-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AUElNaznDBeVhKW6b7kHzRktYDOeg8fpjqgDnY35E+mCv7OyzlmTQWkhzsKJvLQd j/guEzGYBMUTu+ceHF2pAA== 0000931763-98-000310.txt : 19980218 0000931763-98-000310.hdr.sgml : 19980218 ACCESSION NUMBER: 0000931763-98-000310 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANSOURCE INC CENTRAL INDEX KEY: 0000918965 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 570965380 STATE OF INCORPORATION: SC FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26926 FILM NUMBER: 98540392 BUSINESS ADDRESS: STREET 1: 6 LOGUE COURT STE G CITY: GREENVILLE STATE: SC ZIP: 29615 BUSINESS PHONE: 8032882432 MAIL ADDRESS: STREET 1: 6 LOGUE COURT STE G CITY: GREENVILLE STATE: SC ZIP: 29615 10-Q 1 FORM 10-Q Conformed Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended December 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________ Commission file number 1-12842 ScanSource, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) South Carolina 57-0965380 - -------------------------------- ----------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporated or organization) 6 Logue Court, Suite G Greenville, SC 29615 - -------------------------------- ------------------------------------ (Address of principal executive (Zip Code) offices) (864) 288-2432 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- As of December 31, 1997, 4,817,583 shares of the registrant's common stock, no par value, were outstanding. SCANSOURCE, INC. INDEX FORM 10-Q December 31, 1997 PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements (Unaudited).................... 2 Condensed Balance Sheets............................ 2 Condensed Income Statements......................... 4 Condensed Statements of Cash Flows.................. 5 Notes to Condensed Financial Statements............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................... 10 Item 2. Changes in Securities............................... 10 Item 3. Defaults Upon Senior Securities..................... 10 Item 4. Submission of Matters to a Vote of Security-Holders. 10 Item 5. Other Information................................... 10 Item 6. Exhibits and Reports on Form 8-K.................... 10 SIGNATURES............................................................ 11 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements SCANSOURCE, INC. CONDENSED BALANCE SHEETS
June 30, December 31, 1997 1997 ----------- -------------- (Note 1) (Note 1) (Unaudited) Assets (In thousands) Current assets: Cash.............................................$ -- 10,657 Receivables: Trade, less allowance for doubtful accounts of $1,174,000 at June 30, 1997 and $1,556,000 at December 31, 1997................ 11,385 18,148 Other............................................ 732 1,157 ------- ------- 12,117 19,305 Inventories...................................... 20,724 29,602 Prepaid expenses and other....................... 300 404 Deferred tax asset............................... 1,565 1,565 ------- ------- Total current assets........................... 34,706 61,533 ------- ------- Property and equipment, net........................ 1,880 2,282 Intangible assets, net............................. 788 1,263 Deferred offering cost............................. 390 0 Other assets....................................... 524 325 ------- ------- Total assets...................................$38,288 65,403 ======= =======
See notes to condensed financial statements. 2 SCANSOURCE, INC. CONDENSED BALANCE SHEETS (Continued)
June 30, December 31, Liabilities and Shareholders' Equity 1997 1997 ------------------------------------ --------- -------------- (Note 1) (Note 1) (Unaudited) (In thousands) Current liabilities: Trade accounts payable............................ $13,397 17,236 Accrued compensation cost......................... 207 270 Accrued expenses and other liabilities............ 664 1,577 Income tax payable................................ 257 0 ------- ------ Total current liabilities........................ 14,525 19,083 Deferred tax liability............................ 47 47 Line of credit.................................... 5,391 0 ------- ------ Total liabilities............................... 19,963 19,130 ------- ------ Shareholders' equity: Preferred stock, no par value; 3,000,000 shares authorized, none issued and outstanding......... -- -- Common stock, no par value; 10,000,000 shares authorized, 3,249,183 and 4,817,583 issued and outstanding at June 30, 1997 and December 31, 1997, respectively................. 12,307 38,196 Retained earnings................................. 6,018 8,077 ------- ------ Total shareholders' equity...................... 18,325 46,273 ------- ------ Total liabilities and shareholders' equity....... $ 38,288 65,403 ======== ======
See notes to condensed financial statements. 3 SCANSOURCE, INC. CONDENSED INCOME STATEMENTS (UNAUDITED)
Quarter Ended Six Months Ended December 31, December 31, 1996 1997 1996 1997 ---- ---- ---- ---- (In thousands except per share data) Net sales................................... $22,437 39,230 42,110 74,572 Cost of goods sold......................... 19,407 34,158 36,382 65,449 ------- ------ ------ ------ Gross profit.............................. 3,030 5,072 5,728 9,123 Selling, general and administrative expenses.................................. 1,889 3,337 3,557 5,828 Amortization of intangibles................. 21 30 41 50 ------- ------ ------ ------ Total operating expenses.................. 1,910 3,367 3,598 5,878 ------- ------ ------ ------ Operating income.......................... 1,120 1,705 2,130 3,245 Other income (expense): Interest income (expense), net............ (88) 214 (169) 111 Other income (expense), net................ (--) (4) (--) (34) ------- ------ ------ ------ Total other income (expense)........... (88) 210 (169) 77 ------- ------ ------ ------ Income before income taxes................ 1,032 1,915 1,961 3,322 Income taxes................................ 392 728 745 1,263 ------- ------ ------ ------ Net income............................. $ 640 1,187 1,216 2,059 ====== ====== ====== ====== Basic EPS Net income per share................... $ .20 .25 .37 .52 ====== ====== ====== ====== Weighted average shares outstanding.... 3,246 4,665 3,246 3,960 ====== ====== ====== ====== Diluted EPS Net income per share................... $ .18 .24 .35 .49 ====== ====== ====== ====== Weighted average shares outstanding.... 3,484 4,970 3,469 4,227 ====== ====== ====== ======
