Employment Agreement - Richard P. Cleys



 
Exhibit
10.5 
 
EMPLOYMENT AGREEMENT

 
THIS EMPLOYMENT AGREEMENT (this
“Agreement”) is made and entered into this 12th day of November 2002, and between ScanSource, Inc., a
South Carolina corporation (hereinafter, the “Company”), and Richard P. Cleys (hereinafter, “Executive”), to be effective as of the Effective Date, as defined in Section 1. 
 
BACKGROUND 
 
The Company desires to employ Executive as the Vice President
and Chief Financial Officer of the Company, and Executive is willing to serve in such capacity, in accordance with the terms and conditions of this Agreement. 
 
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 
 
1. Effective Date. This Agreement is effective as of November 12, 2002 (the “Effective Date”). 
 
2. Employment. Executive is hereby employed on the
Effective Date as the Vice President and Chief Financial Officer of the Company. In his capacity as Vice President and Chief Financial Officer, Executive shall have the responsibilities commensurate with such position as shall be assigned to him by
the Board of Directors or President of the Company, which shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business. In his capacity as Vice President and Chief Financial
Officer of the Company, Executive will report directly to the President of the Company. 
 
3. Employment Period. Unless earlier terminated herein in accordance with Section 6 hereof, Executive’s employment shall be for a term (the “Employment Period”), beginning on the
Effective Date and ending on June 30, 2005. Provided, however, that if a Change in Control, as defined in Exhibit A hereto occurs during the Employment Period, the ending date of the Employment Period shall be extended so that it expires on the
later of June 30, 2005 or the first anniversary of the date on which the Change in Control initially occurred. 
 
4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is
entitled, Executive agrees to devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of this Agreement for Executive to (i)
devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not
interfere with the performance of Executive’s responsibilities under this Agreement. 







 
5.
Compensation and Benefits. 
 
(a) Base
Salary. During the Employment Period, the Company will pay to Executive base salary at the rate specified on Exhibit A to this Agreement (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments
as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of
the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s
performance. 
 
(b) Incentive, Savings and
Retirement Plans; Annual Bonus. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to senior executive officers of the
Company (“Peer Executives”). Without limiting the foregoing, during the Employment Period, Executive will be eligible to receive an annual bonus, based on performance criteria established from year to year by the Compensation Committee of
the Board of Directors of the Company, as specified on Exhibit A to this Agreement. 
 
(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s eligible dependents shall be eligible for participation in the welfare benefit plans, practices, policies
and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) (“Welfare Plans”) to the extent
applicable generally to Peer Executives. 
 
(d)
Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company to the extent
applicable generally to Peer Executives. 
 
(e)
Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company in effect for Peer Executives. 
 
(f) Vacation. During each calendar year during the
Employment Period, Executive will be entitled to the number of days of paid vacation specified on Exhibit A to this Agreement. Executive may take such vacation days at the time or times Executive reasonably requests, subject to the prior approval of
the person specified on Exhibit A to this Agreement. Vacation time will not accrue. 
 

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6.
Termination of Employment. 
 
(a) Death,
Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as
defined in the Company’s then-current retirement plan, or if there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the
Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice of its intention to terminate Executive’s employment. In such event,
Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive
shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with
standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, “Disability” shall mean the inability of
Executive, as determined by the Board, to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental condition which has lasted (or can
reasonably be expected to last) for twelve workweeks in any twelve-month period. At the request of Executive or his personal representative, the Board’s determination that the Disability of Executive has occurred shall be certified by two
physicians mutually agreed upon by Executive, or his personal representative, and the Company. Failing such independent certification (if so requested by Executive), Executive’s termination shall be deemed a termination by the Company without
Cause and not a termination by reason of his Disability. 
 
(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean: 
 
(i) the failure of Executive to perform substantially
Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Executive by the Board of Directors and the
President of the Company which specifically identifies the manner in which the Board or the President believes that Executive has not substantially performed Executive’s duties, or 
 
(ii) the engaging by Executive in unethical or illegal conduct or gross misconduct which is materially
injurious to the Company, whether financially or otherwise. 
 
