<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:
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(4) Date Filed:
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<PAGE> 2
April 18, 2000
Dear Stockholders:
You are cordially invited to attend the 2000 annual meeting of stockholders of
PC Service Source, Inc. which will be held on May 23, 2000, at 9:00 a.m.,
Central Time, at the company's corporate offices 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/ Avery More
Avery More
Chairman of the Board and Chief Executive Officer
YOUR VOTE IS IMPORTANT
Please Sign, Date, and Return Your Proxy Card
<PAGE> 3
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MAY 23, 2000
-------------------------
To Our Stockholders:
The 2000 annual meeting of stockholders of PC Service Source, Inc. will be held
at the company's corporate offices at 2350 Valley View Lane, Dallas, Texas, on
May 23, 2000, at 9:00 a.m., Central Time, for the following purpose 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 2003 or until their successors are
duly elected and qualified;
2. To ratify the selection of Ernst & Young LLP as the
independent auditor of the company for the year ending
December 31, 2000;
3. To consider and vote on a proposal to amend the Director
Compensation Plan to increase the number of authorized shares
from 20,000 to 40,000;
4. To consider and vote on a proposal to amend the Employee Stock
Purchase Plan to increase the number of authorized shares from
100,000 to 250,000; and
5. 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 7, 2000, 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/ Robert J. Boutin
Robert J. Boutin
Senior Vice President, Chief Financial Officer and Secretary
Dallas, Texas
April 18, 2000
It is important that your stock be represented at the meeting regardless of the
number of shares you hold. Please complete, sign, date 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.
2350 VALLEY VIEW LANE
DALLAS, TEXAS 75234
------------
PROXY STATEMENT
FOR
ANNUAL MEETING
tO BE HELD ON
MAY 23, 2000
------------
VOTING AT THE MEETING AND PROXIES
Commencing on April 18, 2000, PC Service Source, Inc., a Delaware
corporation ("we," "us," "our," or "our company"), will mail this proxy
statement to stockholders entitled to vote at our company's annual meeting of
stockholders on May 23, 2000. Stockholders of record at the close of business on
April 7, 2000, 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 annual meeting, including any adjournment or postponement of
the annual meeting. At the close of business on April 7, 2000, the record date
for determining stockholders entitled to receive notice of and to vote at the
annual meeting, our outstanding voting securities consisted of 5,308,288 shares
of common stock, $0.01 par value per share. Holders of common stock are entitled
to one vote per share in any matter that may be acted upon at the annual
meeting. Our certificate of incorporation does not permit cumulative voting.
A proxy card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF OUR COMPANY 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 (a) vote for the
director nominees as a group; (b) withhold authority to vote for the director
nominees as a group; or (c) vote for the director nominees as a group, except
the nominee(s) you identify in the appropriate area. See "Proposal 1. Election
of Directors."
For purposes of determining whether a proposal has received a majority
vote, abstentions will be included in the vote totals, with the result that an
abstention will have the same effect as a negative vote for all proposals. If a
broker indicates that it is prohibited from exercising discretionary authority
with respect to shares held of record by such broker, including shares held for
beneficial holders that have not returned proxies (so-called "broker
non-votes"), those shares will not be included in the vote totals and,
therefore, will have no effect on the outcome of the vote with respect to that
matter. Abstentions and broker non-votes will, however, be treated as present
for quorum purposes and may be entitled to vote on other matters.
You may revoke your proxy at any time before it is actually voted at
the annual meeting by (a) delivering written notice of revocation to the
Secretary of our company, (b) submitting a subsequently dated proxy, or (c)
attending the annual meeting and withdrawing the proxy. You may also be
represented by
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<PAGE> 5
another person present at the annual 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.
The holders of a majority of the voting power of our issued and
outstanding stock entitled to vote at the annual meeting, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at the annual meeting. If a quorum is not present or represented by proxy at the
annual meeting, the stockholders entitled to vote at the meeting, present in
person or represented by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented by proxy. At such adjourned meeting at
which a quorum shall be present or represented by proxy, any business may be
transacted which might have been transacted at the annual meeting as originally
called. If the adjournment is for more than thirty days or if after the
adjournment a new record date is set, a notice of adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Our annual report to stockholders and form 10-K for the year ended
December 31, 1999, 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 our company without additional compensation. We 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.
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<PAGE> 6
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 1, 2000, by (a)
each director and director nominee who beneficially owns common stock and
certain of our executive officers, (b) all of our directors and executive
officers as a group and (c) each person known by us to be the beneficial owner
of more than 5% of our common stock as of April 1, 2000.
