Letter from our Chair and Chief Executive Officer
Dear Shareholders:
Thank you for your investment in ScanSource, Inc. On behalf of ScanSource’s Board of Directors, it is my pleasure to invite you to participate in the upcoming December 2024 Annual Meeting of Shareholders and encourage you to review the attached Notice of Annual Meeting of Shareholders and Proxy Statement and vote using the attached proxy card.
I want to take this opportunity to share the Board’s priorities for creating long-term shareholder value and to highlight some important developments at ScanSource this year:
Our Performance in Fiscal 2024: While fiscal 2024 was a challenging year, our team stayed focused and delivered strong profitability and significant free cash flow for the full year. For fiscal 2024, net sales, gross profit and net income declined; however, we expanded our gross profit margin and executed well on improving our working capital efficiency as supply chain disruptions normalized. During fiscal 2024, we focused on building a cash culture and managing our SG&A to match our lower revenue base and expectations into fiscal 2025. We believe generating predictable free cash flow is a key measure of success, and we adjusted some of our annual cash incentive plan performance metrics to reflect that. The result was operating cash flow for the year of $372 million, driven by working capital efficiency and lower sales. The Company managed to significantly reduce working capital needs, primarily from lower inventory levels, while still delivering excellent service to our channel partners.
Our balance sheet is strong, ending the fiscal year with $185 million in cash and a total debt to net income leverage ratio on a trailing 12-month basis of below two and a non-GAAP net debt leverage ratio below zero on a trailing 12-month adjusted EBITDA basis*.
Our capital allocation plans balance strategic acquisitions and share repurchases, while maintaining a strong balance sheet. In fiscal 2024, we announced two acquisitions in different segments of our business for the next phase of our hybrid distribution strategy, and both acquisitions are high-margin, recurring-revenue businesses that are working capital-light. In May 2024, our Board increased the authorization for the share repurchase program by an additional $100 million. In fiscal 2024, we repurchased 980,539 shares totaling $43.3 million under the share repurchase program and at the end of the fiscal year had approximately $123 million available under the authorization, which does not have any time limit.
Fiscal 2025 Outlook: For fiscal 2025, we have an active pipeline of acquisition targets and room to continue to do share repurchases, while staying within our targeted net leverage ratio. For our fiscal 2025 annual outlook, we expect the soft demand environment to continue, and as a result we will continue to manage our SG&A spending appropriately. We remain confident in our long-term growth opportunities, the resilience of our business model and the strength of our hybrid distribution strategy.
Board Composition: Overseeing our business is a Board that is actively engaged in ensuring that management develops and executes our hybrid distribution strategy. Our Board consists of a group of highly skilled and diverse directors who bring knowledge, experience and enthusiasm to the Company and are committed to driving long term value for our shareholders.
People and Culture: The Company and the Board believe that our competitive advantage is our people, and respecting and protecting our people are our priorities. From supporting the philosophy that the Company’s core values drive our recruitment and promotion opportunities for our people to ensuring that we employ a talented and inclusive workforce, the Company is committed to providing a safe, healthy work environment and working with suppliers and partners that share this commitment.
Among a number of new initiatives launched last year was a program called Voices, a new employee engagement survey tool. Our survey results have prompted us to form cross-functional teams to address organizational needs faster, while also providing opportunities for participants to work collaboratively to further develop their skills. Looking ahead, we are launching an Employee Engagement Task Force comprised of a cross-functional group of individual contributors to provide Company-wide insights and champion our employee engagement efforts.
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For more information on these non-GAAP measures and reconciliations to GAAP measures, see Appendix B. |
Annual Meeting Information
The enclosed proxy is solicited by the Board of Directors of ScanSource, Inc. (the “Board of Directors” or the “Board”) for the Annual Meeting of Shareholders (the “Annual Meeting”) to be held at 9:00 a.m., Eastern Standard Time, on Tuesday, December 10, 2024 at our principal executive offices located at 6 Logue Court, Greenville, South Carolina 29615 and any adjournment or postponement thereof. This Proxy Statement contains information relating to the proposals to be voted upon at the Annual Meeting, the voting process, the Board, the compensation of our named executive officers (“Named Executive Officers” or “NEOs”) and certain other information.
The solicitation of proxies is being made by our directors and employees, and the cost of soliciting proxies will be borne by the Company. Copies of solicitation materials may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of our common stock, and the Company will reimburse the normal handling charges for such forwarding services. Solicitation of proxies may be made by mail, in person, by telephone or by other electronic means, and by our directors, executive officers and other employees, who will receive no additional compensation for their services.
As used in this Proxy Statement, the terms “ScanSource,” the “Company,” “we,” “us” and “our” refer to ScanSource, Inc. and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only ScanSource, Inc. The term “common stock” means shares of our common stock, no par value per share.
PROPOSALS TO BE CONSIDERED
The following proposals are expected to be voted upon at the Annual Meeting:
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The election of the eight director nominees nominated by the Board; |
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The approval, on an advisory basis, of the compensation of our NEOs; |
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The ratification of the appointment of Grant Thornton LLP to serve as our independent registered public accounting firm for the fiscal year ending June 30, 2025; and |
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The approval of the 2024 Omnibus Incentive Compensation Plan (the “2024 Omnibus Incentive Plan”). |
VOTE REQUIRED
Only shareholders of record at the close of business on October 4, 2024 (the “record date”) will be entitled to vote at the Annual Meeting, and each share of common stock will be entitled to one vote. At the close of business on the record date, there were 24,021,747 shares of our common stock outstanding and entitled to vote at the Annual Meeting.
All shares of our common stock represented by valid proxies received pursuant to this solicitation, and not revoked before they are exercised, will be voted in the manner specified. If no specification is made, properly executed and returned proxies will be voted (i) “FOR” the election of each of the eight director nominees nominated by the Board; (ii) “FOR” the approval, on an advisory basis, of the compensation of our NEOs; (iii) “FOR” the ratification of the appointment of Grant Thornton LLP to serve as our independent registered public accounting firm for the fiscal year ending June 30, 2025; and (iv) “FOR” the approval of the 2024 Omnibus Incentive Plan. Management is not aware of any matters, other than those specified herein, that will be presented for consideration at the Annual Meeting. If other matters are properly presented for consideration at the Annual Meeting, the proxies named on the proxy card will have the discretion to vote on those matters for you.
Our Amended and Restated Bylaws (the “Bylaws”) provide that the presence, in person or by proxy, of the holders of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting and at any adjournment or postponement thereof. Signed proxies that reflect abstentions or broker non-votes (as described below) will be counted for purposes of determining if a quorum is present at the Annual Meeting. If a quorum is not present, the shareholders holding a majority of the shares represented at the Annual Meeting, in person or by proxy, have the power to adjourn the Annual Meeting; however, if the reconvened meeting is more than 120 days after the date of the original meeting, then we must establish a new record date. At any reconvened meeting at which a quorum is present or represented, any business may be transacted that might have been properly transacted at the Annual Meeting as originally scheduled.
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Corporate Governance
BOARD OF DIRECTORS
Director Independence
In accordance with the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”) and the Guidelines, the Board consists of a majority of independent directors. The Board has determined that (i) all members of the Board, other than Michael Baur (“Mike Baur” or “Baur”), meet and (ii) Charles Whitchurch (“Charles Whitchurch” or “Whitchurch”, who retired from the Board when his term of office expired at the Company’s Annual Meeting of Shareholders held on January 25, 2024), met, during the period that he served as a director, the requirements for being “independent” as that term is defined in the Securities and Exchange Commission (the “SEC”) rules and regulations (the “SEC rules”) and the Nasdaq listing standards.
The Board maintains an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The Board has determined that each member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee (see membership information below under “—Committees of the Board”) is independent, including that each member of the Audit Committee is “independent” as that term is defined in Rule 10A-3(b)(1)(ii) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In addition, under the Guidelines, executive officers of the Company are prohibited from serving as a director of another company that concurrently employs a director of the Company.
Board Leadership Structure
Board does not have a set policy regarding the separation of the roles of Chief Executive Officer (the “CEO”) and Chair of the Board (the “Chair”). Mike Baur, who is also the CEO of the Company, serves as Chair of the Board and Peter Browning (“Peter Browning” or “Browning”) serves as Lead Independent Director of the Board.
The Board reviews the Company’s Board leadership structure annually. As part of this process, the Board considers the structures used by peer companies, alternative structures and the effectiveness of the Company’s current structure. The Board believes that Mike Baur, with his in-depth knowledge and understanding of ScanSource’s business gained from his more than 30 years of employment with the Company, is uniquely positioned to lead the Board, particularly as it focuses on identifying and managing the key strategic risks facing the Company, while the Lead Independent Director provides independent leadership to the directors and serves as an intermediary between the independent directors and the Chair. The Board believes that the resulting structure sends a message to our employees, customers and shareholders that we believe in having strong, unifying leadership at the highest levels of management. At the same time, the Board believes that having a Lead Independent Director with a well-defined role provides an appropriate level of independent oversight and an effective channel for communications when needed.
The Guidelines set forth the role of the Lead Independent Director, who must satisfy our independence standards. The Lead Independent Director has the following duties and responsibilities, among others:
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presiding at meetings of the Board in the absence of, or upon the request of, the Chair; |
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presiding over all executive meetings of non-employee and independent directors; |
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serving as a liaison and supplemental channel of communication between the Chair and the independent directors; |
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reviewing Board agendas and recommending matters in collaboration with the Chair and CEO; and |
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if requested by major shareholders, being available for consultation and direct communication. |
Board and Committee Meetings in Fiscal 2024
The Board met a total of 8 times during fiscal year ending June 30, 2024 (“fiscal 2024”) and committees of the Board met a total of 4 times during fiscal 2024. Each incumbent director attended at least 75% of the aggregate number of meetings of the Board and committees of the Board on which the director served during fiscal 2024. Directors are expected to attend the Company’s annual meeting of shareholders.
Board’s Role in Risk Oversight
The Board, as a whole, actively oversees the risk management of the Company. Risks — the specific financial, operational, business and strategic risks that we face, whether internal or external — are identified by the Board and management together, and then each risk is assigned to either the full Board or a Board committee for oversight in accordance with its charter. Certain business and strategic risks, such as those relating to our products, markets and
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Board of Directors
capital investments, are overseen by the entire Board. The full Board oversees the Company’s risk identification, risk assessment and risk management practices for strategic enterprise risks facing the Company. In addition, each of the standing committees of the Board oversees risks relevant to its scope of review. The Audit Committee oversees management of market and operational risks that could have a financial impact or impact financial reporting, such as those relating to internal controls or liquidity. The Compensation Committee is responsible for managing the risks relating to our executive compensation plans and policies and, in conjunction with the Board, key executive succession. The Nominating and Corporate Governance Committee manages the risks associated with governance issues, such as the independence of the Board. Management regularly reports to the Board or the relevant Board committee on actions that we are taking to manage these risks. In addition, the Board committees annually evaluate compliance with their respective charters, ensuring that the committees are exercising proper oversight.
The Board believes that this division of responsibilities is the most effective risk management approach and that the Board leadership structure supports this approach. As CEO, Mike Baur can use his experience and performance at the Company to function as the Company’s overall leader. In addition, the Board believes that Peter Browning provides leadership and helps guide the Board’s independent oversight of the Company’s risk exposures through his role as Lead Independent Director. Furthermore, as noted above, Board committees comprised solely of independent directors, review and evaluate various areas of significant risk to ScanSource, thereby preserving the benefit of independent risk oversight along with full Board review and responsibility.
Information Security and Cybersecurity
Information security and cybersecurity are critical components of our risk management program and are vital to maintaining our proprietary information and the trust of our customers and employees. Our information security program includes policies and procedures, prevention and detection mechanisms, incident response, business continuity planning and employee compliance and security awareness training. We also engage with third-party information security experts to assess our defense mechanisms and have a cyber risk insurance policy in place that provides coverage for security incident response expenses, certain losses due to network security failures, investigation expenses, privacy liability and certain third-party liability.
Given the importance of information security and privacy to our stakeholders, the Board receives regular reports from senior management assessing our program for managing information security risks, including data privacy and data protection risks.
Director Education
The Company and each Board member are members of the National Association of Corporate Directors (the “NACD”). As members of the NACD and through other external director education service providers, the Company and each Board member have access to various programs, materials, reports and research teams.
Corporate Governance Guidelines
The Board has established Guidelines that address various governance matters, including the role, function, size and composition of the Board, Board tenure, service on other public company boards, conflict of interest issues, executive sessions of non-management directors, shareholder engagement, review of committee charters and the Board self-evaluation process. Copies of the Guidelines and certain other policies adopted by the Board are available on the “Investors” page of the Company’s website, www.scansource.com, under the “Corporate Governance” tab. By referring to the Company’s website, www.scansource.com, or any portion thereof, including the “Investors” page of the Company’s website, the Company does not incorporate its website or its contents into this Proxy Statement.
GENERAL BOARD FUNCTIONS
The Guidelines set forth general functions of the Board, including holding regularly scheduled meetings and special meetings where appropriate; periodically reviewing management’s performance and our organizational structure; regularly reviewing management talent development and succession planning for our NEOs; providing guidance, reviewing and, when appropriate, approving corporate strategy; determining compensation for our NEOs through the Compensation Committee and with advice from the CEO and approving awards of equity-based compensation; overseeing our accounting and financial reporting process and the audits of our financial statements through the Audit Committee; identifying potential candidates for Board membership and regularly reviewing Board succession planning through the Nominating and Corporate Governance Committee; overseeing our risk management activities; and retaining independent advisors on behalf of the Board when appropriate.
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Board of Directors
DIRECTOR RESIGNATION POLICY
Section 4(c) of the Articles provides that directors are elected by a majority of the votes cast on the election of directors in uncontested elections and a plurality of the shares represented in person or by proxy and entitled to vote on the election of directors in contested elections. The Articles and the Guidelines provide that a nominee for director who is an incumbent director will tender their resignation to the Nominating and Corporate Governance Committee for its consideration if, in an uncontested election, the director fails to receive an affirmative majority of the votes cast. The Board, on recommendation from the Nominating and Corporate Governance Committee, will then determine whether to accept the director’s resignation.
RETENTION OF INDEPENDENT ADVISORS
The Guidelines provide that the Board may retain independent advisors when appropriate.
SUCCESSION PLANNING
The Board engages in an active succession planning process. On an annual basis, with the assistance of our CEO, the Board reviews the potential in-house candidates for each of the critical senior management positions and identifies areas of growth for those candidates that will best enable them to fill any need that we might have. Where there is not a satisfactory in-house candidate for a position, the Board considers whether outside candidates are likely to be available in a timely manner and whether other alternatives need to be considered. The Nominating and Corporate Governance Committee also regularly reviews Board succession planning and identifies potential candidates for Board membership, with the objective being that all new, non-CEO candidates will be independent.
BOARD TENURE
The Board is elected annually and is not classified. The Board does not have a mandatory retirement age or term limits for directors. We believe our shareholders benefit from continuity of directors. To ensure the Board continues to generate new ideas and operate effectively, the Nominating and Corporate Governance Committee evaluates individual Board member performance and takes steps as necessary regarding continuing director tenure. The Nominating and Corporate Governance Committee considers each director’s age and length of tenure when considering Board composition and seeks to maintain a balance of experience and continuity, along with fresh perspectives.
SIZE AND COMPOSITION OF BOARD
The size of the Board may be increased or decreased by resolution of the Board. Charles Whitchurch, who had served on the Board since 2009, retired from the Board when his term of office expired at the Company’s Annual Meeting of Shareholders held on January 25, 2024. In connection with Whitchurch’s retirement, the Board was decreased in size to eight members.
The Guidelines provide that a majority of the Board at all times will be independent. Through the Nominating and Corporate Governance Committee, the Board will identify potential candidates for Board membership with the objective being that all new, non-employee candidates will be independent. The Board, with the assistance of the Nominating and Corporate Governance Committee, will determine the independence of the non-management directors on an annual basis. The Board has determined that (i) each of Peter Browning, Frank Emory, Jr. (“Frank Emory” or “Emory”), Charles Mathis (“Charles Mathis” or “Mathis”), Vernon Nagel (“Vernon Nagel” or “Nagel”) and Jeffrey Rodek (“Jeffrey Rodek” or “Rodek”), Dorothy Ramoneda (“Dorothy Ramoneda” or “Ramoneda”) and Elizabeth Temple (“Elizabeth Temple” or “Temple”) meet and (ii) Whitchurch (who retired from the Board when his term of office expired at the Company’s Annual Meeting of Shareholders held on January 25, 2024) met, during the period that he served as a director, the requirements for being “independent” as that term is defined in the SEC rules and the Nasdaq listing standards. Mike Baur is the only management member of the Board.
BOARD DIVERSITY
The Nominating and Corporate Governance Committee regularly reviews the diversity of skills, expertise, background and other characteristics of existing and potential director candidates in deciding on nominations for election to the Board by our shareholders or for appointment to the Board. The Nominating and Corporate Governance Committee recognizes the benefits associated with a diverse Board and takes diversity considerations into account when identifying potential director candidates. The Nominating and Corporate Governance Committee seeks director nominees that would complement and enhance the effectiveness of the existing Board with respect to skills, knowledge, perspectives, experience, background and other characteristics. Furthermore, we are committed to the value of inclusion, and the Board believes it is important to consider diversity of race, ethnicity, gender, age, education, cultural
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Proposal Number 4 – Approval of ScanSource, Inc. 2024 Omnibus Incentive Compensation Plan
BACKGROUND OF THE PROPOSAL
We seek your approval of the ScanSource, Inc. 2024 Omnibus Incentive Compensation Plan. Our current omnibus incentive compensation plan, the 2021 Omnibus Incentive Plan, terminates upon shareholder approval of the 2024 Omnibus Incentive Plan. If the 2024 Omnibus Incentive Plan is approved, 1,500,000 new shares will be available, subject to the information set out below. The Board, upon recommendation of the Compensation Committee, unanimously approved the 2024 Omnibus Incentive Plan on October 21, 2024 (the “Effective Date”). Awards, other than restricted stock, may be granted under the 2024 Omnibus Incentive Plan on and after the Effective Date, but no such awards may be exercised, vested, paid or otherwise settled, or any shares of common stock issued, unless and until shareholder approval of the 2024 Omnibus Incentive Plan. Restricted stock may only be granted after shareholder approval of the 2024 Omnibus Incentive Plan.
The 2024 Omnibus Incentive Plan will replace the 2021 Omnibus Incentive Plan, upon shareholder approval, and no further awards will be granted under the 2021 Omnibus Incentive Plan on or after the Effective Date. The terms and conditions of awards granted under the 2021 Omnibus Incentive Plan will not be affected by approval or adoption of the 2024 Omnibus Incentive Plan, and the 2021 Omnibus Incentive Plan will remain effective with respect to awards granted under the 2021 Omnibus Incentive Plan prior to shareholder approval of the 2024 Omnibus Incentive Plan. As of September 30, 2024, 735,583 shares of common stock were available for awards under the 2021 Omnibus Incentive Plan. If the 2024 Omnibus Incentive Plan is not approved, the 2021 Omnibus Incentive Plan will remain in effect pursuant to its terms. If the 2024 Omnibus Incentive Plan is approved, the 1,500,000 new shares available under the 2024 Omnibus Incentive Plan will be reduced on a one-for-one basis by the number of shares subject to awards granted under the 2021 Omnibus Incentive Plan, between September 30, 2024 (date of the equity overhang information below) and approval of the 2024 Omnibus Incentive Plan.
