<PAGE>
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 [_]
[_] CONFIDENTIAL, FOR USE OF THE
Check the appropriate box: COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CREATIVE COMPUTERS, 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)(4) 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 ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it 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>
CREATIVE COMPUTERS, INC.
2645 MARICOPA STREET
TORRANCE, CALIFORNIA 90503
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 8, 1997
----------------
The Annual Meeting of Stockholders (the "Annual Meeting") of Creative
Computers, Inc., a Delaware corporation (the "Company"), will be held at the
Marriott Hotel, 3635 Fashion Way, Torrance, California 90503, on Tuesday, July
8, 1997, at 10:00 a.m. local time for the following purposes:
1. To elect four directors of the Company to serve until the 1998 Annual
Meeting of Stockholders or until their successors are duly elected and
qualified;
2. To ratify the appointment of Price Waterhouse LLP as the independent
accountants for the Company for the fiscal year ending December 31,
1997;
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
of this notice.
A copy of the Company's Annual Report for the fiscal year ended December 31,
1996, containing consolidated financial statements, is included with this
mailing.
The Board of Directors has fixed the close of business on May 9, 1997 as the
record date for determining the stockholders entitled to notice of and to vote
at the Annual Meeting and any adjournment or postponement thereof. A list of
such stockholders will be available for examination by any stockholder at the
Annual Meeting, or at the office of the Secretary of the Company, 2645
Maricopa Street, Torrance, California 90503, for a period of ten days prior to
the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, sign, date and return the enclosed proxy card
as promptly as possible in the postage-prepaid envelope provided to ensure
your representation and the presence of a quorum at the Annual Meeting. If you
send in your proxy card and then decide to attend the Annual Meeting to vote
your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
/s/ FRANK F. KHULUSI
FRANK F. KHULUSI
Chairman of the Board, President
and Chief Executive Officer
Torrance, California
June 20, 1997
<PAGE>
CREATIVE COMPUTERS, INC.
2645 MARICOPA STREET
TORRANCE, CALIFORNIA 90503
----------------
PROXY STATEMENT
----------------
GENERAL
This Proxy Statement is furnished to stockholders of Creative Computers,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company (the "Board") of proxies
in the enclosed form for use in voting at the Annual Meeting of Stockholders
(the "Annual Meeting") of the Company to be held on Tuesday, July 8, 1997, at
10:00 a.m., local time, at the Marriott Hotel, 3635 Fashion Way, Torrance,
California 90503 and any adjournment or postponement thereof. The shares
represented by the proxies received, properly marked, dated, executed and not
revoked will be voted at the Annual Meeting.
These proxy solicitation materials are being mailed to stockholders on or
about June 23, 1997.
VOTING AND SOLICITATION
The persons named as proxy holders, Frank F. Khulusi and Sam U. Khulusi,
were selected by the Board of Directors of the Company. Mr. Frank Khulusi is
an executive officer and director of the Company and Mr. Sam Khulusi is a
director of the Company. Votes cast by proxy or in person at the Annual
Meeting will be tabulated by the Inspector of Elections. The Inspector of
Elections will also determine whether or not a quorum is present. The
presence, in person or by proxy, of the holders of a majority of the shares of
Common Stock issued and outstanding is necessary to constitute a quorum at the
meeting. Shares represented at the meeting in person or by proxy but not voted
will nevertheless be counted for purposes of determining the presence of a
quorum. Accordingly, abstentions and broker non-votes (shares as to which a
broker or nominee has indicated that it does not have discretionary authority
to vote) on a particular matter, including the election of directors, will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but will be treated as not voted for
purposes of determining the decision of stockholders with respect to such
matter. In the election of directors, the four nominees for directors who
receive the greatest number of affirmative votes will be elected to the Board
of Directors, without giving effect to abstentions and broker non-votes.
Ratification of the appointment of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997 requires the
affirmative vote of a majority of the shares present or represented at the
meeting, assuming that a quorum is present or represented at the meeting. An
abstention or broker non-vote will have the same effect as a vote cast against
this matter.
Proxies in the accompanying form which are properly executed, duly returned
to the Company and not revoked will be voted in accordance with the
instructions therein. IF NO INSTRUCTION IS GIVEN WITH RESPECT TO ANY PROPOSAL
TO BE ACTED UPON, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
NAMED IN THIS PROXY STATEMENT AND IN FAVOR OF PROPOSAL 2. No matter currently
is expected to be considered at the Annual Meeting other than the proposals
set forth in the accompanying Notice of Annual Meeting, but if any other
matters are properly brought before the Annual Meeting for action, it is
intended that the persons named in the proxy and acting thereunder will vote
in accordance with their discretion on such matters.
