Document:

ScanSource Ex10.3 9.30.12 Q1 10Q

Exhibit 10.3
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) between ScanSource, Inc., a South Carolina corporation (“Company”), and Gerald Lyons (“Executive”) (collectively, “the Parties”) is effective as of July 25, 2012 (“Effective Date”).

BACKGROUND

The Company desires to employ Executive as Senior Vice President of Finance and Principal Accounting Officer, and Executive is willing to continue to serve in such capacity, and the parties desire to document the terms and conditions of such employment as stated in this Agreement.

In consideration of the foregoing and of the mutual commitments below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1.Employment.  On the Effective Date, Executive will be employed in the capacity stated above with such commensurate responsibilities as are assigned to him by the Company's Chief Financial Officer (the “CFO”). Executive will report directly to the CFO.

2.Employment Period.

(a)Unless earlier terminated in accordance with Section 5, Executive's employment will be for a term (the “Employment Period”), beginning on the Effective Date and ending on June 30, 2014, the Employment Period End Date.  Provided, however, that if a Change in Control, as defined in Exhibit C hereto, occurs during the Employment Period, the ending date of the Employment Period will be extended so that it expires on the later of the Employment Period End Date or the first anniversary of the date on which the Change in Control initially occurred.

(b)If the Company does not renew the Agreement, or enter into a new employment agreement with Executive with the same or similar terms as the Agreement, as of the Employment Period End Date,  the Executive may choose one of the following two options: (i) the Executive will voluntarily resign from employment with the Company as of the Employment Period End Date and the Company will pay to Executive, on the 30th day after the Employment Period End Date, an amount equal to one (1) times the highest combined annual Base Salary and Variable Compensation earned by Executive from the Company, including any such amounts earned but deferred, in the last three (3) fiscal years before the Employment Period End Date, less normal withholdings; or (ii) the Executive may elect to continue employment with the Company on an at-will basis and, for a maximum of one year following the Employment Period End Date, receive the same salary and incentive compensation opportunity as in effect in the last year of the Agreement.

The Parties agree and acknowledge that: (i) nothing in this Section 2(b) nor any action the Company may take pursuant to this Section 2(b) will give rise to a claim by Executive for termination without Cause, termination for Good Reason, or termination due to the Executive's Retirement or the normal expiration of the Executive's Employment Period or for Severance Benefits or any amounts or benefits other than those specifically enumerated in this Section 2(b); (ii) Executive will not be entitled to receive any amounts or benefits under this Section 2(b) if Executive is otherwise entitled to receive or receives benefits under Section 6 of this Agreement; and (iii) Executive must execute and provide to the Company a Release, and the period for revoking same must have expired, before the 30th day following the Employment Period End Date in order to receive any amounts or benefits under this Section 2(b).  Nothing in this Section 2(b) will prohibit Executive's employment from being terminated for Cause or for any other event enumerated in this Agreement.

3.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 these activities do not interfere with the performance of Executive's responsibilities under this Agreement.

4.Compensation and Benefits.

(a)Base Salary. During the Employment Period, the Company will pay to Executive a base salary at the rate specified on Exhibit A (the “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 CFO will review the Executive's Base Salary annually and make recommendations to the Compensation Committee of the Board (the “Committee”), which Committee may increase (but not decrease) Executive's Base Salary from year to year. This annual review of Executive's Base Salary will consider, among other things, Executive's performance and the Company's performance.  If Executive becomes eligible during the Employment Period to receive benefits under the Company's short-term disability policy, the Company will continue to pay Executive's Base Salary; provided, however, that Executive's Base Salary during such period will be reduced by any amounts Executive receives under the short-term disability policy.

(b)Variable Compensation, Savings and Retirement Plans. During the Employment Period, Executive will be entitled to participate in all deferred compensation, savings and retirement plans, practices, policies and programs applicable to senior executive officers of the Company (the “Peer Executives”) pursuant to their terms. The Executive will also be eligible to receive certain variable compensation (the “Variable Compensation”) based on financial and/or performance criteria established periodically by the Committee, as specified on Exhibit A.  The Committee, at its discretion, may award to Executive additional bonuses or other amounts as it deems necessary or deserving based on Executive's performance.

(c)Welfare Benefit Plans. During the Employment Period, Executive and Executive's eligible dependents may participate pursuant to their terms in the welfare benefit plans, practices, policies and programs provided by the Company which may include, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) (the “Welfare Plans”) to the extent applicable to Peer Executives. Contributions will be required by the Executive. The Company may, in its sole discretion, modify, change, or eliminate its Welfare Plans.

(d)Expenses. During the Employment Period, Executive will be entitled to receive reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company, and such reimbursements will be made no later than the last day of the year immediately following the year in which Executive incurs the reimbursable expense. The amount of reimbursable expenses incurred in one taxable year shall not affect the expenses eligible for reimbursement in any other taxable year.  No right to reimbursement is subject to liquidation or exchange for other benefits. 

(e)Fringe Benefits. During the Employment Period, Executive will 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 fiscal year during the Employment Period, Executive will be entitled to the number of days of paid vacation specified on Exhibit A. Executive may take vacation at the times Executive reasonably requests, subject to the prior approval of the person specified on Exhibit A. Unused vacation time will not carry over to the next fiscal year and will not be paid upon termination of employment.

(g)Clawback.  To the extent required by law, including the Dodd-Frank Act, the Company shall have a clawback policy applicable to Executive.

5.Termination of Employment.

(a)Death, Retirement or Disability. Executive's employment terminates automatically upon Executive's death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” means normal retirement as defined in the Company's retirement plan in effect when Executive retires, or if there is no retirement plan, “Retirement” will mean the Executive's voluntary termination of employment after age 55 with ten years of service. If the Company determines that the Executive has become disabled 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. Executive's employment with the Company will terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), unless, within the 30 

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days after such receipt, Executive has returned to full-time performance of Executive's duties. For purposes of this Agreement, “Disability” means a mental or physical disability as determined by the Board in accordance with standards and procedures similar to those under the Company's long-term disability plan, if any. If the Company has no long-term disability plan, “Disability” will 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 will be certified by two physicians mutually agreed upon by Executive, or his personal representative, and the Company. If the two physicians are unwilling to certify that the Executive is disabled, Executive's termination will be deemed a termination by the Company without Cause and not a termination because 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” means:

(i)engaging in unethical or illegal conduct or misconduct that includes but is not limited to violations of the Company's policies concerning employee conduct; or

(ii)the Executive's breach of any term of this Agreement.

(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” means:

(i)without the consent of Executive, the assignment to Executive of any duties materially inconsistent for Peer Executives, excluding an isolated, insubstantial, and inadvertent action taken in good faith which is remedied by the Company promptly after receipt of notice from Executive;

(ii)a reduction by the Company in Executive's Base Salary or a material reduction in Executive's Variable Compensation opportunity;

(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 base compensation, unless the Company provides a substantially equivalent alternative plan, or (b) to continue Executive's participation in the alternative plan on a basis that is substantially equivalent in terms of the value of benefits provided;

(iv)the Company's requiring Executive, without his consent, to be based at any location that increases Executive's normal work commute by fifty (50) miles or more as compared to Executive's normal work commute or otherwise is a material change in the location at which Executive is based;

(v)any failure by the Company to comply with and satisfy Section 12(c) of this Agreement;

(vi)the material breach of this Agreement by the Company; or

(vii)the termination of employment by the Executive during the 60-day period beginning on the six-month anniversary of a Change in Controlif the Company or a successor entity has not offered the Executive a new employment agreement after or in contemplation of a Change in Control with the same or better compensation and terms and conditions of employment as are stated in this Agreement.