Historical equity awards outstanding as of September 30, 2024 include (i) 931,294 full value awards, including restricted stock units and performance stock units and (ii) 538,013 stock options with a weighted average exercise price of $31.18 and a weighted average remaining term of 4.09 years.
The Board believes that awards tied to our common stock and Company performance promote long-term success of the Company and views the 2024 Omnibus Incentive Plan as an essential element of the Company’s overall compensation program. The Compensation Committee considered, among other things, the existing terms of the 2021 Omnibus Incentive Plan, our compensation philosophy and practices, as well as feedback from our shareholders and other stakeholders. Under the 2024 Omnibus Incentive Plan, we can grant stock options, including non-qualified options and ISOs, stock appreciation rights (“SARs”), restricted stock units, deferred stock, performance units and shares, dividend equivalents and other stock based awards. We believe that the 2024 Omnibus Incentive Plan (i) assists the Company in attracting, retaining and motivating our employees, officers, directors and consultants, (ii) provides equitable and competitive compensation opportunities; (iii) recognizes individual contributions; (iv) rewards goal achievement; and (v) aligns the interests of participants with those of our shareholders. We believe the Company’s best interests will be served by your approval of the 2024 Omnibus Incentive Plan.
SUMMARY OF 2024 OMNIBUS INCENTIVE COMPENSATION PLAN
The following summary of the material terms of the 2024 Omnibus Incentive Plan is qualified in its entirety by reference to the complete text of the 2024 Omnibus Incentive Plan, which is attached hereto as Appendix A.
Historical Burn Rate and Potential Economic Dilution Analysis
We are committed to managing the use of our equity incentives prudently to balance the benefits equity compensation brings to our compensation programs against the dilution it causes our shareholders. As part of our analysis when considering the number of shares to be included in the 2024 Omnibus Incentive Plan, we considered our equity plans’ “burn rate,” calculated as (i) the number of shares subject to equity awards granted under the 2021 Omnibus Incentive Plan for the three years ending June 30, 2024, divided by (ii) the weighted average number of shares outstanding for that period. Our average burn rate for the three years ending June 30, 2024 was 1.84%. The total potential dilution resulting from issuing all shares authorized under our equity plans as of September 30, 2024 (including the 1,500,000 additional shares that would be available if shareholders approve the 2024 Omnibus Incentive Plan) would be approximately 15.43%. We believe that our burn rate and potential dilution amounts are reasonable for our industry and market conditions. During this three-year period, we have sought to provide equity compensation to our employees and non-employee directors who we believe are important to our organization in furthering our business strategy.
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Summary of 2024 Omnibus Incentive Compensation Plan
increased through the purchase of shares on the open market with the proceeds obtained from the exercise of any options or purchase rights granted under the 2024 Omnibus Incentive Plan or any options or other purchase rights granted under the 2024 Omnibus Incentive Plan. Notwithstanding the foregoing, in the case of any substitute award granted in assumption of or in substitution for an entity award issued by an acquired entity, shares delivered or deliverable in connection with such substitute award will not be counted against the number of shares reserved under the 2024 Omnibus Incentive Plan (to the extent permitted by applicable stock exchange rules). Available shares of stock under a shareholder-approved plan of an acquired entity (as appropriately adjusted to reflect the transaction) also may be used for awards under the 2024 Omnibus Incentive Plan and will not reduce the number of shares otherwise available under the 2024 Omnibus Incentive Plan (subject to applicable stock exchange requirements).
Adjustments for Stock Splits and Similar Events
If a dividend or other distribution (whether in cash, shares or other property) (excluding ordinary dividends or distributions), recapitalization, forward or reverse stock split, subdivision, consolidation or reduction of capital, reorganization, merger, consolidation, scheme of arrangement, split-up, spin-off or combination involving us or the repurchase or exchange of shares of our common stock or other securities, or other rights to purchase shares of our securities or other similar transaction or event, affects our shares of common stock such that the Compensation Committee determines that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits (or potential benefits) provided to grantees under the 2024 Omnibus Incentive Plan, the Compensation Committee will make an equitable change or adjustment as it deems appropriate in the number and kind of securities that may be issued pursuant to awards under the 2024 Omnibus Incentive Plan, the per individual limits on the awards that can be granted in any calendar year and any outstanding awards and the related exercise prices (as defined below) relating to any such awards, if any.
Share Limits
Under the terms of the 2024 Omnibus Incentive Plan, the maximum number of shares of common stock reserved for delivery in settlement of awards will be an aggregate of 2,235,583 shares, (i) plus that number of shares subject to awards granted under the 2021 Omnibus Incentive Plan which become available in accordance with the 2024 Omnibus Incentive Plan, subject to shareholder approval, and (ii) reduced on a one-for-one basis by shares of our common stock subject to awards granted under the 2021 Omnibus Incentive Plan between September 30, 2024 and the date the 2024 Omnibus Incentive Plan is approved. However, the total number of shares of common stock that may be delivered pursuant to the exercise of ISOs granted under the 2024 Omnibus Incentive Plan may not exceed 2,235,583 shares.
Generally, no grantee (other than a non-employee director) may be granted, in a single calendar year under the 2024 Omnibus Incentive Plan, more than 500,000 shares (twice that limit for awards granted in the year in which the grantee (other than a non-employee director) first commences employment or service). The maximum potential value of awards under the 2024 Omnibus Incentive Plan that may be granted in a single calendar year to any grantee (other than a non-employee director) may not exceed $7,000,000 (twice that limit for awards granted to a grantee (other than a non-employee director) in the year in which the grantee first commences employment or service). A non-employee director may not be granted awards under the 2024 Omnibus Incentive Plan in a single calendar year that, taken together with any cash fees paid for the director’s service as a director during the year, exceeds $1,250,000 in total value (calculating the value of such awards based on the grant date fair value for financial accounting purposes).
Types of Awards
STOCK OPTIONS AND SARS
The Compensation Committee is authorized to grant SARs and stock options (including ISOs except that an ISO may only be granted to an employee of ours or one of our parent or subsidiary corporations). A stock option allows a grantee to purchase a specified number of our shares at a predetermined price per share (the “Option Exercise Price”) during a fixed period measured from the date of grant. A SAR entitles the grantee to receive the excess of the fair market value of a specified number of shares on the date of exercise over a predetermined exercise price per share (the “SAR Exercise Price”). The Option Exercise Price or SAR Exercise Price will be determined by the Compensation Committee and set forth in the award agreement, but neither may be less than the fair market value of a share on the grant date (110% of the fair market value in case of certain ISOs or SARs granted in tandem with certain ISOs). The term of each option or SAR is determined by the Compensation Committee and set forth in the award agreement, except that the term may not exceed 10 years (five years in case of certain ISOs or SARs granted in tandem with certain ISOs).
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Summary of 2024 Omnibus Incentive Compensation Plan
granted by the surviving company (or its parent company) shall be prorated and vest at target; outstanding performance-based awards that are assumed by the surviving company (or its parent company) or replaced with economically equivalent awards granted by the surviving company (or its parent company) shall be converted into time-based awards and will become vested and non-forfeitable upon the grantee’s retirement, death, disability, or termination without cause, in each case within two years after the Change in Control. The foregoing actions are subject to compliance with Section 409A of the Code.
Amendment or Termination of the 2024 Omnibus Incentive Plan
The 2024 Omnibus Incentive Plan may be amended, suspended or terminated by the Board without further shareholder approval, unless such shareholder approval of any such amendment is (i) noted below, (ii) required by law or regulation or (iii) under the rules of any stock exchange or automated quotation system on which our shares of common stock are then listed or quoted. Shareholder approval is required for an amendment to the 2024 Omnibus Incentive Plan if such amendment (i) increases the benefits accruing to participants under the 2024 Omnibus Incentive Plan, including without limitation, any amendment to the 2024 Omnibus Incentive Plan or any agreement to permit a repricing or decrease in the exercise price of any outstanding awards, (ii) increases the aggregate number of shares of common stock that may be issued under the 2024 Omnibus Incentive Plan or (iii) modifies the requirements as to eligibility for participation in the 2024 Omnibus Incentive Plan. Unless earlier terminated by the Board, the 2024 Omnibus Incentive Plan will terminate when no shares of common stock remain reserved and available for issuance and no other awards remain outstanding or, if earlier, on the tenth anniversary of the adoption of the 2024 Omnibus Incentive Plan by the Board. In addition, subject to the terms of the 2024 Omnibus Incentive Plan, no amendment or termination of the 2024 Omnibus Incentive Plan may materially and adversely affect the right of a grantee under any outstanding award granted under the 2024 Omnibus Incentive Plan without the participant’s consent.
Shareholder Rights
No grantee will have any rights as a shareholder of the Company until such award is settled by the issuance of common stock, other than awards for which certain voting and dividend rights or dividend equivalents may be granted.
Transferability
Generally, an award is non-transferable except by will or the laws of descent and distribution, and during the lifetime of the grantee to whom the award is granted, the award may only be exercised by, or payable to, the grantee. However, the Compensation Committee may provide that awards other than ISOs or a corresponding SAR that is related to an ISO may be transferred by a grantee to any permitted transferee (as defined in the 2024 Omnibus Incentive Plan). Any such transfer will be permitted only if (i) the grantee does not receive any consideration for the transfer, (ii) the Compensation Committee expressly approves the transfer and (iii) the transfer is on such terms and conditions as are appropriate for the permitted transferee. The holder of the transferred award will be bound by the same terms and conditions that governed the award during the period that it was held by the grantee, except that such transferee may only transfer the award by will or the laws of descent and distribution.
No Repricing
Notwithstanding any other provision of the 2024 Omnibus Incentive Plan, no option or SAR may be amended to reduce the exercise or grant price nor cancelled in exchange for other options or SARs with a lower exercise or grant price or shares or cash, without shareholder approval.
Compliance with Applicable Law
No award shall be exercisable, vested or payable except in compliance with all applicable federal and state laws and regulations (including, without limitation, tax and securities laws), any listing agreement with any stock exchange to which our Company is a party and the rules of all domestic stock exchanges on which our Company’s shares may be listed.
No Employment Rights
Awards do not confer upon any individual any right to continue to be employed by our Company or any affiliate or subsidiary.
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Compensation Discussion and Analysis
Our executive compensation program emphasizes performance-based pay. The elements of compensation and the general mix of compensation among the various elements remained largely unchanged from the previous year, except for a change to the performance metrics used to set targets for the annual cash incentive opportunity.
Our financial performance during fiscal 2024 is reflected in the compensation of each of our current NEOs for fiscal 2024, particularly with respect to payouts pursuant to our annual cash incentive program. Our cash incentive opportunity is designed so that, if our financial results, as measured by certain consolidated adjusted EBITDA and revenue numbers, reflect an increase in the financial performance of the Company, then our executives should realize a greater cash incentive. Awards are also capped at 200% of each executive’s target bonus regardless of our financial performance.
For fiscal 2024, the cash incentives paid to our NEOs decreased from fiscal 2023 based primarily on (i) our financial performance and (ii) the Compensation Committee’s pre-established Management Incentive Plan (“MIP”) operating targets for the cash incentive opportunity. The value of the equity awarded to our NEOs increased in fiscal 2024, following the Compensation Committee’s review of their compensation against the market and in light of their individual performance in the prior fiscal year. Half of such awards remain subject to performance targets. We believe this result is appropriately aligned with the Company’s fiscal 2024 financial performance and the Company’s long-term compensation program.
In addition, we believe that it is important to link each of our current NEO’s compensation and personal financial interests with long-term shareholder value creation. Accordingly, 66% of our CEO’s total compensation, 59% of Jones’ total compensation, 40% of Smith’s total compensation, 41% of Hayden’s total compensation, and 42% of Conde’s total compensation for fiscal 2024 was in the form of long-term equity incentives (each as reported in the Summary Compensation Table). For fiscal 2024, variable performance-based compensation in the form of cash and long-term equity incentives constituted 79% of our CEO’s total compensation, 73% of Jones’ total compensation, 58% of Smith’s total compensation, 55% of Hayden’s total compensation, and 54% of Conde’s total compensation (each as reported in the Summary Compensation Table).
Consideration of Results of Shareholder Advisory Votes in Executive Compensation
The Compensation Committee monitors the results of the “Say-on-Pay” vote and considers those results along with the objectives listed below in determining compensation policies. A substantial majority (approximately 93%) of our shareholders voting at the January 2024 Annual Meeting approved the compensation described in our 2023 proxy statement. The Compensation Committee interpreted this vote result as a strong indication of support for our fiscal 2024 compensation program. We have conducted a variety of shareholder engagement activities this year, including investor conferences and direct meetings with many of our top shareholders. These engagements have focused on deepening the dialogue with our current shareholder base about our business strategy and performance, culture, governance, executive compensation practices, and ESG efforts. An independent director has participated in several of these dialogues, demonstrating accountability with our shareholders and our commitment to strong governance practices.
Objectives of the Compensation Program
Our executive compensation program is designed to attract, retain and motivate executives through achieving the following three objectives:
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Align Interests of Executives with Shareholders |
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Retain Talented Leadership |
Pay-for-Performance
The guiding principle of our compensation philosophy is that pay should be linked to performance and that the interests of executives and shareholders should be aligned. Our compensation program is designed to provide significant performance-based compensation through our cash incentive plan, and a large portion of the compensation is in the form of equity awards. As a result, a significant portion of our NEOs’ compensation is directly contingent on our operating results and/or aligned with shareholder interests.
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Compensation Discussion and Analysis
provided to encourage senior leaders of the Company to set an example for living positively and active healthy living. We do not provide any other material perquisites to our NEOs.
Health and Insurance Plans
Our NEOs are entitled to participate in our health, vision, dental, paid time off, life, disability and employee stock purchase plans to the same degree that our other employees are entitled to participate. In addition, our NEOs participate in a company paid supplemental long-term disability plan and each receives company paid term life insurance in the amount of $1,000,000 (subject to underwriting) and $500,000 (subject to limited underwriting).
Deferred Compensation Plan
We maintain the Deferred Compensation Plan pursuant to which NEOs may defer a portion of their annual compensation. These deferrals are matched to the extent specified in each NEO’s employment agreement or letter, and such contributions vest over a five-year period. Participants invest their deferrals and Company matching contributions among various funds designated by the plan administrator (and currently may not be invested in our common stock). Participants become fully vested in any employer contributions as long as they are continuously employed until their death, total disability, they reach the date in which the sum of age and years of service equals or exceeds 65, or the occurrence of a change in control. We maintain the Deferred Compensation Plan to provide a competitive benefit and to facilitate adequate savings for retirement on a tax efficient basis for our NEOs.
Retirement Benefits
The NEOs are eligible to participate in our 401(k) Plan, which is a Company-wide, tax-qualified retirement plan. The intent of this plan is to provide all employees with a tax-advantaged savings opportunity for retirement. We sponsor this plan to help employees at all levels save and accumulate assets for use during their retirement. Eligible pay under this plan is capped at Internal Revenue Code annual limits. We provide a 50% matching contribution on the first 6% that an employee contributes. These Company contributions vest over a five-year period.
Employee Stock Purchase Plan
Eligible employees may participate in our Employee Stock Purchase Plan (“ESPP”), which is a Company-wide employee stock purchase plan. The intent of the ESPP is to assist our employees in acquiring a stock ownership interest in the Company.
Employment Agreements and Employment Letters
We have determined that the Company’s and our shareholders’ interests are best served by entering into (i) an employment agreement with our CEO and (ii) employment letters with an accompanying severance plan with our other NEOs. Such agreements, letters and plans are the result of arms’ length negotiations between the Compensation Committee, the Company, the CEO and other NEOs, and all are approved by the Compensation Committee. We believe that these employment arrangements benefit us and our shareholders by permitting us to attract and retain NEOs with demonstrated leadership abilities and to secure their services over an extended period of time. In addition, the employment arrangements align executive interests with the long-term interests of the Company and serve our recruitment and retention goals by providing NEOs with security based on the knowledge of how they will be compensated over the course of their employment, while at the same time providing the Company with significant protections regarding non-competition, non-solicitation of business and employees, and confidential business information.
On June 15, 2017, we entered into a three-year employment agreement, effective July 1, 2017, with Mike Baur. Baur’s employment agreement provides for:
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a base salary of $901,000 per year; |
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an annual target variable compensation opportunity of 150% of his base salary (with a maximum opportunity of 200% of target) based upon performance and the attainment of performance goals set by the Compensation Committee; |
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consideration for inclusion in our annual equity grant program at a grant level opportunity of $2,250,000; |
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the opportunity to participate in the Deferred Compensation Plan by deferring up to 50% of base salary and/or up to 100% of annual variable compensation, with a match of 50% of deferred amounts to be made by the Company, up to a maximum of $200,000 per year; and |
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automatic one-year renewals unless 180 days’ prior notice of non-renewal is given to the other party following the initial term. |
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Compensation Discussion and Analysis
In addition, we will make additional payments to Baur’s deferred compensation account to cover the cost of future premiums for “access only” continuation coverage under our medical and dental plan following termination of employment assuming Baur is enrolled in Medicare Parts A, B and D, obtains a Medicare supplemental policy until age 80, and pays the full cost for such coverage.
Under Baur’s employment agreement, variable cash incentive opportunities will continue to be based upon the performance and attainment of performance goals to be established annually by the Compensation Committee, subject to maximum amounts that may be earned. Baur’s annual equity award opportunity is subject to the Compensation Committee’s discretion and the terms of our equity plan and related equity award agreements.
Baur’s employment agreement also provides for severance payments to Baur upon certain events, as further described in the “Severance Plan” section below.
On November 16, 2020, we entered into an employment letter with Stephen Jones in connection with his appointment as our Senior Executive Vice President and Chief Financial Officer, effective December 14, 2020. Under the employment letter, Jones is paid an annual base salary and eligible to participate in the variable cash compensation incentive program. He also receives other benefits, including relocation benefits, change-in-control payments as a participant in the Severance Plan described below, and is eligible for participation in our other long-term incentive programs and the Deferred Compensation Plan.
On February 9, 2023, we entered into an employment letter with Shana Smith in connection with her appointment as our Senior Executive Vice President and Chief Legal Officer, effective February 21, 2023. Under the employment letter, Smith is paid an annual base salary and eligible to participate in the variable cash compensation incentive program. She receives other benefits, including relocation benefits, change-in-control payments as a participant in a Severance Plan described below, and is eligible for participation in our other long-term incentive programs and the Deferred Compensation Plan.
