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
IdeaMall, 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:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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or the Form or Schedule and the date of its filing.
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4) Date Filed:
================================================================================
IDEAMALL, INC.
2555 W. 190th Street
Torrance, California 90504
_______________
Notice of Annual Meeting of Stockholders
June 19, 2001
_______________
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of IdeaMall,
Inc., a Delaware corporation (the ''Company''), will be held at the Company's
headquarters, located at 2555 W. 190th Street, Torrance, California 90504 on
Tuesday, June 19, 2001 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 five directors of the Company to serve until the 2002 Annual
Meeting of Stockholders or until their successors are duly elected and
qualified;
2. To approve and adopt an amendment to the Company's certificate of
incorporation to change the name of the Company to "PC Mall, Inc.";
3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending December 31, 2001;
and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on May 10, 2001, are
entitled to notice of and to vote at the meeting of or any adjournment 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, 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, 2000, 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.
STOCKHOLDERS 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/ Frank F. Khulusi
Frank F. Khulusi
Chairman of the Board, President and
Chief Executive Officer
Torrance, California
May 22, 2001
IDEAMALL, INC.
2555 W. 190th Street
Torrance, California 90504
_______________
PROXY STATEMENT
_______________
Annual Meeting of Stockholders--June 19, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished by the Board of Directors of IdeaMall,
Inc., a Delaware corporation (the ''Company''), in connection with the
solicitation of Proxies to be used at the Annual Meeting of Stockholders (the
''Meeting'') of the Company to be held on Tuesday, June 19, 2001, at 10:00 a.m.
local time, at the Company's headquarters, located at 2555 W. 190th Street,
Torrance, California 90504, and at all adjournments thereof for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
ANY PROXY IN WHICH NO DIRECTION IS SPECIFIED WILL BE VOTED IN FAVOR OF EACH OF
THE MATTERS FOR WHICH NO DIRECTION IS SPECIFIED. This Proxy Statement and the
Notice of Meeting and Proxy are being mailed to stockholders on or about May 22,
2001.
The close of business on May 10, 2001 has been fixed as the record date for
the determination of stockholders entitled to receive notice of and to vote at
the Meeting. At that date, the Company's outstanding voting securities consisted
of 10,433,866 shares of common stock, par value $.001 per share (the ''Common
Stock''). On all matters which will come before the Meeting, each stockholder or
his or her Proxy will be entitled to one vote for each share of Common Stock of
which such stockholder was the holder 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.
1
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 May 10, 2001 by: (i) each of the
Company's executive officers included in the Summary Compensation Table set
forth under the caption ''Executive Compensation''; (ii) each director; (iii)
all current directors and executive officers of the Company as a group; and (iv)
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. Percentage ownership is
based on an aggregate of 10,433,866 shares of the Company's Common Stock
outstanding on May 10, 2001.
Number of Shares Percent of Shares
Name and Address(1) Beneficially Owned Beneficially Owned
- ------------------- ------------------ ------------------
Frank F. Khulusi.............................. 1,866,660(2) 17.7%
Sam U. Khulusi................................ 1,926,585(3) 18.4%
Daniel J. DeVries............................. 164,900(4) 1.6%
Scott W. Klein (5)............................ 105,000(6) 1.0%
Theodore R. Sanders........................... 40,300(7) *
Thomas A. Maloof.............................. 15,000(8) *
Ronald B. Reck................................ 13,750(9) *
Mark C. Layton (10)........................... 0 *
All current directors and executive officers
as a group (7 persons)...................... 4,027,195(11) 37.2%
- ------------
* Less than 1%
(1) Unless otherwise indicated, the address for each person is 2555 W. 190th
Street, Torrance, California 90504.
(2) Includes (i) 8,575 shares held in trust for the benefit of the children of
Basimah Khulusi, and (ii) 125,000 shares underlying options which are
presently vested or will vest within 60 days of May 10, 2001.
(3) Includes 23,000 shares issuable upon exercise of stock options which are
presently vested or will vest within 60 days of May 10, 2001.
(4) Includes 164,300 shares issuable upon exercise of stock options which are
presently vested or will vest within 60 days of May 10, 2001. Excludes
40,000 shares of eCOST.com (a wholly-owned subsidiary of the Company)
issuable upon exercise of stock options which are presently vested or will
vest within 60 days of May 10, 2001.
(5) Mr. Klein was an executive officer of the Company until March 2001.
(6) Includes (i) 65,000 shares issuable upon exercise of stock options which
are presently vested, and (ii) 18,000 shares held by Mr. Klein's spouse.
Excludes 30,000 shares of eCOST.com issuable upon exercise of stock options
which are presently vested.
(7) Includes 40,300 shares issuable upon exercise of stock options which are
presently vested or will vest within 60 days of May 10, 2001. Excludes
10,000 shares of eCOST.com issuable upon exercise of stock options which
are presently vested or will vest within 60 days of May 10, 2001.
(8) Includes 15,000 shares issuable upon exercise of stock options which are
presently vested or will vest within 60 days of May 10, 2001.
(9) Includes 10,000 shares issuable upon exercise of stock options which are
presently vested or will vest within 60 days of May 10, 2001.
(10) Mr. Layton was appointed to the Board of Directors in May 2001.
(11) This figure includes an aggregate of 377,600 shares issuable upon exercise
of stock options which are presently vested or will vest within 60 days of
May 10, 2001. The figure excludes an aggregate of 50,000 shares of
eCOST.com issuable upon exercise of stock options which are presently
vested or will vest within 60 days of May 10, 2001.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
General
Five directors are to be elected at the meeting, each director to hold
office until the next Annual Meeting of Stockholders, 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 directors, if elected. The Board of Directors proposes for election the
nominees listed below.