The presence at the meeting of a stockholder will not revoke his or her
proxy. However, a proxy may be revoked at any time before it is voted by
delivering to the Company (Attention: Richard Finkbeiner, at the principal
offices of the Company) a written notice of revocation or a duly executed
proxy bearing a later date.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing
and mailing proxy solicitation materials for the Annual Meeting and
<PAGE>
reimbursements paid to brokerage firms and others for their expenses incurred
in forwarding such materials to beneficial owners of the Company's Common
Stock. The Company may conduct further solicitation personally, telephonically
or by facsimile through its officers, directors and employees, none of whom
will receive additional compensation for assisting with the solicitation.
RECORD DATE AND SHARES OUTSTANDING
The close of business on May 9, 1997 has been fixed as the record date (the
"Record Date") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Annual Meeting. As of the
close of business on the Record Date, the Company had 9,776,950 shares of
Common Stock outstanding. At the meeting each stockholder entitled to vote at
the meeting will be entitled to cast one vote in person or by proxy for each
share of Common Stock held by such stockholder.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1997, (i) by each person who is
known by the Company to beneficially own more than 5% of the Company's Common
Stock, (ii) by each director and nominee, (iii) by each executive officer of
the Company named in the Summary Compensation Table contained herein and (iv)
by all directors and executive officers of the Company as a group. Except as
indicated and pursuant to applicable community property laws, each person
listed below has sole voting and investment power with respect to the shares
set forth opposite such person's name.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS(1) OWNED OF CLASS
------------------- ------------ ----------
<S> <C> <C>
Frank F. Khulusi(2)................................. 2,096,000 21.4%
Sam U. Khulusi(3)................................... 2,254,425 23.0%
Ahmed O. Alfi(4).................................... 149,840 1.5%
Al S. Joseph(5)..................................... 2,000 *
Amre A. Youness(6).................................. 777,752 7.9%
Richard M. Finkbeiner(7)............................ 53,666 *
Daniel J. DeVries(8)................................ 42,270 *
David R. Burcham(9)................................. 27,915 *
All directors and executive officers as a group (7
persons)(10)....................................... 4,626,116 47.2%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the address for each person is 2645 Maricopa
Street, Torrance, California 90503.
(2) Includes 326,340 shares and 8,575 shares held in trust for the benefit of
the children of Sam Khulusi and Basimah Khulusi, respectively.
(3) Includes 326,340 shares held in trust for the benefit of the children of
Frank Khulusi and 3,000 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
(4) Includes 3,000 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
(5) Includes 2,000 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
(6) The address for Mr. Youness is 3 Civic Plaza, Suite 170, Newport Beach,
California 92660.
(7) Includes 23,666 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
(8) Includes 42,270 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
(9) Includes 27,915 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
(10) Includes 101,851 shares subject to outstanding options which are
exercisable within 60 days after March 31, 1997.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
In accordance with the Company's Certificate of Incorporation, the Company's
Board of Directors is elected at each Annual Meeting of stockholders.
Vacancies on the Board of Directors and newly created directorships will
generally be filled by vote of a majority of the directors then in office, and
any directors so chosen will hold office until the next election of directors.
The proxies given to the proxyholders will be voted or not voted as directed
thereon, and if no direction is given, will be voted FOR approval of the
nominees. The Board of Directors has no reason to believe that any of its
nominees will be unable or unwilling to serve if elected to office and, to the
knowledge of the Board of Directors, each of its nominees intends to serve the
entire term for which election is sought. However, should any nominee of the
Board of Directors become unable or unwilling to accept nomination or election
as a director of the Company, the proxies solicited by management will be
voted for such other person as the Board may determine.
In voting for directors, each stockholder is entitled to cast one vote for
each candidate. Stockholders are not entitled to cumulate their votes for
members of the Board of Directors. The four nominees for election as directors
who receive the greatest number of affirmative votes will be elected to the
Board of Directors.
The nominees for election are:
Frank F. Khulusi
Sam U. Khulusi
Ahmed O. Alfi
Al S. Joseph
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES NAMED ABOVE
NOMINEES
The names of the nominees, their ages as of the Record Date, and certain
other information about them are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- --------
<S> <C> <C> <C>
Frank F. Khulusi. 30 Chairman of the Board of Directors, President
and Chief Executive Officer 1987
Sam U. Khulusi... 41 Director 1987
Ahmed O. Alfi.... 40 Director 1994
Al S. Joseph..... 64 Director 1995
</TABLE>
Frank F. Khulusi is a co-founder of the Company (and its predecessor) and
has served as Chairman of the Board, President and Chief Executive Officer of
the Company since the Company's inception in 1987. He is the brother of Sam U.
