<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Software Spectrum, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(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>
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 17, 1998
TO THE SHAREHOLDERS OF SOFTWARE SPECTRUM, INC.
The Annual Meeting of Shareholders of Software Spectrum, Inc. (the
"Company") will be held on Thursday, September 17, 1998, 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;
2. To approve the adoption of the Company's 1998 Long Term Incentive
Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
Information regarding the matters to be acted upon at the annual meeting is
contained in the Proxy Statement attached to this Notice.
Only shareholders of record at the close of business on August 13, 1998 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 17, 1998
<PAGE>
SOFTWARE SPECTRUM, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 17, 1998
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 at the
Company's offices located at 2140 Merritt Drive, Garland, Texas on Thursday,
September 17, 1998, 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 has retained ChaseMellon Shareholder Services L.L.C. to
assist in the solicitation of proxies for a fee of $5,000 plus reimbursement of
expenses. 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, $.01 par value per share, of the
Company (the "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 17, 1998.
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 August 13, 1998
will be entitled to vote on matters presented at the Annual Meeting or any
adjournment(s) thereof. The stock transfer books will not be closed. At the
record date, there were outstanding and entitled to be voted 4,268,931 shares of
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. Abstentions and broker non-votes are not counted
in the election of directors and will have no effect on such election except
to the extent they affect the total votes received by a candidate. On
matters other than the election of directors, however, 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 August 13, 1998. 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>
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth as of July 15, 1998, 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>
Name and Address Shares Percent
of Beneficial Owner Beneficially Owned(1) of Class
- ------------------- --------------------- --------
<S> <C> <C>
Judy O. Sims (2) 432,132 (9) 9.87%
Richard G. Sims (2) 432,132 (10) 9.87
Private Capital Management, Inc. 842,054 (11) 19.73
and Bruce S. Sherman (3)
Morton H. Sachs & Company, 436,775 (12) 10.23
DBA The Sachs Company (4)
Merrill Lynch & Co., Inc. (5) 305,200 (13) 7.15
Dimensional Fund Advisors (6) 251,700 (14) 5.90
Wellington Trust Company, NA (7) 237,500 (15) 5.56
State Retirement and Pension System 221,000 (16) 5.18
of Maryland (8)
</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 3003 Tamiami Trail North, Naples,
Florida 33940.
(4) The named person's address is 1346 South Third Street, Louisville, Kentucky
40208.
(5) The named person's address is World Financial Center, North Tower, 250
Vesey Street, New York, New York 10281.
(6) The named person's address is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
(7) The named person's address is 75 State Street, Boston, Massachusetts 02109.
(8) The named person's address is 301 West Preston Street, Baltimore, Maryland
02101.
(9) Includes 13,668 shares owned of record by the named person's spouse, 63,000
shares which are subject to options held by the named person and 46,200
shares which are subject to options held by the named person's spouse, all
of which are exercisable within 60 days of July 15, 1998.
(10) Includes 309,264 shares owned of record by the named person's spouse,
46,200 shares which are subject to options held by the named person and
63,000 shares which are subject to options held by the named person's
spouse, all of which are exercisable within 60 days of July 15, 1998.
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<PAGE>
(11) This information is based on a Schedule 13G/A of Private Capital
Management, Inc. ("PCM"), SPS Partners, L.P. ("SPS"), Bruce S. Sherman and
certain other persons, dated February 17, 1998. Mr. Sherman is president
of PCM and managing general partner of SPS and exercises shared dispositive
power with each such entity.
(12) This information is based on a Schedule 13G of Morton H. Sachs & Company,
DBA The Sachs Company, dated July 8, 1998. The Sachs Company is an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940.
(13) This information is based on a Schedule 13G/A of Merrill Lynch & Co., Inc.,
dated February 5, 1998. Merrill Lynch & Co., Inc. disclaims beneficial
ownership of such shares pursuant to Section 240.13d-4 of the Securities
Exchange Act of 1934.
(14) This information is based on a Schedule 13G of Dimensional Fund Advisors,
dated February 10, 1998. Dimensional Fund Advisors is an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940 and disclaims beneficial ownership of such shares.
(15) This information is based on a Schedule 13G of Wellington Trust Company,
NA, dated February 12, 1998.
(16) This information is based on a Schedule 13G of the State Retirement
and Pension System of Maryland, dated February 17, 1998.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of July 15, 1998 information as to the
beneficial ownership of Common Stock by each director and nominee (except Ms.
Sims, 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 by all directors and executive
officers as a group (including Ms. Sims).
<TABLE>
Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Class
- ------------------------ --------------------- --------
<S> <C> <C>
Frank Tindle, Director 151,277 (2) 3.53%
Mellon C. Baird, Director 9,000 (3) *
Carl S. Ledbetter, Director 4,811 (4) *
Keith R. Coogan, President and
Chief Operating Officer 33,008 (5) *
Roger J. King, Executive Vice President of
Sales and Marketing 58,219 (6) 1.35
Robert D. Graham, Vice President
Strategic Relationships, General
Counsel and Secretary 6,860 (7) *
All directors and executive officers
as a group (10 persons) 708,356 (8) 15.83%
</TABLE>
- ---------------------
* Indicates less than one percent.
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<PAGE>
(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) 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 7,000 shares which are subject to options
exercisable within 60 days of July 15, 1998.
(3) Includes 8,000 shares which are subject to options exercisable within
60 days of July 15, 1998.
(4) Includes 4,000 shares which are subject to options exercisable within
60 days of July 15, 1998.
(5) Includes 27,000 shares which are subject to options exercisable within
60 days of July 15, 1998.
(6) Includes 34,200 shares which are subject to options exercisable within
60 days of July 15, 1998.
(7) Includes 5,200 shares which are subject to options exercisable within
60 days of July 15, 1998.
(8) Includes 206,200 shares which are subject to options exercisable within
60 days of July 15, 1998.
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 their respective
successors are elected and qualified; (2) for the adoption of the 1998 Long Term
Incentive Plan; and (3) in the transaction of such other business as may
properly come before the Annual Meeting or any adjournment(s) thereof.
Management knows of no matters, other than the foregoing, to be presented
for consideration at the Annual Meeting. If, however, any other matters
properly come before the Annual Meeting or any adjournment(s) thereof, it is the
intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on any such matters.
PROPOSAL ONE
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
1998 Annual Meeting of Shareholders, the term of the second class expires at the
1999 Annual Meeting of Shareholders and the term of the third class expires at
the 2000 Annual Meeting of Shareholders.
Two directors will be elected at the Annual Meeting. The directors to be
elected at the Annual Meeting will hold office for a term of three years and
will serve until their respective successors are 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 serving as directors of the Company and have served as such since
the dates indicated. Further information with respect to each nominee and the
other directors continuing in office is set forth below.
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<PAGE>
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
persons 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 plurality of the shares entitled to vote on the election of
directors and represented in person or by proxy at the Annual Meeting is
required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES.
NOMINEES FOR DIRECTOR
TERM EXPIRES IN 1998
Mellon C. Baird, age 67, 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 and of Hawker Pacific Aerospace. 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.
Keith R. Coogan, age 46, was elected by the Board of Directors to fill a
vacancy in this class of directors of the Company in August 1998. Mr. Coogan
was named President in May 1998 and has been Chief Operating Officer since April
1996. Mr. Coogan served as Executive Vice President of the Company from April
1996 to May 1998 and had been a Vice President of the Company since October
1990. Mr. Coogan served as Secretary of the Company from May 1991 through July
1992 and as Treasurer from October 1990 to March 1992. 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.