The number of shares of our 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 that 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 common stock set forth in the table below:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER
- ------------------------
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OWNED OUTSTANDING SHARES
------------------ ------------------
<S> <C> <C>
DIRECTORS (INCLUDING THOSE WHO ARE ALSO
EXECUTIVE OFFICERS):
Avery More............................. 1,435,300(1) 27.0%
Morti Tenenhaus........................ 68,333(2) 1.3%
Robert J. Boutin....................... 53,367(3) 1.0%
Edward C. Raymund...................... 50,833(4) 1.0%
Robert S. Leff......................... 49,967(5) *
Jay Haft............................... 22,333(6) *
EXECUTIVE OFFICERS:
William Shea........................... 33,333(7) *
All Directors and Executive Officers
as a Group (7) persons................. 1,713,466(8) 31.9%
OTHER:
Dimensional Fund Advisors, Inc. 374,100(9) 7.0%
Wellington Management Company,
LLP.................................... 370,000(10) 7.0%
Joseph A. Cohen........................ 311,000(11) 5.9%
</TABLE>
- ------------------------------
* Indicates less than 1%.
(1) The business address of Mr. More is 2350 Valley View Lane, Dallas,
Texas 75234. The shares of common stock listed in Mr. More's name above
are owned by Eureka Venture Partners I, Ltd. ("Partners I"), the sole
general partner of which is Eureka Venture Management, Inc. ("Eureka
Venture"). Mr. More holds more than a fifty percent (50%) limited
partnership interest in Partners I and more than fifty percent (50%) of
the outstanding common stock of Eureka Venture. 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 Partners
I, and in connection therewith have been issued options from Partners I
to acquire stock of other companies in which Partners I has an
interest, including PCSS. If all of those options to acquire PCSS
common stock were exercised, a total of 144,284 shares of PCSS common
stock would be acquired by those parties from
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<PAGE> 7
Partners I. Further, the shares shown as beneficially owned by Mr. More
also include 90,000 shares owned by him individually, 10,000 shares
held by Rosetta Stone Holdings, LLC, the managing member of which is
Mr. More, and 4,000 shares owned by his spouse. Mr. More disclaims
beneficial ownership of the shares owned by his wife.
(2) Includes 8,333 shares that Mr. Tenenhaus has the right to acquire
within 60 days pursuant to stock options and 10,000 shares held by a
trust for the benefit of the minor children of Mr. Tenenhaus as to
which he disclaims beneficial ownership.
(3) Includes 8,667 shares that Mr. Boutin has the right to acquire within
60 days pursuant to stock options.
(4) Includes 3,333 shares that Mr. Raymund has the right to acquire within
60 days pursuant to stock options, 19,000 shares held by the Raymund
Family Partnership (the "Partnership"), 16,000 shares held by the
Raymund Family Trust and 1,000 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.
(5) Includes 3,333 shares that Mr. Leff has the right to acquire within 60
days pursuant to stock options.
(6) Includes 3,333 shares that Mr. Haft has the right to acquire within 60
days pursuant to stock options.
(7) All 33,333 shares represent shares Mr. Shea has the right to acquire
within 60 days pursuant to stock options.
(8) Includes 60,332 shares that officers and directors have the right to
acquire within 60 days pursuant to stock options.
(9) The business address of Dimensional Fund Advisors, Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401.
(10) The business address of Wellington Management Company, LLP is 75 State
Street, Boston, Massachusetts 02109.
(11) The business address of Mr. Cohen is The Garnet Group, 825 Third
Avenue, 40th Floor, New York, New York 10022.
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<PAGE> 8
MANAGEMENT
DIRECTORS
Our company's restated certificate of incorporation, as amended,
provides for a classified board of directors. The board of directors currently
consists of six members, classified into three classes as follows: Morti
Tenenhaus and Robert S. Leff constitute a class with a term ending in 2000 (the
"Class II Directors"); Avery More and Jay Haft constitute a class with a term
ending in 2001 (the "Class III Directors"); and Robert J. Boutin and Edward C.
Raymund constitute a class with a term ending in 2002 (the "Class I Directors").
For information on the directors being nominated for election, see "Proposal 1.
Election of Directors."
EXECUTIVE OFFICERS
The board elects executive officers annually at its first meeting
following the annual meeting of stockholders. The names of our company's
directors and executive officers, and certain information regarding each of them
are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Avery More............................. 45 Chairman of the Board and Chief Executive Officer
Morti Tenenhaus........................ 45 Vice Chairman of the Board and Senior Vice President
of PCSS Repair Services
Robert J. Boutin....................... 42 Director and Senior Vice President, Chief Financial
Officer and Secretary
William Shea........................... 53 Senior Vice President, Customers
Jay Haft............................... 64 Director
Robert S. Leff......................... 53 Director
Edward C. Raymund...................... 71 Director
</TABLE>
AVERY MORE, 45, is our Chairman of the Board and Chief Executive
Officer. He is a Class III Director whose term expires in 2001. Mr. More is a
member of the executive committee and stock option committee of our company's
board of directors. Prior to joining us in his current capacity, Mr. More was
the vice chairman of Computer City, Inc., from July 1997 to June 1998. Since
1994, Mr. More has served as the President of Eureka Venture Management, Inc.,
the General Partner of Eureka Venture Partners I, Ltd., a venture capital and
merchant banking company. From 1989 to 1994 Mr. More was the president and chief
executive officer of CompuCom Systems, Inc., and a member of the CompuCom board
of directors from 1989 to 1994. Mr. More also serves on the board of directors
of Micrografx, Inc. Mr. More became a director and Chairman of the Board of our
company in 1990.
