<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SOFTWARE SPECTRUM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
GARLAND, TEXAS 75041
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 23, 1999
TO THE SHAREHOLDERS OF SOFTWARE SPECTRUM, INC.
The Annual Meeting of Shareholders of Software Spectrum, Inc. (the
"Company") will be held on Thursday, September 23, 1999, at 10:00 a.m.,
Central time, at the Company's offices located at 2140 Merritt Drive,
Garland, Texas, for the following purposes:
1. To elect two directors to serve for a period of three years
and until their respective successors shall have been elected and
qualified;
2. To approve the adoption of Amendment No. 1 to the
Company's 1998 Long Term Incentive Plan; and
3. To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
Information regarding the matters to be acted upon at the annual
meeting is contained in the Proxy Statement attached to this Notice.
Only shareholders of record at the close of business on August 9,
1999 are entitled to notice of, and to vote at, such meeting or any
adjournment(s) thereof. A complete list of the shareholders entitled to vote
at the meeting will be open to the examination of any shareholder, for any
purpose germane to the meeting, during ordinary business hours for a period
of 10 days prior to the meeting at the corporate offices of the Company, 2140
Merritt Drive, Garland, Texas 75041.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
ROBERT D. GRAHAM
Secretary
Garland, Texas
August 18, 1999
<PAGE>
SOFTWARE SPECTRUM, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 23, 1999
SOLICITATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Software Spectrum, Inc. (the "Company") for use at the Annual
Meeting of Shareholders of the Company (the "Annual Meeting") to be held at
the Company's offices located at 2140 Merritt Drive, Garland, Texas on
Thursday, September 23, 1999, at 10:00 a.m., Central time and at any
adjournment(s) thereof. Solicitation of proxies may be made in person or by
mail, telephone or telegram by directors, officers, employees, or other
authorized designees of the Company. The Company has retained D.F. King & Co.
to assist in the solicitation of proxies for a fee of $4,500 plus
reimbursement of expenses. The Company may also request banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation material to the beneficial owners of common stock, $.01 par
value per share, of the Company (the "Common Stock") held of record by such
persons, and the Company will reimburse the forwarding expense. All
reasonable costs of preparing, printing, assembling and mailing the form of
proxy and the material used in the solicitation thereof and all clerical and
other expenses of solicitation will be paid by the Company. The approximate
date on which this Proxy Statement and form of proxy were first sent to
shareholders is August 18, 1999.
The purpose of the Annual Meeting and the matters to be acted upon
are set forth in the foregoing attached Notice of Annual Meeting of
Shareholders. As of the date of this Proxy Statement, the Board of Directors
knows of no other business that will be presented for consideration at the
Annual Meeting. However, if any such other business shall properly come
before the Annual Meeting, votes will be cast pursuant to said proxies in
respect of any such other business in accordance with the judgment of the
persons acting under said proxies.
RECORD DATE AND VOTING RIGHTS
Only shareholders of record at the close of business on August 9,
1999 will be entitled to vote on matters presented at the Annual Meeting or
any adjournment(s) thereof. The stock transfer books will not be closed. At
the record date, there were outstanding and entitled to be voted 4,104,580
shares of Common Stock.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of the Common Stock of the Company entitled to vote is
necessary to constitute a quorum at the meeting. If a quorum is not present
or represented at the meeting, the shareholders entitled to vote thereat,
present in person or represented by proxy, have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. Abstentions and broker
non-votes (when a broker holding shares for clients in street name is not
permitted to vote on certain matters without the client's instructions) are
counted for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions and broker non-votes are not counted
in the election of directors and will have no effect on such election except
to the extent they affect the total votes received by a candidate. On matters
other than the election of directors, however, abstentions will be counted as
votes cast, which will have the same effect as a negative vote on such matter.
On all matters submitted to a vote at the Annual Meeting, or any
adjournment(s) thereof, each holder of Common Stock will be entitled to one
vote, in person or by proxy, for each share of stock owned of record at the
close of business on August 9, 1999. Cumulative voting for directors is not
permitted.
A shareholder giving a proxy pursuant to the present solicitation
may revoke it at any time before it is exercised by giving a subsequent proxy
or by delivering to the Secretary of the Company a written notice of
revocation prior to the voting of the proxy at the Annual Meeting. No proxy
will be used if the shareholder is personally present at the Annual Meeting
and expresses a desire to vote his shares in person.
<PAGE>
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth as of July 15, 1999, except as noted
below, information as to the beneficial ownership of the Common Stock by each
person known by the Company to beneficially own more than 5% of the
outstanding Common Stock.
<TABLE>
<CAPTION>
Name and Address Shares Percent
of Beneficial Owner Beneficially Owned(1) of Class
- ------------------- --------------------- --------
<S> <C> <C>
Judy Odom Sims (2) 385,264(8) 9.22%
Private Capital Management, Inc. 837,854(9) 20.42
and Bruce S. Sherman (3)
Morton H. Sachs & Company, 376,900(10) 9.19
DBA The Sachs Company (4)
Merrill Lynch & Co., Inc. (5) 277,000(11) 6.75
Denver Investment Advisors LLC (6) 248,000(12) 6.04
Dimensional Fund Advisors (7) 238,300(13) 5.81
</TABLE>
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(1) Unless otherwise indicated, to the knowledge of the Company, all shares
are owned directly, and the owner has sole voting and investment power.
(2) The named person's address is 2140 Merritt Drive, Garland, Texas 75041.
(3) The named person's address is 3003 Tamiami Trail North, Naples, Florida
33940.
(4) The named person's address is 1346 South Third Street, Louisville,
Kentucky 40208.
(5) The named person's address is World Financial Center, North Tower, 250
Vesey Street, New York, New York 10281.
(6) The named person's address is 1225 17th Street, 26th Floor, Denver,
Colorado 80202.
(7) The named person's address is 1299 Ocean Avenue, 11th Floor, Santa
Monica, California 90401.
(8) Includes 76,000 shares which are subject to options exercisable within
60 days of July 15, 1999.
(9) This information is based on a Schedule 13G/A of Private Capital
Management, Inc. ("PCM"), SPS Partners, L.P. ("SPS"), Bruce S. Sherman
and certain other persons, dated February 17, 1999. Mr. Sherman is
president of PCM and managing general partner of SPS and exercises
shared dispositive power with each such entity.
(10) This information is based on a Schedule 13G/A of Morton H. Sachs &
Company, DBA The Sachs Company, dated July 27, 1999. The Sachs Company
is an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940.
(11) This information is based on a Schedule 13G/A of Merrill Lynch & Co.,
Inc., dated February 1, 1999. Merrill Lynch & Co., Inc. disclaims
beneficial ownership of such shares pursuant to Section 240.13d-4 of
the Securities Exchange Act of 1934.