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRES IN 1999
Carl S. Ledbetter, age 49, 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.
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 2000
Judy O. Sims, age 45, 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, 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
-5-
<PAGE>
July 1992. From April 1996 to May 1998, Ms. Sims also served as 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.
Frank Tindle, age 46, 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.
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 four
meetings during fiscal year 1998. 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, (iii) reviewing internal audit controls, risk management,
and the effectiveness of the Company's programs for implementing audit
recommendations, and (iv) 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 four
meetings during fiscal year 1998. 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 five meetings during fiscal year 1998
and acted by written consent on one occasion. 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.
PROPOSAL TWO
ADOPTION OF
THE 1998 LONG TERM INCENTIVE PLAN
In 1993, the Company adopted the 1993 Long Term Incentive Plan (the "1993
Plan"), which provides for the grant of stock options, restricted shares of
Common Stock, performance units and stock appreciation rights to key employees
of the Company. As adopted, the maximum aggregate number of shares of Common
Stock with respect to which options, restricted shares and rights granted
without accompanying options may be granted under the 1993 Plan was 300,000. In
1995, the 1993 Plan was amended to increase this number to 600,000 shares of
Common Stock. At April 30, 1998, 142,400 shares of Common Stock remained
available for future grant under the 1993 Plan. On July 1, 1998, the
Compensation Committee of the Board of Directors granted options for 115,600
shares of Common Stock to key employees of the Company, thereby reducing the
available shares of Common Stock for future grant. At July 30, 1998, 568,450
shares had been allocated under the 1993 Plan, leaving 31,550 shares of Common
Stock available for future grant.
On July 31, 1998, the Board of Directors unanimously adopted and
recommended for shareholder approval the 1998 Long Term Incentive Plan (the
"1998 Plan"). The purpose of adopting the 1998 Plan is to make additional
shares of Common Stock available for award to key employees. A summary of the
1998 Plan is set forth below. This summary is qualified in its entirety by
reference to the full text of the 1998 Plan, which is attached to this Proxy
Statement as Appendix A.
The Board of Directors believes that the use of long-term incentives based
on the value of the Company's Common Stock is necessary to attract and retain
key employees, to motivate key employees to achieve long-range goals and to
provide compensation opportunities that are competitive with those offered by
other corporations. The adoption of the 1998 Plan has been proposed in order to
enable the Company to continue to provide stock-based incentives to key
employees.
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<PAGE>
DESCRIPTION OF THE PLAN
SCOPE. The 1998 Plan authorizes the grant of incentive stock options and
non-qualified stock options to purchase Common Stock, stock appreciation rights,
restricted stock and performance units, to key employees of the Company. The
purpose of the 1998 Plan is to attract and retain skilled, qualified executives
and key employees to motivate them to achieve long-range goals and to further
identify their interests with those of the other shareholders of the Company.
The 1998 Plan authorizes the award of 200,000 shares of Common Stock, to be
used for stock options, stock appreciation rights, restricted stock or
performance units. If an award made under the 1998 Plan expires, terminates or
is forfeited or settled in cash, without issuance of shares of Common Stock
covered by the award, those shares will be available for future awards under the
1998 Plan. The 1998 Plan will terminate on July 31, 2008.
ADMINISTRATION. The 1998 Plan may be administered by, or under the
direction of, the Board of Directors or, if directed by the Board of Directors,
the Compensation Committee (the Board of Directors or, if applicable, the
Compensation Committee is referred to herein as the "Compensation Committee").
Subject to the provisions of the 1998 Plan, the Compensation Committee will have
authority to select employees to receive awards, to determine the time or times
of receipt, to determine the types of awards and the number of shares covered by
the awards, to establish the terms, conditions and provisions of such awards, to
determine the value of performance units and to accelerate or extend the
exercisability of outstanding awards. In making such award determinations, the
Compensation Committee may take into account the nature of services rendered by
the employee, his or her present and potential contribution to the Company's
growth and success and such other factors as the Compensation Committee deems
relevant. All officers and full time employees of the Company, consisting of
approximately 2,000 persons as of June 30, 1998, are eligible to receive awards
under the 1998 Plan. The Compensation Committee is authorized to accelerate or
extend the period of exercisability of awards after they have been granted, to
interpret the 1998 Plan, to establish, amend, and rescind any rules and
regulations relating to the 1998 Plan, to determine the terms and provisions of
any agreements made pursuant to the 1998 Plan, and to make all other
determinations that may be necessary or advisable for the administration of the
1998 Plan.
ELIGIBILITY. Executives and other key full-time employees of the Company
and its subsidiaries may be selected by the Compensation Committee to receive
awards under the 1998 Plan. The 1998 Plan provides that no more than 50,000
shares of Common Stock may be subject to awards granted per year to any one
employee participating in the 1998 Plan. In the discretion of the Compensation
Committee, an eligible employee may receive an award in the form of a stock
option, stock appreciation right, restricted stock award or performance unit or
any combination thereof, and more than one award may be granted to an eligible
employee.
STOCK OPTIONS. The 1998 Plan authorizes the award of both incentive
stock options (the "ISOs") and non-qualified stock options. Under the 1998
Plan, an option may be exercised at any time during the exercise period
established by the Compensation Committee, except that: (i) no option may be
exercised after employment with the Company and its subsidiaries terminates
by reason other than death or disability; and (ii) no option may be exercised
more than 12 months after employment with the Company and its subsidiaries
terminates by reason of death or disability. The aggregate fair market value
(determined at the time of the award) of the Common Stock with respect to
which ISOs are exercisable for the first time by any employee during any
calendar year may not exceed $100,000. The term of each option is determined
by the Compensation Committee and such term may be extended by the
Compensation Committee, provided that the term may not exceed ten years from
the date of grant. The exercise price of options is determined by the
Compensation Committee, but the exercise price cannot be less than the fair
market value of the Common Stock on the date of the grant. The exercise
price of options may be paid in cash or, unless restricted by the
Compensation Committee, in shares of Common Stock. In addition, the exercise
price of non-qualified options may be paid, unless restricted by the
Compensation Committee, through the Company's withholding of shares of Common
Stock that would otherwise be issuable upon the exercise of such options.
Grants of options do not entitle any optionee to any rights as a shareholder,
and such rights will accrue only as to shares actually purchased through the
exercise of an option.
Under the 1998 Plan, a holder of non-qualified stock options is permitted
to make gifts or other non-compensated transfers of options and rights among a
limited class of permitted transferees, consisting of family
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<PAGE>
members or trusts or partnerships for family members.
STOCK APPRECIATION RIGHTS. The 1998 Plan authorizes the grant of stock
appreciation rights ("SARs") in tandem with options. SARs entitle the holder to
receive an amount equal to the difference between the fair market value of a
share of Common Stock at the time of exercise of the SAR and the option price,
multiplied by the number of shares of Common Stock subject to the option as to
which the SAR is being exercised (subject to the terms and conditions of the
option). SARs may be exercised at any time when the option to which it relates
may be exercised and will terminate no later than the date on which the right to
exercise the tandem option terminates. The holder has the discretion to
determine whether the exercise of SARs will be settled in cash, in Common Stock
(valued at its fair market value at the time of exercise) or in a combination of
the two. The exercise of a SAR requires the surrender of the tandem option, and
the exercise of a stock option requires the surrender of the tandem SAR, if any.
