Circuit City 2005 Annual Report Download - page 38

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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 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 and
changes in ownership with the Securities and Exchange Commission. Officers, Directors and ten-percent stockholders
are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of Section 16(a) forms received by it, or written representations from certain reporting persons,
the Company believes that all such filing requirements for the year ended December 31, 2005 were complied with.
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 and principal stockholders. Rent expense under this lease totaled $612,000 for the year ended
December 31, 2005. 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 Leeds’
family trusts entered into a Stockholders Agreement pursuant to which the parties to such agreement agreed to vote in
favor of the nominees of the Board of Directors designated by the holders of a majority of shares of Common Stock
held by such stockholders at the time of the Company’s initial public offering of Common Stock. In addition, such
agreement prohibits the sale of the shares without the consent of the holders of a majority of the shares held by all
parties to such agreement, subject to certain exceptions, including sales pursuant to an effective registration statement
and sales made in accordance with Rule 144. Such 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 December 31, 2005, the parties to
the Stockholders Agreement beneficially owned 24,777,000 shares of Common Stock subject to such agreement
(constituting approximately 71% of the Common Stock outstanding).
Pursuant to the Stockholders Agreement, the Company granted to the then existing stockholders party to such
agreement 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 the 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 registrations of shares pursuant to such agreement.
Related Business
Richard Leeds and Robert Leeds are minority owners of a wholesale business that sells certain products to mass
merchant customers. These products are, in some instances, similar to the type of products sold by the Company. The
Company believes that the sales volume of competitive products made by this wholesale business was not significant.
In 2005 the Company sold approximately $27,000 in merchandise to this business. The Company believes these sales
(9) Includes options to acquire 40,000 shares that are currently exercisable pursuant to the terms of the Company’s
1995 and 1999 Long
-
Term Stock Incentive Plan.
(10)
As disclosed by Dimensional Fund Advisors Inc. in an SEC Schedule 13G filing dated December 31, 2005.
(11)
Address for each of these individuals is c/o Systemax Inc., 11 Harbor Park Drive, Port Washington, NY 11050.