Khulusi.
Sam U. Khulusi is a co-founder of the Company and served as Executive Vice
President and Chief Operating Officer of the Company from October 1994 until
February 1996. Mr. Khulusi currently is the Managing Director of Denim
Software, L.L.C., a software development company. From 1987 until October
1994, Mr. Khulusi served as Chief Financial Officer of the Company. He is the
brother of Frank F. Khulusi.
Ahmed O. Alfi has served as a director of the Company since September 1994.
Mr. Alfi has served as the Chairman of the Board and Chief Executive Officer
of Alfigen, a prenatal diagnostic company, since January 1992. Since January
1996, Mr. Alfi has served as a director of SmarTalk Teleservices, a publicly
traded telecommunications service provider.
Dr. Al S. Joseph has served as a director of the Company since July 1995.
Dr. Joseph, a former senior engineering executive at Rockwell International,
is the founder of Vitesse Semiconductor, Inc. serving as CEO and Chairman from
1984 through 1988. Dr. Joseph is also a co-founder of Quad Design (now View
Logic). From 1988 to the present Dr. Joseph has been a consultant to the
electronics industry serving such clients as Cray
3
<PAGE>
Research, E-Systems Raytheon, Flextronics International, Booz, Allen &
Hamilton, and the Dow Chemical Company. Dr. Joseph is the father of Ray
Joseph, who was employed as Director of Marketing for the Company until March
1997.
COMPENSATION OF DIRECTORS
The Company's directors did not receive cash compensation or reimbursement
for expenses for serving on the Board of Directors for the fiscal year ended
December 31, 1996.
Under the Company's Directors' Non-Qualified Stock Option Plan in effect
during 1996, each director who was not an employee of the Company was entitled
to receive an option to purchase 2,000 shares of the Company's Common Stock
upon joining the Board. After the initial grant described above, each director
would receive an additional option to purchase 1,000 shares of the Company's
Common Stock on the date of each succeeding annual meeting of stockholders so
long as the director had served on the Board for at least one year. Options
were granted at fair market value on the date of grant and would vest on the
first anniversary of the date of grant. The Company's Directors' Non-Qualified
Stock Option Plan was amended in June 1997 to provide that each director who
is not an employee of the Company is entitled to receive an option to purchase
2,000 shares of the Company's Common Stock upon joining the Board. After the
initial grant described above, each director receives an additional option to
purchase 5,000 shares of the Company's Common Stock on the date of each
succeeding annual meeting of stockholders. Options are granted at fair market
value on the date of grant and vest on the first anniversary of the date of
grant.
The cash compensation of outside directors also was revised in June 1997.
Each non-employee director will receive $5,000 per meeting, up to a maximum of
four meetings per year.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee.
The Board of Directors does not have a nominating committee or a committee
performing the functions of a nominating committee. Although there are no
formal procedures for stockholders to recommend nominations, the Board of
Directors will consider recommendations from stockholders, which should be
addressed to Richard Finkbeiner, at the principal offices of the Company.
The members of the Audit Committee are Ahmed Alfi and Al Joseph. The Audit
Committee held one meeting during the year ended December 31, 1996. The
functions of the Audit Committee include reviewing and supervising the
financial controls of the Company, making recommendations to the Board of
Directors regarding the Company's independent accountants, reviewing the books
and accounts of the Company, meeting with the officers of the Company
regarding the Company's financial controls, acting upon recommendations of the
independent accountants and taking such further actions as the Audit Committee
deems necessary to complete an audit of the books and accounts of the Company.
The members of the Compensation Committee are Frank Khulusi and Ahmed Alfi.
The Compensation Committee held two meetings during the year ended December
31, 1996 and met a number of times on an informal basis. The Compensation
Committee's functions include reviewing with management cash and other
compensation policies for employees, making recommendations to the Board of
Directors regarding compensation matters and determining compensation for the
Chief Executive Officer. In addition, the Compensation Committee administers
the Company's stock plans and, within the terms of the respective stock plan,
determines the terms and conditions of issuances thereunder.
