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SYSTEMAX INC
FORM 10-K
(Annual Report)
Filed 08/29/06 for the Period Ending 12/31/05
Address 11 HARBOR PARK DR
PORT WASHINGTON, NY 11050
Telephone 5166087000
CIK 0000945114
Symbol SYX
SIC Code 5961 - Catalog and Mail-Order Houses
Industry Retail (Catalog & Mail Order)
Sector Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2008, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    SYSTEMAX INC FORM 10-K (Annual Report) Filed 08/29/06 for the Period Ending 12/31/05 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 11 HARBOR PARK DR PORT WASHINGTON, NY 11050 5166087000 0000945114 SYX 5961 - Catalog and Mail-Order Houses Retail (Catalog & Mail Order) Services ...

  • Page 2
    ... executive offices, including zip code) Registrant's telephone number, including area code: (516) 608-7000 _____ Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $ .01 per share Name of each exchange on which registered New York Stock Exchange...

  • Page 3
    ... market value of the voting stock held by non-affiliates of the registrant as of June 30, 2005, which is the last business day of the registrant's most recently completed second fiscal quarter, was approximately $63,158,000. For purposes of this computation, all executive officers and directors...

  • Page 4
    ... on Accounting and Financial 34 Part III Disclosure Item 10. Controls and Procedures 34 Item 11. Other Information 36 Item 12. Directors and Executive Officers of the Registrant 38 Item 13. Executive Compensation 39 Item 14. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 5
    ... order fulfillment and extensive customer service. We also participate in the emerging market for on-demand, web-based business software applications through the marketing of our PCS Profitability Suiteâ„¢ of hosted software. See Note 12 to the consolidated financial statements included in Item...

  • Page 6
    ... over the internet. The product helps companies automate and manage their entire customer life-cycle across multiple sales channels (internet, call centers, outside salespersons, etc.). We have not recognized any revenues for this service to date. Computer and computer-related products accounted for...

  • Page 7
    ... our business customers. We also periodically take advantage of attractive product pricing by making opportunistic bulk inventory purchases with the objective of turning them quickly into sales. We have also successfully increased our sales to individual consumers by using retail outlet stores. We...

  • Page 8
    .... We operate out of multiple sales and distribution facilities in North America and Europe. The locations of our distribution centers enable us to provide our customers next day or second day delivery. Orders are generally shipped by United Parcel Service in the United States and by similar national...

  • Page 9
    ... direct-mail distribution companies and internet-based resellers. With conditions in the market for computer related products remaining highly competitive, continued reductions in retail prices may adversely affect our revenues and profits. Additionally, we rely in part upon the introduction of new...

  • Page 10
    .... Available Information We maintain an internet web site at www.systemax.com . We file reports with the Securities and Exchange Commission and make available free of charge on or through this web site our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form...

  • Page 11
    ... intensify in the future. Competitive factors include price, availability, service and support. We compete with a wide variety of other resellers and retailers, as well as manufacturers. Some of our competitors are larger companies with greater financial, marketing and product development resources...

  • Page 12
    ... future. Changes to existing rules, such as the adoption of Statement of Financial Accounting Standard 123R ("SFAS 123R"), "Share-based Payment", may adversely affect our reported financial results. SFAS 123R will require that we measure all stock-based compensation awards using a fair value method...

  • Page 13
    ... our 2005 quarterly and annual reports required under the Securities Exchange Act of 1934. We expect that the first two quarterly reports for 2006 will also be filed late. Failure to file our annual report on a timely basis could result in the de-listing of the Company's common stock by the New York...

  • Page 14
    ... limited source third-party suppliers, some of which are located outside of the U.S. Although we do not anticipate any problems procuring supplies in the near-term, there can never be any assurance that parts and supplies will be available in a timely manner and at reasonable prices. Any loss of, or...

  • Page 15
    ... to time in our Securities and Exchange Commission filings the effect on us of volatility in the price of paper and periodic increases in postage rates significant changes in the computer products retail industry, especially relating to the distribution and sale of such products timely availability...

  • Page 16
    ... other smaller offices and retail stores in the United States, Canada and Europe and certain additional facilities leased by the Company are subleased to others. For further information regarding our lease obligations, see Note 11 to the Consolidated Financial Statements. Item 3. Legal Proceedings...

  • Page 17
    ... accounting treatment of all related party transactions, including corporate acquisitions and sales of assets of greater than $300,000. The Company's Directors of Internal Audit shall report directly to the Company's Chief Financial Officer and the Audit Committee at least four times per fiscal year...

  • Page 18
    ... Purchases of EquitySecurities. Systemax common stock is traded on the New York Stock Exchange under the symbol "SYX." The following table sets forth the high and low closing sales price of our common stock as reported on the New York Stock Exchange for the periods indicated. 2005 First quarter...

  • Page 19
    ... of tax Cumulative effect of change in accounting principle, net of tax Net income (loss) per common share Weighted average common shares outstanding: Basic Diluted Selected Operating Data : Orders entered Number of catalogs distributed Number of catalog titles Balance Sheet Data : Working capital...

  • Page 20
    ... the past several years. In response to poor economic conditions in the United States, we implemented a plan in the first quarter of 2004 to streamline our United States computer business. This plan consolidated duplicative back office and warehouse operations, which resulted in annual savings of...

  • Page 21
    ...If currency exchange rates for 2004 had prevailed in 2005, however, European sales would have decreased 1.0% from the prior year. Continued weakness in demand for information technology products from business customers in Europe and the effect of exchange rate movements on product pricing in certain...