The table below gives certain information concerning the nominees:
Director
Name Age Position Since
---- --- -------- -----
Frank F. Khulusi........ 34 Chairman of the Board,President and 1987
Chief Executive Officer
Sam U. Khulusi(1)....... 45 Director 1987
Thomas A. Maloof(1)(2).. 49 Director 1998
Ronald B. Reck(2)....... 52 Director 1999
Mark C. Layton(2)....... 41 Director 2001
- ---------------
(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 and Chief Executive Officer of the Company
since the Company's inception in 1987. Mr. Khulusi served as President of the
Company from the Company's inception in 1987 until July 1999, and resumed the
office of President in March 2001. Mr. Khulusi is also the Chairman of eCOST.com
and eLinux, both subsidiaries of the Company. He is the brother of Sam U.
Khulusi. From July 1999 to September 1999, Mr. Khulusi served as President of
Toytime, Inc., an online retailer of toys. In July 2000, a petition for
involuntary bankruptcy was filed against Toytime under Chapter 11 of the United
States Bankruptcy Code, which was dismissed by a federal bankruptcy court in
November 2000.
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 Vibex Software, an Internet software company. Mr.
Khulusi is also a director of ERUCES, Inc., a provider of data protection and
security solutions. He is the brother of Frank F. Khulusi.
Thomas A. Maloof has served as a director of the Company since May 1998.
Since January 2001, Mr. Maloof has served as the Chief Financial Officer of HMC,
Inc., a hospitality company. From February 1998 to November 2000, Mr. Maloof
served as 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.
Ronald B. Reck has served as a director of the Company since April 1999.
Mr. Reck was employed by Applebee's International, from 1987 to 1997, serving
most recently as Executive Vice President and Chief Administrative Officer.
Since 1998, Mr. Reck has served as President and Chief Executive Officer of
Joron Properties, LLC, a real estate company.
Mark C. Layton became a member of the Board of Directors of IdeaMall in
May 2001. Mr. Layton currently serves as Chairman, President and Chief Executive
Officer of PFSweb, Inc., a provider of business infrastructure services. From
1988 through 1999, Mr. Layton served in various roles at Daisytek International,
a global distributor of office consumables and computer supplies, most recently
as President, Chief Executive Officer and Chief Operating Officer, and currently
serves as Chairman of the Board of Daisytek. Prior to joining Daisytek,
Mr. Layton served as a management consultant with Andersen Consulting for eight
years, specializing in wholesale and retail distribution and technology.
Mr. Layton also serves as an Associate Editor for the Center for Cycle Time
Research at the University of Memphis, and serves on the Dean's Advisory Council
at Northern Arizona University College of Business Administration.
3
Voting Information
Proxies solicited by the Board of Directors will, unless otherwise directed,
be voted to elect all of the nominees. A stockholder 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
stockholder, 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 attaining a quorum, they will have no effect on the
vote. The persons designated in the enclosed proxy will vote your shares FOR
each nominee unless instructions otherwise are indicated in the enclosed proxy.
All of the nominees have agreed to serve the Company as directors 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 does not provide for
cumulative voting in the election of directors.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2000, the Board of Directors held
nine 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.
Until May 2001, the members of the Audit Committee were Thomas Maloof and
Ronald Reck. In May 2001, the Audit Committee was expanded to three members, and
Mark Layton was appointed as the third member. The Audit Committee held three
meetings during the year ended December 31, 2000. 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 Company's Board
of Directors has adopted a written charter for the Audit Committee, a copy of
which is attached as Appendix A to this Proxy Statement. The members of the
Audit Committee are "independent" as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards.
In 2000, the members of the Compensation Committee were Sam Khulusi and
Thomas Maloof. The Compensation Committee held one formal meeting during the
year ended December 31, 2000 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
During fiscal year 2000, the Company compensated directors who were not
employed by the Company or its affiliates $5,000 per meeting attended, and
$1,000 per telephone meeting, plus expenses for services as a director. During
2000, the Company paid Tom Maloof $7,750 in consulting fees in connection with
his work on cost controls. Directors of the Company are eligible to participate
in the Company's 1994 Stock Incentive Plan. During 2000, the Company granted
20,000 shares to each of Sam U. Khulusi, Thomas A. Maloof, and Ronald B. Reck
under the Company's 1994 Stock Incentive Plan. The options were granted at $5.00
per share (which was the fair market value as of the date of grant), vest 25%
per year over a 4-year period, and expire 10 years from the date of grant.
During 2001, the Board amended the Director compensation plan for fiscal 2001 to
include a $16,000 retainer, $2,500 for each board meeting and $1,000 for each
committee meeting.
4
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 $100,000 during the 2000 fiscal year.
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
--------------------------------------- --------------
All Other
Fiscal Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#)(1) ($)(2)
- --------------------------- ---------- ---------- --------- -------------- -------------------
Frank F. Khulusi............................ 2000 400,000 -- -- 2,438
Chairman, President and 1999 400,000 -- 50,000 2,531
Chief Executive Officer 1998 400,000 -- -- 2,438
Theodore R. Sanders(3)...................... 2000 207,382 46,833 --(4) 10,884(5)
Chief Financial Officer 1999 171,732 27,500 13,000 10,425(6)
1998 147,692 36,225 50,000 --
Scott W. Klein(7)........................... 2000 309,150 46,052 -- 67,682(8)
Former President 1999 207,403 25,000 325,000(9) 82,358(10)
Daniel J. DeVries........................... 2000 248,904 29,642 -- 10,594(11)
Executive Vice President, 1999 225,000 18,000 35,000(12) 10,768(13)
Sales and Marketing 1998 207,221 -- 30,000 1,972
_________________
(1) Excludes options acquired as a result of the spin-off of uBid, in which all
options to purchase the Company's common stock were converted into options
to purchase both shares of the Company's common stock and uBid common
stock.
