<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
Mark One Quarterly Report Pursuant to Section 13 or 15(d) of the
[ X ] Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number 0-19349
SOFTWARE SPECTRUM, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1878002
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2140 MERRITT DRIVE
GARLAND, TEXAS
75041
(Address of principal executive offices)
(Zip Code)
972-840-6600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
At December 9, 1998, the Registrant had outstanding 4,463,570 shares of
its Common Stock, par value $.01 per share.
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<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at October 31, 1998
and April 30, 1998 1
Consolidated Statements of Income for the
Three and Six Months Ended
October 31, 1998 and 1997 2
Consolidated Statements of Cash Flows
for the Six Months Ended
October 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6 - 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
----------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,945 $ 7,129
Trade accounts receivable, net of allowance for doubtful
accounts of $3,343 at October 31 and $3,050 at April 30 145,212 171,460
Inventories 3,086 4,564
Prepaid expenses 3,064 2,279
Other current assets 652 1,024
---------- ----------
Total current assets 155,959 186,456
Furniture, equipment and leasehold improvements, at cost 45,232 37,951
Less accumulated depreciation and amortization 21,418 17,538
---------- ----------
23,814 20,413
Other assets, consisting primarily of goodwill, net of accumulated
amortization of $6,942 at October 31 and $5,661 at April 30 50,294 51,762
---------- ----------
$ 230,067 $ 258,631
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 448 $ 393
Trade accounts payable 113,904 160,331
Other current liabilities 11,734 13,824
---------- ----------
Total current liabilities 126,086 174,548
Long-term debt, less current maturities 26,647 7,813
Shareholders' equity
Preferred stock, par value $.01; authorized, 1,000,000
shares; issued and outstanding, none -- --
Common stock, par value $.01; authorized, 20,000,000
shares; issued 4,460,076 shares at October 31 and
4,397,678 shares at April 30 44 44
Additional paid-in capital 40,425 39,496
Retained earnings 43,354 40,765
Currency translation adjustments (2,781) (2,627)
---------- ----------
81,042 77,678
Less treasury stock at cost; 225,801 shares at October 31
and 92,111 shares at April 30 3,708 1,408
---------- ----------
Total shareholders' equity 77,334 76,270
---------- ----------
$ 230,067 $ 258,631
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales
Software $ 173,450 $ 181,705 $ 379,125 $ 382,399
Technology services 26,525 13,320 45,116 24,584
---------- ---------- ----------- -----------
199,975 195,025 424,241 406,983
---------- ---------- ----------- -----------
Cost of sales
Software 156,703 163,356 343,842 344,875
Technology services 15,827 7,940 27,754 14,667
---------- ---------- ----------- -----------
172,530 171,296 371,596 359,542
---------- ---------- ----------- -----------
Gross margin 27,445 23,729 52,645 47,441
Selling, general and administrative expenses 22,013 18,942 42,068 38,307
Depreciation and amortization 2,753 2,397 5,325 4,661
---------- ---------- ----------- -----------
Operating income 2,679 2,390 5,252 4,473
Interest expense (income)
Interest expense 461 1,006 759 1,963
Interest income (112) (59) (212) (98)
---------- ---------- ----------- -----------
349 947 547 1,865
---------- ---------- ----------- -----------
Income before income taxes 2,330 1,443 4,705 2,608
Income tax expense 1,042 815 2,117 1,439
---------- ---------- ----------- -----------
Net income $ 1,288 $ 628 $ 2,588 $ 1,169
========== ========== =========== ===========
Earnings per share - basic and diluted $ 0.30 $ 0.14 $ 0.60 $ 0.27
========== ========== =========== ===========
Weighted average shares outstanding
Basic 4,267 4,331 4,279 4,332
========== ========== ========== ==========
Diluted 4,288 4,388 4,321 4,365
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 2,588 $ 1,169
Adjustments to reconcile net income to net cash
used in operating activities
Provision for bad debts 450 715
Depreciation and amortization 5,325 4,661
Deferred income taxes 241 632
Changes in operating assets and liabilities
Trade accounts receivable 26,223 2,622
Inventories 1,473 4,470
Prepaid expenses and other assets (583) 3,575
Trade accounts payable and other current
liabilities (48,586) (22,199)
---------- ----------
Net cash used in operating activities (12,869) (4,355)
---------- ----------
Investing activities
Purchase of furniture, equipment and leasehold
improvements (7,255) (5,224)
---------- ----------
Net cash used in investing activities (7,255) (5,224)
---------- ----------
Financing activities
Borrowings on long-term debt 128,727 173,559
Repayments of long-term debt (109,869) (167,890)
Proceeds from stock issuance including tax benefit
related to stock options exercised 930 211
Purchase of treasury stock (2,300) (363)
Other 4 (51)
---------- ----------
Net cash provided by financing activities 17,492 5,466
---------- ----------
Effect of exchange rate changes on cash (552) (10)
---------- ----------
Decrease in cash and cash equivalents (3,184) (4,123)
Cash and cash equivalents at beginning of period 7,129 7,440
---------- ----------
Cash and cash equivalents at end of period $ 3,945 $ 3,317
========== ==========
Supplemental disclosure of cash paid during the period
Income taxes $ 3,268 $ 113
Interest 558 2,143
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying financial statements include the accounts of Software
Spectrum, Inc. (the "Company") and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
The consolidated financial statements contained herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments necessary
for a fair presentation of the consolidated financial position as of October 31,
1998, the consolidated results of operations for the three and six months
ended October 31, 1998 and 1997 and the consolidated cash flows for the six
months ended October 31, 1998 and 1997 have been made. In addition, all such
adjustments made, in the opinion of management, are of a normal recurring
nature. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the interim reporting
rules of the Securities and Exchange Commission. The interim consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and related notes for the year ended April
30, 1998, included in the Company's 1998 Annual Report on Form 10-K.
NOTE B -- OTHER COMPREHENSIVE INCOME
Effective May 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
which addresses the manner in which certain adjustments to shareholders'
equity are displayed in the financial statements. Adoption of this statement
had no effect on the Company's financial position or operating results. The
components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 1,288 $ 628 $ 2,588 $ 1,169
Currency translation adjustments 46 (376) (154) (647)
---------- ---------- ---------- ----------
Comprehensive income $ 1,334 $ 252 $ 2,434 $ 522
========== ========== ========== ==========
</TABLE>
4
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C -- EARNINGS PER SHARE
The following table (in thousands, except per share amounts) sets forth the
computation of basic and diluted earnings per share. Outstanding options
that were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares totaled approximately 304,000 and 266,000 shares for the
three and six months ended October 31, 1998 and 252,000 and 254,000 shares
for the three and six months ended October 31, 1997, respectively.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 1,288 $ 628 $ 2,588 $ 1,169
---------- ---------- ---------- ----------
Weighted average shares outstanding (basic) 4,267 4,331 4,279 4,332
Effect of dilutive employee and director
stock options 21 57 42 33
---------- ---------- ---------- ----------
Weighted average shares outstanding (diluted) 4,288 4,388 4,321 4,365
---------- ---------- ---------- ----------
Earnings per share - basic and diluted $ 0.30 $ 0.14 $ 0.60 $ 0.27
========== ========== ========== ==========
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived primarily from the sale of personal
computer ("PC") software products and technology services in North America,
Europe and Asia/Pacific.
