<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
SOFTWARE SPECTRUM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 18, 1997
TO THE SHAREHOLDERS OF SOFTWARE SPECTRUM, INC.
The Annual Meeting of Shareholders of Software Spectrum, Inc. (the
"Company") will be held on Thursday, September 18, 1997, at 10:00 a.m., Central
time, at the Company's offices located at 2140 Merritt Drive, Garland, Texas,
for the following purposes:
1. To elect two directors to serve for a period of
three years and until their respective successors shall have been
elected and qualified; and
2. To transact such other business as may properly come
before the meeting or any adjournment(s) thereof.
Information regarding the matters to be acted upon at the annual
meeting is contained in the Proxy Statement attached to this Notice.
Only shareholders of record at the close of business on July 31, 1997
are entitled to notice of, and to vote at, such meeting or any adjournment(s)
thereof. A complete list of the shareholders entitled to vote at the meeting
will be open to the examination of any shareholder, for any purpose germane to
the meeting, during ordinary business hours for a period of 10 days prior to
the meeting at the corporate offices of the Company, 2140 Merritt Drive,
Garland, Texas 75041.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
ROBERT D. GRAHAM
Secretary
Garland, Texas
August 15, 1997
<PAGE> 3
SOFTWARE SPECTRUM, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 18, 1997
SOLICITATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Software Spectrum, Inc. (the "Company") for use at the Annual
Meeting of Shareholders of the Company (the "Annual Meeting") to be held on
Thursday, September 18, 1997, at 10:00 a.m., Central time and at any
adjournment(s) thereof. Solicitation of proxies may be made in person or by
mail, telephone or telegram by directors, officers, employees, or other
authorized designees of the Company. The Company may also request banking
institutions, brokerage firms, custodians, trustees, nominees and fiduciaries
to forward solicitation material to the beneficial owners of Common Stock held
of record by such persons, and the Company will reimburse the forwarding
expense. All reasonable costs of preparing, printing, assembling and mailing
the form of proxy and the material used in the solicitation thereof and all
clerical and other expenses of solicitation will be paid by the Company. The
approximate date on which this Proxy Statement and form of proxy were first
sent to shareholders is August 15, 1997.
The purpose of the Annual Meeting and the matters to be acted upon are
set forth in the foregoing attached Notice of Annual Meeting of Shareholders.
As of the date of this Proxy Statement, the Board of Directors knows of no
other business that will be presented for consideration at the Annual Meeting.
However, if any such other business shall properly come before the Annual
Meeting, votes will be cast pursuant to said proxies in respect of any such
other business in accordance with the judgment of the persons acting under said
proxies.
RECORD DATE AND VOTING RIGHTS
Only shareholders of record at the close of business on July 31, 1997
will be entitled to vote on matters presented at the Annual Meeting or any
adjournment thereof. The stock transfer books will not be closed. At the record
date, there were outstanding and entitled to be voted 4,329,175 shares of
common stock, $.01 par value, of the Company ("Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of the Common Stock of the Company entitled to vote is
necessary to constitute a quorum at the meeting. If a quorum is not present or
represented at the meeting, the shareholders entitled to vote thereat, present
in person or represented by proxy, have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present or represented. Abstentions and broker non-votes (when a
broker holding shares for clients in street name is not permitted to vote on
certain matters without the client's instructions) are counted for purposes of
determining the presence or absence of a quorum for the transaction of
business; however, abstentions and broker non-votes are not counted in the
election of directors and will have no effect in determining whether a proposal
is approved, however, on matters other than the election of directors,
abstentions will be counted as votes cast, which will have the same effect as a
negative vote on such matter.
On all matters submitted to a vote at the Annual Meeting, or any
adjournment(s) thereof, each holder of Common Stock will be entitled to one
vote, in person or by proxy, for each share of stock owned of record at the
close of business on July 31, 1997. Cumulative voting for directors is not
permitted.
A shareholder giving a proxy pursuant to the present solicitation may
revoke it at any time before it is exercised by giving a subsequent proxy or by
delivering to the Secretary of the Company a written notice of revocation prior
to the voting of the proxy at the Annual Meeting. No proxy will be used if the
shareholder is personally present at the Annual Meeting and expresses a desire
to vote his shares in person.