MORTI TENENHAUS, 45, is Vice Chairman of the board of directors and
Senior Vice President of PCSS Repair Services. Mr. Tenenhaus is a Class II
Director whose term expires in 2000. Mr. Tenenhaus will stand for reelection as
a Class II Director at the annual meeting. Mr. Tenenhaus is a member of the
executive committee of our company's board of directors. Since 1994, Mr.
Tenenhaus has served as the executive vice president of Eureka Venture
Management, Inc., the General Partner of Eureka Venture Partners I, Ltd., a
venture capital and merchant banking company. Mr. Tenenhaus was the president
and chief executive officer of TeKnowlogy, Inc. from 1994 to 1997. Mr. Tenenhaus
became a director of our company in 1990 and Vice Chairman of the Board in 1997.
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<PAGE> 9
ROBERT J. BOUTIN, 42, is a director and our Senior Vice President,
Chief Financial Officer and Secretary. Mr. Boutin is a Class I Director whose
term expires in 2002. He is a member of the executive committee of our company's
board of directors. Prior to joining us in his current capacity, Mr. Boutin was
senior vice president and chief financial officer of Computer City, Inc., from
July 1997 to June 1998. From 1991 to 1997, Mr. Boutin was senior vice president
and chief financial officer of CompuCom Systems, Inc. After serving on our board
from 1991 to 1995 as a nominee of CompuCom Systems, Inc., Mr. Boutin became a
director of our company in 1998.
WILLIAM SHEA, 53, is our Senior Vice President, Customers. Prior to
joining us in his current capacity, Mr. Shea was vice president of major
accounts for Gateway 2000, Inc. from 1995 to 1998 and held various senior
management positions with Gateway from 1993 to 1995.
JAY HAFT, 64, is a strategic and financial consultant to growth stage
companies, managing general partner of GenAm "1" 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 to 1994. Mr. Haft is a Class III Director whose term
expires in 2002 and is a member of the audit committee and compensation
committee of our company's board of directors. He is chairman of the board of
NCTI Group, Inc., and is a director of RVSI, Inc., DCAP Group, Inc., DUSA
Pharmaceuticals, Inc., Encore Medical Corporation, Oryx Technology Corp. and
Thrift Management, Inc. Mr. Haft also serves on the Board of the Miami City
Ballet and a Trustee of Florida International University. Mr. Haft became a
director of our company in 1996.
ROBERT S. LEFF, 53, is a strategic and financial consultant to early
and growth stage companies in the personal computer industry. Mr. Leff was the
co-founder of Merisel, Inc. (f/k/a Softsel Computer Products, Inc.) and served
as a member of Merisel's board and as an executive officer until his retirement
from Merisel in 1994. Mr. Leff is a Class II Director whose term expires in
2000. Mr. Leff will stand for reelection as a Class II Director at the annual
meeting. He is a member of the audit committee, compensation committee and stock
option committee of our company's board of directors. Mr. Leff is chairman of
the board of Hiho Technologies, Inc. and a director of audiohighway.com, Inc.
and Rainmaker Systems, Inc. He became a director of our company in 1994.
EDWARD C. RAYMUND, 71, is a director of Tech Data Corporation and
Vision Electronics. Mr. Raymund is a Class I Director whose term expires in
2002. He is a member of the audit committee, compensation committee and stock
option committee of our company's board of directors. 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 director of our company in 1994.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The 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 board in the management and
business affairs of our company, except it does not have the authority to
declare dividends, authorize the issuance of shares of our common stock, modify
our company's certificate of incorporation or bylaws, adopt any agreement of
merger or consolidation or recommend to the stockholders the sale, lease or
exchange of all or substantially all of our company's assets or the dissolution
of our company. Regularly scheduled meetings of the board are held periodically
each year and special
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<PAGE> 10
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, Boutin and Tenenhaus. The committee met separately
from the board on one occasion during 1999.
AUDIT COMMITTEE. The audit committee is responsible for reviewing our
company's accounting and financial practices and policies and the scope and
results of the annual audit of our company. The audit committee is also
responsible for recommending the selection of our independent public
accountants. This committee is presently comprised of Messrs. Leff, Raymund and
Haft. The committee met separately from the board on two occasions during 1999.