On May 6, 2021, we entered into an employment letter with Rachel Hayden in connection with her appointment as our Senior Executive Vice President and Chief Information Officer, effective June 7, 2021. Under the employment letter, Hayden is paid an annual base salary and eligible to participate in the variable cash compensation incentive program. She receives other benefits, including relocation benefits, change-in-control payments as a participant in a Severance Plan described below, and is eligible for participation in our other long-term incentive programs and the Deferred Compensation Plan.
On June 29, 2022, we entered into an employment letter with Alexandre Conde in connection with his appointment as our Senior Executive Vice President and Chief People Officer, effective August 1, 2022. Under the employment letter, Conde is paid an annual base salary and eligible to participate in the variable cash compensation incentive program. He receives other benefits, including relocation benefits, change-in-control payments as a participant in a Severance Plan described below, and is eligible for participation in our other long-term incentive programs and the Deferred Compensation Plan.
On September 27, 2019, we entered into an employment letter with John Eldh in connection with his appointment as our Senior Executive Vice President and Chief Revenue Officer, effective October 1, 2019. Under the employment letter, Eldh was paid an annual base salary and eligible to participate in the variable cash compensation incentive program. He also received other benefits, including relocation benefits, change-in-control payments as a participant in a Severance Plan described below, and was eligible for participation in our other long-term incentive programs and the Deferred Compensation Plan. We entered into a Separation Agreement and General Release with Eldh in September 2023 that superseded his rights under his employment letter and the Severance Plan.
See the “Employment Arrangements and Potential Payments upon Certain Events” section for more information on Baur’s, Jones’, Smith’s, Hayden’s, Conde’s and Eldh’s employment arrangements that were in effect during fiscal 2024.
Severance Plan
We have established a severance plan to provide severance and other benefits to certain executives selected by the Compensation Committee to participate in the severance plan. The Company’s severance plan is uniform for the current
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Compensation Discussion and Analysis
executives selected by the Compensation Committee to participate at their respective levels, except for John Eldh, who had several provisions that were individually tailored, as described below. We refer to the Company severance plan and Eldh’s severance plan collectively as the “Severance Plan.”
The employment arrangements with our NEOs and the Severance Plan provide that, if the employment of any participant in the Severance Plan is terminated by the Company without cause, or if the Executive resigns for good reason, we will be required to pay or provide the executive’s base salary earned through the date of termination. In addition, we will also be required to pay to the executive in such instances any other amounts or benefits the executive is eligible to receive under any Company plan, program, policy, practice, contract or agreement in accordance with their terms. In such instances, we will also be required to provide severance benefits to the executive, subject to the executive’s execution of a release, consisting of compensation equal to the average annual base salary and variable compensation earned by the executive, including any amounts earned but deferred, in the last three fiscal years completed prior to the termination (the “Average Compensation Amount”), multiplied by a severance multiple, less withholdings. In the case of Mike Baur, the severance multiple is equal to 2.5, in the case of Jones, Smith, Hayden and Conde, the severance multiple is (and for Eldh was) 1.5, and in the case of any other executive participating in the Severance Plan, the severance multiple will be set forth in a participation agreement between the Company and such executive (a “Participation Agreement”), but such multiple may not exceed 2.5. In the event the termination occurs within 12 months after or prior to and in contemplation of certain change in control events, Baur will receive three times his Average Compensation Amount, Jones, Smith, Hayden, and Conde, will receive (and Eldh could have received) two times their respective Average Compensation Amount and, in the case of any other executive participating in the Severance Plan, such executive will receive their Average Compensation Amount multiplied by their change in control multiple, as set forth in a Participation Agreement. In addition, in the event that the executive’s employment is terminated by us without cause, or if the executive resigns for good reason, the executive will be entitled to receive a bonus equal to the pro-rata portion of the then current fiscal year annual variable compensation that otherwise would be payable to the executive based on actual performance. For a period of up to twenty-four months (or in the case of Eldh, up to eighteen months) following the date of such a termination (or in the case of Baur, until he attains 65 years of age), the executives shall be entitled to participate in our medical and dental plans, with the executive paying the full premium charged for such coverage subject to the terms of the employment agreement, the employment letter, and/or the Severance Plan, as applicable.
If the executive’s employment is terminated for cause or if the executive voluntarily terminates their employment during the term of the agreement, other than for good reason, we will only be obligated to provide any accrued amounts payable on the executive’s annual base salary or any other amounts not previously paid, but earned, by the executive through the date of termination, and benefits under other plans in accordance with their terms. If the executive dies, becomes disabled, or retires during the term of the employment agreement, the employment letter, and/or the Severance Plan, as applicable, we will only be obligated to provide any accrued amounts payable on the executive’s annual base salary or any other amounts not previously paid, but earned, by the executive as of the date of termination, a bonus equal to the pro-rata portion of the then current fiscal year annual variable compensation that would otherwise be payable to the executive based on actual performance, and benefits under other plans in accordance with their terms.
If we do not renew the employment agreement, or enter into a new employment agreement with the same or similar terms after the end of the employment period, and Baur remains an employee of the Company in any capacity, Baur’s employment will be on an at-will basis, and Baur generally will be eligible to receive the same severance benefits set forth in the employment agreement.
In addition, each employment agreement, employment letter, and/or Severance Plan, as applicable, requires the executive not to, during the term of their employment and for a period of two years (or in the case of Eldh, for a period of eighteen months) following the termination of such executive’s employment: (a) compete with the Company; (b) solicit certain customers or suppliers and certain prospective customers or suppliers of the Company; or (c) solicit employees to leave the Company. Each of the employment agreement, the employment letter, and/or the Severance Plan, as applicable, also requires the executive not to use or disclose our confidential information or trade secrets during the term of their employment and for a period of five years thereafter or for so long as the trade secrets remain protected. In addition, the Company and each executive agree not to disparage each other during the term of employment or for a period of five years thereafter. If an executive breaches or threatens to breach such restrictions on conduct, we may immediately cease any severance benefits or refuse such payment and shall be entitled to recover from any such executive any amounts previously paid as a severance benefit.
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Compensation Discussion and Analysis
Post-Termination Restrictions and Compensation
The Compensation Committee believes that our NEOs should be provided with reasonable severance benefits in the event a NEO is terminated under certain circumstances. Severance benefits for NEOs reflect the fact that the NEO may not be able to find reasonably comparable employment within a reasonable period of time following termination. In addition, the Compensation Committee believes that certain post-termination benefits such as change in control payments will allow the NEOs to focus their time on potential transactions that may be beneficial to the Company, rather than have concern for their own employment prospects following a change in control. Severance benefits are provided under our employment agreements, employment letters and/or the Severance Plan, as applicable.
Non-Compete and Non-Solicitation Agreements
Our NEOs are obligated pursuant to their employment agreements, employment letters, and/or the Severance Plan, as applicable, not to compete with the Company for a period of two years (or in the case of Eldh, for a period of eighteen months) following their termination of employment with the Company. These agreements also restrict the NEOs’ disclosure and use of confidential information to which they were exposed during their employment. In addition, the agreements provide for restrictions on the solicitation of suppliers, customers and employees of the Company for a period of twenty-four months (or in the case of Eldh, for a period of eighteen months) following termination of employment.
Severance and Change in Control Benefits
In the event of a termination of employment by the Company other than for cause, death, disability, retirement, the expiration of the employment agreement (in the case of Mike Baur), or by a NEO for good reason, the NEO will be entitled to a severance payment, provided that the NEO is in, and remains in, compliance with the non-competition, confidentiality, non-solicitation and related covenants provided in their employment agreement or the Severance Plan. The amount of a severance payment varies based upon the NEO’s historic compensation amounts, up to two and a half times the Chief Executive Officer’s and one and one-half times the other NEO’s average annual base salary and variable compensation over the last three fiscal years prior to a termination. These potential payments are discussed in more detail under the caption “Employment Arrangements and Potential Payments Upon Certain Events” below.
Our NEOs’ employment agreements, employment letters, and/or the Severance Plan, as applicable, provide for severance in the event of certain termination in connection with a change of control. Such severance payments will be made only if a “double trigger” is met. That is, both a change in control and a termination of employment are required. This is discussed in more detail under the caption “Employment Arrangements and Potential Payments Upon Certain Events” below. The Compensation Committee believes this benefit is required to offer competitive benefits to attract and retain highly qualified executives.
Additional Compensation Matters
Risk Assessment of Compensation Policies and Practices
We have assessed our compensation programs for all employees and have concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. We believe that our compensation program reflects an appropriate mix of compensation elements and balances current and long-term performance objectives, cash and equity compensation, and risks and rewards. During fiscal 2024, the Board reviewed the 2021 Omnibus Incentive Plan and all financial targets associated with performance-based compensation, and in October 2024, the Board approved the 2024 Omnibus Incentive Plan. In addition, during fiscal 2024, the Compensation Committee reviewed our compensation policies and practices for all employees, including our NEOs, particularly as they relate to risk management practices and risk-taking incentives. As part of its review, the Compensation Committee discussed with management the ways in which risk is effectively managed or mitigated as it relates to our compensation programs and policies.
Based on this review, the Compensation Committee believes that our compensation programs do not encourage excessive risk but instead encourage behaviors that support sustainable value creation. The following features of our executive incentive compensation program illustrate this point:
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Our compensation program design provides a balanced mix of cash and equity and annual and long-term incentives that are designed to encourage strategies and actions that are in the Company’s and our shareholders’ long-term best |
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Audit Committee Report
The Audit Committee oversees our financial reporting process on behalf of the Board. The Audit Committee operates under a written charter, a copy of which is available on the “Investors” page of our website, www.scansource.com, under the “Corporate Governance” tab. This report reviews the actions taken by the Audit Committee with regard to our financial reporting process during fiscal 2024 and particularly with regard to the audited consolidated financial statements as of June 30, 2024 and June 30, 2023 and for the three fiscal years ended June 30, 2024.
The Audit Committee is comprised solely of independent directors. None of the committee members is or has been an officer or employee of the Company or any of our subsidiaries at any time during the past three years or has any current business or any family relationship with the Company or any of our subsidiaries or affiliates.
Our management has the primary responsibility for the consolidated financial statements and reporting process, including the systems of internal controls. The independent registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States and issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and to select annually the firm to serve as our independent registered public accounting firm for the coming year.
The Audit Committee has implemented procedures to ensure that during each fiscal year it devotes the attention that it deems necessary or appropriate to fulfill its oversight responsibilities under the Audit Committee’s charter. To carry out its responsibilities, the Audit Committee met 4 times during fiscal 2024.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited consolidated financial statements included in the Annual Report, including a discussion of the quality, rather than just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the consolidated financial statements.
The Audit Committee also discussed with the independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited consolidated financial statements with accounting principles generally accepted in the United States, its judgments as to the quality, rather than just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit Committee under the applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”) and the SEC. The Audit Committee also reviewed and discussed with the independent registered public accounting firm the critical audit matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Audit Committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved the independent registered public accounting firm’s especially challenging, subjective or complex judgments. In addition, the Audit Committee discussed with the independent registered public accounting firm its independence from management and the Company, including the matters in the written disclosures and the letter required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee regarding independence. The Audit Committee also considered whether the provision of services during the fiscal year ended June 30, 2024 by the independent registered public accounting firm that were unrelated to its audit of the consolidated financial statements referred to above and to its reviews of our interim consolidated financial statements during the fiscal year is compatible with maintaining its independence.
Additionally, the Audit Committee discussed with the independent registered public accounting firm the overall scope and plan for its audit. The Audit Committee met with the independent registered public accounting firm, with and without management present, to discuss the results of its examination, its evaluation of our internal controls and the overall quality of our financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Annual Report for filing with the SEC.
Submitted by the Audit Committee:
Charles Mathis, Chair
Peter Browning
Frank Emory
Vernon Nagel
Dorothy Ramoneda
Jeffrey Rodek
Elizabeth Temple
The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act or the Exchange Act, or be subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into any such filing.
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Shareholder Proposals
Any shareholder proposal intended to be included in ScanSource’s proxy statement and form of proxy relating to the 2025 Annual Meeting of Shareholders must be in writing and received by the Company not later than June 27, 2025. However, if the date of the 2025 Annual Meeting of Shareholders is changed by more than 30 days from the first anniversary of the date of the Annual Meeting, the deadline will instead be a reasonable time before we begin to print and mail the proxy materials for the 2025 Annual Meeting of Shareholders. Any such shareholder proposal must also comply with Rule 14a-8 of the Exchange Act, which lists the requirements for the inclusion of shareholder proposals in company-sponsored proxy materials. Shareholder proposals should be addressed to the attention of the Company’s Corporate Secretary at ScanSource, Inc., 6 Logue Court, Greenville, South Carolina 29615. Pursuant to the SEC rules, submitting a proposal will not guarantee that it will be included in the Company’s proxy materials.
Shareholders intending to nominate a candidate for director for election or to present a proposal (other than a nomination for the election of directors) at the 2025 Annual Meeting of Shareholders must be eligible and give us advance written notice in accordance with the Bylaws and Rule 14a-19 of the Exchange Act.
The Bylaws provide that such notice shall set forth in writing: (i) whether the shareholder is providing the notice at the request of a beneficial holder of shares, whether the shareholder, any such beneficial holder or any nominee has any agreement, arrangement or understanding with, or has received any financial assistance, funding or other consideration from, any other person with respect to the investment by the shareholder or such beneficial holder in the Company or the matter the notice relates to, and the details thereof, including the name of such other person (the shareholder, any beneficial holder on whose behalf the notice is being delivered, any nominees listed in the notice and any persons with whom such agreement, arrangement or understanding exists or from whom such assistance has been obtained are hereinafter collectively referred to as “Interested Persons”), (ii) the name and address of all Interested Persons, (iii) a complete listing of the record and beneficial ownership positions (including number or amount) of all equity securities and debt instruments, whether held in the form of loans or capital market instruments, of the Company or any of its subsidiaries held by all Interested Persons, (iv) whether and the extent to which any hedging, derivative or other transaction is in place or has been entered into within the prior six months preceding the date of delivery of the notice by or for the benefit of any Interested Person with respect to the Company or its subsidiaries or any of their respective securities, debt instruments or credit ratings, the effect or intent of which transaction is to give rise to gain or loss as a result of changes in the trading price of such securities or debt instruments or changes in the credit ratings for the Company, its subsidiaries or any of their respective securities or debt instruments (or, more generally, changes in the perceived creditworthiness of the Company or its subsidiaries), or to increase or decrease the voting power of such Interested Person, and if so, a summary of the material terms thereof, and (v) a representation that the shareholder is a holder of record of stock of the Company that would be entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the matter set forth in the notice. As used herein, “beneficially owned” has the meaning provided in Rules 13d-3 and 13d-5 under the Exchange Act. The notice shall be updated not later than 10 days after the record date for the determination of shareholders entitled to vote at the meeting to provide any material changes in the foregoing information as of the record date.
The deadline for shareholders to provide written notice of their intent to make nominations for the election of directors or to bring a proposal (other than a nomination for the election of directors) at the 2025 Annual Meeting of Shareholders (but not for inclusion in the proxy materials relating to such meeting) is no more than 120 days and no less than 90 days prior to the first anniversary date of the Annual Meeting; provided, however, that if (and only if) the 2025 Annual Meeting of Shareholders is not scheduled to be held within a period that commences 30 days before such anniversary date and ends within 60 days after such anniversary date (an annual meeting date outside such period being referred to herein as an “Other Meeting Date”), the notice shall be given in the manner provided herein by the later of the close of business on (i) the date 90 days prior to such Other Meeting Date or (ii) the tenth day following the date such Other Meeting Date is first publicly announced or disclosed. Assuming that the date of the 2025 Annual Meeting of Shareholders is not advanced or delayed in the manner described above, the required notice for the 2025 Annual Meeting of Shareholders would need to be provided to us not earlier than August 12, 2025 and not later than September 11, 2025.
In addition to satisfying the foregoing requirements under the Bylaws, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees for the 2025 Annual Meeting of Shareholders must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act and complies with all other requirements under Rule 14a-19, including the minimum solicitation requirements. Because the advance notice provisions of the Bylaws require earlier notice than is required by Rule 14a-19,
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Appendix A: 2024 Omnibus Incentive Compensation Plan
SCANSOURCE, INC.
2024 OMNIBUS INCENTIVE COMPENSATION PLAN
Article 1
Effective Date, Objectives and Duration
1.1 Adoption of the Plan. The Board of Directors of ScanSource, Inc., a South Carolina corporation (the “Company”), adopted the 2024 Omnibus Incentive Compensation Plan (the “Plan”) on October 21, 2024 (the “Effective Date”), subject to approval by the stockholders of the Company within twelve (12) months after the Board’s adoption of the Plan. Awards, other than Restricted Shares, may be granted on and after the Effective Date; but, no such Awards may be exercised, vested, paid or otherwise settled, or any Shares issued with respect thereto, unless and until the stockholders of the Company approve the Plan within the twelve (12) months after the Board’s adoption of the Plan. Restricted Shares may only be granted if and after the stockholders of the Company approve the Plan.
1.2 Objective of the Plan. The Plan is intended to attract and retain highly qualified persons to serve as employees, consultants and non-employee directors and promote ownership by such employees, consultants and non-employee directors of a greater proprietary interest in the Company, thereby aligning their interests more closely with the interests of the Company’s stockholders.
1.3 Duration of the Plan. The Plan commenced on the date of adoption of the Plan by the Board, subject to approval by the stockholders of the Company within the twelve (12) months after the Board’s adoption of the Plan. If the stockholders of the Company so approve the Plan, the Plan shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Article 14 hereof, until the earlier of 11:59 p.m. (ET) on October 21, 2034, or the date all Shares subject to the Plan shall have been issued and the restrictions on all Restricted Shares granted under the Plan shall have lapsed, according to the Plan’s provisions.
Article 2
Definitions
Whenever used in the Plan, the following terms shall have the meanings set forth below:
2.1 “409A Award” has the meaning set forth in Section 15.1.
2.2 “5% Exception Limit” has the meaning set forth in Section 5.3.
2.3 “$100,000 Limit” has the meaning set forth in Section 6.4(d).
2.4 “Acquired Entity” has the meaning set forth in Section 5.6(b).
2.5 “Acquired Entity Awards” has the meaning set forth in Section 5.6(b).
2.6 “Affiliate” means any corporation, trade or business or other entity, including but not limited to partnerships, limited liability companies and joint ventures, directly or indirectly controlling, controlled by or under common control with the Company, within the meaning of Section 405 of the Securities Act. Affiliate includes any corporation, trade or business or other entity that becomes such on or after the Effective Date.
2.7 “Applicable Law” means U.S. federal, state and local laws applicable to the Company, any legal or regulatory requirement relating to the Plan, Awards and/or Shares under applicable U.S. federal, state and local laws, the requirements of Nasdaq and any other stock exchange or automated quotation system upon which the Shares are listed or quoted, the Code, and the applicable laws, rules, regulations and requirements of any other country or jurisdiction where Awards are or are to be granted, exercised, vested or settled, as such laws, rules, regulations and requirements shall be in place from time to time.