<PAGE> 4
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth as of July 14, 1997, except as noted
below, information as to the beneficial ownership of the Common Stock by each
person known by the Company to beneficially own more than 5% of the outstanding
Common Stock.
<TABLE>
<CAPTION>
Name and Address Shares Percent
of Beneficial Owner Beneficially Owned(1) of Class
- ------------------- --------------------- --------
<S> <C> <C>
Judy O. Sims(2) 401,932(7) 9.1
Richard G. Sims(2) 401,932(8) 9.1
Frank Tindle(3) 228,277(9) 5.3
Merrill Lynch & Co., Inc.(4) 396,600(10) 9.1
Private Capital Management, Inc.(5) 861,854(11) 19.9
Wellington Management Company(6) 242,200(12) 5.6
</TABLE>
- ---------------------------
(1) Unless otherwise indicated, to the knowledge of the Company, all
shares are owned directly and the owner has sole voting and investment
power.
(2) The named person's address is 2140 Merritt Drive, Garland, Texas 75041.
(3) The named person's address is One Waterford Estate, Athens, Texas
75751.
(4) The named person's address is World Financial Center, North Tower 250
Vesey Street, New York, New York 10281.
(5) The named person's address is 3003 Tamiami Trail North, Naples,
Florida 33940.
(6) The named person's address is 75 State Street, Boston, Massachusetts
02109.
(7) Includes 13,668 shares owned of record by the named person's spouse,
45,000 shares which are subject to options held by the named person
and 33,000 shares which are subject to options held by the named
person's spouse, all of which are exercisable within 60 days of July
14, 1997.
(8) Includes 310,264 shares owned of record by the named person's spouse,
33,000 shares which are subject to options held by the named person
and 45,000 shares which are subject to options held by the named
person's spouse, all of which are exercisable within 60 days of July
14, 1997.
(9) All of such shares are jointly held by Mr. Tindle and his spouse as
tenants-in-common, and Mr. Tindle has shared investment and voting
power with respect thereto. Includes 5,000 shares, all of which are
subject to presently exercisable options.
-2-
<PAGE> 5
(10) The information is based on a Schedule 13G of Merrill Lynch & Co., Inc.
dated February 14, 1997. Merrill Lynch & Co., Inc. disclaims
beneficial ownership of such shares pursuant to Section 240.13d-4 of
the Securities Exchange Act of 1934.
(11) This information is based on information provided by Private Capital
Management, Inc. ("PCM) to the Company as of July 31, 1997. PCM is an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940.
(12) This information is based on the Schedule 13G of Wellington Management
Company dated January 24, 1997.
(13) The information is based on Amendment No. 2 to the Schedule 13G of FMR
Corp. dated June 9, 1997.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of July 14, 1997 information as to
the beneficial ownership of Common Stock by each director and nominee (except
Ms. Sims and Messrs. Sims and Tindle, whose holdings are shown in the preceding
table) and each of the chief executive officer and the other four most highly
compensated executive officers of the Company (other than Ms. Sims and Mr.
Sims), and by all directors and executive officers as a group (including Ms.
Sims and Messrs. Sims and Tindle).
<TABLE>
<CAPTION>
Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Class
- ------------------------ --------------------- --------
<S> <C> <C>
Mellon C. Baird, Director 7,000(2) *
Carl S. Ledbetter, Director 2,000(3) *
Keith R. Coogan, Executive Vice President -
Chief Operating Officer 29,953(4) *
Roger J. King, Vice President of Sales
and Marketing 30,019(5) *
Deborah A. Nugent, Vice President of Finance 26,420(6) *
All directors and executive officers
as a group (11 persons) 728,017 16.7%
</TABLE>
- --------------
* Indicates less than one percent.
(1) Unless otherwise indicated, to the knowledge of the Company, all
shares are owned directly and the owner has sole voting and investment
power.
(2) Includes 6,000 shares which are subject to presently exercisable
options.
(3) Includes 2,000 shares which are subject to presently exercisable
options.
(4) Includes 25,000 shares which were subject to options exercisable within
60 days of July 14, 1997, and shares acquired pursuant to the
Company's Employee Stock Purchase Plan.
(5) Includes 15,000 shares which were subject to options exercisable within
60 days of July 14, 1997.
-3-
<PAGE> 6
(6) Includes 26,000 shares which were subject to options exercisable
within 60 days of July 14, 1997 and includes shares acquired pursuant
to the Company's Employee Stock Purchase Plan.