(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean: 
 
(i) without the consent of Executive, the assignment to
Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles, and reporting 
 

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requirements), authority,
duties, or responsibilities as in effect on the Effective Date, excluding for this purpose an isolated, insubstantial, and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given
by Executive; 
 
(ii) a reduction by the Company
in Executive’s Base Salary as in effect on the Effective Date or as the same may be increased from time to time; 
 
(iii) the failure by the Company (a) to continue in effect any compensation plan in which Executive participates as of the Effective Date
that is material to Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or (b) to continue Executive’s participation therein (or
in such substitute or alternative plan) on a basis not materially less favorable in terms of the amount of benefits provided; 
 
(iv) the Company’s requiring Executive, without his consent, to be based at any office or location other than in Greenville County,
South Carolina; 
 
(v) any failure by the Company
to comply with and satisfy Section 14(c) of this Agreement; 
 
(vi) the material breach of this Agreement by the Company; or 
 
(vii) if no new employment agreement has been entered into by the Executive and the Company or its successor after or in contemplation of a Change in Control, termination by Executive for any reason or
no reason during the 60-day period beginning on the six-month anniversary of a Change in Control. 
 
Good Reason shall not include Executive’s death or Disability. The Company shall have an opportunity to cure any claimed event of
Good Reason (other than under clauses (v) or (vii) above) within 30 days of notice from Executive and the Board’s good faith determination of cure shall be binding. The Company shall notify Executive of the timely cure of any claimed event of
Good Reason and the manner in which such cure was effected, and any Notice of Termination delivered by Executive based on such claimed Good Reason shall be deemed withdrawn and shall not be effective to terminate the Agreement. 
 
(d) Notice of Termination. Any termination of
Executive’s employment by the Company or by Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of
Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, including whether such termination is for Cause or Good Reason, (ii) if such termination is for Cause or Good Reason, sets
forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) specifies the termination date. The failure by Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right 
 

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of Executive or the Company,
respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder. 
 
(e) Date of Termination. “Date of Termination” means the date specified in the Notice of
Termination or, if Executive’s employment is terminated by reason of death, Retirement or Disability, the date of death or Retirement or the Disability Effective Date, as the case may be. 
 
7. Obligations of the Company upon Termination.

 
(a) Termination by Executive for Good Reason;
Termination by the Company Other Than for Cause or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause or Disability, or Executive shall terminate employment for Good Reason
within a period of 90 days after the occurrence of the event giving rise to Good Reason, then and, with respect to the payments and benefits described in clauses (i)(B) and (ii) below, only if Executive executes a Release in substantially the form
of Exhibit B hereto (the “Release”): 
 
(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: 
 
A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the annual bonus paid or payable, including any bonus or portion thereof which has been earned but deferred, for the most recently completed fiscal year during the Employment Period and (y) a fraction,
the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) unless Executive has elected a different payout date in a prior deferral election, any compensation
previously deferred by Executive (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the “Accrued
Obligations”); and 
 
B. the
amount equal to a designated multiple (the “Severance Multiple”) times the highest combined Base Salary and annual bonus earned by Executive from the Company, including any such amounts earned but deferred, in the last three full fiscal
years prior to the Date of Termination. The Severance Multiple shall be the greater of (a) one, (b) the number of full months remaining between the Date of Termination and June 30, 2005, divided by 12, or (c) two, if the Date of Termination occurs
within 12 months after or otherwise in contemplation of a Change in Control, as defined in Exhibit A hereto; and 
 
(ii) for a number of months equal to the Severance Multiple (as defined above) following Executive’s Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s dependents at least equal to those which would have 
 

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been provided to them in
accordance with the Welfare Plans described in Section 5(c) of this Agreement if Executive’s employment had not been terminated provided, however, that if Executive becomes employed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility; and 
 
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company (such other
amounts and benefits shall be hereinafter referred to as the “Other Benefits”). 
 
(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to
Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 7(b) shall include, without limitation, and Executive’s estate and/or
beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as are applicable to Executive on the date of his death. 
 
(c) Disability. If Executive’s employment is
terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 7(c) shall include, without
limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as are applicable to Executive and his
family on the Date of Termination. 
 