2.8 “Articles of Incorporation” means the Company’s Amended and Restated Articles of Incorporation, as amended and/or restated from time to time.
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2.9 “Award” means Options (including Non-Qualified Options and Incentive Stock Options), SARs, Restricted Shares, Performance Units (which may be paid in cash), Performance Shares, Deferred Stock, Restricted Stock Units, Dividend Equivalents and Other Stock-Based Awards granted under the Plan.
2.10 “Award Agreement” means a written agreement entered into by the Company and a Grantee setting forth the terms and provisions applicable to an Award granted under this Plan, including any amendment or modification thereof. The Committee may provide for the use of electronic, internet or other non-paper Award Agreements and the use of electronic, internet or other non-paper means for the acceptance thereof and actions thereunder by the Grantee.
2.11 “Beneficiary” means one or more persons or entities that become entitled to receive any amount payable under this Plan after the Grantee’s death. The Grantee’s Beneficiary is the Grantee’s surviving spouse, unless the Grantee designates one or more persons or entities to be the Grantee’s Beneficiary. The Grantee may make, change or revoke a Beneficiary designation at any time before his or her death without the consent of the Grantee’s spouse or anyone the Grantee previously named as a Beneficiary, and the Grantee may designate primary and secondary Beneficiaries. A Beneficiary designation must comply with procedures established by the Committee and must be received by the Committee before the Grantee’s death. If the Grantee dies without a valid Beneficiary designation (as determined by the Committee), and the Grantee has no surviving spouse, the Beneficiary shall be the Grantee’s estate.
2.12 “Board” means the Board of Directors of the Company.
2.13 “Business Combination” has the meaning set forth in Section 2.17(a).
2.14 “Bylaws” means the Company’s Amended and Restated Bylaws, as amended and/or restated from time to time.
2.15 “Cause” shall have the same definition as under any employment or service agreement between the Company or any Affiliate and the Grantee or, if no such employment or service agreement exists or if such employment or service agreement does not contain any such definition or words of similar import, “Cause” means, except as otherwise set forth in the Award Agreement, (i) the Grantee’s act or failure to act amounting to gross negligence or willful misconduct to the detriment of the Company or any Affiliate; (ii) the Grantee’s dishonesty, fraud, theft or embezzlement of funds or properties in the course of Grantee’s employment; (iii) the Grantee’s commission of, indictment for, or pleading guilty or confessing to any felony; (iv) the Grantee’s gross neglect of, or prolonged absence from (other than due to Disability and without the written consent of the Company or an Affiliate), Grantee’s duties, (v) the Grantee’s refusal to comply with any lawful directive or policy of the Company or any Affiliate, which refusal is not cured by the Grantee within ten (10) days of such written notice from the Company or Affiliate, (vi) a material breach by the Grantee of any fiduciary duty owed to the Company or any Affiliate, (vii) the Grantee intentionally engaging in any activity that is in conflict with or adverse to the reputation, business or other interests of the Company or any Affiliate or that is reasonably determined to be detrimental to the reputation, business or other interests of the Company or any Affiliate, or (viii) the Grantee’s breach of any restrictive covenant or other agreement with the Company or any Affiliate, including but not limited to, confidentiality covenants, covenants not to compete, non-solicitation covenants and non-disclosure covenants. For purposes of the Plan, the Grantee’s resignation without the Company’s or an Affiliate’s written consent in anticipation of termination of employment for Cause shall constitute a termination of employment for Cause.
2.16 “CEO” means the Chief Executive Officer of the Company.
2.17 “Change in Control” shall be deemed to have occurred upon the first occurrence of an event set forth in any one of the following paragraphs:
(a) The accumulation in any number of related or unrelated transactions (other than an offering of Shares to the general public through a registration statement filed with the Securities and Exchange Commission) by any Person of beneficial ownership (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s voting stock; provided that, for purposes of this subsection (a), a Change in Control will not be deemed to have occurred if the accumulation of more than fifty percent (50%) of the combined voting power of the Company’s voting
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stock results from any acquisition of voting stock (i) by the Company or any Affiliate, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, (iii) by any Person that, prior to the transaction, directly or indirectly, controls, is controlled by, or is under common control with, the Company, or (iv) by any Person pursuant to a merger, consolidation or reorganization involving the Company (a “Business Combination”) that would not cause a Change in Control under subsection (b) below; or
(b) Consummation of a Business Combination, unless, immediately following that Business Combination, (i) all or substantially all of the Persons who were the beneficial owners of voting stock of the Company immediately prior to that Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the Company’s voting stock resulting from that Business Combination (including, without limitation, an entity that as a result of that transaction owns the Company or all or substantially all of the Company’s assets, either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to that Business Combination, of the voting stock of the Company and (ii) no Person has beneficial ownership of fifty percent (50%) or more of the combined voting power of the Company’s voting stock (including any entity that as the result of that transaction owns the Company or all or substantially all of, the Company’s assets either directly or through one or more subsidiaries); or
(c) During any twelve (12)-month period, Incumbent Board Members cease to constitute a majority of the Board; or
(d) A sale or other disposition of all or substantially all of the assets of the Company, except pursuant to a Business Combination that would not cause a Change in Control under subsection (b) above; or
(e) A complete liquidation or dissolution of the Company, except pursuant to a Business Combination that would not cause a Change in Control under subsection (b) above.
Notwithstanding the foregoing, in the case of any Award that constitutes deferred compensation within the meaning of Section 409A of the Code, there shall not be a Change in Control unless there is a change in the ownership or effective control of the Company, or in a substantial portion of the assets of the Company, within the meaning of Section 409A of the Code where necessary for such Award to comply with Section 409A of the Code.
2.18 “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.19 “Committee” has the meaning set forth in Section 3.1(c).
2.20 “Company” means ScanSource, Inc., a South Carolina corporation, and any successor thereto by operation of law or otherwise.
2.21 “Compensation Committee” means the compensation committee of the Board.
2.22 “Corporate Transaction” has the meaning set forth in Section 4.2(b).
2.23 “Current Grant” has the meaning set forth in Section 6.4(d).
2.24 “Data” has the meaning set forth in Section 18.22.
2.25 “Deferred Stock” means a right, granted under Article 9, to receive Shares at the end of a specified deferral period.
2.26 “Disability” or “Disabled” means, unless otherwise defined in an Award Agreement, or as otherwise determined under procedures established by the Committee for purposes of the Plan:
(a) Except as provided in (b) or (c) below, disability or disabled means, for any Grantee, any injury, illness or sickness that qualifies as a long-term disability within the meaning of the Company’s long-term disability program (“LTD Program”) and on account of which such Grantee is entitled to receive LTD Program benefits;
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(b) In the case of an Incentive Stock Option or an Award granted in tandem with an Incentive Stock Option, disability and disabled has the meaning under Section 22(e)(3) of the Code; and
(c) In the case of any Award that constitutes deferred compensation within the meaning of Section 409A of the Code, disability and disabled means as defined in regulations under Code Section 409A where necessary for such Award to comply with Section 409A of the Code. For purpose of Code Section 409A, a Grantee will be considered to have incurred a Disability or to be Disabled if: (i) the Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) the Grantee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Grantee’s employer.
2.27 “Disqualifying Disposition” has the meaning set forth in Section 6.4(f).
2.28 “Dividend Equivalent” means a right to receive cash or Shares equal to any dividends or distributions paid on Shares, if and when paid or distributed, on a specified number of Shares, which dividends have a record date on or after the date of grant of the Dividend Equivalents or related Award and before the date Dividend Equivalents or related Award become payable.
2.29 “Dodd-Frank” means the Dodd-Frank Wall Street Reform and Consumer Protection Act.
2.30 “DRO” has the meaning set forth in Section 5.4(a).
2.31 “Effective Date” has the meaning set forth in Section 1.1.
2.32 “Eligible Person” means any employee (including any officer) of, or non-employee consultant to, or Non-Employee Director of, the Company or any Affiliate, or potential employee (including a potential officer) of, or potential non-employee consultant to, or potential Non-Employee Director of, the Company or an Affiliate; provided, however, that (i) solely with respect to the grant of an Incentive Stock Option, an Eligible Person shall be any employee (including any officer) of the Company or any Subsidiary Corporation and (ii) the Committee may establish additional eligibility criteria for determining an Eligible Person for any Awards granted hereunder. Solely for purposes of Section 5.6(b), current or former employees or Non-Employee Directors of, or non-employee consultants to, an Acquired Entity who receive Substitute Awards in substitution for Acquired Entity Awards shall be considered Eligible Persons under this Plan with respect to such Substitute Awards.
2.33 “ERISA” has the meaning set forth in Section 5.4(a).
2.34 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder.
2.35 “Exercise Price” means (a) with respect to an Option, the price at which a Share may be purchased by a Grantee pursuant to such Option or (b) with respect to a SAR, the price established at the time a SAR is granted pursuant to Article 7, which is used to determine the amount, if any, of the payment due to a Grantee upon exercise of the SAR.
2.36 “Fair Market Value” means, unless the Committee determines otherwise, a price that is based on the closing price of a Share reported on Nasdaq on the applicable date or on the established stock exchange which is the principal exchange upon which the Shares are traded on the applicable date or, if the Shares are not traded on such date, the immediately preceding trading day. Unless the Committee determines otherwise, if the Shares are traded over the counter at the time a determination of Fair Market Value is required to be made hereunder, Fair Market Value shall be deemed to be equal to the arithmetic mean between the reported high and low or closing bid and asked prices of a Share on the applicable date, or if no such trades were made that day then the most recent date on which Shares were so traded. In the event Shares are not publicly traded at the time a determination of their value is required to be made hereunder, the determination of their Fair Market Value shall be made by the Committee in such manner as it deems
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appropriate provided such manner is consistent with Treasury Regulation 1.409A-1(b)(5)(iv)(B). The Fair Market Value that the Committee determines shall be final, binding and conclusive on the Company, any Affiliate and each Grantee.
2.37 “FICA” has the meaning set forth in Section 16.1(a).
2.38 “Grant Date” means the date on which an Award is granted or such later date as specified in advance by the Committee.
2.39 “Grantee” means an Eligible Person to whom an Award has been granted under the Plan.
2.40 “Immediate Family” has the meaning set forth in Section 5.4(c).
2.41 “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422 of the Code.
2.42 “Incumbent Board Member” means an individual who either is (a) a member of the Board as of the effective date of the Board’s adoption of this Plan or (b) a member who becomes a member of the Board subsequent to the date of the Board’s adoption of this Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least sixty percent (60%) of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which that person is named as a nominee for director, without objection to that nomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.
2.43 “LTD Program” has the meaning set forth in Section 2.26(a).
2.44 “Management Committee” has the meaning set forth in Section 3.1(b).
2.45 “More Than Ten Percent (10%) Owner” has the meaning set forth in Section 6.4(b).
2.46 “Nasdaq” means The Nasdaq Stock Market.
2.47 “Net After Tax Receipt” has the meaning set forth in Article 17.
2.48 “Non-Employee Director” means a member of the Board, or the board of directors of an Affiliate, who is not an employee of the Company or any Affiliate.
2.49 “Non-Qualified Stock Option” means an option that is not intended to meet the requirements of Section 422 of the Code.
2.50 “Option” means an option granted under Article 6 of the Plan.
2.51 “Other Plans” has the meaning set forth in Section 6.4(d).
2.52 “Other Stock-Based Award” means a right, granted under Article 12 hereof, that relates to or is valued by reference to Shares or other Awards relating to Shares.
2.53 “Overpayment” has the meaning set forth in Article 17.
2.54 “Parent Corporation” means any parent corporation of the Company within the meaning of Section 424(e) of the Code.
2.55 “Performance-Based Award” means an Award with respect to which the grant, vesting, payment and/or settlement is contingent upon the satisfaction of specified Performance Measures in the specified performance period.
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2.56 “Performance Measures” mean one or more performance measures established by the Committee as a requirement for an Award to vest and/or become exercisable or settled. An Award may be contingent upon the Grantee’s continued employment or service in addition to the Performance Measures. In determining if the Performance Measures have been achieved, the Committee will adjust the performance targets in the event of any unbudgeted acquisition, divestiture or other unexpected fundamental change in the business of the Company, an Affiliate or business unit or in any product that is material taken as a whole as appropriate to fairly and equitably determine if the Award is to become exercisable, nonforfeitable and transferable or earned and payable pursuant to the conditions set forth in the Award. Additionally, in determining if such performance conditions have been achieved, the Committee also will adjust the performance targets in the event of any (i) unanticipated asset write-downs or impairment charges, (ii) litigation or claim judgments or settlements thereof, (iii) changes in tax laws, accounting principles or other laws or provisions affecting reported results, (iv) accruals for reorganization or restructuring programs, or (v) other extraordinary non-reoccurring items.
2.57 “Performance Share” and “Performance Unit” mean an Award granted as a Performance Share or Performance Unit under Article 10.
2.58 “Period of Restriction” means the period during which Restricted Shares are subject to Forfeiture if the conditions specified in the Award Agreement are not satisfied.
2.59 “Period of Vesting” means the period during which the Award is subject to forfeiture or may not be exercised if the conditions specified in the Award Agreement are not satisfied.
2.60 “Permitted Transferee” has the meaning set forth in Section 5.4(c).
2.61 “Person” means any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government instrumentality, division, agency, body or department.
2.62 “Plan” means this ScanSource, Inc. 2024 Omnibus Incentive Compensation Plan, in its current form or as hereafter amended.
2.63 “Present Value” has the meaning set forth in Article 17.
2.64 “Prior Grants” has the meaning set forth in Section 6.4(e).
2.65 “Prior Plan” means the ScanSource, Inc. 2021 Omnibus Incentive Compensation Plan.
2.66 “Proceeding” has the meaning set forth in Section 18.11.
2.67 “Reduced Amount” has the meaning set forth in Article 17.
2.68 “Restricted Shares” means Shares issued under Article 9 that are both subject to Forfeiture and are nontransferable if the Grantee does not satisfy the conditions specified in the Award Agreement applicable to such Shares and subject to the Grantee paying the nominal value in cash for each Share to the extent required by the Committee.
2.69 “Restricted Stock Units” are rights, granted under Article 9, to receive Shares if the Grantee satisfies the conditions specified in the Award Agreement applicable to such rights, and subject always to the Grantee paying the nominal value in cash for each such Share to the extent required by the Committee.
2.70 “Retirement” means a Grantee’s Termination of Service on or after attaining such age and/or completing such years of service as the Committee may determine and set forth in an Award Agreement, provided that such Termination of Service is not for Cause.
2.71 “Returned Shares” has the meaning set forth in Section 4.1.
2.72 “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, as amended from time to time, together with any successor rule.
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2.73 “Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.
2.74 “SEC” means the United States Securities and Exchange Commission, or any successor thereto.
2.75 “Section 16 Non-Employee Director” means a member of the Board who satisfies the requirements to qualify as a “non-employee director” under Rule 16b-3.
2.76 “Section 16 Person” means a person who is subject to potential liability under Section 16(b) of the Exchange Act with respect to transactions involving equity securities of the Company.
2.77 “Securities Act” means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.
2.78 “Separation from Service” means, with respect to any Award that constitutes deferred compensation within the meaning of Code Section 409A, a “separation from service” as defined in Treasury Regulation Section 1.409A-1(h).
2.79 “Share” means the common stock, no par value per share, of the Company, and, unless the context otherwise requires, such other securities of the Company, as may be substituted or resubstituted for Shares pursuant to Section 4.2 hereof.
2.80 “Stock Appreciation Right” or “SAR” means an Award granted under Article 7 of the Plan.
2.81 “Subsidiary Corporation” means a corporation other than the Company in an unbroken chain of corporations beginning with the Company if, at the time of granting the Award, each of the corporations other than the last corporation in the unbroken chain owns shares or stock possessing fifty percent (50%) or more of the total combined voting power of all classes of shares or stock in one of the other corporations in such chain.
2.82 “Substitute Awards” has the meaning set forth in Section 5.6(b).
2.83 “Surviving Company” means the surviving corporation in any merger or consolidation, involving the Company, including the Company if the Company is the surviving corporation, or the direct or indirect parent company of the Company or such surviving corporation following a sale of substantially all of the outstanding shares or stock of the Company.
2.84 “Tax Date” has the meaning set forth in Section 16.1(a).
2.85 “Tendered Restricted Shares” has the meaning set forth in Section 6.5.
2.86 “Term” of any Option or SAR means the period beginning on the Grant Date of an Option or SAR and ending on the date such Option or SAR expires, terminates or is cancelled. No Option or SAR granted under this Plan shall have a Term exceeding 10 years.
2.87 “Termination of Service” means (a) that the employee has terminated employment with the Company and its Affiliates, the non-employee consultant is no longer serving as a consultant to the Company or an Affiliate or the Non-Employee Director has ceased being a director of the Company or any Affiliate or (b) when an entity which is employing the employee or non-employee consultant or on whose board of directors the Non-Employee Director is serving, ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, an employee, non-employee consultant or Non-Employee Director of the Company or another Affiliate, at the time such entity ceases to be an Affiliate. In the event an employee, non-employee consultant or Non-Employee Director becomes one of the other categories of Eligible Persons upon the termination of such employee’s employment, such consultant’s consultancy or such Non-Employee Director’s service, unless otherwise determined by the Committee, in its sole discretion, no Termination of Service will be deemed to have occurred until such time as such person is no longer an employee, non-employee consultant or Non-Employee Director. Notwithstanding the foregoing, however, that if an Award constitutes deferred compensation within the meaning of Code Section 409A, Termination of Service with
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respect to such Award shall mean the Grantee’s Separation from Service to the extent necessary for such Award to comply with Section 409A of the Code.
2.88 “Underpayment” has the meaning set forth in Article 17.
Article 3
Administration
3.1 Committee.
(a) Subject to Article 12 and Section 3.2, the Plan shall be administered by the Compensation Committee or the Board itself if no Compensation Committee exists. Notwithstanding the foregoing, either the Board or the Compensation Committee may at any time and in one or more instances reserve administrative powers to itself as the Committee or exercise any of the administrative powers of the Committee. To the extent the Board or Compensation Committee considers it desirable to comply with Rule 16b-3, the Committee shall consist of two or more directors of the Company, all of whom qualify as “independent directors” within the meaning of the Nasdaq listing standards and as Section 16 Non-Employee Directors. The number of members of the Committee shall from time to time be increased or decreased, and shall be subject to such conditions, in each case if and to the extent the Board deems it appropriate to permit transactions in Shares pursuant to the Plan to satisfy such conditions of Rule 16b-3.
(b) The Board or the Compensation Committee may appoint and delegate to another committee (“Management Committee”), or to the CEO, any or all of the authority of the Board or the Committee, as applicable, with respect to Awards to Grantees other than Grantees who, at the time any such delegated authority is exercised, are executive officers or Non-Employee Directors, or who are (or are expected to be) Section 16 Persons.