(2) Unless otherwise specified, the number constitutes Company matching
contributions under its 401(k) plan.
(3) Mr. Sanders joined the Company in May 1997 and was promoted to Chief
Financial Officer in September 1998.
(4) Does not include options to purchase an aggregate of 40,000 shares of
eCOST.com granted to Mr. Sanders in 2000.
(5) Represents automobile allowance of $9,730 and 401(k) matching contributions
of $1,154.
(6) Represents automobile allowance.
(7) Mr. Klein joined the Company in May 1999, was promoted to President in July
1999, and resigned in March 2001.
(8) Represents automobile allowance of $3,940, relocation payments of $61,242
and 401(k) matching contributions of $2,500.
(9) Does not include options to purchase an aggregate of 150,000 shares of
eCOST.com granted to Mr. Klein in 1999.
(10) Represents automobile allowance of $16,420 and relocation payments of
$65,938.
(11) Represents automobile allowance of $8,418 and 401(k) matching contributions
of $2,176.
(12) Does not include options to purchase an aggregate of 100,000 shares of
eCOST.com granted to Mr. DeVries in 1999.
(13) Represents automobile allowance of $8,618 and 401(k) matching contributions
of $2,150.
5
Option Grants in Last Fiscal Year
There were no grants to purchase the Company's common stock to named executive
officers during fiscal 2000.
The following table provides information on options to purchase shares of
eCOST.com, a subsidiary of the Company, during the 2000 fiscal year to the
following named executive officers:
Individual Grants
---------------------------------------------------------------
Potential Realizable
Option Value at
Number of Percent Assumed Annual Rate
Securities of Total of Stock Price
Underlying Options Appreciation for
Options Granted in Exercise or Option Term
Granted Fiscal Base Price Expiration ------------------
Name (#)(1) Year(2) ($/sh) Date 5% 10%
- ---- ---------- ----------- ---------- ---------- ------------------
Theodore R. Sanders........ 40,000 6.7% 1.00 6/11/09 $25,156 $63,750
- ---------------
(1) The options vest at a rate of 25% per year beginning on the first
anniversary of the date of grant. Upon the occurrence of certain events
resulting in a change of control of eCOST.com or certain major corporate
transactions, the options become fully vested and exercisable, subject to
certain exceptions and limitations.
(2) The Company granted options to purchase an aggregate of 598,000 shares of
eCOST.com common stock in fiscal 2000.
(3) The potential realizable values assume that the fair market value of the
eCOST.com common stock on the date of grant will appreciate at the indicated
rate compounded annually for the entire ten-year term of the option and that
the option is exercised and sold on the last day of its term. The 5% and
10% assumed annual rates of appreciation are mandated by the Securities and
Exchange Commission and do not reflect estimates or projections of future
growth of eCOST.com common stock.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, certain information regarding the year-end
value of unexercised options. None of the named executives exercised options
during the 2000 fiscal year.
Number of Securities
Underlying Unexercised Options Value of Unexercised
at End of In-the-Money Options
Fiscal 2000 (#) at End of Fiscal 2000($)(1)
------------------------------ -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Frank F. Khulusi....... 112,500 37,500 -- --
Theodore R. Sanders.... 35,050 43,750 -- --
Scott W. Klein......... 65,000 260,000 -- --
Daniel J. DeVries...... 139,550 54,250 -- --
- ---------------
(1) Value based on the closing price of the Company's Common Stock as reported
on the Nasdaq National Market on December 29, 2000, which was $1.125, less
the exercise price, times the number of shares issuable pursuant to such
options.
6
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, certain information with respect to the
value of unexercised options to purchase shares of eCOST.com as of December 31,
2000. No options to purchase eCOST.com common stock were exercised by the named
executive officers during the 2000 fiscal year.
Number of Securities
Underlying Unexercised Options Value of Unexercised
at End of In-the-Money Options at
Fiscal 2000 (#) End of Fiscal 2000($)(1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Theodore R. Sanders............................. 10,000 30,000 -- --
Scott W. Klein.................................. 30,000 120,000 $24,000 $96,000
Daniel J. DeVries............................... 40,000 60,000 $32,000 $48,000
- ---------------
(1) There was no public trading market for the common stock of eCOST.com as of
December 31, 2000. Accordingly, the value of unexercised in-the-money
options listed in the table has been calculated on the basis of $1.00 per
share, which was the assumed fair value of the eCOST.com common stock at
December 31, 2000, less the applicable exercise price per share, multiplied
by the number of shares underlying such options.
Compensation Committee Interlocks and Insider Participation
Sam Khulusi, who serves on the Company's Compensation Committee, served as
an executive officer of the Company until February 1996. Mr. Khulusi is a
stockholder, director or executive officer of certain entities with which the
Company has engaged in several transactions, which are described under the
caption "Certain Relationships and Related Transactions" herein. 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.
Employment Agreements
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.
The Company entered into an employment agreement with Scott Klein on
July 22, 1999. Pursuant to this agreement, Mr. Klein received an annual base of
$309,150, a discretionary bonus, and a one-time grant of options to purchase
325,000 shares of Common Stock under the 1994 Stock Incentive Plan. Mr. Klein
resigned in March 2001. Under the terms of his resignation agreement, Mr. Klein
will remain a consultant to the company for a period of time following his
resignation, and receive compensation equal to his monthly salary plus benefits
for each month he remains a consultant.
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").
Such officers, directors and ten percent stockholders are also required by the
Commission's rules to furnish the Company with copies of all Section 16(a) forms
they file.
7
Based solely on its review of the copies of such forms received by it, or
representations from certain reporting persons that no Forms 5 were required for
such persons, the Company believes that during the fiscal year ended December
31, 2000, all Section 16(a) filing requirements applicable to its officers,
directors and ten percent stockholders were complied with except that Mr. Klein
filed a late Form 4 with respect to one transaction.