Executive must provide written notice to the Company of Executive's intent to terminate employment for Good Reason within 30 days of the initial existence of the Good Reason. The Company will have an opportunity to cure any claimed event of Good Reason within 30 days of notice from Executive. The Board's good faith determination of cure will be binding. The Company will notify Executive in writing of the timely cure of any claimed event of Good Reason and how the cure was made. Any Notice of Termination delivered by Executive based on a claimed Good Reason which was thereafter cured by the Company will be deemed withdrawn and ineffective to terminate this Agreement. If the Company fails to cure any claimed event of Good Reason within 30 days of notice from Executive, Executive must terminate employment for such claim of Good Reason within 180 days of the initial 

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existence of the Good Reason, and if Executive fails to do so, such claimed event of Good Reason will be deemed withdrawn and ineffective to terminate this Agreement.

(d)Notice of Termination. Any termination of Executive's employment by the Company or by Executive must be communicated by Notice of Termination to the other Party in accordance with Section 13(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) states 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 provisions 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 will not waive any right of Executive or the Company, or preclude Executive or the Company from asserting applicable facts or circumstances in enforcing rights under this Agreement.

(e)Date of Termination. The “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.

6.Obligations of the Company upon Termination.

(a)Termination by Executive for Good Reason; Termination by the Company Other Than for Cause, Death, Disability, Retirement, or Normal Expiration of Employment Period. If, during the Employment Period: (i) the Company terminates Executive's employment other than for Cause, death, Disability, or Retirement, or (ii) Executive terminates employment for Good Reason following the Company's failure to cure such Good Reason as set forth in Section 5(c) of this Agreement, the Company will pay Executive the following amounts and provide the following benefits:

(i)Executive's Base Salary earned through the Date of Termination to the extent not already paid (such amount is hereinafter referred to as the “Accrued Obligations”) will be paid as soon as practicable after the Date of Termination per the Company's customary payroll practices;

(ii)to the extent not previously paid or provided and only if earned as of the Date of Termination, the Company will timely pay or provide to Executive any other amounts or benefits which Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (the “Other Benefits”) pursuant to the terms of such Other Benefits; and

(iii)subject to Section 13(i) of this Agreement and Executive's execution of a Release in substantially the form of Exhibit B hereto (the “Release”) within the time set forth in Section 6(g) of this Agreement, the Company will pay to Executive in a lump sum in cash the amount in (A) on the 30th day after the Date of Termination, pay the amount in (B) as set forth below, and provide the benefits in (C):
 
(A)a single year of compensation in an amount equal to one (1) times the highest combined annual Base Salary and Variable Compensation earned by Executive from the Company, including any such amounts earned but deferred, in the last three fiscal years before the Date of Termination, less normal withholdings, and an additional amount (the “Retention Benefit”) equal to one-twelfth (1/12) times the highest combined annual Base Salary and Variable Compensation earned by Executive from the Company, including any such amounts earned but deferred, in the last three fiscal years before the Date of Termination, less normal withholdings, times the number of full years beyond ten (10) years that the Executive was consecutively employed by the Company prior to the Date of Termination, less normal withholdings (collectively the “Severance Benefits”); provided, however,  that the maximum amount that Executive may receive under this Section 6(a)(iii)(A) is two (2) times the highest combined annual Base Salary and Variable Compensation earned by Executive from the Company, including any such amounts earned but deferred, in the last three fiscal years before the Date of Termination. Notwithstanding the foregoing, if the Date of Termination occurs within 12 months after or otherwise in contemplation of a Change in Control, as defined in Exhibit C, Executive will receive Severance Benefits in an amount equal to two (2) times the highest combined annual Base Salary and Variable Compensation earned by Executive 

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from the Company, including any such amounts earned but deferred, in the last three fiscal years before the Date of Termination, less normal withholdings, but no Retention Benefit. Executive's entitlement to receive and retain the amounts set forth in this Section 6 are conditioned on Executive's compliance with the Restrictions on Conduct described in Section 11. With respect to any amounts due Executive under this Section 6(a)(iii)(A), Executive may elect to receive such amounts in a single lump sum or in bi-weekly installments pursuant to the Company's normal payroll cycle during the term of the 24-month period referenced in Sections 11(c)(i) through 11(c)(vi);

(B)a bonus equal to the pro rata portion (based on the number of days elapsed in the current fiscal year through the Date of Termination) of the current fiscal year annual variable compensation, if any, that would otherwise be payable if the Executive had continued employment through the end of the current fiscal year, based on actual performance (the “Pro Rata Bonus”). The Pro Rata Bonus, if any, less normal withholdings will be paid within 30 days of the Committee's certification that the Executive has met the necessary performance criteria, which will be no later than the later of March 15 following the end of the calendar year in which Executive's right to the bonus vests or the 15th day of the third month following the end of the Company's fiscal year in which Executive's right to the bonus vests; and

(C)for up to twenty-four (24) months following the Date of Termination, the Company will reimburse Executive on a monthly basis for payments made by Executive which are in excess of the monthly rates paid by active employees, for medical and dental insurance benefits. Reimbursement may cease sooner than twenty-four (24) months if Executive becomes eligible to receive similar benefits under another employer provided or group plan (which may be the plan of the Executive's new employer or his spouse's employer) and, in such event, Executive's right to participate in the Company's medical and dental insurance plans ceases. Such cash reimbursements will be made per the Company's customary payroll practices (not less frequently than monthly) for up to the twenty-four (24) months following the Date of Termination.  To receive the benefits offered under this Section 6(a)(iii)(C), Executive may be required to elect COBRA coverage under the Company's medical and dental insurance plans.

(b)Death. If Executive's employment is terminated because of Executive's death during the Employment Period, this Agreement will terminate without further obligations to Executive's legal representatives under this Agreement other than (i)  the payment of Accrued Obligations as described in Section 6(a)(i), (ii) the payment of the Pro Rata Bonus as described in Section 6(a)(iii)(B), and (iii) the timely payment or provision of Other Benefits as described in Section 6(a)(ii) of this Agreement. The Accrued Obligations and the Pro Rata Bonus will be paid to Executive's estate or beneficiary, as applicable. Other Benefits as used in this Section 6(b) will include, without limitation, and Executive's estate and/or beneficiaries will 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 pursuant to the terms of such Other Benefits.

(c)Disability. If Executive's employment is terminated because of Executive's Disability during the Employment Period, this Agreement will terminate without further obligations to Executive other than (i) the payment of Accrued Obligations as described in Section 6(a)(i), (ii) the payment of the Pro Rata Bonus as described in Section 6(a)(iii)(B), and (iii) the timely payment or provision of Other Benefits as described in Section 6(a)(ii) of this Agreement. The term Other Benefits as used in this Section 6(c) includes, without limitation, and Executive will 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 pursuant to the terms of such Other Benefits.

(d)Retirement. If Executive's employment is terminated because of Executive's Retirement during the Employment Period, this Agreement will terminate without further obligations to Executive other than (i) the payment of Accrued Obligations as described in Section 6(a)(i), (ii) the payment of the Pro Rata Bonus as described in Section 6(a)(iii)(B), and (iii) the timely payment or provision of Other Benefits as described in Section 6(a)(ii) of this Agreement. The term Other Benefits as used in this Section 6(d) includes, without limitation, and Executive will 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 pursuant to the terms of such Other Benefits.

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(e)Cause or Voluntary Termination without Good Reason. If Executive's employment is terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement will terminate without further obligations to Executive, other than for (i) the payment of Accrued Obligations as described in Section 6(a)(i), and (ii) the timely payment or provision of Other Benefits as described in Section 6(a)(ii).

(f)Normal Expiration of Employment Period. If Executive's employment is terminated due to the normal expiration of the Employment Period or is terminated within 60 days after the Employment Period End Date (for reasons other than Cause, death, Disability or Retirement), this Agreement will terminate without further obligations to Executive, other than for (i) the payment of Accrued Obligations as described in Section 6(a)(i), (ii) the payment of the Pro Rata Bonus as described in Section 6(a)(iii)(B), (iii) the payment of the Severance Benefits (subject to the Executive's execution of the Release) as described in Section 6(a)(iii)(A), and (iv) the timely payment or provision of Other Benefits as described in Section 6(a)(ii). Notwithstanding anything to the contrary in this Agreement, if the Agreement is not renewed and a new employment agreement is not offered and the Executive remains an employee of the Company in any capacity, Executive's employment will not be governed by this Agreement and Executive will be an at-will employee. In that instance, Executive remains subject to the Restrictions on Conduct described in Section 11.