If a SAR, or the corresponding option with which the SAR was awarded, is
not exercised prior to the date that it ceases to be exercisable, then such SAR
generally shall be deemed exercised as of such date and shall be paid to the
holder in cash.
RESTRICTED STOCK. Restricted stock awards are grants of Common Stock made
to eligible employees subject to a required period of employment following the
award (the "Restricted Period") and any other conditions established by the
Compensation Committee. A participant will become the holder of shares of
restricted stock, free of all restrictions, if he or she completes the
Restricted Period and satisfies any other conditions; otherwise, the shares will
be forfeited. Under the 1998 Plan, the Restricted Period may not be more than
ten years. The holder will have the right to vote the shares of restricted
stock and, unless the Compensation Committee determines otherwise, will have the
right to receive dividends on the shares during the Restricted Period. The
holder may not sell, pledge or otherwise encumber or dispose of restricted stock
until the conditions imposed by the Compensation Committee have been satisfied.
The Compensation Committee may accelerate the termination of the Restricted
Period or waive any other conditions with respect to any restricted stock,
however, in no case will the Restricted Period be less than one year.
PERFORMANCE UNITS. Performance units are awards that entitle the holders
to receive a specified value for the units at the end of a performance period
established by the Compensation Committee if performance measures established by
the Committee at the beginning of the performance period are met. Although the
performance measures and performance period will be determined by the
Compensation Committee at the time of the award of performance units, they may
be subject to such later revision as the Committee deems appropriate to reflect
significant events or changes. If the employment of a holder of a performance
unit with the Company or a subsidiary terminates by reason of death, disability
or retirement, then the Company will pay the employee or his or her beneficiary
or estate the amount of the performance unit earned as of the date of
termination. If the employment of a holder of a performance unit with the
Company or a subsidiary terminates for any other reason, then the performance
units held by such holder will automatically be forfeited.
ADJUSTMENTS. In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend, split, spinoff, recapitalization,
merger, consolidation, combination, exchange of shares or other similar change,
the aggregate number of shares with respect to which awards may be made under
the 1998 Plan, and the terms and the number of shares of any outstanding option,
SAR, performance unit or restricted stock, may be equitably adjusted by the
Compensation Committee at its sole discretion.
BUSINESS COMBINATIONS. In addition to the rights and obligations of the
Committee to modify, adjust or accelerate exercisability of outstanding awards,
in the event that, while any awards are outstanding under the 1998 Plan, there
shall occur (a) a merger or consolidation of the Company with or into another
corporation in which the Company shall not be the surviving corporation, (b) a
dissolution of the Company, or (c) a transfer of all or substantially all of the
assets or shares of stock of the Company in one transaction or a series of
related transactions to one or more other persons or entities, then, with
respect to each award outstanding immediately prior to the consummation of such
transaction and without the necessity of any action by the Compensation
Committee:
(i) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the awards granted under
the 1998 Plan, or the substitution for such awards of new options, rights,
restricted shares and performance units, with appropriate adjustment as to the
number and kind of shares or other securities deliverable with respect thereto,
the awards granted under the 1998 Plan, or the new options, rights, restricted
-8-
<PAGE>
shares and performance units, substituted therefor, shall continue, subject to
such adjustment, in the manner and under the terms provided in the respective
agreements.
(ii) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the awards granted under
the 1998 Plan, or for the substitution of equivalent awards, rights, restricted
shares and performance units, then each holder of an outstanding award shall be
entitled, immediately prior to the effective date of such transaction, to
purchase the full number of shares that he would otherwise have been entitled to
purchase during the entire remaining term of the option, the holder of any right
shall be entitled to exercise such right to the extent the related option
becomes exercisable, all restrictions on Restricted Stock shall lapse, and all
performance units shall be payable in full.
TERMINATION AND AMENDMENT. The 1998 Plan may be suspended, terminated or
amended by the Board of Directors, provided that no amendment of the 1998 Plan
and no action by the Board shall, without further approval of the stockholders
of the Company, increase the total number of shares of Common Stock with respect
to which awards may be made under the 1998 Plan, materially increase the
benefits accruing to participants under the 1998 Plan or materially modify the
requirements as to eligibility for participation in the 1998 Plan, if
stockholder approval of such amendment is a condition of Securities and Exchange
Commission Rule 16b-3, the Internal Revenue Code or the NASDAQ rules at the time
such amendment is adopted. No amendment, suspension or termination of the 1998
Plan shall alter or impair any option, SAR, share of restricted stock or
performance unit previously awarded under the 1998 Plan without the consent of
the holder thereof.
FEDERAL INCOME TAX CONSEQUENCES. The following summary of the federal
income tax consequences of the 1998 Plan is not comprehensive and is based on
current income tax laws, regulations and rulings.
INCENTIVE STOCK OPTIONS. An optionee does not recognize income on the
grant of an ISO. Subject to the effect of the alternative minimum tax,
discussed below, if an optionee exercises an ISO in accordance with the terms of
the option and does not dispose of the shares acquired within two years from the
date of the grant of the option nor within one year from the date of exercise,
the optionee will not realize any income by reason of the exercise and the
Company will be allowed no deduction by reason of the grant or exercise. The
optionee's basis in the shares acquired upon exercise will be the amount paid
upon exercise. Provided the optionee holds the shares as a capital asset at the
time of sale or other disposition of the shares, his gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of his gain or loss will be the difference between the amount realized on
the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term, mid-term or short-term capital gain, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset
at the time of the Early Disposition. If an optionee disposes of such shares
for less than his basis in the shares, the difference between the amount
realized and his basis will be a long-term or short-term capital loss, depending
upon the holding period of the shares, provided the optionee holds the shares as
a capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the ISO is
exercised over the exercise price for the shares is an amount included in an
optionee's alternative minimum taxable income (the "Stock Option Preference").
NON-QUALIFIED STOCK OPTIONS. Non-qualified stock options do not qualify
for the special tax treatment accorded to ISOs under the Internal Revenue Code.
Although an optionee does not recognize income at the time of the grant of the
option, he recognizes ordinary income upon the exercise of a non-qualified
option in an amount equal to the difference between the fair market value of the
stock on the date of exercise of the option and the amount of the exercise
price.
As a result of the optionee's exercise of a non-qualified stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. The Company's deduction will be
-9-
<PAGE>
taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise of
a non-qualified stock option over the exercise price is not an item of tax
preference.
TAXATION OF PREFERENCE ITEMS. Section 55 of the Internal Revenue Code
imposes an alternative minimum tax equal to the excess, if any, of (i) 26% of
the optionee's "alternative minimum taxable income" that does not exceed
$175,000, plus 28% of his "alternative minimum taxable income" in excess of
$175,000, over (ii) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option Preference
and any items of tax preference to the optionee's adjusted gross income and then
subtracting certain allowable deductions and an exemption amount. The exemption
amount is $33,750 for single taxpayers, $45,000 for married taxpayers filing
jointly, and $22,500 for married taxpayers filing separately. However, these
exemption amounts are phased out beginning at certain levels of alternative
minimum taxable income.