ACTION TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and
returned will be voted at the Annual Meeting and any adjournment(s) thereof and
will be voted, unless the person giving the proxy specifies otherwise, (1) for
the election of the individuals named below as nominees for election as
directors of the Company, to serve for a period of three years and until his
successor is elected and qualified; and (2) in the transaction of such other
business as may properly come before the Annual Meeting or any adjournment(s)
thereof.
Management knows of no matters, other than the foregoing, to be
presented for consideration at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournment(s) thereof,
it is the intention of the persons named in the enclosed proxy to vote such
proxy in accordance with their judgment on any such matters.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of six
directorships and is divided into three classes. The term of the first class
expires at the 1997 Annual Meeting of Shareholders, the term of the second
class expires at the 1998 Annual Meeting of Shareholders, and the term of the
third class expires at the 1999 Annual Meeting of Shareholders.
Two directors will be elected at the Annual Meeting. Each director to
be elected at the Annual Meeting will hold office for a term of three years and
will serve until his successor is elected and qualified. Proxies cannot be
voted for more than two nominees.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, any director or directors may
be removed from office at any time, but only by the affirmative vote of (i) the
holders of at least two-thirds of the voting power of the then outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors, voting together as a single class, or (ii) a majority of
the members of the Board then serving. The persons named below are the Board of
Director's nominees for election as directors of the Company. The nominees
presently are directors of the Company and have served as such since the date
of election indicated. Further information with respect to each nominee and the
other directors continuing in office is set forth below.
Should the nominees named herein for the office of director become
unwilling to accept nomination or election, it is intended that the persons
acting under the proxy will vote for the election, in his stead, of such other
person as the Board of Directors of the Company may recommend. The Board of
Directors has no reason to believe that the nominees will be unable or
unwilling to serve if elected.
The vote of a majority of the shares entitled to vote on the election
of directors and represented in person or by proxy at the Annual Meeting is
required for the election of directors.
-4-
<PAGE> 7
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES.
NOMINEES FOR DIRECTOR
Term expires in 1997
Judy O. Sims, age 44, is a co-founder of the Company and has been a
director of the Company since its inception in 1983. Ms. Sims served as
Treasurer of the Company from 1983 to October 1990 and as Vice President from
April 1987 to April 1988, and has served as Chief Executive Officer since April
1988 and Chairman of the Board since July 1992. In April 1996, Ms. Sims also
assumed the title of President of the Company. Ms. Sims was employed by the
national accounting firm of Grant Thornton LLP from 1977 to 1985, where she
last served as an audit partner. Ms. Sims is a Certified Public Accountant. Ms.
Sims is married to Richard Sims.
Frank Tindle, age 45, is a co-founder of the Company and has been a
director of the Company since 1983. From 1983 to April 1992, Mr. Tindle served
as Vice President of the Company. From 1980 to 1983, Mr. Tindle was the
principal accounting officer of Southmark Corporation. Prior to joining
Southmark, Mr. Tindle was employed by the national accounting firms of Grant
Thornton LLP and Ernst & Young LLP. Mr. Tindle is a Certified Public
Accountant.
DIRECTORS CONTINUING IN OFFICE
Term expires in 1998
Mellon C. Baird, age 66, has been a director of the Company since June
1991. Mr. Baird has been President and Chief Executive Officer of Delfin
Systems since November 1990, and Chairman of the Board since April 1991. Delfin
Systems is a privately-held developer and supplier of information systems,
products and services for government and commercial markets. Mr. Baird also
serves as a director of EDO Corporation. From September 1986 to December 1987,
Mr. Baird served as President, Chief Operating Officer and a director of
Tracor, Inc., and from January 1988, after Tracor, Inc. became a subsidiary of
privately-held Westmark Systems, Inc., until December 1989, he served as
President and Chief Executive Officer of this diversified technological
products and services company. Mr. Baird served as President of the Defense and
Electronics Group of Eaton Corporation from 1982 to September 1986.
There is currently a vacancy in this class of directors. The Board of
Directors is seeking an appropriate candidate to fill this vacancy.
