due to you
from us.
4. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any change or anticipated change in your financial
condition, business structure, or operating environment (for example,
a material change in equity ownership or management or any substantive
change to information supplied in your application). Upon notification
of such change, (or in the event of failure to give notice of such
change) IBM may, at its sole discretion, immediately terminate this
Agreement.
S. CONFIDENTIAL INFORMATION
This section comprises a Supplement to the IBM Agreement for
Exchange of Confidential Information. "Confidential Information"
means:
1. all information IBM marks or otherwise states to be confidential;
2. any of the following prepared or provided by IBM:
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a. sales leads,
b. information regarding Prospects,
c. unannounced information about Products and Services,
d. business plans, or
e. market intelligence;
f. any of the following written information you provide to us on
our request and which you mark as confidential:
1) reporting data,
2) financial data, or
3) the business plan.
All other information exchanged between us is nonconfidential, unless
disclosed under a separate Supplement to the IBM Agreement for
Exchange of Confidential Information.
6. MARKETING FUNDS AND PROMOTIONAL OFFERINGS
We may provide marketing funds and promotional offerings to you. If we
do, you agree to use them according to our guidelines and to maintain
records of your activities regarding the use of such funds and
offerings for three years. We may withdraw or recover marketing funds
and promotional offerings from you if you breach any terms of the
Agreement. Upon notification of termination of the Agreement,
marketing funds and promotional offerings will no longer be available
for use by you, unless we specify otherwise in writing.
7. PRODUCTION STATUS
Each IBM Machine is manufactured from new parts, or new and used
parts. In some cases, the IBM Machine may not be new and may have been
previously installed. You agree to inform your Customer of these terms
in writing (for example, in your proposal or brochure).
8. PATENTS AND COPYRIGHTS
For the purpose of this section only, the term Product includes
Licensed Internal Code (if applicable).
If a third party claims that a Product we provide under this Agreement
infringes that party's patents or copyrights, we will defend you
against that claim at our expense and pay all costs, damages, and
attorneys' fees that a court finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If you maintain an inventory, and such a claim is made or appears
likely to be made about a Product in your inventory, you agree to
permit us either to enable you to continue to market and use the
Product, or to modify or replace it. If we determine that none of
these alternatives is reasonably available, you agree to return the
Product to us on our written request. We will then give you a credit,
as we determine, which will be either 1) the price you paid us for the
Product (less any price-reduction credit), or 2) the depreciated
price.
This is our entire obligation to you regarding any claim of
infringement.
CLAIMS FOR WHICH WE AM NOT RESPONSIBLE
We have no obligation regarding any claim based on any of the
following:
1. anything you provide which is incorporated into a Product;
2. your modification of a Product, or a Program's use in other than
its specified operating environment;
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3. the combination, operation, or use of a Product with any Products
not provided by us as a system, or the combination, operation, or
use of a Product with any product, data, or apparatus that we did
not provide; or
4. infringement by a non-IBM Product alone, as opposed to its
combination with Products we provide to you as a system.
9. LIABILITY
Circumstances may arise where, because of a default or other
liability, one of us is entitled to recover damages from the other. In
each such instance, regardless of the basis on which damages can be
claimed, the following terms apply as your exclusive remedy and our
exclusive liability.
OUR LIABILITY
We are responsible only for:
1. payments referred to in the "Patents and Copyrights" section above;
2. bodily injury (including death), and damage to real property and
tangible personal property caused by our Products; and
3. the amount of any other actual loss or damage, up to the greater of
$100,000 or the charges (if recurring, 12 months' charges apply)
for the Product that is the subject of the claim.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances (except as required by law) are we liable for
any of the following:
1. third-party claims against you for losses or damages (other than
those under the first two items above in the subsection entitled
'Our Liability');
2. loss of, or damage to, your records or data; or
3. special, incidental, or indirect damages, or for any economic
consequential damages (including lost profits or savings) even if
we are informed of their possibility.
YOUR LIABILITY
In addition to damages for which you are liable under law and the
terms of this Agreement, you will indemnify us for claims made against
us by others (particularly regarding statements, representations, or
warranties not authorized by us) arising out of your conduct under
this Agreement or as a result of your relations with anyone else.
10. TRADEMARKS
We will notify you in written guidelines of the IBM Business Partner
title and emblem which you are authorized to use. You may not modify
the emblem in any way. You may use our Trademarks (which include the
title, emblem, IBM trade marks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market;
and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the
Trademarks will be waived, since the use of this asset is in
conjunction with marketing activities for Products and Services.
You agree to promptly modify any advertising or promotional materials
that do not comply with our guidelines. If you receive any complaints
about your use of a Trademark, you agree to promptly notify us. When
this Agreement ends, you agree to promptly stop using our Trademarks.
If you do not, you agree to pay any expenses and fees we incur in
getting you to stop.
You agree not to register or use any mark that is confusingly similar
to any of our Trademarks.
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Our Trademarks, and any goodwill resulting from your use of them,
belong to us.
11. CHANGES TO THE AGREEMENT TERMS
We may change the terms of this Agreement by giving you one month's
written notice.
We may, however, change the following terms without advance notice:
1. those we specify in this Agreement as not requiring advance notice;
2. those of the Exhibit unless otherwise limited by this Agreement;
and
3. those relating to safety and security.
Otherwise, for any other change to be valid, both of us must agree in
writing. Changes are not retroactive. Additional or different terms in
an order or other communication from you are void.
12. INTERNAL USE PRODUCTS
You may acquire Products you are approved to market for your internal
use within your Business Partner operations. Except for personal
computer Products, you are required to advise us when you order
Products for your internal use.
We will specify in your Exhibit the discount or price, as applicable,
at which you may acquire the Products for internal use. Except for
personal computer Products, such Products do not count toward 1) your
minimum annual attainment 2) toward determination of your discount or
price, as applicable or 3) for determining your marketing or
promotional funds.
Any value added enhancement or systems integration services otherwise
required by your relationship is not applicable when you acquire
Products for internal use. You must retain such Products for a minimum
of 12 months, unless we specify otherwise in the Exhibit.
13. DEMONSTRATION, DEVELOPMENT AND EVALUATION PRODUCTS
You may acquire Products you are approved to market for demonstration,
development and evaluation purposes, unless we specify otherwise in
the Exhibit. Such Products must be used primarily in support of your
Product marketing activities.
We will specify in your Exhibit the Products we make available to you
for such purposes, the applicable discount or price, and the maximum
quantity of such Products you may acquire and the period they are to
be retained. The maximum number of input/output devices you may
acquire is the number supported by the system to which they attach.
If you acquired the maximum quantity of Machines, you may still
acquire a field upgrade, if available.
We may decrease the discount we provide for such Products on one
month's written notice.
You may make these Products available to a Customer for the purpose of
demonstration and evaluation. Such Products may be provided to an End
User for no more than three months. For a Program, you agree to ensure
the Customer has been advised of the requirement to accept the terms
of a license agreement before using the Program.
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14. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means, and
such communication is acceptable as a signed writing to the extent
permissible under applicable law. Both of us agree that for all
electronic communications, an identification code (called a "user ID")
contained in an electronic document is legally sufficient to verify
the sender's identity and the document's authenticity.
15. GEOGRAPHIC SCOPE
All the rights and obligations of both of us are valid only in the
United States and Puerto Rico.
16. GOVERNING LAW
The laws of the State of New York govern this Agreement.
The "United Nations Convention on Contracts for the International Sale
of Goods" does not apply.
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IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
REMARKETER TERMS ATTACHMENT FOR WORKSTATION SOFTWARE
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TABLE OF CONTENTS
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1. Our Relationship ............................ 2
2. Ordering and Delivery ....................... 2
3. Returns ..................................... 3
4. Price, Invoicing, Payment and Taxes ......... 3
5. Export ...................................... 5
6. Title ....................................... 5
7. Risk of Loss ................................ 5
8. Warranty .................................... 5
9. Ending the Agreement ........................ 5
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IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
REMARKETER TERMS ATTACHMENT FOR WORKSTATION SOFTWARE
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1. OUR RELATIONSHIP
As our Business Partner, you market to your Customers the Programs and
Services (including shrink-wrap Services) we provide to you. These
terms apply to Business Partners whose method of distribution is under
this Agreement and includes Distributors and Resellers for Workstation
Software.
RESPONSIBILITIES
Each of us agrees:
1. each of us is free to set its own prices and terms;
2. neither of us will discuss its Customer prices and terms in the
presence of the other; and
3. we offer a money back guarantee for IBM and Lotus Programs to End
Users. You agree to 1) accept their return within the time frame we
specify, 2) refund the full amount the Customer paid for the
returned Programs, and 3) dispose of them (including all the
components) as we specify.
OTHER RESPONSIBILITIES
You agree to:
1. provide high quality technical support, including effective
"hot-line" (or equivalent) support to your Customers, as
applicable;
2. provide us with sufficient, free and safe access to your
facilities, at a mutually convenient time, for us to fulfill our
obligations;
3. retain records, as we specify in the operations guide, of each
Program and Service transaction (for example, a sale or credit) for
three years;
4. maintain sufficient inventory to meet Customer demands;
5. provide us with marketing, sales, and inventory information for our
Programs and Services as we specify in the operations guide;
6. provide a dated sales receipt (or its equivalent, such as an
invoice) to your Customers before or upon delivery of Programs and
Services; and
7. when you are approved to market to Remarketers, market Programs and
Services which require certification only to Remarketers who are
certified to market them.
2. ORDERING AND DELIVERY
You may order from us as we specify in the operations guide.
We will agree to a location to which we will ship. We may establish
criteria for you to maintain at such location (for example, certain
physical characteristics, such as a loading dock).
Upon becoming aware of any discrepancy between our shipping manifest
and the Programs and Services received from us, you agree to notify us
immediately. We will work with you to reconcile any differences.
Although we do not warrant delivery dates, we will use reasonable
efforts to meet your requested delivery dates.
We select the method of transportation and pay associated charges for
Programs and Services we ship.
If we are unable to stop shipment of an order you cancel, and you
return such Programs or Services to us after shipment, our returns
terms apply.
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3. RETURNS
You must request and receive approval from us to return Programs and
Services. We will inform you in writing of the schedule by which you
may return Programs and Services to us. Such Programs and Services
must have been acquired directly from us. We will issue a credit to
you when we accept the returned Programs and Services. The credit will
be based on the price you paid for the Programs and Services, less any
price adjustments. They must be received by us within one month of our
approving their return, unless we specify otherwise to you in writing.
You agree to ensure that the Programs and Services are free of any
legal obligations or restrictions that prevent their return. We accept
them only from locations, within the country, to which we shipped
them. We will reject any that do not comply with these terms.
Additional information will be provided to you in writing.
CURRENT PROGRAMS AND SERVICES
Current Programs and Services are those that are currently marketed by
us. For purposes of rebalancing your inventory, any current Programs
and Services may be returned to us for credit. You agree to pay
shipping and associated charges for Programs and Services you return.
Returned Programs and Services must be in our unopened and undamaged
packages.
WITHDRAWN PROGRAMS AND SERVICES
Withdrawn Programs and Services are those which are no longer marketed
by us. Requests to return withdrawn Programs and Services must be
submitted within seven months from the date of withdrawal or
"end-of-life" date. You agree to pay shipping and associated charges
for Programs and Services you return. Returned Programs and Services
must be in their unopened and undamaged packages.
UNSALABLE PROGRAMS
Unsalable Programs are those which are:
1. defective;
2. damaged;
3. returned by the End User under our money-back guarantee;
4. returned because the End User did not accept the terms of the
license agreement; or
5. returned by the End User under the terms of their warranty.
You agree to refund the amount paid for Programs returned by your
customer for any of the above reasons.
We are responsible for transportation charges we authorize for the
return of Unsalable Programs.
4. PRICE, INVOICING, PAYMENT AND TAXES
PRICE
The price for each Program and Service will be made available to you
in a communication which we provide to you in published form or
through our electronic information systems or a combination of both.
The price for each Program or Service is the lower of the price in
effect on the date we receive your order or the date we ship a Program
or Service to you, if it is within six months of the date we receive
your order.
However, if we receive your order after a price increase notification,
but before the effective date of the price increase, the price in
effect is the higher price. An exception to this is for orders for
shrink-wrap Programs (including "use pack" and "license pack") for
quantities the sum of which is not more than your prior four weeks
sales as reported to us. For such orders, the price in effect is the
lower price.
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PRICE CHANGES
We may change prices at any time. We will inform you of any price
changes and endeavor to give you prior price change notification.
You will receive the benefit of a price decrease for Programs or
Services we ship on or after the effective date of the decrease.
If we decrease the price for a Program or Service, you will be
eligible to receive a price decrease credit for those in your
inventory in the country from which they were acquired from us.
However, if acquired from us under a special offering (for example,
promotional price or other special incentive), they may not be
eligible for a full credit. They must have been acquired directly from
us.
Such inventory is your on-hand inventory level, your returns in
transit to us, and those in transit from us to you, all on the day
prior to the effective date of the price decrease. You are required to
report, in a format we specify in the operations guide, such inventory
level within one month of the price decrease.
The price decrease credit is the difference between the price you
paid, after any adjustments, and the new price. We reserve the right
to audit your inventory and records on your premises.
INVOICING, PAYMENT AND TAXES
Amounts are due upon receipt of invoice and payable as specified in a
transaction document. You agree to pay accordingly, including any late
payment fee.
Details of any late payment fee will be provided upon request at the
time of order and will be included in the invoice.
You may use a credit only after we issue it.
If any authority requires us to include in our invoice to you a duty,
tax, levy, or fee which they impose, excluding those based on our net
income, upon any transaction under this Agreement, then you agree to
pay that amount.
RESELLER TAX EXEMPTION
You agree to provide us with your valid reseller exemption
documentation for each applicable taxing jurisdiction to which we ship
Programs and Services. If we do not receive such documentation we will
charge you applicable taxes and duties. You agree to notify us
promptly if this documentation is rescinded or modified. You are
liable for any claims or assessments that result from any taxing
jurisdiction refusing to recognize your exemption.
PURCHASE MONEY SECURITY INTEREST
You grant us a purchase money security interest in your proceeds from
the sale of, and your accounts receivable for, Programs and Services,
until we receive the amounts due. You agree to sign an appropriate
document, (for example, a "UCC-1") to permit us to perfect our
purchase money security interest.
FAILURE TO PAY ANY AMOUNTS DUE
If you fail to pay any amounts due in the required period of time, you
agree that we may do one or more of the following, unless precluded by
law:
1. impose a finance charge, as we specify to you in writing, up to the
maximum permitted by law, on the portion which was not paid during
the required period;
2. require payment on or before delivery of Programs or Services;
3. repossess any Programs and Services for which you have not paid. If
we do so, you agree to pay all expenses associated with
repossession and collection, including reasonable attorneys' fees.
You agree to make the Programs and Services available to us at a
site that is mutually convenient;
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4. not accept your order until any amounts due are paid;
5. terminate this Agreement; or
6. pursue any other remedy available at law.
We may offset any amounts due you, or designated for your use (for
example, marketing funds or promotional offerings), against amounts
due us or any of our Related Companies.
In addition, if your account with any of our Related Companies becomes
delinquent, we may invoke any of these options when allowable by
applicable law.
5. EXPORT
You may actively market Programs and Services only within the
geographic scope specified in this Agreement. You may not market
outside this scope and you agree not to use anyone else to do so.
6. TITLE
We do not transfer a Program's title.
7. RISK OF LOSS
We bear the risk of loss of, or damage to, a Program until its initial
delivery from us to you. Thereafter, you assume the risk.
8. WARRANTY
Warranty terms for Programs are described in the Program's license
terms. Unless we specify otherwise, we provide other vendor Programs
WITHOUT WARRANTY OF ANY KIND. However, other vendors may provide their
own warranties.
9. ENDING THE AGREEMENT
Either of us may terminate this Agreement, with or without cause, on
three months' written notice. If, under applicable law, a longer
period is mandatory, then the notice period is the minimum notice
period allowable.
If we terminate for cause (such as you not meeting your minimum annual
attainment) we may, at our discretion, allow you a reasonable
opportunity to cure. If you fail to do so, the date of termination is
that specified in the notice.
However, if either party breaches a material term of the Agreement,
the other party may terminate the Agreement on written notice.
Examples of such breach by you are: if you do not maintain customer
satisfaction; if you do not comply with the terms of a transaction
document; if you repudiate this Agreement; or if you make any material
misrepresentations to us. You agree that our only obligation is to
provide the notice called for in this section and we are not liable
for any claims or losses if we do so.
At the end of this Agreement, you agree to:
1. pay for or return to us, at our discretion, any Programs or
Services for which you have not paid; and
2. allow us, at our discretion, to acquire any other Programs or
Services in your possession or control, at the price you paid us,
less any credits issued to you.
Programs to be returned must be in their unopened and undamaged
packages and in your inventory (or in transit from us) on the day this
Agreement ends. We will inspect the Programs, and reserve the right to
reject them. You agree to pay all the shipping charges.
At the end of this Agreement, each of us agrees to immediately settle
any accounts with the other. When allowable by applicable law, we may
offset any amounts due you against amounts due us or any of our
Related Companies.
You agree that if we permit you to perform certain activities after
this Agreement ends, you will do so under the terms of this Agreement.
Page 5 of 5
<PAGE> 18
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
RESELLER ATTACHMENT FOR WORKSTATION SOFTWARE
- -------------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer Terms
Attachment for Workstation Software.
1. MARKETING APPROVAL
You are approved as a Reseller for Workstation Software under
remarketer terms for workstation software to market Programs and
Services.
2. YOUR RESPONSIBILITIES TO US
You agree:
1. to develop a mutually acceptable business plan with us. Such plan
will document your marketing plans as they apply to our
relationship. We will review the plan, at a minimum, twice a year;
2. that, unless precluded by applicable law, one of the requirements
for you to retain this relationship is that you achieve the minimum
annual attainment, as we specify in your Profile;
3. to order Programs and Services, as we specify in the operations
guide;
4. to maintain trained personnel for the Programs and Services you are
approved to market;
5. to provide us, on our request, relevant financial information about
your business so we may, for example, use this information in our
consideration to extend credit terms to you. We will require, at a
minimum, an annual audited financial report;
6. to maintain the capability to demonstrate the Programs, as we
specify in writing;
7. to report Program defects to us, as applicable; and
8. to support our marketing strategy by maintaining an inventory of
selected Programs and Services, as we specify in writing.
3. YOUR RESPONSIBILITIES TO END USERS
You agree to:
1. identify and select the required technology based upon the End
User's requirements; inform the End User of Program installation
requirements, and provide configuration support;
2. comply with the terms regarding Program upgrades as we specify on
the Program package and in the Exhibit;
3. fulfill all valid orders for Programs and Services which you
market;
4. inform the End User that the sales receipt (or other documentation,
such as Proof of Entitlement, if it is required) will be necessary
for proof of warranty entitlement;
5. provide defect-related Program Services by copying and providing
service materials (for example, "slipstream" or "corrective service
diskettes") to your End Users who are licensed for the Program. You
may provide an enhanced version of this support through our
applicable Services you market to the End User. If you do, we
assume customer satisfaction for such support;
6. be the primary contact for Program information and technical
support. Such support responsibility may be provided through our
applicable Services you market to the End User. If you market our
Services, we assume customer satisfaction responsibility for such
support; and
7. assist your End User in Program problem determination and
resolution, unless this responsibility is delegated as specified in
items 5 and 6 above.
Page 1 of 1
<PAGE> 19
[IBM LOGO]
IBM BUSINESS PARTNER AGREEMENT
UNITED STATES
EXHIBIT FOR WORKSTATION SOFTWARE
The Exhibit for Workstation Software consists of terms and conditions specific
to Workstation Software Programs and Services, and an Eligible Programs and
Services List (Lotus/IBM Channel Price List). In order to provide you with the
most current Programs and Services information, we will update the Lotus/IBM
Channel Price List database electronically. You may access the list on the
Lotus Notes Network (LNN).
ELIGIBLE PROGRAMS AND SERVICES
You are eligible to order and market all Programs and Services maintained on
the Eligible Programs and Services List except those Programs identified as
certification or authorization required.
You become eligible to order and market Certified Programs once you have met
the certification criteria. Distributors may only market Certified Programs to
Remarketers who have met the certification criteria. Certification requirements
will be included in the announcement of Certified Programs.
You become eligible to order and market Authorized Programs when you are
authorized under the terms of the applicable Attachment. These include Programs
only available under the terms of the Passport, Advantage, Academic Programs
and the Federal Alliance Offering Attachments.
PROGRAM WARRANTY
Warranty terms are as specified in the Remarketer Terms Attachment for
Workstation Software.
PROGRAM UPGRADES AND LOTUS MAINTENANCE
The upgrade designation and the upgrade qualification criteria will be
identified on Program upgrade packages.
End user Customers may acquire upgrades or Lotus Maintenance only up to the
number for which they are currently authorized.
You must assist your Customers to understand the qualifying criteria, as
applicable.
DEMONSTRATION AND EVALUATION PROGRAMS
A reasonable number of copies for most Programs may be made available to you at
no charge for the purpose of demonstration to, and evaluation by, your
Customers. Demonstration and Evaluation copies are specially marked as not for
resale packages and may be provided to End Users for no longer than three
months. Such Programs must be returned by the End User with all media, any
Program copies, and documentation included. Ordering procedures and information
regarding eligible Demonstration and Evaluation Programs are included in the
operations guide. Development copies are not available for Workstation Software
Programs.
INTERNAL USE
Workstation Software Programs will be available to you for your internal
Business Partner operations. Your price for such Programs will be based on the
best discounted price available to End Users through our standard volume
offerings, but will not be subject to any volume requirement. Ordering
procedures for internal Use Programs are included in the operations guide.
INTERNAL USE FOR DISTRIBUTOR'S CUSTOMERS
If you are approved as a Distributor of Workstation Software, as an exception
to your Distributor Marketing Approval (which does not allow you to market to
End Users), you may provide Programs to your Remarketers for use within their
internal remarketer operations. Such Programs are available to you at standard
Distributor or volume offering prices, as applicable. All Lotus Passport and
IBM Software Advantage End User volume requirements apply.
<PAGE> 20
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
FEDERAL ALLIANCE OFFERING ATTACHMENT FOR
RESELLERS OF WORKSTATION SOFTWARE
- -------------------------------------------------------------------------------
These terms are in addition to or modify and prevail over the terms of the
Remarketer Terms Attachment for Workstation Software.
YOUR RESPONSIBILITIES
Each year for which you are approved for the terms of this Attachment, we
will provide you with a Letter of Supply in support of your response
requirements for GSA awards. We may provide other documentation, as
required by the GSA, upon your request.
You are protected for price increases for Programs you market under a GSA
award. We will specify the price protection terms to you in writing.
For an open bid opportunity, on an exception basis, you may provide
Programs to qualifying Remarketers (system integrators, prime
contractors, subcontractors and 8A companies) when such Remarketers
provide Programs under the terms of a Federal award to End Users who
qualify for GSA terms. We may provide you with a rebate on Programs you
provide to Remarketers. Any such rebate will be a percent of the price
you paid us for the Program, less any credits we issued to you. We will
inform you in writing of that percent. In order to obtain the rebate, you
agree to report to us in a time frame and format we specify, certain
information regarding the Programs provided to such Remarketers.
For Programs you market to qualifying Remarketers for their sale to a
Federal agency or department, you agree to:
1. prior to your distribution of Programs to a Remarketer, obtain a copy
of the documentation substantiating that the Remarketer has a valid
award in effect from the Federal agency for the specific Programs and
quantities to be provided to the agency by the Remarketer. A valid
award must include the award number, the Federal End User (agency)
name and ship-to zip code;
2. maintain for one year from the transaction date, a copy of the award
documentation with a copy of your invoice to the Remarketer;
3. perform an audit, at our request, of the Remarketers to whom you
provided Programs, under the terms of this offering, to ensure the
awards have been fulfilled in accordance with the award terms;
4. report to us, in a time frame and format we specify, your sales, under
the terms of this offering, to a Federal agency or department, or to
Remarketers who provide Programs to a Federal agency or department;
5. ensure that the terms in any agreement you may have with your
Remarketers are not in conflict with this Agreement;
6. distribute Programs and Services to them on an equitable basis;
7. inform them that you provide sales and technical support (you are
responsible for their satisfaction with such support);
8. provide configuration support to them for Programs that require it;
9. maintain sufficient inventory of Programs and Services to meet
Remarketer demand;
10. provide defect-related Program Services by copying and providing to
your Remarketers the service materials (for example, "slipstream" or
"corrective service diskettes") we provide to you;
Page 1 of 2
<PAGE> 21
11. fulfill all valid orders from Remarketers for eligible Programs and
Services;
12. provide Programs for demonstration, evaluation and internal use
purposes to Remarketers on their request;
13. assist your Remarketer in Program problem determination and
resolution; and
14. provide the following items to Remarketers when we give such items to
you for distribution to them:
a. promotional offerings and material;
b. incentives;
c. marketing funds;
d. support documentation; and
e. advertising material.
You agree to distribute them proportionally and according to the
procedures we specify, and require the Remarketer to properly
implement or distribute them, as applicable.
Your Remarketers' Responsibilities
You agree to inform your Remarketers of their responsibility to:
1. identify and select the required technology based upon the End User's
requirements; inform the End User of Program installation
requirements; and provide configuration support;
2. be the primary contact for Program information and technical support.
Such support responsibility may be provided through our applicable
Services they market to the End User. If they market our Services, we
assume customer satisfaction responsibility for such support;
3. report Program defects to you, as applicable;
4. refund the amount paid for a Program returned because the End User:
a. returned it under the terms of its warranty;
b. does not accept the terms of the license; or
c. returned it under the money-back guarantee.
5. comply with the terms regarding Program upgrades as we specify on the
Program package and in the Exhibit;
6. fulfill all valid orders for Programs and Services which they market;
7. provide defect-related Program Services by copying and providing
service materials (for example, "slipstream" or "corrective service
diskettes") to their End Users who are licensed for the Program. They
may provide an enhanced version of this support through our applicable
Services they market to the End User. If they do, we assume customer
satisfaction responsibility for such support;
8. assist the End User in Program problem determination and resolution,
unless this responsibility is delegated as specified in item 7 above;
9. retain records of each sales transaction for three years;
10. provide the support necessary to maintain customer satisfaction;
11. provide a dated sales receipt or its equivalent (such as an invoice)
to the End User; and
12. inform the End User the sales receipt the Remarketer provides (or
other documentation, such as Proof of Entitlement, if it is required)
will be necessary for proof of warranty entitlement.
Page 2 of 2
<PAGE> 22
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
ACADEMIC PROGRAMS ATTACHMENT FOR RESELLERS
OF WORKSTATION SOFTWARE
- -------------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer Terms
Attachment for Workstation Software.
We approve you to market Academic Programs, specified as such by us, to
Academic End Users.
1. YOUR RESPONSIBILITIES
You agree:
1. to market Academic Programs only to End Users who are those who
have enrolled as full or part-time students, faculty, or
instructional staff of academically accredited not-for-profit
institutions (called Academic End Users). Additionally,
academically accredited not-for-profit institutions are Academic
End Users;
2. when you sell to individual Academic End Users, to require them to
provide you with a valid photo identification, or a similar
identification commonly used by the institution at which they are
enrolled, that validates their status as an Academic End User. You
also agree to retain a record of such documentation for a period of
one year;
3. when you sell to an institutional Academic End User, to obtain a
purchase order from that institution;
4. to create unique stock keeping unit (SKU) numbers for Academic
Programs, such that they may be distinguished within your inventory
from their non-Academic Program equivalents;
5. when you display Academic Programs in a retail environment, to
clearly display their status as Academic Programs;
6. to maintain and produce, on our request, your record of Academic
Program sales. In the event you are unable to produce evidence that
such Programs were sold to Academic End Users, we will invoice you
for the difference in price between the Academic Programs and their
non-Academic Program equivalents;
7. to report to us your sales of Academic Programs, as we specify in
the operations guide; and
8. that if you breach the terms of this Attachment, we may suspend or
terminate our approval of you to market Academic Programs.
Page 1 of 1
<PAGE> 23
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
PASSPORT ATTACHMENT FOR RESELLERS OF WORKSTATION SOFTWARE
- -------------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer Terms
Attachment for Workstation Software.
1. DEFINITIONS
PASSPORT CONTRACT OPTION
The Passport Contract Option is a Lotus worldwide purchasing option
designed for End Users who can commit to buying quantities of Lotus
software, maintenance and support we specify totaling 1,000 points or
more during the End User's initial two-year contract period. Passport
Contract Option End Users sign a two year Lotus Passport Program
Agreement.
PASSPORT ENTERPRISE OPTION
The Passport Enterprise Option is a Lotus worldwide purchasing option
designed for End Users who can commit to purchasing Lotus software we
specify for a minimum of 500 users. Enterprise Option End Users sign a
two-year Lotus Passport Program Agreement.
PASSPORT TOTAL CAMPUS OPTION
The Passport Total Campus Option is a Lotus purchasing option designed
for educational End Users who may purchase Lotus academic software for up
to the total number of Full Time Equivalent (FTE) students, faculty and
staff at their institution. Eligible educational End Users sign a three
year Lotus Academic Passport Program Total Campus Option Enrollment form.
