<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 September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE 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
report
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 November 1, 1996
-----
Common Stock, $.01 par value 30,078,495 Shares
<PAGE>
MERISEL, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page Reference
<S> <C>
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets as of 1-2
September 30, 1996 and December 31, 1995
Consolidated Statements of Operations for the 3
Three Months and Nine Months Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the 4
Nine Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 5-11
Management's Discussion and Analysis of 12-25
Financial Condition and Results of Operations
PART II OTHER INFORMATION
PART II OTHER INFORMATION 26
SIGNATURES 28
</TABLE>
ii
<PAGE>
PART 1. FINANCIAL INFORMATION
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
$ 26,923 $ 1,378
Cash and cash equivalents
Accounts receivable (net of allowances
of $18,913 and $24,786 for 1996 and
1995, respectively) 195,895 413,057
Receivable from sale of assets 123,261
Inventories 278,165 561,230
Prepaid expenses and other current 10,101 17,919
assets
Income taxes receivable 9,452 35,116
Deferred income tax benefit 6,657
-------- ----------
Total current assets 643,797 1,035,357
PROPERTY AND EQUIPMENT, NET 63,649 90,381
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET 44,168 93,287
OTHER ASSETS 10,830 11,309
-------- ----------
TOTAL ASSETS $762,444 $1,230,334
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 320,767 $ 621,990
Accrued liabilities 58,088 71,483
Short-term debt 21,620
Long-term debt - current 80,000 35,000
Subordinated debt - current 4,400 4,400
--------- ----------
Total current liabilities 463,255 754,493
Long-term debt 272,705 299,271
Subordinated debt 13,200 17,600
Capitalized lease obligations 4,504
--------- ----------
TOTAL LIABILITIES 749,160 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; outstanding, 30,078,495 and
29,863,500 shares for 1996 and 1995, respectively 300 299
Additional paid-in capital 142,154 141,938
(Accumulated deficit)Retained earnings (122,839) 19,211
Cumulative translation adjustment (6,331) (6,982)
--------- ----------
Total stockholders' equity 13,284 154,466
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 762,444 $1,230,334
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $1,393,532 $1,544,018 $4,372,789 $4,378,776
COST OF SALES 1,336,339 1,454,765 4,148,786 4,110,825
---------- ---------- ---------- ----------
GROSS PROFIT 57,193 89,253 224,003 267,951
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 84,082 75,205 245,640 226,314
RESTRUCTURING CHARGE 9,333
IMPAIRMENT LOSS 40,000 40,000
---------- ---------- ---------- ----------
OPERATING(LOSS) INCOME (66,889) 14,048 (61,637) 32,304
LOSS ON SALE OF EUROPEAN,
MEXICAN AND LATIN AMERICAN
OPERATIONS 33,455 33,455
INTEREST EXPENSE 9,613 11,229 29,085 30,962
OTHER EXPENSE 5,726 2,953 16,492 9,774
---------- ---------- ---------- ----------
LOSS BEFORE
INCOME TAXES (115,683) (134) (140,669) (8,432)
INCOME TAX PROVISION
(BENEFIT) 1,455 119 1,381 (1,777)
---------- ---------- ---------- ----------
NET LOSS $ (117,138) $ (253) $ (142,050) $ (6,655)
========== ========== ========== ==========
NET LOSS PER SHARE $ (3.90) $ (0.01) $ (4.75) $ (0.22)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 30,038 29,819 29,924 29,756
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (142,050) $ (6,655)
Adjustments to reconcile net loss to net
cash provided by operating
activities:
Depreciation and amortization 15,584 15,289
Provision for doubtful accounts 15,451 12,216
Deferred income taxes 1,086 (150)
Impairment loss 40,000
Loss on sale of European, Mexican
and Latin American businesses 33,455
Changes in assets and liabilities:
Accounts receivable 103,639 (112,044)
Inventories 205,450 (146,642)
Prepaid expenses and other assets (15,274) (2,376)
Income taxes receivable 30,913 (4,692)
Accounts payable (242,084) 336,353
Accrued liabilities (3,064) 18,537
Income taxes payable 0 (4,422)
----------- ---------
Net cash provided by operating activities 43,106 105,414
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,052) (39,235)
Proceeds from the sale of property and 5,976
equipment
Payment of earn out obligation from ComputerLand acquisition (13,409)
Cash proceeds from sale of Australian business 8,515
Sale of unconsolidated investment 800
Other investing activities 1,811 (753)
----------- ---------
Net cash used for investing activities (6,159) (39,188)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 1,192,650 673,641
Repayments under revolving line of credit (1,166,650) (764,326)
Net (repayments) borrowings under other bank facilities (15,170) 21,316
Repayment of senior notes (14,000)
Repayment under subordinated debt agreement (4,400)
Proceeds from issuance of common stock 215 327
----------- ---------
Net cash used in financing activities (7,355) (69,042)
----------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,047) 750
----------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 25,545 (2,066)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,378 3,533
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,923 $ 1,467
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Merisel, Inc. ("Merisel" or the "Company") is a leader in the distribution of
computer hardware and software products. In addition, the Company, through its
wholly owned subsidiary, Merisel FAB, Inc. ("Merisel FAB" or the "Franchise and
Aggregation Business"), is an aggregator, or master reseller, of computer
systems and related products from major computer 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 months and nine months ended September 30,
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 and nine months ended September 30, 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 became 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 Periods
The Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest to December 31. The Company's three and nine month periods ended nearest
September 30, 1996 and 1995 were 13 and 39 week periods, respectively. For
simplicity of presentation, the Company has described the interim periods and
year-end period as if the quarter ended on September 30, and the year ended on
December 31, respectively.
5
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
4. Impairment Loss
In the quarter ended September 30, 1996, the Company determined that a portion
of the carrying value for certain of its identifiable intangible assets will not
be recovered from their use in future operations. Accordingly, these assets
were written down to their fair values as of September 30, 1996. An impairment
was recognized on the intangible assets of the Franchise and Aggregation
Business, due to declining sales growth, margins and earnings, and the resulting
negative trend in projected cash flows. The intangible assets of the Franchise
and Aggregation Business were acquired in January 1994 (see Note 7) and had a
net book value of $57,600,000 at September 30, 1996, prior to the write down.
Fair value of the intangible assets was measured by discounting future expected
cash flows, which resulted in a required write down of $40,000,000. An
impairment loss of $30,000,000 associated with these assets was previously
recorded in the fourth quarter of 1995.
5. Dispositions
On October 4, 1996, Merisel completed the sale of substantially all of its
European, Mexican and Latin American businesses (such businesses are referred to
herein as "EML") to CHS Electronics, Inc. ("CHS"). The sale was effective as of
September 27, 1996. A loss of $33,455,000, which includes approximately
$7,400,000 of direct costs, was recorded on such sale. The sale price, computed
based on the September 30, 1996 combined closing balance sheet of EML, was
$149,500,000, consisting of (i) $123,200,000 in cash, of which $16,500,000 is
being retained by CHS, subject to completion of the closing balance sheet audit
of EML, and (ii) the assumption of Merisel's European asset securitization
agreement against which $26,300,000 was outstanding at September 30, 1996. The
purchase price is subject to adjustment, based on the results of the closing
balance sheet audit.
Following is summarized pro forma operating results assuming that the Company
had sold EML as of January 1, 1995.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
--------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $1,071,043 $1,210,053 $3,312,618 $3,367,845
(Loss) Income Before Taxes (76,332) 3,172 (101,534) 514
Net (Loss) Income (77,787) 3,053 (102,258) (229)
Net (Loss) Income Per Share $ (2.59) $ .10 $ (3.42) $ (.01)
Weighted Average Shares Outstanding 30,038 29,819 29,924 29,756
(In Thousands, Except Share Data)
</TABLE>
6
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
EML is not an incorporated entity for which historical financial statements were
prepared. The historical balances used in preparing the above proforma balances
represent combined balances obtained from the separate unaudited financial
statements for the individual entities comprising EML. The proforma results
include adjustments for general and administrative expenses that would not have
been eliminated due to the sale of EML. The proforma adjustments also include
adjustments for amortization of intangible assets and for interest expense on
debt repaid with a portion of the proceeds from the sale, net of the effect of
an interest rate increase resulting from the renegotiation of certain debt
agreements as a result of the sale.
6. Restructuring Charge
During the first six months of 1995, the Company recorded charges of $9,333,000
associated with resizing and restructuring several of the Company's operations.
The charge 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 a result of the Company's sale of EML (see Note 5), the Company's intentions
regarding its restructuring plan changed. In connection with such sale,
approximately $1,900,000 of the unused restructuring charge related to EML was
reversed and is offset against the loss on the sale of EML. The remaining
unused restructuring charge of approximately $2,200,000 was used to offset
severance costs associated with corporate downsizing as a result of the sale of
EML and for fees related to the sale. As of September 30, 1996, approximately
$1,057,000 of these charges remained in accrued liabilities.
7. Acquisitions
On January 31, 1994, the Company, through its wholly owned subsidiary, Merisel
FAB, acquired certain assets of the ComputerLand franchise and Datago
aggregation businesses 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. In the fourth quarter of 1995, the Company wrote down a portion of
these assets by $30,000,000 in recognition of an impairment loss. In the
quarter ended September 30, 1996, an additional impairment loss of $40,000,000
was recognized related to these assets.
7
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
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.
8. 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 the securitization 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 equity holders. This facility expires in
October 2000. As a result of the substantial losses incurred by the Company for
the three months and nine months ended September 30, 1996, Merisel Americas and
Merisel Capital Funding were required to, and did obtain, amendments and waivers
with respect to certain covenants under this facility.
Effective December 15, 1995, Merisel Canada, Inc. ("Merisel Canada") 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 extendible by notice from the securitization company, subject
to the Company's approval.
Effective October 16, 1995, Merisel U.K. Ltd. ("Merisel U.K.") entered into a
receivables purchase agreement with a securitization company to provide funding
for Merisel's U.K. subsidiary. This facility, including $26,300,000 outstanding
thereunder, was assumed by CHS in connection with the purchase of EML.
8
<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 September
30, 1996, the total amount outstanding under these facilities, excluding amounts
assumed by CHS, was $240,995,000. Fees incurred in connection with the sale of
accounts receivable under these three facilities for the three months and nine
months ended September 30, 1996 were $3,746,000 and $12,272,000, respectively,
compared to $2,652,000 and $7,747,000 incurred for the three months and nine
months ended September 30, 1995 and are recorded as other expense.
9. Debt
At September 30, 1996, the Company's subsidiaries, Merisel Americas and Merisel
Europe, Inc. ("Merisel Europe") had unsecured senior borrowing commitments,
which as amended, consisted of $86,000,000 of 9.58% senior notes (the "Senior
Notes") by Merisel Americas, and a $129,000,000 revolving credit agreement (the
Revolving Credit Agreement") by Merisel Americas and Merisel Europe, all of
which was outstanding. Advances under the Revolving Credit Agreement bear
interest at specific rates based upon market reference rates plus a specified
percentage. The average interest rate for the Revolving Credit Agreement at
September 30, 1996 was approximately 8.45%. In the three months and nine months
ended September 30, 1996, the Company paid a total of $15,000,000 and
$35,000,000, respectively, in aggregate scheduled amortization payments under
the Senior Notes and Revolving Credit Agreement.
On October 4, 1996, the Company amended the Senior Notes and the Revolving
Credit Agreement and used a portion of the proceeds received from the sale of
EML to permanently reduce the outstanding borrowings on the Senior Notes and the
Revolving Credit Agreement by $29,000,000 and $43,500,000, respectively,
resulting in a principal balance outstanding of $57,000,000 and $85,500,000,
respectively. As amended these agreements require that the Company make an
aggregate of five consecutive principal payments of $1,500,000 each, on the
fifth calendar day of each month from February through June, 1997 plus an
additional principal repayment of $7,500,000 on January 2, 1998. As amended,
the Senior Notes and Revolving Credit Agreement provide that if the Company
makes the June 30, 1997 interest payment on its 12.50% senior notes due December
31, 2004 (the "Notes") at any time before January 31, 1998, then the Company
shall make an aggregate principal repayment of an additional $40,000,000 on the
Senior Notes and the Revolving Credit Agreement. The Senior Notes and the
Revolving Credit Agreement are due in full on January 31, 1998. In addition, the
interest rate on the Senior Notes increased to 11.5% and the Revolving Credit
Agreement interest rate increased by 2.35%. The amendments also provide that
certain tax refunds and asset sale proceeds when received by the Company shall
be used to permanently prepay the Senior Notes and Revolving Credit Agreement.
The principal repayments will be shared ratably by the lenders under the
Revolving Credit Agreement and the holders of the Senior Notes.
9
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
The Senior Notes and the Revolving Credit 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. These agreements also require the Company or certain of its
subsidiaries to maintain certain specified financial ratios. Such financial
ratios include: interest coverage; minimum adjusted tangible net worth; minimum
earnings before interest, taxes, depreciation, amortization and securitization
expense; total debt equivalents to adjusted tangible net worth; inventory
turnover; minimum accounts payable; and minimum accounts payable to inventory.
As a result of the substantial losses incurred by the Company for the three
months and nine months ended September 30, 1996, the Company was required to
obtain, and did obtain waivers of various covenants, including financial ratio
covenants, contained in the Senior Notes and the Revolving Credit Agreement for
the Company's third fiscal quarter of 1996, and amendments of such covenants for
future periods.
