<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission only (as
Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PC SERVICE SOURCE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how is was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[PC SERVICE SOURCE, INC. LETTERHEAD]
April 11, 1997
Dear Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders of
PC Service Source, Inc. which will be held on May 15, 1997, at 10:00 a.m.,
Central Time, at the Company's corporate offices which are located at 2350
Valley View Lane, Dallas, Texas. The official notice of the meeting together
with a proxy statement and proxy card are enclosed. Please give this
information your careful attention.
Whether or not you expect to attend the meeting in person, it is important that
your shares be voted at the meeting. I urge you to specify your choices by
marking the enclosed proxy card and returning it promptly. Sending in a signed
proxy will not affect your right to attend the annual meeting and vote in
person. You may revoke your proxy at any time before it is voted at the annual
meeting by giving written notice to the secretary of the Company.
Sincerely,
/s/Mark T. Hilz
Mark T. Hilz
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT
Please Sign, Date, and Return Your Proxy Card
<PAGE> 3
[PC SERVICE SOURCE, INC. LETTERHEAD]
_________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 15, 1997
_________________________
To Our Stockholders:
The 1997 Annual Meeting of Stockholders of PC Service Source, Inc. will be held
at the Company's corporate offices which are located at 2350 Valley View Lane,
Dallas, Texas, on May 15, 1997, at 10:00 a.m., Central Time, for the following
purposes as more fully described in the following pages of the proxy statement,
which are made a part of this Notice:
1. To elect two Class II directors to serve until the Annual Meeting of
Stockholders in 2000 or until their successors are duly elected and
qualified; and
2. To transact such other business as may properly come before the meeting
or any postponement or adjournment of the meeting.
The Board of Directors has fixed the close of business on April 4, 1997, as the
record date for determining stockholders entitled to notice of and to vote at
the meeting. Only stockholders of record at the close of business on that date
will be entitled to notice of, and to vote at, the meeting.
You are cordially invited to attend the meeting in person. Whether or not you
expect to attend the meeting in person, you are urged to sign and date the
enclosed proxy card and return it promptly in the envelope provided for that
purpose. Sending in a signed proxy will not affect your right to attend the
annual meeting and vote in person. You may revoke your proxy at any time
before it is voted at the annual meeting by giving written notice to the
secretary of the Company.
By Order of the Board of Directors,
/s/Bernard W. Rohde
Bernard W. Rohde
Secretary
Dallas, Texas
April 11, 1997
It is important that your stock be represented at the meeting regardless of the
number of shares you hold. Please complete, sign and mail the enclosed Proxy
Card in the accompanying envelope even if you intend to be present at the
meeting. Returning the Proxy Card will not limit your right to vote in person
or to attend the annual meeting, but will insure your representation if you
cannot attend. If you have shares in more than one name, or if your stock is
registered in more than one way, you may receive more than one copy of the
proxy material. If so, please sign and return each copy of the proxy cards you
receive so that all of your shares may be voted. The Proxy is revocable at any
time prior to its use.
<PAGE> 4
PC SERVICE SOURCE, INC.
_______________________
PROXY STATEMENT
FOR
1997 ANNUAL MEETING
TO BE HELD ON
MAY 15, 1997
_______________________
Voting at the Meeting and Proxies
Commencing on April 11, 1997, PC Service Source, Inc., a Delaware
corporation ("PCSS" or the "Company"), will mail this Proxy Statement to
stockholders entitled to vote at the Company's Annual Meeting of Stockholders
on May 15, 1997. Stockholders of record at the close of business on April 4,
1997, will be entitled to vote at the meeting and will receive a copy of this
Proxy Statement, furnishing information relating to the business to be
transacted at the meeting, including any adjournment or postponement of the
meeting. At the close of business on April 4, 1997, the record date for
determining stockholders entitled to receive notice of and to vote at the
annual meeting, the Company's outstanding voting securities consisted of
5,746,820 shares of the Company's common stock, $.01 par value (the "Common
Stock"). Holders of Common Stock are entitled to one vote per share in the
matter of election of directors and in any other matter that may be acted upon
at the annual meeting. The Company's Certificate of Incorporation does not
permit cumulative voting for directors.
A proxy card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS TO SIGN, DATE AND RETURN THE PROXY CARD IN THE
ACCOMPANYING ENVELOPE, which is postage-paid if mailed in the United States.
Regarding the election of directors, you have three choices: by checking
the appropriate box on your proxy card you may (i) vote for both of the
director nominees as a group; (ii) withhold authority to vote for both director
nominees as a group; or (iii) vote for both director nominees as a group except
the nominee you identify in the appropriate area. See "Information Concerning
Nominees" under Election of Directors.
