<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from _______________ to ___________
Commission File Number 0-17156
MERISEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4172359
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Continental Boulevard
El Segundo, CA 90245-0984
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (310) 615-3080
_______________________________________________________________
Former name, former address, and former fiscal year, if changed
since last year
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Number of Shares Outstanding
Class May 10, 1996
Common Stock, $.01 par value 29,863,495 Shares
<PAGE>
MERISEL, INC.
INDEX
Page Reference
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets as of 1-2
March 31, 1996 and December 31, 1995
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-10
Management's Discussion and Analysis of 11-20
Financial Condition and Results of Operations
PART II OTHER INFORMATION 21
SIGNATURES 22
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<CAPTION>
March 31, December 31,
1996 1995
_________ ___________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $69,788 $1,378
Accounts receivable (net of
allowances of $22,509 and $24,786 for
1996 and 1995, respectively) 405,534 413,057
Inventories 440,453 561,230
Prepaid expenses and other current
assets 12,976 17,919
Income taxes receivable 33,813 35,116
Deferred income tax benefit 3,795 6,657
_______ _________
Total current assets 966,359 1,035,357
PROPERTY AND EQUIPMENT, NET 88,746 90,381
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET 92,128 93,287
OTHER ASSETS 11,443 11,309
__________ __________
TOTAL ASSETS $1,158,676 $1,230,334
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
___________ ___________
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $537,889 $621,990
Accrued liabilities 66,240 71,483
Short-term debt 7,388 21,620
Long-term debt - current 100,000 35,000
Subordinated debt - current 4,400 4,400
__________ _________
Total current liabilities 715,917 754,493
Long-term debt 286,261 299,271
Subordinated debt 13,200 17,600
Capitalized lease obligations 4,504 4,504
_________ _________
TOTAL LIABILITIES 1,019,882 1,075,868
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 1,000,000
shares; none issued or outstanding
Common stock, $.01 par value,
authorized 50,000,000 shares; 29,863,495
shares outstanding for 1996 and 1995,
respectively 299 299
Additional paid-in capital 141,938 141,938
Retained earnings 5,703 19,211
Cumulative translation adjustment (9,146) (6,982)
__________ _________
Total stockholders' equity 138,794 154,466
__________ _________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,158,676 $1,230,334
__________ __________
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1996 1995
___________ __________
<S> <C> <C>
NET SALES $1,536,589 $1,454,894
COST OF SALES 1,449,366 1,361,671
__________ __________
GROSS PROFIT 87,223 93,223
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 83,136 76,482
RESTRUCTURING CHARGE 5,061
_________ _________
OPERATING INCOME 4,087 11,680
INTEREST EXPENSE 9,877 10,458
OTHER EXPENSE 7,238 3,384
__________ __________
LOSS BEFORE INCOME TAXES (13,028) (2,162)
INCOME TAX PROVISION (BENEFIT) 480 (373)
___________ __________
NET LOSS $(13,508) $(1,789)
___________ __________
NET LOSS PER SHARE $(0.45) $(0.06)
___________ __________
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 29,863 29,714
___________ _________
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
1996 1995
____________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(13,508) $(1,789)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 5,759 4,442
Provision for doubtful accounts 4,733 5,169
Deferred income taxes 2,862 2,843
Changes in assets and liabilities:
Accounts receivable (20,834) (26,867)
Inventories 120,778 35,736
Prepaid expenses and other assets (3,869) (1,514)
Income taxes receivable 1,303 (2,962)
Accounts payable (70,689) (19,913)
Accrued liabilities (5,228) 10,620
Income taxes payable (4,422)
__________ __________
Net cash provided by operating
activities 21,307 1,343
__________ __________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (3,438) (12,892)
Payment of earn out obligation from
ComputerLand acquistion (13,409)
Cash proceeds from sale of
Australian business 8,515
__________ __________
Net cash used for investing
activities (8,332) (12,892)
__________ __________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under revolving line of
credit 443,400 348,246
Repayments under revolving line of
credit (396,400) (357,391)
Net (repayments) borrowings under
foreign bank facilities (20,289) 18,731
Proceeds from issuance of promissory
notes 11,261
Proceeds from sale of accounts
receivable 23,721
Repayment under subordinated debt
agreement (4,400)
_________ __________
Net cash provided by financing
activities 57,293 9,586
_________ __________
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,858) 98
_________ __________
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 68,410 (1,865)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,378 3,533
_________ __________
CASH AND CASH EQUIVALENTS, END OF
PERIOD $69,788 $1,668
_________ __________
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Merisel, Inc. ("Merisel" or the "Company") is a worldwide
distributor of microcomputer hardware and software products. In
addition, the Company, through its wholly-owned subsidiary,
Merisel FAB, Inc. ("Merisel FAB"), is an aggregator, or master
reseller, of computer systems and related products from major
microcomputer manufacturers to ComputerLand franchisees and
Datago resellers. The consolidated financial statements include
the accounts of Merisel and its consolidated subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation. Results of operations for the three
month period ended March 31, 1996 may not be indicative of the
results of operations expected for the fiscal year ended December
31, 1996.
The information for the three months ended March 31, 1996 and
1995 has not been audited by independent accountants, but
includes all adjustments (consisting of normal recurring
accruals) which are, in the opinion of management, necessary for
a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted
pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the
information not misleading. The consolidated financial statements
as presented herein should be read in conjunction with the
consolidated financial statements and notes thereto included in
Merisel's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which is effective for
the Company beginning January 1,1996. SFAS No. 123 requires
expanded disclosure of stock-based compensation arrangements with
employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to
employees and will disclose the required pro forma effect on net
income and earnings per share.
3. Fiscal Year
The Company's fiscal year is the 52 or 53 week period ending on
the Saturday nearest to December 31. The Company's first quarter
is the 13 week period ending on the Saturday nearest to March 31.
For simplicity of presentation, the Company has described the
interim periods and year-end period as of March 31, and December
31, respectively.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
4. Restructuring Charge
During the first and second quarters of 1995, the Company
recorded charges of $5,061,000 and $4,272,000, respectively,
associated with resizing and restructuring several of the
Company's operations. The aggregate charge of $9,333,000
consisted of $4,578,000 of severance charges for the involuntary
termination of approximately 240 employees, $2,830,000 for
anticipated warehouse closures in North America and $1,925,000
for the anticipated consolidation of certain warehouses in
Europe. As of March 31, 1996, $4,454,000 of this amount remained
in accrued liabilities.
5. Acquisitions and Dispositions
On January 31, 1994, the Company, through its wholly owned
subsidiary, Merisel FAB, acquired certain assets of the
ComputerLand franchise and Datago aggregation business of Vanstar
Corporation (formerly ComputerLand Corporation) (the
"ComputerLand Acquisition"). The Company paid $80,200,000 in
cash at closing for the acquired assets and $2,100,000 of direct
acquisition costs. In addition, on February 2, 1996 the Company
paid Vanstar $13,409,000, which consisted of a negotiated
settlement of the Company's earn out obligation under the
original purchase agreement related to the ComputerLand
Acquisition of $14,594,000, net of rebates of $1,185,000. The
acquisition has been accounted for as a purchase. Under the
purchase method of accounting, an allocation of the purchase
price to the Merisel FAB assets and liabilities is required to
reflect fair values. Based on an independent valuation prepared
for the Company, $82,300,000 of the purchase price and
$14,000,000 of the additional payment were allocated to
intangible assets with an estimated aggregate life of 25 years.
A total of $35,400,000 was allocated to Datago and $60,900,000 to
ComputerLand. The ComputerLand portion of these intangible
assets was subsequently written down by $30,000,000 in
recognition of an impairment loss in the fourth quarter of 1995.
In connection with the ComputerLand Acquisition, Merisel FAB
entered into a Distribution and Services Agreement (the "Services
Agreement") with Vanstar whereby Vanstar provides significant
distribution and other support services to the Franchise and
Aggregation Business for a contractually agreed upon fee.
Effective July 12, 1995, this agreement was extended until April
30, 1997. Under the terms of the Services Agreement extension,
Merisel and Vanstar agreed that (i) the extended credit terms
under the Services Agreement would be increased to $31,400,000;
and (ii) the terms of the distribution fee would be adjusted.
The amount of the extended credit will be reduced by a scheduled
amount of $844,000 monthly through October 31, 1996. A final
balance of $23,500,000 will be payable in four scheduled payments
between May 15, 1997 and July 31, 1997. If an inventory
reduction plan is agreed upon between the two parties, then the
$23,500,000 may decrease on an accelerated basis.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
On March 7, 1996, the Company sold its interest in its wholly
owned Australian subsidiary, Merisel Australia Pty Ltd. to Tech
Pacific Holdings Ltd., effective January 1, 1996. Under the
terms of the agreement, the Company received consideration of
$9,915,000, which consisted of a cash payment of $8,515,000 and
inventory valued at $1,400,000. A loss of $1,915,000 for the
sale of the net assets was recognized in the fourth quarter of
1995. No additional gain or loss was recognized in the first
quarter of 1996. The sale was made in order to better position
the Company to achieve its strategic growth objectives, by
abandoning its planned expansion into Asia and at the same time
disposing of an unprofitable business.
6. Sale of Accounts Receivable
The Company's wholly-owned subsidiary Merisel Americas, Inc.
("Merisel Americas") on an ongoing basis, sells trade receivables
to its wholly owned subsidiary, Merisel Capital Funding, Inc.
("Merisel Capital Funding"). Pursuant to an agreement with a
securitization company (the "Receivables Purchase and Servicing
Agreement"), Merisel Capital Funding, in turn, sells such
receivables to this company on an ongoing basis, which yields
proceeds of up to $300,000,000 at any point in time. Merisel
Capital Funding's sole business is the purchase of trade
receivables from Merisel Americas. Merisel Capital Funding is a
separate corporate entity with its own separate creditors, which
upon its liquidation will be entitled to be satisfied out of
Merisel Capital Funding's assets prior to any value in Merisel
Capital Funding becoming available to Merisel Capital Funding's
equityholders. This facility expires in October 2000. Due to the
losses incurred by the Company in the fourth quarter and year
ended December 31, 1995, certain covenants in the Receivables
Purchase and Servicing Agreement were amended to bring the
Company into compliance with such covenants.
Effective October 16, 1995, Merisel U.K. Ltd. entered into a
receivables purchase agreement with a securitization company to
provide funding for Merisel's U.K. subsidiary. In accordance with
this agreement, Merisel U.K. sells receivables to the
securitization company on an ongoing basis, which yields proceeds
of up to 25,000,000 pounds sterling. The facility has no fixed
expiration date but will expire no earlier than 18 months from
the effective date following three to six months prior written
notice from the securitization company. Effective December 15,
1995, Merisel Canada Inc. entered into a receivables purchase
agreement with a securitization company to provide funding for
Merisel's Canadian subsidiary. In accordance with this agreement,
Merisel Canada sells receivables to the securitization company,
which yields proceeds of up to $150,000,000 Canadian dollars. The
facility expires December 12, 2000, but is extendable by notice
from the securitization company, subject to the Company's
approval.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
Under these securitization facilities, the receivables are sold
at face value with payment of a portion of the purchase price
being deferred. As of March 31, 1996 the total amount outstanding
under these facilities was $277,172,000. Fees incurred in
connection with the sale of accounts receivable for the three
months ended March 31, 1995 and 1996 were $2,569,000 and
$4,544,000, respectively, and are recorded as other expense.
7. Debt
At March 31, 1996, the Company's subsidiaries, Merisel Americas
and Merisel Europe, Inc. (''Merisel Europe'') had unsecured
senior borrowing commitments, which consisted of $100,000,000 of
8.58% senior notes (the ''Senior Notes'') by Merisel Americas,
and a $150,000,000 revolving credit agreement (the ''Revolving
Credit Agreement'') by Merisel Americas and Merisel Europe. The
Senior Notes and the Revolving Credit Agreement, as amended, are
due on May 31, 1997. At March 31, 1996, there was $100,000,000
outstanding under the Senior Notes, and $150,000,000 outstanding
under the Revolving Credit Agreement. Advances under the
Revolving Credit Agreement bear interest at specific rates based
upon market reference rates plus a specified percentage. The
combined average interest rate for the Revolving Credit Agreement
at March 31, 1996 was approximately 7.5%. The Company is also
required to pay a commitment fee on the unused available funds on
the Revolving Credit Agreement. The Revolving Credit Agreement,
and the Senior Notes agreement each contain various covenants,
including those which prohibit the payment of cash dividends,
require a minimum amount of tangible net worth, and place
limitations on the acquisition of assets. The agreements also
require the Company or certain of its subsidiaries to maintain
certain specified financial ratios, including interest coverage,
minimum adjusted tangible net worth, total debt equivalents to
adjusted tangible net worth, inventory turnover, minimum accounts
payable and minimum accounts payable to inventory. In April 1996,
the Revolving Credit Agreement and Senior Notes agreement were
amended as a result of the Company's noncompliance with certain
covenants as of December 31, 1995, and a waiver was obtained with
respect to the Notes. See "Amendments to Financing
Arrangements."
