<PAGE>
================================================================================
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
CREATIVE COMPUTERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(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 Act Rule 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:
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(4) Date Filed:
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Notes:
<PAGE>
CREATIVE COMPUTERS, INC.
2555 W. 190TH STREET
TORRANCE, CALIFORNIA 90504
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 24, 1998
----------------
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Creative
Computers, Inc., a Delaware corporation (the "Company"), will be held at the
Marriott Hotel, 3635 Fashion Way, Torrance, California 90503 on Friday, July
24, 1998 at 10:00 a.m. local time for the following purposes as more fully
described in the Proxy Statement accompanying this Notice:
1. To elect four directors of the Company to serve until the 1999 Annual
Meeting of Shareholders or until their successors are duly elected and
qualified;
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31, 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on June 25, 1998, are
entitled to notice of and to vote at the meeting or any adjournment thereof. A
list of such shareholders will be available for examination by any shareholder
at the Annual Meeting, or at the office of the Secretary of the Company, 2555
W. 190th Street, Torrance, California 90504, for a period of ten days prior to
the Annual Meeting.
A copy of the Company's Annual Report for the fiscal year ended December 31,
1997, containing consolidated financial statements, is included with this
mailing. Your attention is directed to the accompanying Proxy Statement for
the text of the matters to be proposed at the meeting and further information
regarding each proposal to be made.
SHAREHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE ASKED TO COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN
PERSON IF YOU WISH.
By Order of the Board of Directors,
/s/ F. Khulusi
Frank F. Khulusi
Chairman of the Board, President and
Chief Executive Officer
Torrance, California
July 1, 1998
<PAGE>
CREATIVE COMPUTERS, INC.
2555 W. 190TH STREET
TORRANCE, CALIFORNIA 90504
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS--JULY 24, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished by the Board of Directors of Creative
Computers, Inc., a Delaware corporation (the "Company"), in connection with
the solicitation of proxies to be used at the Annual Meeting of Shareholders
(the "Meeting") of the Company to be held on Friday, July 24, 1998, at 10:00
a.m. local time, at the Marriott Hotel, 3635 Fashion Way, Torrance, California
90503, and at all adjournments thereof for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Shareholders. ANY PROXY IN
WHICH NO DIRECTION IS SPECIFIED WILL BE VOTED IN FAVOR OF EACH OF THE MATTERS
TO BE CONSIDERED. This Proxy Statement and the Notice of Meeting and Proxy are
being mailed to shareholders on or about July 1, 1998.
The close of business on June 25, 1998 has been fixed as the record date for
the determination of shareholders entitled to receive notice of and to vote at
the Meeting. At that date, the Company's outstanding voting securities
consisted of 10,155,063 shares of common stock, par value $.001 per share (the
"Common Stock"). On all matters which will come before the Meeting, each
shareholder or his proxy will be entitled to one vote for each share of Common
Stock of which such shareholder was the holder of record on the record date.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time prior to its use by (i) delivering to the principal
office of the Company a written notice of revocation, (ii) filing with the
Company a duly executed Proxy bearing a later date or (iii) attending the
Meeting and voting in person.
The costs of this solicitation will be borne by the Company. The Company
will request brokerage houses and other nominees, custodians and fiduciaries
to forward soliciting material to beneficial owners of the Company's Common
Stock. The Company will reimburse brokerage firms and other persons
representing beneficial owners for their expenses in forwarding solicitation
materials to beneficial owners.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 25, 1998: (i) by each of
the executive officers included in the Summary Compensation Table set forth
under the caption "Executive Compensation;" (ii) by each director; (iii) by
all directors and executive officers of the Company as a group; and (iv) by
each person known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS(1) OWNED OWNED
------------------- ------------ ------------
<S> <C> <C>
Frank F. Khulusi................................... 2,129,333(2) 20.9%
Sam U. Khulusi..................................... 1,911,585(3) 18.8%
Amre A. Youness.................................... 777,752(4) 7.7%
Ahmed O. Alfi...................................... 153,040(5) 1.5%
Richard M. Finkbeiner.............................. 81,916(6) *
Daniel J. DeVries.................................. 75,280(7) *
Thomas Maloof...................................... 2,000(8) *
The SC Fundamental Value Fund, L.P................. 502,755(9) 5.0%
SC Fundamental Value BVI, Ltd...................... 482,945(9) 4.8%
All directors and executive officers as a group (6
persons).......................................... 4,353,154(10) 42.1%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, the address for each person is 2555 W. 190th
Street, Torrance, California 90504.