PASSPORT GOVERNMENT CONTRACT OPTION
The Passport Government Contract Option is a Lotus purchasing option
designed for United States Federal, State and Local Government End Users
that are able to forecast their software needs and manage software
acquisitions and upgrade requirements over an extended period. It is
structured to accommodate the specific requirements of Government
contracts. Government Contract Option End Users sign the Government
Contract Option Volume Purchase Forecast Schedule.
2. LIMITATIONS
MARKETING APPROVAL
You may market the Contract, Enterprise, Total Campus, and Government
Contract Options of the Lotus Passport Program (Passport) to End Users
with whom Lotus has a signed Lotus Passport Program Agreement (Passport
End Users).
INTERNATIONAL FULFILLMENT
You may initiate and be named by Passport End Users as a Passport
Reseller on all their Passport Agreements in any geography in which
Passport is available. Purchases you make from Lotus will be in the
currency of the country in which the purchase is made, or in a currency
we otherwise specify. Passport End User certificates resulting from such
transactions, regardless of installation location, will be in the
language of the country of the Lotus facility from which you purchased
Passport. These certificates will be distributed by us to the location
specified in the Passport End User's enrollment form.
Page 1 of 2
<PAGE> 24
PASSPORT MEDIA AND DOCUMENTATION PACKS
Passport media containing Lotus software and documentation packs
containing Lotus software documentation will be available to you for
distribution only to your Passport End Users and other End Users we
specify. You may inventory Passport media and documentation packs as you
would any Lotus shrink-wrap packages.
3. YOUR RESPONSIBILITIES
Each Passport End User may have an unlimited number of Sites (Site as
defined in the End User's Lotus Passport Program Agreement), all
contributing to one single contract commitment. Whenever a Site of an End
User designates you as their Passport Reseller, this designation will be
communicated to you. You agree to then process all orders for Programs
from this Site as we specify to you.
You agree to accept all Site orders from End Users throughout the term of
their Lotus Passport Program Agreement and to report such sales to us as
we specify in the operations guide.
When we advise you that one of your Passport End Users is deficient and
is approaching, or has reached, their contract performance milestone date
or their maintenance renewal anniversary date, you agree to solicit
purchase orders from that Passport End User until the Passport End User
is in compliance with their Lotus Passport Program Agreement.
You agree to:
1. pass through to your Passport End Users, at the time of all applicable
transactions, any Lotus special reduction incentives designed to
encourage Passport End User purchasing activity, as defined by Lotus;
2. communicate to your Passport End Users all Passport promotions,
exceptions, and special offers, when informed of such by Lotus;
3. advertise Passport to prospective Passport End Users on a regular
basis;
4. install and use a Notes server and the Notes Passport databases, or
their equivalents, as we specify in the operations guide;
5. name and maintain a Passport Staff to competently administer Passport
both within your organization as well as when interacting with Lotus,
as we specify in the operations guide. You may not begin ordering
Passport from Lotus until each member of your Passport Staff has been
trained to perform their Passport related functions competently. We
have the sole right to evaluate the Passport competency of each such
staff member. You also agree to notify Lotus of any changes to your
Passport Staff as we specify in the operations guide.
6. on our request, send at your expense, a qualified representative to
participate in a specialized Passport training session as we specify.
In addition, you agree to have your representative attend, at your
expense, other Passport training and to participate in conference
calls as announced by Lotus.
4. SUSPENSION AND TERMINATION
If you breach the terms of this Attachment we may, immediately on notice
to you, suspend or terminate your Passport approval. If we do, you may no
longer accept Passport orders from Passport End Users. We may allow you a
reasonable opportunity to cure. If you fail to do so, we will take the
action we specified in our notice to you.
Page 2 of 2
<PAGE> 25
IBM BUSINESS PARTNER AGREEMENT [IBM LOGO]
SOFTWARE ADVANTAGE ATTACHMENT FOR RESELLERS OF WORKSTATION SOFTWARE
- -------------------------------------------------------------------------------
These terms are in addition to or modify and prevail over the Remarketer Terms
Attachment for Workstation Software.
Under this Attachment, End Users who have in effect an IBM Software Advantage
for Workstations International Discount Agreement (Software Advantage
Agreement), who have named you on a Software Advantage Supplement (Supplement),
may fulfill their Software Advantage requirements through you. You must submit
the Supplement and any other applicable documentation to us. A copy of the
Software Advantage Agreement and applicable Supplement will be returned to you
after our acceptance. Additional End User Software Advantage orders may be
fulfilled during the Software Advantage Agreement period.
ELIGIBLE PRODUCTS
The Software Advantage Products (Eligible Products) that End Users may
acquire from you in fulfillment of a Software Advantage Agreement are
1) Eligible Programs, 2) Upgrade Protection, and 3) Media Packs,
listed on the IBM Software Advantage for Workstations Eligible Product
List (Eligible Product List).
Eligible Programs provide the End User with right-to-copy and use
licenses, or right-to-use licenses, as applicable. We also grant the
End User the right to copy Program documentation. Program media and
documentation are not included with Eligible Programs and must be
acquired separately. Once an End User acquires an initial Program and
The Program's documentation, the End User may use such Program and
documentation to make copies.
Upgrade Protection provides the End User with upgrade security
protection for Eligible Programs acquired under their Software
Advantage Agreement and for Eligible Programs the End User has already
installed. By acquiring Upgrade Protection, End Users are entitled to
future Program upgrades (i.e., new versions, releases or other
enhancements, as IBM determines) that are announced within the period
of the End User's Software Advantage Agreement.
A Media Pack consists of the Program on separate media, without
documentation or a copy of the license agreement. Media Packs may only
be marketed to End Users who acquire them under the terms of a
Software Advantage Agreement. Media Packs are available at an
additional charge. End Users may elect to fulfill their right to copy
license requirements through any combination of Media Packs and by
making copies, the total of which may not exceed the number of
Eligible Programs as specified in the End User's Software Advantage
Agreement.
PRICES, AND PAYMENT
We will specify to you in writing, our pricing for Eligible Programs
and Upgrade Protection, which is based on the total Suggested Retail
Price (SRP) value of the End User's Software Advantage Agreement being
fulfilled. When the End User acquires Eligible Programs and Upgrade
Protection for such Programs during the Software Advantage Agreement
period, the charges for Upgrade Protection will be prorated based on
the full remaining quarters of the End User Software Advantage
Agreement. The price for a Media Pack is the price as specified in the
Software Advantage price list we provide to you.
We will invoice you when we match your order for Eligible Products to
an initial or subsequent Supplement, or to your monthly report.
YOUR RESPONSIBILITIES
You agree:
1. to market Eligible Products to your End Users only in fulfillment
of their Software Advantage Agreement;
Page 1 of 2
<PAGE> 26
2. to submit to us by the effective date of the Software Advantage
Agreement or a revised Software Advantage Agreement, as applicable,
your matching order for Eligible Products included on a Supplement,
3. to report to us, subsequent End User acquisitions taken in
fulfillment of their Software Advantage Agreement. The report must
be received by us within ten business days after the last day of
the month in which the End User acquired "he Eligible Products;
4. to provide Media Packs 1) only to eligible End User's, under the
terms of the Software Advantage Agreement, and 2) in lieu of, and
not in addition to, copies an End User acquires as right-to-copy
licenses;
5. if we withdraw an Eligible Product, you will not market such
Product after the effective date of the withdrawal without our
prior written approval:
6. to communicate to your Software Advantage End Users all Software
Advantage promotions, exceptions and special offerings, when
informed of such by us; and
7. to advertise Software Advantage to prospective Software Advantage
End Users on a regular basis.
TERMINATION
Either of us may terminate this Attachment at any time. When this
Attachment is terminated you agree to report to us, and immediately
pay us, all amounts due for any End User acquisitions not yet
reported.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.2(c)
AMENDMENT NO. 2 TO THE
LARGE ACCOUNT RESELLER REBATE ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
This Amendment No. 2 ("Amendment") amends that certain Large Account Reseller
Rebate Addendum (as amended "Addendum") to The Microsoft 1995/1996 Channel
Agreement (as amended "Agreement") dated July 1, 1995, between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft Way,
Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER") having its principal
place of business at 2140 Merritt Drive, Garland, TX 75041. The Addendum is
hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of July 1, 1996, and shall expire
December 31, 1996."
The Addendum is amended to include the following as Section 6:
"6. FAILURE TO EXECUTE
CUSTOMER shall not be eligible to receive Rebates or Opportunity Marketing
Funds until both CUSTOMER and MS have executed this Addendum. Should CUSTOMER
fail to execute, or should MS be unable to execute this Addendum by July 1,
1996, for each full month after July 1, 1996, in which this Addendum is not
executed, CUSTOMER shall forfeit such month's Achievement Rebate."
SCHEDULE B, REBATE PROGRAM GUIDELINES.
Schedule B is replaced in its entirety with the attached Schedule D.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date
indicated below. This Amendment is hereby made part of the Addendum. All terms
and conditions of the Addendum not amended herein shall remain in full force
and effect. This Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") SOFTWARE SPECTRUM, INC.
("CUSTOMER")
By: /s/JOHAN LIEDGREN By:/s/KEITH R. COOGAN
- ---------------------------- -------------------------------
Johan Liedgren Keith R. Coogan
- ---------------------------- -------------------------------
Name (please print) Name (please print)
Director, Channel Policies Executive Vice President - COO
- ---------------------------- -------------------------------
Title Title
8/2/96 July 1, 1996
- ---------------------------- -------------------------------
Date Date
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
SCHEDULE D
JULY - DECEMBER, 1996
LARGE ACCOUNT RESELLER
REBATE GUIDELINES
- --------------------------------------------------------------------------------
SELECT REBATE PROGRAM OVERVIEW
- --------------------------------------------------------------------------------
PROGRAMS: Microsoft offers four (4) Select rebate programs for the July -
December, 1996 Rebate period:
- --------------------------------------------------------------------------------
Rebate Program Maximum Percentage Available
================================================================================
Achievement Program *
- --------------------------------------------------------------------------------
Total Sales-out Program *
- --------------------------------------------------------------------------------
Open License Sales-out Program *
- --------------------------------------------------------------------------------
Desktop Business Systems Sales-out Program *
- --------------------------------------------------------------------------------
Total *
- --------------------------------------------------------------------------------
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft Purchase Credit forty-five (45) days after the end of each quarterly
Rebate Period (i.e. November 15th for the July - September, 1996 quarter).
Rebates are calculated by multiplying the achieved rebate percentage by the
total Qualified Select Sales for the Rebate Period. All Microsoft Select
revenue will be included in calculating CUSTOMER's performance against the
Select Rebate goals. Revenue generated from Microsoft Select Enrollment Forms
executed by MS prior to July 1, 1994, shall be included in calculating
CUSTOMER's achievement toward the Select Rebate goals, but shall not be
included in CUSTOMER's final total Qualified Select Sales for purposes of the
Rebate payment. Only revenue generated from Microsoft Select Enrollment Forms
executed by MS on or after July 1, 1994 (excluding any Microsoft Select
Maintenance) will be included in CUSTOMER's final total Qualified Select Sales
for purposes of the Rebate payment.
ANY ISSUES SURROUNDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
MARKETING MANAGER, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute Rebate payment.
- --------------------------------------------------------------------------------
ACHIEVEMENT REBATE PROGRAM
- --------------------------------------------------------------------------------
PROGRAM OBJECTIVES: The objective of the Achievement Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual
requirements for payments, Street Dates, reporting and EDI ordering for Select
3.O.
ACHIEVEMENT: During any given month, failure achieve with any or all of the
current Achievement criteria will result in the forfeiture of the entire
Achievement Rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, one hundred percent (100%) of the gross invoice value for
non-Select and eighty-five (85%) of the gross invoice value for Select must be
current as of Microsoft's fiscal month-end. Additionally, no greater than one
percent (1%) of the gross value for Select invoices shall be past net 60 days.
Unapplied credits will be excluded from the calculation.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Large Account
Reseller Rebate Addendum to The Page D1
Microsoft Channel Agreement
<PAGE> 3
2. MICROSOFT STREET DATE REQUIREMENTS
From time to time, Microsoft may announce a new Product or new versions of an
existing Product for which Microsoft shall set a Street Date. In order to
comply with the Street Date requirements, CUSTOMER shall not:
* Ship or deliver the product to any end-user customer
prior to the Street Date.
* Accept any end user payment for the product prior to
the Street Date. Checks and/or credit card numbers
may be accepted by CUSTOMER, but can only be
processed when product is delivered to the end user
on or after the Street Date.
* Advertise, merchandise, or promote the product to end
user customers until it is officially announced by
Microsoft. Usually, the product announcement is on
the Street Date. If the product announcement is
earlier than the Street Date, Microsoft will clearly
communicate the announce date to the channel. If
product is announced by Microsoft before the Street
Date, the product can be advertised, merchandised
and/or promoted immediately after such announcement,
provided that all such promotions clearly state that
the product is not yet available for purchase.
* Allow its distribution centers and/or warehouses to
distribute, for a period of up to twelve months, a
Street Date product to any individual sales office,
retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the
Street Date Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter, CUSTOMER shall forfeit up to the
entire Achievement Rebate for the six month Rebate period in which the
violation occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206) 936-
7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT REPORTING REQUIREMENTS
CUSTOMER must comply with the reporting requirements as outlined in CUSTOMER's
amended 1995/1996 Channel Agreement and/or Senior Partner Marketing Fund and
Reporting Agreement, as applicable.
4. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions include, but are not
limited to 850/855 EDI transactions and all other EDI reporting requirements
which may be required by MS and in the EDI Implementation Guide provided by MS
from time to time. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
ACHIEVEMENT REBATE CALCULATION: The Microsoft Achievement Rebate will be
calculated on a monthly basis. If CUSTOMER has met all of the Achievement
Rebate criteria in a given month, CUSTOMER will be entitled to a Rebate payment
equal to * of that month's total Qualified Select Sales. The Rebate
payment will be made forty-five (45) days after the end of each quarterly
Rebate Period.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Large Account
Reseller Rebate Addendum to The Page D2
Microsoft Channel Agreement
<PAGE> 4
- --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- --------------------------------------------------------------------------------
REBATE GOALS: CUSTOMER has first quarter Sales-out goals and total Semester
Sales-out goals. CUSTOMER's performance for the first three months of the July
- - December, 1996, Semester will be measured against the first quarter Sales-out
goals. At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible Rebates earned based on performance against the first quarter
goals. At the end of the Semester, CUSTOMER will be measured on their six-month
performance against the total Semester goals. Even if CUSTOMER does not meet
100% of the first quarter goals, CUSTOMER can still achieve 100% of the
Semester goals provided that the Semester goals are met at the end of the
Rebate Period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net product units sold through CUSTOMER's outlet locations. CUSTOMER's full
packaged product, Microsoft Open License, and upgrade sales-out units will be
measured from the sales-out reported by CUSTOMER to MS. Licensing sales
(Select, Microsoft Maintenance) are captured and generated by MS' financial
systems and included in total sales-out used to measure product sales-out
rebate performance.
Any Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as MS recognizes the revenue. This occurs when MS has received the
customer's license reporting. Following receipt of reporting, MS bills the
customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the Semester, CUSTOMER will be paid Sales-out Rebates
based on performance against the Semester goals. If CUSTOMER achieves greater
than sixty percent (60%) of each Semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible Sales-out Rebate up to one
hundred percent (100%). If CUSTOMER achieves less than sixty percent (60%) of
any Sales-out Rebate goal, CUSTOMER will not receive any portion of that Sales-
out Rebate.
Although MS pays the Sales-out Rebate ultimately based on performance against
the Semester sales-out goal, MS also pays a sales-out Rebate at the end of the
first quarter based on performance against the first quarter goal. MS pays a
portion of the Rebate after the first quarter to provide incentive for CUSTOMER
to focus on sales-out throughout the entire Semester. The scale for the first
quarter payment is the same as the scale for the Semester payment. The first
quarter payment amount will be subtracted from the final Semester payment for
the Sales-out Rebate.
Example: If CUSTOMER has a quarterly Desktop Business Systems sales out goal of
$1,000,000 and a total Semester Desktop Business Systems goal $2,500,000, and
CUSTOMER sells $800,000 over the first quarter period and $2,600,000 over the
entire Semester period, CUSTOMER will receive the following Rebate payments:
- --------------------------------------------------------------------------------
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- --------------------------------------------------------------------------------
First Quarter * * * eligible Rebate of July -
September sales.
- --------------------------------------------------------------------------------
Semester * * * eligible Rebate of July -
December sales less first quarter
payment. The maximum allowable
Rebate is *
- --------------------------------------------------------------------------------
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Large Account
Reseller Rebate Addendum to The Page D3
Microsoft Channel Agreement
<PAGE> 5
- --------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Total Sales-out Rebate Program is * of Qualified Sales for the July - December,
1996 Semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
- --------------------------------------------------------------------------------
OPEN LICENSE SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Open License Sales-out Rebate Program is * of Qualified Sales for the July -
December, 1996 Semester.
CUSTOMER's Open License Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
- --------------------------------------------------------------------------------
DESKTOP BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Desktop Business Systems Sales-out Rebate Program is * of Qualified Sales for
the July - December, 1996 Semester.
REBATE GOALS: CUSTOMER must meet a minimum Microsoft(R) BackOffice client
license unit sales goal in order to receive any portion of the Desktop Business
Systems Rebate. Provided that CUSTOMER meets the client license unit sales goal,
CUSTOMER's achievement against the Desktop Business Systems goal will be based
on CUSTOMER's performance against the Desktop Business Systems revenue goal.
CUSTOMER's Microsoft(R) BackOffice unit sales goals are as follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
CUSTOMER's Desktop Business Systems Sales-out Rebate Program goals are as
follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Large Account
Reseller Rebate Addendum to The Page D4
Microsoft Channel Agreement
<PAGE> 1
EXHIBIT 10.2(d)
AMENDMENT NO. 3 TO THE
LARGE ACCOUNT RESELLER REBATE ADDENDUM TO THE
MICROSOFT CHANNEL AGREEMENT
This Amendment No. 3 ("Amendment") amends that certain Large Account Reseller
Rebate Addendum (as previously amended the "Addendum") to The Microsoft Channel
Agreement (as previously amended the "Agreement") dated July 1, 1995, between
MICROSOFT CORPORATION ("MS") having its principal place of business at One
Microsoft Way, Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER")
having its principal place of business at 2140 Merritt Drive, Garland, TX
75041. The Addendum is hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of January 1, 1997, and shall expire June
30, 1997."
Section 6, Failure to Execute, is replaced in its entirety with the following:
"6. FAILURE TO EXECUTE
CUSTOMER shall not be eligible to receive Rebates or Opportunity Marketing
Funds until both CUSTOMER and MS have executed this Addendum. Should CUSTOMER
fail to execute, or should MS be unable to execute this Addendum by January 1,
1997, for each full month after January 1, 1997, in which this Addendum is not
executed, CUSTOMER shall forfeit such month's Achievement Rebate."
SCHEDULE D, REBATE PROGRAM GUIDELINES.
Schedule D is replaced in its entirety with the attached Schedule E.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date
indicated below. This Amendment is hereby made part of the Addendum. All terms
and conditions of the Addendum not amended herein shall remain in full force
and effect. This Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION SOFTWARE SPECTRUM, INC.
("MS") ("CUSTOMER")
By: /s/JOHAN LIEDGREN By:/s/KEITH R. COOGAN
---------------------------- --------------------------------
Johan Liedgren Keith R. Coogan
- ------------------------------- --------------------------------
Name (please print) Name (please print)
Director, Channel Policies Executive Vice President - COO
- ------------------------------- --------------------------------
Title Title
1/17/97 January 8, 1997
- ------------------------------- --------------------------------
Date Date
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
SCHEDULE E
JANUARY - JUNE,1997
LARGE ACCOUNT RESELLER
REBATE GUIDELINES
- --------------------------------------------------------------------------------
SELECT REBATE PROGRAM OVERVIEW
- --------------------------------------------------------------------------------
PROGRAMS: Microsoft offers four (4) Select rebate programs for the January -
June, 1997 Rebate period:
- --------------------------------------------------------------------------------
REBATE PROGRAM MAXIMUM PERCENTAGE AVAILABLE
================================================================================
Achievement Program *
- --------------------------------------------------------------------------------
Total Sales-out Program *
- --------------------------------------------------------------------------------
32-Bit Office Sales-out Program *
- --------------------------------------------------------------------------------
Business Systems Sales-out Program *
- --------------------------------------------------------------------------------
Total *
- --------------------------------------------------------------------------------
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft Purchase Credit forty-five (45) days after the end of each quarterly
Rebate Period (i.e. May 15' for the January - March, 1997 quarter). Rebates are
calculated by multiplying the achieved rebate percentage by the total Qualified
Select Sales for the Rebate Period. All Microsoft Select revenue will be
included in calculating CUSTOMER's performance against the Select Rebate goals.
Revenue generated from Microsoft Select Enrollment Forms executed by MS prior
to July 1, 1994, shall be included in calculating CUSTOMER's achievement toward
the Select Rebate goals, but shall not be included in CUSTOMER's final total
Qualified Select Sales for purposes of the Rebate payment. Only revenue
generated from Microsoft Select Enrollment Forms executed by MS on or after
July 1, 1994 (excluding any Microsoft Select Maintenance) will be included in
CUSTOMER's final total Qualified Select Sales for purposes of the Rebate
payment,
ACHIEVEMENT REBATE CALCULATION: The Microsoft Achievement Rebate will be
calculated on a monthly basis. If CUSTOMER has met all of the Achievement
Rebate criteria in a given month, CUSTOMER will be entitled to a Rebate payment
equal to, * of that month's total Qualified Select Sales. The
Rebate payment will be made forty-five (45) days after the end of each
quarterly Rebate Period.
ANY ISSUES SURROUNDING REBATES SHOULD BE SENT IN WRITING TO ANDRES MONTGOMERY,
CHANNEL POLICIES, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute Rebate payment.
- --------------------------------------------------------------------------------
ACHIEVEMENT REBATE PROGRAM
- --------------------------------------------------------------------------------
CUSTOMER shall comply with all Achievement Rebate Guidelines as outlined in
CUSTOMER's Amendment No. 3 to The Rebate and Marketing, Fund Addendum to The
Microsoft Channel Agreement.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Large Account
Reseller Rebate Addendum to The Microsoft Page E1
Channel Agreement
<PAGE> 3
- --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- --------------------------------------------------------------------------------
REBATE GOALS: CUSTOMER has first quarter Sales-out goals and total Semester
Sales-out goals. CUSTOMER's performance for the first three months of the
January - June, 1997 Semester will be measured against the first quarter Sales-
out goals. At the end of the first quarter, CUSTOMER will receive the
percentage of the eligible Rebates earned based on performance against the
first quarter goals. At the end of the Semester, CUSTOMER will be measured on
their six-month performance against the total Semester goals. Even if CUSTOMER
does not meet 100% of the first quarter goals, CUSTOMER can still achieve 100%
of the Semester goals provided that the Semester goals are met at the end of
the Rebate Period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net (sales less returns) Product units sold through CUSTOMER's outlet
locations. CUSTOMER's full packaged product, Microsoft Open License, and
upgrade sales-out units will be measured from the sales-out reported by
CUSTOMER to MS. Licensing sales (Select, Microsoft Maintenance) are captured
and generated by MS' financial systems and included in total sales-out used to
measure product sales-out rebate performance.
PAYMENT: At the end of the Semester, CUSTOMER will be paid Sales-out Rebates
based on performance against the Semester goals. If CUSTOMER achieves greater
than sixty percent (60%) of each Semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible Sales-out Rebate up to one
hundred percent (100%). If CUSTOMER achieves less than sixty percent (60%) of
any Sales-out Rebate goal, CUSTOMER will not receive any portion of that Sales-
out Rebate.
Although MS pays the Sales-out Rebate ultimately based on performance against
the Semester sales-out goal, MS also pays a sales-out Rebate at the end of the
first quarter based on performance against the first quarter goal. MS pays a
portion of the Rebate after the first quarter to provide incentive for CUSTOMER
to focus on sales-out throughout the entire Semester. The scale for the first
quarter payment is the same as the scale for the Semester payment. The first
quarter payment amount will be subtracted from the final Semester payment for
the Sales-out Rebate.
Example: If CUSTOMER has a quarterly Business Systems sales out goal of
$1,000,000 and a total Semester Business Systems goal $2,500,000, and CUSTOMER
sells $800,000 over the first quarter period and $2,600,000 over the entire
Semester period, CUSTOMER will receive the following Rebate payments:
- --------------------------------------------------------------------------------
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- --------------------------------------------------------------------------------
First Quarter * * * eligible Rebate of January -
March sales or *
- --------------------------------------------------------------------------------
Semester * * * eligible Rebate of January -
June sales less first quarter payment
or *
The maximum allowable Rebate is *
- --------------------------------------------------------------------------------
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Large Account
Reseller Rebate Addendum to The Microsoft Page E2
Channel Agreement
<PAGE> 4
- --------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Total Sales-out Rebate Program is * of Qualified Sales for the January - June,
1997 Semester.
- --------------------------------------------------------------------------------
32 BIT OFFICE SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the 32
Bit Office Sales-out Rebate Program is * of Qualified Sales for the January -
June, 1997 Semester.
- --------------------------------------------------------------------------------
BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Business Systems Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1997 Semester.
REBATE GOALS: CUSTOMER must meet a minimum Microsoft(R) BackOffice client
license unit sales goal in order to receive any portion of the Business Systems
Rebate. Provided that CUSTOMER meets the client license unit sales goal,
CUSTOMER's achievement against the Business Systems goal will be based on
CUSTOMER's performance against the Business Systems revenue goal.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Large Account
Reseller Rebate Addendum to The Microsoft Page E3
Channel Agreement
<PAGE> 5
- --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAM GOALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REBATE PROGRAM QUARTER SEMESTER QUARTER SEMESTER REBATE
SALES GOAL SALES GOAL CLIENT CLIENT PERCENTAGE
GOAL GOAL (SELECT)
- --------------------------------------------------------------------------------
Open License Sales-out
Rebate Program * * N/A N/A N/A
- --------------------------------------------------------------------------------
Total Sales-out Rebate
Program * * N/A N/A *
- --------------------------------------------------------------------------------
32 Bit Office Sales-out
Rebate Program * * N/A N/A *
- --------------------------------------------------------------------------------
Business Systems Sales-out
Rebate Program * * * * *
- --------------------------------------------------------------------------------
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Software Spectrum, Inc.
<PAGE> 1
EXHIBIT 10.2(g)
AMENDMENT NO. 2 TO THE
REBATE AND MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
This Amendment No. 2 ("Amendment") amends that certain Rebate and Marketing
Fund Addendum (as amended "Addendum") to The Microsoft 1995/1996 Channel
Agreement (as amended "Agreement"), dated July 1, 1995, between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft Way,
Redmond, WA 98052 and SOFTWARE SPECTRUM INC. ("CUSTOMER") having its principal
place of business at 2140 Merritt Drive, Garland, TX 75041. The Addendum is
hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of July 1, 1996, and shall expire on
December 31, 1996.
4. REBATES
The section is replaced in its entirety with:
"4.1 PACKAGED PRODUCT REBATE
CUSTOMER is eligible to receive up to a * Rebate on its Qualified Sales,
excluding Open License sales, made during the Rebate and Marketing Fund Period.
The Rebate shall be paid provided CUSTOMER complies with the Rebate Program
Guidelines outlined in Schedule B.
4.2 OPEN LICENSE REBATE
CUSTOMER is eligible to receive up to a * Rebate on its Open License
sales made during the Rebate and Marketing Fund Period. The Rebate shall be
paid provided CUSTOMER complies with the those portions of the Packaged Product
Rebate Guidelines outlined in Schedule J.
4.3 PROVISION FOR EARLY PAYMENT OF REBATES
Notwithstanding such Rebate Program Guidelines, MS may, at its sole discretion,
pay all or any portion of the Rebate prior to the end of the Rebate and
Marketing Fund Period. The Rebate so paid may be adjusted subsequently based
upon compliance with the Rebate Program Guidelines."
5. MARKETING FUNDS
Section 5.4, Marketing Fund Reimbursement Policy, is deleted in its entirety.
The Addendum is amended to include the following as Section 7:
7. FAILURE TO EXECUTE
CUSTOMER shall not be eligible to receive Rebates or Opportunity Marketing
Funds until both CUSTOMER and MS have executed this Addendum. Should CUSTOMER
fail to execute, or should MS be unable to execute this Addendum by July 1,
1996, for each full month after July 1, 1996, in which this Addendum is not
executed, CUSTOMER shall forfeit such month's Achievement Rebate."
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
SCHEDULE B, REBATE PROGRAM GUIDELINES.
The Schedule as previously amended is replaced in its entirety with the
attached Schedule K.
SCHEDULE G, MARKETING FUND REIMBURSEMENT POLICY.
The Schedule as previously amended is removed in its entirety.
SCHEDULE J, OPEN LICENSE REBATE PROGRAMS.