At September 30, 1996, the Company had outstanding $125,000,000 principal amount
of the Notes due December 31, 2004. The Notes provide for an interest rate of
12.5% payable semiannually. By virtue of being an obligation of the Company, 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 investments, 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. Without
a restructuring or refinancing of the Company's debt, the Company may be unable
to make its June 30, 1997 interest payment on the Notes and the additional
$40,000,000 repayment on the Senior Notes and the Revolving Credit Agreement
required before such interest payment can be made. In addition, the restriction
on dividend payments contained in the Senior Notes 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 Notes agreement and the Revolving Credit Agreement,
payments of principal and interest on the Notes are prohibited.
At September 30, 1996 Merisel Americas had outstanding an aggregate of
$17,600,000 of privately placed subordinated notes (as amended, the
"Subordinated Notes"). The Subordinated Notes, as amended, provide for interest
at the rate of 11.78% per annum and are repayable in four remaining equal annual
installments with the next installment due January 1997. Commencing on
September 10, 1996, accrued interest on the Subordinated Notes is required to be
paid quarterly, rather than semi-annually. The Subordinated Notes agreement
contain 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 prohibit the payment of dividends. The Subordinated
Notes also incorporate the financial covenants contained in the Senior Notes
agreement and the Revolving Credit Agreement. In connection with the amendment
of the Revolving Credit Agreement and the Senior Notes described above, the
Company was required to obtain, and did obtain an amendment of the Subordinated
Note Purchase Agreement.
10
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
At September 30, 1996, the Company had promissory notes outstanding with an
aggregate balance of $10,528,000. Such 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 payments due at maturity. The
notes are collateralized by certain of the Company's real property and
equipment. In addition, the Company had a capitalized real property lease in
the amount of approximately $2,200,000, which was repaid on October 17, 1996. At
September 30, 1995, the Company and its subsidiaries had outstanding $59,186,936
under various unsecured lines of credit denominated in local currencies.
10. 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.
11. Supplemental Disclosure of Cash Flow Information
Cash paid (received) for interest and income taxes for the nine month periods
ended September 30, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
(In Thousands)
Interest $ 36,208 $29,498
Income taxes $(30,370) $ 7,034
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL; LOSS ON SALE OF ASSETS
- -------------------------------
Merisel, Inc. together with its subsidiaries ("Merisel" or the "Company") is a
leader in the distribution of computer 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 a
dedicated sales organization 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 computer
manufacturers, including Apple, Compaq, Hewlett-Packard and IBM, to a network of
approximately 730 independently owned computer product resellers in the United
States.
In April 1996, in order to comply with the requirements of its lenders, Merisel
developed a business plan for the remainder of fiscal 1996 that sought to
maximize cash flow by controlling costs, curtailing non-essential capital
expenditures, eliminating investments and disposing of assets. On October 4,
1996, Merisel completed the sale of substantially all of its European, Mexican
and Latin American businesses (such businesses are referred to herein as "EML")
to CHS Electronics, Inc. ("CHS"). The sale was effective as of September 27,
1996. A loss of $33,455,000, which includes approximately $7,400,000 of direct
costs, was recorded on such sale. The sale price, computed based on the
September 30, 1996 combined closing balance sheet of EML, was $149,500,000,
consisting of (i) $123,200,000 in cash, of which $16,500,000 is being retained
by CHS, subject to completion of the closing balance sheet audit of EML, and
(ii) the assumption of Merisel's European asset securitization agreement against
which $26,300,000 was outstanding at September 30, 1996. The purchase price is
subject to adjustment based on the results of the closing balance sheet. In
addition, in March 1996 the Company sold its Australian operations. Merisel's
only remaining investment outside of North America is a minority interest in a
distribution business in Russia.
As a result of these asset dispositions, Merisel is now a North American
distributor of computer hardware and software products. In 1995, the North
American Business (as defined below) produced $4.6 billion in revenue and the
Former Operations (as defined below) produced $1.4 billion in revenue. As the
North American Business represents the ongoing business of the Company, the
following discussion and analysis will compare the results of operations for the
three months and nine months ended September 30, 1996 for the North American
Business only. As used in this discussion and analysis, the term "North
American Business" refers to Merisel's United States, Canadian and FAB
operations, the term "Distribution Business" refers to Merisel's United States
and Canadian distribution businesses and the term "Former Operations" refers to
those operations disposed of by Merisel in 1996, namely EML and the Australian
operations.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 as Compared to the Three Months Ended
- ---------------------------------------------------------------------------
September 30, 1995.
- -------------------
The following table sets forth the unaudited results of operations for the North
American Business and for the Former Operations for the three months ended
September 30, 1996 and September 30, 1995.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
(In Thousands) (Unaudited) (In Thousands) (Unaudited)
North North
American Former Consolidated American Former Consolidated
Business Operations Total Business Operations Total
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,071,043 $322,489 $1,393,532 $1,210,052 $333,966 $1,544,018
Cost of Sales 1,035,252 301,087 1,336,339 1,144,350 310,415 1,454,765
---------- -------- ---------- ---------- -------- ----------
Gross Profit 35,791 21,402 57,193 65,702 23,551 89,253
SG&A Expenses 61,508 22,574 84,082 51,278 23,927 75,205
Impairment Loss 40,000 40,000
---------- -------- ---------- ---------- -------- ----------
Operating (Loss) Income
$ (65,717) $ (1,172) $ (66,889) $ 14,424 $ (376) $ 14,048
</TABLE>
For the quarter ended September 30, 1996, net sales for the North American
Business decreased by 11.5% from $1,210,052,000 in the quarter ended September
30, 1995 to $1,071,043,000 in the quarter ended September 30, 1996. Net sales
decreased by 14.5% in the United States, increased by 13.4% in Canada and
decreased by 14.3% in the Franchise and Aggregation Business. In the third
quarter of 1995, the North American Business sold approximately $156,000,000 of
Microsoft Windows'95 following its launch in August 1995. Without this
additional revenue, net sales would have decreased in the United States by 0.5%,
increased in Canada by 25.1% and decreased for the Franchise and Aggregation
Business by 14.3%. The Company also lost market share, in the North American
Business due to competitive pressure, liquidity constraints and cost controls
implemented by the Company, which curtailed sales growth. Canadian sales growth
in 1996 was positively impacted by reduced sales in 1995 related to Canada's
implementation of SAP software.
In the North American Business, hardware and accessories accounted for 80% of
net sales and software accounted for 20% of net sales in the third quarter of
1996, as compared to 71% and 29% for the same categories, respectively, in the
third quarter of 1995. Software sales were a larger percentage of total sales
in the prior year, primarily due to the Microsoft Windows'95 launch.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Gross profit for the North American Business decreased 45.5% from $65,702,000 in
1995 to $35,791,000 in 1996. Gross profit as a percentage of sales or gross
margin, decreased from 5.4% in 1995 to 3.3% in 1996. In 1995, the gross profit
as a percentage of sales for the Franchise and Aggregation Business and the
Distribution Business was 3.5% and 6.7%, respectively, compared to 3.5% and
3.3%, respectively, in 1996. The decrease in gross profit is in part
attributable to $13,400,000 related to customer dispute issues in the United
States and $9,600,000 of vendor reconciliation adjustments and other issues.
Without these items, gross profit as a percentage of sales would have been 5.5%
for the Distribution Business. The Company's Distribution Business continued to
experience competitive pricing pressures. The decrease in the Franchise and
Aggregation Business' gross profit as a percentage of sales is the result of
intense price competition.
Selling, general and administrative expenses for the North American Business
increased by 20.0% from $51,278,000 in the third quarter of 1995 to $61,508,000
in the third quarter of 1996. The $10,230,000 increase is due to severance
costs associated with carrying out the Company's 1996 business plan and
strategies, and to continuing professional fees and other costs to develop
business plans and strategies and to improve certain business processes.
Additionally, the Company incurred increased expenses associated with its new
computer operating system.
In the third quarter of 1996, Merisel recorded a $40,000,000 asset impairment
adjustment related to the goodwill associated with Merisel FAB. This writedown
of goodwill is in addition to the $30,000,000 writedown taken in the fourth
quarter of 1995. This additional writedown was a result of declining sales
growth, margins and earnings, and the resulting negative trend in projected cash
flows for the Franchise and Aggregation Business.
As a result of the above items, operating income for the North American Business
of $14,424,000 in the third quarter of 1995 decreased to an operating loss of
$65,717,000 in the third quarter of 1996.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Nine Months Ended September 30, 1996 as Compared to the Nine Months Ended
- -------------------------------------------------------------------------
September 30, 1995
- ------------------
The following table sets forth the unaudited results of operations for the North
American Business and for the Former Operations for the nine months ended
September 30, 1996 and September 30, 1995.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
(In Thousands) (Unaudited) (In Thousands) (Unaudited)
North North
American Former Consolidated American Former Consolidated
Business Operations Total Business Operations Total
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $3,312,618 $1,060,171 $4,372,789 $3,367,845 $1,010,931 $4,378,776
Cost of Sales 3,161,837 986,949 4,148,786 3,171,371 939,454 4,110,825
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit 150,781 73,222 224,003 196,474 71,477 267,951
SG&A Expenses 174,320 71,320 245,640 155,304 71,010 226,314
Restructuring charges 5,228 4,105 9,333
Impairment Loss 40,000 40,000
---------- ---------- ---------- ---------- ---------- ----------
Operating (Loss) Income
$ (63,539) $ 1,902 $ (61,637) $ 35,942 $ (3,638) $ 32,304
</TABLE>
For the nine months ended September 30, 1996, net sales for the North American
Business decreased by 1.6% from 3,367,845,000 in the nine months ended
September 30, 1995, to $3,312,618,000 in the nine months ended September 30,
1996. Net sales increased by 0.1% in the United States, increased by 7.3% in
Canada and decreased by 10.2% in the Franchise and Aggregation Business. In the
nine months ended September 30, 1995, the North American Business sold
approximately $156,000,000 of Microsoft Windows'95 following its launch in
August 1995. Without this additional revenue, net sales would have increased in
the United States by 5.8%, increased in Canada by 10.4% and decreased for the
Franchise and Aggregation Business by 10.2%. The Company also lost market share
in the North American Business due to competitive pressures, liquidity
constraints and cost controls implemented by the Company which curtailed sales
growth. Canadian sales growth in 1996 was positively impacted by reduced sales
in 1995 related to Canada's implementation of SAP software.
In the North American Business, hardware and accessories accounted for 80% of
net sales, and software accounted for 20% of net sales in the nine months ended
September 30, 1996, as compared to 75% and 25% for the same categories,
respectively, in the first nine months of 1995. Software sales were a larger
percentage of total sales in the prior year primarily due to the Microsoft
Windows'95 launch.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
Gross profit for the North American Business decreased 23.3% from $196,474,000
in 1995 to $150,781,000 in 1996. Gross profit as a percentage of sales or gross
margin, decreased from 5.8% in 1995 to 4.6% in 1996. In 1995, gross profit as a
percentage of sales for the Franchise and Aggregation Business and the
Distribution Business was 4.0% and 6.5%, respectively, compared to 3.6% and
4.8%, respectively, in 1996. The decrease in gross profit is in part
attributable to a $13,400,000 charge related to customer dispute issues in the
U.S. and $9,600,000 of vendor reconciliation adjustments and other issues in
Canada. Without these items, gross profit as a percentage of sales would have
been 5.3% for the Distribution Business. The Company's Distribution Business
continued to experience competitive pricing pressures. The decrease in the
Franchise and Aggregation Business' gross profit as a percentage of sales 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.
Selling, general and administrative expenses for the North American Business
increased by 12.2% from $155,304,000 in the nine months ended September 30, 1995
to $174,320,000 in the nine months ended September 30, 1996. The $19,016,000
increase is due to severance costs associated with carrying out the Company's
1996 business plan and strategy, professional costs incurred to prepare the
Company's business plans and strategies, and continuing professional fees and
other costs to improve certain business processes including the supplier account
reconciliation process. Additionally, the Company incurred increased expenses
associated with its new computer operating system.
In the third quarter of 1996, Merisel recorded a $40,000,000 asset impairment
adjustment related to the goodwill associated with Merisel FAB. This writedown
of goodwill is in addition to the $30,000,000 writedown taken in the fourth
quarter of 1995. This additional writedown was a result of declining sales
growth, margins and earnings, and the resulting negative trend in projected cash
flows for the Franchise and Aggregation Business.
As a result of the above items, operating income for the North American Business
of $35,942,000 in the nine months ended September 30, 1995 decreased to an
operating loss of $63,539,000 in the nine months ended September 30, 1996.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
INTEREST EXPENSE; OTHER EXPENSE; AND INCOME TAX PROVISION
Interest expense for the Company, including the Former Operations, decreased
14.4% from $11,229,000 in the quarter ended September 30, 1995 to $9,613,000 in
the quarter ended September 30, 1996 and remained level at 0.7% of net sales.
For the nine months ended September 30, 1996, interest expense decreased 6.0%
from $30,962,000 in 1995 to $29,085,000 in 1996 and remained unchanged at 0.7%
of net sales. The Company's average month-end borrowings increased 4% from
$384,000,000 in 1995 to $397,600,000 in 1996. The increase in average borrowings
in 1996 reflected primarily the need to finance higher levels of working capital
to support increased sales and the higher cash balance maintained by the
Company.borrowings in 1996 is primarily the result of the higher cash balances
maintained by the Company. The decrease in interest expense is primarily due to
lower interest expense related to customer flooring arrangements.