The following table sets forth certain items from the Company's Consolidated
Statements of Income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.3 87.8 87.6 88.3
---------- ---------- ---------- ----------
Gross margin 13.7 12.2 12.4 11.7
Selling, general and administrative expenses 11.0 9.7 9.9 9.4
Depreciation and amortization 1.4 1.3 1.3 1.2
---------- ---------- ---------- ----------
Operating income 1.3 1.2 1.2 1.1
Interest expense, net 0.2 0.5 0.1 0.5
---------- ---------- ---------- ----------
Income before income taxes 1.1 0.7 1.1 0.6
Income tax expense 0.5 0.4 0.5 0.3
---------- ---------- ---------- ----------
Net income 0.6% 0.3% 0.6% 0.3%
========== ========== ========== ==========
</TABLE>
NET SALES
The Company sells PC software applications through volume licensing and
maintenance ("VLM") agreements, or right to copy arrangements, and
full-packaged PC software products either from its distribution centers or
through third-party distributors. In addition, the Company provides
fee-based services, including consulting and technical support, through its
Technology Services Group ("TSG").
For the three and six months ended October 31, 1998, software sales decreased
5% and 1% from sales for the three and six months ended October 31, 1997.
Publishers have recently introduced enterprise-wide licensing arrangements
which simplify the administration of VLM agreements for customers who elect
to standardize desktop applications across their organizations. The Company
believes the introduction of these programs has delayed sales to certain
large customers, who are evaluating their options under the new programs.
The Company serves as a designated service provider for VLM agreements which
are frequently used by customers seeking to standardize desktop software
applications and, consequently, may involve significant quantities of unit
sales for each customer at lower per-unit prices than full-packaged software
products. The increased popularity of VLM agreements has contributed to the
reduction in average unit prices of desktop software in recent years. Sales
of software through VLM agreements represented approximately 69% and 72% of
sales for the three and six months ended October 31, 1998 and approximately
65% for both the three and six months ended October 31, 1997.
For the three and six months ended October 31, 1998, revenue from TSG
increased by 99% and 84% as compared to the three and six months ended
October 31, 1997. The sales increases are primarily due to services provided
under a large technical support contract that began in the July 1998 quarter.
6
<PAGE>
As of October 31, 1998, the Company had 26 TSG offices worldwide. Fee-based
services represented approximately 10% of the Company's overall sales for the
six months ended October 31, 1998 as compared to 6% for the six months ended
October 31, 1997. However, such revenue generated approximately 33% and 21%,
respectively, of the Company's gross margin dollars. The Company expects
that the percentage of gross margin dollars provided by fee-based services
will increase as the Company continues to develop and expand its technology
services business.
The Company believes future increases in sales will depend upon its ability
to maintain and increase its customer base, to develop and expand its
technology services and to capitalize on continued growth in desktop
technology markets around the world.
INTERNATIONAL OPERATIONS
For the three and six months ended October 31, 1998, sales outside of the
United States increased 39% and 31% to $35 million and $72 million,
respectively, as compared to $25 million and $55 million for the three and
six months ended October 31, 1997.
Sales in Europe increased 32% and 27% to $14.3 million and $27.2 million for
the three and six months ended October 31, 1998, primarily due to increased
sales of software under VLM agreements.
Sales in Asia/Pacific were $14.0 million and $28.4 million for the three and
six months ended October 31, 1998, an increase of 64% and 36% over sales of
$8.5 million and $20.9 million for the three and six months ended October 31,
1997. The increase in sales is primarily due to increased sales of software
under VLM agreements.
For the three and six months ended October 31, 1998, fluctuations in foreign
currencies against the U.S. dollar did not have a material effect on the
Company's financial results.
GROSS MARGIN
Overall gross margin as a percentage of net sales was 13.7% and 12.4% for the
three and six months ended October 31, 1998, respectively, as compared to
12.2% and 11.7% for the comparable periods of the prior year. The increase
in overall gross margin as a percentage of net sales is primarily due to the
increasing percentage of gross margin provided by fee-based services, which
have higher gross margins as a percentage of net sales than sales of
software.
For the three and six months ended October 31, 1998, gross margin on the sale
of PC software declined to 9.7% and 9.3%, respectively, as compared to 10.1%
and 9.8% for the three and six months ended October 31, 1997, reflecting the
increasing percentage of sales of software through VLM agreements and lower
levels of financial incentives from suppliers. The Company generally
realizes lower gross margins as a percentage of net sales on sales of
software through VLM agreements, as compared to sales of full-packaged
software products. The decline in software margins as a percentage of net
sales for the three and six months ended October 31, 1998 was offset by an
increase in gross margin dollars from technology services. Gross margin
percentages on sales of technology services were 40% and 38% for the three
and six months ended October 31, 1998, respectively, as compared to 40% for
both the three and six months ended October 31, 1997.
The Company believes that gross margin percentages on sales of software may
continue to decline if the volume of software product sales by the Company
through VLM agreements continues or if publishers respond to continued market
pressures by reducing financial incentives to resellers. This potential
decrease in product gross margin percentages may be offset by anticipated
increases in gross margin dollars generated by technology services.
7
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses include the costs of
the Company's sales and marketing organization as well as purchasing,
distribution and administration costs. For the three and six months ended
October 31, 1998, SG&A expenses, as a percentage of net sales, increased to
11.0% and 9.9% respectively, as compared to 9.7% and 9.4% for the three and
six months ended October 31, 1997. The increase is due to growth in the
technology services business, which has higher levels of SG&A expenses as a
percentage of net sales than the Company's software product business. The
Company remains focused on controlling operating costs in both the services
and product businesses.
DEPRECIATION AND AMORTIZATION
The increase in depreciation and amortization for the three and six months
ended October 31, 1998, as compared to the three and six months ended October
31, 1997, reflects additional depreciation on the higher level of fixed
assets utilized in the Company's services business in 1998.
INCOME TAX EXPENSE
The Company's effective tax rate for both the three and six months ended
October 31, 1998 was approximately 45% as compared to approximately 56% and
55% for the three and six months ended October 31, 1997, respectively. This
decrease in the Company's effective tax rate primarily reflects the impact of
its improved international operations.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1998, the Company had approximately $3.9 million in cash and
cash equivalents and had $25.8 million outstanding under its $100 million
revolving credit facility. The credit facility, which is secured by accounts
receivable, inventory and a pledge of the stock of certain of the Company's
subsidiaries, permits the Company to borrow up to $100 million, subject to
availability under its borrowing base. As of October 31, 1998, the Company
had approximately $49 million of additional borrowing availability under its
credit facility. The facility expires in March 2001.