At March 31, 1996, the Company had outstanding $125,000,000
principal amount of senior notes (the ''Notes'') due December 31,
2004. The Notes provide for an interest rate of 12.5% payable
semiannually. The Notes are effectively subordinated to all
liabilities of the Company's subsidiaries, including trade
payables. The Indenture relating to the Notes contains certain
covenants that, among other things, limit the type and amount of
additional indebtedness that may be incurred by the Company or
any of its subsidiaries and impose limitations on investment,
loans, advances, sales or transfers of assets, the making of
dividends and other payments, the creation of liens, sale-
leaseback transactions with affiliates and certain mergers. In
addition, the restriction on dividend payments contained in the
Senior Note agreement and the Revolving Credit Agreement could
limit the ability of the Company to repay principal and interest
on the Notes if, and to the extent that, such limitations prevent
cash or other dividends from being paid to the Company. Further,
in the event of a default under the Senior Note agreement and the
Revolving Credit Agreement, payments of principal and interest on
the Notes are prohibited.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
At March 31, 1996 Merisel Americas had outstanding an aggregate
of $17,600,000 of privately placed subordinated notes (the
"Subordinated Notes"). The notes, as amended, provide for
interest at the rate of 11.28% per annum and are repayable in
four remaining equal annual installments with the next
installment due March 1997. The subordinated debt agreement
contains certain restrictive covenants, including those that
limit the Company's ability to incur debt, acquire the stock of
or merge with other corporations, or sell certain assets and
prohibits the payment of dividends. The subordinated debt
agreement also requires Merisel or its subsidiaries to maintain
specified financial ratios similar in nature to those required by
the Senior Notes.
At March 31, 1996 the Company had two promissory notes
outstanding with an aggregate balance of $11,261,000. The notes
provide for interest at the rate of approximately 7.7% per annum
and are repayable in 48 and 60 monthly installments commencing
February 1, 1996, with balloon payments due at maturity. The
notes are collateralized by certain of the Company's real
property and equipment.
In addition, the Company and its subsidiaries have various
unsecured lines of credit denominated in their local currencies.
The Company had borrowings outstanding under such lines of credit
of $56,602,000 and $7,388,000 at March 31, 1995 and 1996,
respectively.
Amendments to Financing Arrangements. As a result of substantial
losses incurred by the Company for the fourth quarter and fiscal
year ended December 31, 1995, Merisel was required to obtain, and
did obtain, amendments or waivers with respect to certain
covenants under the Revolving Credit Agreement, the purchase
agreement related to the Senior Notes and the purchase agreements
related to the Subordinated Notes and the Notes.
As amended, the Revolving Credit Agreement and the Senior Note
agreement provide that the Company pay a total of $10,000,000 on
April 15, 1996, which payment was made, and pay $5,000,000 on
each of May 5, 1996, June 5, 1996, July 5, 1996, August 5, 1996
and September 5, 1996, and a total of $65,000,000 on January 15,
1997. These payments will be shared ratably by the banks under
the Revolving Credit Agreement and the holders of the Senior
Notes, although to the extent that the Company has not borrowed
the full amount available under the Revolving Credit Agreement,
the banks' collective commitments under the Revolving Credit
Agreement will be reduced by the ratable amounts without any
payment by the Company. The applicable annual percentage
interest rates under the Revolving Credit Agreement and the
Senior Notes have been increased by one percent. Additionally,
certain covenants of the Company under the Revolving Credit
Agreement and the Senior Note agreement have been amended, and
each of the Revolving Credit Agreement and the Senior Note
agreement are scheduled to mature on May 31, 1997.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
The Company and the holders of the Subordinated Notes have also
amended the Subordinated Note agreement. As amended, the
Subordinated Note agreement incorporates the new financial
covenants contained in the Senior Note agreement and the
Revolving Credit Agreement. Additionally, the Company has agreed
that payments of accrued interest that had been scheduled to be
made semi-annually will instead be paid quarterly, commencing on
September 10, 1996. The Company has also agreed to increase the
annual percentage interest rate payable on the principal
outstanding under the Subordinated Notes by 0.50%, commencing
April 15,1996.
In addition, the amendments required a waiver of certain
provisions of the Indenture pursuant to which the Notes were
issued, which waiver was obtained.
8. Net Loss Per Share
Net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding
during the related period, including common stock options when
dilutive.
9. Supplemental Disclosure of Cash Flow Information
Cash paid (received)in the quarter ended March 31 for interest and income
taxes was as follows:
1996 1995
(in thousands)
Interest $18,111 $13,459
Income taxes $(3,547) $ 5,248
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Merisel, Inc. (together with its subsidiaries, "Merisel" or the
"Company") is the largest worldwide publicly held wholesale
distributor of microcomputer hardware and software products.
Through its full-line, channel-specialized distribution business,
Merisel combines the comprehensive product selection and
operational efficiency of a full-line distributor with the
customer support of a specialty distributor offering dedicated
sales organizations to each of its customer groups. In addition,
through its wholly owned subsidiary, Merisel FAB, Inc. ("Merisel
FAB" or the "Franchise and Aggregation Business"), the Company
is an aggregator, or master reseller, of computer systems and
related products from major microcomputer manufacturers,
including Apple, Compaq, Hewlett-Packard and IBM, to a network of
approximately 730 independently-owned computer product resellers
in the United States.
The following table sets forth the percentage relationship that
certain income and expense items bear to net sales and is derived
from the consolidated statements of operations for the Company
for the three month periods ended March 31, 1996 and 1995:
Percentage of Net Sales
Three Months Ended
March 31
1996 1995
_______ _______
Net sales............................ 100.0% 100.0%
Cost of sales........................ 94.3 93.6
_______ _______
Gross profit......................... 5.7 6.4
Selling, general and
administrative expenses.............. 5.4 5.3
Restructuring charges................ 0.3
_______ _______
Operating income..................... 0.3 0.8
Interest expense..................... 0.6 0.7
Other expense........................ 0.5 0.2
_______ _______
Loss before income taxes............ (0.8) (0.1)
Provision (benefit) for income taxes. _______ _______
Net loss............................. (0.8)% (0.1)%
_______ _______
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 as Compared to the Three Months
Ended March 31, 1995
Net sales increased 6% from $1,455 million in 1995 to $1,537
million in 1996. Excluding the Company's Australian operations,
which were sold in the first quarter of 1996, the Company
experienced a 7% increase in net sales. The increase in net
sales was due to sales growth in existing distribution operations
in all geographic regions resulting from the growth of the
overall market for hardware and software products and an increase
in the number of products certain vendors are selling through
distribution. Net sales for the Franchise and Aggregation
Business were $257,938,000 or 17% of consolidated net sales for
the quarter ended March 31, 1996 compared to $283,437,000 or 19%
for the same period in 1995.
Geographically, the Company's net sales for the quarter ended
March 31, 1996, were as follows: United States, $961,812,000 or
63%; Canada, $177,691,000 or 11%; Europe, $323,878,000 or
21%; and other international markets, $73,208,000 or 5%. From
1995 to 1996, these geographic regions experienced sales growth
rates of 3% (8% without the Franchise and Aggregation Business),
6%, 19% and (4)%, respectively. The negative growth rate in
other international markets is due to the sale of the Company's
Australian operations in the first quarter of 1996, with an
effective date of January 1, 1996. Excluding the Australian
business, the sales growth rate for other international markets
was 39%.
In the United States, including Merisel FAB, hardware and
accessories accounted for 80% of net sales, and software
accounted for 20% of net sales in 1996, as compared to 76% and
24%, respectively, in 1995. The increase in hardware sales was
due to the Company obtaining additional rights to distribute
hardware products throughout the world from various vendors.
Gross profit decreased 6.5% from $93,223,000 in 1995 to
$87,223,000 in 1996. Gross profit as a percentage of sales, or
gross margin, decreased from 6.4% in 1995 to 5.7% in 1996. In
1995, the gross margin as a percentage of sales for the Franchise
and Aggregation Business and the Company's core distribution
business was 4.1% and 7.0%, respectively, compared to 3.2% and
6.2%, respectively, in 1996. The Company's core distribution
business continued to experience worldwide competitive pricing
pressures. The decrease in the Franchise and Aggregation
Business' gross margin is the result of intense price competition
and the effect of a revised pricing structure offered to new and
existing franchisees to deal with this competition. The Company
anticipates that it will continue to experience intense price
competition.
In the fourth quarter of 1995, the Company recorded several large
adjustments which reduced operating income, including a
significant charge which resulted from adjustments to trade
accounts payable balances. In the course of its business,
Merisel reconciles its accounts payable balances to statements
provided by its vendors. The accounts payable charge taken in
the fourth quarter was related to adjustments for price
protection, returns to vendors by Merisel and inventory receipt
related issues, such as short-shipments, identified through the
reconciliation process. An additional charge to gross profit of
$2,200,000 was taken in the first quarter of 1996 related to
these same issues. In February 1996 Merisel began implementing
processes and procedures to address current system deficiencies
and has engaged the assistance of outside consultants to assist
in this process. In addition, management has committed
additional resources to assist in collecting a part of the charge
that may be determined to be recoverable.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Selling, general and administrative expenses ("SG&A") increased
8.7% from $76,482,000 in 1995 to $83,136,000 in 1996. SG&A as a
percentage of net sales increased from 5.3% in 1995 to 5.4% in
1996. In 1995, SG&A as a percentage of sales for the Franchise
and Aggregation Business and the Company's core distribution
business was 3.6% and 5.7%, respectively, compared to 3.9% and
5.7%, respectively, in 1996. The absolute dollar increase in
SG&A is due in part to the costs associated with the Company's
6% increase in net sales. In addition, in 1996 the Company
incurred significant charges associated with amending the
Company's financing agreements, severance for the Company's
former CEO, and costs incurred to prepare the Company's 1996
business plan and to begin improving certain business processes,
including the supplier account reconciliation process.
In the quarter ended March 31, 1995, the Company adopted a
restructuring plan in response to pricing and gross margin
pressures. For 1995, the Company recorded a total restructuring
charge of $9,333,000. Of this total, $5,061,000 was recorded in
the quarter ended March 31, 1995, which represented 0.3% of net
sales. The restructuring charge represented anticipated costs to
be incurred associated with reductions in personnel and the
closure and consolidation of warehouses. See Note 4 of Notes to
Consolidated Financial Statements.
Operating income decreased 65% from $11,680,000 in 1995 to
$4,087,000 in 1996. Operating income as a percentage of net sales
was 0.8% in 1995 and 0.3% in 1996. In 1995, operating income
(loss) as a percentage of sales for the Franchise and Aggregation
Business and the Company's core distribution business was 0.5%
and 0.9%, respectively, compared to (0.6)% and 0.5%,
respectively, in 1996. The decrease in operating income is the
result of lower gross margins in both the Franchise and
Aggregation Business and the core distribution business, and the
additional SG&A costs incurred in the first quarter of 1996.
Interest expense decreased 6% from $10,458,000 in 1995 to
$9,877,000 in 1996, and decreased from 0.7% to 0.6% as a
percentage of net sales in 1995 compared to 1996. The decrease
in interest expense is attributable to the Company financing an
increased part of its business through asset sales pursuant to
accounts receivable asset securitizations in various
subsidiaries. The Company's average month-end bank borrowings
increased 2% from $395,500,000 in 1995 to $404,255,000 in 1996.
The increase in average borrowings in 1996 reflected primarily
the need to finance higher levels of working capital to support
increased sales.