The Schedule is replaced in its entirety with the attached Schedule L.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date
indicated below, This Amendment is hereby made part of the Addendum. All terms
and conditions of the Addendum not amended herein shall remain in full force
and effect. This Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): SOFTWARE SPECTRUM, INC.
("CUSTOMER"):
By By /s/ KEITH R. COOGAN
- ----------------------------- -----------------------------
Johan Hedgren Keith R. Coogan
- ----------------------------- -----------------------------
Name (please print) Name (please print)
Director, Channel Policies Executive Vice President-COO
- ----------------------------- -----------------------------
Title Title
8/2/96 July 1, 1996
- ----------------------------- -----------------------------
Date Date
Amendment No. 2 to The Rebate and Page 2
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 3
SCHEDULE K
JULY - DECEMBER, 1996
REBATE GUIDELINES
PROGRAMS: Microsoft offers four (4) rebate programs for the July - December,
1996 Rebate period. The total available Rebate is divided as follows:
- --------------------------------------------------------------------
MAXIMUM PERCENTAGE
REBATE PROGRAM AVAILABLE
====================================================================
Achievement Program *
- --------------------------------------------------------------------
Total Sales-out Program *
- --------------------------------------------------------------------
Desktop Business Systems Sales-out Program *
- --------------------------------------------------------------------
32-Bit Office Sales-out Program *
- --------------------------------------------------------------------
Total *
- --------------------------------------------------------------------
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft Purchase Credit forty-five (45) days after the end of each quarterly
Rebate Period (i.e. November 15th for the July - September, 1996 quarter).
Rebates are calculated by multiplying the achieved Rebate percentage by the
total Qualified Sales for the Rebate Period. Revenue generated from Microsoft
Select Enrollment Forms executed by MS on or after July 1, 1994, shall be
included in calculating CUSTOMER's achievement toward the Sales-out goal, but
shall not be included in CUSTOMER's final total Qualified Sales for purposes of
Rebate payment. Revenue generated from Microsoft Select Enrollment Forms
executed by MS prior to July 1, 1994 will be included in calculating CUSTOMER's
achievement towards the sales-out goal and will also be eligible for a
Grandfathered rebate. Rebate payment for such Select Enrollment Forms shall be
in the form of a purchase credit forty-five (45) days after the end of each
quarterly Rebate Period.
PURCHASES THROUGH DISTRIBUTION: CUSTOMER's full packaged product and MLP
purchases through distribution will be subtracted from CUSTOMER's Qualified
Sales for purposes of Rebate payment.
PRODUCT AVAILABILITY: If Microsoft is unable to ship a CURRENT VERSION of a
product for any ten (10) consecutive business days, CUSTOMER's purchases
through distribution of those SKUs will count toward CUSTOMER's Qualified Sales
for purchases of Rebate payment.
All copies of eligible purchase orders placed through distribution along with a
copy of the Microsoft Stock Out Report must be sent to Microsoft no later than
fifteen (15) days following the quarter end. Please send purchase order copies
and the Microsoft Stock Out Report to the following address:
MICROSOFT CORPORATION
ONE MICROSOFT WAY
BLDG. 22/4054
REDMOND, WA 98052
ATTN.: KRISTIN WEEBER, MARKETING MANAGER
ACHIEVEMENT REBATE PAYMENT: The Microsoft Achievement Rebate will be calculated
on a monthly basis. If CUSTOMER has met all of the Achievement Rebate criteria
in a given month, CUSTOMER will be entitled to * of that month's total
Qualified Sales. The Rebate payment will be made forty-five (45) days after the
end of each quarterly Rebate Period.
ANY ISSUES REGARDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
MARKETING MANAGER, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute Rebate payment.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Rebate and Page K1
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 4
- -------------------------------------------------------------------------------
ACHIEVEMENT REBATE PROGRAM
- -------------------------------------------------------------------------------
PROGRAM OBJECTIVES: The objective of the Achievement Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual
requirements for payments, Street Dates, reporting, and EDI ordering for Select
3.0.
ACHIEVEMENT: During any given month, failure to achieve any or all of the
current Achievement criteria will result in the forfeiture of the entire
Achievement Rebate for that month. In any month CUSTOMER has already forfeited
its Achievement Rebate, and violates one or more of the Achievement Rebate
criteria, MS reserves the right to withhold any or a portion of CUSTOMER's
other available Rebate.
1. MICROSOFT PAYMENT REQUIREMENTS
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, one hundred percent (100%) of the gross invoice value
for non-Select and eighty-five (85%) of the gross invoice value for Select
must be current as of Microsoft's fiscal month-end. Additionally, no greater
than one percent (1%) of the gross value for Select invoices shall be past net
60 days. Unapplied credits will be excluded from the calculation.
2. MICROSOFT STREET DATE REQUIREMENTS
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to
comply with the Street Date requirements, CUSTOMER shall not:
- Ship or deliver the product to any end-user customer prior to the Street
Date.
- Accept any end user payment for the product prior to the Street Date.
Checks and/or credit card numbers may be accepted by CUSTOMER, but can
only be processed when product is delivered to the end user on or after
the Street Date.
- Advertise, merchandise, or promote the product to end user customers
until it is officially announced by Microsoft. Usually, the product
announcement is on the Street Date. If the product announcement is
earlier than the Street Date, Microsoft will clearly communicate the
announce date to the channel. If product is announced by Microsoft
before the Street Date, the product can be advertised, merchandised
and/or promoted immediately after such announcement, provided that all
such promotions clearly state that the product is not yet available for
purchase.
- Allow it's distribution centers and/or warehouses to distribute, for a
period of up to twelve months, a Street Date product to any individual
sales office, retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the Street Date
Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter, CUSTOMER shall forfeit up to the
entire Achievement Rebate for the six month Rebate Period in which the
violation occurred.
Should CUSTOMER fail to comply with the Street Date Requirements,
Microsoft may also, for a period of up to twelve (12) months, withhold
shipments to CUSTOMER of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT SELECT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions are defined as 850/855
EDI transactions. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
Amendment No. 2 to The Rebate and Page K2
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 5
4. MICROSOFT REPORTING REQUIREMENTS
ALL REPORTS OUTLINED BELOW MUST BE TIMELY, ACCURATE, AND COMPLETE. FOR PURPOSES
OF THIS AGREEMENT, "TIMELY" IS DEFINED AS MS RECEIPT OF REPORTING BY THE DUE
DATE AND TIME INDICATED, "ACCURATE" IS DEFINED AS THE CORRECT POPULATION OF ALL
REPORTING FIELDS, AND "COMPLETE" IS DEFINED AS THE POPULATION OF ALL REQUIRED
REPORTING FIELDS.
Reporting is defined as a weekly report sent to, Microsoft via Electronic Data
Interchange format ("EDI") of weekly Sales, Inventory, and Internal Market
Share. CUSTOMER must make the EDI reports available to MS' EDI mailbox each
Monday by noon (Pacific time). These reports shall cover the seven-day period
(Saturday through Friday EOB) ending the previous Friday night. Please refer to
the EDI Reporting Guidelines for details on reporting requirements.
MICROSOFT PRODUCT REPORTING RULES
o Each unit of Microsoft single license Full Package Product should be
reported as one (1) unit.
EXAMPLE-Microsoft(R) Word for Windows(R) FPP-report as one (1) unit
o Any single Microsoft Multiple License Pack(MLP) should be reported as
one (1) unit.
EXAMPLE. Microsoft(R) Windows NT(TM) Workstation License Pack 20 User -
report as one (1) unit.
o All Microsoft Volume Licensing Agreements (such as Open Licenses, Select
Variable Licenses and Enterprise Licenses) should be reported as one
unit for each license sold.
EXAMPLE. Microsoft Select MVLP Level B (min 8000 licenses) Agreement -
Customer buys 9356 Word
o All Microsoft Mail Servers and Network Operating Systems must be
reported as one (1) unit for each server license sold. Do not report
client licenses.
Accounts are required to report units sold and inventory units for each
Microsoft SKU, but are required only to report the total license count for
competitive products sold for each category. All SKUs for these titles should
be counted, including full packaged product, upgrades, license packs, initial
sale of new maintenance and education and government SKUs of the foregoing.
Please refer to the EDI Reporting Guidelines for details on reporting
requirements.
MARKET SHARE REPORTING
The following table outlines the Market Share product categories for EDI
reporting. The table also specifies the top competitive products that must be
included in the aggregated market share reporting. All competitive products
within a given category must be reported. The products listed below are just
examples, not a comprehensive list. For a comprehensive competitive SKU list
please contact your Microsoft Channel Measurement Specialist.
A comprehensive competitive SKU list shall be provided to CUSTOMER at the
beginning of each quarter. CUSTOMER must implement use of the list no later
than thirty (30) days after receiving the list. To the extent that CUSTOMER
sells any of the products contained on the list, CUSTOMER's Internal Market
Share reporting will include those SKUs. If between quarters there are any new
major releases of competitive products that fall under the competitive product
categories or upgrades to products already listed on the competitive SKU list,
CUSTOMER shall include those SKUs in CUSTOMER's Internal Market Share reporting
immediately upon release of new products.
Products Tracked:
- ------------------------------------------------------------------------------
Category Competitive DOS & Windows products
- ------------------------------------------------------------------------------
Word Processors Adobe Legacy
Lotus AmiPro
Lotus WordPro
Novell WordPerfect
Softkey Wordstar
Software Publisher Office Writer & WritePlus &
ProfessionalWrite
XyQuest XYWrite
- ------------------------------------------------------------------------------
Amendment No. 2 to The Rebate and Page K3
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 6
- ------------------------------------------------------------------------------
Category Competitive DOS & Windows products
- ------------------------------------------------------------------------------
Spreadsheets Computer Associates SuperCalc
Corel(R) Quattro Pro(R)
Lotus 1-2-3
Novell(R) Quattro Pro(R)
- ------------------------------------------------------------------------------
Suites Corel(R) Office Professional
Corel(R) WordPerfect(R) Suite
Lotus Smartsuite
Novell(R) Perfect Office
- ------------------------------------------------------------------------------
Databases Alpha 4 & 5
Borland dbase
Borland Paradox
Claris Filemaker Pro
Computer Associates Clipper
Computer Associates Superbase
Dataease
Lotus Approach
Symantec Q&A
- ------------------------------------------------------------------------------
Mail Servers Banyon Beyond Mail
Servers only Lotus cc:Mail
Do not report client licenses Lotus Notes
Lotus NoteSuite
Novell Groupwise
- ------------------------------------------------------------------------------
Network Operating Systems Banyan
Servers only Novell(R) Netware(R) 4.x, 3.x, 2.x 4(R)
Do not report client licenses Novell(R) UnixWare
OS/Lan Server
SCO Global Access
SCO Open Server/Open Server Enterprise/Open
Server Network Systems
SCO Unixware Operating System
SCO(R) Unix
- ------------------------------------------------------------------------------
Developer Products Borland C++
Borland C++ Dbase Tools
Borland Delphi
Delphi Client/Svr Dev & Kit
Delphi Developer 2
Gupta Developer Tools
Gupta SQL Windows
IBM Visual Age Basic
IBM Visual Age C++
IBM Visual Age Small Talk
Metrowerks Codewarrior
Natural Intelligence Roaster
Oracle Developer/2000
Oracle Power Objects
Powersoft Powerbuilder
Sun Java WorkShop
Sunsoft Devpak
Symantec C++
Symantec Cafe
Symantec Enterprise Developer
Watcom C++
- ------------------------------------------------------------------------------
Amendment No. 2 to The Rebate and Page K4
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 7
COMPETITIVE PRODUCT MARKET SHARE REPORTING RULES
o Each unit of COMPETITIVE single license FULL PACKAGE PRODUCT should be
reported as one (1) unit.
EXAMPLE: Novell PerfectOffice Pro 3.0 for Windows FPP-report as 1 unit
o Any single COMPETITIVE product that is a MULTIPLE LICENSE PACK (MLP) should
be reported as the exact number of licenses contained in the MLP.
Examples of these products include competitive 10 User Packs, 20 User Packs,
and 100 User Packs.
EXAMPLE: WordPerfect V6.0 DOS 20-user License Pack - report as 20 units
o All SKUs (with the exception of Mail clients and Network Operating System
clients) contained in COMPETITIVE VOLUME LICENSING AGREEMENTS should be
reported as one (1) unit for each license sold within the volume license
agreement.
EXAMPLE: Lotus VPO-Level E 1-2-3 DOS (customer buys 7421 units) - report as
7421 units
o COMPETITIVE MAIL SERVERS and NETWORK OPERATING SYSTEMS must be reported as
one (1) unit for each server license sold. Do not report client licenses.
o Report MAINTENANCE only at the time the maintenance SKU is sold.
In addition to CUSTOMER's EDI Market Share reporting, CUSTOMER may be required
to submit a separate report summarizing Market Share reporting for Non Partners
only.
- ------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- ------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of all Sales-out Rebate Programs is to
increase the sales of Microsoft products. All license types (Select, Microsoft
Open License, Full Package Product, MLPs) are included in measuring performance
against this goal, however, the Rebate is paid on full packaged product sales
only.
REBATE GOALS: CUSTOMER has first quarter Sales-out goals and total Semester
Sales-out goals. CUSTOMER's performance for the first three months of the July
- - December, 1996, semester will be measured against the first quarter Sales-out
goals. At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible Rebates earned based on performance against the first quarter
goals. At the end of the Semester, CUSTOMER will be measured on their six-month
performance against the total Semester goals. Even if CUSTOMER does not meet
one hundred percent (100%) of the first quarter goals, CUSTOMER can still
achieve one hundred percent (100%) of the Semester goals provided that the
Semester goals are met at the end of the Rebate Period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net Product units sold through CUSTOMER's outlet locations. CUSTOMER's full
packaged product, Microsoft Open License, and upgrade sales-out units will be
measured from the sales-out reported by CUSTOMER to MS. Licensing sales
(Select, Microsoft Maintenance) are captured and generated by MS' financial
systems and included in total sales-out used to measure product sales-out
Rebate performance.
Any Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as MS recognizes the revenue. This occurs when MS has received the
customer's license reporting. Following receipt of reporting, MS bills the
customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the Semester, CUSTOMER will be paid Sales-out Rebates
based on performance against the Semester goals. If CUSTOMER achieves greater
than sixty percent (60%) of each Semester Sales-out goal, CUSTOMER will
receive the exact achieved percentage of the eligible Sales-out Rebate up to
one hundred percent (100%). If CUSTOMER achieves less than sixty percent
(60%) of any Sales-out Rebate goal, CUSTOMER will not receive any portion of
that Sales-out Rebate.
Amendment No. 2 to The Rebate and Page K5
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 8
Although MS pays the Sales-out Rebate ultimately based on performance against
the Semester Sales-out goal, Microsoft also pays a Sales-out Rebate at the end
of the first quarter based on performance against the first quarter goal.
Microsoft pays a portion of the Rebate after the first quarter to provide
incentive for CUSTOMER to focus on Sales-out throughout the entire Semester.
The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the Sales-out Rebate.
Example: If CUSTOMER has a quarterly total Sales out goal of $1,000,000 and a
Semester total Sales out goal $2,500,000, and CUSTOMER sells $800,000 over the
first quarter period and $2,600,000 over the entire Semester period, CUSTOMER
will receive the following Rebate payments:
- ------------------------------------------------------------------------------
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- ------------------------------------------------------------------------------
First Quarter * * * eligible Rebate of July -
September sales.
- ------------------------------------------------------------------------------
Semester * * * eligible rebate of July -
December sales less first
quarter payment. The minimum
allowable total sales out
Rebate is *
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- ------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Total Sales-out Rebate Program is * of Qualified Sales for the July -
December, 1996 Semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
- ------------------------------------------------------------------------------
32-BIT OFFICE SALES-OUT REBATE PROGRAM
- ------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
32-Bit Office Sales-out Rebate Program is * of Qualified Sales for the July -
December, 1996 Semester.
CUSTOMER's 32-Bit Office Sales-out Rebate Program goals are as follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Rebate and Page K6
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 9
- ------------------------------------------------------------------------------
DESKTOP BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
- ------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Desktop Business Systems Sales-out Rebate Program is * of Qualified Sales for
the July - December, 1996 Semester.
REBATE GOALS: CUSTOMER must sell a minimum number Microsoft(R) BackOffice and
Microsoft(R) Windows NT(TM) client licenses in order to receive any portion of
the Desktop Business Systems rebate. Provided that CUSTOMER sells the minimum
number of BackOffice and Windows NT client licenses, CUSTOMER's achievement
against the Desktop Business Systems goal will be based on CUSTOMER's
performance against the Desktop Business Systems revenue goal.
CUSTOMER's BackOffice and Windows NT client license unit goals are as follows:
o Quarter I Goal (July - September, 1996) *
o Semester Goal (July - December, 1996) *
CUSTOMER's Desktop Business Systems Sales-out Rebate Program goals are as
follows:
o Quarter I Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Rebate and Page K7
Marketing Fund Addendum to The
Microsoft 1995/1996 Channel Agreement
<PAGE> 10
SCHEDULE L
JULY - DECEMBER, 1996
OPEN LICENSE
REBATE PROGRAMS
PROGRAMS. Microsoft offers four (4) Open License Rebate programs for the
July - December, 1996 Rebate Period.
The total available Rebate Program goals are as follows:
------------------------------------------------------------------------
MAXIMUM PERCENTAGE
REBATE PROGRAM AVAILABLE
========================================================================
Achievement Program *
------------------------------------------------------------------------
Total Sales-Out Program *
------------------------------------------------------------------------
Desktop Business Systems Program *
------------------------------------------------------------------------
Microsoft Open License Sales-Out Program *
------------------------------------------------------------------------
Total *
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACHIEVEMENT REBATE
- --------------------------------------------------------------------------------
All Achievement Rebate goals and guidelines are as outlined in the Achievement
Rebate portion of Schedule K, July - December, 1996, Rebate Program Guidelines.
- --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- --------------------------------------------------------------------------------
Program guidelines for all Sales-Out Rebate programs as outlined in the
Sales-Out Rebate Programs portion of Schedule K. July - December, 1996, Rebate
Program Guidelines.
- --------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
CUSTOMER's Total Sales-out Rebate Program goals are as is follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
- --------------------------------------------------------------------------------
DESKTOP BUSINESS SYSTEMS DIVISION SALES-OUT PROGRAM
- --------------------------------------------------------------------------------
CUSTOMER'S BackOffice and Windows NT client license unit goal goals are as
follows:
o Quarter 1 Goal (July - September, 1996) *
o Semester Goal (July - December, 1996) *
CUSTOMER'S Desktop Business Systems Sales-out Rebate Program goals are as
follows:
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
- ------------------------------------------------------------------------------
MICROSOFT OPEN LICENSE SALES-OUT PROGRAM
- ------------------------------------------------------------------------------
CUSTOMER's Open License Sales-out Rebate Program are as follows
o Quarter 1 Goal (July - September, 1996): *
o Semester Goal (July - December, 1996): *
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 2 to The Rebate and Page L1
Marketing Fund Addendum to The
Microsoft of 1995/1996 Channel Agreement
<PAGE> 1
EXHIBIT 10.2(h)
AMENDMENT NO. 3 TO THE
REBATE AND MARKETING FUND ADDENDUM TO THE
MICROSOFT CHANNEL AGREEMENT
This Amendment No. 3 ("Amendment") amends that certain Rebate and Marketing
Fund Addendum (as previously amended the "Addendum") to The Microsoft Channel
Agreement (as previously amended the "Agreement"), dated July 1, 1995, between
MICROSOFT CORPORATION ("MS") having its principal place of business at One
Microsoft Way, Redmond, WA 98052 and SOFTWARE SPECTRUM, INC. ("CUSTOMER")
having its principal place of business at 2140 Merritt Drive, Garland, TX
75041. The Addendum is hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of January 1, 1997, and shall expire on
June 30, 1997."
Section 7, Failure To Execute, is replaced in its entirety with the following:
"7. FAILURE TO EXECUTE
CUSTOMER shall not be eligible to receive Rebates or Opportunity Marketing
Funds until both CUSTOMER and MS have executed this Addendum. Should CUSTOMER
fail to execute, or should MS be unable to execute this Addendum by January 1,
1997, for each full month after January 1, 1997, in which this Addendum is not
executed, CUSTOMER shall forfeit such month's Achievement Rebate."
SCHEDULE K, REBATE PROGRAM GUIDELINES.
The Schedule is replaced in its entirety with the attached Schedule M.
SCHEDULE L, OPEN LICENSE REBATE PROGRAMS.
The Schedule is replaced in its entirety with the attached Schedule N.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date
indicated below. This Amendment is hereby made part of the Addendum. All terms
and conditions of the Addendum not amended herein shall remain in full force
and effect. This Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION SOFTWARE SPECTRUM, INC.
("MS") ("CUSTOMER"):
By /s/ JOHAN LIEDGREN By /s/ KEITH R. COOGAN
----------------------------- ------------------------------
Johan Liedgren Keith R. Coogan
- -------------------------------- ---------------------------------
Name (please print) Name (please print)
Director, Channel Policies Executive Vice President - COO
- -------------------------------- ---------------------------------
Title Title
1/17/97 January 8, 1997
- -------------------------------- ---------------------------------
Date Date
Microsoft Confidential - Disclosure Prohibited
<PAGE> 2
SCHEDULE M
JANUARY - JUNE, 1997
REBATE GUIDELINES
PROGRAMS: Microsoft offers five (5) rebate programs for the January - June, 1997
Rebate period. The total available Rebate is divided as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------
MAXIMUM PERCENTAGE
REBATE PROGRAM AVAILABLE
=============================================================
<S> <C>
Achievement Program *
-------------------------------------------------------------
Total Sales-out Program *
-------------------------------------------------------------
32-Bit Office Sales-out Program *
-------------------------------------------------------------
Business Systems Sales-out Program *
-------------------------------------------------------------
Open License Sales-out Program *
-------------------------------------------------------------
TOTAL *
-------------------------------------------------------------
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft Purchase Credit forty-five (45) days after the end of each quarterly
Rebate Period (i.e. May 15th for the January - March, 1997 quarter). Rebates
are calculated by multiplying the achieved Rebate percentage by the total
Qualified Sales for the Rebate Period. Revenue generated from Microsoft Select
Enrollment Forms executed by MS on or after July 1, 1994, shall be included in
calculating CUSTOMER's achievement toward the Sales-out goal, but shall not be
included in CUSTOMER's final total Qualified Sales for purposes of Rebate
payment. Revenue generated from Microsoft Select Enrollment Forms executed by
MS prior to July 1, 1994 will be included in calculating CUSTOMER's achievement
towards the sales-out goal and will also be eligible for a Grandfathered
rebate. Rebate payment for such Select Enrollment Forms shall be in the form of
a purchase credit forty-five (45) days after the end of each quarter of the
Rebate Period.
PURCHASES THROUGH DISTRIBUTION: CUSTOMER's full packaged product and MLP
purchases through distribution will be subtracted from CUSTOMER's Qualified
Sales for purposes of Rebate payment.
PRODUCT AVAILABILITY: If Microsoft is unable to ship a current version of a
product for any ten (10) consecutive business days, CUSTOMER's purchases
through distribution of those SKUs will count toward CUSTOMER's Qualified Sales
for purchases of Rebate payment.
All copies of eligible purchase orders placed through distribution along with a
copy of the Microsoft Stock Out Report must be sent to Microsoft no later than
fifteen (15) days following the quarter end. Please send purchase order copies
and the Microsoft Stock Out Report to the following address:
MICROSOFT CORPORATION
ONE MICROSOFT WAY
BLDG. 22/2054
REDMOND, WA 98052
ATTN.: ANDRES MONTGOMERY, CHANNEL POLICIES
ACHIEVEMENT REBATE PAYMENT: The Microsoft Achievement Rebate will be calculated
on a monthly basis. If CUSTOMER has met all of the Achievement Rebate criteria
in a given month, CUSTOMER will be entitled to * of that month's total
Qualified Sales. The Rebate payment will be made forty-five (45) days after the
end of each quarter of the Rebate Period.
ANY ISSUES REGARDING REBATES SHOULD BE SENT IN WRITING TO ANDRES MONTGOMERY,
CHANNEL POLICIES, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute Rebate payment.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Rebate and Page M1
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 3
- --------------------------------------------------------------------------------
ACHIEVEMENT REBATE PROGRAM
- --------------------------------------------------------------------------------
PROGRAM OBJECTIVES: The objective of the Achievement Rebate Program is to
provide incentive for CUSTOMER to comply with MS' contractual requirements for
Payment, Street Dates, Reporting and Select Transactions.
ACHIEVEMENT: During any given month, failure to achieve any or all of the
current Achievement Rebate criteria will result in the forfeiture of the entire
Achievement Rebate for the month. In any month CUSTOMER has already forfeited
its Achievement Rebate, and violates one or more of the Achievement Rebate
criteria, MS reserves the right to withhold all or a portion of CUSTOMER's
other available Rebate.
1. MICROSOFT PAYMENT REQUIREMENTS:
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, eighty-five (85%) of the gross invoice value for Select
and one hundred (100%) of the gross invoice value for non-select must be
current as of Microsoft's fiscal month-end. Additionally, no greater than one
percent (1%) of the gross value for Select invoices shall be past net 60 days.
Unapplied credits will be excluded from the calculation.
2. MS STREET DATE REQUIREMENTS:
From time to time, MS may announce a new product or new versions of an existing
Product for which MS shall set a Street Date. MS' Street Date Requirements are
as follows:
RETAIL DELIVERY OF PRODUCT, CUSTOMER SHALL NOT:
o Ship or deliver the Product to any End User prior to
the Street Date. Proof of violation is an early-dated
sales slip.
o Accept any End User payment for the Product prior to
the Street Date. Checks and/or credit card numbers
may be accepted by CUSTOMER, but can only be
processed when product is delivered to the End User
on or after the Street Date.
MAIL ORDER DELIVERY OF PRODUCT, CUSTOMER SHALL NOT:
o Deliver the Product to any End User customer prior to
the Street Date. If CUSTOMER wishes, CUSTOMER may
ship Product by public carrier up to 2 days early
provided the carrier provides proof of delivery and
guarantees no End User will receive the Product
before street date. Proof of violation is an
early-dated carrier slip.
o Accept any End User payment for the Product prior to
Product shipment. Checks and/or credit card numbers
may be accepted by CUSTOMER, but can only be
processed when Product is shipped to the End User for
arrival on or after the Street Date.
ELECTRONIC SOFTWARE DISTRIBUTION OF PRODUCT, CUSTOMER SHALL NOT:
o Ship or deliver an un-lock key for Product to any
desktop package or End User prior to the Street Date.
(ESD reseller is responsible for making sure
agreements with Clearinghouses are clear on this
point.) Proof of Violation is an early-dated un-lock
key.
o Accept any End User payment for the Product prior to
the Street Date. Checks and/or credit card numbers
may be accepted by CUSTOMER, but can only be
processed when the un-lock key for the Product is
delivered to the End User on or after the Street
Date.
ADDITIONALLY, CUSTOMER SHALL NOT:
o Advertise, merchandise, or promote the Product to End
User customers until MS' officially announced "Coming
Soon" date. (Appearance on a WEB page is considered
an advertisement.) If the Product is advertised,
merchandised and/or promoted beginning with "Coming
Soon" Date and before Street Date, all such
promotions must clearly state that the Product is not
yet available for purchase.
o Allow it's distribution centers and/or warehouses to
distribute, for a period of up to twelve months, a
Street Date Product to any individual sales office,
retail store, or outlet which MS in its sole
discretion has determined to be in violation of the
Street Date Requirements.
Amendment No. 3 to The Rebate and Page M2
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 4
In the event CUSTOMER violates the Street Date for any special Products
specified in a MS Street Date letter, CUSTOMER shall forfeit up to the entire
Achievement Rebate for the six month Rebate Period in which the violation
occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, MS may also,
for a period of up to twelve (12) months, withhold shipments to CUSTOMER of
future Product until the Street Date of such Product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, MS shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, MS must receive proof of violation as indicated
above.
3. MICROSOFT REPORTING REQUIREMENTS
ALL EDI REPORTING MUST BE TIMELY, ACCURATE, AND COMPLETE. FOR PURPOSES OF THIS
AGREEMENT, "TIMELY" IS DEFINED AS MS RECEIPT OF REPORTING BY THE DUE DATE AND
TIME INDICATED, "ACCURATE" IS DEFINED AS THE CORRECT POPULATION OF ALL
REPORTING FIELDS, AND "COMPLETE" IS DEFINED AS THE POPULATION OF ALL REQUIRED
REPORTING FIELDS.
MICROSOFT PRODUCT REPORTING RULES
Reporting includes, but is not limited to, reports sent to Microsoft via
Electronic Data Interchange format ("EDI") of weekly Sales, Inventory, and
Internal Market Share. CUSTOMER must make the EDI Sales, Inventory and Market
Share reports available to MS' EDI mailbox each Monday by Noon (Pacific time).
These reports shall cover the seven-day period (Saturday through Friday EOB).
Please refer to the EDI Reporting Guidelines for details on reporting
requirements.