The decrease in trade accounts receivable and trade accounts payable from
April 30, 1998 to October 31, 1998 is due to collection of the receivables
associated with large sales at the end of fiscal 1998 and payment of the
related liabilities. At October 31, 1998 and April 30, 1998, accounts
receivable represented approximately 60 and 61 days of historical sales,
respectively.
For the six months ended October 31, 1998, the Company used $12.9 million of
cash in its operations compared to $4.4 million of cash used in operations in
the six months ended October 31, 1997. The increase in cash used in
operations is primarily due to the timing of large payments to the Company's
vendors.
The increase in furniture, equipment and leasehold improvements from April
30, 1998 to October 31, 1998 reflects approximately $7.3 million of capital
expenditures related primarily to the ongoing upgrade of the Company's computer
systems and expansion of its technical support centers in Garland, Texas and
Spokane, Washington.
The Company expects that its cash requirements for fiscal 1999 will be
satisfied from cash flow from operations and borrowings under its credit
facility.
In 1997, the Company implemented a stock repurchase program which, upon
amendment in July 1998, allows the Company to purchase up to $5 million of
the Company's Common Stock from time to time in the open market or through
privately negotiated transactions. The Company funds such purchases with
8
<PAGE>
cash or borrowings under the Company's credit facility. As of December 9,
1998, the Company had repurchased 178,800 shares of Common Stock, for a total
of $3 million, under the stock repurchase program.
YEAR 2000
The Company has developed an overall plan outlining the tasks, resources and
target dates necessary to ensure the ongoing operation of the Company's
business through the turn of the century and beyond. Over the last three
years, the Company has replaced substantially all of the core management
information systems used in the Company's business, and the platforms upon
which these systems were developed are designed to process dates accurately
beyond the Year 2000. The Company plans to update its third-party software
tools, database engines and applications to the most current release during
the first two quarters of calendar 1999. Based on the Company's ongoing
assessment of these core systems and the representations received from third
parties, the Company believes that following the planned updates, its Year
2000 remediation of these systems will be substantially complete. In
addition, the Company has conducted an inventory, review and assessment of
its personal computers, networks and servers, desktop software applications
and non-IT embedded systems to determine whether they support Year 2000 date
codes.
The Company has begun remediation of the systems that are not in compliance
and plans to complete remediation and to test all of its systems by the third
quarter of calendar 1999. Based on its review and assessment, the Company
expects that any required modifications will be made on a timely basis. In
the event of an unexpected failure in one of the Company's systems, the
Company's employees would be able to continue operations on a manual basis
until such systems have been restored to full operating capacity.
The Company's Year 2000 initiative also provides for contacting key software
vendors and other business partners to determine whether they have effective
plans to address their Year 2000 issues. In the event that the Company's key
vendors cannot provide the Company with software products and services that
meet Year 2000 requirements on a timely basis, or if customers delay, forego
or return software purchases based upon Year 2000 related issues, the
Company's operating results could be materially adversely affected. Based on
the Company's evaluation of the information received to date, the Company
does not believe that such an occurrence is likely. However, the Company
cannot control the Year 2000 readiness of third parties and therefore, such a
risk remains possible.
The Company believes that its most reasonably-likely worst case scenario
involves a temporary business disruption caused by the failure of a supplier
to provide needed products or services. The most significant potential
disruption would be a telecommunications failure at one of the Company's
facilities, which could render the Company unable to accept sales orders or
to perform under its technical support contracts. To the extent that a
potential failure is deemed likely and the risk to the Company is
significant, the Company's contingency plans would include rerouting calls to
alternate operations centers, identifying substitute or second-source
suppliers and outlining revised business processes.
The Company estimates that the total cost of the Year 2000 project will not
exceed $1 million. The majority of the costs will involve reallocation of
existing resources rather than incremental costs. This reallocation of
resources is not anticipated to have a material impact on the implementation
of any significant internal systems projects.
In general, as a reseller of software products, the Company only passes
through to its customers the applicable vendors' warranties. The Company's
operating results could be materially adversely affected, however, if it were
held liable for the failure of software products resold by the Company to be
Year 2000 compliant despite its disclaimer of software product warranties.
With respect to the Company's consulting services, the failure of client
systems or processes could subject the Company to claims regardless of
whether the failure is related to services provided by the Company. Such
claims, or the defense thereof, could have a material adverse effect on the
Company's operating results.
9
<PAGE>
EURO CURRENCY ISSUES
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to introduce a common legal currency called the Euro,
which is intended to replace the currently existing currencies of the
participating countries by January 2002. The Company believes that its
internal systems are Euro capable and does not expect introduction and use of
the Euro to materially impact its financial condition, operating results or
use of derivative instruments.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Other than statements of historical fact, this Management's Discussion and
Analysis of Financial Condition and Results of Operations includes certain
statements of the Company that may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include future market trends, estimates regarding the
economy and the software industry in general, key performance indicators that
impact the Company and statements included in the Year 2000 discussion above.
In developing any forward-looking statements, the Company makes a number of
assumptions, including expectations for continued market growth, anticipated
revenue and gross margin levels, and cost savings and efficiencies, which
include the ability of the Company to develop electronic strategies.
Although the Company believes these assumptions are reasonable, no assurance
can be given that they will prove correct. The Company's ability to continue
to grow product sales and develop its technology services practice, improve
its operating results in international markets and improve operational
efficiencies will be key to its success in the future. If the industry's or
the Company's performance differs materially from these assumptions or
estimates, Software Spectrum's actual results could vary significantly from
the estimated performance reflected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results. The Company's Form 10-K for its fiscal year
ended April 30, 1998 contains certain cautionary statements under
"Forward-Looking Information" that identify factors that could cause the
Company's actual results to differ materially from those in the
forward-looking statements in this discussion. All forward-looking
statements in this discussion are expressly qualified in their entirety by
the cautionary statements in this paragraph and under "Forward-Looking
Information" in the Company's Form 10-K.
INFLATION
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On September 17, 1998, the Company held its Annual Meeting of Shareholders
(the "Meeting"). At the Meeting, Mellon Baird and Keith Coogan were elected
as directors to serve three-year terms expiring at the Company's Annual
Meeting of Shareholders to be held in the year 2001. In addition, adoption
of the Company's 1998 Long-Term Incentive Plan was approved.
The following table sets forth the number of shares of Common Stock that were
voted for or against or abstained from each matter:
<TABLE>
<CAPTION>
For Against Abstained
--------- ------- ---------
<S> <C> <C> <C>
Election of Mellon Baird to the Board of Directors 3,727,976 -- 19,435
Election of Keith Coogan to the Board of Directors 3,727,150 -- 20,261
Adoption of the Company's
1998 Long-Term Incentive Plan 3,409,468 306,370 31,572
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.2(b) - Articles of Amendment to Article 8 of
Software Spectrum, Inc.'s Amended and Restated Bylaws
effective September 17, 1998.