Other expenses for the Company, including Former Operations, increased from
$2,953,000 in the three months ended September 30, 1995 to $5,726,000 for the
same period in 1996. Other expenses for the Company, including the Former
Operations, increased from $9,774,000 in the nine months ended September 30,
1995, to $16,492,000 for the same period in 1996. The increase was primarily
attributable to fees incurred in connection with an increase in the Company's
trade receivable securitizations in 1996. The increase in securitization fees is
primarily attributable to an increase in the amount of net receivables sold. The
average month end proceeds from proceeds from accounts receivable sales under
all of the Company's various facilities increased from $150,000,000 in 1995
to $266,214,000 in 1996.
The income tax provision increased from a benefit of $1,777,000 for the nine
months ended September 30, 1995 to an expense of $1,341,000 for the same period
in 1996. The Company has not recognized a tax provision benefit with respect to
its current losses, due to having exhausted its ability to carryback those
losses and obtain refunds of taxes paid in prior years. Further, the Company has
recognized tax provision expense that primarily represents the establishment of
a valuation allowance against a previously recognized state deferred tax asset.
CONSOLIDATED LOSS
On a consolidated basis for the Company, including the Former Operations, net
loss increased from $6,655,000 in 1995 to $142,050,000 in 1996. Net loss per
share increased from $0.22 in 1995 to $4.75 in 1996.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
1996 BUSINESS PLAN
- ------------------
In April 1996, in order to comply with the requirements of its lenders, Merisel
developed a business plan for the remainder of fiscal 1996 that sought to
maximize cash flow by controlling costs, curtailing non-essential capital
expenditures, limiting investments and disposing of assets. On October 4, 1996,
the Company completed the sale of substantially all of the Company's European,
Mexican and Latin American businesses. Merisel applied $72,500,000 of the
proceeds from the sale of EML subsequent to the end of the quarter to
permanently reduce its outstanding senior bank debt and senior privately issued
debt. In connection with the sale, the Company also made several amendments to
its lending agreements. See "Liquidity and Capital Resources" below. Although
the sale of EML caused Merisel's third quarter net loss to increase by
$33,455,000, the Company has retained approximately $50,000,000 in cash from the
transaction, which provides additional working capital to fund the remaining
operations. See Notes 6 & 8 of Notes to Consolidated Financial Statements.
Following the sale of EML, the Company refocused its efforts on profitable
growth for its remaining North American distribution businesses. Merisel's 1996
business plan assumed that the Company would not return to profitability until
the fourth quarter of 1996. As the Company's focus changes from conserving cash
to managing for profitable growth, management continues to expect that Merisel
will return to profitability, if not by year end, within the next six months.
These expectations are based on the Company's ability to achieve expected sales
and gross margin levels and maintain the support of its trade creditors and
lenders.
Further, in light of the significant principal payments required by its lenders
in 1997, as well as other obligations described below, the Company may not be
able to finance its operations or amortize its debt in 1997 without either
refinancing or restructuring its borrowings or obtaining new sources of
financing, or some combination thereof, and there can be no assurance that it
will be able to accomplish such restructuring or refinancing. See "Liquidity
and Capital Resources" below.
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 related to the Company's ongoing supplier
account reconciliation process in Canada, to customer disputes or to the
impairment of long term assets; significant changes in payment terms to or
product availability from the Company's key vendors; any further unanticipated
charges associated with the Company's computer and operating systems; any asset
dispositions or potential restructurings; and any reduction in customer demand
or deterioration of margins.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has financed its growth and cash needs primarily through borrowings,
securitizations of its trade receivables and sales of assets.
Net cash provided by operating activities during the nine months ended September
30, 1996 was $43,106,000. The primary sources of cash from operating
activities were decreases in inventories, accounts receivable and income taxes
receivable of, $205,450,000, $103,639,000 and $30,913,000, respectively. The
primary uses of cash during the period were a net loss of $142,050,000 and a
decrease in accounts payable of $242,084,000. Decreased inventory and accounts
receivable levels resulted primarily from improved management of inventories and
collections. The decrease in inventories also contributed to the decrease in
accounts payable.
Net cash used for investing activities in 1996 was $6,159,000, consisting of
payment of the Company's earn out obligation under the ComputerLand Acquisition
of $13,409,000 and property and equipment expenditures of $9,052,000, partly
offset by proceeds from the sale of property and equipment of $5,976,000 and 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, purchase of warehouse and other equipment in North America, and
costs incurred in prior months, related to the development of computer systems
in the European operations that were sold at the end of the third quarter. In
addition, the Company has deferred non-essential capital expenditures to
maximize its cash flow in 1996. See "1996 Business Plan" above. The Company
intends to finance its anticipated capital expenditures with funds from existing
operations.
Net cash used in financing activities was $7,355,000, comprised primarily
of repayments of Senior Notes (as defined below) of $14,000,000, the payment of
the first installment of $4,400,000 of the Subordinated Notes (as defined
below), and repayment of $15,170,000 under other bank facilities, partially
offset by net borrowings under the Revolving Credit Agreement (as defined below)
of $26,000,000.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
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 the securitization 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 equity holders. This facility expires in
October 2000. As a result of the substantial losses incurred by the Company for
the three months and nine months ended September 30, 1996, Merisel Americas and
Merisel Capital Funding were required to obtain, and did obtain, amendments and
waivers with respect to certain covenants under this facility.
Effective December 15, 1995, Merisel Canada, Inc. ("Merisel Canada") 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 extendible by notice from the securitization company, subject
to the Company's approval.
Effective October 16, 1995, Merisel U.K. Ltd. ("Merisel U.K.") entered into a
receivables purchase agreement with a securitization company to provide funding
for Merisel's U.K. subsidiary. This facility, including $26,300,000 outstanding
thereunder, was assumed by CHS in connection with the purchase of EML.
Under these securitization facilities, the receivables are sold at face value
with payment of a portion of the purchase price being deferred. As of September
30, 1996, the total amount outstanding under these facilities, excluding amounts
assumed by CHS, was $240,995,450. Fees incurred in connection with the sale of
accounts receivable under these three facilities for the three months and nine
months ended September 30, 1996 were $3,746,000 and $12,273,000, respectively,
compared to $2,652,000 and $7,747,000 incurred for the three months and nine
months ended September 30, 1995 and are recorded as other expense.
At September 30, 1996, the Company's subsidiaries, Merisel Americas and Merisel
Europe, Inc. ("Merisel Europe") had unsecured senior borrowing commitments,
which as amended, consisted of $86,000,000 of 9.58% senior notes (the "Senior
Notes") by Merisel Americas, and a $129,000,000 revolving credit agreement (the
"Revolving Credit Agreement") by Merisel Americas and Merisel Europe, all of
which was outstanding. Advances under the Revolving Credit Agreement bear
interest at specific rates based upon market reference rates plus a specified
percentage. The average interest rate for the Revolving Credit Agreement at
September 30, 1996 was approximately 8.45%. In the three months and nine months
ended September 30,
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
1996, the Company paid a total of $15,000,000 and $35,000,000, respectively, in
scheduled amortization payments under the Senior Notes and the Revolving Credit
Agreement.
On October 4, 1996, the Company amended the Senior Notes and the Revolving
Credit Agreement and used a portion of the proceeds received from the sale of
EML to permanently reduce the outstanding borrowings on the Senior Notes and the
Revolving Credit Agreement by $29,000,000 and $43,500,000, respectively,
resulting in a principal balance outstanding of $57,000,000 and $85,500,000,
respectively. As amended these agreements require that the Company make an
aggregate of five consecutive principal payments of $1,500,000 each, on the
fifth calendar day of each month from February through June, 1997, plus an
additional principal repayment of $7,500,000 on January 2, 1998. As amended,
the Senior Notes and Revolving Credit Agreement provide that if the Company
makes the June 30, 1997 interest payment on the 12.50% Senior Notes due December
31, 2004 (the "Notes") at any time before January 31, 1998, then the Company
shall make an aggregate principal repayment of an additional $40,000,000 on the
Senior Notes and the Revolving Credit Agreement. The Senior Notes and the
Revolving Credit Agreement are due in full on January 31, 1998. In addition, the
interest rate on the Senior Notes increased to 11.5%. The Revolving Credit
Agreement interest rate increased by 2.35%. The amendments also provide that
certain tax refunds and asset sale proceeds when received by the Company shall
be used to permanently prepay the Senior Notes and Revolving Credit Agreement.
The principal repayments will be shared ratably by the lenders 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 lenders' collective commitments under the
Revolving Credit Agreement will be reduced by the ratable amounts without any
payment by the Company. The Company is also required to pay a commitment fee on
the unused available funds on the Revolving Credit Agreement.
The Senior Notes and the Revolving Credit 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. These agreements also require the Company or certain of its
subsidiaries to maintain certain specified financial ratios. Such financial
ratios include: interest coverage; minimum adjusted tangible net worth; minimum
earnings before interest, taxes, depreciation, amortization and securitization
expense; total debt equivalents to adjusted tangible net worth; inventory
turnover; minimum accounts payable; and minimum accounts payable to inventory.
As a result of the substantial losses incurred by the Company for the three
months and nine months ended September 30, 1996, the Company was required to
obtain, and did obtain waivers of various covenants, including financial ratio
covenants, contained in the Senior Notes and the Revolving Credit Agreement for
the Company's third fiscal quarter of 1996, and amendments of such covenants for
future periods.
At September 30, 1996, the Company had outstanding $125,000,000 principal amount
of the Notes due December 31, 2004. The Notes provide for an interest rate of
12.5% payable semiannually. By virtue of being an obligation of the Company, 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
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
subsidiaries and impose limitations on investments, 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. Without
a restructuring or refinancing of the Company's debt, the Company may be unable
to make its June 30, 1997 interest payment on the Notes and the additional
$40,000,000 repayment on the Senior Notes and the Revolving Credit Agreement
required before such interest payment can be made. In addition, the restriction
on dividend payments contained in the Senior Notes 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 holding Company. Further, in the event
of a default under the Senior Notes agreement and the Revolving Credit
Agreement, payments of principal and interest on the Notes are prohibited.
At September 30, 1996 Merisel Americas had outstanding an aggregate of
$17,600,000 of privately placed subordinated notes (the "Subordinated Notes").
The Subordinated Notes, as amended, provide for interest at the rate of 11.78%
per annum and are repayable in four remaining equal annual installments with the
next installment due January 1997. Commencing on September 10, 1996, accrued
interest on the Subordinated Notes is required to be paid quarterly, rather than
semi-annually. The Subordinated Notes contain 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 prohibit
the payment of dividends. The Subordinated Notes also incorporate the financial
covenants contained in the Senior Notes and the Revolving Credit Agreement. In
connection with the amendment of the Revolving Credit Agreement and the Senior
Notes described above, the Company was required to obtain, and did obtain, an
amendment of the Subordinated Note Purchase Agreement.
At September 30, 1996, the Company had promissory notes outstanding with an
aggregate balance of $10,528,000. Such 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 payments due at maturity. The
notes are collateralized by certain of the Company's real property and
equipment. In addition the Company had a capitalized real property lease in the
amount of approximately $2,200,000, which was repaid on October 17,1996. At
September 30, 1995 the Company and its subsidiaries had outstanding $59,186,936
under various unsecured lines of credit denominated in local currencies.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
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. As of September 30, 1996, the Vanstar payable,
including the extended amount, was $25,188,000. 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.
Further, in light of the significant principal payments required by its lenders
in 1997, as well as other obligations described above, the Company may not be
able to finance its operations or amortize its debt in 1997 without either
refinancing or restructuring its borrowings or obtaining new sources of
financing, or some combination thereof, and there can be no assurance that it
will be able to accomplish such restructuring or refinancing. See "1996
Business Plan" above.
SYSTEMS AND PROCESSES
- ---------------------
The Company began designing a new computer operating system in early 1993 and as
the first step in converting its North American operation converted its Canadian
operation 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. As the Company
implements its North American strategy, it intends to implement SAP in the
United States no sooner than 1998.
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.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
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 computer 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.
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" above.
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.
Historically, the Company has purchased foreign exchange contracts to minimize
foreign exchange transaction gains and losses. Currently such contracts are not
available to the Company. Accordingly, the Company may suffer a negative impact
on its results of operations or financial condition as a result of its inability
to hedge foreign exchange transactions.
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.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(continued)
COMPETITION
- -----------
Competition in the computer 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 and
liquidity resources than Merisel. Merisel's principal competitors include large
United States-based international distributors such as Ingram Micro, MicroAge
and Tech Data Corporation, national distributors such as Gates/Arrow and
regional distributors and franchisers. 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. Recently, some of these manufacturers have moved to increase their
channels of distribution. 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.
25
<PAGE>
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. On June 4, 1996, the Ninth Circuit heard oral argument regarding the
appeal.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.53 Employment Agreement, dated as of September 5, 1996, between
Merisel, Inc. and James D. Wittry.
10.54 Letter Agreement dated June 1, 1995 between Merisel Americas,
Inc. and Kristin M. Rogers.
10.55 Amendment to Letter Agreement dated April 9, 1996 between Merisel
Americas, Inc. and Kristin M. Rogers.
10.56 Amendment to Letter Agreement dated August 30, 1996 between
Merisel Americas, Inc. and Kristin M. Rogers.
10.57 Retention Agreement dated April 5, 1996 between Merisel, Inc. and
Kelly M. Martin.
10.58 Letter Agreement dated June 1, 1995 between Merisel Americas,
Inc. and Archie K. Miller.
26
<PAGE>
10.59 Amendment to Letter Agreement dated August 28, 1996 between
Merisel Americas, Inc. and Archie K. Miller.
10.60 Retention Agreement dated April 5, 1996 between Merisel, Inc. and
Bruce A. Zeedik.