Term expires in 1999
Richard G. Sims, age 43, is a co-founder of the Company and has been a
director of the Company since 1983. In April 1996, Mr. Sims assumed the
position of Senior Vice President with responsibility for the Company's
Asia/Pacific expansion and operations. He is also integrally involved with
internal information systems design. From 1983 to March 1996, Mr. Sims served
as President of the Company. From 1980 to 1983, Mr. Sims served as controller
for International Power Machines ("IPM"), a publicly-held manufacturer of
uninterruptible power supply systems for mainframe computers. Prior to joining
IPM, Mr. Sims served as controller for Sue Ann, Inc., a publicly-held women's
sportswear manufacturer, and as a staff accountant for Coopers & Lybrand LLP.
Mr. Sims is a Certified Public Accountant. Mr. Sims is married to Judy Sims.
Carl S. Ledbetter, age 48, has been a director of the Company since
November 1996. Mr. Ledbetter has served as Chairman, President and Chief
Executive Officer of Hybrid Networks, an innovator and leader in the broadband
access industry since 1996. From 1993 to 1996, Mr. Ledbetter was President of
Consumer Products at AT&T, and from 1991 to 1993 was employed at Sun
Microsystems, Inc. where he initially served as a General Manager of Sun Select
and later served as a Vice President. In such positions he managed Sun
Microsystems, Inc.'s fast-growing networking business. Prior to 1991, Mr.
Ledbetter held various positions with technology companies, including Decision
Point Consulting, Control Data Corporation, Prime Computer and IBM Corporation.
-5-
<PAGE> 8
MEETINGS AND COMMITTEES OF BOARD OF DIRECTORS
The Board of Directors of the Company has an Audit Committee which is
currently composed of Messrs. Baird and Ledbetter. The Committee held three
meetings during fiscal year 1997. The functions performed by the Audit
Committee include (i) making recommendations concerning the Company's
independent auditors, (ii) reviewing and approving the scope of the annual
audit plan for the Company and (iii) periodically interviewing the Company's
independent public accountants in order to analyze the strengths and weaknesses
of the Company's financial staff and systems and the adequacy of its internal
controls.
The Board of Directors of the Company has a Compensation Committee
which is currently composed of Messrs. Tindle and Baird. The Committee held
five meetings during fiscal year 1997. The functions performed by the
Compensation Committee include (i) periodically establishing the compensation
paid to officers of the Company and reporting its determinations to the Board
of Directors concerning such compensation and (ii) administering the Company's
1993 Long Term Incentive Plan.
The Company's Board of Directors held seven meetings during fiscal
year 1997 and acted by written consent on two occasions. Each director attended
during the year at least 75% of the aggregate of (i) the total number of
meetings held by the Board and (ii) the total number of meetings held by all
committees on which he served.
-6-
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table shows all cash compensation paid by the Company
during the fiscal year ended April 30, 1997 and the fiscal years ended March
31, 1996 and 1995 to the Chief Executive Officer and the other four most highly
compensated executive officers of the Company (the "Named Officers").
<TABLE>
<CAPTION>
==============================================================================================
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------------------------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS ($) (1) OPTIONS (#) COMPENSATION($)(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Judy O. Sims 1997 425,000 121,125 25,000 1,605
Chairman of the 1996 300,000 125,000 20,000 2,745
Board, Chief 1995 215,000 145,000 20,000 4,408
Executive Officer
and President
Keith R. Coogan 1997 250,000 62,688 15,000 2,815
Executive Vice 1996 162,500 63,566 10,000 5,279
President - Chief 1995 130,000 68,273 10,000 6,422
Operating Officer
Roger J. King 1997 165,000 80,516 10,000 2,815
Vice President of 1996 145,000 91,073 10,000 32,547(3)
Sales and Marketing 1995 136,000 95,499 10,000 72,345(3)
Deborah A. Nugent 1997 160,000 28,500 10,000 2,815
Vice President of 1996 136,000 33,167 10,000 5,279
Finance 1995 130,000 37,659 10,000 4,297
Richard G. Sims 1997 170,000 10,000 10,000 1,211
Senior Vice 1996 215,000 90,625 15,000 2,534
President 1995 190,000 126,000 15,000 4,235
==============================================================================================
</TABLE>
(1) For the 1997 fiscal year, the portion of the bonus payable pursuant to
the annual performance pay plan for all executive officers provided
for a potential payment of $599,000 to all executive officers as a
group, of which only $216,125 was paid.