Abstentions and broker non-votes will be counted as present for purposes
of determining the existence of a quorum at the Annual Meeting. Abstentions
will be treated as shares present and entitled to vote for purposes of any
matter requiring the affirmative vote of a majority or other proportion of the
shares present and entitled to vote. With respect to shares relating to any
proxy as to which a broker non-vote is indicated on a proposal, those shares
will not be considered present and entitled to vote with respect to any such
proposal. With respect to any matter brought before the Annual Meeting
requiring the affirmative vote of a majority or other proportion of the
outstanding shares, an abstention or non-vote will have the same effect as a
vote against the matter being voted upon.
<PAGE> 5
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by (i) delivering written notice of revocation to the Secretary
of the Company, (ii) submitting a subsequently dated proxy, or (iii) attending
the meeting and withdrawing the proxy. You may also be represented by another
person present at the meeting through executing a form of proxy designating
such person to act on your behalf. Each unrevoked proxy card properly executed
and received prior to the close of the voting will be voted as indicated.
Where specific instructions are not indicated, the proxy will be voted for the
election of all directors as nominated and for all proposals recommended by the
Board of Directors.
PC Service Source's Summary Annual Report to Stockholders and Form 10-K
for the year ended December 31, 1996, including consolidated financial
statements, are being mailed to all stockholders entitled to vote at the Annual
Meeting. These reports do not constitute a part of the proxy soliciting
material.
The expense of preparing, printing and mailing this Proxy Statement will
be paid by the Company. In addition to the use of the mail, proxies may be
solicited personally, or by telephone or facsimile by directors, officers, or
employees of the Company and its subsidiaries without additional compensation.
The Company will, on request, reimburse stockholders of record who are brokers,
dealers, banks, voting trustees, or their nominees for their reasonable
expenses in sending proxy materials and annual reports to the beneficial owners
of the shares they hold of record.
Election Of Directors
Information Concerning Nominees
Under the terms of the Certificate of Incorporation of the Company, the
Board of the Company is divided into three classes of directors, with the total
number of directors to be allocated among the three classes as equally as
possible. The Company's Board presently consists of seven members, two of
which are Class II directors whose term expires at the 1997 Annual Meeting of
Stockholders, two of which are Class III directors whose term expires in 1998,
and the remaining three directors are Class I directors whose term expires in
1999. Mr. James Ounsworth, who was a Class II director of the Company,
resigned from the Board in May 1996.
The Board proposes the election of the following Class II directors for
a term of three years expiring in 2000. Each of the following two directors
were elected by the stockholders at the 1995 Annual Meeting. Should one or more
of these nominees become unavailable to accept nomination for election as a
director, the individuals named as Proxies on the enclosed Proxy Card will vote
the shares that they represent for the election of such other persons as the
Board may recommend, unless the Board reduces the number of directors.
Class II - Term Expiring in 2000
Robert S. Leff, 50, is the co-founder of Merisel, Inc., and a strategic
consultant to companies in the computer industry. Mr. Leff is a member of
PCSS's Audit Committee and Compensation Committee. He became a PCSS director
in 1994.
Morti Tenenhaus, 42, is the Executive Vice President of Rosetta Stone
Corporation, as well as the President and Chief Executive Officer of
TeKnowlogy, Inc. Mr. Tenenhaus is a member of PCSS's
-2-
<PAGE> 6
Executive Committee, Compensation Committee and Stock Option Committee. Prior
to serving in his current capacities, Mr. Tenenhaus was Senior Vice President
of Systems Integration and Service for CompuCom Systems, Inc. ("CompuCom") from
1989 to 1993. Mr. Tenenhaus became a director of PCSS in 1990.
Board Meetings and Committees of The Board
The Company's Board of Directors has a standing Executive Committee,
Audit Committee, Compensation Committee and Stock Option Committee. The
principal responsibilities and membership of each committee are described in
the following paragraphs.
Executive Committee. The executive Committee has the authority to
exercise substantially all of the powers of the Company's Board of Directors in
the management and business affairs of the Company, except it does not have the
authority to declare dividends, authorize the issuance of shares of the
Company's Common Stock, modify the Company's Certificate of Incorporation or
its Bylaws, adopt any agreement of merger or consolidation or recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Company's assets or the dissolution of the Company. Regularly scheduled
meetings of the Company's Board are held periodically each year and special
meetings are held from time to time. As a consequence, the occasions on which
this committee is required to take action are limited. The members of this
committee are Messrs. More, Hilz and Tenenhaus. The committee held no meetings
during 1996.
Audit Committee. The Audit Committee is responsible for reviewing the
Company's accounting and financial practices and policies and the scope and
results of the Company's audit. The Audit Committee is also responsible for
recommending the selection of the Company's independent public accountants.
This committee is presently comprised of Messrs. Leff, Raymund and Haft. The
committee did not meet separately from the Board during 1996.
Compensation Committee. The Compensation Committee reviews the
compensation of executive officers, except members of the committee, and makes
recommendations to the Board regarding executive compensation. This committee
is presently comprised of Messrs. Leff, Raymund and Tenenhaus. The committee
did not meet separately from the Board during 1996.
Stock Option Committee. The Stock Option committee administers the
Company's existing stock option plan. This committee is presently comprised of
Messrs. More and Tenenhaus. The committee held four meetings during 1996.