STOCK APPRECIATION RIGHTS. Recipients of SARs do not recognize income upon
the grant of such an award. When a participant elects to receive payment under
a SAR, he recognizes ordinary income in an amount equal to the cash and/or fair
market value of shares received, and the Company is entitled to a deduction
equal to such amount.
RESTRICTED STOCK; PERFORMANCE UNITS. Grantees of restricted stock and
performance units do not recognize income at the time of the grant of such stock
or units. However, when shares of restricted stock become free from any
restrictions or when performance units are paid, grantees recognize ordinary
income in an amount equal to the cash and the fair market value of the stock on
the date all restrictions are satisfied. Alteratively, the grantee of
restricted stock may elect to recognize income upon the grant of the stock and
not at the time the restrictions lapse.
CHANGE OF CONTROL. If there is an acceleration of the vesting of benefits
and/or an acceleration of the exercisability of stock options upon a Change of
Control (as defined in the 1998 Plan), all or a portion of the accelerated
benefits may constitute "excess parachute payments" under Section 280G of the
Internal Revenue Code. The employee receiving an excess parachute payment
incurs an excise tax of 20% of the amount of the payment in excess of the
employee's average annual compensation over the five calendar years preceding
the year of the Change of Control, and the Company is not entitled to a
deduction for such payment.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of entitled to vote on
this proposal and represented in person or by proxy is required for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1998
PLAN.
-10-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table shows all cash compensation paid by the Company
during the fiscal years ended April 30, 1998 and 1997, and the fiscal year
ended March 31, 1996 to the Chief Executive Officer and the other four most
highly compensated executive officers of the Company (the "Named Officers").
<TABLE>
- -------------------------------------------------------------------------------------------------
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 1998 460,000 213,750 25,000 477
Chairman of the 1997 425,000 121,125 25,000 (3) 1,605
Board and Chief 1996 300,000 125,000 20,000 2,745
Executive Officer
Keith R. Coogan 1998 270,000 122,500 20,000 746
President and Chief 1997 250,000 62,688 15,000 (3) 2,815
Operating Officer 1996 162,500 63,566 10,000 5,279
Roger J. King 1998 180,000 112,255 13,000 746
Executive Vice 1997 165,000 80,516 10,000 (3) 2,815
President of Sales 1996 145,000 91,073 10,000 32,547 (4)
and Marketing
Richard G. Sims 1998 180,500 30,000 13,000 269
Senior Vice 1997 170,000 10,000 10,000 (3) 1,211
President (5) 1996 215,000 90,625 15,000 2,534
Robert D. Graham 1998 170,000 40,000 13,000 0
Vice President 1997 49,583 (6) 10,877 (6) 10,000 (3) 0
Strategic 1996 0 0 0 0
Relationships,
General Counsel and
Secretary
</TABLE>
(1) For the 1998 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 $589,000 to all executive officers as a group, of
which $440,000 was paid.
(2) Except as otherwise noted, represents amounts accrued for the Named
Officers under the Company's Savings and Profit Sharing Plan.
(3) 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. Each of
the grants to the Named Officers for fiscal 1998 was made on the condition
that the stock options granted to the Named Officers during fiscal 1997 be
surrendered and cancelled. Each of the Named Officers surrendered his or
her fiscal 1997 grant in exchange for the replacement options granted
during fiscal 1998.
(4) Includes approximately $27,000 in 1996 for payments associated with
Mr. King's relocation and assignment to The Netherlands.
(5) Mr. Sims resigned as an officer and director of the Company in August 1998.
(6) Mr. Graham joined the Company in January 1997.
-11-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock
options during the fiscal year ended April 30, 1998 to the Named Officers.
<TABLE>
POTENTIAL REALIZED
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
------------------------------------------------------------- PRICE APPRECIATION
% OF TOTAL OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(#) IN FISCAL YEAR ($/sh) DATE 5%($) 10%($)
---- ---------- -------------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Judy O. Sims 25,000 12.00% 12.88 7/15/03 109,468 248,346
Keith R. Coogan 20,000 9.00% 12.88 7/15/03 87,575 198,677
Roger J. King 13,000 6.00% 12.88 7/15/03 56,924 129,140
Richard G. Sims 13,000 6.00% 12.88 7/15/03 56,924 129,140
Robert D. Graham 13,000 6.00% 12.88 7/15/03 56,924 129,140
</TABLE>
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, 1998 by the Named Officers and
the estimated values of unexercised options held by such individuals at fiscal
year-end.
<TABLE>
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- 45,000 45,000 80,625 122,500
Keith R. Coogan -0- -0- 26,000 29,000 46,500 86,000
Roger J. King -0- -0- 24,600 23,400 40,725 62,900
Richard G. Sims -0- -0- 33,600 29,400 55,275 72,900
Robert D. Graham -0- -0- 2,600 10,400 10,725 42,900
</TABLE>
MANAGEMENT CONTINUITY AGREEMENTS
The Company has entered into Management Continuity Agreements with certain
of its key executive officers. 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 both to 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 agreements are entered into before a change of control, the
terms of the Management Continuity Agreements do not begin, and the
Management Continuity Agreements do not become effective, until a change of
control occurs. The agreements provide 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 without any reason during a 60-day "window period" after the
first four months, then the executive would become entitled to a specific
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.
-12-
<PAGE>
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 without any reason during a 60-day
window period beginning 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, or 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 outside directors
options to purchase 2,000 shares of Common Stock for each year of service,
exercisable at the fair market value of the Common Stock on the date of grant.
Such options are granted under the Company's 1993 Long Term Incentive Plan. The
Company's outside directors are reimbursed by the Company for their travel
expenses incurred in connection with their attendance at meetings.
-13-
<PAGE>
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, 1998, all Section
16(a) filing requirements applicable to its executive officers, directors and
greater than ten-percent beneficial owners were observed except that a Form 5
was filed late for each of Carl S. Ledbetter, Director and Mellon C. Baird,
Director.
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 stock based incentive plans and determines grants
under such plans 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:
-- 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;
-- provide compensation which relates to the performance of the
individual and differentiates based upon individual performance;
-- provide incentive compensation that varies directly with both Company
performance and individual contribution to that performance; and
-- provide an appropriate linkage between compensation and the creation
of shareholder value through awards tied to the Company's performance
and through facilitating employee stock ownership.
The following is a report submitted by the Committee addressing the
Company's compensation policies as they relate to the Company's executive
officers for the fiscal year ended April 30, 1998.
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,
-14-
<PAGE>
including base salary, discretionary quarterly performance pay plans for all
executive officers other than the Chief Executive Officer ("CEO"), and an annual
performance pay plan for all executive officers. The Committee receives
recommendations from the CEO concerning base salary, performance pay plans and
grants under the 1993 Long Term Incentive Plan for all executive officers other
than the CEO.
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 relevant 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, 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 the Company's President.
Additionally, the Company's Executive 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, 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, 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 internally established financial goals.
The financial goals are established by the Committee 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 1998 fiscal year was tied to
the Company's financial performance and growth. For the 1998 fiscal year,
the Company did not achieve all of its financial performance and growth
goals, however the Committee considered the overall improvement in the
Company's operations in determining the amount to be paid under the incentive
compensation portion of the plan.
For the 1998 fiscal year, the annual performance pay plan for all executive
officers provided for a potential payment of $589,000 to all executive officers
as a group, of which approximately 75% was paid.