10.61 Letter Agreement dated November 29, 1995 between Merisel, Inc.
and Timothy N. Jenson.
10.62 Amendment to Letter Agreement dated April 9, 1996 between
Merisel, Inc. and Timothy N. Jenson.
10.63 Amendment to Letter Agreement dated August 22, 1996 between
Merisel, Inc. and Timothy N. Jenson.
10.64 Amended and Restated Employment Agreement dated November 6, 1996,
between Susan J. Miller-Smith and Merisel, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
On October 18, 1996, the Company filed a Current Report on Form 8-K dated
October 18, 1996 consisting of Item 2 and Item 7, which included pro forma
financial information as of June 30, 1996 and for the six months ended June
30, 1996 and for the year ended December 31, 1995.
27
<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: November 15, 1996
Merisel, Inc.
By: /s/ James E. Illson
---------------------------
James E. Illson
Senior Vice President, Finance,
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
28
<PAGE>
EXHIBIT INDEX
Exhibits
10.53 Employment Agreement, dated as of September 5, 1996, between
Merisel, Inc. and James D. Wittry.
10.54 Letter Agreement dated June 1, 1995 between Merisel Americas,
Inc. and Kristin M. Rogers.
10.55 Amendment to Letter Agreement dated April 9, 1996 between Merisel
Americas, Inc. and Kristin M. Rogers.
10.56 Amendment to Letter Agreement dated August 30, 1996 between
Merisel Americas, Inc. and Kristin M. Rogers.
10.57 Retention Agreement dated April 5, 1996 between Merisel, Inc. and
Kelly M. Martin.
10.58 Letter Agreement dated June 1, 1995 between Merisel Americas,
Inc. and Archie K. Miller.
10.59 Amendment to Letter Agreement dated August 28, 1996 between
Merisel Americas, Inc. and Archie K. Miller.
10.60 Retention Agreement dated April 5, 1996 between Merisel, Inc. and
Bruce A. Zeedik.
10.61 Letter Agreement dated November 29, 1996 between Merisel, Inc.
and Timothy N. Jenson.
10.62 Amendment to Letter Agreement dated April 9, 1996 between
Merisel, Inc. and Timothy N. Jenson.
10.63 Amendment to Letter Agreement dated August 22, 1996 between
Merisel, Inc. and Timothy N. Jenson.
10.64 Amended and Restated Employment Agreement dated November 6, 1996,
between Susan J. Miller-Smith and Merisel, Inc.
27 Financial Data Schedule
29
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), is dated as
of September 5, 1996 and is between Merisel, Inc. (the
"Company"), a Delaware corporation ("Merisel"), and James D.
Wittry ("Executive"). As used herein, "Company" shall refer
to either Merisel or Merisel Americas, Inc. or both.
Merisel and Executive desire to set forth the terms and
conditions governing Executive's employment by the Company.
Accordingly, Executive and Merisel hereby agree as follows:
1. Term of Employment. Executive and Merisel agree
that Executive shall be employed by the Company and shall
serve in the capacity of Senior Vice President - Sales of
Merisel Americas, Inc. ("Americas"), under the terms and
conditions of this Agreement commencing as of August 29,
1996 and continuing for a three year period (such three year
period is referred to herein as the "Employment Term") or
until termination of Executive's employment pursuant to this
Agreement, and subject to renewal for additional periods as
may be mutually agreed by Merisel and Executive. The
original term and any renewal terms of this Agreement may be
sooner terminated as provided herein.
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
positions of Senior Vice - Sales of Americas. Executive
shall report to either the Chairman of the Board, the Chief
Executive Officer or the President of the Company, as
determined by the Company. 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.
3. Compensation. As compensation for services
rendered pursuant to this Agreement, Merisel shall pay (or
cause Americas to pay) to Executive, in installments
customary with Merisel's (or Americas, as the case may be)
standard payroll periods, base annual compensation of
$225,000 during the Employment Term, provided that the Board
of Directors (the "Board') may, in its sole discretion,
increase such base annual compensation as merited by the
performance of Executive. Merisel shall deduct from all
payments paid to Executive under this Agreement any required
amount for applicable income tax withholding or any other
required taxes or contributions.
4. Bonus and Additional Benefits. In addition to the
compensation to be paid to Executive pursuant to Section 3,
Merisel shall pay, reimburse or otherwise confer the
following items of benefit to Executive:
4.1 During the Employment Term, Executive shall be
eligible to receive an annual bonus of $112,500 based on the
Company's financial performance (the "Bonus Amount"). One
quarter of the Bonus Amount, that is $28,125 (the "Quarterly
Bonus Amount"), shall be earned and paid following each
<PAGE>
fiscal quarter in which Executive achieves his financial/
performance objectives for that quarter, which financial/
performance objectives shall be determined from time to time
by officer to whom Executive reports and Executive. Whether
or not such objectives are achieved, Merisel shall guarantee
to pay to Executive (a) 100% of his Quarterly Bonus Amount
for the third and fourth fiscal quarters of 1996 and for the
first fiscal quarter of 1997 (prorated in the case of the
third fiscal quarter of 1996 for time Executive is actually
employed at Merisel) and (b) 50% of his Quarterly Bonus
Amount for the second, third and fourth fiscal quarters of
1997.
4.2 Effective August 21, 1996, Merisel granted
Executive a nonqualified stock option (the "Option") to
purchase 75,000 shares of Merisel's Common Stock under
Merisel's 1991 Stock Option Plan. The Option is governed by
the Option Agreement issued to Executive.
4.3 In addition, Executive shall be eligible to
participate in all other benefit programs and plans that may
be afforded to senior management of the Company. Merisel
shall make contributions to such plans and arrangements on
behalf of Executive as shall be required or consistent with
the terms and conditions of such plans. Such plans and
programs may included, by way of example, deferred
compensation, group insurance benefits, long-term or
permanent disability insurance and major medical coverage.
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. Termination of Employment.
5.1 Notice. Executive may resign or Merisel may
terminate Executive's employment in either case prior to the
expiration of the Employment Term, upon 30 days written
notice by Executive or Merisel, as the case may be, to the
other party. Upon any such resignation or termination,
Merisel shall promptly pay Executive all salary and other
compensation, including amounts payable, if any, under
Section 3 and any unused vacation pay, earned by him through
the effective date of such termination or resignation.
5.2 Termination by Company.
(A) If there is a Covered Termination at any time
prior to the sixth month anniversary of Executive's
employment by the Company, then in addition to the amounts
due under Section 5.1:
(a) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the Covered
Termination equal to (i) one third (1/3) of Executive's
annual base salary as then in effect plus (ii) one third
(1/3) of the average of the annual performance bonus
received by the Executive over the three year period
preceding the effective date of the Covered Termination
(excluding from such calculation however, any performance
bonus that was paid on a guaranteed basis for any quarter
<PAGE>
after the first fiscal quarter of 1997 and was not earned as
a result of achievement of financial/ performance criteria);
and
(b) Company will reimburse Executive for the cost of
Executive's COBRA payments under Company's health insurance
plans for a period of three months following such Covered
Termination. The amount of such reimbursement will be
grossed up so that Executive will receive an amount equal to
the COBRA payments, after taking into account all applicable
taxes.
(B) If there is a Covered Termination at any time on
or after the sixth month anniversary of Executive's
employment by the Company, then Executive shall not be
entitled to any payments under Section 5.2 (A), and in
addition to the amounts due under Section 5.1:
(a) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the Covered
Termination equal to (i) one half (1/2)of Executive's annual
base salary as then in effect plus (ii) one half (1/2) of
the average of the annual performance bonus received by the
Executive over the three year period preceding the effective
date of the Covered Termination (excluding from such
calculation however, any performance bonus that was paid on
a guaranteed basis for any quarter after the first fiscal
quarter of 1997 and was not earned as a result of
achievement of financial/ performance criteria); and
(b) Company will reimburse Executive for the cost of
Executive's COBRA payments under Company's health insurance
plans for a period of six months following such Covered
Termination. The amount of such reimbursement will be
grossed up so that Executive will receive an amount equal to
the COBRA payments, after taking into account all applicable
taxes.
5.3 Termination Following a Sale. If there is a
Covered Termination (as defined below) within one year
following a Sale of the Company, then in addition to the
amounts due under Sections 5.1 and 5.2:
(a) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the Covered
Termination equal to (i) one half (1/2) of Executive's
annual base salary as then in effect plus (ii) one half
(1/2) times the average of the annual performance bonus
received by the Executive over the three year period
preceding the effective date of the Covered Termination
(excluding from such calculation however, any performance
bonus that was paid on a guaranteed basis for any quarter
after the first fiscal quarter of 1997 and was not earned as
a result of achievement of financial/ performance criteria);
(b) Company will reimburse Executive for the cost of
Executive's COBRA payments under Company's health insurance
plans for an additional three months following the period of
such reimbursement as provided in either Section 5.2 (A)(b)
<PAGE>
or Section 5.2 (B)(b). The amount of such reimbursement
will be grossed up so that Executive will receive an amount
equal to the COBRA payments, after taking into account all
applicable taxes; and
(c) Any remaining unvested portion of the Option shall
vest.
5.4 Voluntary Resignation by Executive. In the event
that Executive resigns without Good Reason (as defined
below) prior to the expiration of the Employment Term,
then, at the time the resignation 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 other than amounts due
under Section 5.1.
5.5 Definitions. (a) A "Sale" of the Company shall
have occurred if (i) any person, corporation, partnership,
trust, association, enterprise or group (collectively, an
"Entity") shall become the beneficial owner, directly or
indirectly, of outstanding capital stock of Merisel
possessing at least 50% of the voting power (for the
election of directors) of the outstanding capital stock of
Merisel, or (ii) there shall be a sale of all or
substantially all of Merisel's assets or Merisel shall merge
or consolidate with another corporation and the stockholders
of Merisel 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 of the purchasing, surviving or
parent corporation owned by the stock holders of Merisel
before the transaction.
(b) "Covered Termination" shall mean any
termination of the Executive's employment by Merisel that
occurs prior to completion of the Employment Term other than
as a result of (i) Termination for Cause, (ii) Executive's
death or permanent disability, or (iii) Executive's
resignation without Good Reason.
(c) A resignation by Executive shall be with "Good
Reason" if after a Sale of the Company, (A) there has been a
material reduction in Executive's job responsibilities from
those that existed immediately prior to the Sale, (B)
without Executive's prior written approval, the Company
requires Executive to be based anywhere other than the
Executive's then current location, or (C) a successor to all
or substantially all of the business and assets of the
Company fails to furnish Executive with the assumption
agreement required by Section 8 hereof.
(d) "Termination for Cause" shall mean if the Company
terminates Executive's employment for any of the following
reasons: Executive misconduct (misconduct shall mean
physical assault, falsification or misrepresentation of
facts on company records, fraud, dishonesty, creating or
contributing to unsafe working conditions, willful
destruction of company property or assets, or harassment of
<PAGE>
another Associate by Executive); or Executive conviction for
or a plea of nolo contendere by Executive to a felony or to
any crime involving moral turpitude.
6. Mitigation. Executive shall have no obligation to
mitigate the amount of any payment provided for in this
Agreement by seeking employment or otherwise. Executive
shall not be entitled to payment hereunder if Executive's
employment ceases as a result of Executive's death or
permanent disability.
7. Executive's Obligations.
7.1 Executive agrees that during the Employment Term
and for the Benefit Period (as defined below), Executive
will not directly or indirectly (a) engage in; (b) own or
control any debt equity, or other interest in (except as a
passive investor of less that 5% of the capital stock or
publicly traded notes or debentures of a publicly held
company); or (c) (1) act as director, officer, manager,
employee, participant or consultant to or (2) be obligated
to or connected in any advisory business enterprise or
ownership capacity with, any of Tech Data Corp., Ingram
Micro, Inc., Computer 2000 AG (C2000), Arrow Electronics,
Inc., Intelligent Electronics, Inc., MicroAge, Inc., Inacom
Corp., Compucom, Entex Information Services, Inc. or Vanstar
Corp. 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. As used herein, "Benefit Period" shall mean either
the 180 day period following Executive's receipt of payment
under Section 5.2 or the 365 day period following
Executive's receipt of payment under Section 5.3.
7.2 During the term of this Agreement, or if longer,
the Benefit Period, Executive will 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 September 1, 1996.
7.3 Within two weeks of the effective date of a Covered
Termination, and prior to receiving any severance
compensation from Company in respect of such Covered
Termination, whether under this Agreement or otherwise,
Executive will execute and deliver to Company a Release and
a Confidentiality Agreement, each substantially in the form
provided to Executive with this Agreement, with such changes
as Company might request.
7.4 In the event of any breach by Executive of the
restrictions contained in this Agreement, Company shall have
no further obligation to compensate Executive hereunder and
Executive acknowledges that the harm to Company cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, Executive agrees that, upon any
violation of such restrictions, Company shall be entitled to
preliminary and permanent injunctive relief in addition to
any other remedy, without the necessity of proving actual
damages.
<PAGE>
8. Assumption Agreement. In the event of a Sale of the
Company, 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.
9. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of Company, its successors and
assigns and to Executive; provided that Executive shall not
assign any of Executive's rights or duties under this
Agreement without the express prior written consent of
Company. This Agreement sets forth the parties' entire
agreement with regard to the subject matter hereof. No
other agreements, representations, or warranties have been
made by either party to the other with respect to the
subject matter of this Agreement. This agreement may be
amended only by a written agreement signed by both parties.
This Agreement shall be governed by and construed in
accordance with the laws of the State of California. Any
waiver by either party of any breach of any provision of
this Agreement shall not operate as or be construed as a
waiver of any subsequent breach. If any legal action is
necessary to enforce the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys'
fees in addition to any other relief to which that party may
be entitled.