MS reserves the right to modify the EDI Reporting Guidelines. MS shall provide
CUSTOMER with sixty (60) days prior written notice of changes to existing EDI
Guidelines. CUSTOMER's failure to implement changes with sixty (60) days shall
result in forfeiture of CUSTOMER's Achievement Rebate in the month of months in
which changes are not implemented.
o Each unit of Microsoft single license Full Package Product
should be reported as one (1) unit.
EXAMPLE: Microsoft(R) Word for Windows(R) FPP - report as one (1) unit
o Any single Microsoft Multiple License Pack (MLP) should be
reported as one (1) unit.
EXAMPLE: Microsoft(R) Windows NT(TM) Workstation License Pack 20 User -
report as one (1) unit.
o All Microsoft Volume Licensing Agreements (such as Open
Licenses, Select Variable Licenses and Enterprise Licenses)
should be reported as one unit for each license sold.
EXAMPLE: Microsoft Select MVLP Level B (min 8000 licenses) Agreement -
Customer buys 9356 Word - report 9356 Word units.
Accounts are required to report units sold (Sales) and units in inventory
(Inventory) for each Microsoft SKU, but are required only to report the
aggregate total license count for competitive products sold for each Market
Share (Internal Market Share) category. All SKUs for these titles should be
counted, including full packaged product, upgrades, license packs, initial sale
of new maintenance and education and government SKUs of the foregoing. Please
refer to the EDI Reporting Guidelines for details on reporting requirements.
MARKET SHARE REPORTING
The following table outlines the Market Share product categories for EDI
reporting. The table also specifies the top competitive products that must be
included in the aggregated market share reporting. All competitive products
within a given category must be reported. The products listed below are just
examples, not a comprehensive list. For a comprehensive competitive SKU list
please contact your Microsoft Channel Measurement Specialist. MS reserves the
right to add or delete categories with sixty (60) days prior written notice to
CUSTOMER.
A comprehensive competitive SKU list shall be provided to CUSTOMER at the
beginning of each quarter. CUSTOMER must implement use of the list no later
than thirty (30) days after receiving the list. To the extent that CUSTOMER
sells any of the products contained on the list, CUSTOMER's Internal Market
Share reporting will include those SKUS. If between quarters there are any new
major releases of competitive products that fall under the competitive product
categories or upgrades to products already listed on the competitive SKU list,
CUSTOMER shall include those SKUs in CUSTOMER's Internal Market Share reporting
immediately upon release of new products.
Amendment No. 3 to The Rebate and Page M3
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 5
Windows-based competitive products summaries:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DATABASE VENDOR DESCRIPTION
=======================================================================
<S> <C> <C>
BORLAND DBASE, PARADOX
-----------------------------------------------------------------------
LOTUS APPROACH
-----------------------------------------------------------------------
CLARIS FILEMAKER PRO
-----------------------------------------------------------------------
DATAEASE DATAEASE
-----------------------------------------------------------------------
SAPPHIRE SQL CONNECT
-----------------------------------------------------------------------
SYMANTEC Q&A
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DEVELOPER VENDOR DESCRIPTION
=======================================================================
<S> <C> <C>
BORLAND DELPHI
-----------------------------------------------------------------------
GUPTA SQL WINDOWS
-----------------------------------------------------------------------
ORACLE DEVELOPER 2000, POWEROBJECTS
-----------------------------------------------------------------------
POWERSOFT POWERBUILDER
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
MESSAGING SERVERS VENDOR DESCRIPTION (Servers only. Do not report clients.)
=======================================================================
<S> <C> <C>
BANYAN BEYOND MAIL
-----------------------------------------------------------------------
LOTUS CC:MAIL, NOTES, NOTESUITE
-----------------------------------------------------------------------
NETSCAPE MAIL SERVER
-----------------------------------------------------------------------
NOVELL GROUPWISE
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SUITE VENDOR DESCRIPTION
=======================================================================
<S> <C> <C>
COREL OFFICE PRO, WORDPERFECT SUITE
-----------------------------------------------------------------------
LOTUS SMARTSUITE
-----------------------------------------------------------------------
NOVEL PERFECT OFFICE
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
WORDPROCESSOR VENDOR DESCRIPTION
=======================================================================
<S> <C> <C>
LOTUS WORD PRO, AMI PRO
-----------------------------------------------------------------------
NOVELL WORDPERFECT
-----------------------------------------------------------------------
SOFTKEY WORDSTAR, PFS:WRITE
-----------------------------------------------------------------------
SOFTWARE PUBLISHER OFFICE WRITER, PROFESSIONAL WRITE PLUS
-----------------------------------------------------------------------
XYQUEST XYWRITE
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SPREADSHEET VENDOR DESCRIPTION
=======================================================================
<S> <C> <C>
COMPUTER ASSOCIATES SUPERCALC
-----------------------------------------------------------------------
COREL QUATTROPRO
-----------------------------------------------------------------------
LOTUS 1-2-3
-----------------------------------------------------------------------
NOVELL QUATTRO PRO
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
NOS SERVERS VENDOR DESCRIPTION (SERVERS ONLY. DO NOT REPORT CLIENTS)
=======================================================================
<S> <C> <C>
BANYAN VINES, SERVER
-----------------------------------------------------------------------
IBM OS/2, OS/2 LAN SERVER, OS/2 WARP, OS/2 WARP
CONNECT
-----------------------------------------------------------------------
NOVELL NETWARE, NETWARE FOR SAA:AS400, INTRANETWARE, MPR,
MANAGEWISE W/NETWARE
-----------------------------------------------------------------------
SANTA CRUZ OPEN SERVER, UNIXWARE
OPERATION
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
BROWSERS VENDOR DESCRIPTION
=======================================================================
<S> <C> <C>
NETMANAGE CHAMELEON
-----------------------------------------------------------------------
NETSCAPE NETSCAPE BROWSER
-----------------------------------------------------------------------
SPRY SPRY MOSAIC; INTERNET IN-A-BOX
-----------------------------------------------------------------------
IBM WEB EXPLORER
-----------------------------------------------------------------------
QUARTERDECK MOSAIC
-----------------------------------------------------------------------
NCSA MOSAIC
- ------------------------------------------------------------------------------------------
</TABLE>
Amendment No. 3 to The Rebate and Page M4
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 6
COMPETITIVE PRODUCT MARKET SHARE REPORTING RULES
o Each unit of COMPETITIVE single license FULL PACKAGE PRODUCT
should be reported as one (1) unit.
EXAMPLE: Lotus SmartSuite for Windows FPP - report as 1 unit
o Any single COMPETITIVE product that is a MULTIPLE LICENSE PACK
(MLP) should be reported as the exact number of licenses
contained in the MLP. Examples of these products include
competitive 10 User Packs, 20 User Packs, and 100 User Packs.
Unlike MS Products, competitive MLPs are not reported as a
single unit, but instead as the exact number of licenses
included in the MLP. If the MLP is a Network Operating System
or Messaging Server MLP, count only server licenses contained
in the MLP.)
EXAMPLE: WordPerfect V6.0 for Windows 20-user License Pack - report
as 20 units
o All SKUs (with the exception of Mail clients and Network
Operating System clients) contained in COMPETITIVE VOLUME
LICENSING AGREEMENTS should be reported as one (1) unit for
each license sold within the volume license agreement.
EXAMPLE: Lotus VPO-Level E 1-2-3 for Windows (customer buys 7421
units) - report as 7421 units
o COMPETITIVE MAIL SERVERS and NETWORK OPERATING SYSTEMS must be
reported as one (1) unit for each server license sold. Do not
report client licenses in FPP, MLP, or Volume License
Agreements.
o Report MAINTENANCE only at the time the maintenance SKU is
sold.
o Product Support for any competitive SKU should NOT be
reported.
o Documentation-only SKUs should NOT be reported.
o Only US versions of competitive SKUs should be reported. Do
NOT report non-English, International English, or
International versions of competitive SKUs.
o Promotional competitive SKUs should be reported.
4. SELECT TRANSACTION REQUIREMENTS:
o CUSTOMER must place EDI transaction orders at a minimum of once per
month per Enrollment Site if product is purchased during said
month. Electronic Data Interchange format ("EDI") transactions
include, but are not limited to 850/855 EDI transactions and all
other EDI reporting requirements which may be required by MS and in
the EDI Implementation Guide provided by MS from time to time.
o CUSTOMER must report usage for all Select 3.0 Enterprise
Enrollments executed prior to January 1, 1997 no later than March
31, 1997. Select 3.0 Enterprise Enrollments executed on or after
January 1, 1997 must have usage reported no later than three (3)
calendar months after the effective date of the Enrollment. The
usage date shall reflect the month in which the Select Customer
consumed the Product. MS shall provide CUSTOMER with a monthly list
of all Enrollments with no submitted purchase order.
o CUSTOMER shall limit the number of rejected EDI line items for
Select 3.0 and 4.0 to no greater than the MS percentage standard.
o CUSTOMER shall limit the number of credit lines contained in
CUSTOMER's EDI purchase orders to no greater than four (4%) of the
total lines submitted per month.
- --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAMS
- --------------------------------------------------------------------------------
PROGRAM OBJECTIVE: The objective of all Sales-out Rebate Programs is to
increase the sales of Microsoft products. All license types (Select Microsoft
Open License, Full Package Product, MLPs ESD) are included in measuring
performance against this goal, however, the Rebate is paid on full packaged
product sales only.
REBATE GOALS: CUSTOMER has first quarter Sales-out goals and total Semester
Sales-out goals. CUSTOMER's performance for the first three months of the
January - June, 1997, Semester will be measured against the first quarter
Sales-out goals. At the end of the first quarter, CUSTOMER will receive the
percentage of the eligible Rebates earned based on performance against the
first quarter goals. At the end of the Semester, CUSTOMER will be measured on
their six-month performance against the total Semester goals. Even if CUSTOMER
does not meet one hundred percent (100%) of the first quarter goals, CUSTOMER
can still achieve one hundred percent (100%) of the Semester goals provided
that the Semester goals are met at the end of the Rebate Period.
Amendment No. 3 to The Rebate and Page M5
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 7
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net (sales less returns) Product units sold through CUSTOMER's outlet
locations. CUSTOMER's full packaged product, Microsoft Open License, and
upgrade sales-out units will be measured from the sales-out reported by
CUSTOMER to MS. Licensing sales (Select, Microsoft Maintenance) are captured
and generated by MS' financial systems and included in total sales-out used to
measure product sales-out Rebate performance.
PAYMENT: At the end of the Semester, CUSTOMER will be paid Sales-out Rebates
based on performance against the Semester goals. If CUSTOMER achieves greater
than sixty percent (60%) of each Semester Sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible Sales-out Rebate up to one
hundred percent (100%). If CUSTOMER achieves less than sixty percent (60%) of
any Sales-out Rebate goal, CUSTOMER will not receive any portion of that
Sales-out Rebate.
Although MS pays the Sales-out Rebate ultimately based on performance against
the Semester Sales-out goal, Microsoft also pays a Sales-out Rebate at the end
of the first quarter based on performance against the first quarter goal.
Microsoft pays a portion of the Rebate after the first quarter to provide
incentive for CUSTOMER to focus on Sales-out throughout the entire Semester.
The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the Sales-out Rebate.
Example: If CUSTOMER has a quarterly total Sales out goal of $1,000,000 and a
Semester total Sales out goal $2,500,000, and CUSTOMER sells $800,000 over the
first quarter period and $2,600,000 over the entire Semester period, CUSTOMER
will receive the following Rebate payments:
<TABLE>
<CAPTION>
=======================================================================================
PERIOD GOAL SELL-THROUGH PAYMENT
ACHIEVED
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter * * * eligible Rebate = * of
January - March sales or *
- ---------------------------------------------------------------------------------------
Semester * * * eligible rebate = * of
January - June sales less first quarter
payment or * The maximum
allowable total sales out Rebate is: *
=======================================================================================
</TABLE>
- --------------------------------------------------------------------------------
TOTAL SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Total Sales-out Rebate Program is * of Qualified Sales for the January -
June, 1997 Semester.
- --------------------------------------------------------------------------------
32-BIT OFFICE SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
32-Bit Office Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1997 Semester.
- --------------------------------------------------------------------------------
BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Business Systems Sales-out Rebate Program is * of Qualified Sales for
the January - June, 1997 Semester.
REBATE GOALS: CUSTOMER must sell a minimum number Microsoft(R) BackOffice and
Microsoft(R) Windows NT(TM) client licenses in order to receive any portion of
the Business Systems rebate. Provided that CUSTOMER sells the minimum number of
BackOffice and Windows NT client licenses, CUSTOMER's achievement against the
Business Systems goal will be based on CUSTOMER's performance against the
Business Systems revenue goal.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Rebate and Page M6
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 8
- --------------------------------------------------------------------------------
OPEN LICENSE SALES-OUT REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Open License Sales-out Rebate Program is * of Qualified Sales for the
January - June, 1997 Semester.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Rebate and Page M7
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 9
SCHEDULE N
JANUARY - JUNE, 1997
OPEN LICENSE
REBATE PROGRAM
- --------------------------------------------------------------------------------
OPEN LICENSE REBATE PROGRAM
- --------------------------------------------------------------------------------
REBATE PERCENTAGES: The total possible Rebate percentage achievable for the
Open License Rebate Program is * of Qualified Open License Sales for
the January - June, 1997 Semester.
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Amendment No. 3 to The Rebate and Page N1
Marketing Fund Addendum to The
Microsoft Channel Agreement
<PAGE> 10
- --------------------------------------------------------------------------------
SALES-OUT REBATE PROGRAM GOALS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===========================================================================================================================
QUARTER SEMESTER REBATE REBATE
QUARTER SEMESTER CLIENT CLIENT PERCENTAGE PERCENTAGE
REBATE PROGRAM SALES GOAL SALES GOAL GOAL GOAL (FFP) (MOLP)
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Open License Sales-out Rebate Program N/A N/A * *
- ---------------------------------------------------------------------------------------------------------------------------
Total Sales-out Rebate Program * * N/A N/A * N/A
- ---------------------------------------------------------------------------------------------------------------------------
32 Bit Office Sales-out Rebate Program * * N/A N/A * N/A
- ---------------------------------------------------------------------------------------------------------------------------
Business Systems Sales-out Rebate Program * * * * * *
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC.
Software Spectrum, Inc.
<PAGE> 1
EXHIBIT 10.5(d)
FOURTH AMENDMENT TO COMMERCIAL LEASE AGREEMENT
THIS FOURTH AMENDMENT TO COMMERCIAL LEASE AGREEMENT, (the "Amendment") is
entered into by and between KANCRO, L.P., a Delaware limited partnership (the
"Lessor") and SOFTWARE SPECTRUM, INC., a Texas corporation (the "Lessee"),
effective as of the 25th day of November, 1996.
W I T N E S S E T H:
WHEREAS, pursuant to the terms of that certain Commercial Lease Agreement
dated April 19, 1993 (the "Lease"), as amended by that certain Third Amendment
to Commercial Lease Agreement dated to be effective as of April 1, 1995
(collectively, the "Lease"), Lessee has heretofore leased from the Lessor
certain premises located within the industrial warehouse project commonly known
as Northgate IV, Garland, Texas (the "Project") and containing approximately
70,390 square feet of space, more or less within Building 15 at 2220 Merritt
Drive, Garland, Texas (the "Original Premises"); and
WHEREAS, the parties desire to further amend certain provisions of the
Lease, all as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises, and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Defined Terms. Terms defined in the Lease and delineated herein by
initial capital letters shall have the same meaning ascribed thereto
in the Lease, except to the extent that the meaning of such term is
specifically modified by the provisions hereof. In addition, other
terms not defined in the Lease, but defined herein shall when
delineated with initial capital letters have the meaning ascribed
thereto in this Amendment. Terms and phrases which are not delineated
by initial capital letters shall have the meaning commonly ascribed
thereto.
2. Amendments to the Lease.
(a) Section 1 of the Lease shall be modified in its entirety as
follows:
"Section 1 PREMISES AND TERM.
(A) In consideration of the mutual obligations of Lessor and
Lessee set forth herein, Lessor leases to Lessee, and Lessee
hereby takes from Lessor certain lease premises (the "Original
Premises"), consisting of 70,390 square feet of space, more or
less, in Building 15 situated within the Project, and being more
particularly described on Exhibit "A-1" attached
Page 1
<PAGE> 2
hereto and incorporated herein for all purposes, together with
all rights, privileges, easements, appurtenances and amenities
granted to the Lessee in this Lease, to have and to hold,
subject to the terms, covenants and conditions of this Lease.
The term of this Lease shall commence on April 1, 1995 (the
"Commencement Date") and shall end on the last day of the month
that is sixty (60) months after the Commencement Date (the
"Lease Term"); provided, that if the Commencement Date is a date
other than the first day of a calendar month, the Lease Term
shall be extended for the remainder of the calendar month in
which the Commencement Date occurs.
(B) In consideration of the mutual obligations of Lessor and
Lessee set forth herein, Lessor leases to Lessee, and Lessee
hereby takes from Lessor certain leased premises (the "Expansion
Premises"), consisting of 38,286 square feet of space, more or
less, in Building 14 situated within the Project, and being more
particularly described on Exhibit "A" and Exhibit "A-2" attached
hereto and incorporated for all purposes, together with all
rights, privileges, easements, appurtenances and amenities
granted to the Lessee in this Lease, to have and to hold subject
to the terms, covenants and conditions of this Lease. The term
of the Lease of the Expansion Premises shall commence on
December 1, 1996 (the "Expansion Commencement Date"), and shall
end on the last day of the month that is coterminous with the
date of expiration of the term of the lease of the Original
Premises. The Original Premises and the Expansion Premises are
hereinafter sometimes collectively referred to as the
"Premises".
(b) The last sentence of Section 2(c) of the Lease is hereby amended
in its entirety as follows:
"The amount of the monthly rent is as follows:
<TABLE>
<S> <C>
Base Rent (Original Premises) .................... $ 21,996.88
Base Rent (Expansion Premises) ................... 12,762.00
Tax Escrow Payment (Original Premises) ........... 3,519.50
Tax Escrow Payment (Expansion Premises) .......... 2,252.19
Insurance Escrow Payment (Original Premises) ..... 410.61
Insurance Escrow Payment (Expansion Premises) .... 233.07
Common Area Expenses (Original Premises) ......... 1,055.85
Common Area Expenses (Expansion Premises) ........ 708.80
-------------
Monthly Payment Total: $ 42,938.90"
-------------
</TABLE>
Page 2
<PAGE> 3
(c) A new Section 26 shall be added to the Lease, and shall read in its
entirety as follows:
"26. Construction of Improvements to Expansion Premises. Lessee shall
proceed to construct improvements within the Expansion Premises in
compliance with certain plans and specifications prepared on behalf
of the Lessee (the "Plans"). The Plans for the construction of the
improvements to the Expansion Premises shall be mutually approved by
the parties in writing prior to commencement of construction. Lessor
agrees to notify Lessee in writing at the time Lessor approves the
Plans the items to be constructed by the Lessee which Lessor shall
require the Lessee to remove from the Expansion Premises at the
expiration of the term of this Lease. Lessee shall be responsible for
the cost of all improvements to be constructed within the Expansion
Premises. Lessee shall further be responsible for compliance with all
applicable statutes, codes, ordinances and other regulations for all
construction performed by or on behalf of the Lessee within the
Expansion Premises, including without limitation, the installation of
all utilities within the Expansion Premises. Lessee acknowledges that
the utilities serving the Expansion Premises are jointly metered with
the utilities serving the Additional Premises (as defined in Section
3 of this Amendment). Until such time as the utilities serving both
the Expansion Premises and the Additional Premises are separately
metered, Tenant agrees to pay the cost of all jointly metered
utilities. Lessee shall not permit Lessee's contractors or any
subcontractor to commence any work in connection with the
construction of the improvements to the Expansion Premises until
appropriate insurance has been obtained and certificates evidencing
such insurance coverage have been delivered to and approved by
Lessor. Lessee agrees to indemnify, defend and hold Lessor harmless
from and against all claims, liabilities, costs, damages and expenses
of whatever nature, including those to the property of Lessee,
arising out of or in conjunction with the performance of the
construction of the improvements to the Expansion Premises. At the
expiration of the term of the Lease, and upon written notice from the
Lessor, Lessee, at its sole cost and expense, shall remove all
improvements constructed within the Expansion Premises which were
identified by the Lessor in writing at the time of the approval of
the Plans. Such removal of the improvements to the Expansion Premises
shall be performed in a good and workmanlike manner so as not to
damage or alter the primary structure or structural qualities of the
building and other improvements comprising the Premises. Tenant
Page 3
<PAGE> 4
expressly acknowledges and agrees that it shall lease and take
possession of the Expansion Premises in an "AS-IS" condition. Neither
Lessor nor anyone acting on lessor's behalf has made any
representations or warranties as to the condition of the Expansion
Premises. The taking of possession of the Expansion Premises by the
Lessee shall be deemed conclusive evidence that the Expansion
Premises were in a satisfactory condition at the time of possession."
3. Right of First Refusal on Additional Space. At any time between the
Expansion Commencement Date and the expiration of the term of the
Lease, and provided that the Lessee is not then in default under the
Lease and has not assigned this lease or sublet the right to lease
(or any part thereof) Lessee shall have the right to lease premises
adjacent to the Expansion Premises, consisting of of approximately
24,561 square feet, more or less, and outlined on Exhibit "B",
attached to this Amendment and incorporated herein (the "Additional
Premises"). Subject to the foregoing, and provided that Lessee shall
have not previously received a written notice from the Lessor of a
bona fide third-party offer to lease the Additional Premises as
described below, the Lessee may, upon written notice to the Lessor,
lease the additional Premises at a base rent, the lease of the
Additional Premises shall be upon the same terms and conditions as
those herein specified, including without limitation, the date of
termination of the Lease specified herein. Following Lessee's notice,
Lessor and Lessee shall cooperate with each other to expeditiously
execute an amendment to this or an additional lease agreement to
document the lease of the Additional Premises.
In the event Lessor desires to lease all or a portion of the
Additional Premises to a third party, Lessor shall notify Lessee in
writing of its intention, including in the notice the name of the
proposed Lessee and the particular location of the proposed lease
space. Lessee agrees not to enter into a sublease with such third
party, nor discuss such information with any potential sublessee or
assignee of lessee. Lessee shall have thirty (30) days after receipt
of Lessor's notice to notify Lessor of Lessee's decision to lease
that portion of the Additional Premises subject to the proposed lease
with such third party, such lease to be upon the same terms and
conditions as that agreed to in writing by Lesssor and such third
party. If within such thirty (30) day period, Lessee does not deliver
Lessor written notice of Lessee's intent to exercise its right of
first refusal with respect to that portion of the Additional Premises
subject to the proposed lease with such third party, then Lessor
shall be entitled for a period of ninety
Page 4
<PAGE> 5
(90) days thereafter to execute a lease with such third party, and if
Lessor does so execute a lease with such third party, Lessee's prior
right to lease all or the portion of the Additional Premises covered
by the lease with such third party shall automatically terminate for
the duration of such lease and any extensions thereto. However, if
Lessor does not execute a lease with such third party during the
ninety (90) day period, that portion of the Additional Premises shall
not thereafter be leased without Lessor's compliance with the terms
of this Section 3.
4. Effect of Amendment. Except as specifically amended by the provisions
hereof, the terms, covenants and provisions of the Lease shall
continue to govern the rights and obligation of the parties
thereunder, and all rights, convenants and provisions of the Lease
shall remain in full force and effect as stated therein. This
Amendment and the Lease shall be construed as one instrument. The
terms, covenants and provisions of this Amendment shall inure to the
benefit and be binding upon the parties hereto and their respective
successors and permitted assigns
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment in
multiple counterparts as of the day and year first above written.
LESSOR:
KANCRO, L.P.,
a Delaware limited partnership
By: KPERS Realty Holding #23, Inc.,
a Kansas corporation,
general partner
By: /s/ STEPHEN S. WILLIAMS
----------------------------------
Stephen S. Williams
Title: Vice President
----------------------------
LESSEE:
SOFTWARE SPECTRUM, INC.
a Texas corporation
By: /s/ KEITH R. COOGAN
----------------------------------
Title: Executive Vice President - COO
------------------------------
BY: /s/ LISA STEWART
------------------------------
Lisa Stewart
TITLE: Vice President - Operations
----------------------------
Page 5
<PAGE> 6
EXHIBIT "A"
LEGAL DESCRIPTION
BEING approximately 62,847 square feet out of an approximate 62,847 square
foot facility commonly known as Northgate Phase IV, Building 14 located on
2260 Merritt Drive, Garland, Texas, and situated on a tract of land described
as follows:
BEING 7.7771 acres of land situated in the HENRY REID SURVEY, Abstract No.
1197, being part of Lot 1, Block 3 of Northgate Business Park IV, an addition
to the City of Garland as recorded in Volume 85052, Page 1927 of the Deed
Records of Dallas County, Texas;
COMMENCING at the Northeast corner of said Lot 1, said corner being the
intersection of the southerly R.O.W. line of Miller Road (a 100' R.O.W.) and
the westerly boundary line of Santa Fe-Miller Road Industrial District;
THENCE, South 00 degrees 13 minutes 39 seconds West, along the
easterly line of Lot 1 and said westerly boundary line of Santa Fe-Miller Road
Industrial District a distance of 985.10 feet to the POINT OF BEGINNING;
THENCE, South 00 degrees 13 minutes 39 seconds West, continuing along the
easterly line of Lot 1 and said westerly boundary line) a distance of 717.00
feet to a point for a corner, said point being the Southeast corner of Lot 1;
THENCE, North 89 degrees 46 minutes 21 seconds West, along the southerly line
of Lot 1 a distance of 150.00 feet to the beginning of a curve to the right
having a central angle of 30 degrees 00 minutes 00 seconds, a radius of 400.00
feet and a tangent of 107.18 feet;
THENCE, continuing along the southerly line of Lot 1 and said curve to the
right an arc distance of 209.44 feet to a point of tangency;
THENCE, North 59 degrees 46 minutes 21 seconds West, continuing along the
southerly line of Lot 1 a distance of 189.89 feet to a point for a corner said
point being on the easterly R.O.W. line of Merritt Drive a 60' R.O.W.;
THENCE, North 00 degrees 13 minutes 39 seconds East, along said easterly R.O.W.
line of Merritt Drive a distance of 297.92 feet to the beginning of a curve to
the right having a central angle of 27 degrees 39 minutes 58 seconds, a radius
of 320.00 feet and a tangent of 78.80 feet;
THENCE, northeasterly along said easterly R.O.W. and said curve to the right an
arc distance of 154.52 feet to a point of tangency;
THENCE, North 27 degrees 53 minutes 37 seconds East, continuing along said
easterly R.O.W. a distance of 55.81 feet to the beginning of a curve to the
left having a central angle of 06 degrees 54 minutes 30 seconds, a radius of
660.00 feet and a tangent of 39.84 feet;
THENCE, Northeasterly continuing along said easterly R.O.W. and said curve to
the left an arc distance of 79.58 feet to a point for a corner;
THENCE, South 89 degrees 46 minutes 21 seconds East, departing the easterly
R.O.W. line of Merritt Drive a distance of 419.33 feet to the POINT OF
BEGINNING and CONTAINING 338,771 Square Feet or 7.7771 Acres of Land.
<PAGE> 7
EXHIBIT "A-1"
Site Plan of Original Premises
<PAGE> 1
EXHIBIT 10.8(e)
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as
of March 31, 1997 is among SOFTWARE SPECTRUM, INC. (the "Borrower"), each of
the banks or other lending institutions which are a party hereto (individually
a "Bank" and collectively, the "Banks") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually as a Bank (in its individual capacity and not as
agent, herein "TCB") and as agent for itself and the other Banks (in such
capacity as agent, together with its successors in such capacity, the "Agent").
RECITALS:
A. Borrower, TCB and the Agent have entered into that certain
Credit Agreement dated May 3, 1996 (as amended by that certain First Amendment
to Credit Agreement and Master Assignment and Acceptance dated as of June 28,
1996, that certain Second Amendment to Credit Agreement dated as of June 28,
1996, that certain Amendment Letter dated as of September 30, 1996, and that
certain Fourth Amendment to Credit Agreement dated as of December 31, 1996,
herein the "Agreement").
B. Pursuant to Section 14.8 of the Agreement, TCB assigned
certain of its rights and obligations under the Agreement and the other Loan
Documents to the other Banks.
C. The Borrower, the Banks and the Agent desire to amend the
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 1.1. Effective as of the date
hereof, the following definitions in Section 1.1 of the Agreement are amended
in their entirety to read as follows:
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE> 2
"Fiscal Quarters" means the four (4) periods falling in each
Fiscal Year, each such period being three calendar months in duration
with the first such period in any Fiscal Year beginning on the first
day of May and the last such period in any Fiscal Year ending on the
last day of April.
"Fiscal Year" means the twelve (12) month period beginning on
the first day of May and ending on the last day of April of the
following year.
Section 2.2 Amendments to Article 5. Effective as of the date
hereof, (a) the reference to "March 31, 1997," in Section 5.4(a)(ii) of the
Agreement is replaced with "April 30, 1997 and (b) the following is hereby
added to the end of Section 5.12 of the Agreement:
For purposes of any calculation under this Section 5.12 prior
to October 31, 1997, the term "Fiscal Quarter" shall mean only the
three month periods ending December 31, 1996, March 31, 1997 and July
31, 1997.