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 as well as data obtained from
independent sources. During fiscal 1998, 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 Company's shareholders.
Mellon C. Baird and Frank Tindle
-15-
<PAGE>
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 stocks listed on the Nasdaq National Market under
Standard Industrial Code ("SIC") 504, which is a broad index prepared by the
University of Chicago's Center for Research in Security Prices that includes
companies in the computer, computer peripheral and computer software industries.
The graph assumes an initial investment of $100 on March 31, 1993, and the
reinvestment of dividends, if any.
[Graph]
<TABLE>
- --------------------------------------------------------------------------------------
3/31/93 3/31/94 3/31/95 3/31/96 4/30/97 4/30/98
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Software Spectrum, Inc. 100.0 63.8 71.3 86.2 58.5 72.3
- --------------------------------------------------------------------------------------
NASDAQ Stock Market - (U.S.) 100.0 107.9 120.1 163.0 186.9 279.7
- --------------------------------------------------------------------------------------
NASDAQ Stocks - SIC 504 100.0 103.3 83.9 104.3 84.3 122.5
- --------------------------------------------------------------------------------------
</TABLE>
CERTIFIED PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended April 30, 1998
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, 1999. 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 1999 Annual Meeting of Shareholders must be received by the Company at its
principal executive office by April 19, 1999 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.
-16-
<PAGE>
ANNUAL REPORT
The Company's 1998 Annual Report to Shareholders is being mailed to all
shareholders of record together with this Proxy Statement.
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, 1998, UPON THE WRITTEN REQUEST OF
ANY PERSON WHO WAS A SHAREHOLDER (OF RECORD OR BENEFICIALLY) AT THE CLOSE OF
BUSINESS ON AUGUST 13, 1998. 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 17, 1998
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY.
<PAGE>
APPENDIX A
SOFTWARE SPECTRUM, INC.
1998 LONG-TERM INCENTIVE PLAN
I. GENERAL
1. PURPOSE. The Software Spectrum, Inc. 1998 Long-Term Incentive Plan
(the "1998 Plan") has been established by Software Spectrum, Inc. (the
"Company") to:
(a) attract and retain key executive and managerial employees of the
Company;
(b) motivate participating employees by means of appropriate
incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities which are
competitive with those of other major corporations; and
(d) further identify Participants' interests with those of the
Company's other shareholders through compensation alternatives
based on the Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. EFFECTIVE DATE. Subject to the approval of the holders of a majority
of the Stock of the Company present, or represented, and entitled to vote at a
meeting of its stockholders, the 1998 Plan shall be effective as of August 1,
1998, provided, however, that awards made under the 1998 Plan prior to such
approval of the 1998 Plan by stockholders of the Company are contingent on such
approval of the 1998 Plan by the stockholders of the Company and shall be null
and void if such approval of the stockholders of the Company is withheld. The
1998 Plan shall terminate on July 31, 2008.
3. DEFINITIONS. The following definitions are applicable to the 1998
Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Disabled" means the inability of a Participant, by reason of a physical or
mental impairment, to engage in any substantial gainful activity, of which the
Board shall be the sole judge.
"Fair Market Value" of any Stock means (a) if the Stock is listed on a
national securities exchange, the closing price on the Stock on a given date;
(b) if the Stock is traded on an exchange or market in which prices are reported
on a bid and asked price, the average of the mean between the bid and asked
price for the Stock on a given date; and (c) if the Stock is not listed on a
national securities exchange nor traded on the over-the-counter market, such
value as the Committee, in good faith, shall determine.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"Option Date" means, with respect to any Stock Option, the date on which
the Stock Option is awarded under the 1998 Plan.
"Participant" means any regular full-time employee of the Company or any
Subsidiary (meaning an employee who works 30 hours or more per week) who is
selected by the Committee to participate in the 1998 Plan.
"Permitted Transferees" means a member of an optionee's immediate family,
trusts for the benefit of such immediate family members, and partnerships in
which the optionee and/or such immediate family members are the only
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partners, provided that no consideration is provided for the transfer.
Immediate family members shall include an optionee's spouse, descendants
(children, grandchildren and more remote descendants), and shall include
step-children and relationships arising from legal adoption.
"Related Company" means any corporation during any period in which it is a
Subsidiary, or during any period in which it directly or indirectly owns 50% or
more of the total combined voting power of all classes of stock of the Company
that are entitled to vote.
"Restricted Period" has the meaning ascribed to it in Part V.
"Restricted Stock" has the meaning ascribed to it in Part V.
"Retirement" means (i) termination of employment in accordance with the
retirement procedures set by the Company from time to time; (ii) termination of
employment because a participant becomes Disabled; or (iii) termination of
employment voluntarily with the consent of the Company (of which the Board shall
be the sole judge).
"Stock" means Software Spectrum, Inc. common stock.
"Stock Appreciation Right" means the right of a holder of a Stock Option to
receive Stock or cash as described in Part IV.
"Stock Option" means the right of a Participant to purchase Stock pursuant
to an Incentive Stock Option or Non-Qualified Option awarded pursuant to the
provisions of the 1998 Plan.
"Subsidiary" means any corporation during any period of which 50% or more
of the total combined voting power of all classes of stock entitled to vote is
owned, directly or indirectly, by the Company.
4. ADMINISTRATION. The authority to manage and control the operation and
administration of the 1998 Plan shall be vested in the Board. Subject to the
provisions of the 1998 Plan, the Board will have authority to select employees
to receive awards of Stock Options, with or without tandem Stock Appreciation
Rights, Restricted Stock and/or Performance Units, to determine the time or
times of receipt, to determine the types of awards and the number of shares
covered by the awards, to establish the terms, conditions, performance criteria,
restrictions, and other provisions of such awards, to determine the number and
value of Performance Units awarded and earned, and to amend, modify or suspend
awards. In making such award determinations, the Board may take into account
the nature of services rendered by the respective employee, his or her present
and potential contribution to the Company's success and such other factors as
the Board deems relevant. The Board is authorized to interpret the 1998 Plan,
to establish, amend, and rescind any rules and regulations relating to the 1998
Plan, to determine the terms and provisions of any agreements made pursuant to
the 1998 Plan, to modify such agreements, and to make all other determinations
that may be necessary or advisable for the administration of the 1998 Plan.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under the 1998 Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of
the 1998 Plan or action by the Board of Directors or the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law.
The Board, in its discretion, may delegate any or all of its authority,
powers and discretion under this Plan to the Committee, and the Board in its
discretion may revest any or all such authority, powers and discretion in itself
at any time. If appointed, the Committee shall function as follows: A majority
of the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved in
writing by all members of the Committee, shall be the acts of the Committee,
unless provisions to the contrary are embodied in the Company's Bylaws or
resolutions duly adopted by the Board. All actions taken and decisions and
determinations made by the Board or the Committee pursuant to the Plan shall be
binding and conclusive on all persons interested in the Plan. No member of the
Board or the Committee shall be liable for any action or determination taken or
made in good faith with respect to the Plan.
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5. PARTICIPATION. Subject to the terms and conditions of the 1998 Plan,
the Board shall determine and designate, from time to time, the full-time
employees of the Company and/or its Subsidiaries who will participate in the
1998 Plan. In the discretion of the Board, a Participant may be awarded Stock
Options with or without tandem Stock Appreciation Rights, Restricted Stock or
Performance Units or any combination thereof, and more than one award may be
granted to a Participant. Except as otherwise agreed to by the Company and the
Participant, any award under the 1998 Plan shall not affect any previous award
to the Participant under the 1998 Plan or any other plan maintained by the
Company or its Subsidiaries.