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 the compensation for the
Chief Executive Officer. In addition, the Compensation Committee administers the
Company's stock option plans and, within the terms of the respective stock
option 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. A new executive bonus plan was approved during
2000 to provide a bonus pool of 10% of the incremental quarterly pre-tax profits
for the core business over the comparable quarter for the prior year. If the
prior year core business pre-tax results were a loss, the bonus calculation is
adjusted assuming prior year core business pre-tax results were break-even.
The Chief Executive Officer's bonus, if any, is determined as set forth in
his employment contract, as described above.
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.
8
Compensation of Chief Executive Officer
In establishing the Chief Executive Officer's overall compensation, the
Compensation 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 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 2001. In 2000, the Chief Executive Officer was
not paid 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 committee consisting of "outside directors" under Section 162(m). Prior to
March 1999, the Compensation Committee did not meet this requirement.
Compensation Committee
Sam U. Khulusi
Thomas A. Maloof
9
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 graph assumes $100 invested at the per-share clsoing
price of the Company's common stock and each of the indices on December 31,
1995. The stock price performance shown in this graph is neither necessarily
indicative of nor intended to suggest future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among IdeaMall, Inc., Nasdaq-US, Nasdaq-Retail
[CHART APPEARS HERE]
Measurement Period NASDAQ STOCK NASDAQ RETAIL
(Fiscal Year Covered) IdeaMall, Inc. MARKET (U.S.) TRADE
--------------------- -------------- ------------- -------------
Measurement Date
12/31/95 $100 $100 $100
FYE 12/96 $ 40 $123 $119
FYE 12/97 $ 54 $151 $140
FYE 12/98 $174 $213 $171
FYE 12/99 $151 $395 $150
FYE 12/00 $ 23 $238 $ 92
10
REPORT OF AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with management the
Company's audited financial statements as of and for the fiscal year ended
December 31, 2000.
The Audit Committee has discussed with PricewaterhouseCoopers LLP the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The Audit Committee has received and reviewed the written disclosures and
the letter from PricewaterhouseCoopers LLP required by Independence Standard No.
1, Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and has discussed with the auditors their
independence.
Based on the reviews and discussions referred to above, the Audit Committee
has recommended to the Board of Directors that the financial statements referred
to above be included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
The Audit Committee has also considered whether the provision of services
by PricewaterhouseCoopers LLP, other than services related to the audit of the
financial statements referred to above and the review of the interim financial
statements included in the Company's quarterly reports on Form 10-Q for the most
recent fiscal year, is compatible with maintaining the independence of
PricewaterhouseCoopers LLP.
Audit Committee
Thomas A. Maloof
Ronald B. Reck
* * *
The foregoing Audit Committee Report shall not be deemed to be incorporated
by reference in any previous or future documents filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates the Report by reference in any such document.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the 2000 fiscal year, the Company sold computers and computer
products in the ordinary course of business aggregating $363,635 to ERUCES, Inc.
and $179,994 to Vibex Software. Sam Khulusi, a member of the Company's board of
directors, is currently a director of ERUCES and the Chairman and Chief
Executive Officer of Vibex Software. Sam Khulusi is a principal stockholder of
ERUCES and Vibex. Frank Khulusi, Chairman, President and CEO of the Company, is
a principal stockholder of ERUCES.
Relationship with uBid, Inc.
In June 1999, the Company distributed to its stockholders all of the shares
of common stock of its subsidiary uBid, Inc., which constituted approximately
80.1% of uBid outstanding common stock. Prior to the spin-off, uBid entered into
several agreements with the Company providing for the separation of the two
companies and the distribution of the Company's uBid common stock to its
stockholders, the provision by the Company of certain interim services to uBid,
employee benefit arrangements and tax and other matters. These agreements are
discussed below.
In April 2000, CMGI Inc. acquired all of the outstanding stock of uBid in a
stock-for-stock merger. Prior to the merger, Frank Khulusi, the Company's
Chairman, President and Chief Executive Officer, owned approximately 11% of
uBid's common stock and served as a director of uBid until November 1999. His
brother, Sam Khulusi, who is a director and principal stockholder of the
Company, owned approximately 12% of uBid's common stock prior to the merger.
11
Separation and Distribution Agreement
The Separation and Distribution Agreement uBid entered into with the
Company set forth certain agreements among uBid and the Company, with respect to
the principal corporate transactions required to effect the spin-off and certain
other agreements governing the relationship among the parties thereafter.
The Distribution. Under the Separation and Distribution Agreement, uBid and
the Company agreed that neither would take, or permit any of its respective
affiliates to take, any action which reasonably could be expected to prevent the
distribution from qualifying as a tax-free distribution to the Company and its
stockholders pursuant to Section 355 of the Internal Revenue Code. Accordingly,
uBid agreed not to issue or grant, directly or indirectly, any shares of uBid
capital stock or any rights, warrants, options or other securities to purchase
or acquire any shares of uBid capital stock that would affect the tax-free
nature of the distribution.
Registration Rights. The Separation and Distribution Agreement provided
that Frank and Sam Khulusi will have the right in certain circumstances, but in
no event prior to 180 days after the distribution, to require uBid to register
for resale shares of uBid common stock held by them under the Securities Act,
subject to certain conditions, limitations and exceptions. uBid also agreed with
Frank and Sam Khulusi that if it filed a registration statement for the sale of
securities under the Securities Act, then they may, subject to certain
conditions, limitations and exceptions, include in that registration statement
shares of uBid common stock held by them. In addition, for an additional 90 days
after this 180-day period, uBid would be entitled to include uBid shares in any
requested demand registration and to reduce the number of shares to be sold by
Frank and Sam Khulusi thereunder to a minimum of 20%, collectively, of the total
offering plus the amount of any underwriters' over-allotment option. uBid also
agreed to bear up to $100,000 of the cost of the first, and up to $50,000 of the
second, requested registrations and will bear the cost of all piggyback
registrations.