(g)Execution of Release. Notwithstanding anything to the contrary in this Section 6, the Release must be executed and provided to the Company, and the period for revoking same must have expired, before the 30th day following the Date of Termination.

7.Non-exclusivity of Rights. Nothing in this Agreement prevents or limits 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 13(d), will anything in this Agreement limit or otherwise affect any rights 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, program, contract or agreement with the Company at or subsequent to the Date of Termination will be payable in accordance with such plan, policy, practice, program, contract or agreement except as explicitly modified by this Agreement.

8.Mandatory Reduction of Payments in Certain Events. Any payments made to Executive under this Agreement will be made with the Executive's best interests in mind related to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”).

(a)Anything in this Agreement to the contrary notwithstanding, if it is 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, then, before making the Payment to Executive, a calculation will 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 will be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). In that event, Executive will direct which Payments are to be reduced and any such reduction will be made so as not to violate Code Section 409A.

(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 in Section 8(a)(i) and (ii) above will 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 will provide detailed supporting calculations. Any determination by the Accounting Firm will be binding upon the Company and Executive. As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments to which Executive was entitled, but did not receive pursuant to Section 8(a), could have been made without the imposition of the Excise Tax (an “Underpayment”). In such event, the Accounting Firm will determine the amount of the Underpayment that has occurred and any such Underpayment will be promptly paid by the Company to or for the benefit of Executive.

(c)If the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Section 8 will be of no further force or effect.

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9.Costs of Enforcement. Subject to Section 8(b), each Party will pay its own costs and expenses incurred in enforcing or establishing its rights under this Agreement, including, without limitation, attorneys' fees, whether a suit is brought or not, and whether or not incurred in trial, bankruptcy, or appellate proceedings.

10.Representations and Warranties. Executive represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any restrictive covenant not to compete, not to solicit or not to disclose or use confidential information, with any person or entity, and Executive's execution of this Agreement and performance of his obligations will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

11.Restrictions on Conduct of Executive.

(a)General. Executive agrees that as part of the services he will perform for the Company he will be exposed to, and help create and maintain, competitive advantages over other “Competitive Businesses,” as well as good will with the Company's customers and suppliers. By virtue of the position Executive will hold, Executive is receiving, will receive, or will be provided access to the Company's: (1) customers, suppliers, advertisers and vendors as well as pricing information, distribution channels and other terms of those relationships; (2) “Confidential Information” and “Trade Secrets;” (3) the relationships and other elements that together comprise good will; and/or (4) institutional knowledge regarding product development, its engineering, product specification, material suppliers, material specifications, product suppliers, manufacturing knowledge, customer feedback, surveys, design-around information, research and development information, internal quality control tests, other quality control information and other similar information. Executive agrees that the competitive advantage and good will in the Company has created, and which Executive will assist in furthering and maintaining, is an important and legitimate business asset of the Company. Should Executive compete against the Company, having intimate knowledge of the information that gives the Company its competitive advantage and good will would give Executive, or those “Competitive Businesses” he is assisting, an unfair advantage over the Company.

(b)Definitions. The following capitalized terms used in this Section 11 will have the meanings assigned to them below, which definitions will apply to both the singular and the plural forms of these terms:

“Competitive Business” - means any entity that distributes any goods or services in or to the point of sale, automatic identification, data capture, security, business telephony, communication products and peripherals markets if such entity distributes any product that is the same or similar to any good or service offered by the Company, including reasonable alternatives, within the final two (2) years of Executive's employment with the Company. Executive agrees that Competitive Businesses include, but are not limited to, the following entities: Ingram Micro, Tech Data, Avnet, BlueStar, Westcon, Voda One, Arrow, Agilysis, Azerty, PC POS, Jarltech, Jenne, Securematics, Synnex, Alliance (NEI), NETXUSA, ADI, Tri-Northern Security Distribution and Anixter. Regarding Competitive Businesses that have distinct business units or divisions that are not competitive with the Company, the Company may make exceptions by consent of the CEO that allow Executive to work for such non-competitive business units or divisions during the “Restricted Period.” 

“Confidential Information” means any and all information of the Company that has value and is not generally known to the Company's competitors. This includes, but is not limited to, any information or documents about: the Company's accounting practices; financial data; financial plans and practices; the Company's operations; its future plans (including new products, improved products, and products under development); its methods of doing business; internal forms, checklists, or quality assurance testing; programs; customer and supplier lists or other such related information as pricing or terms of business dealings; supply chains; shipping chains and prices; packaging technology or pricing; sourcing information for components, materials, supplies, and other goods; employees; pay scales; bonus structures; contractor information and lists; marketing strategies and information; product plans; distribution plans and distribution channel relationships; business plans; manufacturing, operation, sales and distribution processes; costs; margins for products; prices, sales, orders and quotes for the Company's business that is not readily attainable by the general public; existing and future services; testing information (including methods and results) related to materials used in the development of the Company's products or materials that could be used with the Company's products; development information (including methods and results) related to computer programs that design or test products or that track information from a central database; and the computer or electronic passwords of all employees and/or firewalls of the Company. Notwithstanding the definitions stated above, the term Confidential Information does not include any 

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information which (i) at the time of disclosure to Executive, was in the public domain; (ii) after disclosure to Executive, is published or otherwise becomes part of the public domain through no fault of Executive; (iii) without a breach of duty owed to the Company, was already in Executive's possession at the time of disclosure; (iv) was received after disclosure to Executive from a third party who had a lawful right to the information other than through a relationship of trust and confidence with the Company, and without a breach of duty to the Company, disclosed the information to Executive; or (v) where Executive can show it was independently developed by Executive on non-Company time without reference to, or reliance upon, other Confidential Information or Trade Secrets.

“Prohibited Duties” means supervising, consulting, advising, coaching, providing any information related to, or directly or indirectly performing any task for a Competitive Business that is similar or related to one or more duties Executive performed or supervised for the Company. Prohibited duties include owning greater than 10% of any Competitive Business. Prohibited duties includes supervising, consulting, advising, coaching, providing any information related to, or directly or indirectly performing any task for any material, product or service provider of any Competitive Business, if Executive's work for such material, product or service provider is associated with a Competitive Business.

“Restricted Territory” means any place where the Company or its affiliates is (or is attempting to) actively manufacturing, marketing, selling or distributing its products within the final two (2) years of Executive's employment, or places where the Company made affirmative steps to market or sell its products within the final six (6) months of Executive's employment. If Executive was assigned only a portion of the territory in which the Company operates or sells, then the Restricted Territory shall be narrowly construed to include only the limited territory of the Executive.

“Trade Secrets” means information related to the business or services of the Company which (1) derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reasonable reverse engineering processes by persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts by the Company and affiliated third parties that are reasonable under the circumstances to maintain its secrecy. Assuming the foregoing criteria in clauses (1) and (2) are met, Trade Secret encompasses business and technical information including, without limitation, know-how, designs, formulas, patterns, compilations, programs, devices, inventions, methods, techniques, drawings processes, finances, actual or potential customers and suppliers, and existing and future products and services of the Company. Notwithstanding the definitions stated above, the term Confidential Information does not include any information which (i) at the time of disclosure to Executive, was in the public domain; (ii) after disclosure to Executive, is published or otherwise becomes part of the public domain through no fault of Executive; (iii) without a breach of duty owed to the Company, was already in Executive's possession at the time of disclosure; (iv) was received after disclosure to Executive from a third party who had a lawful right to the information through some avenue other than through a relationship of trust and confidence with the Company, and without a breach of duty to the Company, disclosed the information to Executive; or (v) where Executive can show it was independently developed by Executive on non-Company time without reference to, or reliance upon, other Confidential Information or Trade Secrets.