(c) Unless the context requires otherwise, any references herein to “Committee” include references to, the Board or the Compensation Committee to the extent the Board or the Compensation Committee, as applicable, has assumed or exercises administrative powers as the Committee pursuant to subsection (a), and to the Management Committee or the CEO to the extent either has been delegated authority pursuant to subsection (b), as applicable; provided that, (i) for purposes of Awards to Non-Employee Directors, “Committee” shall include only the full Board, and (ii) for purposes of Awards intended to comply with Rule 16b-3, “Committee” shall include only the Compensation Committee.
3.2 Powers of Committee. Subject to and consistent with the provisions of the Plan (including Article 14), the Committee has full and final authority and sole discretion as follows; provided that any such authority or discretion exercised with respect to a specific Non-Employee Director shall be approved by the affirmative vote of a majority of the members of the Board, even if not a quorum, but excluding the Non-Employee Director with respect to whom such authority or discretion is exercised:
(a) to determine when, to whom and in what types and amounts Awards should be granted;
(b) to grant Awards to Eligible Persons in any number and to determine the terms and conditions applicable to each Award;
(c) subject to Section 5.3 below, to determine whether, to what extent and under what circumstances, subject to Applicable Law, an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards or other property, or an Award may be accelerated, vested, canceled, forfeited or surrendered or any terms of the Award may be waived, and to accelerate the exercisability of, and to accelerate or waive any or all of the terms and conditions applicable to, any Award or any group of Awards for any reason and at any time;
(d) to determine with respect to Awards granted to Eligible Persons whether, to what extent and under what circumstances cash, Shares, other Awards, other property and other amounts payable with respect to an Award will be deferred, either at the election of the Grantee or if and to the extent specified in the Award Agreement automatically or at the election of the Committee;
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(e) subject to Section 3.3 below, to offer to exchange or buy out any previously granted Award for a payment in cash, Shares or other Award;
(f) subject to Section 5.3 below, to provide in the terms of the Award or otherwise for accelerated exercisability or vesting of any Award upon the occurrence of one or more events other than completion of a service period, including without limitation the Grantee’s Retirement, death, Disability or Termination of Service by the Company and its Affiliates without Cause or a Change in Control;
(g) to construe and interpret the Plan and to make all determinations, including factual determinations, necessary or advisable for the administration of the Plan;
(h) to make, amend, suspend, waive and rescind rules and regulations relating to the Plan;
(i) to appoint such agents as the Committee may deem necessary or advisable to administer the Plan;
(j) with the consent of the Grantee, to amend any such Award Agreement at any time; provided, however, that the consent of the Grantee shall not be required for any amendment (i) which does not adversely affect the rights of the Grantee, or (ii) which is necessary or advisable (as determined by the Committee) to carry out the purpose of the Award as a result of any new Applicable Law or change in an existing Applicable Law, or (iii) to the extent the Award Agreement specifically permits amendment without consent;
(k) subject to Section 3.3, to cancel, with the consent of the Grantee, outstanding Awards and to grant new Awards in substitution therefor;
(l) to impose such additional terms and conditions upon the grant, exercise or retention of Awards as the Committee may, before or concurrently with the grant thereof, deem appropriate, including limiting the percentage of Awards which may from time to time be exercised by a Grantee;
(m) to adopt rules and/or procedures (including the adoption of any subplan under the Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures;
(n) to correct any defect or supply any omission or reconcile any inconsistency, and to construe and interpret the Plan, the rules and regulations, and Award Agreement or any other instrument entered into or relating to an Award under the Plan;
(o) to modify, extend or renew an Award, subject to Section 1.3, 5.3 and 5.9, provided, however, that such action does not subject the Award to Section 409A of the Code without the consent of the Grantee;
(p) subject to Section 3.3, to provide for the settlement of any Award in cash, Shares or a combination thereof; and
(q) to take any other action with respect to any matters relating to the Plan for which it is responsible and to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan.
Any action of the Committee with respect to the Plan shall be final, conclusive and binding on all persons. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any Affiliate the authority, subject to such terms as the Committee shall determine, to perform specified functions under the Plan (subject to Sections 4.3 and 5.7(c)). The Committee may revoke or amend the terms of any delegation at any time but such action shall not invalidate any prior actions of the Committee’s delegate or delegates that were consistent with the terms of the Plan and the Committee’s prior delegation.
The Company shall bear all expenses of administering the Plan.
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Notwithstanding any provision of the Plan to the contrary, the Committee, in its sole discretion, may modify the terms and conditions of the Plan and/or any Award granted to Grantees outside the United States to comply with applicable foreign laws or listing requirements of any such foreign stock exchange; and take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign stock exchange. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other securities law or governing statute or any other Applicable Law.
3.3 No Repricings. Notwithstanding any provision in Section 3.2 to the contrary, the terms of any outstanding Option or SAR may not be amended to reduce the Exercise Price of such Option or SAR, or cancel any outstanding Option or SAR in exchange for other Options or SARs with an Exercise Price that is less than the Exercise Price of the cancelled Option or SAR or for any cash payment (or Shares having a Fair Market Value) in an amount that exceeds the excess of the Fair Market Value of the Shares underlying such cancelled Option or SAR over the aggregate Exercise Price of such Option or SAR or for any other Award, without stockholder approval; provided, however, that the restrictions set forth in this Section 3.3, shall not apply (i) unless the Company has a class of shares or stock that is registered under Section 12 of the Exchange Act or (ii) to any adjustment allowed under Section 4.2.
Article 4
Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as provided in Section 4.2 and except as provided in Section 5.6(b), the maximum number of Shares hereby reserved for delivery in connection with Awards under the Plan shall be 2,235,583 Shares, (i) plus that number of Shares subject to awards granted under the Prior Plan which become available in accordance with the provisions below after the stockholders of the Company approve the Plan and (ii) reduced on a one-for-one basis by Shares subject to awards granted under the Prior Plan between September 30, 2024 and the date that the stockholders of the Company approve the Plan. The total number of Shares that may be delivered pursuant to the exercise of Incentive Stock Options granted hereunder, however, shall not exceed 2,235,583. If the stockholders of the Company approve the Plan, no further awards shall be granted under the Prior Plan after the date of such approval; if the stockholders of the Company do not approve the Plan, the Prior Plan shall remain in effect for the grant of awards thereunder.
Shares covered by an Award shall only be counted as used to the extent actually used. A Share issued in connection with an Award under the Plan shall reduce the total number of Shares available for issuance under the Plan by one; provided, however, that, upon settlement of a stock-settled SAR, the gross number of Shares underlying the SAR that is exercised will be treated as having been delivered for purposes of determining the maximum number of Shares available for grant under the Plan and shall not again be treated as available for grant under the Plan.
If any Award under the Plan or any award under the Prior Plan that is outstanding as of the Effective Date terminates without the delivery of Shares, whether by lapse, forfeiture, cancellation or otherwise, the Shares subject to such Award or the award under the Prior Plan, to the extent of any such termination, shall again be available for grant under the Plan. Notwithstanding the foregoing, upon the exercise of any Award or any award under the Prior Plan that is outstanding as of the Effective Date granted in tandem with any other Award or any other award under the Prior Plan, such related Award or related award under the Prior Plan shall be cancelled to the extent of the number of Shares as to which the Award or the award under the Prior Plan is exercised and such number of Shares shall no longer be available for Awards under the Plan. If any Shares subject to an Award granted hereunder or any award granted under the Prior Plan that is outstanding as of the Effective Date are withheld or applied as payment in connection with the exercise of such Award or of such award under the Prior Plan or the withholding or payment of taxes related thereto or Shares separately surrendered by the Grantee for any such purpose (“Returned Shares”), such Returned Shares will be treated as having been delivered for purposes of determining the maximum number of Shares available for grant under the Plan and shall not again be treated as available for grant under the Plan. The number of Shares available for issuance under the Plan may not be increased through the Company’s purchase of Shares on the open market with the proceeds obtained from the exercise of any Options or other purchase rights granted hereunder or any options or other purchase rights granted under the Prior Plan. In addition, in the case of any Substitute Award granted in assumption of or in substitution for an Acquired Entity Award, Shares delivered or deliverable in connection with such Substitute Award shall not be counted against the number of Shares reserved under the Plan (to the extent permitted by the rules of Nasdaq and any other stock exchange or automated quotation system upon which the Shares are listed or quoted), and
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available shares of stock under a stockholder-approved plan of an Acquired Entity (as appropriately adjusted to reflect the transaction) also may be used for Awards under the Plan, which shall not reduce the number of Shares otherwise available under the Plan (subject to applicable requirements of Nasdaq and any other stock exchange or automated quotation system upon which the Shares are listed or quoted).
Shares may be allotted and issued pursuant to the Plan from the Company’s authorized but unissued share capital, or the reissue of treasury Shares.
The proceeds that the Company receives in connection with Awards granted under the Plan, if any, shall be used for general corporate purposes and shall be added to the general funds of the Company.
4.2 Adjustments in Authorized Shares and Awards; Liquidation, Dissolution or Change in Control.
(a) In the event that the Committee determines that any dividend or other distribution (excluding any ordinary dividend or distribution) (whether in the form of cash, Shares, or other property), recapitalization, forward or reverse stock split, subdivision, consolidation or reduction of capital, reorganization, merger, consolidation, scheme of arrangement, split-up, spin-off or combination involving the Company or repurchase or exchange of Shares or other securities of the Company or other rights to purchase Shares or other securities of the Company, or other corporate transaction or event affects the Shares, such that any adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) with respect to which Awards may be granted, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, (iii) the Exercise Price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award, (iv) the number and kind of Shares of outstanding Restricted Shares, or the Shares underlying any Award of Restricted Stock Units, Deferred Stock or other outstanding Share-based Award and (v) any other terms and conditions of the Award. Notwithstanding the foregoing, (x) no such adjustment shall be authorized with respect to any Options or SARs to the extent that such adjustment would cause the Option or SAR (determined as if such Option or SAR was an Incentive Stock Option) to violate Section 424(a) of the Code or with respect to any Awards to the extent such adjustment would subject any Grantee to taxation under Section 409A of the Code; and (y) the number of Shares subject to any Award denominated in Shares shall always be a whole number.
(b) In the event of a merger or consolidation of the Company with or into another corporation or a sale of all or substantially all of the shares or stock of the Company or all or substantially all of the assets of the Company, including by way of a court sanctioned compromise or scheme of arrangement, reorganization, merger, combination, purchase, recapitalization, liquidation, or sale, transfer, exchange or other disposition (a “Corporate Transaction”) that results in a Change in Control, unless an outstanding Award is assumed by the Surviving Company or replaced with an equivalent Award granted by the Surviving Company in substitution for such outstanding Award, the Committee shall cancel any outstanding Awards that are not vested and nonforfeitable as of the consummation of such Corporate Transaction (unless the vesting of the Award is accelerated as described below) and with respect to any vested and nonforfeitable Awards, the Committee may either (i) allow all Grantees to exercise such Awards in the nature of Options, SARs or other purchase rights to the extent then exercisable or to become exercisable upon the Change in Control within a reasonable period prior to the consummation of the Change in Control and cancel any Awards in the nature of Options, SARs or other purchase rights that remain unexercised upon consummation of the Change in Control, and/or (ii) cancel any or all of such outstanding Awards in exchange for a payment (in cash and/or in securities and/or other property) in an amount equal to the amount that the Grantee would have received (net of the Exercise Price with respect to any Awards in the nature of Options, SARs or other purchase rights) and on the same terms (including without limitation any earn-out, escrow or other deferred consideration provisions) as if such vested Awards were settled or distributed or such Awards in the nature of vested Options, SARs or other purchase rights were exercised immediately prior to the consummation of the Change in Control. Notwithstanding the foregoing, if an Option, SAR or other purchase right is not assumed by the Surviving Company or replaced with an equivalent Award issued by the Surviving Company and the Exercise Price with respect to the outstanding Option, SAR or other purchase right equals or exceeds the amount payable per Share in the Change in Control, such Awards shall be cancelled without any payment to the Grantee.
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Article 5
Eligibility and General Conditions of Awards
5.1 Eligibility. The Committee may in its discretion grant Awards to any Eligible Person, whether or not he or she has previously received an Award; provided, however, that all Awards made to Non-Employee Directors shall be determined by the Board in its sole discretion.
5.2 Award Agreement. To the extent not set forth in the Plan, the terms and conditions of each Award shall be set forth in an Award Agreement and, unless the Committee determines otherwise, such Agreement must be signed, acknowledged and returned by the Grantee to the Company. Unless the Committee determines otherwise, any failure by the Grantee to sign and return the Agreement within such period of time following the granting of the Award as the Committee shall prescribe shall cause such Award to the Grantee to be null and void. By accepting an Award or other benefits under the Plan (including participation in the Plan), each Grantee shall be conclusively deemed to have indicated acceptance and ratification of, and consented to, all provisions of the Plan and the Award Agreement.
5.3 General Terms and Termination of Service. The Committee may impose on any Award or the exercise or settlement thereof, at the date of grant or, subject to the provisions of Section 14.2, thereafter, such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine, including without limitation terms requiring forfeiture or transfer, acceleration or pro-rata acceleration of Awards in the event of a Termination of Service by the Grantee. Awards may be granted for no consideration other than prior and future services save that in no event will Shares subject to an Award be allotted and issued unless the nominal value per Share is paid in cash, to the extent required by Applicable Law. Except as otherwise determined by the Committee pursuant to this Section 5.3 or set forth in an Award Agreement, all Options that have not been exercised, or any other Awards that remain subject to a risk of forfeiture or which are not otherwise vested, or which have outstanding Performance Periods, at the time of a Termination of Service shall be forfeited to the Company. Notwithstanding any other provision of the Plan to the contrary and subject to the immediately following proviso, equity-based Awards granted under the Plan shall vest no earlier than the first anniversary of the date the Award is granted, and performance-based Awards must have a performance period of at least one year; provided, however, that (i) the Committee may grant Awards without regard to the foregoing minimum vesting requirement with respect to a maximum of five percent (5%) of the available Shares (the “5% Exception Limit”) authorized for issuance under the Plan (subject to adjustment under Section 4.2) and (ii) Awards granted within the first ninety (90) days of a year may have a performance period that begins as of the first day of the year and still qualify as having a performance period of at least one year. For the avoidance of doubt, the foregoing restriction does not apply to the Committee’s discretion to provide in the terms of the Award or otherwise for accelerated exercisability or vesting of any Award upon the occurrence of one or more events other than completion of a service period, including without limitation the Grantee’s Retirement, death, Disability, Termination of Service by the Company and its Affiliates without Cause or a Change in Control. Additionally, notwithstanding any other provision of this Plan or any Award Agreement to the contrary, no dividends or Dividend Equivalents shall be paid with respect to any Awards that do not become vested, non-forfeitable or payable under the Plan.
5.4 Nontransferability of Awards.
(a) Each Award and each right under any Award shall be exercisable only by the Grantee during the Grantee’s lifetime, or, if permissible under Applicable Law, by the Grantee’s guardian or legal representative or by a transferee receiving such Award pursuant to a domestic relations order (a “DRO”) as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or the rules thereunder.
(b) No Award (prior to the time, if applicable, Shares are delivered in respect of such Award), and no right under any Award, may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Grantee otherwise than by will or by the laws of descent and distribution (or in the case of Restricted Shares, to the Company) or pursuant to a DRO, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary to receive benefits in the event of the Grantee’s death shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
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(c) Notwithstanding subsections (a) and (b) above, to the extent provided in the Award Agreement, Awards (other than Incentive Stock Options and corresponding tandem Awards), may be transferred, without consideration, to a Permitted Transferee. For this purpose, a “Permitted Transferee” in respect of any Grantee means any member of the Immediate Family of such Grantee, any trust of which all of the primary beneficiaries are such Grantee or members of his or her Immediate Family, or any partnership (including limited liability companies and similar entities) of which all of the partners or members are such Grantee or members of his or her Immediate Family; and the “Immediate Family” of a Grantee means the Grantee’s spouse, any person sharing the Grantee’s household (other than a tenant or employee), children, stepchildren, grandchildren, parents, stepparents, siblings, grandparents, nieces and nephews. Such Award may be exercised by such transferee in accordance with the terms of the Award Agreement. If so determined by the Committee, a Grantee may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Grantee, and to receive any distribution with respect to any Award, after the death of the Grantee. A transferee, beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or through any Grantee shall be subject to and consistent with the provisions of the Plan and any applicable Award Agreement, except to the extent the Plan and Award Agreement otherwise provide with respect to such persons, and to any additional restrictions or limitations deemed necessary or appropriate by the Committee.
(d) Nothing herein shall be construed as requiring the Company or any Affiliate to honor a DRO except to the extent required under Applicable Law.
5.5 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or otherwise limit or restrict any unexercised or other Award at any time if the Grantee is not in compliance with all applicable provisions of the Award Agreement and the Plan or if the Grantee has a Termination of Service.
5.6 Stand-Alone, Tandem and Substitute Awards.
(a) Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan unless such tandem or substitution Award would subject the Grantee to tax penalties imposed under Section 409A of the Code. If an Award is granted in substitution for another Award or any non-Plan award or benefit, the Committee shall require the surrender of such other Award or non-Plan award or benefit in consideration for the grant of the new Award. Awards granted in addition to or in tandem with other Awards or non-Plan awards or benefits may be granted either at the same time as or at a different time from the grant of such other Awards or non-Plan awards or benefits; provided, however, that if any SAR is granted in tandem with an Incentive Stock Option, such SAR and Incentive Stock Option must have the same Grant Date, Term and the Exercise Price of the SAR may not be less than the Exercise Price of the related Incentive Stock Option.
(b) The Committee may, in its discretion and on such terms and conditions as the Committee considers appropriate in the circumstances, grant Awards under the Plan (“Substitute Awards”) in substitution for share or stock and share or stock-based awards (“Acquired Entity Awards”) held by current or former employees or non-employee directors of, or consultants to, another corporation or entity who become Eligible Persons as the result of a merger or consolidation of the employing corporation or other entity (the “Acquired Entity”) with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or shares or stock of the Acquired Entity immediately prior to such merger, consolidation or acquisition in order to preserve for the Grantee the economic value of all or a portion of such Acquired Entity Award at such price as the Committee determines necessary to achieve preservation of economic value. The limitations of Sections 4.1 and 4.3 on the number of Shares reserved or available for grants shall not apply to Substitute Awards granted under this Section 5.6(b).
5.7 Deferral of Award Payouts. The Committee may permit a Grantee to defer, or if and to the extent specified in an Award Agreement require the Grantee to defer, receipt of the payment of cash or the delivery of Shares that would otherwise be due by virtue of the lapse or waiver of restrictions with respect to Awards, the satisfaction of any requirements or goals with respect to Awards, the lapse or waiver of the deferral period for Awards, or the lapse or waiver of restrictions with respect to Awards. If the Committee permits such deferrals, the Committee shall establish rules and procedures for making such deferral elections and for the payment of such deferrals, which shall conform in
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6.3 Option Exercise Price. The Exercise Price of an Option under this Plan shall be determined in the sole discretion of the Committee but may not be less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date (except as otherwise set forth in Section 5.6(b) above) and shall not be less than the nominal value per Share if required by Applicable Law.