Section 2.3 Amendments to Section 9.1(c). Effective as of the date
hereof, Section 9.1 (c) of the Agreement is amended in its entirety to read as
follows:
(c) Compliance Certificate. Within forty-five (45) days after
the end of each Fiscal Quarter of each Fiscal Year beginning with the
Fiscal Quarter ending July 31, 1997 or with respect to the last Fiscal
Quarter of each Fiscal Year beginning with the Fiscal Quarter ending
April 30, 1998, within ninety (90) days of the end of such Fiscal
Quarter, within sixty (60) days after March 31, 1997 and within
forty-five (45) days after June 30, 1997, a Compliance Certificate
and, with respect to the Compliance Certificate delivered as of March
31, 1997 and June 30, 1997 only, financial reports of the type
described in Section 9.1 (b) but prepared with respect to the three
(3) month period then ended;
Section 2.4 Amendment to Section 10.1(c). Effective as of the
date hereof, Section 10.1(c) of the Agreement is amended in its entirety to
read as follows:
(c) Debt (other than Capital Lease Obligations) not to exceed One
Million Dollars ($1,000,000.00) in the aggregate at any time
outstanding secured by purchase money liens permitted by Section 10.2;
Section 2.5 Amendment to Section 11.1(b). Effective as of the date
hereof, Section 11.1 of the Agreement is amended as follows: (i) Clause (b) is
amended in its entirety to read as follows:
(b) fifty percent (50%) of the sum of (i) the Borrower's Net Income
for the month ended April 30, 1996 plus (ii) one of the following:
(A) if determined as of March 31, 1997, the Borrower's
Net Income for the period from (but excluding) April 30, 1996 through
March 31, 1997;
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
(B) if determined as of June 30, 1997, the Borrower's Net
Income for the period from (but excluding) April 30, 1996 through June
30,1997;
(C) if determined as of July 31, 1997, the sum of the
Borrower's Net Income for the Fiscal Year ending April 30, 1997 plus
the Borrower's Net Income for the Fiscal Quarter ending July 31, 1997,
or
(D) if determined as of any Fiscal Quarter ending after
July 31, 1997, the sum of the amount determined in accordance with
clause (C) plus the Borrower's Net Income for each Fiscal Quarter to
have completely elapsed since July 31, 1997;
and (ii) the second to last sentence is amended to read in its entirety as
follows: "If Net Income for a period of calculation described in this Section
11.1 is zero or less, no adjustment to the requisite level of Consolidated Net
Worth shall be made."
Section 2.6 Amendment to Section 11.2. Effective as of the date
hereof, Section 11.2 of the Agreement is amended in its entirety to read as
follows:
Section 11.2 Funded Debt to EBITDA. The Borrower shall not
permit the ratio of its outstanding Funded Debt to its Annualized
EBITDA to exceed 4.00 to 1.00 as of March 31, 1997. For the
calculation set forth above, outstanding Funded Debt shall be
calculated as of the date of determination. The term "Annualized
EBITDA" means a Dollar amount calculated by determining the Adjusted
EBITDA for the period from (but excluding) June 30, 1996 through March
31, 1997 and multiplying the amount thereof by four-thirds (4/3). The
Borrower shall not permit the ratio of its Funded Debt outstanding on
the date of determination to Adjusted EBITDA for the twelve (12) month
period then ending to exceed (i) 4.00 to 1.00 as of June 30, 1997,
July 31, 1997 and October 31, 1997, and (ii) 3.50 to 1.00 as of each
Fiscal Quarter end thereafter.
Section 2.7 Amendment to Section 11.3. Effective as of the date
hereof, Section 11.3 of the Agreement is amended in its entirety to read as
follows:
Section 11.3 Fixed Charge Coverage. As of March 31, 1997,
the Borrower shall not permit the ratio of Cash Flow to Fixed Charges
to be less than 0.75 to 1.00, computed on the basis of the Cash Flow
and Fixed Charges for the period from and including July 1, 1996
through March 31, 1997. As of each date identified below, the
Borrower shall not permit the ratio of Cash Flow to Fixed Charges
computed on the basis of the Cash Flow and Fixed Charges for the
twelve (12) month period then ended to be less than the ratio set
forth in the table below opposite the applicable date:
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE> 4
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
June 30, 1997 2.75
July 31, 1997 2.25
October 31, 1997 2.25
January 31, 1997 2.25
April 30, 1998 2.25
July 31, 1998 and each Fiscal Quarter end 2.00
thereafter
</TABLE>
The phrase "Cash Flow" means, for any period, the total of the
following for the Borrower and the Subsidiaries calculated on a
consolidated basis without duplication for such period: (A) Adjusted
EBITDA; minus (B) any provision for (or plus any benefit from) cash
income or franchise taxes included in determining Net Income. The
phrase "Fixed Charges" means, for any period, the total of the
following for the Borrower and the Subsidiaries calculated on a
consolidated basis without duplication for such period: (A) Interest
Expense; plus (B) scheduled amortization of Debt paid or payable
(excluding, to the extent included, nonpermanent principal repayments
under the Revolving Loans); plus (C) if calculating Fixed Charges for
the period ending March 31, 1997 only, the actual Capital Expenditures
for such period; plus (D) cash dividends and other cash distributions
made by Borrower on account of its capital stock.
Section 2.8 Capital Expenditure Limits. Effective as of the date
hereof, Section 11.4 is added to Article 11 of the Agreement to read in its
entirety as follows:
Section 11.4 Capital Expenditure Limits. The Borrower
shall not permit the aggregate amount of the Calculated Capital
Expenditures (a) for the period from April 1, 1997 through March 31,
1998 to exceed Seven Million Five Hundred Thousand Dollars
($7,500,000.00); (b) for the period from April 1, 1997 through the
Fiscal Year ended April 30, 1998 to exceed Eight Million One Hundred
Twenty-Five Thousand Dollars ($8,125,000.00); (c) for the Fiscal Year
ended April 30, 1999 to exceed Eight Million Five Hundred Thousand
Dollars ($8,500,000.00); (d) for the Fiscal Year ended April 30, 2000
to exceed Nine Million Five Hundred Thousand Dollars ($9,500,000.00);
and (e) for the Fiscal Year ended April 30, 2001 and each Fiscal Year
thereafter to exceed Ten Million Five Hundred Thousand Dollars
($10,500,000.00) per Fiscal Year. The term "Calculated Capital
Expenditures" means, for any period, the sum of (a) the actual Capital
Expenditures for such period minus (b) any proceeds from the issuance
by Borrower of its equity securities received during the period.
Section 2.9 Compliance Certificate. Effective as of the date
hereof, Exhibit "I" of the Agreement is amended in its entirety to read as set
forth on Annex 1 attached hereto.
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE> 5
ARTICLE 3
Miscellaneous
Section 3.1 Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower, Spectrum Integrated Services, Inc. (by its execution below),
the Banks and Agent agree that the Agreement, as amended hereby, and the other
Loan Documents shall continue to be legal, valid, binding and enforceable in
accordance with their respective terms.
Section 3.2 Reference to Agreement. Each of the Loan Documents,
including the Agreement, are hereby amended so that any reference in such Loan
Documents to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 3.3 Severability. Any provision of this Amendment held by
a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 3.4 Applicable Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 3.5 Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Borrower, Agent, the Banks and their
respective successors and assigns, except Borrower may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Banks.
Section 3.6 Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same agreement.
Section 3.7 Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
Section 3.8 ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE> 6
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO.
Section 3.9 Bank Fee. Borrower agrees to pay each Bank that has
executed this Amendment on or before the close of business on April 2, 1997 an
amendment fee of Two Thousand Dollars ($2,000.00). The amendment fee will be
paid to each such Bank on or before April 7, 1997.
Executed as of the date first written above.
BORROWER:
--------
SOFTWARE SPECTRUM, INC.
By: /s/ DEBORAH A. NUGENT
------------------------------------
Deborah A. Nugent
Vice President
Accepted and agreed to:
SPECTRUM INTEGRATED SERVICES, INC.
By: /s/ DEBORAH A. NUGENT
------------------------------------
Deborah A. Nugent
Secretary/Treasurer
AGENT:
-----
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually as a Bank
and as the Agent
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE> 7
OTHER BANKS:
-----------
BANQUE PARIBAS
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
NATIONAL CITY BANK, KENTUCKY
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
COMERICA BANK
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
PNC BANK, N.A.
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
NBD BANK
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
FIFTH AMENDMENT TO CREDIT AGREEMENT - Page 7
<PAGE> 8
ANNEX 1
to
SOFTWARE SPECTRUM, INC.
FIFTH AMENDMENT TO
CREDIT AGREEMENT
Compliance Certificate
<PAGE> 9
COMPLIANCE CERTIFICATE
for the
quarter ending ______________ __, ____
To: Texas Commerce Bank
National Association, as agent
1111 Fannin, 9th Floor MS46
Houston, Texas 77002
with a copy to
2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
and each Bank
Ladies and Gentlemen:
This Compliance Certificate (the "Certificate") is being delivered
pursuant to Section 9.1 (c) of that certain Credit Agreement (as amended, the
"Agreement") dated as of May 3, 1996 among SOFTWARE SPECTRUM, INC. (the
"Borrower"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as agent and the Banks
named therein. All capitalized terms, unless otherwise defined herein, shall
have the same meanings as in the Agreement. All the calculations set forth below
shall be made pursuant to the terms of the Agreement.
The undersigned, an authorized financial officer of the Borrower, does
hereby certify to the Agent and the Banks that:
1. DEFAULT.
No Default has occurred and is continuing or if a Default has occurred and
is continuing, I have described on the attached Exhibit "A" the nature
thereof and the steps taken or proposed to remedy such Default.
Compliance
----------
2. SECTION 9.1 - FINANCIAL STATEMENTS AND RECORDS
(a) Annual audited financial statements of Borrower on or Yes No N/A
before 90 days after the end of each Fiscal Year.
(b) In accordance with Section 9.1(c), unaudited financial Yes No N/A
statements of Borrower on a consolidated basis and each
Foreign Subsidiary within 45 days (or 60 days for the
period ending 3/31/97) of period end
COMPLIANCE CERTIFICATE - Page 1
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
(c) Borrowing Base Report together Yes No N/A
with an aging of accounts
receivables within 30 days
of each month end.
3. SECTION 10.1 - DEBT
No Additional Debt except:
(a) Purchase money not to exceed: $1,000,000
Actual Outstanding: $_________ Yes No
(b) Guaranties of surety and other
bonds not to exceed: $1,000,000
Actual Outstanding: $_________ Yes No
(c) Outstanding Guaranties of permitted Debt of Foreign
Subs and Foreign Ventures
(i) Outstanding Loans, advances and other extensions
of credit to Foreign Subs and Foreign Ventures $_________
(ii) Letters of Credit backing Foreign Sub debt $_________
(iii) Limit: $30,000,000 minus (c)(i) and (c)(ii) $_________
(d) Other Debt not to exceed $5,000,000 Yes No
Actual Outstanding: $_________
4. SECTION 10.5 - INVESTMENTS
(a) Outstanding Loans, advances and extensions of
credit to Foreign Subs and Foreign Ventures $_________
(i) Outstanding Guaranties of permitted Foreign Subs
and Foreign Ventures $_________
(ii) Letters of Credit backing Foreign Sub debt $_________
(iii) Limit: $30,000,000 minus (a)(i) and (a)(ii) $_________ Yes No
(b) Consolidated Net Worth (from 5(h)) $_________
(c) 15% of 4(b) $_________
(d) Investments and capital contributions in Foreign Subs and Foreign
Ventures (limited to 4(c)) $_________ Yes No
(e) Other investments limited to $ 100,000 Yes No
(f) Actual book value $_________
5. SECTION 11.1 - CONSOLIDATED NET WORTH
(a) $ (i.e., 90% of 3/31/96 Consolidated Net Worth) $_________
(b) Aggregate Net Income for periods since 3/31/96 $_________
(c) 50% of 5(b) = $_________
(d) Net proceeds of the sale of all capital stock of Borrower received
since 3/31/96 $_________
(e) Required Consolidated Net Worth: 5(a) plus 5(c) plus 5(d) $_________
(f) Actual Consolidated Net Worth $_________ Yes No
</TABLE>
COMPLIANCE CERTIFICATE - Page 2
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
6. SECTION 11.2 -FUNDED DEBT TO ADJUSTED EBITDA OR ANNUALIZED EBITDA
(a) Debt for borrowed money $_________
(b) Debt evidenced by bond, notes, etc. $_________
(c) Capital Lease Obligations $_________
(d) Letters of Credit $_________
(e) Total Funded Debt (sum of (a) through (d)) $_________
(f) Net Income for applicable period $_________
(g) Plus provisions for tax $_________
(h) less benefit from tax $_________
(i) Plus Interest Expense $_________
(j) Plus amortization $_________
(k) Plus depreciation $_________
(1) Borrower EBITDA: 6(f) plus 6(g), 6(i), 6(j) and 6(k) less 6(h) $_________
(m) Nonrecurring Charges $_________
(n) Adjusted EBITDA (line 6(l) plus line 6(m) $_________
(o) Annualized EBITDA (line 6(n) x 4/3) $_________
(p) 6(e) divided by 6(n) (or if applicable 6(o)) = :1.00
(q) Maximum Funded Debt to Adjusted EBITDA (or if, applicable, Annualized
EBITDA) _____:1.00 Yes No
(r) Has the Average Funded Debt to Adjust EBITDA ratio been less
than 2.00 to 1.00 for the last 2 Fiscal Quarters for purposes of and
as calculated in accordance with Section 5.12? Yes No
7. SECTION 11.3 - FIXED CHARGE COVERAGE
(a) Cash Flow for last 12 month period or since 6/30/96, if less $_________
(i) Adjusted EBITDA (from 6(n)) $_________
(ii) minus cash federal and state income or franchise taxes paid $_________
(iii) 7(a)(i) minus 7(a)(ii) $_________
(b) Fixed Charges for last 12 month period or since 6/30/96, if less $_________
(i) Interest Expense $_________
(ii) Scheduled amortization of Debt $_________
(iii) Cash dividends and distributions $_________
(iv) If as of 3/31/97 only, actual Capital Expenditures $_________
(v) Total 7(b)(i) plus 7(b)(ii) plus 7(b)(iii) plus 7(b)(iv) $_________
(c) Actual Fixed Charge Coverage: 7(a)(iii) divided by 7(b)(v)= :1:00
(d) Minimum Fixed Charge Coverage for the period _____:1:00 Yes No
8. SECTION 11.4 - CAPITAL EXPENDITURE LIMITS
(a) Capital Expenditure limit for the period $_________
(b) Actual Capital Expenditures $_________
(c) Equity proceeds $_________
(d) Calculated Capital Expenditures (8(b)-8(c)) $_________ Yes No
</TABLE>
COMPLIANCE CERTIFICATE - Page 3
<PAGE> 12
9. DETERMINATION OF MARGIN AND FEES
<TABLE>
<S> <C> <C> <C>
(a) Funded Debt to EBITDA Ratio (from 6(p)) ____:1.00
(b) Adjustment to margin and fees required by Section 4.2? Yes No
(c) If adjustment required, set forth below new margins and fees in
accordance with Section 4.2:
(i) Base Margin ________%
(ii) Commitment Fee Rate ________%
(iii) Libor Rate Margin ________%
</TABLE>
10. ATTACHED SCHEDULES
Attached hereto as schedules are the calculations supporting the computation
set forth above in this Certificate. All information contained herein and on
the attached schedules is true and correct.
11. FINANCIAL STATEMENTS
The unaudited financial statements attached hereto were prepared in accordance
with GAAP (or the generally accepted accounting principles of the jurisdiction
of organization of the applicable Person) and fairly present (subject to year
end audit adjustments) the financial conditions and the results of the
operations of the Persons reflected thereon, at the date and for the periods
indicated therein.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
effective this day of ______, 199_.
SOFTWARE SPECTRUM, INC.
BY:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
COMPLIANCE CERTIFICATE - Page 4
<PAGE> 1
EXHIBIT 10.10
SOFTWARE SPECTRUM, INC.
EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED*
ARTICLE I
NAME AND PURPOSE
1.1 Name. The name of this Plan is the "Software Spectrum, Inc.
Employee Stock Purchase Plan."
1.2 Purpose and Construction. The Company has established this Plan
to encourage and facilitate the purchase of its Common Stock by Eligible
Employees, as an incentive to Eligible Employees, so that they may share in the
growth of the Company by acquiring or increasing their proprietary interest in
the Company. This Plan is intended to qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Code. Consequently, the provisions of this Plan
shall be construed in a manner consistent with the requirements of Section 423
of the Code. Any term or provision of this Plan which is inconsistent with the
requirements of Section 423 of the Code shall be inapplicable.
ARTICLE II
DEFINITIONS OF TERMS
2.1 General Definitions. The following words and phrases, when used in
the Plan, unless otherwise specifically defined or unless the context clearly
otherwise requires, shall have the following respective meanings:
(a) Board. The Board of Directors of the Company.
(b) Code. The Internal Revenue Code of 1986, as amended.
Any reference to the Code includes the regulations promulgated
pursuant to the Code.
(c) Company. Software Spectrum, Inc.
(d) Common Stock. The Company's $0.01 par value common
stock.
* Amended as of June 1, 1997 1
<PAGE> 2
(e) Compensation. The total gross compensation, including
salary, bonuses and commissions, of an Employee, but excluding any
amounts realized from the exercise of a stock option, or from the
sale, exchange or other disposition of Shares acquired under this
Plan or any other stock purchase plan.
(f) Effective Date. September 1, 1992. However, in order to
remain effective, the Plan must be approved by the shareholders of
the Company within one year before or after approval by the Board.
Any Offerings made prior to the approval by the shareholders of the
Company shall be void if such approval is not obtained.
(g) Employee. A salaried or hourly employee as determined
based on the payroll records of the Company or a Subsidiary;
provided, however, that the following shall not be considered
"Employees" for purposes of the Plan: (i) any employee who is a
leased employee within the meaning of Code Section 414(n); (ii) any
employee whose terms and conditions of employment are governed by a
collective bargaining agreement and with respect to whom inclusion in
the Plan has not been specifically provided for in such collective
bargaining agreement; and (iii) any individual who is an independent
contractor (including any individual who is recharacterized by the
Internal Revenue Service as a common law employee, for periods during
which such individual was treated as an independent contractor by the
Company or a Subsidiary).
(h) Employer. With respect to each Offering, the Company
and those of its Parents and Subsidiaries designated from time to
time whose Employees will be eligible to be granted Options to
purchase Common Stock in such Offering.
(i) Entry Date. Entry Dates shall be each January 1, April
1, July 1 and October 1.
(j) Exercise Date. The 15th day of each month (or the first
business day following the 15th of the month if such date falls on a
non- business day).
(k) Fair Market Value. The closing price of Shares on the
NASDAQ National Market System on the Exercise Date; provided,
however, if there is no quoted closing price on such date, the
closing price shall be determined as of the most recent date
preceding the Exercise Date on which there is a quoted closing price
on the NASDAQ National Market System.
* Amended as of June 1, 1997 2
<PAGE> 3
(l) Offering. An offering consisting of grants of Options
to purchase Shares under the Plan. The initial Offering under the
Plan shall commence on September 1, 1992, and shall terminate on
October 15, 1992. Each subsequent Offering under the Plan shall
commence on the first business day following the preceding Offering's
Exercise Date, and shall terminate as of the next Exercise Date.
(m) Officer. Any Employee who is an officer of the Employer
as that term is defined under Rule 16(a)-1(f) of the rules
promulgated under the Securities Exchange Act of 1934, as amended.
(n) Option. An option granted under the Plan to purchase
Shares.
(o) Parent. Any corporation (other than the Company or a
Subsidiary) is an unbroken chain of corporations ending with the
Company, if, at the time of the grant of an Option, each of the
corporations (other than the Company or a Subsidiary) owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporation in such chain.
(p) Participant. An eligible Employee who has elected to
participate in the Plan.
(q) Plan. The Software Spectrum, Inc. Employee Stock
Purchase Plan and all amendments and supplements to it.
(r) Share. A share of Common Stock.
(s) Subsidiary. Any corporation or entity organized under
the laws of the United States or any state, other than the Company,
in an unbroken chain of corporations beginning with the Company if,
at the time of grant of an Option, each of the corporations, other
than the last corporation in the unbroken chain, owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
2.2 Other Definitions. In addition to the above definitions, certain
words and phrases used in the Plan and in any Offering may be defined in other
portions of the Plan or in such Offering.
* Amended as of June 1, 1997 3
<PAGE> 4
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Initial Eligibility. An Employee who has completed six (6) months
employment shall be eligible to participate on and after the first Entry Date
following his completion of his initial six (6) months of employment. For
purposes of determining eligibility, employment for an entity which is acquired
by an Employer or whose assets are acquired by an Employer shall not be treated
as employment by the Employer unless the Board shall make a determination
otherwise.
3.2 Restrictions on Participation. Notwithstanding any provision of
the Plan to the contrary, no Employee shall participate in the Plan if:
(a) immediately after the grant, he would own (within the
meaning of Section 423(b)(3) of the Code) stock possessing five
percent (5%) or more of the total combined voting power or value of
all classes of stock of the Company or of any Parent or Subsidiary;
or
(b) he is a part-time employee whose customary employment
is twenty (20) hours or less per week; or
(c) he is an employee whose customary employment is for not
more than five (5) months in any calendar year.
3.3 Eligibility for Rehired Employees. If an Employee who had
previously satisfied the initial eligibility requirements of Section 3.1 hereof
is subsequently rehired, such Employee shall be eligible to participate in
Offerings under the Plan on the first Entry Date following his rehire date. If
an Employee is rehired who had not previously saitsfied the initial eligibility
requirements, the Employee must satisfy the employment requirements of section
3.1, considering only his employment service following his rehire date.
ARTICLE IV
SHARES TO BE OFFERED
4.1 Number of Shares. The number of Shares for which Options may be
granted under the Plan shall be 165,000. Such Shares may be authorized but
unissued Shares, Shared held in the treasury, or both.
4.2 Reusage. If an Option expires or is terminated, surrendered, or
cancelled without having been fully exercised, the shares covered by such
Option which were not purchased shall again be available for issuance under the
Plan.
* Amended as of June 1, 1997 4
<PAGE> 5
4.3 Adjustments. If there is any change in the Common Stock of the
Company by reason of any stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, or otherwise, the number and class of shares available for
Options, the maximum number of Shares that may be purchased in the current
Offering Period, and the price per Share, as applicable, shall be appropriately
adjusted by the Committee.
ARTICLE V
GRANTS, PARTICIPATION AND WITHDRAWAL
5.1 Grant of Options. On his initial Entry Date following his
becoming eligible to participate in the Plan, each eligible Employee may
execute and deliver to the Company or its designee an agreement in the form
approved by the Company ("Participation Agreement") in accordance with the
provisions of the Offering, in order to be granted an Option to purchase Shares
under the Plan.
5.2 Nontransferability. No payroll deductions credited to a
Participant's stock purchase account nor any rights with regard to the exercise
of an Option or to receive Shares under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by a Participant other than by will
or the laws of descent and distribution. Options under the Plan shall be
exercisable during a Participant's lifetime only by him, his guardian or legal
representative. Shares may be sold or otherwise transferred by a Participant
without restriction. Each Participant shall agree in the Participation
Agreement to notify the Company or its designee of any transfer of the Shares
within two years of the Exercise Date on which such Shares were purchased.
5.3 Election to Participate. An eligible Employee who wishes to
participate in the Plan must deliver his executed Participation Agreement to
the Company or its designee no later than required by the Company or its
designee. In such Participation Agreement, each eligible Employee may elect to
have deductions from his Compensation at the rate of a dollar amount per
payroll period or any whole percentage of his Compensation, but not in any
event to exceed ten percent (10%) of his Compensation. The minimum payroll
deduction amount per payroll period shall be $10 (U.S.). Each Participant's
Participation Agreement shall remain in effect for each Offering subsequent
thereto until the Participant either (a) ceases future contributions to his
stock purchase account in accordance with Section 5.5 of the Plan; or (b)
increases or decreases his payroll deduction contributions to the Plan, by
completing a new Participation
* Amended as of June 1, 1997 5
<PAGE> 6
Agreement. Any change shall be permitted only as of the end of the next payroll
period following each Entry Date if submitted to the Company or its designee no
later than ten (10) business days prior to the end of such payroll period. The
Board may permit any Participant to make an irrevocable election and to specify
the term of such election.
5.4 Method of Payment and Stock Purchase Accounts. Payment for Shares
will be made through payroll deductions from the Participant's Compensation,
such deductions to be authorized by a Participant in the Participation
Agreement. A stock purchase account shall be set up on the books of the Company
or its designee in the name of each Participant. The amount of all payroll
deductions shall be credited to the respective stock purchase accounts of the
Participants on such books. The funds deducted and withheld by the Company
through payroll deductions may be used by the Company for any corporate
purposes as the Board shall determine, and the Company shall not be obligated
to segregate said funds in any way.
5.5 Withdrawal from the Plan. A Participant may cease future
contributions to his stock purchase account, effective for the next payroll
period, by submitting a notice to the Company or its designee no later than ten
(10) business days prior to the end of such payroll period. Notwithstanding the
foregoing, any Officer who withdraws from the Plan may not thereafter
participate for a period of six (6) months following the effective date of
withdrawal. Notwithstanding a Participant's notice that future contributions
will cease, the balance in the Participant's stock purchase account will
nevertheless be used to purchase Shares at the next Exercise Date.
ARTICLE VI
OFFERINGS
6.1 Offerings. There shall be a series of Offerings under the Plan
which shall occur on a monthly basis. Each Participant having funds in his
stock purchase account on an Exercise Date shall be deemed, without any further
action, to have purchased with the funds in his account the number of whole
Shares which he has the right to purchase at the purchase price on that
Exercise Date.
6.2 Terms of Offering. At least annually, the Board will determine
all of the terms and conditions of the Offerings for the next twelve (12)
months, which terms and conditions shall include, but not be limited to, the
following:
(a) The number of Shares to be offered, which in no event
shall exceed the maximum number of Shares then available under the
provisions of ARTICLE IV.
* Amended as of June 1, 1997 6
<PAGE> 7
(b) The Offering period. In no event shall an Option be
exercisable after the expiration of five (5) years from the date each
Option is granted.
(c) The price per Share for which Common Stock will be sold
to Participants who exercise Options, which price shall not be less
than 85% of the Fair Market Value on the Exercise Date upon which the
Option is exercised. Notwithstanding the foregoing, in no event shall
the price per Share be less than the par value.
(d) All eligible Employees on an Entry Date shall be
eligible with respect to the Options in an Offering that is
continuing on and after such Entry Date. However, no Employee shall
be granted an Option which permits his rights to purchase stock under
all employee stock purchase plans (as defined in Section 423(b) of
the Code) of the Company and its Parents and Subsidiaries to accrue
at a rate which exceeds $15,000 of fair market value of such stock,
determined as of the Exercise Date, for each calendar year in which
such Option is outstanding at anytime.
ARTICLE VII
PURCHASE OF STOCK
7.1 Exercise of Option. Each Participant's Option to purchase Shares
will be automatically exercised for him on each Exercise Date for the number of
full Shares which the accumulated payroll deductions as of the Exercise Date
will purchase at the applicable Option price, subject to the limitations set
forth in the Plan and the Offering and subject to allotment in accordance with
Section 7.2. Any balance remaining in a Participant's stock purchase account
after the exercise of an Option will remain in such account unless the Plan is
terminated, in which event it will be refunded to such Participant.
7.2 Allotment of Shares. In the event that, on any Exercise Date, the
aggregate funds and Shares available for the purchase of Shares, pursuant to
the provisions of Section 7.1, would purchase a greater number of Shares than
the number of Shares then available for purchase under the Plan on such
Exercise Date, the Company shall issue to each Participant, on a pro rata
basis, such number of Shares as, when taken together with the Shares issued to
all other Participants, will result in the issuance of Shares totaling no more
than the number of Shares then remaining available for issuance under the Plan
on such Exercise Date. If, after such allotment, all of the Shares under an
Offering have been purchased, any balance remaining in a Participant's stock
purchase account shall be refunded to such Participant.
* Amended as of June 1, 1997 7
<PAGE> 8
7.3 Rights on Retirement, Death or Termination of Employment. In the
event of a Participant's retirement, death or termination of employment, no
payroll deduction shall be taken from any Compensation due and owing to him at
such time and the amount in the Participant's stock purchase account shall be
paid within thirty (30) days following request therefor, to the former Employee
or, in the event of his death, the person or persons to whom his rights pass by
will or the laws of descent and distribution including his estate during the
period of administration. An Employee of a Subsidiary or a Parent which ceases
to be a Subsidiary or a Parent shall be deemed to have terminated his
employment for purposes of this Section 7.3 as of the date such corporation
ceases to be a Subsidiary or a Parent, as the case may be, unless, as of such
date, the Employee shall become an Employee of the Company or any Subsidiary or
Parent.