(c)Restrictions. Executive understands and agrees that the compensation the Company has agreed to provide pursuant to this Agreement would not be as lucrative if the restrictions set forth in this section were not included in this Agreement.  Therefore, in consideration of the compensation provided in this Agreement, and the other terms agreed to by the Company, along with the disclosure (and continued disclosure of Confidential Information and Trade Secrets) a portion of which is being paid to compensate Executive for these covenants, Executive covenants and agrees as follows:

(i)for the term of Executive's employment, and for a period of twenty-four (24) months following the Date of Termination, Executive agrees he will not engage in any Prohibited Duties for a Competitive Business in the Restricted Territory;

(ii)for the term of Executive's employment, and for a period of twenty-four (24) months following the Date of Termination, Executive agrees he will not solicit any of the Company's customers or suppliers with whom Executive had contact during the course of Executive's employment with the Company for any Competitive Business;

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(iii)for the term of Executive's employment, and for a period of twenty-four (24) months following the Date of Termination, Executive agrees he will not solicit any of the Company's prospective customers or prospective suppliers with whom Executive had contact during the course of Executive's employment with the Company for any Competitive Business;

(iv)for the term of Executive's employment, and for a period of twenty-four (24) months following the Termination Date, Executive agrees he will not solicit any of the Company's employees whom Executive supervised during the course of his employment with the Company, any employees with whom he had contact during his employment, any employees who had contacts of employment with the Company at the time solicited, or any employees who had restrictive covenants at the time solicited, to leave the Company for any purpose;for the term of Executive's employment, and for a period of no less than twenty-four (24) months (for Confidential Information) or for so long as the information remains protected under this Agreement or applicable statute (for Trade Secrets) thereafter, Executive agrees that he will not, either directly or indirectly, publish, disseminate, provide or otherwise disclose any Confidential Information or Trade Secrets to any third party, unless required to do so by legal process or other law, without the Company's prior written consent. Executive agrees that if he believes he is compelled to reveal Confidential Information or Trade Secrets pursuant to the limited exception provided herein, Executive will provide the Company at least seven (7) days advance notice before doing so, and will explain the specifics under which such Confidential Information or Trade Secrets are to be disclosed.

(v)For the term of Executive's employment, and for a period of no less than twenty-four (24) months (for Confidential Information) or for so long as the information remains protected under this Agreement or applicable statute (for Trade Secrets) thereafter, Executive agrees that he will not, either directly or indirectly, for his own behalf or otherwise, use in any manner the Company's Confidential Information or Trade Secrets.

(d)Non-Disparagement. The Company and Executive agree that for the term of Employee's employment, and for a period of five (5) years thereafter, they will not disparage each other to any non-governmental third parties. Nothing in this subsection should be interpreted as any restriction on either Party's compliance with any laws requiring or compelling disclosure, or any disclosures that are considered absolutely privileged, such as legal proceedings.

(e)Blue Pencil. The Company and Executive agree that the provisions of Section 11, including all subparts, are intended to strike the balance between Executive earning a livelihood and the Company protecting its important competitive advantages and good will. The Parties have drafted the provisions of Section 11, including all subparts, to allow for enforcement. The Parties agree that should a court determine that any word, phrase, clause, sentence, or paragraph is unreasonably broad in time, territory, or scope so as to render any remaining provisions unenforceable, the Parties desire the court to strike the offending language in the narrowest way possible and enforce the remainder as if the offending language was not there, so that only reasonable restrictions are enforced.

(f)Elective Right of the Company. If 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 Covenants are (i) not enforceable as a matter of law, (ii) unreasonable in geographical scope or duration or (iii) void as against public policy, the Company will have the right (1) to cease making the payments required under Section 6 above, and (2) upon demand, to have Executive repay, within 10 business days of any such demand, any payments already made. Any right afforded to, or exercised by, the Company under this Agreement will not affect the enforceability of the Restrictive Covenants or any other right of the Company under this Agreement. 

12.    Assignment and Successors.

(a)This Agreement is personal to Executive and without the prior written consent of the Company will not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement will inure to the benefit of and be enforceable by Executive's legal representatives.

9

(b)This Agreement will 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” will mean the Company as herein before defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise.

13.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 will 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 the waiver is in a writing signed by the Party making the waiver.

(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 unenforceable, either in whole or in part, such invalidity, illegality or unenforceability will not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which will 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 Parties on the subject matter hereof. From and after the Effective Date, this Agreement will supersede any other agreement between the Parties on the subject matter hereof, including without limitation, the Existing Agreement.

(e)Governing Law and Jurisdiction. Without regard to conflict of laws principles, the laws of the State of South Carolina will govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise. This Agreement may only be enforced in a court of competent jurisdiction in Greenville County, South Carolina and Executive agrees to submit to the exclusive jurisdiction of a court of competent jurisdiction in Greenville, South Carolina.

(f)Notices. All notices, requests, demands and other communications required or permitted in this Agreement must be in writing and will 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: Chief Executive Officer

	 
	 

	To Executive:
	To the address specified on Exhibit A

Any Party may change the address to which notices, requests, demands and other communications will 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, which makes specific reference to this Agreement.

(h)Construction. Each Party and his or its counsel have been provided the opportunity to review and revise this Agreement and accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Agreement. Instead, the language 

10

of all parts of this Agreement will be construed as a whole, and according to its fair meaning, and not strictly for or against either party.

(i)Deferred Compensation Provision. Notwithstanding any other provision of this Agreement, it is intended that any payment or benefit provided under this Agreement that is considered to be “deferred compensation” subject to Code Section 409A will be provided in such manner and at such time, including without limitation in connection with a permissible payment event under Code Section 409A, as is exempt from or complies with the requirements of Code Section 409A. All rights to payments and benefits under this Agreement are to be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Code Section 409A. Termination of employment under this Agreement, to the extent required by Code Section 409A, will be construed to mean a “separation from service” under Code Section 409A where it is anticipated that no further services will be performed after such date or that the level of services Executive would perform after that date (whether as an employee or independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of services Executive performed over the prior thirty-six (36)-month period. The terms of this Agreement are intended to, and will be construed and administered to the fullest extent possible, to permit compensation to be paid under this Agreement to be exempt from or comply with Code Section 409A. Regardless, neither the Company nor its directors, officers or agents shall be liable to Executive or anyone else if the Internal Revenue Service or any court or other authority determines that any payments or benefits to be provided under this Agreement are subject to taxes, penalties or interest as a result of failing to comply with or be exempt from Code Section 409A.

Notwithstanding anything in this Agreement to the contrary, if any payment or benefit that constitutes non-exempt “deferred compensation” under Code Section 409A would otherwise be provided under this Agreement due to Executive's separation from service during a period in which he is a “specified employee” (as defined in Code Section 409A and the associated final regulations), then, to the extent required by Code Section 409A, such payments or benefits will be delayed, to the extent applicable, until six months after Executive's separation from service or, if earlier, Executive's death (the “409A Deferral Period”). If such payments are otherwise due to be made in installments during the 409A Deferral Period, the payments that would otherwise have been made in the 409A Deferral Period will be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments will be made as otherwise scheduled. In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at Executive's expense, with Executive having the right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits will be provided as otherwise scheduled.

14.Arbitration. Any claim or dispute arising under this Agreement will be subject to arbitration, and before commencing any court action, the Parties agree that they will arbitrate all controversies and such arbitration will occur in Greenville, South Carolina according to the Employment Dispute Rules of the American Arbitration Association and the Federal Arbitration Act, 9 U.S.C. §1, et seq. The arbitrators will be authorized to award both liquidated and actual damages as well as injunctive relief, but no punitive damages. The arbitrator's award will be binding and conclusive upon the Parties, subject to 9 U.S.C. §10. Each party has the right to have the award made the judgment of a court of competent jurisdiction.