Compensation of the Company's Directors
The current policy of the Company is to pay each director who is not
also an officer or employee of the Company, and who does not beneficially own
more than 5% of the Company's outstanding Common Stock, an annual fee of
$2,500, plus 500 shares of Common Stock of the Company. The Board met on five
occasions during 1996. Each director attended at least 80% of the aggregate of
(i) the total number of meetings of the Board held during the period in which
he was a director and (ii) the total number of meetings held by all committees
on which he served, except for Mr. Tenenhaus who attended 60% of the Board
meetings.
-3-
<PAGE> 7
Report of Compensation Committee on Annual Executive Compensation
The Compensation Committee met informally several times during the
year and met during three of the regular meetings of the Board. The policy of
the Compensation Committee is to provide executive officers of the Company and
its remanufacturing subsidiary, Cyclix Engineering Corporation ("Cyclix"), with
fair compensation based on their responsibilities, and on the performance of
the Company as a whole. Regarding the executive officers of Cyclix, however,
their compensation is based on the performance of Cyclix as a whole.
The Compensation Committee believes generally that performance goals
enhance teamwork and help focus management's attention on the performance of
the companies rather than the performance of particular areas in the companies.
Additionally, particular areas may in the future need separate performance
goals, but the Compensation Committee does not believe that is currently
required.
The Compensation Committee sets target earnings levels for the
Company and Cyclix, and provides a bonus target to each executive officer. The
bonus target is a percentage of that executive's base salary. The Compensation
Committee then sets target levels pursuant to which an executive who is
employed at the time of the bonus award can receive all or a portion of the
designated bonus target based on the Company's or Cyclix's earnings
performance, as the case may be. If the earnings target is not met, an
executive may receive some portion of his bonus based on the percentage of the
earnings target achieved. In addition, if the earnings target is exceeded, the
executives may receive, based on a formula, up to twice the executive's bonus
target. The earnings target is set by the Compensation Committee prior to the
commencement of each fiscal year and is believed by the Compensation Committee
to be aggressive, but achievable. The Compensation Committee excludes Mr.
Avery More, the Chairman of the Board, from participating in the executive
bonus plan because it believes such a bonus is unnecessary after taking into
account Mr. More's ownership of the Company's Common Stock. See "Ownership of
Common Stock by Certain Beneficial Owners and Management."
The Compensation Committee believes that its earnings and bonus
targets are confidential and disclosure of those targets would adversely effect
the Company. The report of the Compensation Committee will not be deemed to be
incorporated by reference into any filing by the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates that report by reference.
Compensation Committee Interlocks and Insider Participation
Mr. More is a member of the Board of Directors of TeKnowlogy, Inc.
Mr. Tenenhaus, an executive officer of TeKnowlogy, Inc., is a Director of the
Company and a member of the Company's Compensation Committee.
-4-
<PAGE> 8
Management of the Company
The Company's Board of Directors elects executive officers annually at
its first meeting following the annual meeting of stockholders. Certain
information concerning the Company's executive officers and directors not
standing for election who served during 1996 is provided below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Avery More . . . . . . . . . . . . 42 Chairman of the Board
Mark T. Hilz . . . . . . . . . . . 38 Director, President and Chief Executive Officer
Philip W. Wise . . . . . . . . . . 43 Director, President and Chief Executive Officer of
Cyclix
Dan Hair* . . . . . . . . . . . . . 47 Senior Vice President and Chief Financial Officer
Bernard W. Rohde . . . . . . . . . 38 Vice President, Chief Accounting Officer and Secretary
Janet Moore . . . . . . . . . . . . 35 Vice President, Sales Services
James "Zeke" Zoccoli . . . . . . . 40 Vice President, Information Systems
Steve Grimmer* . . . . . . . . . . 29 Vice President, OEM Services
Dennis Eldridge* . . . . . . . . . 37 Vice President, Product Services
Jay Haft . . . . . . . . . . . . . 61 Director
Edward C. Raymund . . . . . . . . . 68 Director
</TABLE>
* Messrs. Hair, Grimmer and Eldridge were elected to their respective
offices on February 12, 1997.
________________________________________________________________________________
Avery More, 42, is Chairman of the Board of the Company. Mr. More is
a Class III director whose term expires in 1998. He is a member of PCSS's
Executive Committee and Stock Option Committee. Mr. More was formerly
president and chief executive officer of CompuCom from 1989 to 1993 and a
member of the CompuCom board of directors from 1989 to 1994. He is also
president of Rosetta Stone Corporation. See "Certain Transactions." Mr. More
became a PCSS director and chairman of the board in 1990.
Mark T. Hilz, 38, is a director and President and Chief Executive
Officer of the Company. Mr. Hilz is a Class III director whose term expires in
1998. He is a member of PCSS's Executive Committee. Mr. Hilz has served as an
executive officer of the Company from its inception and was appointed to his
present position in 1991. Mr. Hilz became a PCSS director in 1990.