(2) Except as otherwise noted, principally represents amounts accrued for
the Named Officers under the Company's Savings and Profit Sharing
Plan.
(3) Includes approximately $27,000 and $65,000 in 1996 and 1995,
respectively, in payments associated with Mr. King's temporary
relocation and assignment to The Netherlands.
-7-
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of
stock options during the fiscal year ended April 30, 1997 to the Named
Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
---------------------------------------------------------------- PRICE APPRECIATION
% OF TOTAL OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- -------------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Judy O. Sims 25,000 16.50% 23.50 6/14/02 200,000 453,000
Keith R. Coogan 15,000 9.90% 23.50 6/14/02 120,000 272,000
Roger J. King 10,000 6.60% 23.50 6/14/02 80,000 181,000
Deborah A. Nugent 10,000 6.60% 23.50 6/14/02 80,000 181,000
Richard G. Sims 10,000 6.60% 23.50 6/14/02 80,000 181.000
</TABLE>
In determining option grants for the 1998 fiscal year, the
Compensation Committee awarded stock options to executive officers and key
employees at the market price of the Company's Common Stock on July 15, 1997,
$12.875 per share. Each of the grants to the Named Officers was made on the
condition that the stock options granted to the Named Officers on June 14, 1996
be surrendered and cancelled. Each of the Named Officers has agreed to
surrender such options in exchange for the following number of replacement
options: Judy O. Sims - 25,000; Keith R. Coogan - 20,000; Roger J. King -
13,000; Deborah A. Nugent - 13,000; and Richard G. Sims - 13,000.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of
stock options during the fiscal year ended April 30, 1997 by the Named Officers
and the estimated values of unexercised options held by such individuals at
fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
------------------------------ -----------------------
SHARES
ACQUIRED ON VALUE UNEXER- UNEXER-
EXERCISE (#) REALIZED ($) EXERCISABLE CISABLE EXERCISABLE CISABLE
------------ ------------ ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Judy O. Sims -0- -0- 27,000 63,000 14,000 21,000
Keith R. Coogan -0- -0- 15,000 35,000 7,000 10,500
Roger J. King -0- -0- 15,000 30,000 7,000 10,500
Deborah A. Nugent 2,000 28,000 18,000 28,000 0 10,500
Richard G. Sims -0- -0- 21,000 39,000 10,500 15,750
</TABLE>
MANAGEMENT CONTINUITY AGREEMENTS
The Company has entered into Management Continuity Agreements with
each of its executive officers, other than Judy Sims and Richard Sims. The
Management Continuity Agreements specify terms of employment, including
provision for severance benefits, for a covered executive following a change of
control.
The purpose of the Management Continuity Agreements is to serve the
best interests of the Company and its shareholders by providing incentives for
a covered executive, to both render impartial advice and services during the
pendency of a takeover proposal and to be available and render services during
at least a crucial four-month transition period following a change of control.
Although, the agreement is entered into before a change of control,
the term of the Management Continuity Agreements do not begin, and the
Management Continuity Agreements do not become effective, until a change of
control occurs. The agreement provides continued employment for a two year term
commencing upon a change of control on terms equivalent to the terms of
employment existing immediately before the change of control. The terms of
employment covered include position, responsibilities, compensation and
benefits. If such employment is prematurely terminated by the Company without
"cause" or by the executive during the term of the agreement for "good reason"
or during a 60-day "window period" after the first four months, then the
executive would become entitled to a specific
-8-
<PAGE> 11
severance payment. The agreements renew annually, but before a change of
control occurs or is contemplated, the Company has the ability to terminate the
agreements once each year by giving at least 60-days advance written notice to
the executive.
The Management Continuity Agreements, subject to certain exceptions,
define a change of control to encompass any of the following events: (i) the
acquisition of 50% or more of the Company's stock by a person or group, (ii) a
change in a majority of the board of directors of the Company (other than a
change approved by the incumbent board), (iii) approval by the shareholders of
the Company of a reorganization, merger or consolidation, or (iv) approval by
the shareholders of the Company of a liquidation or dissolution or sale of all
or substantially all of the assets of the Company.
Exceptions are provided, among other things, for acquisitions of
Company stock by the Company or Company employee benefit plans and acquisitions
of Company stock directly from the Company, as well as for transactions in
which existing shareholders of the Company maintain effective control.