(2) Includes (i) 326,340 shares and 8,575 shares held in trust for the
benefit of the children of Sam Khulusi and Basimah Khulusi,
respectively, and (ii) 33,333 shares issuable within sixty days pursuant
to options granted.
(3) Includes 8,000 shares issuable within sixty days pursuant to options
granted.
(4) The address for Mr. Youness is 301 North Lake, Suite 910, Pasadena, CA
91101.
(5) Includes 8,000 shares issuable within sixty days pursuant to options
granted.
(6) Includes 51,916 shares issuable within sixty days pursuant to options
granted.
(7) Includes 75,280 shares issuable within sixty days pursuant to options
granted.
(8) Includes 2,000 shares issuable within sixty days pursuant to options
granted.
(9) Based on the most recent Schedule 13D by these, and related entities,
jointly on June 3, 1998 with the Securities and Exchange Commission. The
address for the SC Fundamental Value Fund, L.P. and SC Fundamental Value
BVI, Ltd. is 10 East 50th Street, New York, New York 10022.
(10) This figure includes outstanding shares and options described in the
preceding footnotes.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
Four directors are to be elected at the meeting, each director to hold
office until the next Annual Meeting of Shareholders, or until his successor
is elected and qualified. All of the persons listed below are now serving as
directors of the Company. All of the persons listed below have consented to
serve as a director, if elected. The Board of Directors proposes for election
the nominees listed below.
Effective March 1, 1998, Al S. Joseph resigned as a director of the Company,
reducing the number of directors to three and creating a vacancy on the Board
of Directors. In May 1998, Thomas Maloof was appointed to fill the vacancy and
has agreed to seek election with the other nominees.
The table below gives certain information concerning the nominees and other
directors:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE NOMINEE SINCE
---- --- ------- --------
<S> <C> <C> <C>
Frank F. Khulusi(1)........ 31 Chairman of the Board, President and 1987
Chief Executive Officer
Sam U. Khulusi............. 42 Director 1987
Ahmed O. Alfi(1)(2)........ 41 Director 1994
Thomas Maloof(2)........... 46 Director 1998
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
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. From 1987 until October 1994, Mr. Khulusi served as Chief
Financial Officer of the Company. Mr. Khulusi currently is the Chairman and
Chief Executive Officer of Emed, LLC, a software development 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.
Thomas Maloof has served as a director of the Company since May 1998. Mr.
Maloof is the President of Perinatal Practice Management, Inc. From September
1997 until February 1998, Mr. Maloof served as Chief Financial Officer of
Prospect Medical Holdings. From January 1995 until September 1997, Mr. Maloof
was the Chief Executive Officer of Prime Health of Southern California. From
October 1992 until December 1994, Mr. Maloof was President of Foundation
Health, a California health plan provider.
VOTING INFORMATION
Proxies solicited by the Board of Directors will, unless otherwise directed,
be voted to elect all four of the nominees. A shareholder submitting a Proxy
may vote for all or any of the nominees for election to the Board of Directors
or may withhold his or her vote from all or any of such nominees. Directors
are elected by a plurality of votes. An abstention from voting on this matter
by a shareholder, while included for purposes of calculating a quorum for the
Meeting, has no effect. In addition, although broker "non-votes" will be
counted for purposes of
3
<PAGE>
attaining a quorum, they will have no effect on the vote. IF A SUBMITTED PROXY
IS PROPERLY SIGNED BUT UNMARKED IN RESPECT OF THE ELECTION OF DIRECTORS, THE
PROXY AGENTS NAMED IN THE PROXY WILL VOTE THE SHARES REPRESENTED THEREBY FOR
THE ELECTION OF ALL OF THE NOMINEES. All of the nominees have agreed to serve
the Company as a director if elected. However, should any nominee become
unwilling or unable to serve if elected, the Proxy Agents named in the Proxy
will exercise their voting power in favor of such other person as the Board of
Directors of the Company may recommend. The Company's Certificate of
Incorporation prohibits cumulative voting.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1997, the Board of Directors held
five meetings. Each director attended at least 75% of the aggregate total
number of meetings of the Board of Directors plus the total number of meetings
of all committees of the Board on which he served.