See notes to condensed financial statements. 4 SCANSOURCE, INC. STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31, 1996 1997 ---- ---- (In thousands) Cash flows from operating activities: Net income......................................... $ 1,216 2,059 Adjustments to reconcile net income to cash used in operating activities: Depreciation.................................... 170 322 Amortization of intangible assets............... 41 50 Changes in operating assets and liabilities: Receivables..................................... (1,254) (6,378) Other receivables (28) (425) Inventories..................................... (7,631) (7,998) Prepaid expenses and other...................... (74) (104) Accounts payable 7,315 3,427 Accrued compensation............................ 46 63 Accrued expenses and other liabilities.......... (105) 203 Income tax payable.............................. (540) (257) Other noncurrent assets......................... (129) 199 ------- ------ Net cash provided by operating activities......... (973) (8,839) Cash flows from investing activities: Capital expenditures, net........................ (340) (692) Purchase of ProCom............................... -- (700) ------- ------ Net cash used in investing activities............. (340) (1,392) Cash flows from financing activities: Proceeds from secondary offering................. -- 25,822 Borrowings (payments) on line of credit.......... 1,290 (5,391) Proceeds from option exercises................... 23 67 Deferred offering cost........................... -- 390 ------- ------ Net cash provided by financing activities......... 1,313 20,888 Increase in cash.................................. -- 10,657 Cash at beginning of period......................... -- -- ------- ------ Cash at end of period............................... $ -- 10,657 ======= ======
5 SCANSOURCE, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The interim financial information included herein is unaudited. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company's annual report on Form 10-K for the period ended June 30, 1997. Other than as indicated herein, there have been no significant changes from the financial data published in that report. In the opinion of management, such unaudited information reflects all adjustments, consisting only of normal recurring accruals and other adjustments as disclosed herein, necessary for a fair presentation of the unaudited information. Results for interim periods are not necessarily indicative of results expected for the full year, or for any subsequent period. The balance sheet for June 30, 1997 has been derived from the audited balance sheet for that date. (2) SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition - The Company records revenue when products are shipped. Inventories - Inventories consisting of point of sale and bar code equipment are stated at the lower of cost (first-in, first-out method) or market. (3) LINE OF CREDIT In November 1996 the Company closed a line of credit agreement with a bank which extends to October 1998 whereby the Company can borrow up to $15 million, based upon 80% of eligible accounts receivable and 40% of non-IBM inventory at the 30 day LIBOR rate of interest plus a rate varying from 2.00% to 2.65% tied to the Company's debt to net worth ratio ranging from 1:1 to 2:1. All outstanding debt under the line of credit was repaid in October 1997 with proceeds from the sale of stock described in note 5, therefore the full $15 million line was available at December 31, 1997. 6 NOTES TO CONDENSED FINANCIAL STATEMENTS (4) PURCHASE OF PROCOM SUPPLY CORPORATION On September 12, 1997 the Company acquired the assets and assumed the liabilities of ProCom Supply Corporation (ProCom), a business telephone distributor, as follows:
Accounts receivable............................ $385,000 Inventory...................................... 880,000 Fixed assets and other......................... 22,000 Goodwill....................................... 525,000 ---------- 1,812,000 ---------- Trade accounts payable......................... (412,000) Other liabilities.............................. (150,000) Amount due to former ProCom owner.............. (550,000) ---------- (1,112,000) Cash paid...................................... $700,000 ==========
The value of goodwill is based primarily upon the acquired customer base, telephony industry knowledge, and established presence which ProCom had in the industry. The amount due to former ProCom owner will be paid after the collectibility of receivables and the marketability of inventory is determined. (5) SECONDARY OFFERING In October 1997 the Company completed a public offering of 1,538,600 shares of common stock at $18.25 per share. Proceeds to the Company, after approximately $578,000 of offering expenses and a $1.095 per share underwriting discount, was approximately $25.8 million. The Company used a portion of the offering proceeds to pay off its line of credit described in note 3 above. (6) SUBSEQUENT EVENTS In January 1998 ScanSource issued 220,513 shares of its common stock in exchange for all the outstanding shares of two companies, doing business as POS ProVisions (USA) and POS ProVisions, Ltd. (Canada), in a business combination that meets all the criteria for the pooling-of-interests accounting. Previously reported financial statements of ScanSource will not be restated for the combinations, since the acquired companies are not material to ScanSource. POS ProVisions are each distributors of point-of- sale equipment. In January 1998 the Company issued 60,000 shares of its common stock in a cashless exercise by the holders of the remaining 42,000 units of the underwriters Unit Purchase Option. 