The Management Continuity Agreements permit a covered executive to
collect severance benefits following a change of control if the covered
executive terminates employment for good reason or during a 60-day window
period four months after a change of control or if employment of the executive
is terminated by the employer without cause. Good reason is defined in the
agreements to include reductions in compensation or benefits, diminution of
duties and any material relocation. Cause is defined as a material breach of
obligations of employment not cured after notice or a conviction for a felony
involving moral turpitude.
Additionally, the agreements provide an incentive and reward for an
executive to remain with the Company for a full year after a change of control
through a special bonus provision. Because of the Company's quarterly bonus
system, the agreements provide that periodic quarterly bonuses will be defined
as part of the executive's base salary as if all requirements for such bonus
had been met.
If the executive remains in the employ of the Company for four months
after a change of control and then chooses to leave during a 60-day window
period; if the executive is terminated other than for cause during a period of
two years after a change of control; if the executive leaves for good reason
(such as a reduction in salary or position) during the period of two years
after a change of control; then the executive would receive 1.5 times the
executive's annual base salary and bonus.
If the executive stays in the employ of the Company through the first
anniversary of a change of control (with continued employment agreement
protection for one additional year); the executive would receive a financial
bonus equal to the executive's annual base salary and bonus (payable whether or
not employment is terminated thereafter). If the executive is terminated
because of a disability during a period of two years after a change of control,
the executive would receive the greater of (i) 1.5 times the executive's annual
base salary and bonus or (ii) any disability benefits then provided by the
Company. If the executive dies during employment during a period of two years
after a change of control, the executive's estate would receive the greater of
(i) 1.5 times the executive's annual base salary and bonus or (ii) any death
benefits then provided by the Company. The executive would receive no severance
benefits if the executive is terminated by the Company for cause during a
period of two years after a change of control. The agreements provide that an
executive will be reimbursed for any legal expenses incurred in litigating
rights under the agreements regardless of whether such litigation is
successful.
COMPENSATION OF DIRECTORS
The Company pays each outside director an annual retainer of $15,000,
payable in quarterly installments for service as a member of the Board of
Directors. Pursuant to the Non-Employee Directors' Retainer Stock Plan, the
outside directors may elect to receive all or a portion of their annual
retainer fees in the form of Common Stock of the Company, or to defer receipt
of a portion of such fees and have the deferred amounts treated as if invested
in Common Stock.
The Company also pays each outside director a fee of $1,000 for
attendance at each meeting of the Board of Directors, and $800 for each
committee meeting attended. In addition, the Company grants to each of its
non-employee directors options to purchase 2,000 shares of Common Stock for
each year of service, exercisable at the
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<PAGE> 12
fair market value of the Common Stock on the date of grant. Such options are
granted under the Company's 1993 Long Term Incentive Plan. The Company's
outside directors are reimbursed by the Company for their travel expenses
incurred in connection with their attendance at meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank Tindle, who serves as a member of the Compensation Committee of
the Board of Directors, served as Vice President of the Company from 1983
through April 1, 1992.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission reports of ownership and changes in
ownership of Common Stock of the Company. Executive officers, directors and
greater than ten-percent shareholders are required by regulations of the SEC to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended April 30, 1997, all Section
16(a) filing requirements applicable to its executive officers, directors and
greater than ten-percent beneficial owners were observed except that Form 3's
for Lisa Stewart, Vice President of Customer Operations, and Carl S. Ledbetter,
Director, were filed late.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is currently composed of two outside directors of the Company. The Committee
establishes salary levels and performance pay plans for executive officers and
reports its determination to the Board of Directors. The Committee also
administers the Company's 1993 Long Term Incentive Plan and determines grants
under it for all employees including executive officers. Prior to the adoption
of the 1993 Long Term Incentive Plan in August 1993, the Committee received
recommendations from the Stock Option Committee regarding those executive
officers who were eligible for grants under the Company's 1989 Stock Option
Plan.
Compensation Philosophy
The compensation philosophy for executive officers generally conforms
to the compensation philosophy of the Company for all employees. The Company's
compensation is designed to:
o provide compensation comparable to that offered by companies
with similar businesses or of similar size, allowing the
Company to successfully attract and retain the employees
necessary to its long-term success;
o provide compensation which relates to the performance of the
individual and differentiates based upon individual
performance;
o provide incentive compensation that varies directly with both
Company performance and individual contribution to that
performance; and
o provide an appropriate linkage between compensation and the
creation of shareholder value through awards tied to the
Company's performance and through facilitating employee stock
ownership.