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 Haft. The committee met
separately from the board on two occasions during 1999.
STOCK OPTION COMMITTEE. The stock option committee administers the
company's existing stock option plan. This committee is presently comprised of
Messrs. Leff, Raymund and More. The committee met separately from the board on
three occasions during 1999.
COMPENSATION OF THE COMPANY'S DIRECTORS
Our current policy is to pay each Director who is not also an officer
or employee of our company, and who does not beneficially own more than 5% of
our company's outstanding common stock, an annual fee of $4,000, plus 2,500
shares of our common stock pursuant to our Director Compensation Plan. The board
met on six occasions during 1999. Each director attended 100% of (a) the total
number of meetings of the board held during the period in which he was a
director and (b) the total number of meetings held by all committees on which he
served.
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 our executive officers and those of our
repair subsidiary, PC Service Source Repair Services, with fair compensation
based on their responsibilities, and on the performance of our company 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 our company
and its repair subsidiary, and provides a bonus target to each executive
officer, including the chief executive officer. The bonus target is a percentage
of each 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 our
company's or PCSS Repair Services' 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. If the earnings
target is exceeded, an executive may receive an
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<PAGE> 11
amount in excess of 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 believes our company's earnings and bonus targets are
confidential and disclosure of those targets would adversely affect the company.
The compensation committee believes its executive compensation policies
serve the interests of stockholders and our company effectively. We believe our
executive officers are motivated by our compensation policies to contribute to
our overall future success, thereby enhancing the value of our company for the
stockholders' benefit.
THE COMPENSATION COMMITTEE
Jay Haft
Robert S. Leff
Edward C. Raymund
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<PAGE> 12
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth summary information
as to compensation received by the company's Chief Executive Officer and each of
the four other most highly compensated persons who were serving as executive
officers of our company as of December 31, 1999 (collectively, the "named
executive officers"), for services rendered to our company in all capacities
during the three fiscal years ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Positions Year ($) ($) (#) ($)(A)
---------------------------- ---- ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Avery More..................... 1999 250,000 96,700 -- 6,743
Chairman of the Board and 1998 132,128(B) -- -- 5,709
Chief Executive Officer 1997 125,000 -- -- 5,000
Morti Tenenhaus................ 1999 182,000 36,950 -- 6,195
Vice Chairman of the Board 1998 77,384(B) -- 25,000 269
and Senior Vice President 1997 -- -- -- --
PCSS Repair Services
Robert J. Boutin............... 1999 200,000 36,950 -- 6,579
Senior Vice President, Chief 1998 69,129(B) -- 50,000 102
Financial Officer and Secretary 1997 -- -- -- --
William Shea................... 1999 175,000 33,900 -- 6,547
Senior Vice President, 1998 127,345(B) 16,863 50,000 19,573
Customers 1997 -- -- -- --
James "Zeke" Zoccoli(C)........ 1999 163,500 29,400 -- 4,597
Senior Vice President, 1998 132,893 34,112 40,000 3,527
Operations and Chief 1997 110,000 15,000 -- 2,500
Information Officer
</TABLE>
- --------------------
(A) Includes the value of the company's contributions to the
company-sponsored 401(k) retirement savings plan that is available to
substantially all of the company's employees and the amount paid by the
company for group term life insurance coverage under health and welfare
plans available to all company employees. In 1998, the company also
reimbursed Mr. Shea for relocation expenses in the amount of $15,397.
(B) The 1998 annual compensation for Messrs. More, Tenenhaus, Boutin and
Shea reflects less than a full year.
(C) Mr. Zoccoli's employment was terminated in March 2000.
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<PAGE> 13
AGGREGATE OPTION EXERCISES IN 1999 BY THE COMPANY'S EXECUTIVE OFFICERS
The following table provides information regarding the aggregate
exercises of options by each of the named executive officers. In addition, this
table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1999, and the values of
"in-the-money" options, which values represent the positive spread between the
exercise price of any such option and the fiscal year-end value of our common
stock. We did not grant any new stock options to any of the named executive
officers in 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Securities Underlying In-The-Money
Acquired Unexercised Options Options at
on Value at December 31, 1999(#) December 31, 1999(B)($)
Name Exercise(#) Realized(A)($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Avery More -- -- -- -- -- --
Morti Tenenhaus -- -- 8,333 16,667 -- --
Robert J. Boutin 8,000 4,000 8,667 33,333 -- --
William Shea -- -- 16,667 33,333 -- --
James "Zeke" -- -- 13,333 26,667 -- --
Zoccoli(C)
</TABLE>
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(A) The value realized represents the aggregate market value of the shares
covered by the option on the date of exercise less the aggregate
exercise price paid by the executive officer.