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<PAGE>
(12) This information is based on a Schedule 13G of Denver Investment
Advisors LLC, dated February 12, 1999. Denver Investment Advisors is an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940.
(13) This information is based on a Schedule 13G of Dimensional Fund
Advisors, dated February 11, 1999. Dimensional Fund Advisors is an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940 and disclaims beneficial ownership of such shares.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of July 15, 1999 information as to
the beneficial ownership of Common Stock by each director and nominee (except
Ms. Sims, whose holdings are shown in the preceding table) and each of the
chief executive officer and the other four most highly compensated executive
officers of the Company (other than Ms. Sims), and by all directors and
executive officers as a group (including Ms. Sims).
<TABLE>
<CAPTION>
Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Class
- ------------------------ --------------------- --------
<S> <C> <C>
Frank Tindle, Director 152,277(2) 3.71%
Mellon C. Baird, Director 9,000(3) *
Carl S. Ledbetter, Director 8,129(4) *
Brian N. Dickie, Director 0 *
Keith R. Coogan, President,
Chief Operating Officer and Director 28,011(5) *
Roger J. King, Executive Vice President of
Sales and Marketing 43,819(6) 1.06
Robert D. Graham, Vice President
Strategic Relationships, General
Counsel and Secretary 11,460(7) *
Lorraine Castorina, Vice President
of North American Sales 11,368(8) *
All directors and executive officers
as a group (15 persons) 689,561(9) 16.81
</TABLE>
- -------------------------
* Indicates less than one percent.
-3-
<PAGE>
(1) Unless otherwise indicated, to the knowledge of the Company, all shares are
owned directly and the owner has sole voting and investment power.
(2) All of such shares are jointly held by Mr. Tindle and his spouse as
tenants-in-common, and Mr. Tindle has shared investment and voting
power with respect thereto. Includes 8,000 shares which are subject to
options exercisable within 60 days of July 15, 1999.
(3) Includes 8,000 shares which are subject to options exercisable within 60
days of July 15, 1999.
(4) Includes 6,000 shares which are subject to options exercisable within 60
days of July 15, 1999.
(5) Includes 22,000 shares which are subject to options exercisable within 60
days of July 15, 1999.
(6) Includes 20,800 shares which are subject to options exercisable within 60
days of July 15, 1999.
(7) Includes 9,800 shares which are subject to options exercisable within 60
days of July 15, 1999.
(8) Of such shares, 800 are jointly held by Ms. Castorina and her spouse as
tenants-in-common, and Ms. Castorina has shared investment and voting
power with respect thereto. Includes 9,200 shares which are subject to
options exercisable within 60 days of July 15, 1999.
(9) Includes 195,900 shares which are subject to options exercisable within
60 days of July 15, 1999.
ACTION TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and
returned will be voted at the Annual Meeting and any adjournment(s) thereof
and will be voted, unless the person giving the proxy specifies otherwise:
(1) for the election of the individuals named below as nominees for election
as directors of the Company, to serve for a period of three years and until
their respective successors are elected and qualified; (2) for the adoption
of Amendment No. 1 to the 1998 Long Term Incentive Plan; and (3) in the
transaction of such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
Management knows of no matters, other than the foregoing, to be
presented for consideration at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournment(s)
thereof, it is the intention of the persons named in the enclosed proxy to
vote such proxy in accordance with their judgment on any such matters.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of six
directorships and is divided into three classes. The term of the first class
expires at the 2001 Annual Meeting of Shareholders, the term of the second
class expires at the 1999 Annual Meeting of Shareholders and the term of the
third class expires at the 2000 Annual Meeting of Shareholders.
Two directors for the second class of directorships will be elected
at the Annual Meeting. The directors to be elected at the Annual Meeting will
hold office for a term of three years and will serve until their respective
successors are elected and qualified. Proxies cannot be voted for more than
two nominees.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, any director or directors
may be removed from office at any time, but only by the affirmative vote of:
(i) the holders of at least two-thirds of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally
in the election of
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<PAGE>
directors, voting together as a single class; or (ii) a majority of the
members of the Board then serving. The persons named below are the Board of
Director's nominees for election as directors of the Company. The nominees
presently are serving as directors of the Company and have served as such
since the dates indicated. Further information with respect to each nominee
and the other directors continuing in office is set forth below.
Should the nominees named herein for the office of director become
unable or unwilling to accept nomination or election, it is intended that the
persons acting under the proxy will vote for the election, in his stead, of
such other persons as the Board of Directors of the Company may recommend.
The Board of Directors has no reason to believe that the nominees will be
unable or unwilling to serve if elected.
The vote of a plurality of the shares entitled to vote on the
election of directors and represented in person or by proxy at the Annual
Meeting is required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE ELECTION OF THE NOMINEES.
NOMINEES FOR DIRECTOR
TERM EXPIRES IN 2002
Carl S. Ledbetter, age 50, has been a director of the Company since
November 1996. Mr. Ledbetter has served as Chairman, President and Chief
Executive Officer of Hybrid Networks, an innovator and leader in the
broadband access industry since 1996. From 1993 to 1996, Mr. Ledbetter was
President of Consumer Products at AT&T, and from 1991 to 1993 was employed at
Sun Microsystems, Inc. where he initially served as a General Manager of Sun
Select and Corporate Vice President. In such positions he managed Sun
Microsystems, Inc.'s fast-growing networking business. Prior to 1991, Mr.
Ledbetter held various positions with technology companies, including
Decision Point Consulting, Control Data Corporation, Prime Computer and IBM
Corporation.
Brian N. Dickie, age 44, was elected by the Board of Directors to
fill a vacancy in this class of directors of the Company in June 1999. Mr.
Dickie is President of the Emerging Businesses Group for TXU, a global energy
services company, where he manages TXU's emerging business portfolio and is
guiding its transition to a competitive environment as a result of
deregulation. Prior to joining TXU in early 1999, Mr. Dickie served as Chief
Operating Officer of Booz Allen & Hamilton Inc., a global management and
technology consulting firm. He joined Booz Allen in 1982 and held various
management positions, including COO from 1997 to 1999; President, Worldwide
Commercial Business from 1993 to 1997; and Managing Partner of the firm's
Asia/Pacific practice from 1988 to 1993. From 1982 to 1988, he consulted with
clients in the U.S., Canada, the United Kingdom and Asia/Pacific.
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRES IN 2000
Judy Odom Sims, age 46, is a co-founder of the Company and has
been a director of the Company since its inception in 1983. Ms. Sims served
as Treasurer of the Company from 1983 to October 1990, as Vice President
from April 1987 to April 1988, and has served as Chief Executive Officer
since April 1988 and Chairman of the Board since July 1992. From April 1996
to May 1998, Ms. Sims also served as President of the Company. Ms. Sims
was employed by the national accounting firm of Grant Thornton LLP from
1977 to 1985, where she last served as an audit partner. Ms. Sims is a
Certified Public Accountant.