Releases and Indemnification. uBid agreed to indemnify, defend and hold
harmless the Company and each of the Company's directors, officers and employees
from and against all liabilities relating to, arising out of or resulting from:
(1) the failure of uBid or any other person to pay, perform or otherwise
promptly discharge any liabilities of uBid in accordance with their respective
terms; (2) any breach by uBid of the Separation and Distribution Agreement or
any of the other agreements described below; and (3) material misstatements or
omissions with respect to all information contained in the prospectus or the
registration statement used in connection with uBid's initial public offering.
Except as provided in the Separation and Distribution Agreement, the
Company agreed to indemnify, defend and hold harmless uBid and each of its
directors, officers and employees from and against all liabilities relating to,
arising out of or resulting from the failure of the Company or any other person
to pay, perform or otherwise promptly discharge any liabilities of the Company
other than the liabilities of uBid, and any breach by the Company of the
Separation and Distribution Agreement or any of the agreements described below.
Neither uBid nor the Company is obligated under the Separation and Distribution
Agreement to indemnify the other for: (1) any liability, contingent or
otherwise, assumed, transferred, assigned or allocated to the other under the
Separation and Distribution Agreement or any of the agreements discussed below;
(2) any liability for the sale, lease, construction or receipt of goods,
property or services purchased, obtained or used in the ordinary course of
business between the parties prior to December 9, 1998; (3) any liability for
unpaid amounts for products or services or refunds owing on products or services
due on a value-received basis for work done by one party at the request or on
behalf of the other; (4) any liability that uBid or the Company may have with
respect to indemnification or contribution pursuant to the Separation and
Distribution Agreement for claims brought against other party by third persons;
or (5) generally, any liability the release of which would result in the release
of any person other than a person released pursuant to the Separation and
Distribution Agreement. The Separation and Distribution Agreement also contains
provisions that govern, except as otherwise provided in any of the agreements
discussed below, the resolution of disputes, controversies or claims that may
arise between or among the parties. These provisions contemplate that efforts
will be made to resolve disputes, controversies and claims by escalation of the
matter to senior management (or other mutually agreed) representatives of the
parties. If such efforts are not successful, any party may submit the dispute,
controversy or claim to mandatory, binding arbitration, subject to the
provisions of the Separation and Distribution Agreement. The Separation and
Distribution Agreement contains procedures for the selection of a sole
arbitrator of the dispute, controversy or claim and for the conduct of the
arbitration hearing, including certain limitations on discovery rights of the
parties. These procedures are intended to produce an expeditious resolution of
any such dispute, controversy or claim.
12
In the event that any dispute, controversy or claim is, or is reasonably
likely to be, in excess of $5 million, or in the event that an arbitration award
in excess of $5 million is issued in any arbitration proceeding commenced under
the Separation and Distribution Agreement, subject to certain conditions, any
party may submit such dispute, controversy or claim to a court of competent
jurisdiction and the arbitration provisions contained in the Separation and
Distribution Agreement will not apply. In the event that the parties do not
agree that the amount in controversy is in excess of $5 million, the Separation
and Distribution Agreement provides for arbitration of such disagreement.
Noncompetition; Certain Business Transactions. The Separation and
Distribution Agreement provides that, for a period of nine months after the date
of the spin-off, the Company would not directly or indirectly, including by way
of acquisition of other companies, engage in the Internet online auction
business in substantially the same manner and format as conducted by uBid on the
date of the Separation and Distribution Agreement.
Expenses. Except as expressly set forth in the Separation and Distribution
Agreement or in any ancillary agreement, each party agreed to bear its own
respective third-party fees, costs and expenses paid or incurred in connection
with the spin-off.
Stock Option Adjustments. Options to purchase common stock of the Company
that were outstanding as of the date of the spin-off were adjusted to become
options to purchase shares of both the Company common stock and uBid common
stock, subject to certain limited exceptions. The number of shares of uBid
common stock that was covered by these options was based upon the ratio of the
number of shares of uBid common stock distributed to the Company's
stockholders in the spin-off, divided by the total number of shares of Company
Common Stock outstanding on the record date for the spin-off. In addition, the
exercise price for each adjusted option was allocated between the option to
purchase Company Common Stock and the option to purchase uBid common stock
based on the respective pre- and post-distribution prices of Company Common
Stock and uBid common stock on the Nasdaq National Market to preserve the
intrinsic value and ratio of exercise to market price of the options both
before and after the spin-off.
Tax Indemnification and Allocation Agreement
Prior to the spin-off, uBid entered into a Tax Indemnification and
Allocation Agreement with the Company, which provides that if any one of certain
events occurs, and such event causes the distribution not to be a tax-free
transaction to the Company under Section 355 of the Internal Revenue Code, uBid
will indemnify the Company for income taxes the Company may incur by reason of
the distribution not so qualifying. These events include any breach of
representations relating to its activities and ownership of uBid capital stock
made to the Company or in connection with obtaining an IRS revenue ruling or tax
opinion relating to the spin-off. In connection with the distribution, uBid made
various representations regarding its intentions at the time of the distribution
with respect to its business. The Tax Indemnification and Allocation Agreement
also provides that the Company will indemnify uBid for taxes for which uBid has
no liability to the Company under the circumstances described above. Regardless
of the indemnification provisions of such agreement, the Company and uBid will
each be severally liable to the Internal Revenue Service for the full amount of
any such federal corporate level tax that is not paid by the other.