(B) The value of unexercised in-the-money options at fiscal year-end
assumes a fair market value for our company's common stock of $2.19,
the closing market price per share of our common stock as reported on
Nasdaq on December 31, 1999. The exercise price of all unexercised
options is more than $2.19.
(C) Mr. Zoccoli's employment was terminated in March 2000 and his options
were cancelled.
EMPLOYMENT AGREEMENTS
In October 1998, we entered into a letter agreement with William Shea,
who is our Senior Vice President, Customers. Pursuant to the terms of the
agreement, if we terminate Mr. Shea's employment without cause, Mr. Shea will
continue to receive his base compensation until he secures full-time employment
elsewhere, but in no event for longer than a period of nine months following
termination. Mr. Shea is subject to the terms of a confidentiality,
non-competition and non-solicitation agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 SEC. Directors, executive officers and 10% owners
are also required by rules promulgated by the SEC 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 1999, 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 1999, except for
Mr. Raymund who filed a Form 4 in May 1999 reporting purchases in April 1999 and
also the acquisition of an aggregate of 10,500 shares of the company's common
stock in September 1998, by a family partnership, trust and his spouse.
-10-
<PAGE> 14
MATTERS TO BE BROUGHT BEFORE THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
Our company's Restated Certificate of Incorporation, as amended,
provides for a classified board of directors. The board of directors currently
consists of six members, classified into three classes as follows: Morti
Tenenhaus and Robert S. Leff constitute a class with a term ending in 2000 (the
"Class II Directors"); Avery More and Jay Haft constitute a class with a term
ending in 2001; and Robert J. Boutin and Edward C. Raymund constitute a class
with a term ending in 2002. The Class II Directors to be elected at the 2000
annual meeting will serve a three-year term expiring in 2003.
Background information appears below for each of the nominees for
election as directors. Although we do not anticipate that any of the persons
named below will be unwilling or unable to stand for election, in the event of
such an occurrence, proxies may be voted for a substitute designated by the
board of directors.
CLASS II - TERM EXPIRING IN 2003
MORTI TENENHAUS, 45, is Vice Chairman of the Board and Senior Vice
President of PCSS Repair Services. Mr. Tenenhaus is a Class II Director whose
term expires in 2000. Mr. Tenenhaus will stand for reelection as a Class II
Director at the annual meeting. Mr. Tenenhaus is a member of the executive
committee of our company's board of directors. Since 1994, Mr. Tenenhaus has
served as the executive vice president of Eureka Venture Management, Inc., the
General Partner of Eureka Venture Partners I, Ltd., a venture capital and
merchant banking company. Mr. Tenenhaus was the president and chief executive
officer of TeKnowlogy, Inc. from 1994 to 1997. Mr. Tenenhaus became a director
of our company in 1990 and Vice Chairman of the Board in 1997.
ROBERT S. LEFF, 53, is a strategic and financial consultant to early
and growth stage companies in the personal computer industry. Mr. Leff was the
co-founder of Merisel, Inc. (f/k/a Softsel Computer Products, Inc.) and served
as a member of Merisel's board and as an executive officer until his retirement
from Merisel in 1994. Mr. Leff is a Class II Director whose term expires in
2000. Mr. Leff will stand for reelection as a Class II Director at the annual
meeting. He is a member of the audit committee, compensation committee and stock
option committee of the company's board of directors. Mr. Leff is chairman of
the board of Hiho Technologies, Inc. and a director of audiohighway.com, Inc.
and Rainmaker Systems, Inc. He became a director of our company in 1994.
VOTE REQUIRED AND BOARD RECOMMENDATION
A PLURALITY OF THE VOTES CAST AT THE ANNUAL MEETING IS REQUIRED TO
ELECT EACH NOMINEE AS A DIRECTOR. THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION
OF MORTI TENENHAUS AND ROBERT S. LEFF AS DIRECTORS, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
-11-
<PAGE> 15
PROPOSAL 2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The board of directors has approved and recommends the appointment of
Ernst & Young LLP, certified public accountants, to serve as independent auditor
for our company for the fiscal year ending December 31, 2000. Approval of the
appointment of the accountants is being sought in order to give stockholders the
opportunity to express their opinion on the matter. Approval will require the
affirmative vote of the holders of a majority of the shares of common stock
which are represented and entitled to vote at the meeting. Should approval not
be obtained, the Board of Directors would expect to reconsider the appointment.
Members of Ernst & Young LLP are expected to attend the annual meeting
and, if present, will be available to answer appropriate questions which may be
asked by stockholders. Those members will also have an opportunity to make a
statement at the annual meeting if they desire to do so.