7.4 Rights to Share Certificates. At least annually, each Participant
will receive a statement from the Company reflecting the number of Shares
purchased for his account and may at any time request delivery of certificates
for Shares reflected on his account. A Participant may be required to pay the
administrative fees associated with issuance of the certificates. Certificates
for Shares will be issued and delivered upon request as soon as practicable, in
the name of the Participant. The Company may designate any person to maintain
the accounts and records required under the Plan.
7.5 Purchases and Sales by Officers. With respect to purchases of
Shares by Officers, such Officers shall hold such Shares for a period of not
less than six (6) months following the applicable Exercise Date unless such
Officer irrevocably elects to participate in the Plan not less than six (6)
months prior to the applicable Exercise Date.
ARTICLE VIII
ADMINISTRATION
8.1 Board of Directors. The Plan shall be administered by the Board.
8.2 Authority. Subject to the terms of the Plan, the Board shall have
complete authority to:
(a) determine the terms and conditions of, and the eligible
Employees under, each Offering, as described in ARTICLE VI;
(b) interpret and construe the Plan;
(c) prescribe, amend and rescind rules and regulations
relating to the Plan;
* Amended as of June 1, 1997 8
<PAGE> 9
(d) maintain accounts, records and ledgers relating to
Options;
(e) maintain records concerning its decisions and
proceedings;
(f) employ agents, attorneys, accountants or other persons
for such purposes as the Board considers necessary or desirable; and
(g) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to carry out the
purposes of the Plan.
8.3 Determinations; Action in Good Faith. All determinations of the
Board shall be final. No member of the Board and no designee of the Board shall
be liable for any action taken in good faith in its administration of the Plan.
8.4 Delegation. The Board may delegate all or any part of its
authority under the Plan to any Employee, Employees or committee, and may
retain such third parties as it deems appropriate to administer the Plan and
the purchase of Shares pursuant to the Plan.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 Power of Board. Except as hereinafter provided, the Board shall
have the sole right and power to amend the Plan at any time and from time to
time.
9.2 Limitation. The Board may not amend the Plan, without approval of
the shareholders of the Company:
(a) in a manner which would cause the Plan to fail to meet
the requirements of Sections 423 of the Code;
(b) in a manner which materially increases the total number
of shares which may be issued pursuant to options granted under the
Plan;
(c) in a manner which materially modifies the requirements
as to eligibility for participation in the Plan; or
(d) in a manner which materially increases the benefits
accruing to Participants under the Plan.
* Amended as of June 1, 1997 9
<PAGE> 10
9.3 Term. The Plan shall commence as of the Effective Date and,
subject to the terms of the Plan including those requiring approval by the
shareholders of the Company, shall continue to full force and effect until
terminated.
9.4 Termination. The Plan may be terminated at any time by the Board.
Subject to the Board's right to amend the Plan, with shareholder approval, to
increase the number of Shares available for purchase have been sold. Upon
termination of the Plan, and the exercise or lapse of all outstanding Options,
any balances remaining in each Participant's stock purchase account shall be
refunded to him.
9.5 Effect. The amendment or termination of the Plan shall not
adversely effect any Options granted prior to such amendment or termination.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Underscored References. The underscored references contained in
the Plan are included only for convenience, and they shall not be construed as
a part of the Plan or in any respect affecting or modifying its provisions.
10.2 Number and Gender. The masculine and neuter, wherever used in
the Plan, shall refer to either the masculine, neuter or feminine; and, unless
the context otherwise requires, the singular shall include the plural and the
plural the singular.
10.3 Governing Law. This Plan shall be construed and administered in
accordance with the laws of the State of Texas.
10.4 Purchase for Investment. The Plan is intended to provide Common
Stock for investment and not for resale. The Company does not, however, intend
to restrict or influence any Employee in the conduct of his or her own affairs.
An Employee may therefore sell Shares purchased under the Plan at any time the
Employee chooses, subject to compliance with any applicable federal or state
securities laws. Provided, however, that because of certain federal tax
requirements, each Employee agrees by entering the Plan promptly to give the
Company notice of any Shares disposed of within two years after the Exercise
Date of the applicable Option showing the number of such Shares disposed of.
All certificates for Shares delivered under the Plan shall be subject to such
stock transfer orders and other restrictions at the Company may deem advisable
under all applicable laws, rules, and regulations, and the Company may cause a
legend or legends to be put on any such certificates to make
* Amended as of June 1, 1997 10
<PAGE> 11
appropriate references to such restrictions. THE EMPLOYEE ASSUMES THE RISK OF
ANY MARKET FLUCTUATIONS IN THE PRICE OF THE SHARES.
10.5 No Employment Contract. The adoption of the Plan shall not
confer upon any Employee any right to continued employment nor shall it
interfere in any way with the right of the Company, a Parent or a Subsidiary to
terminate the employment of any of its employees at any time.
10.6 Offset. In the event that any Participant wrongfully
appropriates funds or other property of an Employer and thereby becomes
indebted to such Employer, any funds or Shares in his stock purchase account
may be applied against and used to satisfy such indebtedness.
10.7 Obligation and Deliver Shares. The Company's obligation to sell
and deliver shares of the Company's Common Stock under this Plan is subject to
the approval of any governmental authority required in connection with the
authorization, issuance or sale of such shares.
* Amended as of June 1, 1997 11
<PAGE> 1
EXHIBIT 10.13
SOFTWARE SPECTRUM, INC.
MANAGEMENT CONTINUITY AGREEMENT
This Agreement (the "Agreement") is entered into by and between
Software Spectrum, Inc., a Texas corporation (the "Company"), and
__________________ (the "Executive"), dated as of the _____ day of
_____________, 199__.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined in Section 2) of the Company. The Board believes it is imperative
to diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and
if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with
or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the
date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the second
anniversary of such date; provided, however, that commencing
on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate two years from such
Renewal Date, unless at least 60 days prior to the Renewal
Date the Company shall give notice to the Executive that the
Change of Control Period shall not be so extended.
<PAGE> 2
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or more of
either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege), (ii) any acquisition by the company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (i) and
(ii) of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i)
more than 60% of, respectively, the then outstanding shares of
common stock of the corporation resulting from
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<PAGE> 3
such reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization,
merger or consolidation, of the outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case
may be and (ii) at least a majority of the members of the
board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of
the Company, other than to a corporation, with respect to
which following such sale or other disposition, (A) more than
60% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the
outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be and (B) at least a
majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the
Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in
the employ of the Company, in accordance with the terms and provisions
of this Agreement, for the period commencing on the Effective Date and
ending on the second anniversary of such date (the "Employment
Period").
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties and
responsibilities shall be at least commensurate in
all material aspects with the most significant of
those held, exercised and assigned at any time during
the 90-day period immediately preceding the Effective
Date and (B) the Executive's services shall be
performed at the location where the Executive was
employed immediately preceding the Effective Date or
any office which is the headquarters of the Company
and is less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business
hours to the business
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<PAGE> 4
and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned
to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the
Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage
personal investments, so long as such activities are
similar to such activities of the Executive prior to
the Effective Date and do not significantly interfere
with the performance of the Executive's
responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly
understood and agreed that to the extent that any
such activities have been, conducted by the Executive
prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid in equal
installments in accordance with the Company's
customary pay periods, at least equal to twelve times
the highest monthly base salary paid or payable to
the Executive by the Company and its affiliated
companies in respect of the twelve-month period
immediately preceding the month in which the
Effective Date occurs. For purposes of determining
Annual Base Salary for this Agreement, there will be
included in, or added to, the base salary all
quarterly or other periodic bonuses (other than
annual bonus) to which the Executive would have been
entitled for the year in which the Effective Date
occurs as if all criteria for such bonuses had been
satisfied at 100% of plan, with such bonuses to be
paid in accordance with the Company's customary pay
periods for such bonuses. During the Employment
Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and
from time to time as shall be substantially
consistent with increases in base salary generally
awarded in the ordinary course of business to other
peer executives of the Company and its affiliated
companies. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term
"affiliated companies" shall include any company
controlled by, controlling or under common control
with the Company.
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<PAGE> 5
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year
ending during the Employment Period, an annual bonus
(the "Annual Bonus") in cash at least equal to the
greater of (A) the average annualized (for any fiscal
year consisting of less than twelve full months or
with respect to which the Executive has been employed
by the Company for less than twelve full months)
bonus paid or payable, including by reason of any
deferral, to the Executive by the Company and its
affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which
the Effective Date occurs (the "Recent Average
Bonus"), or (B) the annual bonus paid or payable,
including by reason of any deferral, to the Executive
(and annualized for any fiscal year consisting of
less than twelve full months or for which the
Executive has been employed for less than twelve full
months) for the most recently completed fiscal year
as if all criteria for such bonus at 100% of plan had
been satisfied (such greater amount shall be
hereinafter referred to as the "Highest Annual
Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal
year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) SPECIAL BONUS. In addition to the Annual Base Salary
and Annual Bonus payable as hereinabove provided, if
the Executive remains employed with the Company or
its affiliated companies through the first
anniversary of the Effective Date, the Company shall
pay to the Executive a special bonus (the "Special
Bonus") in recognition of the Executive's services
during the crucial one-year transition period
following the Change of Control in cash equal to the
sum of (A) the Executive's Annual Base Salary and (B)
the Highest Annual Bonus. The Special Bonus shall be
paid no later than 30 days following the first
anniversary of the Effective Date.
(iv) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement
plans, practices policies and programs applicable
generally to other peer executives of the Company and
its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with
respect to both regular and special incentive
opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable
of those provided by the Company and its affiliated
companies for the Executive under such plans,
practices, policies and programs as in effect at any
time during the 90-day period immediately preceding
the Effective Date or if more favorable to the
Executive, those provided generally at any time after
the Effective Date to other peer executives of the
Company and, its affiliated companies.
-5-
<PAGE> 6
(v) WELFARE BENEFIT PLANS. During the Employment Period,
the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by
the Company and its affiliated companies (including,
without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group
life, accidental death and travel accident insurance
plans and programs) to the extent applicable
generally to other peer executives of the Company and
its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in
the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the
Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally
at any time after the Effective Date to other peer
executives of the Company and its affiliated
companies.
(vi) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt
reimbursement for all reasonable employment expenses
incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the
Company and its affiliated companies in effect for
the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer
executives of the Company and its affiliated
companies.
(vii) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices,
programs and policies of the Company and its
affiliated companies in effect for the Executive at
any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time
thereafter with respect to other peer executives of
the Company and its affiliated companies.
(viii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office
or offices of a size and with furnishings and other
appointments, and to personal secretarial and other
assistance, at least equal to the most favorable of
the foregoing provided to the Executive by the
Company and its affiliated companies at any time
during the 90-day period immediately preceding the
Effective Date or, if more favorable to the
Executive, as provided generally at any time
thereafter with respect to other peer executives of
the Company and its affiliated companies.
(ix) VACATION. During the Employment Period, the
Executive shall be entitled to paid vacation in
accordance with the most favorable plans, policies,
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<PAGE> 7
programs and practices of the Company and its
affiliated companies as in effect for the Executive
at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time
thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice
in accordance with Section 11(b) of its intention to terminate
the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld
unreasonably).
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the
Executive of the Executive's obligations under Section 4(a)
(other than as a result of incapacity due to physical or
mental illness) which is demonstrably willful and deliberate
on the Executive's part, which is committed in bad faith or
without reasonable belief that such breach is in the best
interests of the Company and which is not remedied in a
reasonable period of time after receipt of written notice from
the Company specifying such breach or (ii) the conviction of
the Executive of a felony involving moral turpitude.
(c) GOOD REASON; WINDOW PERIOD. The Executive's employment may be
terminated (i) during the Employment Period by the Executive
for Good Reason or (ii) during the Window Period by the
Executive without any reason. For purposes of this Agreement,
the "Window Period" shall mean the 60-day period immediately
following the four-month anniversary of the Effective Date
(with the fourth-month anniversary to be determined as the
same calendar day as the Effective Date four months later; for
example, if the Effective Date were January 6, 1997, the
Window Period would begin on May 6, 1997). For purposes of
this Agreement, "Good Reason" shall mean:
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<PAGE> 8
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) or
any other action by the Company which results in a
diminution in such position, authority, duties or
responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated,
insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in
Section 4(a)(i)(B);
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 10(c), provided that such successor has
received at least ten days prior written notice from
the company or the Executive of the requirements of
Section 10(c).
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive without any reason during the
Window Period or for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in
accordance with section 11(b). For purposes of this
Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date
of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of
such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or
cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
-8-
<PAGE> 9
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause,
or by the Executive during the Window Period or for Good
Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if
the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be
the date on which the Company notifies the Executive of such
termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON OR DURING THE WINDOW PERIOD; OTHER THAN FOR CAUSE,
DEATH OR DISABILITY. If, during the Employment Period, the
Company shall terminate the Executive's employment other than
for Cause or Disability (and other than a termination due to
death) or the Executive shall terminate employment either for
Good Reason or without any reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination
the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the
extent not theretofore paid, (2) the product
of (x) the Highest Annual Bonus and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365 and (3) the
Special Bonus, if due to the Executive
pursuant to Section 4(b)(iii), to the extent
not theretofore paid and (4) any compensation
previously deferred by the Executive
(together with any accrued interest or
earnings thereon) and any accrued vacation
pay, in each case to the extent not
theretofore paid (the sum of the amounts
described in clauses (1), (2), (3) and (4)
shall be hereinafter referred to at the
"Accrued Obligations"); and
B. the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal
to the product of (1) one and one-half (1.5)
and (2) the sum of (x) the Executive's Annual
Base Salary and (y) the Highest Annual Bonus;
and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or
policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's
family at least equal to those which would have been
provided to them in accordance with the plans,
programs, practices and policies described in Section
4(b)(v) if the Executive's employment had not been
terminated in accordance with the
-9-
<PAGE> 10
most favorable plans, practices, programs or policies
of the Company and its affiliated companies as in
effect and applicable generally to other peer
executives and their families during the 90-day
period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect
generally at any time thereafter with respect to
other peer executives of the Company and its
affiliated companies and their families, provided,
however, that if the Executive becomes reemployed
with another employer and is eligible to receive
medical or other welfare benefits under another
employer provided plan, the medical and other welfare
benefits described herein shall be secondary to those
provided under such other plan during such applicable
period of eligibility (such continuation of such
benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining
eligibility of the Executive for retirement benefits
pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until the end of the Employment
Period and to have retired on the last day of such
period; and,
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive
and/or the Executive's family any other amounts or
benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible
to receive pursuant to this Agreement and under any
plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies
as in effect and applicable generally to other peer
executives and their families during the 90-day
period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect
generally thereafter with respect to other peer
executives of the Company and its affiliated
companies and their families (such other amounts and
benefits shall be hereinafter referred to as the
"Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for (i) payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable,
in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the
Welfare Benefit Continuation and other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment
to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination of
an amount equal to the greater of (A) the Severance Amount or
(B) the present value determined as provided in Section
280G(d)(4) of the Code of any cash amount to be received by
the Executive or the Executive's family as a death benefit
pursuant to the terms of any plan, policy or arrangement of
the Company and its affiliated companies, but not including
any proceeds of life insurance
-10-
<PAGE> 11
covering the Executive to the extent paid for directly or on a
contributory basis by the Executive (which shall be paid in
any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Death
Benefits").
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive, other than for (i) payment of
Accrued Obligations (which shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case,
Disability Benefits (as defined below)) and (ii) payment to
the Executive in a lump sum in cash within 30 days of the Date
of Termination of an amount equal to the greater of (A) the
Severance Amount or (B) the present value (determined as
provided in Section 28OG(d)(4) of the Code) of any cash amount
to be received by the Executive as a disability benefit
pursuant to the terms of any plan, policy or arrangement of
the Company and its affiliated companies, but not including
any proceeds of disability insurance covering the Executive to
the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other
Benefit) (the benefits included in this clause (B) shall be
hereinafter referred to as the "Disability Benefits").
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay
to the Executive Annual Base Salary through the Date of
Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent
theretofore unpaid. If the Executive terminates employment
during the Employment Period, excluding a termination either
for Good Reason or without any reason during the Window
Period, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company
or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly
modified by this Agreement.
-11-
<PAGE> 12
8. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
(a) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement and, except as provided in Section 6(a)(ii), such
amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay promptly
as incurred, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as
a result of any contest (regardless of the outcome thereof) by
the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including
as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the
Executive's employment by the Company, whether such
termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good
Reason existed, then, unless and until there is a final,
nonappealable judgment by a court of competent jurisdiction
declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason
was not made in good faith, the Company shall pay all amounts,
and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be,
that the Company would be required to pay or provide pursuant
to Section 6(a) as though such termination were by the Company
without Cause or by the Executive with Good Reason; provided,
however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to
repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code
or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax,
-12-
<PAGE> 13
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by an
independent national accounting firm selected by the Company
(the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group affecting the Change of Control,
the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 9,
shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim
-13-
<PAGE> 14
prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such
period that it desires to contest such claims the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option,
may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
-14-
<PAGE> 15
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company, complying with the
requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect
to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of descent
and distribution. The economic benefit provisions of this
Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise.
11. MISCELLANEOUS; NOTICES.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
-15-
<PAGE> 16
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
If to the Company: Software Spectrum, Inc.
2140 Merritt Drive
Garland, Texas 75041
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or the failure to assert
any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
5(c)(i)-(v), shall not be deemed to be a waiver of such
provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective
Date, the Executives employment with the Company terminates,
then the Executive shall have no further rights under this
Agreement.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
EXECUTIVE
------------------------------------
Name:
SOFTWARE SPECTRUM, INC.
By:
-------------------------
Name: Judy O. Sims
Title: Chief Executive Officer
-17-
<PAGE> 1
EXHIBIT 11.1
SOFTWARE SPECTRUM, INC.
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended Month Ended
April 30, April 30, Year Ended March 31,
-------------- -------------- ------------------------------
1997 1996 1996 1995
-------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (845,000) $ (495,000) $7,366,000 $8,788,000
============== ============== ========== ==========
Shares as adjusted:
Average number of shares outstanding 4,314,410 4,263,116 4,196,173 4,168,829
Incremental shares from outstanding stock options
as determined under the treasury stock method
using average market price * * 63,526 47,885
Shares as adjusted 4,314,410 4,263,116 4,259,699 4,216,714
============== ============== ========== ==========
Primary earnings (loss) per share $ (.20) $ (.12) $ 1.73 $2.08
============== ============== ========== ==========
</TABLE>
*No incremental shares from outstanding stock options are included because such
inclusion would be anti-dilutive.
<PAGE> 1
EXHIBIT 11.2
SOFTWARE SPECTRUM, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended Month Ended
April 30, April 30, Year Ended March 31,
-------------- -------------- ------------------------------
1997 1996 1996 1995
-------------- -------------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $ (845,000) $ (495,000) $7,366,000 $8,788,000
============== ============== ========== ==========
Shares as adjusted:
Average number of shares outstanding 4,314,410 4,263,116 4,196,173 4,168,829
Incremental shares from outstanding stock options
as determined under the treasury stock method
using the higher of ending or average market price * * 63,526 47,885
Shares as adjusted 4,314,410 4,263,116 4,259,699 4,216,714
============== ============== ========== ==========
Fully diluted earnings (loss) per share $ (.20) $ (.12) $ 1.73 $ 2.08
============== ============== ========== ==========
</TABLE>
*No incremental shares from outstanding stock options are included because such
inclusion would be anti-dilutive.
<PAGE> 1
EXHIBIT 13
SOFTWARE
SPECTRUM
ANNUAL REPORT 1997
[PICTURE]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights ............................................. 1
Letter to Our Shareholders ....................................... 2
Operations Review ................................................ 4
Questions and Answers ............................................ 14
Selected Consolidated Financial Data ............................. 17
Management's Discussion and Analysis
of Financial Condition and Results of Operations ............... 18
Audited Financial Statements ..................................... 22
Report of Independent Certified Public Accountants ............... 31
Quarterly Financial Data and Market Information .................. 32
Corporate Directory ............................... inside back cover
</TABLE>
[SOFTWARE SPECTRUM LOGO]
<PAGE> 3
CORPORATE PROFILE
Software Spectrum is a leading worldwide supplier of personal computer software
and technology services to organizations. Focused on delivering technology to
the workplace, Software Spectrum is committed to providing superior customer
service while maintaining a cost-efficient operating structure. The Company
provides customers with a wide variety of business software products, volume
software licensing and assistance in the design, implementation, deployment,
and ongoing support of their personal computing strategies. The Company has
sales locations, operations centers and technology services offices in North
America, Europe, and Asia/Pacific. Visit Software Spectrum's Web site at
www.softwarespectrum.com.
FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED
YEAR ENDED MARCH 31,
APRIL 30, --------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $796,285 $398,501 $352,141 $283,063 $219,471
Net income (loss) (845) 7,366 8,788 7,004 6,282
Earnings (loss) per share (.20) 1.73 2.08 1.66 1.70
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31,
APRIL 30, --------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $ 31,673 $ 59,052 $ 58,407 $ 50,619 $ 46,712
Total assets 270,441 150,180 124,698 94,255 69,387
Shareholders' equity 73,939 73,363 65,834 57,041 49,801
</TABLE>
NET SALES
(In millions)
[GRAPH]
In fiscal 1997, the Company changed its fiscal year-end from March 31 to April
30.
1
<PAGE> 4
DEAR SHAREHOLDERS:
- -------------------------------------------------------------------------------
FISCAL 1997 WAS A MOST IMPORTANT AND CHALLENGING TIME IN OUR COMPANY'S HISTORY,
AS WE INTEGRATED TWO STRATEGIC ACQUISITIONS INTO OUR COMPANY--
one which doubled our size in North America and the other which completed our
global operations strategy by establishing a presence for us in Asia/Pacific.
At the same time, we continued to aggressively expand our Technology Services
Group and our European business. Fiscal 1997 was a success from a long-term,
strategic perspective, but disappointing from a financial results perspective.
For the year ended April 30, 1997, we almost doubled our sales to $796 million,
compared to $399 million in fiscal 1996, reflecting the impact of the Company's
acquisitions that took place in April and May 1996. At the same time,
identifiable transition costs related primarily to our acquisition of the
corporate, government and education (CGE) division of Egghead, Inc. and
operating losses in Asia/Pacific resulted in a loss per share of $.20 for 1997.
In fiscal 1997, we realized exceptional sales increases in each aspect of our
business, including sales of software to large organizations, as well as
mid-sized and small customers. Because of the CGE acquisition, our large
account division saw the greatest gain in software sales. And, despite both the
difficulty we encountered in integrating our acquisitions and the effect of
declining gross margins on product sales, our product business continued to be
profitable throughout the year and provided support for our strategic
investments in our Technology Services Group and our international expansion.
Revenue growth from our Technology Services Group exceeded 135% in fiscal 1997,
as the number of our consulting offices increased from ten to twenty-four
during the year. In the fourth quarter of fiscal 1997, the Technology Services
Group generated a contribution to overhead, reflecting the positive impact from
our maturing consulting offices and growth in the Technology Support Center,
which provides fee-based telephone support on behalf of software publishers and
corporate customers. Gross margins, as a percent of sales, from our technology
services business are much higher than on product sales. And, as more of our
existing consulting sites mature over time, our services operating results are
anticipated to continue to improve. Our rapid expansion of this division in the
past two years allows us to compete aggressively within the technology services
market. Our Technology Services Group is an important component of our business
and one that will play a significant role in our future.
2
<PAGE> 5
For fiscal 1997, sales outside the United States totaled $106 million, evidence
that today we are truly a global company. Our operating results were negatively
impacted by a sizable operating loss in Asia/Pacific reflecting slow sales and
excess operating costs in the region. Beginning in November 1996, we
accelerated our plans to adjust the business model in Asia/Pacific to more
closely mirror the lower cost structure in our North American operations and in
the fourth quarter of fiscal 1997, saw improving utilization of our technology
services personnel in the region. As a result, our operating loss for
Asia/Pacific decreased late in the fiscal year and we are continuing to see
improvement as we enter fiscal 1998.
Our focus for the coming year encompasses four key areas. First, it is
essential that we grow our global sales. Our growth will mirror the demand by
our customers for expertise in complex software volume licensing and
distributed computing infrastructures. Second, we must improve our operating
results in both Europe and Asia/Pacific and decrease the investments these
regions have required. Third, we must continue to develop our consulting
practice to ensure our newer Technology Services Group sites continue to move
toward profitability as they mature this year.
And, finally, we must focus on our operating structure to realize the
efficiencies of our larger organization. In the past, we have had a track
record of achieving sales growth while managing a cost-effective operating
structure. With our transition year behind us, fiscal 1998 will be a year of
returning to these traditions.
And, as we look to the future, electronic commerce capabilities become
increasingly important. The proliferation of the Internet and corporate
intranets provide the opportunity to expand our role in servicing our customers
through Web-based commerce, and in helping customers establish and implement
their own electronic commerce strategies through our technology division.
With the talent and commitment of our employees throughout the world, and the
continued support and confidence of our shareholders, I continue to be
optimistic about our future prospects. Our strategy, and the important steps we
have taken, position us well to take advantage of marketplace opportunities.
/s/ JUDY O. SIMS
[PICTURE] Judy O. Sims
Chief Executive Officer
3
<PAGE> 6
IS YOUR TECHNOLOGY AT WORK?
- -------------------------------------------------------------------------------
TODAY'S IT DEPARTMENTS REQUIRE INDIVIDUALIZED SERVICE AND TECHNICAL KNOW-HOW.
The advancement of computing technology prompts corresponding demands for new
products, additional support from outside service providers, and migration to
better technologies without sacrificing access to legacy data.
Software Spectrum continues to meet the evolving technology requirements of
Fortune 500 companies, a growing base of multinational organizations, and
thousands of mid-sized customers from every industry. The Company also serves
the government and educational market segments with custom product selection
and services.
When purchasing software, the overall needs of large organizations have not
changed. Foremost, they seek guidance in volume purchasing in order to derive
the best price, product selection and upgrade opportunities for their
particular business. Software Spectrum offers its volume licensing customers
expert decision support and management services that help them conquer the
complexity of distributed software licensing and maintenance. A licensing
consultant, who is recognized by the Software Publishers Association as a
Certified Software Manager, analyzes a large customer's software base and
buying trends, anticipates customer concerns, proposes cost-effective options,
and develops an individualized strategy for licensing software at a good value.
4
<PAGE> 7
The volume licensing expertise held by Software Spectrum, coupled with the
Company's global capabilities, eases customers' administrative burdens by
providing easy access to coordinated services for multinational organizations,
including current account information, automated reports, and multi-currency
pricing.
What has changed? Software Spectrum is able to provide the assistance needed by
large organizations even faster. This year, the Company will offer selected
large customers with volume purchasing agreements their own, secure catalog on
the Company's Web site, which can be linked to the customer's in-house
intranet. From around the globe, customers will be able to access a wide array
of information on their licensing agreements, pricing and product selections.
With the acquisition of Egghead's CGE division, Software Spectrum was provided
with an established customer base in both the education and government markets.
The Company's software and services expertise is meeting the information
technology needs of learning institutions and educators, as well as government
agencies.
Fn order to better serve both the education and government markets, Software
Spectrum will provide online catalogs for each of these customer groups.
Federal, state and local government agencies have needs similar to corporate
customers--they expect fast service and extensive product selection, as well as
thorough account reporting and guidance on the smartest way to buy. Software
Spectrum meets these demands every day. Government agencies can easily
reference, select and purchase personal computer software products from
Software Spectrum.
For several years, Software Spectrum has helped organizations reduce their
computing costs by providing extensive software management products and
services. During fiscal 1997, Software Spectrum expanded its consulting
services to help customers identify where and how technology and best practices
can be implemented to reduce the cost of managing and supporting enterprise
networks.
Providing software products and technology services that empower organizations
to put desktop technology to work for them is what Software Spectrum has always
done best. The Company helps customers manage their most challenging computing
tasks, such as embracing emerging technologies, integrating systems, and
reducing complexity to control cost.
[PICTURE]
5
<PAGE> 8
ELECTRONIC COMMERCE IS RESHAPING THE MARKETPLACE.
- -------------------------------------------------------------------------------
THE CHALLENGE IS TO STAY AHEAD OF THE TECHNOLOGY SO CUSTOMERS CAN STAY
COMPETITIVE.
Electronic commerce has become critical to the short- and long-term success of
most organizations. Whether it's online advertising, extranets linking vendors
to corporations, or selling merchandise to customers around the globe,
electronic commerce is transforming the global marketplace.
The success and profitability of today's organizations are directly dependent
upon distributed computing and Internet/intranet technologies. To realize the
greatest benefit from electronic commerce, organizations must choose
technologies that extend existing infrastructure and plan their computing
strategies to address future challenges. Software Spectrum adds value by
providing expert decision support and deployment expertise that helps customers
successfully embrace the latest electronic commerce technologies.
For years, Software Spectrum has consistently employed electronic commerce
technologies as a means to provide reporting and procurement services for
customers and suppliers. However, electronic commerce has changed dramatically
since it was first implemented by the Company. Today, Software Spectrum's
electronic commerce strategy is to help customers evolve and extend existing
infrastructure and applications to optimize their use of the Internet and
intranets.