WHEREOF, the parties hereto have executed this
Agreement, as of the day and year first written above.
MERISEL, INC.
By:/s/ Dwight A. Steffensen
Dwight A. Steffensen, Chief Executive Officer
"EXECUTIVE"
/s/ James D. Wittry
James D. Wittry
<PAGE>
June 1, 1995
Kris Rogers
Vice President
Merisel Americas, Inc.
200 Continental Blvd.
El Segundo, CA 90245
PERSONAL AND CONFIDENTIAL
Dear Kris:
In light of the ongoing search for a new president for
Merisel Americas, Inc. ("Americas"), I believe that it is a
good idea to set forth in writing the agreement we have
reached with respect to certain aspects of your employment
by Americas. Your employment status as an "at-will"
employee of Americas is not affected by this agreement.
Merisel retains the right to terminate your employment at
any time, with or without cause.
A. Salary and Bonus. Effective as of May 1, 1995,
your base salary will be increased to $166,000 per annum.
When Americas resumes paying performance bonuses, your bonus
target level will be set at $30,000 per annum.
B. Housing Allowance. Provided that you purchase a
new home in the Los Angeles area by January 1, 1996,
Americas will pay certain closing costs, grossed up to a net
tax amount, in connection with the purchase of your new
home. Such costs will be paid in accordance with Americas'
relocation policy. Under the relocation policy reimbursed
closing costs are loan origination fees or points up to 1%,
appraisal fees and credit reports, title search and
insurance, property transfer tax, deed stamps and recording
and transfer fees. In addition, Americas will loan you up to
$50,000 to help you finance your home purchase. Such loan
will be secured by a second deed of trust on your home and
will bear interest at the rate of 10% per annum. The
principal will be due upon certain events, including when
you sell or refinance your home or when your employment with
Americas terminates. Before the loan funds, you and your
husband will need to execute a promissory note and the deed
of trust. The form of promissory note is attached for your
review.
C. Severence Payments. We have agreed that if at any
time during the Applicable Time Period (as defined below),
Americas terminates your employment, without cause, then
Americas shall do the following:
<PAGE>
(a) Americas will pay you as severance compensation
(the "Severence Payment") an amount equal to (i) your annual
base salary as in effect on the date of such termination
(the "Determination Date") plus (ii) the amount of any
performance bonus payment earned and paid to you during the
fifty two weeks immediately prior to the Determination Date
plus (iii) an amount equal to the sales commissions paid to
you for the three fiscal quarters preceding the
Determination Date. The Severence Payment shall be paid to
you over a period of thirty eight weeks (the "Payment
Period"), one nineteenth (1/19) of which shall be paid every
two weeks in accordance with Americas' standard payroll
practices. The Payment Period shall commence on the first
Americas' payday following the Determination Date. In the
event that you die or become disabled during the Payment
Period, Americas agrees that it shall pay any Severence
Payment remaining unpaid as a death or disability benefit to
your estate on the same terms. Americas shall deduct from
the Severence Payment paid to you any required amounts for
social security, federal and state income tax withholding,
federal or state unemployment insurance contributions, and
state disability insurance;
(b) Americas will reimburse you for the cost of your
COBRA payments under Americas's health insurance plans
during the Payment Period. The amount of such reimbursement
will be grossed up so that you will receive an amount equal
to the COBRA payments, after taking into account all
applicable taxes;
(c) Americas will pay you for all unused accrued
vacation pay through the Determination Date; and
(d) Americas will recommend to the Merisel, Inc.'s
Option Committee for such Option Committee to cause all
unexpired and unvested options to purchase the stock of
Merisel, Inc. previously granted to you to vest as of the
Determination Date.
As used in this agreement, "Applicable Time
Period" shall mean the time of my current tenure as
President of Americas plus one year from the date that my
successor, as President of Americas, is hired. For purposes
of this agreement, your employment shall be considered to be
terminated without cause, if (i) your employment is
terminated for any reason, other than your misconduct
(misconduct includes, but is not limited to, physical
assault, insubordination, falsification or misrepresentation
of facts on company records, fraud, dishonesty, willful
destruction of company property or assets, or sexual
harassment of another Associate by you), poor job
performance, excessive absenteeism, abuse of sick time,
creating or contributing to unsafe working conditions,
violation of company policy or your conviction for or a plea
of nolo contendere by you to a felony or any crime involving
moral turpitude or (ii) there is a material reduction in
your job responsibilities, other than as a result of the
reasons listed in the preceding clause (i).
D. Your Obligations. In exchange for Americas
providing the above described benefits to you, you agree to
the following:
<PAGE>
(A) You agree to continue to observe and comply with
all company policies and all lawful and reasonable
directions and instructions during your employment by
Americas;
(B) You agree that during the Payment Period, you will
not directly or indirectly (a) engage in; (b) own or control
any debt equity, or other interest in (except as a passive
investor of less that 5% of the capital stock or publicly
traded notes or debentures of a publicly held company); or
(c) (1) act as director, officer, manager, employee,
participant or consultant to or (2) be obligated to or
connected in any advisory business enterprise or ownership
capacity with, 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 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;
(C) During the Payment Period, you will not solicit
the employment of or hire any person that is or was employed
by Merisel, Inc. or any of its subsidiaries at any time on
or after January 1, 1995;
(D) Within two weeks of the Determination Date and
prior to receiving any severance compensation from Americas,
you will execute and deliver to Americas a Release and a
Confidentiality Agreement, each substantially in the form
enclosed with this agreement, with such changes as Americas
might request; and
(E) In the event of any breach by you of the
restrictions contained in this agreement, Americas shall
have no further obligation to compensate you hereunder and
you acknowledge that the harm to Americas cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, you agree that, upon any
violation of such restrictions, Americas shall be entitled
to preliminary and permanent injunctive relief in addition
to any other remedy, without the necessity of proving actual
damages.
This agreement shall be binding upon and inure to
the benefit of Americas and you; provided that you shall not
assign any of your rights or duties under this agreement
without the express prior written consent of Americas. This
agreement sets forth our entire agreement with regard to the
subject matter hereof. No other agreements,
representations, or warranties have been made by either
party to the other with respect to the subject matter of
this agreement. This agreement may be amended only by a
written agreement signed by both of us. This agreement shall
be governed by and construed in accordance with the laws of
the State of California. Any waiver by either party of any
breach of any provision of this agreement shall not operate
as or be construed as a waiver of any subsequent breach. If
any legal action is necessary to enforce the terms of this
agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
<PAGE>
If you agree to the terms of this agreement and intend
to be bound by it, please so indicate by signing the
enclosed copy of this letter and returning it to me. Thank
you.
Sincerely,
/s/ Michael D. Pickett
Michael D. Pickett
President, Merisel Americas, Inc.
Accepted and agreed to:
/s/Kris Rogers
Kris Rogers
<PAGE>
August 30, 1996
Kris Rogers
Vice President
Merisel Americas, Inc.
200 Continental Blvd.
El Segundo, CA
PERSONAL AND CONFIDENTIAL
Dear Kris:
This letter amends that certain letter agreement
between you and Merisel Americas, Inc. ("Americas"), dated
June 1, 1995, as amended by that certain letter agreement
dated April 1, 1996 (as so amended, the "Letter Agreement").
Except as specifically amended hereby, the Letter Agreement
remains in full force and effect.
The definition of "Applicable Time Period" is hereby
amended to be the period commencing on the date hereof and
extending through March 31, 1998.
If you agree to the terms of this amendment to the
Letter Agreement and intend to be bound by the Letter
Agreement, as amended hereby, please so indicate by signing
the enclosed copy of this letter and returning it to me.
Thank you.
Sincerely,
/s/Dwight Steffensen
Dwight Steffensen
Chief Executive Officer.
Accepted and agreed to:
/s/ Kris Rogers
Kris Rogers
<PAGE>
August 30, 1996
Kris Rogers
Vice President
Merisel Americas, Inc.
200 Continental Blvd.
El Segundo, CA
PERSONAL AND CONFIDENTIAL
Dear Kris:
This letter amends that certain letter agreement
between you and Merisel Americas, Inc. ("Americas"), dated
June 1, 1995, as amended by that certain letter agreement
dated April 1, 1996 (as so amended, the "Letter Agreement").
Except as specifically amended hereby, the Letter Agreement
remains in full force and effect.
The definition of "Applicable Time Period" is hereby
amended to be the period commencing on the date hereof and
extending through March 31, 1998.
If you agree to the terms of this amendment to the
Letter Agreement and intend to be bound by the Letter
Agreement, as amended hereby, please so indicate by signing
the enclosed copy of this letter and returning it to me.
Thank you.
Sincerely,
/s/Dwight Steffensen
Dwight Steffensen
Chief Executive Officer.
Accepted and agreed to:
/s/ Kris Rogers
Kris Rogers
<PAGE>
RETENTION AGREEMENT
This Retention Agreement is dated as of April 5, 1996
and is between Merisel, Inc. (the "Company"), a Delaware
corporation, and Kelly M. Martin ("Associate").
The Company desires to retain Associate as the Vice
President and General Counsel of the Company. Accordingly,
Associate and the Company desire to set forth certain (i)
retention benefits to be paid to the Associate and (ii) the
terms and conditions of certain benefits to be paid to
Associate upon a termination of Associate's employment by
the Company. Accordingly, Associate and the Company hereby
agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Base Salary" shall mean Associate's annual base
salary as in effect on the date hereof, being $175,000, or
as the same may be increased (but not decreased) hereafter
from time to time, exclusive of any bonus or incentive
compensation, benefits (whether standard or special),
automobile allowances, relocation or tax equalization
payments, pension payments or reimbursements for
professional services.
(b) "Company" shall mean Merisel, Inc., a Delaware
corporation, and each of its successor enterprises that
result from any merger, consolidation, reorganization, sale
of assets or otherwise.
(c) A "Change of Control" shall have occurred 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 of
the purchasing, surviving or parent corporation owned by the
stock holders of the Company before the transaction.
(d) "Change of Control Covered Termination" shall
mean any cessation of the Associate's employment by the
Company that occurs after a Change of Control other than as
a result of (i) Termination for Cause, (ii) Associate's
death or permanent disability, or (iii) Associate's
resignation without Good Reason (as hereinafter defined).
(e) A resignation by Associate shall be with "Good
Reason" if (A) after a Change of Control the Company does
not offer and provide (for a period of at least one year) to
<PAGE>
Associate a part time position as General Counsel, with
hours, salary, benefits and responsibilities substantially
similar to Associate's hours, salary, benefits and
responsibilities as in effect on January 1, 1996, it being
noted for the sake of clarity that on January 1, 1996,
Associate was required to work on Mondays, Wednesdays and
Thursdays at a salary of $105,000 per annum, with full
benefits, or (B) prior to a Change of Control (i) without
Associate's written consent, there has been a material
reduction in Associate's job responsibilities from those
that existed on the date hereof, or (ii) there is a
reduction in Associate's Base Salary; or (C) either prior to
or after a Change of Control (i) without Associate's prior
written approval, the Company requires Associate to be based
anywhere other than the Associate's then current location,
it being understood that required travel on the Company's
business to an extent consistent with Associate's prior
business travel obligations does not constitute "Good
Reason", (ii) the Company ceases at any time and does not at
all times provide at least $1,000,000 of professional
liability insurance coverage for Associate, or (iii) a
successor to all or substantially all of the business and
assets of the Company fails to furnish Associate with the
assumption agreement required by Section 7 hereof.
(f) "Termination for Cause" shall mean if the Company
terminates Associate's employment for any of the following
reasons: Associate misconduct (misconduct includes physical
assault, insubordination, falsification or misrepresentation
of facts on company records, fraud, dishonesty, willful
destruction of company property or assets, or harassment of
another associate by Associate); excessive absenteeism;
abuse of sick time; or Associate conviction for or a plea
of nolo contendere by Associate to a felony or any crime
involving moral turpitude.
(g) "Expiration Date" shall mean April 30, 1997.
(h) "Covered Termination" shall mean any cessation
of the Associate's employment by the Company that occurs
prior to a Change of Control other than as a result of (i)
Termination for Cause, (ii) Associate's death or permanent
disability, or (iii) Associate's resignation without Good
Reason (as hereinafter defined).
2. Retention Bonus. In order to induce Associate to
remain as an employee of the Company, the Company agrees to
pay to Associate a bonus of $25,000 on September 1, 1996.
3. At-Will Employee. Subject to the express
provisions of this Agreement, the Company shall have no
obligation to retain or continue Associate as an employee
and Associate's employment status as an "at-will" employee
of Company is not affected by this Agreement.
4. Termination Benefits. (A) If a Change of Control
shall occur on or before the Expiration Date and if a Change
of Control Covered Termination shall occur within one year
after the Change of Control, then: (i) on the effective date
<PAGE>
of such Change of Control Covered Termination, the Company
shall make a lump sum payment to Associate equal to one half
of Associate's Base Salary; and (ii) the Company will
reimburse Associate for the cost of Associate's COBRA
payments (at the level of coverage, including dependent care
coverage, as in effect immediately prior to such Covered
Termination) under the Company's health insurance plans for
a six month period following the date of the Covered
Termination.
(B) If a Covered Termination shall occur prior to a
Change of Control and on or before the Expiration Date,
then: (i) on the effective date of such Covered Termination,
the Company shall make a lump sum payment to Associate equal
to one quarter of Associate's Base Salary; and (ii) the
Company will reimburse Associate for the cost of Associate's
COBRA payments (at the level of coverage, including
dependent care coverage, as in effect immediately prior to
such Covered Termination) under the Company's health
insurance plans for a three month period following the date
of the Covered Termination.