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<PAGE> 13
The following is a report submitted by the Committee addressing the
Company's compensation policies as they relate to the Company's executive
officers for the fiscal year ended April 30, 1997.
In setting compensation for executive officers, the Committee
considers the relationship between executive pay and the enhancement of
shareholder value, as well as the need to motivate and retain key employees.
Further, the Committee operates within the overall philosophy of the Company,
which stresses teamwork, fairness, and the overall emphasis on cost control,
which includes compensation expense. To achieve the basic goals of the
Company's compensation policies, the Committee establishes annual compensation
for each of the executive officers, including base salary, discretionary
quarterly performance pay plans for all executive officers other than the CEO
and Senior Vice President, and an annual performance pay plan for all executive
officers. The Committee receives recommendations from the Chief Executive
Officer ("CEO") concerning base salary, performance pay plans and grants under
the 1993 Long Term Incentive Plan for all executive officers other than the CEO
and Senior Vice President.
The Committee establishes the compensation for the executive officers
by also considering the salaries and other benefits, including stock-based
incentive grants, of executive officers in comparable companies according to
data obtained by the Committee from independent sources. The Committee believes
that an individual officer's personal performance as well as the Company's
financial performance should be appropriately weighted in determining
compensation for executive officers. Consequently, the annual performance pay
plans are significant components of the overall compensation of each executive
officer of the Company.
The discretionary quarterly performance pay plan, which is applicable
to all executive officers except the CEO and the Senior Vice President, relates
to the executive's ability to achieve certain objectives during each quarter of
the Company's fiscal year. This performance payment is paid quarterly, and is
dependent upon the executive's ability to achieve the particular goals
established for that individual as evaluated by either the CEO or Executive
Vice President. Additionally, the Company's Vice President of Sales and
Marketing and Vice President of Customer Operations are subject to a quarterly
performance pay plan dependent upon the Company's attainment of specified gross
profit goals during each quarter of the fiscal year.
The annual performance pay plan, which is applicable to all executive
officers including the CEO and the Senior Vice President, includes two
components, an individual performance component for each officer and an overall
Company financial performance component. The individual performance component
is weighted towards a subjective evaluation by the Committee, with the input
and advice of the CEO for all executive officers other than the CEO and Senior
Vice President, relating to each individual's performance in his or her
position with the Company. The subjective individual performance component of
these discretionary payments reflects various criteria, including the
performance of those departments under the management of the officer and
effective implementation and achievement of strategic goals.
The component of the annual performance pay plan that is based upon
the Company's financial performance is calculated by comparing the Company's
financial results for the year with previously determined, internally
established financial goals. The financial goals are established by the
Committee at the beginning of the fiscal year by taking into consideration the
Company's prior financial performance, current established financial
objectives, the performance of other companies within the Company's industry
and recommendations from the CEO. The Committee considers the Company's net
earnings, earnings per share and revenue growth in establishing financial
goals. Fifty percent of the total incentive compensation available under the
annual performance pay plan for the fiscal year 1997 was tied directly to the
Company's financial performance and growth. For the 1997 fiscal year, the
Company did not achieve its financial performance and growth goals and, as a
result, no payments of the financial incentive compensation component of the
annual performance plan were made to the executive officers.
For the 1997 fiscal year, the annual performance pay plan for all
executive officers provided for a potential payment of $599,000 to all
executive officers as a group, of which only $216,125 was paid.
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<PAGE> 14
The Committee believes that incentives based upon the Company's stock
performance are an important component of each of the executive officer's
overall compensation package. The Committee believes that the number of stock
options to be granted to each officer should be determined by a subjective
evaluation of each executive officer's ability to influence the Company's
long-term growth and profitability. During fiscal 1997, the Committee
recommended and the Company granted options to the executive officers as set
forth in the Executive Compensation Table herein. Since the value of an option
bears directly to the Company's stock price, the committee believes that option
grants are an effective incentive for executive officers to create value for
the shareholders.
Mellon C. Baird and Frank Tindle
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
return of the Company's Common Stock, the Nasdaq National Market (U.S.