The Board of Directors held a total of eight meetings during the year ended
December 31, 1996. During such year, each director attended over 75% of the
meetings of the Board and the committees of the Board on which he served that
were held during the period he served.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
4
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages and
positions are as follows as of May 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frank F. Khulusi.......... 30 Chairman of the Board, President and
Chief Executive Officer
Richard M. Finkbeiner..... 50 Chief Financial Officer
Daniel J. DeVries......... 35 Executive Vice President--Marketing
David R. Burcham.......... 32 Executive Vice President--Operations and Sales
</TABLE>
The following is a biographical summary of the experience of the executive
officers:
Frank F. Khulusi is a co-founder of the Company and has served as Chairman
of the Board, President and Chief Executive Officer of the Company since the
Company's inception.
Richard M. Finkbeiner joined the Company in June 1996 as Chief Financial
Officer. From January 1996 to June 1996 he was Chief Financial Officer for
Petro Stopping Centers, a national travel plaza retailer. Prior to that he was
Chief Financial Officer for NordicTrack, a direct marketer and retailer of
fitness equipment, from 1993 to 1996. From 1989 to 1993 he was Chief Financial
Officer for Current, Inc., a direct marketer of greeting cards, and from 1984
to 1989 he was Controller and then Chief Financial Officer for Fox Photo, a
photofinisher. Mr. Finkbeiner spent the first 12 years of his career with
Hallmark Cards, a manufacturer and retailer of social expression products.
Daniel J. DeVries has served as Executive Vice President since February 1996
and was Senior Vice President from October 1994 to that time. Mr. DeVries is
responsible for all marketing, including vendor co-op marketing,
merchandising, database marketing and Internet marketing. From April 1993 to
October 1994, he held various sales and marketing positions with the Company.
From July 1988 to April 1993, Mr. DeVries was a regional manager for Sun
Computers, a computer retailer.
David R. Burcham has served as Executive Vice President of Operations and
Sales since March 1997 and was Senior Vice President from February 1996 to
that time. Mr. Burcham is responsible for all sales, purchasing, distribution,
MIS, and retail showrooms. From June 1990 to February 1996, he held various
sales and operational positions for Multiple Zones International, Inc.
including Vice President of Sales and Vice President of Operations. Prior to
that, he was Vice President of Sales and Marketing for BID International,
Inc., a publishing and information services company.
5
<PAGE>
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth the cash compensation earned for services
performed for the Company during the three years in the period ended December
31, 1996 by the Company's Chief Executive Officer and each of its other
executive officers who earned over $100,000 in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND CURRENT BONUS COMPENSATION OPTIONS/SARS COMPENSATION
POSITION YEAR SALARY($) ($) ($)(1) (#) ($)(2)
---------------- ---- --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Frank F. Khulusi........ 1996 303,900 -- -- -- --
Chairman and Chief 1995 300,000 -- -- -- --
Executive Officer 1994 279,500 -- -- -- --
Richard M. Finkbeiner(3) 1996 128,195 25,000 -- 150,000(4) 18,504
Chief Financial Officer
Daniel J. DeVries....... 1996 198,702 36,937(5) 23,720(6) 130,000(7) --
Executive Vice 1995 122,418 118,189 -- 18,284 --
President, Marketing 1994 122,418 90,698 -- 58,800 --
David R. Burcham(8)..... 1996 166,667 23,333 -- 120,000(9) 50,000
Executive Vice
President, Sales and
Operations
</TABLE>
- --------
(1) Except as set forth in the Summary Compensation Table, the incremental
cost to the Company of providing perquisites and other personal benefits
during the last three fiscal years did not exceed, as to any named
executive officer, the lesser of $50,000 or 10% of the total salary and
bonus paid to executive officer for any such year and, accordingly, is
omitted from this table.
(2) Represents relocation expenses and allowances paid by the Company.
(3) Mr. Finkbeiner joined the Company in June 1996.
(4) Represents options to purchase an aggregate of 75,000 shares granted in
May 1996 that were repriced in July 1996.
(5) Mr. DeVries' bonus includes commissions.
(6) Represents auto allowance of $18,182 and health insurance premiums of
$5,578.
(7) Represents options to purchase an aggregate of 15,000 shares granted in a
previous fiscal year that were repriced in February and July 1996 and
options to purchase an aggregate of 50,000 shares granted in February 1996
that were repriced in July 1996.
(8) Mr. Burcham joined the Company in February 1996.
(9) Represents options to purchase an aggregate of 60,000 shares granted in
February 1996 that were repriced in July 1996.