(C) The amount of any reimbursement for the cost of
COBRA payments upon either a Change of Control Covered
Termination or a Covered Termination will be grossed up so
that Associate will receive an amount equal to the COBRA
payments, after taking into account all applicable taxes.
The payments to be made to Associate upon a either a Change
of Control Covered Termination or a Covered Termination are
in addition to the payments made to employees by the Company
upon termination in the ordinary course, such as
reimbursement for business expenses and vacation pay through
the date of termination.
5. Withholding. Company shall deduct from all
payments paid to Associate 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.
6. Mitigation. Associate shall have no obligation to
mitigate the amount of any payment provided for in this
Agreement by seeking employment or otherwise.
6. Associate's Obligations. In exchange for Company
providing the above described benefits to Associate,
Associate agrees that prior to receiving any severance
compensation from Company in respect of such Covered
Termination, whether under this Agreement or otherwise,
Associate will execute and deliver to Company a Release and
a Confidentiality Agreement, each in the form provided to
Associate with this Agreement.
7. Assumption Agreement. 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 both this Agreement and that certain
Indemnity Agreement, dated as of August 1, 1994, between the
Company and Associate, both in the same manner and to the
<PAGE>
same extent that the Company would be required to perform
such agreements whether or not such succession had taken
place.
8. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of Company and Associate;
provided that Associate shall not assign any of Associate's
rights or duties under this Agreement without the express
prior written consent of Company. This Agreement sets forth
the parties' entire agreement with regard to the subject
matter hereof. No other agreements, representations, or
warranties have been made by either party to the other with
respect to the subject matter of this Agreement. This
agreement may be amended only by a written agreement signed
by both parties. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California. Any waiver by either party of any breach of any
provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach. If any
legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
This Agreement shall continue in effect until the
Expiration Date. IN WITNESS WHEREOF, the parties hereto
have executed this Agreement, as of the day and year first
written above.
MERISEL, INC.
By:/s/ Dwight Steffensen
Its:Chairman and CEO
"ASSOCIATE"
/s/ Kelly M. Martin
Kelly M. Martin
<PAGE>
June 1, 1995
Archie Miller
Vice President - Field Sales
Merisel Americas, Inc.
200 Continental Blvd.
El Segundo, CA 90245
PERSONAL AND CONFIDENTIAL
Dear Archie:
In light of the ongoing search for a new president for
Merisel Americas, Inc. ("Americas"), I believe that it is a
good idea to set forth in writing the agreement we have
reached with respect to certain aspects of your employment
by Merisel Americas, Inc. ("Americas"). Your employment
status as an "at-will" employee of Americas is not affected
by this agreement. Merisel retains the right to terminate
your employment at any time, with or without cause.
However, we have agreed that if at any time during the
Applicable Time Period (as defined below), Americas
terminates your employment, without cause, then Americas
shall do the following:
(a) Americas will pay you as severance compensation
(the "Severence Payment") an amount equal to (i) three-
quarters (3/4) of your annual base salary as in effect on
the date of such termination (the "Determination Date") plus
(ii) three-quarters (3/4) of the amount of any performance
bonus payment received by you at any time during the fifty
two weeks prior to the Determination Date. The Severence
Payment shall be paid to you over a period of thirty eight
weeks (the "Payment Period"), one nineteenth (1/19) of which
shall be paid every two weeks in accordance with Americas'
standard payroll practices. The Payment Period shall
commence on the first Americas' payday following the
Determination Date. In the event that you die or become
disabled during the Payment Period, Americas agrees that it
shall pay any Severence Payment remaining unpaid as a death
or disability benefit to your estate on the same terms.
Americas shall deduct from the Severence Payment paid to you
any required amounts for social security, federal and state
income tax withholding, federal or state unemployment
insurance contributions, and state disability insurance;
(b) Americas will reimburse you for the cost of your
COBRA payments under Americas's health insurance plans
during the Payment Period. The amount of such reimbursement
will be grossed up so that you will receive an amount equal
to the COBRA payments, after taking into account all
applicable taxes;
<PAGE>
(c) Americas will pay you for all unused accrued
vacation pay through the Determination Date; and
(d) Americas will recommend to the Merisel, Inc.'s
Option Committee for such Option Committee to cause the next
installment of unvested options to purchase the stock of
Merisel, Inc. previously granted to you to vest as of the
Determination Date.
As used in this agreement, "Applicable Time
Period" shall mean the time of my current tenure as
President of Americas plus one year from the date that my
successor, as President of Americas, is hired. For purposes
of this agreement, your employment shall be considered to be
terminated without cause, if (i) your employment is
terminated for any reason, other than your misconduct
(misconduct includes, but is not limited to, physical
assault, insubordination, falsification or misrepresentation
of facts on company records, fraud, dishonesty, willful
destruction of company property or assets, or sexual
harassment of another Associate by you), poor job
performance, excessive absenteeism, abuse of sick time,
creating or contributing to unsafe working conditions,
violation of company policy or your conviction for or a plea
of nolo contendere by you to a felony or any crime involving
moral turpitude or (ii) there is a material reduction in
your job responsibilities, other than as a result of the
reasons listed in the preceding clause (i).
In exchange for Americas providing the above described
benefits to you, you agree to the following:
(A) You agree to continue to observe and comply with
all company policies and all lawful and reasonable
directions and instructions during your employment by
Americas;
(B) You agree that during the Payment Period, you will
not directly or indirectly (a) engage in; (b) own or control
any debt equity, or other interest in (except as a passive
investor of less that 5% of the capital stock or publicly
traded notes or debentures of a publicly held company); or
(c) (1) act as director, officer, manager, employee,
participant or consultant to or (2) be obligated to or
connected in any advisory business enterprise or ownership
capacity with, 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 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;
(C) During the Payment Period, you will not solicit
the employment of or hire any person that is or was employed
by Merisel, Inc. or any of its subsidiaries at any time on
or after January 1, 1995;
(D) Within two weeks of the Determination Date and
prior to receiving any severance compensation from Americas,
you will execute and deliver to Americas a Release and a
<PAGE>
Confidentiality Agreement, each substantially in the form
enclosed with this agreement, with such changes as Americas
might request; and
(E) In the event of any breach by you of the
restrictions contained in this agreement, Americas shall
have no further obligation to compensate you hereunder and
you acknowledge that the harm to Americas cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, you agree that, upon any
violation of such restrictions, Americas shall be entitled
to preliminary and permanent injunctive relief in addition
to any other remedy, without the necessity of proving actual
damages.
This agreement shall be binding upon and inure to the
benefit of Americas and you; provided that you shall not
assign any of your rights or duties under this agreement
without the express prior written consent of Americas. This
agreement sets forth our entire agreement with regard to the
subject matter hereof. No other agreements,
representations, or warranties have been made by either
party to the other with respect to the subject matter of
this agreement. This agreement may be amended only by a
written agreement signed by both of us. This agreement shall
be governed by and construed in accordance with the laws of
the State of California. Any waiver by either party of any
breach of any provision of this agreement shall not operate
as or be construed as a waiver of any subsequent breach. If
any legal action is necessary to enforce the terms of this
agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
If you agree to the terms of this agreement and intend
to be bound by it, please so indicate by signing the
enclosed copy of this letter and returning it to me. Thank
you.
Sincerely,
/s/Michael D. Pickett
Michael D. Pickett
Accepted and agreed to:
/s/ Archie Miller
Archie Miller
<PAGE>
August 28, 1996
Archie Miller
Vice President and General Manager
Merisel Americas, Inc.
200 Continental Blvd.
El Segundo, CA 90245
PERSONAL AND CONFIDENTIAL
Dear Archie:
This letter amends that certain letter agreement
between you and Merisel Americas, Inc. ("Americas"), dated
June 1, 1995 (the "Letter Agreement"). Except as
specifically amended hereby, the Letter Agreement remains in
full force and effect.
The definition of "Applicable Time Period" is hereby
amended to be the period commencing on the date hereof and
extending through March 31, 1998.
Notwithstanding anything to the contrary contained in
the Letter Agreement, for purposes of the Letter Agreement,
as amended hereby, your employment shall be considered to be
terminated without cause, if (A) your employment is
terminated for any reason, other than your misconduct
(misconduct includes physical assault, insubordination,
falsification or misrepresentation of facts on company
records, fraud, dishonesty, willful destruction of company
property or assets, or harassment of another Associate by
you), excessive absenteeism, abuse of sick time or your
conviction for or a plea of nolo contendere by you to a
felony or any crime involving moral turpitude or (B) you
resign due to any of the following having occurred (i)
following an Americas Change of Control, there has been a
material reduction in your job responsibilities from those
that existed on the date hereof, it being understood that a
mere change in title alone shall not constitute a material
reduction in your job responsibilities, (ii) following an
Americas Change of Control, without your prior written
approval, you are required to be based anywhere other than
your current location, it being understood that required
business travel to an extent consistent with your current
business travel obligations does not constitute a
requirement that you be based somewhere other than your
current location, (iii) there has been a reduction in your
base salary, other than an across-the-board reduction in the
salary level of all of Americas' Vice Presidents in the same
percentage amount as part of a general salary level
reduction, or (iv) a successor to all or substantially all
of the business and assets of Americas' failed to furnish
you with the assumption agreement required below.
Retention Bonus. In order to induce you to remain as
an employee of Americas, Americas has guaranteed to pay you
50 % of your annual target bonus for 1996 (the "Guaranteed
Bonus"), a quarter of which Guaranteed Bonus shall be paid
<PAGE>
quarterly as provided in the next sentence. Accordingly,
provided that you continue to be employed by Americas on the
date that the earnings for the applicable fiscal quarter of
Merisel, Inc. are released (the "Earnings Release Date"),
Americas shall pay to you the Guaranteed Bonus for that
quarter on the next regularly scheduled payday following the
Earnings Release Date. The amount of Guaranteed Bonus paid
to you, that would not otherwise have been earned by you
based on performance, shall be excluded from the calculation
of the Severance Payment under the Letter Agreement.
Mitigation. You shall have no obligation to mitigate
the amount of any payment provided for in the Letter
Agreement, as amended hereby, by seeking employment or
otherwise.
Assumption Agreement. Americas 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 Americas, expressly to assume
and agree to perform the Letter Agreement, as amended
hereby, in the same manner and to the same extent that
Americas would be required to perform it whether or not such
succession had taken place.
An "Americas Change of Control" shall have occurred if
(i) any person, corporation, partnership, trust,
association, enterprise or group, other than Merisel, Inc.,
shall become the beneficial owner, directly or indirectly,
of outstanding capital stock of Americas possessing at least
50% of the voting power (for the election of directors) of
the outstanding capital stock of Americas, or (ii) there
shall be a sale of all or substantially all of Americas's
assets or Americas shall merge or consolidate with another
corporation and the stockholders of Americas 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 of
the purchasing, surviving or parent corporation owned by the
stock holders of Americas before the transaction. A "Company
Change of Control" shall have occurred 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 of
the purchasing, surviving or parent corporation owned by the
stock holders of the Company before the transaction. A
"Change of Control" shall be the first to occur of a Company
Change of Control or an Americas Change of Control.
<PAGE>
If you agree to the terms of this amendment to the
Letter Agreement and intend to be bound by the Letter
Agreement, as amended hereby, please so indicate by signing
the enclosed copy of this letter and returning it to me.
Thank you.
Sincerely,
/s/Ronald Rittenmeyer
Ronald Rittenmeyer
Chief Operating Officer and President.
Accepted and agreed to:
/s/ Archie Miller
- ------------------
Archie Miller
<PAGE>
RETENTION AGREEMENT
This Retention Agreement is dated as of April 5, 1996
and is between Merisel, Inc. (the "Company"), a Delaware
corporation, and the undersigned employee of the Company
("Associate").
The Company desires to retain Associate as an employee
of the Company. Accordingly, Associate and the Company
desire to set forth certain (i) retention benefits to be
paid to the Associate and (ii) the terms and conditions
governing Associate's employment by the Company following a
Change of Control (as defined below). Accordingly,
Associate and the Company hereby agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Base Salary" shall mean Associate's annual base
salary as in effect on the business day preceding a Change
of Control or as the same may be increased thereafter from
time to time, exclusive of any bonus or incentive
compensation, benefits (whether standard or special),
automobile allowances, relocation or tax equalization
payments, pension payments or reimbursements for
professional services.
(b) "Company" shall mean Merisel, Inc., a Delaware
corporation, and each of its successor enterprises that
result from any merger, consolidation, reorganization, sale
of assets or otherwise.
(c) A "Change of Control" shall have occurred 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 of
the purchasing, surviving or parent corporation owned by the
stock holders of the Company before the transaction.
(d) "Covered Termination" shall mean any cessation
of the Associate's employment by the Company that occurs
after a Change of Control other than as a result of (i)
Termination for Cause, (ii) Associate's death or permanent
disability, or (iii) Associate's resignation without Good
Reason (as hereinafter defined).
<PAGE>
(e) A resignation by Associate shall be with "Good
Reason" if after a Change of Control (i) there has been a
material reduction in Associate's job responsibilities from
those that existed immediately prior to the Change of
Control, it being understood that a mere change in title
alone shall not constitute a material reduction in
Associate's job responsibilities, (ii) without Associate's
prior written approval, the Company requires Associate to be
based anywhere other than the Associate's then current
location, it being understood that required travel on the
Company's business to an extent consistent with Associate's
business travel obligation prior to the Change of Control
does not constitute "Good Reason", (iii) there is a
reduction in Associate's Base Salary, except that an across-
the-board reduction in the salary level of all of the
Company's Associates in the same percentage amount as part
of a general salary level reduction shall not constitute
"Good Reason," or (iv) a successor to all or substantially
all of the business and assets of the Company fails to
furnish Associate with the assumption agreement required by
Section 7 hereof.