Exhibit 10.17 - The Software Spectrum, Inc. 1998 Long-Term
Incentive Plan
Exhibit 10.18 - First Amendment to Amended and Restated Credit
Agreement, dated as of August 15, 1998, among the Company, the
Chase Manhattan Bank, as Administrative Agent, Chase Bank of
Texas, National Association, as Collateral Agent, and other
participating financial institutions.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month
period ended October 31, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOFTWARE SPECTRUM, INC.
Date: December 14, 1998 By: /s/ James W. Brown
-----------------------------------------------
James W. Brown
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit 3.2(b) Articles of Amendment to Article 8 of Software Spectrum, Inc.'s
Amended and Restated Bylaws effective September 17, 1998.
Exhibit 10.17 The Software Spectrum, Inc. 1998 Long-Term Incentive Plan
Exhibit 10.18 First Amendment to Amended and Restated Credit Agreement,
dated as of August 15, 1998, among the Company, the Chase
Manhattan Bank, as Administrative Agent, Chase Bank of
Texas, National Association, as Collateral Agent, and other
participating financial institutions.
Exhibit 27 Financial Data Schedule
<PAGE>
ARTICLE 8
OF
SOFTWARE SPECTRUM, INC.'S
AMENDED AND RESTATED BYLAWS
EFFECTIVE SEPTEMBER 17, 1998
8.1 EXECUTIVE OFFICERS. The officers of the corporation shall consist of
a President and a Secretary, and may also include one or more Vice Presidents, a
Treasurer and such other officers as are provided for in Section 8.3 of this
Article. Any Vice President of the corporation may, by the addition of a number
or a word or words before or after the title "Vice President", be designated
"Senior Executive", "Executive", "Senior", "Trust", "Second" or "Assistant" Vice
President. Each officer of the corporation shall be elected by the Board of
Directors or shall be appointed by the Chief Executive Officer, as provided in
Section 8.2 of this Article. Any two or more offices may be held by the same
person.
8.2 ELECTION AND QUALIFICATION. The Board of Directors, at its first
meeting after each annual meeting of shareholders, shall choose a President and
a Secretary, neither of whom need be a member of the Board. The Board also may
elect one of its members Chairman of the Board, and may elect a Chief Executive
Officer, one or more Vice Presidents, a Treasurer, and one or more Assistant
Secretaries and Assistant Treasurers. The Board of Directors, may by resolution
adopted from time to time, authorize the Chief Executive Officer, if so
designated, to appoint such other officers of the corporation, including Vice
Presidents of the Company, as the Chief Executive Officer shall deem appropriate
from time to time.
8.3 OTHER OFFICERS AND AGENTS. The Board of Directors or the Chief
Executive Officer, if so authorized by the Board, may elect or appoint such
other officers, including assistant officers and agents as may be necessary or
appropriate, who shall hold their offices for such terms as shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board, or the Chief Executive Officer of the corporation, as the case may be.
8.4 SALARIES. The salaries of all officers and agents of the corporation
shall be fixed by resolution of the Board of Directors or any committee of the
Board of Directors.
8.5 TERM, REMOVAL AND VACANCIES. Each officer of the corporation shall
hold office until his or her successor is chosen and qualified or until his or
her death, resignation or removal. Any officer may resign at any time upon
giving written notice to the corporation. Any officer or agent or member of a
committee elected or appointed by the Board of Directors or the Chief Executive
Officer may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent or member of a
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committee shall not of itself create contract rights. Any vacancy occurring
in any office of the corporation by death, resignation, removal or otherwise
shall be filled if so authorized by the Board of Directors, or if designated
such authority, the Chief Executive Officer.
8.6 CHIEF EXECUTIVE OFFICER. The Board of Directors may designate an
officer as the Chief Executive Officer of the corporation. The officer so
designated as the Chief Executive Officer shall preside at all meetings of the
shareholders and of the Board of Directors and shall have and shall exercise all
of the powers and duties as usually pertain to such office or as may be
delegated by the Board of Directors. Unless the Board of Directors shall
otherwise delegate such duties, the Chief Executive Officer shall be ex-officio
a member of all standing committees. The Chief Executive Officer shall have
general powers of oversight, supervision and management of the business and
affairs of the corporation, and shall see that all orders and resolutions of the
Board of Directors are carried into effect. If a Chief Executive Officer is not
otherwise designated by the Board of Directors, the President shall be the Chief
Executive Officer of the corporation.
8.7 PRESIDENT. The President shall have such powers and duties as usually
pertain to such office, except as the same may be modified by the Board of
Directors. Unless the Board of Directors shall otherwise delegate such duties,
the President shall have general and active control of the day to day affairs
and management of the business of the corporation. Unless otherwise determined
by the Board of Directors, the President shall, in the absence or disability of
the Chief Executive Officer, perform the duties and exercise the power of the
Chief Executive Officer.
8.8 VICE PRESIDENTS. Unless otherwise determined by the Board of
Directors, one of the Vice Presidents shall, in the absence or disability of the
President, perform the duties and exercise the powers of the President. The
various Vice Presidents shall perform such other duties and have such other
powers as the Board of Directors or the Chief Executive Officer, as appropriate,
shall prescribe.
8.9 SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and of the shareholders, record all the proceedings of the meetings of
the Board of Directors and of the shareholders in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He or she shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings as may be prescribed by the Board of Directors
or the President. He or she shall keep in safe custody the seal of the
corporation, and, when authorized by the Board of Directors, affix the same to
any instrument requiring it, and, when so affixed, it shall be attested by his
or her signature or by the signature of the Assistant Secretary, or if there be
none, the signature of the Treasurer acting as Assistant Secretary.
8.10 ASSISTANT SECRETARIES. An Assistant Secretary, unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
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Secretary, perform the duties and exercise the powers of the Secretary. They
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
8.11 TREASURER. The Treasurer shall have the custody of the corporate
funds and securities, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. He or she
shall disburse the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer, President and the Board of Directors at its regular
meetings, or when the Board of Directors so requires, an account of all his or
her transactions as Treasurer, and of the financial condition of the
corporation.
8.12 ASSISTANT TREASURERS. An Assistant Treasurer, unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer. The
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors from time to time may prescribe.
8.13 OFFICER'S BOND. If required by the Board of Directors, any officer so
required shall give the corporation a bond (which shall be renewed as the Board
may require) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the corporation, in case
of his or her death, resignation, retirement or removal from office, of any and
all books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control belonging to the corporation.
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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
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only 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 rght 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
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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.
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.
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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 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
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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.
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All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
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.
-8-
<PAGE>
(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
-9-
<PAGE>
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.
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.
-10-
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment"), dated as of August 15, 1998, is among SOFTWARE SPECTRUM, INC.,
a corporation duly organized and validly existing under the laws of the State
of Texas (the "Borrower"), each of the banks or other lending institutions
which is a signatory hereto (individually, a "BANK" and, collectively, the
"BANKS"), THE CHASE MANHATTAN BANK, individually as a Bank and as
administrative agent for itself and the other Banks (in its capacity as
administrative agent, together with its successors in such capacity
"ADMINISTRATIVE AGENT") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(formerly known as Texas Commerce Bank National Association), individually as
a Bank and as collateral agent for itself and the other Banks (in its
capacity as collateral agent, together with its successors in such capacity,
the "COLLATERAL AGENT").