During 1997, the members of the Audit Committee were Ahmed Alfi and Al
Joseph. In May 1998, Mr. Joseph was succeeded on the Audit Committee by Thomas
Maloof. The Audit Committee held one meeting during the year ended December
31, 1997. 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 one meeting during the year ended December 31,
1997 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 Company has no nominating committee or any committee performing those
functions. The Board as a whole performs the functions which would otherwise
be delegated to a nominating committee.
COMPENSATION OF DIRECTORS
The Company compensates directors who are not employed by the Company or its
affiliates $5,000 per meeting, up to a maximum of four meetings per year, plus
expenses for services as a director. Under the Company's Directors' Non-
Qualified Stock Option Plan in effect during 1997, 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 5,000 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 are granted at fair market value
on the date of grant and vest on the first anniversary of the date of grant.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the other three executive officers whose
compensation exceeded $100,000 for such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
AWARDS
OTHER ANNUAL ------------ ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) (#) ($)(3)
------------------ ------ ------- ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Frank F. Khulusi........ 1997 395,266 25,000 -- 100,000 --
Chairman and Chief 1996 303,900 -- -- 0 --
Executive Officer 1995 300,000 -- -- 0 --
Richard M.
Finkbeiner(4).......... 1997 233,063 94,653 -- 20,000 15,246
Chief Financial Officer 1996 128,195 25,000 -- 150,000(5) 18,504
1995 -- -- -- -- --
Daniel J. DeVries....... 1997 198,486 25,000 -- 15,000 --
Executive Vice
President, 1996 198,702 36,937 23,720(6) 130,000(5) --
Sales and Marketing 1995 122,418 118,189 -- 18,284 --
David R. Burcham(7)..... 1997 197,851 22,500 -- 20,000 --
Executive Vice
President, 1996 166,667 23,333 -- 120,000(5) 50,000
Operations 1995 -- -- -- -- --
</TABLE>
- --------
(1) Reflects bonus paid during the fiscal year.
(2) "Other Annual Compensation" includes the following, to the extent that
the aggregate amount thereof exceeds the lesser of $50,000 or 10% of the
total annual salary and bonus reported for the individual; personal
benefits received by the named individuals and amounts reimbursed the
individuals during the year.
(3) Represents relocation expenses and allowances paid by the Company.
(4) Mr. Finkbeiner joined the Company in June 1996.
(5) Includes options which were repriced in 1996, including 75,000 for Mr.
Finkbeiner, 65,000 for Mr. DeVries and 60,000 for Mr. Burcham.
(6) Represents automobile allowance of $18,182 and health insurance premiums
of $5,538.
(7) Mr. Burcham joined the Company in February 1996 and resigned in May 1998.
5
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1997 to
the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE GRANT
UNDERLYING EMPLOYEES IN OR BASE DATE
OPTIONS/SARS FISCAL PRICE EXPIRATION VALUE
NAME GRANTED (#) YEAR(1) ($/SH) DATE ($)(2)
---- ------------ ------------ -------- ------------ -------
<S> <C> <C> <C> <C> <C>
Frank F. Khulusi........ 100,000 28.4 7.125 July 1, 2007 519,100
Richard M. Finkbeiner... 20,000 5.7 7.125 July 1, 2007 103,820
Daniel J. DeVries....... 15,000 4.3 7.125 July 1, 2007 77,865
David R. Burcham........ 20,000 5.7 7.125 July 1, 2007 103,820
</TABLE>
- --------
(1) The Company granted 351,750 options during fiscal 1997.