6.4 Grant of Incentive Stock Options. At the time of the grant of any Option, the Committee may in its discretion designate that such Option shall be made subject to additional restrictions to permit it to qualify as an Incentive Stock Option. An Option designated as an Incentive Stock Option:
(a) shall be granted only to an employee of the Company, a Parent Corporation or a Subsidiary Corporation;
(b) shall have an Exercise Price of not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date, and, if granted to a person who owns capital stock (including stock treated as owned under Section 424(d) of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of capital stock of the Company or any Subsidiary Corporation (a “More Than Ten Percent (10%) Owner”), have an Exercise Price not less than one hundred and ten percent (110%) of the Fair Market Value of a Share on its Grant Date;
(c) shall be for a period of not more than 10 years (five years if the Grantee is a More Than 10% Owner) from its Grant Date, and shall be subject to earlier termination as provided herein or in the applicable Award Agreement;
(d) shall not have an aggregate Fair Market Value (as of the Grant Date) of the Shares with respect to which Incentive Stock Options (whether granted under the Plan or any other stock option plan of the Grantee’s employer or any parent or Subsidiary Corporation (“Other Plans”)) are exercisable for the first time by such Grantee during any calendar year (“Current Grant”), determined in accordance with the provisions of Section 422 of the Code, which exceeds $100,000 (the “$100,000 Limit”);
(e) shall, if the aggregate Fair Market Value of the Shares (determined on the Grant Date) with respect to the Current Grant and all Incentive Stock Options previously granted under the Plan and any Other Plans which are exercisable for the first time during a calendar year (“Prior Grants”) would exceed the $100,000 Limit, be, as to the portion in excess of the $100,000 Limit, exercisable as a separate option that is not an Incentive Stock Option at such date or dates as are provided in the Current Grant;
(f) shall require the Grantee to notify the Committee of any disposition of any Shares delivered pursuant to the exercise of the Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to holding periods and certain disqualifying dispositions) (“Disqualifying Disposition”) within 10 days of such a Disqualifying Disposition;
(g) shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Grantee’s lifetime, only by the Grantee; provided, however, that the Grantee may, to the extent provided in the Plan in any manner specified by the Committee, designate in writing a beneficiary to exercise his or her Incentive Stock Option after the Grantee’s death; and
(h) shall, if such Option nevertheless fails to meet the foregoing requirements, or otherwise fails to meet the requirements of Section 422 of the Code for an Incentive Stock Option, be treated for all purposes of this Plan, except as otherwise provided in subsections (d) and (e) above, as an Option that is not an Incentive Stock Option.
Notwithstanding the foregoing and Section 3.2, the Committee may, without the consent of the Grantee, at any time before the exercise of an Option (whether or not an Incentive Stock Option), take any action necessary to prevent such Option from being treated as an Incentive Stock Option. No Option that is intended to be an Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option.
6.5 Payment of Exercise Price. Except as otherwise provided by the Committee in an Award Agreement, Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of
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Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares made by any one or more of the following means:
(a) cash, personal check, cash equivalent or wire transfer;
(b) subject to Applicable Law and with the approval of the Committee, by delivery of Shares owned by the Grantee prior to exercise, valued at their Fair Market Value on the date of exercise;
(c) subject to Applicable Law and with the approval of the Committee, Shares acquired upon the exercise of such Option, such Shares valued at their Fair Market Value on the date of exercise;
(d) subject to Applicable Law and with the approval of the Committee, Restricted Shares held by the Grantee prior to the exercise of the Option, each such share valued at the Fair Market Value of a Share on the date of exercise; or
(e) subject to Applicable Law (including the prohibited loan provisions of Section 402 of Sarbanes-Oxley), through the sale of the Shares acquired on exercise of the Option through a broker-dealer to whom the Grantee has submitted an irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the amount of sale proceeds sufficient to pay for such Shares, together with, if requested by the Company, the amount of federal, state, local or foreign withholding taxes payable by Grantee by reason of such exercise.
The Committee may in its discretion specify that, if any Restricted Shares (“Tendered Restricted Shares”) are used to pay the Exercise Price, (x) all the Shares acquired on exercise of the Option shall be subject to the same restrictions as the Tendered Restricted Shares, determined as of the date of exercise of the Option, or (y) a number of Shares acquired on exercise of the Option equal to the number of Tendered Restricted Shares shall be subject to the same restrictions as the Tendered Restricted Shares, determined as of the date of exercise of the Option.
Article 7
Stock Appreciation Rights
7.1 Issuance. Subject to and consistent with the provisions of the Plan, the Committee, at any time and from time to time, may grant SARs to any Eligible Person either alone or in addition to other Awards granted under the Plan. Such SARs may, but need not, be granted in connection with a specific Option granted under Article 6. The Committee may impose such conditions or restrictions on the exercise of any SAR as it shall deem appropriate. No dividend rights or Dividend Equivalents may be granted in conjunction with any grant of SARs.
7.2 Award Agreements. Each SAR grant shall be evidenced by an Award Agreement in such form as the Committee may approve and shall contain such terms and conditions not inconsistent with other provisions of the Plan as shall be determined from time to time by the Committee. Except as otherwise set forth in Section 5.6(b) above, no SAR shall have a term of more than ten (10) years after its Grant Date, subject to earlier termination as provided herein or in the applicable Award Agreement. No SAR may be exercised at a time when such exercise and/or the issuance of Shares pursuant to such exercise would be in breach of Applicable Law.
7.3 SAR Exercise Price. The Exercise Price of a SAR shall be determined by the Committee in its sole discretion; provided that, except as otherwise set forth in Section 5.6(b), the Exercise Price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of the grant of the SAR (or the exercise price of the related Option if granted in tandem therewith).
7.4 Exercise and Payment. Upon the exercise of a SAR, a Grantee shall be entitled to receive payment from the Company in an amount determined by multiplying (a) the excess of the Fair Market Value of a Share on the date of exercise over the Exercise Price; by (b) the number of Shares with respect to which the SAR is exercised. SARs shall be deemed exercised on the date written notice of exercise in a form acceptable to the Committee is received by the Secretary of the Company. The Company shall make payment in respect of any SAR within thirty (30) days of the date the SAR is exercised, unless the Award Agreement specifically provides otherwise. Any payment by the Company in respect of a SAR may be made in cash, Shares, other property, or any combination thereof, as the Committee, in its sole discretion, shall determine.
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7.5 Grant Limitations. The Committee may at any time impose any other limitations upon the exercise of SARs which, in the Committee’s sole discretion, are necessary or desirable in order for Grantees to qualify for an exemption from Section 16(b) of the Exchange Act.
Article 8
Restricted Shares
8.1 Grant of Restricted Shares. Subject to and consistent with the provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Shares to any Eligible Person in such amounts as the Committee shall determine.
8.2 Award Agreement. Each grant of Restricted Shares shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Restricted Shares granted, and such other provisions as the Committee shall determine. The Committee may impose such conditions and/or restrictions on any Restricted Shares granted pursuant to the Plan as it may deem advisable, including restrictions based upon the achievement of specific time-based restrictions, Performance Measures, time-based restrictions on vesting following the attainment of the Performance Measures, and/or restrictions under Applicable Law.
8.3 Consideration for Restricted Shares. The Committee shall determine the amount, if any, that a Grantee shall pay for Restricted Shares provided that it shall be no less than the nominal value per Restricted Share if required to be paid by Applicable Law.
8.4 Effect of Forfeiture. If Restricted Shares are forfeited, and if the Grantee was required to pay for such shares or acquired such Restricted Shares upon the exercise of an Option, the Grantee shall be deemed to have resold such Restricted Shares to the Company at a price equal to the lesser of (x) the amount paid by the Grantee for such Restricted Shares, or (y) the Fair Market Value of a Share on the date of such forfeiture. The Company shall pay to the Grantee the deemed sale price as soon as is administratively practical. Such Restricted Shares shall cease to be outstanding and shall no longer confer on the Grantee thereof any rights as a stockholder of the Company, from and after the date of the event causing the forfeiture, whether or not the Grantee accepts the Company’s tender of payment for such Restricted Shares.
8.5 Voting and Dividend Equivalent Rights Attributable to Restricted Shares. A Grantee awarded Restricted Shares will have all voting rights with respect to such Restricted Shares. Unless the Committee determines and sets forth in the Award Agreement that Grantee will not be entitled to receive any dividends with respect to such Restricted Shares, a Grantee will have the right to receive all dividends in respect of such Restricted Shares, which dividends shall be either deemed reinvested in additional shares of Restricted Shares, which shall remain subject to the same forfeiture conditions applicable to the Restricted Shares to which such dividends relate, or paid in cash if and at the time the Restricted Shares are no longer subject to forfeiture, as the Committee shall set forth in the Award Agreement. No dividends may be paid with respect to Restricted Shares that are Forfeited.
8.6 Escrow; Legends. The Committee may provide that the certificates for any Restricted Shares if certificated (x) shall be held (together with a stock transfer form executed in blank by the Grantee) in escrow by the Secretary of the Company until such Restricted Shares become non-Forfeitable or are Forfeited and/or (y) shall bear an appropriate legend restricting the transfer of such Restricted Shares under the Plan. If any Restricted Shares become nonforfeitable, the Company shall cause certificates for such shares to be delivered without such legend.
Article 9
Deferred Stock and Restricted Stock Units
9.1 Grant of Deferred Stock and Restricted Stock Units. Subject to and consistent with the provisions of the Plan, the Committee, at any time and from time to time, may grant Deferred Stock and/or Restricted Stock Units to any Eligible Person, in such amount and upon such terms as the Committee shall determine. Deferred Stock must conform in form and substance with applicable regulations promulgated under Section 409A of the Code and with Article 15 to ensure that the Grantee is not subjected to tax penalties under Section 409A of the Code with respect to such Deferred Stock.
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9.2 Vesting and Delivery.
(a) Delivery of Shares subject to a Deferred Stock grant will occur upon expiration of the deferral period or upon the occurrence of one or more of the distribution events described in Section 409A of the Code as specified by the Committee in the Grantee’s Award Agreement for the Award of Deferred Stock. An Award of Deferred Stock may be subject to such substantial risk of forfeiture conditions as the Committee may impose, which conditions may lapse at such times or upon the achievement of such objectives as the Committee shall determine at the time of grant or thereafter. Unless otherwise determined by the Committee, to the extent that the Grantee has a Termination of Service while the Deferred Stock remains subject to a substantial risk of forfeiture, such Deferred Shares shall be forfeited, unless the Committee determines that such substantial risk of forfeiture shall lapse in the event of the Grantee’s Termination of Service due to Retirement, death, Disability, or involuntary termination by the Company or an Affiliate without “Cause.”
(b) Delivery of Shares subject to a grant of Restricted Stock Units shall occur no later than the 15th day of the third month following the end of the taxable year of the Grantee or the fiscal year of the Company in which the Grantee’s rights under such Restricted Stock Units are no longer subject to a substantial risk of forfeiture as defined in final regulations under Section 409A of the Code. Unless otherwise determined by the Committee, to the extent that the Grantee has a Termination of Service while the Restricted Stock Units remain subject to a substantial risk of forfeiture, such Restricted Stock Units shall be forfeited, unless the Committee determines that such substantial risk of forfeiture shall lapse in the event of the Grantee’s Termination of Service due to Retirement, death, Disability, or involuntary termination by the Company or an Affiliate without Cause or termination by the Grantee for Good Reason.
9.3 Voting and Dividend Equivalent Rights Attributable to Deferred Stock and Restricted Stock Units. A Grantee awarded Deferred Stock or Restricted Stock Units will have no voting rights with respect to such Deferred Stock or Restricted Stock Units prior to the delivery of Shares in settlement of such Deferred Stock and/or Restricted Stock Units. Unless the Committee determines and sets forth in the Award Agreement that a Grantee will not be entitled to receive any such Dividend Equivalents with respect to such Deferred Stock or Restricted Stock Units, the Grantee will have the right to receive Dividend Equivalents in respect of Deferred Stock and/or Restricted Stock Units, which Dividend Equivalents shall be either deemed reinvested in additional Shares of Deferred Stock or Restricted Stock Units, as applicable, which shall remain subject to the same forfeiture conditions applicable to the Deferred Stock or Restricted Stock Units to which such Dividend Equivalents relate, or paid in cash if and at the time the Deferred Stock or Restricted Stock Units are no longer subject to forfeiture and deliverable, as the Committee shall set forth in the Award Agreement. No Dividend Equivalents may be paid on Deferred Stock or Restricted Stock Units that are Forfeited.
Article 10
Performance Units and Performance Shares
10.1 Grant of Performance Units and Performance Shares. Subject to and consistent with the provisions of the Plan, Performance Units or Performance Shares may be granted to any Eligible Person in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
10.2 Value/Performance Goals. The Committee shall set Performance Measures in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units or Performance Shares that will be paid to the Grantee.
10.3 Earning of Performance Units and Performance Shares. After the applicable Performance Period has ended, the holder of Performance Units or Performance Shares shall be entitled to payment based on the level of achievement of performance goals set by the Committee.
At the discretion of the Committee, the settlement of Performance Units or Performance Shares may be in cash, Shares of equivalent value, or in some combination thereof, as set forth in the Award Agreement provided that if it is to be in Shares, issuance of the Shares shall be subject to payment by the Grantee in cash of the nominal value for each Share so issued to the extent required by Applicable Law.
If a Grantee is promoted, demoted or transferred to a different business unit of the Company during a Performance Period, then, to the extent the Committee determines that the Award, the performance goals, or the
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Performance Period are no longer appropriate, the Committee may adjust, change, eliminate or cancel the Award, the performance goals, or the applicable Performance Period, as it deems appropriate in order to make them appropriate and comparable to the initial Award, the performance goals, or the Performance Period.
Unless the Committee determines and sets forth in the Award Agreement that a Grantee will not be entitled to vote or receive any dividends or Dividend Equivalents declared with respect to Shares deliverable in connection with grants of Performance Units or Performance Shares, the Grantee shall have the right to vote the Shares in respect of such Performance Shares and the right to receive any dividends or Dividend Equivalents in respect of such Performance Units and Performance Shares, which dividends and Dividend Equivalents shall either be deemed reinvested in additional Shares of Performance Units or Performance Shares, as applicable, which shall remain subject to the same forfeiture conditions applicable to the Performance Units or Performance Shares to which such dividends and Dividend Equivalents relate, or paid in cash if and at the time the Performance Units or Performance Shares are payable and/or no longer subject to forfeiture, as the Committee shall set forth in the Award Agreement. No dividends or Dividend Equivalents may be paid on Performance Units or Performance Shares that are forfeited.
Article 11
Dividend Equivalents
The Committee is authorized to grant Awards of Dividend Equivalents alone or in conjunction with other Awards; provided, however, that no Dividend Equivalents may be granted in conjunction with any grant of Options or SARs, and no Dividend Equivalents may be paid on any Awards other than Options and SARs unless and until the Awards become vested, nonforfeitable and/or payable. The Committee may provide that Dividend Equivalents not paid in connection with an Award shall either be (i) paid or distributed in cash when the Dividend Equivalents or Awards to which such Dividend Equivalents relate become vested, nonforfeitable and/or payable or (ii) deemed to have been reinvested in additional Dividends Equivalents or Awards.
Article 12
Other Stock-Based Awards
The Committee is authorized, subject to limitations under Applicable Law, to grant such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares, as deemed by the Committee to be consistent with the purposes of the Plan, including Shares awarded which are not subject to any restrictions or conditions, convertible or exchangeable debt securities or other rights convertible or exchangeable into Shares, and Awards valued by reference to the value of securities of or the performance of specified Affiliates. Subject to and consistent with the provisions of the Plan, the Committee shall determine the terms and conditions of such Awards. Except as provided by the Committee, Shares delivered pursuant to a purchase right granted under this Article 12 shall be purchased for such consideration, paid for by such methods and in such forms, including cash, Shares, outstanding Awards or other property, as the Committee shall determine.
Article 13
Non-Employee Director Awards
Subject to the terms of the Plan, the Committee may grant Awards to any Non-Employee Director, in such amount and upon such terms and at any time and from time to time as shall be determined by the Committee in its sole discretion. Except as otherwise provided in Section 5.6(b), a Non-Employee Director may not be granted Awards during any single calendar year that, taken together with any cash fees paid to such Non-Employee Director during such calendar year in respect of the Non-Employee Director’s service as a member of the Board during such year, exceeds $1,250,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial accounting purposes).
Article 14
Amendment, Modification, and Termination
14.1 Amendment, Modification, and Termination. Subject to Section 14.2, the Board may, at any time and from time to time, alter, amend, suspend, discontinue or terminate the Plan in whole or in part without the approval of the
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Company’s stockholders, except that (a) any amendment or alteration shall be subject to the approval of the Company’s stockholders if such stockholder approval is required by any Applicable Law, and (b) the Board may otherwise, in its discretion, determine to submit other such amendments or alterations to stockholders for approval.
14.2 Awards Previously Granted. Except as otherwise specifically permitted in the Plan or an Award Agreement, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Grantee of such Award. Notwithstanding the foregoing, the Board reserves the authority to terminate a 409A Award granted under the Plan in return for payment of the vested portion of the 409A Award provided the termination and payment satisfies the rules under Section 409A of the Code.
Article 15
Compliance with Code Section 409A
15.1 Awards Subject to Code Section 409A. The provisions of this Article 15 and Section 409A of the Code shall apply to any Award or portion thereof that is or becomes deferred compensation subject to Code Section 409A (a “409A Award”), notwithstanding any provision to the contrary contained in the Plan or the Award Agreement applicable to such Award to the extent required for the Award to comply with Section 409A of the Code.
15.2 Distributions. Except as otherwise permitted or required by Code Section 409A, no distribution in settlement of a 409A Award may commence earlier than (i) Separation from Service; (ii) the date the Grantee becomes Disabled (as defined in Section 2.26(b)); (iii) the date of the Grantee’s death; (iv) a specified time (or pursuant to a fixed schedule) that is either (a) specified by the Committee upon the grant of the Award and set forth in the Award Agreement or (b) specified by the Grantee in an Election complying with the requirements of Section 409A of the Code; or (vi) a change in control of the Company within the meaning of Treasury Regulation Section 1.409A-3(h)(5).
15.3 Six Month Delay. Notwithstanding anything herein or in any Award Agreement or election to the contrary, to the extent that distribution of a 409A Award is triggered by a Grantee’s Separation from Service, if the Grantee is then a “specified employee” (as defined in Treasury Regulation Section 1.409A-1(i)), no distribution may be made before the date which is six (6) months after such Grantee’s Separation from Service, or, if earlier, the date of the Grantee’s death, to the extent required to comply with Code Section 409A.
15.4 Short-Term Deferral. If an Award Agreement does not specify a payment date, payment of the Award will be made no later than the 15th day of the third month following the end of the taxable year of the Grantee during which the Grantee’s right to payment is no longer subject to a substantial risk of forfeiture under Section 409A of the Code.