RECITALS:
Borrower, the Banks, the Administrative Agent and the Collateral Agent
have entered into that certain Amended and Restated Credit Agreement (the
"Agreement") dated as of March 11, 1998. Borrower, the Banks, the
Administrative Agent and the Collateral Agent now desire to amend the
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in
the Agreement, as amended hereby.
ARTICLE 2
AMENDMENTS
Section 2.1 AMENDMENT TO SECTION 8.1. Effective as of March 11, 1998,
clause (b) of Section 8.1 of the Agreement is amended in its entirety to read
as follows:
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available,
and in any event within forty-six (46) days after the end of each
Fiscal Quarter beginning with the Fiscal Quarter ending January 31,
1998, a copy of an unaudited financial report of the Borrower and
the Subsidiaries as of the end of such Fiscal Quarter and for
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 1
<PAGE>
the portion of the Fiscal Year then ended containing, on a consolidated
and (except with respect to the statement of cash flow) consolidating
basis, a balance sheet and statements of income, retained earnings,
and cash flow, in each case (except in the case of the consolidating
statements) setting forth in comparative form the figures for the
corresponding periods of the preceding Fiscal Year, all in reasonable
detail certified by the chief financial officer or chief operating
officer of the Borrower to have been prepared in accordance with GAAP
but presented in accordance with the interim reporting rules and
regulations of the Securities and Exchange Commission and to fairly
present (subject to year-end audit adjustments) the financial condition
and results of operations of the Borrower and the Subsidiaries, on a
consolidated and consolidating basis, at the date and for the periods
indicated therein;
Section 2.2 AMENDMENT TO SECTION 9.4. Effective as of August 10, 1998,
clause (ii) of Section 9.4 of the Agreement is amended in its entirety to read
as follows:
(ii) Borrower may repurchase its capital stock as follows: (A) prior
to January 31, 1999, in one or more transactions pursuant to its stock
repurchase program in existence on the Closing Date if at the time of each
such purchase and after giving effect thereto no Default exists or would
result therefrom and the aggregate purchase price paid for all such
repurchases under this clause (A) since the Closing Date (including the
repurchase in question) shall not exceed One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000); and (B) prior to January 31, 2000, in one or
more transactions pursuant to a stock repurchase program approved by its
board of directors in July of 1998 if at the time of each such purchase and
after giving effect thereto no Default exists or would result therefrom and
the aggregate purchase price paid for all such repurchases under this
clause (B) (including the repurchase in question but excluding those made
pursuant to clause (A) of this clause (ii)) shall not exceed Three Million
Dollars ($3,000,000); and
Section 2.3 AMENDMENT TO EXHIBITS. Effective as of March 11, 1998,
Exhibits "B" and "D" of the Agreement are each amended to read in their
entirety as set forth on Exhibits "B" and "D" of this Amendment.
ARTICLE 3
MISCELLANEOUS
Section 3.1 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions
set forth in the Agreement and except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Borrower, the Banks and the Agents agree that the Agreement as
amended hereby and the other Loan Documents shall continue to be legal,
valid, binding and enforceable in accordance with their respective terms.
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 2
<PAGE>
Section 3.2 REFERENCE TO AGREEMENT. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Agreement as amended hereby, are
hereby amended so that any reference in such Loan Documents to the Agreement
shall mean a reference to the Agreement as amended hereby.
Section 3.3 SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 3.4 APPLICABLE LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 3.5 SUCCESSORS AND ASSIGNS. This Amendment is binding upon
and shall inure to the benefit of the Banks, the Agents and Borrower and
their respective successors and assigns, except Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Banks.
Section 3.6 COUNTERPARTS. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same agreement.
Section 3.7 HEADINGS. The headings, captions, and arrangements used
in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
Section 3.8 ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 3
<PAGE>
Executed as of the date first written above.
BORROWER:
SOFTWARE SPECTRUM, INC.
By: /s/ Robert D. Graham
-----------------------------------------------
Robert D. Graham, Vice President & General Counsel
ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK, individually as a
Bank and as the Administrative Agent
By:
-----------------------------------------------
Jeffrey Ackerman
Vice President
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 4
<PAGE>
Executed as of the date first written above.
BORROWER:
SOFTWARE SPECTRUM, INC.
By:
-----------------------------------------------
Robert D. Graham, Vice President & General Counsel
ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK, individually as a
Bank and as the Administrative Agent
By:/s/ Jeffrey Ackerman
-----------------------------------------------
Jeffrey Ackerman
Vice President
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 4
<PAGE>
COLLATERAL AGENT
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(formerly known as Texas Commerce Bank
National Association), individually as a Bank
and as the Collateral Agent
By: /s/ Jeffrey A. Stern
-----------------------------------------------
Jeffrey A. Stern,
Vice President
OTHER BANKS:
NATIONAL CITY BANK, KENTUCKY
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 5
<PAGE>
COLLATERAL AGENT
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(formerly known as Texas Commerce Bank
National Association), individually as a Bank
and as the Collateral Agent
By:
-----------------------------------------------
Jeffrey A. Stern,
Vice President
OTHER BANKS:
NATIONAL CITY BANK, KENTUCKY
By: /s/ Tom Garbach
-----------------------------------------------
Name: Tom Garbach
---------------------------------------
Title: Vice President
---------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 5
<PAGE>
COLLATERAL AGENT
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(formerly known as Texas Commerce Bank
National Association), individually as a Bank
and as the Collateral Agent
By:
-----------------------------------------------
Jeffrey A. Stern,
Vice President
OTHER BANKS:
NATIONAL CITY BANK, KENTUCKY
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Michael D. Shover
-----------------------------------------------
Name: Michael D. Shover
---------------------------------------
Title: Bank Officer
---------------------------------------
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 5
<PAGE>
COLLATERAL AGENT
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(formerly known as Texas Commerce Bank
National Association), individually as a Bank
and as the Collateral Agent
By:
-----------------------------------------------
Jeffrey A. Stern,
Vice President
OTHER BANKS:
NATIONAL CITY BANK, KENTUCKY
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Michael P. Baranowski
-----------------------------------------------
Name: Michael P. Baranowski
---------------------------------------
Title: Vice President
---------------------------------------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 5
<PAGE>
ACKNOWLEDGMENT
The undersigned hereby consents and agrees to this Amendment and hereby
ratifies and confirms each of the Loan Documents to which it is a party and
agrees that such Loan Documents continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
Witness due execution hereof by the undersigned as of the date first
written above.
SPECTRUM INTEGRATED SERVICES, INC.
By: /s/ Robert D. Graham
------------------------------------------------
Robert D. Graham, Vice President & General Counsel
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT-Page 6
<PAGE>
EXHIBIT "B"
TO
SOFTWARE SPECTRUM, INC.