Frank Tindle, age 47, is a co-founder of the Company and has been a
director of the Company since 1983. From 1983 to April 1992, Mr. Tindle
served as Vice President of the Company. From 1980 to 1983, Mr. Tindle was
the principal accounting officer of Southmark Corporation. Prior to joining
Southmark, Mr. Tindle was employed by the national accounting firms of Grant
Thornton LLP and Ernst & Young LLP. Mr. Tindle is a Certified Public
Accountant.
-5-
<PAGE>
TERM EXPIRES IN 2001
Mellon C. Baird, age 68, has been a director of the Company since
June 1991. Mr. Baird has been President and Chief Executive Officer of Titan
Technologies and Information Systems Corporation, a wholly-owned subsidiary
of Titan Corporation, since its merger with Delfin Systems in September 1998.
Titan is a developer and supplier of information and communication systems,
products and services for government and commercial markets. Prior to the
merger, Mr. Baird had served as President and Chief Executive Officer of
Delfin Systems since November 1990 and as Chairman of the Board since April
1991. Mr. Baird also serves as a director of EDO Corporation and of Hawker
Pacific Aerospace. From September 1986 to December 1987, Mr. Baird served as
President, Chief Operating Officer and a director of Tracor, Inc., and from
January 1988, after Tracor, Inc. became a subsidiary of privately-held
Westmark Systems, Inc., until December 1989, he served as President and Chief
Executive Officer of this diversified technological products and services
company. Mr. Baird served as President of the Defense and Electronics Group
of Eaton Corporation from 1982 to September 1986.
Keith R. Coogan, age 47, has been a director since August 1998. Mr.
Coogan was named President in May 1998 and has been Chief Operating Officer
since April 1996. Mr. Coogan served as Executive Vice President of the
Company from April 1996 to May 1998 and had been a Vice President of the
Company since October 1990. Mr. Coogan served as Secretary of the Company
from May 1991 through July 1992 and as Treasurer from October 1990 to March
1992. From May 1989 until joining the Company, Mr. Coogan served as Vice
President of Finance for Leather Center Holdings Inc., a privately-held
manufacturer and retailer of leather furniture. From January 1986 to May
1989, he was Vice President and Chief Financial Officer of Trinity Texas
Corporation and Ward Hunt Investments, both of which were privately-held real
estate sales and development organizations. Mr. Coogan is a Certified Public
Accountant.
MEETINGS AND COMMITTEES OF BOARD OF DIRECTORS
The Board of Directors of the Company has an Audit Committee which
is currently composed of Messrs. Baird and Ledbetter. The Committee held
three meetings during fiscal year 1999. The functions performed by the Audit
Committee include: (i) making recommendations concerning the Company's
independent auditors; (ii) reviewing and approving the scope of the annual
audit plan for the Company; (iii) reviewing internal audit controls, risk
management, and the effectiveness of the Company's programs for implementing
audit recommendations; and (iv) periodically interviewing the Company's
independent public accountants in order to analyze the strengths and
weaknesses of the Company's financial staff and systems and the adequacy of
its internal controls.
The Board of Directors of the Company has a Compensation Committee
which is currently composed of Messrs. Tindle and Baird. The Committee held
four meetings during fiscal year 1999 and acted by written consent on one
occasion. The functions performed by the Compensation Committee include: (i)
periodically establishing the compensation paid to officers of the Company
and reporting its determinations to the Board of Directors concerning such
compensation; and (ii) administering the Company's 1993 Long Term Incentive
Plan and 1998 Long Term Incentive Plan.
The Company's Board of Directors held four meetings during fiscal
year 1999 and acted by written consent on two occasions. Each director
attended during the year at least 75% of the aggregate of: (i) the total
number of meetings held by the Board; and (ii) the total number of meetings
held by all committees on which he served.
PROPOSAL TWO
ADOPTION OF AMENDMENT NO. 1 TO
THE 1998 LONG TERM INCENTIVE PLAN
In 1993, the Company adopted the 1993 Long Term Incentive Plan (the
"1993 Plan"), which provides for the grant of stock options, restricted
shares of Common Stock, performance units and stock appreciation rights to
key employees of the Company. As adopted, the maximum aggregate number of
shares of Common Stock with respect to which options, restricted shares and
rights granted without accompanying options may be granted under the 1993
Plan was 300,000. In 1995, the 1993 Plan was amended to increase this number
to 600,000 shares of Common Stock.
-6-
<PAGE>
In 1998, the Company adopted the 1998 Long Term Incentive Plan (the
"1998 Plan"), which also provides for the grant of stock options, restricted
shares of Common Stock, performance units and stock appreciation rights to
key employees of the Company. As adopted, the maximum aggregate number of
shares of Common Stock with respect to which options, restricted shares and
rights granted without accompanying options may be granted under the 1998
Plan was 200,000. The purpose of adopting the 1998 Plan was to make
additional shares of Common Stock available for award to key employees. On
June 24, 1999, the Compensation Committee of the Board of Directors granted
options for 186,200 shares of Common Stock to key employees of the Company
under both the 1993 Plan and the 1998 Plan, thereby reducing the available
shares of Common Stock for future grant. Accordingly, at June 30, 1999,
490,090 shares had been allocated under the 1993 Plan and 177,450 shares had
been allocated under the 1998 Plan, leaving a total of 54,290 shares of
Common Stock available for future grant under both plans.
On June 24, 1999, the Board of Directors unanimously approved and
recommended for shareholder approval an Amendment No. 1 to the 1998 Plan (the
"Amendment") that would increase the number of shares of Common Stock
reserved for issuance under the 1998 Plan by 200,000. The purpose of the
Amendment is to make additional shares of Common Stock available for award to
key employees. The Amendment will become effective upon shareholder approval.
A summary of the 1998 Plan, as amended, is set forth below. This summary is
qualified in its entirety by reference to the full text of the 1998 Plan, as
amended, which is attached to this Proxy Statement as Appendix A and which is
referred to below as the "1998 Plan."
The Board of Directors believes that the use of long-term incentives
based on the value of the Company's Common Stock is necessary to attract and
retain key employees, to motivate key employees to achieve long-range goals
and to provide compensation opportunities that are competitive with those
offered by other corporations. The adoption of the Amendment has been
proposed in order to enable the Company to continue to provide stock-based
incentives to key employees.
DESCRIPTION OF THE PLAN
SCOPE. The 1998 Plan authorizes the grant of incentive stock options
and non-qualified stock options to purchase Common Stock, stock appreciation
rights, restricted stock and performance units to key employees of the
Company. The purpose of the 1998 Plan is to attract and retain skilled,
qualified executives and key employees in order to motivate them to achieve
long-range goals and to further identify their interests with those of the
other shareholders of the Company.