Article 16
Withholding
16.1 Required Withholding.
(a) The Committee in its sole discretion may provide that when taxes are to be withheld in connection with the exercise of an Option or SAR, or upon the lapse of restrictions on Restricted Shares, or upon the transfer of Shares, or upon payment of any other benefit or right under this Plan (the date on which such exercise occurs or such restrictions lapse or such payment of any other benefit or right occurs hereinafter referred to as the “Tax Date”), the Grantee may elect to make payment for the withholding of federal, state and local taxes, including Social Security and Medicare (“FICA”) taxes by one or a combination of the following methods:
(i) payment of an amount in cash equal to the amount to be withheld (including cash obtained through the sale of the Shares acquired on exercise of an Option or SAR, upon the lapse of restrictions on Restricted Shares, or upon the transfer of Shares, through a broker-dealer to whom the Grantee has submitted irrevocable instructions to deliver promptly to the Company, the amount to be withheld);
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(ii) delivering part or all of the amount to be withheld in the form of Shares valued at their Fair Market Value on the Tax Date;
(iii) requesting the Company to withhold from those Shares that would otherwise be received upon exercise of the Option or SAR, upon the lapse of restrictions on Restricted Stock, or upon the transfer of Shares, a number of Shares having a Fair Market Value on the Tax Date equal to the amount to be withheld; or
(iv) withholding from any other compensation otherwise due to the Grantee.
The Committee in its sole discretion may provide that the maximum amount of tax withholding upon exercise of an Option or SAR, upon the lapse of restrictions on Restricted Shares, or upon the transfer of Shares, to be satisfied by withholding Shares upon exercise of such Option or SAR, upon the lapse of restrictions on Restricted Shares, or upon the transfer of Shares, pursuant to clause (iii) above shall not exceed the minimum amount of taxes, including FICA taxes, required to be withheld under federal, state and local law that will not result in adverse financial accounting consequences with respect to such Awards and is permitted under applicable withholding rules promulgated by the Internal Revenue Service or another applicable governmental entity. An election by Grantee under this subsection is irrevocable. Any fractional share amount and any additional withholding not paid by the withholding or surrender of Shares must be paid in cash. If no timely election is made, the Grantee must deliver cash to satisfy all tax withholding requirements.
(b) Notwithstanding the foregoing, any Grantee who makes a Disqualifying Disposition or an election under Section 83(b) of the Code shall remit to the Company an amount, if any, sufficient to satisfy all resulting tax withholding requirements in the same manner as set forth in subsection (a) (other than (a)(iii) above).
16.2 Notification under Code Section 83(b). If the Grantee, in connection with the exercise of any Option, or the grant of Restricted Shares, makes the election permitted under Section 83(b) of the Code to include in such Grantee’s gross income in the year of transfer the amounts specified in Section 83(b) of the Code, then such Grantee shall notify the Company of such election within 10 days of filing the notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code. The Committee may, in connection with the grant of an Award or at any time thereafter, prohibit a Grantee from making the election described above.
Article 17
Limitation on Benefits
Despite any other provisions of this Plan to the contrary, if the receipt of any payments or benefits under this Plan, alone or in combination with any other payments or distributions under any other plan, agreement or arrangement, would subject a Grantee to tax under Code Section 4999, the Committee may determine whether some amount of such payments or benefits would meet the definition of a “Reduced Amount.” If the Committee determines that there is a Reduced Amount, the total payments or benefits to the Grantee under all Awards must be reduced to such Reduced Amount, but not below zero, with the amounts to be reduced so as to maximize the aggregate Net After Tax Receipts to the Grantee; provided, that, notwithstanding the foregoing, payments or benefits that are not subject to Section 409A of the Code shall be reduced before any payment or benefits that are subject to Section 409A of the Code and all such reductions shall comply with Section 409A of the Code with respect to any amounts subject to Section 409A of the Code. If the Committee determines that the benefits and payments must be reduced to the Reduced Amount, the Company must promptly notify the Grantee of that determination, with a copy of the detailed calculations by the Committee. All determinations of the Committee under this Article 17 are final, conclusive and binding upon the Company and the Grantee. It is the intention of the Company and the Grantee to reduce the payments under this Plan only if the aggregate Net After Tax Receipts to the Grantee would thereby be increased. As result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Committee under this Article 17, however, it is possible that amounts will have been paid under the Plan to or for the benefit of a Grantee which should not have been so paid (“Overpayment”) or that additional amounts which will not have been paid under the Plan to or for the benefit of a Grantee could have been so paid (“Underpayment”), in each case consistent with the calculation of the Reduced Amount. If the Committee, based either upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Grantee, which the Committee believes has a high probability of success,
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or controlling precedent or other substantial authority, determines that an Overpayment has been made, any such Overpayment must be treated for all purposes as a loan, to the extent permitted by Applicable Law, which the Grantee must repay to the Company together with interest at the applicable federal rate under Code Section 7872(f)(2); provided, however, that no such loan may be deemed to have been made and no amount shall be payable by the Grantee to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Grantee is subject to tax under Code Section 1, 3101 or 4999 or generate a refund of such taxes. If the Committee, based upon controlling precedent or other substantial authority, determines that an Underpayment has occurred, the Committee must promptly notify the Company of the amount of the Underpayment, which then shall be paid promptly to the Grantee but no later than the end of the Grantee’s taxable year next following the Grantee’s taxable year in which the determination is made that the underpayment has occurred. For purposes of this Article 17, (i) “Net After Tax Receipt” means the Present Value of payments and benefits under this Plan and any other plan, agreement or arrangement, net of all taxes imposed on Grantee with respect thereto under Code Sections 1, 3101 and 4999, determined by applying the highest marginal rate under Code Section 1 which applies to the Grantee’s taxable income for the applicable taxable year; (ii) “Present Value” means the value determined in accordance with Code Section 280G(d)(4) and (iii) “Reduced Amount” means the smallest aggregate amount of all payments and benefits under this Plan and any other plan, agreement or arrangement, which (a) is less than the sum of all such payments and benefits under this Plan and any other plan, agreement or arrangement, and (b) results in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the aggregate payments and benefits under this Plan and any other plan, agreement or arrangement, were any other amount less than the sum of all payments and benefits to be made under this Plan. Any reduction of payments or benefits pursuant to this Article 17 shall be made in the following order (first against any such items that are not subject to Section 409A of the Code): (i) first against any cash compensation in order of the latest amounts to be paid and otherwise on a pro rata basis, (ii) second against any benefits otherwise payable in order of the latest amounts to be delivered and otherwise on a pro rata basis; and (iii) third against any equity or related awards in order of the latest amounts to be settled and otherwise on a pro rata basis.
Article 18
Additional Provisions
18.1 Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise of all or substantially all of the business and/or assets of the Company.
18.2 Severability. If any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other part of the Plan. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
18.3 Requirements of Law. The granting of Awards and the delivery of Shares under the Plan shall be subject to all Applicable Laws, rules, and regulations, and to such approvals by any governmental agencies or Nasdaq and any other stock exchange or automated quotation system upon which the Shares are listed or quoted as may be required. Notwithstanding any provision of the Plan or any Award, Grantees shall not be entitled to exercise, or receive benefits under, any Award, and the Company (and any Affiliate) shall not be obligated to deliver any Shares or deliver benefits to a Grantee, if such exercise or delivery would constitute a violation by the Grantee or the Company of any Applicable Law or regulation.
18.4 Securities Law Compliance.
(a) If the Committee deems it necessary to comply with any Applicable Law, the Committee may impose any restriction on Awards or Shares acquired pursuant to Awards under the Plan as it may deem advisable. In addition, if requested by the Company and any underwriter engaged by the Company, Shares acquired pursuant to Awards may not be sold or otherwise transferred or disposed of for such period following the date of the final prospectus or prospectus supplement relating to an underwritten public offering as the Company or such underwriter shall specify reasonably and in good faith. All certificates for Shares delivered
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under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the SEC, Nasdaq and any other stock exchange or automated quotation system upon which the Shares are listed or quoted, any applicable securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. If so requested by the Company, the Grantee shall make a written representation to the Company that he or she will not sell or offer to sell any Shares unless a registration statement shall be in effect with respect to such Shares under the Securities Act and any applicable state securities law or unless he or she shall have furnished to the Company, in form and substance satisfactory to the Company, that such registration is not required.
(b) If the Committee determines that the exercise or non-forfeitability of, or delivery of benefits pursuant to, any Award would violate any Applicable Law or result in the imposition of excise taxes on the Company or its Affiliates under the statutes, rules or regulations of any applicable jurisdiction, then the Committee may postpone any such exercise, non-forfeitability or delivery, as applicable, but the Company shall use all reasonable efforts to cause such exercise, non-forfeitability or delivery to comply with all such provisions at the earliest practicable date.
(c) The Committee may require each Grantee receiving Shares pursuant to an Award under the Plan to represent to and agree with the Company in writing that the Grantee is acquiring the Shares without a view to distribution thereof. In addition to any legend required by the Plan, the certificates for such Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the SEC, Nasdaq and any other stock exchange or automated quotation system upon which the Shares are listed or quoted, any applicable federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(d) A Grantee shall be required to supply the Company with certificates, representations and information that the Company requests and otherwise cooperate with the Company in obtaining any listing, registration, qualification, exemption, consent or approval the Company deems necessary or appropriate.
18.5 Awards Subject to Share Retention Guidelines and Claw-Back Policies. Notwithstanding any provisions herein to the contrary, (i) Shares acquired by a Grantee under the Plan upon the exercise, payment or settlement of an Award shall be subject to the terms of any Share retention guidelines currently in effect or subsequently adopted by the Board and (ii) all Awards granted hereunder shall be subject to the terms of any recoupment policy currently in effect or subsequently adopted by the Board to implement Section 304 of Sarbanes-Oxley, Dodd-Frank or Section 10D of the Exchange Act (or with any amendment or modification of such recoupment policy adopted by the Board) to the extent that such Award (whether or not previously exercised or settled) or the value of such Award is required to be returned to the Company pursuant to the terms of such recoupment policy.
18.6 No Rights as a Stockholder. Unless otherwise determined by the Committee and set forth in the Award Agreement, no Grantee shall have any rights as a stockholder of the Company with respect to the Shares (other than Restricted Shares) which may be deliverable upon exercise or payment of such Award until such Shares have been delivered to him or her. Restricted Shares, whether held by a Grantee or in escrow by the Secretary of the Company, shall confer on the Grantee all rights of a stockholder of the Company, except as otherwise provided in the Plan or Award Agreement. At the time of grant of an Award, the Committee will require the payment of cash dividends thereon to be deferred and, if the Committee so determines, reinvested in additional Awards. Stock dividends and deferred cash dividends issued with respect to Awards shall be subject to the same restrictions and other terms as apply to the Awards with respect to which such dividends are issued. The Committee may in its discretion provide for payment of interest on deferred cash dividends.
18.7 Employee Status. If the terms of any Award provide that it may be exercised or paid only during employment or continued service or within a specified period of time after termination of employment or continued service, the Committee may decide to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment or service. For purposes of the Plan, employment and continued service shall be deemed to exist between the Grantee and the
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Company and/or an Affiliate if, at the time of the determination, the Grantee is a director, officer, employee, consultant or advisor of the Company or an Affiliate. A Grantee on military leave, sick leave or other bona fide leave of absence shall continue to be considered an employee for purposes of the Plan during such leave if the period of leave does not exceed three months, or, if longer, so long as the individual’s right to re-employment with the Company or any of its Affiliates is guaranteed either by statute, agreement or contract. If the period of leave exceeds three months, and the individual’s right to re-employment is not guaranteed by statute, agreement or contract, the employment shall be deemed to be terminated on the first day after the end of such three-month period. Except as may otherwise be expressly provided in an Agreement, Awards granted to a director, officer, employee, consultant or adviser shall not be affected by any change in the status of the Grantee so long as the Grantee continues to be a director, officer, employee, consultant or advisor to the Company or any of its Affiliates (regardless of having changed from one to the other or having been transferred from one entity to another). The Grantee’s employment or continued service shall not be considered interrupted in the event the Committee, in its discretion and as specified at or prior to such occurrence, determines there is no interruption in the case of a spin-off, sale or disposition of the Grantee’s employer from the Company or an Affiliate, except that if the Committee does not otherwise specify such at or prior to such occurrence, the Grantee will be deemed to have a termination of employment or continuous service to the extent the Affiliate that employs the Grantee is no longer the Company or an entity that qualifies as an Affiliate. With respect to any Award constituting deferred compensation with the meaning of Code Section 409A, nothing in this Section 18.7 shall be interpreted to modify the definition of Separation from Service.
18.8 Nature of Payments. Unless otherwise specified in the Award Agreement, Awards shall be special incentive payments to the Grantee and shall not be taken into account in computing the amount of salary or compensation of the Grantee for purposes of determining any pension, retirement, death or other benefit under (a) any pension, retirement, profit sharing, bonus, insurance or other employee benefit plan of the Company or any Affiliate, except as such plan shall otherwise expressly provide, or (b) any agreement between (i) the Company or any Affiliate and (ii) the Grantee, except as such agreement shall otherwise expressly provide.
18.9 Non-Exclusivity of Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements for employees or Non-Employee Directors as it may deem desirable.
18.10 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of South Carolina, other than its laws respecting choice of law, to the extent not preempted by federal law.
18.11 Jurisdiction; Waiver of Jury Trial. Any suit, action or proceeding with respect to the Plan or any Award, or any judgment entered by any court of competent jurisdiction in respect of any thereof, shall be resolved only in the courts of the State of South Carolina or the United States District Court for the State of South Carolina and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the generality of the foregoing, the Company and each Grantee shall irrevocably and unconditionally (a) submit in any proceeding relating to the Plan or any Award Agreement, or for the recognition and enforcement of any judgment in respect thereof (a “Proceeding”), to the exclusive jurisdiction of the courts of the State of South Carolina, the court of the United States of America for the State of South Carolina, and appellate courts having jurisdiction of appeals from any of the foregoing, and agree that all claims in respect of any such Proceeding shall be heard and determined in such South Carolina State court or, to the extent permitted by law, in such federal court, (b) consent that any such Proceeding may and shall be brought in such courts and waives any objection that the Company and each Grantee may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such Proceeding was brought in an inconvenient court and agree not to plead or claim the same, (c) waive all right to trial by jury in any Proceeding (whether based on contract, tort or otherwise) arising out of or relating to the Plan or any Award Agreement, (d) agree that service of process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party, in the case of a Grantee, at the Grantee’s address shown in the books and records of the Company or, in the case of the Company, at the Company’s principal offices, attention General Counsel, and (e) agree that nothing in the Plan shall affect the right to effect service of process in any other manner permitted by the laws of the State of South Carolina.
18.12 Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Grantee pursuant to an
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Award, nothing contained in the Plan or any Award Agreement shall give any such Grantee any rights that are greater than those of a general creditor of the Company; provided, however, that the Committee may authorize the creation of trusts or make other arrangements to meet the Company’s obligations under the Plan to deliver cash, Shares or other property pursuant to any Award which trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise determines.
18.13 Participation. No employee or officer shall have the right to be selected to receive an Award under this Plan or, having been so selected, to be selected to receive a future Award.
18.14 Military Service. Awards shall be administered in accordance with Section 414(u) of the Code and the Uniformed Services Employment and Reemployment Rights Act of 1994.
18.15 Construction. The following rules of construction will apply to the Plan: (a) the word “or” is disjunctive but not necessarily exclusive, and (b) words in the singular include the plural and words in the plural include the singular.
18.16 Other Benefits. No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefit under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation unless such retirement or other benefit specifically provides that an Award shall be counted as compensation for purposes of such plan.
18.17 Death/Disability. The Committee may in its discretion require the transferee of a Grantee to supply it with written notice of the Grantee’s death or Disability and to supply it with a copy of the will (in the case of the Grantee’s death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may also require that the agreement of the transferee to be bound by all of the terms and conditions of the Plan and the particular Award.
18.18 Headings. The headings of articles and sections are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control.
18.19 Obligations. Unless otherwise specified in the Award Agreement, the obligation to deliver, pay or transfer any amount of money or other property pursuant to Awards under this Plan shall be the sole obligation of a Grantee’s employer; provided that the obligation to deliver or transfer any Shares pursuant to Awards under this Plan shall be the sole obligation of the Company.
18.20 No Right to Continue in Service or Employment. Nothing in the Plan or any Award Agreement shall confer upon any Non-Employee Director the right to continue to serve as a director of the Company. Nothing contained in the Plan or any Agreement shall confer upon any Grantee any right with respect to the continuation of employment or service by the Company or any Affiliate or interfere in any way with the right of the Company or any Affiliate, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or service or to increase or decrease the compensation of the Grantee.
18.21 Payment on Behalf of Grantee or Beneficiary.
(a) If the Grantee is incompetent to handle Grantee’s affairs at the time the Grantee is eligible to receive a payment from the Plan, the Committee will make payment to the Grantee’s court-appointed personal representative or, if none, the Committee, in its sole discretion, may make payment to the Grantee’s duly appointed guardian, legal representative, next-of-kin or attorney-in-fact for the benefit of the Grantee.
(b) If the Beneficiary of a deceased Grantee is a minor or is legally incompetent, the Committee will make payment to the Beneficiary’s court-appointed guardian or personal representative or to a trust established for the benefit of the Beneficiary, or if no such guardian, representative or trust exists, the Committee, in its sole discretion, may make payment to the Beneficiary’s surviving parent or his or her next-of-kin for the benefit of the Beneficiary.
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| 2024 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT |
|
103 |
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|
|
Appendix A: 2024 Omnibus Incentive Compensation Plan
(c) If the Committee for any reason considers it improper to direct any payment as specified in this Section 18.21, the Committee may request a court of appropriate jurisdiction to determine the appropriate payee.
(d) Any payment made by the Committee pursuant to this Section 18.21 shall be in full satisfaction of all liability of the Plan, the Company and its Affiliates with respect to any benefit due a Grantee or a Grantee’s Beneficiary under this Plan.
18.22 Data Privacy. As a condition for receiving an Award, each Grantee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section by and among the Company and its Affiliates exclusively for implementing, administering and managing the Grantee’s participation in the Plan. The Company and its Affiliates may hold certain personal information about a Grantee, including the Grantee’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “Data”). The Company and its Affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Grantee’s participation in the Plan, and the Company and its Affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Grantee’s country, or elsewhere, and the Grantee’s country may have different data privacy laws and protections than the recipients’ country. By accepting an Award, each Grantee authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Grantee’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Grantee may elect to deposit any Shares. The Data related to a Grantee will be held only as long as necessary to implement, administer, and manage the Grantee’s participation in the Plan. A Grantee may, at any time, view the Data that the Company holds regarding such Grantee, request additional information about the storage and processing of the Data regarding such Grantee, recommend any necessary corrections to the Data regarding the Grantee or refuse or withdraw the consents in this Section 18.22 in writing, without cost, by contacting the local human resources representative. The Company may cancel Grantee’s ability to participate in the Plan and, in the Committee’s discretion, the Grantee may forfeit any outstanding Awards if the Grantee refuses or withdraws the consents in this Section 18.22. For more information on the consequences of refusing or withdrawing consent, Grantees may contact their local human resources representative.