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
BORROWING BASE CERTIFICATE
EXHIBIT B, Cover Page
<PAGE>
BORROWING BASE CERTIFICATE
TO: THE CHASE MANHATTAN BANK,
as administrative agent
600 Fifth Avenue, 4th Floor
New York, New York 10020
with a copy to each Bank
Ladies/Gentlemen:
This Borrowing Base Report for the month ending ____________________,
19___, is executed and delivered by SOFTWARE SPECTRUM, INC. (the "Borrower")
to THE CHASE MANHATTAN BANK (the "Administrative Agent"), pursuant to that
certain Amended and Restated Credit Agreement (the "Credit Agreement") dated
as of March 11, 1998, among the Borrower, the Administrative Agent, Chase
Bank of Texas, National Association, as Collateral Agent, and the banks named
therein. All terms used herein shall have the meanings assigned to them in
the Credit Agreement.
The Borrower represents and warrants to the Administrative Agent and the
Banks that all information contained herein is true, correct, and complete,
and that the total Eligible Accounts referred to below represent the Eligible
Accounts that qualify for purposes of determining the Borrowing Base under
the Credit Agreement. The Borrower further represents and warrants to the
Lender that attached are the following Receivable Reports, all for the
Borrower and the Granting Subsidiaries for the month ending _____________,
19___: (A) a list of all accounts receivable showing all accounts aged in 30,
60, 90 and 120 day intervals (reflecting all journal entries and adjustments,
including all customer credits and debits), (B) all contra calculations,
specifying, among other items, the accounts payable balances owed to its top
ten vendors, (C) a collections report, (D) the lockbox statements, and (E)
inventory designations.
<TABLE>
<S> <C> <C>
1. Accounts Receivable of Borrower and Domestic Granting Subsidiaries
as of the date of the last submitted Borrowing Base (NOTE:
lines 1(a), (b)and (c) to be completed only upon Administrative
Agent's request). . . . . . . . . . . . . . . . . . . . . . . . . . $_________
(a) + Sales . . . . . . . . . . . . . . . . . . . . . . . . . $_________
(b) - Collections . . . . . . . . . . . . . . . . . . . . . . $_________
(c) - Credits . . . . . . . . . . . . . . . . . . . . . . . . $_________
(d) Gross Accounts Receivable of Borrower and Domestic
Granting Subsidiaries as of______________(detail of
the conversion calculation of Canadian dollar accounts
to U.S. dollars to be attached as a schedule) . . . . . . $________
BORROWING BASE CERTIFICATE-Page 1
<PAGE>
- -----------------------------------------------------------------------------------------------------------
Accounts Receivable Aging of Borrower and Domestic Granting Subsidiaries as of_________
Domestic
Total A/R Current 31-60 61-90 91-120 Over 120
--------- ------- ----- ----- ------ --------
$ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------
2. Less; Ineligible Accounts of Borrower and the Domestic Granting
Subsidiaries (determined pursuant to the definition of Eligible Account in
the Credit Agreement, without duplication)
(a) Accounts not due and payable within 120 days . . . . . . . . $__________
(b) Accounts outstanding for more than 120 days past the
original date of invoice . . . . . . . . . . . . . . . . . . $__________
(c) Accounts created outside of the ordinary course of
business. . . . . . . . . . . . . . . . . . . . . . . . . . $__________
(d) Accounts relating to unenforceable contracts or contracts
which do not represent complete bona fide transactions . . . $__________
(e) Accounts from sales on bill-and-hold, guaranteed sale, sale
and-return, or similar basis . . . . . . . . . . . . . . . . $__________
(f) Accounts subject to, or arising from the sale of goods
subject to, a Lien other than Liens held by the Collateral
Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . $__________
(g) Accounts as to which the Collateral Agent does not have
first priority Lien or which are not directed to be remitted to
a Lockbox Account. . . . . . . . . . . . . . . . . . . . . . $__________
(h) Accounts subject to set-off, dispute, etc. . . . . . . . . . $__________
(i) Accounts owed by account debtors subject to bankruptcy or
that are insolvent . . . . . . . . . . . . . . . . . . . . . $__________
(j) Accounts evidenced by chattel paper or instruments . . . . . $__________
(k) Accounts owed by foreign account debtors (other than
Approved Foreign Account Debtors) not supported by an
acceptable letter of credit or insurance . . . . . . . . . . $__________
(l) Any U.S. Federal or Canadian Government Accounts unless
the applicable assignment of claims laws shall have been
complied with. . . . . . . . . . . . . . . . . . . . . . . . $__________
(m) Accounts owed by Affiliates etc. . . . . . . . . . . . . . . $__________
(n) Accounts not payable in Dollars or Canadian dollars . . . . $__________
(o) Accounts that do not comply with laws, etc . . . . . . . . . $__________
(p) Accounts backed by performance, completion or other
bonds or performance subcontracted (unless waived in
writing by the Administrative Agent) . . . . . . . . . . . . $__________
(q) Accounts written off per GAAP. . . . . . . . . . . . . . . . $__________
BORROWING BASE CERTIFICATE-Page 2
<PAGE>
(r) Accounts for which required notices have not
been filed . . . . . . . . . . . . . . . . . . . . . . . . . $__________
(s) Excluded Accounts. . . . . . . . . . . . . . . . . . . . . . $__________
(t) Accounts subject to 50% past due rule. . . . . . . . . . . . $__________
(u) Contra accounts owed to the account debtors. . . . . . . . . $__________
3. Total Ineligible Accounts of Borrower and the Domestic Granting
Subsidiaries (total of 2(a) through (u)). . . . . . . . . . . . . $__________
4. Total Eligible Accounts of Borrower and the Domestic Granting
Subsidiaries (1(d) minus 3) . . . . . . . . . . . . . . . . . . . $__________
5. Advance Percent of line 4 . . . . . . . . . . . . . . . . . . . . $__________
6. Accounts Receivable of Software Spectrum Canada as of the date
of the last submitted Borrowing Base (NOTE: lines 6(a), (b) and (c)
to be completed only upon Administrative Agent's request) . . . . $__________
(a) + Sales . .. . . . . . . . . . . . . . . . . . . . . . . . . $__________
(b) - Collections. . . . . . . . . . . . . . . . . . . . . . . . $__________
(c) - Credits . . . . . . . . . . . . . . . . . . . . . . . . . $__________
(d) Gross Accounts Receivable of Software Spectrum Canada
as of _______________ (detail of conversion calculation to
U.S. dollars to be attached as a schedule) . . . . . . . . . $__________
- -----------------------------------------------------------------------------------------------------------
Accounts Receivable Aging of Software Spectrum Canada as of_________