At the time of the spin-off, the Company received an opinion from
PricewaterhouseCoopers LLP to the effect that for federal income tax purposes
the spin-off will qualify as a tax-free spin-off under Section 355 and that no
gain or loss will be recognized by the Company or by holders of Company Common
Stock upon the spin-off.
If the spin-off did not qualify as tax-free as a result of Section 355(e),
then the Company would recognize capital gain equal to the excess of (x) the
fair market value of the shares of uBid common stock the Company distributed to
its stockholders over (y) its adjusted tax basis in uBid common stock.
In addition to the foregoing indemnities, the Tax Indemnification and
Allocation Agreement provides for: (1) the allocation and payment of taxes for
periods during which uBid and the Company are included in the same consolidated
group for federal income tax purposes or the same consolidated, combined or
unitary returns for state tax purposes; (2) the allocation of responsibility for
the filing of tax returns; (3) the conduct of tax audits and the handling of tax
controversies; and (4) various related matters.
For periods during which uBid was included in the Company's consolidated
federal income tax returns or state consolidated, combined, or unitary tax
returns (which will include the periods on or before the date of the spin-off),
uBid was required to pay an amount of income tax equal to the amount uBid would
have paid had it filed its tax
13
return as a separate entity, except in cases where the consolidated or combined
group as a whole realizes a detriment from consolidation or combination. uBid is
responsible for its own separate tax liabilities that are not determined on a
consolidated or combined basis. uBid will also be responsible in the future for
any increases to the consolidated tax liability of uBid and the Company that is
attributable to uBid, and will be entitled to refunds for reductions of tax
liabilities attributable to uBid for prior periods.
As noted above, uBid has agreed to indemnify the Company for any tax
liability suffered by the Company arising out of actions by uBid after the
distribution that would cause the distribution to lose its qualification as a
tax-free distribution or to be taxable to the Company for federal income tax
purposes under Section 355 of the Internal Revenue Code. To ensure that
issuances of equity securities by uBid will not cause the distribution to be
taxable to the Company, uBid agreed to certain restrictions on its ability to
issue and repurchase its equity securities until three years following the
distribution date. Until the second anniversary of the distribution date, uBid
cannot issue its common stock or other equity securities, including the shares
sold in its initial public offering and any other stock offerings, that would
cause the number of shares of its common stock distributed by the Company in the
distribution to constitute less than 60% of the outstanding shares of its common
stock unless uBid first obtains either the consent of the Company or a favorable
IRS letter ruling that the issuance will not affect the tax-free status of the
distribution. After this period until the end of the third year from the
distribution date, uBid cannot issue its common stock and other equity
securities that, when combined with equity securities sold in and after its
initial public offering, would cause the number of shares of its common stock
distributed by the Company in the distribution to constitute less than 55% of
the outstanding shares of its common stock unless uBid first obtains the consent
of the Company or a favorable IRS letter ruling or opinion of tax counsel that
the issuance would not affect the tax-free status of the distribution. These
restrictions on the issuance of equity securities may severely limit its ability
to raise necessary capital or to complete acquisitions of other companies using
its equity securities. The same requirements for an IRS letter ruling or consent
of the Company are generally applicable to any proposed repurchases of its
common stock during these restricted periods. The foregoing restrictions do not
apply to uBid's issuance of debt securities that are not convertible into uBid
common stock or other equity securities.
In connection with the merger agreement between uBid and CMGI, those two
parties and the Company entered into an amendment to the tax indemnification
agreement which amendment became effective upon the closing of the merger of
uBid and CMGI. The amendment:
. deleted from the tax allocation agreement all provisions that would prohibit
uBid from undertaking the merger;
. provided that neither the negotiation of the merger nor the consummation
thereof constitutes a breach of uBid's obligations under the agreement;
. provided that CMGI agreed to unconditionally guarantee any indemnification
obligation that uBid may have under the tax indemnification agreement;
. provided that if a party to the amendment becomes aware of any proceeding,
such as a tax audit or tax controversy, that could give rise to an obligation
under the tax allocation agreement, such party must give notice to all other
parties to the amendment; and
. provided that in the event of such a proceeding, both the party subject to
the proceeding and any party who may have an indemnification obligation with
respect to such proceeding shall jointly control the proceeding.
Sublease Agreement
Until July 1998, uBid was dependent on the Company for warehousing and
distribution services. In July 1998, uBid became responsible for its own
warehousing and distribution and entered into a sublease for 100,000 square feet
of the Company's 325,000 square foot distribution center in Memphis, Tennessee.
In October 1999, uBid entered into a sublease which provides for the continued
use of the Company's inventory control and shipping systems during the term of
the sublease. The sublease is at a monthly rate equal to the Company's
obligation to the landlord, plus taxes and utilities, and will expire in 2002.
In December 1999, uBid subleased an additional 70,000 square feet at the
Company's distribution center in Memphis that expires in 2001. During the 2000
fiscal year, uBid paid the Company an aggregate of $2.2 million under the
sublease arrangement, which included accrued and current lease payments, as well
as prepayments of certain elements of the sublease through the term of the
sublease.
14
Other Relationships with uBid
Payable to the Company. From uBid's inception in April 1997 until its
initial public offering, the Company provided funds to finance its operations in
the form of advances that bear interest at the prime rate. uBid had amounts due
to the Company for working capital and fixed asset purchases totaling
approximately $3.3 million as of December 31, 1999, all of which was repaid in
June 2000.
15
PROPOSAL TWO
AMENDMENT TO CHANGE THE COMPANY'S NAME
TO PC MALL, INC.
Proposed Amendment to Article 1 of the Certificate of Incorporation
The Certificate of Incorporation currently specifies that the name of the
Company is "IdeaMall, Inc." In January 2001, the Company's Board of Directors
voted to amend Article 1 of the Certificate of Incorporation to change the name
of the Company to "PC Mall, Inc." and to submit such proposal for stockholder
approval.