The 1998 Plan, as amended, authorizes the award of 400,000 shares of
Common Stock, to be used for stock options, stock appreciation rights,
restricted stock or performance units. If an award made under the 1998 Plan
expires, terminates or is forfeited or settled in cash, without issuance of
shares of Common Stock covered by the award, those shares will be available
for future awards under the 1998 Plan. The 1998 Plan will terminate on July
31, 2008.
ADMINISTRATION. The 1998 Plan may be administered by, or under the
direction of, the Board of Directors or, if directed by the Board of
Directors, the Compensation Committee. Subject to the provisions of the 1998
Plan, the Compensation Committee will have authority to select employees to
receive awards, to determine the time or times of receipt, to determine the
types of awards and the number of shares covered by the awards, to establish
the terms, conditions and provisions of such awards, to determine the value
of performance units and to accelerate or extend the exercisability of
outstanding awards. In making such award determinations, the Compensation
Committee may take into account the nature of services rendered by the
employee, his or her present and potential contribution to the Company's
growth and success and such other factors as the Compensation Committee deems
relevant. All officers and full time employees of the Company, consisting of
approximately 2,400 persons as of June 30, 1999, are eligible to receive
awards under the 1998 Plan. The Compensation Committee is authorized to
accelerate or extend the period of exercisability of awards after they have
been granted, to interpret the 1998 Plan, to establish, amend, and rescind
any rules and regulations relating to the 1998 Plan, to determine the terms
and provisions of any agreements made pursuant to the 1998 Plan, and to make
all other determinations that may be necessary or advisable for the
administration of the 1998 Plan.
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<PAGE>
ELIGIBILITY. Executives and other key full-time employees of the
Company and its subsidiaries may be selected by the Compensation Committee to
receive awards under the 1998 Plan. The 1998 Plan provides that no more than
50,000 shares of Common Stock may be subject to awards granted per year to
any one employee participating in the 1998 Plan. In the discretion of the
Compensation Committee, an eligible employee may receive an award in the form
of a stock option, stock appreciation right, restricted stock award or
performance unit or any combination thereof, and more than one award may be
granted to an eligible employee.
STOCK OPTIONS. The 1998 Plan authorizes the award of both incentive
stock options (the "ISOs") and non-qualified stock options. Under the 1998
Plan, an option may be exercised at any time during the exercise period
established by the Compensation Committee, except that: (i) no option may be
exercised after employment with the Company and its subsidiaries terminates
by reason other than death or disability; and (ii) no option may be exercised
more than 12 months after employment with the Company and its subsidiaries
terminates by reason of death or disability. The aggregate fair market value
(determined at the time of the award) of the Common Stock with respect to
which ISOs are exercisable for the first time by any employee during any
calendar year may not exceed $100,000. The term of each option is determined
by the Compensation Committee, and such term may be extended by the
Compensation Committee; provided that the term may not exceed ten years from
the date of grant. The exercise price of options is determined by the
Compensation Committee, but the exercise price cannot be less than the fair
market value of the Common Stock on the date of the grant. The exercise price
of options may be paid in cash or, unless restricted by the Compensation
Committee, in shares of Common Stock. In addition, the exercise price of
non-qualified options may be paid, unless restricted by the Compensation
Committee, through the Company's withholding of shares of Common Stock that
would otherwise be issuable upon the exercise of such options. Grants of
options do not entitle any optionee to any rights as a shareholder, and such
rights will accrue only as to shares actually purchased through the exercise
of an option.
Under the 1998 Plan, a holder of non-qualified stock options is
permitted to make gifts or other non-compensated transfers of options and
rights among a limited class of permitted transferees, consisting of family
members or trusts or partnerships for family members.
STOCK APPRECIATION RIGHTS. The 1998 Plan authorizes the grant of
stock appreciation rights ("SARs") in tandem with options. SARs entitle the
holder to receive an amount equal to the difference between the fair market
value of a share of Common Stock at the time of exercise of the SAR and the
option price, multiplied by the number of shares of Common Stock subject to
the option as to which the SAR is being exercised (subject to the terms and
conditions of the option). SARs may be exercised at any time when the option
to which it relates may be exercised and will terminate no later than the
date on which the right to exercise the tandem option terminates. The holder
has the discretion to determine whether the exercise of SARs will be settled
in cash, in Common Stock (valued at its fair market value at the time of
exercise) or in a combination of the two. The exercise of a SAR requires the
surrender of the tandem option, and the exercise of a stock option requires
the surrender of the tandem SAR, if any.
If a SAR, or the corresponding option with which the SAR was
awarded, is not exercised prior to the date that it ceases to be exercisable,
then such SAR generally shall be deemed exercised as of such date and shall
be paid to the holder in cash.
RESTRICTED STOCK. Restricted stock awards are grants of Common Stock
made to eligible employees subject to a required period of employment
following the award (the "Restricted Period") and any other conditions
established by the Compensation Committee. A participant will become the
holder of shares of restricted stock, free of all restrictions, if he or she
completes the Restricted Period and satisfies any other conditions;
otherwise, the shares will be forfeited. Under the 1998 Plan, the Restricted
Period may not be more than ten years. The holder will have the right to vote
the shares of restricted stock and, unless the Compensation Committee
determines otherwise, will have the right to receive dividends on the shares
during the Restricted Period. The holder may not sell, pledge or otherwise
encumber or dispose of restricted stock until the conditions imposed by the
Compensation Committee have been satisfied. The Compensation Committee may
accelerate the termination of the Restricted Period or waive any other
conditions with respect to any restricted stock; however, in no case will the
Restricted Period be less than one year.
PERFORMANCE UNITS. Performance units are awards that entitle the
holders to receive a specified value for the units at the end of a
performance period established by the Compensation Committee if performance
measures
-8-
<PAGE>
established by the Committee at the beginning of the performance period are
met. Although the performance measures and performance period will be
determined by the Compensation Committee at the time of the award of
performance units, they may be subject to such later revision as the
Committee deems appropriate to reflect significant events or changes. If the
employment with the Company or a subsidiary of a holder of a performance unit
terminates by reason of death, disability or retirement, then the Company
will pay the employee or his or her beneficiary or estate the amount of the
performance unit earned as of the date of termination. If the employment with
the Company or a subsidiary of a holder of a performance unit terminates for
any other reason, then the performance units held by such holder will
automatically be forfeited.
ADJUSTMENTS. In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend, split, spinoff,
recapitalization, merger, consolidation, combination, exchange of shares or
other similar change, the aggregate number of shares with respect to which
awards may be made under the 1998 Plan, and the terms and the number of
shares of any outstanding option, SAR, performance unit or restricted stock,
may be equitably adjusted by the Compensation Committee at its sole
discretion.