EXECUTIVE:                    SCANSOURCE, INC.:
Name:         /s/ Gerald Lyons                      By:    /s/ Michael L. Baur    
Name:    Michael L. Baur    
Title:    CEO                               

11

EXHIBIT A TO EMPLOYMENT AGREEMENT

Executive: Gerald Lyons
Base Salary: $250,000 annually

Variable Compensation: Beginning July 25, 2012 and continuing through the end of the Employment Period, Executive’s compensation structure will be as follows: 

Variable compensation may be paid in such amounts as determined by the Chief Financial Officer, based upon the Company’s attainment of goals established in the following areas: (a) return on invested capital (“ROIC”); (b) growth in operating income; and (c) aging of accounts receivable.  

The goal based on ROIC will account for 40% of the target variable compensation opportunity, and will be determined as follows: (a) if the Company’s ROIC is less than 10%, the Executive will not be entitled to any payment in connection with this portion of the variable compensation opportunity; (b) if the Company achieves at least 10% ROIC and less than 18% ROIC, the Executive will be entitled to a pro-rated payment between $15,000 and $20,000 of this portion of the variable compensation opportunity; (c) if the Company achieves at least 18% ROIC and less than 22% ROIC, the Executive will be entitled to a pro-rated payment equal to 100% between $20,000 and $25,000 of this portion of the variable compensation opportunity; and (d) if the Company achieves at least 22% ROIC, the Executive will be entitled to a payment of $25,000 of this portion of the variable compensation opportunity. 

The goal based on growth in operating income will account for 40% of the target variable compensation opportunity, and will be determined as follows: (a) if the Company’s Operating Income growth year to year is less than 2%, the Executive will not be entitled to any payment in connection with this portion of the variable compensation opportunity; (b) if the Company’s Operating Income growth year to year is at least 2% and less than 6%, the Executive will be entitled to a pro-rated payment between $15,000 and $20,000 of this portion of the variable compensation opportunity; (c) if the Company’s Operating Income growth year to year is at least 6% and less than 12%, the Executive will be entitled to a payment  between $20,000 and $25,000 of this portion of the variable compensation opportunity; and (d) if the Company’s Operating Income growth year to year is at least 12%, the Executive will be entitled to a payment equal to $25,000 of this portion of the variable compensation opportunity.  

The goal based on the aging of accounts receivable will account for 20% of the target variable compensation opportunity, and will be based on specific goals established by the Company’s CFO.  Depending upon Executive’s performance, Executive may be entitled to a payment of $0 to $12,500 for this portion of the variable compensation opportunity.
 
For purposes of this Agreement, “Operating Income” means the amount reflected for the line item identified as Operating Income on the Company’s audited consolidated financial statements for each respective fiscal year ending during the term of this Agreement and “Return on Invested Capital” means an amount expressed as a percentage of: the Company’s annual (or annualized) EBITDA (net income plus interest, taxes, depreciation and amortization) divided by average shareholder’s equity and interest bearing debt (defined as the sum of shareholder’s equity at the beginning of the period added to the sum of shareholder’s equity at the end of the period, divided by 2, plus the average daily interest bearing debt for the period). The Company reserves the right to make adjustments to the calculation of Return on Invested Capital and Operating Income to account for any extraordinary or unusual items that did not exist or were not in effect as of the Effective Date and to the extent permitted to qualify for the Code Section 162(m) Exemption (as defined below), including, but not limited to, newly pronounced accounting standards and similar laws and regulations and significant non-recurring events that impact the Company. The Company’s calculation of Operating Income, Return on Invested Capital, and the incentive compensation amount shall be conclusive and binding absent fraud or manifest and material error.  The target amount of such variable compensation will be $50,000 per year and the maximum amount of such variable compensation will be $62,500 per year    Any variable compensation earned during the Company’s 2013 and 2014 fiscal years will be paid annually and as soon as practicable following the Company’s filing of its Form 10-K with the United States Securities and Exchange Commission. 
Notwithstanding any other provision of this Agreement or this Exhibit A, any variable compensation to be paid under this Agreement will be paid to Executive by the later of (i) March 15th following the end of the calendar year in which Executive right to such variable compensation vests or (ii) the 15th day of the third month following the end of the Company’s fiscal year in which Executive’s right to such variable compensation vests.

12

Given Executive may be a “covered employee” under Code Section 162(m), the foregoing variable compensation is intended to be a Performance Unit granted under the terms of the Company’s 2002 Long-Term Incentive Plan and has been designated as a “Qualified Performance-Based Award.” The variable compensation is intended to qualify for the Code Section 162(m) Exemption within the meaning of the Company’s 2002 Long-Term Incentive Plan. In no event may Executive’s variable compensation under this Agreement for any year exceed the maximum amount allowed by the terms of the 2002 Long-Term Incentive Plan currently in effect, which is $3,000,000 as of the Effective Date.  Executive’s right to receive and retain any payment of variable compensation is subject to the written certification of the Board Compensation Committee that the relevant performance goals have been achieved. To the extent appropriate, the Board Compensation Committee may provide for the payment of variable compensation under the terms of another Company variable plan that permits Qualified Performance-Based Awards, in which case the limits and terms of such other variable plan will apply.
	
			
	 
	 
	 

	Days of Paid Vacation per Fiscal Year:
	 
	Approving Person:

	 
	 

	15 (per Company policy)
	 
	Chief Financial Officer

Executive Notice Address:
149 Reserve Drive
Piedmont, SC 29673
Initials: ______________                    Initials: ______________

13

EXHIBIT B TO EMPLOYMENT AGREEMENT
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                     , 2012 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, executors, administrators, insureds, attorneys, and all those entitled to assert his rights, now and forever hereby releases and discharges the Company and its respective officers, directors, shareholders, stockholders, trustees, partners, joint ventures, board members, employees, agents, parent corporations, divisions, wholly or partially owned subsidiaries, affiliates, estates, predecessors, successors, heirs, executors, administrators, assigns, representatives and attorneys (the “Released Parties”), from any and all legal, administrative, and equitable claims, actions, causes of action, sums of money due, suits, debts, liens, covenants, contracts, obligations, costs, expenses, damages, judgments, agreements, promises, demands, claims for attorneys’ fees and costs or liabilities of any nature 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, state or local statutes, except as provided in Paragraph 2. without limiting the broadness of the foregoing language, Executive agrees to release Company from any and all claims under:
		
	1.
	Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991;

		
	2.
	Section 1981 of the Civil Rights Act of 1866, as amended; 

		
	3.
	Executive Orders 11246, 13496 and 11141;

		
	4.
	the Equal Pay Act of 1963;

		
	5.
	the Consolidated Omnibus Budget Reconciliation Act  of 1985 (COBRA);

		
	6.
	the Americans with Disabilities Act of 1990 and any amendments thereto, including the ADA Amendments Act of 2008;

		
	7.
	the Rehabilitation Act of 1973;

		
	8.
	the Employee Retirement and Income Security Act of 1974;

		
	9.
	the Sarbanes-Oxley Corporate Reform Act of 2002;

		
	10.
	whistle-blower and/or retaliation claims or suits under the Sarbanes-Oxley Act of 2002;

		
	11.
	the Family and Medical Leave Act of 1993, as amended;

		
	12.
	the Health Insurance Portability and Accountability Act of 1996 (HIPAA);

		
	13.
	the Fair Labor Standards Act of 1938, as amended;

		
	14.
	the Occupational Safety and Health Act;

		
	15.
	the Uniformed Services Employment and Re-employment Act of 1994;

		
	16.
	the Worker Adjustment and Retraining Notification Act;

		
	17.
	the Lilly Ledbetter Fair Pay Act of 2009;

		
	18.
	the Fair Credit Reporting Act;

		
	19.
	state workers’ compensation law;  

		
	20.
	Consumer Credit Protection Act

		
	21.
	Immigration Reform and Control Act of 1986;

		
	22.
	National Labor Relations Act;

		
	23.
	the Genetic Information Nondiscrimination Act of 2008;

		
	24.
	the Age Discrimination in Employment Act;

		
	25.
	the South Carolina Payment of Wages Act;

		
	26.
	the South Carolina Human Affairs Law;

		
	27.
	claims arising under the United States and/or South Carolina Constitutions;

		
	28.
	claims for wages and overtime pay and commissions, bonuses, vacation pay or any express or implied contracts; 

		
	29.
	any common law claims or claims founded in tort (including negligence) for wrongful discharge, negligence, negligent hiring, negligent training or negligent supervision, assault or battery, 

14

invasion of privacy, false imprisonment, intentional infliction of emotional distress, defamation, libel, slander, breach of contract (oral, written or implied), or any other equitable basis or action;
		
	30.
	claims that the Company treated or dealt with me unfairly; and

		
	31.
	any claims arising under any other federal, state or local law, statute, regulation, ordinance, treaty or law of any other type, or any other cause of action or theory of recovery arising by virtue of my employment relationship and/or affiliation with ScanSource or any public policy, tort or common law.