During May and June 1998, we requested several independent accounting
firms, including KPMG LLP, our existing independent auditor at that time, to
submit a proposal for providing audit and tax services to the company. KPMG LLP
advised us that it would not be participating in the request for proposal and
resigned as our independent auditor. At a meeting held on June 17, 1998, the
audit committee of our board of directors approved the engagement of Ernst &
Young LLP, as its independent auditor for the fiscal year ending December 31,
1998, to replace the firm of KPMG LLP.
The audit reports of KPMG LLP on our financial statements for each of
the two fiscal years ended December 31, 1997, and December 31, 1996, did not
contain an adverse opinion or a disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope, or accounting principles. In
connection with the audit of our financial statements for each of the two fiscal
years ended December 31, 1997, and December 31, 1996, and the subsequent interim
period through June 11, 1998, there were no disagreements with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction of KPMG
LLP would have caused KPMG LLP to make reference to the subject matter in its
reports. KPMG LLP furnished us with a letter addressed to the SEC stating it
agreed with the foregoing statements. A copy of that letter dated June 18, 1998,
was filed as an exhibit to our report on Form 8-K filed with the SEC in June
1998.
VOTE REQUIRED AND BOARD RECOMMENDATION
THE APPOINTMENT OF ERNST & YOUNG LLP MUST BE RATIFIED BY A MAJORITY OF
THE VOTES CAST AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
TO APPROVE THE RATIFICATION OF ERNST & YOUNG LLP, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
-12-
<PAGE> 16
PROPOSAL 3. APPROVAL OF AMENDMENT TO OUR DIRECTOR COMPENSATION PLAN
On April 11, 2000, the board of directors unanimously approved an
amendment to the company's Director Compensation Plan (the "Directors Plan") to
permit the company to issue up to 40,000 shares of common stock and recommended
submitting the amendment to the stockholders for approval at the 2000 annual
meeting. The form of the proposed amendment is attached to this proxy statement
as Annex A.
We are currently permitted to issue up to an aggregate of 20,000 shares
of common stock under the Director Plan. As of April 10, 2000, 19,000 shares of
common stock had been issued to qualified directors under the Director Plan.
SUMMARY OF THE PLAN
Each director who is not an employee of our company or any of our
subsidiaries and who does not beneficially own more than 5% of our outstanding
common stock is eligible to participate in the Director Plan. Eligible directors
currently receive an annual fee of $4,000 and an annual award of 2,500 shares of
common stock for serving as a director.
The purpose of the amendment is to enable us to continue to attract and
retain the best available board members and provide an incentive for persons
serving as directors to use their best efforts on our behalf. The amendment will
become effective on the date it is approved by our stockholders. Of the current
directors and nominees, the following individuals will be eligible to receive
shares of common stock under the Director Plan, as amended: Jay Haft; Robert S.
Leff; and Edward C. Raymund.
FEDERAL INCOME TAX CONSEQUENCES
An eligible director who receives shares of common stock under the
Directors Plan recognizes compensation taxable as ordinary income upon receipt
of the shares. The amount of compensation allocable to the shares received will
be equal to the closing price of the shares as reported on Nasdaq on the date
received. We are entitled to a deduction for a like amount for the value of the
shares. On April 10, 2000, our common stock closed at $2.0625 on the Nasdaq
National Market.
Upon the disposition of any shares acquired by a director under the
Director Plan, the difference between the sale price and the fair market value
of the shares when issued to the director will be treated as a capital gain or
loss and generally will be characterized as long-term capital gain or loss if
the shares have been held for more than one year after the date issued.
VOTE REQUIRED AND BOARD RECOMMENDATION
APPROVAL OF THE AMENDMENT MUST BE RATIFIED BY A MAJORITY OF THE VOTES
CAST AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE AMENDMENT TO THE DIRECTOR PLAN.
-13-
<PAGE> 17
PROPOSAL 4. APPROVAL OF AMENDMENT TO OUR EMPLOYEE STOCK PURCHASE PLAN
On April 11, 2000, the board of directors unanimously approved an
amendment to the company's Employee Stock Purchase Plan (the "Employee Plan") to
permit the company to issue up to 250,000 shares of common stock and recommended
submitting the amendment to the stockholders for approval at the annual meeting.
The form of the proposed amendment is attached to this proxy statement as Annex
B.
We are currently permitted to issue up to an aggregate of 100,000
shares of common stock under the Employee Plan. As of April 10, 2000, 33,968
shares of common stock had been issued to eligible employees under the Employee
Plan.
The purpose of the amendment is to enable eligible employees to
continue to purchase common stock through payroll deductions. The Employee Plan
is intended to qualify under Section 423 of the Internal Revenue Code and its
regulations. If Section 423 is amended in any way, the stock option committee of
the board may amend the Employee Plan to conform to such changes.