  • Page 22
    ... in approximately $6.0 million in future annual savings. We incurred $7.4 million of restructuring and other charges in 2004. In the first quarter of 2004 we implemented a plan to streamline the activities of our United States computer businesses' back office and warehouse operations, resulting in...

  • Page 23
    ... of SFAS 109, "Accounting for Income Taxes." The Company's United Kingdom subsidiary has recorded historical losses and has been affected by restructuring and other charges in recent years. These losses and the loss incurred in the current year represented evidence for management to estimate that...

  • Page 24
    ... tax rates in 2004 or 2003 as a result of the utilization of carryforward losses for which valuation allowances were previously provided. For the years ended December 31, 2005, 2004 and 2003, we have not recognized certain foreign tax credits, certain state deferred tax assets in the United States...

  • Page 25
    ... sales outstanding from 13 days to 14 days. Accounts receivable in Europe decreased as a result of limited sales growth and changes in exchange rates. We expect that future accounts receivable and inventory balances will fluctuate with the mix of our net sales between consumer and business customers...

  • Page 26
    ... dates through 2026. We currently lease our New York facility from an entity owned by Richard Leeds, Robert Leeds and Bruce Leeds, the Company's three principal shareholders and senior executive officers. The annual rental totals $612,000 and the lease expires in 2007. We have sublease agreements...

  • Page 27
    ... accounting policies are described in Note 1 to the consolidated financial statements. The policies below have been identified as critical to our business operations and understanding the results of operations. Certain accounting policies require the application of significant judgment by management...

  • Page 28
    ...cost relating to share-based payment transactions, including employee stock options, in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123R provides alternative methods of adoption which include prospective application and...

  • Page 29
    ... of its first quarter in 2006. The Company is evaluating the available alternatives of adoption of SFAS 123R. The Company currently accounts for share-based payments using APB Opinion 25's intrinsic value method and recognizes no compensation expense for employee stock options as permitted under...

  • Page 30
    ... year. Item 8. Financial Statements and Supplementary Data. The information required by Item 8 of Part II is incorporated herein by reference to the Consolidated Financial Statements filed with this report; see Item 15 of Part IV. Item 9. Changes In and Disagreements with Accountants on Accounting...

  • Page 31
    ... resulting in a number of audit adjustments required to be recorded after being identified by our independent registered public accountants. We have inadequately designed processes to properly estimate certain liability accounts related to inventory purchases at our Tiger Direct subsidiary. The...

  • Page 32
    ... technology strategic planning, need formal documentation of information security procedures, need security around user rights to certain application systems and need to implement formal help desk procedures. • We have a significant amount of work to do to remediate the items we have identified...

  • Page 33
    ...a B.S. in Computer Applications Engineering and joined the Company in the same year. Gilbert Fiorentino, age 46, has served as a Director of the Company since May 25, 2004. Mr. Fiorentino is President and Chief Executive Officer of Tiger Direct Inc., a company he founded in 1988. Tiger Direct became...

  • Page 34
    ... was Vice President-Administration and Chief Financial Officer of Lambda Electronics Inc. From 1980 through 1982 he was that company's Corporate Controller. Mr. Goldschein is a 1968 graduate of Michigan State University and a certified public accountant in New York. Michael J. Speiller, age 52, has...

  • Page 35
    ... (such as Directors, consultants, advisors, vendors, customers, suppliers or lenders) in exchange for consideration in the form of goods or services. (a) Number of securities to be issued upon exercise of outstanding options, (b) Weighted-average exercise price of outstanding options, warrants and...

  • Page 36
    ... per Board committee membership, $10,000 per year additional compensation paid to each committee chair, and an annual Company stock grant equal to $25,000. The shares will be restricted from sale for two years. In addition the Company plans to make each non-employee director a one-time stock option...

  • Page 37
    .... Includes options to acquire 381,668 shares that are currently exercisable pursuant to the terms of the Company's 1995 and 1999 Long-Term Stock Incentive Plan. Does not include 200,000 restricted stock units that vested on May 31, 2005 awarded pursuant to an agreement with the Company that Mr...

  • Page 38
    .... Item 13. Certain Relationships and Related Transactions. Leases The Company currently leases its facility in Port Washington, NY from Addwin Realty Associates, an entity owned by Richard Leeds, Bruce Leeds and Robert Leeds, Directors of the Company and the Company's three senior executive officers...

  • Page 39
    ...with applicable laws and regulations, full and accurate disclosure of information requiring public disclosure and the prompt reporting of Policy violations. The Company's Corporate Ethics Policy (as amended), annexed as an exhibit to the Company's report on Form 8-K date March 30, 2005, is available...

  • Page 40
    ...year if it determines that such a change would be in the best interests of the Company and its stockholders. PART IV Item 15. Exhibits, Financial Statements and Schedules. 1. The Consolidated Financial Statements of Systemax Inc: Report of Ernst & Young, LLP, Independent Registered Public Accounting...

  • Page 41
    ...2002 payable to the order of New York Life Insurance Company in the original principal sum of $8,400,000 (incorporated by reference to the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 2002) Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement...

  • Page 42
    ... Facility Lease between the Company and Ambassador Drive LLC (current landlord) Agreement of Purchase and Sale, dated December 9, 2005, between the Company (as Seller) and Hewlett Packard Company (as Buyer) (Suwanee, Georgia facility) Corporate Ethics Policy for Officers, Directors and Employees...