Without waiving any prospective or retrospective rights under the Fair Labor Standards Act, I admit that I have received from ScanSource all rights and benefits, if any, due or potentially due to me pursuant to the Fair Labor Standards Act.  I understand and acknowledge that it is the parties’ intent to release all claims that can be legally released but no more than that.
I affirm that while I was employed with the Company, I had no known and unreported workplace injuries or occupational diseases and was not denied leave under the Family and Medical Leave Act of 1993.
I represent and agree that I have been paid and have received all paid or unpaid leave, compensation, wages, overtime, vacation or sick pay, bonuses and/or benefits to which I may be entitled and no other amounts, except as provided in this Agreement, are due to me.
Executive specifically agrees not to attempt to institute any proceedings or pursue any action pursuant to any laws (state, local, or federal) with any agency or in any jurisdiction (state, local or federal) based on employment with or termination from the Company except as required or protected by law. Executive covenants that he will in not way encourage or assist any person or entity (including, but not limited to, any past, present or future employee(s) of Company) to take part or participate in any legal or administrative action against Company, except as otherwise required or protected by law. Nothing in the Agreement shall be interpreted or applied in a manner that affects or limits Executive’s otherwise lawful ability to bring an administrative charge with the Equal Employment Opportunity Commission or other appropriate state or local comparable administrative agency; however, the parties agree that Executive has released Company from all liability arising from the laws, statutes and common law listed in paragraph 1 (except as set forth in this paragraph below, with respect to the Age Discrimination in Employment Act (“ADEA”)) and, as such, Executive is not and will not be entitled to any monetary or other comparable relief on his own behalf. Nothing in this Agreement shall be interpreted or applied in a manner that affects or limits Executive’s ability to challenge (with a lawsuit or administrative charge) the validity of Executive’s release of Company in this Agreement for age claims under the ADEA (which release is provided for in paragraph 2 of this Agreement). Other than a challenge to the validity of the release of ADEA claims under this Agreement, Executive has released Company from all liability with respect to the laws, statutes, and common law listed in paragraph 2, including the ADEA.
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.
3.        Executive acknowledges and represents that as an employee of the Company he has been obligated to, and has been given the full and unfettered opportunity to, report timely to the Company any conduct that would give rise to an allegation that the Company or any affiliate of the Company has violated any laws applicable to its businesses or has engaged in conduct which could otherwise be construed as inappropriate or unethical in any way, even if such conduct is not, or does not appear to be, a violation of any law. Executive acknowledges that a condition of the payment of any consideration provided by the Company to the Executive hereunder is his truthful and complete representation to the Company regarding any such conduct, including but not limited to conduct regarding compliance with the Company’s Code of Ethics, polices and procedures, and with all laws and standards governing the Company’s business.
Executive’s truthful and complete representation, based on his thorough search of his knowledge and memory, is as follows: Executive has not been directly or indirectly involved in any such conduct; no one has asked or directed him to participate in any such conduct; and Executive has no specific knowledge of any conduct by any other person(s) that would give rise to an allegation that the Company or any affiliate of the Company has violated any laws applicable to its businesses or has engaged in conduct which could otherwise be construed as inappropriate or unethical in any way.

15

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, and must deliver written notice of revocation in person to                      at the following address:                                         , and such revocation shall not be effective unless actually received by                     , within seven (7) days following the date the release was signed by Executive. 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, AND ANY AND ALL OTHER STATE AND FEDERAL LAWS, WHETHER STATUTORY OR COMMON LAW. 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:
	 
	 

16

EXHIBIT C TO EMPLOYMENT AGREEMENT
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 Sections 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, 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.

17ScanSource Ex10.4 9.30.12 Q1 10Q

Exhibit 10.4
SCANSOURCE, INC. 
AMENDED AND RESTATED DIRECTORS EQUITY COMPENSATION PLAN 
ARTICLE 1     
PURPOSE
Section 1.1    PURPOSE. The purpose of the ScanSource, Inc. Amended and Restated Directors Equity Compensation Plan is to attract, retain and compensate highly-qualified individuals who are not employees of ScanSource, Inc. or any of its subsidiaries or affiliates for service as members of the Board by providing them with an opportunity to participate in the Company’s future growth through the granting of restricted stock or options to purchase shares of Common Stock of the Company. The Company intends that the Plan will benefit the Company and its shareholders by allowing Non-Employee Directors to have a personal financial stake in the Company through an ownership interest in the Common Stock and will closely associate the interests of Non-Employee Directors with that of the Company’s shareholders. 
Section 1.2    ELIGIBILITY. All active Non-Employee Directors shall automatically be participants in the Plan. 
ARTICLE 2     
DEFINITIONS
Section 2.1    DEFINITIONS.  In addition to other terms defined herein, unless the context clearly indicates otherwise, the following terms shall have the following meanings: 
(a)    “Award” means an award of Restricted Stock or Options granted under Section 5 of the Plan. 
(b)    “Board” means the Board of Directors of the Company. 
(c)    “Change in Control” means and includes the occurrence of any one 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 Securities Exchange Act of 1934, as amended (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) 

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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, 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 shareholders of the Company of a complete liquidation or dissolution of the Company. 
(d)    “Company” means ScanSource, Inc., a South Carolina corporation. 
(e)    “Committee” means the Compensation Committee of the Board of Directors of the Company.
(f)    “Common Stock” means the common stock, no par value, of the Company. 
(g)    “Disability” means any illness or other physical or mental condition of a Non-Employee Director that renders him or her incapable of performing as a director of the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which, in the judgment of the Board, is permanent and continuous in nature. The Board may require such medical or other evidence as it deems necessary to judge the nature and permanency of a Non-Employee Director’s condition. 
(h)    “Effective Date” has the meaning set forth in Section 7.2 of the Plan. 
(i)    “Equity Award Value” means the award value determined by the Board or the Committee based on such methodology as may be approved by the Board or the Committee, as the case may be, from time to time.  The Equity Award Value may be based on an averaging of the Fair Market Value over a specified period of time, the Fair Market Value per share of the Common Stock as of a specific date or dates, or such other methodology as may be deemed appropriate by the Board or the Committee; provided, however, that, unless the Board or the Committee determines otherwise, the methodology used by the Board or the Committee 