6
<PAGE> 9
Through early implementation and the development of certified expertise,
Software Spectrum has established a leadership position in providing Internet
commerce solutions employing Microsoft and IBM/Lotus Internet and intranet
technologies. These new products enable easy navigation, superior graphics and
better service to online customers.
Convenient purchasing via the Company's state-of-the-art online catalog allows
customers at mid-sized and small organizations to access extensive information
on products and services, purchase products via the Internet, and ultimately,
receive products through electronic software distribution. Software Spectrum's
online catalogs offer mid-sized customers overall value, including service
options, such as technology training, planning and deployment workshops, and
technical support. Expert technology consulting services, sound licensing
advice, and global access to account information continue to be the highest
priority for Software Spectrum's customers.
Our advanced technology solutions help businesses employ leading technologies
to reduce cost, improve communication, and provide a significant new medium for
competing in a global marketplace. Software Spectrum's certified consultants
help customers build intranet information centers to enhance employee
communications. The Company can also extend intranets to create "extranets"
- --private business-to-business Web links to customers and suppliers.
Software Spectrum's online catalogs provide security authorization, product
searches, order placement, online registration for training classes and
seminars, and extensive product information. Customer-specific online catalogs
include a wealth of information for large organizations that purchase product
via volume licensing agreements. These customers can easily access their
specific volume licensing information, purchasing reports and more. Software
Spectrum is also committed to bringing the advantages of electronic commerce to
all customers wherever they do business around the world.
Through these catalog development initiatives, Software Spectrum will continue
to lead the industry in developing business-to-business electronic services
that adopt emerging technologies, such as the Internet, to serve unique
customer requirements. During fiscal 1998, the Company will continue to
progress toward achieving its strategic goals of serving the world market, and
offering customer-specific and market-specific catalogs that supply electronic
purchasing and electronic software distribution (ESD) for multinational
organizations.
[PICTURE]
7
<PAGE> 10
FEW CORPORATIONS HAVE ALL THE IT EXPERTISE REQUIRED TO EMBRACE EMERGING
TECHNOLOGIES.
- -------------------------------------------------------------------------------
INCREASING COMPLEXITY DRIVES RISING DEMAND FOR TECHNOLOGY SERVICES.
Network operating systems, client/server environments, groupware and messaging,
Internet/intranet systems--each aspect of distributed computing has become
increasingly complex. This complexity requires greater innovation, flexibility
and expertise from technology service providers.
Software Spectrum has grown its Technology Services Group considerably within
the last two years. This division of the Company's business is comprised of
over 600 consultants and twenty-four consulting offices throughout North
America, Europe and Asia/Pacific. Our consultants address the rising demand for
expertise in planning, deploying and managing complex distributed computing
solutions and supplement our clients' in-house IT resources.
Software Spectrum has created separate, worldwide consulting practices, one
focused exclusively on Microsoft(R) solutions, and one focused on
IBM(R)/Lotus(R) solutions. The services and solutions are provided by certified
consultants who have developed extensive expertise in deploying advanced
technologies from the world's largest software publishers.
8
<PAGE> 11
Because of the demand to grow these practices, Software Spectrum has founded
the Institute for Microsoft Technology and the Institute for IBM/Lotus
Technology. The Institutes provide advanced training for technical
certification, as well as service delivery methodology and advanced consulting
skills, providing consultants with the skills to develop and deploy complex
enterprise solutions.
Software Spectrum is a recognized industry leader in assisting customers with
Microsoft Systems Management Server (SMS) and Microsoft Exchange solutions.
This expertise, coupled with the Company's worldwide expansion, has enabled
Software Spectrum to provide advanced solutions that deliver global benefits
for multinational customers. One example is a customer with headquarters in The
Netherlands that requested technology services after purchasing products from
Software Spectrum. The customer, a software publisher that develops
applications for Windows(TM) platforms, was in the process of reengineering
their worldwide network infrastructure and required assistance in migrating to
a 32-bit Microsoft-centric environment. Software Spectrum worked with the
customer's European headquarters, as well as 15 other offices throughout North
America, to implement an international conversion and deployment of Microsoft
NT(TM) Server, Exchange(TM) Server, SMS(TM) and Outlook(TM). This migration,
which was successfully accomplished in three months, now provides a robust
network and communications environment that extends the value of the customer's
IT assets and prepares their infrastructure for tomorrow's global information
networks.
Software Spectrum helps customers drive down computing cost and boost the value
of their IT assets by moving to a managed environment. Reduced cost and
enhanced value are the result of the Company's holistic approach addressing
people, processes, and technology. Employing a proven methodology, Software
Spectrum helps customers strategically assess their computing environment, plan
a technology-driven management strategy, and build solutions that provide early
return on investment. Software Spectrum empowers customers to implement a
strategic management plan that is based on accurate information and delivers
measurable, validated results.
Few organizations have all the IT expertise required to maintain and support
their computing environments. Timely, cost-effective technical support, such as
that offered by Software Spectrum's Technology Support Center, has become an
increasingly important component of many organizations' computing solutions.
Our Technology Support Center experienced significant growth this year,
successfully meeting the rising demand for desktop and systems level support
for today's advanced technologies.
The trend of increasing complexity in desktop computing will continue.
Organizations must make decisions today that will affect their capabilities for
years to come. As they embrace new technologies, customers must also preserve
access to vast amounts of information in legacy systems. Software Spectrum's
technology experts provide comprehensive services that help organizations
derive optimal value from their technology assets.
[PICTURE]
LINK SIMPSON,
President,
Technology Services Group
9
<PAGE> 12
GLOBAL COMMERCE MUST SURMOUNT TRADITIONAL BOUNDARIES.
- -------------------------------------------------------------------------------
MEETING THE DIVERSE REQUIREMENTS OF CUSTOMERS AROUND THE WORLD.
For years, multinational customers have managed their PC environments at
locations around the globe without the advantage of centralized procurement or
consolidated reporting.
Now, as a result of the completion of Software Spectrum's global strategy, as
well as the worldwide integration of the Company's computing systems,
multinational customers have seamless access to products and services
throughout Europe and Asia/Pacific, as well as North America. Software Spectrum
is the supplier of choice for multinational organizations, providing
consolidated, cross-border procurement, licensing, tracking and reporting
capabilities. Customers around the world enjoy technical support in their own
languages, invoicing in their local currencies, and local access to technology
services.
Multinational customers can purchase products via volume licensing agreements
and leverage their purchasing power worldwide. Volume purchasing of standard
products reduces per-unit software prices, trims training and support costs,
and lays the foundation for increased savings through electronic software
distribution, automated technical support, and more efficient asset management.
10
<PAGE> 13
Software Spectrum's Assurance Services for volume licensing customers provide
remote sites with the same quality of support and services offered to the
organization's headquarters.
Throughout fiscal 1997, Software Spectrum reached a number of milestones in its
"follow the sun" strategy. In addition to establishing sites in Australia, New
Zealand, Singapore and Hong Kong, the Company entered into a joint venture with
Uchida Yoko of Japan, giving Software Spectrum a presence in the Japanese
marketplace as Uchida Spectrum.
In fiscal 1997, sales in Europe doubled as compared to the previous year.
Software Spectrum's European operations now list their largest accounts as
European-based corporations, rather than subsidiaries of U.S. businesses. This
shift indicates increased awareness of the Company and an expanding market
share in Europe, factors that will play an important role in future growth of
our European operations.
Last year's expansion of Software Spectrum's Technology Services Group provides
the Company with offices strategically positioned around the globe in North
America, United Kingdom, Germany, Australia and New Zealand. These worldwide
offices offer multinational customers easy access to Software Spectrum
consultants--regardless of the customer's location. They also provide a local
services presence for Software Spectrum in each market where a technology
services office is located.
The benefits of Software Spectrum's global services can be seen in a solution
provided for one of the world's largest advertising agencies. As a global
company, the agency had reached the limits of their existing messaging
capabilities, encountering frequent difficulties in supporting the diverse
communication needs of their international offices. Software Spectrum provided
a global communications solution, deployed at the agency's headquarters in
London and, simultaneously, on the other side of the Atlantic in New York.
Software Spectrum's consultants converted the agency's systems, enabling
up-to-the-moment communication throughout international offices and with major
clients throughout the world--including scheduling, calendaring and messaging.
The benefit Software Spectrum provided through this global services engagement
was effective centralized management of the agency's enterprise-wide computing
resources.
Software Spectrum's strategic global expansion has earned the Company a
position as a leading supplier of personal computer products and services to
organizations worldwide. This position delivers superior benefits for present
and future customers, as well as the Company's shareholders, suppliers and
employees.
11
<PAGE> 14
LEADERSHIP AND SUPERIOR SERVICE REQUIRE A FAR-SIGHTED STRATEGY.
- -------------------------------------------------------------------------------
STRATEGIC EVOLUTION EMPOWERS SOFTWARE SPECTRUM TO SERVE CHANGING CUSTOMER
NEEDS.
Fiscal 1997 has been a most important and challenging year in Software
Spectrum's history, as the Company completed and integrated two strategic
acquisitions--one that doubled the Company's size in North America, and another
which completed its global operations strategy by establishing a presence in
Asia/Pacific. At the same time, the Company continued to grow and expand its
technology services and European business while completing crucial development
and integration of internal computing systems. Software Spectrum has
established twenty-four technology consulting offices on four continents, and
trained or recruited hundreds of technical professionals to support this
expansion. Software Spectrum is now equipped to serve any size organization
seeking to acquire software products or technology services in most regions of
the world.
A continuing commitment to provide superior customer service fueled this
expansion during fiscal 1997. Although these achievements are significant, new
challenges and goals also lie ahead.
The Company's current customer base will increase its demand for technology
services, particularly in the area of Internet, intranet and extranet
technologies. Through the growth of the Technology Services Group, Software
Spectrum has positioned itself to meet these demands with certified expertise
and strategic relationships with the world's largest, most influential software
publishers.
12
<PAGE> 15
Customers outside North America will continue to increase their computing power
in order to prosper in the global economy. Software Spectrum's European and
Asia/Pacific offices, and its joint venture in Japan are ready to meet this
demand.
One of Software Spectrum's greatest assets is its commitment to anticipate
industry trends and prepare for those trends within its business model.
Software Spectrum's service strategy is to embrace emerging technologies and
anticipate technology-driven change in the services that customers demand. This
evolution has been evident in the development of expertise in software volume
licensing programs, in the Company's deployment of electronic commerce
capabilities long before Internet commerce developed in today's business world,
in the strategic global expansion that began in 1993 with entry into the
European market, and in the development of technology services to meet growing
customer needs for skilled technicians to augment in-house information
technology resources.
Fs Software Spectrum pursues its business objectives in sales, customer
service, cost management and profitability, strategic evolution will continue
to play a vital role in shaping the Company and determining its future
direction.
Software Spectrum's industry leadership is the product of stable management,
years of successfully servicing the changing needs of customers, and strong
long-standing relationships with all the leading software publishers. As
technology evolves, Software Spectrum remains committed to providing superior
customer service and value through timely delivery of products and quality
technical information and services.
13
<PAGE> 16
QUESTIONS & ANSWERS
- -------------------------------------------------------------------------------
AN INTERVIEW WITH JUDY SIMS, CHAIRMAN AND CEO AND KEITH COOGAN, EXECUTIVE VICE
PRESIDENT AND COO
THE COMPANY HAD A LOSS IN FISCAL 1997. WHAT CAUSED THIS LOSS, AND LOOKING BACK
TODAY, DO YOU CONSIDER THE COMPANY'S ACQUISITIONS TO HAVE BEEN SUCCESSFUL?
Fiscal 1997 was strategic from a long-term perspective, but disappointing
from a financial results perspective. While we doubled the Company's sales as a
result of our strategic acquisitions, we had a net loss for the first time in
the Company's history. The loss reflected transition costs attributable to our
acquisitions and an operating loss in Asia/Pacific. Clearly, we are
disappointed with the loss for fiscal 1997. We were optimistic about how
quickly we could integrate our acquisitions into our existing business and,
instead, this transition proved to be a more difficult task than we
anticipated. With the transition year behind us, we are focusing on our
operating structure to realize the efficiencies of a larger organization.
Both of the acquisitions were key components in our strategy for continued
market leadership. The acquisition of the Egghead CGE division doubled our
market presence in North America, allowing us to capitalize on our areas of
greatest expertise--volume software licensing support and technology services.
The acquisition of the Essentially Group provided a technology services
presence in Asia/Pacific and was critical to our global expansion plan. It
completed our global operations center strategy, and enabled us to support the
needs of multinational customers around the world and around the clock. Our
strategy, and these important steps we have taken, position us well to take
advantage of marketplace opportunities.
WHAT ROLE DOES ELECTRONIC COMMERCE PLAY IN SOFTWARE SPECTRUM'S FUTURE?
For years Software Spectrum has employed electronic commerce technologies
as a means to provide reporting and procurement services for customers and
suppliers. However, electronic commerce has changed dramatically since it was
first implemented by the Company. Today, our electronic catalogs supplement our
traditional EDI capabilities to allow our customers to interact with us much
more effectively. The proliferation of the Internet and corporate intranets
provides the opportunity to expand our
14
<PAGE> 17
role in servicing our customers through Web-based commerce, and in helping
customers establish and implement their own electronic commerce strategies
through our technology services division.
SOFTWARE SPECTRUM'S SALES DOUBLED IN FISCAL 1997 AS A RESULT OF ITS
ACQUISITIONS. WHAT SALES GROWTH DO YOU HOPE TO SEE IN FISCAL 1998?
We did see exceptional sales increases in fiscal 1997 in each aspect of
our business, including sales of software to large organizations, as well as
mid-sized and small customers. Because of the CGE acquisition, our large
account sales showed the greatest gain in software sales. Growth in revenue
from our Technology Services Group exceeded 135% in fiscal 1997 as the number
of our consulting offices increased from ten to twenty-four during the year,
and as we grew our Technology Support Center.
Our focus for fiscal 1998 includes growing our global sales now that we
have stabilized the customer bases we acquired. We expect to see growth in all
components of our business, with the Technology Services Group and
international markets being the fastest growing.
WHAT ARE YOUR GOALS FOR FISCAL 1998?
In addition to growing our global sales, we must improve our operating
results in both Europe and Asia/Pacific and decrease the investments these
regions have required. We must continue to develop our consulting practice to
assure our younger TSG sites continue to move toward profitability as they
mature this year. And, finally, we must focus on our operating structure to
realize the efficiencies of a larger organization. In the past, we have had a
track record of managing both sales growth and a cost-effective operating
structure. With our transition year behind us, fiscal 1998 will be a year of
returning to these principles.
[PICTURE]
15
<PAGE> 18
CORPORATE DIRECTORY
DIRECTORS
Judy O. Sims
Chairman, Chief Executive Officer and President
Software Spectrum, Inc.
Mellon C. Baird
Chairman, Chief Executive Officer and President
Delfin Systems
Carl S. Ledbetter, Jr.
Chief Executive Officer
Hybrid Networks
Richard G. Sims
Senior Vice President, Software Spectrum, Inc.
Frank Tindle
Retired Founder, Software Spectrum, Inc.
EXECUTIVE OFFICERS
Judy O. Sims
Chairman, Chief Executive Officer and President
Richard G. Sims
Senior Vice President
Keith R. Coogan
Executive Vice President and Chief Operating Officer
Robert D. Graham
Vice President, Strategic Relationships and General Counsel
Roger J. King
Vice President, Sales and Marketing
Robert B. Mercer
Vice President and Chief Information Officer
Deborah A. Nugent
Vice President of Finance and Chief Financial Officer
Lisa M. Stewart
Vice President, Customer Operations
[PICTURE]
Back Row (L-R): Bob Mercer, Deborah Nugent, Roger King, Robert Graham
Front Row (L-R): Lisa Stewart, Keith Coogan, Judy Sims, Richard Sims
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA Years Ended
(In thousands, except per share amounts) Year Ended March 31,
April 30, -----------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $796,285 $398,501 $352,141 $283,063 $219,471
Gross margin 94,330 54,438 48,328 38,142 30,211
Operating income 1,816 10,163 12,938 10,562 9,594
Net income (loss) (845) 7,366 8,788 7,004 6,282
Earnings (loss) per share (.20) 1.73 2.08 1.66 1.70
Weighted average shares outstanding 4,314 4,260 4,217 4,216 3,690
</TABLE>
<TABLE>
<CAPTION>
As Of
As Of March 31,
BALANCE SHEET DATA April 30, ------------------------------------
(In thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 31,673 $ 59,052 $ 58,407 $ 50,619 $ 46,712
Total assets 270,441 150,180 124,698 94,255 69,387
Shareholders' equity 73,939 73,363 65,834 57,041 49,801
</TABLE>
In fiscal 1997, the Company changed its fiscal
year-end from March 31 to April 30.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived primarily from the sale of PC software
products and technology services in North America, Europe and Asia/Pacific. The
Company also sells peripheral and hardware products in the Asia/Pacific region.
The Company sells PC software applications through volume license and
maintenance ("VLM") agreements, or right to copy arrangements, and
full-packaged PC software products either from its distribution centers or
through third party distributors. With the continued increase in sales of
software applications through VLMs, the third month of each calendar quarter
has come to represent close to 50% of the Company's sales volume in recent
quarters. In 1997, the Company changed its fiscal year end from March 31 to
April 30 in order to better match the Company's fiscal year and quarter ends
with its business cycles.
In April 1996, the Company acquired substantially all of the assets of
Essentially Group Limited and all of the outstanding shares of capital stock of
Essentially Group (Australia) Limited, information technology companies in the
Asia/Pacific region, at a purchase price of $6.3 million. The acquisition of
Essentially Group provided the Company with a business presence in the
Asia/Pacific market and completes the Company's global operations strategy
which includes maintaining operations centers in North America, Europe and
Asia/Pacific to service the major worldwide desktop technology markets and the
needs of its customers who do business globally.
In May 1996, the Company acquired certain operating assets of the
corporate, government and education ("CGE") division of Egghead, Inc., a
leading supplier of PC software products to organizations in North America at a
purchase price of $45 million. With the CGE acquisition, the Company
significantly increased its market presence in North America. For fiscal 1997
and 1996, the pro forma combined sales of the Company and the CGE division were
$808 million and $762 million, respectively. The change in the Company's year
end will provide enhanced comparability between fiscal 1997 and 1998, as the
financial impact of the Company's May 1996 acquisition of the CGE division, is
now reflected across each quarter of fiscal 1997.
Throughout this discussion, "fiscal 1997" refers to the fiscal year ended
April 30, 1997. "Fiscal 1996" and "fiscal 1995" refer to the fiscal years ended
March 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Percentage Of Net Sales
For Years Ended
--------------------------------------- Year To Year Change
April 30, March 31, March 31, --------------------------
1997 1996 1995 1996 to 1997 1995 to 1996
----- ----- ----- --------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 99.8% 13.2%
Cost of sales 88.2 86.3 86.3 104.0 13.2
----- ----- -----
Gross margin 11.8 13.7 13.7 73.3 12.6
Selling, general and
administrative expenses 10.6 10.4 9.4 104.4 25.1
Depreciation and amortization 1.0 .7 .6 176.3 23.2
----- ----- -----
Operating income .2 2.6 3.7 (82.1) (21.4)
Interest income (expense),net (.3) .2 .1 (331.6) 107.8
----- ----- -----
Income (loss) before income taxes (.1) 2.8 3.8 (106.8) (16.3)
Income taxes -- 1.0 1.3 (98.4) (16.4)
----- ----- -----
Net income (loss) (.1%) 1.8% 2.5% (111.5%) (16.2%)
===== ===== =====
</TABLE>
18
<PAGE> 21
NET SALES
The Company's sales have increased in each year since the Company's
inception in 1983. Increases in sales of software and technology services have
resulted from the Company's market share growth and geographic expansion. The
increases also reflect overall growth in the software and technology services
industries. The significant growth in sales in 1997 reflects the impact of the
acquisitions the Company made early in the fiscal year. During fiscal 1997, the
Company successfully stabilized the acquired CGE customer base and reversed the
trend of declining sales that the CGE division had experienced prior to the
acquisition.
For the years ended April 1997 and March 1996, sales of PC software
increased 100% and 12%, respectively. The Company serves as a designated
service provider for VLM agreements, which are frequently used by customers
seeking to standardize desktop software applications and, consequently, may
involve significant quantities of unit sales for each customer at lower per
unit prices than full-packaged software products. The increased popularity of
VLM agreements has contributed to the increase in unit volume sales, as well as
the reduction in average unit prices of desktop software in recent years. Sales
of software through VLM agreements represented 59%, 46% and 36% of sales for
the years ended April 1997, March 1996, and March 1995, respectively.
For the years ended April 1997 and March 1996, revenue from technology
services provided through the Company's Technology Services Group, increased
138% and 90%, respectively. The Company increased the number of its technology
services offices from ten at March 31, 1996, to 24 worldwide locations at April
30, 1997. Because fee-based services revenue has grown from a relatively small
base, as compared to the Company's sales of software, fee-based technology
services represented approximately 4% of the Company's overall sales while
representing approximately 16% of the Company's gross margin for fiscal 1997.
During fiscal 1997, the Company saw improvement in the contribution to overhead
from its maturing consulting sites and expanding Technology Support Center,
which provides fee-based telephone support on behalf of software publishers and
corporate customers. The Company expects that as more of the consulting offices
mature over time, their contribution to overhead should increase and the
Technology Services Group's impact on the Company's consolidated operating
results will continue to improve.
The Company believes that future increases in sales will depend upon the
Company's ability to maintain and increase its customer base, to continue to
increase its market share, to develop and expand its technology services, and
to capitalize on continued growth in desktop technology markets around the
world.
INTERNATIONAL OPERATIONS
For fiscal 1997, sales outside of the United States totaled $106 million
as compared to $27 million for the prior year when the Company's international
operations were located only in the Canadian and European markets.
In fiscal 1997, the Company's operating results were negatively impacted
by a $4.9 million operating loss in Asia/Pacific reflecting slow sales in the
region and expenses associated with the increased staffing of the Company's
Technology Services Group in Australia and New Zealand. In the fourth quarter
of fiscal 1997, the Company accelerated its plan to adjust the Asia/Pacific
business model to more closely mirror the lower cost, more centralized
structure in the Company's North American operations and saw improving
utilization of its technology services personnel in this region. As a result of
these efforts, the operating loss in Asia/Pacific for the April 1997 quarter
was $1.1 million, reflecting improvement from the loss of $1.8 million realized
in the January 1997 quarter.
In fiscal 1997, fluctuations in foreign currencies against the U.S. dollar
did not have a significant effect on the Company's operating results.
GROSS MARGIN
Overall gross margin as a percentage of sales was 11.8% in fiscal 1997 and
13.7% in fiscal 1996 and 1995. The decline in overall gross margin as a
percentage of sales in 1997, as compared to the prior year, reflects the
decline in gross margin on the sale of PC software, discussed below, and the
change in the Company's sales mix as a result of the CGE acquisition.
Substantially all revenue from former CGE customers was derived from PC
software sales, which have lower gross margins than do the Company's technology
services offerings.
In fiscal 1997, gross margins on PC software sales declined to 10.4%, as
compared to 11.9% and 12.3% in fiscal 1996 and 1995, respectively. The decline
in product gross margin in fiscal 1997 reflected a lower level of financial
incentives available from suppliers and a higher percentage of VLM product
sales as compared to fiscal 1996. The Company generally realizes lower gross
margins on sales of software through VLM agreements, as compared to sales of
full-packaged software products. In addition, in connection with the
acquisition of the CGE division, the Company entered into an agreement (the
"Fulfillment Agreement") with Egghead whereby
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
GROSS MARGIN (Continued)
Egghead continued to purchase product and supply it on behalf of the Company
pending the implementation of the Company's information systems to support the
requirements of the former CGE customers. Under the Fulfillment Agreement,
which expired in September 1996, the Company incurred higher software costs
than it incurred servicing its customers under its own supplier contracts and
through its own systems and facilities.
The stability in overall gross margin in fiscal 1996, as compared to
fiscal 1995, resulted from the growth in revenue from fee-based services. The
contribution from these services in fiscal 1996 represented approximately 17%
of overall gross margin, an increase from approximately 13% of gross margin for
fiscal 1995.
For the years ended April 1997 and March 1996, sales of software through
VLM agreements significantly increased to approximately 59% and 46%,
respectively, of net sales, compared to 36% of net sales in fiscal 1995. The
Company believes that gross margin percents on sales of software may continue
to decline if the volume of software product sales by the Company through VLM
agreements continue to increase or if publishers respond to continued market
pressures by further reducing financial incentives available to resellers. The
Company believes that this potential decrease in product gross margins may be
partially offset by anticipated increases in revenue from its technology
services which traditionally have had much higher gross margins than sales of
product and by lower operating costs of servicing VLM agreements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include the costs of the
Company's sales and marketing organization and purchasing, distribution and
administrative costs. The Company incurs a significant amount of marketing and
advertising costs based upon available advertising and cooperative marketing
funds received from software publishers. These funds are offset against related
selling, general and administrative expenses.
For fiscal 1997 and 1996, selling, general and administrative expenses, as
a percentage of net sales, were 10.6% and 10.4%, respectively, as compared to
9.4% for fiscal 1995. The increase in selling, general and administrative
expenses as a percentage of sales in fiscal 1997 reflects certain transition
costs, including temporary staffing, excess travel and telephone expenses and
costs associated with systems implementation, totaling approximately $3.7
million, primarily in connection with the Company's CGE acquisition. Without
these identifiable transition costs, selling, general and administrative
expenses as a percentage of sales would have been 10.2% for fiscal 1997. The
Company does not expect to incur any additional significant residual transition
costs from the CGE acquisition.
The increase in selling, general and administrative expenses, as a
percentage of sales, in fiscal 1996 compared to fiscal 1995, was primarily due
to the expansion of the Company's Technology Services Group and development of
the Company's European operations.
The Company's operating results in fiscal 1997 were negatively impacted by
the costs associated with integrating its recent business acquisitions into the
Company's overall operating structure. In the future, the Company believes it
may realize operating efficiencies in its product business as a result of its
larger size and increased market presence.
DEPRECIATION AND AMORTIZATION
The increase in depreciation and amortization for fiscal 1997 as compared
to fiscal 1996 reflects depreciation on fiscal 1997 fixed asset additions and
amortization of goodwill recorded in connection with the Company's business
acquisitions. Most of the purchase price for these acquisitions represents
goodwill which the Company is amortizing over a 20-year period.
INCOME TAX EXPENSE
The Company's effective tax rates for fiscal 1997, 1996 and 1995 were 45%,
35%, and 35%, respectively. The increase in the effective tax rate in fiscal
1997 reflects the ratio of nondeductible expenses, including goodwill
amortization in Asia/Pacific, to the Company's pre-tax loss. In addition, the
Company incurred state and local taxes within the United States and provincial
taxes in Canada, regions in which the Company was profitable.
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, the Company had approximately $7.4 million in cash and
cash equivalents, $30 million outstanding under its term loan and $7.4 million
outstanding under its $60 million revolving credit line. The term loan and
credit line are secured by accounts receivable and inventory and a pledge of
the stock of the Company's domestic and foreign subsidiaries. The principal
amount of the term loan is due in quarterly installments beginning in June 1997
through March 2001, increasing from $1.5 million to $2.25 million. The
revolving credit line expires in May 1999.
The increase in trade accounts receivable from March 31, 1996 to April 30,
1997, reflects the increase in net sales for fiscal 1997. At April 30, 1997 and
March 31, 1996, accounts receivable represented approximately 75 and 63 days of
historical sales, respectively. The increase in the number of days sales is
primarily due to the increase in the percentage of receivables represented by
sales made through VLM agreements, which, in general, require detailed
reconciliation and reporting processes and, as a result, have lengthened both
the billing and collection cycles.
The Company generally carries inventory adequate to meet product sales
levels for a period of approximately one month. The increase in inventory as of
April 30, 1997 compared to March 31, 1996, results from the increased sales
volume. The increase in trade accounts payable from March 31, 1996 to April 30,
1997, reflects the increased levels of accounts receivable and inventories.
For fiscal 1997, the Company used $13.1 million of cash in its operations
primarily due to the increase in accounts receivable. In fiscal 1996 and 1995,
$16.7 million and $15.5 million of cash, respectively, were provided by
operations. The Company realized cash from operations in fiscal 1996 and 1995,
as a result of reduced inventory levels and management of vendor payments
related to VLM agreements. Because sales of software through VLM agreements
represent sales of licensed products not held in inventory, the Company has not
increased its inventory balances in proportion to its sales growth. In
addition, prior to fiscal 1997, certain software suppliers' VLM programs
allowed for periodic payments; therefore, cash flow from operations in fiscal
1996 and 1995 improved as sales of software through VLM agreements increased.
The increase in furniture, equipment and leasehold improvements at April
30, 1997 reflects approximately $2 million of capital assets included in the
recent business acquisitions and approximately $11.6 million of capital
expenditures related to the Company's installation of computer and telephone
systems to support its recent acquisitions, the ongoing upgrade of its existing
computer and telephone systems, expansion of its Technology Services Group
offices, and relocation and consolidation of its United States distribution
facilities in Louisville, Kentucky. The Company's capital expenditures for
fiscal 1998 are expected to total approximately $7.5 million, including
expenditures to further upgrade and expand the Company's computer and telephone
systems in its operations centers, expand its office facilities in Dublin,
Ireland, and to continue to grow its Technology Services Group division.