Total A/R Current 31-60 61-90 91-120 Over 120
--------- ------- ----- ----- ------ --------
$ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------
7. Less: Ineligible Accounts of Software Spectrum Canada
(a) Accounts not due and payable within 120 days . . . . . . . . $__________
(b) Accounts outstanding for more than 120 days past the
original date of invoice . . . . . . . . . . . . . . . . . . $__________
(c) Accounts created outside of the ordinary course of
business. . . . . . . . . . . . . . . . . . . . . . . . . . $__________
(d) Accounts relating to unenforceable contracts or contracts
which do not represent complete bona fide transactions . . . $__________
(e) Accounts from sales on bill-and-hold, guaranteed sale,
sale-and-return, or similar basis. . . . . . . . . . . . . . $__________
(f) Accounts subject to, or arising from the sale of goods
subject to, a Lien other than Liens held by the Collateral
Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . $__________
BORROWING BASE CERTIFICATE-Page 3
<PAGE>
(g) Accounts as to which the Collateral Agent does not have
first priority Lien or which are not directed to be remitted to
a Lockbox Account. . . . . . . . . . . . . . . . . . . . . . $__________
(h) Accounts subject to set-off, dispute, etc. . . . . . . . . . $__________
(i) Accounts owed by account debtors subject to bankruptcy or
that are insolvent . . . . . . . . . . . . . . . . . . . . . $_________
(j) Accounts evidenced by chattel paper or instruments . . . . . $_________
(k) Accounts owed by foreign account debtors (other than
Approved Foreign Account Debtors) not supported by an
acceptable letter of credit or insurance . . . . . . . . . . $__________
(l) Any U.S. Federal or Canadian Government Accounts unless
the applicable assignment of claims laws shall have been
complied with. . . . . . . . . . . . . . . . . . . . . . . . $__________
(m) Accounts owed by Affiliates etc. . . . . . . . . . . . . . . $__________
(n) Accounts not payable in Dollars or Canadian dollars . . . . $__________
(o) Accounts that do not comply with laws, etc . . . . . . . . . $__________
(p) Accounts backed by performance, completion or other
bonds or performance subcontracted (unless waived in
writing by the Administrative Agent) . . . . . . . . . . . . $__________
(q) Accounts written off per GAAP. . . . . . . . . . . . . . . . $__________
(r) Accounts for which required notices have not
been filed . . . . . . . . . . . . . . . . . . . . . . . . . $__________
(s) Excluded Accounts. . . . . . . . . . . . . . . . . . . . . . $__________
(t) Accounts subject to 50% past due rule. . . . . . . . . . . . $__________
(u) Contra accounts owed to the account debtors. . . . . . . . . $__________
(v) Accounts not purchased by Borrower . . . . . . . . . . . . . $__________
8. Total Software Spectrum Canada Ineligible Accounts (total 7(a)
through (v)) . .. . . . . . . . . . . . . . . . . . . . . . . . . $__________
9. Total Eligible Accounts relating to Software Spectrum Canada
(6 minus 8) . .. . . . . . . . . . . . . . . . . . . . . . . . . $__________
10. Advance Percent of Line 9 . . . . . . . . . . . . . . . . . . . . $__________
11. Market value of cash and cash equivalents held in Cash Collateral
Account (market value detailed on Schedule 2 hereto). . . . . . . $__________
12. Short Term Bank Debt (if available or outstanding). . . . . . . . ($5,000,000)
13. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($________)
14. Borrowing Base: Line 5 plus Line 10 plus line 11 minus
line 12 minus line 13 . . . . . . . . . . . . . . . . . . . . . . $__________
15. Outstanding Revolving Credit
(a) Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . $__________
BORROWING BASE CERTIFICATE-Page 4
<PAGE>
(b) Letter of Credit Liabilities . . . . . . . . . . . . . . . . $__________
(c) Accrued and unpaid interest and fees and other
amounts due. . . . . . . . . . . . . . . . . . . . . . . . . $__________
(d) TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $__________
16. Borrowing Availability [(the lesser of the amount of the
Revolving Commitments or line 14 minus line 15(d)]. . . . . . . . $__________
</TABLE>
The Borrower represents and warrants to the Banks that the
representations and warranties of the Borrower contained in Article 7 of the
Credit Agreement and the other Loan Documents are true and correct on and as
of the date of this Borrowing Base Report as if made on and as of the date
hereof except to the extent that such representations and warranties speak to
a specific date, and that no Default has occurred and is continuing.
Date: ___________, ______.
BORROWER:
SOFTWARE SPECTRUM, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
BORROWING BASE CERTIFICATE-Page 5
<PAGE>
EXHIBIT "D"
to
SOFTWARE SPECTRUM, INC.
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
EXHIBIT D, Cover Page
<PAGE>
COMPLIANCE CERTIFICATE
for the
quarter ending __________, ____
To: The Chase Manhattan Bank,
as administrative agent
600 Fifth Avenue, 4th Floor
New York, New York 10020
and each Bank
Ladies and Gentlemen:
This Compliance Certificate (the "CERTIFICATE") is being delivered
pursuant to Section 8.1(c) of that certain Amended and Restated Credit
Agreement (as amended, the "AGREEMENT") dated as of March 11, 1998 among
SOFTWARE SPECTRUM, INC. (the "BORROWER"), THE CHASE MANHATTAN BANK, as
administrative agent, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as
collateral agent and the Banks named therein. All capitalized terms, unless
otherwise defined herein, shall have the same meanings as in the Agreement.
All the calculations set forth below shall be made pursuant to the terms of
the Agreement.
The undersigned, an authorized financial officer of the Borrower, does
hereby certify to the Agent and the Banks that:
1. DEFAULT.
No Default has occurred and is continuing or if a Default has occurred and
is continuing, I have described on the attached Exhibit "A" the nature
thereof and the steps taken or proposed to remedy such Default.
<TABLE>
<CAPTION>
Compliance
----------
<S> <C> <C> <C> <C>
2. SECTION 8.1 - FINANCIAL STATEMENTS AND RECORDS
(a) Annual audited financial statements of Borrower on or Yes No N/A
before 91 days after the end of each Fiscal Year.
(b) Quarterly unaudited financial statements of Borrower on Yes No N/A
a consolidated and consolidating basis within 46 days of
each Fiscal Quarter end.
(c) Borrowing Base Report together with the Receivables Yes No N/A
Reports within 20 days of each month end or within 20
days of any other date required by the Administrative
Agent.
COMPLIANCE CERTIFICATE-Page 1
<PAGE>
(d) If Daily Collection Event occurs, Receivable Reports Yes No N/A
(i) weekly or
(ii) daily
(e) Projections within 30 days before the start of each Fiscal Yes No N/A
Year.