BUSINESS COMBINATIONS. In addition to the rights and obligations of
the Committee to modify, adjust or accelerate exercisability of outstanding
awards, in the event that, while any awards are outstanding under the 1998
Plan, there shall occur: (a) a merger or consolidation of the Company with or
into another corporation in which the Company shall not be the surviving
corporation; (b) a dissolution of the Company; or (c) a transfer of all or
substantially all of the assets or shares of stock of the Company in one
transaction or a series of related transactions to one or more other persons
or entities, then, with respect to each award outstanding immediately prior
to the consummation of such transaction and without the necessity of any
action by the Compensation Committee:
(i) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the awards granted under
the 1998 Plan, or the substitution for such awards of new options, rights,
restricted shares and performance units, with appropriate adjustment as to
the number and kind of shares or other securities deliverable with respect
thereto, the awards granted under the 1998 Plan, or the new options, rights,
restricted shares and performance units, substituted therefor, shall
continue, subject to such adjustment, in the manner and under the terms
provided in the respective agreements.
(ii) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the awards granted under
the 1998 Plan, or for the substitution of equivalent awards, rights,
restricted shares and performance units, then each holder of an outstanding
award shall be entitled, immediately prior to the effective date of such
transaction, to purchase the full number of shares that he would otherwise
have been entitled to purchase during the entire remaining term of the
option, the holder of any right shall be entitled to exercise such right to
the extent the related option becomes exercisable, all restrictions on
Restricted Stock shall lapse, and all performance units shall be payable in
full.
TERMINATION AND AMENDMENT. The 1998 Plan may be suspended,
terminated or amended by the Board of Directors, provided that no amendment
of the 1998 Plan and no action by the Board shall, without further approval
of the stockholders of the Company, increase the total number of shares of
Common Stock with respect to which awards may be made under the 1998 Plan,
materially increase the benefits accruing to participants under the 1998 Plan
or materially modify the requirements as to eligibility for participation in
the 1998 Plan, if stockholder approval of such amendment is a condition of
Securities and Exchange Commission Rule 16b-3, the Internal Revenue Code or
the NASDAQ rules at the time such amendment is adopted. No amendment,
suspension or termination of the 1998 Plan shall alter or impair any option,
SAR, share of restricted stock or performance unit previously awarded under
the 1998 Plan without the consent of the holder thereof.
FEDERAL INCOME TAX CONSEQUENCES. The following summary of the
federal income tax consequences of the 1998 Plan is not comprehensive and is
based on current income tax laws, regulations and rulings.
INCENTIVE STOCK OPTIONS. An optionee does not recognize income on
the grant of an ISO. Subject to the effect of the alternative minimum tax,
discussed below, if an optionee exercises an ISO in accordance with the terms
of the option and does not dispose of the shares acquired within two years
from the date of the grant of the option nor within one year from the date of
exercise, the optionee will not realize any income by reason of the exercise
and the Company will be allowed no deduction by reason of the grant or
exercise. The optionee's basis in the shares acquired upon
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exercise will be the amount paid upon exercise. Provided the optionee holds
the shares as a capital asset at the time of sale or other disposition of the
shares, his gain or loss, if any, recognized on the sale or other disposition
will be capital gain or loss. The amount of his gain or loss will be the
difference between the amount realized on the disposition of the shares and
his basis in the shares.
If an optionee disposes of the shares within two years from the date
of grant of the option or within one year from the date of exercise (an
"Early Disposition"), the optionee will realize ordinary income at the time
of such Early Disposition which will equal the excess, if any, of the lesser
of: (i) the amount realized on the Early Disposition; or (ii) the fair market
value of the shares on the date of exercise, over the optionee's basis in the
shares. The Company will be entitled to a deduction in an amount equal to
such income. The excess, if any, of the amount realized on the Early
Disposition of such shares over the fair market value of the shares on the
date of exercise will be long-term, mid-term or short-term capital gain,
depending upon the holding period of the shares, provided the optionee holds
the shares as a capital asset at the time of the Early Disposition. If an
optionee disposes of such shares for less than his basis in the shares, the
difference between the amount realized and his basis will be a long-term or
short-term capital loss, depending upon the holding period of the shares,
provided the optionee holds the shares as a capital asset at the time of
disposition.
The excess of the fair market value of the shares at the time the
ISO is exercised over the exercise price for the shares is an amount included
in an optionee's alternative minimum taxable income (the "Stock Option
Preference").
NON-QUALIFIED STOCK OPTIONS. Non-qualified stock options do not
qualify for the special tax treatment accorded to ISOs under the Internal
Revenue Code. Although an optionee does not recognize income at the time of
the grant of the option, he recognizes ordinary income upon the exercise of a
non-qualified option in an amount equal to the difference between the fair
market value of the stock on the date of exercise of the option and the
amount of the exercise price.
As a result of the optionee's exercise of a non-qualified stock
option, the Company will be entitled to deduct as compensation an amount
equal to the amount included in the optionee's gross income. The Company's
deduction will be taken in the Company's taxable year in which the option is
exercised.
The excess of the fair market value of the stock on the date of
exercise of a non-qualified stock option over the exercise price is not an
item of tax preference.
TAXATION OF PREFERENCE ITEMS. Section 55 of the Internal Revenue
Code imposes an alternative minimum tax equal to the excess, if any, of: (i)
26% of the optionee's "alternative minimum taxable income" that does not
exceed $175,000, plus 28% of his "alternative minimum taxable income" in
excess of $175,000, over (ii) his "regular" federal income tax. Alternative
minimum taxable income is determined by adding the optionee's Stock Option
Preference and any items of tax preference to the optionee's adjusted gross
income and then subtracting certain allowable deductions and an exemption
amount. The exemption amount is $33,750 for single taxpayers, $45,000 for
married taxpayers filing jointly, and $22,500 for married taxpayers filing
separately. However, these exemption amounts are phased out beginning at
certain levels of alternative minimum taxable income.
STOCK APPRECIATION RIGHTS. Recipients of SARs do not recognize
income upon the grant of such an award. When a participant elects to receive
payment under a SAR, he recognizes ordinary income in an amount equal to the
cash and/or fair market value of shares received, and the Company is entitled
to a deduction equal to such amount.
RESTRICTED STOCK; PERFORMANCE UNITS. Grantees of restricted stock
and performance units do not recognize income at the time of the grant of
such stock or units. However, when shares of restricted stock become free
from any restrictions or when performance units are paid, grantees recognize
ordinary income in an amount equal to the cash and the fair market value of
the stock on the date all restrictions are satisfied. Alternatively, the
grantee of restricted stock may elect to recognize income upon the grant of
the stock and not at the time the restrictions lapse.