Philip W. Wise, 43, is a director and President of Cyclix. Mr. Wise
is a Class I director whose term expires in 1999. Prior to joining Cyclix, Mr.
Wise was an industry consultant from 1994 to 1995, executive vice president of
CompuCom from 1993 to 1994, and senior vice president of CompuCom from 1991 to
1993.
Dan Hair, 47, is Senior Vice President and Chief Financial Officer of
the Company. Prior to joining the Company, Mr. Hair was vice president and
chief financial officer of Bell Packaging Corporation from 1995 to 1996, and
vice president and chief financial officer of Spectravision, Inc. from 1991 to
1994.
Bernard W. Rohde, 38, is Vice President, Chief Accounting Officer and
Secretary of the Company. Prior to joining the Company, Mr. Rohde was
controller and chief accounting officer of Source, Inc. from 1994 to 1995, and
controller of Source, Inc., from 1990 to 1994.
-5-
<PAGE> 9
Janet Moore, 35, is Vice President, Sales Services of the Company.
Prior to joining the Company, Ms. Moore was the general manager of product
support for Microsoft Corporation from 1995 to September 1996, and held a
variety of senior management positions with AT&T Corporation from 1981-1995.
James "Zeke" Zoccoli, 40, is Vice President, Information Systems of
the Company, Prior to joining the Company, Mr. Zoccoli was vice president,
information systems for Abbott Laboratories from 1991 to September 1996.
Steve Grimmer, 29, is Vice President, OEM Services of the Company.
Prior to joining the Company, Mr. Grimmer held a variety of sales positions
with IBM Corporation from 1989 to 1994.
Dennis Eldridge, 37, is Vice President, Product Services of the
Company. Prior to joining the Company, Mr. Eldridge was vice president and
plant manager for Weaver Manufacturing from 1993 to October 1994, and held
various management positions with IBM Corporation from 1979 to 1993.
Jay Haft, 61, is a strategic and financial consultant to growth stage
companies, managing general partner of Venture Capital Associates, Ltd., and
GenAm "I" Venture Fund, and of counsel to the law firm of Parker Duryee Rosoff
& Haft. Mr. Haft was a senior partner in that law firm from 1989-1995. Mr.
Haft is a Class I director whose term expires in 1999 and is a member of the
PCSS Audit Committee. He is Chairman of the Board of Noise Cancellation
Technologies, Inc., Extech, Inc. and Jenna Lane, Inc., and is a director of
Robotic Vision Systems, Inc., Dusa Pharmaceuticals, Inc., Encore Medical
Corporation, Oryx Technology Corp. and Virogen, Inc. Mr. Haft is a member of
the Florida Commission for Government Accountability to the People,
Co-President of the Dade Venue of the Miami Ballet and a director of the
Concert Association of Florida.
Edward C. Raymund, 68, is a director of Tech Data Corporation and
Vision Electronics. Mr. Raymund is a Class I director whose term expires in
1999. He is a member of the PCSS Audit Committee and Compensation Committee.
From 1972 until his retirement in 1994, Mr. Raymund was the Chief Executive
Officer of Tech Data Corporation, a distributor of computers, peripherals,
software and networks. Mr. Raymund became a PCSS director in 1994.
-6-
<PAGE> 10
Ownership of Common Stock by
Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 4, 1997, by (i) each
director and director nominee who beneficially owns Common Stock and certain of
the Company's executive officers, (ii) all of the Company's directors and
executive officers as a group and (iii) each person known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock as of April
4, 1997.
The number of shares of the Company's Common Stock beneficially owned by
each individual set forth below is determined under the rules of the Securities
and Exchange Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which an individual has sole or shared
voting power or investment power and any shares which an individual presently,
or within 60 days, has the right to acquire through the exercise of any stock
option or other right. However, such shares are not deemed to be outstanding
for the purpose of computing the percentage of outstanding shares beneficially
owned by any other person. Unless otherwise indicated, each individual has
sole voting and investment power (or shares such powers with their spouse) with
respect to the shares of the Company's Common Stock set forth in the table
below:
<TABLE>
<CAPTION>
Name Of Beneficial Owner
- ------------------------
Directors and nominees for Directors
(Including Those Who are also Executive Number of Shares Percentage of
Officers): Beneficially Owned Outstanding Shares
------------------ ------------------
<S> <C> <C>
Avery More (Rosetta Stone) . . . . . . . 1,452,200(1) 25.3%
Mark T. Hilz . . . . . . . . . . . . . . 203,500(2) 3.4%
Jay Haft . . . . . . . . . . . . . . . . 79,571(3) 1.4%
Philip Wise . . . . . . . . . . . . . . . 45,000(4) 1.1%
Robert S. Leff . . . . . . . . . . . . . 23,000(5) *
Edward C. Raymund . . . . . . . . . . . . 18,500(6) *
Morti Tenenhaus . . . . . . . . . . . . . 10,000(7) *
EXECUTIVE OFFICERS:
Dennis Eldridge . . . . . . . . . . . . . 2,000(8) *
Steve Grimmer . . . . . . . . . . . . . . 11,700(9) *
Dan Hair . . . . . . . . . . . . . . . . 2,000 *
Janet Moore . . . . . . . . . . . . . . . -- --
Bernard W. Rohde . . . . . . . . . . . . 6,000(10) *
James "Zeke" Zoccoli . . . . . . . . . . -- --
All Directors and Executive Officers as a
Group (10) persons . . . . . . . . . . . 1,774,400(11) 29.8%
OTHER:
Wellington Management Company, LLP. 569,300(12) 9.9%
</TABLE>
- ------------------------------
* Indicates less than 1%.
