CompUSA 2012 Annual Report Download - page 55

The following table details the associated liabilities incurred related to this plan (in millions):
Audit Committee Investigation and Gilbert Fiorentino’s Resignation and Settlement.
In January and February 2011 the Company received anonymous whistleblower allegations concerning the Company’s Miami Florida
operations involving the actions of Mr. Gilbert Fiorentino, then the Chief Executive of the Company’s Technology Products Group. In
response to the allegations, the Company commenced an internal investigation of the whistleblower allegations, which was conducted by
the Company’s Audit Committee of the Board of Directors with the assistance of independent counsel.
On April 18, 2011, following the independent investigation, the Company delivered a Cause Notice to Mr. Fiorentino pursuant to the
terms of his Employment Agreement dated October 12, 2004. The Cause Notice advised Mr. Fiorentino that the Company intended to
terminate him for “Cause” (as defined in the Employment Agreement) at a meeting of its Executive Committee scheduled for May 3,
2011, at which meeting Mr. Fiorentino and his counsel could appear, and that Mr. Fiorentino was being placed on administrative leave
pending the outcome of that meeting. In the Cause Notice, the Company advised Mr. Fiorentino that the Audit Committee investigation
had identified grounds to terminate him for Cause under his Employment Agreement, and set forth the following findings by the Audit
Committee constituting such grounds:
i) Mr. Fiorentino personally removed or caused to be removed from the Company’
s Miami premises product inventory, and/or kept or
caused others to receive at his direction such removed product inventory, without payment to the Company and for his own personal
gain;
ii) Mr. Fiorentino caused substantial amounts of Company inventory purchases to be effected through Company credit cards in order to
accrue and/or use “reward points” for his personal benefit and which he improperly converted to his own use;
iii) Mr. Fiorentino caused his mother to be identified as an employee of the Company in positions for which she had no bona fide job
responsibility or function, and caused the Company to pay her a salary and employee benefits, including extended COBRA
reimbursements; and iv) Mr. Fiorentino engaged in fraudulent “kickback” arrangements with certain of the Company’
s vendors, to the
detriment of the Company
The Company stated in the Cause Notice that the foregoing activities were in violation of Company policy, the Company’s Corporate
Ethics Policy, his fiduciary duties and applicable law. The Audit Committee’s independent investigation determined that the matters
described above did not have any material impact on our previously reported financial results and were limited to the Company’s Miami
operations.
On May 9, 2011, following several meetings of the Executive Committee and after extensive discussions with Mr. Fiorentino and his
counsel, the Company announced that it had accepted the resignation of Mr. Fiorentino, and that it had executed an agreement with Mr.
Fiorentino, effective May 6, 2011, under which Mr. Fiorentino surrendered certain assets to the Company valued at approximately $11
million at May 9, 2011: these assets included the surrender of 1,130,001 shares of Systemax common stock and $480,000 in cash. The
shares surrendered consisted of 580,001 shares of fully vested unexercised stock options, 2) 100,000 shares of fully vested restricted stock
awards and 3) 450,000 shares directly owned by Mr. Fiorentino. The shares surrendered were valued at fair value on May 6, 2011 in the
case of the stock options and restricted stock awards and at fair value on May 12, 2011 in the case of the owned shares. The agreement
also requires Mr. Fiorentino to disclose his and his immediate family’s personal assets; forfeit undisclosed assets discovered by the
Company; disclose information regarding certain matters that led to his being notified of the Company’s intent to terminate him; and to
fully cooperate with the Company in the future. Mr. Fiorentino and the Company also exchanged mutual general releases and
nondisparagement commitments, and Mr. Fiorentino agreed to a 5 year noncompetition obligation. The $11 million settlement value
included a financial statement benefit to the Company related to the surrender of shares and cash payment of approximately $8.4 million
which was recorded in the second quarter of 2011 under special (gains) charges, net of related legal and professional fees of
approximately $1.3 million for the quarter ended June 30, 2011 and $1.8 million for the first six months of 2011. The remainder of the
settlement value, approximately $2.6 million, was the intrinsic value of the fully vested unexercised stock options on the date of the
settlement agreement for which there is no financial statement impact. The amount of the settlement with Mr. Fiorentino was based on
negotiation with him, and was not based on any specific level or nature of damages incurred by the Company, and does not constitute
restitution.
Table of Contents
Severance and
Other Exit Costs
Balance January 1, 2012
$
-
Charged to expense
4.7
Paid or otherwise settled
(0.9)
Balance December 31, 2012
$
3.8
8.
SETTLEMENT AGREEMENT
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