CHANGE OF CONTROL. If there is an acceleration of the vesting of
benefits and/or an acceleration of the exercisability of stock options upon a
Change of Control (as defined in the 1998 Plan), all or a portion of the
accelerated benefits may constitute "excess parachute payments" under Section
280G of the Internal Revenue Code. The employee receiving an excess parachute
payment incurs an excise tax of 20% of the amount of the payment in
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excess of the employee's average annual compensation over the five calendar
years preceding the year of the Change of Control, and the Company is not
entitled to a deduction for such payment.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares entitled to vote on
this proposal and represented in person or by proxy is required for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF
AMENDMENT NO. 1 TO THE 1998 PLAN.
EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table shows all cash compensation paid by the Company
during the fiscal years ended April 30, 1999, 1998 and 1997 to the Chief
Executive Officer and the other four most highly compensated executive
officers of the Company (the "Named Officers").
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-----------------------------------------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Judy Odom Sims 1999 510,000 299,150 25,000 1,330
Chairman of the 1998 460,000 213,750 25,000 477
Board and Chief 1997 425,000 121,125 25,000(3) 1,605
Executive Officer
Keith R. Coogan 1999 310,000 167,913 20,000 1,330
President and Chief 1998 270,000 122,500 20,000 746
Operating Officer 1997 250,000 62,688 15,000(3) 2,815
Roger J. King
Executive Vice 1999 240,000 100,203(4) 15,000 1,330
President of Sales 1998 180,000 112,255 13,000 746
and Marketing 1997 165,000 80,516 10,000(3) 2,815
Robert D. Graham
Vice President
Strategic Relationships, 1999 200,000 49,250 10,000 0
General Counsel and 1998 170,000 40,000 13,000 0
Secretary 1997 49,583(5) 10,877(5) 10,000(3) 0
Lorraine Castorina 1999 145,000 90,876(7) 8,000 1,330
Vice President of 1998 ----- ----- ----- ------
North American Sales (6) 1997 ----- ----- ----- ------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the 1999 fiscal year, the portion of the bonus payable pursuant to
the annual performance pay plan for all executive officers provided for
a potential payment of $692,000 to all executive officers as a group,
of which $662,700 was paid.
(2) Represents amounts allocated to the Named Officers under the Company's
Savings and Profit Sharing Plan.
(3) In determining option grants for the 1998 fiscal year, the Compensation
Committee awarded stock options to
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executive officers and key employees at the market price of the Company's
Common Stock on July 15, 1998. Each of the grants to the Named Officers
for fiscal 1998 was made on the condition that the stock options granted
to the Named Officers during fiscal 1997 be surrendered and cancelled. Each
of the Named Officers surrendered his or her fiscal 1997 grant in exchange
for the replacement options granted during fiscal 1998.
(4) Includes $4,167 estimated bonus for the month of April 1999, which
amount will be finalized and paid in August 1999.
(5) Mr. Graham joined the Company in January 1997.
(6) Ms. Castorina was promoted to Vice President of North American Sales and
became an executive officer in May 1998.
(7) Includes $5,000 estimated bonus for the month of April 1999, which amount
will be finalized and paid in August 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock
options during the fiscal year ended April 30, 1999 to the Named Officers.
<TABLE>
<CAPTION> POTENTIAL REALIZED
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
---------------------------------------------------------------- PRICE APPRECIATION
% OF TOTAL OPTIONS FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION --------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------ ---------- -------------------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Judy Odom Sims 25,000 14.00% $15.25 9/17/04 129,661 294,158
Keith R. Coogan 10,000 6.00% $15.25 9/17/04 51,865 117,663
10,000 6.00% $20.50 7/01/04 69,720 158,170
Roger J. King 5,000 3.00% $15.25 9/17/04 25,932 58,832
10,000 6.00% $20.50 7/01/04 69,720 158,170
Robert D. Graham 10,000 6.00% $20.50 7/01/04 69,720 158,170
Lorraine Castorina 8,000 5.00% $20.50 7/01/04 55,776 126,536
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information regarding the exercise of
stock options during the fiscal year ended April 30, 1999 by the Named
Officers and the estimated values of unexercised options held by such
individuals at fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
SHARES ----------------------------- ---------------------
ACQUIRED ON VALUE UNEXER- UNEXER-
EXERCISE(#) REALIZED($) EXERCISABLE CISABLE EXERCISABLE CISABLE
----------- ----------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Judy Odom Sims 0 0 63,000 52,000 0 0
Keith R. Coogan 10,000 60,875 27,000 38,000 0 0
Roger J. King 7,000 38,500 27,200 28,800 0 0
Robert D. Graham 0 0 5,200 17,800 0 0
Lorraine Castorina 0 0 6,600 10,400 0 0
</TABLE>
MANAGEMENT CONTINUITY AGREEMENTS
The Company has entered into Management Continuity Agreements with
each of its executive officers. The Management Continuity Agreements specify
terms of employment, including provision for severance benefits, for a
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covered executive following a change of control.
The purpose of the Management Continuity Agreements is to serve the
best interests of the Company and its shareholders by providing incentives
for a covered executive both to render impartial advice and services during
the pendency of a takeover proposal and to be available and render services
during at least a crucial four-month transition period following a change of
control.
Although the agreements are entered into before a change of control,
the terms of the Management Continuity Agreements do not begin, and the
Management Continuity Agreements do not become effective, until a change of
control occurs. The agreements provide continued employment for a two-year
term commencing upon a change of control on terms equivalent to the terms of
employment existing immediately before the change of control. The terms of
employment covered include position, responsibilities, compensation and
benefits. If such employment is prematurely terminated by the Company without
"cause" or by the executive during the term of the agreement for "good
reason" or without any reason during a 60-day "window period" after the first
four months, then the executive would become entitled to a specific severance
payment. The agreements renew annually, but before a change of control occurs
or is contemplated, the Company has the ability to terminate the agreements
once each year by giving at least 60-days advance written notice to the
executive.
The Management Continuity Agreements, subject to certain exceptions,
define a change of control to encompass any of the following events: (i) the
acquisition of 50% or more of the Company's stock by a person or group; (ii)
a change in a majority of the board of directors of the Company (other than a
change approved by the incumbent board); (iii) approval by the shareholders
of the Company of a reorganization, merger or consolidation; or (iv) approval
by the shareholders of the Company of a liquidation or dissolution or sale of
all or substantially all of the assets of the Company.
Exceptions are provided, among other things, for acquisitions of
Company stock by the Company or Company employee benefit plans and
acquisitions of Company stock directly from the Company, as well as for
transactions in which existing shareholders of the Company maintain effective
control.
The Management Continuity Agreements permit a covered executive to
collect severance benefits following a change of control if the covered
executive terminates employment for good reason or without any reason during
a 60-day window period beginning four months after a change of control or if
employment of the executive is terminated by the employer without cause. Good
reason is defined in the agreements to include reductions in compensation or
benefits, diminution of duties and any material relocation. Cause is defined
as a material breach of obligations of employment not cured after notice or a
conviction for a felony involving moral turpitude.