(d)
Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other
Benefits as used in this Section 7(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to
retirement, if any, as applicable to Executive on the Date of Termination. 
 
(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment is terminated for Cause during the Employment Period, or if Executive voluntarily 
 

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terminates employment during the Employment Period without Good Reason, this Agreement shall terminate
without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 7(a)(i)(A)), and the timely payment or provision of Other Benefits. 
 
(f) Normal Expiration of Employment Period. If
Executive’s employment is terminated due to the normal expiration of the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. 
 
8.
Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which Executive may qualify, nor, subject
to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. 
 
9. Mandatory
Reduction of Payments in Certain Events. 
 
(a)
Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise) (a “Payment”) would be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then,
prior to the making of any Payment to Executive, a calculation shall be made comparing (i) the net benefit to Executive of all Payments after payment of the Excise Tax, to (ii) the net benefit to Executive if the Payment had been limited to the
extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payments shall be limited to the extent necessary to avoid being subject to the Excise
Tax (the “Reduced Amount”). In that event, Executive shall direct which Payments are to be modified or reduced. 
 
(b) The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts
referred to Section 9(a)(i) and (ii) above shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm
(the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments which Executive was entitled to, but did not receive pursuant to Section 9(a), could have been made without the imposition of the Excise
Tax (“Underpayment”). In such event, the Accounting Firm shall 
 

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determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of Executive. 
 
(c) In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Section 9 shall be of no further force or effect. 
 
10. Costs of Enforcement. Subject to Section 9(b), each
party hereto shall pay its own costs and expenses incurred in enforcing or establishing its rights hereunder, including, without limitation, attorneys’ fees, whether the suit be brought or not, and whether or not incurred in trial, bankruptcy,
or appellate proceedings. 
 
11. Representations
and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete with any person or entity, and Executive’s execution of this Agreement and
performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity. 
 
12. Restrictions on Conduct of Executive. 
 
(a) General. Executive and the Company understand and agree that the purpose of the provisions of this
Section 12 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or
infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that Executive has received good and valuable consideration for the post-employment restrictions
set forth in this Section 12 in the form of compensation and benefits provided herein and the grant of stock options from time to time by the Company. Executive hereby further acknowledges that the post-employment restrictions set forth in this
Section 12 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. 
 
In addition, the parties acknowledge: (A) that Executive’s services under this Agreement require special expertise and talent in the
provision of Competitive Services and that Executive will have substantial contacts with customers, suppliers, advertisers and vendors of the Company; (B) that pursuant to this Agreement, Executive will be placed in a position of trust and
responsibility and he will have access to a substantial amount of Confidential Information and Trade Secrets and that the Company is placing him in such position and giving him access to such information in reliance upon his agreement not to compete
with the Company during the Restricted Period; (C) that due to his management duties, Executive will be the repository of a substantial portion of the goodwill of the Company and would have an unfair advantage in competing with the Company; (D) that
due to Executive’s special experience and talent, the loss of Executive’s services to the Company under this Agreement cannot reasonably or adequately be compensated solely by damages in an action at law; (E) that Executive is capable of
competing with the Company; and (F) that Executive is capable of obtaining gainful, lucrative and desirable employment that does not violate the restrictions contained in this Agreement. 
 

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Therefore,
subject to the limitations of reasonableness imposed by law, Executive shall be subject to the restrictions set forth in this Section 12. 
 
(b) Definitions. The following capitalized terms used in this Section 12 shall have the meanings assigned to them below, which
definitions shall apply to both the singular and the plural forms of such terms: 
 
“Competitive Position” means any employment with a Competitor in which Executive will use or is likely to use any Confidential Information or Trade Secrets, or in which
Executive has duties for such Competitor that involve Competitive Services and that are the same or similar to those services actually performed by Executive for the Company; 
 
“Competitive Services” means the distribution of automatic identification, bar-code, point
of sale, or telephony products to resellers of such products, except such term shall not include distribution conducted by a Person whose principal business is the manufacture and sale of such products to resellers and/or end users and which person
does not normally act as a distributor of such products manufactured by others. 
 