6
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the named executive officers in 1996 (including repricings
which are reflected as new grants). In addition, as required by Securities and
Exchange Commission rules, the table sets forth the hypothetical gains that
would exist for the options based on assumed rates of annual compound stock
price appreciation during the option term.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATE OF
NUMBER OF OPTIONS/SARS STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES IN OR BASE FOR OPTION TERM(3)
OPTIONS/SARS FISCAL PRICE EXPIRATION -------------------
NAME GRANTED(#) YEAR(1) (S/SH) DATE(2) 5%($) 10%($)
---- ------------ ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank F. Khulusi........ -- -- -- -- -- --
Richard M. Finkbeiner... 5,000(4) 0.35 8.875 5/21/06 27,907 70,722
35,000(5) 2.46 8.875 5/21/06 195,350 495,056
35,000(6) 2.46 8.875 5/21/06 195,350 495,056
5,000(*)(4) 0.35 6.00 5/21/06 12,377 36,904
35,000(*)(5) 2.46 6.00 5/21/06 86,641 258,334
35,000(*)(6) 2.46 6.00 5/21/06 86,641 258,334
Daniel J. DeVries....... 50,000(5) 3.52 9.50 2/12/06 298,725 757,028
15,000(**)(6) 1.05 9.50 8/4/05 83,736 209,035
50,000(*)(5) 3.52 6.00 2/12/06 118,257 352,145
15,000(*)(6) 1.05 6.00 8/4/05 32,298 96,077
David R. Burcham........ 60,000(7) 4.22 10.75 2/20/06 405,637 1,027,964
60,000(*)(7) 4.22 6.00 2/20/06 142,446 424,211
</TABLE>
- --------
All above options were granted at or above fair market value on the date of
grant.
(*) Represents options granted previously that were repriced to $6.00 per
share by the Compensation Committee of the Board of Directors on July 27,
1996. All options granted at an exercise price exceeding $6.00 per share
were repriced to $6.00 per share on Saturday July 27, 1996. Market price
on Friday, July 26, and Monday, July 29, 1996 was $5.25 and $5.625,
respectively.
(**) Represents options granted previously that were repriced to $9.50 per
share by the Compensation Committee of the Board of Directors on February
12, 1996. All options granted in 1995 were repriced by the Compensation
Committee of the Board of Directors to $9.50 per share on February 12,
1996, except options granted to employees who resigned prior to the end
of February 1996. Market price on February 12, 1996 was $9.50.
(1) Based on an aggregate of 1,419,000 options granted to officers and
employees of the Company in fiscal year 1996, including the named
executive officers. The total number of options granted during fiscal year
1996 include 846,800 that represent previously granted options that were
repriced in February and July 1996.
(2) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(3) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their terms, assuming the specified compounded
rates of appreciation on the Company's Common Stock over the term of the
options. Actual gains, if any, on stock option exercise are dependent upon
a number of factors, including the future performance of the Common Stock
and the timing of option exercises, as well as the optionee's continued
employment through the term of the options. There can be no assurance that
the amounts reflected in this table will be achieved.
7
<PAGE>
(4) These nonstatutory stock options vested and became exercisable immediately
upon employment.
(5) These nonstatutory stock options vest and become exercisable 20% per year
from the date of grant.
(6) These nonstatutory stock options vest and become exercisable 8.25% per
quarter from the date of grant.
(7) 5,000 shares of these nonstatutory stock options vested and became
exercisable immediately upon employment. 55,000 shares vest and become
exercisable 8.25% per quarter from the date of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
The following table sets forth information concerning the value of
unexercised options held by named executive officers at December 31, 1996. No
named executive officers exercised stock options during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996
ON ------------------------- -------------------------
NAME EXERCISE(#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Frank F. Khulusi........ -- -- -- -- --
Richard M. Finkbeiner... -- 10,833 64,167 $14,895 $ 88,230
Daniel J. DeVries....... -- 29,770 94,030 $52,694 $146,931
David R. Burcham........ -- 18,749 41,251 $25,780 $ 56,720
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and the Stock Performance
Graph which follows shall not be deemed to be incorporated by reference into
any such filings.
In February 1995, the Board of Directors established the Compensation
Committee. The Compensation Committee reviews with management cash and other
compensation policies for employees, makes recommendations to the Board
of Directors regarding compensation matters and determines (acting through a
sub-committee) the compensation for the Chief Executive Officer. In addition,
the Compensation Committee administers the Company's stock plans and, within
the terms of the respective stock plan, determines the terms and conditions of
issuances thereunder. The compensation of the executive officers of the
Company, except for the compensation of the Chief Executive Officer, is set
and approved by the Compensation Committee of the Board of Directors based on
the recommendation of the Chief Executive Officer.