The Company expects that its cash requirements for fiscal 1998 will be
satisfied from cash flow from operations and borrowings under its credit
facility.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Management's Discussion and Analysis of Financial Condition, as well
as the accompanying Company's Annual Report, includes certain forward-looking
statements of the Company including future market trends, estimates regarding
the economy and the software industry in general and key performance indicators
which impact the Company. In developing any forward-looking statements, the
Company makes a number of assumptions including expectations for continued
market growth, anticipated revenue and gross margin levels, and cost savings
and efficiencies. The Company's ability to continue to grow product sales and
develop its technology consulting practice, improve its operating results in
international markets, and improve operational efficiencies will be key to its
success in the future. Further, the ability of the Company to develop
electronic strategies, in order to effectively lower the cost of business, will
be a key factor in the future growth and profitability of the Company. If the
industry's or the Company's performance differs materially from these
assumptions or estimates, Software Spectrum's actual results could vary
significantly from the estimated performance reflected in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon
as a prediction of actual results. The Company's Form 10-K for the April 30,
1997 fiscal year contains certain cautionary statements that identify factors
that could cause the Company's actual results to differ materially from those
in the forward looking statements in this report.
INFLATION
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
21
<PAGE> 24
SOFTWARE SPECTRUM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS April 30, March 31,
1997 1996
-------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,440 $ 28,123
Short-term investments -- 8,407
Trade accounts receivable, net of allowance for doubtful
accounts ($2,421 in 1997 and $1,201 in 1996) 161,469 73,875
Inventories 18,285 12,937
Prepaid expenses 6,596 10,092
Other current assets 3,015 2,435
-------- --------
Total current assets 196,805 135,869
Furniture, equipment and leasehold improvements, at cost 30,627 17,033
Less accumulated depreciation and amortization 11,440 7,866
-------- --------
19,187 9,167
Other assets, consisting primarily of goodwill, net of accumulated
amortization ($2,858 in 1997 and $156 in 1996) 54,449 5,144
-------- --------
$270,441 $150,180
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 6,000 $ --
Trade accounts payable 145,260 61,231
Other current liabilities 13,872 15,586
-------- --------
Total current liabilities 165,132 76,817
Long-term debt, less current maturities 31,370 --
Shareholders' equity
Preferred stock, par value $.01; authorized, 1,000,000
shares; issued and outstanding, none -- --
Common stock, par value $.01; authorized, 20,000,000
shares; issued 4,363,523 shares in 1997
and 4,241,384 shares in 1996 44 42
Additional paid-in capital 39,040 36,394
Retained earnings 35,401 37,465
-------- --------
74,485 73,901
Less treasury stock at cost--34,311 shares in 1997
and 34,026 shares in 1996 546 538
-------- --------
Total shareholders' equity 73,939 73,363
-------- --------
$270,441 $150,180
======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
SOFTWARE SPECTRUM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
April 30, April 30, March 31, March 31,
1997 1996 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $796,285 $28,380 $398,501 $352,141
Cost of sales 701,955 24,260 344,063 303,813
-------- ------- -------- --------
Gross margin 94,330 4,120 54,438 48,328
Selling, general and administrative expenses 84,734 4,667 41,459 33,105
Depreciation and amortization expense 7,780 297 2,816 2,285
-------- ------- -------- --------
Operating income (loss) 1,816 (844) 10,163 12,938
Interest income (expense)
Interest income 358 122 1,175 587
Interest expense (2,956) (42) (53) (47)
-------- ------- -------- --------
(2,598) 80 1,122 540
Income (loss) before income taxes (782) (764) 11,285 13,478
Income tax expense (benefit) 63 (269) 3,919 4,690
-------- ------- -------- --------
Net income (loss) $ (845) $ (495) $ 7,366 $ 8,788
======== ======= ======== ========
Earnings (loss) per share $ (.20) $ (.12) $ 1.73 $ 2.08
======== ======= ======== ========
Weighted average shares outstanding 4,314 4,263 4,260 4,217
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
SOFTWARE SPECTRUM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
---------------- Paid-In Retained ---------------
Shares Amount Capital Earnings Shares Amount Total
--------- ------ ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1994 4,155,895 $42 $35,540 $ 21,459 -- $ -- $ 57,041
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $171 53,655 -- 439 -- -- -- 439
Purchase of treasury stock -- -- -- -- (32,238) (502) (502)
Net income -- -- -- 8,788 -- -- 8,788
Foreign currency
translation adjustment -- -- -- 68 -- -- 68
--------- --- ------- -------- ------- ----- --------
Balances at March 31, 1995 4,209,550 42 35,979 30,315 (32,238) (502) 65,834
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $165 31,834 -- 415 -- -- -- 415
Purchase of treasury stock -- -- -- -- (1,788) (36) (36)
Net income -- -- -- 7,366 -- -- 7,366
Foreign currency
translation adjustment -- -- -- (216) -- -- (216)
--------- --- ------- -------- ------- ----- --------
Balances at March 31, 1996 4,241,384 42 36,394 37,465 (34,026) (538) 73,363
Stock issued pursuant to employee
benefit plans 776 -- 14 -- -- -- 14
Stock issued in connection with
acquisition of Essentially Group 55,363 1 1,136 -- -- -- 1,137
Net loss -- -- -- (495) -- -- (495)
--------- --- ------- -------- ------- ----- --------
Balances at April 30, 1996 4,297,523 43 37,544 36,970 (34,026) (538) 74,019
Stock issued pursuant to employee
benefit plans, including related
tax benefit of $103 66,000 1 1,496 -- -- -- 1,497
Purchase of treasury stock -- -- -- -- (285) (8) (8)
Net loss -- -- -- (845) -- -- (845)
Foreign currency
translation adjustment -- -- -- (724) -- -- (724)
--------- --- ------- -------- ------- ----- --------
Balances at April 30, 1997 4,363,523 $44 $39,040 $ 35,401 (34,311) $(546) $ 73,939
========= === ======= ======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 27
SOFTWARE SPECTRUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
April 30, April 30, March 31, March 31,
1997 1996 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) $ (845) $ (495) $ 7,366 $ 8,788
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Provision for bad debts 2,001 46 633 238
Depreciation and amortization 7,780 297 2,816 2,285
Changes in operating assets and liabilities
Trade accounts receivable (90,065) 8,313 (4,427) (21,382)
Inventories (1,324) (3,354) 755 5,314
Prepaid expenses and other assets 5,450 (1,532) (5,897) (1,393)
Trade accounts payable and other current liabilities 63,897 1,988 15,448 21,656
--------- -------- -------- --------
Net cash provided by (used in) operating activities (13,106) 5,263 16,694 15,506
--------- -------- -------- --------
Investing activities
Sales (purchases) of short-term investments, net 7,370 1,037 6,321 (9,696)
Purchase of furniture, equipment and leasehold improvements (12,726) (502) (4,166) (3,515)
Purchase of subsidiaries, net of cash acquired (41,188) (4,803) (2,377) --
--------- -------- -------- --------
Net cash used in investing activities (46,544) (4,268) (222) (13,211)
--------- -------- -------- --------
Financing activities
Borrowings on long-term debt 257,985 -- -- --
Repayments of long-term debt (220,615) -- -- --
Proceeds from stock issuance, including tax
benefit related to stock options exercised 1,497 14 415 439
Purchase of treasury stock (8) -- (36) (502)
--------- -------- -------- --------
Net cash provided by (used in) financing activities 38,859 14 379 (63)
--------- -------- -------- --------
Effect of exchange rate changes on cash (725) (176) (271) 68
--------- -------- -------- --------
Increase (decrease) in cash and cash equivalents (21,516) 833 16,580 2,300
Cash and cash equivalents at beginning of period 28,956 28,123 11,543 9,243
--------- -------- -------- --------
Cash and cash equivalents at end of period $ 7,440 $ 28,956 $ 28,123 $ 11,543
========= ======== ======== ========
Supplemental disclosure of cash paid during the period
Income taxes $ 2,020 $ 11 $ 3,776 $ 4,308
Interest 2,459 6 35 32
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 28
SOFTWARE SPECTRUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- NATURE OF OPERATIONS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Software Spectrum, Inc. (the Company) is a leading worldwide supplier of
personal computer software and technology services to organizations. In fiscal
1997, the Company's revenues were derived primarily from the sale of PC
software and technology services in North America, Europe and Asia/Pacific.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All inter-company accounts and transactions
have been eliminated in consolidation. Certain prior period amounts have been
reclassified to conform to the current period presentation.
ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all investments with maturities of three months or
less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist of debt securities issued by municipalities
and U.S. government agencies. These investments are classified as available for
sale and are recorded at fair value, which approximates amortized cost.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are generally due from a diverse group of
companies and, accordingly, do not include any specific concentrations of
credit risk.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of cash
and cash equivalents, investments, accounts receivable, accounts payable and
long-term debt, approximates their carrying values.
INVENTORIES
Inventories, which consist primarily of purchased personal computer
software programs, are stated at cost, not in excess of market value. Cost is
determined by the moving weighted average method.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation of furniture and equipment is provided primarily on the
straight-line method over the estimated useful lives ranging from 2 to 10
years. Amortization of leasehold improvements is provided on the straight-line
method over the terms of the corresponding leases.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of the foreign subsidiaries
are translated to U.S. dollars at year-end exchange rates. Income and expense
items are translated at the average rates of exchange prevailing during the
year. The adjustments resulting from translating the financial statements of
foreign subsidiaries are reflected in shareholders' equity.
REVENUE RECOGNITION
The Company recognizes revenue from software sales at the time of product
shipment, or in accordance with terms of licensing contracts. Maintenance and
service revenue are recognized ratably over the contractual period or as the
services are provided. Advance billings are recorded as deferred revenue.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are based on the weighted average number of
shares outstanding during the year, and, if dilutive, are increased by
incremental shares included from outstanding stock options as determined under
the treasury stock method.
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE,
is effective for financial statements issued after December 15, 1997. The
adoption of this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
26
<PAGE> 29
NOTE A -- NATURE OF OPERATIONS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 (SFAS 123),
ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations.
FISCAL YEAR
In 1997, the Company changed its fiscal year end from March 31 to April
30. Accordingly, the Company's current fiscal year commenced on May 1, 1996,
and ended on April 30, 1997. The financial statements for the period from April
1, 1996, to April 30, 1996, are also presented herein. The amounts reflected
for the one month period ended April 30, 1996, should not be considered
indicative of results that would have been obtained for a full fiscal quarter
or year.
NOTE B -- FINANCING ARRANGEMENTS WITH BANK
The Company has a $30 million term bank loan due in quarterly installments
beginning June 30, 1997, through March 31, 2001, ranging from $1.5 million to
$2.25 million. The note bears interest at a variable rate, 7.16% at April 30,
1997. The interest rate is subject to quarterly adjustment, based on certain
financial ratios of the Company.
The financing arrangement also includes a $60 million revolving credit
facility which expires in May 1999. At April 30, 1997, $7.4 million was
outstanding under the facility, which bears interest at prime or LIBOR plus a
variable rate, 7.28% at April 30, 1997. The facility provides for an annual
commitment fee equal to .20% of the unused line of credit.
Future minimum principal payments on long-term debt at April 30, 1997, are
as follows (in thousands):
<TABLE>
<CAPTION>
Years ending April 30:
<S> <C>
1998 $ 6,000
1999 6,750
2000 15,620
2001 9,000
-------
$37,370
=======
</TABLE>
Until certain financial ratios are maintained for specified periods,
borrowings under the financing arrangements are secured by liens on accounts
receivable, inventory, the pledge of all of the Company's shares in Spectrum
Integrated Services, Inc., a wholly-owned subsidiary, and the pledge of 66.67%
of the Company's shares in its foreign wholly-owned subsidiaries.
NOTE C -- OTHER CURRENT LIABILITIES
Other current liabilities include deferred revenue of $4.9 million and
$9.5 million at April 30, 1997, and March 31, 1996, respectively.
NOTE D -- EMPLOYEE BENEFIT PLANS
In July 1989, the Company adopted the 1989 Stock Option Plan in which
non-incentive stock options were granted. In August 1993, the shareholders
approved the adoption of the 1993 Long Term Incentive Plan and the Company then
ceased granting new options under the 1989 Stock Option Plan. Under the terms
of the 1993 Long Term Incentive Plan, awards may be presented in the form of
incentive or non-qualified stock options, restricted shares of common stock, or
units valued on the basis of Company performance. Stock options are granted at
the quoted market price of the Company's stock at the date of grant, become
exercisable over periods of up to five years and expire on various dates from
1997 through 2003. At April 30, 1997, 168,000 shares of common stock were
reserved for future grant under the 1993 Long Term Incentive Plan.
The Company has adopted the disclosure provisions of SFAS 123 for employee
stock options and continues to apply APB 25 for stock options granted under the
plans. If the Company had elected to recognize compensation expense based upon
the fair value at the grant date for options granted under the plans in fiscal
1997 and 1996, consistent with the methodology prescribed by SFAS 123, the
effect on net income (loss) and earnings (loss) per share would have been as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Month Year
Ended Ended Ended
April 30, April 30, March 31,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) - as reported $ (845) $(495) $7,366
Net income (loss) - pro forma (1,127) (505) 7,276
Earnings (loss) per share - as reported (.20) (.12) 1.73
Earnings (loss) per share - pro forma (.26) (.12) 1.71
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before fiscal 1996. The fair value of these options was estimated
at the date of grant using the
27
<PAGE> 30
SOFTWARE SPECTRUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D -- EMPLOYEE BENEFIT PLANS (Continued)
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 42%; risk-free interest rates ranging from
5.5% to 6.4%; no dividend yield; and expected lives of four years. The weighted
average fair value per share of options granted during fiscal 1997 was $9.55.
Information with respect to options outstanding under the plans is as
follows:
<TABLE>
<CAPTION>
Number of Weighted
Shares Average
Underlying Exercise
Options Price
---------- --------
<S> <C> <C>
Outstanding at April 1, 1994 296,699 $ 18.67
Granted 105,250 12.48
Exercised (46,099) 3.88
Canceled/forfeited (31,675) 19.43
-------
Outstanding at March 31,1995 324,175 18.69
Granted 121,250 17.62
Exercised (25,445) 5.50
Canceled/forfeited (19,790) 18.72
-------
Outstanding at March 31, 1996 400,190 19.20
Granted 10,000 19.75
-------
Outstanding at April 30, 1996 410,190 19.21
Granted 159,550 23.56
Exercised (54,850) 21.25
Canceled/forfeited (31,350) 20.47
-------
Outstanding at April 30, 1997 483,540 20.34
=======
Exercisable at April 30, 1997 146,560 20.02
Exercisable at March 31, 1996 124,620 22.12
</TABLE>
Options outstanding at April 30, 1997:
<TABLE>
<CAPTION>
Range of Number of Weighted Average Weighted Average
Exercise Prices Shares Remaining Life Exercise Price
- --------------- --------- ---------------- ----------------
<S> <C> <C> <C>
$ 4.00 to 5.00 900 .7 years $ 4.67
10.00 to 15.00 79,390 3.2 12.10
15.01 to 20.00 117,150 4.0 17.32
20.01 to 25.00 231,900 4.0 23.46
25.01 to 30.00 54,200 2.5 25.86
-------
483,540
=======
</TABLE>
Options exercisable at April 30, 1997:
<TABLE>
<CAPTION>
Range of Number of Weighted Average
Exercise Prices Shares Exercise Price
- --------------- --------- ----------------
<S> <C> <C>
$ 4.00 to 5.00 900 $ 4.67
10.00 to 15.00 28,600 12.29
15.01 to 20.00 24,060 17.25
20.01 to 25.00 59,400 23.59
25.01 to 30.00 33,600 25.81
-------
146,560
=======
</TABLE>
In July 1992, the Company approved an Employee Stock Purchase Plan, which
allows eligible employees to purchase shares of common stock through payroll
deductions. The shares can be purchased at an amount equal to 85% of the fair
market value of the common stock on the exercise date. The plan provides for a
series of monthly offerings, with an exercise date of the 15th of each month.
Each employee may purchase up to $15,000 of fair market value of common stock
per calendar year, limited to 10% of a participant's compensation. At April 30,
1997, a total of 127,000 shares of common stock were reserved for issuance
under the plan. For the years ended April 30, 1997, March 31, 1996, and March
31, 1995, and the month ended April 30, 1996, 10,656, 6,260, 7,556 and 702
shares, respectively, were issued under the plan.
The Company's employee profit sharing plan covers all employees who are 19
years of age or older and have one or more years of service with the Company.
The plan includes an employee savings plan component, which allows participants
to make voluntary pre-tax contributions in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. Employer contributions to the plan
are at the discretion of the Board of Directors and are reduced by forfeited
contributions. The Company's contributions to the employee profit sharing plan
for the years ended March 31, 1996 and 1995, prior to reductions for
forfeitures, were $372,000, and $447,000, respectively. No contributions were
made for the year ended April 30, 1997, or the month ended April 30, 1996.
28
<PAGE> 31
NOTE E -- LEASES
The Company leases various office and distribution facilities as well as
certain office equipment under leases classified as operating leases. Future
minimum rental payments under all long-term, noncancelable operating leases at
April 30, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
Years ending April 30:
<S> <C>
1998 $3,422
1999 3,174
2000 2,388
2001 1,850
2002 1,183
Thereafter 1,112
-------
$13,129
=======
</TABLE>
Rent expense for operating leases for the years ended April 30, 1997,
March 31, 1996, and March 31, 1995, totaled $3.3 million, $1.3 million and $1.3
million, respectively, and $165,000 for the one month ended April 30, 1996.
NOTE F -- INCOME TAXES
The Company's provision (benefit) for income taxes is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
Year Ended Federal Foreign State Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
April 30, 1997
Current $1,234 $ 78 $153 $1,465
Deferred (523) (879) -- (1,402)
------ ----- ---- ------
$ 711 $(801) $153 $ 63
====== ===== ==== ======
Month Ended
April 30, 1996
Current $ (191) $ (65) $ (4) $ (260)
Deferred 19 (28) -- (9)
------ ----- ---- ------
$ (172) $ (93) $ (4) $ (269)
====== ===== ==== ======
Year Ended
March 31, 1996
Current $3,109 $ -- $375 $3,484
Deferred 435 -- -- 435
------ ----- ---- ------
$3,544 $ -- $375 $3,919
====== ===== ==== ======
Year Ended
March 31, 1995
Current $4,049 $ -- $335 $4,384
Deferred 306 -- -- 306
------ ----- ---- ------
$4,355 $ -- $335 $4,690
====== ===== ==== ======
</TABLE>
A reconciliation of income tax expense (benefit) using the statutory federal
income tax rate of 34% to the actual income tax expense (benefit) follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
April 30, April 30, March 31, March 31,
1997 1996 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Income tax at statutory rate $(266) $(260) $3,837 $4,583
State and local income
taxes, net of federal
benefit 101 (4) 259 337
Tax-exempt interest (17) (5) (282) (189)
Amortization of goodwill 137 9 8 8
Other 108 (9) 97 (49)
----- ----- ------ ------
Income tax expense (benefit) $ 63 $(269) $3,919 $4,690
===== ===== ====== ======
</TABLE>
Deferred tax assets and liabilities as of April 30, 1997, and March 31, 1996,
consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Accounts receivable $ 352 $ 177
Inventories 432 122
Depreciation and amortization (563) (371)
Accrued expenses 338 168
Deferred revenue 137 53
Foreign net operating loss
carryforward 752 --
Other (113) (225)
------- -----
$ 1,335 $ (76)
======= =====
</TABLE>
At April 30, 1997, certain of the Company's foreign subsidiaries had net
operating loss carryforwards of approximately $2.1 million. Utilization of
these carryforwards is limited to income of the respective subsidiaries.
NOTE G - BUSINESS ACQUISITIONS
On October 13, 1995, Software Spectrum Canada, Ltd., a wholly-owned
subsidiary, acquired all of the outstanding shares of capital stock of Software
Alternatives, Inc., a privately-held supplier of personal computer software to
Canadian organizations, for approximately $2.5 million in cash. The acquisition
has been accounted for as a purchase transaction. The estimated fair values of
the assets acquired and liabilities assumed were $5.2 million and $2.7 million,
respectively. Goodwill was $2.6 million and is amortized on the straight-line
method over 20 years.
29
<PAGE> 32
SOFTWARE SPECTRUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE G -- BUSINESS ACQUISITIONS (Continued)
On April 2, 1996, the Company acquired substantially all of the assets of
the New Zealand business operations of Essentially Group Limited and all of the
outstanding shares of capital stock of Essentially Group (Australia) Limited,
privately held information technology companies in New Zealand and Australia.
The purchase price was $6.3 million including cash of $5.1 million and the
issuance of 55,363 shares of the Company's common stock. The acquisition has
been accounted for using the purchase method of accounting. The estimated fair
values of the assets acquired, liabilities assumed and stock issued in
connection with the purchase were $17.4 million, $11.1 million and $1.2
million, respectively. Goodwill was $7.4 million and is amortized on the
straight-line method over 20 years.
On May 13, 1996, the Company acquired certain operating assets of the
corporate, government, and educational (CGE) division of Egghead, Inc., a
leading supplier of personal computer software to organizations in North
America, for approximately $45 million in cash. The acquisition has been
accounted for using the purchase method of accounting. The estimated fair
values of the assets acquired and liabilities assumed were $51 million and $6
million, respectively. Goodwill was $45 million and is amortized on the
straight-line method over 20 years.
The operating results of the acquired businesses have been included in the
consolidated statements of operations from the dates of acquisition.
Identifiable transition costs totaling $3.7 million are included in selling,
general and administrative expenses for the year ended April 30, 1997. These
costs relate primarily to temporary staffing costs, excess travel and telephone
expenses, and costs associated with systems implementation for the CGE division
acquisition.
Pro forma operating results, giving effect to the Software Alternatives,
Inc. and the Essentially Group acquisitions as though they had occurred at the
beginning of fiscal 1996, are not presented because they are not materially
different than the Company's actual results. The following unaudited pro forma
information presents summary consolidated results of operations of the Company
and CGE division as if this acquisition had occurred at the beginning of each
period presented (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended
April 30, April 30, March 31,
1997 1996 1996
--------- ----------- ------------
<S> <C> <C> <C>
Net sales $807,697 $56,277 $761,839
Net income (loss) (957) (719) 7,070
Earnings (loss) per share (.22) (.17) 1.66
</TABLE>
These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
acquisition been made as of these dates or of results which may occur in the
future.
NOTE H -- FOREIGN OPERATIONS
The Company operates in one business segment. Prior to April 1996, the
Company's foreign operations were not material. Accordingly, information for
foreign operations for the years ended March 31, 1996 and 1995, has not been
presented. Information for foreign operations for the year ended April 30,
1997, and the one month ended April 30, 1996, follows (in thousands):
<TABLE>
<CAPTION>
Operating
Year Ended Net Income
April 30, 1997 Sales (Loss)
-------- ---------
<S> <C> <C>
Domestic $690,641 $7,742
Foreign 105,644 (5,926)
-------- ------
$796,285 $1,816
======== ======
Month Ended
April 30, 1996
Domestic $22,910 $ (256)
Foreign 5,470 (588)
-------- ------
$28,380 $ (844)
======== ======
</TABLE>
<TABLE>
<CAPTION>
Identifiable
As Of April 30, 1997 Assets
------------
<S> <C>
Domestic $228,855
Foreign 41,586
--------
$270,441
========
</TABLE>
30
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Software Spectrum, Inc.
We have audited the accompanying consolidated balance sheets of Software
Spectrum, Inc. and subsidiaries as of April 30, 1997 and March 31, 1996, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the year ended April 30, 1997, the month ended April 30, 1996,
and the years ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Software
Spectrum, Inc. and subsidiaries as of April 30, 1997 and March 31, 1996, and
the consolidated results of their operations and their consolidated cash flows
for the year ended April 30, 1997, the month ended April 30, 1996, and the
years ended March 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
/s/ GRANT THORNTON LLP
- ----------------------
Grant Thornton LLP
Dallas, Texas
July 7, 1997
31
<PAGE> 34
QUARTERLY FINANCIAL DATA AND
MARKET INFORMATION (Unaudited)
The following table summarizes the unaudited quarterly financial data for
the years ended April 30, 1997, and March 31, 1996 and the quarterly range of
high and low quotations for the Company's common stock as reported by the
NASDAQ National Market System (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Common Stock
Net Earnings Price Per Share
Net Gross Income (Loss) ----------------
Period Sales Margin (Loss) Per Share High Low
- ------ -------- ------- ------ --------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1997
Quarter ended:
July 31 $186,847 $21,755 $ 9 $ -- $ 25.00 $21.50
October 31 188,097 22,823 (839) (.20) 30.50 23.00
January 31 220,523 24,782 (119) (.03) 33.50 22.50
April 30 200,818 24,970 104 .02 24.25 13.00
Fiscal 1996
Quarter ended:
June 30 91,397 12,432 1,615 .38 21.00 14.88
September 30 89,748 12,545 1,788 .42 26.50 20.25
December 31 117,751 15,591 2,773 .65 25.25 18.00
March 31 99,605 13,870 1,190 .28 23.50 17.00
</TABLE>
================================================================================
The Company's common stock is traded over the counter and is listed on the
Nasdaq National Market System under the symbol SSPE.
On July 18, 1997, there were 150 holders of record of the Company's common
stock. The Company has never paid cash dividends on its common stock. The Board
of Directors presently intends to retain all earnings for use in the Company's
business and does not anticipate paying cash dividends in the near term.
CORPORATE COUNSEL
Locke Purnell Rain Harrell P.C.
Dallas, Texas
AUDITORS
Grant Thornton LLP
Dallas, Texas
REGISTRAR/TRANSFER AGENT
ChaseMellon Shareholder Services, LLC
Ridgefield Park, NJ
800-635-9270
COMMON STOCK
Software Spectrum's common stock is traded over the counter on the Nasdaq
National Market System under the symbol SSPE.
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain a copy, free of charge, of Software Spectrum, Inc.'s
1997 Annual Report on Form 10-K (excluding exhibits) upon request to Investor
Relations, Software Spectrum, Inc. at Corporate Headquarters.
ANNUAL MEETING
The Annual Meeting of the Shareholders of Software Spectrum, Inc. will be held
at the Company's corporate headquarters, at 10:00 a.m. on September 18, 1997.
All shareholders are cordially invited to attend.
INVESTOR RELATIONS
Investor Relations Department
972-840-6600
Software Spectrum Technology Services Group is a wholly-owned subsidiary of
Software Spectrum, Inc.
All marks and registered trademarks are property of their respective
organizations.
Printed in the U.S.A.
32
<PAGE> 35
CORPORATE HEADQUARTERS
2140 Merritt Drive
Garland, Texas 75041
972-840-6600
EMEA HEADQUARTERS
Kneuterdijk #2
2514 EN The Hague
The Netherlands
31-70-346-2936
EUROPEAN OPERATIONS CENTRE
Merrion House
Merrion Road
Dublin 4, Ireland
353-1-260-1788
ASIA/PACIFIC OPERATIONS CENTER
2-6 Orion Road
Lane Cove
NSW 2066
Australia
61-2-9418-3811
JAPANESE JOINT VENTURE
Uchida Spectrum
Across Shinkawa Building
Annex 8F, Shinkawa 1-16-14
CH UO-KU
Tokyo 104
Japan
81-3-5543-6800
[SOFTWARE SPECTRUM LOGO]
<PAGE> 1
EXHIBIT 23
Consent of Independent Certified Public Accountants
We have issued our reports dated July 7, 1997, accompanying the consolidated
financial statements and schedule incorporated by reference or included in the
Annual Report of Software Spectrum, Inc. on Form 10-K for the year ended April
30, 1997. We hereby consent to the incorporation by reference of said report in
the Registration Statements of Software Spectrum, Inc. on Forms S-8 (Software
Spectrum, Inc. 1993 Long Term Incentive Plan, Software Spectrum, Inc. Employee
Stock Purchase Plan and Amended and Restated Stock Option Plan, filed on July
19, 1995, and Software Spectrum, Inc. Non-Employee Directors' Retainer Stock
Plan, filed on September 28, 1995).
GRANT THORNTON LLP
Dallas, Texas
July 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 7,440
<SECURITIES> 0
<RECEIVABLES> 163,890
<ALLOWANCES> (2,241)
<INVENTORY> 18,285
<CURRENT-ASSETS> 196,805
<PP&E> 30,627
<DEPRECIATION> 11,440
<TOTAL-ASSETS> 270,441
<CURRENT-LIABILITIES> 165,132
<BONDS> 31,370
0
0
<COMMON> 44
<OTHER-SE> 75,876
<TOTAL-LIABILITY-AND-EQUITY> 270,441
<SALES> 796,285
<TOTAL-REVENUES> 796,285
<CGS> 701,955
<TOTAL-COSTS> 701,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,001
<INTEREST-EXPENSE> 2,446
<INCOME-PRETAX> (782)
<INCOME-TAX> 63
<INCOME-CONTINUING> (845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (845)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