Other expenses increased from $3,384,000 in 1995 to $7,238,000 in
1996. The increase was primarily attributable to fees incurred
related to the amendments of the Company's financing agreements
in 1996. In addition, fees incurred in connection with trade
receivables securitizations increased significantly in 1996. The
increase in fees is primarily attributable to an increase in the
amount of net receivables sold. The average month end amount of
accounts receivable sold under all of the Company's various
facilities increased from $150,000,000 in 1995 to $289,113,000
in 1996. Partly offsetting the increases in other expense was
the recognition of a gain of $1,200,000 from the sale of
undeveloped land in North Carolina in February 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company's tax expense of $480,000 in 1996 primarily
represents the tax provision on certain of the Company's
profitable foreign subsidiaries. The Company realized no tax
benefits for the first quarter of 1996 due to valuation
allowances which fully offset the Company's deferred tax assets.
The Company's effective tax rate for the period ended March 31,
1995 was a benefit of 17.3%.
Net income decreased from a loss of $1,789,000 in 1995 to a loss
of $13,508,000 in 1996. Net income per share decreased from a
loss of $0.06 in 1995 to a loss of $0.45 in 1996.
1996 BUSINESS PLAN
In April 1996, due to the substantial losses incurred for the
fourth quarter and fiscal year ended December 31, 1995, Merisel
was required to negotiate with the lenders under various of its
financing agreements to amend such agreements and to waive
certain defaults, which amendments and waivers were obtained.
See Note 7 to Consolidated Financial Statements. In connection
with the negotiations with its lenders, Merisel developed a
business plan for the remainder of fiscal 1996 that calls for
curtailing non-essential capital expenditures during 1996 in
order to maximize cash flow. In addition, the Company intends to
focus on its more profitable areas of operations and product
lines while slowing growth in its other less profitable areas of
operations. Merisel believes that, if successfully implemented,
the 1996 business plan will allow the Company to operate without
the need for additional sources of financing or any asset sales
in 1996. However, in order to meet its obligations in 1997 the
Company will need to engage in some combination of asset sales,
refinancing of its borrowings or obtaining new sources of
financing. While the Company believes it will be able to
implement one or more of the foregoing strategies which will
enable it to meet its obligations, there can be no assurance that
it will be able to do so. See "Liquidity and Capital Resources.''
Concurrently with the implementation of its business plan for
1996, Merisel is also actively exploring all of its strategic
options with the assistance of Merrill Lynch & Co. These options
include a business combination with, or sale to, a strategic
partner who could provide the capital necessary to enable
continued growth of the Company, or a sale of significant assets
in geographic regions around the world, which would also enable
Merisel to fund its remaining operations out of existing cash
flow or restructured borrowings.
The Company's 1996 business plan assumes that the Company will
not experience any significant changes in payment terms to, or
product availability from, its key vendors, and there can be no
assurance that significant changes will not occur. Any such
deterioration in the absence of the development of alternate
financing sources or asset sales could adversely impact the
Company's cash flow and its future results of operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In light of the Company's current business plan to maximize cash
flow, management does not expect, nor does the 1996 business plan
assume, that the Company will return to profitability until the
fourth quarter of 1996. See ''_Liquidity and Capital Resources.''
The expected losses for the second quarter of 1996 are in part
attributable to costs incurred to identify and begin improving
certain business processes which were not functioning
satisfactorily in 1995. In addition, the 1996 business plan
anticipates that the Company will incur charges of approximately
$7,000,000 related to accounts payable, of which $2,200,000 was
taken in the first quarter.
The preceding preliminary financial information constitutes
forward looking information and actual results could differ
materially from current expectations. Among the factors that
could impact actual results are the following: additional
adjustments in the Company's trade accounts payable, any
adjustments to the Company's accounts receivable or inventory and
any further unanticipated charges associated with the Company's
computer systems, asset dispositions or any potential
restructuring.
SYSTEMS AND PROCESSES
The Company is in the process of converting its North American
operations to new computer operating systems. The Company began
designing the systems in early 1993 and converted its Canadian
operations to the new system in August 1995. In the early
implementation stages the Canadian conversion produced results
below the Company's expectations. In late February 1996 Merisel
Canada's operating systems had begun to show results closer to
the Company's original projection. However, this required
substantial additional development efforts and costs in the post-
implementation period. Accumulated expenditures incurred to
develop these systems have been significantly in excess of the
amounts originally expected. In addition, the Company has
delayed installation of these systems in the United States beyond
1996.
The Company is also reviewing certain of its existing accounting
systems, including shipping and billing processes, which may
result in adjustments to accounts receivable and/or inventory
balances.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
Historically, the Company has experienced variability in its net
sales and operating margins on a quarterly basis and expects
these patterns to continue in the future. Management believes
that the factors influencing quarterly variability include: (i)
the overall growth in the microcomputer industry; (ii) shifts in
short-term demand for the Company's products resulting, in part,
from the introduction of new products or updates of existing
products; and (iii) the fact that virtually all sales in a given
quarter result from orders booked in that quarter. Due to the
factors noted above, as well as the fact that the Company
participates in a highly dynamic industry, the Company's revenues
and earnings may be subject to material volatility, particularly
on a quarterly basis.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Additionally, the Company's net sales in the fourth quarter have
been historically higher than in its other three quarters.
Management believes that the pattern of higher fourth quarter
sales is partially explained by customer buying patterns relating
to calendar year-end business purchases and holiday purchases.
As a result of this pattern the Company's cash requirements in
the fourth quarter have typically been greater. See "Liquidity
and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs primarily
through borrowings, securitizations of its trade receivables and
the public and private sales of its securities.
Net cash provided by operating activities during the three months
ended March 31, 1996 was $21,307,000. The primary source of cash
from operating activities was a decrease in inventory of
$120,778,000. The primary uses of cash during the period were a
net loss of $13,508,000, a $20,834,000 increase in accounts
receivable, and a decrease in accounts payable of $70,689,000.
The increase in accounts receivable was due primarily to the
increase in sales volume. The decrease in inventory is the
result of improved inventory management, as inventory turns
increased from 10.9 times in the fourth quarter of 1995 to 13.2
times in the first quarter of 1996. The decrease in accounts
payable is related to the decrease in inventory.
Net cash used for investing activities in 1996 was $8,332,000,
consisting of payment of the Company's earn out obligation under
the ComputerLand Acquisition of $13,409,000 and property and
equipment expenditures of $3,438,000, partly offset by proceeds
received of $8,515,000 from the sale of the Company's Australian
operations. The expenditures for property and equipment were
primarily for the upgrading of the Company's computer systems,
expenditures for a new warehouse management system and the
upgrading of existing facilities and leasehold improvements. The
Company presently anticipates that its capital expenditures for
1996 will be approximately $12,885,000, consisting of costs of
upgrading and modifying the new computer system and the new
warehouse management systems in North America, development of new
computer systems for the Company's European operations, and
purchase of warehouse and other equipment in North America,
Europe and Latin America. In addition, the Company has deferred
non-essential capital expenditures to maximize its cash flow in
1996. See "1996 Business Plan." The Company intends to finance
its anticipated capital expenditures with funds from existing
operations.
Net cash provided by financing activities was $57,293,000,
comprised of net borrowings under domestic revolving lines of
credit of $47,000,000, proceeds from the issuance of promissory
notes of $11,261,000 and proceeds from the sale of trade
accounts receivable of $23,721,000, partially offset by net
repayments under foreign bank facilities of $20,289,000 and the
payment of the first installment of $4,400,000 of the
Subordinated Notes ( as defined below).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company's wholly owned subsidiary Merisel Americas, Inc. on
an ongoing basis, sells its trade receivables to its wholly owned
subsidiary, Merisel Capital Funding, Inc. ("Merisel Capital
Funding"). Pursuant to a trade receivables purchase and sale
agreement (the "Receivables Purchase and Servicing Agreement"),
Merisel Capital Funding, in turn, sells such receivables to a
securitization company, which yields proceeds of up to
$300,000,000. The receivables are sold at face value with a
portion of the purchase price being deferred and fees paid in
connection with such sales are recorded as other expense. Merisel
Capital Funding is a separate corporate entity with its own
separate creditors, which upon its liquidation will be entitled
to be satisfied out of Merisel Capital Funding's assets prior to
any value in Merisel Capital Funding becoming available to
Merisel Capital Funding's equityholders. This facility expires
in October 2000.
In addition, on October 16, 1995, Merisel U.K. Ltd. entered into
a receivables purchase agreement with a securitization company to
provide funding for Merisel's U.K. subsidiary. In accordance with
this agreement, Merisel U.K. sells receivables to the
securitization company on an ongoing basis, which yields proceeds
of up to 25,000,000 pounds sterling. The facility has no fixed
expiration date but will expire no earlier than 18 months from
the effective date following three to six months prior written
notice from the securitization company. Effective December 15,
1995, Merisel Canada Inc. entered into a receivables purchase
agreement with a securitization company to provide funding for
Merisel's Canadian subsidiary. In accordance with this agreement,
Merisel Canada sells receivables to the securitization company,
which yields proceeds of up to $150,000,000 Canadian dollars. The
facility expires December 12, 2000, but is extendable by notice
from the securitization company, subject to the Company's
approval.
Under these securitization facilities, the receivables are sold
at face value with payment of a portion of the purchase price
being deferred. As of March 31, 1996 the total amount outstanding
under these facilities was $277,172,000. Fees incurred in
connection with the sale of accounts receivable for the quarter
ended March 31, 1995 and 1996 were $2,569,000 and $4,544,000,
respectively, and are recorded as other expense. As of March 31,
1996, the total amounts outstanding for the United States, United
Kingdom, and Canadian securitization facilities were
$175,800,000, $28,170,000 and $73,202,000, respectively, which
were near the maximum amounts that could be sold under such
facilities at that time, based on the Company's eligible
receivables, as defined in the various agreements. However, at
March 31, 1996 the Company had cash and cash equivalents on hand
of $69,788,000.
To provide capital for the Company's operating and investing
activities, the Company and its subsidiaries maintain a number of
credit facilities including a $150,000,000 unsecured revolving
bank credit facility expiring on May 31, 1997 (the "Revolving
Credit Agreement"). See Note 7 to Consolidated Financial
Statements. At May 10, 1996, $150,000,000 was outstanding under
this facility. The Company and its subsidiaries also maintain
various local lines of credit, primarily to facilitate overnight
and other short-term borrowings. The total amount of outstanding
borrowings under these lines as of March 31, 1996 was
$7,388,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
At March 31, 1996 the Company and its subsidiaries also had
outstanding $125,000,000 of 12.5% Senior Notes due December 31,
2004, $100,000,000 of 8.58% senior notes due May 31, 1997 (the
''Senior Notes'') and $17,600,000 of 11.28% senior subordinated
notes (the ''Subordinated Notes'') repayable in four remaining
equal annual installments, with the next installment due March
1997. In April 1996, the rates on the Senior Notes and
Subordinated Notes were increased to 9.58% and 11.78%,
respectively. See Note 7 to Consolidated Financial Statements.
As a result of the substantial losses incurred by the Company for
the fourth quarter and fiscal year ended December 31, 1995,
Merisel was required to obtain, and did obtain, amendments with
respect to certain covenants under the Revolving Credit
Agreement, the purchase agreement related to the Senior Notes,
the purchase agreement related to the Subordinated Notes, and the
Receivables Purchase and Servicing Agreement. See"--1996 Business
Plan" and Notes 6 and 7 to Consolidated Financial Statements.
The amendments will enable the Company to operate its business
for the remainder of 1996 in compliance with the agreements if
the Company achieves its 1996 business plan. If the 1996 business
plan is not successfully implemented, the Company may need to
obtain additional waivers from its lenders, or other sources of
capital through asset sales, and there can be no assurance that
such waivers or alternate sources of capital can be obtained.