Compensation Policies
The Compensation Committee's executive compensation policies are designed to
provide levels of compensation that integrate pay with the Company's
objectives and goals, reward above-average corporate performance, recognize
individual initiative and achievements and assist the Company in attracting
and retaining qualified executives. Executive compensation is set at levels
that the Compensation Committee believes to be adequate to recruit, retain and
motivate key employees.
There are three primary elements in the Company's executive compensation
program:
. Base salary
. Bonus
. Stock options
8
<PAGE>
Individual base salaries are established based on an executive officer's
experience, historical contribution and future importance to the Company and
other subjective factors, without assigning a specific weight to individual
factors.
Bonuses are paid pursuant to executive bonus plans. Bonus awards are set
based on various goals dependent upon the person's function in the
organization. Certain individuals' bonus plans are set as a percentage of base
salary, with the specific percentage determined by the person's position
within the Company. The award of bonuses is dependent on the achievement of
specified goals. The achievement of quantitative goals at the department and
corporate levels is the primary factor in determining bonuses and such goals
are tied to the achievement of specified performance targets.
The Chief Executive Officer's bonus, if any, is determined as set forth in
his employment contract, as described below.
The Company believes that a component of the compensation paid to the
Company's executives over the long term should be derived from stock options.
The Company believes that stock ownership in the Company is a valuable
incentive to executives and that the grant of stock options to them serves to
align their interests with the interests of the stockholders as a whole and
encourages them to manage the Company in its best interests. The Compensation
Committee determines whether to grant stock options, as well as the amount of
the grants, based on a person's position within the Company.
Compensation of Chief Executive Officer
In establishing the Chief Executive Officer's overall compensation, a sub-
committee of the Compensation Committee (the "Sub-Committee"), considered a
number of factors, including the record of leadership and service provided by
the Chief Executive Officer since co-founding the Company. The Sub-Committee
has not found it practicable to, and has not attempted to, assign relative
weights to the specific factors considered in determining the Chief Executive
Officer's compensation. Consistent with the Company's overall executive
compensation program, the Chief Executive Officer's compensation is composed
of base salary and bonus. The Chief Executive Officer's base salary was set at
$400,000 in his employment agreement with the Company. During 1995, the Chief
Executive Officer elected to reduce his salary, in consultation with the
Compensation Committee, to $300,000. The Chief Executive Officer's salary
remained at $300,000 throughout 1996. In 1996, the Chief Executive Officer did
not receive a bonus and was not granted any stock options.
Policy Regarding Deductibility of Compensation for Tax Purposes--Compliance
With Internal Revenue Code Section 162(m)
Section 162(m) of the Code, generally disallows a tax deduction to public
companies for annual compensation over $1 million paid to the chief executive
officer or any of the four other most highly compensated executive officers.
However, certain compensation meeting a tax law definition of "performance-
based" is generally exempt from this deduction limit. The Company does not
currently have a policy regarding qualification of cash compensation, such as
salary and bonuses, for deductibility under Section 162(m). However, none of
the Company's executives receive such compensation at levels that approach the
Section 162(m) $1 million limit. The Company has included provisions in the
1994 Stock Incentive Plan designed to enable grants of options and SARs to
executive officers affected by Section 162(m) to qualify as "performance-
based" compensation. However, such grants cannot qualify until such grants are
made by a "disinterested committee" under Section 162(m), which the Company
currently does not have.
COMPENSATION COMMITTEE
Ahmed O. Alfi
Frank F. Khulusi
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank F. Khulusi, a member of the Compensation Committee, is an executive
officer of the Company. There are no Compensation Committee interlocks between
the Company and other entities involving the Company's executive officers and
Board members who serve as executive officers of such companies.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file an initial report
of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the "Commission"). Such officers,
directors and 10% stockholders are also required by the Commission rules to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for such persons, the Company believes that during 1996, all Section
16(a) filing requirements applicable to its officers, directors and ten
percent stockholders were complied with, except that a Form 4 regarding the
purchase of 150,000 shares by Sam Khulusi was filed late.