  • Page 43
    ... of the Nominating/Corporate Governance Committee of the Company's Board of Directors, as approved February 28, 2003 (incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 2002) * Management contract or compensatory plan or arrangement SIGNATURES...

  • Page 44
    ... Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 45
    ... consolidated financial statements had been restated. DELOITTE & TOUCHE LLP New York, New York April 13, 2005 (November 17, 2005 as to the effects of the restatement discussed in Note 2) SYSTEMAX INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2005 AND 2004 (IN THOUSANDS, except for share data) 2005...

  • Page 46
    ... other comprehensive income, net of tax Retained earnings Common stock in treasury at cost - 3,470,816 (2005) and 3,799,191 (2004) shares Unearned restricted stock compensation Total shareholders' equity TOTAL See notes to consolidated financial statements. SYSTEMAX INC. CONSOLIDATED STATEMENTS OF...

  • Page 47
    ... deferred income taxes Provision for returns and doubtful accounts Compensation expense related to equity compensation plans Tax benefit of employee stock plans Goodwill impairment Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets...

  • Page 48
    ...Income taxes paid Supplemental disclosures of non-cash investing and financing activities: Acquisitions of equipment through capital leases Deferred stock-based compensation related to restricted unit stock granted * As previously restated - see Note 2. See notes to consolidated financial statements...

  • Page 49
    ... of the year's sales. Fiscal years 2004 and 2003 consisted of 52 weeks for this business. Foreign Currency Translation - The financial statements of the Company's foreign entities are translated into U.S. dollars, the reporting currency, using year-end exchange rates for balance sheet items and...

  • Page 50
    ... of sales. Revenue from extended warranty and support contracts on the Company's assembled PCs is deferred and recognized over the contract period. Accounts receivable are shown in the consolidated balance sheets net of allowances for doubtful collections and subsequent customer returns. The changes...

  • Page 51
    ... of the plans been determined under a fair value alternative method as stated in SFAS 123, "Accounting for Stock-Based Compensation" (in thousands, except per share data): 2005 Net income - as reported Add: Stock-based employee compensation expense included in reported net income, net of related tax...

  • Page 52
    ...cost relating to share-based payment transactions, including employee stock options, in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123R provides alternative methods of adoption which include prospective application and...

  • Page 53
    ... of the Company's consolidated financial statements in its Form 10-K for the year ended December 31, 2004, the Company discovered errors related to accounting for inventory at its Tiger Direct, Inc. subsidiary. These errors had the effect of misstating the value of inventory and certain vendor...

  • Page 54
    ... The Company also previously restated its segment disclosures for the years ended December 31, 2004 and 2003 - see Note 12. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consists of the following (in thousands): 2005 Land and buildings Furniture and fixtures, office, computer...

  • Page 55
    ... are secured by all of the domestic and United Kingdom accounts receivable, the domestic inventories of the Company, the Company's United Kingdom headquarters building and the Company's shares of stock in its domestic and United Kingdom subsidiaries. The credit facility expires and outstanding...

  • Page 56
    ...and which was secured by the underlying land and building. The loan was repaid in November 2005 in connection with the amendment and restatement of the Company's revolving credit facility. The term loan agreement contained certain financial and other covenants related to the Company's United Kingdom...

  • Page 57
    ... States Streamlining Plan In the first quarter of 2004, the Company implemented a plan to streamline the back office and warehousing operations in its United States computer businesses. The Company recorded $3.7 million of costs related to this plan, including $3.2 million for severance and benefits...

  • Page 58
    ...date. A maximum total number of 2.0 million shares may be granted under this plan of which a maximum of 800,000 shares may be of restricted stock and restricted stock units. No award can be granted under this plan after December 31, 2005. A total of 1,331,190 options were outstanding under this plan...

  • Page 59
    ...total market value of the shares granted has been recorded as "Unearned Restricted Stock Compensation" and is reported as a separate component in the consolidated statements of shareholders' equity and is being expensed over the vesting period. 10. INCOME TAXES The components of income (loss) before...

  • Page 60
    ...difference between the income tax expense (benefit) and the computed income tax expense based on the Federal statutory corporate rate is as follows (in thousands): Years Ended December 31 Income tax at Federal statutory rate State and local income taxes (benefits) and changes in valuation allowances...

  • Page 61
    ...'s three principal shareholders and senior executive officers (see Note 4). The Company also acquires certain computer and communications equipment pursuant to capital lease obligations. At December 31, 2005, the future minimum annual lease payments for capital leases and related and third-party

  • Page 62
    ...'s corporate governance policies and pay $300,000 of the legal fees of the plaintiffs. The plaintiffs were directed by the U.S. District Court to move to dismiss the state court actions. In August 2003 the Company entered into a settlement agreement with a software developer of a new customer order...

  • Page 63
    ... the fair value of financial instruments based on interest rates available to the Company and by comparison to quoted market prices. At December 31, 2005 and 2004, the carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable and payable and accounts payable are...

  • Page 64
    ...501) (2,959) $9,150 Financial information relating to the Company's operations by geographic area was as follows (in thousands): Year Ended December 31, 2005 Net Sales: United States: Industrial products Computer products United States total Other North America Europe Consolidated $ 174,616 1,147...

  • Page 65
    ... Balance at End of Period Description Allowance for sales returns and doubtful accounts 2005 2004 2003 Reserve for excess and obsolete inventory 2005 2004 2003 Allowance for deferred tax assets 2005 Current Noncurrent (1) 2004 Current Noncurrent 2003 Current Noncurrent Product warranty provisions...