(2) As suggested by the Commission's rules on executive compensation
disclosure, the Company used the Black-Scholes model of options valuation
to determine grant date present value. The Company does not advocate or
necessarily agree that the Black-Scholes model can properly determine the
value of an option. The present value calculations are based on a ten-year
option term with an expected life of six years. Assumptions include an
interest rate of 6.3%, an annual dividend yield of 0% and volatility of
80%.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, the year-end value of unexercised
options.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT END OF IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED FISCAL 1997 (#) END OF FISCAL 1997 (1)
-------- -------- ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank F. Khulusi........ -- -- 8,333 91,667 $ 23,437 $257,813
Richard M. Finkbeiner... -- -- 31,165 63,835 $120,838 $230,725
Daniel J. DeVries....... -- -- 57,780 81,020 $243,743 $315,308
David R. Burcham........ -- -- 38,748 41,252 $150,696 $141,804
</TABLE>
- --------
(1) Value based on market value of the Company's Common Stock on December 31,
1997 less the exercise price.
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 (the
"Securities Act") requires the Company's officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership on Form 3 and changes in ownership on
Forms 4 or 5 with the Securities and Exchange Commission (the "Commission")
and The NASDAQ Stock Market. Such officers, directors and ten percent
shareholders are also required by the Commission's rules to furnish the
Company with copies of all Section 16(a) forms they file.
6
<PAGE>
Based solely on its review of the copies of such forms received by it, or
representation from certain reporting persons that no Forms 5 were required
for such persons, the Company believes that during the fiscal year ended
December 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and ten percent stockholders were complied with except
that Ahmed Alfi was one day late in filing his Form 5.
COMPENSATION COMMITTEE REPORT 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.
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
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.
7
<PAGE>
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 and is currently his
base salary for 1998. 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 1997, the Chief Executive Officer's base salary was restored to
$400,000. In 1997, the Chief Executive Officer received a bonus of $25,000 and
a stock option to purchase 100,000 shares of Common Stock.
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 receives 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
EMPLOYMENT AGREEMENT
In January 1995, the Company entered into a three-year employment agreement
with Frank F. Khulusi (the "Employment Agreement"). Although the original term
of the Employment Agreement expired January 1, 1998, the Employment Agreement
further provides for one-year automatic extensions if the Employment Agreement
is not terminated by the Company or Mr. Khulusi. In 1997, the Employment
Agreement provided for an annual base salary to Mr. Khulusi of $400,000. The
Employment Agreement also provides that Mr. Khulusi is entitled to certain
severance benefits in the event that his employment is terminated by the
Company "without cause" or by Mr. Khulusi for "good reason" or following a
"change of control" (all as defined in the Employment Agreement). In such
cases, Mr. Khulusi would receive two times his salary and bonus for the
preceding twelve months in a lump sum distribution following notice of
termination.
8
<PAGE>
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 assumes that $100 was invested in the
Company's initial public offering, on April 4, 1995, in common stock of the
Nasdaq-US and Nasdaq-Retail. The stock price performance shown in this graph
is neither necessarily indicative of nor intended to suggest future stock
price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CREATIVE COMPUTERS, INC., NASDAQ-US, NASDAQ-RETAIL
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Creative NASDAQ STOCK NASDAQ
Measurement Period Computers Inc. MARKET (U.S.) RETAIL TRADE
(Fiscal Year Covered) MALL INAS INAR
- ------------------- -------------- ------------- ------------
<S> <C> <C> <C>
Measurement Pt- 4/04/95 $100 $100 $100
FYE 12/95 $107 $130 $111
FYE 12/96 $ 43 $160 $133
FYE 12/97 $ 58 $196 $156
</TABLE>
9
<PAGE>
PROPOSAL TWO
RATIFICATION AND APPROVAL OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors selected the accounting firm of Price Waterhouse LLP
to serve as its independent accountants for the fiscal year ending December
31, 1998. Price Waterhouse LLP has audited the Company's financial statements
since 1994. A proposal to ratify the appointment for the current year will be
presented at the Meeting. Representatives of Price Waterhouse LLP are expected
to be present at the Meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions from shareholders.