The Board of Directors has adopted resolutions setting forth the proposed
amendment to Article 1 of the Certificate of Incorporation, the advisability of
the proposed amendment, and a call for submission of the proposed amendment for
approval by the Company's stockholders at the Annual Meeting. If approved by
Company stockholders, Article 1 of the Certificate of Incorporation would be
amended in its entirety to read as follows:
"The name of the corporation is PC Mall, Inc."
Purpose and Effect of the Proposed Amendment
The Board of Directors believes that it is in the Company's best interest
to change the Company's name from "IdeaMall, Inc." to "PC Mall, Inc." The Board
believes that changing the Company's name to PC Mall, Inc. better reflects the
focus the Company places on its core business opportunities.
The amendment to the Certificate of Incorporation changing the Company's
name to PC Mall, Inc., if approved by stockholders, will be effective upon the
execution, acknowledgement and filing of a certificate of amendment with the
Delaware Secretary of State.
Board Recommendation and Stockholder Vote Required
The Board of Directors has adopted and approved the proposed amendment to
Article 1 of the Certificate of Incorporation, subject to the requisite approval
by the Company's stockholders. The Board of Directors of the Company has
considered the proposed amendment and recommends that the Company's stockholders
adopt the proposed amendment to Article 1 of the Certificate of Incorporation as
set forth in this Proxy Statement. The affirmative vote of a majority of the
outstanding shares of Common Stock is required to adopt the proposed amendment
to Article 1. 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 and broker "non-votes" 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. The persons designated in the
enclosed proxy will vote your shares FOR approval of the resolution unless
instructions to the contrary are indicated in the enclosed proxy.
16
PROPOSAL THREE
RATIFICATION AND APPROVAL
OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors selected the accounting firm of
PricewaterhouseCoopers LLP to serve as its independent accountants for the
fiscal year ending December 31, 2001. PricewaterhouseCoopers 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
PricewaterhouseCoopers 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 stockholders.
The Audit Committee considered whether PricewaterhouseCoopers' provision of
any professional services other than its audit of the Company's annual financial
statements and reviews of quarterly financial statements is compatible with
maintaining such auditor's independence.
The Company incurred the following fees to PricewaterhouseCoopers LLP during
the 2000 fiscal year:
. Audit Fees. PricewaterhouseCoopers LLP billed the Company an aggregate of
----------
$238,400 for professional services rendered for the audit of the Company's
annual financial statements for the most recent fiscal year and the reviews
of the financial statements included in the Company's Forms 10-Q for that
fiscal year.
. Financial Information Systems Design and Implementation Fees. The Company did
------------------------------------------------------------
not engage PricewaterhouseCoopers LLP for financial information systems
design and implementation, as defined in Paragraph (c)(4)(ii) of Rule 2-01 of
Regulation S-X, during the most recent fiscal year.
. All Other Fees. PricewaterhouseCoopers LLP billed the Company an aggregate of
--------------
$77,617 for professional services rendered during the most recent fiscal
year, excluding fees for audit services or financial information systems
design and implementation.
Board Recommendation and Stockholder Vote Required
The Board of Directors recommends a vote FOR ratification of the
appointment of the independent accountant. Ratification of the selection
requires the affirmative vote by a majority of the shares of Common Stock
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 and broker "non-votes" 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. The persons
designated in the enclosed proxy will vote your shares FOR approval of the
resolution unless instructions to the contrary are indicated in the enclosed
proxy. If the appointment is not ratified by the stockholders, the Board of
Directors is not obligated to appoint other independent accountants, but the
Board of Directors will give consideration to such unfavorable vote.
17
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
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 next annual meeting of stockholders must be received
by the Company (Attention: Chief Financial Officer, at the principal offices of
the Company), no later than February 19, 2002, for inclusion in the Company's
proxy statement and form of proxy for that meeting. In order for a stockholder
proposal not intended to be subject to Rule 14a-8 (and thus not subject to
inclusion in the Company's Proxy Statement) to be considered ''timely'' within
the meaning of Rule 14a-4 under the Exchange Act and pursuant to the Company's
Bylaws, notice of any such stockholder proposals must be given to the Company in
writing not less than 45 days nor more than 75 days prior to the date on which
the Company first mailed its proxy materials for the 2001 meeting, which is set
forth on page 1 of this Proxy Statement (or the date on which the Company mails
its proxy materials for the 2002 Annual Meeting if the date of that meeting is
changed more than 30 days from the prior year). A stockholder's notice to the
Company must set forth for each matter proposed to be brought before the annual
meeting (a) a brief description of the matter the stockholder proposes to bring
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and recent address of the stockholder proposing such business, (c)
the class and number of shares of the Company which are beneficially owned by
the stockholder, and (d) any material interest of the stockholder in such
business. With respect to proposals by stockholders for director nominations,
the Company's Bylaws require written notice to be received by the Company not
less than 30 days nor more than 60 days before the meeting, unless less than 40
days' notice or public disclosure of the meeting is given, in which case the
stockholder's notice must be received within 10 days after such notice or
disclosure is given. The notice must contain specified information about the
proposals nominee and the stockholder making the nomination.
18
OTHER MATTERS
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, 2000 as filed with the Securities and Exchange Commission will be
provided to stockholders without charge upon written request to Theodore R.
Sanders, Chief Financial Officer, IdeaMall, Inc., 2555 W. 190th Street,
Torrance, California 90504.
By Order of the Board of Directors,
/s/ FRANK F. KHULUSI
Frank F. Khulusi
Chairman of the Board, President and
Chief Executive Officer
May 22, 2001
Torrance, California
19
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE
IDEAMALL, INC.