In connection with the ComputerLand Acquisition, Merisel FAB and
Vanstar entered into a Distribution and Services Agreement (the
"Services Agreement") pursuant to which Vanstar provides
significant distribution and other support services to the
Franchise and Aggregation Business for a contractually agreed
upon fee. Effective July 12, 1995, this agreement was extended
until April 30, 1997. Under the terms of the Services Agreement
extension, Merisel and Vanstar agreed that (i) the extended
credit terms under the Services Agreement would be increased to
$31,400,000; and (ii) the terms of the distribution fee would be
adjusted. The amount of the extended credit will be reduced by a
scheduled amount of $844,000 monthly through October 31, 1996. A
final balance of $23,500,000 will be payable in four scheduled
payments between May 15, 1997 and July 31, 1997. If an inventory
reduction plan is agreed upon between the two parties, then the
$23,500,000 may decrease on an accelerated basis. In addition, on
February 2, 1996 the Company paid Vanstar $13,409,000, which
consisted of a negotiated settlement of the Company's earn out
obligation under the original purchase agreement related to the
ComputerLand acquisition of $14,594,000, net of rebates of
$1,185,000. See Note 5 to Consolidated Financial Statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In light of the Company's current business plan to maximize its
cash flow during fiscal 1996, management does not expect, nor
does the business plan assume, that the Company will return to
profitability until the fourth quarter of 1996. The Company's
amended debt agreements with the lenders under the Revolving
Credit Agreement, Senior Notes and Subordinated Notes require
principal payments of approximately $35,000,000 in the remainder
of 1996 and $219,400,000 in 1997, based on the amounts
outstanding at March 31, 1996. Assuming successful implementation
of the existing business plan, and that the Company does not
experience any significant changes to payment terms or product
availability from its key vendors, the Company believes it can
satisfy its amortization requirements in 1996 without additional
financing or asset sales or debt restructuring. However, in light
of the significant principal payments required in 1997, as well
as other obligations described herein, the Company will not be
able to finance its operations or amortize its debt in 1997
without engaging in significant asset sales, refinancing its
borrowings, obtaining new sources of financing, or some
combination thereof, and there can be no assurance that it will
be able to do so.
ASSET MANAGEMENT
Merisel attempts to manage its inventory position to maintain
levels sufficient to achieve high product availability and same
day order fill rates. Inventory levels may vary from period to
period, due in part to increases or decreases in sales levels and
Merisel's practice of making large purchases when it deems the
terms of such purchases to be attractive. Further contributing to
inventory level changes is the addition of new manufacturers and
products. The Company has negotiated agreements with many of its
manufacturers which contain stock balancing and price protection
provisions intended to reduce, in part, Merisel's risk of loss
due to slow moving or obsolete inventory or manufacturer price
reductions. The Company is not assured that these agreements
will succeed in reducing this risk. In the event of a
manufacturer price reduction, the Company generally receives a
credit for products in inventory. In addition, the Company has
the right to return a certain percentage of purchases, subject to
certain limitations. Historically, price protection and stock
return privileges as well as the Company's inventory management
procedures have helped to reduce the risk of loss of carrying
inventory.
The Company offers credit terms to qualifying customers and also
sells on a prepay, credit card and cash-on-delivery basis. The
Company also offers financing for its sales to certain of its
customers through various floor plan financing companies. With
respect to credit sales, the Company attempts to control its bad
debt exposure through monitoring of customers' creditworthiness
and, where practicable, through participation in credit
associations that provide credit rating information about its
customers. In certain markets, the Company may elect to purchase
credit insurance for certain accounts.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
COMPETITION
Competition in the microcomputer products distribution industry
is intense and is based primarily on price, brand selection,
breadth and availability of product offering, financing options,
speed of delivery, level of training and technical support,
marketing services and programs, and ability to influence a
buyer's decision.
Certain of Merisel's competitors have substantially greater
financial resources than Merisel. Merisel's principal competitors
include large United States-based international distributors such
as Ingram Micro, MicroAge and Tech Data Corporation; non-United
States based international distributors such as Computer 2000;
national distributors such as Gates/Arrow and regional
distributors and franchisors. The Company competes
internationally with a variety of national and regional
distributors on a country-by-country basis. Merisel also competes
with manufacturers that sell directly to computer resellers,
sometimes at prices below those charged by Merisel for similar
products.
The Franchise and Aggregation Business is subject to competition
from other franchisors and aggregators in obtaining and retaining
franchisees and third-party resellers, as well as competition
from wholesale distributors with respect to sales of products to
customers in the Franchise and Aggregation Business network. With
respect to brand selection, the Company believes that an
important factor in the Franchise and Aggregation Business'
ability to attract customers is the fact that it is able to offer
computer systems and other hardware products from Apple, Compaq,
Hewlett-Packard and IBM. These manufacturers historically have
sold their products directly to resellers and through a limited
number of master resellers such as the Franchise and Aggregation
Business. The loss of any of these manufacturers, or any change
in the way any such manufacturer markets, prices or distributes
its products, could have a material adverse effect on the
Franchise and Aggregation Business' operations and financial
results. The Franchise and Aggregation Business' principal
competitors are Intelligent Electronics, MicroAge and Inacom, all
of which maintain networks of franchisees and third-party dealers
and which carry products of one or more of the Company's major
manufacturers. Certain of the Franchise and Aggregation Business'
competitors have greater financial resources than the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1994, Merisel, Inc. and certain of its officers and/or
directors were named in putative securities class actions filed
in the United States District Court for the Central District of
California, consolidated as In re Merisel, Inc. Securities
Litigation. Plaintiffs, who are seeking damages in an
unspecified amount, purport to represent a class of all persons
who purchased Merisel common stock between November 8, 1993 and
June 7, 1994 (the "Class Period"). The complaint, as amended and
consolidated, alleges that the defendants inflated the market
price of Merisel's common stock with material misrepresentations
and omissions during the Class Period. Plaintiffs contend that
such alleged misrepresentations are actionable under Section
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. Following the granting of
defendant's first motion to dismiss on December 5, 1994,
plaintiffs filed a second consolidated and amended complaint on
December 22, 1994. On April 3, 1995, Federal District Judge Real
dismissed the complaint with prejudice. The plaintiffs have
appealed the dismissal. The parties' appellate briefing to the
Ninth Circuit was completed on November 6, 1995. The Ninth
Circuit has set June 4, 1996 as the date for oral argument
regarding the appeal.
Item 2. Changes in Securities
For a description of possible limitations or qualifications on
the rights evidenced by the Notes imposed by the modification of
certain of the Company's financing arrangements, see Note 7 to
the Consolidated Financial Statements (Unaudited).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.48 Employment Agreement dated February 12, 1996
between Dwight A. Steffensen and Merisel, Inc.
10.49 Employment Agreement dated May 2,1996 between
Ronald A Rittenmeyer and Merisel, Inc.
(b) Reports on Form 8-K
- The Company filed a report on
Form 8-K on April 17, 1996, consisting of exhibits filed
pursuant to item 7 (c) of such report, subsequent to the quarter
ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 1996
Merisel, Inc.
By: /s/James L.Brill
____________________
James L. Brill
Senior Vice President,Finance,
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finanical information extracted from Consolidated
Financial Statements for Merisel, Inc. for the quarterly period ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 69,788
<SECURITIES> 0
<RECEIVABLES> 428,043
<ALLOWANCES> 22,509
<INVENTORY> 440,453
<CURRENT-ASSETS> 966,359
<PP&E> 145,705
<DEPRECIATION> 56,959
<TOTAL-ASSETS> 1,158,676
<CURRENT-LIABILITIES> 715,917
<BONDS> 299,461
<COMMON> 299
0
0
<OTHER-SE> 138,495
<TOTAL-LIABILITY-AND-EQUITY> 1,158,676
<SALES> 1,536,589
<TOTAL-REVENUES> 1,536,589
<CGS> 1,449,366
<TOTAL-COSTS> 1,449,366
<OTHER-EXPENSES> 78,403
<LOSS-PROVISION> 4,733
<INTEREST-EXPENSE> 9,877
<INCOME-PRETAX> (13,028)
<INCOME-TAX> 408
<INCOME-CONTINUING> (13,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,508)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered
into as of the 12th day of February, 1996, by and between
Merisel, Inc., a Delaware Corporation (the "Company"), and
Dwight A. Steffensen, an individual ("Executive").
RECITALS
The Company wishes to explore proposals to sell a
segment of the business and properties of the Company or the
Company itself. In furtherance of this objective, the
Company wishes to retain Executive and structure a
compensation arrangement that will motivate Executive to
accomplish the Company's objective while maximizing the
value of the Company for the benefit of its
stockholders.
NOW, THEREFORE, in consideration of the mutual
promises and covenants herein contained, the parties hereto
have agreed as follows:
1. Term of Employment.
The Company shall employ Executive as its
Chief Executive Officer and Executive agrees to be so
employed by the Company under the terms and
conditions of this Agreement commencing as of February 12, 1996
(the "Effective Date") and ending on the earlier of (i) the
first anniversary of the Effective Date, or (ii) termination of
Executive's employment pursuant to this Agreement (the
period commencing on the Effective Date and ending on the first
anniversary thereof is hereinafter referred to as the "Employment
Term"), subject to renewal for additional periods as may
be mutually agreed by the Company and Executive. The
original term and any renewal terms of this Agreement may
be sooner terminated as provided herein.
<PAGE>
2. Scope of Duties.
Executive shall undertake and assume the
responsibility of performing for and on behalf of the Company those
duties as shall be consistent with the position of the Chief
Executive Officer. Executive covenants and agrees that at all
times during the term of this Agreement he shall devote his
substantially fulltime and best efforts to the execution of
his duties pursuant hereto. Executive currently serves as a member of
the Company's Board of Directors (the "Board") and will serve as Chairman
of the Board during the Employment Term without additional
compensation.
3. Compensation.
As compensation for services rendered pursuant to
this Agreement, the Company shall pay to Executive, in
installments customary with the Company's standard payroll
periods, base annual compensation of $505,000 during the
Employment Term, provided, however, that the Board may, in its
sole discretion, increase such base annual compensation as
merited by the performance of Executive. The Company shall
deduct from all payments paid to Executive under this Agreement any
required amounts for social security, federal and state
income tax withholding, federalor state unemployment
insurance contributions, and state disability insurance or
any other required taxes.
4. Stock Appreciation Rights.
4.1 The Company shall grant Executive a
stock appreciation right (the "SAR") covering 500,000
hypothetical shares of the Company's Common Stock ("SAR
Shares"). The SAR shall be granted effective April 25, 1996
(the "Grant Date"), with an SAR exercise price equal to
$2.8125 per share, and shall entitle Executive to receive a cash
payment or payments equal to the Distributable Amount (defined
below) upon a Distribution Date (defined below); provided,
however, that the Company shall be under no obligation to
make a cash payment pursuant to this Section 4.1 unless and
until the Company receives, in the aggregate, at least $75
million in gross proceeds (including for this purpose the value of
<PAGE>
any stock or non-cash property received and the value of any
debt assumed) from a transaction or transactions, including a merger
or sale transaction, after the Effective Date involving an
extraordinary disposition by the Company of its stock or
assets (other than an accounts receivable securitization)
and/or a disposition by the stockholders of their stock in the
Company.
4.2 Except as otherwise provided in Section 4.3
below, the SAR shall vest monthly at a rate of 1/48th of the
SAR Shares on each monthly anniversary of the Effective Date
while Executive remains an employee of the Company.
4.3 In the event of (i) a Sale of the Company
(as defined in Section 6.4 below), the SAR shall become fully
vested, and (ii) a "Sale of Europe" (defined herein), the SAR
shall vest as to thirty percent (30%) of the SAR Shares that,
immediately preceding such event, are not vested. For
purposes of clause (ii) of this Section 4.3, the portion of
the SAR that vests shall be drawn in substantially equal
increments from the remaining vesting installments. For
purposes of this Agreement, a "Sale of Europe" shall mean a
sale(s), merger or other disposition or transaction involving
seventy percent (70%) or more of the assets or stock (or a
combination of both) by value, of the Company's European
operations, to a party or parties unrelated to the Company
or any affiliate of the Company.
4.4 "Distributable Amount" means, with respect
tothe vested portion of the SAR, the excess of the fair
market value of the Company's Common Stock on the
Distribution Date (defined below) over the exercise price
applicable to such portion. For this purpose, fair market value
shall be based on the Nasdaq National Market closing price of the Company's
Common Stock for the most recent trading day preceding the
Distribution Date.
4.5 "Distribution Date" means the earlier
to occur of (i) termination of Executive's employment with
the Company for any reason, or (ii) each anniversary of the
Effective Date.
<PAGE>
5. Bonus, Expenses, Reimbursements and AdditionalBenefits.
In addition to the compensation to be paid to Executive
pursuant to Section 3, the Company shall pay,
reimburse or otherwise confer the following items of benefit to
Executive:
5.1 During each of the first four quarters of the
Employment Term beginning with the quarter beginning January
1,1996, Executive shall be eligible to receive a bonus based on
the Company's financial performance for such quarter, provided
that the Company shall have been operated outside of the
control of the Company's creditors and that no petition
shall have been filed pursuant to Section 301 or 303 (or
any other applicable Section) of the Bankruptcy Code (or,
if a petition has been filed, such petition has not been
dismissed within forty-five (45) days of such filing) with
respect to the Company during such quarter. For each
such quarter, if any, in which the Company's
actual financial performance equals or exceeds targeted levels
as reflected in the Board-approved operating plan, the Company
shall pay Executive a minimum bonus of $75,750 for
performance at targeted levels, increasing to a maximum bonus of $126,250 in
the event the Company has net income for such quarter.