18.23 Miscellaneous.
(a) No person shall have any claim or right to receive an Award hereunder. The Committee’s granting of an Award to a Grantee at any time shall neither require the Committee to grant any other Award to such Grantee or other person at any time or preclude the Committee from making subsequent grants to such Grantee or any other person.
(b) Nothing contained herein prohibits the Grantee from: (1) reporting possible violations of federal law or regulations, including any possible securities laws violations, to any governmental agency or entity; (2) making any other disclosures that are protected under the whistleblower provisions of federal law or regulations; or (3) otherwise fully participating in any federal whistleblower programs, including but not limited to any such programs managed by the SEC. The Grantee does not need prior authorization from the Company to make any such reports or disclosures, and is not required to notify the Company about such disclosures.
(c) Agreements evidencing Awards under the Plan shall contain such other terms and conditions, not inconsistent with the Plan, as the Committee may determine in its sole discretion, including penalties for the commission of competitive acts or other actions detrimental to the Company. Notwithstanding any other provision hereof, the Committee shall have the right at any time to deny or delay a Grantee’s exercise of Options or the settlement of an Award if such Grantee is reasonably believed by the Committee (i) to be engaged in material conduct adversely affecting the Company or (ii) to be contemplating such conduct, unless and until the Committee shall have received reasonable assurance that the Grantee is not engaged in, and is not contemplating, such material conduct adverse to the interests of the Company.
(d) Grantees are and at all times shall remain subject to the securities trading policies adopted by the Company from time to time throughout the period of time during which they may exercise Options, SARs or sell Shares acquired pursuant to the Plan.
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| 104 |
|
2024 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT |
|
|
|
Pay vs Performance Disclosure - USD ($)
|
12 Months Ended |
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2021 |
| Pay vs Performance Disclosure |
|
|
|
|
| Pay vs Performance Disclosure, Table |
This section provides disclosure about the relationship between executive “compensation actually paid” (“CAP”) to our CEO and non-CEO NEOs and certain financial performance measures of the Company for the fiscal years listed below. This disclosure has been prepared in accordance with Item 402(v) of Regulation S-K under the Exchange Act (the “Pay Versus Performance Rules”). For further information concerning the Company’s variable philosophy and how the Company aligns executive compensation with the Company’s performance, refer to “Executive Compensation — Compensation Discussion and Analysis.”
|
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| |
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|
Value of Initial Fixed
$100 Investment Based
On: |
|
|
|
|
|
|
Summary
Compensation
Table Total
for Mike Baur |
|
|
Compensation
Actually Paid
to CEO |
|
|
Average Summary Compensation Table Total for Non-CEO NEOs |
|
|
Average Compensation Actually Paid to Non-CEO NEOs |
|
|
ScanSource,
Inc. Total
Shareholder
Return |
|
Peer Group
Total
Shareholder
Return |
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
|
5,875,799 |
|
|
|
7,744,764 |
|
|
|
1,838,760 |
|
|
|
1,211,679 |
|
|
184 |
|
163 |
|
77.1 |
|
140.7 |
|
|
|
|
|
|
|
|
|
2023 |
|
|
5,657,484 |
|
|
|
5,155,039 |
|
|
|
1,839,235 |
|
|
|
1,709,711 |
|
|
123 |
|
159 |
|
89.8 |
|
179.9 |
|
|
|
|
|
|
|
|
|
2022 |
|
|
5,647,684 |
|
|
|
7,297,747 |
|
|
|
2,050,989 |
|
|
|
2,464,805 |
|
|
129 |
|
130 |
|
88.8 |
|
166.7 |
|
|
|
|
|
|
|
|
|
2021 |
|
|
6,637,813 |
|
|
|
7,618,769 |
|
|
|
1,433,835 |
|
|
|
1,572,107 |
|
|
117 |
|
168 |
|
10.8 |
|
117.9 |
| (1) |
Deductions from, and additions to, total compensation in the Summary Compensation Table by year to calculate Compensation Actually Paid consist of: |
|
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|
|
|
|
|
|
|
|
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| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Compensation from Summary Compensation Table |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for Summary Compensation Table Pension |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for current year service cost |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for prior service cost impacting current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Total Adjustments for Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for grant date values in the Summary Compensation Table |
|
|
|
(3,858,000 |
) |
|
|
|
(3,229,036 |
) |
|
|
|
(2,331,320 |
) |
|
|
|
(3,690,662 |
) |
|
|
|
|
|
Year-end fair value of unvested awards granted in the current year |
|
|
|
4,633,040 |
|
|
|
|
3,093,126 |
|
|
|
|
2,751,537 |
|
|
|
|
4,490,976 |
|
|
|
|
|
|
Year-over-year difference of year-end fair values for unvested awards granted in prior years |
|
|
|
1,038,850 |
|
|
|
|
(386,870 |
) |
|
|
|
614,269 |
|
|
|
|
123,216 |
|
|
|
|
|
|
Fair values at vest date for awards granted and vested in current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Difference in fair values between prior year-end fair values and vest date fair values for awards granted in prior years |
|
|
|
55,075 |
|
|
|
|
20,335 |
|
|
|
|
615,578 |
|
|
|
|
57,426 |
|
|
|
|
|
|
Forfeitures during current year equal to prior year-end fair value |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Dividends or dividend equivalents not otherwise included in the total compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments for Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Actually Paid (as calculated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Non-Chief Executive Officer Named Executive Officer |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Compensation from Summary Compensation Table |
|
|
|
1,838,760 |
|
|
|
|
1,839,235 |
|
|
|
|
2,050,989 |
|
|
|
|
1,433,835 |
|
|
|
|
|
|
Adjustments for Pension |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
Adjustment for Summary Compensation Table Pension |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for current year service cost |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for prior service cost impacting current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Total Adjustments for Pension |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Adjustments for Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for grant date values in the Summary Compensation Table |
|
|
|
(902,401 |
) |
|
|
|
(947,223 |
) |
|
|
|
(824,430 |
) |
|
|
|
(633,904 |
) |
|
|
|
|
|
Year-end fair value of unvested awards granted in the current year |
|
|
|
620,364 |
|
|
|
|
914,109 |
|
|
|
|
986,537 |
|
|
|
|
741,513 |
|
|
|
|
|
|
Year-over-year difference of year-end fair values for unvested awards granted in prior years |
|
|
|
175,851 |
|
|
|
|
(92,141 |
) |
|
|
|
113,848 |
|
|
|
|
30,003 |
|
|
|
|
|
|
Fair values at vest date for awards granted and vested in current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
19,557 |
|
|
|
|
0 |
|
|
|
|
|
|
Difference in fair values between prior year-end fair values and vest date fair values for awards granted in prior years |
|
|
|
58,636 |
|
|
|
|
(4,269 |
) |
|
|
|
118,304 |
|
|
|
|
660 |
|
|
|
|
|
|
Forfeitures during current year equal to prior year-end fair value |
|
|
|
(579,531 |
) |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Dividends or dividend equivalents not otherwise included in the total compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments for Equity Awards |
|
|
|
(627,082 |
) |
|
|
|
(129,524 |
) |
|
|
|
413,816 |
|
|
|
|
138,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Actually Paid (as calculated) |
|
|
|
1,211,679 |
|
|
|
|
1,709,711 |
|
|
|
|
2,464,805 |
|
|
|
|
1,572,107 |
|
| (2) |
Equity valuations assumptions for calculating Compensation Actually Paid are not materially different from grant date valuation assumptions. |
| (3) |
Non-CEO NEOs reflect the average Summary Compensation Table total compensation and average Compensation Actually Paid for the following executives by year: | 2024: Stephen Jones, John Eldh (Former), Shana Smith, Rachel Hayden, Alexandre Conde 2023: Stephen Jones, John Eldh (Former), Shana Smith, Rachel Hayden 2022: Stephen Jones, John Eldh, Rachel Hayden, Matthew Dean (Former) 2021: Stephen Jones, John Eldh, Rachel Hayden, Matthew Dean, Gerald Lyons (Former)
| (4) |
Total shareholder return (“TSR”) is calculated base on the value of an initial fixed investment of $100 on June 30, 2021. The selected peer group is the S&P 600 Technology Hardware & Equipment (Industry Group) Index, which is the peer group used by the Company for purposes of Item 201(e) of SEC Regulation S-K in the Annual Report. |
| (5) |
We have determined that Adjusted EBITDA is the financial performance measure that, in the Company’s assessment, represents the most important financial performance measure used to link CAP to our NEOs to Company performance for fiscal 2024. Adjusted EBITDA is a non-GAAP financial measure that includes the following: non-GAAP operating income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization. Please refer to page 28 in the Annual Report for a reconciliation of net income to Adjusted EBITDA. |
|
|
|
|
| Company Selected Measure Name |
Adjusted EBITDA
|
|
|
|
| Named Executive Officers, Footnote |
| (3) |
Non-CEO NEOs reflect the average Summary Compensation Table total compensation and average Compensation Actually Paid for the following executives by year: | 2024: Stephen Jones, John Eldh (Former), Shana Smith, Rachel Hayden, Alexandre Conde 2023: Stephen Jones, John Eldh (Former), Shana Smith, Rachel Hayden 2022: Stephen Jones, John Eldh, Rachel Hayden, Matthew Dean (Former) 2021: Stephen Jones, John Eldh, Rachel Hayden, Matthew Dean, Gerald Lyons (Former)
|
|
|
|
| Peer Group Issuers, Footnote |
Total shareholder return (“TSR”) is calculated base on the value of an initial fixed investment of $100 on June 30, 2021. The selected peer group is the S&P 600 Technology Hardware & Equipment (Industry Group) Index, which is the peer group used by the Company for purposes of Item 201(e) of SEC Regulation S-K in the Annual Report.
|
|
|
|
| PEO Total Compensation Amount |
$ 5,875,799
|
$ 5,657,484
|
$ 5,647,684
|
$ 6,637,813
|
| PEO Actually Paid Compensation Amount |
$ 7,744,764
|
5,155,039
|
7,297,747
|
7,618,769
|
| Adjustment To PEO Compensation, Footnote |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Compensation from Summary Compensation Table |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for Summary Compensation Table Pension |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for current year service cost |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for prior service cost impacting current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Total Adjustments for Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for grant date values in the Summary Compensation Table |
|
|
|
(3,858,000 |
) |
|
|
|
(3,229,036 |
) |
|
|
|
(2,331,320 |
) |
|
|
|
(3,690,662 |
) |
|
|
|
|
|
Year-end fair value of unvested awards granted in the current year |
|
|
|
4,633,040 |
|
|
|
|
3,093,126 |
|
|
|
|
2,751,537 |
|
|
|
|
4,490,976 |
|
|
|
|
|
|
Year-over-year difference of year-end fair values for unvested awards granted in prior years |
|
|
|
1,038,850 |
|
|
|
|
(386,870 |
) |
|
|
|
614,269 |
|
|
|
|
123,216 |
|
|
|
|
|
|
Fair values at vest date for awards granted and vested in current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Difference in fair values between prior year-end fair values and vest date fair values for awards granted in prior years |
|
|
|
55,075 |
|
|
|
|
20,335 |
|
|
|
|
615,578 |
|
|
|
|
57,426 |
|
|
|
|
|
|
Forfeitures during current year equal to prior year-end fair value |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Dividends or dividend equivalents not otherwise included in the total compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments for Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Actually Paid (as calculated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-PEO NEO Average Total Compensation Amount |
$ 1,838,760
|
1,839,235
|
2,050,989
|
1,433,835
|
| Non-PEO NEO Average Compensation Actually Paid Amount |
$ 1,211,679
|
1,709,711
|
2,464,805
|
1,572,107
|
| Adjustment to Non-PEO NEO Compensation Footnote |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Non-Chief Executive Officer Named Executive Officer |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Compensation from Summary Compensation Table |
|
|
|
1,838,760 |
|
|
|
|
1,839,235 |
|
|
|
|
2,050,989 |
|
|
|
|
1,433,835 |
|
|
|
|
|
|
Adjustments for Pension |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
Adjustment for Summary Compensation Table Pension |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for current year service cost |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Amount added for prior service cost impacting current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Total Adjustments for Pension |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Adjustments for Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for grant date values in the Summary Compensation Table |
|
|
|
(902,401 |
) |
|
|
|
(947,223 |
) |
|
|
|
(824,430 |
) |
|
|
|
(633,904 |
) |
|
|
|
|
|
Year-end fair value of unvested awards granted in the current year |
|
|
|
620,364 |
|
|
|
|
914,109 |
|
|
|
|
986,537 |
|
|
|
|
741,513 |
|
|
|
|
|
|
Year-over-year difference of year-end fair values for unvested awards granted in prior years |
|
|
|
175,851 |
|
|
|
|
(92,141 |
) |
|
|
|
113,848 |
|
|
|
|
30,003 |
|
|
|
|
|
|
Fair values at vest date for awards granted and vested in current year |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
19,557 |
|
|
|
|
0 |
|
|
|
|
|
|
Difference in fair values between prior year-end fair values and vest date fair values for awards granted in prior years |
|
|
|
58,636 |
|
|
|
|
(4,269 |
) |
|
|
|
118,304 |
|
|
|
|
660 |
|
|
|
|
|
|
Forfeitures during current year equal to prior year-end fair value |
|
|
|
(579,531 |
) |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
Dividends or dividend equivalents not otherwise included in the total compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments for Equity Awards |
|
|
|
(627,082 |
) |
|
|
|
(129,524 |
) |
|
|
|
413,816 |
|
|
|
|
138,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Actually Paid (as calculated) |
|
|
|
1,211,679 |
|
|
|
|
1,709,711 |
|
|
|
|
2,464,805 |
|
|
|
|
1,572,107 |
|
|
|
|
|
| Compensation Actually Paid vs. Total Shareholder Return |
|
|
|
|
| Compensation Actually Paid vs. Net Income |
|
|
|
|
| Compensation Actually Paid vs. Company Selected Measure |
|
|
|
|
| Total Shareholder Return Vs Peer Group |
|
|
|
|
| Tabular List, Table |
Most Important Financial Performance Measures In accordance with the Pay Versus Performance Rules, the following table lists the financial performance measures that, in the Company’s assessment, represent the most important financial performance measures used to link CAP to our NEOs for fiscal 2024 to Company performance:
|
Most Important Financial Performance Measures |
|
Adjusted EBITDA |
|
Revenue |
|
ROIC |
|
EPS |
|
|
|
|
| Total Shareholder Return Amount |
$ 184
|
123
|
129
|
117
|
| Peer Group Total Shareholder Return Amount |
163
|
159
|
130
|
168
|
| Net Income (Loss) |
$ 77,100,000
|
$ 89,800,000
|
$ 88,800,000
|
$ 10,800,000
|
| Company Selected Measure Amount |
140.7
|
179.9
|
166.7
|
117.9
|
| PEO Name |
Mike Baur
|
|
|
|
| Measure:: 1 |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Name |
Adjusted EBITDA
|
|
|
|
| Non-GAAP Measure Description |
We have determined that Adjusted EBITDA is the financial performance measure that, in the Company’s assessment, represents the most important financial performance measure used to link CAP to our NEOs to Company performance for fiscal 2024. Adjusted EBITDA is a non-GAAP financial measure that includes the following: non-GAAP operating income; non-GAAP net income; non-GAAP EPS; adjusted earnings before interest expense, income taxes, depreciation, and amortization. Please refer to page 28 in the Annual Report for a reconciliation of net income to Adjusted EBITDA.
|
|
|
|
| Measure:: 2 |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Name |
Revenue
|
|
|
|
| Measure:: 3 |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Name |
ROIC
|
|
|
|
| Measure:: 4 |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Name |
EPS
|
|
|
|
| PEO | Total Adjustments For Pension [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
$ 0
|
$ 0
|
$ 0
|
$ 0
|
| PEO | Adjustment For Summary Compensation Table Pension [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| PEO | Amount Added For Current Year Service Cost [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| PEO | Amount Added For Prior Service Cost Impacting Current Year [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| PEO | Total Adjustments For Equity Awards [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
1,868,965
|
(502,445)
|
1,650,063
|
980,956
|
| PEO | Adjustment For Grant Date Values In The Summary Compensation [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
3,858,000
|
3,229,036
|
2,331,320
|
3,690,662
|
| PEO | Yearend Fair Value Of Unvested Awards Granted In The Current Year [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
4,633,040
|
3,093,126
|
2,751,537
|
4,490,976
|
| PEO | Yearoveryear Difference Of Yearend Fair Values For Unvested Awards Granted In Prior Years [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
1,038,850
|
386,870
|
614,269
|
123,216
|
| PEO | Fair Values At Vest Date For Awards Granted And Vested In Current Year [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| PEO | Difference In Fair Values Between Prior Yearend Fair Values And Vest Date Fair Values For Awards Granted In Prior Years [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
55,075
|
20,335
|
615,578
|
57,426
|
| PEO | Forfeitures During Current Year Equal To Prior Yearend Fair Value [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| PEO | Dividends Or Dividend Equivalents Not Otherwise Included In The Total Compensation [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| Non-PEO NEO | Total Adjustments For Pension [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| Non-PEO NEO | Adjustment For Summary Compensation Table Pension [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| Non-PEO NEO | Amount Added For Current Year Service Cost [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| Non-PEO NEO | Amount Added For Prior Service Cost Impacting Current Year [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
0
|
0
|
| Non-PEO NEO | Total Adjustments For Equity Awards [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
627,082
|
129,524
|
(413,816)
|
(138,272)
|
| Non-PEO NEO | Adjustment For Grant Date Values In The Summary Compensation [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
902,401
|
947,223
|
824,430
|
633,904
|
| Non-PEO NEO | Yearend Fair Value Of Unvested Awards Granted In The Current Year [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
620,364
|
914,109
|
986,537
|
741,513
|
| Non-PEO NEO | Yearoveryear Difference Of Yearend Fair Values For Unvested Awards Granted In Prior Years [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
175,851
|
92,141
|
113,848
|
30,003
|
| Non-PEO NEO | Fair Values At Vest Date For Awards Granted And Vested In Current Year [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
0
|
0
|
19,557
|
0
|
| Non-PEO NEO | Difference In Fair Values Between Prior Yearend Fair Values And Vest Date Fair Values For Awards Granted In Prior Years [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
58,636
|
4,269
|
118,304
|
660
|
| Non-PEO NEO | Forfeitures During Current Year Equal To Prior Yearend Fair Value [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
579,531
|
0
|
0
|
0
|
| Non-PEO NEO | Dividends Or Dividend Equivalents Not Otherwise Included In The Total Compensation [Member] |
|
|
|
|
| Pay vs Performance Disclosure |
|
|
|
|
| Adjustment to Compensation, Amount |
$ 0
|
$ 0
|
$ 0
|
$ 0
|