  • Page 66
    ... Agreement between the Company and Hamilton Business Center, LLC (Buford, Georgia facility) First Amendment, dated as of February 1, 2006, to the Naperville Illinois Facility Lease between the Company and Ambassador Drive LLC (current landlord) Agreement of Purchase and Sale, dated December 9, 2005...

  • Page 67
    ...SYSTEMAX MANUFACTURING INC., a corporation organized under the laws of the State of Delaware ("SMI"), GLOBAL COMPUTER SUPPLIES INC., a corporation organized under the laws of the State of New York ("GCS"), GLOBAL EQUIPMENT COMPANY INC., a corporation organized under the laws of the State of New York...

  • Page 68
    ... of Default or other provision of the Credit Agreement. Borrowers hereby agree that the failure of US Administrative Agent to receive the Overdue Monthly Financial Statements on or prior to December 31, 2005 shall constitute a new Event of Default and nothing contained herein shall constitute any...

  • Page 69
    ..., officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits...

  • Page 70
    ... Consent has been duly executed as of the day and year first written above. SYSTEMAX INC. By: Name: Title: Steven M. Goldschein Senior Vice President SYSTEMAX MANUFACTURING INC. GLOBAL COMPUTER SUPPLIES INC. GLOBAL EQUIPMENT COMPANY INC. TIGERDIRECT, INC. DARTEK CORPORATION NEXEL INDUSTRIES, INC...

  • Page 71
    ...pages) SYSTEMAX SUWANEE LLC By: Name: Title: Title: Steven M. Goldschein Operating Manager THE MILLENIUM GROUP LLC By: Name: Title: JPMORGAN CHASE BANK, N.A., as US Administrative Agent By: Name: Donna M. DiForio Title: Vice President Steven M. Goldschein Senior Vice President J.P. MORGAN EUROPE...

  • Page 72
    Title: HSBC BUSINESS CREDIT (USA) INC., as Lender By: Name: Title:

  • Page 73
    INDUSTRIAL LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease") is made as of the "Lease Date" (as defined in Section 37 herein) by and between HAMILTON MILL BUSINESS CENTER, LLC, a Delaware limited liability company ("Landlord"), and GLOBAL EQUIPMENT COMPANY, INC., a New York corporation ("Tenant") (...

  • Page 74
    ... Attn: Manager - Lease Administration Global Equipment Company, Inc. 11 Harbor Park Drive Port Washington, New York 11050 Attn: General Counsel JPMorgan Chase Bank, N.A. 1166 Avenue of the Americas, 16th Floor, New York, New York, 10036 Attention: Credit Deputy. Hamilton Mill Business Center, LLC...

  • Page 75
    ... and Tenant shall pay to Landlord one-twelfth (1/12) of such sum on the first day of each calendar month during each such calendar year, or part thereof, during the Term. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant an itemized statement of the actual...

  • Page 76
    ... Rent Commencement Date. (c) If applicable in the jurisdiction where the Demised Premises are located, Tenant shall pay and be liable for all rental, sales, use and inventory taxes or other similar taxes, if any, on the amounts payable by Tenant hereunder levied or imposed by any city, state, county...

  • Page 77
    ... by insurance companies with a rating of not less than "A," and financial size of not less than Class XII, in the most current available "Best's Insurance Reports", and licensed to do business in the state in which the Building is located. Each and every such policy: (i) shall name Landlord, Lender...

  • Page 78
    ... bills or charges, Landlord may, at its option and upon reasonable notice to Tenant, pay the same and in such event, the amount of such payment, together with interest thereon at the Interest Rate as defined in Section 32 from the date of such payment by Landlord, will be added to Tenant's next...

  • Page 79
    ..., with all present and future laws, ordinances, orders, rules, regulations or requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof (collectively, "Governmental Requirements") relating to (a) all or any part of the Demised...

  • Page 80
    ... all such permits, licenses or approvals and has made or will make by the Lease Commencement Date all such notifications and registrations required by any applicable Environmental Laws necessary for Tenant's operation of its business on the Demised Premises. (d) Tenant shall not cause or permit any...

  • Page 81
    ... be deemed to have approved the Plans and Specifications and the same shall thereupon be final. If Tenant requests any changes to the Plans and Specifications, Landlord shall make those changes which are reasonably requested by Tenant and shall within ten (10) days of its receipt of such request...

  • Page 82
    ... of this Lease, "Delay" shall mean delays incurred (i) by reason of Tenant Delay and (ii) for such additional time as is equal to the time lost by Landlord or Landlord's contractors or suppliers in connection with the performance of Landlord's work and/or the construction of the Building and related...

  • Page 83
    ... structural in nature or impair the structural strength of the Building or reduce its value. Tenant shall pay the full cost of any Tenant's Change and shall give Landlord such reasonable security as may be requested by Landlord to insure payment of such cost. Except as otherwise provided herein and...

  • Page 84
    ... obligation or liability of either party, actual or contingent, under this Lease which has accrued on or prior to such termination date shall survive. (b) If only part of the Demised Premises is taken or condemned for a public or quasi-public use and this Lease does not terminate pursuant to Section...

  • Page 85
    ...made within the applicable cure period; (iii) if the Demised Premises become deserted or abandoned for more than ten (10) consecutive days or if Tenant fails to take possession of the Demised Premises on the Lease Commencement Date or within a reasonable time thereafter and stops paying Rent for the...