No bonus shall be payable for any quarter in which (i)
the Company's actual financial performance is less than
targeted levels, (ii) the Company has been operated at any
time under the control of its creditors, or (iii) a petition
has been filed pursuant to Section 301 or 303 (or any other
applicable Section) of the Bankruptcy Code (or, if a
petition has been filed, such petition has not been
dismissed within forty-five (45) days of such filing) with
respect to the Company. Notwithstanding the
foregoing, for the first fiscal quarter of 1996, the
minimum bonus payable to Executive shall be $37,875. If, at
any time during a quarter, Executive's employment
terminates for any reason other than by the Company for
Cause or by Executive voluntarily, then Executive shall be
entitled to a pro-rata portion of the minimum target bonus
amount for the performance period in which such termination
occurs.
<PAGE>
5.2 Subject to Section 10 below, in the event of
a Sale of the Company (as defined in Section 6.4 below) during
the Employment Term, Executive shall be entitled to
receive, and Company shall pay, a bonus of $990,000, reduced
by any bonus paid or payable to Executive pursuant to
Section 5.3. Such bonus payment shall be paid in a lump sum
at the consummation of the Sale of the Company.
5.3 Subject to Section 10 below, in the event of
a Sale of Europe (as defined in Section 4.3 above) during
the Employment Term, Executive shall be entitled to receive,
and the Company shall pay, a bonus of $200,000. Such bonus
payment shall be paid in a lump sum at the consummation of such
sale.
5.4 The Company shall pay Executive a monthly
car allowance of $1,600.
5.5 The Company shall pay (or Executive shall
be entitled to reimbursement) for business-related first
class or business class air travel expenses.
5.6 The Company shall pay Executive for the dues
at one country club of Executive's choice of $425 per month.
5.7 The Company agrees to provide Executive with,
or to reimburse Executive for, legal, financial planning
and accounting services not to exceed $15,000 per year. The
Company shall provide Executive with or reimburse Executive an
additional amount for legal fees of up to $5,000 in
connection with the negotiation of this Agreement; provided
that nothing herein shall preclude Executive from applying any
fees in excess of the $5,000 amount relating to the negotiation
of this Agreement to the amount provided in the prior sentence.
Executive shall be reimbursed forincidental business expenses,
including homefacsimile machine and car phone, consistent
with the Company's policy for senior executives.
<PAGE>
5.8 Company shall provide Executive with term life insurance
coverage, $1 million face value, at no cost to
Executive. In addition, Executive shall be eligible to
participate in all other benefit programs and plans which maybe
afforded senior management of the Company and the Company
shall make contributions to such plans and arrangements on
behalfof Executive as shall be required or consistent with the
terms and conditions of said plans. Such plans and programs
may include, by way of example, deferred compensation,
group insurance benefits, long-term or permanent disability
insurance and major medical coverage.
5.9 Executive shall be entitled, during the
Employment Term, to vacation time with compensation and
time off with compensation on account of illness or injury,
in accordance with the Company's written policies for
employees in effect from time to time.
6. Termination of Agreement.
6.1 This Agreement may be terminated prior to
expiration of the Employment Term by either party upon 60
days written noticeto the other party. Upon any termination
under this Section 6.1, the Company shall promptly pay
Executive all salary and other compensation, including amounts
payable, if any, under Section 4 and any unused vacation
pay, earned by him through the effective date of such
termination.
In the event the Agreement is terminated by Executive,
then, at the time the termination is effective, all benefits
and payments provided for hereunder shall terminate, and,
without limiting the foregoing, Executive shall not be
entitled to any severance payment.
In the event this Agreement is terminated during
the Employment Term by the Company other than for Cause, the
Company shall continue to pay Executive his annual base salary
set forth in Section 3 for the remainder of the Employment
Term. In addition, and notwithstanding anything herein to the
contrary, if the termination occurs at a time when any
negotiations for the Sale of Europe or a Sale of the
<PAGE>
Company have already occurred with any party, then Executive
shall remain eligible to receive and will receive at the
time of the Sale the benefits described in Sections 4.3, 5.2,
5.3 and 8.3, as applicable (provided that the Distributable
Amount (as defined in Section 4.4) in such event shall be
determined at the time of the Sale), subject to consummation
of any such Sale with the third party or any affiliate
of the third party, but only if the Sale is consummated within
twelve (12) months of such termination.
After any notice of termination is given under
this Section 6.1, whether by the Company or Executive, the
Company may remove or suspend Executive from performance of his
office or of any of his duties hereunder during the period
prior to the effective date of termination, provided, that
such removal or suspension shall not affect Executive's
right to receive compensation and benefits during such
period. The Board must approve the termination of
Executive's employment under this Section 6.1.
6.2 Termination for Death or Disability.
This Agreement shall be terminated upon the death or, at the
Company's option, the disability of Executive. For
purposes of this Agreement, the term "disability" shall
mean the inability of Executive to perform substantially
all of his duties hereunder for any 90 days in a 105
consecutive day period; provided that until such time as the
Company elects to terminate this Agreement due to Executive's
disability, Executive shall continue to receive from the
Company 100% of his compensation and other benefits and
distributions by way of compensation, as determined pursuant to
Sections 3 and 5, which Executive would otherwise be entitled
to receive. Upon the termination of this Agreement due to
death or disability of Executive, the Company shall promptly
pay Executive or his estate as the case may be, all salary
and other compensation, including unused vacation pay, earned
by him through the effective date of such termination, less
income taxes and other standard employee deductions. In
addition, the Company shall pay Executive or his estate, as the
case may be, his annual base salary set forth in Section 3
for the remainder of the Employment Term reduced (but not
below zero) by any Company provided benefits payable as
<PAGE>
a result of such death or disability. All other
benefits and payments provided for hereunder shall
terminate; provided, that nothing in this Section 6.2 shall
be construed to prohibit Executive or his estate, as the case
may be, from collecting any insurance proceeds or state
disability payments to which he or his estate might otherwise
be entitled. Nothing herein shall operate to preclude
Executive or his estate, as the case may be, from receiving
any death or disability benefits that are otherwise payable.
6.3 Termination for Cause. This Agreement may
be terminated, at the Company's option, (i) upon the
occurrence of any theft by Executive or conviction for or
a plea of nolo contendere by Executive to a felony or any
crime involving moral turpitude, (ii) upon the material breach
by Executive of any of the provisions of this Agreement,
(iii) upon Executive's misconduct (as defined below).
Termination for Cause shall not be deemed to have occurred
unless the Board adopts a resolution, at a meeting called and
held for that purpose (after reasonable notice to Executive
and after allowing Executive and his counsel to be heard
before the Board) finding that Executive was guilty of conduct
set forth in (i), (ii) or (iii) and specifying the
particulars thereof. Notwithstanding any such determination
by the Board, Executive may challenge such determination
in arbitration pursuant to Section 14. Upon a termination
for Cause, which, if contested in arbitration by Executive, is
upheld in arbitration, all compensation, benefits and payments
provided for hereunder shall terminate, and Executive
shall not be entitled to any severance or other payments
other than for salary and other compensation (including unused
vacation pay) earned by him through the effective date of such
termination. "Misconduct" shall mean misconduct, physical
assault, falsification or misrepresentation of facts on
Company records, creating or contributing to unsafe
working conditions, fraud, dishonesty, willful destruction
of Company property or assets or harassment of another
employee by Executive. No act, or failure to act, by Executive
shall be considered "willful" unless committed without good
faith and without a reasonable belief that the act or
omission was in the Company's best interest.
<PAGE>
6.4 A "Sale of the Company" shall be deemed to
occur if (i) any person, corporation, partnership, trust,
association, enterprise or group shall become the beneficial
owner, directly or indirectly, of outstanding capital
stock of the Company possessing at least 50% of the voting
power (for the election of directors) of the outstanding
capital stock of the Company, or (ii) there shall be a sale
of all or substantially all of the Company's assets or the
Company shall merge or consolidate with another corporation
and the stockholders of the Company immediately prior to
such transaction do not own, immediately after such
transaction, stock of the purchasing or surviving
corporation in the transaction (or of the parent corporation
of the purchasing or surviving corporation) possessing more
than 50% of the voting power (for the election of
directors) of the outstanding capital stock of that
corporation, which ownership shall be measured without
regard to any stock ownership of the purchasing, surviving or
parent corporation by the stockholders of the Company before the
transaction; provided, however, that the Company shall have no
obligation to enter into any such Sale of the Company; and provided
further that the decision to proceed with any such Sale of the Company
shall be determined by the Board in its sole discretion and
the bonus described in Section 5.2 shall not become payable
unless a majority of the non-employee members of the Board
shall approve such Sale of the Company. For purposes of this
Agreement, a Sale of Europe (as defined in Section 4.3) shall
not, in and of itself, constitute a Sale of the Company.
7. Disclosure of Information.
Executive acknowledges that in connection with and as
a result of his employment pursuant to this Agreement, he
shall make use of, acquire and add to Confidential
Information (as defined below). Except as required in
connection with his obligations hereunder, Executive shall
not, in any manner, disclose or use any Confidential
Information, including Confidential Information received from
the Company or others either before, during or after his
employment with the Company or received before during or
<PAGE>
after the term of this Agreement, except upon the prior
written consent of the Company. Executive acknowledges that
such Confidential Information of the Company will include
matters conceived or developed by Executive, as well as
matters learned by Executive from employees of the Company.
Any Confidential Information that Executive has, shall prepare
or shall have prepared, used, use or come into contact with
shall be and remain the Company's sole property and shall not
be removed from the Company's premises without its prior
written consent, and shallbe returned upon termination of
this Agreement. Executive will not, except as the Company may
otherwise consent or direct in writing, sell, use,
lecture, or publish any Confidential Information or other
proprietary information of the Company or authorize anyone
else to do those things at any time either during or
subsequent to this Agreement. For purposes of this Agreement,
the term "Confidential Information" means either: (A)
information concerning the financial condition of the Company
or its subsidiaries that is not generally available to
the public; or (B) trade secrets as defined in California Civil
Code Section 3426.1. In the event that Executive is
requested or required (by deposition, interrogatories,
requests for information or documents in legal proceedings,
subpoena, civil investigative demand or other similar
process) to disclose any Confidential Information, Executive
shall provide the Company with prompt written notice of any
such request or requirement so that the Company may seek a
protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. If, in
the absence of a protective order or other remedy or the
receipt of a waiver by the Company, Executive is nonetheless,
legally compelled to disclose Confidential
Information to any tribunal or else stand liable for contempt
or suffer other censure of penalty, Executive may, without
liability hereunder disclose to such tribunal only that
portion of the Confidential Information which Executive is
legally required to disclose, provided that Executive
exercises his best efforts to preserve the confidentiality
of the Confidential Information, including, without
limitation, by cooperating with the Company to obtain an
appropriate protective order or other reliable assurance
that confidential treatment will be accorded the
Confidential Information by such tribunal.
<PAGE>
8. Employee's Covenants.
8.1 During the term of this Agreement, Executive
shall (i) observe and conform to the policies and
directions promulgated by the Board, act at the instruction of
the Board and report exclusively to the Board and/or any
committees thereof; (ii) exercise and perform faithfully to
the best of his ability on behalf of the Company the
powers and duties reasonably required by the Board; and
(iii) devote his substantially full time and effort to the
business affairs of the Company and its subsidiaries.
8.2 Executive agrees that during the term of
this Agreement and, in the event of a Sale of the Company
during the term of this Agreement, for a period of three (3)
years following such Sale, Executive will not directly or
indirectly (i) engage in a "Restricted Business" (as
defined herein), (ii) own or control any debt equity or
other interest in a Restricted Business (except as a
passive investor of less than 5% of the capital stock or
publicly traded notes or debentures of a publicly-held
company), (iii) act as director, officer, manager, employee,
participant or consultant to a Restricted Business, or
(iv) be obligated to or connected in any advisory
business enterprise or ownership capacity with a Restricted
Business. For purposes of this Agreement, a "Restricted
Business" shall mean any of Tech Data Corp., Ingram Micro,
Inc., Computer 2000 AG(C2000), Intelligent Electronics, Inc.,
MicroAge, Inc., Inacom Corp., Compucom, Entex Information
Services, Inc. or Vanstar Corp. or any other wholesale
distributor of micro computer products or with any
subsidiary, division or successor of any of
them or with any entity that acquires, whether by
acquisition, merger or otherwise, any significant amount of
the assets or substantial part of any of the business
of any of them. Executive further agrees that during the
term of this Agreement and, in the event of a Sale of the
Company during the term of this Agreement, for a period of
three (3) years following such Sale, Executive shall not, on
<PAGE>
behalf of any business enterprise other than the Company
and its subsidiaries, solicit the
employment of or hire any person that is or was employed by
the Company or any of its subsidiaries at any time on or
after January 1, 1996.