7 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations NET SALES. Net sales for the quarter ended December 31, 1997 increased 75.0% to $39.2 million from $22.4 million for the comparable prior year quarter. Net sales increased 77.2% to $74.6 million for the six months ended December 31, 1997 from $42.1 million for the comparable prior year period. Growth of net sales resulted primarily from additions to the Company's sales force, competitive product pricing, selective expansion of its product line, and increased marketing efforts to specialty technology resellers. GROSS PROFIT. Gross profit for the quarter ended December 31, 1997 increased 70.0% to $5.1 million from $3.0 million for the comparable prior year quarter. Gross profit increased 59.7% to $9.1 million for the six months ended December 31, 1997 from $5.7 million for the comparable prior year period. Gross profit as a percentage of sales for the quarter and six months ended December 31, 1997 was 12.9% and 12.2%, respectively, compared to 13.5% and 13.6%, respectively, for the comparable prior year periods. The decrease in gross profit as a percentage of sales is the result of a change in the mix of sales of more lower-margin products and the volume discounts provided to resellers on large orders. OPERATING EXPENSES. Operating expenses, which include selling, general and administrative expenses and amortization, for the quarter ended December 31, 1997 increased 79.0% to $3.4 million compared to $1.9 million for the comparable prior year period. Operating expenses for the six months ended December 31, 1997 increased 63.9% to $5.9 million from $3.6 million for the comparable prior year period. Operating expenses as a percentage of sales was 8.6% and 7.9%, respectively, for the quarter and six months ended December 31, 1997, compared to 8.4% for both of the comparable prior year periods. Generally, lower gross margin sales require the Company to provide fewer value-added services causing a corresponding decrease in operating expenses. The general and administrative portion of operating expenses also decreased as a percentage of sales due to efficiencies gained through increased sales volume. OPERATING INCOME. Operating income for the quarter ended December 31, 1997 increased 54.6% to $1.7 million from $1.1 million for the same period in 1996, driven by the improvement in gross profit as described above. Operating income increased 57.1% to $3.3 million for the six months ended December 31, 1997 from $2.1 million for the comparable prior year period. Operating income as a percentage of sales was 4.4% for both the quarter and six months ended December 31, 1997, compared to 5.0% and 5.1%, respectively, for the comparable prior year periods. OTHER INCOME (EXPENSE). Total other income (expense), net consists of interest income (expense), net, and other expense, net. Net interest income for the quarter and six months ended December 31, 1997 was $214,000 and $111,000, respectively, representing earnings from invested cash resulting from the Company's sale of stock in October 1997. Net interest expense for the quarter and six months ended December 31, 1996 of $88,000 and $169,000, respectively, resulted from interest paid on borrowings under the Company's line of credit. 8 INCOME TAXES. Tax expense was provided at a 38% effective rate for both the quarter and six months ended December 31, 1997, and represented the state and federal tax expected to be due after annualizing income to the fiscal year end. Tax expense was also provided at a 38% effective rate for the quarter and six months ended December 31, 1996. NET INCOME. The effect of improved operating income, and net interest income, resulted in net income increasing 85.5% to $1.2 million for the quarter ended December 31, 1997 from $640,000 for the year-earlier quarter. Net income for the six months ended December 31, 1997 increased 75.0% to $2.1 from $1.2 million for the comparable prior year period. Net income as a percentage of sales was 3.0% and 2.8%, respectively, for the quarter and six months ended December 31, 1997 compared to 2.9% for both the quarter and six months ended December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES The Company financed its initial operating requirements and growth through private financings totaling $500,000. In March 1994, the Company completed an initial public offering of units, which consisted of common stock and warrants, which provided the Company with approximately $4.6 million. The Company also received proceeds of approximately $6.3 million from common stock issued upon the exercise of stock purchase warrants prior to their redemption date in September 1995. In October 1997 the Company completed a secondary offering of stock which provided the Company approximately $25.8 million for general corporate purposes, including working capital and possible acquisitions. In November 1996 the Company renegotiated a bank line of credit agreement extending to October 31, 1998 whereby the Company can borrow up to $15 million, based upon 80% of eligible accounts receivable and 40% of non-IBM inventory, at the 30 day LIBOR rate of interest, plus a rate varying from 2.00% to 2.65% tied to the Company's debt to net worth ratio ranging from 1:1 to 2:1. The revolving credit is secured by accounts receivable and inventory. All outstanding debt under the line of credit was repaid in October 1997 with proceeds from the sale of stock; therefore the full $15 million line was available at December 31, 1997. For the six months ended December 31, 1997 net cash of $8.8 million was used in operating activities compared to $973,000 for the six months ended December 31, 1996. Cash used in operations was primarily from increases in receivables and inventory partially offset by growth in trade payables. Cash used in investing activities of $1.4 million for the six months ended December 31, 1997 included $700,000 for the purchase of ProCom Supply Corporation and $692,000 for capital expenditures, including $170,000 for the Company's computer conversion to a UNIX-based operating system. Cash used in investing activities for the six months ended December 31, 1996 was $340,000 for capital expenditures. Cash provided by financing activities for the six months ended December 31, 1997 and 1996 was $20.9 million and $1.3 million, respectively. For 1997 cash of $25.8 million and $67,000 was 9 provided from the sale of common stock in an October 1997 public offering and from the exercise of stock options, respectively. Approximately $6.6 million of this cash was used to pay down the outstanding balance under the Company's line of credit, compared to $1.3 million borrowed on the line of credit for the same period in 1996. The Company's current ratios at December 31, 1997 and at June 30, 1997 were 3.23 and 2.39, respectively. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 10 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. Not applicable Item 2. CHANGES IN SECURITIES. Not applicable Item 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. (a) The Company's annual meeting of shareholders was held on December 4, 1997. (b) The four directors listed in subsection (c) below were elected at the meeting. The Company has no other directors whose term of office continued after the meeting. (c) (i) Election of Directors. Number of Shares ---------------- Withhold Nominees For Authority - -------- --------- --------- Michael L. Baur 3,651,716 4,100 Steven H. Owings 3,651,716 4,100 Steven R. Fischer 3,651,716 4,100 James G. Foody 3,651,716 4,100 (ii) Proposal to ratify adoption of the Company's 1997 Stock Incentive Plan. Number of Shares ---------------- For 2,234,995 Against 58,310 Abstain 25,689 Not voted 1,336,822 (iii) Proposal to ratify grants in 1996 and 1997 of non-qualified stock options to the Company's Chief Executive Officer, President, and Chief Financial Officer and Treasurer: Number of Shares ---------------- For 2,086,520 Against 209,085 Abstain 23,389 Not voted 1,336,822 11 (iv) Proposal to ratify the appointment of KPMG Peat Marwick LLP as the Company's independent auditors for the fiscal year ending June 30, 1997: Number of Shares ---------------- For 3,629,274 Against 9,317 Abstain 17,225 Not voted Item 5. OTHER INFORMATION. Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit 10.40--1997 Stock Incentive Plan Exhibit 27--Financial Data Schedule (b) Reports on Form 8-K The Company filed a report on Form 8-K on December 23, 1997 to announce in item 5 it had signed a letter of intent to acquire POS ProVisions (USA) and POS ProVisions, Ltd. (Canada). The Company filed a report on Form 8-K on January 20, 1998 to announce in items 5 and 9 the completion of the acquisitions described above and the issuance of 220,513 shares of the Company's common stock in connection with the acquisitions. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCANSOURCE, INC. /s/ Steven H. Owings ------------------------------ STEVEN H. OWINGS Chief Executive Officer /s/ Jeffery A. Bryson ------------------------------ JEFFERY A. BRYSON Chief Financial Officer Date: February 13, 1998 13 EX-10.40 2 1997 STOCK INCENTIVE EXHIBIT 10.40 SCANSOURCE, INC. 1997 STOCK INCENTIVE PLAN 1. PURPOSES 1.1 The purposes of the ScanSource, Inc.1997 Stock Incentive Plan are to (i) provide an incentive and reward to directors and employees of the Company and any Parent or Subsidiary, and consultants and advisors to the Company and any Parent or Subsidiary, who are and have been in a position to contribute materially to improving the Company's profits, (ii) aid in the growth of the Company, and (iii) encourage ownership of Shares by directors and employees of the Company and any Parent or Subsidiary. 2. DEFINITIONS 2.1 For purposes of this Plan the following terms shall have the definition which is attributed to them below, unless another definition is clearly indicated by a particular usage and context. (a) "Agreement" means the written document issued by the Committee to a --------- Participant whereby an Award is made to that Participant. (b) "Award" means the issuance pursuant to this Plan of an Option, an ----- SAR or Restricted Stock. (c) "Awarded Shares" means Shares subject to outstanding Awards. -------------- (d) "Board" means the Company's Board of Directors. ----- (e) "Cause" means theft or destruction of property of the Company, a ----- Parent or Subsidiary, disregard of Company rules or policies, or conduct evidencing willful or wanton disregard of the interest of the Company. Such determination shall be made by the Committee based on information presented by the Company and the Participant and shall be final and binding on all parties to the Agreement. (f) "Code" means the Internal Revenue Code of 1986, as amended. ---- (g) "Committee" means the Stock Incentive Plan Committee(s) appointed by --------- the Board pursuant to Section 3.1. (h) "Company" means ScanSource, Inc., a corporation incorporated under ------- the laws of the state of South Carolina, and any successor thereto. 1 (i) "Consultant" means any person or entity that provides services to ---------- the Company as a consultant or advisor. (j) "Director" means any individual appointed or elected to the Board. -------- (k) "Effective Date of Grant" means the effective date on which the ----------------------- Committee makes an Award. (l) "Employee" means any individual who performs services as a common -------- law employee for the Company, a Parent or Subsidiary, and is included on the regular payroll of the Company, a Parent or Subsidiary. (m) "Fair Market Value" means the value established by the Committee ----------------- based upon such factors as the Committee in its sole discretion shall decide including, but not limited to, a valuation prepared by an independent third party appraiser selected or approved by the Committee. If at any time the Shares are traded on an established trading system, it means the last sale price reported on any stock exchange or over-the counter trading system on which Shares are trading on a specified date or, if not so trading, the average of the closing bid and asked prices for a Share on a specified date. If no sale has been made on the specified date, then prices on the last preceding day on which any such sale shall have been made shall be used in determining fair market value under either method prescribed in the previous sentence. (n) "Incentive Stock Option" means any option granted under this Plan ---------------------- which meets the requirements of Code (S)422A and any regulations or rulings promulgated thereunder and is designated by the Committee as an Incentive Stock Option. (o) "Nonqualified Stock Option" means any Option granted under this Plan ------------------------- which is not an Incentive Stock Option. (p) "Option" means the right to purchase from the Company a stated ------ number of Shares at a specified price. (q) "Option Price" means the purchase price per Share subject to an ------------ Option and shall be fixed by the Committee. (r) "Parent" means any corporation (other than the Company) in an ------ unbroken chain of corporations ending with the Company if, at the time of the granting of the Award, each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain within the meaning of Code (S)425(e) and any regulations or rulings promulgated thereunder. (s) "Participant" means a Director, an Employee or a Consultant who has ----------- received an Award under this Plan. 2 (t) "Permanent and Total Disability" shall have the same meaning as ------------------------------ given to that term by Code (S)22(e)(3) and any regulations or rulings promulgated thereunder. (u) "Plan" means this ScanSource, Inc. 1997 