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to determine Equity Award Value shall be the same methodology used to provide a basis for determining the size and amounts of employee awards under the Company’s Amended and Restated 2002 Long-Term Incentive Plan or any successor plan. 
(j)    “Fair Market Value,” on any date, means (i) if the Common Stock is listed on a securities exchange or is traded over the NASDAQ Global Market, the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Common Stock is not listed on a securities exchange or traded over the NASDAQ Global Market, the mean between the bid and offered prices as quoted by Nasdaq for such date, provided that if it is determined that the Fair Market Value is not properly reflected by such NASDAQ quotations, Fair Market Value will be determined by such other method as the Board determines in good faith to be reasonable. 
(k)    “Grantee” means a Non-Employee Director of the Company to whom an award of Restricted Stock or an Option has been granted under Section 5. 
(l)    “Non-Employee Director” means a director of the Company who is not an employee of the Company or any of its subsidiaries or affiliates. 
(m)    “Option” means an option to purchase Common Stock granted under Section 5 of the Plan. Options granted under the Plan are not incentive stock options within the meaning of Section 422 of the Internal Revenue Code. 
(n)    “Option Grant Date” has the meaning set forth in Section 5.1(b) or Section 5.4 of the Plan. 
(o)    “Plan” means the ScanSource, Inc. Amended and Restated Directors Compensation Plan, as amended from time to time. 
(p)    “Plan Year(s)” means the approximate twelve-month periods between annual meetings of the shareholders of the Company, which, for purposes of the Plan, are the periods for which annual retainers are earned. 
(q)    “Restricted Stock Award” means an award of shares of Common Stock that are subject to certain restrictions and to risk of forfeiture. 
(r)    “Restricted Stock Grant Date” has the meaning set forth in Section 5.2(b) or Section 5.4 of the Plan. 
(s)    “Retirement” means retirement as a director of the Company in accordance with normal Company policies. 
ARTICLE 3     
ADMINISTRATION
Section 3.1    ADMINISTRATION. The Plan shall be administered by the Board except to the extent that the Board may delegate authority to the Committee pursuant to Section 2.1(i) herein or otherwise.  Subject to the provisions of the Plan, the Board shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Board’s interpretation of the Plan, and all actions taken and determinations made by the Board pursuant to the powers vested in it hereunder, shall be conclusive and binding upon all parties concerned including the Company, its shareholders and persons granted awards under the Plan. The Board may appoint a plan administrator to carry out the ministerial functions of the Plan, but the plan administrator shall have no other authority or powers of the Board. 

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Section 3.2    RELIANCE. In administering the Plan, the Board may rely upon any information furnished by the Company, its public accountants and other experts. No individual will have personal liability by reason of anything done or omitted to be done by the Company or the Board in connection with the Plan. 
Section 3.3    INDEMNIFICATION. Each person who is or has been a member of the Board or who otherwise participates in the administration or operation of the Plan shall be indemnified by the Company against, and held harmless from, any loss, cost, liability or expense that may be imposed upon or incurred by him or her in connection with or resulting from any claim, action, suit or proceeding in which such person may be involved by reason of any action taken or failure to act under the Plan and shall be fully reimbursed by the Company for any and all amounts paid by such person in satisfaction of judgment against him or her in any such action, suit or proceeding, provided he or she will give the Company an opportunity, by written notice to the Board, to defend the same at the Company’s own expense before he or she undertakes to defend it on his or her own behalf. This right of indemnification shall not be exclusive of any other rights of indemnification. 
ARTICLE 4     
SHARES
Section 4.1    SHARES SUBJECT TO THE PLAN. Subject to adjustment in accordance with the provisions of Section 5.3 of the Plan, the shares of Common Stock that may be issued pursuant to the Plan shall not exceed in the aggregate 250,000 shares. Such shares may be authorized and unissued shares or reacquired shares. The Board’s adoption of this Plan shall constitute the reservation of 250,000 shares of authorized and unissued Common Stock for issuance pursuant to this Plan. To the extent that an Award is canceled, terminates, expires, is forfeited or lapses for any reason, any shares of Common Stock subject to the Award will again be available for issuance under the Plan. If the exercise price of an Option is satisfied by delivering shares of Common Stock to the Company (by either actual delivery or attestation), only the number of shares issued in excess of the delivery or attestation shall be considered for purposes of determining the maximum number of shares remaining available for issuance under the Plan. 
ARTICLE 5     
EQUITY AWARDS
Section 5.1    STOCK OPTION AWARDS.  
(a)    Stock Option Grants. On the date that a new Non-Employee Director is initially elected or appointed to the Board (or as otherwise provided under Section 5.4), the Board may, but need not, grant such Non-Employee Director an Option to purchase a number of shares of the Company’s Common Stock. The number of shares of Common Stock subject to the Option shall be determined by the Board in its discretion. 
(b)    Exercise Price. The exercise price for any Option granted under the Plan shall be the Fair Market Value of the shares of Common Stock subject to the Option on the date of grant (the “Option Grant Date”). 
(c)    Medium and Time of Payment. The exercise price shall be payable in full upon the exercise of an Option in (i) cash, and/or (ii) through a “net” exercise arrangement, whereby the Company shall retain from the Option that number of Option shares having a Fair Market Value on the date of exercise equal to some or all of the exercise price. 
(d)    Term. Each Option granted under the Plan shall, to the extent not previously exercised, terminate and expire on the date ten (10) years after the Option Grant Date, unless earlier terminated as provided hereinafter. Upon termination of the Grantee’s membership on the Board for any reason other than for cause (including without limitation by reason of death, Disability, Retirement or failure to be re-nominated or re-elected as a director), the Options held by the Grantee under the Plan, to the extent they were exercisable on the date of termination, shall remain exercisable until the earlier of (i) the original expiration date of the Option, or (ii) the first anniversary of the Grantee’s termination as a director. In the event of the death of the Grantee, the Grantee’s personal representatives, heirs or legatees may exercise the Options held by the Grantee on the 

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date of death, upon proof satisfactory to the Company of their authority. Such exercise otherwise shall be subject to the terms and conditions of the Plan. If the Grantee’s membership on the Board of Directors is terminated for cause, all options granted to such Grantee shall expire upon such termination. 
(e)    Vesting of Options. Each Option granted under this Plan shall vest and become exercisable six (6) months after the Option Grant Date, or upon the earlier occurrence of (i) the Non-Employee Director’s termination of service as a director by reason of his or her death, Disability or Retirement, or (ii) a Change in Control of the Company. 
(f)    Method of Exercise. All Options granted under the Plan shall be exercised by an irrevocable written notice directed to the Secretary of the Company at the Company’s principal place of business or to such other person or place as the Secretary shall direct. Such written notice shall be accompanied by payment in full of the exercise price for the shares for which such Option is being exercised. The Company shall make delivery of certificates representing the shares for which an Option has been exercised within a reasonable period of time; provided, however, that if any law, regulation or agreement requires the Company to take any action with respect to the shares for which an Option has been exercised before the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to take such action. Certificates representing shares for which Options are exercised under the Plan may bear such restrictive legends as may be necessary or desirable in order to comply with applicable federal and state securities laws. Nothing contained in the Plan shall be construed to require the Company to register any shares of Common Stock underlying Options granted under this Plan. 
(g)    Transferability of Options. No Option granted hereunder shall be assignable or transferable by the Grantee except by will, by the laws of descent and distribution, or pursuant to a qualified domestic relations order that would satisfy Section 414(p)(1)(A) of the Internal Revenue Code of 1986, as amended, if such provision applied to an Option under the Plan. 
(h)    Rights as Shareholder. Neither the Grantee nor the Grantee’s personal representatives, heirs, legatees or transferees shall have rights as a shareholder of the Company with respect to shares of Common Stock covered by the Grantee’s Option until the Grantee or such other person becomes the holder of record of such shares. 
(i)    Option Agreements. All Options shall be evidenced by a written Option Agreement between the Company and the Non-Employee Director, which shall include such provisions, not inconsistent with the Plan, as may be specified by the Board. 
Section 5.2    RESTRICTED STOCK AWARDS. 
(a)    Annual Restricted Stock Grants. On the day following each annual meeting of the Company’s shareholders (or as otherwise provided under Section 5.4), each Non-Employee Director serving as such on that date shall be granted a Restricted Stock Award having an aggregate award value equal to an amount established from time to time by the Board (the “Current Award Value”). Until changed by the Board, the Current Award Value shall be $80,000. The number of shares of Restricted Stock so awarded to each Non-Employee Director shall be determined by dividing the Current Award Value by the Equity Award Value per share as of the date of grant (rounded up to the nearest hundred shares). In addition, any person who first becomes a Non-Employee Director on a date other than a regularly scheduled annual meeting of the Company’s shareholders shall be granted a Restricted Stock Award which shall consist of a number of shares of Restricted Stock equal to the Current Award Value divided by the Equity Award Value per share as of the date of grant, multiplied by a fraction, the numerator of which is the number of full months before the next regularly scheduled annual meeting of the Company’s shareholders, and the denominator of which is 12 (rounded up to the nearest hundred shares). 
(b)    Reduced Awards. Each day that Restricted Stock Awards are to be granted under the Plan is referred to hereinafter as a “Restricted Stock Grant Date.” If on any Restricted Stock Grant Date, shares of 