(f) "Termination for Cause" shall mean if the Company
terminates Associate's employment for any of the following
reasons: Associate misconduct (misconduct includes physical
assault, insubordination, falsification or misrepresentation
of facts on company records, fraud, dishonesty, willful
destruction of company property or assets, or harassment of
another associate by Associate); excessive absenteeism;
abuse of sick time; or Associate conviction for or a plea
of nolo contendere by Associate to a felony or any crime
involving moral turpitude.
(g) "Expiration Date" shall mean April 30, 1997.
2. Retention Bonus. In order to induce Associate to
remain as an employee of the Company, the Company shall
guarantee to pay Associate fifty percent (50%) of
Associate's annual target bonus for 1996 (the "Guaranteed
Bonus"), a quarter of which Guaranteed Bonus shall be paid
quarterly as provided in the next sentence. Accordingly,
provided that Associate continues to be employed by the
Company on the date that the earnings for the applicable
fiscal quarter of the Company are released (the "Earnings
Release Date"), the Company shall pay to the Associate the
Guaranteed Bonus for that quarter on the next regularly
scheduled payday following the Earnings Release Date;
provided, however, for the first fiscal quarter of 1996,
the "Earnings Release Date" shall be April 15, 1996.
3. At-Will Employee. Subject to the express
provisions of this Agreement, the Company shall have no
obligation to retain or continue Associate as an employee
and Associate's employment status as an "at-will" employee
of Company is not affected by this Agreement.
4. Change of Control Covered Termination. If a Change
of Control shall occur on or before the Expiration Date and
if a Covered Termination shall occur within one year after
the Change of Control, then: (A) on the effective date of
such Covered Termination, the Company shall make a lump sum
payment to Associate equal to (i) one half of Associate's
<PAGE>
Base Salary plus (ii) an amount equal to one-half (1/2)
times the annual performance bonus received by the
Associate, excluding Guaranteed Bonus, during the year
preceding the effective date of the Covered Termination; and
(B) the Company will reimburse Associate for the cost of
Associate's COBRA payments (at the level of coverage,
including dependent care coverage, as in effect immediately
prior to such Covered Termination) under the Company's
health insurance plans for a six month period following the
date of the Covered Termination. The amount of such
reimbursement will be grossed up so that Associate will
receive an amount equal to the COBRA payments, after taking
into account all applicable taxes. The payments to be made
to Associate upon a Covered Termination are in addition to
the payments made to employees by the Company upon
termination in the ordinary course, such as reimbursement
for business expenses and vacation pay through the date of
termination.
5. Withholding. Company shall deduct from all
payments paid to Associate 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.
6. Mitigation. Associate shall have no obligation to
mitigate the amount of any payment provided for in this
Agreement by seeking employment or otherwise.
6. Associate's Obligations. In exchange for Company
providing the above described benefits to Associate,
Associate agrees that prior to receiving any severance
compensation from Company in respect of such Covered
Termination, whether under this Agreement or otherwise,
Associate will execute and deliver to Company a Release and
a Confidentiality Agreement, each in the form provided to
Associate with this Agreement.
7. Assumption Agreement. 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.
8. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of Company and Associate;
provided that Associate shall not assign any of Associate's
rights or duties under this Agreement without the express
prior written consent of Company. This Agreement sets forth
the parties' entire agreement with regard to the subject
matter hereof. No other agreements, representations, or
warranties have been made by either party to the other with
respect to the subject matter of this Agreement. This
agreement may be amended only by a written agreement signed
by both parties. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California. Any waiver by either party of any breach of any
provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach. If any
legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to
<PAGE>
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
This Agreement shall continue in effect until the
Expiration Date. IN WITNESS WHEREOF, the parties hereto
have executed this Agreement, as of the day and year first
written above.
MERISEL, INC.
By:/s/Dwight Steffensen
Its:Chairman and CEO
"ASSOCIATE"
/s/Bruce Zeedik
Bruce Zeedik
Vice President and Corporate Controller
Print Name and Title
<PAGE>
November 29, 1995
Timothy Jenson
Vice President, Treasurer and Assistant Secretary
Merisel, Inc.
200 Continental Blvd.
El Segundo, CA 90245
PERSONAL AND CONFIDENTIAL
Dear Tim:
This letter sets forth the agreement we have reached
with respect to certain aspects of your employment by
Merisel, Inc. ("Merisel"). Your employment status as an "at-
will" employee of Merisel is not affected by this agreement.
Merisel retains the right to terminate your employment at
any time, with or without cause. However, we have agreed
that if at any time during the Applicable Time Period (as
defined below), Merisel terminates your employment, without
cause, then Merisel shall do the following:
(a) Merisel will pay you as severance compensation
(the "Severance Payment") an amount equal to your annual
base salary as in effect on the date of such termination
(the "Determination Date") plus an amount equal to the
amount of any performance bonus payment received by you at
any time during the fifty two weeks prior to the
Determination Date. The Severance Payment shall be paid to
you over a period of fifty two weeks (the "Payment Period"),
one twenty-sixth (1/26) of which shall be paid every two
weeks in accordance with Merisel's standard payroll
practices. The Payment Period shall commence on the first
Merisel payday following the Determination Date. In the
event that you die or become disabled during the Payment
Period, Merisel agrees that it shall pay any Severance
Payment remaining unpaid as a death or disability benefit to
your estate on the same terms. Merisel shall deduct from the
Severance Payment paid to you any required amounts for
social security, federal and state income tax withholding,
federal or state unemployment insurance contributions, and
state disability insurance;
(b) Merisel will reimburse you for the cost of your
COBRA payments under Merisel's health insurance plans during
the Payment Period. The amount of such reimbursement will
be grossed up so that you will receive an amount equal to
the COBRA payments, after taking into account all applicable
taxes;
(c) Merisel will pay you for all unused accrued
vacation pay through the Determination Date; and
<PAGE>
(d) Merisel will recommend to the Merisel, Inc.'s
Option Committee for such Option Committee to cause the next
installment of unvested options to purchase the stock of
Merisel, Inc. previously granted to you to vest as of the
Determination Date.
As used in this agreement, "Applicable Time
Period" shall mean the one year period commencing on the
date of this letter. For purposes of this agreement, your
employment shall be considered to be terminated without
cause, if (i) your employment is terminated for any reason,
other than your misconduct (misconduct includes, but is not
limited to, physical assault, insubordination, falsification
or misrepresentation of facts on company records, fraud,
dishonesty, willful destruction of company property or
assets, or sexual harassment of another Associate by you),
poor job performance (as defined in the then current Roles
and Responsibilities for your position), excessive
absenteeism, abuse of sick time, creating or contributing to
unsafe working conditions, violation of company policy or
your conviction for or a plea of nolo contendere by you to a
felony or any crime involving moral turpitude or (ii) there
is a material reduction in your job responsibilities, other
than as a result of the reasons listed in the preceding
clause (i).
In exchange for Merisel providing the above described
benefits to you, you agree to the following:
(A) You agree to continue to observe and comply with
all company policies and all lawful and reasonable
directions and instructions during your employment by
Merisel;
(B) You agree that during the Payment Period, you will
not directly or indirectly (a) engage in; (b) own or control
any debt equity, or other interest in (except as a passive
investor of less that 5% of the capital stock or publicly
traded notes or debentures of a publicly held company); or
(c) (1) act as director, officer, manager, employee,
participant or consultant to or (2) be obligated to or
connected in any advisory business enterprise or ownership
capacity with, 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 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;
(C) During the Payment Period, you will not solicit
the employment of or hire any person that is or was employed
by Merisel, Inc. or any of its subsidiaries at any time on
or after January 1, 1995;
(D) Within two weeks of the Determination Date and
prior to receiving any severance compensation from Merisel,
you will execute and deliver to Merisel a Release and a
Confidentiality Agreement, each substantially in the form
enclosed with this agreement, with such changes as Merisel
might request; and
<PAGE>
(E) In the event of any breach by you of the
restrictions contained in this agreement, Merisel shall have
no further obligation to compensate you hereunder and you
acknowledge that the harm to Merisel cannot be reasonably or
adequately compensated in damages in any action at law.
Accordingly, you agree that, upon any violation of such
restrictions, Merisel shall be entitled to preliminary and
permanent injunctive relief in addition to any other remedy,
without the necessity of proving actual damages.
This agreement shall be binding upon and inure to the
benefit of Merisel and you; provided that you shall not
assign any of your rights or duties under this agreement
without the express prior written consent of Merisel. This
agreement sets forth our entire agreement with regard to the
subject matter hereof. No other agreements,
representations, or warranties have been made by either
party to the other with respect to the subject matter of
this agreement. This agreement may be amended only by a
written agreement signed by both of us. This agreement shall
be governed by and construed in accordance with the laws of
the State of California. Any waiver by either party of any
breach of any provision of this agreement shall not operate
as or be construed as a waiver of any subsequent breach. If
any legal action is necessary to enforce the terms of this
agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
If you agree to the terms of this agreement and intend
to be bound by it, please so indicate by signing the
enclosed copy of this letter and returning it to me. Thank
you.
Sincerely,
/s/ James L. Brill
James L. Brill
Senior Vice President, Finance and
Chief Financial Officer
Accepted and agreed to:
/s/ Timothy Jenson
Timothy Jenson
<PAGE>
April 9, 1996
Timothy N. Jenson
Vice President, Treasurer and Assistant Secretary
Merisel, Inc.
200 Continental Blvd.
El Segundo, CA 90245
PERSONAL AND CONFIDENTIAL
Dear Tim:
This letter amends that certain letter agreement
between you and Merisel, Inc. ("Merisel"), dated November
29, 1995 (the "Letter Agreement"). Except as specifically
amended hereby, the Letter Agreement remains in full force
and effect.
Notwithstanding anything to the contrary contained in
the Letter Agreement, for purposes of the Letter Agreement,
as amended hereby, your employment shall be considered to be
terminated without cause, if (A) your employment is
terminated for any reason, other than your misconduct
(misconduct includes physical assault, insubordination,
falsification or misrepresentation of facts on company
records, fraud, dishonesty, willful destruction of company
property or assets, or harassment of another Associate by
you), excessive absenteeism, abuse of sick time or your
conviction for or a plea of nolo contendere by you to a
felony or any crime involving moral turpitude or (B) you
resign due to any of the following having occurred (i) there
has been a material reduction in your job responsibilities
from those that existed on the date hereof, (ii) without
your prior written approval, you are required to be based
anywhere other than your current location, it being
understood that required business travel to an extent
consistent with your current business travel obligations
does not constitute a requirement that you be based
somewhere other than your current location, (iii) there has
been a reduction in your base salary, other than an across-
the-board reduction in the salary level of all of Merisel's
Vice Presidents in the same percentage amount as part of a
general salary level reduction, or (iv) a successor to all
or substantially all of the business and assets of Merisel
fails to furnish you with the assumption agreement required
below.
<PAGE>
Retention Bonus. In order to induce you to remain as
an employee of Merisel, Merisel shall guarantee to pay all
of your annual target bonus for 1996 (the "Guaranteed Target
Bonus"), a quarter of which Guaranteed Target Bonus shall be
paid quarterly as provided in the next sentence.
Accordingly, provided that you continue to be employed by
Merisel on the date that the earnings for the applicable
fiscal quarter of Merisel are released (the "Earnings
Release Date"), Merisel shall pay to you the Guaranteed
Target Bonus for that quarter on the next regularly
scheduled payday following the Earnings Release Date;
provided, however, for the first fiscal quarter of 1996,
the "Earnings Release Date" shall be April 15, 1996 and the
Guaranteed Target Bonus shall be paid no later than the
second regularly scheduled payday following such date. The
amount of Guaranteed Target Bonus paid to you, that would
not have otherwise been earned by you, shall be excluded
from the calculation of the Severance Payment under the
Letter Agreement.
In addition, in order to induce you to remain as an
employee of Merisel, Merisel agrees to also pay to you a
bonus of $25,000 on each of June 1, 1996, September 1, 1996
and January 1, 1997, provided that you continue to be
employed by Merisel on such dates ("the Retention
Bonuses")(together with the Guaranteed Target Bonus, the
"Guaranteed Bonuses"). The amount of Retention Bonuses paid
to you shall be excluded from the calculation of the
Severance Payment under the Letter Agreement. Any unpaid
Guaranteed Bonuses will be paid to you in full upon any
termination without cause following a Change in Control.
Mitigation. You shall have no obligation to mitigate
the amount of any payment provided for in the Letter
Agreement, as amended hereby, by seeking employment or
otherwise.
Assumption Agreement. Merisel 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 Merisel, expressly to assume and
agree to perform the Letter Agreement, as amended hereby and
to further amend it so that it will not expire and the
minimum payout will always be at least 12 months of your
maximum compensation, and otherwise perform the terms in a
manner at least as favorable to you and at least to the same
extent that Merisel would be required to perform it whether
or not such succession had taken place.
A "Change of Control" shall have occurred 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
<PAGE>
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 of
the purchasing, surviving or parent corporation owned by the
stock holders of the Company before the transaction.
If you agree to the terms of this amendment to the
Letter Agreement and intend to be bound by the Letter
Agreement, as amended hereby, please so indicate by signing
the enclosed copy of this letter and returning it to me.
Thank you.
Sincerely,
/s/Dwight A. Steffensen
Dwight A. Steffensen
Chief Executive Officer
Accepted and agreed to:
/s/Timothy N. Jenson
Timothy N. Jenson
<PAGE>
August 22, 1996
Timothy Jenson
Vice President-Finance, Treasurer and Assistant Secretary
Merisel, Inc.
200 Continental Blvd.
El Segundo, CA 90245
PERSONAL AND CONFIDENTIAL
Dear Tim:
This letter amends that certain letter agreement dated
November 29, 1995 and that certain letter agreement dated
April 9, 1996 (together the "Letter Agreement") both of
which are between you and Merisel, Inc. ("Merisel). Except
as specifically amended hereby, the Letter Agreement remains
in full force and effect.
Notwithstanding anything to the contrary contained in
the Letter Agreement, for purposes of the Letter Agreement,
as amended hereby, the definition of Applicable Time Period
is hereby amended to mean a two year period commencing after
the date of this letter.
If you agree to the terms of this amendment to the
Letter Agreement and intend to be bound by the Letter
Agreement, as amended hereby, please so indicate by signing
the enclosed copy of this letter and returning it to me.
Thank you.
Sincerely,
/s/Dwight A. Steffensen
Dwight A. Steffensen
Chief Executive Officer
Accepted and agreed to:
/s/ Timothy N. Jenson
Timothy N. Jenson
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
("Agreement"), is dated as of November 6, 1996 and is
between Merisel, Inc. (the "Company"), a Delaware
corporation, Merisel Europe, Inc., a Delaware corporation
("Europe" and together with the Company, "Merisel") and
Susan J. Miller-Smith, an executive officer of the Company
("Executive"). This Agreement amends, restates and
replaces, in its entirety, that certain Amended and Restated
Employment Agreement dated as of July 15, 1996 between
Merisel and Merisel Canada, Inc. and Executive, and
supersedes that certain Retention Agreement dated as of
April 22, 1996 between the Company and Executive, and that
certain Letter Agreement between Executive and the Company
dated October 25, 1994.
Executive and Merisel desire to set forth certain of
the terms and conditions governing Executive's continued
employment by Merisel (as defined below). Accordingly,
Executive and Merisel hereby agree as follows:
1. Term of Employment. Executive and Merisel agree
that Executive shall be employed by Merisel and shall serve
in the capacities of (i) Managing Director of Europe and
(ii) Senior Vice President of the Company or (iii) such
other capacities as Executive and the Chief Executive
Officer of the Company shall mutually agree, under the terms
and conditions of this Agreement until February 1, 1998 or
until termination of Executive's employment pursuant to this
Agreement (the period commencing on the date hereof and
ending on February 1, 1998 is referred to as the "Employment
Term"), and 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.
2. Scope of Duties. Executive shall undertake and
assume the responsibility of performing for and on behalf of
Merisel those duties as shall be consistent with the
positions of Managing Director of Europe, Senior Vice
President of the Company or such other positions as
Executive and the Chief Executive Officer of the Company
shall mutually agree. Executive covenants and agrees that
at all times during the term of this Agreement, she shall
devote her substantially full-time and best efforts to the
execution of her duties pursuant hereto. Executive shall
report to either the Chairman of the Board, the Chief
Executive Officer or the President of the Company, as
determined by the Company. Merisel acknowledges and agrees
that Executive shall not be required to reside in any
particular location without her prior consent.
3. Compensation. As compensation for services
rendered pursuant to this Agreement, Merisel shall pay to
Executive, in installments customary with the Company's
standard payroll periods, base annual compensation of US$
250,000 during the Employment Term, provided that the Board
of Directors (the "Board') may, in its sole discretion,
increase such base annual compensation as merited by the
performance of Executive. Merisel shall deduct from all
payments paid to Executive under this Agreement any required
amount for applicable income tax withholding or any other
<PAGE>
required taxes or contributions. The amount of base annual
salary under this Section 3 to be paid to Executive is the
aggregate amount to be paid by Merisel and Merisel may elect
to allocate such payments among the Company and Europe, in
any amount it deems appropriate.
4. Bonus and Additional Benefits. In addition to the
compensation to be paid to Executive pursuant to Section 3,
Merisel shall pay, reimburse or otherwise confer the
following items of benefit to Executive:
4.1 Merisel shall pay the cost to relocate Executive
and Executive's immediate family to Toronto, Ontario,
Canada, grossed up so that Executive receives an amount
equal to the cost of such relocation, after taking into
account all applicable taxes. Provided, however, that the
amount of this relocation benefit and the particulars of the
relocation shall be in conformity with the Company's
relocation policy as then in effect. For example, Executive
may be required to use the least expensive available
carrier, air travel will be coach class and the Company may
pay the moving service directly or may require Executive to
use a moving service chosen by the Company. This
relocation benefit only covers the cost of moving Executive
and her family and does not cover any cost or loss Executive
may incur in the sale of Executive's home.
4.2 During the Employment Term, Executive shall be
eligible to receive an annual bonus of up to US$ 125,000 on
the basis of such criteria and financial/ performance
objectives as Executive and the Chief Executive Officer of
the Company shall mutually agree.
4.3 In addition, Executive shall be eligible to
participate in all other benefit programs and plans that may
be afforded to either senior management of the Company who
are resident in the location where Executive is resident.
Merisel shall make contributions to such plans and
arrangements on behalf of Executive as shall be required or
consistent with the terms and conditions of such plans.
Such plans and programs may included, by way of example,
deferred compensation, group insurance benefits, long-term
or permanent disability insurance and major medical
coverage. 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.
4.4 Merisel shall reimburse Executive for the cost of
Executive's preparing and filing the applicable personal
taxation forms for the 1996 tax year.
5. Termination of Employment.
5.1 Notice. Executive may resign or Merisel may
terminate Executive's employment in either case prior to the
expiration of the Employment Term, upon 30 days written
notice by Executive or Merisel, as the case may be, to the
other party. Upon any such resignation or termination,
Merisel shall promptly pay Executive all salary and other
<PAGE>
compensation, including amounts payable, if any, under
Section 3 and any unused vacation pay, earned by her through
the effective date of such termination or resignation.
5.2 Termination following a Sale. If there is a
Covered Termination (as defined below) within one year
following either (i) a Sale of the Company or (ii) October
4, 1996, then in addition to the amounts due under Section
5.1:
(a) Company shall make a lump sum payment to Executive
within two weeks of the effective date of the Covered
Termination equal to (i) Executive's annual base salary as
then in effect plus (ii) the average of the annual
performance bonus received by the Executive over the three
year period preceding the effective date of the Covered
Termination (excluding from such calculation however, any
performance bonus that was paid on a guaranteed basis and
was not earned as a result of achievement of financial/
performance criteria); and
(b) Company will recommend to the Company's Option
Committee for such Option Committee to cause all unvested
options to purchase the stock of the Company previously
granted to Executive to vest as of the date of such Covered
Termination (the benefits provided in the foregoing clauses
(a) and (b) are referred to herein as the "Severance
Benefit").
5.3 Voluntary Resignation by Executive. In the event
that Executive resigns without Good Reason (as defined
below) prior to August 1, 1997 and except as mutually agreed
with the Company's Chief Executive Officer pursuant to the
next sentence, then, at the time the resignation is
effective, all benefits and payments provided for hereunder
shall terminate, and, without limiting the foregoing,
Executive shall not be entitled to the Severance Benefit or
any other severance payment other than amounts due under
Section 5.1. In the event Executive and the Chief Executive
Officer of the Company mutually agree that Executive should
resign, then, at the time the resignation is effective, the
Company shall pay Executive the Severance Benefit and any
other amounts due under Section 5.1.
5.4 Definitions. (a) A "Sale" of a designated
corporation shall have occurred if (i) any person,
corporation, partnership, trust, association, enterprise or
group (collectively, an "Entity"), other than the Company or
any of its subsidiaries, shall become the beneficial owner,
directly or indirectly, of outstanding capital stock of such
designated corporation possessing at least 50% of the voting
power (for the election of directors) of the outstanding
capital stock of such designated corporation, or (ii) there
shall be a sale of all or substantially all of such
designated corporation's assets or such designated
corporation shall merge or consolidate with another
corporation and the stockholders of such designated
corporation 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 of the purchasing, surviving or
<PAGE>
parent corporation owned by the stock holders of such
designated corporation before the transaction.
(b) "Covered Termination" shall mean any
termination of the Executive's employment by the Company
that occurs prior to February 1, 1998 other than as a result
of (i) Termination for Cause, (ii) Executive's death or
permanent disability, or (iii) Executive's resignation
without Good Reason.
(c) A resignation by Executive shall be with "Good
Reason" if after a Sale of the Company or after a Sale of
Europe, (A) there has been a material reduction in
Executive's job responsibilities from those that existed
immediately prior to the Change of Control, (B) without
Executive's prior written approval, the Company requires
Executive to be based anywhere other than the Executive's
then current location, or (C) a successor to all or
substantially all of the business and assets of the Company
fails to furnish Executive with the assumption agreement
required by Section 8 hereof.
(d) "Termination for Cause" shall mean if the Company
terminates Executive's employment for any of the following
reasons: Executive misconduct (misconduct shall mean
physical assault, falsification or misrepresentation of
facts on company records, fraud, dishonesty, creating or
contributing to unsafe working conditions, willful
destruction of company property or assets, or harassment of
another Associate by Executive); or Executive conviction for
or a plea of nolo contendere by Executive to a felony or to
any crime involving moral turpitude.
6. Mitigation. Executive shall have no obligation to
mitigate the amount of any payment provided for in this
Agreement by seeking employment or otherwise, unless the
Company in its sole discretion determines that Executive's
choice of new employer following a Covered Termination is
detrimental to the Company. Executive shall not be entitled
to payment hereunder if Executive's employment ceases as a
result of Executive's death or permanent disability.
7. Executive's Obligations.
7.1 Executive agrees that during the Employment Term
and for a period of 180 days following receipt of a
Severance Benefit (the "Benefit Period"), Executive will not
directly or indirectly (a) engage in; (b) own or control any
debt equity, or other interest in (except as a passive
investor of less that 5% of the capital stock or publicly
traded notes or debentures of a publicly held company); or
(c) (1) act as director, officer, manager, employee,
participant or consultant (except as a officer, manager or
employee resident anywhere other than North America and with
responsibilities unrelated to North American operations) to
or (2) be obligated to or connected in any advisory business
enterprise or ownership capacity (except in an advisory
business capacity while Executive is resident anywhere other
than North America and related to operations located outside
of North America) with, any of Tech Data Corp., Ingram
Micro, Inc., Computer 2000 AG (C2000), Intelligent
Electronics, Inc., MicroAge, Inc., Inacom Corp., Compucom,
<PAGE>
Entex Information Services, Inc. or Vanstar Corp. 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.
7.2 During the term of this Agreement, or if longer,
the Benefit Period, Executive will 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, 1995.
7.3 Within two weeks of the effective date of a Covered
Termination, and prior to receiving any severance
compensation from Company in respect of such Covered
Termination, whether under this Agreement or otherwise,
Executive will execute and deliver to Company a Release and
a Confidentiality Agreement, each substantially in the form
provided to Executive with this Agreement, with such changes
as Company might request.
7.4 In the event of any breach by Executive of the
restrictions contained in this Agreement, Company shall have
no further obligation to compensate Executive hereunder and
Executive acknowledges that the harm to Company cannot be
reasonably or adequately compensated in damages in any
action at law. Accordingly, Executive agrees that, upon any
violation of such restrictions, Company shall be entitled to
preliminary and permanent injunctive relief in addition to
any other remedy, without the necessity of proving actual
damages.
8. Assumption Agreement. In the event of a Sale of the
Company, 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.
9. Miscellaneous. This Agreement shall be binding
upon and inure to the benefit of Company and Executive;
provided that Executive shall not assign any of Executive's
rights or duties under this Agreement without the express
prior written consent of Company. This Agreement sets forth
the parties' entire agreement with regard to the subject
matter hereof. No other agreements, representations, or
warranties have been made by either party to the other with
respect to the subject matter of this Agreement. This
agreement may be amended only by a written agreement signed
by both parties. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California. Any waiver by either party of any breach of any
provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach. If any
legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to any other relief
to which that party may be entitled.
<PAGE>
WHEREOF, the parties hereto have executed this
Agreement, as of the day and year first written above.
MERISEL, INC., for itself and on behalf of MERISEL EUROPE,
INC.
By:/s/ Dwight A. Steffensen
Dwight A. Steffensen, Chief Executive Officer
"EXECUTIVE"
/s/Susan J. Miller-Smith
Susan J. Miller-Smith
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR MERISEL, INC. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,923
<SECURITIES> 0
<RECEIVABLES> 338,069
<ALLOWANCES> 18,913
<INVENTORY> 278,165
<CURRENT-ASSETS> 643,797
<PP&E> 113,874
<DEPRECIATION> 50,266
<TOTAL-ASSETS> 762,444
<CURRENT-LIABILITIES> 463,255
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 12,984
<TOTAL-LIABILITY-AND-EQUITY> 762,444
<SALES> 4,372,789
<TOTAL-REVENUES> 4,372,789
<CGS> 4,148,786
<TOTAL-COSTS> 285,640
<OTHER-EXPENSES> 49,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,085
<INCOME-PRETAX> (140,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,050)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,050)
<EPS-PRIMARY> (4.75)
<EPS-DILUTED> (4.75)
</TABLE>