Stock Incentive Plan, as ---- evidenced herein and as amended from time to time. (v) "Restricted Stock" means Shares issued to the Participant pursuant ---------------- to Section 9 which are subject to the restrictions of this Plan and the Agreement. (w) "Restriction Period" means a period commencing on the Effective Date ------------------ of Grant and ending on such date or upon the achievement of such performance or other criteria as the Committee shall determine. The Restriction Period may, in the sole discretion of the Committee, be structured to provide for a release of restrictions in installments. (x) "SAR" means stock appreciation rights issued to a Participant --- pursuant to Section 8. (y) "SAR Price" means the base value established by the Committee for an --------- SAR on the Effective Date of Grant used in determining the amount of benefit, if any, paid to a Participant. (z) "Share" means one share of the common stock of the Company. ----- (aa) "Subsidiary" means any corporation in an unbroken chain of ---------- corporations beginning with the Company if, at the time of the granting of the Award, each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, within the meaning of Code (S) 425(f) and any regulations or rulings promulgated thereunder. (bb) "1933 Act" means the Securities Act of 1933, as amended. -------- (cc) "1934 Act" means the Securities Exchange Act of 1934, as amended. -------- 3. ADMINISTRATION 3.1 This Plan shall be administered by a Committee, or by more than one Committee if desired and deemed necessary by the Board in order to provide separate Committee authority for the granting of Awards to separate categories of eligible Participants. Any such Committee shall consist of not less than two members. The members of the Committee shall be appointed by the Board. The Board may from time to time remove members from or add members to the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board. 3 3.2 The action of a majority of the Committee at which a quorum is present, or an action approved in writing by a majority of the Committee, shall be the valid action of the Committee. 3.3 The Committee shall from time to time at its discretion designate the Directors, Employees and Consultants who shall be Participants, determine all the terms and conditions as set forth in Section 61 or otherwise, including the type of Award to be made to each, the exercise period, expiration date and other applicable time periods for each Award, the number of Shares subject to each Award, with respect to each Option whether it is an Incentive Stock Option or Nonqualified Stock Option and, if applicable, the Option Price or SAR Price and the general terms of the Award. 3.4 The interpretation and construction by the Committee of any provisions of this Plan or of any Option granted under it and all actions of the Committee shall be final and binding on all parties hereto. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any Award granted under it. 4. ELIGIBILITY 4.1 Each Participant shall be a Director, an Employee or a Consultant of the Company, a Parent or a Subsidiary as selected by the Committee in its sole discretion from time to time. 4.2 A Participant may hold more than one Award, but only on the terms and subject to the restrictions set forth in this Plan. 5. SHARES SUBJECT TO AWARD 5.1 The securities subject to the Awards shall be 200,000 Shares. Such number shall be adjusted as appropriate in order to give effect to changes made in the number of outstanding Shares as a result of a merger, consolidation, recapitalization, reclassification, combination, stock dividend, stock split, or other relevant change. 5.2 In the event that any outstanding Award under this Plan expires or is terminated for any reason, the Awarded Shares subject to that Award may again be the subject of an Award under this Plan. 6. TERMS AND CONDITIONS 6.1 Awards granted pursuant to this Plan shall be authorized by the Committee under terms and conditions approved by the Committee and shall be evidenced by Agreements in such form as the Committee shall from time to time approve, which Agreements shall contain or shall be subject to the following terms and conditions, whether or not such terms and conditions are specifically included therein: 4 (a) Number of Shares. Each Award shall state the number of Shares to ---------------- which it pertains. (b) Date. Each Award shall state the Effective Date of Grant. ---- (c) Price. With respect to each Award or portion thereof, which requires ----- payment of an Option Price, it shall state the Option Price. With respect to an SAR, it shall state the SAR Price. (d) Method and Time of Payment. With respect to an Award, or portion -------------------------- thereof, which requires payment of an Option Price, the Option Price shall be payable on the exercise of the Award and shall be paid in (i) cash, (ii) Shares, including Shares acquired pursuant to this Plan, or (iii) part in cash and part in Shares. Shares transferred in payment of the Option Price shall be valued as of date of transfer based on their Fair Market Value. (e) Transfer of Option or Stock. No Award, Option, SAR, or Restricted --------------------------- Stock (prior to the expiration of the Restriction Period) shall be transferable by the Participant, except by will or the laws of descent and distribution upon the Participant's death and subject to any other limitations of this Plan. In addition to any other restriction hereunder or otherwise provided in the Agreement with the Participant, no Shares acquired pursuant to an Award of any type may be sold, transferred or otherwise disposed of prior to the end of the six month period which begins on the Effective Date of Grant of such Award. (f) Recapitalization. The Committee shall make appropriate adjustments ---------------- in the number of Awarded Shares or in the Option Price or SAR Price in order to give effect to changes made in the number of outstanding Shares as a result of a merger, consolidation, recapitalization, reclassification, combination, stock dividend, stock split, or other relevant change. (g) Investment Purpose. ------------------ (i) The Company shall not be obligated to sell or issue any Shares pursuant to any Award unless such Shares are at that time effectively registered or exempt from registration under the 1933 Act. The determination of whether a Share is exempt from registration shall be made by the Company's legal counsel and its determination shall be conclusive and binding on all parties to the Agreement. (ii) Notwithstanding anything in this Plan to the contrary, each Award under this Plan shall be granted on the condition that the purchases of Shares thereunder shall be for investment purposes and not with a view for resale or distribution except that in the event the Shares subject to such Award are registered under the 1933 Act, or in the event of a resale of such Shares without such registration that would otherwise be permissible, such condition shall be inoperative if in the opinion of counsel for the Company such condition is not required under the 1933 Act or any other applicable law, regulation, or rule of any governmental agency. 