STOCK PERFORMANCE GRAPH
The performance graph below compares the cumulative total stockholder return
of the Company with the cumulative total return of the Nasdaq Stock Market-US
Companies Index ("Nasdaq-US") and the Nasdaq Retail Trade Index ("Nasdaq-
Retail"). The performance graph also compares the cumulative total stockholder
return of the Company with the cumulative total return of the Standard &
Poor's Technology sector Index ("S&P Technology Sector") (formerly known as
the Standard & Poor's High Tech Composite Index ("High Tech Index")) and the
cumulative total return of the Standard & Poor's 500 Stock Index ("S&P 500"),
which are the indices used in the Company's 1996 Proxy Statement. The Company
has chosen to use the Nasdaq-US and Nasdaq-Retail indices on its performance
graph this year because it believes these indices provide more relevant
comparisons for the Company's Nasdaq-traded stock. The Company does not plan
to use the S&P 500 or S&P Technology Sector indices in future years. The
performance graph assumes that $100 was invested in the Company's initial
public offering, on April 4, 1995, in common stock of the Nasdaq-US, Nasdaq-
Retail, S&P 500 and S&P Technology Sector. The stock price performance shown
in this graph is neither necessarily indicative of nor intended to suggest
future stock price performance.
10
<PAGE>
COMPARISON OF 21 MONTH CUMULATIVE TOTAL RETURN*
AMONG CREATIVE COMPUTERS, INC., NASDAQ-US, NASDAQ-RETAIL,
S&P 500 AND S&P TECHNOLOGY SECTOR
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
NASDAQ
STOCK STANDARD
MARKET-U.S. STANDARD & POOR'S
Measurement CREATIVE COMPANIES NASDAQ & POOR'S TECHNOLOGY
Period COMPUTERS INDEX RETAIL 500 INDEX SECTOR (PRIOR
(Fiscal Year INC. COMMON (MARKET TRADE INDEX (PRIOR YEAR'S YEAR'S PEER
Covered) STOCK INDEX) (PEER INDEX) MARKET INDEX) INDEX)
- ------------------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
FYE 4/04/95 $100 $100 $100 $100 $100
FYE 12/95 $107 $130 $111 $125 $128
FYE 12/96 $ 43 $160 $133 $154 $181
</TABLE>
* $100 INVESTED ON 04/04/95 IN STOCK OR ON
03/31/95 IN INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
11
<PAGE>
REPORT ON REPRICING OF OPTIONS/SARS
During 1996, the Compensation Committee of the Board of Directors repriced
stock options issued pursuant to the Company's 1994 Stock Incentive Plan (the
"1994 Plan"). The Company adopted and the stockholders approved the 1994 Plan
in November 1994. The 1994 Plan provides a means to attract and retain
officers and key employees and promote the success of the Company. After a
series of informal meetings the Compensation Committee concluded that options
granted under the 1994 Plan were not positioned to achieve their primary
purposes, including the ability to attract, incentivize and retain employees,
as a result of the decline in the price of the Company's stock. The
Compensation Committee determined that it was advisable and in the best
interests of the Company to reprice all stock options under the 1994 Plan to
persons employed by the Company except those options granted prior to the
Company's initial public offering and those options granted to persons who
resigned their employment with the Company prior to the end of February 1996.
Therefore, substantially all options outstanding as of February 12, 1996 were
repriced to $9.50 per share, the closing market price on February 12, 1996. In
July 1996, the Compensation Committee again evaluated whether options granted
under the 1994 Plan were effectively serving the Plan's primary purposes. On
July 27, 1996 the Compensation Committee concluded that it was advisable and
in the best interests of the Company to reprice certain stock options granted
under the 1994 Plan to persons employed by the Company at such date, on which
the option price exceeded $6.00 per share. Therefore, grants of options to
purchase shares of Common Stock pursuant to the 1994 Plan outstanding on July
27, 1996 at an exercise price greater than $6.00 per share were repriced as of
that date to $6.00 per share. The closing price of the Company's stock on July
26, 1996, the business day closest to July 27, 1996, was $5.25 per share.