“Competitor” means any Person engaged, wholly or in material part, in Competitive Services. 
 
“Confidential Information” means all information regarding the Company, its activities,
business or clients that is the subject of reasonable efforts by the Company to maintain its confidentiality and that is not generally disclosed by practice or authority to persons not employed by the Company, but that does not rise to the level of
a Trade Secret. “Confidential Information” shall include, but is not limited to, financial plans and data concerning the Company; management planning information; business plans; operational methods; market studies; marketing plans or
strategies; product development techniques or plans; customer lists; details of customer contracts; current and anticipated customer requirements; past, current and planned research and development; business acquisition plans; and new personnel
acquisition plans. “Confidential Information” shall not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the
Company. This definition shall not limit any definition of “confidential information” or any equivalent term under state or federal law. 
 
“Determination Date” means the date of termination of Executive’s employment with the Company for any reason
whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive. 
 
“Person” means any individual or any corporation, partnership, joint venture, limited liability company, association or
other entity or enterprise. 
 

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“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant. 
 
“Protected Customers” means any Person to
whom the Company has sold its products or services or solicited to sell its products or services during the twelve (12) months prior to the Determination Date. 
 
“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months
prior to the Determination Date. 
 
“Restricted Period” means the Employment Period and a period extending two (2) years from the termination of Executive’s employment with the Company. 
 
“Restricted Territory” means North America, Latin America and Europe. 
 
“Restrictive Covenants” means the
restrictive covenants contained in Section 12(c) hereof. 
 
“Trade Secret” means all information, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing,
a process, financial data, financial plans, product plans, distribution lists or a list of actual or potential customers, advertisers or suppliers which is not commonly known by or available to the public and which information: (A) derives economic
value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy. Without limiting the foregoing, Trade Secret means any item of confidential information that constitutes a “trade secret(s)” under the common law or statutory law of the State of South
Carolina. 
 
(c) Restrictive Covenants.

 
(i) Restriction on Disclosure and Use of
Confidential Information and Trade Secrets. Executive understands and agrees that the Confidential Information and Trade Secrets constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s
own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information,
and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company. Throughout the term of this Agreement
and at all times after the date that this Agreement terminates for any reason, Executive shall not directly or indirectly transmit or disclose any Trade Secret of the Company to any Person, and shall not make use of any such Trade Secret, directly
or indirectly, for himself or for others, without the prior written consent of the Company. The parties 
 

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acknowledge and agree that this Agreement is not intended to, and does not, alter either the
Company’s rights or Executive’s obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. 
 
Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using Confidential Information that
is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may
seek an appropriate protective order prior to any such required disclosure by Executive. 
 
(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the
Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any
Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into employment with any other Person. 
 
(iii) Restriction on Relationships with Protected Customers. Executive understands and agrees that
the relationship between the Company and each of its Protected Customers constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that, during the Restricted Period,
Executive shall not, without the prior written consent of the Company, directly or indirectly, on Executive’s own behalf or as a Principal or Representative of any Person, solicit, divert, take away or attempt to solicit, divert or take away a
Protected Customer for the purpose of providing or selling Competitive Services; provided, however, that the prohibition of this covenant shall apply only to Protected Customers with whom Executive had Material Contact on the
Company’s behalf during the twelve (12) months immediately preceding the termination of his employment hereunder. For purposes of this Agreement, Executive had “Material Contact” with a Protected Customer if (a) he had business
dealings with the Protected Customer on the Company’s behalf; (b) he was responsible for supervising or coordinating the dealings between the Company and the Protected Customer; or (c) he obtained Trade Secrets or Confidential Information about
the customer as a result of his association with the Company. 
 
(iv) Noncompetition with the Company. In consideration of the compensation and benefits being paid and to be paid by the Company to Executive hereunder, Executive hereby agrees that, during the Restricted Period, Executive
will not, without prior written consent of the Company, directly or indirectly seek or obtain a Competitive Position in the Restricted Territory with a Competitor; provided, however, that the provisions of this Agreement shall not be
deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the
Securities Exchange Act of 1934, as amended. Executive acknowledges that in the performance of his duties for the Company he is charged with operating on the Company’s behalf throughout the Restricted Territory and he hereby acknowledges,
therefore, that the Restricted Territory is reasonable. 
 