  • Page 86
    ... sums which would have been payable hereunder by Tenant for the period commencing with the day following the date of such termination and ending with the Expiration Date had this Lease not been terminated (the "Remaining Term"), over (B) the aggregate reasonable rental value of the Demised Premises...

  • Page 87
    ...by Landlord to the extent of and for application in payment of future rent owed by Tenant, if any, as the same may become due and payable hereunder. If such rentals received from such reletting shall at any time or from time to time be less than sufficient to pay to Landlord the entire sums then due...

  • Page 88
    ... damage to Tenant by reason of making such repairs or the performance of such work in the Demised Premises or on account of bringing materials, supplies and equipment into or through the Demised Premises during the course thereof, and the obligations of Tenant under this Lease shall not thereby be...

  • Page 89
    ...BUILDING. 27. Notices . Any notice required or permitted to be given or served by either party to this Lease shall be deemed given when made in writing, and either (i) personally delivered, (ii) deposited with the United States Postal Service, postage prepaid, by registered or certified mail, return...

  • Page 90
    ... desires to assign this Lease or sublet the Demised Premises or any part thereof, Tenant shall give Landlord written notice no later than thirty (30) days in advance of the proposed effective date of any proposed assignment or sublease, specifying (i) the name and business of the proposed assignee...

  • Page 91
    ...Tenant may elect to extend the Term one time for a period of thirty (30) days at the same Base Rent payable by Tenant during the last full month of the Term immediately proceeding the scheduled expiration of the Term. 31. Reserved . 32. Late Payments . In the event any installment of rent, inclusive...

  • Page 92
    .... 37. Lease Date . For purposes of this Lease, the term "Lease Date" shall mean the later date upon which this Lease is signed by Landlord and Tenant. 38. Authority . If Tenant is not a natural person, Tenant shall cause its corporate secretary or general partner, as applicable, to execute the...

  • Page 93
    ... in connection with the execution of this Lease. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands under seals, the day and year first above written. LANDLORD: Date: 12/6/05 HAMILTON MILL BUSINESS CENTER, LLC, a Delaware limited liability company By: Industrial Developments...

  • Page 94
    ... by its board of directors; and that the seal affixed to said instrument is the corporate seal of said corporation. IN TESTIMONY WHEREOF, I have hereunto subscribed my name, and affixed my official seal, this ___ day of _____, 2005. _____ Notary Public My Commission Expires: LEASE INDEX Section...

  • Page 95
    .../Work Exhibit "C" Special Stipulations Exhibit "D" Rules and Regulations Exhibit "E" Certificate of Authority Exhibit "F" Form of Guaranty Exhibit "G" Form of Landlord Waiver and Consent INDUSTRIAL LEASE AGREEMENT BETWEEN HAMILTON MILL BUSINESS CENTER, LLC AS LANDLORD AND GLOBAL EQUIPMENT COMPANY...

  • Page 96
    ...Plans and Specifications/Work Building Address: Demised Premises: Tenant Areas: 2505 Mill Center Parkway, Suite 100 Buford, GA 30518 517,628 square feet Front Office - 25,000 SF Warehouse Office... located next to each dock door for maintenance use. All 110v-208v panels shall have 42 circuit capacity...

  • Page 97
    ...TPO membrane, mechanically fastened system with a 10-year warranty from the manufacturer. Insulation...centers in the rack area ( beginning 60 feet off dock walls X length of building) and 20' X 20' @ loading docks ( 60 feet from docks X length of building X both sides). Conventional, centrally located...

  • Page 98
    ... entrance. HVAC: Landlord will furnish and install roof top HVAC units with a standard system of distribution ducts. Supply registers and diffuses, return grills and associated fixtures servicing the office area (25,000 SF) and warehouse office area (4,000 SF). The design criteria shall be as to...

  • Page 99
    ... private offices shall have keyed lock entry. Master keying shall be included for all building locks and keying schedule approved by Tenant. All interior exit and entrance doors, opening into.... Washrooms partitions shall be floor mounted. GAS SERVICE: Natural gas supplied to all HVAC units. EXHIBIT C

  • Page 100
    ... include quarterly and annual financial statements, including income statements, balance sheets, and cash flow statements, as required by Landlord), must demonstrate either that each of Tenant's and such guarantor's net worth is at least equal to its net worth at the time the Lease was signed; or...

  • Page 101
    ... this Lease and the Term of this Lease is deemed extended to be coterminous with the expiration date set forth in the Offer, then the applicable extension option shall be deemed exercised in its entirety and to thereafter be of no further force or effect. (e) If, within such three (3)-day period...

  • Page 102
    ...'s actual knowledge, the design and construction of the Building materially complies with all applicable federal, state, county and municipal laws, ordinances and codes in effect as of the Lease Date, excepting therefrom any requirements related to Tenant's specific use of the Demised Premises...

  • Page 103
    ... Systemax, Inc. to execute and deliver to Landlord a Guaranty in the form attached hereto as Exhibit F and by this reference made a part hereof. 11. Option to Purchase . (a) Landlord hereby grants to Tenant the exclusive option and right (the "Purchase Option") to purchase the Building and related...

  • Page 104
    ... of the Purchase Option . (b) The Purchase Option shall be exercisable at any time from the Lease Date through 5:00 p.m. Eastern time on April 1, 2006 (the "Option Date"). (c) The purchase price (the "Purchase Price") of the Premises in the event the Purchase Option is properly and timely exercised...