SUMMARY OF THE PLAN
The Employee Plan is open to eligible employees of the company and its
subsidiaries. At the end of 1999, approximately 800 employees were eligible to
participate in the Employee Plan. Each offering period (the "Offering Period")
under the Employee Plan is established by the committee and is generally six
months in duration. At the beginning of each Offering Period, eligible employees
are able to purchase shares of our common stock through payroll deductions of up
to a fixed percentage of their compensation, but in no event shall the fair
market value of the shares purchased under the Employee Plan by an eligible
employee, as measured as of the first day of each applicable Offering Period,
exceed $25,000 in any calendar year. Each participant advises the company how
many shares of common stock will be purchased and authorizes the company during
the Offering Period to withhold an amount from the participant's pay that will
equal the purchase price of the shares. The company credits these amounts to a
plan account that does not bear interest.
The purchase price an employee pays for a share is the lesser of 85% of
its fair market value on either the first day of the Offering Period or the last
day of the Offering Period. On April 10, 2000, our common stock closed at
$2.0625 on the Nasdaq National Market. Since participation in the Employee Plan
is voluntary, future benefits to be allocated to any individual or group of
individuals under the Employee Plan cannot be determined at this time.
At the end of each Offering Period, the shares are automatically
purchased by the participating employees with the funds held on their behalf in
the plan account. However, the participant may elect not to purchase any shares
or to purchase fewer shares prior to the end of the applicable Offering Period.
Any balance in the plan account held on behalf of the participant after purchase
of the shares is paid to the participant.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal United States federal
income tax consequences of transactions under the Employee Plan. The summary is
not intended to be exhaustive, does not constitute tax advice and does not
describe state, local or foreign tax consequences.
-14-
<PAGE> 18
Amounts deducted from a participant's pay under the Employee Plan
remain taxable income to the participant in the year the amounts are earned, and
are subject to taxation to the same extent as other compensation income received
by the participant. Participants do not recognize additional taxable income
either when the participant agrees to purchase shares under the Employee Plan or
when the shares are purchased. The tax basis of the shares purchased is the
price at which they are purchased. The participant's holding period for a share
begins on the date the shares are purchased.
If no disposition of the stock purchased under the Employee Plan is
made within two years from the first day of the applicable Offering Period, or
one year from the date the stock is purchased by the employee, upon the
subsequent disposition of the stock, ordinary income will be recognized to the
extent of the lesser of (1) 15% of the fair market value of the stock on the
first day of the applicable Offering Period, or (2) the amount by which the net
proceeds of the sale exceed the price paid for the stock. Any further gain will
be treated as capital gain. No income tax deduction will be allowed the company
for shares purchased by the employee so long as the shares are held for the
periods described above.
If stock purchased under the Employee Plan is disposed of within the
periods described above, the employee will recognize ordinary income for the
taxable year of the disposition (by sale, exchange or gift) equal to the excess
of the fair market value of the stock on the date of purchase over the purchase
price paid. Generally, the company will be entitled to a deduction equal to the
amount of ordinary income recognized by the employee.
VOTE REQUIRED AND BOARD RECOMMENDATION
APPROVAL OF THE AMENDMENT MUST BE RATIFIED BY A MAJORITY OF THE VOTES
CAST AT THE ANNUAL MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE AMENDMENT TO THE EMPLOYEE PLAN.
-15-
<PAGE> 19
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
company's common stock during the last five fiscal years with the Nasdaq
Composite Index, a broad market index, the Nasdaq National Market
Industrial/Other Index, an index of non-financial, non-insurance and
non-transportation companies found within a range of Standard Industrial
Classification code numbers, which includes the company, and a Peer Group Index.
The company has elected to discontinue presenting the Peer Group Index after
this year due to the change in the nature of the company's business and the
change or discontinuance of the businesses of the peer group companies. A
comparison of the cumulative total return for the company's common stock to that
of the companies in the Peer Group Index (which consists of the Cerplex Group,
Inc. and EFTC Corporation) is no longer meaningful.
The graph shows the value, at the end of each of the last five fiscal
years, of $100 invested in the company's common stock or the indices on December
30, 1994, and assumes the reinvestment of all dividends. The graph depicts the
change in the value of our common stock relative to the noted indices as of the
end of each fiscal year and not for any interim period.
[CHART]
<TABLE>
<CAPTION>
TOTAL RETURN ANALYSIS
12/30/1994 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PC Service Source $ 100 $ 100 $ 86 $ 55 $ 38 $ 24
---------- ---------- ---------- ---------- ---------- ----------
Nasdaq NM Industrial $ 100 $ 129 $ 148 $ 165 $ 176 $ 302
---------- ---------- ---------- ---------- ---------- ----------
Peer Group $ 100 $ 110 $ 19 $ 14 $ 5 $ 3
---------- ---------- ---------- ---------- ---------- ----------
Nasdaq Composite $ 100 $ 141 $ 172 $ 211 $ 296 $ 551
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (800)959-9677. Data from
Bloomberg Financial Markets.