5 (h) Other Provisions. Awards authorized under this Plan may contain any ---------------- other provisions or restrictions as the Committee in its sole and absolute discretion shall deem advisable including, but not limited to: (i) Offering Options in tandem with or reduced by other Options, SARs or other employee benefits and reducing one Award by the exercise of another Option, SAR or benefit; or (ii) Providing for the issuance to the Participant upon exercise of an Option and payment of the exercise price thereof with previously owned Shares, of an additional Award for the number of shares so delivered, having such other terms and conditions not inconsistent with this Plan as the Committee shall determine. (i) Duration of Award. Each Award shall be for a term of up to ten ----------------- years from the Effective Date of Grant as determined in the sole discretion of the Committee. 6.2 The Company may place such legends on stock certificates representing the Shares as the Company, in its sole discretion, deems necessary or appropriate to reflect restrictions under this Plan, the Agreement, the Code, the securities laws or otherwise. 6.3 Notwithstanding any provision herein to the contrary, employment shall be at the pleasure of the Board, of its designees, of the Company, a Parent or Subsidiary, as the case may be, at such compensation as the appropriate board or designee shall determine. Nothing contained in this Plan or in any Award granted pursuant to it shall confer upon any Participant any right to continue in the employ of the Company, Parent or Subsidiary, as the case may be, or to interfere in any way with the right of the Company, Parent or Subsidiary to terminate employment at any time. So long as the Participant shall continue to be a Director, an Employee or a Consultant, the Award shall not be affected by any change of the Participant's duties or position except to the extent the Agreement with the Participant provides otherwise. 6.4 Any person entitled to exercise an Option or an SAR may do so in whole or in part by delivering to the Company at its principal office, attention Corporate Secretary, a written notice of exercise. The written notice shall specify the number of Shares for which an Option or SAR is being exercised. (a) With respect to an Option, the notice shall be accompanied by full payment of the Option Price for the Shares being purchased. (b) During the Participant's lifetime, an Option or SAR may be exercised only by the Participant, or on the Participant's behalf by the Participant's legal guardian. 6 7. INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS 7.1 The Committee in its sole discretion may designate whether an Award to an Employee is to be considered an Incentive Stock Option or a Nonqualified Stock Option. AN AWARD TO A NON-EMPLOYEE DIRECTOR OR CONSULTANT MAY BE ONLY A NONQUALIFIED STOCK OPTION. The Committee may grant both an Incentive Stock Option and a Nonqualified Stock Option to the same Employee. However, where both an Incentive Stock Option and a Nonqualified Stock Option are awarded at one time, such Awards shall be deemed to have been awarded in separate grants, shall be clearly identified, and in no event will the exercise of one such Award affect the right to exercise the other such Award except to the extent the Agreement with the Participant provides otherwise. 7.2 Any Award to an Employee designated by the Committee as an Incentive Stock Option will be subject to the general provisions applicable to all Awards granted under this Plan. In addition, the aggregate Fair Market Value of Shares (determined at the Effective Date of Grant) with respect to which Incentive Stock Options granted under all Incentive Stock Option Plans of the Company, a Parent or Subsidiary, are exercisable by the Employee for the first time during any calendar year shall not exceed $100,000. 7.3 The Option Price shall be established by the Committee in its sole discretion. With respect to an Incentive Stock Option, the Option Price shall not be less than 100% of the Fair Market Value of a Share on the Effective Date of Grant. With respect to a Nonqualified Stock Option, the Option Price shall not be less than 50% of the Fair Market Value of a Share on the Effective Date of Grant. 7.4 Any Award to an Employee will be considered to be a Nonqualified Stock Option to the extent that any or all of the grant is in conflict with Section 7.2 or with any requirement for Incentive Stock Options pursuant to Code (S)422A and the regulations issued thereunder. 7.5 An Option may be terminated as follows: (a) During the period of continuous employment with the Company, Parent or Subsidiary, an Option will be terminated only if it has been fully exercised or it has expired by its terms. (b) Upon termination of employment, the Option will terminate upon the earliest of (i) the full exercise of the Option (ii) the expiration of the Option by its terms, and (iii) not more than three months following the date of employment termination; provided, however, should termination of employment (A) result from the death or Permanent and Total Disability of the Participant, such period shall be one year or (B) be for Cause, the Option will terminate on the date of employment termination. For purposes of this Plan, a leave of absence approved by the Company shall not be deemed to be termination of employment except with respect to an Incentive Stock Option as required to comply with Code (S)422A and the regulations issued thereunder. 