  • Page 105
    ... insurance company reasonably approved by Landlord (the "Title Company")), a state transfer tax declaration and other documents which are customarily required by the Title Company at the time of Closing to issue its owner's title insurance policy. Landlord shall pay the State transfer tax payable in...

  • Page 106
    ... tenancy, return to the Landlord all keys of stores, offices, and rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys so furnished, such tenant shall pay to the Landlord the cost of replacing the same or of changing the lock or locks opened by...

  • Page 107
    ...of Global Equipment Company, Inc., a New York corporation ("Tenant"), hereby certifies as follows to Hamilton Mill Business Center, LLC, a Delaware limited liability company ("Landlord"), in connection with Tenant's proposed lease of premises in Building M, at Hamilton Mill Business Center, Gwinnett...

  • Page 108
    ... Company, Inc. ("Tenant"), in which Guarantor has a direct or indirect financial interest or affiliation, which Lease was executed by Tenant on _____, 2005, and provides for the leasing to Tenant of approximately 517,628 square feet of space in a building located in Hamilton Mil Business Center...

  • Page 109
    ... Business Center, LLC c/o IDI, Inc. 3424 Peachtree Road, N.E., Suite 1500 Atlanta, Georgia 30326 Attn: Manager - Lease Administration Systemax, Inc Attn: _____ Guarantor: Any notice or other communication mailed as hereinabove provided shall be deemed effectively given (a) on the date of delivery...

  • Page 110
    ... "Guaranty) of that certain Industrial Lease Agreement dated _____, 2005 between Landlord and Global Equipment Company, Inc. ("Tenant") (the "Lease") relating to the lease of approximately 517,628 square feet within Building M, at Hamilton Mill Business Center Gwinnett County, Georgia (the "Premises...

  • Page 111
    ... was conferred upon the person(s) named above by the Board of Directors of Guarantor, at a duly convened meeting held _____, 20___. _____ Secretary [CORPORATE SEAL] EXHIBIT G FORM OF LANDLORD WAIVER AND CONSENT LANDLORD'S WAIVER AND CONSENT NAME OF RECORD OWNER OF REAL ROPERTY:_____("Landlord...

  • Page 112
    ... Agent at the following address: 1166 Avenue of the Americas, 16 th Floor, New York, New York, 10036, Attention: Credit Deputy. Dated this _____ day of _____, 2005. AGENT/CHASE: JPMorgan Chase Bank, N.A. By:_____ Name: _____ Title: _____ LANDLORD: By:_____ Name: Title: STATE OF COUNTY OF ) : ss: )

  • Page 113
    ...executed the above instrument; and that s/he signed her/his name thereto under authority of said entity. _____ Notary Public STATE OF COUNTY OF ) : ss: ) On the _____ day... which executed the above instrument; and that s/he signed her/his name thereto . _____ Notary Public EXHIBIT A [COPY OF LEASE]

  • Page 114
    ...MILL BUSINESS CENTER, LLC, a Delaware limited liability company ("Landlord"), and GLOBAL EQUIPMENT COMPANY, INC., a New York corporation ("Tenant"). RECITALS Landlord and Tenant have previously entered into that certain Industrial Lease Agreement dated December 8, 2005 (the "Lease") for the lease of...

  • Page 115
    ... Demised Premises from time to time throughout that portion of the Term (and any extension thereof) commencing with the Lease Commencement Date. Any failure on the part of Tenant to pay such Additional Rent when due shall entitle Landlord to the remedies available to it for non-payment of Base Rent...

  • Page 116
    ... be issued in form acceptable to Landlord by insurance companies with a rating of not less than "A" and financial size of not less than Class XII, in the most current available "Best's Insurance Reports", and licensed to do business in the state in which the Building is located. Tenant shall have...

  • Page 117
    ... applicable utility companies. If Tenant fails to pay any utility bills or charges, Landlord may, at its option and upon reasonable notice to Tenant, pay the same and in such event, the amount of such payment, together with interest thereon at the Interest Rate as defined in Section 32 from the date...

  • Page 118
    ... also observe and comply with the requirements of all policies of public liability, fire and other policies of insurance at any time in force with respect to the Demised Premises." 12. Effective as of the Effective Date, Section 19 of the Lease (Services by Landlord) shall be deleted in its entirety...

  • Page 119
    ... the parties within sixty (60) days from the date of the taking and if the parties can not so agree, then such loss of use shall be determined in accordance with the Dispute Resolution Procedure (as defined in Paragraph 16 below), with real estate appraisers having at lease ten (10) years experience...

  • Page 120
    ... of the Term or sooner termination of the Term. Nothing contained in this Lease shall require Tenant to pay any income or excess profits or taxes assessed against Landlord, or any corporation, capital stock and franchise taxes imposed upon Landlord. Landlord agrees to deliver to Tenant copies of all...

  • Page 121
    ... in the completion of the portion of the shell building containing the Expansion Space and the improvements located within the Expansion Space as of the Amendment Date are of good quality and new, and (ii) such materials and equipment and the work of such contractors shall be free from defects not...

  • Page 122
    ... would constitute an Event of Default either at the time of exercise of the option or at the time the applicable Term would otherwise have expired if the applicable option had not been exercised. (b) If Tenant exercises its option to extend the Term, Landlord shall, within thirty (30) days after the...