6. SHARES SUBJECT TO THE 1998 PLAN. The shares of Stock with respect to
which awards may be made under the 1998 Plan shall be either authorized and
unissued shares or issued and outstanding shares (including, in the discretion
of the Board, shares purchased in the market). Subject to the provisions of
paragraph I.10, the number of shares of Stock available under the 1998 Plan for
the grant of Stock Options with or without tandem Stock Appreciation Rights,
Performance Units and Restricted Stock shall not exceed 200,000 shares in the
aggregate. If, for any reason, any award under the 1998 Plan or any portion of
the award, shall expire, terminate or be forfeited or cancelled, or be settled
in cash pursuant to the terms of the 1998 Plan and, therefore, any such shares
are no longer distributable under the award, such shares of Stock shall again be
available for award under the 1998 Plan. The maximum number of shares of Stock
with respect to which options or rights may be granted each calendar year to
each employee shall be 50,000.
7. COMPLIANCE WITH APPLICABLE LAWS AND WITHHOLDING OF TAXES.
Notwithstanding any other provision of the 1998 Plan, the Company shall have no
liability to issue any shares of Stock under the 1998 Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the 1998 Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or with
the intention of distributing the shares. All awards and payments under the
1998 Plan are subject to withholding of all applicable taxes, which withholding
obligations may be satisfied, with the consent of the Board, through the
surrender of shares of Stock which the Participant already owns, or to which a
Participant is otherwise entitled under the 1998 Plan. The Company shall have
the right to deduct from all amounts paid in cash in consequence of the exercise
of a Stock Option or Stock Appreciation Right or in connection with an award of
Restricted Stock or Performance Units under the 1998 Plan any taxes required by
law to be withheld with respect to such cash payments. Where an employee or
other person is entitled to receive shares of Stock pursuant to the exercise of
a Stock Option or a Stock Appreciation Right or with respect to an award of
Performance Units pursuant to the 1998 Plan, the Company shall have the right to
require the employee or such other person to pay to the Company the amount of
any taxes that the Company is required to withhold with respect to such shares,
or, in lieu thereof, to retain, or sell without notice, a sufficient number of
such shares to cover the amount required to be withheld. Upon the disposition
(within the meaning of Code Section 424(c)) of shares of Stock acquired pursuant
to the exercise of an Incentive Stock Option prior to the expiration of the
holding period requirements of Code Section 422(a)(1), the employee shall be
required to give notice to the Company of such disposition and the Company shall
have the right to require the employee to pay to the Company the amount of any
taxes that are required by law to be withheld with respect to such disposition.
Upon termination of the Restricted Period with respect to an award of Restricted
Stock (or such earlier time, if any, as an election is made by the employee
under Code Section 83(b), or any successor provisions thereto, to include the
value of such shares in taxable income), the Company shall have the right to
require the employee or other person receiving shares of Stock in respect of
such Restricted Stock award to pay to the Company the amount of taxes that the
Company is required to withhold with respect to such shares of Stock or, in lieu
thereof, to retain or sell without notice a sufficient number of shares of Stock
held by it to cover the amount required to be withheld. The Company shall have
the right to deduct from all dividends paid with respect to Restricted Stock the
amount of taxes that the Company is required to withhold with respect to such
dividend payments.
8. TRANSFERABILITY. Incentive Stock Options with or without tandem
Stock Appreciation Rights, Performance Units, and, during the period of
restriction, Restricted Stock awarded under the 1998 Plan are not
transferable except as designated by the Participant by will or by the laws
of descent and distribution. Incentive Stock Options may be exercised during
the lifetime of the Participant only by the Participant or his guardian or
legal representative. If provided in the option agreement, Non-Qualified
Stock Options with or without tandem Stock Appreciation Rights may be
transferred by a Participant to Permitted Transferees, and may be exercised
either by the Participant, his guardian or legal representative, or by a
Permitted Transferee.
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9. EMPLOYEE AND STOCKHOLDER STATUS. The 1998 Plan does not constitute a
contract of employment, and selection as a Participant will not give any
employee the right to be retained in the employ of the Company or any
Subsidiary. No award under the 1998 Plan shall confer upon the holder thereof
any right as a stockholder of the Company prior to the date on which he fulfills
all service requirements and other conditions for receipt of shares of Stock.
If the redistribution of shares is restricted pursuant to paragraph I.7,
certificates representing such shares may bear a legend referring to such
restrictions.
10. ADJUSTMENTS TO NUMBER OF SHARES SUBJECT TO THE 1998 PLAN. In the
event of any change in the outstanding shares of Stock of the Company by reason
of any stock dividend, split, spinoff, recapitalization, merger, consolidation,
combination, extraordinary dividend, exchange of shares or other similar change,
the aggregate number of shares of Stock with respect to which awards may be made
under the 1998 Plan, the terms and the number of shares of any outstanding Stock
Options, Stock Appreciation Rights, Restricted Stock and Performance Units, and
the purchase price of a share of Stock under Stock Options, may be equitably
adjusted by the Board in its sole discretion.
11. BUSINESS COMBINATIONS. In addition to the rights and obligations of
the Committee to modify, adjust or accelerate exercisability of outstanding
options, in the event that, while any options, Stock Appreciation Rights,
Restricted Shares or Performance Units are outstanding under the 1998 Plan,
there shall occur (a) a merger or consolidation of the Company with or into
another corporation in which the Company shall not be the surviving corporation
(for purposes of this paragraph 11, the Company shall not be deemed the
surviving corporation in any such transaction if, as the result thereof, it
becomes a wholly-owned subsidiary of another corporation), (b) a dissolution of
the Company, or (c) a transfer of all or substantially all of the assets or
shares of stock of the Company in one transaction or a series of related
transactions to one or more other persons or entities, then, with respect to
each option, Stock Appreciation Right and share of Restricted Stock outstanding
immediately prior to the consummation of such transaction and without the
necessity of any action by the Committee:
(i) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the options, rights,
Restricted Shares and Performance Units granted under the 1998 Plan, or the
substitution for such options, rights, Restricted Shares and Performance Units
of new options, rights, Restricted Shares and Performance Units, with
appropriate adjustment as to the number and kind of shares or other securities
deliverable with respect thereto, the options, rights, Restricted Shares and
Performance Units granted under the 1998 Plan, or the new options, rights,
Restricted Shares and Performance Units substituted therefor, shall continue,
subject to such adjustment, in the manner and under the terms provided in the
respective agreements.
(ii) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the options, rights,
Restricted Shares and Performance Units granted under the 1998 Plan, or for the
substitution of equivalent options, rights and awards, then (A) each holder of
an outstanding option shall be entitled, immediately prior to the effective date
of such transaction, to purchase the full number of shares that he or she would
otherwise have been entitled to purchase during the entire remaining term of the
option; (B) the holder of any right shall be entitled, immediately prior to the
effective date of such transaction, to exercise such right to the extent the
related option is or becomes exercisable at such time in accordance with its
terms; (C) the recipient of any Performance Unit shall be entitled, immediately
prior to the effective date of such transaction, to receive all remaining values
under such unit; (D) all restrictions on any award of Restricted Shares shall
lapse, and (E) any restriction or risk of forfeiture imposed under the 1998 Plan
shall lapse immediately prior to the effective date of such transaction. The
unexercised portion of any option or right shall be deemed cancelled and
terminated as of the effective date of such transaction.