7 (c) Subject to the terms of the Agreement with the Participant, if a Participant shall die or becomes subject to a Permanent and Total Disability prior to the termination of employment with the Company, Parent or Subsidiary and prior to the termination of an Option, such Option may be exercised to the extent that the Participant shall have been entitled to exercise it at the time of death or disability, as the case may be, by the Participant, the estate of the Participant or the person or persons to whom the Option may have been transferred by will or by the laws of descent and distribution. 7.6 Except as otherwise expressly provided in the Agreement with the Participant, in no event will the continuation of the term of an Option beyond the date of termination of employment allow the Participant, or the beneficiaries or heirs of the Participant, to accrue additional rights under this Plan, or to purchase more Shares through the exercise of an Option than could have been purchased on the day that employment was terminated. 7.7 A Participant shall have no rights as a stockholder with respect to any Shares subject to an Option until the date of the issuance of a stock certificate to such Participant for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 6.1.(f). 7.8 The continuous employment of a Consultant will be deemed terminated for purposes of this Plan upon receipt of written notice from the Company to the effect that the Company will no longer transact business with the Consultant. 8. STOCK APPRECIATION RIGHTS 8.1 The Committee, in its sole discretion, may grant to a Participant an SAR. 8.2 The SAR Price shall be established by the Committee in its sole discretion. The SAR Price shall not be less than 100% of Fair Market Value of a Share on the Effective Date of Grant for a SAR issued in tandem with an Incentive Stock Option and for other SARs, shall not be less than 50% of Fair Market Value of a Share on the Effective Date of Grant. 8.3 Upon exercise of an SAR, the Participant shall be entitled, subject to the terms and conditions of this Plan and the Agreement, to receive the excess for each Share being exercised under the SAR (i) the Fair Market Value of a Share on the date of exercise over (ii) the SAR Price for such Share. 8.4 At the sole discretion of the Committee, the payment of such excess shall be made in (i) cash, (ii) Shares, or (iii) a combination of cash and Shares. Shares used for this payment shall be valued at their Fair Market Value on the date of exercise of the applicable SAR. 8.5 An Award of an SAR shall be considered an Award for purposes of the number of Shares subject to an Award pursuant to Section 5.1, unless the Agreement making the Award of 8 the SAR provides that the exercise of an SAR results in the termination of an unexercised Option for the same number of Shares. 8.6 An SAR may be terminated as follows: (a) During the period of continuous employment with the Company, Parent or Subsidiary, an SAR will be terminated only if it has been fully exercised or it has expired by its terms. (b) Upon termination of employment, the SAR will terminate upon the earliest of (i) the full exercise of the SAR (ii) the expiration of the SAR by its terms, and (iii) not more than three months following the date of employment termination; provided, however, should termination of employment (I) result from the death or Permanent and Total Disability of the Participant, such three month period shall be one year or (II) be for Cause, the SAR will terminate on the date of employment termination. For purposes of this Plan, a leave of absence approved by the Company shall not be deemed to be termination of employment unless otherwise provided in the Agreement or by the Company on the date of the leave of absence. (c) Subject to the terms of the Agreement with the Participant if a Participant shall die or becomes subject to a Permanent and Total Disability prior to the termination of employment with the Company, Parent or Subsidiary and prior to the termination of an SAR, such SAR may be exercised to the extent that the Participant shall have been entitled to exercise it at the time of death or disability, as the case may be, by the Participant, the estate of the Participant or the person or persons to whom the SAR may have been transferred by will or by the laws of descent and distribution. (d) Except as otherwise expressly provided in the Agreement with the Participant, in no event will the continuation of the term of an SAR beyond the date of termination of employment allow the Employee, or his beneficiaries or heirs, to accrue additional rights under this Plan, have additional SARs available for exercise or to receive a higher benefit than the benefit payable as if the SAR was exercised on the date of employment termination. 8.7 If an SAR which was considered an Award for purposes of Section 8.5 is terminated or unexercised for any reason, the number of Shares of such SAR that were unexercised shall be again available for Award under this Plan. 8.8 The Participant shall have no rights as a stockholder with respect to an SAR. In addition, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or rights except as provided in Section 6.1.(f). 9 9. RESTRICTED STOCK 9.1 The Committee may award to a Participant Restricted Stock under such terms or conditions as the Committee, in its sole discretion, shall determine and as otherwise provided herein. 9.2 Restricted Stock shall be Shares which are subject to a Restriction Period. 9.3 Should the Participant terminate employment for any reason, all Restricted Stock which is still subject to the Restriction Period shall be forfeited and returned to the Company for no payment. 9.4 Upon such forfeiture, shares representing such forfeited restricted Stock shall obtain become available for Award under the Plan. 9.5 The Committee may require under such terms and conditions as it deems appropriate or desirable that the certificates for Restricted Stock awarded under this Plan may be held by the Company or its designee until the Restriction Period expires. In addition, the Committee may place upon such certificate such legend as the Committee deems necessary or appropriate and may require as a condition of any receipt of Restricted Stock that the Participant shall deliver a stock power endorsed in blank relating to the Restricted Stock. 10. AMENDMENT OR DISCONTINUANCE OF PLAN 10.1 The Board may at any time amend, suspend, or discontinue this Plan; provided, however, that without further approval of the shareholders of the Company no amendments by the Board shall: (a) Change the class of Employees eligible to participate; or (b) Except as provided in Section 5, increase the number of Shares which may be subject to Options granted under this Plan. 10.2 No amendment to this Plan shall alter or impair any Award granted under this Plan without the consent of the holder of such Award. 11. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually incurred in connection with the defense of any pending, threatened or possible action, suit or proceeding, or in connection 10 with any pending, threatened or possible appeal therein, to which they or any of them may be a party by reason of any actual or alleged action taken or failure to act under or in connection with this Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for gross negligence or willful misconduct in the performance of his duties: provided that within sixty days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. 12. NO OBLIGATION TO EXERCISE OPTION OR SAR The granting of an Option or SAR shall impose no obligation upon the Participant to exercise such Option. 13. EFFECTIVE DATE; DURATION OF PLAN 13.1 This Plan shall become effective as of December 4, 1997. 13.2 No Award may be made after the tenth anniversary of the effective date of this Plan. 14. EFFECT OF PLAN The making of an Award under this Plan shall not give the Participant any right to similar grants in future years or any right to be retained in the employ of the Company, the Parent or a Subsidiary, but a Participant shall remain subject to discharge to the same extent as if this Plan were not in effect. 15. CHANGE IN CONTROL 15.1. Treatment of Outstanding Awards. Upon the occurrence of a Change In ------------------------------- Control, as defined below, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governmental agencies or national securities exchanges, or by the express provisions of any Agreement, (a) each Option and each SAR then outstanding hereunder that is not otherwise exercisable shall become immediately and fully exercisable, and shall remain exercisable throughout their entire term, notwithstanding any provision in the Agreement relating to such Option or SAR for the exercise of such Option or SAR in installments or otherwise pursuant to a vesting schedule, and (b) any Restriction Period and restrictions imposed on Restricted Stock shall lapse. 11 15.2. Change in Control Defined. For purposes of this Section, a Change In ------------------------- Control shall mean that any of the following events shall have occurred: (i) A person, partnership, joint venture, corporation or other entity, or two or more of any of the foregoing acting as a group (or a "person" within the meaning of Section 13(d)(3) of the 1934 Act), other than the Company, a majority-owned subsidiary of the Company, an employee benefit plan (or related trust) of the Company or such subsidiary, become(s) after the effective date of this Plan the "beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act) of 50% or more of the then outstanding voting stock of the Company; (ii) During any period of two consecutive years, individuals who at the beginning of such period constitute the Company's Board of Directors (together with any new director whose election by the Company's Board of Directors or whose nomination for election by the Company's shareholders, was approved by the vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; (iii) The Company's Board of Directors determines that a tender offer for the Company's shares indicates a serious intention by the offeror to acquire control of the Company; or (iv) The Shareholders of the Company approve (a) a plan of complete liquidation of the Company; or (b) an agreement for the sale or disposition of all or substantially all of the Company's assets; or (c) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy- five percent (75%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or reorganization. 15.3. Termination, Amendment and Modifications of Change in Control ------------------------------------------------------------- Provisions. Notwithstanding any other provision of this Plan or any Agreement, - ---------- the provisions of this Section may not be terminated, amended or modified on or after the effective date of a Change in Control to affect adversely the operation of any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant's outstanding Awards. 16. SUCCESSORS; CONSOLIDATION, MERGER AND OTHER EVENTS 16.1. All obligations of the Company under this Plan or any Agreement with respect to any Award 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 of all or substantially all of the business and/or assets of the Company, or a merger, consolidation or otherwise. Specifically, in case of any capital reorganization of the Company, or of any reclassification of 12 any Shares (other than a change as a result of subdivision or combination), or in case of the consolidation of the Company with or the merger of the Company with any other corporation (other than a consolidation or merger in which (i) the Company is the continuing corporation and (ii) the holders of the Shares immediately prior to such merger or consolidation continue as holders of Shares after such merger or consolidation) or of the sale of the properties and assets of the Company as, or substantially as, an entirety to any other corporation, each Option and each SAR then outstanding shall after such reorganization, reclassification, consolidation, merger or sale be exercisable, upon the terms and conditions specified herein and in the Agreement relating to such Option or SAR, for or with respect to the number of Shares or other securities or property to which a holder of the number of Shares relating to such Option or SAR (at the time of such reorganization, reclassification, consolidation, merger or sale) upon exercise of such Option or SAR would have been entitled in connection with such reorganization, reclassification, consolidation, merger or sale; and in any such case, if necessary, the provisions set forth in this Section with respect to the rights and interests thereafter of the holder of the Option or SAR shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or property thereafter deliverable on the exercise of the Option or SAR. 13 EX-27 3 FDS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET & INCOME STATEMENT FOR PERIOD ENDED 12/31/97. 1,000 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 10,657 0 18,148 1,556 29,602 61,533 3,340 1,058 65,403 19,083 0 0 0 38,196 0 65,403 74,572 74,572 65,449 5,878 50 0 0 3,322 1,263 2,059 0 0 0 2,059 .52 .49
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