8.3 As consideration for Executive's
covenants contained in Section 8.2 in the event of a Sale of
the Company, the Company shall pay Executive $1,010,000.
Such payment shall be paid in a lump sum at the consummation of
the Sale of the Company.
8.4 In the event of any material breach by
Executive of any of the restrictions contained in this
Agreement (including, without limitation, those set forth in
Section 7, 8, and 9), the Company shall have no further
obligation to compensate Executive hereunder and Executive
acknowledges that the harm to the Company cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, Executive agrees that, upon
any violation of such restrictions, the Company shall be
entitled to seek preliminary and permanent injunctive relief
in addition to any other remedy, without the necessity of
proving actual damages.
8.5 Executive represents and warrants to the Company that (i)
his employment with the Company as contemplated herein does
not and will not conflict with, violate or cause a breach of
any agreement, contract or instrument to which Executive
is a party including, but not limited to, any agreement with
Bergen Brunswig Corporation ("BBC"), (ii) he is not a party to
or obligated under any agreement, contract or instrument that
will in any way impair his ability to devote his
substantially full-time and best efforts to the execution
of his duties pursuant hereto including, but not limited to,
any agreement with BBC, and (iii) he will not engage in any
business or other activity that materially interferes with
his ability to devote his substantially full-time and best
efforts to the execution of his duties pursuant hereto
including, but not limited to, any agreement with BBC.
Executive has made the Company aware of the existence of his
current agreement with BBC (the "BBC Agreement") pursuant to
which he has agreed, among other things, (i) to remain
available to provide certain consulting services to BBC, (ii)
<PAGE>
not to induce or solicit or participate in or assist in any
way in the solicitation of any BBC employee to cease
employment with BBC, (iii) not to be involved in any
transaction or proposed transaction involving the acquisition
or potential acquisition of BBC or any affiliate of BBC, (iv)
to refrain from entering into certain business relationships
with the companies listed on the attached Exhibit A, and
(v) to maintain the confidentiality of such BBC Agreement.
Executive agrees that any such obligation to render consulting
services shall not materially interfere with his obligations
to the Company hereunder. The Company acknowledges
Executive's obligations to BBC as described above, and agrees
to conduct itself so as to avoid Executive's breach of his
obligations to BBC as described above.
8.6 As an independent covenant hereunder, to
the extent permitted by law, Employer and Executive
represent and warrant to the other that they will not
challenge the validity or enforceability of any of the
provisions of Section 8 of this Agreement.
9.0 Return of Work Product
Upon termination of this Agreement, or at the
request of the Company, Executive agrees to deliver to the
Company any and all materials, whether printed, written or
otherwise obtained or prepared by Executive and pertaining to
the business of the Company or as otherwise acquired by
Executive in the performance of this Agreement, and it is
further agreed by the parties that all such materials shall be
the sole property of the Company.
10. Section 280G Payments.
In the event it shall be determined that any payment by
the Company to or for the benefit of Executive hereunder,
whether paid or payable but determined without regard to any
additional payments required under this Section 10
("Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (the "Excise Tax"),
then Executive shall be entitled to receive an additional
<PAGE>
payment from the Company (a "Reimbursement Payment") in an
amount equal to seventy-five percent (75%) of the Excise
Tax paid or payable with respect to the Payments, plus an
additional payment from the Company in such an amount that
after the payment of all taxes (including, without limitation,
any interest and penalties on such taxes and the Excise
Tax) on the Reimbursement Payment, Executive shall retain an
amount equal to the Reimbursement Payment. For example, if
the Excise Tax attributable to Payments is $100,000,
then Executive shall be entitled to a Reimbursement Payment of
$75,000 plus an additional payment intended to reimburse the
Executive for taxes attributable to the Reimbursement Payment
and related payments such that Executive receives $75,000 net
of all taxes. Notwithstanding the foregoing, Executive's
obligation to pay Excise Tax shall not exceed $200,000,
and the Company's obligation to pay the Reimbursement Payment
shall be increased as necessary to observe this limit. All
determinations required to be made under this Section shall be
made by the Company's outside auditor at the time of the Sale
of the Company, or any other nationally recognized
accounting firm reasonably acceptable to the Company and
Executive (the "Accounting Firm"). The Company shall cause
the Accounting Firm to provide detailed supporting
calculations of its determinations to the Company and
Executive. Notice must be given to the Accounting Firm within
fifteen (15) business days after an Event entitling Executive
to a payment under this Agreement. All fees and expenses
of the Accounting Firm shall be borne solely by the
Company. For purposes of making the calculations
required by this Section 10, the Accounting Firm may make reasonable
assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code,
provided that the Accounting Firm's determinations must be made with
substantial authority (within the meaning of Section 6662 of
the Internal Revenue Code).
<PAGE>
11. Agreement Binding Upon Successors and Assigns.
11.1 All of the terms and provisions of this
Agreement shall bind and inure to the benefit of the
parties hereto. Because this Agreement is personal and
indivisible in nature, Executive may not assign or transfer
this Agreement without the Company's written consent. The
Company may, with Executive's written consent, assign or
transfer its rights or obligations to any successor
corporation or affiliate or in connection with any merger,
business combination or sale of all or substantially all of
the Company's assets.
11.2 The Company will require any successor
(whether direct or indirect, by purchase, merger
consolidation or otherwise) to all or substantially all of the
business and assets of the Company, expressly to assume and
agree to perform this Agreementin the same manner and to the
same extent that the Company would be required to perform
it whether or not such succession had taken place.
12. No Waiver.
The waiver of a breach of any provision of
this Agreement by any party shall not operate or be construed
as awaiver of any subsequent breach or violation thereof by
the other party.
13. Notices.
All notices and communications provided for
hereunder shall bein writing and shall be mailed or
delivered to the business or residence address of the
respective parties hereinafter provided or to such other
address as either party shall designate in writing to the
other. Any notice to the Company hereunder shall be sent
to the attention of the President of the Company.
14. Arbitration.
Any claim, dispute or controversy between the
Company and Executive arising out of this Agreement, the
interpretation, validity or enforceability of this Agreement
or the alleged breach thereof shall, on written request of
<PAGE>
either party served on the other, be submitted to binding
arbitration by the American Arbitration Association in Los
Angeles, California, in accordance with the rules and
regulations of that Association, as the exclusive remedy
for such controversy. The arbitrator selected by the parties
shall conduct a full hearing at which both parties shall be
entitled to present evidence, examine and cross-examine
witnesses and be repressed by counsel. The arbitrator
shall issue a written decision which shall be final and
conclusive upon the parties. The arbitrator's fee and
the cost of the arbitration shall be shared equally
by the parties. Controversies covered by this arbitration
provision include, but not limited to, claims of
harassment or discrimination in violation of state or
federal law.
15. Counterparts.
This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
16. Amendments.
No modifications, extensions, or waiver of
any provisions hereof or release of any right hereunder
shall be valid, unless the same is in writing and consented
to by all parties hereto.
17. Governing Law.
This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California.
18. Severability.
Any provision hereof prohibited by or unlawful
or unenforceable under any applicable law of any jurisdiction
shall as to such jurisdiction be ineffective without
affecting any other provision of this Agreement. To the full
extent, however, that the provisions of such applicable law
may be waived, they are hereby waived, to the end that this
Agreement be deemed to be a valid and binding agreement
enforceable in accordance with its terms. However, if any
provision, or any part thereof, is held to be unenforceable
because of the scope or duration of such provision,
Executive of the Company agree that the court making such
<PAGE>
determination shall have the power to reduce the scope,
duration and/or area of such provisions in order to make
such provision enforceable to the fullest extent permitted
by law, and/or to delete specific words and phrases ("blue-
penciling"), and in its reduced or blue-penciled from such
provision shall then be enforceable and shall be enforced.
19. Entire Agreement.
This Agreement
and all other written agreements/documents
evidencing matters referred to herein, including but not
limited to any indemnification agreement with the Company,
contains the entire agreement of the parties with respect to
the terms and conditions of the employment of Executive
by the Company during the Employment Term, and this
Agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to
the employment of Executive by the Company. Each party to
this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any
party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this
Agreement will be valid or binding. Executive acknowledges
that he was represented by counsel in connection with the
negotiating and drafting of this Agreement. Executive
acknowledges that he has not relied upon information or advice
provided by the Company, except as set forth herein and that
he is voluntarily entering into this Agreement and that he
understands that all terms and provisions of this Agreement
are binding upon him, and are not mere recitals.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement, effective as of the date hereinabove
provided.
MERISEL, INC.,
a Delaware corporation
(the "Company")
Address:
Merisel, Inc. By:_/s/__________________________
200 Continental Blvd. Dr. Arnold Miller, Director
El Segundo, CA 90245
By:/s/__________________________
Kelly M. Martin, Vice
President and
General Counsel
Address:
308 Ocean Ave. By:/s/___________________________
Seal Beach, CA 90740 Dwight A. Steffensen
("Executive")
<PAGE>
EXHIBIT A
AmeriSource Corporation, a Delaware corporation
Baxter International, Inc., a Delaware corporation
Bindley Western Industries, Inc., an Indiana corporation
Cardinal Health, Inc., an Ohio corporation
Fisher Scientific International, Inc., a Delaware corporation
FoxMeyer Corporation, a Delaware corporation
General Medical Corporation VA, a Virginia corporation
McKesson Corporation, New, a Delaware corporation
Owens & Minor, Inc., New, a Virginia corporation
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the
2nd day of May, 1996, by and between Merisel, Inc., a Delaware Corporation
(the"Company"), and Ronald J. Rittenmeyer, an individual
("Executive"). This Agreement replaces and supersedes all prior agreements and
understandings concerning Executive's employment with the Company, including
but not limited to that certain agreement between Executive and Michael
Pickett on September 25, 1995.
RECITALS
The Company and Executive desire to set forth the terms and
conditions governing Executive's employment by the Company.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties hereto have agreed as follows:
1. Term of Employment.
The Company shall employ Executive as its President and Chief
Operating Officer and Executive agrees to be so employed by the Company
under the terms and conditions of this Agreement commencing as of September
29, 1995 (the "Effective Date") and ending on the earlier of
(i)September 29, 1998, or (ii) termination of Executive's
employment pursuant to this Agreement (the period commencing on the
Effective Date and ending on September 29, 1998 is hereinafter
referred to as the ("Employment Term"), subject to renewal for additional
periods as may be mutually agreed by the Company and
Executive. The original term and any renewal terms of this Agreement
may be sooner terminated as provided herein.
<PAGE>
2. Scope of Duties.
Executive shall undertake and assume the responsibility of
performing for and on behalf of the Company those duties as
shall be consistent with the position of the President and
Chief Operating Officer. Executive covenants and agrees that at
all times during the term of this Agreement he shall devote his
substantially full-time and best efforts to the execution of his duties
pursuant hereto. Executive currently serves as a member of the Company's
Board of Directors (the "Board") and will continue to serve
thereon without additional compensation.
3. Compensation.
As compensation for services rendered pursuant to
this Agreement, the Company shall pay to Executive, in installments
customary with the Company's standard payroll periods, base annual
compensation of $355,000 during the Employment Term, provided, however,
that the Board may, in its sole discretion, increase such base
annual compensation as merited by the performance of
Executive. The Company shall deduct from all payments paid to Executive
under this Agreement any required amounts for social security, federal
and state income tax withholding, federal or state unemployment
insurance contributions, and state disability insurance or any
other required taxes.
