CompUSA 2010 Annual Report Download - page 26

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23
actions or has interests that may make it difficult to perform his or her Company work objectively and
effectively. Conflicts of interest also arise when a Company Representative, or a member of his or her family,
receives improper personal benefits as a result of his or her position in the Company. Company Representatives
cannot allow any consideration such as the receipt of gifts or financial interests in other businesses or personal or
family relationships to interfere with the independent exercise of his or her business judgment and work activities to
the benefit of the Company. Loans to, or guarantees of obligations of, Company Representatives are prohibited
unless permitted by law and authorized by the Board or a Committee designated by the Board. If a Company
Representative becomes aware of a potential conflict of interest he or she must communicate such potential conflict
of interest to the Company.
The Company’ s written corporate approval policy requires transactions with related persons, including but
not limited to leases with related persons and sales or purchases of Company assets by related persons, to be
reviewed and approved or ratified by the Company’ s Audit Committee as well as by the Company’ s Chief Executive
Officer, Chief Financial Officer and General Counsel. In this regard, all such transactions are first discussed with
the Chief Financial Officer and are submitted to the General Counsel’ s office, including for an initial determination
of whether such further related person transaction review is required. The Company utilizes the definition of related
persons under applicable SEC rules, defined as any executive officer, director or nominee for director of the
Company, any beneficial owner of more than 5% of the outstanding shares of the Company’ s common stock, or any
immediate family member of any such person. In reviewing these transactions, the Company strives to assure that
the terms of any agreement between the Company and a related party is at arm’ s length, fair and at least as
beneficial to the Company as could be obtained from third parties. The Audit Committee, in its discretion, may
consult with third party appraisers, valuation advisors or brokers to make such determination.
Leases
The Company has leased its facility in Port Washington, NY since 1988 from an entity owned by Richard
Leeds, Bruce Leeds and Robert Leeds, Directors of the Company. Rent expense under this lease totaled
approximately $1.0 million for fiscal year 2010. The Company believes that these payments were no higher than
would be paid to an unrelated lessor for comparable space.
Stockholders Agreement
Certain members of the Leeds family (including Richard Leeds, Bruce Leeds and Robert Leeds) and family
trusts of Messrs. Leeds entered into a stockholders agreement pursuant to which the parties agreed to vote in favor
of the nominees for the Board designated by the holders of a majority of the Shares held by such stockholders at the
time of the Company’ s initial public offering of the Shares. In addition, the agreement prohibits the sale of the
Shares without the consent of the holders of a majority of the Shares held by all parties to the agreement, subject to
certain exceptions, including sales pursuant to an effective registration statement and sales made in accordance with
Rule 144. The agreement also grants certain drag-along rights in the event of the sale of all or a portion of the
Shares held by holders of a majority of the Shares. As of the end of fiscal year 2010, the parties to the stockholders
agreement beneficially owned 25,286,700 Shares subject to such agreement (constituting approximately 69% of the
Shares outstanding).
Pursuant to the stockholders agreement, the Company granted to the parties demand and incidental, or
“piggy-back,” registration rights with respect to the Shares. The demand registration rights generally provide that
the holders of a majority of the Shares may require, subject to certain restrictions regarding timing and number of
Shares that the Company register under the Securities Act all or part of the Shares held by such
stockholders. Pursuant to the incidental registration rights, the Company is required to notify such stockholders of
any proposed registration of any Shares under the Securities Act and if requested by any such stockholder to include
in such registration any number of shares of Shares held by it subject to certain restrictions. The Company has
agreed to pay all expenses and indemnify any selling stockholders against certain liabilities, including under the
Securities Act, in connection with the registration of Shares pursuant to such agreement.