3. SECTION 8.10 - COLLATERAL MATTERS
(a) Aggregate book value of inventory held by third parties $__________
(b) Limit $ 2,500,000
(c) Collateral perfection/protection required Yes No
(d) Material Subsidiary created or acquired? Yes No
(e) If line (d) is yes, have 8.10(b) and (c) collateral measures
been taken? Yes No
4. SECTION 9.1 - DEBT
No Additional Debt except:
(a) Purchase money not to exceed: $ 5,000,000
Actual Outstanding: $__________ Yes No
(b) Guaranties of surety and other bonds not to exceed: $ 4,000,000
Actual Outstanding: $__________ Yes No
(c) Outstanding Guaranties of permitted Debt of Foreign
Subs and Foreign Ventures $__________
(d) Outstanding Loans, advances, other extensions of credit,
investments and contributions to Foreign Subs
(excluding Software Spectrum Canada in an amount up
to the gross Dollar amount of receivables of Software
Spectrum Canada) and Foreign Ventures $__________
(e) Total Foreign Subsidiary Obligations (line 4(c) plus
4(d)) $__________
(f) Foreign Subsidiary Limit
(i) $30,000,000 plus
(ii) if 9.1(e)(ii) test satisfied $10,000,000 $__________ Yes No
(g) Acquisition Debt incurred in any Fiscal Year not to
exceed $10,000,000
Actual incurred in current Fiscal Year $__________
(NOTE: Incurrence Test must also be met) Yes No
(h) Unsecured Vendor Debt not to exceed $20,000,000
Actual Outstanding $__________
(NOTE: Incurrence Test must also be met) Yes No
(i) Unsecured Short Term Bank Debt not to exceed $ 5,000,000
Actual Outstanding $__________
Yes No
COMPLIANCE CERTIFICATE-Page 2
<PAGE>
5. SECTION 9.3 - MERGERS ETC.
(a) Has acquisition been consummated since last
Compliance Certificate? Yes No
(b) If line (a) yes, Purchase Price $__________
(c) Aggregate Purchase Prices from prior acquisitions under
9.3 in current Fiscal Year $__________
(d) Purchase Price Limit per transaction $ 5,000,000 Yes No N/A
(e) Aggregate Purchase Price Limit per Fiscal Year $10,000,000 Yes No N/A
(f) Were the conditions in clauses (a) through (e) of Section
9.3(iv) satisfied with respect to each acquisition? Yes No N/A
6. SECTION 9.4 - DIVIDENDS
(a) Stock repurchases pursuant to stock repurchase program
in existence at closing date not to exceed (note: no
further stock repurchases permitted under this clause (a)
after 1/31/99) $ 1,750,000
Actual such repurchases since Closing Date: $__________ Yes No N/A
(b) Stock repurchases pursuant to 7/98 stock repurchase
program not to exceed (note: no further stock
repurchases permitted under this clause (b) after
1/31/2000) $ 3,000,000
Actual such repurchases since 8/31/98 (excluding those
included in clause (a)) $__________ Yes No
(c) Attach as schedule evidence of compliance with Section
9.4(iii) with respect to dividends and other stock
repurchases Yes No N/A
7. SECTION 9.8 - DISPOSITION ASSETS
(a) Book Value of asset disposed of in sale leaseback
transaction within the last 12 months $__________
Actual not to exceed: $ 500,000 Yes No N/A
(b) Book value of assets disposed of within the last 12 $__________
months
Actual not to exceed: $ 500,000 Yes No N/A
8. SECTION 9.10 - PREPAYMENT OF DEBT
No prepayment of Debt except:
(a) Obligations
(b) Foreign Sub Debt Guaranteed
(c) Prepayment of other Debt limited in any Fiscal Year to: $ 500,000
(d) Aggregate amount of other Debt so prepaid in current
Fiscal Year $__________ Yes No N/A
COMPLIANCE CERTIFICATE-Page 3
<PAGE>
9. SECTION 10.1 - CONSOLIDATED NET WORTH
(a) Required Consolidated Net Worth $72,000,000
(b) Actual Consolidated Net Worth
(i) shareholders equity $__________
(ii) treasury stock $__________
(iii) 9(a) minus 9(b) $__________ Yes No N/A
10. SECTION 10.2 - INTEREST COVERAGE
(a) Net Income for applicable period $__________
(b) Plus net provisions for tax $__________
(c) Plus Interest Expense $__________
(d) Plus amortization and depreciation $__________
(e) Borrower EBITDA: 10(a) plus 10(b), 10(c) and 10(d) $__________
(f) Unfinanced Capital Expenditures $__________
(g) (line 10(e) minus line 10(f)) $__________
(h) Interest Expense $__________
(i) Interest Coverage (line 10(g) divided by line 10(h)) ___:1.00
(j) Minimum Interest Coverage ___:1.00 Yes No
11. SECTION 10.3 - CAPITAL EXPENDITURE LIMITS
(a) Capital Expenditure limit for the period $__________
(b) Actual Capital Expenditures $__________ Yes No
12. SECTION 10.4 - NET INCOME
(a) Net Income (most recent Fiscal Quarter) $__________
(b) less than - $2,500,000? Yes No
(c) Net Income (previous Fiscal Quarter) $__________
(d) 12(a) plus 12(c) less than - $3,000,000? Yes No
13. DETERMINATION OF MARGIN AND FEES
(a) Borrower EBITDA: From 10(e) $__________
(b) All Capital Expenditures (financed and unfinanced) $__________
(c) Actual technical support contract Capital Expenditures
not to exceed $1,500,000 incurred in the period through
the Fiscal Quarter ending January 31, 1999 $__________
(d) (line 13(a) minus the positive sum of (i) line 13(b) minus
(ii), if calculated for a period prior to February 1, 1999, $__________
line 13(c))
(e) Interest Expense $__________
(f) Interest Coverage Ratio (line 13(d) divided by line 13(e)) ___:1.00
(g) Adjustment to margin and fees required by Section 3.2? Yes No
(h) If adjustment required, set forth below new margins and
fees in accordance with Section 3.2:
(i) Base Margin ____%
(ii) Libor Rate Margin and LC Fee ____%
(iii) Commitment Fee ____%
</TABLE>
COMPLIANCE CERTIFICATE-Page 4
<PAGE>
14. ATTACHED SCHEDULES
Attached hereto as schedules are the calculations supporting the
computation set forth above in this Certificate. All information contained
herein and on the attached schedules is true and correct.
15. FINANCIAL STATEMENTS
The unaudited financial statements attached hereto were prepared in
accordance with GAAP but presented in accordance with the interim reporting
rules and regulations of the Securities and Exchange Commission and fairly
present (subject to year end audit adjustments) the financial conditions
and the results of the operations of the Persons reflected thereon, at the
date and for the periods indicated therein.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
effective this ______ day of__________, ______.
SOFTWARE SPECTRUM, INC
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
COMPLIANCE CERTIFICATE-Page 5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 3,945
<SECURITIES> 0
<RECEIVABLES> 148,555
<ALLOWANCES> 3,343
<INVENTORY> 3,086
<CURRENT-ASSETS> 155,959
<PP&E> 45,232
<DEPRECIATION> 21,418
<TOTAL-ASSETS> 230,067
<CURRENT-LIABILITIES> 126,086
<BONDS> 26,647
0
0
<COMMON> 44
<OTHER-SE> 77,290
<TOTAL-LIABILITY-AND-EQUITY> 230,067
<SALES> 379,125
<TOTAL-REVENUES> 424,241
<CGS> 343,842
<TOTAL-COSTS> 371,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 759
<INCOME-PRETAX> 4,705
<INCOME-TAX> 2,117
<INCOME-CONTINUING> 2,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,588
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