-7-
<PAGE> 11
(1) The business address of Mr. More is 10000 North Central Expressway,
Suite 1460, Dallas, Texas. The shares of Common Stock listed in Mr.
More's name are owned by Rosetta Stone Corporation, a corporation in
which Mr. More is the principal stockholder. Mr. Tenenhaus is also a
stockholder of Rosetta Stone. Rosetta Stone has pledged substantially
all of the shares of Common Stock of the Company to secure certain
debts of Rosetta Stone to CompuCom incurred in connection Rosetta
Stone's acquisition of Common Stock from CompuCom. See "Certain
Transactions." Various parties, including a trust for the benefit of
Mr. More's minor children and Mr. Jay Haft, a director of the Company,
have made investments in Rosetta Stone, and in connection therewith
have been issued options from Rosetta Stone to acquire stock of other
companies in which Rosetta Stone has an interest, including PCSS. If
all of those options to acquire PCSS Common stock were exercised, a
total of 294,284 shares of PCSS Common Stock would be acquired by those
parties from Rosetta Stone. Further, the shares shown as beneficially
owned by Mr. More do not include 9,300 shares beneficially owned by his
wife and 2,000 shares held in trust for the benefit of a minor child of
Mr. More. Mr. More disclaims beneficial ownership of those shares.
(2) Includes 157,500 shares issuable upon the exercise of options
exercisable at or within 60 days and 3,000 shares held by the minor
children of Mr. Hilz. Mr. Hilz disclaims beneficial ownership of those
shares.
(3) Includes 79,071 shares issuable upon the exercise of options which are
exercisable at or within 60 days. Mr. Haft has the right to acquire
those 79,071 shares from Rosetta Stone.
(4) Includes 25,000 shares issuable upon the exercise of options
exercisable at or within 60 days and 12,000 shares held by the minor
children of Mr. Wise. Mr. Wise disclaims beneficial ownership of these
shares.
(5) Includes 4,000 shares issuable upon the exercise of options exercisable
at or within 60 days.
(6) Includes 4,000 shares issuable upon the exercise of options exercisable
at or within 60 days, 6,000 shares held by the Raymund Family
Partnership (the "Partnership"), 2,000 shares held by the Raymund
Family Trust and 500 shares owned by Mr. Raymund's wife. Mr. Raymund
may be deemed to beneficially own Partnership shares because he is the
Partnership's general partner. Mr. Raymund disclaims beneficial
ownership of the shares owned by his wife.
(7) Includes 10,000 shares held by trusts for the benefit of the minor
children of Mr. Tenenhaus as to which he disclaims beneficial
ownership. Mr. Tenenhaus, as an officer and stockholder of Rosetta
Stone, may be deemed to beneficially own the shares of Common Stock
listed under Mr. More's holdings and owned of record by Rosetta Stone;
Mr. Tenenhaus disclaims beneficial ownership of those shares.
(8) Includes 2,000 shares issuable upon the exercise of options exercisable
at or within 60 days.
(9) Includes 6,000 shares issuable upon the exercise of options exercisable
at or within 60 days, 1,000 shares held by Mr. Grimmer's wife and 5,000
shares issuable to Mrs. Grimmer upon the exercise of options
exercisable at or within 60 days. Mr. Grimmer disclaims beneficial
ownership of the shares owned by his wife.
(10) Includes 6,000 shares issuable upon the exercise of options exercisable
at or within 60 days.
(11) Includes 209,500 shares issuable upon the exercise of options
exercisable at or within 60 days.
(12) The business address of Wellington Management Company, LLP is 75 State
Street, Boston, Massachusetts.