Except for the exercise prices, new options continue to be governed by the
same terms as applied to the prior options, including the vesting schedules.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES ORIGINAL
UNDERLYING MARKET PRICE EXERCISE OPTION TERM
OPTIONS/ OF STOCK AT PRICE AT REMAINING AT
SARS TIME OF TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT($) PRICE($) AMENDMENT
---- ------- ----------- ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank Khulusi........... -- -- -- -- -- --
David R. Burcham........ 7/27/96 60,000 $5.25 $ 9.50 $6.00 9Yrs 201 Days
Daniel J. DeVries....... 2/12/96 15,000 $9.50 $25.50 $9.50 9Yrs 173 Days
7/27/96 50,000 $5.25 $ 9.50 $6.00 9Yrs 200 Days
7/27/96 15,000 $5.25 $ 9.50 $6.00 9Yrs 8 Days
Richard M. Finkbeiner... 7/27/96 35,000 $5.25 $8.875 $6.00 9Yrs 298 Days
7/27/96 5,000 $5.25 $8.875 $6.00 9Yrs 298 Days
7/27/96 35,000 $5.25 $8.875 $6.00 9Yrs 298 Days
</TABLE>
COMPENSATION COMMITTEE
Ahmed O. Alfi
Frank F. Khulusi
12
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has served as the independent auditors of the Company
and its predecessor since 1994 and has been appointed by the Board of
Directors to continue as the independent auditors of the Company for the year
ending December 31, 1997. In the event that ratification of this selection of
auditors is not approved by a majority of the shares of Common Stock voting at
the Annual Meeting in person or by proxy, the Board of Directors will review
its future selection of auditors. A representative of Price Waterhouse LLP is
expected to be present at the Annual Meeting, will have an opportunity to make
a statement and will be able to respond to appropriate questions. The persons
designated on the enclosed proxy will vote your shares FOR ratification unless
instructions to the contrary are included on the enclosed proxy.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1997
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at subsequent annual meetings of the Company consistent with Rule 14a-8
promulgated under the Exchange Act. Proposals of stockholders intended to be
presented at the Company's 1998 Annual Meeting of Stockholders must be
received by the Company (Attention: Richard Finkbeiner, at the principal
offices of the Company), no later than February 13, 1998, for inclusion in the
Company's proxy statement and form of proxy for that meeting.
OTHER MATTERS
The Board of Directors currently knows of no other business which will be
presented to the Annual Meeting. If any other business is properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof as the proxy holders deem advisable.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996 AS FILED WITH THE SECURITIES EXCHANGE COMMISSION WILL BE
PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO RICHARD M.
FINKBEINER, CHIEF FINANCIAL OFFICER, CREATIVE COMPUTERS, INC., 2645 MARICOPA
STREET, TORRANCE, CALIFORNIA 90503.
A FORM OF PROXY IS ENCLOSED FOR YOUR USE. PLEASE MARK, DATE, SIGN AND
PROMPTLY RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE. IT IS IMPORTANT THAT
THE PROXIES BE RETURNED PROMPTLY AND THAT YOUR SHARES BE REPRESENTED.
By Order of the Board of Directors,
/s/ FRANK F. KHULUSI
--------------------------------
FRANK F. KHULUSI
Chairman of the Board, President
and Chief Executive Officer
June 20, 1997
Torrance, California
13
<PAGE>
PROXY CREATIVE COMPUTERS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON JULY 8, 1997
The undersigned hereby appoints Frank F. Khulusi and Sam U. Khulusi
(collectively, the "Proxies"), or either of them, each with the power of
substitution, to represent and vote the shares of the undersigned, with all the
powers which the undersigned would possess if personally present, at the Annual
Meeting of Stockholders (the "Annual Meeting") of Creative Computers, Inc., a
Delaware corporation (the "Company"), to be held on Tuesday, July 8, 1997, at
10:00 a.m. local time, at the Marriott Hotel, 3635 Fashion Way, Torrance,
California 90503 and at any adjournments or postponements thereof. SHARES
REPRESENTED BY THIS PROXY CARD WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. IF
NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR
THE ELECTION OF THE NOMINEES LISTED BELOW AND FOR PROPOSAL 2. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
The Board of Directors recommends a vote FOR the election of Directors and
FOR proposal 2.
<TABLE>
<CAPTION>
1. Election of Directors:
<S> <C>
[_] FOR the nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for nominees listed below)
</TABLE>
Nominees: Frank F. Khulusi, Sam U. Khulusi, Ahmed O. Alfi and Al S. Joseph
(Instructions: To withhold authority to vote for any nominee, print that
nominees's name in the space provided below.)
- --------------------------------------------------------------------------------
SEE REVERSE SIDE: IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN AND DATE ON THE REVERSE SIDE. YOU NEED
NOT MARK ANY BOXES.
2. To ratify the appointment of Price Waterhouse LLP as the independent
accountants for the Company for the year ending December 31, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
===============================================================================
Please sign exactly as your name
appears herein. Joint owners should
each sign. When signing as
attorney, executor, administrator,
trustee or guardian, pleases give
full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized person. If a
partnership, please sign in full
partnership name by authorized
person.
____________________________________
(Signature)
____________________________________
(Signature, if jointly held)
DATE:_________________________, 1997
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE