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(d)
Enforcement of Restrictive Covenants. 
 
(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which
shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity: 
 
(A) the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening
to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to the Company; and 
 
(B) the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as
the result of any transactions constituting a breach of the Restrictive Covenants. 
 
(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. The covenants set forth in
this Agreement shall be considered and construed as separate and independent covenants. Should any part or provision of any covenant be held invalid, void or unenforceable in any court of competent jurisdiction, such invalidity, voidness or
unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement. If any portion of the foregoing provisions is found to be invalid or unenforceable by a court of competent jurisdiction because its
duration, the territory, the definition of activities or the definition of information covered is considered to be invalid or unreasonable in scope, the invalid or unreasonable term shall be redefined, or a new enforceable term provided, such that
the intent of the Company and Executive in agreeing to the provisions of this Agreement will not be impaired and the provision in question shall be enforceable to the fullest extent of the applicable laws. 
 
(iii) Reformation. The parties hereunder agree that it
is their intention that the Restrictive Covenants be enforced in accordance with their terms to the maximum extent possible under applicable law. The parties further agree that, in the event any court of competent jurisdiction shall find that any
provision hereof is not enforceable in accordance with its terms, the court shall reform the Restrictive Covenants such that they shall be enforceable to the maximum extent permissible at law. 
 
(iv) Elective Right of the Company. In the event that
Executive challenges the enforceability of the Restrictive Covenants (or asserts an affirmative defense to an action seeking to enforce the Restrictive Covenants) based on an argument that the Restrictive 
 

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Covenants are (x) not
enforceable as a matter of law, (y) unreasonable in geographical scope or duration or (z) void as against public policy, the Company shall have the right (1) to cease making the payments required under Section 7 above and, upon demand, to have
Executive repay, within 10 business days of any such demand, any such payments already made. Any right afforded to, or exercised by, the Company hereunder shall in no way affect the enforceability of the Restrictive Covenants or any other right of
the Company hereunder. Nothing in this Section 12(d)(iv) shall be construed to preclude a challenge by Executive (or a defense against) the application of the Restrictive Covenants as to a particular set of facts and circumstances (as opposed to the
arguments enumerated above). 
 
13.
Arbitration. Any claim or dispute arising under this Agreement shall be subject to arbitration, and prior to commencing any court action, the parties agree that they shall arbitrate all controversies. The arbitration shall be conducted in
Greenville, South Carolina, in accordance with the Employment Dispute Rules of the American Arbitration Association and the Federal Arbitration Act, 9 U.S.C. §1, et. seq. The arbitrator(s) shall be authorized to award both liquidated and
actual damages, in addition to injunctive relief, but no punitive damages. Such an award shall be binding and conclusive upon the parties hereto, subject to 9 U.S.C. §10. Each party shall have the right to have the award made the judgment of a
court of competent jurisdiction. 
 
14.
Assignment and Successors. 
 
(a) This
Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive’s legal representatives. 
 
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 
 
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.
As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 
15. Miscellaneous. 
 
(a) Waiver. Failure of either party to insist, in one
or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term
or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 
 

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(b)
Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenfiorceable, either in whole or in part, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 
 
(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from
employing other personnel on such terms and conditions as may be satisfactory to it. 
 
(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof and, from and after the
Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, including without limitation, the Prior Agreement. 
 
(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of
laws principles, the laws of the State of South Carolina shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. 
 
(f) Notices. All notices, requests, demands and other communications required or permitted hereunder
shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid: 
 


	  	 To Company:	  	 ScanSource, Inc.  


	  	   	  	 6 Logue Court 


	  	   	  	 Greenville, SC 29615 


	  	   	  	 Attn: General Counsel 

 

	  	 To Executive:	  	 To the address specified on Exhibit A to this Agreement 

 
Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein. 
 
(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement. 
 
(h) Construction. Each party and his or its counsel
have reviewed this Agreement and have been provided the opportunity to revise this Agreement and accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in
the interpretation of this Agreement. Instead, the language of all parts of this 
 

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6.
Termination of Employment. 
 
Agreement shall be construed
as a whole, and according to its fair meaning, and not strictly for or against either party. 
 
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written. 
 

	  SCANSOURCE, INC.

	
	  By:
	  	          /s/ Michael L.
Baur        


	  Name:
	  	                  Michael L.
Baur


	  Title:
	  	                  President and
CEO


	
	  EXECUTIVE:

	
	          /s/ Richard P. Cleys


	  Name: Richard P. Cleys



 

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EXHIBIT
A 
 

	  Base Salary:
	   	  $200,000 annually.

	
	  	   	  During the first year of employment, the Company will pay the moving and relocation expense reimbursements described
in the offer letter dated November 8, 2002, which is attached hereto and made a part hereof by this reference (the “Offer Letter”). Upon execution of this Agreement, the Company will grant to Executive the stock options described in the
Offer Letter.

	
	  Bonus Plan:
  

	   	  A targeted maximum bonus of $12,500 per quarter may be paid in such amounts and at such times as may be determined by
the President of the Company based upon Executive’s performance and attainment of management goals.
   
  In addition to any discretionary bonus that is paid, the Company will pay to Executive a bonus of $7,500 at the end of each calendar quarter, with the first payment being for the quarter ending March
31, 2003 and the last payment being for the quarter ending June 30, 2005. In order to qualify for the bonus payment, Executive must be actively employed by the Company on the last day of each respective quarter for which a payment is
made.


 

	  Days of paid Vacation:
	   	  Approving person:

	  Fifteen (15)
	   	  President and Chief Executive Officer

	
	  Executive Notice Address:
	   	  Richard P. Cleys
  1408 Spyglass Hill Drive
  Duluth, GA 30097


 
Definition of Change
in Control: 
 
For the purposes of this
Agreement, a “Change in Control” shall mean the occurrence of any of the following events: 
 
(i) individuals who, on the Effective Date, constitute the Board of Directors of the Company (the “Incumbent
Directors”) cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date and whose election or nomination for election was approved by a vote of at least a majority
of the Incumbent Directors then on the Board shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with
respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of 
 









 
proxies or consents by or on
behalf of any “person” (such term for purposes of this definition being as defined in Section 3(a)(9) of the Exchange Act and as used in Section 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Board (“Proxy Contest”),
including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or 
 
(ii) any person is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
either (A) 35% or more of the then-outstanding shares of common stock of the Company (“Company Common Stock”) or (B) securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding
securities eligible to vote for the election of directors (the “Company Voting Securities”); provided, however, that for purposes of this subsection (ii), the following acquisitions shall not constitute a Change in Control:
(w) an acquisition directly from the Company, (x) an acquisition by the Company or a Subsidiary of the Company, (y) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the
Company, or (z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below); or 
 
(iii) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction
involving the Company or a Subsidiary (a “Reorganization”), or the sale or other disposition of all or substantially all of the Company’s assets (a “Sale”) or the acquisition of assets or stock of another corporation (an
“Acquisition”), unless immediately following such Reorganization, Sale or Acquisition: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company Common Stock and
outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 55% of, respectively, the then outstanding shares of common stock and the combined voting power
of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Reorganization, Sale or Acquisition (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the Company’s assets or stock either directly or through one or more subsidiaries, the “Surviving Corporation”) in substantially the same proportions as
their ownership, immediately prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and (B) no person (other than (x) the Company or any
Subsidiary of the Company, (y) the Surviving Corporation or its ultimate parent corporation, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing is the beneficial owner, directly or indirectly, of 35%
or more of the total common stock or 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Surviving Corporation, and (C) at least a majority of the members of the board of directors of the
Surviving Corporation were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization, Sale or Acquisition (any Reorganization, 
 

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Sale or Acquisition which
satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or 
 
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 
 
 

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Form of
Release 
 
THIS RELEASE (“Release”)
is granted effective as of the              day of             ,
            , by                         
(“Executive”) in favor of ScanSource, Inc. (the “Company”). This is the Release referred to that certain Employment Agreement dated as of
                , 2002 by and between the Company and Executive (the “Employment Agreement”). Executive gives this Release in consideration of the
Company’s promises and covenants as recited in the Employment Agreement, with respect to which this Release is an integral part. 
 