BOARD RECOMMENDATION AND SHAREHOLDER VOTE REQUIRED
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT ACCOUNTANTS. Ratification of the selection requires the
affirmative vote by a majority of the shares of Common Stock present or
represented at the Meeting. Shares held by persons who abstain from voting on
the proposal and broker "non-votes" will not be voted for or against the
proposal. Shares held by persons abstaining will be counted in determining
whether a quorum is present for purposes of voting on the proposal and will
have the same effect as a vote against the matter but broker non-votes will
not be counted for this purpose. If the appointment is not ratified by the
shareholders, the Board of Directors is not obligated to appoint other
independent accountants, but the Board of Directors will give consideration to
such unfavorable vote.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's next
annual meeting of shareholders must be received by the Company at its
executive offices on or before March 5, 1999 to be considered for inclusion in
the Company's proxy statement and form of proxy relating to such meeting.
OTHER MATTERS
A copy of the Company's 1997 Annual Report is included with this Proxy
Statement.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Meeting in accordance with the directions
given. Any Proxy in which no direction is specified will be voted in favor of
each of the nominees and the matters to be considered.
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement and is not aware that any
other matters will be presented for action at the Meeting. Should any other
matters be properly presented, the person named in the enclosed form of Proxy
will vote the Proxy with respect thereto in accordance with their best
judgment, pursuant to the discretionary authority granted by the Proxy.
Copies of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 as filed with the Securities and Exchange Commission will be
provided to stockholders without charge upon written request to Richard M.
Finkbeiner, Chief Financial Officer, Creative Computers, Inc., 2555 W. 190th
Street, Torrance, California 90504.
By Order of the Board of Directors,
/s/ F. Khulusi
FRANK F. KHULUSI
Chairman of the Board, President and
Chief Executive Officer
July 1, 1998
Torrance, California
10
<PAGE>
PROXY CREATIVE COMPUTERS, INC.
ANNUAL MEETING OF SHAREHOLDERS--JULY 24, 1998
The undersigned hereby appoints Frank F. Khulusi and Sam U. Khulusi, and each
of them, with full power of substitution as proxies and agents (the "Proxy
Agents") in the name of the undersigned, to attend the Annual Meeting of
Shareholders of Creative Computers, Inc. to be held at the Marriott Hotel, 3635
Fashion Way, Torrance, California 90503 on Friday, July 24, 1998 at 10:00 a.m.
local time, or any adjournment thereof, and to vote the number of shares of
Common Stock of the Company that the undersigned would be entitled to vote, and
with all the power the undersigned would possess, if personally present, as
follows.
1. ELECTION OF DIRECTORS
[_] FOR the nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary). to vote for nominees listed
below.
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
<TABLE>
<S> <C>
FRANK F. KHULUSI SAM U. KHULUSI
AHMED O. ALFI THOMAS MALOOF
</TABLE>
2. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP as the
Company's independent accountants for the Company's current fiscal year.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxy Agents are authorized to vote on such other
business as may properly come before the meeting or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED TO THE COMPANY WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
PLEASE DATE AND SIGN the enclosed
proxy exactly as the name(s)
appears herein and return promptly
in the accompanying envelope. If
the shares are held by joint
tenants or as community property,
both shareholders should sign.
Receipt of Notice of Annual Meeting
of Shareholders, Annual Report for
the year ended December 31, 1997
and Proxy Statement dated July 1,
1998 is hereby acknowledged by the
undersigned.
Dated:________________________, 1998
____________________________________
Signature
____________________________________
Name, typed or printed
____________________________________
Tax identification or social
security number
____________________________________
Signature
____________________________________
Name, typed or printed
____________________________________
Tax identification or social
security number
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