-8-
<PAGE> 12
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the Company's
Chief Executive Officer and its six other most highly compensated executive
officers (whose compensation exceeded $100,000 in 1996), collectively, the
"Named Officers," for services rendered in all capacities to the Company during
the fiscal years ended December 31, 1996, 1995, and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- ------------
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Positions Year ($) ($) ($) ($) (A)
---------------------------- ------ --------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Avery More(B) . . . . . . . . . 1996 144,000 -- -- 5,760
Chairman of the Board and 1995 144,000 -- -- 5,760
Chief Financial Officer 1994 -- -- -- --
Mark T. Hilz . . . . . . . . . 1996 175,615 -- 30,000 6,403
President and 1995 129,577 -- -- 6,157
Chief Executive Officer 1994 108,780 86,400 100,000 5,510
Philip Wise(C) . . . . . . . . 1996 150,000 -- -- 3,243
President, 1995 72,115 -- -- 1,615
Cyclix Engineering Corp. 1994 -- -- 25,000 --
Janet Moore(C) . . . . . . . . 1996 57,258 -- 20,000 0
Vice President, 1995 -- -- -- --
Sales Services 1994 -- -- -- --
James "Zeke" Zoccoli(C) . . . . 1996 52,212 -- 20,000 0
Vice President, 1995 -- -- -- --
Information Systems 1994 -- -- -- --
James N. Contardi(C)(D) . . . . 1996 115,000 -- 12,500 4,600
Vice President, 1995 94,712 -- -- 4,643
Sales and Marketing 1994 41,538 21,370 25,000 862
Danny T. Hendrix (C)(D) . . . . 1996 115,000 -- 10,000 0
Vice President, 1995 24,327 -- 20,000 --
Operations 1994 -- -- -- --
</TABLE>
- --------------------
(A) Represents amounts paid by the Company to each executive officer's
account under the Company's 401(k) plan.
(B) Mr. Dan Hair became the Company's Chief Financial Officer on February
12, 1997.
(C) The 1994 annual compensation for Mr. Contardi, the 1995 annual
compensation for Mr. Wise and Mr. Hendrix, and the 1996 annual
compensation for Ms. Moore and Mr. Zoccoli reflects less than a full
year.
(D) In January 1997, Mr. Hendrix resigned as Vice President, Operations
of the Company in March 1997, and Mr. Contardi resigned as Vice
President, Sales and Marketing of the Company.
-9-
<PAGE> 13
Option Grants in 1996 to the Company's Executive Officers
The following table provides information regarding the stock options
granted by the Company to Named Officers in 1996.
1996 Option Grants
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Stock Price Appreciation for
underlying Options Exercise of Option Term (A)
Option/SARs Granted to Base Price Expiration ---------------
Name Granted (#) Employees ($/Sh) Date 5% ($) 10% ($)
---- ----------- --------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Avery More -- -- -- -- -- --
Mark T. Hilz 30,000(B) 14.2% 14.50 6/30/06 274,050 691,560
Philip Wise -- -- -- -- -- --
Janet Moore 20,000(C) 9.4% 9.00 10/08/06 113,400 286,200
James "Zeke" Zoccoli 20,000(C) 9.4% 9.00 10/08/06 113,400 286,200
James N. Contardi(D) 12,500(B) 5.9% 14.50 6/30/06 114,188 288,188
Danny T. Hendrix(D) 10,000(B) 4.7% 14.50 6/30/06 91,350 230,550
</TABLE>
- -----------------------
(A) The potential realizable values set forth under these columns result
from calculations assuming 5% and 10% growth rates as set by the
Securities and Exchange Commission and are not intended to forecast
future price appreciation of the Company's Common Stock. The amounts
reflect potential future value based upon growth at these prescribed
rates. The Company did not use an alternative formula for a grant
date valuation, an approach which would state gains at present, and
therefore lower, value. The Company is not aware of any formula
which will determine with reasonable accuracy a present value based
on future unknown or volatile factors. Actual gains, if any, on
stock option exercises are dependent on the future performances of
the Company's Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.
(B) One-fifth (1/5) of these options will become exercisable on June
30,1997, and another one-fifth (1/5) will become exercisable on June
30, 1998, 1999, 2000 and 2001.
(C) One-fifth (1/5) of these options will become exercisable on October
8, 1997, and another one-fifth (1/5) will become exercisable on
October 8, 1998, 1999, 2000 and 2001.
(D) In January 1997, Mr. Hendrix resigned as the Vice President,
Operations of the Company and in March 1997, Mr. Contardi resigned
as the Vice President, Sales and Marketing of the Company.
-10-
<PAGE> 14
Aggregate Option Exercises in 1996 by the Company's Executive Officers
The following table provides information as to options exercised, if
any, by each of the Named Officers in 1996 and the value of options held by
those officers at year-end measured in terms of the last reported sale price
for the shares of the Company's Common Stock on December 31, 1996 ($7.75 as
reported on Nasdaq).
Aggregated Option Exercises in 1996 and Year-End
Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of in-the-Money
Securities Underlying Options at
Unexercised Options December 31, 1996
Shares at December 31, 1996(#) (A)($)
Acquired on Value --------------------------------- --------------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Avery More -- -- -- -- -- --
Mark T. Hilz 34,500 474,375 137,500 138,000 587,250 264,000
Philip Wise(B) -- -- 25,000 -- -- --
Janet Moore -- -- -- 20,000 -- --
James "Zeke" Zoccoli -- -- -- 20,000 -- --
James N. Contardi(C) -- -- 10,000 27,500 -- --
Danny T. Hendrix(C) -- -- 4,000 26,000 -- --
</TABLE>
- -------------------------
(A) Market value of shares covered by in-the-money options on December 31,
1996, less option exercise price. Options are in-the-money if the
market value of the shares covered thereby is greater than the option
exercise price.
(B) As part of his at-will employment arrangement with Cyclix and in order
to induce him to accept the employment, the Company sold Mr. Wise 15%
of the outstanding common stock of Cyclix at the adjusted book value of
the Cyclix common stock as of July 1, 1995, in exchange for a $30,000
five-year promissory note. The note is due and payable in less than
five years upon the occurrence of certain events. The Cyclix common
stock owned by Mr. Wise may be converted into PCSS Common Stock under
certain conditions. The conversion rate is based on the relative
performance of Cyclix and PCSS at the time of any such conversion.
Under the terms of Mr. Wise's employment arrangement, Rosetta Stone
agreed to vote its shares of Common Stock in favor of Mr. Wise as a
director of the Company during the term of his employment. Also, as a
part of this employment package, Mr. Wise relocated his residence
closer to Cyclix's corporate headquarters and in connection with that
relocation, the Company agreed to guarantee an interim mortgage for up
to $450,000 for one year during which time Mr. Wise expects to sell his
current resident and relocate to his new residence.
(C) In January 1997, Mr. Hendrix resigned as Vice President, Operations of
the Company and in March 1997, Mr. Contardi resigned as the Vice
President, Sales and Marketing of the Company.
-11-
<PAGE> 15
Certain Transactions
In 1993, Avery More, then the President and Chief Executive Officer of
CompuCom, advised CompuCom that he desired to resign his position with CompuCom
to pursue new and independent businesses. In connection with those pursuits,
CompuCom and Mr. More discussed the possibility of CompuCom selling part of its
interest in the Company to Mr. More. Mr. More and CompuCom believed that the
Company's growth potential was limited by CompuCom's ownership and control of
the Company in view of the fact that many of the Company's customers are direct
competitors of CompuCom. These discussions led to an agreement between
CompuCom and Rosetta Stone pursuant to which CompuCom converted a $1,500,000
convertible subordinated note into 2,000,000 shares of Common Stock and
received from the Company a warrant to acquire 250,000 shares of Common Stock
at an exercise price of $2.25 per share. On January 5, 1994, Rosetta Stone
purchased 1,700,000 shares of the Company's Common Stock from CompuCom in
exchange for $325,000 in cash and a $3,500,000 promissory note secured by those
shares. Rosetta Stone pledged substantially all of those shares to CompuCom to
secure the promissory note payable to CompuCom by Rosetta Stone. As a result
of the transaction, CompuCom's stock ownership was reduced from 84.27% to
36.33%, excluding the warrant it received in the transaction. In connection
with this acquisition, CompuCom agreed for one year to allow the Company's
employees to continue to participate in CompuCom's group health benefit plans
in exchange for a payment of a specified amount per employee. The agreement
with CompuCom provided for an adjustment between CompuCom and the Company based
on the actual loss experience as compared to the total amount paid to CompuCom
on behalf of the Company's employees.
In connection with Rosetta Stone's acquisition of the Company's Common
Stock from CompuCom, Rosetta Stone agreed to vote its shares in the Company for
a single Board nominee selected by CompuCom. The voting agreement originally
was to expire when certain debts of Rosetta Stone to CompuCom are paid in full.
In May 1996, however, CompuCom and Rosetta Stone agreed that so long as no
default existed under the terms of the debt instruments to CompuCom from
Rosetta Stone, the voting agreement would be suspended at such time as
CompuCom's ownership of PCSS Common Stock falls below 5% of the outstanding
Common Stock of PCSS. In connection with the secondary offering of the
Company's Common Stock on June 6, 1996, CompuCom sold 750,000 shares of Common
Stock and, accordingly, its ownership of PCSS Common Stock is now less than 5%.
See "Ownership of Common Stock by Certain Beneficial Owners and Management."
CompuCom is also a customer of the Company. During 1996, CompuCom
purchased $783,000 of products from the Company and the Company purchased
computer parts and equipment from CompuCom for $496,000, in each case on the
same terms as sales to independent parties. CompuCom continues to be a
customer of the Company and may be a supplier to the Company in the future.
Compliance With Section 16(a) Of The Securities Exchange Act Of 1934
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and 10% owners of Common Stock of the Company to file
reports of beneficial ownership of the Company's Common Stock and changes in
such beneficial ownership with the Commission. Directors, executive officers
and 10% owners are also required by rules promulgated by the Commission to
furnish the Company with copies of all forms they file pursuant to Section
16(a). Based solely upon a review of the copies of the forms filed pursuant to
Section 16(a) furnished to the Company, or written representation that no
year-end Form 5 filings were required for transactions occurring during 1996,
the Company believes that its directors, officers and 10% owners of Common
Stock of the Company complied with the Section 16(a) filing requirements
applicable to them during 1996, except Mr. Raymond who filed one monthly report
three days late relating to the purchase of the Company's Common Stock.
-12-
<PAGE> 16
Stock Performance Graph
The following performance graph compares the performance of the
Company's Common Stock, the Standard & Poor's 500 Index and an index of peer
companies selected by the Company (the "Company's Peer Group Index") since
March 1994 (which is when the Company's Common Stock first traded publicly on
the National Association of Securities Dealers, Inc. Automated Quotation
System). The graph assumes that the value of the investment in the shares of
the Company's Common Stock and in each index was $100 on April 1, 1994, and
that all dividends were reinvested.
The Company's Peer Group Index shown on the performance graph (which
is weighted on the basis of market capitalization) consists of the Company and
the following companies which are engaged primarily in the computer replacement
and spare parts business: The Cerplex Group, Inc. and Aurora Electronics, Inc.
[GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
TOTAL RETURN ANALYSIS
3/31/94 12/30/94 12/29/95 12/31/96
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
PC Service Source Inc. $100 $100 $100 $ 86
- ----------------------------------------------------------------
Peer Group $100 $ 58 $ 64 $ 11
- ----------------------------------------------------------------
S&P 500 $100 $105 $145 $178
- ----------------------------------------------------------------
</TABLE>
The stock price performance depicted in the graph above is not
necessarily indicative of future price performance. The graph will not be
deemed to be incorporated by reference in any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates same by reference.
-13-
<PAGE> 17
Independent Public Accountants
The accounting firm of KPMG Peat Marwick LLP acted as the Company's
independent public accountants for the fiscal year ended December 31, 1996. A
representative of KPMG Peat Marwick LLP is expected to be present at the
stockholders' meeting and to have the opportunity to make a statement, if the
representative desires to do so, and is expected to be available to respond to
appropriate questions.
Other Matters
As of the date of this proxy statement, the Company knows of no other
business that will be presented for consideration at the annual meeting.
However, the enclosed proxy confers discretionary authority to vote with
respect to any and all of the following matters that may come before the
meeting: (i) matters that the Company's Board of Directors does not know, a
reasonable time before proxy solicitation, are to be presented for approval at
the meeting; (ii) approval of the minutes of a prior meeting of stockholders,
if such approval does not constitute ratification of the action at the meeting;
(iii) the election of any person to any office for which a bona fide nominee is
unable to serve or for good cause will not serve; (iv) any proposal omitted
from this proxy statement and the form of proxy pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended; and (v) matters incidental to
the conduct of the meeting. If any such matters come before the meeting, then
the proxy agents named in the accompanying proxy card will vote in accordance
with their judgment.
Stockholder proposals intended to be presented at the 1998 Annual Meeting
of Stockholders must be submitted to the Company prior to December 23, 1997, to
receive consideration for inclusion in the Company's 1998 proxy materials.
EACH PERSON FROM WHOM A PROXY IS SOLICITED CAN OBTAIN A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY DOWNLOADING THE REPORT
FROM THE COMPANY'S WEB SITE (WWW.PCSERVICE.COM) OR BY SENDING A WRITTEN
REQUEST TO THE COMPANY, ATTENTION: INVESTOR RELATIONS, 2350 VALLEY VIEW LANE,
DALLAS, TEXAS 75234, AND A COPY WILL BE SENT TO YOU AT NO CHARGE, EXCEPT FOR
EXHIBITS TO THE REPORT.
By Order of the Board of Directors,
/s/Dan Hair
Dan Hair
Chief Financial Officer
-14-
<PAGE> 18
- --------------------------------------------------------------------------------
PROXY
PC SERVICE SOURCE, INC.
SOLICITED ON BEHALF OF THE COMPANY AND APPROVED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Avery More and Mark Hilz, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned, to appear
at the 1997 Annual Meeting of Stockholders of PC Service Source, Inc. to be held
on the 15th day of May, 1997 (pursuant to the Notice of Annual Meeting dated
April 1997, and accompanying proxy statement of that date) and at any
postponement or adjournment thereof, and to vote all of the shares of PC Service
Source, Inc. that the undersigned is entitled to vote with all the powers and
authority the undersigned would possess if personally present in accordance with
the following instructions.
When properly executed, this proxy will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this Proxy will be
voted for the nominees named below in Proposal 1.
1. ELECTION OF DIRECTORS NOMINEES: Class II: Robert S. Leff and Morti
Tenenhaus
[ ] FOR all nominees listed above (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
SUCH INDIVIDUAL'S NAME IN THE SPACE PROVIDED BELOW)
- --------------------------------------------------------------------------------
(Continued, and to be marked, dated and signed, on the other side.)
- --------------------------------------------------------------------------------
<PAGE> 19
- --------------------------------------------------------------------------------
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears
below. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee, or
guardian, please give full title as
such. If a corporation, please sign
in full corporate name by President
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Dated: , 1997
-----------------------
-----------------------------------
(Signature)
-----------------------------------
(Signature if held jointly)
- --------------------------------------------------------------------------------