1. Release of the Company. Executive, for himself, his successors, assigns, attorneys, and all those entitled to assert his rights,
now and forever hereby releases and discharges the Company and its respective officers, directors, stockholders, trustees, employees, agents, parent corporations, subsidiaries, affiliates, estates, successors, assigns and attorneys (the
“Released Parties”), from any and all claims, actions, causes of action, sums of money due, suits, debts, liens, covenants, contracts, obligations, costs, expenses, damages, judgments, agreements, promises, demands, claims for
attorney’s fees and costs, or liabilities whatsoever, in law or in equity, which Executive ever had or now has against the Released Parties, including any claims arising by reason of or in any way connected with any employment relationship
which existed between the Company or any of its parents, subsidiaries, affiliates, or predecessors, and Executive. It is understood and agreed that this Release is intended to cover all actions, causes of action, claims or demands for any damage,
loss or injury, which may be traced either directly or indirectly to the aforesaid employment relationship, or the termination of that relationship, that Executive has, had or purports to have, from the beginning of time to the date of this Release,
whether known or unknown, that now exists, no matter how remotely they may be related to the aforesaid employment relationship including but not limited to claims for employment discrimination under federal or state law, except as provided in
Paragraph 2; claims arising under Title VII of the Civil Rights Act, 42 U.S.C. § 2000(e), et seq. or the Americans With Disabilities Act, 42 U.S.C. § 12101 et seq.; claims for statutory or common law wrongful
discharge, including any claims arising under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.; claims for attorney’s fees, expenses and costs; claims for defamation; claims for wages or vacation pay; claims for
benefits, including any claims arising under the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq.; and provided, however, that nothing herein shall release the Company of its obligations to Executive under the
Employment Agreement or any other contractual obligations between the Company or its affiliates and Executive, or any indemnification obligations to Executive under the Company’s bylaws, certificate of incorporation, South Carolina law, or
otherwise. 
 
2. Release of Claims Under Age
Discrimination in Employment Act. Without limiting the generality of the foregoing, Executive agrees that by executing this Release, he has released and waived any and all claims he has or may have as of the date of this Release for age
discrimination under the Age Discrimination in Employment Act, 
 









 
29 U.S.C. § 621,
et seq. It is understood that Executive is advised to consult with an attorney prior to executing this Release; that he in fact has consulted a knowledgeable, competent attorney regarding this Release; that he may, before executing
this Release, consider this Release for a period of twenty-one (21) calendar days; and that the consideration he receives for this Release is in addition to amounts to which he was already entitled. It is further understood that this Release is not
effective until seven (7) calendar days after the execution of this Release and that Executive may revoke this Release within seven (7) calendar days from the date of execution hereof. 
 
Executive agrees that he has carefully read this Release and is signing it voluntarily. Executive
acknowledges that he has had twenty one (21) days from receipt of this Release to review it prior to signing or that, if Executive is signing this Release prior to the expiration of such 21-day period, Executive is waiving his right to review the
Release for such full 21-day period prior to signing it. Executive has the right to revoke this release within seven (7) days following the date of its execution by him. However, if Executive revokes this Release within such seven (7) day period, no
severance benefit will be payable to him under the Employment Agreement and he shall return to the Company any such payment received prior to that date. 
 
EXECUTIVE HAS CAREFULLY READ THIS RELEASE AND ACKNOWLEDGES THAT IT CONSTITUTES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST
THE COMPANY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD A FULL OPPORTUNITY TO CONSULT WITH AN ATTORNEY OR OTHER ADVISOR OF HIS CHOOSING CONCERNING HIS EXECUTION OF THIS RELEASE AND THAT HE IS SIGNING THIS
RELEASE VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE COMPANY FROM ALL SUCH CLAIMS. 
 
 

	  
	
	

	  Executive
   

	
	   
  Date:





 

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