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Common Stock are not available to grant to Non-Employee Directors the full amount of a grant contemplated by the immediately preceding paragraph, then each Non-Employee Director shall receive a Restricted Stock Award (a “Reduced Grant”) in an amount equal to the number of shares of Common Stock then available, divided by the number of Non-Employee Directors as of the applicable Restricted Stock Grant Date. Fractional shares shall be ignored and not granted. 
If a Reduced Grant has been made and, thereafter, during the term of this Plan, additional shares of Common Stock become available for grant (e.g., by an amendment approved by the shareholders or because of the forfeiture or lapse of a Restricted Stock Award), then each person who was a Non-Employee Director both on the Restricted Stock Grant Date on which the Reduced Grant was made and on the date additional shares of Common Stock become available (a “Continuing Non-Employee Director”) shall receive an additional Restricted Stock Award. The number of newly available shares shall be divided equally among the Restricted Stock Awards granted to the Continuing Non-Employee Directors; provided, however, that the aggregate number of shares of Common Stock subject to a Continuing Non-Employee Director’s additional Restricted Stock Award plus any prior Reduced Grant to the Continuing Non-Employee Director on the applicable Restricted Stock Grant Date shall not exceed the number of shares of Common Stock (rounded up to the nearest hundred shares) equal to the Current Award Value. If more than one Reduced Grant has been made, available Restricted Stock Awards shall be granted beginning with the earliest such Restricted Stock Grant Date. 
(c)    Additional Restricted Stock Award. The Board may also, in its discretion, grant a new Non-Employee Director, on the date that he or he is initially elected or appointed to the Board, an additional Restricted Stock Award for such number of shares of Common Stock as shall be determined by the Board in its discretion. 
(d)    Award Restrictions. Common Stock subject to a Restricted Stock Award may not be transferred or sold by the Non-Employee Director and is subject to forfeiture until vested in accordance with Section 5.2(e). 
(e)    Vesting of Restricted Stock Awards. Each Restricted Stock Award granted under this Plan shall vest and become non-forfeitable as to 100% of the shares six (6) months after the Restricted Stock Grant Date, or upon the earlier occurrence of (i) the Non-Employee Director’s termination of service as a director by reason of his or her death, Disability or Retirement, or (ii) a Change in Control of the Company. Upon the Non-Employee Director’s termination of service as a director for any other reason, the Non-Employee Director shall forfeit all of his or her right, title and interest in and to the Restricted Stock as of the date of termination, and such shares of Restricted Stock shall revert to the Company immediately following the event of forfeiture. 
(f)    Rights as Shareholder. During the period in which any shares of Common Stock are subject to the restrictions on transfer imposed under Section 5.2(d), the Grantee shall have all the rights of a shareholder with respect to such shares, including, without limitation, the right to vote such shares and (unless the Board determines otherwise) to receive dividends. 
(g)    Restricted Stock Award Agreements. All Restricted Stock Awards shall be evidenced by a written Restricted Stock Award Agreement between the Company and the Non-Employee Director, which shall include such provisions, not inconsistent with the Plan, as may be specified by the Board. 
Section 5.3    ADJUSTMENTS. 
(a)    Mandatory Adjustments. In the event of a nonreciprocal transaction between the Company and its shareholders that causes the per-share value of the Common Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend), the authorization limits under Article 4 shall be adjusted proportionately, and the Board shall make such adjustments to the Plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. Action by the Board may include: 

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(i) adjustment of the number and kind of shares that may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding awards; (iii) adjustment of the exercise price of outstanding awards or the measure to be used to determine the amount of the benefit payable on an award; and (iv) any other adjustments that the Board determines to be equitable. Without limiting the foregoing, in the event of a subdivision of the outstanding Common Stock (stock-split), a declaration of a dividend payable in shares of Common Stock, or a combination or consolidation of the outstanding Common Stock into a lesser number of shares of Common Stock, the authorization limits under Article 4 shall automatically be adjusted proportionately, and the shares of Common Stock then subject to each award shall automatically, without the necessity for any additional action by the Board, be adjusted proportionately without any change in the aggregate purchase price therefor. 
(b)    Discretionary Adjustments. Upon the occurrence or in anticipation of any corporate event or transaction involving the Company (including, without limitation, any merger, reorganization, recapitalization, combination or exchange of shares, or any transaction described in Section 5.3(a)), the Board may, in its sole discretion, provide (i) that awards will be settled in cash rather than Common Stock, (ii) that awards will become immediately vested and exercisable and will expire after a designated period of time to the extent not then exercised, (iii) that awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction, (iv) that outstanding awards may be settled by payment in cash or cash equivalents equal to the excess of the Fair Market Value of the underlying Common Stock, as of a specified date associated with the transaction, over the exercise price of the award, and (v) any combination of the foregoing. The Board’s determination need not be uniform and may be different for different participants whether or not such participants are similarly situated. 
(c)    General. Any discretionary adjustments made pursuant to this Section 5.3 shall be subject to the provisions of Section 6.1. 
Section 5.4    DETERMINATION OF GRANT DATE. Notwithstanding the provisions of Section 5.1(a) and Section 5.2 herein regarding the date of grant of Options and annual or other Restricted Stock Awards, the Board shall have authority, in its discretion, to modify, suspend or delay the grant date for any such Awards in the event that the grant date established under Section 5.1(a) and/or Section 5.2, as the case may be, would not occur during an open “window” for stock transactions under the Company’s insider trading compliance program or if the Board otherwise determines that such modification, suspension or delay of the grant date is necessary or appropriate. 
ARTICLE 6     
AMENDMENT, MODIFICATION AND TERMINATION
Section 6.1    AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any time and from time to time, amend, modify or terminate the Plan without shareholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board, (i) materially increase the benefits accruing to participants, (ii) materially increase the number of shares of Common Stock available under the Plan, (iii) materially modify the requirements for eligibility, (iv) expand the types of awards available under the Plan, (v) materially extend the term of the Plan, or (vi) otherwise constitute a material change requiring shareholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of a securities exchange on which the Common Stock is listed or traded, then such amendment shall be subject to shareholder approval; and provided further, that the Board may condition any other amendment or modification on the approval of shareholders of the Company for any reason. 
Section 6.2    EFFECT ON OUTSTANDING AWARDS. No termination, amendment, or modification of the Plan shall adversely affect any Award previously granted under the Plan, without the written consent of the Non-Employee Director. An outstanding Option shall not be deemed to be “adversely affected” by a Plan amendment if such amendment would not reduce or diminish the value of such Option determined as if the Option had been exercised, vested, cashed in or otherwise settled on the date of such amendment (with the per-share value of an Option for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment over the exercise or base price of such Option). 

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ARTICLE 7     
GENERAL PROVISIONS
Section 7.1    EXPENSES OF THE PLAN. The expenses of administering the Plan shall be borne by the Company. 
Section 7.2    EFFECTIVE DATE. The Plan was originally adopted by the Board on October 24, 2003 and was approved by the shareholders and became effective on December 4, 2003 (the “Effective Date”). The Plan was amended and restated by the Board on October 19, 2006 and approved by the shareholders on December 7, 2006, further amended by the Board on November 18, 2010, and further amended by the Board on August 21, 2012. 
Section 7.3    DURATION OF THE PLAN. The Plan shall remain in effect until the day immediately following the 2016 annual meeting of Company’s shareholders, unless terminated earlier by the Board. 

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