4. Option/Stock Appreciation Right.
4.1 Effective September 29, 1995 (the "Option
Grant Date"), the Company granted Executive a nonqualified stock option
("Option") to purchase 200,000 of the Company's Common Stock
("Option Shares") under the Company's 1991 Stock Option Plan. Except as
otherwise provided in Section 4.4 below, the Option shall vest
monthly at a rate of 1/24th of the Option Shares over a twenty-four (24)
month period beginning on the Option Grant Date, with an Option exercise
price of $6.125 per share. Except as otherwise expressly provided herein, the
terms and conditions of the Option shall be governed by the Company's
1991 Stock Option Plan and by the option agreement evidencing such Option.
<PAGE>
4.2 The Company shall grant Executive a stock
appreciation right (the "SAR") covering 300,000
hypothetical shares of the Company's Common Stock ("SAR
Shares"). The SAR shall be granted effective April 25, 1996 (the "SAR Grant
Date"), with an SAR exercise price equal to $2.8125. The SAR shall
entitle Executive to receive a cash payment or payments equal to the
Distributable Amount (defined below) upon a Distribution Date
(defined below); provided,however, that the Company shall be under no
obligation to make a cash payment pursuant to this Section 4.2
unless and until the Company receives, in the
aggregate, at least $75 million in gross proceeds (including
for this purpose the value of any stock or non-cash property received and
the value of any debt assumed) from a transaction or transactions,
including a merger or sale transaction, after the Effective Date
involving an extraordinary disposition by the Company of its stock or
assets (other than an accounts receivable securitization) and/or a
disposition by the stockholders of their stock in the Company.
4.3 Except as otherwise provided in Section 4.4 below, the SAR
shall vest monthly at a rate of 1/24th of the SAR Shares over a
twenty-four (24) month period beginning on the second anniversary of the
Effective Date while Executive remains an employee of the Company.
4.4. In the event of (i) a Sale of Americas (defined herein),
the Option and the SAR shall vest as to fifty percent (50%) of the Option
Shares and SAR Shares,respectively, that, immediately preceding such event,
are not vested, (ii) a Sale of Canada (defined herein), the Option and
the SAR shall vest as to twenty percent (20%) of the Option Shares and
SAR Shares, respectively, that, immediately preceding such event, are not
vested,and (iii) a "Sale of Europe" (defined herein), the Option
and the SAR shall vest as to thirty percent (30%) of the Option Shares and
SAR Shares, respectively, that,immediately preceding such event, are not
vested. For purposes of this Section 4.4, the portion of the Option and
<PAGE>
the SAR that vests shall be drawn in substantially equal increments from
the remaining vesting installments. For purposes of this
Section 4.4, (i) a "Sale of Americas" shall mean a sale(s), merger or
other disposition or transaction involving seventy percent (70%) or more of
the assets or stock (or a combination of both) by value, of Merisel Americas,
Inc., to a party or parties unrelated to the Company or any
affiliate of the Company, (ii) a "Sale of Canada" shall mean a
sale(s), merger or other disposition or transaction involving seventy
percent (70%) or more of the assets or stock (or a combination of
both) by value, of the Company's Canadian operations, to a party or
parties unrelated to the Company or any affiliate of the Company, and
(iii) a "Sale of Europe" shall mean a sale(s), merger or other disposition
or transaction involving seventy percent (70%) or more of the assets or
stock (or a combination of both) by value, of the Company's European
operations, to a party or parties unrelated to the Company or any affiliate
of the Company (each of the foregoing clauses (i), (ii) and
(iii) being a "Vesting Event").
4.5 "Distributable Amount" means, with respect to the vested
portion of the SAR, the excess of the fair market value of the Company's
Common Stock on the Distribution Date (defined below) over the exercise
price applicable to such portion. For this purpose, fair market value
shall be based on the Nasdaq National Market closing price of the Company's
Common Stock for the most recent trading day preceding the
Distribution Date.
4.6 "Distribution Date" means the earlier to occur of (i)
termination of Executive's employment with the Company for any reason, or
(ii) each anniversary of the Effective Date.
5. Bonus, Expenses, Reimbursements and Additional Benefits.
In addition to the compensation to be paid to
Executive pursuant to Section 3, the Company shall pay,
reimburse or otherwise confer the following items of benefit to Executive:
5.1 During the Employment Term, Executive shall be
eligible to receive an annual bonus of not less than $200,000, which may
be paid in quarterly installments based on the Company's financial
<PAGE>
performance for such quarter. For the 1996 fiscal year, Executive shall be
guaranteed a minimum annual bonus of $200,000, payable quarterly in equal
installments.
5.2 In the event Executive's employment with the Company
terminates for any reason following a Vesting Event (other than a
termination of Executive's employment by the Company for Cause), then
the Company shall pay Executive an amount, if any, equal to (i) the
total number of Option Shares represented by the vested portion of the
Option on the date of such termination, multiplied by (ii) the lesser of
(I) $3.313 or (II) the closing sale price of the Company's Common Stock for
the most recent trading day preceding such termination minus $2.8125, all
calculated on a per-share basis.
5.3 The Company shall pay Executive a monthly car allowance of
$1,600.
5.4 The Company shall pay Executive for the dues at one country
club of Executive's choice of $425 per month.
5.5 The Company agrees to provide Executive with, or to reimburse
Executive for, legal, financial planning and accounting services not to
exceed $10,000 per year. In addition, Company shall provide Executive with
or reimburse Executive an additional amount for financial planning fees for
AYCO of up to $10,000 on or before September 29, 1996. The Company
shall provide Executive with or reimburse Executive an additional amount
for legal fees of up to $5,000 in connection with this Agreement. Executive
shall be reimbursed for incidental business expenses, including home
facsimile machine and car phone, consistent with the Company's policy for
senior executives.
5.6 In addition, Executive shall be eligible to participate in
all other benefit programs and plans which maybe afforded senior management
of the Company and the Company shall make contributions to such plans and
arrangements on behalf of Executive as shall be required or consistent with
the terms and conditions of said plans. Such plans and programs may
include, by way of example, deferred compensation, group insurance
benefits, long-term or permanent disability insurance and major medical
coverage.
<PAGE>
5.7 Executive shall be entitled, during the
Employment Term, to vacation time with compensation and
time off with compensation on account of illness or
injury, in accordance with the Company's written policies
for employees in effect from time to time.
5.8 The Company recognizes that Executive's place of
residence is Texas and that the duties of his position require extensive
travel, which eliminates the need for Executive to relocate to Los
Angeles. The Company agrees to pay all appropriate expenses for travel.
5.9 The Company will pay the cost of travel (coach airfare) for
Executive's family to visit Executive in Los Angeles for a reasonable number
of visits.
6. Termination of Agreement.
6.1 This Agreement may be terminated prior to
expiration of the Employment Term by either party upon 30
days written notice to the other party. Upon any termination under
this Section 6.1, the Company shall promptly pay Executive
all salary and other compensation, including amounts payable, if any, under
Section 4 and any unused vacation pay, earned by him through the
effective date of such termination.
After any notice of termination is given under
this Section 6.1, whether by the Company or Executive, the
Company may remove or suspend Executive from performance of his office
or of any of his duties hereunder during the period prior to
the effective date of termination, provided, that such
removal or suspension shall not affect Executive's right to
receive compensation and benefits during such period. The
Board must approve the termination of Executive's
employment under this Section 6.1.
6.2 Termination for Death or Disability. This
Agreement shall be terminated upon the death or, at the
Company's option, the disability of Executive. For
<PAGE>
purposes of this Agreement, the term "disability" shall mean the
inability of Executive to perform substantially all of his duties
hereunder for any 90 days in a 105 consecutive day period;
provided that until such time as the Company elects to terminate this
Agreement due to Executive's disability, Executive shall continue to
receive from the Company 100% of his compensation and
other benefits and distributions by way of compensation, as
determined pursuant to Sections 3 and 5, which Executive
would otherwise be entitled to receive. Upon the termination of this
Agreement due to death or disability of Executive, the Company shall
promptly pay Executive or his estate as the case may be,
all salary and other compensation, including unused vacation pay, earned
by him through the effective date of such termination, less income taxes and
other standard employee deductions. All other benefits and payments
provided for hereunder shall terminate; provided, that nothing in this
Section 6.2 shall be construed to prohibit Executive or his estate, as the
case may be, from collecting any insurance proceeds or state disability
payments to which he or his estate might otherwise be entitled. Nothing
herein shall operate to preclude Executive or his estate, as the
case may be, from receiving any death or disability benefits that are
otherwise payable.
6.3 Termination for Cause. This Agreement maybe terminated, at
the Company's option, (i) upon the occurrence of any theft by Executive or
conviction for or a plea of nolo contendere by Executive to a felony or
any crime involving moral turpitude, (ii) upon the material breach by
Executive of any of the provisions of this Agreement, (iii) upon
Executive's misconduct (as defined below). Termination for Cause shall not
be deemed to have occurred unless the Board adopts a resolution, at a
meeting called and held for that purpose (after reasonable notice to
Executive and after allowing Executive and his counsel to be heard before
the Board) finding that Executive was guilty of conduct set forth in (i),
(ii) or (iii) and specifying the particulars thereof. Notwithstanding any
such determination by the Board, Executive may challenge such
determination in arbitration pursuant to Section 14. Upon a termination
for Cause, which, if contested in arbitration by Executive, is upheld in
<PAGE>
arbitration, all compensation, benefits and payments provided for hereunder
shall terminate, and Executive shall not be entitled to any severance or
other payments other than for salary and other compensation (including unused
vacation pay) earned by him through the effective date of such termination.
"Misconduct" shall mean misconduct, physical assault, falsification or
misrepresentation of facts on Company records, creating or contributing
to unsafe working conditions, fraud, dishonesty, willful destruction of
Company property or assets or harassment of another employee by Executive.
No act, or failure to act, by Executive shall be considered "willful" unless
committed without good faith and without a reasonable belief that the act
or omission was in the Company's best interest.
6.4 Change of Control.
(a) If a Change of Control (defined herein) occurs and within
two years Executive's employment is terminated without Cause or
Executive resigns, then Executive will receive (i) a lump sum payment
equal to his then base annual compensation, (ii) a lump sum payment
equal to three times the average of Executive's annualized bonus received
from the Company during the preceding three years, (iii) the Company shall
pay Executive's COBRA coverage for eighteen (18) months (on a
grossed-up tax basis), (iv) the Company shall pay Executive's car lease and
auto insurance for three years, and (v) Executive's Option and SAR will
vest in full.
A "Change of Control" will be considered to have occurred
in the event (i) any person, corporation, partnership, trust, association,
enterprise (each a"Person") or group of Persons acting in concert as a
partnership or other group (a "Group of Persons"), shall
become the beneficial owner, whether as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise,
directly or indirectly, of outstanding capital stock of the
Company possessing at least 50% of the voting power (for the election of
directors) of the Company's outstanding capital stock, or (ii) there
shall be a sale of all or substantially all of the Company's assets or the
<PAGE>
Company shall merge or consolidate with another corporation and the
stockholders of the Company immediately prior to such transaction do not
own, immediately after such transaction, stock of the purchasing or
surviving corporation in the transaction (or of the parent corporation of
the purchasing or surviving corporation) possessing more than 50% of the
voting power (for the election of directors) of the outstanding capital
stock of that corporation, which ownership shall be measured without regard
to any stock ownership of the purchasing, surviving or parent
corporation by the stockholders of the Company before the transaction, or
(iii) a majority of the Board shall be replaced, over a two-year period,
and such replacement shall not have been approved by a vote of at least a
majority of the Board then still in office who were either members of
such Board at the beginning of such period or whose election as a member of
such Board was previously so approved.
(b) If a Change of Control has not occurred, and the Company
terminates Executive's employment other than for
Cause, then Executive shall receive (i) a lump sum payment equal to
$125,000, (ii) the Company shall pay Executive's COBRA coverage
for eighteen (18) months (on a grossed-up tax basis), (iii)
the Company shall continue to pay Executive's car lease and auto
insurance for eighteen (18) months, (iv) reimbursement for
outplacement services up to $20,000, and (v) provided that either (A) the
Company has achieved its Board-approved operating plan for the most recently
ended fiscal quarter or (B) the Company has received and has not rejected an
offer to purchase to stock or substantially all of the assets of
Merisel Europe, Merisel Americas or the Company, then, in addition to
the benefits described in clauses (i) through (iv) above, which shall be
payable without regard to this clause (v), Executive's Option and SAR will
vest in full in such event (a "Vesting Event").