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.
-16-
<PAGE> 20
COSTS OF SOLICITATION
The cost of soliciting proxies, which also includes the preparation,
printing, and mailing of this proxy statement, will be borne by the company.
Solicitation will be made by us primarily through the mail, but certain of our
employees, who will receive no compensation for their services other than their
regular remuneration, may also solicit proxies by telephone, telecopy, or
personal interview. We will request brokers and nominees to obtain voting
instructions of beneficial owners of stock registered in the names of such
brokers and nominees and other "street names" and will reimburse them for any
expenses incurred in connection therewith. Our transfer agent, Harris Trust and
Savings Bank, will assist us in the solicitation of proxies from brokers and
nominees. The fees for the services of our transfer agent are included in the
monthly fees we pay our agent. We will, however, reimburse the transfer agent
for its reasonable out-of- pocket expenses incurred in connection with providing
solicitation services.
OTHER MATTERS
As of the date of this proxy statement, we know 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: (a) matters that
our board of directors does not know, a reasonable time before proxy
solicitation, are to be presented for approval at the meeting; (b) approval of
the minutes of a prior meeting of stockholders, if such approval does not
constitute ratification of the action at the meeting; (c) 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; (d) 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 (e) 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.
EACH PERSON FROM WHOM A PROXY IS SOLICITED CAN OBTAIN A COPY OF OUR
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AS FILED WITH
THE SEC BY DOWNLOADING THE REPORT FROM OUR WEB SITE (WWW.PCSERVICE.COM) OR BY
SENDING A WRITTEN REQUEST TO US, 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.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholders proposals intended to be presented at the company's annual
meeting of stockholders in 2001, must be submitted to the company no later than
November 23, 2000, to be included in the company's proxy materials for 2001.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE 2000 ANNUAL MEETING,
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT WILL SAVE THE
EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
/s/ Robert J. Boutin
Dallas, Texas Robert J. Boutin,
April 18, 2000 Senior Vice President, Chief Financial
Officer and Secretary
-17-
<PAGE> 21
ANNEX A
PROPOSED AMENDMENT TO
PC SERVICE SOURCE, INC.'S
DIRECTOR COMPENSATION PLAN
The first sentence of section 3 of the Director Plan is hereby amended
to read in its entirety as follows:
There are authorized for issuance and delivery under the Plan
an aggregate of 40,000 shares of Common Stock, $0.01 par value
per share (the "Common Stock"), subject to adjustment as
provided in Section 8 hereof.
<PAGE> 22
ANNEX B
PROPOSED AMENDMENT TO
PC SERVICE SOURCE, INC.'S
EMPLOYEE STOCK PURCHASE PLAN
The first sentence of section 1.01 of the Employee Stock Purchase Plan
is hereby amended to read in its entirety as follows:
The PC Service Source, Inc. Employee Stock Purchase Plan (the
"Plan") is intended to provide a method whereby employees of
PC Service Source, Inc., and its subsidiary corporations
(hereinafter referred to, unless the context otherwise
requires, as "PCSS" or the "Company") will have an opportunity
to acquire a proprietary interest in the Company through the
purchase of up to a total of 250,000 shares of the common
stock of the Company ("Common Stock").
<PAGE> 23
ANNEX C
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 Robert J. Boutin,
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 2000 Annual Meeting of Stockholders of PC Service Source, Inc. to
be held on the 23rd day of May, 2000 (pursuant to the Notice of Annual Meeting
dated April 2000, and accompanying proxy statement), 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 Stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS NOMINEES: Class II Directors - Morti Tenenhaus and Robert S. Leff
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed to (INSTRUCTION: To withhold authority to vote for any individual
the right. nominee, write such individual's name in the space provided below.
[ ] [ ] ---------------------------------------------------------------------------
2. RATIFICATION OF ERNST & YOUNG LLP 4. APPROVAL OF AMENDMENT TO THE EMPLOYEE
AS INDEPENDENT AUDITOR. STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF
SHARES RESERVED FOR ISSUANCE UNDER THE PLAN FROM
100,000 TO 250,000.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
3. APPROVAL OF AMENDMENT TO THE DIRECTOR 5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
COMPENSATION PLAN TO INCREASE THE NUMBER OF UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
SHARES RESERVED FOR ISSUANCE UNDER THE PLAN FROM THE MEETING.
20,000 TO 40,000 SHARES.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
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 the president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
Dated: , 2000
------------------------------------
------------------------------------------------
(Signature)
------------------------------------------------
(Signature if held jointly)
</TABLE>