12. AGREEMENT WITH COMPANY. At the time of any awards under the 1998
Plan, the Board will require a Participant to enter into an agreement with the
Company in a form specified by the Board, agreeing to the terms and conditions
of the 1998 Plan and to such additional terms and conditions, not inconsistent
with the 1998 Plan, as the Board may, in its sole discretion, prescribe.
13. AMENDMENT AND TERMINATION OF 1998 PLAN. Subject to the following
provisions of this paragraph 13, the Board may at any time and in any way amend,
suspend or terminate the 1998 Plan. No amendment of the 1998 Plan and, except
as provided in paragraph I.10, no action by the Board shall, without further
approval of the stockholders of the Company, increase the total number of shares
of Stock with respect to which awards may be made under the 1998
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Plan, materially increase the benefits accruing to Participants under the
1998 Plan or materially modify the requirements as to eligibility for
participation in the 1998 Plan, if stockholder approval of such amendment is
a condition of Securities and Exchange Commission Rule 16b-3 or the Code at
the time such amendment is adopted. No amendment, suspension or termination
of the 1998 Plan shall alter or impair any Stock Option with or without
tandem Stock Appreciation Right, share of Restricted Stock or Performance
Unit previously awarded under the 1998 Plan without the consent of the holder
thereof.
II. INCENTIVE STOCK OPTIONS
1. DEFINITION. The award of an Incentive Stock Option under the 1998
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part II.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Incentive Stock Options, as described in section 422(b) of the Code or any
successor section thereto, are to be awarded under the 1998 Plan and shall
determine the number of option shares to be offered to each of them. Incentive
Stock Options may be awarded only to employees. In no event shall the aggregate
Fair Market Value (determined at the time the option is awarded) of Stock with
respect to which Incentive Stock Options are exercisable for the first time by
an individual during any calendar year (under all plans of the Company and all
Related Companies) exceed $100,000.
3. PRICE. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that in no
event shall such price be less than the greater of (a) 100% of the Fair Market
Value of a share of Stock as of the Option Date (or 110% of such Fair Market
Value if the holder of the option owns stock possessing more than 10% of the
combined voting power of all classes of stock of the Company or any Subsidiary)
or (b) the par value of a share of Stock on such date. To the extent provided
by the Board, the full purchase price of each share of Stock purchased upon the
exercise of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
4. EXERCISE. Each Option shall become and be exercisable at such time or
times and during such period or periods, in full or in such installments as may
be determined by the Board at the Option Date. In addition, unless restricted
by the Board, Participants may elect to pay the purchase price of shares of
Stock purchased upon the exercise of Incentive Stock Options in cash or through
the actual or constructive delivery at the time of such exercise of shares of
Stock (valued at Fair Market Value as of the day of exercise) already owned by
the Participant, or any combination thereof, equivalent to the purchase price of
such Incentive Stock Options. A Participant's payment of the purchase price in
connection with the exercise of an Incentive Stock Option through delivery of
shares of Stock (the "ISO Stock") that were acquired through the exercise of an
Incentive Stock Option and that have not been held for more than one year will
be considered a disposition (within the meaning of Code Section 424(c)) of the
ISO Stock, resulting in the disqualification of the ISO Stock from treatment as
an incentive stock option under Code Section 422, and the Participant's
recognition of ordinary income. Participants should consult with their tax
advisors prior to electing to exercise an Incentive Stock Option by this method.
5. OPTION EXPIRATION DATE. The "Expiration Date" with respect to an
Incentive Stock Option or any portion thereof awarded to a Participant under the
1998 Plan means the earliest of:
(a) the date that is 10 years after the date on which the Incentive
Stock Option is awarded (or, if the Participant owns stock
possessing more than 10% of the combined voting power of all
classes of stock of the Company or any Subsidiary, the date that
is 5 years after the date on which the Incentive Stock Option is
awarded);
(b) the date established by the Board at the time of the award;
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(c) the date that is one year after the Participant's employment with
the Company and all Related Companies is terminated by reason of
the Participant becoming Disabled or by reason of the
Participant's death; or
(d) the date that the Participant's employment with the Company and
all Related Companies is terminated by reasons other than death
or becoming Disabled.
All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
III. NON-QUALIFIED STOCK OPTIONS
1. DEFINITION. The award of a Non-Qualified Stock Option under the 1998
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part III.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Non-Qualified Stock Options are to be awarded under the 1998 Plan and shall
determine the number of option shares to be offered to each of them.
3. PRICE. The purchase price of a share of Stock under each
Non-Qualified Stock Option shall be determined by the Board; provided,
however, that in no event shall such price be less than the Fair Market Value
of a share of Stock as of the Option Date.
4. EXERCISE. Each Option shall become and be exercisable at such time
or times and during such period or periods, in full or in such installments
as may be determined by the Board at the Option Date. To the extent provided
by the Board, the full purchase price of each share of Stock purchased upon
the exercise of any Non-Qualified Stock Option shall be paid in cash or in
shares of Stock (valued at Fair Market Value as of the day of exercise), or
in any combination thereof, at the time of such exercise and, as soon as
practicable thereafter, a certificate representing the shares so purchased
shall be delivered to the person entitled thereto. In addition, unless
restricted by the Board, Participants may elect to pay the purchase price of
shares of Stock purchased upon the exercise of Non-Qualified Stock Options in
cash or through the constructive delivery at the time of such exercise of
shares of Stock (valued at Fair Market Value as of the day of exercise)
already owned by the Participant, or any combination thereof, equivalent to
the purchase price of such Non-Qualified Stock Options, and, as soon as
practicable thereafter, a certificate representing the net number of shares
so purchased shall be delivered to the person entitled thereto. Participants
also may elect to pay, unless restricted by the Board, the purchase price, in
whole or in part, of shares of Stock purchased upon the exercise of
Non-Qualified Options through the Company's withholding of shares of Stock
(valued at Fair Market Value as of the day of exercise) that would otherwise
by issuable upon exercise of such options equivalent to the purchase price of
such Non-Qualified Stock Options and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto.
5. OPTION EXPIRATION DATE. The "Expiration Date" with respect to a
Non-Qualified Stock Option or any portion thereof awarded to a Participant
under the 1998 Plan means the earliest of:
(a) the date established by the Board at the time of the award;
(b) the date that is one year after the Participant's employment with
the Company and all Related Companies is terminated by reason of
the Participant becoming Disabled or by reason of the
Participant's death; or
(c) the date that the Participant's employment with the Company and
all Related Companies is terminated by reasons other than death
or becoming Disabled.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
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IV. STOCK APPRECIATION RIGHTS
1. DEFINITION. A Stock Appreciation Right is an award that may be
granted in tandem with a Non-Qualified Stock Option or Incentive Stock Option,
and entitles the holder to receive an amount equal to the difference between the
Fair Market Value of the shares of option Stock at the time of exercise of the
Stock Appreciation Right and the option price, subject to the applicable terms
and conditions of the tandem options and the following provisions of this Part
IV.