6.5 Voluntary Resignation. Executive may, upon thirty (30) days
prior written notice, voluntarily resign from the Company. If Executive
exercises this right on or before June 30, 1996, then Executive shall
<PAGE>
receive as a severance payment a lump sum cash payment equal to three months'
compensation (salary and bonus). If Executive voluntarily resigns between
July 1, 1996 and September 30, 1996, then Executive shall receive
as a severance payment a lump sum cash payment equal to six months'
compensation (salary and bonus). If Executive voluntarily resigns
between October 1, 1996 and December 31, 1996, then Executive
shall receive as a severance payment a lump sum cash payment equal to 12
months' compensation (salary and bonus). If Executive voluntarily resigns
after December 31, 1996, then Executive shall receive fifty percent
(50%) of the amounts payable pursuant to Section 6.4(a) above in
connection with a termination other than for Cause following a Change
of Control.
7. Disclosure of Information.
Executive acknowledges that in connection with and as a result
of his employment pursuant to this Agreement, he shall make use of, acquire
and add to Confidential Information (as defined below). Executive agrees
not to, in any manner, disclose or use any Confidential Information,
including Confidential Information received from the Company or others
either before, during or after his employment with the Company or
received before during or after the term of this Agreement, except upon
the prior written consent of the Company. Executive acknowledges that such
Confidential Information of the Company will include matters conceived or
developed by Executive, as well as matters learned by Executive from
employees of the Company. Any Confidential Information that Executive
has, shall prepare or shall have prepared, used, use or come into
contact with shall be and remain the Company's sole property and shall not
be removed from the Company's premises without its prior written consent,
and shall be returned upon termination of this Agreement. Except as
required in connection with his obligations hereunder,
Executive shall not, except as the Company may otherwise
consent or direct in writing, sell, use, lecture, or publish any
Confidential Information or other proprietary information of the Company or
authorize anyone else to do those things at any time either during or
<PAGE>
subsequent to this Agreement. For purposes of this Agreement, the term
"Confidential Information" means either: (A) information
concerning the financial condition of the Company or its
subsidiaries that is not generally available to the public; or
(B) trade secrets as defined in California Civil Code Section 3426.1.
In the event that Executive is requested or required
(by deposition, interrogatories, requests for information or documents in
legal proceedings, subpoena, civil investigative demand or other similar
process) to disclose any Confidential Information, Executive shall provide
the Company with prompt written notice of any such request or
requirement so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or
the receipt of a waiver by the Company, Executive is nonetheless, legally
compelled to disclose Confidential Information to any tribunal or else
stand liable for contempt or suffer other censure of penalty, Executive may,
without liability hereunder disclose to such tribunal only that portion of
the Confidential Information which Executive is legally required to disclose,
provided that Executive exercises his best efforts to preserve the
confidentiality of the Confidential Information, including, without
limitation, by cooperating with the Company to obtain an appropriate
protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information by such tribunal.
8. Employee's Covenants.
8.1. During the term of this Agreement,Executive shall (i)
observe and conform to the policies and directions promulgated by the
Chief Executive Officer of the Company (CEO), act at the instruction of the
CEO and report exclusively to the CEO; (ii) exercise and perform
faithfully to the best of his ability on behalf of the Company the powers
and duties reasonably required by the CEO; and (iii) devote his substantially
full time and effort to the business affairs of the Company and
its subsidiaries.
<PAGE>
8.2 Executive agrees that during the term of this Agreement and,
in the event Executive's employment with the Company terminates during
the term of this Agreement, for a period of three (3) years following
such termination (one (1) year in the event such termination is by the
Company for Cause or voluntarily by Executive on or before December 31,
1996), Executive will not directly or indirectly (i) engage
in a "Restricted Business" (as defined herein), (ii) own or control any
debt equity or other interest in a Restricted Business (except as a
passive investor of less than 5% of the capital stock or publicly traded
notes or debentures of a publicly-held company), (iii) act as director,
officer, manager, employee, participant or consultant to a Restricted
Business, or (iv) be obligated to or connected in any advisory business
enterprise or ownership capacity with a Restricted Business. For
purposes of this Agreement, a "Restricted Business" shall mean any of
Tech Data Corp., Ingram Micro, Inc., Computer 2000 AG (C2000),
Intelligent Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom,
Entex Information Services, Inc. or Vanstar Corp. or any other
wholesale distributor of micro computer products or with any subsidiary,
division or successor of any of them or with any entity that acquires,
whether by acquisition, merger or otherwise, any significant amount of
the assets or substantial part of any of the business of any of
them. Executive further agrees that during the term of
this Agreement and, in the event Executive's employment with the Company
terminates during the term of this Agreement, for a period of three (3)
years following such termination (one (1) year in the event such termination is
by the Company for Cause or voluntarily by Executive on or before
December 31, 1996), Executive shall not, on
behalf of any business enterprise other than the Company and its
subsidiaries, solicit the employment of or hire any person that is or was
employed by the Company or any of its subsidiaries at any time on or after
January 1, 1996.
8.3 As additional consideration for Executive's covenants
contained in Section 8.2 in the event Executive's employment with the
Company terminates (other than by the Company for Cause or other than
<PAGE>
due to a voluntary resignation by Executive on or before December
31, 1996), the Company shall pay Executive $710,000. Such payment shall be
paid in a lump sum within ten (10) days of Executive's termination of
employment other than for Cause.
8.4 In the event of any material breach by
Executive of any of the restrictions contained in this Agreement (including,
without limitation, those set forth in Section 7, 8, and 9), the Company
shall have no further obligation to compensate Executive hereunder and
Executive acknowledges that the harm to the Company cannot be
reasonably or adequately compensated in damages in any action at law.
Accordingly, Executive agrees that, upon any violation of such restrictions,
the Company shall be entitled to seek preliminary and permanent
injunctive relief in addition to any other remedy, without the necessity of
proving actual damages.
8.5 Executive represents and warrants to the Company that (i) his
employment with the Company as contemplated herein does not and will not
conflict with, violate or cause a breach of any agreement, contract or
instrument to which Executive is a party, (ii) he is not a party to or
obligated under any agreement, contract or instrument that will in any way
impair his ability to devote his substantially full-time and best
efforts to the execution of his duties pursuant hereto, and (iii) he will
not engage in any business or other activity that materially interferes
with his ability to devote his substantially full-time and best efforts to the
execution of his duties pursuant hereto.
9. Return of Work Product.
Upon termination of this Agreement, or at the request of the
Company, Executive agrees to deliver to the Company any and all materials,
whether printed, written or otherwise obtained or prepared by Executive and
<PAGE>
pertaining to the business of the Company or as otherwise acquired
by Executive in the performance of this Agreement, and it
is further agreed by the parties that all such materials shall be the sole
property of the Company.
10. Section 280G Payments.
In the event it shall be determined that any payment by
the Company to or for the benefit of Executive hereunder, whether paid
or payable but determined without regard to any additional payments
required under this Section 10 ("Payments"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code
(the "Excise Tax"), then Executive shall be entitled to receive an
additional payment from the Company (a "Reimbursement Payment") in an amount
equal to seventy-five percent (75%) of the Excise Tax paid or payable with
respect to the Payments, plus an additional payment from the Company in
such an amount that after the payment of all taxes (including, without
limitation, any interest and penalties on such taxes and the Excise Tax)
on the Reimbursement Payment, Executive shall retain an amount equal to
the Reimbursement Payment. For example, if the Excise Tax attributable to
Payments is $100,000, then Executive shall be entitled to a Reimbursement
Payment of$75,000 plus an additional payment intended to
reimburse the Executive for taxes attributable to the Reimbursement
Payment and related payments such that Executive receives $75,000 net of all
taxes. Notwithstanding the foregoing, Executive's obligation to pay
Excise Tax shall not exceed $200,000, and the Company's obligation
to pay the Reimbursement Payment shall be increased as necessary to observe
this limit. All determinations required to be made under this Section
shall be made by the Company's outside auditor at the time of the Sale of
the Company, or any other nationally recognized accounting firm reasonably
acceptable to the Company and Executive (the "Accounting Firm"). The
Company shall cause the Accounting Firm to provide detailed supporting
calculations of its determinations to the Company and Executive. Notice
must be given to the Accounting Firm within fifteen (15) business days
<PAGE>
after an Event entitling Executive to a payment under this Agreement. All
fees and expenses of the Accounting Firm shall be borne solely by the
Company. For purposes of making the calculations required by
this Section 10, the Accounting Firm may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application of Sections 280G
and 4999 of the Code, provided that the Accounting Firm's determinations
must be made with substantial authority (within the meaning of Section
6662 of the Internal Revenue Code).
11. Agreement Binding Upon Successors and Assigns.
11.1 All of the terms and provisions of this
Agreement shall bind and inure to the benefit of the
parties hereto. Because this Agreement is personal and indivisible in
nature, Executive may not assign or transfer this
Agreement without the Company's written consent. The
Company may, with Executive's written consent, assign or
transfer its rights or obligations to any successor corporation or
affiliate or in connection with any merger, business combination or sale of
all or substantially all of the Company's assets.
11.2 The Company will require any successor
(whether direct or indirect, by purchase, merger
consolidation or otherwise) to all or substantially all of the business and
assets of the Company, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it whether or not such succession
had taken place.
12. No Waiver.
The waiver of a breach of any provision of this Agreement
by any party shall not operate or be construed as a waiver of any
subsequent breach or violation thereof by the other party.
<PAGE>
13. Notices.
All notices and communications provided for
hereunder shall be in writing and shall be mailed or delivered to the
business or residence address of the respective parties hereinafter
provided or to such other address as either party shall designate in
writing to the other. Any notice to the Company hereunder shall be sent
to the attention of the Chief Executive Officer of the Company.
14. Arbitration.
Any claim, dispute or controversy between the Company and
Executive arising out of this Agreement, the interpretation, validity or
enforceability of this Agreement or the alleged breach thereof shall, on
written request of either party served on the other, be
submitted to binding arbitration by the American Arbitration Association in
Los Angeles, California, in accordance with the rules and regulations of
that Association, as the exclusive remedy for such controversy. The
arbitrator selected by the parties shall conduct a full hearing at
which both parties shall be entitled to present evidence, examine and
cross-examine witnesses and be repressed by counsel. The arbitrator
shall issue a written decision which shall be final and conclusive upon the
parties. The arbitrator's fee and the cost ofthe arbitration shall
be shared equally by the parties. Controversies covered by this
arbitration provision include, but not limited to, claims of harassment
or discrimination in violation of state or federal law.
15. Counterparts.
This Agreement may be executed in counterparts, each of which
shalL be deemed to be an original but all of which together shall constitute
one and the same agreement.
16. Amendments.
No modifications, extensions, or waiver of
any provisions hereof or release of any right hereunder shall be
valid, unless the same is in writing and consented to by all parties
hereto.
<PAGE>
17. Governing Law.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
18. Severability.
Any provision hereof prohibited by or
unlawful or unenforceable under any applicable law of any jurisdiction
shall as to such jurisdiction be ineffective without affecting any other
provision of this Agreement. To the full extent, however, that the
provisions of such applicable law may be waived, they are hereby waived, to
the end that this Agreement be deemed to be a valid and binding agreement
enforceable in accordance with its terms. However, if any provision, or
any part thereof, is held to be unenforceable because of the scope
or duration of such provision, Executive of the Company agree that the
court making such determination shall have the power to reduce the
scope, duration and/or area of such provisions in order to make such
provision enforceable to the fullest extent permitted by law, and/or to
delete specific words and phrases ("blue- penciling"), and in its reduced
or blue-penciled from such provision shall then be enforceable and shall be
enforced.
19. Entire Agreement.
This Agreement and all other written agreements/documents
evidencing matters referred to herein, including but not limited to any
indemnification agreement with the Company, contains the entire agreement
of the parties with respect to the terms and conditions of the
employment of Executive by the Company during the Employment Term, and
this Agreement supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the employment of
Executive by the Company. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no
other agreement, statement, or promise not contained in this Agreement
<PAGE>
will be valid or binding. Executive acknowledges that he was represented
by counsel in connection with the negotiating and drafting of this
Agreement. Executive acknowledges that he has not relied upon information or
advice provided by the Company, except as set forth herein and that he is
voluntarily entering into this Agreement and that he is voluntarily entering
into this Agreement and that he understands that all terms and provisions of
Agreement are binding upon him, and are not mere recitals.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, effective as of the date hereinabove provided.
MERISEL, INC.,
a Delaware corporation
(the "Company")
Address:
Merisel, Inc.
200 Continental Blvd. By:/s/_____________________________
El Segundo, CA 90245 Dr. Arnold Miller, Director
By /s/______________________________
Kelly M. Martin,
Vice President and General
Counsel
Address:
4569 Turnberry Court
Plano,TX 75024 By:/s/____________________________
RonaldA.Rittenmeyer
("Executive")
<PAGE>