Companies) and an index of Nasdaq Stocks under SIC 504, a broad index including
Computers, Computer Peripherals and Software, prepared by the University of
Chicago's Center for Research in Security Prices. The graph assumes an initial
investment of $100 on March 31, 1992, and the reinvestment of dividends, if
any.
[CHART]
<TABLE>
<CAPTION>
======================================================================================================
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 4/30/97
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Software Spectrum, Inc. 100.0 110.6 70.6 78.8 95.3 64.7
- ------------------------------------------------------------------------------------------------------
NASDAQ Stock Market - (U.S.) 100.0 115.0 124.1 138.0 187.4 215.2
- ------------------------------------------------------------------------------------------------------
NASDAQ Stocks - SIC 504 100.0 96.5 99.7 80.9 100.6 79.2
======================================================================================================
</TABLE>
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<PAGE> 15
CERTIFIED PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended April 30,
1997 have been audited by Grant Thornton LLP, independent auditors ("Grant
Thornton"), and the Board of Directors has selected Grant Thornton to audit and
report on the financial statements of the Company for the current fiscal year,
which will end on April 30, 1998. A representative of Grant Thornton is
expected to be present at the Annual Meeting with an opportunity to make a
statement, and such representative is expected to be available to respond to
appropriate questions.
SHAREHOLDERS' PROPOSALS
Any proposal by a shareholder of the Company intended to be presented
at the 1998 Annual Meeting of Shareholders must be received by the Company at
its principal executive office by April 20, 1998 to be considered for inclusion
in the Company's Proxy Statement and form of proxy. Any such proposal must also
comply with the other requirements of the proxy solicitation rules of the
Securities and Exchange Commission.
ANNUAL REPORT
The Company's 1997 Annual Report to Shareholders is being mailed to
all shareholders of record together herewith.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDING APRIL 30, 1997, UPON THE WRITTEN
REQUEST OF ANY PERSON WHO WAS A SHAREHOLDER (OF RECORD OR BENEFICIALLY) AT THE
CLOSE OF BUSINESS ON JULY 31, 1997. REQUESTS FOR SUCH REPORT SHOULD BE DIRECTED
TO THE COMPANY AT 2140 MERRITT DRIVE, GARLAND, TEXAS 75041, ATTENTION: ROBERT
D. GRAHAM, SECRETARY.
OTHER MATTERS
The Company is not aware of any matters that may come before the
Annual Meeting other than those referred to in the Notice of Annual Meeting of
Shareholders. If any other matters shall properly come before the meeting, the
persons named in the accompanying proxy form intend to vote thereon in
accordance with their best judgment.
By Order of the Board of Directors
ROBERT D. GRAHAM
Secretary
Garland, Texas
August 15, 1997
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY.
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<PAGE> 16
Appendix A
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SOFTWARE SPECTRUM, INC.
ANNUAL MEETING OF SHAREHOLDERS -- SEPTEMBER 18, 1997
The undersigned hereby appoints Judy O. Sims and Robert D. Graham and
each of them with full power of substitution, attorneys, agents and proxies of
the undersigned to vote as directed below the shares of stock which the
undersigned would be entitled to vote, if personally present, at the Annual
Meeting of Shareholders of Software Spectrum, Inc. (the "Company") to be held
at the offices of the Company, 2140 Merritt Drive, Garland, Thursday, September
18, 1997 at 10:00 a.m. Dallas time, and at any adjournment or adjournments
thereof. If more than one of the above attorneys shall be present in person or
by substitution at such meeting or at any adjournment thereof, both of said
attorneys so present and voting, either in person or by substitution, shall
exercise all of the powers hereby given. The undersigned hereby revokes any
proxy or proxies heretofore given to vote upon or act with respect to such
shares of stock and hereby ratifies and confirms all that said attorneys, their
substitutes, or any of them, may lawfully do by virtue hereof.
1. Election of Directors
[ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY
to vote for the nominees listed below
Judy O. Sims Frank Tindle
2. In their discretion on such other matters as may properly come before
the meeting.
<PAGE> 17
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Signature(s):
----------------------------------
----------------------------------
Date Signed:
----------------------------------
Please sign exactly as your name appears on
the proxy. If your stock is jointly owned,
both parties must sign. Fiduciaries and
representatives should so indicate when
signing, and when more than one is named, a
majority should sign. If signed by a
corporation, its seal should be affixed.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