PURPOSE AND AUTHORITY
The audit committee (the "Committee") for IdeaMall, Inc., a Delaware
company (the "Company"), is appointed by the Company's Board of Directors (the
"Board") to assist the Board in monitoring (1) the integrity of the financial
statements of the Company, (2) the compliance by the Company with legal and
regulatory requirements and (3) the independence and performance of the
Company's internal and external auditors.
The Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee and, if necessary, to institute
special investigations. The Committee may request any officer or employee of the
Company or the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee.
In addition, the Committee shall undertake those specific duties and
responsibilities listed below and such other duties as the Board shall from time
to time prescribe.
COMMITTEE MEMBERSHIP
The Committee members (the "Members") shall be appointed by the Board and
will serve at the discretion of the Board. The Committee will consist of at
least three (3) members of the Board subject to the following requirements:
(i) each of the Members must be able to read and understand
fundamental financial statements, including the Company's balance sheet,
income statement, and cash flow statement or must become able to do so
within a reasonable time period after his or her appointment to the
Committee;
(ii) at least one (1) of the Members must have past employment
experience in finance or accounting, requisite professional certification
in accounting, or other comparable experience or background, including a
current or past position as a chief executive or financial officer or other
senior officer with financial oversight responsibilities; and
(iii) each Member must be either (a)an independent director or (b)
the Board must determine it to be in the best interests of the Company and
its stockholders to have one (1) director who is not independent, and the
Board must disclose the reasons for its determination in the Company's
first annual proxy statement or information statement subsequent to such
determination, as well as the nature of the relationship between the
Company and director. Under such circumstances the Company may appoint one
(1) director who is not independent to the Committee, so long as the
director is not a current employee or officer, or an immediate family
member of a current employee or officer.
DUTIES AND RESPONSIBILITIES
The Committee shall report, at least annually, to the Board. Further, the
Committee shall:
1. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval;
2. Review the annual audited financial statements with management,
including a review of major issues regarding accounting and auditing
principles and practices, and evaluate the adequacy of internal
controls that could significantly affect the Company's financial
statements;
3. Review an analysis prepared by management and the independent auditor
of significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements;
4. Review with management and the independent auditor the Company's
quarterly financial statements prior to the filing of its Form 10-Q;
5. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures;
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management;
7. Recommend to the Board the appointment of the independent auditor,
which firm is ultimately accountable to the Committee and the Board;
8. Approve the fees to be paid to the independent auditor;
9. Receive periodic reports from the independent auditor regarding the
auditor's independence consistent with Independence Standards Board
Standard 1, discuss such reports with the auditor, and if deemed
necessary by the Committee, take or recommend that the full Board take
appropriate action to oversee the independence of the auditor;
10. Evaluate together with the Board the performance of the independent
auditor and, if deemed necessary by the Committee, recommend that the
Board replace the independent auditor;
11. Review the appointment of, and any replacement of, the senior internal
auditing executive;
12. Review the significant reports to management prepared by the internal
auditing department and management's responses;
13. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit;
14. Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.
15. Obtain reports from management, the Company's senior internal auditing
executive and the independent auditor that the Company's
subsidiary/foreign affiliated entities are in conformity with
applicable legal requirements, including the Foreign Corrupt Practices
Act.
16. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
17. Review with the independent auditor any problems or difficulties the
auditor may have encountered, any management letter provided by the
auditor, and the Company's response to that letter. Such review
-----------
should include:
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a. Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information;
b. Any changes required in the planned scope of the internal audit;
and
c. The internal audit department responsibilities, budget and
staffing.
18. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy
statement in accordance with the requirements of Item 306 of
Regulation S-K and Item 7(e)(3) of Schedule 14A;
19. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations;
20. Review with the Company's outside counsel and internal legal counsel
any legal matters that may have a material impact on the financial
statements, the Company's compliance policies and any material reports
or inquiries received from regulators or governmental agencies;
21. Review related party transactions for potential conflict of interest;
and
22. Provide oversight and review of the Company's asset management
policies, including an annual review of the Company's investment
policies and performance for cash and short-term investments.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations.
MEETINGS
The Committee will meet at least two times each year. The Committee may
establish its own schedule which it will provide to the Board in advance.
The Committee will meet at least annually with the chief financial officer,
the senior internal auditing executive, and the independent auditor in separate
executive sessions. The Committee will meet with the independent auditors of the
Company, at such times as it deems appropriate, to review the independent
auditor's examination and management report.
MINUTES
The Committee will maintain written minutes of its meetings, which minutes
will be filed with the minutes of the meetings of the Board.
PROXY IDEAMALL, INC.
ANNUAL MEETING OF SHAREHOLDERS--JUNE 19, 2001
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Frank F. Khulusi and Theodore R. Sanders,
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 IdeaMall, Inc., a Delaware corporation to be held at the
Company's Headquarters, located at 2555 W. 190th Street, Torrance, California
90504 on Tuesday, June 19, 2001 at 10:00 a.m. local time, or any adjournment or
postponement 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 all nominees listed below ___ WITHHOLD AUTHORITY
(except as marked to the contrary). to vote for all nominees
listed below.
(To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below.)
Frank F. Khulusi Sam U. Khulusi Mark C. Layton
Ronald B. Reck Thomas A. Maloof
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION to change the name of the Company to "PC Mall, Inc."
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP as the
Company's independent accountants for the Company's current fiscal year.
___ FOR ___ AGAINST ___ ABSTAIN
4. 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, 2, AND 3.
---
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, 2000 and Proxy Statement dated May 22, 2001, is hereby
acknowledged by the undersigned.
Dated:____________________________________________________________________,2001
________________________________________________________________________________
Signature
________________________________________________________________________________
Name, typed or printed
________________________________________________________________________________
Tax identification or social security number
________________________________________________________________________________
Signature
________________________________________________________________________________
Name, typed or printed
________________________________________________________________________________
Tax identification or social security number