2. ELIGIBILITY. The Board may, in its discretion, award the holders of
any Incentive Stock Options or Non-Qualified Stock Options awarded under the
1998 Plan a Stock Appreciation Right under this Part IV concurrent with, or
subsequent to, the award of the option.
3. EXERCISE. A Stock Appreciation Right may be exercised under the
applicable terms and conditions of the Incentive Stock Option or Non-Qualified
Stock Option with respect to which the Stock Appreciation Right is awarded. A
Stock Appreciation Right shall entitle the holder of a Stock Option to receive,
upon the exercise of the Stock Appreciation Right, shares of Stock (valued at
their Fair Market Value at the time of exercise), cash or a combination thereof,
in the discretion of the Board, in an amount equal in value to the excess of the
Fair Market Value of the shares of Stock subject to the Stock Appreciation Right
as of the date of such exercise over the purchase price of the Stock Option.
The exercise of a Stock Appreciation Right will result in the surrender of the
related Incentive Stock Option or Non-Qualified Stock Option.
4. EXPIRATION DATE. The "Expiration Date" with respect to a Stock
Appreciation Right shall be determined by the Board, and shall be not later than
the Expiration Date for the related Stock Option. If neither the right nor the
related Stock Option is exercised before the end of the day on which the right
ceases to be exercisable, such right shall be deemed exercised as of such date
and payment shall be made to the holder in cash.
V. RESTRICTED STOCK
1. DEFINITION. Restricted Stock awards are grants of Stock to
Participants, the vesting of which is subject to a required period of employment
and any other conditions established by the Board.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Restricted Stock is to be awarded and the number of shares of Stock that are
subject to the award.
3. TERMS AND CONDITIONS OF AWARDS. All shares of Restricted Stock
awarded to Participants under the 1998 Plan shall be subject to the following
terms and conditions and to such other terms and conditions, not inconsistent
with the 1998 Plan, as shall be prescribed by the Board in its sole discretion
and as shall be contained in the Agreement referred to in Part I, paragraph 12.
(a) Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of ten years or such shorter
period as the Board may determine, but not less than one year,
after the time of the award of such stock (the "Restricted
Period"). Except for such restrictions, the Participant as owner
of such shares shall have all the rights of a shareholder,
including but not limited to the right to vote such shares and,
except as otherwise provided by the Board, the right to receive
all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the date of
the award of Restricted Stock, adjust the length of the
Restricted Period to account for individual circumstances of a
Participant or group of Participants, but in no case shall the
length of the Restricted Period be less than one year.
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(c) Except as otherwise determined by the Board in its sole
discretion, a Participant whose employment with the Company and
all Related Companies terminates prior to the end of the
Restricted Period for any reason shall forfeit all shares of
Restricted Stock remaining subject to any outstanding Restricted
Stock Award.
(d) Each certificate issued in respect of shares of Restricted Stock
awarded under the 1998 Plan shall be registered in the name of
the Participant and, at the discretion of the Board, each such
certificate may be deposited in a bank designated by the Board.
Each such certificate shall bear the following (or a similar)
legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) contained in the Software Spectrum, Inc.
1998 Long-Term Incentive Plan and an agreement entered into
between the registered owner and Software Spectrum, Inc. A copy
of such plan and agreement is on file in the office of the
Secretary of Software Spectrum, Inc., 2140 Merritt Drive,
Garland, Texas 75041.
(e) At the end of the Restricted Period for Restricted Stock, such
Restricted Stock will be transferred free of all restrictions to
a Participant (or his or her legal representative, beneficiary or
heir).
4. SUBSTITUTION OF CASH. The Board may, in its discretion, substitute
cash equal to the Fair Market Value (determined as of the date of distribution)
of Stock otherwise required to be distributed to a Participant in accordance
with Part V, paragraph 3.
VI. PERFORMANCE UNITS
1. DEFINITION. Performance Units are awards to Participants who may
receive value for the units at the end of a Performance Period. The number of
units earned, and value received for them, will be contingent on the degree to
which the performance measures established at the time of the initial award are
met.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Performance Units are to be awarded, and the number of units to be the subject
of such awards.
3. TERMS AND CONDITIONS OF AWARDS. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of units,
which may be stated either in cash or in shares of Stock; the performance
measures used for determining whether the Performance Units are earned; the
performance period during which the performance measures will apply; the
relationship between the level of achievement of the performance measures and
the degree to which Performance Units are earned; whether, during or after the
performance period, any revision to the performance measures or performance
period should be made to reflect significant events or changes that occur during
the performance period; and the number of earned Performance Units that will be
paid in cash and/or shares of Stock.
4. PAYMENT. The Board will compare the actual performance to the
performance measures established for the performance period and determine the
number of units to be paid and their value. Payment for units earned shall be
wholly in cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units to
be paid in cash and the number to be paid in Stock. For Performance Units
valued when awarded in shares of Stock, one share of Stock will be paid for each
unit earned, or cash will be paid for each unit earned equal to either (a) the
Fair Market Value of a share of Stock at the end of the Performance Period or
(b) the Fair Market Value of the Stock averaged for a number of days determined
by the Board. For Performance Units valued when awarded in cash, the value of
each unit earned will be paid in its initial cash value, or shares of Stock will
be distributed based on the cash value of the units earned divided by (a) the
Fair Market Value of a share of Stock at the end of the Performance Period or
(b) the Fair Market Value of a share of Stock averaged for a number of days
determined by the Board.
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5. RETIREMENT, DEATH OR TERMINATION. A Participant whose employment with
the Company and Related Companies terminates during a performance period because
of Retirement or death shall be entitled to the prorated value of earned
Performance Units, issued with respect to that performance period, at the
conclusion of the performance period based on the ratio of the months employed
during the period to the total months of the performance period. If the
Participant's employment with the Company and Related Companies terminates
during a performance period for any reason other than Retirement or death, the
Performance Units issued with respect to that performance period will be
forfeited on the date his employment with the Company and Related Companies
terminates. Notwithstanding the foregoing provisions of this Part VI, if a
Participant's employment with the Company and Related Companies terminates
before the end of the Performance Period with respect to any Performance Units
awarded to him, the Board may determine that the Participant will be entitled to
receive all or any portion of the units that he or she would otherwise receive,
and may accelerate the determination and payment of the value of such units or
make such other adjustments as the Board, in its sole discretion, deems
desirable.
-9-
<PAGE>
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SOFTWARE SPECTRUM, INC.
ANNUAL MEETING OF SHAREHOLDERS - SEPTEMBER 17, 1998
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 17, 1998 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.
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- FOLD AND DETACH HERE-
<PAGE>
<TABLE>
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<S> <C> <C>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE Please mark /X/
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS your votes as
MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND PROPOSAL 2. indicated in
this example
1. Election of Directors Nominees: Mellon C. Baird, Keith R. Coogan
FOR nominees WITHHOLD (Instruction: To withhold authority to vote for
listed to the right AUTHORITY any individual nominee, write that nominee's name
to vote for all nominees on the space provided below.)
listed to the right
/ / / / --------------------------------------------------
2. To approve the adoption of the Company's 3. In their discretion on such other matters
1998 Long Term Incentive Plan. as may properly come before the meeting.
FOR AGAINST ABSTAIN Signature(s):
/ / / / / / -------------------------
-------------------------
Date Signed:
-------------------------
Please sign exactly as your name
appears on this 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.
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- FOLD AND DETACH HERE-
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