  • Page 123
    ...), L.P., a Georgia limited partnership, its sole member By: IDI (Georgia), Inc., a Georgia corporation, its sole general partner By: Name: Title: Attest: Name: Title: [CORPORATE SEAL] TENANT: Date: 6/6/06 GLOBAL EQUIPMENT COMPANY, INC., a New York corporation By: Name: Title: Attest: Name: Title:

  • Page 124
    ...8, 2005 from Guarantor to Hamilton Mill Business Center, LLC, hereby consents to the Amendment, and acknowledges and reaffirms that the Guaranty is in full force and effect as it relates to the Lease, as amended by the Amendment. Date: GUARANTOR: SYSTEMAX INC., a Delaware corporation By: Name: Title...

  • Page 125
    ... East, and chord distance of 2.32 feet to the TRUE POINT OF BEGINNING; thence continuing along the southeasterly margin of the right-ofway of Mill Center Parkway the following courses and distances: 84.40 feet along the arc of a curve to the right having a radius of 520.00 feet, chord bearing...

  • Page 126

  • Page 127
    ... AMENDMENT TO LEASE This FIRST AMENDMENT TO LEASE (this "Amendment") is dated as of February 1, 2006 and is made by and between Ambassador Drive LLC, an Illinois limited liability company ("Landlord") and Global Computer Supplies Inc., a New York corporation, f/k/a Systemax Incorporated ("Tenant...

  • Page 128
    ... prepared by McShane Construction Corporation dated October 18, 2005, revised November 2, 2005, November 11, 2005 and further revised February 13, 2006; site plan dated February 10, 2006; floor plan dated February 10, 2006 and Civil Drawings sheets C0-C5 dated February 9, 2006. Tenant has...

  • Page 129
    ... Architect's aforesaid certification. Section 2.5(b) of the Lease is hereby amended to (A) add the following items to the definition of Tenant Extension: "...(D) Tenant's failure to pay for any Change Order when due, or (E) any Change Order related to a Soil Conditions Adjustment (as defined in...

  • Page 130
    ... for all Change Orders shall be credited to Tenant (with any cost savings of $100,000 or more accruing solely to Landlord without credit to Tenant); (ii) if the Change Order Cost is greater than the original charge for the work being changed, then Tenant shall pay to Landlord such Change Order Cost...

  • Page 131
    ... into account diligence and good and workmanlike practices. Such time period shall not be longer than sixty (60) days, subject to Permitted Delays (including, without limitation, the inability to obtain supplies or other items on a timely basis and work which is weather-dependent), in the event of...

  • Page 132
    ... Renewal Term . In the event that Tenant elects to renew the term of this Lease for the Second Renewal Term, then during the Second Renewal Term, the Base Rent shall be equal to the greater of (A) Fair Market Base Rent or (B) the then-current annual Base Rent payable immediately prior to the Second...

  • Page 133
    ... wire your payment: Bank Name: Wells Fargo, Account Name: CBRE AAF Cohen Financial/161 Tower, Account Number: 4050009232, ABA Number: 12000248 (or such other entity designated as Landlord's management agent), or pursuant to such other directions as Landlord shall designate in this Lease or otherwise...

  • Page 134
    ... and Tenant have executed this Fourth Amendment to Lease as of the day and year first above written. LANDLORD: AMBASSADOR DRIVE LLC, an Illinois limited liability company By: Name: Its: TENANT: GLOBAL COMPUTER SUPPLIES INC., a New York corporation (f/k/a Systemax Incorporated) By: Name: Its: EXHIBIT...

  • Page 135
    ... (the "Purchase Price"), to be paid by Buyer as follows: 2.1 Earnest Money and Liquidated Damages . 2.1.1 Earnest Money. Not later than three (3) business days after the full execution of this Agreement by both parties and the parties' deposit of a copy of such fully executed Agreement with Escrow...

  • Page 136
    ... written agreement of the parties. On the Closing Date, Seller shall deliver the Property to Buyer in the following condition (the "Closing Condition"): broom clean, subject only to the Permitted Exceptions (defined below), and with all of Seller's business inventory, trade equipment (including...

  • Page 137
    ... All leases and service/management agreements (including any proposed agreements), relating to the Property and BOMA measurement of usable and rentable area; (d) The most recent twelve (12) months of tax and utility bills relating to the Property; (e) Year-to-date and three (3) years prior operating...

  • Page 138
    ... after a date which is ten (10) business days prior to the day before the Closing Date, then the Closing Date shall be extended to that date which is twelve (12) business days after the date of Buyer's receipt of the Additional Property Document. 4.3 Title Matters . Buyer has ordered a preliminary...

  • Page 139
    ... Escrow Holder's issuance to Buyer at the Closing of an American Land Title Association extended coverage owner's policy of title insurance (10/17/92 form) naming Buyer as insured, in the amount of the Purchase Price, with an effective date no earlier than the date of filing of the Deed, insuring...

  • Page 140
    ..., security and other service contracts, if any, with respect to the Property, (b) prior to the Closing Seller shall have terminated any leases affecting the Property (including, without limitation, Seller's lease with its affiliate, Global Equipment Company), and (c) Seller shall have no employees...

  • Page 141
    ... accordance with this Agreement. 7. Costs and Expenses of Closing . At the Closing, Seller shall pay or have paid (a) all transfer taxes imposed by the City of Suwanee, County of Gwinnett, and/or State of Georgia, and (b) all recording costs for the Deed. At the Closing, Buyer shall pay or have paid...

  • Page 142
    ...on and after the date the Closing occurs shall be for the account of Buyer. Seller shall pay all taxes, assessments, invoices for goods furnished or services supplied, and other expenses relating to the Property to the extent allocable to the period prior to the day of Closing. Without limitation of...

  • Page 143
    ... Schedule 10.2.9 hereto, there are no service, maintenance, or security agreements for the Property or any part thereof currently in effect which are not cancelable without penalty on thirty (30) days notice or less. 10.2.10 Eminent Domain; Zoning Change. Seller has not received written notice from...

  • Page 144
    ... or other occupancy or use agreements affecting the Property or any part thereof which will remain in effect from and after the Closing Date (the parties acknowledging that the Property is presently leased to Seller's affiliate, Global Equipment Company, which lease Seller shall cause to terminate...

  • Page 145
    ..., in any form, whether friable or...toxic under Applicable Law or...sheet indicating successful transmission); (c) nationally recognized overnight commercial mail service such as FedEx or UPS; or (d) registered or certified, first class U.S. mail, return receipt requested. Buyer: Hewlett-Packard Company...

  • Page 146
    ...in writing within said ten (10) day business period that Buyer will receive a credit at the Closing against the Purchase Price in the amount of the cost to fully repair and restore the damaged Improvements as reasonably determined by Seller and Buyer. In the event of either (a) or (b), above, except...

  • Page 147
    ... hereby. Any amendment to this Agreement, including, without limitation, any oral modification supported by new consideration, must be reduced to writing and signed by both parties in order to be effective. 11.9 Counterparts; Waiver . This Agreement may be executed in two or more counterparts...

  • Page 148
    ... anything to the contrary in this Agreement, in the event Buyer elects to seek specific performance as a result of such default by Seller under this Agreement, (a) the Purchase Price reduction set forth in Section 3.2 above shall continue until the date the Property is actually conveyed to...

  • Page 149
    ... or relating to the Property of which Seller has actual knowledge or notice. 11.16.6 To the extent Seller determines that any service, maintenance, or security agreements for the Property or any part thereof are currently in effect and are not cancelable without penalty on thirty (30) days notice...

  • Page 150
    ...the Office of the Clerk of the Superior Court of Gwinnett County, Georgia is open and accepting documents for recording, (b) the United States Postal Service is delivering first class mail, and (c) banks in Gwinnett County are generally open for business. If, pursuant to this Agreement, a party must...

  • Page 151
    ..., the parties hereto have executed this Agreement as of the date and year set forth under their respective signatures. SELLER: SYSTEMAX SUWANEE LLC, a Delaware limited liability company By: Its: Dated: BUYER: HEWLETT-PACKARD COMPANY, a Delaware corporation By: Its: Dated: _____, 2005 _____, 2005...

  • Page 152
    ... property owned by Seller and used exclusively in connection with or located on or in the Real Property (as the term "Real Property" is defined in Recital A of that certain Agreement of Purchase and Sale dated _____, 2005, between Seller and Buyer), other than the Removable Property as defined...

  • Page 153
    ... marks or trade or business names relating to the business or ownership of Seller or any of its affiliates or subsidiaries (the "Trademarks"); [Note: ok so long as Seller does not get credit at Closing ->] (ii) any and all utility deposits held on behalf of Assignor by utility companies with respect...

  • Page 154
    ..."D" AFTER RECORDING, RETURN TO: William J. Thompson, Esq. Powell Goldstein LLP Fourteenth Floor 1201 West Peachtree Street, NW Atlanta, Georgia 30309 LIMITED WARRANTY DEED THIS DEED is made as of the ___ day of _____, 200____, by and between SYSTEMAX SUWANEE LLC, a Delaware limited liability company...

  • Page 155
    Name: Its: Signed, sealed and delivered in the presence of: By: Unofficial Witness Printed Name: Notary Public Title: [AFFIX NOTARIAL SEAL] [CORPORATE SEAL]

  • Page 156
    ... Computer Supplies Inc. (a New York corporation) Global Equipment Company Inc. (a New York corporation) Dartek Corporation (a Delaware corporation) Nexel Industries Inc. (a New York corporation) Tiger Direct Inc. (a Florida corporation) Systemax Manufacturing Inc. (a Delaware corporation) Profit...

  • Page 157
    ... financial statements, relating to the consolidated financial statements and financial statement schedule as of December 31, 2004 and for each of the years in the two-year period then ended of Systemax, Inc. and subsidiaries appearing in the Annual Report on Form 10-K of Systemax Inc. for the year...

  • Page 158
    ... Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-21489, 333-21491 and 333-11618) pertaining to the 1999 Long-Term Stock Incentive Plan of Systemax Inc. of our report dated May 26, 2006 at and for the year ended December 31, 2005...

  • Page 159
    ...Chief Executive Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 160
    ...Chief Financial Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 161
    ... OF 2002 The undersigned, the Chief Executive Officer of Systemax Inc., hereby certifies that to the best of his knowledge Systemax Inc.'s Form 10-K for the Year Ended December 31, 2005 fully complies with the requirements of Section 13 (a) or Section 15(d) of the Securities Exchange Act of 1934 (15...

  • Page 162
    ... OF 2002 The undersigned, the Chief Financial Officer of Systemax Inc., hereby certifies that to the best of his knowledge Systemax Inc.'s Form 10-K for the Year Ended December 31, 2005 fully complies with the requirements of Section 13 (a) or Section 15(d) of the Securities Exchange Act of 1934 (15...