Additionally, the agreements provide an incentive and reward for an
executive to remain with the Company for a full year after a change of
control through a special bonus provision. Because of the Company's quarterly
bonus system, the agreements provide that periodic quarterly bonuses will be
defined as part of the executive's base salary as if all requirements for
such bonus had been met.
If the executive remains in the employ of the Company for four
months after a change of control and then chooses to leave during a 60-day
window period, if the executive is terminated other than for cause during a
period of two years after a change of control, or if the executive leaves for
good reason (such as a reduction in salary or position) during the period of
two years after a change of control, then the executive would receive 1.5
times the executive's annual base salary and bonus.
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<PAGE>
If the executive stays in the employ of the Company through the
first anniversary of a change of control (with continued employment agreement
protection for one additional year), the executive would receive a financial
bonus equal to the executive's annual base salary and bonus (payable whether
or not employment is terminated thereafter). If the executive is terminated
because of a disability during a period of two years after a change of
control, the executive would receive the greater of: (i) 1.5 times the
executive's annual base salary and bonus; or (ii) any disability benefits
then provided by the Company. If the executive dies during employment during
a period of two years after a change of control, the executive's estate would
receive the greater of: (i) 1.5 times the executive's annual base salary and
bonus; or (ii) any death benefits then provided by the Company. The executive
would receive no severance benefits if the executive is terminated by the
Company for cause during a period of two years after a change of control. The
agreements provide that an executive will be reimbursed for any legal
expenses incurred in litigating rights under the agreements regardless of
whether such litigation is successful.
COMPENSATION OF DIRECTORS
The Company pays each outside director an annual retainer of
$20,000, payable in quarterly installments, for service as a member of the
Board of Directors. Pursuant to the Non-Employee Directors' Retainer Stock
Plan, the outside directors may elect to receive all or a portion of their
annual retainer fees in the form of Common Stock of the Company, or to defer
receipt of a portion of such fees and have the deferred amounts treated as if
invested in Common Stock.
The Company also pays each outside director a fee of $1,000 for
attendance at each meeting of the Board of Directors, and $800 for each
committee meeting attended. In addition, the Company grants to each of its
outside directors options to purchase 2,000 shares of Common Stock for each
year of service, exercisable at the fair market value of the Common Stock on
the date of grant. Such options are granted under the 1993 Long Term
Incentive Plan. The Company's outside directors are reimbursed by the Company
for their travel expenses incurred in connection with their attendance at
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank Tindle, who serves as a member of the Compensation Committee
of the Board of Directors, served as Vice President of the Company from 1983
through April 1, 1992.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of Common Stock of the Company. Executive officers,
directors and greater than ten-percent shareholders are required by
regulations of the SEC to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended April 30, 1999, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten-percent beneficial owners were observed.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the
"Committee") is currently composed of two outside directors of the Company.
The Committee establishes salary levels and performance pay plans for
executive officers and reports its determination to the Board of Directors.
The Committee also administers the Company's stock-based incentive plans and
determines grants under such plans for all employees, including executive
officers.
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<PAGE>
COMPENSATION PHILOSOPHY
The compensation philosophy for executive officers generally
conforms to the compensation philosophy of the Company for all management
level employees. The Company's compensation is designed to:
- provide compensation comparable to that offered by companies with
similar businesses or of similar size, allowing the Company to
successfully attract and retain the employees necessary to its
long-term success;
- provide compensation which relates to the performance of the
individual and differentiates based upon individual performance;
- provide incentive compensation that varies directly with both
Company performance and individual contribution to that
performance; and
- provide an appropriate linkage between compensation and the
creation of shareholder value through awards tied to the Company's
performance and through facilitating employee stock ownership.
The following is a report submitted by the Committee addressing the
Company's compensation policies as they relate to the Company's executive
officers for the fiscal year ended April 30, 1999.
In setting compensation for executive officers, the Committee
considers the relationship between executive pay and the enhancement of
shareholder value, as well as the need to motivate and retain key employees.
Further, the Committee operates within the overall philosophy of the Company,
which stresses teamwork, fairness, and the overall emphasis on cost control,
which includes compensation expense. To achieve the basic goals of the
Company's compensation policies, the Committee establishes annual
compensation for each of the executive officers, including base salary,
discretionary quarterly performance pay plans for all executive officers
other than the Chief Executive Officer ("CEO"), and an annual performance pay
plan for all executive officers. The Committee receives recommendations from
the CEO concerning base salary, performance pay plans and grants under the
Company's stock option plans for all executive officers other than the CEO.
The Committee establishes the compensation for the executive
officers by also considering the salaries and other benefits, including
stock-based incentive grants, of executive officers in relevant companies
according to data obtained by the Committee from independent sources. The
Committee believes that an individual officer's personal performance, as well
as the Company's financial performance, should be appropriately weighted in
determining compensation for executive officers. Consequently, the annual
performance pay plans are significant components of the overall compensation
of each executive officer of the Company.
The discretionary quarterly performance pay plan, which is
applicable to all executive officers except the CEO, relates to the
executive's ability to achieve certain objectives during each quarter of the
Company's fiscal year. This performance payment is paid quarterly, and is
dependent upon the executive's ability to achieve the particular goals
established for that individual as evaluated by either the CEO or the
Company's President. Additionally, the Company's executive officers
responsible for sales and operating units within the Company are subject to a
quarterly performance pay plan dependent upon the Company's attainment of
specified profitability goals applicable to the business segment operated by
such individual, as well as Company-wide performance goals, during each
quarter of the fiscal year.
The annual performance pay plan, which is applicable to all
executive officers including the CEO, includes two components, an individual
performance component for each officer and an overall Company financial
performance component. The individual performance component is weighted
towards a subjective evaluation by the Committee, with the input and advice
of the CEO for all executive officers other than the CEO, relating to each
individual's performance in his or her position with the Company. The
subjective individual performance component of these discretionary payments
reflects various criteria, including the performance of those departments
under the management of the officer and effective implementation and
achievement of strategic goals.
-15-
<PAGE>
The component of the annual performance pay plan that is based upon
the Company's financial performance is calculated by comparing the Company's
financial results for the year with internally established financial goals.
The financial goals are established by the Committee by taking into
consideration the Company's prior financial performance, current established
financial objectives, the performance of other companies within the
Company's industry and recommendations from the CEO. The Committee considers
the Company's net earnings, earnings per share and revenue growth in
establishing financial goals. At least fifty percent of the total incentive
compensation available under the annual performance pay plan for the 1999
fiscal year was tied to the Company's financial performance and growth. For
the 1999 fiscal year, the Company achieved most of its financial performance
goals under the annual performance pay plan.
For the 1999 fiscal year, the annual performance pay plan for all
executive officers provided for a potential payment of $692,000 to all
executive officers as a group, of which 95.8% was paid.
The Committee believes that incentives based upon the Company's
stock performance are an important component of each of the executive
officer's overall compensation package. The Committee believes that the
number of stock options to be granted to each officer should be determined by
a subjective evaluation of each executive officer's ability to influence the
Company's long-term growth and profitability as well as data obtained from
independent sources. During fiscal 1999, the Committee recommended and the
Company granted options to the executive officers as set forth in the
Executive Compensation Table herein. Since the value of an option bears
directly to the Company's stock price, the Committee believes that option
grants are an effective incentive for executive officers to create value for
the Company's shareholders.
Mellon C. Baird and Frank Tindle
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative
total return of the Company's Common Stock, the Nasdaq National Market (U.S.
Companies) and an index of stocks listed on the Nasdaq National Market under
Standard Industrial Code ("SIC") 504, which is a broad index prepared by the
University of Chicago's Center for Research in Security Prices that includes
companies in the computer, computer peripheral and computer software
industries. The graph assumes an initial investment of $100 on March 31,
1994, and the reinvestment of dividends, if any.
[Graph]
<TABLE>
<CAPTION>
3/31/94 3/31/95 3/31/96 3/31/97 4/30/98 4/30/99
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Software Spectrum, Inc. 100.0 111.7 135.0 91.7 113.3 80.0
NASDAQ Stock Market - (U.S.) 100.0 111.2 151.1 173.2 258.9 351.8
NASDAQ Stock - SIC 504 100.0 81.2 101.2 81.9 119.3 87.2
</TABLE>
CERTIFIED PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended April
30, 1999 have been audited by Grant Thornton LLP, independent auditors
("Grant Thornton"), and the Board of Directors has selected Grant Thornton to
audit and report on the financial statements of the Company for the current
fiscal year, which will end on April 30, 2000. A representative of Grant
Thornton is expected to be present at the Annual Meeting with an opportunity
to make a statement, and such representative is expected to be available to
respond to appropriate questions.
SHAREHOLDERS' PROPOSALS
Any proposal by a shareholder of the Company intended to be
presented at the 2000 Annual Meeting of Shareholders must be received by the
Company at its principal executive office by April 19, 2000 to be considered
for inclusion in the Company's Proxy Statement and form of proxy. Any such
proposal must also comply with the other requirements of the proxy
solicitation rules of the Securities and Exchange Commission.
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<PAGE>
ANNUAL REPORT
The Company's 1999 Annual Report to Shareholders is being mailed to
all shareholders of record together with this Proxy Statement.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDING APRIL 30, 1999, UPON THE
WRITTEN REQUEST OF ANY PERSON WHO WAS A SHAREHOLDER (OF RECORD OR
BENEFICIALLY) AT THE CLOSE OF BUSINESS ON AUGUST 9, 1999. REQUESTS FOR SUCH
REPORT SHOULD BE DIRECTED TO THE COMPANY AT 2140 MERRITT DRIVE, GARLAND,
TEXAS 75041, ATTENTION: ROBERT D. GRAHAM, SECRETARY.
OTHER MATTERS
The Company is not aware of any matters that may come before the
Annual Meeting other than those referred to in the Notice of Annual Meeting
of Shareholders. If any other matters shall properly come before the meeting,
the persons named in the accompanying proxy form intend to vote thereon in
accordance with their best judgment.
By Order of the Board of Directors
ROBERT D. GRAHAM
Secretary
Garland, Texas
August 18, 1999
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY.
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<PAGE>
APPENDIX A
AMENDMENT NO. 1 TO THE
SOFTWARE SPECTRUM, INC.
1998 LONG-TERM INCENTIVE PLAN
WHEREAS, Software Spectrum, Inc. (the "Company") has heretofore
adopted the Software Spectrum, Inc. 1998 Long-Term Incentive Plan (the "1998
Plan"); and
WHEREAS, as originally adopted by the Company, the 1998 Plan provided
for the grant of up to 200,000 Stock Options with or without tandem stock
appreciation rights, performance units and/or shares of restricted stock; and
WHEREAS, pursuant to those provisions of the 1998 Plan permitting
the Board of Directors of the Company to amend the 1998 Plan from time to
time, the Company desires to amend the 1998 Plan to increase the shares
available for grant thereunder by 200,000, for an aggregate of 400,000 shares
to be available for grant thereunder;
NOW, THEREFORE, effective as of July 1, 1999, the Plan is hereby
amended as follows:
FIRST
The second sentence of Section 6 of the 1998 Plan is hereby amended
to read in its entirety as follows:
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 400,000 shares in the aggregate.
The remaining provisions of the 1998 Plan shall remain in full force and
effect and shall not be impacted by this Amendment.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
SOFTWARE SPECTRUM, INC.
ANNUAL MEETING OF SHAREHOLDERS - SEPTEMBER 23, 1999
The undersigned hereby appoints Judy Odom Sims and Robert D. Graham and
each of them with full power of substitution, attorneys, agents and proxies
of the undersigned to vote as directed below the shares of stock which the
undersigned would be entitled to vote, if personally present, at the Annual
Meeting of Shareholders of Software Spectrum, Inc. (the "Company") to be held
at the offices of the Company, 2140 Merritt Drive, Garland, Thursday,
September 23, 1999 at 10:00 a.m. Central time, and at any adjournment or
adjournments thereof. If more than one of the above attorneys shall be
present in person or by substitution at such meeting or at any adjournment
thereof, both of said attorneys so present and voting, either in person or by
substitution, shall exercise all of the powers hereby given. The undersigned
hereby revokes any proxy or proxies heretofore given to vote upon or act with
respect to such shares of stock and hereby ratifies and confirms all that
said attorneys, their substitutes, or any of them, may lawfully do by virtue
hereof.
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<S> <C> <C>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE Please mark /X/
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS your votes as
MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND PROPOSAL 2. indicated in
this example
1. Election of Directors Nominees: Carl S. Ledbetter, Brian N. Dickie
FOR nominees WITHHOLD (Instruction: To withhold authority to vote for
listed to the right AUTHORITY any individual nominee, write that nominee's name
to vote for all nominees on the space provided below.)
listed to the right
/ / / / --------------------------------------------------
2. To approve the adoption of Amendment No. 1 to 3. In their discretion on such other matters
the Company's 1998 Long Term Incentive Plan. as may properly come before the meeting.
FOR AGAINST ABSTAIN Signature(s):
/ / / / / / -------------------------
-------------------------
Date Signed:
-------------------------
Please sign exactly as your name
appears on this proxy. If your stock
is jointly owned, both parties must
sign. Fiduciaries and representatives
should so indicate when signing, and
when more than one is named, a
majority should sign. If signed by a
corporation, its seal should be affixed.
PLEASE DATE, SIGN AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE, NO
POSTAGE IS REQUIRED.
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